---

---

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 1934 
|-------------------------------------------- | ----------------------------------------------------------------------------------------
|For the quarterly period ended June 29, 2002
|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.(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.)
|4838 Jenkins Avenue
North Charleston, South Carolina           |  | 29405                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrant's telephone number, including area code: (843) 566-7293

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

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

On
August 9, 2002 there were 32,004,200 Common Shares, $.01 par value, outstanding.

---

---

---



POLYMER GROUP, INC.

INDEX TO FORM 10-Q

|                              |         |    |                                                                                       | Page
|----------------------------- | ------- | -- | ------------------------------------------------------------------------------------- | ----
|Part I. Financial Information |         | 3 
|                              | Item 1. |    | Financial Statements                                                                  |     
|                              | Item 2. |    | Management's Discussion and Analysis of Financial Condition and Results of Operations |     
|                              | Item 3. |    | Quantitative and Qualitative Disclosures About Market Risk                            |     
|Part II. Other Information    |         | 44
|Signatures                    |         | 45
|Exhibit Index                 |         | 46

2

---



PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

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

|                                                                               |                                                                                                                                             | June 29,
2002 |                                               | December 29,
2001 |  
|------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------- | --------------------------------------------- | ----------------- | -
|
|A S S E T S                                                                    |                                                                                                                                            
|Current assets:                                                                |                                                                                                                                             |               |                                               |                   |  
|                                                                               | Cash and equivalents                                                                                                                        |               | $                                             | 47,784            |  
|                                                                               | Short-term investments                                                                                                                      |               |                                               | 14,163            |  
|                                                                               | Accounts receivable, net                                                                                                                    |               |                                               | 125,892           |  
|                                                                               | Inventories                                                                                                                                 |               |                                               | 112,461           |  
|                                                                               | Other                                                                                                                                       |               |                                               | 43,510            |  
|                                                                               |                                                                                                                                             |               |                                               |                   |  
|                                                                               |                                                                                                                                             |               | Total current assets                          |                   |  
|Property, plant and equipment, net                                             |                                                                                                                                             |               | 694,361                                       |                   |  
|Intangibles and loan acquisition costs, net                                    |                                                                                                                                             |               | 137,880                                       |                   |  
|Other                                                                          |                                                                                                                                             |               | 57,458                                        |                   |  
|                                                                               |                                                                                                                                             |               |                                               |                   |  
|                                                                               |                                                                                                                                             |               | Total assets                                  |                   | $
|                                                                               |                                                                                                                                             |               |                                               |                   |  
|L I A B I L I T I E S    A N D    S H A R E H O L D E R S'    
(D E F I C I T) |                                                                                                                                            
|Liabilities Not Subject to Compromise                                          |                                                                                                                                             |               |                                               |                   |  
|Current liabilities:                                                           |                                                                                                                                             |               |                                               |                   |  
|                                                                               | Accounts payable                                                                                                                            |               | $                                             | 31,465            |  
|                                                                               | Accrued liabilities and other                                                                                                               |               |                                               | 39,524            |  
|                                                                               | Short-term borrowings                                                                                                                       |               |                                               | 9,851             |  
|                                                                               | Current portion of long-term debt                                                                                                           |               |                                               | 489,465           |  
|                                                                               |                                                                                                                                             |               |                                               |                   |  
|                                                                               |                                                                                                                                             |               | Total current liabilities                     |                   |  
|Long-term debt, less current portion                                           |                                                                                                                                             |               | 7,162                                         |                   |  
|Deferred income taxes                                                          |                                                                                                                                             |               | 54,499                                        |                   |  
|Other non-current liabilities                                                  |                                                                                                                                             |               | 18,862                                        |                   |  
|                                                                               |                                                                                                                                             |               |                                               |                   |  
|Total liabilities not subject to compromise                                    |                                                                                                                                             |               | 650,828                                       |                   |  
|Liabilities Subject to Compromise                                              |                                                                                                                                             |               | 656,368                                       |                   |  
|                                                                               |                                                                                                                                             |               |                                               |                   |  
|                                                                               |                                                                                                                                             |               | Total liabilities                             |                   |  
|Shareholders' (deficit):                                                       |                                                                                                                                             |               |                                               |                   |  
|                                                                               | Series preferred stock$.01 par value, 10,000,000 shares authorized, 0 shares issued and outstanding                                        |               |                                               |                  |  
|                                                                               | Common stock$.01 par value, 100,000,000 shares authorized, 32,004,200 shares issued and outstanding at June 29, 2002 and December 29, 2001 |               |                                               | 320               |  
|                                                                               | Non-voting common stock$.01 par value, 3,000,000 shares authorized, 0 shares issued and outstanding                                        |               |                                               |                  |  
|                                                                               | Additional paid-in capital                                                                                                                  |               |                                               | 243,722           |  
|                                                                               | (Deficit)                                                                                                                                   |               |                                               | (289,277          | )
|                                                                               | Accumulated other comprehensive (loss)                                                                                                      |               |                                               | (28,452           | )
|                                                                               |                                                                                                                                             |               |                                               |                   |  
|                                                                               |                                                                                                                                             |               | (73,687                                       | )                 |  
|                                                                               |                                                                                                                                             |               |                                               |                   |  
|                                                                               |                                                                                                                                             |               | Total liabilities and shareholders' (deficit) |                   | $
|                                                                               |                                                                                                                                             |               |                                               |                   |  

See
accompanying notes.

3

---

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

|                                                                                |                                                                                                                                           | Three Months Ended |                                   | Six Months Ended |  
|------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | --------------------------------- | ---------------- | -
|
|Net sales                                                                       |                                                                                                                                           | $                  | 200,781                           |                  | $
|Cost of goods sold                                                              |                                                                                                                                           |                    | 163,900                           |                  |  
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|Gross profit                                                                    |                                                                                                                                           |                    | 36,881                            |                  |  
|Selling, general and administrative expenses                                    |                                                                                                                                           |                    | 26,909                            |                  |  
|Special charges                                                                 |                                                                                                                                           |                    | 1,466                             |                  |  
|Plant realignment costs                                                         |                                                                                                                                           |                    | 381                               |                  |  
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|Operating income                                                                |                                                                                                                                           |                    | 8,125                             |                  |  
|Other expense:                                                                  |                                                                                                                                           |                    |                                   |                  |  
|                                                                                | Interest expense, net (contractual interest of $27,201 and $53,582 for the three months and six months ended June 29, 2002,
respectively) |                    |                                   | 17,933           |  
|                                                                                | Foreign currency and other                                                                                                                |                    |                                   | 4,654            |  
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|                                                                                |                                                                                                                                           |                    | 22,587                            |                  |  
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|Loss before Chapter 11 reorganization expenses and income tax expense (benefit) |                                                                                                                                           |                    | (14,462                           | )                |  
|Chapter 11 reorganization expenses                                              |                                                                                                                                           |                    | 885                               |                  |  
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|Loss before income tax expense (benefit)                                        |                                                                                                                                           |                    | (15,347                           | )                |  
|Income tax expense (benefit)                                                    |                                                                                                                                           |                    | 2,422                             |                  |  
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|Net loss                                                                        |                                                                                                                                           | $                  | (17,769                           | )                | $
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|Net loss per common share:                                                      |                                                                                                                                           |                    |                                   |                  |  
|                                                                                | Basic:                                                                                                                                    |                    |                                   |                  |  
|                                                                                |                                                                                                                                           |                    | Average common shares outstanding |                  |  
|                                                                                |                                                                                                                                           |                    | Net loss per common share         |                  | $
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|                                                                                | Diluted:                                                                                                                                  |                    |                                   |                  |  
|                                                                                |                                                                                                                                           |                    | Average common shares outstanding |                  |  
|                                                                                |                                                                                                                                           |                    | Net loss per common share         |                  | $
|                                                                                |                                                                                                                                           |                    |                                   |                  |  
|Cash dividends per share                                                        |                                                                                                                                           | $                  |                                  |                  | $
|                                                                                |                                                                                                                                           |                    |                                   |                  |  

See
accompanying notes.

4

---



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

|                                            |                                                                                 | Six Months Ended |                                      
|------------------------------------------- | ------------------------------------------------------------------------------- | ---------------- | -------------------------------------
|
|Operating activities                        |                                                                                 |                  |                                      
|                                            | Net loss                                                                        |                  | $                                    
|                                            | Adjustments to reconcile net loss to net cash provided by operating activities: |                  |                                      
|                                            |                                                                                 |                  | Depreciation and amortization expense
|                                            |                                                                                 |                  | Foreign currency and other           
|                                            | Changes in operating assets and liabilities:                                    |                  |                                      
|                                            |                                                                                 |                  | Accounts receivable                  
|                                            |                                                                                 |                  | Inventories                          
|                                            |                                                                                 |                  | Accounts payable and accrued expenses
|                                            | Other, net                                                                      |                  |                                      
|                                            |                                                                                 |                  |                                      
|                                            |                                                                                 |                  |                                      
|                                            |                                                                                 |                  |                                      
|Investing activities                        |                                                                                 |                  |                                      
|                                            | Purchases of property, plant and equipment                                      |                  |                                      
|                                            | Proceeds from sales of marketable securities                                    |                  |                                      
|                                            | Other                                                                           |                  |                                      
|                                            |                                                                                 |                  |                                      
|                                            |                                                                                 |                  |                                      
|                                            |                                                                                 |                  |                                      
|Financing activities                        |                                                                                 |                  |                                      
|                                            | Proceeds from debt                                                              |                  |                                      
|                                            | Payment of debt                                                                 |                  |                                      
|                                            | Dividends to shareholders                                                       |                  |                                      
|                                            | Loan acquisition costs and other, net                                           |                  |                                      
|                                            |                                                                                 |                  |                                      
|                                            |                                                                                 |                  |                                      
|                                            |                                                                                 |                  |                                      
|Effect of exchange rate changes on cash     |                                                                                 |                  | 10,212                               
|                                            |                                                                                 |                  |                                      
|Net increase in cash and equivalents        |                                                                                 |                  | 19,553                               
|Cash and equivalents at beginning of period |                                                                                 |                  | 28,231                               
|                                            |                                                                                 |                  |                                      
|Cash and equivalents at end of period       |                                                                                 | $                | 47,784                               
|                                            |                                                                                 |                  |                                      

See
accompanying notes.

5

---



POLYMER GROUP, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Nature of Operations

Polymer Group, Inc. (the "Company"), a global manufacturer and marketer of nonwoven and oriented polyolefin products, currently operates in two business
segments that include consumer and industrial and specialty. The Company is currently operating under the jurisdiction of Chapter 11 of the Bankruptcy Code and the Bankruptcy Court, and the
continuation of the Company as a going concern is contingent upon, among other things, its ability to formulate a Plan which will gain approval of the requisite parties under the Bankruptcy Code and
confirmation by the Bankruptcy Court and its ability to comply with the debtor-in-possession financing agreement. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The accompanying financial statements, prepared assuming the Company will continue as a going concern, do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.

Note 2.    Significant Accounting Policies



These interim unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis, which assumes continuity of operations and
realization of assets and satisfaction of liabilities in the ordinary course of business, and in accordance with Statement of Position
90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," ("SOP 90-7"). Accordingly, all pre-petition liabilities subject to compromise
have been segregated in the unaudited Condensed Consolidated Balance Sheets and classified as Liabilities Subject to Compromise, at the estimated amount of allowable claims. Liabilities Not Subject to
Compromise are separately classified as current and non-current. Revenues, expenses, realized gains and losses, and provisions for losses resulting from the reorganization are reported
separately as reorganization items in the unaudited Condensed Consolidated Statements of Operations.

The
accompanying unaudited consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States for interim financial
information and include the accounts of the Company and its subsidiaries.

The
consolidated financial statements of the Company do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements. The Condensed Consolidated Balance Sheets as of June 29, 2002 and December 29, 2001 contain summarized information; as a result, such data does not include the same detail
provided in the Company's Annual Report on Form 10-K. In the opinion of management, these unaudited consolidated financial statements contain all adjustments of a normal recurring
nature necessary for a fair presentation. Operating results for the three months and six months ended June 29, 2002 are not necessarily indicative of the results that may be expected for fiscal
2002.

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

6

---



Revenue from product sales is recognized at the time ownership of goods transfers to the customer and the earnings process is complete. In December 1999,
the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 did not change existing accounting rules on revenue
recognition but specifies how existing rules should be applied to transactions in the absence of authoritative literature. Based on the guidelines of current accounting rules and SAB 101,
revenue should not be recognized until it is realized or realizable and earned.



The Company provides credit in the normal course of business and performs ongoing credit evaluations on certain of its customers' financial condition, but
generally does not require collateral to support such receivables. The Company also establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers,
historical trends and other information. The allowance for doubtful accounts was approximately $13.8 million and $12.0 million at June 29, 2002 and December 29, 2001,
respectively which management believes is adequate to provide for credit loss in the normal course of business, as well as losses for customers who have filed for protection under the bankruptcy law.



Inventories are stated at the lower of cost or market using the first-in, first-out method of accounting and, as of June 29, 2002
and December 29, 2001 consist of the following (in thousands):

June 29,
2002

December 29,
2001(Unaudited)Finished goods

$
52,584

$
50,440Work in process


17,764


19,172Raw materials


42,113


46,341$
112,461

$
115,953




For all periods through December 29, 2001, the Company reviewed the recoverability of the carrying value of long-lived assets in accordance
with Statement of Financial Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to be Disposed Of" ("FAS 121"). The Company also reviewed
long-lived assets for impairment whenever events or changes in circumstances indicated that the carrying amount of such assets might not be recoverable. When the future undiscounted cash
flows of the operations to which the assets relate did not exceed the carrying value of the asset, the intangible assets were written down, followed by the other long-lived assets, to fair
value. The Company recorded a non-cash asset impairment charge in fiscal 2001 of approximately $181.2 million related to the write-down of goodwill, contract intangibles
and property, plant and equipment.

In
October 2001, the Financial Accounting Standards Board issued Statement No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144").
FAS 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. The statement supersedes FAS 121 and also
supersedes the accounting and reporting provisions of APB Opinion No. 30 "Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of

7

---

a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," related to the disposal of a segment of a business. The statement is effective for fiscal years beginning
after December 15, 2001. The adoption of FAS 144 did not have a material impact on the financial condition and operating results of the Company.



The Company does not use derivative financial instruments for trading purposes. Premiums paid for purchased interest rate cap agreements are charged to expense
over the rate cap period. The Company's London Interbank Offered Rate-based interest rate cap agreement provides for a notional amount of $100.0 million, which declines ratably over
the rate cap term. If the rate cap exceeds 9% on each quarterly reset date, as defined in the agreement, the Company is entitled to receive an amount by which the rate cap exceeds 9%. Over the term of
the agreement, such amounts have not exceeded 9%.



Deferred tax liabilities and assets are determined based upon temporary differences between the basis of certain assets and liabilities for income tax and
financial reporting purposes. A valuation allowance is recognized if it is likely that some portion of a deferred tax asset will not be realized in the future.



The cost of research and development is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated
statement of operations. The Company incurred approximately $3.8 million and $4.5 million of research and development expense during the three months ended June 29, 2002 and
June 30, 2001, respectively. Year to date research and development expenses approximated $7.7 million in 2002 and $9.2 million in 2001.



The cost of shipping and handling is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated statement
of operations. The Company incurred approximately $5.0 million and $5.7 million of shipping and handling costs, during the three months ended June 29, 2002 and June 30,
2001, respectively. Year to date shipping and handling costs approximated $10.3 million in 2002 and $11.5 million in 2001.



The cost of selling and advertising is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated statement
of operations. The Company incurred approximately $8.5 million and $6.8 million of selling and advertising costs, during the three months ended June 29, 2002 and June 30,
2001, respectively. Year to date selling and advertising costs approximated $16.0 million in 2002 and $15.2 million in 2001.



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

8

---

dollar as the functional currency and translation gains and losses are included in determining net income. In addition, foreign currency transaction gains and losses are included in determining net
income.

The
Company has a majority-owned subsidiary located in Argentina. The Argentine peso, which serves as the functional currency of this subsidiary, has devalued significantly against the
U.S. dollar since the end of fiscal 2001 due primarily to the economic uncertainty within this geographic region. As a result of the Argentine peso devaluation, the Company recognized a foreign
currency loss of approximately $0.7 million during the three months ended June 29, 2002 and $2.5 million year to date 2002, net of minority interest adjustments, related to its
Argentina majority-owned subsidiary.



Comprehensive income (loss) is reported in accordance with the Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("FAS 130"). FAS 130 establishes rules for the reporting and display of comprehensive income and its components. FAS 130 requires unrealized gains or losses on the Company's
available for sale securities and the foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income.
The Company's comprehensive income (loss) approximated $3.9 million and $(15.2) million for the three months ended June 29, 2002 and June 30, 2001, respectively. Year to
date comprehensive loss approximated $(24.8) million in 2002 and $(42.4) million in 2001



Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities and are computed using the number of common shares
outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if stock options were exercised and is based upon the weighted average number of common and
common equivalent shares outstanding for the period. Shares under option represent common equivalent shares. The numerator for both basic and diluted
earnings per share is net income (loss) applicable to common stock. During the quarters ended June 29, 2002 and June 30, 2001, the potential exercise of stock options would have an
antidilutive effect on the calculation of earnings per share due to losses incurred during the first six months of 2002 and 2001. Accordingly, there is no difference in the determination of basic and
diluted earnings per share. A reconciliation of the amounts included in the computation of loss per share for the three months and six

9

---

months ended June 29, 2002 and June 30, 2001 is presented in the following table (in thousands, except per share data):

|                        |                                                     | Three Months Ended |   | Six Months Ended |  
|----------------------- | --------------------------------------------------- | ------------------ | - | ---------------- | -
|
|Basic loss per share:   |                                                     |                    |   |                  |  
|                        | Loss available to common shareholders               |                    | $ | (17,769          | )
|                        |                                                     |                    |   |                  |  
|                        | Average common shares outstanding                   |                    |   | 32,004           |  
|                        | Loss per share available to common shareholders     |                    | $ | (0.56            | )
|                        |                                                     |                    |   |                  |  
|Diluted loss per share: |                                                     |                    |   |                  |  
|                        | Loss available to common shareholders               |                    | $ | (17,769          | )
|                        |                                                     |                    |   |                  |  
|                        | Average common shares outstanding                   |                    |   | 32,004           |  
|                        | Effect of dilutive securitiesstock options         |                    |   |                 |  
|                        |                                                     |                    |   |                  |  
|                        | Average common shares outstandingassuming dilution |                    |   | 32,004           |  
|                        |                                                     |                    |   |                  |  
|                        | Loss per share available to common shareholders     |                    | $ | (0.56            | )
|                        |                                                     |                    |   |                  |  

Note 3.    Chapter 11 Proceedings

Due to the financial impact of economic and business factors upon the Company's business, as outlined under "Note 1. Nature of Operations and Business
Conditions" in its Annual Report on Form 10-K for fiscal 2001, the inability to complete asset dispositions on acceptable terms and the expiration of the waiver with respect to the
leverage covenant, as of December 29, 2001 the Company was in default under the Prepetition Credit Facility (as defined herein). Because of this default, the Senior Secured Lenders exercised
their right to block the payment of interest due on January 2, 2002 to the holders of the 9% Senior Subordinated Notes due 2007. These Lenders subsequently blocked the interest payment due on
March 1, 2002 to the holders of 83/4% Senior Subordinated Notes due 2008. On December 30, 2001, the Company and certain subsidiaries entered into a Forbearance Agreement
with the Senior Secured Lenders (the "Forbearance Agreement"). The Senior Secured Lenders agreed not to exercise certain remedies available to them under the Prepetition Credit Facility as a result of
the existing covenant defaults during the forbearance period. If certain events were to occur, the Senior Secured Lenders would have been able to exercise their remedies available to them, which
included the right to declare all amounts outstanding under the Prepetition Credit Facility immediately due and payable. The Forbearance Agreement, as extended on March 15, 2002 was scheduled
to end on May 15, 2002, and prevented the Company from making any additional borrowings in excess of the amounts outstanding under the revolving portion of the Prepetition Credit Facility as of
December 30, 2001.

Because
the Company was unable to reduce amounts outstanding under the Prepetition Credit Facility through asset dispositions on acceptable terms, the services of Miller,
Buckfire & Lewis (f/k/a Dresdner Kleinwort Wasserstein, Inc.) were retained on October 2, 2001 as the financial advisor to assist in exploring various restructuring options. From
November of 2001 through February of 2002, the Company conducted extensive negotiations with several potential investors and various other constituents in an effort to establish viable
restructuring options. During this same time period, some of these potential investors conducted due diligence investigations of the Company and its operations.

10

---

In
evaluating the various restructuring options, the Company decided to maintain negotiations with CSFB Global Opportunities Investment Partners, L.P. ("GOF"), the holder of
approximately 67% of the outstanding Senior Subordinated Notes (as defined herein). The Company determined that GOF afforded the highest probability of a transaction being completed with terms that
provided an overall acceptable level of value to the various stakeholders. Members of the Company's senior management, GOF and their respective advisors held discussions concerning the terms of a
proposed recapitalization transaction. The discussions focused primarily on the overall level of investment in the Company and the nature of that ownership. As a result of these extensive
negotiations, the Company executed a term sheet with GOF on March 15, 2002 setting forth the proposed terms of a recapitalization plan, including a financial restructuring.

The
material elements of the financial restructuring included: (i) GOF contributing $50 million in cash and $394.4 million of the Senior Subordinated Notes (the
"Existing Notes") currently owned by GOF (including accrued, but unpaid interest) and agreeing to provide a $25 million letter of credit in favor of the Senior Secured Lenders under an amended
credit facility, all in exchange for approximately 22.4 million newly issued shares of common stock of the Company (after taking into account a 1-for-10 reverse common
stock split), representing 87.5% ownership of the Company; (ii) the holders of at least 95% of the aggregate principle amount of the Existing Notes not owned by GOF exchanging their notes for
either new senior subordinated notes or new senior subordinated discount notes; and (iii) the Company entering into an amended credit facility with its Senior Secured Lenders (collectively, the
"Exchange Offer").

On
March 25, 2002, during the pendency of the Exchange Offer, without any prior notice, a group of creditors (the "Petitioning Creditors") holding approximately
$41.3 million of the Company's outstanding Senior Subordinated Notes filed an involuntary bankruptcy petition (the "Involuntary Petition") against the Company in the United States Bankruptcy
Court for the District of South Carolina (the "South Carolina Bankruptcy Court"). On April 2, 2002, the Company reached an agreement (the "Dismissal Agreement") with the Petitioning Creditors,
which provided for the South Carolina Bankruptcy Court to dismiss the involuntary petition (the "Dismissal Order") subject to a twenty-day period during which
parties-in-interest could object to that dismissal. The twenty-day period commenced on April 5, 2002, the day on which notice of the dismissal was published
in the national edition of the Wall Street Journal. On April 26, 2002, the South Carolina Bankruptcy Court entered the Dismissal Order.

The
Dismissal Agreement also provided that the Company would seek an amendment of the Prepetition Credit Facility to permit it to file a voluntary petition for one of its wholly owned,
South Carolina-registered subsidiaries in the South Carolina Bankruptcy Court. Pursuant to Amendment No. 7, dated as of April 4, 2002, the Senior Lenders agreed to amend the Prepetition
Credit Facility to permit this filing. On April 23, 2002, the Debtors filed a voluntary petition for Bonlam (S.C.), Inc. ("Bonlam (S.C.)"), in the South Carolina Bankruptcy Court. The
Dismissal Agreement further provided that the Company would extend the expiration of the Exchange Offer through May 15, 2002. The Company and GOF also agreed to forbear through, and including,
May 15, 2002, from implementing any modifications to the Senior Subordinated Notes and the indentures governing them. The Petitioning Creditors agreed to forbear through and including,
May 12, 2002 (the "Forbearance Period"), from exercising any and all remedies under the applicable indentures, the Senior Subordinated Notes or any applicable law, including any filing of an
involuntary petition against any of the Debtors. During the Forbearance Period, the Company agreed (i) not to file a voluntary petition for relief under the Bankruptcy Code in a jurisdiction
other than
Columbia, South Carolina, and (ii) to contest any involuntary petition under the Bankruptcy Code filed in any such other jurisdiction, in each case, without the prior written consent of

11

---

the Petitioning Creditors. GOF and the Petitioning Creditors agreed not to file an involuntary petition against the Company in any venue other than the South Carolina Bankruptcy Court.

The
Company, GOF and the Petitioning Creditors intended that the Dismissal Agreement would provide a framework for the Company and other parties, including the Petitioning Creditors, to
continue to negotiate the terms of a potential restructuring of the Company through May 12, 2002. Negotiations proceeded, but the Company and Petitioning Creditors did not reach an agreement on
a consensual restructuring. Meanwhile, the uncertainty created by the Involuntary Petition caused further deterioration in the Company's businesses. The Company determined that it was in the best
interest of its creditors and other constituencies to seek the protections afforded by filing voluntary petitions for protection under Chapter 11 of the United States Code (the "Bankruptcy
Code"). Accordingly, on May 11, 2002 (the "Filing Date" or "Petition Date"), the Company and each of its domestic subsidiaries (together with the Company, the "Debtors") filed voluntary
petitions for "pre-negotiated" reorganization (the "Chapter 11 Filings" or the "Filings") under the Bankruptcy Code in the South Carolina Bankruptcy Court. The Chapter 11
Filings are being jointly administered for procedural purposes only. The Company's direct and indirect foreign subsidiaries and foreign joint venture entities did not file petitions under
Chapter 11 and are not the subject of any bankruptcy proceedings. To facilitate stabilizing operations during the Chapter 11 Filings, the Debtors have secured a $125 million
commitment (the "Commitment") for debtor-in-possession financing (the "DIP Facility") from a group of financial institutions, some of which are Senior Lenders (the "DIP
Lenders") that will provide the Debtors sufficient liquidity to operate during the Chapter 11 Filings. JPMorgan Chase Bank is the Agent for the DIP Lenders under the DIP Facility. Pursuant to
the DIP Facility, the Debtors paid certain fees to the DIP Lenders, including a structuring fee of 0.85% of the Commitment, an underwriting fee of 1.65% of the Commitment as well as certain other
fees.

To
enhance the Debtors' ability to implement a restructuring and to emerge from Chapter 11 as efficiently as possible with an improved debt structure, the Debtors
(a) obtained the requisite approval from a substantial majority of the Senior Lenders (the "Supporting Senior Lenders") (in the form of the Bank Term Sheet and discussed below) to restructure
the Prepetition Credit Facility and (b) executed the Support Agreement, dated as of May 10, 2002, with GOF, pursuant to which GOF agreed to support a joint plan of reorganization. The
Debtors paid a commitment fee to the Supporting Senior Lenders of approximately $4.3 million in consideration of their agreeing to the terms contained in the Bank Term Sheet. The Debtors agreed
to file by May 24, 2002, a Chapter 11 plan of reorganization (the "Plan") and disclosure statement that were consistent with the term sheets agreed upon with each of the Supporting
Senior Lenders and GOF. With the support of these substantial creditors, the Debtors are seeking to emerge from Chapter 11 in an expeditious manner. Beginning on May 23, 2002 and on
other subsequent dates, GOF agreed to extend the deadline for filing such Plan and disclosure statement until June 14, 2002.

On
June 14, 2002, the Company filed the Plan with the South Carolina Bankruptcy Court. The Plan generally proposes (i) the restructuring of the Prepetition Credit Facility,
including a $50 million principal reduction, (ii) the retirement of in excess of $591.5 million of the Debtors' obligations under the Senior Subordinated Notes, in exchange for
the right of the holders of such Notes to receive either (x) their pro
rata share of 100% of the newly issued Class A Common Stock of the reorganized Company (prior to the conversion of the preferred stock or new senior notes, each referred to below) (which shall
be diluted by any conversion of the New Preferred Stock), (y) for each $1,000 in principal of existing Notes held, $120 in principal of New Junior Subordinated Notes bearing interest at 11%
payable in cash or (z) for each $1,000 in principal amount of existing Senior Subordinated Notes held, $150 in principal amount of New Junior Subordinated PIK Notes, with interest at 7.5%
payable in kind and 3.5% payable in cash, (iii) no

12

---

impairment of the Debtors' other unsecured creditors, (iv) a $50 million investment by GOF and eligible electing holders of Senior Subordinated Notes in exchange for convertible
preferred stock convertible into 44% of the newly issued common stock of the reorganized Company (after giving effect to the conversion thereof and excluding PIK dividends thereon) (the "New Preferred
Stock"), (v) the issuance by GOF and eligible electing holders of Senior Subordinated Notes of a $25 million letter of credit to secure the Debtors' proposed amortization payments to the
Senior Lenders (which if drawn, would be evidenced by New Senior Subordinated Notes) and (vi) the retention by existing shareholders of 100% of the newly issued Class B Common Stock
(which shall not be diluted by any conversion of the New Preferred Stock) and certain warrants for up to an additional 9.5% of the reorganized Company's common stock, as of the effective date of
reorganization (which shall be subject to dilution by conversion of the New Preferred Stock), exercisable at specified value targets for the Company. In connection with the new investment, GOF has
agreed to act as a standby purchaser to ensure that all of the shares of New Preferred Stock offered by the Company are purchased and that the new investment generates gross proceeds of
$50.0 million in cash and results in $25.0 million of exit letters of credit in place. The Company shall pay GOF a fee of $500,000 for acting as standby purchaser in connection with the
new investment.

Prior
to the Petition Date, the Company classified expenses related to its financial restructuring efforts as "Special charges" in the consolidated statement of operations. Such charges
consist of professional and other related services that have been expensed as incurred. After the Petition Date, costs related to the Company's reorganization activities are also expensed as incurred
and have been classified as "Chapter 11 reorganization expenses" in accordance with SOP 90-7. The cumulative amount of costs and expenses related to the Company's financial
restructuring efforts, including pre-funded legal costs, between the fourth quarter of 2001 and the second quarter of 2002 have been approximately $7.1 million.

Refer
to Note 15. "Subsequent Event," for further discussion surrounding the Company's financial restructuring.

Note 4.    Long-Lived Assets



Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed for financial reporting purposes on the
straight-line method over the estimated useful lives of the related assets. The estimated useful lives established for building and land improvements range from 18 to 33 years, and
the estimated useful lives established for machinery, equipment and other fixed assets range from 3 to 15 years. Costs of the construction of certain long-term assets include
capitalized interest that is amortized over the estimated useful life of the related asset.

13

---



Property, plant and equipment as of June 29, 2002 and December 29, 2001, consist of the following (in thousands):

June 29,
2002

December 29,
2001(Unaudited)Cost:Land

$
15,689

$
15,287Buildings and land improvements


158,017


154,709Machinery, equipment and other


817,477


800,384Construction in progress


13,058


15,1321,004,241


985,512Less accumulated depreciation


(309,880
)

(273,945
)$
694,361

$
711,567


As
discussed more fully under Note 6. "Business Restructuring," the Company recorded an impairment charge to property, plant and equipment of approximately $80.8 million
during 2001.



Intangibles and loan acquisition costs as of June 29, 2002 and December 29, 2001, consist of the following (in thousands):

June 29,
2002

December 29,
2001(Unaudited)Cost:Goodwill

$
121,906

$
124,756Proprietary technology


29,325


29,325Loan acquisition costs and other


47,851


42,918199,082


196,999Less accumulated amortization


(61,202
)

(61,004
)$
137,880

$
135,995


As
discussed more fully under Note 6. "Business Restructuring," the Company recorded an impairment charge to goodwill and contract intangibles of approximately
$100.4 million during 2001.

In
July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("FAS 142"). FAS 142 supersedes
Accounting Principles Bulletin No. 17, "Intangible Assets." FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their acquisition. The most
significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill will be tested for impairment at least
annually, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the amortization period of intangible assets with finite lives
will no longer be limited to forty years. FAS 142 is effective for fiscal years beginning after December 15, 2001. The adoption of FAS 142 did not have a material effect on the

14

---

Company's consolidated financial position. Amortization expense for the three months and six months ended June 29, 2002 and June 30, 2001 is presented in the following table (in
thousands):

|                 |                                                                      | Three Months Ended |                            | Six Months Ended
|---------------- | -------------------------------------------------------------------- | ------------------ | -------------------------- | ----------------
|
|Amortization of: |                                                                      |                    |                            |                 
|                 | Goodwill                                                             |                    | $                          |                
|                 | Intangibles with finite lives                                        |                    |                            | 768             
|                 |                                                                      |                    |                            |                 
|                 | Amortization included in selling, general and administrative expense |                    |                            | 768             
|                 | Loan acquisition costs included in interest expense, net             |                    |                            | 1,758           
|                 |                                                                      |                    |                            |                 
|                 |                                                                      |                    | Total amortization expense |                 
|                 |                                                                      |                    |                            |                 

Note 5.    Accrued Liabilities

Accrued liabilities as of June 29, 2002 and December 29, 2001, consist of the following:

June 29,
2002

December 29,
2000(Unaudited)Not Subject to Compromise:Interest payable

$
206

$
24,454Salaries, wages and other fringe benefits


15,410


11,573Other


21,070


24,240$
36,686

$
60,267


Accrued
interest at December 29, 2001 included interest of approximately $23.5 million on the Senior Subordinated Notes. Accrued interest at June 29, 2002 of
$42.2 million on the Senior Subordinated Notes is classified as "Subject to Compromise" in the consolidated balance sheet. See Note 7. "Liabilities Subject to Compromise."

Note 6.    Business Restructuring

The Company anticipated that the confluence of negative economic and business factors would generally subside during the latter half of 2001, particularly in the
fourth quarter. However, the anticipated recovery within the Company's business did not develop as planned in the latter half of 2001; therefore, the Company undertook a comprehensive business
restructuring involving manufacturing initiatives and workforce reductions. The restructuring program continued through the second quarter of 2002, thus
the Company recorded a pre-tax charge of $0.4 million in the second quarter of 2002 and $0.6 million during the six months ended June 29, 2002 consisting predominantly
of personnel related costs that

15

---

have been classified as "Plant realignment costs" in the consolidated statement of operations. A summary of the plant realignment liability is presented in the following table (in thousands):

Plant realignment liability as of December 29, 2001

$
6,2422002 plant realignment charge:First Quarter


176Second Quarter


3812002 cash payments and adjustments:First Quarter


(1,425
)Second Quarter


(1,164
)Plant realignment liability as of June 29, 2002

$
4,210


In the fourth quarter of 2001, based on a comprehensive review of the Company's long-lived assets, the Company recorded a non-cash charge
of approximately $181.2 million, consisting of the write-down of goodwill and contract intangibles ($100.4 million) and machinery and equipment ($80.8 million) related
to production assets within the U.S. and European Nonwovens business. Further asset write-downs may be required as part of the Company's application of "fresh-start" accounting adjustments pursuant to
SOP 90-7; however, the extent of such adjustments and the amount of such write-downs is not presently determinable.

Note 7.    Liabilities Subject to Compromise

In the Chapter 11 Filings, substantially all unsecured liabilities as of the Filing Date are subject to compromise or other treatment under the Plan which
must be confirmed by the Bankruptcy Court after submission to any required vote by affected parties. Generally, all actions to enforce or otherwise effect repayment of prepetition liabilities, as well
as all pending litigation against the Debtors, are stayed while the Debtors continue their business operations as debtors-in-possession. The ultimate amount of and settlement
terms for liabilities subject to compromise are subject to the approved Plan and accordingly are not presently determinable. Pursuant to SOP 90-7, interest expense is reported only to the
extent that it will be paid during the Chapter 11 Filings or that it is
probable that it will be an allowed claim. Accordingly, no interest has been accrued on the Company's Senior Subordinated Notes after the Petition Date. The principal categories of obligations
classified as liabilities subject to compromise under the Chapter 11 Filings as of June 29, 2002 are identified below (in thousands):

9% Senior Subordinated Notes, net of unamortized debt discount

$
390,98283/4% Senior Subordinated Notes


196,500Interest accrued on senior subordinated notes


42,186Accounts payable


15,544Accrued expenses and other


11,156Total liabilities subject to compromise

$
656,368


Note 8.    Debt

Short-term borrowings, which are not subject to compromise, amounted to approximately $9.9 million and $12.4 million at June 29,
2002 and December 29, 2001, respectively. These amounts are composed of U.S. loans and local borrowings, principally by international subsidiaries. Debt, excluding

16

---

short-term borrowings, as of June 29, 2002 and December 29, 2001, consists of the following (in thousands):

June 29,
2002

December 29,
2001(Unaudited)Subject to Compromise:Senior subordinated notes, net of unamortized debt discount of $4,018 at June 29, 2002 and $4,232 at December 29, 2001, due July 2007

$
390,982

$
390,768Senior subordinated notes, due March 2008


196,500


196,500Not Subject to Compromise:Revolving Credit Facility, due June 2003


216,634


216,325Term loans, including current portion, due December 2005 and 2006


268,060


268,060Other


13,323


15,166$
1,085,499

$
1,086,819


DIP FacilityOn May 13, 2002, the Debtors filed a motion seeking authority for the Company to enter into a credit
facility of up to $125 million in debtor-in-possession financing with JPMorgan Chase Bank as administrative agent which was approved by the Bankruptcy Court on
May 29, 2002. Under such terms, the Company, as borrower, may make revolving credit borrowings in an amount not exceeding the lesser of $125 million or the Borrowing Base (as defined in
the DIP Facility). The DIP Facility will terminate and the borrowings thereunder will be due and payable upon the earliest of (i) the maturity date (i.e. May 30, 2003), (ii) the
date of the substantial consummation of a plan of reorganization that is confirmed pursuant to an order by the Bankruptcy Court and (iii) the acceleration of the revolving credit loans made by
any of the banks who are a party to the DIP Facility and the termination of the total commitment under the DIP Facility. The interest rate applicable to borrowings under the DIP Facility and financial
covenants are customary for financings of this type. Borrowings under the DIP Facility are guaranteed by each of the Company's direct and indirect domestic subsidiaries. There were no amounts
outstanding under the DIP Facility at June 29, 2002.

Prepetition Credit FacilityThe Company's Credit Facility (as amended through and including Amendment No. 6 as defined
below, the "Prepetition Credit Facility") provided for secured revolving credit borrowings with aggregate commitments of up to $325.0 million and aggregate term loans of $275.0 million.
Subject to certain terms and conditions, a portion of the Prepetition Credit Facility may be
used for letters of credit of which approximately $14.9 million was outstanding on June 29, 2002. Amendment No. 6 imposed a limit of $260.0 million under the revolving
portion of the Prepetition Credit Facility for borrowings and outstanding letters of credit, with not more than $15.0 million of such revolving borrowings permitted to be outstanding in
Canadian dollar equivalent borrowings. All indebtedness under the Prepetition Credit Facility is guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic
subsidiaries of the Company. The Prepetition Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the Company and its 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, (iii) a lien
on substantially all of the assets of direct foreign borrowers (to secure direct borrowings by such borrowers), and (iv) a pledge of certain secured intercompany notes issued to the Company or
one or more of its subsidiaries by non-domestic subsidiaries. Commitment fees under the Prepetition Credit Facility are generally equal to a percentage of the daily-unused amount of such
commitment. The Prepetition Credit Facility contained covenants and events of default customary for financings of this type, to include leverage, fixed charge

17

---

coverage and net worth. The revolving portion of the Prepetition Credit Facility terminates in June 2003. The term loan portion terminates in December 2005 and December 2006. The
loans are subject to mandatory prepayment out of proceeds received in connection with certain casualty events, asset sales and debt issuances.

The
interest rate applicable to borrowings under the Prepetition Credit Facility is based on, in the case of U.S. dollar denominated loans, a specified base rate or a specified
Eurocurrency base rate for U.S. dollars, at the Company's option, plus a specified margin. In the event that a portion of the Prepetition Credit Facility is denominated in Dutch guilders, the
applicable interest rate is based on the specified Eurocurrency base rate for Dutch guilders, plus a specified margin. In the event that a portion of the Prepetition Credit Facility is denominated in
Canadian dollars, the applicable interest rate is based on the specified Canadian base rate plus a specified margin or the bankers' acceptance discount rate at the Company's option. The applicable
margin for loans bearing interest based on the base rate or Canadian base rate will range from 2.75% to 3.50% and the margin for loans bearing interest on a Eurocurrency rate will range from 3.75% to
4.50%, based on the Company's ratio of total consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis.

Under
the terms of the Forbearance Agreement, as discussed below, with the Senior Secured Lenders, the Company is prevented from making any additional borrowings under the Prepetition
Credit Facility in excess of the amounts outstanding on December 30, 2001. In addition, all borrowings under the Prepetition Credit Facility are required to be made under the base rate option.
The following table provides detail on the revolving credit and term loan components of the Company's Prepetition Credit Facility at June 29, 2002 and December 29, 2001 (in thousands):

June 29,
2002

December 29,
2001Revolving Credit (Excluding Letters of Credit):Revolving Credit A (U.S. and Dutch borrowings)

$
210,000

$
210,000Revolving Credit B (Canadian borrowings)(1)


6,634


6,325Total Revolving Credit


216,634


216,325Term Loans (all US borrowings):Term Loan B


121,000


121,000Term Loan B-1


48,560


48,560Term Loan C


98,500


98,500Total Term Loans


268,060


268,060Total amounts outstanding under Prepetition Credit Facility

$
484,694

$
484,385


---

Senior Subordinated NotesIn March 1998, the Company issued $200 million of 83/4% Senior
Subordinated Notes due 2008 (the "March 1998 Notes") in a private placement transaction pursuant to an indenture dated as of March 1, 1998. In August 1998, the Company completed
its exchange of $200 million of the March 1998 Notes, Series B (the "83/4% Senior Subordinated Notes") which have been registered for public trading for all
outstanding March 1998 Notes. In July 1997, the Company issued $400 million of 9% Senior Subordinated Notes due 2007 (the "July 1997 Notes") in a private placement
transaction pursuant to an indenture dated as of July 1, 1997. In October 1997, the Company

18

---

completed its exchange of the $400 million of July 1997 Notes, Series B (the "9% Senior Subordinated Notes"), which have been registered for public trading for all the
outstanding July 1997 Notes.

The
83/4% Senior Subordinated Notes and the 9% Senior Subordinated Notes (collectively, the "Senior Subordinated Notes") are unsecured senior subordinated indebtedness of
the Company and are subordinated in right of payment to all existing and future senior indebtedness of the Company. The Senior Subordinated Notes indenture contains several covenants, including
limitations on: (i) indebtedness, certain restricted payments, liens, transactions with affiliates, dividend and other payment restrictions affecting certain subsidiaries, guarantees by certain
subsidiaries, certain transactions including merger and asset sales; and (ii) certain restrictions regarding the disposition of proceeds of asset sales. In addition, in the event of certain
defaults under the Prepetition Credit Facility, the Senior Secured Lenders under the Prepetition Credit Facility may exercise a right to block any payments of interest or principal on the Senior
Subordinated Notes for, in general, up to 179 days during any period of 360 consecutive days. In such event, a failure by the Company to make any such required payment would be an event of
default under the Senior Subordinated Notes. See "Recent Developments" below for further discussion of the Senior Subordinated Notes.

OtherThe Company's China-based majority owned subsidiary ("Nanhai") has a bank facility with a financial institution in
China. The facility was refinanced during July 2002 and is scheduled to mature during January 2003. At June 29, 2002, the approximate amount of outstanding indebtedness under the
facility was $9.5 million. The Nanhai indebtedness is guaranteed 100% by the Company and to support this guarantee, a letter of credit has been issued by the Company's agent bank in the amount
of $10.0 million. As a result of the Company's 80% majority ownership of Nanhai and full guarantee of the Nanhai bank debt, all amounts outstanding under the Nanhai bank facility are reflected
in the Company's consolidated balance sheet as a current liability within the caption "Short term borrowings" at June 29, 2002. At June 29, 2002, Nanhai had cash and cash equivalents on
hand of approximately $1.9 million and working capital, excluding current debt of approximately $9.3 million. Including current debt, the Nanhai working capital deficit was
$0.1 million at June 29, 2002.

The
Company's Argentina-based majority owned subsidiary ("DNS") has two bank facilities denominated in U.S. dollars of approximately $9.9 million at June 29, 2002 with
current maturities of approximately $3.9 million. The facilities are scheduled to mature in 2004 and 2005 respectively. The full amount of such indebtedness is reflected on the Company's
consolidated balance sheet at June 29, 2002 as a result of the Company's 60% majority ownership of this subsidiary; however, the minority shareholder guarantees 40% of such indebtedness.
Because of the Argentine peso devaluation against the U.S. dollar, the Company is exposed to foreign currency remeasurement losses of the U.S. dollar denominated debt at DNS because the functional
currency of DNS is the Argentine peso. At June 29, 2002, DNS had cash and cash equivalents on hand of approximately $0.3 million and working capital of $5.5 million, excluding
current debt. Including current debt, DNS working capital was approximately $1.6 million June 29, 2002.

Recent DevelopmentsAs of December 29, 2001 the Company was in default under the Prepetition Credit Facility. Because
of this default, the Senior Secured Lenders exercised their right to block the payment of interest due January 2, 2002 to the holders of the 9% Senior Subordinated Notes and the interest
payment due on March 1, 2002 to the holders of the 83/4% Senior Subordinated Notes. The Company's failure to pay interest on the outstanding Senior Subordinated Notes prior to
the expiration of the 30-day grace period constituted an event of default under such notes.

On
December 30, 2001, the Company and certain subsidiaries entered into a Forbearance Agreement pursuant to which the Senior Secured Lenders agreed not to exercise certain
remedies available to them under the Prepetition Credit Facility as a result of the existing covenant defaults during the forbearance period. If certain events were to occur, the Senior Secured
Lenders would be able to exercise their remedies available to them, which included the right to declare all amounts outstanding

19

---

under the Prepetition Credit Facility immediately due and payable. The Forbearance Agreement, as extended on March 15, 2002 was scheduled to end on May 15, 2002 and prevented the
Company from making any additional borrowings in excess of the amounts outstanding under the revolving portion of the Prepetition Credit Facility as of December 30, 2001.

On
April 4, 2002, the Company entered into Amendment No. 7 to its Prepetition Credit Facility that allowed Bonlam (S.C.) to file a voluntary petition for reorganization
under Chapter 11 of the United States Bankruptcy Code without triggering an event of default under the Prepetition Credit Facility. On April 23, 2002, Bonlam (S.C.) filed a voluntary
petition as part of the agreement previously reached to dismiss the Involuntary Petition filed against the Company on March 25, 2002.

Refer
to Note 3. "Chapter 11 Proceedings" for a complete description of the events surrounding the Company's Chapter 11 Filing on May 11, 2002. Also, refer to
Note 15. "Subsequent Event" for further discussion of the Company's financial restructuring.

Note 9.    Selected Financial Data of Guarantors

Payment of the Company's senior subordinated notes is guaranteed jointly and severally on a senior subordinated basis by certain of the Company's subsidiaries.
Management has determined that separate complete financial statements of the guarantors are not material to users of the financial statements. The following sets forth selected financial data of the
guarantor and non-guarantor subsidiaries (in thousands):

Condensed Consolidating Selected Balance Sheet Financial Data
As of June 29, 2002

|                               |  | Combined
Guarantor
Subsidiaries |           | Combined
Non-Guarantor
Subsidiaries |   | The
Company |  | Reclassifications
and Eliminations |           | Consolidated |  
|------------------------------ |  | ------------------------------- | --------- | ----------------------------------- | - | ----------- |  | ---------------------------------- | --------- | ------------ | -
|Working capital (deficit)      |  | $                               | 100,370   |                                     | $ | 132,695     |  | $                                  | (450,391  | )            | $
|Total assets                   |  |                                 | 2,567,036 |                                     |   | 694,962     |  |                                    | 1,137,677 |              |  
|Total debt                     |  |                                 | 1,509     |                                     |   | 28,299      |  |                                    | 1,065,542 |              |  
|Shareholders' equity (deficit) |  |                                 | 1,316,291 |                                     |   | 325,583     |  |                                    | (73,687   | )            |  

Condensed Consolidating Selected Balance Sheet Financial Data
As of December 29, 2001

|                               |  | Combined
Guarantor
Subsidiaries |           | Combined
Non-Guarantor
Subsidiaries |   | The
Company |  | Reclassifications
and Eliminations |            | Consolidated |  
|------------------------------ |  | ------------------------------- | --------- | ----------------------------------- | - | ----------- |  | ---------------------------------- | ---------- | ------------ | -
|Working capital (deficit)      |  | $                               | 73,588    |                                     | $ | 113,548     |  | $                                  | (1,107,400 | )            | $
|Total assets                   |  |                                 | 2,065,267 |                                     |   | 646,405     |  |                                    | 1,090,204  |              |  
|Total debt                     |  |                                 | 1,558     |                                     |   | 30,018      |  |                                    | 1,067,654  |              |  
|Shareholders' equity (deficit) |  |                                 | 896,276   |                                     |   | 298,673     |  |                                    | (48,862    | )            |  

20

---

Condensed Consolidating Statement of Operations Selected Financial Data
For the Six Months Ended June 29, 2002

|                                              |  | Combined
Guarantor
Subsidiaries |         | Combined
Non-Guarantor
Subsidiaries |   | The
Company |  | Reclassifications
and Eliminations |         | Consolidated |  
|--------------------------------------------- |  | ------------------------------- | ------- | ----------------------------------- | - | ----------- |  | ---------------------------------- | ------- | ------------ | -
|Net sales                                     |  | $                               | 206,592 |                                     | $ | 202,710     |  | $                                  |        |              | $
|Operating income (loss)                       |  |                                 | (11,230 | )                                   |   | 23,302      |  |                                    | (4,497  | )            |  
|Interest expense, income taxes and other, net |  |                                 | (25,256 | )                                   |   | 21,537      |  |                                    | 42,845  |              |  
|Net income (loss)                             |  |                                 | 14,026  |                                     |   | 1,765       |  |                                    | (47,342 | )            |  

Condensed Consolidating Statement of Operations Selected Financial Data
For the Six Months Ended June 30, 2001

|                                              |  | Combined
Guarantor
Subsidiaries |         | Combined
Non-Guarantor
Subsidiaries |   | The
Company |  | Reclassifications
and Eliminations |         | Consolidated |  
|--------------------------------------------- |  | ------------------------------- | ------- | ----------------------------------- | - | ----------- |  | ---------------------------------- | ------- | ------------ | -
|Net sales                                     |  | $                               | 230,189 |                                     | $ | 200,748     |  | $                                  |        |              | $
|Operating income (loss)                       |  |                                 | (12,280 | )                                   |   | 20,898      |  |                                    | (140    | )            |  
|Interest expense, income taxes and other, net |  |                                 | (17,143 | )                                   |   | 17,720      |  |                                    | 31,479  |              |  
|Net income (loss)                             |  |                                 | 4,863   |                                     |   | 3,178       |  |                                    | (31,619 | )            |  

Note 10.    Segment and Geographic Information

The Company reports segment information in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and assessing performance. Sales to The Procter & Gamble Company account for more than 10% of the Company's sales and are reported primarily in the
Consumer segment. Consequently, the loss of these sales would have a material adverse effect on this segment. Generally, the Company's products can be manufactured on more than one type of production
line. Accordingly, certain costs and assets attributed to each segment of the business were determined on an allocation basis. Production times have a similar relationship to net sales, thus the
Company believes a reasonable basis for allocating certain costs is the
percent of net sales method. As previously discussed in Note 3. "Chapter 11 Proceedings," and Note 6. "Business Restructuring," the Company recorded unusual items during the first
six months of fiscal 2002 consisting of plant realignment and special charges. These charges have not been allocated to the Company's reportable business segments because the Company's management does
not evaluate

21

---

such charges on a segment-by-segment basis. Segment operating performance is measured and evaluated before unusual or special items. Financial data by segments follows (in
thousands):

Three Months Ended

Six Months EndedJune 29,
2002

June 30,
2001

June 29,
2002

June 30,
2001Net sales to unaffiliated customers:Consumer

$
107,749

$
119,382

$
215,479

$
231,530Industrial and Specialty


93,032


95,005


176,482


184,113$
200,781

$
214,387

$
391,961

$
415,643Operating income (loss):Consumer

$
11,128

$
8,049

$
16,612

$
12,446Industrial and Specialty


(1,156
)

1,464


(4,795
)

(1,927
)9,972


9,513


11,817


10,519Special charges


(1,466
)




(3,634
)

Plant realignment costs


(381
)

(1,660
)

(557
)

(1,660
)$
8,125

$
7,853

$
7,626

$
8,859


June 29,
2002

December 29,
2001Identifiable assets:Consumer

$
625,713

$
634,642Industrial and Specialty


512,472


482,994Corporate(1)


95,324


114,578$
1,233,509

$
1,232,214


---

Geographic
data for the Company's operations are presented in the following table.

Three Months Ended

Six Months EndedJune 29,
2002

June 30,
2001

June 29,
2002

June 30,
2001Net sales to unaffiliated customers:United States

$
96,538

$
110,295

$
189,252

$
214,895Canada


25,228


26,223


49,432


50,166Europe


46,736


47,135


91,440


92,444Asia


6,659


5,632


12,787


10,697Latin America


25,620


25,102


49,050


47,441$
200,781

$
214,387

$
391,961

$
415,643


22

---

June 29,
2002

December 29,
2001Identifiable assets:United States

$
706,475

$
728,688Canada


148,572


138,809Europe


212,896


188,960Asia


40,548


41,427Latin America


125,018


134,330$
1,233,509

$
1,232,214


Note 11.    Stock Option Plans

The Company accounts for stock options in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") as permitted by Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123"). Had compensation cost been determined under
the provisions of FAS 123 rather than APB 25, the Company's net (loss) would have increased by approximately $0.6 million or $0.02 per diluted share during the six months ended
June 29, 2002. At June 29, 2002, 769,494 shares were exercisable and 945,307 shares were available for future grant. The following table summarizes transactions of the Company's stock
option plans for the six-month period ended June 29, 2002:

Number
of Shares

Weighted
Average
Exercise
PriceUnexercised options outstandingDecember 29, 2001

2,120,576

$
2.09Granted




Exercised




Forfeited

65,883


1.99Expired/canceled




Unexercised options outstandingJune 29, 2002

2,054,693


2.09


Note 12.    Affiliate Transactions

The Company's corporate headquarters are housed in space leased by a shareholder of the Company from an affiliate of the shareholder. A portion of the payments
and shared other expenses, primarily insurance and allocated costs, are charged to the Company. Such amounts approximated $0.3 million during the six months ended June 29, 2002. In
addition, the Company leases a manufacturing facility from an affiliated entity that the Company believes is comparable to similar properties in the area. Rent expense relating to this lease
approximated $0.1 million during the six months ended June 29, 2002.

Note 13.    Certain Matters

During the first quarter of fiscal 2001, the Company exercised an option to obtain a 45% minority position in a start-up Saudi Arabian
state-of-the-art nonwovens production line (the "Saudi Venture"). Over the course of 2001, the Company funded approximately $4.4 million representing its
pro-rata share for the construction costs of this line in Saudi Arabia. The Company is not permitted to acquire more than a 45% interest in the Saudi Venture pursuant to Amendment
No. 6. The Saudi Venture and the Company's equity stake are currently under review pending finalization of the Investment Approval Application (the "IAA") between the Company and its partner
and the approval of the IAA by the Saudi Arabian government. The Company currently expects to receive the final outcome of the review during the third

23

---

or fourth quarter of fiscal 2002. However, in the event the Company and its partner are unable to agree on final terms of the Saudi Venture acceptable to the Company, the Saudi Venture would not be
able to obtain approval of the IAA from the Saudi Arabia government. Moreover, the Company may not be able to recover its pro-rata share of construction costs funded in 2001. The Company
has not guaranteed any indebtedness of the non-consolidated Saudi Venture.

On
December 19, 1997, DT Acquisition Inc. ("DTA"), a subsidiary of the Company, acquired substantially all of the outstanding common and first preferred shares of Dominion
Textiles Inc., a Company organized under the laws of Canada ("Dominion"), and on January 29, 1998, DTA acquired all remaining common and first preferred shares, at which time Dominion
underwent a "winding-up." All assets and liabilities of Dominion were transferred to DTA and all outstanding common shares and first preferred shares held by DTA were redeemed. Immediately
thereafter, pursuant to a purchase agreement, dated October 27, 1997, the apparel fabrics business of Dominion was sold, at no gain or loss, to Galey & Lord, Inc., ("Galey") and
the Company acquired the nonwovens and industrial fabrics operations. The Company and Galey finalized the acquisition cash settlement during 2000 pursuant to the Master Separation Agreement (the
"MSA") dated January 29, 1998. The result of such settlement was not material to the Company's financial condition. Under the MSA, the Company and Galey are required to share in the payment of
certain on-going costs, including taxes, for historical Dominion entities as required by the MSA. Because the Company originally acquired Dominion, the Company generally makes the payments
and is reimbursed by Galey. On February 19, 2002, Galey and its U.S. operating subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code and began operating their businesses as debtors-in-possession. During March 2002, Galey informed the Company of its intention to reject the MSA as part of its
bankruptcy proceedings. If approved by the Bankruptcy Court, Galey's contemplated rejection of the MSA would result in the Company being required to fund expenditures that should be allocated to, and
paid by, Galey, which could potentially have a material adverse effect on the Company. At June 29, 2002, the amounts due from Galey for the first six months of 2002 shared cash activity
pursuant to the MSA, including amounts associated with statutory tax payments, approximated $1.3 million (the "Galey Receivable"). The Company has fully reserved the Galey Receivable at
June 29, 2002 due to the uncertainty of collectibility at such date. All shared cash activity prior to the first six months of 2002 relative to the MSA has been collected from Galey.

Note 14.    New Accounting Standards

On April 30, 2002, the FASB issued SFAS No. 145, "Recission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
SFAS No. 145 rescinds Statement No. 4, which required all gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, net of related income
tax effect. Upon adoption of SFAS No. 145, companies will be required to apply the criteria in Accounting Principle Board Opinion No. 30, "Reporting the Results of
Operationsreporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" in determining the classification of
gains and losses resulting from the extinguishments of debt. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Company is currently assessing the impact of this standard on
its financial statements.

On
July 30, 2002, the FASB issued SFAS No 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of SFAS No. 146 are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company is currently assessing the impact of this standard on its financial statements.

24

---

Note 15.    Subsequent Event

On August 15, 2002, a hearing was held in the South Carolina Bankruptcy Court to consider, among other things, the approval of the Company's Disclosure Statement
relating to the Plan of Reorganization. The judge indicated that he would approve the Disclosure Statement, and directed the parties to meet on statement language, with a hearing date of
August 20, 2002, to resolve any remaining differences. The Company currently expects the Disclosure Statement to be approved at this hearing.

25

---



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

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated
results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in Part I of this report on
Form 10-Q and with the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2001. In particular, this discussion should be read in
conjunction with Note 3. "Chapter 11 Proceedings" in Part 1, which describes the filing by the Company and its domestic subsidiaries of voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code on May 11, 2002.

Results of Operations

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

|                                                                                |                            | Three Months Ended |      | Six Months Ended |     
|------------------------------------------------------------------------------- | -------------------------- | ------------------ | ---- | ---------------- | ----
|
|Net sales by product category:                                                  |                            |                    |      |                  |     
|                                                                                | Consumer                   |                    | 53.7 | %                | 55.7
|                                                                                | Industrial and Specialty   |                    | 46.3 |                  | 44.3
|                                                                                |                            |                    |      |                  |     
|                                                                                |                            | 100.0              |      | 100.0            |     
|Cost of goods sold:                                                             |                            |                    |      |                  |     
|                                                                                | Material                   |                    | 44.2 |                  | 44.5
|                                                                                | Labor                      |                    | 8.8  |                  | 8.7 
|                                                                                | Overhead                   |                    | 28.6 |                  | 29.9
|                                                                                |                            |                    |      |                  |     
|                                                                                |                            | 81.6               |      | 83.1             |     
|                                                                                |                            |                    |      |                  |     
|                                                                                | Gross profit               |                    | 18.4 |                  | 16.9
|Selling, general and administrative expenses                                    |                            | 13.4               |      | 12.5             |     
|Special charges                                                                 |                            | 0.7                |      |                 |     
|Plant realignment costs                                                         |                            | 0.2                |      | 0.8              |     
|                                                                                |                            |                    |      |                  |     
|Operating income (loss)                                                         |                            | 4.1                |      | 3.6              |     
|Other expense:                                                                  |                            |                    |      |                  |     
|                                                                                | Interest expense, net      |                    | 8.9  |                  | 11.8
|                                                                                | Foreign currency and other |                    | 2.4  |                  | 0.3 
|                                                                                |                            |                    |      |                  |     
|                                                                                |                            | 11.3               |      | 12.1             |     
|                                                                                |                            |                    |      |                  |     
|Loss before Chapter 11 reorganization expenses and income tax expense (benefit) |                            | (7.2               | )    | (8.5             | )   
|Chapter 11 reorganization expenses                                              |                            | 0.4                |      |                 |     
|                                                                                |                            |                    |      |                  |     
|Loss before income tax expense (benefit)                                        |                            | (7.6               | )    | (8.5             | )   
|Income tax expense (benefit)                                                    |                            | 1.2                |      | (2.4             | )   
|                                                                                |                            |                    |      |                  |     
|Net loss                                                                        |                            | (8.8               | )%   | (6.1             | )%  
|                                                                                |                            |                    |      |                  |     

26

---

Comparison of Three Months Ended June 29, 2002 and June 30, 2001

The following table sets forth components of the Company's net sales and operating income (loss) by segment for the three months ended June 29, 2002 and
the corresponding increase/(decrease) over the comparable period in the prior year:

|                         |                          | Three Months Ended |                  |         |   |         |        
|------------------------ | ------------------------ | ------------------ | ---------------- | ------- | - | ------- | -------
|
|
|Net sales:               |                          |                    |                  |         |   |         |        
|                         | Consumer                 |                    | $                | 107,749 |   | $       | 119,382
|                         | Industrial and Specialty |                    |                  | 93,032  |   |         | 95,005 
|                         |                          |                    |                  |         |   |         |        
|                         |                          | $                  | 200,781          |         | $ | 214,387 |        
|                         |                          |                    |                  |         |   |         |        
|Operating income (loss): |                          |                    |                  |         |   |         |        
|                         | Consumer                 |                    | $                | 11,128  |   | $       | 8,049  
|                         | Industrial and Specialty |                    |                  | (1,156  | ) |         | 1,464  
|                         |                          |                    |                  |         |   |         |        
|                         |                          |                    | 9,972            |         |   | 9,513   |        
|                         | Plant realignment costs  |                    |                  | (381    | ) |         | (1,660 
|                         | Special charges          |                    |                  | (1,466  | ) |         |       
|                         |                          |                    |                  |         |   |         |        
|                         |                          |                    | Operating income |         | $ | 8,125   |        
|                         |                          |                    |                  |         |   |         |        

Net Sales

A reconciliation of the change in net sales between second quarter 2001 and second quarter 2002 is presented in the following table (in thousands):

Net salessecond quarter 2001

$
214,387Change in sales due to:Volume


(11,156
)Price/mix


919Foreign currency


(3,369
)Net salessecond quarter 2002

$
200,781


Consolidated net sales were $200.8 million for the second quarter of 2002, a decrease of $(13.6) million or (6.3)% over the second quarter 2001
sales of $214.4 million. The decrease in net sales was due to a decrease in sales volume, weak foreign currencies versus the U.S. dollar and pricing pressure and product mix issues. Sales
volume decreased by $11.1 million and foreign currency had a negative impact on net sales of $3.4 million. These negative factors were offset somewhat by an increase in price/mix of
$0.9 million.

Similar
economic and business issues negatively impacted both the Consumer and Industrial and Specialty segments during the second quarter of fiscal 2002. Certain factors that
contributed to lower than anticipated net sales in fiscal 2001 and the first quarter of 2002 continued to negatively affect net sales in the second quarter of 2002. Within the Company's Nonwovens
business, lower sales volume, predominantly in the U.S. hygiene, industrial and medical markets, offset volume gains primarily within Latin America, Asia and the U.S. APEX business. The decrease in
U.S. net sales due to lower selling prices and product mix issues resulted from continued pricing pressure within the Consumer markets. Additionally, Industrial and Specialty segment sales volume
increases were achieved within the Oriented Polymers agriculture and specialty and coating fabric markets, but were offset somewhat by lower volumes and selling prices in other industrial sectors.

27

---

Foreign
currencies, predominantly in Argentina, were weaker against the U.S. dollar during the second quarter of 2002 compared to the second quarter of 2001. Further discussion of the
Argentine pesos effect on the Company's results of operations is contained in the Investing and Financing Activities portion of "Liquidity and Capital Resources" in this Quarterly Report on
Form 10-Q.

Operating Income

A reconciliation of the change in operating income between second quarter 2001 and second quarter 2002 is presented in the following table (in thousands):

Including
Unusual
Items

Excluding
Unusual
ItemsOperating incomesecond quarter 2001

$
7,853

$
9,513Unusual itemsplant realignment and special charges


(187
)

Volume


(4,617
)

(4,617
)Cost savings and other initiatives related to plant realignment and business restructuring


9,327


9,327Lower depreciation and amortization expense


4,121


4,121Price / mix


919


919Foreign currency


(1,036
)

(1,036
)Higher administrative costs associated with historic Dominion entities


(31
)

(31
)All other


(8,224
)

(8,224
)Operating incomesecond quarter 2002

$
8,125

$
9,972


Consolidated
operating income was $8.1 million for the second quarter of 2002. Excluding unusual items, which consist of plant realignment and special charges, consolidated
operating income was approximately $10.0 million for the second quarter of 2002, an increase of $0.5 million or 4.8%, over operating income before unusual items of $9.5 million
for the second quarter of 2001. The increase in operating income before unusual items was due to cost savings and other initiatives related to plant realignment and business restructuring of
$9.3 million, lower depreciation and amortization charges of $4.1 million, higher net selling prices, predominantly in Argentina of $0.9 million, offset by volume declines of
$4.6 million, weaker foreign currencies versus the U.S. dollar of $1.0 million and other items of approximately $8.2 million consisting of higher operating costs within the
Oriented Polymers business and higher cost / mix in other sectors. Although operating income before unusual items increased quarter over quarter, certain of the same factors that contributed to lower
net sales in the second quarter of 2002 versus 2001 also negatively affected operating earnings in the current fiscal quarter.

As
discussed in Note 3. "Chapter 11 Proceedings" and Note 4. "Business Restructuring," the Company undertook a comprehensive financial and business restructuring of
its operations in the latter part of fiscal 2001 in response to a confluence of negative economic and business factors. The restructuring has continued into the first six months of 2002. Accordingly,
the cash component of the restructuring has included workforce reductions and plant realignment in the Consumer and Industrial and Specialty businesses, predominantly in the U.S. and Europe.
Manufacturing and operating cost savings were realized within each business segment in the second quarter of 2002 as a result of these initiatives. However, lower selling prices and volume declines
predominantly in the U.S. and weak foreign currency translation rates versus the U.S. dollar in Argentina, offset the cost savings achieved in the second quarter of 2002 within the Nonwovens Consumer
and Industrial and Specialty segments. Additionally, the Oriented Polymers business within the Industrial and Specialty segment produced lower operating earnings in the second quarter of 2002 versus
the comparable prior year period despite increased sales levels over the prior year within this segment.

28

---

The
restructuring program previously discussed also entailed the write down of long-lived assets, thus, non-cash depreciation and amortization expenses were lower
in the second quarter of 2002 versus the same period in 2001 due to a lower depreciable fixed asset base in the U.S. and Europe and to the adoption of FAS 142 which requires that goodwill and
intangibles with indefinite lives no longer be systematically amortized, but tested for impairment on at least an annual basis.

Refer
to Note 13. "Certain Matters" for a discussion of the MSA between the Company and Galey. Such costs, which were not significant during the second quarter of 2002, are
quantified as a component in the Industrial and Specialty segment.

Plant Realignment and Special Charges

The Company recorded a pre-tax charge of $0.4 million during the three months ended June 29, 2002 related to the continuation of the
plant realignment and business restructuring program. The total charge in the second quarter consisted primarily of personnel costs within the Company's Oriented Polymers business.

As
part of the Company's financial restructuring, approximately $1.5 million of expenses were incurred in the second quarter of 2002, related to professional and other related
services provided in connection with the Company's restructuring efforts. Refer to the discussion below surrounding "Chapter 11 Reorganization Expenses."

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

Interest Expense and Other

As of the Petition Date and in accordance with SOP 90-7, the Company discontinued accruing interest on the Senior Subordinated Notes and, as a result,
interest expense decreased $7.4 million from $25.3 million in the second quarter of 2001 to $17.9 million in the second quarter of 2002. Interest on the Prepetition Credit
Facility and other debt increased slightly due to debt remaining level quarter over quarter. The Company's effective borrowing rates during 2001 decreased, however, on April 11, 2001 and
August 15, 2001, the Company's interest rate on its outstanding borrowings under the Prepetition Credit Facility increased by 50 basis points at each date. Additionally, the Company's effective
borrowing rate for 2002 increased as a result of the default under the Prepetition Credit Facility.

Foreign
currency and other losses increased $4.0 million, from $0.6 million in the second quarter of 2001 to $4.7 million in the second quarter of 2002 due primarily
to the Argentine peso devaluation, related to the remeasurement of U.S. dollar denominated debt at its Argentine majority-owned subsidiary, and to foreign currency remeasurement losses and other
charges in Europe, Canada and Asia.

Chapter 11 Reorganization Expenses

The Company incurred Chapter 11 reorganization expenses of $0.9 million during the second quarter of 2002. Such costs, consisting of professional
and other related services, are expensed as incurred and are directly related to the Company's Chapter 11 reorganization efforts in accordance with SOP 90-7. Prior to the Petition
Date, debt restructuring costs were expensed as incurred and classified as "Special charges" in the Consolidated Statement of Operations.

Income Taxes

The Company incurred a pre-tax loss of $15.3 million during the three months ended June 29, 2002 that produced a potential U.S. tax
benefit of $4.2 million. However, due to the uncertainty of the

29

---

Company's ability to realize the asset associated with the tax benefit, a valuation allowance in the amount of $4.2 million was recorded during the three months ended June 29, 2002.
Additionally, the Company recognized income tax expense of $2.4 million in the second quarter of 2002 relating to income generated within its international operations. During the three months
ended June 30, 2001, the Company recorded an income tax benefit of $5.1 million, representing an effective benefit rate of approximately 28%. The effective benefit rate differed from the
statutory rate during the second quarter of 2001 due primarily to non-deductible charges, predominantly goodwill and to an increase in the Company's tax valuation allowance.

Net Loss

Net loss increased $4.7 million from a loss of $(13.0) million, or $(0.41) per diluted share, in the second quarter of 2001 to a loss of
$(17.8) million, or $(0.56) per diluted share, in the second quarter of 2002 as a result of the above mentioned factors.

Comparison of Six Months Ended June 29, 2002 and June 30, 2001

The following table sets forth components of the Company's net sales and operating income (loss) by segment for the six months ended June 29, 2002 and the
corresponding increase/(decrease) over the comparable period in the prior year:

|                         |                          | Six Months Ended |                  |         |   |         |        
|------------------------ | ------------------------ | ---------------- | ---------------- | ------- | - | ------- | -------
|
|
|Net sales:               |                          |                  |                  |         |   |         |        
|                         | Consumer                 |                  | $                | 215,479 |   | $       | 231,530
|                         | Industrial and Specialty |                  |                  | 176,482 |   |         | 184,113
|                         |                          |                  |                  |         |   |         |        
|                         |                          | $                | 391,961          |         | $ | 415,643 |        
|                         |                          |                  |                  |         |   |         |        
|Operating income (loss): |                          |                  |                  |         |   |         |        
|                         | Consumer                 |                  | $                | 16,612  |   | $       | 12,446 
|                         | Industrial and Specialty |                  |                  | (4,795  | ) |         | (1,927 
|                         |                          |                  |                  |         |   |         |        
|                         |                          |                  | 11,817           |         |   | 10,519  |        
|                         | Plant realignment costs  |                  |                  | (557    | ) |         | (1,660 
|                         | Special charges          |                  |                  | (3,634  | ) |         |       
|                         |                          |                  |                  |         |   |         |        
|                         |                          |                  | Operating income |         | $ | 7,626   |        
|                         |                          |                  |                  |         |   |         |        

Net Sales

A reconciliation of the change in net sales between the six months ended June 30, 2001 and the six months ended June 29, 2002 is presented in the
following table (in thousands):

Net salessix months ended June 30, 2001

$
415,643Change in sales due to:Volume


(6,555
)Price/mix


(5,806
)Foreign currency


(11,321
)Net salessix months ended June 29, 2002

$
391,961


Consolidated net sales were approximately $392.0 million for the six months ended June 29, 2002, a decrease of $(23.7) million or (5.7)% over
sales of $415.6 million during the same period in 2001. The

30

---

decrease in net sales was due to a decrease in sales volume, weak foreign currencies versus the U.S. dollar and pricing pressure and product mix issues. Sales volume decreased by $6.6 million
and foreign currency had a negative impact on net sales of $11.3 million. Pricing pressure and product mix issues, predominantly in the U.S., negatively affected net sales by approximately
$5.8 million during the six months ended June 29, 2002 versus the same period in 2001.

Similar
economic and business issues negatively impacted both the Consumer and Industrial and Specialty segments during the first half of fiscal 2002. Certain factors that contributed to
lower than anticipated net sales in fiscal 2001 continued to negatively affect net sales in 2002. Within the Company's Nonwovens business, lower sales volume, predominantly in the U.S. hygiene,
industrial and medical markets, offset volume gains over the prior year primarily within Europe, Latin America, Asia and the U.S. APEX business. The decrease in U.S. net sales due to lower selling
prices and product mix issues resulted from continued pricing pressure within the Consumer markets.
Additionally, Industrial and Specialty segment sales volume increases were achieved within the Oriented Polymers agriculture and specialty and coating fabric markets, but were offset somewhat by lower
volumes and selling prices in other industrial sectors.

Foreign
currencies, predominantly in Europe, Canada and Argentina, were weaker against the U.S. dollar during the first six months of 2002 compared to the comparable period in 2001.
Further discussion of the Argentine pesos effect on the Company's results of operations is contained in the Investing and Financing Activities portion of "Liquidity and Capital Resources" in this
Quarterly Report on Form 10-Q.

Operating Income

A reconciliation of the change in operating income between the six months ended June 30, 2001 and the six months ended June 29, 2002 is presented in
the following table (in thousands):

Including
Unusual
Items

Excluding
Unusual
ItemsOperating incomesecond quarter 2001

$
8,859

$
10,519Unusual itemsplant realignment and special charges


(2,531
)

Volume


(4,201
)

(4,201
)Cost savings and other initiatives related to plant realignment and business restructuring


17,295


17,295Lower depreciation and amortization expense


8,200


8,200Price / mix


(5,806
)

(5,806
)Foreign currency


(3,422
)

(3,422
)Higher administrative costs associated with historic Dominion entities


(842
)

(842
)All other


(9,926
)

(9,926
)Operating incomesecond quarter 2002

$
7,626

$
11,817


Consolidated
operating income was $7.6 million for the six months ended June 29, 2002. Excluding unusual items, which consist of plant realignment and special charges,
consolidated operating income was approximately $11.8 million, an increase of $1.3 million or 12.3%, over operating income before unusual items of $10.5 million for the comparable
period in 2001. The increase in operating income before unusual items was due to cost savings and other initiatives related to plant realignment and business restructuring of $17.3 million,
lower depreciation and amortization charges of $8.2 million offset by volume declines of $4.2 million, lower selling prices of $5.8 million, weaker foreign currencies versus the
U.S. dollar of $3.4 million and other items of approximately $10.8 million consisting of higher operating costs within the Oriented Polymers business and higher cost / mix in other
sectors. Although operating income before unusual items increased year over year, certain of the same factors that

31

---

contributed to lower net sales during 2002 versus 2001 also negatively affected operating earnings in the current fiscal quarter.

As
discussed in Note 3. "Chapter 11 Proceedings" and Note 4. "Business Restructuring," the Company undertook a comprehensive financial and business restructuring of
its operations in the latter part of fiscal 2001 in response to a confluence of negative economic and business factors. The restructuring has continued into the first six months of 2002. Accordingly,
the cash component of the restructuring has included workforce reductions and plant realignment in the Consumer and Industrial and Specialty businesses, predominantly in the U.S. and Europe.
Manufacturing and operating cost savings were realized within each business segment in the second quarter of 2002 as a result of these initiatives. However, lower selling prices and volume declines
predominantly in the U.S. and weak foreign currency translation rates versus the U.S. dollar in Europe, Canada and Argentina, offset the cost savings achieved during 2002 within the Nonwovens Consumer
and Industrial and Specialty segments. Additionally, the Oriented Polymers business within the Industrial and Specialty segment produced lower operating earnings during the first six months 2002
versus the comparable prior year period despite increased sales levels over the prior year within this segment.

The
restructuring program previously discussed also entailed the write down of long-lived assets, thus, non-cash depreciation and amortization expenses were lower
during the six months ended June 29, 2002 versus the comparable period in 2001 due to a lower depreciable fixed asset base in the U.S. and Europe and to the adoption of FAS 142 which
requires that goodwill and intangibles with indefinite lives no longer be systematically amortized, but tested for impairment on at least an annual basis.

Corporately,
administrative costs, excluding restructuring related charges, were approximately $2.0 million higher during the first six months of 2002 versus the comparable period
in 2001 due primarily to higher costs associated with certain historic Dominion entities. Refer to Note 13. "Certain Matters" for a discussion of the MSA between the Company and Galey. Such
costs, which were not significant during the second quarter of 2002, are quantified as a component in the Industrial and Specialty segment. On a year to basis in 2002, higher costs associated with the
MSA have approximated $0.8 million.

Plant Realignment and Special Charges

The Company recorded a pre-tax charge of $0.6 million during the six months ended June 29, 2002 related to the continuation of the plant
realignment and business restructuring program. The total charge for the first half of 2002 consisted primarily of personnel costs.

As
part of the Company's financial restructuring, approximately $3.6 million of expenses were incurred during the six months ended June 29, 2002 related to professional and
other related services provided in connection with the Company's restructuring efforts.

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

Interest Expense and Other

As of the Petition Date and in accordance with SOP 90-7, the Company discontinued accruing interest on the Senior Subordinated Notes and, as a result,
interest expense decreased $7.0 million from $50.7 million during the first six months of 2001 to $43.7 million during the comparable period in 2002. Interest on the Prepetition
Credit Facility and other debt increased slightly due to debt remaining level quarter over quarter. The Company's effective borrowing rates during 2001 decreased, however, on April 11, 2001 and
August 15, 2001, the Company's interest rate on its outstanding borrowings under the

32

---

Prepetition Credit Facility increased by 50 basis points at each date. Additionally, the Company's effective borrowing rate for 2002 increased as a result of the default under the Prepetition Credit
Facility.

Foreign
currency and other losses increased $5.9 million, from $2.1 million during the first six months of 2001 to approximately $8.0 million during the comparable
2002 period due primarily to the Argentine peso devaluation, related to the remeasurement of U.S. dollar denominated debt at its Argentine majority-owned subsidiary, and to foreign currency
remeasurement losses and other charges in Europe, Canada and Asia.

Chapter 11 Reorganization Expenses

The Company incurred Chapter 11 reorganization expenses of $0.9 million during the six months ended June 29, 2002. Such costs, consisting of
professional and other related services, are expensed as incurred and are directly related to the Company's Chapter 11 reorganization efforts in accordance with SOP 90-7. Prior to
the Petition Date, debt restructuring costs were expensed as incurred and classified as "Special charges" in the Consolidated Statement of Operations.

Income Taxes

The Company incurred a pre-tax loss of $44.9 million during the six months ended June 29, 2002 that produced a potential U.S. tax
benefit of $12.5 million. However, due to the uncertainty of the Company's ability to realize the asset associated with the tax benefit, a valuation allowance in the amount of
$12.5 million has been recorded during the six months ended June 29, 2002. Additionally, the Company recognized income tax expense of $2.4 million during the first six months 2002
relating to income generated within its international operations. During the six months ended June 30, 2001, the Company recorded an income tax benefit of $12.3 million, representing an
effective benefit rate of approximately 28%. The effective benefit rate differed from the statutory rate during the second quarter of 2001 due primarily to non-deductible charges,
predominantly goodwill and to an increase in the Company's tax valuation allowance.

Net Loss

Net loss increased $15.7 million from a loss of $(31.6) million, or $(0.99) per diluted share, for the first six months of 2001 to a loss of
$(47.3) million, or $(1.48) per diluted share, for the first six months of 2002 as a result of the above mentioned factors.

Liquidity and Capital Resources

June 29,
2002

December 29,
2001(In Thousands)Balance sheet data:Cash and short-term investments

$
61,947

$
46,453Working capital (deficit), excluding liabilities subject to compromise


(226,495
)

(872,336
)Working capital, excluding current portion of long-term debt and liabilities subject to compromise


262,970


204,681Total assets


1,233,509


1,232,214Total debt


1,095,350


1,099,230Shareholders' (deficit)


(73,687
)

(48,862
)


33

---

Six Months EndedJune 29,
2002

June 30,
2001(In Thousands)Cash flow data:Net cash provided by operating activities

$
21,496

$
5,404Net cash provided by (used in) investing activities


300


(11,865
)Net cash provided by (used in) financing activities


(12,455
)

26,026


Operating Activities

The Company generated cash from operations of $21.5 million during the six months ended June 29, 2002, an approximate $16.1 million increase
from cash generated from operations of $5.4 million during the same period in 2001. Cash used for operations was negatively impacted during the first six months of 2002 and 2001 by continuing
operating losses; however, as discussed more fully below, due to the Company's Senior Secured Lenders exercising their right to block interest payments to holders of the Company's 9% Senior
Subordinated Notes and 83/4% Senior Subordinated Notes on January 2, 2002 and March 1, 2002, respectively, cash payments for interest were approximately
$26.4 million lower in the first six months of 2002 versus 2001.

The
Company had a working capital (deficit) of approximately $(226.5) million at June 29, 2002 due primarily to the reclassification of all amounts outstanding under the
Company's Credit Facility to a current liability Not Subject to Compromise. Excluding the current portion of indebtedness, working capital was $263.0 million at June 29, 2002, compared
to working capital, excluding current potion of indebtedness, at December 29, 2001 of $204.7 million. Accounts receivable on June 29, 2002 was $125.9 million as compared to
$125.6 million on December 29, 2001, an increase of $0.2 million or approximately 0.2%. Accounts receivable represented approximately 57 days of sales outstanding at
June 29, 2002 as compared to 56 days outstanding on December 29, 2001, an increase of approximately 1.8%. Inventories at June 29, 2002 were approximately
$112.5 million, a decrease of $3.5 million over inventories at December 29, 2001 of $116.0 million due primarily to a $4.2 million decrease in consolidated raw
materials, a $1.4 million decrease in consolidated work in process, and a $2.1 million increase in consolidated finished goods. The Company had approximately 63 days of inventory
on hand at June 29, 2002 and December 29, 2001. Accounts payable, including payables subject to compromise, at June 29, 2002 was $47.0 million as compared to
$46.4 million on
December 29, 2001, an increase of $0.6 million or approximately 1.3%. Accounts payable represented 26 days of payables outstanding at June 29, 2002 compared to
25 days of payables outstanding on December 29, 2001. As a result of the Company's financial condition, certain suppliers have requested alternative payment provisions. However, such
alternative payment provisions have not currently had a significant negative impact on the Company's liquidity.

Investing and Financing Activities

Capital expenditures in the first six months of 2002 totaled $4.4 million, a decrease of $7.4 million from capital spending of $11.9 million
in the first six months of 2001.

Due
to the financial impact of economic and business factors upon the Company's business, as outlined under "Note 1. Nature of Operations and Business Conditions" in its Annual
Report on Form 10-K for fiscal 2001, the inability to complete asset dispositions on acceptable terms and the expiration of the waiver with respect to the leverage covenant, as of
December 29, 2001 the Company was in default under the Prepetition Credit Facility (as defined herein). Because of this default, the Senior Secured Lenders exercised their right to block the
payment of interest due on January 2, 2002 to the holders of the 9% Senior Subordinated Notes due 2007. These Lenders subsequently blocked the interest payment due on March 1, 2002 to
the holders of 83/4% Senior Subordinated Notes due 2008. On

34

---

December 30, 2001, the Company and certain subsidiaries entered into a Forbearance Agreement with the Senior Secured Lenders (the "Forbearance Agreement"). The Senior Secured Lenders agreed
not to exercise certain remedies available to them under the Prepetition Credit Facility as a result of the existing covenant defaults during the forbearance period. If certain events were to occur,
the Senior Secured Lenders would have been able to exercise their remedies available to them, which included the right to declare all amounts outstanding under the Prepetition Credit Facility
immediately due and payable. The Forbearance Agreement, as extended on March 15, 2002 was scheduled to end on May 15, 2002, and prevented the Company from making any additional
borrowings in excess of the amounts outstanding under the revolving portion of the Prepetition Credit Facility as of December 30, 2001.

Because
the Company was unable to reduce amounts outstanding under the Prepetition Credit Facility through asset dispositions on acceptable terms, the services of Miller,
Buckfire & Lewis (f/k/a Dresdner Kleinwort Wasserstein, Inc.) were retained on October 2, 2001 as the financial advisor to assist in exploring various restructuring options. From
November of 2001 through February of 2002, the Company conducted extensive negotiations with several potential investors and various other constituents in an effort to establish viable
restructuring options. During this same time period, some of these potential investors conducted due diligence investigations of the Company and its operations.

In
evaluating the various restructuring options, the Company decided to maintain negotiations with CSFB Global Opportunities Investment Partners, L.P. ("GOF"), the holder of
approximately 67% of
the Senior Subordinated Notes (as defined herein). The Company determined that GOF afforded the highest probability of a transaction being completed with terms that provided an overall acceptable
level of value to the various stakeholders. Members of the Company's senior management, GOF and their respective advisors held discussions concerning the terms of a proposed recapitalization
transaction. The discussions focused primarily on the overall level of investment in the Company and the nature of that ownership. As a result of these extensive negotiations, the Company executed a
term sheet with GOF on March 15, 2002 setting forth the proposed terms of a recapitalization plan, including a financial restructuring.

The
material elements of the financial restructuring included: (i) GOF contributing $50 million in cash and $394.4 million of the Senior Subordinated Notes (the
"Existing Notes") currently owned by GOF (including accrued, but unpaid interest) and agreeing to provide a $25 million letter of credit in favor of the Senior Secured Lenders under an amended
credit facility, all in exchange for approximately 22.4 million newly issued shares of common stock of the Company (after taking into account a 1-for-10 reverse common
stock split), representing 87.5% ownership of the Company; (ii) the holders of at least 95% of the aggregate principle amount of the Existing Notes not owned by GOF exchanging their notes for
either new senior subordinated notes or new senior subordinated discount notes; and (iii) the Company entering into an amended credit facility with its Senior Secured Lenders (collectively, the
"Exchange Offer").

On
March 25, 2002, during the pendency of the Exchange Offer, without any prior notice, a group of creditors (the "Petitioning Creditors") holding approximately
$41.3 million of the Company's outstanding Senior Subordinated Notes filed an involuntary bankruptcy petition (the "Involuntary Petition") against the Company in the United States Bankruptcy
Court for the District of South Carolina (the "South Carolina Bankruptcy Court"). On April 2, 2002, the Company reached an agreement (the "Dismissal Agreement") with the Petitioning Creditors,
which provided for the South Carolina Bankruptcy Court to dismiss the involuntary petition (the "Dismissal Order") subject to a twenty-day period during which
parties-in-interest could object to that dismissal. The twenty-day period commenced on April 5, 2002, the day on which notice of the dismissal was published
in the national edition of the Wall Street Journal. On April 26, 2002, the South Carolina Bankruptcy Court entered the Dismissal Order.

35

---

The
Dismissal Agreement also provided that the Company would seek an amendment of the Prepetition Credit Facility to permit it to file a voluntary petition for one of its wholly owned,
South Carolina-registered subsidiaries in the South Carolina Bankruptcy Court. Pursuant to Amendment No. 7, dated as of April 4, 2002, the Senior Lenders agreed to amend the Prepetition
Credit Facility to permit this filing. On April 23, 2002, the Debtors filed a voluntary petition for Bonlam (S.C.), Inc. ("Bonlam (S.C.)"), in the South Carolina Bankruptcy Court. The
Dismissal Agreement further provided that the Company would extend the expiration of the Exchange Offer through May 15, 2002. The Company and GOF also agreed to forbear through, and including,
May 15, 2002, from implementing any modifications to the Senior Subordinated Notes and the indentures governing them. The Petitioning Creditors agreed to forbear through and including,
May 12, 2002 (the "Forbearance Period"), from exercising any and all remedies under the applicable indentures, the Senior Subordinated Notes or any applicable law, including any filing of an
involuntary petition against any of the Debtors. During the Forbearance Period, the Company agreed (i) not to file a voluntary petition for
relief under the Bankruptcy Code in a jurisdiction other than Columbia, South Carolina, and (ii) to contest any involuntary petition under the Bankruptcy Code filed in any such other
jurisdiction, in each case, without the prior written consent of the Petitioning Creditors. GOF and the Petitioning Creditors agreed not to file an involuntary petition against the Company in any
venue other than the South Carolina Bankruptcy Court.

The
Company, GOF and the Petitioning Creditors intended that the Dismissal Agreement would provide a framework for the Company and other parties, including the Petitioning Creditors, to
continue to negotiate the terms of a potential restructuring of the Company through May 12, 2002. Negotiations proceeded, but the Company and Petitioning Creditors did not reach an agreement on
a consensual restructuring. Meanwhile, the uncertainty created by the Involuntary Petition caused further deterioration in the Company's businesses. The Company determined that it was in the best
interest of its creditors and other constituencies to seek the protections afforded by filing voluntary petitions for protection under Chapter 11 of the United States Code (the "Bankruptcy
Code"). Accordingly, on May 11, 2002 (the "Filing Date" or "Petition Date"), the Company and each of its domestic subsidiaries (together with the Company, the "Debtors") filed voluntary
petitions for "pre-negotiated" reorganization (the "Chapter 11 Filings" or the "Filings") under the Bankruptcy Code in the South Carolina Bankruptcy Court. The Chapter 11
Filings are being jointly administered for procedural purposes only. The Company's direct and indirect foreign subsidiaries and foreign joint venture entities did not file petitions under
Chapter 11 and are not the subject of any bankruptcy proceedings. To facilitate stabilizing operations during the Chapter 11 Filings, the Debtors have secured a $125 million
commitment (the "Commitment") for debtor-in-possession financing (the "DIP Facility") from a group of financial institutions, some of which are Senior Lenders (the "DIP
Lenders") that will provide the Debtors sufficient liquidity to operate during the Chapter 11 Filings. JPMorgan Chase Bank is the Agent for the DIP Lenders under the DIP Facility. Pursuant to
the DIP Facility, the Debtors paid certain fees to the DIP Lenders, including a structuring fee of 0.85% of the Commitment, an underwriting fee of 1.65% of the Commitment as well as certain other
fees.

To
enhance the Debtors' ability to implement a restructuring and to emerge from Chapter 11 as efficiently as possible with an improved debt structure, the Debtors
(a) obtained the requisite approval from a substantial majority of the Senior Lenders (the "Supporting Senior Lenders") (in the form of the Bank Term Sheet and discussed below) to restructure
the Prepetition Credit Facility and (b) executed the Support Agreement, dated as of May 10, 2002, with GOF, pursuant to which GOF agreed to support a joint plan of reorganization. The
Debtors paid a commitment fee to the Supporting Senior Lenders of approximately $4.3 million in consideration of their agreeing to the terms contained in the Bank Term Sheet. The Debtors agreed
to file by May 24, 2002, a Chapter 11 plan of reorganization (the "Plan") and disclosure statement that were consistent with the term sheets agreed upon with each of the Supporting
Senior Lenders and GOF. With the support of these substantial creditors, the Debtors are seeking to emerge from Chapter 11 in an expeditious manner. Beginning on May 23, 2002 and on
other subsequent dates, GOF agreed to extend the deadline for filing such Plan and disclosure statement until June 14, 2002.

36

---



On June 14, 2002, the Company filed the Plan with the South Carolina Bankruptcy Court. The Plan generally proposes (i) the restructuring of the Prepetition Credit Facility,
including a $50 million principal reduction, (ii) the retirement of in excess of $591.5 million of the Debtors' obligations under the Senior Subordinated Notes, in exchange for
the right of the holders of such Notes to receive either (x) their pro rata share of 100% of the newly issued Class A Common Stock of the reorganized Company (prior to the conversion of
the preferred stock or new senior notes, each referred to below) (which shall be diluted by any conversion of the New Preferred Stock), (y) for each $1,000 in principal of existing Notes held,
$120 in principal of New Junior Subordinated Notes bearing interest at 11% payable in cash or (z) for each $1,000 in principal amount of existing Senior Subordinated Notes held, $150 in
principal amount of New Junior Subordinated PIK Notes, with interest at 7.5% payable in kind and 3.5% payable in cash, (iii) no impairment of the Debtors' other unsecured creditors,
(iv) a $50 million investment by GOF and eligible electing holders of Senior Subordinated Notes in exchange for convertible preferred stock convertible into 44% of the newly issued
common stock of the reorganized Company (after giving effect to the conversion thereof and excluding PIK dividends thereon) (the "New Preferred Stock"), (v) the issuance by GOF and eligible
electing holders of Senior Subordinated Notes of a $25 million letter of credit to secure the Debtors' proposed amortization payments to the Senior Lenders (which if drawn, would be evidenced
by New Senior Subordinated Notes) and (vi) the retention by existing shareholders of 100% of the newly issued Class B Common Stock (which shall not be diluted by any conversion of the
New Preferred Stock) and certain warrants for up to an additional 9.5% of the reorganized Company's common stock, as of the effective date of reorganization (which shall be subject to dilution by
conversion of the New Preferred Stock), exercisable at specified value targets for the Company. In connection with the new investment, GOF has agreed to act as a standby purchaser to ensure that all
of the shares of New Preferred Stock offered by the Company are purchased and that the new investment generates gross proceeds of $50.0 million in cash and results in $25.0 million of
exit letters of credit in place. The Company shall pay GOF a fee of $500,000 for acting as standby purchaser in connection with the new investment.

On
August 15, 2002, a hearing was held in the South Carolina Bankruptcy Court to consider, among other things, the approval of the Company's Disclosure Statement relating to the
Plan of Reorganization. The judge indicated that he would approve the Disclosure Statement, and directed the parties to meet on statement language, with a hearing date of August 20, 2002, to
resolve any remaining differences. The Company currently expects the Disclosure Statement to be approved at this hearing.

In
order to support working capital requirements at its majority owned subsidiary in Istanbul, Turkey ("Vateks"), the Company has deposited approximately $6.0 million with a
member of its European bank syndicate who in turn has funded an approximate equivalent amount to Vateks.

Nanhai
has a bank facility with a financial institution in China. The facility was refinanced in July 2002 is scheduled to mature during January 2003. At June 29,
2002, the approximate amount of outstanding indebtedness under the facility was $9.5 million. The Nanhai indebtedness is guaranteed 100% by the Company and to support this guarantee, a letter
of credit has been issued by the Company's agent bank in the amount of $10.0 million. As a result of the Company's 80% majority ownership of Nanhai and full guarantee of the Nanhai bank debt,
all amounts outstanding under the Nanhai bank facility are reflected in the Company's consolidated balance sheet as a current liability within the caption "Short term borrowings" at June 29,
2002. At June 29, 2002, Nanhai had cash and cash equivalents on hand of approximately $1.9 million and working capital, excluding current debt, of approximately $9.3 million.
Including current debt, the Nanhai working capital deficit was $0.1 million at June 29, 2002.

DNS
has two bank facilities denominated in U.S. dollars of approximately $9.9 million at June 29, 2002 with current maturities of approximately $3.9 million. The
facilities are scheduled to mature in 2004 and 2005 respectively. The full amount of such indebtedness is reflected on the Company's consolidated balance sheet at June 29, 2002 as a result of
the Company's 60% majority ownership of this subsidiary; however, the minority shareholder guarantees 40% of such indebtedness. Because of the

37

---

Argentine peso devaluation against the U.S. dollar, the Company is exposed to foreign currency remeasurement losses of the U.S. dollar denominated debt at DNS because the functional currency of DNS
is the Argentine peso. As a result, the Company recognized foreign currency losses of approximately $0.7 million in the second quarter of 2002 and $2.5 million in the first six months of
2002, net of minority interest adjustments, related to the DNS U.S. dollar debt because of the Argentine peso devaluation. At June 29, 2002, DNS had cash and cash equivalents on hand of
approximately $0.3 million and working capital of $5.5 million, excluding current debt. Including current debt, DNS working capital was approximately $1.6 million June 29,
2002.

During
the first quarter of fiscal 2001, the Company exercised an option to obtain a 45% minority position in a start-up Saudi Arabian
state-of-the-art nonwovens production line (the "Saudi Venture"). Over the course of 2001, the Company funded approximately $4.4 million representing its
pro-rata share for the construction costs of this line in Saudi Arabia. The Company is not permitted to acquire more than a 45% interest in the Saudi Venture pursuant to Amendment
No. 6. The Saudi Venture and the Company's equity stake are currently under review pending finalization of the Investment Approval Application (the "IAA") between the Company and its partner
and the approval of the IAA by the Saudi Arabian government. The Company currently expects to receive the final outcome of the review during the third or fourth quarter of fiscal 2002. However, in the
event the Company and its partner are unable to agree on final terms of the Saudi Venture acceptable to the Company, the Saudi Venture would not be able to obtain approval of the IAA from the Saudi
Arabia government. Moreover, the Company may not be able to recover its prorata share of construction costs funded in 2001. The Company has not guaranteed any indebtedness of the
non-consolidated Saudi Venture.

On
December 19, 1997, DT Acquisition Inc. ("DTA"), a subsidiary of the Company, acquired substantially all of the outstanding common and first preferred shares of Dominion
Textiles Inc., a Company organized under the laws of Canada ("Dominion"), and on January 29, 1998, DTA acquired all
remaining common and first preferred shares, at which time Dominion underwent a "winding-up." All assets and liabilities of Dominion were transferred to DTA and all outstanding common
shares and first preferred shares held by DTA were redeemed. Immediately thereafter, pursuant to a purchase agreement, dated October 27, 1997, the apparel fabrics business of Dominion was sold,
at no gain or loss, to Galey & Lord, Inc., ("Galey") and the Company acquired the nonwovens and industrial fabrics operations. The Company and Galey finalized the acquisition cash
settlement during 2000 pursuant to the Master Separation Agreement (the "MSA") dated January 29, 1998. The result of such settlement was not material to the Company's financial condition. Under
the MSA, the Company and Galey are required to share in the payment of certain on-going costs, including taxes, for historical Dominion entities as required by the MSA. Because the Company
originally acquired Dominion, the Company generally makes the payments and is reimbursed by Galey. On February 19, 2002, Galey and its U.S. operating subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code and began operating their businesses as debtors-in-possession. During March 2002, Galey
informed the Company of its intention to reject the MSA as part of its bankruptcy proceedings. If approved by the Bankruptcy Court, Galey's contemplated rejection of the MSA would result in the
Company being required to fund expenditures that should be allocated to, and paid by, Galey, which could potentially have a material adverse effect on the Company. At June 29, 2002, the amounts
due from Galey for the first six months of 2002 shared cash activity pursuant to the MSA, including amounts associated with statutory tax payments, approximated $1.3 million (the "Galey
Receivable"). The Company has fully reserved the Galey Receivable at June 29, 2002 due to the uncertainty of collectibility at such date. All shared cash activity prior to the first quarter of
2002 relative to the MSA has been collected from Galey.

The
Board of Directors declared a quarterly dividend of $0.02 per share during the first quarter in 2001. Amendment No. 6 to the Credit Facility prevented the Company from paying
dividends on its Common Stock.

38

---

Effect of Inflation

Inflation generally affects the Company by increasing the cost of labor, equipment and raw materials. For a discussion of certain raw material price increases
during 2001, see "Quantitative and Qualitative Disclosures About Market RiskRaw Material and Commodity Risks."

Foreign Currency

The Company's substantial foreign operations expose it to the risk of foreign currency exchange rate fluctuations. If foreign currency denominated revenues are
greater than costs, the translation of foreign currency denominated costs and revenues into U.S. dollars will improve profitability when
the foreign currency strengthens against the U.S. dollar and will reduce profitability when the foreign currency weakens. For a discussion of certain adverse foreign currency exchange rate
fluctuations during the second quarter of 2002 and 2001, see "Quantitative and Qualitative Disclosures About Market RiskForeign Currency Exchange Rate Risk."

Critical Accounting Policies And Other Matters

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

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

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

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

39

---

in determining net income. In addition, foreign currency transaction gains and losses are included in determining net income.

Business Combinations, Goodwill and Other Intangible Assets:In July 2001, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 141 "Business Combinations" ("FAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142").
FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests
method is no longer permitted. FAS 141 also includes guidance on the initial recognition and measurement of goodwill and intangible assets acquired in a business combination that is completed
after June 30, 2001. FAS 142 supersedes Accounting Principles Bulletin No. 17, "Intangible Assets." FAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. The most significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized,
(2) goodwill will be tested for impairment at least annually, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the
amortization period of intangible assets with finite lives will no longer be limited to forty years. FAS 142 will be effective for fiscal years beginning after December 15, 2001. The
effect of adoption was not material to the Company's results of operations during the second quarter of 2002.

Impairment of Long-Lived Assets:For all periods through December 29, 2001, the Company reviewed the
recoverability of the carrying value of long-lived assets in accordance with Statement of Financial Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Assets to be Disposed Of" ("FAS 121"). The Company also reviewed long-lived assets for impairment whenever events or changes in circumstances indicated that the carrying
amount of such assets might not be recoverable. When the future undiscounted cash flows of the operations to which the assets relate did not exceed the carrying value of the asset, the intangible
assets were written down, followed by the other long-lived assets, to fair value. In October 2001, the Financial Accounting Standards Board issued Statement No.144 "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of
long-lived assets. The statement supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS 121"). It also supersedes the accounting and reporting provisions of APB Opinion No. 30 "Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" related to the disposal of a segment
of a business. The statement is effective for fiscal years beginning after December 15, 2001. The effect of adoption was not material to the Company's results of operations during the second
quarter of 2002.

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

Income Taxes:The Company records an income tax valuation allowance when the realization of certain deferred tax assets, net
operating losses and capital loss carryforwards is not likely. These deferred tax items represent expenses recognized for financial reporting purposes, which will result in tax deductions over varying
future periods. The Company has not provided U.S. income taxes for

40

---

undistributed earnings of foreign subsidiaries that are considered to be retained indefinitely for reinvestment. Certain judgements, assumptions and estimates may affect the carrying value of the
valuation allowance and deferred income tax expense in the Company's consolidated financial statements.

Environmental

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

Euro Conversion

On January 1, 1999, member countries of the European Monetary Union began a three-year transition from their national currencies to a new
common currency, the "euro". Permanent rates of exchange between members' national currency and the euro have been established and monetary, capital, foreign exchange, and interbank markets have been
converted to the euro. National currencies will continue to exist as legal tender and may continue to be used in commercial transactions. Euro currency has been issued and effective July 2002,
the respective national currencies were withdrawn. The Company has operations in three of the participating countries and has successfully transitioned to using both the euro and local currencies for
commercial transactions. Costs of the euro conversion have not had a material impact on the results of operations or the financial condition of the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Long-Term Debt and Interest Rate Market Risk



The Credit Facility permits the Company to borrow up to $600.0 million, subject in the case of borrowings under the revolving portion to the satisfaction
of certain conditions, a portion of which may be denominated in Dutch guilders and in Canadian dollars. Amendment No. 6 currently limits amounts outstanding under the revolving portion of the
Credit Facility (together with outstanding letters of credit) to $260 million. The variable interest rate applicable to borrowings under the Credit Facility is based on, in the case of U.S.
dollar denominated loans, the base rate referred to therein or the Eurocurrency rate referred to therein for U.S. dollars, at the Company's option, plus a specified margin. In the event that a portion
of the Credit Facility is denominated in Dutch guilders, the applicable interest rate is based on the applicable Eurocurrency base rate referred to therein for Dutch guilders, plus a specified margin.
In the event that a portion of the Credit Facility is denominated in Canadian dollars, the applicable interest rate is based on the Canadian base rate referred to therein, plus a specified margin, of
the Bankers' Acceptance discount rate referred to therein, at the Company's option. Under the Forbearance Agreement with the Senior Secured Lenders all borrowings are required to be made at the base
rate. At June 29, 2002, the Company had borrowings under the Credit Facility of $484.7 million that were subject to interest rate risk. Each hypothetical 1.0% increase in interest rates
would impact pretax earnings by $4.8 million. The Company has an interest rate cap agreement which limits the amount of interest expense on $100 million of this debt to a rate of 9%. The
Company does not use these products for trading purposes.

41

---



The fair market value of the Company's long-term fixed interest rate debt is also subject to interest rate risk. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of the Company's long-term fixed-rate debt at
June 29, 2002 was approximately $116.8 million, which was less than its carrying value by approximately $474.7 million. A 100 basis points decrease in the prevailing interest
rates at June 29, 2002 would result in an increase in the fair value of fixed rate debt by approximately $2.5 million. A 100 basis points increase in the prevailing interest rates at
June 29, 2002 would result in a decrease
in fair value of total fixed rate debt by approximately $2.5 million. Fair market values were determined from quoted market prices or based on estimates made by investment bankers.

Foreign Currency Exchange Rate Risk

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

For
the three months ended June 29, 2002, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company's sales are
denominated would have decreased operating income by approximately $1.1 million. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar.
In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates also affect the volume of sales or the foreign
currency sales price as competitors' products become more or less attractive. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a
potential change in sales levels or local currency prices.

The
Argentine peso, which serves as the functional currency of an Argentine majority-owned subsidiary of the Company, has devalued significantly against the U.S. dollar since the end of
fiscal 2001 due primarily to the economic uncertainty within this geographic region. As a result of the Argentine peso devaluation, the Company recognized a foreign currency loss of approximately
$0.7 million during the second quarter of 2002 and $2.5 million for the first six months of 2002, net of minority interest adjustments.

Raw Material and Commodity Risks

The primary raw materials used in the manufacture of most of the Company's products are polypropylene and polyester fiber, polyethylene and polypropylene resin,
and, to a lesser extent, rayon, tissue paper and cotton. The prices of polypropylene and polyethylene are a function of, among other things, manufacturing capacity, demand and the price of crude oil
and natural gas liquids. During the second quarter and first six months of 2002 raw material prices as a percentage of sales remained level
as compared to the second quarter and first six months of 2001. A significant increase in the prices of polyolefin resins that cannot be passed on to customers could have a material adverse effect on
the Company's results of operations and financial condition.

42

---

Safe Harbor Statement

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. In addition, from time to time, the Company or its representatives have made or may make forward-looking statements orally or in
writing. Such forward-looking statements may be included in, but not limited to, various filings made by the Company with the Securities and Exchange Commission, press releases or oral statements made
with the approval of an authorized executive officer of the Company. Actual results could differ materially from those projected or suggested in any forward-looking statements as a result of a variety
of factors and conditions which include, but are not limited to: the filing by the Company and its domestic subsidiaries of voluntary petitions for reorganization under Chapter 11 of the United
States Bankruptcy Code, adverse economic conditions, demand for the Company's products, competition in the Company's markets, dependence on key customers, increases in raw material costs, the amount
of capital expenditures, fluctuations in foreign currency exchange rates, the Company's substantial leverage position, the existing defaults in the Company's outstanding long-term
indebtedness, the Company's Chapter 11 filings and other risks detailed in documents filed by the Company with the Securities and Exchange Commission.

43

---



PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 2. CHANGES IN SECURITIES

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

As of December 29, 2001, the Company was in default under the Credit Facility. Because of this default, the Senior Secured Lenders exercised their right to
block the payment of interest due January 2, 2002 to the holders of the 9% Senior Subordinated Notes and the interest payment due on March 1, 2002 to the holders of the
83/4% Senior Subordinated Notes. The Company's failure to pay interest on the outstanding Senior Subordinated Notes constituted an event of default under such notes. As of
June 29, 2002, accrued and unpaid interest was $30.4 million and $11.8 million on the 9% Senior Subordinated Notes and 83/4% Senior Subordinated Notes,
respectively.

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

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

Not applicable

Exhibits

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

Reports on Form 8-K

On August 1, 2002, the Company filed a Form 8-K announcing that as part of the process for having the Company's Plan of Reorganization
confirmed by the U.S. Bankruptcy Court in Columbia, South Carolina (the "Court"), the Company had filed a Disclosure Statement with the Court. The Company also filed certain projected financial
information with the Court on August 1, 2002.

44

---



SIGNATURES

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

| |  | POLYMER GROUP, INC.
| |  | -------------------
| |  | By:                
| |  | By:                

August 19,
2002

45

---



EXHIBIT INDEX

|Exhibit Number |  | Document Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.1           |  | Amendment No. 7 dated as of April 4, 2002, to the Amended, Restated and Consolidated Credit Agreement dated July 3, 1997 by and among Polymer Group, Inc., the Guarantors named therein, the lenders
named therein and the JPMorgan Chase Bank, as agent.(1)                                                                                                                                                                                                                                                                          
|10.2           |  | Revolving credit agreement and guarantee agreement, dated as of May 30, 2002, among Polymer Group, Inc, a debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code, the direct and indirect domestic subsidiaries of the
Borrower, each of which is a debtor and debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code, JP Morgan Chase Bank, each of the other financial institutions from time to time party hereto and JPMorgan Chase Bank, as
administrative agent for the Lenders.
|10.3           |  | Form of Indemnification Agreement dated as of May 11, 2002, among the Company and each of its directors.(2)                                                                                                                                                                                                                                                                                                                                                                                                                           
|10.4           |  | Form of Termination of Rights of First Refusal Agreement dated as of May 11, 2002, among the Company and Messrs. Zucker and Boyd.(2)                                                                                                                                                                                                                                                                                                                                                                                                  
|10.5           |  | Form of Amendment to Change in Control Letter Agreement dated as of May 11, 2002, between the Company and Jerry Zucker.(2)                                                                                                                                                                                                                                                                                                                                                                                                            
|10.6           |  | Form of Amendment to Change in Control Letter Agreement dated as of May 11, 2002, between the Company and James G. Boyd.(2)                                                                                                                                                                                                                                                                                                                                                                                                           
|99.1           |  | Press release dated April 3, 2002.(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|99.2           |  | Press release dated May 13, 2002.(3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|99.3           |  | Press release dated May 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|99.4           |  | Certain projected financial information filed with the U.S. Bankruptcy Court in Columbia, South Carolina.(4)                                                                                                                                                                                                                                                                                                                                                                                                                          

---

46

---

QuickLinks