UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23422
DRYPERS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 76-0344044
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5300 MEMORIAL, SUITE 900
HOUSTON, TEXAS 77007
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 869-8693
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.001 par value
Rights to Purchase Common Stock, $.001 par value
(TITLE OF EACH CLASS)
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 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant based upon the price at which the common stock was sold on February
28, 1999: $21,101,666
Number of shares of common stock outstanding as of February 28, 1999:
17,713,958
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III, Items 10, 11, 12 and 13 will be
included in a proxy statement to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Drypers Corporation:
We have audited the accompanying consolidated balance sheets of Drypers
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1997
and 1998, and the related consolidated statements of earnings, comprehensive
income, stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Drypers Corporation and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 18, 1999
-27-
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1997 1998
--------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 9,269 $ 12,309
Accounts receivable, net of allowance for
doubtful accounts of $2,064 and $2,635, respectively 33,941 49,253
Inventories .......................................... 21,090 29,822
Prepaid expenses and other ........................... 12,730 28,164
--------- ---------
Total current assets ....................... 77,030 119,548
PROPERTY, PLANT AND EQUIPMENT, net of depreciation and
amortization of $17,769 and $24,594, respectively...... 53,270 81,903
INTANGIBLE AND OTHER ASSETS, net of amortization
of $13,438 and $17,373, respectively................... 74,932 98,721
--------- ---------
$ 205,232 $ 300,172
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings ................................ $ -- $ 38,385
Current portion of long-term debt .................... 1,593 322
Accounts payable ..................................... 16,558 33,407
Accrued liabilities .................................. 10,151 21,202
--------- ---------
Total current liabilities .................. 28,302 93,316
LONG-TERM DEBT .......................................... 1,755 2,967
SENIOR TERM NOTES ....................................... 115,000 145,997
OTHER LONG-TERM LIABILITIES ............................. 4,595 7,364
--------- ---------
149,652 249,644
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, 61,110 and -0- shares issued and
outstanding, respectively ......................... 1 --
Common stock, $.001 par value, 30,000,000 shares
authorized, 10,513,223 and 17,706,660 shares
issued and outstanding, respectively .............. 10 18
Additional paid-in capital ........................... 69,998 75,244
Warrants ............................................. 1,097 180
Retained deficit ..................................... (15,526) (23,731)
Foreign currency translation adjustments ............. -- (1,183)
--------- ---------
Total stockholders' equity ................. 55,580 50,528
--------- ---------
$ 205,232 $ 300,172
========= =========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
-28-
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES ................................................... $ 207,014 $ 287,010 $ 332,640
COST OF GOODS SOLD .......................................... 126,128 175,545 196,985
------------ ------------ ------------
Gross profit ........................................... 80,886 111,465 135,655
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ................ 70,333 89,973 123,734
------------ ------------ ------------
Operating income ....................................... 10,553 21,492 11,921
RELATED-PARTY INTEREST EXPENSE .............................. 354 199 --
OTHER INTEREST EXPENSE, net ................................. 8,577 9,758 16,476
OTHER INCOME ................................................ -- 253 4,466
------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAX PROVISION AND EXTRAORDINARY ITEM
1,622 11,788 (89)
INCOME TAX PROVISION ........................................ 309 2,344 1,565
------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY ITEM........................................ 1,313 9,444 (1,654)
EXTRAORDINARY ITEM:
Costs of early extinguishment of debt .................... -- (7,769) --
------------ ------------ ------------
INCOME (LOSS) FROM CONTINUING OPERATIONS .................... 1,313 1,675 (1,654)
DISCONTINUED OPERATIONS:
Loss from operations of discontinued laundry detergent
business .............................................. -- -- (1,193)
Loss on disposal of detergent business ................... -- -- (5,278)
------------ ------------ ------------
NET INCOME (LOSS) ........................................... 1,313 1,675 (8,125)
PREFERRED STOCK DIVIDEND .................................... 561 583 80
------------ ------------ ------------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS........ $ 752 $ 1,092 $ (8,205)
============ ============ ============
INCOME (LOSS) PER COMMON SHARE:
Basic earnings (loss) per share:
Continuing operations .............................. $ .11 $ 1.00 $ (.11)
Extraordinary loss from early extinguishment of debt -- (.88) --
Discontinued operations ............................ -- -- (.40)
------------ ------------ ------------
Net income (loss) .................................. $ .11 $ .12 $ (.51)
============ ============ ============
Diluted earnings (loss) per share:
Continuing operations .............................. $ .09 $ .51 $ (.11)
Extraordinary loss from early extinguishment of debt -- (.42) --
Discontinued operations ............................ -- -- (.40)
------------ ------------ ------------
Net income (loss) .................................. $ .09 $ .09 $ (.51)
============ ============ ============
COMMON SHARES OUTSTANDING ................................... 6,694,298 8,878,638 16,110,429
============ ============ ============
COMMON AND POTENTIAL COMMON SHARES OUTSTANDING .............. 15,064,913 18,469,676 16,110,429
============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
-29-
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------
1996 1997 1998
------- ------- --------
<S> <C> <C> <C>
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS $ 752 $ 1,092 $(8,205)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ............ -- -- (1,183)
------- ------- -------
COMPREHENSIVE INCOME (LOSS) ......................... $ 752 $ 1,092 $(9,388)
======= ======= =======
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
-30-
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
PREFERRED COMMON
SHARES SHARES ADDITIONAL
ISSUED AND ISSUED AND PREFERRED COMMON PAID-IN
OUTSTANDING OUTSTANDING STOCK STOCK CAPITAL WARRANTS
------------ ------------ ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 .............. -- 6,619,804 $ -- $ 7 $ 58,482 $ 703
Issuance of preferred stock, net of
$178 in offering costs ............ 90,000 -- 1 -- 8,157 692
Issuance of common stock in connection
with refinancing .................. -- 194,780 -- -- 609 --
Issuance of common stock in connection
with an acquisition ............... -- 360,000 -- -- 1,575 --
Preferred stock dividends ($6.23 per
share) ............................ -- -- -- -- -- --
Exercise of stock options ............ -- 4,646 -- -- -- --
Net income ........................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 1996 .............. 90,000 7,179,230 1 7 68,823 1,395
Issuance of common stock in connection
with acquisitions ................. -- 71,657 -- -- 200 --
Conversion of preferred stock and
dividends into common stock ....... (28,890) 2,937,417 -- 3 312 --
Preferred stock dividends ($7.50 per
share) ............................ -- -- -- -- -- --
Effect of stock option and stock
purchase plans .................... -- 111,348 -- -- 283 --
Issuance of warrants ................. -- -- -- -- -- 50
Exercise of warrants ................. -- 213,571 -- -- 380 (348)
Net income ........................... -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 1997 .............. 61,110 10,513,223 1 10 69,998 1,097
Issuance of common stock in connection
with an acquisition ............... -- 403,571 -- -- 2,825 --
Conversion of preferred stock and
dividends into common stock ....... (61,110) 6,292,364 (1) 7 1,058 --
Preferred stock dividends ($1.25 per
share) ............................ -- -- -- -- -- --
Effect of stock option and stock
purchase plans .................... -- 79,080 -- -- 381 --
Forfeiture of expired warrants ....... -- -- -- -- 254 (254)
Exercise of warrants ................. -- 418,422 -- 1 728 (663)
Net loss ............................. -- -- -- -- -- --
Translation adjustments .............. -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
BALANCE, December 31, 1998 .............. -- 17,706,660 $ -- $ 18 $ 75,244 $ 180
========== ========== ========== ========== ========== ==========
</TABLE>
FOREIGN
CURRENCY
RETAINED TRANSLATION
DEFICIT ADJUSTMENTS
----------- ------------
BALANCE, December 31, 1995 .............. $ (17,370) $ --
Issuance of preferred stock, net of
$178 in offering costs ............ -- --
Issuance of common stock in connection
with refinancing .................. -- --
Issuance of common stock in connection
with an acquisition ............... -- --
Preferred stock dividends ($6.23 per
share) ............................ (561) --
Exercise of stock options ............ -- --
Net income ........................... 1,313 --
---------- ----------
BALANCE, December 31, 1996 .............. (16,618) --
Issuance of common stock in connection
with acquisitions ................. -- --
Conversion of preferred stock and
dividends into common stock ....... -- --
Preferred stock dividends ($7.50 per
share) ............................ (583) --
Effect of stock option and stock
purchase plans .................... -- --
Issuance of warrants ................. -- --
Exercise of warrants ................. -- --
Net income ........................... 1,675 --
---------- ----------
BALANCE, December 31, 1997 .............. (15,526) --
Issuance of common stock in connection
with an acquisition ............... -- --
Conversion of preferred stock and
dividends into common stock ....... -- --
Preferred stock dividends ($1.25 per
share) ............................ (80) --
Effect of stock option and stock
purchase plans .................... -- --
Forfeiture of expired warrants .......
Exercise of warrants ................. -- --
Net loss ............................. (8,125) --
Translation adjustments .............. -- (1,183)
---------- ----------
BALANCE, December 31, 1998 .............. $ (23,731) $ (1,183)
========== ==========
The accompanying notes are an integral
part of these consolidated financial statements.
-31-
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------
1996 1997 1998
--------- --------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $ 1,313 $ 1,675 $ (8,125)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
from continuing operations:
Discontinued operations ................................ -- -- 6,471
Depreciation and amortization .......................... 7,624 8,220 10,353
Non-cash portion of extraordinary item ................. -- 3,745 --
Write-off of machinery and equipment
resulting from Argentina fire ....................... -- -- 2,894
Other .................................................. 401 63 (181)
Changes in operating assets and liabilities,
net of acquisitions-
Increase in-
Accounts receivable .............................. (5,724) (3,310) (14,586)
Inventories ...................................... (67) (9,474) (6,616)
Prepaid expenses and other ....................... (973) (8,320) (6,466)
Effect of insurance receivable related to
Argentina fire ................................... -- -- (11,961)
Increase (decrease) in-
Accounts payable ................................. (2,974) (400) 9,633
Accrued liabilities .............................. (3,891) 853 3,226
Change in other long-term liabilities ............... -- -- (2,162)
--------- --------- ---------
Net cash used in operating activities
of continuing operations ................... (4,291) (6,948) (17,520)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ........................... (5,931) (21,598) (26,481)
Proceeds from sale of equipment ............................. 800 -- --
Investment in other noncurrent assets ........................ (1,197) (2,754) (3,409)
Payments under noncompete agreements ......................... (400) (231) --
Refund of deposits ........................................... 2,573 1,136 --
Investment in Mexico acquisition, net of cash acquired ....... -- (595) (1,175)
Investment in Brazilian acquisition, net of cash acquired .... -- (9,827) (3,943)
Investment in Malaysian acquisition, net of cash acquired .... -- -- (10,207)
--------- --------- ---------
Net cash used in investing activities
of continuing operations ................... (4,155) (33,869) (45,215)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under senior term notes ........................... -- 115,000 31,087
Payments on senior term notes ................................ -- (45,000) --
Borrowings under working capital facility .................... -- 10,000 --
Payments on working capital facility ......................... -- (10,000) --
Borrowings under revolvers ................................... 157,677 79,296 71,417
Payments on revolvers ........................................ (153,968) (94,918) (35,100)
Borrowings under (payments on) other debt .................... (625) (5,022) 2,242
Financing related costs ...................................... (773) (4,708) (2,891)
Proceeds from issuance of common stock ....................... -- 200 --
Proceeds from issuance of preferred stock .................... 8,822 -- --
Proceeds from stock options, warrants, and stock purchase plan -- 315 213
--------- --------- ---------
Net cash provided by financing activities
of continuing operations ................... 11,133 45,163 66,968
CASH USED IN DISCONTINUED OPERATIONS ............................ -- -- (1,193)
--------- --------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ....................... 2,687 4,346 3,040
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 2,236 4,923 9,269
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 4,923 $ 9,269 $ 12,309
========= ========= =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements.
-32-
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
BUSINESS
Drypers Corporation and its subsidiaries (the "Company") is a leading
manufacturer and marketer of premium quality, value-priced disposable baby
diapers and training pants sold under the DRYPERS brand name in the United
States and under the DRYPERS and other brand names internationally. Currently,
the Company is the third largest producer of branded disposable baby diapers in
the United States. The Company also manufactures and sells lower-priced diapers
under other brand names in the United States and internationally, as well as
private label diapers and training pants and pre-moistened baby wipes. The
Company's DRYPERS brand is the fourth largest selling diaper brand in the United
States and the second largest selling training pant brand in U.S.
grocery stores.
Drypers targets the value segment of the U.S. diaper market by offering products
with features and quality comparable to the premium-priced national brands at
generally lower prices. The Company positions its products to provide enhanced
profitability for retailers and better value to consumers. The Company
continually seeks to expand its extensive grocery store sales and distribution
network, while increasing its limited penetration of the mass merchant and
drugstore chain markets, in order to capture a greater share of the U.S. diaper
market. In 1998, Drypers began its first-ever national television campaign. As a
result of this campaign, in 1998, Drypers began with test distribution in two
national mass merchants (Wal-Mart and Kmart).
Drypers is the sixth largest diaper producer in the world. Since 1993, Drypers
has significantly expanded its international presence, competing in the
lower-priced branded and private label categories. The Company, through a series
of start-ups and acquisitions, currently produces diapers in Puerto Rico,
Argentina, Mexico, Brazil and Malaysia. Wal-Mart International has selected the
Company to be its appointed private label supplier of disposable diapers to
Wal-Mart stores throughout Latin America (which are currently located in
Argentina, Brazil and Mexico) and in Puerto Rico, and also supplies Drypers
branded products to Wal-Mart stores in these markets. Recently, the Company
gained distribution in the Wal-Mart stores in China, Canada and Germany. The
Company intends to continue to expand its operations in Argentina, Brazil,
Mexico, Malaysia and Colombia and is actively seeking further expansion
opportunities through acquisition, joint venture or other arrangements in Latin
America and the Pacific Rim.
BUSINESS CONDITIONS
The disposable diaper industry is characterized by substantial price
competition, which is affected through price changes, product count changes and
promotions. Typically, because of their large market share, one of the Company's
larger branded competitors initiates such pricing changes. The Company typically
responds to such pricing changes with changes to its own prices, product counts
or promotional programs. The process of implementing such changes may require a
number of months, and the Company's operating results may be adversely affected.
The Company competes with a number of companies, some of which are larger than
the Company and have greater financial resources and offer broader product
lines.
Raw materials, notably wood pulp, are a major component of the total cost to
produce disposable baby diapers and training pants. While the cost of pulp has
declined significantly from the record-high levels experienced in October 1995,
there can be no assurance that if pulp or other raw material prices rise again
in the future the Company will be able to pass those increases to its customers
or redesign its products to reduce usage; therefore, operating margins could be
adversely affected.
-33-
<PAGE>
The Company markets its products in various foreign countries and is, therefore,
subject to currency fluctuations in these countries. Changes in the value of the
United States dollar against these currencies will affect the Company's results
of operations and financial position.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Drypers Corporation and its majority-owned subsidiaries. All material
intercompany transactions and balances have been eliminated in consolidation.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, including goodwill and insurance
receivables, and liabilities, including promotional accruals, disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
-34-
<PAGE>
ACCOUNTS RECEIVABLE
The Company grants credit to its customers, which include regional distributors,
grocery stores and mass-merchants, in the ordinary course of business. The
Company performs ongoing credit evaluations of its customers and credit losses,
when realized, have been within the range of management's expectations.
INVENTORIES
Inventories at December 31, 1997 and 1998, consisted of the following (in
thousands):
1997 1998
------- -------
Raw materials ..................... $ 6,948 $12,702
Finished goods .................... 14,142 17,120
------- -------
$21,090 $29,822
======= =======
Inventories are stated at the lower of cost (first-in, first-out) or market
value. Finished goods inventories include the costs of materials, labor and
overhead.
PROPERTY, PLANT AND EQUIPMENT
Expenditures for new facilities, significant betterments of existing properties
and leasehold improvements are recorded at cost. The Company capitalizes, as
machinery and equipment, internal and external costs incurred to develop and
enhance diaper production lines. Upon disposal of assets subject to depreciation
or amortization, the accounts are relieved of related costs and accumulated
depreciation or amortization and the resulting gains or losses are reflected in
income. Depreciation is computed using the straight-line method at rates
considered sufficient to amortize costs over estimated useful lives. The
estimated useful lives for certain machinery and equipment betterments are
shorter than the estimated useful lives of the machinery and equipment.
USEFUL LIVES
------------
Machinery and equipment 10 - 15 years
Buildings 20 years
Office equipment and furniture 5 years
Automobiles 5 years
Leasehold improvements Lesser of term of lease or
life of asset
Property, plant and equipment at December 31, 1997 and 1998, consisted of the
following (in thousands):
1997 1998
---------- ---------
Machinery and equipment .......................... $ 57,159 $ 85,934
Land and buildings ............................... 7,181 10,944
Office equipment and furniture ................... 3,638 5,542
Automobiles ...................................... 189 659
Leasehold improvements ........................... 2,872 3,418
--------- ---------
71,039 106,497
Accumulated depreciation and amortization ........ (17,769) (24,594)
--------- ---------
$ 53,270 $ 81,903
========= =========
-35-
<PAGE>
INTANGIBLE AND OTHER ASSETS
As of December 31, 1997 and 1998, intangible and other assets, net of
accumulated amortization, consisted of the following (in thousands):
1997 1998
------- -------
Goodwill--
20 year amortization ................ $10,409 $ 9,857
30 year amortization ................ 11,668 25,749
40 year amortization ................ 44,830 41,595
Deferred financing costs .............. 4,502 6,579
License agreements .................... 1,002 8,582
Software costs ........................ -- 2,816
Other ................................. 2,521 3,543
------- -------
$74,932 $98,721
======= =======
Goodwill is amortized over 20 years to 40 years using the straight-line method.
Management continually evaluates whether events or circumstances have occurred
that indicate the remaining estimated useful life of goodwill may warrant
revision or the remaining balance of goodwill may be impaired.
Deferred financing costs are amortized over the lives of the related debt using
the effective interest method. The license agreements are amortized over the
estimated lives of the relevant patents, using the straight-line method.
Deffered software costs are amortized over three years, using the straight-line
method.
ACCRUED LIABILITIES
Accrued liabilities at December 31, 1997 and 1998, consisted of the following
(in thousands):
1997 1998
------- -------
Selling and promotional ................................ $ 3,546 $ 4,004
Interest payable ....................................... 681 704
License agreement payable .............................. 400 2,000
Property and sales tax payable ......................... 1,958 2,388
Contractual obligations - discontinued operations ...... -- 2,000
Employee-related liabilities ........................... 3,140 3,087
Other .................................................. 426 7,019
------- -------
$10,151 $21,202
======= =======
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash, trade
receivables, trade payables and debt instruments. The book values of these
instruments excluding debt are considered to be representative of their
respective fair values. The fair value of the Company's debt instruments is
discussed in Note 5.
REVENUE RECOGNITION
The Company follows the policy of recognizing revenue upon shipment of the
product. Accruals are recorded for discounts and commissions at the time of
shipment.
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<PAGE>
COUPON PROMOTIONS
The Company follows the policy of recognizing promotion expense when products
are shipped, based on the estimated redemption rate.
ADVERTISING
Advertising production costs are expensed the first time the advertisement is
run. Media (TV and print) placement costs are expensed in the month the
advertising appears. Advertising expense for the years ended December 31, 1996,
1997 and 1998, was $1,854,000, $3,219,000 and $10,383,000, respectively.
Advertising expense for the year ended December 31, 1998 reflects the Company's
national television campaign in the United States.
-37-
<PAGE>
EARNINGS PER SHARE
As of December 31, 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share". SFAS 128 requires dual
presentation of basic and diluted EPS data and restatement of all prior periods
presented. Basic earnings per share ("EPS") is computed using the weighted
average number of common shares outstanding during the period. Diluted EPS gives
effect to the potential dilution of earnings which may have occurred if dilutive
potential common shares had been issued. The following reconciles the income and
shares used in the basic and diluted EPS computations (in thousands, except
share data):
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations
before extraordinary item, less
preferred stock dividend ......................... $ 752 $ 8,861 $ (1,734)
Extraordinary item .................................. -- (7,769) --
------------ ------------ ------------
Income (loss) from continuing operations ............ 752 1,092 (1,734)
Discontinued operations ............................. -- -- (6,471)
------------ ------------ ------------
Net income (loss) attributable to common stockholders $ 752 $ 1,092 $ (8,205)
============ ============ ============
Weighted average number common shares outstanding ... 6,694,298 8,878,638 16,110,429
============ ============ ============
Income (loss) from continuing operations............. $ .11 $ 1.00 $ (.11)
Extraordinary item .................................. -- (.88) --
Discontinued operations ............................. -- -- (.40)
------------ ------------ ------------
Net income (loss) ................................... $ .11 $ .12 $ (.51)
============ ============ ============
DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations
before extraordinary item, less
preferred stock dividend in 1998 ................. $ 1,313 $ 9,444 $ (1,734)
Extraordinary item .................................. -- (7,769) --
------------ ------------ ------------
Income (loss) from continuing operations ............ 1,313 1,675 (1,734)
Discontinued operations ............................. -- -- (6,471)
------------ ------------ ------------
Net income (loss) ................................... $ 1,313 $ 1,675 $ (8,205)
============ ============ ============
Weighted average number common shares outstanding ... 6,694,298 8,878,638 16,110,429
Dilutive effect - options and warrants .............. 870,615 1,839,648 --
Dilutive effect - preferred stock ................... 7,500,000 7,751,390 --
------------ ------------ ------------
15,064,913 18,469,676 16,110,429
============ ============ ============
Income (loss) from continuing operations ............ $ .09 $ .51 $ (.11)
Extraordinary item .................................. -- (.42) --
Discontinued operations ............................. -- -- (.40)
------------ ------------ ------------
Net income (loss) ................................... $ .09 $ .09 $ (.51)
============ ============ ============
</TABLE>
For the years ended December 31, 1996, 1997 and 1998, options and warrants
excluded from the diluted earnings per share calculation because their effect
was antidilutive to the calculation totaled 85,978, 168,185, and 844,100,
respectively. Additionally, for the year ended December 31, 1998, 1,035,475
weighted average shares of preferred stock were excluded from the diluted
earning per share calculation because their effect was antidilutive to the
calculation.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," which requires recognition of deferred tax assets
and liabilities for expected future tax consequences of events that have been
recognized in the financial statements or tax returns. Under this method,
deferred tax assets and liabilities are determined based on the differences
between the financial statement carrying amounts and the tax bases of assets and
liabilities using enacted tax rates and laws in effect in the years in which the
differences are expected to reverse.
STATEMENTS OF CASH FLOWS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. Supplemental
disclosures of cash flow information for the years ended December 31, 1996, 1997
and 1998 are as follows (in thousands):
-38-
<PAGE>
<TABLE>
<CAPTION>
1996 1997 1998
-------- ------- --------
<S> <C> <C> <C>
Income taxes paid .............................................. $ -- $ 2,022 $ 2,165
Interest paid .................................................. $10,646 $11,221 $14,861
Non cash transactions:
Common stock issued for Mexico acquisition ................... $ 1,575 $ -- $ --
Warrants issued in connection with refinancing ............... $ 609 $ -- $ --
Warrants issued to financial institution for services provided
in connection with providing a working capital facility .. $ -- $ 50 $ --
Cancellation of outstanding receivable due from Brazilian
affiliate in connection with an acquisition .............. $ -- $ 2,167 $ --
Common stock issued for Malaysia acquisition ................. $ -- $ -- $ 2,825
</TABLE>
FOREIGN CURRENCY TRANSLATION
Local currencies are generally considered the functional currencies outside the
United States, except in countries which are highly inflationary. Assets and
liabilities are translated at year-end exchange rates for operations in local
currency environments. Income and expense items are translated at average rates
of exchange prevailing during the year.
For operations in countries which are highly inflationary, certain financial
statement amounts are translated at historical exchange rates, with all other
assets and liabilities translated at year-end exchange rates. These translation
adjustments are reflected in the results of operations. As of January 1, 1998,
Brazil was no longer highly inflationary. As of January 1, 1999, Mexico will no
longer be highly inflationary.
RECLASSIFICATIONS
Certain reclassifications have been made in the accompanying consolidated
financial statements for the years ended December 31, 1996 and 1997, to conform
with the presentation used in the December 31, 1998, consolidated financial
statements.
NEW ACCOUNTING STANDARDS
In March 1998, Statement of Position ("SOP") 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use", was issued by the
American Institute of Certified Public Accountants. SOP 98-1 requires that
certain costs related to computer software developed or obtained for internal
use be expensed as incurred. The Company is required to adopt SOP 98-1 as of
January 1, 1999. The Company does not expect the adoption of SOP 98-1 to have a
material effect on its financial position or results of operations.
In April 1998, SOP 98-5, "Reporting on the Costs of Start-Up Activities", was
issued by the American Institute of Certified Public Accountants. SOP 98-5
requires that all nongovernmental entities expense costs of start-up activities
as those costs are incurred. The Company is required to adopt SOP 98-5 as of
January 1, 1999. The Company does not expect the adoption of SOP 98-5 to have a
material effect on its financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives) 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. The Company is required to
adopt SFAS No. 133 as of January 1, 2000 and does not expect the adoption of
this statement to have a material effect on its financial position or results of
operations as it does not currently hold derivatives.
-39-
<PAGE>
2. DISCONTINUED OPERATIONS:
The initial results of the laundry detergent operation in the last two quarters
of 1998, which generated an operating loss of $1,193,000 caused the Company to
reconsider its plans for these operations. As a result, the Company decided in
December 1998 to discontinue these operations and to settle remaining related
contractual obligations. A charge of $5,278,000 resulted from recording these
obligations and the write-off of the Company's investment in the laundry
detergent business and, along with the 1998 operating loss, is presented as a
discontinued operation in the consolidated statement of earnings for the year
ended December 31, 1998. The $5,278,000 loss on disposal includes $3,278,000 for
the write-off of the initial investment and receivable from the detergent
operation and $2,000,000 related to existing contractual obligations required to
be satisfied in disposing of the business.
3. FIRE AT ARGENTINA FACILITY:
On August 8, 1998, the Company's manufacturing facility in Argentina was
extensively damaged as a result of a fire. There were no employee injuries
resulting from the fire. In addition to physical damage to the facility, the
fire resulted in the loss of a portion of the finished goods and raw material
inventory. Two of the four diaper manufacturing lines were completely destroyed
and the remaining two lines were partially damaged. The Company maintained
insurance to cover damage to the Company's property, business interruption and
extra expense claims. The Company has invested additional funds for relocation
to a new leased facility in Argentina and anticipates that these costs will be
covered by insurance.
As of December 31, 1998, the Company had received interim payments of $8,700,000
on its claim and to date has received approximately $11,000,000 in interim
payments. As of December 31, 1998, the Company has recorded approximately
$4,000,000 in other income primarily related to proceeds under the Company's
property damage claim as well as lost profits recoverable under the Company's
business interruption policy for the months of August through December 1998. The
Company is engaging in the claim process and settlement discussions with its
insurers regarding additional insurance proceeds to which the Company believes
it is entitled. The Company has recorded a substantial nonrecurring gain as
other income, representing the difference between the estimated property
insurance proceeds on the machinery and equipment and the carrying value of the
machinery and equipment at the time of the fire. The ultimate amount of the gain
to be recorded depends on final diaper line manufacturer quotes, installation
costs, start-up costs, and other cost estimates and the final settlement reached
with the Company's insurance carriers.
As of December 31, 1998, the Company has recorded in prepaid expenses and other
assets a receivable due from the insurance carriers of approximately $12,000,000
related to the Argentina fire. This receivable is comprised of the estimated
remaining replacement cost of the Company's diaper manufacturing lines to be
recovered under the property portion of the insurance claim as well as estimated
lost profit and fixed expenses for the months of August through December 1998 to
be recovered under the business interruption portion of the insurance claim.
Management believes this is a reasonable estimate of insurance proceeds to be
received, and will periodically review such amount for possible adjustment, if
necessary, in the future. Of the total receivable amount, $2,300,000 has been
received in 1999.
4. AQUISITIONS:
MEXICO
Effective December 17, 1996, the Company acquired certain assets and assumed
certain liabilities of Pannolini de Mexico, S.A. de C.V ("Pannolini") for
$1,575,000 of the Company's common stock (360,000 shares issued on December 17,
1996 and 46,782 shares issued on February 3, 1997), $595,000 in cash and
$1,175,000 in the form of a note payable due in 1998. The acquisition was
accounted for as a purchase, and the purchase price was allocated to the
acquired assets and liabilities assumed based on their estimated fair values
(current assets $1,504,000, property and equipment of $2,679,000 and liabilities
of $2,563,000). The consideration paid for Pannolini exceeded the estimated fair
market value of the net tangible assets acquired by $1,725,000 and this excess
was recorded as goodwill.
-40-
<PAGE>
BRAZIL
In February 1997, the Company entered into a series of transactions related to
the establishment of a 51% owned venture in Brazil, acquisition of certain
intangible assets and rights from Chansommes do Brasil Ind. E Com. Ltda.
("Chansommes") and the purchase of diaper production of Chansommes.
Consideration paid in connection with the transactions included $4,000,000 of
common stock of the Company (1,000,000 shares), and cancellation of an
outstanding receivable from Chansommes of $2,167,000. Under the terms of the
agreement, the 1,000,000 shares of common stock were held in escrow by the
Company through May 5, 1997 at which time the owners of such shares elected to
receive $4,000,000 in cash in lieu of the shares. In connection with the
transactions, the Company also obtained a fair market value option to purchase
the remaining 49% interest in the venture in Brazil. During the second quarter
of 1997, the Company exercised a portion of such option and obtained 44% of the
remaining 49% interest for $5,300,000 in cash. Total cash consideration paid in
connection with the transactions, including transaction costs, was approximately
$9,827,000. In connection with the transactions, the Company also obtained a
fair market value option to acquire Chansommes. On April 6, 1998, the Company
exercised its option to acquire Chansommes, effectively giving the Company a
100% ownership interest in the Brazilian manufacturer of its diapers. The
acquisition was accounted for as a purchase, and the purchase price was
allocated to the acquired assets and liabilities assumed based on their
estimated fair values. Total consideration for the entire series of Brazilian
transactions was $15,077,000 and exceeded the estimated fair market value of the
net tangible assets acquired (current assets of $1,708,000, property, plant and
equipment of $11,292,000 and liabilities of $14,373,000) by approximately
$16,450,000 and this excess was recorded as goodwill.
MALAYSIA
Effective September 11, 1998, the Company acquired certain assets and assumed
certain liabilities of PrimoSoft, a Malaysian manufacturer of disposable baby
diapers, for approximately $2,825,000 of the Company's common stock (403,571
shares issued on September 11, 1998) and approximately $10,290,000 in cash. The
acquisition was accounted for as a purchase, and the purchase price was
allocated to the acquired assets and liabilities assumed based on their
estimated fair values (current assets $2,618,000, property and equipment of
$3,093,000 and liabilities of $257,000). The consideration paid for PrimoSoft
exceeded the estimated fair market value of the net tangible assets acquired by
approximately $7,661,000 and this excess was recorded as goodwill.
5. DEBT:
SHORT-TERM BORROWINGS
As of December 31, 1997, there were no borrowings outstanding under revolving
credit facilities. As of December 31, 1998, the Company had borrowings
outstanding of $36,317,000 under revolving credit facilities, at a weighted
average interest rate of 8.2%.
On April 1, 1998, the Company entered into a new three-year $50.0 million credit
facility to replace the former revolving credit facility. The new credit
facility permits the Company to borrow under a borrowing base formula equal to
the sum of 75% of the aggregate net book value of its accounts receivable and
50% of the aggregate net book value of its inventory on a consolidated basis,
subject to additional limitations on incurring debt. The new credit facility is
secured by substantially all of the Company's assets.
As a result of the charge related to the Company's discontinued laundry
detergent operations and the additional cash demands placed on the Company due
to the delay in receipt of insurance proceeds related to the fire at its
Argentina facility, as of December 31, 1998, the Company was in default under
certain of the financial covenants contained in its revolving credit facility.
On March 31, 1999, the Company and the lender entered into an agreement curing
the defaults, resetting certain financial covenants and requiring the Company to
reserve certain minimum levels of borrowing availability, thereby reducing the
total available revolving credit to the Company. The amendment raises the
effective cost of bank borrowings under the Company's revolving credit facility.
The new credit facility, as amended, bears interest in the range of prime to
prime plus 1 1/2%, or LIBOR plus 1 1/2% to LIBOR PLUS 3 1/4%, in each case based
on the Company's debt to EBITDA ratio determined on a quarterly basis. The
Company plans to enter into discussions with the lender to restructure its
facility into a combination of a revolver, term loan, and an over-advance
facility.
-41-
<PAGE>
The Company has issued a letter of credit for approximately $1,250,000 in
connection with an operating lease for a diaper production line. This amount
reduces the borrowing availability under the Company's revolving credit
facility.
Short-term borrowings for the international operations were not material as of
December 31, 1997 and 1998.
LONG-TERM DEBT
Long-term debt as of December 31, 1997 and 1998 consisted of the following (in
thousands):
1997 1998
------- -------
Note payable, due 2001, interest at 8.4%,
partially secured by land and buildings........... $ 1,950 $ 1,707
Various other notes payable ........................ 1,398 1,582
------- -------
3,348 3,289
Less: current maturities .................... (1,593) (322)
------- -------
$ 1,755 $ 2,967
======= =======
On April 24, 1997, the Company entered into a note purchase agreement with a
financial institution, whereby the Company obtained $10,000,000 in working
capital financing. This financing was provided through the issuance of two
$5,000,000 promissory notes (the "Working Capital Facility"), bearing interest
at 12% per annum payable semiannually and each due on May 1, 1999. The Working
Capital Facility was unsecured and could be prepaid by the Company, subject to a
3% premium if prepaid on or before January 2, 1998. In connection with the
issuance of the Working Capital Facility, the Company issued a warrant to
purchase 100,000 shares of the Company's common stock to the financial
institution. The Working Capital Facility was paid in full with the proceeds of
the 10 1/4% Senior Notes discussed below. The prepayment premium was included in
the extraordinary item related to the early extinguishment of debt discussed
below.
SENIOR TERM NOTES
Long-term debt under senior term notes as of December 31, 1997 and 1998
consisted of the following (in thousands):
1997 1998
-------- --------
10 1/4% Senior Notes, interest due semiannually
on June 15 and December 15, principal due
June 15, 2007, including unamortized bond
premium of $-- and $997, respectively ........... $115,000 $145,997
======== ========
-42-
<PAGE>
On June 24, 1997, the Company closed a private issuance of $115,000,000
aggregate principal amount of its 10 1/4% Senior Notes due 2007 ("10 1/4% Senior
Notes"). Proceeds from the offering of the 10 1/4% Senior Notes were used to
repurchase $43,400,000 of the $45,000,000 in principal amount of the Company's
outstanding 12 1/2% Senior Notes pursuant to a tender offer therefore, to repay
the $10,000,000 Working Capital Facility, to repay borrowings outstanding under
the Company's revolving credit facility, to repay a term loan with a bank and to
repay the Company's junior subordinated debt and other indebtedness and for
general corporate purposes. In connection with these transactions, the Company
recognized an extraordinary expense of $7,769,000 for the write-off of
capitalized debt issuance costs and prepayment and other fees, of which
$3,745,000 was non-cash. On December 10, 1997, the Company redeemed the
remaining $1,600,000 of 12 1/2% Senior Notes pursuant to an optional redemption
provision. The Company completed an exchange offer on October 14, 1997, pursuant
to which all of the 10 1/4% Senior Notes issued at that time were tendered for a
like principal amount of new notes with identical terms which may be offered and
sold by the holders without restrictions or limitations under the Securities Act
of 1933, as amended.
On March 17, 1998, the Company closed a private issuance of an additional
$30,000,000 of 10 1/4% Senior Notes (the "New Senior Notes") at a price of
103.625% of the principal amount thereof. The New Senior Notes were issued under
the same indenture as the June 1997 issuance of 10 1/4% Senior Notes. Proceeds
of the issuance of the New Senior Notes were used to repay all outstanding
indebtedness under the revolving credit facility, with the remaining proceeds
used for general corporate purposes, including capital expenditures. The Company
completed an exchange offer on July 13, 1998, pursuant to which all of the New
Senior Notes were tendered for a like principal amount of new notes with
identical terms which may be offered and sold by the holders without
restrictions or limitations under the Securities Act of 1933, as amended.
The indenture governing the 10 1/4% Senior Notes and the New Senior Notes
contains certain covenants that, among other things, limit the Company's ability
to incur additional indebtedness; pay dividends; purchase capital stock; make
certain other distributions, loans and investments; sell assets; enter into
transactions with related persons; and merge, consolidate or transfer
substantially all of its assets. The indenture also contains provisions for
acceleration of payment of principal upon a change of control, as defined.
The fair value of the Company's 10 1/4% Senior Notes and New Senior Notes was
estimated using discounted cash flow analysis based on the Company's current
incremental interest rate for similar financial instruments, and was estimated
at approximately $144,261,000 as of December 31, 1998.
-43-
<PAGE>
6. INCOME TAXES:
Income (loss) from continuing operations before income tax provision and
extraordinary item and income tax provision for the years ended December 31,
1996, 1997 and 1998 are composed of the following (in thousands):
1996 1997 1998
------- ------- --------
Income (loss) from continuing operations
before income tax provision and
extraordinary item
United States ........................ $ 1,287 $ 3,481 $(2,436)
Non-United States .................... 335 8,307 2,347
------- ------- -------
$ 1,622 $11,788 $ (89)
======= ======= =======
Income tax provision
Current-
United States ........................ $ 198 $ 55 $ 52
Non-United States .................... 111 2,289 1,513
------- ------- -------
$ 309 $ 2,344 $ 1,565
======= ======= =======
Deferred-
United States ........................ $ -- $ -- $ --
Non-United States .................... -- -- --
------- ------- -------
-- -- --
------- ------- -------
$ 309 $ 2,344 $ 1,565
======= ======= =======
Deferred income taxes reflect the impact of temporary differences between the
amount of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws and regulations. The components of the net
deferred tax asset (liability) at December 31, 1997 and 1998 are as follows (in
thousands):
1997 1998
-------- --------
Deferred tax assets-
Accruals and reserves .......................... $ 1,319 $ 2,830
Net operating loss and credit carryforwards .... 7,272 9,821
Tax deferral of book write-down of
machinery and equipment ..................... 1,194 1,194
Other .......................................... 253 318
-------- --------
10,038 14,163
Less- Valuation allowance ...................... (3,089) (5,269)
-------- --------
6,949 8,894
-------- --------
Deferred tax liabilities-
Excess of tax over book depreciation ........... (5,632) (5,455)
Other .......................................... (1,317) (3,439)
-------- --------
(6,949) (8,894)
-------- --------
Net deferred tax asset (liability) .. $ -- $ --
======== ========
-44-
<PAGE>
The consolidated provision for income taxes differs from the provision computed
at the statutory United States federal income tax rate for the following
reasons:
1996 1997 1998
----- ----- ------
United States statutory rate ...................... 34% 34% (34)%
Non-United States income, taxed at less than
United States statutory rate ................. (9) (18) (6)
(Utilization) generation of loss carryforwards..... (61) 25 21
U.S. taxes on Subpart F income .................... -- -- 20
Nondeductible expenses, primarily goodwill ........ 39 17 19
State income taxes ................................ 16 -- --
Other ............................................. -- -- 4
--- --- ---
19% 58% 24 %
=== === ===
As of December 31, 1998, the Company had net operating loss and credit
carryforwards of approximately $26,000,000 which are available to offset future
taxable income. The U.S. loss carryforward will expire in the years 2008 through
2013 if not utilized and foreign losses and credits will carry forward
indefinitely. The Company also has alternative minimum tax credits of
approximately $457,000 which are available indefinitely.
7. CAPITAL STOCK, STOCK OPTION PLANS AND WARRANTS:
PREFERRED STOCK
In 1996, the Company issued 90,000 shares of the Company's Series A Senior
Convertible Cumulative 7.5% Preferred Stock ("7.5% Preferred Stock") for
$9,000,000. The 7.5% Preferred Stock was convertible at the discretion of the
holders, at a rate of 100 shares of common stock per share of 7.5% Preferred
Stock, into 9,000,000 shares of the Company's common stock. Dividends accrued at
the rate of $7.50 per share, per year, and were payable only upon the conversion
or redemption of the 7.5% Preferred Stock or on December 1, 2003. The preferred
shares had a liquidation preference of $100 per share. Holders of the 7.5%
Preferred Stock had 100 votes per share.
During 1997, 28,890 shares of the Company's 7.5% Preferred Stock together with
accrued dividends were converted into 2,937,417 shares of common stock. During
1998, the remaining holders of the Company's 7.5% Preferred Stock elected to
exchange their preferred stock and related accrued dividends for 6,292,364
shares of the Company's common stock.
COMMON STOCK
Holders of the common stock have one vote per share.
STOCKHOLDERS RIGHTS AGREEMENT
The Company has a stockholders rights agreement to protect against coercive or
unfair takeover tactics. Under the terms of the agreement, the Company
distributed to its stockholders one right for each share of common stock held.
Each right entitles the holder to purchase one share of common stock for $75 per
share, subject to adjustment, or, under certain circumstances, stock of the
Company or of the acquiring entity for half market value. The rights are
exercisable only if a person or group acquires 15% or more of the Company's
common stock or makes a tender offer for 15% or more of the common stock.
The rights will expire on December 15, 2004.
-45-
<PAGE>
STOCK OPTION PLANS
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation," which is effective for all awards granted after
December 31, 1994. The Company has various plans which provide for the granting
of nonqualified stock options or incentive stock options to purchase shares of
the Company's common stock to officers, executives, and key employees
responsible for the direction and management of the Company. Generally, under
the plans, options may be granted at not less than the fair market value of the
Company's common stock on the date of grant. Options under the nonqualified
plans generally become exercisable immediately or in ratable installments over a
five-year period from date of grant and may be exercised up to a maximum of 10
years from date of grant. Options under the incentive stock option plan and the
non-employee director stock option plan generally become exercisable after three
years in 33 1/3% increments per year and expire 10 years from date of grant.
Shares available for future options pursuant to the various stock option plans
as of December 31, 1996, 1997 and 1998, were 151,624, 767,916 and 1,166,174,
respectively.
Stock option transactions under the plans during 1996, 1997 and 1998 were as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------------------------- -------------------------- -------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Nonqualified stock option plans-
Options outstanding at January 1 ..... 486,656 $ 7.71 1,890,010 $ 2.97 1,819,745 $ 3.03
Granted .............................. 1,864,876 3.01 15,000 6.00 113,570 6.28
Canceled ............................. (456,876) 8.21 -- -- -- --
Exercised ............................ (4,646) .04 (85,265) 2.41 (15,000) 6.00
---------- -------- ---------- -------- ---------- --------
Options outstanding at December 31 ... 1,890,010 $ 2.97 1,819,745 $ 3.03 1,918,315 $ 3.19
========== ======== ========== ======== ========== ========
Options exercisable at December 31 ... 1,758,259 $ 2.96 1,719,744 $ 2.99 1,803,513 $ 3.00
========== ======== ========== ======== ========== ========
Options exercise price range at
December 31........................ $ .04 - $3.50 $ 0.04 - $6.00 $ 0.04 - $7.50
Incentive stock option plans-
Options outstanding at January 1 ..... 399,000 $ 7.55 690,125 $ 3.01 1,041,125 $ 3.91
Granted .............................. 736,000 3.01 396,500 5.42 542,230 7.06
Canceled ............................. (444,875) 7.12 (19,417) 3.91 (69,058) 5.87
Exercised ............................ -- -- (26,083) 3.00 (26,667) 3.07
---------- -------- ---------- -------- ---------- --------
Options outstanding at December 31 ... 690,125 $ 3.01 1,041,125 $ 3.91 1,487,630 $ 4.97
========== ======== ========== ======== ========== ========
Options exercisable at December 31 ... 149,349 $ 3.00 358,050 $ 3.02 669,686 $ 3.43
========== ======== ========== ======== ========== ========
Options exercise price range
at December 31...................... $3.00 - $3.50 $3.00 - $6.50 $3.00 - $7.50
Non-Employee Director stock option plan -
Options outstanding at January 1 ..... -- -- 55,000 $ 4.21 85,000 $ 4.84
Granted .............................. 55,000 $ 4.21 30,000 6.25 30,000 7.44
Canceled ............................. -- -- -- -- -- --
Exercised ............................ -- -- -- -- -- --
---------- -------- ---------- -------- ---------- --------
Options outstanding at December 31 ... 55,000 $ 4.21 85,000 $ 4.84 115,000 $ 5.52
========== ======== ========== ======== ========== ========
Options exercisable at December 31 ... 4,000 $ 5.88 22,336 $ 4.51 50,670 $ 4.70
========== ======== ========== ======== ========== ========
Options exercise price range
at December 31..................... $3.75 - $5.88 $3.75 - $6.25 $3.75 - $7.44
</TABLE>
Effective February 1996, the board of directors approved a plan for all options
whereby the exercise price was revised to reflect the current market price of
$3.00. The options granted under the 1991 non-qualified stock option plan at an
exercise price of $.04 per share and the non-employee director stock options
were not included in the repricing. All repriced options were canceled and
reissued accordingly.
-46-
<PAGE>
As allowed by SFAS No. 123 the Company accounts for these plans under Accounting
Principles Board Opinion No. 25, under which no compensation cost has been
recognized for stock options issued with exercise prices greater than or equal
to the fair market value of the Company's common stock at the date of grant. Had
compensation cost for these plans been determined consistent with SFAS No. 123,
the Company's income (loss) from continuing operations and earnings (loss) per
share from continuing operations would have been the following pro forma amounts
(in thousands, except share data):
<TABLE>
<CAPTION>
1996 1997 1998
--------- ------- ---------
<S> <C> <C> <C>
Income (loss) from continuing operations As reported $ 1,313 $ 1,675 $ (1,654)
Pro forma $ (1,243) $ 670 $ (3,303)
Basic earnings (loss) per share As reported $ .11 $ .12 $ (.11)
Pro forma $ (.27) $ .01 $ (.21)
Diluted earnings (loss) per share As reported $ .09 $ .09 $ (.11)
Pro forma $ (.27) $ .01 $ (.21)
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The total
compensation cost recognized in reported income for the years ended December 31,
1996, 1997 and 1998, was $679,000, $ -- , and $ --, respectively.
The weighted average fair value of options granted in 1996 for which the
exercise price equaled the market price of the common stock on the grant date
and for which the exercise price was less than the market price of the common
stock on the grant date was $1.26 and $1.69 per share, respectively. The
weighted average fair value of options granted in 1997 was $4.00 per share. The
weighted average fair value of options granted in 1998 was $4.85 per share. The
fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for options issued in 1996, 1997 and 1998, respectively:
risk-free interest rates of 6.03%, 6.61% and 6.01%; expected lives of five
years; expected volatility of 36.05%, 88.49% and 86.15%; and no expected
dividend yield in all years.
As of December 31, 1998, the following stock options were outstanding:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
AVERAGE NUMBER PRICE OF NUMBER OF PRICE OF
CONTRACTUAL OF OPTIONS OUTSTANDING EXERCISABLE EXERCISABLE
EXERCISE PRICE RANGES LIFE OUTSTANDING OPTIONS OPTIONS OPTIONS
--------------------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Nonqualified stock option plans-
$.04 2.6 years 7,994 $.04 7,994 $.04
$3.00 - $4.50 7.2 years 1,827,518 $3.01 1,795,519 $3.01
$7.50 9.4 years 82,803 $7.50 - -
Incentive stock option plans-
$3.00 - $4.50 7.5 years 788,333 $3.19 588,338 $3.08
$4.51 - $6.75 8.4 years 234,000 $5.98 81,348 $5.94
$6.76 - $7.50 9.4 years 465,297 $7.50 - -
Non-Employee Director stock option plan-
$3.75 - $4.50 7.4 years 43,000 $3.75 28,668 $3.75
$4.51 - $6.75 7.8 years 42,000 $5.97 22,002 $5.93
$7.44 9.4 years 30,000 $7.44 - -
</TABLE>
-47-
<PAGE>
WARRANTS
The Company has issued warrants under several separate agreements which expire
by 2002. As of December 31, 1998, a total of 110,808 shares of common stock has
been reserved for issuance upon the exercise of common stock warrants. Each
warrant allows the holder to purchase one share of common stock and none are
callable by the Company. The warrants are recorded at their estimated fair
values at the date of issuance. The warrants were issued in connection with
financing transactions. The number of warrants outstanding, warrant holders,
exercise prices and call prices are presented below.
NUMBER OF SHARES
ISSUABLE UNDER
WARRANTS
OUTSTANDING AT EXERCISE
DECEMBER 31, PRICE
1998 WARRANT HOLDERS PER SHARE
---------------- ----------------- -----------
10,808 Senior noteholders $ .02
100,000 Financial institution $ 4.50
-------
110,808
=======
Certain of the warrant agreements contain a provision which allows for an
adjustment to the number of shares of common stock that can be purchased and the
exercise price per share upon the occurrence of certain events, as defined, to
preserve without dilution the rights of the warrant holders. The Company issued
258,247 additional warrants during 1996 pursuant to the antidilution provisions
of these agreements. In addition, the Company issued 250,000 warrants and 25,000
shares of common stock to an outside investment advisory firm for services
rendered in connection with the Company's refinancing in February 1996. The
outside investment advisory firm exercised the 250,000 warrants in December 1997
under a cashless exercise provision. In 1997, the Company issued 100,000
warrants to a financial institution for services rendered in connection with
providing the Working Capital Facility.
8. EMPLOYEE BENEFIT PLANS:
401(K) SAVINGS PLAN
The Company has adopted a 401(k) savings plan which covers substantially all
U.S. employees. The Company contributed approximately $174,000, $236,000 and
$385,000 to the plan during the years ended December 31, 1996, 1997 and 1998,
respectively.
PROFIT SHARING PLAN
In 1996, the Company established a profit sharing plan that supplements the
Company's existing 401(k) savings plan and covers all U.S. employees who are
eligible to participate in the 401(k) savings plan. The plan provides for
employer discretionary contributions into the employee's 401(k) account, earned
only if the Company meets specific performance targets. The employer
discretionary contribution may not exceed 50% of consolidated net income, and
may be subject to adjustment by the board of directors. The plan provides for
50% of the value of any contributions to be paid in the form of cash and the
remaining 50% in the form of common stock of the Company. The Company accrues
amounts based on performance reflecting the value of cash and common stock which
is anticipated to be contributed. The Company recorded expense of $ -- ,
$113,000 and $ -- for the years ended December 31, 1996, 1997 and 1998,
respectively, in connection with the profit sharing plan.
-48-
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
Effective January 1, 1997, the Company established an employee stock purchase
plan whereby eligible employees of the Company employed in the continental
United States may purchase shares of the Company's common stock at a 15%
discount. As of December 31, 1998, 1,478,129 shares of the Company's common
stock, par value $.001 per share, remain available for purchase under this plan.
During 1998, 12,369 shares were purchased on the open market for employees under
the plan at an average price of $6.89 per share. During 1998, 21,871 shares were
issued under the employee stock purchase plan at an average price of $2.98 per
share.
9. COMMITMENTS AND CONTINGENCIES:
PATENTS
The Company operates in a commercial field in which patents relating to the
products, processes, apparatus and materials are more numerous than in many
other fields. The Company's products include such features as multistrand
elastic leg bands, replaceable frontal landing strips for the tape tabs,
upstanding cuffs, training pants and super absorbent pad construction. In each
case, the design and the technical features of the diapers produced by the
Company were carefully considered by legal counsel before the manufacture and
sale of such products, and steps were taken to avoid the features disclosed in
unexpired patents. Although much of the patent activity relates to the technical
work of Procter & Gamble Company and Kimberly-Clark Corporation, it is not
exclusive to those organizations, and the Company takes careful steps to design,
produce and sell its baby diapers to avoid infringing any valid patents of its
competitors.
There can be no assurance that the Company will not be held to be infringing on
existing patents in the future. Any such holding could result in an injunction,
damages and/or an increase in future operating costs as a result of design
changes or payment of royalties with respect to such patents, which might have a
material adverse effect on the financial condition or results of operations of
the Company.
LITIGATION
The Company is involved in certain lawsuits and claims arising in the normal
course of business. In the opinion of management, uninsured losses, if any,
resulting from the ultimate resolution of these matters will not have a material
adverse effect on the financial position or results of operations of the
Company.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with two individuals that
extend through December 31, 2001, with one individual that extends through
August 25, 2001, and with two individuals that extend through December 31, 1999.
The Company also has a consulting agreement with an individual that extends
through February 25, 2000. As of December 31, 1998, the Company's remaining
aggregate commitment under the agreements is approximately $3,500,000.
-49-
<PAGE>
OPERATING LEASES
The Company is obligated under various long-term leases for its
building/production facilities, machinery and equipment, which expire at various
dates through 2007. Rental expense aggregated $1,418,000, $3,216,000 and
$5,153,000 for the years ended December 31, 1996, 1997 and 1998, respectively.
The leases provide for minimum annual rentals plus, in certain instances,
payment for property and use taxes, insurance and maintenance.
Future minimum rental commitments under noncancelable operating leases, are as
follows (in thousands):
Year ending December 31-
1999 $ 6,667
2000 6,118
2001 5,856
2002 4,816
2003 3,398
Thereafter 5,696
--------
Total minimum lease payments required $ 32,551
========
The table above includes future minimum rental commitments for a training pant
production line and other ancillary manufacturing equipment under leases entered
into in February 1999.
10. SEGMENT INFORMATION:
The Company adopted SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information", as of December 31, 1998. SFAS No. 131 established
standards for reporting information about operating segments in annual financial
statements and requires selected information about operating segments in interim
financial reports issued to stockholders. It also established standards for
related disclosures about products and services, and geographic areas. 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, or decision making group, in deciding how to allocate
resources and in assessing performance. The Company's chief operating decision
making group is the Chairman and Chief Executive Officer, the Chief Operating
Officer, the Chief Financial Officer and the President of Drypers International.
All of the Company's revenues are derived from sales of disposable baby
products. The Company classifies its business into two reportable segments:
"Domestic" (includes the United States and Puerto Rico) and "International"
(which includes all other foreign operations--Argentina, Mexico, Brazil,
Colombia, Singapore and Malaysia). All international operations have been
aggregated into one reportable segment because they have similar economic
characteristics and their operations are similar in the nature of the product
and production process, type of customer, and distribution method.
The Company evaluates performance based on several factors, of which the primary
financial measure is business segment operating income before management fee
income (expense) and corporate overhead. The accounting policies of the
operating segments are the same as those described in the summary of significant
accounting policies. Intersegment sales are accounted for at fair value as if
the sales were to third parties.
-50-
<PAGE>
Information as to the operations of the Company's reportable segments is as
follows (in thousands):
DOMESTIC INTERNATIONAL TOTAL
--------- ------------- ---------
1996
Net sales ........................... $ 179,244 $ 27,770 $ 207,014
Intersegment sales .................. $ 15,992 $ 605 $ 16,597
Operating income before management
fees and corporate overhead ...... $ 15,427 $ 1,149 $ 16,576
Corporate overhead .................. (6,023)
Interest expense, net ............... (8,931)
Other income ........................ --
---------
Income from continuing operations
before taxes ..................... $ 1,622
=========
1997
Net sales ........................... $ 191,329 $ 95,681 $ 287,010
Intersegment sales .................. $ 21,129 $ 1,242 $ 22,371
Operating income before management
fees and corporate overhead....... $ 23,031 $ 7,815 $ 30,846
Corporate overhead .................. (9,354)
Interest expense, net ............... (9,957)
Other income ........................ 253
---------
Income from continuing operations
before taxes and extraordinary item $ 11,788
=========
1998
Net sales ........................... $ 213,785 $ 118,855 $ 332,640
Intersegment sales .................. $ 31,321 $ 13,183 $ 44,504
Operating income before management
fees and corporate overhead....... $ 16,175 $ 4,035 $ 20,210
Corporate overhead .................. (8,289)
Interest expense, net ............... (16,476)
Other income ........................ 4,466
---------
Loss from continuing operations
before taxes ...................... $ (89)
=========
Information as to the depreciation/amortization, capital expenditures and assets
of the Company's reportable segments is as follows (in thousands):
DOMESTIC INTERNATIONAL TOTAL
--------- ------------- ---------
1996
Depreciation and amortization expense $ 6,580 $ 1,044 $ 7,624
Capital expenditures ................ $ 5,692 $ 239 $ 5,931
Total assets ........................ $ 117,821 $ 32,734 $ 150,555
1997
Depreciation and amortization expense $ 6,338 $ 1,882 $ 8,220
Capital expenditures ................ $ 15,178 $ 6,420 $ 21,598
Total assets ........................ $ 133,207 $ 72,025 $ 205,232
1998
Depreciation and amortization expense $ 6,446 $ 3,907 $ 10,353
Capital expenditures ................ $ 5,488 $ 20,993 $ 26,481
Total assets ........................ $ 156,249 $ 143,923 $ 300,172
-51-
<PAGE>
Information as to the Company's operations in different geographical areas is as
follows (in thousands):
<TABLE>
<CAPTION>
ALL OTHER
UNITED STATES(1) BRAZIL ARGENTINA INTERNATIONAL TOTAL
---------------- --------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C>
1996
Net sales ............... $179,244 $ -- $ 24,210 $ 3,560 $207,014
Long-lived assets ....... $ 30,968 $ -- $ 1,508 $ 2,678 $ 35,154
1997
Net sales ............... $191,329 $ 44,579 $ 33,370 $ 17,732 $287,010
Long-lived assets ....... $ 39,120 $ 2,659 $ 3,961 $ 7,530 $ 53,270
1998
Net sales ............... $213,786 $ 56,105 $ 33,553 $ 29,196 $332,640
Long-lived assets ....... $ 40,392 $ 16,475 $ 6,785 $ 18,251 $ 81,903
</TABLE>
(1) Includes Puerto Rico.
(2) Includes Mexico, Malaysia, Singapore and Colombia.
-52-
<PAGE>
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
Unaudited summarized data by quarter for 1997 and 1998 is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1997
Net sales .............................. $ 60,161 $ 72,551 $ 80,086 $ 74,212 $ 287,010
Gross profit ........................... 23,405 27,568 31,701 28,791 111,465
Income before extraordinary item ....... 1,973 2,183 2,750 2,538 9,444
Net income (loss) ...................... 1,973 (5,586)(a) 2,750 2,538 1,675
Basic earnings (loss) per share:
Continuing operations ............ $ .23 $ .26 $ .27 $ .24 $ 1.00
Extraordinary item ............... -- (.99) -- -- (.88)
----------- ----------- ----------- ----------- -----------
Net income (loss) ................ $ .23 $ (.73) $ .27 $ .24 $ .12
=========== =========== =========== =========== ===========
Diluted earnings (loss) per share:
Continuing operations ............ $ .11 $ .12 $ .15 $ .14 $ .51
Extraordinary item ............... -- (.42) -- -- (.42)
----------- ----------- ----------- ----------- -----------
Net income (loss) ................ $ .11 $ (.30) $ .15 $ .14 $ .09
=========== =========== =========== =========== ===========
1998(b)
Net sales .............................. $ 78,592 $ 80,302 $ 85,841 $ 87,905 $ 332,640
Gross profit ........................... 31,343 33,003 33,473 37,836 135,655
Income (loss) from continuing operations (5,455) 1,259 1,519 1,023 (1,654)
Net income (loss) ...................... (5,669) 1,099 701 (4,256)(b) (8,125)
Basic earnings (loss) per share:
Continuing operations ............ $ (.44) $ .08 $ .09 $ .06 $ (.11)
Discontinued operations .......... (.02) (.01) (.05) (.30) (.40)
----------- ----------- ----------- ----------- -----------
Net income (loss) ................ $ (.46) $ .07 $ .04 $ (.24) $ (.51)
=========== =========== =========== =========== ===========
Diluted earnings (loss) per share:
Continuing operations .... ..... $ (.44) $ .07 $ .08 $ .06 $ (.11)
Discontinued operations .......... (.02) (.01) (.04) (.30) (.40)
----------- ----------- ----------- ----------- -----------
Net income (loss) ................ $ (.46) $ .06 $ .04 $ (.24) $ (.51)
=========== =========== =========== =========== ===========
</TABLE>
- -----------------
(a) Includes a noncash extraordinary expense of $3,745,000 for the write-off of
capitalized debt issuance costs and a cash extraordinary expense of
$4,024,000 for prepayment and other fees in connection with the early
extinguishment of debt.
(b) Income (loss) and earnings (loss) per share from continuing operations for
the first, second and third quarters of 1998 have been restated to reflect the
discontinued operations of the Company's laundry detergent business. This
resulted in a one-time charge of $6,471,000 in 1998.
-53-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Drypers Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of Drypers Corporation (a Delaware corporation) and
subsidiaries as of December 31, 1997 and 1998, and the related consolidated
statements of earnings, comprehensive income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998,
included in this Form 10-K and have issued our report thereon dated February 18,
1999. Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Financial statement Schedule
II is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This financial statement schedule
has been subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 18, 1999
-54-
<PAGE>
DRYPERS CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COST AND AT END OF
CLASSIFICATION OF PERIOD EXPENSE DEDUCTIONS(1) OTHER PERIOD
---------------- ------------ ----------- ------------- ------ -----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended December 31, 1996 $ 940 $ 1,240 $ (1,020) $ -- $ 1,160
Year Ended December 31, 1997 $ 1,160 $ 1,532 $ (628) $ -- $ 2,064
Year Ended December 31, 1998 $ 2,064 $ 1,395 $ (824) $ -- $ 2,635
RESERVE FOR DISPOSAL OF LAUNDRY
DETERGENT BUSINESS:
Year Ended December 31, 1996 $ -- $ -- $ -- $ -- $ --
Year Ended December 31, 1997 $ -- $ -- $ -- $ -- $ --
Year Ended December 31, 1998 $ -- $ 2,000(2) $ -- $ -- $ 2,000
</TABLE>
- ----------------------
(1) Write-offs of uncollectible accounts.
(2) Accrued for contractual obligations related to discontinuing the laundry
detergent business.
-55-
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(c) Exhibits.
*23.1 - Consent of Independent Public Accountants.
- ---------------
* Filed herewith.
<PAGE>
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 hereunto duly authorized.
DRYPERS CORPORATION
Dated: APRIL 16, 1999 By: /S/ WALTER V. KLEMP
Walter V. Klemp
Chairman of the Board and
Chief Executive Officer
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Form 10-K/A of our report dated February 18, 1999. It should be noted that we
have not audited any financial statements of the Company subsequent to December
31, 1998 or performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Houston, Texas
April 16, 1999
