SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the thirteen week period ended March 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
-------------------- -------------------------
Commission File No. 1-11368
PARAGON TRADE BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1554663
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
180 Technology Parkway
Norcross, Georgia 30092
-------------------------
(Address of principal executive offices)
(770) 300-4000
(Registrant's telephone number, including area code)
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
The number of shares outstanding of the registrant's common stock was 11,927,968
shares ($.01 par value) as of March 30, 1997.
Page 1 of 26
Exhibit Index on Page 24
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q FILING
FOR THE THIRTEEN WEEK PERIOD ENDED MARCH 30, 1997
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Changes in
Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7-15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16-19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities (not applicable)
Item 3 Defaults in 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 21-22
Signature Page 23
Exhibit Index 24-25
Exhibits 26
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(NOTE 1)
Thirteen Weeks Ended
--------------------
March 30, 1997 March 31, 1996
-------------- --------------
Sales, net of discounts and allowances $ 135,685 $137,214
Cost of Sales........................ 107,847 112,761
------------ ------------
Gross Profit......................... 27,838 24,453
Selling, general and administrative
expense........................ 20,441 23,954
Research and development expense..... 924 931
------------ ------------
Operating profit (loss).............. 6,473 (432)
Equity in earnings of unconsolidated
subsidiary..................... 59 92
Interest Expense..................... 881 814
Other income......................... 446 130
------------ ------------
Earnings (loss) before income taxes.. 6,097 (1,024)
Provision for (benefit from) income
taxes.......................... 2,295 (424)
------------ ------------
Net earnings (loss).................. $ 3,802 $ (600)
============ ============
Primary earnings (loss) per common
share.......................... $ .32 $ (.05)
============ ============
Dividends paid....................... $ - $ -
============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(NOTE 1)
March 30, 1997 December 29, 1996
-------------- -----------------
ASSETS
Cash and short-term investments...... $ 3,622 $ 8,297
Receivables.......................... 43,355 56,888
Inventories.......................... 48,148 44,055
Current portion of deferred income
taxes.......................... 11,078 10,575
Prepaid expenses..................... 1,592 957
--------------- ---------------
Total current assets........... 107,795 120,772
Property and equipment............... 114,960 116,338
Construction in progress............. 18,901 10,117
Assets held for sale................. 13,857 14,421
Patents and trademarks............... 549 676
Deferred income taxes................ 25,066 26,293
Investment in unconsolidated
subsidiary, at cost............ 16,531 16,531
Investment in and advances to
unconsolidated subsidiary, at
equity......................... 33,377 29,484
Goodwill............................. 36,179 36,658
Other assets......................... 1,606 1,800
--------------- ---------------
Total assets................... $ 368,821 $ 373,090
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings................ $ 4,700 $ -
Checks issued but not cleared........ 7,973 10,233
Accounts payable..................... 43,487 37,067
Accrued liabilities.................. 28,501 38,495
--------------- ---------------
Total current liabilities...... 84,661 85,795
Long-term debt....................... 60,000 70,000
Deferred income taxes................ 2,226 2,260
Other long-term liabilities.......... 537 330
--------------- ---------------
Total liabilities.............. 147,424 158,385
Commitments and contingencies
(Notes 9 and 12)
Shareholders' equity.................
Preferred stock: Authorized
10,000,000 shares, no shares
issued, $.01 par value......... - -
Common stock: Authorized 25,000,000
shares, issued 11,927,968 and
11,889,386 shares,
$.01 par value................. 123 123
Capital surplus...................... 144,241 143,205
Foreign currency translation
adjustment....................... (702) (614)
Retained earnings.................... 88,143 84,341
Less: Treasury stock, 409,259 and
208,636 shares, at cost........ (10,408) (12,350)
---------------- ----------------
Total shareholders' equity..... 221,397 214,705
--------------- ---------------
Total liabilities and $ 368,821 $ 373,090
shareholders' equity..... =============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE DATA)
(NOTE 1)
Foreign
Common Capital Currency Retained Treasury
Stock Surplus Translation Earnings Stock
----- ------- ----------- -------- -----
BALANCE, December 29, 1996 $ 123 $ 143,205 $(614) $84,341 $(12,350)
Net earnings....... - - - 3,802 -
Issue common stock. - 1,036 - - 1,942
Translation
adjustment..... - - (88) - -
------- --------- -------- -------- ---------
BALANCE, March 30, 1997.. $ 123 $ 144,241 $(702) $88,143 $(10,408)
======= ========= ======== ======== =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(NOTE 1)
Thirteen Weeks Ended
--------------------
March 30, 1997 March 31, 1996
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)................. $ 3,802 $ (600)
Non-cash charges (benefits) to
earnings:
Depreciation and amortization.. 7,957 11,089
Deferred income taxes.......... 690 (3,370)
Changes in working capital:
Accounts receivable............ 14,333 (4,346)
Inventories and prepaid
expenses.................. (4,728) 7,960
Accounts payable............... 6,420 (3,772)
Checks issued but not cleared.. (2,260) (1,514)
Accrued liabilities............ (7,195) 8,360
Other................................ 38 (1,342)
--------------- ----------------
Net cash provided by operating
activities............... 19,057 12,465
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and
equipment...................... (15,832) (14,160)
Proceeds from sale of property and
equipment...................... 809 12
Acquire assets - Pope & Talbot
Disposable Diaper Business..... - (55,319)
Investment in Grupo P.I. Mabe, S.A.
de C.V......................... - (16,523)
Investment in and advances to
unconsolidated subsidiary, at
equity......................... (3,500) -
Other................................ (88) (871)
---------------- ----------------
Net cash used by investing
activities............... (18,611) (86,861)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term
borrowings............... 4,700 18,285
Proceeds from U.S. bank credit
facility................. - 55,000
Repayments of U.S. bank credit
facility................. (10,000) -
Sale of common stock........... 179 -
--------------- ---------------
Net cash provided (used) by
financing activities..... (5,121) 73,285
---------------- ---------------
NET INCREASE (DECREASE) IN CASH...... (4,675) (1,111)
Cash at beginning of period.......... 8,297 11,890
--------------- ---------------
Cash at end of period................ $ 3,622 $ 10,779
=============== ===============
Cash paid (refunded)during the period
for:
Interest, net of amounts
capitalized............. $ 873 $ 976
=============== ===============
Income taxes................... $ (5,553) $ 317
================ ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEK PERIOD ENDED MARCH 30, 1997
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE FIGURES)
NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Paragon Trade
Brands, Inc. ("Paragon" or the "Company") and its wholly-owned subsidiaries. All
significant intercompany transactions and accounts are eliminated.
The accompanying consolidated balance sheet as of December 29, 1996, which has
been derived from audited financial statements, and the unaudited interim
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's latest annual report on Form 10-K.
In the opinion of management, all adjustments necessary for a fair statement of
the results of the interim periods have been included. All such interim
adjustments, with the exception of the costs associated with the Pope & Talbot,
Inc. ("P&T") integration and the relocation of the Company's corporate offices
to Atlanta, are of a normal recurring nature. The charge for the P&T integration
and relocation of the corporate offices for the thirteen week period ending
March 30, 1996 was $5.8 million, net of the effect of income taxes. The results
of operations for the thirteen week period ending March 30, 1997 should not be
regarded as necessarily indicative of the results that may be expected for the
full year.
CASH AND SHORT-TERM INVESTMENTS
For purposes of cash flow reporting, short-term investments with original
maturities of 90 days or less are considered as cash equivalents. Short-term
investments are stated at cost, which approximates market.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost includes labor,
materials and production overhead. The last-in, first-out (LIFO) method is used
to cost domestic pulp and finished goods inventories. The first-in, first-out
(FIFO) method is used to cost all other inventories. Had the FIFO method been
used to cost the domestic pulp and finished goods inventory the amounts at which
they are stated would have been $494 and $602 greater at March 30, 1997 and
December 29, 1996, respectively.
INVESTMENTS
The Company owns a 15% interest in Grupo P.I. Mabe, S.A. de C.V. ("Mabesa") and
related companies. The investment is carried at cost in the accompanying balance
sheet.
The Company also owns a 49% interest in Paragon-Mabesa International, S.A. de
C.V. ("PMI"). The investment is accounted for using the equity method.
There were no dividend distributions to the Company from Mabesa or PMI for the
thirteen week periods ended March 30, 1997 and March 31, 1996.
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
REALIZATION OF LONG-LIVED ASSETS
The Company periodically evaluates the carrying value of its long-lived assets,
including goodwill, in relation to their operating performance and future
undiscounted cash flow. The Company adjusts the carrying amounts of the assets
or goodwill if the unamortized balance exceeds the estimate of future cash
flows.
GOODWILL
On February 8, 1996, the Company completed the purchase of substantially all of
the assets of the P&T disposable diaper business. Goodwill represents the excess
of the cost of these assets over their estimated fair value at the date of
acquisition and is amortized on a straight line basis over 20 years.
Amortization expense for the thirteen week periods ended March 30, 1997 and
March 31, 1996 was $480 and $200, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company estimates that the fair value of its financial instruments
approximate their carrying value. As such, no separate disclosure of fair value
is made.
FOREIGN CURRENCY
Non-U.S. assets and liabilities are translated into U.S. dollars using
period-end exchange rates. Revenues and expenses are translated at average rates
during the period.
NONCASH TRANSACTIONS
During the thirteen week periods ended March 30, 1997 and March 31, 1996, the
Company issued 166,343 and 62,843 shares of Common Stock, respectively, to key
management and employees through the Company's 1995 Incentive Compensation Plan,
its Profit Sharing and Savings Plan, and its 1996 Non-officer Employee Incentive
Compensation Plan (see Note 8). The balance sheet effect of issuing these shares
of Common Stock at March 30, 1997 and March 31, 1996 was a decrease in accrued
liabilities of $2,798 and $1,538, respectively, and an increase in equity by an
equal amount without the use of cash.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," effective for fiscal years and interim periods ending
after December 15, 1997. The adoption of this statement will not have a
significant impact on the Company's results of operations. The Company's
historical primary earnings per share calculations are equivalent to the basic
earnings per share calculations called for by SFAS 128.
NOTE 2: RECEIVABLES
Receivables consist of the following:
March 30, 1997 December 29, 1996
---------------- -----------------
Accounts receivable-trade............ $ 44,731 $ 51,634
Other receivables.................... 6,236 12,891
--------------- ---------------
50,967 64,525
Less: allowance for doubtful
accounts........................ (7,612) (7,637)
---------------- ----------------
Net receivables...................... $ 43,355 $ 56,888
=============== ===============
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3: INVENTORIES
Inventories consist of the following:
March 30, 1997 December 29, 1996
-------------- -----------------
LIFO:
Raw materials - pulp........... $ 445 $ 407
Finished goods................. 27,940 21,090
FIFO:
Raw materials - other.......... 8,227 9,131
Materials and supplies......... 19,029 21,230
--------------- ---------------
55,641 51,858
Reserve for excess and
obsolete items............. (7,493) (7,803)
---------------- ----------------
Net inventories...................... $ 48,148 $ 44,055
================ ================
NOTE 4: INCOME TAXES
Provision for (benefit from) income taxes includes the following:
Thirteen Weeks Ended
--------------------
March 30, 1997 March 31, 1996
-------------- --------------
Federal:
Current........................ $ 1,053 $ 1,555
Deferred....................... 613 (2,626)
------------ -------------
1,666 (1,071)
------------ ------------
State:
Current........................ 145 479
Deferred....................... 112 (744)
------------ -------------
257 (265)
------------ -------------
Foreign:
Current........................ 406 912
Deferred....................... (34) -
------------- ------------
372 912
------------ ------------
$ 2,295 $ (424)
============ =============
Income tax provisions for interim periods are based on the current best estimate
of the effective tax rate expected to be applicable for the full year. The
effective tax rate reflects anticipated tax credits, foreign taxes and other tax
planning alternatives.
For the thirteen week periods ended March 30, 1997 and March 31, 1996, provision
for (benefit from) income taxes as a percentage of earnings before income taxes
is greater than the 35 percent federal statutory rate due principally to the
effect of state income taxes.
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
Net deferred income taxes are attributable to the following temporary
differences:
March 30, 1997 December 29, 1996
-------------- -----------------
Intangible assets.................... $ (2,226) $ (2,260)
------------- ---------------
Deferred tax liabilities....... (2,226) (2,260)
------------- ---------------
Depreciation/amortization............ 11,745 11,151
Goodwill............................. 8,737 10,851
Reserves not currently deductible.... 11,117 10,503
Package design costs................. 1,908 1,970
Land................................. 401 407
All other, net....................... 2,519 2,267
------------ --------------
Deferred tax assets............ 36,427 37,149
------------ --------------
Deferred tax assets valuation
allowance...................... (283) (281)
------------- ---------------
Total deferred taxes, net...... $ 33,918 $ 34,608
============ ==============
NOTE 5: PROPERTY AND EQUIPMENT
Property and equipment, at cost, are as follows:
March 30, 1997 December 29, 1996
-------------- -----------------
Land ............................... $ 3,755 $ 3,757
Buildings and improvements........... 36,691 36,702
Machinery and equipment.............. 236,130 229,289
------------- ------------
276,576 269,748
Less: allowance for depreciation.... (161,616) (153,410)
--------------- -------------
Net property and equipment........... $114,960 $116,338
=============== =============
NOTE 6: ACCRUED LIABILITIES
Accrued liabilities are as follows:
March 30, 1997 December 29, 1996
-------------- -----------------
Payroll-related...................... $ 8,346 $ 14,975
Coupons outstanding.................. 6,137 6,230
Integration/relocation reserves...... 5,634 5,943
Income taxes payable-current ........ 763 1,327
Other................................ 7,621 10,020
-------------- ------------
$ 28,501 $ 38,495
============== ============
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7: NET EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is based on the weighted average number of
common and common equivalent shares outstanding for each of the thirteen week
periods ending March 30, 1997 and March 31, 1996. For the thirteen week period
ended March 31, 1996, the calculation assumes that shares issued to P&T,
pursuant to the purchase of P&T's disposable diaper business assets, were issued
and outstanding as of February 8, 1996.
Thirteen Weeks Ended
--------------------
March 30, 1997 March 31, 1996
-------------- --------------
Primary
Net earnings (loss)............ $ 3,802 $ (600)
Weighted average common and
common equivalent shares
outstanding (000's)............ 11,818 11,892
Net earnings (loss)
per common share.......... $ .32 $ (.05)
Fully diluted
Net earnings (loss)............ $ 3,802 $ (600)
Weighted average common and
common equivalent shares
outstanding (000's)............ 11,920 11,892
Net earnings (loss) per
common share fully diluted $ .32 $ (.05)
This calculation is submitted in accordance with Regulation S-K item 601(b)(11),
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15,
because it results in dilution of less than 3 percent.
NOTE 8: PENSION, LONG-TERM INCENTIVE AND PROFIT SHARING PLANS, INCLUDING 401(K)
The Company's Long-Term Incentive Plan ("LTIC Plan") and its 1995 Incentive
Compensation Plan ("1995 Plan") are administered by the Compensation Committee
of the Board of Directors. In February 1996, the Company adopted its 1996
Non-Officer Employee Incentive Compensation Plan ("1996 Plan"). The 1996 Plan is
administered by an Administrative Committee appointed by the Board of Directors.
The LTIC, 1995 and 1996 Plans are designed to link management rewards with
long-term interests of Paragon's shareholders. Currently, long-term incentives
are provided through grants of stock options, Stock Appreciation Rights ("SARs")
and restricted stock.
In 1997, non-transferrable shares of common stock were purchased at a discounted
value by certain members of management through a stock purchase program approved
by the board of directors at a discounted value in lieu of a portion or all of
such employees' bonuses for service in 1996, at such employees' discretion. In
1996, restricted shares of common stock were issued at discounted value in lieu
of all of the cash bonuses for the Chief Executive Officer, President, and Chief
Financial Officer for services in 1995. Compensation expense is recorded for the
stock grants and discounted amounts. The restricted stock is non-transferable
for two years. During the thirteen week period ended March 30, 1997, there were
12,279 shares of common stock issued under the 1996 plan as restricted shares.
During the thirteen week periods ended March 30, 1997 and March 31, 1996, there
were
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
36,655 and 26,157 shares of common stock issued under the 1995 Plan, as
restricted and bonus shares, respectively. There are a maximum of 150,000 and
250,000 shares available for grant under the 1995 Plan and 1996 Plan.
The Company has a maximum of 800,000, 450,000, and 400,000 shares available for
grant, as stock options or SARs under the LTIC, 1995 and 1996 Plans,
respectively. Stock options are granted to key management at amounts that
approximate market value at the date of the grant. Awards vest 25% per year for
four years and have a term of 10 years. The Company also has a maximum of
100,000 shares available for grant under the Stock Option Plan for Non-Employee
Directors ("Director Plan"). Stock options are awarded to directors at amounts
that approximate market value at the date of the grant. Awards vest 100% after
one year and have a term of 10 years.
Following is a summary of the status of the 1995, 1996, LTIC and Director Plans
during the thirteen week periods ended March 30, 1997 and March 31, 1996.
March 30, 1997 March 31, 1996
-------------- --------------
Weighted Weighted
Average Average
Number of Exercise Number of Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding, Beginning of
period.............. 735,932 $ 21.00 703,678 $ 20.40
Granted................... 85,000 $ 16.44 73,000 $ 24.89
Exercised................. 8,582 $ 20.94 9,914 $ 21.61
Forfeited................. 10,750 $ 18.77 11,725 $ 19.81
Expired................... - - - -
--------- ---------
Outstanding, end of period 801,600 $ 20.55 755,039 $ 20.83
========= =========
Options exercisable end of 527,684 $ 21.30 358,136 $ 21.76
period ========= =========
Following is a summary of the status of options granted under the 1995, 1996,
LTIC, and Director Plans at March 30, 1997:
Outstanding Options Exercisable Options
------------------------- -------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Gross Life Exercise Exercise
Price Range Number (Years) Price Number Price
----------- ------ ------- ----- ------ -----
$12.69-$16.44 264,488 8.61 $ 14.47 94,818 $ 13.65
$17.13-$24.38 332,330 6.14 $ 20.24 306,664 $ 20.08
$24.88-$31.13 204,782 7.58 $ 28.88 126,202 $ 30.01
------- -------
$12.69-$31.13 801,600 7.32 $ 20.55 527,684 $ 21.30
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
The following summarizes transactions involving SARs granted to key management
during the thirteen week periods ended March 30, 1997 and March 31, 1996:
March 30, 1997 March 31, 1996
-------------- --------------
Average Average
Number of Exercise Number of Exercise
SARs Price SARs Price
---- ----- ---- -----
Outstanding, beginning of
period................. 121,330 $ 24.32 - -
Granted..................... 116,330 $ 16.44 101,330 $ 24.88
Exercised................... - - - -
Forfeited................... 750 $ 24.88 - -
----------- -----------
Outstanding, end of period 236,910 $ 20.45 101,330 $ 24.88
Exercisable, end of period 25,335 $ 24.88 - -
SARs are granted at amounts that approximate market value at the date of the
grant. Awards vest 25% per year for four years and have a term of 10 years.
Compensation expense is recorded based on the period-ending stock price in
relation to the SAR exercise price. Redemption of the SARs when exercised will
be in cash.
To further encourage the ownership of common stock by all employees, the Company
maintains the PRISM Plan, formerly known as the Profit Sharing and Savings Plan,
that offers both profit sharing and 401(k) features. The Company's 1996 and 1995
profit sharing contribution made during the thirteen week periods ended March
30, 1997 and March 31, 1996 consisted of 110,527 and 29,613 shares of common
stock, respectively. The Company's 401(k) contributions consisted of 6,882 and
7,073 shares of common stock for the thirteen week periods ended March 30, 1997
and March 31, 1996.
NOTE 9: LEGAL PROCEEDINGS
The Procter & Gamble Company ("P&G") filed a claim in the District Court for the
District of Delaware that the Company's disposable baby diaper products infringe
two of P&G's inner-leg gather patents. The lawsuit seeks injunctive relief, lost
profit and royalty damages totaling approximately $100 million, treble damages
and attorneys' fees and costs. The Company has denied liability under the
patents and has counterclaimed for patent infringement and violation of
antitrust laws by P&G. In March 1996, the District Court granted P&G's motion
for summary judgment to dismiss the Company's antitrust counterclaim. The
Company intends to appeal the District Court's decision at the appropriate time.
In September 1996, P&G filed two motions for summary judgment with respect to
the Company's patent infringement counterclaim. In December 1996, the District
Court denied both of P&G's motions for summary judgment. The trial has concluded
and the parties are engaged in post trial briefing. The ultimate outcome cannot
be predicted at this time. Legal fees and costs for this litigation have been
significant. If P&G were to prevail on its claims, award of all or a substantial
amount of the relief requested by P&G could have a material adverse effect on
the Company's financial condition and its results of operations. Based on the
advice of patent counsel, the Company believes that P&G's claims are not well
founded.
On October 26, 1995, Kimberly-Clark Corporation ("K-C") filed a lawsuit against
the Company in U.S. District Court in Dallas, Texas, alleging infringement by
the Company's products of two K-C patents relating to inner-leg gathers. The
lawsuit seeks injunctive relief, royalty damages, treble damages and attorneys'
fees and costs. The Company has denied liability under the patents and has
counterclaimed for patent infringement and violation of antitrust laws by K-C.
In October 1996, K-C filed a motion for summary judgment with respect to the
Company's antitrust counterclaim along with a motion to stay discovery pending
resolution of such motion for summary judgment. On April 18, 1997, K-C filed a
motion for summary judgment of noninfringement of two patents asserted by the
Company and a motion for partial summary judgment construing the claims of one
of the K-C patents-in-suit. The Company intends to vigorously defend each of its
claims. In addition, K-C has sued the Company on another patent issued to K-C
which is based upon further continuation of one of the K-C patents asserted in
the case. The Company will move to consolidate that action with the pending
action. Trial is scheduled for October 1997. Legal
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<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
fees and costs in connection with this litigation will be significant. Should
K-C prevail on its claims, award of all or a substantial portion of the relief
requested by K-C could have a material adverse effect on the Company's financial
condition and its results of operations. Based on the advice of patent counsel,
the Company has taken the position that the patent coverage claimed by K-C is
not applicable to the Company's products.
In July 1995, 12 former employees of the Company filed claims in the Court of
Common Pleas, Butler County, Pennsylvania alleging discriminatory and/or
wrongful discharge related to their termination in the July 1993 restructure of
the Company's Harmony, Pennsylvania plant. Related National Labor Relations
Board cases have been dismissed. In March 1997, the Court granted the Company's
motion for summary judgment with respect to each claim asserted by each of the
12 plaintiffs. The time for the plaintiffs to appeal has now expired.
On September 27, 1996 the Company filed a declaratory judgment action against
P&G in U.S. District Court in Atlanta seeking a ruling from the court that
certain patents owned by P&G are invalid, unenforceable and not infringed by the
Company's feminine care products. P&G responded asserting infringement by the
Company's feminine care products of six of the patents listed in the Company's
complaint. On April 24, 1997, the Company and P&G announced a joint settlement
of this matter. Terms of the settlement are confidential.
The Company is also a party to other legal activities generally incidental to
its activities. Although the final outcome of any legal proceeding or disputes
is subject to a great many variables and cannot be predicted with any degree of
certainty, the Company presently believes that any ultimate liability resulting
from any or all legal proceedings or disputes to which it is a party, except for
the P&G and K-C matters discussed above, will not have a material adverse effect
on its financial condition or results of operations.
NOTE 10: BANK CREDIT FACILITIES
At March 30, 1997, the Company maintained a $150,000 revolving credit facility
with a group of nine financial institutions available for a term of five years.
At March 30, 1997, borrowings under this credit facility totaled $60,000. There
were $70,000 in borrowings against this facility at December 29, 1996. Interest
is at fixed or floating rates based on the financial institutions' cost of
funds. The Company is also required to maintain certain financial covenants
under the agreement.
At March 30, 1997, Paragon Trade Brands (Canada) Inc. maintained a $5,000 Cdn
revolving term credit facility, guaranteed by the Company, available through
October 1997. Paragon Trade Brands (Canada) Inc. had no borrowings under this
credit facility at March 30, 1997 and at December 29, 1996. Interest is at fixed
or floating rates based on the financial institutions' cost of funds.
The Company also has access to short-term lines of credit on an uncommitted
basis with several major banks. At March 30, 1997, the Company had approximately
$50,000 in uncommitted lines of credit. There were no borrowings against these
lines of credit at December 29, 1996. At March 30, 1997, the Company had
borrowings against these lines of $4,700. Borrowings under these lines are
reflected as short-term debt in the accompanying balance sheet.
For the thirteen week periods ended March 30, 1997 and March 31, 1996, interest
expense, net of amounts capitalized, was $881 and $814, respectively. For the
thirteen week period ended March 30, 1997, capitalized interest totaled $308. No
interest was capitalized during the thirteen week period ended March 31, 1996.
Interest expense includes interest on borrowings, bank commitment fees, and
amortization of deferred financing costs.
NOTE 11: FINANCIAL INSTRUMENTS - FOREIGN CURRENCY FORWARD CONTRACTS
The Company occasionally enters into forward contracts to hedge certain foreign
currency denominated purchase commitments for periods consistent with the terms
of the underlying transactions. While the forward contracts affect the Company's
results of operations, they do so only in connection with the underlying
transactions. Gains and losses on these contracts are deferred and offset
exchange gains and losses on the transactions hedged. At March 30, 1997 and
December 29, 1996, the Company did not have any forward contracts outstanding.
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 12: UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
The following pro forma consolidated earnings statement has been prepared to
reflect the February 8, 1996 purchase of substantially all of the assets of
P&T's disposable diaper business. The purchase price was approximately $63.5
million, consisting of cash of $55.3 million and 387,800 shares of the Company's
common stock. The Company also announced plans on February 8, 1996 to close the
disposable diaper operations acquired from P&T in Eau Claire, Wisconsin; and the
Porterville, California and Shenandoah, Georgia facilities.
The pro forma consolidated earnings statement has been prepared as if the
transaction occurred January 1, 1996. Pro forma adjustments reflect increased
sales, costs, goodwill amortization, interest on borrowings and the income tax
effects of these adjustments for the period of January 1, 1996 to February 7,
1996.
Thirteen Weeks Ended March 31, 1996
-----------------------------------
Paragon Adjustments Pro-forma
------- ----------- ---------
Net Sales............................ $ 137,214 $ 11,391(1) $ 148,605
Cost of Sales........................ 112,761 $ 8,718(1) 121,479
--------- ---------- -----------
Gross Profit......................... 24,453 2,673 27,126
Selling, general and administrative
expense........................ 23,954 445(2) 24,399
Research and development expense..... 931 931
--------- ---------- -----------
Operating profit (loss).............. (432) 2,228 1,796
Equity in earnings of subsidiary..... 92 92
Other expense, net................... 684 398(3) 1,082
--------- ---------- -----------
Earnings (loss) before income taxes.. (1,024) 1,830 806
Provision for (benefit) from income
taxes.......................... (424) 690(4) 266
---------- ----------- -----------
Net earnings (loss).................. $ (600) $ 1,140 $ 540
========== ========== ===========
Net earnings (loss) per common share. $ (.05) .05
Weighted average common shares
outstanding.................... 11,892 12,021(5)
1 To reflect incremental sales and related costs, including overhead and
depreciation, for the period of January 1, 1996 to February 7, 1996.
2 To reflect the incremental costs of goodwill amortization and sales
commissions during the period of January 1, 1996 to February 7, 1996.
Goodwill is being amortized over a 20 year period.
3 To reflect interest on borrowings under the Company's revolving credit
facility. The interest is based on the first quarter 1996 average 12 month
LIBOR rate plus .75% for the period of January 1, 1996 to February 7, 1996.
4 To provide for the federal, state and local tax effects of the pro forma
adjustments described in Notes (1), (2), and (3).
5 Assumes that the 387,800 shares issued for the purchase were issued on
January 1, 1996.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED MARCH 30, 1997
COMPARED TO THIRTEEN WEEKS ENDED MARCH 31, 1996
RESULTS OF OPERATIONS
Net earnings were $3.8 million in the first quarter of 1997 compared with a net
loss of $.6 million in the first quarter of 1996. Included in the results in the
first quarter of 1996 were charges of $5.8 million, net of the effect of income
taxes, associated with integrating the acquisition of Pope & Talbot, Inc.'s
("P&T") disposable diaper business and costs to relocate the corporate
headquarters to Atlanta. Excluding these charges, net income in the first
quarter of 1996 was $5.1 million. The decrease in profits in the first quarter
of 1997 compared to the same period in 1996, excluding these charges, was
primarily due to operating losses associated with the feminine care business
start-up, continued price pressure in the baby diaper business, inefficiencies
associated with the introduction of new baby diaper product innovations and
legal costs associated with patent litigation with The Procter & Gamble Company
("P&G") and Kimberly-Clark Corporation ("K-C"). See "Legal Proceedings." These
negative impacts were partially offset by lower raw material prices, improved
unit volume and lower manufacturing overhead in the baby diaper business.
Net earnings per share in the first quarter of 1997 were $.32 compared to a net
loss per share of $.05 in the first quarter of 1996. Net earnings per share were
$.43 in the first quarter of 1996, excluding the charges for the P&T disposable
diaper business integration and the corporate relocation.
The net earnings per share of $.32 in the first quarter of 1997 included a net
loss per share of $.28 related to the start-up of the feminine care business.
These losses are expected to continue throughout 1997 but should improve on a
quarterly basis.
REVENUES
Net sales were $135.7 million in the first quarter of 1997, a 1.1 percent
decrease from the $137.2 million reported in the first quarter of 1996. Diaper
unit sales increased 1.5 percent to 902 million diapers in the first quarter of
1997 from 889 million diapers in the first quarter of 1996. The increase in
volume primarily reflects the full quarter benefit of the P&T acquisition in
February 1996. Volume, however, has been negatively impacted by increased
discounts and promotional allowances by the branded manufacturers and value
segment competitors, especially the use of multiple packs. Multiple packs
represent a package configuration that provides the consumer 2, 3 or 4 times the
amount of diapers found in a standard convience count package. Volume has been
further impacted by product improvements added by the branded manufacturers. The
Company will complete the rollout of an improved product during the third
quarter of 1997. Volume may continue to be negatively impacted until the
improved product is fully introduced.
Excluding the effect of a favorable product mix, average sales prices during the
first quarter of 1997 decreased approximately 8.0 percent compared to the first
quarter of 1996. The decrease in prices was primarily due to the increased
discounts and promotional allowances, discussed above, and the use of multiple
packs by the branded manufacturers and value segment competitors. The negative
trend in prices is expected to continue throughout the remainder of 1997, see
"Risks and Uncertainties."
COST OF SALES
Cost of sales in the first quarter of 1997 was $107.8 million compared to $112.8
million in the first quarter of 1996, a 4.4 percent decrease. As a percentage of
net sales, cost of sales was 79.4 percent in 1997 compared to 82.2 percent in
the comparable 1996 period. The first quarter 1996 costs included $3.7 million
in charges for costs associated with the integration of the P&T disposable
diaper business into the Company's existing business. As a percentage of sales,
excluding such charges, cost of sales was 79.5 percent in the first quarter of
1996. Costs were lower in the first quarter of 1997 compared to the same period
of 1996 primarily due to lower raw material and
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<PAGE>
packaging costs. Baby diaper manufacturing costs, including depreciation, were
also lower in 1997. These lower costs were partially offset by the costs
associated with the feminine care business start-up and inefficiencies
associated with the new product introductions in the baby diaper business.
Pulp prices were approximately 30 percent lower in the first quarter of 1997
compared to the same period in 1996. Pulp prices, which decreased throughout
1996, appear to have stabilized and are expected to increase modestly during the
second half of 1997. Packaging costs, including bags and corrugated boxes, were
also lower during the first quarter of 1997 compared to the first quarter of
1996. Other raw material prices were generally at similar price levels in the
first quarter of 1997 compared to 1996.
Baby diaper labor costs were slightly higher in the first quarter of 1997
compared to the first quarter of 1996. These higher costs reflect the
inefficiencies related to the new product rollout. These inefficiencies should
continue during the second quarter of 1997, but should improve during the second
half of the year. Baby diaper overhead costs, excluding the charges discussed
below, were lower during the first quarter of 1997 compared to the same period
in 1996 due to the closure during 1996 of the manufacturing facilities acquired
from P&T. Overall labor and overhead costs were higher due to the costs related
to the feminine care business startup. During the first quarter of 1996, $1.9
million of charges were incurred to support the integration of the P&T
disposable diaper business.
Baby diaper depreciation costs, excluding charges discussed below, were lower in
the first quarter of 1997 compared to the same period of 1996. The decrease is
partially due to the closure, during 1996, of the acquired P&T facilities.
Depreciation costs were higher in 1996 due to accelerated depreciation
attributable to product innovations. The decreases in the first quarter of 1997
were partially offset by increased depreciation costs associated with the
feminine care business. During the first quarter of 1996, $1.6 million of
charges were incurred due to the accelerated depreciation of existing Company
equipment that was to be replaced by equipment acquired from P&T.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A expenses were $20.4 million in the first quarter of 1997 compared to $24.0
million in the first quarter of 1996. As a percentage of net sales, these
expenses were 15.0 percent in 1997 compared to 17.5 percent for the same period
in 1996. Included in the first quarter of 1996 were charges of $5.7 million.
These charges included $2.8 million for the corporate headquarters relocation to
Atlanta, primarily severance and outplacement, and $2.9 million in costs
associated with the integration of the P&T disposable diaper business.
Excluding the charges discussed above, SG&A expenses were $20.4 million in the
first quarter of 1997 compared to $18.3 million in the first quarter of 1996. As
a percentage of net sales these expenses, excluding the charges, were 15.0
percent in the first quarter of 1997 compared to 13.3 percent in the first
quarter of 1996. The increase in costs is attributable to a number of factors.
The most significant item was an increase in legal expenses related to the P&G
and K-C patent litigation. Legal expenses are expected to continue at higher
rates than 1996 throughout 1997. See "Legal Proceedings." Costs were also higher
due to increased trade merchandising expenses in response to product
introductions and promotional activity by branded and value segment competitors.
Information system costs were higher in the first quarter of 1997 compared to
the same period of 1996 and are expected to remain at higher levels for the
forseeable future. The Company will begin installation of a new enterprise
information system in 1997. These higher SG&A costs, overall, were partially
offset by lower bad debt expense and incentive based compensation. Although
packaging costs were at similar levels during the first quarter of 1997 and
1996, the costs are expected to rise during the second and third quarters of
1997 as the result of product rollouts and changes in package counts.
RESEARCH AND DEVELOPMENT
Research and development expenses remained at $.9 million in the first quarter
of 1997 compared to $.9 million in the first quarter of 1996.
INTEREST EXPENSE
Interest expense was $.9 million in the first quarter of 1997 compared to $.8
million in the first quarter of 1996. The increase resulted from higher average
borrowings during the first quarter of 1997 that were partially offset by higher
capitalized interest.
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<PAGE>
OTHER INCOME
Other income was $.4 million in the first quarter of 1997 compared to $.1
million in the first quarter of 1996. The increase in income reflects higher
interest income from loans to Paragon-Mabesa International S.A. de C.V. ("PMI"),
an unconsolidated subsidiary accounted for on the equity basis.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1997, cash flow from earnings and non-cash charges
to earnings was $12.5 million compared to $7.1 million in the same period in
1996.
During the first quarter of 1997, working capital, exclusive of cash, short-term
borrowings, and current deferred taxes, decreased $6.6 million. This was
primarily due to a decrease in accounts receivable and an increase in payables
that was partially offset by an increase in inventories and a decrease in
accrued liabilities.
The decrease in receivables reflects a decrease in overall business activity
since the end of the year. The decrease in receivables also reflects the receipt
of refundable income taxes during the first quarter. Cash flow was also
favorably impacted by $2.8 million as the Company issued treasury stock to
settle certain payroll liabilities.
The increase in inventories partially reflects the increase in finished good
inventories in anticipation of product rollouts. These inventories are expected
to decrease during the second and third quarters. The decrease in accrued
liabilities primarily reflects the payment of incentive-based compensation
during the first quarter. Accrued liabilities also decreased due to a drop in
coupon and promotion-related liabilities.
The cash produced from operations supported capital expenditures of $15.8
million in the first quarter of 1997 compared to $14.2 million in the same
period of 1996. The expenditures were primarily in support of the baby diaper
business, specifically new product enhancements and diaper packaging technology.
Capital spending is expected to be approximately $60 million during 1997 and
will include further expenditures for packaging technology, a company-wide
information system upgrade and the investment of capital to support potential
new business initiatives.
The Company has access to an unsecured, revolving bank credit facility of $150
million. The Company has an additional Cdn $5 million revolving credit facility
available in Canada. In addition to the revolving credit facilities, the Company
has $50 million in uncommitted lines of credit with various banks. Borrowings
against these lines bear interest at rates that vary with each lending bank's
base and LIBOR interest rates. As of the end of the first quarter there was
$60.0 million in debt outstanding against the credit facilities and $4.7 million
in debt outstanding under the uncommitted lines of credit. The Company had $3.6
million in cash and short-term investments at the end of the first quarter.
The Company may utilize the credit facilities for expenditures to exercise its
option to acquire up to an additional 34% of Grupo P.I. Mabe, S.A. de C.V., to
support initiatives to enter the adult incontinence and baby wipes businesses,
to enter into other international business ventures or to repurchase stock. The
current credit facilities and lines of credit in combination with internally
generated funds are anticipated to be adequate to finance these needs.
RISKS AND UNCERTAINTIES
P&G and K-C have recently announced changes to their product and packaging
offerings including price increases through lower package counts. The Company is
currently implementing product and packaging changes in response to these
offerings. The Company expects to incur further costs associated with new
product rollouts including manufacturing inefficiencies, packaging design and
packaging obsolescence. These costs will be incurred primarily during the second
and third quarters of 1997. P&G and K-C have heavily promoted diapers in the
multiple pack configuration. These packages offer a lower unit price to the
retailer and consumer. It is possible that the Company will realize lower
selling prices and/or lower volumes as a result.
A privately-held manufacturer of feminine sanitary products has entered the
store-brand baby diaper business. Although the overall impact is hard to
predict, it is likely that the additional competition could lead to lower
volumes and selling prices.
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<PAGE>
FORWARD-LOOKING STATEMENTS
When used in this discussion the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in the Company's
forward-looking statements. Factors which could affect the Company's financial
results, including but not limited to: increasing raw material prices; new
product and packaging introductions by competitors; increased price and
promotion pressure from competitors; new competitors in the market; and patent
litigation, are described in the preceding paragraphs and in the Company's
latest Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," effective for fiscal years ending after December 15, 1997.
The adoption of this statement will not have a significant impact on the
Company's results of operations. The Company's historical primary earnings per
share calculations are equivalent to the basic earnings per share calculations
called for by SFAS 128.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Procter & Gamble Company ("P&G") filed a claim in the District Court for the
District of Delaware that the Company's disposable baby diaper products infringe
two of P&G's inner-leg gather patents. The lawsuit seeks injunctive relief, lost
profit and royalty damages totaling approximately $100 million, treble damages
and attorneys' fees and costs. The Company has denied liability under the
patents and has counterclaimed for patent infringement and violation of
antitrust laws by P&G. In March 1996, the District Court granted P&G's motion
for summary judgment to dismiss the Company's antitrust counterclaim. The
Company intends to appeal the District Court's decision at the appropriate time.
In September 1996, P&G filed two motions for summary judgment with respect to
the Company's patent infringement counterclaim. In December 1996, the District
Court denied both of P&G's motions for summary judgment. The trial has concluded
and the parties are engaged in post trial briefing. The ultimate outcome cannot
be predicted at this time. Legal fees and costs for this litigation have been
significant. If P&G were to prevail on its claims, award of all or a substantial
amount of the relief requested by P&G could have a material adverse effect on
the Company's financial condition and its results of operations. Based on the
advice of patent counsel, the Company believes that P&G's claims are not well
founded.
On October 26, 1995, Kimberly-Clark Corporation ("K-C") filed a lawsuit against
the Company in U.S. District Court in Dallas, Texas, alleging infringement by
the Company's products of two K-C patents relating to inner-leg gathers. The
lawsuit seeks injunctive relief, royalty damages, treble damages and attorneys'
fees and costs. The Company has denied liability under the patents and has
counterclaimed for patent infringement and violation of antitrust laws by K-C.
In October 1996, K-C filed a motion for summary judgment with respect to the
Company's antitrust counterclaim along with a motion to stay discovery pending
resolution of such motion for summary judgment. On April 18, 1997, K-C filed a
motion for summary judgment of noninfringement of two patents asserted by the
Company and a motion for partial summary judgment construing the claims of one
of the K-C patents-in-suit. The Company intends to vigorously defend each of its
claims. In addition, K-C has sued the Company on another patent issued to K-C
which is based upon further continuation of one of the K-C patents asserted in
the case. The Company will move to consolidate that action with the pending
action. Trial is scheduled for October 1997. Legal fees and costs in connection
with this litigation will be significant. Should K-C prevail on its claims,
award of all or a substantial portion of the relief requested by K-C could have
a material adverse effect on the Company's financial condition and its results
of operations. Based on the advice of patent counsel, the Company has taken the
position that the patent coverage claimed by K-C is not applicable to the
Company's products.
In July 1995, 12 former employees of the Company filed claims in the Court of
Common Pleas, Butler County, Pennsylvania alleging discriminatory and/or
wrongful discharge related to their termination in the July 1993 restructure of
the Company's Harmony, Pennsylvania plant. Related National Labor Relations
Board cases have been dismissed. In March 1997, the Court granted the Company's
motion for summary judgment with respect to each claim asserted by each of the
12 plaintiffs. The time for the plaintiffs to appeal has now expired.
On September 27, 1996 the Company filed a declaratory judgment action against
P&G in U.S. District Court in Atlanta seeking a ruling from the court that
certain patents owned by P&G are invalid, unenforceable and not infringed by the
Company's feminine care products. P&G responded asserting infringement by the
Company's feminine care products of six of the patents listed in the Company's
complaint. On April 24, 1997, the Company and P&G announced a joint settlement
of this matter. Terms of the settlement are confidential.
The Company is also a party to other legal activities generally incidental to
its activities. Although the final outcome of any legal proceeding or disputes
is subject to a great many variables and cannot be predicted with any degree of
certainty, the Company presently believes that any ultimate liability resulting
from any or all legal proceedings or disputes to which it is a party, except for
the P&G and K-C matters discussed above, will not have a material adverse effect
on its financial condition or results of operations.
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<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 Certificate of Incorporation of Paragon Trade Brands,
Inc.(4)
Exhibit 3.2 By-Laws of Paragon Trade Brands, Inc., as amended through
July 31, 1995(5)
Exhibit 4.1 Certificate of Incorporation of Paragon Trade Brands, Inc.
(see Exhibit 3.1)
Exhibit 10.1 Asset Transfer Agreement, dated as of January 26,
1993, by and between Weyerhaeuser and Paragon(1)
Exhibit 10.2 Intellectual Property Agreement, dated as of February
2, 1993, between Weyerhaeuser and Paragon(1)
Exhibit 10.3 License, dated as of February 2, 1993, between Weyerhaeuser
and Paragon(1)
Exhibit 10.4 Sublicense, dated as of February 2, 1993, between
Weyerhaeuser and Paragon(1)
Exhibit 10.5 Technology Agreement, dated as of October 15, 1987,
by and between Weyerhaeuser and Johnson and Johnson, as
amended(1)
Exhibit 10.6 Critical Supply Agreement, dated as of February 2,
1993, between Weyerhaeuser and Paragon(1)
Exhibit 10.7* Stock Option Plan for Non-Employee Directors(1)
Exhibit 10.8* Annual Incentive Compensation Plan(1)
Exhibit 10.9* 1993 Long-Term Incentive Compensation Plan(1)
Exhibit 10.10* Employment Agreement, dated as of February 2, 1993, between
Paragon and Bobby V. Abraham(1)
Exhibit 10.11* Employment Agreement, dated as of February 2, 1993, between
Paragon and David W. Cole(1)
Exhibit 10.12* 1995 Incentive Compensation Plan(5)
Exhibit 10.13 Amended and Restated Credit Agreement, dated as of
February 6, 1996(7)
Exhibit 10.13.1 Amendment Agreement, dated December 13, 1996, to
Amended and Restated Credit Agreement, dated as of
February 6, 1996(8)
Exhibit 10.14 Revolving Canadian Credit Facility and Parent Guarantee(2)
Exhibit 10.15 Indemnification Agreements, dated as of February 2, 1993,
between Weyerhaeuser and Bobby V. Abraham and Gary M.
Arnts(1)
Exhibit 10.16 Rights Agreement dated December 14, 1994 between Paragon
Trade Brands, Inc. and Chemical Bank, as Rights Agent(3)
Exhibit 10.17 Asset Purchase Agreement dated December 11, 1995 by and
among Paragon Trade Brands, Inc., PTB Acquisition Sub, Inc.,
Pope & Talbot, Inc. and Pope & Talbot, Wis., Inc.(6)
Exhibit 10.18** Sales Contract, dated as of January 30, 1996, between
Hoechst Celanese Corporation and Paragon Trade Brands,
Inc.(7)
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<PAGE>
Exhibit 10.19 Lease Agreement between Cherokee County, South Carolina and
Paragon Trade Brands, Inc., dated as of October 1, 1996(8)
Exhibit 11 Computation of Per Share Earnings (See Note 7 to Financial
Statements)
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed on behalf of the Company during the
thirteen week period ended March 30, 1997.
*Management contract or compensatory plan or arrangement.
**Confidential treatment has been requested as to a portion of this document.
(1)Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 26, 1993.
(2)Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 26, 1994.
(3)Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report on
Form 8-K, dated as of December 14, 1994.
(4)Incorporated by reference from Paragon Trade Brands, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 25, 1994.
(5)Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 25, 1995
(6)Incorporated by reference from Paragon Trade Brands, Inc.'s
Current Report on Form 8-K, dated as of February 8, 1996.
(7)Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(8)Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 29, 1996.
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<PAGE>
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.
PARAGON TRADE BRANDS, INC.
By /s/ Alan J. Cyron
------------------------------
Alan J. Cyron
Chief Financial Officer
May 13, 1997
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<PAGE>
EXHIBIT INDEX
Exhibit No. Document
----------------------------------------------------------------------
Exhibit 3.1 Certificate of Incorporation of Paragon Trade Brands,
Inc.(4)
Exhibit 3.2 By-Laws of Paragon Trade Brands, Inc., as amended through
July 31, 1995(5)
Exhibit 4.1 Certificate of Incorporation of Paragon Trade Brands, Inc.
(see Exhibit 3.1)
Exhibit 10.1 Asset Transfer Agreement, dated as of January 26,
1993, by and between Weyerhaeuser and Paragon(1)
Exhibit 10.2 Intellectual Property Agreement, dated as of February
2, 1993, between Weyerhaeuser and Paragon(1)
Exhibit 10.3 License, dated as of February 2, 1993, between Weyerhaeuser
and Paragon(1)
Exhibit 10.4 Sublicense, dated as of February 2, 1993, between
Weyerhaeuser and Paragon(1)
Exhibit 10.5 Technology Agreement, dated as of October 15, 1987,
by and between Weyerhaeuser and Johnson and Johnson, as
amended(1)
Exhibit 10.6 Critical Supply Agreement, dated as of February 2,
1993, between Weyerhaeuser and Paragon(1)
Exhibit 10.7* Stock Option Plan for Non-Employee Directors(1)
Exhibit 10.8* Annual Incentive Compensation Plan(1)
Exhibit 10.9* 1993 Long-Term Incentive Compensation Plan(1)
Exhibit 10.10* Employment Agreement, dated as of February 2, 1993, between
Paragon and Bobby V. Abraham(1)
Exhibit 10.11* Employment Agreement, dated as of February 2, 1993, between
Paragon and David W. Cole(1)
Exhibit 10.12* 1995 Incentive Compensation Plan(5)
Exhibit 10.13 Amended and Restated Credit Agreement, dated as of
February 6, 1996(7)
Exhibit 10.13.1 Amendment Agreement, dated December 13, 1996, to
Amended and Restated Credit Agreement, dated as of
February 6, 1996(8)
Exhibit 10.14 Revolving Canadian Credit Facility and Parent Guarantee(2)
Exhibit 10.15 Indemnification Agreements, dated as of February 2, 1993,
between Weyerhaeuser and Bobby V. Abraham and Gary M.
Arnts(1)
Exhibit 10.16 Rights Agreement dated December 14, 1994 between Paragon
Trade Brands, Inc. and Chemical Bank, as Rights Agent(3)
-24-
<PAGE>
Exhibit 10.17 Asset Purchase Agreement dated December 11, 1995 by and
among Paragon Trade Brands, Inc., PTB Acquisition Sub, Inc.,
Pope & Talbot, Inc. and Pope & Talbot, Wis., Inc.(6)
Exhibit 10.18** Sales Contract, dated as of January 30, 1996, between
Hoechst Celanese Corporation and Paragon Trade Brands,
Inc.(7)
Exhibit 10.19 Lease Agreement between Cherokee County, South Carolina and
Paragon Trade Brands, Inc., dated as of October 1, 1996(8)
Exhibit 11 Computation of Per Share Earnings (See Note 7 to Financial
Statements)
Exhibit 27 Financial Data Schedule (for SEC use only)
*Management contract or compensatory plan or arrangement.
**Confidential treatment has been requested as to a portion of this document.
(1)Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 26, 1993.
(2)Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 26, 1994.
(3)Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report on
Form 8-K, dated as of December 14, 1994.
(4)Incorporated by reference from Paragon Trade Brands, Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 25, 1994.
(5)Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 25, 1995
(6)Incorporated by reference from Paragon Trade Brands, Inc.'s
Current Report on Form 8-K, dated as of February 8, 1996.
(7)Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
(8)Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 29, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10Q FOR THE QUARTER ENDED MARCH 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 3,622
<SECURITIES> 0
<RECEIVABLES> 50,967
<ALLOWANCES> 7,612
<INVENTORY> 43,355
<CURRENT-ASSETS> 107,795
<PP&E> 242,876
<DEPRECIATION> 161,616
<TOTAL-ASSETS> 368,821
<CURRENT-LIABILITIES> 84,661
<BONDS> 60,000
0
0
<COMMON> 123
<OTHER-SE> 221,274
<TOTAL-LIABILITY-AND-EQUITY> 368,821
<SALES> 135,685
<TOTAL-REVENUES> 135,685
<CGS> 107,847
<TOTAL-COSTS> 107,847
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 881
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<INCOME-TAX> 2,295
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<EXTRAORDINARY> 0
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<NET-INCOME> 3,802
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
