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



FORM 10-Q

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended October 3, 2009Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934


For the transition period
from                                    to
Commission file number: 1-14330



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

Delaware

57-1003983(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer Identification No.)9335 Harris Corners Parkway, Suite 300
Charlotte, North Carolina(Address of principal executive offices)

28269(Zip Code)


Registrant's
telephone number, including area code:(704) 697-5100

Former name, former address and former fiscal year, if changed since last report:None

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes ý No. o

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o

Smaller reporting company o(Do not check if a smaller reporting company)


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

On November 8, 2009, there were 19,819,918 shares of Class A common stock, 84,188 shares of Class B common stock and 24,319 shares of
Class C common stock outstanding. No shares of Class D or Class E common stock were outstanding as of such date. The par value for each class of common stock is $.01 per share.



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POLYMER GROUP, INC.  INDEX TO FORM 10-Q



PageIMPORTANT INFORMATION REGARDING THIS FORM 10-Q


2PART I. FINANCIAL INFORMATION


3Item 1.

Financial Statements


3Item 2.

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


43Item 3.

Quantitative and Qualitative Disclosures About Market Risk


68Item 4.

Controls and Procedures


70PART II. OTHER INFORMATIONItem 1.

Legal Proceedings


72Item 1A.

Risk Factors


72Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


72Item 3.

Defaults Upon Senior Securities


72Item 4.

Submission of Matters to a Vote of Security Holders


72Item 5.

Other Information


72Item 6.

Exhibits


72Signatures


73


1

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Table of Contents

IMPORTANT INFORMATION REGARDING THIS FORM 10-Q

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

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

Safe Harbor-Forward-Looking Statements

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

Various
statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact are, or may be
deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
These forward-looking statements speak only as of the date of this report. Unless required by law, we do not undertake any obligation to update these statements and caution against any undue reliance
on them. These forward-looking statements are based on current expectations and assumptions about future events. Although management considers these expectations and assumptions to be reasonable, they
are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond
our control. See Item 1A. "Risk Factors" in our Annual Report on Form 10-K. There can be no assurance that these events will occur or that our results will be as anticipated.

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



2

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Table of Contents

ITEM 1.    FINANCIAL STATEMENTS

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

October 3,
2009

January 3,
2009ASSETSCurrent assets:Cash and cash equivalents

$
56,287

$
45,718Accounts receivable, net


127,375


125,818Inventories


101,139


107,685Deferred income taxes


2,864


1,826Other current assets


31,017


30,124Assets of discontinued operations





31,760Total current assets


318,682


342,931Property, plant and equipment, net


339,449


338,262Intangibles and loan acquisition costs, net


5,772


7,938Deferred income taxes


2,707


580Other assets


9,955


12,751Total assets

$
676,565

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

$
5,768

$
11,987Accounts payable and accrued liabilities


132,733


125,957Income taxes payable


6,388


4,266Current portion of long-term debt


13,706


9,173Liabilities of discontinued operations





7,863Total current liabilities


158,595


159,246Long-term debt


326,282


392,505Deferred income taxes


19,931


14,286Other noncurrent liabilities


40,789


43,214Total liabilities


545,597


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





Class A common stock19,802,047 and 19,400,455 issued and outstanding at October 3, 2009 and January 3, 2009, respectively


198


194Class B convertible common stock86,169 and 93,949 shares issued and outstanding at October 3, 2009 and January 3, 2009,
respectively


1


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





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





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





Additional paid-in capital


198,433


192,796Retained deficit


(102,044
)

(131,089
)Accumulated other comprehensive income


26,168


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


122,756


80,272Noncontrolling interests


8,212


12,939Total equity


130,968


93,211Total liabilities and equity

$
676,565

$
702,462


See Accompanying Notes.

3

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Table of Contents

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

Three Months
Ended
October 3, 2009

Three Months
Ended
September 27, 2008Net sales

$
223,022

$
284,121Cost of goods sold


175,832


243,583Gross profit


47,190


40,538Selling, general and administrative expenses


27,412


29,048Special charges, net


1,783


1,687Other operating (income) loss, net


(674
)

2,301Operating income


18,669


7,502Other expense (income):Interest expense, net


5,360


7,581Loss on extinguishment of debt


5,085


Foreign currency and other loss (gain), net


2,615


(3,205
)Income before income taxes and discontinued operations


5,609


3,126Income tax expense


2,117


2,542Income from continuing operations


3,492


584Discontinued operations:Income from operations of discontinued business


446


1,100Gain on sale of discontinued operations, net


8,473


Income from discontinued operations


8,919


1,100Net income


12,411


1,684Less: net (income) loss attributable to noncontrolling interests


2,833


1,738Net income attributable to Polymer Group, Inc.

$
15,244

$
3,422Earnings per common share attributable to Polymer Group, Inc. common shareholders:Basic:Continuing operations

$
0.32

$
0.12Discontinued operations


0.45


0.06Basic

$
0.77

$
0.18Diluted

$
0.77

$
0.18


See
Accompanying Notes.

4

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Table of Contents

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

Nine Months
Ended
October 3, 2009

Nine Months
Ended
September 27, 2008Net sales

$
639,072

$
812,418Cost of goods sold


499,897


686,051Gross profit


139,175


126,367Selling, general and administrative expenses


79,342


88,186Special charges, net


10,556


4,844Other operating (income) loss, net


(3,650
)

439Operating income


52,927


32,898Other expense (income):Interest expense, net


19,367


23,247Gain on reacquisition of debt


(2,431
)

Loss on extinguishment of debt


5,085


Foreign currency and other loss (gain), net


7,572


(2,805
)Income before income taxes and discontinued operations


23,334


12,456Income tax expense


10,256


7,711Income from continuing operations


13,078


4,745Discontinued operations:Income from operations of discontinued business


4,353


819Gain on sale of discontinued operations, net


8,473


Income from discontinued operations


12,826


819Net income


25,904


5,564Less: net (income) loss attributable to noncontrolling interests


3,141


1,662Net income attributable to Polymer Group, Inc.

$
29,045

$
7,226Earnings per common share attributable to Polymer Group, Inc. common shareholders:Basic:Continuing operations

$
0.83

$
0.33Discontinued operations


0.65


0.04Basic

$
1.48

$
0.37Diluted

$
1.48

$
0.37


See
Accompanying Notes.

5

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Table of Contents

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

Nine Months
Ended
October 3, 2009

Nine Months
Ended
September 27, 2008Operating activities:Net income attributable to Polymer Group, Inc.

$
29,045

$
7,226Adjustments to reconcile net income attributable to Polymer Group, Inc. to net cash provided by operating activities:Asset impairment charge


3,444


Deferred income taxes


2,938


3,156Depreciation and amortization


38,265


38,672Gain on reacquisition of debt


(2,431
)

Gain on sale of assets, net


(8,210
)

Non-cash write-off of loan acquisition costs


3,483


Non-cash compensation


2,775


2,695Changes in operating assets and liabilities:Accounts receivable, net


887


(18,710
)Inventories


9,143


(5,665
)Other current assets


(1,048
)

(5,226
)Accounts payable and accrued liabilities


(3,657
)

23,990Other, net


4,870


(11,751
)Net cash provided by operating activities


79,504


34,387Investing activities:Purchases of property, plant and equipment


(33,709
)

(28,414
)Proceeds from sale of assets


33,386


1,497Acquisition of intangibles and other


(176
)

(444
)Net cash used in investing activities


(499
)

(27,361
)Financing activities:Proceeds from borrowings


39,355


42,624Repayment of borrowings


(91,381
)

(53,950
)Reacquisition of debt


(12,333
)

Loan acquisition costs


(4,492
)

Net cash used in financing activities


(68,851
)

(11,326
)Effect of exchange rate changes on cash


415


200Net increase (decrease) in cash and cash equivalents


10,569


(4,100
)Cash and cash equivalents at beginning of period


45,718


31,698Cash and cash equivalents at end of period

$
56,287

$
27,598


See
Accompanying Notes.

6

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Table of Contents

POLYMER GROUP, INC.        Notes to Consolidated Financial Statements

Note 1. Principles of Consolidation and Financial Statement Information

Principles of Consolidation

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

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

The
accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements of the Company and related
notes contained in the Annual Report on Form 10-K for the period ended January 3, 2009. Certain information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the U.S. ("U.S. GAAP") have been condensed or omitted pursuant to applicable rules and regulations. In the judgment of
management, these unaudited interim consolidated financial statements include all adjustments of a normal recurring nature and accruals necessary for a fair presentation of such statements. The
results of operations for the interim period are not necessarily indicative of the results which may be realized for the full year. The Consolidated Balance Sheet data included herein as of
January 3, 2009 have been derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-K.

Reclassification

Certain amounts previously presented in the consolidated financial statements for prior periods have been reclassified to conform with
the current period presentation. See Note 17 "Discontinued Operations."

Adjustment for Out-of-Period Items

The accompanying unaudited interim consolidated financial statements for the three and nine month periods ended October 3, 2009
include certain out-of-period adjustments to correct certain profit sharing, noncontrolling interests, foreign currency, income taxes and expense accruals; such adjustments are
not considered material to the Company's consolidated financial statements for fiscal 2009 or prior periods. For the three months ended October 3, 2009, these adjustments have the effect of
increasing operating income by $0.7 million, reducing income tax expense in the amount of $0.9 million and reducing net income attributable to noncontrolling interests by
$3.0 million, resulting in an increase in net income attributable to Polymer Group, Inc. in the amount of $4.7 million.

For
the nine months ended October 3, 2009, these adjustments have the effect of reducingSelling, general and administrative
expensesby $0.5 million; increasing foreign currency expense, included inForeign currency and other loss (gain), netby
$0.2 million; reducingIncome tax expensein the amount of $1.5 million and reducing net income attributable to noncontrolling interests
by $0.4 million, resulting in an increase in net income attributable to Polymer Group, Inc. of $2.2 million. These adjustments resulted in a reduction in Income taxes payablein the
amount of $1.5 million; an increase inOther noncurrent liabilitiesof $0.7 million; an increase inAdditional paid-in capitalin the amount of approximately

7

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 1. Principles of Consolidation and Financial Statement Information (Continued)

$3.2 million;
a reduction inAccumulated other comprehensive incomein the amount of $0.7 million and a reduction in equity attributable
toNoncontrolling interestsby $2.1 million.

Revenue Recognition

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and the related disclosures within the accompanying notes. The accounting estimates that require management's most significant and subjective
judgments include the valuation of allowances for accounts receivable and inventory, the assessment of recoverability of long-lived assets, the recognition and measurement of
severance-related liabilities, the recognition and measurement of current and deferred income tax assets and liabilities (including the measurement of uncertain tax positions), the valuation and
recognition of share-based compensation, valuation of obligations under the Company's pension and retirement benefit plans and the fair value of financial instruments and non-financial
assets and liabilities. Actual results could differ from those estimates. These estimates are reviewed periodically to determine if a change is required.

Stock-Based Compensation

The Company accounts for stock-based compensation related to its employee share-based plans in accordance with the Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("Codification" or "ASC") Topic 718, "CompensationStock Compensation" ("ASC 718"). The compensation costs recognized are
measured based on the grant-date fair value of the award. Consistent with ASC 718, awards are considered granted when all required approvals are obtained and when the participant begins to
benefit from, or be adversely affected by, subsequent changes in the price of the underlying shares and, regarding awards containing performance conditions, when the Company and the participant reach
a mutual understanding of the key terms of the performance conditions. Additionally, accruals for compensation costs for share-based awards with performance conditions are based on the probable
outcome of such performance conditions. The Company has estimated the fair value of each stock option grant by using the Black-Scholes option-pricing model. Assumptions are evaluated and revised, as
necessary, to reflect market conditions and experience.

Special Charges

The Company records severance-related expenses once they are both probable and estimable in accordance with ASC 712,
"CompensationNonretirement Postemployment Benefits" ("ASC 712"), for severance provided under an ongoing benefit arrangement. One-time, involuntary benefit arrangements and
disposal costs, contract termination costs and other exit costs are accounted in accordance with ASC 420, "Exit or Disposal Cost Obligations" ("ASC 420"). The Company evaluates

8

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 1. Principles of Consolidation and Financial Statement Information (Continued)

impairment
of long-lived assets in accordance with ASC 360, "Property, Plant and Equipment" ("ASC 360").

Derivatives

The Company records all derivative instruments as either assets or liabilities on the balance sheet at their fair value in accordance
with ASC 815, "Derivatives and Hedging" ("ASC 815"). Changes in the fair value of a derivative are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. Ineffective portions,
if any, of all hedges are recognized in earnings.

As
more fully described in Note 11 "Derivative and Other Financial Instruments and Hedging Activities" to the consolidated financial statements, the Company, in the normal course
of business, periodically enters into derivative financial instruments, principally swaps and forward contracts, with high-quality counterparties as part of its risk management strategy.
These financial instruments are limited to non-trading purposes and are used principally to manage market risks and reduce the Company's exposure to fluctuations in foreign currency and
interest rates. Most interest rate swaps and foreign exchange forward contracts have been designated as cash flow hedges of the variability in cash flows associated with interest payments to be made
on variable rate debt obligations or fair value hedges of foreign currency-denominated transactions.

The
Company documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge
transactions and the methodologies that will be used for measuring effectiveness and ineffectiveness. This process includes linking all derivatives that are designated as cash flow or fair value
hedges to specific assets and liabilities on the balance sheet or to specific firm commitments. The Company then assesses, both at the hedge's inception and on an ongoing basis, whether the
derivatives that are used in hedging transactions are expected to be highly effective in offsetting changes in fair values or cash flows of hedged items. Such assessments are conducted in accordance
with the originally documented risk management strategy and methodology for that particular hedging relationship.

For
cash flow hedges, the effective portion of recognized derivative gains and losses reclassified from other comprehensive income is classified consistent with the classification of the
hedged item. For example, derivative gains and losses associated with hedges of interest rate payments are recognized inInterest expense, netin the
Consolidated Statements of Operations.

For
fair value hedges, changes in the value of the derivatives, along with the offsetting changes in the fair value of the underlying hedged exposure are recorded in earnings each period
inForeign currency and other (gain) loss, netin the Consolidated Statements of Operations.

Gain on Reacquisition of Debt

The Company, through its subsidiaries, may make market purchases of its first lien term loan under its credit facility (see
Note 7 "Debt") from its existing lenders at a discount to the carrying value of the debt. Under these agreements, to the extent of the amount of debt acquired, the Company's subsidiary will
acquire the rights and obligations of a lender under
the credit facility and the selling third-party lender will be released from its obligations under the credit facility. The Company accounts for such reacquisition of debt as a transfer of financial
assets resulting in a sale and derecognizes such liability in accordance with the authoritative literature and includes such amounts inGain on Reacquisition of
Debtin the Consolidated Statements of Operations.

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 1. Principles of Consolidation and Financial Statement Information (Continued)

Accumulated Other Comprehensive Income

Accumulated other comprehensive income of $26.2 million at October 3, 2009 consisted of $47.4 million of currency
translation gains (net of income taxes of $8.7 million), ($17.3) million of transition net assets, gains or losses and prior service costs not recognized as components of net periodic benefit
costs (net of income taxes of $1.1 million) and $(3.9) million of cash flow hedge losses. Accumulated other comprehensive income of $18.4 million at January 3, 2009 consisted of
$39.9 million of currency translation gains (net of income taxes of $6.9 million), ($17.0) million of transition net assets, gains or losses and prior service costs not recognized as
components of net periodic benefit costs (net of income taxes of $1.8 million) and $(4.5) million of cash flow hedge losses. Comprehensive income for the three months ended October 3,
2009 and September 27, 2008 amounted to $17.2 million and $7.0 million, respectively. Comprehensive income for the nine months ended October 3, 2009 and
September 27, 2008 amounted to $34.4 million and $7.7 million, respectively.

Recent Accounting Standards

In June 2009, the FASB issued authoritative guidance which established the ASC as the source of authoritative U.S. GAAP recognized by
the FASB to be applied to nongovernmental entities. Under the new guidance, as prescribed by ASC 105, "Generally Accepted Accounting Principles", accounting literature references in consolidated
financial statements issued beginning in the third quarter of fiscal 2009 will primarily reference sections of the Codification instead of a specific original accounting pronouncement. The Company
adopted the authoritative guidance in the third quarter of fiscal 2009.

In
December 2007, the FASB revised the authoritative guidance for business combinations. The guidance, as prescribed by ASC 805, "Business Combinations" ("ASC 805"), changes how an
entity accounts for the acquisition of a business. While ASC 805 retains the requirement to account for all business combinations using the acquisition method, the new guidance applies to a wider
range of transactions or events and requires, in general, acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed and noncontrolling ownership
interests held in the acquiree, among other items. The revised guidance eliminates the cost-based purchase method previously allowed under U.S. GAAP. The Company will apply the new
guidance to future business combinations. The revised guidance also introduced changes to certain provisions of the authoritative guidance related to income tax accounting. For reorganizations
undertaken before the adoption of the revised guidance, the release of a valuation allowance related to pre-confirmation net operating losses and deductible temporary differences related
to certain reorganizations are now being reported as a reduction to income tax expense. Similarly, adjustments to uncertain tax positions made after the confirmation date are now recorded in the
income statement.

In
September 2006, the FASB issued new guidance, as prescribed by ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"), which clarifies the definition of fair value whenever
another standard requires or permits assets or liabilities to be measured at fair value. Specifically, the standard clarifies that fair value should be based on the assumptions market participants
would use when pricing the asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820 does not expand the use of fair value
to any new circumstances, and must be applied on a prospective basis except in certain cases. The standard also requires expanded financial statement disclosures about fair value measurements,
including disclosure of the methods used and the effect on earnings.

ASC
820-10-55, was adopted by the Company as of January 4, 2009 for all nonfinancial assets and liabilities, except those that are recognized or disclosed
at fair value in the financial statements on a

10

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 1. Principles of Consolidation and Financial Statement Information (Continued)

recurring
basis (at least annually). Examples of items within the scope of ASC 820-10-55 are nonfinancial assets and nonfinancial liabilities initially measured at fair value
in a business combination (but not measured at fair value in subsequent periods), and long-lived assets, such as property, plant and equipment and intangible assets measured at fair value
for an impairment assessment under ASC 360.

The
partial adoption of ASC 820 on January 1, 2008 with respect to financial assets and financial liabilities recognized or disclosed at fair value in the financial statements on
a recurring basis did not have a material impact on the Company's consolidated financial statements. See Note 12 "Fair Value of Financial Instruments" for the fair value measurement disclosures
for these assets and liabilities.

ASC
820-10-65 provides additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased.
The ASC
820-10-65 also includes guidance on identifying circumstances that indicate a transaction is not orderly, and emphasizes that, regardless of whether the volume and level of
activity for an asset or liability have decreased significantly and regardless of which valuation technique was used, the objective of a fair value measurement under ASC 820, remains the
sameto estimate the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date under current
market conditions. The ASC also requires expanded disclosures. ASC 820-10-65 was effective for interim and annual periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. The Company adopted ASC 820-10-65 as of July 4, 2009 and applied its provisions prospectively by providing the
additional disclosures in its unaudited interim consolidated financial statements. See Note 12 "Fair Value of Financial Instruments" for additional information.

In
April 2009, guidance as prescribed by ASC 825, "Financial Instruments" ("ASC 825") was issued and requires, on an interim basis, disclosures about the fair value of financial
instruments for public entities. ASC 825 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An
entity may early adopt ASC 825 only if it concurrently adopts both ASC 320, "InvestmentsDebt and Equity Securities" and ASC 820-10-65. The Company adopted ASC 825
effective July 4, 2009 by providing the additional disclosures in its unaudited interim consolidated financial statements.

In
December 2007, the FASB issued authoritative guidance related to noncontrolling interests in consolidated financial statements, which changes the accounting for, and the financial
statement presentation of, noncontrolling equity interests in a consolidated subsidiary. Under the new guidance, as prescribed by ASC 810, "Consolidation" ("ASC 810") all entities are required to
report noncontrolling (minority) interests in subsidiaries as a component of consolidated equity in the consolidated financial statements. In addition, ASC 810 requires transactions between an entity
and noncontrolling interests that do not result in deconsolidation to be treated as equity transactions and provides new guidance on accounting for deconsolidation. The new guidance was effective for
fiscal years beginning on or after December 15, 2008 and applies prospectively from the effective date except for the presentation and disclosure requirements, which must be applied
retrospectively.

The
Company adopted the new guidance on January 4, 2009. Accordingly, the Company has adjusted its comparative consolidated financial statements presented as
follows:



11

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 1. Principles of Consolidation and Financial Statement Information (Continued)



In
March 2008, the FASB revised its guidance to expand the required disclosure framework for derivative instruments and hedging activities. The revised guidance, as prescribed by ASC
815, requires companies with derivative instruments to disclose information about how and why the Company uses derivative instruments; how the Company accounts for the derivative instruments and
related hedged items; and how derivative instruments and related hedged items affect the unaudited interim consolidated financial statements. The expanded disclosure guidance also requires the Company
to provide information about its strategies and objectives for using derivative instruments; disclose credit-risk-related contingent features in derivative agreements and
information about counterparty credit risk; and present fair value of derivative instruments and related gains and losses in a tabular format. The Company adopted the revised guidance as of
January 4, 2009 and applied its provisions prospectively by providing the additional disclosures in its unaudited interim consolidated financial statements.

In
April 2008, the FASB issued authoritative guidance for determining the useful life of recognized intangible assets and to improve consistency between the period of expected cash flows
used to measure the fair value of a recognized intangible asset and the useful life of the intangible asset. The guidance, as prescribed by ASC 275, "Risks and Uncertainties" and ASC 350,
"IntangiblesGoodwill and Other", requires that an entity consider its own historical experience in renewing or extending similar arrangements. However, the entity must adjust that
experience based on entity-specific factors. If the company lacks historical experience to consider for similar arrangements, it would consider assumptions that market participants would use about
renewal or extension, as adjusted for the entity-specific factors. The Company adopted the
guidance as of January 4, 2009. The Company capitalizes costs incurred to renew or extend the term of its intangible assets. In the nine-month periods ended October 3, 2009
and September 27, 2008, the Company incurred $0.2 million and $0.4 million, respectively, of renewal and extension costs for patents and trademarks related to several of its
products. The weighted-average period for amortizing the costs of patents and trademarks is six years. The Company currently expects to be able to continue to maintain these patents and trademarks and
thus does not anticipate any significant effect on its expected future cash flows related to those products.

In
December 2008, the FASB issued additional guidance regarding employers' disclosures about plan assets of a defined benefit pension or other postretirement plan. This guidance, as
prescribed by ASC 715, "CompensationRetirement Benefits", is effective for financial statements issued for fiscal years ending after December 15, 2009. The Company will adopt the
new guidance as of January 2, 2010. The adoption of this interpretation will increase the disclosures in the financial statements related to the assets of the Company's postretirement benefit
plans.

In
May 2009, the FASB issued authoritative guidance, as prescribed by ASC 855, "Subsequent Events", which established standards of accounting for events that occur after the balance
sheet date and disclosures of events that occur after the balance sheet date but before the financial statements are issued. The new guidance introduces new terminology, defines a date through which
management must evaluate subsequent events, and lists circumstances under which the Company must recognize and disclose subsequent events or transactions occurring after the balance sheet date. This
guidance was

12

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 1. Principles of Consolidation and Financial Statement Information (Continued)

effective
for interim or annual financial periods ending after June 15, 2009 and was applied by the Company as of July 4, 2009. The Company evaluated subsequent events through
November 12, 2009, the date on which this Quarterly Report on Form 10-Q was filed with the Securities and Exchange Commission.

In
August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05,Measuring Liabilities at Fair Value, to amend ASC
820 to clarify how entities should estimate the fair value of liabilities. ASC 820, as amended, includes clarifying guidance for circumstances in which a quoted price in an active market is not
available, the effect of the existence of liability transfer restrictions, and the effect of quoted prices for the identical liability, including when the identical liability is traded as an asset.
The amended guidance in ASC 820 on measuring liabilities at fair value is effective for the first interim or annual reporting period beginning after August 28, 2009, with earlier application
permitted. The Company does not believe that the adoption of the amended guidance in ASC 820 will have a significant effect on its consolidated financial statements.

In
October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13,Multiple-Deliverable Revenue Arrangementsa consensus of the
FASB Emerging Issues Task Force, to amend certain guidance in ASC 605,Revenue Recognition, 25, "Multiple-Element Arrangements".
The amended guidance in ASC 605-25: (1) modifies the separation
criteria by eliminating the criterion that requires objective and reliable evidence of fair value for the undelivered item(s), and (2) eliminates the use of the residual method of allocation
and instead requires that arrangement consideration be allocated, at the inception of the arrangement, to all deliverables based on their relative selling price. The amended guidance in ASC
605-25 is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early application and
retrospective application permitted. The Company expects to prospectively apply the amended guidance in ASC 605-25 beginning January 3, 2010. The Company does not believe that the
adoption of the amendments to ASC 605-25 will have a significant effect on its consolidated financial statements.

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

Accounts receivable potentially expose the Company to a concentration of credit risk. The Company provides credit in the normal course of business and performs ongoing credit evaluations
on its customers' financial condition, as deemed necessary, but generally does not require collateral to support such receivables. Customer balances are considered past due based on contractual terms
and the Company does not accrue interest on the past due balances. Also, in an effort to reduce its credit exposure to certain customers, as well as accelerate its cash flows, the Company has sold on
a non-recourse basis, certain of its receivables pursuant to factoring agreements. The provision for losses on uncollectible accounts is determined principally on the basis of past
collection experience applied to ongoing evaluations of the Company's receivables and evaluations of the risk of repayment. The allowance for doubtful accounts was approximately $8.7 million
and $8.1 million at October 3, 2009 and January 3, 2009, respectively, which management believes is adequate to provide for credit losses in the normal course of business, as well
as losses for customers who have filed for protection under bankruptcy laws. Once management determines that the receivables are not recoverable, the amounts are removed from the financial records
along with the corresponding reserve balance. Sales to the Procter & Gamble Company ("P&G") accounted for 10% and 11% of the Company's sales in the first nine months of fiscal 2009 and 2008,
respectively.

The
Company has entered into a factoring agreement to sell, without recourse or discount, certain U.S. company-based receivables to an unrelated third-party financial institution. Under
the current terms

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

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

of
this factoring agreement, the maximum amount of outstanding advances at any one time is $20.0 million, which limitation is subject to change based on the level of eligible receivables,
restrictions on concentrations of receivables and the historical performance of the receivables sold. Additionally, the Company has entered into a factoring agreement to sell without recourse or
discount, certain non-U.S. company-based receivables to an unrelated third-party financial institution. Under the terms of this factoring agreement, the maximum amount of outstanding
advances at any one time is $10.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical
performance of the receivables sold.

During
the first nine months of fiscal 2009, approximately $112.7 million of receivables have been sold under the terms of these factoring agreements, compared to approximately
$186.4 million during the first nine months of fiscal 2008. The year-to-year decrease in the amount of receivables sold under the terms of the factoring agreements was
due to lower selling prices in the first nine months of fiscal 2009 and the Company's decision to significantly curtail factoring of its U.S. company-based receivables during the third quarter of
fiscal 2009. The sale of these receivables accelerated the collection of the Company's cash and reduced credit exposure. Such sales of accounts receivable are reflected as a reduction of Accounts receivable,
netin the Consolidated Balance Sheets as they meet the applicable criteria noted in ASC 860, "Transfers and Servicing" ("ASC
860"), for financial instruments. The amount due from the factoring companies, net of advances received from the factoring companies, was $1.1 million and $6.1 million at
October 3, 2009 and January 3, 2009, respectively, and is shown inOther current assetsin the Consolidated Balance Sheets. The Company
pays factoring fees associated with the sale of receivables based on the dollar value of the receivables sold. Such fees, which are considered to be primarily related to the Company's financing
activities, are immaterial and are included inForeign currency and other loss, netin the Consolidated Statements of Operations.

Note 3. Special Charges, Net

The Company's operating income includesSpecial charges, netand this amount represents the consequences of corporate-level decisions or
Board of Directors actions, principally associated with initiatives attributable to restructuring and realignment of manufacturing operations and management structures and pursuit of certain
transaction opportunities. Additionally, the Company evaluates its long-lived assets for impairment whenever events or changes in circumstances, including the aforementioned, indicate that
the carrying amounts may not be recoverable. A summary of such charges, net is presented in the following table (in thousands):

Three Months
Ended
October 3,
2009

Three Months
Ended
September 27,
2008

Nine Months
Ended
October 3,
2009

Nine Months
Ended
September 27,
2008Asset impairment charges

$
251

$


$
3,444

$
Restructuring and plant realignment costs


1,266


1,512


6,754


4,262Other costs (credits)


266


175


358


582$
1,783

$
1,687

$
10,556

$
4,844


14

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 3. Special Charges, Net (Continued)

Asset impairment charges

During the third quarter of fiscal 2009, the Company recorded an additional non-cash impairment charge of
$0.2 million related to the write-down of certain assets held for sale in Neunkirchen, Germany to their estimated fair value less costs to sell. In accordance with ASC 360, assets
held for sale with a carrying value of $4.7 million were written down to their fair value of $2.9 million (net of costs to sell of $0.3 million).

During
the first six months of fiscal 2009, the Company recorded non-cash impairment charges of $3.2 million related to the write-down of certain property
and equipment to their estimated fair value less costs to sell. Of that total, $1.6 million related to the facility in North Little Rock, Arkansas, resulting from the Company's planned closure
of the facility consistent with its strategic direction. In accordance with ASC 360 regarding property, plant and equipment, certain of these assets, with a carrying value of $6.1 million, were
written down to their fair value of $4.5 million (net of costs to sell of $0.4 million). The remaining $1.6 million was related to the write-down of assets held for
sale in Neunkirchen, Germany to their estimated fair value less costs to sell.

See
Note 12 "Fair Value of Financial Instruments and Non-Financial Assets and Liabilities" for the fair value measurement disclosures related to these assets.

Restructuring and plant realignment costs

Accrued costs for restructuring and plant realignment efforts are included inAccounts payable and accrued
liabilitiesin the Consolidated Balance Sheets. These costs generally arise from restructuring initiatives intended to result in lower working capital levels and improved
operating performance and profitability through: (i) reducing headcount at both the plant and corporate levels and the realignment of management structures; (ii) improving manufacturing
productivity and reducing corporate costs; and (iii) rationalizing certain assets, businesses and employee benefit programs. The following table summarizes the components of the
accrued liability with respect to the Company's business restructuring activities as of, and for, the nine month period ended October 3, 2009 (in thousands):

Balance accrued at beginning of year

$
2,6722009 restructuring and plant realignment costs


6,754Cash payments


(7,173
)Adjustments


(8
)Balance accrued at end of period

$
2,245


The
restructuring and plant realignment costs in the third quarter of fiscal 2009 are comprised of: (i) $1.4 million of severance and other shut-down costs for
restructuring activities in the United States; and (ii) $0.1 million of net restructuring credit adjustments related to initiatives in Europe.

The
restructuring and plant realignment costs in the first nine months of fiscal 2009 are comprised of: (i) $3.1 million of severance and other shut-down costs
in Europe related to the ongoing restructuring efforts in the European operations; (ii) $2.3 million of severance and other shutdown costs related to the North Little Rock, Arkansas
facility; (iii) $1.1 million of severance and other shutdown costs related to other previously announced facility closings in the United States; and (iv) $0.2 million of
severance costs related to restructuring initiatives in Canada.

On
June 9, 2009, the Board of Directors of the Company approved a plan to consolidate its operations in the U.S. In June 2009, the Company communicated a plan to affected
employees that it

15

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 3. Special Charges, Net (Continued)

planned
to close the North Little Rock, Arkansas plant by the end of the first quarter of fiscal 2010 to better align the Company's capabilities with its long-term strategic direction and
reduce overall operating costs. The plant closing is expected to include the reduction of approximately 140 positions when such efforts are completed. During the first nine months of fiscal 2009, the
Company recognized $1.5 million of employee termination costs related to the planned closure of the North Little Rock plant. The Company estimates that it will recognize total cash
restructuring charges in fiscal 2009 and 2010 of approximately $17.0 million to $18.0 million, comprised of approximately $1.5 million related to employee termination expenses and
$15.5 million to $16.5 million for equipment relocation and associated shut-down costs.



The restructuring and plant realignment costs in the first nine months of fiscal 2008 totaled $4.3 million. This was comprised
of $3.3 million of equipment relocation, other shut-down costs and employee termination costs related to the previously announced closure of the Neunkirchen, Germany facility, which
ceased production activities as of September 29, 2007, $0.9 million of employee termination costs related to the closure of the Landisville, New Jersey plant, which was announced on
May 30, 2008, $0.5 million of costs related to a management restructuring within the Company's Latin America operations and $0.4 million of credits pertaining to ongoing
restructuring initiatives in the United States.

Note 4. Inventories

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

October 3,
2009

January 3,
2009Finished goods

$
50,242

$
50,382Work in process


13,788


16,805Raw materials and supplies


37,109


40,498$
101,139

$
107,685


Inventories
are net of reserves, primarily for obsolete and slow-moving inventories, of approximately $10.0 million and $11.2 million at October 3, 2009
and January 3, 2009, respectively. Management believes that the reserves are adequate to provide for losses in the normal course of business.

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 5. Intangibles and Loan Acquisition Costs

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

October 3,
2009

January 3,
2009Cost:Proprietary technology

$
2,857

$
2,667Loan acquisition costs


4,309


9,205Other


2,119


2,1539,285


14,025Less accumulated amortization


(3,513
)

(6,087
)$
5,772

$
7,938


In
September 2009, the Company amended its Credit Facility, which included a substantial modification to its first lien term loan, which modification has been treated as an
extinguishment of debt pursuant to ASC 470-50, "Debt". As a result, a portion of the unamortized loan acquisition costs associated with the November 2005 financing in the amount of
$3.5 million were written-off and, together with $1.6 million of third-party costs incurred in connection with the amendment, are included inLoss of
extinguishment of debtin the Consolidated Statement of Operations. In addition, approximately $2.6 million of financing costs associated with the amendment of the
Credit Facility were capitalized in the third quarter of fiscal 2009. See Note 7 "Debt" for additional disclosures related to the amendment to the Credit Facility.

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

Three Months
Ended
October 3,
2009

Three Months
Ended
September 27,
2008

Nine Months
Ended
October 3,
2009

Nine Months
Ended
September 27,
2008Amortization of:Intangibles with finite lives, included in selling, general and administrative expenses

$
174

$
160

$
501

$
478Loan acquisition costs included in interest expense, net


329


345


937


1,036Total amortization expense

$
503

$
505

$
1,438

$
1,514


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

Note 6. Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilitiesin the Consolidated Balance Sheets includes amounts payable to equipment suppliers of
$6.2 million as of October 3, 2009 and salaries, wages, incentive compensation and other fringe benefits of $14.7 million and $20.2 million as of October 3, 2009 and
January 3, 2009, respectively.

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 7. Debt

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

October 3,
2009

January 3,
2009Credit Facility, as defined below, interest rates for U.S. dollar borrowings are based on a specified base plus a specified margin; due in mandatory
quarterly payments of approximately $1.0 million, subject to additional payments from annual excess cash flows, as defined by the Credit Facility, and are subject to certain terms and conditions:First Lien Term Loan (Tranche 1)average interest at 2.52% and 3.72% as of October 3, 2009 and January 3, 2009,
respectively with any remaining unpaid balance due November 22, 2012

$
18,693

$
366,200First Lien Term Loan (Tranche 2)average interest at 7.00% as of October 3, 2009, with any remaining unpaid balance due
November 22, 2014


273,346


Argentine Facility:Argentine Peso Loaninterest at 18.85% as of October 3, 2009 and 14.50% at January 3, 2009, denominated in Argentine pesos
due in 26 remaining quarterly payments of approximately $0.2 million ($0.4 million for three quarterly payments in 2010) beginning in February 2010


6,235


7,170Argentine Peso Loan for working capitalinterest at 18.85% as of October 3, 2009 and 14.50% at January 3, 2009,
denominated in Argentine pesos due in 12 remaining quarterly payments of approximately $0.1 million ($0.2 million for three quarterly payments in 2010) beginning in January 2010


1,870


2,218United States Dollar Loaninterest at 3.53% as of October 3, 2009 and 5.72% at January 3, 2009, denominated in U.S.
dollars due in 26 remaining quarterly payments of approximately $0.9 million ($1.7 million per quarter in 2010) beginning in March 2010


25,880


25,880Mexico Term Loaninterest at 9.01% as of October 3, 2009; denominated in U.S. dollars due in 22 quarterly payments of
approximately $0.7 million that began in September 2009


13,841


Other


123


210339,988


401,678Less: Current maturities


(13,706
)

(9,173
)$
326,282

$
392,505


18

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 7. Debt (Continued)

Credit Facility

The Company's original credit facility (the "Credit Facility"), which was entered into on November 22, 2005 and amended as of
December 8, 2006, consisted of a $410.0 million first-lien term loan (the "Term Loan") and a $45.0 million secured revolving credit facility (the "Revolving Credit
Facility") maturing on November 22, 2010. In addition, the interest rate for both the Term Loan and the Revolving Credit Facility was based on a spread over the London Interbank Offered Rate
("LIBOR") of 2.25%, or 1.25% over a defined Alternate Base Rate. The Credit Facility also included customary representations and warranties, covenants and events of default, including, in certain
circumstances, acceleration of obligations thereunder upon an event of default.

On
September 17, 2009, the Company entered into Amendment No. 2 (the "Amendment") to the Credit Agreement. As a result of the Amendment, the Company extended the maturity
date of approximately $295.7 million of its then-outstanding $317.6 million Term Loan, to November 22, 2014. In addition, the maturity date of approximately
$30.0 million of its then available $45.0 million Revolving Credit Facility was extended to November 22, 2013 under certain circumstances summarized below. In conjunction with the
execution of the Amendment, the Company repaid approximately $24.0 million of net outstanding borrowings under the Term Loan.

The
Amendment also: (i) allows for additional Term Loan tranches that extend the maturity date of the Term Loan to November 22, 2014 at an interest rate of LIBOR plus 4.5%
(with a LIBOR floor of 2.5%); (ii) allows for additional Revolving Credit Facility tranches that extend the maturity date of the Revolving Credit Facility to November 22, 2013 at an
interest rate of LIBOR plus 4.5% (with a LIBOR floor of 2.5%). If outstanding borrowings under the original Term Loan tranche that matures November 22, 2012 exceed $10.0 million on
August 24, 2012, the new Revolving Credit Facility tranche will mature August 24, 2012; (iii) removes the requirement for future step downs or step ups in financial covenants;
(iv) establishes price protection for the new tranches requiring matching yields if any future tranches are established at yields at least 25 basis points above the current loan tranches;
(v) revised certain definitions and baskets related to permitted investments, acquisitions and assets sales; and (vi) required repayment of $24.0 million of net outstanding
borrowings under the Term Loan at the closing.

As
of October 3, 2009, the Term Loan consists of $18.7 million of net outstanding amounts maturing on November 22, 2012 ("Tranche 1 Term Loan") and
$273.3 million maturing on November 22, 2014 ("Tranche 2 Term Loan"). Similarly, the Revolving Credit Facility consists of $15.0 million maturing on November 22,
2010 ("Tranche 1 Revolver") and $30.0 million maturing on November 22, 2013 ("Tranche 2 Revolver"), under which, there were no amounts outstanding as of October 3,
2009. Interest will continue to be payable on a quarterly basis. Principal payments of $1.0 million will continue to be due quarterly.

All
borrowings under the Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of
the Company. The Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the Company, its domestic subsidiaries and certain of its
non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain non-domestic subsidiaries of the
Company, and (iii) a pledge of certain secured intercompany notes. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the Tranche 1 Revolver and
0.75% of the daily unused amount of the Tranche 2 Revolver. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective
date of the Credit

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 7. Debt (Continued)

Facility.
The Credit Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants, as well as default provisions
related to certain types of defaults by the Company or its subsidiaries in the performance of their obligations regarding borrowings in excess of $10.0 million. The Credit Facility requires
that the Company maintain a leverage ratio of not more than 3.50:1.00 as of October 3, 2009 and through the remaining term of the Credit Facility. The interest expense coverage ratio
requirement at October 3, 2009 and through the remaining term of the Credit Facility requires that it not be less than 3.00:1.00. The Company was in compliance with the financial covenants
under the Credit Facility at October 3, 2009. These ratios are calculated on a trailing four-quarter basis. As a result, any decline in the Company's future operating results will
negatively impact its coverage ratios. Although the Company expects to remain in compliance with these covenant requirements, the Company's failure to comply with these financial covenants, without
waiver or amendment from its lenders, could have a material adverse effect on its liquidity and operations, including limiting the Company's ability to borrow under the Credit Facility. On
August 21, 2009, the Company received a waiver from its lenders with respect to its requirement to furnish certain financial information related to the quarter ended July 4, 2009.
Further, the Company provided such information within the prescribed timeframe set-forth in the waiver and, accordingly, the Company was in compliance with its obligations under the Credit
Facility during third quarter of fiscal 2009.

The
Term Loan requires mandatory payments of approximately $1.0 million per quarter. Under the Amendment, the Company has the option to either prorate such principal payments
across the two tranches or to apply to the tranche with the earliest maturity date. In addition, the Credit Facility, as amended, requires the Company to use a percentage of proceeds from excess cash
flows, as defined by the Credit Facility and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility. Excess cash flows required to be
applied to the repayment of the Credit Facility are generally calculated as 50% of the net amount of the Company's available cash generated from operations adjusted for the cash effects of interest,
taxes, capital expenditures, changes in working capital and certain other items. The amount of excess cash flows for future periods is based on year-end results. Any such amount would be
payable in March 2010 and classified, in addition to the mandatory payments of approximately $1.0 million per quarter, in theCurrent portion of long-term
debtin the Consolidated Balance Sheets as of October 3, 2009. The Company currently estimates that there will not be any additional excess cash flow requirement with
respect to fiscal 2009. No additional amounts were required to be paid under the excess cash flow provisions of the Credit Facility with respect to fiscal 2008. The Company may, at its discretion and
based on projected operating cash flows, the current market value of the Term Loan and anticipated cash requirements, elect to make additional
repayments of debt under the Credit Facility in excess of the mandatory debt repayments and excess cash flow payments, or may reacquire its debt in conjunction with its debt repurchase program.

The
Company, through its subsidiaries, may make market purchases of the Term Loan under its Credit Facility from its existing lenders at a discount to the carrying value of its debt.
Under these agreements, to the extent of the amount of debt acquired, the Company's subsidiary will acquire the rights and obligations of a lender under the Credit Facility and the selling third-party
lender will be released from its obligations under the Credit Facility. The Company accounts for such reacquisition of debt as a transfer of financial assets resulting in a sale and derecognizes such
liability in accordance with the provisions of ASC 860. During the first quarter of fiscal 2009, the Company reacquired $15.0 million of debt, via cash payment, and recognized a gain on such
reacquisition of $2.4 million, net of the write-off

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 7. Debt (Continued)

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

The
interest rate applicable to borrowings under the Tranche 1 Term Loan and Tranche 1 Revolver is based on the three-month or the one-month LIBOR plus a
specified margin. The applicable margin for borrowings under both the Tranche 1 Term Loan and Tranche 1 Revolver is 225 basis points. Further, the Company may, from time to time, elect
to use an Alternate Base Rate for its borrowings under the Revolving Credit Facility and Term Loan based on the bank's base rate plus a margin of 75 to 125 basis points based on the Company's total
leverage ratio.

In
accordance with the terms of the Credit Facility, the Company maintained its position in an interest rate swap agreement originally entered into in February 2007. The agreement
effectively converted $240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085% and terminated on June 29, 2009. Additionally, in
February 2009, the Company entered into another interest rate swap agreement, which was effective June 30, 2009 and matures on June 30, 2011, and effectively converts
$240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 1.96%. These agreements are more fully described in Note 11, "Derivatives and
Other Financial Instruments and Hedging Activities" and Note 12, "Fair Value of Financial Instruments and Non-Financial Assets and Liabilities."

There
were no daily borrowings under the Revolving Credit Facility for the period from January 4, 2009 to October 3, 2009, and as of October 3, 2009 or
January 3, 2009. Subject to certain terms and conditions, a maximum of $25.0 million of the Credit Facility may be used for revolving letters of credit. As of October 3, 2009, the
Company has effectively reserved capacity under the Revolving Credit Facility in the amount of $2.7 million relating to standby and documentary letters of credit outstanding. These letters of
credit are primarily provided to certain administrative service providers. None of these letters of credit had been drawn on at October 3, 2009. As a result of the
Amendment, the Revolving Credit Facility matures in two tranches: $15.0 million on November 22, 2010 and $30.0 million on November 22, 2013.

As
of October 3, 2009, the Company also had other outstanding letters of credit in the amount of $3.3 million primarily provided to certain raw material vendors. None of
these letters of credit had been drawn on at October 3, 2009.

Subsidiary Indebtedness

In fiscal 2008, the Company's operations in Argentina entered into short-term credit facilities to finance working capital
requirements. The outstanding indebtedness under these short-term borrowing facilities was $5.8 million and $12.0 million as of October 3, 2009 and January 3,
2009, respectively. These facilities mature at various dates through March 2010. As of October 3, 2009, the average interest rate of these borrowings was 8.15%. Borrowings under these
facilities are included inShort-term borrowingsin the Consolidated Balance Sheets.

In
January 2007, the Company's subsidiary in Argentina entered into an arrangement with banking institutions in Argentina to finance the installation of a new spunmelt line at the joint
venture facility near Buenos Aires, Argentina. The maximum borrowings available under the arrangement, excluding any interest added to principal, amount to 26.5 million Argentine pesos with
respect to an Argentine peso-denominated loan and $30.3 million with respect to a U.S. dollar-denominated loan and are secured by pledges covering (i) the subsidiary's
existing equipment lines; (ii) the outstanding stock of

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 7. Debt (Continued)

the
subsidiary; and (iii) the new machinery and equipment being purchased, as well as a trust assignment agreement related to a portion of receivables due from certain major customers of the
subsidiary. As of October 3, 2009, the outstanding indebtedness was approximately $34.0 million, consisting of $8.1 million Argentine peso-denominated loans and a
$25.9 million U.S. dollar-denominated loan. As of January 3, 2009, the outstanding indebtedness was approximately $35.3 million, consisting of $9.4 million Argentine
peso-denominated loans and a $25.9 million U.S. dollar-denominated loan. Current maturities of this debt amount to $6.9 million as of October 3, 2009. The interest
rate applicable to borrowings under these term loans is based on LIBOR plus 290 basis points for the U.S. dollar-denominated loan and Buenos Aires Interbanking Offered Rate plus 475 basis points for
the Argentine peso-denominated loan. Principal and interest payments began in July 2008 with the loans maturing as follows: approximately $1.9 million in September 2012,
approximately $25.9 million in April 2016 and the balance of $6.2 million maturing in May 2016.

In
April 2009, the Company amended its Argentine Facility to effectively defer 2009 scheduled payments under the facility for a period of twelve months; accordingly, the Company has
classified previously scheduled current maturities, in the amount of $2.4 million, as long-term debt in its Consolidated Balance Sheet as of October 3, 2009 consistent with
the provisions of ASC 470.

In
March 2009, the Company's subsidiary in Mexico entered into a term credit facility (the "Mexico Credit Facility") with a banking institution in Mexico to finance a portion of the
installation of a new spunmelt line near San Luis Potosi, Mexico. The maximum borrowings available under the Mexico Credit Facility, excluding any interest added to principal, amount to
$14.5 million with respect to a U.S. dollar-denominated loan and are secured by pledges covering (i) the subsidiary's existing equipment lines; and (ii) the new machinery and
equipment being purchased. The interest rate applicable to borrowings under the Mexico Credit Facility is based on one-month LIBOR plus 780 basis points. A series of 22 quarterly principal
payments commenced on October 1, 2009; interest payments commenced on July 1, 2009. As of October 3, 2009, outstanding indebtedness under the Mexico Credit Facility was
approximately $13.8 million.

Note 8. Income Taxes

During the three and nine months ended October 3, 2009, the Company recognized income tax expense of $2.1 million and $10.3 million, respectively, on consolidated
income before income taxes from continuing operations of $5.6 million and $23.3 million. During the three and nine months ended September 27, 2008, the Company recognized income
tax expense of $2.5 million and $7.7 million, respectively, on consolidated income before income taxes from continuing operations of $3.1 million and $12.5 million,
respectively. The Company's income tax expense in any period is different than such expense determined at the U.S. federal statutory rate primarily due to losses in certain jurisdictions for which no
income tax benefits are anticipated, foreign withholding taxes for which tax credits are not anticipated, U.S. state income taxes, changes in the amounts recorded for tax uncertainties in accordance
with ASC 740-10, "Income Taxes", and foreign taxes calculated at statutory rates different than the U.S. federal statutory rate. Additionally, for the nine months ended October 3,
2009, the Company recorded credits for out-of-period adjustments in the amount of $1.4 million.

At
the time that the Company adopted ASC 740-10, it recorded a liability for unrecognized tax benefits of $9.7 million, which included $5.0 million of interest
and penalties. Additionally, the Company

22

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 8. Income Taxes (Continued)

increased
its unrecognized tax benefits during fiscal 2007 and 2008 by $4.6 million and $2.2 million, respectively.

During
the nine months ended October 3, 2009, the Company decreased the liability for unrecognized tax benefits by $0.5 million, net of additional interest and penalties of
$0.5 million. Decreases in the liability from January 3, 2009 include $1.3 million related to the expiration of statute of limitations in China and $1.4 million related to
the closure of a French audit. During the nine months ended September 27, 2008, the Company increased the liability for unrecognized tax benefits by $2.2 million, which included interest
and penalties of $1.8 million.

The
total unrecognized tax benefits of $16.1 million as of October 3, 2009 represent the amount of unrecognized tax benefits that, if recognized, would affect the effective
income tax rate in future periods. Included in the balance of unrecognized tax benefits as of October 3, 2009 was $2.0 million related to tax positions for which it is reasonably
possible that the total amounts could significantly change during the next twelve months. This amount represents a decrease in unrecognized tax benefits comprised of items related to negotiations of
the settlement of foreign taxes and the lapse of statutes of limitations.

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

As
of October 3, 2009, the Company has a number of open tax years. The major jurisdictions where the Company files income tax returns include Argentina, Canada, China, Colombia,
France, Germany, Mexico, The Netherlands, and the United States. The U.S. federal tax returns have been examined through fiscal 2004 and the foreign jurisdictions generally remain open and subject to
examination by the relevant tax authorities for the tax years 2001 through 2008. Although the results of current tax audits and reviews related to open tax years have not been finalized, management
believes that the ultimate outcomes will not have a material adverse effect on the Company's financial position, results of operations or cash flows.

The
Company continues to recognize interest and/or penalties related to income taxes as a component of income tax expense. There were income tax refunds receivable of $3.6 million
and $2.3 million at October 3, 2009 and January 3, 2009, respectively. These amounts are included inOther current assetsin the
Consolidated Balance Sheets.

Note 9. Pension and Postretirement Benefit Plans

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

23

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 9. Pension and Postretirement Benefit Plans (Continued)

Components
of net periodic benefit costs for the three and nine months ended October 3, 2009 and September 27, 2008 are as follows (in thousands):

Pension BenefitsThree Months Ended

Nine Months EndedOctober 3, 2009

September 27, 2008

October 3, 2009

September 27, 2008Current service costs

$
528

$
633

$
1,546

$
1,893Interest costs on projected benefit obligation and other


1,675


1,684


4,914


5,048Return on plan assets


(1,559
)

(1,875
)

(4,572
)

(5,622
)Amortization of transition obligation and other


125


(24
)

370


(72
)Periodic benefit cost, net

$
769

$
418

$
2,258

$
1,247




Postretirement BenefitsThree Months Ended

Nine Months EndedOctober 3, 2009

September 27, 2008

October 3, 2009

September 27, 2008Current service costs

$
9

$
9

$
26

$
27Interest costs on projected benefit obligation and other


75


84


217


254Amortization of transition obligation and other


(85
)

(96
)

(248
)

(290
)Periodic benefit cost, net

$
(1
)
$
(3
)
$
(5
)
$
(9
)


As
of October 3, 2009, the Company had contributed $4.6 million to its pension and postretirement benefit plans for the 2009 benefit year. The Company's contributions
include amounts required to be funded with respect to a defined benefit pension plan relating to one of the Company's Canadian operations. Such requirements include the funding of a projected benefit
obligation calculated based on actuarial assumptions prescribed by Canadian regulations ("Funding
Valuation"). As of June 1, 2007 (the date of the most recent Funding Valuation), the projected benefit obligation per the Funding Valuation exceeded the projected benefit obligation calculated
in accordance with the authoritative guidance related to retirement benefits. The Company presently anticipates contributing an additional $0.4 million to fund its plans in 2009, for a total of
$5.0 million.

Note 10. Stock Option and Restricted Stock Plans

Stock Option Plan

The Polymer Group, Inc. 2003 Stock Option Plan (the "2003 Option Plan"), which expires December 3, 2013, was approved by
the Company's Board of Directors and shareholders and is administered by the Compensation Committee of the Board of Directors. The 2003 Option Plan approved the issuance of 400,000
non-qualified stock options to acquire shares of the Company's Class A Common Stock. All options awarded provide for an exercise price of $6.00 per share, have a

24

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 10. Stock Option and Restricted Stock Plans (Continued)

five-year
life and vest, based on the achievement of various service and financial performance criteria, over a four-year period, with the initial awards beginning their
vesting terms as of January 4, 2004. Vesting of the stock options may be accelerated on the occurrence of a change in control, as defined in the 2003 Option Plan, or other events. With respect
to post-vesting restrictions, the 2003 Option Plan provides that each option must be exercised, if at all, upon the earlier to occur of (i) the date that is five years after the
award date of the option or (ii) concurrently upon the consummation of a change in control. As of October 3, 2009 and January 3, 2009, the Company had awarded grants of
non-qualified stock options to purchase 175,957 shares and 178,622 shares of the Company's Class A Common Stock, respectively. In addition, 164,372 stock options expired without
exercise during fiscal 2008. Accordingly, at October 3, 2009, there remain 213,102 stock options not awarded pursuant to the 2003 Option Plan. In March 2009, the Board of Directors approved a
measure to cease making awards under the 2003 Option Plan.

The
Company accounts for the 2003 Option Plan in accordance with ASC 718. As of October 3, 2009, with respect to the 175,957 options to purchase Class A Common Stock
awarded under the 2003 Option Plan, 9,000 are subject to future vesting based on the attainment of future performance targets, which targets had not been established as of October 3, 2009.
Accordingly, pursuant to ASC 718, 166,957 options to purchase Class A Common Stock have been considered granted under the 2003 Option Plan as of October 3, 2009. During the first nine
months of fiscal 2009, 18,055 options were forfeited as the performance targets for fiscal 2008 were not achieved and an additional 500 options were forfeited due to participant termination. Of such
options forfeited, 16,055 are subject to 2009 performance targets and are considered re-granted options in fiscal 2009. During the first nine months of fiscal 2008, the Compensation
Committee approved vesting of previously granted stock options and restricted stock at rates in excess of the vesting earned based on actual performance for fiscal 2007. Actual performance for fiscal
2007 would have resulted in vesting approximately 51% of the stock options and restricted stock grants subject to the annual financial performance vesting requirement under the Company's 2003 Option
Plan and/or the Company's 2005 Stock Plan, defined below. The Compensation Committee, in exercise of its discretion, granted participants vesting credit equal to 100% of target. As a result, the
Company recognized compensation expense in the first quarter of fiscal 2008 associated with the vesting of such awards not earned through the achievement of performance targets for fiscal 2007. On
March 12, 2008, the Compensation Committee, in exercise of its discretion, granted 58 participants vesting credit equal to 100% of target representing 46,603 additional awards with a fair value
at the grant date of $0.3 million. As a result, the Company recognized compensation expense in the first quarter of fiscal 2008 associated with the vesting of such awards not earned through the
achievement of performance targets for fiscal 2007. The compensation costs related to the 2003 Option Plan were less than $0.1 million for the three months ended September 27, 2008 and
$0.7 million for the nine months ended September 27, 2008, respectively, and were included inSelling, general and administrative expensesin the Consolidated Statements of Operations. Such costs for the three and nine months ended October 3, 2009 were not material.

25

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 10. Stock Option and Restricted Stock Plans (Continued)

Information
regarding the Company's stock options granted and outstanding as of October 3, 2009 is as follows:

Vested

Expected
to VestFor options granted and outstanding:Number of options


132,783


34,174Weighted average exercise price

$
6.00

$
6.00Aggregate intrinsic value (in 000s)

$
717

$
185For nonvested options:Compensation cost not yet recognized (in 000s)




$
216Weighted average period of recognition (years)





0.8


ASC
718 requires the estimation of forfeitures when recognizing compensation expense and that the estimate of forfeiture be adjusted over the requisite service period should actual
forfeitures differ from such estimates. Changes in estimated forfeitures, if significant, are recognized through a cumulative adjustment, which is recognized in the period of change and which impacts
the amount of unamortized compensation expense to be recognized in future periods.

Restricted Stock Plans



The Company's shareholders and Board of Directors approved the 2004 Polymer Group, Inc. Restricted Stock Plan for Directors (the
"2004 Restricted Plan"), which expires in 2014, for the issuance of restricted shares of the Company's Class A Common Stock to directors of the Company, as defined in the 2004 Restricted Plan.
The 2004 Restricted Plan approved for issuance 200,000 restricted shares and is administered by a committee of the Company's Board of Directors not eligible to receive restricted shares under the 2004
Restricted Plan. In May 2009, the Company's shareholders approved an increase in the number of shares reserved for issuance under the 2004 Restricted Plan from 200,000 shares to 300,000 shares.

In
the first nine months of fiscal 2009 and fiscal 2008, the Company awarded 52,612 and 15,887 restricted shares, respectively, to members of the Company's Board of Directors for their
Board service to the Company. The cost associated with these restricted stock grants, which vest over periods ranging to eighteen months, totaled approximately $0.1 million and
$0.3 million for the three and nine months ended October 3, 2009, respectively, and were included inSelling, general and administrative
expensesin the Consolidated Statements of Operations. For the three and nine months ended September 27, 2008, these costs approximated $0.1 million and
$0.2 million, respectively.

Additionally,
in April 2007, 50,000 restricted shares were issued pursuant to the terms of the Executive Employment Agreement entered into with the Company's Chief Executive Officer.
Such shares vest over a four year service period effective April 23, 2007, and such vesting will be accelerated upon a change in control, as defined therein, and the completion of a minimum
service period. The compensation costs associated with such restricted shares issued under the terms of the Executive Employment Agreement totaled $0.1 million and $0.2 million for the
three and nine months ended October 3, 2009 and were included inSelling, general and administrative expensesin the Consolidated Statements of
Operations. For the three and nine months ended September 27, 2008, these costs

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 10. Stock Option and Restricted Stock Plans (Continued)

approximated
$0.1 million and $0.2 million, respectively. Compensation cost not yet recognized for such nonvested restricted shares issued under the terms of the Executive Employment
Agreement was approximately $0.5 million as of October 3, 2009, and the weighted average period of recognition for such compensation was 0.8 years as of October 3, 2009.

As
of October 3, 2009, there remain 104,096 shares of the Company's Class A Common Stock available to be awarded under the 2004 Restricted Plan.



The Polymer Group, Inc. 2005 Employee Restricted Stock Plan (the "2005 Stock Plan") was approved by the Company's Board of
Directors and shareholders and is administered by the Compensation Committee of the Company's Board of Directors. The 2005 Stock Plan, which expires in 2015, approved for issuance 482,000 restricted
shares to employees of the Company. Other than for certain shares initially awarded and immediately vested on January 20, 2006, March 12, 2008 and April 9, 2009, shares awarded
under the 2005 Stock Plan primarily vest 25% on each of the grant's anniversary dates based on a combination of service and/or the achievement of certain performance targets. Vesting of the restricted
shares, other than those shares issued pursuant to the terms of the Executive Employment Agreement entered into with the Company's Chief Executive Officer, may be accelerated on the occurrence of a
change in control, as defined in the 2005 Stock Plan, or other events. Vesting of shares awarded under the Executive Employment Agreement will be accelerated under a change in control, as defined
therein, and the completion of a minimum service period.

During
the first nine months of fiscal 2009, 32,237 restricted shares were considered re-granted to certain employees of the Company. In addition, 45,395 shares were
surrendered during the first nine months of fiscal 2009 by employees to satisfy withholding requirements and 60,047 shares were forfeited. During the first nine months of fiscal 2008, 143,935
restricted shares were awarded to certain employees of the Company. In addition, 35,144 shares were surrendered during the first nine months of fiscal 2008 by employees to satisfy withholding
requirements and 11,100 shares were forfeited.

The
compensation costs associated with the 2005 Stock Plan totaled $0.1 million and $0.6 million for the three and nine months ended October 3, 2009, respectively,
and were included inSelling, general and administrative expensesin the Consolidated Statements of Operations. For the three and nine months ended
September 27, 2008, these costs approximated $0.2 million and $1.5 million, respectively. As of October 3, 2009, awards of 384,329 shares of the Company's Class A
Common Stock were outstanding and 97,671 shares were not awarded under the 2005 Stock Plan. In March 2009, the Board of Directors approved a measure to cease making awards under the 2005 Stock Plan.

The
Company accounts for the 2005 Stock Plan in accordance with ASC 718. As of October 3, 2009, of the 384,059 shares awarded and outstanding under the 2005 Stock Plan, 22,525
shares are subject to future vesting based on the attainment of future performance targets, which targets had not been established as of October 3, 2009. Accordingly, 361,804 restricted shares
are considered granted under the 2005 Stock Plan as of October 3, 2009. Compensation cost not yet recognized for nonvested restricted shares considered granted under the 2005 Stock Plan was
approximately $1.0 million as of October 3, 2009, and the weighted average period of recognition for such compensation was 1.0 years as of October 3, 2009.

27

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 10. Stock Option and Restricted Stock Plans (Continued)



The Polymer Group, Inc. 2008 Long-Term Stock Incentive Plan (the "2008 LTI Stock Plan") was approved by the
Company's shareholders and Board of Directors and is administered by the Compensation Committee of the Company's Board of Directors. The 2008 LTI Stock Plan, which expires in 2018 unless terminated by
the Company's Board of Directors sooner, originally reserved for issuance 425,000 shares of the Company's Class A Common Stock to employees of the Company. In May 2009, the Company's
shareholders approved an increase in the number of shares reserved for issuance under the 2008 LTI Stock Plan from 425,000 shares to 1,075,000 shares. The Compensation Committee may, from time to
time, award a variety of equity-based incentives under the 2008 LTI Stock Plan to such employees and in such amounts and with specified restrictions as it determines appropriate in the circumstances.
Such awards may be granted under the 2008 LTI Stock Plan in the form of either incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted
stock units, stock awards, performance awards or other types of stock awards that involve the issuance of, or that are valued by reference to, shares of the Company's Class A Common Stock.
Vesting, which will be determined by the Compensation Committee of the Company's Board of Directors, may be accelerated on the occurrence of a change in control, as defined therein, or other events.

During
fiscal 2008, various awards were approved and issued to certain employees of the Company under the 2008 LTI Stock Plan. As of January 3, 2009, awards of 45,947
service-based restricted shares of the Company's Class A Common Stock and 138,022 restricted stock units were outstanding and unvested. As to the restricted stock units, 122,512 awards would
vest based on the achievement of 2008 performance targets and the completion of requisite service periods. All restricted stock units will be settled in the form of restricted shares upon vesting. The
compensation costs associated with the 2008 LTI Stock Plan totaled $0.6 million and $1.7 million for the three and nine months of fiscal 2009, respectively, and are included in Selling, general and administrative
expensesin the Consolidated Statements of Operations. The compensation costs related to the 2008 LTI Stock Plan was
$0.1 million for the three and nine months ended September 27, 2008. During the first quarter of fiscal 2009, 122,512 performance-based restricted stock units were forfeited since the
performance criteria were not satisfied and the awards contained no carryforward provisions. During the second quarter of fiscal 2009, the Company awarded 297,853 service-based restricted shares of
the Company's Class A Common Stock and 144,322 restricted stock units, of which 128,746 would vest based on the achievement of 2009 performance targets and the completion of requisite service
periods. In addition, 39,136 shares were surrendered to satisfy withholding tax obligations, 5,176 restricted stock units were converted to restricted shares and 1,529 restricted stock units were
forfeited. During the third quarter of fiscal 2009, the Company awarded 2,766 service-based restricted shares of the Company's Class A Common Stock and 3,338 restricted stock units, of which
4,164 would vest based on the achievement of 2009 performance
targets and the completion of requisite service periods. In addition, 597 restricted shares and 1,849 restricted stock units were forfeited. As of October 3, 2009, awards of 312,009 shares of
the Company's Class A Common Stock and 172,404 restricted stock units were outstanding, and 591,993 shares were available for future grant under the 2008 LTI Stock Plan. Compensation cost not
yet recognized for awards under the 2008 LTI Stock Plan was approximately $3.5 million as of October 3, 2009, and the weighted average period of recognition for such compensation was
1.0 years as of October 3, 2009.

28

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 11. Derivative and Other Financial Instruments and Hedging Activities

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

The
Company uses interest-rate derivative instruments to manage its exposure related to movements in interest rates with respect to its debt instruments. On
February 12, 2009, as disclosed in Note 7 "Debt," to mitigate its interest rate exposure as required by the Credit Facility, the Company entered into a pay-fixed,
receive-variable interest rate swap (the "2009 Swap"), which effectively converts the variable LIBOR-based interest payments associated with $240.0 million of the Term Loan to fixed amounts at
a LIBOR rate of 1.96%. This interest rate swap agreement became effective on June 30, 2009 and expires on June 30, 2011. Cash settlements will be made monthly and the floating rate will
be reset monthly, coinciding with the reset dates of the Credit Facility.

In
accordance with ASC 815, the Company designated the 2009 Swap as a cash flow hedge of the variability of interest payments with changes in fair value of the 2009 Swap recorded in Accumulated other comprehensive
incomein the Consolidated Balance Sheets. As of September 17, 2009, in conjunction with the Amendment and in
accordance with ASC 815-30, the Company concluded that 92% (which represents the approximate percentage of the Tranche 1 Term Loan debt considered extinguished by the Amendment), of
the 2009 Swap was no longer effective; accordingly, 92% of $3.9 million related to the 2009 Swap and included inAccumulated Other Comprehensive
Incomewas frozen and will be reclassified to earnings as future interest payments are made throughout the term of the 2009 Swap. This portion of the notional amount no longer
met the criteria for cash flow hedge accounting treatment in accordance with ASC 815. See Note 12 "Fair Value of Financial Instruments and Non-Financial Assets and Liabilities" for
the fair value measurement disclosures for these assets and liabilities.

Through
June 2009, the Company had a pay-fixed, receive-variable interest rate swap, effectively converting the variable LIBOR-based interest payments associated with
$240.0 million of the debt to fixed amounts at a LIBOR rate of 5.085% (the "2007 Swap"). This interest rate swap agreement became effective on May 8, 2007 and expired on June 29,
2009. Cash settlements were made quarterly and the floating rate was reset quarterly, coinciding with the reset dates of the Credit Facility.

The
impact of these swaps onInterest expense, netin the Consolidated Statements of Operations was an increase of $1.0 million and
$5.5 million for the three and nine months ended October 3, 2009, respectively. For the three and nine months ended September 27, 2008, the impact was an increase of
$1.4 million and $3.0 million, respectively.

On
September 30, 2008, the Company entered into a series of foreign exchange forward contracts with a third-party financial institution, the objective of which is to hedge the
changes in fair value of a firm commitment to purchase equipment attributable to changes in foreign currency rates between the Euro and U.S. dollar through the date of acceptance of the equipment. The
notional amount of the contracts with the third party, which expire on various dates through fiscal 2009, was $33.3 million. Cash settlements under the forward contracts coincide with the
payment dates on the equipment purchase contract. As of July 4, 2009, the Company has recorded the assets and liabilities associated with the previously unrecognized firm commitment which
resulted in the planned termination of the hedging

29

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 11. Derivative and Other Financial Instruments and Hedging Activities (Continued)

agreement.
The following table summarizes the aggregate notional amount and estimated fair value of the Company's derivative instruments as of October 3, 2009 and January 3, 2009 (in
thousands):

As of October 3, 2009

As of January 3, 2009Notional

Fair Value

Notional

Fair ValueCash flow hedges:Interest rate swaps (1)

$
18,693

$
324

$
240,000

$
4,458Interest rate swapsundesignated (1)


221,307


3,836





Foreign currency hedges:Foreign exchange contracts








33,322


1,388Foreign exchange contractsundesignated


6,207


69





Net value

$
246,207

$
4,229

$
273,322

$
5,846


(1)Comprised
of a $240.0 million notional amount interest rate swap agreement that was executed, became effective on June 20, 2009 and matures on
June 30, 2011, and a similar agreement that became effective on May 8, 2007 and expired on June 29, 2009.


The following tables summarize the effect on income by derivative instruments for the following periods:

For the Three Months Period EndedAmount of Gain
(Loss) Recognized
in Accumulated
OCI on Derivative
(Effective Portion)

Amount of Gain
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)(1)Derivatives in Cash Flow Hedging Relationships

October 3,
2009

September 27,
2008

October 3,
2009

September 27,
2008Derivatives designated as hedging instruments:Interest rate contracts

$
(669
)
$
168

$
(1,019
)
$
(1,386
)Derivatives not designated as hedging instruments


N/A


N/A


N/A


N/A


(1)Amount
of Gain (Loss) (Effective Portion) Reclassified from Accumulated Other Comprehensive Income into Income is located in Interest Expense, netin the Consolidated Statements of Operations. There is no
ineffective portion.


For the Nine Months Period EndedAmount of Gain
(Loss) Recognized
in Accumulated
OCI on Derivative
(Effective Portion)

Amount of Gain
(Loss) Reclassified
from Accumulated
OCI into Income
(Effective Portion)(1)Derivatives in Cash Flow Hedging Relationships

October 3,
2009

September 27,
2008

October 3,
2009

September 27,
2008Derivatives designated as hedging instruments:Interest rate contracts

$
(1,540
)
$
(2,005
)
$
(5,477
)
$
(3,026
)Derivatives not designated as hedging instruments


N/A


N/A


N/A


N/A


(1)Amount
of Gain (Loss) (Effective Portion) Reclassified from Accumulated Other Comprehensive Income into Income is located in Interest Expense, netin the Consolidated Statements of Operations. There is no
ineffective portion.


30

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 12. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities

The Company adopted ASC 820, which outlines a valuation framework and creates a fair value hierarchy that distinguishes between market assumptions based on market data (observable
inputs) and a reporting entity's own assumptions about market data (unobservable inputs). The standard increases the consistency and comparability of fair value measurements and related disclosures.
Fair value is identified, under the standard, as the price that would be received to sell an asset or paid to transfer a liability at the measurement date (an exit price). The financial derivatives
are valued based on the prevailing market yield information on the date of measurement. The guidance establishes three levels of inputs that may be used to measure fair value, as follows:

Level 1Inputs
are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2Inputs
include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that
are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.), and inputs that
derived principally from or are corroborated by observable market data correlation or other means (market corroborated inputs).

Level 3Unobservable
inputs, only used to the extent that observable inputs are not available, reflect the Company's assumptions about the pricing of an asset or
liability.

In
accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's financial assets and liabilities that are required to be measured
at fair value, on a recurring basis, as of October 3, 2009. The foreign exchange contracts identified within the table
below are recorded on the Company's Consolidated Balance Sheets within bothProperty, plant and equipment, netandAccounts
payable and accrued liabilities. The interest rate swap agreements that are identified within the table below are recorded on the Company's Consolidated Balance Sheets within Other noncurrent
liabilities(in thousands):

As of
October 3, 2009

Quoted Prices in
Active Markets
for Identical
Assets Level 1

Significant Other
Observable
Inputs Level 2

Unobservable
Inputs
Level 3Derivative assets:Foreign exchange contract

$
69




$
69


Derivative liabilities:Interest rate swap agreements


(4,160
)




(4,160
)

Foreign exchange contract


(69
)




(69
)




The
fair value of the interest rate swap agreements and foreign forward exchange contracts are based on indicative price information obtained via a third-party valuation.
The unrealized loss in the interest rate swap's fair value of $0.7 million during the first nine months of fiscal 2009 was reported as an adjustment toAccumulated Other
Comprehensive Incomein the Consolidated Balance Sheet as of October 3, 2009.

31

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 12. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities (Continued)

In
accordance with the fair value hierarchy described above, the following table shows the fair value of the Company's non-financial assets and liabilities that are required
to be measured at fair value, on a non-recurring basis, as of October 3, 2009 (in thousands):

Period Ended
October 3, 2009

Quoted Prices in
Active Markets
for Identical
Assets Level 1

Significant Other
Observable
Inputs Level 2

Unobservable
Inputs
Level 3Long-lived assets held for sale (1)

$
2,988




$
2,988


Long-lived assets held and used (2)


4,500





3,000

$
1,500


(1)Long-lived
assets held for sale reflect the current sales price at which certain property held for sale is currently being marketed based on
local market conditions, less costs to sell. This does not include the assets of the Company's Fabpro Oriented Polymers, LLC ("Fabpro") subsidiary. See Note 17 "Discontinued Operations"
for a discussion of assets held for sale of Fabpro. In September 2009, the Company completed the sale of Fabpro and received cash consideration in excess of the stated net carrying value of Fabpro
assets and liabilities.(2)Long-lived
assets held and used represents property, plant and equipment associated with the North Little Rock, Arkansas manufacturing facility.
The property and plant reflects the current sales price at which the property is currently being marketed based on local market conditions, less costs to sell. The equipment reflects management's best
estimate at which the respective equipment will be sold based on market conditions for used equipment, less costs to sell.


The
Company has estimated the fair values of financial instruments using available market information and appropriate valuation methodologies. However, considerable judgment is required
in interpreting market data to develop estimates of fair value for non-traded financial instruments. Accordingly, such estimates are not necessarily indicative of the amounts that the
Company would realize in a current market exchange. The carrying value of cash and cash equivalents, accounts receivable, inventories, other accounts payable and accrued liabilities are reasonable
estimates of their fair values. The carrying amount and estimated fair value of the Company's long-term debt and short-term borrowings as of October 3, 2009 and
January 3, 2009 is presented in the following table (in thousands):

As of October 3, 2009

As of January 3, 2009Carrying Value

Fair Value

Carrying Value

Fair ValueLong-term debt (including current portion)

$
339,988

$
331,547

$
401,678

$
293,475Short-term borrowings


5,768


5,768


11,987


11,987$
345,756

$
337,315

$
413,665

$
305,462


32

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 13. Earnings Per Share and Shareholders' Equity

The following is a reconciliation of basic income from continuing operations per common share to diluted income from continuing operations per common share for the three and nine months
ended October 3, 2009 (in thousands, except per share data):

Income from
Continuing
Operations
(EPS Numerator)

Average Shares
Outstanding
(EPS Denominator)

Earnings Per
Common ShareThree months ended October 3, 2009Basic

$
6,325


19,686.1

$
0.32Potential shares exercisable under share-based plans





259.7Less: shares which could be repurchased under treasury stock method





(162.5
)Diluted

$
6,325


19,783.3

$
0.32Nine months ended October 3, 2009Basic

$
16,219


19,552.1

$
0.83Potential shares exercisable under share-based plans





179.2Less: shares which could be repurchased under treasury stock method





(140.8
)Diluted

$
16,219


19,590.5

$
0.83


Under
the treasury stock method, for the three months ended October 3, 2009 shares represented by the exercise of 34,842 options, and 72,407 nonvested restricted shares were not
included in diluted earnings per share because to do so would have been anti-dilutive. For the nine months ended October 3, 2009 shares represented by the exercise of 50,897
options, and 74,177 nonvested restricted shares were not included in diluted earnings per share because to do so would have been anti-dilutive.

33

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 13. Earnings Per Share and Shareholders' Equity

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

Income from
Continuing
Operations
(EPS Numerator)

Average Shares
Outstanding
(EPS Denominator)

Earnings Per
Common ShareThree months ended September 27, 2008Basic

$
2,322


19,335.5

$
0.12Potential shares exercisable/earned under share-based plans





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





(162.4
)Diluted

$
2,322


19,473.9

$
0.12Nine months ended September 27, 2008Basic

$
6,407


19,257.8

$
0.33Potential shares exercisable/earned under share-based plans





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





(140.4
)Diluted

$
6,407


19,418.2

$
0.33


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

As
of October 3, 2009, the Company's authorized capital stock consisted of the following classes of stock:

Type

Par Value

Authorized SharesPreferred stock

$
.01


173,000Class A common stock

$
.01


39,200,000Class B convertible common stock

$
.01


800,000Class C convertible common stock

$
.01


118,453Class D convertible common stock

$
.01


498,688Class E convertible common stock

$
.01


523,557


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

34

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 13. Earnings Per Share and Shareholders' Equity (Continued)

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

35

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 13. Earnings Per Share and Shareholders' Equity (Continued)

A
reconciliation of equity attributable to Polymer Group, Inc. and the noncontrolling interests for the nine months ended October 3, 2009 is as follows (in thousands):

Polymer Group, Inc. ShareholdersTotal

Comprehensive
Income

Retained
Deficit

Accumulated
Other
Comprehensive
Income

Common
Stock

Paid-in
Capital

Noncontrolling
InterestBalance, January 3, 2009

$
93,211




$
(131,089
)
$
18,370

$
195


192,796

$
12,939Compensation recognized on share-based awards


2,779











4


2,775Surrender of shares to satisfy withholding tax obligations


(357
)













(357
)Recognition of tax benefits from utilization of preconfirmation net operating loss carryforwards and other fresh start adjustments


1,610














1,610Adjustment of noncontrolling interest


(704
)







(576
)




1,609


(1,737
)Comprehensive income:Net income


25,904

$
25,904


29,045











(3,141
)Other comprehensive income, net of tax:Cash flow hedge adjustment, net of reclassification adjustment


515


515





515Employee benefit plans


(254
)

(254
)




(254
)Currency translation adjustments


8,264


8,264





8,113








151Other comprehensive income


8,525


8,525Comprehensive income


34,429

$
34,429Balance, October 3, 2009

$
130,968




$
(102,044
)
$
26,168

$
199

$
198,433

$
8,212


36

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 14. Segment Information

The Company's reportable segments consist of its primary operating divisionsNonwovens and Oriented Polymers. This reflects how the overall business is managed by the
Company's senior management and reviewed by the Board of Directors. Each of these businesses sells to different end-use markets, such as hygiene, medical, wipes and industrial markets.
Sales to P&G accounted for more than 10% of the Company's sales in each of the periods presented. Sales to this customer are reported primarily in the Nonwovens segment and the loss of these sales
would have a material adverse effect on this segment. The segment information presented in the table below excludes the results of Fabpro. The Company concluded that Fabpro qualifies as an asset held
for sale and, consistent with ASC 360, presented
Fabpro as a discontinued operation for all reported periods presented. The Company completed the sale of Fabpro during the third quarter of fiscal 2009. The Company recorded charges in the
Consolidated Statements of Operations during the three and nine months ended October 3, 2009 and the three and nine months ended September 27, 2008 relating to special charges, net that
have not been allocated to the segment data.

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

Three Months Ended

Nine Months EndedOctober 3,
2009

September 27,
2008

October 3,
2009

September 27,
2008Net salesNonwovens

$
202,696

$
257,834

$
581,583

$
730,960Oriented Polymers


20,326


26,287


57,489


81,458$
223,022

$
284,121

$
639,072

$
812,418Operating incomeNonwovens

$
27,342

$
11,924

$
80,148

$
52,113Oriented Polymers


(494
)

2,198


937


4,392Unallocated Corporate


(6,396
)

(4,933
)

(17,602
)

(18,763
)20,452


9,189


63,483


37,742Special charges, net


(1,783
)

(1,687
)

(10,556
)

(4,844
)$
18,669

$
7,502

$
52,927

$
32,898Depreciation and amortization expenseNonwovens

$
11,686

$
10,978

$
34,493

$
33,814Oriented Polymers


264


513


1,019


1,918Unallocated Corporate


346


131


558


388Depreciation and amortization expense included in operating income


12,296


11,622


36,270


36,120Amortization of loan acquisition costs


329


345


937


1,036$
12,625

$
11,967

$
37,207

$
37,156


37

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 14. Segment Information (Continued)

Three Months Ended

Nine Months EndedOctober 3,
2009

September 27,
2008

October 3,
2009

September 27,
2008Capital spendingNonwovens

$
18,591

$
7,326

$
33,332

$
27,437Oriented Polymers


191


52


205


458Corporate


37


125


172


519$
18,819

$
7,503

$
33,709

$
28,414




October 3,
2009

January 3,
2009Division assetsNonwovens

$
713,292

$
717,814Oriented Polymers


37,388


39,194Corporate


8,124


1,619Discontinued Operations





31,760Eliminations


(82,239
)

(87,925
)$
676,565

$
702,462


Geographic
Data:

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

Three Months Ended

Nine Months EndedOctober 3,
2009

September 27,
2008

October 3,
2009

September 27,
2008Net salesUnited States

$
78,709

$
102,287

$
226,447

$
293,261Canada


19,393


25,802


55,520


78,757Europe


36,087


50,688


111,365


154,034Asia


28,176


33,882


78,519


91,314Latin America


60,657


71,462


167,221


195,052$
223,022

$
284,121

$
639,072

$
812,418Operating incomeUnited States

$
2,363

$
(3,225
)
$
10,671

$
(1,216
)Canada


(943
)

1,693


567


3,162Europe


1,288


2,466


2,567


8,004Asia


6,290


4,814


17,283


12,098Latin America


11,454


3,441


32,395


15,69420,452


9,189


63,483


37,742Special charges, net


(1,783
)

(1,687
)

(10,556
)

(4,844
)$
18,669

$
7,502

$
52,927

$
32,898


38

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 14. Segment Information (Continued)

Three Months Ended

Nine Months EndedOctober 3,
2009

September 27,
2008

October 3,
2009

September 27,
2008Depreciation and amortization expenseUnited States

$
3,365

$
3,873

$
10,602

$
11,616Canada


422


505


1,197


1,876Europe


1,656


1,522


5,390


5,507Asia


2,333


2,240


7,001


6,566Latin America


4,520


3,482


12,080


10,555Depreciation and amortization expense included in operating income


12,296


11,622


36,270


36,120Amortization of loan acquisition costs


329


345


937


1,036$
12,625

$
11,967

$
37,207

$
37,156




October 3,
2009

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

$
93,285

$
105,379Canada


5,188


5,558Europe


34,372


37,354Asia


56,711


62,826Latin America


149,893


127,145$
339,449

$
338,262


Note 15. Foreign Currency and Other (Gain) Loss, Net

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

Three Months Ended

Nine Months EndedOctober 3,
2009

September 27,
2008

October 3,
2009

September 27,
2008Included in operating income

$
(308
)
$
2,301

$
(2,509
)
$
439Included in other expense (income)


2,147


(3,596
)

6,614


(4,002
)$
1,839

$
(1,295
)
$
4,105

$
(3,563
)


39

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 15. Foreign Currency and Other (Gain) Loss, Net (Continued)

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

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

Note 16. Commitments and Contingencies

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

Note 17. Discontinued Operations

During the fiscal quarter ended July 4, 2009, the Company determined that, in accordance with ASC 360, the assets of Fabpro represented assets held for sale. Accordingly, the
operations of Fabpro, previously included in the Oriented Polymers segment, have been reported as discontinued operations, as the cash flows of Fabpro will be eliminated from the ongoing operations of
the Company as a result of the disposal transaction, and the Company will have no continuing involvement in the operations of the business after the disposal transaction. The Company decided to sell
this business as part of its continuing effort to evaluate its businesses and product lines for strategic fit within its operations. The Company completed the sale of Fabpro during the third quarter
of fiscal 2009.

As
a result, this business has been accounted for as a discontinued operation in accordance with the authoritative guidance for the periods presented in this report. Accordingly, the
results of operations of Fabpro have been segregated from continuing operations and included inIncome from discontinued operationsin the Consolidated
Statements of Operations. Additionally, the operating assets and liabilities have been segregated and included inAssets of discontinued operationsand Liabilities of discontinued
operationsin the Consolidated Balance Sheets as at January 3, 2009. In accordance with the authoritative guidance
related to the reporting of cash flows, the Company elected not to separate the disclosure of cash flows pertaining to discontinued operations. Net cash flows from investing and financing activities
of the discontinued operation were not significant.

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 17. Discontinued Operations (Continued)

The
following amounts, which relate to our Oriented Polymers segment, have been segregated from continuing operations and included inIncome from discontinued
operations(in thousands):

Three Months Ended

Nine Months EndedOctober 3, 2009

September 27, 2008

October 3, 2009

September 27, 2008Net sales

$
5,052

$
16,916

$
35,923

$
53,285Pre-tax income (loss)

$
446

$
1,100

$
4,353

$
819Income tax expense











Net income (loss)

$
446

$
1,100

$
4,353

$
819


During
the three and nine months ended October 3, 2009, pre-tax income of discontinued operations includes interest expense allocated to Fabpro resulting from interest
on
debt that is required to be repaid as a result of the disposal transaction of $0.2 million and $0.6 million, respectively. During the three and nine months ended September 27,
2008, pre-tax income of discontinued operations includes such interest expense of $0.4 million and $1.4 million, respectively. Income tax expense associated with the income
of Fabpro reflects a benefit for the utilization of net operating loss carryforwards, for which a valuation allowance had been previously established.

The
Company has recognized a gain on the sale of Fabpro of approximately $8.5 million for the three and nine month periods ended October 3, 2009. There were no income taxes
associated with such gain due to the utilization of net operating loss carryforwards, for which, a valuation allowance had been previously established. The definitive purchase agreement for the Fabpro
sale provides for a purchase price adjustment based on the actual working capital that Fabpro had on the sale date, as compared with a forecasted amount. The Company anticipates that the final working
capital purchase price adjustment will be resolved in fourth quarter 2009.

The
following assets and liabilities have been segregated and included in Assets of discontinued operationsand Liabilities of discontinued operations, as
appropriate, in the Consolidated Balance Sheets as of January 3, 2009 (in thousands):

Accounts receivable, net

$
8,185Inventories


14,221Property, plant and equipment, net


9,328Other assets


26Assets of discontinued operations

$
31,760Accounts payable and accrued liabilities

$
7,863Liabilities of discontinued operations

$
7,863


Note 18. Supplemental Cash Flow Information

Noncash investing or financing activities in the first nine months of fiscal 2009 included the surrender of 85,368 shares of the Company's Class A Common Stock to the Company by
participants in the various stock compensation plans in the amount of $0.4 million to satisfy employee withholding tax

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Table of Contents

POLYMER GROUP, INC.

Notes to Consolidated Financial Statements (Continued)

Note 18. Supplemental Cash Flow Information (Continued)

obligations.
Also, the Company recorded $6.2 million of property, plant and equipment additions, for which payment had not been made as of October 3, 2009.

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

Note 19. Subsequent Events

On October 17, 2009, the Company announced that Robert J. Kocourek gave notice of his intention to resign as Chief Financial Officer immediately after the filing of the Company's
Quarterly Report on Form 10-Q for the period ended October 3, 2009 (the "10-Q Filing Date"). Mr. Kocourek's employment with the Company will end on
April 16, 2010 to assist with a smooth transition of his responsibilities. The Company's Board of Directors is conducting a search for a new Chief Financial Officer. Until such search is
completed, Keith B. Hall, a member of the Board and several of its committees, including the Audit Committee, will serve as the Company's interim Chief Financial Officer effective immediately after
the 10-Q Filing Date.

On
October 30, 2009, the Company announced that it completed a purchase transaction to purchase the remaining 40% stake in Dominion Nonwovens Sudamericana, S.A. from its
partner, Guillermo E. Kraves.

On
November 2, 2009 the Company announced that on October 30, 2009, it had entered into an Asset Transfer Agreement with Grupo Corinpa, S.L. ("Grupo Corinpa"), Parametro
Technologico, S.L.U. ("PGI Spain"), Tesalca-99, S.A. and Texnovo, S.A. (together with Tesalca-99, S.L., "Tesalca-Texnovo") pursuant to which the Company will
acquire the nonwovens businesses of Tesalca-Texnovo, which are headquartered in Barcelona, Spain, from Grupo Corinpa in a two phase transaction. Phase I is expected to close by the end of
November 2009, subject to customary closing conditions.

In
Phase I, PGI Spain will purchase certain assets and the operations of the businesses of Tesalca-Texnovo, including the net operating working capital (defined as current assets
less current liabilities excluding financial liabilities associated with the operations), the customer lists and the current book of business. The personnel of the businesses will become employees of
PGI Spain. Phase II of the transaction, if it occurs, would consist of put/call options with respect to the Phase II Assets, consisting primarily of property and equipment, leased during
Phase I, which would include the purchase of such assets and satisfaction of Tesalca-Texnovo debt obligations.

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Table of Contents

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

The following discussion and analysis provides information which management believes is relevant to an
assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes
thereto contained in Item 1 of Part I to this Quarterly Report on Form 10-Q. In addition, it should be noted that our gross profit margins may not be comparable to
other companies since some entities classify shipping and handling costs in cost of goods sold and others, including us, include such costs in selling, general and administrative expenses. Similarly,
some entities, including us, include foreign currency gains and losses resulting from operating activities as a component of operating income, and some entities classify all foreign currency gains and
losses outside of operating income.

Overview

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

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

We
compete primarily in the worldwide nonwovens market. According to certain industry sources, the nonwovens market was in excess of $20.0 billion in annual sales in 2008.
Historically, the global market has been expected to grow at a five-year compound annual growth rate (CAGR) of 6.0 to 8.0%. The recent decline in macro-economic conditions have negatively
impacted certain market segments, specifically durable products used in industrial applications. The recent severe and unexpected decline in the global marketplace has made long-term
growth forecasts difficult. Based on available data, we still expect continued growth in the market, specifically in the developing regions and in end-use market segments that are more
disposable in nature. Demand in certain developing regions is still forecasted to grow in excess of a 10.0% CAGR over the next five years. However, the overall growth rate expectation is lower than
prior year indications. Demand in developed regions (North America, Western Europe and Japan) over this period is expected to increase by a 1.0 to 3.0% CAGR, driven by increased penetration, the
development of new applications for nonwovens and a recovery of certain underlying markets beginning in 2010. We believe that future growth will depend upon the continuation of improvements in raw
materials and technology, which should result in the development of high-performance nonwovens, leading to new uses and markets. We believe our global platform and technological
leadership, with an increasing presence in the higher-growth developing regions, will allow us to achieve growth and increased profitability. However, our growth rate may differ from the industry
averages depending upon the regions and markets we choose to operate in and the technology that we develop.

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Table of Contents

The
Nonwovens segment develops and sells products in various consumer and industrial markets, including hygiene, medical, industrial, and wiping. Nonwovens segment sales were
approximately $971.4 million, $885.7 million and $848.3 million of our consolidated net sales for fiscal 2008, 2007 and 2006, respectively, and represented approximately 91%, 89%
and 88% of our consolidated net sales in each of those years.

Nonwovens
are categorized as either disposable (estimated to be approximately 50% to 55% of worldwide industry sales) or durable (estimated to be approximately 45% to 50% of worldwide
industry sales). We primarily compete in disposable products, which account for approximately 70% of our total nonwoven sales. We believe that disposable products are less cyclical and will have
higher growth rates in the future, driven primarily by the increasing adoption of these materials in developing economies due to rising per capita income and population growth. We sell a diverse array
of durable products to a variety of niche industrial end markets. Our products are a mix of roll goods and downstream and integrated finished products. We endeavor to add value to our products through
our printing, laminating and small roll converting capabilities and, in some instances, convert product ourselves and sell directly to the end consumer. With this downstream presence we are a more
valuable supplier to our customers with a more efficient distribution chain and knowledge of the consumer of the end product.

The
Oriented Polymers segment provides flexible packaging products that utilize coated and uncoated oriented polyolefin fabrics. Oriented Polymers segment sales were approximately
$101.8 million, $114.1 million and $117.6 million for fiscal 2008, 2007 and 2006, respectively, and represented approximately 9%, 11% and 12% of our consolidated net sales in each
of those years.

The
Oriented Polymers segment utilizes extruded polyolefin processes and woven technologies to produce a wide array of products for industrial packaging, building products, agriculture
and protective apparel markets. These include housewrap, lumberwrap, fiberglass packaging tubes, steel wrap, coated bags for specialty chemicals and mineral fibers, performance fabrics for firemen
turnout gear and other performance fabrics. Our woven slit film component of the business primarily competes in niche markets, delivering more complex products versus supplying uncoated markets such
as carpet backing fabric, geotextiles and bags. The industrial packaging markets in which we compete include applications such as lumberwrap, steel wrap and fiberglass packaging. The building products
applications include high-strength protective coverings, printed billboard material and specialized components that are integrated into a variety of industrial products
(e.g., roofing substrates and flame-retardant fabric). We maintain leading market positions in this segment, as evidenced by our #2 position in North America in flame-retardant performance
fabrics. We are focusing efforts on diversifying away from large volume, commodity products within this division through continued product innovation.

During
the quarter ended July 4, 2009, we determined that, pursuant to Financial Accounting Standards Accounting Standards Codification ("ASC") Topic 360, the assets of Fabpro
Oriented Polymers, LLC ("Fabpro") represent assets held for sale. Accordingly, the operations of Fabpro, previously included in the Oriented Polymers segment, have been reported as discontinued
operations, as the cash flows of Fabpro will be eliminated from our ongoing operations, and we will have no continuing involvement in the operations of the business after the disposal transaction. We
decided to sell this business as part of our continuing effort to evaluate our businesses and product lines for strategic fit within our operations. We completed the sale of Fabpro during the third
quarter of fiscal 2009.

As
a result, Fabpro has been accounted for as a discontinued operation for the periods presented in this report. Accordingly, the results of operations of Fabpro have been segregated
from continuing operations and included inIncome from discontinued operationsin the Consolidated Statements of Operations included in Item 1 of
Part I to this Quarterly Report on Form 10-Q. Additionally, the operating assets and liabilities have been segregated and included inAssets of
discontinued operationsandLiabilities of discontinued operationsin the Consolidated Balance Sheets included in Item 1
of Part I to this Quarterly Report on Form 10-Q.

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In
2008 and 2009, general worldwide economic conditions have experienced a downturn due to the sequential effects of the subprime lending crisis, general credit market crisis, collateral
effects on the finance and banking industries, increased energy costs, concerns about inflation, slower economic activity, decreased consumer confidence, reduced corporate profits and spending,
adverse business conditions and liquidity concerns. We continue to see softness in the durable goods applications in the industrial markets; however, our overall business model is one that is
relatively defensive in that approximately two-thirds of our sales are generated from disposable products that are not as impacted by macro market swings.

Raw Materials

The primary raw materials used to manufacture most of our products are polypropylene resin, polyester fiber, polyethylene resin and, to
a lesser extent, rayon and tissue paper. These primary raw materials are available from multiple sources and we purchase such materials from a variety of global suppliers. In certain regions of the
world, we may source certain raw materials from a limited number of suppliers or on a sole-source basis. The prices of polypropylene, polyethylene and polyester are a function of, among
other things,
manufacturing capacity, demand and the price of crude oil and natural gas liquids. Historically, the prices of polypropylene and polyethylene resins and polyester fibers have fluctuated. We have not
historically hedged the exposure to raw material increases, but we have certain customer contracts that contain price adjustment provisions which provide for the pass-through of any cost
increases or decreases in raw materials, although there is often a lag between the time that we incur the new raw material cost and the time that we adjust the selling price to our customers. In
periods of rising raw material costs, to the extent we are not able to pass along price increases of raw materials, or to the extent any such price increases are delayed, our cost of goods sold would
increase and our operating profit would correspondingly decrease. Increases in raw material costs that cannot be passed on to customers could have a material adverse effect on our results of
operations and financial condition. By way of example, if the price of polypropylene was to rise $.01 per pound, and we were not able to pass along any of such increase to our customers, we would
realize a decrease of approximately $4.3 million, on an annualized basis, in our reported pre-tax operating income. In the event of such an increase, the impact on operating income
would be reduced by any pass-through of the increase in the form of higher selling prices on contract business. There can be no assurance that the prices of our raw materials, including
polypropylene, polyethylene and polyester, will not substantially increase in the future, or that we will be able to pass on any increases to our customers not covered by contracts with price
escalation clauses. In periods of declining raw material costs, our cost of goods would decrease and our operating profit would correspondingly increase; however, such increases would be offset, in
whole or in part, by reductions in selling prices offered to customers by contract or in light of current market conditions. See Item 3 "Quantitative and Qualitative Disclosures About Market
Risk" included in this Form 10-Q.

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

We
believe that the loss of any one or more of our suppliers would not have a long-term material adverse effect on us because other manufacturers with whom we conduct
business would be able to fulfill our requirements. However, the loss of certain of our suppliers could, in the short-term, adversely

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affect
our business until alternative supply arrangements were secured or alternative suppliers were qualified with customers.

Recent Expansion Initiatives

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

In
the second quarter of fiscal 2009, our previously announced state-of-the-art spunmelt line in San Luis Potosi, Mexico, which serves medical and
hygiene customers in the U.S. and Mexico, commenced commercial production.

Subsequent
to the end of third quarter, we announced that we completed a purchase transaction to purchase the remaining 40% stake in Dominion Nonwovens Sudamericana, S.A. We
entered into an Asset Transfer Agreement with Grupo Corinpa, S.L. ("Grupo Corinpa"), Parametro Technologico, S.L.U. ("PGI Spain"), Tesalca-99, S.A. and Texnova, S.A.
(together with Tesalca-99, S.L., "Tesalca-Texnova") pursuant to which we will acquire the nonwovens businesses of Tesalca-Texnovo, which is headquartered in Barcelona, Spain, from Grupo
Corinpa in a two-phase transaction. Phase I is expected to close by the end of November 2009, subject to customary closing conditions. See Note 19 "Subsequent Events" to the
unaudited interim consolidated financial statements included in Item 1 of Part I to this Quarterly Report on Form 10-Q.

Plant Consolidation and Re-alignment

We review our businesses on an ongoing basis relative to current and expected market conditions, attempting to match our production
capacity and cost structure to the demands of the markets in which we participate, and strive to continuously streamline our manufacturing operations consistent with world-class standards. We
announced three plant consolidation plans in the U.S. and Europe that were initiated in fiscal 2007 and completed in early fiscal 2008 to better align our cost structure. We announced an additional
plant closing in the U.S. in May of 2008, which ceased production in the third quarter of fiscal 2008. Our strategy with respect to the consolidation efforts in the U.S. and Europe is focused on the
elimination of cash fixed costs at the closed plant sites, and the transfer of business and equipment to sites in regions with lower variable costs and which are closer to our customers, as necessary
and practical, to retain the existing business with the potential to expand sales volumes. We announced the decision to exit our automotive business in January 2009 as our industrial business has been
negatively impacted as a result of the current economic downturn, and subsequently announced an additional plant closing in the U.S. in June 2009 aimed at the reduction of cash fixed costs.

In
the future, we may decide to undertake certain restructuring efforts to improve our competitive position, especially in the more mature markets of the U.S., Europe and Canada. In such
mature markets, the prices for commodity roll goods continue to fluctuate based on supply and demand dynamics relative to the assets employed in that geographic region. We actively and continuously
pursue initiatives to prolong the useful life of our long-lived assets through product and process innovation. In some instances we may decide, as was the case with our plans to
consolidate operations in the U.S. and Europe, and as further described in Note 3 "Special Charges, Net" to the consolidated financial statements included in Item 8 of Part II to
our 2008 Annual Report on Form 10-K, that our fixed cost structure will be enhanced through consolidation. To the extent further decisions are made to improve our
long-term performance, such actions could result in cash restructuring charges and asset impairment charges associated with the consolidation, and such charges could be material.

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Results of Operations

As described above in "Raw Materials" and in Item 3 "Quantitative and Qualitative Disclosures About Market Risk," we may be
significantly impacted by variability in raw material costs, including polypropylene resin and other resins and fibers. For the nine months ended October 3, 2009, we generated an overall gross
margin of approximately 22%, which is significantly higher than historical gross margins, which ranged from 15% to 16% from fiscal 2006 through mid-fiscal 2008. There are many contributors
to the improvement in gross margin, with the increase primarily generated by dramatic declines in raw material costs experienced during the fourth quarter of fiscal 2008, which had a significant
positive impact on gross margin for the first quarter of fiscal 2009. During the first nine months of fiscal 2009, there was a significant increase in the cost of polypropylene resin and we have
experienced significant volatility in resin prices throughout fiscal 2009. Additionally, we expect to see increases in contracted selling prices in the fourth quarter of fiscal 2009 due to the
quarterly lag effect of the recent increase in average raw material costs for the September quarter of fiscal 2009 versus the June quarter of fiscal 2009. Therefore, the results generated for the
first nine months of fiscal 2009 may not be indicative of financial performance achieved for the remainder of the 2009 fiscal year.

The
following table sets forth the percentage relationships to net sales of certain Consolidated Statement of Operations items for the three and nine months ended October 3, 2009
in comparison to such items for the three and nine months ended September 27, 2008 and in comparison with the 2007 and 2008 fiscal years:

Three Months Ended

Nine Months EndedFiscal Year EndedOctober 3,
2009

September 27,
2008

October 3,
2009

September 27,
20082008

2007Net sales


100.0
%

100.0
%

100.0
%

100.0
%

100.0
%

100.0
%Cost of goods sold:Materials


55.0


53.6


46.8


56.5


45.8


55.6Labor


7.2


7.6


8.1


7.3


8.1


7.3Overhead


21.4


22.6


23.9


21.9


24.3


21.583.6


83.8


78.8


85.7


76.2


84.4Gross profit


16.4


16.2


21.2


14.3


21.8


15.6Selling, general and administrative expenses


11.0


10.3


12.3


10.2


12.4


10.9Special charges, net


1.9


6.2


0.8


0.6


1.7


0.6Other operating (income) loss, net


0.5


(0.1
)

(0.3
)

0.8


(0.6
)

0.1Operating income (loss)


3.0


(0.2
)

8.4


2.7


8.3


4.0Other expense (income):Interest expense, net


2.9


3.0


2.4


2.7


3.0


2.9Gain on reacquisition of debt














(0.4
)

Loss on extinguishment of debt








2.3





0.8


Foreign currency and other (gain) loss, net


(0.2
)

(0.2
)

1.2


(1.1
)

1.3


(0.4
)Income (loss) before income taxes and discontinued operations


0.3


(3.0
)

2.5


1.1


3.6


1.5Income tax expense


0.6


0.9


0.9


0.9


1.6


0.9Income (loss) from continuing operations


(0.3
)

(3.9
)

1.6


0.2


2.0


0.6Income from discontinued operations


0.2


0.0


0.2


0.4


0.7


0.1Gain on sale of discontinued operations








3.8





1.3Net income from discontinued operations


0.2


0.0


4.0


0.4


2.0


0.1Net income (loss)


(0.1
)

(3.9
)

5.6


0.6


4.0


0.7Less: net (income) loss attributable to noncontrolling interests


0.6


(0.2
)

1.3


0.6


0.5


0.2Net income (loss) attributable to Polymer Group, Inc.


0.5
%

(4.1
)%

6.9
%

1.2
%

4.5
%

0.9
%


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Comparison of Three Months Ended October 3, 2009 and September 27, 2008

Our reportable segments consist of our two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding
segment data, see Note 14 "Segment Information" to the unaudited interim consolidated financial statements included in Item 1 of Part I to this Quarterly Report on
Form 10-Q. The segment information presented in the table below excludes the results of Fabpro, as the operating results of Fabpro are presented as a discontinued operation. The
following table sets forth components of our net sales and operating income (loss) by operating division for the three months ended October 3, 2009, the three months ended September 27,
2008 and the corresponding change (in millions):

Three months endedOctober 3, 2009

September 27, 2008

ChangeNet salesNonwovens

$
202.7

$
257.8

$
(55.1
)Oriented Polymers


20.3


26.3


(6.0
)$
223.0

$
284.1

$
(61.1
)Operating income (loss)Nonwovens

$
27.4

$
11.9

$
15.5Oriented Polymers


(0.5
)

2.2


(2.7
)Unallocated Corporate, net of eliminations


(6.4
)

(4.9
)

(1.5
)20.5


9.2


11.3Special charges, net


(1.8
)

(1.7
)

(0.1
)$
18.7

$
7.5

$
11.2


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

Net sales

Net sales were $223.0 million for the three months ended October 3, 2009, a decrease of $61.1 million, or 21.5%,
from the comparable period of fiscal 2008 net sales of $284.1 million. Net sales for fiscal 2009 declined in the Nonwovens segment from comparable 2008 results by 21.4%, and net sales in fiscal
2009 in the Oriented Polymers segment decreased 22.8% from 2008 results. A reconciliation of the change in net sales between the three months ended October 3, 2009 and the three months ended
September 27, 2008 is presented in the following table (in millions):

Nonwovens

Oriented Polymers

TotalNet salesthree months ended September 27, 2008

$
257.8

$
26.3

$
284.1Change in sales due to:Volume


(21.3
)

(4.8
)

(26.1
)Price/mix


(25.1
)

(0.8
)

(25.9
)Foreign currency translation


(8.7
)

(0.4
)

(9.1
)Net salesthree months ended October 3, 2009

$
202.7

$
20.3

$
223.0


The
net volume decline of $21.3 million in Nonwovens sales includes declines predominantly in the U.S. and Europe. The sales volume declines in the U.S. and Europe were primarily
due to the U.S. plant closure in the third quarter of fiscal 2008, and recessionary impacts that are negatively affecting the

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industrial
and wiping businesses located in the U.S. and European regions. Oriented Polymers' sales volumes continued to be negatively impacted by reduced housing starts affecting their industrial
business, imported commodity products affecting lumber wrap volumes, reduced demand for protective apparel fabrics and recessionary impacts.

Sales
in the Nonwovens segment were also negatively impacted by lower price/mix primarily due to price decreases resulting from the pass-through of lower raw material costs.
As raw material costs have decreased, we have reduced selling prices to our customers where required by contract terms, and where appropriate based on market conditions. In general, with respect to
contracted business, there is usually a one-quarter lag between the change in raw material cost and the change in sales price.

Most
currencies were weaker against the U.S. dollar during 2009 compared to 2008. As a result, net sales decreased $9.1 million due to the unfavorable foreign currency
translation. Further discussion of foreign currency exchange rate risk is contained in Item 3 "Quantitative and Qualitative Disclosures About Market Risk" included below.

Gross margin

Gross margin for the three months ended October 3, 2009 improved to 21.2% from 14.3% in the third quarter of fiscal 2008,
primarily driven by lower raw material costs (which were partially offset by lower selling prices required by contract terms, and where appropriate based on market conditions), offset by lower volumes
and higher manufacturing costs, including increased spending in certain cost categories coupled with lower absorption related to volume decreases, during fiscal 2009. The raw material component of the
cost of goods sold as a percentage of net sales decreased from 56.5% in 2008 to 46.8% in 2009. Partially as a result of lower sales volumes, coupled with higher spending in certain areas, our labor
and overhead components of the cost of goods sold increased as a percentage of net sales from the three month period of fiscal 2008 to the comparable period of 2009. As a percentage of sales, labor
increased from 7.3% to 8.1% and overhead increased from 21.9% to 23.9%. All of the above percentages were also impacted by reductions in selling prices resulting from the pass-through of
lower raw material costs.

Operating income

A reconciliation of the change in operating income (loss) between the three months ended September 27, 2008 and the three months
ended October 3, 2009 is presented in the following table (in millions):

Operating incomethree months ended September 27, 2008

$
7.5Change in operating income due to:Price/mix


(26.6
)Lower raw material costs


39.7Volume


(4.9
)Higher manufacturing costs


(0.2
)Foreign currency


3.3Lower depreciation and amortization expense


0.7Higher special charges, net


(0.1
)Increased share-based compensation costs


(0.5
)All other, primarily lower SG&A spending


(0.2
)Operating incomethree months ended October 3, 2009

$
18.7


Consolidated
operating income was $18.7 million for the three months ended October 3, 2009 as compared to $7.5 million of income in the comparative period in 2008.
The cost of certain raw materials, especially polypropylene resin had a $39.7 million positive impact on operating income for the third

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quarter
of fiscal 2009, which was partially offset by sales price/mix of $26.6 million primarily resulting from price decreases related to the pass-through of lower raw material
costs. Operating income was also negatively impacted by lower sales volumes, higher manufacturing costs in certain locations, including increased spending in certain cost categories coupled with lower
absorption related to volume decreases, and higher special charges.

Selling,
general and administrative expenses decreased $1.6 million, from $29.0 million in 2008 to $27.4 million in 2009, due primarily to the movement of foreign
currencies versus the U.S. dollar. Selling, general and administrative costs as a percent of net sales increased from 10.2% in the third quarter of fiscal 2008 to 12.3% for the same period of fiscal
2009. This percentage is impacted by the reduction in selling prices resulting from the pass-through of lower raw material costs.

Special
charges for the three months ended October 3, 2009 of approximately $1.8 million included a non-cash impairment charge of (i) $0.3 million
related to the write-down of certain property and equipment in Neunkirchen, Germany, to estimated fair value less costs to sell, (ii) restructuring and plant realignment costs
comprised of $1.3 million of severance and other shutdown costs primarily related to facilities in the United States; and (iii) $0.2 million of abandoned acquisition costs.

Interest and Other Expense

Net interest expense decreased $2.2 million, from $7.6 million during the three months ended September 27, 2008 to
$5.4 million during the three months ended October 3, 2009. The decrease in net interest expense was largely due to the impact of reduced term loan borrowings, lower interest rates and
costs associated with an interest rate swap
agreement that expired in June 2009, partially offset by higher interest costs related to subsidiary debt obligations.

During
fiscal 2007, we entered into a cash flow hedge agreement, effective May 8, 2007 and which expired on June 29, 2009, which effectively converted $240.0 million
of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085%. Additionally, in February 2009, the Company entered into a new cash flow hedge agreement, which became
effective June 30, 2009 and matures on June 30, 2011 which, originally, effectively converted $240.0 million of notional principal amount of debt from a variable LIBOR rate to a
fixed LIBOR rate of 1.96%.

In
connection with the amendment of our Credit Facility in September 2009, substantially all of the borrowings under the Credit Facility are subject to a LIBOR floor of 2.5%. As a result
of the new LIBOR floor, the effectiveness of the Interest Rate Swap has been modified. See Item 3 "Quantitative and Qualitative Disclosures About Market Risk" included below and Note 11
"Derivatives and Other Financial Instruments and Hedging Activities" included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

During
the three months ended October 3, 2009, we incurred costs related to the amendment of our Credit Facility. As a result, a portion of the unamortized loan acquisition costs
associated with the November 2005 financing in the amount of $3.5 million were written-off and, together with $1.6 million of third-party costs incurred in connection with
the amendment, are included inLoss of extinguishment of debtin the Consolidated Statement of Operations.

Foreign
currency and other loss (gain), net decreased by $5.8 million, from a $3.2 million gain during the third quarter of fiscal 2008 to a $2.6 million loss in the
third quarter of fiscal 2009, primarily due to the effect of movement in foreign currency rates.

Income Tax Expense

During the three months ended October 3, 2009, we recognized income tax expense of $2.1 million on consolidated income
before income taxes of $5.6 million. During the three months ended September 27, 2008, we recognized income tax expense of $2.5 million on consolidated income before

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income
taxes of $3.1 million. Our income tax expense in any period is different than such expense determined at the U.S. federal statutory rate primarily due to losses in certain jurisdictions
for which
no income tax benefits are anticipated, foreign withholding taxes for which tax credits are not anticipated, U.S. state income taxes, changes in the amounts recorded for tax uncertainties and foreign
taxes calculated at statutory rates different than the U.S. federal statutory rate. Additionally, income tax expense for the three months ended October 3, 2009 includes
out-of-period credits in the amount of approximately $0.9 million.

Discontinued Operations

Income from operation of discontinued business is comprised of the net operating results of Fabpro for the third quarters of fiscal
2009 and fiscal 2008. During the second quarter of fiscal 2009, we concluded that Fabpro constituted an asset held for sale and, accordingly, we have presented Fabpro as a discontinued operation. The
Company completed the sale of Fabpro during the third quarter of fiscal 2009, and therefore income from discontinued operations decreased $0.7 million, from $1.1 million during the three
months ended September 27, 2008 to $0.4 million during the three months ended October 3, 2009.

We
have recognized a gain on the sale of Fabpro of approximately $8.5 million for the three month period ended October 3, 2009. The definitive purchase agreement for the
Fabpro sale provides for a purchase price adjustment based on the actual working capital that Fabpro had on the sale date, as compared with a forecasted amount. We anticipate that the final working
capital purchase price adjustment will be resolved in fourth quarter 2009 and does not expect such adjustment to be material.

Net (Income) Loss Attributable to Noncontrolling interests

Noncontrolling interests represents the minority partners' interest in the income or loss of consolidated subsidiaries which are not
wholly owned by us. These interests include a 40% minority interest in Dominion Nonwovens Sudamerica S.A. (our Argentine subsidiary) and a 20% minority interest in Nanhai Nanxin
Non-Woven Co. Ltd. (one of our subsidiaries in China). Additionally, (income) loss attributable to noncontrolling interests for the three months ended October 3, 2009
includes out-of-period adjustments in the amount of approximately $3.0 million.

Net Income Attributable to Polymer Group, Inc.

As a result of the above, we recognized net income attributable to Polymer Group, Inc. of $15.2 million, or $0.77 per
share, for the three months ended October 3, 2009 compared to $3.4 million, or $0.18 per share, for the three months ended September 27, 2008.

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Comparison of Nine Months Ended October 3, 2009 and September 27, 2008

Our reportable segments consist of our two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding
segment data, see Note 14 "Segment Information" to the unaudited interim consolidated financial statements included in Item 1 of Part I to this Quarterly Report on
Form 10-Q. The segment information presented in the table below excludes the results of Fabpro and sets forth components of our net sales and operating income (loss) by operating
division for the nine months ended October 3, 2009, the nine months ended September 27, 2008 and the corresponding change (in millions):

Nine months endedOctober 3,
2009

September 27,
2008

ChangeNet salesNonwovens

$
581.6

$
731.0

$
(149.4
)Oriented Polymers


57.5


81.4


(23.9
)$
639.1

$
812.4

$
(173.3
)Operating income (loss)Nonwovens

$
80.2

$
52.1

$
28.1Oriented Polymers


0.9


4.4


(3.5
)Unallocated Corporate, net of eliminations


(17.6
)

(18.8
)

1.263.5


37.7


25.8Special charges, net


(10.6
)

(4.8
)

(5.8
)$
52.9

$
32.9

$
20.0


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

Net sales

Net sales were $639.1 million for the nine months ended October 3, 2009, a decrease of $173.3 million, or 21.3%,
from the comparable period of fiscal 2008 net sales of $812.4 million. Net sales for fiscal 2009 declined in the Nonwovens segment from comparable 2008 results by 20.4%, and net sales in fiscal
2009 in the Oriented Polymers segment decreased 29.4% from 2008 results. A reconciliation of the change in net sales between the nine months ended October 3, 2009 and the nine months ended
September 27, 2008 is presented in the following table (in millions):

Nonwovens

Oriented
Polymers

TotalNet salesnine months ended September 27, 2008

$
731.0

$
81.4

$
812.4Change in sales due to:Volume


(64.5
)

(22.3
)

(86.8
)Price/mix


(54.6
)

0.7


(53.9
)Foreign currency translation


(30.3
)

(2.3
)

(32.6
)Net salesnine months ended October 3, 2009

$
581.6

$
57.5

$
639.1


The
net volume decline of $86.8 million in Nonwovens sales includes declines in all regions except Asia, but predominantly in the U.S. and Europe. The sales volume declines in the
U.S. and Europe were primarily due to the U.S. plant closure in the third quarter of fiscal 2008, and recessionary impacts that are negatively affecting the industrial and wiping businesses located in
the U.S. and European regions.

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Oriented
Polymers' sales volumes continued to be negatively impacted by reduced housing starts affecting their industrial business, imported commodity products affecting lumber wrap volumes, reduced
demand for protective apparel fabrics and recessionary impacts.

Sales
in the Nonwovens segment were also negatively impacted by lower price/mix primarily due to price decreases resulting from the pass-through of lower raw material costs.
As raw material costs have decreased, we have reduced selling prices to our customers where required by contract terms, and where appropriate based on market conditions. In general, with respect to
contracted business, there is usually a one-quarter lag between the change in raw material cost and the change in sales price.

Most
currencies were weaker against the U.S. dollar during 2009 compared to 2008. As a result, net sales decreased $32.6 million due to the unfavorable foreign currency
translation. Further discussion of foreign currency exchange rate risk is contained in Item 3 "Quantitative and Qualitative Disclosures About Market Risk" included below.

Gross margin

Gross margin for the nine months ended October 3, 2009 improved to 21.8% from 15.6% in the nine months of fiscal 2008, primarily
driven by lower raw material costs (which were partially offset by lower selling prices required by contract terms, and where appropriate based on market conditions), offset by lower volumes and
higher manufacturing costs, including increased spending in certain cost categories coupled with lower absorption related to volume decreases during fiscal 2009. The raw material component of the cost
of goods sold as a percentage of net sales decreased from 55.6% in 2008 to 45.8% in 2009. Partially as a result of lower sales volumes, coupled with higher spending in certain areas, our labor and
overhead components of the cost of goods sold increased as a percentage of net sales from the nine-month period of fiscal 2008 to the comparable period of 2009. As a percentage of sales,
labor increased from 7.3% to 8.1%, and overhead increased from 21.5% to 24.3%. All of the above percentages were also impacted by lower selling prices resulting from the pass-through of
lower raw material costs.

Operating income

A reconciliation of the change in operating income (loss) between the nine months ended September 27, 2008 and the nine months
ended October 3, 2009 is presented in the following table (in millions):

Operating incomenine months ended September 27, 2008

$
32.9Change in operating income due to:Price/mix


(57.1
)Lower raw material costs


104.8Volume


(20.8
)Higher manufacturing costs


(10.3
)Foreign currency


3.8Lower depreciation and amortization expense


0.4Higher special charges, net


(5.7
)Decreased share-based compensation costs


(0.1
)All other, primarily lower SG&A spending


5.0Operating incomenine months ended October 3, 2009

$
52.9


Consolidated
operating income was $52.9 million for the nine months ended October 3, 2009 as compared to $32.9 million of income in the comparative period in 2008.
The cost of certain raw materials, especially polypropylene resin, had a $104.8 million positive impact on operating income, which was partially offset by sales price/mix of
$57.1 million primarily resulting from price decreases related to the

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pass-through
of lower raw material costs. Operating income was also negatively impacted by lower sales volumes, higher manufacturing costs in certain locations, including increased
spending in certain cost categories coupled with lower absorption related to volume decreases, and higher special charges.

Selling,
general and administrative expenses decreased $8.9 million, from $88.2 million in 2008 to $79.3 million in 2009, due primarily to the movement of foreign
currencies versus the U.S. dollar of approximately $4.5 million, lower incentive compensation costs of approximately $2.6 million and the absence of executive separation and termination
costs of approximately $1.6 million in fiscal 2008. Selling, general and administrative costs as a percent of net sales increased from 10.9% in the first nine months of fiscal 2008 to 12.4% for
the same period of fiscal 2009. This percentage is impacted by the reduction in selling prices resulting from the pass-through of lower raw material costs.

Special
charges for the nine months ended October 3, 2009 of approximately $10.6 million included non-cash impairment charges of $3.4 million related to
the write-down of certain property and equipment In North Little Rock, Arkansas, and Neunkirchen, Germany to their estimated fair value less costs to sell, restructuring and plant
realignment costs comprised of: (i) $3.1 million of severance and other shut-down costs in Europe related to the ongoing restructuring efforts of the European operations;
(ii) $3.4 million of severance and other shutdown costs related to facilities in the United States; and (iii) $0.2 million of severance costs related to restructuring
initiatives in Canada, and $0.3 million of abandoned acquisition costs.

Interest and Other Expense

Net interest expense decreased $3.8 million, from $23.2 million during the nine months ended September 27, 2008 to
$19.4 million during the nine months ended October 3, 2009. The decrease in net interest expense was largely due to the impact of reduced term loan borrowings and lower interest rates,
and costs associated with an interest rate swap agreement that expired in June 2009, partially offset by higher interest costs related to subsidiary debt obligations.

During
fiscal 2007, we entered into a cash flow hedge agreement, effective May 8, 2007 and which expired on June 29, 2009, which effectively converted $240.0 million
of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085%. Additionally, in February 2009, the Company entered into a new cash flow hedge agreement, which became
effective June 30, 2009 and matures on June 30, 2011 which, originally, effectively converted $240.0 million of notional principal amount of debt from a variable LIBOR rate to a
fixed LIBOR rate of 1.96%.

In
connection with the amendment of our Credit Facility in September 2009, substantially all of the borrowings under the Credit Facility are subject to a LIBOR floor of 2.5%. As a result
of the new LIBOR floor, the effectiveness of the Interest Rate Swap has been modified. See Item 3 "Quantitative and Qualitative Disclosures About Market Risk" included below and Note 11
"Derivatives and Other Financial Instruments and Hedging Activities" included in Item 1 of Part I of this Quarterly Report on Form 10-Q.

During
the nine months ended October 3, 2009, we incurred costs related to the amendment of our Credit Facility. As a result, a portion of the unamortized loan acquisition costs
associated with the November 2005 financing in the amount of $3.5 million were written-off and, together with $1.6 million of third-party costs incurred in connection with
the amendment, are included inLoss of extinguishment of debtin the Consolidated Statement of Operations.

During
the first quarter of fiscal 2009, we reacquired $15.0 million of debt, via cash payment, and recognized a gain on such reacquisition of $2.4 million, net of the
write-off of deferred financing fees of $0.2 million.

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Foreign
currency and other loss (gain), net decreased by $10.4 million, from a $2.8 million gain during the first nine months of fiscal 2008 to a $7.6 million loss
in the first nine months of fiscal 2009, primarily due to movement in foreign currency rates.

Income Tax Expense

During the nine months ended October 3, 2009, we recognized income tax expense of $10.3 million on consolidated income
before income taxes of $23.3 million. During the nine months ended September 27, 2008, we recognized income tax expense of $7.7 million on consolidated income before income taxes
of $12.5 million. Our income tax expense in any period is different than such expense determined at the U.S. federal statutory rate primarily due to losses in certain jurisdictions for which no
income tax benefits are anticipated, foreign withholding taxes for which tax credits are not anticipated, U.S. state income taxes, changes in the amounts recorded for tax uncertainties and foreign
taxes calculated at statutory rates different than the U.S. federal statutory rate. Additionally, income tax expense for the nine months ended October 3, 2009 includes
out-of-period credits in the amount of approximately $1.4 million.

Discontinued Operations

Income from operation of discontinued business is comprised of the net operating results of Fabpro for the nine-month
periods of fiscal 2009 and 2008. During the second quarter of fiscal 2009, we concluded that Fabpro constituted an asset held for sale and, accordingly, we have presented Fabpro as a discontinued
operation. The Company completed the sale of Fabpro during the third quarter of fiscal 2009, and therefore income from discontinued operations increased $3.5 million, from an income of
$0.8 million during the nine months ended September 27, 2008 to income of $4.4 million during the nine months ended October 3, 2009.

We
have recognized a gain on the sale of Fabpro of approximately $8.5 million for the nine month period ended October 3, 2009. The definitive purchase agreement that
underlies the Fabpro sale provides for a purchase price adjustment based on the actual working capital that Fabpro had on the sale date, as compared with a forecasted amount. We anticipate that the
final working capital purchase price adjustment will be resolved in fourth quarter 2009 and does not expect such adjustment to be material.

Net (Income) Loss Attributable to Noncontrolling interests

Noncontrolling interests represents the minority partners' interest in the income or loss of consolidated subsidiaries which are not
wholly owned by us. These interests include a 40% minority interest in Dominion Nonwovens Sudamerica S.A. (our Argentine subsidiary) and a 20% minority interest in Nanhai Nanxin
Non-Woven Co. Ltd. (one of our subsidiaries in China). Additionally, (income) loss attributable to noncontrolling interests during the nine months ended October 3,
2009 include out-of-period adjustments in the amount of approximately $0.6 million.

Net Income Attributable to Polymer Group, Inc.

As a result of the above, we recognized net income attributable to Polymer Group, Inc. of $29.0 million, or $1.48 per
share, for the nine months ended October 3, 2009 compared to $7.2 million, or $.37 per share, for the nine months ended September 27, 2008.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity for operations and expansion are currently funds generated from operations and borrowing
availability under the Credit Facility, consisting of a Term Loan of $410.0 million and a Revolving Credit Facility of $45.0 million at the original borrowing date. As a result of an
amendment to the Credit Facility on September 17, 2009 (the "Amendment"), the maturity date of

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approximately
$295.7 million of our then-outstanding $317.6 million Term Loan was extended to November 22, 2014 with the remainder due November 22, 2012 (after
mandatory annual payments of $4.1 million and additional payments, if any, under the excess cash flow provision of the Credit Facility or optional payments). In addition, the maturity date of
approximately $30.0 million of our available $45.0 million Revolving Credit Facility was extended to November 22, 2013, under certain circumstances summarized below, with the
remaining $15.0 million being subject to termination on November 22, 2010. The Credit Facility, as amended, contains covenants and events of default customary for financings of this
type, including leverage and interest expense coverage covenants. At October 3, 2009, we were in compliance with such financial covenants. See "Liquidity Summary" below for further discussion
of financial covenants. Additionally, as of October 3, 2009,
we had no outstanding borrowings under the Revolving Credit Facility and capacity under the Revolving Credit Facility had been reserved for outstanding letters of credit in the amount of
$2.7 million. As of October 3, 2009, we also had other outstanding letters of credit in the amount of $3.3 million primarily for certain raw material vendors. None of these
letters of credit had been drawn on at October 3, 2009.

October 3,
2009

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

$
56.3

$
45.7Working capital


160.1


183.7Total assets


676.6


702.5Total debt


345.8


413.7Total equity


131.0


93.2




Nine Months EndedOctober 3,
2009

September 27,
2008(In Millions)Cash flow data:Net cash provided by operating activities

$
79.5

$
34.4Net cash used in investing activities


(0.5
)

(27.4
)Net cash used in financing activities


(68.9
)

(11.3
)


Operating Activities

Net cash provided by operating activities was $79.5 million during the first nine months of fiscal 2009, a $45.1 million
increase from the $34.4 million provided by operating activities during the first nine months of fiscal 2008.

We
had working capital of approximately $160.1 million at October 3, 2009 compared with $183.7 million at January 3, 2009. Accounts receivable at
October 3, 2009 was $127.4 million as compared to $125.8 million on January 3, 2009, an increase of $1.6 million. The net increase in accounts receivable during the
first nine months of fiscal 2009 is primarily attributable to (i) the effects of currency movements, (ii) the curtailment in our U.S. company-based receivable factoring program, and
(iii) an increase in the days sales outstanding, partially offset by increased reserves for
potentially uncollectible accounts. Although accounts receivable represented approximately 52 days of sales outstanding at October 3, 2009 as compared to 45 days of sales
outstanding at January 3, 2009, we believe that our increased reserves adequately protect us against foreseeable increased collection risk.

In
fiscal 2004, we entered into factoring agreements to sell, without recourse or discount, certain trade receivables to unrelated third-party financial institutions. Under the current
terms of these factoring agreements, there are maximum amounts of outstanding advances at any one time. Given the continued tightness in the global credit markets and the present difficulties
experienced by some of the companies

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that
participate in the factoring market, we decided to curtail our factoring programs during the third quarter, resulting in a decrease in such funding of approximately $11.0 million and an
increase in days sales outstanding, as noted above.

Inventories
at October 3, 2009 were $101.1 million, a decrease of $6.6 million from inventories at January 3, 2009 of $107.7 million, with component
decreases in finished goods, work-in-process and raw materials of $0.2 million, $3.0 million and $3.4 million, respectively. The net decrease in inventory
during the first nine months of fiscal 2009 is primarily attributable to lower quantities of goods on hand at October 3, 2009, partially offset by (i) the effects of currency movements,
(ii) higher unit costs related to inventory at the end of the third quarter of fiscal 2009 compared to year-end 2008 costs and (iii) a reduction in inventory reserves of
approximately $1.2 million during the first nine months of fiscal 2009. We had inventory representing approximately 52 days of cost of sales on hand at October 3, 2009 compared to
47 days of cost of sales on hand at January 3, 2009.

Accounts
payable and accrued liabilities at October 3, 2009 were $132.7 million as compared to $126.0 million at January 3, 2009, an increase of
$6.7 million. Accounts payable and accrued liabilities represented approximately 69 days of cost of sales outstanding at October 3, 2009 compared to 55 days of cost of
sales outstanding at January 3, 2009. The net increase in accounts payable and accrued liabilities from January 3, 2009 to October 3, 2009 included an increase of approximately
$6.2 million related to amounts due and payable relating to the purchase of equipment and higher raw material unit costs, partially offset by more timely payment of trade payables in Latin
America. Excluding the increase due to capital spending, accounts payable and accrued liabilities represented approximately 66 days of cost of sales outstanding at October 3, 2009.
Accounts payable and accrued liabilities balances can also be impacted by accruals with respect to incentive compensation plans and the timing of payroll cycles, acceptance of vendor discounts,
changes in terms regarding purchases of raw materials from certain vendors, as well as the movement of certain purchases of raw materials, for which there is limited availability, to vendors that
require us to pay cash prior to delivery and reductions in restructuring accruals.

Our
restructuring and plant realignment activities in fiscal 2009 are discussed in Note 3 "Special Charges, Net" to the unaudited interim consolidated financial statements
included in Item 1 of Part I to this Quarterly Report on Form 10-Q.

The
restructuring and plant realignment costs in the first nine months of fiscal 2009 are comprised of: (i) $3.1 million of severance and other shut-down costs
in Europe; (ii) $2.3 million of severance and other shutdown costs related to the North Little Rock, Arkansas facility; (iii) $1.1 million of severance and other shutdown
costs related to other previously announced facility closings in the U.S.; and (iv) $0.2 million of severance costs related to restructuring initiatives in Canada. The restructuring and
plant realignment costs in the first nine months of fiscal 2008 are comprised of: (i) $3.3 million of equipment relocation, other shut-down costs and employee termination
costs related to the previously announced closure of the Neunkirchen, Germany facility, which ceased production activities as of September 29, 2007, (ii) $0.9 million of costs
related to the previously announced closure of the Landisville, New Jersey plant, which ceased production operations as of August 19, 2008, and (iii) $0.5 million of costs related
to a management restructuring within our Latin America operations; and (iv) $0.4 million of credits pertaining to ongoing restructuring initiatives in the United States and Canada.

We
expect to make future cash payments, primarily through the second quarter of fiscal 2010, of approximately $17.0 million to $18.0 million associated with approved
restructuring initiatives, of which $2.2 million has been accrued as of October 3, 2009.

Investing and Financing Activities

Net cash used for investing activities amounted to $0.5 million and $27.4 million in the first nine months of fiscal 2009
and fiscal 2008, respectively. Capital expenditures during the first nine months of 2009 totaled $33.7 million, an increase of $5.3 million from capital spending of $28.4 million
in the same

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period
in 2008. A significant portion of the capital expenditures in 2009 related to the construction of a new spunmelt line at our facility near San Luis Potosi, Mexico. Also, investing activities
during the first nine months of fiscal 2009 and 2008 included proceeds from the sale of assets of $33.4 million and $1.5 million, respectively. The proceeds from the sale of Fabpro,
which is discussed in Note 17, "Discontinued Operations" included in Item 1 of Part I to this Quarterly Report on Form 10-Q, are included in fiscal 2009. We
estimate our annual minimum sustaining capital expenditures to be as high as $10.0 million. As business conditions and working capital requirements change, we actively manage our capital
expenditures, enabling us to appropriately balance cash flows from operations with capital expenditures.

Net
cash used in financing activities amounted to $68.9 million in the first nine months of fiscal 2009, compared to $11.3 million of net cash used in financing activities
in the first nine months of fiscal 2008. In the first nine months of 2009, we repaid, on a net basis, $52.0 million of debt whereas we repaid, on a net basis, $11.3 million of debt in
the first nine months of fiscal 2008. Of the repayments made in fiscal 2009, $33.0 million was associated with the remittance of proceeds received from the sale of Fabpro and
$24.0 million was repaid in conjunction with the execution of the Amendment. Additionally, in the first nine months of 2009, we used $12.3 million to repurchase $15.0 million of
our Term Loan.

Dividends

Our Board of Directors has not declared a dividend on our common stock since emergence from bankruptcy in March 2003.

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

Liquidity Summary

As discussed more fully in Note 7 to our unaudited interim consolidated financial statements included in Item 1 of
Part I to this Quarterly Report on Form 10-Q, we have a Credit Facility, which we entered into on November 22, 2005 and which we amended on December 8, 2006 and
September 17, 2009, which consists of a $410.0 million (at the original loan date) Term Loan and a $45.0 million Revolving Credit Facility. As of October 3, 2009, the Term
Loan consists of $18.7 million of net outstanding amounts maturing on November 22, 2012 ("Tranche 1 Term Loan") and $273.3 million maturing on November 22, 2014
("Tranche 2 Term Loan"). Similarly, the Revolving Credit Facility consists of $15.0 million maturing on November 22, 2010 ("Tranche 1 Revolver") and $30.0 million
maturing on November 22, 2013 ("Tranche 2 Revolver"), under certain circumstances described below. Interest will continue to be payable on a quarterly basis. Principal payments of
$1.0 million will continue to be due quarterly. In conjunction with the Amendment, we were required to repay approximately $24.0 million of the net outstanding borrowings under the Term
Loan.

All
borrowings under the Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of our direct and indirect domestic subsidiaries.
The Credit Facility and the related guarantees are secured by (i) a lien on substantially all of our assets, our domestic subsidiaries and certain of our non-domestic subsidiaries,
(ii) a pledge of all or a portion of the stock of our domestic subsidiaries and of certain of our non-domestic subsidiaries, and (iii) a pledge of certain secured
intercompany notes. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the Tranche 1 Revolver and 0.75% of the daily unused amount of the
Tranche 2 Revolver. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Credit
Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants, as well as default provisions related to certain
types of defaults by us or our subsidiaries in the performance of our obligations regarding borrowings in excess of $10.0 million. The Credit Facility,

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as
amended, requires that we maintain a leverage ratio of not more than 3.50:1.00 as of October 3, 2009 and through the remaining term of the Credit Facility. The interest expense coverage
ratio requirement at October 3, 2009 and for the remaining term of the Credit Facility requires that it not be less than 3.00:1.00. We were in compliance with the financial covenants under the
Credit Facility at October 3, 2009. These ratios are calculated on a trailing four-quarter basis. As a result, any decline in our future operating results, or any increases in
indebtedness not supported by sufficient increases in Consolidated EBITDA (as defined in the Credit Facility) will negatively impact our coverage ratios. Although we expect to remain in compliance
with these covenant requirements, our failure to comply with these financial covenants, without waiver or amendment from our lenders, could have a material adverse effect on our liquidity and
operations, including limiting our ability to borrow under the Credit Facility. On August 21, 2009, we received a waiver from our Lenders with respect to our requirement to furnish certain
financial information related to the quarter ended July 4, 2009. Further, we provided such information within the prescribed timeframe set-forth in the waiver and we were in
compliance with our obligations under the Credit Facility during the third quarter 2009.

The
Term Loan requires mandatory payments of approximately $1.0 million per quarter and requires us to use a percentage of proceeds from excess cash flows, as defined by the
Credit Facility and determined based on year-end results, to reduce our then outstanding balances under the Credit Facility. Excess cash flows required to be applied to the repayment of
the Credit Facility are generally calculated as 50% of the net amount of our available cash generated from operations adjusted for the cash effects of interest, taxes, capital expenditures, changes in
working capital and certain other items. The amount of excess cash flows for future periods is based on year-end results. We currently estimate that the excess cash flow payment with
respect to fiscal 2009, which would be payable in March 2010, will be lower than the amount of repayments already made on the Term Loan during fiscal 2009 and that no additional amounts will be due
with respect to fiscal 2009. No additional amounts were required to be paid under the excess cash flow provisions of the Credit Facility with respect to fiscal 2008. We may, at our discretion and
based on projected operating cash flows, the current market value of the Term Loan and anticipated cash requirements, elect to make additional repayments of debt under the Credit Facility in excess of
the mandatory debt repayments and excess cash flow payments, or may reacquire our debt in conjunction with our debt repurchase program.

We
may, through our subsidiaries, make market purchases of our Term Loan under the Credit Facility from our existing lenders at a discount to the carrying value of our debt. Under these
agreements, to the extent of the amount of debt acquired, our subsidiary will acquire the rights and obligations of a lender under the Credit Facility and the selling third-party lender will be
released from their obligations under the Credit Facility. We will account for such reacquisition of debt as a transfer of financial assets resulting in a sale and derecognize such liability in
accordance with the provisions of FASB ASC 860 "Transfers and Servicing."

In
February 2009, we entered into discussions with the Administrative Agent of our Credit Facility whereby one of our wholly owned subsidiaries would purchase assignments of our Term
Loan over the next two years via open market transactions at a discount to the carrying amount in order to effectively buy back up to $70.0 million of the Term Loan as allowed under the
provisions of the Credit Facility. In March 2009 we purchased, through a subsidiary, $15.0 million of Term Loan, via cash payment, and recognized a gain on such reacquisition of
$2.4 million, net of the write-off of deferred financing fees of $0.2 million, and has included such amount inGain on Reacquisition of
Debtin the Consolidated Statements of Operations included in Item 1 of Part I to this Quarterly Report on Form 10-Q.

The
interest rate applicable to borrowings under the Credit Facility is based on either of the three-month or the one-month LIBOR plus a specified margin. The applicable
margin for borrowings under both the Tranche 1 Term Loan and the Tranche 1 Revolving is 225 basis points. The applicable margin for borrowings under the Tranche 2 Term Loan and
the Tranche 2 Revolver is 450 basis points (with a LIBOR floor of 2.5%). Further, we may, from time to time, elect to use an Alternate Base Rate for our borrowings

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under
the Revolving Credit Facility and Term Loan based on the bank's base rate plus a margin of 75 to 125 basis points based on our total leverage ratio.

In
accordance with the terms of the Credit Facility, we maintained our position in a cash flow hedge agreement originally entered in February 2007. The cash flow hedge agreement
effectively converted $240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085% and terminated on June 29, 2009. Additionally, in
February 2009, we entered into an interest rate swap agreement (the "2009 Swap"), which was effective June 30, 2009 and matures on June 30, 2011, and effectively converts
$240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 1.96%. We originally designated the 2009 Swap as a cash flow hedge of the variability of
interest payments with changes in fair value of the 2009 Swap recorded inAccumulated other comprehensive incomein the Consolidated Balance Sheets. As
of September 17, 2009, in conjunction with the Amendment the Company concluded that 92%, (which represents the approximate percentage of the Tranche 1 Term Loan debt considered
extinguished by the Amendment), of the $3.9 million of cumulative liability related to the 2009 Swap and included inAccumulated Other Comprehensive
Income, was frozen and will be reclassified to earnings as future interest payments are made throughout the term of the 2009 Swap, as this portion of the notional amount no
longer meets the criteria for cash flow hedge accounting. The
cash flow hedge agreements are more fully described in Note 11, "Derivatives and Other Financial Instruments and Hedging Activities" and Note 12, "Fair Value of Financial Instruments and
Non-Financial Assets and Liabilities" included in Item 1 of Part I to this Quarterly Report on Form 10-Q.

There
were no daily borrowings under the Revolving Credit Facility for the period from January 4, 2009 to October 3, 2009, and as of October 3, 2009 or
January 3, 2009. Subject to certain terms and conditions, a maximum of $25.0 million of the Credit Facility may be used for revolving letters of credit. As of October 3, 2009, we
have effectively reserved capacity under the Revolving Credit Facility in the amount of $2.7 million relating to standby and documentary letters of credit outstanding. These letters of credit
are primarily provided to certain administrative service providers. None of these letters of credit had been drawn on at October 3, 2009. The $15.0 million Tranche 1 Revolving
matures on November 22, 2010. The $30.0 million Tranche 2 Revolver matures on November 22, 2013, unless the Tranche 1 Term Loan exceeds $10.0 million on
August 24, 2012, and if that is the case, then the Tranche 2 Revolver matures on August 24, 2012;

As
of October 3, 2009, we also had other outstanding letters of credit in the amount of $3.3 million primarily provided to certain raw material vendors. None of these
letters of credit had been drawn on at October 3, 2009.

We
have also incurred third-party debt in fiscal years 2008 and 2009 to finance the recent installation of our new spunmelt lines in Argentina and in Mexico. As of October 3,
2009, this debt is comprised of long-term facilities of $47.8 million, for which we began to make principal and interest payments in the third quarter of fiscal 2008 with the loans
maturing in 2012 through 2016. Current maturities of this debt amount to approximately $9.5 million. Additionally, our operations in Argentina entered into multiple short-term
credit facilities intended to finance working capital requirements. Outstanding indebtedness under these facilities was $5.8 million at October 3, 2009, which facilities mature at
various dates through March 2010 and are shown inShort-term borrowingsin our unaudited interim Consolidated Balance Sheets.

We
have entered into factoring agreements to sell, without recourse, certain of our U.S. and non-U.S. company-based receivables to unrelated third party financial
institutions. Under the terms of the factoring agreement related to the sale of U.S. company-based receivables, the maximum amount of outstanding advances at any one time is $20.0 million,
which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. Under the terms
of the factoring agreement related to the sale of non-U.S. company-based receivables, the maximum amount of outstanding advances at any one time is

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$10.0 million,
which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables
sold.
The sale of these receivables accelerated the collection of our cash, reduced credit exposure and lowered our net borrowing costs. The Credit Facility permits us to increase the sale of
non-U.S. based receivables, under factoring agreements, to $20.0 million. During the third quarter of fiscal 2009, we have significantly curtailed factoring of our U.S.
company-based receivables resulting in a decrease in funding of approximately $11.0 million.

With
respect to the restructuring and plant realignment activities discussed in Note 3 "Special Charges, Net" to our unaudited interim consolidated financial statements included
in Item 1 of Part I to this Quarterly Report on Form 10-Q, we expect to make future cash payments, primarily through the second quarter of fiscal 2010, of
approximately $17.0 million to $18.0 million, of which $2.2 million has been accrued as of October 3, 2009. Additionally, we currently anticipate future proceeds in the
range of approximately $7.6 million to $8.2 million from the sale of idled facilities and equipment, most of which is expected to be received in fiscal 2010.

During
the second quarter of fiscal 2009, we concluded that it was appropriate to report Fabpro as a discontinued operation. The cash flows from Fabpro are included primarily in the
operating activities portion of our Statement of Cash Flows. Investing and financing activities of Fabpro were not significant during any of the periods presented on in this Quarterly Report on
Form 10-Q. We do not expect the absence of the cash flows generated by Fabpro to have a significant impact on our future liquidity and capital resources. On September 1,
2009, we completed the sale of Fabpro and received net proceeds from the sale of approximately $32.9 million. Of such net proceeds, $31.6 million has been applied to reduce amounts
outstanding under the Term Loan.

On
October 30, 2009, we entered into an Asset Transfer Agreement (the "Asset Transfer Agreement") with Grupo Corinpa, S.L. ("Grupo Corinpa"), Parametro Technologico, S.L.U. ("PGI
Spain"), Tesalca-99, S.A. and Texnovo, S.A. (together with Tesalca-99, S.L., "Tesalca-Texnovo") under which we will acquire the nonwovens businesses of
Tesalca-Texnovo, which are headquartered in Barcelona, Spain, from Grupo Corinpa in a two phase transaction. Phase I is expected to close by the end of November 2009, subject to customary
closing conditions. In Phase I, we will purchase certain assets and the operations of the businesses, including the net operating working capital (defined as current assets less current
liabilities excluding financial liabilities associated with the operations), the customer lists and the current book of business. Assets excluded from the Phase I purchase are primarily the
land, building, equipment and machinery and intellectual property used in the businesses (the "Phase II Assets").

The
consideration for Phase I will consist of approximately 1.05 million shares of the Company's Class A common stock. Simultaneously, we will enter into
(1) a royalty free, exclusive license agreement for the use of Tesalca-Texnovo's intellectual property, and (2) an operating lease entitling us to the full and exclusive use of the land,
building and equipment of the businesses for a seven-year term with payments beginning on March 31, 2010 in the amount of €5.0 million annually for each of
the first three years and €3.5 million annually for each of the remaining four years. Pursuant to the Asset Transfer Agreement, Tesalca-Texnovo are required to use the proceeds
from the operating lease to repay their debt obligations associated with the Phase II Assets and to pay allowed operating expenses.

In
Phase I, we will purchase certain assets and the operations of the businesses of Tesalca-Texnovo, including the net operating working capital (defined as current assets less
current liabilities excluding financial liabilities associated with the operations), the customer lists and the current book of business. The personnel of the businesses will become our employees.
Phase II of the transaction, if it occurs, would consist of put/call options with respect to the Phase II Assets, which would include the purchase of such assets and satisfaction of
Tesalca-Texnovo debt obligations.

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

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Effect of Inflation

Inflation generally affects us by increasing the costs of labor, overhead and equipment. The impact of inflation on our financial
position and results of operations was minimal during the first nine months of fiscal 2009 and fiscal 2008. However, we continue to be impacted by variability in raw material costs. See "Quantitative
and Qualitative Disclosures About Market Risk" included in Item 3 of Part I to this Quarterly Report on Form 10-Q.

New Accounting Standards

In June 2009, the Financial Accounting Standards Board ("FASB") issued authoritative guidance which established the FASB Accounting
Standards Codification (the "Codification" or "ASC") as the source of authoritative U.S. generally accepted accounting principles recognized by the FASB to be applied to nongovernmental
entities. Under the new guidance, as prescribed by ASC 105, "Generally Accepted Accounting Principles", accounting literature references in consolidated financial statements issued beginning in the
third quarter of fiscal 2009 will primarily reference sections of the Codification instead of a specific original accounting pronouncement. We adopted the authoritative guidance in the third quarter
of fiscal 2009.

In
December 2007, the FASB revised the authoritative guidance for business combinations. The guidance, as prescribed by ASC 805, "Business Combinations" ("ASC 805"), changes how an
entity accounts for the acquisition of a business. While ASC 805 retains the requirement to account for all business combinations using the acquisition method, the new guidance applies to a wider
range of transactions or events and requires, in general, acquisition-date fair value measurement of identifiable assets acquired, liabilities assumed and noncontrolling ownership
interests held in the acquiree, among other items. The revised guidance eliminates the cost-based purchase method previously allowed under U.S. GAAP. We will apply the new guidance
to future business combinations. The revised guidance also introduced changes to certain provisions of the authoritative guidance related to income tax accounting. For reorganizations undertaken
before the adoption of the revised guidance, the release of a valuation allowance related to pre-confirmation net operating losses and deductible temporary differences related to certain
reorganizations are now being reported as a reduction to income tax expense. Similarly, adjustments to uncertain tax positions made after the confirmation date are now recorded in the income
statement.

In
September 2006, the FASB issued new guidance, as prescribed by ASC 820, "Fair Value Measurements and Disclosures" ("ASC 820"), which clarifies the definition of fair value whenever
another standard requires or permits assets or liabilities to be measured at fair value. Specifically, the standard clarifies that fair value should be based on the assumptions market participants
would use when pricing the asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. ASC 820 does not expand the use of fair value
to any new circumstances, and must be applied on a prospective basis except in certain cases. The standard also requires expanded financial statement disclosures about fair value measurements,
including disclosure of the methods used and the effect on earnings.

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We
adopted ASC 820-10-55 as of January 4, 2009 for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). Examples of items within the scope of ASC 820-10-55 are nonfinancial assets and nonfinancial liabilities
initially measured at fair value in a business combination (but not measured at fair value in subsequent periods), and long-lived assets, such as property, plant and equipment and
intangible assets measured at fair value for an impairment assessment under ASC 360.

The
partial adoption of ASC 820 on January 1, 2008 with respect to financial assets and financial liabilities recognized or disclosed at fair value in the financial statements on
a recurring basis did not have a material impact on our consolidated financial statements.

ASC
820-10-65 provides additional guidance on estimating fair value when the volume and level of activity for an asset or liability have significantly decreased.
ASC 820-10-65 also includes guidance on identifying circumstances that indicate a transaction is not orderly, and emphasizes that, regardless of whether the volume and level of
activity for an asset or liability have decreased significantly and regardless of which valuation technique was used, the objective of a fair value measurement under ASC 820, remains the
sameto estimate the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date under current
market conditions. ASC 820-10-65 was effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. We adopted ASC 820-10-65 as of July 4, 2009 and applied its provisions prospectively by providing the additional disclosures in its unaudited
interim consolidated financial statements. See Note 12 "Fair Value of Financial Instruments and Non-financial Assets and Liabilities" in Item 1 of Part I to this
quarterly report on Form 10-Q for additional information.

In
April 2009, guidance as prescribed by ASC 825, "Financial Instruments" ("ASC 825") was issued and requires, on an interim basis, disclosures about the fair value of financial
instruments for public entities. ASC 825 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An
entity may early adopt ASC 825 only if it concurrently adopts both ASC 320, "InvestmentsDebt and Equity Securities" and ASC 820-10-65. We adopted ASC 825 effective
July 4, 2009 by providing the additional disclosures in its unaudited interim consolidated financial statements.

In
December 2007, the FASB issued authoritative guidance related to noncontrolling interests in consolidated financial statements, which changes the accounting for, and the financial
statement presentation of, noncontrolling equity interests in a consolidated subsidiary. Under the new guidance, as prescribed by ASC 810, "Consolidation" ("ASC 810") all entities are required to
report noncontrolling (minority) interests in subsidiaries as a component of consolidated equity in the consolidated financial statements. In addition, ASC 810 requires transactions between an entity
and noncontrolling interests that do not result in deconsolidation to be treated as equity transactions and provides new guidance on accounting for deconsolidation. The new guidance was effective for
fiscal years beginning on or after December 15, 2008 and applies prospectively from the effective
date except for the presentation and disclosure requirements, which must be applied retrospectively.

We
adopted the new guidance on January 4, 2009. Accordingly, we have adjusted our comparative consolidated financial statements presented as follows:



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In
March 2008, the FASB revised its guidance to expand the required disclosure framework for derivative instruments and hedging activities. The revised guidance, as prescribed by ASC
815, requires companies with derivative instruments to disclose information about how and why we use derivative instruments; how we account for the derivative instruments and related hedged items; and
how derivative instruments and related hedged items affect the unaudited interim consolidated financial statements. The expanded disclosure guidance also requires us to provide information about our
strategies and objectives for using derivative instruments; disclose
credit-risk-related contingent features in derivative agreements and information about counterparty credit risk; and present fair value of derivative instruments and related
gains and losses in a tabular format. We adopted the revised guidance as of January 4, 2009 and applied its provisions prospectively by providing the additional disclosures in our unaudited
interim consolidated financial statements.

In
April 2008, the FASB issued authoritative guidance for determining the useful life of recognized intangible assets and to improve consistency between the period of expected cash flows
used to measure the fair value of a recognized intangible asset and the useful life of the intangible asset. The guidance, as prescribed by ASC 275, "Risks and Uncertainties" and ASC 350,
"IntangiblesGoodwill and Other", requires that an entity consider its own historical experience in renewing or extending similar arrangements. However, the entity must adjust that
experience based on entity-specific factors. If the company lacks historical experience to consider for similar arrangements, it would consider assumptions that market participants would use about
renewal or extension, as adjusted for the entity-specific factors. We adopted the guidance as of January 4, 2009. We capitalize costs incurred to renew or extend the term of its intangible
assets. In the nine-month periods ended October 3, 2009 and September 27, 2008, we incurred $0.2 million and $0.4 million, respectively, of renewal and
extension costs for patents and trademarks related to several of its products. The weighted-average period for amortizing the costs of patents and trademarks is six years. We currently expect to be
able to continue to maintain these patents and trademarks and thus do not anticipate any significant effect on its expected future cash flows related to those products.

In
December 2008, the FASB issued additional guidance regarding employers' disclosures about plan assets of a defined benefit pension or other postretirement plan. This guidance, as
prescribed by ASC 715, "CompensationRetirement Benefits", is effective for financial statements issued for fiscal years ending after December 15, 2009. We will adopt the new
guidance as of January 2, 2010. The adoption of this interpretation will increase the disclosures in the financial statements related to the assets of our postretirement benefit plans.

In
May 2009, the FASB issued authoritative guidance, as prescribed by ASC 855, "Subsequent Events", which established standards of accounting for events that occur after the balance
sheet date and disclosures of events that occur after the balance sheet date but before the financial statements are issued. The new guidance introduces new terminology, defines a date through which
management must evaluate subsequent events, and lists circumstances under which we must recognize and disclose subsequent events or transactions occurring after the Balance Sheet date. This guidance
was effective for interim or annual financial periods ending after June 15, 2009 and was applied by us as of July 4, 2009. We evaluated subsequent events through the date on which this
Quarterly Report on Form 10-Q was filed with the Securities and Exchange Commission.

In
August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05,Measuring Liabilities at Fair Value, to amend
ASC 820 to clarify how entities should estimate the fair value of liabilities. ASC 820, as amended, includes clarifying guidance for circumstances in which a quoted price in an active
market is not available, the effect of the existence of liability transfer restrictions, and the effect of quoted prices for the identical liability, including when the identical liability is traded
as an asset.

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The
amended guidance in ASC 820 on measuring liabilities at fair value is effective for the first interim or annual reporting period beginning after August 28, 2009, with earlier application
permitted. We do not believe that the adoption of the amended guidance in ASC 820 will have a significant effect on its consolidated financial statements.

In
October 2009, the FASB issued Accounting Standards Update (ASU) 2009-13,Multiple-Deliverable Revenue Arrangementsa consensus of the
FASB Emerging Issues Task Force, to amend certain guidance in ASC 605,Revenue Recognition, 25, "Multiple-Element
Arrangements". The amended guidance in ASC 605-25: (1) modifies the separation criteria by eliminating the criterion that requires objective and reliable evidence of fair
value for the undelivered item(s), and (2) eliminates the use of the residual method of allocation and instead requires that arrangement consideration be allocated, at the inception of the
arrangement, to all deliverables based on their relative selling price. The amended guidance in ASC 605-25 is effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010, with early application and retrospective application permitted. We expect to prospectively apply the amended guidance in ASC
605-25 beginning January 3, 2010. We do not believe that the adoption of the amendments to ASC 605-25 will have a significant effect on its consolidated financial
statements.

Critical Accounting Policies and Other Matters

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

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

Revenue recognition:Revenue from product sales is recognized when title and risks of ownership pass to the customer, which is on the
date of
shipment to the customer, or upon delivery to a place named by the customer, depending upon contract terms and when collectability is reasonably assured and pricing is fixed or determinable. Revenue
includes amounts billed to customers for shipping and handling. Provision for rebates, promotions, product returns and discounts to customers is recorded as a reduction in determining revenue in the
same period that the revenue is recognized. We base our estimate of the expense to be recorded each period on historical returns and allowance levels. We do not believe the likelihood is significant
that materially higher deduction levels will result based on prior experience.

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Accounts receivable and concentration of credit risks:Accounts receivable potentially expose us to a concentration of credit risk. We
provide credit
in the normal course of business and perform ongoing credit evaluations on our customers' financial condition as deemed necessary, but generally do not require collateral to support such receivables.
We also establish an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Also, in an effort to reduce our
credit exposure to certain customers, as well as accelerate our cash flows, we have sold, on a non-recourse basis, certain of our receivables pursuant to factoring agreements. During the
third quarter of fiscal 2009, we have significantly curtailed factoring of our U.S. company-based receivables. At October 3, 2009, a reserve of $8.7 million has been recorded as an
allowance against trade accounts receivable. We believe that the allowance is adequate to cover potential losses resulting from uncollectible accounts receivable and deductions resulting from sales
returns and allowances. While our credit losses have historically been within our calculated estimates, it is possible that future losses could differ significantly from these estimates.

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

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

We
recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing
authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount
that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically
due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are
identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.

A
number of years may elapse before a particular matter for which a liability related to an unrecognized tax benefit is audited and finally resolved. The number of years with open tax
audits varies

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

In
prior periods and consistent with previous authoritative guidance, recognition of tax benefits from preconfirmation net operating loss carryforwards and other deductible temporary
differences not previously recognized were applied to reduce goodwill to zero, then to reduce intangible assets that existed at the date of emergence from bankruptcy with any excess tax benefits
credited directly to Additional Paid in Capital.

In
December 2007, the FASB issued revised authoritative guidance, effective for fiscal years beginning on or after December 15, 2008 with respect to accounting for business
combinations and also introduced changes to certain provisions of income tax accounting. For reorganizations undertaken before the adoption period of the revised guidance, release of a valuation
allowance related to pre-confirmation net operating losses and deductible temporary differences are now being reported as a reduction to income tax expense. Similarly, adjustments to
uncertain tax positions made after the confirmation date are now recorded in the income statement.

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

For
assets held for disposal, an impairment charge is recognized if the carrying value of the assets exceeds the fair value less costs to sell. Estimates are required of fair value,
disposal costs and the time period to dispose of the assets. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment
loss is deemed to be necessary. Actual cash flows received or paid could differ from those used in estimating the impairment loss, which would impact the impairment charge ultimately recognized. As of
October 3, 2009, based on our current operating performance, as well as future expectations for the business, we do not anticipate any material writedowns for long-lived asset
impairments. However, conditions could deteriorate, which could impact our future cash flow estimates, and there exists the potential for further consolidation and restructuring in the more mature
markets of the U.S., Europe and Canada, either of which could result in an impairment charge that could have a material effect on our consolidated financial statements.

Stock-based compensation:We account for stock-based compensation related to our employee share-based plans in accordance with the
methodology
defined in the current authoritative guidance for stock compensation. The compensation costs related to all new grants and any unvested portion of prior grants have been measured based on the
grant-date fair value of the award. Consistent with the authoritative guidance, awards are considered granted when all required approvals are obtained and when the participant begins to
benefit from, or be adversely affected by, subsequent changes in the price of the underlying shares and, regarding awards containing performance conditions, when we and

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the
participant reach a mutual understanding of the key terms of the performance conditions. Additionally, accruals for compensation costs for share-based awards with performance conditions are based
on the probability of the achievement of such performance conditions.

We
have estimated the fair value of each stock option grant by using the Black-Scholes option-pricing model. Under the option pricing model, the estimate of fair value is based on the
share price and other pertinent factors at the grant date (as defined in the authoritative guidance), such as expected volatility, expected dividend yield, risk-free interest rate,
forfeitures and expected lives. Assumptions are evaluated and revised, as necessary, to reflect market conditions and experience. Although we believe the assumptions are appropriate, differing
assumptions would affect compensation costs.

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

Environmental

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

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Long-Term Debt and Interest Rate Market Risk

Our long-term borrowings under the Credit Facility are variable interest rate debt, primarily subject to a 2.5% LIBOR
floor. As such, to the extent not protected by interest rate hedge agreements, our interest expense will increase as LIBOR rates rise above 2.5% and decrease as LIBOR rates fall to 2.5%. It is our
policy to enter into interest rate derivative transactions only to meet our stated overall objective. We do not enter into these transactions for speculative purposes. To that end, as further
described in Notes 7 and 11 to our unaudited interim consolidated financial statements included in Item 1 of Part I to this Quarterly Report on Form 10-Q, in
February 2009, we entered into an interest rate swap agreement (the "2009 Swap"), which was effective June 30, 2009 and matures on June 30, 2011 and, originally, effectively converted
$240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 1.96%.

However,
as of September 17, 2009, in conjunction with the Amendment we concluded that 92% of the notional amount of the 2009 Swap no longer meets the criteria for cash flow hedge
accounting, primarily due to the institution of a LIBOR floor applicable to extended portions of the Credit Facility. As a result, to the extent that LIBOR rates decline we are exposed to interest
rate risk associated with approximately $220 million of the notional amount of the 2009 Swap. The 2009 Swap agreement is more fully described in Note 11, "Derivatives and Other Financial
Instruments and Hedging Activities" and

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Note 12,
"Fair Value of Financial Instruments and Non-Financial Assets and Liabilities" included in Item 1 of Part I to this Quarterly Report on
Form 10-Q.

Hypothetically,
a 1% change in the interest rate affecting all of our subsidiary indebtedness would change interest expense by approximately $0.5 million. With respect to the
Credit Facility, excluding the effect of the 2009 Swap, to the extent that LIBOR rates, hypothetically, remain at all times above the LIBOR floor of 2.5%, a 1% change in interest rates would change
interest expense by approximately $2.9 million.

Previously,
the Company had a similar pay-fixed, receive variable interest rate swap contract that matured on June 20, 2009 and effectively fixed the LIBOR interest
rate on a notional principal debt amount of $240.0 million at 5.085%.

Foreign Currency Exchange Rate Risk

We manufacture, market and distribute certain of our products in Europe, Canada, Latin America and Asia. As a result, our results of
operations could be significantly affected by factors such as changes in foreign currency rates in the foreign markets in which we maintain a manufacturing or distribution presence. However, such
currency fluctuations have much less effect on local operating results because we, to a significant extent, sell our products within the countries in which they are manufactured. During the first nine
months of both 2009 and 2008, certain currencies of countries in which we conduct foreign currency denominated business moved against the U.S. dollar and had a significant impact on sales, with a
lesser effect on operating income. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" above.

We
have not historically hedged our exposure to foreign currency risk. However, we periodically review our hedge strategy with respect to our U.S. dollar exposure on certain foreign
currency based obligations such as firm commitments related to certain capital expenditure projects. In
addition, in most foreign operations, there is a partial natural currency hedge due to similar amounts of costs of materials and production as revenues in such local currencies. Furthermore, in
certain circumstances, we have utilized insurance programs to mitigate our currency risk exposure associated with the potential inconvertibility of local currency into U.S. dollars (or other hard
currency) and to transfer such hard currency out of the foreign countries where certain of our foreign businesses are domiciled.

Raw Material and Commodity Risks

The primary raw materials used in the manufacture of most of our products are polypropylene resin, polyester fiber, polyethylene resin,
and, to a lesser extent, rayon and tissue paper. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude
oil and natural gas liquids. In certain regions of the world, we may source certain key raw materials from a limited number of suppliers or on a sole source basis. The loss of certain of our suppliers
could adversely affect our business until alternative supply arrangements were secured or alternative suppliers were qualified with customers. We have not historically hedged our exposure to raw
material increases, but we have certain customer contracts with price adjustment provisions which provide for the pass-through of any cost increases or decreases in raw materials, although
there is often a delay between the time we incur the new raw material cost and the time that we are able to adjust the selling price to our customers. Raw material costs as a percentage of sales have
decreased from 56.8% in the three months ended September 27, 2008 to 46.8% in the three months ended October 3, 2009.

During
the first eight months of fiscal 2008, the cost of polypropylene resin, our largest volume raw material, increased significantly, particularly during the May 2008 to August 2008
timeframe and, during the fourth quarter of fiscal 2008, the cost of polypropylene resin decreased dramatically. During the first nine months of fiscal 2009, we have seen significant increases in the
cost of polypropylene resin versus the cost of such resin at the end of fiscal 2008 and are experiencing significant volatility in resin prices.

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Additionally,
on a global basis, other raw material costs continue to fluctuate in response to certain global economic factors, including the regional supply versus demand dynamics for the raw
materials and the volatile price of oil.

In
periods of rising raw material costs, to the extent we are not able to pass along price increases of raw materials, or to the extent any such price increases are delayed, our cost of
goods sold would increase and our operating profit would correspondingly decrease. By way of example, if the price of polypropylene was to rise $.01 per pound, and we were not able to pass along any
of such increase to our customers, we would realize a decrease of approximately $4.3 million, on an
annualized basis, in our reported pre-tax operating income. Material increases in raw material prices that cannot be passed on to customers could have a material adverse effect on our
results of operations and financial condition. In periods of declining raw material costs, our cost of goods sold would decrease and our operating profit would correspondingly increase; however, such
increase would be offset, in whole or in part, by reductions to selling prices offered to customers by contract or in light of current market conditions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included above.

ITEM 4.    CONTROLS AND PROCEDURES

A.    Evaluation of Disclosure Controls and Procedures

Under the direction of the Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and
procedures, as such item is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as of the end of the period covered by this report.
Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level
because of the material weaknesses in the Company's internal control over financial reporting described below. Notwithstanding the existence of these material weaknesses, the Company's management
believes that the consolidated financial statements and other financial information included in this report fairly present in all material respects the Company's financial condition, results of
operations and cash flows as of, and for, the periods presented.

B.    Changes in Internal Control over Financial Reporting

Management is responsible for establishing and maintaining effective internal control over financial reporting for the Company as such term is defined in
Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A
material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. As of the end of the period covered by this report, management identified a
deficiency in the Company's internal control over financial reporting associated with processes related to the preparation and adjustment of the Company's income tax accounts. Management's
determination resulted from the identification of certain out-of-period adjustments and from an assessment that the Company did not have a sufficient complement of personnel on
a global basis experienced in income tax accounting in accordance with accounting principles generally accepted in the United States. Management also identified a deficiency in the Company's internal
control over financial reporting associated with reconciliation of intercompany

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balances.
Management's determination resulted from a review of current procedures regarding reconciliation of intercompany balances, which revealed that such procedures are incomplete. There is a
reasonable possibility that each of these control deficiencies could result in a misstatement of the Company's results of operations that would result in a material misstatement to the annual or
interim consolidated financial statements that would not be prevented or detected. Accordingly, the Company has concluded that each of these control deficiencies constitutes a material weakness.
Management also identified these material weaknesses at the end of the quarter ended July 4, 2009, which was reported in the Quarterly Report on Form 10-Q for that period.

The
Company's management and Board of Directors plan to remediate the income tax weakness by (i) increasing personnel resources within the global tax function (ii) by
instituting training regarding accounting for income taxes for global finance and tax personnel, and (iii) by making modifications to documentation used to prepare and reconcile income tax
balances. With respect to the weakness described regarding reconciliation of intercompany balances, the Company has designed, and will institute, additional controls to ensure that such balances are
analyzed on a recurring basis.

Other
than as described above, there were no changes in the Company's internal control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f), during the quarter ended October 3, 2009 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over
financial reporting.

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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

ITEM 1A.    RISK FACTORS

Not applicable.

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

During the second quarter of fiscal 2009, 666 shares of our Class B Common Stock were converted into 666 shares of our
Class A Common Stock. These conversions were exempt from registration based on Section 3(a)(9) of the Securities Act of 1933, as amended.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5.    OTHER INFORMATION

Not applicable.

ITEM 6.    EXHIBITS

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

Exhibit Number

Document Description10.1

Amendment No. 2, dated as of September 17, 2009, to Credit Agreement, dated as of November 22, 2005 among Polymer Group, Inc., as Borrower, the various Lenders referred to therein, Citicorp North
America, Inc. as Administrative Agent, Documentation Agent, Collateral Agent and Syndication Agent, and Citigroup Global Markets, Inc., as Sole Lead Arranger and Sole Bookrunner.31.1

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

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

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

Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350


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SIGNATURES

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

POLYMER GROUP, INC.Date: November 12, 2009

By:

/s/ VERONICA M. HAGEN Veronica M. Hagen Chief Executive OfficerDate: November 12, 2009

By:

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


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