** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**
| **(Mark One)** | ** **                                                                                              |
|----------------|---------------------------------------------------------------------------------------------------------|
| ** **     | ** **                                                                                              |
| x              | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**Forthe quarterly period ended June 30, 2006**

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

 

**Forthe transition period from                 to                  **

**Commissionfile number 333-40067**

**PLIANT CORPORATION**

(Exact name of registrantas specified in its charter)

| **Delaware**                                                   |   | **43-2107725**       |
|----------------------------------------------------------------|--------|----------------------|
| (State or other  jurisdiction of                               |   | (I.R.S. Employer     |
| incorporation or  organization)                                |   | Identification  No.) |
|                                                           |   |                 |
| **1475  Woodfield Road, Suite 700**                       |
| **Schaumburg,  IL 60173**                                      |
| **(847)  969-3300**                                            |
| (Address of  principal executive offices and telephone number) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes o  No x

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o      Acceleratedfiler o      Non-acceleratedfiler x

Indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theExchange Act). Yes o  No x

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Section 12, 13 or 15(d) of the Securities Exchange Actof 1934 subsequent to the distribution of securities under a plan confirmed bya court.  Yes x  No o

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date. OnAugust 9, 2006, there were 100,000 outstanding shares of the registrant’sCommon Stock.

 

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**PLIANTCORPORATION AND SUBSIDIARIES**

**TABLE OF CONTENTS**
| EXPLANATORY NOTE              |                                                                                                             |
|-------------------------------|------------------------------------------------------------------------------------------------------------------|
|                          |                                                                                                             |   |
| PART I. FINANCIAL INFORMATION |                                                                                                             |
|                          |                                                                                                             |   |
|                          | ITEM 1. FINANCIAL STATEMENTS                                                                                     |   |
|                          |                                                                                                             |   |
|                          | CONDENSED  CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2006 AND DECEMBER 31,  2005                      |   |
|                          |                                                                                                             |   |
|                          | CONDENSED  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED  JUNE 30, 2006 AND 2005 |   |
|                          |                                                                                                             |   |
|                          | CONDENSED  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,  2006 AND 2005           |   |
|                          |                                                                                                             |   |
|                          | CONDENSED  CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT FOR THE SIX MONTHS ENDED  JUNE 30, 2006     |   |
|                          |                                                                                                             |   |
|                          | NOTES TO CONDENSED CONSOLIDATED 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                                              |   |
|                          |                                                                                                             |   |
|                          | ITEM 4. CONTROLS AND PROCEDURES                                                                                  |   |
|                          |                                                                                                             |   |
| PART  II. OTHER INFORMATION   |                                                                                                             |
|                          |                                                                                                             |   |
|                          | ITEM  1. LEGAL PROCEEDINGS                                                                                       |   |
|                          |                                                                                                             |   |
|                          | ITEM 1A. RISK FACTORS                                                                                            |   |
|                          |                                                                                                             |   |
|                          | ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                             |   |
|                          |                                                                                                             |   |
|                          | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                                          |   |
|                          |                                                                                                             |   |
|                          | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                                     |   |
|                          |                                                                                                             |   |
|                          | ITEM  5. OTHER INFORMATION                                                                                       |   |
|                          |                                                                                                             |   |
|                          | ITEM 6. EXHIBITS                                                                                                 |   |

2

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**EXPLANATORY NOTE**

On July 18, 2006, PliantCorporation consummated its reorganization through a series of transactionscontemplated in the Debtors’ Fourth Amended Joint Plan of Reorganization, datedas of June 19, 2006, which previously had been approved by order of the UnitedStates Bankruptcy Court for the District of Delaware on June 23, 2006.   In connection therewith, Pliant Corporationchanged its state of incorporation from Utah to Delaware and obtained a newI.R.S. Employer Identification Number as set forth on the cover page of thisreport.  Additional information withrespect to the reorganization is set forth in footnote 16 – “Subsequent Events”to the financial statements included in Item 1 of Part 1 of this report. Theconsolidated financial statements set forth herein are those of the Utahcorporation and relate to periods ended prior to our emergence from bankruptcyon July 18, 2006.

3

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**PART I.  FINANCIAL INFORMATION**

 

**ITEM 1.  FINANCIALSTATEMENTS**

 

**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 2006(UNAUDITED) AND DECEMBER 31, 2005 (DOLLARS IN THOUSANDS)

 
| ** **                                                                                                                                                                                                                                 | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                 | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                 | ** ** | ** **        | ** ** | ** **            | ** ** |
| CURRENT ASSETS:                                                                                                                                                                                                                            |       |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                 |       | $                 | 33,723     |                  | $          | 12,802 |   |
| Receivables, net  of allowances of $5,162 and $5,672, respectively                                                                                                                                                                         |       | 143,951           |       | 137,684               |       |
| Inventories  (Note 3)                                                                                                                                                                                                                      |       | 106,662           |       | 106,826               |       |
| Prepaid expenses  and other                                                                                                                                                                                                                |       | 6,178             |       | 7,222                 |       |
| Income taxes  receivable, net                                                                                                                                                                                                              |       | 1,196             |       | 1,074                 |       |
| Deferred income  taxes                                                                                                                                                                                                                     |       | 11,358            |       | 11,424                |       |
| Total current  assets                                                                                                                                                                                                                      |       | 303,068           |       | 277,032               |       |
| PLANT AND EQUIPMENT,  net                                                                                                                                                                                                                  |       | 294,670           |       | 294,993               |       |
| GOODWILL                                                                                                                                                                                                                                   |       | 182,262           |       | 182,245               |       |
| INTANGIBLE ASSETS, net                                                                                                                                                                                                                     |       | 14,657            |       | 14,719                |       |
| OTHER ASSETS                                                                                                                                                                                                                               |       | 28,067            |       | 51,916                |       |
| TOTAL ASSETS                                                                                                                                                                                                                               |       | $                 | 822,724    |                  | $          | 820,905 |   |
|                                                                                                                                                                                                                                       |       |              |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’  DEFICIT**                                                                                                                                                                                            | ** ** | ** **        | ** ** | ** **            | ** ** |
| CURRENT LIABILITIES:                                                                                                                                                                                                                       |       |              |       |                  |       |
| Current portion  of long-term debt and debt in default (Note 2, 9)                                                                                                                                                                         |       | $                 | 544,113    |                  | $          | 973,244 |   |
| Trade accounts  payable                                                                                                                                                                                                                    |       | 63,650            |       | 52,000                |       |
| Accrued  liabilities:                                                                                                                                                                                                                      |       |              |       |                  |       |
| Interest payable                                                                                                                                                                                                                           |       | 24,684            |       | 34,359                |       |
| Customer rebates                                                                                                                                                                                                                           |       | 6,502             |       | 9,538                 |       |
| Other                                                                                                                                                                                                                                      |       | 48,308            |       | 41,307                |       |
| Total current  liabilities                                                                                                                                                                                                                 |       | 687,257           |       | 1,110,448             |       |
| LONG-TERM DEBT, net of  current portion                                                                                                                                                                                                    |       | 7,566             |       | 8,451                 |       |
| OTHER LIABILITIES                                                                                                                                                                                                                          |       | 34,872            |       | 34,677                |       |
| DEFERRED INCOME TAXES                                                                                                                                                                                                                      |       | 30,994            |       | 31,575                |       |
| SHARES SUBJECT TO  MANDATORY REDEMPTION (Note 2, 11)                                                                                                                                                                                       |       | —            |       | 270,689               |       |
| LIABILITIES SUBJECT TO  COMPROMISE (Note 2)                                                                                                                                                                                                |       | 771,218           |       | —                |       |
| Total  Liabilities                                                                                                                                                                                                                         |       | 1,531,907         |       | 1,455,840             |       |
| REDEEMABLE PREFERRED  STOCK - Series B - 720 shares authorized, no par value, 628 shares  outstanding at June 30, 2006 and December 31, 2005, respectively                                                                                 |       | 102               |       | 102                   |       |
| REDEEMABLE COMMON STOCK  - no par value; 60,000 shares authorized; 10,873 shares outstanding at June  30, 2006 and December 31, 2005, net of related stockholders’ notes receivable  of $1,827 at June 30, 2006 and December 31, 2005 |       | 6,645             |       | 6,645                 |       |
| STOCKHOLDERS’ DEFICIT:                                                                                                                                                                                                                |       |              |       |                  |       |
| Common stock - no par  value; 10,000,000 shares authorized, 542,618 shares outstanding at June 30,  2006 and December 31, 2005                                                                                                             |       | 103,376           |       | 103,376               |       |
| Warrants to  purchase common stock                                                                                                                                                                                                         |       | 39,133            |       | 39,133                |       |
| Accumulated  deficit                                                                                                                                                                                                                       |       | (838,736          | )          | (763,940              | )          |
| Stockholders’  notes receivable                                                                                                                                                                                                       |       | (660              | )          | (660                  | )          |
| Accumulated  other compensation loss                                                                                                                                                                                                       |       | (19,043           | )          | (19,591               | )          |
| Total  stockholders’ deficit                                                                                                                                                                                                          |       | (715,930          | )          | (641,682              | )          |
| TOTAL LIABILITIES AND STOCKOLDERS’ DEFICIT                                                                                                                                                                                            |       | $                 | 822,724    |                  | $          | 820,905 |   |

 

See notes tocondensed consolidated financial statements.

4

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**PLIANTCORPORATION AND SUBSIDIARIES**

 

CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND2005 (IN THOUSANDS) (UNAUDITED)

 
| ** **                                                                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                          | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                                                          | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| NET SALES                                                                           |       | $                                | 289,073    |                           | $          | 259,246 |   | $ | 586,729 |   | $ | 522,134 |   |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| COST OF SALES                                                                       |       | 252,118                          |       | 226,311                        |       | 515,425 |   | 455,249 |   |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| Gross Profit                                                                        |       | 36,955                           |       | 32,935                         |       | 71,304 |   | 66,885 |   |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| OPERATING EXPENSES:                                                                 |       |                             |       |                           |       |   |   |   |   |
| Sales, General  and Administrative                                                  |       | 17,831                           |       | 19,474                         |       | 35,931 |   | 39,589 |   |
| Research and  Development                                                           |       | 2,304                            |       | 2,222                          |       | 4,602 |   | 4,232 |   |
| Restructuring  and Other Costs (Note 4)                                             |       | 15                               |       | 1,950                          |       | 30 |   | 2,082 |   |
| Financial  Restructuring (Note 2)                                                   |       | 10,271                           |       | —                         |       | 63,821 |   | — |   |
| Total operating  expenses                                                           |       | 30,421                           |       | 23,646                         |       | 104,384 |   | 45,903 |   |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| OPERATING INCOME (LOSS)                                                             |       | 6,534                            |       | 9,289                          |       | (33,080 | ) | 20,982 |   |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| INTEREST EXPENSE -  Current and Long-term debt (Note 5, 9)                          |       | (20,499                          | )          | (29,244                        | )          | (40,340 | ) | (55,628 | ) |
| INTEREST EXPENSE -  Dividends and accretion on Redeemable Preferred Stock (Note 11) |       | —                           |       | (9,651                         | )          | (271 | ) | (18,957 | ) |
| OTHER INCOME (EXPENSE)  - Net                                                       |       | (11                              | )          | 4,145                          |       | 137 |   | 3,939 |   |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| LOSS FROM CONTINUING  OPERATIONS BEFORE INCOME TAXES                                |       | (13,976                          | )          | (25,461                        | )          | (73,554 | ) | (49,664 | ) |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| INCOME TAX EXPENSE                                                                  |       | 13                               |       | 448                            |       | 1,242 |   | 1,335 |   |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| LOSS FROM CONTINUING  OPERATIONS                                                    |       | (13,989                          | )          | (25,909                        | )          | (74,796 | ) | (50,999 | ) |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| LOSS FROM DISCONTINUED  OPERATIONS                                                  |       | —                           |       | (222                           | )          | — |   | (560 | ) |
|                                                                                |       |                             |       |                           |       |   |   |   |   |
| NET LOSS                                                                            |       | $                                | (13,989    | )                              | $          | (26,131 | ) | $ | (74,796 | ) | $ | (51,559 | ) |

 

See notes to condensedconsolidated financial statements.

5

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**PLIANT CORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOW

FORTHE SIX MONTHS ENDED JUNE 30, 2006 AND 2005 (IN THOUSANDS) (UNAUDITED)

 
| ** **                                                                                               | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                                               | ** ** | **June 30,**              | ** ** |
| ** **                                                                                               | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| CASH FLOWS FROM  CONTINUING OPERATING ACTIVITIES:                                                        |       |                           |       |   |   |
| Net loss                                                                                                 |       | $                              | (74,796    | ) | $ | (51,559 | ) |
| Adjustments to  reconcile net loss to net cash (used in) / provided by continuing operating  activities: |       |                           |       |   |   |
| Depreciation and  amortization                                                                           |       | 20,012                         |       | 19,961 |   |
| Amortization of  deferred financing costs and accretion of debt discount                                 |       | 18,621                         |       | 18,879 |   |
| Deferred  dividends and accretion on preferred shares                                                    |       | 271                            |       | 18,957 |   |
| Write off of  deferred financing costs                                                                   |       | 15,777                         |       | — |   |
| Write off of  original issue debt discount and premium                                                   |       | 30,453                         |       | — |   |
| Deferred income  taxes                                                                                   |       | (331                           | )          | 224 |   |
| Loss from  discontinued operations                                                                       |       | —                         |       | 560 |   |
| Gain or loss on  disposal of assets                                                                      |       | 28                             |       | (4,161 | ) |
| Changes in  assets and liabilities:                                                                      |       |                           |       |   |   |
| Receivables                                                                                              |       | (5,830                         | )          | (696 | ) |
| Inventories                                                                                              |       | 478                            |       | 8,082 |   |
| Prepaid expenses  and other                                                                              |       | 1,013                          |       | 627 |   |
| Income taxes  payable/receivable                                                                         |       | 591                            |       | (209 | ) |
| Other assets                                                                                             |       | 6,519                          |       | 1,107 |   |
| Trade accounts  payable                                                                                  |       | 11,784                         |       | (5,901 | ) |
| Accrued  liabilities                                                                                     |       | 18,166                         |       | (3,809 | ) |
| Other  liabilities                                                                                       |       | 9                              |       | 2,538 |   |
| Other                                                                                                    |       | —                         |       | (33 | ) |
| Net cash (used  in) / provided by continuing operating activities                                        |       | 42,765                         |       | 4,567 |   |
|                                                                                                     |       |                           |       |   |   |
| CASH FLOWS FROM  CONTINUING INVESTING ACTIVITIES:                                                        |       |                           |       |   |   |
| Proceeds from  sale of assets                                                                            |       | —                         |       | 5,170 |   |
| Capital  expenditures for plant and equipment                                                            |       | (18,364                        | )          | (16,627 | ) |
| Net cash used in  continuing investing activities                                                        |       | (18,364                        | )          | (11,457 | ) |
|                                                                                                     |       |                           |       |   |   |
| CASH FLOWS FROM  CONTINUING FINANCING ACTIVITIES:                                                        |       |                           |       |   |   |
| Repurchase of  preferred stock                                                                           |       | —                         |       | (10 | ) |
| Issuance of  senior secured notes                                                                        |       | —                         |       | 250,607 |   |
| Repayment of  senior secured discount notes                                                              |       | —                         |       | (250,607 | ) |
| Payment of  financing fees                                                                               |       | (1,652                         | )          | (7,507 | ) |
| Repayment of  capital leases and other, net                                                              |       | (946                           | )          | (1,374 | ) |
| Proceeds from  revolving debt - net                                                                      |       | —                         |       | 14,800 |   |
| Net cash  provided by / (used in) continuing financing activities                                        |       | (2,598                         | )          | 5,909 |   |
|                                                                                                     |       |                           |       |   |   |
| DISCONTINUED OPERATIONS  (REVISED - SEE NOTE 1):                                                         |       |                           |       |   |   |
| Cash used in  operating activities                                                                       |       | —                         |       | (195 | ) |
| Total cash used  in discontinued operations                                                              |       | —                         |       | (195 | ) |
|                                                                                                     |       |                           |       |   |   |
| EFFECT OF EXCHANGE RATE  CHANGES ON CASH AND CASH EQUIVALENTS                                            |       | (882                           | )          | (143 | ) |
|                                                                                                     |       |                           |       |   |   |
| NET INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS                                                    |       | 20,921                         |       | (1,319 | ) |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD                                                      |       | 12,802                         |       | 5,580 |   |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                                                            |       | $                              | 33,723     |   | $ | 4,261 |   |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                                      |       |                           |       |   |   |
| Cash paid during  the period for:                                                                        |       |                           |       |   |   |
| Interest                                                                                                 |       | 6,700                          |       | 43,242 |   |
| Income taxes                                                                                             |       | 626                            |       | 1,624 |   |
| Other non-cash  disclosure:                                                                              |       |                           |       |   |   |
| Preferred Stock  dividends accrued but not paid                                                          |       | 257                            |       | 17,848 |   |

 

Seenotes to condensed consolidated financial statements.

6

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**PLIANTCORPORATION AND SUBSIDIARIES**

 

CONDENSED CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE SIX MONTHS ENDEDJUNE 30, 2006 (IN THOUSANDS) (UNAUDITED)

 
| ** **                               | ** ** | ** **            | ** ** | ** ** | ** ** | **Warrants to** | ** ** | ** **  | ** ** | ** **             | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|-----------------------|------------|------------|------------|----------------------|------------|-------------|------------|------------------------|------------|-----------------|------------|------------|------------|
| ** **                               | ** ** | ** **            | ** ** | ** ** | ** ** | **Purchase**         | ** ** | ** **  | ** ** | **Stockholders’** | ** ** | **Other**       | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **Common Stock** | ** ** | **Common** | ** ** | **Accumulated**      | ** ** | **Notes**   | ** ** | **Comprehensive**      | ** ** | ** **      | ** ** |
| ** **                               | ** ** | **Shares**            | ** ** | **Amount** | ** ** | **Stock**            | ** ** | **Deficit** | ** ** | **Receivable**         | ** ** | **Loss**        | ** ** | **Total**  | ** ** |
| BALANCE, DECEMBER 31, 2005               |       | 543                   |       | $          | 103,376    |                 | $          | 39,133      |       | $                      | (763,940   | )               | $          | (660       | )          | $ | (19,591 | ) | $ | (641,682 | ) |
|                                     |       |                  |       |       |       |                 |       |        |       |                   |       |            |       |       |       |
| Net Loss                                 |       | —                |       | —     |       | —               |       | (74,796     | )          | —                 |       | —          |       | (74,796    | )          |
|                                     |       |                  |       |       |       |                 |       |        |       |                   |       |            |       |       |       |
| Foreign currency translation  adjustment |       | —                |       | —     |       | —               |       | —      |       | —                 |       | 548             |       | 548        |       |
|                                     |       |                  |       |       |       |                 |       |        |       |                   |       |            |       |       |       |
| BALANCE, JUNE 30, 2006                   |       | 543                   |       | $          | 103,376    |                 | $          | 39,133      |       | $                      | (838,736   | )               | $          | (660       | )          | $ | (19,043 | ) | $ | (715,930 | ) |

 

See notes to condensedconsolidated financial statements.

7

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** **

**PLIANTCORPORATION AND SUBSIDIARIES**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (UNAUDITED)**

**1.   BASIS OFPRESENTATION**

*Natureof operations*   Pliant Corporation and itssubsidiaries (collectively “Pliant”, the “Company” or ”we”) producepolymer-based (plastic), value-added films for flexible packaging, personalcare, medical, agricultural and industrial applications. Our manufacturingfacilities are located in the United States, Canada, Mexico, Germany andAustralia.

*Principlesof Consolidation*   The accompanying condensedconsolidated financial statements have been prepared, without audit, inaccordance with U.S. generally accepted accounting principles and pursuant tothe rules and regulations of the Securities and Exchange Commission. Theinformation reflects all normal recurring adjustments that, in the opinion ofmanagement, are necessary for a fair presentation of the financial position,results of operations and cash flows of Pliant as of the dates and for theperiods presented. Results of operations for the period ended June 30, 2006 arenot necessarily indicative of results of operations to be expected for the fullfiscal year.

Certain information in footnote disclosures normallyincluded in financial statements presented in accordance with U.S. generallyaccepted accounting principles has been condensed or omitted in accordance withthe rules and regulations of the Securities and Exchange Commission. Thesestatements should be read in conjunction with the Company’s Annual Report onForm 10-K for the year ended December 31, 2005. Certainreclassifications have been made to the condensed consolidated financialstatements for the periods ended June 30, 2005 for comparative purposes,including separate disclosure of the operating, investing and financingportions of the cash flows attributable to discontinued operations, which inprior periods were reported on a combined basis as a single amount.

*BankruptcyFiling*   On January 3, 2006, PliantCorporation and ten subsidiaries (collectively, the “Debtors”) filed voluntarypetitions in the United States Bankruptcy Court for the District of Delaware(the “Bankruptcy Court”) seeking relief under the provisions of chapter 11of title 11 of the United States Code (the “Bankruptcy Code”) (the “Chapter 11Cases”). The Chapter 11 Cases have been jointly administered under thecaption “In re: Pliant Corporation, et al., Case No. 06-10001”.Three of our subsidiaries with Canadian operations commenced ancillaryproceedings in a Canadian court to recognize the Chapter 11 proceedings as“foreign proceedings” pursuant to Canada’s Companies’ Creditors Arrangement Act(“CCAA”). The Debtors continued to operate their businesses as “debtors-in-possession”under the jurisdiction of the Bankruptcy Court and in accordance withapplicable provisions of the Bankruptcy Code and the orders of the BankruptcyCourt. Pliant’s subsidiaries in Australia, Germany and Mexico were not includedin the filings, and continued their business operations without supervisionfrom the Bankruptcy Court and without being subject to the requirements ofchapter 11 of the Bankruptcy Code.

In addition, the Debtors entered into a post-petitiondebtor-in-possession financing facility with certain lenders led by GeneralElectric Capital Corporation that provided for a maximum of approximately $68.8million of additional post-petition financing, subject to borrowing baseavailability. We continued to operate in the normal course of business duringthe reorganization process and all of our 23 manufacturing and research anddevelopment facilities around the world remained open and continued to servecustomers.

8

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On April 18, 2006, the Debtors filed with theBankruptcy Court the Debtors’ Second Amended Joint Plan of Reorganization (the “SecondAmended Plan”), along with certain exhibits thereto, and the Amended DisclosureStatement for Debtors’ Second Amended Joint Plan of Reorganization (the “AmendedDisclosure Statement”), along with certain exhibits thereto. On April 18, 2006,the Bankruptcy Court approved the Amended Disclosure Statement as containingadequate information within the meaning of section 1125 of the Bankruptcy Codeand authorized the Debtors to distribute the Amended Disclosure Statement,including all exhibits thereto, to all holders of claims and interests againsteach of the Debtors.  On June 5, 2006,the Debtors filed with the Bankruptcy Court the Debtors’ Third Amended JointPlan of Reorganization (the “Third Amended Plan”).  On June 16, 2006, the Company reached anagreement with representatives of its key classes of bondholders andshareholders in the Chapter 11 Cases.  OnJune 19, 2006, consistent with the terms of this agreement, the Debtors filedwith the Bankruptcy Court the Debtors’ Fourth Amended Joint Plan ofReorganization (the “Fourth Amended Plan”) which was approved by the BankruptcyCourt on June 23, 2006.  On July 18,2006, the Company consummated its reorganization through a series of transactionscontemplated in the Fourth Amended Plan (see footnote 16 “Subsequent Events”for details).  On July 18, 2006, theCompany filed with the Bankruptcy Court a Notice of Effective Date of Debtors’Fourth Amended Joint Plan of Reorganization and Bar Date for Certain Claims(the “Notice”) announcing the effectiveness of the Fourth Amended Plan.

American Institute of Certified Public AccountantsStatement of Position 90-7, “Financial Reporting by Entities inReorganization under the Bankruptcy Code” (“SOP 90-7”), applies tothe Debtors’ financial statements while the Debtors operate under theprovisions of chapter 11. SOP 90-7 generally does not change the mannerin which financial statements are prepared. However, it does require that thefinancial statements for periods subsequent to the filing of thechapter 11 petition distinguish transactions and events that are directlyassociated with the reorganization from the ongoing operations of the business.Expenses, realized gains and losses, and provisions for losses that can bedirectly associated with the reorganization and restructuring of the businessare reported separately as financial restructuring costs in the statements ofoperations for the three and six months ended June 30, 2006. The balance sheetalso distinguishes prepetition liabilities subject to compromise from thoseprepetition liabilities that are not subject to compromise and frompost-petition liabilities. Liabilities that may be affected by a plan ofreorganization are reported at the amounts expected to be allowed, even if theymay be settled for lesser amounts. In addition, reorganization related itemsthat significantly impact cash provided by continuing operations are disclosedseparately in the statement of cash flows.

*New Accounting Pronouncements*

In July 2006, the FASB issued Statement of FinancialAccounting Standards Interpretation No. 48 (“FIN 48”), “Accounting forUncertainty in Income Taxes.”  FIN 48clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with SFAS 109, “Accounting forIncome Taxes.” FIN 48 also prescribes a recognition threshold and measurementattribute for the financial statement recognition and measurement of a taxposition taken or expected to be taken in a tax return.  The new FASB standard also provides guidanceon derecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.  Theprovisions of FIN 48 are effective for fiscal years beginning after December15, 2006.  The Company intends to adoptFIN 48 effective January 1, 2007 and has not yet determined the impact, ifany, this adoption will have on its financial condition or results ofoperations.

9

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**2.   LIABILITIES SUBJECT TO COMPROMISE,REORGANIZATION ITEMS AND DEBTORS’ FINANCIAL STATEMENTS**

The Company did not make a $20.8 million interestpayment due December 1, 2005 to holders of its 13% Senior SubordinatedNotes due 2010 (the “2000/2002 Notes”). Failure to make this payment byDecember 31, 2005 placed the Company in default under its 2000/2002 NotesIndenture, and its Amended and Restated Credit Agreement dated November 21,2005. Claims filed in the Bankruptcy Court associated with the Company’s 2000/2002Notes, Amended and Restated Credit Agreement and mandatorily redeemablepreferred shares and redeemable common stock put for redemption (see footnote11) are considered impaired within the meaning of section 1124 of theBankruptcy Code and their related principal and unpaid interest are classifiedas liabilities subject to compromise in the Company’s consolidated balancesheet.

Liabilitiessubject to compromise as of June 30, 2006 consist of the following:
|                                                     | ** ** | **($ Thousands)** | ** ** |
|-----------------------------------------------------|------------|------------------------|------------|
| **Debt**                                            | ** ** | ** **             | ** ** |
| 13% Senior Subordinated Notes                       |       | $                      | 320,000    |   |
| Amended and Restated Revolving Credit Agreement     |       | 130,924                |       |
|                                                |       | 450,924                |       |
| **Mandatorily  Redeemable Stock**                   | ** ** | ** **             | ** ** |
| Preferred                                           |       | 289,195                |       |
| Common net of shareholder note                      |       | 6,362                  |       |
|                                                |       | 295,557                |       |
| **Accrued  interest on debt subject to compromise** |       | 24,737                 |       |
| **Total Liabilities Subject to  Compromise**        |       | $                      | 771,218    |   |

 

10

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The Company’s bankruptcyfiling constituted an Event of Default under the indentures governing issuanceof the Company’s 111¤8%Senior Secured Notes due 2009 (the “2003 Notes”), 111¤8% SeniorSecured Discount Notes due 2009 (the “2004 Notes”) and 115¤8% SeniorSecured Notes due 2009 (the “Amended 2004 Notes”) and their outstandingbalances have been classified as current liabilities in the Company’sconsolidated balance sheet. Under the Fourth Amended Plan, the 2003 Notes, 2004Notes and Amended 2004 Notes were reinstated in accordance with theirrespective terms, subject to a .225% payment-in-kind interest rate increasewith respect to the 2004 Notes and Amended 2004 Notes, thereby increasing theinterest rate of such notes to 11.35% and 11.85%, respectively, effective as ofJuly 18, 2006.

The Debtors haveincurred professional fees and other expenses directly associated with thebankruptcy proceedings. In addition, the Debtors have made certain adjustmentsto the carrying values of certain pre-petition assets and liabilities. Suchcosts and adjustments are classified as financial restructuring items in theaccompanying condensed consolidated statement of operations for the three andsix months ended June 30, 2006 and consist of the following (in thousands):
|                                                            | ** ** | **Three Months**       | ** ** | **Six Months**         | ** ** |
|------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                 | ** ** | **Ended**                   | ** ** | **Ended**                   | ** ** |
| ** **                                                 | ** ** | **June 30, 2006** | ** ** | **June 30, 2006** | ** ** |
|                                                       |       |                        |       |                        |       |
| **Debt  subject to compromise:**                           | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Write-off of unamortized original issuance,  discount, net |       | $                           | —     |                        | $          | 5,856 |   |
| Write-off of unamortized capitalized financing fees        |       | —                      |       | 15,777                      |       |
|                                                       |       | —                      |       | 21,633                      |       |
| **Manditorily  Redeemable Preferred Stock**                | ** ** | ** **                  | ** ** | ** **                  | ** ** |
| Write-off of unamortized original issuance discount        |       | —                      |       | 24,597                      |       |
| **Professional  fees**                                     |       | 10,271                      |       | 17,591                      |       |
| **Financial  Restructuring**                               |       | $                           | 10,271     |                        | $          | 63,821 |   |

 

The Company’s bankruptcy filing included PliantCorporation and ten subsidiaries, collectively referred to as the “Debtors”.Presented below are the condensed combined financial statements of the Debtors.These financial statements reflect the financial position, results ofoperations and cash flows of the combined Debtors, including certaintransactions and resulting asset and liabilities between the Debtor andnon-Debtor subsidiaries of the Company, which are eliminated in the Company’sconsolidated financial statements.

11

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DEBTORS CONDENSED COMBINED BALANCE SHEETSAS OF JUNE 30, 2006 (DOLLARS IN THOUSANDS) (UNAUDITED)

 
| ** **                                            | ** ** | **June 30, 2006** | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|
|                                                  |       |                        |       |
| **ASSETS**                                            | ** ** | ** **                  | ** ** |
| CURRENT ASSETS:                                       |       |                        |       |
| Cash and cash equivalents                             |       | $                           | 26,115     |   |
| Receivables, net of allowances                        |       | 124,819                     |       |
| Inventories                                           |       | 99,867                      |       |
| Prepaid expenses and other                            |       | 5,110                       |       |
| Income taxes receivable, net                          |       | 1,404                       |       |
| Deferred income taxes                                 |       | 11,348                      |       |
| Total current assets                                  |       | 268,663                     |       |
| PLANT AND  EQUIPMENT, net                             |       | 268,297                     |       |
| GOODWILL                                              |       | 182,262                     |       |
| INTANGIBLE  ASSETS, net                               |       | 14,657                      |       |
| INVESTMENT IN  SUBSIDIARIES                           |       | (42,551                     | )          |
| OTHER ASSETS                                          |       | 25,594                      |       |
| TOTAL ASSETS                                          |       | $                           | 716,922    |   |
|                                                  |       |                        |       |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**       | ** ** | ** **                  | ** ** |
| CURRENT  LIABILITIES:                                 |       |                        |       |
| Current portion of long-term debt and debt in default |       | $                           | 544,050    |   |
| Trade accounts payable                                |       | 55,889                      |       |
| Accrued liabilities:                                  |       |                        |       |
| Interest payable                                      |       | 24,684                      |       |
| Customer rebates                                      |       | 6,502                       |       |
| Other                                                 |       | 45,339                      |       |
| Due to (from) affiliates                              |       | (70,383                     | )          |
| Total current liabilities                             |       | 606,081                     |       |
| LONG-TERM DEBT,  net of current portion               |       | 3,523                       |       |
| OTHER  LIABILITIES                                    |       | 31,808                      |       |
| DEFERRED INCOME  TAXES                                |       | 28,421                      |       |
| LIABILITIES  SUBJECT TO COMPROMISE                    |       | 771,218                     |       |
| Total Liabilities                                     |       | 1,441,051                   |       |
| REDEEMABLE  PREFERRED STOCK                           |       | 102                         |       |
| REDEEMABLE  COMMON STOCK                              |       | 6,645                       |       |
| STOCKHOLDERS’  DEFICIT:                          |       |                        |       |
| Common stock                                          |       | 124,289                     |       |
| Warrants to purchase common stock                     |       | 39,133                      |       |
| Accumulated deficit                                   |       | (877,491                    | )          |
| Stockholders’ notes receivable                   |       | (660                        | )          |
| Accumulated other compensation loss                   |       | (16,147                     | )          |
| Total stockholders’ deficit                      |       | (730,876                    | )          |
| TOTAL  LIABILITIES AND STOCKOLDERS’ DEFICIT      |       | $                           | 716,922    |   |

 

12

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DEBTORSCONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE THREE AND SIX MONTHSENDED JUNE 30, 2006 (IN THOUSANDS) (UNAUDITED)

 
| ** **                                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                           | ** ** | **June 30, 2006**      | ** ** | **June 30, 2006**    | ** ** |
|                                                 |       |                             |       |                           |       |
| NET SALES                                            |       | $                                | 272,862    |                           | $          | 558,482 |   |
| COST OF SALES                                        |       | 238,544                          |       | 491,827                        |       |
| Gross Profit                                         |       | 34,318                           |       | 66,655                         |       |
| OPERATING  EXPENSES:                                 |       |                             |       |                           |       |
| Sales, General and Administrative                    |       | 16,168                           |       | 32,774                         |       |
| Research and Development                             |       | 2,298                            |       | 4,578                          |       |
| Restructuring and Other Costs                        |       | 15                               |       | 30                             |       |
| Financial Restructuring                              |       | 10,271                           |       | 63,821                         |       |
| Total operating expenses                             |       | 28,752                           |       | 101,203                        |       |
| OPERATING INCOME  (LOSS)                             |       | 5,566                            |       | (34,548                        | )          |
| INTEREST EXPENSE                                     |       | (18,967                          | )          | (37,617                        | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES                  |       | (2,656                           | )          | (2,835                         | )          |
| OTHER INCOME  (EXPENSE) - Net                        |       | 898                              |       | 1,012                          |       |
| LOSS FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES |       | (15,159                          | )          | (73,988                        | )          |
| INCOME TAX  EXPENSE (BENEFIT)                        |       | (200                             | )          | 684                            |       |
| LOSS FROM  CONTINUING OPERATIONS                     |       | (14,959                          | )          | (74,672                        | )          |
| LOSS FROM  DISCONTINUED OPERATIONS                   |       | —                           |       | —                         |       |
| NET LOSS                                             |       | $                                | (14,959    | )                              | $          | (74,672 | ) |

** **

13

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DEBTORS CONDENSED COMBINEDSTATEMENTS OF CASH FLOW

FOR THE SIX MONTHS ENDED JUNE30, 2006 (IN THOUSANDS) (UNAUDITED)

 
| CASH FLOWS FROM  CONTINUING OPERATING ACTIVITIES:                                           |   |    |    |
|---------------------------------------------------------------------------------------------|--------|---------|---------|
| Net loss                                                                                    |   | $       | (74,672 | ) |
| Adjustments to reconcile net loss to net cash  provided by continuing operating activities: |   |    |    |
| Depreciation and amortization                                                               |   | 17,563  |    |
| Amortization of deferred financing costs and  accretion of debt discount                    |   | 18,621  |    |
| Deferred dividends and accretion on preferred shares                                        |   | 271     |    |
| Write off of deferred financing costs                                                       |   | 15,777  |    |
| Write off of original issue debt discount and  premium                                      |   | 30,453  |    |
| Deferred income taxes                                                                       |   | 369     |    |
| Loss on disposal of assets                                                                  |   | 13      |    |
| Changes in assets and liabilities:                                                          |   |    |    |
| Receivables                                                                                 |   | (4,474  | )       |
| Inventories                                                                                 |   | 816     |    |
| Prepaid expenses and other                                                                  |   | 743     |    |
| Income taxes payable/receivable                                                             |   | (44     | )       |
| Other assets                                                                                |   | 6,586   |    |
| Trade accounts payable                                                                      |   | 11,870  |    |
| Accrued liabilities                                                                         |   | 18,465  |    |
| Due to (from) affiliates                                                                    |   | (1,036  | )       |
| Other                                                                                       |   | (144    | )       |
| Net cash provided by continuing operating activities                                        |   | 41,177  |    |
| CASH FLOWS FROM  CONTINUING INVESTING ACTIVITIES:                                           |   |    |    |
| Capital expenditures for plant and equipment                                                |   | (17,941 | )       |
| Net cash used in continuing investing activities                                            |   | (17,941 | )       |
| CASH FLOWS FROM  CONTINUING FINANCING ACTIVITIES:                                           |   |    |    |
| Payment of financing fees                                                                   |   | (1,652  | )       |
| Repayment of capital leases and other, net                                                  |   | (653    | )       |
| Net cash provided (used in) continuing financing  activities                                |   | (2,305  | )       |
|                                                                                        |   |    |    |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                               |   | (1,300  | )       |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                                  |   | 19,631  |    |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD                                         |   | 6,484   |    |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                                               |   | $       | 26,115  |   |

 

14

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**3.**                 INVENTORIES

Inventoriesare valued at the lower of cost (using the first-in, first-out method) ormarket value. Inventories as of June 30, 2006 and December 31, 2005consisted of the following (in thousands):

|                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------|------------|-------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2006**          | ** ** | **2005**              | ** ** |
|             |       |              |       |                  |       |
| Finished Goods   |       | $                 | 48,970     |                  | 46,179     |   |
| Raw materials    |       | 46,008            |       | 50,560                |       |
| Work-in-progress |       | 11,684            |       | 10,087                |       |
|             |       |              |       |                  |       |
| Total            |       | $                 | 106,662    |                  | $          | 106,826 |   |
|                  |            |                   |            |                       |            |  |  |

 

**4.**                 RESTRUCTURING AND OTHER COSTS

Restructuringand other costs include plant closing costs (including costs related torelocation of manufacturing equipment), office closing costs and other costsrelated to workforce reductions.

Thefollowing table summarizes restructuring and other costs for the three and sixmonths ended June 30, 2006 and 2005, as follows (in thousands):
| ** **                                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                  | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                        |       |                             |       |                           |       |   |   |   |   |
| **Plant  closing costs:**                   | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Severence                                   |       | $                                | —     |                           | $          | 292 |   | $ | — |   | $ | 359 |   |
| Other plant closure costs                   |       | 15                               |       | 1,869                          |       | 30 |   | 1,934 |   |
|                                        |       | 15                               |       | 2,161                          |       | 30 |   | 2,293 |   |
| **Office  closing and workforce reduction** | ** ** | ** **                       | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Severence                                   |       | —                           |       | (84                            | )          | — |   | (84 | ) |
| Leases                                      |       | —                           |       | (127                           | )          | — |   | (127 | ) |
|                                        |       | —                           |       | (211                           | )          | — |   | (211 | ) |
|                                        |       | $                                | 15         |                           | $          | 1,950 |   | $ | 30 |   | $ | 2,082 |   |

 

15

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The following table summarizes the roll-forward of thereserve from December 31, 2005 to June 30, 2006:
| ** **                                    | ** ** | ** **                      | ** ** | ** **  | ** ** | **Accruals for the six months ended June 30, 2006** | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|---------------------------------|------------|-------------|------------|---------------------------------------------------------------------------------------------|------------|---------------|------------|-------------|------------|------------|------------|
| ** **                                    | ** ** | ** **                      | ** ** | ** **  | ** ** | ** **                                                                                  | ** ** | ** **    | ** ** | **Other**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **December 31, 2005** | ** ** | ** **  | ** ** | ** **                                                                                  | ** ** | **Plant**     | ** ** | ** **  | ** ** | ** ** | ** ** | **June 30, 2006** | ** ** |
| ** **                                    | ** ** | **# Employees**            | ** ** | **Accrual** | ** ** | **Additional**                                                                              | ** ** | ** **    | ** ** | **Closure** | ** ** | ** ** | ** ** | **Payments** | ** ** | **# Employees** | ** ** | **Accrual** | ** ** |
| ** **                                    | ** ** | **Terminated**                  | ** ** | **Balance** | ** ** | **Employees**                                                                               | ** ** | **Severence** | ** ** | **Costs**   | ** ** | **Total**  | ** ** | **/Charges** | ** ** | **Terminated** | ** ** | **Balance** | ** ** |
| **Plant Closing Costs:**                      | ** ** | ** **                      | ** ** | ** **  | ** ** | ** **                                                                                  | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Merced                                        |       | 54                              |       | $           | 1,000      |                                                                                        | —     |          | $          | —      |       | $          | —     |   | $ | — |   | $ | — |   | 54 |   | $ | 1,000 |   |
| Rhode Island                                  |       | 49                              |       | 5           |       | —                                                                                      |       | —        |       | —      |       | —     |       | (2 | ) | 49 |   | 3 |   |
| Leases                                        |       | —                          |       | 2,845       |       | —                                                                                      |       | —        |       | 30          |       | 30         |       | (572 | ) | — |   | 2,303 |   |
| Alliant                                       |       | 19                              |       | 2           |       | —                                                                                      |       | —        |       | —      |       | —     |       | — |   | 19 |   | 2 |   |
|                                          |       | 122                             |       | $           | 3,852      |                                                                                        | $          | —        |       | $           | —     |       | $          | 30 |   | $ | 30 |   | $ | (574 | ) | 122 |   | $ | 3,308 |   |
| **Office closing Workforce Reduction Costs:** | ** ** | ** **                      | ** ** | ** **  | ** ** | ** **                                                                                  | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Severence                                     |       | —                          |       | $           | —     |                                                                                        | —     |          | $          | —      |       | $          | —     |   | $ | — |   | $ | — |   | — |   | $ | — |   |
| Leases                                        |       | —                          |       | 379         |       | —                                                                                      |       | —        |       | —      |       | —     |       | — |   | — |   | 379 |   |
|                                          |       | —                          |       | $           | 379        |                                                                                        | —     |          | $          | —      |       | $          | —     |   | $ | — |   | $ | — |   | — |   | $ | 379 |   |
| **Total  Plant & Office Closing**         |       | 122                             |       | $           | 4,231      |                                                                                        | —     |          | $          | —      |       | $          | 30         |   | $ | 30 |   | $ | (574 | ) | 122 |   | $ | 3,687 |   |
|                                               |            |                                 |            |             |            |                                                                                             |            |               |            |             |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Plant Closing Costs***

***2006 –***No restructuringactivities have been initiated in 2006.

***2005 –***Duringthe first half of 2005, we accrued $1.9 million for the net costs to terminatethe remaining equipment lease agreements associated with our Shelbyville,Indiana facility as a result of the sale of our Alliant recloseables business,incurred $0.2 million of security, severance and other plant closure costsassociated with our Harrisville, Rhode Island facility and incurred $0.2million in severance costs associated with the sale of our Alliant business inthe second quarter. The Shelbyville, Indiana and Alliant related restructuringcosts are attributable to our Specialty Products Group and the Harrisville,Rhode Island costs are attributable to our Engineered Films segment.

***2004*–**During the third quarter of 2004, we closed our Harrisville, Rhode Islandfacility and moved its production to more modern and efficient facilities. Thisrestructuring plan resulted in a workforce reduction of 49 positions. Allrestructuring plan costs are attributable to our Engineered Films segment andtotaled $2.7 million, consisting primarily of fixed asset impairment of $1.4million, equipment relocation costs of $0.4 million, severance and otherpersonnel related costs of $ 0.3 million and other costs of $0.6 million.

***2003 –***During 2003, we accrued the present value of future lease payments on threebuildings we no longer occupied.  As of June 30, 2006 $1.1 million ofthese accruals are remaining.

16

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***Office Closing andWorkforce Reduction Costs***

***2002 –*** During 2002, we implementedfour workforce reduction programs whereby 111 employees were terminated. Total severance costs including benefits, for these terminations were includedas part of restructuring and other costs in our consolidated statement ofoperations for 2002.  As of June 30, 2005, no further costs will beincurred in connection with the workforce reduction program.  As such, theaccrual remaining at December 31, 2004 of $0.1 million was credited toincome as a reduction to restructuring and other costs in our consolidatedstatement of operations for the second quarter of 2005.

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**5.****                ****INTEREST  EXPENSE –Current and Long-term debt**

Interestexpense – current and long-term debt in the statement of operations for thethree and six month periods ended June 30, 2006 and 2005 are as follows:
| ** **                                | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Interest expense, net                     |       |                             |       |                           |       |   |   |   |   |
| Revolving credit  facilities              |       | $                                | 2,534      |                           | $          | 916 |   | $ | 5,055 |   | $ | 1,558 |   |
| 2000/2002 Notes  (a)                      |       | —                           |       | 10,400                         |       | 471 |   | 20,800 |   |
| 2003 Notes                                |       | 6,953                            |       | 6,953                          |       | 13,906 |   | 13,906 |   |
| 2004 Notes                                |       | 195                              |       | 2,328                          |       | 390 |   | 9,201 |   |
| Amended 2004  Notes                       |       | 7,840                            |       | 4,757                          |       | 15,681 |   | 4,757 |   |
| Other, net                                |       | 1,723                            |       | 122                            |       | 2,293 |   | 459 |   |
| Interest expense  accrued, net            |       | 19,245                           |       | 25,476                         |       | 37,796 |   | 50,681 |   |
| Recurring amortization  of financing fees |       | 1,254                            |       | 3,768                          |       | 2,544 |   | 4,947 |   |
| TOTAL                                     |       | $                                | 20,499     |                           | $          | 29,244 |   | $ | 40,340 |   | $ | 55,628 |   |
|                                      |       |                             |       |                           |       |   |   |   |   |
| Cash interest payments                    |       |                             |       |                           |       |   |   |   |   |
| Revolving credit  facilities              |       | $                                | 3,455      |                           | $          | 642 |   | $ | 6,537 |   | $ | 697 |   |
| 2000/2002 Notes                           |       | —                           |       | 20,800                         |       | — |   | 20,800 |   |
| 2003 Notes                                |       | —                           |       | —                         |       | — |   | 13,906 |   |
| Other, net (b)                            |       | 80                               |       | 7,650                          |       | 163 |   | 7,839 |   |
| TOTAL                                     |       | $                                | 3,535      |                           | $          | 29,092 |   | $ | 6,700 |   | $ | 43,242 |   |

 

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(a)Interest expense for 2006 includes interest for the two days prior to thebankruptcy filing, as these notes have been deemed impaired for bankruptcyproceeding purposes, plus interest on the December 1, 2005 unpaid interestpayment through January 2, 2006. Interest for the three and six months at the stated rate of 13% wouldhave been $10,400 and $20,800, respectively.

(b) Thethree month period ended June 30, 2005 includes $4.9 million of consentfees paid in connection with our Amended 2004 Notes which have been capitalizedand will be amortized through June 2009.  In addition, $2.6 millionof associated underwriter, legal and accountants fees were paid in cash andexpensed on a current basis.

**6.    DISCONTINUEDOPERATIONS**

On September 30, 2004, we sold substantially allof the assets of our wholly-owned subsidiary, Pliant SolutionsCorporation.  Pliant Solutions, previously reported as a separateoperating segment, manufactured decorative and surface coverings through theconversion of various films into consumer packaged goods.  These productswere sold through retailers to consumers for a wide range of applications,including shelf-lining, decorative accents, glass coverings, surface repair,resurfacing and arts and crafts projects.

In accordance with Statement of Financial AccountingStandards (SFAS) No. 144, “*Accounting forthe Impairment of Long-Lived Assets,”* Pliant Solutions is beingaccounted for as a discontinued operation and, accordingly, its operatingresults are segmented and reported as discontinued operations in theaccompanying condensed consolidated statements of operations and cash flows.

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**7.****    INCOME TAXES**

For the three months ended June 30, 2006, incometax expense was negligible on pretax loss from continuing operations of $14.0million as compared to income tax expense of $0.4 million on pretax loss fromcontinuing operations of $25.5 million for the three months ended June 30,2005.  For the six months ended June 30, 2006, income tax expense was$1.2 million on pretax loss from continuing operations of $73.6 millioncompared to income tax expense of $1.3 million on pretax loss from continuingoperations of $49.7 million for the six months ended June 30, 2005. Income tax benefits related to net operating losses in the United States areoffset by a valuation allowance as the realization of these tax benefits is notcertain.  Therefore, the income tax expense in the statements ofoperations primarily reflects foreign income taxes.

**8.****    COMPREHENSIVEINCOME/(LOSS)**

Comprehensive income (loss) for the three months endedJune 30, 2006 and 2005 was ($12.5) million and ($26.4) million,respectively. Comprehensive income (loss) for the six months endedJune 30, 2006 and 2005 was ($74.2) million and ($54.5) million,respectively. The components of comprehensive income (loss) are net income(loss), and foreign currency translation.

**9.****    LONG-TERM DEBT**

Long-term debt as of June 30, 2005 andDecember 31, 2004 consists of the following (in thousands):
| ** **                                                                                                                                    | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                    | ** ** | **2006**          | ** ** | **2005**              | ** ** |
|                                                                                                                                          |       |              |       |                  |       |
| Credit  Facilities:                                                                                                                           |       |              |       |                  |       |
| Revolving credit  facility                                                                                                                    |       | $                 | —     |                  | $          | 130,924 |   |
| Senior secured  discount notes at 11 1/8%, net of unamortized issue discount (2004 Notes)                                                     |       | 7,423             |       | 7,033                 |       |
| Senior secured  notes, interest at 11 5/8% (Amended 2004 Notes)                                                                               |       | 285,436           |       | 269,755               |       |
| Senior secured  notes, interest at 11 1/8% (2003 Notes)                                                                                       |       | 250,000           |       | 250,000               |       |
| Senior  subordinated notes, interest at 13.0%, net of unamortized issue discount,  premium and discount related to warrants (2000/2002 Notes) |       | —            |       | 314,137               |       |
| Obligations  under capital leases                                                                                                             |       | 8,820             |       | 9,846                 |       |
| TOTAL                                                                                                                                         |       | 551,679           |       | 981,695               |       |
| Less current  portion and debt in default                                                                                                     |       | (544,113          | )          | (973,244              | )          |
| Long-term portion                                                                                                                             |       | $                 | 7,566      |                  | $          | 8,451 |   |

 

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*Revolving Credit Facility*

On November 21, 2005, the Company entered into anamended revolving credit facility providing up to $140 million of totalavailability (the “Amended and Restated Credit Agreement”). The Amended andRestated Credit Agreement included a $25 million letter of creditsub-facility, with letters of credit reducing availability under the Amendedand Restated Credit Agreement.

On December 31, 2005, an Event of Defaultoccurred under the Amended and Restated Credit Agreement as a result of ourfailure to make the interest payments due on December 1, 2005 to holdersof the Company’s 13% Senior Subordinated Notes due 2010 (the “2000/2002 Notes”)described in further detail below. Claims filed in the Bankruptcy Courtassociated with the Amended and Restated Credit Agreement are consideredimpaired within the meaning of section 1124 of the Bankruptcy Code and therelated principal and unpaid interest is classified as liabilities subject tocompromise in the accompanying consolidated balance sheet as of June 30, 2006.

Upon the bankruptcy filing and execution of the DIPCredit Facility described below, the commitments under the Amended and RestatedCredit Agreement were terminated. The $130.9 million of borrowings as ofDecember 31, 2005 remained outstanding as of June 30, 2006. Suchborrowings subsequently were refinanced upon our emergence from bankruptcythrough our exit credit facilities (see footnote 16 “Subsequent Events” fordetails).

Subject to the priming security interest under the DIPCredit Facility described below, the Amended and Restated Credit Agreement wassecured by a first priority security interest in substantially all ourinventory, receivables and deposit accounts, 100% of the capital stock of, orother equity interests in, our existing and future domestic subsidiaries, 65%of the capital stock of, or other equity interests in existing and futurefirst-tier foreign subsidiaries, investment property and certain other assetsof the Company and its subsidiaries and a second-priority security interest inour real property, fixtures, equipment, intellectual property and other assets.

The interest rates were (i) on $20 millionoutstanding under the Amended and Restated Credit Agreement, LIBOR plus 6.50%or Alternate Base Rate (either prime rate or .50% over the Federal Funds Rate,if higher) plus 5.25% and (ii) on additional amounts outstanding, LIBORplus 2.75% or Alternate Base Rate plus 1.50%. The commitment fee for the unusedportion of the Amended and Restated Credit Agreement was 0.50% per annum.

*DIP CreditFacility*

On January 4, 2006, we entered into a SeniorSecured, Super Priority, Priming Debtor-in-Possession Credit Agreement, datedas of January 4, 2006 (the “DIP Credit Facility”), among the Company andcertain other Debtors, as joint and several borrowers, General Electric CapitalCorporation, as administrative agent, collateral agent and lender, MorganStanley Senior Funding, Inc., as syndication agent and lender, and thelenders from time to time party thereto. The DIP Credit Facility provided for a$200 million commitment of debtor-in-possession financing to fund theworking capital requirements of Pliant and of Pliant’s subsidiaries that areDebtors during the pendency of the bankruptcy proceeding. Although the DIPCredit Facility was nominally in the amount of $200 million, availabilitywas reduced by the aggregate borrowing base of $131.2 million under theAmended and Restated Credit Agreement as of the bankruptcy filing.

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The DIP Credit Facility provided the Debtors with upto approximately $68.8 million of additional liquidity, subject to aborrowing base calculated based upon specified percentages of the Debtors’eligible current and fixed assets, minus $10 million and other reserves.The DIP Credit Facility was guaranteed by the non-borrowing Debtors and securedby a first priority (i.e., priming) lien on substantially all of our domesticand Canadian assets, as well as super-priority administrative expense claimshaving priority over all our unencumbered pre-petition or post-petition property.

The DIP Credit Facility provided for certain financialand other covenants including, but not limited to, a minimum fixed chargecoverage ratio, affirmative covenants and negative covenants with respect toadditional indebtedness, new liens, declaration or payment of dividends, salesof assets, acquisitions, loans and investments.

As of June 30, 2006, the Company had made noborrowings and had approximately $44.2 million of availability under the DIPCredit Facility. The DIP Credit Facility was terminated upon our emergence frombankruptcy and replaced with our exit credit facilities (see footnote 16 “SubsequentEvents”).

*Senior Notes*

The bankruptcy filing constituted an Event of Defaultunder the separate Indentures for all of the Company’s Notes, which have beenclassified as current liabilities in the consolidated balance sheet. Under theFourth Amended Plan, the 2003 Notes, 2004 Notes and Amended 2004 Notes werereinstated in accordance with their terms, subject to a .225% payment-in-kindinterest rate increase with respect to the 2004 Notes and Amended 2004 Notes,thereby increasing the interest rate of such notes to 11.35% and 11.85%,respectively. These Notes are considered unimpaired within the meaning ofsection 1124 of the Bankruptcy Code and the 2003 Notes, 2004 Notes and Amended2004 Notes continue to be classified as debt in the accompanying consolidatedbalance sheet as of June 30, 2006.

The Company did not make the $20.8 million interestpayments that were due under the 2000/2002 Notes on December 1, 2005. As aresult of the failure to make those interest payments by December 31,2005, an Event of Default occurred under the 2000/2002 Notes onDecember 31, 2005. Under the Fourth Amended Plan, the 2000/2002 Notes wereexchanged for a combination of new debt, new preferred stock, new common stockand cash. The 2000/2002 Notes were deemed impaired for bankruptcy proceedingpurposes and the remaining unamortized discount of $5.9 million recognized asfinancial restructuring costs in the consolidated statement of operations.

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**10.****    OPERATINGSEGMENTS**

Operating segments are components of our business forwhich separate financial information is available that is evaluated regularlyby our chief operating decision maker in deciding how to allocate resources andin assessing performance.  This information is reported on the basis thatit is used internally for evaluating segment performance.

We have three operating segments: Engineered Films,Industrial Films and Specialty Products Group.  During the first quarterof 2006, we streamlined our executive management team and merged ourPerformance Films operating segment, which manufactures a variety of barrierand custom films for smaller niche flexible packaging and industrial markets,into our Specialty Products Group. Segment information in this report for 2005 has been restated to reflectthis reorganization.  Sales and transfersbetween our segments are eliminated in consolidation.  We evaluate theperformance of our operating segments based on net sales (excludinginter-company sales) and segment profit.  Segment profit reflects incomefrom continuing operations before interest expense, income taxes, depreciation,amortization, restructuring costs and other non-cash charges.  Our reportablesegments are separately managed as each segment has differing products,customer requirements, technology and marketing strategies.

Segment profit for the periods ended June 30,2006 and 2005 and segment assets as of June 30, 2006 and December 31,2005 are presented in the following table (in thousands). Certainreclassifications have been made to the prior year amounts to be consistentwith the 2006 presentation.

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| ** **                            | ** ** | ** **     | ** ** | ** **     | ** ** | **Specialty** | ** ** | ** **     | ** ** | ** ** | ** ** |
|---------------------------------------|------------|----------------|------------|----------------|------------|---------------|------------|----------------|------------|------------|------------|
| ** **                            | ** ** | **Engineered** | ** ** | **Industrial** | ** ** | **Products**  | ** ** | **Corporate/** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Films**      | ** ** | **Films**      | ** ** | **Group**     | ** ** | **Other**      | ** ** | **Total**  | ** ** |
|                                  |       |           |       |           |       |          |       |           |       |       |       |
| **Three  months ended June 30, 2006** |       |           |       |           |       |          |       |           |       |       |       |
| Net sales to customers                |       | $              | 70,237     |           | $          | 80,673        |       | $              | 136,397    |       | $          | 1,766 |   | $ | 289,073 |   |
| Intersegment sales                    |       | 3,140          |       | 3,240          |       | 3,023         |       | (9,403         | )          | —     |       |
| Total net sales                       |       | 73,377         |       | 83,913         |       | 139,420       |       | (7,637         | )          | 289,073    |       |
| Depreciation and amortization         |       | 1,867          |       | 1,695          |       | 5,578         |       | 895            |       | 10,035     |       |
| Interest expense                      |       | 744            |       | 54             |       | 1,538         |       | 18,163         |       | 20,499     |       |
| Segment profit                        |       | 9,985          |       | 6,711          |       | 17,212        |       | (7,064         | )          | 26,844     |       |
| Capital expenditures                  |       | 1,114          |       | 1,193          |       | 7,834         |       | 986            |       | 11,127     |       |
| **Three  months ended June 30, 2005** |       |           |       |           |       |          |       |           |       |       |       |
| Net sales to customers                |       | $              | 58,887     |           | $          | 73,245        |       | $              | 125,424    |       | $          | 1,690 |   | $ | 259,246 |   |
| Intersegment sales                    |       | 1,287          |       | 3,813          |       | 1,804         |       | (6,904         | )          | —     |       |
| Total net sales                       |       | 60,174         |       | 77,058         |       | 127,228       |       | (5,214         | )          | 259,246    |       |
| Depreciation and amortization         |       | 1,751          |       | 1,726          |       | 5,274         |       | 1,076          |       | 9,827      |       |
| Interest expense                      |       | 168            |       | 81             |       | 1,356         |       | 37,290         |       | 38,895     |       |
| Segment profit                        |       | 6,631          |       | 5,269          |       | 19,551        |       | (6,240         | )          | 25,211     |       |
| Capital expenditures                  |       | 693            |       | 1,030          |       | 4,428         |       | 1,522          |       | 7,673      |       |
| **Six  months ended June 30, 2006**   |       |           |       |           |       |          |       |           |       |       |       |
| Net sales to customers                |       | $              | 142,253    |           | $          | 158,824       |       | $              | 281,834    |       | $          | 3,818 |   | $ | 586,729 |   |
| Intersegment sales                    |       | 6,632          |       | 8,262          |       | 6,853         |       | (21,747        | )          | —     |       |
| Total net sales                       |       | 148,885        |       | 167,086        |       | 288,687       |       | (17,929        | )          | 586,729    |       |
| Depreciation and amortization         |       | 3,711          |       | 3,334          |       | 11,176        |       | 1,791          |       | 20,012     |       |
| Interest expense                      |       | 1,398          |       | 111            |       | 3,006         |       | 36,096         |       | 40,611     |       |
| Segment profit                        |       | 17,768         |       | 14,217         |       | 32,724        |       | (13,789        | )          | 50,920     |       |
| Capital expenditures                  |       | 1,950          |       | 1,874          |       | 12,856        |       | 1,684          |       | 18,364     |       |
| Segment assets                        |       | 153,824        |       | 113,872        |       | 465,882       |       | 89,146         |       | 822,724    |       |
| **Six  months ended June 30, 2005**   |       |           |       |           |       |          |       |           |       |       |       |
| Net sales to customers                |       | $              | 118,486    |           | $          | 146,040       |       | $              | 253,278    |       | $          | 4,330 |   | $ | 522,134 |   |
| Intersegment sales                    |       | 2,905          |       | 7,191          |       | 3,871         |       | (13,967        | )          | —     |       |
| Total net sales                       |       | 121,391        |       | 153,231        |       | 257,149       |       | (9,637         | )          | 522,134    |       |
| Depreciation and amortization         |       | 3,517          |       | 3,485          |       | 10,784        |       | 2,175          |       | 19,961     |       |
| Interest expense                      |       | 331            |       | 148            |       | 2,679         |       | 71,427         |       | 74,585     |       |
| Segment profit                        |       | 14,258         |       | 11,492         |       | 35,232        |       | (14,018        | )          | 46,964     |       |
| Capital expenditures                  |       | 1,487          |       | 2,210          |       | 10,975        |       | 1,955          |       | 16,627     |       |
| **As of  December 31, 2005**          |       |           |       |           |       |          |       |           |       |       |       |
| Segment assets                        |       | $              | 155,218    |           | $          | 107,528       |       | $              | 462,158    |       | $          | 96,001 |   | $ | 820,905 |   |

 

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Areconciliation of the totals reported for the operating segments to the totalsreported in the consolidated financial statements as of and for the three andsix month periods ended June 30, 2006 and 2005 are as follows (in thousands):
| ** **                                          | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                          | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **                                          | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Profit  or Loss**                                 |       |                             |       |                           |       |   |   |   |   |
| Total segment profit                                |       | $                                | 26,844     |                           | $          | 25,211 |   | $ | 50,920 |   | $ | 46,964 |   |
| Depreciation and amortization                       |       | (10,035                          | )          | (9,827                         | )          | (20,012 | ) | (19,961 | ) |
| Restructuring and other costs                       |       | (10,286                          | )          | (1,950                         | )          | (63,851 | ) | (2,082 | ) |
| Interest expense                                    |       | (20,499                          | )          | (38,895                        | )          | (40,611 | ) | (74,585 | ) |
| Loss from continuing operations before income taxes |       | $                                | (13,976    | )                              | $          | (25,461 | ) | $ | (73,554 | ) | $ | (49,664 | ) |

 
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|------------|------------|------------|------------|--------------|------------|------------------|------------|
| ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | **2006**     | ** ** | **2005**         | ** ** |
| **Assets**                            |       |       |       |       |       |         |       |             |       |
| Total assets from reportable segments |       |       |       |       |       | 733,578      |       | 724,904          |       |
| Other unallocated assets              |       |       |       |       |       | 89,146       |       | 96,001           |       |
| Total  consolidated assets            |       |       |       |       |       | $            | 822,724    |             | $          | 820,905 |   |
|                                       |            |            |            |            |            |              |            |                  |            |  |  |

 

Net sales and long-livedassets of our US and foreign operations are as follows:
| ** **            | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **            | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| ** **            | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net Sales             |       |                             |       |                           |       |   |   |   |   |
| United States         |       | $                                | 232,297    |                           | $          | 212,060 |   | $ | 472,969 |   | $ | 422,555 |   |
| Foreign countries (a) |       | 56,776                           |       | 47,186                         |       | 113,760 |   | 99,579 |   |
| Total                 |       | $                                | 289,073    |                           | $          | 259,246 |   | $ | 586,729 |   | $ | 522,134 |   |

 
| ** **            | ** ** | ** ** | ** ** | ** ** | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-----------------------|------------|------------|------------|------------|------------|--------------------|------------|------------------------|------------|
| Long-lived  assets    | ** ** | ** ** | ** ** | ** ** | ** ** | ** **         | ** ** | ** **             | ** ** |
| United States         |       |       |       |       |       | $                  | 436,164    |                   | $          | 424,725 |   |
| Foreign countries (a) |       |       |       |       |       | 55,425             |       | 57,232                 |       |
| Total                 |       |       |       |       |       | $                  | 491,589    |                   | $          | 481,957 |   |
|                  |       |       |       |       |       |               |       |                   |       |
| Total assets          |       |       |       |       |       |               |       |                   |       |
| United States         |       |       |       |       |       | $                  | 700,381    |                   | $          | 700,529 |   |
| Foreign countries (a) |       |       |       |       |       | 122,343            |       | 120,376                |       |
| Total                 |       |       |       |       |       | $                  | 822,724    |                   | $          | 820,905 |   |

 

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(a)   Foreign countries include Australia,Canada, Germany and Mexico, none of which individually represents 10% ofconsolidated net sales or long-lived assets.

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**11.    SHARES SUBJECTTO MANDATORY REDEMPTION**

The Company adopted SFAS No. 150, “*Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity,”* effective January1, 2004. As a result, our redeemable preferred stock which contains anunconditional mandatory redemption feature has been reflected as a liability onthe Company’s consolidated balance sheet and the associated dividends andaccretion are included as a part of interest expense in the statement ofoperations.

In addition, as a result of adopting SFAS No. 150, theCompany’s redeemable common shares that have been put for redemption by ashareholder have also been reflected as a liability on the Company’sconsolidated balance sheet, at fair market value. The fair value was computedusing the agreed upon price of the redemption times the number of shares put bythe shareholder. As required by SFAS No. 150 prior periods were not restated.

The shares subject to mandatory redemption are asfollow (in thousands):

|                                                                                                                                                                                                                                               | ** ** | **As of June 30  2006** | ** ** | **As of  December 31  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| Redeemable  Preferred Shares: 167,000 shares authorized, 140,973 shares outstanding as of  June 30, 2006 and December 31, 2005, designated as Series A, no par value  with a redemption value of $1,000 per share plus accumulated dividends. |       | $                                      | 289,195    |                                   | $          | 264,327 |   |
|                                                                                                                                                                                                                                          |       |                                   |       |                                   |       |
| Redeemable  Common Shares: 18,200 that have been put for redemption by a shareholder, net  of a shareholder note of $2,431                                                                                                                    |       | 6,362                                  |       | 6,362                                  |       |
| Total shares subject to  mandatory redemption                                                                                                                                                                                                 |       | $                                      | 295,557    |                                   | $          | 270,689 |   |

 

The Company’s mandatorily redeemable preferred sharesand redeemable common shares put for redemption are both considered impairedwithin the meaning of section 1124 of the Bankruptcy Code and their relatedprincipal and unpaid interest classified as liabilities subject to compromisein the Company’s consolidated balance sheet as of June 30, 2006.  The maximum cash settlement at the redemptiondate of June 1, 2011 (assuming no cash dividends are paid through theredemption date) would have been $680.6 million for the redeemable preferredshares and $6.4 million (net of the note receivable of $2.4 million) for theredeemable common shares that have been put for redemption by the shareholder.

Interest expense for the three and six months endedJune 30, 2006 includes dividends and accretion on the redeemable preferredshares for the two days prior to the bankruptcy filing.  Had these shares not been deemed impaired, dividendsand accretion for the three and six months ended June 30, 2006 would have been$12,699 and $24,903, respectively.

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**12.    DEFINED BENEFIT PLANS**

The company sponsors three noncontributory definedbenefit pension plans (the “United States Plans”) covering domestic employeeswith 1,000 or more hours of service. The company funds these in accordance withthe funding requirements of the Employee Retirement Income Security Act of1974. Contributions are intended to not only provide for benefits attributed toservice to date but also for those expected to be earned in the future. We alsosponsor a defined benefit plan in Germany (the “Germany Plan”). For informationon the Germany Plan please refer to the Company’s Form 10-K for the year endedDecember 31, 2005.

The consolidated accrued net pension expense for thethree and six months ended June 30, 2006 and 2005 includes the followingcomponents (in thousands):
| ** **                                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| **United  States Plans**                        |       |                                            |       |                                          |       |   |   |   |   |
| Service  cost-benefits earned during the period |       | $                                               | 111        |                                          | $          | 104 |   | $ | 222 |   | $ | 208 |   |
| Interest cost on  projected benefit obligation  |       | 1,247                                           |       | 1,195                                         |       | 2,494 |   | 2,390 |   |
| Expected return  on assets                      |       | (1,384                                          | )          | (1,286                                        | )          | (2,768 | ) | (2,572 | ) |
| Other                                           |       | 31                                              |       | 28                                            |       | 62 |   | 56 |   |
| Total accrued pension  expense                  |       | $                                               | 5          |                                          | $          | 41 |   | $ | 10 |   | $ | 82 |   |

 

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**13.    CONTINGENCIES**

*Litigation* We are involved in various litigation matters from time to time in the ordinarycourse of our business, including matters described in previous filings. In ouropinion, none of such litigation is material to our financial condition orresults of operations.

**14.    CONDENSEDCONSOLIDATING FINANCIAL STATEMENTS**

The following condensedconsolidating financial statements present, in separate columns, financialinformation for (i) Pliant Corporation (on a parent only basis) with itsinvestment in its subsidiaries recorded under the equity method, (ii) guarantorsubsidiaries (as specified in the Indenture dated May 31, 2000 as amended (the “2000Indenture”) and the Indenture dated April 10, 2002, as amended (the “2002Indenture”) relating to the 2000/2002 Notes, the Indenture dated as of May 30,2003, as amended (the “2003 Indenture”) relating to the 2003 Notes and theIndenture dated as of February 17, 2004, as amended (the “2004 Indenture” and,together with the 2000 Indenture, the 2002 Indenture and the 2003 Indenture,the “Indentures”) relating to the 2004 Notes and the Amended 2004 Notes on acombined basis, with any investments in non-guarantor subsidiaries specified inthe Indentures recorded under the equity method, (iii) direct and indirectnon-guarantor subsidiaries on a combined basis, (iv) the eliminations necessaryto arrive at the information for Pliant Corporation and its subsidiaries on aconsolidated basis, and (v) Pliant Corporation on a consolidated basis, in eachcase as of June 30, 2006 and December 31, 2005 and for the three and six monthsended June 30, 2006 and 2005. The 2000/2002 Notes, the 2003 Notes and the 2004Notes are fully and unconditionally guaranteed on a joint and several basis byeach guarantor subsidiary and each guarantor subsidiary is wholly owned,directly or indirectly, by Pliant Corporation. The Amended 2004 Notes are guaranteed by each guarantor subsidiaryexcept Pliant Solutions Corporation. Substantially all of the assets of Pliant Solutions Corporation weresold on September 30, 2004 and the remainder disposed prior to December 31,2005.  There are no contractual restrictions limiting transfers of cashfrom guarantor and non-guarantor subsidiaries to Pliant Corporation, within themeaning of Rule 3-10(h)(1) of Regulation S-X.  There are no contractualrestrictions limiting transfers of cash from guarantor and non-guarantorsubsidiaries to Pliant Corporation.  The condensed consolidating financialstatements are presented herein, rather than separate financial statements foreach of the guarantor subsidiaries, because management believes that separatefinancial statements relating to the guarantor subsidiaries are not material toinvestors.

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSED CONSOLIDATINGBALANCE SHEET

AS OF JUNE 30, 2006  (DOLLARS IN THOUSANDS) (UNAUDITED)

 
| ** **                                                | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
| **ASSETS**                                                | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **       | ** ** |
| CURRENT ASSETS:                                           |       |                   |       |             |       |              |       |             |       |             |       |
| Cash and cash  equivalents                                |       | $                      | 24,852     |             | $          | 795               |       | $                | 8,076      |             | $          | — |   | $ | 33,723 |   |
| Receivables, net  of allowances                           |       | 110,125                |       | 11,785           |       | 22,041            |       | —           |       | 143,951          |       |
| Inventories                                               |       | 87,766                 |       | 8,177            |       | 10,719            |       | —           |       | 106,662          |       |
| Prepaid expenses  and other                               |       | 3,620                  |       | 1,459            |       | 1,099             |       | —           |       | 6,178            |       |
| Income taxes  receivable, net                             |       | (767                   | )          | 1,778            |       | 185               |       | —           |       | 1,196            |       |
| Deferred income  taxes                                    |       | 11,348                 |       | —           |       | 10                |       | —           |       | 11,358           |       |
| Total current  assets                                     |       | 236,944                |       | 23,994           |       | 42,130            |       | —           |       | 303,068          |       |
| PLANT AND EQUIPMENT,  net                                 |       | 245,489                |       | 16,026           |       | 33,155            |       | —           |       | 294,670          |       |
| GOODWILL                                                  |       | 167,543                |       | 13,331           |       | 1,388             |       | —           |       | 182,262          |       |
| INTANGIBLE ASSETS, net                                    |       | 4,074                  |       | 10,554           |       | 29                |       | —           |       | 14,657           |       |
| INVESTMENT IN  SUBSIDIARIES                               |       | (42,550                | )          | —           |       | —            |       | 42,550           |       | —           |       |
| OTHER ASSETS                                              |       | 25,313                 |       | —           |       | 2,753             |       | 1                |       | 28,067           |       |
| TOTAL ASSETS                                              |       | $                      | 636,813    |             | $          | 63,905            |       | $                | 79,455     |             | $          | 42,551 |   | $ | 822,724 |   |
|                                                      |       |                   |       |             |       |              |       |             |       |             |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY (DEFICIT)**  | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **       | ** ** |
| CURRENT LIABILITIES:                                      |       |                   |       |             |       |              |       |             |       |             |       |
| Current portion  of long-term debt and debt in default    |       | $                      | 504,650    |             | $          | 39,400            |       | $                | 63         |             | $          | — |   | $ | 544,113 |   |
| Trade accounts  payable                                   |       | 47,802                 |       | 4,314            |       | 11,534            |       | —           |       | 63,650           |       |
| Accrued  liabilities                                      |       | 72,221                 |       | 3,226            |       | 4,047             |       | —           |       | 79,494           |       |
| Due to (from)  affiliates                                 |       | (108,068               | )          | 45,332           |       | 62,736            |       | —           |       | —           |       |
| Total current  liabilities                                |       | 516,605                |       | 92,272           |       | 78,380            |       | —           |       | 687,257          |       |
| LONG-TERM DEBT, net of  current portion                   |       | 3,523                  |       | —           |       | 4,043             |       | —           |       | 7,566            |       |
| OTHER LIABILITIES                                         |       | 31,808                 |       | —           |       | 3,064             |       | —           |       | 34,872           |       |
| DEFERRED INCOME TAXES                                     |       | 22,845                 |       | 4,857            |       | 3,292             |       | —           |       | 30,994           |       |
| SHARES SUBJECT TO  MANDATORY REDEMPTION                   |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
| LIABILITIES SUBJECT TO  COMPROMISE                        |       | 771,218                |       | —           |       | —            |       | —           |       | 771,218          |       |
| Total  Liabilities                                        |       | 1,345,999              |       | 97,129           |       | 88,779            |       | —           |       | 1,531,907        |       |
| REDEEMABLE STOCK:                                         |       |                   |       |             |       |              |       |             |       |             |       |
| Preferred Stock                                           |       | 102                    |       | —           |       | —            |       | —           |       | 102              |       |
| Common Stock                                              |       | 6,645                  |       | —           |       | —            |       | —           |       | 6,645            |       |
| STOCKHOLDERS’ EQUITY  (DEFICIT):                     |       |                   |       |             |       |              |       |             |       |             |       |
| Common stock                                              |       | 103,376                |       | —           |       | 11,916            |       | (11,916          | )          | 103,376          |       |
| Additional  paid-in capital                               |       | —                 |       | 14,020           |       | 17,386            |       | (31,406          | )          | —           |       |
| Warrants to  purchase common stock                        |       | 39,133                 |       | —           |       | —            |       | —           |       | 39,133           |       |
| Retained  earnings (deficit)                              |       | (838,736               | )          | (49,892          | )          | (31,723           | )          | 81,615           |       | (838,736         | )          |
| Stockholders’  notes receivable                      |       | (660                   | )          | —           |       | —            |       | —           |       | (660             | )          |
| Accumulated  other compensation loss                      |       | (19,046                | )          | 2,648            |       | (6,903            | )          | 4,258            |       | (19,043          | )          |
| Total  stockholders’ equity (deficit)                |       | (715,933               | )          | (33,224          | )          | (9,324            | )          | 42,551           |       | (715,930         | )          |
| TOTAL LIABILITIES AND  STOCKOLDERS’ EQUITY (DEFICIT) |       | $                      | 636,813    |             | $          | 63,905            |       | $                | 79,455     |             | $          | 42,551 |   | $ | 822,724 |   |

 

28

----

 

**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSED CONSOLIDATINGBALANCE SHEET

AS OF DECEMBER 31, 2005(DOLLARS IN THOUSANDS) (UNAUDITED)

 
| ** **                                                | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
| **ASSETS**                                                | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **       | ** ** |
| CURRENT ASSETS:                                           |       |                   |       |             |       |              |       |             |       |             |       |
| Cash and cash equivalents                                 |       | $                      | 4,860      |             | $          | 1,152             |       | $                | 6,790      |             | $          | — |   | $ | 12,802 |   |
| Receivables, net of allowances                            |       | 106,735                |       | 10,137           |       | 20,812            |       | —           |       | 137,684          |       |
| Inventories                                               |       | 88,950                 |       | 8,025            |       | 9,851             |       | —           |       | 106,826          |       |
| Prepaid expenses and other                                |       | 4,903                  |       | 892              |       | 1,427             |       | —           |       | 7,222            |       |
| Income taxes receivable, net                              |       | (701                   | )          | 1,365            |       | 410               |       | —           |       | 1,074            |       |
| Deferred income taxes                                     |       | 12,360                 |       | —           |       | (936              | )          | —           |       | 11,424           |       |
| Total current assets                                      |       | 217,107                |       | 21,571           |       | 38,354            |       | —           |       | 277,032          |       |
| PLANT AND  EQUIPMENT, net                                 |       | 243,968                |       | 15,421           |       | 35,604            |       | —           |       | 294,993          |       |
| GOODWILL                                                  |       | 167,583                |       | 13,331           |       | 1,331             |       | —           |       | 182,245          |       |
| INTANGIBLE  ASSETS, net                                   |       | 3,829                  |       | 10,853           |       | 37                |       | —           |       | 14,719           |       |
| INVESTMENT IN  SUBSIDIARIES                               |       | (41,415                | )          | —           |       | —            |       | 41,415           |       | —           |       |
| OTHER ASSETS                                              |       | 49,251                 |       | —           |       | 2,665             |       | —           |       | 51,916           |       |
| TOTAL ASSETS                                              |       | $                      | 640,323    |             | $          | 61,176            |       | $                | 77,991     |             | $          | 41,415 |   | $ | 820,905 |   |
|                                                      |       |                   |       |             |       |              |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**  | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **       | ** ** |
| CURRENT  LIABILITIES:                                     |       |                   |       |             |       |              |       |             |       |             |       |
| Current portion of long-term debt and debt in  default    |       | $                      | 933,795    |             | $          | 39,400            |       | $                | 49         |             | $          | — |   | $ | 973,244 |   |
| Trade accounts payable                                    |       | 37,826                 |       | 2,909            |       | 11,265            |       | —           |       | 52,000           |       |
| Accrued liabilities                                       |       | 78,100                 |       | 3,267            |       | 3,837             |       |             |       | 85,204           |       |
| Due to (from) affiliates                                  |       | (105,150               | )          | 44,571           |       | 60,579            |       | —           |       | —           |       |
| Total current liabilities                                 |       | 944,571                |       | 90,147           |       | 75,730            |       | —           |       | 1,110,448        |       |
| LONG-TERM DEBT,  net of current portion                   |       | 4,100                  |       | —           |       | 4,351             |       | —           |       | 8,451            |       |
| OTHER  LIABILITIES                                        |       | 31,953                 |       | —           |       | 2,724             |       | —           |       | 34,677           |       |
| DEFERRED INCOME  TAXES                                    |       | 23,945                 |       | 4,503            |       | 3,127             |       | —           |       | 31,575           |       |
| SHARES SUBJECT  TO MANDATORY REDEMPTION                   |       | 270,689                |       | —           |       | —            |       | —           |       | 270,689          |       |
| LIABILITIES  SUBJECT TO COMPROMISE                        |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
| Total Liabilities                                         |       | 1,275,258              |       | 94,650           |       | 85,932            |       | —           |       | 1,455,840        |       |
| REDEEMABLE  STOCK:                                        |       |                   |       |             |       |              |       |             |       |             |       |
| Preferred Stock                                           |       | 102                    |       | —           |       | —            |       | —           |       | 102              |       |
| Common Stock                                              |       | 6,645                  |       | —           |       | —            |       | —           |       | 6,645            |       |
| STOCKHOLDERS’  EQUITY (DEFICIT):                     |       |                   |       |             |       |              |       |             |       |             |       |
| Common stock                                              |       | 103,376                |       | —           |       | 11,916            |       | (11,916          | )          | 103,376          |       |
| Additional paid-in capital                                |       | —                 |       | 14,020           |       | 17,386            |       | (31,406          | )          | —           |       |
| Warrants to purchase common stock                         |       | 39,133                 |       | —           |       | —            |       | —           |       | 39,133           |       |
| Retained earnings (deficit)                               |       | (763,940               | )          | (49,184          | )          | (29,596           | )          | 78,780           |       | (763,940         | )          |
| Stockholders’ notes receivable                       |       | (660                   | )          | —           |       | —            |       | —           |       | (660             | )          |
| Accumulated other compensation loss                       |       | (19,591                | )          | 1,690            |       | (7,647            | )          | 5,957            |       | (19,591          | )          |
| Total stockholders’ equity (deficit)                 |       | (641,682               | )          | (33,474          | )          | (7,941            | )          | 41,415           |       | (641,682         | )          |
| TOTAL  LIABILITIES AND STOCKOLDERS’ EQUITY (DEFICIT) |       | $                      | 640,323    |             | $          | 61,176            |       | $                | 77,991     |             | $          | 41,415 |   | $ | 820,905 |   |

 

29

----

 

**PLIANTCORPORATION AND SUBSIDIARIES**

 

CONDENSED CONSOLIDATINGINCOME STATEMENT

FOR THE SIX MONTHS ENDEDJUNE 30, 2006 (IN THOUSANDS) (UNAUDITED)

 
| ** **                                           | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                           | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| NET SALES                                            |       | $                      | 494,736    |             | $          | 40,778            |       | $                | 73,010     |             | $          | (21,795 | ) | $ | 586,729 |   |
| COST OF SALES                                        |       | 434,137                |       | 36,984           |       | 66,099            |       | (21,795          | )          | 515,425          |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| GROSS PROFIT                                         |       | 60,599                 |       | 3,794            |       | 6,911             |       | —           |       | 71,304           |       |
| OPERATING  EXPENSES                                  |       | 99,644                 |       | 1,093            |       | 3,647             |       | —           |       | 104,384          |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| OPERATING INCOME  (LOSS)                             |       | (39,045                | )          | 2,701            |       | 3,264             |       | —           |       | (33,080          | )          |
| INTEREST EXPENSE                                     |       | (36,218                | )          | (1,398           | )          | (2,995            | )          | —           |       | (40,611          | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES                  |       | (2,835                 | )          | —           |       | —            |       | 2,835            |       | —           |       |
| OTHER INCOME  (EXPENSE) - Net                        |       | 3,653                  |       | (2,120           | )          | (1,396            | )          | —           |       | 137              |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES |       | (74,445                | )          | (817             | )          | (1,127            | )          | 2,835            |       | (73,554          | )          |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME TAX  EXPENSE (BENEFIT)                        |       | 351                    |       | (110             | )          | 1,001             |       | —           |       | 1,242            |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  CONTINUING OPERATIONS                     |       | (74,796                | )          | (707             | )          | (2,128            | )          | 2,835            |       | (74,796          | )          |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  DISCONTINUED OPERATIONS                   |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| NET LOSS                                             |       | $                      | (74,796    | )                | $          | (707              | )          | $                | (2,128     | )                | $          | 2,835 |   | $ | (74,796 | ) |

 

30

----

 

**PLIANTCORPORATION AND SUBSIDIARIES**

 

CONDENSED CONSOLIDATINGINCOME STATEMENT

FOR THE SIX MONTHS ENDEDJUNE 30, 2005 (IN THOUSANDS) (UNAUDITED)

 
| ** **                                           | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                           | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                           | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| NET SALES                                            |       | $                      | 436,261    |             | $          | 33,898            |       | $                | 66,039     |             | $          | (14,064 | ) | $ | 522,134 |   |
| COST OF SALES                                        |       | 374,562                |       | 30,961           |       | 63,790            |       | (14,064          | )          | 455,249          |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| GROSS PROFIT                                         |       | 61,699                 |       | 2,937            |       | 2,249             |       | —           |       | 66,885           |       |
| OPERATING  EXPENSES                                  |       | 38,184                 |       | 3,184            |       | 4,535             |       | —           |       | 45,903           |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| OPERATING INCOME  (LOSS)                             |       | 23,515                 |       | (247             | )          | (2,286            | )          | —           |       | 20,982           |       |
| INTEREST EXPENSE                                     |       | (71,598                | )          | (331             | )          | (2,656            | )          | —           |       | (74,585          | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES                  |       | (2,624                 | )          | —           |       | —            |       | 2,624            |       | —           |       |
| OTHER INCOME  (EXPENSE) - Net                        |       | (281                   | )          | 8                |       | 4,212             |       | —           |       | 3,939            |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  CONTINUING OPERATIONS BEFORE INCOME TAXES |       | (50,988                | )          | (570             | )          | (730              | )          | 2,624            |       | (49,664          | )          |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME TAX  EXPENSE                                  |       | 11                     |       | 644              |       | 680               |       | —           |       | 1,335            |       |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  CONTINUING OPERATIONS                     |       | (50,999                | )          | (1,214           | )          | (1,410            | )          | 2,624            |       | (50,999          | )          |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  DISCONTINUED OPERATIONS                   |       | (560                   | )          | —           |       | —            |       | —           |       | (560             | )          |
|                                                 |       |                   |       |             |       |              |       |             |       |             |       |
| NET LOSS                                             |       | $                      | (51,559    | )                | $          | (1,214            | )          | $                | (1,410     | )                | $          | 2,624 |   | $ | (51,559 | ) |

 

31

----

 

**PLIANTCORPORATION AND SUBSIDIARIES**

 

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOW

FOR THE SIX MONTHS ENDEDJUNE 30, 2006 (IN THOUSANDS) (UNAUDITED)

 
| ** **                                                       | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                       | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                       | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOW  PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES |       | $                      | 40,713     |             | $          | 415               |       | $                | 1,637      |             | $          | — |   | $ | 42,765 |   |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  CONTINUING INVESTING ACTIVITIES:                |       |                   |       |             |       |              |       |             |       |             |       |
| Capital expenditures for plant and equipment                     |       | (17,101                | )          | (792             | )          | (471              | )          | —           |       | (18,364          | )          |
| Net cash used in continuing investing activities                 |       | (17,101                | )          | (792             | )          | (471              | )          | —           |       | (18,364          | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  CONTINUING FINANCING ACTIVITIES:                |       |                   |       |             |       |              |       |             |       |             |       |
| Payment of financing fees                                        |       | (1,652                 | )          | —           |       | —            |       | —           |       | (1,652           | )          |
| Repayment of capital leases and other, net                       |       | (731                   | )          | —           |       | (215              | )          | —           |       | (946             | )          |
| Net cash used in continuing financing activities                 |       | (2,383                 | )          | —           |       | (215              | )          | —           |       | (2,598           | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH USED IN  DISCONTINUED OPERATIONS                            |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS    |       | (1,237                 | )          | 20               |       | 335               |       | —           |       | (882             | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS            |       | 19,992                 |       | (357             | )          | 1,286             |       | —           |       | 20,921           |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD              |       | 4,859                  |       | 1,153            |       | 6,790             |       | —           |       | 12,802           |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                    |       | $                      | 24,851     |             | $          | 796               |       | $                | 8,076      |             | $          | — |   | $ | 33,723 |   |

 

32

----

 

**PLIANTCORPORATION AND SUBSIDIARIES**

 

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOW

FOR THE SIX MONTHS ENDEDJUNE 30, 2005 (IN THOUSANDS) (UNAUDITED)

 
| ** **                                                       | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                       | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                       | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOW  PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES |       | $                      | 11,310     |             | $          | (108              | )          | $                | (6,635     | )                | $          | — |   | $ | 4,567 |   |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  CONTINUING INVESTING ACTIVITIES:                |       |                   |       |             |       |              |       |             |       |             |       |
| Proceeds from sale of assets                                     |       | 38                     |       | 605              |       | 4,527             |       | —           |       | 5,170            |       |
| Capital expenditures for plant and equipment                     |       | (14,633                | )          | (414             | )          | (1,580            | )          | —           |       | (16,627          | )          |
| Net cash used in continuing investing activities                 |       | (14,595                | )          | 191              |       | 2,947             |       | —           |       | (11,457          | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  CONTINUING FINANCING ACTIVITIES:                |       |                   |       |             |       |              |       |             |       |             |       |
| Issuance of senior secured notes                                 |       | 250,607                |       | —           |       | —            |       | —           |       | 250,607          |       |
| Repurchase of senior discount notes                              |       | (250,607               | )          | —           |       | —            |       | —           |       | (250,607         | )          |
| Payment of financing fees                                        |       | (7,507                 | )          | —           |       | —            |       | —           |       | (7,507           | )          |
| Repayment of capital leases and other, net                       |       | (1,374                 | )          | —           |       | —            |       | —           |       | (1,374           | )          |
| Proceeds from revoloving debt                                    |       | 14,800                 |       | —           |       | —            |       | —           |       | 14,800           |       |
| Repurchase of preferred stock                                    |       | (10                    | )          | —           |       | —            |       | —           |       | (10              | )          |
| Net cash provided by continuing financing activities             |       | 5,909                  |       | —           |       | —            |       | —           |       | 5,909            |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH USED IN  DISCONTINUED OPERATIONS                            |       | (195                   | )          | —           |       | —            |       | —           |       | (195             | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS    |       | (2,429                 | )          | (2               | )          | 2,288             |       | —           |       | (143             | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS            |       | —                 |       | 81               |       | (1,400            | )          | —           |       | (1,319           | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD              |       | —                 |       | 704              |       | 4,876             |       | —           |       | 5,580            |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                    |       | $                      | —     |             | $          | 785               |       | $                | 3,476      |             | $          | — |   | $ | 4,261 |   |

 

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**15.    SALE OF ALLIANT ASSETS**

On April 13, 2005 the Company sold the intellectualproperty, working capital, and equipment assets used in the Alliant operationsto an independent third party for a purchase price of $6.3 million, subject tocertain adjustments, with $4.6 million paid in cash at closing and $1.1 millionof additional payments received through June 30, 2005.  The remainingpurchase price of $0.63 million was placed in escrow with $0.31 million used tofinalize the purchase price related to receivables and the remaining $0.32million to be paid to Pliant in April 2007.  The Company recorded a gainof $4.1 million on the sale in the Printed Products Film division of ourSpecialty Products Group which is included in other income in the consolidatedstatement of operations for the three and six month periods ended June 30,2005.  Net sales and net income for this business were $0.1 million and$3.8 million, respectively for the three months ended June 30, 2005 and $0.7million and $3.5 million, respectively for the six months ended June 30, 2005.

**16.    SUBSEQUENT EVENTS**

On July 18, 2006,the Company consummated its reorganization through a series of transactionscontemplated in the Fourth Amended Plan, which previously had been approved byorder of the United States Bankruptcy Court for the District of Delaware onJune 23, 2006.

Among thetransactions effected pursuant to the Fourth Amended Plan, as of July 18, 2006the Company (i) changed its state of incorporation from Utah to Delaware, (ii)extinguished its Series B Redeemable Preferred Stock, no par value, (iii)issued, in exchange for all of the 2000/2002 Notes, Series A CumulativeExchangeable Redeemable Preferred Stock, no par value, and Common Stock, no parvalue, then outstanding (A) an aggregate principal amount of $34,967,000 of 13%Senior Subordinated Notes due 2010 (the “New Subordinated Notes”), (B)approximately 335,600 shares of Series AA Redeemable Preferred Stock, par value$.01 per share (“Series AA Preferred Stock”), and (C) approximately 100,000shares of Common Stock, par value $.01 per share (“New Common Stock”), (iv)made cash payments to the applicable trustee of (A) $3,200,000 for furtherdistribution to the holders of the 2000/2002 Notes and (B) $18,529,375.55 forfurther distribution to the holders of the 2003 Notes, (v) increased the interestrate on the 2004 Notes and Amended 2004 Notes by .225%, (vi) entered into exitcredit facilities to replace the Amended and Restated Credit Agreement and theDIP Credit Facility and (vii) entered into a Stockholders Agreement withrespect to the New Common Stock and a Registration Rights Agreement withrespect to the Series AA Preferred Stock. As a result, the prior creditfacilities, the 2000 Indenture and the 2002 Indenture were terminated, except,with respect to the indentures, to the extent necessary to permit the trusteeunder such indentures to make distributions to the holders of the 2000 Notesand 2002 Notes under the Fourth Amended Plan. In addition, on July 18, 2006,the Company’s Deferred Cash Incentive Plan and 2006 Restricted Stock IncentivePlan, as further discussed below, became effective.

In connection withthe issuance of the New Subordinated Notes, the Company entered into anIndenture, dated as of July 18, 2006 among the Company, certain subsidiaries ofthe Company and The Bank of New York Trust Company, N.A., as trustee. TheIndenture provides that interest will accrue on the New Subordinated Notes fromthe date of issuance at the rate of 13% per annum until maturity on July 15,2010 and will be payable semi-annually on the New Subordinated Notes on eachJanuary 15 and July 15, commencing January 15, 2007, to holders of record onthe immediately preceding January 1 or July 1. The New Subordinated Notes willaccrue payment-in-kind interest with respect to the first two interest paymentdates and then will accrue semi-annual cash pay interest with respect to theinterest payment dates thereafter. The New Subordinated Notes are subject tothe Company’s right, which will be assignable, to refinance the NewSubordinated Notes during the first year after issuance by tendering to theholders of all of the New Subordinated Notes cash in an amount equal to (i)$20,000,000 plus (ii) interest accrued at a rate of 13% per annum from the dateof issuance through the date of payment on a principal amount of $20,000,000minus (iii) any interest previously paid in cash on the New Subordinated Notes.Commencing on July 19, 2007, the Company may redeem the New Subordinated Notesin whole or in part at a redemption price equal to 100% of the aggregateprincipal amount of the New Subordinated Notes plus accrued and unpaid interestto the redemption date. The Indenture provides the holders of the NewSubordinated Notes with the right to require the Company to repurchase the NewSubordinated Notes at a repurchase price equal to 101% of the aggregateprincipal amount plus accrued and unpaid interest upon a change of control ofthe Company (as defined in the Indenture). The Indenture does not provide for asinking fund with respect to the New Subordinated Notes.

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To effect theinterest rate increase with respect to the 2004 Notes and Amended 2004 Notes,the Company also entered into a First Supplemental Indenture dated as of July18, 2006 (the “Supplemental Indenture”) with respect to the Amended and RestatedIndenture, dated as of May 6, 2005 (the “Amended and Restated Indenture”),among the Company, certain subsidiaries of the Company and Wilmington TrustCompany, as trustee. The Amended and Restated Indenture was amended to increasethe interest rate by .225% with respect to the 2004 Notes and Amended 2004Notes, which additional interest will accrue as payment-in-kind interest. As aresult, on July 18, 2006, the interest rate on the Amended 2004 Notes wasincreased to 11.85% per annum and the interest rate on the 2004 Notes wasincreased to 11.35% per annum. Pursuant to Section 9.01(a)(vii) of the Amendedand Restated Indenture, consent of the holders of the 2004 Notes and Amended2004 Notes was not required in connection with the execution of the FirstSupplemental Indenture.

On July 18, 2006,the Company and/or certain of its subsidiaries entered into (i) a WorkingCapital Credit Agreement, among the Company, certain of its subsidiaries, thelenders party thereto, Merrill Lynch Bank USA, as administrative agent (the “AdministrativeAgent”), and Merrill Lynch Commercial Finance Corp., as sole lead arranger andbook manager (the “Working Capital Credit Agreement”), and (ii) a Fixed AssetCredit Agreement, among Pliant Corporation Pty Ltd., Pliant Corporation ofCanada Ltd., Pliant Film Products GmbH and Aspen Industrial, S.A. de C.V., asborrowers, the lenders party thereto, Merrill Lynch Bank USA, as administrativeagent, and Merrill Lynch Commercial Finance Corp., as sole lead arranger andbook manager (the “Fixed Asset Credit Agreement, and together with the WorkingCapital Credit Agreement, the “Credit Facilities”). The Credit Facilitiesprovide up to $200 million of total commitments, subject to the borrowing basedescribed below and a required minimum availability amount of at least $10million. The Working Capital Credit Agreement includes a $20 million letter ofcredit sub-facility, with letters of credit reducing availability thereunder,and each of the Credit Facilities includes sub-limits for loans to certain ofthe foreign subsidiaries of the Company which are borrowers under the CreditFacilities. The Credit Facilities were funded on July 18, 2006, and replace theCompany’s prior credit facilities. The Credit Facilities are secured by a firstpriority security interest in substantially all of the Company’s and certain ofits subsidiaries’ assets, although the Administrative Agent has a secondpriority security interest only in certain of the Company’s and itssubsidiaries’ assets consistent with the terms of an intercreditor arrangementwith certain bondholders of the Company, which intercreditor arrangement is acarry-over from the Company’s prior credit arrangements. The Credit Facilitieswill mature on July 18, 2011. The interest rates for all loans other than thosemade to the Company’s German subsidiary range from, in the case of alternatebase rate loans, the alternate base rate (either prime rate or .50% over theFederal Funds Rate) plus 1.75% to the alternate base rate plus 2.00% and, inthe case of eurodollar loans, LIBOR plus 2.75% to LIBOR plus 3.00%, in eachcase depending on the amount of available credit. The interest rates for loansmade in connection with the loans to the Company’s German subsidiary are, inthe case of alternate base rate loans, the alternate base rate plus 5.00% and,in the case of eurodollar loans, LIBOR plus 6.00%. The commitment fee for theunused portion of the Credit Facilities is 0.375% per annum. The borrowing baseunder the Working Capital Credit Agreement is based on specified percentages ofthe Company’s and its subsidiaries’ party thereto eligible accounts receivable,finished goods inventory, work in process and raw material inventory minuscertain reserves. The borrowing base under the Fixed Asset Credit Agreement isbased on specified percentages of the Company’s and its subsidiaries’ partythereto eligible real estate valued at market value plus the net orderlyliquidation value of eligible machinery and equipment minus certain reserves.

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On July 18, 2006,the Company entered into a Stockholders Agreement (the “Stockholders Agreement”)that is binding on all parties receiving shares of New Common Stock, pursuantto the terms of the Fourth Amended Plan. The Stockholders Agreement providesfor certain restrictions on transfer of the New Common Stock and requires thatall transferees of New Common Stock become a party to the StockholdersAgreement. The Stockholders Agreement also grants to certain holders of NewCommon Stock the right to purchase their pro rata share of any new equitysecurities issued by Company, subject to exceptions for acquisitions,management equity and certain other transactions. The Stockholders Agreementalso contains “drag-along rights” that require all holders of New Common Stockto participate in and vote in favor of certain sales of the Company approved bythe Board of Directors and certain holders of New Common Stock. The StockholdersAgreement also provides that the 5 (out of a total of 7) members of the Boardof Directors to be elected by the holders of New Common Stock will consist ofthe chief executive officer of the Company and 4 members appointed by theholders of a majority of the New Common Stock held by persons defined as “permittedholders” under the Indentures for the 2003 Notes, 2004 Notes and Amended 2004Notes. The Stockholders Agreement also provides that certain holders of NewCommon Stock will have demand registration rights following the thirdanniversary of the effective date of the Fourth Amended Plan and additionaldemand and piggyback registration rights following an initial public offeringof the New Common Stock.

On July 18, 2006,the Company entered into a Registration Rights Agreement (the “RegistrationRights Agreement”) that is binding on all parties receiving shares of Series AAPreferred Stock, pursuant to the terms of the Fourth Amended Plan. TheRegistration Rights Agreement requires the Company to take all actionsreasonably required to permit the Series AA Preferred Stock to be quoted on theNASDAQ OTC Bulletin Board as soon as practicable following the effective dateof the Fourth Amended Plan. The Registration Rights Agreement also providesthat, at any time after the ninth month and prior to the second anniversary ofthe effective date of the Fourth Amended Plan, certain holders of the Series AAPreferred Stock can require Pliant to register an underwritten public offeringof the Series AA Preferred Stock.

The 2006 Restricted StockIncentive Plan provides for the issuance to the Chief Executive Officer andother officers of the Company of Series M Preferred Stock that, when combinedwith awards under the Deferred Cash Incentive Plan, will entitle such officersto a maximum of 8% of the equity value of the Company, in the aggregate.  Participants in the 2006 Restricted StockIncentive Plan and Deferred Cash Incentive Plan will only receive distributionsupon the occurrence of certain extraordinary corporate transactions, such as asale of all or substantially all of the Company’s assets or a change in controlof the Company.  The 2006 RestrictedStock Incentive Plan and Deferred Cash Incentive Plan will be administered bythe Company’s board or a committee composed of non-employee directors.  No awards have been granted to date undereither plan.

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** **

**ITEM 2.****       MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

Thepurpose of this section is to discuss and analyze our consolidatedfinancial condition, liquidity and capital resources and results of operations.This analysis should be read in conjunction with Management’s Discussion andAnalysis of Financial Condition and Results of Operations contained in ourAnnual Report on Form 10-K for the year ended December 31, 2005 (the “200510-K”). This section contains certain forward-looking statements withinthe meaning of federal securities laws that involve risks and uncertainties,including statements regarding our plans, objectives, goals, strategies andfinancial performance. Our actual results could differ materially from theresults anticipated in these forward-looking statements as a result of factorsset forth under “Cautionary Statement for Forward-Looking Information” belowand elsewhere in this report.

**General**

Wegenerate our revenues, earnings and cash flows from the sale of film andflexible packaging products throughout the world. We manufacture these productsat 23 facilities located on 21 sites in the United States, Australia, Canada,Germany and Mexico. Our sales have grown primarily as a result of strategicacquisitions made over the past several years, increased levels of productionat acquired facilities, return on capital expenditures and the overall growthin the markets for film and flexible packaging products.

**Overview**

On January 3, 2006,Pliant Corporation and ten subsidiaries (collectively, the “Debtors”) filedvoluntary petitions in the United States Bankruptcy Court for the District ofDelaware (the “Bankruptcy Court”) seeking relief under the provisions ofchapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) (the “Chapter11 Cases”). The Chapter 11 Cases were jointly administered under the caption “Inre: Pliant Corporation, et al., Case No. 06-10001”. Three of oursubsidiaries with Canadian operations commenced ancillary proceedings in aCanadian court to recognize the Chapter 11 proceedings as “foreign proceedings”pursuant to Canada’s Companies’ Creditors Arrangement Act (“CCAA”). Ouroperations in Mexico, Germany, and Australia were not included in the Chapter11 filing and were not subject to the reorganization proceedings.

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On July 18, 2006, theCompany consummated its reorganization through a series of transactionscontemplated in the Debtors’ Fourth Amended Joint Plan of Reorganization (the “FourthAmended Plan”), which had previously been approved by the Bankruptcy Court onJune 23, 2006.  We used the Chapter 11Cases to complete our financial restructuring, resulting in a less leveragedcapital structure to facilitate greater investment in our business.

Duringthe three months ended June 30, 2006, the Debtors operated their businesses asdebtors-in-possession under the jurisdiction of the Bankruptcy Court and inaccordance with applicable provisions of the Bankruptcy Code and the orders ofthe Bankruptcy Court. We recorded sales of $289.1 million in the three monthsended June 30, 2006.  This is an 11.5% increase from sales of $259.2million for the three months ended June 30, 2005.  Second quarter2006 sales measured in pounds were 219.3 million, which represents a 3.9% increasefrom the second quarter of 2005.

Totalsegment profit was $26.8 million for the three months ended June 30, 2006,compared to $25.2 million for the three months ended June 30, 2005. Segment profit, presented in accordance with generally accepted accountingprinciples (GAAP), reflects income from continuing operations before interestexpense, income taxes, depreciation, amortization, and restructuring costs andnon-cash charges. The increase in segment profit of $1.6 million betweenperiods reflects the impact of increased sales volumes and successful recoveryfrom customers of resin price increases to the Company, offset by increasedfreight and packaging costs and a $4.1 million gain on sale of assets fromAlliant recorded in the second quarter of 2005.

Averagesales price (“ASP”) for the three months ended June 30, 2006 was $1.318 perpound compared to $1.228 per pound for the three months ended June 30,2005.  This 7.3% increase generatedapproximately $19.7 million in incremental sales on approximately $18.4 millionof incremental raw material costs.  Salesvolume increases contributed approximately $1.0 million in incremental grossprofit and an additional $1.9 million in improved overhead absorption and wastein absolute terms declined nearly $1.1 million between periods.  Offsetting these gains were approximately$0.6 million in incremental freight and utilities costs, $0.3 million inincremental packaging costs and the prior period $4.1 million gain on sale ofAlliant assets.

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**Raw Material Costs**

Theprimary raw materials used in the manufacture of most of our products arepolypropylene resin, polyethylene resin and PVC resin. The prices of thesematerials are primarily a function of the price of crude oil and natural gasliquids. Although prices for these resins are significantly higher in the threemonths ended June 30, 2006 than in the three months ended June 30, 2005, priceshave fluctuated during the first six months of 2006 and are anticipated to risein the third and/or fourth quarter of 2006. We have not historically hedged ourexposure to raw material increases, but have moved customers to programs whichwould allow us to pass through cost increases in raw materials.  Raw material costs as a percentage of saleshave increased to 58.1% for the second quarter of 2006, from 55.9% for thecomparable period of 2005.

The gapbetween the speed at which resin price changes are passed on to us and the timeat which we can pass these cost changes on to our customers has an impact onboth our results of operations and our working capital needs.  To the extent we are not able to pass alongprice increases of raw materials, or to the extent any such price increases aredelayed, our cost of goods sold would continue to increase and our gross profitand operating income would correspondingly decrease.  Significant increases in raw material pricesthat cannot be passed on to customers could have a material adverse effect onour results of operations and financial condition.

**Results of Operations**

Thefollowing table sets forth net sales, operating expenses, and operating income,and such amounts as a percentage of net sales, for the three and six monthsended June 30, 2006 and 2005 (dollars in millions).
| ** **                                                | ** ** | **Three Months Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                | ** ** | **2006**                                            | ** ** | **2005**                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                | ** ** | ** **                                          | ** ** | **% of**                                     | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** |
| ** **                                                | ** ** | **$**                                               | ** ** | **Sales**                                         | ** ** | **$** | ** ** | **Sales** | ** ** | **$** | ** ** | **Sales** | ** ** | **$** | ** ** | **Sales** | ** ** |
|                                                      |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                                                 |       | $                                                   | 289.1      |                                              | 100.0      | % | $ | 259.2 |   | 100.0 | % | $ | 586.7 |   | 100.0 | % | $ | 522.1 |   | 100.0 | % |
| Cost of sales                                             |       | 252.1                                               |       | 87.2                                              | %          | 226.3 |   | 87.3 | % | 515.4 |   | 87.8 | % | 455.2 |   | 87.2 | % |
| Gross profit                                              |       | 37.0                                                |       | 12.8                                              | %          | 32.9 |   | 12.7 | % | 71.3 |   | 12.2 | % | 66.9 |   | 12.8 | % |
| Operating  expense before restructuring and other costs   |       | 20.1                                                |       | 7.0                                               | %          | 21.7 |   | 8.4 | % | 40.5 |   | 6.9 | % | 43.8 |   | 8.4 | % |
| Restructuring  and other costs                            |       | 10.3                                                |       | 3.6                                               | %          | 1.9 |   | 0.7 | % | 63.9 |   | 10.9 | % | 2.1 |   | 0.4 | % |
| Total operating  expenses                                 |       | 30.4                                                |       | 10.5                                              | %          | 23.6 |   | 9.1 | % | 104.4 |   | 17.8 | % | 45.9 |   | 8.8 | % |
| Operating income  (loss)                                  |       | $                                                   | 6.6        |                                              | 2.3        | % | $ | 9.3 |   | 3.6 | % | $ | (33.1 | ) | -5.6 | % | $ | 21.0 |   | 4.0 | % |
|                                                      |       |                                                |       |                                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating income  excluding restructuring and other costs |       | $                                                   | 16.9       |                                              | 5.8        | % | $ | 11.2 |   | 4.3 | % | $ | 30.8 |   | 5.2 | % | $ | 23.1 |   | 4.4 | % |

 

**Three Months Ended June 30, 2006 Compared with the ThreeMonths Ended June 30, 2005**

*Net Sales*

Netsales increased by $29.9 million, or 11.5%, to $289.1 million for the secondquarter of 2006 from $259.2 million for the three months ended June 30,2005. The increase was primarily due to a 7.3% increase in our average sellingprice and a 3.9% increase in our sales volumes.  See “Operating SegmentReview” below for a detailed discussion of sales volumes and selling prices bysegment and division.

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*Gross Profit*

Grossprofit increased by $4.1 million to $37.0 million for the second quarter of2006, from $32.9 million for the second quarter of 2005. This increase wasprimarily due to higher sales volume and improved sales mix.  See “OperatingSegment Review” below for a detailed discussion of the margin variances bysegment.

*Total Operating Expenses before Restructuring and OtherCosts*

Totaloperating expenses before restructuring and other costs decreased $1.6 million,or 7.4%, to $20.1 million for the second quarter of 2006 from $21.7 million forthe second quarter of 2005.  Research anddevelopment costs increased $0.1 million to $2.3 million for the second quarterof 2006 from $2.2 million in the second quarter of 2005, while sales, generaland administrative costs decreased $1.7 million to $17.8 million for the secondquarter of 2006 from $19.5 million in the second quarter of 2005 due to lowerbad debt, legal and hiring related expenses in 2006 than 2005.

*Restructuringand Other Costs*

Restructuringand other costs were $10.3 million for the second quarter of 2006, compared to$1.9 million for the second quarter of 2005. Restructuring and other costs in the second quarter of 2006 include$10.3 million of legal and financial advisory fees incurred in connection withthe Company’s bankruptcy proceedings. Restructuring and other costs in the second quarter of 2005 included$1.9 million in net costs to terminate the remaining equipment leasesassociated with our Shelbyville, Indiana facility, $0.1 million of costs forseverance and other costs associated with our Harrisville, Rhode Island plantclosure in 2004 and $0.2 million for severance costs recorded in connectionwith the sale of the Alliant assets, offset in part by reversals to income of$0.2 million of reserves from our previous corporate relocation and theshutdown of our Singapore operations. Restructuring costs associated with theCompany’s bankruptcy proceeding are recorded in the “Corporate/Other” segment,while restructuring costs for our Shelbyville, Indiana facility and the sale ofour Alliant assets are reflected in our Specialty Products Group results andrestructuring costs for Harrisville, Rhode Island are reflected in ourEngineered Films segment.

*Operating Income*

Operatingincome decreased by $2.7 million to $6.6 million for the second quarter of2006, from $9.3 million for the second quarter of 2005, due to restructuringcosts.  Excluding restructuring and othercosts, operating income increased $5.7 million or nearly 51% to $16.9 millionfor the three months ended June 30, 2006 compared to $11.2 million for thethree months ended June 30, 2005 due to factors mentioned above.

*Interest Expense*

Interestexpense on current and long-term debt decreased by $8.7 million to $20.5million for the three months ended June 30, 2006 from $29.2 million forthe three months ended June 30, 2005. This decrease was principally due tothe discontinuance, effective January 3, 2006, of the interest accrued on our2000/2002 Notes deemed impaired in connection with the Company’s financialreorganization.

Interestexpense associated with dividends and accretion of original issue discounts onthe Company’s Series A Preferred Stock pursuant to SFAS 150, was alsodiscontinued effective January 3, 2006, as these financial instruments werealso deemed impaired in connection with the Company’s financialreorganization.  Interest expenseassociated with the Series A Preferred Stock for the second quarter of 2005 was$9.7 million.

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*Other Income (Expense)*

Otherincome was negligible for the three months ended June 30, 2006, ascompared to other income of $4.1 million for the three months endedJune 30, 2005. The other income for the three months ended June 30,2005 included a $4.1 million gain on the sale of our Alliant assets in ourSpecialty Group Segment.

*Income Tax Expense*

Incometax expense for the three months ended June 30, 2006 was negligible onpretax losses of $14.0 million as compared to income tax expense of $0.4million on pretax losses of $25.5 million for the same period in 2005. Incometax benefits related to net operating losses in the United States were offsetby a valuation allowance as the realization of these tax benefits is notcertain. Therefore, the income tax expense in the statements of operationsprimarily reflects foreign income taxes.

*Loss From Continuing Operations*

Lossfrom continuing operations for the second quarter of 2006 of $14.0 millionincludes restructuring and other costs of $10.3 million compared to $2.0million in 2005.  Excluding restructuringand other costs, loss from continuing operations for the three months endedJune 30, 2006 was $3.7 million compared to a loss of $24.0 million for thethree months ended June 30, 2005.

*Discontinued Operations*

OnSeptember 30, 2004, we sold substantially all of the assets of ourwholly-owned subsidiary, Pliant Solutions Corporation.  Losses from thesediscontinued operations for the three months ended June 30, 2005 were $0.2million.

**Six Months Ended June 30, 2006 Compared with the SixMonths Ended June 30, 2005**

*Net Sales*

Netsales increased by $64.6 million, or 12.4%, to $586.7 million for the sixmonths ended June 30, 2006 from $522.1 million for the six months endedJune 30, 2005. The increase was primarily due to a 9.5% increase in ouraverage selling price resulting primarily from the pass through of increases inour raw material prices to customers and a 2.6% increase in sales volume. See “Operating Segment Review” below for a detailed discussion of sales volumesand selling prices by segment and division.

*Gross Profit*

Grossprofit increased by $4.4 million to $71.3 million for six months endedJune 30, 2006, from $66.9 million for the six months ended June 30,2005. This increase was primarily due to higher sales volume and improved salesmix.  See “Operating Segment Review” below for a detailed discussion ofthe margin variances by segment.

*Total Operating Expenses before Restructuring and OtherCosts*

Totaloperating expenses before restructuring and other costs decreased $3.3 million,or 7.5%, to $40.5 million for the six months ended June 30, 2006 from$43.8 million for the six months ended June 30, 2005. Research anddevelopment costs increased $0.4 million to $4.6 million for the six monthsended June 30, 2006 from $4.2 million for the six months endedJune 30, 2005, while sales, general and administrative costs decreased$3.7 million to $35.9 million six months ended June 30, 2006 from $39.6million for the six months ended June 30, 2005 due primarily to reductionsin bad debt provisions, legal fees and hiring expenses associated with topgrading of personnel.

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*Restructuringand Other Costs*

Restructuringand other costs in the six months ended June 30, 2006 were $63.9 million,compared to $2.1 million for the six months ended June 30, 2005.  Restructuring and other costs in 2006included the write-off of $15.8 million of unamortized capitalized financingfees associated with the issuance of our 13% Senior Subordinated Notes due 2010(2000/2002 Notes) and our Amended and Restated Credit Agreement, $5.9 millionin unamortized original issue discount, net of premiums, associated with theissuance of our 2000/2002 Notes and $24.6 million associated with the issuanceof our Series A Preferred Stock and $17.6 million of legal and financialadvisory fees incurred in connection with the Company’s bankruptcyproceedings.  The restructuring and othercosts for the six months ended June 30, 2005 included $1.9 million in net coststo terminate the remaining equipment leases associated with our Shelbyville,Indiana facility, $0.2 million costs were also recorded for severance andother costs associated with our Harrisville, Rhode Island plant closure in 2004and $0.2 million in severance costs were recorded in connection with the saleof our Alliant business, offset in part by reversals to income of $0.2 millionof reserves from our previous corporate relocation and the shutdown of ourSingapore operations as all costs for these programs have been incurred.Restructuring costs associated with the Company’s bankruptcy proceedings wererecorded in the “Corporate/Other” segment, which our Shelbyville, Indianafacility and the sale of our Alliant assets are reflected in our SpecialtyProducts Group results, and restructuring costs for Harrisville, Rhode Islandare reflected in our Engineered Films segment.

*Operating Income (Loss)*

Duringthe six months ended June 30, 2006, the Company recorded an operating loss of$33.1 million as a result of restructuring and other costs of $63.9million.  Excluding restructuring andother costs, operating income increased by $7.7 million to $30.8 million forthe six months ended June 30, 2006, from $23.1 million for the six months endedJune 30, 2005, due to higher sales volume, favorable product mix, andreductions of production waste.

*Interest Expense*

Interestexpense on current and long-term debt decreased by $15.3 million, or 27.5%, to$40.3 million for the six months ended June 30, 2006 from $55.6 millionfor the six months ended June 30, 2005. This decrease was principally dueto the discontinuance, effective January 3, 2006, of the interest accrued onour 2000/2002 Notes deemed impaired in connection with the Company’s financialreorganization. In addition, in the second quarter of 2005, we recorded chargesof $2.6 million for underwriting, legal and accounting fees associated with ourconsent solicitation from our 2004 Notes Noteholders.

Interestexpense associated with dividends and accretion of original issue discounts onthe Company’s Series A Preferred Stock pursuant to SFAS 150, was alsodiscontinued effective January 3, 2006, as these financial instruments werealso deemed impaired in connection with the Company’s financialreorganization.  Interest expenseassociated with the Series A Preferred Stock for the six months ended June 30,2005 was $19.0 million.

*Other Income (Expense)*

Otherincome was $0.1 million for the six months ended June 30, 2006, ascompared to other income of $3.9 million for the six months ended June 30,2005. The other income for the six months ended June 30, 2005 included a$4.1 million gain on sale of Alliant offset by $0.2 million of other lesssignificant items.

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*Income Tax Expense*

Incometax expense for the six months ended June 30, 2006 was $1.2 million onpretax losses from continuing operations of $73.6 million as compared to $1.3million on pretax losses from continuing operations of $50.0 million for thesame period in 2005. Income tax benefits related to net operating losses in theUnited States were offset by a valuation allowance as the realization of thesetax benefits is not certain. Therefore, the income tax expense in thestatements of operations primarily reflects foreign income taxes.

*Loss From Continuing Operations*

Lossfrom continuing operations increased by $23.8 million to $74.8 million for thesix months ended June 30, 2006, from $51.0 million for the six monthsended June 30, 2005, due to the factors discussed above.  Excluding restructuring and other costs, lossfrom continuing operations for the six months ended June 30, 2006 was $11.0million compared to a loss of $48.9 million for the six months ended June 30,2005.

*Discontinued Operations*

OnSeptember 30, 2004, we sold substantially all of the assets of ourwholly-owned subsidiary, Pliant Solutions Corporation.  Loss from thesediscontinued operations for the six months ended June 30, 2005 was $0.6million.

**Operating Segment Review**

*General*

Weevaluate the performance of our operating segments based on net sales (excludinginter-company sales) and segment profit.  The segment profit reflectsincome from continuing operations before interest expense, income taxes,depreciation, amortization, restructuring costs and other non-cashcharges.  For more information on our operating segments, including areconciliation of segment profit to income before taxes, see Note 10 to thecondensed consolidated financial statements included elsewhere in this report.

We havethree operating segments: Engineered Films, Industrial Films and SpecialtyProducts Group.  During the first quarterof 2006, we streamlined our executive management team and merged ourPerformance Films operating segment, which manufactures a variety of barrierand custom films for smaller niche flexible packaging and industrial marketsinto our Specialty Products Group. Segment information in this report for 2005 has been restated to reflectthis reorganization.

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Summaryof segment information (in millions of dollars):
| ** **                            | ** ** | ** **     | ** ** | ** **     | ** ** | **Specialty** | ** ** | ** **     | ** ** | ** ** | ** ** |
|---------------------------------------|------------|----------------|------------|----------------|------------|---------------|------------|----------------|------------|------------|------------|
| ** **                            | ** ** | **Engineered** | ** ** | **Industrial** | ** ** | **Products**  | ** ** | **Corporate/** | ** ** | ** ** | ** ** |
| ** **                            | ** ** | **Films**      | ** ** | **Films**      | ** ** | **Group**     | ** ** | **Other**      | ** ** | **Total**  | ** ** |
|                                  |       |           |       |           |       |          |       |           |       |       |       |
| **Three  months ended June 30, 2006** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                             |       | $              | 70.2       |           | $          | 80.7          |       | $              | 136.4      |       | $          | 1.8 |   | $ | 289.1 |   |
| Segment profit  (loss)                |       | 10.0           |       | 6.7            |       | 17.2          |       | (7.1           | )          | 26.8       |       |
|                                  |       |           |       |           |       |          |       |           |       |       |       |
| **Three  months ended June 30, 2005** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                             |       | $              | 58.9       |           | $          | 73.2          |       | $              | 125.4      |       | $          | 1.7 |   | $ | 259.2 |   |
| Segment profit  (loss)                |       | 6.6            |       | 5.3            |       | 19.6          |       | (6.3           | )          | 25.2       |       |
|                                  |       |           |       |           |       |          |       |           |       |       |       |
| **Six  months ended June 30, 2006**   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                             |       | $              | 142.3      |           | $          | 158.8         |       | $              | 281.8      |       | $          | 3.8 |   | $ | 586.7 |   |
| Segment profit  (loss)                |       | 17.8           |       | 14.2           |       | 32.7          |       | (13.8          | )          | 50.9       |       |
|                                  |       |           |       |           |       |          |       |           |       |       |       |
| **Six  months ended June 30, 2005**   | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                             |       | $              | 118.5      |           | $          | 146.0         |       | $              | 253.3      |       | $          | 4.3 |   | $ | 522.1 |   |
| Segment profit  (loss)                |       | 14.3           |       | 11.5           |       | 35.2          |       | (14.0          | )          | 47.0       |       |

 

**Three months ended June 30, 2006 compared with the threemonths ended June 30, 2005**

*Engineered Films*

*Net Sales*.  Net sales in EngineeredFilms increased by $11.3 million, or 19.2%, to $70.2 million for the quarterended June 30, 2006 from $58.9 million for 2005. This increase was due toan increase in our average selling prices of 11.9%, principally due to thepass-through of raw material price increases and improvements in our sales mix,and an increase in sales volume of 6.6%, primarily in our personal care andmedical and converter films markets.

*Segment profit*.  The Engineered Filmssegment profit was $10.0 million for the quarter ended June 30, 2006, ascompared to $6.6 million for the same period in 2005.  This increase insegment profit was primarily due to $1.8 million in higher gross margins onincreased sales volumes, and $1.6 million expansion between average sellingprice and average raw material costs.

*Industrial Films*

*Net sales*.  The net sales of ourIndustrial Films segment increased by $7.5 million, or 10.2%, to $80.7 millionfor the quarter ended June 30, 2006 from $73.2 million for the quarterended June 30, 2005. This increase was due primarily to an increase in ouraverage selling prices of 6.7%, resulting from the pass through of raw materialprice increases and higher sales of value added products and a 3.2% increase insales volume, primarily in our PE Stretch Division.

*Segment profit*.  The Industrial Filmssegment profit was $6.7 million for the quarter ended June 30, 2006, ascompared to $5.3 million for the same period in 2005.  This $1.4 millionincrease in segment profit was due to improved plant efficiencies and increasedsales of value-added products.

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*Specialty Products Group*

*Net sales*.  The net sales of ourSpecialty Products Group segment increased $11.0 million, or 8.8% to $136.4million for the quarter ended June 30, 2006 from $125.4 million for thequarter ended June 30, 2005. This increase reflects a 6.0% increase in ouraverage selling prices due to recovery of resin price increases, primarily inour Printed Products Films division and a sales volume increase of 2.6% due toincreased sales in personal care and medical films.

Netsales in our Specialty Films division increased $3.2 million, or 7.0%, to $49.1million for the quarter ended June 30, 2006 from $45.9 million for thequarter ended June 30, 2005. This increase reflects an increase in ouraverage selling prices of 7.6% offset by a decrease in sales volume of 0.5% asa result of a decrease in the sales of agricultural films.  Net sales in our Printed Products Filmsdivision increased $7.7 million, or 9.7%, to $87.3 million for the quarterended June 30, 2006 from $79.6 million for the quarter ended June 30,2005. This increase reflects an increase in our average selling prices of 4.6%and an increase in sales volume of 5.0% due to increased sales of personal carepackaging films.

*Segment profit*.  The SpecialtyProducts Group segment profit was $17.2 million for the quarter endedJune 30, 2006, as compared to $19.6 million for the quarter endedJune 30, 2005. This $2.4 million decrease is primarily attributable to a$1.7 million gain in the second quarter of 2006 due to increased volumes inpersonal care and medical films and a recovery of resin price increases in ourPrinted Products Films division, which was more than offset by a $4.1 milliongain on sale of Alliant’s assets recorded in 2005.

*Corporate/Other*

Corporate/Otherincludes our corporate headquarters in Schaumburg, Illinois and our researchand development facility in Newport News, Virginia. Unallocated corporateexpenses increased by $0.8 million to $7.1 million for the quarter ended June,2006, from $6.3 million for the quarter ended June 30, 2005.  Thisincrease was primarily due to an increase in payroll related costs.

**Six months ended June 30, 2006 compared with the sixmonths ended June 30, 2005**

*Engineered Films*

*Net Sales*.  Net sales in EngineeredFilms increased by $23.8 million, or 20.0%, to $142.3 million for the sixmonths ended June 30, 2006 from $118.5 million the six months endedJune 30, 2005. This increase was due to an increase in our average sellingprices of 13.0%, principally due to the pass-through of raw material priceincreases and improvements in our sales mix and a 6.2% increase in salesvolume, primarily in our personal care and medical and converter film salesmarkets.

*Segment profit*.  The Engineered Filmssegment profit was $17.8 million for the six months ended June 30, 2006,as compared to $14.3 million for the same period in 2005.  This increasein segment profit was primarily due to $2.6 million of higher gross marginsfrom sales volume increases and to a $1.2 million expansion between our averageselling price and average raw material costs.

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*Industrial Films*

*Net sales*.  The net sales of ourIndustrial Films segment increased by $12.8 million, or 8.8%, to $158.8 millionfor six months ended June 30, 2006 from $146.0 million for the six monthsended June 30, 2005. This increase was due to an increase in our averageselling prices of 9.1%, primarily from the pass through of raw material priceincreases and an improved sales mix, offset by a 0.3% decline in sales volume.

*Segment profit*.  The Industrial Filmssegment profit was $14.2 million for the six months ended June 30, 2006,as compared to $11.5 million for the same period in 2005.  This $2.7million increase in segment profit was due to improved plant efficiencies,favorable SG&A expenditure levels between years and increased sales ofvalue-added products.

*Specialty Products Group*

*Net sales*.  The net sales of ourSpecialty Products Group segment increased $28.5 million, or 11.3% to $281.8million for the six months ended June 30, 2006 from $253.3 million for thesix months ended June 30, 2005. This increase reflects an 8.4% increase inour average selling prices due to recovery of resin price increases and animproved mix in our Printed Products Films division; and a sales volumeincrease of 2.7% due to increased sales of personal care and medical films.

Netsales in our Specialty Films division increased $8.5 million, or 8.9%, to $104.2million for the six months ended June 30, 2006 from $95.7 million for thesix months ended June 30, 2005. This increase reflects an increase in ouraverage selling prices of 10.2% offset by a decrease in sales volume of1.2%. Net sales in our Printed Products Films division increased $20.1million, or 12.7%, to $177.6 million for the six months ended June 30,2005 from $157.5 million for the six months ended June 30, 2005. Thisincrease reflects an increase in our average selling prices of 6.4% and an increasein sales volume of 6.0% due to growth in bakery, cereal and personal carepackaging films.

*Segment profit*.  The SpecialtyProducts Group segment profit was $32.7 million for the six months endedJune 30, 2006, as compared to $35.2 million for the six months endedJune 30, 2005. This $2.5 million decrease is primarily attributable to a$4.1 million gain on sale of Alliant’s assets recognized in 2005. Excludingthis prior year gain, segment profit increased $1.6 million due to increasedsales of personal care and medical films and a value added mix of printedproducts.

*Corporate/Other*

Corporate/Otherincludes our corporate headquarters in Schaumburg, Illinois and our researchand development facility in Newport News, Virginia. Unallocated corporate expensesdecreased by $0.2 million to $13.8 million for the six months endedJune 30, 2006, from $14.0 million for the six months ended June 30,2005, primarily due to a decrease in payroll related costs.

**Liquidity and Capital Resources**

*Sources of capital*

Our principal sources of funds have been cashgenerated by our operations and borrowings under our revolving credit facility.In addition, we have raised funds through the issuance of our 13% SeniorSubordinated Notes due 2010 (the “2000/2002 Notes”), 111¤8%Senior Secured Notes due 2009 (the “2003 Notes”), 111¤8% SeniorSecured Discount Notes due 2009 (the “2004 Notes”), and the sale of shares ofour preferred stock.

Asof June 30, 2006 our outstanding long-term debt consisted of $7.6 millionin capital leases. The current portion of our long-term debt and debt indefault as of June 30, 2006 consisted of: $285.4 million of our 115¤8%Senior Secured Notes due 2009 (the “Amended 2004 Notes”), $7.4 million ofour 2004 Notes, $250.0 million of our 2003 Notes and $1.3 million incapital leases.

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*Revolving CreditFacility*

On November 21, 2005, the Company entered into anamended revolving credit facility providing up to $140 million of totalavailability (the “Amended and Restated Credit Agreement”). The Amended andRestated Credit Agreement included a $25 million letter of credit sub-facility,with letters of credit reducing availability under the Amended and RestatedCredit Agreement.

On December 31, 2005, an Event of Default occurredunder the Amended and Restated Credit Agreement as a result of our failure tomake the interest payments due on December 1, 2005 under the 2000/2002 Notesdescribed below.

Upon the bankruptcy filing and execution of the DIPCredit Facility described below, the commitments under the Amended and RestatedCredit Agreement were terminated. The $130.9 million of borrowings as ofDecember 31, 2005 remained outstanding as of June 30, 2006, have beenclassified as liabilities subject to compromise and were refinanced uponemergence from bankruptcy through the Exit Credit Facilities described below. Theinterest rates were (i) on $20 million outstanding under the Amended andRestated Credit Agreement, LIBOR plus 6.50% or Alternate Base Rate (eitherprime rate or .50% over the Federal Funds Rate, if higher) plus 5.25% and (ii) onadditional amounts outstanding, LIBOR plus 2.75% or Alternate Base Rate plus1.50%. The commitment fee for the unused portion of the Amended and RestatedCredit Agreement was 0.50% per annum.

*DIP Credit Facility*

On January 4, 2006, we entered into a Senior Secured,Super Priority, Priming Debtor-in-Possession Credit Agreement, dated as ofJanuary 4, 2006 (the “DIP Credit Facility”), among the Company and certainother Debtors, as joint and several borrowers, General Electric CapitalCorporation, as administrative agent, collateral agent and lender, MorganStanley Senior Funding, Inc., as syndication agent and lender, and the lendersfrom time to time party thereto.

As of June 30, 2006, the Company had made no borrowingsand had approximately $44.2 million of availability under the DIP CreditFacility. The DIP Credit Facility was terminated upon emergence frombankruptcy.

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*Exit Credit Facilities*

On July 18, 2006,the Company and certain of its subsidiaries entered into a Working CapitalCredit Agreement with the lenders party thereto, Merrill Lynch Bank USA, asadministrative agent (the “Administrative Agent”), and Merrill Lynch CommercialFinance Corp., as sole lead arranger and book manager (the “Working CapitalCredit Agreement”). Also on July 18, 2006, Pliant Corporation Pty Ltd., PliantCorporation of Canada Ltd., Pliant Film Products GmbH and Aspen Industrial,S.A. de C.V. (collectively, the “Fixed Asset Borrowers”) entered into a FixedAsset Credit Agreement with the lenders party thereto, Merrill Lynch Bank USA,as administrative agent, and Merrill Lynch Commercial Finance Corp., as solelead arranger and book manager (the “Fixed Asset Credit Agreement, and togetherwith the Working Capital Credit Agreement, the “Exit Credit Facilities”). TheExit Credit Facilities were funded on July 18, 2006, and replace the Company’sprior credit facilities.

The Exit CreditFacilities provide up to $200 million of total commitments, subject to theborrowing base described below and a required minimum availability amount of atleast $10 million. The Working Capital Credit Agreement includes a $20 millionletter of credit sub-facility, with letters of credit reducing availabilitythereunder, and each of the Exit Credit Facilities includes sub-limits forloans to certain of the foreign subsidiaries of the Company which are borrowersunder the Exit Credit Facilities.

The Working CapitalCredit Agreement is secured by a first-priority security interest insubstantially all our inventory, receivables and deposit accounts, capitalstock of, or other equity interests in, our existing and future domesticsubsidiaries and first-tier foreign subsidiaries, investment property andcertain other assets of the Company and its subsidiaries and a second-prioritysecurity interest in fixed assets of the Company and its subsidiaries party tothe Working Capital Credit Agreement. The Fixed Asset Credit Agreement issecured by a first-priority security interest in the fixed assets of certainforeign subsidiaries of the Company and a second-priority security interest incapital stock of the Fixed Asset Borrowers and their subsidiaries. The ExitCredit Facilities will mature on July 18, 2011.

The interest ratesfor all loans other than those made to the Company’s German subsidiary rangefrom, in the case of alternate base rate loans, the alternate base rate (eitherprime rate or .50% over the Federal Funds Rate) plus 1.75% to the alternatebase rate plus 2.00% and, in the case of eurodollar loans, LIBOR plus 2.75% toLIBOR plus 3.00%, in each case depending on the amount of available credit. Theinterest rates for loans made in connection with the loans to the Company’sGerman subsidiary are, in the case of alternate base rate loans, the alternatebase rate plus 5.00% and, in the case of eurodollar loans, LIBOR plus 6.00%. Thecommitment fee for the unused portion of the Exit Credit Facilities is 0.375%per annum.

The borrowing baseunder the Working Capital Credit Agreement is based on specified percentages ofthe Company’s and its subsidiaries’ party thereto eligible accounts receivable,finished goods inventory, work in process and raw material inventory minuscertain reserves. The borrowing base under the Fixed Asset Credit Agreement isbased on specified percentages of the Company’s and its subsidiaries’ partythereto eligible real estate valued at market value plus the net orderlyliquidation value of eligible machinery and equipment minus certain reserves.

The Exit Credit Facilitiescontain covenants that will limit the ability of the Company and itssubsidiaries, subject to certain exceptions, to, among other things, incur orguarantee additional indebtedness, issue preferred stock or become liable inrespect of any obligation to purchase or redeem stock, create liens, merge orconsolidate with other companies, change lines of business, make certain typesof investments, sell assets, enter into certain sale and lease-back and swaptransactions, pay dividends on or repurchase stock, make distributions withrespect to certain debt obligations, enter into transactions with affiliates,restrict dividends or other payments from the Company’s subsidiaries, modifycorporate and certain material debt documents, cancel certain debt, or changeits fiscal year or accounting policies. The Exit Credit Facilities also requirethe Company to comply with a monthly minimum fixed charge coverage ratio of1.00 to 1.00 for the first year of the facility and of 1.10 to 1.00 thereafter; provided, that such coverage ratio shallonly apply during periods in which the amount of availability is and remainsless than $20,000,000 for a specified number of days. Once the amount ofavailability increases and remains above $20,000,000 for a specified number ofdays, such coverage ratio becomes inapplicable.

*11*5¤8% SeniorSecured Notes due 2009 (the “Amended 2004 Notes”)

On June 30, 2006, we had$285.4 million of Amended 2004 Notes outstanding. The Amended 2004 Notesaccrued payment-in-kind interest from the date of issuance through June 30,2006 at the rate of 115¤8%.Thereafter, the Amended 2004 Notes continued to accrue interest at such rateuntil July 18, 2006, on which date the interest rate was increased by .225% to11.85% in accordance with the Fourth Amended Plan. Such incremental interestrate increase of .225% also accrues as payment-in-kind interest. The Amended2004 Notes mature on June 15, 2009 and interest is payable semi-annually oneach June 15 and December 15.

The Amended 2004 Notesare secured on a first-priority basis by a security interest in our realproperty, fixtures, equipment, intellectual property and other assets otherthan the Second-Priority Note Collateral (the “First-Priority Note Collateral”)and on a second-priority basis by a security interest in substantially all ourinventory, receivables and deposit accounts, 100% of the capital stock of, orother equity interests in existing and future domestic subsidiaries and foreignsubsidiaries that are note guarantors, 65% of the capital stock of, or otherequity interests in existing and future first-tier foreign subsidiaries thatare not note guarantors, investment property and certain other assets of theCompany and the note guarantors (the “Second-Priority Note Collateral”). TheAmended 2004 Notes are guaranteed by our existing and future domesticrestricted subsidiaries and certain foreign subsidiaries.

Prior to June 15, 2007,we may redeem up to 35% of the principal amount of the Amended 2004 Notes withthe net cash proceeds of certain equity offerings by us at a redemption priceequal to 111.625% of the sum of the principal amount plus accrued and unpaidinterest, provided that after giving effect to such redemption (i) at least 65%of the principal amount of the notes remain outstanding and (ii) any suchredemption by us is made within 120 days after such equity offering.

On or after June 15, 2007, we may redeem some or allof the Amended 2004 Notes at the following redemption prices (expressed aspercentages of the sum of the principal amount plus accrued and unpaidinterest); 111.625% if redeemed on or after June 15, 2007 and prior to December15, 2007; 108.719% if redeemed on or after December 15, 2007 and prior to June15, 2008; 105.813% if redeemed on or after June 15, 2008 and prior to December15, 2008; 102.906% if redeemed on or after December 15, 2008 and prior to June15, 2009; and 100.000% if redeemed on June 15, 2009.

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*11**1**¤**8% Senior Secured Discount Notes due2009 (or the “2004 Notes”)*

On June 30, 2006, we had $7.4 million of 2004 Notesoutstanding. The 2004 Notes accreted from the date of issuance through June 30,2006 at the rate of 111¤8%.Thereafter, the 2004 Notes continued to accrete at such rate until July 18,2006, on which date the interest rate was increased by .225% to 11.35% inaccordance with the Fourth Amended Plan. The 2004 Notes will accrete at therate of 11.35% until December 15, 2006 to an aggregate principal amount of $1,000.88per $1,000 stated principal amount. Commencing on December 15, 2006, intereston the 2004 Notes will accrue at the rate of 11.35% with such incrementalinterest rate increase of .225% accruing as payment-in-kind interest and theremaining 111¤8%payable in cash semiannually on June 15 and December 15, commencing on June 15,2007. The 2004 Notes mature on June 15, 2009.

The 2004 Notes are secured by a first-prioritysecurity interest in the First-Priority Note Collateral and a second-prioritysecurity interest in the Second-Priority Note Collateral. The 2004 Notes areguaranteed by our existing and future domestic restricted subsidiaries andcertain foreign subsidiaries.

Prior to June 15, 2007,we may redeem up to 35% of the accreted value of the 2004 Notes with the netcash proceeds of certain equity offerings by us at a redemption price equal to111.125% of the accreted value thereof plus accrued interest, so long as (i) atleast 65% of the accreted value of the notes remains outstanding after such redemptionand (ii) any such redemption by us is made within 120 days after such equityoffering. On or after June 15, 2007, we may redeem some or all of the 2004Notes at the following redemption prices (expressed as percentages of the sumof the principal amount plus accrued and unpaid interest): 105.563% if redeemedon or after June 15, 2007 and prior to June 15, 2008; 102.781% if redeemed onor after June 15, 2008 and prior to June 15, 2009; and 100.00% if redeemed onJune 15, 2009.

*11**1**¤**8% Senior Secured Notes due 2009 (the“2003 Notes”)*

On June 30, 2006, we had $250 million of 2003 Notesoutstanding. The 2003 Notes accrued interest from the date of issuance throughJune 30, 2006 at the rate of 111¤8% and willcontinue to accrue interest at such rate through the date of maturity. The 2003Notes mature on September 1, 2009 and interest is payable in cash semiannuallyon each March 1 and September 1. On July 18, 2006, in accordance with theFourth Amended Plan, we paid to the trustee with respect to the 2003 Notes, forfurther distribution to the holders thereof, an aggregate cash payment of $18.5million, $14.5 million of which represented the interest payment due on March1, 2006 plus interest on such unpaid interest and the balance of which was a $4million consent fee.

The 2003Notes rank equally with our existing and future senior debt and rank senior toour existing and future subordinated indebtedness, including the 13% SeniorSubordinated Notes due 2010. The 2003Notes are secured by a second priority security interest in both the FirstPriority Note Collateral and the Second Priority Note Collateral. The 2003Notes are guaranteed by some of our subsidiaries.

Prior to June 1, 2007, we may, redeem up to 35% of theoriginal aggregate principal amount of the 2003 Notes with the net cashproceeds of one or more equity offerings by us at a redemption price equal to111.125% of the principal amount thereof, plus accrued and unpaid interest. Onor after June 1, 2007, we may redeem some or all of the 2003 Notes at thefollowing redemption prices (expressed as a percentage of the sum of theprincipal amount plus accrued and unpaid interest): 105.563% if redeemed on orafter June 1, 2007 and prior to June 1, 2008; 102.781% if redeemed on or afterJune 1, 2008 and prior to June 1, 2009; and 100% if redeemed on or after June 1,2009.

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*13% SeniorSubordinated Notes due 2010 (the “2000/2002 Notes”)*

As of June 30, 2006, we had $320 million of 2000/2002Notes outstanding. Upon emergence from bankruptcy, the 2000/2002 Notes wereexchanged for a combination of new debt, new preferred stock, new common stockand a $3.2 million cash consent fee.

*Preferred stock*

As of June 30, 2006, we had approximately $289.2 millionof Series A Cumulative Exchangeable Redeemable Preferred Stock outstanding,which was considered impaired within the meaning of section 1124 of theBankruptcy Code. Accordingly, the related liquidation value and accrueddividends through January 2, 2006 have been classified as liabilities subjectto compromise in our consolidated balance sheet. Upon emergence frombankruptcy, the Series A Preferred Stock was exchanged for a combination of newpreferred stock and new common stock.

In addition, as ofJune 30, 2006, we had $0.1 million of Series B Redeemable Preferred Stockoutstanding. Upon emergence from bankruptcy, the Series B Preferred Stock wascancelled and certain holders received a cash payment in respect of theirshares.

*Net Cash Providedby/Used in Operating Activities*

Net cash provided by operating activities was $42.8million for the six months ended June 30, 2006, an increase of $38.2 million,compared to net cash provided by operating activities of $4.6 million for thesame period in 2005. This increase was due primarily to reductions in workingcapital of $30.0 million for the six months ended June 30, 2006 compared to$1.7 million for the six months ended June 30, 2005. Accounts receivable andinventories on a combined basis increased $5.4 million in the six months endedJune 30, 2006 compared to a decrease of $8.8 million in the six months endedJune 30, 2005. Accounts payable and accrued liabilities on a combined basisincreased $30.0 million in the six months ended June 30, 2006 compared to anincrease of $9.7 million for the six months ended June 30, 2005. Other assets,which included $7.3 million of cash collateralized letters of credit as ofDecember 31, 2005, decreased $6.5 million as the cash collateralization on $6.5million of these letters credit was no longer required as of June 30, 2006.

*Net Cash Used inInvesting Activities*

Net cash used in investing activities increased $6.9million to $18.4 million for the six months ended June 30, 2006, from $11.4million for the six months ended June 30, 2005 primarily due to an increase incapital expenditures of $1.7 million and to $5.2 million in proceeds from saleof Alliant assets in 2005.

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*Net CashProvided by/Used in Financing Activities*

Net cash used in financing activities was $2.6 millionfor the six months ended June 30, 2006, compared to net cash provided byfinancing activities of $5.9 million for the six months ended June 30, 2005.Activity for the first six months of 2006 included $1.0 million payment ofarrangement fees associated with our DIP revolving credit facility, $0.65million of fees associated with our exit financing and $1.3 million ofrepayments of capital leases. The activity for the first six months of 2005included borrowings under the revolving credit facility of $14.8 million,offset by payments of $7.5 million in financing fees and $1.4 millionrepayments of capital lease and insurance financing.

**Liquidity**

As of June 30, 2006, we had approximately $159.9million of working capital excluding current maturities of long term debt anddebt in default and approximately $33.7 million in cash and cash equivalents. Aportion of our cash and cash equivalents are held by our foreign subsidiaries.Repatriation tax rates may make it economically unattractive to access cash andcash equivalents generated by our foreign operations for use in our U.S.operations, including to pay principal and interest on outstanding borrowings.

As of June30, 2006, we had approximately $130.9 million of outstanding borrowings underthe Amended and Restated Credit Agreement, all of which was refinanced throughthe Exit Credit Facilities. The Exit Credit Facilities provide up to$200 million of total commitments, subject to the borrowing base described aboveand a required minimum availability amount of at least $10 million. As of August10, 2006, we had outstanding borrowings of approximately $127.9 million andapproximately $40.8 million of availability under the Exit Credit Facilities.As of August 10, 2006, we had an aggregate of $12.0 million of cash on hand inthe U.S., Canada, Mexico and Australia.

The Company currently believes that cash flow fromoperations and amounts available under the Exit Credit Facilities will beadequate to address our foreseeable liquidity needs in the normal course ofbusiness.

**Off-Balance SheetArrangements.**

***Not applicable.***

**CautionaryStatement for Forward-Looking Information**

Certain information set forth in this report contains “forward-lookingstatements” within the meaning of federal securities laws. Forward-lookingstatements include statements concerning our plans, objectives, goals,strategies, future events, future revenues or performance, capitalexpenditures, financing needs, plans or intentions relating to acquisitions,business trends, and other information that is not historical information. Whenused in this report, the words “estimates,” “expects,” “anticipates,” “forecasts,”“plans,” “intends,” “believes” and variations of such words or similarexpressions are intended to identify forward-looking statements. We may alsomake additional forward-looking statements from time to time. All suchsubsequent forward-looking statements, whether written or oral, by us or on ourbehalf, are also expressly qualified by these cautionary statements.

All forward-looking statements, including, without limitation,management’s examination of historical operating trends, are based upon ourcurrent expectations and various assumptions. Our expectations, beliefs andprojections are expressed in good faith and we believe there is a reasonablebasis for them. But, there can be no assurance that management’s expectations,beliefs and projections will result or be achieved. All forward-lookingstatements apply only as of the date made. We undertake no obligation topublicly update or revise forward-looking statements which may be made toreflect events or circumstances after the date made or to reflect theoccurrence of unanticipated events.

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There are a number ofrisks and uncertainties that could cause our actual results to differmaterially from the forward-looking statements contained in or contemplated bythis report. These risks include, but are not limited to: general economic andbusiness conditions, particularly an economic downturn; continuing losses andcharges against earnings resulting from restructuring or the impairment ofassets; industry trends; risks of high leverage and any increases in ourleverage; interest rate increases; changes in our ownership structure; rawmaterial costs and availability, particularly resin; the timing and extent towhich we pass through resin cost changes to our customers; changes in creditterms from our suppliers; competition; the loss of any of our major customers;changes in demand for our products; new technologies; changes in distributionchannels or competitive conditions in the markets or countries where weoperate; costs of integrating any future acquisitions; loss of our intellectualproperty rights; foreign currency fluctuations and devaluations and politicalinstability in our foreign markets; changes in our business strategy ordevelopment plans; availability, terms and deployment of capital; availabilityof qualified personnel; labor relations and work stoppages; increases in thecost of compliance with laws and regulations, including environmental laws andregulations; and other risks and uncertainties listed or described from time totime in reports we periodically file with the SEC. Each of these risks andcertain other uncertainties are discussed in more detail in the 2005 Form 10-K.There may be other factors, including those discussed elsewhere in this reportthat may cause our actual results to differ materially from the forward-lookingstatements. Any forward-looking statements should be considered in light ofthese factors.

**ITEM3.**                    QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various interest rate and resinprice risks that arise in the normal course of business. We regularly evaluatethe advisability of entering into interest rate hedging agreements to manageinterest rate market risks and commodity hedging agreements to manage resinmarket risks. However, significant increases in interest rates or the price ofresins could adversely affect our operating margins, results of operations andability to service our indebtedness.

Our revolving credit facility is at a variable rate ofinterest. An increase of 1% in interest rates would result in an additional$1.3 million of annual interest expense based on our revolving credit facilitybalance of $130.9 million as of June 30, 2006.

Our raw material costs are comprised primarily ofresins. Our resin costs comprised approximately 65% of our total manufacturingcosts. Market risk arises from changes in resin costs. Although the averageselling prices of our products generally increase or decrease as the cost ofresins increases or decreases, the impact of a change in resin prices is moreimmediately reflected in our raw material costs than in our selling prices. Inprior years, we entered into commodity collar agreements to manage resin marketrisks. At June 30, 2006, we did not have any commodity collar agreementsoutstanding. Prices for resin have dropped dramatically during 2006 and areexpected to continue to decline.

Fluctuations in exchange rates may also adverselyaffect our financial results. The functional currencies for our foreignsubsidiaries are the local currency. As a result, certain of our assets andliabilities, including certain bank accounts, accounts receivable and accountspayable, exist in non U.S. dollar-denominated currencies, which are sensitiveto foreign currency exchange rate fluctuations.

We enter into certain transactions denominated inforeign currencies but, because of the relatively small size of each individualcurrency exposure, we have not ordinarily employed hedging techniques designedto mitigate foreign currency exposures. Gains and losses from thesetransactions are immaterial and are reflected in the results of operations.

We are exposed to credit losses in the event ofnonperformance by the counterparty to a financial instrument to which we are aparty. We anticipate, however, that each of the counterparties to the financialinstruments to which we are a party will be able to fully satisfy itsobligations under the contract.

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**ITEM 4.**                    CONTROLS AND PROCEDURES

**Evaluation of Disclosure Controls and Procedures**

Wemaintain disclosure controls and procedures that are designed to ensure thatinformation required to be disclosed in our filings under the SecuritiesExchange Act of 1934 is recorded, processed, summarized and reported within theperiods specified in the rules and forms of the Securities and ExchangeCommission. This information is accumulated and communicated to our management,including our principal executive officer and our principal financial officer,as appropriate, to allow timely decisions regarding required disclosure. Ourmanagement, including our principal executive officer and our principalfinancial officer, recognizes that any set of controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives.

Underthe supervision and with the participation of our management, including ourprincipal executive officer and principal financial officer, we conducted anevaluation of our disclosure controls and procedures as of the end of theperiod covered by this report. Based on this evaluation, our principalexecutive officer and principal financial officer concluded that our disclosurecontrols and procedures are effective in alerting them on a timely basis tomaterial information required to be disclosed in our periodic filings.

**Changes in Internal Controls**

Therewere no significant changes in our internal controls during the quarter or inother factors that could significantly affect these controls subsequent to thedate of the evaluation referenced in the foregoing paragraph.

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**PART II.   OTHER INFORMATION**

**ITEM1.**                    LEGALPROCEEDINGS

On January 3, 2006, Pliant Corporation and tensubsidiaries (collectively, the “Debtors”) filed voluntary petitions in theUnited States Bankruptcy Court for the District of Delaware (the “BankruptcyCourt”) seeking relief under the provisions of chapter 11 of title 11 of theUnited States Code (the “Bankruptcy Code”) (the “Chapter 11 Cases”). TheChapter 11 Cases were jointly administered under the caption “In re: PliantCorporation, et al., Case No. 06-10001”. Three of our subsidiaries withCanadian operations commenced ancillary proceedings in a Canadian court torecognize the Chapter 11 proceedings as “foreign proceedings” pursuant toCanada’s Companies’ Creditors Arrangement Act. Pliant’s subsidiaries in Australia,Germany and Mexico were not included in the bankruptcy filings.

On April 18, 2006, the Debtors filed with theBankruptcy Court the Debtors’ Second Amended Joint Plan of Reorganization,along with certain exhibits thereto, and the Amended Disclosure Statement forDebtors’ Second Amended Joint Plan of Reorganization (the “Amended DisclosureStatement”), along with certain exhibits thereto. On April 18, 2006, theBankruptcy Court approved the Amended Disclosure Statement as containingadequate information within the meaning of section 1125 of the Bankruptcy Codeand authorized the Debtors to distribute the Amended Disclosure Statement,including all exhibits thereto, to all holders of claims and interests againsteach of the Debtors. On June 5, 2006, the Debtors filed with the BankruptcyCourt the Debtors’ Third Amended Joint Plan of Reorganization. On June 16,2006, the Company reached an agreement with representatives of its key classesof bondholders and shareholders in the Chapter 11 Cases. On June 19, 2006,consistent with the terms of this agreement, the Debtors filed with theBankruptcy Court the Debtors’ Fourth Amended Joint Plan of Reorganization (the “FourthAmended Plan”) which was approved by the Bankruptcy Court on June 23, 2006. OnJuly 18, 2006, the Company consummated its reorganization through a series oftransactions contemplated in the Fourth Amended Plan. On July 18, 2006, theCompany filed with the Bankruptcy Court a Notice of Effective Date of Debtors’Fourth Amended Joint Plan of Reorganization and Bar Date for Certain Claims(the “Notice”) announcing the effectiveness of the Fourth Amended Plan.

On May 4, 2006, Richard P. Durham and Durham CapitalL.L.C. filed a Proof of Claim for $11,747,513.40 against Pliant Corporation inthe Bankruptcy Court. The Proof of Claim alleged that, pursuant to rightscreated by an Employment Agreement dated May 31, 2000 between the Company andRichard P. Durham governing the repurchase of shares of capital stock in theevent that Mr. Durham’s employment terminated, Mr. Durham has a claim against theCompany composed of three elements: 1) payment for 18,200 shares of CommonStock in the amount of $8,792,966.00; 2) payment for 1232 shares of Series APreferred Stock in the amount of $2,350,415.50; and 3) payment for warrants for1,250.48 shares of Common Stock, less the exercise price ($0.01 per share), inthe amount of $604,131.90. On June 30, 2006, the Company filed a Complaint andObjection with the Bankruptcy Court seeking a determination of the status andrights associated with the claim of Richard P. Durham and Durham Capital,L.L.C. described above and objecting to the Durham parties’ claim by submittingthat: 1) the claim should be disallowed in its entirety pursuant to theBankruptcy Code; and 2) in the event that it is determined that the Durhamclaim constitutes a “claim” within the meaning of the Bankruptcy Code, theclaim should be subordinated pursuant to the Bankruptcy Code because it is aclaim for damages arising out of the purchase or sale of securities. TheCompany’s June 30, 2006 Complaint and Objection also asserted a claim againstthe Durham parties related to the repurchase by the Company of other shares ofcommon stock in October and December 2002. On July 25, 2006, Richard P. Durham andDurham Capital, L.L.C. filed an Answer and Counterclaim in response to theCompany’s Complaint and Objection asserting a counterclaim for Breach ofContract and seeking $11,747,513.40 in damages. The Bankruptcy Court hasscheduled a hearing on these matters to begin on October 10, 2006.

 For adiscussion of the patent infringement lawsuit filed by the Company against MSCMarketing & Technology, Inc., d/b/a Sigma Stretch Film, and AtlantisPlastics, Inc. on May 19, 2004, Case No. 04-C3509 (N.D. Ill.) see the Company’sForm 10-Q for the three months ended March 31, 2006. On July 21, 2006, theCourt orally granted a motion by the Company which will have the effect ofpermitting the Company to immediately appeal the Court’s claim constructionruling to the Court of Appeals for the Federal Circuit. The Company is awaitingentry of the written judgment in conformity with that ruling which will permitit proceed with the appeal. On July 21, 2006, MSC Marketing & Technology,Inc. filed a motion for summary judgment seeking a ruling that thepatent-in-suit is invalid and on August 3, 2006, it filed a motion for summaryjudgment seeking a ruling that it has not infringed the patent. AtlantisPlastics, Inc. has advised the Company’s counsel that it also will file motionsfor summary judgment asserting non-infringement and invalidity of the patent.

There have been no other significant changes withrespect to the case since December 31, 2005.

For a discussion of the lawsuit filed against theCompany by Tredegar Film Products Corp. on August 30, 2005, Case no. 05 CH14715 (Cook County, Illinois Circuit Court, Chancery Division), see the Company’sForm 10-Q for the three months ended March 31, 2006. Pursuant to an AgreedOrder of the bankruptcy Court entered July 17, 2006, Tredegar has beenpermitted to prosecute the Illinois Action through final judgment, providedthat any judgment in favor of Tredegar shall be enforced only in accordancewith the Debtors’ Fourth Amended Joint Plan of Reorganization. The case is inthe early stages of discovery

There have been no other significant changes withrespect to the case since December 31, 2005.

In addition, we are involved in routine litigation inthe normal course of business. On the basis of information presently availableand advice received from counsel representing the Company and its subsidiaries,it is the opinion of management that the disposition or ultimate determinationof such claims and lawsuits against the Company will not have a materialadverse effect on the Company’s financial position, results of operations, orliquidity.

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**ITEM 1A. RISKFACTORS**

As of June 30, 2006, there were no material changes tothe risk factors as disclosed in the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2005. Following our emergence from bankruptcyon July 18, 2006, certain risks relating to operating in bankruptcy, ourability to borrow under our DIP Credit Facility and our ability to obtain exitfinancing no longer apply. In addition, affiliates of J.P. Morgan Partners, LLCnow own approximately 13.4% of our Series AA Preferred Stock and 40.7% of ourNew Common Stock, rather than the percentages of our common stock, warrants andpreferred stock set forth as of December 31, 2005.

**ITEM2.**                    UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

**ITEM3.**                    DEFAULTSUPON SENIOR SECURITIES

The Company defaulted in the payment of $13.9 millionof interest that was due on its 2003 Notes on March 1, 2006 and had not curedthat default as of June 30, 2006. On July 18, 2006, the total arrearage withrespect to the defaulted interest payment of $13.9 million plus interest on theoverdue installment of interest was paid by the Company to the trustee withrespect to the 2003 Notes for further distribution to the holders thereof.

**ITEM4.**                    SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

**TheCompany submitted the Debtors Second Amended Joint Plan of Reorganization,dated as of April 18, 2006, to the holders of record as of such date of claimsagainst and interests in the Company, including holders of the securities ofthe Company. An affidavit of Bankruptcy Services LLC certifying as to theresults of such vote is attached to this report as Exhibit 22 and incorporatedherein by reference. The United States Bankruptcy Court for the District ofDelaware determined that a further solicitation of holders of claims andinterests with respect to the Debtors Fourth Amended Joint Plan ofReorganization, dated as of June 19, 2006 and confirmed by order of theBankruptcy Court on June 23, 2006 (the “Fourth Amended Plan”), was notrequired. A summary of the transactions comprising the Fourth Amended Plan isset forth in footnote 16 “Subsequent Events” to the financial statementsincluded in Item 1 of Part I of this report.**

**ITEM5.**                    OTHERINFORMATION

None

**ITEM6.**                    EXHIBITS

(a)             The followingexhibits are filed with this report.
| 2    |   | Debtors Fourth Amended Joint Plan of Reorganization,  dated as of June 19, 2006 (incorporated by reference to Exhibit 2.1 to the  Current Report on Form 8-K filed by Pliant Corporation on June 19, 2006).                                                                                                                                                                                |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1  |   | Amended and Restated Certificate of Incorporation of  Pliant Corporation, effective as of July 18, 2006 (incorporated by reference  to Exhibit 3.1 to the Current Report on Form 8-K filed by Pliant Corporation  on July 24, 2006).                                                                                                                                                       |
| 3.2  |   | Amended and Restated Bylaws of Pliant Corporation,  effective as of July 18, 2006 (incorporated by reference to Exhibit 3.2 to  the Current Report on Form 8-K filed by Pliant Corporation on July 24, 2006).                                                                                                                                                                              |
| 4.1  |   | Indenture, dated as of July 18, 2006, among Pliant  Corporation, certain subsidiaries of Pliant Corporation, and The Bank of New  York Trust Company, N.A., as trustee (incorporated by reference to Exhibit  4.1 to the Current Report on Form 8-K filed by Pliant Corporation on July 24,  2006).                                                                                        |
| 4.2  |   | First Supplemental Indenture, dated as of July 18,  2006, with respect to the Amended and Restated Indenture, dated as of May 6,  2005, among Pliant Corporation, certain subsidiaries of Pliant Corporation, and  Wilmington Trust Company, N.A., as trustee (incorporated by reference to  Exhibit 4.2 to the Current Report on Form 8-K filed by Pliant Corporation on  July 24, 2006). |
| 4.3  |   | Stockholders’ Agreement, dated as of July 18, 2006,  among Pliant Corporation and holders of Pliant Corporation’s Common Stock  (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K  filed by Pliant Corporation on July 24, 2006).                                                                                                                      |
| 4.4  |   | Registration Rights Agreement, dated as of July 18,  2006, among Pliant Corporation and holders of Pliant Corporation’s Series AA  Redeemable Preferred Stock (incorporated by reference to Exhibit 4.4 to the  Current Report on Form 8-K filed by Pliant Corporation on July 24, 2006).                                                                                             |
| 22   |   | Affidavit, dated May 26, 2006, of Diane Streany of  Bankruptcy Services LLC certifying the ballots accepting or rejecting the  Debtors’ Second Amended Joint Plan of Reorganization.                                                                                                                                                                                                  |
| 31.1 |   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                       |
| 31.2 |   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                       |
| 32.1 |   | Certification of Chief Executive Officer furnished  pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                             |
| 32.2 |   | Certification of Chief Financial Officer furnished  pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                             |

 

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**SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
|                       | PLIANT CORPORATION                            |
|-----------------------|-----------------------------------------------|
|                  |                                          |
|                  |                                          |
|                  | /s/ JOSEPH J. KWEDERIS                        |
|                  | JOSEPH J. KWEDERIS                            |
|                  | *Chief Financial Officer*                     |
|                  | *(Authorized Signatory and*                   |
|                  | *Principal Financial and Accounting Officer)* |
|                  | * *                                      |
| Date: August 14, 2006 |                                          |

** **

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** **

**INDEX TO EXHIBITS**
| Exhibits | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                 |
|----------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2        |       | Debtors Fourth Amended Joint Plan of Reorganization,  dated as of June 19, 2006 (incorporated by reference to Exhibit 2.1 to the  Current Report on Form 8-K filed by Pliant Corporation on June 19, 2006).                                                                                                                                                                                |
| 3.1      |       | Amended and Restated Certificate of Incorporation of  Pliant Corporation, effective as of July 18, 2006 (incorporated by reference  to Exhibit 3.1 to the Current Report on Form 8-K filed by Pliant Corporation  on July 24, 2006).                                                                                                                                                       |
| 3.2      |       | Amended and Restated Bylaws of Pliant Corporation,  effective as of July 18, 2006 (incorporated by reference to Exhibit 3.2 to  the Current Report on Form 8-K filed by Pliant Corporation on July 24, 2006).                                                                                                                                                                              |
| 4.1      |       | Indenture, dated as of July 18, 2006, among Pliant  Corporation, certain subsidiaries of Pliant Corporation, and The Bank of New  York Trust Company, N.A., as trustee (incorporated by reference to Exhibit  4.1 to the Current Report on Form 8-K filed by Pliant Corporation on July 24,  2006).                                                                                        |
| 4.2      |       | First Supplemental Indenture, dated as of July 18,  2006, with respect to the Amended and Restated Indenture, dated as of May 6,  2005, among Pliant Corporation, certain subsidiaries of Pliant Corporation,  and Wilmington Trust Company, N.A., as trustee (incorporated by reference to  Exhibit 4.2 to the Current Report on Form 8-K filed by Pliant Corporation on  July 24, 2006). |
| 4.3      |       | Stockholders’ Agreement, dated as of July 18, 2006,  among Pliant Corporation and holders of Pliant Corporation’s Common Stock  (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K  filed by Pliant Corporation on July 24, 2006).                                                                                                                      |
| 4.4      |       | Registration Rights Agreement, dated as of July 18,  2006, among Pliant Corporation and holders of Pliant Corporation’s Series AA  Redeemable Preferred Stock (incorporated by reference to Exhibit 4.4 to the  Current Report on Form 8-K filed by Pliant Corporation on July 24, 2006).                                                                                             |
| 22       |       | Affidavit, dated May 26, 2006, of Diane Streany of  Bankruptcy Services LLC certifying the ballots accepting or rejecting the  Debtors’ Second Amended Joint Plan of Reorganization.                                                                                                                                                                                                  |
| 31.1     |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                             |
| 31.2     |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                             |
| 32.1     |       | Certification of Chief Executive Officer furnished  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                   |
| 32.2     |       | Certification of Chief Financial Officer furnished  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                   |

 

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