10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 30, 2006, or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                   to                   

Commission file number 1-14330

POLYMER GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	57-1003983
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
9335 Harris Corners Parkway, Suite 300	28269
Charlotte, North Carolina	(Zip Code)
(Address of principal executive offices)

Registrant’s telephone number, including area code: (704) 697-5100

Securities registered pursuant to Section 12(b) of the Act: None

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x

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 x 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Check one:

Large accelerated filer o                     Accelerated filer x                     Non-accelerated filer o

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

Indicate by checkmark 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 x No o

The aggregate market value of the Company’s voting stock held by non-affiliates as of July 1, 2006 was approximately $140.4 million, based on the average of the closing bid and ask price of the Class A common stock on the Over-the-Counter Bulletin Board. Solely for the purposes of the foregoing calculation, affiliates are considered to be Directors, Executive Officers and greater than 10% beneficial owners of the Registrant’s common equity. As of March 5, 2007, there were 19,128,253 shares of Class A common stock, 130,654 shares of Class B common stock and 24,319 shares of Class C common stock outstanding. No shares of Class D or Class E common stock were outstanding as of such date. The par value for each class of common stock is $.01 per share.

Documents Incorporated By Reference

Portions of the Registrant’s Notice of 2007 Annual Meeting of Stockholders and Proxy Statement—Part III

POLYMER GROUP, INC.

FORM 10-K

For the Fiscal Year Ended December 30, 2006

INDEX

IMPORTANT INFORMATION REGARDING THIS FORM 10-K		3
PART I
Item 1.	Business	5
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	17
Item 2.	Properties	18
Item 3.	Legal Proceedings	19
Item 4.	Submission of Matters to a Vote of Security Holders	19
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	20
Item 6.	Selected Financial Data	22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 8.	Financial Statements and Supplementary Data	47
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	94
Item 9A.	Controls and Procedures	94
Item 9B.	Other Information	97
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	97
Item 11.	Executive Compensation	97
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	97
Item 13.	Certain Relationships and Related Transactions, and Director Independence	98
Item 14.	Principal Accountant Fees and Services	98
PART IV
Item 15.	Exhibits and Financial Statement Schedules	99
	Signatures	103

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IMPORTANT INFORMATION REGARDING THIS FORM 10-K

Readers should consider the following information as they review this Form 10-K:

Fresh Start Accounting

In connection with Polymer Group, Inc.’s (the “Company” or “Polymer Group”) Chapter 11 reorganization, the Company has applied fresh start accounting to its Consolidated Balance Sheet as of March 1, 2003 in accordance with Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) as promulgated by the AICPA (Reference Item 1 in the Business section for additional information regarding the Company’s Chapter 11 reorganization). Under fresh start accounting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date fresh start reporting is applied. On March 5, 2003, the Company emerged from Chapter 11. For financial reporting purposes, March 1, 2003 is considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date.

Safe Harbor-Forward-Looking Statements

From time to time, the Company may publish forward-looking statements relative to matters such as, including, without limitation, anticipated financial performance, business prospects, technological developments, new product introductions, cost savings, research and development activities and similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate” or other words that convey the uncertainty of future events or outcomes.

Various statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact are, or may be deemed to be, 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. These forward-looking statements speak only as of the date of this report. Unless required by law, the Company does not undertake any obligation to update these statements and cautions against any undue reliance on them. These forward-looking statements are based on current expectations and assumptions about future events. While management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond the Company’s control. See Item 1A. “Risk Factors” below. There can be no assurance that these events will occur or that the Company’s results will be as estimated.

Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include:

·general economic factors including, but not limited to, changes in interest rates, foreign currency translation rates, consumer confidence, trends in disposable income, changes in consumer demand for goods produced, and cyclical or other downturns;

·substantial debt levels and potential inability to maintain sufficient liquidity to finance the Company’s operations and make necessary capital expenditures;

·inability to meet existing debt covenants;

·information and technological advances;

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·changes in environmental laws and regulations;

·cost and availability of raw materials, labor and natural and other resources and the inability to pass raw material cost increases along to customers;

·inability to achieve successful start-up on new production lines;

·domestic and foreign competition;

·delays or difficulties in finding a suitable new Chief Executive Officer;

·reliance on major customers and suppliers; and

·risks related to operations in foreign jurisdictions.

Fiscal Year-End

The Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal 2006 ended December 30, 2006 and included the results of operations for a fifty-two week period. Fiscal 2005 ended December 31, 2005 and included the results of operations for a fifty-two week period. Fiscal 2004 ended January 1, 2005 and included the results of operations for a fifty-two week period. References herein to “2006,” “2005,” and “2004,” generally refer to fiscal 2006, fiscal 2005 and fiscal 2004, respectively, unless the context indicates otherwise.

Additional Information

The Company’s website is located at www.polymergroupinc.com. Through the website, the Company makes available, free of charge, its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and other reports filed or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange Act. These reports are available as soon as reasonably practicable after they have been electronically filed with the Securities and Exchange Commission.

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PART I

ITEM 1.BUSINESS

Polymer Group, Inc. was originally incorporated in the State of Delaware on June 16, 1994 and is a global manufacturer and marketer of nonwoven and oriented polyolefin products.

The Company and each of its domestic subsidiaries filed voluntary petitions for Chapter 11 reorganization under the United States Bankruptcy Code in the United States Bankruptcy Court for the District of South Carolina (the “Bankruptcy Court”) on May 11, 2002 (April 25, 2002 as to Bonlam (S.C.), Inc.). Upon having its Modified Plan, as defined (the “Modified Plan”), approved by the Bankruptcy Court on January 16, 2003, the Company emerged from the Chapter 11 process effective March 5, 2003 (the “Effective Date”). For accounting purposes the Company recognized the emergence on March 1, 2003 and adopted “fresh-start accounting” as of that date. The Company’s emergence from Chapter 11 resulted in a new reporting entity, with the reorganization value of the Company allocated to the underlying assets and liabilities based on their respective fair values at the date of emergence. The initial allocation was based on preliminary estimates and has been revised as more recent information was received, as deemed appropriate, under generally accepted accounting principles in the United States. The revisions are reflected in the amounts included herein. References to “Predecessor” refer to the old Polymer Group and its subsidiaries on and prior to March 1, 2003 and references to “Successor” refer to Polymer Group and its subsidiaries on or after March 2, 2003, after giving effect to the implementation of fresh start accounting.

Recent Developments

In 2006, the Company continued its efforts to strengthen its balance sheet and reaffirm its global leadership position in the industry. These items are discussed in more detail throughout this report, with highlights presented below to assist the reader:

·continuing to expand the Company’s global business presence as it initiated commercial operations and ramped up sales from its new state-of-the-art spunbond lines in Cali, Columbia, Suzhou, China and Mooresville, North Carolina as well as announcing an additional spunmelt expansion project in Argentina that is expected to begin commercial operations in late fiscal 2007;

·initiating the restructuring and reorganization of certain of the Company’s operations, especially in the more developed markets of the United States, Europe and Canada to lower operating costs and improve overall financial performance; and

·securing an amendment to the Company’s long-term debt in December 2006 to provide additional financial flexibility by amending the total leverage and interest expense coverage covenants as well as the definition of several terms.

General

The Company supplies engineered materials to a number of the largest consumer and industrial product manufacturers in the world. The Company has a global presence with an established customer base in both developed and emerging markets. The Company’s product offerings are sold principally to converters that manufacture a wide range of end-use products. 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 allow it to supply products tailored to customers’ needs at competitive prices.

The Company operates twenty-one manufacturing and converting facilities (including its joint venture/partnership-type operations in Argentina and China) located in nine countries. 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

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technologies in order to increase capacity, improve quality and develop new high-value fabric 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.

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

Industry Overview

The Company competes primarily in the worldwide nonwovens market, which is approximately a $17.0 billion market with an average annual growth rate of 7.0-8.0% expected over each of the next five years, according to certain industry sources. The nonwovens industry began in the 1950’s 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 certain industry sources, that demand in the developed markets of North America, Western Europe and Japan will increase at an average rate of 3.0-4.0% in each of the next five years, while the emerging markets are forecasted to grow at an average rate of 13.0-14.0% per annum. In the developed markets, growth is expected to be driven primarily by new applications for nonwovens and by underlying market growth. Growth in the emerging markets should be driven primarily by increased penetration of disposable products as per capita income rises, and by higher amounts of nonwovens used per application for such products as diapers, as these products become more sophisticated over time. 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. Additionally, the Company’s growth rate may differ from the industry averages depending upon the regions the Company chooses to operate in and the technology available to the Company.

Nonwovens are categorized as either disposable (approximately 58.5% of worldwide industry sales with an average annual growth rate of 7.0-8.0%, according to industry sources) or durable (approximately 41.5% of worldwide industry sales and an average annual growth rate of 5.0-6.0%, according to industry sources). The composition of disposable products in emerging regions is expected to increase over the next five years as the growth rate for disposable products is expected to exceed that of durable products. The Company primarily competes in disposable products. 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, 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, automotive components, geotextiles, roofing membranes, carpet backing, agricultural fabrics, 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 are characterized by high strength-to-weight ratios, and also include twisted slit film or monofilament strands. The markets in which the Company primarily competes are made up of a large

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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. The Company also produces structural concrete reinforcement fiber using monofilament technology.

Business Strategy

The Company’s goals are to grow its core businesses while developing new technologies to capitalize on new product opportunities and expand in key geographic markets. The Company strives to be 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 emerging countries.

The Company develops, manufactures and sells a broad array of products. Sales are focused in two operating divisions: “Nonwovens” and “Oriented Polymers” that provide opportunities to leverage the Company’s advanced technology and substantial capacity. For financial information by business segment and geographic area, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 16 to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K.

Nonwovens Division

The Nonwovens division develops and sells products in various consumer and industrial markets. Major markets served by this division include hygiene, industrial, medical and wiping. Nonwovens division sales were approximately $848.3 million, $763.7 million and $672.6 million, of the Company’s consolidated net sales for fiscal 2006, 2005 and 2004, respectively, and represented approximately 83%, 80% and 80% of total Company net sales in each of those years.

The Company produces a variety of nonwoven materials for use in diapers, training pants, feminine sanitary protection, adult incontinence, baby 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 core 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 and drapes, face masks and shoe covers.

Among the industrial applications of the product offerings are electrical insulation, housewrap, filtration, cable wrap, furniture and bedding applications and automotive. Wiping applications include products for the consumer as well as institutional and janitorial applications.

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 with these customers in the development of next generation products. The Company believes that this technical support helps to ensure that the Company’s products will continue to be incorporated into such customers’ future product designs.

Oriented Polymers Division

The Oriented Polymers division provides flexible packaging products that utilize coated and uncoated oriented polyolefin fabrics. These include concrete fiber, housewrap, lumberwrap, fiberglass packaging tubes, balewrap for synthetic cotton and fibers, steel and aluminum wrap, coated bags for specialty chemicals and mineral fibers. Oriented Polymers division sales were approximately $173.3

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million, $185.1 million and $172.5 million for fiscal 2006, 2005 and 2004, respectively, and represented approximately 17%, 20% and 20% of total Company net sales in each of those years.

Marketing and Sales

The Company sells to customers in the domestic and international marketplace. Approximately 46%, 20%, 18%, 11% and 5% of the Company’s 2006 net sales were from manufacturing facilities in the United States, Latin America, Europe, Canada and Asia, respectively. The Procter & Gamble Company, which is the Company’s largest customer, accounted for 13%, 14% and 12% of the Company’s net sales in 2006, 2005 and 2004, respectively. Sales to the Company’s top 20 customers represented approximately 51%, 51% and 45% of the Company’s net sales in 2006, 2005 and 2004, respectively.

The Company generally 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 distributors 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 processes 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 has a comprehensive array of nonwoven manufacturing technologies that encompass 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 or molten. The dry-laid process utilizes 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. 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 from a manufacturing and cost perspective.

Web consolidation is the process by which fiber 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 (spunbond-meltblown-spunbond), 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

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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 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 (spunbond-meltblown-meltblown-spunbond) 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.

The Company recently developed a Spinlace® fabric, which is targeted as a high-performance, cost-effective engineered material for the wipes and other markets. The fabric is made through an internally developed process that combines spunbonding, airlaid and hydroentanglement techniques without the use of cards. This nonwoven material is stronger, more absorbent and can incorporate three-dimensional images at lower weights and with a better value proposition than traditional manufacturing methods.

Special Films and Composite Structures.   The Company has a proprietary continuous process for manufacturing unique reticulated films. These highly engineered films have unique capabilities due to the way precision holes are imparted during the process of forming the film. Since these films can be composed of two or more layers of different polymers, the functionality can be different on one side versus the other. These films are typically customized for each customer and are especially popular in Asia as a component for premium feminine hygiene products. The Company also manufactures composites which are combinations of different nonwoven and /or film structures where each structure lends its properties or attributes to the end product. An example is house wrap. House wrap is the result of mating an especially strong spunbond fabric with a highly engineered film. The resulting fabric is very strong, economical, and has excellent wind barrier properties while allowing humidity to pass through the fabric.

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 nonwoven product markets are E.I. du Pont de Nemours & Co., Fiberweb plc, Avgol LTD., First Quality Enterprises, Inc., Grupo Providencia and Mitsui Chemicals, Inc. Japan and Intertape Polymer Group Inc. and Propex Fabrics, Inc. for oriented polymer products. Generally, product innovation and performance, quality, service, distribution and cost are the primary competitive factors, with technical support being highly valued by the largest customers.

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Raw Materials

The primary raw materials used to manufacture most of the Company’s products are polypropylene resin, polyester fiber, polyethylene resin and, to a lesser extent, rayon, tissue paper and cotton. These primary raw materials are available from multiple sources and the Company purchases such materials from a variety of global suppliers. The prices of polypropylene, polyethylene and polyester 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 and polyester fibers have fluctuated. The Company has not historically hedged its exposure to raw material increases, but has attempted to move more customer programs to contracts containing price escalation clauses which would allow the Company to pass-through any cost increases in raw materials, although there is often a delay between the time the Company is required to pay the increased raw material cost 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 goods sold would increase and its operating income 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 $4.0 million on an annualized basis in its reported pre-tax operating income. The prices of raw materials in the North American market rose substantially in the fourth quarter of 2005 as a direct result of the hurricanes that impacted the Gulf Coast. The raw material prices in the North American markets have decreased slightly since late December 2005 through the end of fiscal 2006 as the refineries and chemical processing sites returned to more normal production levels. However, raw material costs in North America have not returned to their pre-fourth quarter of fiscal 2005 levels. Additionally, on a global basis, raw material costs continue to fluctuate, although in a much narrower range, in response to certain global economic factors, including the regional supply versus demand dynamics for the raw materials and the volatile price of oil. Nonetheless, there can be no assurance that the prices of polypropylene, polyethylene and polyester will not substantially increase in the future, or that the Company will be able to pass on any increases to its customers not covered by contracts with price escalation clauses. Material increases in raw material costs 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” included in Item 7 of Part II to this Annual Report on Form 10-K and “Raw Material and Commodity Risks” included in Item 7A of Part II to this Annual Report on Form 10-K for additional discussion of the impact of raw material costs on the Company’s operations in 2006, 2005 and 2004.

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 or alternative suppliers were qualified with customers. The Company has not experienced, and does not expect, 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.

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The Company is also subject to laws, such as the Comprehensive Environmental Response, Compensation, and Liability Act (“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.

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 has over 185 trademarks worldwide, over 500 patents and pending patent applications worldwide and 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 30, 2006 were $132.5 million, an increase of $12.8 million from inventories of $119.7 million at December 31, 2005. The increase in total inventory during 2006 versus 2005 primarily relates to the increases in raw material costs, and the growth in sales attributable to the addition of new facilities, during the current year. The Company had approximately 54 days of inventory on hand at both December 30, 2006, and at December 31, 2005. Unfilled orders as of December 30, 2006 and December 31, 2005 amounted to approximately $80.5 million and $65.4 million, respectively. The level of unfilled orders is affected by many factors, including the timing of orders and the delivery time for the specific products. Consequently, the Company does not consider the amount of unfilled orders a meaningful indicator of levels of future sales.

Research and Development

The Company’s investment in research and development approximated $12.5 million, $11.5 million and $11.2 million during 2006, 2005 and 2004, respectively.

Seasonality

Use and consumption of the Company’s products do not fluctuate significantly due to seasonality.

Employees

As of December 30, 2006, the Company had approximately 3,471 employees. Of this total, approximately 1,314 employees are represented by labor unions or trade councils that have entered into separate collective bargaining agreements with the Company. Approximately 25% of the Company’s labor force is covered by collective bargaining agreements that will expire within one year. There were no known unionizing attempts during fiscal 2006. The Company believes that it generally has good relationships with both its union and non-union employees.

Business Restructuring

The Company in fiscal 2006 initiated business restructuring and reorganization efforts in the United States, Europe and Canada, involving corporate consolidations, manufacturing initiatives and workforce reductions.

In 2006, the restructuring efforts were principally associated with (a) the Company’s initial steps in the restructuring and consolidation plan for Europe, which included termination benefits provided to an executive officer of the Company, pursuant to Dutch law, in the amount of $2.1 million and costs associated with the closure of the Sweden plant, which resulted in the reduction of 19 employees and a charge of $1.1 million; (b) costs related to the relocation of the corporate headquarters to Charlotte,

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North Carolina in the amount of $3.0 million; and (c) downsizing certain Canadian operations resulting in severance costs of $0.6 million associated with the reduction of 26 employees.

Additionally, on January 3, 2007, the Company approved a plan to close its Rogers, Arkansas and Gainesville, Georgia plants in the United States and transfer portions of the business to other locations in North America and Asia. The restructuring plan included the reduction of approximately 170 production and administrative staff positions. As a result of this decision, the Company estimates that it will recognize cash restructuring charges of approximately $5.5 million to $6.0 million during fiscal 2007. The consolidation efforts, which are expected to be completed by the end of the third quarter of fiscal 2007, are expected to result in improved profitability and a more efficient cost structure, with cash fixed costs expected to be reduced by approximately $4.0 mllion to $6.0 million on an annualized basis. Additionally, the Company anticipates proceeds of approximately $4.0 million to $5.0 million from the sale of idled facilities and equipment.

Cash outlays associated with the Company’s business restructuring and reorganization approximated $5.3 million, $0.4 million and $5.9 million in fiscal years 2006, 2005 and 2004, respectively.

Debt Structure and Refinancing

On November 22, 2005, the Company refinanced its then outstanding bank debt with a new Credit Facility (the “Credit Facility”) and entered into Amendment No. 1, dated as of December 8, 2006, to the Credit Facility, which provided the Company with additional financial flexibility. The Company’s Credit Facility consists of a $45.0 million secured revolving credit facility that matures on November 22, 2010 and a $410.0 million first-lien term loan that matures on November 22, 2012. See “Liquidity Summary” in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II to this Annual Report on Form 10-K for additional details.

Capital Expansion

During the two year period ended December 30, 2006 the Company has been engaged in a major capital expansion program which included adding new spunmelt capacity in Cali, Colombia, in Mooresville, North Carolina and in Suzhou, China. Capital expenditures during this period totaled $147.1 million and consisted of the aforementioned three new spunmelt facilities, maintenance capital spending and certain other smaller projects. The new capacity installations were expected to be the basis of a significant improvement in sales and profitability and the Company continues to believe such improvements will be achieved.

The Cali line, which was installed in the latter part of fiscal 2005, experienced several quarters of suboptimal manufacturing performance associated with equipment issues which hindered production output and sales. These issues have been resolved and the Cali line performed at expected levels in the second half of fiscal 2006.

The Mooresville line initiated production in the latter part of the second quarter of fiscal 2006 and has performed within expected levels since its start up. The Mooresville line was ramping up and continuing the qualification process for new sales programs during the third quarter of fiscal 2006 and performed at planned levels from a productivity and profitability perspective in the fourth quarter of fiscal 2006.

The Suzhou line initiated operations in the latter part of the third quarter of fiscal 2006 and commenced production without any significant manufacturing complications. The line continued to ramp up in the fourth quarter of 2006 and continued the qualification process for high grade finished medical fabrics. As such, the Suzhou line only contributed marginally to sales and profitability during the fourth quarter of fiscal 2006. The Company expects that these three new spunmelt facilities will be significant contributors to sales and profitability in fiscal 2007.

12

Additionally, the Company has announced the construction of a new spunmelt line at the joint venture facility near Buenos Aires, Argentina which is expected to initiate operations in the fourth quarter of fiscal 2007.

ITEM 1A. RISK FACTORS

Set forth below are some of the risks and uncertainties that, if they were to occur, could materially adversely affect the Company’s business or that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements made by the Company.

Shareholders and prospective investors should carefully consider and evaluate all of the risk factors described below. These risk factors may change from time to time and may be amended, supplemented, or superceded by updates to the risk factors contained in periodic reports on Form 10-Q and Form 10-K that the Company files with the Securities and Exchange Commission in the future.

Risks Related to the Company’s Business

The Company’s substantial indebtedness could harm its ability to react to changes in business or market developments and prevent the Company from fulfilling its obligations under its indebtedness.

As of December 30, 2006, the Company’s consolidated indebtedness outstanding was approximately $411.2 million and for fiscal 2006, its interest expense, net plus the interest costs capitalized amounted to $32.3 million. The Company’s substantial level of current indebtedness, as well as any additional indebtedness the Company may draw under the unused portions of the Credit Facility, combined with a potential downturn in business due to economic or other factors beyond its control, increases the possibility that the Company may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of its indebtedness. The Company’s substantial debt could increase its vulnerability to general economic downturns and adverse competitive and industry conditions by limiting its flexibility to plan for, or to react to, changes in its business and in the industry in which the Company operates. This limitation could place the Company at a competitive disadvantage compared to competitors that have less debt and more cash to insulate their operations from market downturns and to finance new business opportunities.

The Company’s variable rate indebtedness subjects the Company to interest rate risk, which could cause its debt service obligations to increase significantly.

In accordance with the terms of the Credit Facility, the Company has maintained a cash flow hedge to lessen its exposure to interest rate fluctuations. However, approximately 48% of the Company’s exposure to variable interest rates under the Credit Facility is not hedged and will bear interest at floating rates. As a result, a modest interest rate increase could result in a substantial increase in interest expense.

To service its indebtedness and fund its capital expenditures the Company will require a significant amount of cash. The Company’s ability to generate cash depends on many factors beyond its control.

The Company’s ability to make payments on its indebtedness and to fund its operations and capital expenditures will depend on its ability to generate cash in the future. However, its business may not generate sufficient cash flow from operations for a variety of reasons, including general downturns in the economy, delays in the start-up of expansion projects, changes in the currency exchange rates in countries in which the Company operates, local laws restricting the movement of

13

cash between the Company’s subsidiaries and the parent and many other potential reasons. If the Company cannot generate sufficient cash to service its debt, the Company will have to take such actions as reducing or delaying capital investments, selling assets, restructuring or refinancing its debt or seeking additional equity capital. Any of these actions may not be affected on commercially reasonable terms, or at all. In addition, the credit agreement with respect to the Credit Facility may restrict the Company from adopting any of these alternatives.

Non-compliance with covenants contained in the Credit Facility, without waiver or amendment from the lenders of the Credit Facility, could adversely affect our ability to borrow under the Credit Facility.

The Company’s Credit Facility contains certain financial covenants, including a leverage ratio and an interest expense coverage ratio. The Company may not be able to satisfy these ratios, especially if operating results fall below management’s expectations, which expectations are that the covenants would be met. A breach of any of these covenants or the Company’s inability to comply with the required financial ratios could result in a default under the Credit Facility, unless the Company is able to remedy any default within the allotted cure period or obtain the necessary waivers or amendments to the Credit Facility. In the event of any default not waived, and subject to appropriate cure periods as provided for in the Credit Agreement, the lenders under the Credit Facility could elect to not lend any additional amounts to the Company and could elect to declare all outstanding borrowings, together with accrued interest and other fees, to be immediately due and payable. If the Company is unable to repay the borrowings with respect to the Credit Facility when due, the lenders could proceed against their collateral, which consists of (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.

Because a significant number of its employees are represented by labor unions or trade councils and work under collective bargaining agreements, any employee slowdown or strikes or the failure to renew its collective bargaining agreements could disrupt the Company’s business.

As of December 30, 2006, approximately 38% of the Company’s employees are represented by labor unions or trade councils and work under collective bargaining agreements. Approximately 25% of the Company’s labor force is covered by collective bargaining agreements that expire within one year. The Company may not be able to maintain constructive relationships with these labor unions or trade councils. The Company may not be able to successfully negotiate new collective bargaining agreements on satisfactory terms in the future. The loss of a substantial number of these employees or a prolonged labor dispute could disrupt the Company’s business. Any such disruption could in turn reduce its revenue from sales, increase its costs to bring products to market and result in significant losses.

The Company generates most of its revenue from the sale of manufactured products that are used in a wide variety of consumer and industrial applications and the potential for product liability exposure could be significant.

The Company manufactures a wide variety of products that are used in consumer and industrial applications, such as disposable diapers, baby wipes, surgical gowns, wound dressings, carpet backing and industrial packaging. As a result, the Company may face exposure to product liability claims in the event that the failure of its products results, or is alleged to result, in bodily injury and/or death. In addition, if any of its products are, or are alleged to be, defective, the Company may be required to make warranty payments or to participate in a recall involving those products.

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The future costs associated with defending product liability claims or responding to product warranties could be material and the Company may experience significant losses in the future as a result. A successful product liability claim brought against the Company in excess of available insurance coverage or a requirement to participate in any product recall could substantially reduce the Company’s profitability and cash generated from operations.

The Company’s international operations pose risks to its business that are not present with its domestic operations.

The Company’s manufacturing facilities in the United States accounted for 46% of net sales for fiscal 2006, with facilities in Europe, Latin America, Canada and Asia accounting for 54%. As part of its growth strategy, the Company may expand operations in existing or other foreign countries. The Company’s foreign operations are, and any future foreign operations will be, subject to certain risks that are unique to doing business in foreign countries. These risks include fluctuations in foreign currency exchange rates, inflation, economic or political instability, shipping delays, changes in applicable laws, reduced protection of intellectual property in some countries outside of the United States and regulatory policies and various trade restrictions. All of these risks could have a negative impact on the Company’s ability to deliver products to customers on a competitive and timely basis. This could reduce or impair the Company’s net sales, profits, cash flows and financial position. The Company has not historically hedged its exposure to foreign currency risk.

The Company could incur substantial costs to comply with environmental laws, and violations of such laws may increase costs or require the Company to change certain business practices.

The Company uses and generates a variety of chemicals in its manufacturing operations. As a result, the Company is subject to a broad range of federal, state, local and foreign environmental laws and regulations. These environmental laws govern, among other things, air emissions, wastewater discharges and the handling, storage and release of wastes and hazardous substances. The Company regularly incurs costs to comply with environmental requirements, and such costs could increase significantly with changes in legal requirements or their interpretation or enforcement. 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 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. The Company could incur substantial costs, including clean-up costs, fines and sanctions and third-party property damage or personal injury claims, as a result of violations of environmental laws. Failure to comply with environmental requirements could also result in enforcement actions that materially limit or otherwise affect the operations of the Company’s manufacturing facilities involved. 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.

If the Company is unable to adequately protect its intellectual property, the Company could lose a significant competitive advantage.

The Company’s success depends, in part, on its ability to protect its unique technologies and products against competitive pressure and to defend its intellectual property rights. If the Company fails to adequately protect its intellectual property rights, competitors may manufacture and market similar products, which could adversely affect the Company’s market share and results of operations. The Company considers its patents and trademarks, in the aggregate, to be important to its business

15

and seeks to protect this proprietary know-how in part through United States and foreign patent and trademark registrations. The Company has over 185 trademarks worldwide, over 500 patents and pending patent applications worldwide and maintains certain trade secrets for which, in order to maintain the confidentiality of such trade secrets, it has not sought patent protection. The Company may not receive patents for all its patent applications and existing or future patents that the Company receives or licenses may not provide competitive advantages for its products. Its competitors may challenge, invalidate or avoid the application of any existing or future patents, trademarks, or other intellectual property rights that the Company receives or licenses. In addition, patent rights may not prevent the Company’s competitors from developing, using or selling products that are similar or functionally equivalent to its products. The loss of protection for the Company’s intellectual property could reduce the market value of its products, reduce product sales, lower its profits, and impair its financial condition.

Due to the unique products that the Company produces and the particular industry in which the Company operates, the loss of its senior management could disrupt its business.

The Company’s senior management is important to the success of its business because there is significant competition for executive personnel with unique experience in the nonwoven and oriented polyolefin industries. As a result of this unique need and the competition for a limited pool of industry-based executive experience, the Company may not be able to retain its existing senior management. In addition, the Company may not be able to fill new positions or vacancies created by expansion or turnover or attract additional senior management personnel. The loss of any member of its senior management team without retaining a suitable replacement (either from inside or outside its existing management team) could restrict our ability to enhance existing products in a timely manner, sell products to our customers or manage the business effectively.

Risks Related to the Company’s Industries

Because the specialized markets in which the Company sells its products are highly competitive, the Company may have difficulty growing its business year after year.

The markets for the Company’s products are highly competitive. The primary competitive factors include technical support, product innovation and performance, quality, service, distribution and cost. In addition, the Company competes against a small number of competitors in each of its markets. However, some of these competitors are much larger companies that have greater financial, technological, manufacturing and marketing resources than the Company. As a result, a reduction in overall demand or increased costs to design and produce its products would likely further increase competition and that increased competition could cause the Company to reduce its prices, which could lower its profit margins and impair its ability to grow from year to year.

The Company must continue to invest significant resources in developing innovative products in order to maintain a competitive edge in the highly specialized markets in which the Company operates.

The Company’s continued success depends, in part, upon its ability to maintain its technological capabilities and to continue to identify, develop and commercialize innovative products for the nonwoven and oriented polyolefin industries. The Company must also protect the intellectual property rights underlying its new products to realize the full benefits of its efforts. If the Company fails to continue to develop products for its markets or to keep pace with technological developments by its competitors, the Company may lose market share, which could reduce product sales, lower its profits and impair its financial condition.

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The loss of only a few of the Company’s large volume customers could reduce its revenues and profits.

A significant amount of the Company’s products are sold to a relatively small number of large volume customers. Sales to Procter & Gamble Company represented approximately 13% of its net sales in fiscal 2006. Sales to its top 20 customers represented approximately 51% of the Company’s net sales in fiscal 2006. As a result, a decrease in business from, or the loss of, any large volume customer such as Procter & Gamble could materially reduce the Company’s product sales, lower its profits and impair its financial condition.

Increases in prices for raw materials or the unavailability of raw materials could reduce the Company’s profit margins.

The primary raw materials used to manufacture most of the Company’s products are polypropylene resins, polyester fiber, polyethylene resin and, to a lesser extent, rayon, tissue paper and cotton. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude oil and natural gas liquids. To the extent that the Company is able to pass at least a portion of raw material price increases to some of its customers, there is often 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 goods sold would increase and its operating income 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 $4.0 million on an annualized basis in its reported pre-tax operating income. There can be no assurance that the prices of polypropylene, polyethylene and polyester will not increase in the future or that the Company will be able to pass on any increases to its customers not covered by contracts with price escalation clauses. Material increases in raw material prices that cannot be passed on to customers could have a material adverse effect on the Company’s profit margins, results of operations and financial condition. In addition, the loss of any of its key suppliers in the short-term could disrupt its business until the Company secures alternative supply arrangements or alternative suppliers were qualified with customers.

In response to changing market conditions the Company may decide to restructure certain of its operations resulting in additional cash restructuring charges and asset impairment charges

The Company reviews its business on an ongoing basis relative to current and expected market conditions, attempting to match its production capacity and cost structure to the demands of the markets in which it participates, and strives to continuously streamline its manufacturing operations consistent with world-class standards. Accordingly, in the future the Company may or may not decide to undertake certain restructuring efforts to improve its competitive position, especially in the more mature markets of the U.S., Europe and Canada. In such mature markets, the  prices for commodity roll goods continue to fluctuate based on supply and demand dynamics relative to the assets employed in that geographic region. The Company actively and continuously pursues initiatives to prolong the useful life of its long-lived assets through product and process innovation. To the extent further decisions are made to improve the Company’s long-term performance, such actions could result in the incurrence of cash restructuring charges and asset impairment charges associated with the consolidation, and such charges could be material.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

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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 Facility. The Company believes that its facilities are generally well-maintained, in good condition and adequate for its current needs.

Location	Principal Function
Nonwovens U.S.
North Little Rock, Arkansas	Manufacturing and Warehousing
Rogers, Arkansas (2)	Manufacturing and Warehousing
Gainesville, Georgia(1) (2)	Manufacturing and Warehousing
Landisville, New Jersey	Manufacturing and Warehousing
Benson, North Carolina	Manufacturing, Sales, Marketing, Warehousing and Research and Development
Mooresville, North Carolina	Manufacturing and Research and Development
Waynesboro, Virginia	Manufacturing, Warehousing and Research and Development
Waynesboro, Virginia(1)	Warehousing
Nonwovens Europe
Bailleul, France	Manufacturing, Marketing, Warehousing, Research and Development and Administration
Neunkirchen, Germany	Manufacturing and Warehousing
Cuijk, The Netherlands	Manufacturing, Sales, Marketing, Warehousing and Research and Development
Nonwovens Latin America
Buenos Aires, Argentina(3)	Manufacturing, Sales, Marketing, Warehousing and Administration
Cali, Colombia	Manufacturing, Sales, Marketing, Warehousing and Administration
San Luis Potosi, Mexico	Manufacturing, Sales, Warehousing, Marketing and Administration
Nonwovens Asia
Nanhai, China(4)	Manufacturing, Sales, Marketing, Warehousing and Administration
Suzhou, China	Manufacturing, Sales, Marketing, Warehousing and Administration
Oriented Polymers Division
Kingman, Kansas	Manufacturing, Marketing, Warehousing and Administration
Guntown, Mississippi(1)	Converting and Warehousing
Portland (Clackamas), Oregon	Manufacturing
Clearfield, Utah(1)	Manufacturing, Marketing and Warehousing
North Bay, Ontario	Manufacturing, Marketing, Warehousing and Administration
Magog, Quebec	Manufacturing, Marketing, Warehousing and Administration
Montreal, Quebec(1)	Sales, Marketing and Administration
Corporate Offices
Charlotte, North Carolina(1)	Sales, Marketing and Administration

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(1)Leased.

(2)The Company has announced its intention to close these facilities, and transfer portions of the business to other locations in its global operations.

(3)60% interest in a joint venture/partnership-type arrangement (Dominion Nonwovens Sudamerica S.A.) with Guillermo Enrique Kraves.

(4)Primarily an 80% interest in a joint venture/partnership-type arrangement (Nanhai Nanxin Non-Woven Co. Ltd.) with Nanhai Chemical Fiber Enterprises Co.

Capacity utilization during 2006 varied by geographic locations and manufacturing capabilities. However, it can be generally stated that most of the facilities operated moderately below capacity.

ITEM 3. LEGAL PROCEEDINGS

The Company is not currently a party to any material pending legal proceedings other than routine litigation incidental to the business of the Company. During 2005, the Company was served with a lawsuit by a customer alleging breach of contract and other charges. The discovery phase is continuing and there is not currently enough information to formulate an assessment of the ultimate outcome of the claim. Therefore, management is not able to estimate the amount of such loss, if any, at this time. The Company intends to vigorously defend this action and believes that it has reasonable arguments available in its defense. However, there is a possibility that resolution of this matter, or others that may arise in the normal course of business, could result in a loss in excess of established reserves, if any.

The Company is subject to a broad range of federal, foreign, state and local laws and regulations relating to pollution and protection of the environment. The Company believes that it is currently in substantial compliance with applicable environmental requirements and does not currently anticipate any material adverse effect on its operations, financial 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, accordingly, there can be no assurance that material environmental liabilities will not arise.

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

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2006.

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PART II

ITEM 5.MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Since March 5, 2003, the Company’s Class A and Class B Common Stock have been trading on the over-the-counter electronic bulletin board (the “OTCBB”) under the symbols “POLGA” and “POLGB,” respectively. The Company’s common stock is divided into five classes: Class A, Class B, Class C, Class D and Class E. The Class A and Class B Common Stock trade on the OTCBB. No shares of Class D or Class E Common Stock are outstanding. There is no established trading market for the Class C Common Stock and, as such, no ticker symbol has been assigned to the Class C Common Stock. The Class B Common Stock is convertible to Class A Common Stock and, accordingly, the Class B Common Stock trades on a comparable basis to the Class A Common Stock. The following table sets forth for fiscal 2006 and 2005 the high and low bids for the Company’s Class A Common Stock:

	2006				2005
	High		Low		High		Low
First Quarter	$	27.30	$	22.25	$	24.00	$	17.20
Second Quarter	28.50		24.95		25.65		21.00
Third Quarter	26.00		21.06		29.40		22.35
Fourth Quarter	26.50		25.30		25.50		23.25

The Company did not pay any dividends on its common stock during fiscal years 2006 or 2005. The Credit Facility limits restricted payments, which includes dividends payable in cash, to $5.0 million in the aggregate since the effective date of the Credit Facility.

As of March 5, 2007, there were 60, 334 and one registered holders of record of the Company’s Class A, Class B and Class C Common Stock, respectively.

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PERFORMANCE GRAPH

The following graph compares the Company’s cumulative total stockholder return since April 2, 2003 (the Company emerged from bankruptcy on March 5, 2003 and data regarding the Company’s stock price was not available until April 2, 2003) with the Russell 2000 Index and with selected companies that the Company believes are similar to the Company (the “Peer Group”). The Company’s Peer Group is comprised of the following companies: Intertape Polymer Group, Inc., Lydall Corporation, Millipore Corporation, Pall Corporation and Buckeye Technologies, Inc.

COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG POLYMER GROUP,
RUSSELL 2000 INDEX AND PEER GROUP INDEX(1)

(1)Assumes $100 invested on April 2, 2003, all dividends reinvested and all fiscal years ending on December 31.

	4/02/2003		6/30/2003		9/30/2003		12/31/2003		3/31/2004		6/30/2004
POLYMER GROUP		100.00		50.00		46.25		62.50		112.50		109.17
PEER GROUP INDEX		100.00		113.97		115.48		131.96		132.30		138.45
RUSSELL 2000 INDEX		100.00		122.99		133.78		152.77		161.93		162.96

	9/30/2004		12/31/2004		3/31/2005		6/30/2005		9/30/2005		12/31/2005
POLYMER GROUP		95.83		158.33		199.58		213.75		212.50		199.92
PEER GROUP INDEX		137.73		155.98		157.64		135.78		129.32		139.84
RUSSELL 2000 INDEX		157.84		179.50		169.44		176.22		183.97		185.46

	3/31/2006		6/30/2006		9/29/2006		12/31/2006
POLYMER GROUP		224.17		212.25		214.58		212.92
PEER GROUP INDEX		156.81		147.80		157.83		178.30
RUSSELL 2000 INDEX		210.78		199.76		200.01		217.12

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth certain selected historical consolidated financial information of the Company for periods both before and after emerging from the Chapter 11 process on March 5, 2003. For accounting purposes, the financial statements reflect the reorganization as if it was consummated on March 1, 2003. Therefore, the Consolidated Balance Sheets and related information as of December 30, 2006, December 31, 2005, January 1, 2005 and January 3, 2004 and the Consolidated Statement of Operations and related information for the fiscal years ended December 30, 2006, December 31, 2005, January 1, 2005 and the ten months ended January 3, 2004 are referred to as “Successor” and reflect the effects of the reorganization and the principles of fresh start accounting. Periods presented prior to March 1, 2003 have been referred to as “Predecessor”. The statement of operations data for each of the periods presented in the five years ended December 30, 2006 and the balance sheet data as of December 30, 2006, December 31, 2005, January 1, 2005, January 3, 2004 and December 28, 2002 have been derived from audited consolidated financial statements, except for the balance sheet data as of March 1, 2003, which is unaudited. The table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II to this Annual Report on Form 10-K and the Consolidated Financial Statements of the Company and related notes thereto included in Item 8 of Part II to this Annual Report on Form 10-K.

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	Successor																Predecessor
													Ten Months				Two Months				Fiscal Year
	Fiscal Year Ended												Ended				Ended				Ended
	December 30,				December 31,				January 1,				January 3,				March 1,				December 28,
	2006				2005				2005				2004				2003				2002
	(In Thousands, Except Per Share Data)
Statement of Operations:
Net sales		$	1,021,608			$	948,848			$	844,734			$	644,893			$	132,895			$	754,437
Cost of goods sold		865,405				787,369				691,272				531,390				111,110				635,639
Gross profit		156,203				161,479				153,462				113,503				21,785				118,798
Selling, general and administrative expenses		110,406				104,545				99,163				78,682				15,955				100,215
Special charges (credits), net:
Asset impairment charges		26,434				—				2,253				1,207				—				317,898
Other		12,249				9				(11,245		)		6,802				4				7,296
Foreign currency (gain) loss, net		1,229				671				2,027				2,773				1,343				(1,059		)
Operating income (loss)		5,885				56,254				61,264				24,039				4,483				(305,552		)
Other expense (income):
Interest expense, net		29,248				32,617				40,252				49,036				10,665				71,478
Investment (gain) loss, net		—				—				—				(3		)		(291		)		1,806
Minority interests		3,377				3,784				2,597				2,028				441				1,366
Write-off of loan acquisition costs		—				4,008				5,022				—				—				—
Foreign currency and other (gain) loss, net		517				(948		)		667				3,035				91				15,078
Reorganization items, (gain) loss		—				—				—				—				(540,479		)		14,873
Income (loss) before income tax expense (benefit)		(27,257		)		16,793				12,726				(30,057		)		534,056				(410,153		)
Income tax expense (benefit)		7,275				9,796				7,994				2,928				1,692				(3,290		)
Income (loss) before cumulative effect of change in accounting principle		(34,532		)		6,997				4,732				(32,985		)		532,364				(406,863		)
Cumulative effect of change in accounting principle, net of tax		—				—				—				—				—				12,774
Net income (loss)		(34,532		)		6,997				4,732				(32,985		)		532,364				(419,637		)
Accrued and paid-in-kind dividends on PIK Preferred Shares		—				27,998				5,566				—				—				—
Income (loss) applicable to common shareholders		$	(34,532	)		$	(21,001	)		$	(834	)		$	(32,985	)		$	532,364			$	(419,637	)
Per Share Data:
Income (loss) before cumulative effect of change in accounting principle per common share—basic		$	(1.79	)		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63			$	(12.71	)
Income (loss) per share applicable to common shareholders—basic		$	(1.79	)		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63			$	(13.11	)
Income (loss) before cumulative effect of change in accounting principle per common share—diluted		$	(1.79	)		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63			$	(12.71	)
Income (loss) per share applicable to common shareholders—diluted		$	(1.79	)		$	(1.60	)		$	(0.09	)		$	(3.81	)		$	16.63			$	(13.11	)
Cash dividends		$	—			$	—			$	—			$	—			$	—			$	—
Operating and other data:
Cash provided by (used in) operating activities		$	66,760			$	70,932			$	69,896			$	33,213			$	(12,901	)		$	35,343
Cash provided by (used in) investing activities		(64,268		)		(77,604		)		(23,144		)		(33,909		)		8,820				(10,554		)
Cash provided by (used in) financing activities		(1,934		)		(2,488		)		(28,133		)		(10,887		)		(14,669		)		(15,367		)
Gross margin (a)		15.3		%		17.0		%		18.2		%		17.6		%		16.4		%		15.7		%
Depreciation and amortization		$	60,663			$	57,550			$	53,230			$	42,620			$	8,812			$	71,556
Capital expenditures		68,167				78,902				24,791				36,675				3,062				15,379
Balance sheet data (at end of period):
Cash and cash equivalents and short-term investments		$	32,104			$	30,963			$	41,296			$	21,336			$	31,783			$	58,147
Working capital		159,447				173,447				187,338				119,106				172,501				219,905
Total assets		742,097				765,001				754,558				719,062				745,221				811,319
Long-term debt, less current portion		402,416				405,955				403,560				440,992				480,050				478,224
Minority interests		16,654				16,611				14,912				14,151				12,123				11,682
16% Series A convertible pay-in-kind preferred shares		—				—				58,286				—				—				—
Total shareholders’ equity (deficit)		109,096				131,482				73,849				59,200				73,390				(465,914		)

Note to Selected Consolidated Financial Data

(a)   Gross margin represents gross profit as a percentage of net sales.

23

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 Part II to this Annual Report on Form 10-K. In addition, it should be noted that the Company’s gross profit margins may not be comparable to other companies since some entities classify shipping and handling costs in cost of goods sold and others, including the Company, include such costs in selling, general and administrative expenses. Similarly, some entities, including the Company, include foreign currency gains and losses resulting from operating activities as a component of operating income, and some entities classify all foreign currency gains and losses outside of operating income.

During the two year period ended December 30, 2006 the Company has been engaged in a major capital expansion program which included adding new spunmelt capacity in Cali, Colombia, in Mooresville, North Carolina and in Suzhou, China. Capital expenditures during this period totaled $147.1 million and consisted of the aforementioned three new spunmelt facilities, maintenance capital spending and certain other smaller projects. The new capacity installations were expected to be the basis of a significant improvement in sales and profitability and the Company continues to believe such improvements will be achieved.

The Cali line, which was installed in the latter part of fiscal 2005, experienced several quarters of suboptimal manufacturing performance associated with equipment issues which hindered production output and sales. These issues have been resolved and the Cali line performed at expected levels in the second half of fiscal 2006.

The Mooresville line initiated production in the latter part of the second quarter of fiscal 2006 and has performed within expected levels since its start up. The Mooresville line was ramping up and continuing the qualification process for new sales programs during the third quarter of fiscal 2006 and performed at planned levels from a productivity and profitability perspective in the fourth quarter of fiscal 2006.

The Suzhou line initiated operations in the latter part of the third quarter of fiscal 2006 and commenced production without any significant manufacturing complications. The line continued to ramp up in the fourth quarter of 2006 and continued the qualification process for high grade finished medical fabrics. As such, the Suzhou line only contributed marginally to sales and profitability during the fourth quarter of fiscal 2006. The Company expects that these three new spunmelt facilities will be significant contributors to sales and profitability in fiscal 2007.

Additionally, the Company has announced the construction of a new spunmelt line at the joint venture facility near Buenos Aires, Argentina which is expected to initiate operations in the fourth quarter of fiscal 2007.

As discussed herein, in fiscal 2006 the Company incurred special charges (credits), net, including restructuring and plant realignment costs of $7.1 million, abandoned acquisition costs of $4.0 million, non-cash asset impairment charges of $26.4 million, primarily associated with the Company’s restructuring initiatives and the Company’s evaluation of its long-lived assets for recoverability and other costs of $1.1 million.

The Company reviews its business on an ongoing basis relative to current and expected market conditions, attempting to match its production capacity and cost structure to the demands of the markets in which it participates, and strives to continuously streamline its manufacturing operations

24

consistent with world-class standards. Accordingly, in the future the Company may or may not decide to undertake certain restructuring efforts to improve its competitive position, especially in the more mature markets of the U.S., Europe and Canada. In such mature markets, the  prices for commodity roll goods continue to fluctuate based on supply and demand dynamics relative to the assets employed in that geographic region. The Company actively and continuously pursues initiatives to prolong the useful life of its long-lived assets through product and process innovation. In some instances the Company may decide, as was the case with its current plans to consolidate operations in the U.S., as further described in Note 21 to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K, that its fixed cost structure will be enhanced through consolidation. To the extent further decisions are made to improve the Company’s long-term performance, such actions could result in the incurrence of cash restructuring charges and asset impairment charges associated with the consolidation, and such charges could be material.

Results of Operations

The following table sets forth the percentage relationships to net sales of certain Consolidated Statement of Operations items for fiscal 2006 in comparison with such items for the 2005 and 2004 fiscal years:

	2006		2005		2004
Net sales	100.0	%	100.0	%	100.0	%
Cost of goods sold:
Material	53.9		51.2		48.6
Labor	8.1		8.5		9.6
Overhead	22.7		23.3		23.6
	84.7		83.0		81.8
Gross profit	15.3		17.0		18.2
Selling, general and administrative expenses	10.8		11.0		11.7
Special charges (credits), net	3.8		—		(1.0	)
Foreign currency loss, net	0.1		0.1		0.2
Operating income	0.6		5.9		7.3
Other expense (income):
Interest expense, net	2.9		3.4		4.8
Minority interests	0.3		0.4		0.3
Write-off of loan acquisition costs	—		0.4		0.6
Foreign currency and other (gain) loss, net	0.1		(0.1	)	0.1
Income (loss) before income tax expense	(2.7	)	1.8		1.5
Income tax expense	0.7		1.1		0.9
Net income (loss)	(3.4	)	0.7		0.6
Accrued and paid-in-kind dividends on PIK preferred shares	—		2.9		0.7
Loss applicable to common shareholders	(3.4	)%	(2.2	)%	(0.1	)%

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Comparison of Fiscal Years Ended December 30, 2006 and December 31, 2005

The Company’s reportable segments consist of its two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding segment data, see Note 16 “Segment Information” to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K. The following table sets forth components of the Company’s net sales and operating income (loss) by operating division for the fiscal year ended December 30, 2006, the fiscal year ended December 31, 2005 and the corresponding change from 2005 to 2006 (in millions):

	2006			2005			Change
Net sales
Nonwovens	$	848.3		$	763.7			$	84.6
Oriented Polymers	173.3			185.1				(11.8		)
	$	1,021.6		$	948.8			$	72.8
Operating income (loss)
Nonwovens	$	66.6		$	66.2			$	0.4
Oriented Polymers	4.3			10.6				(6.3		)
Unallocated Corporate, net of eliminations	(26.3		)	(20.5		)		(5.8		)
	44.6			56.3				(11.7		)
Special (charges) credits, net	(38.7		)	—				(38.7		)
	$	5.9		$	56.3			$	(50.4	)

The amounts for special charges (credits), net have not been allocated to the Company’s reportable business divisions because the Company’s management does not evaluate such special charges, net on a division-by-division basis. Division operating performance is measured and evaluated before such items.

Net Sales

Net sales were $1,021.6 million in 2006, an increase of $72.8 million, or 7.7%, over net sales for 2005 of $948.8 million. Net sales for 2006 improved in the Nonwovens Division over comparable 2005 results by 11.1%, and net sales in 2006 in the Oriented Polymers Division decreased 6.4% versus 2005 results. A reconciliation of the change in net sales between 2005 and 2006 is presented in the following table (in millions):

Net sales—2005	$	948.8
Change in sales due to:
Volume	40.5
Price/mix	26.6
Foreign currency translation	5.7
Net sales—2006	$	1,021.6

The increase in net sales during 2006 was due primarily to volume gains and price/mix improvements. Substantially all of the volume gains occurred in the United States, Latin American and Asian nonwovens markets. The price/mix improvement primarily reflects increases in sales price in an effort to pass along raw material cost increases to customers. As raw material costs have increased, the Company has attempted to pass raw material costs along to its customers, where allowable by contract terms and where acceptable based on market conditions.

A significant component of the $40.5 million increase in sales in 2006 due to volume growth was generated in the Latin American region with the addition of the spunmelt line at the Cali, Colombia facility, which initiated operations in the fourth quarter of fiscal 2005. The Latin America region’s improvement in sales was paced by significant year-over-year increases in hygiene and industrial sales. The Company’s U.S. nonwovens business was also a contributor to the growth in sales, partially attributable to the start-up of the new spunmelt facility at Mooresville, North Carolina in the latter part of the second quarter of fiscal 2006 and general improvements in the U.S. hygiene and

26

consumer markets. Nonwoven sales volumes also increased marginally in Asia, with most of the increase due to the initial shipments from the Company’s new spunmelt facility in Suzhou, China, which commenced production in the latter part of the third quarter of fiscal 2006 as well as productivity improvements experienced in the Company operations in Nanhai, China. Oriented Polymers’ net sales for 2006 decreased $11.8 million from the 2005 amount, as improvements in price/mix of sales and a favorable foreign currency translation impact were more than offset by sales volume declines affecting net sales by $24.3 million. Oriented Polymers’ sales volumes have been negatively impacted in fiscal 2006 by reduced housing starts affecting their industrial business, imported commodity products affecting lumberwrap volumes and reduced agricultural sales.

Both the Canadian dollar and the Euro were stronger against the U.S. dollar during 2006 compared to 2005. As a result, net sales increased $5.7 million due to the favorable foreign currency translation. Further discussion of foreign currency exchange rate risk is contained in “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A of Part II to this Annual Report on Form 10-K.

Gross Margin

Gross margin in 2006 declined to 15.3% from 17.0% in 2005, despite improved sales volumes and product mix, primarily due to the impact of the higher raw materials as a percentage of net sales, the effect of raw material cost increases which were not able to be passed along to the customer and other increased manufacturing costs including depreciation, during 2006. The raw material component of the cost of goods sold as a percentage of net sales increased from 51.2% in 2005 to 53.9% in 2006. Additionally, depreciation expense in 2006 was $3.8 million higher than such costs in 2005.

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Operating Income

A reconciliation of the change in operating income between the 2005 and 2006 is presented in the following table (in millions):

Operating income—2005	$	56.3
Change in operating income due to:
Price/mix	26.6
Higher raw material costs	(28.5		)
Volume	15.4
Increased manufacturing costs	(14.4		)
Foreign currency	(0.7		)
Higher depreciation and amortization expense	(3.8		)
Special charges—asset impairment charges	(26.4		)
Special charges—restructuring and plant realignment costs	(7.1		)
Special charges—abandoned acquisition costs	(4.0		)
Special charges—other	(1.1		)
Increased share-based compensation costs	(2.7		)
All other, primarily higher SG&A costs	(3.7		)
Operating income—2006	$	5.9

Consolidated operating income was $5.9 million in 2006 as compared to $56.3 million in 2005. The Company experienced higher raw material costs that were substantially offset by price/mix improvements. Operating income was positively impacted by the volume gains in the nonwovens markets, partially offset by volume declines in the oriented polymers markets, as noted above in the discussion of net sales. The net decline in operating income was significantly impacted by higher special charges of $38.7 million primarily consisting of asset impairment charges, restructuring and plant realignment costs and abandoned acquisition costs. Summary explanations for such items are included in the five paragraphs following this paragraph. For further details on such charges, see Note 3 to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K. Other items contributing to the decline in operating income were increased manufacturing costs of $14.4 million, affecting both the Nonwoven and Oriented Polymer operating results as well as increased non-cash compensation costs of $2.7 million attributable to share-based awards made primarily under the Company’s restricted stock plans and higher depreciation and amortization charges of $3.8 million. The increased manufacturing costs are primarily attributable to higher energy costs and start-up costs for certain new lines in the Nonwovens segment, coupled with increased variances in the Oriented Polymers segment resulting from volume declines. The increase in depreciation and amortization charges during fiscal 2006 is primarily related to the new spunmelt production facilities in Latin America and the United States.

The Company has experienced a continued weakening of earnings and cash flows in certain of its Canadian operations, components of the Oriented Polymers segment. As a result, the Company, during the second quarter of fiscal 2006, evaluated such assets for impairment, consistent with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and recorded a non-cash impairment charge associated with the write-down of such assets to estimated fair value in the amount of approximately $5.5 million. Additionally, during the second quarter of fiscal 2006, the Company initiated the restructuring and consolidation strategy for the European operations, which included the closure of the facilities in Sweden. Accordingly, the Company recognized an impairment charge, with respect to such assets in the amount of $2.3 million, resulting in a total asset impairment charge in the second quarter of fiscal 2006 of $7.8 million.

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During the fourth quarter of fiscal 2006, the Company recorded an impairment charge in the amount of approximately $18.6 million associated with the write-down of assets located in certain facilities in the United States and Europe to estimated fair values. Of that total, $7.2 million related to a manufacturing line located in The Netherlands, which write-down was attributed to the expected shutdown of the line in fiscal 2007 due to the loss of certain low-margin business platforms which were produced on the asset during fiscal 2006 as the market price for the products moved to a level resulting in unacceptable margins. The remaining $11.4 million related to the write-down of the assets in the United States, including facilities for which the Company has announced closure plans, as further discussed in Note 21 to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K, as well as an impairment charge taken with respect to another facility, for which projected future cash flows have been negatively impacted by the loss of a major automotive platform and the anticipated loss of certain business for which the market prices have recently declined to a level resulting in such unacceptable returns that the Company has elected not to participate in such business going forward.

The 2006 restructuring and plant realignment costs of $7.1 million are principally associated with (a) the Company’s restructuring and consolidation plan for Europe, which included termination benefits provided to an executive officer of the Company, pursuant to Dutch law, in the amount of $2.1 million and costs associated with the closure of the Sweden plant, which resulted in the reduction of 19 employees and a charge of $1.1 million; (b) costs related to the relocation of the corporate headquarters to Charlotte, North Carolina in the amount of $3.0 million; (c) downsizing certain Canadian operations resulting in severance costs of $0.6 million associated with the reduction of 26 employees; and (d) costs in the amount of $0.3 million related to exiting the leased facilities at Gainesville, Georgia for which a planned closure has been announced.

During the first five months of fiscal 2006, the Company actively pursued a potential acquisition. In conjunction with this effort, the Company incurred approximately $4.0 million of costs, which are primarily comprised of third-party professional fees. During the second quarter of fiscal 2006, the negotiations with respect to the potential acquisition reached an impasse and the Company abandoned its efforts to consummate the acquisition, with such costs charged to operating income in that period.

During June 2006, the Company and an equipment supplier negotiated the resolution of a dispute and entered into two settlement agreements, which documented the terms of the resolution. During the second and third quarters of fiscal 2006, the Company and the Audit Committee of the Board of Directors of the Company, with assistance from special counsel, conducted an investigation which focused on a review of the settlement agreements and the relationship of these agreements with certain equipment purchase contracts and service agreements, which were negotiated between the Company and the equipment supplier in or about the same time frame. As a result of these actions, the Company concluded that the economic substance of the settlement agreements and the equipment purchase contracts and service agreements were substantially interdependent. On September 21, 2006, the Board of Directors of the Company asked the Chief Executive Officer and the Vice President, Global Purchasing to resign and, pending receipt of their resignations, relieved them of their duties as officers of the Company. Shortly thereafter, the Company entered into termination agreements with both executives. As a result of these events, the Company has incurred costs with respect to the investigation, termination benefits and ancillary costs in the amount of $1.1 million.

Selling, general and administrative expenses increased $5.9 million, from $104.5 million in 2005 to $110.4 million in 2006, primarily due to the non-cash compensation costs related to the share-based awards made under the Company’s restricted stock plans, as well as increased costs due to higher sales volumes, with such increased costs partially offset by reduced incentive compensation.

29

Interest and Other Expense

Net interest expense decreased $3.4 million, from $32.6 million during 2005 to $29.2 million during 2006. The decrease in net interest expense was primarily due to the lower interest rates obtained by refinancing the Company’s long-term debt in November 2005. Additionally, during 2006, the Company capitalized, with respect to its major capital expenditure projects, interest in the amount of $3.1 million, compared to $2.2 million in 2005.

The Consolidated Statement of Operations for 2005 included a charge of $4.0 million, with respect to loan acquisition cost write-offs related to the refinancing of the Company’s debt in November 2005.

Foreign currency and other (gain) loss, net changed by $1.4 million, from a gain of $0.9 million in 2005 to a loss of $0.5 million in 2006. The change was primarily due to foreign currency movements on intercompany loan balances, at certain of the Company’s international operations, denominated in currencies other than their functional currency, generally the U.S. dollar.

Income Tax Expense

During 2006, the Company recognized an income tax expense of $7.3 million on a consolidated pre-tax loss of $27.3 million. The income tax expense is significantly different than such expense determined at the U.S. federal statutory rate primarily due to losses in the U.S. and certain foreign jurisdictions for which no income tax benefits were recognized. Additionally, the income tax expense was impacted by foreign withholding taxes, for which tax credits are not anticipated, U.S. state income taxes, and foreign taxes calculated at statutory rates less than the U.S. federal statutory rate. The Company recognized income tax expense of $9.8 million on consolidated pre-tax income of $16.8 million in 2005. The income tax expense is significantly higher than such expense determined at the U.S. federal statutory tax rate primarily due to losses in the U.S. and certain foreign tax jurisdictions for which no tax benefits were recognized. Additionally, the income tax expense is impacted by foreign withholding taxes, for which tax credits are not anticipated, U.S. state income taxes and foreign taxes calculated at statutory rates less than the U.S. federal statutory rate.

Net Income (Loss)

As a result of the above, the Company recognized a net loss of $34.5 million during 2006 compared to net income of $7.0 million in 2005.

Accrued and Paid-in-Kind Dividends on PIK Preferred Shares

Dividends on the PIK Preferred Shares accrued at an annual rate of 16.0% and were payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004. Such dividends were payable at the option of the Company; (i) through the issuance of additional shares of PIK Preferred Stock; (ii) in cash; or (iii) in a combination thereof. Accordingly, the Company accrued dividends at the stated rate of 16.0% until such time as the form of the dividend was declared by the Company’s Board of Directors. If the dividend was paid-in-kind through the issuance of additional shares of PIK Preferred Stock, the Company recognized the dividend at the estimated fair value of the shares issued in excess of the amounts previously accrued.

The Company accrued dividends at 16% on its PIK Preferred Shares during the quarter ended April 2, 2005 in the amount of $2.4 million. Additionally, on January 14, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from the date of issuance through December 31, 2004, in the amount of $5.6 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on January 14, 2005, the date the Board of Directors declared that the accrued dividends

30

were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $18.50 per share, the fair value of the 5,540 additional PIK Preferred Shares issued in lieu of cash payment was approximately $14.1 million, which exceeded the amount previously accrued by the Company of $5.6 million, based on the stated rate of 16.0%, by approximately $8.5 million. The Company accrued dividends at 16% on its PIK Preferred Shares during the quarter ended July 2, 2005 in the amount of $2.4 million. On August 3, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from January 1, 2005 through June 30, 2005, in the amount of $4.7 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on August 3, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $27.70 per share, the fair value of the 4,660 additional PIK Preferred Shares issued in lieu of cash payment was approximately $17.7 million, which exceeded the amount previously accrued by the Company of $4.7 million, based on the stated rate of 16.0%, by approximately $13.0 million. In addition, the Company accrued a charge for dividends of $1.8 million for the period from July 2, 2005 through the date that the PIK Preferred Shares were redeemed for, or converted to, shares of the Company’s Class A Common Stock. Accordingly, total accrued and paid-in-kind dividends amounted to $28.0 million in 2005. As a result of all of the PIK Preferred Shares being redeemed for or converted to shares of the Company’s Class A Common Stock by September 15, 2005, no such dividends were recorded in 2006.

Loss Applicable to Common Shareholders

As a result of the above, the Company recognized a loss applicable to common shareholders of $34.5 million, or $1.79 per share, for 2006 compared to a loss applicable to common shareholders of $21.0 million, or $1.60 per share, for 2005.

Comparison of Fiscal Years Ended December 31, 2005 and January 1, 2005

The Company’s reportable segments consist of its two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding segment data, see Note 16 “Segment Information” to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K. The following table sets forth components of the Company’s net sales and operating income (loss) by operating division for the fiscal year ended December 31, 2005, the fiscal year ended January 1, 2005 and the corresponding change from 2004 to 2005 (in millions):

	2005			2004			Change
Net sales
Nonwovens	$	763.7		$	672.6		$	91.1
Oriented Polymers	185.1			172.5			12.6
Eliminations	—			(0.4		)	0.4
	$	948.8		$	844.7		$	104.1
Operating income (loss)
Nonwovens	$	66.2		$	59.2		$	7.0
Oriented Polymers	10.6			12.1			(1.5		)
Unallocated Corporate, net of eliminations	(20.5		)	(19.0		)	(1.5		)
	56.3			52.3			4.0
Special (charges) credits, net	—			9.0			(9.0		)
	$	56.3		$	61.3		$	(5.0	)

31

The amounts for special charges (credits), net have not been allocated to the Company’s reportable business divisions because the Company’s management does not evaluate such special charges, net on a division-by-division basis. Division operating performance is measured and evaluated before such items.

Net Sales

Consolidated net sales were $948.8 million in 2005, an increase of $104.1 million or 12.3% over 2004 consolidated net sales of $844.7 million. Net sales for 2005 in the Nonwovens and Oriented Polymers divisions improved over comparable 2004 fiscal year results by 13.5% and 7.3%, respectively. Fiscal 2005 and 2004 each consisted of 52 weeks. A reconciliation of the change in net sales between 2004 and 2005 is presented in the following table (in millions):

Net sales—2004	$	844.7
Change in sales due to:
Price/mix	72.4
Volume	24.2
Foreign currency translation	7.5
Net sales—2005	$	948.8

The increase in net sales during 2005 was due primarily to price/mix improvements and volume gains. The price/mix increase reflects continued success in the Company’s ability to improve pricing and profit composition of its sales. The improvement in the price/mix of sales in 2005 over the prior year period was driven primarily by higher prices implemented to mitigate raw material costs in all divisions, increased value-added business in Latin America and product shifts in Asia from commodity to specialty applications.

The primary contributors to the $24.2 million increase in sales due to volume growth in 2005 were the U.S. and Latin American regions. In the Company’s U.S. nonwovens business, the consumer and hygiene markets contributed double-digit increases over 2004 as new products were introduced into the markets and new customer relationships generated substantial sales increases. Although the San Luis Potosi, Mexico capacity expansion was completed in late 2003, it didn’t reach full productive capacity until the second quarter of 2004. Accordingly, fiscal 2005 reflected the first full-year’s benefit of the additional capacity. The Latin America region’s sales improvement was driven by significant year-over-year increases in hygiene and industrial sales. Nonwoven sales volumes decreased slightly in Europe. Oriented Polymers’ increase in sales was due primarily to price/mix improvement, partially offset by lower sales volumes of certain commodity-based products.

Foreign currencies, predominantly the Euro and the Canadian dollar, were stronger against the U.S. dollar during 2005 compared to 2004, resulting in an increase in net sales of $7.5 million due to the favorable foreign currency translation. Further discussion of foreign currency exchange rate risk is contained in “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A in Part II to this Annual Report on Form 10-K.

Gross Margin

Gross margin in 2005 declined to 17.0% from 18.2% in 2004, despite improved sales volumes and product mix, due to the impact of the raw material increases during 2005. The raw material component of the cost of goods sold as a percentage of net sales increased from 48.6% in 2004 to 51.2% in 2005.

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Operating Income

A reconciliation of the change in operating income between 2004 and 2005 is presented in the following table (in millions):

Operating income—2004	$	61.3
Change in operating income due to:
Arbitration settlement, net	(13.1		)
Price/mix	72.4
Higher raw material costs	(60.5		)
Volume	6.9
Higher depreciation and amortization expense	(4.3		)
Lower postretirement plan curtailment gains	(3.6		)
Lower asset impairment charges	2.2
Lower plant realignment costs, net	1.9
Higher manufacturing costs	(2.6		)
Foreign currency translation	0.5
All other, primarily higher SG&A costs	(4.8		)
Operating income—2005	$	56.3

Consolidated operating income was $56.3 million in 2005 as compared to $61.3 million in 2004. Operating income in 2004 benefited from the $13.1 million arbitration settlement, net of expenses. The financial effect of price/mix improvements more than offset the higher raw material costs, reflecting the benefits of the Company’s new product introductions and ongoing efforts to manage the impact of higher raw material costs. Operating income was positively impacted by the volume gains noted in the net sales discussion above and the absence of asset impairment charges and lower plant realignment costs in 2005. Offsetting these favorable impacts were higher depreciation and amortization charges, lower postretirement plan curtailment gains, higher manufacturing costs and higher selling, general and administrative expenses. The increase in depreciation and amortization charges was primarily related to the reduction in the estimated useful lives of certain machinery and equipment utilized in the Company’s operations to reflect the technological status and market conditions of certain aspects of the Company’s business. Selling, general and administrative expenses were higher primarily due to increased sales volume, increased non-cash compensation costs related to the Company’s stock option plan and costs related to the new Sarbanes-Oxley compliance requirements, partially offset by $1.9 million received as its portion of class-action settlement agreements with various suppliers of raw materials.

Hurricanes Katrina and Rita hit the Gulf Coast in the third quarter of 2005, temporarily shutting down a number of refineries and chemical processing sites of certain raw material suppliers for the Company’s North and South American operations. As a result, raw materials continued to be available to the Company, but at significantly higher prices. The Company, where allowable based on contract terms, attempted to raise its selling prices to mitigate the sharp increases in raw materials. The prices of raw materials in the North American markets decreased slightly since late December 2005 as the refineries returned to normalized production levels, although there are no assurances that the prices will return to pre-hurricane levels due to other global economic factors.

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Interest and Other Expense

Net interest expense decreased $7.7 million, from $40.3 million in 2004 to $32.6 million in 2005. The decrease in net interest expense was primarily due to the lower interest rates obtained by refinancing the Company’s long-term bank debt in April 2004 and November 2005 and the elimination of interest expense in mid-2004 on the Junior Notes, as approximately $52.7 million in aggregate principal amount of the Junior Notes was converted into 52,716 shares of PIK Preferred Shares and 6,719 shares of Class A Common Stock. The 2004 interest expense includes $1.8 million of payment-in-kind in lieu of cash interest on the Junior Notes. Additionally, during 2005 the Company capitalized, with respect to its major capital expenditure projects, interest in the amount of $2.2 million, compared to $0.4 million in 2004.

The Consolidated Statements of Operations for 2004 and 2005 included a charge of $5.0 million and $4.0 million, respectively, with respect to loan acquisition cost write-offs related to the refinanced debt. Foreign currency and other, net improved by $1.6 million, from an expense of $0.7 million in 2004 to income of $0.9 million in 2005. The improvement in foreign currency and other, net was primarily due to the foreign currency gains recognized by foreign subsidiaries on intercompany loan balances denominated in currencies other than their functional currency, generally the U.S. dollar, as well as gains of $1.3 million recognized on the sale of certain assets.

Income Tax Expense

The Company recognized income tax expense of $9.8 million in 2005 on consolidated income before income taxes of $16.8 million. This income tax expense is significantly higher than the U.S. federal statutory rate primarily due to losses in the U.S. and certain foreign jurisdictions for which no tax benefits were recognized. Additionally, the income tax expense is impacted by foreign withholding taxes, for which the Company is not anticipating the benefit of the foreign tax credits, U.S. state income taxes and foreign taxes calculated at statutory rates less than the U.S. federal statutory rate. The Company recorded a net income tax expense of $8.0 million in 2004 on consolidated income before income taxes of $12.7 million for such period. The effective income tax rate was in excess of the statutory rate primarily due to withholding taxes, for which tax credits are not anticipated, U.S. state income taxes, and no significant income tax benefit recognized for the losses incurred in the U.S. and certain foreign jurisdictions.

Net Income

As a result of the above, the Company recognized net income of $7.0 million in fiscal 2005 compared to net income of $4.7 million in 2004.

Accrued and Paid-in-kind Dividends on PIK Preferred Shares

Dividends on the PIK Preferred Shares accrued at an annual rate of 16.0% and were payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004. Such dividends were payable at the option of the Company; (i) through the issuance of additional shares of PIK Preferred Stock; (ii) in cash; or (iii) in a combination thereof. Accordingly, the Company accrued dividends at the stated rate of 16.0% until such time as the form of the dividend was declared by the Company’s Board of Directors. If the dividend was paid-in-kind through the issuance of additional shares of PIK Preferred Stock, the Company recognized the dividend at the estimated fair value of the shares issued in excess of the amounts previously accrued.

On January 14, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from the date of issuance through December 31, 2004, in the amount of $5.6 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on January 14, 2005, the date the Board of

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Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $18.50 per share, the fair value of the 5,540 additional PIK Preferred Shares issued in lieu of cash payment was approximately $14.1 million, which exceeded the amount previously accrued by the Company of $5.6 million, based on the stated rate of 16.0%, by approximately $8.5 million. On August 3, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from January 1, 2005 through June 30, 2005, in the amount of $4.7 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on August 3, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $27.70 per share, the fair value of the 4,660 additional PIK Preferred Shares issued in lieu of cash payment was approximately $17.7 million, which exceeded the amount previously accrued by the Company of $4.7 million, based on the stated rate of 16.0%, by approximately $13.0 million. In addition, the Company accrued a charge for dividends of $1.8 million for the period from July 2, 2005 through the date that the PIK Preferred Shares were redeemed for, or converted to, shares of the Company’s Class A Common Stock. Accordingly, total accrued and paid-in-kind dividends amounted to $28.0 million and $5.6 million in fiscal years 2005 and 2004, respectively.

Loss Applicable to Common Shareholders

As a result of the above, the Company recognized a loss applicable to common shareholders of $21.0 million, or $(1.60) per share on a basic and diluted basis, in fiscal 2005 compared to a loss applicable to common shareholders of $0.8 million, or $(0.09) per share on a basic and diluted basis, in fiscal 2004.

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LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of liquidity for operations and expansions are currently funds generated from operations and borrowing availabilities under the Credit Facility, consisting of a revolving credit facility of $45.0 million and a first-lien term loan of $410.0 million. The revolving credit portion of the Credit Facility terminates on November 22, 2010 and the remaining balance (after mandatory annual payments of $4.1 million and additional payments, if any, under the excess cash flow provision of the Credit Facility) of the first-lien term loan is due November 22, 2012. The Credit Facility, as amended, contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. At December 30, 2006, the Company was in compliance with all such covenants. Additionally, as of December 30, 2006, the Company had no outstanding borrowings under the revolving credit facility and capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $12.9 million.

	December 30, 2006			December 31, 2005
	(In Millions)
Balance sheet data:
Cash and cash equivalents		$	32.1		$	31.0
Working capital		159.4			173.4
Total assets		742.1			765.0
Total debt		411.2			415.2
Total shareholders’ equity		109.1			131.5

	Fiscal Year Ended
	December 30, 2006				December 31,  2005
	(In Millions)
Cash flow data:
Net cash provided by operating activities		$	66.8			$	70.9
Net cash used in investing activities		(64.3		)		(77.6		)
Net cash used in financing activities		(1.9		)		(2.5		)

Operating Activities

Net cash provided by operating activities was $66.8 million during 2006, a $4.1 million decrease from the $70.9 million provided by operating activities during 2005. The net decrease from 2005 to 2006 in cash flows from operating activities was impacted by approximately $10.4 million of cash expenditures related to special charges that reduced operating income during 2006. Improved working capital management, especially with respect to accounts receivable and accounts payable, was a contributor to  the cash flows from operations in 2006.

The Company had working capital of approximately $159.4 million at December 30, 2006 compared with $173.4 million at December 31, 2005. Accounts receivable at December 30, 2006 was $129.3 million as compared to $120.7 million on December 31, 2005, an increase of $8.6 million. Accounts receivable represented approximately 45 days of sales outstanding at December 30, 2006 as compared to 46 days of sales outstanding at December 31, 2005. Inventories at December 30, 2006 were $132.5 million, an increase of $12.8 million from inventories at December 31, 2005 of $119.7 million. The Company had inventory representing approximately 54 days of cost of sales on hand at both December 30, 2006 and December 31, 2005. Accounts payable at December 30, 2006 was $102.7 million as compared to $82.4 million at December 31, 2005, an increase of $20.3 million. Accounts payable represented approximately 42 days of cost of sales outstanding at December 30, 2006 as compared to 37 days of cost of sales outstanding at December 31, 2005. The absolute dollar  increases in accounts receivable, inventories and accounts payable at December 30, 2006 versus

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December 31, 2005 were primarily related to sales volume increases, increases in raw material prices and improved vendor terms.

The Company’s restructuring and plant realignment activities in 2006 are discussed in Note 3 “Special Charges (Credits), net” to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K. In 2006 the Company recognized restructuring and plant realignment costs principally associated with (a) the Company’s restructuring and consolidation plan for Europe, which included termination benefits provided to an executive officer of the Company, pursuant to Dutch law, in the amount of $2.1 million and costs associated with the closure of the Sweden plant, which resulted in the reduction of 19 employees and a charge of $1.1 million; (b) costs related to the relocation of the corporate headquarters to Charlotte, North Carolina in the amount of $3.0 million; (c) downsizing certain Canadian operations resulting in severance costs of $0.6 million associated with the reduction of 26 employees; and (d) costs in the amount of $0.3 million related to exiting the leased facilities at Gainesville, Georgia. Additionally, during the first quarter of fiscal 2006, as part of its restructuring and related cost reduction measures, the Company negotiated certain changes with the union representing the employees of one of the Company’s Canadian operations, including a partial curtailment of a defined benefit pension plan. No net gain or loss has been incurred as a result of the partial curtailment. However, based on elections made by plan participants during the second quarter of fiscal 2006, and as approved by Canadian regulatory authorities on January 16, 2007, the Company will incur a settlement loss associated with employees who have elected to exit the plan. The loss incurred as a result of the partial settlement of the defined benefit pension plan, in the amount of $4.5 million, will be recognized in the first quarter of fiscal 2007 commensurate with governmental approval of the terms of the settlement and upon fulfillment by the Company of its funding requirements in the amount of $1.9 million associated with the approved settlement, of which, $0.5 million was funded in 2006 and $1.4 million was funded in February 2007. Amounts to be paid in fiscal 2007 with respect to these restructuring activities approximate $3.4 million.

Additionally, on January 3, 2007, the Board of Directors of the Company approved a plan that was communicated to affected employees that it intended to close its Rogers, Arkansas and Gainesville, Georgia plants in the United States and transfer portions of the business to other locations in North America and Asia. The restructuring plan included the reduction of approximately 170 production and administrative staff positions. As a result of this decision, the Company estimates that it will recognize cash restructuring charges of approximately $5.5 million to $6.0 million during fiscal year 2007. The Company anticipates proceeds of approximately $4.0 million to $5.0 million from the sale of idled facilities and equipment.

The Company reviews its business on an ongoing basis relative to current and expected market conditions, attempting to match its production capacity and cost structure to the demands of the markets in which it participates, and strives to continuously streamline its manufacturing operations consistent with world-class standards. Accordingly, in the future the Company may or may not decide to undertake certain restructuring efforts to improve its competitive position, especially in the more mature markets of the U.S., Europe and Canada. In such mature markets, the  prices for commodity roll goods continue to fluctuate based on supply and demand dynamics relative to the assets employed in that geographic region. The Company actively and continuously pursues initiatives to prolong the useful life of its long-lived assets through product and process innovation. In some instances the Company may decide, as was the case with its current plans to consolidate operations in the U.S., as further described in Note 21 to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K, that its fixed cost structure will be enhanced through consolidation. To the extent further decisions are made to improve the Company’s long-term performance, such actions could result in the incurrence of cash restructuring charges and asset impairment charges associated with the consolidation, and such charges could be material.

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Investing and Financing Activities

Net cash used for investing activities amounted to $64.3 million and $77.6 million in 2006 and 2005, respectively. Capital expenditures during 2006 totaled $68.2 million, a decrease of $10.7 million from capital spending of $78.9 million in 2005. A significant portion of the capital expenditures in 2006 related to the construction of new spunmelt manufacturing facilities in Suzhou, China and Mooresville, North Carolina, as well as the installation of additional capacity in Nanhai, China. Investing activities during 2006 and 2005 included proceeds from the sale of assets of $4.3 million and $1.3 million, respectively.

Net cash used in financing activities amounted to $1.9 million and $2.5 million in 2006 and 2005, respectively. In 2006, the Company repaid, on a net basis, $4.1 million of its debt whereas the Company borrowed, on a net basis, $1.2 million of its debt during 2005. Additionally in 2006, the Company received a net advance of $2.8 million from an equipment supplier, which advance will be repaid in fiscal 2007. Also, the Company paid loan acquisition and other financing costs of $0.6 million and $3.7 million million during 2006 and 2005, respectively.

Dividends

The Board of Directors has not declared a dividend on the Company’s common stock since the Effective Date. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Company does not currently have any plans to pay dividends on its common stock.

On January 14, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from the date of issuance through December 31, 2004, in the amount of $5.6 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on January 14, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $18.50 per share, the fair value of the 5,540 additional PIK Preferred Shares issued in lieu of cash payment was approximately $14.1 million, which exceeded the amount previously accrued by the Company of $5.6 million, based on the stated rate of 16.0%, by approximately $8.5 million. On August 3, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from January 1, 2005 through June 30, 2005, in the amount of $4.7 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on August 3, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $27.70 per share, the fair value of the 4,660 additional PIK Preferred Shares issued in lieu of cash payment was approximately $17.7 million, which exceeded the amount previously accrued by the Company of $4.7 million, based on the stated rate of 16.0%, by approximately $13.0 million. In addition, the Company accrued a charge for dividends of $1.8 million for the period from July 2, 2005 through the date that the PIK Preferred Shares were redeemed for, or converted to, shares of the Company’s Class A Common Stock. Accordingly, total accrued and paid-in-kind dividends amounted to $28.0 million and $5.6 million in fiscal years 2005 and 2004, respectively.

Contractual Obligations

A schedule of the required payments under existing debt agreements, the amounts due under operating leases that have initial or non-cancellable lease terms in excess of one year as of

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December 30, 2006 and purchase commitments as of December 30, 2006, are presented in tabular form below (in millions):

	Payments Due by Period
Contractual Obligations	Total		2007		2008		2009		2010		2011		Thereafter
Debt, including short-term borrowings	$	411.2	$	8.8	$	4.7	$	4.1	$	4.1	$	4.1		$	385.4
Obligations under third party/nonaffiliate operating lease agreements	$	11.4	$	3.3	$	2.7	$	1.9	$	1.4	$	0.7		$	1.4
Purchase commitments (see below)	$	87.3	$	87.3	—		—		—		—			—

Additionally, the Company expects to contribute approximately $6.0 million to its pension plans in 2007. Contributions in subsequent years will be dependent upon various factors, including actual return on plan assets, regulatory requirements and changes in actuarial assumptions such as the discount rate on projected benefit obligations.

As noted in the table above, the Company has approximately $411.2 million of debt outstanding as of December 30, 2006. The Company has fixed the interest rate on $212.5 million of the Credit Facility debt through May 2007 through the use of a cash flow hedge. Assuming the rate of interest remains unchanged from December 30, 2006, cash interest payments would be approximately $29.8 million, $30.6 million, $30.3 million, $30.0 million and $29.6 million for 2007, 2008, 2009, 2010 and 2011, respectively.

The first-lien term loan requires the Company to apply a percentage of proceeds from excess cash flows, as defined by the Credit Facility and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility. Excess cash flows required to be applied to the repayment of the Credit Facility are generally calculated as 50.0% of the net amount of the Company’s available cash generated from operations adjusted for the cash effects of interest, taxes, capital expenditures, changes in working capital and certain other items. Since the amounts of excess cash flows for future periods are based on year-end data and not determinable, only the mandatory payments of approximately $4.1 million (“mandatory payments”) per year have been classified, in the table above, as annual debt payments under the Credit Facility. Additionally, no excess cash flow payment was required to be made with respect to fiscal 2006 due to the magnitude of the major capital expenditures. The Company currently estimates that the excess cash flow payment with respect to fiscal 2007, which would be payable in March 2008, is expected to be within the range of $10.0 million to $25.0 million.

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 $3.7 million, $3.3 million and $4.0 million in 2006, 2005 and 2004, respectively. Rental income approximated $0.2 million and $0.6 million in 2005 and 2004, respectively. There was no rental income in fiscal 2006. The expenses are recognized on a straight-line basis over the life of the lease.

At December 30, 2006, the Company had commitments of approximately $87.3 million related to the purchase of raw materials, maintenance, converting services and capital projects which are expected to result in cash payments during 2007. In addition, the Company had outstanding letters of credit at December 30, 2006  of approximately $12.9 million.

Liquidity Summary

As discussed more fully in Note 9 to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K, the Company has a Credit Facility, which it entered into on

39

November 22, 2005 and amended as of December 8, 2006, which consists of a $45.0 million secured revolving credit facility maturing in 2010 and a $410.0 million first-lien term loan that matures in 2012.

All borrowings under the 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. The 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. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the revolving credit commitment. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Credit Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. The Company was in compliance with the debt covenants under the Credit Facility at December 30, 2006 and expects to remain in compliance through fiscal 2007.

The first-lien term loan requires mandatory payments of approximately $1.0 million per quarter and requires the Company to use a percentage of proceeds from excess cash flows, as defined by the Credit Facility, and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility. Excess cash flows required to be applied to the repayment of the Credit Facility are generally calculated as 50.0% of the net amount of the Company’s available cash generated from operations adjusted for the cash effects of interest, taxes, capital expenditures, changes in working capital and certain other items. Since the amounts of excess cash flows for future periods are based on year-end results and not determinable, only the mandatory payments of approximately $1.0 million per quarter have been classified as a current liability in the Consolidated Balance Sheet included in Item 8 of Part II to this Annual Report on Form 10-K. Additionally, no excess cash flow payment was required to be made with respect to fiscal 2006 due to the magnitude of the major capital expenditures. The Company currently estimates that the excess cash flow payment with respect to fiscal 2007, which would be payable in March 2008, is expected to be within the range of $10.0 million to $25.0 million.

The interest rate applicable to borrowings under the Credit Facility is based on three-month London Interbank Offered Rate (“LIBOR”) plus a specified margin. The applicable margin for borrowings under both the first-lien term loan and the revolving credit facility is 225 basis points. The Company may, from time to time, elect to use an alternate base rate for its borrowings under the revolving credit facility based on the bank’s base rate plus a margin of 75 to 125 basis points based on the Company’s total leverage ratio. The Company had no outstanding borrowings at December 30, 2006 under the revolving credit facility. As of December 30, 2006, capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $12.9 million. None of these letters of credit have been drawn on at December 30, 2006. Average borrowings under the revolving credit facility, which were largely LIBOR-based borrowings, for the period from January 1, 2006 to December 30, 2006 were $17.6 million at an average rate of 7.85%.

Additionally, in accordance with the terms of the Credit Facility, the Company maintained its position in a cash flow hedge, effectively converting $212.5 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 3.383%. The cash flow hedge agreement terminates on May 8, 2007. Additionally, in February 2007, the Company entered another cash flow hedge agreement, which is effective May 8, 2007, matures June 29, 2009 and effectively converts $240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085%.

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The Company has entered into factoring agreements to sell without recourse, certain U.S. and non-U.S. company-based receivables to unrelated third party financial institutions. Under the terms of the factoring agreement related to the sale of U.S. company-based receivables, the maximum amount of outstanding advances at any one time is $20.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. Under the terms of the factoring agreement related to the sale of non-U.S. company-based receivables, the maximum amount of outstanding advances at any one time is $10.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. The sale of these receivables accelerated the collection of the Company’s cash, reduced credit exposure and lowered the Company’s net borrowing costs. The Credit Facility entered into during November 2005 provides the Company the availability to increase the sale of non-U.S. based receivables, under factoring agreements, to $20.0 million.

As discussed in Note 18 to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K, the Company has committed to several major projects to expand its worldwide capacity, including the construction of a new spunmelt line at the joint venture facility near Buenos Aires, Argentina. Remaining payments due related to these planned expansions as of December 30, 2006 totaled approximately $39.4 million and are expected to be expended during fiscal 2007. The Company has obtained committed local financing subsequent to December 30, 2006 to support the capital expansion in Argentina.

Based on the ability to generate positive cash flows from its operations and the financial flexibility provided by the Credit Facility, as amended, the Company believes that it has the financial resources necessary to meet its operating needs, fund its capital expenditures and make all necessary contributions to its retirement plans.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

Effect of Inflation

Inflation generally affects the Company by increasing the costs of labor, overhead, and equipment. The impact of inflation on the Company’s financial position and results of operations has been minimal during 2006, 2005 and 2004. However, the Company continues to be impacted by rising raw material costs. See “Quantitative and Qualitative Disclosures About Market Risk” included in Item 7A of Part II of this Annual Report on Form 10-K.

New Accounting Standards

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FIN 48 also provides guidance on other tax-related issues and is effective for fiscal years beginning after December 15, 2006. Additionally, in February 2007, the FASB issued a Proposed Staff Position No. FIN 48-a, “Definition of Settlement in FASB Interpretation No. 48,” which implementation guidance, if approved, may impact the timing of certain liability adjustments. Accordingly, such additional guidance may impact the amounts that the Company would record upon the adoption of FIN 48. The Company continues to evaluate the effects of this standard.

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In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This standard establishes a framework for measuring fair value and also provides guidance for an expanded set of disclosure requirements related to fair value. The Company expects to adopt SFAS No. 157 effective in the first quarter of fiscal 2008 and has not yet assessed the impact of SFAS No. 157 on the Consolidated Financial Statements.

No other new accounting pronouncement issued or effective during the fiscal year has had or is expected to have a material impact on the Consolidated Financial Statements. Certain reclassifications of prior years’ amounts have been made in the Consolidated Financial Statements to conform to the current year presentation.

Critical Accounting Policies And Other Matters

The Company’s analysis and discussion of its financial position and results of operations are based upon its consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires the appropriate application of certain accounting policies, many of which require management to make estimates and assumptions about future events that may affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. Since future events and their impact cannot be determined with certainty, the actual results will inevitably differ from the estimates. The Company evaluates these estimates and assumptions on an ongoing basis, including but not limited to those related to fresh start accounting, revenue recognition, including the effects of sales returns and allowances and credit risks, convertible securities, inventories, income taxes, and impairment of long-lived assets. Estimates and assumptions are based on historical and other factors believed to be reasonable under the circumstances. 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:

Fresh Start Accounting:   In connection with the Company’s Chapter 11 reorganization, the Company has applied fresh start accounting to its Consolidated Balance Sheet as of March 1, 2003 in accordance with SOP 90-7. Under fresh start accounting, a new reporting entity is considered to be created and the recorded amounts of assets and liabilities are adjusted to reflect their estimated fair values at the date fresh start accounting is applied. On March 5, 2003, the Company emerged from bankruptcy. For financial reporting purposes, March 1, 2003 is considered the emergence date and the effects of the reorganization have been reflected in the accompanying financial statements as if the emergence occurred on that date.

Fresh-start accounting requires that the reorganization value of the Company be allocated to its assets and liabilities in conformity with SFAS No. 141, “Business Combinations”. Based on the consideration of many factors and various valuation methods, the Company and its financial advisors determined the reorganization value of the Company to be approximately $73.4 million, as described in the Modified Plan. The factors and valuation methodologies included the review of comparable company market valuations and the recent acquisition values of comparable company transactions as well as discounted cash flow models. The discounted cash flow models utilized projected free cash flows for four future years, with such projected free cash flows discounted at rates approximating the expected weighted average cost of capital (11.0% to 13.0%) plus the present value of the Company’s

42

terminal value computed using comparable company exit multiples. Projected free cash flows were estimated based on projected cash flows from operations, adjusted for the effects of income taxes at an effective rate of 39.0%, estimated capital expenditures and estimated changes in working capital. The calculation of reorganization value of the Company was based on a variety of estimates and assumptions about future circumstances and events. Such estimates and assumptions are inherently subject to significant economic uncertainties. While the Company believes its judgments, estimates and valuation methodologies were reasonable, different assumptions could have materially changed the estimated reorganization value of the Company as of March 1, 2003.

Revenue Recognition:   Revenue from product sales is recognized when title and risks of ownership pass to the customer. This is generally on the date of shipment to the customer, or upon delivery to a place named by the customer, dependent upon contract terms and when collectibility is reasonably assured and pricing is fixed or determinable. Revenue includes amounts billed to customers for shipping and handling. Provision for rebates, promotions, product returns and discounts to customers is recorded as a reduction in determining revenue in the same period that the revenue is recognized. Management bases its estimate of the expense to be recorded each period on historical returns and allowance levels. Management does not believe the likelihood is significant that materially higher deduction levels will result based on prior experience.

Accounts Receivable and Concentration of Credit Risks:   Accounts receivable potentially expose the Company to a 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 its customers’ financial condition as deemed necessary, 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. Also, in an effort to reduce its credit exposure to certain customers, as well as accelerate its cash flows, the Company sells, on a non-recourse basis, certain of its receivables pursuant to factoring agreements. At December 30, 2006, a reserve of $7.6 million has been recorded as an allowance against trade accounts receivable. Management believes that the allowance is adequate to cover potential losses resulting from uncollectible accounts receivable and deductions resulting from sales returns and allowances. While the Company’s credit losses have historically been within its calculated estimates, it is possible that future losses could differ significantly from these estimates.

Convertible Securities:   The Company recorded the accretion of dividends on the PIK Preferred Shares based on the stated rate of 16.0%. If the Company’s Board of Directors, at the date of any dividend declaration, elected to satisfy the dividend obligation by payment-in-kind, the Company recognized an additional dividend charge for the excess, if any, of the fair value of the additional PIK Preferred Shares issued, at the dividend declaration date, over the amounts previously accrued at the stated rate. As the Company’s PIK Preferred Shares were not traded on an active market, determination of the fair value of the securities, at the date of dividend declaration, required estimates and judgments, which may have impacted the valuation of the dividend paid-in-kind. Based on the fact that the PIK Preferred Shares were deep-in-the money, the Company estimated the fair value of the PIK Preferred Shares using the number of shares of the Company’s Class A Common Stock into which the PIK Preferred Shares were convertible at the then-current share price of the Company’s Class A Common Stock. While the Company believes its estimates of the fair value of the PIK Preferred Shares are reasonable, the utilization of different assumptions could produce materially different fair value estimates.

Inventory Reserves:   The Company maintains reserves for inventories valued using the first in, first out (FIFO) method. Such reserves for inventories can be specific to certain inventory or general based on judgments about the overall condition of the inventory. General reserves are established

43

based on percentage write-downs applied to inventories aged for certain time periods, or for inventories that are slow-moving. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory value exceeds amounts to be recovered through the expected sales price of such inventories, less selling costs. Estimating sales prices, establishing markdown percentages and evaluating the condition of the inventories require judgments and estimates, which may impact the inventory valuation and gross profits. The actual amount of obsolete or unmarketable inventory has been materially consistent with previously established reserves. Management believes, based on its prior experience of managing and evaluating the recoverability of its slow moving or obsolete inventory, that such established reserves are materially adequate. If actual market conditions and product sales were less favorable than we have projected, additional inventory writedowns may be necessary.

Income Taxes:   The Company records an income tax valuation allowance when, based on the weight of the evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. The ultimate realization of the deferred tax asset depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. In assessing the realization of the deferred tax assets, consideration is given to, among other factors, the trend of historical and projected future taxable income, the scheduled reversal of deferred tax liabilities, the carryforward period for net operating losses and tax credits, as well as tax planning strategies available to the Company. Additionally, the Company has not provided U.S. income taxes for undistributed earnings of certain foreign subsidiaries that are considered to be retained indefinitely for reinvestment. Certain judgments, assumptions and estimates are required in assessing such factors and significant changes in such judgments and estimates may materially affect the carrying value of the valuation allowance and deferred income tax expense or benefit recognized in the Company’s Consolidated Financial Statements.

Additionally, consistent with the provisions of SOP 90-7, recognition of tax benefits from preconfirmation net operating loss carryforwards and other deductible temporary differences not recognized at the Effective Date will be applied to reduce goodwill to zero, then to reduce intangible assets that existed at the Effective Date with any excess tax benefits credited directly to Additional Paid-in Capital.

Impairment of Long-Lived Assets:   Long-lived assets, excluding goodwill, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Goodwill is reviewed annually. For assets held and used, an impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of the loss to be recognized. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value measured by future discounted cash flows. The analysis, when conducted, requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. In addition, future events impacting cash flows for existing assets could render a writedown necessary that previously required no writedown.

For assets held for disposal, an impairment charge is recognized if the carrying value of the assets exceeds the fair value less costs to sell. Estimates are required of fair value, disposal costs and the time period to dispose of the assets. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. Actual cash flows received or paid could differ from those used in estimating the impairment loss, which would impact the impairment charge ultimately recognized. As of December 30, 2006, based on the Company’s current operating performance, as well as future expectations for the business, the Company does not anticipate any material writedowns for long-lived

44

asset impairments. However, conditions could deteriorate, which could impact our future cash flow estimates, and there exists the potential for further consolidation and restructuring in the more mature markets of the U.S. and Europe, either of which could result in an impairment charge that could have a material effect on the Company’s Consolidated Financial Statements.

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. The Company believes that it is currently in substantial compliance with applicable environmental requirements and does not currently anticipate any material adverse effect on its operations, financial 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, accordingly, there can be no assurance that material environmental liabilities will not arise.

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

The Company is exposed to market risks for changes in foreign currency rates and interest rates and has exposure to commodity price risks, including prices of its primary raw materials. The overall objective of the Company’s financial risk management program is to seek a reduction in the potential negative earnings impact of changes in interest rates, foreign exchange and raw material pricing arising in our business activities. The Company manages these financial exposures, where possible, through operational means and by using various financial instruments. These practices may change as economic conditions change.

Long-Term Debt and Interest Rate Market Risk

The Company’s long-term borrowings under the Credit Facility are variable interest rate debt. As such, the Company’s interest expense will increase as interest rates rise and decrease as interest rates fall. It is the Company’s policy to enter into interest rate derivative transactions only to meet its stated overall objective. The Company does not enter into these transactions for speculative purposes. To that end, as further described in Notes 9 and 14 to the Consolidated Financial Statements included in Item 8 of Part II to this Annual Report on Form 10-K, the Company entered into an interest rate swap contract to effectively convert $212.5 million of its variable-rate debt to fixed-rate debt. The interest rate swap contract matures on May 8, 2007. Hypothetically, a 1% change in the interest rate affecting all of the Company’s financial instruments not protected by the interest rate swap contract would change interest expense by approximately $2.0 million.

Additionally, on February 8, 2007, the Company entered into a similar pay-fixed, receive variable interest rate swap contract to become effective on May 8, 2007. The notional principal amount of this new contract, which expires on June 29, 2009, is $240.0 million and effectively fixes the LIBOR interest rate on that amount of debt at 5.085%.

The estimated fair value of the Company’s debt at December 30, 2006 was approximately $411.2 million, which approximated its carrying value.

Foreign Currency Exchange Rate Risk

The Company manufactures, markets and distributes certain of its products in Europe, Canada, Latin America and Asia. As a result, the Company’s financial statements could be significantly affected by factors such as changes in foreign currency rates in the foreign markets in which the Company maintains a manufacturing or distribution presence. However, such currency fluctuations have much less effect on local operating results because the Company, to a significant extent, sells its products within the countries in which they are manufactured. During 2006 and 2005, certain currencies of

45

countries in which the Company conducts foreign currency denominated business moved significantly 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” included in Item 7 of Part II to this Annual Report on Form 10-K.

The Company has not historically hedged its exposure to foreign currency risk. However, in most foreign operations, there is, in part, a natural currency hedge due to similar amounts of costs of materials and production as revenues in such local currencies. Also, the Company periodically reviews its hedge strategy with respect to its U.S. dollar exposure on certain foreign currency-based obligations such as firm commitments related to certain capital expenditure projects. The Company is also subject to political risk in certain of its foreign operations and has utilized insurance programs in certain circumstances to mitigate its political risk.

Raw Material and Commodity Risks

The primary raw materials used in the manufacture of most of the Company’s products are polypropylene resin, polyester fiber, polyethylene resin, and, to a lesser extent, rayon, tissue paper and cotton. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude oil and natural gas liquids. The Company has not historically hedged its exposure to raw material increases, but has attempted to move more customer programs to contracts with price escalation provisions which would allow the Company to pass-through any cost increases in raw materials, although there is often a delay between the time the Company is required to pay the increased raw material price and the time that the Company is able to pass the increase on to its customers. Raw material prices as a percentage of sales have increased from 51.2% in 2005 to 53.9% for 2006.

The prices of raw materials in the North American market rose substantially in the fourth quarter of 2005 as a direct result of the hurricanes that impacted the Gulf Coast. The raw material prices in the North American markets have decreased slightly since late December 2005 through the end of fiscal 2006 as the refineries and chemical processing sites returned to more normal production levels. However, raw material costs in North America have not returned to their pre-fourth quarter of fiscal 2005 levels. Additionally, on a global basis, raw material costs continue to fluctuate, although in a much narrower range, in response to certain global economic factors, including the regional supply versus demand dynamics for the raw materials and the volatile price of oil.

To the extent the Company is not able to pass along price increases of raw materials, or to the extent any such price increases are delayed, the Company’s cost of goods sold would increase and its operating profit 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 $4.0 million, on an annualized basis, in its reported pre-tax operating income. 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” included in Item 7 of Part II to this Annual Report on Form 10-K.

46

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Grant Thornton LLP, Independent Registered Public Accounting Firm	48
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm	49
Consolidated Balance Sheets as of December 30, 2006 and December 31, 2005	50
Consolidated Statements of Operations for the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005	51
Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) for the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005	52
Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005	53
Notes to Consolidated Financial Statements for the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005	54

47

REPORT OF GRANT THORNTON LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Polymer Group, Inc.

We have audited the accompanying consolidated balance sheets of Polymer Group, Inc. (a Delaware corporation) and subsidiaries (the Company) as of December 30, 2006, and December 31, 2005, and the related consolidated statements of operations, changes in shareholders’ equity and comprehensive income (loss) and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board  (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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Polymer Group, Inc. and subsidiaries as of December 30, 2006 and December 31, 2005, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole.  The schedule titled Schedule II – Valuation and Qualifying Accounts is presented for purposes of additional analysis and is not a required part of the basic financial statements.  The amounts on this schedule for the years ended December 30, 2006, and December 31, 2005, have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, are fairly stated in all material respects in relation to the basic financial statements taken as a whole.

As discussed in Note 2 of the notes to consolidated financial statements, effective January 1, 2006, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), “Share-Based Payment” and, effective December 30, 2006, the Company adopted the provisions of FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Retirement Plans: an amendment of FASB Statements No. 87, 88, 106, and 132(R).”

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Polymer Group, Inc. and subsidiaries’ internal control over financial reporting as of December 30, 2006, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2007, expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ GRANT THORNTON LLP

Columbia, South Carolina
March 13, 2007

48

Report of Ernst & Young LLP, Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Polymer Group, Inc.

We have audited the accompanying consolidated statements of operations, changes in shareholders’ equity and comprehensive income (loss), and cash flows of Polymer Group, Inc. for the year ended January 1, 2005. Our audit also included the data related to the periods referenced in the preceding sentence included in 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 audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of Polymer Group, Inc. for the year ended January 1, 2005 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.

/s/ Ernst & Young, LLP

Greenville, South Carolina
March 23, 2005

49

POLYMER GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)

	December 30, 2006				December 31, 2005
A S S E T S
Current assets:
Cash and cash equivalents		$	32,104			$	30,963
Accounts receivable, net		129,287				120,668
Inventories		132,530				119,663
Deferred income taxes		2,787				4,364
Other current assets		19,531				23,094
Total current assets		316,239				298,752
Property, plant and equipment, net		411,054				421,997
Intangibles and loan acquisition costs, net		10,206				37,329
Deferred income taxes		555				433
Other assets		4,043				6,490
Total assets		$	742,097			$	765,001
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’   E Q U I T Y
Current liabilities:
Short-term borrowings		$	4,570			$	5,101
Accounts payable		102,675				82,371
Accrued liabilities		41,638				32,235
Income taxes payable		3,445				1,456
Deferred income taxes		294				—
Current portion of long-term debt		4,170				4,142
Total current liabilities		156,792				125,305
Long-term debt		402,416				405,955
Deferred income taxes		34,616				64,692
Other noncurrent liabilities		22,523				20,956
Total liabilities		616,347				616,908
Minority interests		16,654				16,611
Shareholders’ equity:
Preferred stock—0 shares issued and outstanding		—				—
Class A common stock—19,133,728 and 18,868,607 shares issued and outstanding at December 30, 2006 and December 31, 2005, respectively		191				188
Class B convertible common stock—135,721 and 153,549 shares issued and outstanding at December 30, 2006 and December 31, 2005, respectively		2				2
Class C convertible common stock—24,319 and 31,131 shares issued and outstanding at December 30, 2006 and December 31, 2005, respectively		—				—
Class D convertible common stock—0 shares issued and outstanding		—				—
Class E convertible common stock—0 shares issued and outstanding		—				—
Additional paid-in capital		173,368				165,652
Retained earnings (deficit)		(89,352		)		(54,820		)
Accumulated other comprehensive income		24,887				20,460
Total shareholders’ equity		109,096				131,482
Total liabilities and shareholders’ equity		$	742,097			$	765,001

See accompanying notes to Consolidated Financial Statements.

50

POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)

	Fiscal Year Ended
	December 30, 2006				December 31, 2005				January 1, 2005
Net sales		$	1,021,608			$	948,848		$	844,734
Cost of goods sold		865,405				787,369			691,272
Gross profit		156,203				161,479			153,462
Selling, general and administrative expenses		110,406				104,545			99,163
Special charges (credits), net		38,683				9			(8,992		)
Foreign currency loss, net		1,229				671			2,027
Operating income		5,885				56,254			61,264
Other expense (income):
Interest expense, net		29,248				32,617			40,252
Minority interests		3,377				3,784			2,597
Write-off of loan acquisition costs		—				4,008			5,022
Foreign currency and other (gain) loss, net		517				(948		)	667
Income (loss) before income tax expense		(27,257		)		16,793			12,726
Income tax expense		7,275				9,796			7,994
Net income (loss)		(34,532		)		6,997			4,732
Accrued and paid-in-kind dividends on PIK preferred shares		—				27,998			5,566
Loss applicable to common shareholders		$	(34,532	)		$	(21,001	)	$	(834	)
Loss per common share—Basic:
Average common shares outstanding		19,295				13,098			9,840
Loss per common share		$	(1.79	)		$	(1.60	)	$	(0.09	)
Loss per common share—Diluted:
Average common shares outstanding		19,295				13,098			9,840
Loss per common share		$	(1.79	)		$	(1.60	)	$	(0.09	)

See accompanying notes to Consolidated Financial Statements.

51

POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME (LOSS)
For the Fiscal Years Ended December 30, 2006, December 31, 2005 and January 1, 2005
(In Thousands)

															Accumulated
															Other
							Additional				Retained				Comprehensive
	Common Stock						Paid-in				Earnings				Income							Comprehensive
	Shares			Amount			Capital				(Deficit)				(Loss)				Total			Income (Loss)
Balance—January 3, 2004		8,653			$	86		$	73,304			$	(32,985	)		$	18,795		$	59,200
Net income					—			—				4,732				—			4,732				$	4,732
Accrued dividends on PIK preferred shares					—			—				(5,566		)		—			(5,566		)		—
Cash flow hedge adjustment, net of reclassification adjustment					—			—				—				320			320				320
Compensation recognized on share-based awards					—			1,177				—				—			1,177				—
Class A and Class C common stock issued under order of United States Bankruptcy Court		1,347			14			(14		)		—				—			—				—
Conversion of junior notes to Class A common stock		378			4			2,752				—				—			2,756				—
Currency translation adjustments, net of tax					—			—				—				11,230			11,230				11,230
Balance—January 1, 2005		10,378			104			77,219				(33,819		)		30,345			73,849				$	16,282
Net income					—			—				6,997				—			6,997				$	6,997
Accrued dividends on PIK preferred shares					—			23,349				(27,998		)		—			(4,649		)		—
Cash flow hedge adjustment, net of reclassification adjustment					—			—				—				3,545			3,545				3,545
Compensation recognized on share-based awards		46			—			2,243				—				—			2,243				—
Conversion and redemption of PIK preferred shares to Class A common stock		8,629			86			62,841				—				—			62,927				—
Minimum pension liability, net of tax					—			—				—				(1,592		)	(1,592		)		(1,592		)
Currency translation adjustments, net of tax					—			—				—				(11,838		)	(11,838		)		(11,838		)
Balance—December 31, 2005		19,053			190			165,652				(54,820		)		20,460			131,482				$	(2,888	)
Net loss					—			—				(34,532		)		—			(34,532		)		$	(34,532	)
Cash flow hedge adjustment, net of reclassification adjustment					—			—				—				(2,370		)	(2,370		)		(2,370		)
Compensation recognized on share-based awards		289			3			4,914				—				—			4,917				—
Surrender of shares to satisfy employee withholding tax obligations		(48	)		—			(1,266		)		—				—			(1,266		)		—
Adjustment to initially apply FASB Statement No. 158, net of tax					—			—				—				2,724			2,724				—
Minimum pension liability, net of tax					—			—				—				(9,093		)	(9,093		)		(9,093		)
Recognition of tax benefits from utilization of preconfirmation net operating loss carryforwards and other tax attributes					—			4,068				—				—			4,068				—
Currency translation adjustments, net of tax					—			—				—				13,166			13,166				13,166
Balance—December 30, 2006		19,294			$	193		$	173,368			$	(89,352	)		$	24,887		$	109,096			$	(32,829	)

See accompanying notes to Consolidated Financial Statements.

52

POLYMER GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)

	Fiscal Year Ended
	December 30, 2006				December 31, 2005				January 1, 2005
Operating activities:
Net income (loss)		$	(34,532	)		$	6,997		$	4,732
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Asset impairment charges		26,434				—			2,253
Investment and other gains		(734		)		(1,298		)	(50		)
Postretirement benefit curtailments and other, net		—				—			(3,558		)
Deferred income taxes		(1,728		)		7,228			2,397
Write-off of loan acquisition costs		—				4,008			5,022
Depreciation and amortization		60,663				57,550			53,230
Noncash interest and compensation		4,917				2,243			2,936
Changes in operating assets and liabilities:
Accounts receivable, net		(5,942		)		(11,632		)	5,136
Inventories		(10,043		)		(16,413		)	(6,954		)
Other current assets		3,170				15,383			4,155
Accounts payable and accrued liabilities		24,918				16,767			440
Other, net		(363		)		(9,901		)	157
Net cash provided by operating activities		66,760				70,932			69,896
Investing activities:
Purchases of property, plant and equipment		(68,167		)		(78,902		)	(24,791		)
Proceeds from sale of assets		4,306				1,298			1,660
Acquisition of intangibles and other		(407		)		—			(13		)
Net cash used in investing activities		(64,268		)		(77,604		)	(23,144		)
Financing activities:
Proceeds from borrowings		67,827				471,824			486,396
Repayment of borrowings		(71,952		)		(470,575		)	(502,158		)
Advances from equipment supplier, net		2,792				—			—
Other, net		(601		)		(3,737		)	(12,371		)
Net cash used in financing activities		(1,934		)		(2,488		)	(28,133		)
Effect of exchange rate changes on cash		583				(1,173		)	1,341
Net increase (decrease) in cash and cash equivalents		1,141				(10,333		)	19,960
Cash and cash equivalents at beginning of period		30,963				41,296			21,336
Cash and cash equivalents at end of period		$	32,104			$	30,963		$	41,296

See accompanying notes to Consolidated Financial Statements.

53

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Background and Basis of Consolidation

Background

Polymer Group, Inc. (the “Company”) is a publicly-traded, multinational manufacturer, marketer and seller of nonwoven and oriented polyolefin products. The Company is one of the world’s leading producers of nonwovens, and is a global, technology-driven developer, producer and marketer of engineered materials. With the broadest range of process technologies in the nonwovens industry, the Company is a global supplier to leading consumer and industrial product manufacturers. The Company operates 21 manufacturing facilities in nine countries throughout the world. The Company’s main sources of revenue are the sales of primary and intermediate products to the medical, hygiene, wipes, industrial and specialty markets.

The Company, upon having its Modified Plan, as defined (the “Modified Plan”), approved by the Bankruptcy Court on January 16, 2003, emerged from Chapter 11 bankruptcy proceedings effective March 5, 2003 (the “Effective Date”). For accounting purposes the Company recognized the emergence on March 1, 2003, which was the end of the February 2003 accounting period. In accordance with AICPA Statement of Position 90-7, “Financial Reporting of Entities in Reorganization under the Bankruptcy Code (“SOP 90-7”), the Company adopted fresh-start accounting as of March 1, 2003, and the Company’s emergence from Chapter 11 resulted in a new reporting entity. The reorganization value of the Company has been allocated to the underlying assets and liabilities based on their respective fair values at the date of emergence.

Basis of Consolidation

The accompanying Consolidated Financial Statements include the accounts of Polymer Group, Inc. and all majority-owned subsidiaries after elimination of all significant intercompany accounts and transactions. The accounts of all foreign subsidiaries have been included on the basis of fiscal periods ended on the same dates as the accompanying Consolidated Financial Statements. All amounts are presented in U.S. dollars, unless otherwise noted.

Note 2. Accounting Policies and Financial Statement Information

Fiscal Year

The Company’s fiscal year ends on the Saturday nearest to December 31. Fiscal 2006 ended December 30, 2006 and included the results of operations for a fifty-two week period. Fiscal 2005 ended December 31, 2005 and included the results of operations for a fifty-two week period. Fiscal 2004 ended January 1, 2005 and included the results of operations for a fifty-two week period.

Reclassifications

Certain amounts previously presented in the Consolidated Financial Statements for prior periods have been reclassified to conform with the current year classification.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect

54

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

The reorganization value of the Company’s common equity of approximately $73.4 million at March 1, 2003 was determined based on an independent valuation by financial specialists after consideration of multiple factors and by using various valuation methodologies and evaluating other relevant industry information. The reorganization value of the Company was allocated to the various assets and liabilities based on their respective fair values pursuant to fresh start accounting principles. The calculated reorganization value of the Company was based on a variety of estimates and assumptions about future circumstances and events. Such estimates and assumptions are inherently subject to significant economic uncertainties.

An allowance for doubtful accounts is established by the Company based upon factors surrounding the credit risk of specific customers, historical trends and other information. Management believes that the allowance is adequate to cover potential losses resulting from uncollectible accounts. Additionally, sales returns and allowances, a component of net sales, are recorded in the period in which the related sales are recorded. Management bases its estimate of the expense to be recorded each period on historical return and allowance levels.

The Company maintains reserves for inventories valued primarily using the first in, first out (“FIFO”) method. Such reserves for inventories can be specific to certain inventory or general based on judgments about the overall condition of the inventory. General reserves are established based on percentage write-downs applied to inventories aged for certain time periods or for inventories which are considered slow-moving. Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory value exceeds amounts to be recovered through expected sales price, less selling costs. Estimating sales prices, establishing write-down percentages and evaluating the condition of the inventories require judgments and estimates, which may impact the inventory valuation and gross profits.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. For assets held and used, an impairment may occur if projected undiscounted cash flows are not adequate to cover the carrying value of the assets. In such cases, additional analysis is conducted to determine the amount of the loss to be recognized. The impairment loss is determined by the difference between the carrying amount of the asset and the fair value primarily measured by future discounted cash flows. The analysis, when conducted, requires estimates of the amount and timing of projected cash flows and, where applicable, judgments associated with, among other factors, the appropriate discount rate. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. In addition, future events impacting cash flows for existing assets could render a write-down necessary that previously required no write-down.

For assets held for disposal, an impairment charge is recognized if the carrying value of the assets exceeds the fair value less costs to sell. Estimates are required of fair value, disposal costs and the time period to dispose of the assets. Such estimates are critical in determining whether any impairment charge should be recorded and the amount of such charge if an impairment loss is deemed to be necessary. Actual cash flows received could differ from those used in estimating the impairment loss, which would impact the impairment charge ultimately recognized.

55

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company recorded the accretion of dividends on the 16% Series A Convertible Pay-in-kind Preferred Shares (the “PIK Preferred Shares”) based on the stated rate of 16.0% in the PIK Preferred Shares. If the Company’s Board of Directors, at the date of any dividend declaration, elected to satisfy the dividend obligation by payment-in-kind, the Company recognized an additional dividend charge for the excess, if any, of the fair value of the additional PIK Preferred Shares issued, at the dividend declaration date, over the amounts previously accrued at the stated rate. As the Company’s PIK Preferred Shares were not traded on an active market, determination of the fair value of the securities, at the date of dividend declaration, required estimates and judgments, which may have impacted the valuation of the dividends paid-in-kind. Based on the fact that the PIK Preferred Shares were deep-in-the money, the Company estimated the fair value of the PIK Preferred Shares using the number of shares of the Company’s Class A Common Stock into which the PIK Preferred Shares were convertible at the then-current share price of the Company’s Class A Common Stock. While the Company believes its estimates of the fair value of the PIK Preferred Shares are reasonable, the utilization of different assumptions could produce materially different fair value estimates.

The Company has pension and postretirement plans with costs and obligations which are dependent on assumptions used by actuaries in calculating such amounts. These assumptions include discount rates, inflation rates, salary growth percentages, long-term return on plan assets, retirement rates, mortality rates and other factors. While the Company believes that the assumptions used are appropriate, significant differences in actual experience or significant changes in assumptions would affect its pension and postretirement costs and obligations.

The Company estimates the fair value of stock option grants for measuring compensation costs using the Black-Scholes option-pricing model, which model is dependent on certain assumptions. These assumptions include expected dividend yield, expected volatility, risk-free interest rate, forfeitures and expected lives. Although the Company believes the assumptions utilized are appropriate, differing assumptions would affect compensation costs.

The Company has estimated the fair values of financial instruments as required by Statement of Financial Accounting Standards (“SFAS”) 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 estimates of fair value for non-traded financial instruments. 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 cash equivalents, accounts receivable, inventories, other current assets and accounts payable and accrued liabilities are reasonable estimates of their fair values. Fair value of the Company’s debt was estimated using interest rates at those dates for issuance of such financial instruments with similar terms, credit ratings and remaining maturities and other independent valuation methodologies. The estimated fair value of debt, based on such valuation methodologies, at December 30, 2006 and December 31, 2005 was $411.2 million and $415.2 million, respectively.

During fiscal 2005, the estimated useful lives of certain machinery and equipment utilized in the Company’s operations were reduced to reflect the technological status and market conditions of certain aspects of the Company’s business. These changes in estimates resulted in increased depreciation charges of approximately $3.4 million in each of the fiscal years 2006 and 2005.

56

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Revenue Recognition

Revenue from product sales is recognized when title and risks of ownership pass to the customer. This is generally on the date of shipment to the customer, or upon delivery to a place named by the customer, dependent upon contract terms and when collectibility is reasonably assured and pricing is fixed or determinable. Revenue includes amounts billed to customers for shipping and handling. Provision for rebates, promotions, product returns and discounts to customers is recorded as a reduction in determining revenue in the same period that the revenue is recognized.

Cash Equivalents

Cash equivalents are defined as short-term investments having an original maturity of three months or less. Interest income is presented as a reduction of Interest expense, net in the accompanying Consolidated Statements of Operations and consists primarily of income from highly liquid investment sources. Interest income approximated $0.5 million, $1.0 million and $0.2 million during fiscal years 2006, 2005 and 2004, respectively.

Accounts Receivable and Concentration of Credit Risks

Accounts receivable potentially expose the Company to a concentration of credit risk, as defined by SFAS 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 its customers’ financial condition, as deemed necessary, but generally does not require collateral to support such receivables. Customer balances are considered past due based on contractual terms and the Company does not accrue interest on the past due balances. Also, in an effort to reduce its credit exposure to certain customers, as well as accelerate its cash flows, the Company has sold on a non-recourse basis, certain of its receivables pursuant to factoring agreements. The provision for losses on uncollectible accounts is determined principally on the basis of past collection experience applied to ongoing evaluations of the Company’s receivables and evaluations of the risk of repayment. The allowance for doubtful accounts was approximately $7.6 million and $9.6 million at December 30, 2006 and December 31, 2005, respectively, which management believes is adequate to provide for credit losses in the normal course of business, as well as losses for customers who have filed for protection under bankruptcy laws. Once management determines that the receivables are not recoverable, the amounts are removed from the financial records along with the corresponding reserve balance. Of the $2.0 million decrease in the allowance for doubtful accounts from December 31, 2005 to December 30, 2006, $1.5 million related to the write-off of specifically identified uncollectible accounts receivable and the corresponding reserve balance. In fiscal years 2006, 2005 and 2004, The Procter & Gamble Company (“P&G”) accounted for 13%, 14% and 12%, respectively, of the Company’s net sales.

Inventories

Inventories are stated at the lower of cost or market primarily using the FIFO method of accounting.

57

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Long-Lived Assets

Property, plant and equipment is 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. The estimated useful lives established for building and improvements range from 18 to 31 years, and the estimated useful lives established for machinery, equipment and other fixed assets range from 2 to 15 years. Costs of repairs and maintenance are charged to expense as incurred. Costs of the construction of certain long-lived assets include capitalized interest that is amortized over the estimated useful life of the related asset. The Company capitalized approximately $3.1 million, $2.2 million and $0.4 million of interest costs during fiscal years 2006, 2005 and 2004, respectively.

Derivatives

The Company records all derivative instruments as either assets or liabilities on the balance sheet at their fair value in accordance with SFAS No. 133, “Accounting for Derivative Financial Instruments and Hedging Activities”, as amended (“SFAS No. 133”). Changes in the fair value of a derivative are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. Ineffective portions, if any, of all hedges are recognized in current period earnings.

As more fully described in Note 14 to the Consolidated Financial Statements, the Company, in the normal course of business, periodically enters into derivative financial instruments, principally swaps and forward contracts, with high-quality counterparties as part of its risk management strategy. These financial instruments are limited to non-trading purposes and are used principally to manage market risks and reduce the Company’s exposure to fluctuations in foreign currency and interest rates. Most interest rate swaps and foreign exchange forward contracts are designated as cash flow hedges of variable rate debt obligations or fair value hedges of foreign currency-denominated transactions.

The Company documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions and the methodologies that will be used for measuring effectiveness and ineffectiveness. This process includes linking all derivatives that are designated as cash flow or fair value hedges to specific assets and liabilities on the balance sheet or to specific firm commitments. The Company then assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are expected to be highly effective in offsetting changes in fair values or cash flows of hedged items. Such assessments are conducted in accordance with the originally documented risk management strategy and methodology for that particular hedging relationship.

For cash flow hedges, the effective portion of recognized derivative gains and losses reclassified from other comprehensive income is classified consistent with the classification of the hedged item. For example, derivative gains and losses associated with hedges of interest rate payments are recognized in Interest expense, net in the Consolidated Statements of Operations.

For fair value hedges, changes in the value of the derivatives, along with the offsetting changes in the fair value of the underlying hedged exposure are recorded in earnings each period in Foreign currency and other (gain) loss, net in the Consolidated Statements of Operations.

58

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Income Taxes

The provision for income taxes and corresponding balance sheet accounts are determined in accordance with the liability method. Tax provisions and credits are recorded at statutory rates for taxable items included in the Consolidated Statements of Operations regardless of the period for which such items are reported for tax purposes. Additionally, federal income taxes are provided on that portion of the income of foreign subsidiaries that is expected to be remitted to the United States (“U.S.”) and be taxable. 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 established when it is more likely than not that some portion of a deferred tax asset will not be realized in the future. Valuation allowances are reviewed each period on a tax jurisdiction by jurisdiction basis to analyze whether a change in circumstances has occurred to provide enough evidence to support a change in the judgment about the realization of the related deferred tax asset in future years. Consistent with the provisions of SOP 90-7, recognition of tax benefits from preconfirmation net operating loss carryforwards and deductible temporary differences and other tax attributes not recognized at the Effective Date will be applied to reduce goodwill to zero, then reduce intangible assets that existed at the Effective Date with any excess tax benefits credited directly to Additional Paid-in Capital.

Stock-Based Compensation

Effective January 1, 2006, the Company has elected to account for stock-based compensation related to its employee share-based plans in accordance with the methodology defined in Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” (“SFAS No. 123(R)”), using the modified prospective transition method. Under the modified prospective transition method, the compensation costs related to all new grants and any unvested portion of prior awards are measured based on the grant-date fair value of the award. Additionally, accruals for compensation costs for share-based awards with performance conditions are based on the probable outcome of such performance conditions. Prior to fiscal 2006, the Company elected to account for the share-based plans in accordance with the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), which generally measured compensation cost as the excess, if any, of the quoted market price of the stock at the date of grant over the amount an employee must pay to acquire the stock. Additionally, as a percentage of the share-based awards vested based on achievement of financial performance criteria, compensation costs were recognized over the performance period when it became probable that such performance criteria would be achieved. The pro forma effect of utilizing SFAS No. 123(R) on the

59

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

financial results for the fiscal years ended December 31, 2005 and January 1, 2005 was as follows (in thousands, except per share data):

	2005			2004
Net income (loss):
As reported	$	6,997		$	4,732
Add: stock-based employee compensation expense, net of tax, included in reported net income (loss)	2,202			614
Deduct: stock-based employee compensation expense, net of tax, determined under SFAS No. 123(R)	(975		)	(192		)
Pro forma	$	8,224		$	5,154
Income (loss) applicable to common shareholders:
As reported	$	(21,001	)	$	(834	)
Add: stock-based employee compensation expense, net of tax, included in reported net income (loss)	2,202			614
Deduct: stock-based employee compensation expense, net of tax, determined under SFAS No. 123(R)	(975		)	(192		)
Pro forma	$	(19,774	)	$	(412	)
Loss per common share applicable to common shareholders—basic:
As reported	$	(1.60	)	$	(0.09	)
Pro forma	(1.51		)	(0.04		)
Loss per common share applicable to common shareholders—diluted:
As reported	$	(1.60	)	$	(0.09	)
Pro forma	(1.51		)	(0.04		)
Weighted average exercise price per option granted.	$	6.00		$	6.00
Weighted average fair value per option granted	$	17.95		$	3.41

The Company has estimated the fair value of each stock option grant by using the Black-Scholes option-pricing model. Assumptions are evaluated and revised, as necessary, to reflect market conditions and experience. The following assumptions were utilized in the aforementioned estimation of grant date fair value pursuant to SFAS No. 123(R): expected dividend yield of 0%; expected volatility of 37%; risk-free interest rate of 3.2%-3.9%; and weighted average expected lives of five years.

Research and Development Costs

The cost of research and development is charged to expense as incurred and is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. The Company incurred approximately $12.5 million, $11.5 million and $11.2 million of research and development expense during fiscal years 2006, 2005 and 2004, respectively.

Shipping and Handling Costs

Shipping and handling costs include costs to store goods prior to shipment, prepare goods for shipment and physically move goods from the Company’s sites to the customers’ premises. The cost of shipping and handling is charged to expense as incurred and is included in Selling, general and

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

administrative expenses in the Consolidated Statements of Operations. The Company incurred $25.6 million, $24.7 million and $23.4 million of shipping and handling costs during fiscal years 2006, 2005 and 2004, respectively.

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 period-end exchange rates, while income, expenses and cash flows are translated at average exchange rates during the period. Translation gains and losses are not included in determining net income, but are presented as a separate component of accumulated other comprehensive income (loss). In addition, foreign currency transaction gains and losses are included in the determination of net income (loss).

Comprehensive Income (Loss)

Comprehensive income (loss) is reported in accordance with the SFAS No. 130, “Reporting Comprehensive Income” (“SFAS No. 130”). SFAS No. 130 requires unrealized gains or losses on the Company’s available for sale securities, foreign currency translation adjustments and minimum pension liabilities which, prior to its adoption, were reported separately in shareholders’ equity, to be included in other comprehensive income. Accumulated other comprehensive income of $24.9 million at December 30. 2006 consisted of $31.4 million of currency translation gains, $8.0 million of transition net assets, gains or losses and prior service costs not recognized as components of net periodic benefit costs and $1.5 million in cash flow hedge gains, all net of tax. Accumulated other comprehensive income of $20.5 million at December 31, 2005 consisted of $18.2 million of currency translation gains, $1.6 million of minimum pension liability and $3.9 million in cash flow hedge gains, all net of tax.

Income (Loss) Per Common Share

Basic earnings per share exclude any dilutive effects of share-based awards and convertible securities and are computed by dividing income (loss) applicable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution from common shares potentially issuable through share-based awards and convertible securities and is computed by dividing income (loss) applicable to common shareholders, as adjusted for the effects of the conversion to common stock, by the weighted-average number of common and common equivalent shares outstanding for the period. Shares issuable pursuant to stock option plans represent common equivalent shares if the average market price for the reporting period exceeds the strike price of the option. A reconciliation of the amounts included in

61

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the computation of income (loss) per share for fiscal years 2006, 2005 and 2004 is presented in the following table (in thousands):

	2006			2005			2004
Income (loss):
Net income (loss)	$	(34,532	)	$	6,997		$	4,732
Less: dividends on PIK Preferred Shares	—			27,998			5,566
Loss applicable to common shareholders	(34,532		)	(21,001		)	(834		)
Effect of dilutive securities—convertible securities and share-based awards	—			—			—
Loss applicable to common shareholders with assumed conversions	$	(34,532	)	$	(21,001	)	$	(834	)
Outstanding shares:
Weighted average common shares outstanding	19,295			13,098			9,840
Effect of dilutive securities—convertible securities and share-based awards	—			—			—
Weighted average common shares outstanding—assuming dilution	19,295			13,098			9,840

For fiscal years 2006, 2005 and 2004, the effect of potentially dilutive securities such as convertible securities and share-based awards are not considered in the above table as the effects are anti-dilutive. As of December 30, 2006, the potential dilutive effect related to the exchange of such potentially dilutive securities would amount to 141,739 shares.

Recent Accounting Standards

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. This standard prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FIN 48 also provides guidance on other tax-related issues and is effective for fiscal years beginning after December 15, 2006. Additionally, in February 2007, the FASB issued a Proposed Staff Position No. FIN 48-a, “Definition of Settlement in FASB Interpretation No. 48,” which implementation guidance, if approved, may impact the timing of certain liability adjustments. Accordingly, such additional guidance may impact the amounts that the Company would record upon the adoption of FIN 48. The Company continues to evaluate the effects of this standard.

In September 2006, the Securities and Exchange Commission (the “SEC”) released Staff Accounting Bulletin 108 (“SAB 108”), which expresses the SEC Staff’s views regarding the process of quantifying financial statement misstatements. The Company has applied the guidance in SAB 108 for the fourth quarter ended December 30, 2006.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). This standard establishes a framework for measuring fair value and also provides guidance for an expanded set of disclosure requirements related to fair value. The Company expects to adopt SFAS No. 157 effective in the first quarter of fiscal 2008 and has not yet assessed the impact of SFAS No. 157 on the Consolidated Financial Statements.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Retirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 required employers to recognize the funded status of defined benefit postretirement plans in the Consolidated Balance Sheets, with changes in the plan’s funded status recognized as a component of other comprehensive income. This standard also requires that the measurement of a plan’s funded status be as of the date of the employers’ balance sheet. SFAS No. 158 also amends certain of the previous disclosure requirements related to these plans and is effective for fiscal years ending after December 15, 2006. In accordance with SFAS No. 158, the Company recognized the funded status of its benefit plans as of December 30, 2006, resulting in an adjustment to Accumulated other comprehensive income in the amount of $2.7 million, net of tax, to initially apply the provisions of SFAS No. 158.

Note 3. Special Charges (Credits), Net

The Company’s operating income includes special charges (credits), net resulting from corporate-level decisions or Board actions, such as to consolidate and relocate its corporate offices, restructure certain operations or pursue certain transaction opportunities. Additionally, the Company evaluates its long-lived assets for impairment whenever events or changes in circumstances, including those aforementioned, indicate that the carrying amounts may not be recoverable. A summary of such charges (credits), net is presented in the following table (in thousands):

	2006		2005			2004
Asset impairment charges	$	26,434		$	—	$	2,253
Restructuring and plant realignment costs	7,135			9		1,867
Abandoned acquisition costs	3,971			—		—
Investigation and executive termination costs	1,143			—		—
Arbitration settlement, net	—			—		(13,112		)
	$	38,683		$	9	$	(8,992	)

Asset impairment charges

The Company has experienced a continued weakening of earnings and cash flows in certain of its Canadian operations. As a result, the Company, during the second quarter of fiscal 2006, evaluated such assets for impairment, consistent with the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” and recorded a non-cash impairment charge associated with the write-down of such assets to estimated fair value in the amount of approximately $5.5 million. Additionally, during the second quarter of fiscal 2006, the Company initiated the restructuring and consolidation strategy for the European operations, which included the closure of the facilities in Sweden. Accordingly, the Company recognized an impairment charge, with respect to such assets in the amount of $2.3 million, resulting in a total asset impairment charge in the second quarter of fiscal 2006 of $7.8 million.

During the fourth quarter of fiscal 2006, the Company recorded an impairment charge in the amount of approximately $18.6 million associated with the write-down of assets located in certain facilities in the United States and Europe to estimated fair values. Of that total, $7.2 million related to a manufacturing line located in The Netherlands, which write-down was attributed to the expected shutdown of the line in fiscal 2007 due to the loss of certain low-margin business platforms which were produced on the asset during fiscal 2006 as the market price for the products moved to a level

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

resulting in unacceptable margins. The remaining $11.4 million related to the write-down of assets in the United States, including facilities for which the Company has announced closure plans, as further discussed in Note 21 to the Consolidated Financial Statements, as well as an impairment charge taken with respect to another facility, for which projected future cash flows have been negatively impacted by the loss of a major automotive platform and the anticipated loss of certain business for which the market prices have recently declined to a level resulting in such unacceptable returns that the Company has elected not to participate in such business going forward.

In fiscal 2004, the Company recorded a non-cash asset impairment charge of $2.3 million, primarily related to the write-down of machinery and equipment to net realizable value, for production assets in Canada removed from service and held for sale, and the write-off of certain foreign investments.

Restructuring and plant realignment costs

Accrued costs for restructuring efforts are included in Accrued liabilities in the Consolidated Balance Sheets. These costs generally arise from restructuring initiatives intended to result in lower working capital levels and improved operating performance and profitability through: (i) reducing headcount at both the plant and corporate levels; (ii) improving manufacturing productivity and reducing corporate costs; and (iii) rationalizing certain assets and businesses. A summary of the business restructuring activity accounted for in accordance with SFAS Statement No. 146 “Accounting for Costs Associated with Exit or Disposal Activities” (“SFAS No. 146”) during fiscal 2006, 2005 and 2004 is presented in the following table (in thousands):

	2006			2005			2004
Balance accrued at beginning of year	$	163		$	561		$	4,564
Restructuring and plant realignment costs:
First Quarter	1,633			4			584
Second Quarter	2,740			5			657
Third Quarter	692			—			222
Fourth Quarter	2,070			—			404
Total	7,135			9			1,867
Cash payments	(5,284		)	(375		)	(5,909		)
Adjustments	30			(32		)	39
Balance accrued at end of year	$	2,044		$	163		$	561

As further described below, the 2006 restructuring and plant realignment costs are principally associated with (a) the Company’s restructuring and consolidation plan for Europe, which included termination benefits provided to an executive officer of the Company, pursuant to Dutch law, in the amount of $2.1 million and costs associated with the closure of the Sweden plant of $1.1 million; (b) costs related to the relocation of the corporate headquarters to Charlotte, North Carolina in the amount of $3.0 million; (c) downsizing certain Canadian operations resulting in severance costs of $0.6 million; and (d) costs in the amount of $0.3 million related to exiting the leased facilities at Gainesville, Georgia.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Corporate headquarters relocation

The Company entered into written relocation agreements with 22 employees who agreed to the relocation and to acceptance of benefits offered by the Company. Such relocation benefits charged to operations of $1.5 million during fiscal 2006 relate primarily to Company obligations for costs associated with the employee’s real estate sales process, which process has been completed by the electing employees. Additionally, the Company has incurred approximately $0.5 million associated with other exit costs.

The Company also incurred approximately $1.0 million in severance costs relating to 23 employees who have not been offered or who have declined the opportunity to relocate. As the employee must remain in the employ of the Company through the date of their designated date for corporate relocation to be eligible for the severance, consistent with the provisions of SFAS No. 146, the Company has accrued the severance cost ratably over the expected service period.

European restructuring

In May 2006, the Company entered into a termination agreement with an executive officer of the Company that provided for an aggregate payment of approximately $2.1 million, which was charged to operating income in the second quarter of fiscal 2006. Additionally, the Company and the executive officer entered into certain other consulting and non-compete agreements, which costs will be charged to operations over future periods.

Also during fiscal 2006, based on the Company’s restructuring and consolidation strategies previously noted, the Company shut down its operation located in Sweden. This included a reduction of 19 production and administrative staff positions. The Company ceased these operations during the fourth quarter of fiscal 2006. As a result of that decision, the Company recorded a $1.1 million operating charge to accrue for the costs of exiting the facility and severance paid to such terminated employees.

Canadian restructuring

During the second quarter of fiscal 2006, the Company communicated a plan to affected employees that it planned to downsize one of its facilities located in Canada. The restructuring plan included the reduction of 26 production and administrative staff positions. As a result of this decision, the Company recorded a $0.6 million charge to operations to cover the costs of severance pay to these employees.

Additionally, during the first quarter of fiscal 2006, as part of its restructuring and related cost reduction measures, the Company negotiated certain changes with the union representing the employees of one of the Company’s Canadian operations, including a partial curtailment of a defined benefit pension plan. No net gain or loss has been incurred as a result of the partial curtailment. However, based on elections made by plan participants during the second quarter of fiscal 2006, and as approved by Canadian regulatory authorities on January 16, 2007, the Company will incur a settlement loss associated with employees who have elected to exit the plan. The loss incurred as a result of the partial settlement of the defined benefit pension plan, in the amount of $4.5 million, will be recognized in the first quarter of fiscal 2007 commensurate with governmental approval of the terms of the settlement and upon fulfillment by the Company of its funding requirements in the amount of $1.9 million associated with the approved settlement, which funding obligations were fulfilled in February 2007.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restructuring in prior periods

In 2004, the Company continued the restructuring initiatives commenced in 2003 by curtailing production of certain of its European assets and eliminating several production lines in the Canadian operations of its Oriented Polymers Division. The European and Canadian restructuring efforts in 2004 included the reduction of approximately 160 positions, resulting in a charge of approximately $1.9 million for severance and other plant realignment costs.

U.S. restructuring

As further described in Note 21 to the Consolidated Financial Statements, in January 2007, the Company communicated a plan to affected employees that it plans to close two of its plants in the United States. Certain exit costs related to one of the facilities, which is leased, in the amount of $0.3 million, were accrued in fiscal 2006. Other costs related to the plant realignment will be recognized in fiscal 2007.

Abandoned acquisition costs

During the first five months of fiscal 2006, the Company actively pursued a potential acquisition. In conjunction with this effort, the Company incurred approximately $4.0 million of costs, which are primarily comprised of third-party professional fees. During the second quarter of fiscal 2006, the negotiations with respect to the potential acquisition reached an impasse and the Company abandoned its efforts to consummate the acquisition.

Investigation and executive termination costs

During June 2006, the Company and an equipment supplier negotiated the resolution of a dispute and entered into two settlement agreements, which documented the terms of the resolution. During the second and third quarters of fiscal 2006, the Company and the Audit Committee of the Board of Directors of the Company, with assistance from special counsel, conducted an investigation which focused on a review of the settlement agreements and the relationship of these agreements with certain equipment purchase contracts and service agreements, which were negotiated between the Company and the equipment supplier in or about the same time frame. As a result of these actions, the Company concluded that the economic substance of the settlement agreements and the equipment purchase contracts and service agreements were substantially interdependent. On September 21, 2006, the Board of Directors of the Company asked the Chief Executive Officer and the Vice President, Global Purchasing to resign, pending receipt of their resignations, and relieved them of their duties as officers of the Company. Shortly thereafter, the Company entered into termination agreements with both executives. As a result of these events, the Company has incurred costs with respect to the investigation, termination benefits and ancillary costs in the amount of $1.1 million.

Arbitration settlement, net

During 2004, the Company settled an issue with a major customer through arbitration and received approximately $17.0 million as settlement of the arbitration issues. Net settlement proceeds of $13.1 million, after providing for $3.9 million of costs and expenses associated with the arbitration, were included in Special charges (credits), net in the Consolidated Statement of Operations for fiscal 2004.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 4. Accounts Receivable Factoring Agreements

The Company has entered into a factoring agreement to sell without recourse, certain U.S. company-based receivables to an unrelated third-party financial institution. Under the current terms of the factoring agreement, the maximum amount of outstanding advances at any one time is $20.0 million, which limitation was subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. Additionally, the Company has entered into a factoring agreement to sell without recourse, certain non-U.S. company-based receivables to an unrelated third-party financial institution. Under the terms of the factoring agreement, the maximum amount of outstanding advances at any one time is $10.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold.

Approximately $190.2 million, $130.0 million and $31.0 million of receivables have been sold under the terms of the factoring agreements during fiscal years 2006, 2005 and 2004, respectively. The sale of these receivables accelerated the collection of the Company’s cash, reduced credit exposure and lowered the Company’s net borrowing costs. Sales of accounts receivable are reflected as a reduction of Accounts receivable, net in the Consolidated Balance Sheets and any loss recognized on the sale is reflected in Foreign currency and other (gain) loss, net in the Consolidated Statements of Operations on such sales, as they meet the applicable criteria of SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (“SFAS No. 140”). The amount due from the factoring companies, net of advances received from the factoring companies, was $6.6 million and $6.1 million at December 30, 2006 and December 31, 2005, respectively, and is shown in Other current assets in the Consolidated Balance Sheets. The Company pays factoring fees associated with the sale of receivables based on the dollar value of the receivables sold. Such fees are immaterial and are included in Foreign currency and other (gain) loss, net in the Consolidated Statements of Operations.

In fiscal 2004, the Company’s European operations sold $4.5 million of its trade receivables to a factoring company. Such sale of receivables has been accounted for on a basis consistent with the methodology described in the preceding paragraphs.

Note 5. Inventories

Inventories consist of the following (in thousands):

	December 30, 2006			December 31, 2005
Finished goods		$	64,897		$	60,545
Work in process		17,462			17,724
Raw materials and supplies		50,171			41,394
		$	132,530		$	119,663

Inventories are net of reserves, primarily for obsolete and slow-moving inventories, of approximately $9.6 million and $9.7 million at December 30, 2006 and December 31, 2005, respectively. Management believes that the reserves are adequate to provide for losses in the normal course of business.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 6. Property, Plant and Equipment

Property, plant and equipment consists of the following (in thousands):

	December 30, 2006				December 31, 2005
Land		$	13,735			$	13,409
Buildings and land improvements		119,157				95,817
Machinery, equipment and other		452,383				393,000
Construction in progress		8,286				52,219
		593,561				554,445
Less accumulated depreciation		(182,507		)		(132,448		)
		$	411,054			$	421,997

Depreciation charged to expense was $54.9 million, $51.3 million and $45.5 million for fiscal years 2006, 2005 and 2004, respectively.

The significant decrease in construction in progress during fiscal 2006 compared to fiscal 2005 was due to the completion during fiscal 2006 of capital expansion projects under construction at December 31, 2005, including the construction of new spunmelt manufacturing facilities in Suzhou, China and Mooresville, North Carolina as well as the installation of additional capacity in Nanhai, China.

Note 7. Intangibles and Loan Acquisition Costs

Intangibles and loan acquisition costs consist of the following (in thousands):

	December 30, 2006				December 31,  2005
Cost:
Proprietary technology		$	1,352			$	30,251
Goodwill		—				10,243
Loan acquisition costs		9,191				8,590
Other		1,817				3,455
		12,360				52,539
Less accumulated amortization		(2,154		)		(15,210		)
		$	10,206			$	37,329

As further described in Note 10 to the Consolidated Financial Statements the Company, as of the Effective Date, recorded goodwill related to the allocation of the reorganization value to the underlying assets and liabilities based on their estimated fair values on such date and, in periods subsequent to the Effective Date, have reduced such goodwill as a result of the recognition of tax benefits resulting from the utilization of net operating losses for which a valuation allowance was established as of the Effective Date. During fiscal 2006, the Company recognized additional tax benefits from the utilization of preconfirmation net operating loss carryforwards; and completed the Internal Revenue Service (“IRS”) examinations for fiscal years 2003 and 2004, effectively settling certain tax uncertainties with respect to those years and; based on the findings of the IRS examination, the Company modified its basis study, as it related to its investment in subsidiaries. Accordingly, in accordance with SOP 90-7,

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

the Company has recognized the tax benefits with respect to such items in the amount of approximately $27.4 million, first, to eliminate goodwill of $10.2 million and; second, to eliminate all remaining intangibles established as of the Effective Date, including proprietary technology and other intangibles, in the amount of $13.1 million; with the excess of such tax benefits over the amounts allocable to goodwill and other intangible assets, in the amount of approximately $4.1 million, as a credit to Additional Paid-in Capital.

In connection with the refinancing of the Company’s then outstanding Bank Facility in November 2005, a portion of the unamortized loan acquisition costs associated with the April 2004 refinancing were written-off, in the amount of $3.0 million, and expensed in the Consolidated Statement of Operations. Additionally, $1.0 million of third-party costs incurred in connection with the 2005 refinancing were also charged to expense. The Company also incurred $2.7 million of new loan acquisition costs related to the issuance of the Credit Facility, consisting primarily of bank fees, which have been capitalized, and which, together with $5.9 million of remaining unamortized fees incurred as part of the April 2004 refinancing, will be amortized over the term of the remaining debt.

In conjunction with the refinancing in April 2004 of the then-outstanding Restructured Credit Facility, the Company charged the unamortized balance of the loan acquisition costs of $5.0 million related to that debt to the Consolidated Statement of Operations. Concurrently, with the issuance of the Senior Secured Bank Facility, the Company capitalized approximately $12.1 million of related loan acquisition costs, which were primarily bank arrangement and legal fees.

Components of amortization expense are shown in the table below (in thousands):

	2006		2005		2004
Amortization of:
Intangibles with finite lives, included in selling, general and administrative expense	$	4,438	$	4,252	$	5,759
Loan acquisition costs, included in interest expense, net	1,339		1,977		1,970
Total amortization expense	$	5,777	$	6,229	$	7,729

Aggregate amortization expense for each of the next five years is expected to be as follows: 2007, $2.1 million; 2008, $2.1 million; 2009, $2.1 million; 2010, $1.7 million; 2011, $1.5 million; and 2012, $0.7 million. Intangibles are amortized over periods ranging from 5 to 17 years. Loan acquisition costs are amortized over the life of the related debt.

Note 8. Accrued Liabilities

Accrued liabilities in the Consolidated Balance Sheets include salaries, wages and other fringe benefits of $15.6 million and $17.0 million as of December 30, 2006 and December 31, 2005, respectively.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 9. Debt

Long-term debt consists of the following:

	December 30, 2006				December 31, 2005
	(in thousands)
Credit Facility, as defined below, interest rates for U.S. borrowings are based on a specified base plus a specified margin and are subject to certain terms and conditions:
First Lien Term Loan—interest at 7.61% and 6.77% as of December 30, 2006 and December 31, 2005, respectively, due in mandatory quarterly payments of approximately $1.0 million and subject to additional payments from annual excess cash flows, as defined, with the balance due November 22, 2012		$	405,900			$	410,000
Other		686				97
		406,586				410,097
Less: Current maturities		(4,170		)		(4,142		)
		$	402,416			$	405,955

Scheduled Maturities

The scheduled maturities of long-term debt at December 30, 2006 are as follows (in thousands):

2007	$	4,170
2008	4,716
2009	4,100
2010	4,100
2011	4,100
2012	385,400
Total	$	406,586

Credit Facility

The Company’s Credit Facility (the “Credit Facility”), which was entered into on November 22, 2005 and amended as of December 8, 2006, consists of a $45.0 million secured revolving credit facility and a $410.0 million first-lien term loan. The proceeds therefrom were used to fully repay indebtedness under the Company’s previous bank facility and pay related fees and expenses.

All borrowings under the 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. The 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. Commitment fees under the Credit Facility are equal to 0.50% of the daily unused amount of the revolving credit commitment. The Credit Facility limits restricted payments to $5.0 million, including cash dividends, in the aggregate since the effective date of the Credit Facility. The Credit Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. The Company was in compliance with the debt covenants

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

under the current Credit Facility at December 30, 2006 and expects to remain in compliance through fiscal 2007.

The first-lien term loan requires mandatory payments of approximately $1.0 million per quarter and requires the Company to apply a percentage of proceeds from excess cash flows, as defined by the Credit Facility and determined based on year-end results, to reduce its then outstanding balances under the Credit Facility. Excess cash flows required to be applied to the repayment of the Credit Facility are generally calculated as 50.0% of the net amount of the Company’s available cash generated from operations adjusted for the cash effects of interest, taxes, capital expenditures, changes in working capital and certain other items. Since the amounts of excess cash flows to be applied to the repayment of debt in future periods are based on year-end results and not currently determinable, only the mandatory payments of approximately $1.0 million per quarter have been classified as a current liability. Additionally, no excess cash flow payment was required to be made with respect to fiscal 2006 due to the magnitude of the major capital expenditure projects. The Company currently estimates that the excess cash flow payment with respect to fiscal 2007, which would be payable in March 2008, is expected to be in the range of $10.0 million to $25.0 million.

The interest rate applicable to borrowings under the Credit Facility is based on three-month London Interbank Offered Rate (“LIBOR”) plus a specified margin. The applicable margin for borrowings under both the first-lien term loan and the revolving credit facility is 225 basis points. The Company may, from time to time, elect to use an alternate base rate for its borrowings under the revolving credit facility based on the bank’s base rate plus a margin of 75 to 125 basis points based on the Company’s total leverage ratio. There were no outstanding borrowings under the revolving credit facility as of December 30, 2006 or December 31, 2005. As of December 30, 2006, capacity under the revolving credit facility had been reserved for outstanding letters of credit in the amount of $12.9 million, as described below. Average daily borrowings under the revolving credit facility, which were largely LIBOR-based borrowings, for the period from January 1, 2006 to December 30, 2006 were $17.6 million at an average rate of 7.85%. Average daily borrowings under the revolving credit facility, which were largely alternate base rate borrowings, for the period from November 22, 2005 to December 31, 2005 were $10.4 million at an average rate of 8.37%. In addition, the Company had average daily borrowings under a revolving credit facility related to previous debt arrangements of $8.7 million for the period from January 2, 2005 to November 21, 2005 at an average rate of 8.23%. The revolving credit portion of the Credit Facility matures on November 22, 2010.

In accordance with the terms of the Credit Facility, the Company maintained its position in a cash flow hedge originally entered into in May 2004. This cash flow hedge agreement effectively converts $212.5 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 3.383%. The cash flow hedge agreement terminates on May 8, 2007 and is described more fully in Note 14 to the Consolidated Financial Statements. Additionally, in February 2007, the Company entered another cash flow hedge agreement, which is effective May 8, 2007, matures June 29, 2009 and effectively converts $240.0 million of notional principal amount of debt from a variable LIBOR rate to a fixed LIBOR rate of 5.085%.

Subject to certain terms and conditions, a maximum of $25.0 million of the Credit Facility may be used for letters of credit. As of December 30, 2006, the Company had $12.9 million of standby and documentary letters of credit outstanding under the Credit Facility. Letters of credit are in place to provide added assurance for certain raw material vendors and administrative service providers. None of these letters of credit had been drawn on at December 30, 2006.

71

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Subsidiary Indebtedness

Nanhai Nanxin Non-woven Co., Ltd. (“Nanhai”) has a short-term credit facility (denominated in U.S. dollars and Chinese renminbi) with a financial institution in China. The amount of outstanding indebtedness under the facility, collateralized through the pledge of the Nanhai assets, was $5.0 million at December 31, 2005 (at an average annual rate of approximately 4.44%). The facility was renewed during 2006, but had no outstanding borrowings as of December 30, 2006. Additionally, in fiscal 2006, the Company’s operations in China have also entered into other short-term credit facilities denominated in Chinese renminbi with financial institutions in China. These short-term credit facilities are intended to finance working capital requirements. These facilities have an outstanding indebtedness of $4.6 million at December 30, 2006 and mature at various dates through June 2007. All of these short-term borrowings in China are included in Short-term borrowings in the Consolidated Balance Sheets.

In March 2006, one of the Company’s wholly-owned Canadian subsidiaries entered into a term loan totaling approximately $0.6 million with an agency of the Canadian government, which agency focuses on generating capital investment in the country. The principal of the term loan is due September 1, 2008. Provided that the term loan is repaid on September 1, 2008, no interest is due. However, if the Company elects not to pay the loan on September 1, 2008, the Company, subsequent to that date, will begin making monthly payments of principal and interest at 6.25% per year.

Note 10. Income Taxes

The components of income (loss) before income taxes are as follows (in thousands):

	2006			2005			2004
Domestic	$	(31,445	)	$	(9,002	)	$	(2,701	)
Foreign	4,188			25,795			15,427
	$	(27,257	)	$	16,793		$	12,726

The components of income tax expense (benefit) are as follows (in thousands):

	2006			2005			2004
Current:
Federal and state	$	1,020		$	(783	)	$	1,319
Foreign	7,983			3,351			4,278
Deferred:
Federal and state	678			359			520
Foreign	(2,406		)	6,869			1,877
Income tax expense	$	7,275		$	9,796		$	7,994

Provision has been made for U.S. and additional foreign taxes for the anticipated repatriation of earnings of certain foreign subsidiaries of the Company. The Company considers the undistributed earnings of its foreign subsidiaries above the amount already provided to be indefinitely reinvested. These additional foreign earnings could become subject to additional tax if remitted, or deemed remitted, as a dividend. However the determination of the additional amount of tax that would be incurred is not practicable because of the complexities associated with its hypothetical calculation. At December 30, 2006, the unremitted earnings of its foreign subsidiaries for which U.S. taxes have not

72

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

been provided amounted to approximately $23.1 million. Also, in the event of additional tax, unrecognized tax credits may be available to reduce some portion of any U.S. income tax liability.

Management judgment is required in determining tax provisions and evaluating tax positions. Although management believes its tax positions and related provisions reflected in the Consolidated Financial Statements are fully supportable, it recognizes that these tax positions and related provisions may be challenged by various tax authorities. These tax positions and related provisions are reviewed on an ongoing basis and are adjusted as additional facts and information become available, including progress on tax audits, changes in interpretations of tax laws, developments in case law and closing of statute of limitations. The Company’s tax provision includes the impact of recording reserves and any changes thereto. As of December 30, 2006, the Company has a number of tax audits in process and open tax years with various taxing jurisdictions that range from 1998 to 2006. Although the results of current tax audits and reviews related to open tax years have not been finalized, management believes that the ultimate outcomes will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Income taxes computed at the Company’s U.S. federal statutory rate differed from the provision for income taxes as follows (in thousands):

	2006			2005			2004
Computed income tax expense (benefit) at statutory rate	$	(9,540	)	$	5,878		$	4,454
State income taxes, net of federal tax benefit	1,623			535			858
Utilization of post-emergence net operating loss carryforwards	—			(354		)	—
Valuation allowance	7,738			282			3,103
Withholding taxes and tax credits	1,339			1,290			927
Effect of foreign operations, net	777			(381		)	(1,489		)
Effect of foreign earnings on U.S. taxes and other, net	5,338			2,546			141
Income tax expense	$	7,275		$	9,796		$	7,994

The Company’s financial reorganization, through the Chapter 11 process, caused an ownership change for federal income tax purposes. As a result, future tax deductions related to certain “built-in deductions and losses” will be limited by Section 382 of the Internal Revenue Code, as amended (“Section 382”) during the five-year period following the ownership change (the recognition period). The Company had substantial amounts of such built-in deductions and losses (primarily depreciation deductions) scheduled to be realized during the recognition period. Under Section 382, such built-in losses will be subject to an annual usage limitation of approximately $3.4 million during the recognition period.

73

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 30, 2006, the Company had the following significant net operating loss carryforwards for income tax purposes (in thousands):

Country	Amount		Year of Expiration
Canada	$	9,579		2008–2026
China	1,505			2010–2011
France	1,642			Indefinite
Germany	49,156			Indefinite
Netherlands	23,639			Indefinite
Sweden	1,604			Indefinite
United States (State)	199,000			Various
United States (Federal)	52,133			2023–2026

In addition, the Company had the following credits for income tax purposes as of December 30, 2006 (in thousands):

Country	Type of Credit	Amount		Year of Expiration
Canada	Investment Tax	$	897		2007–2025
Mexico	Asset Tax	6,557			2007–2012
Netherlands	Foreign Tax	156			Indefinite
United States	Foreign Tax	15,169			2009
United States	Alternative Minimum Tax	692			Indefinite

The Company conducts business in foreign jurisdictions which grant holidays from income taxes for a specified period. The Company recognized approximately $0.4 million of tax benefits during fiscal 2006 related to the export activities and capital investments in Cali, Colombia. Such export activities will become subject to a 15% tax beginning in 2007.

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POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as net operating loss and other tax credit carryforwards. Significant components of the Company’s net deferred tax assets and liabilities are as follows (in thousands):

	December 30, 2006				December 31, 2005
Deferred tax assets:
Provision for bad debts		$	2,525			$	2,684
Inventory capitalization and allowances		2,188				2,734
Net operating loss and capital loss carryforwards		65,595				50,375
Tax credits		8,302				8,416
Foreign tax credits		15,169				15,169
Property, plant and equipment and intangibles, net		32,705				32,475
Other		21,384				18,314
Total deferred tax assets		147,868				130,167
Valuation allowance		(117,427		)		(98,536		)
Net deferred tax assets		30,441				31,631
Deferred tax liabilities:
Property, plant and equipment and intangibles, net		(21,865		)		(31,630		)
Stock basis of subsidiaries		(7,709		)		(33,780		)
Other, net		(32,435		)		(26,116		)
Total deferred tax liabilities		(62,009		)		(91,526		)
Net deferred tax liabilities		$	(31,568	)		$	(59,895	)

A valuation allowance is recorded when, based on the weight of the evidence, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets depends on the ability of the Company to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. In assessing the realizability of the deferred tax assets, management considers, among other factors, the trend of historical and projected future taxable income with appropriate consideration given to the fact that the Company is less than four years removed from the Chapter 11 process, the scheduled reversal of deferred tax liabilities, the carryforward period for net operating losses and tax credits as well as tax planning strategies available to the Company. After consideration of all the evidence, both positive and negative, the Company has determined that valuation allowances of $117.4 million and $98.5 million are appropriate as of December 30, 2006 and December 31, 2005, respectively.

During fiscal 2006, the Company: (a) recognized additional tax benefits from the utilization of preconfirmation net operating loss carryforwards; (b) completed the Internal Revenue Service (“IRS”) examinations for fiscal years 2003 and 2004, effectively settling certain tax uncertainties with respect to those years; and (c) modified the tax basis of its investment in subsidiaries as a result of completing the IRS examination. In accordance with SOP 90-7, the Company has recognized the tax benefits with respect to such items which were originally estimated as of the Effective Date, in the amount of approximately $27.4 million, first eliminating goodwill of $10.2 million; second, eliminating all remaining intangibles established as of the Effective Date of $13.1 million; with the excess of such tax benefits over the amounts allocable to goodwill and other intangibles as a credit  to Additional Paid-in Capital of $4.1 million.

75

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There were no significant income tax refunds receivable at December 30, 2006 and $1.6 million at December 31, 2005. These amounts are included in Other current assets on the Consolidated Balance Sheets.

Note 11. Pension and Postretirement Benefit Plans

In September 2006, the FASB issued SFAS No. 158, which required employers to recognize the funded status of defined benefit plans and other postretirement benefit plans in the Consolidated Balance Sheets, with changes in the plan’s funded status recognized as a component of Accumulated Other Comprehensive Income. SFAS No. 158 has been applied by the Company as of December 30, 2006.

The Company and its subsidiaries sponsor multiple defined benefit plans and other postretirement benefit plans that cover certain employees. Benefits are primarily based on years of service and the employee’s compensation. It is the Company’s policy to fund such plans in accordance with applicable laws and regulations. The benefit obligations and related assets under these plans with respect to the 2006 and 2005 disclosures have been measured as of December 30, 2006 and December 31, 2005, respectively.

	U.S. Plans Pension Benefits						Non-U.S. Plans Pension Benefits
	2006			2005			2006			2005
	(In Thousands)
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year	$	(12,946	)	$	(12,504	)	$	(112,579	)	$	(94,768	)
Additional benefit obligations	—			—			—			(2,852		)
Service costs	—			—			(2,452		)	(2,633		)
Interest costs	(717		)	(724		)	(5,245		)	(5,117		)
Participant contributions	—			—			(142		)	(498		)
Plan amendments	—			—			3,849			(1,232		)
Actuarial (loss)/gain	(241		)	(714		)	1,525			(17,923		)
Currency translation adjustment and other	—			—			(8,067		)	7,211
Benefit payments	1,024			996			4,924			5,233
Projected benefit obligation at end of year	$	(12,880	)	$	(12,946	)	$	(118,187	)	$	(112,579	)
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	10,259		$	9,324		$	92,348		$	84,225
Actual return on and additional plan assets	1,425			961			6,287			13,450
Employer and plan participant contributions	1,040			970			6,231			6,284
Plan amendments	—			—			—			—
Actuarial (loss)/gain	—			—			—			—
Benefit payments	(1,024		)	(996		)	(4,924		)	(5,233		)
Currency translation adjustment and other	—			—			6,986			(6,378		)
Fair value of plan assets at end of year	$	11,700		$	10,259		$	106,928		$	92,348
Funded status	$	(1,180	)	$	(2,687	)	$	(11,259	)	$	(20,231	)

76

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company has plans whose fair value of plan assets exceeds the benefit obligation. In 2006 and 2005, the total amount netted in the funded status above for such plans approximates $0.9 million and $0.3 million, respectively. The total amount of prepaid benefit cost included in the net prepaid (accrued) benefit cost recognized related to these plans approximates $0.5 million in 2006 and $0.3 million in 2005.

	U.S. Postretirement Benefit Plans							Non-U.S. Postretirement Benefit Plans
	2006				2005			2006			2005
	(In Thousands)
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year		$	(3,021	)	$	(3,472	)	$	(7,201	)	$	(5,282	)
Additional benefit obligations		—			—			—			(1,192		)
Service costs		(216		)	(132		)	(78		)	(80		)
Interest costs		(212		)	(190		)	(348		)	(376		)
Participant contributions		(96		)	(71		)	—			—
Plan amendments		—			—			591			—
Actuarial (loss)/gain		13			358			702			(498		)
Currency translation adjustment and other		—			—			(23		)	(226		)
Curtailments		(191		)	—			—			—
Benefit payments		411			486			489			453
Projected benefit obligation at end of year		$	(3,312	)	$	(3,021	)	$	(5,868	)	$	(7,201	)
Change in Plan Assets:
Fair value of plan assets at beginning of year		$	—		$	—		$	—		$	—
Actual return on plan assets		—			—			—			—
Acquisition		—			—			—			—
Employer and plan participant contributions		315			415			489			453
Plan amendments		96			71			—			—
Benefit payments		(411		)	(486		)	(489		)	(453		)
Currency translation adjustment and other		—			—			—			—
Fair value of plan assets at end of year		$	—		$	—		$	—		$	—
Funded status		$	(3,312	)	$	(3,021	)	$	(5,868	)	$	(7,201	)

77

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the amounts recognized in the Consolidated Balance Sheet as of December 30, 2006 (in thousands):

	U.S. Pension Plans			Non-U.S. Pension Plans			U.S. Postretirement Benefit Plans				Non-U.S. Postretirement Benefit Plans
Other assets	$	—		$	854			$	—			$	—
Accrued liabilities	—			(47		)		(676		)		(404		)
Other liabilities	(1,180		)	(12,066		)		(2,637		)		(5,464		)
Accumulated other comprehensive (income) loss	(394		)	12,628				(518		)		(1,867		)
Net amounts recognized	$	(1,574	)	$	1,369			$	(3,831	)		$	(7,735	)

The following table summarizes the amounts recorded to Accumulated Other Comprehensive (Income) Loss, before taxes, as of December 30, 2006 (in thousands):

	U.S. Pension Plans				Non-U.S. Pension Plans			U.S. Postretirement Benefit Plans				Non-U.S. Postretirement  Benefit Plans
Transition net asset		$	—		$	107			$	—			$	—
Net actuarial (gain) loss		(394		)	15,070				(401		)		(1,331		)
Prior service cost		—			(2,549		)		(117		)		(536		)
Net amounts recognized		$	(394	)	$	12,628			$	(518	)		$	(1,867	)

The following table summarizes the funded status as of December 31, 2005 (in thousands):

	U.S. Pension Plans			Non-U.S. Pension Plans			U.S. Postretirement Benefit Plans				Non-U.S. Postretirement Benefit Plans
Funded status at year-end	$	(2,687	)	$	(20,231	)		$	(3,021	)		$	(7,201	)
Unrecognized net (gain) loss	(28		)	15,827				(400		)		(569		)
Unrecognized transition net (liability)	—			—				—				11
Unrecognized prior service cost	—			1,232				(149		)		—
Currency translation adjustment and other	—			(10		)		(173		)		(145		)
Net amounts recognized	$	(2,715	)	$	(3,182	)		$	(3,743	)		$	(7,904	)

The following table summarizes the amounts recognized in the Consolidated Balance Sheet as of December 31, 2005 (in thousands):

	U.S. Pension Plans			Non-U.S. Pension Plans				U.S. Postretirement Benefit Plans				Non-U.S. Postretirement Benefit Plans
Other assets	$	—			$	321			$	—			$	—
Other liabilities	(2,715		)		(6,311		)		(3,743		)		(7,904		)
Accumulated other comprehensive (income) loss	—				2,808				—				—
Net amounts recognized	$	(2,715	)		$	(3,182	)		$	(3,743	)		$	(7,904	)

78

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the accumulated benefit obligations as of December 31, 2005 (in thousands):

	U.S. Pension Plans		Non-U.S. Pension Plans
Accumulated benefit obligation	$	12,946	$	97,118

	U.S. Plans Pension Benefits									Non-U.S. Plans Pension Benefits
	2006			2005			2004			2006			2005			2004
	(In Thousands, Except Percent Data)
Components of net periodic benefit cost:
Current service costs	$	—		$	—		$	—		$	2,452		$	2,633		$	2,362
Interest costs on projected benefit obligation and other	717			724			783			5,245			5,117			4,231
Return on plan assets	(1,425		)	(961		)	(881		)	(6,287		)	(11,917		)	(3,705		)
Net amortization of transition obligation and other	607			250			299			(306		)	6,668			(939		)
Periodic benefit cost, net	$	(101	)	$	13		$	201		$	1,104		$	2,501		$	1,949
Weighted average assumption rates:
Return on plan assets	8.0		%	8.0		%	8.0		%	2.2-7.5%			6.5-7.5%			6.5-7.5%
Discount rate on projected benefit obligations	5.75			5.75			6.0			4.50-5.00			4.25-5.25			5.25-6.1
Salary and wage escalation rate	N/A			N/A			N/A			2.0-3.0			2.0-3.0			2.0-3.0

	U.S. Postretirement Benefit Plans									Non-U.S. Postretirement Benefit Plans
	2006			2005			2004			2006			2005		2004
	(In Thousands, Except Percent Data)
Components of net periodic benefit cost:
Current service costs	$	217		$	132		$	372		$	78		$	81	$	45
Interest costs on projected benefit obligation and other	212			190			496			348			376		287
Plan amendment	—			—			—			—			—		—
Net amortization of transition obligation, curtailment and other	(26		)	(37		)	(4,445		)	(94		)	1,020		(188		)
Periodic benefit cost, net	$	403		$	285		$	(3,577	)	$	332		$	1,477	$	144
Weighted average assumption rates:
Discount rate on projected benefit obligations	5.75		%	5.75		%	6.0		%	5.00-5.25%			5.25-5.75%		6.0		%

79

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

As discussed below, in fiscal 2007 the Company will recognize approximately $4.5 million of unamortized losses in its Consolidated Statement of Operations associated with the partial settlement of a Canadian defined benefit pension plan. 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 Increase
2007		9.0	%
2008		8.0	%
2009		7.5	%
2010		7.0	%
2011		6.5	%
2012		6.0	%
2013 and thereafter		5.5	%

A one-percentage point increase in the assumed health care cost trend rate would have increased aggregate service and interest cost in 2006 by $0.1 million and the accumulated postretirement benefit obligation as of December 30, 2006 by $0.4 million. A one-percentage point decrease in the assumed health care cost trend rate would have decreased aggregate service and interest cost in 2006 by $0.1 million and the accumulated postretirement benefit obligation as of December 30, 2006 by $0.3 million.

The plan sponsor selects the expected long-term rate-of-return on assets assumption in consultation with their investment advisors and actuary. This rate is intended to reflect the average rate of earnings expected to be earned on the funds invested or to be invested to provide plan benefits. Historical performance is reviewed, especially with respect to real rates of return (net of inflation), for the major asset classes held or anticipated to be held by the trust, and for the trust itself. Undue weight is not given to recent experience, that may not continue over the measurement period, with higher significance placed on current forecasts of future long-term economic conditions.

Because assets are held in a qualified trust, anticipated returns are not reduced for taxes. Further, solely for this purpose, the plans are assumed to continue in force and not terminate during the period during which assets are invested. However, consideration is given to the potential impact of current and future investment policy, cash flow into and out of the trust, and expenses (both investment and non-investment) typically paid from plan assets (to the extent such expenses are not explicitly estimated within periodic cost).

The plans’ weighted-average asset allocations by asset category are as follows:

	2006			2005
Equity Securities		38	%		46	%
Debt Securities		45			52
Other		17			2
Total		100	%		100	%

The trust funds are sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return, with an overall targeted asset allocation of 40%-55% fixed income debt securities, 40%-55% equity securities and the remainder in cash or cash equivalents. The Investment

80

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Managers select investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for the implementation of the Plans’ investment strategy. The Investment Managers will consider both actively and passively managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure.

It is the responsibility of the Trustee to administer the investments of the Trust within reasonable costs. These costs include, but are not limited to, management and custodial fees, consulting fees, transaction costs and other administrative costs chargeable to the Trust.

The Company’s practice is to fund amounts for its qualified pension plans at least sufficient to meet the minimum requirements set forth in applicable employee benefit laws and local tax laws. Liabilities for amounts in excess of these funding levels are included in the Consolidated Balance Sheet. Employer contributions to its pension plans in 2007 are expected to approximate $6.0 million.

Expected Benefit Payments

The following table reflects the total benefits projected to be paid from the plans, or from the Company’s general assets, under the current actuarial assumptions used for the calculation of the projected benefit obligations and, therefore, may differ from projected benefit payments.

The expected level of payments to, or on the behalf of, participants is as follows (in thousands):

	Pension		Postretirement
2007	$	4,864		$	851
2008	5,348			500
2009	5,414			506
2010	5,432			500
2011	5,951			504
2012-2016	36,012			2,538

In December 2004, the Company approved amendments to various postretirement benefit plans which curtailed or eliminated defined benefits previously available under the plans. The amendments as adopted will eliminate, by January 1, 2008, the postretirement benefit plans for all U.S. current retirees of the Company and substantially all U.S. active employees. The three-year phase-out period was granted to provide current retirees and other eligible employees an acceptable period to transition to other alternative medical plans. In accordance with SFAS No. 106, “Employers Accounting for Postretirement Benefits Other Than Pensions” (as amended), the gain on the plan curtailments was recognized upon the adoption of the plan amendments. The gain of $3.6 million was reported as a component of Cost of goods sold and Selling, general and administrative expenses in the Consolidated Statement of Operations for fiscal year 2004 in the amounts of $3.3 million and $0.3 million, respectively.

During the first quarter of fiscal 2006, as part of its restructuring and related cost reduction measures, the Company negotiated certain changes with the union representing the employees of one of the Company’s Canadian operations, including a partial curtailment of a defined benefit pension plan. No net gain or loss has been incurred as a result of the partial curtailment. However, based on elections made by plan participants during the second quarter of fiscal 2006, and as approved by Canadian regulatory authorities on January 16, 2007, the Company will incur a settlement loss associated with employees who have elected to exit the plan. The loss incurred as a

81

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

result of the partial settlement of the defined benefit pension plan, in the amount of $4.5 million, will be recognized in the first quarter of fiscal 2007 commensurate with governmental approval of the terms of the settlement and upon fulfillment by the Company of its funding requirements in the amount of $1.9 million associated with the approved settlement, which funding obligations were fulfilled in February 2007.

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 $2.5 million, $2.3 million and $1.9 million for fiscal 2006, 2005 and 2004, respectively.

Note 12. Stock Option and Restricted Stock Plans

Stock Option Plans

The 2003 Stock Option Plan (the “2003 Option Plan”) was approved by the Company’s Board of Directors and shareholders and is administered by the Compensation Committee of the Board of Directors. The stock options, representing 400,000 shares, have a five-year life and vest, based on the achievement of various service and financial performance criteria, over a four-year period, with the initial awards beginning their vesting terms as of January 4, 2004. Vesting of the stock options is accelerated on the occurrence of a change in control. As of December 30, 2006 and December 31, 2005, the Company had awarded non-qualified stock options to purchase 310,500 and 400,000 shares of the Company’s Class A Common Stock, respectively. Accordingly, at December 30, 2006, there remain 89,500 stock options available to be awarded pursuant to the 2003 Option Plan.

Effective January 1, 2006, the Company has elected to account for the 2003 Option  Plan in accordance with the methodology defined in SFAS No. 123(R), using the modified prospective transition method. Under the modified prospective transition method, the compensation costs related to all new grants and any unvested portion of prior awards are measured based on the grant-date fair value of the award. Prior to fiscal 2006, the Company elected to account for the 2003 Option Plan in accordance with the intrinsic value method as prescribed by APB No. 25. For fiscal 2006, no compensation costs were recognized for awards under the 2003 Option Plan with performance-based vesting as the performance targets were not achieved, whereas such targets were achieved in fiscal years 2005 and 2004. The compensation costs related to the 2003 Option Plan were $0.2 million, $2.2 million and $0.6 million during fiscal years 2006, 2005 and 2004, respectively, and were included in Selling, general and administrative expenses in the Consolidated Statements of Operations. Had the compensation expense methodology defined in SFAS No. 123(R) been applied for all periods presented, the Company’s net earnings and earnings per common share for fiscal years 2005 and 2004 would have been impacted as summarized in the discussion of the Company’s stock-based compensation accounting policy in Note 2 to the Consolidated Financial Statements.

82

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table summarizes the stock option activity related to the 2003 Option Plan for the years ended December 30, 2006, December 31, 2005 and January 1, 2005:

	2006		2005		2004
Unexercised options outstanding—beginning of period	400,000		225,313		240,000
Granted	—		174,687		—
Exercised	—		—		—
Forfeited	89,500		—		14,687
Expired/canceled	—		—		—
Unexercised options outstanding—end of period	310,500		400,000		225,313
Exercisable options:
Vested options as of year-end	174,454		156,328		48,000
Exercisable options as of year-end	—		—		—
Shares available for future grant as of year-end	89,500		—		174,687
Weighted average exercise price per share	$	6.00	$	6.00	$	6.00

The fair value of options granted is estimated using a Black-Scholes option pricing model using the following assumptions:

	2006			2005			2004
Annual dividend yield	0.0		%	0.0		%	0.0		%
Weighted average expected life (years)	3.4			4.4			5.0
Risk-free interest rate	4.3		%	3.9		%	3.2		%
Expected volatility	41.0		%	37.0		%	37.0		%
Weighted average fair value per option granted	$	18.87		$	17.95		$	3.41

Expected volatility is based primarily on historical volatility. Historical volatility was computed using daily price observations for the period subsequent to the Effective Date. The Company believes this method produces an estimate that is representative of our expectations of the volatility over the expected life of its options. The Company has no reason to believe future volatility over the expected life of these options is likely to differ materially from historical volatility. The weighted-average expected life is based on the mandatory exercise provisions contained in the 2003 Option Plan. The risk-free interest rate is based on the U.S. treasury security rate estimated for the expected life of the options at the date of grant.

SFAS No. 123(R) requires the estimation of forfeitures when recognizing compensation expense and that the estimate of forfeiture be adjusted over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment, which is recognized in the period of change and which impacts the amount of unamortized compensation expense to be recognized in future periods.

Restricted Stock Plans

The Company’s shareholders approved the 2004 Restricted Stock Plan for Directors (the “2004 Restricted Plan”), which expires in 2014, for the issuance of restricted shares of the Company’s Class A Common Stock to Directors of the Company, as defined in the 2004 Restricted Plan. The 2004 Restricted Plan approved for issuance 200,000 restricted shares and is administered by a

83

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

committee of the Company’s Board of Directors not eligible to receive restricted shares under the 2004 Restricted Plan. In fiscal 2006 and 2005, the Company awarded 9,313 and 3,240 restricted shares, respectively, to members of the Company’s Board of Directors for their Board service to the Company. In addition, 12,500 restricted shares were approved for issuance by the Company’s Board of Directors in September 2006 to the Company’s Chairman of the Board as a component of his compensation for serving as interim Chief Executive Officer. The cost associated with these restricted stock grants, which vest over periods ranging from immediately to eighteen months, totaled approximately $0.5 million and $0.1 million for fiscal years 2006 and 2005, respectively, and was included in Selling, general and administrative expenses in the Consolidated Statements of Operations. As of December 30, 2006, 132,307 shares of the Company’s Class A Common Stock are available to be awarded under the 2004 Restricted Plan.

The Company’s 2005 Employee Restricted Stock Plan (the “2005 Stock Plan”) was approved by the Company’s Board of Directors and shareholders and is administered by the Compensation Committee of the Company’s Board of Directors. The 2005 Stock Plan, which expires in 2015, approved for issuance 482,000 restricted shares to employees of the Company. The Compensation Committee may, from time to time, award up to 384,000 shares of restricted stock under the 2005 Stock Plan to such employees and in such amounts and with specified restrictions as it determines appropriate in the circumstances. The award of shares of restricted stock by the Compensation Committee in excess of the 384,000 shares will also require the approval of the Board of Directors of the Company. Vesting of the restricted shares is accelerated on the occurrence of a change in control. During fiscal 2006, 291,500 restricted shares were awarded to certain employees of the Company. Approximately 108,500 of these shares vested immediately with the balance vesting 25% on each of the grant’s anniversary dates, beginning with January 20, 2006 and/or annually based on service and the achievement of certain performance targets. In addition, 47,688 shares have been surrendered during fiscal 2006 by employees to satisfy withholding requirements and 25,144 shares have been forfeited. The compensation cost of $4.2 million related to these restricted stock grants for fiscal 2006 was included in Selling, general and administrative expenses in the Consolidated Statements of Operations. As of December 30, 2006, 263,332 shares of the Company’s Class A Common Stock are available to be awarded under the 2005 Stock Plan.

Note 13. Series A Convertible Pay-in-kind Preferred Shares

In conjunction with the Company’s refinancing in April 2004 of the Restructured Credit Facility, the Company’s majority shareholder exchanged approximately $42.6 million in aggregate principal amount of 10.0% Convertible Subordinated Notes due 2007 (the “Junior Notes”) it controlled for 42,633 shares of the Company’s PIK Preferred Shares. Also, during the third quarter of fiscal 2004, $10.1 million in aggregate principal amount of the Company’s Junior Notes were exchanged for 10,083 shares of the Company’s PIK Preferred Shares and 6,719 shares of the Company’s Class A Common Stock. Such Junior Notes were subordinated indebtedness of the Company and provided for interest at an annual rate of 10.0%, which interest, at the option of the holder, could be received in additional principal amounts of the Junior Notes or in cash. The Junior Notes could be converted, at the option of the holder, into shares of Class A Common Stock on the same terms as included in the PIK Preferred Shares (a conversion rate of 137.14286 shares of Class A Common Stock per share of the convertible security, which approximates an initial conversion price of approximately $7.29 per share). As the aforementioned exchanges were a component of the recapitalization of the Company, involving the majority shareholder and other common shareholders of the Company and the

84

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

exchange by the majority shareholder was a requirement of the then new Bank Facility, the exchanges have been accounted for as a capital transaction and, accordingly, no gain or loss was recognized.

Dividends on the PIK Preferred Shares accrued at an annual rate of 16.0% and were payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004. Such dividends were payable at the option of the Company; (i) through the issuance of additional shares of PIK Preferred Stock; (ii) in cash; or (iii) in a combination thereof. Accordingly, the Company accrued dividends at the stated rate of 16.0% until such time as the form of the dividend was declared by the Company’s Board of Directors. If the dividend was paid-in-kind through the issuance of additional shares of PIK Preferred Stock, the Company recognized the dividend at the estimated fair value of the shares issued in excess of the amounts previously accrued. At any time prior to June 30, 2012, the holders of the PIK Preferred Shares could have elected to convert any or all of their PIK Preferred Shares into shares of the Company’s Class A Common Stock at an initial conversion rate of 137.14286 shares of Class A Common Stock per share of PIK Preferred Shares which approximates an initial conversion price equal to $7.29 per share.

On January 14, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from the date of issuance through December 31, 2004, in the amount of $5.6 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on January 14, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $18.50 per share, the fair value of the 5,540 additional PIK Preferred Shares issued in lieu of cash payment was approximately $14.1 million, which exceeded the amount previously accrued by the Company of $5.6 million, based on the stated rate of 16.0%, by approximately $8.5 million. On August 3, 2005, the Company’s Board of Directors declared that dividends accrued on the PIK Preferred Shares from January 1, 2005 through June 30, 2005, in the amount of $4.7 million, would be paid in the form of PIK Preferred Shares. The Company recorded the value of the additional PIK Preferred Shares declared as a dividend on August 3, 2005, the date the Board of Directors declared that the accrued dividends were to be paid in the form of additional PIK Preferred Shares, rather than cash, reduced by the amount of dividends previously recorded at the stated 16.0% rate. Using the estimated market value of the Company’s Class A Common Stock of $27.70 per share, the fair value of the 4,660 additional PIK Preferred Shares issued in lieu of cash payment was approximately $17.7 million, which exceeded the amount previously accrued by the Company of $4.7 million, based on the stated rate of 16.0%, by approximately $13.0 million. In addition, the Company accrued a charge for dividends of $1.8 million for the period from July 2, 2005 through the date that the PIK Preferred Shares were redeemed for, or converted to, shares of the Company’s Class A Common Stock, as described below. Accordingly, total accrued and paid-in-kind dividends amounted to $28.0 million and $5.6 million in fiscal years 2005 and 2004, respectively.

Also, on July 28, 2005, the Company’s Board of Directors authorized the redemption of all of the Company’s PIK Preferred Shares on or before September 30, 2005. On August 16, 2005, the Board of Directors set September 15, 2005 as the redemption date (the “Redemption Date”). In accordance with the terms of the PIK Preferred Shares, the Company would redeem all PIK Preferred Shares outstanding at the Redemption Date at a redemption rate of 37.26397 shares of Class A Common Stock per PIK Preferred Share. At any time prior to the Redemption Date, holders of PIK Preferred

85

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Shares could exercise their right to convert their PIK Preferred Shares into shares of Class A Common Stock at a conversion rate of 137.14286 shares of Class A Common Stock per PIK Preferred Share.

As of the close of business on the Redemption Date, five PIK Preferred Shares had been redeemed by the Company with the redemption price being paid by the issuance of 187 shares of Class A Common Stock. Additionally, 62,916 PIK Preferred Shares had been converted by holders into 8,628,473 shares of Class A Common Stock. Also, during the first quarter of fiscal 2005, five PIK Preferred Shares were converted into 686 shares of Class A Common Stock. As a result of these transactions, 8,629,346 additional shares of Class A Common Stock are now issued and outstanding and no PIK Preferred Shares are currently issued or outstanding.

Note 14. Derivatives and Other Financial Instruments and Hedging Activities

The Company uses derivative financial instruments to manage market risks and reduce its exposure to fluctuations in interest rates and foreign currencies. All hedging transactions are authorized and executed under clearly defined policies and procedures, which prohibit the use of financial instruments for trading purposes.

The Company uses interest-rate derivative instruments to manage its exposure related to movements in interest rates with respect to its debt instruments. As indicated in Note 9 to the Consolidated Financial Statements, to mitigate its interest rate exposure as required by the Credit Facility, the Company entered into a pay-fixed, receive-variable interest rate swap, thus effectively converting the variable LIBOR-based interest payments associated with $212.5 million of the debt to fixed amounts at a LIBOR rate of 3.383%. The notional amount of this contract, which expires on May 8, 2007, was $212.5 million. Cash settlements are made quarterly and the floating rate is reset quarterly, coinciding with the reset dates of the current Credit Facility.

In accordance with SFAS No. 133, the Company designated the swap as a cash flow hedge of the variability of interest payments and applied the shortcut method of assessing effectiveness. The agreement’s terms ensure complete effectiveness in offsetting the variability of the interest component associated with $212.5 million of first-lien term loan debt. As such, there is no ineffectiveness and changes in the fair value of the swap are included in Accumulated Other Comprehensive Income in the Consolidated Balance Sheets. The fair value of the interest rate swap, based on current settlement values, was $1.5 million and $3.8 million as of December 30, 2006 and December 31, 2005, respectively. Those amounts were included in Other noncurrent assets in the Consolidated Balance Sheets.

The impact of this swap on Interest expense, net in the Consolidated Statements of Operations was a decrease of $3.7 million for fiscal year 2006 and an increase of $0.2 million and $2.4 million for fiscal years 2005 and 2004, respectively.

Additionally, on February 8, 2007, the Company entered into a similar pay-fixed, receive-variable interest rate swap contract to become effective on May 8, 2007. The notional principal amount of this new contract, which expires on June 29, 2009, is $240.0 million and effectively fixes the LIBOR interest rate on that amount of debt at 5.085%.

During fiscal years 2006 and 2005, the Company used foreign exchange forward contracts to manage its U.S.-dollar exposure on Euro-based obligations for firm commitments. At December 31, 2005, the Company had approximately $30.1 million of notional amount in outstanding contracts with a third party financial institution. There were no outstanding contracts at December 30, 2006.

86

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 15. Shareholders’ Equity

As of December 30, 2006 and December 31, 2005, the Company’s authorized capital stock consisted of the following classes of stock:

Type	Par Value			Authorized Shares
Preferred stock		$	.01		173,000
Class A common stock		$	.01		39,200,000
Class B convertible common stock		$	.01		800,000
Class C convertible common stock		$	.01		118,453
Class D convertible common stock		$	.01		498,688
Class E convertible common stock		$	.01		523,557

All classes of the common stock have similar voting rights. In accordance with the Amended and Restated Certificate of Incorporation, all shares of Class B, C, D and E Common Stock may be converted into an equal number of shares of Class A Common Stock. The shares of preferred stock may be issued from time to time with such designation, preferences, participation rights and optional or special rights (including, but not limited to, dividend rates, voting rights, maturity dates and the like) as determined by the Board of Directors.

Note 16. Segment Information

The Company’s reportable segments consist of its primary operating divisions—Nonwovens and Oriented Polymers. This reflects how the overall business is managed by the Company’s senior management and reviewed by the Board of Directors. Each of these businesses sells to different end-use markets, such as hygiene, medical, wipes, industrial and specialty markets. Sales to P&G accounted for more than 10% of the Company’s sales in each of the periods presented. Sales to this customer are reported primarily in the Nonwovens segment and the loss of these sales would have a material adverse effect on this segment. The Company recorded charges and/or income in the Consolidated Statements of Operations during the fiscal years 2006, 2005 and 2004 relating to special charges (credits), net that have not been allocated to the segment data.

87

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Financial data by segment is as follows (in thousands):

	2006			2005			2004
Net sales
Nonwovens	$	848,281		$	763,777		$	672,600
Oriented Polymers	173,327			185,071			172,541
Eliminations	—			—			(407		)
	$	1,021,608		$	948,848		$	844,734
Operating income (loss)
Nonwovens	$	66,586		$	66,211		$	59,218
Oriented Polymers	4,340			10,586			12,092
Unallocated Corporate	(26,616		)	(20,793		)	(19,240		)
Eliminations	258			259			202
	44,568			56,263			52,272
Special (charges) credits, net	(38,683		)	(9		)	8,992
	$	5,885		$	56,254		$	61,264
Depreciation and amortization expense included in operating income (loss)
Nonwovens	$	48,998		$	45,083		$	41,923
Oriented Polymers	10,373			10,643			8,217
Unallocated Corporate	211			106			1,120
Eliminations	(258		)	(259		)	—
Depreciation and amortization expense included in operating income	59,324			55,573			51,260
Amortization of loan acquisition costs	1,339			1,977			1,970
	$	60,663		$	57,550		$	53,230
Capital spending
Nonwovens	$	64,952		$	77,088		$	23,766
Oriented Polymers	2,438			1,814			1,025
Corporate	777			—			—
	$	68,167		$	78,902		$	24,791
Division assets
Nonwovens	$	737,561		$	715,977		$	732,163
Oriented Polymers	116,368			144,477			149,393
Corporate	390			2,096			560
Eliminations	(112,222		)	(97,549		)	(127,558		)
	$	742,097		$	765,001		$	754,558

88

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Geographic Data:

Export sales from the Company’s United States operations to unaffiliated customers approximated $66.7 million, $60.6 million and $60.2 million during fiscal years 2006, 2005 and 2004, respectively. Geographic data for the Company’s operations, based on the geographic region that the sale is made from, are presented in the following table (in thousands):

	2006			2005			2004
Net sales
United States	$	466,956		$	444,968		$	381,421
Canada	108,571			116,158			111,591
Europe	185,231			184,743			190,470
Asia	54,474			44,297			32,384
Latin America	206,376			158,682			128,868
	$	1,021,608		$	948,848		$	844,734
Operating income (loss)
United States	$	(8,822	)	$	3,327		$	3,111
Canada	(1,073		)	3,114			4,884
Europe	15,422			15,840			17,393
Asia	5,560			5,445			3,250
Latin America	33,481			28,537			23,634
	44,568			56,263			52,272
Special (charges) credits, net	(38,683		)	(9		)	8,992
	$	5,885		$	56,254		$	61,264
Depreciation and amortization expense included in operating income (loss)
United States	$	25,478		$	24,891		$	24,240
Canada	8,139			8,429			6,015
Europe	9,226			9,286			8,862
Asia	5,025			4,149			4,014
Latin America	11,456			8,818			8,129
Depreciation and amortization expense included in operating income	59,324			55,573			51,260
Amortization of loan acquisition costs	1,339			1,977			1,970
	$	60,663		$	57,550		$	53,230
Identifiable assets (including intangible assets)
United States	$	303,728		$	323,596		$	294,042
Canada	76,170			94,531			99,382
Europe	193,372			202,324			294,811
Asia	91,383			60,267			35,996
Latin America	189,669			181,834			157,900
Eliminations	(112,225		)	(97,551		)	(127,573		)
	$	742,097		$	765,001		$	754,558

89

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 17. Foreign Currency Loss, Net

Components of foreign currency (gain) loss are shown in the table below (in thousands):

	2006		2005			2004
Included in operating income	$	1,229	$	671		$	2,027
Included in other expense (income)	68		(280		)	1,046
	$	1,297	$	391		$	3,073

For international subsidiaries which have the U.S. dollar as their functional currency, local currency transactions are remeasured into U.S. dollars, using current rates of exchange for monetary assets and liabilities. Gains and losses from the remeasurement of such monetary assets and liabilities are reported in Foreign currency loss, net in the Consolidated Statements of Operations. Likewise, for international subsidiaries which have the local currency as their functional currency, gains and losses from the remeasurement of monetary assets and liabilities not denominated in the local currency are reported in Foreign currency loss, net in the Consolidated Statements of Operations. Additionally, currency gains and losses have been incurred on intercompany loans between subsidiaries, and to the extent that such loans are not deemed to be permanently invested, such currency gains and losses are also reflected in Foreign currency and other (gain) loss, net in the Consolidated Statements of Operations.

The Company includes gains and losses on receivables, payables and other operating transactions as a component of operating income in foreign currency loss, net. Other foreign currency gains and losses, primarily related to intercompany loans and debt, are included in Foreign currency and other (gain) loss, net.

Note 18. Commitments and Contingencies

Non-affiliate Leases

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 $3.7 million, $3.3 million and $4.0 million in fiscal years 2006, 2005 and 2004, respectively. Rental income approximated $0.2 million and $0.6 million in fiscal years 2005 and 2004, respectively. There was no rental income in fiscal year 2006. The expenses are recognized on a straight-line basis over the life of the lease. 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 30, 2006 are presented in the following table (in thousands):

	Gross Minimum Rental Payments
2007		$	3,325
2008		2,747
2009		1,919
2010		1,352
2011		723
Thereafter		1,374
		$	11,440

90

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Purchase Commitments

At December 30, 2006, the Company had commitments of approximately $47.9 million related to the purchase of raw materials, maintenance and converting services. Additionally, the Company has several major committed capital projects, including the installment of a new spunmelt line at the joint venture facility near Buenos Aires, Argentina. Remaining payments due related to these planned capital expansions as of December 30, 2006 totaled approximately $39.4 million and are expected to be expended during fiscal year 2007. The Company has obtained committed local financing subsequent to December 30, 2006 to support the capital expansion in Argentina.

In June 2006, one of the Company’s subsidiaries, Fabpro Oriented Polymers, Inc. (“Fabpro”) entered an agreement relating to the sale of certain assets for $2.3 million and a supply and marketing rights agreement (“supply agreement”) with an unrelated third party. Under the terms of the supply agreement, which has an initial term of 10 years, Fabpro has committed to purchase a minimum level of product (as defined in the supply agreement), representing approximately $7.1 million per year, based on current sales prices, through the year 2012. In the event that Fabpro does not purchase such minimum quantities, Fabpro will be obligated to pay a 12.5% penalty on the value of the committed amounts not purchased, based on sales prices in effect at that time.

Collective Bargaining Agreements

At December 30, 2006, the Company had approximately 3,471 employees worldwide. Approximately 1,314 employees are represented by labor unions or trade councils, which have entered into separate collective bargaining agreements with the Company. Approximately 25% 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 and regulations relating to pollution and protection of the environment. The Company believes that it is currently in substantial compliance with applicable environmental requirements and does not currently anticipate any material adverse effect on its operations, financial or competitive position as a result of its efforts to comply with environmental requirements.

Litigation

The Company is not currently a party to any material pending legal proceedings other than routine litigation incidental to the business of the Company. During fiscal 2005, the Company was served with a lawsuit by a customer alleging breach of contract and other charges. The discovery phase is continuing and there is not currently enough information to formulate an assessment of the ultimate outcome of the claim. Accordingly, management is not able to estimate the amount of the loss, if any, at this time. The Company intends to vigorously defend this action and believes that it has reasonable arguments available in its defense. However, there is a possibility that resolution of this matter, or others that may arise in the normal course of business, could result in a loss in excess of established reserves, if any.

91

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 19. Quarterly Results of Operations (Unaudited)

Quarterly financial data for the fiscal year ended December 30, 2006 and the fiscal year ended December 31, 2005 is presented below (amounts in thousands, except for per share data). All 2006 and 2005 fiscal quarters were comprised of 13 weeks.

Quarterly data for fiscal 2006:

	Fourth Quarter Ended December 30, 2006				Third Quarter Ended September 30, 2006				Second Quarter Ended July 1, 2006				First Quarter Ended April 1, 2006
Operating data:
Net sales		$	263,875			$	248,586			$	248,706			$	260,441
Gross profit		41,416				35,130				36,453				43,204
Net loss		(18,860		)		(1,515		)		(12,552		)		(1,605		)
Loss applicable to common shareholders		(18,860		)		(1,515		)		(12,552		)		(1,605		)
Loss per common share—basic		$	(0.98	)		$	(0.08	)		$	(0.65	)		$	(0.08	)
Loss per common share—diluted		$	(0.98	)		$	(0.08	)		$	(0.65	)		$	(0.08	)

During the fourth quarter of fiscal 2006, the Company recorded special charges (credits), net of approximately $21.9 million. See Note 3 to the Consolidated Financial Statements for additional details related to such special charges (credits), net recognized in fiscal 2006. Additionally, the Company recognized an income tax expense of $3.6 million on a pre-tax loss of $15.2 million. The effective tax rate for the fourth quarter was unfavorably impacted by losses in the U.S. and other jurisdictions for which no tax benefit has been recognized, as well as an adjustment to tax accruals recorded through the previous quarters. See Note 10 to the Consolidated Financial Statements for additional details related to the fiscal year 2006 tax provision.

Quarterly data for fiscal 2005:

	Fourth Quarter Ended December 31, 2005				Third Quarter Ended October 1, 2005				Second Quarter Ended July 2, 2005			First Quarter Ended April 2, 2005
Operating data:
Net sales		$	240,414			$	228,220			$	235,853		$	244,361
Gross profit		36,714				38,905				41,943			43,917
Net income (loss)		(2,433		)		194				4,070			5,166
Accrued and paid-in-kind dividends on PIK Preferred Shares		—				14,790				2,357			10,851
Income (loss) applicable to common shareholders		(2,433		)		(14,596		)		1,713			(5,685		)
Income (loss) per common share—basic		$	(0.13	)		$	(1.17	)		$	0.16		$	(0.55	)
Income (loss) per common share—diluted		$	(0.13	)		$	(1.17	)		$	0.16		$	(0.55	)

92

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 20. Supplemental Cash Flow Information

Cash payments of interest and taxes consist of the following (in thousands):

	2006		2005			2004
Cash payments of interest, net of amounts capitalized	$	27,546	$	34,139		$	37,764
Cash payments (refunds) of income taxes, net	6,498		(9,705		)	6,827

Noncash investing or financing transactions in fiscal 2006 included the surrender of 47,688 shares of the Company’s Class A Common Stock to the Company by participants in the 2005 Stock Plan in the amount of $1.3 million to satisfy employee withholding tax obligations.

Noncash investing or financing transactions in fiscal 2005 included: (i) the conversion or redemption of 62,926 shares of the Company’s PIK Preferred Shares into approximately 8,629,346 shares of the Company’s Class A Common Stock, (ii) the issuance of 10,200 PIK Preferred Shares as payment-in-kind, in lieu of cash payment, of approximately $10.3 million of dividends on the Company’s PIK Preferred Shares, which resulted in an additional non-cash dividend charge of approximately $21.5 million in excess of the amounts accrued at the stated dividend rate of 16.0% on the PIK Preferred Shares and (iii) the accrual of $1.8 million of dividends on the PIK Preferred Shares from the date of the last dividend declaration date to the date the PIK Preferred Stock were redeemed or converted to Class A Common Stock.

Noncash investing or financing transactions in fiscal 2004 included (i) the issuance of 1,327,177 shares of the Company’s Class A Common Stock and 19,359 shares of the Company’s Class C Common Stock in accordance with the ruling of the United States Bankruptcy Court for the District of South Carolina, (ii) the conversion of $2.7 million of the Company’s Junior Notes into approximately 371,382 shares of the Company’s Class A Common Stock, (iii) the exchange of $42.6 million of the Company’s Junior Notes into approximately 42,633 shares of the Company’s PIK Preferred Shares, (iv) the exchange of $10.1 million of the Company’s Junior Notes into approximately 10,083 shares of the Company’s PIK Preferred Shares and 6,719 shares of the Company’s Class A Common Stock, (v) the payment in kind in lieu of cash payment of $1.8 million of interest expense on the Junior Notes and (vi) the accrual of $5.6 million of dividends on the PIK Preferred Shares.

Note 21.Subsequent Events

On January 3, 2007, the Board of Directors of the Company approved a plan to close its Rogers, Arkansas and Gainesville, Georgia plants in the United States and transfer portions of the business to other locations in North America and Asia. The restructuring plan included the reduction of approximately 170 production and administrative staff positions. As a result of this decision, the Company estimates that it will recognize cash restructuring charges of approximately $5.5 million to $6.0 million during fiscal year 2007. The Company anticipates proceeds of approximately $4.0 million to $5.0 million from the sale of idled facilities and equipment. Additionally, with respect to the planned closure of the aforementioned facilities in fiscal 2007, the Company recognized an impairment charge of $1.4 million in fiscal 2006.

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

None.

ITEM 9A.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures as such item is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of December 30, 2006.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the direction of our Chief Executive Officer and Chief Financial Officer, management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 30, 2006. In making this assessment, management used the criteria set forth in the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 30, 2006. Grant Thornton LLP, an independent registered public accounting firm, has issued its report on management’s assessment of the Company’s internal control over financial reporting which is included herein.

94

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting in the fourth quarter of fiscal 2006 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Polymer Group, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting, that Polymer Group, Inc. (a Delaware corporation) and subsidiaries maintained effective internal control over financial reporting as of December 30, 2006, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Polymer Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Polymer Group, Inc. and subsidiaries maintained effective internal control over financial reporting as of December 30, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also in our opinion, Polymer Group, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 30, 2006, based on Internal Control—Integrated Framwork issued by COSO.

95

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Polymer Group, Inc. and subsidiaries as of December 30, 2006 and December 31, 2005, and the related consolidated statements of operations, changes in shareholders’ equity and comprehensive income (loss) and cash flows for the years then ended, and our report dated March 13, 2007 expressed an unqualified opinion on those financial statements.

/s/ GRANT THORNTON LLP

Columbia, South Carolina

March 13, 2007

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ITEM 9B.OTHER INFORMATION

None.

PART III

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information required by this Item is set forth under the captions “Nominees for Director” and “Executive Officers” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

Information on the beneficial ownership reporting for the Company’s directors, executive officers, and certain beneficial owners is contained under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

Information on stockholder nominations to the Company’s Board of Directors, the Company’s Audit Committee and Audit Committee Financial Expert is set forth under the caption “Information About the Board of Directors” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

The Company has a Code of Conduct that applies to all officers and employees, including the Company’s principal executive officer, principal financial officer, principal accounting officer, and other key financial and accounting officers. The Code of Conduct can be found on the Investors’ page of the Company’s publicly-available website (www.polymergroupinc.com). The Company will post any amendments to the Code of Conduct, and any waivers that are required to be disclosed by Securities and Exchange Commission regulations, on the Company’s website.

ITEM 11.EXECUTIVE COMPENSATION

Information required under this Item relating to executive compensation and director compensation is set forth under the caption “Executive Compensation”  in the definitive proxy materials of the Company, which information is incorporated herein by reference.

Information required under this Item relating to Compensation Committee Interlocks and Insider Participation is set forth under the caption “Compensation Committee Interlocks and Insider Participation”  in the definitive proxy materials of the Company, which information is incorporated herein by reference.

The Compensation Committee Report required under this Item is set forth under the caption “Compensation Committee Report” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

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

Information required under this Item is set forth under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

97

The following table provides certain information as of December 30, 2006 with respect to our equity compensation plans:

	(a)  Number of securities to be issued upon exercise of outstanding options, warrants and rights		(b)  Weighted-average exercise price of outstanding options, warrants and rights			(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders:
—2003 Stock Option Plan		310,500		$	6.00		89,500
—2004 Restricted Stock Plan for Directors (1)		—		—			132,307
—2005 Employee Restricted Stock Plan (2)		—		—			263,332
Total		310,500					485,139

(1)Under the 2004 Restricted Stock for Directors, and unless otherwise determined by a committee of the Company’s Board of Directors not eligible to receive restricted shares under the plan, $10,000 of a director’s yearly fee will be payable in shares of the Company’s Class A Common Stock. In addition, directors may elect to receive restricted stock in lieu of cash payments for director’s fees.

(2)A portion of shares available for issuance under the 2005 Employee Restricted Stock Plan may be awarded in connection with the Company’s retention of a new Chief Executive Officer.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required under this Item relating to certain relationships and related transactions is set forth under the caption “Certain Relationships and Related Transactions” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

Information required under this Item relating to director independence is set forth under the caption “Information About the Board of Directors” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required under this Item is set forth under the caption “Independent Public Accountants” in the definitive proxy materials of the Company, which information is incorporated herein by reference.

98

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   1.Financial Statements

The following consolidated financial statements and reports of Independent Registered Public Accounting Firms required by this Item are filed herewith under Item 8 of this Annual Report on Form 10-K:

·Report of Grant Thornton LLP, Independent Registered Public Accounting Firm.

·Report of Ernst & Young LLP, Independent Registered Public Accounting Firm.

·Consolidated Balance Sheets as of December 30, 2006 and December 31, 2005.

·Consolidated Statements of Operations for the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005.

·Consolidated Statements of Changes in Shareholders’ Equity and Comprehensive Income (Loss) for the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005.

·Consolidated Statements of Cash Flows for the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005.

·Notes to Consolidated Financial Statements for the fiscal years ended December 30, 2006, December 31, 2005 and January 1, 2005.

(a)   2.Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts (“Schedule II”). Supplemental schedules other than Schedule II are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or in the notes thereto.

(a)   3.Exhibits

Exhibits required in connection with this Annual Report on Form 10-K are listed below. Certain exhibits are incorporated by reference to other documents on file with the Securities and Exchange Commission, with which they are physically filed, to be a part of this report as of their respective dates.

Exhibit Number		Document Description
3.1	Amended and Restated Certificate of Incorporation of the Company. (1)
3.2	Amended and Restated By-laws of the Company. (2)
4.1	Shareholders Agreement dated as of March 5, 2003. (3)
4.2	Amendment No. 1 to Shareholders Agreement, dated as of December 20, 2004. (4)
10.1	Credit Agreement, dated as of November 22, 2005 among Polymer Group, Inc. as Borrower, the Lenders referred to therein, Citicorp North America, Inc. as Administrative Agent, Document Agent, Collateral Agent and Syndication Agent, and Citigroup Global Markets Inc., as Sole Lead Arranger and Sole Bookrunner (the “2005 Credit Agreement”). (5)
10.2	Security Agreement, by Polymer Group, Inc., and the domestic subsidiaries party thereto, as Grantors, and Citicorp North America, Inc. as Collateral Agent, dated as of November 22, 2005. (6)

99

Exhibit Number		Document Description
10.3	Pledge Agreement, by Polymer Group, Inc., and the domestic subsidiaries party thereto, as pledgors, and Citicorp North America, Inc. as Collateral Agent, dated as of November 22, 2005. (7)
10.4	Guarantee Agreement, dated as of November 22, 2005 among each of the subsidiaries listed on Schedule I thereto of Polymer Group, Inc., Citicorp North America, Inc. as Collateral Agent and Administrative Agent. (8)
10.5	Settlement Agreement, Receipt and Release, dated as of April 29, 2005 by and among Polymer Group, Inc., Jerry Zucker, The Intertech Group, Inc., ZS Associates LLC and MatlinPatterson Global Advisors LLC (on behalf of itself and various affiliated entities named in the Settlement Agreement). (9)*
10.6	Amendment No. 1 to the 2005 Credit Agreement, dated as of December 8, 2006.
10.7	Executive Employment Agreement dated March 24, 2006 between Polymer Group, Inc. and James L. Schaeffer. (10)**
10.8	Executive Employment Agreement dated as of March 24, 2006 between Polymer Group, Inc. and Willis C. Moore, III. (11)**
10.9	Form of Change in Control Severance Compensation Agreements. (12)**
10.10	Polymer Group, Inc. 2003 Stock Option Plan. (13)**
10.11	Polymer Group, Inc. 2003 Stock Option Plan Amendments. (14)**
10.12	Polymer Group, Inc. 2004 Restricted Stock Plan. (15)**
10.13	Polymer Group, Inc. 2005 Stock Option Plan. (16)*
10.14	Form of Stock Option Agreement for 2003 Plan. (17)**
10.15	Polymer Group, Inc. Short-Term Incentive Compensation Plan. (18)**
10.16	Polymer Group, Inc. 2005 Employee Restricted Stock Plan. (19)**
10.17	Form of Restricted Stock Award Agreement. (20)**
10.18	Termination Agreement dated May 8, 2006 between PGI Nonwovens B.V. and Mr. R. Altdorf. (21)**
10.19	Consulting Agreement dated May 8, 2006 between PGI Nonwovens B.V. and Mr. R. Altdorf. (22)
10.20	Severance Agreement dated October 31, 2006 between James L. Schaeffer and Polymer Group, Inc. (23)**
10.21	Separation Agreement dated November 7, 2006 between James Snyder and Polymer Group, Inc. (24)**
21	List of Subsidiaries of the Company.
23.1	Consent of Grant Thornton LLP, Independent Registered Public Accounting Firm.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

(1) Incorporated by reference to Exhibit 99.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 12, 2003.

(2) Incorporated by reference to Exhibit 4.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2005.

(3) Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 19, 2003.

100

(4) Incorporated by reference to Exhibit 4.7 of the Company’s Annual Report on Form 10-K filed with the SEC on March 29, 2005.

(5) Incorporated by reference to Exhibit 10.9 of the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2006.

(6) Incorporated by reference to Exhibit 10.10 of the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2006.

(7) Incorporated by reference to Exhibit 10.11 of the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2006.

(8) Incorporated by reference to Exhibit 10.12 of the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2006.

(9) Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 16, 2005.

(10) Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 11, 2006.

(11) Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 11, 2006.

(12) Incorporated by reference to Exhibit 10.3 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 11, 2006.

(13) Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 filed with the SEC on December 14, 2004.

(14) Incorporated by reference to Annex I of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 15, 2005.

(15) Incorporated by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-8 filed with the SEC on December 14, 2004.

(16) Incorporated by reference to Annex III of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 15, 2005.

(17) Incorporated by reference to Exhibit 4.4 of the Company’s Registration Statement on Form S-8 filed with the SEC on December 14, 2004.

(18) Incorporated by reference to Annex II of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 15, 2005.

(19) Incorporated by reference to Annex I of the Company’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 21, 2006.

(20) Incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on May 30, 2006.

(21) Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 15, 2006.

(22) Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 15, 2006.

(23) Incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2006.

(24) Incorporated by reference to Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 9, 2006.

*These agreements have been terminated and there are no remaining obligations pursuant thereto. These documents are filed as exhibits to this Annual Report on Form 10-K pursuant to Item 601(b)(10) of Regulation S-K which requires the filing of every material agreement that was entered into not more than two years before the filing of this Annual Report on Form 10-K.

**Management contract or compensatory plan or arrangement.

101

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

COLUMN A	COLUMN B			COLUMN C						COLUMN D			COLUMN E
				ADDITIONS						DEDUCTIONS
Description	Balance at beginning of period			Charged To costs and expenses			Charged to other accounts (Describe)			(Describe)			Balance at end of period
Fiscal Year ended December 30, 2006
Allowance for doubtful accounts		$	9,586		(523	)(1)		35	(2)		1,518	(3)		$	7,580
Valuation allowance for deferred tax assets		98,536			8,835			11,754	(2)(8)		1,698	(4)		117,427
Plant realignment		163			7,135			30			5,284	(5)		2,044
Fiscal Year ended December 31, 2005
Allowance for doubtful accounts		$	9,725		1,350			48	(2)		1,537	(3)		$	9,586
Valuation allowance for deferred tax assets		103,854			2,681			—			7,999	(2)(6)		98,536
Plant realignment		561			9			(32	)		375	(5)		163
Fiscal Year ended January 1, 2005
Allowance for doubtful accounts		$	13,570		(1,427	)(7)		869	(2)		3,287	(3)		$	9,725
Valuation allowance for deferred tax assets		100,751			3,103			—			—			103,854
Plant realignment		4,564			1,867			39			5,909	(5)		561

(1)Reserve adjustments of $1,232 net of current year provision of $709.

(2)Foreign currency translation adjustments.

(3)Uncollectible accounts written-off.

(4)Net reduction to goodwill.

(5)Cash payments and adjustments.

(6)Net reductions due to realizations of deferred tax assets.

(7)Reserve adjustments of $2,577, net of current year provision of $1,150.

(8)Recognition of additional deferred tax assets and valuation allowances related to temporary differences not impacting the Consolidated Statement of Operations and the true-up of deferred tax assets.

102

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:	/s/ Willis C. Moore, III
Date: March 14, 2007		Willis C. Moore, III Chief Financial Officer

Pursuant to the requirements 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 March 14, 2007.

	Signature		Title
/s/ William B. Hewitt		Chairman of the Board of Directors and Interim Chief Executive Officer
William B. Hewitt
/s/ Willis C. Moore, III		Chief Financial Officer
Willis C. Moore, III
/s/ Pedro A. Arias		Director
Pedro A. Arias
/s/ Ramon Betolaza		Director
Ramon Betolaza
/s/ Lap Wai Chan		Director
Lap Wai Chan
/s/ Eugene Linden		Director
Eugene Linden
/s/ James A. Ovenden		Director
James A. Ovenden
/s/ Mark Patterson		Director
Mark Patterson
/s/ Charles E. Volpe		Director
Charles E. Volpe

103

EX-10.6

Exhibit 10.6

AMENDMENT NO. 1 TO CREDIT AGREEMENT

AMENDMENT NO. 1 TO CREDIT AGREEMENT (this “Amendment”), dated as of December 8, 2006, of that certain Credit Agreement, dated as of November 22, 2005, (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Credit Agreement”) among Polymer Group, Inc., a Delaware corporation (the “Borrower”); the financial institutions listed on Schedule 2.01 thereto, as such Schedule may from time to time be supplemented and amended (the “Lenders”); Citicorp North America, Inc., as administrative agent (in such capacity, the “Administrative Agent”) for the Lenders, as documentation agent (in such capacity, the “Documentation Agent”), as syndication agent (in such capacity, the “Syndication Agent”) and as the Collateral Agent; and Citigroup Global Markets Inc. (“CGMI”), as sole lead arranger and sole bookrunner (in such capacity, the “Lead Arranger”).  Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.

W I T N E S S E T H:

WHEREAS, the Borrower desires to effectuate certain amendments to the Credit Agreement;

WHEREAS, pursuant to Section 9.08(b) of the Credit Agreement the consent of the Requisite Lenders is necessary to effect such amendments;

NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

SECTION ONE.  Amendments.

(a)           The definition of Consolidated EBITDA shall be amended by:  (i) replacing clause (d) thereof with the following, “(d) all unusual or non-recurring charges during such period”, (ii) deleting the words “not to exceed $25.0 million in the aggregate during the term of this Agreement” in clause (e) thereof, and (iii) replacing the clause “and minus, without duplication and to the extent included in determining Consolidated Net Income for such period, all non-recurring non-cash gains during such period” with “and minus, without duplication and to the extent included in determining Consolidated Net Income for such period, all unusual or non-recurring gains during such period”.

(b)           The definition of Excess Cash Flow, shall be amended by adding “, unusual” after the word “extraordinary” in each of clause (a)(ii) and (b)(iv) thereof.

(c)           Section 6.12 shall be amended and restated as follows:

SECTION 6.12               Interest Expense Coverage Ratio.  The Borrower will not permit the Interest Expense Coverage Ratio for any Test Period to be less than the ratio set forth below opposite the date set forth below which is closest to the last day of such Test Period:

Date	Ratio
December 31, 2005	2.50:1.00
March 31, 2006	2.50:1.00
June 30, 2006	2.50:1.00
September 30, 2006	2.50:1.00
December 31, 2006	2.50:1.00
March 31, 2007	2.50:1.00
June 30, 2007	2.50:1.00
September 30, 2007	2.50:1.00
December 31, 2007	2.50:1.00
March 31, 2008	2.75:1.00
June 30, 2008	2.75:1.00
September 30, 2008	2.75:1.00
December 31, 2008	2.75:1.00
March 31, 2009	3.00:1.00
June 30, 2009	3.00:1.00
September 30, 2009	3.00:1.00
December 31, 2009	3.00:1.00
March 31, 2010	3.25:1.00
June 30, 2010	3.25:1.00
September 30, 2010	3.25:1.00
December 31, 2010	3.25:1.00
March 31, 2011	3.25:1.00
June 30, 2011	3.25:1.00
September 30, 2011	3.25:1.00
December 31, 2011	3.25:1.00
March 31, 2012	3.25:1.00
June 30, 2012	3.25:1.00
September 30, 2012	3.25:1.00

(d)           Section 6.13 shall be amended and restated as follows:

SECTION 6.13               Total Leverage Ratio.  The Borrower will not permit the Total Leverage Ratio at the end of any Test Period to exceed the ratio set forth opposite the date set forth below which is closest to the last day of such Test Period:

Date	Ratio
December 31, 2005	4.50:1.00
March 31, 2006	4.50:1.00
June 30, 2006	4.50:1.00
September 30, 2006	4.50:1.00

2

Date	Ratio
December 31, 2006	4.50:1.00
March 31, 2007	4.50:1.00
June 30, 2007	4.50:1.00
September 30, 2007	4.50:1.00
December 31, 2007	4.50:1.00
March 31, 2008	4.00:1.00
June 30, 2008	4.00:1.00
September 30, 2008	4.00:1.00
December 31, 2008	4.00:1.00
March 31, 2009	3.50:1.00
June 30, 2009	3.50:1.00
September 30, 2009	3.50:1.00
December 31, 2009	3.50:1.00
March 31, 2010	3.00:1.00
June 30, 2010	3.00:1.00
September 30, 2010	3.00:1.00
December 31, 2010	3.00:1.00
March 31, 2011	3.00:1.00
June 30, 2011	3.00:1.00
September 30, 2011	3.00:1.00
December 31, 2011	3.00:1.00
March 31, 2012	3.00:1.00
June 30, 2012	3.00:1.00
September 30, 2012	3.00:1.00

SECTION TWO.  Representations and Warranties.  In order to induce the Requisite Lenders to enter into this Amendment, the Borrower hereby represents and warrants to the Agents and the Lenders that, after giving effect to this Amendment, (i) no Default or Event of Default has occurred and is continuing; and (ii) each of the representations and warranties in the Credit Agreement, after giving effect to this Amendment, is true and correct in all material respects (except that any representation and warranty that is qualified as to “materiality” or “Material Adverse Effect” shall be true and correct in all respects) on and as of the date hereof as if made on the date hereof, except to the extent that such representations and warranties expressly relate to an earlier date.  The Borrower further represents and warrants (which representations and warranties shall survive the execution and delivery hereof) to the Agent and the Lenders that:  (i) the Borrower has the corporate or other power and authority to execute, deliver and perform this Amendment and each has taken all corporate, partnership or comparable actions necessary to authorize the execution, delivery and performance of this Amendment and (ii) this Amendment has been duly executed and delivered by the Borrower.

SECTION THREE.  Conditions to Effectiveness.  This Amendment shall become effective as of the date (the “Effective Date”) when, and only when, (x) the Administrative

3

Agent shall have received:  counterparts of this Amendment executed by each of (i) the Borrower and (ii) the Requisite Lenders and (y) the Borrower has paid the fees (including the Amendment Fee) and expenses set forth in Section Five hereof.

SECTION FOUR.  Reference to and Effect on the Loan Documents.  On and after the Effective Date, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Credit Agreement, and each reference in the Notes and each of the other Loan Documents to “the Credit Agreement,” “thereunder,” “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended by this Amendment.  The Credit Agreement, the Notes and each of the other Loan Documents, as specifically amended by this Amendment, are and shall continue to be in full force and effect.  The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or any Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents.

SECTION FIVE.  Costs and Expenses.  The Borrower agrees to pay all reasonable out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution and delivery of this Amendment (including, without limitation, the reasonable fees and expenses of Cahill Gordon & Reindel LLP, counsel to the Lenders) in accordance with the terms of Section 9.05 of the Credit Agreement.  In the event the Requisite Lenders consent to this Amendment as contemplated in Section Three of this Amendment, the Borrower covenants to pay a cash fee (the “Amendment Fee”) on the Effective Date to each Lender that executes and delivers a signature page to this Amendment not later than 5:00 p.m. (New York time) on December 8, 2006 in an amount equal to 0.10% of the sum of (i) the aggregate amount of Term Loans then outstanding owing to such Lender plus (ii) the aggregate amount of the Revolving Credit Commitment of such Lender.  The Amendment Fee shall be paid by wire transfer of immediately available funds to the Administrative Agent and distributed by the Administrative Agent to the Lenders entitled thereto.

SECTION SIX.  Execution in Counterparts.  This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.  Delivery of an executed counterpart of a signature page to this Amendment by telecopier shall be effective as delivery of a manually executed counterpart of this Amendment.

SECTION SEVEN.  Governing Law.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.

[Signature Pages Follow]

4

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.

POLYMER GROUP, INC.,
as Borrower
By:	/s/ Dennis E. Norman
	Name:	Dennis E. Norman
	Title:	Vice President-Strategic Planning &
		Communication
CITICORP NORTH AMERICA, INC.,
as Administrative Agent and as Lender
By:	/s/ Suzanne Crymes
	Name:	Suzanne Crymes
	Title:	Vice President
ACA CLO 2006-1, LIMITED,
as a Lender
By:	/s/ Vincent Ingato
	Name:	Vincent Ingato
	Title:	Managing Director
MALIBU CBNA LOAN FUNDING LLC, for itself
or as agent for Malibu CFPI Loan Funding LLC,
as a Lender
By:	/s/ Roy Hykal
	Name:	Roy Hykal
	Title:	Attorney-in-Fact

S-1

PINEHURST TRADING INC.,
as a Lender
By:		/s/ L. Murchison Taylor
		Name:					L. Murchison Taylor
		Title:					Vice President
AIRLIE CLO 2006-1 LTD.,
as a Lender
By:		/s/ Brendan Driscoll
		Name:					Brendan Driscoll
		Title:					CFO
LANDMARK VI CDO LIMITED
By:			Aladdin Capital Management LLC, as
			Manager,
			as a Lender
				By:	/s/ Todd Murray
					Name:			Todd Murray
					Title:			Authorized Signatory
PACIFICA CDO III, LTD.
By:	/s/ Phil Otero
	Name:					Phil Otero
	Title:					Senior Vice President
PACIFICA CDO V, LTD.
By:	/s/ Phil Otero
	Name:					Phil Otero
	Title:					Senior Vice President

S-2

APIDOS CDO I,
as a Lender
By:	Its Investment Advisor,
	Apidos Capital Management, LLC
	By:	/s/ John W. Stelwagon
		Name:			John W. Stelwagon
		Title:			Managing Director
APIDOS CDO II,
as a Lender
By:	Its Investment Advisor,
	Apidos Capital Management, LLC
	By:	/s/ John W. Stelwagon
		Name:			John W. Stelwagon
		Title:			Managing Director
BANC OF MONTREAL,
as a Lender
By:	HIM                   , Inc., as Agent
	By:		/s/ G.W.
			Name:		G. W.
			Title:		Vice President
BLACK DIAMOND CLO 2005-2 LTD.
By:	Black Diamond Capital Management, L.L.C.,
	as its Collateral Manager
	as a Lender
By:	/s/ Stephen H. Deckoff
	Name:			Stephen H. Deckoff
	Title:			Managing Principal

S-3

BLACKROCK SENIOR INCOME SERIES
BLACKROCK SENIOR INCOME SERIES II
BLACKROCK SENIOR INCOME SERIES III
MERRILL LYNCH GLOBAL INVESTMENT
SERIES:  CORPORATE LOAN INCOME
PORTFOLIO
LONGHORN CDO III, LTD
MASTER SENIOR FLOATING RATE TRUST
SENIOR LOAN PORTFOLIO
as a Lender

By:	/s/ AnnMarie Smith
	Name:			AnnMarie Smith
	Title:			Authorized Signatory
CALLIDUS DEBT PARTNERS CLO FUND V,
LTD.
By:		Its Collateral Manager,
		Callidus Capital Management, LLC,
		as a Lender
By:	/s/ Peter R. Bennitt
	Name:			Peter R. Bennitt
	Title:			Principal
CALLIDUS DEBT PARTNERS CLO FUND IV,
LTD.
By:			Its Collateral Manager,
			Callidus Capital Management, LLC,
			as a Lender
By:	/s/ Peter R. Bennitt
	Name:			Peter R. Bennitt
	Title:			Principal

S-4

J.P. MORGAN TRUST COMPANY (CAYMAN)
LIMITED, as Trustee for TORAJI TRUST, as
Assignee/Participant
By:		Its Investment Manager,
		Citigroup Alternative Investments LLC,
		as a Lender
By:	/s/ Roger Yee
	Name:				Roger Yee
	Title:				Vice President
CITIGROUP          TRADING,
as a Lender
By:	/s/ James Wessel
	Name:				James Wessel
	Title:				Managing Director
CITIBANK, N.A.,
as a Lender
By:	/s/ Alicia Beal
	Name:				Alicia Beal
	Title:				Attorney-in-Fact
REGATTA FUNDING LTD.
By:			Citigroup Alternative Investments LLC,
			attorney-in-fact,
			as a Lender
			By:	/s/ Roger Yee
				Name:		Roger Yee
				Title:		Vice President

S-5

MADISON PARK FUNDING III, LTD.
CSAM FUNDING IV
CSAM FUNDING I
ATRIUM CDO
CSAM FUNDING II
MADISON PARK FUNDING II, LTD.
CASTLE GARDEN FUNDING
MADISON PARK FUNDING V, LTD.
as a Lender

By:	/s/ David H. Lerner
	Name:			David H. Lerner
	Title:			Authorized Signatory
CYPRESSTREE CLAIF FUNDING LLC,
as a Lender
By:	/s/ L. Murchison Taylor
	Name:			L. Murchison Taylor
	Title:			Vice President
HEWETT’S ISLAND CDO, LTD.
By:		CypressTree Investment Management
		Company, Inc., as Portfolio Manager
		By:	/s/ Martha Hadeler
			Name:		Martha Hadeler
			Title:		Managing Director
HEWETT’S ISLAND CLO III, LTD.
By:		CypressTree Investment Management
		Company, Inc., as Portfolio Manager
		By:	/s/ Martha Hadeler
			Name:		Martha Hadeler
			Title:		Managing Director

S-6

BRYN MAWR CLO, LTD.
By:	Deerfield Capital Management LLC, as its
	Collateral Manager,
	as a Lender
	By:	/s/ Scott Morrison
		Name:		Scott Morrison
		Title:		Senior Vice President
CUMBERLAND II CLO LTD.
By:	Deerfield Capital Management LLC, as its
	Collateral Manager,
	as a Lender
	By:	/s/ Scott Morrison
		Name:		Scott Morrison
		Title:		Senior Vice President
FOREST CREEK CLO, LTD.
By:	Deerfield Capital Management LLC, as its
	Collateral Manager,
	as a Lender
	By:	/s/ Scott Morrison
		Name:	Scott Morrison
		Title:	Senior Vice President

S-7

LONG GROVE CLO, LIMITED
By:	Deerfield Capital Management LLC, as its
	Collateral Manager,
	as a Lender
	By:	/s/ Scott Morrison
		Name:	Scott Morrison
		Title:	Senior Vice President
BRIDGEPORT CLO LTD.
By:	Deerfield Capital Management LLC, as its
	Collateral Manager,
	as a Lender
	By:	/s/ Scott Morrison
		Name:	Scott Morrison
		Title:	Senior Vice President
SCHILLER PARK CLO LTD
By:	Deerfield Capital Management LLC, as its
	Collateral Manager,
	as a Lender
	By:	/s/ Scott Morrison
		Name:	Scott Morrison
		Title:	Senior Vice President

S-8

MARKET SQUARE CLO, LTD.
By:	Deerfield Capital Management LLC, as its
	Collateral Manager,
	as a Lender
	By:	/s/ Scott Morrison
		Name:		Scott Morrison
		Title:		Senior Vice President
MARQUETTE PARK CLO LTD.
By:	Deerfield Capital Management LLC, as its
	Collateral Manager,
	as a Lender
	By:	/s/ Scott Morrison
		Name:		Scott Morrison
		Title:		Senior Vice President
MUIRFIELD TRADING LLC,
as a Lender
By:	/s/ L. Murchison Taylor
	Name:		L. Murchison Taylor
	Title:		Vice President

S-9

ROSEMONT CLO, LTD.
By:		Deerfield Capital Management LLC, as its
		Collateral Manager,
		as a Lender
		By:			/s/ Scott Morrison
					Name:			Scott Morrison
					Title:			Senior Vice President
DUANE STREET CLO I, LTD.
By:		DiMaio Ahmad Capital LLC, as Collateral
		Manager,
		as a Lender
		By:		/s/ Paul Travers
				Name:				Paul Travers
				Title:				Managing Director
DUANE STREET CLO II, LTD.
By:		DiMaio Ahmad Capital LLC, as Collateral
		Manager,
		as a Lender
		By:	/s/ Paul Travers
			Name:				Paul Travers
			Title:				Managing Director
EMERSON PLACE CLO, LTD,
as a Lender
By:	/s/ Andrea S. Feingold
	Name:					Andrea S. Feingold
	Title:					Director

S-10

AVERY STREET CLO, LTD,
as a Lender
By:	/s/ Andrea S. Feingold
	Name:			Andrea S. Feingold
	Title:			Director
FENWAY CAPITAL LLC,
as a Lender
By:	/s/ Vidrik Frankfather
	Name:			Vidrik Frankfather
	Title:			Vice President
NANTUCKET CLO I LTD
By:		Fortis Investment Management USA, Inc.,
		as Attorney-in-Fact,
		as a Lender
		By:	/s/ Jeffrey Meane
			Name:		Jeffrey Meane
			Title:		Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION, as Administrator for GE
Commercial Loan Holding LLC,
as a Lender
By:	/s/ Robert M. Kadlick
	Name:			Robert M. Kadlick
	Title:			Duly Authorized Signatory

S-11

GENERAL ELECTRIC CAPITAL
CORPORATION, as Administrator for GE CFS
Loan 2006-2 LLC,
as a Lender
By:	/s/ Robert M. Kadlick
	Name:	Robert M. Kadlick
	Title:	Duly Authorized Signatory
GENERAL ELECTRIC CAPITAL
CORPORATION,
as a Lender
By:	/s/ Robert M. Kadlick
	Name:	Robert M. Kadlick
	Title:	Duly Authorized Signatory
GENERAL ELECTRIC CAPITAL
CORPORATION, as Administrator for GE CFS
Loan Holding 2006-3 LLC,
as a Lender
By:	/s/ Robert M. Kadlick
	Name:	Robert M. Kadlick
	Title:	Duly Authorized Signatory
GOLDMAN SACHS CREDIT PARTNERS, L.P.,
as a Lender
By:	/s/ Phillip F. Green
	Name:	Phillip F. Green
	Title:	Authorized Signatory

S-12

GULF STREAM-COMPASS CLO 2005-II LTD
By:		Gulf Stream Asset Management, LLC, as
		Collateral Manager,
		as a Lender
		By:	/s/ Mark D. Abrahm
			Name:		Mark D. Abrahm
HALCYON STRUCTURED ASSET
MANAGEMENT LONG SECURED/SHORT
UNSECURED CLO 2006-1 LTD,
as a Lender
By:	/s/ James W. Sykes
	Name:			James W. Sykes
	Title:			Managing Principal
HALCYON STRUCTURED ASSET
MANAGEMENT CLO I LTD.,
as a Lender
By:	/s/ James W. Sykes
	Name:			James W. Sykes
	Title:			Managing Principal
JKB CAPITAL CORPORATION
as a Lender
By:	/s/ David Snyder
	Name:			David Snyder
	Title:			President

S-13

ING SENIOR INCOME FUND				ING INVESTMENT MANAGEMENT CLO I,
				LTD
By:	ING Investment Management Co., as its
	Investment Manager			By:	Investment Management Co., as its
					Investment Manager
	By:	/s/ Charles E. LeMieux			By:	/s/ Charles E. LeMieux
		Name:	Charles E. LeMieux, CFA			Name:	Charles E. LeMieux, CFA
		Title:	Vice President			Title:	Vice President
ING INTERNATIONAL (II) – SENIOR				ING INVESTMENT MANAGEMENT CLO
BANK LOANS EURO				II, LTD
By:	ING Investment Management Co., as its			By:	ING Alternative Asset Management
	Investment Manager				LLC, as its Investment Manager
	By:	/s/ Charles E. LeMieux			By:	/s/ Charles E. LeMieux
		Name:	Charles E. LeMieux, CFA			Name:	Charles E. LeMieux, CFA
		Title:	Vice President			Title:	Vice President
ING PRIME RATE TRUST				ING INVESTMENT MANAGEMENT CLO
				III, LTD
By:	ING Investment Management Co., as its
	Investment Manager			By:	ING Alternative Asset Management
					LLC, as its Investment Manager
	By:	/s/ Charles E. LeMieux			By:	/s/ Charles E. LeMieux
		Name:	Charles E. LeMieux, CFA			Name:	Charles E. LeMieux, CFA
		Title:	Vice President			Title:	Vice President

S-14

BALLYROCK CLO III LIMITED
By:		BALLYROCK Investment Advisors LLC,
		as Collateral Manager,
		as a Lender
		By:	/s/ Lisa Rymut
			Name:		Lisa Rymut
			Title:		Assistant Treasurer
KILZ LOAN FUNDING LLC,
as a Lender
By:	/s/
	Name:
	Title:
GOF LOAN FUNDING LLC,
as a Lender
By:	/s/ Roy Hykal
	Name:			Roy Hykal
	Title:			Attorney-in-Fact
GRAND CENTRAL ASSET TRUST, EAP
SERIES,
as a Lender
By:	/s/ Roy Hykal
	Name:			Roy Hykal
	Title:			Attorney-in-Fact

S-15

GRAND CENTRAL ASSET TRUST, ECL
SERIES,
as a Lender
By:		/s/ Roy Hykal
		Name:			Roy Hykal
		Title:			Attorney-in-Fact
CONFLUENT 4 LIMITED,
as a Lender
By:		Loomis, Sayles & Company, L.P.,
		as Sub-Manager
By:	Loomis, Sayles & Company, Incorporated, its
	General Partner
	By:		/s/ Kevin J. Perry
			Name:			Kevin J. Perry
			Title:			Vice President
IXIS LOOMIS SAYLES SENIOR LOAN FUND,
as a Lender
By:	Loomis, Sayles and Company, L.P., its
	Manager
By:	Loomis, Sayles and Company, Inc., its
	General Partner
By:	/s/ Kevin J. Perry
	Name:			Kevin J. Perry
	Title:			Vice President

S-16

LOOMIS SAYLES CLO I, LTD., as a Lender
By:	Loomis, Sayles and Company, L.P., its Collateral Manager
By:	Loomis, Sayles and Company, Inc., its General Partner
	By:	/s/ Kevin P. Charleston
		Name:	Kevin P. Charleston
		Title:	Executive Vice President
THE LOOMIS SAYLES SENIOR LOAN FUND II LLC, as a Lender
By:	Loomis, Sayles & Company, L.P., its
	Managing Member
By:	Loomis, Sayles & Company, Inc., its General
	Partner
	By:	/s/ Kevin J. Perry
		Name:	Kevin J. Perry
		Title:	Vice President
THE LOOMIS SAYLES SENIOR LOAN FUND, LLC, as a Lender
By:	Loomis, Sayles and Company, L.P., its
	Manager
By:	Loomis, Sayles and Company, Inc., its
	General Partner
	By:	/s/ Kevin J. Perry
		Name:	Kevin J. Perry
		Title:	Vice President

S-17

LATITUDE CLO II LTD.,
as a Lender
By:	/s/ Kirk Wallace
	Name:		Kirk Wallace
	Title:		Vice President
VENTURE III CDO LIMITED
By:	Its Investment Advisor, MJX Asset
	Management LLC,
	as a Lender
	By:	/s/ Martin Davey
		Name:		Martin Davey
		Title:		Managing Director
VENTURE VII CDO LIMITED
By:	Its Investment Advisor, MJX Asset
	Management LLC,
	as a Lender
	By:	/s/ Martin Davey
		Name:		Martin Davey
		Title:		Managing Director
VENTURE IV CDO LIMITED
By:	Its Investment Advisor, MJX Asset
	Management LLC,
	as a Lender
	By:	/s/ Martin Davey
		Name:		Martin Davey
		Title:		Managing Director

S-18

VENTURE V CDO LIMITED
By:	Its Investment Advisor, MJX Asset
	Management LLC,
	as a Lender
	By:	/s/ Martin Davey
		Name:	Martin Davey
		Title:	Managing Director
CONFLUENT 3 LIMITED
By:	Morgan Stanley Investment Management,
	Inc., as Investment Manager,
	as a Lender
	By:	/s/ Jinny K. Kim
		Name:	Jinny K. Kim
		Title:	Executive Director
QUALCOMM GLOBAL TRADING, INC.
By:	Morgan Stanley Investment Management,
	Inc., as Investment Manager,
	as a Lender
	By:	/s/ Jinny K. Kim
		Name:	Jinny K. Kim
		Title:	Executive Director

S-19

MSIM CROTON, LTD.
By:	Morgan Stanley Investment Management,
	Inc., as Collateral Manager,
	as a Lender
	By:		/s/ Kevin Elon
			Name:		Kevin Elon
			Title:		Executive Director
MORGAN STANLEY PRIME INCOME TRUST,
as a Lender
By:		/s/ Jinny K. Kim
		Name:		Jinny K. Kim
		Title:		Executive Director
PPM GRAYHAWK CLO, LTD.
By:	PPM America, Inc., as Collateral Manager,
	as a Lender
	By:		/s/ Chris Kappas
			Name:		Chris Kappas
			Title:		Managing Director
PPM SHADOW CREEK FUNDING LLC,
as a Lender
By:		/s/ L. Murchison Taylor
		Name:		L. Murchison Taylor
		Title:		Vice President

S-20

SERVES 2006-1, LTD.,
as a Lender
By:	PPM America, Inc., as Collateral Manager
	By:	/s/ Chris Kappas
		Name:	Chris Kappas
		Title:	Managing Director
CENT CDO 10, LTD.
By:	RiverSource Investments, LLC, as Collateral Manager,
	as a Lender
	By:	/s/ Robin C. Stancil
		Name:	Robin C. Stancil
		Title:	Director of Operations
CENT CDO XI, LIMITED
By:	RiverSource Investments, LLC, as Collateral Manager,
	as a Lender
	By:	/s/ Robin C. Stancil
		Name:	Robin C. Stancil
		Title:	Director of Operations

S-21

CENTURION CDO 8, LIMITED
By:	RiverSource Investments, LLC, as Collateral Manager,
	as a Lender
	By:	/s/ Robin C. Stancil
		Name:	Robin C. Stancil
		Title:	Director of Operations
	CENTURION CDO 9, LTD.
	By:	RiverSource Investments, LLC, as Collateral Manager, as a Lender
	By:	/s/ Robin C. Stancil
		Name:	Robin C. Stancil
		Title:	Director of Operations
CENTURION CDO VI, LTD.
By:	RiverSource Investments, LLC, as Collateral Manager,
	as a Lender
	By:	/s/ Robin C. Stancil
		Name:	Robin C. Stancil
		Title:	Director of Operations

S-22

CENTURION CDO VII, LTD.
By:		RiverSource Investments, LLC, as Collateral Manager,
		as a Lender
		By:	/s/ Robin C. Stancil
			Name:		Robin C. Stancil
			Title:		Director of Operations
SEQUILS-CENTURION V, LTD.
By:		RiverSource Investments, LLC, as Collateral Manager, as a Lender
		By:	/s/ Robin C. Stancil
			Name:		Robin C. Stancil
			Title:		Director of Operations
RZB FINANCE LLC
By:	/s/ John A. Valiska
	Name:			John A. Valiska
	Title:			First Vice President
By:	/s/ Christoph Hoedl
	Name:			Christoph Hoedl
	Title:			Group Vice President

S-23

STONE TOWER CLO III LTD.
By:	Stone Tower Debt Advisors LLC, as its Collateral Manager, as a Lender
	By:	/s/ Michael W. Delpercio
		Name:	Michael W. Delpercio
		Title:	Authorized Signatory
STONE TOWER CLO IV LTD.
By:	Stone Tower Debt Advisors LLC, as its Collateral Manager, as a Lender
	By:	/s/ Michael W. Delpercio
		Name:	Michael W. Delpercio
		Title:	Authorized Signatory
RAMPART CLO I LTD.
By:	Stone Tower Debt Advisors LLC, as its Collateral Manager, as a Lender
	By:	/s/ Michael W. Delpercio
		Name:	Michael W. Delpercio
		Title:	Authorized Signatory

S-24

STONE TOWER CLO V LTD.
By:		Stone Tower Debt Advisors LLC, as its Collateral Manager, as a Lender
		By:	/s/ Michael W. Delpercio
			Name:	Michael W. Delpercio
			Title:	Authorized Signatory
STONE TOWER CREDIT FUNDING I LTD.
By:		Stone Tower Fund Management LLC, as its Collateral Manager, as a Lender
		By:	/s/ Michael W. Delpercio
			Name:	Michael W. Delpercio
			Title:	Authorized Signatory
THE SUMITOMO TRUST & BANKING CO.,
LTD., as a Lender
By:	/s/ Elizabeth A. Quirk
	Name:  Elizabeth A. Quirk
	Title:    Vice President
TRIMARAN CLO IV LTD
By:		Trimaran Advisors, L.L.C.,
		as a Lender
		By:	/s/ David M. Millison
			Name:	David M. Millison
			Title:	Managing Director

S-25

TRIMARAN CLO V LTD
By:	Trimaran Advisors, L.L.C.,
	as a Lender
	By:	/s/ David M. Millison
		Name:	David M. Millison
		Title:	Managing Director
WB LOAN FUNDING 5, LLC,
as a Lender
By:	/s/ Diana M. Himes
	Name:		Diana M. Himes
	Title:		Associate
WEBSTER BANK, NATIONAL ASSOCIATION,
as a Lender
By:	/s/ Hans Jung
	Name:		Hans Jung
	Title:		Vice President
WHITEHORSE I, LTD.
By:	WhiteHorse Capital Partners L.P.,
	as a Lender
	By:	/s/ Ethan Underwood
		Name:	Ethan Underwood
		Title:	Manager

S-26

EX-21

Exhibit 21

POLYMER GROUP, INC.

LIST OF SUBSIDIARIES OF THE COMPANY

The following comprises a list of the subsidiaries of the Company as of December 30, 2006:

Albuma S.A.S.

Bonlam (S.C.), Inc.

Bonlam Andina Ltd.

Bonlam Holdings BV

Bonlam S.A. de C.V.

Chicopee Holdings B.V.

Chicopee Holdings CV

Chicopee, Inc.

DIFCO Performance Fabrics, Inc.

Dominion Nonwovens Sudamerica, S.A.

Dominion Textile (USA) Inc.

Dominion Textile Mauritius Inc.

Dominion Textile, Inc.

DT Acquisition Inc.

FabPro Oriented Polymers, Inc.

Fabrene Corp.

Fabrene, Inc.

FiberGol Corporation

FiberTech Group, Inc.

FNA Acquisition, Inc.

FNA Polymer Corp.

Geca Tapes B.V.

Geca-Tapes PTE LTD

Nanhai Nanxin Non-Wovens Co. Ltd.

Nordlys SAS

PGI Europe, Inc.

PGI Holdings BV

PGI Neunkirchen GmbH

PGI Nonwoven (Foshan) Co. Ltd.

PGI Nonwoven Ltd.

PGI Nonwovens (China) Co. Ltd.

PGI Nonwovens A.B.

PGI Nonwovens BV

PGI Nonwovens Mauritius Ltd.

PGI Polymer, Inc.

PNA Corp.

Poly-Bond Inc.

Polyionix Separation Technologies, Inc.

Pristine Brands Corporation

Technetics Group, Inc.

EX-23.1

Exhibit 23.1

CONSENT OF GRANT THORNTON LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have issued our reports dated March 13, 2007, accompanying the consolidated financial statements and schedule (which report expressed an unqualified opinion and contains an explanatory paragraph relating to the adoption of Financial Accounting Standards Board (FASB) Statement No. 123 (revised 2004), “Share-Based Payment,” and FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”) and management’s assessment of the effectiveness of internal control over financial reporting included in the Annual Report of Polymer Group, Inc. on Form 10-K for the fiscal year ended December 30, 2006. We hereby consent to the incorporation by reference of said reports in the Registration Statements of Polymer Group, Inc. on Forms S-8 (File No. 333-131156, effective January 20, 2006, File No. 333-121252, effective December 14, 2004 and File No. 333-121254, effective December 14, 2004).

/s/  GRANT THORNTON LLP

Columbia, South Carolina

March 13, 2007

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William B. Hewitt, certify that:

1.I have reviewed this Annual Report on Form 10-K of Polymer Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2007	/s/ William B. Hewitt
	William B. Hewitt
	Interim Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Willis C. Moore, III, certify that:

1.I have reviewed this Annual Report on Form 10-K of Polymer Group, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 14, 2007	/s/ Willis C. Moore, III
	Willis C. Moore, III
	Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Certification Pursuant To 18 U.S.C. Section 1350

In connection with the Annual Report of Polymer Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William B. Hewitt, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2007	/s/ William B. Hewitt
	William B. Hewitt Interim Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

EXHIBIT 32.2

Certification Pursuant To 18 U.S.C. Section 1350

In connection with the Annual Report of Polymer Group, Inc. (the “Company”) on Form 10-K for the fiscal year ended December 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Willis C. Moore, III, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 14, 2007	/s/ Willis C. Moore, III
	Willis C. Moore, III Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.