SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

(Mark One)

OR

Commission file number 333-40067

PLIANT CORPORATION

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 x No o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. On November 4, 2004, there were 571,711 outstanding shares of the registrant’s Common Stock.

PLIANT CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

PLIANT CORPORATION AND SUBSIDIARIES

See notes to condensed consolidated financial statements.

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PLIANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (IN THOUSANDS) (UNAUDITED)

See notes to condensed consolidated financial statements.

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PLIANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (IN THOUSANDS) (UNAUDITED)

See notes to condensed consolidated financial statements.

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PLIANT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 (IN THOUSANDS) (UNAUDITED)

See notes to condensed consolidated financial statements.

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PLIANT CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.		BASIS OF PRESENTATION
		The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. 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 Corporation and its subsidiaries (“Pliant,” the “Company” or “we”) as of the dates and for the periods presented. Results of operations for the periods ended September 30, 2004 are not necessarily indicative of results of operations to be expected for the full fiscal year.
		Certain information in footnote disclosures normally included in financial statements presented in accordance with U.S. generally accepted accounting principles has been condensed or omitted in accordance with the rules and regulations of the Securities and Exchange Commission. These statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2003 and the Company’s Registration Statement on Form S-4, as amended (File No 333-114608) filed on April 20, 2004. Certain reclassifications have been made to the condensed consolidated financial statements for the periods ended September 30, 2003 for comparative purposes.
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, 2004 and December 31, 2003 consisted of the following (in thousands):

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):

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     2003 Accruals:

     Plant Closing Costs – During the first half of 2003, we continued to incur costs related to: the closure of our facilities in Merced, California and Shelbyville, Indiana; partial closure of our facility in Toronto, Canada; and the relocation of certain lines from our Merced plant and Fort Edward, New York plant to other facilities.

     Office Closing and Workforce Reduction Costs – In connection with a restructuring undertaken in 2001, we vacated and subleased two facilities. During the first quarter of 2003, the sub-lessees of these facilities defaulted on the subleases. During the first half of 2003, we accrued the present value of the future lease payments on these facilities.

     The following table summarizes the roll-forward of the reserve from December 31, 2003 to September 30, 2004:

     2004 accruals

     Plant Closing Costs and Workforce Reduction Costs - During the third quarter of 2004, we closed our Harrisville, Rhode Island facility and moved its production to more modern and efficient facilities. It is anticipated that this restructuring plan will result in a workforce reduction of 49 positions, 41 of which were effective by November 12, 2004. All restructuring plan costs are attributable to our Pliant US segment and are anticipated to total $3.2 million, consisting primarily of fixed asset impairment charges of $1.9 million, equipment relocation costs of $0.4 million, severance and other personnel related costs of $ 0.3 million and other costs of $0.3 million.

4.

DISCONTINUED OPERATIONS

     On September 30, 2004, we sold substantially all of the assets of our wholly-owned subsidiary, Pliant Solutions Corporation. Pliant Solutions, previously reported as a separate operating segment, manufactured decorative and surface coverings through the conversion of various films into consumer packaged goods. These products were sold through retailers to consumers for a wide range of applications, including shelf-lining, decorative accents, glass coverings, surface repair, resurfacing and arts and crafts projects.

     In accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, Pliant Solutions is being accounted for as a discontinued operation and, accordingly, its assets are segregated from continuing operations in the accompanying condensed consolidated balance sheet, and its operating results are segmented and reported as discontinued operations in the accompanying condensed consolidated statement of operations. Net sales for the three month periods ended September 30, 2004 and 2003 were $7.7 million and $11.1 million, respectively. Net sales for the nine months ended September 30, 2004 and 2003 were $22.6 million and $28.7 million, respectively. No tax benefits were recorded on the losses from discontinued operations or the loss on sale of discontinued operations as realization of these tax benefits is not certain.

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     The assets of Pliant Solutions were sold for $10 million, of which $6.5 million was paid in cash at closing, and $3.5 million will be paid in equal monthly installments over a 3-year period. We recognized a loss on the sale of $8.5 million.

5.

INTEREST EXPENSE — Current and Long-term debt

     Interest expense — current and long-term debt in the statement of operations for the three and nine months ended September 30, 2004 and 2003 is as follows (in thousands):

(a) This write-off resulted from the repayment of our previous credit facilities in February 2004, from the net proceeds from the issuance of the senior secured discount notes and borrowings under our revolving credit facility. In May 2003, a portion of the financing fees capitalized in connection with our then existing credit facilities was written off in connection with the amendment to those agreements.

6.

EQUITY

Stock Option Plans

     During the three and nine months ended September 30, 2004, options to purchase 948 and 9,763 shares, respectively, of our common stock were cancelled in connection with employee terminations.

     We apply Accounting Principles Board Opinion No. 25 and related interpretations in accounting for stock-based compensation plans as they relate to employees and directors. We did not have compensation expense related to stock options for the three and nine month periods ended September 30, 2004 and September 30, 2003. Had the compensation cost for all the outstanding options been determined in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation,” our net income (loss) for the three and nine month periods ended September 30, 2004 and 2003 would have been the following pro forma amounts (in thousands):

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Restricted Stock

     On September 24, 2004, we adopted a 2004 Restricted Stock Incentive Plan, pursuant to which we sold to our President and Chief Executive Officer and selected additional officers of the Company, 704 shares of a total of 720 shares of a newly-created, non-voting Series B Redeemable Preferred Stock for a cash purchase price of $162 per share. These shares were issued in private transactions with officers of the Company and therefore were exempt from the registration requirements of the Securities Act of 1933. The Series B Preferred Stock will be automatically converted into common equity of the Company upon the consummation of an underwritten public offering registered under the Securities Act of shares of capital stock of the Company resulting in aggregate proceeds (net of underwriters discounts and commissions) to the Company of not less than $100 million.

7.

INCOME TAXES

     For the three months ended September 30, 2004, income tax expense was $0.9 million on pretax losses from continuing operations of $20.9 million compared to income tax expense of $1.6 million on pretax loss from continuing operations of $13.1 million for the three months ended September 30, 2003. For the nine months ended September 30, 2004, income tax expense was $3.3 million on pretax loss from continuing operations of $65.1 million compared to income tax expense of $6.5 million on pretax loss from continuing operations of $30.4 million for the nine months ended September 30, 2003. 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. No income taxes are included in the loss from discontinued operations of $15.9 million for the nine months ended September 30, 2004.

8.

COMPREHENSIVE LOSS

     Other comprehensive loss for the three months ended September 30, 2004 and 2003 was ($32.2) million and ($19.0) million, respectively. Other comprehensive loss for the nine months ended September 30, 2004 and 2003 was ($83.6) million and ($40.6) million, respectively. The components of other comprehensive loss are net income (loss), the change in cumulative unrealized losses on derivatives recorded in accordance with Statement of Financial Accounting Standards No. 133 and foreign currency translation.

9.

REVOLVING CREDIT FACILITY AND ISSUANCE OF SENIOR SECURED DISCOUNT NOTES DUE 2009

     Long-term debt as of September 30, 2004 and December 31, 2003 consists of the following (in thousands):

     On February 17, 2004 we repaid the balance outstanding on the revolving credit facility and term loans that existed on that date from the proceeds of the issuance of Senior Secured Discount Notes (discussed below) and the revolving credit facility (discussed below).

Revolving Credit Facility

     On February 17, 2004, we entered into a revolving credit facility providing up to $100 million (subject to the borrowing base and other limitations described below). The revolving credit facility includes a $15 million letter of credit sub-facility, with letters of credit reducing availability under the revolving credit facility.

     The revolving credit facility is secured by a first priority security interest in substantially all our domestic inventory, receivables and

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deposit accounts, 100% of the capital stock of, or other equity interests in, our existing and future domestic subsidiaries and foreign subsidiaries that are note guarantors, 65% of the capital stock of, or other equity interests in, our existing and future first-tier foreign subsidiaries, investment property and certain other assets of the Company and the note guarantors (the “Second - Priority Collateral”) and a second-priority security interest in our real property, fixtures, equipment, intellectual property and other assets (“First - Priority Collateral”).

     The revolving credit facility matures on February 17, 2009. The interest rates are at LIBOR plus 2.5% to 2.75% or ABR plus 1.5% to 1.75%. The average rate on borrowings outstanding during the third quarter of 2004 was 6.2%. The commitment fee for the unused portion of the revolving credit facility is 0.50% per annum.

     Borrowings under the revolving credit facility are limited as follows: if our fixed charge coverage ratio (as defined in the revolving credit facility), as reported at the end of a quarter, is less than 1.1/1.0, our borrowings are limited to 75% of the lesser of the total commitment under the facility and the borrowing base. The borrowing base consists of the sum of eligible accounts receivable and eligible inventory. As of September 30, 2004, our fixed coverage ratio was 1.0/1.0, and our borrowing base was $101 million. Accordingly, funds available for borrowings under the revolving credit facility as of that date were $75 million. This amount was further reduced to $68.3 million, after taking into account $6.7 million of letters of credit outstanding.

Issuance of 11 1/8% Senior Secured Discount Notes due 2009

     On February 17, 2004 we completed the sale of $306 million ($225.3 million of proceeds) principal amount at maturity of 11 1/8% Senior Secured Discount Notes due 2009. The proceeds of this offering and the borrowing under the new revolving credit facility (discussed above) were used to repay and terminate the revolving credit facility and term loans that existed at December 31, 2003.

     The Senior Secured Discount Notes are secured by a first priority security interest in the First - Priority Collateral and a second priority security interest in the Second - Priority Collateral.

     Unless we elect to pay cash interest as described below, and except under certain limited circumstances, the notes will accrete from the date of issuance at the rate of 11 1/8% until December 15, 2006, compounded semiannually on each June 15 and December 15, commencing June 15, 2004, to an aggregate principal amount of $1,000 per note ($306.0 million in the aggregate assuming no redemption or other repayments). Commencing on December 15, 2006, interest on the notes will accrue at the rate of 11 1/8% per annum and will be payable in cash semiannually on June 15 and December 15, commencing on June 15, 2007.

     On any interest payment date prior to December 15, 2006, we may elect to commence paying cash interest (from and after such interest payment date) in which case (i) we will be obligated to pay cash interest on each subsequent interest payment date, (ii) the notes will cease to accrete after such interest payment date and (iii) the outstanding principal amount at the stated maturity of each note will equal the accreted value of such note as of such interest payment date.

     On or after June 15, 2007, we may redeem some or all of the notes at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest: 105.563% if redeemed prior to June 15, 2008; 102.781% if redeemed prior to June 15, 2009; and 100% if redeemed on or after June 15, 2009. Prior to such date, we may not redeem the notes except as described in the following paragraph.

     At any time prior to June 15, 2007, we may redeem up to 35% of the accreted value of the notes with the net cash proceeds of certain equity offerings by us at a redemption price equal to 111.125% of the accreted value thereof plus accrued interest, so long as (i) at least 65% of the accreted value of the notes remains outstanding after such redemption and (ii) any such redemption by us is made within 120 days after such equity offering.

10.

OPERATING SEGMENTS

     As a result of the sale of the Pliant Solutions business, formerly a separate operating segment, the Company now has three operating segments: Pliant U.S., Pliant Flexible Packaging and Pliant International. Segment information for 2003 has been restated to reflect this change in operating segments. Sales and transfers between our segments are eliminated in consolidation. We evaluate the performance of our operating segments based on net sales (excluding intercompany sales) and segment profit. The segment profit reflects income before interest expense, income taxes, depreciation, amortization, restructuring charges, discontinued operations and other non-cash charges and net adjustments for certain unusual items.

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     Segment profit and segment assets as of and for the periods ended September 30, 2004 and 2003 are presented in the following table (in thousands). Certain reclassifications have been made to the prior year amounts to be consistent with the 2004 presentation.

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     A reconciliation of the totals reported for the operating segments to the totals reported in the consolidated financial statements as of and for the three and nine months ended September 30, 2004 and 2003 is as follows (in thousands):

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SHARES SUBJECT TO MANDATORY REDEMPTION

     The Company adopted Statement of Financial Accounting Standard No. 150 (“SFAS 150”), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, effective January 1, 2004. As a result, our Series A redeemable preferred stock, which has an unconditional mandatory redemption feature, was recorded as a liability on the date of adoption at fair market value. Fair market value was determined using the value of the securities on the date of issuance plus accretion of discount from the date of issuance through December 31, 2003 and the cumulative unpaid dividends from the date of issuance through December 31, 2003. In addition, effective January 1, 2004, the dividends and accretion on the preferred shares are included as a part of interest expense in the statement of operations.

     In addition, as a result of adopting SFAS 150, the Company’s redeemable common shares that have been put for redemption by a shareholder were recorded as a liability at fair value. The fair value was computed using the agreed upon price of the redemption times the number of shares put by the shareholder. As required by SFAS 150, prior periods were not restated.

     The shares subject to mandatory redemption are as follow (in thousands):

     The maximum cash settlement at the redemption date of June 1, 2011 (assuming no cash dividends are paid through the redemption date) is $ 680.6 million for the redeemable preferred shares and $ 6.4 million (net of the note receivable of $ 2.4 million) for the redeemable common shares that have been put for redemption by the shareholder.

12.

DEFINED BENEFIT PLANS

     The company sponsors three noncontributory defined benefit pension plans (the “United States Plans”) covering domestic employees with 1,000 or more hours of service. The company funds these in accordance with the funding requirements of the

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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 a defined benefit plan in Germany (the “Germany Plan”). For information on the Germany Plan please refer to the Company’s Form 10-K for the year ended December 31, 2003.

     In the second quarter of 2004, the Company redesigned its retirement programs which led to the curtailment and “freeze” of the pension plan for U.S. salaried employees effective June 30, 2004. As a result, a curtailment benefit of $1.6 million was recognized as income during the quarter ended June 30, 2004.

     The consolidated accrued net pension expense for the three and nine months ended September 30, 2004 and 2003 includes the following components (in thousands):

(a)

Disclosed due to the change from Form 10-K for the year ended December 31, 2003 as a result of the minimum funding changes made under the Pension Funding Equity Act.

13.

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.

14.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

     The following condensed consolidating financial statements present, in separate columns, financial information for:

i.		Pliant Corporation (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 May 31, 2000 (the “2000 Indenture”) relating to Pliant’s $220 million senior subordinated notes due 2010 (the “2000 Notes”), the Indenture dated April 10, 2002 (the “2002 Indenture”) relating to Pliant’s $100 million senior subordinated notes due 2010 (the “2002 Notes”), the Indenture dated May 30, 2003 (the “ 2003 Indenture”) relating to Pliant’s $ 250 million senior secured notes due 2009 (the “2003 Notes”) and the Indenture dated February 17, 2004 ( the “2004 Indenture” and, together with the 2000 Indenture, the 2002 Indenture and the 2003 Indenture, the “Indentures”) relating to Pliant’s $306 million senior secured discount notes due 2009 (the “2004 Notes” and, together with the 2000 Notes, the 2002 Notes and the 2003 Notes, the “Notes”)) 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 Corporation and its subsidiaries on a consolidated basis; and
v.		Pliant Corporation on a consolidated basis, in each case as of September 30, 2004 and December 31, 2003 and for the nine months ended September 30, 2004 and 2003.

     The Notes are fully and unconditionally guaranteed on a joint and several basis by each guarantor subsidiary and each guarantor subsidiary is wholly owned, directly or indirectly, by Pliant Corporation. There are no contractual restrictions limiting transfers of cash from guarantor and non-guarantor subsidiaries to Pliant Corporation, except from our Alliant joint venture. Alliant is a limited liability company in which we and Supreme Plastics Ltd., a company based in the United Kingdom, each hold a 50% interest. The agreement governing the limited liability company prohibits distributions to the members of the company before July 27, 2004, other than annual distributions sufficient to pay taxes imposed upon the members as a result of the attribution to the members of income of the joint venture. The condensed consolidating financial statements are presented herein, rather than separate financial

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statements for each of the guarantor subsidiaries, because management believes that separate financial statements relating to the guarantor subsidiaries are not material to investors

     In 2004, one of our subsidiaries in Canada, Uniplast Industries Co., became a guarantor subsidiary. As a result, all periods presented include Uniplast Industries Co. as a guarantor subsidiary.

PLIANT CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING BALANCE SHEET
AS OF SEPTEMBER 30, 2004 (IN THOUSANDS) (UNAUDITED)