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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-K

|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934    
|------------------------------------------- | ----------------------------------------------------------------------------------------
|For the fiscal year ended December 28, 2002
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission file number 1-14330

POLYMER GROUP, INC.(Exact name of registrant as specified in its charter)

|Delaware                                                                                     |  | 57-1003983                          
|-------------------------------------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of
incorporation or organization)                               |  | (I.R.S. Employer
Identification No.)
|4838 Jenkins AvenueNorth Charleston, South Carolina
(Address of principal executive offices) |  | 29405(Zip Code)                     

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

Securities registered pursuant to Section 12(g) of the Act

| |  | Title of Class       |  | 
| |  | -------------------- |  | 
| |  |                      |  | 
| |  | Class A Common Stock |  | 
| |  | Class B Common Stock |  | 

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

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yes
o No ý

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

The
aggregate market value of the Company's voting stock held by nonaffiliates as of April 8, 2003 was approximately $24.7 million (based on the average of the closing bid
and ask price of the Class A common stock on the OTC Bulletin Board). As of April 8, 2003, there were 8,125,869 shares of Class A common stock, 399,978 shares of
Class B common stock and 118,449 shares of Class C common stock outstanding. No shares of Class D or Class E were outstanding as of such date. The par value for each
class of common stock is $.01 per share.

Documents Incorporated By Reference

Notice of 2003 Annual Meeting of Stockholders and Proxy StatementPart III

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PART I

ITEM 1. BUSINESS

Polymer Group, Inc. (the "Company"), a global manufacturer and marketer of nonwoven and oriented polyolefin products, currently
operates in two business segments that include Consumer and Industrial and Specialty. The Company incurred net losses of $419.6 million, $247.6 million and $4.3 million during
fiscal 2002, 2001 and 2000, respectively. As a result, a comprehensive financial and business restructuring was undertaken beginning in 2001 and continuing into 2002. After extensive reorganization
efforts, the Company and each of its domestic subsidiaries filed voluntary petitions for Chapter 11 reorganization under the United States Bankruptcy Code in the South Carolina Bankruptcy Court on
May 11, 2002 (April 25, 2002 as to Bonlam (S.C.), Inc.). The Company and these subsidiaries have operated under the jurisdiction of the Bankruptcy Court since such filing. In its
efforts to emerge from Chapter 11, the Company filed a Modified Plan (as defined) on November 27, 2002 that was approved by the Bankruptcy Court on January 16, 2003 and accordingly, the
Company emerged from Chapter 11 effective March 5, 2003 (the "Effective Date").

The Modified Plan generally resulted in the: (i) restructuring of the Company's Prepetition Credit Facility by entering into a
Restructured Credit Facility (each as defined); (ii) retirement of in excess of $591.5 million of the Company's obligations under the Senior Subordinated Notes; (iii) payment in
full of virtually all Critical Business Relations Claims (as defined); and (iv) cancellation of the Company's old common stock and issuance of new common stock and warrants. The Company entered
into Amendment No. 1 to the Restructured Credit Facility ("Amendment No. 1"), effective as of March 29, 2003, to provide the Company with additional flexibility in meeting the
financial covenants under terms of the Restructured Credit Facility. A complete discussion of Amendment No. 1 and certain other matters is contained in "Recent Developments" within this Annual
Report on Form 10-K.

General

The Company is one of the largest producers of spunmelt and spunlace products in the world, and employs the most extensive range of nonwovens technologies that
allows it to supply products
tailored to customers' needs at competitive prices. Nonwovens provide certain qualities similar to those of textiles at a significantly lower cost.

The
Company supplies engineered materials to a number of the largest consumer and industrial products manufacturers in the world. The Company has a global presence with an established
customer base in both developed and developing markets. The Company's product offerings are sold principally to converters that manufacture a wide range of end-use products.

The
Company operates twenty-five manufacturing facilities (including its joint ventures in Argentina, China and Turkey) located in eleven countries and is currently the only
nonwovens producer that utilizes essentially all of the established nonwovens process technologies. The Company believes that the quality of its manufacturing operations and the breadth of its
nonwovens process technologies give it a competitive advantage in meeting the needs of its customers and in leading the development of an expanded range of applications. The Company has invested in
advanced technology in order to increase capacity, improve quality and develop new high-value structures. Working as a developmental partner with its major customers, the Company utilizes
its technological capabilities and depth of research and development resources to develop and manufacture new products to specifically meet their needs.

Management
has built the Company through a series of capital expansions and business acquisitions that have broadened the Company's technology base, increased its product lines and
expanded its global presence. Moreover, the Company's worldwide resources have enabled it to better meet the

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needs of existing customers, to serve emerging geographic markets, and to exploit niche market opportunities through customer-driven product development.

See
"Chapter 11 Proceedings" and "Recapitalization" in this Annual Report on Form 10-K for a comprehensive discussion of the Company's financial restructuring
undertaken in fiscal 2002.

Industry Overview

The Company competes primarily in the worldwide market for nonwovens, which is an approximately $11.6 billion market with an average annual sales growth
rate of 7% - 8% expected over each of the next five years, according to industry sources. The nonwovens industry began in the 1950s when paper, textile and chemical technologies were
combined to produce new fabrics and products with the attributes of textiles but at a significantly lower cost. Today, nonwovens are used in a wide variety of consumer and industrial products as a
result of their superior functionality and relatively low cost.

The
nonwovens industry has benefited from substantial improvements in technology over the past several years, which have increased the number of new applications for nonwovens and,
therefore increased demand. The Company believes, based on industry sources, that demand in the developed markets of North America, Western Europe and Japan will increase at an average rate of
6.5% - 7.5% in each of the next five years, while the emerging markets are forecasted to grow at an average rate of 8.5% - 9.5% per annum. In the developed markets, growth
will be driven primarily by new applications for nonwovens, while growth in the emerging markets will be volume driven as per capita income rises in these countries. According to industry sources,
worldwide consumption of nonwovens has grown an average of 7.0% per year over the last ten years. The Company believes that future growth will depend upon the continuation of improvements in raw
materials and technology, which should result in the development of high-performance nonwovens, leading to new uses and markets at a lower cost than alternative materials.

Nonwovens
are categorized as either disposable (approximately 55% of worldwide industry sales with an average annual growth rate of 7% - 8%, according to industry sources), which is the
category in which the Company primarily competes, or durable (approximately 45% of worldwide industry sales and an average annual growth rate of 7% - 8%, according to industry sources). The largest
end uses for disposable nonwovens are for applications that include disposable diapers, feminine sanitary protection, baby wipes, adult incontinence products, and healthcare applications, including
surgical gowns and drapes and wound care sponges and dressings. Other disposable end uses include wipes, filtration media, protective apparel and fabric softener sheets. Durable end uses include
apparel interlinings, furniture and bedding construction sheeting, cable wrap, electrical insulation, alkaline battery cell separators, automotive components, geotextiles, roofing membranes, carpet
backing, agricultural fabrics, durable papers and coated and laminated structures for wall coverings and upholstery.

The
Company also competes in the North American market for oriented polyolefin products. Chemical polyolefin products include woven, slit-film fabrics produced by weaving
narrow tapes of slit film and characterized by high strength-to-weight ratios, and also include twisted slit film or monofilament strands. While the broad uncoated oriented
polyolefin market is primarily focused on carpet backing fabric and, to a lesser extent, geotextiles and bags, the markets in which the Company primarily competes are made up of a large number of
specialized products manufactured for niche applications. These markets include industrial packaging applications such as lumberwrap, steel wrap and fiberglass packaging, as well as
high-strength protective coverings and specialized components that are integrated into a variety of industrial and consumer products.

Business Strategy

The Company's goals are to grow its core businesses while developing new technologies to capitalize on new product opportunities and expanded geographic markets.
The Company strives to be

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a leading supplier in its chosen markets by delivering high-quality products and services at competitive prices. The Company is committed to continuous improvements throughout its
business to
increase product value by incorporating new materials and operating capabilities that enhance or maintain performance specifications. The Company seeks to expand its capabilities to take advantage of
the penetration and growth of its core products internationally, particularly in developing countries. Over the past nine years, the Company's sales from manufacturing facilities outside the United
States have increased from approximately $28.0 million in 1993 to approximately $404.6 million in 2002.

Products

The Company develops, manufactures and sells a broad array of nonwovens and oriented polyolefin products. Sales are focused in two product segments that provide
opportunities to leverage the Company's advanced technology and substantial capacity. These product segments include Consumer and Industrial and Specialty. (See Note 18. "Segment Information"
and Note 19. "Geographic Information.")

Consumer Segment

The Consumer segment includes products within the hygiene, consumer wiping and medical categories. Sales of products in the Consumer segment represented
approximately 55%, 57% and 56%, or $417.9 million, $463.6 million and $486.3 million, of the Company's consolidated net sales for 2002, 2001 and 2000, respectively.

The
Company produces a variety of nonwoven materials for use in diapers, training pants, feminine sanitary protection, adult incontinence, baby wet wipes and consumer wiping products.
The Company's broad product offerings provide customers with a full range of specialized components for unique or distinctive products, including top sheet, transfer layer, backsheet fabric, leg cuff
fabric, sanitary protective facings, absorbent pads for incontinence guard, panty shield, and absorbent cores applications. In addition, the Company's medical products are used in wound care sponges
and dressings, disposable surgical packs, apparel such as operating room gowns, drapes for operating rooms, face masks and shoe covers.

The
Company has significant relationships with several large consumer product companies and supplies a full range of products to these customers on a global basis. The Company's
marketing and research and development teams work closely as partners with these customers in the development of next generation products. The Company believes that this technical support ensures that
the Company's products will continue to be incorporated into such customers' future product designs.

Industrial and Specialty Segment

The Industrial and Specialty segment includes products such as cable wrap, house wrap, furniture and bedding applications, landscape and agriculture products,
protective apparel, automotive, filtration, flexible packaging, and industrial wiping products used in clean room, food service, institutional and janitorial applications. Sales of products in the
Industrial and Specialty segment represented approximately 45%, 43% and 44%, or $337.8, $352.0 million and $375.7 million, of the Company's consolidated net sales for 2002, 2001 and
2000, respectively.

The
Company's flexible packaging products utilize coated and uncoated oriented polyolefin fabrics that are used as lumberwrap, fiberglass packaging tubes, balewrap for synthetic cotton
and fibers, steel and aluminum wrap, and coated bags for specialty chemicals and mineral fibers. Industrial wiping products include: (i) branded and unbranded, light to heavyweight, cloth
wipes, towels and aprons; (ii) medium to heavyweight open weave towels; and (iii) cleaning and sanitizing wipes. Products for the industrial, janitorial and institutional markets include
light to heavy-duty towels and cloths sold under a

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variety of trademarks. Specialty wipes consist of products designed to meet customer requirements and specifications.

Marketing and Sales

The Company sells to customers in the domestic and international marketplace. Approximately 47%, 24%, 13%, 13% and 3% of the Company's 2002 net sales were from
manufacturing facilities in the United States, Europe, Canada, Latin America and Asia, respectively. The Procter & Gamble Company, which is the Company's largest customer, accounted for 12.4%
of the Company's 2002 net sales. Sales to the Company's top 20 customers represented approximately 47% of the Company's 2002 net sales.

The
Company employs direct sales representatives who are active in the Company's new product development efforts and are strategically located in the major geographic regions in which
the Company's products are utilized. The oriented polyolefin products are sold primarily through a well-established network of converters and distributors. Converters add incremental value
to the Company's products and service the small order size requirements typical of many end users.

Manufacturing Processes

General.The Company's competitive strengths include high-quality manufacturing processes and a broad range of
process technologies, which allow the Company to offer its customers the best-suited product for each respective application. Additionally, the Company has made significant capital
investments in modern technology and has developed proprietary equipment and manufacturing techniques. The Company believes that it exceeds industry standards in productivity, reduction of variability
and delivery lead-time. The Company has a wide range of manufacturing capabilities that allow it to produce specialized products that, in certain cases, cannot be reproduced in the market.
Substantially all of the Company's manufacturing sites have plant-wide real time control and monitoring systems that constantly monitor key process variables using a sophisticated closed
loop system of computers, sensors and custom software.

Nonwovens.The Company believes that it has a comprehensive array of nonwoven manufacturing technologies that encompasses
capabilities spanning the entire spectrum of nonwoven technologies. Nonwoven rollgoods typically have three process steps: web formation, web consolidation or bonding, and finishing. Web formation is
the process by which previously prepared fibers, filaments or films are arranged into loosely held networks called webs, batts or sheets. In each process, the fiber material is laid onto a forming or
conveying surface, which may be dry, wet or molten. The dry-laid process utilizes textile fiber processing equipment, called "cards," that have been specifically designed for
high-capacity nonwoven production. The carding process converts bales of entangled fibers into uniform oriented webs that then feed into the bonding process. The wet-laid
process utilizes papermaking technology in which the fibers are suspended in a water slurry and deposited onto a moving screen, allowing the water to pass through and the fibers to collect. In a
molten polymer-laid process, extrusion technology is used to transform polymer pellets into filaments, which are laid on a conveying screen and interlocked by thermal fusion. In this
process, the fiber formation, web formation and web consolidation are generally performed as a continuous simultaneous operation, making this method very efficient.

Web
consolidation is the process by which the fibers or film are bonded together using mechanical, thermal, chemical or solvent means. The bonding method greatly influences the end
products' strength, softness, loft and utility. The principal bonding processes are thermal bond, resin or adhesive bond, hydroentanglement or spunlace, binder fiber or through-air bond,
calender, spunbond, meltblown, SMS, ultrasonic bond and needlepunch. Thermal bond utilizes heated calender rolls with embossed patterns to point bond or fuse the fibers together. In the resin bond
process, an adhesive, typically latex, is pad rolled onto the web to achieve a bond. Spunlace, or hydroentanglement, uses high pressure water jets to mechanically entangle the fibers.
Through-air bonding takes place through the fusion of

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bi-component fibers in a blown hot air drum. Spunbond and meltblown take advantage of the melt properties of the resins and may use thermal fusion with the aid of calender rolls. SMS and
SMMS are integrated processes of combining spunbond and meltblown sheets in a laminated structure, creating very strong, lightweight and uniform fabrics. Ultrasonic bonding utilizes
high-frequency sound waves that heat the bonding sites. Needlepunch is a mechanical process in which beds of needles are punched through the web, entangling the fibers.

Finishing,
or post-treatment, adds value and functionality to the product and typically includes surface treatments for fluid repellency, aperturing, embossing, laminating,
printing and slitting.
Spunlace and resin bond systems also have a post-treatment drying or curing step. Certain products also go through an aperturing process in which holes are opened in the fabric, improving
absorbency.

Oriented Polyolefins.The oriented/film process begins with plastic resin, which is extruded into a thin plastic film or into
monofilament strands. The film is slit into narrow tapes. The slit tapes or monofilament strands are then stretched or "oriented," the process through which it derives its high strength. The tapes are
wound onto spools that feed weaving machines or twisters. In the finishing process, the product is coated for water or chemical resistance, ultraviolet stabilization and protection, flame retardancy,
color and other specialized characteristics. In the twisting process, either oriented slit tapes or monofilament strands are twisted and packaged on tightly spooled balls for distribution as
agricultural and commercial twine. The Company operates coating lines that have been equipped with the latest technology for gauge control, print treating, lamination, anti-slip finishes
and perforation. The Company also laminates oriented products to paper and has the additional capability of printing multiple colors on a wide-width printing press located in North
America.

Competition

The Company's primary competitors in its industrial and specialty product markets are: E.l. du Pont de Nemours & Co. ("DuPont"), Freudenberg Nonwovens L.P.
("Freudenberg") and BBA Group plc ("BBA") for nonwoven products; and Intertape Polymer Group Inc. and Amoco Fabrics and Fibers Co. for oriented polymer products. Generally, product innovation
and performance, quality, service and cost are the primary competitive factors, with technical support being highly valued by the largest customers.

The
Company's primary competitors in its consumer product markets are DuPont, BBA and KimberlyClark Corporation and First Quality Enterprises, Inc. Generally, cost,
distribution, utility, variety and innovation of product offerings, and technical capacity are the principal factors considered in consumer product end uses.

Raw Materials

The primary raw materials used to manufacture most of the Company's products are polypropylene resin, polyester and polyester fiber, polyethylene and, to a lesser
extent, rayon, tissue paper and cotton. The prices of polypropylene and polyethylene are a function of, among other things, manufacturing capacity, demand and the price of crude oil and natural gas
liquids. Historically, the prices of polypropylene and polyethylene resins have fluctuated. During 2000, resin prices increased significantly resulting in increased raw material prices. This adversely
affected the Company's results of operations because soft demand prevented the Company from passing such increased costs to its customers.

During
January 2003, several suppliers of key raw materials, including polypropylene and polyethylene, announced price increases to take effect beginning as early as
February 2003. The Company has historically been able to pass along at least a portion of such raw material price increases to some of its customers, particularly those with contracts
containing raw material price escalation clauses, although often with a delay between the time the Company is required to pay the increased raw material price and the time the Company is able to pass
the increase on to its customers. To the extent the Company is not able to pass along all or a portion of such increased prices of raw materials, the Company's cost of

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goods sold would increase and its earnings before interest, taxes, depreciation and amortization ("EBITDA") would correspondingly decrease. By way of example, if the price of polypropylene were to
rise $.01 per pound, and the Company was not able to pass along any of such increase to its customers, the Company would realize a decrease of approximately $2.0 million on an annualized basis
in its reported EBITDA. There can be no assurance that the prices of polypropylene and polyethylene will not continue to increase in the future or that the Company will be able to pass on any
increases to its customers. Material increases in raw material prices that cannot be passed on to customers could have a material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Raw Material and Commodity Risks" within this Annual Report on Form 10-K
for additional discussion of the impact of higher raw material costs on the Company's operations in 2002 and 2001.

The
Company primarily purchases its polypropylene resin from Indelpro, S.A. de C.V. and Exxon Mobil Chemical Company with smaller quantities purchased from Arco Polypropylene LLC and
Sunoco, Inc. The Company's major suppliers of polyester and polyester fiber is Wellman, Inc. Novacor Chemicals Inc. is the Company's major supplier for polyethylene, and Crown
Vantage Inc. is the major supplier of its tissue paper. The Company's major supplier of polypropylene fiber is FiberVisions L.L.C.

The
Company believes that the loss of any one or more of its suppliers would not have a long-term material adverse effect on the Company because other manufacturers with whom
the Company conducts business would be able to fulfill the Company's requirements. However, the loss of certain of the Company's suppliers could, in the short term, adversely affect the Company's
business until alternative supply arrangements were secured. As a result of the Company's financial condition, certain suppliers requested alternative payment provisions. However, such alternative
payment provisions have not currently had a significant negative impact on the Company's liquidity. In addition, there can be no assurance that any new supply arrangements entered into by the Company
will have terms as favorable as those contained in current supply arrangements. The Company has not experienced any significant disruptions in supply as a result of shortages in raw materials.

Environmental

The Company is subject to a broad range of federal, foreign, state and local laws and regulations relating to the pollution and protection of the environment.
Among the many environmental requirements applicable to the Company are laws relating to air emissions, wastewater discharges and the handling, disposal and release of solid and hazardous substances
and wastes. Based on continuing internal review, the Company believes that it is currently in substantial compliance with applicable environmental requirements.

The
Company is also subject to laws, such as CERCLA, that may impose liability retroactively and without fault for releases or threatened releases of hazardous substances at
on-site or off-site locations. The Company is not aware of any releases for which it may be liable under CERCLA or any analogous provision.

Actions
by federal, state and local governments in the United States and abroad concerning environmental matters could result in laws or regulations that could increase the cost of
producing the products manufactured by the Company or otherwise adversely affect demand for its products. For example, certain local governments have adopted ordinances prohibiting or restricting the
use or disposal of certain plastic products, such as certain of the plastic wrapping materials, which are produced by the Company. Widespread adoption of such prohibitions or restrictions could
adversely affect demand for the Company's products and thereby have a material adverse effect upon the Company. In addition, a decline in consumer preference for plastic products due to environmental
considerations could have a material adverse effect upon the Company.

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The
Company does not currently anticipate any material adverse effect on its operations, financial condition or competitive position as a result of its efforts to comply with
environmental requirements. Some risk of environmental liability is inherent, however, in the nature of the Company's business, and there can be no assurance that material environmental liabilities
will not arise. It is also possible that future developments in environmental regulation could lead to material environmental compliance or cleanup costs.

Patents and Trademarks

The Company considers its patents and trademarks, in the aggregate, to be important to its business and seeks to protect this proprietary know-how in
part through United States and foreign patent and trademark registrations. The Company maintains over 100 registered trademarks and over 150 patents in the United States. In addition, the Company
maintains certain trade secrets for
which, in order to maintain the confidentiality of such trade secrets, it has not sought patent protection.

Inventory and Backlogs

Inventories at December 28, 2002 were approximately $115.7 million, a decrease of $0.3 million over inventories at December 29, 2001
of $116.0 million. The Company had approximately 66 days of inventory on hand at December 28, 2002 versus 63 days of inventory on hand at December 29, 2001, an
increase of approximately 5%. Unfilled orders as of December 28, 2002 and December 29, 2001 amounted to approximately $44.6 million and $48.0 million, respectively. The
decline in unfilled orders at the end of 2002 versus 2001 is due primarily to lower sales volume.

Research and Development

The Company's investment in research and development approximated $16.3 million, $17.0 million and $18.9 million during 2002, 2001 and 2000,
respectively.

Seasonality

Use and consumption of the Company's products does not fluctuate significantly due to seasonality.

Employees

As of December 28, 2002, the Company employed approximately 3,772 persons. Of this total, approximately 1,528 employees are represented by labor unions or
trade councils that have entered into separate collective bargaining agreements with the Company. Approximately 11.8% of the Company's labor force is covered by collective bargaining agreements that
will expire in 2003. During 2002 there were no unionizing attempts. The Company considers its employee relations to be good.

Business Restructuring

During the first quarter of 2001, the Company announced that its operating results would be substantially below previous expectation due to a number of factors
that were a carry-over from 2000. First, demand for certain high margin products did not return to forecasted levels resulting in certain specialized manufacturing assets remaining
underutilized. Second, the commercialization periods for certain APEX® programs were longer than anticipated, and the expected ramp-up of APEX® products failed to
materialize in 2001. Third, raw material prices did not decline as anticipated, and soft demand prevented the Company from passing the increased raw material costs along to customers. Fourth, pricing
pressure and margin erosion within the spunmelt technologies continued to impact results of operations and the company experienced order reductions and an unfavorable shift in product mix due to
certain customers' adjustments, and demand for certain consumer products failed to accelerate as

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originally expected. Finally, the Company experienced increased interest costs as a result of failing to comply with the covenants in the Prepetition Credit Facility

The
Company anticipated that the confluence of negative economic and business factors would generally subside during the latter half of 2001, particularly in the fourth quarter. However,
the anticipated recovery within the Company's business did not develop as planned in the latter half of 2001; therefore, the Company undertook a comprehensive business restructuring involving
manufacturing initiatives and workforce reductions, including voluntary attrition, of approximately 160 employees in the U.S. and approximately 190 employees in Europe. As a result of the realignment,
the Company recorded a pre-tax charge of $5.8 million during the fourth quarter of 2001. The total charge in the fourth quarter of 2001 consisted of personnel and facility closing
costs. In addition, during mid-2001, the Company undertook a smaller restructuring of its operations in order to reduce costs, predominantly in the U.S. that primarily involved headcount
reductions of approximately 90 employees. Accordingly, the Company recorded a pre-tax charge of $1.7 million during the second quarter of 2001. Each of the plant realignment
programs in 2001 occurred predominantly within the Nonwovens Division.

The
Company's restructuring program continued into 2002 on a smaller scale than that which was undertaken in 2001. Such restructurings included reductions in headcount of approximately
54 employees and facility closing costs in the U.S. as business processes were rationalized in the Oriented Polymers Division. The total plant realignment charge in 2002 and 2001 related to the
restructuring approximated $8.5 million. Cash outlays in 2002 and 2001 associated the Company's business restructuring approximated $7.6 million.

Chapter 11 Proceedings

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

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

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

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

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

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

The
Company, GOF and the Petitioning Creditors intended that the Dismissal Agreement would provide a framework for the Company and other parties, including the Petitioning Creditors, to
continue

10

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

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

On
June 14, 2002, the Company filed the Plan with the South Carolina Bankruptcy Court. The Plan generally proposed (i) the restructuring of the Prepetition Credit Facility,
including a $50 million principal reduction, (ii) the retirement of in excess of $591.5 million of the Debtors' obligations under the Senior Subordinated Notes, in exchange for
the right of the holders of such Notes to receive either (x) their pro rata share of 100% of the newly issued Class A Common Stock of the reorganized Company (prior to the conversion of
the preferred stock or new senior notes, each referred to below) (which would be diluted by any conversion of the New Preferred Stock), (y) for each $1,000 in principal of Senior Subordinated
Notes held, $120 in principal of New Junior Subordinated Notes bearing interest at 11% payable in cash or (z) for each $1,000 in principal amount of existing Senior Subordinated Notes held,
$150 in principal amount of new Junior Subordinated PIK Notes, with interest at 7.5% payable in kind and 3.5% payable in cash, (iii) no impairment of the Debtors' other unsecured creditors,
(iv) a $50 million investment by GOF and eligible electing holders of Senior Subordinated Notes in exchange for convertible preferred stock convertible into 44% of the newly issued
common stock of the reorganized Company (after giving effect to the conversion thereof and excluding PIK dividends thereon) (the "New Preferred Stock"), (v) the issuance by GOF and eligible
electing holders of Senior Subordinated Notes of a $25 million letter of credit to secure the Debtors' proposed amortization payments to the Senior Lenders (which if drawn, would be evidenced
by New Senior Subordinated Notes) and (vi) the retention by existing shareholders of 100% of the newly issued Class B Common Stock (which would not be diluted by any conversion of

11

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the New Preferred Stock) and certain warrants for up to an additional 9.5% of the reorganized Company's common stock, as of the effective date of reorganization (which would be subject to dilution by
conversion of the New Preferred Stock), exercisable at specified value targets for the Company. In connection with the new investment, GOF had agreed to act as a standby purchaser
to ensure that all of the shares of New Preferred Stock offered by the Company were purchased and that the new investment generated gross proceeds of $50.0 million in cash and resulted in
$25.0 million of exit letters of credit in place. The Company was to pay GOF a fee of $500,000 for acting as standby purchaser in connection with the new investment.

At
a hearing, which took place on August 15, 2002, and concluded on August 20, 2002, the South Carolina Bankruptcy Court approved the Company's Disclosure Statement
relating to the Plan of Reorganization, as amended and filed on August 21, 2002, over the Committee's objection. The Plan was not confirmed and thus the Company filed the Modified Plan as more
fully discussed below and in Note 28. "Recapitalization."

Chapter 11 Costs and Financial Restructuring Expenses

Prior to the Petition Date, the Company classified expenses related to its financial restructuring efforts as "Special charges" in the consolidated statement of
operations. Such charges consist of professional and other related services that have been expensed as incurred. After the Petition Date, costs related to the Company's reorganization activities are
also expensed as incurred and have been classified as "Chapter 11 reorganization expenses" in accordance with SOP 90-7. The cumulative amount of costs and expenses related to the Company's
financial restructuring efforts, including bank financing fees, through fiscal 2002 have been approximately $26.0 million.

Recapitalization

On November 27, 2002, the Company filed the Joint Amended Modified Plan of Reorganization (the "Modified Plan"). The Modified Plan consisted of:
(i) the restructuring of the Prepetition Credit Facility, including a payment (the "Secured Lender Payment") of $50.0 million on the Effective Date to the agent for the benefit of the
Senior Secured Lenders under the Prepetition Credit Facility, which Secured Lender Payment was exclusive of the proceeds (the "Chicopee Sale Proceeds") from the sale of the South Brunswick facility
owned by Chicopee, Inc., (ii) payment of 100% of the Chicopee Sale Proceeds to the agent for the benefit of the Senior Secured Lenders, (iii) a minimum $5.0 million
additional prepayment out of existing cash-on-hand, (iv) the retirement of in excess of $591.5 million of the Debtors' obligations under the Senior Subordinated
Notes, wherein each Holder of the Senior Subordinated Notes and other general unsecured creditors (other than claims of certain vendors who supplied goods and services to the Debtors during the
bankruptcy and with whom the Debtors intended to do business after emerging from bankruptcy ("Critical Vendor Claims") and claims held by non-debtor subsidiaires of the Company ("Intercompany
Claims")) (together constituting the "Class 4 Claims") had the right to receive on, or as soon as practicable after the Effective Date, (x) its pro rata share of Class A Common
Stock in exchange for each $1,000 of its allowed claim or (y) at the election of each holder who was a Qualified Institutional Buyer (as defined in the Modified Plan and the 1933 Securities
Act), its pro rata share of Class C Common Stock, (v) the Critical Vendor Claims and Intercompany Claims were not impaired, (vi) each holder of an allowed Class 4 Claim
that elected to receive Class A Common Stock was given the option to take part in the new investment in the Convertible Notes (the "New Investment") by choosing to exercise its subscription
rights (the "Subscription Rights") thereto, which New Investment of $50 million was made in exchange for 10% subordinated convertible notes due 2006 (the "Convertible Notes"), (vii) GOF
issued,
or caused to be issued, letters of credit in the aggregated amount of $25 million (the "Exit Letters of Credit") in favor of the agent under the Restructured Credit Facilities pursuant to a
bank term sheet, for which GOF was entitled to 10% senior subordinated notes due 2007 (the "New Senior Subordinated Notes") equal to the amount (if any) drawn against the Exit Letters of Credit (plus
any

12

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advances made by GOF solely in lieu of drawings under the Exit Letters of Credit), (viii) holders of the Company's existing common stock ("Old Polymer Common Stock") received 100% of the
Class B Common Stock (which will not be diluted by any conversions of the Convertible Notes) in exchange for their Old Polymer Common Stock interests; such holders also received pro rata shares
of the new Series A and Series B Warrants (as discussed below).

Under
the Modified Plan, all common stock of the reorganized Company (the "New Polymer Common Stock") was the same class (the "Class A Common Stock"), with the exception of
(i) separate classes (the "Class D Common Stock" and "Class E Common Stock") to be issued upon exercise of the Series A and Series B Warrants (as defined below),
(ii) the 4% of New Polymer Common Stock designated as "Class B Common Stock" issued to the holders of Old Polymer Common Stock, and (iii) a small percentage (the "Class C
Common Stock") issued to holders of Class 4 Claims, who contributed such stock to the Special Purpose Entity ("SPE"). The Class C Common Stock shall pay a dividend payable equal to the
lesser of (i) 1% per annum of the principal amount of the promissory notes issued by the SPE or (ii) $1.0 million per annum. Shares of New Polymer Common Stock (other than
Class A Common Stock) are convertible into shares of Class A Common Stock on a one-for-one basis.

The
holders of Old Polymer Common Stock received two series of warrants, the Series A Warrants and Series B Warrants, which have (i) customary adjustments for stock
splits, stock dividends, and consolidations, (ii) specified anti-dilution protection for sales of securities by the reorganized Company ("New Polymer") at a price below the fair
market value of such securities if offered to all New Polymer common stock holders and (iii) specified anti-dilution protection for sales of securities by New Polymer at a discount
that exceeds 25% of the fair market value of such securities and which will not terminate upon a transaction with GOF or an affiliate of GOF. Except as set forth in the preceding sentence, the
Series A and Series B Warrants do not have anti-dilution provisions. In addition, the cash dividend payment by New Polymer described above in connection with the
Class C Common Stock is excluded from the calculation of cumulative distributions for all purposes relating to the Series A Warrants, the Series B Warrants, the Class D
Common Stock and the Class E Common Stock. The New Polymer Common Stock received by the holders of Class 4 Claims and the Holders of Old Polymer Common Stock and which will be issued
upon conversion of the Convertible Notes is subject to dilution upon the exercise of the Series A Warrants and Series B Warrants.

The
Modified Plan also provided that, on the Effective Date, in consideration of GOF acting as the standby purchaser for the New Investment, and in consideration of GOF's role in
facilitating a consensual resolution of the disputes among the parties involved in the negotiation of the Modified Plan, New Polymer paid GOF a Standby Purchaser fee of $2.0 million and an
arrangement and plan facilitation fee of $2.0 million.

Refer
to "Certain Indebtedness" for a discussion of the Senior Subordinated Note Purchase Agreement (as defined) and the Convertible Subordinated Notes (as defined) pursuant to the
Modified Plan.

Recent Developments

On March 11, 2003, the Company's Chief Executive Officer was replaced by James L. Schaeffer. The Company and its former Chief Executive Officer are
currently involved in a dispute with respect to the amount and timing of certain severance payments to be made to its former Chief Executive Officer, as well as other matters.

On
April 11, 2003, GOF entered into an agreement with the Company (the "GOF Agreement") pursuant to which GOF agreed to undertake certain actions solely for the purpose of
assisting the Company in maintaining compliance with the financial covenants contained in the Restructured Credit Facility during the period beginning on March 6, 2003, and ending on
January 4, 2004 as follows. GOF has agreed to amend the New Senior Subordinated Note (as defined) and the Junior Notes (as defined) it beneficially owns or controls (approximately
$38 million aggregate principal amount) to provide that

13

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interest that accrues from March 6, 2003 until January 31, 2005 on the New Senior Subordinated Note and from March 6, 2003 until January 5, 2004 on the Junior Notes, may be paid
by the Company issuing additional aggregate principal amount of debt securities rather than paying such interest in cash. In the event the Company is unable to meet the senior leverage covenant,
interest covenant or adjusted interest covenant contained in the Restructured Credit Facility, the Company is permitted to instruct the Agent under the Restructured Credit Agreement to make a drawing
under the Exit Letter of Credit and apply the amount of the drawing to repay indebtedness under the Restructured Credit Facility. GOF also has agreed that, in the event the Company is unable to comply
with the leverage covenant under the Restructured Credit Facility, GOF will convert such amount of its Junior Notes into Class A Common Stock. Finally, in the event the Company has undertaken all the
actions described above and is unable to meet the interest covenant solely for the 12-month period ending on the last day of the Company's third fiscal quarter of 2003, GOF will purchase up to
$10 million aggregate principal amount of additional senior subordinated notes (with interest payable in additional principal amount of senior subordinated notes) or equity securities (the "New
Investment") in order to allow the Company to repay indebtedness under the Restructured Credit Facility to meet such covenant. GOF's obligation to take any of these steps is conditioned on Amendment
No. 1 remaining in full force and effect.

As
of March 29, 2003, the Company and the Senior Secured Lenders under the Restructured Credit Facility, entered into Amendment No. 1. Amendment No. 1 permitted the Company to
take the actions described in the GOF Agreement, and also provides that in the event the Company repays indebtedness under the Restructured Credit Facility using the proceeds from the Exit Letter of
Credit or New Investment, for purposes of the interest and adjusted interest covenants, the interest savings to the Company is calculated on a pro forma basis as if the cash pay indebtedness had been
repaid as of March 6, 2003.

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DESCRIPTION OF CERTAIN INDEBTEDNESS

DIP FacilityOn May 13, 2002, the Debtors filed a motion seeking authority for the Company to
enter into a credit facility of up to $125 million in debtor-in-possession financing with JPMorgan Chase Bank as administrative agent, which was approved by the
Bankruptcy Court on May 29, 2002. Under such terms, the Company, as borrower, was permitted to make revolving credit borrowings in an amount not exceeding the lesser of $125 million or
the Borrowing Base (as defined in the DIP Facility). The DIP Facility was to terminate and the borrowings thereunder were to be due and payable upon the earliest of (i) the maturity date (i.e.
May 30, 2003), (ii) the date of the substantial consummation of a plan of reorganization that was confirmed pursuant to an order by the Bankruptcy Court and (iii) the acceleration
of the revolving credit loans made by any of the banks who were a party to the DIP Facility and the termination of the total commitment under the DIP Facility. The interest rate applicable to
borrowings under the DIP Facility and financial covenants were customary for financings of this type. Borrowings under the DIP Facility were guaranteed by each of the Company's direct and indirect
domestic subsidiaries. There were no borrowings under the DIP Facility. The DIP Facility was terminated concurrently with the Company's emergence from Chapter 11.

Prepetition Credit FacilityThe Company's Credit Facility (as amended through and including Amendment No. 7 the
"Prepetition Credit Facility") provided for secured revolving credit borrowings with aggregate commitments of up to $325.0 million and aggregate term loans of $275.0 million. Subject to
certain terms and conditions, a portion of the Prepetition Credit Facility could be used for letters of credit of which approximately $13.9 million was outstanding on December 28, 2002.
Amendment No. 6 imposed a limit of $260.0 million under the revolving portion of the Prepetition Credit Facility for borrowings and outstanding letters of credit, with not more than
$15.0 million of such revolving borrowings permitted to be outstanding in Canadian dollar equivalent borrowings. Each and all of the direct and indirect domestic subsidiaries of the Company
guaranteed all indebtedness under the Prepetition Credit Facility, on a joint and several basis. The Prepetition Credit Facility and the related guarantees were secured by (i) a lien on
substantially all of the assets of the Company and its domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain
non-domestic subsidiaries of the Company, (iii) a lien on substantially all of the assets of direct foreign borrowers (to secure direct borrowings by such borrowers), and
(iv) a pledge of certain secured intercompany notes issued to the Company or one or more of its subsidiaries by non-domestic subsidiaries. Commitment fees under the Prepetition
Credit Facility were generally equal to a percentage of the daily-unused amount of such commitment. The Prepetition Credit Facility contained covenants and events of default customary for financings
of this type, to include leverage, fixed charge coverage and net worth. The revolving portion of the Prepetition Credit Facility was to terminate in June 2003. The term loan portion was to
terminate in December 2005 and December 2006. The loans were subject to mandatory prepayment out of proceeds received in connection with certain casualty events, asset sales and debt
issuances.

The
interest rate applicable to borrowings under the Prepetition Credit Facility was based on, in the case of U.S. dollar denominated loans, a specified base rate or a specified
Eurocurrency base rate for U.S. dollars, at the Company's option, plus a specified margin. In the event that a portion of the Prepetition Credit Facility was denominated in Dutch guilders, the
applicable interest rate was to be based on the specified Eurocurrency base rate for Dutch guilders, plus a specified margin. In the event that a portion of the Prepetition Credit Facility was to be
denominated in Canadian dollars, the applicable interest rate is based on the specified Canadian base rate plus a specified margin or the bankers' acceptance discount rate at the Company's option.

Under
the terms of the Forbearance Agreement with the Senior Secured Lenders, the Company was prevented from making any additional borrowings under the Prepetition Credit Facility in
excess of the amounts outstanding on December 30, 2001. In addition, all borrowings under the Prepetition Credit

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Facility were required to be made under the base rate option. The Prepetition Credit Facility was restructured concurrently with the Company's emergence from Chapter 11.

Senior Subordinated NotesIn March 1998, the Company issued $200 million of 83/4% Senior
Subordinated Notes due 2008 (the "March 1998 Notes") in a private placement transaction pursuant to an indenture dated as of March 1, 1998. In August 1998, the Company completed
its exchange of $200 million of the March 1998 Notes, Series B (the "83/4% Senior Subordinated Notes") which have been registered for public trading for all
outstanding March 1998 Notes. In July 1997, the Company issued $400 million of 9% Senior Subordinated Notes due 2007 (the "July 1997 Notes") in a private placement
transaction pursuant to an indenture dated as of July 1, 1997. In October 1997, the Company completed its exchange of the $400 million of July 1997 Notes, Series B
(the "9% Senior Subordinated Notes"), which were registered for public trading for all the outstanding July 1997 Notes. The 83/4% Senior Subordinated Notes and the 9% Senior
Subordinated Notes (collectively, the "Senior Subordinated Notes") were unsecured senior subordinated indebtedness of the Company and were subordinated in right of payment to all existing and future
senior indebtedness of the Company. The Senior Subordinated Notes were restructured concurrently with the Company's emergence from Chapter 11.

Subsidiary IndebtednessThe Company's China-based majority owned subsidiary ("Nanhai") has a bank facility with a financial
institution in China which is scheduled to mature in April 2004. At December 28, 2002, the approximate amount of outstanding indebtedness under the facility was $9.5 million. The Nanhai
indebtedness is guaranteed 100% by the Company and to support this guarantee, a letter of credit has been issued by the Company's agent bank in the amount of $10.0 million. As a result of the
Company's 80% majority ownership of Nanhai and full guarantee of the Nanhai bank debt, all amounts outstanding under the Nanhai bank facility are reflected in the Company's consolidated balance sheet.
The Company's Argentina-based majority owned subsidiary ("DNS") has two bank facilities denominated in U.S. dollars of approximately $7.1 million at December 28, 2002 with current
maturities of approximately $3.7 million. The facilities are scheduled to mature in 2004 and 2005 respectively. The full amount of such indebtedness is reflected on the Company's consolidated
balance sheet at December 28, 2002 as a result of the Company's 60% majority ownership of this subsidiary; however, the minority shareholder guarantees 40% of such
indebtedness. In order to support working capital requirements at Vateks Tekstil Sayani ve Ticaret AS ("Vateks"), an 80% majority owned subsidiary in Istanbul, Turkey, the Company has deposited
through the European parent company of Vateks, approximately $6.5 million with a member of its European bank group who in turn has funded an approximate equivalent amount to Vateks. This
deposit secures the amount owed by Vateks to the bank member.

Restructured Credit FacilityAs part of the Company's emergence from Chapter 11, the Prepetition Credit Facility was
restructured into the Third Amended, Restated and Consolidated Credit Agreement dated as of March 5, 2003 (the "Restructured Credit Facility"). The Restructured Credit Facility provides for
secured revolving credit borrowings with aggregate commitments of up to $50.0 million and aggregate term loans and term letters of credit of $435.3 million. Subject to certain terms and
conditions, a portion of the Restructured Credit Facility may be used for revolving letters of credit. All borrowings under the Restructured Credit Facility are U.S. dollar denominated and are
guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company and certain non-domestic subsidiaries of the Company. The
Restructured Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the Company, its domestic subsidiaries and certain of its
non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain non-domestic subsidiaries of the
Company, and (iii) a pledge of certain secured intercompany notes issued to the Company or one or more of its subsidiaries by non-domestic subsidiaries. Commitment fees under the
Restructured Credit Facility are equal to 0.75% of the daily unused amount of the revolving credit commitment. The Restructured Credit Facility contains covenants and events of default customary for
financings of this type, including

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leverage, senior leverage, interest coverage and adjusted interest coverage. The Restructured Credit Facility terminates on December 31, 2006. The loans are subject to mandatory prepayment out
of proceeds received in connection with certain casualty events, asset sales and debt and equity issuances and from excess cash flow.

The
interest rate applicable to borrowings under the Restructured Credit Facility is based on a specified base rate or a specified Eurodollar base rate, at the Company's option, plus a
specified margin. The applicable margin for revolving credit loans bearing interest based on the base rate is 2.75%, and the margin for revolving credit loans bearing interest on a Eurodollar rate is
3.75%. The applicable margin for term loans bearing interest based on the base rate will range from 4.00% to 8.00%, and the margin for term loans bearing interest on a Eurodollar rate will range from
5.00% to 9.00%, in each case based on the Company's ratio of senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis. In addition, if the Company's ratio of
senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis exceeds 5.00 to 1, the Company is required to pay to the term loan lenders and the term letter of
credit lenders a fee of 1.00% on the outstanding balance under the term loans and the term letters of credit.

Senior Subordinated Note Purchase AgreementIn order to facilitate the issuance of a New Senior Subordinated Note in the
amount of any drawing under the Exit Letter of Credit, MatlinPatterson Global Partners LLC, ("Matlin Global Partners") a limited liability company organized under the laws of Delaware, the Company and
its domestic subsidiaries, as guarantors, entered into a Senior Subordinated Note Purchase Agreement (the "Senior Subordinated Note Purchase Agreement"),
dated as of March 5, 2003, and pursuant thereto, the Company issued to Matlin Global Partners a New Senior Subordinated Note. The Senior Subordinated Note Purchase Agreement and Senior
Subordinated Note provide that upon any drawing under the Exit Letter of Credit, the principal amount due under the New Senior Subordinated Note will automatically increase by the amount of such
drawing. The Company is required to pay interest on any amount outstanding under the New Senior Subordinated Note semi-annually in arrears on January 1 and June 1 of each
year, commencing on June 1, 2003, at a rate of 10% per annum, and default interest in an amount of 2% per annum will be payable on the principal amount in addition to the existing 10% rate. The
Company shall, to the extent lawful, pay interest at a rate of 12% per annum on overdue interest. The Company's obligations under the Senior Subordinated Note Purchase Agreement and Senior
Subordinated Note are guaranteed by the Company's domestic subsidiaries. Both the Company's obligations under the Senior Subordinated Note and the guarantees thereof are subordinate to the
indebtedness outstanding under the Company's Restructured Credit Facility. The Senior Subordinated Note Purchase Agreement contains customary representations and warranties and standard default terms.
Additionally, the Senior Subordinated Note Purchase Agreement contains affirmative and negative covenants of the Company with respect to (a) delivery of information, (b) transactions
with affiliates, (c) limitation on indebtedness, (d) disposition of proceeds of asset sales, (e) limitation on restricted payments, (f) corporate existence, (g) limitation
on liens, (h) future domestic subsidiary guarantors, (i) designation of unrestricted subsidiaries, and (j) mergers and similar transactions involving the Company or the
guarantors.

Convertible Subordinated NotesIn connection with the emergence from Chapter 11, the Company issued $50 million
of 10% Convertible Subordinated Notes due 2007 (the "Junior Notes") pursuant to an indenture dated as of March 5, 2003 (the "Junior Indenture"). The Junior Notes are unsecured subordinated
indebtedness of the Company and are subordinated in right of payment to all existing and future indebtedness of the Company which is not, by its terms, expressly junior to, or pari passuwith, the
Junior Notes. The Junior Notes are convertible into shares of Class A Common Stock, at an initial conversion price equal to
$7.29 per share. The Junior Indenture contains several covenants, including limitations on: (i) indebtedness; certain restricted payments; liens; transactions with affiliates; dividend and
other

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payment restrictions affecting certain subsidiaries; guarantees by certain subsidiaries; certain transactions including merger and asset sales; and (ii) certain restrictions regarding the
disposition of proceeds of asset sales.

Safe Harbor Statement

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

ITEM 2. PROPERTIES

The Company and its subsidiaries operate the following principal manufacturing plants and other facilities, all of which are owned, except as noted. All of the
Company's owned properties are subject to liens in favor of the lenders under the Company's credit facilities.

|Location                              |  | Total
Square Feet |     | Principal Function                                                       
|------------------------------------- |  | ----------------- | --- | -------------------------------------------------------------------------
|North Little Rock, Arkansas (Plant 1) |  | 415,000           |     | Manufacturing and Warehousing                                            
|North Little Rock, Arkansas (Plant 2) |  | 119,000           |     | Manufacturing and Warehousing                                            
|Rogers, Arkansas                      |  | 238,000           |     | Manufacturing and Warehousing                                            
|Gainesville, Georgia                  |  | 121,000           | (1) | Manufacturing and Warehousing                                            
|Kingman, Kansas                       |  | 190,000           |     | Manufacturing, Marketing, Warehousing and Administration                 
|Dayton, New Jersey                    |  | 23,000            | (2) | Administration and Marketing                                             
|Landisville, New Jersey               |  | 245,000           |     | Manufacturing, Sales, Marketing and Research and Development             
|Vineland, New Jersey                  |  | 83,500            | (3) | Warehousing                                                              
|Albany, New York                      |  | 83,000            | (1) | Manufacturing and Warehousing                                            
|Benson, North Carolina                |  | 469,000           |     | Manufacturing, Sales, Marketing and Warehousing                          
|Raleigh, North Carolina               |  | 5,300             | (1) | Administration                                                           
|Mooresville, North Carolina           |  | 114,300           |     | Manufacturing, Sales, Marketing, Research and Development and Warehousing
|Mooresville, North Carolina           |  | 10,577            | (1) | Administration, Sales and Marketing                                      
|Mooresville, North Carolina           |  | 356,000           |     | Manufacturing, Warehousing and Administration                            
|Portland (Clackamas), Oregon          |  | 30,000            |     | Manufacturing                                                            
|North Charleston, South Carolina      |  | 16,500            | (7) | Corporate                                                                

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|Clearfield, Utah         |  | 100,000 | (1) | Manufacturing and Warehousing                                            
|------------------------ |  | ------- | --- | -------------------------------------------------------------------------
|Waynesboro, Virginia     |  | 207,000 |     | Manufacturing, Warehousing, Marketing and Research and Development       
|Waynesboro, Virginia     |  | 125,500 | (1) | Warehousing                                                              
|Mississauga, Ontario     |  | 2,900   | (1) | Sales and Marketing                                                      
|North Bay, Ontario       |  | 350,000 |     | Manufacturing                                                            
|North Bay, Ontario       |  | 80,000  | (1) | Warehousing                                                              
|Magog, Quebec            |  | 732,000 |     | Manufacturing, Marketing, Warehousing and Administration                 
|Bailleul, France         |  | 410,000 | (1) | Manufacturing, Marketing, Warehousing and Administration                 
|Neunkirchen, Germany     |  | 560,000 |     | Manufacturing, Sales, Marketing and Warehousing                          
|Cuijk, The Netherlands   |  | 415,000 |     | Manufacturing, Sales, Marketing, Warehousing and Research and Development
|Tilburg, The Netherlands |  | 29,052  | (1) | Administration                                                           
|Buenos Aires, Argentina  |  | 79,000  | (4) | Manufacturing, Marketing, Warehousing and Administration                 
|Guadalajara, Mexico      |  | 6,200   | (1) | Sales, Marketing and Warehousing                                         
|Cali, Colombia           |  | 68,000  |     | Manufacturing, Marketing, Warehousing and Administration                 
|Monterrey, Mexico        |  | 2,325   | (1) | Sales, Marketing and Warehousing                                         
|Mexico City, Mexico      |  | 9,850   | (1) | Sales, Marketing and Warehousing                                         
|San Luis Potosi, Mexico  |  | 100,000 |     | Manufacturing, Warehousing and Marketing                                 
|Istanbul, Turkey         |  | 113,700 | (5) | Manufacturing, Marketing, Warehousing and Administration                 
|Nanhai, China            |  | 213,050 | (6) | Manufacturing, Marketing, Warehousing and Administration                 
|Molnlycke, Sweden        |  | 37,000  | (1) | Manufacturing                                                            
|Guntown, Mississippi     |  | 100,000 | (1) | Manufacturing and Warehousing                                            

---

19

---

ITEM 3. LEGAL PROCEEDINGS

The Company is currently a party to various claims and legal actions that arise in the ordinary course of business. The Company currently believes such claims and
legal actions, individually and in the aggregate, will not have a material adverse effect on the business, financial condition or results of operations of the Company.

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

On November 27, 2002, the Company distributed its Modified Plan to its security holders which was voted on and approved by such holders as of
January 16, 2003.

PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The following table sets forth for the calendar periods the high and low market price of the Company's common stock. Prior to March 5, 2003, all of the
Company's common stock was in one class. Pursuant to the Modified Plan, on March 5, 2003, the Company's common stock was divided into five classes: Class A, Class B,
Class C, Class D and Class E. The Class A, Class B and Class C common stock will trade on the OTC Bulletin Board. As of March 5, 2003, 8,125,869 shares
of Class A, 399,978 shares of Class B and 118,449 shares of Class C common stock were outstanding. An additional 1,355,480 shares of Class A common stock has been reserved
for issuance pending the outcome of certain claims against the Company in connection with the Modified Plan. No shares of Class D or Class E common stock were outstanding as of such
date. The Restructured Credit Facility prevents payments of dividends on all classes of common stock, except for Class C. Dividends on the Class C common stock are limited to an
aggregate amount not exceeding $1.0 million in any fiscal year. The ticker symbols for the Class A and Class B common stock are POLGA and POLGB, respectively. No ticker symbol has
been assigned to the Class C common stock.

2002High

LowFirst Quarter

$
1.00

$
0.20Second Quarter


0.65


0.07Third Quarter


0.18


0.10Fourth Quarter


0.16


0.05


2001High

LowFirst Quarter

$
7.68

$
0.90Second Quarter


3.50


1.15Third Quarter


3.40


1.30Fourth Quarter


1.95


0.66


20

---



ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain historical financial information of the Company. The statement of operations data for each of the five years ended and the
balance sheet data as of December 28, 2002, December 29, 2001, December 30, 2000, January 1, 2000 and January 2, 1999 have been derived from audited financial
statements. The table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the financial statements of the Company and related
notes thereto and other information included elsewhere in this Annual Report on Form 10-K.

|                                                                                                                                                          |                                                                                                                                  | Year Ended |         
|--------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ---------- | --------
|
|
|Statement of Operations:                                                                                                                                  |                                                                                                                                  |            |         
|Net sales                                                                                                                                                 |                                                                                                                                  | $          | 755,691 
|Cost of goods sold                                                                                                                                        |                                                                                                                                  |            | 635,486 
|                                                                                                                                                          |                                                                                                                                  |            |         
|                                                                                                                                                          | Gross profit                                                                                                                     |            |         
|Selling, general and administrative expenses                                                                                                              |                                                                                                                                  |            | 101,622 
|Asset impairment                                                                                                                                          |                                                                                                                                  |            | 317,898 
|Plant realignment costs                                                                                                                                   |                                                                                                                                  |            | 1,054   
|Special charges                                                                                                                                           |                                                                                                                                  |            | 3,634   
|Other unusual items                                                                                                                                       |                                                                                                                                  |            | 2,608   
|                                                                                                                                                          |                                                                                                                                  |            |         
|                                                                                                                                                          | Operating income (loss)                                                                                                          |            |         
|Other (income) expense:                                                                                                                                   |                                                                                                                                  |            |         
|                                                                                                                                                          | Interest expense, net                                                                                                            |            |         
|                                                                                                                                                          | Investment loss (gain), net                                                                                                      |            |         
|                                                                                                                                                          | Foreign currency and other                                                                                                       |            |         
|                                                                                                                                                          | Income taxes (benefit)                                                                                                           |            |         
|                                                                                                                                                          |                                                                                                                                  |            |         
|                                                                                                                                                          | Income (loss) before chapter 11 reorganization costs, extraordinary item and cumulative effect of change in accounting principle |            |         
|Chapter 11 reorganization expenses                                                                                                                        |                                                                                                                                  |            | (14,873 
|Extraordinary item, net of income taxes (benefit)                                                                                                         |                                                                                                                                  |            |        
|Cumulative effect of change in accounting principle, net of income tax benefit                                                                            |                                                                                                                                  |            | (12,774 
|                                                                                                                                                          |                                                                                                                                  |            |         
|Net income (loss)                                                                                                                                         |                                                                                                                                  | $          | (419,637
|                                                                                                                                                          |                                                                                                                                  |            |         
|Per Share Data:                                                                                                                                           |                                                                                                                                  |            |         
|Income (loss) before chapter 11 reorganization costs, extraordinary item and cumulative effect of change in accounting principle per common sharebasic   |                                                                                                                                  | $          | (12.25  
|                                                                                                                                                          |                                                                                                                                  |            |         
|Income (loss) before chapter 11 reorganization costs, extraordinary item and cumulative effect of change in accounting principle per common sharediluted |                                                                                                                                  | $          | (12.25  
|                                                                                                                                                          |                                                                                                                                  |            |         
|Cash dividends                                                                                                                                            |                                                                                                                                  | $          |        
|                                                                                                                                                          |                                                                                                                                  |            |         
|Operating and other data:                                                                                                                                 |                                                                                                                                  |            |         
|Cash provided by operating activities                                                                                                                     |                                                                                                                                  | $          | 35,343  
|Cash provided by (used in) investing activities                                                                                                           |                                                                                                                                  |            | (10,554 
|Cash provided by (used in) financing activities                                                                                                           |                                                                                                                                  |            | (15,367 
|Gross margin (a)                                                                                                                                          |                                                                                                                                  |            | 15.9    
|EBITDA (b)                                                                                                                                                |                                                                                                                                  | $          | 82,922  
|EBITDA margin (c)                                                                                                                                         |                                                                                                                                  |            | 11.0    
|Depreciation and amortization                                                                                                                             |                                                                                                                                  | $          | 64,339  
|Capital expenditures                                                                                                                                      |                                                                                                                                  |            | 15,379  
|Balance sheet data (at end of period):                                                                                                                    |                                                                                                                                  |            |         
|Cash and equivalents and short-term investments                                                                                                           |                                                                                                                                  | $          | 58,147  
|Working capital (deficit)                                                                                                                                 |                                                                                                                                  |            | 219,905 
|Total assets                                                                                                                                              |                                                                                                                                  |            | 811,319 
|Total debt, not subject to compromise                                                                                                                     |                                                                                                                                  |            | 503,374 
|Minority interest (d)                                                                                                                                     |                                                                                                                                  |            | 11,681  
|Shareholders' equity (deficit)                                                                                                                            |                                                                                                                                  |            | (465,914

See Notes to Selected Consolidated Financial Data

21

---

Notes to Selected Consolidated Financial Data



22

---



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated
results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in Item 8 of this report on
Form 10-K. In particular, this discussion should be read in conjunction with Note 3. "Chapter 11 Proceedings" and Note 28. "Recapitalization", which describe the
filing by the Company and its domestic subsidiaries of voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code on May 11, 2002 and the financial
restructuring associated with the Company's emergence from Chapter 11 effective March 5, 2003.

Results of Operations

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

|                                                                                                                                                         |                            | Fiscal Year Ended |     
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ----------------- | ----
|
|Net sales                                                                                                                                                |                            | 100.0%            |     
|Cost of goods sold:                                                                                                                                      |                            |                   |     
|                                                                                                                                                         | Material                   |                   | 44.8
|                                                                                                                                                         | Labor                      |                   | 8.9 
|                                                                                                                                                         | Overhead                   |                   | 30.4
|                                                                                                                                                         |                            |                   |     
|                                                                                                                                                         |                            | 84.1              |     
|                                                                                                                                                         |                            |                   |     
|                                                                                                                                                         | Gross profit               |                   | 15.9
|Selling, general and administrative expenses                                                                                                             |                            | 13.4              |     
|Asset impairment                                                                                                                                         |                            | 42.1              |     
|Plant realignment costs                                                                                                                                  |                            | 0.1               |     
|Special charges                                                                                                                                          |                            | 0.5               |     
|Other unusual items                                                                                                                                      |                            | 0.3               |     
|                                                                                                                                                         |                            |                   |     
|Operating income (loss)                                                                                                                                  |                            | (40.5             | )   
|Other expense:                                                                                                                                           |                            |                   |     
|                                                                                                                                                         | Interest expense, net      |                   | 9.5 
|                                                                                                                                                         | Investment loss, net       |                   | 0.2 
|                                                                                                                                                         | Foreign currency and other |                   | 2.0 
|                                                                                                                                                         |                            |                   |     
|                                                                                                                                                         |                            | 11.7              |     
|                                                                                                                                                         |                            |                   |     
|Loss before Chapter 11 reorganization expenses, income tax expense (benefit), extraordinary item and cumulative effect of change in accounting principle |                            | (52.2             | )   
|Chapter 11 reorganization expenses                                                                                                                       |                            | 2.0               |     
|                                                                                                                                                         |                            |                   |     
|Loss before income tax expense (benefit), extraordinary item and cumulative effect of change in accounting principle                                     |                            | (54.2             | )   
|Income tax (benefit)                                                                                                                                     |                            | (0.4              | )   
|                                                                                                                                                         |                            |                   |     
|Loss before extraordinary item and cumulative effect of change in accounting principle                                                                   |                            | (53.8             | )   
|Extraordinary item, net of income taxes                                                                                                                  |                            |                  |     
|Cumulative effect of change in accounting principle                                                                                                      |                            | (1.7              | )   
|                                                                                                                                                         |                            |                   |     
|Net loss                                                                                                                                                 |                            | (55.5             | )%  
|                                                                                                                                                         |                            |                   |     

23

---

Comparison of Year Ended December 28, 2002 and December 29, 2001

The following table sets forth components of the Company's net sales and operating income (loss) by market segment and operating division for 2002 and the
corresponding decrease from 2001:

Fiscal Year% Change2002

2001

ChangeMarket SegmentNet salesConsumer

$
417.9

$
463.6

$
(45.7
)
(9.9
)%Industrial and specialty


337.8


352.0


(14.2
)
(4.0
)$
755.7

$
815.6

$
(59.9
)
(7.3
)Operating income (loss)Consumer

$
21.8

$
29.1

$
(7.3
)
(25.1
)%Industrial and specialty


(3.2
)

(1.9
)

(1.3
)
68.418.6


27.2


(8.6
)
(31.6
)Asset impairment


(317.9
)

(181.2
)

(136.7
)
75.4Plant realignment costs


(1.1
)

(7.4
)

6.3

(85.1
)Special charges and other unusual items


(6.2
)

(1.9
)

(4.3
)
226.3$
(306.6
)
$
(163.3
)
$
(143.3
)
87.8Operating DivisionNet salesNonwovens

$
609.5

$
666.4

$
(56.9
)
(8.5
)%Oriented Polymers


146.2


149.9


(3.7
)
(2.5
)Eliminations





(0.7
)

0.7

$
755.7

$
815.6

$
(59.9
)
(7.3
)Operating income (loss)Nonwovens

$
13.7

$
19.2

$
(5.5
)
(28.6
)%Oriented Polymers


6.2


9.4


(3.2
)
(34.0
)Unallocated Corporate


(1.3
)

(0.3
)

(1.0
)
333.3Eliminations





(1.1
)

1.1

18.6


27.2


(8.6
)
(31.6
)Asset impairment


(317.9
)

(181.2
)

(136.7
)
75.4Plant realignment costs


(1.1
)

(7.4
)

6.3

(85.1
)Special charges and other unusual items


(6.2
)

(1.9
)

(4.3
)
226.3$
(306.6
)
$
(163.3
)
$
(143.3
)
87.8


24

---

Net Sales

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

Net sales2001

$
815.6Change in sales due to:Volume


(40.3
)Price/mix


(5.0
)Foreign currency


(14.6
)Net sales2002

$
755.7


Consolidated net sales were $755.7 million for 2002, a decrease of $(59.9) million or (7.3)% over 2001 net sales of $815.6 million. The decrease in
net sales was due primarily to lower sales volume and unfavorable foreign currencies versus the U.S. dollar. Sales volume decreased by $40.3 million and foreign currency had a negative impact
on net sales of $14.6 million. On a consolidated basis, price / mix was approximately $5.0 million lower in 2002 versus 2001.

Similar
economic and business issues negatively impacted both the Consumer and Industrial and Specialty segments during 2002 as the Company's world-wide business continued to
be unfavorably impacted by the financial restructuring efforts of the Chapter 11 process, including lost sales from existing customers. In addition, certain factors that contributed to lower than
anticipated net sales in fiscal 2001 continued to negatively affect net sales in 2002. Within the Company's Nonwovens business, lower sales volume, predominantly in the U.S. hygiene, industrial and
medical markets and lower sales volume within the European hygiene markets, offset volume gains in Latin America. Higher selling prices of $16.2 million were achieved in Argentina, but were
offset by lower pricing in the U.S., Europe and Mexico / Colombia of approximately $21.2 million. Additionally, Industrial and Specialty segment sales volume was lower year over year within the
Oriented Polymers Canadian businesses.

Foreign
currencies, predominantly in Argentina, were weaker against the U.S. dollar during 2002 compared to 2001. Further discussion of the effect of the devaluation of the Argentine
peso on the Company's results of operations is contained in the Investing and Financing Activities portion of "Foreign Currency Exchange Rate Risk" in this Annual Report on
Form 10-K.

25

---

Operating Income (Loss)

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

Operating loss2001

$
(163.3
)Change in operating income (loss) due to:Asset impairment, plant realignment, special charges and other unusual items


(134.7
)Volume


(17.5
)Cost savings and other initiatives related to plant realignment and business restructuring


30.6Lower depreciation and amortization expense


13.9Price / mix


(5.0
)Raw materials


(11.1
)Foreign currency


(5.2
)Higher administrative costs associated with historic Dominion entities


(1.1
)All other


(13.2
)Operating loss2002

$
(306.6
)


Consolidated operating loss was $(306.6) million in 2002. Excluding unusual items, which consist of asset impairment, plant realignment, special charges and other
unusual items, consolidated operating income was approximately $18.6 million in 2002, a decrease of $(8.6) million or (31.7)%, over operating income before unusual items of $27.2 million
in 2001. The decrease in operating income before unusual items was due to volume declines of $17.5 million predominantly within the Nonwovens U.S. hygiene, industrial and medical markets and
European hygiene markets, weaker foreign currencies versus the U.S. dollar of $5.2 million, higher raw material costs of $11.1 million, lower price / mix of $5.0 million and all
other, including higher manufacturing cost of $13.2 million offset by cost savings and other initiatives related to plant realignment and business restructuring of $30.6 million and
lower depreciation and amortization charges of $13.9 million. In addition, administrative costs associated with historic Dominion entities were approximately $1.1 million higher in 2002
as compared to 2001. Refer to Note 23. "Certain Matters" for a discussion of the MSA between the Company and Galey. Such costs are quantified as a component in the Industrial and Specialty
segment.

Geographically,
selling prices increased $16.2 million in the Company's Argentina business, but were offset by lower pricing in the U.S., Europe and Mexico / Colombia of
approximately $21.2 million. Raw material costs increased approximately $7.8 million in Argentina which somewhat offset the favorable pricing achieved year over year within this
geographic region.

As
discussed in Note 3. "Chapter 11 Proceedings" and Note 9. "Business Restructuring," the Company undertook a comprehensive financial and business restructuring of its
operations in the latter part of fiscal 2001 in response to a confluence of negative economic and business factors. The restructuring has continued on a smaller scale through 2002. Accordingly, the
cash component of the restructuring during 2002 has included workforce reductions and plant realignment predominantly in certain of the Oriented Polymers U.S. Industrial and Specialty business.
Manufacturing and operating cost savings were realized within each business segment in 2002 as a result of the restructuring initiatives. However, volume declines and higher operating cost
predominantly in the U.S. and weak foreign currency translation rates versus the U.S. dollar in Argentina, offset the cost savings achieved in 2002 within the Nonwovens Consumer and Industrial and
Specialty segments. Additionally, the Oriented Polymers business within the Industrial and Specialty segment produced lower operating earnings in 2002 versus prior year due predominantly to lower
sales volume and higher raw material and manufacturing costs. The restructuring program previously discussed also entailed the write down of long-lived assets, thus,

26

---

non-cash depreciation and amortization expenses were lower in 2002 versus 2001 due to a lower depreciable fixed asset base in the U.S. and Europe and to the adoption of FAS 142
which requires that goodwill and intangibles with indefinite lives no longer be systematically amortized, but tested for impairment on at least an annual basis.

Asset Impairment, Plant Realignment and Other Unusual Charges

Based on further reviews of the Company's long-lived assets and the continued decline in operating profits over the course of 2002, the Company
recorded a non-cash charge in 2002 of approximately $317.9 million, consisting of the write-down of goodwill and other intangibles ($83.9 million) and machinery,
equipment and buildings ($234.0 million) related predominantly to production assets within the U.S. and European Nonwovens business in accordance with FAS 142 and FAS 144.
Approximately $1.1 million in charges were recognized in 2002 related to the continuation of the plant realignment and business restructuring program. The total charge consisted primarily of
personnel costs within the Company's Oriented Polymers business. During 2002, the Company recorded non-cash charges of $2.6 million related to pension and
post-retirement benefit costs pursuant to Galey's contemplated rejection of the MSA. Such costs consist of retiree benefits associated with certain Canadian benefit plans of Dominion that
were previously shared with Galey. The Company classified these non-cash costs under the caption "Other unusual items" in the consolidated statement of operations for 2002.

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

Interest Expense and Other

As of the Petition Date and in accordance with SOP 90-7, the Company discontinued accruing interest on the Senior Subordinated Notes and, as a result,
interest expense decreased $27.9 million from $99.4 million in 2001 to $71.5 million in 2002. Interest on the Prepetition Credit Facility and other debt increased slightly due to
debt remaining level quarter over quarter. The Company's effective borrowing rates during 2001 decreased; however, on April 11, 2001 and August 15, 2001, the Company's interest rate on
its outstanding borrowings under the Prepetition Credit Facility increased by 50 basis points at each date. Additionally, the Company's effective borrowing rate for 2002 increased by an additional 200
basis points as a result of the default under the Prepetition Credit Facility.

During
2002 the Company recognized investment losses of $1.8 million resulting predominantly from an unrealized, non-cash valuation loss on short term investments in
accordance with Emerging Issues Task Force Topic D-44 "Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair
Value." Such losses were previously classified as a component of Other Comprehensive Income (Loss) in the equity section of the balance sheet. The Company monetized its short-term
investment portfolio in connection with the Modified Plan during the first quarter of 2003. Foreign currency and other losses increased $10.0 million, from $5.4 million in 2001 to
$15.4 million in 2002 due primarily to the write-down of the Company's investment in the Saudi Line as discussed more fully in Note 20. "Foreign Currency and Other" and
minority interest adjustments.

Chapter 11 Reorganization Expenses and Special Charges

The Company incurred Chapter 11 reorganization expenses, including special charges, of $18.5 million during 2002. Such costs, consisting of professional
and other related services and compensation costs related the Company's key employee retention program pursuant to Chapter 11, are expensed as incurred and are directly related to the Company's
Chapter 11 reorganization efforts in

27

---

accordance with SOP 90-7. Prior to the Petition Date, debt restructuring costs were expensed as incurred and classified as "Special charges" in the consolidated statement of operations.

Income Taxes (Benefit)

The Company recorded an income tax benefit of $3.3 million in 2002, representing an effective tax benefit rate of 0.8%. The effective benefit rate differed
from the statutory benefit rate as a of result of an increase in the Company's valuation allowance between 2002 and 2001, recorded primarily to provide reserves for net operating losses substantially
generated during 2002 and to the non-deductible impairment charges recorded in fiscal 2002. During 2001, the Company recorded an income tax benefit of $25.8 million, representing an
effective benefit rate of approximately 9.4%. The effective benefit rate differed from the statutory rate during 2001 due primarily to non-deductible charges, predominantly goodwill and to
an increase in the Company's tax valuation allowance.

Implementation
of the Modified Plan will result in the Company recognizing cancellation of indebtedness income ("CODI"). All of the CODI will be excluded from taxable income. However,
the Company will be required to reduce certain of its tax attributes, including net operating loss carryforwards ("NOLs"), by an amount not to exceed the CODI it realized. In general, tax attributes
will be reduced at the close of the 2003 tax year in the following order: (i) net operating loss carryforwards; (ii) tax credits and capital loss carryforwards; and (iii) tax
basis in assets. The Company is currently in the process of determining the amount of CODI and the corresponding reduction of its tax attributes and/or asset basis. It is anticipated that the
Company's net operating loss carryforwards will be entirely eliminated in 2003 as a result of the reorganization under the Modified Plan.

Cumulative Effect of Change in Accounting Principle

The Company recognized a cumulative effect of a change in accounting principle related to goodwill of approximately $12.8 million during fiscal 2002
pursuant to FAS 142.

Net Loss

Net loss increased $172.1 million from a loss of $(247.6) million, or $(7.74) per diluted share, in 2001 to a loss of $(419.6) million, or $(13.11) per
diluted share, in 2002 as a result of the above mentioned factors.

28

---

Comparison of Year Ended December 29, 2001 and December 30, 2000

The following table sets forth components of the Company's net sales and operating income (loss) by market segment and operating division for 2001 and the
corresponding decrease from 2000:

Fiscal Year% Change2001

2000

ChangeMarket SegmentNet salesConsumer

$
463.6

$
486.3

$
(22.7
)
(4.7
)%Industrial and specialty


352.0


375.7


(23.7
)
(6.3
)$
815.6

$
862.0

$
(46.4
)
(5.4
)Operating income (loss)Consumer

$
29.1

$
62.2

$
(33.1
)
(53.3
)%Industrial and specialty


(1.9
)

22.4


(24.3
)
(108.5
)27.2


84.6


(57.4
)
(67.8
)Asset impairment


(181.2
)




(181.2
)
Plant realignment costs


(7.4
)




(7.4
)
Special charges and other
unusual items


(1.9
)




(1.9
)
$
(163.3
)
$
84.6

$
(247.9
)
(293.1
)Operating DivisionNet salesNonwovens

$
666.4

$
708.7

$
(42.3
)
(6.0
)%Oriented Polymers


149.9


153.3


(3.4
)
(2.2
)Eliminations


(0.7
)




(0.7
)
$
815.6

$
862.0

$
(46.4
)
(5.4
)Operating income (loss)Nonwovens

$
19.2

$
67.7

$
(48.5
)
(71.6
)%Oriented Polymers


9.4


16.9


(7.5
)
(44.4
)Unallocated Corporate


(0.3
)




(0.3
)
Eliminations


(1.1
)




(1.1
)
27.2


84.6


(57.4
)
(67.8
)Asset impairment


(181.2
)




(181.2
)
Plant realignment costs


(7.4
)




(7.4
)
Special charges and other
unusual items


(1.9
)




(1.9
)
$
(163.3
)
$
84.6

$
(247.9
)
(293.0
)


Net Sales

Consolidated net sales were $815.6 million in 2001, a decrease of $46.4 million or 5.4% over 2000 consolidated net sales of $862.0 million.
The decrease in net sales was due primarily to lower sales volume of $19.4 million that is discussed in more detail below. Foreign currency had a negative impact

29

---

on sales of $10.7 million and pricing pressure and product mix issues resulted in a decline in sales of $16.3 million.

Consumer
net sales were $463.6 million in 2001 compared to $486.3 million in 2000, a decrease of $22.7 million or 4.7%. Certain specialized manufacturing assets
continued to be underutilized due to certain high margin consumer products not returning to historical sales levels. Competitive pricing pressure continued within the spunmelt market resulting in
lower selling prices. Foreign currencies, predominantly in Europe and Canada were weaker against the U.S. dollar during 2001 compared to 2000. The reductions in sales have been partially offset by an
increase in medical supplies sales that had been declining.

Industrial
and Specialty net sales were $352.0 million in 2001 compared to $375.7 million in 2000, a decrease of $23.7 million or 6.3%. The Company continued to
experience product mix issues resulting in sales of lower margin products and lower selling prices. In addition, longer than anticipated commercialization periods for new products developed using the
APEX® technology resulted in delayed sales. Sales also decreased as a result of weaker foreign currencies, predominantly in Europe and Canada, against the U.S. dollar in 2001 compared to
2000.

Operating Income (Loss)

The consolidated operating loss for fiscal 2001 was $(163.3) million due primarily to unusual charges recorded during the fourth quarter that included asset
impairment, plant realignment and special charges as discussed below. Excluding the unusual items, consolidated operating income was $27.2 million in 2001, a decrease of $57.4 million or
67.8% from 2000 consolidated operating income of $84.6 million due to lower operating results in each business segment. Consumer operating income before unusual charges was $29.1 million
in 2001 compared to $62.2 million in 2000, a decrease of $33.1 million or 53.3%. Certain specialized manufacturing assets continued to be underutilized due to certain high margin
consumer products not returning to historical sales levels. Competitive pricing pressure continued within the spunmelt technology resulting in lower selling prices. Foreign currencies, predominantly
in Europe and Canada, were weaker against the U.S. dollar during 2001 compared to 2000. The cost of raw material inputs did not decrease as expected, and these costs could not be passed along to
customers due to soft demand. Total consolidated energy costs have increased from 2000 to 2001 by approximately $4.4 million. Selling, general and administrative costs increased approximately
$2.1 million as a result of the Company acquiring a majority share in its joint venture in Argentina during mid-2000 (See Note 4. "Acquisition").

Industrial
and Specialty operating loss before unusual charges was $(1.9) million in 2001 compared to $22.4 million in 2000, a decrease of $24.3 million or 108.5%. During
2001 the Company continued to experience product mix issues resulting in sales of lower margin products and lower selling prices. Commercialization periods for certain products developed using the
APEX® technology were longer than anticipated, and expected ramp-up of APEX® products failed to materialize during 2001 resulting in increased APEX®
costs over year 2000. In 2001 there was increased depreciation relating to the ramp up of the third APEX® line. Certain foreign currencies, predominantly in Europe and Canada, were weaker
against the U.S. dollar in 2001 versus 2000. Raw material inputs did not decrease as expected and these costs could not be passed along to customers due to soft demand. In addition, selling, general
and administrative costs were negatively affected by higher provisions for bad debt within certain businesses during fiscal 2001.

Asset Impairment, Plant Realignment and Special Charges

The Company anticipated that the confluence of negative factors would generally subside during the latter part of 2001, particularly during the fourth quarter.
However, the anticipated recovery within the Company's businesses did not develop as planned in the latter half of 2001; therefore, the Company

30

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undertook a comprehensive business restructuring involving manufacturing initiatives and workforce reductions, including voluntary attrition, of approximately 70 employees in the U.S. and
approximately 190 employees in Europe. As a result of the realignment, the Company recorded a pre-tax charge of $5.8 million during the three months ended December 29, 2001.
The total charge in the fourth quarter consisted of personnel and facility closing costs. In addition, during mid-2001, the Company undertook a smaller restructuring of its operations in
order to reduce costs, predominantly in the U.S., that primarily involved headcount reductions of approximately 90 employees.
Accordingly, the Company recorded a pre-tax charge of $1.7 million during the three months ended June 30, 2001.

In
connection with the restructuring undertaken in the fourth quarter of 2001, and based upon a comprehensive review of the Company's long-lived assets, the Company recorded
a non-cash charge of approximately $181.2 million for the write-down of goodwill and contract intangibles ($100.4 million) and machinery and equipment
($80.8 million) related primarily to production assets within the U.S. and European nonwovens business. After careful assessment of various factors relevant to these assets, including the
continuation of those factors previously described, combined with lower than expected operating results, particularly in the fourth quarter, and in connection with the comprehensive business
realignment previously discussed, the Company wrote-down the value of such assets to their estimated fair market value based on estimated discounted future cash flows or third party
appraisals. As part of the Company's restructuring, approximately $1.9 million of expenses were incurred in the fourth quarter of 2001 related to professional and other related services
provided in connection with the restructuring.

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

Interest Expense and Other

Interest expense increased $7.6 million, from $91.8 million in 2000 to $99.4 million in 2001. The increase in interest expense is due to a
higher average amount of indebtedness outstanding resulting from increased capital spending related to the Company's APEX® expansion, primarily during fiscal 2000. The increased interest
expense period over period was partially offset by a decrease in the Company's effective borrowing rates during 2001. However, on April 11, 2001 and August 15, 2001, the Company's
interest rate on its outstanding borrowings under the Prepetition Credit Facility increased by an additional 50 basis point.

During
the fourth quarter of 2001 the Company recognized investment losses of $5.3 million resulting from an unrealized, non-cash valuation loss on short term
investments deemed to be "other than temporary" under Staff Accounting Bulletin No. 59. Such losses were previously classified as a component of Other Comprehensive Income (Loss) in the equity
section of the balance sheet. Foreign currency losses increased to $5.4 million in 2001 from $0.5 million in 2000. As a result of the Argentine peso devaluation, the Company recognized a
foreign currency loss of approximately $2.7 million during December 2001, net of minority interest adjustments, related to its Argentina majority-owned subsidiary. During the second
quarter of 2000, the Company recorded a gain from the extinguishment of debt of $0.7 million, net of $0.4 million in taxes. Such gain was recorded as an extraordinary item in fiscal
2000.

As
a result of Amendment No. 6, the Company incurred a charge to continuing operations of approximately $0.4 million for the write-off of previously capitalized
loan acquisition costs in accordance with the Emerging Issues Task Force No. 98-14, "Debtors Accounting for Changes in Line-of-Credit or
Revolving-Debt Arrangements."

31

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Income Taxes (Benefit)

The Company recorded an income tax benefit of $25.8 million in 2001, representing an effective tax benefit rate of 9.4%. Excluding the unusual items
recorded during fiscal 2001, as previously discussed, the Company's effective tax benefit rate was approximately 28%. The effective benefit rate differed from the statutory benefit rate as a result of
non-deductible charges, predominantly goodwill, and to an increase in the Company's valuation allowance between fiscal 2001 and 2000, recorded primarily to provide reserves for net
operating losses substantially generated during 2001. During 2000 the Company recorded an income tax benefit of $2.7 million, representing an effective tax benefit rate of 35.0% before
extraordinary item.

Net Income (Loss)

Net income (loss) decreased $243.2 million from a loss of $(4.3) million, or $(0.13) per diluted share, in 2000 to a loss of $(247.6) million, or $(7.74)
per diluted share, in 2001 as a result of the above mentioned factors.

Liquidity and Capital Resources

December 28,
2002

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

$
58,147

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


219,905


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


244,521


204,681Total assets


811,319


1,232,214Total debt


1,092,364


1,099,230Shareholders' (deficit)


(465,914
)

(48,862
)


Fiscal Year EndedDecember 28,
2002

December 29,
2001(In Thousands)Cash flow data:Net cash provided by operating activities

$
35,343

$
10,496Net cash (used in) investing activities


(10,554
)

(21,377
)Net cash (used in) provided by financing activities


(15,367
)

34,417


Operating Activities

Net cash provided by operating activities was $35.3 million during 2002, an approximate $24.8 million increase from $10.5 million during 2001. The
Company's cash generation from operations in 2002 was positively impacted in an amount equal to $43.2 million, which is the amount of accrued interest on the Senior Subordinated Notes that was
reclassified to Liabilities Subject to Compromise. Cash used for operations was negatively impacted during 2002 and 2001 by continuing operating losses; however, as discussed more fully below, due to
the Company's Senior Secured Lenders exercising their right to block interest payments to holders of the Company's Senior Subordinated Notes, cash payments for interest were approximately
$51.3 million lower in 2002 versus 2001.

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The
Company had working capital of approximately $219.9 million at December 28, 2002. Excluding the current portion of indebtedness, working capital was
$244.5 million at December 28, 2002, compared to working capital, excluding current potion of indebtedness, at December 29, 2001 of $204.7 million. Accounts receivable on
December 28, 2002 was $117.4 million as compared to $125.6 million on December 29, 2001, a decrease of $8.2 million or approximately 6.5%. Accounts receivable
represented approximately 57 days of sales outstanding at December 28, 2002 as compared to 56 days outstanding on December 29, 2001. Inventories at December 28, 2002
were approximately $115.7 million, a decrease of $0.3 million over inventories at December 29, 2001 of $116.0 million. The Company had approximately 66 days of
inventory on hand at December 28, 2002 versus 63 days of inventory on hand at December 29, 2001, an increase of 4.8%. Accounts payable at December 28, 2002 was
$46.1 million as compared to $46.4 million on December 29, 2001, a decrease of $0.3 million or approximately 1.0%. Accounts payable represented 26 days of payables
outstanding at December 28, 2002 compared to 25 days of payables outstanding on December 29, 2001.

Prior
to the Petition Date, the Company classified expenses related to its financial restructuring efforts as "Special charges" in the consolidated statement of operations. Such charges
consist of professional and other related services that have been expensed as incurred. After the Petition Date, costs related to the Company's reorganization activities are also expensed as incurred
and have been classified as "Chapter 11 reorganization expenses" in accordance with SOP 90-7. The cumulative amount of costs and expenses related to the Company's financial restructuring
efforts, including bank financing fees, through fiscal 2002 have been approximately $26.0 million.

As
a result of the Company's financial condition, certain suppliers have requested alternative payment provisions. However, such alternative payment provisions have not currently had a
significant negative impact on the Company's liquidity.

Investing and Financing Activities

Capital expenditures during 2002 totaled $15.4 million, a decrease of $6.1 million from capital spending of $21.4 million in 2001. During the
fourth quarter of 2002, the Company entered into an agreement with Reifenhauser & Co. GmbH for the purchase and installation of a Reicofil 3.1 SSXS nonwovens production line ("Line 5") at its
San Luis Potosi, Mexico manufacturing site. The total commitment for Line 5 approximates $22.0 million, of which approximately $4.0 million was funded during the fourth quarter of 2002.
The remaining portion of the total commitment is expected to be funded during fiscal 2003 and 2004. The Company is evaluating certain financing alternatives for Line 5.

A
complete description of the Company's DIP Facility, Prepetition Credit Facility, Senior Subordinated Notes and Subsidiary Indebtedness is contained in Note 12. "Debt." The
Company's Restructured Credit Facility is described below. In addition, the Company's emergence from Chapter 11 is described in Note 28. "Recapitalization."

The
Company's Restructured Credit Facility provides for secured revolving credit borrowings with aggregate commitments of up to $50.0 million and aggregate term loans and term
letters of credit of $435.3 million. Subject to certain terms and conditions, a portion of the Restructured Credit Facility may be used for revolving letters of credit. All borrowings under the
Restructured Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company and certain
non-domestic subsidiaries of the Company. The Restructured Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the assets of the Company,
its domestic subsidiaries and certain of its non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain
non-domestic subsidiaries of the Company, and (iii) a pledge of certain secured intercompany notes issued to the Company or one or more of its subsidiaries by
non-domestic subsidiaries. Commitment fees under the Restructured Credit Facility are equal to 0.75% of the daily unused amount of the

33

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revolving credit commitment. The Restructured Credit Facility contains covenants and events of default customary for financings of this type, including leverage, senior leverage, interest coverage
and adjusted interest coverage. The Restructured Credit Facility terminates on December 31, 2006. The loans are subject to mandatory prepayment out of proceeds received in connection with
certain casualty events, asset sales and debt and equity issuances and from excess cash flow.

The
interest rate applicable to borrowings under the Restructured Credit Facility is based on a specified base rate or a specified Eurodollar base rate, at the Company's option, plus a
specified margin. The applicable margin for revolving credit loans bearing interest based on the base rate is 2.75%, and the margin for revolving credit loans bearing interest on a Eurodollar rate is
3.75%. The applicable margin for term loans bearing interest based on the base rate will range from 4.00% to 8.00%, and the margin for term loans bearing interest on a Eurodollar rate will range from
5.00% to 9.00%, in each case based on the Company's ratio of senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis. In addition, if the Company's ratio of
senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis
exceeds 5.00 to 1, the Company is required to pay to the term loan lenders and the term letter of credit lenders a fee of 1.00% on the outstanding balance under the term loans and the term letters of
credit.

During
the first quarter of fiscal 2001, the Company exercised an option to obtain a 45% minority position in a start-up nonwovens production line in Saudi Arabia (the "Saudi
Line"). Over the course of 2001, the Company funded approximately $4.4 million which represented its pro-rata share, of the construction costs of the Saudi Line. The Company was not
permitted to acquire more than a 45% interest in the Saudi Line pursuant to Amendment No. 6. Prior to the third quarter of 2002, the Company's equity stake in the Saudi Line was under review
pending finalization of the Investment Approval Application between and the Company and its partner which was required to be submitted for approval to the Saudi Arabian government. However, during the
third quarter of 2002, it became apparent that an agreement could not be reached between the Company and its partner concerning ownership and operation of the Saudi Line and accordingly, the Company
recorded a $4.4 million charge to earnings for the write-down of its investment in the Saudi Line during 2002. The Company is exploring its legal and other options and intends to
aggressively pursue recovering its investment in the Saudi Line.

On
December 19, 1997, DTA acquired substantially all of the outstanding common and first preferred shares of Dominion, and on January 29, 1998, DTA acquired all remaining
common and first preferred shares, at which time Dominion underwent a "winding-up." All assets and liabilities of Dominion were transferred to DTA and all outstanding common shares and
first preferred shares held by DTA were redeemed. Immediately thereafter, pursuant to a purchase agreement, dated October 27, 1997, the apparel fabrics business of Dominion was sold, at no gain
or loss, to Galey and the Company acquired the nonwovens and industrial fabrics operations. The Company and Galey finalized the acquisition cash settlement during 2000 pursuant to the MSA dated
January 29, 1998. The result of such settlement was not material to the Company's financial condition. Under the MSA, the Company and Galey are required to share in the payment of certain
on-going costs, including taxes, for historical Dominion entities as required by the MSA. Because the Company originally acquired Dominion, the Company generally makes the payments and is
reimbursed by Galey. On February 19, 2002, Galey and its U.S. operating subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code and began
operating their businesses as debtors-in-possession. During March 2002, Galey informed the Company of its intention to reject the MSA as part of its bankruptcy
proceedings. If approved by the Bankruptcy Court, Galey's contemplated rejection of the MSA would result in the Company being required to fund expenditures that should be allocated to, and paid by,
Galey, which could potentially have a material adverse effect on the Company. At December 28, 2002, the amounts due from Galey for 2002 shared cash activity pursuant to the MSA, including
amounts associated with statutory tax payments, approximated $1.4 million. The Company has fully reserved this balance at

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December 28, 2002 due to the uncertainty of collectibility at such date. All shared cash activity prior to the first quarter of 2002 relative to the MSA has been collected from Galey.

The
Board of Directors declared a quarterly dividend of $0.02 per share during the first quarter in 2001. Amendment No. 6 to the Prepetition Credit Facility prevented the Company
from paying dividends on its common stock. The Restructured Credit Facility prevents payments of dividends on all classes of common stock, except for Class C. Dividends on the Class C
common stock are limited to
an aggregate amount not exceeding $1.0 million in any fiscal year. The Company does not anticipate paying dividends on its common stock in future periods.

Commitments

The Company leases certain manufacturing, warehousing and other facilities and equipment under operating leases. The leases on most of the properties contain
renewal provisions. Rent expense (net of sub-lease income), including incidental leases, approximated $5.9, $4.5 and $5.9 million in 2002, 2001 and 2000, respectively. Rental income
approximated $1.9, $2.4 and $2.3 million in 2002, 2001 and 2000, respectively. As discussed in Note 5. "Property, Plant and Equipment," the Company sold its South Brunswick facility in
December 2002. Prior to this transaction, the Company leased the entire facility to a non-affiliated third party ("Medicia") and then sub-leased a portion of the
facility back from Medicia for use as administrative office space within the Nonwovens Division. As a result of the South Brunswick facility sale, the Company's rental income in future periods will be
substantially less than that recognized in prior years. The approximate net minimum rental payments required or due under operating leases that have initial or non-cancelable lease terms
in excess of one year as of December 28, 2002 are presented in the following table. The Company's corporate headquarters are housed in space leased by a shareholder of the Company from an
affiliate of the shareholder for an approximate annual rental charge of $0.2 million. Additionally, the Company leased a manufacturing facility from an affiliated entity that the Company
believed was comparable to similar properties in the area. The lease was terminated in January 2003 at no cost to the Company. Annual rent expense relating to this terminated lease approximated
$0.2 million in 2001, 2000 and 1999, respectively.

At
December 28, 2002, the Company had commitments of approximately $41.9 million related to the purchase of raw materials, maintenance and converting services and
approximately $23.2 million related to capital projects, including Line 5. In addition, the Company had outstanding letters of credit, including the Nanhai letter of credit, at
December 28, 2002 of approximately $13.9 million. A schedule of the Company's contractual and commercial commitments at December 28, 2002 is presented in tabular form below (in
thousands):

|                                      |                                        | Payments Due by Period
|------------------------------------- | -------------------------------------- | ----------------------
|
|
|Debt, including short-term borrowings |                                        | $                     
|Operating leases                      |                                        |                       
|                                      | Third party/nonaffiliate lease expense |                       
|                                      | Less: sub-lease income                 |                       
|                                      |                                        |                       
|                                      |                                        | $                     
|                                      |                                        |                       

|Other Commercial Commitments                                    |  |   |        |  |  |  |  |  |  |  |  |  |  | Total
Amounts
Committed
|--------------------------------------------------------------- |  | - | ------ |  |  |  |  |  |  |  |  |  |  | -----------------------
|Purchases of raw materials, maintenance and converting services |  | $ | 41,900
|Capital expenditures                                            |  |   | 23,200
|Letters of Credit, including Nanhai                             |  |   | 13,900

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Effect of Inflation and Foreign Currency

Inflation generally affects the Company by increasing the cost of labor, equipment and raw materials. The Company's substantial foreign operations expose it to
the risk of foreign currency exchange rate fluctuations. If foreign currency denominated revenues are greater than costs, the translation of foreign currency denominated costs and revenues into U.S.
dollars will improve profitability when the foreign currency strengthens against the U.S. dollar and will reduce profitability when the foreign currency weakens. For a discussion of raw materials and
certain adverse foreign
currency exchange rate fluctuations during 2002 and 2001, see "Quantitative and Qualitative Disclosures About Market Risk."

New Accounting Standards

Refer to Note 24. "New Accounting Standards" for a complete discussion of recently issued standards and their anticipated effect on the Company's results
of operations.

Critical Accounting Policies And Other Matters

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

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

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

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

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Business Combinations, Goodwill and Other Intangible Assets:In July 2001, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards No. 141 "Business Combinations" ("FAS 141") and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142").
FAS 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. Use of the pooling-of-interests
method is no longer permitted. FAS 141 also includes guidance on the initial recognition and measurement of goodwill and intangible assets acquired in a business combination that is completed
after June 30, 2001. FAS 142 supersedes Accounting Principles Bulletin No. 17, "Intangible Assets." FAS 142 primarily addresses the accounting for goodwill and intangible
assets subsequent to their acquisition. The most significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized,
(2) goodwill will be tested for impairment at least annually, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the
amortization period of intangible assets with finite lives will no longer be limited to forty years. FAS 142 is effective for fiscal years beginning after December 15, 2001. The Company
recognized a non-cash charge of $96.7 million, of which approximately $12.8 million was recognized as a cumulative effect of a change in accounting principle, for the
write-down of goodwill and other intangibles in accordance with FAS 142 during fiscal 2002.

Impairment of Long-Lived Assets:For all applicable periods through December 29, 2001, the Company
reviewed the recoverability of the carrying value of long-lived assets in accordance with Statement of Financial Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed Of" ("FAS 121"). The Company also reviewed long-lived assets for impairment whenever events or changes in circumstances
indicated that the carrying amount of such assets might not be recoverable. When the projected future undiscounted cash flows of the operations to which the assets relate did not exceed the carrying
value of the asset, the intangible assets were written down, followed by the other long-lived assets, to fair value. In October 2001, the Financial Accounting Standards Board issued
Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 provides accounting guidance for financial accounting and
reporting for the impairment or disposal of long-lived assets. The statement supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). It also supersedes the accounting and reporting provisions of APB Opinion No. 30
"Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" related to
the disposal of a segment of a business.
The statement is effective for fiscal years beginning after December 15, 2001. The company recognized a non-cash charge of $234.0 million for the write-down of
property, plant and equipment in accordance with FAS 144 during fiscal 2002.

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

Income Taxes:The Company records an income tax valuation allowance when the realization of certain deferred tax assets, net
operating losses and capital loss carryforwards is not likely. These deferred tax items represent expenses recognized for financial reporting purposes, which will result in tax deductions over varying
future periods. The Company has not provided U.S. income taxes for undistributed earnings of foreign subsidiaries that are considered to be retained indefinitely for reinvestment. Certain judgments,
assumptions and estimates may affect the carrying value of the valuation allowance and deferred income tax expense in the Company's consolidated financial statements.

37

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Environmental

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

Euro Conversion

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Long-Term Debt and Interest Rate Market Risk



The variable interest rate applicable to borrowings under the Prepetition Credit Facility was based on, in the case of U.S. dollar denominated loans, the base
rate referred to therein or the Eurocurrency rate referred to therein for U.S. dollars, at the Company's option, plus a specified margin. In the event that a portion of the Prepetition Credit Facility
was denominated in Dutch guilders, the applicable interest rate was based on the applicable Eurocurrency base rate referred to therein for Dutch guilders, plus a specified margin. In the event that a
portion of the Prepetition Credit Facility was denominated in Canadian dollars, the applicable interest rate was based on the Canadian base rate referred to therein, plus a specified margin, of the
Bankers' Acceptance discount rate referred to therein, at the Company's option. Under the Forbearance Agreement with the Senior Secured Lenders all borrowings were required to be made at the base
rate. At December 28, 2002, the Company had borrowings under the Prepetition Credit Facility of $484.4 million that were subject to interest rate risk. Each hypothetical 1.0% increase in
interest rates would have impacted pretax earnings by $4.8 million. The Company's Prepetition Credit Facility was restructured as part of the Modified Plan.



The fair market value of the Company's long-term fixed interest rate debt was also subject to interest rate risk. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as interest rates rise. The estimated fair value of the Company's long-term fixed-rate debt at
December 28, 2002 was approximately $118.3 million, which was less than its carrying value by approximately $473.2 million. A 100 basis points decrease in the prevailing interest
rates at December 28, 2002 would have resulted in an increase in the fair value of fixed rate debt by approximately $2.6 million. A 100
basis points increase in the prevailing interest rates at December 28, 2002 would have resulted in a decrease in fair value of total fixed rate debt by approximately $2.6 million. Fair
market values were determined from quoted market prices or based on estimates made by investment bankers. The Company's fixed rate debt was canceled as part of the Modified Plan.

38

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Foreign Currency Exchange Rate Risk

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

For
the year ended December 28, 2002, the result of a uniform 10% strengthening in the value of the dollar relative to the currencies in which the Company's sales are denominated
would have decreased operating income, before special items, by approximately $4.1 million. This calculation assumes that each exchange rate would change in the same direction relative to the
U.S. dollar. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting sales, changes in exchange rates also affect the volume of sales or the
foreign currency sales price as competitors' products become more or less attractive. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in
a potential change in sales levels or local currency prices.

The
Argentine peso, which serves as the functional currency of an Argentine majority-owned subsidiary of the Company, has devalued significantly against the U.S. dollar since the end of
fiscal 2001 due primarily to the economic uncertainty within this region. As a result of the Argentine peso devaluation, the Company has recognized a foreign currency loss of approximately
$3.0 million, net of minority interest adjustments, for the year ended December 28, 2002.

Raw Material and Commodity Risks

The primary raw materials used in the manufacture of most of the Company's products are polypropylene and polyester fiber, polyethylene and polypropylene resin,
and, to a lesser extent, rayon, tissue paper and cotton. The prices of polypropylene and polyethylene are a function of, among other things, manufacturing capacity, demand and the price of crude oil
and natural gas liquids. Raw material prices as a percentage of sales increased from 41.0% in 2000 to 43.9% in 2001 to 44.8% in 2002. The increase in raw material cost has had a negative impact on
operating income because all of the increase could not be passed along to customers.

During
January 2003, several suppliers of key raw materials, including polypropylene and polyethylene, announced price increases to take effect beginning as early as
February 2003. To the extent the Company is not able to pass along all or a portion of such increased prices of raw materials, the Company's cost of goods sold would increase and its EBITDA
would correspondingly decrease. By way of example, if the price of polypropylene were to rise $.01 per pound, and the Company was not able to pass along any of such increase to its customers, the
Company would realize a decrease of approximately $2.0 million on an annualized basis in its reported EBITDA. There can be no assurance that the prices of polypropylene and polyethylene will
not continue to increase in the future or that the Company will be able to pass on any increases to its customers. Material increases in raw material prices that cannot be passed on to customers could
have a material adverse effect on the Company's results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" within this
Annual Report on Form 10-K.

39

---



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

|Report of Ernst & Young LLP, Independent Auditors                                                                                               |  | 41
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|Consolidated Balance Sheets as of December 28, 2002 and December 29, 2001                                                                       |  | 42
|Consolidated Statements of Operations for the fiscal years ended December 28, 2002, December 29, 2001 and December 30, 2000                     |  | 43
|Consolidated Statements of Shareholders' Equity (Deficit) for the fiscal years ended December 28, 2002, December 29, 2001 and December 30, 2000 |  | 44
|Consolidated Statements of Cash Flows for the fiscal years ended December 28, 2002, December 29, 2001 and December 30, 2000                     |  | 45
|Notes to Consolidated Financial Statements for the fiscal years ended December 28, 2002, December 29, 2001 and December 30, 2000                |  | 46

40

---



REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The
Board of Directors and Shareholders
Polymer Group, Inc.

We
have audited the accompanying consolidated balance sheets of Polymer Group, Inc. as of December 28, 2002 and December 29, 2001 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 28, 2002. Our audits also included the financial statement schedule
listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Polymer Group, Inc. at
December 28, 2002 and December 29, 2001 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 28, 2002 in
conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the information set forth therein.

As
discussed in Note 2 to the Consolidated Financial Statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets.

/s/ Ernst &
Young LLP

Greenville,
South Carolina
March 21, 2003, except
for Note 30, as to
which the date is
April 11, 2003

41

---



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

|                                                                               |                                                                                                                                                 | December 28,
2002 |                                               | December 29,
2001 |  
|------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------- | ----------------- | --------------------------------------------- | ----------------- | -
|A S S E T S                                                                    |                                                                                                                                                
|Current assets:                                                                |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               | Cash and equivalents                                                                                                                            |                   | $                                             | 45,901            |  
|                                                                               | Short-term investments                                                                                                                          |                   |                                               | 12,246            |  
|                                                                               | Accounts receivable, net                                                                                                                        |                   |                                               | 117,420           |  
|                                                                               | Inventories                                                                                                                                     |                   |                                               | 115,696           |  
|                                                                               | Deferred income taxes                                                                                                                           |                   |                                               | 7,063             |  
|                                                                               | Other                                                                                                                                           |                   |                                               | 38,173            |  
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               |                                                                                                                                                 |                   | Total current assets                          |                   |  
|Property, plant and equipment, net                                             |                                                                                                                                                 |                   | 429,528                                       |                   |  
|Intangibles and loan acquisition costs, net                                    |                                                                                                                                                 |                   | 33,357                                        |                   |  
|Deferred income taxes                                                          |                                                                                                                                                 |                   | 66                                            |                   |  
|Other                                                                          |                                                                                                                                                 |                   | 11,869                                        |                   |  
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               |                                                                                                                                                 |                   | Total assets                                  |                   | $
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  
|L I A B I L I T I E S    A N D    S H A R E H O L D E R S'    
(D E F I C I T) |                                                                                                                                                
|Liabilities Not Subject to Compromise                                          |                                                                                                                                                 |                   |                                               |                   |  
|Current liabilities:                                                           |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               | Accounts payable                                                                                                                                |                   | $                                             | 46,068            |  
|                                                                               | Accrued liabilities                                                                                                                             |                   |                                               | 42,923            |  
|                                                                               | Income taxes payable                                                                                                                            |                   |                                               | 1,886             |  
|                                                                               | Deferred income taxes                                                                                                                           |                   |                                               | 567               |  
|                                                                               | Short-term borrowings                                                                                                                           |                   |                                               | 534               |  
|                                                                               | Current portion of long-term debt                                                                                                               |                   |                                               | 24,616            |  
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               |                                                                                                                                                 |                   | Total current liabilities                     |                   |  
|Long-term debt, less current portion                                           |                                                                                                                                                 |                   | 478,224                                       |                   |  
|Deferred income taxes                                                          |                                                                                                                                                 |                   | 22,046                                        |                   |  
|Other noncurrent liabilities                                                   |                                                                                                                                                 |                   | 23,263                                        |                   |  
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  
|Total liabilities not subject to compromise                                    |                                                                                                                                                 |                   | 640,127                                       |                   |  
|Liabilities Subject to Compromise                                              |                                                                                                                                                 |                   | 637,106                                       |                   |  
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               |                                                                                                                                                 |                   | Total liabilities                             |                   |  
|Shareholders' (deficit):                                                       |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               | Series preferred stock$.01 par value, 10,000,000 shares authorized, 0 shares issued and outstanding                                            |                   |                                               |                  |  
|                                                                               | Common stock$.01 par value, 100,000,000 shares authorized, 32,004,200 shares issued and outstanding at December 28, 2002 and December 29, 2001 |                   |                                               | 320               |  
|                                                                               | Non-voting convertible common stock$.01 par value, 3,000,000 shares authorized, 0 shares issued and outstanding                                |                   |                                               |                  |  
|                                                                               | Additional paid-in capital                                                                                                                      |                   |                                               | 243,722           |  
|                                                                               | (Deficit)                                                                                                                                       |                   |                                               | (661,572          | )
|                                                                               | Accumulated other comprehensive (loss)                                                                                                          |                   |                                               | (48,384           | )
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               |                                                                                                                                                 |                   | (465,914                                      | )                 |  
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  
|                                                                               |                                                                                                                                                 |                   | Total liabilities and shareholders' (deficit) |                   | $
|                                                                               |                                                                                                                                                 |                   |                                               |                   |  

See accompanying notes.

42

---

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

|                                                                                                                                                         |                                                                                                                     | For the Fiscal Years Ended |                                                                                       
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------------------------------------------------------------------------------------
|
|Net sales                                                                                                                                                |                                                                                                                     | $                          | 755,691                                                                               
|Cost of goods sold                                                                                                                                       |                                                                                                                     |                            | 635,486                                                                               
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|Gross profit                                                                                                                                             |                                                                                                                     |                            | 120,205                                                                               
|Selling, general and administrative expenses                                                                                                             |                                                                                                                     |                            | 101,622                                                                               
|Asset impairment                                                                                                                                         |                                                                                                                     |                            | 317,898                                                                               
|Plant realignment costs                                                                                                                                  |                                                                                                                     |                            | 1,054                                                                                 
|Special charges                                                                                                                                          |                                                                                                                     |                            | 3,634                                                                                 
|Other unusual items                                                                                                                                      |                                                                                                                     |                            | 2,608                                                                                 
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|Operating income (loss)                                                                                                                                  |                                                                                                                     |                            | (306,611                                                                              
|Other expense:                                                                                                                                           |                                                                                                                     |                            |                                                                                       
|                                                                                                                                                         | Interest expense, net (contractual interest of $110,052 for the period from May 11, 2002 through December 28, 2002) |                            |                                                                                       
|                                                                                                                                                         | Investment loss, net                                                                                                |                            |                                                                                       
|                                                                                                                                                         | Foreign currency and other                                                                                          |                            |                                                                                       
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|                                                                                                                                                         |                                                                                                                     |                            | 88,669                                                                                
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|Loss before Chapter 11 reorganization expenses, income tax expense (benefit), extraordinary item and cumulative effect of change in accounting principle |                                                                                                                     |                            | (395,280                                                                              
|Chapter 11 reorganization expenses                                                                                                                       |                                                                                                                     |                            | 14,873                                                                                
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|Loss before income tax expense (benefit), extraordinary item and cumulative effect of change in accounting principle                                     |                                                                                                                     |                            | (410,153                                                                              
|Income tax expense (benefit)                                                                                                                             |                                                                                                                     |                            | (3,290                                                                                
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|Loss before extraordinary item and cumulative effect of change in accounting principle                                                                   |                                                                                                                     |                            | (406,863                                                                              
|Extraordinary item, net of taxes of $399                                                                                                                 |                                                                                                                     |                            |                                                                                      
|Cumulative effect of change in accounting principle, net of tax                                                                                          |                                                                                                                     |                            | 12,774                                                                                
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|Net loss                                                                                                                                                 |                                                                                                                     | $                          | (419,637                                                                              
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|Net loss per common share:                                                                                                                               |                                                                                                                     |                            |                                                                                       
|                                                                                                                                                         | Basic:                                                                                                              |                            |                                                                                       
|                                                                                                                                                         |                                                                                                                     |                            | Average common shares outstanding                                                     
|                                                                                                                                                         |                                                                                                                     |                            | Loss before extraordinary item and cumulative effect of change in accounting principle
|                                                                                                                                                         |                                                                                                                     |                            | Extraordinary item, net of tax                                                        
|                                                                                                                                                         |                                                                                                                     |                            | Cumulative effect of change in accounting principle, net of tax                       
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|                                                                                                                                                         |                                                                                                                     |                            | Net loss per common share                                                             
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|                                                                                                                                                         | Diluted:                                                                                                            |                            |                                                                                       
|                                                                                                                                                         |                                                                                                                     |                            | Average common shares outstanding                                                     
|                                                                                                                                                         |                                                                                                                     |                            | Loss before extraordinary item and cumulative effect of change in accounting principle
|                                                                                                                                                         |                                                                                                                     |                            | Extraordinary item, net of tax                                                        
|                                                                                                                                                         |                                                                                                                     |                            | Cumulative effect of change in accounting principle, net of tax                       
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|                                                                                                                                                         |                                                                                                                     |                            | Net loss per common share                                                             
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       
|Cash dividends per share                                                                                                                                 |                                                                                                                     | $                          |                                                                                      
|                                                                                                                                                         |                                                                                                                     |                            |                                                                                       

See accompanying notes.

43

---



POLYMER GROUP, INC.        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)  For the Fiscal Years Ended December 28, 2002, December 29, 2001 and December 30, 2000  (In
Thousands, Except Share Data)

|                                                                                      |  | Common Stock |  |   |     |  |   | Accumulated
Other
Comprehensive
Income (Loss) |  |   |          |   |  
|------------------------------------------------------------------------------------- |  | ------------ |  | - | --- |  | - | --------------------------------------------- |  | - | -------- | - | -
|
|
|BalanceJanuary 1, 2000                                                               |  | 32,001,800   |  | $ | 320 |  | $ | 243,688                                       |  | $ | 13,149   |   | $
|Comprehensive income for the year ended January 1, 2000                               |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|                                                                                      |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|Net (loss)                                                                            |  |             |  |   |    |  |   |                                              |  |   | (4,323   | ) |  
|Foreign currency translation adjustments, net of income tax benefit of $8,804         |  |             |  |   |    |  |   |                                              |  |   |         |   |  
|Unrealized holding (loss) on marketable securities, net of income tax benefit of $279 |  |             |  |   |    |  |   |                                              |  |   |         |   |  
|Dividends paid                                                                        |  |             |  |   |    |  |   |                                              |  |   | (2,560   | ) |  
|Exercise of stock options                                                             |  | 2,400        |  |   |    |  |   | 34                                            |  |   |         |   |  
|                                                                                      |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|Balance December 30, 2000                                                             |  | 32,004,200   |  |   | 320 |  |   | 243,722                                       |  |   | 6,266    |   |  
|Comprehensive (loss) for the year ended December 30, 2000                             |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|                                                                                      |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|Net (loss)                                                                            |  |             |  |   |    |  |   |                                              |  |   | (247,561 | ) |  
|Foreign currency translation adjustments, including income tax adjustments of $7,543  |  |             |  |   |    |  |   |                                              |  |   |         |   |  
|Unrealized holding gain on marketable securities, net of tax benefit of $1,908        |  |             |  |   |    |  |   |                                              |  |   |         |   |  
|Dividends paid                                                                        |  |             |  |   |    |  |   |                                              |  |   | (640     | ) |  
|                                                                                      |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|Balance December 29, 2001                                                             |  | 32,004,200   |  |   | 320 |  |   | 243,722                                       |  |   | (241,935 | ) |  
|Comprehensive (loss) for the year ended December 29, 2001                             |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|                                                                                      |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|Net (loss)                                                                            |  |             |  |   |    |  |   |                                              |  |   | (419,637 | ) |  
|Foreign currency translation adjustments, including income tax adjustments of $12,000 |  |             |  |   |    |  |   |                                              |  |   |         |   |  
|Unrealized holding gain on marketable securities                                      |  |             |  |   |    |  |   |                                              |  |   |         |   |  
|Minimum pension liability, net of tax                                                 |  |             |  |   |    |  |   |                                              |  |   |         |   |  
|                                                                                      |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|BalanceDecember 28, 2002                                                             |  | 32,004,200   |  | $ | 320 |  | $ | 243,722                                       |  | $ | (661,572 | ) | $
|                                                                                      |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|Comprehensive (loss) for the year ended December 28, 2002                             |  |              |  |   |     |  |   |                                               |  |   |          |   |  
|                                                                                      |  |              |  |   |     |  |   |                                               |  |   |          |   |  

See accompanying notes.

44

---

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

|                                           |                                                                             | For the Fiscal Years Ended                                                    |      
|------------------------------------------ | --------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | -----
|
|Operating activities                       |                                                                             |                                                                               |      
|                                           |                                                                             | Net loss                                                                      |      
|                                           | Adjustments to reconcile loss to net cash provided by operating activities: |                                                                               |      
|                                           |                                                                             | Asset impairment                                                              |      
|                                           |                                                                             | Loss on investments                                                           |      
|                                           |                                                                             | Extraordinary item, net of tax                                                |      
|                                           |                                                                             | Depreciation and amortization expense                                         |      
|                                           | Changes in operating assets and liabilities, net of effect of acquisitions: |                                                                               |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             | Other, net                                                                    |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|Investing activities                       |                                                                             |                                                                               |      
|                                           |                                                                             | Purchases of property, plant and equipment                                    |      
|                                           |                                                                             | Proceeds from sales of marketable securities classified as available for sale |      
|                                           |                                                                             | Acquisition of businesses, net of cash acquired                               |      
|                                           |                                                                             | Other, net                                                                    |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|Financing activities                       |                                                                             |                                                                               |      
|                                           |                                                                             | Proceeds from debt                                                            |      
|                                           |                                                                             | Payments of debt                                                              |      
|                                           |                                                                             | Dividends to shareholders                                                     |      
|                                           |                                                                             | Exercise of stock options                                                     |      
|                                           |                                                                             | Loan acquisition costs and other, net                                         |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|Effect of exchange rate changes on cash    |                                                                             |                                                                               | 8,248
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|                                           |                                                                             |                                                                               |      
|Noncash investing and financing activities |                                                                             |                                                                               |      
|Supplemental information                   |                                                                             |                                                                               |      
|                                           |                                                                             | Cash paid for interest, net of amounts capitalized                            |      
|                                           |                                                                             | Cash paid for income taxes                                                    |      
|Acquisition of businesses                  |                                                                             |                                                                               |      
|                                           |                                                                             | Fair value of assets acquired                                                 |      
|                                           |                                                                             | Liabilities assumed and incurred                                              |      
|                                           |                                                                             | Acquisition of businesses, net of cash acquired                               |      

See
accompanying notes.

45

---



POLYMER GROUP, INC.        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations

Polymer Group, Inc. (the "Company"), a global manufacturer and marketer of nonwoven and oriented polyolefin products, currently operates in two business
segments that include consumer and industrial and specialty. The Company incurred net losses of $419.6 million, $247.6 million and $4.3 million during fiscal 2002, 2001 and 2000,
respectively. As a result, a comprehensive financial and business restructuring was undertaken beginning in 2001 and continuing into 2002. After extensive reorganization efforts, the Company and each
of its domestic subsidiaries filed voluntary petitions for Chapter 11 reorganization under the United States Bankruptcy Code in the South Carolina Bankruptcy Court on May 11, 2002
(April 25, 2002 as to Bonlam (S.C.), Inc.). The Company and these subsidiaries have operated under the jurisdiction of the Bankruptcy Court since such filing. In its efforts to emerge
from Chapter 11, the Company filed a Modified Plan (as defined) on November 27, 2002 that was approved by the Bankruptcy Court on January 16, 2003 and accordingly, the Company emerged
from Chapter 11 effective March 5, 2003 (the "Effective Date"). A complete description of the Modified Plan is discussed in Note 28. "Recapitalization."

The
Modified Plan generally resulted in the: (i) restructuring of the Company's Prepetition Credit Facility by entering into a Restructured Credit Facility (each as defined);
(ii) retirement of in excess of $591.5 million of the Company's obligations under the Senior Subordinated Notes; (iii) payment in full of virtually all Critical Business Relations
Claims (as defined); and (iv) cancellation of the Company's old common stock and issuance of new common stock and warrants. The Company entered into Amendment No. 1 to the Restructured
Credit Facility ("Amendment No. 1"), effective as of March 29, 2003, to provide the Company with additional flexibility in meeting the financial covenants under terms of the Restructured
Credit Facility. A complete discussion of Amendment No. 1, and certain other matters is contained in Note 30. "Recent Developments and Subsequent Event."

Note 2. Significant Accounting Policies



The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and include
the accounts of the Company and its subsidiaries. The preparation of such financial statements assumes continuity of operations and realization of assets and satisfaction of liabilities in the
ordinary course of business. In accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," ("SOP 90-7"), all
liabilities subject to compromise have been segregated in the consolidated balance sheets and classified as Liabilities Subject to Compromise, at the estimated amount of allowable claims. Liabilities
Not Subject to Compromise are separately classified as current and non-current. Revenues, expenses, realized gains and losses, and provisions for costs resulting from the reorganization
are reported separately as reorganization items in the consolidated statements of operations. All material intercompany accounts are eliminated in consolidation. Certain amounts previously presented
in the consolidated financial statements for prior periods have been reclassified to conform to current classification. The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates. Investments in 20% to 50% owned affiliates are accounted for on the equity method. The Company's fiscal year ends on the Saturday closest to the last day in
December. There were 52 weeks in fiscal 2002, 2001 and 2000.

46

---



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



Investment securities that mature in three months or less from the date of purchase are considered cash equivalents. Interest and other income approximated $2.6,
$2.3 and $2.4 million during 2002, 2001 and 2000, respectively, and consists primarily of income from highly liquid investment sources. Interest expense in the consolidated statements of
operations is net of interest and other income and capitalized interest.



The Company accounts for its investments using Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115") which requires that certain debt and equity securities be adjusted to market value at the end of each accounting period. Market value gains and losses are charged to
earnings if the securities are traded for short-term profit. Otherwise, such gains and losses are charged or credited to the comprehensive income component of shareholders' equity. During
2001, the Company recognized investment losses of $5.3 million, resulting from an unrealized, non-cash valuation loss on short term investments deemed to be "other than temporary"
under Staff Accounting Bulletin No. 59. In addition, during 2002, the Company recognized losses of $2.2 million in accordance with Emerging Issues Task Force Topic D-44
"Recognition of Other-Than-Temporary Impairment upon the Planned Sale of a Security Whose Cost Exceeds Fair Value." Such losses, in each case, were previously classified as a
component of Other Comprehensive Income (Loss) in the equity section of the balance sheet. Management determines the proper classifications of investments at the time of purchase and reevaluates such
designation as of each balance sheet date. Realized gains and losses on sales of investments, as determined on the specific identification basis, are included in the determination of net income. As of
December 28, 2002, the Company's marketable securities were invested in equity securities with a market value of approximately $12.2 million, and were designated as available for sale.



Accounts receivable potentially expose the Company to concentration of credit risk, as defined by Statement of Financial Accounting Standards No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk." The Company provides credit in the normal
course of business and performs ongoing credit evaluations on certain of its customers' financial condition, but generally does not require collateral to support such receivables. The Company also
establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The Company identifies delinquent accounts
based on specific customer terms and typically does not accrue interest charges on customer balances. The recorded values are separately maintained, even those balances
that are fully reserved. Once management determines that the receivables are not recoverable, the amounts are removed from the financial records along with the corresponding reserve balance. The

47

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allowance for doubtful accounts was approximately $12.9 million and $12.0 million at December 28, 2002 and December 29, 2001, respectively which management believes is
adequate to provide for credit loss in the normal course of business, as well as losses for customers who have filed for protection under the bankruptcy law. In 2002, 2001 and 2000, The
Procter & Gamble Company ("P&G") accounted for 12%, 13% and 17%, respectively, of the Company's sales. In 2001 and 2000, Johnson & Johnson ("J&J") accounted for 13% and 14%,
respectively, of the Company's sales. J&J did not account for 10% or more of the Company's sales in 2002.



Inventories are stated at the lower of cost or market using the first-in, first-out method of accounting and, as of December 28,
2002 and December 29, 2001 consist of the following:

2002

2001(In Thousands)Finished goods

$
56,126

$
50,440Work in process


17,515


19,172Raw materials


42,055


46,341$
115,696

$
115,953




Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed for financial reporting purposes on the
straight-line method over the estimated useful lives
of the related assets. Historically, the estimated useful lives established for building and land improvements range from 18 to 33 years, and the estimated useful lives established for
machinery, equipment and other fixed assets range from 3 to 15 years. In future periods beginning with fiscal 2003, the estimated useful lives of such assets will be lower than prior periods.
Costs of the construction of certain long-term assets include capitalized interest that is amortized over the estimated useful life of the related asset. The Company capitalized
approximately $0.4, $1.5 and $6.6 million of interest costs during 2002, 2001 and 2000, respectively. Loan acquisition costs are amortized over the term of the related debt. The net book value
of loan acquisition costs at December 28, 2002 and December 29, 2001 approximated $23.9 million and $28.5 million, respectively.

In
July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets"
("FAS 142"). FAS 142 supersedes Accounting Principles Bulletin No. 17, "Intangible Assets." FAS 142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition. The most significant changes made by FAS 142 are: (1) goodwill and indefinite lived intangible assets will no longer be amortized, (2) goodwill
will be tested for impairment at least annually, (3) intangible assets deemed to have an indefinite life will be tested for impairment at least annually and (4) the amortization period
of intangible assets with finite lives will no longer be limited to forty years. FAS 142 is effective for fiscal years beginning after December 15, 2001. The Company recognized a
cumulative effect of a change in accounting principle of

48

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approximately $12.8 million related to goodwill during 2002 pursuant to FAS 142. Amortization expense for fiscal 2002, 2001 and 2000 is presented in the following table:

|                 |                               | 2002                                                                 |                            | 2001  |       | 2000  
|---------------- | ----------------------------- | -------------------------------------------------------------------- | -------------------------- | ----- | ----- | ------
|
|Amortization of: |                               |                                                                      |                            |       |       |       
|                 | Goodwill                      |                                                                      | $                          |      |       | $     
|                 | Intangibles with finite lives |                                                                      |                            | 3,496 |       |       
|                 |                               |                                                                      |                            |       |       |       
|                 |                               | Amortization included in selling, general and administrative expense |                            |       | 3,496 |       
|                 |                               | Loan acquisition costs included in interest expense, net             |                            |       | 7,217 |       
|                 |                               |                                                                      |                            |       |       |       
|                 |                               |                                                                      | Total amortization expense |       | $     | 10,713
|                 |                               |                                                                      |                            |       |       |       

Amortization expense will be lower in future periods as a result of the adoption of FAS 142 and the application of fresh start accounting
pursuant to the Company's emergence from Chapter 11 as discussed in Note 28. "Recapitalization" and Note 29. "Fresh Start Accounting." The Company's current estimate of the
aggregate amortization expense for the five succeeding periods is the following (in thousands): 2003 $4,543; 2004 $3,433; 2005 $1,890; 2006 $1,890; 2007 $0. The effect of not amortizing goodwill on
net loss for fiscal 2002, 2001 and 2000 is disclosed in the following table. The tax effect of goodwill amortization in prior year periods is not considered significant.

|                                   |  | 2002 |          | 2001 |   | 2000     |  
|---------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|
|
|As reported                        |  | $    | (419,637 | )    | $ | (419,637 | )
|Add back: Goodwill amortization    |  |      |         |      |   |         |  
|                                   |  |      |          |      |   |          |  
|Adjusted for goodwill amortization |  | $    | (419,637 | )    | $ | (419,637 | )
|                                   |  |      |          |      |   |          |  
|Earnings Per ShareBasic           |  |      |          |      |   |          |  
|As reported                        |  | $    | (13.11   | )    | $ | (13.11   | )
|Add back: Goodwill amortization    |  |      |         |      |   |         |  
|                                   |  |      |          |      |   |          |  
|Adjusted for goodwill amortization |  | $    | (13.11   | )    | $ | (13.11   | )
|                                   |  |      |          |      |   |          |  
|Earnings Per ShareDiluted         |  |      |          |      |   |          |  
|As reported                        |  | $    | (13.11   | )    | $ | (13.11   | )
|Add back: Goodwill amortization    |  |      |         |      |   |         |  
|                                   |  |      |          |      |   |          |  
|Adjusted for goodwill amortization |  | $    | (13.11   | )    | $ | (13.11   | )
|                                   |  |      |          |      |   |          |  

49

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For all periods through December 29, 2001, the Company reviewed the recoverability of the carrying value of long-lived assets in accordance
with Statement of Financial Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to be Disposed Of" ("FAS 121"). The Company also
reviewed long-lived assets for impairment whenever events or circumstances indicated that the carrying amount of such assets might not be recoverable. When the future undiscounted cash
flows of the operations to which the assets relate did not exceed the carrying value of the asset, the intangible assets were written down, followed by the other long-lived assets, to fair
value. As more fully discussed in Note 10. "Impairment of Long-Lived Assets," the Company recorded a non-cash asset impairment charge in fiscal 2001 of approximately
$181.2 million related to the write-down of goodwill and contract intangibles and property, plant and equipment.

In
October 2001, the Financial Accounting Standards Board issued Statement No.144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144").
FAS 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. The statement supersedes FAS 121 and also
supersedes the accounting and reporting provisions of APB Opinion No. 30 "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions," related to the disposal of a segment of a business. The statement is effective for fiscal years beginning after December 15, 2001.
As more fully discussed in Note 10. "Impairment of Long-Lived Assets," the Company recorded a non-cash asset impairment charge in fiscal 2002 of approximately
$317.9 million related to the write-down of goodwill and other intangibles and property, plant and equipment.



In 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Financial Instruments and Hedging Activities
("FAS 133") as amended, which the Company adopted effective December 31, 2000. FAS 133 establishes accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as assets or liabilities in the statement of financial position and
measure those instruments at fair value. FAS 133 contains disclosure requirements based on the type of hedge and the market risk that is being hedged. The adoption of FAS 133 at the
beginning of fiscal year 2001 had no material impact on the financial condition and operating results of the Company.



The Company has estimated the fair value amounts of financial instruments as required by Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments", using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to
develop the estimates of fair value. Accordingly, such estimates are not necessarily indicative of the amounts that the Company would realize in a current market exchange. The carrying amount of cash
and equivalents, short-term investments, accounts receivable, other assets and accounts payable are reasonable estimates of their fair values. The contract amounts of outstanding letters
of credit approximate their fair value. Fair value of the Company's debt was estimated using interest rates at those dates for issuance of such financial instruments with similar terms and credit
ratings and remaining maturities and other independent valuation methodologies. The estimated fair value of debt, based on appropriate valuation methodologies, at December 28, 2002 and
December 29, 2001 was $609.2 and $683.2 million, respectively.

50

---



The provision for income taxes and corresponding balance sheet accounts is determined in accordance with Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred tax liabilities and assets are determined based upon temporary differences between the basis of
certain assets and liabilities for income tax and financial reporting purposes. A valuation allowance is recognized if it is likely that some portion of a deferred tax asset will not be realized in
the future.



The cost of research and development is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated
statement of operations. The Company incurred approximately $16.3, $17.0 and $18.9 million of research and development expense during 2002, 2001 and 2000, respectively.



The cost of shipping and handling is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated statement
of operations. The Company incurred approximately $20.3, $22.1 and $19.2 million of shipping and handling costs, during 2002, 2001 and 2000, respectively.



The cost of selling and advertising is charged to expense as incurred and is included in selling, general and administrative expense in the consolidated statement
of operations. The Company incurred approximately $30.1, $29.4 and $29.1 million of selling and advertising costs, during 2002, 2001 and 2000, respectively.



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

As
more fully discussed in Note 4. "Acquisition," the Company has a majority-owned subsidiary located in Argentina. The Argentine peso, which serves as the functional currency of
this subsidiary, has devalued significantly against the U.S. dollar since the end of fiscal 2001 due primarily to the economic uncertainty within this geographic region. For a brief period of time
between the latter part of December 2001 and the first part of January 2002, trading in the Argentine peso was suspended. Thus, the AICPA International Task Force agreed that Emerging
Issues Task Force No. 12, "Foreign Currency TranslationSelection of Exchange Rate When Trading is Temporarily Suspended" ("EITF D-12") applies to the financial
statement translation. EITF D-12 notes that in instances where there is a temporary suspension in trading of a foreign currency, the rate in effect when trading is resumed should

51

---

be utilized. For reporting purposes in 2001, the January 11, 2002 market exchange rate (the floating rate) was used to translate transactions subsequent to December 20, 2001.
January 11, 2001 represented the date on which trading in this currency resumed. Foreign currency losses in 2001 related to the Argentine peso approximated $2.7 million, net of minority
interest adjustments. Foreign currency losses related to the Argentine peso in 2002 approximated $3.0 million, net of minority interest adjustments.



Comprehensive income (loss) is reported in accordance with the Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("FAS 130"). FAS 130 establishes rules for the reporting and display of comprehensive income and its components. FAS 130 requires unrealized gains or losses on the Company's
available for sale securities and the foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be included in other comprehensive income.
As noted above under "Short Term Investments," the Company reclassified the unrealized non-cash valuation loss in its short term investments from comprehensive income (loss) to the
statement of operations under the caption "Other expense"
during fiscal 2002 and 2001 as such losses were determined to be other than temporary. Cumulative foreign currency translation adjustments, minimum pension liability and unrealized (loss) on
marketable securities are as follows:

|                                                           |  | 2002 |         | 2001 |   | 2000    |  
|---------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|
|Cumulative foreign currency translation adjustments        |  | $    | (41,640 | )    | $ | (50,969 | )
|Minimum pension liability, net of tax                      |  |      | (7,399  | )    |   |        |  
|Cumulative unrealized gain (loss) on marketable securities |  |      | 655     |      |   |        |  
|                                                           |  |      |         |      |   |         |  
|Accumulated other comprehensive (loss)                     |  | $    | (48,384 | )    | $ | (50,969 | )
|                                                           |  |      |         |      |   |         |  



Basic earnings per share exclude any dilutive effects of options, warrants and convertible securities and are computed using the number of common shares
outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if stock options were exercised and is based upon the weighted average number of common and
common equivalent shares outstanding for the period. Shares under option represent common equivalent shares. The numerator for both basic and diluted earnings per share is net income (loss) applicable
to common stock. Due to losses incurred during fiscal 2002, 2001 and 2000, the potential exercise of stock options would have an antidilutive effect on the calculation of earnings per share.
Accordingly, there is no difference in the determination of basic and

52

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diluted earnings per share. A reconciliation of the amounts included in the computation of loss per share for fiscal 2002, 2001 and 2000 is presented in the following table (in thousands, except per
share data):

|                        |                                                                                                                                   | 2002 |   | 2001     |   | 2000 |         
|----------------------- | --------------------------------------------------------------------------------------------------------------------------------- | ---- | - | -------- | - | ---- | --------
|Basic loss per share:   |                                                                                                                                   |      |   |          |   |      |         
|                        | Loss before extraordinary item and cumulative effect of change in accounting principle available to common shareholders           |      | $ | (406,863 | ) | $    | (247,561
|                        |                                                                                                                                   |      |   |          |   |      |         
|                        | Average common shares outstanding                                                                                                 |      |   | 32,004   |   |      | 32,004  
|                        | Loss per share before extraordinary item and cumulative effect of change in accounting principle available to common shareholders |      | $ | (12.71   | ) | $    | (7.74   
|                        |                                                                                                                                   |      |   |          |   |      |         
|Diluted loss per share: |                                                                                                                                   |      |   |          |   |      |         
|                        | Loss before extraordinary item and cumulative effect of change in accounting principle available to common shareholders           |      | $ | (406,863 | ) | $    | (247,561
|                        |                                                                                                                                   |      |   |          |   |      |         
|                        | Average common shares outstanding                                                                                                 |      |   | 32,004   |   |      | 32,004  
|                        | Effect of dilutive securitiesstock options                                                                                       |      |   |         |   |      |        
|                        |                                                                                                                                   |      |   |          |   |      |         
|                        | Average common shares outstandingassuming dilution                                                                               |      |   | 32,004   |   |      | 32,004  
|                        |                                                                                                                                   |      |   |          |   |      |         
|                        | Loss per share before extraordinary item and cumulative effect of change in accounting principle available to common shareholders |      | $ | (12.71   | ) | $    | (7.74   
|                        |                                                                                                                                   |      |   |          |   |      |         

Note 3. Chapter 11 Proceedings



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

53

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

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

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

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

The
Dismissal Agreement also provided that the Company would seek an amendment of the Prepetition Credit Facility to permit it to file a voluntary petition for one of its wholly
owned, South Carolina-registered subsidiaries in the South Carolina Bankruptcy Court. Pursuant to Amendment No. 7, dated as of April 4, 2002, the Senior Secured Lenders agreed to amend
the Prepetition Credit Facility to permit this filing. On April 23, 2002, the Debtors filed a voluntary petition for Bonlam (S.C.), Inc. ("Bonlam (S.C.)"), in the South Carolina
Bankruptcy Court. The Dismissal Agreement further provided that the Company would extend the expiration of the Exchange Offer through May 15, 2002. The Company and GOF also agreed to forbear
through, and including, May 15, 2002, from implementing any modifications to the Senior Subordinated Notes and the indentures governing them. The Petitioning Creditors agreed

54

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to forbear through and including, May 12, 2002 (the "Forbearance Period"), from exercising any and all remedies under the applicable indentures, the Senior Subordinated Notes or any applicable
law, including any filing of an involuntary petition against any of the Debtors. During the Forbearance Period, the Company agreed (i) not to file a voluntary petition for relief under
the Bankruptcy Code in a jurisdiction other than Columbia, South Carolina, and (ii) to contest any involuntary petition under the Bankruptcy Code filed in any such other jurisdiction, in each
case, without the prior written consent of the Petitioning Creditors. GOF and the Petitioning Creditors agreed not to file an involuntary petition against the Company in any venue other than the South
Carolina Bankruptcy Court.

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

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

On
June 14, 2002, the Company filed the Plan with the South Carolina Bankruptcy Court. The Plan generally proposed (i) the restructuring of the Prepetition Credit Facility,
including a $50 million principal reduction, (ii) the retirement of in excess of $591.5 million of the Debtors' obligations under the Senior Subordinated Notes, in exchange for
the right of the holders of such Notes to receive either (x) their pro rata share of 100% of the newly issued Class A Common Stock of the reorganized Company (prior to the

55

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conversion of the preferred stock or new senior notes, each referred to below) (which would be diluted by any conversion of the New Preferred Stock), (y) for each $1,000 in principal of Senior
Subordinated Notes held, $120 in principal of new Junior Subordinated Notes bearing interest at 11% payable in cash or (z) for each $1,000 in principal amount of existing Senior Subordinated
Notes held, $150 in principal amount of New Junior Subordinated PIK Notes, with interest at 7.5% payable in kind and 3.5% payable in cash, (iii) no impairment of the Debtors' other unsecured
creditors, (iv) a $50 million investment by GOF and eligible electing holders of Senior Subordinated Notes in exchange for convertible preferred stock convertible into 44% of the newly
issued common stock of the reorganized Company (after giving effect to the conversion thereof and excluding PIK dividends thereon) (the "New Preferred Stock"), (v) the issuance by GOF and
eligible electing holders of Senior Subordinated Notes of a $25 million letter of credit to secure the Debtors' proposed amortization payments to the Senior Lenders (which if drawn, would be
evidenced by New Senior Subordinated Notes) and (vi) the retention by existing shareholders of 100% of the newly issued Class B Common Stock (which would not be diluted by any conversion
of the New Preferred Stock) and certain warrants for up to an additional 9.5% of the reorganized Company's common stock, as
of the effective date of reorganization (which would be subject to dilution by conversion of the New Preferred Stock), exercisable at specified value targets for the Company. In connection with the
new investment, GOF had agreed to act as a standby purchaser to ensure that all of the shares of New Preferred Stock offered by the Company were purchased and that the new investment generated gross
proceeds of $50.0 million in cash and resulted in $25.0 million of exit letters of credit in place. The Company was to pay GOF a fee of $500,000 for acting as standby purchaser in
connection with the new investment.

At
a hearing, which took place on August 15, 2002, and concluded on August 20, 2002, the South Carolina Bankruptcy Court approved the Company's Disclosure Statement
relating to the Plan of Reorganization, as amended and filed on August 21, 2002, over the Committee's objection. The Plan was not confirmed and thus the Company filed the Modified Plan as more
fully discussed in Note 28. "Recapitalization."



Prior to the Petition Date, the Company classified expenses related to its financial restructuring efforts as "Special charges" in the consolidated statement of
operations. Such charges consist of professional and other related services that have been expensed as incurred. After the Petition Date, costs related to the Company's reorganization activities are
also expensed as incurred and have been classified as "Chapter 11 reorganization expenses" in accordance with SOP 90-7. The cumulative amount of costs and expenses related to the Company's
financial restructuring efforts, including bank financing fees through fiscal 2002 have been approximately $26.0 million.

Note 4. Acquisition

During 2000, the Company acquired an additional 10% interest in Dominion Nonwovens Sudamerica S.A. ("DNS"), an Argentine joint venture. DNS manufactures and
markets nonwoven products for predominant use in consumer applications. The incremental 10% acquisition increased the Company's 50% interest in DNS, which was previously accounted for using the equity
method of accounting, to a 60% majority interest. The transaction was accounted for using the purchase method of accounting and results of operations for DNS have been included in the Company's
results since the date of acquisition. The total acquisition price of approximately $18.1 million for the Company's 60% majority interest has been allocated to the underlying assets acquired
and liabilities assumed based on their fair value at the

56

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date of purchase. Supplemental pro forma information for the DNS acquisition has not been presented, as it is not material to the consolidated results of operations.

Note 5. Property, Plant and Equipment

Property, plant and equipment as of December 28, 2002 and December 29, 2001, consist of the following:

2002

2001(In Thousands)Cost:Land

$
12,829

$
15,287Buildings and land improvements


122,099


154,709Machinery, equipment and other


592,681


800,384Construction in progress


9,337


15,132736,946


985,512Less accumulated depreciation


(307,418
)

(273,945
)$
429,528

$
711,567


Depreciation charged to expense was $60.8, $68.5, and $62.5 million during 2002, 2001 and 2000, respectively. As discussed more fully under
Note 10. "Impairment of Long-Lived Assets," the Company recorded an impairment charge related to property, plant and equipment of approximately $234.0 and $80.8 million
during 2002 and 2001, respectively. In addition, the Company sold its Dayton, New Jersey ("South Brunswick") facility for approximately $10.2 million, net of expenses of $0.4 million,
during December 2002 at no material gain or loss. Proceeds from the sale were maintained in an escrow account outside of the Company's control prior to emergence from Chapter 11 and thus have
been classified within "Other current assets" in the consolidated balance sheet at December 28, 2002. The proceeds from the sale of South Brunswick were used to reduce amounts outstanding under
the Restructured Credit Facility during 2003 as more fully discussed in Note 28. "Recapitalization."

Note 6. Intangibles and Loan Acquisition Costs

Intangibles and loan acquisition costs as of December 28, 2002 and December 29, 2001, consist of the following:

2002

2001(In Thousands)Cost:Goodwill

$
5,917

$
124,756Proprietary technology


10,783


29,325Loan acquisition costs and other


46,197


42,91862,897


196,999Less accumulated amortization


(29,540
)

(61,004
)$
33,357

$
135,995


Amortization charged to expense, excluding the amortization of loan acquisition costs, was $3.5, $9.7 and $9.8 million during 2002, 2001
and 2000, respectively. Accumulated amortization related to goodwill was $0.4 and $28.7 million as of December 28, 2002 and December 29, 2001, respectively. The difference in
accumulated amortization between 2002 and 2001 is due to the write-off of intangibles during 2002 pursuant to FAS 142. As discussed more fully under Note 10. "Impairment of
Long-Lived Assets," the Company recorded an impairment charge related to intangible assets of approximately $83.9 and $100.4 million during 2002 and 2001, respectively.

57

---



Note 7. Accrued Liabilities

Accrued liabilities as of December 28, 2002 and December 29, 2001, consist of the following:

2002

2001(In Thousands)Not Subject to Compromise:Interest payable

$
3,365

$
24,454Salaries, wages and other fringe benefits


11,572


11,573Other


27,986


24,240$
42,923

$
60,267


Accrued interest at December 29, 2001 included interest of approximately $23.5 million on the Senior Subordinated Notes. Accrued interest at
December 28, 2002 of $43.2 million on the Senior Subordinated Notes is classified as "Subject to Compromise" in the consolidated balance sheet. Refer to Note 11. "Liabilities
Subject to Compromise."

Note 8. Commitments and Contingencies



The Company leases certain manufacturing, warehousing and other facilities and equipment under operating leases. The leases on most of the properties contain
renewal provisions. Rent expense (net of sub-lease income), including incidental leases, approximated $5.9, $4.5 and $5.9 million in 2002, 2001 and 2000, respectively. Rental income
approximated $1.9, $2.4 and $2.3 million in 2002, 2001 and 2000, respectively. As discussed in Note 5. "Property, Plant and Equipment," the Company sold its South Brunswick facility in
December 2002. Prior to this transaction, the Company leased the entire facility to a non-affiliated third party ("Medicia") and then sub-leased a portion of the
facility back from Medicia for use as administrative office space within the Nonwovens Division. As a result of the South Brunswick facility sale, the Company's rental income in future periods will be
substantially less than that recognized in prior years. The approximate net minimum rental payments required under non-affiliate operating leases that have initial or remaining
non-cancelable lease terms in excess of one year at December 28, 2002 are presented in the following table. Refer to Note 22. "Related Party Transactions" for a discussion of
leases between the Company and affiliated entities.

Gross
Minimum
Rental
Payments

Lease
and Sub-
Lease
(Income)

Net
Minimum
Rental
Payments(In Thousands)2003

$
4,088

$
(452
)
$
3,6362004


3,120


(232
)

2,8882005


1,447


(116
)

1,3312006


964





9642007


228





228Thereafter


131





131$
9,978

$
(800
)
$
9,178


58

---

Purchase Commitments

At December 28, 2002, the Company had commitments of approximately $41.9 million related to the purchase of raw materials, maintenance and
converting services and approximately $23.2 million related to capital projects. Included in the capital project commitment is Line 5 defined below.

During
the fourth quarter of 2002, the Company entered into an agreement with Reifenhauser GmbH & Co. for the purchase and installation of a Reicofil 3.1 SSXS nonwovens production
line ("Line 5") at its San Luis Potosi, Mexico manufacturing site. The total commitment for Line 5 approximates $22.0 million, of which approximately $4.0 million was funded toward the
project during the fourth quarter of 2002. The remaining portion of the total commitment is expected to be funded during fiscal 2003 and 2004. The Company is evaluating certain financing alternatives
for Line 5.

Collective Bargaining Agreements

At December 28, 2002, the Company had approximately 3,772 employees worldwide. Approximately 1,528 employees are represented by labor unions or trade
councils, which have entered into separate collective bargaining agreements with the Company. Approximately 11.8% of the Company's labor force is covered by collective bargaining agreements that will
expire within one year.

Environmental

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

Note 9. Business Restructuring

During the first quarter of 2001, the Company announced that its operating results would be substantially below previous expectation due to a number of factors
that were a carry-over from 2000. First, demand for certain high margin products did not return to forecasted levels resulting in certain specialized manufacturing assets remaining
underutilized. Second, the commercialization periods for certain APEX® programs were longer than anticipated, and the expected ramp-up of APEX® products failed to
materialize in 2001. Third, raw material prices did not decline as anticipated, and soft demand prevented the Company from passing the increased raw material costs along to customers. Fourth, pricing
pressure and margin erosion within the spunmelt technologies continued to impact results of operations and the company experienced order reductions and an unfavorable shift in product mix due to
certain customers' adjustments, and demand for certain consumer products failed to accelerate as originally expected. Finally, the Company experienced increased interest costs as a result of failing
to comply with the covenants in the Prepetition Credit Facility

The
Company anticipated that the confluence of negative economic and business factors would generally subside during the latter half of 2001, particularly in the fourth quarter. However,
the anticipated recovery within the Company's business did not develop as planned in the latter half of 2001; therefore, the Company undertook a comprehensive business restructuring involving
manufacturing initiatives and workforce reductions, including voluntary attrition, of approximately 160 employees in the U.S. and approximately 190 employees in Europe. As a result of the realignment,
the Company recorded a pre-tax

59

---

charge of $5.8 million during the fourth quarter of 2001 ($4.2 million, net of tax) in accordance with Emerging Tasks Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit and Activity (Including Certain Costs Incurred in a Restructuring)" ("EITF 94-3"). The total charge in the fourth quarter of
2001 consisted of personnel and facility closing costs. In addition, during mid-2001, the Company undertook a smaller restructuring of its operations in order to reduce costs,
predominantly in the U.S. that primarily involved headcount reductions of approximately 90 employees. Accordingly, the Company recorded a pre-tax charge of $1.7 million
($1.2 million, net of tax) during the second quarter of 2001 in accordance with EITF 94-3. Each of the plant realignment programs in 2001 occurred predominantly within the Nonwovens
Division.

The
Company's restructuring program continued into 2002 on a smaller scale than that which was undertaken in 2001. Such restructurings included reductions in headcount of approximately
54 employees and facility closing costs in the U.S. as business processes were rationalized in the Oriented Polymers Division. The total plant realignment charge in 2002 and 2001 related to the
restructuring approximated $8.5 million. Cash outlays in 2002 and 2001 associated the Company's business restructuring approximated $7.6 million. The Company accounted for the
restructurings in 2002 in accordance with EITF 94-3. Any further restructurings undertaken by the Company beginning in fiscal 2003 will be accounted for in accordance with FAS 146
as discussed in Note 24. "New Accounting Standards." A summary of the business restructuring activity during 2002 and 2001 is presented in the following table (in thousands):

Employee
Termination
and Facility
Closing
Costs2001 plant realignment charge:First Quarter

$
Second Quarter


1,660Third Quarter


Fourth Quarter


5,781Total plant realignment charge


7,441Cash payments and adjustments


(1,199
)Plant realignment liability as of December 29, 2001

$
6,2422002 plant realignment charge:First Quarter

$
176Second Quarter


381Third Quarter


356Fourth Quarter


141Total plant realignment charge


1,0542002 cash payments and adjustments:First Quarter


(1,425
)Second Quarter


(1,164
)Third Quarter


(1,562
)Fourth Quarter


(2,252
)Plant realignment liability as of December 28, 2002

$
893


60

---

Note 10. Impairment of Long-Lived Assets

As discussed in Note 2. "Significant Accounting Policies," the Company reviews the recorded value of its long-lived assets to determine if the
future cash flows to be derived from those assets will be sufficient to recover the remaining recorded asset values. In connection with the restructuring undertaken in the fourth quarter of 2001,
based upon a comprehensive review of the Company's long-lived assets, the Company recorded a non-cash charge of approximately $181.2 million, consisting of the
write-down of goodwill and contract intangibles ($100.4 million) and machinery and equipment ($80.8 million) related primarily to production assets within the U.S. and
European Nonwovens business. After careful assessment of various factors relevant to these assets, including the continuation of those factors previously described combined with lower than expected
operating results particularly in the fourth quarter of 2001, and in connection with the comprehensive business realignment previously discussed, the Company wrote-down the value of such
assets to their estimated fair market value based on estimated discounted future cash flows or third party appraisals, each in accordance with FAS 12I. During the fourth quarter of 2002, based
upon further reviews of the Company's long-lived assets and the continued decline in operating profits over the course of 2002, the Company recorded a non-cash charge of
approximately $317.9 million, consisting of the write-down of goodwill and other intangibles ($83.9 million) and machinery, equipment and buildings ($234.0 million)
related predominantly to production assets within the U.S. and European Nonwovens business in accordance with FAS 142 and FAS 144. Further asset write-downs may be required as part of
the Company's application of "fresh-start" accounting adjustments pursuant to SOP 90-7; however, the extent of such adjustments and the amount of such write-downs is not presently
determinable. A summary of the asset impairments in fiscal 2002 and 2001 is presented in the following table (in thousands):

Write-down
of Intangibles
and
Machinery and
Equipment2001 asset impairment charge:Property, plant and equipment

$
80,854Goodwill and contract intangibles


100,336Total 2001 impairment

$
181,1902002 asset impairment charge:Property, plant and equipment

$
234,002Goodwill and other intangibles


83,896Total 2002 impairment

$
317,898


As discussed in Note 2. "Significant Accounting Policies," the Company recorded a cumulative effect of a change in accounting principle of
$12.8 million related to goodwill during fiscal 2002 pursuant to FAS 142.

Note 11. Liabilities Subject to Compromise

Liabilities subject to compromise at December 28, 2002, is presented in the following table and have been classified according to provisions of the
Modified Plan. Pursuant to SOP 90-7, interest expense is reported only to the extent that it will be paid during the Chapter 11 Filings or that it is probable that it will be an allowed
claim. Accordingly, no interest has been accrued on the Company's Senior Subordinated

61

---

Notes after the Petition Date. The principal categories of obligations classified as liabilities subject to compromise under the Chapter 11 Filings as of December 28, 2002 are identified below
(in thousands):

9% Senior Subordinated Notes, net of unamortized debt discount

$
391,98283/4% Senior Subordinated Notes


196,500Interest accrued on senior subordinated notes


43,175Otherconsisting primarily of Dominion Textile (USA) Inc. Guaranteed Senior Notes and certain costs associated with the MSA (as defined) between Galey and the Company


5,449$
637,106


During the Chapter 11 process in fiscal 2002, the Company classified Critical Business Relations Claims as Subject to Compromise in the consolidated balance sheet
because the contingency of emerging from bankruptcy existed at each quarterly reporting date during the year. However, under the Modified Plan, virtually all Critical Business Relations Claims, which
totaled $14.5 million at December 28, 2002, will be paid in full. Such amounts have therefore been classified as Not Subject to Compromise at December 28, 2002 as a result of the
Company's emergence from Chapter 11 on March 5, 2003 and provisions under the Modified Plan that result in payment of such claims.

Note 12. Debt

Short-term borrowings, which are not subject to compromise, amounted to approximately $0.5 million and $12.4 million at
December 28, 2002 and December 29, 2001, respectively. These amounts are

62

---

composed of local borrowings by international subsidiaries. Debt, excluding short-term borrowings, as of December 28, 2002 and December 29, 2001, consists of the following
(in thousands):

|                                                                                                                                                                                                                                                                                       |                                                                                                            | 2002 |         | 2001    |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ---- | ------- | ------- | -
|Subject to Compromise:                                                                                                                                                                                                                                                                 |                                                                                                            |      |         |         |  
|Senior subordinated notes, due July 2007, interest rate 9%, subject to redemption on or after July 1, 2002 at the option of the Company based on certain redemption pricesrestructured in connection with the
Company's emergence from Chapter 11                                     |                                                                                                            | $    | 395,000 |         | $
|Senior subordinated notes, due March 2008, interest rate 8.75%, subject to redemption on or after March 1, 2003 at the option of the Company based on certain redemption pricesrestructured in connection with the
Company's emergence from Chapter 11                                |                                                                                                            |      | 196,500 |         |  
|Less: Unamortized debt discount                                                                                                                                                                                                                                                        |                                                                                                            |      | (4,018  | )       |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      | 587,482 |         |  
|Other                                                                                                                                                                                                                                                                                  |                                                                                                            |      | 1,509   |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            | $    | 588,991 |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         |  
|Less: Current maturities                                                                                                                                                                                                                                                               |                                                                                                            |      |         |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         | $
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         |  
|Not Subject to Compromise:                                                                                                                                                                                                                                                             |                                                                                                            |      |         |         |  
|Prepetition Credit Facility, interest rates for U.S. dollar loans are based on LIBOR or prime; Canadian dollar loans are based on Canadian base rates and Dutch guilder loans are based on Eurocurrency ratesrestructured
in connection with the Company's emergence from Chapter 11: |                                                                                                            |      |         |         |  
|                                                                                                                                                                                                                                                                                       | Revolving Credit Facilityinterest at rates ranging from 6.19% to 10.00% in 2002 and 6.19% to 9.5% in 2001 |      | $       | 216,418 |  
|                                                                                                                                                                                                                                                                                       | Term Loansinterest at rates ranging from 6.69% to 9.50% in 2002 and 6.69% 6.94% in 2001                   |      |         | 268,060 |  
|Other                                                                                                                                                                                                                                                                                  |                                                                                                            |      | 18,362  |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      | 502,840 |         |  
|Less: Current maturities                                                                                                                                                                                                                                                               |                                                                                                            |      | (24,616 | )       |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         |  
|                                                                                                                                                                                                                                                                                       |                                                                                                            | $    | 478,224 |         | $
|                                                                                                                                                                                                                                                                                       |                                                                                                            |      |         |         |  

DIP FacilityOn May 13, 2002, the Debtors filed a motion seeking authority for the Company to
enter into a credit facility of up to $125 million in debtor-in-possession financing with JPMorgan Chase Bank as administrative agent, which was approved by the
Bankruptcy Court on May 29, 2002. Under such terms, the Company, as borrower, was permitted to make revolving credit borrowings in an amount not exceeding the lesser of $125 million or
the Borrowing Base (as defined in the DIP Facility). The DIP
Facility was to terminate and the borrowings thereunder were to be due and payable upon the earliest of (i) the maturity date (i.e. May 30, 2003), (ii) the date of the substantial
consummation of a plan of reorganization that was confirmed pursuant to an order by the Bankruptcy Court and (iii) the acceleration of the revolving credit loans made by any of the banks who
were a party to the DIP Facility and the termination of the total commitment under the DIP Facility. The interest rate applicable to borrowings

63

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under the DIP Facility and financial covenants were customary for financings of this type. Borrowings under the DIP Facility were guaranteed by each of the Company's direct and indirect domestic
subsidiaries. There were no borrowings under the DIP Facility. The DIP Facility was terminated concurrently with the Company's emergence from Chapter 11.

Prepetition Credit FacilityThe Company's Credit Facility (as amended through and including Amendment No. 7, the
"Prepetition Credit Facility") provided for secured revolving credit borrowings with aggregate commitments of up to $325.0 million and aggregate term loans of $275.0 million. Subject to
certain terms and conditions, a portion of the Prepetition Credit Facility could be used for letters of credit of which approximately $13.9 million was outstanding on December 28, 2002.
Amendment No. 6 imposed a limit of $260.0 million under the revolving portion of the Prepetition Credit Facility for borrowings and outstanding letters of credit, with not more than
$15.0 million of such revolving borrowings permitted to be outstanding in Canadian dollar equivalent borrowings. Each and all of the direct and indirect domestic subsidiaries of the Company
guaranteed all indebtedness under the Prepetition Credit Facility, on a joint and several basis. The Prepetition Credit Facility and the related guarantees were secured by (i) a lien on
substantially all of the assets of the Company and its domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the Company and of certain
non-domestic subsidiaries of the Company, (iii) a lien on substantially all of the assets of direct foreign borrowers (to secure direct borrowings by such borrowers), and
(iv) a pledge of certain secured intercompany notes issued to the Company or one or more of its subsidiaries by non-domestic subsidiaries. Commitment fees under the Prepetition
Credit Facility were generally equal to a percentage of the daily-unused amount of such commitment. The Prepetition Credit Facility contained covenants and events of default customary for financings
of this type, to include leverage, fixed charge coverage and net worth. The revolving portion of the Prepetition Credit Facility was to terminate in June 2003. The term loan portion was to
terminate in December 2005 and December 2006. The loans were subject to mandatory prepayment out of proceeds received in connection with certain casualty events, asset sales and debt
issuances.

The
interest rate applicable to borrowings under the Prepetition Credit Facility was based on, in the case of U.S. dollar denominated loans, a specified base rate or a specified
Eurocurrency base rate for U.S. dollars, at the Company's option, plus a specified margin. In the event that a portion of the Prepetition Credit Facility was denominated in Dutch guilders, the
applicable interest rate was to be based on the specified Eurocurrency base rate for Dutch guilders, plus a specified margin. In the event that a portion of the Prepetition Credit Facility was to be
denominated in Canadian dollars, the applicable interest rate is based on the specified Canadian base rate plus a specified margin or the bankers' acceptance discount rate at the Company's option.

Under
the terms of the Forbearance Agreement, as discussed below, with the Senior Secured Lenders, the Company was prevented from making any additional borrowings under the Prepetition
Credit Facility
in excess of the amounts outstanding on December 30, 2001. In addition, all borrowings under the Prepetition Credit Facility were required to be made under the base rate option. The following

64

---

table provides detail on the revolving credit and term loan components of the Company's Prepetition Credit Facility at December 28, 2002 and December 29, 2001 (in thousands):

2002

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

$
210,000

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


6,418


6,325Total Revolving Credit


216,418


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


121,000


121,000Term Loan B-1


48,560


48,560Term Loan C


98,500


98,500Total Term Loans


268,060


268,060Total amounts outstanding under Prepetition Credit Facility

$
484,478

$
484,385


---

The
Prepetition Credit Facility was restructured concurrently with the Company's emergence from Chapter 11. See "Other" below for further discussion of the Company's Prepetition Credit
Facility and Note 28. "Recapitalization," for further discussion of the Company's financial restructuring.

Senior Subordinated NotesIn March 1998, the Company issued $200 million of 83/4% Senior
Subordinated Notes due 2008 (the "March 1998 Notes") in a private placement transaction pursuant to an indenture dated as of March 1, 1998. In August 1998, the Company completed
its exchange of $200 million of the March 1998 Notes, Series B (the "83/4% Senior Subordinated Notes") which have been registered for public trading for all
outstanding March 1998 Notes. In July 1997, the Company issued $400 million of 9% Senior Subordinated Notes due 2007 (the "July 1997 Notes") in a private placement
transaction pursuant to an indenture dated as of July 1, 1997. In October 1997, the Company completed its exchange of the $400 million of July 1997 Notes, Series B
(the "9% Senior Subordinated Notes"), which have been registered for public trading for all the outstanding July 1997 Notes. During 2000, the Company purchased $8.5 million principal
amount of its Senior Subordinated Notes and recognized an extraordinary gain of $0.7 million, net of taxes, on the retirement of these notes.

The
83/4% Senior Subordinated Notes and the 9% Senior Subordinated Notes (collectively, the "Senior Subordinated Notes") were unsecured senior subordinated indebtedness of
the Company and were subordinated in right of payment to all existing and future senior indebtedness of the Company. The Senior Subordinated Notes indenture contained several covenants, including
limitations on: (i) indebtedness, certain restricted payments, liens, transactions with affiliates, dividend and other payment restrictions affecting certain subsidiaries, guarantees by certain
subsidiaries, certain transactions including merger and asset sales; and (ii) certain restrictions regarding the disposition of proceeds of asset sales. In addition, in the event of certain
defaults under the Prepetition Credit Facility, the Senior Secured Lenders under the Prepetition Credit Facility were entitled to exercise a right to block any

65

---

payments of interest or principal on the Senior Subordinated Notes for, in general, up to 179 days during any period of 360 consecutive days. In such event, a failure by the Company to make
any such required payment would be an event of default under the Senior Subordinated Notes.

The
Senior Subordinated Notes were restructured concurrently with the Company's emergence from Chapter 11. See "Other" below for further discussion of the Company's Senior Subordinated
Notes.

Subsidiary IndebtednessThe Company's China-based majority owned subsidiary ("Nanhai") has a bank facility with a financial
institution in China which is scheduled to mature in April 2004. At December 28, 2002, the approximate amount of outstanding indebtedness under the facility was $9.5 million. The
Nanhai indebtedness is guaranteed 100% by the Company and to support this guarantee, a letter of credit has been issued by the Company's agent bank in the amount of $10.0 million. As a result
of the Company's 80% majority ownership of Nanhai and full guarantee of the Nanhai bank debt, all amounts outstanding under the Nanhai bank facility are reflected in the
Company's consolidated balance sheet. At December 28, 2002, Nanhai had cash and cash equivalents on hand of approximately $3.0 million and working capital of approximately
$10.6 million.

The
Company's Argentina-based majority owned subsidiary ("DNS") has two bank facilities denominated in U.S. dollars of approximately $7.1 million at December 28, 2002 with
current maturities of approximately $3.7 million. The facilities are scheduled to mature in 2004 and 2005 respectively. The full amount of such indebtedness is reflected on the Company's
consolidated balance sheet at December 28, 2002 as a result of the Company's 60% majority ownership of this subsidiary; however, the minority shareholder guarantees 40% of such indebtedness.
Because of the Argentine peso devaluation against the U.S. dollar, the Company is exposed to foreign currency remeasurement losses of the U.S. dollar denominated debt at DNS because the functional
currency of DNS is the Argentine peso. At December 28, 2002, DNS had cash and cash equivalents on hand of approximately $0.9 million and working capital of $6.6 million, excluding
current debt. Including current debt, DNS working capital was approximately $2.9 million at December 28, 2002.

In
order to support working capital requirements at Vateks Tekstil Sayani ve Ticaret AS ("Vateks"), an 80% majority owned subsidiary in Istanbul, Turkey, the Company has deposited
through the European parent company of Vateks, approximately $6.5 million with a member of its European bank group who in turn has funded an approximate equivalent amount to Vateks. The amount
owed by Vateks to the bank member is secured by this deposit.

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

On
December 30, 2001, the Company and certain subsidiaries entered into a Forbearance Agreement pursuant to which the Senior Secured Lenders agreed not to exercise certain
remedies available to them under the Prepetition Credit Facility as a result of the existing covenant defaults during the forbearance period. If certain events were to occur, the Senior Secured
Lenders would be able to exercise their remedies available to them, which included the right to declare all amounts outstanding under the Prepetition Credit Facility immediately due and payable. The
Forbearance Agreement, as extended on March 15, 2002 was scheduled to end on May 15, 2002 and prevented the Company from

66

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making any additional borrowings in excess of the amounts outstanding under the revolving portion of the Prepetition Credit Facility as of December 30, 2001.

On
April 4, 2002, the Company entered into Amendment No. 7 to its Prepetition Credit Facility that allowed Bonlam (S.C.) to file a voluntary petition for
reorganization under Chapter 11 of the United
States Bankruptcy Code without triggering an event of default under the Prepetition Credit Facility. On April 23, 2002, Bonlam (S.C.) filed a voluntary petition as part of the agreement
previously reached to dismiss the Involuntary Petition filed against the Company on March 25, 2002. Refer to Note 3. "Chapter 11 Proceedings" for a complete description of the events
surrounding the Company's Chapter 11 Filing on May 11, 2002.

As
part of the Company's emergence from Chapter 11, the Prepetition Credit Facility was restructured into the Third Amended, Restated and Consolidated Credit Agreement dated as of
March 5, 2003 (the "Restructured Credit Facility") which is more fully discussed in Note 28, "Recapitalization". Long-term debt maturities, based on the Recapitalization,
consist of the following (in thousands): 2003 $24,616; 2004 $43,315; 2005 $30,401; 2006 $354,490; 2007 $50,015 and thereafter $3.

At
December 29, 2001 the Company's Senior Subordinated Notes were classified as a current liability due to the previously described defaults; however, at December 28, 2002,
the Senior Subordinated Notes were classified as Subject to Compromise.

Refer
to Note 30. "Recent Developments and Subsequent Event" for a complete discussion of Amendment No. 1 which was effective as of March 29, 2003 and certain other
matters.

67

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Note 13. Condensed Consolidating Financial Statements

Certain of the Company's wholly-owned subsidiaries unconditionally guarantee payment of the Company's senior subordinated notes, jointly and severally, on a
senior subordinated basis. Management has determined that separate complete financial statements of the guarantor entities would not be material to users of the financial statements; therefore, the
following sets forth condensed consolidating financial statements (in thousands):

Condensed Consolidating Balance Sheet
As of December 28, 2002

|ASSETS                                         |                                                      | Combined
Guarantor
Subsidiaries |           | Combined
Non-
Guarantor
Subsidiaries |   | The
Company |         | Reclassifications
and Eliminations |           | Consolidated |  
|---------------------------------------------- | ---------------------------------------------------- | ------------------------------- | --------- | ------------------------------------ | - | ----------- | ------- | ---------------------------------- | --------- | ------------ | -
|Cash and investments                           |                                                      | $                               | 8,966     |                                      | $ | 29,844      |         | $                                  | 18,496    |              | $
|Accounts receivable, net                       |                                                      |                                 | 33,556    |                                      |   | 83,864      |         |                                    |          |              |  
|Inventories                                    |                                                      |                                 | 43,373    |                                      |   | 72,276      |         |                                    |          |              |  
|Other                                          |                                                      |                                 | 28,114    |                                      |   | 14,492      |         |                                    | 11,028    |              |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|                                               | Total current assets                                 |                                 |           | 114,009                              |   |             | 200,476 |                                    |           | 29,524       |  
|Investment in subsidiaries                     |                                                      |                                 | 614,273   |                                      |   |            |         |                                    | 987,759   |              |  
|Property, plant and equipment, net             |                                                      |                                 | 212,933   |                                      |   | 216,595     |         |                                    |          |              |  
|Other                                          |                                                      |                                 | 1,401,475 |                                      |   | 198,445     |         |                                    | 85,748    |              |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|                                               | Total assets                                         |                                 | $         | 2,342,690                            |   | $           | 615,516 |                                    | $         | 1,103,031    |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT) |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|Accounts payable and other                     |                                                      | $                               | 19,174    |                                      | $ | 47,442      |         | $                                  | 24,866    |              | $
|Short-term borrowings                          |                                                      |                                 |          |                                      |   | 10,014      |         |                                    | (9,480    | )            |  
|Current portion of long-term debt              |                                                      |                                 | 3         |                                      |   | 11,031      |         |                                    | 13,582    |              |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|                                               | Total current liabilities                            |                                 |           | 19,177                               |   |             | 68,487  |                                    |           | 28,968       |  
|Long-term debt, less current portion           |                                                      |                                 |          |                                      |   | 4,265       |         |                                    | 473,959   |              |  
|Other                                          |                                                      |                                 | 1,278,501 |                                      |   | 307,877     |         |                                    | 1,066,018 |              |  
|Shareholders' equity (deficit)                 |                                                      |                                 | 1,045,012 |                                      |   | 234,887     |         |                                    | (465,914  | )            |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|                                               | Total liabilities and shareholders' equity (deficit) |                                 | $         | 2,342,690                            |   | $           | 615,516 |                                    | $         | 1,103,031    |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  

68

---

Condensed Consolidating Balance Sheet
As of December 29, 2001

|ASSETS                                         |                                                      | Combined
Guarantor
Subsidiaries |           | Combined
Non-
Guarantor
Subsidiaries |   | The
Company |         | Reclassifications
and Eliminations |           | Consolidated |  
|---------------------------------------------- | ---------------------------------------------------- | ------------------------------- | --------- | ------------------------------------ | - | ----------- | ------- | ---------------------------------- | --------- | ------------ | -
|Cash and investments                           |                                                      | $                               | 1,201     |                                      | $ | 16,816      |         | $                                  | 25,642    |              | $
|Accounts receivable, net                       |                                                      |                                 | 47,743    |                                      |   | 78,650      |         |                                    |          |              |  
|Inventories                                    |                                                      |                                 | 46,538    |                                      |   | 69,598      |         |                                    |          |              |  
|Other                                          |                                                      |                                 | 19,662    |                                      |   | 12,171      |         |                                    | 6,899     |              |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|                                               | Total current assets                                 |                                 |           | 115,144                              |   |             | 177,235 |                                    |           | 32,541       |  
|Investment in subsidiaries                     |                                                      |                                 | 618,928   |                                      |   |            |         |                                    | 583,137   |              |  
|Property, plant and equipment, net             |                                                      |                                 | 456,042   |                                      |   | 255,143     |         |                                    | 289       |              |  
|Other                                          |                                                      |                                 | 875,153   |                                      |   | 214,027     |         |                                    | 474,237   |              |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|                                               | Total assets                                         |                                 | $         | 2,065,267                            |   | $           | 646,405 |                                    | $         | 1,090,204    |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|LIABILITIES AND
SHAREHOLDERS' EQUITY
(DEFICIT) |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|Accounts payable and other                     |                                                      | $                               | 41,550    |                                      | $ | 48,244      |         | $                                  | 65,962    |              | $
|Short-term borrowings                          |                                                      |                                 |          |                                      |   | 10,086      |         |                                    | 2,325     |              |  
|Current portion of long-term debt              |                                                      |                                 | 6         |                                      |   | 5,357       |         |                                    | 1,071,654 |              |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|                                               | Total current liabilities                            |                                 |           | 41,556                               |   |             | 63,687  |                                    |           | 1,139,941    |  
|Long-term debt, less current portion           |                                                      |                                 | 1,552     |                                      |   | 14,575      |         |                                    | (6,325    | )            |  
|Other                                          |                                                      |                                 | 1,125,883 |                                      |   | 269,470     |         |                                    | 5,450     |              |  
|Shareholders' equity (deficit)                 |                                                      |                                 | 896,276   |                                      |   | 298,673     |         |                                    | (48,862   | )            |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  
|                                               | Total liabilities and shareholders' equity (deficit) |                                 | $         | 2,065,267                            |   | $           | 646,405 |                                    | $         | 1,090,204    |  
|                                               |                                                      |                                 |           |                                      |   |             |         |                                    |           |              |  

Condensed Consolidating Statement of Operations
For the Fiscal Year Ended December 28, 2002

|                                              |  | Combined
Guarantor
Subsidiaries |          | Combined
Non-
Guarantor
Subsidiaries |   | The
Company |   | Reclassifications
and Eliminations |          | Consolidated |  
|--------------------------------------------- |  | ------------------------------- | -------- | ------------------------------------ | - | ----------- | - | ---------------------------------- | -------- | ------------ | -
|Net sales                                     |  | $                               | 393,304  |                                      | $ | 404,579     |   | $                                  |         |              | $
|Gross profit                                  |  |                                 | 37,397   |                                      |   | 82,747      |   |                                    |         |              |  
|Operating income (loss)                       |  |                                 | (243,626 | )                                    |   | (48,966     | ) |                                    | (8,878   | )            |  
|Interest expense, income taxes and other, net |  |                                 | 13,197   |                                      |   | (30,032     | ) |                                    | (410,759 | )            |  
|                                              |  |                                 |          |                                      |   |             |   |                                    |          |              |  
|Net income (loss)                             |  | $                               | (230,429 | )                                    | $ | (78,998     | ) | $                                  | (419,637 | )            | $
|                                              |  |                                 |          |                                      |   |             |   |                                    |          |              |  

69

---

Condensed Consolidating Statement of Operations
For the Fiscal Year Ended December 29, 2001

|                                              |  | Combined
Guarantor
Subsidiaries |          | Combined
Non-
Guarantor
Subsidiaries |   | The
Company |   | Reclassifications
and Eliminations |          | Consolidated |  
|--------------------------------------------- |  | ------------------------------- | -------- | ------------------------------------ | - | ----------- | - | ---------------------------------- | -------- | ------------ | -
|Net sales                                     |  | $                               | 444,322  |                                      | $ | 403,296     |   | $                                  |         |              | $
|Gross profit                                  |  |                                 | 45,262   |                                      |   | 94,358      |   |                                    |         |              |  
|Operating income (loss)                       |  |                                 | (178,089 | )                                    |   | 17,908      |   |                                    | (2,445   | )            |  
|Interest expense, income taxes and other, net |  |                                 | (34,465  | )                                    |   | 34,603      |   |                                    | 245,116  |              |  
|                                              |  |                                 |          |                                      |   |             |   |                                    |          |              |  
|Net loss                                      |  | $                               | (143,624 | )                                    | $ | (16,695     | ) | $                                  | (247,561 | )            | $
|                                              |  |                                 |          |                                      |   |             |   |                                    |          |              |  

Condensed Consolidating Statement of Operations
For the Fiscal Year Ended December 30, 2000

|                                              |  | Combined
Guarantor
Subsidiaries |         | Combined
Non-
Guarantor
Subsidiaries |   | The
Company |  | Reclassifications
and Eliminations |        | Consolidated |  
|--------------------------------------------- |  | ------------------------------- | ------- | ------------------------------------ | - | ----------- |  | ---------------------------------- | ------ | ------------ | -
|Net sales                                     |  | $                               | 494,061 |                                      | $ | 390,369     |  | $                                  |       |              | $
|Gross profit                                  |  |                                 | 94,719  |                                      |   | 97,389      |  |                                    |       |              |  
|Operating income (loss)                       |  |                                 | 29,324  |                                      |   | 55,721      |  |                                    | (397   | )            |  
|Interest expense, income taxes and other, net |  |                                 | (12,686 | )                                    |   | 41,170      |  |                                    | 3,926  |              |  
|                                              |  |                                 |         |                                      |   |             |  |                                    |        |              |  
|Net income (loss)                             |  | $                               | 42,010  |                                      | $ | 14,551      |  | $                                  | (4,323 | )            | $
|                                              |  |                                 |         |                                      |   |             |  |                                    |        |              |  

70

---

Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended December 28, 2002

|                                                    |  | Combined
Guarantor
Subsidiaries |        | Combined
Non-
Guarantor
Subsidiaries |   | The
Company |   | Reclassifications
and Eliminations |         | Consolidated |  
|--------------------------------------------------- |  | ------------------------------- | ------ | ------------------------------------ | - | ----------- | - | ---------------------------------- | ------- | ------------ | -
|Net cash provided by (used in) operating activities |  | $                               | 10,688 |                                      | $ | 22,894      |   | $                                  | 3,704   |              | $
|Net cash provided by (used in) investing activities |  |                                 | (4,929 | )                                    |   | (10,450     | ) |                                    | 4,825   |              |  
|Net cash provided by (used in) financing activities |  |                                 |       |                                      |   | (5,306      | ) |                                    | (10,061 | )            |  
|Effect of exchange rate changes on cash             |  |                                 | 2,008  |                                      |   | 5,878       |   |                                    | 362     |              |  
|                                                    |  |                                 |        |                                      |   |             |   |                                    |         |              |  
|Net change in cash and equivalents                  |  |                                 | 7,767  |                                      |   | 13,016      |   |                                    | (1,170  | )            |  
|Cash and equivalents at beginning of year           |  |                                 | 1,199  |                                      |   | 16,828      |   |                                    | 7,420   |              |  
|                                                    |  |                                 |        |                                      |   |             |   |                                    |         |              |  
|Cash and equivalents at end of year                 |  | $                               | 8,966  |                                      | $ | 29,844      |   | $                                  | 6,250   |              | $
|                                                    |  |                                 |        |                                      |   |             |   |                                    |         |              |  

Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended December 29, 2001

|                                                    |  | Combined
Guarantor
Subsidiaries |         | Combined
Non-
Guarantor
Subsidiaries |   | The
Company |   | Reclassifications
and Eliminations |          | Consolidated |  
|--------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------------ | - | ----------- | - | ---------------------------------- | -------- | ------------ | -
|Net cash provided by (used in) operating activities |  | $                               | 18,709  |                                      | $ | 38,488      |   | $                                  | (103,582 | )            | $
|Net cash provided by (used in) investing activities |  |                                 | (19,684 | )                                    |   | (40,862     | ) |                                    | 93,168   |              |  
|Net cash provided by (used in) financing activities |  |                                 | (185    | )                                    |   | (13,084     | ) |                                    | 47,686   |              |  
|Effect of exchange rate changes on cash             |  |                                 | 1,696   |                                      |   | 21,048      |   |                                    | (30,227  | )            |  
|                                                    |  |                                 |         |                                      |   |             |   |                                    |          |              |  
|Net change in cash and equivalents                  |  |                                 | 536     |                                      |   | 5,590       |   |                                    | 7,045    |              |  
|Cash and equivalents at beginning of year           |  |                                 | 663     |                                      |   | 11,238      |   |                                    | 375      |              |  
|                                                    |  |                                 |         |                                      |   |             |   |                                    |          |              |  
|Cash and equivalents at end of year                 |  | $                               | 1,199   |                                      | $ | 16,828      |   | $                                  | 7,420    |              | $
|                                                    |  |                                 |         |                                      |   |             |   |                                    |          |              |  

71

---

Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended December 30, 2000

|                                                    |  | Combined
Guarantor
Subsidiaries |         | Combined
Non-
Guarantor
Subsidiaries |   | The
Company |   | Reclassifications
and Eliminations |         | Consolidated |  
|--------------------------------------------------- |  | ------------------------------- | ------- | ------------------------------------ | - | ----------- | - | ---------------------------------- | ------- | ------------ | -
|Net cash provided by (used in) operating activities |  | $                               | 53,894  |                                      | $ | 25,293      |   | $                                  | (14,160 | )            | $
|Net cash provided by (used in) investing activities |  |                                 | (66,307 | )                                    |   | (31,952     | ) |                                    | (24,430 | )            |  
|Net cash provided by (used in) financing activities |  |                                 | (2,932  | )                                    |   | (18,365     | ) |                                    | 68,022  |              |  
|Effect of exchange rate changes on cash             |  |                                 | 79      |                                      |   | 16,009      |   |                                    | (30,055 | )            |  
|                                                    |  |                                 |         |                                      |   |             |   |                                    |         |              |  
|Net change in cash and equivalents                  |  |                                 | (15,266 | )                                    |   | (9,015      | ) |                                    | (623    | )            |  
|Cash and equivalents at beginning of year           |  |                                 | 15,929  |                                      |   | 20,253      |   |                                    | 998     |              |  
|                                                    |  |                                 |         |                                      |   |             |   |                                    |         |              |  
|Cash and equivalents at end of year                 |  | $                               | 663     |                                      | $ | 11,238      |   | $                                  | 375     |              | $
|                                                    |  |                                 |         |                                      |   |             |   |                                    |         |              |  

Note 14. Income Taxes

Significant components of the provision for income taxes are as follows:

|                                               |                                                            | Fiscal Year |                                   
|---------------------------------------------- | ---------------------------------------------------------- | ----------- | ----------------------------------
|
|
|Current:                                       |                                                            |             |                                   
|                                               | Federal and state                                          |             | $                                 
|                                               | Foreign                                                    |             |                                   
|Deferred:                                      |                                                            |             |                                   
|                                               | Federal and state                                          |             |                                   
|                                               | Foreign                                                    |             |                                   
|                                               |                                                            |             |                                   
|Income tax (benefit) before extraordinary item |                                                            |             | (3,290                            
|Income tax from:                               |                                                            |             |                                   
|                                               | Extraordinary item, gain from early extinguishment of debt |             |                                   
|                                               | Cumulative effect of change in accounting principle        |             |                                   
|                                               |                                                            |             |                                   
|                                               |                                                            |             | Total income tax expense (benefit)
|                                               |                                                            |             |                                   

At
December 28, 2002, the Company had: (i) operating loss carryforwards of approximately $236.3 million for federal income tax purposes expiring beginning in the
year 2020; (ii) German operating loss carryforwards of approximately $32.8 million with no expiration date; (iii) Turkish operating loss carryforwards of approximately
$1.3 million expiring in 2007; (iv) Mexican operating loss carryforwards of approximately $4.4 million expiring beginning in 2010; (v) Canadian operating loss carryforwards
of approximately $7.9 million expiring beginning in 2005 and (vi) Canadian capital loss carryforwards of approximately $3.0 million with no expiration date. A portion of the loss
carryforwards is available for carryback to prior years. Accounting recognition has been given to the extent tax refunds would be available upon carryback of the loss. No accounting recognition has
been given to the potential income

72

---

tax benefit related to the remaining loss carryforwards. The Company has not provided U.S. income taxes for undistributed earnings of foreign subsidiaries that are considered to be retained
indefinitely for reinvestment. The distribution of these earnings would result in additional foreign withholding taxes and additional U.S. federal income taxes to the extent they are not offset by
foreign tax credits, but it is not practicable to estimate the total liability that would be incurred upon such a distribution. Significant components of the Company's deferred tax assets and
liabilities as of December 28, 2002 and December 29, 2001 are as follows:

|                          |                                                   | 2002 |                                | 2001    |  
|------------------------- | ------------------------------------------------- | ---- | ------------------------------ | ------- | -
|
|Deferred tax assets:      |                                                   |      |                                |         |  
|                          | Provision for bad debts                           |      | $                              | 3,420   |  
|                          | Inventory capitalization and allowances           |      |                                | 4,121   |  
|                          | Net operating loss and capital loss carryforwards |      |                                | 100,508 |  
|                          | Tax credits                                       |      |                                | 8,861   |  
|                          | Foreign currency translation adjustment           |      |                                |        |  
|                          | Foreign tax credits                               |      |                                | 11,675  |  
|                          | Fixed assets and intangibles, net                 |      |                                | 38,691  |  
|                          | Other                                             |      |                                | 11,174  |  
|                          |                                                   |      |                                |         |  
|                          |                                                   |      | Total deferred tax assets      |         |  
|Valuation allowance       |                                                   |      | (160,614                       | )       |  
|                          |                                                   |      |                                |         |  
|Net deferred tax assets   |                                                   |      | 17,836                         |         |  
|Deferred tax liabilities: |                                                   |      |                                |         |  
|                          | Fixed assets and intangibles, net                 |      |                                | (25,013 | )
|                          | Other, net                                        |      |                                | (8,307  | )
|                          |                                                   |      |                                |         |  
|                          |                                                   |      | Total deferred tax liabilities |         |  
|                          |                                                   |      |                                |         |  
|                          |                                                   |      | Net deferred tax liabilities   |         | $
|                          |                                                   |      |                                |         |  

Taxes
on income (loss) are based on earnings as follows:

Fiscal Year2002

2001

2000(In Thousands)Domestic

$
(325,496
)
$
(257,008
)
$
(31,003
)Foreign


(84,657
)

(16,356
)

23,212$
(410,153
)
$
(273,364
)
$
(7,791
)


73

---

The
provision for income taxes at the Company's effective tax rate differed from the provision for income taxes at the statutory rate as follows:

Fiscal Year2002

2001

2000(In Thousands)Computed income tax (benefit) at statutory rate

$
(143,554
)
$
(95,677
)
$
(2,727
)Goodwill and other, including impairment


33,502


37,463


1,257Valuation allowance


105,505


36,404


5,081Interest


(2,221
)

(2,036
)

(1,832
)Tax credits


(349
)

(333
)

(2,869
)Effect of foreign operations, net


2,180


300


(954
)Chapter 11 reorganization costs


3,057





Other, net


(1,410
)

(1,924
)

(683
)Provision for income taxes (benefit) before extraordinary item and cumulative effect of change in accounting principle


(3,290
)

(25,803
)

(2,727
)Income tax related to extraordinary item








399Income tax related to cumulative effect of change in accounting principle








Provision for income taxes (benefit)

$
(3,290
)
$
(25,803
)
$
(2,328
)


Note 15. Stock Option and Employee Stock Purchase Plans



The Company's stock option plans included the 1996 Key Employee Stock Option Plan (the "1996 Plan") and the 2001 Polymer Group Stock Option Plan (the "2001 Plan")
that was approved by the Company's Board of Directors and shareholders during 2001. The Stock Option Committee of the Company's Board of Directors administered each plan and any person who was a
full-time, salaried employee was eligible to participate in each plan. Non-management directors and any Company employee, regardless of employee classification, were allowed to
participate in the 2001 Plan. The Stock Option Committee selected the participants and determined the terms and conditions of the options. Each plan provided for the issuance of 1.5 million
shares of common stock. Options granted under the plans were either incentive stock options or such other forms of non-qualified stock options as the Stock Option Committee determined.
Accordingly, option prices were not less than the fair market value of the shares at the date of grant. Under each plan, options vested in equal increments over a specified period

74

---

of time with expiration generally occurring at the end of a ten-year period. The following table summarized the transactions of the plans for the three-year period ended
December 28, 2002:

Number of
Shares

Weighed
Average
Exercise
PriceUnexercised options outstandingJanuary 1, 2000

1,278,720

$
13.46Granted




Exercised

(2,400
)

14.25Forfeited

(34,000
)

14.11Expired/canceled

(126,344
)

14.86Unexercised options outstandingDecember 30, 2000

1,115,976

$
13.28Granted

2,125,176


2.07Exercised




Forfeited

(32,500
)

10.27Expired/canceled

(1,088,076
)

13.28Unexercised options outstandingDecember 29, 2001

2,120,576

$
2.09Granted




Exercised




Forfeited

(98,722
)

1.87Expired/canceled




Unexercised options outstandingDecember 28, 2002

2,021,854

$
2.10Exercisable options:December 30, 2000

499,832


13.43December 29, 2001

533,294


2.10December 28, 2002

1,031,188


2.10Shares available for future grant as of December 28, 2002

978,146


Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123") establishes financial accounting and reporting standards for
stock-based compensation plans. As permitted by FAS 123, the Company elected to account for stock-based compensation awards in accordance with Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation cost has been recognized in the Company's financial statements for the plan. The fair value for each option grant was
determined by using the Black-Scholes option-pricing model with the following weighted average assumptions used for 2001: dividend yield of 0%; expected volatility of 1.84; risk-free
interest rate of 5%; and weighted average expected lives of five years. Had compensation cost been determined based on the fair value at the grant date for such

75

---

awards, consistent with the provisions of FAS 123, the Company's net loss and net loss per share would have been increased to the pro forma amounts indicated below (in thousands, except per
share data):

Fiscal Year2002

2001

2000Net loss:As reported

$
(419,637
)
$
(247,561
)
$
(4,323
)Pro forma


(420,839
)

(248,251
)

(5,356
)Net loss per common sharebasic:As reported

$
(13.11
)
$
(7.74
)
$
(.14
)Pro forma


(13.15
)

(7.75
)

(.17
)Net loss per common sharediluted:As reported

$
(13.11
)
$
(7.74
)
$
(.13
)Pro forma


(13.15
)

(7.75
)

(.17
)Weighted average fair value per option granted

$


$
2.00

$



The
pro forma impact of these options is not likely to be representative of the effects on reported net income for future years. All stock options under the 2001 Plan and 1996 Plan were
canceled as part of the Company's emergence from Chapter 11. Refer to Note 28. "Recapitalization" for further discussion of the Company's financial restructuring.



The Company sponsored a stock purchase plan that allowed employee participants to purchase common stock of the Company through payroll deductions. Purchases of
shares were made by a third party administrator at the fair value of the Company's common stock on the transaction date. The Company suspended employee contributions to such plan on
December 30, 2001 due to share price volatility, general market conditions, plan administration costs and low employee participation. The employee stock purchase plan was terminated pursuant to
the Modified Plan.

Note 16. Shareholders' Equity

The Company's authorized capital stock consisted of 100,000,000 shares of common stock, par value $0.01 per share, 3,000,000 shares of non-voting
common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share. Subject to certain regulatory limitations, the non-voting common stock was
convertible on a one-for-one basis into common stock at the option of the holder. The Company's Board of Directors could have, without further action by the shareholders,
directed the issuance of shares of preferred stock and could have determined the rights, preferences, conversion features, dividend rate (including whether such dividend would have been cumulative or
noncumulative) and limitations of each issue. Satisfaction of any dividend preferences of outstanding shares of preferred stock would have reduced the amount of funds available for common dividends.
Holders of shares of preferred stock would have been entitled to receive a preference before any payment was made to common shareholders. The capital structure was substantially changed as a
result of the Company's emergence from Chapter 11. Refer to Note 28. "Recapitalization" for further discussion of the Company's financial restructuring.

76

---



On April 15, 1996, the Company's Board of Directors declared a dividend of one right for each share of common stock outstanding at the close of business on
June 3, 1996. The holders of additional common stock issued subsequent to such date and before the occurrence of certain events were entitled to one right for each additional share. Each right
entitled the registered holder under certain circumstances to purchase from the Company one-thousandth of a share of Series A junior preferred stock at a price of $80 per
one-thousandth share of junior preferred stock, subject to adjustment. The Company could have redeemed the rights at $.01 per right prior to the occurrence of certain events. Prior to
exercise of a right, the holder would have had no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends or distributions. In addition, the
rights contained certain anti-takeover effects. The rights were not issued in separate form and were not traded other than with the shares to which they attached. If unexercised, the
rights would have expired on June 3, 2006. 100,000 shares of junior preferred stock were reserved for issuance under this plan. The rights were terminated concurrently with the Company's
emergence from Chapter 11. Refer to Note 28. "Recapitalization" for further discussion of the Company's financial restructuring.

Note 17. Pension Benefits and Postretirement Plans

The Company and its subsidiaries sponsor multiple defined benefit plans and other postretirement benefit plans that cover certain employees. Benefits are based on
years of service and the employee's

77

---

compensation. It is the Company's policy to fund such plans in accordance with applicable laws and regulations.

|                                               |  | U.S. Plans
Pension Benefits |         | Non-U.S. Plans
Pension Benefits |  
|---------------------------------------------- |  | --------------------------- | ------- | ------------------------------- | -
|
|
|Benefit obligation at beginning of year        |  | $                           | (12,345 | )                               | $
|Service costs                                  |  |                             | (295    | )                               |  
|Interest costs                                 |  |                             | (896    | )                               |  
|Participant contributions                      |  |                             |        |                                 |  
|Plan amendments                                |  |                             |        |                                 |  
|Actuarial (loss)/gain                          |  |                             | (1,216  | )                               |  
|Currency translation adjustment and other      |  |                             |        |                                 |  
|Benefit payments                               |  |                             | 978     |                                 |  
|                                               |  |                             |         |                                 |  
|Benefit obligation at end of year              |  | $                           | (13,774 | )                               | $
|                                               |  |                             |         |                                 |  
|Fair value of plan assets at beginning of year |  | $                           | 9,903   |                                 | $
|Actual return on plan assets                   |  |                             | (846    | )                               |  
|Employer contribution                          |  |                             | 34      |                                 |  
|Plan amendments                                |  |                             |        |                                 |  
|Actuarial (loss)/gain                          |  |                             |        |                                 |  
|Benefit payments                               |  |                             | (978    | )                               |  
|Currency translation adjustment and other      |  |                             |        |                                 |  
|                                               |  |                             |         |                                 |  
|Fair value of plan assets at end of year       |  | $                           | 8,113   |                                 | $
|                                               |  |                             |         |                                 |  
|Funded status at year-end                      |  | $                           | (5,661  | )                               | $
|Unrecognized transition net (liability)        |  |                             |        |                                 |  
|Unrecognized transition net gain/(loss)        |  |                             | 2,197   |                                 |  
|Unrecognized prior service cost                |  |                             | 105     |                                 |  
|Currency translation adjustment and other      |  |                             |        |                                 |  
|                                               |  |                             |         |                                 |  
|Net prepaid (accrued) benefit cost recognized  |  | $                           | (3,359  | )                               | $
|                                               |  |                             |         |                                 |  

The
Company has two plans whose fair value of plan assets exceeds the benefit obligation. In 2002, the total amount netted in the funded status above for these plans approximates
$1.6 million. The total amount of prepaid benefit cost included in the net prepaid (accrued) benefit cost recognized related to these plans approximates $3.2 million.

78

---

|                                               |  | U.S.
Postretirement Plans |        | Non-U.S.
Postretirement Plans |  
|---------------------------------------------- |  | ------------------------- | ------ | ----------------------------- | -
|
|
|Benefit obligation at beginning of year        |  | $                         | (4,097 | )                             | $
|Service costs                                  |  |                           | (140   | )                             |  
|Interest costs                                 |  |                           | (273   | )                             |  
|Participant contributions                      |  |                           |       |                               |  
|Plan amendments                                |  |                           |       |                               |  
|Actuarial (loss)/gain                          |  |                           | (724   | )                             |  
|Currency translation adjustment and other      |  |                           |       |                               |  
|Benefit payments                               |  |                           | 202    |                               |  
|                                               |  |                           |        |                               |  
|Benefit obligation at end of year              |  | $                         | (5,032 | )                             | $
|                                               |  |                           |        |                               |  
|Fair value of plan assets at beginning of year |  | $                         |       |                               | $
|Actual return on plan assets                   |  |                           |       |                               |  
|Acquisition                                    |  |                           |       |                               |  
|Employer contribution                          |  |                           | 202    |                               |  
|Participant contributions                      |  |                           |       |                               |  
|Plan amendments                                |  |                           |       |                               |  
|Benefit payments                               |  |                           | (202   | )                             |  
|Currency translation adjustment and other      |  |                           |       |                               |  
|                                               |  |                           |        |                               |  
|Fair value of plan assets at end of year       |  | $                         |       |                               | $
|                                               |  |                           |        |                               |  
|Funded status at year-end                      |  | $                         | (5,032 | )                             | $
|Unrecognized transition net (liability)        |  |                           |       |                               |  
|Unrecognized transition net gain/(loss)        |  |                           | 1,092  |                               |  
|Unrecognized prior service cost                |  |                           |       |                               |  
|Currency translation adjustment and other      |  |                           |       |                               |  
|                                               |  |                           |        |                               |  
|(Accrued) benefit cost recognized              |  | $                         | (3,940 | )                             | $
|                                               |  |                           |        |                               |  

79

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|                                         |                                                          | U.S. Plans
Pension Benefits |   | Non-U.S. Plans
Pension Benefits |  
|---------------------------------------- | -------------------------------------------------------- | --------------------------- | - | ------------------------------- | -
|
|
|Components of net periodic benefit cost: |                                                          |                             |   |                                 |  
|                                         | Current service costs                                    |                             | $ | 295                             |  
|                                         | Interest costs on projected benefit obligation and other |                             |   | 896                             |  
|                                         | (Return) on plan assets                                  |                             |   | (856                            | )
|                                         | Plan amendment                                           |                             |   |                                |  
|                                         | Net amortization of transition obligation and other      |                             |   | 533                             |  
|                                         |                                                          |                             |   |                                 |  
|                                         | Periodic benefit cost, net                               |                             | $ | 868                             |  
|                                         |                                                          |                             |   |                                 |  
|Weighted average assumption rates:       |                                                          |                             |   |                                 |  
|                                         | Return on plan assets                                    |                             |   | 8.0                             | %
|                                         | Discount rate on projected benefit obligations           |                             |   | 6.5                             |  
|                                         | Salary and wage escalation rate                          |                             |   | 5.0                             |  

|                                         |                                                          | U.S.
Postretirement Plans |   | Non-U.S.
Postretirement Plans |  
|---------------------------------------- | -------------------------------------------------------- | ------------------------- | - | ----------------------------- | -
|
|
|Components of net periodic benefit cost: |                                                          |                           |   |                               |  
|                                         | Current service costs                                    |                           | $ | 140                           |  
|                                         | Interest costs on projected benefit obligation and other |                           |   | 273                           |  
|                                         | (Return) on plan assets                                  |                           |   |                              |  
|                                         | Plan amendment                                           |                           |   |                              |  
|                                         | Net amortization of transition obligation and other      |                           |   | 13                            |  
|                                         |                                                          |                           |   |                               |  
|                                         | Periodic benefit cost, net                               |                           | $ | 426                           |  
|                                         |                                                          |                           |   |                               |  
|Weighted average assumption rates:       |                                                          |                           |   |                               |  
|                                         | Discount rate on projected benefit obligations           |                           |   | 6.5                           | %

80

---

The
assumed annual composite rate of increase in the per capita cost of Company provided health care benefits are reflected in the following table:

Year

Composite
Rate of
Increase2000

7.1-10.0
%2001

7.1-10.02002

7.1-10.02003

6.6-10.02004

6.1-8.02005

5.6-8.02006

5.1-6.02007 and thereafter

4.6-6.0


A
one-percentage point change in assumed health care cost trend rates would have the following effects:

1-Percentage
Point
Increase

1-Percentage
Point
Decrease(In Thousands)Effect on total of service and interest cost components

$
64

$
(58
)Effect on postretirement benefit obligation


921


(778
)


The
Company sponsors several defined contribution plans through its domestic subsidiaries covering employees who meet certain service requirements. The Company makes contributions to the
plans based upon a percentage of the employees' contribution in the case of its 401(k) plans or upon a percentage of the employees' salary or hourly wages in the case of its noncontributory money
purchase plans. The cost of the plans was $3.2, $3.8 and $3.9 million for 2002, 2001 and 2000, respectively.

Note 18. Segment Information

The Company reports segment information in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and assessing performance. The Company's reportable market segments consist of Consumer and Industrial & Specialty and beginning in fiscal 2003, the
Company will be required to report operating data to its senior lenders under the Restructured Credit Facility based upon the Company's primary operating divisions. Therefore, for reporting purposes
under FAS 131, disclosures for the operating divisions have been presented in the following table. Sales to P&G account for more than 10% of the Company's sales in each of the three years ended
December 28, 2002. Sales to J&J accounted for more than 10% of the Company's sales in fiscal 2001 and 2000, respectively. Sales to these customers are reported primarily in the Consumer market
segment. Consequently, the loss of these sales would have a material adverse effect on this segment. Generally, the Company's nonwoven products can be manufactured on more than one type of production
line. Accordingly, certain costs attributed to each segment of the business were determined on an allocation basis. Production times have a similar relationship to net sales, thus the Company believes
a reasonable basis for allocating certain costs is the percent of net sales method for the market segment data. The Company recorded unusual items during fiscal 2002 and 2001

81

---

consisting of asset impairment, plant realignment, special charges and other unusual items. These charges have not been allocated to the segment data because the Company's management does not
evaluate information that is not considered operating in nature on a segment-by-segment basis.

Segment
operating performance is measured and evaluated before unusual or special items. Financial data by segments follows (in thousands):

Fiscal Year2002

2001

2000Market SegmentsNet salesConsumer

$
417,936

$
463,537

$
486,328Industrial and specialty


337,755


352,029


375,707$
755,691

$
815,566

$
862,035Operating income (loss)Consumer

$
21,832

$
29,072

$
62,191Industrial and specialty


(3,249
)

(1,851
)

22,37218,583


27,221


84,563Asset impairment


(317,898
)

(181,190
)

Plant realignment


(1,054
)

(7,441
)

Special charges and other unusual items


(6,242
)

(1,850
)

$
(306,611
)
$
(163,260
)
$
84,563Depreciation and amortization expense included in operating income (loss):Consumer

$
37,389

$
46,299

$
43,499Industrial and specialty


26,950


31,984


28,766$
64,339

$
78,283

$
72,265Capital SpendingConsumer

$
10,897

$
12,186

$
48,530Industrial and specialty


4,482


9,254


37,492$
15,379

$
21,440

$
86,022Identifiable assetsConsumer

$
404,220

$
634,642

$
767,866Industrial and specialty


326,670


482,994


652,197Corporate


80,429


114,578


87,931$
811,319

$
1,232,214

$
1,507,994


82

---

Fiscal Year2002

2001

2000Operating DivisionsNet salesNonwovens

$
609,486

$
666,406

$
708,680Oriented Polymers


146,205


149,905


153,333Eliminations





(745
)

22$
755,691

$
815,566

$
862,035Operating income (loss)Nonwovens

$
13,681

$
19,213

$
67,696Oriented Polymers


6,219


9,395


16,899Unallocated Corporate


(1,329
)

(341
)

(12
)Eliminations


12


(1,046
)

(20
)18,583


27,221

$
84,563Asset impairment


(317,898
)

(181,190
)

Plant realignment


(1,054
)

(7,441
)

Special charges and other unusual items


(6,242
)

(1,850
)

$
(306,611
)
$
(163,260
)
$
84,563Depreciation and amortization expense included in operating income (loss)Nonwovens

$
55,935

$
68,299

$
62,006Oriented Polymers


8,347


9,934


9,936Unallocated Corporate


57


143


303Eliminations





(93
)

20$
64,339

$
78,283

$
72,265Capital SpendingNonwovens

$
13,088

$
17,975

$
80,615Oriented Polymers


2,291


3,465


5,407$
15,379

$
21,440

$
86,022Division assetsNonwovens

$
950,473

$
1,118,480

$
1,351,458Oriented Polymers


159,445


204,141


294,669Corporate


2,567,353


2,113,134


2,090,271Eliminations


(2,865,952
)

(2,203,541
)

(2,228,404
)$
811,319

$
1,232,214

$
1,507,994


83

---



Note 19. Geographic Information

Geographic data for the Company's operations are presented in the following table. Export sales from the Company's United States operations to unaffiliated
customers approximated $70.2, $89.9 and $95.8 million during 2002, 2001 and 2000, respectively.

Fiscal Year2002

2001

2000(In Thousands)Net salesUnited States

$
351,112

$
412,271

$
471,666Canada


97,058


99,684


98,152Europe


180,507


184,564


202,699Asia


25,374


21,412


18,081Latin America


101,640


97,635


71,437$
755,691

$
815,566

$
862,035Operating income (loss)United States

$
(22,025
)
$
(19,778
)
$
28,856Canada


5,788


10,539


13,577Europe


12,952


15,962


27,565Asia


4,211


2,827


2,552Latin America


17,657


17,671


12,01318,583


27,221


84,563Asset impairment


(317,898
)

(181,190
)

Plant realignment


(1,054
)

(7,441
)

Special charges and other unusual items


(6,242
)

(1,850
)

$
(306,611
)
$
(163,260
)
$
84,563Depreciation and amortization expense included in operating income (loss)United States

$
39,469

$
50,132

$
45,843Canada


5,392


6,262


6,402Europe


9,678


10,301


10,160Asia


3,569


3,512


3,117Latin America


6,231


8,076


6,74364,339

$
78,283

$
72,265Identifiable assetsUnited States

$
374,705

$
728,688

$
924,022Canada


110,181


138,809


154,254Europe


159,637


188,960


239,202Asia


39,643


41,427


42,104Latin America


127,153


134,330


148,412$
811,319

$
1,232,214

$
1,507,994


84

---

Note 20. Foreign Currency and Other

Foreign currency and other for the fiscal years ended 2002, 2001 and 2000 consist of the following (in thousands):

2002

2001

2000Foreign currency and other:Foreign currency losses

$
9,619

$
8,102

$
1,447Minority interest and other, net


1,366


(2,694
)

(898
)Write-down of investment in joint venture


4,400





$
15,385

$
5,408

$
549


During the first quarter of fiscal 2001, the Company exercised an option to obtain a 45% minority position in a start-up nonwovens production line in
Saudi Arabia (the "Saudi Line"). Over the course of 2001, the Company funded approximately $4.4 million, which represented its pro-rata share, of the construction costs of the Saudi
Line. The Company was not permitted to acquire more than a 45% interest in the Saudi Line pursuant to Amendment No. 6. Prior to the third quarter of 2002, the Company's equity stake in the
Saudi Line was under review pending finalization of the Investment Approval Application between and the Company and its partner, which was required to be submitted for approval to the Saudi Arabian
government. However, during the third quarter of 2002, it became apparent that an agreement could not be reached between the Company and its partner concerning ownership and operation of the Saudi
Line and accordingly, the Company recorded a $4.4 million charge to earnings for the write-down of its investment in the Saudi Line during the third quarter of 2002. The Company is
exploring its legal and other options and intends to aggressively pursue recovering its investment in the Saudi Line.

Note 21. Purchase Option and Subsidiary Matters

During the third quarter of 2002, the Company's 40% minority shareholder in DNS exercised an option under the Purchase and Option Agreement dated July 1,
2000 whereby the Company or the minority shareholder could elect to sell their respective ownership share of DNS to the other party. The completion of the purchase of shares under the option is
subject to approval of the Company's lenders, which has not been obtained. In addition, the Company and the minority shareholder have not agreed to an acquisition price for such additional investment.
The Company did not receive any approval from the U.S. Bankruptcy Court to engage in such transaction.

The
Company acquired an 80% majority ownership position in Vateks during fiscal 1999. The acquisition agreement contained a purchase price adjustment based upon the achievement of
certain operating targets within an agreed-upon period after the acquisition date. Vateks did not achieve the operating targets and thus the Company sought to recover the short fall as
calculated pursuant to the provisions of the acquisition agreement. The Company and former majority shareholder did not agree on such amount and therefore, the settlement proceeded to arbitration. The
independent arbitrator concurred that the Company was entitled to receive an adjustment of the purchase price pursuant to the agreement. Accordingly, the Company and former shareholder agreed to a
settlement of approximately $1.8 million payable in installments between fiscal 2002 and 2004. The Company received approximately $0.6 million during fiscal 2002 representing the first
settlement installment. Such amount has been accounted for as an adjustment to the purchase price of Vateks pursuant to the provisions of APB No. 16. Subsequent installment payments, in
accordance with the settlement agreement, have not been

85

---

paid to the Company by the former shareholder. Accordingly, the Company is pursuing its alternatives relative to this matter.

Note 22. Related Party Transactions

The Company's corporate headquarters are housed in space leased by a shareholder of the Company from an affiliate of the shareholder at an approximate annual
rental charge of $0.2 million. Shared service costs are charged to the Company and approximated $0.8, $2.1 and $1.7 million in 2002, 2001 and 2000 respectively. The Company leased a
manufacturing facility from an affiliated entity that the Company believed was comparable to similar properties in the area. This lease was terminated in January 2003 at no cost to the Company.
Annual rent expense relating to this terminated lease approximated $0.2 million in 2002, 2001 and 2000. In addition, during 2000 the Company purchased equipment for approximately
$0.3 million from an entity affiliated with the Company. The Company believes that the purchase price for this equipment was comparable to that which would have been paid to an unaffiliated
third party.

The
Company also entered into a Joint Development Agreement dated as of April 17, 2002 and a Supply Agreement dated April 30, 2002, with a third party affiliated with
certain of the Company's stockholders. During 2002, no payments were made by either party under either of these agreements.

As
part of the financing of the acquisition of Dominion, the Company received a $69.0 million investment from ZB Holdings, Inc. ("ZB Holdings"), an entity affiliated with
the Company. This amount, including interest of approximately $0.6 million, was repaid during January 1998. In connection with this transaction, ZB Holdings requested consideration from
the Company in return for providing a portion of the financing required to complete the tender offer for the outstanding shares of Dominion. Independent members of the Board of Directors engaged
independent outside legal counsel and an independent banking firm to evaluate this request. Pursuant to the review, ZB Holdings received $5.3 million during 1998 from the Company that was
capitalized a part of the cost of the acquisition in 1998.

Note 23. Certain Matters

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

86

---

could potentially have a material adverse effect on the Company. At December 28, 2002, the amounts due from Galey for fiscal 2002 shared cash activity pursuant to the MSA, including amounts
associated with statutory tax payments, approximated $1.4 million (the "Galey Receivable"). The Company has fully reserved the Galey Receivable at December 28, 2002 due to the
uncertainty of collectibility at such date. All shared cash activity prior to the first quarter of 2002 relative to the MSA has been collected from Galey. During 2002, the Company recorded
non-cash charges of $2.6 million related to pension and post retirement benefit costs pursuant to Galey's contemplated rejection of the MSA. Such costs consist of retiree benefits
associated with certain Canadian benefit plans of Dominion that were previously shared with Galey. The Company has classified these non-cash costs under the caption "Other unusual items"
in the consolidated statement of operations for 2002.

On
April 23, 2002, the Company filed a demand for arbitration against Johnson & Johnson ("J&J"). The primary issue in the arbitration is the Company's assertion that J&J
breached a supply agreement when: (i) J&J and its affiliates in the U.S., Canada and Europe failed both to purchase certain products from the Company and to allow the Company a reasonable
opportunity to compete for certain sales; and (ii) J&J failed to encourage its affiliates in other parts of the world to buy the Company's products. The arbitration is currently pending in the
State of New York.

Note 24. New Accounting Standards

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

On
July 30, 2002, the FASB issued SFAS No 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of SFAS No. 146 are effective for exit or
disposal activities that are initiated after December 31, 2002. The Company currently anticipates incurring cost pursuant to SFAS 146 during 2003 related to its continued business
restructuring efforts. Such cost will be expensed as incurred in accordance with this standard.

On
December 31, 2002, the FASB issued SFAS No 148, "Accounting for Stock-Based CompensationTransition and Disclosure." SFAS 148 amends SFAS
No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for an entity that changes to the fair value method of accounting for stock-based employee
compensation. In addition. SFAS 148 amends the disclosure provisions of SFAS 123 to require expanded and more prominent disclosure of the effects of an entity's accounting policy with
respect to stock-based employee compensation. SFAS No. 148 is effective for fiscal year 2003. The Company does not anticipate that SFAS 148 will have a significant effect on its results
of operations as a result of the cancellation of all stock options under the 1996 Plan and 2001 Plan pursuant to the Modified Plan.

87

---

Note 25. Quarterly Results of Operations (Unaudited)

As a result of the adoption of FAS 142, the Company recognized a cumulative effect of a change in accounting principle related to goodwill of approximately
$12.8 million during 2002. In accordance with FAS 142, this adjustment has been reflected in the first quarter 2002 results in the table below. The Company recorded a non-cash impairment
charge in the fourth quarter of fiscal year 2002 and 2001 of approximately $317.9 million and $181.2 million, respectively, related to the write-down of intangible assets and property,
plant and equipment.

|                                                                |  | First Quarter |         |   |   |         |   |   |        
|--------------------------------------------------------------- |  | ------------- | ------- | - | - | ------- | - | - | -------
|
|
|Fiscal year ended December 28, 2002                             |  |               |         |   |   |         |   |   |        
|Net sales                                                       |  | $             | 191,180 |   | $ | 191,180 |   | $ | 200,781
|Gross profit                                                    |  |               | 28,469  |   |   | 28,469  |   |   | 36,881 
|Loss before cumulative effect of change in accounting principle |  |               | (29,573 | ) |   | (29,573 | ) |   | (17,769
|Cumulative effect of change in accounting principle             |  |               |        |   |   | (12,774 | ) |   |       
|Net loss                                                        |  | $             | (29,573 | ) | $ | (42,347 | ) | $ | (17,769
|                                                                |  |               |         |   |   |         |   |   |        
|Net loss per common sharebasic and diluted                     |  | $             | (0.92   | ) | $ | (1.32   | ) | $ | (0.56  
|                                                                |  |               |         |   |   |         |   |   |        

|                                            |  | First
Quarter |         | Second
Quarter |   | Third
Quarter |   | Fourth
Quarter |        
|------------------------------------------- |  | ------------- | ------- | -------------- | - | ------------- | - | -------------- | -------
|
|Fiscal year ended December 29, 2001         |  |               |         |                |   |               |   |                |        
|Net sales                                   |  | $             | 201,256 |                | $ | 214,387       |   | $              | 202,381
|Gross profit                                |  |               | 31,062  |                |   | 36,337        |   |                | 37,062 
|Net loss                                    |  | $             | (18,584 | )              | $ | (13,035       | ) | $              | (11,548
|                                            |  |               |         |                |   |               |   |                |        
|Net loss per common sharebasic and diluted |  | $             | (0.58   | )              | $ | (0.41         | ) | $              | (0.36  
|                                            |  |               |         |                |   |               |   |                |        

Note 26. Investment in Partially-Owned Equity Affiliate

As part of the acquisition of Dominion and through its wholly-owned subsidiary, DTA, the Company acquired a 50% equity interest in a Canadian-based manufacturer
of home furnishing products. The Company's equity ownership of this entity is a 50% shared investment with Galey pursuant to the MSA; therefore, the Company's effective ownership approximates 25%.
Thus the results of this entity are not consolidated with those of the Company. At December 28, 2002, the Company's investment in this entity approximated $0.3 million. The Company
received no dividends from this entity during 2002 nor has the

88

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Company guaranteed any of this entity's obligations. Summarized unaudited financial information of this entity is presented below (in thousands):

As of
December 28, 2002

As of
December 29, 2001Current assets

$
3,249

$
2,840Property, plant and equipment, net


2,024


2,186Current liabilities


2,944


2,414Shareholders' equity


2,329


2,612


Fiscal Years2002

2001

2000Net sales

$
17,169

$
15,080

$
19,328Gross profit


1,095


444


1,899Net income (loss)


(316
)

(761
)

533


Note 27. Selected Financial Data of Entities in Chapter 11 Reorganization

Selected condensed balance sheet and statement of operations data for the entities in the Chapter 11 Proceedings are presented in the following table (in
thousands):

Condensed Consolidating Balance Sheet
As of December 28, 2002

|ASSETS                                         |                                                      | Combined
Entities In
Chapter 11
Reorganization |           | Combined
Entities Not In
Chapter 11
Reorganization |   | Reclassifications
and Eliminations |         | Consolidated |           
|---------------------------------------------- | ---------------------------------------------------- | ---------------------------------------------- | --------- | -------------------------------------------------- | - | ---------------------------------- | ------- | ------------ | ----------
|Current assets                                 |                                                      | $                                              | 142,563   |                                                    | $ | 201,446                            |         | $            | (7,510    
|Investment in subsidiaries                     |                                                      |                                                | 1,666,810 |                                                    |   |                                   |         |              | (1,666,810
|Intercompany receivables                       |                                                      |                                                | 1,547,129 |                                                    |   | 61,334                             |         |              | (1,608,463
|Property, plant and equipment, net             |                                                      |                                                | 212,933   |                                                    |   | 216,595                            |         |              |          
|Intangibles and loan acquisition costs, net    |                                                      |                                                | 27,064    |                                                    |   | 6,293                              |         |              |          
|Other                                          |                                                      |                                                | 29,561    |                                                    |   | 14,286                             |         |              | (31,912   
|                                               |                                                      |                                                |           |                                                    |   |                                    |         |              |           
|                                               | Total Assets                                         |                                                | $         | 3,626,060                                          |   | $                                  | 499,954 |              | $         
|                                               |                                                      |                                                |           |                                                    |   |                                    |         |              |           
|LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT) |                                                      |                                                |           |                                                    |   |                                    |         |              |           
|Current liabilities                            |                                                      | $                                              | 48,169    |                                                    | $ | 68,463                             |         | $            | (38       
|Long-term debt, less current portion           |                                                      |                                                | 473,959   |                                                    |   | 4,265                              |         |              |          
|Other noncurrent liabilities                   |                                                      |                                                | 32,807    |                                                    |   | 41,372                             |         |              | (28,870   
|Intercompany payables                          |                                                      |                                                | 1,345,004 |                                                    |   | 266,505                            |         |              | (1,611,509
|Liabilities subject to compromise              |                                                      |                                                | 637,106   |                                                    |   |                                   |         |              |          
|Shareholders' equity (deficit)                 |                                                      |                                                | 1,089,015 |                                                    |   | 119,349                            |         |              | (1,674,278
|                                               |                                                      |                                                |           |                                                    |   |                                    |         |              |           
|                                               | Total Liabilities and Shareholders' Equity (Deficit) |                                                | $         | 3,626,060                                          |   | $                                  | 499,954 |              | $         
|                                               |                                                      |                                                |           |                                                    |   |                                    |         |              |           

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Condensed Consolidating Statement of Operations
For the Fiscal Year Ended December 28, 2002

|                                            |  | Combined
Entities In
Chapter 11
Reorganization |          | Combined
Entities Not In
Chapter 11
Reorganization |   | Reclassifications
and Eliminations |   | Consolidated |        
|------------------------------------------- |  | ---------------------------------------------- | -------- | -------------------------------------------------- | - | ---------------------------------- | - | ------------ | -------
|Net sales                                   |  | $                                              | 393,304  |                                                    | $ | 404,579                            |   | $            | (42,192
|Gross profit                                |  |                                                | 37,397   |                                                    |   | 82,747                             |   |              | 61     
|Operating loss                              |  |                                                | (252,488 | )                                                  |   | (48,983                            | ) |              | (5,140 
|Interest expense, income tax and other, net |  |                                                | (80,582  | )                                                  |   | (34,523                            | ) |              | 2,079  
|                                            |  |                                                |          |                                                    |   |                                    |   |              |        
|Net loss                                    |  | $                                              | (333,070 | )                                                  | $ | (83,506                            | ) | $            | (3,061 
|                                            |  |                                                |          |                                                    |   |                                    |   |              |        

Note 28. Recapitalization

Description of Modified Plan

On November 27, 2002, the Company filed the Joint Amended Modified Plan of Reorganization (the "Modified Plan"). The Modified Plan consisted of:
(i) the restructuring of the Prepetition Credit Facility, including a payment (the "Secured Lender Payment") of $50.0 million on the Effective Date to the agent for the benefit of the
Senior Secured Lenders under the Prepetition Credit Facility, which Secured Lender Payment was exclusive of the proceeds (the "Chicopee Sale Proceeds") of the sale of the South Brunswick facility
owned by Chicopee, Inc., (ii) payment of 100% of the Chicopee Sale Proceeds to the agent for the benefit of the Senior Secured Lenders, (iii) a minimum $5.0 million
additional prepayment out of existing cash-on-hand, (iv) the retirement of in excess of $591.5 million of the Debtors' obligations under the Senior Subordinated
Notes, wherein each Holder of the Senior Subordinated Notes and other general unsecured creditors (other than claims of certain vendors who supplied goods and services to the Debtors during the
bankruptcy and with whom the Debtors intended to do business after emerging from bankruptcy ("Critical Vendor Claims") and claims held by non-debtor subsidiaries of the Company ("Intercompany Claims")
(together constituting the "Class 4 Claims") had the right to receive on, or as soon as practicable after the Effective Date, (x) its pro rata share of Class A Common Stock in
exchange for each $1,000 of its allowed claim or (y) at the election of each holder who was a Qualified Institutional Buyer (as defined in the Modified Plan and the 1933 Securities Act), its
pro rata share of Class C Common Stock, (v) the Critical Vendor Claims and Intercompany Claims were not impaired, (vi) each holder of an allowed Class 4 Claim that elected
to receive Class A Common Stock was given the option to take part in the new investment in the Convertible Notes (the "New Investment") by choosing to exercise its subscription rights (the
"Subscription Rights") thereto, which New Investment of $50 million was made in exchange for 10% subordinated convertible notes due 2006 (the "Convertible Notes"), (vii) GOF issued, or
caused to be issued, letters of credit in the aggregated amount of $25 million (the "Exit Letters of Credit") in favor of the agent under the Restructured Credit Facilities pursuant to a bank
term sheet, for which GOF was entitled to 10% senior subordinated notes due 2007 (the "New Senior Subordinated Notes") equal to the amount (if any) drawn against the Exit Letters of Credit (plus any
advances made by GOF solely in lieu of drawings under the Exit Letters of Credit), (viii) holders of the Company's existing common stock ("Old Polymer Common Stock") received 100% of the
Class B Common Stock (which will not be diluted by any conversions of the Convertible Notes) in exchange for their Old Polymer Common Stock interests; such Holders also received pro rata shares
of the new Series A and Series B Warrants (as discussed below).

90

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Under
the Modified Plan, all common stock of the reorganized Company (the "New Polymer Common Stock") was the same class (the "Class A Common Stock"), with the exception of
(i) separate classes (the "Class D Common Stock" and "Class E Common Stock") to be issued upon exercise of the Series A and Series B Warrants (as defined below),
(ii) the 4% of New Polymer Common Stock designated as "Class B Common Stock" issued to the holders of Old Polymer Common Stock, and (iii) a small percentage (the "Class C
Common Stock") issued to holders of Class 4 Claims, who
contributed such stock to the Special Purpose Entity ("SPE"). The Class C Common Stock shall pay a dividend payable equal to the lesser of (i) 1% per annum of the principal amount of the
promissory notes issued by the SPE or (ii) $1.0 million per annum. Shares of New Polymer Common Stock (other than Class A Common Stock) are convertible into shares of
Class A Common Stock on a one-for-one basis.

The
holders of Old Polymer Common Stock received two series of warrants, the Series A Warrants and Series B Warrants, which have (i) customary adjustments for stock
splits, stock dividends, and consolidations, (ii) specified anti-dilution protection for sales of securities by the reorganized Company ("New Polymer") at a price below the fair
market value of such securities if offered to all New Polymer common stock holders and (iii) specified anti-dilution protection for sales of securities by New Polymer at a discount
that exceeds 25% of the fair market value of such securities and which will not terminate upon a transaction with GOF or an affiliate of GOF. Except as set forth in the preceding sentence, the
Series A and Series B Warrants do not have anti-dilution provisions. In addition, the cash dividend payment by New Polymer described above in connection with the
Class C Common Stock is excluded from the calculation of cumulative distributions for all purposes relating to the Series A Warrants, the Series B Warrants, the Class D
Common Stock and the Class E Common Stock. The New Polymer Common Stock received by the holders of Class 4 Claims and the Holders of Old Polymer Common Stock and which will be issued
upon conversion of the Convertible Notes is subject to dilution upon the exercise of the Series A Warrants and Series B Warrants.

The
Modified Plan also provided that, on the Effective Date, in consideration of GOF acting as the standby purchaser for the New Investment, and in consideration of GOF's role in
facilitating a consensual resolution of the disputes among the parties involved in the negotiation of the Modified Plan, New Polymer paid GOF a Standby Purchaser fee of $2.0 million and an
arrangement and plan facilitation fee of $2.0 million.

In
order to facilitate the issuance of a new senior subordinated note ("New Senior Subordinated Note") in the amount of any drawing under the Exit Letter of Credit, MatlinPatterson
Global Partners LLC, ("Matlin Global Partners") a limited liability company organized under the laws of Delaware, the Company and its domestic subsidiaries, as guarantors, entered into a Senior
Subordinated Note Purchase Agreement (the "Senior Subordinated Note Purchase Agreement"), dated as of March 5, 2003, and pursuant thereto, the Company issued to Matlin Global Partners a New
Senior Subordinated Note.

The
Senior Subordinated Note Purchase Agreement and Senior Subordinated Note provide that upon any drawing under the Exit Letter of Credit, the principal amount due under the New Senior
Subordinated Note will automatically increase by the amount of such drawing. The Company is required to pay interest on any amount outstanding under the New Senior Subordinated Note
semi-annually in arrears on January 1 and June 1 of each year, commencing on June 1, 2003, at a rate of 10% per annum, and default interest in an amount of 2% per
annum will be payable on the principal amount in addition to the existing 10% rate. The Company shall, to the extent lawful, pay interest at a rate of 12% per annum on overdue interest.

The
Company's obligations under the Senior Subordinated Note Purchase Agreement and Senior Subordinated Note are guaranteed by the Company's domestic subsidiaries. Both the Company's

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obligations under the Senior Subordinated Note and the guarantees thereof are subordinate to the indebtedness outstanding under the Company's Restructured Credit Facility.

The
Senior Subordinated Note Purchase Agreement contains customary representations and warranties and standard default terms. Additionally, the Senior Subordinated Note Purchase
Agreement contains affirmative and negative covenants of the Company with respect to (a) delivery of information, (b) of proceeds of asset sales, (e) limitation on restricted payments,
(f) corporate existence, (g) limitation on liens, (h) future domestic subsidiary guarantors, (i) designation of unrestricted subsidiaries, and (j) mergers and similar
transactions involving the Company or the guarantors.

Description of Restructured Credit Facility

The Company's Restructured Credit Facility provides for secured revolving credit borrowings with aggregate commitments of up to $50.0 million and aggregate
term loans and term letters of credit of $435.3 million. Subject to certain terms and conditions, a portion of the Restructured Credit Facility may be used for revolving letters of credit. All
borrowings under the Restructured Credit Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the
Company and certain non-domestic subsidiaries of the Company. The Restructured Credit Facility and the related guarantees are secured by (i) a lien on substantially all of the
assets of the Company, its domestic subsidiaries and certain of its non-domestic subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic subsidiaries of the
Company and of certain non-domestic subsidiaries of the Company, and (iii) a pledge of certain secured intercompany notes issued to the Company or one or more of its subsidiaries by
non-domestic subsidiaries. Commitment fees under the Restructured Credit Facility are equal to 0.75% of the daily unused amount of the revolving credit commitment. The Restructured Credit
Facility contains covenants and events of default customary for financings of this type, including leverage, senior leverage, interest coverage and adjusted interest coverage. The Restructured Credit
Facility terminates on December 31, 2006. The loans are subject to mandatory prepayment out of proceeds received in connection with certain casualty events, asset sales and debt and equity
issuances and from excess cash flow.

The
interest rate applicable to borrowings under the Restructured Credit Facility is based on a specified base rate or a specified Eurodollar base rate, at the Company's option, plus a
specified margin. The applicable margin for revolving credit loans bearing interest based on the base rate is 2.75%, and the margin for revolving credit loans bearing interest on a Eurodollar rate is
3.75%. The applicable margin for term loans bearing interest based on the base rate will range from 4.00% to 8.00%, and the margin for term loans bearing interest on a Eurodollar rate will range from
5.00% to 9.00%, in each case based on the Company's ratio of senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis. In addition, if the Company's ratio of
senior consolidated indebtedness to consolidated EBITDA calculated on a rolling four quarter basis exceeds 5.00 to 1, the Company is required to pay to the term loan lenders and the term letter of
credit lenders a fee of 1.00% on the outstanding balance under the term loans and the term letters of credit.

Description of Convertible Subordinated Notes

In connection with the emergence from Chapter 11, the Company issued $50 million of 10% Convertible Subordinated Notes due 2007 (the "Junior Notes")
pursuant to an indenture dated as of March 5, 2003 (the "Junior Indenture"). The Junior Notes are unsecured subordinated indebtedness of the Company and are subordinated in right of payment to
all existing and future indebtedness of the Company which is not, by its terms, expressly junior to, orpari passuwith, the Junior Notes. The Junior
Notes are convertible into shares of Class A Common Stock, at an initial conversion price equal to $7.29

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per share. The Junior Indenture contains several covenants, including limitations on: (i) indebtedness; certain restricted payments; liens; transactions with affiliates; dividend and other
payment restrictions affecting certain subsidiaries; guarantees by certain subsidiaries; certain transactions including merger and asset sales; and (ii) certain restrictions regarding the
disposition of proceeds of asset sales.

Tax Implications of Chapter 11 Emergence

Implementation of the Modified Plan will result in the Company recognizing cancellation of indebtedness income ("CODI"). All of the CODI will be excluded from
taxable income. However, the Company will be required to reduce certain of its tax attributes, including net operating loss carryforwards ("NOLs"), by an amount not to exceed the CODI it realized. In
general, tax attributes will be reduced at the close of the 2003 tax year in the following order: (i) net operating loss carryforwards; (ii) tax credits and capital loss carryforwards;
and (iii) tax basis in assets. The Company is currently in the process of determining the amount of CODI and the corresponding reduction of its tax attributes and/or asset basis. It is
anticipated that the Company's net operating loss carryforwards will be entirely eliminated in 2003 as a result of the reorganization under the Modified Plan.

Pro Forma Capitalization

The following pro forma data in the table below is based on historical financial information of the Company as of December 28, 2002 adjusted to give effect
to the transactions that occurred pursuant to the Modified Plan on March 5, 2003. Such information does not purport to represent what the Company's indebtedness would have been had the Modified
Plan been completed on December 28, 2002.

|                                         |                              | Actual |           | (Unaudited)
As
Adjusted
|---------------------------------------- | ---------------------------- | ------ | --------- | -----------------------
|
|Indebtedness, including current portion: |                              |        |           |                        
|                                         | Prepetition Credit Facility  |        | $         | 484,478                
|                                         | Restructured Credit Facility |        |           |                       
|                                         | Senior Subordinated Notes    |        |           | 587,482                
|                                         | Junior Notes                 |        |           |                       
|                                         | Other                        |        |           | 20,405                 
|                                         |                              |        |           |                        
|                                         |                              | $      | 1,092,365 |                        
|                                         |                              |        |           |                        

Note 29. Fresh Start Accounting

The Company officially emerged from bankruptcy on March 5, 2003, but for accounting purposes the Company recognized the emergence on March 1, 2003,
which was the end of the February accounting period. In accordance with SOP 90-7, the Company will adopt "fresh-start accounting" as of March 1, 2003, and the Company's
emergence from Chapter 11 will result in a new reporting entity. Under fresh-start accounting, all assets and liabilities will be recorded at their estimated fair values and the Company's
accumulated deficit will be eliminated. In adopting fresh-start reporting, the Company is required to determine its enterprise value, which represents the fair value of the entity before considering
its interest bearing debt. The financial statements as of December 28, 2002 do not give effect to any adjustments in the carrying value of assets or classification of liabilities that will be
recorded upon implementation of fresh-start accounting.

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Note 30. Recent Developments and Subsequent Event

On March 11, 2003, the Company's Chief Executive Officer was replaced by James L. Schaeffer. The Company and its former Chief Executive Officer are
currently involved in a dispute with respect to the amount and timing of certain severance payments to be made to its former Chief Executive Officer, as well as other matters.

On
April 11, 2003, GOF entered into an agreement with the Company (the "GOF Agreement") pursuant to which GOF agreed to undertake certain actions solely for the purpose of
assisting the Company in maintaining compliance with the financial covenants contained in the Restructured Credit Facility during the period beginning on March 6, 2003, and ending on
January 4, 2004 as follows. GOF has agreed to amend the New Senior Subordinated Note and the Junior Notes it beneficially owns or controls (approximately $38 million aggregate principal
amount) to provide that interest that accrues from March 6, 2003 until January 31, 2005 on the New Senior Subordinated Note and from March 6, 2003 until January 5, 2004 on the
Junior Notes, may be paid by the Company issuing additional aggregate principal amount of debt securities rather than paying such interest in cash. In the event the Company is unable to meet the
senior leverage covenant, interest covenant or adjusted interest covenant contained in the Restructured Credit Facility, the Company is permitted to instruct the Agent under the Restructured Credit
Agreement to make a drawing under the Exit Letter of Credit and apply the amount of the drawing to repay indebtedness under the Restructured Credit Facility. GOF also has agreed that, in the event the
Company is unable to comply with the leverage covenant under the Restructured Credit Facility, GOF will convert such amount of its Junior Notes into Class A Common Stock. Finally, in the event the
Company has undertaken all the actions described above and is unable to meet the interest covenant solely for the 12-month period ending on the last day of the Company's third fiscal quarter of 2003,
GOF will purchase up to $10 million aggregate principal amount of additional senior subordinated notes (with interest payable in additional principal amount of senior subordinated notes) or
equity securities (the "New Investment") in order to allow the Company to repay indebtedness under the Restructured Credit Facility to meet such covenant. GOF's obligation to take any of these steps
is conditioned on Amendment No. 1 remaining in full force and effect.

As
of March 29, 2003, the Company and the Senior Secured Lenders under the Restructured Credit Facility, entered into Amendment No. 1. Amendment No. 1 permitted the Company to
take the actions described in the GOF Agreement, and also provides that in the event the Company repays indebtedness under the Restructured Credit Facility using the proceeds from the Exit Letter of
Credit or New Investment, for purposes of the interest and adjusted interest covenants, the interest savings to the Company is calculated on a pro forma basis as if the cash pay indebtedness had been
repaid as of March 6, 2003.

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ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required under this item is incorporated by reference from the Proxy Statement under the captions "Election of Directors" and "Executive
Compensation."

ITEM 11. EXECUTIVE COMPENSATION

Information required under this Item is incorporated by reference from the Proxy Statement under the caption "Executive Compensation."

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS

Information required under this Item is incorporated by reference from the Proxy Statement under the caption "Security Ownership."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information required under this Item is incorporated by reference from the Proxy Statement under the caption "Certain Relationships and Related Transactions."

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PART IV

ITEM 14.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's principal executive officer and its principal financial officer, after evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14), have concluded that the Company's disclosure controls and procedures were adequate and effective to
ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities.

Changes in Internal Controls

There were no significant changes in the Company's internal controls or in other factors that could significantly affect the Company's disclosure controls and
procedures subsequent to the date of their evaluation, nor were there any significant deficiencies or material weaknesses in the Company's internal controls. As a result, no corrective actions were
required or undertaken.

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

Financial Statements and Schedules



Exhibits

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

Form 8-K

On February 10, 2003, the Company filed a report on Form 8-K regarding the recent increase in raw material cost and the estimated effect on the Company's
EBITDA. Refer to "Raw Material and Commodity Risk" in this Annual Report on Form 10-K for additional discussion regarding raw material pricing.

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POLYMER GROUP, INC.        SCHEDULE IIVALUATION AND QUALIFYING ACCOUNTS        (In Thousands)

|COLUMN A                                    |  | COLUMN B |        | COLUMN C |         | COLUMN D |       | COLUMN E
|------------------------------------------- |  | -------- | ------ | -------- | ------- | -------- | ----- | --------
|
|
|Year ended December 28, 2002                |  |          |        |          |         |          |       |         
|Allowance for doubtful accounts             |  | $        | 11,998 |          | 2,769   |          | 40    |         
|Valuation allowance for deferred tax assets |  | $        | 57,088 |          | 105,505 |          |      |         
|Plant realignment                           |  | $        | 6,242  |          | 1,056   |          |      |         
|Year ended December 29, 2001                |  |          |        |          |         |          |       |         
|Allowance for doubtful accounts             |  | $        | 8,539  |          | 4,125   |          | 29    |         
|Valuation allowance for deferred tax assets |  | $        | 15,077 |          | 36,404  |          | 5,607 | (3)     
|Plant realignment                           |  | $        |       |          | 7,441   |          |      |         
|Year ended December 30, 2000                |  |          |        |          |         |          |       |         
|Allowance for doubtful accounts             |  | $        | 10,587 |          | 122     |          | 21    |         
|Valuation allowance for deferred tax assets |  | $        | 9,996  |          | 5,081   |          |      |         

---

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on
behalf of the registrant in the capacities indicated on April 11, 2003.

|Signature                             |  | Title                                                                                                                                   
|------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|                                      |  |                                                                                                                                         
|/s/JAMES G. BOYDJames G. Boyd         |  | Executive Vice President, Chief Financial Officer, Treasurer and Director (principal financial officer and principal accounting officer)
|/s/PEDRO ARIASPedro Arias             |  | Director                                                                                                                                
|/s/RAMON BETOLAZARamon Betolaza       |  | Director                                                                                                                                
|/s/LAP WAI CHANLap Wai Chan           |  | Director                                                                                                                                
|/s/WILLIAM B. HEWITTWilliam B. Hewitt |  | Director                                                                                                                                
|/s/EUGENE LINDENEugene Linden         |  | Director                                                                                                                                
|/s/JAMES OVENDENJames Ovenden         |  | Director                                                                                                                                
|/s/MICHAEL WATZKYMichael Watzky       |  | Director                                                                                                                                

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CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I,
James L. Schaeffer, certify that:



|Date: April 11, 2003 |  | /s/JAMES L. SCHAEFFERJames L. Schaeffer
Chief Executive Officer
|-------------------- |  | ---------------------------------------------------------------

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CERTIFICATION OF CHIEF FINANCIAL OFFICER

I,
James G. Boyd, certify that:



|Date: April 11, 2003 |  | /s/JAMES G. BOYDJames G. Boyd
Executive Vice President, Treasurer
and Chief Financial Officer
|-------------------- |  | ---------------------------------------------------------------------------------------------

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EXHIBIT INDEX

|Exhibit
Number |  | Document Description                                                                                                                                                                                      
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.1            |  | Agreement dated October 27, 1997, among Polymer Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc.(1)                                                                                                
|2.2            |  | Letter Agreement, dated October 27, 1997, among Polymer Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc.(2)                                                                                        
|2.3            |  | Operating Agreement, dated December 19, 1997, among Polymer Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc.(1)                                                                                    
|2.4            |  | DT Acquisition Inc. Offers to Purchase Statement for all outstanding Common Shares and all outstanding First Preferred Shares of Dominion Textile Inc., dated October 29, 1997.(2)                        
|2.5            |  | Notice of Extension and Variation by DT Acquisition Inc. in respect of its Offers to Purchase, dated November 18, 1997.(2)                                                                                
|2.6            |  | Notice of Extension by DT Acquisition Inc. in respect of its Offers to Purchase, dated December 2, 1997.(2)                                                                                               
|2.7            |  | Notice of Extension and Variation by DT Acquisition Inc. in respect of its Offers to Purchase, dated December 8, 1997.(2)                                                                                 
|2.8            |  | Notice of Extension by DT Acquisition Inc. in respect of its Offers to Purchase, dated December 17, 1997.(2)                                                                                              
|2.9            |  | Letter Agreement between DT Acquisition Inc., PGI and DTI dated November 16, 1997.(2)                                                                                                                     
|2.10           |  | Notice of Redemption pursuant to the provisions of Section 206 of theCanada Business Corporations Actin regard to holders of Common Shares of Dominion Textile Inc., dated
December 30, 1997.(2)          
|2.11           |  | Notice of Redemption pursuant to the provisions of Section 206 of theCanada Business Corporations Actin regard to holders of First Preferred Shares of Dominion Textile Inc.,
 dated December 30, 1997.(2)
|2.12           |  | Notice of Redemption in regard to holders of Second Preferred Shares, Series D of Dominion Textile Inc., dated December 23, 1997.(2)                                                                      
|2.13           |  | Notice of Redemption in regard to holders of Second Preferred Shares, Series E of Dominion Textile Inc., dated December 23, 1997.(2)                                                                      
|2.14           |  | Indenture, winding up Dominion Textile Inc. pursuant to theCanada Business Corporations Act, dated January 29, 1998.(2)                                                                                   
|2.15           |  | Master Separation Agreement, among Polymer Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc., dated January 29, 1998.(3)*                                                                           
|3.1(i)         |  | Form of Amended and Restated Certificate of Incorporation of the Company.(4)                                                                                                                              
|3.1(ii)        |  | Certificate of Designation of the Company.(7)                                                                                                                                                             
|3.2            |  | Amended and Restated By-laws of the Company.(4)                                                                                                                                                           
|4.1            |  | Indenture dated as of July 1, 1997 among the Company, the Guarantors and Harris Trust and Savings Bank, as trustee.(7)                                                                                    
|4.2            |  | Forms of Series A and Series B 9% Senior Subordinated Notes due 2007.(5)                                                                                                                                  
|4.3            |  | Form of Guarantee.(5)                                                                                                                                                                                     
|4.4            |  | Registration Rights Agreement dated as of July 3, 1997 among the Company, the Guarantors and Chase Securities Inc.(7)                                                                                     
|4.5            |  | Indenture, dated as of March 1, 1998 among Polymer Group, Inc., the Guarantors named therein and Harris Trust and Savings Bank, as trustee.(5)                                                            
|4.6            |  | Forms of Series A and Series B 83/4% Senior Subordinated Notes due 2008.(5)                                                                                                                               
|4.7            |  | Form of Guarantee.(5)                                                                                                                                                                                     
|4.8            |  | Registration Rights Agreement dated as of March 5, 1998, among Polymer Group, Inc., the Guarantors named therein and Chase Securities Inc.(6)                                                             

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|4.9   |  | Amended and Restated Credit Agreement dated July 3, 1997 by and among the Company, the Guarantors named therein, the lenders named therein and The Chase Manhattan Bank, as agent.(7) The Registrant will furnish to the
Commission, upon request, each instrument defining the rights of holders of long-term debt of the Registrant and its subsidiaries where the amount of such debt does not exceed 10 percent of the total assets of the Registrant and its subsidiaries on a
consolidated basis.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.10  |  | First Supplemental Indenture, dated October 27, 1997, between Polymer Group Inc., Harris Trust and Savings Bank and Loretex Corporation.(2)                                                                                                                                                                                                                                                                                                                                                            
|4.11  |  | Second Supplemental Indenture dated January 29, 1998, to indenture dated June 30, 1997, among Polymer Group, Inc., Dominion Textile (USA) Inc., with respect to the 9% Senior Subordinated Notes due 2008.(2)                                                                                                                                                                                                                                                                                          
|10.1  |  | Purchase Agreement, dated February 27, 1998, by and among Polymer Group, Inc., the Guarantors named herein and Chase Securities Inc., as Initial Purchaser, with respect to the 83/4% Senior
Subordinated Notes due 2008.(6)                                                                                                                                                                                                                                                                           
|10.2  |  | Amendment No. 2, dated January 29, 1998, to the Amended, Restated and Consolidated Credit Agreement dated July 3, 1997 by and among Polymer Group, Inc., the Guarantors named therein, the lenders named therein and The
Chase Manhattan Bank, as agent.(6)                                                                                                                                                                                                                                            
|10.3  |  | Amendment No. 3, dated April 9, 1999, to the Amended, Restated and Consolidated Credit Agreement dated July 3, 1997 by and among Polymer Group, Inc., the Guarantors named therein, the lenders named therein and the Chase
Manhattan Bank, as agent.(9)                                                                                                                                                                                                                                               
|10.5  |  | Amendment No. 4, dated March 30, 2000, the Amended, Restated and Consolidated Credit Agreement dated July 3, 1997 by and among Polymer Group, Inc., the Guarantors named therein, the lenders named therein and the Chase
Manhattan Bank, as agent.(11)                                                                                                                                                                                                                                                
|10.6  |  | Amendment No. 5, dated August 10, 2000, the Amended, Restated and Consolidated Credit Agreement dated July 3, 1997 by and among Polymer Group, Inc., the Guarantors named therein, the lenders named therein and the Chase
Manhattan Bank, as agent.(12)                                                                                                                                                                                                                                               
|10.7  |  | Amendment No. 6, dated April 11, 2001, the Amended, Restated and Consolidated Credit Agreement dated July 3, 1997 by and among Polymer Group, Inc., the Guarantors named therein, the lenders named therein and the Chase
Manhattan Bank, as agent.(13)                                                                                                                                                                                                                                                
|10.8  |  | Form of Supplemental Indenture, dated as of April 12, 2001, by and among the New Subsidiary Guarantor named therein, a wholly-owned subsidiary of the Company, and Harris Trust and Savings Bank pursuant to the Indenture
dated as of July 1, 1997, among the Company, the Guarantors and Harris Trust and Savings Bank, as trustee.(14)                                                                                                                                                              
|10.9  |  | Form of Supplemental Indenture, dated as of April 12, 2001, by and among the New Subsidiary Guarantor named therein, a wholly-owned subsidiary of the Company, and Harris Trust and Savings Bank pursuant to the Indenture
dated as of March 5, 1998, among the Company, the Guarantors and Harris Trust and Savings Bank, as trustee.(14)                                                                                                                                                             
|10.10 |  | Form of Subsidiary Guarantee, dated as of April 12, 2001, by the subsidiary guarantor named therein, a wholly-owned subsidiary of the Company, pursuant to the Indenture dated as of July 1, 1997, among the Company, the
Guarantors and Harris Trust and Savings Bank, as trustee.(14)                                                                                                                                                                                                                
|10.11 |  | Form of Subsidiary Guarantee dated as of April 12, 2001, by the subsidiary guarantor named therein, a wholly-owned subsidiary of the Company, pursuant to the Indenture dated as of March 5, 1998, among the Company, the
Guarantors and Harris Trust and Savings Bank, as trustee.(14)                                                                                                                                                                                                                
|10.12 |  | Amendment No. 7 dated as of April 4, 2002, to the Amended, Restated and Consolidated Credit Agreement dated July 3, 1997 by and among Polymer Group, Inc., the Guarantors named therein, the lenders named therein and the
JPMorgan Chase Bank, as agent.(15)                                                                                                                                                                                                                                          

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|10.13 |  | Revolving credit agreement and guarantee agreement, dated as of May 30, 2002, among Polymer Group, Inc, a debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code, the direct and indirect domestic
subsidiaries of the Borrower, each of which is a debtor and debtor-in-possession in a case pending under Chapter 11 of the Bankruptcy Code, JP Morgan Chase Bank, each of the other financial institutions from time to time party hereto and JPMorgan
Chase Bank, as administrative agent for the Lenders.(17)
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.14 |  | Form of Indemnification Agreement dated as of May 11, 2002, among the Company and each of its directors.(16)                                                                                                                                                                                                                                                                                                                                                                                                                              
|10.15 |  | Form of Termination of Rights of First Refusal Agreement dated as of May 11, 2002, among the Company and Messrs. Zucker and Boyd.(16)                                                                                                                                                                                                                                                                                                                                                                                                     
|10.16 |  | Form of Amendment to Change in Control Letter Agreement dated as of May 11, 2002, between the Company and Jerry Zucker.(16)                                                                                                                                                                                                                                                                                                                                                                                                               
|10.17 |  | Form of Amendment to Change in Control Letter Agreement dated as of May 11, 2002, between the Company and James G. Boyd.(16)                                                                                                                                                                                                                                                                                                                                                                                                              
|21    |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|23    |  | Consent of Ernst & Young LLP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|99.1  |  | Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                     
|99.2  |  | Certification by the Chief Financial Officer 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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