ITEM 1. FINANCIAL STATEMENTS

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

	Restated
	April 2, 2005				January 1, 2005
ASSETS
Current assets:
Cash and cash equivalents		$	21,618			$	41,296
Accounts receivable, net		132,893				112,286
Inventories		112,466				106,349
Deferred income taxes		233				226
Other current assets		39,995				37,140
Total current assets		307,205				297,297
Property, plant and equipment, net		395,858				402,603
Intangibles and loan acquisition costs, net		47,340				48,819
Deferred income taxes		1,470				1,489
Other assets		5,083				3,145
Total assets		$	756,956			$	753,353
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings		$	6,574			$	6,981
Accounts payable		61,683				63,773
Accrued liabilities		38,983				33,365
Income taxes payable		6,992				2,427
Current portion of long-term debt		3,019				3,413
Total current liabilities		117,251				109,959
Long-term debt		402,806				403,560
Deferred income taxes		64,546				65,468
Other noncurrent liabilities		21,537				27,319
Total liabilities		606,140				606,306
Minority interests		15,557				14,912
16% Series A convertible pay-in-kind preferred shares—58,251 and 52,716 shares issued and outstanding at April 2, 2005 and January 1, 2005		60,639				58,286
Shareholders’ equity:
Class A common stock—10,214,399 and 10,130,477 shares issued and outstanding at April 2, 2005 and January 1, 2005, respectively		101				101
Class B convertible common stock—176,826 and 193,390 shares issued and outstanding at April 2, 2005 and January 1, 2005, respectively		2				2
Class C convertible common stock—33,402 and 54,194 shares issued and outstanding at April 2, 2005 and January 1, 2005, respectively		1				1
Class D convertible common stock—0 shares issued and outstanding		—				—
Class E convertible common stock—0 shares issued and outstanding		—				—
Additional paid-in capital		86,128				77,219
Retained earnings (deficit)		(39,505		)		(33,820		)
Accumulated other comprehensive income		27,893				30,346
Total shareholders’ equity		74,620				73,849
Total liabilities and shareholders’ equity		$	756,956			$	753,353

See Accompanying Notes.

POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended April 2, 2005 and April 3, 2004
(In Thousands, Except Per Share Data)

	Restated
	Three Months Ended April 2, 2005				Three Months Ended April 3, 2004
Net sales		$	244,361			$	206,242
Cost of goods sold		200,444				168,266
Gross profit		43,917				37,976
Selling, general and administrative expenses		27,467				26,633
Plant realignment costs		4				584
Operating income		16,446				10,759
Other expense (income):
Interest expense, net		7,866				15,177
Minority interests		934				482
Foreign currency and other		(315		)		1,385
Income (loss) before income tax expense		7,961				(6,285		)
Income tax expense		2,795				2,485
Net income (loss)		5,166				(8,770		)
Accrued and paid-in-kind dividends on PIK preferred shares		10,851				—
Loss applicable to common shareholders		$	(5,685	)		$	(8,770	)
Loss per common share:
Basic		$	(0.55	)		$	(1.00	)
Diluted		$	(0.55	)		$	(1.00	)

See Accompanying Notes.

POLYMER GROUP, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’
EQUITY AND COMPREHENSIVE INCOME (LOSS) (Unaudited)

For the Three Months Ended April 2, 2005

(In Thousands)

	Common Stock			Additional Paid-in Capital			Retained Earnings/ (Deficit)			Accumulated Other Comprehensive Income/ (Loss)				Total			Comprehensive Income/(Loss)
Balance, January 1, 2005, audited		$	104		$	77,219	$	(33,820	)		$	30,346		$	73,849
Net income		—			—		5,166				—			5,166				$	5,166
Accrued and paid-in-kind dividends on PIK preferred shares		—			8,493		(10,851		)		—			(2,358		)		—
Currency translation adjustment		—			—		—				(4,123		)	(4,123		)		(4,123		)
Cash flow hedge adjustment, net of reclassification adjustment		—			—		—				1,670			1,670				1,670
Compensation recognized on stock options and restricted stock grants		—			411		—				—			411				—
Conversion of PIK preferred shares to Class A common stock		—			5		—				—			5				—
Balance, April 2, 2005, as restated		$	104		$	86,128	$	(39,505	)		$	27,893		$	74,620			$	2,713

See Accompanying Notes.

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

	Three Months Ended April 2, 2005				Three Months Ended April 3, 2004
Operating activities:
Net income (loss)		$	5,166			$	(8,770	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Deferred income taxes		1,545				(1,729		)
Depreciation and amortization		13,663				13,155
Noncash interest and compensation		411				1,104
Changes in operating assets and liabilities:
Accounts receivable, net		(22,592		)		(7,193		)
Inventories		(7,725		)		(6,835		)
Other current assets		(3,210		)		(163		)
Accounts payable and accrued liabilities		1,950				2,737
Other, net		2,770				650
Net cash provided by (used in) operating activities		(8,022		)		(7,044		)
Investing activities:
Purchases of property, plant and equipment		(10,095		)		(4,504		)
Proceeds from sale of assets		354				783
Net cash provided by (used in) investing activities		(9,741		)		(3,721		)
Financing activities:
Proceeds from issuance of debt		744				18,500
Repayment of debt		(2,299		)		(13,803		)
Loan acquisition costs and other		(15		)		—
Net cash provided by (used in) financing activities		(1,570		)		4,697
Effect of exchange rate changes on cash		(345		)		(102		)
Net increase (decrease) in cash and cash equivalents		(19,678		)		(6,170		)
Cash and cash equivalents at beginning of period		41,296				21,336
Cash and cash equivalents at end of period		$	21,618			$	15,166

See Accompanying Notes.

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements

Note 1. Principles of Consolidation and Financial Statement Information

Principles of Consolidation

Polymer Group, Inc. (the “Company”) is a publicly-traded, multinational manufacturer, marketer and seller of nonwoven and oriented polyolefin products. The Company’s main sources of revenue are the sales of primary and intermediate products to the medical, hygiene, wipes and industrial and specialty markets.

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 three months or less prior to the dates of the consolidated balance sheets. All amounts are presented in U.S. dollars, unless otherwise noted.

The accompanying unaudited interim Consolidated Financial Statements and related notes should be read in conjunction with the Consolidated Financial Statements of the Company and related notes as contained in the Annual Report on Form 10-K for the period ended January 1, 2005. In the judgment of management, these unaudited interim Consolidated Financial Statements include all adjustments of a normal recurring nature and accruals necessary for a fair presentation of such statements. The Consolidated Balance Sheet data included herein as of January 1, 2005 has been derived from the audited financial statements included in the Company’s Annual Report on Form 10-K.

Restatement of Results for the Three Months Ended April 2, 2005

On January 14, 2005, pursuant to the terms of the Company’s PIK Preferred Shares, PGI’s Board of Directors declared a dividend payable in the form of 5,540 PIK Preferred Shares. The dividends were paid on January 21, 2005 to holders of record as of May 15, 2004 and December 15, 2004, for accrued and unpaid dividends from the dates of issuance of the PIK Preferred Shares through December 31, 2004. The stated amount of the dividend at 16% annually was accrued by the Company during 2004.

The Audit Committee of the Board of Directors, in consultation with management of the Company and the Company’s independent registered public accounting firm, has recently concluded that its Consolidated Statement of Operations for the three months ended April 2, 2005 should be restated to reflect the dividend paid-in-kind through the issuance of 5,540 PIK Preferred Shares at the estimated fair value of the shares issued rather than the stated amount of the dividend. The estimated fair value of the shares issued exceeded the stated amount that was previously accrued.

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

PIK Preferred Shares, the Company has restated herein its Consolidated Statement of Operations for the three months ended April 2, 2005 to reflect the paid-in-kind dividends at the estimated fair value of the underlying securities in excess of the amounts previously accrued, with such excess amounting to approximately $8.5 million. Amounts originally reported for the three months ended April 2, 2005, and the related restated amounts, are as follows (in thousands, except per share amounts):

	Three Months Ended April 2, 2005
	Originally Reported				As Restated
Net income		$	5,166			$	5,166
Accrued and paid-in-kind dividends on PIK preferred shares		2,358				10,851
Income (loss) applicable to common shareholders		2,808				(5,685		)
Income (loss) per common share:
Basic		0.27				(0.55		)
Diluted		0.27				(0.55		)
Additional paid-in capital		77,635				86,128
Retained earnings (deficit)		(31,012		)		(39,505		)
Total shareholders’ equity		74,620				74,620

Reclassification

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

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.

Accumulated Other Comprehensive Income

Accumulated other comprehensive income of $27.9 million at April 2, 2005 consisted of $25.4 million of currency translation gains, $2.0 million of cash flow hedge gains and $0.5 million in minimum pension liability gains, all net of tax. Accumulated other comprehensive income of $30.3 million at January 1, 2005 consisted of $29.5 million of currency translation gains, $0.3 million of cash flow hedge gains and $0.5 million in minimum pension liability gains, all net of tax.

New Accounting Pronouncements

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

signed into law on December 8, 2003. The Act introduced a prescription drug benefit under Medicare and federal subsidies to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to that of Medicare. As permitted under FSP 106-2, the Company made a one-time election to defer accounting for the effect of the Act and as more fully explained in Note 9 to the Consolidated Financial Statements, in December 2004 the Company approved plan amendments curtailing or eliminating various postretirement benefits in the U.S. As a result, the amounts included in the Consolidated Financial Statements related to the Company’s postretirement benefit plans do not reflect the effects of the Act.

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (“SFAS No. 151”). This statement amends earlier guidance to require that abnormal freight, handling and spoilage costs be recognized as current-period charges rather than capitalized as an inventory cost. In addition, SFAS No. 151 requires that the allocation of fixed production overhead costs be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is currently analyzing the new guidance and does not expect it to have a material impact on its financial position or results of operations.

In December 2004, the FASB issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation.” The revision, entitled SFAS No. 123R, “Share-Based Payment,” is effective for all awards granted, modified, repurchased or canceled after June 15, 2005 and requires a public entity to initially measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and to remeasure the fair value of that award subsequently at each reporting date. Changes in the fair value during the requisite service period will be recognized as compensation cost over the period. The grant date fair value is to be estimated using option-pricing models adjusted for the unique characteristics of those instruments.

Note 2. Concentration of Credit Risks and Accounts Receivable Securitization Agreements

Accounts receivable potentially expose the Company to 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.” Sales to the Procter & Gamble Company (“P&G”) accounted for approximately 12% of the Company’s sales in the first quarter of both 2005 and 2004. 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. The allowance for doubtful accounts was approximately $10.4 million and $10.9 million at April 2, 2005 and January 1, 2005, respectively, which management believes is adequate to provide for credit loss in the normal course of business, as well as losses for customers who have filed for protection under 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.

On November 15, 2004, the Company entered into a factoring agreement to sell without recourse, certain receivables to an unrelated third-party financial institution. Under the terms of the factoring agreement, the maximum amount of outstanding advances for the purchase of domestic receivables at any one time is $15.0 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. During the first quarter of 2005, approximately $31.4 million of receivables had been

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

sold under the terms of the factoring agreement. 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 a gain or loss is reflected in the Consolidated Statements of Operations on such sale, 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 company, net of advances received from the factoring company, was $5.6 million and $7.4 million at April 2, 2005 and January 1, 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. Costs related to this program for the first quarter of 2005 were $0.2 million and are included in Other expense, net in the Consolidated Statement of Operations.

Note 3. Business Restructuring

The Company continued its restructuring initiatives in 2004 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.

Accrued costs for restructuring efforts are included in Accrued liabilities in the Consolidated Balance Sheets. A summary of the business restructuring activity during the first three months of fiscal 2005 is presented in the following table (in thousands):

Balance accrued at beginning of year	$	561
2005 plant realignment costs	4
Cash payments	(322		)
Adjustments	(3		)
Balance accrued at end of period	$	240

Note 4. Inventories

Inventories are stated at the lower of cost or market primarily using the first-in, first-out method of accounting and consist of the following (in thousands):

	April 2, 2005			January 1, 2005
Finished goods		$	50,639	$	48,891
Work in process		19,001		15,612
Raw materials		42,826		41,846
		$	112,466	$	106,349

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

Note 5. Intangibles and Loan Acquisition Costs

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

	April 2,			January 1,
	2005			2005
Cost:
Proprietary technology	$	26,604			$	26,604
Goodwill	15,632				15,632
Loan acquisition costs and other	18,842				18,759
	61,078				60,995
Less accumulated amortization	(13,738		)		(12,176		)
	$	47,340			$	48,819

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

	Three Month Ended April 2, 2005		Three Month Ended April 3, 2004
Amortization of:
Intangibles with finite lives, included in selling, general and administrative expenses	$	1,058	$	1,453
Loan acquisition costs included in interest expense, net	504		472
Total amortization expense	$	1,562	$	1,925

Intangibles are amortized over periods ranging from 2 to 7 years. Loan acquisition costs are amortized over the life of the related debt.

Note 6. Accrued Liabilities

Accrued liabilities in the Consolidated Balance Sheets include salaries, wages and other fringe benefits of $19.3 million and $20.4 million as of April 2, 2005 and January 1, 2005, respectively.

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

Note 7. Debt

Long-term debt consists of the following (in thousands):

	April 2,				January 1,
	2005				2005
Senior Secured Bank Facility, interest rates for U.S. dollar 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 6.34% as of April 2, 2005; due in quarterly payments of $750.0 thousand, with the balance due April 27, 2010		$	280,750		$	281,500
Second Lien Term Loan—interest at 9.34% as of April 2, 2005; due April 27, 2011		125,000			125,000
Other		75			473
		405,825			406,973
Less: Current maturities		(3,019		)	(3,413		)
		$	402,806		$	403,560

Senior Secured Bank Facility

The Company’s Senior Secured Bank Facility (the “Bank Facility”), which was entered into on April 27, 2004, consists of a $50.0 million secured revolving credit facility, a $300.0 million senior secured first lien term loan and a $125.0 million senior secured second lien term loan. The proceeds therefrom were used to fully repay indebtedness under the Company’s previous Restructured Credit Facility and pay related fees and expenses.

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

All borrowings under the Bank Facility are U.S. dollar denominated and are guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company and supported by the pledge of stock of certain non-domestic subsidiaries of the Company. The Bank 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 Bank Facility are equal to 0.50% of the daily unused amount of the revolving credit commitment. The Bank Facility limits restricted payments to $5.0 million, including cash dividends on all securities, in the aggregate since the effective date of the Bank Facility. The Bank Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. At April 2, 2005, the Company was in compliance with all such covenants and expects to remain in compliance through fiscal 2005.

The loan requires the Company to apply a percentage of proceeds from excess cash flows, as defined by the Bank Facility and determined based on year-end results, to reduce its then outstanding balances under the Bank Facility. Excess cash flows required to be applied to the repayment of the Bank 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 other certain items. Since the amounts of excess cash flows for future periods are based on year-end data not determinable, only the mandatory payments of $750.0 thousand per quarter have been classified as a current liability. Additionally, no excess cash flow payment was required to be made with respect to fiscal 2004 and, due to the planned magnitude of the major capital expenditures for 2005, any excess cash flow requirement with respect to 2005 is not expected to be significant.

The interest rate applicable to borrowings under the Bank Facility is based on three-month LIBOR plus a specified margin. The applicable margin for borrowings under the revolving credit facility is 300 basis points, the margin for the first lien term loan is 325 basis points and the margin for the second-lien term loan is 625 basis points. Although not anticipated, the Company may elect to use an alternate base rate for its borrowings under the revolving credit facility ranging from 2.25% to 6.25% with such alternate base rates including a margin based on the Company’s total leverage ratio. The Company had no outstanding borrowings under the revolving credit facility at either April 2, 2005 or January 1, 2005. The revolving portion of the Bank Facility matures on April 27, 2009.

As required by the terms of the Bank Facility, the Company entered into a cash flow hedge agreement, 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 and is described more fully in Note 12 to the Consolidated Financial Statements.

Subject to certain terms and conditions, a maximum of $20.0 million of the Bank Facility may be used for revolving letters of credit. As of April 2, 2005, the Company had $13.5 million of standby and documentary letters of credit outstanding under this facility. Approximately $7.1 million was related to the requirements of the short-term borrowing arrangements of the Company’s China-based majority owned subsidiary (“Nanhai”). Other 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 April 2, 2005.

Restructured Credit Facility

Until it was refinanced on April 27, 2004, the Company’s Restructured Credit Facility consisted of secured revolving credit borrowings with aggregate commitments of up to $50.0 million and aggregate term loans and

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

term letters of credit of $435.3 million. All borrowings under the Restructured Credit Facility were U.S. dollar denominated and were guaranteed, on a joint and several basis, by each and all of the direct and indirect domestic subsidiaries of the Company and certain non-domestic subsidiaries of the Company. The Restructured Credit Facility contained covenants and events of default customary for financings of this type, including leverage, senior leverage, interest coverage and adjusted interest coverage. The interest rate applicable to borrowings under the Restructured Credit Facility was based on a specified base rate or a specified Eurodollar base rate, at the Company’s option, plus a specified margin. The effective rate on the term loans was 12.00%, which was the cap on the sum of the interest payable in respect of term loans or term letters of credit plus the senior leverage ratio fee. The Company’s average borrowings under the revolving credit agreement, which had an effective interest rate of 6.75%, were $5.5 million for the period from January 4, 2004 to April 3, 2004.

Subsidiary Indebtedness

Nanhai has a short-term credit facility (denominated in U.S. dollars and Chinese rmb) with a financial institution in China which is scheduled to mature in June 2005. The amount of outstanding indebtedness under the facility was $5.8 million (at an annual average rate of approximately 4.49%) at April 2, 2005 and January 1, 2005. The Nanhai indebtedness is guaranteed 100% by the Company and to support this guarantee, a letter of credit has been issued by the Company’s agent bank in the amount of $7.1 million. In addition, Nanhai had outstanding bankers’ acceptances totaling $0.7 million and $1.2 million at April 2, 2005 and January 1, 2005, respectively. These notes, which are denominated in Chinese rmb, mature within three months and are subject to a 0.5% transaction fee. These borrowings are shown as Short-term borrowings in the Consolidated Balance Sheets.

At January 1, 2005, the Company’s Argentina-based majority owned subsidiary had a credit facility denominated in U.S. dollars totaling approximately $0.4 million (all with current maturities). These borrowings were fully repaid in the first quarter of 2005.

Note 8. Income Taxes

The Company recognized income tax expense of $2.8 million for the three months ended April 2, 2005 on consolidated income before income taxes of $8.0 million. This income tax expense approximates the U.S. federal statutory rate. However, the net income tax 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.

During the three months ended April 3, 2004, the Company recognized an income tax expense of $2.5 million on a consolidated pre-tax loss of $6.3 million. The income tax expense was primarily due to foreign withholding taxes, for which tax credits are not anticipated, U.S. state income taxes, and no significant income tax benefit recognized for losses incurred in the U.S. and certain foreign jurisdictions.

Income tax refunds receivable were $13.9 million and $15.4 million at April 2, 2005 and January 1, 2005, respectively and are largely comprised of amounts due from European tax jurisdictions. These amounts are included in Other current assets on the Consolidated Balance Sheets.

Note 9. Pension Benefits and Postretirement Plans

The Company and its subsidiaries sponsor multiple defined benefit plans and other postretirement benefits 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.

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

Components of net periodic benefit costs for the three months ended April 2, 2005 and April 3, 2004 are as follows (in thousands):

	Pension Benefits						Postretirement Benefits
	2005			2004			2005			2004
Current service costs	$	656		$	590		$	45		$	101
Interest costs on projected benefit obligation and other	1,408			1,253			122			215
Return on plan assets	(1,542		)	(1,334		)	—			—
Amortization of transition obligation and other	6			(3		)	(28		)	—
Periodic benefit cost, net	$	528		$	506		$	139		$	316

As of April 2, 2005, the Company contributed $3.6 million to its pension plans for the 2005 benefit year. The Company presently anticipates contributing an additional $2.4 million to fund its pension plans in 2005 for a total of $6.0 million.

On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was enacted and introduced a prescription drug benefit under Medicare as well as a subsidy to sponsors of retiree health care benefit plans. As permitted under FSP 106-1, the Company made a one-time election to defer accounting for the effect of the Act until the authoritative guidance on the accounting for the federal subsidy under the Act is issued. Given that the Company curtailed most of its U.S. postretirement benefit plans in 2004, it will likely not be eligible to receive the federal subsidy under the Act. Accordingly, any measures of the periodic benefit cost, benefit obligation and related disclosures for the U.S. and other postretirement benefit plans do not reflect the effect of the Act.

Note 10. Stock Option and Restricted Stock Plans

Stock Option Plan

On December 11, 2003, the Company awarded the initial non-qualified stock options available under the 2003 Stock Option Plan (the “2003 Plan”). The 2003 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 options have a ten-year life and vest, based on the achievement of various service and financial performance criteria, over a four-year period beginning January 4, 2004. As of April 2, 2005, 400,000 shares of the Company’s Class A common stock were reserved for issuance under the 2003 Plan, of which 174,687 stock options are available for future grants.

The Company has elected to account for the 2003 Plan in accordance with the intrinsic value method as prescribed by APB No. 25. All options granted under the 2003 Plan had an exercise price equal to the market value of the underlying common stock on the date of grant. However, as a percentage of the options vest based on achievement of financial performance criteria, compensation costs are recognized over the performance period when it becomes probable that such performance criteria will be achieved.

The compensation cost related to the 2003 Plan for the three months ended April 2, 2005 and April 3, 2004 were $0.4 million and $0.1 million, 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. 123R, “Accounting for Stock-Based Compensation” (SFAS No. 123R”) been applied, the Company’s net earnings and earnings per common share would have been approximately equivalent under both methodologies.

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

Restricted Stock Plan

In May 2004, the Company’s shareholders approved the 2004 Restricted Stock Plan for Directors (the “Restricted Plan”), which expires in 2014, for issuance of restricted shares to Directors of the Company, as defined in the Restricted Plan. The Restricted Plan approved for issuance 200,000 restricted shares and is administered by a committee of the Company’s Board of Directors not eligible to receive restricted shares under the Restricted Plan. In the first quarter of 2005 and Fiscal 2004, the Company awarded 492 and 18,720 restricted shares, respectively, to members of the Company’s Board of Directors for their Board service to the Company. The cost associated with the restricted stock grants totaled $10,000 for the first quarter of fiscal 2005 and 2004 and was included in Selling, general and administrative expenses in the Consolidated Statements of Operations. As of April 2, 2005, 155,788 shares of the Company’s Class A common stock are available for future grants.

Note 11. 16% 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 based on 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 exchange by the majority shareholder was a requirement of the Bank Facility, the exchanges have been accounted for as a capital transaction and, accordingly, no gain or loss was recognized.

The dividends on the PIK Preferred Shares accrue at an annual rate of 16% and are payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004, and are 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. Dividends are cumulative and accrue from the most recent dividend payment date to which dividends have been paid or, if no dividends have been paid, from the date of original issuance. Accordingly, the Company accrues dividends at the stated rate of 16.0% until such time as the form of the dividend is declared by the Company’s Board of Directors. If the dividend is paid-in-kind through the issuance of additional shares, the Company recognizes the dividend at the estimated fair value of the shares issued in excess of the amounts previously accrued.

On June 30, 2012, the Company must redeem all of the PIK Preferred Shares then outstanding at a price equal to $1,000 per share plus any other accrued and unpaid dividends thereon whether or not declared, which amount will be payable by the Company (“mandatory redemption price”), at the option of the Company, (i) in cash; (ii) through the issuance of shares of Class A Common Stock; or (iii) through a combination thereof. If paid in stock, the number of shares to be delivered by the Company will be the mandatory redemption price (as defined earlier) divided by the then current market price of a share of Class A Common Stock.

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

conversion price equal to $7.29 per share. Also, at any time prior to June 30, 2012, provided certain conditions have been met, the Company may elect to redeem the shares at a price equal to $1,000 per share plus any other accrued and unpaid dividends thereon whether or not declared, which redemption price may be paid by the Company, at the option of the Company; (i) in cash; (ii) through the issuance of shares of Class A Common Stock; or (iii) through a combination thereof. If paid in stock, the number of shares to be delivered by the Company will be the optional redemption price (as defined by the preferred stock agreement) divided by the then current market price of a share of Class A 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. On such date, the closing price of the Company’s Class A Common Stock on the Over-the-Counter Bulletin Board was $18.50 per share.

The Company herein has restated its first quarter results to record 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 market value of the Company’s Class A Common Stock on January 14, 2005 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 upon the stated rate of 16.0%, by approximately $8.5 million. Recording the additional $8.5 million dividend at the date of declaration has resulted in a reduction in the amount of income applicable to common shareholders and retained earnings, with a corresponding increase in Additional Paid-in Capital. See Note 1, Restatement of Results for the Three Months Ended April 2, 2005, to the Consolidated Financial Statements.

Note 12. Derivative and Other Financial Instruments and Hedging Activities

The Company uses derivative financial instruments to manage market risks and reduce its exposure from fluctuations in interest rates. All hedging transactions are authorized and executed under clearly defined policies and procedures, which prohibit the use of financial instruments for trading purposes. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities (an Amendment of SFAS No. 133)” requires the Company to recognize all derivatives on the balance sheet at fair value and establish criteria for designation and effectiveness of hedging relationships.

The Company uses interest-rate derivative instruments to manage its exposure on its debt instruments. As indicated in Note 7 to the Consolidated Financial Statements, to mitigate its interest rate exposure as required by the Bank Facility, the Company entered into a pay-fixed, receive-variable interest rate swap, thus effectively converting the interest payments associated with approximately 50% of the debt to fixed amounts at a LIBOR rate of 3.383%. As of April 2, 2005, the notional amount of these contracts, which expire 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 Bank Facility debt.

In accordance with SFAS No. 133, the Company designated the swap as a cash flow hedge of the variability of interest payments under the senior secured term loans and applied the shortcut method of assessing effectiveness. The agreement’s terms ensure complete effectiveness in offsetting the interest component associated with the Bank Facility. As such, there is no ineffectiveness and changes in the fair value of the swap are recorded to accumulated other comprehensive income (loss). The fair value of the interest rate swap of

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

$3.1 million as of April 2, 2005 and $0.3 million as of January 1, 2005 was based on current settlement values and was included in Other noncurrent assets in the Consolidated Balance Sheets.

The impact of these swaps on Interest expense, net for the three months ended April 2, 2005 was an increase of $0.4 million. The Company did not have any interest rate swap agreements during the first quarter of 2004.

Note 13. Earnings Per Share and Shareholders’ Equity

A reconciliation of basic income per common share to diluted income per common share has not been presented for the three months ended April 2, 2005 or April 3, 2004 as the impact of such calculations are anti-dilutive. Average shares outstanding for the three months ended April 2, 2005 and April 3, 2004 were 10,418,457 and 8,786,997, respectively.

As of April 2, 2005, the Company’s authorized capital stock consisted of the following classes of stock:

Type	Par Value			Authorized Shares
PIK 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, Class C common stock has special rights to annual dividends and 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. See Note 11 to the Consolidated Financial Statements, for additional information related to the Company’s PIK Preferred Shares.

In April 2004, the United States Bankruptcy Court for the District of South Carolina resolved certain pending claims filed against the Company in connection with the Modified Plan and, as a result, approved 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 which were issued on a pro rata basis to holders of common stock of the old Polymer Group Inc.’s Class 4 General Unsecured Claims per the the old Polymer Group Inc.’s Chapter 11 Plan of Reorganization. If these shares had been outstanding for all periods presented, the pro forma earnings (losses) available per common share would be $(0.87) (basic and diluted) for the three months ended April 3, 2004.

As of April 2, 2005, the PIK Preferred Shares were convertible at the option of the holders into approximately 8,318,107 shares of the Company’s Class A Common Stock.

Note 14. 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 on a regular basis by the Company’s senior management and the Board of Directors. Each of these businesses sells to different end-use markets, such as hygiene, medical, wipes and 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 three months ended April 2, 2005 and the three months ended April 3, 2004 relating to plant realignment costs which have not been allocated to the segment data.

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

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

	Three Months Ended
	April 2, 2005			April 3, 2004
Net sales
Nonwovens	$	194,536		$	163,713
Oriented Polymers	49,825			42,529
Eliminations	—			—
	$	244,361		$	206,242
Operating income (loss)
Nonwovens	$	16,723		$	11,935
Oriented Polymers	5,263			3,538
Unallocated Corporate	(5,601		)	(4,476		)
Eliminations	65			346
	16,450			11,343
Plant realignment costs	(4		)	(584		)
	$	16,446		$	10,759
Depreciation and amortization expense included in operating income
Nonwovens	$	11,098		$	10,572
Oriented Polymers	2,102			2,074
Unallocated Corporate	(42		)	30
Depreciation and amortization expense included in operating income	13,158			12,676
Amortization of loan acquisition costs	505			479
	$	13,663		$	13,155
Capital spending
Nonwovens	$	9,998		$	4,354
Oriented Polymers	97			150
Corporate	—			—
	$	10,095		$	4,504

	April 2, 2005			January 1, 2005
Division assets
Nonwovens	$	700,960		$	716,532
Oriented Polymers	155,348			148,188
Corporate	18,744			16,191
Eliminations	(118,096		)	(127,558		)
	$	756,956		$	753,353

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

Geographic Data:

Geographic data for the Company’s operations, based on the geographic region from which the sale is made is presented in the following table (in thousands):

	Three Months Ended
	April 2, 2005			April 3, 2004
Net sales:
United States	$	113,422		$	92,144
Canada	30,968			28,592
Europe	50,684			50,384
Asia	11,010			6,818
Latin America	38,277			28,304
	$	244,361		$	206,242
Operating income (loss):
United States	$	699		$	(777	)
Canada	3,131			1,925
Europe	4,269			4,445
Asia	865			544
Latin America	7,486			5,206
	16,450			11,343
Plant realignment costs	(4		)	(584		)
	$	16,446		$	10,759
Depreciation and amortization expense included in operating income:
United States	$	6,062		$	5,823
Canada	1,558			1,503
Europe	2,500			2,343
Asia	997			994
Latin America	2,041			2,013
Depreciation and amortization expense included in operating income	13,158			12,676
Amortization of loan acquisition costs	505			479
	$	13,663		$	13,155

	April 2, 2005		January 1, 2005
Region assets:
United States	$	218,223	$	165,264
Canada	97,268		99,382
Europe	249,844		294,811
Asia	35,115		35,996
Latin America	156,506		157,900
	$	756,956	$	753,353

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

Note 15. Foreign Currency and Other

Components of foreign currency and other are shown in the table below (in thousands):

	Three Months Ended April 2, 2005				Three Months Ended April 3, 2004
Foreign currency loss (gain)		$	(422	)		$	1,276
Other, net		107				109
		$	(315	)		$	1,385

Note 16. Legal Proceedings and Commitments

On August 18, 2003, The Intertech Group, Inc. (“TIG”), an affiliate of Jerry Zucker, the former Chief Executive Officer of the Company, filed a claim seeking damages associated with a lease agreement and an alleged services agreement, between the Company and TIG, associated with the lease by the Company of its former corporate headquarters and the provision of shared administrative services. The damages sought in the complaint totaled $7.7 million, plus attorney’s fees. See Note 18 to the Consolidated Financial Statements for details related to the settlement of this legal proceeding.

As part of its efforts to enhance the business, the Company has made commitments to expand its worldwide capacity. Currently, the Company has several major committed capital projects, including the construction of a new spunmelt manufacturing plant in Suzhou, China and the installation of new spunmelt lines in the facilities in Cali, Colombia and Mooresville, North Carolina, as well as the installation of additional capacity in Nanhai, China. Remaining payments due related to these planned expansions as of April 2, 2005 totaled approximately $99.3 million and are expected to be expended over the remainder of fiscal 2005 and fiscal 2006.

Note 17. Supplemental Cash Flow Information

Noncash transactions in the first three months of 2005 included: (i) the conversion of 5 shares of the Company’s PIK Preferred Shares into approximately 686 shares of the Company’s Class A Common Stock, and (ii) the issuance of 5,540 PIK Preferred Shares as payment-in-kind, in lieu of cash payment, of approximately $5.6 million of dividends on the Company’s PIK Preferred Shares, which resulted in an additional non-cash dividend charge of approximately $8.5 million in excess of the amounts accrued at the stated dividend rate on the PIK Preferred Shares.

Noncash transactions in the first three months of 2004 included: (i) the payment-in-kind in lieu of cash payment of $1.0 million of interest expense on the Junior Notes, and (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.

Note 18. Subsequent Events

On April 29, 2005, the Company entered into a Settlement Agreement, Receipt and Release (the “Settlement Agreement”) with Jerry Zucker, TIG and ZS Associates LLC (an affiliate of Mr. Zucker). Pursuant to the Settlement Agreement, the Company paid TIG $3.1 million as full and final settlement. In addition, the Settlement Agreement contains mutual general releases of any and all claims by and among the parties thereto, and a requirement that the Company and TIG file a joint stipulation dismissing, with prejudice, TIG’s lawsuit against the Company, which has been appropriately filed on May 2, 2005. The settlement was

POLYMER GROUP, INC.
Notes to Consolidated Financial Statements (Continued)

approximately equal to amounts previously accrued and included in the Consolidated Balance Sheets at April 2, 2005 and January 1, 2005.

On May 3, 2005, the Company announced that it retained JP Morgan Securities Inc. as its financial advisor to assist the Company in evaluating various strategic alternatives in order to maximize shareholder value, which could include, among other things, the sale or recapitalization of the Company. The Company expects to complete its review of strategic alternatives in the near future. However, there can be no assurance that this process will result in any transaction or transactions taking place or being completed.

ITEM 2. 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 this Quarterly Report on Form 10-Q and the Annual Report on Form 10-K for the period ended January 1, 2005.

Restatement of Results for the Three Months Ended April 2, 2005

The Audit Committee of the Board of Directors of the Company, in consultation with management of the Company and the Company’s independent registered public accounting firm, has recently concluded that its Consolidated Statement of Operations for the three months ended April 2, 2005 should be restated to reflect the dividend paid-in-kind through the issuance of 5,540 PIK Preferred Shares at the estimated fair value of the shares issued rather than the stated amount of the dividend. The fair value of the shares issued exceeded the stated amount that was previously accrued.

The PIK Preferred Shares allow holders to convert those shares into the Company’s Class A Common Stock at an initial conversion rate of 137.14286 Class A Common Shares per PIK Preferred Share which approximates an initial conversion price of $7.29 per share. As the 5,540 PIK Preferred Shares were convertible into Class A Common Stock with an estimated value of $14.1 million (based on the closing stock price of $18.50 per share on the date the dividends were declared), the results for the first quarter are herein restated to reflect an additional dividend charge equal to the difference between the $14.1 million estimated fair value and the $5.6 million of dividends previously accrued and charged to retained earnings. The effect of the restatement on the Consolidated Statement of Operations increases the charge for dividends on PIK Preferred Shares and reduces income applicable to common shareholders by approximately $8.5 million. As a result of the issuance of such additional PIK Preferred Shares, the Company has restated herein its Consolidated Statement of Operations for the three months ended April 2, 2005 to reflect the paid-in-kind dividends at the estimated fair value of the underlying securities in excess of the amounts previously accrued, with such excess amounting to approximately $8.5 million. Amounts originally reported for the three months ended April 2, 2005, and the related restated amounts, are as follows (in thousands, except per share amounts):

	Three Months Ended April 2, 2005
	Originally Reported				As Restated
Net income		$	5,166			$	5,166
Accrued and paid-in-kind dividends on PIK preferred shares		2,358				10,851
Income (loss) applicable to common shareholders		2,808				(5,685		)
Income (loss) per common share:
Basic		0.27				(0.55		)
Diluted		0.27				(0.55		)
Additional paid-in capital		77,635				86,128
Retained earnings (deficit)		(31,012		)		(39,505		)
Total shareholders’ equity		74,620				74,620

Results of Operations

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

	Three Months Ended
	April 2, 2005			April 3, 2004
Net sales		100.0	%		100.0	%
Cost of goods sold
Materials		50.8			46.6
Labor		8.6			10.0
Overhead		22.6			25.0
		82.0			81.6
Gross profit		18.0			18.4
Selling, general and administrative expenses		11.3			12.9
Plant realignment costs		0.0			0.3
Operating income		6.7			5.2
Other expense (income):
Interest expense, net		3.2			7.3
Minority interests		0.4			0.2
Foreign currency and other		(0.1	)		0.7
Income (loss) before income tax expense		3.2			(3.0	)
Income tax expense		1.1			1.2
Net income (loss)		2.1			(4.2	)
Accrued and paid-in-kind dividends on PIK preferred shares		4.4			—
Loss applicable to common shareholders		(2.3	)%		(4.2	)%

Comparison of Three Months Ended April 2, 2005 and April 3, 2004

The Company’s reportable segments consist of its two operating divisions, Nonwovens and Oriented Polymers. For additional information regarding segment data, see Note 14 “Segment Information” to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q. The following table sets forth components of the Company’s net sales and operating income (loss) by operating division for the three months ended April 2, 2005, the three months ended April 3, 2004 and the corresponding change (in millions):

	Three Months Ended April 2, 2005				Three Months Ended April 3, 2004				Change
Net sales
Nonwovens		$	194.5			$	163.7			$	30.8
Oriented Polymers		50.0				42.6				7.4
Eliminations		(0.1		)		(0.1		)		—
		$	244.4			$	206.2			$	38.2
Operating income
Nonwovens		$	16.7			$	11.9			$	4.8
Oriented Polymers		5.3				3.6				1.7
Unallocated Corporate, net of eliminations		(5.5		)		(4.1		)		(1.4		)
		16.5				11.4				5.1
Plant realignment costs		—				(0.6		)		0.6
		$	16.5			$	10.8			$	5.7

The amounts for plant realignment costs have not been allocated to the Company’s reportable business divisions because the Company’s management does not evaluate such charges on a division-by-division basis. Division operating performance is measured and evaluated before unusual or special items.

Net Sales

Consolidated net sales were $244.4 million in 2005, an increase of $38.2 million or 18.5% over 2004 consolidated net sales of $206.2 million. Net sales for 2005 in the Nonwovens and Oriented Polymers segments improved over comparable 2004 fiscal year results by 18.8% and 17.4%, respectively. A reconciliation of the change in net sales between the three months ended April 3, 2004 and the three months ended April 2, 2005 is presented in the following table (in millions):

Net sales—three months ended April 3, 2004	$	206.2
Change in sales due to:
Price/mix	20.2
Volume	14.1
Foreign currency	3.9
Net sales—three months ended April 2, 2005	$	244.4

The increase in net sales during the first quarter of 2005 was due primarily to price/mix improvements and volume gains. The price/mix improvement reflects continued enhancements of the Company’s product offerings as well as the increases in sales price in an effort to pass along raw material cost increases to customers. As raw material costs rose during the current quarter and prior year, the Company followed the consistent policy of attempting to pass raw material prices along to its customers, where allowable by contract terms and where acceptable based on market conditions. Volume gains, notably in the United States, Latin American and Asian markets, contributed approximately $14.1 million to the increase in net sales over the same period of the prior year.

A significant component of the $14.1 million increase in sales in the first quarter of 2005 due to volume growth was generated in the Latin American region. 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. The Latin America region’s sales improvement was paced by significant year-over-year increases in hygiene sales. In the Company’s U.S. nonwovens business, the hygiene, consumer and industrial markets contributed to the double-digit increases from 2004 as new products were introduced into the markets and new customer relationships generated substantial sales increases. Nonwoven sales volumes decreased slightly in Europe. Oriented Polymers’ increase in sales was due to a combination of price/mix improvement and increased volume driven by the agricultural and construction end-use markets.

Foreign currencies, predominantly the Euro and the Canadian dollar, were stronger against the U.S. dollar during the first quarter of 2005 compared to 2004 resulting in an increase in net sales of $3.9 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 3 to this Quarterly Report on Form 10-Q.

Operating Income

A reconciliation of the change in operating income between the three months ended April 3, 2004 and the three months ended April 2, 2005 is presented in the following table (in millions):

Operating income—three months ended April 3, 2004	$	10.8
Change in operating income due to:
Price/mix	20.2
Higher raw material costs	(20.4		)
Volume	4.3
Lower manufacturing costs	1.4
Lower plant realignment costs, net	0.6
Foreign currency	0.3
Higher depreciation and amortization expense	(0.5		)
All other, primarily higher SG&A costs	(0.2		)
Operating income—three months ended April 2, 2005	$	16.5

Consolidated operating income was $16.5 million in 2005 as compared to $10.8 million in 2004. The financial effect of price/mix improvements and higher raw material costs essentially offset each other, reflecting the benefits of the Company’s new product introductions and ongoing efforts to pass through any cost increases in raw materials. The net improvement in operating income was positively impacted by the volume gains noted in the net sales discussion above. Other items contributing to the improvement of operating income were lower manufacturing costs of $1.4 million and lower plant realignment costs, net of $0.6 million. Offsetting these favorable impacts were higher depreciation and amortization charges and higher selling, general and administrative expenses. The increase in depreciation and amortization charges is primarily related to the installation of the new production line in Latin America.

Interest Expense and Other

Net interest expense decreased $7.3 million, from $15.2 million during the three months ended April 3, 2004 to $7.9 million during the three months ended April 2, 2005. The 2004 amount includes $1.0 million of payment-in-kind in lieu of cash interest on the Junior Notes. The decrease in net interest expense was primarily due to the lower interest rates obtained by refinancing the Company’s previous Restructured Credit Facility with the new Bank Facility, effective April 27, 2004, and the elimination of interest expense on the Junior Notes due to their conversion to PIK Preferred Shares and Class A Common Stock. On April 27, 2004, in conjunction with the refinancing, the Company’s majority shareholder exchanged approximately $42.6 million in aggregate principal amount of the Junior Notes for 42,633 shares of PIK Preferred Shares, which also contributed to lower interest costs during the period. Also subsequent to the refinancing, the remaining $10.1 million of 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.

Foreign currency and other expense improved by $1.7 million, from an expense of $1.4 million in the first quarter of fiscal 2004 to income of $0.3 million in the first quarter of fiscal 2005.

Income Tax Expense

The Company recognized income tax expense of $2.8 million for the three months ended April 2, 2005 on consolidated income before income taxes of $8.0 million for such period. The tax expense approximates the U.S. federal statutory tax rate. However, the net income tax 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. The Company recorded a net income tax expense of $2.5 million for the three months ended April 3, 2004 on a consolidated pre-tax loss of $6.3 million for such

period. The tax expense was 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 United States and certain foreign jurisdictions.

Net Income

As a result of the above, the Company recognized net income of $5.2 million during the three months ended April 2, 2005 compared to a net loss of $8.8 million during the three months ended April 3, 2004.

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

The Company accrued dividends at the stated rate of 16.0% on its PIK Preferred Shares during the three months ended April 2, 2005 in the amount of $2.4 million. In addition, the Company recorded an $8.5 million dividend charge to reflect the declaration by the Company’s Board of Directors on January 14, 2005 of the issuance of 5,540 PIK Preferred Shares as payment-in-kind for dividends from the dates of issuance through December 31, 2004 at the fair value of the underlying securities issued in excess of the amount of the dividends previously accrued at the stated rate.

Income (Loss) Applicable to Common Shareholders

As a result of the above, the Company recognized a loss applicable to common shareholders of $5.7 million, or ($0.55) per share, for the three months ended April 2, 2005 compared to a loss applicable to common shareholders of $8.8 million, or ($1.00) per share, for the three months ended April 3, 2004.

LIQUIDITY AND CAPITAL RESOURCES

The Company’s principal sources of liquidity for operations and expansions are funds generated from operations and borrowing availabilities under the Bank Facility, consisting of a revolving credit facility with aggregate commitments of up to $50.0 million and senior secured first lien term loan of $300.0 million and a senior secured second lien term loan of $125.0 million. The revolving portion of the Bank Facility terminates on April 27, 2009, the first lien term loan is due April 27, 2010 and the second lien term loan is due April 27, 2011. The Bank Facility contains covenants and events of default customary for financings of this type, including leverage and interest expense coverage covenants. At April 2, 2005, the Company was in compliance with all such covenants. As of April 2, 2005, the Company had no outstanding borrowings under the revolving credit agreement.

	April 2, 2005			January 1, 2005
	(In Millions)
Balance sheet data:
Cash and cash equivalents		$	21.6		$	41.3
Working capital		190.0			187.3
Total assets		757.0			753.4
Total debt		412.4			414.0
PIK Preferred Shares, expected to be settled with shares of common stock		60.6			58.3
Total shareholders’ equity		74.6			73.8

	Three Months Ended
	April 2, 2005				April 3, 2004
	(In Millions)
Cash flow data:
Net cash used in operating activities		$	(8.0	)		$	(7.0	)
Net cash used in investing activities		(9.7		)		(3.7		)
Net cash provided by (used in) financing activities		(1.6		)		4.7

Operating Activities

Net cash used in operating activities was $8.0 million during 2005, a $1.0 million change from the $7.0 million used in operating activities during 2004. Despite the improvement in operating performance during the first quarter of 2005, the increase in cash used in operations was attributed primarily to investments in accounts receivable and inventories, largely resulting from increased quarter over quarter net sales and higher raw material costs.

Working capital at April 2, 2005 did not change significantly from that at January 1, 2005 as increases in trade receivables and inventory were generally offset by an increase in accrued liabilities and a decrease in cash, primarily resulting from the Company’s funding of substantial capital expenditures during the first three months of 2005. Accounts receivable at April 2, 2005 was $132.9 million as compared to $112.3 million on January 1, 2005, an increase of $20.6 million. Accounts receivable represented approximately 50 days of sales outstanding at April 2, 2005, compared to 46 days of sales outstanding at January 1, 2005. The increase was partially attributable to the growth in net sales in foreign locations, which often have extended payment terms as compared to domestic terms of sale. Inventories at April 2, 2005 were $112.5 million, an increase of $6.1 million from inventories at January 1, 2005 of $106.4 million. The Company had inventory representing approximately 51 days of cost of sales on hand at April 2, 2005 versus 54 days of cost of sales on hand at January 1, 2005. Accounts payable at April 2, 2005 was $61.7 million as compared to $63.8 million at January 1, 2005, a decrease of $2.1 million. Accounts payable represented approximately 28 days of cost of sales outstanding at April 2, 2005 as compared to 32 days of cost of sales outstanding at January 1, 2005.

Investing and Financing Activities

Cash used in investing activities amounted to $9.7 million and $3.7 million for the first three months of 2005 and 2004, respectively. Capital expenditures during the three months ended April 2, 2005 totaled $10.1 million, an increase of $5.6 million from capital spending of $4.5 million in the three months ended April 3, 2004. A significant portion of the capital expenditures in 2005 related to the installation of a state-of-the-art nonwovens production line at the Cali, Colombia manufacturing site, which is expected to become operational during the fourth quarter of fiscal 2005. Investing activities during the first three months of 2005 and 2004 included proceeds from the sale of assets of $0.4 million and $0.8 million, respectively.

Cash used in financing activities amounted to $1.6 million for the first three months of 2005, as compared to $4.7 million being provided by financing activities for the first three months of 2004. In the first quarter of 2005, the Company repaid, on a net basis, $1.6 million of its debt, whereas the Company borrowed additional debt, on a net basis, of $4.7 million during the first three months of 2004.

Dividends

The Board of Directors has not declared a dividend on the Company’s common stock since the first quarter of 2001. The Bank Facility limits restricted payments, which include cash dividends on all securities, to $5.0 million in the aggregate since the effective date of the Bank Facility. The Company does not anticipate paying dividends on its common stock in future periods.

The Company herein has restated its first quarter results to record the estimated fair value of the additional PIK Preferred Shares declared as a dividend as of 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 rate of

16.0%. Using the market value of the Company’s Class A Common Stock on January 14, 2005 of $18.50 per share, the estimated 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 accrued of $5.6 million, based upon the stated rate, by approximately $8.5 million. Recording the additional $8.5 million dividend at the date of declaration has resulted in a reduction in the amount of income applicable to common shareholders and retained earnings, with a corresponding increase in additional paid-in capital. See Note 1, Restatement of Results for the Three Months Ended April 2, 2005, to the unaudited Consolidated Financial Statements included in Item 1 to this Quarterly Report on Form 10-Q/A.

Liquidity Summary

As discussed more fully in Note 7 to the Consolidated Financial Statements included in Item 1 to this Quarterly Report on Form 10-Q/A, on April 27, 2004, the Company refinanced its existing bank credit facility and entered into a new Bank Facility consisting of a $50.0 million revolving credit facility maturing in 2009, a $300.0 million senior secured first lien term loan that matures in 2010 and a $125.0 million senior secured second-lien term loan maturing in 2011. The proceeds therefrom were used to fully repay indebtedness outstanding under the Company’s previous Restructured Credit Facility and pay related fees and expenses. The senior secured first lien term loan requires quarterly payments of $750.0 thousand and accrues interest at LIBOR plus 325 basis points. The senior secured second lien term loan accrues interest at LIBOR plus 625 basis points. The revolving credit facility initially bears interest at LIBOR plus 300 basis points. The Bank Facility provides the Company with increased flexibility in terms of cash availability, less stringent requirements for covenant compliance, extended maturity dates and substantially reduced net cash interest costs as compared to the prior bank credit facility.

The Bank Facility contains covenants and events of default customary in financings of this type, including leverage and interest expense coverage covenants. The Bank Facility requires the Company to use a percentage of proceeds from excess cash flows, as defined by the Bank Facility and determined based on year-end results, to reduce its then outstanding balances under the Bank Facility. Excess cash flow required to be applied to the repayment of the Bank Facility is generally calculated as 50.0% 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 flow for future periods are based on year-end data and not determinable, only the mandatory payments of $750.0 thousand per quarter have been classified as a current liability. Additionally, no excess cash flow payment was made with respect to fiscal 2004 and, due to the magnitude of the planned major capital expenditures for fiscal 2005, any excess cash flow requirement is not expected to be significant. Additionally, as required by the terms of the Bank Facility, the Company entered into a cash flow hedge agreement, 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.

In conjunction with the Company’s refinancing of the Restructured Credit Facility, the Company’s majority shareholder exchanged approximately $42.6 million in aggregate principal amount of the Junior Notes it controlled for 42,633 shares of the Company’s PIK Preferred Shares. Additionally, in the third quarter of 2004, $10.1 million of 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. The dividends on the PIK Preferred Shares accrue at an annual rate of 16% and are payable semi-annually in arrears on each January 1 and July 1, commencing with July 1, 2004, at the option of the Company; (i) through the issuance of additional PIK Preferred Shares; (ii) in cash; or (iii) in a combination thereof. Dividends are cumulative and accrue from the most recent dividend payment date to which dividends have been paid or, if no dividends have been paid, from the date of original issuance.

which amount will be payable by the Company (“mandatory redemption price”) at the option of the Company; (i) in cash; (ii) through the issuance of shares of Class A Common Stock; or (iii) through a combination thereof. If paid in stock, the number of shares to be delivered by the Company will be the mandatory redemption price (as defined earlier) divided by the then market price of a share of Class A Common Stock.

At any time prior to June 30, 2012, the holders of the PIK Preferred Shares may elect 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. Also, at any time prior to June 30, 2012, provided certain conditions have been met, the Company may elect to redeem the shares at a price equal to $1,000 per share plus any other accrued and unpaid dividends thereon whether or not declared, which redemption price may be paid by the Company, (i) in cash; (ii) through the issuance of shares of Class A Common Stock; or (iii) through a combination thereof. If paid in stock, the number of shares to be delivered by the Company will be the optional redemption price (as defined by the preferred stock agreement) divided by the then market price of a share of Class A Common Stock. The Company currently expects to settle the mandatory or optional redemption with the issuance of shares of Class A Common Stock.

On November 15, 2004, the Company entered into a factoring agreement to sell without recourse, certain receivables to an unrelated third-party financial institution. Under the terms of the factoring agreement, the maximum amount available for the purchase of domestic receivables at any one time is $15.0 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 receivables under the ongoing factoring agreement accelerates the collection of the Company’s cash, reduces credit exposure and lowers the Company’s borrowing costs.

As discussed in Note 16 to the Consolidated Financial Statements included in Item 1 to this Quarterly Report on Form 10-Q/A, the Company has committed to several major capital projects to expand its worldwide capacity, including the construction of a new spunmelt manufacturing plant in Suzhou, China and the installation of new spunmelt lines in its current facilities in Cali, Colombia and Mooresville, North Carolina, as well as the installation of additional capacity in Nanhai, China. Remaining payments due related to these planned expansions as of April 2, 2005 totaled approximately $99.3 million and are expected to be expended over the remainder of fiscal 2005 and fiscal 2006. The financial flexibility needed for these and other capital projects was provided in an amendment, dated March 16, 2005, to the Bank Facility.

On May 3, 2005, the Company announced that it retained JP Morgan Securities Inc. as a financial advisor to assist the Company in evaluating various strategic alternatives in order to maximize shareholder value, which could include, among other things, the sale or recapitalization of the Company. The Company expects to complete its review of strategic alternatives in the near future. However, there can be no assurance that this process will result in any transaction or transactions taking place or being completed.

Based on the ability to generate positive cash flows from its operations and the financial flexibility provided by the Bank 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 was minimal during the first quarter of both 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 3 of this Quarterly Report on Form 10-Q/A.

New Accounting Standards

In May 2004, the FASB issued FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (“FSP 106-2”). FSP 106-2 permits a sponsor of a postretirement health care plan that provides a prescription drug benefit to make a one-time election to defer accounting for the effects of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”), which was signed into law on December 8, 2003. The Act introduced a prescription drug benefit under Medicare and federal subsidies to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to that of Medicare. As permitted under FSP 106-2, the Company made a one-time election to defer accounting for the effect of the Act and as more fully explained in Note 9 to the consolidated financial statements, in December 2004 the Company approved plan amendments curtailing or eliminating various postretirement benefits in the U.S. As a result, the amounts included in the Consolidated Financial Statements related to the Company’s postretirement benefit plans do not reflect the effects of the Act.

In December 2004, the FASB issued a revision to SFAS No. 123, “Accounting for Stock-Based Compensation.” The revision, entitled SFAS No. 123R, “Share-Based Payment,” is effective for all awards granted, modified, repurchased or canceled after June 15, 2005 and requires a public entity to initially measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award and to remeasure the fair value of that award subsequently at each reporting date. Changes in the fair value during the requisite service period will be recognized as compensation cost over that period. The grant date fair value is to be estimated using option-pricing models adjusted for the unique characteristics of those instruments.

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, sales returns and allowances and credit risks, inventories, income taxes, convertible securities 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 Financial Condition and Results of Operations,” 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 Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code” as promulgated by the AICPA. 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.” Such allocations have been reflected in the Company’s Consolidated Financial Statements. Based on the consideration of many factors and various valuation methods, the Company and its financial advisors estimated the reorganization value of the Company’s new common equity at approximately $73.4 million as of March 1, 2003. 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% - 13.0%) plus the present value of the Company’s 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 tax rate of 39.0%, estimated capital expenditures and estimated changes in working capital. The calculation of the 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.

Convertible Securities: The Company records the accretion of dividends on the convertible securities based on the stated rate in the securities. If the Company’s Board of Directors, at the date of any dividend declaration, elects to satisfy the dividend obligation by payment-in-kind, the Company will recognize an additional dividend charge for the excess, if any, of the fair value of the securities issued, at the dividend

declaration date, over the amounts previously accrued at the stated rate. As the Company’s convertible securities are not traded on an active market, determination of the fair value of the securities, at the date of dividend declaration, requires estimates and judgments, which may impact the valuation of the dividend paid-in-kind.Based on the fact that the convertible securities are deep-in-the-money, the Company has estimated the fair value of the convertible security using the number of shares of the Company’s Common Stock into which the security is convertible at the then-current share price. While the Company believes its estimates of the fair value of the convertible security are reasonable, the utilization of different assumptions could produce materially different fair value estimates.

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, in 2004 the Company sold, on a non-recourse basis, certain of its receivables pursuant to a factoring agreement. At April 2, 2005, a reserve of $10.4 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 credit losses could differ significantly from these estimates.

Inventory Reserves: 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 primarily based on percentage write-downs applied to inventories aged for certain time periods. 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 markdown percentages and evaluating the condition of the inventories require judgments and estimates, which may impact the inventory valuation and gross margins. 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. However, if actual market conditions and product sales were less favorable than we have projected, additional inventory writedowns may be necessary.

Impairment of Long-Lived Assets: 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 measured by future discounted cash flows. The analysis, when conducted, requires estimates of the amount and timing of projected future 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 and the Company’s cash flows. As of April 2, 2005, 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 asset impairments in the foreseeable future. However, should current business conditions or expectations of future performance deteriorate, this may impact our future cash flow estimates, resulting in an impairment charge that could have a material effect on the Company’s Consolidated Financial Statements.

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 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.

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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 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 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 required by the terms of its Bank Facility, the Company entered into an interest rate swap contract to convert $212.5 million of its variable-rate debt to fixed-rate debt. In addition, the Company includes short-term borrowings in its debt portfolio,

especially in foreign countries, in an effort to minimize interest rate risk. 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 per year.

Foreign Currency Exchange Rate Risk

The Company manufactures, markets and distributes certain of its products in Europe, Canada, Latin America and the Far East. As a result, the Company’s financial 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 the first three months of 2004 and 2005, certain currencies of countries in which the Company conducts foreign currency denominated business strengthened 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 2 of Part 1 of this Quarterly Report on Form 10-Q/A.

The Company has not historically hedged its exposure to foreign currency risk, although it has mitigated its risk of currency losses on foreign monetary assets by sometimes borrowing in foreign currencies as a natural hedge. The Company is also subject to political risk in certain of its foreign operations.

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 cost-plus type contracts, which would allow the Company to pass-through any cost increases in raw materials. Raw material prices as a percentage of sales have increased from 46.6% in the first three months of 2004 to 50.8% for the comparable period of 2005.

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 $2.9 million, on an annualized basis, in its reported 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 2 of Part 1 of this Quarterly Report on Form 10-Q/A.

ITEM 4. CONTROLS AND PROCEDURES

Under the direction of our Chief Executive Officer and Chief Financial Officer, the Company evaluated its disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective, as of April 2, 2005.

There were no changes in the Company’s internal control over financial reporting during the quarter ended April 2, 2005 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Delaware	57-1003983
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4055 Faber Place Drive, Suite 201 North Charleston, South Carolina	29405
(Address of principal executive offices)	(Zip Code)

		Page
EXPLANATORY NOTE		2
IMPORTANT INFORMATION REGARDING THIS FORM 10-Q/A		2
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	35
Item 4.	Controls and Procedures	36
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 3.	Defaults Upon Senior Securities	37
Item 4.	Submission of Matters To a Vote of Security Holders	37
Item 5.	Other Information	37
Item 6.	Exhibits	37
Signatures		38

Exhibit Number		Document Description
4.1		Amended and Restated By-Laws of the Polymer Group, Inc.(1)
10.1		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).(2)
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 by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2		Certification by the Chief Financial Officer pursuant to 18 U.S.C. Section 1350

	POLYMER GROUP, INC.
Date: August 22, 2005	By:	/s/ JAMES L. SCHAEFFER
		James L. Schaeffer Chief Executive Officer
Date: August 22, 2005	By:	/s/ WILLIS C. MOORE, III
		Willis C. Moore, III Chief Financial Officer

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended April 2, 2005
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934