<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 14, 1996
(Date of earliest event reported)
Polymer Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 1-14330 57-1003983
(State of (Commission (IRS Employer
Incorporation) File Number) Identification No.)
4838 Jenkins Avenue
North Charleston, South Carolina
(Address of principal executive offices)
29405
(Zip Code)
(803) 566-7293
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) Financial Statements of Business Acquired
The financial statements required by Item 7(a) relative to the acquisition
of the business of FNA Polymer Corp. described in Item 2 of Form 8-K of
Polymer Group, Inc. dated August 14, 1996 are attached hereto as an exhibit
and incorporated herein by this reference.
(b) Pro Forma Unaudited Financial Information
The pro forma unaudited financial information required by Item 7(b)
relative to the FNA Acquisition described in Item 2 of Form 8-K of Polymer
Group, Inc. dated August 14, 1996 is attached hereto as an exhibit and
incorporated herein by this reference.
(c) Exhibits
Exhibits required to be filed with this current report on Form 8-K/A
Amendment No. 1 are included in the following exhibit index.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
POLYMER GROUP, INC.
(Registrant)
October 24, 1996 /s/ Jerry Zucker
(Date) ------------------------------
Jerry Zucker
Chairman, President, Chief
Executive Officer and Director
(Principal Executive Officer)
October 24, 1996
(Date) /s/ James G. Boyd
------------------------------
James G. Boyd
Executive Vice President,
Treasurer and Director
(Principal Financial Officer
and Principal Accounting
Officer)
3
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
1 Financial Statements required by Item 7(a).
2 Pro forma unaudited financial information required by Item 7(b).
23 Consent of Coopers & Lybrand L.L.P.
4
<PAGE>
EXHIBIT 1
FINANCIAL STATEMENTS REQUIRED BY ITEM 7(a)
5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors of
Petropar N.A., Corp.:
We have audited the accompanying consolidated balance sheet of Petropar N.A.,
Corp. and Subsidiary (a wholly-owned subsidiary of Petropar, S.A.) as of
December 31, 1995, and the related consolidated statements of operations,
shareholder's equity (deficit) and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Petropar N.A.,
Corp. and Subsidiary as of December 31, 1995, and the consolidated results of
its operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Charlotte, North Carolina
January 12, 1996, except as to information
presented in Note 10, for which the date is
February 5, 1996, and information presented
in Note 11, for which the date is April 17,
1996.
6
<PAGE>
PETROPAR N.A., CORP. AND SUBSIDIARY
(a wholly-owned subsidiary of Petropar, S.A.)
CONSOLIDATED BALANCE SHEET
December 31, 1995
------
ASSETS
Current assets:
Accounts receivable:
Trade (net of allowance of $121,000) $ 4,059,200
Related party 2,308
Interest and other 7,524
Inventories 769,298
Other current assets 44,018
-----------
Total current assets 4,882,348
Property, plant and equipment, net 20,857,788
Other assets 16,488
-----------
$25,756,624
===========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 1,606,593
Cash overdraft 605,237
Accounts payable:
Trade 1,860,189
Construction 17,128
Related parties 2,317,198
Accrued interest 207,430
Other accrued expenses 295,404
-----------
Total current liabilities 6,909,179
Long-term debt 23,661,520
-----------
30,570,699
-----------
Shareholder's equity (deficit):
Common stock, $1 par value; authorized 1,000 shares; 100 shares
issued and outstanding 100
Paid-in capital 900
Accumulated deficit (4,815,075)
-----------
(4,814,075)
-----------
$25,756,624
===========
The accompanying notes are an integral part of the consolidated financial
statements.
7
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
for the year ended December 31, 1995
------
Net sales $25,942,292
Cost of sales 21,659,244
-----------
Gross profit 4,283,048
Selling, general and administrative expenses 3,624,351
-----------
Income from operations 658,697
Other income (expense):
Interest income 1,018,946
Interest expense (3,577,618)
Other expenses (422,017)
-----------
Net loss $(2,321,992)
===========
The accompanying notes are an integral part of the consolidated financial
statements.
8
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT)
for the year ended December 31, 1995
----------
<TABLE>
<CAPTION>
Common Stock Shareholder's
------------------- Paid-in Accumulated Equity
Shares Amount Capital Deficit (Deficit)
------ ------ ------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1994 100 $100 $900 $(2,493,083) $(2,492,083)
Net loss (2,321,992) (2,321,992)
--- ---- ---- ----------- -----------
Balances, December 31, 1995 100 $100 $900 $(4,815,075) $(4,814,075)
=== ==== ==== =========== ===========
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
9
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended December 31, 1995
----------
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net loss $ (2,321,992)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation 2,336,406
Amortization 147,738
Provision for bad debts 91,125
Changes in operating assets and liabilities:
Receivables (1,099,477)
Inventories 580,059
Other current assets (36,845)
Accounts payable and accrued expenses 1,298,858
Other liabilities (131,250)
------------
Net cash provided by operating activities 864,622
------------
Cash flows used in investing activities, additions to property and equipment (1,618,097)
------------
Cash flows from financing activities:
Cash overdraft 605,237
Proceeds from short-term borrowings 2,035,165
Payments of short-term borrowings (10,975,000)
Proceeds from long-term debt 8,500,000
Payments of long-term debt (3,500,000)
Proceeds from loans to affiliated company 3,825,000
------------
Net cash provided by financing activities 490,402
------------
Net decrease in cash and cash equivalents (263,073)
Cash and cash equivalents:
Beginning of year 263,073
------------
End of year $ -0-
============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_____
1. Basis of Presentation:
---------------------
Petropar N.A., Corp. (the "Company") was incorporated on August 11, 1994, as
a wholly owned subsidiary of Petropar S.A., a Brazilian corporation. The
common stock of Fitesa N.A., Corp., a subsidiary of Petropar S.A., was
transferred to the Company in exchange for one hundred (100) shares of
common stock. The accompanying consolidated financial statements include the
financial position, results of operations and cash flows of Petropar N.A.
Corp. and its wholly owned subsidiary, Fitesa N.A. Corp., after the
elimination of all intercompany balances and transactions.
2. Summary of Significant Accounting Policies:
------------------------------------------
INVENTORIES - Inventories are stated at the lower of cost or market.
Standard costing is used which approximates the first-in, first-out (FIFO)
method.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment is carried at
cost. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets. Additions are charged to the property
accounts while replacements, maintenance and repairs which do not improve or
extend the life of the respective assets are expensed as incurred. When
property and equipment are disposed, the difference between net book value
and cash proceeds is included in the statement of operations.
OTHER ASSETS - Other assets include expenses incurred in connection with the
formation of the Company which are amortized on a straight-line basis over
five years.
CONCENTRATION OF CREDIT RISK AND FINANCIAL INSTRUMENTS - Financial
instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company places its temporary cash investments with high
credit quality financial institutions. The Company markets its products
primarily to customers in the manufacturing sector. The Company closely
monitors the creditworthiness of its customers and generally requires no
collateral from its customers. Sales to six major customers accounted for
approximately 64% of sales in 1995. Approximately 64% of trade accounts
receivable represented five major customers at December 31, 1995.
CASH EQUIVALENTS - The Company classifies all highly liquid debt instruments
purchased with original maturities of three months or less as cash
equivalents.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____
2. Summary of Significant Accounting Policies, continued:
------------------------------------------
CASH FLOWS - Cash flows from operations include interest paid of $3,899,001
in 1995.
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 and
liabilities and 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.
3. Inventories:
-----------
The major classes of inventories at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Finished goods $471,014
Work-in-process 28,899
Raw materials 269,385
--------
$769,298
========
</TABLE>
4. Property, Plant and Equipment:
-----------------------------
<TABLE>
<CAPTION>
Property, plant and equipment is comprised of the following at December 31, 1995:
<S> <C>
Land and improvements $ 226,737
Building 3,361,444
Machinery and equipment 21,712,028
Furniture and computer equipment 692,447
Construction in process 243,766
-----------
26,236,422
Less accumulated depreciation 5,378,634
-----------
$20,857,788
===========
</TABLE>
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
_____
5. Financing Arrangements:
----------------------
Long-term debt consists of the following at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Note payable to a bank, due October 1, 1997 plus interest at the
Eurodollar rate plus 1.125% $ 9,052,000*
Note payable to Petropar S.A., due August 31, 1999 plus interest
quarterly at the ninety day LIBOR rate plus 3-1/4% (9.125%
at December 31, 1995) 2,949,000
Line of credit available up to $4,000,000, due on October 1,
2000, plus interest monthly at a floating rate 535,165**
Note payable with quarterly payments of $267,857 beginning
January 1, 1996, remaining principal due October 1, 2000,
interest payable monthly at a floating rate (8.8% at
December 31, 1995) 7,500,000**
Note payable, due October 1, 2000, interest payable monthly
at a floating rate (8.05% at December 31, 1995) 1,000,000**
Note payable to Fitesa Overseas, Ltd., due February 1, 2001,
interest payable quarterly at LIBOR plus 3-1/4%, (9.125%
at December 31, 1995) 4,231,948
-----------
25,268,113
Less current portion of long-term debt 1,606,593
-----------
Long-term debt $23,661,520
===========
</TABLE>
*Represents note payable guaranteed by Petropar S.A.
**Substantially all of the assets of the Company serve as collateral for
this debt which is held by one lender under a single credit agreement.
The $7.5 million and $1.0 million notes contain restrictive covenants, the
most restrictive of which requires the Company to maintain a minimum
adjusted tangible net deficit as defined in the agreement of $4,831,000.
The terms of the $9,052,000 note, as amended September 25, 1995, allow the
Company to borrow the $9,052,000 through October 1, 1997. The note is made
up of individual loans with terms, at the Company's discretion, of one
three, six or twelve months in duration. As the Company has the ability and
intent to continuously extend the maturity of the loans through October 1,
1997, the note has been classified as long-term on the balance sheet.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
6. Income Taxes:
------------
The Company accounts for its income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income
taxes result from temporary differences in the recognition of income and
expenses for financial and income tax reporting. The principal items
comprising temporary differences consist of various tax loss carryforwards.
No current year tax benefit has been established due to the losses incurred
by the Company. Deferred income taxes consist of the following at December
31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Noncurrent deferred income tax liabilities, depreciation $ 1,324,000
Noncurrent income tax assets:
Tax benefit of net operating loss carryforwards available to reduce
future taxable income (2,114,000)
Accrued royalty and guarantee fees (788,000)
Accounts receivable allowance (41,000)
Miscellaneous (22,000)
-----------
Net deferred income tax asset (1,641,000)
Valuation allowance 1,641,000
-----------
Total deferred income taxes, net $ -0-
===========
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $6,217,000 for tax reporting purposes. These carryforwards,
which are available to offset future taxable income, begin to expire in
2006.
7. Leases:
------
Certain equipment and automobiles are leased under operating leases. The
following is a schedule of future minimum lease payments under operating
leases as of December 31, 1995:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1996 $13,397
1997 11,790
1998 5,793
1999 5,486
2000 4,114
-------
Total minimum lease payments $40,580
=======
</TABLE>
Lease expense totaled approximately $86,700 in 1995.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
8. Related Party Transactions:
--------------------------
The Company is dependent upon the support of Petropar S.A. for its financial
requirements. Petropar S. A. has pledged it's continued financial support to
the Company for 1996.
During 1995, the Company sold approximately $1,966,000 of inventory to
Fitesa S.A., a wholly owned subsidiary of Petropar S.A.
The Company has a royalty agreement and guarantee agreement with Petropar
S.A. Royalty fees are calculated at 4% of sales to outside parties. Royalty
expense included in selling, general and administrative expenses totaled
$957,513 during 1995. Royalty amounts due to Petropar S.A. included in
related party accounts payable at December 31, 1995 totaled $1,789,621.
Guarantee fees are calculated at 1.5% of the outstanding loan balance
guaranteed by Petropar S.A. Guarantee fees included in other expenses
totaled $255,353 during 1995. Amounts due to Petropar S.A. for guarantee
fees included in related party accounts payable at December 31, 1995 totaled
$527,578.
During 1995, Fitesa Overseas Limited, a wholly-owned subsidiary of Petropar
S.A., assumed $20,504,378 of notes and interest obligations of the Company
in exchange for notes and interest due from Fitesa Overseas Limited to the
Company of $16,272,430 and the issuance of a note payable to Fitesa Overseas
Limited of $4,231,948.
9. Retirement Plan:
---------------
The Company provides a 401(k) retirement savings plan for substantially all
employees. The plan provides for matching contributions by the Company of
fifty (50) percent of voluntary employee contributions limited to eight (8)
percent of employee wages. Plan expense for 1995 was approximately $97,065.
10. Contingencies:
-------------
During 1995, a worker fatality occurred at the Company's plant site. The
Company has been notified by its legal counsel of a claim filed by the
estate of the deceased employee against the Company. Based on current
facts, the Company is not able to estimate the probable outcome of the
litigation. Therefore, no provision has been made in the accompanying
financial statements for this contingency. The Company's insurance carrier
is defending the claim on behalf of the Company.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
----------
11. Subsequent Event:
----------------
Subsequent to December 31, 1995, the $2,949,000 note due to Petropar S.A.
was forgiven by Petropar S.A. and was converted to equity by the Company in
the form of a capital contribution.
12. Event Subsequent to Date of Report of Independent Accountants (Unaudited):
-------------------------------------------------------------------------
On August 14, 1996, PGI Polymer, Inc., ("PGI Polymer"), a Delaware
Corporation and the wholly owned subsidiary of Polymer Group, Inc.,
completed its acquisition (the "FNA Acquisition") of the business of FNA
Polymer Corp. ("FNA") (formerly known as Fitesa North America Corporation),
a North Carolina corporation, pursuant to the terms of the Stock Purchase
Agreement, dated as of July 15, 1996 among Petropar S.A., a corporation
incorporated under the laws of the Federative Republic of Brazil (the
"Parent"), Alicorno Comercio e Servicos LDA., a corporation incorporated
under the laws of Madeira (the "Seller"), and PGI Polymer (the "Stock
Purchase Agreement").
Pursuant to the Stock Purchase Agreement, PGI Polymer acquired all of the
issued and outstanding capital stock of PNA Corp. (formerly known as
Petropar North America Corp.), a North Carolina corporation, which in turn
owns all of the issued and outstanding capital stock of FNA Polymer Corp.
The Seller received a cash payment of $48,000,000, subject to a working
capital adjustment.
16
<PAGE>
PETROPAR N.A., CORP. AND SUBSIDIARY
(a wholly-owned subsidiary of Petropar, S.A.)
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
June 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Current assets:
Accounts receivable, net.................................. $ 3,377
Inventories............................................... 1,036
Other..................................................... 41
-------
Total current assets................................. 4,454
-------
Property, plant and equipment, net........................ 19,830
Other..................................................... 8
-------
Total assets......................................... $24,292
=======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses..................... $ 5,463
Long-term debt, less current portion........................... 18,543
Shareholders' equity:
Additional paid-in capital................................ 2,950
Deficit................................................... (2,664)
-------
286
-------
Total liabilities and shareholders'
equity.......................................... $24,292
=======
</TABLE>
See accompanying notes.
17
<PAGE>
PETROPAR N.A., CORP. AND SUBSIDIARY
(a wholly-owned subsidiary of Petropar, S.A.)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
for the six months ended June 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
<S> <C>
Net sales............................................ $ 15,082
Cost of sales........................................ 9,895
---------
Gross profit....................................... 5,187
Selling, general and adminstrative expenses.......... 1,759
---------
Operating income................................... 3,428
Interest expense, net................................ 970
---------
Income before Income taxes......................... 2,458
Income taxes......................................... 307
---------
Net income......................................... $ 2,151
=========
</TABLE>
See accompanying notes.
18
<PAGE>
PETROPAR N.A., CORP. AND SUBSIDIARY
(a wholly-owned subsidiary of Petropar, S.A.)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
for the six months ended June 30, 1996
(In Thousands)
<TABLE>
<CAPTION>
<S> <C>
Cash flow from operating activities....................................................... $ 3,984
Cash flow (used in) investing activities, additions to property and equipment............. (208)
Cash flow (used in) financing activities, payments of debt................................ (3,776)
-------
Net change in cash and cash equivalents................................................ 0
Cash and cash equivalents:
Beginning of period.................................................................... 0
-------
End of period.......................................................................... $ 0
=======
</TABLE>
See accompanying notes.
19
<PAGE>
PETROPAR N.A. AND SUBSIDIARY
(a wholly-owned subsidiary of Petropar, S.A.)
Notes To Condensed Consolidated Financial Statements (UNAUDITED)
1. BASIS OF PRESENTATION:
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management of the Company, the unaudited
financial statements contain all adjustments of a normal recurring nature
necessary for a fair presentation. The operating results for the six months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for an entire year. The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that may affect the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
2. INVENTORIES:
The major classes of inventories at June 30, 1996 are as follows:
Finished goods.................. $ 803
Work-in-process................. 17
Raw material.................... 216
------
$1,036
======
3. CONTINGENCIES:
As previously discussed, during 1995, a worker fatality occurred at the
Company's plant site. The Company has been notified by its legal counsel of a
claim filed by the estate of the deceased against the Company. Based on facts,
the Company is not able to estimate the probable outcome of the litigation.
Therefore, no provision has been made in the accompanying financial statements
for this contingency. The Company's insurance carrier is defending the claim on
behalf of the Company.
4. OTHER MATTERS:
As previously discussed, on August 14, 1996, PGI Polymer completed the FNA
Acquisition pursuant to the terms of the Stock Purchase Agreement for $48.0
million, subject to a working capital adjustment.
20
<PAGE>
EXHIBIT 2
PRO FORMA UNAUDITED FINANCIAL INFORMATION
REQUIRED BY ITEM 7(B)
21
<PAGE>
POLYMER GROUP, INC.
PRO FORMA UNAUDITED FINANCIAL INFORMATION
INTRODUCTION
On August 14, 1996, PGI Polymer, Inc. ("PGI Polymer"), a Delaware Corporation
and the wholly owned subsidiary of Polymer Group, Inc., (the "Company")
completed its acquisition (the "FNA Acquisition") of the business of FNA Polymer
Corp. ("FNA") (formerly known as Fitesa North America Corporation), a North
Carolina corporation, pursuant to the terms of the Stock Purchase Agreement,
dated as of July 15, 1996 among Petropar S.A., a corporation incorporated under
the laws of the Federative Republic of Brazil (the "Parent"), Alicorno Comercio
e Servicos LDA., a corporation incorporated under the laws of Madeira (the
"Seller"), and PGI Polymer (the "Stock Purchase Agreement").
Pursuant to the Stock Purchase Agreement, PGI Polymer acquired all of the issued
and outstanding capital stock of PNA Corp. (formerly known as Petropar North
America Corp.), a North Carolina corporation, which in turn owns all of the
issued and outstanding capital stock of FNA Polymer Corp. The Seller received a
cash payment of $48.0 million, subject to a working capital adjustment. The FNA
Acquisition has been accounted for under the purchase method of accounting.
On May 15, 1996, the Company completed an initial public offering of 11.5
million shares (the "Offerings") of its common stock at an offering price of
$18.00 per share. Net proceeds to the Company after underwriting fees and other
related costs were $190.8 million. Pursuant to the Recapitalization Agreement
dated May 6, 1996, all of the warrants to acquire shares of Class C common stock
were exercised, and the outstanding shares of Class A-1 common stock, Class A-2
common stock, Class A-3 common stock, Class B common stock and Class C common
stock were converted (the "Reclassification") into a single class of common
stock concurrently with the Offerings. In connection with the Offerings, the
Company's Board of Directors approved an approximate 19.97 to 1 stock split.
As part of the Offerings, the Company consummated the following transactions
(together with the Offerings, the Reclassification and the approximate 19.97 to
1 stock split, the "Recapitalization"): (i) effectively repaid all outstanding
indebtedness under the FiberTech Credit Facility and Chicopee Credit Facility
(collectively, the "Facilities") and terminated the Facilities; (ii) redeemed
$50.0 million principal amount of the 12 1/4% Senior Notes (the "Notes") at a
premium of 112.25%; (iii) redeemed the Chicopee Preferred Stock at a price equal
to $1,000 per share plus accrued but unpaid dividends; (iv) redeemed the Company
Preferred Stock at a price of $1,000 per share plus accrued but unpaid
dividends; and (v) entered into a new credit facility ("New Credit Facility") as
more fully described below.
The New Credit Facility consists of a $200.0 million term loan and a $125.0
million revolving facility. The New Credit Facility is secured by all of the
assets of the
22
<PAGE>
Company and by a guarantee by each of the Company's domestic subsidiaries, which
guarantee is secured by the assets of each such subsidiary. The Company's
non-domestic subsidiaries will either borrow directly under the New Credit
Facility on a secured basis or borrow from the Company, with such borrowings
being evidenced by a note pledged to the lenders.
On March 15, 1995, the Company completed the acquisition (the "Chicopee
Acquisition") of the Nonwovens Business of Johnson & Johnson Advanced Materials
Company and Chicopee B.V. (collectively, "Chicopee") from Johnson & Johnson for
an aggregate consideration of $290.0 million (including $15.0 million of fees
and expenses) in a transaction accounted for by the purchase method of
accounting.
The following pro forma consolidated statement of operations for the year ended
December 30, 1995 is based on historical financial statements of the Company,
FNA and Chicopee adjusted to give effect to the Offerings, the FNA Acquisition,
the Chicopee Acquisition and the financing thereof as if such events had
occurred on January 1, 1995. The pro forma consolidated statements of operations
for the six months ended June 29, 1996 is based on historical financial
statements of the Company (including Chicopee) and FNA adjusted to give effect
to the Offerings, the FNA Acquisition and the financing thereof as if such
events had occurred on December 31, 1995. The pro forma balance sheet has been
prepared on the assumption that the FNA Acquisition and the respective financing
had occurred on June 29, 1996.
The total purchase price of the FNA Acquisition has been allocated to tangible
and intangible assets and liabilities based upon management's preliminary
estimates of their fair value. The allocation of the purchase price for the FNA
Acquisition is subject to revision when additional information concerning assets
and liabilities is obtained. The accompanying unaudited pro forma information
does not purport to represent what the Company's results of operations would
actually have been had the FNA Acquisition, the Chicopee Acquisition and the
Offerings actually occurred at the beginning of the respective periods, or
project the Company's results of operations for any future periods.
23
<PAGE>
POLYMER GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 29, 1996
<TABLE>
<CAPTION>
Pro Forma
Company
Historical Historical Pro Forma Including
Company FNA Adjustments FNA
---------- ---------- ----------- ---------
(dollar amounts in thousands)
<S> <C> <C> <C> <C>
ASSETS
- ------
Current assets:
Cash and equivalents............................... $ 19,343 $ - $ - $ 19,343
Marketable securities.............................. 11,746 - - 11,746
Accounts receivable, net........................... 63,527 3,377 - 66,904
Inventories........................................ 51,383 1,036 - 52,419
Other.............................................. 13,557 41 - 13,598
-------- ------- ------- --------
Total current assets............................. 159,556 4,454 - 164,010
-------- ------- ------- --------
Property, plant and equipment, net.................. 371,037 19,830 11,036 (d) 401,903
Intangibles, loan acquisition and
organization costs, net.......................... 80,486 - 21,266 (e) 101,752
Other............................................... 4,334 8 - 4,342
-------- ------- ------- --------
Total assets..................................... $615,413 $24,292 $32,302 $672,007
======== ======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued expenses.............. $ 71,232 $ 5,463 $(3,005)(b) $ 73,690
Current portion of long-term debt.................. 9,121 - - 9,121
-------- ------- ------- --------
80,353 5,463 (3,005) 82,811
-------- ------- ------- --------
Long-term debt, less current portion................ 313,752 18,543 29,457 (a) 361,752
Deferred income taxes............................... 24,572 - 6,136 (d) 30,708
Other............................................... 10,129 - - 10,129
Shareholders' equity:
Common stock....................................... 320 - - 320
Additional paid-in capital......................... 243,662 2,950 (2,950)(c) 243,662
Deficit............................................ (67,490) (2,664) 2,664 (c) (67,490)
Cumulative translation adjustment.................. 10,246 - - 10,246
Unrealized holding (loss) on marketable
equity securities................................. (131) - - (131)
-------- ------- ------- --------
186,607 286 (286) 186,607
-------- ------- ------- --------
Total liabilities and shareholders'
equity......................................... $615,413 $24,292 $32,302 $672,007
======== ======= ======= ========
</TABLE>
See explanation of pro forma adjustments on page 25.
24
<PAGE>
POLYMER GROUP, INC.
EXPLANATION OF PRO FORMA ADJUSTMENTS
JUNE 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
(a) Represents net increase of indebtedness resulting from the reduction of
historical debt of FNA which was liquidated prior to consummation of the
acquisition and an increase in borrowings under the New Credit Facility
to finance the transaction:
Reduction of historical indebtedness........................ $(18,543)
Borrowings under New Credit Facility........................ 48,000
--------
Net increase in indebtedness............................... $ 29,457
========
(b) Represents reduction of FNA's historical provisions for royalty and
guarantee accruals. Prior to the acquisition, FNA maintained agreements
with its former parent for royalty fees which were based on sales to third
parties and guarantee fees based on indebtedness guaranteed by its former
parent. Such agreements were not part of the transaction; therefore, this
pro forma adjustment gives effect to these historical
provisions.................................................. $ (3,005)
========
(c) Represents elimination of historical equity of FNA:
Additional paid-in capital.................................. $ (2,950)
========
Deficit..................................................... $ 2,664
========
(d) Represents allocation of purchase price to estimated fair value of
property, plant and equipment and establishment of provision for deferred
income taxes:
Property, plant and equipment............................... $ 11,036
========
Provision for deferred income taxes......................... $ 6,136
========
(e) Represents intangible assets created as a result of the
transaction................................................. $ 21,266
========
25
<PAGE>
POLYMER GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 29, 1996
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Company Company
Historical Pro Forma Prior to Historical Pro Forma Including
Company Adjustments FNA FNA Adjustments FNA
---------- ----------- --------- ---------- ----------- ---------
(dollar and share amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................................. $251,308 $ - $251,308 $15,082 $ - $266,390
Cost of goods sold.................................... 189,648 - 189,648 9,895 (312)(e) 199,231
--------- ------- -------- ------- ------- --------
Gross profit.......................................... 61,660 - 61,660 5,187 312 67,159
Selling, general and administrative expenses.......... 34,591 - 34,591 1,759 (329)(e),(g) 36,021
---------- ------- -------- ------- ------- --------
Operating Income................................. 27,069 - 27,069 3,428 641 31,138
Interest and other expense............................ 19,605 (4,812)(a) 14,793 970 831 (f),(g) 16,594
Foreign currency transaction (gains) losses, net...... 3,573 56 (b) 3,629 - - 3,629
Income taxes.......................................... 1,776 1,856 (c) 3,632 307 646 (h) 4,585
---------- -------- -------- ------- ------- --------
Income before extraordinary item................. $ 2,115 $ 2,900 $ 5,015 $ 2,151 $ (836) $ 6,330
======== ======= ======= ========
Redeemable preferred stock dividends
and accretion................................... (3,020) 3,020 (d)
---------- --------
Income (loss) before extraordinary item
applicable to common stock...................... $ (905) $ 5,920
========== ========
Income (loss) before extraordinary item
per common share................................ $ (0.04) - $ 0.16 $ 0.20
========== ======== ========
Average common shares outstanding................ 23,375 - 32,000 32,000
========== ======== ========
</TABLE>
See explanation of pro forma adjustments on pages 27 and 28.
26
<PAGE>
POLYMER GROUP, INC.
EXPLANATION OF PRO FORMA ADJUSTMENTS
SIX MONTHS ENDED JUNE 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS)
PRO FORMA ADJUSTMENTS RELATED TO THE RECAPITALIZATION
(a) In connection with the Offerings, the Company consummated the following
transactions: (i) effectively repaid outstanding indebtedness under the
1994 Credit Facility (by rolling it into the New Credit Facility); (ii)
effectively repaid outstanding indebtedness under the 1995 Credit Facility
(by rolling it into the New Credit Facility); (iii) redeemed $50.0 million
in aggregate principal amount of Notes at 112.25% of the principal amount
thereof plus accrued interest; and (iv) entered into a New Credit Facility
consisting of a $200.0 million term loan and a $125.0 million revolving
credit facility. Therefore, the following pro forma adjustments give
effect to the transactions described above:
Decrease in interest expense as a result of the effective
repayment of the 1994 Credit Facility........................ $(2,269)
Decrease in interest expense as a result of the effective
repayment of the 1995 Credit Facility........................ (7,115)
Decrease in interest expense as a result of the redemption
of $50.0 million in aggregate principal amount of Notes...... (2,265)
Increase in interest expense as a result of entering into
New Credit Facility.......................................... 6,837
-------
Net decrease in interest expense as a result of the
Offerings.............................................. $(4,812)
=======
(b) In connection with the acquisition of its Mexican subsidiary in 1994,
Polymer Group incurred approximately $56.0 million of long-term debt which
was allocated to the subsidiary in the form of United States dollar
intercompany indebtedness. Since the functional currency of this entity
is the nuevo peso, United States dollar indebtedness is re-measured into
the functional currency. The re-measurement process created foreign
currency transaction gains of approximately $3.1 million for the six months
ended June 29, 1996. Concurrently with the Offerings, the Company
restructured this indebtedness by converting such debt into equity thus
reducing foreign currency gains and losses in accordance with Statement of
Financial Standards No. 52 ("SFAS 52"). Additionally, the New Credit
Facility allows for the Company's Canadian and Dutch subsidiaries to borrow
a portion of their working capital requirements in local currencies rather
than borrowing such funds in United States dollars. The functional currency
for these subsidiaries is their local currency; thus these entities are
also required to re-measure United States dollar indebtedness into the
functional currency. For the six months ended June 29, 1996, the Company
incurred foreign currency transaction losses of $4.9 million related to
United States dollar indebtedness at its Canadian and Dutch subsidiary.
Since the New Credit Facility allows for foreign subsidiaries to borrow a
portion of their working capital funding requirements in local (functional)
currencies, a portion of the Company's net foreign currency transaction
gains and losses related to this indebtedness is reduced in accordance with
SFAS 52; therefore, the following pro forma adjustments give effect to the
restructuring of the Mexican intercompany indebtedness and to the
provisions under the New Credit Facility which allows foreign subsidiaries
to borrow working capital funding requirements in their respective local
currency:
Reduction of foreign currency transaction gains as a result
of the restructuring of United States dollar indebtedness at
the Company's Mexican subsidiary............................... $(3,132)
Reduction of foreign currency transaction losses giving effect
to the provisions under the New Credit Facility which allows
for Canadian and Dutch subsidiaries to borrow a portion of
their working capital funding requirements in the local
(functional) currencies........................................ 3,188
--------
Net increase in foreign currency transaction losses.......... $ 56
========
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(c) Estimated tax effect of pro forma adjustments relating to (a) and (b) .............. $1,856
======
(d) Represents elimination of redeemable preferred stock and discount accretion - as a
result of the Offerings ........................................................ $3,020
======
PRO FORMA ADJUSTMENTS RELATED TO THE FNA ACQUISITION
(e) Represents estimated net increase (decrease) in depreciation and amortization resulting from
the application of purchase accounting and amortization of loan acquisition costs related to
the FNA Acquisition:
Estimated decrease in depreciation expense on assignment of purchase price to fair value of
property, plant and equipment....................................... $ (312)
=====
Estimated increase in amortization expense on assignment of purchase price to intangible
assets and loan acquisition cost.......... $ 290
=====
(f) Represents net increase in interest expense as a result of indebtedness incurred pursuant
to the FNA Acquisition....................................................................... $ 900
=====
(g) Prior to the acquisition, FNA had royalty and guarantee agreements with its former parent. These contractual
obligations were not part of the FNA Acquisition; therefore, the following pro forma adjustments give effect
to the elimination of royalty and guarantee expense:
Reduction of royalty expense as a result of the FNA Acquisition.................. $ (619)
=====
Reduction of guarantee expense as a result of the FNA Acquisition.............. $ (69)
=====
(h) Estimated tax effect of pro forma adjustments relating to (e), (f) and (g) ................. $ 646
=====
</TABLE>
28
<PAGE>
POLYMER GROUP, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 30, 1995
<TABLE>
<CAPTION>
CHICOPEE
PERIOD FROM
JANUARY 2, PRO FORMA
1995 THROUGH COMPANY
HISTORICAL MARCH 15, PRO FORMA PRIOR TO HISTORICAL
COMPANY 1995 ADJUSTMENTS FNA FNA
------------ ------------ ------------ ----------- -----------
(dollars and share amounts in thousands)
<S> <C> <C> <C> <C> <C>
Net sales......................................... $437,638 $53,111 $ 2,909 (a) $493,658 $25,942
Cost of goods sold................................ 333,606 42,736 3,144 (c) 379,486 21,659
------------ ------------ ------------ ----------- -----------
Gross profit...................................... 104,032 10,375 (235) 114,172 4,283
Selling, general and administrative expenses...... 61,744 6,887 (786) (a),(c) 67,845 3,624
------------ ------------ ------------ ----------- -----------
Operating Income............................... 42,288 3,488 551 46,327 659
Interest and other expense........................ 37,868 - (12,529) (b) 25,339 2,981
Foreign currency transaction (gains) losses, net.. 22,811 1,348 (22,937) (d) 1,222 -
Income taxes..................................... 5,216 445 2,740 (e) 8,401 -
------------ ------------ ------------ ----------- -----------
Income (loss) before extraordinary item....... $(23,607) $ 1,695 $33,277 $ 11,365 $(2,322)
=========== ===========
Redeemable preferred stock dividends
and accretion............................... (4,839) - 4,839 (f)
------------ ------------ ------------
Income (loss) before extraordinary item
applicable to common stock.................. $(28,446) $ 1,695 $38,116
============ ============ ============
Income (loss) before extraordinary item
per common share............................ $ (1.39) $ 0.36
============ ===========
Average common shares outstanding............. 20,500 32,000
============ ===========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
COMPANY
PRO FORMA INCLUDING
ADJUSTMENTS FNA
----------- ---------
<S> <C> <C>
Net sales......................................... $ - $519,600
Cost of goods sold................................ (491) (g) 400,654
---------- ---------
Gross profit...................................... 491 118,946
Selling, general and administrative expenses...... (377) (g),(i) 71,092
---------- ---------
Operating Income............................... 868 47,854
Interest and other expense........................ (233) (h),(i) 28,087
Foreign currency transaction losses, net.......... - 1,222
Income taxes (benefit)............................ (513) (j) 7,888
---------- ---------
Income before extraordinary item............... $1,614 $ 10,657
========== =========
Redeemable preferred stock dividends
and accretion...............................
Income before extraordinary item
applicable to common stock..................
Income before extraordinary item per
common share................................ $ 0.33
=========
Average common shares outstanding............. 32,000
=========
</TABLE>
See explanation of pro forma adjustments on pages 30 and 31.
29
<PAGE>
POLYMER GROUP INC.
EXPLANATION OF PRO FORMA ADJUSTMENTS
YEAR ENDED DECEMBER 30, 1995
(DOLLAR AMOUNTS IN THOUSANDS)
PRO FORMA ADJUSTMENTS RELATED TO THE CHICOPEE ACQUISITION AND RECAPITALIZATION
(a) In 1993 the North American operation of Chicopee changed its method of
pricing among Johnson & Johnson affiliates (the "Affiliates") to a "cost-
plus" system whereby the unit selling price charged to Affiliates was
manufacturing cost plus a mark-up to cover other operating costs and
expenses. This policy existed at the time of the Chicopee Acquisition.
Concurrently with the Chicopee Acquisition, the Company entered into a
long-term supply agreement pursuant to which it supplies nonwoven fabric
requirements to Johnson & Johnson. The products sold by Chicopee to Johnson
& Johnson, subsequent to the Chicopee Acquisition, are at market prices;
therefore, the pro forma adjustment as presented below gives effect to the
change in pricing structure between Chicopee and Johnson & Johnson as a
result of the Chicopee Acquisition. In addition, the following pro forma
adjustment gives effect to a reduction in the historical general and
administrative costs of Chicopee as a result of the Chicopee Acquisition.
Such reductions represent the elimination of corporate, allocated and
personnel costs charged by Johnson & Johnson which were not assumed by the
Company as part of the Chicopee Acquisition:
Increase in net sales as result of a change in pricing structure
between Chicopee and Johnson & Johnson ................. $ 2,909
=====
Reduction in historical general and administrative expenses
of Chicopee attributable to the elimination of corporate,
allocated and personnel costs charged by Johnson & Johnson
which were not assumed by the Company as part of the
Chicopee Acquisition .................................... $ (2,242)
======
(b) In connection with the Offerings, the Company consummated the following
transactions: (i) effectively repaid outstanding indebtedness under the
1994 Credit Facility (by rolling it into the New Credit Facility); (ii)
effectively repaid outstanding indebtedness under the 1995 Credit Facility
(by rolling it into the New Credit Facility); (iii) redeemed $50.0 million
in aggregate principal amount of Notes at 112.25% of the principal amount
thereof plus accrued interest; and (iv) entered into a New Credit Facility
consisting of a $200.0 million term loan and a $125.0 million revolving
credit facility. Therefore, the following pro forma adjustments give effect
to the transactions described above:
Decrease in interest expense as a result of the effective
repayment of the 1994 Credit Facility ................... $ (6,488)
Decrease in interest expense as a result of the effective
repayment of the 1995 Credit Facility ................... $(16,903)
Decrease in interest expense as a result of the redemption
of $50.0 million in aggregate principal amount of Notes .. $ (6,313)
Increase in interest expense as a result of entering into
New Credit Facility ..................................... $ 17,175
------
Net decrease in interest expense as a result of
the Offerings ...................................... $(12,529)
======
(c) Represents estimated net increase in depreciation and amortization
resulting from the application of purchase accounting and amortization of
loan acquisition costs related to the Chicopee Acquisition:
Estimated increase in depreciation expense on assignment
of purchase price to fair value of property, plant and
equipment ............................................... $ 3,144
=====
Estimated increase in amortization expense on assignment
of purchase price to intangible assets and loan acquisition
cost .................................................... $ 1,456
=====
30
<PAGE>
(d) In connection with the acquisition of its Mexican subsidiary in 1994,
Polymer Group incurred approximately $56.0 million of long-term debt which
was allocated to the subsidiary in the form of United States dollar
intercompany indebtedness. Since the functional currency of this entity is
the nuevo peso, United States dollar indebtedness is re-measured into the
functional currency. The re-measurement process created foreign currency
transaction losses of approximately $24.4 million for the year ended
December 30, 1995. Concurrently with the Offerings, the Company
restructured this indebtedness by converting such debt into equity thus
reducing foreign currency gains and losses in accordance with SFAS No. 52.
Additionally, the New Credit Facility allows for the Company's Canadian and
Dutch subsidiaries to borrow a portion of their working capital
requirements in local currencies rather than borrowing such funds in United
States dollars. The functional currency for these subsidiaries is their
local currency; thus these entities are also required to re-measure United
States dollar indebtedness into the functional currency. For the year ended
December 30, 1995, the Company incurred foreign currency transaction gains
of $1.2 million related to United States dollar indebtedness at its
Canadian subsidiary and foreign currency transaction losses of $1.2 million
at its Dutch subsidiary. Since the New Credit Facility allows for foreign
subsidiaries to borrow a portion of their working capital funding
requirements in local (functional) currencies, a portion of the Company's
net foreign currency transaction gains and losses related to this
indebtedness is reduced in accordance with SFAS 52; therefore, the
following pro forma adjustments give effect to the restructuring of the
Mexican intercompany indebtedness and to the provisions under the New
Credit Facility which allows foreign subsidiaries to borrow working capital
funding requirements in their respective local currency:
Reduction of foreign currency transaction losses as a result
of the restructuring of United States dollar indebtedness at
the Company's Mexican subsidiary ............................ $(23,544)
Reduction of foreign currency transaction gains giving effect
to the provisions under the New Credit Facility which allows
for Canadian and Dutch subsidiaries to borrow a portion of
their working funding requirements in the local (functional)
currencies ................................................... $ 607
------
Net decrease in foreign currency transaction losses ...... $(22,937)
========
(e) Estimated tax effect of pro forma adjustments relating to (a),
(b), (c) and (d) ............................................. $ 2,740
======
(f) Represents elimination of mandatory redeemable preferred stock
of subsidiary and discount accretion - as a result of the
Offerings .................................................... $ 4,839
======
PRO FORMA ADJUSTMENTS RELATED TO THE FNA ACQUISITION
(g) Represents estimated net increase (decrease) in depreciation and
amortization resulting from the application of purchase accounting and
amortization of loan acquisition costs related to the FNA Acquisition:
Estimated decrease in depreciation expense on assignment of
purchase price to property, plant and equipment .............. $ (491)
=======
Estimated increase in amortization expense on assignment of
purchase price to intangible assets and loan acquisition
cost ......................................................... $ 581
======
(h) Represents net increase in interest expense as a result
of indebtedness incurred pursuant to the FNA Acquisition ...... $ 22
======
(i) Prior to the FNA Acquisition, FNA had royalty and guarantee agreements with
its former parent. These contractual obligations were not part of the FNA
Acquisition; therefore, the following pro forma adjustments give effect to
the elimination of royalty and guarantee expense:
Reduction of royalty expense as a result of the FNA
Acquisition .................................................. $ (958)
=======
Reduction of guarantee expense as a result of the FNA
Acquisition .................................................. $ (255)
=======
(j) Estimated tax effect of pro forma adjustments relating to
(g), (h) and (i) ............................................. $ (513)
=======
31
<PAGE>
Exhibit 23
Consent of Coopers & Lybrand L.L.P.
32
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Polymer Group, Inc. on Form S-8 (File No. 333-04969) of our report dated January
12, 1996, except as to information presented in Note 10, for which the date is
February 5, 1996, and information presented in Note 11, for which the date is
April 17, 1996, on our audit of the consolidated financial statements of
Petropar N.A., Corp. and Subsidiary as of December 31, 1995, and for the year
then ended, which report is included in this Form 8-K/A (Amendment No. 1).
/s/ Coopers & Lybrand L.L.P.
Charlotte, N.C.
October 24, 1996
33
