** **

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**Forthe quarterly period ended March 31, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 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 principalexecutive offices and telephone number)

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days. Yes x  No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

Large acceleratedfiler o      Acceleratedfiler o      Non-acceleratedfiler x

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

APPLICABLE ONLY TOREGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS

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

At May 3, 2007 there were 100,003 outstanding sharesof the Registrant’s common stock. As of May 3, 2007, persons other thanaffiliates of the Registrant held 49,871, or approximately 49.87%, of theoutstanding shares of the Registrant’s common stock.  There is no established trading market forthe Registrant’s common stock and, therefore, the aggregate market value ofshares held by non-affiliates cannot be determined by reference to recent salesor bid and asked prices.

 

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**PLIANT CORPORATION AND SUBSIDIARIESTABLE OF CONTENTS**
| PART I. FINANCIAL  INFORMATION                                                                                          |   |   |   |
|------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
|                                                                                                                         |   |   |   |
| ITEM 1. FINANCIAL  STATEMENTS                                                                                                |   |   |   |
|                                                                                                                         |   |   |   |
| CONDENSED  CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2007 (Unaudited)  AND DECEMBER 31, 2006                     |   | 3      |   |
|                                                                                                                         |   |   |   |
| CONDENSED  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED  MARCH 31, 2007 AND 2006 (Unaudited)        |   | 4      |   |
|                                                                                                                         |   |   |   |
| CONDENSED CONSOLIDATED  STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND  2006 (Unaudited)        |   | 5      |   |
|                                                                                                                         |   |   |   |
| CONDENSED  CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE THREE MONTHS ENDED  MARCH 31, 2007 (Unaudited) |   | 6      |   |
|                                                                                                                         |   |   |   |
| NOTES TO  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                                            |   | 7      |   |
|                                                                                                                         |   |   |   |
| ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS                         |   | 28     |   |
|                                                                                                                         |   |   |   |
| ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                          |   | 39     |   |
|                                                                                                                         |   |   |   |
| ITEM 4. CONTROLS AND  PROCEDURES                                                                                             |   | 39     |   |
|                                                                                                                         |   |   |   |
| PART II. OTHER  INFORMATION                                                                                             |   | 41     |   |
|                                                                                                                         |   |   |   |
| ITEM 1. LEGAL  PROCEEDINGS                                                                                                   |   | 41     |   |
|                                                                                                                         |   |   |   |
| ITEM 1A. RISK FACTORS                                                                                                        |   | 41     |   |
|                                                                                                                         |   |   |   |
| ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                         |   | 41     |   |
|                                                                                                                         |   |   |   |
| ITEM 3.  DEFAULTS UPON SENIOR SECURITIES                                                                                     |   | 41     |   |
|                                                                                                                         |   |   |   |
| ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                 |   | 41     |   |
|                                                                                                                         |   |   |   |
| ITEM 5. OTHER INFORMATION                                                                                                    |   | 41     |   |
|                                                                                                                         |   |   |   |
| ITEM 6. EXHIBITS                                                                                                             |   | 41     |   |

 

2

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**PART I.   FINANCIALINFORMATION**

**ITEM 1.**                    FINANCIALSTATEMENTS

**PLIANT CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETSAS OF MARCH 31, 2007 (UNAUDITED) AND DECEMBER 31, 2006 (DOLLARS INTHOUSANDS)**
| ** **                                                                                                                                                                                                                                                                        | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                                        |       |                     |       |                        |       |
| CURRENT ASSETS:                                                                                                                                                                                                                                                                   |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                        |       | $                        | 7,075      |                        | $          | 4,199 |   |
| Receivables, net of  allowances of $3,207 and $3,751, respectively                                                                                                                                                                                                                |       | 127,156                  |       | 140,477                     |       |
| Inventories (Note 3)                                                                                                                                                                                                                                                              |       | 103,467                  |       | 100,103                     |       |
| Prepaid expenses and  other                                                                                                                                                                                                                                                       |       | 6,221                    |       | 7,279                       |       |
| Income taxes receivable,  net                                                                                                                                                                                                                                                     |       | 377                      |       | 998                         |       |
| Deferred income taxes                                                                                                                                                                                                                                                             |       | 10,012                   |       | 13,754                      |       |
| Total current assets                                                                                                                                                                                                                                                              |       | 254,308                  |       | 266,810                     |       |
| PLANT AND  EQUIPMENT, net                                                                                                                                                                                                                                                         |       | 306,792                  |       | 304,443                     |       |
| GOODWILL                                                                                                                                                                                                                                                                          |       | 72,271                   |       | 72,257                      |       |
| INTANGIBLE  ASSETS, net                                                                                                                                                                                                                                                           |       | 11,779                   |       | 12,389                      |       |
| OTHER ASSETS                                                                                                                                                                                                                                                                      |       | 21,057                   |       | 21,858                      |       |
| TOTAL ASSETS                                                                                                                                                                                                                                                                      |       | $                        | 666,207    |                        | $          | 677,757 |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIT**                                                                                                                                                                                                                                    |       |                     |       |                        |       |
| CURRENT LIABILITIES:                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Current portion of  long-term debt                                                                                                                                                                                                                                                |       | $                        | 1,004      |                        | $          | 975 |   |
| Trade accounts payable                                                                                                                                                                                                                                                            |       | 82,888                   |       | 81,231                      |       |
| Accrued liabilities:                                                                                                                                                                                                                                                              |       |                     |       |                        |       |
| Interest payable                                                                                                                                                                                                                                                                  |       | 3,346                    |       | 10,055                      |       |
| Customer rebates                                                                                                                                                                                                                                                                  |       | 6,022                    |       | 7,403                       |       |
| Other                                                                                                                                                                                                                                                                             |       | 31,118                   |       | 44,463                      |       |
| Total current  liabilities                                                                                                                                                                                                                                                        |       | 124,378                  |       | 144,127                     |       |
| LONG-TERM DEBT,  net of current portion                                                                                                                                                                                                                                           |       | 761,230                  |       | 736,656                     |       |
| OTHER LIABILITIES                                                                                                                                                                                                                                                                 |       | 31,780                   |       | 29,446                      |       |
| DEFERRED INCOME  TAXES                                                                                                                                                                                                                                                            |       | 24,351                   |       | 31,287                      |       |
| Total Liabilities                                                                                                                                                                                                                                                                 |       | 941,739                  |       | 941,516                     |       |
| STOCKHOLDERS’  DEFICIT:                                                                                                                                                                                                                                                      |       |                     |       |                        |       |
| Redeemable  Preferred Stock—Series AA—335,650 shares authorized, par value $.01 per  share, with a redemption and liquidation value of $1,000 per share plus  accumulated dividends, 335,592 shares outstanding  at March 31, 2007 and December 31, 2006 |       | 210,439                  |       | 198,899                     |       |
| Redeemable  Preferred Stock—Series M—8,000 shares authorized, par value $.01 per  share, 8,000 shares outstanding at March 31, 2007 and no shares outstanding  at December 31, 2006                                                                           |       | —                   |       | —                      |       |
| Common  stock—par value $.01 per share; 100,050,000 shares authorized, 100,003 shares  outstanding at March 31, 2007 and December 31, 2006                                                                                                                         |       | 1                        |       | 1                           |       |
| Paid in  capital                                                                                                                                                                                                                                                                  |       | 155,345                  |       | 154,521                     |       |
| Accumulated  deficit                                                                                                                                                                                                                                                              |       | (622,210                 | )          | (598,934                    | )          |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                                             |       | (19,107                  | )          | (18,246                     | )          |
| Total  stockholders’ deficit                                                                                                                                                                                                                                                 |       | (275,532                 | )          | (263,759                    | )          |
| TOTAL LIABILITIES AND STOCKHOLDERS’  DEFICIT                                                                                                                                                                                                                                 |       | $                        | 666,207    |                        | $          | 677,757 |   |

 

 

See notes to condensed consolidated financial statements.

3

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**PLIANT CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSFOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (IN THOUSANDS)(UNAUDITED)**
| ** **                                                    | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                    | ** ** | **March 31,**               | ** ** |
| ** **                                                    | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| NET SALES                                                     |       | $                                | 260,392    |   | $ | 297,656 |   |
|                                                          |       |                             |       |   |   |
| COST OF SALES                                                 |       | 225,956                          |       | 263,307 |   |
| Gross Profit                                                  |       | 34,436                           |       | 34,349 |   |
|                                                          |       |                             |       |   |   |
| OPERATING  EXPENSES:                                          |       |                             |       |   |   |
| Selling, General and Administrative                           |       | 19,538                           |       | 18,100 |   |
| Research and Development                                      |       | 3,065                            |       | 2,298 |   |
| Restructuring and Other Costs (Note 4)                        |       | 1,408                            |       | 15 |   |
| Reorganization Costs (Note 2)                                 |       | 271                              |       | 53,550 |   |
| Other operating costs (Note 13)                               |       | 1,101                            |       | — |   |
| Total operating expenses                                      |       | 25,383                           |       | 73,963 |   |
|                                                          |       |                             |       |   |   |
| OPERATING INCOME  (LOSS)                                      |       | 9,053                            |       | (39,614 | ) |
|                                                          |       |                             |       |   |   |
| INTEREST EXPENSE—Current  and Long-term debt (Note 5, 6) |       | (21,174                          | )          | (19,841 | ) |
| INTEREST EXPENSE—Redeemable  Preferred Stock (Note 5)    |       | —                           |       | (271 | ) |
|                                                          |       |                             |       |   |   |
| OTHER INCOME  (EXPENSE)—Net                              |       | 351                              |       | 148 |   |
|                                                          |       |                             |       |   |   |
| LOSS BEFORE  INCOME TAXES                                     |       | (11,770                          | )          | (59,578 | ) |
|                                                          |       |                             |       |   |   |
| INCOME TAX  EXPENSE                                           |       | 678                              |       | 1,229 |   |
|                                                          |       |                             |       |   |   |
| NET LOSS                                                      |       | $                                | (12,448    | ) | $ | (60,807 | ) |

 

See notes to condensed consolidated financial statements.

4

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**PLIANT CORPORATIONAND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWFOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006 (IN THOUSANDS)(UNAUDITED)**
| ** **                                                                            | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                            | ** ** | **March 31,**               | ** ** |
| ** **                                                                            | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                 |       |                             |       |   |   |
| Net loss                                                                              |       | $                                | (12,448    | ) | $ | (60,807 | ) |
| Adjustments to reconcile  net loss to net cash provided by operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                        |       | 11,553                           |       | 9,977 |   |
| Amortization of  deferred financing costs and accretion of debt discount              |       | 9,990                            |       | 9,331 |   |
| 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                                                                |       | 411                              |       | (430 | ) |
| (Gain) / loss on  disposal of assets                                                  |       | —                           |       | 24 |   |
| Non cash other  operating costs                                                       |       | 664                              |       | — |   |
| Changes in assets and  liabilities:                                                   |       |                             |       |   |   |
| Receivables                                                                           |       | 13,329                           |       | (9,543 | ) |
| Inventories                                                                           |       | (3,035                           | )          | (6,045 | ) |
| Prepaid expenses  and other                                                           |       | 980                              |       | 829 |   |
| Income taxes  payable/receivable                                                      |       | 612                              |       | 438 |   |
| Other assets                                                                          |       | (183                             | )          | 6,594 |   |
| Trade accounts  payable                                                               |       | 1,869                            |       | 10,680 |   |
| Accrued  liabilities                                                                  |       | (21,652                          | )          | 7,646 |   |
| Other liabilities                                                                     |       | (627                             | )          | 574 |   |
| Net cash provided  by operating activities                                            |       | 1,463                            |       | 15,769 |   |
|                                                                                  |       |                             |       |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                 |       |                             |       |   |   |
| Proceeds from  sale of assets                                                         |       | 26                               |       | — |   |
| Capital  expenditures for plant and equipment                                         |       | (11,437                          | )          | (7,237 | ) |
| Net cash used in  investing activities                                                |       | (11,411                          | )          | (7,237 | ) |
|                                                                                  |       |                             |       |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                 |       |                             |       |   |   |
| Proceeds from  issuance of preferred stock                                            |       | 160                              |       | — |   |
| Payment of  financing fees                                                            |       | (103                             | )          | (1,000 | ) |
| Repayment of  capital leases and other, net                                           |       | (228                             | )          | (467 | ) |
| Proceeds from  revolving debt—net                                                |       | 14,000                           |       | — |   |
| Net cash provided  by / (used in) financing activities                                |       | 13,829                           |       | (1,467 | ) |
|                                                                                  |       |                             |       |   |   |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                         |       | (1,005                           | )          | (520 | ) |
|                                                                                  |       |                             |       |   |   |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                            |       | 2,876                            |       | 6,545 |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD                                   |       | 4,199                            |       | 12,802 |   |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                                         |       | $                                | 7,075      |   | $ | 19,347 |   |
| SUPPLEMENTAL DISCLOSURES  OF CASH FLOW INFORMATION:                                   |       |                             |       |   |   |
| Cash paid during  the period for:                                                     |       |                             |       |   |   |
| Interest                                                                              |       | 16,838                           |       | 3,165 |   |
| Income taxes                                                                          |       | 464                              |       | 362 |   |
| Supplemental  schedule of non-cash investing and financing activities:                |       |                             |       |   |   |
| Preferred Stock  dividends accrued but not paid                                       |       | —                           |       | 257 |   |
| Plant and  equipment acquired under capital leases                                    |       | 1,998                            |       | — |   |

 

 

See notes to condensed consolidated financial statements.

5

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**PLIANT CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICITFOR THE THREE MONTHS ENDED MARCH 31, 2007 (IN THOUSANDS) (UNAUDITED)**
| ** **                               | ** ** | ** ** | ** ** | **Preferred Stock** | ** ** | **Common Stock**  | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------------------------------|------------|------------|------------|--------------------------|------------|-------------------|------------|------------|------------|------------|------------|
| ** **                               | ** ** | ** ** | ** ** | **Series AA**       | ** ** | **Series M** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **Total**  | ** ** | **Shares**               | ** ** | **Amount**        | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Paid In  Capital** | ** ** | **Accumu-  lated  Deficit** | ** ** | **Accumu-  lated  Other  Compre-  hensive  Loss** | ** ** |
| BALANCE-December 31,  2006          |       | $          | (263,759   | )                        | 335        |              | $          | 198,899    |       | —     |       | $ | — |   | 100 |   | $ | 1 |   | $ | 154,521 |   | $ | (598,934 | ) | $ | (18,246 | ) |
| Cumulative effect  of adoption of FIN 48 |       | 712        |       |                     |       |              |       |       |       |       |       |   |   |   |   |   |   | 712 |   |   |   |
| Adjusted Balance  January 1, 2007        |       | $          | (263,047   | )                        | 335        |              | $          | 198,899    |       | —     |       | $ | — |   | 100 |   | $ | 1 |   | $ | 154,521 |   | $ | (598,222 | ) | $ | (18,246 | ) |
| Comprehensive  loss:                     |       |       |       |                     |       |              |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                                 |       | (12,448    | )          |                     |       |              |       |       |       |       |       |   |   |   |   |   |   | (12,448 | ) |   |   |
| Foreign currency translation adjustment  |       | (861       | )          |                     |       |              |       |       |       |       |       |   |   |   |   |   |   |   |   | (861 | ) |
| Comprehensive  loss:                     |       | (13,309    | )          |                     |       |              |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Issuance of  Series M Preferred Stock    |       | 824        |       |                     |       |              |       | 8          |       |       |       |   |   |   |   | 824 |   |   |   |   |   |
| Preferred stock  dividends               |       | —     |       |                     |       | 11,540            |       |       |       |       |       |   |   |   |   |   |   | (11,540 | ) |   |   |
|                                     |       | $          | (275,532   | )                        | 335        |              | $          | 210,439    |       | 8          |       | $ | — |   | 100 |   | $ | 1 |   | $ | 155,345 |   | $ | (622,210 | ) | $ | (19,107 | ) |

 

See notes to condensed consolidated financial statements.

6

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**PLIANT CORPORATIONAND SUBSIDIARIES**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**1.   BASIS OFPRESENTATION**

*The unaudited interim condensedconsolidated financial statements of*PliantCorporation and its subsidiaries (collectively “Pliant”, the “Company” or ”we”)*were prepared inaccordance with accounting principles generally accepted in the United Statesof America (“GAAP”),*and pursuant to the rules andregulations of the Securities and Exchange Commission (the “SEC”).  The information reflects all normal recurringadjustments that, in the opinion of management, are necessary for a fairpresentation of the financial position, results of operations and cash flows ofPliant as of the dates and for the periods presented.

Certain information in footnote disclosures normallyincluded in financial statements presented in accordance with GAAP has beencondensed or omitted in accordance with the rules and regulations of theSEC. These statements should be read in conjunction with the Company’s AnnualReport on Form 10-K for the year ended December 31, 2006.

*Natureof operations*   The Company produces polymer-based(plastic), value-added films for flexible packaging, personal care, medical,agricultural and industrial applications. Our manufacturing facilities arelocated in the United States, Canada, Mexico, Germany and Australia.

*Chapter 11 Bankruptcy Proceedings and Reorganization*   TheCompany and ten of its subsidiaries filed for protection under Chapter 11 ofTitle 11 of the Bankruptcy Code (the “Bankruptcy Code”) in January 2006.On June 19, 2006, the Company filed with the United States BankruptcyCourt for the District of Delaware (the “Bankruptcy Court”) its Fourth AmendedJoint Plan of Reorganization (the “Plan”) which was approved by the BankruptcyCourt on June 23, 2006. On July 18, 2006, the Company consummated itsreorganization through a series of transactions contemplated in the Plan andemerged from bankruptcy.  We have workeddiligently in an effort to analyze each of the claims filed in our Chapter 11cases, and have already made significant progress in reconciling such claimswith our books and records. See footnote 2 to the Financial Statements for moredetailed information on our emergence from bankruptcy.

American Instituteof Certified Public Accountants Statement of Position 90-7, “FinancialReporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”),applies to the Company’s financial statements while the Company operates underthe provisions of Chapter 11. SOP 90-7 generally does not change the manner inwhich financial statements are prepared. However, it does require that thefinancial statements for periods subsequent to the filing of the Chapter 11petition distinguish transactions and events that are directly associated withthe reorganization from the ongoing operations of the business. Expenses,realized gains and losses, and provisions for losses that can be directlyassociated with the reorganization of the business are reported separately asreorganization costs in the statements of operations. Liabilities affected byimplementation of a plan of reorganization are reported at amounts expected tobe allowed, even if they may be settled for lesser amounts. In addition,reorganization related items that significantly impact cash provided bycontinuing operations are disclosed separately in the statement ofcash flows.

7

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**2.**   REORGANIZATION

**On January 3, 2006, Pliant and ten subsidiaries filedvoluntary petitions in the Bankruptcy Court seeking relief under theBankruptcy Code. Three of the Company’s subsidiaries with Canadian operationscommenced ancillary proceedings in a Canadian court to recognize theChapter 11 bankruptcy proceedings as “foreign proceedings.”  TheCompany’s operations in Mexico, Germany, and Australia were not included in theChapter 11 filing.**

On June 19,2006, we filed with the Bankruptcy Court our Plan which was approved by theBankruptcy Court on June 23, 2006. On July 18, 2006, we consummatedour reorganization through a series of transactions contemplated in the Planand we filed with the Bankruptcy Court a notice announcing the effectiveness ofthe Plan.

Pursuant to thePlan, on July 18, 2006, we effected the following transactions:

·         changed our state ofincorporation from Utah to Delaware;

·         extinguished ourSeries B Preferred Stock, no par value (“Series B Preferred Stock”);

·         issued (i) anaggregate principal amount of $34,967,000 of 13% Senior Subordinated Notes due2010 (the “New Subordinated Notes”),  (ii) 335,592 shares ofSeries AA Preferred Stock, par value $.01 per share (“Series AA PreferredStock”), and (iii) 100,003 shares of new common stock, par value $.01 pershare (“New Common Stock”) in exchange for (A) all of our 13% SeniorSubordinated Notes due 2010 (the “2000/2002 Notes”), (B) all of ourSeries A Cumulative Exchangeable Redeemable Preferred Stock, no par value(the “Series A Preferred Stock”), (C) our existing common stock, parvalue $.01 per share  (“Old Common Stock”)and (D) warrants to purchase our Old Common Stock;

·         made cash payments to theapplicable trustee of (A) $3,200,000 for further distribution to theholders of the 2000/2002 Notes and (B) $18,529,375.55 ($4 million of whichwas a consent fee and the balance of which was the missed March 1, 2006interest payment and the interest owed on that interest payment) for furtherdistribution to the holders of our 11 1/8%Senior Secured Notes due 2009 (the “2003 Notes”) and reinstated the 2003 Notes;

·         reinstated our 11.35%(formerly 11 1/8%) Senior SecuredDiscount Notes due 2009 (the “2004 Notes”) and our 11.85% (formerly 11 5/8%) Senior Secured Notes due 2009 (the “Amended 2004 Notes”) andincreased the interest rate on the 2004 Notes and the Amended 2004 Notes by..225%;

·         entered into (i) aWorking Capital Credit Agreement, among the Company, certain of itssubsidiaries, the lenders party thereto, Merrill Lynch Bank USA, as administrativeagent, and Merrill Lynch Commercial Finance Corp., as sole lead arranger andbook manager (the “Working Capital Credit Agreement”), and (ii) a FixedAsset Credit Agreement, among Pliant Corporation Pty Ltd., Pliant Corporationof Canada Ltd., Pliant Film Products GmbH and Aspen Industrial, S.A. de C.V.,as borrowers, the lenders party thereto, Merrill Lynch Bank USA, asadministrative agent, and Merrill Lynch Commercial Finance Corp., as sole leadarranger and book manager (the “Fixed Asset Credit Agreement, and together withthe Working Capital Credit Agreement, the “Exit Credit Facilities”) to replacethe amended revolving credit facility dated November 21, 2005 (the “Amendedand Restated Credit Agreement”) and the Senior Secured, Super Priority, PrimingDebtor-in-Possession Credit Agreement dated as of January 4, 2006 (the “DIPCredit Facility”); and

·         entered into theStockholders’ Agreement with respect to the New Common Stock and a RegistrationRights Agreement dated July 18, 2006 (the “Registration Rights Agreement”)with respect to the Series AA Preferred Stock.

As a result, theprior credit facilities, the indenture dated May 31, 2000 governing the2000 Notes (the “2000 Indenture”) and the indenture dated April 10, 2002governing the 2002 Notes (the “2002 Indenture”) were terminated, except, withrespect to the indentures, to the extent necessary to permit the trustee undersuch indentures to make distributions to the holders of the 2000/2002 Notesunder the Plan. In addition, on July 18, 2006, the Company’s Deferred CashIncentive Plan (the “Cash Plan”) and 2006 Restricted Stock Incentive Plan (the “StockPlan”), became effective.

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As a consequenceof the Company’s commencement of bankruptcy proceedings, substantially allpending claims and litigation against it in the United States wereautomatically stayed pursuant to the Bankruptcy Code. In addition, as aconsequence of the commencement of the proceedings in Canada, substantially allpending claims and litigation against its subsidiaries operating in Canada alsowere stayed by order of the Canadian court. Upon the Company’s emergence frombankruptcy, these stays were lifted.

The Company hasworked diligently in an effort to analyze each of the claims filed in ourChapter 11 cases, and have already made significant progress in reconcilingsuch claims with its books and records. Moreover, the Company has been steadilymaking distributions to the holders of many such claims, as well as tocreditors appearing in its schedules, and have filed objections to certainclaims as necessary. To date, the Company has filed six omnibus objections toclaims, resulting in a reduction to the claims register of more than 80 claimstotaling more than $86.5 million, which were primarily claims made by equity holderswho received distributions of new securities according to the Company’s Plan.In addition, the Company has paid more than $47 million to satisfy contractcure amounts, vendor trade agreements, and other unsecured claims. We estimatethat there are approximately $2.1 million in non-litigation claims remainingfor processing.

As referencedabove, the Company completed a debt for equity exchange whereby 100% of itsoutstanding $320 million of 2000/2002 Notes and $24.3 million in accruedinterest were exchanged for 265,123 shares or 79% of its new Series AAPreferred Stock, approximately 30,000 shares or 30% of its New Common Stock,$3.2 million in cash consideration and approximately $35 million in NewSubordinated Notes. Pursuant to SFAS 15, Accounting by Debtors and Creditors for Troubled Debt Restructuring, these $35 million of New Subordinated Notes were recorded at aggregateprincipal plus interest to maturity of $20.1 million or a total of $55.1million. In addition, 100% of the $ 298.0 million of shares subject tomandatory redemption, including the Company’s Series A Preferred Stockwere also exchanged for shares of its new Series AA Preferred Stock andshares of its New Common Stock. The fair market value of equity received inconnection with these exchanges was approximately $182.3 million. Takinginto account the $3.2 million of cash consideration bondholders received andcollectability reserves of $4.9 million established in connection withoutstanding stockholders’ notes receivable, this resulted in a gain onextinguishment of debt of $393.7 million on a combined exchange of $642.3million of debt and accrued interest. See Note 5 for additional informationregarding the Exit Credit Facilities, the New Subordinated Notes, the 2004Notes and the Amended 2004 Notes.

On July 18,2006, the Company entered into a Stockholders Agreement (the “Stockholders’Agreement”) that is binding on all parties receiving shares of New CommonStock, pursuant to the terms of the 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 Stockholders’Agreement. 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 the Company, subject to exceptions for acquisitions,management equity and certain other transactions. The Stockholders’ Agreementcontains “drag-along rights” that require all holders of New Common Stock toparticipate in and vote in favor of certain sales of the Company approved bythe Board of Directors and certain holders of New Common Stock. It furtherprovides that the 5 (out of a total of 7) members of the Board of Directors tobe elected by the holders of New Common Stock will consist of the ChiefExecutive Officer of the Company and 4 members appointed by the holders of amajority of the New Common Stock held by persons defined as “permitted holders”under the indentures for the 2003 Notes, 2004 Notes and Amended 2004 Notes.Finally, the Stockholders’ Agreement provides that certain holders of NewCommon Stock will have demand registration rights after July 18, 2009 andadditional demand and piggyback registration rights following an initial publicoffering of the New Common Stock.

On July 18,2006, the Company also entered into a Registration Rights Agreement (the “RegistrationRights Agreement”) that is binding on all parties receiving shares ofSeries AA Preferred Stock, pursuant to the terms of the Plan. TheRegistration Rights Agreement requires the Company to take all actionsreasonably required to permit the Series AA Preferred Stock to be quotedon the NASDAQ OTC Bulletin Board as soon as practicable. The Registration RightsAgreement also provides that, at any time after the ninth month and prior tothe second 

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anniversary of theeffective date of the Plan, certain holders of the Series AA PreferredStock can require Pliant to register an underwritten public offering of theSeries AA Preferred Stock.

The Companyadopted the Stock Plan on July 18, 2006, which provides for the issuanceto the Chief Executive Officer and other officers of the Company ofSeries M Preferred Stock that, when combined with awards under the Cash Plan,will entitle such officers to a maximum of 8% of the equity value of theCompany, in the aggregate. Participants in the Stock Plan and Cash Plan willonly receive distributions upon the occurrence of certain extraordinarycorporate transactions, such as a sale of all or substantially all of theCompany’s assets or a change in control of the Company. The Stock Plan and CashPlan are administered by the Compensation Committee of Company’s Board ofDirectors composed of non-employee directors. On February 20, 2007, theCompany issued 8,000 shares of its Series M Preferred Stock, to certain ofits officers pursuant to its Stock Plan.

The Companyincurred professional fees and other expenses directly associated with thebankruptcy proceedings. In addition, the Company made certain adjustments tothe carrying values of certain pre-petition assets and liabilities. Such costsand adjustments are classified as reorganization costs in the accompanyingcondensed consolidated statements of operations for the three months endedMarch 31 and consist of the following (in thousands):
| ** **                                                 | **Three  Months ended**

**March  31,** | ** ** |
|------------------------------------------------------------|-----------------------------------------|------------|
| ** **                                                 |                                    | **2007**   |   |   | **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 and claim settlements**               |                                    | 271        |   |   | 7,320 |   |   |
| **Reorganization Costs**                                   |                                    | $          | 271 |   |   | $ | 53,550 |   |   |

** **

**3.   INVENTORIES**

Inventories arevalued at the lower of cost (using the first-in, first-out method) or marketvalue. Inventories as of March 31, 2007 and December 31, 2006consisted of the following (in thousands):
| ** **      | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------|------------|--------------------------|------------|-----------------------------|------------|
| Finished goods  |       | $                        | 50,855     |                        |       | $ | 45,564 |   |   |
| Raw materials   |       | 41,923                   |       |                        | 44,656     |   |   |
| Work-in-process |       | 10,689                   |       |                        | 9,883      |   |   |
| Total           |       | $                        | 103,467    |                        |       | $ | 100,103 |   |   |

 

**4.   RESTRUCTURING AND OTHER COSTS**

Restructuring and other costs include plant closingcosts (including costs related to relocation of manufacturing equipment),office closing costs and other costs related to workforce reductions.

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The followingtable summarizes restructuring and other costs for the three months endedMarch 31 (in thousands):
| ** **                                         | ** ** | **Three Months Ended**                         | ** ** |
|----------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                         | ** ** | **March 31,**                                       | ** ** |
| ** **                                         | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** |
| **Plant  closing costs:**                          |       |                                                     |       |   |   |   |   |   |   |
| Severance                                          |       |                                                     | $ 170 |   |   |   | $ | — |   |   |
| Other plant closure costs                          |       |                                                     | 22         |   |   |   | 15 |   |   |
| **Office closing and workforce  reduction costs:** |       |                                                     |       |   |   |   |   |   |   |
|     Severance                       |       |                                                     | 1,216      |   |   |   | — |   |   |
| **Total Restructuring and other costs**            |       |                                                     | $          | 1,408 |   |   |   | $ | 15 |   |   |
|                                                    |            |                                                          |            |  |  |  |  |  |  |  |  |

 

The following table summarizes the roll-forward of theaccruals from December 31, 2006 to March 31, 2007: 
| ** **                                           | ** **   | ** **           | ** ** | ** **   | ** **   | **Accruals for the three months ended  March 31, 2007** | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** |
|------------------------------------------------------|--------------|----------------------|------------|--------------|--------------|--------------------------------------------------------------------------------------------|------------|---------------|------------|-------------|------------|------------|------------|
| ** **                                           | ** **   | ** **           | ** ** | ** **   | ** **   | ** **                                                                                 | ** ** | ** **    | ** ** | **Other**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                           | ** **   | **12/31/2006**       | ** ** | ** **   | ** **   | ** **                                                                                 | ** ** | **Plant**     | ** ** | ** **  | ** ** | ** ** | ** ** | **3/31/2007** | ** ** |
| ** **                                           | ** **   | **# Employees** | ** ** | **Accrual**  | ** **   | **Additional**                                                                             | ** ** | ** **    | ** ** | **Closure** | ** ** | ** ** | ** ** | **Payments/** | ** ** | **# Employees** | ** ** | **Accrual** | ** ** |
| ** **                                           | ** **   | **Terminated**       | ** ** | **Balance**  | ** **   | **Employees**                                                                              | ** ** | **Severance** | ** ** | **Costs**   | ** ** | **Total**  | ** ** | **Charges** | ** ** | **Terminated** | ** ** | **Balance** | ** ** |
| ***Plant  Closing Costs:***                          |         |                 |       |         |         |                                                                                       |       |          |       |        |       |       |       |   |   |   |   |   |   |
| Leases                                               |         | —               |       | 2,430        |         | —                                                                                     |       | —        |       | 15          |       | 15         |       | (1,551 | ) | — |   | 894 |   |
| Langley                                              |         | —               |       | —       |         | —                                                                                     |       | —        |       | 7           |       | 7          |       | — |   | — |   | 7 |   |
| Barrie                                               |         | —               |       | —       |         | 19                                                                                         |       | 170           |       | —      |       | 170        |       | (170 | ) | 19 |   | — |   |
|                                                 |         | —               |       | $            | 2,430        |                                                                                       | 19         |          | 170        |        | 22         |       | $          | 192 |   | $ | (1,721 | ) | 19 |   | $ | 901 |   |
| ***Office Closing and Workforce  Reduction Costs:*** | *** *** |                 |       | *** *** | *** *** |                                                                                       |       |          |       |        |       |       |       |   | ** ** |   |   | *** *** | *** *** |
| Canada                                               |         | —               |       | —       |         | 7                                                                                          |       | 1,216         |       | —      |       | 1,216      |       | (1,216 | ) | 7 |   | — |   |
|                                                 |         | —               |       | $            | —       |                                                                                       | 7          |          | $          | 1,216       |       | —     |       | $ | 1,216 |   | $ | (1,216 | ) | 7 |   | $ | — |   |
| **Total  Plant & Office closing**      | ** **   | —               |       | **$**        | **2,430**    |                                                                                       | **26**     |          | **$**      | **1,386**   |       | **$**      | **22**     |   | **$** | **1,408** |   | **$** | **(2,937** | **)** | **26** |   | **$** | **901** | ** ** |
|                                                      |              |                      |            |              |              |                                                                                            |            |               |            |             |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Plant Closing Costs***

***2007***—During thefirst quarter of 2007, we announced the closure of our Barrie, Ontario andLangley, British Columbia plants and the restructuring of our Canadianadministrative functions. Our total estimated costs include $1.3 million ofseverance costs related to our Engineered Films segment, $8.2 million ofseverance and plant closing costs related to our Printed Products segment and$0.5 million of severance costs related to our Industrial Films segment. Weincurred $0.2 million and $1.2 million relating to severance payments inconnection with the shutdown of Barrie and the restructuring of the Canadiansales and administrative functions, respectively. These restructuring charges,of which $0.9 million relate to our Engineered Films segment and $0.4 millionrelate to our Industrial Films segment, have been included in theCorporate/Other segment for the quarter ended March 31, 2007.

***2006***—Norestructuring activities were initiated in the first quarter of 2006.

***2005***—During 2005,the Company accrued $1.9 million for the net costs to terminate the remaininglease agreements associated with its Shelbyville, Indiana facility. During thefirst quarter of 2007, payments of $1.5 million were made to complete the buyout of the remaining obligations under these leases.

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***2003***—During 2003,the Company accrued the present value of future lease payments on threebuildings it no longer occupied in an amount of $3.3 million. As of March 31,2007, $0.9 million of these accruals are remaining.

**5.   DEBT**

Debt as ofMarch 31, 2007 and December 31, 2006 consists of the following (inthousands):
| ** **                        | ** ** | **March 31,  2007** | ** ** | **December 31,  2006** | ** ** |
|-----------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| Credit Facilities:                |       |                     |       |                        |       |   |   |
| Revolving credit  facility        |       | $                        | 127,579    |                        |       | $ | 113,579 |   |   |
| Amended 2004  Notes               |       | 311,296                  |       |                        | 302,382    |   |   |
| 2004 Notes                        |       | 7,812                    |       |                        | 7,808      |   |   |
| 2003 Notes                        |       | 250,000                  |       |                        | 250,000    |   |   |
| New Subordinated  Notes           |       | 55,101                   |       |                        | 55,101     |   |   |
| Obligations  under capital leases |       | 10,446                   |       |                        | 8,761      |   |   |
| Total                             |       | 762,234                  |       |                        | 737,631    |   |   |
| Less current  portion             |       | (1,004                   | )          |                        | (975       | ) |   |
| Long-term portion                 |       | $                        | 761,230    |                        |       | $ | 736,656 |   |   |

 

*Current Exit Credit Facilities*

On July 18,2006, the Company and/or certain of its subsidiaries entered into the ExitCredit Facilities, consisting of the Working Capital Credit Agreement and theFixed Asset Credit Agreement (all as defined in Note 2). The Exit CreditFacilities provide up to $200 million of total commitments, subject to theborrowing base described below. The Working Capital Credit Agreement includes a$20 million letter of credit sub-facility, with letters of credit reducingavailability thereunder, and each of the Exit Credit Facilities includessub-limits for loans to certain of the foreign subsidiaries of the Companywhich are borrowers under the Exit Credit Facilities. The Exit CreditFacilities were funded on July 18, 2006, and replace our prior creditfacilities.

The Exit CreditFacilities will mature on the earlier of (a) July 18, 2011 or (b) one monthprior to the respective maturity dates of the Company’s senior notes if thesesenior notes have not been refinanced in full: May 15, 2009 with respect to theCompany’s 2004 Notes and Amended 2004 Notes, August 15, 2009 with respect tothe Company’s 2003 Notes and May 1, 2010 with respect to the Company’s NewSubordinated Notes. The interest rates for all loans other than those made tothe Company’s German subsidiary range from, in the case of alternate base rateloans, the alternate base rate (either prime rate or .50% over the FederalFunds Rate) plus 1.75% to the alternate base rate plus 2.00% and, in the caseof Eurodollar loans, LIBOR plus 2.75% to LIBOR plus 3.00%, in each casedepending on the amount of available credit. The interest rates for loans madein connection with the loans to the Company’s German subsidiary are, in thecase of alternate base rate loans, the alternate base rate plus 5.00% and, inthe case of Eurodollar loans, LIBOR plus 6.00%. The commitment fee for theunused 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 good 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 CreditFacilities contain covenants that will limit the ability of Pliant 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 

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other companies, changelines of business, make certain types of investments, sell assets, enter intocertain sale and lease-back and swap transactions, pay dividends on orrepurchase stock, make distributions with respect to certain debt obligations,enter into transactions with affiliates, restrict dividends or other paymentsfrom the Company’s subsidiaries, modify corporate and certain material debtdocuments, cancel certain debt, or change its fiscal year or accountingpolicies. The Exit Credit Facilities also require the Company to comply with afixed charge coverage ratio of 1.00 to 1.00 for the first year of the facilityand of 1.10 to 1.00 thereafter; provided, that such coverage ratio shall onlyapply during periods in which the amount of availability is and remains lessthan $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. In addition, the amount ofavailability under the Exit Credit Facilities must not be less than $10,000,000at any time. The loans will automatically become immediately due and payablewithout notice upon the occurrence of an event of default involving insolvencyor bankruptcy of the Company or any of its subsidiaries. Upon the occurrenceand during the continuation of any other event of default under the Exit CreditFacilities, by notice given to the Company, the Administrative Agent may, andif directed by the Required Lenders (as defined in the Exit Credit Facilities)must, terminate the commitments and/or declare all outstanding loans to beimmediately due and payable.

The WorkingCapital Credit 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 and certainother assets of the Company and its subsidiaries and a second-priority securityinterest in fixed assets of the Company and its subsidiaries party to theWorking Capital Credit Agreement. The Fixed Asset Credit Agreement is securedby a first-priority security interest in the fixed assets of certain foreignsubsidiaries of the Company and a second-priority security interest in capitalstock of the fixed asset borrowers and their subsidiaries.

As of March 31,2007, the Company had borrowings of $127.6 million and availability of $45.7million under the Exit Credit Facilities.

*Prior Credit Facilities*

On January 4,2006, the Company entered into the DIP Credit Facility (as defined in Note 2),among the Company and certain other debtors, as joint and several borrowers,General Electric Capital Corporation, as administrative agent, collateral agentand lender, Morgan Stanley Senior Funding, Inc., as syndication agent andlender, and the lenders from time to time party thereto. The DIP CreditFacility provided for a $200 million commitment of debtor-in-possessionfinancing to fund the working capital requirements of Pliant and of Pliant’ssubsidiaries that were Debtors during the pendency of the bankruptcyproceeding. Although the DIP Credit Facility was nominally in the amount of$200 million, availability was reduced by the aggregate borrowing base of$131.2 million under the Amended and Restated Credit Agreement as of thebankruptcy filing.

The DIP CreditFacility provided the Company with up to approximately $68.8 million ofadditional liquidity, subject to a borrowing base calculated based uponspecified percentages of the Debtors’ eligible current and fixed assets, minus$10 million and other reserves. The Company made no borrowings under theDIP Credit Facility. The DIP Credit Facility was terminated upon the Company’semergence from bankruptcy and replaced with the Exit Credit Facilitiesdescribed above.

OnNovember 21, 2005, the Company entered into the Amended and RestatedCredit Agreement (as defined in Note 2) providing up to $140 million oftotal availability, subject to certain borrowing base limitations. The Amendedand Restated Credit Agreement included a $25 million letter of creditsub-facility, with letters of credit reducing availability under the Amendedand Restated Credit Agreement.

OnDecember 31, 2005, an Event of Default occurred under the Amended andRestated Credit Agreement as a result of our failure to make the interestpayments due on December 1, 2005 to holders of the 2000/2002 Notes. Uponthe bankruptcy filing and execution of the DIP Credit Facility described above,the commitments 

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under the Amended andRestated Credit Agreement were terminated. The $130.9 million of borrowings asof December 31, 2005 remained outstanding until the Company’s emergencefrom bankruptcy, at which time they were refinanced through the Exit CreditFacilities.

*First Supplemental Indenture*

On July 18,2006, the Company, certain of its subsidiaries and Wilmington Trust Company, astrustee, entered into the First Supplemental Indenture amending the Amended andRestated Indenture to increase the interest rate by .225% per annum withrespect to the 2004 Notes and the Amended 2004 Notes, which additional interestwill accrue as payment-in-kind interest. As a result, on July 18, 2006,the interest rate on the Amended 2004 Notes was increased to 11.85% per annumand the interest rate on the 2004 Notes was increased to 11.35% per annum.Commencing on December 15, 2006, only the incremental interest rate increaseof .225% will accrue as payment-in-kind interest on the 2004 Notes and theremaining 11 1/ 8%interest rate will accrue as cash pay interest. The First SupplementalIndenture did not amend the covenants or acceleration provisions of the Amendedand Restated Indenture.

*Amended 2004 Notes*

As of March 31,2007, the Company had $311.3 million aggregate principal amount of Amended 2004Notes outstanding. The Amended 2004 Notes accrued payment-in-kind interest atthe rate of 11 5/8% from the date of issuance until July 18, 2006, onwhich date the interest rate was increased by .225% to 11.85% in accordancewith the Plan. Such incremental interest rate increase of .225% also accrues aspayment-in-kind interest. The Amended 2004 Notes mature on June 15, 2009 andrequire payment of non-cash interest in the form of additional notes compoundedsemi-annually on each June 15 and December 15 through maturity.

The Amended 2004Notes are secured on a first-priority basis by a security interest in our realproperty, fixtures, equipment, intellectual property and other assets otherthan the second-priority collateral and on a second-priority basis by asecurity interest in substantially all our inventory, receivables and depositaccounts, 100% of the capital stock of or other equity interests in existingand future domestic subsidiaries and foreign subsidiaries that are noteguarantors, 65% of the capital stock of or other equity interests in existingand future first-tier foreign subsidiaries that are not note guarantors,investment property and certain other assets of the Company and the noteguarantors. The Amended 2004 Notes are guaranteed by the Company’s existing andfuture domestic restricted subsidiaries and certain foreign subsidiaries.

Prior toJune 15, 2007, the Company may redeem up to 35% of the principal amount ofthe Amended 2004 Notes with the net cash proceeds of certain equity offeringsby it at a redemption price equal to 111.625% of the sum of the principalamount plus accrued and unpaid interest, provided that after giving effect tosuch redemption (i) at least 65% of the principal amount of the notesremain outstanding and (ii) any such redemption by the Company is madewithin 120 days after such equity offering.

On or afterJune 15, 2007, the Company may redeem some or all of the Amended 2004Notes at the following redemption prices (expressed as percentages of the sumof the principal amount plus accrued and unpaid interest); 111.625% if redeemedon or after June 15, 2007 and prior to December 15, 2007; 108.719% ifredeemed on or after December 15, 2007 and prior to June 15, 2008;105.813% if redeemed on or after June 15, 2008 and prior toDecember 15, 2008; 102.906% if redeemed on or after December 15, 2008and prior to June 15, 2009; and 100.000% if redeemed on June 15,2009.

*2004 Notes*

As of March 31,2007, the Company had $7.8 million of 2004 Notes outstanding. The 2004 Notesaccreted at the rate of 11 1/8%from the date of issuance until July 18, 2006, on which date the interestrate was increased by .225% to 11.35% in accordance with the Plan. The 2004Notes accreted at the rate of 11.35% until 

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December 15, 2006 toan aggregate principal amount of $1,000.88 per $1,000 stated principal amount.Commencing on December 15, 2006, interest on the 2004 Notes accrues at therate of 11.35% with such incremental interest rate increase of .225% accruingas payment-in-kind interest and the remaining 11 1/8% payable in cash semiannually onJune 15 and December 15, commencing on June 15, 2007. The 2004 Notesmature on June 15, 2009.

The 2004 Notes aresecured by a first-priority security interest in the first-priority notecollateral and a second-priority security interest in the second-priority notecollateral. The 2004 Notes are guaranteed by the Company’s existing and futuredomestic restricted subsidiaries and certain foreign subsidiaries.

Prior toJune 15, 2007, the Company may redeem up to 35% of the accreted value ofthe 2004 Notes with the net cash proceeds of certain equity offerings by it ata redemption price equal to 111.125% of the accreted value thereof plus accruedinterest, so long as (i) at least 65% of the accreted value of the notesremains outstanding after such redemption and (ii) any such redemption bythe Company is made within 120 days after such equity offering. On or afterJune 15, 2007, the Company may redeem some or all of the 2004 Notes at thefollowing redemption prices (expressed as percentages of the sum of theprincipal amount plus accrued and unpaid interest):  105.563% if redeemedon or after June 15, 2007 and prior to June 15, 2008; 102.781% ifredeemed on or after June 15, 2008 and prior to June 15, 2009; and100.00% if redeemed on June 15, 2009.

*2003 Notes*

As of March 31,2007, the Company had $250 million of 2003 Notes outstanding. The 2003 Notesaccrued interest from the date of issuance through September 30, 2006 atthe rate of 11 1/8%and will continue to accrue interest at such rate through the date of maturity.The 2003 Notes mature on September 1, 2009 and interest is payable in cashsemiannually on each March 1 and September 1. On July 18, 2006,in accordance with the Plan, the Company paid to the trustee with respect tothe 2003 Notes, for further distribution to the holders thereof, an aggregate cashpayment of $18.5 million, $14.5 million of which represented the interestpayment due on March 1, 2006 plus interest on such unpaid interest and thebalance of which was a $4 million consent fee.

The 2003 Notesrank equally with the Company’s existing and future senior debt and rank seniorto its existing and future subordinated indebtedness, including the NewSubordinated Notes. The 2003 Notes are secured by a second priority securityinterest in both the first priority note collateral and the second prioritynote collateral. The 2003 Notes are guaranteed by some of the Company’ssubsidiaries.

**Priorto June 1, 2007, the Company may redeem up to 35% of the originalaggregate principal amount of the 2003 Notes with the net cash proceeds of oneor more equity offerings by it at a redemption price equal to 111.125% of theprincipal amount thereof, plus accrued and unpaid interest. On or afterJune 1, 2007, the Company 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 onor after June 1, 2008 and prior to June 1, 2009; and 100% if redeemedon or after June 1, 2009.**

*New Subordinated Notes*

On July 18,2006, the Company, certain of its subsidiaries and The Bank of New York TrustCompany, N.A., as trustee, entered into an Indenture, dated as of July 18,2006 (the “New Subordinated Notes Indenture”), among the Company, certainsubsidiaries of the Company and The Bank of New York Trust Company, N.A., astrustee, with respect to the issuance on such date of the New SubordinatedNotes in an aggregate principal amount of $34,967,000.

Pursuant to SFAS15,*Accounting for Debtors and Creditors forTrouble Debt Restructuring*, the New Subordinated Notes were recordedat aggregate principal plus interest to maturity of $20.1 million or a total of$55.1 million. The New Subordinated Notes Indenture provides that interest willaccrue on the New Subordinated 

15

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Notes from the date ofissuance at the rate of 13% per annum until maturity on July 15, 2010 andwill be payable semi-annually on the New Subordinated Notes on eachJanuary 15 and July 15, commencing January 15, 2007, to holdersof record on the immediately preceding January 1 or July 1. The NewSubordinated Notes accrue payment-in-kind interest with respect to the firsttwo interest payment dates and then accrue semi-annual cash pay interest with respectto the interest payment dates thereafter. The New Subordinated Notes aresubject to the Company’s right, which is assignable, to refinance the NewSubordinated Notes during the first year after issuance by tendering to theholders of all the New Subordinated Notes cash in an amount equal to(i) $20,000,000 plus (ii) interest accrued at a rate of 13% per annumfrom the date of issuance through the date of payment on a principal amount of$20,000,000 minus (iii) any interest previously paid in cash on the NewSubordinated Notes. Commencing on July 19, 2007, the Company may redeemthe New Subordinated Notes in whole or in part at a redemption price equal to100% of the aggregate principal amount of the New Subordinated Notes plusaccrued and unpaid interest to the redemption date. The New Subordinated NotesIndenture provides the holders of the New Subordinated Notes with the right torequire the Company to repurchase the New Subordinated Notes at a repurchaseprice equal to 101% of the aggregate principal amount plus accrued and unpaidinterest upon a change of control of the Company (as defined in the NewSubordinated Notes Indenture). The New Subordinated Notes Indenture does notprovide for a sinking fund with respect to the New Subordinated Notes.

16

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**The New SubordinatedNotes Indenture contains various covenants including, among other things,covenants limiting the incurrence of indebtedness and restricting certainpayments, limiting restrictions on the ability of subsidiaries to makedistributions to the Company, limiting sales of assets and subsidiary stock andthe entry into affiliate transactions, as well as provisions governing mergerand change of control transactions. The Company may be required under certaincircumstances to offer to repurchase New Subordinated Notes with the proceedsof certain asset sales. Upon a change of control transaction, Holders of NewSubordinated Notes may require the Company (subject to certain exceptions) torepurchase New Subordinated Notes at a purchase price equal to 101% of theprincipal amount plus accrued and unpaid interest. The New Subordinated Noteswill automatically become due and payable without notice upon the occurrence ofan event of default involving insolvency or bankruptcy of the Company orcertain of its subsidiaries. In addition, upon the occurrence and during thecontinuation of any other event of default under the New Subordinated NotesIndenture, by notice given to the Company, the Trustee or holders of at least25% in principal amount of the New Subordinated Notes may declare the principalof and accrued and unpaid interest on all the New Subordinated Notes to beimmediately due and payable.**

**6.   INTEREST EXPENSE—Currentand Long-term debt**

Interest expense—currentand long-term debt in the statements of operations for the three months endedMarch 31, 2007 and 2006 is as follows (in thousands):
| ** **                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Interest expense,  net                    |       |                                             |       |   |   |
| Revolving credit facilities               |       | $                                                | 2,214      |   | $ | 2,521 |   |
| Amended 2004 Notes                        |       | 8,914                                            |       | 7,841 |   |
| 2004 Notes                                |       | 222                                              |       | 195 |   |
| 2003 Notes                                |       | 6,953                                            |       | 6,953 |   |
| 2000/2002 Notes(a)                        |       | —                                           |       | 471 |   |
| Other, net                                |       | 1,799                                            |       | 570 |   |
| Interest expense accrued, net             |       | 20,102                                           |       | 18,551 |   |
| Recurring  amortization of financing fees |       | 1,072                                            |       | 1,290 |   |
| TOTAL                                     |       | $                                                | 21,174     |   | $ | 19,841 |   |
| Cash interest  payments                   |       |                                             |       |   |   |
| Revolving credit facilities               |       | $                                                | 2,705      |   | $ | 3,082 |   |
| 2003 Notes                                |       | 13,906                                           |       | — |   |
| Other, net                                |       | 228                                              |       | 83 |   |
| TOTAL                                     |       | $                                                | 16,838     |   | $ | 3,165 |   |

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(a)             TheCompany’s 2000/2002 Notes were exchanged for a combination of New SeniorSubordinated Notes, Series AA Preferred Stock and New Common Stock inconnection with the Company’s Plan of Reorganization. Interest on the  2000/2002 Notes above includes interest forthe two days, plus interest on interest, prior to the bankruptcy filing plusinterest on the December 1, 2005 unpaid interest payment. Interest for thethree months ended March 31, 2006 at the stated rate of 13% would have been$10,400.

**7.   INCOME TAXES**

The Company adopted the provisions of FinancialAccounting Board Interpretation No. 48 Accounting for Uncertainty in IncomeTaxes (“FIN 48”) an interpretation of FASB Statement No. 109 (“SFAS 109”) onJanuary 1, 2007. The interpretation prescribes a recognition threshold andmeasurement attribute criteria for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.The interpretation also provides guidance on derecognition, classification,interest and penalties, accounting in interim periods, disclosure andtransition.

17

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The Company and its subsidiaries file income taxreturns in the U.S. federal jurisdiction, and various state and foreignjurisdictions. With a few exceptions, the Company is no longer subject to U.S.federal, state and local, or non-U.S. income tax examinations by taxauthorities for the years prior to 2000.****The Company’spolicy is to recognize interest and penalties related to unrecognized taxbenefits as income tax expense. Accrued interest and penalties areinsignificant at March 31, 2007. The Company believes that it has appropriatesupport for income tax positions taken or to be taken on its tax returns andthat its accruals for tax liabilities are adequate for all open years based onan assessment of many factors including past experience and interpretations oftax law applied to the facts of each matter.

The cumulative effect of adopting FIN 48 was adecrease in tax reserves of $0.7 million and a decrease in Retained Deficit asof January 1, 2007 of $0.7 million. As of January 1, 2007, the amount ofunrecognized tax benefits was $2.9 million of which all would, if recognized,decrease our effective tax rate. There may be fluctuations in the amount of theliability, however, the changes are not expected to be material.

For the three months ended March 31, 2007, incometax expense was $0.7 million on pretax losses from operations of $11.8 millionas compared to income tax expense of $1.2 million on pretax loss from operationsof $59.6 million for the three months ended March 31, 2006. Income taxbenefits related to net operating losses in the United States are offset by avaluation allowance as the realization of these tax benefits is not certain.Therefore, the income tax expense in the statements of operations primarilyreflects foreign income taxes. 

**8.   OTHER COMPREHENSIVELOSS**

Other comprehensive loss for the three months endedMarch 31, 2007 and 2006 was $13.3 million and $61.7 million, respectively.The components of other comprehensive loss are net loss and foreign currencytranslation.

**9.   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 that it isused internally for evaluating segment performance.

In 2006, theCompany reorganized its Specialty Products Group and separated it into twooperating segments, Specialty Films and Printed Products. In addition, theCompany combined its prior Performance Films segment with its Engineered Filmssegment. These changes were in response to a re-evaluation of the Company’saggregation criteria. The Company now has four operating segments: SpecialtyFilms, which manufactures personal care, medical and agricultural films;Printed Products which produces printed rollstock, bags and sheets used topackage food and consumer goods; Industrial Films segment which manufacturesstretch film used to bundle, unitize and protect palletized loads duringshipping and storage and PVC films used by supermarkets, delicatessens andrestaurants to wrap meat, cheese and produce; and Engineered Films segmentwhich manufactures film for sale to converters of flexible packaging and avariety of barrier and custom films for smaller niche flexible packaging andindustrial markets.  

Segmentinformation in this report for 2006 has been reclassified to reflect thisreorganization. Sales and transfers between our segments are eliminated inconsolidation. We evaluate the performance of our operating segments based onnet sales (excluding inter-company sales) and segment profit. The segmentprofit reflects income before interest expense, income taxes, depreciation,amortization, restructuring costs and other non-cash charges and netadjustments for certain unusual items. Our reportable segments are managedseparately with separate management teams, because each segment has differingproducts, customer requirements, technology and marketing strategies.

 

18

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Segment profit andsegment assets as of and for the periods ended March 31, 2007 and 2006 arepresented in the following table (in thousands). Certain reclassifications havebeen made to the prior year amounts to be consistent with the 2007presentation.
| ** **                                  | ** ** | **Engineered  Films** | ** ** | ** ** | **Industrial  Films** | ** ** | ** ** | **Specialty  Films** | ** ** | **Printed  Products** | ** ** | **Corporate/  Other** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|------------|-----------------------|------------|------------|----------------------|------------|-----------------------|------------|-----------------------|------------|-----------|------------|
| **Three  months ended March 31, 2007** |       |                  |       |       |                  |       |       |                 |       |                  |       |                  |       |      |       |
| Net sales to customers                      |       | $                     | 83,742     |       |                  | $          | 73,228     |                 |       | $                     | 47,995     |                  | $          | 51,303    |       | $ | 4,124 |   | $ | 260,392 |   |
| Intersegment sales                          |       | 3,670                 |       |       | 4,472                 |       |       | 3,636                |       | 357                   |       | (12,135               | )          | —    |       |
| Total net sales                             |       | 87,412                |       |       | 77,700                |       |       | 51,631               |       | 51,660                |       | (8,011                | )          | 260,392   |       |
| Depreciation and amortization               |       | 3,342                 |       |       | 1,776                 |       |       | 2,577                |       | 2,450                 |       | 1,408                 |       | 11,553    |       |
| Interest expense                            |       | 1,390                 |       |       | 183                   |       |       | 22                   |       | 1,043                 |       | 18,536                |       | 21,174    |       |
| Segment profit                              |       | 13,392                |       |       | 8,197                 |       |       | 6,022                |       | 3,867                 |       | (7,741                | )          | 23,737    |       |
| Capital expenditures                        |       | 3,195                 |       |       | 1,877                 |       |       | 2,442                |       | 1,429                 |       | 2,494                 |       | 1l,437    |       |
| Segment assets                              |       | 200,606               |       |       | 107,911               |       |       | 143,864              |       | 136,873               |       | 76,953                |       | 666,207   |       |
| **Three  months ended March 31, 2006** |       |                  |       |       |                  |       |       |                 |       |                  |       |                  |       |      |       |
| Net sales to customers                      |       | $                     | 103,225    |       |                  | $          | 78,151     |                 |       | $                     | 55,164     |                  | $          | 59,064    |       | $ | 2,052 |   | $ | 297,656 |   |
| Intersegment sales                          |       | 4,054                 |       |       | 5,021                 |       |       | 2,102                |       | 1,167                 |       | (12,344               | )          | —    |       |
| Total net sales                             |       | 107,279               |       |       | 83,172                |       |       | 57,266               |       | 60,231                |       | (10,292               | )          | 297,656   |       |
| Depreciation and amortization               |       | 2,779                 |       |       | 1,638                 |       |       | 2,257                |       | 2,408                 |       | 896                   |       | 9,977     |       |
| Interest expense                            |       | 659                   |       |       | 57                    |       |       | —               |       | 1,462                 |       | 17,934                |       | 20,112    |       |
| Segment profit                              |       | 12,688                |       |       | 7,505                 |       |       | 7,072                |       | 3,535                 |       | (6,725                | )          | 24,076    |       |
| Capital expenditures                        |       | 1,304                 |       |       | 679                   |       |       | 2,002                |       | 2,551                 |       | 701                   |       | 7,237     |       |
| **As of December 31, 2006**            |       |                  |       |       |                  |       |       |                 |       |                  |       |                  |       |      |       |
| Segment assets                              |       | $                     | 198,076    |       |                  | $          | 107,634    |                 |       | $                     | 150,483    |                  | $          | 140,624   |       | $ | 80,940 |   | $ | 677,757 |   |

 

A reconciliationof the totals reported for the operating segments to the totals reported in theconsolidated financial statements for the three months ended March 31, 2007and 2006 and as of March 31, 2007 and December 31, 2006 is as follows(in thousands) (unaudited):
| ** **                     | ** ** | **Three Months Ended  March 31,**         | ** ** |
|--------------------------------|------------|----------------------------------------------------------|------------|
| ** **                     | ** ** | **    2007    ** | ** ** | **    2006    ** | ** ** |
| **Profit or Loss**             | ** ** | ** **                                               | ** ** | ** ** | ** ** |
| Total segment  profit          |       | $                                                        | 23,737     |   | $ | 24,076 |   |
| Depreciation and  amortization |       | (11,553                                                  | )          | (9,977 | ) |
| Restructuring  and other costs |       | (1,408                                                   | )          | (15 | ) |
| Reorganization  costs          |       | (271                                                     | )          | (53,550 | ) |
| Other operating  costs         |       | (1,101                                                   | )          | — |   |
| Interest expense               |       | (21,174                                                  | )          | (20,112 | ) |
| Loss before  income taxes      |       | $                                                        | (11,770    | ) | $ | (59,578 | ) |

 
| ** **                            | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| **Assets**                            |       |               |       |                  |       |   |   |
| Total assets for  reportable segments |       | $                  | 589,254    |                  |       | $ | 596,817 |   |   |
| Other  unallocated assets             |       | 76,953             |       |                  | 80,940     |   |   |
| Total consolidated  assets            |       | $                  | 666,207    |                  |       | $677,757 |   |   |
|                                       |            |                    |            |                       |            |  |  |  |  |

 

19

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Netsales and long-lived assets of our US and foreign operations are as follows:
| ** **           | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------|------------|--------------------------------------------------|------------|
| ** **           | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| Net Sales            | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| United States        |       | $                                                | 210,067    |   | $ | 240,672 |   |
| Foreign countries(a) |       | 50,325                                           |       | 56,984 |   |
| Total                |       | $                                                | 260,392    |   | $ | 297,656 |   |

 
| ** **        | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------|------------|--------------------|------------|-----------------------|------------|
| ** **        | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Long-lived assets |       |               |       |                  |       |   |   |
| United States     |       | $                  | 259,070    |                  |       | $ | 255,622 |   |   |
| Foreign countries |       | 47,722             |       |                  | 48,821     |   |   |
| Total             |       | $                  | 306,792    |                  |       | $ | 304,443 |   |   |
| Total assets      |       |               |       |                  |       |   |   |
| United States     |       | $                  | 549,644    |                  |       | $ | 561,846 |   |   |
| Foreign countries |       | 116,563            |       |                  | 115,911    |   |   |
| Total             |       | $                  | 666,207    |                  |       | $ | 677,757 |   |   |

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(a)             Foreigncountries include Australia, Canada, Germany and Mexico, none of whichindividually represents 10% of consolidated net sales or long-lived assets.

**10.   DEFINED BENEFITPLANS**

The Company sponsorsthree noncontributory defined benefit pension plans (the “United States Plans”)covering domestic employees with 1,000 or more hours of service. The Companyfunds these in accordance with the funding requirements of the EmployeeRetirement Income Security Act of 1974. Contributions are intended to not onlyprovide for benefits attributed to service to date but also for those expectedto be earned in the future. We also sponsor a defined benefit plan in Germany(the “Germany Plan”). Periodic pension expense for the German Plan wasimmaterial. For information on the Germany Plan please refer to the Company’sForm 10-K for the year ended December 31, 2006. In the secondquarter of 2004, the Company redesigned its retirement programs which led tothe curtailment and “freeze” of the pension plan for U.S. salaried employeeseffective June 30, 2004.

The consolidatednet periodic pension expense (benefit) for the three months ended March 31,2007 and 2006 includes the following components (in thousands):
| ** **                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **United States Plans**                         |       |                                             |       |   |   |
| Service cost-benefits  earned during the period |       | $                                                | 98         |   | $ | 111 |   |
| Interest cost on  projected benefit obligation  |       | 1,286                                            |       | 1,247 |   |
| Expected return on  assets                      |       | (1,570                                           | )          | (1,384 | ) |
| Other                                           |       | 28                                               |       | 31 |   |
| Net periodic pension expense (benefit)          |       | $                                                | (158       | ) | $ | 5 |   |

 

**11.   CONTINGENCIES**

*Litigation*   We are involved invarious litigation matters from time to time in the ordinary course of our business,including matters described in previous filings. In our opinion, none of suchlitigation is material to our financial condition or results of operations.

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**12.   CONDENSEDCONSOLIDATING FINANCIAL STATEMENTS**

The followingcondensed consolidating financial statements present, in separate columns,financial information for (i) Pliant (on a parent only basis) with itsinvestment in its subsidiaries recorded under the equity method,(ii) guarantor subsidiaries (as specified in the Indenture dated as ofMay 30, 2003, as amended (the “2003 Indenture”) relating to the 2003Notes, the First Supplemental Indenture with respect to the Amended andRestated Indenture relating to the 2004 Notes and the Amended 2004 Notes andthe New Subordinated Notes Indenture relating to the New Subordinated Notes(the 2003 Indenture, the Amended and Restated Indenture, as amended by theFirst Supplemental Indenture, and the New Subordinated Notes Indenture,collectively, the “Indentures”)) on a combined basis, with any investments innon-guarantor subsidiaries specified in the Indentures recorded under theequity method, (iii) direct and indirect non-guarantor subsidiaries on acombined basis, (iv) the eliminations necessary to arrive at theinformation for Pliant and its subsidiaries on a consolidated basis, and(v) Pliant on a consolidated basis, in each case as of March 31, 2007 andDecember 31, 2006 and for the three months ended March 31, 2007 and 2006.The 2003 Notes, the 2004 Notes, the Amended 2004 Notes and the New SubordinatedNotes are fully and unconditionally guaranteed on a joint and several basis byeach guarantor subsidiary and each guarantor subsidiary is 100% owned, directlyor indirectly, by Pliant, except that the 2003 Notes are not guaranteed byUniplast Industries Co. and the Amended 2004 Notes are not guaranteed by PliantSolutions Corporation (“Pliant Solutions”). Substantially all of the assets ofPliant Solutions were sold on September 30, 2004 and the remainderdisposed prior to December 31, 2005. There are no contractual restrictionslimiting transfers of cash from guarantor and non-guarantor subsidiaries toPliant . The condensed consolidating financial statements are presented herein,rather than separate financial statements for each of the guarantorsubsidiaries, because management believes that separate financial statementsrelating to the guarantor subsidiaries are not material to investors.

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**PLIANT CORPORATION ANDSUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEETAS OF MARCH 31, 2007 (DOLLARS IN THOUSANDS) (UNAUDITED)**
| ** **                                               | ** ** | **Pliant  Corporation  (Parent Only)** | ** ** | **Combined  Guarantor  Subsidiaries** | ** ** | **Combined  Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Pliant  Corporation** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------|------------|-------------------------------------------|------------|------------------|------------|---------------------------------------|------------|
| **ASSETS**                                               |       |                                        |       |                                  |       |                                      |       |             |       |                                  |       |
| CURRENT ASSETS:                                          |       |                                        |       |                                  |       |                                      |       |             |       |                                  |       |
| Cash and cash equivalents                                |       | $                                           | 6          |                                  | $          | 3,244                                     |       | $                | 3,825      |                                  | $          | — |   | $ | 7,075 |   |
| Receivables, net of allowances                           |       | 95,955                                      |       | 8,254                                 |       | 22,947                                    |       | —           |       | 127,156                               |       |
| Inventories                                              |       | 86,353                                      |       | 7,092                                 |       | 10,022                                    |       | —           |       | 103,467                               |       |
| Prepaid expenses and other                               |       | 2,664                                       |       | 624                                   |       | 2,933                                     |       | —           |       | 6,221                                 |       |
| Income taxes receivable, net                             |       | (515                                        | )          | 844                                   |       | 48                                        |       | —           |       | 377                                   |       |
| Deferred income taxes                                    |       | 9,703                                       |       | 6                                     |       | 303                                       |       | —           |       | 10,012                                |       |
| Total current assets                                     |       | 194,166                                     |       | 20,064                                |       | 40,078                                    |       | —           |       | 254,308                               |       |
| PLANT AND EQUIPMENT, net                                 |       | 259,070                                     |       | 15,543                                |       | 32,179                                    |       | —           |       | 306,792                               |       |
| GOODWILL                                                 |       | 57,777                                      |       | 13,153                                |       | 1,341                                     |       | —           |       | 72,271                                |       |
| INTANGIBLE ASSETS, net                                   |       | 2,096                                       |       | 9,670                                 |       | 13                                        |       | —           |       | 11,779                                |       |
| INVESTMENT IN SUBSIDIARIES                               |       | (17,311                                     | )          | —                                |       | —                                    |       | 17,311           |       | —                                |       |
| OTHER ASSETS                                             |       | 17,914                                      |       | —                                |       | 3,143                                     |       | —           |       | 21,057                                |       |
| TOTAL ASSETS                                             |       | $                                           | 513,712    |                                  | $          | 58,430                                    |       | $                | 76,754     |                                  | $          | 17,311 |   | $ | 666,207 |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)** |       |                                        |       |                                  |       |                                      |       |             |       |                                  |       |
| CURRENT LIABILITIES:                                     |       |                                        |       |                                  |       |                                      |       |             |       |                                  |       |
| Current portion of long-term debt                        |       | $                                           | 917        |                                  | $          | —                                    |       | $                | 87         |                                  | $          | — |   | $ | 1,004 |   |
| Trade accounts payable                                   |       | 67,655                                      |       | 4,753                                 |       | 10,480                                    |       | —           |       | 82,888                                |       |
| Accrued liabilities                                      |       | 35,832                                      |       | 451                                   |       | 4,203                                     |       | —           |       | 40,486                                |       |
| Due to (from) affiliates                                 |       | (82,845                                     | )          | 67,657                                |       | 15,188                                    |       | —           |       | —                                |       |
| Total current liabilities                                |       | 21,559                                      |       | 72,861                                |       | 29,958                                    |       | —           |       | 124,378                               |       |
| LONG-TERM DEBT, net of current  portion                  |       | 723,086                                     |       | 16,700                                |       | 21,444                                    |       | —           |       | 761,230                               |       |
| OTHER LIABILITIES                                        |       | 25,907                                      |       | 1,394                                 |       | 4,479                                     |       | —           |       | 31,780                                |       |
| DEFERRED INCOME TAXES                                    |       | 18,692                                      |       | 2,674                                 |       | 2,985                                     |       | —           |       | 24,351                                |       |
| Total Liabilities                                        |       | 789,244                                     |       | 93,629                                |       | 58,866                                    |       | —           |       | 941,739                               |       |
| STOCKHOLDERS’  EQUITY  (DEFICIT):                   |       |                                        |       |                                  |       |                                      |       |             |       |                                  |       |
| Preferred stock                                          |       | 210,439                                     |       | —                                |       | —                                    |       | —           |       | 210,439                               |       |
| Common stock                                             |       | 1                                           |       | —                                |       | 11,916                                    |       | (11,916          | )          | 1                                     |       |
| Additional paid-in capital                               |       | 155,345                                     |       | 14,020                                |       | 43,822                                    |       | (57,842          | )          | 155,345                               |       |
| Retained earnings (deficit)                              |       | (622,210                                    | )          | (51,547                               | )          | (30,797                                   | )          | 82,344           |       | (622,210                              | )          |
| Accumulated other comprehensive loss                     |       | (19,107                                     | )          | 2,328                                 |       | (7,053                                    | )          | 4,725            |       | (19,107                               | )          |
| Total stockholders’ equity (deficit)                |       | (275,532                                    | )          | (35,199                               | )          | 17,880                                    |       | 17,311           |       | (275,532                              | )          |
| TOTAL LIABILITIES AND STOCKOLDERS’ EQUITY (DEFICIT) |       | $                                           | 513,712    |                                  | $          | 58,430                                    |       | $                | 76,754     |                                  | $          | 17,311 |   | $ | 666,207 |   |

 

 

 

See notes to condensed consolidated financial statements.

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**PLIANT CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING BALANCE SHEETAS OF DECEMBER 31, 2006 (DOLLARS IN THOUSANDS) (UNAUDITED)**
| ** **                                                | ** ** | **Pliant  Corporation  (Parent Only)** | ** ** | ** ** | **Combined  Guarantor  Subsidiaries** | ** ** | **Combined  Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated  Pliant  Corporation** | ** ** | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------------|------------|------------|---------------------------------------|------------|-------------------------------------------|------------|------------------|------------|---------------------------------------|------------|------------|
| **ASSETS**                                                | ** ** | ** **                                  | ** ** |       |                                  |       |                                      |       |             |       | ** **                            | ** ** |       |
| CURRENT ASSETS:                                           |       |                                        |       |       |                                  |       |                                      |       |             |       |                                  |       |       |
| Cash and cash equivalents                                 |       | $                                           | 7          |       |                                  | $          | 1,005                                     |       | $                | 3,187      |                                  | $          | —     |   | $ | 4,199 |   |   |
| Receivables, net of allowances                            |       | 108,907                                     |       |       | 8,131                                 |       | 23,439                                    |       | —           |       | 140,477                               |       |       |
| Inventories                                               |       | 83,007                                      |       |       | 6,703                                 |       | 10,393                                    |       | —           |       | 100,103                               |       |       |
| Prepaid expenses and other                                |       | 3,698                                       |       |       | 445                                   |       | 3,136                                     |       | —           |       | 7,279                                 |       |       |
| Income taxes receivable, net                              |       | (792                                        | )          |       | 1,443                                 |       | 347                                       |       | —           |       | 998                                   |       |       |
| Deferred income taxes                                     |       | 13,452                                      |       |       | 2                                     |       | 300                                       |       | —           |       | 13,754                                |       |       |
| Total current assets                                      |       | 208,279                                     |       |       | 17,729                                |       | 40,802                                    |       | —           |       | 266,810                               |       |       |
| PLANT AND EQUIPMENT, net                                  |       | 255,622                                     |       |       | 15,888                                |       | 32,933                                    |       | —           |       | 304,443                               |       |       |
| GOODWILL                                                  |       | 57,777                                      |       |       | 13,153                                |       | 1,327                                     |       | —           |       | 72,257                                |       |       |
| INTANGIBLE ASSETS, net                                    |       | 2,498                                       |       |       | 9,873                                 |       | 18                                        |       | —           |       | 12,389                                |       |       |
| INVESTMENT IN SUBSIDIARIES                                |       | (17,932                                     | )          |       | —                                |       | —                                    |       | 17,932           |       | —                                |       |       |
| OTHER ASSETS                                              |       | 18,905                                      |       |       | —                                |       | 2,953                                     |       | —           |       | 21,858                                |       |       |
| TOTAL ASSETS                                              |       | $                                           | 525,149    |       |                                  | $          | 56,643                                    |       | $                | 78,033     |                                  | $          | 17,932     |   | $ | 677,757 |   |   |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**  | ** ** | ** **                                  | ** ** |       |                                  |       |                                      |       |             |       | ** **                            | ** ** |       |
| CURRENT  LIABILITIES:                                     |       |                                        |       |       |                                  |       |                                      |       |             |       |                                  |       |       |
| Current portion of long-term debt                         |       | $                                           | 895        |       |                                  | $          | —                                    |       | $                | 80         |                                  | $          | —     |   | $ | 975 |   |   |
| Trade accounts payable                                    |       | 65,710                                      |       |       | 3,298                                 |       | 12,223                                    |       | —           |       | 81,231                                |       |       |
| Accrued liabilities                                       |       | 56,078                                      |       |       | 1,779                                 |       | 4,064                                     |       | —           |       | 61,921                                |       |       |
| Due to (from) affiliates                                  |       | (90,702                                     | )          |       | 65,746                                |       | 24,956                                    |       | —           |       | —                                |       |       |
| Total current liabilities                                 |       | 31,981                                      |       |       | 70,823                                |       | 41,323                                    |       | —           |       | 144,127                               |       |       |
| LONG-TERM DEBT, net of current  portion                   |       | 708,404                                     |       |       | 16,700                                |       | 11,552                                    |       | —           |       | 736,656                               |       |       |
| OTHER LIABILITIES                                         |       | 25,636                                      |       |       | —                                |       | 3,810                                     |       | —           |       | 29,446                                |       |       |
| DEFERRED INCOME TAXES                                     |       | 22,887                                      |       |       | 4,703                                 |       | 3,697                                     |       | —           |       | 31,287                                |       |       |
| Total Liabilities                                         |       | 788,908                                     |       |       | 92,226                                |       | 60,382                                    |       | —           |       | 941,516                               |       |       |
| STOCKHOLDERS’  EQUITY (DEFICIT):                     |       |                                        |       |       |                                  |       |                                      |       |             |       |                                  |       |       |
| Preferred stock                                           |       | 198,899                                     |       |       | —                                |       | —                                    |       | —           |       | 198,899                               |       |       |
| Common stock                                              |       | 1                                           |       |       | —                                |       | 11,916                                    |       | (11,916          | )          | 1                                     |       |       |
| Additional paid-in capital                                |       | 154,521                                     |       |       | 14,020                                |       | 43,822                                    |       | (57,842          | )          | 154,521                               |       |       |
| Retained earnings (deficit)                               |       | (598,934                                    | )          |       | (51,983                               | )          | (30,812                                   | )          | 82,795           |       | (598,934                              | )          |       |
| Accumulated other comprehensive loss                      |       | (18,246                                     | )          |       | 2,380                                 |       | (7,275                                    | )          | 4,895            |       | (18,246                               | )          |       |
| Total stockholders’ equity (deficit)                 |       | (263,759                                    | )          |       | (35,583                               | )          | 17,651                                    |       | 17,932           |       | (263,759                              | )          |       |
| TOTAL LIABILITIES  AND STOCKOLDERS’ EQUITY (DEFICIT) |       | $                                           | 525,149    |       |                                  | $          | 56,643                                    |       | $                | 78,033     |                                  | $          | 17,932     |   | $ | 677,757 |   |   |

 

See notes to condensed consolidated financial statements.

23

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**PLIANT CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING INCOME STATEMENTFOR THE THREE MONTHS ENDED MARCH 31, 2007 (IN THOUSANDS) (UNAUDITED)**
| ** **                          | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                          | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
| NET SALES                           |       | $                      | 222,233    |             | $          | 16,196            |       | $                | 34,130     |             | $          | (12,167 | ) | $ | 260,392 |   |
| COST OF SALES                       |       | 191,932                |       | 15,121           |       | 31,070            |       | (12,167          | )          | 225,956          |       |
| GROSS PROFIT                        |       | 30,301                 |       | 1,075            |       | 3,060             |       | —           |       | 34,436           |       |
| OPERATING  EXPENSES                 |       | 23,152                 |       | 544              |       | 1,687             |       | —           |       | 25,383           |       |
| OPERATING INCOME                    |       | 7,149                  |       | 531              |       | 1,373             |       | —           |       | 9,053            |       |
| INTEREST EXPENSE                    |       | (19,857                | )          | (147             | )          | (1,170            | )          | —           |       | (21,174          | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES |       | (5                     | )          | —           |       | —            |       | 5                |       | —           |       |
| OTHER INCOME  (EXPENSE)—Net    |       | 88                     |       | 2                |       | 261               |       | —           |       | 351              |       |
| INCOME (LOSS) BEFORE INCOME TAXES   |       | (12,625                | )          | 386              |       | 464               |       | 5                |       | (11,770          | )          |
| INCOME TAX EXPENSE (BENEFIT)        |       | (177                   | )          | 224              |       | 631               |       | —           |       | 678              |       |
| NET INCOME (LOSS)                   |       | $                      | (12,448    | )                | $          | 162               |       | $                | (167       | )                | $          | 5 |   | $ | (12,448 | ) |

 

 

See notes to condensed consolidated financial statements.

24

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**PLIANT CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATING INCOME STATEMENTFOR THE THREE MONTHS ENDED MARCH 31, 2006 (IN THOUSANDS) (UNAUDITED)**
| ** **                          | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                          | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
| NET SALES                           |       | $                      | 253,039    |             | $          | 20,843            |       | $                | 36,141     |             | $          | (12,367 | ) | $ | 297,656 |   |
| COST OF SALES                       |       | 223,711                |       | 19,148           |       | 32,815            |       | (12,367          | )          | 263,307          |       |
|                                |       |                   |       |             |       |              |       |             |       |             |       |
| GROSS PROFIT                        |       | 29,328                 |       | 1,695            |       | 3,326             |       | —           |       | 34,349           |       |
| OPERATING  EXPENSES                 |       | 71,682                 |       | 550              |       | 1,731             |       | —           |       | 73,963           |       |
|                                |       |                   |       |             |       |              |       |             |       |             |       |
| OPERATING INCOME                    |       | (42,354                | )          | 1,145            |       | 1,595             |       | —           |       | (39,614          | )          |
| INTEREST EXPENSE                    |       | (17,996                | )          | (655             | )          | (1,461            | )          | —           |       | (20,112          | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES |       | (179                   | )          | —           |       | —            |       | 179              |       | —           |       |
| OTHER INCOME  (EXPENSE)—Net    |       | (18                    | )          | (14              | )          | 180               |       | —           |       | 148              |       |
|                                |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  BEFORE INCOME TAXES  |       | (60,547                | )          | 476              |       | 314               |       | 179              |       | (59,578          | )          |
|                                |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME TAX  EXPENSE                 |       | 260                    |       | 221              |       | 748               |       | —           |       | 1,229            |       |
|                                |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCOME (LOSS)                   |       | $                      | (60,807    | )                | $          | 255               |       | $                | (434       | )                | $          | 179 |   | $ | (60,807 | ) |

 

 

See notes to condensed consolidated financial statements.

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**PLIANT CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWFOR THE THREE MONTHS ENDED MARCH 31, 2007 (IN THOUSANDS) (UNAUDITED)**
| ** **                                                      | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                      | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                      | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
| CASH FLOW  PROVIDED BY (USED IN) OPERATING ACTIVITIES           |       | $                      | (2,521     | )                | $          | 2,510             |       | $                | 1,474      |             | $          | — |   | $ | 1,463 |   |
|                                                            |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                          |       |                   |       |             |       |              |       |             |       |             |       |
| Proceeds from sale of assets                                    |       | 18                     |       | 8                |       | —            |       | —           |       | 26               |       |
| Capital expenditures for plant and equipment                    |       | (10,314                | )          | (246             | )          | (877              | )          | —           |       | (11,437          | )          |
| Net cash used in investing activities                           |       | (10,296                | )          | (238             | )          | (877              | )          | —           |       | (11,411          | )          |
|                                                            |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                          |       |                   |       |             |       |              |       |             |       |             |       |
| Payment of financing fees                                       |       | (103                   | )          | —           |       | —            |       | —           |       | (103             | )          |
| Repayment of capital leases and other, net                      |       | (212                   | )          | —           |       | (16               | )          | —           |       | (228             | )          |
| Proceeds from revolving debt                                    |       | 4,000                  |       | —           |       | 10,000            |       | —           |       | 14,000           |       |
| Loans (to)/from affiliates                                      |       | 10,000                 |       | —           |       | (10,000           | )          | —           |       | —           |       |
| Proceeds from issuance of preferred stock                       |       | 160                    |       | —           |       | —            |       | —           |       | 160              |       |
| Net cash provided by/(used in) financing activities             |       | 13,845                 |       | —           |       | (16               | )          | —           |       | 13,829           |       |
|                                                            |       |                   |       |             |       |              |       |             |       |             |       |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS   |       | (1,029                 | )          | (33              | )          | 57                |       | —           |       | (1,005           | )          |
|                                                            |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS           |       | (1                     | )          | 2,239            |       | 638               |       | —           |       | 2,876            |       |
|                                                            |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD             |       | 7                      |       | 1,005            |       | 3,187             |       | —           |       | 4,199            |       |
|                                                            |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD    |       | $                      | 6          |             | $          | 3,244             |       | $                | 3,825      |             | $          | —               |   | $ | 7,075 |   |

 

 

 

See notes to condensed consolidated financial statements.

26

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**PLIANT CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWFOR THE THREE MONTHS ENDED MARCH 31, 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)  OPERATING  ACTIVITIES  |       | $                      | 14,795     |             | $          | (288              | )          | $                | 1,262      |             | $          | — |   | $ | 15,769 |   |
|                                                               |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  INVESTING  ACTIVITIES:                       |       |                   |       |             |       |              |       |             |       |             |       |
| Proceeds from sale of assets                                       |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
| Capital expenditures for plant and equipment                       |       | (6,666                 | )          | (283             | )          | (288              | )          | —           |       | (7,237           | )          |
| Net cash used in   investing activities                       |       | (6,666                 | )          | (283             | )          | (288              | )          | —           |       | (7,237           | )          |
|                                                               |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  FINANCING  ACTIVITIES:                       |       |                   |       |             |       |              |       |             |       |             |       |
| Payment of financing fees                                          |       | (1,000                 | )          | —           |       | —            |       | —           |       | (1,000           | )          |
| Repayment of capital leases and other, net                         |       | (322                   | )          | —           |       | (145              | )          | —           |       | (467             | )          |
| Proceeds from revolving debt                                       |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
| Proceeds from issuance (repurchase) of preferred  stock            |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
| Net cash provided by/(used in)  financing activities          |       | (1,322                 | )          | —           |       | (145              | )          | —           |       | (1,467           | )          |
|                                                               |       |                   |       |             |       |              |       |             |       |             |       |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |       | (914                   | )          | (111             | )          | 505               |       | —           |       | (520             | )          |
|                                                               |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS              |       | 5,893                  |       | (682             | )          | 1,334             |       | —           |       | 6,545            |       |
|                                                               |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD                |       | 4,859                  |       | 1,153            |       | 6,790             |       | —           |       | 12,802           |       |
|                                                               |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                      |       | $                      | 10,752     |             | $          | 471               |       | $                | 8,124      |             | $          | — |   | $ | 19,347 |   |

 

 

See notes to condensed consolidated financial statements.

27

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**13.   ISSUANCE OF SERIES M PREFERRED STOCK**

**OnFebruary 20, 2007, the Company issued 8,000 shares of Series MPreferred Stock to certain employees pursuant to the Company’s Stock Plan.**

Upon receivingtheir awards in February 2007, participants purchased their shares ofSeries M Preferred Stock for $20 per share. The shares were issued for anaggregate purchase price of $160,000. At that time, the fair market value ofthe shares of Series M Preferred Stock (as determined by an appraisal byan independent appraisal firm), was $103 per share. Each participant made anelection under Section 83(b) of the Internal Revenue Code to pay taxat that time on the $83 difference between those amounts; and the Company paida bonus of approximately $138 per share (the tax-grossed-up amount of the $83difference) to each participant to enable the participant to pay such taxes.

In addition, theCompany recognized the fair market value of $103 per share, less par value of$.01 per share, as additional paid in capital of approximately $824,000 and hasrecorded the cost of the tax-gross-up of $437,000 and the difference betweenfair market value and purchase price of $664,000 together as other operatingcosts in the accompanying condensed consolidated statement of operations.

**14.   GOODWILL**

**Basedupon the 2006 annual impairment test, the Company determined that goodwill wasimpaired in our Specialty Films and Printed Products segments and recordedgoodwill write-downs totaling $110.0 million. The impairment charge recorded inthe financial statements was based on managements’ preliminary estimates offair value of plant, property and equipment and intangible assets. The Companyis in the process of obtaining valuations and will record an adjustment to thecarrying value of goodwill in the Specialty Films segment if the valuationindicates an additional impairment exists in excess of the amount recorded inthe financial statements for the year ended December 31, 2006.**

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

The purpose of thissection is to discuss and analyze our consolidated financial condition,liquidity and capital resources and results of operations. This analysis shouldbe read in conjunction with Management’s Discussion and Analysis of FinancialCondition and Results of Operations contained in our Annual Report onForm 10-K for the year ended December 31, 2006. Thissection contains certain forward-looking statements within the meaning offederal securities laws that involve risks and uncertainties, includingstatements regarding our plans, objectives, goals, strategies and financialperformance. Our actual results could differ materially from the resultsanticipated in these forward-looking statements as a result of factorsset forth under “Cautionary Statement for Forward-Looking Information”below and elsewhere in this report.

**General**

We generate our revenues, earnings and cash flows fromthe sale of film and flexible packaging products throughout the world. Wemanufacture these products at 22 facilities located on 20 sites in the UnitedStates, Australia, Canada, Germany and Mexico.

**Overview**

*Chapter 11 Bankruptcy Proceedings and Reorganization*   TheCompany and ten of its subsidiaries filed for protection under the BankruptcyCode in January 2006. On June 19, 2006, the Company filed with theBankruptcy Court its Plan which was approved by the Bankruptcy Court onJune 23, 2006. On July 18, 2006, the Company consummated itsreorganization through a series of transactions contemplated in the Plan andemerged from bankruptcy.

28

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We have worked diligently in an effort to analyze eachof the claims filed in our Chapter 11 cases, and have already made significantprogress in reconciling such claims with our books and records. Moreover, we havebeen steadily making distributions to the holders of many such claims, as wellas to creditors appearing in our schedules, and have filed objections tocertain claims as necessary. To date, we have filed six omnibus objections toclaims, resulting in a reduction to the claims register of more than 80 claimstotaling more than $86.5 million, which were primarily claims made by equityholders who received distributions of new securities according to the Company’sPlan. In addition, we have paid more than $47 million to satisfy contract cureamounts, vendor trade agreements, and other unsecured claims. We estimate thatthere are approximately $2.1 million in non-litigation claims remaining forprocessing. See footnote 2 to the Financial Statements for more detailedinformation on our emergence from bankruptcy.

We recorded sales of $260.4 million in the firstquarter of 2007 compared to sales of $297.7 million in the first quarter of2006. First quarter 2007 sales measured in pounds were 208.7 million, whichrepresents a 3.6% decrease from the first quarter of 2006.

Total segment profit was $23.7 million for the firstquarter of 2007, compared to $24.1 million for the first quarter of 2006.Segment profit, presented in accordance with GAAP, reflects income fromcontinuing operations adjusted for interest expense, income taxes,depreciation, amortization, and restructuring charges. The decrease in segmentprofit of $0.4 between periods is primarily attributable to the impact ofthe decrease in sales volume, offset by the impact of favorable waste and othercost reduction programs and to higher research and development costs associatedwith our innovation programs.

Average sales price for the three months endedMarch 31, 2007 was $1.248 per pound as compared to $1.375 per pound forthe three months ended March 31, 2006. This 9.2% decrease unfavorablyimpacted sales in our reportable segments by approximately $28.4 million.However, raw material costs, which represent approximately 62% of our totalcost of goods sold in our reportable segments, also decreased approximately$28.8 million over the comparable period of 2006 due to lower resin prices andimproved net waste.

**Raw Material Costs**

The primary raw materials used in the manufacture ofmost of our products are polypropylene resin, polyethylene resin and PVC resin.The long-term prices of these materials are primarily a function of the priceof crude oil and natural gas. We have not historically hedged our exposure toraw material increases, but have moved more customers to programs which wouldallow us to pass through cost increases in raw materials. Raw material costs asa percentage of sales have decreased to 54% for the first quarter of 2007, from60% for the first quarter of 2006.

The gap between the speed at which resin price changesare passed on to us and the time at which we can pass these cost changes on toour customers has an impact on both our results of operations and our workingcapital needs. To the extent we are not able to pass along price increases ofraw materials, or to the extent any such price increases are delayed, our costof goods sold would continue to increase and our gross profit and operatingincome would correspondingly decrease. Significant increases in raw materialprices that cannot be passed on to customers could have a material adverseeffect on our results of operations and financial condition.

29

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**Results ofOperations**

The followingtable sets forth net sales, operating expenses, and operating income, and suchamounts as a percentage of net sales, for the three months ended March 31,2007 and 2006 (dollars in millions).
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2007**                                             | ** ** | **2006** | ** ** |
| ** **                           | ** ** | **$**                                                | ** ** | **% of  Sales** | ** ** | **$** | ** ** | **% of  Sales** | ** ** |
| Net sales                            |       | $                                                    | 260.4      |   | 100.0 | % | $ | 297.7 |   | 100.0 | % |
| Cost of sales                        |       | 226.0                                                |       | 86.8 |   | 263.3 |   | 88.4 |   |
| Gross profit                         |       | 34.4                                                 |       | 13.2 |   | 34.4 |   | 11.6 |   |
| Selling, general  and administrative |       | 19.5                                                 |       | 7.5 |   | 18.1 |   | 6.1 |   |
| Research and  development costs      |       | 3.1                                                  |       | 1.2 |   | 2.3 |   | 0.8 |   |
| Restructuring  and other costs       |       | 1.4                                                  |       | 0.5 |   | — |   | — |   |
| Reorganization  costs                |       | 0.2                                                  |       | 0.1 |   | 53.6 |   | 18.0 |   |
|                                 |       |                                                 |       |   |   |   |   |   |   |
| Other operating costs                |       | 1.1                                                  |       | 0.4 |   | — |   | — |   |
|                                 |       |                                                 |       |   |   |   |   |   |   |
| Total operating  expenses            |       |       25.3                  |       | 9.7 |   |       74.0 |   | 24.9 |   |
| Operating income  (loss)             |       | $                                                    | 9.1        |   | 3.5 | % | $ | (39.6 | ) | (13.3 | )% |

 

**Three Months EndedMarch 31, 2007 Compared with the Three Months Ended March 31, 2006**

*Net Sales*

Net sales decreased by $37.3 million, or 12.5%, to$260.4 million for the first quarter of 2007 from $297.7 million for the threemonths ended March 31, 2006. The decrease resulted primarily from a 3.6%decrease in our sales volume and a 9.2% decrease in our average selling pricesreflecting reductions in raw material prices. See “Operating Segment Review”below for a detailed discussion of sales volumes and selling prices by segmentand division.

*Gross Profit*

Gross profit remained constant at $34.4 million forthe first quarter of 2007 despite lower sales volume due to raw material costreductions attributed to declining resin prices and improved waste rates andthe impact of the Company’s other cost containment initiatives. See “Operating SegmentReview” below for a detailed discussion of the margin variances by segment.

*Selling, Generaland Administrative*

Selling, general and administrative expenses were$19.5 million for the first quarter of 2007, compared to $18.1 million for thefirst quarter of 2006. This increase of $1.4 million includes $0.7 million inadditional payroll and payroll related costs, $0.5 million of additional legaland accounting related fees and $0.3 million in additional promotionalactivities.

*Research andDevelopment Costs*

Research and development costs were $3.1 million forthe first quarter of 2007, compared to $2.3 million in the first quarter of2006. This increase of $0.8 million is primarily attributable to the expansionof the Company’s 17 innovation programs underway to deliver solutions toexisting markets and allow us to access new markets.

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*Restructuring andOther Costs*

Restructuring and other costs of $1.4 million for thefirst quarter of 2007 relate entirely to the reorganization of our Canadianoperations and includes severance costs of $0.2 million associated with theclosure of our Barrie,  Ontario facilityand $1.2 million associated with the restructuring of the Canadian managementand sales teams.

*ReorganizationCosts*

Reorganizationcosts were $0.2 million for the first quarter of 2007, compared to$53.6 million for the first quarter of 2006. Reorganization costs in thefirst quarter of 2007 included $0.2 million of legal and bankruptcy courtfiling fees. Restructuring and other costs in the first quarter of 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 $7.3 million of legal andfinancial advisory fees incurred in connection with the Company’s bankruptcyproceedings.

*Other Operating Costs*

 Other operating costs for the first quarter of2007 included $1.1 million of costs associated with issuance of the Company’sSeries M Preferred Stock pursuant to the Company’s Plan.

*Operating Income (Loss)*

During the first quarter of 2007, the Company recordedoperating income of $9.1 million compared to an operating loss of $39.6 millionfor the first quarter of 2006.

*Interest Expense*

Interest expense on current and long-term debtincreased by $1.4 million to $21.2 million for the first quarter of2007, from $19.8 million for the first quarter of 2006. This increase isprimarily attributable to increased payment-in-kind interest on our 2004Amended Notes and capital leases, offset in part by discontinuance of intereston our 2000/2002 Notes.

Interest expense associated with dividends andaccretion of the original issue discount on the Company’s previouslyoutstanding Series A Preferred Stock pursuant to SFAS 150, wasdiscontinued, effective January 3, 2006.

*Income Tax Expense*

Income tax expense for the first quarter of 2007 was$0.7 million on pretax losses of $11.8 million, compared to income taxexpense of $1.2 million on pretax losses of $59.6 million for the same periodin 2006. Income tax benefits related to net operating losses in the UnitedStates were offset by a valuation allowance as the realization of these taxbenefits is not certain. The income tax expense in the statements of operationsprimarily reflects foreign income taxes.

**Operating SegmentReview**

*General*

We evaluate the performance of our operating segmentsbased on net sales (excluding inter-company sales) and segment profit. Thesegment profit reflects income from continuing operations adjusted for interestexpense, income taxes, depreciation, amortization, restructuring,reorganization and other costs and other non-cash charges (principallythe impairment of goodwill, intangible assets and fixed assets). For moreinformation on our operating segments, 

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including a reconciliationof segment profit to income before taxes, see Note 9 to the condensedconsolidated financial statements included elsewhere in this report.

We have four operating segments: Engineered Films,Industrial Films, Specialty Films and Printed Products. During 2006, theCompany reorganized its Specialty Products Group and separated it into the twooperating segments of Specialty Films and Printed Products. Segment informationin this report for 2006 has been reclassified to reflect this reorganization.

Summary of segment information (in millions ofdollars):
| ** **                                  | ** ** | **Engineered  Films** | ** ** | **Industrial  Films** | ** ** | **Specialty  Films** | ** ** | **Printed  Products** | ** ** | **Corporate/  Other** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|-----------------------|------------|----------------------|------------|-----------------------|------------|-----------------------|------------|-----------|------------|
| **Three  months ended March 31, 2007** |       |                  |       |                  |       |                 |       |                  |       |                  |       |      |       |
| Total net sales                             |       | $                     | 83.7       |                  | $          | 73.2                 |       | $                     | 48.0       |                  | $          | 51.3      |       | $ | 4.2 |   | $ | 260.4 |   |
| Segment profit                              |       | 13.4                  |       | 8.2                   |       | 6.0                  |       | 3.8                   |       | (7.7                  | )          | 23.7      |       |
|                                        |       |                  |       |                  |       |                 |       |                  |       |                  |       |      |       |
| **Three  months ended March 31, 2006** |       |                  |       |                  |       |                 |       |                  |       |                  |       |      |       |
| Total net sales                             |       | $                     | 103.2      |                  | $          | 78.1                 |       | $                     | 55.2       |                  | $          | 59.1      |       | $ | 2.1 |   | $ | 297.7 |   |
| Segment profit                              |       | 12.7                  |       | 7.5                   |       | 7.1                  |       | 3.5                   |       | (6.7                  | )          | 24.1      |       |

 

**Three months endedMarch 31, 2007 compared with the three months ended March 31, 2006**

*Engineered Films*

*NetSales.*   Net sales in Engineered Films decreasedby $19.5 million, or 18.9%, to $83.7 million for the quarter endedMarch 31, 2007 from $103.2 million for 2006. This change was due to adecrease in average selling prices of 12.3%, principally due to raw materialprice decreases and a 7.5% reduction in sales volume, primarily in converterand industrial film markets.

*Segmentprofit.*   The Engineered Films segment profit was$13.4 million for the quarter ended March 31, 2007, as compared to $12.7million for the same period in 2006. This $0.7 million increase in segmentprofit was primarily due to a $1.2 million reduction in waste and $1.1 millionin favorable manufacturing costs, partially offset by the impact of lower salesvolume.

*Industrial Films*

*Netsales.*   The net sales of our Industrial Filmssegment decreased by $4.9 million, or 6.3%, to $73.2 million for thequarter ended March 31, 2007 from $78.1 million for the quarter endedMarch 31, 2006. This decrease is directly correlated to lower raw materialcosts resulting in lower average selling prices of 11.2%, offset by a 5.5%increase in sales volume, primarily in the stretch films markets.

*Segmentprofit.*   The Industrial Films segment profit was$8.2 million for the quarter ended March 31, 2007, as compared to$7.5 million for the same period in 2006. This $0.7 million improvement insegment profit was primarily due to increased sales volume and favorablemanufacturing and selling general and administrative costs offset byunfavorable price mix in our PVC markets.

*Specialty Films*

*Netsales.*    Net sales in our Specialty Films segmentdecreased $7.2 million, or 13.0%, to $48.0 million for the quarter endedMarch 31, 2007 from $55.2 million for the quarter ended March 31,2006. This decrease was due to a decrease in our average selling prices of 3.7%and lower sales volume of 9.7% due primarily to increased Asian competition inour low gel and medical markets.

*Segmentprofit.*   The Specialty Films segment profit was$6.0 million for the quarter ended March 31, 2007, as compared to $7.1million for the quarter ended March 31, 2006. This $1.1 million declineincludes a $1.0 million unfavorable volume impact and $1.7 million inmanufacturing and selling, general and administrative costs increases, offsetby $1.6 million in favorable sales mix.

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*Printed Products*

*NetSales.*   Net sales of our Printed Products segmentdecreased $7.8 million or 13.2% to $51.3 million for the quarter ended March31, 2007 from $59.1 million for the quarter ended March 31, 2006. This decreasewas due to a reduction in average selling prices of 7.4% and lower sales volumeof 6.2% primarily in our bakery business.

*Segmentprofit.*   The Printed Products segment profit was$3.8 million for the quarter ended March 31, 2007, as compared to $3.5 millionfor the quarter ended March 31, 2006. This $0.3 million increase includes $0.9million of favorable sales mix, $1.5 million lower manufacturing and selling,general and administrative expenses, offset by $2.1 million impact of lowervolumes.

*Corporate/Other*

Corporate/Other includes our corporate headquarters andour research and development facility in Newport News, Virginia. Unallocatedcorporate expenses increased by $1.0 million to $7.7 million for the quarterended March 31, 2007, from $6.7 million for the quarter endedMarch 31, 2006. This increase was primarily due to higher research anddevelopment costs of $1.2 million attributed to our innovation programs andgovernment contract work offset by additional gross margin from commercializedsales as well as selling, general and administrative expenses of $1.0 millionconsisting of $0.4 million in payroll and $0.6 million in legal and otheroutside services costs.

**Liquidity andCapital 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 the 2000/2002 Notes,the 2003 Notes, the 2004 Notes and the sale of shares of our preferred stock.

As of March 31, 2007 our outstanding long-termdebt consisted of $127.6 million in borrowings under our revolving creditfacilities, $311.3 million of our Amended 2004 Notes, $7.8 million of our2004 Notes, $250.0 million of our 2003 Notes, $55.1 million of our NewSubordinated Notes and $10.4 million in capital leases.

*Current Exit Credit Facilities*

On July 18,2006, we entered into the Exit Credit Facilities. The Exit 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 Exit Credit Facilities includes sub-limits for loans to certainof our foreign subsidiaries which are borrowers under the Exit CreditFacilities. The Exit Credit Facilities were funded on July 18, 2006, andreplace our prior credit facilities. They are secured by a first prioritysecurity interest in substantially all of the Company’s and certain of itssubsidiaries’ assets, although the administrative agent has a second prioritysecurity interest only in certain of the Company’s and its subsidiaries’ assetsconsistent with the terms of an intercreditor arrangement with certainbondholders of the Company, which intercreditor arrangement is a carry-overfrom our prior credit arrangements.

The Exit CreditFacilities will mature on July 18, 2011. The interest rates for all loansother than those made to our German subsidiary range from, in the case ofalternate base rate loans, the alternate base rate (either prime rate or .50%over the Federal Funds Rate) plus 1.75% to the alternate base rate plus 2.00%and, in the case of eurodollar loans, LIBOR plus 2.75% to LIBOR plus 3.00%, ineach case depending on the amount of available credit. The interest rates forloans made in connection with the loans to our German subsidiary are, in thecase of 

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alternate base rateloans, the alternate base rate plus 5.00% and, in the case of eurodollar loans,LIBOR plus 6.00%. The commitment fee for the unused portion of the Exit CreditFacilities 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 CreditFacilities contain covenants that will limit our ability, subject to certainexceptions, to, among other things, incur or guarantee additional indebtedness,issue preferred stock or become liable in respect of any obligation to purchaseor redeem stock, create liens, merge or consolidate with other companies,change lines of business, make certain types of investments, sell assets, enterinto certain sale and lease-back and swap transactions, pay dividends on orrepurchase stock, make distributions with respect to certain debt obligations,enter into transactions with affiliates, restrict dividends or other paymentsfrom our subsidiaries, modify corporate and certain material debt documents,cancel certain debt, or change its fiscal year or accounting policies.

The Exit CreditFacilities also require the Company to comply with a fixed charge coverageratio of 1.00 to 1.00 for the first year of the facility and of 1.10 to 1.00thereafter; provided, that such coverage ratio shall only apply during periodsin which the amount of availability is and remains less than $20,000,000 for aspecified number of days. Once the amount of availability increases and remainsabove $20,000,000 for a specified number of days, such coverage ratio becomesinapplicable. In addition, the amount of availability under the Exit CreditFacilities must not be less than $10,000,000 at any time. The loans willautomatically become immediately due and payable without notice upon theoccurrence of an event of default involving insolvency or bankruptcy of theCompany or any of its subsidiaries. In addition, upon the occurrence and duringthe continuation of any other event of default under the Exit CreditFacilities, by notice given to the Company, the administrative agent may, andif directed by the Required Lenders (as defined in the Exit Credit Facilities) must,terminate the commitments and/or declare all outstanding loans to beimmediately due and payable.

The WorkingCapital Credit 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.

As of March 31,2007, we had borrowings of $127.6 million and availability of $45.7 millionunder the Exit Credit Facilities.

*Amended 2004 Notes*

The Amended 2004 Notes accreted from the date ofissuance through July 18, 2006 at the rate of 11 5/8%, compounded semi-annuallyon each June 15 and December 15. In connection with the Plan, theCompany entered into the First Supplemental Indenture dated July 18, 2006amending the Amended and Restated Indenture to increase the interest rate by..225% per annum with respect to the Amended 2004 Notes, which additionalinterest will accrue as payment-in-kind interest. As a result, on July 18,2006, the interest rate on the Amended 2004 Notes was increased to 11.85% perannum. The Amended 2004 Notes are secured on a first-priority basis by asecurity interest in our real property, fixtures, equipment, intellectualproperty and other assets other than the Second-Priority Collateral (the “First-PriorityNote Collateral”) and on a second-priority basis by a security 

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interest in substantiallyall our inventory, receivables and deposit accounts, 100% of the capital stockof, or other equity interests in existing and future domestic subsidiaries andforeign subsidiaries that are note guarantors, 65% of the capital stock of, orother equity interests in existing and future first-tier foreign subsidiaries,investment property and certain other assets of the Company and the note guarantors(the “Second-Priority Note Collateral”). The Amended 2004 Notes are guaranteedby our existing and future domestic restricted subsidiaries and certain foreignsubsidiaries.

The Amended 2004 Notes mature on June 15, 2009.On or after June 15, 2007, we may redeem some or all of the Amended 2004Notes at the following redemption prices (expressed as percentages of the sumof the principal amount, plus accrued and unpaid interest); 111.625% ifredeemed prior to June 15, 2007; 108.719% if redeemed prior toDecember 15, 2007; 105.813% if redeemed prior to June 15, 2008;102.906% if redeemed prior to December 15, 2008; and 100.000% if redeemedon or before June 15, 2009.

Prior to June 15, 2007, we may redeem up to amaximum of 35% of the principal amount of the Amended 2004 Notes with the netcash proceeds of certain equity offerings by us at a redemption price equal to111.625% of the sum of the principal amount plus accrued and unpaid interest,provided that after giving effect to such redemption (i) at least 65% ofthe principal amount of the notes remain outstanding and (ii) any suchredemption by us is made within 120 days after such equity offering.

*2004 Notes*

The 2004 Notes mature on June 15, 2009 and aresecured by a first-priority security interest in the First-Priority NoteCollateral and a second-priority security interest in the Second-Priority NoteCollateral. The 2004 Notes are guaranteed by our existing and future domesticrestricted subsidiaries and certain foreign subsidiaries.

The 2004 Notes accreted at the rate of 11 1/8%from the date of issuance until July 18, 2006, on which date the interestrate was increased by .225% to 11.35% in accordance with the Plan. The 2004Notes accreted at the rate of 11.35% until December 15, 2006 to an aggregateprincipal amount of $1,000.88 per $1,000 stated principal amount. Commencing onDecember 15, 2006, interest on the 2004 Notes accrues at the rate of11.35% with such incremental interest rate increase of .225% accruing aspayment-in-kind interest and the remaining 11 1/8% payable in cashsemiannually on June 15 and December 15, commencing on June 15,2007. The 2004 Notes mature on June 15, 2009.

Prior toJune 15, 2007, the Company may redeem up to 35% of the accreted value ofthe 2004 Notes with the net cash proceeds of certain equity offerings by it ata redemption price equal to 111.125% of the accreted value thereof plus accruedinterest, so long as (i) at least 65% of the accreted value of the notesremains outstanding after such redemption and (ii) any such redemption bythe Company is made within 120 days after such equity offering. On or afterJune 15, 2007, the Company may redeem some or all of the 2004 Notes at thefollowing redemption prices (expressed as percentages of the sum of theprincipal amount plus accrued and unpaid interest):  105.563% if redeemedon or after June 15, 2007 and prior to June 15, 2008; 102.781% ifredeemed on or after June 15, 2008 and prior to June 15, 2009; and100.00% if redeemed on June 15, 2009.

*2003 Notes*

The 2003 Notes accrued interest from the date ofissuance through maturity at the rate of 11 1/8%. The 2003 Notes mature onSeptember 1, 2009 and interest is payable in cash semiannually on eachMarch 1 and September 1. The 2003Notes rank equally with our existing and future senior debt and rank senior toour existing and future subordinated indebtedness, including the 13% New SeniorSubordinated Notes. 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, on one or moreoccasions, redeem up to a maximum of 35% of the original aggregate principalamount of the 2003 Notes with the net cash proceeds of one or more equityofferings by us at a redemption price equal to 111.125% of the principal amountthereof, plus accrued and unpaid interest. Otherwise, we may not redeem the2003 Notes prior to June 1, 2007. On or after that date, we may redeemsome 

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or all of the 2003 Notesat the following redemption prices (expressed as a percentage of principalamount), plus accrued and unpaid interest: 105.563% if redeemed prior toJune 1, 2008; 102.781% if redeemed prior to June 1, 2009; and 100% ifredeemed on or after June 1, 2009.

*Preferredstock*

We have 335,592 of$1.000 per share stated value of Series AA Redeemable Preferred Stockoutstanding as of March 31, 2007, which accrues dividends at the rate of13% per annum. The Series AA Preferred Stock is convertible into our NewCommon Stock. If the Series AA Preferred Stock has not been redeemed orrepurchased by July 18, 2011, the holders of at least 40% of theoutstanding shares of Series AA Preferred Stock shall have the right tocause all of the outstanding class of Series AA Preferred Stock to beconverted into a number of shares of New Common Stock equal to 99.9% of thenumber of fully diluted shares of New Common Stock after giving effect to suchconversion (excluding shares, if any, of New Common Stock issued tostockholders of the other party to a merger qualifying for the “MergerException” as defined in our Amended and Restated Certificate ofIncorporation).

In addition, we have 8,000 shares of Series MPreferred Stock with a par value of $.01 per share outstanding. During 2006, weadopted the Plan, pursuant to which each participant with shares of Series MPreferred Stock participates in the enterprise value of our Company upon a “liquidationevent” or upon an 80% “redemption” of the Series AA Preferred Stock orupon a public offering, to the extent the proceeds exceed $224.8 million. Aparticipant’s restricted Series M Preferred Stock vests monthly over a 36month period; or upon a liquidation event, redemption, or public offering; orupon certain terminations of employment within a limited period before anaccelerated vesting event.

*Net Cash Providedby/Used in Operating Activities*

Net cash provided by operating activities was $1.5million for the three months ended March 31, 2007, compared to $15.8million for the same period in 2006. This $14.3 million decrease between yearsreflects increased working capital requirements of $19.9 million, partiallyoffset by a $5.6 million improvement in earnings from operations beforenon-cash charges. Net working capital requirements for the three months endedMarch 31, 2007 increased $8.7 million and reflect improvements of $16.2 millionconsisting of $13.3 million in receivables, $1.9 million in accounts payableand $1.0 million in prepaid expenses which are more than offset by reductionsin accrued liabilities of $21.7 million and increases in inventories of $3.0million. During the first three months of 2007, the Company made itssemi-annual bond payment of $13.9 million and paid out its fiscal 2006 incentiveplans of $6.8 million and $3.4 million in annual vendor rebate program accruedas of year end. Payments for comparable items were not made during the firstthree months of 2006 in accordance with the applicable provisions of theBankruptcy Code. During the first three months of 2006, net working capitalrequirements decreased $11.2 million and included working capital improvementsof $18.3 million due to accounts payable and accrued liabilities attributableto reinstatement of credit terms and $6.6 million reduction in other assets dueto write-offs of capitalized financing costs, partially offset by increases inaccounts receivable and inventories of $9.5 million and $6.1 million,respectively.

*Net Cash Used inInvesting Activities*

Net cash used in investing activities increased $4.2million to $11.4 million for the three months ended March 31, 2007, from$7.2 million for the three months ended March 31, 2006 primarily due toincreases in capital expenditures.

*Net Cash Providedby/Used in Financing Activities*

Net cash provided by financing activities was $13.8million for the three months ended March 31, 2007, compared to net cashused in financing activities of $1.5 million for the three months endedMarch 31, 2006.  Activity for thethree months ended March 31, 2007, includes additional borrowings under ourExit Financing 

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Facilities of $14.0million to meet capital expenditure requirements and to fund $13.9 millionsemi-annual bond payment made March 1st, $0.2 million in proceeds from sale ofthe Company’s Series M Preferred Stock, $0.1 million of payments of financingfees and $0.2 million in payments of capital leases. Activity for the firstthree months of 2006 included $1.0 million payment of arrangement feesassociated with our DIP revolving credit facility and $0.5 million of paymentsof capital leases.

***Liquidity***

As of March 31, 2007, we had $127.6 million ofborrowings under our $200 million Exit Credit Facilities, and $45.7 million ofavailability subject to our borrowing base limitations and $5.5 million inoutstanding letters of credit.

As of March 31, 2007, we had $7.1 million in cash andcash equivalents, of which $2.2 million is a compensating balance associatedwith our Canadian operation’s borrowings under our Exit Credit Facilities. Inaddition, a portion of our cash and cash equivalents are held by our other foreignsubsidiaries.

The Company expects that cash flows from operatingactivities and available borrowings under our Exit Credit Facilities of up to$200 million will provide sufficient cash flow to operate our business, to makeexpected capital expenditures and to meet foreseeable liquidityrequirements.  However, our ability toborrow under our Exit Credit Facilities at any time may be subject to theborrowing base in effect at that time. Our ability to make borrowings under ourExit Credit Facilities will also be conditioned upon our compliance with othercovenants in these agreements, including financial covenants that apply whenour borrowings exceed certain amounts. In addition, the terms of our indenturescurrently limit the amount we may borrow under our Exit Credit Facilities.

*CapitalExpenditures*

Our total capital expenditures were approximately$34 million in 2005, $41 million in 2006 and are expected to beapproximately $60 million in 2007. These expenditures are focused onprojects to lower operating costs, add capacity for high value products, expandresearch and development programs, and bring new innovative products to market.

*RawMaterial Costs*

Changes in rawmaterial costs can significantly affect the amount of cash provided by ouroperating activities, which can affect our liquidity. Over the past two years,we have experienced a period of extreme uncertainty with respect to resinsupplies and prices. High crude oil and natural gas pricing, have had asignificant impact on the price and supply of resins. During the same period,many major suppliers of resin have announced price increases to cover theirincreases in feedstock costs. While the prices of our products generallyfluctuate with the prices of resins, certain of our customers have contractsthat limit our ability to pass the full cost of higher resin pricing through toour customers immediately. Further, competitive conditions in our industry maymake it difficult for us to sufficiently increase our selling prices for allcustomers to reflect the full impact of increases in raw material costs. Ifthis period of high resin pricing continues, we may be unable to pass on theentire effect of the price increases to our customers, which would adverselyaffect our profitability and working capital. In addition, further increases incrude oil and natural gas prices could make it difficult for us to obtain anadequate supply of resin from manufacturers affected by these factors.

**ContractualObligations**

***There have been no material changes in our contractualobligations and commercial commitments since December 31, 2006 arising outsideof the ordinary course of business.***

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**CautionaryStatement for Forward-Looking Information**

Some of the statements set forth in this reportincluding, but not limited to, those under the heading “Management’s Discussionand Analysis of Financial Condition and Results of Operation,” are in “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. These statements relate to analyses and other information that isbased on forecasts of future results and estimates of amounts not yetdeterminable. These statements also relate to our future prospects,developments and business strategies. These forward-looking statementsare identified by their use of terms and phrases such as “anticipate,”“believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,”“project,” “will” and similar terms and phrases, including references toassumptions. These forward-looking statements are not historical factsbut instead represent only expectations, estimates and projections regardingfuture events. These statements are not guarantees of future performance andinvolve known and unknown risks, uncertainties and other factors that aredifficult to predict and may cause actual results to be materially different.These factors include, but are not limited to, the following:

·     general economic and business conditions,particularly an economic downturn;

·     continuing losses and charges againstearnings resulting from restructuring or the impairment of assets;

·     industry trends;

·     risks of high leverage and any increases inour leverage;

·     interest rate increases;

·     changes in our ownership structure;

·     changes in the Company’s composition ofoperating segments; 

·     raw material costs and availability,particularly resin;

·     the timing and extent to which we passthrough resin cost changes to our customers;

·     the loss of any of our key suppliers;

·     changes in credit terms from our suppliers;

·     competition;

·     the loss of any of our major customers;

·     changes in demand for our products;

·     new technologies;

·     changes in distribution channels orcompetitive conditions in the markets or countries where we operate;

·     costs of integrating any futureacquisitions;

·     loss of our intellectual property rights;

·     foreign currency fluctuations anddevaluations and political instability in our foreign markets;

·     changes in our business strategy ordevelopment plans;

·     availability, terms and deployment ofcapital;

·     availability of qualified personnel;

·     labor relations and work stoppages;

·     increasesin the cost of compliance with laws and regulations, including environmentallaws and regulations; and

·     other risks and uncertainties listed ordescribed from time to time in reports we periodically file with the SEC.

We may also make additional forward-lookingstatements from time to time. All such subsequent forward-lookingstatements, whether written or oral, by us or on our behalf, are also expresslyqualified by these cautionary statements. All forward-looking statements,including, without limitation, management’s examination of historical operatingtrends, are based upon our current expectations and various assumptions. Ourexpectations, beliefs and projections are expressed in good faith and webelieve there is a reasonable basis for them. But, there can be no assurancethat management’s expectations, beliefs and projections will result or beachieved. All forward-looking statements apply only as of the date made.We undertake no obligation to publicly update or revise forward-lookingstatements which may be made to reflect events or circumstances after the datemade or to reflect the occurrence of unanticipated events.

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Our risks are more specifically described in the “RiskFactors” of Part I, Item 1A of the Company’s Annual Report on Form 10-Kfor the year ended December 31, 2006. If one or more of these risks oruncertainties materialize, or if underlying assumptions prove incorrect, ouractual results may vary materially from those expected, estimated or projected.

**ITEM 3.**                    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 $127.6 million as of March 31, 2007.

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 March 31, 2007, we did not have any commodity collar agreementsoutstanding. Prices for resin dropped dramatically during the fourth quarter of2006 and may continue to fluctuate. 

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.

**ITEM 4.**                    CONTROLS AND PROCEDURES

**Evaluation ofDisclosure Controls and Procedures**

The effectiveness of our or any system of disclosurecontrols and procedures is subject to certain limitations, including theexercise of judgment in designing, implementing and evaluating the controls andprocedures, the assumptions used in identifying the likelihood of futureevents, and the inability to eliminate misconduct completely. As a result,there can be no assurance that our disclosure controls and procedures willdetect all errors or fraud. By their nature, our or any system of disclosurecontrols and procedures can provide only reasonable assurance regardingmanagement’s control objectives. 

Under the supervision and with the participation ofour management, including our Chief Executive Officer and Chief Financial Officer,we evaluated the design and operation of our disclosure controls and procedures(as defined in Rules 13a-15(e) and 15d-15(e) of the SecuritiesExchange Act of 1934, or the “Exchange Act”) as of March 31, 2007. On the basisof this review, our management, including our Chief Executive Officer and ChiefFinancial Officer, concluded that our disclosure controls and procedures aredesigned, and are effective, to give 

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reasonable assurance thatthe information required to be disclosed by us in reports that we file underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the rules and forms of the SEC and to ensure thatinformation required to be disclosed in the reports filed or submitted underthe Exchange Act is accumulated and communicated to our management, includingour Chief Executive Officer and Chief Financial Officer, in a manner thatallows timely decisions regarding required disclosure.

**Changes inInternal Controls**

Management has evaluated, with the participation ofour principal executive officer and our principal financial officer, changes inthe Company’s internal controls over financial reporting (as defined in Rule13a-15(f) and 15d-15(f) of the Exchange Act during the first quarter of 2007.

There were no changes in our internal controls overfinancial reporting that occurred during the quarter that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrols over financial reporting.

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**PART II.   OTHERINFORMATION**

**ITEM 1.**                    LEGALPROCEEDINGS

None. 

**ITEM 1A.**           RISK FACTORS

There have been no material changes to the riskfactors as disclosed in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2006.

**ITEM 2.**                    UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None. 

**ITEM 3.**                    DEFAULTS UPONSENIOR SECURITIES

None.

**ITEM 4.**                    SUBMISSION OFMATTERS TO A VOTE OF SECURITY HOLDERS

None.

**ITEM 5.**                    OTHERINFORMATION

None. 

**ITEM 6.**                    EXHIBITS

The exhibits listed on the accompanying Index toExhibits are filed or incorporated by reference as a part of this report andsuch Index to Exhibits is incorporated herein by reference.

 

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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: May 15, 2007 |                                          |

 

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**INDEX TO EXHIBITS**
| 10.1(a) |   | Form of Restricted Stock Agreement pursuant to  Pliant Corporation 2006 Restricted Stock Incentive Plan, dated February 20,  2007.                                       |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                     |
| 10.1(b) |   | Schedule of Purchasers.                                                                                                                                                  |
|    |   |                                                                                                                                                                     |
| 10.2(a) |   | Form of Restricted Stock Agreement pursuant to  Pliant Corporation 2006 Restricted Stock Incentive Plan, dated April 17,  2007.                                          |
|    |   |                                                                                                                                                                     |
| 10.2(b) |   | Schedule of Purchasers.                                                                                                                                                  |
|    |   |                                                                                                                                                                     |
| 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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