10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 333-40067

PLIANT CORPORATION

(Exact name of registrant as specified in its charter)


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

1475 Woodfield Road, Suite 700
Schaumburg, IL 60173
(847) 969-3300
(Address of principal executive offices and telephone number)

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

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


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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þ No o

At November 12, 2008 there were 97,348 outstanding shares of the Registrant’s common stock. As of November 12, 2008, persons other than affiliates of the Registrant held 47,137, or approximately 48.42%, of the outstanding shares of the Registrant’s common stock. There is no established trading market for the Registrant’s common stock and, therefore, the aggregate market value of shares held by non-affiliates cannot be determined by reference to recent sales or bid and asked prices.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLIANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2008 (UNAUDITED) AND DECEMBER 31, 2007 (DOLLARS IN THOUSANDS)


	September 30,			December 31,
	2008			2007
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	24,218		$	7,258
Receivables, net of allowances of $3,959 and $3,207, respectively		151,775			127,590
Inventories		106,460			108,358
Prepaid expenses and other		7,236			6,269
Income taxes receivable, net		1,887			1,884
Deferred income taxes		7,318			9,145

Total current assets		298,894			260,504
PLANT AND EQUIPMENT, net		291,798			311,756
GOODWILL		72,422			72,527
INTANGIBLE ASSETS, net		9,843			11,081
OTHER ASSETS		15,654			20,111

TOTAL ASSETS	$	688,611		$	675,979

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt	$	804,363		$	1,102
Trade accounts payable		107,021			93,178
Accrued liabilities:
Interest payable		4,151			12,079
Customer rebates		8,745			8,787
Other		30,648			36,544

Total current liabilities		954,928			151,690
LONG-TERM DEBT, net of current portion		44,431			751,465
OTHER LIABILITIES		17,073			22,605
DEFERRED INCOME TAXES		16,199			18,163

Total Liabilities		1,032,631			943,923

STOCKHOLDERS’ DEFICIT:
Redeemable Preferred Stock—Series AA—335,650 shares authorized, par value $.01 per share, with a redemption and liquidation value of $1,000 per share plus accumulated dividends, 334,894 and 335,592 shares outstanding at September 30, 2008 and December 31, 2007, respectively		287,989			247,355
Redeemable Preferred Stock—Series M—8,000 shares authorized, par value $.01 per share, 8,000 shares outstanding at September 30, 2008 and December 31, 2007		—			—
Common Stock—100,050,000 shares authorized, par value $.01 per share, 97,348 and 100,003 shares outstanding at September 30, 2008 and December 31, 2007, respectively		1			1
Paid in capital		155,341			155,341
Accumulated deficit		(772,529	)		(658,163	)
Accumulated other comprehensive loss		(14,822	)		(12,478	)

Total stockholders’ deficit		(344,020	)		(267,944	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	688,611		$	675,979

See notes to condensed consolidated financial statements.

PLIANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (IN THOUSANDS) (UNAUDITED)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
NET SALES	$	307,911		$	282,541		$	881,019		$	819,969

COST OF SALES		296,618			250,825			820,995			718,200


Gross Profit		11,293			31,716			60,024			101,769

OPERATING EXPENSES:
Sales, General and Administrative		18,548			15,387			49,746			51,438
Research and Development		1,619			2,438			5,019			8,639
Restructuring and Other Costs		3,813			5,373			10,485			7,232
Reorganization Cost		28			320			159			1,017
Other Operating Costs		—			—			112			1,101

Total operating expenses		24,008			23,518			65,521			69,427


OPERATING INCOME (LOSS)		(12,715	)		8,198			(5,497	)		32,342

INTEREST EXPENSE		(23,137	)		(21,709	)		(68,596	)		(63,842	)

GAIN ON EXTINGUISHMENT OF DEBT		—			32,508			—			32,508

OTHER INCOME (EXPENSE) — Net		129			75			283			389


INCOME (LOSS) BEFORE INCOME TAXES		(35,723	)		19,072			(73,810	)		1,397

INCOME TAX EXPENSE (BENEFIT)		(236	)		429			(78	)		812


NET LOSS	$	(35,487	)	$	18,643		$	(73,732	)	$	585

See notes to condensed consolidated financial statements.

PLIANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (IN THOUSANDS) (UNAUDITED)


	Nine Months Ended
	September 30,
	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(73,732	)	$	585
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		33,179			33,796
Fixed asset impairment		5,953			1,501
Amortization of deferred financing costs and accretion of debt discount		4,427			3,434
Payment-in-kind interest on debt		30,710			27,372
Deferred income taxes		(85	)		(3,616	)
(Gain) / loss on disposal of assets		75			163
Non-cash other operating costs					664
Gain on extinguishment of debt		—			(32,508	)
Changes in assets and liabilities:
Receivables		(25,537	)		(266	)
Inventories		1,053			(10,233	)
Prepaid expenses and other		(745	)		574
Income taxes payable/receivable		(727	)		64
Other assets		(477	)		(591	)
Trade accounts payable		14,731			16,256
Accrued liabilities		(13,588	)		(19,958	)
Other liabilities		(4,701	)		1,921

Net cash provided by (used in) operating activities		(29,464	)		19,158

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets		2,959			165
Capital expenditures for plant and equipment		(21,981	)		(36,132	)

Net cash used in investing activities		(19,022	)		(35,967	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under Revolving Credit Facilities		55,000			21,000
Proceeds from issuance of preferred stock		—			157
Payment of financing fees		—			(1,704	)
Borrowings under capital lease		11,369			—
Repayment of capital leases and other, net		(836	)		(560	)
Repayment of senior subordinated notes		—			(22,593	)
Proceeds from issuance of senior subordinated notes		—			24,000

Net cash provided by financing activities		65,533			20,300

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(87	)		(599	)
NET INCREASE IN CASH AND CASH EQUIVALENTS		16,960			2,892
CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD		7,258			4,199

CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	24,218		$	7,091

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest		41,923			37,629
Income taxes		1,038			1,076
Supplemental schedule of non-cash investing and financing activities:
Plant and equipment acquired under capital leases		—			4,998

See notes to condensed consolidated financial statements.

PLIANT CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Pliant Corporation and its subsidiaries (collectively “Pliant”, the “Company” or “we”) were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The information reflects all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation of the financial position, results of operations and cash flows of Pliant as of the dates and for the periods presented.

Certain information in footnote disclosures normally included in financial statements presented in accordance with GAAP has been condensed or omitted in accordance with the rules and regulations of the SEC. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

We adopted the provisions of SFAS No. 157, Fair Value Measurements (“SFAS 157”) on January 1, 2008. SFAS 157 defines fair value, establishes a market-based framework or hierarchy for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 is applicable whenever another accounting pronouncement requires or permits assets and liabilities to be measured at fair value. SFAS 157 does not expand or require any new fair value measures; however the application of this statement may change current practice. In February 2008, the Financial Accounting Standards Board (“FASB”) decided that an entity need not apply this standard to nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis until 2009. Accordingly, our adoption of this standard in 2008 was limited to financial assets and liabilities and did not have a material effect on our financial condition or results of operations. We are still in the process of evaluating this standard with respect to its effect on nonfinancial assets and liabilities and therefore have not yet determined the impact that it will have on our financial statements upon full adoption in 2009. Nonfinancial assets and liabilities for which we have not applied the provisions of SFAS 157 include those measured at fair value in impairment testing and those initially measured at fair value in a business combination.

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

2. INVENTORIES

Inventories are valued at the lower of cost (using the first-in, first-out method) or market value. Inventories as of September 30, 2008 and December 31, 2007 consisted of the following (in thousands):


	September 30,		December 31,
	2008		2007
Finished goods	$	54,911	$	56,772
Raw materials		41,672		40,507
Work-in-process		9,877		11,079

Total	$	106,460	$	108,358

3. RESTRUCTURING AND OTHER COSTS

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

The following table summarizes restructuring and other costs for the three and nine months ended September 30 (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Plant closing costs:
Severance	$	864	$	922	$	910	$	1,157
Other plant closure costs		1,656		4,363		2,081		4,640
Office closing and workforce reduction costs:
Severance		247		63		686		1,387
Other		599		25		967		48
Fixed asset impairments related to plant closing		447		—		5,841		—

Total Restructuring and other costs	$	3,813	$	5,373	$	10,485	$	7,232

The following table summarizes the roll-forward of the accruals from December 31, 2007 to September 30, 2008 (in thousands, except for employees):


					Accruals for the nine months ended
					September 30, 2008
									Other
	December 31, 2007								Plant							September 30, 2008
	# Employees		Accrual		Additional				Closure				Payments/			# Employees		Accrual
	Terminated		Balance		Employees		Severance		Costs		Total		Charges			Terminated		Balance
Plant Closing Costs:
Leases		—		920		—		—		45		45		(70	)		—		895
Langley		6		207		—		—		145		145		(345	)		—		7
Barrie		—		19		—		—		14		14		(33	)		—		—
South Deerfield		—		—		59		851		534		1,385		(528	)		59		857
Harrington		—		—		—		—		825		825		(825	)		—		—
Dalton		—		—		—		—		271		271		(271	)		—		—
Newport News		—		—		5		59		247		306		(270	)		5		36

		6	$	1,146		64		910		2,081		2,991		(2,342	)		64	$	1,795


Workforce Reduction Costs:
2008 Workforce Reduction		—		—		44		613		941		1,554		(1,491	)		2		63
2007 Workforce Reduction		49		463		—		73		21		94		(488	)		1		69
Canadian Restructuring		—		—		—		—		5		5		(5	)		—		—

		49	$	463		44		686		967		1,653		(1,984	)		3	$	132

Subtotal		55	$	1,609		108		1,596		3,048		4,644		(4,326	)		67	$	1,927


Fixed Asset Impairments:
South Deerfield		—		—		—		—		—		446		—			—		—
Harrington		—		—		—		—		—		895		—			—		—
Newport News		—		—		—		—		—		4,500		—			—		—

		—		—		—		—		—		5,841		—			—		—

TOTAL		55	$	1,609		108		1,596		3,048		10,485		(4,326	)		67		1,927

Plant Closing Costs

2008—During the second quarter of 2008, we announced the planned closures of four of the Company’s facilities: South Deerfield, MA and Dalton, GA in our Engineered Films segment, and Harrington, DE and Newport News, VA in our Specialty Films segment. These closings will improve operating scale at the remaining plants and reduce fixed costs. Furthermore, these plant closures are anticipated to reduce annual operating costs by $8.9 million following completion of all plant closures. During the third quarter of 2008, we incurred $2.9 million in connection with the four plant closures: $1.7 million in our Engineered segment, of which $0.9 million related to severance and $0.2 million related to relocation of equipment; and $1.2 million in our Specialty Films segment, of which $0.8 million related to equipment relocation and product line consolidation and $0.4 million related to fixed asset impairments. Also during the second quarter of 2008, we announced a reduction in workforce at other facilities and corporate planned to reduce operating costs by an additional $6.1 million on an annual basis. During the third quarter of 2008, the Company incurred $0.8 million in connection with this program, the cost of which are reflected in the corporate operating results.

2007—During the first quarter of 2007, we announced the closure of our Barrie, Ontario and Langley, British Columbia plants and the restructuring of our Canadian administrative functions. During the third quarter of 2008, we incurred $0.1 million relating to plant closing costs in connection with the Langley facility.

2003—During 2003, the Company accrued the present value of future lease payments on three buildings it no longer occupied in an amount of $3.3 million. As of September 30, 2008, $0.9 million of these accruals are remaining.

4. DEBT

Debt as of September 30, 2008 and December 31, 2007 consists of the following (in thousands):


	September 30,			December 31,
	2008			2007
Revolving Credit Facilities	$	173,579		$	118,579
Senior Secured Notes, interest at 11.85% (Amended 2004 Notes)		369,972			339,276
Senior Secured Discount Notes, interest at 11.35% (2004 Notes)		7,838			7,825
Senior Secured Notes, interest at 111/8% (2003 Notes)		250,000			250,000
Senior Subordinated Notes, interest at 18% (2007 Notes)		24,000			24,000
Obligations under capital leases		23,405			12,887

Total		848,794			752,567
Less current portion obligations under capital lease		(2,974	)		(1,102	)
Less Revolving Credit Facility, Amended 2004 Notes, 2004 Notes and 2003 Notes reclassed to current		(801,389	)		—

Long-term portion	$	44,431		$	751,465

Revolving Credit Facilities

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

The Revolving Credit Facilities will mature on the earlier of (a) July 18, 2011 or (b) one month prior to the respective maturity dates of the Company’s senior secured notes if these senior secured notes have not been refinanced in full: May 15, 2009 with respect to the Company’s 2004 Notes (as herein defined) and Amended 2004 Notes (as herein defined), and August 15, 2009 with respect to the Company’s 2003 Notes (as herein defined). The interest rates for all loans other than those made to the Company’s German subsidiary range from, in the case of alternate base rate loans, the alternate base rate (either prime rate or .50% over the Federal Funds Rate) plus 1.75% to the alternate base rate plus 2.00% and, in the case of Eurodollar loans, LIBOR plus 2.75% to LIBOR plus 3.00%, in each case depending on the amount of available credit. The interest rates for loans made in connection with the loans to the Company’s German subsidiary are, in the case of alternate base rate loans, the alternate base rate plus 5.00% and, in the case of Eurodollar loans, LIBOR plus 6.00%. The commitment fee for the unused portion of the Revolving Credit Facilities is 0.375% per annum.

The Revolving Credit Facilities contain covenants that limit the ability of Pliant and its subsidiaries, subject to certain exceptions, to, among other things, incur or guarantee additional indebtedness, issue preferred stock or become liable in respect of any obligation to purchase or redeem stock, create liens, merge or consolidate with other companies, change lines of business, make certain types of investments, sell assets, enter into certain sale and lease-back and swap transactions, pay dividends on or repurchase stock, make distributions with respect to certain debt obligations, enter into transactions with affiliates, permit the payment of dividends or other payments from the Company’s subsidiaries, modify corporate and certain material debt documents, cancel certain debt, or change our fiscal year or accounting policies. The Revolving Credit Facilities also require the Company to comply with a fixed charge coverage ratio of 1.00 to 1.00 for the first year of the facility and of 1.10 to 1.00 thereafter; provided that such coverage ratio shall only apply during periods in which the amount of availability is and remains less than $20 million for a specified number of days. Once the amount of availability increases and remains above $20 million for a specified number of days, such coverage ratio becomes inapplicable. In addition, the amount of availability under the Revolving Credit Facilities must not be less than $10 million at any time. The loans will automatically become immediately due and payable without notice upon the occurrence of an event of default involving insolvency or bankruptcy of the Company or any of its subsidiaries. Upon the occurrence and during the continuation of any other event of default under the Revolving Credit Facilities, by notice given to the Company, the administrative agent of the Revolving Credit Facilities may, and if directed by the Required Lenders (as that term is defined in the Revolving Credit Facilities) must terminate the commitments and/or declare all outstanding loans to be immediately due and payable.

The Working Capital Credit Agreement is secured by a first-priority security interest in substantially all our inventory, receivables and deposit accounts, capital stock of, or other equity interests in, our existing and future domestic subsidiaries and first-tier foreign subsidiaries, investment property and certain other assets of the Company and its subsidiaries and a second-priority security interest in fixed assets of the Company and its subsidiaries party to the Working Capital Credit Agreement. The Fixed Asset Credit Agreement is secured by a first-priority security interest in the fixed assets of certain foreign subsidiaries of the Company and a second-priority security interest in capital stock of the fixed asset borrowers and their subsidiaries.

As of September 30, 2008, the Company had borrowings of $173.6 million under our $200 million Revolving Credit Facilities, and availability of $20.7 million subject to our borrowing base limitations and $5.7 million in outstanding letters of credit, along with $24.2 million in cash and cash equivalents, of which $2.2 million is a compensating balance associated with our Canadian operations’ borrowings under our Revolving Credit Facilities.

Amended 2004 Notes

As of September 30, 2008, the Company had $370.0 million aggregate principal amount of 11.85% (formerly 11⁵/₈%) Senior Secured Notes due 2009 (the “Amended 2004 Notes”) outstanding. The Amended 2004 Notes accrued payment-in-kind interest at the rate of 11⁵/₈% from the date of issuance until July 18, 2006, on which date the interest rate was increased by .225% to 11.85%. Such incremental interest rate increase of .225% also accrues as payment-in-kind interest. The Amended 2004 Notes mature on June 15, 2009 and interest is payable semiannually on each June 15 and December 15.

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

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

2004 Notes

As of September 30, 2008, the Company had $7.8 million of 11.35% (formerly 11¹/₈%) Senior Secured Discount Notes due 2009 (the “2004 Notes”) outstanding. The 2004 Notes accreted at the rate of 11¹/₈% from the date of issuance until July 18, 2006, on which date the interest rate was increased by .225% to 11.35%. The 2004 Notes accreted at the rate of 11.35% until December 15, 2006 to an aggregate principal amount of $1,000.88 per $1,000 stated principal amount. Commencing on December 15, 2006, interest on the 2004 Notes began accruing at the rate of 11.35% with such incremental interest rate increase of .225% accruing as payment-in-kind interest and the remaining 11¹/₈% payable in cash semiannually on June 15 and December 15, commencing on June 15, 2007. The 2004 Notes mature on June 15, 2009.

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

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

2003 Notes

As of September 30, 2008, the Company had $250 million of 11¹/₈% Senior Secured Notes due 2009 (the “2003 Notes”) outstanding. The 2003 Notes accrue interest at the rate of 11¹/₈% through the date of maturity. The 2003 Notes mature on September 1, 2009 and interest is payable in cash semiannually on each March 1 and September 1.

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

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

2007 Notes

As of September 30, 2008, the Company had $24 million in 18% Senior Subordinated Notes due 2012 (the “2007 Notes”) outstanding pursuant to a 2007 Note Indenture among the Company and Pliant Corporation International, Pliant Film Products of Mexico, Inc., Pliant Packaging of Canada, LLC, Pliant Solutions Corporation, Uniplast Holdings, Inc., Uniplast U.S. Inc. and Uniplast Industries Co., as guarantors, and the Bank of New York Trust Company, N.A., as trustee (the “2007 Note Trustee”) (the “2007 Notes Indenture”). The 2007 Notes accrue interest at the rate of 18% per annum until maturity on July 15, 2012 with interest payable semiannually on each January 15 and July 15 to holders of record of the 2007 Notes on the immediately preceding January 1 or July 1. The Company may redeem the 2007 Notes in whole or in part at the applicable redemption price, which in each of the first four years is equal to a de-escalating premium over par, plus accrued and unpaid interest to the redemption date, as set forth in the 2007 Notes. The 2007 Note Indenture provides the holders of the 2007 Notes with the right to require the Company to repurchase the 2007 Notes at a repurchase price equal to the then applicable redemption price plus accrued and unpaid interest upon a change of control of the Company (as defined in the 2007 Note Indenture). The 2007 Note Indenture does not provide for a sinking fund with respect to the 2007 Notes. The 2007 Note Indenture contains customary provisions that may result in an event of default, after notice and expiration of a cure period in certain circumstances, and acceleration of the indebtedness thereunder, including failure to timely pay principal and interest on the 2007 Notes or comply with the covenants set forth in the 2007 Note Indenture.

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

5. INTEREST EXPENSE—Current and Long-term debt

Interest expense—current and long-term debt in the statements of operations for the three and nine months ended September 30, 2008 and 2007 is as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Interest expense, net
Revolving Credit Facilities	$	2,173	$	2,726	$	7,131	$	8,218
2007 Notes		1,099		1,080		3,240		1,272
Amended 2004 Notes		10,594		9,442		30,696		27,358
2004 Notes		222		222		666		665
2003 Notes		6,953		6,953		20,859		20,859
Other, net		619		105		1,577		2,036

Interest expense accrued, net		21,660		20,528		64,169		60,408
Recurring amortization of financing fees		1,477		1,181		4,427		3,434

TOTAL	$	23,137	$	21,709	$	68,596	$	63,842


Cash interest payments
Revolving Credit Facilities	$	2,123	$	2,661	$	7,200	$	8,204
2004 Notes		—		—		435		434
2003 Notes		13,907		13,907		27,813		27,813
2007 Notes		2,160		372		4,320		372
Other, net		980		407		2,155		806

TOTAL	$	19,170	$	17,347	$	41,923	$	37,629

6. INCOME TAXES

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various state and foreign jurisdictions. With a few exceptions, the Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for the years prior to 2000. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as income tax expense. Accrued interest and penalties are insignificant at September 30, 2008. The Company believes that it has appropriate support for income tax positions taken or to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

For the three months ended September 30, 2008, income tax benefits of $0.2 million were recorded on pretax losses from operations of $35.7 million compared to income tax expense of $0.4 million on pretax income from operations of $19.1 million for the three months ended September 30, 2007. For the nine months ended September 30, 2008, income tax benefits of $0.1 million were recorded on pre-tax loss from operations of $73.8 million compared to income tax expense of $0.8 million of pre-tax income of $1.4 million for the nine months ended September 30, 2007. Income tax benefits related to net operating losses in the United States are offset by a valuation allowance as the realization of these tax benefits is not certain. Therefore, the income tax expense in the statements of operations

primarily reflects foreign income taxes. The income tax benefit for the nine months ended September 30, 2008 reflects a decrease in income tax reserves due to the favorable resolution of income tax examinations during the quarter.

7. OTHER COMPREHENSIVE LOSS

Other comprehensive income (loss) for the three months ended September 30, 2008 and 2007 was ($40.8) million and $21.6 million, respectively. Other comprehensive income (loss) for the nine months ended September 30, 2008 and 2007 was ($76.1) million and $5.1 million, respectively. The components of other comprehensive loss are net income (loss), changes in unrecognized pension benefit costs, and foreign currency translation.

8. OPERATING SEGMENTS

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

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

We evaluate the performance of our operating segments based on net sales (excluding inter-company sales) and segment profit. Sales and transfers between our segments are eliminated in consolidation. The segment profit reflects income before interest expense, income taxes, depreciation, amortization, restructuring costs and other non-cash charges and net adjustments for certain unusual items. Our reportable segments are managed separately with separate management teams, because each segment has differing products, customer requirements, technology and marketing strategies.

Segment profit and segment assets as of and for the periods ended September 30, 2008 and September 30, 2007 are presented in the following table (in thousands):


	Engineered		Industrial		Specialty		Printed		Corporate /
	Films		Films		Films		Products		Other			Total
Three months ended Sept. 30, 2008
Net sales to customers	$	93,963	$	90,590	$	64,649	$	57,648	$	1,061		$	307,911
Intersegment sales		7,012		1,036		1,998		6		(10,052	)		—

Total net sales		100,975		91,626		66,647		57,654		(8,991	)		307,911
Depreciation and amortization		3,207		1,713		2,412		2,933		976			11,241
Interest expense		414		128		16		571		22,008			23,137
Segment profit		1,025		3,622		3,036		2,268		(7,456	)		2,495
Capital expenditures		2,781		438		794		2,931		300			7,244
Three months ended Sept. 30, 2007
Net sales to customers	$	89,981	$	82,565	$	55,443	$	50,652	$	3,900		$	282,541
Intersegment sales		5,246		3,293		2,368		644		(11,551	)		—

Total net sales		95,227		85,858		57,811		51,296		(7,651	)		282,541
Depreciation and amortization		3,734		1,685		2,577		2,395		296			10,687
Interest expense		647		179		20		1,048		19,815			21,709
Segment profit		10,790		9,133		7,288		4,205		(6,763	)		24,653
Capital expenditures		4,144		673		2,296		2,471		2,507			12,091
Nine months ended Sept. 30, 2008
Net sales to customers	$	262,757	$	264,131	$	177,928	$	172,263	$	3,940		$	881,019
Intersegment sales		22,466		3,101		6,995		6		(32,568	)		—

Total net sales		285,223		267,232		184,923		172,269		(28,628	)		881,019
Depreciation and amortization		9,616		5,273		7,366		7,613		3,311			33,179
Interest expense		1,254		425		52		2,533		64,332			68,596
Segment profit		14,808		18,372		12,341		10,151		(16,951	)		38,721
Capital expenditures		6,983		1,265		2,899		9,493		1,341			21,981
As of Sept. 30, 2008
Segment assets	$	230,815	$	112,470	$	144,604	$	140,329	$	60,393		$	688,611
Nine months ended Sept. 30, 2007
Net sales to customers	$	263,036	$	233,989	$	152,786	$	158,179	$	11,979		$	819,969
Intersegment sales		12,228		10,840		9,003		2,389		(34,460	)		—

Total net sales		275,264		244,829		161,789		160,568		(22,481	)		819,969
Depreciation and amortization		10,124		5,260		7,686		7,262		3,464			33,796
Interest expense		2,719		543		64		3,128		57,388			63,842
Segment profit		37,448		26,286		19,406		11,667		(18,930	)		75,877
Capital expenditures		10,355		3,497		8,265		6,676		7,339			36,132
Segment assets		228,911		118,216		155,341		137,503		57,314			697,285
As of December 31, 2007
Segment assets	$	218,945	$	117,056	$	145,705	$	137,680	$	56,593		$	675,979

A reconciliation of the totals reported for the operating segments to the totals reported in the consolidated financial statements for the three and nine months ended September 30, 2008 and September 30, 2007 and as of September 30, 2008 and December 31, 2007 is as follows (in thousands) (unaudited):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Profit or Loss
Total segment profit	$	2,495		$	24,653		$	38,721		$	75,877
Depreciation and amortization		(11,240	)		(10,687	)		(33,179	)		(33,796	)
Restructuring and other costs		(3,813	)		(5,373	)		(10,485	)		(7,232	)
Reorganization costs		(28	)		(320	)		(159	)		(1,017	)
Other operating costs		—			—			(112	)		(1,101	)
Interest expense		(23,137	)		(21,709	)		(68,596	)		(63,842	)
Gain on extinguishment of debt		—			32,508			—			32,508

Income(Loss) before income taxes	$	(35,723	)	$	19,072		$	(73,810	)	$	1,397


	September 30,		December 31,
	2008		2007
Assets
Total assets from reportable segments	$	628,218	$	619,386
Other unallocated assets		60,393		56,593

Total consolidated assets	$	688,611	$	675,979

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


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2008		2007		2008		2007
Net Sales
United States	$	255,786	$	233,468	$	726,511	$	667,190
Foreign countries^(a)		52,125		49,073		154,508		152,779

Total	$	307,911	$	282,541	$	881,019	$	819,969


	September 30,		December 31,
	2008		2007
Long-lived assets
United States	$	255,878	$	271,263
Foreign countries		35,920		40,493

Total	$	291,798	$	311,756


Total assets
United States	$	578,420	$	565,794
Foreign countries		110,191		110,185

Total	$	688,611	$	675,979


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

9. DEFINED BENEFIT PLANS

The Company sponsors three noncontributory defined benefit pension plans in the United States covering domestic employees with 1,000 or more hours of service. The Company funds these in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974. Contributions are intended to not only provide for benefits attributed to service to date but also for those expected to be earned in the future. We also sponsor two defined benefit plans in Canada and one defined benefit plan in Germany.

The consolidated net periodic pension expense (benefit) for the three and nine months ended September 30, 2008 and 2007 includes the following components (in thousands):


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Service cost-benefits earned during the period	$	135		$	102		$	443		$	302
Interest cost on projected benefit obligation		1,396			1,283			4,265			3,852
Expected return on assets		(1,779	)		(1,568	)		(5,265	)		(4,706	)
Other		32			35			96			98

Net periodic pension expense (benefit)	$	(216	)	$	(148	)	$	(461	)	$	(454	)

10. CONTINGENCIES

Litigation We are involved in various litigation matters from time to time in the ordinary course of our business, including matters described in previous filings. In our opinion, none of such litigation is material to our financial condition or results of operations.

11. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The following condensed consolidating financial statements present, in separate columns, financial information for (i) Pliant (on a parent only basis) with its investment in its subsidiaries recorded under the equity method, (ii) guarantor subsidiaries, as specified in the Indenture dated as of May 30, 2003, as amended (the “2003 Indenture”) relating to the 2003 Notes, the First Supplemental Indenture with respect to the Amended and Restated Indenture relating to the 2004 Notes and the Amended 2004 Notes, and the 2007 Note Indenture (the 2003 Indenture, the Amended and Restated Indenture, as amended by the First Supplemental Indenture, and the 2007 Note Indenture, collectively, the “Indentures”) on a combined basis, with any investments in non-guarantor subsidiaries specified in the Indentures recorded under the equity method, (iii) direct and indirect non-guarantor subsidiaries on a combined basis, (iv) the eliminations necessary to arrive at the information for Pliant and its subsidiaries on a consolidated basis, and (v) Pliant on a consolidated basis, in each case as of September 30, 2008 and December 31, 2007 and for the three and nine months ended September 30, 2008 and September 30, 2007. The 2003 Notes, the 2004 Notes, the Amended 2004 Notes, and the 2007 Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and each guarantor subsidiary is 100% owned, directly or indirectly, by Pliant, except that the Amended 2004 Notes are not guaranteed by Pliant Solutions Corporation (“Pliant Solutions”). Substantially all of the assets of Pliant Solutions were sold on September 30, 2004, the remainder disposed prior to December 31, 2005 and Pliant Solutions dissolved as of December 27, 2007. There are no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Pliant. The condensed consolidated financial statements are presented herein, rather than separate financial statements for each of the guarantor subsidiaries, because management believes that separate financial statements relating to the guarantor subsidiaries are not material to investors.

PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2008 (DOLLARS IN THOUSANDS) (UNAUDITED)


	Pliant												Consolidated
	Corporation			Combined			Combined						Pliant
	Parent Only			Guarantors			Non-Guarantors			Eliminations			Corporation
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	16,814		$	3,565		$	3,839		$	—		$	24,218
Receivables, net of allowances		116,612			6,879			28,284			—			151,775
Inventories		90,388			3,577			12,495			—			106,460
Prepaid expenses and other		3,778			346			3,112			—			7,236
Income taxes receivable, net		(97	)		1,114			870			—			1,887
Deferred income taxes		7,295			22			1			—			7,318


Total current assets		234,790			15,503			48,601			—			298,894
PLANT AND EQUIPMENT, net		255,878			7,733			28,187			—			291,798
GOODWILL		57,778			13,153			1,491			—			72,422
INTANGIBLE ASSETS, net		1,243			8,600			—			—			9,843
INVESTMENT IN SUBSIDIARIES		4,226			—			—			(4,226	)		—
OTHER ASSETS		10,972			—			4,682			—			15,654


TOTAL ASSETS	$	564,887		$	44,989		$	82,961		$	(4,226	)	$	688,611


LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt	$	765,139		$	16,700		$	22,524		$	—		$	804,363
Trade accounts payable		87,474			5,441			14,106			—			107,021
Accrued liabilities		39,607			(42	)		3,979			—			43,544
Due to (from) affiliates		(46,124	)		65,375			(19,251	)		—			—


Total current liabilities		846,096			87,474			21,358			—			954,928
LONG-TERM DEBT, net of current portion		40,548			—			3,883			—			44,431
OTHER LIABILITIES		9,794			752			6,527			—			17,073
DEFERRED INCOME TAXES		12,469			792			2,938			—			16,199


Total liabilities		908,907			89,018			34,706			—			1,032,631

STOCKHOLDERS’ (DEFICIT):
Preferred Stock		287,989			—			—			—			287,989
Common stock		1			—			11,916			(11,916	)		1
Paid-in capital		155,341			14,020			78,144			(92,164	)		155,341
Retained earnings (deficit)		(772,529	)		(60,400	)		(35,928	)		96,328			(772,529	)
Accumulated other comprehensive loss		(14,822	)		2,351			(5,877	)		3,526			(14,822	)


Total stockholders’ (deficit)		(344,020	)		(44,029	)		48,255			(4,226	)		(344,020	)


TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)	$	564,887		$	44,989		$	82,961		$	(4,226	)	$	688,611

See notes to condensed consolidated financial statements.

PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF DECEMBER 31, 2007 (DOLLARS IN THOUSANDS) (UNAUDITED)


	Pliant												Consolidated
	Corporation			Combined			Combined						Pliant
	Parent Only			Guarantors			Non-Guarantors			Eliminations			Corporation
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	7		$	3,609		$	3,642		$	—		$	7,258
Receivables, net of allowances		97,400			5,216			24,974			—			127,590
Inventories		93,152			3,407			11,799			—			108,358
Prepaid expenses and other		2,296			670			3,303			—			6,269
Income taxes receivable		(295	)		1,093			1,086			—			1,884
Deferred income taxes		9,156			9			(20	)		—			9,145


Total current assets		201,716			14,004			44,784			—			260,504
PLANT AND EQUIPMENT, net		271,263			8,885			31,608			—			311,756
GOODWILL		57,777			13,153			1,597			—			72,527
INTANGIBLE ASSETS, net		1,470			9,611			—			—			11,081
INVESTMENT IN SUBSIDIARIES		(23,719	)		—			—			23,719			—
OTHER ASSETS		15,377			—			4,734			—			20,111


TOTAL ASSETS	$	523,884		$	45,653		$	82,723		$	23,719		$	675,979


LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
CURRENT LIABILITIES:
Current portion of long-term debt	$	987		$	—		$	115		$	—		$	1,102
Trade accounts payable		78,846			2,771			11,561			—			93,178
Accrued liabilities		53,072			657			3,681			—			57,410
Due to (from) affiliates		(83,364	)		65,741			17,623			—			—


Total current liabilities		49,541			69,169			32,980			—			151,690
LONG-TERM DEBT, net of current portion		713,367			16,700			21,398			—			751,465
OTHER LIABILITIES		14,614			1,296			6,695			—			22,605
DEFERRED INCOME TAXES		14,306			973			2,884			—			18,163


Total liabilities		791,828			88,138			63,957			—			943,923

STOCKHOLDERS’ (DEFICIT):
Preferred Stock		247,355			—			—			—			247,355
Common stock		1			—			11,916			(11,916	)		1
Paid in capital		155,341			14,020			43,822			(57,842	)		155,341
Retained earnings (deficit)		(658,163	)		(58,440	)		(34,662	)		93,102			(658,163	)
Accumulated other comprehensive loss		(12,478	)		1,935			(2,310	)		375			(12,478	)


Total stockholders’ (deficit)		(267,944	)		(42,485	)		18,766			23,719			(267,944	)


TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT)	$	523,884		$	45,653		$	82,723		$	23,719		$	675,979

See notes to condensed consolidated financial statements.

PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 (IN THOUSANDS) (UNAUDITED)


	Pliant			Combined			Combined					Consolidated
	Corporation			Guarantor			Non-Guarantor					Pliant
	(Parent Only)			Subsidiaries			Subsidiaries			Eliminations		Corporation
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	(32,186	)	$	818		$	1,904		$	—	$	(29,464	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets		2,959			—			—			—		2,959
Asset transfers		995			(27	)		(968	)		—		—
Capital expenditures for plant and equipment		(20,881	)		(747	)		(353	)		—		(21,981	)

Net cash used in investing activities		(16,927	)		(774	)		(1,321	)		—		(19,022	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under capital lease		11,369			—			—			—		11,369
Repayment of capital leases and other, net		(783	)		—			(53	)		—		(836	)
Loans (to) from affiliates		5,000			—			(5,000	)		—		—
Borrowings under Revolving Credit Facilities		50,000			—			5,000			—		55,000

Net cash provided by/(used in) financing activities		65,586			—			(53	)		—		65,533

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		334			(88	)		(333	)		—		(87	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		16,807			(44	)		197			—		16,960

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD		7			3,609			3,642			—		7,258

CASH AND CASH EQUIVALENTS, END OF THE PERIOD		16,814			3,565			3,839			—		24,218

See notes to condensed consolidated financial statements.

PLIANT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 (IN THOUSANDS) (UNAUDITED)


	Pliant			Combined			Combined					Consolidated
	Corporation			Guarantor			Non-Guarantor					Pliant
	(Parent Only)			Subsidiaries			Subsidiaries			Eliminations		Corporation
CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES	$	17,713		$	(3	)	$	1,448		$	—	$	19,158

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets		—			165			—			—		165
Equipment transfers		(6,414	)		6,604			(190	)		—		—
Capital expenditures for plant and equipment		(32,068	)		(2,231	)		(1,833	)		—		(36,132	)

Net cash used in investing activities		(38,482	)		4,538			(2,023	)		—		(35,967	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of financing fees		(1,704	)		—			—			—		(1,704	)
Repayment of capital leases and other, net		(502	)		—			(58	)		—		(560	)
Borrowings under Revolving Credit Facilities		11,000			—			10,000			—		21,000
Loans (to)/from affiliates		10,000			—			(10,000	)		—		—
Proceeds from issuance of preferred stock		157			—			—			—		157
Restricted cash deposits with trustee		(22,593	)		—			—			—		(22,593	)
Issuance of senior subordinated notes		24,000			—			—			—		24,000

Net cash provided by/(used in) financing activities		20,358			—			(58	)		—		20,300

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		497			(2,066	)		970			—		(599	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		86			2,469			337			—		2,892

CASH AND CASH EQUIVALENTS, BEGINNING OF THE PERIOD		7			1,005			3,187			—		4,199

CASH AND CASH EQUIVALENTS, END OF THE PERIOD	$	93		$	3,474		$	3,524		$	—	$	7,091

See notes to condensed consolidated financial statements.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The purpose of this section is to discuss and analyze material changes in our consolidated financial condition, liquidity and capital resources and results of operations as of the third quarter of 2008. This analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2007. This section contains certain forward-looking statements within the meaning of federal securities laws that involve risks and uncertainties, including statements regarding our plans, objectives, goals, strategies and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under “Cautionary Statement for Forward-Looking Information” below and elsewhere in this report.

General

We manufacture and sell a variety of plastic films and flexible packaging products. Our products serve customers in a variety of flexible packaging markets, including the food and beverage, retail, pharmaceutical, medical, personal care, household, industrial and agricultural film markets, as well as secondary packaging and non-packaging end use markets. We manufacture these products at 21 facilities located in the United States, Australia, Canada, Germany and Mexico. The Company has four operating segments: Engineered Films, Industrial Films, Specialty Films and Printed Products, each discussed herein.

Market Conditions

During the third quarter of 2008, macro-market and economic conditions have been unprecedented and challenging with tighter credit conditions and slower growth. Continued concerns about the systemic impact of inflation, energy and raw material costs, geopolitical issues, and the availability and cost of credit have contributed to increased market volatility and diminished expectations for the U.S. economy. These conditions, combined with declining business and consumer confidence have contributed to volatility of unprecedented levels. As a result of these market conditions, the cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Concern about the stability of the markets generally and the strength of counterparties specifically has led many lenders and institutional investors to reduce, and in some cases, cease to provide funding to borrowers. Continued turbulence in the U. S. and international markets and economies may adversely affect our liquidity and financial condition. If these market conditions continue, they may limit our ability to timely refinance maturing liabilities and access the capital markets to meet liquidity needs, resulting in an adverse effect on our financial condition and results of operations.

In addition to pursuing our current business strategy described more fully in our most recent Form 10-K filed March 19, 2008, we have also been in the process, during the third quarter, of evaluating refinancing alternatives. In furtherance of this goal, and in response to the market and economic conditions described above, on September 13, 2008, the Company’s Board of Directors formed a Special Committee of directors (the “Special Committee”) for the purpose of reviewing and evaluating alternatives for refinancing its 2003 Notes, 2004 Notes, and Amended 2004 Notes. The Board of Directors authorized the Special Committee to retain financial, legal or other professional advisors to assist in this process. As compensation for serving on the Special Committee, each director will receive fees equal to the regular Board of Director meeting fees.

The Company remains cautious about the future due to slowing of global demand, continued volatility in costs of energy and raw materials and the heightened financial market turmoil. While the Company explores refinancing alternatives, the proposed $15 Million Cost Reduction Program & $80 Million Debt Reduction Program (the “Program”) announced by the Company in the second quarter of 2008, which contemplated, among other actions, an increase in EBITDA of $8.9 million following anticipated plant closures, will remain among the Company’s objectives. The Program consists of two parts, a “Cost Reduction” plan, which contemplates a $15 million reduction in operating costs, and a “Debt Reduction” plan, which seeks to reduce the Company’s debt by $80 million. The Program contemplated the closing of four of the Company’s facilities: South Deerfield, MA and Dalton, GA in our Engineered Films segment, and Harrington, DE and Newport News, VA in our Specialty Films segment. During the third quarter, the Company has moved forward with its plans to close the facility located in Newport News, VA. During the third quarter of 2008, we incurred $2.9 million in connection with the these four plant closures: $1.7 million in our Engineered segment, of which $0.9 million related to severance and $0.2 million related to relocation of equipment; and $1.2 million in our Specialty Films segment, of which $0.8 million related to equipment relocation and product line consolidation and $0.4 million in fixed asset impairments.

The Cost Reduction portion of the Program anticipates the closing of the three additional facilities. The Company will continue to execute this plan; however, the need to continue to provide manufacturing capacity to fulfill customer orders may dictate certain aspects of the plan be delayed. In addition, while the Company continues to explore various alternatives including accretive acquisitions and the sale and leaseback of buildings and equipment, the Debt Reduction portion of the Program has been delayed due to the current global economic turmoil, illiquid credit markets and constraints imposed by our secured debt. There can be no assurance that the Company will be able to execute the remainder of the Program.

The drastic increase in the price of resin, especially Polyethylene (“PE”), has negatively impacted the Company’s EBITDA and working capital. The average price for PE in 2003 was 39¢ per pound versus an average price in the third quarter of 2008 of 92¢ per pound. Not only does the sharp increase in resin negatively affect the Company’s EBITDA, it also has a large negative affect on the Company’s working capital. During the nine months of 2008, the Company has reduced inventory pounds from 98.9 million pounds to 83.0 million pounds, but the inventory dollars only dropped from $108.4 million to $106.5 million.

Overview

We recorded sales of $309.8 million in the third quarter of 2008 compared to sales of $282.5 million in the third quarter of 2007. Third quarter 2008 sales measured in pounds were 207.7 million, which represents a 3.7% decrease from the third quarter of 2007 and is discussed in further detail in the “Operating Segment Review” presented later in this section. Average sales price for the three months ended September 30, 2008 was $1.489 per pound as compared to $1.310 per pound for the three months ended September 30, 2007 and is discussed in further detail in the “Operating Segment Review” below.

Pro Forma EBITDA was $5.0 million for the third quarter of 2008, compared to $24.7 million for the third quarter of 2007. Pro Forma EBITDA reflects income from continuing operations adjusted for interest expense, income taxes, depreciation, amortization, reorganization costs, plant closing cost savings, reductions in workforce cost savings and restructuring charges. We believe that Pro Forma EBITDA information enhances an investor’s understanding of our ability to satisfy principal and interest obligations with respect to our indebtedness and to utilize cash for other purposes. This information eliminates items that have less bearing on our operating performance, thereby highlighting trends in our core business which may not otherwise be apparent when relying solely on GAAP financial measures. It also provides an assessment of controllable expenses which are indicators for management to determine whether current spending decisions need to be adjusted in order to meet financial goals and achieve optimal financial performance. The decrease in Pro Forma EBITDA of $19.7 million reflects $14.9 million in compression between our average selling price and raw material costs, $0.6 million impact from reduced volumes, $3.6 million in incremental freight, packaging, utilities and other energy related costs, offset by lower research and development costs. See Exhibit 99.1 for a reconciliation of income from continuing operations before income taxes, EBITDA(R) or Segment Profit, and Pro Forma EBITDA.

Results of Operations

The following table sets forth net sales, operating expenses, and operating income, and such amounts as a percentage of net sales, for the three and nine months ended September 30, 2008 and 2007 (dollars in millions).


	Three Months Ended September 30,											Nine Months Ended September 30,
	2008						2007					2008						2007
				% of					% of						% of					% of
	$			Sales			$		Sales			$			Sales			$		$ Sales
Net Sales	$	307.9			100.0	%	$	282.5		100.0	%	$	881.0			100.0	%	$	820.0		100.0	%
Cost of sales		296.6			96.3	%		250.8		88.7	%		821.0			93.2	%		718.2		87.6	%

Gross profit		11.3			3.7	%		31.7		11.3	%		60.0			6.8	%		101.8		12.4	%

Selling, general and administrative		18.6			6.1	%		15.4		5.5	%		49.7			5.6	%		51.5		6.3	%
Research and development costs		1.6			0.5	%		2.4		0.9	%		5.0			0.6	%		8.6		1.1	%
Restructuring and other costs		3.8			1.2	%		5.4		1.9	%		10.5			1.2	%		7.2		0.9	%
Reorganization costs		—			—	%		0.3		0.1	%		0.2			—	%		1.1		0.1	%
Other operating costs		—			—	%		—		—	%		0.1			—	%		1.1		0.1	%

Total operating expenses		24.0			7.8	%		23.5		8.4	%		65.5			7.4	%		69.5		8.5	%

Operating income (loss)	$	(12.7	)		(4.1	)%	$	8.2		2.9	%	$	(5.5	)		(0.6)	%	$	32.3		3.9	%

Three Months Ended September 30, 2008 Compared with the Three Months Ended September 30, 2007

Net Sales

Net sales increased by $25.4 million, or 9.0%, to $307.9 million for the third quarter of 2008 from $282.5 million for the three months ended September 30, 2007. The increase resulted primarily from a 13.2% increase in our average selling prices reflecting increases in raw material prices partially offset by decreases in sales volume of 3.7%. See “Operating Segment Review” below for a detailed discussion of sales volumes and selling prices by segment and division.

Gross Profit

Gross profit decreased by $20.4 million to $11.3 million for the third quarter of 2008 primarily due to compression between our average selling price and raw material cost caused by raw material increases at rates greater than our ability to pass along increases to customers and increased freight and utility costs between years. The primary raw materials used in the manufacture of most of our products are polypropylene resin, polyethylene resin and PVC resin. The long-term prices of these materials are primarily a function of the price of crude oil and natural gas which have increased significantly in recent years and in the third quarter of 2008. See “Operating Segment Review” below for a detailed discussion of the margin variances by segment.

Selling, General and Administrative

Selling, general and administrative expenses were $18.6 million for the third quarter of 2008, compared to $15.4 million for the third quarter of 2007. This increase of $3.2 million is primarily attributable to higher sales commissions and other customer related changes and increased worker’s compensation and other employee related benefit plan costs.

Research and Development Costs

Research and development costs were $1.6 million for the third quarter of 2008, compared to $2.4 million in the third quarter of 2007. This decrease of $0.8 million is primarily attributable to the impact of the Company’s 2007 and 2008 reduction in workforce initiatives and less government contract related research and development activities.

Restructuring and Other Costs

Restructuring and other costs of $3.8 million for the third quarter of 2008 relate primarily to $2.9 million in plant closure costs which includes $1.4 million in equipment relocation and product lines consolidation costs, $0.9 million in severance costs and $0.4 million in fixed asset impairments. In addition, during the third quarter of 2008 we incurred $0.8 million in severance and other costs associated with our 2008 reduction in workforce, which was a component of the Cost Reduction portion of the Program described in more detail in “Market Conditions” above. Restructuring and other costs of $5.4 million for the third quarter of 2007 relate primarily to the reorganization of our Canadian operations and includes $5.3 million of severance, lease and other plant closing costs associated with the closure of our Langley, British Columbia facility and the relocation of production equipment and consolidation of product lines in our Printed Products operating segment.

Reorganization Costs

Reorganization costs were negligible for the third quarter of 2008, compared to $0.3 million for the third quarter of 2007. Reorganization costs in the third quarter of 2007 included court costs and legal and other professional fees.

Operating Income (Loss)

During the third quarter of 2008, the Company recorded an operating loss of $12.7 million compared to operating income of $8.2 million for the third quarter of 2007.

Interest Expense

Interest expense on current and long-term debt increased by $1.4 million to $23.1 million for the third quarter of 2008, from $21.7 million for the third quarter of 2007. This increase is primarily attributable to increased payment-in-kind interest on our Amended 2004 Notes and interest on our capital leases, offset in part by a decrease in interest on our Revolving Credit Facilities.

Income Tax Expense

Income tax expense for the third quarter of 2008 reflected benefits of $0.2 million on pretax losses of $35.7 million, compared to income tax expense of $0.4 million on pretax income of $19.1 million for the same period in 2007. Income tax benefits related to net operating losses in the United States were offset by a valuation allowance as the realization of these tax benefits is not certain. The income tax expense in the statements of operations primarily reflects foreign income taxes. In July 2006, the FASB issued Statement of Financial Accounting Standards Interpretation No. 48, Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No.109 (“FIN 48”). The income tax benefits reflect the decrease in our FIN 48 reserves due to the favorable resolution of income tax examinations during the quarter.

Nine Months Ended September 30, 2008 Compared with the Nine Months Ended September 30, 2007

Net Sales

Net sales increased by $61.0 million, or 7.4%, to $881.0 million for the nine months ended September 30, 2008 from $820.0 million for the nine months ended September 30, 2007. The increase was primarily due to a 12.5% increase in our average selling price resulting primarily from increases in our raw material prices, offset in part by a 4.5% decrease in sales volume. See “Operating Segment Review” below for a detailed discussion of sales volumes and selling prices by segment and division.

Gross Profit

Gross profit decreased by $41.8 million to $60.0 million for the nine months ended September 30, 2008, from $101.8 million for the nine months ended September 30, 2007. This decrease was due primarily to compression between our average selling prices and raw material costs caused by raw material increases at rates greater than our ability to pass along increases to customers and higher freight and utility costs between years. See “Operating Segment Review” below for a detailed discussion of the margin variances by segment.

Selling, General and Administrative Costs

Selling, general and administrative costs were $49.7 million for the nine months ended September 30, 2008, compared to $51.5 million for the first nine months of 2007. This decrease was primarily due to lower sales commissions, employee bonuses and pension related costs.

Research and Development Costs

Research and development costs were $5.0 million for the nine months ended September 30, 2008, compared to $8.6 million for the nine months ended September 30, 2007. This decrease of $3.6 million is primarily attributable to the Company’s 2007 and 2008 reduction in workforce initiatives and lower government contract related research and development activities.

Restructuring and Other Costs

Restructuring and other costs were $10.5 million for the nine months ended September 30, 2008, compared to $7.2 million for the nine months ended September 30, 2007. Restructuring and other costs in 2008 related primarily to $8.8 million in plant closure

costs consisting of $5.8 million in fixed asset impairments, $2.1 million in equipment relocation and product consolidation costs and $0.9 million in severance costs. These costs are explained in more detail in “Market Conditions” above. Furthermore, $6.5 million of this $8.8 million relate to our Specialty Films segment and $2.1 million relate to our Engineered Films division. In addition, the Company has incurred $1.7 million in connection with its 2008 reduction in workforce, the majority of which is reflected in our unallocated corporate costs. Restructuring and other costs in 2007 relate primarily to the reorganization of our Canadian operations and includes $5.4 million of severance, leases, and other restructuring charges associated with the closure of our Langley, British Columbia facility and the relocation of production equipment and consolidation of product lines into other Printed Products operating segment plants. In addition, we incurred $1.4 million associated with restructuring our Canadian management and sales teams and $0.3 million associated with closure of our Barrie, Ontario facility.

Reorganization Costs

Reorganization costs were $0.2 million for the nine months ended September 30, 2008, compared to $1.1 million for the nine months ended September 30, 2007. Reorganization costs in both 2008 and 2007 relate primarily to legal and other professional fees.

Other Operating Costs

Other operating costs for 2008 include a $0.1 million fixed asset impairment and in 2007 included $1.1 million of costs associated with the issuance of the Company’s Series M Preferred Stock, par value $.01 per share (“Series M Preferred Stock”) pursuant to the Company’s Fourth Amended Joint Plan of Reorganization.

Operating Income

During the nine months ended September 30, 2008, the Company recorded an operating loss of $5.5 million, compared to operating income of $32.3 million for the nine months ended September 30, 2007.

Interest Expense

Interest expense on current and long-term debt was $68.6 million for the nine months ended September 30, 2008, compared to $63.8 million for the nine months ended September 30, 2007. This increase of $4.8 million between periods is primarily due to increased payment-in-kind interest on our Amended 2004 Notes and increased interest on our 2007 Notes, partially offset by lower interest on our Revolving Credit Facilities and capital leases.

Other Income (Expense)

Other income was $0.1 million for the nine months ended September 30, 2008, compared to other income of $0.3 million for the nine months ended September 30, 2007. Other income in both years includes interest income and transaction gains.

Income Tax Expense

Income tax expense for the nine months ended September 30, 2008 was a benefit of $0.1 million on pretax losses from continuing operations of $70.0 million as compared to income tax expense of $0.8 million on pretax income from continuing operations of $1.4 million for the same period in 2007. Income tax benefits related to net operating losses in the United States were offset by a valuation allowance as the realization of these tax benefits is not certain. Therefore, the income tax expense in the statements of operations primarily reflects foreign income taxes. The income tax expenses for the nine months ended September 30, 2008 reflect the decrease in our FIN 48 reserves due to the favorable resolution of income tax examinations during the period.

Operating Segment Review

General

We evaluate the performance of our operating segments based on net sales (excluding inter-company sales) and segment profit. The segment profit reflects income from continuing operations adjusted for interest expense, income taxes, depreciation, amortization, reorganization, restructuring and other costs and other non-cash charges (principally the impairment of goodwill, intangible assets and fixed assets). Generally, the Company experienced a compression in gross profit across all segments, due in part to increased raw material costs combined with customer pricing pass through lags, and increased freight and utility costs. For more information on our operating segments, including a reconciliation of segment profit to income before taxes, see Note 8 to the condensed consolidated financial statements included in this report.

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


	Engineered		Industrial		Specialty		Printed		Corporate /
	Films		Films		Films		Products		Other			Total
Three months ended Sept. 30, 2008

Total net sales	$	94.0	$	90.6	$	64.6	$	57.6	$	1.1		$	307.9
Segment profit		1.0		3.6		3.0		2.3		(7.4	)		2.5

Three months ended Sept. 30, 2007

Total net sales	$	89.9	$	82.6	$	55.5	$	50.7	$	3.8		$	282.5
Segment profit		10.7		9.2		7.3		4.2		(6.7	)		24.7

Nine months ended Sept. 30, 2008
Total net sales	$	262.8	$	264.1	$	177.9	$	172.3	$	3.9		$	881.0
Segment profit		14.8		18.4		12.3		10.2		(17.0	)		38.7

Nine months ended Sept. 30, 2007
Total net sales	$	263.0	$	234.0	$	152.8	$	158.2	$	12.0		$	820.0
Segment profit		37.4		26.3		19.4		11.7		(18.9	)		75.9

Three months ended September 30, 2008 compared with the three months ended September 30, 2007

Engineered Films

Net sales. Net sales in Engineered Films increased by $4.1 million, or 4.6%, to $94.0 million for the quarter ended September 30, 2008 from $89.9 million for the third quarter of 2007. This change was due to an increase in average selling prices of 12.3% which was partially offset by a decrease in sales volume of 7.0%.

Segment profit. The Engineered Films segment profit was $1.0 million for the quarter ended September 30, 2008, as compared to $10.7 million for the same period in 2007. This $9.7 million decrease in segment profit was primarily due to compression in gross profit as a result of higher raw material costs combined with customer pricing pass through lags with contractual accounts, higher freight, packaging and utility costs and lower sales volume.

Industrial Films

Net sales. The net sales of our Industrial Films segment increased by $8.0 million, or 9.7%, to $90.6 million for the quarter ended September 30, 2008 from $82.6 million for the quarter ended September 30, 2007. This increase is primarily due to a 14.5% increase in average selling prices offset by a 4.2% decrease in sales volume primarily in our Stretch Films markets.

Segment profit. The Industrial Films segment profit was $3.6 million for the quarter ended September 30, 2008, as compared to $9.2 million for the same period in 2007. This $5.6 million reduction in segment profit was primarily due to compressed gross profit as a result of higher raw material costs combined with customer pricing pass through lags with contractual accounts and increased freight and utility costs.

Specialty Films

Net sales. Net sales in our Specialty Films segment increased $9.1 million, or 16.4%, to $64.6 million for the quarter ended September 30, 2008 from $55.5 million for the quarter ended September 30, 2007. This increase was primarily due to an increase in our average selling prices of 13.8% and an increase in sales volume of 2.4%.

Segment profit. The Specialty Films segment profit was $3.0 million for the quarter ended September 30, 2008, as compared to $7.3 million for the quarter ended September 30, 2007. This $4.3 million reduction in segment profit was primarily due to higher raw material, freight, and utility costs and was partially offset by manufacturing efficiencies and reduced plant overhead costs. Additionally, as a result of the Cost Reduction portion of the Program (defined in “Market Conditions” above), production of a number of products has been transferred to plants in other segments.

Printed Products

Net sales. Net sales of our Printed Products segment increased $6.9 million or 13.6% to $57.6 million for the quarter ended September 30, 2008 from $50.7 million for the quarter ended September 30, 2007. This increase was due to a positive sales mix, an increase in average selling prices of 12.3% and higher sales volume of 1.4% between periods primarily in our bakery markets.

Segment profit. The Printed Products segment profit was $2.3 million for the quarter ended September 30, 2008, as compared to $4.2 million for the quarter ended September 30, 2007. This $1.9 million decrease is primarily due to higher raw material costs and utilities, partially offset by a favorable product mix.

Corporate/Other

Corporate/Other includes our corporate headquarters and our research and development facility in Newport News, Virginia. Unallocated corporate expenses were $7.4 million for the quarter ended September 30, 2008, compared to $6.7 million for the quarter ended September 30, 2007. This increase is due to higher legal costs between years and the inclusion in the third quarter of 2008 of equipment lease costs associated with the Company’s sale lease back program.

Nine months ended September 30, 2008 compared with the nine months ended September 30, 2007

Engineered Films

Net sales. Net sales in Engineered Films decreased by $0.2 million, or 0.1%, to $262.8 million for the nine months ended September 30, 2008 from $263.0 million for the nine months ended September 30, 2007. This change was due to a 10.5% reduction in sales volume, primarily in our converter and industrial film markets, offset with an increase in average selling prices of 11.6% principally due to raw material price increases.

Segment profit. The Engineered Films segment profit was $14.8 million for the nine months ended September 30, 2008, as compared to $37.4 million for the same period in 2007. This $22.6 million decrease in segment profit was primarily due to a 10.5% decrease in sales volume, compressed gross profit as a result of higher raw material costs combined with customer pricing pass through lags with contractual accounts and higher freight and utility costs between years.

Industrial Films

Net sales. The net sales of our Industrial Films segment increased by $30.1 million, or 12.9%, to $264.1 million for the nine months ended September 30, 2008 from $234.0 million for the nine months ended September 30, 2007. This increase is primarily due to an increase in average selling prices of 15.6% principally due to raw material price increases, offset by a 2.3% reduction in sales volume, primarily in our Stretch Films market.

Segment profit. The Industrial Films segment profit was $18.4 million for the nine months ended September 30, 2008, as compared to $26.3 million for the same period in 2007. This $7.9 million reduction in segment profit was primarily due to compressed gross profit as a result of higher raw material costs combined with customer pricing pass through lags with contractual accounts and higher freight and utility costs between years. This decrease is partially offset by improved manufacturing efficiencies and favorable selling, general and administrative costs.

Specialty Films

Net sales. Net sales in our Specialty Films segment increased $25.1 million, or 16.4%, to $177.9 million for the nine months ended September 30, 2008 from $152.8 million for the nine months ended September 30, 2007. This growth was due to increased sales volume of 4.2% in our Agricultural and Printed Shrink markets and an increase in our average selling prices of 11.8% because of partial pass-through of higher raw material costs.

Segment profit. The Specialty Films segment profit was $12.3 million for the nine months ended September 30, 2008, compared to $19.4 million for the same period in 2007. This $7.1 million decline primarily occurred in the second and third quarters of 2008 due to higher raw material costs, freight, and utility costs that were partially offset by favorable operational and plant overhead costs. The majority of contracts have resin pass through dynamics that delay resin cost recovery. In addition, this segment continues to invest in state of the art equipment to offset customer product platform changes that impact volume and profit. These equipment upgrades are helping our customers use less material in the construction of their finished products.

Printed Products

Net sales. Net sales of our Printed Products segment increased $14.1 million or 8.9% to $172.3 million for the nine months ended September 30, 2008 from $158.2 million for the nine months ended September 30, 2007. This increase was due primarily to an increase in average selling prices of 11.2% and favorable product mix, partially offset by a decrease in volume of 2.1%, largely in the tortilla bag market.

Segment profit. The Printed Products segment profit was $10.2 million for the nine months ended September 30, 2008, as compared to $11.7 million for the same period in 2007. This $1.5 million decrease was due to higher raw material and utility costs, partially offset by a favorable product mix and lower selling, general and administrative expenses.

Corporate/Other

Corporate/Other includes our corporate headquarters and our research and development facility in Newport News, Virginia. Unallocated corporate expenses decreased by $1.9 million to $17.0 million for the nine months ended September 30, 2008, from $18.9 million for the nine months ended September 30, 2007. This decrease was primarily due to the impact of the Company’s 2008 reduction in workforce, a reduction in employee bonus and pension related costs, and to lower U.S. Government funded research and development activity. The closure of our Newport News, Virginia facility and the reduction in workforce are components of the Cost Reduction portion of the Program, defined in “Market Conditions” above.

Liquidity and Capital Resources

Sources of Capital

Our principal sources of funds have been cash generated by our operations and borrowings under Revolving Credit Facilities. In addition, we have raised funds through the issuance of senior secured and subordinated notes and the sale of shares of preferred stock.

Our 2003 Notes, 2004 Notes, and Amended 2004 Notes have maturity dates in 2009. The Company, through the Special Committee formed on September 13, 2008, continues to explore alternatives to refinance these Notes. However, given the turbulent state of the credit markets, the weak economy, and the Company’s current financial condition, we may not be able to refinance our existing debt. If we are unable to refinance the outstanding borrowings, we would need to secure alternative financing, which may not be available on commercially reasonable terms or at all, and could result in a materially adverse effect on our results of operations and financial position. See “Liquidity” below, as well as Part II, Item 1A “Risk Factors” for additional discussion of these matters.

Current Credit Facilities

On July 18, 2006, we entered into our Revolving Credit Facilities. The Revolving Credit Facilities provide up to $200 million of total commitments, subject to the borrowing base described below and a required minimum availability amount of at least $10 million. The Working Capital Credit Agreement includes a $20 million letter of credit sub-facility, with letters of credit reducing availability thereunder, and each of the Revolving Credit Facilities includes sub-limits for loans to certain of our foreign subsidiaries which are borrowers under the Revolving Credit Facilities. The Revolving Credit Facilities were funded on July 18, 2006, and replace our prior credit facilities. They are secured by a first-priority security interest in substantially all of the Company’s and certain of its subsidiaries’ assets, although the administrative agent has a second-priority security interest only in certain of the Company’s and its subsidiaries’ assets consistent with the terms of an intercreditor arrangement with certain bondholders of the Company, which intercreditor arrangement is a carry-over from our prior credit arrangements.

The Revolving Credit Facilities will mature on the earlier of (a) July 18, 2011 or (b) one month prior to the respective maturity dates of the Company’s senior secured notes if these senior secured notes have not been refinanced in full: May 15, 2009 with respect to the Company’s 2004 Notes and Amended 2004 Notes, and August 15, 2009 with respect to the Company’s 2003 Notes. The interest rates for all loans other than those made to our German subsidiary range from, in the case of alternate base rate loans, the alternate base rate (either prime rate or .50% over the Federal Funds Rate) plus 1.75% to the alternate base rate plus 2.00% and, in the case of Eurodollar loans, LIBOR plus 2.75% to LIBOR plus 3.00%, in each case depending on the amount of available credit. The interest rates for loans made in connection with the loans to our German subsidiary are, in the case of alternate base rate loans, the alternate base rate plus 5.00% and, in the case of Eurodollar loans, LIBOR plus 6.00%. The commitment fee for the unused portion of the Revolving Credit Facilities is 0.375% per annum.

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

The Revolving Credit Facilities contain covenants that limit our ability, subject to certain exceptions, to, among other things, incur or guarantee additional indebtedness, issue preferred stock or become liable in respect of any obligation to purchase or redeem stock, create liens, merge or consolidate with other companies, change lines of business, make certain types of investments, sell assets, enter into certain sale and lease-back and swap transactions, pay dividends on or repurchase stock, make distributions with respect to certain debt obligations, enter into transactions with affiliates, restrict dividends or other payments from our subsidiaries, modify corporate and certain material debt documents, cancel certain debt, or change our fiscal year or accounting policies.

The Revolving Credit Facilities also require the Company to comply with a fixed charge coverage ratio of 1.00 to 1.00 for the first year of the facility and of 1.10 to 1.00 thereafter; provided, that such coverage ratio shall only apply during periods in which the amount of availability is and remains less than $20 million for a specified number of days. Once the amount of availability increases and remains above $20 million for a specified number of days, such coverage ratio becomes inapplicable. In addition, the amount of availability under the Revolving Credit Facilities must not be less than $10 million at any time. The loans will automatically become immediately due and payable without notice upon the occurrence of an event of default involving insolvency or bankruptcy of the Company or any of its subsidiaries. In addition, upon the occurrence and during the continuation of any other event of default under the Revolving Credit Facilities, by notice given to the Company, the administrative agent may, and if directed by the Required Lenders (as defined in the Revolving Credit Facilities) must, terminate the commitments and/or declare all outstanding loans to be immediately due and payable.

As of September 30, 2008, we had borrowings of $173.6 million under our $200 million Revolving Credit Facilities, and availability of $20.7 million subject to our borrowing base limitations and $5.7 million in outstanding letters of credit, along with $24.2 million in cash. Due to our current level of borrowings and our borrowing base limitations, the Company’s ability to draw upon the Revolving Credit Facilities is limited. If the current market conditions continue, our ability to timely refinance maturing liabilities and access the capital markets to meet liquidity needs will remain limited, which could result in an adverse effect on our financial condition and results of operations.

Amended 2004 Notes

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

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

2004 Notes

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

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

2003 Notes

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

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

2007 Notes

The 2007 Notes accrue interest from the date of issuance at the rate of 18% per annum until maturity on July 15, 2012 with interest payable semiannually on each January 15 and July 15, to holders of record of the 2007 Notes on the immediately preceding January 1 or July 1. Pursuant to the 2007 Note Indenture, the Company may redeem the 2007 Notes in whole or in part at the applicable redemption price, which in each of the first four years is equal to a de-escalating premium over par, plus accrued and unpaid interest to the redemption date, as set forth in the 2007 Notes. The 2007 Note Indenture provides the holders of the 2007 Notes with the right to require the Company to repurchase the 2007 Notes at a repurchase price equal to the then applicable redemption price plus accrued and unpaid interest upon a change of control of the Company (as defined in the 2007 Note Indenture). The 2007 Note Indenture does not provide for a sinking fund with respect to the 2007 Notes. The 2007 Note Indenture contains customary provisions that may result in an event of default, after notice and expiration of a cure period in certain circumstances, and acceleration of the indebtedness thereunder, including failure to timely pay principal and interest on the 2007 Notes or comply with the covenants set forth in the 2007 Note Indenture.

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

Preferred Stock

As of September 30, 2008 we have outstanding 334,894 of $1,000 per share stated value of Series AA Redeemable Preferred Stock par value $.01 per share (the “Series AA Preferred Stock”), which accrues dividends at the rate of 13% per annum. The Series AA Preferred Stock is convertible into our common stock, par value $.01 per share (the “Common Stock”). If the Series AA Preferred Stock has not been redeemed or repurchased by July 18, 2011, the holders of at least 40% of the outstanding shares of Series AA Preferred Stock shall have the right to cause all of the outstanding class of Series AA Preferred Stock to be converted into a number of shares of Common Stock equal to 99.9% of the number of fully diluted shares of Common Stock after giving effect to such conversion (excluding shares, if any, of Common Stock issued to stockholders of the other party to a merger qualifying for the Merger Exception as that term is defined in our Amended and Restated Certificate of Incorporation).

In addition, we have 8,000 shares of Series M Preferred Stock outstanding. Series M Preferred Stock participates in the enterprise value of our Company upon a “liquidation event” or upon an 80% “redemption” of the Series AA Preferred Stock or upon a public offering, to the extent the proceeds exceed $224.8 million. The Series M Preferred Stock vests monthly over a 36 month period; or upon a liquidation event, redemption, or public offering; or upon certain terminations of employment within a limited period before an accelerated vesting event.

Net Cash Provided by/Used in Operating Activities

Net cash used in operating activities was $29.5 million for the nine months ended September 30, 2008, as compared to cash provided by operations of $19.2 million for the nine months ended September 30, 2007. This difference between years reflects a reduction in earnings from operations before non-cash charges of $27.1 million, an increase in working capital requirements of $14.5 million, and an $7.0 million decrease in other long term liabilities. For the nine month period ended September 30, 2008, receivables increased $26.0 million due to higher average selling price, which in turn were driven by higher resin prices. During the same period, inventories decreased by $0.6 million despite higher resin prices, as quantities on hand were reduced between periods as a result of the company’s inventory reduction program, and accounts payable increased $14.0 million. Accrued liabilities decreased $15.2 million from December 31, 2007 due to $7.9 million in interest payments and the payout of the 2007 year end bonus accruals. For the nine months ended September 30, 2007, receivables increased $0.3 million due to higher average selling prices, while inventory increased $10.2 million. Accounts payable increased $16.3 million during the same nine month period due to resin price increases, while accrued liabilities decreased $20.0 million due to payment of $13.9 million in interest and the 2006 year end bonuses. Long term liabilities decreased $5.2 million during the nine months ended September 30, 2008 due to $2.9 million in pension plan contributions and adjustments and a $1.1 million decrease to tax reserves, as compared to an increase of $1.9 million in 2007 related to additional tax reserves associated with the adoption of FIN 48.

Net Cash Used in Investing Activities

Net cash used in investing activities decreased $17.0 million to $19.0 million for the nine months ended September 30, 2008, from $36.0 million for the nine months ended September 30, 2007 due to an increase of $2.8 million in proceeds from sale of assets and a decrease in capital expenditures of $14.2 million between years.

Net Cash Provided by/Used in Financing Activities

Net cash provided by financing activities was $65.5 million for the nine months ended September 30, 2008, as compared to net cash used in financing activities of $20.3 million for the nine months ended September 30, 2007. Activity for the nine months ended September 30, 2008, includes borrowings under Revolving Credit Facilities of $55.0 million borrowing under capital leases of $11.4 million and repayments of capital leases and other of $0.8 million. Activity for the nine months ended September 30, 2007, included $21.0 million of borrowings under Revolving Credit Facilities, $24.0 million of proceeds from the issuance of the Company’s 2007 Subordinated Notes, $0.2 million in proceeds from sale of the Company’s Series M Preferred Stock, offset by $22.6 million in cash deposited with a trustee for the repurchase of the Company’s outstanding 2006 Subordinated Notes, $1.7 million of payments of financing fees and $0.7 million in payments of capital leases.

Liquidity

As of September 30, 2008, we had $173.6 million of borrowings under our $200 million Revolving Credit Facilities, and $20.7 million of availability subject to our borrowing base limitations and $5.7 million in outstanding letters of credit, along with $24.2 million in cash and cash equivalents, of which $2.2 million is a compensating balance associated with our Canadian operations’ borrowings under our Revolving Credit Facilities. In addition, a portion of our cash and cash equivalents are held by our other foreign subsidiaries. As our ability to make future borrowings under our Revolving Credit Facilities is conditioned upon our compliance with other covenants in these agreements, including minimum availability requirements and the requirement that the Company meet the fixed charge coverage ratios, the Company will be limited in its ability to draw from the Revolving Credit Facilities in the immediate future. If we need to raise funds outside of this capital source, there is no assurance such funds will be available, especially in the near-term due to recent contractions and illiquidity in the global credit markets. See Part II, Item 1A “Risk Factors” for additional discussion of these matters.

The Company expects that cash flows from operating activities and available borrowings under our Revolving Credit Facilities will provide sufficient cash flow to operate our business, to make expected capital expenditures and to meet foreseeable liquidity requirements. However, our liquidity may be negatively impacted by changes in our strategic plans, lower-than-expected revenues, margin compression, volatility and uncertainty regarding raw material costs, unanticipated expenses, increased competition, unfavorable economic conditions or other unforeseen circumstances, including the continued turmoil and tightening in the credit markets, and further weakening of consumer confidence and spending. There can be no assurance that, should we seek or require additional financing, such financing will be available, if at all, on terms and conditions acceptable to us, which could adversely affect our results of operations, liquidity and growth strategy. The Company’s current liquidity position may also adversely affect its relationship with its suppliers which could have a material adverse effect on the Company’s business, financial condition and results of operations. See Part II, Item 1A “Risk Factors” for additional discussion of these matters.

Capital Expenditures

Our total capital expenditures were approximately $41 million in 2006, $43 million in 2007 and are expected to be $25-30 million in 2008. These expenditures are focused on projects to lower operating costs, add capacity for high value products, expand research and development programs, and bring new innovative products to market.

Raw Material Costs

Changes in raw material costs can significantly affect the amount of cash provided by our operating activities, which can affect our liquidity. Over the past two years, we have experienced a period of extreme uncertainty with respect to resin supplies and prices. High crude oil and natural gas pricing have had a significant impact on the price and supply of resins. During the same period, many major suppliers of resin have announced price increases to cover their increases in feedstock costs. While the prices of our products generally fluctuate with the prices of resins, certain of our customers have contracts that limit our ability to pass the full cost of higher resin pricing through to our customers immediately. Further, competitive conditions in our industry may make it difficult for us to sufficiently increase our selling prices for all customers to reflect the full impact of increases in raw material costs. If this period of high resin pricing continues, we may be unable to pass on the entire effect of the price increases to our customers, which would adversely affect our profitability and working capital. In addition, further increases in crude oil and natural gas prices could make it difficult for us to obtain an adequate supply of resin from manufacturers affected by these factors.

Contractual Obligations

There have been no material changes in our contractual obligations and commercial commitments since December 31, 2007 arising outside of the ordinary course of business.

Cautionary Statement for Forward-Looking Information

Some of the statements set forth in this report including, but not limited to, those under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are in “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that is based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and similar terms and phrases, including references to assumptions. These forward-looking statements are often not historical facts but instead represent only expectations, estimates and projections regarding future events. These statements are not guarantees of

future performance and involve known and unknown risks, uncertainties and other factors that are difficult to predict and may cause actual results to be materially different. These factors include, but are not limited to, the following:

	•		general economic and business conditions, particularly an economic downturn;

	•		continuing losses and charges against earnings resulting from restructuring or the impairment of assets;

	•		industry trends;

	•		risks of high leverage and any increases in our leverage;

	•		interest rate increases;

	•		changes in our ownership structure;

	•		changes in the Company’s composition of operating segments;

	•		raw material costs and availability, particularly resin;

	•		the timing and extent to which we pass through resin cost changes to our customers;

	•		the loss of any of our key suppliers;

	•		changes in credit terms from our suppliers;

	•		competition;

	•		the loss of any of our major customers;

	•		changes in demand for our products;

	•		new technologies;

	•		changes in distribution channels or competitive conditions in the markets or countries where we operate;

	•		costs of integrating any future acquisitions;

	•		loss of our intellectual property rights;

	•		foreign currency fluctuations and devaluations and political instability in our foreign markets;

	•		changes in our business strategy or development plans;

	•		availability, terms and deployment of capital;

	•		availability of qualified personnel;

	•		labor relations and work stoppages;

	•		increases in the cost of compliance with laws and regulations, including environmental laws and regulations; and

	•		other risks and uncertainties listed or described from time to time in reports we periodically file with the SEC.

We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements. All forward-looking statements, including, without limitation, management’s examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. But, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved. All forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The discussion below describes changes in our market risks since December 31, 2007. For additional information regarding our exposure to certain market risks, see Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ending December 31, 2007.

We are exposed to various interest rate and resin price risks that arise in the normal course of business. We regularly evaluate the advisability of entering into interest rate hedging agreements to manage interest rate market risks and commodity hedging agreements to manage resin market risks. However, significant increases in interest rates or the price of resins could adversely affect our operating margins, results of operations and ability to service our indebtedness.

Interest

Our Revolving Credit Facility is at a variable rate of interest. An increase of 1% in interest rates would result in an additional $1.7 million of annual interest expense based on our Revolving Credit Facility balance of $173.6 million as of September 30, 2008.

Raw Material Costs

Our raw material costs are comprised primarily of resins. Our resin costs comprised approximately 66% of our total manufacturing costs. Market risk arises from changes in resin costs. Although the average selling prices of our products generally increase or decrease as the cost of resins increases or decreases, the impact of a change in resin prices is more immediately reflected in our raw material costs than in our selling prices. In prior years, we entered into commodity collar agreements to manage resin market risks. At September 30, 2008, we did not have any commodity collar agreements outstanding. Prices for resin increased dramatically during the fourth quarter of 2007 and throughout all of 2008.

Exchange Rates and Foreign Currency

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

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

Other Market Risk

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

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The effectiveness of our or any system of disclosure controls and procedures is subject to certain limitations, including the exercise of judgment in designing, implementing and evaluating the controls and procedures, the assumptions used in identifying the likelihood of future events, and the inability to eliminate misconduct completely. As a result, there can be no assurance that our disclosure controls and procedures will detect all errors or fraud. By their nature, our or any system of disclosure controls and procedures can provide only reasonable assurance regarding management’s control objectives.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the “Exchange Act”) as of September 30, 2008. On the basis of this review, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures are designed, and are effective, to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

Changes in Internal Controls

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

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

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

The reader is referred to the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, that could materially affect the Company’s business, financial condition or future results. The risks described in the Company’s Annual Report on Form 10-K are not the only risks facing the Company at the present time. The risks described below represent the Company’s principal additional risks. Except as otherwise indicated, these factors may or may not occur and the Company is not in a position to express a view on the likelihood of any such factor occurring. Other factors may exist that the Company does not consider significant based on information that is currently available or that the Company is not currently able to anticipate.

Volatility and disruption of financial markets could affect access to credit. The current difficult economic market environment is causing contraction in the availability of credit in the marketplace. This could potentially reduce the sources of liquidity for the Company. Furthermore, our ability to execute our long-term business strategy may depend on our ability to obtain additional long-term debt or equity capital. We cannot determine the precise amount and timing of our funding needs at this time. We may be unable to obtain future additional financing on terms acceptable to us, or at all. We also may need to refinance our new or existing indebtedness at maturity. We may not be able to obtain additional capital on favorable terms to refinance our indebtedness. To the extent our assets are pledged as collateral for our indebtedness, we may lose those assets upon a default and subsequent foreclosure. If we are unable to obtain sufficient capital in the future, we may have to curtail our capital expenditures and reduce research and development expenditures, seek an extension of the maturity dates of our secured debt, seek a negotiated restructuring of our secured debt, or seek protection under chapter 11 of the Federal Bankruptcy Code in order to permit the continuation of our business in an orderly fashion until a restructuring of our balance sheet can be accomplished. Any such actions could have a material adverse effect on our business, financial condition, and results of operations.

Servicing our existing debt may constrain our future operations. Our ability to satisfy our obligations to pay interest and to repay debt in the future will depend on our future performance. Our performance depends, in part, on prevailing economic conditions and financial, business and other factors, including factors beyond our control. To the extent that we use a portion of our cash flow from operations to pay the principal of, and interest on our indebtedness, that cash flow will not be available to fund future operations and capital expenditures. Furthermore, because we have substantial borrowings for a company our size, and because those borrowings require us to make substantial interest and principal payments, any negative event may have a greater adverse effect upon us than it would have upon a company of the same size that has less debt. We cannot be certain that our operating cash flow will be sufficient to fund our future capital expenditures and debt service requirements or to fund future operations.

Adverse conditions in the global economy and disruption of financial markets could negatively impact Pliant’s customers and therefore our results of operations. An economic downturn in the businesses or geographic areas in which Pliant sells its products could reduce demand for these products and result in a decrease in sales volume that could have a negative impact on Pliant’s results of operations. Volatility and disruption of financial markets could limit customers’ ability to obtain adequate financing to maintain operations and result in a decrease in sales volume that could have a negative impact on Pliant’s results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits listed on the accompanying Index to Exhibits are filed or incorporated by reference as a part of this report and such Index to Exhibits is incorporated herein by reference.


																							Accumulated
				Preferred Stock									Common Stock										Other
				Series AA					Series M									Paid In		Accumulated			Comprehensive
	Total			Shares			Amount		Shares		Amount		Shares			Amount		Capital		Deficit			Loss
BALANCE-December 31, 2007	$	(267,944	)		336		$	247,355		8	$	—		100		$	1	$	155,341	$	(658,163	)	$	(12,478	)
Retirement of unclaimed shares					(1	)								(3	)
Comprehensive loss:
Net loss		(73,732	)																		(73,732	)
Change in unrecognized pension benefit costs		476																						476
Foreign currency translation adjustment		(2,820	)																					(2,820	)

Comprehensive loss:		(76,076	)

Preferred stock dividends		—						40,634													(40,634	)

	$	(344,020	)		335		$	287,989		8	$	—		97		$	1	$	155,341	$	(772,529	)	$	(14,822	)

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

99.1		Reconciliation of income from continuing operations before income taxes and EBITDA(R) or Segment Profit and Pro-Forma Adjusted EBITDA.

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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2008 (Unaudited) AND DECEMBER 31, 2007			3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Unaudited)			4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007 (Unaudited)			5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 (Unaudited)			6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)			7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			37
ITEM 4T. CONTROLS AND PROCEDURES			38
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS			39
ITEM 1A. RISK FACTORS			39
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			39
ITEM 3. DEFAULTS UPON SENIOR SECURITIES			39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS			39
ITEM 5. OTHER INFORMATION			39
ITEM 6. EXHIBITS			39
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION
EX-32.2: CERTIFICATION
EX-99.1: RECONCILIATION OF INCOME


	PLIANT CORPORATION

	/s/ THOMAS C. SPIELBERGER
	THOMAS C. SPIELBERGER Chief Financial Officer (Authorized Signatory and Principal Financial and Accounting Officer)