**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

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** **

**FORM 10-Q**

** **
| **(Mark  One)**                                         | ** ** | ** **                                                                                               |
|---------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **                                              | ** ** | ** **                                                                                               |
| **x**                                                   | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
| ** **                                              | ** ** | ** **                                                                                               |
| **For  the quarterly period ended March 31, 2008** |
| ** **                                              | ** ** | ** **                                                                                               |
| **OR**                                                  |
| ** **                                              | ** ** | ** **                                                                                               |
| **o**                                                   | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |

 

**Forthe transition period from                 to                 **

** **

**Commissionfile number 333-40067**

** **

**PLIANTCORPORATION**

(Exact name ofregistrant as specified in its charter)

 
| **Delaware**                     | **43-2107725**       |
|----------------------------------|----------------------|
| (State or other  jurisdiction of | (I.R.S. Employer     |
| incorporation or  organization)  | Identification  No.) |

 

**1475Woodfield Road, Suite 700**

**Schaumburg,IL 60173**

**(847)969-3300**

(Address ofprincipal executive offices and telephone number)

 

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

 

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

 

| Large  accelerated filer o                     |   | Accelerated  filer o         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non-accelerated  filer x                       |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).

Yes  o   No  x

 

APPLICABLE ONLY TOISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVEYEARS:  Indicate by check mark whetherthe registrant has filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to thedistribution of securities under a plan confirmed by a court.

Yes  x   No  o

 

At May 5, 2008,there were 97,348 outstanding shares of the Registrant’s common stock. As of May 5,2008, persons other than affiliates of the Registrant held 47,131, orapproximately 48.43%, of the outstanding shares of the Registrant’s commonstock.  There is no established trading market for the Registrant’s commonstock and, therefore, the aggregate market value of shares held bynon-affiliates cannot be determined by reference to recent sales or bid andasked prices.

 

 

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**PLIANTCORPORATION AND SUBSIDIARIES**

**TABLEOF CONTENTS**

 
| PART I.  FINANCIAL INFORMATION                                                                                          | 3      |
|------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                         |   |
| ITEM 1.  FINANCIAL STATEMENTS                                                                                                | 3      |
|                                                                                                                         |   |
| CONDENSED  CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2008 (Unaudited)  AND DECEMBER 31, 2007                     | 3      |
|                                                                                                                         |   |
| CONDENSED  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED  MARCH 31, 2008 AND 2007 (Unaudited)        | 4      |
|                                                                                                                         |   |
| CONDENSED  CONSOLIDATED STATEMENTS OF CASH FLOW FOR THE THREE MONTHS ENDED  MARCH 31, 2008 AND 2007 (Unaudited)         | 5      |
|                                                                                                                         |   |
| CONDENSED  CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE THREE MONTHS ENDED  MARCH 31, 2008 (Unaudited) | 6      |
|                                                                                                                         |   |
| NOTES  TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)                                                            | 7      |
|                                                                                                                         |   |
| ITEM  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF  OPERATIONS                         | 24     |
|                                                                                                                         |   |
| ITEM  3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                          | 35     |
|                                                                                                                         |   |
| ITEM  4. CONTROLS AND PROCEDURES                                                                                             | 35     |
|                                                                                                                         |   |
| PART II. OTHER  INFORMATION                                                                                             | 36     |
|                                                                                                                         |   |
| ITEM 1.  LEGAL PROCEEDINGS                                                                                                   | 36     |
|                                                                                                                         |   |
| ITEM 1A. RISK  FACTORS                                                                                                       | 36     |
|                                                                                                                         |   |
| ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                                         | 36     |
|                                                                                                                         |   |
| ITEM  3. DEFAULTS UPON SENIOR SECURITIES                                                                                     | 36     |
|                                                                                                                         |   |
| ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                                 | 36     |
|                                                                                                                         |   |
| ITEM 5.  OTHER INFORMATION                                                                                                   | 36     |
|                                                                                                                         |   |
| ITEM 6. EXHIBITS                                                                                                             | 36     |

 

2

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**PART I.   FINANCIALINFORMATION**

** **

**ITEM 1.****                                     FINANCIALSTATEMENTS**

** **

**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**ASOF MARCH 31, 2008 (UNAUDITED) AND DECEMBER 31, 2007 (DOLLARS IN THOUSANDS)**

 
| ** **                                                                                                                                                                                                                                                                                                       | ** ** | **March 31,  2008** | ** ** | **December 31,  2007** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| **ASSETS**                                                                                                                                                                                                                                                                                                       |       |                     |       |                        |       |
| CURRENT ASSETS:                                                                                                                                                                                                                                                                                                  |       |                     |       |                        |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                                                       |       | $                        | 8,203      |                        | $          | 7,258 |   |
| Receivables, net  of allowances of $3,321 and $3,207, respectively                                                                                                                                                                                                                                               |       | 142,067                  |       | 127,590                     |       |
| Inventories                                                                                                                                                                                                                                                                                                      |       | 119,575                  |       | 108,358                     |       |
| Prepaid expenses  and other                                                                                                                                                                                                                                                                                      |       | 5,801                    |       | 6,269                       |       |
| Income taxes  receivable, net                                                                                                                                                                                                                                                                                    |       | 2,000                    |       | 1,884                       |       |
| Deferred income  taxes                                                                                                                                                                                                                                                                                           |       | 9,292                    |       | 9,145                       |       |
| Total current  assets                                                                                                                                                                                                                                                                                            |       | 286,938                  |       | 260,504                     |       |
| PLANT AND  EQUIPMENT, net                                                                                                                                                                                                                                                                                        |       | 312,395                  |       | 311,756                     |       |
| GOODWILL                                                                                                                                                                                                                                                                                                         |       | 72,476                   |       | 72,527                      |       |
| INTANGIBLE  ASSETS, net                                                                                                                                                                                                                                                                                          |       | 10,442                   |       | 11,081                      |       |
| OTHER ASSETS                                                                                                                                                                                                                                                                                                     |       | 18,796                   |       | 20,111                      |       |
| TOTAL ASSETS                                                                                                                                                                                                                                                                                                     |       | $                        | 701,047    |                        | $          | 675,979 |   |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                                                                                                                                                                                                                                  |       |                     |       |                        |       |
| CURRENT  LIABILITIES:                                                                                                                                                                                                                                                                                            |       |                     |       |                        |       |
| Current portion  of long-term debt                                                                                                                                                                                                                                                                               |       | $                        | 1,077      |                        | $          | 1,102 |   |
| Trade accounts  payable                                                                                                                                                                                                                                                                                          |       | 101,388                  |       | 93,178                      |       |
| Accrued  liabilities:                                                                                                                                                                                                                                                                                            |       |                     |       |                        |       |
| Interest payable                                                                                                                                                                                                                                                                                                 |       | 4,224                    |       | 12,079                      |       |
| Customer rebates                                                                                                                                                                                                                                                                                                 |       | 5,727                    |       | 8,787                       |       |
| Other                                                                                                                                                                                                                                                                                                            |       | 34,265                   |       | 36,544                      |       |
| Total current  liabilities                                                                                                                                                                                                                                                                                       |       | 146,681                  |       | 151,690                     |       |
| LONG-TERM DEBT,  net of current portion                                                                                                                                                                                                                                                                          |       | 794,319                  |       | 751,465                     |       |
| OTHER  LIABILITIES                                                                                                                                                                                                                                                                                               |       | 21,502                   |       | 22,605                      |       |
| DEFERRED INCOME  TAXES                                                                                                                                                                                                                                                                                           |       | 18,348                   |       | 18,163                      |       |
| Total  Liabilities                                                                                                                                                                                                                                                                                               |       | 980,850                  |       | 943,923                     |       |
| 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, 334,894 and 335,592 shares outstanding at  March 31, 2008 and December 31, 2007, respectively |       | 260,469                  |       | 247,355                     |       |
| Redeemable  Preferred Stock—Series M—8,000 shares authorized, par value $.01 per  share, 8,000 shares outstanding at March 31, 2008 and December 31,  2007                                                                                                                              |       | —                   |       | —                      |       |
| Common Stock—100,050,000  shares authorized, par value $.01 per share, 97,348 and 100,003 shares  outstanding at March 31, 2008 and December 31, 2007,  respectively                                                                                                                         |       | 1                        |       | 1                           |       |
| Paid in capital                                                                                                                                                                                                                                                                                                  |       | 155,341                  |       | 155,341                     |       |
| Accumulated  deficit                                                                                                                                                                                                                                                                                             |       | (685,193                 | )          | (658,163                    | )          |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                                                                            |       | (10,421                  | )          | (12,478                     | )          |
| Total  stockholders’ deficit                                                                                                                                                                                                                                                                                |       | (279,803                 | )          | (267,944                    | )          |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                                                                                                                                                                |       | $                        | 701,047    |                        | $          | 675,979 |   |

 

See notes tocondensed consolidated financial statements.

 

3

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**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFOPERATIONS**

**FORTHE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (IN THOUSANDS) (UNAUDITED)**

 
| ** **                                        | ** ** | **Three Months Ended** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **March 31,**               | ** ** |
| ** **                                        | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| NET SALES                                         |       | $                                | 285,471    |   | $ | 260,392 |   |
|                                              |       |                             |       |   |   |
| COST OF SALES                                     |       | 258,992                          |       | 225,956 |   |
| Gross Profit                                      |       | 26,479                           |       | 34,436 |   |
|                                              |       |                             |       |   |   |
| OPERATING  EXPENSES:                              |       |                             |       |   |   |
| Selling, General  and Administrative              |       | 15,355                           |       | 19,538 |   |
| Research and  Development                         |       | 1,787                            |       | 3,065 |   |
| Restructuring  and Other Costs                    |       | 53                               |       | 1,408 |   |
| Reorganization  Costs                             |       | 89                               |       | 271 |   |
| Other Operating  Costs                            |       | —                           |       | 1,101 |   |
| Total Operating  Expenses                         |       | 17,284                           |       | 25,383 |   |
|                                              |       |                             |       |   |   |
| OPERATING INCOME                                  |       | 9,195                            |       | 9,053 |   |
|                                              |       |                             |       |   |   |
| INTEREST  EXPENSE—Current and Long-Term Debt |       | (22,494                          | )          | (21,174 | ) |
|                                              |       |                             |       |   |   |
| OTHER INCOME—Net                             |       | 107                              |       | 351 |   |
|                                              |       |                             |       |   |   |
| LOSS BEFORE  INCOME TAXES                         |       | (13,192                          | )          | (11,770 | ) |
|                                              |       |                             |       |   |   |
| INCOME TAX  EXPENSE                               |       | 724                              |       | 678 |   |
|                                              |       |                             |       |   |   |
| NET LOSS                                          |       | $                                | (13,916    | ) | $ | (12,448 | ) |

 

See notes tocondensed consolidated financial statements.

 

4

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**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFCASH FLOW**

**FORTHE THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (IN THOUSANDS) (UNAUDITED)**

 
| ** **                                                                                       | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                       | ** ** | **March 31,**               | ** ** |
| ** **                                                                                       | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                           |       |                             |       |   |   |
| Net loss                                                                                         |       | $                                | (13,916    | ) | $ | (12,448 | ) |
| Adjustments to  reconcile net loss to net cash (used in)/provided by  operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                                   |       | 10,821                           |       | 11,553 |   |
| Amortization of  deferred financing costs and accretion of debt discount                         |       | 1,477                            |       | 1,072 |   |
| Payment-in-kind  interest on debt                                                                |       | 10,006                           |       | 8,918 |   |
| Provision for  losses on accounts receivable                                                     |       | (166                             | )          | — |   |
| Deferred income  taxes                                                                           |       | 133                              |       | 411 |   |
| Non cash other  operating costs                                                                  |       | —                           |       | 664 |   |
| Changes in  assets and liabilities:                                                              |       |                             |       |   |   |
| Receivables                                                                                      |       | (13,318                          | )          | 13,329 |   |
| Inventories                                                                                      |       | (11,254                          | )          | (3,035 | ) |
| Prepaid expenses  and other                                                                      |       | 1,337                            |       | 980 |   |
| Income taxes  payable/receivable                                                                 |       | (723                             | )          | 612 |   |
| Other assets                                                                                     |       | (162                             | )          | (183 | ) |
| Trade accounts  payable                                                                          |       | 8,098                            |       | 1,869 |   |
| Accrued  liabilities                                                                             |       | (13,231                          | )          | (21,652 | ) |
| Other  liabilities                                                                               |       | (919                             | )          | (627 | ) |
| Net cash (used  in)/provided by operating activities                                             |       | (21,817                          | )          | 1,463 |   |
|                                                                                             |       |                             |       |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                           |       |                             |       |   |   |
| Proceeds from  sale of assets                                                                    |       | —                           |       | 26 |   |
| Capital  expenditures for plant and equipment                                                    |       | (10,321                          | )          | (11,437 | ) |
| Net cash used in  investing activities                                                           |       | (10,321                          | )          | (11,411 | ) |
|                                                                                             |       |                             |       |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                           |       |                             |       |   |   |
| Proceeds from  issuance of preferred stock                                                       |       | —                           |       | 160 |   |
| Payment of  financing fees                                                                       |       | —                           |       | (103 | ) |
| Repayment of  capital leases and other, net                                                      |       | (310                             | )          | (228 | ) |
| Borrowings under  revolving credit facility                                                      |       | 33,000                           |       | 14,000 |   |
| Net cash  provided by financing activities                                                       |       | 32,690                           |       | 13,829 |   |
|                                                                                             |       |                             |       |   |   |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                    |       | 393                              |       | (1,005 | ) |
|                                                                                             |       |                             |       |   |   |
| NET INCREASE IN  CASH AND CASH EQUIVALENTS                                                       |       | 945                              |       | 2,876 |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD                                              |       | 7,258                            |       | 4,199 |   |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                                                    |       | $                                | 8,203      |   | $ | 7,075 |   |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                              |       |                             |       |   |   |
| Cash paid during  the period for:                                                                |       |                             |       |   |   |
| Interest                                                                                         |       | 19,249                           |       | 17,033 |   |
| Income taxes                                                                                     |       | 676                              |       | 464 |   |
| Supplemental  schedule of non-cash investing and financing activities:                           |       |                             |       |   |   |
| Plant and  equipment acquired under capital leases                                               |       | —                           |       | 1,998 |   |

 

See notes tocondensed consolidated financial statements.

 

5

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**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSED CONSOLIDATED STATEMENTS OFSTOCKHOLDERS’ DEFICIT**

**FORTHE THREE MONTHS ENDED MARCH 31, 2008 (IN THOUSANDS) (UNAUDITED)**

 
| ** **                                    | ** ** | ** ** | ** ** | **Preferred Stock** | ** ** | **Common Stock** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------|------------|------------|------------|--------------------------|------------|-----------------------|------------|------------|------------|------------|------------|
| ** **                                    | ** ** | ** ** | ** ** | **Series AA**       | ** ** | **Series M**     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                    | ** ** | **Total**  | ** ** | **Shares**               | ** ** | **Amount**            | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Paid In  Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** |
| BALANCE-December 31,  2007               |       | $          | (267,944   | )                        | 335        |                  | $          | 247,355    |       | 8          |       | $ | — |   | 100 |   | $ | 1 |   | $ | 155,341 |   | $ | (658,163 | ) | $ | (12,478 | ) |
| Comprehensive  loss:                          |       |       |       |                     |       |                  |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Net loss                                      |       | (13,916    | )          |                     |       |                  |       |       |       |       |       |   |   |   |   |   |   | (13,916 | ) |   |   |
| Change in  unrecognized pension benefit costs |       | 445        |       |                     |       |                  |       |       |       |       |       |   |   |   |   |   |   |   |   | 445 |   |
| Foreign currency  translation adjustment      |       | 1,612      |       |                     |       |                  |       |       |       |       |       |   |   |   |   |   |   |   |   | 1,612 |   |
| Comprehensive  loss:                          |       | (11,859    | )          |                     |       |                  |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Preferred stock  dividends                    |       | —     |       |                     |       | 13,114                |       |       |       |       |       |   |   |   |   |   |   | (13,114 | ) |   |   |
|                                          |       | $          | (279,803   | )                        | 335        |                  | $          | 260,469    |       | 8          |       | $ | — |   | 100 |   | $ | 1 |   | $ | 155,341 |   | $ | (685,193 | ) | $ | (10,421 | ) |

 

See notes tocondensed consolidated financial statements.

 

6

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**PLIANTCORPORATION AND SUBSIDIARIES**

** **

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

** **

**1.             BASISOF PRESENTATION**

** **

The unaudited interimcondensed consolidated financial statements of Pliant Corporation and itssubsidiaries (collectively “Pliant”, the “Company” or “we”) were prepared in accordance with accountingprinciples generally accepted in the United States of America (“GAAP”),and pursuant to the rules and regulations of the Securities and ExchangeCommission (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 infootnote disclosures normally included in financial statements presented inaccordance with GAAP has been condensed or omitted in accordance with the rules andregulations of the SEC. These statements should be read in conjunction with theCompany’s Annual Report on Form 10-K for the year ended December 31,2007.

 

We adopted the provisionsof SFAS No. 157, *Fair Value Measurements*(“SFAS 157”) on January 1, 2008. SFAS 157 defines fair value, establishesa market-based framework or hierarchy for measuring fair value, and expandsdisclosures about fair value measurements. SFAS 157 is applicable wheneveranother accounting pronouncement requires or permits assets and liabilities tobe measured at fair value. SFAS 157 does not expand or require any new fairvalue measures, however the application of this statement may change currentpractice. In February 2008, the Financial Accounting Standards Board (“FASB”)decided that an entity need not apply this standard to nonfinancial assets andliabilities that are recognized or disclosed at fair value in the financialstatements on a nonrecurring basis until 2009. Accordingly, our adoption ofthis standard in 2008 was limited to financial assets and liabilities and didnot have a material effect on our financial condition or results of operations.We are still in the process of evaluating this standard with respect to itseffect on nonfinancial assets and liabilities and therefore have not yetdetermined the impact that it will have on our financial statements upon fulladoption in 2009. Nonfinancial assets and liabilities for which we have notapplied the provisions of SFAS 157 include those measured at fair value inimpairment testing and those initially measured at fair value in a businesscombination.

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities — Including an amendment of FASBStatement No. 115,*(“SFAS 159”) which permits entities tochoose to measure many financial instruments and certain other items at fairvalue that are not currently required to be measured at fair value.  The Company adopted this statement as of January 1,2008 and has elected not to apply the fair value option to any of its financialinstruments at this time.

 

**2.             INVENTORIES**

** **

Inventories are valued atthe lower of cost (using the first-in, first-out method) or market value.Inventories as of March 31, 2008 and December 31, 2007 consisted ofthe following (in thousands):

 
| ** **      | ** ** | **March 31,   2008** | ** ** | **December 31,   2007** | ** ** |
|-----------------|------------|--------------------------------|------------|-----------------------------------|------------|
| Finished goods  |       | $                              | 61,401     |                              | $          | 56,772 |   |
| Raw materials   |       | 47,285                         |       | 40,507                            |       |
| Work-in-process |       | 10,889                         |       | 11,079                            |       |
| Total           |       | $                              | 119,575    |                              | $          | 108,358 |   |

 

7

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** **

**3.   RESTRUCTURING AND OTHER COSTS**

 

Restructuring and othercosts include plant closing costs (including costs related to relocation ofmanufacturing equipment), office closing costs and other costs related toworkforce reductions.

 

The following tablesummarizes restructuring and other costs for the three months ended March 31(in thousands):

 
| ** **                                         | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **March 31,**               | ** ** |
| ** **                                         | ** ** | **2008**                         | ** ** | **2007** | ** ** |
| **Plant  closing costs:**                          |       |                             |       |   |   |
| Severance                                          |       | $                                | —     |   | $ | 170 |   |
| Other plant  closure costs                         |       | 16                               |       | 22 |   |
| **Office  closing and workforce reduction costs:** |       |                             |       |   |   |
| Severance                                          |       | 37                               |       | 1,216 |   |
| **Total  Restructuring and other costs**           |       | $                                | 53         |   | $ | 1,408 |   |

 

The following tablesummarizes the roll-forward of the accruals from December 31, 2007 to March 31, 2008:

 
| ** **                                       | ** **   | ** **           | ** **   | ** **   | ** **   | **Accruals for the three months ended   March 31, 2008** | ** **   | ** **    | ** **   | ** **   | ** **   | ** **   | ** **   |
|--------------------------------------------------|--------------|----------------------|--------------|--------------|--------------|--------------------------------------------------------------------------------------------------|--------------|---------------|--------------|--------------|--------------|--------------|--------------|
| ** **                                       | ** **   | ** **           | ** **   | ** **   | ** **   | ** **                                                                                       | ** **   | ** **    | ** **   | **Other**    | ** **   | ** **   | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                       | ** **   | **12/31/2007**       | ** **   | ** **   | ** **   | ** **                                                                                       | ** **   | **Plant**     | ** **   | ** **   | ** **   | ** **   | ** **   | **3/31/2008** | ** ** |
| ** **                                       | ** **   | **# Employees** | ** **   | **Accrual**  | ** **   | **Additional**                                                                                   | ** **   | ** **    | ** **   | **Closure**  | ** **   | ** **   | ** **   | **Payments/** | ** ** | **# Employees** | ** ** | **Accrual** | ** ** |
| ** **                                       | ** **   | **Terminated**       | ** **   | **Balance**  | ** **   | **Employees**                                                                                    | ** **   | **Severance** | ** **   | **Costs**    | ** **   | **Total**    | ** **   | **Charges** | ** ** | **Terminated** | ** ** | **Balance** | ** ** |
| ***Plant  Closing Costs:***                      |         |                 |         |         |         |                                                                                             |         |          |         |         |         |         |         |   |   |   |   |   |   |
| Leases                                           |         | —               |         | 920          |         | —                                                                                           |         | —        |         | 16           |         | 16           |         | — |   | — |   | 936 |   |
| Langley                                          |         | 6                    |         | 207          |         | —                                                                                           |         | —        |         | —       |         | —       |         | (183 | ) | — |   | 24 |   |
| Barrie                                           |         | —               |         | 19           |         | —                                                                                           |         | —        |         | —       |         | —       |         | — |   | — |   | 19 |   |
|                                             |         | 6                    |         | $            | 1,146        |                                                                                             | —       |          |         |         | 16           |         | $            | 16 |   | $ | (183 | ) | — |   | $ | 979 |   |
| ***Office  Closing/Workforce Reduction Costs:*** | *** *** | *** ***         | *** *** | *** *** | *** *** | *** ***                                                                                     | *** *** | *** ***  | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** | *** *** |
| 2007 Workforce  Reduction                        |         | 49                   |         | 463          |         | —                                                                                           |         | 27            |         | —       |         | 27           |         | (388 | ) | 7 |   | 102 |   |
| Canadian  Restructuring                          |         | —               |         | —       |         | —                                                                                           |         | 10            |         | —       |         | 10           |         | (10 | ) | — |   | — |   |
|                                             |         | 49                   |         | $            | 463          |                                                                                             | —       |          | $            | 37           |         | —       |         | $ | 37 |   | $ | (398 | ) | 7 |   | $ | 102 |   |
| **Total  Plant & Office Closing**  |         | 55                   | ** **   | **$**        | **1,609**    |                                                                                             | —       | ** **    | **$**        | **37**       | ** **   | **$**        | **16**       | ** ** | **$** | **53** | ** ** | **$** | **(581** | **)** | **7** | ** ** | **$** | **1,081** | ** ** |
|                                                  |              |                      |              |              |              |                                                                                                  |              |               |              |              |              |              |              |  |  |  |  |  |  |  |  |  |  |  |  |

 

8

----

 

***Plant Closing Costs***

*** ***

***2008*****—**On April 23, 2008, the Company’s Board of Directorsapproved management’s proposed $15 Million Cost Reduction Program & $80 MillionDebt Reduction Program (the “Program”), designed to modernize equipment,improve efficiencies and reduce operating costs. On April 29, 2008 the Companyannounced further details regarding the next steps in the Program. See Note 12,“Subsequent Event,” for further information.

*** ***

***2007*****—**During the first quarter of 2007, we announced theclosure of our Barrie, Ontario and Langley, British Columbia plants and therestructuring of our Canadian administrative functions. Our total estimatedcosts include $1.3 million of severance costs related to our Engineered Filmssegment, $8.2 million of severance and plant closing costs related to ourPrinted Products segment and $0.5 million of severance costs related to ourIndustrial Films segment. We incurred $0.2 million and $1.2 million relating toseverance payments in connection with the shutdown of our Barrie, Ontario plantand the restructuring of the Canadian sales and administrative functions,respectively. These restructuring charges, of which $0.9 million relate to ourEngineered Films segment and $0.4 million relate to our Industrial Filmssegment, have been included in the Corporate/Other segment for the quarterended March 31, 2007.

 

***2003*****—**During 2003, the Company accrued the present value offuture lease payments on three buildings it no longer occupied in an amount of$3.3 million. As of March 31, 2008, $0.9 million of these accruals areremaining.

 

**4.   DEBT**

** **

Debt as of March 31,2008 and December 31, 2007 consists of the following (in thousands):

 
| ** **                                                      | ** ** | **March 31,   2008** | ** ** | **December 31,   2007** | ** ** |
|-----------------------------------------------------------------|------------|--------------------------------|------------|-----------------------------------|------------|
| Credit  Facilities:                                             |       |                           |       |                              |       |
| Revolving Credit  Facilities                                    |       | $                              | 151,579    |                              | $          | 118,579 |   |
| Senior Secured  Notes, interest at 11.85% (Amended 2004 Notes)  |       | 349,277                        |       | 339,276                           |       |
| Senior Secured  Discount Notes, interest at 11.35% (2004 Notes) |       | 7,830                          |       | 7,825                             |       |
| Senior Secured  Notes, interest at 111/8% (2003 Notes)          |       | 250,000                        |       | 250,000                           |       |
| Senior  Subordinated Notes, interest at 18% (2007 Notes)        |       | 24,000                         |       | 24,000                            |       |
| Obligations  under capital leases                               |       | 12,710                         |       | 12,887                            |       |
| Total                                                           |       | 795,396                        |       | 752,567                           |       |
| Less current  portion                                           |       | (1,077                         | )          | (1,102                            | )          |
| Long-term  portion                                              |       | $                              | 794,319    |                              | $          | 751,465 |   |

 

 *Revolving Credit Facilities*

* *

On July 18, 2006,the Company and/or certain of its subsidiaries entered into (i) a WorkingCapital Credit Agreement, among the Company, certain of its subsidiaries, thelenders party thereto, Merrill Lynch Bank USA, as administrative agent, andMerrill Lynch Commercial Finance Corp., as sole lead arranger and book manager(the “Working Capital Credit Agreement”), and (ii) a Fixed Asset Credit Agreement,among Pliant Corporation Pty Ltd., Pliant Corporation of Canada Ltd.,Pliant Film Products GmbH and Aspen Industrial, S.A. de C.V., asborrowers, the lenders party thereto, Merrill Lynch Bank USA, as administrativeagent, and Merrill Lynch Commercial Finance Corp., as sole lead arranger andbook manager (the “Fixed Asset Credit Agreement”, and together with the WorkingCapital Credit Agreement, the “Revolving Credit Facilities”). The RevolvingCredit Facilities provide up to $200 million of total commitments, subjectto a borrowing base and a required minimum availability of at least $10million. The Working Capital Credit Agreement includes a $20 millionletter of credit sub-facility, with letters of credit reducing availabilitythereunder, and each of the Revolving Credit Facilities includes sub-limits forloans to certain of the foreign subsidiaries of the Company which are borrowersunder the Revolving Credit Facilities.

 

The Revolving CreditFacilities will mature on the earlier of (a) July 18, 2011 or (b) onemonth prior to the respective maturity dates of the Company’s senior securednotes if these senior secured notes have not been refinanced in full: May 15,2009 with respect to the Company’s 2004 Notes (as herein defined) and Amended2004 Notes (as herein defined), and August 15, 2009 with respect to theCompany’s 2003 Notes (as herein defined). The interest rates for all loansother than those made to the Company’s German subsidiary range from, in thecase of alternate base rate loans, the alternate base rate (either prime rateor .50% over the Federal Funds Rate) plus 1.75% to the alternate base rate plus2.00% and, in the case of Eurodollar loans, LIBOR plus 2.75% to LIBOR plus3.00%, in each case depending on the amount of available credit. The interestrates for loans made in connection with the loans to the Company’s Germansubsidiary are, in the case of alternate base rate loans, the alternate baserate plus 5.00% and, in the case of Eurodollar loans, LIBOR plus 6.00%. Thecommitment fee for the unused portion of the Revolving Credit Facilities is0.375% per annum.

 

9

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The Revolving CreditFacilities contain covenants that 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 other companies, change lines of business, make certain typesof investments, sell assets, enter into certain sale and lease-back and swaptransactions, pay dividends on or repurchase stock, make distributions withrespect to certain debt obligations, enter into transactions with affiliates, restrictdividends or other payments from the Company’s subsidiaries, modify corporateand certain material debt documents, cancel certain debt, or change our fiscalyear or accounting policies. The Revolving Credit Facilities also require theCompany to comply with a fixed charge coverage ratio of 1.00 to 1.00 for thefirst year of the facility and of 1.10 to 1.00 thereafter; provided that suchcoverage ratio shall only apply during periods in which the amount ofavailability is and remains less than $20 million for a specified numberof days. Once the amount of availability increases and remains above$20 million for a specified number of days, such coverage ratio becomesinapplicable. In addition, the amount of availability under the Revolving CreditFacilities must not be less than $10 million 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. Upon the occurrence and during thecontinuation of any other event of default under the Revolving CreditFacilities, by notice given to the Company, the administrative agent of theRevolving Credit Facilities may, and if directed by the Required Lenders (as thatterm is defined in the Revolving Credit Facilities) must terminate thecommitments and/or declare all outstanding loans to be immediately due andpayable.

 

The Working CapitalCredit Agreement is secured by a first-priority security interest in substantiallyall our inventory, receivables and deposit accounts, capital stock of, or otherequity interests in, our existing and future domestic subsidiaries andfirst-tier foreign subsidiaries, investment property and certain other assetsof the Company and its subsidiaries and a second-priority security interest infixed assets of the Company and its subsidiaries party to the Working CapitalCredit Agreement. The Fixed Asset Credit Agreement is secured by afirst-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 31,2008, the Company had borrowings of $151.6 million and availability of$42.5 million under the Revolving Credit Facilities, along with$8.2 million in cash.

 

*Amended2004 Notes*

* *

As of March 31, 2008, the Company had$349.3 million aggregate principal amount of 11.85% (formerly 115/8 %) Senior Secured Notes due 2009 (the “Amended2004 Notes”) outstanding. The Amended 2004 Notes accrued payment-in-kindinterest at the rate of 115/8% from the date of issuance until July 18,2006, on which date the interest rate was increased by .225% to 11.85%. Suchincremental interest rate increase of .225% also accrues as payment-in-kindinterest. The Amended 2004 Notes mature on June 15, 2009 and interest ispayable semiannually on each June 15 and December 15.

 

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

 

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

 

10

----

 

*2004Notes*

* *

As of March 31,2008, the Company had $7.8 million of 11.35% (formerly 111/8%) SeniorSecured Discount Notes due 2009 (the “2004 Notes”) outstanding. The 2004 Notesaccreted at the rate of 111/8% from the date of issuance until July 18,2006, on which date the interest rate was increased by .225% to 11.35%. The2004 Notes 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 began accruing at the rateof 11.35% with such incremental interest rate increase of .225% accruing aspayment-in-kind interest and the remaining 111/8% payable in cash semiannually on June 15and December 15, commencing on June 15, 2007. The 2004 Notes matureon June 15, 2009.

 

The 2004 Notes aresecured by a first-priority security interest in the First-Priority Note Collateraland a second-priority security interest in the Second-Priority Note Collateral.The 2004 Notes are guaranteed by the Company’s existing and future domesticrestricted subsidiaries and certain foreign subsidiaries.

 

On or after June 15,2007, the Company may redeem some or all of the 2004 Notes at the followingredemption prices (expressed as percentages of the sum of the principal amountplus accrued and unpaid interest): 105.563% if redeemed on or after June 15,2007 and prior to June 15, 2008; 102.781% if redeemed on or after June 15,2008 and prior to June 15, 2009; and 100.00% if redeemed on June 15,2009.

 

*2003Notes*

* *

As of March 31,2008, the Company had $250 million of 111/8% Senior Secured Notes due 2009 (the “2003Notes”) outstanding. The 2003 Notes accrued interest at the rate of 111/8% throughthe date of maturity. The 2003 Notes mature on September 1, 2009 andinterest is payable in cash semiannually on each March 1 and September 1.

 

The 2003 Notes rankequally with the Company’s existing and future senior secured debt and ranksenior to its existing and future subordinated indebtedness. The 2003 Notes aresecured by a second-priority security interest in both the First-Priority NoteCollateral and the Second-Priority Note Collateral. The 2003 Notes areguaranteed by some of the Company’s subsidiaries.

 

On or after June 1,2007, the Company may redeem some or all of the 2003 Notes at the followingredemption prices (expressed as a percentage of the sum of the principal amountplus accrued and unpaid interest): 105.563% if redeemed on or after June 1,2007 and prior to June 1, 2008; 102.781% if redeemed on or after June 1,2008 and prior to June 1, 2009; and 100% if redeemed on or after June 1,2009.

 

*2007Notes*

* *

On June 14, 2007,the Company entered into the 2007 Note Indenture among the Company and PliantCorporation International, Pliant Film Products of Mexico, Inc., PliantPackaging of Canada, LLC, Pliant Solutions Corporation, Uniplast Holdings, Inc.,Uniplast U.S. Inc. and Uniplast Industries Co., as guarantors, and the Bank ofNew York Trust Company, N.A., as trustee (the “2007 Note Trustee”) with respectto the issuance on such date of the Company’s 18% Senior Subordinated Notes due2012 (the “2007 Notes”) in an aggregate principal amount of $24 million (the “2007Note Indenture”).

 

As of March 31,2008, the Company had $24 million in 2007 Notes outstanding.  The 2007 Notes accrue interest from the dateof issuance at the rate of 18% per annum until maturity on July 15, 2012with interest payable semiannually on each January 15 and July 15 toholders of record of the 2007 Notes on the immediately preceding January 1or July 1. Pursuant to the 2007 Note Indenture, the Company may redeem the2007 Notes in whole or in part at the applicable redemption price, which ineach of the first four years is equal to a de-escalating premium over par, plusaccrued and unpaid interest to the redemption date, as set forth in the 2007Notes. The 2007 Note Indenture provides the holders of the 2007 Notes with theright to require the Company to repurchase the 2007 Notes at a repurchase priceequal to the then applicable redemption price plus accrued and unpaid interestupon a change of control of the Company (as defined in the 2007 NoteIndenture). The 2007 Note Indenture does not provide for a sinking fund withrespect to the 2007 Notes. The 2007 Note Indenture contains customaryprovisions that may result in an event of default, after notice and expirationof a cure period in certain circumstances, and acceleration of the indebtednessthereunder, including failure to timely pay principal and interest on the 2007Notes or comply with the covenants set forth in the 2007 Note Indenture.

 

11

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The 2007 Note Indenture containsvarious covenants including, among other things, covenants limiting theincurrence of indebtedness and restricting certain payments, limitingrestrictions on the ability of subsidiaries to make distributions to theCompany, limiting sales of assets and subsidiary stock and the entry intoaffiliate transactions, as well as provisions governing merger and change ofcontrol transactions. The Company may be required under certain circumstancesto offer to repurchase 2007 Notes with the proceeds of certain asset sales.Upon a change of control transaction, holders of 2007 Notes may require theCompany (subject to certain exceptions) to repurchase 2007 Notes at a purchaseprice equal to 101% of the principal amount plus accrued and unpaid interest.The 2007 Notes will automatically become due and payable without notice uponthe occurrence of an event of default involving insolvency or bankruptcy of theCompany or certain of its subsidiaries. In addition, upon the occurrence andduring the continuation of any other event of default under the 2007 NoteIndenture, by notice given to the Company, the 2007 Note Trustee or holders ofat least 25% in principal amount of the 2007 Notes may declare the principal ofand accrued and unpaid interest on all the 2007 Notes to be immediately due andpayable.

 

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

** **

Interest expense—currentand long-term debt in the statements of operations for the three months ended March 31,2008 and 2007 is as follows (in thousands):

 
| ** **                                | ** ** | **Three Months Ended   March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Interest  expense, net                    |       |                                                   |       |   |   |
| Revolving Credit  Facilities              |       | $                                                      | 2,580      |   | $ | 2,214 |   |
| Amended 2004  Notes                       |       | 10,002                                                 |       | 8,914 |   |
| 2004 Notes                                |       | 222                                                    |       | 222 |   |
| 2003 Notes                                |       | 6,953                                                  |       | 6,953 |   |
| 2007 Notes                                |       | 1,080                                                  |       | — |   |
| Other, net                                |       | 180                                                    |       | 1,799 |   |
| Interest expense  accrued, net            |       | 21,017                                                 |       | 20,102 |   |
| Recurring  amortization of financing fees |       | 1,477                                                  |       | 1,072 |   |
| TOTAL                                     |       | $                                                      | 22,494     |   | $ | 21,174 |   |
| Cash interest  payments                   |       |                                                   |       |   |   |
| Revolving Credit  Facilities              |       | $                                                      | 2,585      |   | $ | 2,705 |   |
| 2003 Notes                                |       | 13,906                                                 |       | 13,906 |   |
| 2007 Notes                                |       | 2,160                                                  |       | — |   |
| Other, net                                |       | 598                                                    |       | 422 |   |
| TOTAL                                     |       | $                                                      | 19,249     |   | $ | 17,033 |   |

 

12

----

 

**6.   INCOME TAXES**

** **

The Company and itssubsidiaries file income tax returns in the U.S. federal jurisdiction, andvarious state and foreign jurisdictions. With a few exceptions, the Company isno longer subject to U.S. federal, state and local, or non-U.S. income taxexaminations by tax authorities 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, 2008. The Company believes that it hasappropriate support for income tax positions taken or to be taken on its taxreturns and that its accruals for tax liabilities are adequate for all openyears based on an assessment of many factors including past experience andinterpretations of tax law applied to the facts of each matter.

 

For the three monthsended March 31, 2008, income tax expense was $0.7 million on pretax lossesfrom operations of $13.2 million as compared to income tax expense of $0.7million on pretax loss from operations of $11.8 million for the three monthsended March 31, 2007. Income tax benefits related to net operating lossesin the United States are offset by a valuation allowance as the realization ofthese tax benefits is not certain. Therefore, the income tax expense in thestatements of operations primarily reflects foreign income taxes.

 

**7.   OTHER COMPREHENSIVE LOSS**

** **

Other comprehensive lossfor the three months ended March 31, 2008 and 2007 was $11.9 million and$13.3 million, respectively. The components of other comprehensive loss are netloss, changes in unrecognized pension benefit costs and foreign currencytranslation.

 

**8.   OPERATING SEGMENTS**

** **

Operating segments arecomponents of our business for which separate financial information isavailable that is evaluated regularly by our chief operating decision maker indeciding how to allocate resources and in assessing performance. Thisinformation is reported on the basis that it is used internally for evaluatingsegment performance.

 

The Company has fouroperating segments: Specialty Films, which manufactures personal care, medicaland agricultural films; Printed Products, which produces printed rollstock,bags and sheets used to package food and consumer goods; Industrial Films,which manufactures stretch film used to bundle, unitize and protect palletizedloads during shipping and storage and PVC films used by supermarkets,delicatessens and restaurants to wrap meat, cheese and produce; and EngineeredFilms, which manufactures film for sale to converters of flexible packaging anda variety of barrier and custom films for smaller niche flexible packaging andindustrial markets.

 

We evaluate theperformance of our operating segments based on net sales (excludinginter-company sales) and segment profit. Sales and transfers between oursegments are eliminated in consolidation. The segment profit reflects incomebefore interest expense, income taxes, depreciation, amortization,restructuring costs and other non-cash charges and net adjustments for certainunusual items. Our reportable segments are managed separately with separatemanagement teams, because each segment has differing products, customerrequirements, technology and marketing strategies.

 

13

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Segment profit andsegment assets as of and for the periods ended March 31, 2008 and 2007 arepresented in the following table (in thousands):

 
| ** **                                  | ** ** | **Engineered   Films** | ** ** | **Industrial   Films** | ** ** | **Specialty   Films** | ** ** | **Printed   Products** | ** ** | **Corporate/   Other** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|----------------------------|------------|-----------------------------|------------|-----------------------------|------------|-----------|------------|
| **Three  months ended March 31, 2008** |       |                        |       |                        |       |                       |       |                        |       |                        |       |      |       |
| Net sales to  customers                     |       | $                           | 87,494     |                        | $          | 82,257                     |       | $                           | 58,939     |                        | $          | 55,020    |       | $ | 1,761 |   | $ | 285,471 |   |
| Intersegment  sales                         |       | 7,720                       |       | 1,323                       |       | 2,985                      |       | 1                           |       | (12,029                     | )          | —    |       |
| Total net sales                             |       | 95,214                      |       | 83,580                      |       | 61,924                     |       | 55,021                      |       | (10,268                     | )          | 285,471   |       |
| Depreciation and  amortization              |       | 3,167                       |       | 1,769                       |       | 2,563                      |       | 2,352                       |       | 970                         |       | 10,821    |       |
| Interest expense                            |       | 435                         |       | 161                         |       | 18                         |       | 1,014                       |       | 20,866                      |       | 22,494    |       |
| Segment profit                              |       | 7,872                       |       | 7,496                       |       | 5,828                      |       | 3,941                       |       | (4,872                      | )          | 20,265    |       |
| Capital  expenditures                       |       | 2,730                       |       | 350                         |       | 920                        |       | 5,899                       |       | 422                         |       | 10,321    |       |
| **As of  March 31, 2008**              |       |                        |       |                        |       |                       |       |                        |       |                        |       |      |       |
| Segment assets                              |       | 228,415                     |       | 120,922                     |       | 151,683                    |       | 145,389                     |       | 54,638                      |       | 701,047   |       |
| **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    |       |
| **As of  December 31, 2007**           |       |                        |       |                        |       |                       |       |                        |       |                        |       |      |       |
| Segment assets                              |       | $                           | 218,945    |                        | $          | 117,056                    |       | $                           | 145,705    |                        | $          | 137,680   |       | $ | 56,593 |   | $ | 675,979 |   |

 

A reconciliation of thetotals reported for the operating segments to the totals reported in theconsolidated financial statements for the three months ended March 31,2008 and 2007 and as of March 31, 2008 and December 31, 2007 is asfollows (in thousands) (unaudited):

 
| ** **                     | ** ** | **Three Months Ended   March 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------------------|------------|
| ** **                     | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| **Profit  or Loss**            | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| Total segment  profit          |       | $                                                      | 20,265     |   | $ | 23,737 |   |
| Depreciation and  amortization |       | (10,821                                                | )          | (11,553 | ) |
| Restructuring  and other costs |       | (53                                                    | )          | (1,408 | ) |
| Reorganization  costs          |       | (89                                                    | )          | (271 | ) |
| Other operating  costs         |       | —                                                 |       | (1,101 | ) |
| Interest expense               |       | (22,494                                                | )          | (21,174 | ) |
| Loss before  income taxes      |       | $                                                      | (13,192    | ) | $ | (11,770 | ) |

 
| ** **                            | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| **Assets**                            |       |               |       |                  |       |
| Total assets for  reportable segments |       | $                  | 646,409    |                  | $          | 619,386 |   |
| Other unallocated  assets             |       | 54,638             |       | 56,593                |       |
| Total  consolidated assets            |       | $                  | 701,047    |                  | $          | 675,979 |   |

 

14

----

 

Net sales and long-livedassets of our U.S. and foreign operations are as follows:

 
| ** **            | ** ** | **Three Months Ended   March 31,** | ** ** |
|-----------------------|------------|--------------------------------------------------------|------------|
| ** **            | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
| Net sales             | ** ** | ** **                                             | ** ** | ** ** | ** ** |
| United States         |       | $                                                      | 235,274    |   | $ | 210,067 |   |
| Foreign  countries(a) |       | 50,197                                                 |       | 50,325 |   |
| Total                 |       | $                                                      | 285,471    |   | $ | 260,392 |   |

 
| ** **         | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------|------------|--------------------|------------|-----------------------|------------|
| ** **         | ** ** | **2008**           | ** ** | **2007**              | ** ** |
| Long-lived  assets |       |               |       |                  |       |
| United States      |       | $                  | 272,682    |                  | $          | 271,263 |   |
| Foreign  countries |       | 39,713             |       | 40,493                |       |
| Total              |       | $                  | 312,395    |                  | $          | 311,756 |   |
| Total assets       |       |               |       |                  |       |
| United States      |       | $                  | 587,507    |                  | $          | 565,794 |   |
| Foreign  countries |       | 113,540            |       | 110,185               |       |
| Total              |       | $                  | 701,047    |                  | $          | 675,979 |   |

 

----

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

 

**9.****           ****DEFINED BENEFIT PLANS**

** **

The Company sponsorsthree noncontributory defined benefit pension plans in the U.S. coveringdomestic employees with 1,000 or more hours of service. The Company funds thesein accordance with the funding requirements of the Employee Retirement IncomeSecurity Act of 1974. Contributions are intended to not only provide forbenefits attributed to service to date but also for those expected to be earnedin the future. We also sponsor two defined benefit plans in Canada and onedefined benefit plan in Germany.

 

The consolidated netperiodic pension expense (benefit) for the three months ended March 31,2008 and 2007 includes the following components (in thousands):

 
| ** **                                      | ** ** | **Three Months Ended   March 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                      | ** ** | **2008**                                               | ** ** | **2007** | ** ** |
|                                            |       |                                                   |       |   |   |
| Service  cost-benefits earned during the period |       | $                                                      | 178        |   | $ | 227 |   |
| Interest cost on  projected benefit obligation  |       | 1,445                                                  |       | 1,362 |   |
| Expected return  on assets                      |       | (1,779                                                 | )          | (1,487 | ) |
| Other                                           |       | 32                                                     |       | 33 |   |
| Net periodic  pension expense (benefit)         |       | $                                                      | (124       | ) | $ | 135 |   |

 

**10.****    ****CONTINGENCIES**

** **

*Litigation*   We are involved in variouslitigation 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.

 

15

----

 

**11.****    ****CONDENSED CONSOLIDATING FINANCIAL STATEMENTS**

** **

The following condensedconsolidating financial statements present, in separate columns, financialinformation for (i) Pliant (on a parent-only basis) with its investment inits subsidiaries recorded under the equity method, (ii) guarantorsubsidiaries (as specified in the Indenture dated as of May 30, 2003, asamended (the “2003 Indenture”) relating to the 2003 Notes, the FirstSupplemental Indenture dated July 18, 2006 amending the Amended andRestated Indenture (the “First Supplemental Indenture”) relating to the 2004Notes and the Amended 2004 Notes, and the 2007 Note Indenture relating to the2007 Notes (the “2007 Note Indenture”) (the 2003 Indenture, the Amended andRestated Indenture, as amended by the First Supplemental Indenture, and the2007 Note Indenture, collectively, the “Indentures”) on a combined basis, withany investments in non-guarantor subsidiaries specified in the Indenturesrecorded under the equity method, (iii) direct and indirect non-guarantorsubsidiaries on a combined basis, (iv) the eliminations necessary toarrive at the information for Pliant and its subsidiaries on a consolidatedbasis, and (v) Pliant on a consolidated basis, in each case as of March 31,2008 and December 31, 2007 and for the three months ended March 31,2008 and 2007. The 2003 Notes, the 2004 Notes, the Amended 2004 Notes and the2007 Notes are fully and unconditionally guaranteed on a joint and severalbasis by each guarantor subsidiary and each guarantor subsidiary is 100% owned,directly or indirectly, by Pliant, except that the 2003 Notes are notguaranteed by Uniplast Industries Co. and the Amended 2004 Notes are notguaranteed by Pliant Solutions Corporation (“Pliant Solutions”). Substantiallyall of the assets of Pliant Solutions were sold on September 30, 2004, theremainder disposed prior to December 31, 2005 and Pliant Solutionsdissolved as of December 27, 2007. 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 in separate financial statements for each of the guarantorsubsidiaries, because management believes that separate financial statementsrelating to the guarantor subsidiaries are not material to investors.

 

16

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**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**ASOF MARCH 31, 2008 (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          |                                              | $          | 3,622                                                 |       | $                | 4,574      |                                              | $          | — |   | $ | 8,203 |   |
| Receivables, net  of allowances                           |       | 109,090                                                 |       | 5,443                                             |       | 27,534                                                |       | —           |       | 142,067                                           |       |
| Inventories                                               |       | 103,651                                                 |       | 3,116                                             |       | 12,808                                                |       | —           |       | 119,575                                           |       |
| Prepaid expenses  and other                               |       | 2,093                                                   |       | 335                                               |       | 3,373                                                 |       | —           |       | 5,801                                             |       |
| Income taxes  receivable, net                             |       | (242                                                    | )          | 1,219                                             |       | 1,023                                                 |       | —           |       | 2,000                                             |       |
| Deferred income  taxes                                    |       | 9,283                                                   |       | 9                                                 |       | —                                                |       | —           |       | 9,292                                             |       |
| Total current  assets                                     |       | 223,882                                                 |       | 13,744                                            |       | 49,312                                                |       | —           |       | 286,938                                           |       |
| PLANT AND  EQUIPMENT, net                                 |       | 272,682                                                 |       | 8,619                                             |       | 31,094                                                |       | —           |       | 312,395                                           |       |
| GOODWILL                                                  |       | 57,777                                                  |       | 13,153                                            |       | 1,546                                                 |       | —           |       | 72,476                                            |       |
| INTANGIBLE  ASSETS, net                                   |       | 1,217                                                   |       | 9,225                                             |       | —                                                |       | —           |       | 10,442                                            |       |
| INVESTMENT IN  SUBSIDIARIES                               |       | (23,171                                                 | )          | —                                            |       | —                                                |       | 23,171           |       | —                                            |       |
| OTHER ASSETS                                              |       | 13,903                                                  |       | —                                            |       | 4,893                                                 |       | —           |       | 18,796                                            |       |
| TOTAL ASSETS                                              |       | $                                                       | 546,290    |                                              | $          | 44,741                                                |       | $                | 86,845     |                                              | $          | 23,171 |   | $ | 701,047 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)**   |       |                                                    |       |                                              |       |                                                  |       |             |       |                                              |       |
| CURRENT  LIABILITIES:                                     |       |                                                    |       |                                              |       |                                                  |       |             |       |                                              |       |
| Current portion  of long-term debt                        |       | $                                                       | 949        |                                              | $          | —                                                |       | $                | 128        |                                              | $          | — |   | $ | 1,077 |   |
| Trade accounts  payable                                   |       | 84,101                                                  |       | 3,299                                             |       | 13,988                                                |       | —           |       | 101,388                                           |       |
| Accrued  liabilities                                      |       | 39,997                                                  |       | (134                                              | )          | 4,353                                                 |       | —           |       | 44,216                                            |       |
| Due to (from)  affiliates                                 |       | (82,827                                                 | )          | 65,731                                            |       | 17,096                                                |       | —           |       | —                                            |       |
| Total current  liabilities                                |       | 42,220                                                  |       | 68,896                                            |       | 35,565                                                |       | —           |       | 146,681                                           |       |
| LONG-TERM DEBT,  net of current portion                   |       | 756,156                                                 |       | 16,700                                            |       | 21,463                                                |       | —           |       | 794,319                                           |       |
| OTHER  LIABILITIES                                        |       | 13,097                                                  |       | 1,275                                             |       | 7,130                                                 |       | —           |       | 21,502                                            |       |
| DEFERRED INCOME  TAXES                                    |       | 14,620                                                  |       | 881                                               |       | 2,847                                                 |       | —           |       | 18,348                                            |       |
| Total Liabilities                                         |       | 826,093                                                 |       | 87,752                                            |       | 67,005                                                |       | —           |       | 980,850                                           |       |
| STOCKHOLDERS’  EQUITY (DEFICIT):                     |       |                                                    |       |                                              |       |                                                  |       |             |       |                                              |       |
| Preferred stock                                           |       | 260,469                                                 |       | —                                            |       | —                                                |       | —           |       | 260,469                                           |       |
| Common stock                                              |       | 1                                                       |       | —                                            |       | 11,916                                                |       | (11,916          | )          | 1                                                 |       |
| Additional  paid-in capital                               |       | 155,341                                                 |       | 14,020                                            |       | 43,822                                                |       | (57,842          | )          | 155,341                                           |       |
| Retained  earnings (deficit)                              |       | (685,193                                                | )          | (59,164                                           | )          | (35,369                                               | )          | 94,533           |       | (685,193                                          | )          |
| Accumulated  other comprehensive loss                     |       | (10,421                                                 | )          | 2,133                                             |       | (529                                                  | )          | (1,604           | )          | (10,421                                           | )          |
| Total  stockholders’ equity (deficit)                |       | (279,803                                                | )          | (43,011                                           | )          | 19,840                                                |       | 23,171           |       | (279,803                                          | )          |
| TOTAL  LIABILITIES AND STOCKOLDERS’ EQUITY (DEFICIT) |       | $                                                       | 546,290    |                                              | $          | 44,741                                                |       | $                | 86,845     |                                              | $          | 23,171 |   | $ | 701,047 |   |

 

See notes tocondensed consolidated financial statements.

 

17

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**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING BALANCE SHEET**

**ASOF DECEMBER 31, 2007 (DOLLARS IN THOUSANDS) (UNAUDITED)**

 
| ** **                                               | ** ** | **Pliant   Corporation   Parent Only** | ** ** | **Combined   Guarantors** | ** ** | **Combined   Non-Guarantors** | ** ** | **Eliminations** | ** ** | **Consolidated   Pliant   Corporation** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------------------|------------|--------------------------------|------------|------------------------------------|------------|------------------|------------|---------------------------------------------------|------------|
| **ASSETS**                                               |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| CURRENT ASSETS:                                          |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| Cash and cash  equivalents                               |       | $                                                     | 7          |                           | $          | 3,609                              |       | $                | 3,642      |                                              | $          | — |   | $ | 7,258 |   |
| Receivables                                              |       | 97,400                                                |       | 5,216                          |       | 24,974                             |       | —           |       | 127,590                                           |       |
| Inventories                                              |       | 93,152                                                |       | 3,407                          |       | 11,799                             |       | —           |       | 108,358                                           |       |
| Prepaid expenses  and other                              |       | 2,296                                                 |       | 670                            |       | 3,303                              |       | —           |       | 6,269                                             |       |
| Income taxes  receivable                                 |       | (295                                                  | )          | 1,093                          |       | 1,086                              |       | —           |       | 1,884                                             |       |
| Deferred income  taxes                                   |       | 9,156                                                 |       | 9                              |       | (20                                | )          | —           |       | 9,145                                             |       |
|                                                     |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| Total current  assets                                    |       | 201,716                                               |       | 14,004                         |       | 44,784                             |       | —           |       | 260,504                                           |       |
| PLANT AND EQUIPMENT,  net                                |       | 271,263                                               |       | 8,885                          |       | 31,608                             |       | —           |       | 311,756                                           |       |
| GOODWILL                                                 |       | 57,777                                                |       | 13,153                         |       | 1,597                              |       | —           |       | 72,527                                            |       |
| INTANGIBLE  ASSETS, net                                  |       | 1,470                                                 |       | 9,611                          |       | —                             |       | —           |       | 11,081                                            |       |
| INVESTMENT IN  SUBSIDIARIES                              |       | (23,719                                               | )          | —                         |       | —                             |       | 23,719           |       | —                                            |       |
| OTHER ASSETS                                             |       | 15,377                                                |       | —                         |       | 4,734                              |       | —           |       | 20,111                                            |       |
|                                                     |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| TOTAL ASSETS                                             |       | $                                                     | 523,884    |                           | $          | 45,653                             |       | $                | 82,723     |                                              | $          | 23,719 |   | $ | 675,979 |   |
|                                                     |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)** |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| CURRENT  LIABILITIES:                                    |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| Current portion  of long-term debt                       |       | $                                                     | 987        |                           | $          | —                             |       | $                | 115        |                                              | $          | — |   | $ | 1,102 |   |
| Trade accounts  payable                                  |       | 78,846                                                |       | 2,771                          |       | 11,561                             |       | —           |       | 93,178                                            |       |
| Accrued  liabilities                                     |       | 53,072                                                |       | 657                            |       | 3,681                              |       | —           |       | 57,410                                            |       |
| Due to (from)  affiliates                                |       | (83,364                                               | )          | 65,741                         |       | 17,623                             |       | —           |       | —                                            |       |
|                                                     |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| Total current  liabilities                               |       | 49,541                                                |       | 69,169                         |       | 32,980                             |       | —           |       | 151,690                                           |       |
| LONG-TERM DEBT,  net of current portion                  |       | 713,367                                               |       | 16,700                         |       | 21,398                             |       | —           |       | 751,465                                           |       |
| OTHER  LIABILITIES                                       |       | 14,614                                                |       | 1,296                          |       | 6,695                              |       | —           |       | 22,605                                            |       |
| DEFERRED INCOME  TAXES                                   |       | 14,306                                                |       | 973                            |       | 2,884                              |       | —           |       | 18,163                                            |       |
|                                                     |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| Total  liabilities                                       |       | 791,828                                               |       | 88,138                         |       | 63,957                             |       | —           |       | 943,923                                           |       |
|                                                     |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| STOCKHOLDERS’  (DEFICIT):                           |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| Preferred Stock                                          |       | 247,355                                               |       | —                         |       | —                             |       | —           |       | 247,355                                           |       |
| Common stock                                             |       | 1                                                     |       | —                         |       | 11,916                             |       | (11,916          | )          | 1                                                 |       |
| Paid in capital                                          |       | 155,341                                               |       | 14,020                         |       | 43,822                             |       | (57,842          | )          | 155,341                                           |       |
| Retained  earnings (deficit)                             |       | (658,163                                              | )          | (58,440                        | )          | (34,662                            | )          | 93,102           |       | (658,163                                          | )          |
| Accumulated  other comprehensive loss                    |       | (12,478                                               | )          | 1,935                          |       | (2,310                             | )          | 375              |       | (12,478                                           | )          |
|                                                     |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| Total  stockholders’ (deficit)                      |       | (267,944                                              | )          | (42,485                        | )          | 18,766                             |       | 23,719           |       | (267,944                                          | )          |
|                                                     |       |                                                  |       |                           |       |                               |       |             |       |                                              |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ (DEFICIT)      |       | $                                                     | 523,884    |                           | $          | 45,653                             |       | $                | 82,723     |                                              | $          | 23,719 |   | $ | 675,979 |   |

** **

See notes tocondensed consolidated financial statements.

 

18

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**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING INCOME STATEMENT**

**FORTHE THREE MONTHS ENDED MARCH 31, 2008 (IN THOUSANDS) (UNAUDITED)**

 
| ** **                          | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                          | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                          | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
| NET SALES                           |       | $                      | 247,303    |             | $          | 10,893            |       | $                | 39,304     |             | $          | (12,029 | ) | $ | 285,471 |   |
| COST OF SALES                       |       | 224,539                |       | 10,834           |       | 35,648            |       | (12,029          | )          | 258,992          |       |
| GROSS PROFIT                        |       | 22,764                 |       | 59               |       | 3,656             |       | —           |       | 26,479           |       |
| OPERATING  EXPENSES                 |       | 14,890                 |       | 428              |       | 1,966             |       | —           |       | 17,284           |       |
| OPERATING INCOME                    |       | 7,874                  |       | (369             | )          | 1,690             |       | —           |       | 9,195            |       |
| INTEREST EXPENSE                    |       | (21,246                | )          | (120             | )          | (1,128            | )          | —           |       | (22,494          | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES |       | (1,430                 | )          |             |       |              |       | 1,430            |       | —           |       |
| OTHER INCOME  (EXPENSE)—Net    |       | 1,311                  |       | (424             | )          | (780              | )          | —           |       | 107              |       |
| INCOME (LOSS)  BEFORE INCOME TAXES  |       | (13,491                | )          | (913             | )          | (218              | )          | 1,430            |       | (13,192          | )          |
| INCOME TAX  EXPENSE (BENEFIT)       |       | 425                    |       | (190             | )          | 489               |       | —           |       | 724              |       |
| NET INCOME  (LOSS)                  |       | $                      | (13,916    | )                | $          | (723              | )          | $                | (707       | )                | $          | 1,430 |   | $ | (13,916 | ) |

 

See notes tocondensed consolidated financial statements.

 

19

----

 

**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING INCOME STATEMENT**

**FORTHE 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 tocondensed consolidated financial statements.

 

20

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**PLIANTCORPORATION AND SUBSIDIARIES**

** CONDENSED CONSOLIDATING STATEMENTS OF CASHFLOW**

** FOR THE THREE MONTHS ENDED MARCH 31, 2008(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         |       | $                      | (22,615    | )                | $          | 523               |       | $                | 275        |             | $          | — |   | $ | (21,817 | ) |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                        |       |                   |       |             |       |              |       |             |       |             |       |
| Capital  expenditures for plant and equipment                 |       | (9,759                 | )          | (484             | )          | (78               | )          | —           |       | (10,321          | )          |
| Net cash used in  investing activities                        |       | (9,759                 | )          | (484             | )          | (78               | )          | —           |       | (10,321          | )          |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                        |       |                   |       |             |       |              |       |             |       |             |       |
| Borrowings under  revolving credit facilities                 |       | 33,000                 |       | —           |       | —            |       | —           |       | 33,000           |       |
| Repayment of  capital leases and other, net                   |       | (256                   | )          | —           |       | (54               | )          | —           |       | (310             | )          |
| Net cash  provided by/(used in) financing activities          |       | 32,744                 |       | —           |       | (54               | )          | —           |       | 32,690           |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS |       | (370                   | )          | (26              | )          | 789               |       | —           |       | 393              |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS         |       | —                 |       | 13               |       | 932               |       | —           |       | 945              |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD           |       | 7                      |       | 3,609            |       | 3,642             |       | —           |       | 7,258            |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                 |       | $                      | 7          |             | $          | 3,622             |       | $                | 4,574      |             | $          | — |   | $ | 8,203 |   |

 

See notes tocondensed consolidated financial statements.

 

21

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**PLIANTCORPORATION AND SUBSIDIARIES**

**CONDENSEDCONSOLIDATING STATEMENTS OF CASH FLOW**

**FORTHE 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 tocondensed consolidated financial statements.

 

22

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**12. SUBSEQUENT EVENT**

 

On April 23, 2008,the Company’s Board of Directors approved management’s proposed $15 MillionCost Reduction Program & $80 Million Debt Reduction Program (the “Program”),designed to modernize equipment, improve efficiencies and reduce operatingcosts.  On April 29, 2008 theCompany announced further details regarding the next steps in the Program.  See the Company’s Current Report on Form 8-Kdated April 29, 2008 for further information.

 

The Program includedclosing four of the Company’s facilities: South Deerfield, MA, Dalton, GA,Harrington, DE and Newport News, VA. These closings will improve operating scale at the remaining plants andreduce fixed costs.  The effect would bea projected increase to EBITDA of $8.9 million following completion of allplant closures.  A reduction in workforceat other facilities and corporate is also planned which will increase projectedEBITDA by an additional $6.1 million on an annual basis following completion ofthe reduction in workforce.

 

The Program also includedan $80 million debt reduction plan which will come from a proposed $40 millionsale/leaseback of facilities program, a planned $9 million operating lease oncertain equipment, and a $31 million inventory reduction program.  The $80 million debt reduction programcoupled with the $15 million of EBITDA improvements mentioned above will helpbring the Company’s pro-forma leverage to 6.5x upon completion of the Program.

 

The Company will incurcosts to close the four plants previously mentioned.  There will be asset impairments ondecommissioned assets of $23.5 million. The Company will explore the option of selling this equipment.  There will also be a projected net cash costof $24.9 million, made up of $19.6 million of infrastructure and relocationcapital expenditures and $15.1 million of termination benefits and planimplementation costs, net of $9.8 million of cash expected to be received forselling the four facilities.

 

23

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

 

The purpose of thissection is to discuss and analyze material changes in our consolidatedfinancial condition, liquidity and capital resources and results of operations.This analysis should be read in conjunction with “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” contained in ourAnnual Report on Form 10-K for the year ended December 31, 2007. 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 factors setforth under “Cautionary Statement for Forward-Looking Information” below andelsewhere in this report.

 

**General**

 

We manufacture and sell avariety of plastic films and flexible packaging products. Our products servecustomers in a variety of flexible packaging markets, including the food andbeverage, retail, pharmaceutical, medical, personal care, household, industrialand agricultural film markets, as well as secondary packaging and non-packagingend use markets. We manufacture these products at 21 facilities located in theUnited States, Australia, Canada, Germany and Mexico. The Company has fouroperating segments: Engineered Films, Industrial Films, Specialty Films andPrinted Products, each discussed herein.

 

**Overview**

** **

We recorded sales of$285.5 million in the first quarter of 2008, an increase of 9.6%, as comparedto sales of $260.4 million in the first quarter of 2007 as the Company hadsales growth in all of its operating segments. First quarter 2008 salesmeasured in pounds were 201.5 million, which represents a 3.5% decrease fromthe first quarter of 2007. Selling prices continue to be higher year over yeardue to resin price increases, which have negatively impacted our operatingprofits and increased the carrying values of our inventories and receivables.However, these increases and other inflationary pressures are being managedwith cost reduction programs expected to improve performance for the remainderof the year.

 

The Company recorded a$7.9 million reduction in gross profit in the first quarter of 2008 as comparedto the first quarter of 2007, which was totally offset by reductions inoperating expenses between periods of $8.1 million. The Company continuedexecution of its modernization program in the first quarter by installing a state-of-the-artten color widewith printing press in its Macedon, N.Y., “Superplant”.Additionally, the Company took the next step forward in its plant footprintoptimization program by announcing on April 29, 2008 that four existing plantswould be consolidated into the Company’s remaining seventeen plants. Equipmentconsolidation in these plants will take place over the next 12 months.

 

Total segment profit was$20.3 million for the first quarter of 2008, compared to $23.7 million for thefirst quarter of 2007. Segment profit reflects income from continuingoperations adjusted for interest expense, income taxes, depreciation,amortization, restructuring charges and other plant closure costs andreorganization and other costs. The decrease in segment profit of $3.4 millionbetween periods is primarily attributable to the impact of the decrease insales volume, unfavorable product sales mix, higher freight and packaging costsand higher energy related costs, offset by lower selling, general andadministrative and research and development costs. The Company has implementedcost reduction programs and restructuring activities that will provide $3.8million of pro-forma earnings improvements yielding a pro-forma segment profitof $24.1 million, or a 1.7% increase over 2007.

 

Average sales price forthe three months ended March 31, 2008 was $1.417 per pound as compared to$1.248 per pound for the three months ended March 31, 2007. This 13.5% increasefavorably impacted sales in our reportable segments by approximately $34.0million. However, raw material costs, which represent approximately 65% of ourtotal cost of goods sold in our reportable segments, also increasedapproximately $36.5 million over the comparable period of 2007 due to higher resinprices.

 

**Raw Material Costs**

** **

The primary raw materialsused in the manufacture of most of our products are polypropylene resin,polyethylene resin and PVC resin. The long-term prices of these materials areprimarily a function of the price of crude oil and natural gas. We have nothistorically hedged our exposure to raw material increases, but have moved morecustomers to programs which would allow us to pass through cost increases inraw materials. Raw material costs as a percentage of sales have increased to59% for the first quarter of 2008, from 53% for the first quarter of 2007.

 

The gap between the speedat which resin price changes are passed on to us and the time at which we canpass these cost changes on to our customers has an impact on both our resultsof operations and our working capital needs. To the extent we are not able topass along price increases of raw materials, or to the extent any such priceincreases are delayed, our cost of goods sold would continue to increase andour gross profit and operating income would correspondingly decrease.Significant increases in raw material prices that cannot be passed on tocustomers could have a material adverse effect on our results of operations andfinancial condition. See “Liquidity and Capital Resources – Raw Material Costs”,below, for a detailed discussion of the increase in resin prices.

 

24

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**Results of Operations**

** **

The following table setsforth net sales, operating expenses, and operating income, and such amounts asa percentage of net sales, for the three months ended March 31, 2008 and2007 (dollars in millions).

 
| ** **                           | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|------------|
| ** **                           | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                           | ** ** | **$**                                                | ** ** | **% of  Sales** | ** ** | **$** | ** ** | **% of  Sales** | ** ** |
| Net sales                            |       | $                                                    | 285.5      |   | 100 | % | $ | 260.4 |   | 100.0 | % |
| Cost of sales                        |       | 259.0                                                |       | 90.7 |   | 226.0 |   | 86.8 |   |
| Gross profit                         |       | 26.5                                                 |       | 9.3 |   | 34.4 |   | 13.2 |   |
| Selling, general  and administrative |       | 15.4                                                 |       | 5.4 |   | 19.5 |   | 7.5 |   |
| Research and  development costs      |       | 1.8                                                  |       | 0.6 |   | 3.1 |   | 1.2 |   |
| Restructuring  and other costs       |       | —                                               |       | — |   | 1.4 |   | 0.5 |   |
| Reorganization  costs                |       | 0.1                                                  |       | 0.1 |   | 0.3 |   | 0.1 |   |
| Other operating  costs               |       | —                                               |       | — |   | 1.1 |   | 0.4 |   |
| Total operating  expenses            |       | 17.3                                                 |       | 6.1 |   | 25.4 |   | 9.7 |   |
| Operating income  (loss)             |       | $                                                    | 9.2        |   | 3.2 | % | $ | 9.0 |   | 3.5 | % |

 

**Three Months Ended March 31, 2008 Compared with theThree Months Ended March 31, 2007**

** **

*Net Sales*

* *

Net sales increased by$25.1 million, or 9.6%, to $285.5 million for the first quarter of 2008 from$260.4 million for the three months ended March 31, 2007. The increaseresulted primarily from a 13.5% increase in our average selling prices due toincreased resin costs offset by a 3.5% reduction in sales volume. See “OperatingSegment Review” below for a detailed discussion of sales volumes and sellingprices by segment.

 

*Gross Profit*

* *

Gross profit decreased$7.9 million to $26.5 million for the first quarter of 2008 from $34.4 millionfor the first quarter of 2007 due to lower sales volume, unfavorable productsales mix and compression between our average selling price and raw materialcosts. See “Operating Segment Review” below for a detailed discussion of themargin variances by segment.

 

*Selling, General and Administrative*

* *

Selling, general andadministrative expenses were $15.4 million for the first quarter of 2008,compared to $19.5 million for the first quarter of 2007. This decrease of $4.1million reflects the impacts of our 2007 workforce reduction along withreductions in commissions, travel and entertainment expenses and depreciationand intangible asset amortization.

 

*Researchand Development Costs*

* *

Research and developmentcosts were $1.8 million for the first quarter of 2008, compared to $3.1 millionin the first quarter of 2007. This decrease of $1.3 million is primarilyattributable to a reduction in activity under government contracts.

 

25

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*Restructuring and Other Costs*

* *

Restructuring and othercosts for the first quarter of 2008 were negligible. Restructuring and othercosts of $1.4 million for the first quarter of 2007 relate entirely to thereorganization of our Canadian operations and includes severance costs of $0.2million associated with the closure of our Barrie, Ontario facility and$1.2 million associated with the restructuring of the Canadian management andsales teams.

 

*Reorganization Costs*

* *

Reorganization costs were$0.1 million for the first quarter of 2008, compared to $0.3 million forthe first quarter of 2007.

 

*OtherOperating Costs*

* *

Other operating costs forthe first quarter of 2007 included $1.1 million of costs associated withissuance of the Company’s Series M Preferred Stock, par value $.01 pershare (“Series M Preferred Stock”) pursuant to the Company’s FourthAmended Joint Plan of Reorganization.

 

*OperatingIncome*

* *

During the first quarterof 2008, the Company recorded operating income of $9.2 million compared to anoperating income of $9.0 million for the first quarter of 2007.

 

*Interest Expense*

* *

Interest expense oncurrent and long-term debt increased by $1.3 million to $22.5 million forthe first quarter of 2008, from $21.2 million for the first quarter of 2007.This increase is primarily attributable to interest on our 2007 Notes andincreased payment-in-kind interest on our Amended 2004 Notes.

 

*Income Tax Expense*

* *

Income tax expense forthe first quarter of 2008 was $0.7 million on pretax losses of$13.2 million, compared to income tax expense of $0.7 million on pretaxlosses of $11.8 million for the same period in 2007. Income tax benefitsrelated to net operating losses in the United States were offset by a valuationallowance as the realization of these tax benefits is not certain. The incometax expense in the statements of operations primarily reflects foreign incometaxes.

 

**Operating Segment Review**

** **

*General*

* *

We evaluate theperformance of our operating segments based on net sales (excludinginter-company sales) and segment profit. The segment profit reflects incomefrom continuing operations adjusted for interest expense, income taxes,depreciation, amortization, restructuring, reorganization and other costs andother non-cash charges (principally the impairment of goodwill, intangibleassets and fixed assets). For more information on our operating segments,including a reconciliation of segment profit to income before taxes, see Note 8to the condensed consolidated financial statements included elsewhere in thisreport.

 

26

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We have four operatingsegments: Engineered Films, Industrial Films, Specialty Films and Printed Products.A summary of segment information (in millions of dollars) is as follows:

 
| ** **                                  | ** ** | **Engineered  Films** | ** ** | **Industrial  Films** | ** ** | **Specialty  Films** | ** ** | **Printed  Products** | ** ** | **Corporate/  Other** | ** ** | **Total** | ** ** |
|---------------------------------------------|------------|-----------------------|------------|-----------------------|------------|----------------------|------------|-----------------------|------------|-----------------------|------------|-----------|------------|
| **Three  months ended March 31, 2008** |       |                  |       |                  |       |                 |       |                  |       |                  |       |      |       |
| Total net sales                             |       | $                     | 87.5       |                  | $          | 82.3                 |       | $                     | 58.9       |                  | $          | 55.0      |       | $ | 1.8 |   | $ | 285.5 |   |
| Segment profit                              |       | 7.9                   |       | 7.5                   |       | 5.8                  |       | 3.9                   |       | (4.8                  | )          | 20.3      |       |
|                                        |       |                  |       |                  |       |                 |       |                  |       |                  |       |      |       |
| **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, 2008 Compared with the ThreeMonths Ended March 31, 2007**

** **

*Engineered Films*

* *

*Netsales.*   Net sales in Engineered Films increased by$3.8 million, or 4.5%, to $87.5 million for the quarter ended March 31,2008 from $83.7 million for 2007. This increase was due to an increase inaverage selling prices of 12.7%, principally due to raw material priceincreases, offset by a 7.3% reduction in sales volume, primarily due to theloss of business in the food and beverage market.

 

*Segmentprofit.*   The Engineered Films segment profit was$7.9 million for the quarter ended March 31, 2008, as compared to $13.4million for the same period in 2007. This $5.5 million decrease in segment profitwas primarily due to increases in raw material costs coupled with volumedecreases and competitive contract renewals.

 

*Industrial Films*

* *

*Netsales.*   The net sales of our Industrial Filmssegment increased by $9.1 million, or 12.4%, to $82.3 million for thequarter ended March 31, 2008 from $73.2 million for the quarter ended March 31,2007. This increase is directly correlated to higher raw material costs andenergy-related costs resulting in higher average selling prices of 19.2%,offset by a 5.7% decrease in sales volume, primarily due to the loss ofbusiness at one customer.

 

*Segmentprofit.*   The Industrial Films segment profit was$7.5 million for the quarter ended March 31, 2008, as compared to$8.2 million for the same period in 2007. This $0.7 million reduction insegment profit was primarily due to reduced sales volume and higher freight andenergy-related costs, offset by favorable price mix in our stretch and PVCproduct markets.

 

*Specialty Films*

* *

*Netsales.*   Net sales in our Specialty Films segmentincreased $10.9 million, or 22.7%, to $58.9 million for the quarter ended March 31,2008 from $48.0 million for the quarter ended March 31, 2007. Thisincrease was due to an increase in our average selling prices of 10.8% andhigher sales volume of 10.8% in our agricultural, printed shrink and personalcare product lines. Specialty Films has successfully been diversifying theproduct mix through design modifications and upgrades to our extrusion assetbase that meet new exacting customer requirements in our markets. This segmentis also taking advantage of investments in printed technologies that areleveraging success with state-of-the-art four color in-line and ten coloroff-line flexographic printing presses. These printing assets are supporting growthin personal care baby diaper films and shrink packaging used in bundled waterapplications.

 

*Segmentprofit.*   The Specialty Films segment profit was$5.8 million for the quarter ended March 31, 2008, as compared to $6.0million for the quarter ended March 31, 2007. This $0.2 million declinereflects a favorable volume impact and lower selling and administrative costs,offset by unfavorable resin prices and product sales mix. The majority ofcontracts have resin pass through dynamics that delay resin cost recovery. Inaddition, this segment continues to work to offset customer product platformchanges that result in volume and profit loss.

 

27

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*Printed Products*

* *

*Netsales.*   Net sales of our Printed Products segmentincreased $3.7 million or 7.2% to $55.0 million for the quarter ended March 31,2008 from $51.3 million for the quarter ended March 31, 2007. Thisincrease was due to an increase in average selling prices of 10.5% due to resinprice pass through, offset by lower sales volume of 3.0% primarily in ourtortilla and frozen foods markets.

 

*Segmentprofit.*   The Printed Products segment profit was$3.9 million for the quarter ended March 31, 2008, as compared to $3.8million for the quarter ended March 31, 2007. This $0.1 million increasereflects a slight improvement in product price mix and favorable manufacturingand selling expenses between years which offset the impact of reduced volumes.

 

*Corporate/Other*

* *

Corporate/Other includesour corporate headquarters and our research and development facility in NewportNews, Virginia. Unallocated corporate expenses decreased by $2.9 million to$4.8 million for the quarter ended March 31, 2008, from $7.7 million forthe quarter ended March 31, 2007. This decrease was primarily due to lowerresearch and development activities attributed to our government contract workand lower selling, general and administrative expenses.

 

**Liquidity and Capital Resources**

** **

*Sources of Capital*

* *

Our principal sources offunds have been cash generated by our operations and borrowings under revolvingcredit facilities. In addition, we have raised funds through the issuance ofsenior secured and subordinated notes and the sale of shares of preferredstock.

 

As of March 31, 2008our outstanding long-term debt consisted of $151.6 million in borrowings underour Revolving Credit Facilities, $349.3 million of our Amended 2004 Notes,$7.8 million of our 2004 Notes, $250.0 million of our 2003 Notes,$24.0 million of our 2007 Notes and $12.7 million in capital leases.

 

*Current Credit Facilities*

* *

On July 18, 2006, weentered into our Revolving Credit Facilities. The Revolving 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 Revolving Credit Facilities includes sub-limits for loans tocertain of our foreign subsidiaries which are borrowers under the RevolvingCredit Facilities. The Revolving Credit Facilities were funded on July 18,2006, and replace 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 Revolving CreditFacilities will mature on the earlier of (a) July 18, 2011 or (b) onemonth prior to the respective maturity dates of the Company’s senior securednotes if these senior secured notes have not been refinanced in full: May 15,2009 with respect to the Company’s 2004 Notes and Amended 2004 Notes, and August 15,2009 with respect to the Company’s 2003 Notes. 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 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 Revolving Credit Facilities is 0.375% per annum.

 

28

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The borrowing base underthe Working Capital Credit Agreement is based on specified percentages of theCompany’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 Revolving CreditFacilities contain covenants that 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 our fiscal year or accounting policies.

 

The Revolving 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 million for aspecified number of days. Once the amount of availability increases and remainsabove $20 million for a specified number of days, such coverage ratio becomesinapplicable. In addition, the amount of availability under the RevolvingCredit Facilities must not be less than $10 million 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 Revolving CreditFacilities, by notice given to the Company, the administrative agent may, andif directed by the Required Lenders (as defined in the Revolving CreditFacilities) must, terminate the commitments and/or declare all outstandingloans to be immediately due and payable.

 

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

 

As of March 31,2008, we had borrowings of $151.6 million and availability of $42.5 millionunder the Revolving Credit Facilities, along with $8.2 million in cash.

 

*Amended 2004 Notes*

* *

The Amended 2004 Notesaccreted from the date of issuance through July 18, 2006 at the rate of 115/8 %, compounded semiannually on each June 15and December 15. On July 18, 2006, the interest rate on the Amended2004 Notes was increased to 11.85% per annum. The Amended 2004 Notes aresecured on a first-priority basis by a security interest in the First-PriorityNote Collateral and on a second-priority basis by a security interest in theSecond-Priority Note Collateral. The Amended 2004 Notes are guaranteed by ourexisting and future domestic restricted subsidiaries and certain foreignsubsidiaries.

 

29

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The Amended 2004 Notesmature on June 15, 2009. On or after June 15, 2007, we may redeemsome or all of the Amended 2004 Notes at the following redemption prices(expressed as percentages of the sum of the principal amount, plus accrued andunpaid interest); 105.813% if redeemed prior to June 15, 2008; 102.906% ifredeemed prior to December 15, 2008; and 100.000% if redeemed on or beforeJune 15, 2009.

 

*2004 Notes*

* *

The 2004 Notes mature on June 15,2009 and are secured by a first-priority security interest in theFirst-Priority Note Collateral and a second-priority security interest in theSecond-Priority Note Collateral. The 2004 Notes are guaranteed by our existingand future domestic restricted subsidiaries and certain foreign subsidiaries.

 

The 2004 Notes accretedat the rate of 111/8 % from the dateof issuance until July 18, 2006, on which date the interest rate wasincreased by .225% to 11.35%. The 2004 Notes accreted at the rate of 11.35%until December 15, 2006 to an aggregate principal amount of $1,000.88 per$1,000 stated principal amount. Commencing on December 15, 2006, intereston the 2004 Notes began accruing at the rate of 11.35% with such incrementalinterest rate increase of .225% accruing as payment-in-kind interest and theremaining 111/8 % payable in cash semiannually on June 15and December 15, commencing on June 15, 2007. The 2004 Notes matureon June 15, 2009.

 

On or after June 15,2007, the Company may redeem some or all of the 2004 Notes at the followingredemption prices (expressed as percentages of the sum of the principal amountplus accrued and unpaid interest):  105.563% if redeemed on or after June 15,2007 and prior to June 15, 2008; 102.781% if redeemed on or after June 15,2008 and prior to June 15, 2009; and 100.00% if redeemed on June 15,2009.

 

*2003 Notes*

* *

The 2003 Notes accruedinterest from the date of issuance through maturity at the rate of 111/8 %. The 2003 Notes mature on September 1,2009 and interest is payable in cash semiannually on each March 1 and September 1.The 2003 Notes rank equally with our existing and future senior debt and ranksenior to our existing and future subordinated indebtedness. The 2003 Notes aresecured by a second-priority security interest in both the First-Priority NoteCollateral and the Second-Priority Note Collateral. The 2003 Notes areguaranteed by some of our subsidiaries.

 

On or after June 1,2007, we may redeem some or all of the 2003 Notes at the following redemptionprices (expressed as a percentage of principal amount), plus accrued and unpaidinterest: 105.563% if redeemed prior to June 1, 2008; 102.781% if redeemedprior to June 1, 2009; and 100% if redeemed on or after June 1, 2009.

 

*2007Notes*

* *

The 2007 Notes accrueinterest from the date of issuance at the rate of 18% per annum until maturityon July 15, 2012 with interest payable semiannually on each January 15and July 15, to holders of record of the 2007 Notes on the immediatelypreceding January 1 or July 1. Pursuant to the 2007 Note Indenture,the Company may redeem the 2007 Notes in whole or in part at the applicableredemption price, which in each of the first four years is equal to ade-escalating premium over par, plus accrued and unpaid interest to theredemption date, as set forth in the 2007 Notes. The 2007 Note Indentureprovides the holders of the 2007 Notes have the right to require the Company torepurchase the 2007 Notes at a repurchase price equal to the then applicableredemption price plus accrued and unpaid interest upon a change of control ofthe Company (as defined in the 2007 Note Indenture). The 2007 Note Indenturedoes not provide for a sinking fund with respect to the 2007 Notes. The 2007 NoteIndenture contains customary provisions that may result in an event of default,after notice and expiration of a cure period in certain circumstances, andacceleration of the indebtedness thereunder, including failure to timely payprincipal and interest on the 2007 Notes or comply with the covenants set forthin the 2007 Note Indenture.

 

30

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The 2007 Note Indenturecontains various covenants including, among other things, covenants limitingthe incurrence of indebtedness and restricting certain payments, limitingrestrictions on the ability of subsidiaries to make distributions to theCompany, limiting sales of assets and subsidiary stock and the entry intoaffiliate transactions, as well as provisions governing merger and change ofcontrol transactions. The Company may be required under certain circumstancesto offer to repurchase 2007 Notes with the proceeds of certain asset sales.Upon a change of control transaction, holders of 2007 Notes may require theCompany (subject to certain exceptions) to repurchase 2007 Notes at a purchaseprice equal to 101% of the principal amount plus accrued and unpaid interest.The 2007 Notes will automatically become due and payable without notice uponthe occurrence of an event of default involving insolvency or bankruptcy of theCompany or certain of its subsidiaries. In addition, upon the occurrence andduring the continuation of any other event of default under the 2007 NoteIndenture, by notice given to the Company, the 2007 Note Trustee or holders ofat least 25% in principal amount of the 2007 Notes may declare the principal ofand accrued and unpaid interest on all the 2007 Notes to be immediately due andpayable.

 

*PreferredStock*

* *

As of March 31, 2008 wehave outstanding 334,894 of $1,000 per share stated value of Series AARedeemable Preferred Stock par value $.01 per share (the “Series AAPreferred Stock”), which accrues dividends at the rate of 13% per annum. The Series AAPreferred Stock is convertible into our common stock, par value $.01 per share(the “Common Stock”). If the Series AA Preferred Stock has not beenredeemed or repurchased by July 18, 2011, the holders of at least 40% ofthe outstanding shares of Series AA Preferred Stock shall have the rightto cause all of the outstanding class of Series AA Preferred Stock to beconverted into a number of shares of Common Stock equal to 99.9% of the numberof fully diluted shares of Common Stock after giving effect to such conversion(excluding shares, if any, of Common Stock issued to stockholders of the otherparty to a merger qualifying for the Merger Exception as that term is definedin our Amended and Restated Certificate of Incorporation).

 

In addition, we have8,000 shares of Series M Preferred Stock outstanding. 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. The Series MPreferred Stock vests monthly over a 36 month period; or upon a liquidationevent, redemption, or public offering; or upon certain terminations ofemployment within a limited period before an accelerated vesting event.

 

*Net Cash Provided by/Used in Operating Activities*

* *

Net cash used inoperating activities was $21.8 million for the three months ended March 31,2008, compared to net cash provided by operating activities of $1.5 million forthe same period in 2007. This $23.3 million decrease between years reflectsincreased working capital requirements of $21.5 million and a $1.8 millionreduction in earnings from operations before non-cash charges. Net workingcapital requirements for the three months ended March 31, 2008 of $30.2million reflect increases of $13.3 million and $11.3 million, respectively, forreceivables and inventories as a result of resin price increases and a decreasein accrued liabilities of $13.2 million as a result of the Company’ssemi-annual bond payment of $13.9 million, partially offset by increasedaccounts payable due to resin price increases. Net working capital requirementsfor the three months ended March 31, 2007 increased $8.7 million andreflect improvements of $16.2 million consisting of $13.3 million inreceivables, $1.9 million in accounts payable and $1.0 million in prepaidexpenses which are more than offset by reductions in accrued liabilities of$21.7 million and increases in inventories of $3.0 million. During the firstthree months of 2007, the Company made its semi-annual bond payment of $13.9million and paid out its fiscal 2006 incentive plans of $6.8 million and $3.4million in annual vendor rebate program accrued as of year end.

 

*Net Cash Used in Investing Activities*

* *

Net cash used ininvesting activities decreased $1.1 million to $10.3 million in capitalexpenditures for the three months ended March 31, 2008, from $11.4 millionin capital expenditures for the three months ended March 31, 2007.

 

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*Net Cash Provided by/Used in Financing Activities*

* *

Net cash provided byfinancing activities was $32.7 million for the three months ended March 31,2008, compared to net cash provided by financing activities of $13.8 millionfor the three months ended March 31, 2007.  Activity for the threemonths ended March 31, 2008 included $33.0 million of borrowings under ourRevolving Credit Facilities to meet capital expenditure and working capitalneeds and $0.3 million in repayment of capital leases. Activity for the three monthsended March 31, 2007 includes additional borrowings under our RevolvingCredit Facilities of $14.0 million to meet capital expenditure requirements andto fund a $13.9 million semi-annual bond payment made March 1, $0.2million in proceeds from sale of the Company’s Series M Preferred Stock,$0.1 million of payments of financing fees and $0.2 million in payments ofcapital leases.

 

*Liquidity*

* *

As of March 31,2008, we had $151.6 million of borrowings under our $200 million RevolvingCredit Facilities, and $42.5 million of availability subject to our borrowingbase limitations and $5.9 million in outstanding letters of credit.

 

As of March 31,2008, we had $8.2 million in cash and cash equivalents, of which $2.2 millionis a compensating balance associated with our Canadian operation’s borrowingsunder our Revolving Credit Facilities. In addition, a portion of our cash andcash equivalents are held by our other foreign subsidiaries.

 

The Company expects thatcash flows from operating activities and available borrowings under ourRevolving Credit Facilities of up to $200 million will provide sufficient cashflow to operate our business, to make expected capital expenditures and to meetforeseeable liquidity requirements.  However, our ability to borrow underour Revolving Credit Facilities at any time may be subject to the borrowingbase in effect at that time. Our ability to make borrowings under our RevolvingCredit 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 Revolving Credit Facilities.

 

*CapitalExpenditures*

* *

Our total capital expenditureswere approximately $41 million in 2006, $43 million in 2007 and areexpected to be approximately $45 million in 2008. These expenditures arefocused on projects to lower operating costs, add capacity for high valueproducts, expand research and development programs, and bring new innovativeproducts to market.

 

*RawMaterial Costs*

* *

Changes in raw materialcosts can significantly affect the amount of cash provided by our operatingactivities, which can affect our liquidity. Over the past two years, we haveexperienced a period of extreme uncertainty with respect to resin supplies andprices. High crude oil and natural gas pricing have had a significant impact onthe price and supply of resins. During the same period, many major suppliers ofresin have announced price increases to cover their increases in feedstockcosts. While the prices of our products generally fluctuate with the prices ofresins, certain of our customers have contracts that limit our ability to passthe full cost of higher resin pricing through to our customers immediately.Further, competitive conditions in our industry may make it difficult for us tosufficiently increase our selling prices for all customers to reflect the fullimpact of increases in raw material costs. If this period of high resin pricingcontinues, we may be unable to pass on the entire effect of the price increasesto our customers, which would adversely affect our profitability and workingcapital. In addition, further increases in crude oil and natural gas pricescould make it difficult for us to obtain an adequate supply of resin frommanufacturers affected by these factors.

 

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**Contractual Obligations**

 

There have been nomaterial changes in our contractual obligations and commercial commitmentssince December 31, 2007 arising outside of the ordinary course ofbusiness.

 

**Cautionary Statement for Forward-Looking Information**

** **

Some of the statementsset forth in this report including, but not limited to, those under the heading“Management’s Discussion and Analysis of Financial Condition and Results ofOperation,” are “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. These statements relate to analysesand other information that is based on forecasts of future results andestimates of amounts not yet determinable. These statements also relate to ourfuture prospects, developments and business strategies. These forward-lookingstatements are 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 to assumptions.These forward-looking statements are not historical facts but instead representonly expectations, estimates and projections regarding future events. Thesestatements are not guarantees of future performance and involve known andunknown risks, uncertainties and other factors that are difficult to predictand 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 against earnings resulting from restructuring or the impairment of  assets; |
|   |   |                                                                                                       |
| · |   | industry trends;                                                                                           |
|   |   |                                                                                                       |
| · |   | risks of high leverage  and any increases in our leverage;                                                 |
|   |   |                                                                                                       |
| · |   | interest rate  increases;                                                                                  |
|   |   |                                                                                                       |
| · |   | changes in our  ownership structure;                                                                       |
|   |   |                                                                                                       |
| · |   | changes in the  Company’s composition of operating segments;                                          |
|   |   |                                                                                                       |
| · |   | raw material costs and  availability, particularly resin;                                                  |
|   |   |                                                                                                       |
| · |   | the timing and extent  to which we pass through 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;                                                                                          |

 

 

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| · |   | changes in distribution  channels or competitive conditions in the markets or countries where we  operate;          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                |
| · |   | costs of integrating  any future acquisitions;                                                                      |
|   |   |                                                                                                                |
| · |   | loss of our intellectual  property rights;                                                                          |
|   |   |                                                                                                                |
| · |   | foreign currency  fluctuations and devaluations and political instability in our foreign  markets;                  |
|   |   |                                                                                                                |
| · |   | changes in our business  strategy or development plans;                                                             |
|   |   |                                                                                                                |
| · |   | availability, terms and  deployment of capital;                                                                     |
|   |   |                                                                                                                |
| · |   | availability of  qualified personnel;                                                                               |
|   |   |                                                                                                                |
| · |   | labor relations and  work stoppages;                                                                                |
|   |   |                                                                                                                |
| · |   | increases in the cost  of compliance with laws and regulations, including environmental laws and  regulations; and  |
|   |   |                                                                                                                |
| · |   | other risks and  uncertainties listed or described from time to time in reports we  periodically file with the SEC. |

 

We may also makeadditional forward-looking statements from time to time. All such subsequentforward-looking statements, whether written or oral, by us or on our behalf,are also expressly qualified by these cautionary statements. Allforward-looking statements, including, without limitation, management’sexamination of historical operating trends, are based upon our currentexpectations and various assumptions. Our expectations, beliefs and projectionsare expressed in good faith and we believe there is a reasonable basis forthem. But, there can be no assurance that management’s expectations, beliefsand projections will result or be achieved. All forward-looking statementsapply only as of the date made. We undertake no obligation to publicly updateor revise forward-looking statements which may be made to reflect events orcircumstances after the date made or to reflect the occurrence of unanticipatedevents.

 

Our risks are morespecifically described in the “Risk Factors” of Part I, Item 1A of theCompany’s Annual Report on Form 10-K for the year ended December 31,2007. If one or more of these risks or uncertainties materialize, or ifunderlying assumptions prove incorrect, our actual results may vary materiallyfrom those expected, estimated or projected.

 

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**ITEM 3.****          QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

** **

We are exposed to variousinterest rate and resin price risks that arise in the normal course ofbusiness. We regularly evaluate the advisability of entering into interest ratehedging agreements to manage interest rate market risks and commodity hedgingagreements to manage resin market risks. However, significant increases ininterest rates or the price of resins could adversely affect our operatingmargins, results of operations and ability to service our indebtedness. Furtherdiscussion of the increase in the price of resins can be found elsewhere inthis report.

 

*InterestRates.* Our revolving credit facility is at a variable rate ofinterest. An increase of 1% in interest rates would result in an additional$1.5 million of annual interest expense based on our revolving credit facilitybalance of $151.6 million as of March 31, 2008.

 

*RawMaterial Costs.* Our raw material costs comprise approximately65% of our total manufacturing costs, and consist primarily of resins. Marketrisk arises from changes in resin costs. Although the average selling prices ofour products generally increase or decrease as the cost of resins increases ordecreases, the impact of a change in resin prices is more immediately reflectedin our raw material costs than in our selling prices. In prior years, weentered into commodity collar agreements to manage resin market risks. At March 31,2008, we did not have any commodity collar agreements outstanding. Prices forresin increased dramatically during the fourth quarter of 2007 and may continueto fluctuate.

 

*ExchangeRates and Foreign Currency.* Fluctuations in exchange ratesmay also adversely affect our financial results. The functional currencies forour foreign subsidiaries are the local currency. As a result, certain of ourassets and liabilities, including certain bank accounts, accounts receivableand accounts payable, exist in non-U.S. dollar-denominated currencies, whichare sensitive to foreign currency exchange rate fluctuations.

 

We enter into certaintransactions denominated in foreign currencies but, because of the relativelysmall size of each individual currency exposure, we have not ordinarilyemployed hedging techniques designed to mitigate foreign currency exposures.Gains and losses from these transactions are immaterial and are reflected inthe results of operations.

 

*OtherMarket Risks.* 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.          CONTROLSAND PROCEDURES**

** **

**Evaluation of Disclosure Controls and Procedures**

** **

The effectiveness of ouror any system of disclosure controls and procedures is subject to certainlimitations, including the exercise of judgment in designing, implementing andevaluating the controls and procedures, the assumptions used in identifying thelikelihood of future events, and the inability to eliminate misconductcompletely. As a result, there can be no assurance that our disclosure controlsand procedures will detect all errors or fraud. By their nature, our or anysystem of disclosure controls and procedures can provide only reasonableassurance regarding management’s control objectives.

 

Under the supervision andwith the participation of our management, including our Chief Executive Officerand Chief Financial Officer, we evaluated the design and operation of ourdisclosure controls and procedures (as defined in Rules 13a-15(e) and15d-15(e) of the Securities Exchange Act of 1934, or the “Exchange Act”)as of March 31, 2008. On the basis of this review, our management,including our Chief Executive Officer and Chief Financial Officer, concludedthat our disclosure controls and procedures are designed, and are effective, togive reasonable assurance that the information required to be disclosed by usin reports that we file under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the SEC and to ensure that information required to be disclosed in thereports filed or submitted under the Exchange Act is accumulated andcommunicated to our management, including our Chief Executive Officer and ChiefFinancial Officer, in a manner that allows timely decisions regarding requireddisclosure.

 

**Changes in Internal Controls**

** **

Management has evaluated,with the participation of our principal executive officer and our principalfinancial officer, changes in the Company’s internal controls over financialreporting (as defined in Rule 13a-15(f) and 15d-15(f) of theExchange Act) during the first quarter of 2008.

 

There were no changes inour internal controls over financial reporting that occurred during the quarterthat have materially affected, or are reasonably likely to materially affect,the Company’s internal controls over financial reporting.

 

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**PART II.   OTHERINFORMATION**

** **

**ITEM 1.           LEGALPROCEEDINGS**

** **

None.

 

**ITEM 1A.        RISKFACTORS**

** **

There have been nomaterial changes to the risk factors as disclosed in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2007.

 

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

** **

None.

 

**ITEM 3.           DEFAULTSUPON SENIOR SECURITIES**

** **

None.

 

**ITEM 4.           SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

** **

None.

 

**ITEM 5.           OTHERINFORMATION**

** **

None.

 

**ITEM 6.           EXHIBITS**

** **

The exhibits listed onthe accompanying Index to Exhibits are filed or incorporated by reference as apart of this report and such Index to Exhibits is incorporated herein byreference.

 

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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/ THOMAS C.  SPIELBERGER                     |
|                    | THOMAS C. SPIELBERGER                          |
|                    | *Chief  Financial Officer*                     |
|                    | *(Authorized  Signatory and*                   |
|                    | *Principal  Financial and Accounting Officer)* |
| Date: May 15, 2008 |                                           |

 

 

37

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**INDEXTO EXHIBITS**

** **
| 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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