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