-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CqFEMfyVyPNNEfDzp47Uxq1v/N5SnS83OWal044fBWuOHcAVVg02FCrETDoH7wWL g4lD3oVP3CV5sALzQtclGw== 0000950131-99-003237.txt : 19990518 0000950131-99-003237.hdr.sgml : 19990518 ACCESSION NUMBER: 0000950131-99-003237 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990517 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLYMER GROUP INC CENTRAL INDEX KEY: 0000927417 STANDARD INDUSTRIAL CLASSIFICATION: BROADWOVEN FABRIC MILS, MAN MADE FIBER & SILK [2221] IRS NUMBER: 571003983 STATE OF INCORPORATION: DE FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14330 FILM NUMBER: 99627807 BUSINESS ADDRESS: STREET 1: 4838 JENKINS AVE CITY: NORTH CHARLESTON STATE: SC ZIP: 29405 BUSINESS PHONE: 8037445174 MAIL ADDRESS: STREET 1: 4838 JENKINS AVENUE CITY: NORTH CHARLESTON STATE: SC ZIP: 29405 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For quarter ended April 3, 1999 Commission file number 1-14330 POLYMER GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 57-1003983 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4838 Jenkins Avenue North Charleston, South Carolina 29405 (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code: (843) 566-7293 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 periods that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On May 11, 1999 there were 32,000,000 Common Shares, $.01 par value outstanding. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- POLYMER GROUP, INC. INDEX TO FORM 10-Q
Page ---- Part I. Financial Information............................................. 3 Item 1. Financial Statements............................................ 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk...... 15 Part II. Other Information................................................ 16 Signatures................................................................ 17 Exhibit Index............................................................. 18
2 PART I. FINANCIAL INFORMATION Item I. Financial Statements POLYMER GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
April 3, January 2, ASSETS 1999 1999 ------ ----------- ---------- (Unaudited) Current assets: Cash and equivalents................................. $ 67,281 $ 58,308 Marketable securities................................ 9,668 -- Accounts receivable, net............................. 118,064 103,958 Inventories.......................................... 104,823 98,820 Other................................................ 49,098 49,645 ---------- ---------- Total current assets............................... 348,934 310,731 Property, plant and equipment, net..................... 696,959 685,009 Intangibles and loan acquisition costs, net............ 255,621 253,094 Other.................................................. 33,256 34,133 ---------- ---------- Total assets....................................... $1,334,770 $1,282,967 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Current liabilities: Accounts payable, accrued liabilities and other...... $ 115,038 $ 95,205 Current portion of long-term debt.................... 5,870 3,070 ---------- ---------- Total current liabilities.......................... 120,908 98,275 ---------- ---------- Long-term debt, less current portion................... 900,819 863,429 Deferred income taxes.................................. 80,247 82,876 Other non-current liabilities.......................... 17,573 18,262 Shareholders' equity: Series preferred stock--$.01 par value, 10,000,000 shares authorized, 0 shares issued and outstanding.. -- -- Common stock--$.01 par value, 100,000,000 shares authorized, 32,000,000 shares issued and outstanding......................................... 320 320 Non-voting common stock--$.01 par value, 3,000,000 shares authorized, 0 shares issued and outstanding.. -- -- Additional paid-in capital........................... 243,662 243,662 (Deficit)............................................ (13,819) (19,651) Accumulated other comprehensive (loss)............... (14,940) (4,206) ---------- ---------- 215,223 220,125 ---------- ---------- Total liabilities and shareholders' equity......... $1,334,770 $1,282,967 ========== ==========
See accompanying notes. 3 POLYMER GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (In Thousands, Except Per Share Data)
Three Months Ended ------------------ April 3, April 4, 1999 1998 -------- -------- Net sales.................................................. $210,147 $193,336 Cost of goods sold......................................... 156,879 147,058 -------- -------- Gross profit............................................... 53,268 46,278 Selling, general and administrative expenses............... 27,068 26,025 -------- -------- Operating income........................................... 26,200 20,253 Other (income) expense: Interest expense, net.................................... 17,550 15,980 Investment income--(gain) on marketable securities, net.. (1,375) -- Foreign currency and other............................... 659 676 -------- -------- 16,834 16,656 -------- -------- Income before income taxes and extraordinary item.......... 9,366 3,597 Income taxes............................................... 3,534 1,302 -------- -------- Income before extraordinary item........................... 5,832 2,295 Extraordinary item, (loss) from extinguishment of debt..... -- (2,728) -------- -------- Net income (loss).................................... $ 5,832 $ (433) ======== ======== Net income (loss) per common share: Basic and diluted: Average common shares outstanding...................... 32,000 32,000 Income before extraordinary item....................... $ 0.18 $ 0.07 Extraordinary item, (loss) from extinguishment of debt.................................................. -- (0.09) -------- -------- Net income (loss) per common share--basic and diluted............................................. $ 0.18 $ (0.02) ======== ========
See accompanying notes. 4 POLYMER GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In Thousands)
Three Months Ended ------------------- April 3, April 4, 1999 1998 -------- --------- Operating activities Net income (loss)....................................... $ 5,832 $ (433) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary item.................................... -- 2,728 Depreciation and amortization expense................. 16,580 13,769 Change in marketable securities classified as trading.............................................. (9,668) -- Foreign currency transaction losses, net.............. 659 676 Changes in operating assets and liabilities, net of effects of business acquisition: Accounts receivable................................... (11,341) (223) Inventories........................................... (3,378) (6,962) Accounts payable and other............................ 17,287 17,987 -------- --------- Net cash provided by operating activities........... 15,971 27,542 -------- --------- Investing activities Purchases of property, plant and equipment.............. (26,034) (19,122) Purchases of marketable securities classified as available for sale..................................... -- (3,990) Proceeds from sales of marketable securities classified as available for sale.................................. -- 3,540 Proceeds from sale of assets, net of canceled subordinated advance................................... -- 323,524 Minority interest....................................... -- (54,730) Other, including business acquisition................... (16,011) (49,157) -------- --------- Net cash (used in) provided by investing activities......................................... (42,045) 200,065 -------- --------- Financing activities Proceeds from debt...................................... 38,608 576,531 Payment of debt......................................... (3,249) (778,572) Loan acquisition costs, net............................. (305) (9,376) -------- --------- Net cash provided by (used in) financing activities......................................... 35,054 (211,417) -------- --------- Effect of exchange rate changes on cash................... (7) (2,041) -------- --------- Net increase in cash and equivalents...................... 8,973 14,149 Cash and equivalents at beginning of period............... 58,308 50,190 -------- --------- Cash and equivalents at end of period..................... $ 67,281 $ 64,339 ======== =========
See accompanying notes. 5 POLYMER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Description of Business and Basis of Presentation Polymer Group, Inc. (the "Company"), a global manufacturer and marketer of nonwoven and oriented polyolefin products, operates in four business segments which include hygiene, medical, wiping and industrial and specialty products. The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Condensed Consolidated Balance Sheet as of January 2, 1999 contains summarized information; as a result, such data does not include the same detail provided in the 1998 annual report. In the opinion of management, these unaudited consolidated financial statements contain all adjustments of a normal recurring nature necessary for a fair presentation. Operating results for the three months ended April 3, 1999, are not necessarily indicative of the results that may be expected for fiscal 1999. Certain amounts previously presented in the consolidated financial statements for prior periods have been reclassified to conform to current classification. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2. Inventories Inventories are stated at the lower of cost or market using the first-in, first-out method of accounting and consist of the following (in thousands):
April 3, January 2, 1999 1999 ----------- ---------- (Unaudited) Inventories: Finished goods................................. $ 58,177 $51,595 Work in process and stores and maintenance parts......................................... 13,428 12,126 Raw materials.................................. 33,218 35,099 -------- ------- Total........................................ $104,823 $98,820 ======== =======
Note 3. Net Income (Loss) Per Share The Company discloses earnings per share in accordance with SFAS No. 128, "Earnings Per Share." Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share is very similar to the previously reported fully diluted earnings per share. The numerator for both basic and diluted earnings per share is net income (loss) applicable to common stock. The denominator for both basic and diluted earnings per share is average common shares outstanding. 6 POLYMER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Note 4. New Accounting Standards In 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") which is effective for fiscal years beginning after June 15, 1999. FAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. FAS 133 requires disclosure based on the type of hedge and the type of market risk that is being hedged. Currently, the Company does not anticipate FAS 133 to have a financial or operational impact on the Company. In April 1998, the American Institute of Certified Accountants issue Statement of Position 98-5, "Reporting the Costs of Start-Up Activities" ("SOP"). The SOP was effective beginning on January 1, 1999, and required that start-up/organization costs capitalized prior to January 1, 1999 be written- off and any future start-up costs be expensed as incurred. During the fourth quarter of 1998, the Company elected early adoption and wrote-off the net book value of start-up costs as a cumulative effect of an accounting change, as permitted by the SOP. Note 5. Selected Financial Data of Guarantors Payment of the Company's senior notes is guaranteed jointly and severally on a senior subordinated basis by certain of the Company's subsidiaries. Management has determined that separate complete financial statements of the guarantors are not material to users of the financial statements. The following sets forth selected financial data of the guarantor and non- guarantor subsidiaries (in thousands): Condensed Consolidating Selected Balance Sheet Financial Data As of April 3, 1999
Combined Combined Non- Guarantor Guarantor The Reclassifications Subsidiaries Subsidiaries Company and Eliminations Consolidated ------------ ------------ ---------- ----------------- ------------ Working capital......... $ 96,645 $ 111,102 $ 14,071 $ 6,208 $ 228,026 Total assets............ 2,094,073 561,545 1,068,648 (2,389,496) 1,334,770 Total debt.............. 5,674 42,889 858,126 -- 906,689 Shareholders' equity.... 1,109,360 251,815 160,704 (1,306,656) 215,223
Condensed Consolidating Selected Balance Sheet Financial Data As of January 2, 1999
Combined Combined Non- Guarantor Guarantor The Reclassifications Subsidiaries Subsidiaries Company and Eliminations Consolidated ------------ ------------ ---------- ----------------- ------------ Working capital......... $ 94,702 $102,412 $ 14,272 $ 1,070 $ 212,456 Total assets............ 2,034,836 520,822 1,037,890 (2,310,581) 1,282,967 Total debt.............. 5,741 34,247 826,511 -- 866,499 Shareholders' equity.... 1,084,281 235,106 169,917 (1,269,179) 220,125
7 POLYMER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Condensed Consolidating Statement of Operations Selected Financial Data For the Three Months Ended April 3, 1999
Combined Combined Non- Reclassifica- Guarantor Guarantor The tions and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------ ------- ------------- ------------ Net sales............... $139,627 $80,673 $ -- $(10,153) $210,147 Operating income........ 15,817 7,202 3,844 (663) 26,200 Income (loss) before income taxes and extraordinary item..... 12,939 3,676 (7,310) 61 9,366 Income taxes............ 2,595 163 776 -- 3,534 Income (loss) before extraordinary item..... 10,344 3,513 (8,086) 61 5,832 Equity in earnings of subsidiaries........... -- -- 13,857 (13,857) -- Net income.............. 10,344 3,513 5,771 (13,796) 5,832
Condensed Consolidating Statement of Operations Selected Financial Data For the Three Months Ended April 4, 1998
Combined Combined Non- Reclassifica- Guarantor Guarantor The tions and Subsidiaries Subsidiaries Company Eliminations Consolidated ------------ ------------ ------- ------------- ------------ Net sales............... $119,933 $77,010 $ 59 $(3,666) $193,336 Operating income........ 12,353 6,491 1,409 -- 20,253 Income (loss) before income taxes and extraordinary item..... 4,686 3,314 (4,403) -- 3,597 Income taxes (benefit).. 93 1,328 (119) -- 1,302 Income (loss) before extraordinary item..... 4,593 1,986 (4,284) -- 2,295 Extraordinary item...... -- (2,728) -- -- (2,728) Equity in earnings of subsidiaries........... -- -- 3,851 (3,851) -- Net income (loss)....... 4,593 (742) (433) (3,851) (433)
Note 6. Comprehensive Income The Company reports comprehensive income in accordance with SFAS No. 130, "Reporting Comprehensive Income" ("FAS 130"). FAS 130 requires unrealized gains or losses on the Company's available-for-sale securities and foreign currency translation adjustments to be included in other comprehensive income. The Company's comprehensive (loss), net of the related tax benefit, approximated $(4.9) million and $(6.9) million for the three months ended April 3, 1999 and April 4, 1998, respectively. Note 7. Segment Information The Company reports segment information in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" ("FAS 131"). Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance. The Company defines operating segments around market sectors. Two primary customers each account for greater than 10% of the Company's sales. Sales to The Proctor & Gamble 8 POLYMER GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Company are reported primarily within the hygiene segment. Sales to Johnson & Johnson are reported primarily in the hygiene and medical segments. The loss of these sales would have a material adverse effect on these segments. Generally, the company's products can be manufactured on more than one type of asset. Accordingly, certain costs and assets attributed to each segment of the business were determined on an allocation basis. Production times have a similar relationship to net sales, thus the Company believes a reasonable basis for allocating certain costs is the percent of net sales method. Segment assets have not changed materially from the amounts reported in the 1998 annual report; therefore, the Company has elected not to disclose segment assets for interim reporting, as permitted by FAS 131. Financial data by segments follows (in thousands):
Three Months Ended ----------------- April 3, April 4, 1999 1998 -------- -------- Net sales to unaffiliated customers: Hygiene.................................................... $ 78,321 $ 80,173 Medical.................................................... 24,626 22,827 Wipes...................................................... 34,416 26,260 Industrial and specialty................................... 72,784 64,076 -------- -------- $210,147 $193,336 ======== ======== Operating income: Hygiene.................................................... $ 13,659 $ 7,641 Medical.................................................... 4,178 3,337 Wipes...................................................... 3,664 3,985 Industrial and specialty................................... 4,699 5,290 -------- -------- $ 26,200 $ 20,253 ======== ========
A reconciliation of operating income shown above to income before income taxes and extraordinary item shown in the Consolidated Statements of Operations follows (in thousands):
Three Months Ended ---------------- April April 3, 1999 4, 1998 ------- ------- Operating income............................................... $26,200 $20,253 Interest expense, net.......................................... 17,550 15,980 Investment (income)-gain on marketable securities, net......... (1,375) -- Foreign currency and other..................................... 659 676 ------- ------- Income before income taxes and extraordinary item............ $ 9,366 $ 3,597 ======= =======
Note 8. Subsequent Event On May 7, 1999, the Company amended its credit facility to add an additional term loan in the amount of $50.0 million. The amendment also modified certain covenants, including an increase to the permitted leverage ratios. The Company borrowed the entire amount of the additional term loan which was used to reduce amounts outstanding under the revolving portion of the credit facility. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the Company's consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in Part I of this report on Form 10-Q and with the Company's Annual Report on Form 10-K for the fiscal year ended January 2, 1999. Results of Operations The following table sets forth the percentage relationships to net sales of certain income statement items.
Three Months Ended ----------------- April 3, April 4, 1999 1998 -------- -------- Net sales: Hygiene.................................................... 37.3% 41.5% Medical.................................................... 11.7 11.8 Wiping..................................................... 16.4 13.6 Industrial and specialty................................... 34.6 33.1 ----- ----- 100.0 100.0 Cost of goods sold: Material................................................... 38.8 42.5 Labor...................................................... 8.3 8.3 Overhead................................................... 27.5 25.3 ----- ----- 74.6 76.1 ----- ----- Gross profit............................................... 25.4 23.9 Selling, general and administrative expenses................. 12.9 13.4 ----- ----- Operating income............................................. 12.5 10.5 Other (income) expense Interest expense, net...................................... 8.4 8.3 Investment income--(gain) on marketable securities, net.... (0.7) -- Foreign currency and other................................. 0.3 0.3 ----- ----- 8.0 8.6 Income before income taxes and extraordinary item............ 4.5 1.9 Income taxes................................................. 1.7 0.7 ----- ----- Income before extraordinary item............................. 2.8 1.2 Extraordinary item, (loss) from extinguishment of debt....... -- (1.4) ----- ----- Net income (loss)............................................ 2.8% (0.2)% ===== =====
10 Comparison of Three Months Ended April 3, 1999 and April 4, 1998 The following table sets forth components of the Company's net sales and operating income by segment for the three months ended April 3, 1999 and the corresponding increase/(decrease) over the comparable period in the prior year:
First Quarter ----------------- Increase/ % Increase/ 1999 1998 (Decrease) (Decrease) -------- -------- ---------- ----------- (Dollars in Thousands, Except Percent Data) Net sales: Hygiene....................... $ 78,321 $ 80,173 $(1,852) (2.3)% Medical....................... 24,626 22,827 1,799 7.9 Wiping........................ 34,416 26,260 8,156 31.1 Industrial and specialty...... 72,784 64,076 8,708 13.6 -------- -------- ------- $210,147 $193,336 $16,811 8.7% ======== ======== ======= Operating income: Hygiene....................... $ 13,659 $ 7,641 $ 6,018 78.8% Medical....................... 4,178 3,337 841 25.2 Wiping........................ 3,664 3,985 (321) (8.1) Industrial and specialty...... 4,699 5,290 (591) (11.2) -------- -------- ------- $ 26,200 $ 20,253 $ 5,947 29.4% ======== ======== =======
Net Sales The increase in net sales of 8.7% for the first quarter of 1999 over the same period in 1998 was due primarily to organic growth. Hygiene sales decreased 2.3% quarter over quarter as a result of replacing certain low margin products with high margin products and the pass-through to customers of continued decreases in material costs. Medical sales increased 7.9% quarter over quarter as a result of new products and increased demand from several leading customers. Wipes sales increased 31.1% quarter over quarter due to the release of new products and new programs introduced by leading customers. Industrial and specialty sales increased 13.6% as a result of the recent acquisition and organic growth within the nonwovens business. Operating Income The increase in operating income of 29.4% for the first quarter of 1999 over the first quarter in 1998 was due to increased sales, the continued decline in raw material costs as a percentage of sales and the introduction of certain high margin products. As a percentage of sales, labor costs remained constant in addition to a slight increase in overhead costs and a slight decrease in selling, general and administrative costs. Hygiene operating income increased 78.8% quarter over quarter as a result of a better product mix which included new higher margin products. Medical operating income increased 25.2% quarter over quarter as a result of increased sales and lower selling, general and administrative expenses. Wiping operating income decreased 8.1% quarter over quarter, despite higher sales, as a result of utilizing higher overhead manufacturing lines to meet increased demand requirements. Industrial and specialty operating income decreased 11.2% quarter over quarter, despite higher sales, as a result of incremental costs associated with new manufacturing programs and increased research and development costs. 11 Other Interest expense increased $1.6 million, from $16.0 million in the first quarter of 1998 to $17.6 million in the first quarter of 1999. Interest expense as a percentage of net sales remained constant quarter over quarter. The increase in interest expense is principally due to a higher average amount of indebtedness outstanding. During the first quarter of 1999 the Company recognized a gain on marketable securities, classified as trading, of $1.4 million. Net foreign currency transaction losses were approximately $0.7 million during the first quarter of 1999 and 1998. The Company provided for income taxes of approximately $3.5 million for the three months ended April 3, 1999, representing an effective tax rate of 37.7%. The provision for income taxes at the Company's effective rate differed from the provision for income taxes at the statutory rate due primarily to higher tax rates in foreign jurisdictions. The Company provided for income taxes of $1.3 million during the first quarter of 1998, representing an effective tax rate of 36.2%. Income Before Extraordinary Item Income before extraordinary item increased $3.5 million from $2.3 million, or $0.07 per share, during the first quarter of 1998 to $5.8 million, or $0.18 per share, during the first quarter of 1999. Extraordinary Item The Company recorded one-time charges of $2.7 million for the write-off of previously capitalized deferred financing costs during the first quarter of 1998. Liquidity and Capital Resources
April 3, January 2, 1999 1999 ---------- ---------- (In Thousands) Balance sheet data: Cash and equivalents and marketable securities........ $ 76,949 $ 58,308 Working capital....................................... 228,026 212,456 Total assets.......................................... 1,334,770 1,282,967 Debt (including current portion)...................... 906,689 866,499 Shareholders' equity.................................. 215,223 220,125 Three Months Ended ---------------------- April 3, April 4, 1999 1998 ---------- ---------- (In Thousands) Cash flow data: Net cash provided by operating activities............. $ 15,971 $ 27,542 Net cash (used in) provided by investing activities... (42,045) 200,065 Net cash provided by (used in) financing activities... 35,054 (211,417)
Operating Activities During the first quarter of 1999 the Company's operations generated $16.0 million in cash. As of April 3, 1999 the Company recorded $9.7 million in marketable securities, classified as trading, which reduced operating cash flow. 12 Investing and Financing Activities Capital expenditures for the first quarter of 1999 totaled $26.0 million, related primarily to margin-enhancing projects. For the remainder of fiscal 1999, the Company expects capital expenditures to approximate $124.0 million. The Company believes that based on current levels of operations and anticipated growth, its cash from operations, together with other available sources of liquidity (including but not limited to borrowings under the amended credit facility) will be adequate over the next several years to make required debt payments, including interest thereon, to permit anticipated capital expenditures and to fund the Company's working capital requirements. Effect of Inflation Inflation generally affects the Company by increasing the cost of labor, equipment and new materials. The Company believes that inflation had no material effect on the Company's business during the three months ended April 3, 1999. Foreign Currency The Company's substantial foreign operations expose it to the risk of exchange rate fluctuations. If foreign currency denominated revenues are greater than costs, the translation of foreign currency denominated costs and revenues into U.S. dollars will improve profitability when the foreign currency strengthens against the U.S. dollar and will reduce profitability when the foreign currency weakens. Year 2000 The Company has commenced global initiatives to address the Year 2000 issue. The project encompasses a review of information systems, personal computers, process systems and ancillary systems and communications with third party suppliers, vendors and customers. The objective of the Year 2000 project is to minimize the seriousness of any technical failures in order to reduce the risk of a material impact on the operations and financial condition of the Company. The following outlines, by key areas, the status of the Company's Year 2000 project, any reasonably expected risks identified during this process, costs and contingency plans. Information Systems and Personal Computers The majority of information systems and personal computers are Year 2000 ready. The information systems at certain facilities in Canada and Europe are in the final phases of readiness with anticipated completion dates during the first half of 1999. Year 2000 software "patches" are being tested at the U.S. nonwovens facilities. We anticipate these software "patches" being applied during the second quarter. In most cases, the Company has replaced, or is in the process of replacing, older software with new programs and systems, rather than modifying existing systems solely to become Year 2000 ready. Although the timing of the system replacements is influenced by the Year 2000, in most cases these systems would have been replaced in the normal course of business. Management currently does not reasonably expect any risks material to the operations and financial condition of the Company as a result of information system and personal computer failures. Contingency plans are being investigated for these systems, many of which are not critical. Process Systems The Company has been communicating with vendors and performing physical tests of the process systems and expects to complete the assessment during the first half of 1999. The initial phase of the 13 assessment revealed that certain systems are not Year 2000 ready. All non- compliant systems will be repaired or replaced. Most process systems can be bypassed if necessary; therefore limiting potential Year 2000 problems. The results of this assessment, plans for the final phase, and any necessary contingency plans will be disclosed at a later date. Ancillary Systems The assessment has revealed that the majority of ancillary systems are Year 2000 ready. All non-compliant systems will be upgraded to avoid potential problems. The assessment has not revealed any material risks associated with ancillary systems. Third Party Compliance The Company continues to learn and evaluate the compliance status of vendors, suppliers and customers with whom we have a material relationship. This process includes sending surveys to key suppliers; however, in most cases, the responses have not been adequate in determining the readiness of third parties. The Company could face a material financial risk if its customers or suppliers are unable to complete critical Year 2000 readiness efforts in a timely manner; however, the evaluation has not revealed any material risks to date associated with third parties. The Company plans to have alternate suppliers available in the event a primary supplier has a Year 2000 related production interruption. Year 2000 Costs Costs incurred to date have been approximately $0.6 million and currently management does not expect future costs to exceed $0.6 million. Costs are being monitored and can be expected to fluctuate during the final phases of the project; however, total costs are not expected to be material to the financial results of the Company. Euro Conversion On January 1, 1999, member countries of the European Monetary Union (EMU) began a three-year transition from their national currencies to a new common currency, the "euro". Permanent rates of exchange between members' national currency and the euro have been established and monetary, capital, foreign exchange, and interbank markets have been converted to the euro. National currencies will continue to exist as legal tender and may continue to be used in commercial transactions. By January 2002, euro currency will be issued and by July 2002, the respective national currencies will be withdrawn. The Company has operations in three of the participating countries and has successfully transitioned to using both the euro and local currencies for commercial transactions. The Company continues to address the euro's impact on information systems, currency exchange rate risk, taxation and pricing. Costs of the euro conversion have not been material and management believes that future costs of the euro conversion will not have a material impact on the operations or the financial condition of the Company. New Accounting Standards See "Note 4 to the Consolidated Financial Statements" Safe Harbor Statement under the Private Securities Litigation Act of 1995 Except for historical information contained herein, certain matters set forth within Management's Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q are forward looking statements. Certain risks and uncertainties could cause actual results to differ 14 materially from those set forth in the forward looking statements. The following factors could cause actual results to differ materially from historical results or those anticipated: adverse economic conditions, competition in the Company's markets, fluctuation in raw material costs, and other risks detailed in documents filed by the Company with the Securities and Exchange Commission. Item 3. Quantitative and Qualitative Disclosures About Market Risk. The Company's variable interest rate applicable to borrowings under it's credit facility is based on, in the case of U.S. dollar denominated loans, the Base Rate referred to therein or the Eurocurrency rate referred to therein for U.S. dollars, at the Company's option, plus a specified margin. In the event that a portion of the credit facility is denominated in Dutch guilders, the applicable interest rate is based on the applicable Eurocurrency Base Rate referred to therein for Dutch Guilders, plus a specified margin. In the event that a portion of the Credit Facility is denominated in Canadian dollars, the applicable interest rate is based on the Canadian Base Rate referred to therein, plus a specified margin, of the Bankers' Acceptance discount Rate referred to therein, at the Company's option. At April 3, 1999, the Company had borrowings under the Credit Facility of $263.8 million that were subject to interest rate risk. Each 1.0% increase in interest rates would impact pretax earnings by $2.6 million. The Company has an interest rate cap agreement which limits the amount of interest expense on $100 million of this debt to a rate of 9%. 15 PART II. OTHER INFORMATION Item 1. Legal Proceedings Not applicable. Item 2. Changes in Securities Not applicable. Item 3. Defaults upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Security Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K Exhibits required to be filed with this report on Form 10-Q are listed in the following Exhibit Index. There were no reports filed on Form 8-K during the quarter ended April 3, 1999. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Polymer Group, Inc. /s/ Jerry Zucker By: _________________________________ Jerry Zucker Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) /s/ James G. Boyd By: _________________________________ James G. Boyd Executive Vice President, Treasurer and Director (Principal Financial Officer and Principal Accounting Officer) May 11, 1999 17 EXHIBIT INDEX
Exhibit Number Document Description ------- -------------------- 11 Statement of Computation of Per Share Earnings. 27 Financial Data Schedule
EX-11 2 STATEMENT OF COMPUTATION OF EARNINGS EXHIBIT 11 POLYMER GROUP, INC. COMPUTATION OF EARNINGS PER SHARE (In Thousands, Except Per Share Data)
Three Months Ended --------------------------------- April 3, April 4, 1999 1998 --------------- --------------- Basic and diluted: Net income (loss) applicable to common stock........................ $ 5,832 $ (433) Weighted average shares outstanding................................. 32,000 32,000 Net income (loss) per common share -- basic and diluted............. $ 0.18 $ (0.02)
22 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from Polymer Group, Inc.'s Form 10Q for the quarter ended April 3, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JAN-01-2000 JAN-03-1999 APR-03-1999 67,281 9,668 125,270 7,206 104,823 348,934 842,921 145,962 1,334,770 120,908 600,000 0 0 320 214,903 1,334,770 210,147 210,147 156,879 156,879 0 0 17,550 9,366 3,534 5,832 0 0 0 5,832 0.18 0.18
-----END PRIVACY-ENHANCED MESSAGE-----