##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended October 2, 2010
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 1-14330
 POLYMER GROUP, INC.
  Delaware
    
    57-1003983(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)9335 Harris Corners Parkway, Suite 300Charlotte, North Carolina
    
    28269(Address of principal executive offices)
    
    (Zip Code)
 (704) 697-5100
 None
 þ o
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



POLYMER GROUP, INC.
INDEX TO FORM 10-Q
 PageIMPORTANT INFORMATION REGARDING THIS FORM 10-Q
    
    
    3PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    38Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    63Item 4. Controls and Procedures
    
    
    65PART
II. OTHER INFORMATION
    
    
    66Item 1. Legal Proceedings
    
    
    66Item 1A. Risk Factors
    
    
    66Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    66Item 3. Defaults Upon Senior Securities
    
    
    66Item 5. Other Information
    
    
    66Item 6. Exhibits
    
    
    66Signatures
    
    
    67Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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IMPORTANT INFORMATION REGARDING THIS FORM 10-Q
   Safe Harbor-Forward-Looking Statements
  Form 10-K.
  
    
    uncertainty regarding the effect or outcome of the Companys previously
announced merger transaction;
 
    
    general economic factors including, but not limited to, changes in interest
rates, foreign currency translation rates, consumer confidence, trends in disposable
income, changes in consumer demand for goods produced, and cyclical or other downturns;
 
    
    cost and availability of raw materials, labor and natural and other resources
and the inability to pass raw material cost increases along to customers;
 
    
    changes to selling prices to customers which are based, by contract, on an
underlying raw material index;
 
    
    substantial debt levels and potential inability to maintain sufficient
liquidity to finance our operations and make necessary capital expenditures;
 
    
    inability to meet existing debt covenants or obtain necessary waivers;
 
    
    achievement of objectives for strategic acquisitions and dispositions;
 
    
    inability to achieve successful or timely start-up on new or modified
production lines;
 
    
    reliance on major customers and suppliers;
 
    
    domestic and foreign competition;
 
    
    information and technological advances;
 
    
    risks related to operations in foreign jurisdictions;
 
    
    changes in environmental laws and regulations, including climate change-related
legislation and regulation; and
 
    
    the outcome of discussions with the Internal Revenue Service regarding the
potential payments due associated with the personal holding company (PHC) tax issue
discussed herein.
  3




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ITEM 1.
    
    FINANCIAL STATEMENTS
 POLYMER GROUP, INC.
 CONSOLIDATED BALANCE SHEETS


 (Unaudited)
 (In Thousands, Except Share Data)
 January 2,October 2,
    
    
    20102010
    
    
    As RestatedASSETSCurrent assets:Cash and cash equivalents
    
    $
    69,413
    
    
    $
    59,521Accounts receivable, net
    
    
    148,837
    
    
    
    127,976Inventories, net
    
    
    113,241
    
    
    
    106,820Deferred income taxes
    
    
    4,739
    
    
    
    3,612Other current assets
    
    
    41,550
    
    
    
    34,382Total current assets
    
    
    377,780
    
    
    
    332,311Property, plant and equipment, net
    
    
    313,454
    
    
    
    330,415Intangibles and loan acquisition costs, net
    
    
    8,197
    
    
    
    9,006Deferred income taxes
    
    
    2,676
    
    
    
    2,777Other assets
    
    
    29,191
    
    
    
    27,029Total assets
    
    $
    731,298
    
    
    $
    701,538LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term borrowings
    
    $
    6,975
    
    
    $
    3,690Accounts payable and accrued liabilities
    
    
    200,990
    
    
    
    148,042Income taxes payable
    
    
    4,452
    
    
    
    3,940Deferred income taxes
    
    
    67
    
    
    
    Current portion of long-term debt
    
    
    12,764
    
    
    
    16,921Total current liabilities
    
    
    225,248
    
    
    
    172,593Long-term debt
    
    
    313,134
    
    
    
    322,021Deferred income taxes
    
    
    20,408
    
    
    
    21,425Other noncurrent liabilities
    
    
    30,676
    
    
    
    61,280Total liabilities
    
    
    589,466
    
    
    
    577,319Commitments and contingenciesPolymer Group, Inc. shareholders equity:Preferred stock0 shares issued and outstanding
    
    
    
    
    
    
    Class A common stock21,327,646 and 20,875,378 issued and
outstanding at October 2, 2010 and January 2, 2010,
respectively
    
    
    213
    
    
    
    209Class B convertible common stock81,917 and 83,807 shares
issued and outstanding at October 2, 2010 and January 2, 2010,
respectively
    
    
    1
    
    
    
    1Class C convertible common stock24,319 and 24,319 shares
issued and outstanding at October 2, 2010 and January 2, 2010,
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
    
    
    214,876
    
    
    
    211,768Retained deficit
    
    
    (116,565
    )
    
    
    (137,367
    )Accumulated other comprehensive income
    
    
    34,667
    
    
    
    41,570Total Polymer Group, Inc. shareholders equity
    
    
    133,192
    
    
    
    116,181Noncontrolling interests
    
    
    8,640
    
    
    
    8,038Total equity
    
    
    141,832
    
    
    
    124,219Total liabilities and equity
    
    $
    731,298
    
    
    $
    701,538
   4




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POLYMER GROUP, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)
 (In Thousands, Except Per Share Data)
 Three MonthsThree Months
    
    
    EndedEnded
    
    
    October 3, 2009October 2, 2010
    
    
    As RestatedNet sales
    
    $
    297,436
    
    
    $
    223,022Cost of goods sold
    
    
    237,978
    
    
    
    175,767Gross profit
    
    
    59,458
    
    
    
    47,255Selling, general and administrative expenses
    
    
    35,439
    
    
    
    27,412Special charges, net
    
    
    2,511
    
    
    
    1,785Acquisition and integration expenses
    
    
    49
    
    
    
    Other operating income, net
    
    
    (719
    )
    
    
    (675
    )Operating income
    
    
    22,178
    
    
    
    18,733Other expense:Interest expense, net
    
    
    7,764
    
    
    
    5,406Loss on extinguishment of debt
    
    
    
    
    
    
    5,085Foreign currency and other loss, net
    
    
    261
    
    
    
    1,923Income before income tax expense and discontinued operations
    
    
    14,153
    
    
    
    6,319Income tax (benefit) expense
    
    
    (7,490
    )
    
    
    2,687Income from continuing operations
    
    
    21,643
    
    
    
    3,632Income from discontinued operations
    
    
    
    
    
    
    8,919Net income
    
    
    21,643
    
    
    
    12,551Net (income) attributable to noncontrolling interests
    
    
    (154
    )
    
    
    (198
    )Net income attributable to Polymer Group, Inc.
    
    $
    21,489
    
    
    $
    12,353Earnings per common share attributable to Polymer
Group, Inc. common shareholders:Basic:Continuing operations
    
    $
    1.02
    
    
    $
    0.17Discontinued operations
    
    
    
    
    
    
    0.45Basic
    
    $
    1.02
    
    
    $
    0.62Diluted
    
    $
    1.00
    
    
    $
    0.62
   5




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POLYMER GROUP, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS


 (Unaudited)
 (In Thousands, Except Per Share Data)
 Nine MonthsNine Months
    
    
    EndedEnded
    
    
    October 3, 2009October 2, 2010
    
    
    As RestatedNet sales
    
    $
    866,553
    
    
    $
    639,072Cost of goods sold
    
    
    705,482
    
    
    
    499,697Gross profit
    
    
    161,071
    
    
    
    139,375Selling, general and administrative expenses
    
    
    104,165
    
    
    
    79,901Special charges, net
    
    
    11,868
    
    
    
    10,558Acquisition and integration expenses
    
    
    1,729
    
    
    
    Other operating income, net
    
    
    (1,947
    )
    
    
    (3,650
    )Operating income
    
    
    45,256
    
    
    
    52,566Other expense (income):Interest expense, net
    
    
    24,463
    
    
    
    19,504Gain on reacquisition of debt
    
    
    
    
    
    
    (2,431
    )Loss on extinguishment of debt
    
    
    
    
    
    
    5,085Foreign currency and other loss, net
    
    
    1,139
    
    
    
    5,500Income before income tax expense and discontinued operations
    
    
    19,654
    
    
    
    24,908Income tax (benefit) expense
    
    
    (1,595
    )
    
    
    12,149Income from continuing operations
    
    
    21,249
    
    
    
    12,759Income from discontinued operations
    
    
    
    
    
    
    12,826Net income
    
    
    21,249
    
    
    
    25,585Net (income) loss attributable to noncontrolling interests
    
    
    (447
    )
    
    
    2,564Net income attributable to Polymer Group, Inc.
    
    $
    20,802
    
    
    $
    28,149Earnings per common share attributable to Polymer Group, Inc. common shareholders:Basic:Continuing operations
    
    $
    1.00
    
    
    $
    0.78Discontinued operations
    
    
    
    
    
    
    0.65Basic
    
    $
    1.00
    
    
    $
    1.43Diluted
    
    $
    0.98
    
    
    $
    1.43
   6




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POLYMER GROUP, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)
 (In Thousands)
 Nine MonthsNine Months
    
    
    EndedEnded
    
    
    October 3, 2009October 2, 2010
    
    
    As RestatedOperating activities:Net income attributable to Polymer Group, Inc.
    
    $
    20,802
    
    
    $
    28,149Adjustments to reconcile net income
attributable to Polymer Group, Inc. to net cash
provided by operating activities:Asset impairment charge
    
    
    744
    
    
    
    3,444Deferred income taxes
    
    
    (2,101
    )
    
    
    2,938Depreciation and amortization
    
    
    34,916
    
    
    
    38,065Gain on reacquisition of debt
    
    
    
    
    
    
    (2,431
    )Non-cash write-off of loan acquisition costs
    
    
    
    
    
    
    3,483Loss on firm commitment
    
    
    62
    
    
    
    Gain on sale of assets, net
    
    
    (909
    )
    
    
    (8,210
    )Non-cash compensation, net
    
    
    3,108
    
    
    
    2,775Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (23,176
    )
    
    
    887Inventories, net
    
    
    (7,673
    )
    
    
    9,143Other current assets
    
    
    (4,292
    )
    
    
    (454
    )Accounts payable and accrued liabilities
    
    
    30,580
    
    
    
    (3,657
    )Other, net
    
    
    (13,149
    )
    
    
    5,416Net cash provided by operating activities
    
    
    38,912
    
    
    
    79,548Investing activities:Purchases of property, plant and equipment
    
    
    (21,439
    )
    
    
    (33,753
    )Proceeds from sale of assets
    
    
    2,234
    
    
    
    33,386Acquisition of intangibles and other
    
    
    (405
    )
    
    
    (176
    )Net cash used in investing activities
    
    
    (19,610
    )
    
    
    (543
    )Financing activities:Proceeds from borrowings
    
    
    34,925
    
    
    
    39,355Repayment of borrowings
    
    
    (44,309
    )
    
    
    (91,381
    )Reacquisition of debt
    
    
    
    
    
    
    (12,333
    )Loan acquisition costs
    
    
    (166
    )
    
    
    (4,492
    )Net cash used in financing activities
    
    
    (9,550
    )
    
    
    (68,851
    )Effect of exchange rate changes on cash
    
    
    140
    
    
    
    415Net increase in cash and cash equivalents
    
    
    9,892
    
    
    
    10,569Cash and cash equivalents at beginning of period
    
    
    59,521
    
    
    
    45,718Cash and cash equivalents at end of period
    
    $
    69,413
    
    
    $
    56,287
   7




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##### Table of Contents



POLYMER GROUP, INC.
 Notes to Consolidated Financial Statements
 Note 1. Basis of Presentation, Description of Business and Recent Developments
 Basis of Presentation and Description of Business
    Adjustment for Out-of-Period Items
  Income tax (benefit) expense Accumulated other comprehensive income
 Reclassification
   8




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Recent Developments  Proposed Merger
       Revenue Recognition
   9




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Inventories
  Use of Estimates
  Stock-Based Compensation
  Special Charges
  Derivatives
    10




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Interest expense, net
 Foreign currency and other (gain) loss, net
 Gain on Reacquisition of Debt
 Gain on Reacquisition of Debt
 Accumulated Other Comprehensive Income
  Recent Accounting Standards
    11




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Note 2. Concentration of Credit Risks and Accounts Receivable Factoring Agreements
   Accounts receivable, net Other current
assets Foreign currency and other
loss, net
  12




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Note 3. Special Charges, Net
 Special charges, net
 Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 2,
    
    
    October 3,
    
    
    October 2,
    
    
    October 3,2010
    
    
    2009
    
    
    2010
    
    
    2009Restructuring and plant realignment costs
    
    $
    1,479
    
    
    $
    1,268
    
    
    $
    8,462
    
    
    $
    6,756Asset impairment charges
    
    
    35
    
    
    
    251
    
    
    
    744
    
    
    
    3,444Other costs
    
    
    997
    
    
    
    266
    
    
    
    2,662
    
    
    
    358$
    2,511
    
    
    $
    1,785
    
    
    $
    11,868
    
    
    $
    10,558
 Restructuring and plant realignment costs
 Accounts payable
and accrued liabilities
 Balance accrued at beginning of year
    
    $
    2,8032010 restructuring and plant realignment costs
    
    
    8,462Cash payments
    
    
    (8,947
    )Adjustments
    
    
    250Balance accrued at end of period
    
    $
    2,568
     13




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Restructuring in prior periods
  Asset impairment charges
   Other costs
  Note 4. Acquisitions
 Argentina
  Spain
   14




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##### Table of Contents



Cost of goods sold
   Acquisition and integration expenses
   Note 5. Discontinued Operations
   15




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Income from discontinued operations
 Income from discontinued operations )
 Three Months
    
    
    Nine MonthsEnded
    
    
    EndedOctober 3,
    
    
    October 3,2009
    
    
    2009Net sales
    
    $
    5,052
    
    
    $
    35,923Pre-tax income
    
    $
    446
    
    
    $
    4,353Income tax expense
    
    
    
    
    
    
    Net income
    
    $
    446
    
    
    $
    4,353
   Note 6. Inventories, net
  January 2,October 2,
    
    
    20102010
    
    
    RestatedFinished goods
    
    $
    53,038
    
    
    $
    58,974Work in process
    
    
    16,150
    
    
    
    13,281Raw materials and supplies
    
    
    44,053
    
    
    
    34,565$
    113,241
    
    
    $
    106,820
   16




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Note 7. Intangibles and Loan Acquisition Costs, net
  October 2,
    
    
    January 2,2010
    
    
    2010Cost:Goodwill
    
    $
    2,466
    
    
    $
    2,588Customer relationships
    
    
    779
    
    
    
    818Proprietary technology
    
    
    3,294
    
    
    
    3,027Loan acquisition costs
    
    
    4,544
    
    
    
    4,378Other
    
    
    1,995
    
    
    
    2,11413,078
    
    
    
    12,925Less accumulated amortization
    
    
    (4,881
    )
    
    
    (3,919
    )$
    8,197
    
    
    $
    9,006
   Loss on extinguishment of debt
  Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedOctober 2,
    
    
    October 3,
    
    
    October 2,
    
    
    October 3,2010
    
    
    2009
    
    
    2010
    
    
    2009Amortization of:Intangibles with finite lives, included in selling,
general and administrative expenses
    
    $
    178
    
    
    $
    174
    
    
    $
    562
    
    
    $
    501Loan acquisition costs included in interest expense, net
    
    
    225
    
    
    
    329
    
    
    
    662
    
    
    
    937Total amortization expense
    
    $
    403
    
    
    $
    503
    
    
    $
    1,224
    
    
    $
    1,438
   17




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Note 8. Accounts Payable and Accrued Liabilities
  October 2,
    
    
    January 2,2010
    
    
    2010Accounts payable to vendors
    
    $
    128,696
    
    
    $
    110,848Accrued salaries, wages, incentive compensation and
other fringe benefits
    
    
    23,124
    
    
    
    17,899Current portion of uncertain tax position liabilities (1)
    
    
    20,092
    
    
    
    Other accrued expenses
    
    
    29,078
    
    
    
    19,295$
    200,990
    
    
    $
    148,042
 
 (1)
    
    The $20.0 million of uncertain tax position liabilities are more fully
described in Note 10, Income Taxes. Note 9. Debt
  October 2,
    
    
    January 2,2010
    
    
    2010Credit 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)interest at 2.51% and 2.50%
as of October 2, 2010 and January 2,
2010, respectively, with any remaining
unpaid balance due November 22, 2012
    
    $
    15,987
    
    
    $
    17,123First Lien Term Loan
(Tranche 2)interest at 7.00% and 7.00%
as of October 2, 2010 and January 2,
2010, respectively, with any remaining
unpaid balance due November 22, 2014
    
    
    271,474
    
    
    
    273,346Argentine Facility:Argentine Peso Loaninterest at 18.31%
as of October 2, 2010 and 18.85% at
January 2, 2010, denominated in
Argentine pesos due in 23 remaining
quarterly payments of approximately
$0.2 million ($0.4 million for one
remaining quarterly payment in 2010)
beginning in February 2010
    
    
    5,008
    
    
    
    6,307Argentine Peso Loan for working
capitalinterest at 18.56% as of October
2, 2010 and 18.85% at January 2, 2010,
denominated in Argentine pesos due in 9
remaining quarterly payments of
approximately $0.1 million ($0.2 million
for one remaining quarterly payment in
2010) beginning in January 2010
    
    
    1,089
    
    
    
    1,892United States Dollar Loaninterest at
3.49% as of October 2, 2010 and 3.25% as
of January 2, 2010, denominated in U.S.
dollars due in 23 remaining quarterly
payments of approximately $0.9 million
($1.7 million per quarter in 2010)
beginning in March 2010
    
    
    20,704
    
    
    
    25,880Mexico Term Loaninterest at 8.09% as of
October 2, 2010 and 8.05% as of January 2,
2010; denominated in U.S. dollars due in 17
remaining quarterly payments of
approximately $0.7 million
    
    
    11,205
    
    
    
    13,841Other
    
    
    431
    
    
    
    553325,898
    
    
    
    338,942Less: Current maturities
    
    
    (12,764
    )
    
    
    (16,921
    )$
    313,134
    
    
    $
    322,021
  18




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Credit Facility
       19




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Current portion of long-term debt
 Gain on Reacquisition of Debt
       20




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Short-term borrowings
 Subsidiary Indebtedness
 Short-term borrowings
      21




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Note 10. Income Taxes
        22




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Income tax expense
 Income tax expense Accumulated other comprehensive income Income tax expense
  Other current assets
 Note 11. Pension and Postretirement Benefit Plans
   23




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Pension BenefitsThree Months Ended
    
    
    Nine Months EndedOctober 2, 2010
    
    
    October 3, 2009
    
    
    October 2, 2010
    
    
    October 3, 2009Current service costs
    
    $
    482
    
    
    $
    528
    
    
    $
    1,470
    
    
    $
    1,546Interest costs on projected benefit obligation
and other
    
    
    1,546
    
    
    
    1,675
    
    
    
    4,698
    
    
    
    4,914Return on plan assets
    
    
    (1,433
    )
    
    
    (1,559
    )
    
    
    (4,355
    )
    
    
    (4,572
    )Amortization of transition obligation and other
    
    
    56
    
    
    
    125
    
    
    
    162
    
    
    
    370Periodic benefit cost, net
    
    $
    651
    
    
    $
    769
    
    
    $
    1,975
    
    
    $
    2,258
 Postretirement BenefitsThree Months Ended
    
    
    Nine Months EndedOctober 2, 2010
    
    
    October 3, 2009
    
    
    October 2, 2010
    
    
    October 3, 2009Current service costs
    
    $
    19
    
    
    $
    9
    
    
    $
    57
    
    
    $
    26Interest costs on projected benefit obligation
and other
    
    
    86
    
    
    
    75
    
    
    
    257
    
    
    
    217Return on plan assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of transition obligation and other
    
    
    (75
    )
    
    
    (85
    )
    
    
    (224
    )
    
    
    (248
    )Periodic benefit cost, net
    
    $
    30
    
    
    $
    (1
    )
    
    $
    90
    
    
    $
    (5
    )
  Note 12. Stock Option and Restricted Stock Plans
 Stock Option Plan
  Selling, general and administrative
expenses
  24




---



##### Table of Contents



ExpectedVested
    
    
    to VestFor options granted and outstanding:Number of options
    
    
    34,705
    
    
    
    12,740Weighted average exercise price
    
    $
    6.00
    
    
    $
    6.00Aggregate intrinsic value (in 000s)
    
    $
    573
    
    
    $
    210For nonvested options:Compensation cost not yet recognized (in 000s)
    
    
    
    
    
    $
    158Weighted average period of recognition (years)
    
    
    
    
    
    
    0.1
   Restricted Stock Plans
 2004 Restricted Stock Plan for Directors
  Selling, general and administrative expenses
 Selling, general and administrative expenses
   25




---



##### Table of Contents



2005 Employee Restricted Stock Plan
   Selling, general and administrative expenses
  2008 Long-Term Stock Incentive Plan
    26




---



##### Table of Contents



Selling, general and administrative expenses
  Other Compensation Arrangement
   Note 13. Derivative and Other Financial Instruments and Hedging Activities
    27




---



##### Table of Contents



Accumulated other comprehensive income Accumulated Other Comprehensive Income
  Interest expense, net
   Foreign currency and other loss, net
  28




---



##### Table of Contents



As of October 2, 2010
    
    
    As of January 2, 2010Notional
    
    
    Fair Value
    
    
    Notional
    
    
    Fair ValueCash flow hedges:Interest rate swaps (1)
    
    $
    18,693
    
    
    $
    238
    
    
    $
    18,693
    
    
    $
    283Interest rate swapsundesignated (1)
    
    
    221,307
    
    
    
    2,743
    
    
    
    221,307
    
    
    
    3,256Foreign currency hedges:Foreign exchange contracts
    
    
    27,461
    
    
    
    105
    
    
    
    
    
    
    
    Net value
    
    $
    267,461
    
    
    $
    3,086
    
    
    $
    240,000
    
    
    $
    3,539
 
 (1)
    
    Comprised of a $240.0 million notional amount interest rate swap agreement that was executed
and became effective on June 20, 2009 and matures on June 30, 2011.  For the Three Month Periods EndedAmount of Gain
    
    
    Amount of Gain(Loss) Recognized
    
    
    (Loss) Reclassifiedin Accumulated
    
    
    from AccumulatedOCI on Derivative
    
    
    OCI into Income(Effective Portion)
    
    
    (Effective Portion) (1)October 2,
    
    
    October 3,
    
    
    October 2,
    
    
    October 3,Derivatives in Cash Flow Hedging Relationships
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Derivatives designated as hedging instruments:Interest rate contracts
    
    $
    32
    
    
    $
    (669
    )
    
    
    N/A
    
    
    $
    (1,019
    )Derivatives not designated as hedging instruments
    
    
    N/A
    
    
    
    N/A
    
    
    $
    (560
    )
    
    
    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 Month Periods EndedAmount of Gain
    
    
    Amount of Gain(Loss) Recognized
    
    
    (Loss) Reclassifiedin Accumulated
    
    
    from AccumulatedOCI on Derivative
    
    
    OCI into Income(Effective Portion)
    
    
    (Effective Portion) (1)October 2,
    
    
    October 3,
    
    
    October 2,
    
    
    October 3,Derivatives in Cash Flow Hedging Relationships
    
    2010
    
    
    2009
    
    
    2010
    
    
    2009Derivatives designated as hedging instruments:Interest rate contracts
    
    $
    43
    
    
    $
    (1,540
    )
    
    
    N/A
    
    
    $
    (5,477
    )Derivatives not designated as hedging instruments
    
    
    N/A
    
    
    
    N/A
    
    
    $
    (1,680
    )
    
    
    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.   29




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##### Table of Contents



Note 14. Fair Value of Financial Instruments and Non-Financial Assets and Liabilities
     Property, plant and equipment, net Accounts payable and accrued
liabilities Other noncurrent liabilities
 Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    UnobservableAs of
    
    
    for Identical
    
    
    Observable
    
    
    InputsOctober 2, 2010
    
    
    Assets (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)Firm commitment
    
    $
    43
    
    
    
    
    
    
    $
    43
    
    
    
    Derivative liabilities:Interest rate swap agreements
    
    
    (2,981
    )
    
    
    
    
    
    
    (2,981
    )
    
    
    Foreign exchange contract
    
    
    (105
    )
    
    
    
    
    
    
    (105
    )
    
    
    
 Quoted Prices inActive Markets
    
    
    Significant Other
    
    
    UnobservableAs of
    
    
    for Identical
    
    
    Observable
    
    
    InputsJanuary 2, 2010
    
    
    Assets (Level 1)
    
    
    Inputs (Level 2)
    
    
    (Level 3)Derivative liabilities:Interest rate swap agreements
    
    
    (3,539
    )
    
    
    
    
    
    
    (3,539
    )
    
    
    
   30




---



##### Table of Contents



Quoted Prices inFiscal Period
    
    
    Active Markets
    
    
    Significant Other
    
    
    Unobservable
    
    
    (1)Ended
    
    
    for Identical
    
    
    Observable
    
    
    Inputs
    
    
    TotalOctober 2, 2010
    
    
    Assets Level 1
    
    
    Inputs Level 2
    
    
    Level 3
    
    
    Gains (Losses)Long-lived assets held for sale (2)
    
    $
    5,635
    
    
    
    
    
    
    $
    4,635
    
    
    $
    1,000
    
    
    $
    (744
    )
 
 (1)
    
    In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets
Subsections of FASB Codification Subtopic 360-10, long-lived assets held for sale with a
carrying amount of $6.3 million were written down to their fair value of $5.6 million, net of
the costs to sell based on current market conditions, resulting in a loss of $0.7 million,
which was included in earnings for the period.(2)
    
    Long-lived assets held for sale in Level 2 Inputs 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. The equipment included in Level 3 assets reflects managements best
estimate at which the respective equipment will be sold based on market conditions for used
equipment, less costs to sell.  As of October 2, 2010
    
    
    As of January 2, 2010Carrying Value
    
    
    Fair Value
    
    
    Carrying Value
    
    
    Fair ValueLong-term debt (including current portion)
    
    $
    325,898
    
    
    $
    323,447
    
    
    $
    338,942
    
    
    $
    333,189
   31




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##### Table of Contents



Note 15. Earnings Per Share and Shareholders Equity
  Income fromContinuing
    
    
    Average Shares
    
    
    Earnings (Loss)Operations
    
    
    Outstanding
    
    
    Per Common(EPS Numerator)
    
    
    (EPS Denominator)
    
    
    ShareThree months ended October 2, 2010Basic
    
    $
    21,489
    
    
    
    20,894.0
    
    
    $
    1.02Potential shares exercisable under share-based plans
    
    
    
    
    
    
    598.4Less: shares which could be repurchased under
treasury stock method
    
    
    
    
    
    
    (192.0
    )Diluted
    
    $
    21,489
    
    
    
    21,300.4
    
    
    $
    1.00Nine months ended October 2, 2010Basic
    
    $
    20,802
    
    
    
    20,739.0
    
    
    $
    1.00Potential shares exercisable under share-based plans
    
    
    
    
    
    
    598.5Less: shares which could be repurchased under
treasury stock method
    
    
    
    
    
    
    (213.8
    )Diluted
    
    $
    20,802
    
    
    
    21,123.7
    
    
    $
    0.98
  Income fromContinuingOperations
    
    
    Average Shares
    
    
    Earnings Per(EPS Numerator)
    
    
    Outstanding
    
    
    Common ShareAs Restated
    
    
    (EPS Denominator)
    
    
    As RestatedThree months ended October 3, 2009Basic
    
    $
    3,434
    
    
    
    19,686.1
    
    
    $
    0.17Potential shares exercisable under share-based plans
    
    
    
    
    
    
    259.7Less: shares which could be repurchased under treasury stock method
    
    
    
    
    
    
    (162.5
    )Diluted
    
    $
    3,434
    
    
    
    19,783.3
    
    
    $
    0.17Nine months ended October 3, 2009Basic
    
    $
    15,323
    
    
    
    19,552.1
    
    
    $
    0.78Potential shares exercisable under share-based plans
    
    
    
    
    
    
    179.2Less: shares which could be repurchased under treasury stock method
    
    
    
    
    
    
    (140.8
    )Diluted
    
    $
    15,323
    
    
    
    19,590.5
    
    
    $
    0.78
   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
   32




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##### Table of Contents



Polymer Group, Inc. ShareholdersAccumulatedOtherComprehensive
    
    
    Retained
    
    
    Comprehensive
    
    
    Common
    
    
    Paid-in
    
    
    NoncontrollingTotal
    
    
    Income (loss)
    
    
    Deficit
    
    
    Income
    
    
    Stock
    
    
    Capital
    
    
    InterestBalance, January 2, 2010 (As Restated)
    
    $
    124,219
    
    
    
    
    
    
    $
    (137,367
    )
    
    $
    41,570
    
    
    $
    210
    
    
    $
    211,768
    
    
    $
    8,038Compensation recognized on share-based awards
    
    
    4,737
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4,733Surrender of shares to satisfy withholding tax
obligations
    
    
    (1,625
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,625
    )Comprehensive income (loss):Net income (loss)
    
    
    21,249
    
    
    $
    20,802
    
    
    
    20,802
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    447Other comprehensive income (loss), net of tax:Intraperiod income tax adjustment
    
    
    (4,965
    )
    
    
    (4,965
    )
    
    
    
    
    
    
    (4,965
    )Cash flow hedge adjustment, net of
reclassification adjustment
    
    
    1,081
    
    
    
    1,081
    
    
    
    
    
    
    
    1,081Employee benefit plans
    
    
    275
    
    
    
    275
    
    
    
    
    
    
    
    275Currency translation adjustments
    
    
    (3,139
    )
    
    
    (3,294
    )
    
    
    
    
    
    
    (3,294
    )
    
    
    
    
    
    
    
    
    
    
    155Other comprehensive loss
    
    
    (6,748
    )
    
    
    (6,903
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    155Comprehensive loss
    
    
    14,501
    
    
    $
    13,899
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    602Balance, October 2, 2010
    
    $
    141,832
    
    
    
    
    
    
    $
    (116,565
    )
    
    $
    34,667
    
    
    $
    214
    
    
    $
    214,876
    
    
    $
    8,640
 Note 16. Segment Information
   33




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedOctober 3,
    
    
    
    
    
    
    October 3,October 2,
    
    
    2009
    
    
    October 2,
    
    
    20092010
    
    
    As Restated
    
    
    2010
    
    
    As RestatedNet salesNonwovens
    
    $
    272,350
    
    
    $
    202,696
    
    
    $
    789,645
    
    
    $
    581,583Oriented Polymers
    
    
    25,086
    
    
    
    20,326
    
    
    
    76,908
    
    
    
    57,489$
    297,436
    
    
    $
    223,022
    
    
    $
    866,553
    
    
    $
    639,072Operating incomeNonwovens
    
    $
    34,436
    
    
    $
    27,406
    
    
    $
    84,392
    
    
    $
    79,787Oriented Polymers
    
    
    1,264
    
    
    
    (494
    )
    
    
    2,740
    
    
    
    937Unallocated Corporate
    
    
    (10,962
    )
    
    
    (6,396
    )
    
    
    (28,279
    )
    
    
    (17,602
    )24,738
    
    
    
    20,516
    
    
    
    58,853
    
    
    
    63,122Acquisition and integration expenses
    
    
    (49
    )
    
    
    
    
    
    
    (1,729
    )
    
    
    Special charges, net
    
    
    (2,511
    )
    
    
    (1,783
    )
    
    
    (11,868
    )
    
    
    (10,556
    )$
    22,178
    
    
    $
    18,733
    
    
    $
    45,256
    
    
    $
    52,566Depreciation and amortization expenseNonwovens
    
    $
    10,907
    
    
    $
    11,620
    
    
    $
    33,111
    
    
    $
    34,493Oriented Polymers
    
    
    146
    
    
    
    264
    
    
    
    438
    
    
    
    1,019Unallocated Corporate
    
    
    237
    
    
    
    346
    
    
    
    705
    
    
    
    558Depreciation and amortization expense included in operating income
    
    
    11,290
    
    
    
    12,230
    
    
    
    34,254
    
    
    
    36,070Amortization of loan acquisition costs
    
    
    225
    
    
    
    329
    
    
    
    662
    
    
    
    937$
    11,515
    
    
    $
    12,559
    
    
    $
    34,916
    
    
    $
    37,007Capital spendingNonwovens
    
    $
    10,653
    
    
    $
    18,577
    
    
    $
    20,137
    
    
    $
    33,332Oriented Polymers
    
    
    220
    
    
    
    135
    
    
    
    405
    
    
    
    205Corporate
    
    
    897
    
    
    
    35
    
    
    
    897
    
    
    
    170$
    11,770
    
    
    $
    18,747
    
    
    $
    21,439
    
    
    $
    33,707
 January 2,October 2,
    
    
    20092010
    
    
    As RestatedDivision assetsNonwovens
    
    $
    755,249
    
    
    $
    740,591Oriented Polymers
    
    
    43,002
    
    
    
    36,255Corporate
    
    
    (1,027
    )
    
    
    3,763Eliminations
    
    
    (65,926
    )
    
    
    (79,071
    )$
    731,298
    
    
    $
    701,538
  34




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedOctober 3,
    
    
    
    
    
    
    October 3,October 2,
    
    
    2009
    
    
    October 2,
    
    
    20092010
    
    
    As Restated
    
    
    2010
    
    
    As RestatedNet salesUnited States
    
    $
    87,062
    
    
    $
    78,709
    
    
    $
    253,097
    
    
    $
    226,447Canada
    
    
    23,725
    
    
    
    19,393
    
    
    
    73,438
    
    
    
    55,520Europe
    
    
    69,118
    
    
    
    36,087
    
    
    
    207,385
    
    
    
    111,365Asia
    
    
    34,689
    
    
    
    28,176
    
    
    
    96,760
    
    
    
    78,519Latin America
    
    
    82,842
    
    
    
    60,657
    
    
    
    235,873
    
    
    
    167,221$
    297,436
    
    
    $
    223,022
    
    
    $
    866,553
    
    
    $
    639,072Operating incomeUnited States
    
    $
    (1,101
    )
    
    $
    2,363
    
    
    $
    (8,173
    )
    
    $
    10,671Canada
    
    
    641
    
    
    
    (943
    )
    
    
    1,124
    
    
    
    567Europe
    
    
    3,553
    
    
    
    1,288
    
    
    
    10,327
    
    
    
    2,567Asia
    
    
    6,296
    
    
    
    6,290
    
    
    
    19,309
    
    
    
    17,283Latin America
    
    
    15,349
    
    
    
    11,518
    
    
    
    36,266
    
    
    
    32,03424,738
    
    
    
    20,516
    
    
    
    58,853
    
    
    
    63,122Acquisition and integration expenses
    
    
    (49
    )
    
    
    
    
    
    
    (1,729
    )
    
    
    Special charges, net
    
    
    (2,511
    )
    
    
    (1,783
    )
    
    
    (11,868
    )
    
    
    (10,556
    )$
    22,178
    
    
    $
    18,733
    
    
    $
    45,256
    
    
    $
    52,566Depreciation and amortization expenseUnited States
    
    $
    3,987
    
    
    $
    3,365
    
    
    $
    11,592
    
    
    $
    10,602Canada
    
    
    136
    
    
    
    422
    
    
    
    408
    
    
    
    1,197Europe
    
    
    1,210
    
    
    
    1,656
    
    
    
    3,984
    
    
    
    5,390Asia
    
    
    1,719
    
    
    
    2,333
    
    
    
    5,420
    
    
    
    7,001Latin America
    
    
    4,238
    
    
    
    4,454
    
    
    
    12,850
    
    
    
    11,880Depreciation and amortization expense included in operating income
    
    
    11,290
    
    
    
    12,230
    
    
    
    34,254
    
    
    
    36,070Amortization of loan acquisition costs
    
    
    225
    
    
    
    329
    
    
    
    662
    
    
    
    937$
    11,515
    
    
    $
    12,559
    
    
    $
    34,916
    
    
    $
    37,007
 January 2,October 2,
    
    
    20102010
    
    
    As RestatedProperty, plant and equipment, netUnited States
    
    $
    81,265
    
    
    $
    91,700Canada
    
    
    5,137
    
    
    
    5,052Europe
    
    
    28,183
    
    
    
    33,203Asia
    
    
    66,636
    
    
    
    54,596Latin America
    
    
    132,233
    
    
    
    145,864$
    313,454
    
    
    $
    330,415
  35




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Note 17. Foreign Currency and Other (Gain) Loss, Net
  Three Months Ended
    
    
    Nine Months EndedOctober 3,
    
    
    
    
    
    
    October 3,October 2,
    
    
    2009
    
    
    October 2,
    
    
    20092010
    
    
    As Restated
    
    
    2010
    
    
    As RestatedIncluded in operating income
    
    $
    (533
    )
    
    $
    (308
    )
    
    $
    (1,386
    )
    
    $
    (2,509
    )Included in other expense (income)
    
    
    571
    
    
    
    1,476
    
    
    
    1,325
    
    
    
    4,602$
    38
    
    
    $
    1,168
    
    
    $
    (61
    )
    
    $
    2,093
 Other operating income, net Other operating income, net Foreign currency and other
loss, net
 Other operating income, net Foreign currency and other loss, net
 Note 18. Commitments and Contingencies
      36




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##### Table of Contents



Note 19. Supplemental Cash Flow Information
    37




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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,
numbers pertaining to periods in fiscal 2009 have been restated as appropriate. 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
       38




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##### Table of Contents



Income from discontinued operations Form 10-Q.
  Recent Developments  Proposed Merger
    39




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##### Table of Contents



Raw Materials
   40




---



##### Table of Contents



Business Acquisitions
 Spain
       41




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##### Table of Contents



Argentina
  Recent Expansion Initiatives
    Plant Consolidation and Realignment
    42




---



##### Table of Contents



Results of Operations
   43




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##### Table of Contents



Fiscal Year Ended
    
    
    Three Months Ended
    
    
    Nine Months EndedOctober 3,
    
    
    
    
    
    
    October 3,2009
    
    
    2008
    
    
    October 2,
    
    
    2009
    
    
    October 2,
    
    
    2009As Restated
    
    
    As Restated
    
    
    2010
    
    
    As Restated
    
    
    2010
    
    
    As RestatedNet sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold:Materials
    
    
    46.9
    
    
    
    55.0
    
    
    
    52.9
    
    
    
    46.8
    
    
    
    53.2
    
    
    
    45.8Labor
    
    
    8.1
    
    
    
    7.2
    
    
    
    6.7
    
    
    
    8.1
    
    
    
    6.9
    
    
    
    8.1Overhead
    
    
    24.2
    
    
    
    21.5
    
    
    
    20.4
    
    
    
    23.9
    
    
    
    21.3
    
    
    
    24.379.2
    
    
    
    83.7
    
    
    
    80.0
    
    
    
    78.8
    
    
    
    81.4
    
    
    
    78.2Gross profit
    
    
    20.8
    
    
    
    16.3
    
    
    
    20.0
    
    
    
    21.2
    
    
    
    18.6
    
    
    
    21.8Selling, general and administrative expenses
    
    
    13.1
    
    
    
    11.0
    
    
    
    11.9
    
    
    
    12.3
    
    
    
    12.0
    
    
    
    12.5Special charges, net
    
    
    2.4
    
    
    
    1.9
    
    
    
    0.8
    
    
    
    0.8
    
    
    
    1.4
    
    
    
    1.7Acquisition and integration expenses
    
    
    0.2
    
    
    
    
    
    
    
    0.0
    
    
    
    
    
    
    
    0.2
    
    
    
    Other operating (income) loss, net
    
    
    (0.4
    )
    
    
    0.4
    
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.2
    )
    
    
    (0.6
    )Operating income (loss)
    
    
    5.5
    
    
    
    3.0
    
    
    
    7.5
    
    
    
    8.4
    
    
    
    5.2
    
    
    
    8.2Other expense (income):Interest expense, net
    
    
    3.0
    
    
    
    2.9
    
    
    
    2.6
    
    
    
    2.4
    
    
    
    2.8
    
    
    
    3.1Gain on reacquisition of debt
    
    
    (0.3
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Loss on extinguishment of debt
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    2.3
    
    
    
    
    
    
    
    0.8Foreign currency and other (gain) loss, net
    
    
    0.5
    
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    0.9
    
    
    
    0.1
    
    
    
    0.8Income (loss) before income taxes and discontinued operations
    
    
    1.7
    
    
    
    0.3
    
    
    
    4.8
    
    
    
    2.8
    
    
    
    2.3
    
    
    
    3.9Income tax expense
    
    
    1.4
    
    
    
    0.6
    
    
    
    (2.5
    )
    
    
    1.0
    
    
    
    (0.2
    )
    
    
    1.7Income (loss) from continuing operations
    
    
    0.3
    
    
    
    (0.3
    )
    
    
    7.3
    
    
    
    1.8
    
    
    
    2.5
    
    
    
    2.2Income (loss) from discontinued operations
    
    
    0.5
    
    
    
    0.2
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    0.7Gain on sale of discontinued operations
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    3.8
    
    
    
    
    
    
    
    1.3Net income from discontinued operations
    
    
    1.5
    
    
    
    0.2
    
    
    
    
    
    
    
    4.0
    
    
    
    
    
    
    
    2.0Net income (loss)
    
    
    1.8
    
    
    
    (0.1
    )
    
    
    7.3
    
    
    
    5.8
    
    
    
    2.5
    
    
    
    4.2Less: net (income) loss attributable to noncontrolling interests
    
    
    0.2
    
    
    
    0.5
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    0.4Net income (loss) attributable to Polymer Group, Inc.
    
    
    2.0
    %
    
    
    0.4
    %
    
    
    7.2
    %
    
    
    5.7
    %
    
    
    2.4
    %
    
    
    4.6
    %
 Comparison of Three Months Ended October 2, 2010 and October 3, 2009
  Three months endedOctober 3,October 2,
    
    
    20092010
    
    
    As Restated
    
    
    ChangeNet salesNonwovens
    
    $
    272.3
    
    
    $
    202.7
    
    
    $
    69.6Oriented Polymers
    
    
    25.1
    
    
    
    20.3
    
    
    
    4.8$
    297.4
    
    
    $
    223.0
    
    
    $
    74.4Operating income (loss)Nonwovens
    
    $
    34.4
    
    
    $
    27.4
    
    
    $
    7.0Oriented Polymers
    
    
    1.3
    
    
    
    (0.5
    )
    
    
    1.8Unallocated Corporate, net of eliminations
    
    
    (11.0
    )
    
    
    (6.4
    )
    
    
    (4.6
    )24.7
    
    
    
    20.5
    
    
    
    4.2Acquisition and integration expenses
    
    
    
    
    
    
    
    
    
    
    Special charges, net
    
    
    (2.5
    )
    
    
    (1.8
    )
    
    
    (0.7
    )$
    22.2
    
    
    $
    18.7
    
    
    $
    3.5
   44




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##### Table of Contents



Net sales
  OrientedNonwovens
    
    
    Polymers
    
    
    TotalNet salesthree months ended October 3, 2009
    
    $
    202.7
    
    
    $
    20.3
    
    
    $
    223.0Change in sales due to:Volume
    
    
    45.7
    
    
    
    2.5
    
    
    
    48.2Price/mix
    
    
    27.1
    
    
    
    1.9
    
    
    
    29.0Foreign currency translation
    
    
    (3.2
    )
    
    
    0.4
    
    
    
    (2.8
    )Net salesthree months ended October 2, 2010
    
    $
    272.3
    
    
    $
    25.1
    
    
    $
    297.4
    Gross margin as a percent of sales
   45




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##### Table of Contents



Operating income
  Operating incomethree months ended October 3, 2009 (As Restated)
    
    $
    18.7Change in operating income due to:Volume
    
    
    12.6Price/mix
    
    
    28.2Higher raw material costs
    
    
    (25.0
    )Higher manufacturing costs
    
    
    (3.3
    )Foreign currency
    
    
    (0.8
    )Lower depreciation and amortization expense
    
    
    0.9Higher special charges, net
    
    
    (0.8
    )Increased share-based compensation costs
    
    
    (1.0
    )All other, primarily higher SG&A spending
    
    
    (7.3
    )Operating incomethree months ended October 2, 2010
    
    $
    22.2
    Interest and Other Expense
 Accumulated other comprehensive
income
  46




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##### Table of Contents



Loss
of extinguishment of debt
  Income Tax (Benefit) Expense
  Income tax
expense
   47




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##### Table of Contents



Discontinued Operations
  Net (Income) Loss Attributable to Noncontrolling interests
  Net Income Attributable to Polymer Group, Inc.
  Adjusted EBITDA
  Comparison of Nine Months Ended October 2, 2010 and October 3, 2009
  Nine months endedOctober 3,October 2,
    
    
    20092010
    
    
    As Restated
    
    
    ChangeNet salesNonwovens
    
    $
    789.7
    
    
    $
    581.6
    
    
    $
    208.1Oriented Polymers
    
    
    76.9
    
    
    
    57.5
    
    
    
    19.4$
    866.6
    
    
    $
    639.1
    
    
    $
    227.5Operating income (loss)Nonwovens
    
    $
    84.0
    
    
    $
    79.8
    
    
    $
    4.2Oriented Polymers
    
    
    2.7
    
    
    
    0.9
    
    
    
    1.8Unallocated Corporate, net of eliminations
    
    
    (27.8
    )
    
    
    (17.6
    )
    
    
    (10.2
    )58.9
    
    
    
    63.1
    
    
    
    (4.2
    )Acquisition and integration expenses
    
    
    (1.7
    )
    
    
    
    
    
    
    (1.7
    )Special charges, net
    
    
    (11.9
    )
    
    
    (10.5
    )
    
    
    (1.4
    )$
    45.3
    
    
    $
    52.6
    
    
    $
    (7.3
    )
  48




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##### Table of Contents



Net sales
  OrientedNonwovens
    
    
    Polymers
    
    
    TotalNet salesnine months ended October 3, 2009
    
    $
    581.6
    
    
    $
    57.5
    
    
    $
    639.1Change in sales due to:Volume
    
    
    134.3
    
    
    
    15.6
    
    
    
    149.9Price/mix
    
    
    76.7
    
    
    
    1.7
    
    
    
    78.4Foreign currency translation
    
    
    (2.9
    )
    
    
    2.1
    
    
    
    (0.8
    )Net salesnine months ended October 2, 2010
    
    $
    789.7
    
    
    $
    76.9
    
    
    $
    866.6
   Gross margin as a percent of sales
   49




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##### Table of Contents



Operating income
  Operating incomenine months ended October 3, 2009 (As Restated)
    
    $
    52.6Change in operating income due to:Volume
    
    
    39.3Price/mix
    
    
    76.2Higher raw material costs
    
    
    (83.1
    )Higher manufacturing costs
    
    
    (9.0
    )Foreign currency
    
    
    (5.7
    )Lower depreciation and amortization expense
    
    
    1.8Higher acquisition and integration expenses
    
    
    (1.7
    )Higher special charges, net
    
    
    (1.4
    )Increased share-based compensation costs
    
    
    (2.0
    )All other, primarily higher SG&A spending
    
    
    (21.7
    )Operating incomenine months ended October 2, 2010
    
    $
    45.3
   50




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##### Table of Contents



Interest and Other Expense
 Accumulated other
comprehensive income
   Loss of extinguishment of debt
  51




---



##### Table of Contents



Income Tax (Benefit) Expense
  Income tax
expense
  Income from Discontinued Operations
  Net Loss Attributable to Noncontrolling interests
  Net Income Attributable to Polymer Group, Inc.
   52




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##### Table of Contents



Adjusted EBITDA
  NON-GAAP FINANCIAL MEASURE
     Three
    
    
    
    
    
    
    NineThree
    
    
    Months
    
    
    Nine
    
    
    MonthsMonths
    
    
    Ended
    
    
    Months
    
    
    EndedEnded
    
    
    October 3,
    
    
    Ended
    
    
    October 3,October 2,
    
    
    2009
    
    
    October 2,
    
    
    20092010
    
    
    As Restated
    
    
    2010
    
    
    As RestatedNet income attributable to Polymer Group, Inc.
    
    $
    21,489
    
    
    $
    12,353
    
    
    $
    20,802
    
    
    
    28,149Income & franchise tax expense
    
    
    (7,449
    )
    
    
    2,731
    
    
    
    (1,216
    )
    
    
    12,559Interest expense, net
    
    
    7,764
    
    
    
    5,406
    
    
    
    24,463
    
    
    
    19,504Depreciation and amortization included in operating income
    
    
    11,290
    
    
    
    12,230
    
    
    
    34,254
    
    
    
    36,071Noncontrolling interests, net of tax & cash disbursements
    
    
    154
    
    
    
    198
    
    
    
    447
    
    
    
    (2,564
    )Non-cash compensation
    
    
    2,011
    
    
    
    970
    
    
    
    4,733
    
    
    
    2,775Foreign currency (gain) loss, net
    
    
    38
    
    
    
    1,168
    
    
    
    (61
    )
    
    
    2,093Unrealized gains with respect to hedging agreements
    
    
    468
    
    
    
    
    
    
    
    62
    
    
    
    Special charges, net
    
    
    2,511
    
    
    
    1,785
    
    
    
    11,868
    
    
    
    10,558Less income from discontinued operations
    
    
    
    
    
    
    (8,919
    )
    
    
    
    
    
    
    (12,826
    )Unusual or non-recurring charges (gains), net
    
    
    (711
    )
    
    
    5,508
    
    
    
    2,492
    
    
    
    5,542Adjusted EBITDA
    
    $
    37,565
    
    
    $
    33,430
    
    
    $
    97,844
    
    
    
    101,861
   53




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
  January 2,October 2,
    
    
    20102010
    
    
    As Restated(In Millions)Balance sheet data:Cash and cash equivalents
    
    $
    69.4
    
    
    $
    59.5Working capital
    
    
    152.5
    
    
    
    159.7Total assets
    
    
    731.3
    
    
    
    701.5Total debt
    
    
    332.9
    
    
    
    342.6Total shareholders equity
    
    
    141.8
    
    
    
    124.2
      54




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##### Table of Contents



Nine Months EndedOctober 3,October 2,
    
    
    20092010
    
    
    As Restated(In Millions)Cash flow data:Net cash provided by operating activities
    
    $
    38.9
    
    
    $
    79.5Net cash used in investing activities
    
    
    (19.6
    )
    
    
    (0.5
    )Net cash used in financing activities
    
    
    (9.6
    )
    
    
    (68.9
    )
 Operating Activities
       55




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##### Table of Contents



Investing and Financing Activities
     Dividends
    56




---



##### Table of Contents



Liquidity Summary
   Current portion of long-term debt
  57




---



##### Table of Contents



Gain on Reacquisition of Debt
  Accumulated other
comprehensive income Accumulated Other Comprehensive Income
   Short-term
borrowings
  58




---



##### Table of Contents



Off-Balance Sheet Arrangements
   59




---



##### Table of Contents



Effect of Inflation
  New Accounting Standards
  (ASC 605), specifically as related to
   Critical Accounting Policies and Other Matters
   60




---



##### Table of Contents



Revenue recognition:
 Accounts receivable and concentration of credit risks:
 Inventory reserves:
 Income taxes:
    61




---



##### Table of Contents



Impairment of long-lived assets:
  Stock-based compensation:
  Restructuring:
  62




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##### Table of Contents



Environmental
  
 ITEM 3.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Long-Term Debt and Interest Rate Market Risk
      Foreign Currency Exchange Rate Risk
   63




---



##### Table of Contents



Raw Material and Commodity Risks
     64




---



##### Table of Contents



ITEM 4.
    
    CONTROLS AND PROCEDURES
 Evaluation of Disclosure Controls and Procedures
   Changes in Internal Control over Financial Reporting
      65




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1.
    
    LEGAL PROCEEDINGS
  
 ITEM 1A.
    
    RISK FACTORS
  
 ITEM 2.
    
    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 ITEM 3.
    
    DEFAULTS UPON SENIOR SECURITIES
  
 ITEM 5.
    
    OTHER INFORMATION
  
 ITEM 6.
    
    EXHIBITS
  ExhibitNumber
    
    Document Description31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 135032.2
    
    
    Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350
  66




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##### Table of Contents



SIGNATURES
  Polymer Group, Inc.Date: November 11, 2010
    By:

/s/
Veronica M. HagenVeronica M. HagenChief Executive Officer Date: November 11, 2010
    By:

/s/
Dennis E. NormanDennis E. NormanChief Financial Officer
(Principal Financial Officer)  67