** **

**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 September 30, 2006**                                                                                                                                                                                                  |
| ** **                                                                                                                                                                                                                                              | ** **                                                                                              |
| **OR**                                                                                                                                                                                                                                                  |
| ** **                                                                                                                                                                                                                                              | ** **                                                                                              |
| **o**                                                                                                                                                                                                                                                   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **                                                                                                                                                                                                                                              | ** **                                                                                              |
| **For the  transition period from                     to                   ** |

 

**Commission filenumber 333-40067**

**PLIANTCORPORATION**

(Exact name of registrant as specified in its charter)

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

 

**1475 Woodfield Road,Suite 700**

**Schaumburg, IL 60173**

**(847) 969-3300**

(Address of principal executive offices and telephonenumber)

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

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

Large accelerated filer o      Acceleratedfiler o      Non-acceleratedfiler x

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

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

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date. OnNovember 7, 2006, there were 100,003 outstanding shares of the registrant’sCommon Stock.

 

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**PLIANT CORPORATION AND SUBSIDIARIES**

**TABLE OFCONTENTS**
| EXPLANATORY NOTE                                                                                    |                                                                                                                              |
|-----------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                |                                                                                                                              |
| PART  I. FINANCIAL INFORMATION                                                                      |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM  1. FINANCIAL STATEMENTS                                                                       |                                                                                                                              |
|                                                                                                |                                                                                                                              |
|                                                                                                | CONDENSED CONSOLIDATED BALANCE SHEETS AS OF  SEPTEMBER 30, 2006 (UNAUDITED) AND DECEMBER 31, 2005                       |   |
|                                                                                                |                                                                                                                              |   |
|                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR  THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (UNAUDITED) |   |
|                                                                                                |                                                                                                                              |   |
|                                                                                                | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR  THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005 (UNAUDITED)           |   |
|                                                                                                |                                                                                                                              |   |
|                                                                                                | CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’  DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 (UNAUDITED)     |   |
|                                                                                                |                                                                                                                              |   |
|                                                                                                | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (UNAUDITED)                                                                 |   |
|                                                                                                |                                                                                                                              |
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF  FINANCIAL CONDITION AND RESULTS OF OPERATIONS |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT  MARKET RISK                                 |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM 4. CONTROLS AND PROCEDURES                                                                     |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| PART  II. OTHER INFORMATION                                                                         |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM  1. LEGAL PROCEEDINGS                                                                          |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM  1A. RISK FACTORS                                                                              |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND  USE OF PROCEEDS                                |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                             |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS                                        |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM  5. OTHER INFORMATION                                                                          |                                                                                                                              |
|                                                                                                |                                                                                                                              |
| ITEM 6.  EXHIBITS                                                                                   |                                                                                                                              |

 

2

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**EXPLANATORYNOTE**

On July 18, 2006,Pliant Corporation consummated its reorganization through a series oftransactions contemplated in the Debtors’ Fourth Amended Joint Plan ofReorganization, dated as of June 19, 2006, which previously had been approvedby order of the United States Bankruptcy Court for the District of Delaware onJune 23, 2006.   In connection therewith,Pliant Corporation changed its state of incorporation from Utah to Delaware andobtained a new I.R.S. Employer Identification Number as set forth on the coverpage of this report.  Additionalinformation with respect to the reorganization is set forth in footnotes 1 – “Basisof Presentation” and 2 – “Reorganization” to the financial statements includedin Item 1 of Part I of this report.

3

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**PART I.  FINANCIAL INFORMATION**

**ITEM 1. FINANCIAL STATEMENTS**

**PLIANT CORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2006(UNAUDITED) AND DECEMBER 31, 2005

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
| ** **                                                                                                                                                                                                                                                                                | ** ** | **September 30,**                           | ** ** | **December 31,**                 | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                                                                                                                                                                | ** ** | **2006**                                         | ** ** | **2005**                              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                                | ** ** | ** **                                       | ** ** | ** **                            | ** ** |
| CURRENT ASSETS:                                                                                                                                                                                                                                                                           |       |                                             |       |                                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                                |       | $       5,405 |       | $     12,802 |       |
| Receivables, net  of allowances of $5,078 and $5,672, respectively                                                                                                                                                                                                                        |       | 148,478                                          |       | 137,684                               |       |
| Inventories  (Note 3)                                                                                                                                                                                                                                                                     |       | 111,590                                          |       | 106,826                               |       |
| Prepaid expenses  and other                                                                                                                                                                                                                                                               |       | 7,924                                            |       | 7,222                                 |       |
| Income taxes  receivable, net                                                                                                                                                                                                                                                             |       | 987                                              |       | 1,074                                 |       |
| Deferred income  taxes                                                                                                                                                                                                                                                                    |       | 11,806                                           |       | 11,424                                |       |
| Total current  assets                                                                                                                                                                                                                                                                     |       | 286,190                                          |       | 277,032                               |       |
| PLANT AND EQUIPMENT,  net                                                                                                                                                                                                                                                                 |       | 296,224                                          |       | 294,993                               |       |
| GOODWILL                                                                                                                                                                                                                                                                                  |       | 182,300                                          |       | 182,245                               |       |
| INTANGIBLE ASSETS, net                                                                                                                                                                                                                                                                    |       | 13,962                                           |       | 14,719                                |       |
| OTHER ASSETS                                                                                                                                                                                                                                                                              |       | 28,977                                           |       | 51,916                                |       |
| TOTAL ASSETS                                                                                                                                                                                                                                                                              |       | $   807,653                       |       | $   820,905            |       |
|                                                                                                                                                                                                                                                                                      |       |                                             |       |                                  |       |
| **LIABILITIES AND STOCKHOLDERS’  DEFICIT**                                                                                                                                                                                                                                           | ** ** | ** **                                       | ** ** | ** **                            | ** ** |
| CURRENT LIABILITIES:                                                                                                                                                                                                                                                                      |       |                                             |       |                                  |       |
| Current portion  of long-term debt and debt in default (Note 9)                                                                                                                                                                                                                           |       | $       1,054 |       | $   973,244            |       |
| Trade accounts payable                                                                                                                                                                                                                                                                    |       | 95,879                                           |       | 52,000                                |       |
| Accrued  liabilities:                                                                                                                                                                                                                                                                     |       |                                             |       |                                  |       |
| Interest payable                                                                                                                                                                                                                                                                          |       | 3,564                                            |       | 34,359                                |       |
| Customer rebates                                                                                                                                                                                                                                                                          |       | 6,621                                            |       | 9,538                                 |       |
| Other                                                                                                                                                                                                                                                                                     |       | 48,152                                           |       | 41,307                                |       |
| Total current  liabilities                                                                                                                                                                                                                                                                |       | 155,270                                          |       | 1,110,448                             |       |
| LONG-TERM DEBT, net of  current portion (Note 9)                                                                                                                                                                                                                                          |       | 737,656                                          |       | 8,451                                 |       |
| OTHER LIABILITIES                                                                                                                                                                                                                                                                         |       | 33,070                                           |       | 34,677                                |       |
| DEFERRED INCOME TAXES                                                                                                                                                                                                                                                                     |       | 31,056                                           |       | 31,575                                |       |
| SHARES SUBJECT TO  MANDATORY REDEMPTION (Note 2, 11)                                                                                                                                                                                                                                      |       | —                                           |       | 270,689                               |       |
| Total  liabilities                                                                                                                                                                                                                                                                        |       | 957,052                                          |       | 1,455,840                             |       |
| REDEEMABLE PREFERRED  STOCK - Series B - 720 shares previously authorized, no par value, no shares  outstanding at September 30, 2006 and 628 shares outstanding at December 31,  2005                                                                                                    |       | —                                           |       | 102                                   |       |
| REDEEMABLE COMMON STOCK  - no par value; 60,000 shares previously authorized; no shares outstanding at  September 30, 2006 and 10,873 shares outstanding at December 31, 2005, net of  related stockholders’ notes receivable of $1,827                                              |       | —                                           |       | 6,645                                 |       |
| STOCKHOLDERS’ DEFICIT:                                                                                                                                                                                                                                                               |       |                                             |       |                                  |       |
| Redeemable  Preferred Stock - Series AA - 335,650 shares authorized, par value $.01 per  share, with a redemption and liquidation value of $1,000 per share plus  accumulated dividends. 335,592 shares outstanding at September 30, 2006 and  no shares outstanding at December 31, 2005 |       | 186,013                                          |       | —                                |       |
| Redeemable  Preferred Stock - Series M - 8,000 shares authorized, par value $.01 per  share, no shares outstanding at September 30, 2006 and December 31, 2005                                                                                                                            |       | —                                           |       | —                                |       |
| Common stock -  par value $.01 per share; 100,050,000 shares authorized, 100,003 shares  outstanding at September 30, 2006 and no shares outstanding at December 31,  2005                                                                                                                |       | 1                                                |       |                                  |       |
| Common stock -  no par value; 10,000,000 shares previously authorized, no shares outstanding  at September 30, 2006 and 542,618 share outstanding at December 31, 2005                                                                                                                    |       |                                             |       | 103,376                               |       |
| Paid in capital                                                                                                                                                                                                                                                                           |       | 154,486                                          |       | —                                |       |
| Warrants to  purchase common stock                                                                                                                                                                                                                                                        |       | —                                           |       | 39,133                                |       |
| Accumulated  deficit                                                                                                                                                                                                                                                                      |       | (470,237                                         | )          | (763,940                              | )          |
| Stockholders’  notes receivable, net of reserves of $4,918 and $0                                                                                                                                                                                                                    |       | —                                           |       | (660                                  | )          |
| Accumulated  other comprehensive loss                                                                                                                                                                                                                                                     |       | (19,662                                          | )          | (19,591                               | )          |
| Total  stockholders’ deficit                                                                                                                                                                                                                                                         |       | (149,399                                         | )          | (641,682                              | )          |
| TOTAL LIABILITIES AND STOCKOLDERS’ DEFICIT                                                                                                                                                                                                                                           |       | $   807,653                       |       | $   820,905            |       |

 

See notes to condensedconsolidated financial statements.

4

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**PLIANT CORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHSENDED SEPTEMBER 30, 2006 AND 2005 (IN THOUSANDS) (UNAUDITED)
| ** **                                                       | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| NET SALES                                                        |       | $ 293,357                                       |       | $ 261,973                                      |       | $ 880,086 |   | $ 784,107 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| COST OF SALES                                                    |       | 259,356                                              |       | 229,501                                             |       | 774,781 |   | 684,750 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Gross Profit                                                     |       | 34,001                                               |       | 32,472                                              |       | 105,305 |   | 99,357 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| OPERATING  EXPENSES:                                             |       |                                                 |       |                                                |       |   |   |   |   |
| Sales, General and Administrative                                |       | 17,830                                               |       | 18,573                                              |       | 53,762 |   | 58,162 |   |
| Research and Development                                         |       | 2,193                                                |       | 2,353                                               |       | 6,795 |   | 6,585 |   |
| Restructuring and Other Costs (Note 4)                           |       | (685                                                 | )          | 351                                                 |       | (655 | ) | 2,433 |   |
| Reorganization Costs (Note 2)                                    |       | 18,427                                               |       | —                                              |       | 82,248 |   | — |   |
| Total operating expenses                                         |       | 37,765                                               |       | 21,277                                              |       | 142,150 |   | 67,180 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| OPERATING INCOME  (LOSS)                                         |       | (3,764                                               | )          | 11,195                                              |       | (36,845 | ) | 32,177 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| INTEREST EXPENSE:                                                |       |                                                 |       |                                                |       |   |   |   |   |
| Current and Long-term debt (Note 5, 9)                           |       | (19,996                                              | )          | (26,734                                             | )          | (60,336 | ) | (82,362 | ) |
| Dividends and accretion on Redeemable Preferred  Stock (Note 11) |       | —                                               |       | (10,041                                             | )          | (271 | ) | (28,998 | ) |
| GAIN ON  EXTINGUISHMENT OF DEBT (Note 2)                         |       | 398,454                                              |       | —                                              |       | 398,454 |   | — |   |
| OTHER INCOME  (EXPENSE) - Net                                    |       | 1,923                                                |       | 20                                                  |       | 2,060 |   | 3,959 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES    |       | 376,617                                              |       | (25,560                                             | )          | 303,062 |   | (75,224 | ) |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| INCOME TAX  EXPENSE (BENEFIT) (Note 7)                           |       | (795                                                 | )          | (139                                                | )          | 446 |   | 1,196 |   |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS                        |       | 377,412                                              |       | (25,421                                             | )          | 302,616 |   | (76,420 | ) |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| INCOME (LOSS)  FROM DISCONTINUED OPERATIONS                      |       | —                                               |       | —                                              |       | — |   | (560 | ) |
|                                                             |       |                                                 |       |                                                |       |   |   |   |   |
| NET INCOME (LOSS)                                                |       | $ 377,412                                       |       | $  (25,421                                | )          | $ 302,616 |   | $  (76,980 | ) |

 

Seenotes to condensed consolidated financial statements.

5

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**PLIANT CORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE NINE MONTHS ENDEDSEPTEMBER 30, 2006 AND 2005

(INTHOUSANDS) (UNAUDITED)
| ** **                                                                                           | ** ** | **Nine Months Ended**      | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                           | ** ** | **September 30,**               | ** ** |
| ** **                                                                                           | ** ** | **2006**                             | ** ** | **2005** | ** ** |
| CASH FLOWS FROM  CONTINUING OPERATING ACTIVITIES:                                                    |       |                                 |       |   |   |
| Net income (loss)                                                                                    |       | $ 302,616                       |       | $ (76,980 | ) |
| Adjustments to reconcile net income (loss) to net  cash provided by continuing operating activities: |       |                                 |       |   |   |
| Depreciation and amortization                                                                        |       | 30,135                               |       | 29,955 |   |
| Amortization of deferred financing costs and  accretion of debt discount                             |       | 28,422                               |       | 27,624 |   |
| Deferred dividends and accretion on preferred shares                                                 |       | 271                                  |       | 28,998 |   |
| Write off of deferred financing costs                                                                |       | 17,252                               |       | — |   |
| Write off of original issue debt discount and  premium                                               |       | 30,453                               |       | — |   |
| Deferred income taxes                                                                                |       | (820                                 | )          | 1,579 |   |
| Loss from discontinued operations                                                                    |       | —                               |       | 560 |   |
| Gain on disposal of assets                                                                           |       | (1,867                               | )          | (4,167 | ) |
| Gain on extinguishment of debt                                                                       |       | (398,454                             | )          | — |   |
| Changes in assets and liabilities:                                                                   |       |                                 |       |   |   |
| Receivables                                                                                          |       | (10,217                              | )          | (6,563 | ) |
| Inventories                                                                                          |       | (4,369                               | )          | 3,260 |   |
| Prepaid expenses and other                                                                           |       | (705                                 | )          | (975 | ) |
| Income taxes payable/receivable                                                                      |       | 1,132                                |       | (1,225 | ) |
| Other assets                                                                                         |       | 6,528                                |       | 1,395 |   |
| Trade accounts payable                                                                               |       | 43,861                               |       | 4,573 |   |
| Accrued liabilities                                                                                  |       | (3,874                               | )          | (693 | ) |
| Other liabilities                                                                                    |       | (1,775                               | )          | 2,554 |   |
| Other                                                                                                |       | 2                                    |       | (33 | ) |
| Net cash provided by continuing operating activities                                                 |       | 38,591                               |       | 9,862 |   |
|                                                                                                 |       |                                 |       |   |   |
| CASH FLOWS FROM  CONTINUING INVESTING ACTIVITIES:                                                    |       |                                 |       |   |   |
| Proceeds from sale of assets                                                                         |       | 2,602                                |       | 5,191 |   |
| Capital expenditures for plant and equipment                                                         |       | (29,277                              | )          | (26,422 | ) |
| Net cash used in continuing investing activities                                                     |       | (26,675                              | )          | (21,231 | ) |
|                                                                                                 |       |                                 |       |   |   |
| CASH FLOWS FROM  CONTINUING FINANCING ACTIVITIES:                                                    |       |                                 |       |   |   |
| Repurchase of preferred stock                                                                        |       | —                               |       | (10 | ) |
| Issuance of senior secured notes                                                                     |       | —                               |       | 250,607 |   |
| Repayment of senior secured discount notes                                                           |       | —                               |       | (250,607 | ) |
| Payment of financing fees                                                                            |       | (10,476                              | )          | (7,643 | ) |
| Repayments of DIP revolver due to refinancing                                                        |       | (138,842                             | )          | — |   |
| Borrowings under Exit Credit Facilities                                                              |       | 133,621                              |       | — |   |
| Proceeds from revolving debt - net                                                                   |       | —                               |       | 24,100 |   |
| Repayment of capital leases and other, net                                                           |       | (1,290                               | )          | (1,488 | ) |
| Net cash provided by / (used in) continuing  financing activities                                    |       | (16,987                              | )          | 14,959 |   |
|                                                                                                 |       |                                 |       |   |   |
| DISCONTINUED  OPERATIONS (REVISED - SEE NOTE 1):                                                     |       |                                 |       |   |   |
| Cash used in operating activities                                                                    |       | —                               |       | (195 | ) |
| Total cash used in discontinued operations                                                           |       | —                               |       | (195 | ) |
|                                                                                                 |       |                                 |       |   |   |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS                                        |       | (2,326                               | )          | (2,026 | ) |
|                                                                                                 |       |                                 |       |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                                                |       | (7,397                               | )          | 1,369 |   |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD                                                  |       | 12,802                               |       | 5,580 |   |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                                                        |       | $     5,405 |       | $     6,949 |   |
| SUPPLEMENTAL  DISCLOSURES OF CASH FLOW INFORMATION:                                                  |       |                                 |       |   |   |
| Cash paid during the period for:                                                                     |       |                                 |       |   |   |
| Interest                                                                                             |       | $   37,619            |       | $   59,547 |   |
| Income taxes                                                                                         |       | 2,087                                |       | 2,190 |   |
| Other non-cash disclosure:                                                                           |       |                                 |       |   |   |
| Preferred Stock  dividends accrued but not paid                                                      |       | 257                                  |       | 28,149 |   |

 

See notes tocondensed consolidated financial statements.

6

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**PLIANT CORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FORTHE NINE MONTHS ENDED SEPTEMBER 30, 2006 (IN THOUSANDS) (UNAUDITED)
| ** **                               | ** ** | **Preferred Stock** | ** ** | **Common Stock**                                         | ** ** | ** **                    | ** ** | ** **                                              | ** ** | **Accumulated**           | ** ** | ** **                                                                                               | ** ** |
|------------------------------------------|------------|--------------------------|------------|---------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------------------|------------|---------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|
| ** **                               | ** ** | ** **               | ** ** | ** **                                                    | ** ** | ** **                    | ** ** | ** **                                              | ** ** | ** **                | ** ** | **Warrants to**                                                                                     | ** ** | ** ** | ** ** | **Stockholders’** | ** ** | **Other** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **Series AA**       | ** ** | **Series M**                                             | ** ** | **Delaware Corporation** | ** ** | **Paid In**                                        | ** ** | **Utah Corporation** | ** ** | **Purchase**                                                                                             | ** ** | **Accumulated** | ** ** | **Notes** | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **Shares**               | ** ** | **Amount**                                                    | ** ** | **Shares**                    | ** ** | **Amount**                                              | ** ** | **Shares**                | ** ** | **Amount**                                                                                               | ** ** | **Capital** | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Common Stock** | ** ** | **Deficit** | ** ** | **Receivable** | ** ** | **Loss** | ** ** | **Total** | ** ** |
|                                     |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE  - December 31, 2005             |       | —                   |       | $         — |       | —                        |       | $        — |       | —                    |       | $               —        |       | $        — |   | 543 |   | $103,376 |   | $              39,133 |   | $      (763,940 | ) | $              (660 | ) | $            (19,591 | ) | $(641,682 | ) |
|                                     |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Reorganization                           |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance  of Delaware Corporation stock  |       | 336                      |       | $177,100                                                      |       | —                        |       | $        — |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 177,100 |   |
|                                     |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance  of Delaware Corporation stock  |       |                     |       |                                                          |       |                          |       |                                                    |       | 100                       |       | 1                                                                                                        |       | $3,481 |   |   |   |   |   |   |   |   |   |   |   |   |   | 3,482 |   |
|                                     |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Retirement  of Utah Corporation stock    |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       | $151,005 |   | (543 | ) | $(103,376 | ) | $            (39,133 | ) |   |   | 660 |   |   |   | 9,156 |   |
|                                     |       | 336                      |       | $177,100                                                      |       | —                        |       | $        — |       | 100                       |       | $                 1 |       | $154,486 |   | — |   | $         — |   | $                     — |   | $      (763,940 | ) | $                  — |   | $            (19,591 | ) | $(451,944 | ) |
|                                     |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred  stock dividends               |       |                     |       | 8,913                                                         |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   | $          (8,913 | ) |   |   |   |   | — |   |
|                                     |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net  Income                              |       |                     |       |                                                          |       |                          |       |                                                    |       | —                    |       | —                                                                                                   |       |   |   | — |   | — |   | — |   | 302,616 |   | — |   | — |   | 302,616 |   |
|                                     |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Foreign  currency translation adjustment |       | —                   |       | —                                                        |       | —                        |       | —                                                  |       | —                    |       | —                                                                                                   |       | — |   | — |   | — |   | — |   | — |   | — |   | (71 | ) | (71 | ) |
|                                     |       |                     |       |                                                          |       |                          |       |                                                    |       |                      |       |                                                                                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE - September 30,  2006            |       | 336                      |       | $186,013                                                      |       | —                        |       | $        — |       | 100                       |       | $                 1 |       | $154,486 |   | — |   | $         — |   | $                     — |   | $      (470,237 | ) | $                  — |   | $            (19,662 | ) | $(149,399 | ) |

 

Seenotes to condensed consolidated financial statements.

7

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**PLIANT CORPORATION AND SUBSIDIARIES**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

**1.**                        BASIS OFPRESENTATION

*Nature of operations*   PliantCorporation and its subsidiaries (collectively “Pliant”, the “Company” or ”we”)produce polymer-based (plastic), value-added films for flexible packaging,personal care, medical, agricultural and industrial applications. Ourmanufacturing facilities are located in the United States, Canada, Mexico,Germany and Australia.

*Principles ofConsolidation*   The accompanying condensedconsolidated financial statements have been prepared, without audit, inaccordance with U.S. generally accepted accounting principles and pursuant tothe rules and regulations of the Securities and Exchange Commission. Theinformation reflects all normal recurring adjustments that, in the opinion ofmanagement, are necessary for a fair presentation of the financial position,results of operations and cash flows of Pliant as of the dates and for theperiods presented. Results of operations for the periods ended September 30,2006 are not necessarily indicative of results of operations to be expected forthe full fiscal year.

Certaininformation in footnote disclosures normally included in financial statementspresented in accordance with U.S. generally accepted accounting principles hasbeen condensed or omitted in accordance with the rules and regulations ofthe Securities and Exchange Commission. These statements should be read inconjunction with the Company’s Annual Report on Form 10-K for theyear ended December 31, 2005. Certain reclassifications have been made tothe condensed consolidated financial statements for the periods ended September30, 2005 for comparative purposes, including separate disclosure of theoperating, investing and financing portions of the cash flows attributable todiscontinued operations, which in prior periods were reported on a combinedbasis as a single amount.

*Bankruptcy Filing  *On January 3,2006, Pliant Corporation and ten subsidiaries (collectively, the “Debtors”)filed voluntary petitions in the United States Bankruptcy Court for theDistrict of Delaware (the “Bankruptcy Court”) seeking relief under theprovisions of chapter 11 of title 11 of the United States Code(the “Bankruptcy Code”) (the “Chapter 11 Cases”). The Chapter 11Cases have been jointly administered under the caption “In re: PliantCorporation, et al., Case No. 06-10001”. Three of our subsidiarieswith Canadian operations commenced ancillary proceedings in a Canadian court torecognize the Chapter 11 proceedings as “foreign proceedings” pursuant toCanada’s Companies’ Creditors Arrangement Act (“CCAA”). The Debtors continuedto operate their businesses as “debtors-in-possession” under the jurisdictionof the Bankruptcy Court and in accordance with applicable provisions of theBankruptcy Code and the orders of the Bankruptcy Court. Pliant’s subsidiariesin Australia, Germany and Mexico were not included in the filings, andcontinued their business operations without supervision from the BankruptcyCourt and without being subject to the requirements of chapter 11 of theBankruptcy Code.

Inaddition, the Debtors entered into a post-petition debtor-in-possessionfinancing facility with certain lenders led by General Electric CapitalCorporation that provided for a maximum of approximately $68.8 million ofadditional post-petition financing, subject to borrowing base availability. Wecontinued to operate in the normal course of business during the reorganizationprocess and all of our 23 manufacturing and research and development facilitiesaround the world remained open and continued to serve customers.

OnJune 19, 2006, the Debtors filed with the Bankruptcy Court the Debtors’ FourthAmended Joint Plan of Reorganization (the “Fourth Amended Plan”) which wasapproved by the Bankruptcy Court on June 23, 2006.  On July 18, 2006, the Company consummated itsreorganization through a series of transactions contemplated in the FourthAmended Plan.  See footnote 2 –Reorganization for further details.  On July18, 2006, the Company filed with the Bankruptcy Court a Notice of EffectiveDate of Debtors’ Fourth Amended Joint Plan of Reorganization and Bar Date forCertain Claims (the “Notice”) announcing the effectiveness of the FourthAmended Plan.

AmericanInstitute of Certified Public Accountants Statement of Position 90-7,“Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”),applies to the Debtors’ financial statements while the Debtors operate underthe provisions of chapter 11. SOP 90-7 generally does not change themanner in which financial statements are prepared. However, it does requirethat the financial statements for periods subsequent to the filing of thechapter 11 petition distinguish transactions and events that are directlyassociated with the reorganization from the ongoing operations of the business.Expenses, realized gains and losses, and provisions for losses that can bedirectly associated with the reorganization and restructuring of the

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businessare reported separately as financial restructuring costs in the statements ofoperations for the three and nine months ended September 30, 2006. Liabilitiesaffected by implementation of a plan of reorganization are reported at amountsexpected to be allowed, even if they may be settled for lesser amounts. Inaddition, reorganization related items that significantly impact cash providedby continuing operations are disclosed separately in the statement ofcash flows.

*NewAccounting Pronouncements*  In July 2006, the FASB issued Statement of Financial AccountingStandards Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty inIncome Taxes.”  FIN 48 clarifies theaccounting for uncertainty in income taxes recognized in an enterprise’sfinancial statements in accordance with SFAS 109, “Accounting for Income Taxes.”  FIN 48 also prescribes a recognitionthreshold and measurement attribute for the financial statement recognition andmeasurement of a tax position taken or expected to be taken in a tax return.  The new FASB standard also provides guidanceon derecognition, classification, interest and penalties, accounting in interimperiods, disclosure and transition.  Theprovisions of FIN 48 are effective for fiscal years beginning after December15, 2006.  The Company intends to adoptFIN 48 effective January 1, 2007 and has not yet determined the impact, if any,this adoption will have on its financial condition or results of operations.

InSeptember 2006, the FASB issued SFAS No. 158, “Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans – an amendment of FASBStatements No. 87, 88, 106, and 132(R).” SFAS 158 requires an employer to recognize a plan’s funded status in itsstatement of financial position, measure a plan’s assets and obligations as ofthe end of the employer’s fiscal year and recognize the changes in a definedbenefit postretirement plan’s funded status in comprehensive income in the yearin which the changes occur.  SFAS 158’srequirement to recognize the funded status of a benefit plan and new disclosurerequirements are effective as of the end of the fiscal year ending afterDecember 15, 2006.  The requirement tomeasure plan assets and benefit obligations as of the date of the employer’sfiscal year-end statement of financial position is effective for fiscal yearsending after December 15, 2008.  TheCompany estimates there will be no material adjustment to other comprehensiveincome for the year ending December 31, 2006, as a result of adopting SFAS158.  The Company does not expect SFAS158 to have a material impact on its results of operations or financialposition.

**2.**                        REORGANIZATION

OnJuly 18, 2006, the Company consummated its reorganization through a series oftransactions contemplated in the Fourth Amended Plan, which previously had beenapproved by order of the United States Bankruptcy Court for the District ofDelaware on June 23, 2006.

Among the transactions effected pursuant to the FourthAmended Plan, as of July 18, 2006 the Company (i) changed its state ofincorporation from Utah to Delaware, (ii) extinguished its Series B RedeemablePreferred Stock, no par value, (iii) issued, in exchange for all of its 13%Senior Subordinated Notes due 2010 (the “2000/2002 Notes”), Series A CumulativeExchangeable Redeemable Preferred Stock, no par value, and Common Stock, no parvalue, then outstanding (A) an aggregate principal amount of $34,967,000 of 13%Senior Subordinated Notes due 2010 (the “New Subordinated Notes”), (B) 335,592shares of Series AA Redeemable Preferred Stock, par value $.01 per share (“SeriesAA Preferred Stock”), and (C) 100,003 shares of Common Stock, par value $.01per share (“New Common Stock”), (iv) made cash payments to the applicabletrustee of (A) $3,200,000 for further distribution to the holders of the2000/2002 Notes and (B) $18,529,375.55 for further distribution to the holdersof its 111¤8%Senior Secured Notes due 2009 (the “2003 Notes”), (v) increased the interestrate on its 111¤8%Senior Secured Discount Notes due 2009 (the “2004 Notes”) and its 115¤8%Senior Secured Notes due 2009 (the “Amended 2004 Notes”) by .225%, (vi) enteredinto exit credit facilities to replace the amended revolving credit facilitydated November 21, 2005 (the “Amended and Restated Credit Agreement”) and theSenior Secured, Super Priority, Priming Debtor-in-Possession Credit Agreementdated as of January 4, 2006 (the “DIP Credit Facility”) and (vii) entered intoa Stockholders Agreement with respect to the New Common Stock and aRegistration Rights Agreement with respect to the Series AA Preferred Stock. Asa result, the prior credit facilities, the indenture dated May 31, 2000governing the 2000 Notes (the “2000 Indenture”) and the indenture dated April10, 2002 governing the 2002 Notes (the “2002 Indenture”) were terminated,except, with respect to the indentures, to the extent necessary to permit thetrustee under such indentures to make distributions to the holders of the 2000Notes and 2002 Notes under the Fourth Amended Plan. In addition, on July 18, 2006,the Company’s Deferred Cash Incentive Plan and 2006 Restricted Stock IncentivePlan, as further discussed below, became effective.

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

Toeffect the interest rate increase with respect to the 2004 Notes and Amended2004 Notes, the Company also entered into a First Supplemental Indenture, datedas of July 18, 2006 (the “First Supplemental Indenture”) with respect to theAmended and Restated Indenture, dated as of May 6, 2005 (the “Amended andRestated Indenture”), among the Company, certain subsidiaries of the Companyand Wilmington Trust Company, as trustee. The Amended and Restated Indenturewas amended to increase the interest rate by .225% with respect to the 2004Notes and Amended 2004 Notes, which additional interest will accrue aspayment-in-kind interest. As a result, on July 18, 2006, the interest rate onthe Amended 2004 Notes was increased to 11.85% per annum and the interest rateon the 2004 Notes was increased to 11.35% per annum. Pursuant to Section9.01(a)(vii) of the Amended and Restated Indenture, consent of the holders ofthe 2004 Notes and Amended 2004 Notes was not required in connection with theexecution of the First Supplemental Indenture.

OnJuly 18, 2006, the Company and/or certain of its subsidiaries entered into (i)a Working Capital Credit Agreement, among the Company, certain of itssubsidiaries, the lenders party thereto, Merrill Lynch Bank USA, asadministrative agent (the “Administrative Agent”), and Merrill Lynch CommercialFinance Corp., as sole lead arranger and book manager (the “Working CapitalCredit Agreement”), and (ii) a Fixed Asset Credit Agreement, among PliantCorporation Pty Ltd., Pliant Corporation of Canada Ltd., Pliant Film ProductsGmbH and Aspen Industrial, S.A. de C.V., as borrowers, the lenders partythereto, Merrill Lynch Bank USA, as administrative agent, and Merrill LynchCommercial Finance Corp., as sole lead arranger and book manager (the “FixedAsset Credit Agreement, and together with the Working Capital Credit Agreement,the “Exit Credit Facilities”). The Exit Credit Facilities provide up to $200million of total commitments, subject to the borrowing base described below anda required minimum availability amount of at least $10 million. The WorkingCapital Credit Agreement includes a $20 million letter of credit sub-facility,with letters of credit reducing availability thereunder, and each of the ExitCredit Facilities includes sub-limits for loans to certain of the foreign subsidiariesof the Company which are borrowers under the Exit Credit Facilities. The ExitCredit Facilities were funded on July 18, 2006, and replace the Company’s priorcredit facilities. The Exit Credit Facilities 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 the Company’s prior credit arrangements. The Exit Credit Facilities willmature on July 18, 2011. The interest rates for all loans other than those madeto the Company’s German subsidiary range from, in the case of alternate baserate loans, the alternate base rate (either prime rate or .50% over the FederalFunds Rate) plus 1.75% to the alternate base rate plus 2.00% and, in the caseof eurodollar loans, LIBOR plus 2.75% to LIBOR plus 3.00%, in each casedepending on the amount of available credit. The interest rates for loans madein connection with the loans to the Company’s German subsidiary are, in thecase of alternate base rate loans, the alternate base rate plus 5.00% and, inthe case of eurodollar loans, LIBOR plus 6.00%. The commitment fee for theunused portion of the

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Exit CreditFacilities is 0.375% per annum. The borrowing base under the Working CapitalCredit Agreement is based on specified percentages of the Company’s and itssubsidiaries’ party thereto eligible accounts receivable, finished goodsinventory, work in process and raw material inventory minus certain reserves.The borrowing base under the Fixed Asset Credit Agreement is based on specifiedpercentages of the Company’s and its subsidiaries’ party thereto eligible realestate valued at market value plus the net orderly liquidation value ofeligible machinery and equipment minus certain reserves.

OnJuly 18, 2006, the Company entered into a Stockholders Agreement (the “StockholdersAgreement”) that is binding on all parties receiving shares of New CommonStock, pursuant to the terms of the Fourth Amended Plan. The StockholdersAgreement provides for certain restrictions on transfer of the New Common Stockand requires that all transferees of New Common Stock become a party to theStockholders Agreement. The Stockholders Agreement also grants to certainholders of New Common Stock the right to purchase their pro rata share of anynew equity securities issued by the Company, subject to exceptions foracquisitions, management equity and certain other transactions. TheStockholders Agreement also contains “drag-along rights” that require allholders of New Common Stock to participate in and vote in favor of certainsales of the Company approved by the Board of Directors and certain holders ofNew Common Stock. The Stockholders Agreement also provides that the 5 (out of atotal of 7) members of the Board of Directors to be elected by the holders ofNew Common Stock will consist of the chief executive officer of the Company and4 members appointed by the holders of a majority of the New Common Stock heldby persons defined as “permitted holders” under the Indentures for the 2003 Notes,2004 Notes and Amended 2004 Notes. The Stockholders Agreement also providesthat certain holders of New Common Stock will have demand registration rightsfollowing the third anniversary of the effective date of the Fourth AmendedPlan and additional demand and piggyback registration rights following aninitial public offering of the New Common Stock.

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

The 2006 Restricted Stock Incentive Plan provides forthe issuance to the Chief Executive Officer and other officers of the Companyof Series M Preferred Stock that, when combined with awards under the DeferredCash Incentive Plan, will entitle such officers to a maximum of 8% of theequity value of the Company, in the aggregate. Participants in the 2006 Restricted Stock Incentive Plan and DeferredCash Incentive Plan will only receive distributions upon the occurrence ofcertain extraordinary corporate transactions, such as a sale of all orsubstantially all of the Company’s assets or a change in control of theCompany.  The 2006 Restricted StockIncentive Plan and Deferred Cash Incentive Plan will be administered by theCompany’s board or a committee composed of non-employee directors.  No awards have been granted to date undereither plan.

On July 18, 2006, as referenced above, the Companycompleted a debt for equity exchange whereby 100% of our outstanding $320million of 2000/2002 Notes and $24.3 million in accrued interest were exchangedfor 265,123 shares or 79% of our new Series AA Redeemable Preferred Stock,approximately 30,000 shares or 30% of our new Common Stock, $3.2 million incash consideration and approximately $35 million in New Subordinated Notes.Pursuant to SFAS 15, *Accounting by Debtors andCreditors for Troubled Debt Restructuring,* these $35 million ofNotes were recorded at aggregate principal plus interest to maturity of $20.1million or a total of $55.1 million.  Inaddition, 100% of the $ 298.0 million of Shares Subject to Mandatory Redemption,including our Series A Redeemable Preferred Stock and 18,200 of RedeemableCommon Shares put for redemption (see footnote 11 to the financial statementsfor further details), were also exchanged for 70,469 shares of our new SeriesAA Redeemable Preferred Stock and 30,570 shares of our new Common Stock. Thefair market value of equity received in connection with these exchanges wasapproximately $180.6 million. Taking into account the $3.2 million of cashconsideration bondholders received and collectability reserves of$4.9 million established in connection with outstanding stockholders’notes receivable, this resulted in a gain on extinguishment of debt of $398.5 millionon a combined exchange of $642.3 million of debt and accrued interest.

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TheDebtors have incurred professional fees and other expenses directly associatedwith the bankruptcy proceedings. In addition, the Debtors have made certainadjustments to the carrying values of certain pre-petition assets andliabilities. Such costs and adjustments are classified as reorganization costsin the accompanying condensed consolidated statement of operations for thethree and nine months ended September 30, 2006 and consist of the following (inthousands):
|                                                                         | ** ** | **Three Months**            | ** ** | **Nine Months**             | ** ** |
|-------------------------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                                              | ** ** | **Ended**                        | ** ** | **Ended**                        | ** ** |
| ** **                                                              | ** ** | **September 30, 2006** | ** ** | **September 30, 2006** | ** ** |
|                                                                    |       |                             |       |                             |       |
| **Debt  subject to compromise:**                                        | ** ** | ** **                       | ** ** | ** **                       | ** ** |
| Write-off of unamortized original issuance,  discount, net              |       | $                                | —     |                             | $          | 5,856 |   |
| Write-off of unamortized capitalized financing fees                     |       | —                           |       | 15,777                           |       |
|                                                                    |       | —                           |       | 21,633                           |       |
| **Manditorily  Redeemable Preferred Stock**                             | ** ** | ** **                       | ** ** | ** **                       | ** ** |
| Write-off of unamortized original issuance discount                     |       | —                           |       | 24,597                           |       |
| **Write-off  of capitalized financing fees on the DIP Credit Facility** |       | 1,475                            |       | 1,475                            |       |
| **Bondholders’  consent fee**                                      |       | 4,000                            |       | 4,000                            |       |
| **Emergence  Bonus Plan**                                               |       | 1,567                            |       | 1,567                            |       |
| **Professional  fees**                                                  |       | 11,385                           |       | 28,976                           |       |
| **Reorganization costs**                                                |       | $                                | 18,427     |                             | $          | 82,248 |   |

 

**3.**                        INVENTORIES

Inventories are valued at the lower of cost (using thefirst-in, first-out method) or market value. Inventories as ofSeptember 30, 2006 and December 31, 2005 consisted of the following(in thousands):
|                  | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------|------------|------------------------|------------|-----------------------|------------|
| ** **       | ** ** | **2006**               | ** ** | **2005**              | ** ** |
|             |       |                   |       |                  |       |
| Finished Goods   |       | $                      | 52,541     |                  | 46,179     |   |
| Raw materials    |       | 47,873                 |       | 50,560                |       |
| Work-in-progress |       | 11,176                 |       | 10,087                |       |
|             |       |                   |       |                  |       |
| Total            |       | $                      | 111,590    |                  | $          | 106,826 |   |
|                  |            |                        |            |                       |            |  |  |

 

**4.**                        RESTRUCTURING AND OTHER COSTS

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

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The following table summarizes restructuring and othercosts for the three and nine months ended September 30, 2006 and 2005, asfollows (in thousands):
| ** **                                  | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|---------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                  | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                        |       |                                                 |       |                                                |       |   |   |   |   |
| **Plant  closing costs:**                   | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Severence                                   |       | $                                                    | —     |                                                | $          | 56 |   | $ | — |   | $ | 415 |   |
| Other plant closure costs                   |       | (685                                                 | )          | 295                                                 |       | (655 | ) | 2,229 |   |
|                                        |       | (685                                                 | )          | 351                                                 |       | (655 | ) | 2,644 |   |
| **Office  closing and workforce reduction** | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Severence                                   |       | —                                               |       | —                                              |       | — |   | (84 | ) |
| Leases                                      |       | —                                               |       | —                                              |       | — |   | (127 | ) |
|                                        |       | —                                               |       | —                                              |       | — |   | (211 | ) |
|                                        |       | $                                                    | (685       | )                                                   | $          | 351 |   | $ | (655 | ) | $ | 2,433 |   |

 

The following table summarizes the roll-forward of thereserve from December 31, 2005 to September 30, 2006, as follows(dollars in thousands):
| ** **                                     | ** ** | ** **                      | ** ** | ** **  | ** ** | **Accruals for the nine months ended  September 30, 2006** | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** |
|------------------------------------------------|------------|---------------------------------|------------|-------------|------------|-----------------------------------------------------------------------------------------------|------------|---------------|------------|-------------|------------|------------|------------|
| ** **                                     | ** ** | ** **                      | ** ** | ** **  | ** ** | ** **                                                                                    | ** ** | ** **    | ** ** | **Other**   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **December 31, 2005** | ** ** | ** **  | ** ** | ** **                                                                                    | ** ** | **Plant**     | ** ** | ** **  | ** ** | ** ** | ** ** | **September 30, 2006** | ** ** |
| ** **                                     | ** ** | **# Employees**            | ** ** | **Accrual** | ** ** | **Additional**                                                                                | ** ** | ** **    | ** ** | **Closure** | ** ** | ** ** | ** ** | **Payments** | ** ** | **# Employees** | ** ** | **Accrual** | ** ** |
| ** **                                     | ** ** | **Terminated**                  | ** ** | **Balance** | ** ** | **Employees**                                                                                 | ** ** | **Severence** | ** ** | **Costs**   | ** ** | **Total**  | ** ** | **/Charges** | ** ** | **Terminated** | ** ** | **Balance** | ** ** |
| **Plant  Closing Costs:**                      | ** ** | ** **                      | ** ** | ** **  | ** ** | ** **                                                                                    | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Merced                                         |       | 54                              |       | $           | 1,000      |                                                                                          | —     |          | $          | —      |       | $          | (700       | ) | $ | (700 | ) | $ | (300 | ) | 54 |   | $ | — |   |
| Rhode Island                                   |       | 49                              |       | 5           |       | —                                                                                        |       | —        |       | —      |       | —     |       | (2 | ) | 49 |   | 3 |   |
| Leases                                         |       | —                          |       | 2,845       |       | —                                                                                        |       | —        |       | 45          |       | 45         |       | (754 | ) | — |   | 2,136 |   |
| Alliant                                        |       | 19                              |       | 2           |       | —                                                                                        |       | —        |       | —      |       | —     |       | — |   | 19 |   | 2 |   |
|                                           |       | 122                             |       | $           | 3,852      |                                                                                          | $          | —        |       | $           | —     |       | $          | (655 | ) | $ | (655 | ) | $ | (1,056 | ) | 122 |   | $ | 2,141 |   |
| **Office  closing Workforce Reduction Costs:** | ** ** | ** **                      | ** ** | ** **  | ** ** | ** **                                                                                    | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Severence                                      |       | —                          |       | $           | —     |                                                                                          | —     |          | $          | —      |       | $          | —     |   | $ | — |   | $ | — |   | — |   | $ | — |   |
| Leases                                         |       | —                          |       | 379         |       | —                                                                                        |       | —        |       | —      |       | —     |       | — |   | — |   | 379 |   |
|                                           |       | —                          |       | $           | 379        |                                                                                          | —     |          | $          | —      |       | $          | —     |   | $ | — |   | $ | — |   | — |   | $ | 379 |   |
| **Total Plant & Office Closing**           | ** ** | 122                             | ** ** | $           | 4,231      | ** **                                                                                    | —     | ** **    | $          | —      | ** ** | $          | (655       | ) | $ | (655 | ) | $ | (1,056 | ) | 122 | ** ** | $ | 2,520 | ** ** |
|                                                |            |                                 |            |             |            |                                                                                               |            |               |            |             |            |            |            |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

***Plant Closing Costs***

***2006 –***During the third quarter of 2006, the Companysold its remaining real estate in Merced, California for $2.4 million,recognized a $1.9 million gain on sale within its Industrial Films segment andreversed $0.7 million of the $1.0 million environmental reserve provided inconnection with Merced’s previous restructuring activities in accordance withthe terms of the sales agreement.

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***2005 –***During the first half of 2005,we accrued $1.9 million for the net costs to terminate the remaining equipmentlease agreements associated with our Shelbyville, Indiana facility as a resultof the sale of our Alliant recloseables business, incurred $0.2 million ofsecurity, severance and other plant closure costs associated with ourHarrisville, Rhode Island facility and incurred $0.2 million in severance costsassociated with the sale of our Alliant business in the second quarter. TheShelbyville, Indiana and Alliant related restructuring costs are attributableto our Specialty Products Group and the Harrisville, Rhode Island costs areattributable to our Engineered Films segment.

***2003 –*** During 2003, we accrued thepresent value of future lease payments on three buildings we no longeroccupied.  As of September 30, 2006 $1.1 million of these accrualsare remaining.

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

Interest expense – current and long-term debt in thestatements of operations for the three and nine month periods ended September 30,2006 and 2005 are as follows (in thousands):
| ** **                                | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Interest  expense, net                    |       |                             |       |                            |       |   |   |   |   |
| Revolving credit facilities               |       | $                                | 2,730      |                            | $          | 938 |   | $ | 7,785 |   | $ | 2,497 |   |
| 2000/2002 Notes (a)                       |       | —                           |       | 10,400                          |       | 471 |   | 31,200 |   |
| 2003 Notes                                |       | 6,953                            |       | 6,953                           |       | 20,859 |   | 20,859 |   |
| 2004 Notes                                |       | 207                              |       | 202                             |       | 597 |   | 9,403 |   |
| Amended 2004 Notes                        |       | 8,537                            |       | 7,512                           |       | 24,218 |   | 12,268 |   |
| Other, net                                |       | 511                              |       | (801                            | )          | 2,804 |   | (343 | ) |
| Interest expense accrued, net             |       | 18,938                           |       | 25,204                          |       | 56,734 |   | 75,884 |   |
| Recurring  amortization of financing fees |       | 1,058                            |       | 1,530                           |       | 3,602 |   | 6,478 |   |
| TOTAL                                     |       | $                                | 19,996     |                            | $          | 26,734 |   | $ | 60,336 |   | $ | 82,362 |   |
|                                      |       |                             |       |                            |       |   |   |   |   |
| Cash interest  payments                   |       |                             |       |                            |       |   |   |   |   |
| Revolving credit facilities               |       | $                                | 2,398      |                            | $          | 1,855 |   | $ | 8,935 |   | $ | 2,552 |   |
| 2000/2002 Notes                           |       | —                           |       | —                          |       | — |   | 20,800 |   |
| 2003 Notes                                |       | 28,437                           |       | 13,906                          |       | 28,437 |   | 27,812 |   |
| Other, net (b)                            |       | 83                               |       | 544                             |       | 247 |   | 8,383 |   |
| TOTAL                                     |       | $                                | 30,918     |                            | $          | 16,305 |   | $ | 37,619 |   | $ | 59,547 |   |

 

----

(a) Interest expense for2006 includes interest for the two days prior to the bankruptcy filing, asthese notes were impaired for bankruptcy proceeding purposes, plus interest onthe December 1, 2005 unpaid interest payment through January 2, 2006.  Interest expense for these notes for theperiods July 1, 2006 through July 17, 2006 and January 3, 2006 through July 17,2006 would have been $1,901 and $22,432, respectively.

(b) The nine month period ended September 30,2005 includes $4.9 million of consent fees paid in connection with our Amended2004 Notes which have been capitalized and will be amortized throughJune 2009.  In addition, $2.6 million of associated underwriter,legal and accountants fees were paid in cash and expensed on a current basis.

**6.**                        DISCONTINUED OPERATIONS

On September 30, 2004, we sold substantially allof the assets of our wholly-owned subsidiary, Pliant SolutionsCorporation.  Pliant Solutions, previously reported as a separateoperating segment, manufactured decorative and surface coverings through theconversion of various films into consumer packaged goods.  These productswere sold through retailers to consumers for a wide

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range of applications, including shelf-lining,decorative accents, glass coverings, surface repair, resurfacing and arts andcrafts projects.

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

**7.**                        INCOME TAXES

For the three months ended September 30, 2006,income tax benefits of $0.8 million were recognized on pretax income fromcontinuing operations of $376.6 million as compared to income tax benefitsof $0.1 million on pretax loss from continuing operations of $25.6 million forthe three months ended September 30, 2005.  For the nine months endedSeptember 30, 2006, income tax expense was $0.4 million on pretax incomefrom continuing operations of $303.1 million compared to income taxexpense of $1.2 million on pretax loss from continuing operations of $75.2million for the nine months ended September 30, 2005.  The $398.5 milliongain on extinguishment of debt is not subject to income tax pursuant toInternal Revenue Code sections 108 and 361. However, the excluded tax basisgain on extinguishment of debt reduces the net operating losses available forcarryover to subsequent years.  Incometax benefits related to net operating losses in the United States are offset bya valuation allowance as the realization of these tax benefits is notcertain.  Therefore, the income tax expense in the statements ofoperations primarily reflects foreign income taxes.

**8.**                        COMPREHENSIVE INCOME/(LOSS)

Comprehensive income (loss) for the three months endedSeptember 30, 2006 and 2005 was $376.6 million and ($24.5) million,respectively. Comprehensive income (loss) for the nine months endedSeptember 30, 2006 and 2005 was $302.6 million and ($79.0) million,respectively. The components of comprehensive income (loss) are net income(loss), and foreign currency translation.

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**9.**                        LONG-TERM DEBT

Long-term debt as of September 30, 2006 andDecember 31, 2005 consists of the following (in thousands):
| ** **                                                                                                                                    | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                    | ** ** | **2006**               | ** ** | **2005**              | ** ** |
|                                                                                                                                          |       |                   |       |                  |       |
| Credit  Facilities:                                                                                                                           |       |                   |       |                  |       |
| Revolving credit  facility                                                                                                                    |       | $                      | 123,453    |                  | $          | 130,924 |   |
| Senior secured  discount notes at 11.35% (formerly 11 1/8%), net of unamortized issue discount  (2004 Notes)                                  |       | 7,630                  |       | 7,033                 |       |
| Senior secured  notes, interest at 11.85% (formerly 11 5/8%) (Amended 2004 Notes)                                                             |       | 293,973                |       | 269,755               |       |
| Senior secured  notes, interest at 11 1/8% (2003 Notes)                                                                                       |       | 250,000                |       | 250,000               |       |
| Senior  subordinated notes, interest at 13.0%, net of unamortized issue discount,  premium and discount related to warrants (2000/2002 Notes) |       | —                 |       | 314,137               |       |
| Senior  subordinated notes, interest at 13.0% (New Subordinated Notes)                                                                        |       | 55,101                 |       | —                |       |
| Obligations  under capital leases                                                                                                             |       | 8,553                  |       | 9,846                 |       |
| TOTAL                                                                                                                                         |       | 738,710                |       | 981,695               |       |
| Less current  portion and debt in default                                                                                                     |       | (1,054                 | )          | (973,244              | )          |
| Long-term portion                                                                                                                             |       | $                      | 737,656    |                  | $          | 8,451 |   |

 

*Prior Revolving Credit Facility*

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

OnDecember 31, 2005, an Event of Default occurred under the Amended andRestated Credit Agreement as a result of our failure to make the interestpayments due on December 1, 2005 to holders of the 2000/2002 Notes. Uponthe bankruptcy filing and execution of the DIP Credit Facility described below,the commitments under the Amended and Restated Credit Agreement wereterminated. The $130.9 million of borrowings as of December 31, 2005 remainedoutstanding until our emergence from bankruptcy, at which time they wererefinanced through our current Exit Credit Facilities.

*Prior DIP Credit Facility*

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

TheDIP Credit Facility provided the Debtors with up to approximately$68.8 million of additional liquidity, subject to a borrowing basecalculated based upon specified percentages of the Debtors’ eligible currentand fixed assets, minus $10 million and other reserves.  The Company made no borrowings under the DIPCredit Facility.  The DIP Credit Facilitywas terminated upon our emergence from bankruptcy and replaced with our ExitCredit Facilities described below.  Inaddition, approximately $1.5 million of capitalized financing fees associatedwith the DIP Credit Facility were written off upon emergence.

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*CurrentExit Credit Facilities*

On July 18, 2006, the Company and/or certain of itssubsidiaries entered into the Exit Credit Facilities, consisting of the WorkingCapital Credit Agreement and the Fixed Asset Credit Agreement (all as definedin Note 2). The Exit Credit Facilities provide up to $200 million of totalcommitments, subject to the previously disclosed borrowing base.  The Working Capital Credit Agreement includesa $20 million letter of credit sub-facility, with letters of credit reducingavailability thereunder, and each of the Exit Credit Facilities includessub-limits for loans to certain of the foreign subsidiaries of the Companywhich are borrowers under the Exit Credit Facilities.

The Exit Credit Facilities will mature on July 18,2011.  The interest rates for all loans other than those made to theCompany’s German subsidiary range from, in the case of alternate base rateloans, the alternate base rate (either prime rate or .50% over the FederalFunds Rate) plus 1.75% to the alternate base rate plus 2.00% and, in the caseof eurodollar loans, LIBOR plus 2.75% to LIBOR plus 3.00%, in each casedepending on the amount of available credit.  The interest rates for loansmade in connection with the loans to the Company’s German subsidiary are, inthe case of alternate base rate loans, the alternate base rate plus 5.00% and,in the case of eurodollar loans, LIBOR plus 6.00%.  The commitment fee forthe unused portion of the Exit Credit Facilities is 0.375% per annum.

The Exit Credit Facilities contain covenants that willlimit the ability of Pliant and its subsidiaries, 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 the Company’s subsidiaries, modify corporate and certain material debtdocuments, cancel certain debt, or change its fiscal year or accountingpolicies.  The Exit Credit Facilities also require the Company to complywith a monthly minimum 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 $20,000,000 for a specified number ofdays.  Once the amount of availability increases and remains above$20,000,000 for a specified number of days, such coverage ratio becomesinapplicable.  In addition, the amount of availability under the ExitCredit Facilities must not be less than $10,000,000 at any time.  Theloans will automatically become immediately due and payable without notice uponthe occurrence of an event of default involving insolvency or bankruptcy of theCompany or any of its subsidiaries.  In addition, upon the occurrence andduring the continuation of any other event of default under the Exit CreditFacilities, by notice given to the Company, the Administrative Agent may, andif directed by the Required Lenders (as defined in the Exit Credit Facilities)must, terminate the commitments and/or declare all outstanding loans to beimmediately due and payable.

The Working Capital Credit Agreement is secured by afirst-priority security interest in substantially all our inventory,receivables and deposit accounts, capital stock of, or other equity interestsin, our existing and future domestic subsidiaries and first-tier foreignsubsidiaries, investment property and certain other assets of the Company andits subsidiaries and a second-priority security interest in fixed assets of theCompany and its subsidiaries party to the Working Capital CreditAgreement.  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 September 30, 2006, the Company had borrowingsof $123.5 million and availability of $55.2 million under the Exit CreditFacilities.

*Senior Notes*

Thebankruptcy filing constituted an Event of Default under the separate Indenturesfor all of the Company’s Notes, which were then classified as currentliabilities in the consolidated balance sheet as of December 31, 2005. Underthe Fourth Amended Plan, the 2000/2002 Notes were exchanged for a combinationof New Subordinated Notes, new preferred stock, new common stock and cash. The2000/2002 Notes were deemed impaired for bankruptcy proceeding purposes and theremaining unamortized discount of $5.9 million recognized as financialrestructuring costs in the consolidated statement of operations. The 2003Notes, 2004 Notes and Amended 2004 Notes were reinstated in accordance withtheir terms, subject to a .225% payment-in-kind interest rate increase with

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respectto the 2004 Notes and Amended 2004 Notes, thereby increasing the interest rateof such notes to 11.35% and 11.85%, respectively.

OnJuly 18, 2006, the Company, certain of its subsidiaries and The Bank of NewYork Trust Company, N.A., as trustee, entered into the New Subordinated NotesIndenture with respect to the issuance on such date of the New SubordinatedNotes (all as defined in Note 2) in an aggregate principal amount of$34,967,000.  The New Subordinated NotesIndenture provides that interest will accrue on the New Subordinated Notes fromthe date of issuance at the rate of 13% per annum until maturity on July 15,2010 and will be payable semi-annually on the New Subordinated Notes on eachJanuary 15 and July 15, commencing January 15, 2007, to holders of record onthe immediately preceding January 1 or July 1.  The New Subordinated Noteswill accrue payment-in-kind interest with respect to the first two interestpayment dates and then will accrue semi-annual cash pay interest with respectto the interest payment dates thereafter.  The New Subordinated NotesIndenture does not provide for a sinking fund with respect to the New SubordinatedNotes.  Pursuant to SFAS 15, *Accounting by Debtors and Creditors for Troubled Debt Restructuring,*these $35 million of Notes were recorded at aggregate principal plus interestto maturity of $20.1 million or a total of $55.1 million.

The New Subordinated Notes Indenture contains variouscovenants including, among other things, covenants limiting the incurrence ofindebtedness and restricting certain payments, limiting restrictions on theability of subsidiaries to make distributions to the Company, limiting sales ofassets and subsidiary stock and the entry into affiliate transactions, as wellas provisions governing merger and change of control transactions.  TheCompany may be required under certain circumstances to offer to repurchase NewSubordinated Notes with the proceeds of certain asset sales.  Upon achange of control transaction, Holders of New Subordinated Notes may requirethe Company (subject to certain exceptions) to repurchase New SubordinatedNotes at a purchase price equal to 101% of the principal amount plus accruedand unpaid interest.  The New Subordinated Notes will automatically becomedue and payable without notice upon the occurrence of an event of defaultinvolving insolvency or bankruptcy of the Company or certain of its subsidiaries. In addition, upon the occurrence and during the continuation of any other eventof default under the New Subordinated Notes Indenture, by notice given to theCompany, the Trustee or holders of at least 25% in principal amount of the NewSubordinated Notes may declare the principal of and accrued and unpaid intereston all the New Subordinated Notes to be immediately due and payable.

The New Subordinated Notes are subject to the Company’sright, which will be assignable, to refinance the New Subordinated Notes duringthe first year after issuance by tendering to the holders of all of the NewSubordinated Notes cash in an amount equal to (i) $20,000,000 plus (ii)interest accrued at a rate of 13% per annum from the date of issuance throughthe date of payment on a principal amount of $20,000,000 minus (iii) anyinterest previously paid in cash on the New Subordinated Notes. Commencing on July 19, 2007, the Company may redeem the New Subordinated Notesin whole or in part at a redemption price equal to 100% of the aggregateprincipal amount of the New Subordinated Notes plus accrued and unpaid interestto the redemption date.

On July 18, 2006, the Company, certain of itssubsidiaries and Wilmington Trust Company, as trustee, entered into the FirstSupplemental Indenture amending the Amended and Restated Indenture (all asdefined in Note 2) to increase the interest rate by .225% per annum withrespect to the 2004 Notes and the Amended 2004 Notes, which additional interestwill accrue as payment-in-kind interest.  As a result, on July 18, 2006,the interest rate on the Amended 2004 Notes was increased to 11.85% per annumand the interest rate on the 2004 Notes was increased to 11.35% per annum.Commencing on December 15, 2006, only the incremental interest rate increase of..225% will accrue as payment-in-kind interest on the 2004 Notes and theremaining 11-1/8% interest rate will accrue as cash pay interest. The FirstSupplemental Indenture did not amend the covenants or acceleration provisionsof the Amended and Restated Indenture.

**10**.                 OPERATING SEGMENTS

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

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We have three operating segments: Engineered Films,Industrial Films and Specialty Products Group.  During the first quarter of2006, we streamlined our executive management team and merged our PerformanceFilms operating segment, which manufactures a variety of barrier and customfilms for smaller niche flexible packaging and industrial markets, into ourSpecialty Products Group.  Segmentinformation in this report for 2005 has been restated to reflect thisreorganization.  Sales and transfersbetween our segments are eliminated in consolidation.  We evaluate theperformance of our operating segments based on net sales (excludinginter-company sales) and segment profit.  Segment profit reflects incomefrom continuing operations before interest expense, income taxes, depreciation,amortization, restructuring costs and other non-cash charges.  Ourreportable segments are separately managed as each segment has differingproducts, customer requirements, technology and marketing strategies.

Segment profit for the periods endedSeptember 30, 2006 and 2005 and segment assets as of September 30,2006 and December 31, 2005 are presented in the following table (inthousands). Certain reclassifications have been made to the prior year amountsto be consistent with the 2006 presentation.

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| ** **                                 | ** ** | ** **     | ** ** | ** **     | ** ** | **Specialty** | ** ** | ** **     | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|----------------|------------|----------------|------------|---------------|------------|----------------|------------|------------|------------|
| ** **                                 | ** ** | **Engineered** | ** ** | **Industrial** | ** ** | **Products**  | ** ** | **Corporate/** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Films**      | ** ** | **Films**      | ** ** | **Group**     | ** ** | **Other**      | ** ** | **Total**  | ** ** |
| **Three  months ended September 30, 2006** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales to customers                     |       | $              | 66,177     |           | $          | 83,789        |       | $              | 141,023    |       | $          | 2,368 |   | $ | 293,357 |   |
| Intersegment sales                         |       | 3,313          |       | 4,243          |       | 5,332         |       | (12,888        | )          | —     |       |
| Total net sales                            |       | 69,490         |       | 88,032         |       | 146,355       |       | (10,520        | )          | 293,357    |       |
| Depreciation and amortization              |       | 1,880          |       | 1,666          |       | 5,681         |       | 895            |       | 10,122     |       |
| Interest expense                           |       | 241            |       | 161            |       | 1,248         |       | 18,346         |       | 19,996     |       |
| Segment profit                             |       | 7,820          |       | 9,548          |       | 15,972        |       | (7,317         | )          | 26,023     |       |
| Capital expenditures                       |       | 1,187          |       | 1,263          |       | 6,616         |       | 1,847          |       | 10,913     |       |
| **Three  months ended September 30, 2005** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales to customers                     |       | $              | 56,199     |           | $          | 75,711        |       | $              | 128,495    |       | $          | 1,568 |   | $ | 261,973 |   |
| Intersegment sales                         |       | 1,080          |       | 4,309          |       | 1,683         |       | (7,072         | )          | —     |       |
| Total net sales                            |       | 57,279         |       | 80,020         |       | 130,178       |       | (5,504         | )          | 261,973    |       |
| Depreciation and amortization              |       | 1,783          |       | 1,604          |       | 5,364         |       | 1,243          |       | 9,994      |       |
| Interest expense                           |       | 183            |       | 136            |       | 1,225         |       | 35,231         |       | 36,775     |       |
| Segment profit                             |       | 5,877          |       | 7,248          |       | 16,026        |       | (7,591         | )          | 21,560     |       |
| Capital expenditures                       |       | 765            |       | 673            |       | 6,132         |       | 2,225          |       | 9,795      |       |
| **Nine  months ended September 30, 2006**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales to customers                     |       | $              | 208,430    |           | $          | 242,613       |       | $              | 422,857    |       | $          | 6,186 |   | $ | 880,086 |   |
| Intersegment sales                         |       | 9,945          |       | 12,505         |       | 12,185        |       | (34,635        | )          | —     |       |
| Total net sales                            |       | 218,375        |       | 255,118        |       | 435,042       |       | (28,449        | )          | 880,086    |       |
| Depreciation and amortization              |       | 5,591          |       | 5,000          |       | 16,857        |       | 2,687          |       | 30,135     |       |
| Interest expense                           |       | 1,639          |       | 273            |       | 4,254         |       | 54,441         |       | 60,607     |       |
| Segment profit                             |       | 25,588         |       | 23,765         |       | 48,696        |       | (21,106        | )          | 76,943     |       |
| Capital expenditures                       |       | 3,137          |       | 3,137          |       | 19,472        |       | 3,531          |       | 29,277     |       |
| Segment assets                             |       | 156,065        |       | 109,830        |       | 475,609       |       | 66,149         |       | 807,653    |       |
| **Nine  months ended September 30, 2005**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales to customers                     |       | $              | 174,685    |           | $          | 221,751       |       | $              | 381,773    |       | $          | 5,890 |   | $ | 784,107 |   |
| Intersegment sales                         |       | 3,985          |       | 11,499         |       | 5,556         |       | (21,040        | )          | —     |       |
| Total net sales                            |       | 178,670        |       | 233,250        |       | 387,329       |       | (15,142        | )          | 784,107    |       |
| Depreciation and amortization              |       | 5,300          |       | 5,089          |       | 16,148        |       | 3,418          |       | 29,955     |       |
| Interest expense                           |       | 514            |       | 326            |       | 3,904         |       | 106,616        |       | 111,360    |       |
| Segment profit                             |       | 20,135         |       | 18,740         |       | 51,258        |       | (21,609        | )          | 68,524     |       |
| Capital expenditures                       |       | 2,252          |       | 2,883          |       | 17,106        |       | 4,181          |       | 26,422     |       |
| **As of  December 31, 2005**               | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Segment assets                             |       | $              | 155,218    |           | $          | 107,528       |       | $              | 462,158    |       | $          | 96,001 |   | $ | 820,905 |   |

 

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A reconciliation of the totals reported for theoperating segments to the totals reported in the consolidated financialstatements as of and for the three and nine month periods ended September 30,2006 and 2005 are as follows (in thousands):
| ** **                                                    | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|---------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                    | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **                                                    | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Profit  or Loss**                                           | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total segment profit                                          |       | $                                | 26,023     |                            | $          | 21,560 |   | $ | 76,943 |   | $ | 68,524 |   |
| Depreciation and amortization                                 |       | (10,122                          | )          | (9,994                          | )          | (30,135 | ) | (29,955 | ) |
| Restructuring and other costs                                 |       | 685                              |       | (351                            | )          | 655 |   | (2,433 | ) |
| Reorganization costs                                          |       | (18,427                          | )          | —                          |       | (82,248 | ) | — |   |
| Interest expense                                              |       | (19,996                          | )          | (36,775                         | )          | (60,607 | ) | (111,360 | ) |
| Gain on extinguishment of debt                                |       | 398,454                          |       | —                          |       | 398,454 |   | — |   |
| Income (loss)  from continuing operations before income taxes |       | $                                | 376,617    |                            | $          | (25,560 | ) | $ | 303,062 |   | $ | (75,224 | ) |

 
| ** **                            | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|---------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                            | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| **Assets**                            |       |                   |       |                  |       |
| Total assets from reportable segments |       | 741,504                |       | 724,904               |       |
| Other unallocated assets              |       | 66,149                 |       | 96,001                |       |
| Total  consolidated assets            |       | $                      | 807,653    |                  | $          | 820,905 |   |
|                                       |            |                        |            |                       |            |  |  |

 

Net sales and long-livedassets of our US and foreign operations are as follows:
| ** **            | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended** | ** ** |
|-----------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **            | ** ** | **September 30,**           | ** ** | **September 30,**          | ** ** |
| ** **            | ** ** | **2006**                         | ** ** | **2005**                        | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net Sales             |       |                             |       |                            |       |   |   |   |   |
| United States         |       | $                                | 239,050    |                            | $          | 220,818 |   | $ | 711,990 |   | $ | 636,763 |   |
| Foreign countries (a) |       | 54,307                           |       | 41,155                          |       | 168,096 |   | 147,344 |   |
| Total                 |       | $                                | 293,357    |                            | $          | 261,973 |   | $ | 880,086 |   | $ | 784,107 |   |

 
| ** **            | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|-----------------------|------------|------------------------|------------|-----------------------|------------|
| ** **            | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| Long-lived  assets    |       |                   |       |                  |       |
| United States         |       | $                      | 437,546    |                  | $          | 434,725 |   |
| Foreign countries (a) |       | 54,940                 |       | 57,232                |       |
| Total                 |       | $                      | 492,486    |                  | $          | 491,957 |   |
|                  |       |                   |       |                  |       |
| Total assets          |       |                   |       |                  |       |
| United States         |       | $                      | 688,162    |                  | $          | 700,529 |   |
| Foreign countries (a) |       | 119,491                |       | 120,376               |       |
| Total                 |       | $                      | 807,653    |                  | $          | 820,905 |   |

 

----

(a)          Foreign countriesinclude Australia, Canada, Germany and Mexico, none of which individuallyrepresents 10% of consolidated net sales or long-lived assets.

**11**.                 SHARES SUBJECT TO MANDATORY REDEMPTION

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

21

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

The shares subject to mandatory redemption are asfollow (dollar amounts in thousands except per share):
|                                                                                                                                                                                                                                                                                         | ** ** | **As of  September 30  2006** | ** ** | **As of  December 31  2005** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| Redeemable  Preferred Shares: 167,000 shares previously authorized, no shares outstanding  as of September 30, 2006, 140,973 shares outstanding as of December 31, 2005,  designated as Series A, no par value with a redemption value of $1,000 per  share plus accumulated dividends. |       | $                                       | —     |                                   | $          | 264,327 |   |
|                                                                                                                                                                                                                                                                                    |       |                                    |       |                                   |       |
| Redeemable  Common Shares: 18,200 shares that had been put for redemption by a  shareholder as of December 31, 2005, net of a shareholder note of $2,431                                                                                                                                |       | —                                  |       | 6,362                                  |       |
| Total shares subject to  mandatory redemption                                                                                                                                                                                                                                           |       | $                                       | —     |                                   | $          | 270,689 |   |

 

Pursuant to the Company’s Fourth Amended Plan, theCompany issued, in exchange for all outstanding Series A Preferred Stock,70,469 shares (21%) of the Company’s New Series AA Preferred Stock and 28,000shares (28%) of the Company’s new Common Stock. In addition, the Fourth Amended Plan provided for the issuance, inexchange for the 18,200 Redeemable Common Stock shares put for redemption,2,570 shares of the Company’s New Common Stock and the Company reclassified theshareholder note receivable of $2,431 to the Company’s Stockholders’ Deficit inthe accompanying Condensed Consolidated Balance Sheet.  See Note 2 – Reorganization for furtherdetails.

Interest expense for the three and nine months endedSeptember 30, 2006 includes dividends and accretion on the redeemable preferredshares for the two days prior to the bankruptcy filing.  Had these shares not been deemed impaired,dividends and accretion for the three and nine months ended September 30, 2006would have been $13,212 and $38,115, respectively.

**12**.                 DEFINED BENEFIT PLANS

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

22

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The consolidated accrued net pension expense for thethree and nine months ended September 30, 2006 and 2005 includes the followingcomponents (in thousands):
| ** **                                      | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| **United  States Plans**                        |       |                                                 |       |                                                |       |   |   |   |   |
| Service  cost-benefits earned during the period |       | $                                                    | 111        |                                                | $          | 104 |   | $ | 333 |   | $ | 312 |   |
| Interest cost on  projected benefit obligation  |       | 1,278                                                |       | 1,195                                               |       | 3,772 |   | 3,585 |   |
| Expected return  on assets                      |       | (1,314                                               | )          | (1,286                                              | )          | (4,082 | ) | (3,858 | ) |
| Other                                           |       | 183                                                  |       | 28                                                  |       | 245 |   | 84 |   |
| Total accrued pension  expense                  |       | $                                                    | 258        |                                                | $          | 41 |   | $ | 268 |   | $ | 123 |   |

 

**13**.                 CONTINGENCIES

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

**14**.                 CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The following condensed consolidating financialstatements present, in separate columns, financial information for (i) PliantCorporation (on a parent only basis) with its investment in its subsidiariesrecorded under the equity method, (ii) guarantor subsidiaries (as specified inthe Indenture dated as of May 30, 2003, as amended (the “2003 Indenture”)relating to the 2003 Notes, the First Supplemental Indenture with respect to theAmended and Restated Indenture relating to the 2004 Notes and the Amended 2004Notes and the New Subordinated Notes Indenture relating to the New SubordinatedNotes (the 2003 Notes Indenture, the Amended and Restated Indenture, as amendedby the First Supplemental Indenture, and the New Subordinated Notes Indenture,collectively, the “Indentures”)) on a combined basis, with any investments innon-guarantor subsidiaries specified in the Indentures recorded under theequity method, (iii) direct and indirect non-guarantor subsidiaries on acombined basis, (iv) the eliminations necessary to arrive at the informationfor Pliant Corporation and its subsidiaries on a consolidated basis, and (v)Pliant Corporation on a consolidated basis, in each case as of September 30,2006 and December 31, 2005 and for the three and nine months ended September30, 2006 and 2005. The 2003 Notes, the 2004 Notes, the Amended 2004 Notes andthe New Subordinated Notes are fully and unconditionally guaranteed on a jointand several basis by each guarantor subsidiary and each guarantor subsidiary is100% owned, directly or indirectly, by Pliant Corporation, except that the 2003Notes are not guaranteed by Uniplast Industries Co. and the Amended 2004 Notesare not guaranteed by Pliant Solutions Corporation.  Substantially all of the assets of PliantSolutions Corporation were sold on September 30, 2004 and the remainderdisposed prior to December 31, 2005.  There are no contractual restrictionslimiting transfers of cash from guarantor and non-guarantor subsidiaries toPliant Corporation.  The condensed consolidating financial statements arepresented herein, rather than separate financial statements for each of theguarantor subsidiaries, because management believes that separate financialstatements relating to the guarantor subsidiaries are not material toinvestors.

23

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATING BALANCE SHEET

AS OF SEPTEMBER30, 2006  (DOLLARS IN THOUSANDS)(UNAUDITED)
| ** **                                               | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                               | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
| **ASSETS**                                               | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **       | ** ** |
| CURRENT ASSETS:                                          |       |                   |       |             |       |              |       |             |       |             |       |
| Cash and cash  equivalents                               |       | $                      | 7          |             | $          | 758               |       | $                | 4,640      |             | $          | — |   | $ | 5,405 |   |
| Receivables, net  of allowances                          |       | 115,910                |       | 10,213           |       | 22,355            |       | —           |       | 148,478          |       |
| Inventories                                              |       | 92,872                 |       | 8,271            |       | 10,447            |       | —           |       | 111,590          |       |
| Prepaid expenses  and other                              |       | 4,420                  |       | 370              |       | 3,134             |       | —           |       | 7,924            |       |
| Income taxes  receivable, net                            |       | (504                   | )          | 1,440            |       | 51                |       | —           |       | 987              |       |
| Deferred income  taxes                                   |       | 11,781                 |       | 3                |       | 22                |       | —           |       | 11,806           |       |
| Total current  assets                                    |       | 224,486                |       | 21,055           |       | 40,649            |       | —           |       | 286,190          |       |
| PLANT AND EQUIPMENT,  net                                |       | 247,416                |       | 15,967           |       | 32,841            |       | —           |       | 296,224          |       |
| GOODWILL                                                 |       | 167,583                |       | 13,331           |       | 1,386             |       | —           |       | 182,300          |       |
| INTANGIBLE ASSETS, net                                   |       | 3,634                  |       | 10,304           |       | 24                |       | —           |       | 13,962           |       |
| INVESTMENT IN  SUBSIDIARIES                              |       | (16,641                | )          | —           |       | —            |       | 16,641           |       | —           |       |
| OTHER ASSETS                                             |       | 26,091                 |       | —           |       | 2,886             |       | —           |       | 28,977           |       |
| TOTAL ASSETS                                             |       | $                      | 652,569    |             | $          | 60,657            |       | $                | 77,786     |             | $          | 16,641 |   | $ | 807,653 |   |
|                                                     |       |                   |       |             |       |              |       |             |       |             |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY (DEFICIT)** | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **       | ** ** |
| CURRENT LIABILITIES:                                     |       |                   |       |             |       |              |       |             |       |             |       |
| Current portion  of long-term debt and debt in default   |       | $                      | 984        |             | $          | —            |       | $                | 70         |             | $          | — |   | $ | 1,054 |   |
| Trade accounts  payable                                  |       | 77,658                 |       | 5,521            |       | 12,700            |       | —           |       | 95,879           |       |
| Accrued  liabilities                                     |       | 51,500                 |       | 2,381            |       | 4,456             |       | —           |       | 58,337           |       |
| Due to (from)  affiliates                                |       | (90,273                | )          | 65,723           |       | 24,550            |       | —           |       | —           |       |
| Total current  liabilities                               |       | 39,869                 |       | 73,625           |       | 41,776            |       | —           |       | 155,270          |       |
| LONG-TERM DEBT, net of  current portion                  |       | 709,387                |       | 16,700           |       | 11,569            |       | —           |       | 737,656          |       |
| OTHER LIABILITIES                                        |       | 29,941                 |       | —           |       | 3,129             |       | —           |       | 33,070           |       |
| DEFERRED INCOME TAXES                                    |       | 22,771                 |       | 4,706            |       | 3,579             |       | —           |       | 31,056           |       |
| Total  liabilities                                       |       | 801,968                |       | 95,031           |       | 60,053            |       | —           |       | 957,052          |       |
| STOCKHOLDERS’ EQUITY  (DEFICIT):                    |       |                   |       |             |       |              |       |             |       |             |       |
| Preferred stock                                          |       | 186,013                |       | —           |       | —            |       | —           |       | 186,013          |       |
| Common stock                                             |       | 1                      |       | —           |       | 11,916            |       | (11,916          | )          | 1                |       |
| Additional  paid-in capital                              |       | 154,486                |       | 14,020           |       | 43,822            |       | (57,842          | )          | 154,486          |       |
| Retained  earnings (deficit)                             |       | (470,237               | )          | (50,731          | )          | (30,635           | )          | 81,366           |       | (470,237         | )          |
| Stockholders’  notes receivable                     |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
| Accumulated  other comprehensive income (loss)           |       | (19,662                | )          | 2,337            |       | (7,370            | )          | 5,033            |       | (19,662          | )          |
| Total  stockholders’ equity (deficit)               |       | (149,399               | )          | (34,374          | )          | 17,733            |       | 16,641           |       | (149,399         | )          |
| TOTAL LIABILITIES AND STOCKOLDERS’ EQUITY (DEFICIT) |       | $                      | 652,569    |             | $          | 60,657            |       | $                | 77,786     |             | $          | 16,641 |   | $ | 807,653 |   |

 

24

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATING BALANCE SHEET

AS OF DECEMBER 31,2005  (DOLLARS IN THOUSANDS) (UNAUDITED)
| ** **                                                | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
| **ASSETS**                                                | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **       | ** ** |
| CURRENT ASSETS:                                           |       |                   |       |             |       |              |       |             |       |             |       |
| Cash and cash equivalents                                 |       | $                      | 4,860      |             | $          | 1,152             |       | $                | 6,790      |             | $          | — |   | $ | 12,802 |   |
| Receivables, net of allowances                            |       | 106,735                |       | 10,137           |       | 20,812            |       | —           |       | 137,684          |       |
| Inventories                                               |       | 88,950                 |       | 8,025            |       | 9,851             |       | —           |       | 106,826          |       |
| Prepaid expenses and other                                |       | 4,903                  |       | 892              |       | 1,427             |       | —           |       | 7,222            |       |
| Income taxes receivable, net                              |       | (701                   | )          | 1,365            |       | 410               |       | —           |       | 1,074            |       |
| Deferred income taxes                                     |       | 12,360                 |       | 0                |       | (936              | )          | —           |       | 11,424           |       |
| Total current assets                                      |       | 217,107                |       | 21,571           |       | 38,354            |       | —           |       | 277,032          |       |
| PLANT AND  EQUIPMENT, net                                 |       | 243,968                |       | 15,421           |       | 35,604            |       | —           |       | 294,993          |       |
| GOODWILL                                                  |       | 167,583                |       | 13,331           |       | 1,331             |       | —           |       | 182,245          |       |
| INTANGIBLE  ASSETS, net                                   |       | 3,829                  |       | 10,853           |       | 37                |       | —           |       | 14,719           |       |
| INVESTMENT IN  SUBSIDIARIES                               |       | (41,415                | )          | —           |       | —            |       | 41,415           |       | 0                |       |
| OTHER ASSETS                                              |       | 49,251                 |       | —           |       | 2,665             |       | —           |       | 51,916           |       |
| TOTAL ASSETS                                              |       | $                      | 640,323    |             | $          | 61,176            |       | $                | 77,991     |             | $          | 41,415 |   | $ | 820,905 |   |
|                                                      |       |                   |       |             |       |              |       |             |       |             |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY (DEFICIT)**  | ** ** | ** **             | ** ** | ** **       | ** ** | ** **        | ** ** | ** **       | ** ** | ** **       | ** ** |
| CURRENT  LIABILITIES:                                     |       |                   |       |             |       |              |       |             |       |             |       |
| Current portion of long-term debt and debt in  default    |       | $                      | 933,795    |             | $          | 39,400            |       | $                | 49         |             | $          | — |   | $ | 973,244 |   |
| Trade accounts payable                                    |       | 37,826                 |       | 2,909            |       | 11,265            |       | —           |       | 52,000           |       |
| Accrued liabilities                                       |       | 78,100                 |       | 3,267            |       | 3,837             |       | —           |       | 85,204           |       |
| Due to (from) affiliates                                  |       | (105,150               | )          | 44,571           |       | 60,579            |       | —           |       | —           |       |
| Total current liabilities                                 |       | 944,571                |       | 90,147           |       | 75,730            |       | —           |       | 1,110,448        |       |
| LONG-TERM DEBT,  net of current portion                   |       | 4,100                  |       | —           |       | 4,351             |       | —           |       | 8,451            |       |
| OTHER  LIABILITIES                                        |       | 31,953                 |       | —           |       | 2,724             |       | —           |       | 34,677           |       |
| DEFERRED INCOME  TAXES                                    |       | 23,945                 |       | 4,503            |       | 3,127             |       | —           |       | 31,575           |       |
| SHARES SUBJECT  TO MANDATORY REDEMPTION                   |       | 270,689                |       | —           |       | —            |       | —           |       | 270,689          |       |
| LIABILITIES  SUBJECT TO COMPROMISE                        |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
| Total liabilities                                         |       | 1,275,258              |       | 94,650           |       | 85,932            |       | —           |       | 1,455,840        |       |
| REDEEMABLE  STOCK:                                        |       |                   |       |             |       |              |       |             |       |             |       |
| Preferred stock                                           |       | 102                    |       | —           |       | —            |       | —           |       | 102              |       |
| Common stock                                              |       | 6,645                  |       | —           |       | —            |       | —           |       | 6,645            |       |
| STOCKHOLDERS’  EQUITY (DEFICIT):                     |       |                   |       |             |       |              |       |             |       |             |       |
| Common stock                                              |       | 103,376                |       | —           |       | 11,916            |       | (11,916          | )          | 103,376          |       |
| Additional paid-in capital                                |       | —                 |       | 14,020           |       | 17,386            |       | (31,406          | )          | —           |       |
| Warrants to purchase common stock                         |       | 39,133                 |       | —           |       | —            |       | —           |       | 39,133           |       |
| Retained earnings (deficit)                               |       | (763,940               | )          | (49,184          | )          | (29,596           | )          | 78,780           |       | (763,940         | )          |
| Stockholders’ notes receivable                       |       | (660                   | )          | —           |       | —            |       | —           |       | (660             | )          |
| Accumulated other comprehensive income (loss)             |       | (19,591                | )          | 1,690            |       | (7,647            | )          | 5,957            |       | (19,591          | )          |
| Total stockholders’ equity (deficit)                 |       | (641,682               | )          | (33,474          | )          | (7,941            | )          | 41,415           |       | (641,682         | )          |
| TOTAL LIABILITIES AND  STOCKOLDERS’ EQUITY (DEFICIT) |       | $                      | 640,323    |             | $          | 61,176            |       | $                | 77,991     |             | $          | 41,415 |   | $ | 820,905 |   |

 

25

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSED CONSOLIDATINGSTATEMENT OF OPERATIONS

FOR THE THREE MONTHSENDED SEPTEMBER 30, 2006 (IN THOUSANDS) (UNAUDITED)
| ** **                                                    | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                    | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET SALES                                                     |       | $                      | 251,969    |             | $          | 17,369            |       | $                | 36,938     |             | $          | (12,919 | ) | $ | 293,357 |   |
| COST OF SALES                                                 |       | 221,827                |       | 16,770           |       | 33,678            |       | (12,919          | )          | 259,356          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| GROSS PROFIT                                                  |       | 30,142                 |       | 599              |       | 3,260             |       | —           |       | 34,001           |       |
| OPERATING EXPENSES                                            |       | 35,438                 |       | 558              |       | 1,769             |       | —           |       | 37,765           |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| OPERATING INCOME  (LOSS)                                      |       | (5,296                 | )          | 41               |       | 1,491             |       | —           |       | (3,764           | )          |
| INTEREST EXPENSE                                              |       | (18,401                | )          | (241             | )          | (1,354            | )          | —           |       | (19,996          | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES                           |       | (841                   | )          | —           |       | —            |       | 841              |       | —           |       |
| GAIN ON  EXTINGUISHMENT OF DEBT                               |       | 398,454                |       | —           |       | —            |       | —           |       | 398,454          |       |
| OTHER INCOME  (EXPENSE) - Net                                 |       | 3,146                  |       | (653             | )          | (570              | )          | —           |       | 1,923            |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |       | 377,062                |       | (853             | )          | (433              | )          | 841              |       | 376,617          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME TAX  EXPENSE (BENEFIT)                                 |       | (350                   | )          | (13              | )          | (432              | )          | —           |       | (795             | )          |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS                     |       | 377,412                |       | (840             | )          | (1                | )          | 841              |       | 377,412          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  DISCONTINUED OPERATIONS                            |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCOME (LOSS)                                             |       | $                      | 377,412    |             | $          | (840              | )          | $                | (1         | )                | $          | 841 |   | $ | 377,412 |   |

 

26

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSED CONSOLIDATINGSTATEMENT OF OPERATIONS

FOR THE THREE MONTHSENDED SEPTEMBER 30, 2005 (IN THOUSANDS) (UNAUDITED)
| ** **                                                    | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                    | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET SALES                                                     |       | $                      | 220,996    |             | $          | 16,465            |       | $                | 31,620     |             | $          | (7,108 | ) | $ | 261,973 |   |
| COST OF SALES                                                 |       | 191,681                |       | 15,647           |       | 29,281            |       | (7,108           | )          | 229,501          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| GROSS PROFIT                                                  |       | 29,315                 |       | 818              |       | 2,339             |       | —           |       | 32,472           |       |
| OPERATING  EXPENSES                                           |       | 18,751                 |       | 740              |       | 1,786             |       | —           |       | 21,277           |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| OPERATING INCOME  (LOSS)                                      |       | 10,564                 |       | 78               |       | 553               |       | —           |       | 11,195           |       |
| INTEREST EXPENSE                                              |       | (35,326                | )          | (183             | )          | (1,266            | )          | —           |       | (36,775          | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES                           |       | (3,931                 | )          | —           |       | —            |       | 3,931            |       | —           |       |
| OTHER INCOME  (EXPENSE) - Net                                 |       | 4,055                  |       | (2,194           | )          | (1,841            | )          | —           |       | 20               |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |       | (24,638                | )          | (2,299           | )          | (2,554            | )          | 3,931            |       | (25,560          | )          |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME TAX  EXPENSE                                           |       | 783                    |       | (630             | )          | (292              | )          | —           |       | (139             | )          |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS                     |       | (25,421                | )          | (1,669           | )          | (2,262            | )          | 3,931            |       | (25,421          | )          |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  DISCONTINUED OPERATIONS                            |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCOME (LOSS)                                             |       | $                      | (25,421    | )                | $          | (1,669            | )          | $                | (2,262     | )                | $          | 3,931 |   | $ | (25,421 | ) |

 

27

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATING STATEMENT OF OPERATIONS

FOR THE NINEMONTHS ENDED SEPTEMBER 30, 2006 (IN THOUSANDS) (UNAUDITED)
| ** **                                                    | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                    | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET SALES                                                     |       | $                      | 746,705    |             | $          | 58,147            |       | $                | 109,948    |             | $          | (34,714 | ) | $ | 880,086 |   |
| COST OF SALES                                                 |       | 655,964                |       | 53,754           |       | 99,777            |       | (34,714          | )          | 774,781          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| GROSS PROFIT                                                  |       | 90,741                 |       | 4,393            |       | 10,171            |       | —           |       | 105,305          |       |
| OPERATING  EXPENSES                                           |       | 135,083                |       | 1,651            |       | 5,416             |       | —           |       | 142,150          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| OPERATING INCOME  (LOSS)                                      |       | (44,342                | )          | 2,742            |       | 4,755             |       | —           |       | (36,845          | )          |
| INTEREST EXPENSE                                              |       | (54,619                | )          | (1,639           | )          | (4,349            | )          | —           |       | (60,607          | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES                           |       | (3,676                 | )          | —           |       | —            |       | 3,676            |       | —           |       |
| GAIN ON  EXTINGUISHMENT OF DEBT                               |       | 398,454                |       | —           |       | —            |       | —           |       | 398,454          |       |
| OTHER INCOME  (EXPENSE) - Net                                 |       | 6,799                  |       | (2,773           | )          | (1,966            | )          | —           |       | 2,060            |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |       | 302,616                |       | (1,670           | )          | (1,560            | )          | 3,676            |       | 303,062          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME TAX  EXPENSE (BENEFIT)                                 |       | —                 |       | (123             | )          | 569               |       | —           |       | 446              |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS                     |       | 302,616                |       | (1,547           | )          | (2,129            | )          | 3,676            |       | 302,616          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  DISCONTINUED OPERATIONS                            |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCOME (LOSS)                                             |       | $                      | 302,616    |             | $          | (1,547            | )          | $                | (2,129     | )                | $          | 3,676 |   | $ | 302,616 |   |

 

28

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSED CONSOLIDATINGSTATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDEDSEPTEMBER 30, 2005 (IN THOUSANDS) (UNAUDITED)
| ** **                                                    | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                    | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                    | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET SALES                                                     |       | $                      | 657,257    |             | $          | 50,363            |       | $                | 97,659     |             | $          | (21,172 | ) | $ | 784,107 |   |
| COST OF SALES                                                 |       | 566,243                |       | 46,608           |       | 93,071            |       | (21,172          | )          | 684,750          |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| GROSS PROFIT                                                  |       | 91,014                 |       | 3,755            |       | 4,588             |       | —           |       | 99,357           |       |
| OPERATING  EXPENSES                                           |       | 56,935                 |       | 3,924            |       | 6,321             |       | —           |       | 67,180           |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| OPERATING INCOME  (LOSS)                                      |       | 34,079                 |       | (169             | )          | (1,733            | )          | —           |       | 32,177           |       |
| INTEREST EXPENSE                                              |       | (106,924               | )          | (514             | )          | (3,922            | )          | —           |       | (111,360         | )          |
| EQUITY IN  EARNINGS OF SUBSIDIARIES                           |       | (6,555                 | )          | —           |       | —            |       | 6,555            |       | —           |       |
| OTHER INCOME  (EXPENSE) - Net                                 |       | 3,774                  |       | (2,186           | )          | 2,371             |       | —           |       | 3,959            |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS BEFORE INCOME TAXES |       | (75,626                | )          | (2,869           | )          | (3,284            | )          | 6,555            |       | (75,224          | )          |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME TAX  EXPENSE                                           |       | 794                    |       | 14               |       | 388               |       | —           |       | 1,196            |       |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| INCOME (LOSS)  FROM CONTINUING OPERATIONS                     |       | (76,420                | )          | (2,883           | )          | (3,672            | )          | 6,555            |       | (76,420          | )          |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| LOSS FROM  DISCONTINUED OPERATIONS                            |       | (560                   | )          | —           |       | —            |       | —           |       | (560             | )          |
|                                                          |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCOME (LOSS)                                             |       | $                      | (76,980    | )                | $          | (2,883            | )          | $                | (3,672     | )                | $          | 6,555 |   | $ | (76,980 | ) |

 

29

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE NINEMONTHS ENDED SEPTEMBER 30, 2006 (IN THOUSANDS) (UNAUDITED)
| ** **                                                       | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                       | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                       | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOW  PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES |       | $                      | 23,314     |             | $          | 24,114            |       | $                | (8,837     | )                | $          | — |   | $ | 38,591 |   |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  CONTINUING INVESTING ACTIVITIES:                |       |                   |       |             |       |              |       |             |       |             |       |
| Proceeds from sale of assets                                     |       | 2,602                  |       | —           |       | —            |       | —           |       | 2,602            |       |
| Capital expenditures for plant and equipment                     |       | (26,756                | )          | (1,441           | )          | (1,080            | )          | —           |       | (29,277          | )          |
| Net cash used in continuing investing activities                 |       | (24,154                | )          | (1,441           | )          | (1,080            | )          | —           |       | (26,675          | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  CONTINUING FINANCING ACTIVITIES:                |       |                   |       |             |       |              |       |             |       |             |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| Repayments of  DIP revolver due to refinancing                   |       | (99,442                | )          | (39,400          | )          | —            |       | —           |       | (138,842         | )          |
| Borrowings under  Exit Credit Facilities                         |       | 109,542                |       | 16,700           |       | 7,379             |       | —           |       | 133,621          |       |
| Payment of financing fees                                        |       | (10,476                | )          | —           |       | —            |       | —           |       | (10,476          | )          |
| Repayment of capital leases and other, net                       |       | (1,151                 | )          | —           |       | (139              | )          | —           |       | (1,290           | )          |
| Net cash used in continuing financing activities                 |       | (1,527                 | )          | (22,700          | )          | 7,240             |       | —           |       | (16,987          | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH USED IN  DISCONTINUED OPERATIONS                            |       | —                 |       | —           |       | —            |       | —           |       | —           |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS    |       | (2,485                 | )          | (368             | )          | 527               |       | —           |       | (2,326           | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS            |       | (4,852                 | )          | (395             | )          | (2,150            | )          | —           |       | (7,397           | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD              |       | 4,859                  |       | 1,153            |       | 6,790             |       | —           |       | 12,802           |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, END OF THE PERIOD                    |       | $                      | 7          |             | $          | 758               |       | $                | 4,640      |             | $          | — |   | $ | 5,405 |   |

 

30

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**PLIANTCORPORATION AND SUBSIDIARIES**

CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOW

FOR THE NINE MONTHS ENDEDSEPTEMBER 30, 2005 (IN THOUSANDS) (UNAUDITED)
| ** **                                                       | ** ** | **Pliant**             | ** ** | **Combined**     | ** ** | **Combined**      | ** ** | ** **       | ** ** | **Consolidated** | ** ** |
|------------------------------------------------------------------|------------|------------------------|------------|------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                                                       | ** ** | **Corporation**        | ** ** | **Guarantor**    | ** ** | **Non-Guarantor** | ** ** | ** **       | ** ** | **Pliant**       | ** ** |
| ** **                                                       | ** ** | **(Parent Only)** | ** ** | **Subsidiaries** | ** ** | **Subsidiaries**  | ** ** | **Eliminations** | ** ** | **Corporation**  | ** ** |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOW  PROVIDED BY (USED IN) CONTINUING OPERATING ACTIVITIES |       | $                      | 10,707     |             | $          | 1,615             |       | $                | (2,460     | )                | $          | — |   | $ | 9,862 |   |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  CONTINUING INVESTING ACTIVITIES:                |       |                   |       |             |       |              |       |             |       |             |       |
| Proceeds from sale of assets                                     |       | 59                     |       | 605              |       | 4,527             |       | —           |       | 5,191            |       |
| Capital expenditures for plant and equipment                     |       | (23,678                | )          | (778             | )          | (1,966            | )          | —           |       | (26,422          | )          |
| Net cash provided by (used in) continuing investing  activities  |       | (23,619                | )          | (173             | )          | 2,561             |       | —           |       | (21,231          | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH FLOWS FROM  CONTINUING FINANCING ACTIVITIES:                |       |                   |       |             |       |              |       |             |       |             |       |
| Issuance of senior secured notes                                 |       | 250,607                |       | —           |       | —            |       | —           |       | 250,607          |       |
| Repurchase of senior discount notes                              |       | (250,607               | )          | —           |       | —            |       | —           |       | (250,607         | )          |
| Payment of financing fees                                        |       | (7,643                 | )          | —           |       | —            |       | —           |       | (7,643           | )          |
| Repayment of capital leases and other, net                       |       | (1,488                 | )          | —           |       | —            |       | —           |       | (1,488           | )          |
| Proceeds from revolving debt                                     |       | 24,100                 |       | —           |       | —            |       | —           |       | 24,100           |       |
| Repurchase of preferred stock                                    |       | (10                    | )          | —           |       | —            |       | —           |       | (10              | )          |
| Net cash provided by continuing financing activities             |       | 14,959                 |       | —           |       | —            |       | —           |       | 14,959           |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH USED IN  DISCONTINUED OPERATIONS                            |       | (195                   | )          | —           |       | —            |       | —           |       | (195             | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| EFFECT OF  EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS    |       | (1,852                 | )          | (1,275           | )          | 1,101             |       | —           |       | (2,026           | )          |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS            |       | —                 |       | 167              |       | 1,202             |       | —           |       | 1,369            |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH  EQUIVALENTS, BEGINNING OF THE PERIOD              |       | —                 |       | 704              |       | 4,876             |       | —           |       | 5,580            |       |
|                                                             |       |                   |       |             |       |              |       |             |       |             |       |
| CASH AND CASH EQUIVALENTS,  END OF THE PERIOD                    |       | $                      | —     |             | $          | 871               |       | $                | 6,078      |             | $          | — |   | $ | 6,949 |   |

 

31

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**15.****                 PREFERRED STOCK**

OurAmended and Restated Certificate of Incorporation authorizes us to issue335,650 shares of Series AA Redeemable Preferred Stock, par value $.01 pershare, and 8,000 shares of Series M Preferred Stock, par value $.01 pershare.  As of September 30, 2006, we had335,592 shares of Series AA Redeemable Preferred Stock outstanding, with aStated Value (as defined below) of $344.5 million, and no shares of Series MPreferred Stock outstanding. Upon emergence from bankruptcy, the Series AARedeemable Preferred Stock was issued in exchange for the previouslyoutstanding Series A Cumulative Exchangeable Redeemable Preferred Stock, aswell as for the 2000/2002 Notes.  Thepreviously outstanding Series B Redeemable Preferred Stock was cancelled uponour emergence from bankruptcy with certain holders thereof receiving a cashpayment in exchange therefor.

Holders of shares of the Series AA RedeemablePreferred Stock are entitled to receive, when, as and if declared by the Boardof Directors out of funds legally available therefore, dividends at the rate of13% per year on the Stated Value of each share of Series AA RedeemablePreferred Stock.  Dividends on the SeriesAA Redeemable Preferred Stock are cumulative from the date of issue, accruewhether or not they have been declared and are payable quarterly in arrears onMarch 31, June 30, September 30 and December 31 of each year (each such date, a“Series AA Dividend Payment Date”).  The “StatedValue” of each share of Series AA Preferred Stock is equal to $1,000 per shareplus accumulated and unpaid dividends for quarterly periods ended on or priorto the date of determination minus any distributions (other than dividends nototherwise added to the Stated Value) made with respect to such Series AAPreferred Stock.

Upon any voluntary or involuntary liquidation,dissolution or winding up of the Company, holders of Series AA RedeemablePreferred Stock will be entitled to a liquidation preference over the holdersof Common Stock equal to the Stated Value of each share of Series AA RedeemablePreferred Stock plus accrued and unpaid dividends thereon from and includingthe day after the most recent Series AA Dividend Payment Date up to (but excluding)the date fixed for distribution.  TheSeries AA Redeemable Preferred Stock is redeemable at the option of the Companyat any time, in whole or in part, at an amount equal to the Stated Valuethereof plus accrued and unpaid dividends thereon from and including the dayafter the most recent Series AA Dividend Payment Date up to (but excluding) thedate of redemption.

**16.****                 SALE OF ALLIANT ASSETS**

On April 13, 2005 the Company sold the intellectualproperty, working capital, and equipment assets used in the Alliant operationsto an independent third party for a purchase price of $6.3 million, subject tocertain adjustments, with $4.6 million paid in cash at closing and $1.1 millionof additional payments received through June 30, 2005.  The remaining purchaseprice of $0.63 million was placed in escrow with $0.31 million used to finalizethe initial purchase price and the remaining $0.32 million paid to settle thefinal receivable balances.  The Company recorded a gain of $4.1 million onthe sale in the Printed Products Film division of our Specialty Products Groupand is included in other income in the consolidated statement ofoperations.  Net sales and net income for this business were $0.7 millionand $3.5 million, respectively for the nine months ended September 30, 2005.

32

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**ITEM2.****          MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

The purpose of this section is to discuss andanalyze our consolidated financial condition, liquidity and capital resourcesand results of operations. This analysis should be read in conjunction withManagement’s Discussion and Analysis of Financial Condition and Results ofOperations contained in our Annual Report on Form 10-K for the year endedDecember 31, 2005 (the “2005 10-K”). This section contains certain forward-lookingstatements within the meaning of federal securities laws that involve risks anduncertainties, including statements regarding our plans, objectives, goals,strategies and financial performance. Our actual results could differmaterially from the results anticipated in these forward-looking statements asa result of factors set forth under “Cautionary Statement for Forward-LookingInformation” below in this Item 2, under the “Risk Factors” in Item 1A of PartII and elsewhere in this report.

**General**

We generate our revenues, earnings and cash flows fromthe sale of film and flexible packaging products throughout the world. Wemanufacture these products at 23 facilities located on 21 sites in the UnitedStates, Australia, Canada, Germany and Mexico. Our sales have grown primarilyas a result of strategic acquisitions made over the past several years,increased levels of production at acquired facilities, return on capitalexpenditures and the overall growth in the markets for film and flexible packagingproducts.

**Overview**

OnJanuary 3, 2006, Pliant Corporation and ten subsidiaries (collectively,the “Debtors”) filed voluntary petitions in the United States Bankruptcy Courtfor the District of Delaware (the “Bankruptcy Court”) seeking relief under theprovisions of chapter 11 of title 11 of the United States Code (the “BankruptcyCode”) (the “Chapter 11 Cases”). The Chapter 11 Cases have been jointlyadministered under the caption “In re: Pliant Corporation, et al., CaseNo. 06-10001”. Three of our subsidiaries with Canadian operationscommenced ancillary proceedings in a Canadian court to recognize the Chapter 11proceedings as “foreign proceedings” pursuant to Canada’s Companies’ CreditorsArrangement Act (“CCAA”). Our operations in Mexico, Germany, and Australia werenot included in the Chapter 11 filing and were not subject to thereorganization proceedings.

OnJuly 18, 2006, the Company consummated its reorganization through a series oftransactions contemplated in the Debtors’ Fourth Amended Joint Plan ofReorganization (the “Fourth Amended Plan”), which had previously been approvedby the Bankruptcy Court on June 23, 2006. We used the Chapter 11 Cases to complete our financial restructuring,resulting in a less leveraged capital structure to facilitate greaterinvestment in our business.  See footnote2 to our financial statements for further details regarding these transactions.

During the three months ended September 30, 2006, theCompany recorded sales of $293.4 million which represents a $31.4 million or12.0% increase from sales of $262.0 million for the three months endedSeptember 30, 2005.  Third quarter 2006 sales measured in pounds were221.8 million, which is slightly less than the 221.9 million pounds sold in thethird quarter of 2005.

Total segment profit was $26.0 million for the threemonths ended September 30, 2006, compared to $21.6 million for the threemonths ended September 30, 2005.  Segment profit, presented inaccordance with generally accepted accounting principles (GAAP) in footnote 10to the Company’s financial statements in Part I of this report, reflectsincome from continuing operations before interest expense, income taxes,depreciation, amortization, and restructuring costs and non-cash charges. Theincrease in segment profit of $4.4 million between periods reflects the impactof increased sales volumes and successful recovery from customers of resinprice increases to the Company along with a $1.9 million gain on sale of ourremaining real estate in Merced, California.

Average sales price (“ASP”) for the three months endedSeptember 30, 2006 was $1.323 per pound compared to $1.181 per pound for thethree months ended September 30, 2005. Sales volume increases contributed approximately $1.2 million in incrementalgross profit and an additional $1.6 million in improved overhead absorption andwaste in absolute terms declined nearly $1.8 million between periods.  Offsetting these gains were approximately$1.2 million in incremental freight and utilities costs, $0.9 million inincremental packaging costs.

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**Raw Material Costs**

The primary raw materials used in the manufacture ofmost of our products are polypropylene resin, polyethylene resin and PVC resin.The prices of these materials are primarily a function of the price of crudeoil and natural gas liquids. Although prices for these resins are significantlyhigher in the three months ended September 30, 2006 than in the three monthsended September 30, 2005, prices have fluctuated during the first nine monthsof 2006 and are anticipated to remain at current levels or decline slightlyduring the fourth quarter of 2006. We have not historically hedged our exposureto raw material increases, but have moved customers to programs which wouldallow us to pass through cost increases in raw materials.  Raw material costs as a percentage of saleshave increased to 58.6% for the third quarter of 2006, from 56.0% for thecomparable period of 2005.

The gap between the speed at which resin price changesare passed on to us and the time at which we can pass these cost changes on toour customers has an impact on both our results of operations and our workingcapital needs.  To the extent we are notable to pass along price increases of raw materials, or to the extent any suchprice increases are delayed, our cost of goods sold would continue to increaseand our gross profit and operating income would correspondingly decrease.  Significant increases in raw material pricesthat cannot be passed on to customers could have a material adverse effect onour results of operations and financial condition.

**Results of Operations**

The following table sets forth net sales, operatingexpenses, and operating income, and such amounts as a percentage of net sales,for the three and nine months ended September 30, 2006 and 2005 (dollarsin millions).
| ** **                                                       | ** ** | **Three Months Ended September 30,** | ** ** | **Nine Months Ended September 30,** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                                 | ** ** | **2005**                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                       | ** ** | ** **                                               | ** ** | **% of**                                           | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** | ** ** | ** ** | **% of** | ** ** |
| ** **                                                       | ** ** | **$**                                                    | ** ** | **Sales**                                               | ** ** | **$** | ** ** | **Sales** | ** ** | **$** | ** ** | **Sales** | ** ** | **$** | ** ** | **Sales** | ** ** |
|                                                             |       |                                                     |       |                                                    |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Sales                                                        |       | $                                                        | 293.4      |                                                    | 100.0      | % | $ | 262.0 |   | 100.0 | % | $ | 880.1 |   | 100.0 | % | $ | 784.1 |   | 100.0 | % |
| Cost of sales                                                    |       | 259.4                                                    |       | 88.4                                                    | %          | 229.5 |   | 87.6 | % | 774.8 |   | 88.0 | % | 684.8 |   | 87.3 | % |
| Gross profit                                                     |       | 34.0                                                     |       | 11.6                                                    | %          | 32.5 |   | 12.4 | % | 105.3 |   | 12.0 | % | 99.3 |   | 12.7 | % |
| Operating  expense before restructuring and reorganization costs |       | 20.1                                                     |       | 6.8                                                     | %          | 20.9 |   | 8.0 | % | 60.6 |   | 6.9 | % | 64.7 |   | 8.3 | % |
| Restructuring  and other costs                                   |       | (0.7                                                     | )          | -0.2                                                    | %          | 0.4 |   | 0.1 | % | (0.7 | ) | -0.1 | % | 2.4 |   | 0.3 | % |
| Reorganization  Costs                                            |       | 18.4                                                     |       | 6.3                                                     | %          | — |   | 0.0 | % | 82.2 |   | 9.3 | % | — |   | 0.0 | % |
| Total operating  expenses                                        |       | 37.8                                                     |       | 12.9                                                    | %          | 21.3 |   | 8.1 | % | 142.1 |   | 16.1 | % | 67.1 |   | 8.6 | % |
| Operating income (loss)                                          |       | $                                                        | (3.8       | )                                                       | -1.3       | % | $ | 11.2 |   | 4.3 | % | $ | (36.8 | ) | -4.2 | % | $ | 32.2 |   | 4.1 | % |

 

**Three Months Ended September 30,2006 Compared with the Three Months Ended September 30, 2005**

*Net Sales*

Net sales increased by $31.4 million, or 12.0%, to$293.4 million for the third quarter of 2006 from $262.0 million for the threemonths ended September 30, 2005. The increase was due to a 12.0% increasein our average selling price as our sales volume was approximately the same inboth periods.  See “Operating Segment Review” below for a detaileddiscussion of sales volumes and selling prices by segment and division.

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*Gross Profit*

Gross profit increased by $1.5 million to $34.0million for the third quarter of 2006, from $32.5 million for the third quarterof 2005. This increase was primarily due to improved sales mix.  See “OperatingSegment Review” below for a detailed discussion of the margin variances bysegment.

*Total Operating Expenses beforeRestructuring and Other Costs*

Total operating expenses before restructuring and reorganizationcosts decreased $0.8 million, or 3.8%, to $20.1 million for the third quarterof 2006 from $20.9 million for the third quarter of 2005.  Research and development costs decreased $0.2million to $2.2 million for the third quarter of 2006 from $2.4 million in thethird quarter of 2005, while sales, general and administrative costs decreased$0.8 million to $17.8 million for the third quarter of 2006 from $18.6 millionin the third quarter of 2005 due to lower bad debt, legal and hiring relatedexpenses in the third quarter of 2006 than in the third quarter of 2005.

*Restructuring and Other Costs*

Restructuring and other costs recorded for the thirdquarter of 2006 were a net credit of $0.7 million as $0.7 million of the $1.0million environmental reserves associated with our prior Merced, Californiafacilities were reversed back to income because the buyer of this real estateagreed to a $0.3 million purchase price adjustment to indemnify the Company fromfuture claims. Restructuring and other costs for the third quarter of 2005include $0.2 million in property taxes associated with our Shelbyville, Indianaplant closure within our Specialty Products group and $0.1 million in severanceassociated with our Rhode Island plant closure within our Engineered Filmssegment.

*Reorganization Costs*

Reorganization costs in the third quarter of 2006include $11.4 in legal and financial advisory fees incurred in connection withthe Company’s bankruptcy proceedings, $4.0 million in fees paid to bondholdersin consideration for their non-objection to the Company’s Fourth Amended Planand resolution of disputes pertaining thereto, $1.5 million write-off ofcapitalized financing fees on the DIP Credit Facility and $1.5 million inEmergence Bonus Plan payments.

*Operating Income (Loss)*

During the third quarter of 2006, the Company reportedan operating loss of $3.8 million compared to operating income of $11.2 millionfor the third quarter of 2005.  Thisdecrease of $15.0 million is due primarily to reorganization costs of $18.4million.  

*Interest Expense*

Interest expense on current and long-term debtdecreased by $6.7 million to $20.0 million for the three months endedSeptember 30, 2006 from $26.7 million for the three months endedSeptember 30, 2005. This decrease was principally due to thediscontinuance, effective January 3, 2006, of the interest accrued on our2000/2002 Notes impaired in connection with the Company’s financialreorganization.

Interest expense associated with dividends andaccretion of original issue discounts on the Company’s Series A Preferred Stockpursuant to SFAS 150, was also discontinued effective January 3, 2006, as thesefinancial instruments were also deemed impaired in connection with the Company’sfinancial reorganization.  Interestexpense associated with the Series A Preferred Stock for the third quarter of2005 was $10.0 million.

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*Gain on Extinguishment of Debt*

On July 18, 2006, in connection with the Company’sFourth Amended Plan, the Company completed a debt for equity exchange whereby100% of our outstanding $320 million of 13% Senior Subordinated Notes due 2010(the “2000/2002 Notes”) and $24.3 million in accrued interest were exchangedfor 265,123 shares or 79% of our new Series AA Redeemable Preferred Stock,approximately 30,000 shares or 30% of our new Common Stock, $3.2 million incash consideration and approximately $35 million in new 13% Senior SubordinatedNotes due 2010 (the “New Subordinated Notes”). Pursuant to SFAS 15, *Accounting by Debtors and Creditors for Troubled Debt Restructuring,*these $35 million of Notes were recorded at aggregate principal plus interestto maturity of $20.1 million or a total of $55.1 million.  In addition, 100% of the $ 298.0 million ofShares Subject to Mandatory Redemption, including our Series A RedeemablePreferred Stock and 18,200 of Redeemable Common Shares put for redemption (seefootnote 11 to the financial statements for further details), were alsoexchanged for 70,469 shares of our new Series AA Redeemable Preferred Stock and30,570 shares of our new Common Stock. The fair market value of equity receivedin connection with these exchanges was approximately $180.6 million.Taking into account the $3.2 million of cash consideration bondholders receivedand collectability reserves of $4.9 million established in connection withoutstanding stockholders’ notes receivable, this resulted in a gain onextinguishment of debt of $398.5 million on a combined exchange of $642.3million of debt and accrued interest.

*Other Income (Expense)*

Other income was $1.9 million for the three monthsended September 30, 2006 due to the sale of the remaining real estate ofour Merced, California facility, as compared to negligible other income for thethree months ended September 30, 2005. 

*Income Tax Expense*

Income tax expense for the three months endedSeptember 30, 2006 was a benefit of $0.8 million on pretax income of $376.6 millionas compared to income tax benefits of $0.1 million on pretax losses of $25.6million for the same period in 2005. Income tax benefits related to netoperating losses in the United States were offset by a valuation allowance asthe realization of these tax benefits is not certain. Therefore, the income taxexpense in the statements of operations primarily reflects foreign incometaxes.

*Income (Loss) From ContinuingOperations*

Income from continuing operations for the thirdquarter of 2006 of $377.4 million includes a gain on extinguishment ofdebt of $398.5 million offset by reorganization costs of $18.4million.  Excluding the gain onextinguishment of debt and reorganization costs, loss from continuingoperations for the three months ended September 30, 2006 was $2.7 millioncompared to a loss of $25.4 million for the three months ended September 30,2005.

*Discontinued Operations*

On September 30, 2004, we sold substantially allof the assets of our wholly-owned subsidiary, Pliant SolutionsCorporation.  No losses were recognized from these discontinued operationsfor the three months ended September 30, 2006 or September 30, 2005.

**Nine Months Ended September 30,2006 Compared with the Nine Months Ended September 30, 2005**

*Net Sales*

Net sales increased by $96.0 million, or 12.2%, to$880.1 million for the nine months ended September 30, 2006 from $784.1million for the nine months ended September 30, 2005. The increase wasprimarily due to a 10.4% increase in our average selling price resultingprimarily from the pass through of increases in our raw material prices tocustomers and a 1.7% increase in sales volume.  See “Operating SegmentReview” below for a detailed discussion of sales volumes and selling prices bysegment and division.

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*Gross Profit*

Gross profit increased by $6.0 million to $105.3million for the nine months ended September 30, 2006, from $99.3 millionfor the nine months ended September 30, 2005. This increase was primarilydue to increased sales volume and improved sales mix.  See “OperatingSegment Review” below for a detailed discussion of the margin variances bysegment.

*Total Operating Expenses beforeRestructuring Reorganization and Other Costs*

Total operating expenses before restructuringreorganization and other costs decreased $4.1 million, or 6.3%, to $60.6million for the nine months ended September 30, 2006 from $64.7 millionfor the nine months ended September 30, 2005. Research and developmentcosts increased $0.2 million to $6.8 million for the nine months endedSeptember 30, 2006 from $6.6 million for the nine months endedSeptember 30, 2005, while sales, general and administrative costsdecreased $4.4 million to $53.8 million for the nine months endedSeptember 30, 2006 from $58.2 million for the nine months endedSeptember 30, 2005 due primarily to reductions in bad debt provisions,legal fees and hiring expenses associated with top grading of personnel.

*Restructuringand Other Costs*

Restructuring and other costs recorded for the ninemonths ended September 2006 were a net credit of $0.7 million as $0.7 millionof the $1.0 million environmental reserves associated with our prior Merced,California facilities were reversed back to income because the buyer of thisreal estate agreed to a $0.3 million purchase price adjustment to indemnify theCompany from future claims. Restructuring and other costs for the nine monthsended September 30, 2005 included $2.1 million of charges recorded inconnection with our Shelbyville, Indiana facility, consisting of $1.9 millionin net costs to terminate the remaining equipment leases and $0.2 million inproperty taxes. In addition, $0.3 million of severance costs were incurred inconnection with the sale of our Alliant business and $0.2 million of severancecosts were incurred in connection with our Rhode Island plant closure offset bythe reversal of $0.2 million in remaining restructuring reserves for 2 smalloffice closures.  Restructuring costsassociated with our Shelbyville, Indiana and Alliant asset sale are reflectedin our Specialty Products group segment while restructuring cost associatedwith our Rhode Island plant are reflected within our Engineered Films segment.

*Reorganizationcosts*

Reorganization and other costs for the nine monthsended September 30, 2006 include the write-off of $15.8 million of unamortizedcapitalized financing fees associated with the issuance of our 2000/2002 Notesand our Amended and Restated Credit Agreement, $5.9 million in unamortizedoriginal issuance discount, net of premiums associated with the issuance of our2000/2002 Notes and $24.6 million associated with the issuance of our Series Apreferred Stock, $29.0 in legal and financial advisory fees incurred inconnection with the Company’s bankruptcy proceedings and $4.0 million in feespaid to bondholders in consideration for their non-objection to the Company’sFourth Amended Plan and resolution of disputes pertaining thereto, $1.5 millionwrite-off of capitalized financing fees on the DIP credit facility and $1.5million in Emergence Bonus Plan payments.

*Operating Income (Loss)*

During the nine months ended September 30, 2006, theCompany recorded an operating loss of $36.8 million as a result ofreorganization and other costs of $82.2 million compared to operating income of$32.2 million for the nine months ended September 30, 2005.

*Interest Expense*

Interest expense on current and long-term debtdecreased by $22.1 million, or 26.8%, to $60.3 million for the nine monthsended September 30, 2006 from $82.4 million for the nine months endedSeptember 30, 2005. This decrease was principally due to thediscontinuance, effective January 3, 2006, of the interest accrued on our2000/2002 Notes impaired in connection with the Company’s

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financialreorganization.  In addition, in thesecond quarter of 2005, we recorded charges of $2.6 million for underwriting,legal and accounting fees associated with our consent solicitation from theholders of our 111¤8% (now 11.35%) Senior SecuredDiscount Notes due 2009 (the “2004 Notes”).

Interest expense associated with dividends andaccretion of original issue discounts on the Company’s Series A Preferred Stockpursuant to SFAS 150, was also discontinued effective January 3, 2006, as thesefinancial instruments were also deemed impaired in connection with the Company’sfinancial reorganization.  Interestexpense associated with the Series A Preferred Stock for the nine months endedSeptember 30, 2005 was $29.0 million.

*Gain onExtinguishment of Debt*

On July 18, 2006, in connection with the Company’sFourth Amended Plan, the Company completed a debt for equity exchange whereby100% of our outstanding $320 million of 2000/2002 Notes and $24.3 million inaccrued interest were exchanged for 265,123 shares or 79% of our new Series AARedeemable Preferred Stock, approximately 30,000 shares or 30% of our newCommon Stock, $3.2 million in cash consideration and approximately $35 millionin “New Subordinated Notes”. Pursuant to SFAS 15, *Accountingby Debtors and Creditors for Troubled Debt Restructuring,* these $35million of Notes were recorded at aggregate principal plus interest to maturityof $20.1 million or a total of $55.1 million. In addition, 100% of the $ 298.0 million of Shares Subject to MandatoryRedemption, including our Series A Redeemable Preferred Stock and 18,200 ofRedeemable Common Shares put for redemption (see footnote 11 to the financialstatements for further details), were also exchanged for 70,469 shares of ournew Series AA Redeemable Preferred Stock and 30,570 shares of our new CommonStock. The fair market value of equity received in connection with theseexchanges was approximately $180.6 million. Taking into account the $3.2million of cash consideration bondholders received and collectability reservesof $4.9 million established in connection with outstanding stockholders’notes receivable, this resulted in a gain on extinguishment of debt of $398.5 millionon a combined exchange of $642.3 million of debt and accrued interest.

*Other Income (Expense)*

Other income was $2.1 million for the nine monthsended September 30, 2006, as compared to other income of $4.0 million forthe nine months ended September 30, 2005. The other income for the ninemonths ended September 30, 2006 included a gain of $1.9 million on thesale of remaining real estate in our Merced, California facility.  The other income for the nine months endedSeptember 30, 2005 included a $4.1 million gain on sale of Alliant offset by$0.2 million of other less significant items.

*Income Tax Expense*

Income tax expense for the nine months endedSeptember 30, 2006 was $0.4 million on pretax income from continuingoperations of $303.1 million as compared to $1.2 million on pretax lossesfrom continuing operations of $75.2 million for the same period in 2005. Incometax benefits related to net operating losses in the United States were offsetby a valuation allowance as the realization of these tax benefits is notcertain. Therefore, the income tax expense in the statements of operationsprimarily reflects foreign income taxes.

*Income/Loss From ContinuingOperations*

Income from continuing operations for the nine monthsended September 30, 2006 of $302.6 million includes a gain onextinguishment of debt of $398.5 million, offset by reorganization costsof $82.2 million.  Excluding the gain onextinguishment of debt and reorganization costs, loss from continuingoperations decreased by $62.7 million to $13.7 million for the nine monthsended September 30, 2006, from $76.4 million for the nine months endedSeptember 30, 2005, due to the factors discussed above.  

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*Discontinued Operations*

On September 30, 2004, we sold substantially allof the assets of our wholly-owned subsidiary, Pliant SolutionsCorporation.  Loss from these discontinued operations for the nine monthsended September 30, 2005 was $0.6 million. 

**Operating Segment Review**

*General*

We evaluate the performance of our operating segmentsbased on net sales (excluding inter-company sales) and segment profit. The segment profit reflects income from continuing operations before interestexpense, income taxes, depreciation, amortization, restructuring costs andother non-cash charges.  For more information on our operating segments,including a reconciliation of segment profit to income before taxes, see Note10 to the condensed consolidated financial statements included elsewhere inthis report.

We have three operating segments: Engineered Films,Industrial Films and Specialty Products Group. During the first quarter of 2006, we streamlined our executivemanagement team and merged our Performance Films operating segment, whichmanufactures a variety of barrier and custom films for smaller niche flexiblepackaging and industrial markets into our Specialty Products Group.  Segment information in this report for 2005has been restated to reflect this reorganization.

Summary of segment information (in millions ofdollars):
|                                            | ** ** | ** **     | ** ** | ** **     | ** ** | **Specialty** | ** ** | ** **     | ** ** | ** ** | ** ** |
|--------------------------------------------|------------|----------------|------------|----------------|------------|---------------|------------|----------------|------------|------------|------------|
| ** **                                 | ** ** | **Engineered** | ** ** | **Industrial** | ** ** | **Products**  | ** ** | **Corporate/** | ** ** | ** ** | ** ** |
| ** **                                 | ** ** | **Films**      | ** ** | **Films**      | ** ** | **Group**     | ** ** | **Other**      | ** ** | **Total**  | ** ** |
|                                       |       |           |       |           |       |          |       |           |       |       |       |
| **Three  months ended September 30, 2006** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                                  |       | $              | 66.2       |           | $          | 83.8          |       | $              | 141.0      |       | $          | 2.4 |   | $ | 293.4 |   |
| Segment profit  (loss)                     |       | 7.8            |       | 9.5            |       | 16.0          |       | (7.3           | )          | 26.0       |       |
|                                       |       |           |       |           |       |          |       |           |       |       |       |
| **Three  months ended September 30, 2005** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                                  |       | $              | 56.2       |           | $          | 75.7          |       | $              | 128.5      |       | $          | 1.6 |   | $ | 262.0 |   |
| Segment profit  (loss)                     |       | 5.9            |       | 7.3            |       | 16.0          |       | (7.6           | )          | 21.6       |       |
|                                       |       |           |       |           |       |          |       |           |       |       |       |
| **Nine  months ended September 30, 2006**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                                  |       | $              | 208.4      |           | $          | 242.6         |       | $              | 422.9      |       | $          | 6.2 |   | $ | 880.1 |   |
| Segment profit  (loss)                     |       | 25.6           |       | 23.8           |       | 48.7          |       | (21.2          | )          | 76.9       |       |
|                                       |       |           |       |           |       |          |       |           |       |       |       |
| **Nine  months ended September 30, 2005**  | ** ** | ** **     | ** ** | ** **     | ** ** | ** **    | ** ** | ** **     | ** ** | ** ** | ** ** |
| Net sales                                  |       | $              | 174.7      |           | $          | 221.8         |       | $              | 381.7      |       | $          | 5.9 |   | $ | 784.1 |   |
| Segment profit (loss)                      |       | 20.1           |       | 18.7           |       | 51.3          |       | (21.6          | )          | 68.5       |       |

 

**Three months ended September 30,2006 compared with the three months ended September 30, 2005**

*Engineered Films*

*Net Sales*. Net sales in Engineered Films increased by $10.0 million, or 17.8%, to $66.2million for the quarter ended September 30, 2006 from $56.2 million for2005. This increase was due to an increase in our average selling prices of13.7%, principally due to the pass-through of raw material price increases andimprovements in our sales mix, and an increase in sales volume of 3.6%,primarily in our personal care and medical and converter films markets.

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*Segment profit*. The Engineered Films segment profit was $7.8 million for the quarter endedSeptember 30, 2006, as compared to $5.9 million for the same period in2005.  This increase in segment profitwas primarily due to $0.7 million in higher gross margins on increased salesvolumes and $1.6 million expansion between average selling price and averageraw material costs offset by $0.4 million of higher energy related costs.

*Industrial Films*

*Net sales*. The net sales of our Industrial Films segment increased by $8.1 million, or10.7%, to $83.8 million for the quarter ended September 30, 2006 from$75.7 million for the quarter ended September 30, 2005. This increase wasdue primarily to an increase in our average selling prices of 12.7%, resultingfrom the pass through of raw material price increases and higher sales of valueadded products, offset by a 1.8% decrease in sales volume, primarily in our PEStretch Division.

* Segment profit*. The Industrial Films segment profit was $9.5 million for the quarter endedSeptember 30, 2006, as compared to $7.3 million for the same period in2005. This $2.2 million increase in segment profit was due to recognition of a$1.9 million gain on sale of the Company’s remaining real estate in Merced,California, improved plant efficiencies and increased margins associated withsales of value-added products.

*Specialty Products Group*

*Net sales*. The net sales of our Specialty Products Group segment increased $12.5 million,or 9.7% to $141.0 million for the quarter ended September 30, 2006 from$128.5 million for the quarter ended September 30, 2005. This increasereflects a 11.0% increase in our average selling prices due to recovery ofresin price increases, primarily in our Printed Products Films division, offsetby a 1.1% decrease in sales volume.

Net sales in our Specialty Films division increased$6.6 million, or 13.4%, to $55.7 million for the quarter endedSeptember 30, 2006 from $49.1 million for the quarter endedSeptember 30, 2005. This increase reflects an increase in our averageselling prices of 16.2% offset by a decrease in sales volume of 2.4% as aresult of a decrease in the sales of agricultural films.  Net sales in our Printed Products Filmsdivision increased $5.9 million, or 7.4%, to $85.3 million for the quarterended September 30, 2006 from $79.4 million for the quarter endedSeptember 30, 2005. This increase reflects an increase in our averageselling prices of 7.5% on the same sales volumes between periods.

*Segment profit*. The Specialty Products Group segment profit was $16.0 million for the quarterended September 30, 2006, as compared to $16.0 million for the quarterended September 30, 2005.  Thisconstant segment profit between periods includes a reduction of approximately$1.0 million due to volume declines and $0.2 million incremental energy costs,offset by improved price/mix of $0.6 million and $0.6 million less SG&A andother indirect costs.

*Corporate/Other*

Corporate/Other includes our corporate headquarters inSchaumburg, Illinois and our research and development facility in Newport News,Virginia. Unallocated corporate expenses decreased by $0.3 million to $7.3million for the quarter ended September, 2006, from $7.6 million for thequarter ended September 30, 2005.  This decrease was primarily due toa decrease in payroll related costs.

**Nine months ended September 30,2006 compared with the nine months ended September 30, 2005**

*Engineered Films*

*Net Sales*. Net sales in Engineered Films increased by $33.7 million, or 19.3%, to $208.4million for the nine months ended September 30, 2006 from $174.7 millionthe nine months ended September 30, 2005. This increase was due to anincrease in

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our average selling prices of 13.2%, principally dueto the pass-through of raw material price increases and improvements in oursales mix and a 5.4% increase in sales volume, primarily in our personal careand medical, converter film, and industrial film sales markets.

*Segment profit*. The Engineered Films segment profit was $25.6 million for the nine months endedSeptember 30, 2006, as compared to $20.1 million for the same period in2005.  This increase in segment profit was primarily due to $3.3 millionof higher gross margins from sales volume increases, to a $1.4 millionexpansion between our average selling price and average raw material costs andlower selling expense of $0.8 million from bad debts.

*Industrial Films*

*Net sales*. The net sales of our Industrial Films segment increased by $20.8 million, or 9.1%,to $242.6 million for nine months ended September 30, 2006 from $221.8million for the nine months ended September 30, 2005. This increase wasdue to an increase in our average selling prices of 10.3%, primarily from thepass through of raw material price increases and an improved sales mix, offsetby a 0.8% decline in sales volume.

* Segment profit*. The Industrial Films segment profit was $23.8 million for the nine months endedSeptember 30, 2006, as compared to $18.7 million for the same period in2005.  This $5.1 million increase in segment profit was due to recognitionof a $1.9 million gain on sale of the Company’s remaining real estate inMerced, California and to improved plant efficiencies, favorable SG&Aexpenditure levels between years and increased sales of value-added products.

*Specialty Products Group*

*Net sales*. The net sales of our Specialty Products Group segment increased $41.2 million,or 10.8% to $422.9 million for the nine months ended September 30, 2006 from$381.7 million for the nine months ended September 30, 2005. This increasereflects a 9.3% increase in our average selling prices due to recovery of resinprice increases, an improved product mix in our Printed Products Films divisionand a sales volume increase of 1.4% due to increased sales of personal care andmedical films.

Net sales in our Specialty Films division increased$15.0 million, or 10.4%, to $159.9 million for the nine months endedSeptember 30, 2006 from $144.9 million for the nine months endedSeptember 30, 2005. This increase reflects an increase in our averageselling prices of 12.3% offset by a decrease in sales volume of 1.6%. Netsales in our Printed Products Films division increased $26.1 million, or 11.0%,to $263.0 million for the nine months ended September 30, 2005 from $236.9million for the nine months ended September 30, 2005. This increasereflects an increase in our average selling prices of 6.8% and an increase insales volume of 3.9% due to growth in bakery, cereal and personal carepackaging films.

*Segment profit*. The Specialty Products Group segment profit was $48.7 million for the ninemonths ended September 30, 2006, as compared to $51.3 million for the ninemonths ended June 30, 2005. This $2.6 million decrease is primarilyattributable to a $4.1 million gain on sale of Alliant’s assets recognized in2005. Excluding this prior year gain, segment profit increased $1.5 million dueto increased sales of personal care and medical films, and lower productionwaste and SG&A costs.

*Corporate/Other*

Corporate/Other includes our corporate headquarters inSchaumburg, Illinois and our research and development facility in Newport News,Virginia. Unallocated corporate expenses decreased by $0.4 million to $21.2million for the nine months ended September 30, 2006, from $21.6 millionfor the nine months ended September 30, 2005, primarily due to a decreasein payroll related costs.

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**Liquidity and Capital Resources**

*Sources of capital*

Our principal sources offunds have been cash generated by our operations and borrowings under ourrevolving credit facility. In addition, we have raised funds through theissuance of our 111¤8%Senior Secured Notes due 2009 (the “2003 Notes”) and 11.35% (formerly 111¤8%)Senior Secured Discount Notes due 2009 (the “2004 Notes”).

As of September 30, 2006,our outstanding long-term debt consisted of $123.5 million of borrowings underour revolving credit facilities, $7.6 million of our 2004 Notes,$294.0 million of our 11.85% (formerly 115¤8%) Senior Secured Notes due 2009 (the “Amended2004 Notes”), $250.0 million of our 2003 Notes, $55.1 million of our new13% Senior Subordinated Notes due 2010 (the “New Subordinated Notes”) and$8.5 million in capital leases.

*Prior Revolving CreditFacility*

OnNovember 21, 2005, the Company entered into an amended revolving creditfacility providing up to $140 million of total availability (the “Amendedand Restated Credit Agreement”), subject to certain borrowing base limitations.The Amended and Restated Credit Agreement included a $25 million letter ofcredit sub-facility, with letters of credit reducing availability under theAmended and Restated Credit Agreement.

OnDecember 31, 2005, an Event of Default occurred under the Amended andRestated Credit Agreement as a result of our failure to make the interestpayments due on December 1, 2005 under the Company’s previously issued 13%Senior Subordinated Notes due 2010 (the “2000/2002 Notes”).  Upon the bankruptcy filing and execution ofthe DIP Credit Facility described below, the commitments under the Amended andRestated Credit Agreement were terminated. The $130.9 million of borrowings asof December 31, 2005 remained outstanding until our emergence from bankruptcy,at which time they were refinanced through our current Exit Credit Facilities.

*Prior DIP Credit Facility*

OnJanuary 4, 2006, the Company entered into a Senior Secured, SuperPriority, Priming Debtor-in-Possession Credit Agreement, dated as ofJanuary 4, 2006 (the “DIP Credit Facility”), among the Company and certainother Debtors, as joint and several borrowers, General Electric CapitalCorporation, as administrative agent, collateral agent and lender, MorganStanley Senior Funding, Inc., as syndication agent and lender, and thelenders from time to time party thereto. The DIP Credit Facility provided the Debtors with up to approximately$68.8 million of additional liquidity, subject to a borrowing basecalculated based upon specified percentages of the Debtors’ eligible currentand fixed assets, minus $10 million and other reserves.  The Company made no borrowings under the DIPCredit Facility. The DIP Credit Facility was terminated upon emergence frombankruptcy and replaced with our current exit credit facilities.

*CurrentExit Credit Facilities*

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

TheExit Credit Facilities provide up to $200 million of total commitments, subjectto the borrowing base described below and a required minimum availabilityamount of at least $10 million.  TheWorking Capital Credit Agreement includes a $20 million letter of creditsub-facility, with letters of credit reducing availability thereunder, and eachof the Exit Credit Facilities includes sub-limits for loans to certain of theforeign subsidiaries of the Company which are borrowers under the Exit CreditFacilities.

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The WorkingCapital Credit Agreement is secured by a first-priority security interest insubstantially all our inventory, receivables and deposit accounts, capitalstock of, or other equity interests in, our existing and future domesticsubsidiaries and first-tier foreign subsidiaries, investment property and certainother assets of the Company and its subsidiaries and a second-priority securityinterest in fixed assets of the Company and its subsidiaries party to theWorking Capital Credit Agreement.  TheFixed Asset Credit Agreement is secured by a first-priority security interestin the fixed assets of certain foreign subsidiaries of the Company and asecond-priority security interest in capital stock of the Fixed Asset Borrowersand their subsidiaries.  The Exit Credit Facilitieswill mature on July 18, 2011.

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

The borrowing baseunder the Working Capital Credit Agreement is based on specified percentages ofthe Company’s and its subsidiaries’ party thereto eligible accounts receivable,finished goods inventory, work in process and raw material inventory minuscertain reserves.  The borrowing baseunder the Fixed Asset Credit Agreement is based on specified percentages of theCompany’s and its subsidiaries’ party thereto eligible real estate valued atmarket value plus the net orderly liquidation value of eligible machinery andequipment minus certain reserves.

The Exit Credit Facilities contain covenants that willlimit the ability of the Company and its subsidiaries, 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 the Company’s subsidiaries, modify corporate and certain material debtdocuments, cancel certain debt, or change its fiscal year or accountingpolicies.  The Exit Credit Facilities also require the Company to complywith a monthly minimum 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 $20,000,000 for a specified number ofdays.  Once the amount of availability increases and remains above$20,000,000 for a specified number of days, such coverage ratio becomesinapplicable.  In addition, the amount of availability under the ExitCredit Facilities must not be less than $10,000,000 at any time.  Theloans will automatically become immediately due and payable without notice uponthe occurrence of an event of default involving insolvency or bankruptcy of theCompany or any of its subsidiaries.  In addition, upon the occurrence andduring the continuation of any other event of default under the Exit CreditFacilities, by notice given to the Company, the Administrative Agent may, andif directed by the Required Lenders (as defined in the Exit Credit Facilities)must, terminate the commitments and/or declare all outstanding loans to beimmediately due and payable.

As ofSeptember 30, 2006, the Company had made borrowings of approximately $123.5million and had approximately $55.2 million of availability under the ExitCredit Facilities.

*11.85% (formerly 11*5¤8%) Senior Secured Notes due2009 (the “Amended 2004 Notes”)

As ofSeptember 30, 2006, we had $294.0 million aggregate principal amount of Amended2004 Notes outstanding. The Amended 2004 Notes accrued payment-in-kind interestat the rate of 115¤8% from the date of issuanceuntil July 18, 2006, on which date the interest rate was increased by .225% to11.85% in accordance with the Fourth Amended Plan.  Such incremental interest rate increase of..225% also accrues as payment-in-kind interest. The Amended 2004 Notes mature on June 15, 2009 and interest is payablesemi-annually on each June 15 and December 15.

TheAmended 2004 Notes are secured on a first-priority basis by a security interestin our real property, fixtures, equipment, intellectual property and otherassets other than the Second-Priority Collateral (the “First-Priority NoteCollateral”) and on a second-priority basis by a security interest insubstantially all our inventory, receivables and deposit accounts, 100% of thecapital stock of or other equity interests in existing and future domesticsubsidiaries and foreign subsidiaries that are note guarantors, 65% of thecapital stock of or other equity interests in existing and future first-tierforeign subsidiaries that are not note guarantors, investment

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propertyand certain other assets of the Company and the note guarantors (the “Second-PriorityNote Collateral”). The Amended 2004 Notes are guaranteed by our existing andfuture domestic restricted subsidiaries and certain foreign subsidiaries.

Priorto June 15, 2007, we may redeem up to 35% of the principal amount of theAmended 2004 Notes with the net cash proceeds of certain equity offerings by usat a redemption price equal to 111.625% of the sum of the principal amount plusaccrued and unpaid interest, provided that after giving effect to suchredemption (i) at least 65% of the principal amount of the notes remainoutstanding and (ii) any such redemption by us is made within 120 daysafter such equity offering.

On orafter June 15, 2007, we may redeem some or all of the Amended 2004 Notesat the following redemption prices (expressed as percentages of the sum of theprincipal amount plus accrued and unpaid interest); 111.625% if redeemed on orafter June 15, 2007 and prior to December 15, 2007; 108.719% if redeemedon or after 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.

*11.35% (formerly 11*1¤8%)  Senior Secured Discount Notes due 2009 ( the “2004Notes”)

As of September 30, 2006, we had $7.6 million of 2004Notes outstanding.  The 2004 Notesaccreted at the rate of 111¤8% from the date of issuance until July18, 2006, on which date the interest rate was increased by .225% to 11.35% inaccordance with the Fourth Amended Plan. The 2004 Notes will accrete at therate of 11.35% until December 15, 2006 to an aggregate principal amount of$1,000.88 per $1,000 stated principal amount. Commencing on December 15, 2006, interest on the 2004 Notes will accrueat the rate of 11.35% with such incremental interest rate increase of .225%accruing as payment-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 mature on June 15, 2009.

The2004 Notes 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.

Prior toJune 15, 2007, we may redeem up to 35% of the accreted value of the 2004Notes with the net cash proceeds of certain equity offerings by us at aredemption price equal to 111.125% of the accreted value thereof plus accruedinterest, so long as (i) at least 65% of the accreted value of the notesremains outstanding after such redemption and (ii) any such redemption byus is made within 120 days after such equity offering. On or after June 15,2007, we may redeem some or all of the 2004 Notes at the following redemptionprices (expressed as percentages of the sum of the principal amount plusaccrued and unpaid interest):  105.563%if redeemed on or after June 15, 2007 and prior to June 15, 2008; 102.781% ifredeemed on or after June 15, 2008 and prior to June 15, 2009; and 100.00% ifredeemed on June 15, 2009.

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

As of September 30,2006, we had $250 million of 2003 Notes outstanding.  The 2003 Notes accrued interest from the dateof issuance through September 30, 2006 at the rate of 111¤8% and will continue to accrueinterest at such rate through the date of maturity.  The 2003 Notes mature on September 1, 2009and interest is payable in cash semiannually on each March 1 and September1.  On July 18, 2006, in accordance withthe Fourth Amended Plan, we paid to the trustee with respect to the 2003 Notes,for further distribution to the holders thereof, an aggregate cash payment of$18.5 million, $14.5 million of which represented the interest payment due onMarch 1, 2006 plus interest on such unpaid interest and the balance of whichwas a $4 million consent fee.

The 2003 Notes rank equally with ourexisting and future senior debt and rank senior to our existing and futuresubordinated indebtedness, including the New Subordinated Notes. The 2003 Notes are secured by a secondpriority security interest in both the First Priority Note Collateral and theSecond Priority Note Collateral. The 2003 Notes are guaranteed by some of oursubsidiaries.

Priorto June 1, 2007, we may, redeem up to 35% of the original aggregateprincipal amount of the 2003 Notes with the net cash proceeds of one or moreequity offerings by us at a redemption price equal to 111.125% of the principalamount thereof, plus accrued

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andunpaid interest. On or after June 1, 2007, we may redeem some or all of the2003 Notes at the following redemption prices (expressed as a percentage of thesum of the principal amount plus accrued and unpaid interest): 105.563% ifredeemed on or after June 1, 2007 and prior to June 1, 2008; 102.781% ifredeemed on or after June 1, 2008 and prior to June 1, 2009; and 100% ifredeemed on or after June 1, 2009.

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

As ofSeptember 30, 2006, none of the 2000/2002 Notes were outstanding. Uponemergence from bankruptcy, the entire $320 million aggregate principal amountof 2000/2002 Notes previously outstanding were exchanged for a combination ofNew Subordinated Notes, new preferred stock, new common stock and a $3.2million cash consent fee.

*13%Senior Subordinated Notes due 2010 (the “New Subordinated Notes”)*

Inconnection with the consummation of the Company’s Fourth Amended Plan, theCompany entered into an Indenture, dated as of July 18, 2006 (the “NewSubordinated Notes Indenture”), among the Company, certain subsidiaries of theCompany and The Bank of New York Trust Company, N.A., as trustee, with respectto the issuance on such date of the New Subordinated Notes in an aggregateprincipal amount of $34,967,000. The New Subordinated Notes Indenture providesthat interest will accrue on the New Subordinated Notes from the date of issuanceat the rate of 13% per annum until maturity on July 15, 2010 and will bepayable semi-annually on the New Subordinated Notes on each January 15 and July15, commencing January 15, 2007, to holders of record on the immediatelypreceding January 1 or July 1. The New Subordinated Notes will accruepayment-in-kind interest with respect to the first two interest payment datesand then will accrue semi-annual cash pay interest with respect to the interestpayment dates thereafter. The New Subordinated Notes are subject to the Company’sright, which will be assignable, to refinance the New Subordinated Notes duringthe first year after issuance by tendering to the holders of all the NewSubordinated Notes cash in an amount equal to (i) $20,000,000 plus (ii) interestaccrued at a rate of 13% per annum from the date of issuance through the dateof payment on a principal amount of $20,000,000 minus (iii) any interestpreviously paid in cash on the New Subordinated Notes. Commencing on July 19,2007, the Company may redeem the New Subordinated Notes in whole or in part ata redemption price equal to 100% of the aggregate principal amount of the NewSubordinated Notes plus accrued and unpaid interest to the redemption date. TheNew Subordinated Notes Indenture provides the holders of the New SubordinatedNotes with the right to require the Company to repurchase the New SubordinatedNotes at a repurchase price equal to 101% of the aggregate principal amountplus accrued and unpaid interest upon a change of control of the Company (asdefined in the New Subordinated Notes Indenture). The New Subordinated NotesIndenture does not provide for a sinking fund with respect to the NewSubordinated Notes.

Pursuant to SFAS No. 15, *“Accountingby Debtors and Creditors for Troubled Debt Restructurings”*, theseNew Subordinated Notes were initially recorded on July 18, 2006 at an aggregateprincipal amount of $35.0 million plus accrued interest to maturity of $20.1million or a total of $55.1 million.

*Preferred stock*

OurAmended and Restated Certificate of Incorporation authorizes us to issue335,650 shares of Series AA Redeemable Preferred Stock, par value $.01 pershare, and 8,000 shares of Series M Preferred Stock, par value $.01 pershare.  As of September 30, 2006, we had335,592 shares of Series AA Redeemable Preferred Stock outstanding, with aStated Value (as defined below) of $344.5 million, and no shares of Series MPreferred Stock outstanding.  Uponemergence from bankruptcy, the Series AA Redeemable Preferred Stock was issued inexchange for the previously outstanding Series A Cumulative ExchangeableRedeemable Preferred Stock, as well as for the 2000/2002 Notes.  The previously outstanding Series BRedeemable Preferred Stock was cancelled upon our emergence from bankruptcy withcertain holders thereof receiving a cash payment in exchange therefor.

Holdersof shares of the Series AA Redeemable Preferred Stock are entitled to receive,when, as and if declared by the Board of Directors out of funds legallyavailable therefor, dividends at the rate of 13% per year on the Stated Valueof each share of Series AA Redeemable Preferred Stock.  Dividends on the Series AA RedeemablePreferred Stock are cumulative from the date of issue, accrue whether or notthey have been declared and are payable quarterly in arrears on March 31, June30, September 30 and December 31 of each year (each such date, a “Series AADividend Payment Date”).    The “StatedValue” of each share of Series AA Preferred Stock

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is equal to $1,000per share plus accumulated and unpaid dividends for quarterly periods ended onor prior to the date of determination minus any distributions (other thandividends not otherwise added to the Stated Value) made with respect to suchSeries AA Preferred Stock.

*Uponany voluntary or involuntary liquidation, dissolution or winding up of theCompany, holders of Series AA Redeemable Preferred Stock will be entitled to aliquidation preference over the holders of Common Stock equal to the StatedValue of each share of Series AA Redeemable Preferred Stock plus accrued andunpaid dividends thereon from and including the day after the most recentSeries AA Dividend Payment Date up to (but excluding) the date fixed fordistribution.  The Series AA RedeemablePreferred Stock is redeemable at the option of the Company at any time, inwhole or in part, at an amount equal to the Stated Value thereof plus accruedand unpaid dividends thereon from and including the day after the most recentSeries AA Dividend Payment Date up to (but excluding) the date of redemption.*

*Net Cash Provided by/Usedin Operating Activities*

Netcash provided by operating activities was $38.6 million for the nine monthsended September 30, 2006, an increase of $28.7 million, compared to netcash provided by operating activities of $9.9 million for the same period in2005. This increase was due primarily to reductions in working capital of $30.6million for the nine months ended September 30, 2006 compared to $2.3 millionfor the nine months ended September 30, 2005. Accounts receivable andinventories on a combined basis increased $14.6 million in the nine monthsended September 30, 2006 compared to an increase of $3.3 million in thenine months ended September 30, 2005. Accounts payable and accrued liabilitieson a combined basis increased $40.0 million in the nine months endedSeptember 30, 2006 compared to an increase of $3.9 million for thenine months ended September 30, 2005. Other assets, which included$7.3 million of cash collateralized letters of credit as of December 31,2005, decreased $6.5 million as the cash collateralization on$6.5 million of these letters credit was no longer required as ofSeptember 30, 2006.

*Net Cash Used inInvesting Activities*

Netcash used in investing activities increased $5.5 million to $26.7 million forthe nine months ended September 30, 2006, from $21.2 million for the ninemonths ended September 30, 2005 primarily due to an increase in capitalexpenditures of $2.9 million and to a $2.6 million decrease in proceeds fromthe sale of assets.  In the nine monthsended September 30, 2006, $2.4 million of proceeds were recorded for the saleof real estate in Merced, California, and in the nine months ended September30, 2005, $5.2 million in proceeds from sale of Alliant assets were recorded.

*Net Cash Provided by/Used in Financing Activities*

Net cash used in financing activities was $17.0million for the nine months ended September 30, 2006, compared to net cashprovided by financing activities of $15.0 million for the nine months endedSeptember 30, 2005. Activity for the first nine months of 2006 includedrepayments of the $138.8 million of borrowings and other costs associated withthe Amended and Restated Credit Agreement upon emergence from bankruptcy, $10.5million in financing related fees incurred in connection with emergence andimplementation of the Exit Credit Facilities, net borrowings under the ExitCredit Facilities of $133.6 million and repayments of $1.3 million for capitalleases. The activity for the first nine months of 2005 includes an exchange of$250.6 million accreted value of our 2004 Notes for $250.6 million in Amended2004 Notes, $4.9 million in consent fees and $2.6 million of associatedunderwriter, legal and accountants fees, repayment of $1.5 million inobligations under capital leases and insurance related financing and $24.1million borrowings, net of repayments, under a revolving credit facility.

**Liquidity**

As of September 30, 2006, we hadapproximately $132.0 million of working capital (including $5.4 million in cash)excluding current maturities of long term debt. A portion of our cash and cashequivalents are held by our foreign subsidiaries. Repatriation tax rates maymake it economically unattractive to access cash and cash equivalents generatedby our foreign operations for use in our U.S. operations, including to payprincipal and interest on outstanding borrowings. The Exit CreditFacilities provide up to $200 million of total commitments, subject to theborrowing base described above and a required minimum availability amount of atleast $10 million.

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As of September 30, 2006, we hadapproximately $123.5 million of outstanding borrowings under our Exit CreditFacilities.  As of November 8,2006, we had outstanding borrowings of approximately $130.5 million andapproximately $49.3 million of availability under the Exit CreditFacilities. Availability as of November 8, 2006 did not include approximately$10.0 million of assets in our German subsidiary that we anticipate will becomeavailable during the fourth quarter of 2006.

Improvement in theCompany’s liquidity reflects the return of trade credit terms followingemergence from bankruptcy, a more stable resin price environment, eliminationof cash interest on extinguished debt, and expanded availability under our ExitCredit Facilities.

TheCompany currently believes that cash flow from operations and amounts availableunder the Exit Credit Facilities will be adequate to address our foreseeableliquidity needs in the normal course of business.

**Off-Balance Sheet Arrangements.**

***Not applicable.***

**Cautionary Statement forForward-Looking Information**

Certaininformation set forth in this report contains “forward-looking statements”within the meaning of federal securities laws. Forward-looking statementsinclude statements concerning our plans, objectives, goals, strategies, futureevents, future revenues or performance, capital expenditures, financing needs,plans or intentions relating to acquisitions, business trends, and otherinformation that is not historical information. When used in this report, thewords “estimates,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes”and variations of such words or similar expressions are intended to identifyforward-looking statements. We may also make additional forward-lookingstatements from time to time. All such subsequent forward-looking statements,whether written or oral, by us or on our behalf, are also expressly qualifiedby 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 for them.But, there can be no assurance that management’s expectations, beliefs andprojections will result or be achieved. All forward-looking statements applyonly as of the date made. We undertake no obligation to publicly update orrevise forward-looking statements which may be made to reflect events orcircumstances after the date made or to reflect the occurrence of unanticipatedevents.

Thereare a number of risks and uncertainties that could cause our actual results todiffer materially from the forward-looking statements contained in orcontemplated by this report. These risks include, but are not limited to:general economic and business conditions, particularly an economic downturn;continuing losses and charges against earnings resulting from restructuring orthe impairment of assets; industry trends; risks of significant leverage andany increases in our leverage; interest rate increases; changes in ourownership structure; raw material costs and availability, particularly resin;the timing and extent to which we pass through resin cost changes to ourcustomers; changes in credit terms from our suppliers; competition; the loss ofany of our major customers; changes in demand for our products; newtechnologies; changes in distribution channels or competitive conditions in themarkets or countries where we operate; costs of integrating any futureacquisitions; loss of our intellectual property rights; foreign currencyfluctuations and devaluations and political instability in our foreign markets;changes in our business strategy or development plans; availability, terms anddeployment of capital; availability of qualified personnel; labor relations andwork stoppages; increases in the cost of compliance with laws and regulations,including environmental laws and regulations; and other risks and uncertaintieslisted or described from time to time in reports we periodically file with theSEC. Such risks and certain other uncertainties are discussed in more detail inItem 1A of Part II of this report. There may be other factors, including thosediscussed elsewhere in this report that may cause our actual results to differmaterially from the forward-looking statements. Any forward-looking statementsshould be considered in light of these factors.

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

We areexposed to various interest rate and resin price risks that arise in the normalcourse of business. We regularly evaluate the advisability of entering intointerest rate hedging agreements to manage interest rate market risks andcommodity hedging agreements to manage resin market risks. However, significantincreases in interest rates or the price of resins could adversely affect ouroperating margins, results of operations and ability to service ourindebtedness.

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Ourrevolving credit facility is at a variable rate of interest. An increase of 1%in interest rates would result in an additional $1.2 million of annual interestexpense based on our revolving credit facility balance of $123.5 million as ofSeptember 30, 2006.

Ourraw material costs are comprised primarily of resins. Our resin costs comprisedapproximately 68% of our total manufacturing costs for the nine months endedSeptember 30, 2006. Market risk arises from changes in resin costs. Althoughthe average selling prices of our products generally increase or decrease asthe cost of resins increases or decreases, the impact of a change in resinprices is more immediately reflected in our raw material costs than in ourselling prices. In prior years, we entered into commodity collar agreements tomanage resin market risks. At September 30, 2006, we did not have any commoditycollar agreements outstanding. After initially dropping during the firstquarter of 2006, resin prices have increased over the past six months and areanticipated to remain at current levels or decline slightly during theremainder of 2006.

Fluctuationsin exchange rates may also adversely affect our financial results. Thefunctional currencies for our foreign subsidiaries are the local currency. As aresult, certain of our assets and liabilities, including certain bank accounts,accounts receivable and accounts payable, exist in non U.S. dollar-denominatedcurrencies, which are sensitive to foreign currency exchange rate fluctuations.

Weenter into certain transactions denominated in foreign currencies but, becauseof the relatively small size of each individual currency exposure, we have notordinarily employed hedging techniques designed to mitigate foreign currencyexposures. Gains and losses from these transactions are immaterial and arereflected in the results of operations.

We areexposed to credit losses in the event of nonperformance by the counterparty toa financial instrument to which we are a party. We anticipate, however, thateach of the counterparties to the financial instruments to which we are a partywill be able to fully satisfy its obligations under the contract.

**ITEM 4.CONTROLS AND PROCEDURES**

**Evaluation of Disclosure Controls andProcedures**

We maintain disclosure controls and procedures thatare designed to ensure that information required to be disclosed in our filingsunder the Securities Exchange Act of 1934 is recorded, processed, summarizedand reported within the periods specified in the rules and forms of theSecurities and Exchange Commission.  This information is accumulated andcommunicated to our management, including our principal executive officer andour principal financial officer, as appropriate, to allow timely decisionsregarding required disclosure.  Our management, including our principalexecutive officer and our principal financial officer, recognizes that any setof controls and procedures, no matter how well designed and operated, canprovide only reasonable assurance of achieving the desired control objectives.

Under the supervision and with the participation ofour management, including our principal executive officer and principalfinancial officer, we conducted an evaluation of our disclosure controls andprocedures as of the end of the period covered by this report.  Based onthis evaluation, our principal executive officer and principal financialofficer concluded that our disclosure controls and procedures are effective inalerting them on a timely basis to material information required to bedisclosed in our periodic filings.

**Changes in Internal Controls**

There were no significant changes in our internalcontrols during the quarter or in other factors that could significantly affectthese controls subsequent to the date of the evaluation referenced in theforegoing paragraph.

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**PART II.   OTHERINFORMATION**

**ITEM 1.**                    LEGALPROCEEDINGS

On January 3, 2006,Pliant Corporation and ten subsidiaries (collectively, the “Debtors”) filedvoluntary petitions in the United States Bankruptcy Court for the District ofDelaware (the “Bankruptcy Court”) seeking relief under the provisions ofchapter 11 of title 11 of the United States Code (the “BankruptcyCode”) (the “Chapter 11 Cases”). The Chapter 11 Cases have beenjointly administered under the caption “In re: Pliant Corporation, et al., CaseNo. 06-10001”. Three of our subsidiaries with Canadian operationscommenced ancillary proceedings in a Canadian court to recognize theChapter 11 proceedings as “foreign proceedings” pursuant to Canada’sCompanies’ Creditors Arrangement Act. Pliant’s subsidiaries in Australia,Germany and Mexico were not included in the bankruptcy filings.

On April 18, 2006, theDebtors filed with the Bankruptcy Court the Debtors’ Second Amended Joint Planof Reorganization, along with certain exhibits thereto, and the AmendedDisclosure Statement for Debtors’ Second Amended Joint Plan of Reorganization(the “Amended Disclosure Statement”), along with certain exhibits thereto. OnApril 18, 2006, the Bankruptcy Court approved the Amended Disclosure Statementas containing adequate information within the meaning of section 1125 of theBankruptcy Code and authorized the Debtors to distribute the Amended DisclosureStatement, including all exhibits thereto, to all holders of claims andinterests against each of the Debtors. On June 5, 2006, the Debtors filed with the Bankruptcy Court the Debtors’Third Amended Joint Plan of Reorganization. On June 16, 2006, the Company reached an agreement with representativesof its key classes of bondholders and shareholders in the Chapter 11 Cases.  On June 19, 2006, consistent with the termsof this agreement, the Debtors filed with the Bankruptcy Court the Debtors’Fourth Amended Joint Plan of Reorganization (the “Fourth Amended Plan”) whichwas approved by the Bankruptcy Court on June 23, 2006.  On July 18, 2006, the Company consummated itsreorganization through a series of transactions contemplated in the FourthAmended Plan.  On July 18, 2006, theCompany filed with the Bankruptcy Court a Notice of Effective Date of Debtors’Fourth Amended Joint Plan of Reorganization and Bar Date for Certain Claims(the “Notice”) announcing the effectiveness of the Fourth Amended Plan.

On May 4, 2006, RichardP. Durham and Durham Capital L.L.C. filed a Proof of Claim for $11,747,513.40against Pliant Corporation in the Bankruptcy Court. The Proof of Claim allegedthat, pursuant to rights created by an Employment Agreement dated May 31, 2000between the Company and Richard P. Durham governing the repurchase ofshares of capital stock in the event that Mr. Durham’s employment terminated,Mr. Durham has a claim against the Company composed of three elements: 1)payment for the 18,200 shares of Common Stock in the amount of$8,792,966.00; 2) payment for 1232 shares of Series A PreferredStock in the amount of $2,350,415.50; and 3) payment for warrants for 1,250.48shares of Common Stock, less the exercise price ($0.01 per share), in theamount of $604,131.90. On June 30, 2006, the Company filed a Complaint andObjection with the Bankruptcy Court seeking a determination of the status andrights associated with the claim of Richard P. Durham and Durham Capital,L.L.C. described above and objecting to the Durham parties’ claim by submittingthat: 1) the claim should be disallowed in its entirety pursuant to the BankruptcyCode; and 2) in the event that it is determined that the Durham claimconstitutes a “claim” within the meaning of the Bankruptcy Code, the claimshould be subordinated pursuant to the Bankruptcy Code because it is a claimfor damages arising out of the purchase or sale of securities. The Company’sJune 30, 2006 Complaint and Objection also asserted a claim against the Durhamparties related to the repurchase by the Company of other shares of commonstock in October and December 2002. On July 25, 2006, Richard P. Durham andDurham Capital, L.L.C. filed an Answer and Counterclaim in response to theCompany’s Complaint and Objection asserting a counterclaim for Breach ofContract and seeking $11,747,513.40 in damages. The Bankruptcy Court hasscheduled a hearing on these matters to begin on December 14, 2006.

The Company filed apatent infringement lawsuit against MSC Marketing & Technology, Inc., d/b/aSigma Stretch Film, and Atlantis Plastics, Inc. on May 19, 2004, Case No.04-C3509 (N.D. Ill.). The Company sells a patented plastic film that is used towrap pallet loads. The patent infringement lawsuit was filed to protect theCompany’s exclusive right to this film’s patented features, which provides theCompany’s products with advantages in this industry. In this lawsuit, theCompany seeks an injunction and past damages relating to sales of competingfilm products. In July, 2006, the Court granted Pliant permission toimmediately appeal the Court’s claim construction ruling to the Court ofAppeals for the Federal Circuit.  Toexpedite the appeal, which is currently pending, Atlantis Plastics, Inc. wasdismissed from the case without prejudice to Pliant’s right to re-file acomplaint against it. On July 21, 2006, MSC Marketing & Technology, Inc.filed a motion for summary judgment seeking a ruling that the patent-in-suit isinvalid and on

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August3, 2006, it filed a motion for summary judgment seeking a ruling that it hasnot infringed the patent and such motions are pending.  The case is currently in the discovery phaseand a trial has not yet been scheduled.

On August 30, 2005,Tredegar Film Products Corp. filed a complaint against the Company, Case no. 05CH 14715 (Cook County, Illinois Circuit Court, Chancery Division).In thislawsuit, Tredegar seeks compensatory damages in excess of $30,000 and $2million in punitive damages against the Company for alleged misappropriationand misuse of alleged Tredegar trade secrets related to the hiring of twoformer Tredegar employees. The case was subject to the automatic stay provisionof the Bankruptcy Code, which took effect January 3, 2006. However, pursuant toan Agreed Order of the Bankruptcy Court entered July 17, 2006, Tredegar hasbeen permitted to prosecute the Illinois action through final judgment, providedthat any judgment in favor of Tredegar shall be enforced only in accordancewith the Debtors’ Fourth Amended Joint Plan of Reorganization. The case is inthe early stages of discovery.

InJune 2005, the Company received an information request from the U.S.Environmental Protection Agency Region 4 (the “EPA”) relating to theConstitution Road Drum Site (the “Site”) in Atlanta, Georgia.  The EPAstated that the Company may have arranged for disposal of non-hazardous wasteat the Site, a former Southeastern Research and Recovery (“SRR”)facility.  SRR operated the Site as a Resource Conservation and RecoveryAct transfer facility and apparently abandoned its operations. The EPA and agroup of potentially responsible parties recently completed negotiations on anadministrative order on consent (the “Consent Order”) to conduct a removalaction at the Site and resolve the EPA’s claims for past costs and futureoversight costs in connection with the Site.  The Company has signed theConsent Order, which is subject to public comment.  The Company estimatesits share of the costs of the removal action and the EPA’s costs will beapproximately $28,000.

In addition, we areinvolved in routine litigation in the normal course of its business.  On the basis of information presentlyavailable and advice received from counsel representing the Company and itssubsidiaries, it is the opinion of management that the disposition or ultimatedetermination of such claims and lawsuits against the Company will not have amaterial adverse effect on the Company’s financial position, results ofoperations, or liquidity.

**ITEM 1A.**           RISK FACTORS

The following risks anduncertainties are among the factors that could cause our actual operatingresults, financial condition or liquidity to differ materially from theforward-looking statements made in this report or which could otherwiseadversely affect our business.  There maybe other factors, including those discussed elsewhere in this report or inother filings made by us with the Securities and Exchange Commission, that maycause our actual operating results, financial condition or liquidity to differmaterially from the forward-looking statements made in this report or whichcould otherwise adversely affect our business. You should carefully consider these factors in evaluating anyforward-looking statements made in this report and prior to making anyinvestment decisions with respect to our securities.

**Risks related to Emergence from Bankruptcy**

**Our actual financial results after emergence frombankruptcy may vary significantly from the projections filed with theBankruptcy Court.**

We recently emerged fromChapter 11 bankruptcy proceedings on July 18, 2006 (the “Effective Date”)pursuant to terms of our Fourth Amended Joint Plan of Reorganization (the “Plan”),which Plan was approved by the United States Bankruptcy Court for the Districtof Delaware (the “Bankruptcy Court”).  Inconnection with the Plan, we were required to prepare projected financialinformation to demonstrate to the Bankruptcy Court the feasibility of the Planand our ability to continue operations upon emergence from bankruptcy.  At the time they were last filed with theBankruptcy Court, the projections reflected numerous assumptions concerninganticipated future performance and prevailing and anticipated market andeconomic conditions, many of which were and continue to be beyond our controland which may not materialize. Projections are inherently subject to uncertainties and to a widevariety of significant business, economic and competitive risks.  Our actual results will likely vary fromthose contemplated by the projections and the variations may be material.

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**Our actual financial results after emergence frombankruptcy may not be comparable to our historical financial information.**

As a result of theconsummation of the Plan and the transactions contemplated thereby, ourfinancial condition and results of operations from and after the Effective Datemay not be comparable to the financial condition or results of operations reflectedin our historical financial statements.

**We may be subject to claims that were not dischargedin the bankruptcy cases which could have a material adverse effect on ourfinancial condition and results of operations.**

The nature of ourbusiness may subject us to litigation. Because our Plan required that all allowed unsecured claims against us,other than claims with respect to our previously outstanding 13% seniorsubordinated notes, were reinstated, the vast majority of the litigation claimsagainst us that arose prior to the date of our bankruptcy filing were notresolved during our Chapter 11 proceedings. The ultimate resolution of suchclaims is uncertain and may have a material adverse effect on our financialcondition and results of operations.

**We cannot be certain that the bankruptcy proceedingwill not adversely affect our operations going forward.**

Although we emerged frombankruptcy upon consummation of the Plan, we cannot assure you that having beensubject to bankruptcy protection will not adversely affect our operations goingforward, including our ability to negotiate favorable terms from suppliers,hedging counterparties and others and to attract and retain customers.  The failure to obtain such favorable termsand retain customers could adversely affect our financial performance.

**Risks related to our Financial and Capital Structure**

**The extent of our indebtedness could adversely affectour ability to raise additional capital to fund our operations, limit ourability to react to changes in the economy or our industry and prevent us frommeeting our debt obligations.**

Although our plan ofreorganization resulted in the elimination of net $289 million of oursubordinated debt and approximately $298 million of our mandatorily redeemablestock, we continue to have a significant amount of indebtedness upon emergencefrom bankruptcy.  As of September 30,2006, we had total debt of $738.7 million.

Our indebtedness maylimit our ability to obtain additional financing for working capital, capitalexpenditures, product development, debt service requirements, acquisitions andgeneral corporate or other purposes. Such indebtedness also may limit our ability to adjust to changingmarket conditions and to withstand competitive pressures, possibly leaving usvulnerable in a downturn in general economic conditions or in our business, orwe may be unable to carry out capital spending that is important to our growthand productivity improvement programs.

**Limits on our borrowing capacity under our creditfacilities may affect our ability to finance our operations.**

While our creditfacilities provide for a maximum of approximately $200 million of financing,our ability to borrow funds under the credit facilities is subject to theamount of eligible receivables, inventory machinery and equipment and real estate in our borrowing baseunder the facility and the application of reserves against such amounts.  Our ability to make borrowings under ourcredit facilities also is conditioned upon our compliance with certaincovenants including a requirement to maintain a minimum fixed-charge coverageratio.  Moreover, covenants contained inour indentures may further impose limits on the amount we may borrow under ourcredit facility.

**We may not be able to generatesufficient cash to service all of our indebtedness and could be forced to takeother actions to satisfy our obligations under our indebtedness, which may notbe successful.**

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Our estimated cash debtservice for 2006 is expected to be approximately $40.5 million, consisting of$27.8 million of scheduled bond interest payments, approximately $12.1 millionof interest payments on our revolving credit facilities and $0.6 million inother payments.

Our ability to makescheduled payments or to refinance our debt obligations depends on ourfinancial and operating performance, which is subject to prevailing economicand competitive conditions and to certain financial, business and other factorsbeyond our control.  These factorsinclude:

·                  Our ability togenerate cost savings and manufacturing and operational efficiencies sufficientto achieve projected financial performance, including, but not limited to,initiatives to obtain new business and to generate and manage working capitalconsistent with such projections;

·                  Variations inthe financial or operational condition of our significant customers;

·                  Materialshortages, transportation systems delays or other difficulties in markets wherewe purchase supplies for the manufacturing of our products;

·                  Significant workstoppages, disputes or any other difficulties in labor markets where we obtainmaterials necessary for the manufacturing of products or where products aremanufactured, distributed or sold;

·                  Increaseddevelopment of competitive alternatives to our products;

·                  Fluctuations ininterest rates;

·                  Unscheduledplant shutdowns;

·                  Increasedoperating costs;

·                  Changes inprices and supply of raw materials;

·                  Changes incredit terms offered by our suppliers;

·                  Our ability toobtain cash adequate to fund our needs;

·                  Variousworldwide economic and political factors, changes in economic conditions,currency fluctuations and devaluations, credit risks in foreign markets orpolitical instability in foreign countries where we have manufacturingoperations or suppliers;

·                  Physical damageto or loss of significant manufacturing or distribution property, plant andequipment due to fire, weather or other factors beyond our control;

·                  Legislativeactivities of governments, agencies and similar organizations, both in the UnitedStates and in foreign countries, that may affect our operations;

·                  Our ability tocomply with government regulations, including public market disclosurerequirements such as those contained within the Sarbanes-Oxley Act;

·                  Legal actionsand claims of undetermined merit and amount involving, among other things,product liability, recalls of products manufactured or sold by us andenvironmental and safety issues involving our products or facilities; and

·                  Possible terrorist attacks or acts ofaggression or war, which could exacerbate other risks such as slowed productionor interruptions in the transportation system.

If our cash flows and capital resources areinsufficient to fund our debt service obligations in the future, we may beforced to reduce or delay capital expenditures, sell assets, seek additionalcapital or restructure or refinance our indebtedness.  These alternative measures may not besuccessful and may not permit us to meet our scheduled debt service obligations.  In the absence of such cash flows and capitalresources, we could face substantial liquidity problems and might be requiredto dispose of material assets or operations to meet our debt service and otherobligations.  Our indentures and creditfacilities restrict our ability to dispose of assets and use the proceeds fromthe disposition.  We may not be able toconsummate those dispositions or to obtain the proceeds which we could realizefrom them and these proceeds may not be adequate to meet any debt serviceobligations then due.

If we are unable to generate sufficient cash flow andare otherwise unable to obtain funds necessary to meet required payments ofprincipal, premium, if any, and interest on our indebtedness in the future, orif we otherwise fail to comply with the various covenants, including financialand operating covenants, in the instruments governing our indebtedness, wecould be in default under the terms of the agreements governing suchindebtedness.  In the event of such default,the holders of such indebtedness could elect to declare all the funds borrowedthereunder to be due and payable, together with accrued and unpaid interest,the lenders under the credit facilities could elect to terminate theircommitments thereunder, cease making further loans and institute foreclosureproceedings against our assets, and we could be forced into a subsequentbankruptcy or liquidation.  If ouroperating performance

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declines, we may,in the future, need to obtain waivers from the required lenders under ourcredit facilities to avoid being in default. If we breach our covenants under the credit facilities and seek awaiver, we may not be able to obtain a waiver from the required lenders.  If this occurs, we could be in default underthe credit facilities and the lenders could exercise their rights, as describedabove, and we could be forced into a subsequent bankruptcy or liquidation.

**Our variable rate indebtedness subjects us to interestrate risk.**

Although we havesubstantially reduced our variable rate indebtedness, our borrowings under ourcredit facilities are at variable rates of interest.  An increase of 1% in interest rates wouldresult in an additional $100,000 of annual interest expense for each $10.0million in borrowings under such facilities. We are thus exposed to interest rate risk to the extent of ourborrowings under the credit facilities.

**We will rely significantly on the funds received fromour subsidiaries to meet our debt service obligations, but our subsidiaries maynot be able to distribute sufficient funds to us.**

Although we are anoperating company, a significant amount of our revenue is generated by oursubsidiaries.  For the nine-month periodended September 30, 2006, 18.2% of our net sales was generated by oursubsidiaries.  As a result, our abilityto satisfy our debt service obligations will depend significantly on ourreceipt of dividends or other intercompany transfers of funds from ouroperating subsidiaries.  The payment ofdividends to us by our subsidiaries is contingent upon the earnings of thosesubsidiaries and is subject to various business considerations as well ascertain contractual provisions which may restrict the payment of dividends andthe transfer of assets to us.  In theevent of a subsequent bankruptcy, liquidation or reorganization of oursubsidiaries, claims of creditors of our subsidiaries will generally havepriority as to the assets of such subsidiaries over our claims as the holder ofthe equity of our subsidiaries.

**The lack of an established trading market for andpayment of dividends on our securities may adversely affect their liquidity.**

None of our securitiescurrently are listed or traded on any nationally recognized securities marketor exchange.  Although we are takingsteps to permit our Series AA Preferred Stock to be quoted for trading on theNASDAQ OTC Bulletin Board, there can be no assurance that an active or liquidtrading market will develop for these securities.  Moreover, we do not anticipate making cashdividends or other distributions on our equity securities in the foreseeablefuture and covenants in certain debt instruments to which we are a party mayrestrict or ability to do so.  As aresult, the liquidity of our securities may be adversely affected.

**Our common stock is subject to significant dilution.**

 If our Series AA Preferred Stock has not beenredeemed or repurchased by the fifth anniversary of the Effective Date of thePlan, the holders of at least 40% of the outstanding shares of Series AAPreferred Stock will have the right to cause all of the outstanding Series AAPreferred Stock to be converted into a number of shares of common stock thatwill dilute the ownership of the existing common stock to .01% or less, thusrendering such existing common stock essentially worthless.  The terms of our debt instruments currentlyprohibit us from redeeming or repurchasing the Series AA Preferred Stock.

**The interest of J.P. Morgan Partners, LLC as acontrolling stockholder may differ from the interests of other securitiesholders.**

Affiliates of J.P. MorganPartners, LLC own approximately 13% of our Series AA Preferred Stock andapproximately 40% of our common stock. Under the terms of our stockholder agreement, those affiliates have theright to designate 4 out of the 7 members of our board of directors and therebyhave effective control of the Company. As the holders of a significant percentage of our equity securities, theinterests of the affiliates of J.P. Morgan Partners, LLC may not in all casesbe aligned with the other holders of our securities.

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**Risks related to our business**

**Continued increases in resin prices or the loss of akey resin supplier could lead to increased costs and lower profit margins.**

Polyethylene, PVC,polypropylene and other resins and additives constitute the major raw materialsfor our products.  We purchase most ofour resin from major oil companies and petrochemical companies in NorthAmerica.  For the nine-month period endedSeptember 30, 2006, raw material costs, which consist primarily of resin costs,comprised approximately 68% of our total cost of goods sold.  Significant increases in the price of resinsincreases our costs, reduces our operating margins and impairs our ability toservice debt unless we are able to pass all of these cost increases on to ourcustomers.  The price of resin is afunction of, among other things, manufacturing capacity, demand, and the priceof crude oil and natural gas feed stocks. Resin shortages or significant increases in the price of resin couldhave a significant adverse effect on our business.  Since the middle of 2002, we have experienceda period of significant uncertainty with respect to resin supplies andprices.  High crude oil and natural gaspricing, resulting from the hurricanes in the second half of 2005, have hadsignificant impact on the price and supply of resins through the first ninemonths of 2006.

Major suppliers of resinhave implemented price increases to cover their increases in petroleum costs,and to improve their operating margins as capacity utilization increases.  Due in part to consolidation in the resinsupply industry, suppliers have resisted the consumers’ efforts to limit ordefer the effect of these increases. Conversely, the prices of our products generally fluctuate with theprice of resins.  Approximately half ofour sales are made on a transactional basis, which allows us to pass throughresin price increases, although competitive market conditions in our industryfrom time to time limit our ability to pass the full cost of higher resinpricing through to our customers immediately or completely.  The other approximately one half of our salesare made pursuant to customer contracts, most of which dictate the timing inour ability to pass through the increase. A vast majority of these contracts have been renegotiated to allow resincost changes to be passed along on a monthly basis, with some allowing costchanges to be passed through quarterly and a small number requiring a longerdelay.  In combination, the cost to theCompany of the gap between the speed in which resin price changes are passed onto us and the time in which we can pass these cost changes on to our customershas an impact on both our results of operations and our working capitalneeds.  This trend is industry wide andits impact has been significant in 2006. Although we believe that the renegotiation of many of our customercontracts should reduce the impact of resin price changes in the future, therecan be no assurance that we will be successful in passing through such costs toour customers.

As one of the largestconsumers of packaging resin in the United States, we are working on behalf ofour customers with our suppliers to minimize the effects and the timing of thepass through of increased resin costs and to maximize the likelihood that resinsupplies continue to the Company in sufficient quantities and on timetablesnecessary to meet the needs of our customers. We also regularly evaluate commodity hedging, collar agreements, andother protective strategies and will implement them if and when appropriate.

**We operate in highly competitive markets and ourcustomers may not continue to purchase our products, which could lead to ourhaving reduced revenues and loss of market share.**

The markets in which weoperate are highly competitive on the basis of service, product quality,product innovation and price.  Small andmedium-sized manufacturers that compete primarily in regional markets service alarge portion of the film and flexible packaging market, and there arerelatively few large national manufacturers. In addition to competition from many smaller competitors, we face strongcompetition from a number of large film and flexible packaging companies.  Some of our competitors are substantiallylarger, are more diversified, and have greater resources than we have, and,therefore, may have certain competitive advantages.

**If we lose one or more of our major customers, ourresults of operations and our ability to service our indebtedness could beadversely affected.**

Although no singlecustomer accounted for more than 10% of our net sales for the nine-month periodended September 30, 2006, we are dependent upon a limited number of largecustomers with substantial purchasing power for a significant percentage of oursales.  Our top ten customers accountedfor approximately 28.7% of our net sales in the nine-month period endedSeptember 30, 2006.  Several of ourlargest customers satisfy some of their film requirements by manufacturing filmthemselves.

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The loss of one ormore major customers, or a material reduction in sales to these customers as aresult of competition from other film manufacturers, insourcing of filmrequirements or other factors, would have a material adverse effect on ourresults of operations and on our ability to service our indebtedness.

**Our ongoing efforts to achieve cost savings may notimprove our operating results.**

We regularly evaluate ouroperations in order to identify potential cost savings.  From time to time, we implement plantrestructurings or other initiatives designed to improve the efficiency of ouroperations and reduce our costs.  Theseinitiatives may not result in cost savings, however, particularly if ourestimates and assumptions relating to the anticipated cost savings prove to beincorrect.  Further, even if a cost savingsinitiative is successful, we may not be able to improve our operating resultsas a result of other factors discussed in this report, many of which are beyondour control, such as a reduction in the demand for our products or increases inraw material costs.

**Our operations outside of the United States aresubject to additional currency exchange and other risks that could adverselyaffect our results of operations.**

We are subject to therisk of changes in foreign currency exchange rates due to our globaloperations.  We manufacture and sell ourproducts in North America, Latin America, Europe and Australia.  As a result, our financial results could besignificantly affected by factors such as changes in foreign currency exchangerates or weak economic conditions in foreign markets in which we manufactureand distribute our products.  Ouroperating results are primarily exposed to changes in exchange rates betweenthe U.S. dollar and Canadian currency.

**If we do not maintain good relationships with our employees,or attract new highly skilled employees to replace departing employees, ourbusiness could be adversely affected by a loss of revenues, increased costs orreduced profitability.**

As of September 30, 2006,we had approximately 3,075 employees, of which approximately 885 employees weresubject to a total of 7 collective bargaining agreements that expire on variousdates between February 20, 2007 and October 11, 2009.  As of September 30, 2006 we had approximately75 employees under a collective bargaining agreement in South Deerfield, whichwas ratified in October 2006.  Althoughwe strive to maintain good relations with all our employees, failure to do soor to attract new highly skilled employees to replace any departing employeesmay result in a loss of revenues, increased costs or reduced profitability,thereby adversely affecting our business.

**The cost of complying with government regulation mayadversely affect our financial results.**

We are subject to variousfederal, state, local and foreign laws, regulations, rules and ordinances thataffect the conduct or our operations, including environmental laws.  Compliance with these laws and regulations orthe adoption of modified or additional laws and regulations may require largeexpenditures by us or otherwise have a significant effect on our financialcondition or results of operations.

**We may not be able to adequately protect ourintellectual property, which could cause our revenues to decrease.**

We rely on patents,trademarks and licenses to protect our intellectual property, which issignificant to our business.  We alsorely on unpatented proprietary know-how, continuing technological innovationand other trade secrets to develop and maintain our competitive position.  We routinely seek to protect our patents,trademarks and other intellectual property, but our precautions may not providemeaningful protection against competitors or protect the value of ourtrademarks.  In addition to our ownpatents, trade secrets and proprietary know-how, we license from third partiesthe right to use some of their intellectual property.  We routinely enter into confidentialityagreements to protect our trade secrets and proprietary know-how.  However, these agreements may be breached,may not provide meaningful protection or may not contain adequate remedies forus if they are breached.

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**Any future acquisitions may not be successfullyintegrated with our business and could cause our revenues to decrease,operating costs to increase or reduce cash flows.**

Our efforts to integrateany businesses acquired in the future may not result in increased profits.  Difficulties encountered in any transitionand integration process for newly acquired companies could cause revenues todecrease, operating costs to increase or cash flows to be reduced.

**Other Uncertainties**

In addition to thefactors described above, we face a number of uncertainties, including: (1)general economic and business conditions, particularly a continuing economicdownturn; (2) industry trends; (3) changes in demand for our products; (4)potential legislation and regulatory changes; (5) new technologies; (6) changesin distribution channels or competitive conditions in the markets or countrieswhere we operate; and (7) changes in our business strategy or developmentplans.

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

None.

**ITEM 3.**                    DEFAULTS UPONSENIOR SECURITIES

The Company’sbankruptcy filing on January 3, 2006 constituted an Event of Default underthe separate Indentures for all of the Company’s Notes, which were thenclassified as current liabilities in the consolidated balance sheet as ofDecember 31, 2005. The Company defaulted in the payment of $13.9 millionof interest that was due on its 2003 Notes on March 1, 2006. On July 18,2006, in connection with the Company’s emergence from bankruptcy the totalarrearage with respect to the defaulted interest payment of $13.9 million plusinterest on the overdue installment of interest was paid by the Company to thetrustee with respect to the 2003 Notes for further distribution to the holdersthereof. As of September 30, 2006, no defaults remain upon any of the Company’ssecurities.

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

**None.**

**ITEM 5.**                    OTHERINFORMATION

None.

**ITEM 6.**                    EXHIBITS

(a)          Thefollowing exhibits are filed with this report.
| 10.1   | Working Capital Credit Agreement, dated as of July  18, 2006, among Pliant Corporation, certain subsidiaries of Pliant  Corporation, the lenders party thereto, Merrill Lynch Bank USA, as  administrative agent, and Merrill Lynch Commercial Finance Corp., as sole  lead arranger and book manager.                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.2   | Fixed Asset Credit Agreement, dated as of July 18,  2006, among Pliant Corporation Pty Ltd., Pliant Corporation of Canada Ltd., Pliant  Film Products GmbH, Aspen Industrial, S.A. de C.V., the lenders party  thereto, Merrill Lynch Bank USA, as administrative agent, and Merrill Lynch  Commerical Finance Corp., as sole lead arranger and book manager. |
| 10.3   | Pliant Corporation 2006 Restricted Stock Incentive  Plan, dated as of July 18, 2006.                                                                                                                                                                                                                                                                          |
| 10.4   | Pliant Corporation Deferred Cash Incentive Plan  adopted as of July 18, 2006.                                                                                                                                                                                                                                                                                 |
| 31.1   | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 31.2   | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 32.1   | Certification of Chief Executive Officer furnished  pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                          |
| 32.2   | Certification of Chief Financial Officer furnished  pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      |

 

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**SIGNATURES**

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

 

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**INDEX TO EXHIBITS**
| Exhibits | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                    |
|----------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1     |       | Working Capital Credit Agreement, dated as of July  18, 2006, among Pliant Corporation, certain subsidiaries of Pliant  Corporation, the lenders party thereto, Merrill Lynch Bank USA, as  administrative agent, and Merrill Lynch Commercial Finance Corp., as sole  lead arranger and book manager.                                                        |
| 10.2     |       | Fixed Asset Credit Agreement, dated as of July 18,  2006, among Pliant Corporation Pty Ltd., Pliant Corporation of Canada Ltd.,  Pliant Film Products GmbH, Aspen Industrial, S.A. de C.V., the lenders party  thereto, Merrill Lynch Bank USA, as administrative agent, and Merrill Lynch  Commerical Finance Corp., as sole lead arranger and book manager. |
| 10.3     |       | Pliant Corporation 2006 Restricted Stock Incentive  Plan, dated as of July 18, 2006.                                                                                                                                                                                                                                                                          |
| 10.4     |       | Pliant Corporation Deferred Cash Incentive Plan  adopted as of July 18, 2006.                                                                                                                                                                                                                                                                                 |
| 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.                                                                                                                                                                                      |

 

58

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