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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file 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 29405
North Charleston, South Carolina (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (843) 566-7293
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
on
Title of each class of stock: which registered:
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Common Stock, par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether 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 such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the last 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the Company's voting stock held by
nonaffiliates as of April 9, 2001 was approximately $23.0 million. As of April
9, 2001, there were 32,004,200 shares of common stock, par value $.01 per
share outstanding.
Documents Incorporated By Reference
Notice of 2001 Annual Meeting of Stockholders and Proxy Statement--Part III
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PART I
ITEM 1. BUSINESS
General
Polymer Group, Inc. (the "Company") is a leading worldwide manufacturer and
marketer of a broad range of nonwoven and oriented polyolefin products. The
Company believes it is the third largest producer of nonwovens, as well as one
of the largest producers of spunbond and spunmelt products in the world, and
employs the most extensive range of nonwovens technologies which allows it to
supply products tailored to customers' needs at competitive prices. Nonwovens
provide certain qualities similar to those of textiles at a significantly
lower cost.
The Company supplies nonwovens to a number of the largest consumer and
industrial products manufacturers in the world. The Company has a global
presence with an established customer base in both developed and developing
markets. The Company's product offerings are sold principally to converters
that manufacture a wide range of end-use products.
The Company operates twenty-five manufacturing facilities (including its
joint ventures in Argentina, China and Turkey) located in eleven countries and
is currently the only nonwovens producer that utilizes essentially all of the
established nonwovens process technologies. The Company believes that the
quality of its manufacturing operations and the breadth of its nonwovens
process technologies give it a competitive advantage in meeting the current
and future needs of its customers and in leading the development of an
expanded range of applications for nonwovens. The Company has invested in
advanced technology in order to increase capacity, improve quality and develop
new high-value structures. In December 1998 the Company completed construction
and began commercial production on its first full-scale APEX(R) line in
Benson, North Carolina. During 2000 two APEX(R) lines were completed in North
Little Rock, Arkansas, with commercialization during the second half of 2000.
The Company believes that its new Miratec(R) products, produced using APEX(R)
technology, open up significant growth opportunities to the Company. Working
as a developmental partner with its major customers, the Company utilizes its
technological capabilities and depth of research and development resources to
develop and manufacture new products to specifically meet their needs.
Management has built the Company through a series of capital expansions and
strategic business acquisitions that have broadened the Company's technology
base, increased its product lines and expanded its global presence. Moreover,
the Company's consolidated resources have enabled it to better meet the needs
of existing customers, to reach emerging geographic markets and to exploit
niche market opportunities through customer-driven product development.
Industry Overview
The Company competes primarily in the worldwide market for nonwovens, which
is approximately a $10.3 billion market with an average annual sales growth
rate of 8% expected over each of the next five years, according to industry
sources. The nonwovens industry began in the 1950s when paper, textile and
chemical technologies were combined to produce new fabrics and products with
the attributes of textiles but at a significantly lower cost. Today, nonwovens
are used in a wide variety of consumer and industrial products as a result of
their superior functionality and relatively low cost.
The nonwovens industry has benefitted from substantial improvements in
technology over the past several years, which have increased the number of new
applications for nonwovens, and therefore increased demand. The Company
believes, based on industry sources, that demand in the developed
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markets of North America, Western Europe and Japan will increase at an average
rate of 7.4% in each of the next five years, while the emerging markets are
forecasted to grow at an average rate of 9.6% per annum. In the developed
markets, growth will be driven primarily by new applications for nonwovens,
while growth in the emerging markets will be volume driven as per capita
income rises in these countries. According to industry sources, worldwide
consumption of nonwovens has grown an average of 8.1% per year over the last
ten years. The Company believes that future growth will depend upon the
continuation of improvements in raw materials and technology, which should
result in the development of high-performance nonwovens, leading to new uses
and markets at a lower cost than alternative materials.
Nonwovens are categorized as either disposable (approximately 54% of
worldwide industry sales with an average annual growth rate of 8.4%, according
to industry sources), which is the category in which the Company primarily
competes, or durable (approximately 46% of worldwide industry sales and an
average annual growth rate of 7.4%, according to industry sources). The
largest end uses for disposable nonwovens are for applications which include
disposable diapers, feminine sanitary protection, baby wipes, adult
incontinence products, and healthcare applications, including surgical gowns
and drapes and woundcare sponges and dressings. Other disposable end uses
include wipes, filtration media, protective apparel and fabric softener
sheets. Durable end uses include apparel interlinings, furniture and bedding
construction sheeting, cable wrap, electrical insulation, alkaline battery
cell separators, automotive components, geotextiles, roofing membranes, carpet
backing, agricultural fabrics, durable papers and coated and laminated
structures for wallcoverings and upholstery.
The Company also competes in the North American market for oriented
polyolefin products. Chemical polyolefin products include woven, slit-film
fabrics produced by weaving narrow tapes of slit film and characterized by
high strength-to-weight ratios, and also include twisted slit film or
monofilament strands. While the broad uncoated oriented polyolefin market is
primarily focused on carpet backing fabric and, to a lesser extent,
geotextiles and bags, the markets in which the Company primarily competes are
made up of a large number of specialized products manufactured for niche
applications. These markets include industrial packaging applications such as
lumberwrap, steel wrap and fiberglass packaging, as well as high-strength
protective coverings and specialized components that are integrated into a
variety of industrial and consumer products.
With its development of the proprietary APEX(R) manufacturing process, the
Company believes it can access new markets for its products. Products that
incorporate fabric woven or knitted using the majority of traditional fibers
are potential markets for APEX(R) products. The APEX(R) process requires
substantially less labor than traditional textile manufacturing, offers
greater design flexibility, and provides enhanced turnaround times for the
end-use customer. Furthermore, the APEX(R) process can create unique products
which cannot be manufactured through traditional processes.
Competitive Strengths
The Company believes that it has a strong competitive position attributable
to a number of factors, including the following:
Technological Leadership. The Company believes it is a technological
leader in developing and manufacturing nonwovens and oriented polyolefin
products. The Company also believes that it is currently the only nonwovens
producer that utilizes all of the commercially available nonwoven process
technologies and holds multiple patents on yield and efficiency-enhancing
manufacturing processes. In addition, the Company enjoys exclusive use of
the proprietary APEX(R) structural web technology. The depth and expertise
of the Company's research and development staff have enabled the Company to
develop innovative products, frequently in response to specific customer
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needs. In addition, the Company focuses its research and development
efforts on increasing its production capacity and improving its production
processes, developing innovative products for new markets based on the
Company's existing technologies, and developing new process technologies to
enhance existing business and to enter new markets. The Company's
multinational presence enables it to globally coordinate advanced
production initiatives and to co-develop new products directly with
international customers. In 1998, the Company established the Advanced
Materials Center located at its Mooresville, North Carolina plant site. The
center brings together scientists, engineers, and project managers to
develop products based on customers' needs and emerging market demands.
State-of-the-Art Manufacturing Capabilities. The Company believes that
it has state-of-the-art manufacturing capabilities in both its nonwovens
and oriented polyolefin product lines. The Company continues to enhance its
production lines with internally developed, proprietary manufacturing
technologies and has the capability of using multiple polymer/resin
streams. The completion of the first full-scale commercial APEX(R) line in
Benson, North Carolina and the completion of two additional APEX(R) lines
in North Little Rock, Arkansas demonstrates the Company's commitment to
maintaining and developing state-of-the-art manufacturing capabilities.
Significant Market Share in Primary Markets. The Company has developed
significant market share in certain of its primary markets. The Company
believes it has been able to secure and maintain its position in these
markets as a result of its commitment to, and reputation for, innovation
and quality.
Key Customer Relationships. The Company seeks to cultivate long-term
relationships with key customers and works closely with its customers to
develop advanced components for next generation products.
Business Strategy
The Company's goals are to continue to grow its core businesses while
developing new technologies to capitalize on a range of new product
opportunities and expanded geographic markets. The Company intends to be a
leading supplier in its chosen markets by delivering high-quality products and
services at competitive prices. To achieve these goals, the Company's primary
strategy focuses on:
Continuous Improvement Aimed at Increasing Product Value. The Company is
committed to continuous improvements throughout its business to increase
product value. The Company's product design teams continuously seek to
incorporate new materials and operating capabilities that enhance or
maintain performance specifications. State-of-the-art equipment, much of
which has been developed internally and is proprietary to the Company, has
been designed and installed to continuously measure process parameters and
maintain very narrow tolerances, resulting in higher levels of product
consistency and reduced waste. The Company also holds multiple patents
protecting yield and efficiency-enhancing manufacturing processes developed
by its research and development staff. As a result, the Company's
manufacturing processes utilize less material and produce a higher quality
finished product than many of its competitors.
Entrance into New Markets. The Company seeks to expand its capabilities
to take advantage of the penetration and growth of its core products
internationally, particularly in developing countries. Over the past seven
years, the Company's sales from manufacturing facilities outside the United
States have increased from approximately $28 million in 1993 to
approximately $390 million in 2000.
Products
The Company develops, manufactures and sells a broad array of nonwovens and
oriented polyolefin products. Sales are focused in two product segments that
provide opportunities to leverage
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the Company's advanced technology and substantial capacity. These product
segments include Consumer and Industrial and Specialty. (See Note 13 "Segments
and Geographic Information" in the accompanying financial statements.)
Consumer Segment
The Consumer segment includes products within the hygiene, consumer wiping
and medical categories. Sales of products in the Consumer segment represented
approximately 56%, 57% and 55%, or $486.3 million, $511.2 million and $443.4
million, of the Company's consolidated net sales for 2000, 1999 and 1998,
respectively.
The Company produces a variety of nonwoven materials for use in diapers,
training pants, feminine sanitary protection, adult incontinence, baby wet
wipes and consumer wiping products. The Company's broad product offerings
provide customers with a full range of specialized components for unique or
distinctive products, including top sheet, transfer layer, backsheet fabric,
leg cuff fabric, sanitary protective facings, absorbent pads for incontinence
guard, panty shield, and absorbent cores applications. In addition, the
Company's medical products are used in wound care sponges and dressings,
disposable surgical packs, apparel such as operating room gowns, drapes for
operating rooms, face masks and shoe covers.
The Company has significant relationships with several large consumer
product companies and supplies a full range of products to these customers on
a global basis. The Company's marketing and research and development teams
work closely as partners with these customers in the development of next
generation products. The Company believes that this technical support ensures
that the Company's products will continue to be incorporated into such
customers' future product designs.
Industrial and Specialty Segment
The Industrial and Specialty segment includes products such as cable wrap,
house wrap, furniture and bedding applications, landscape and agriculture
products, protective apparel, automotive, filtration, flexible packaging, and
industrial wiping products used in clean room, food service, institutional and
janitorial applications. Sales of products in the Industrial and Specialty
segment represented approximately 44%, 43% and 45%, or $375.7 million, $378.6
million and $359.5 million, of the Company's consolidated net sales for 2000,
1999 and 1998, respectively.
The Company's flexible packaging products utilize coated and uncoated
oriented polyolefin fabrics which are used as lumberwrap, fiberglass packaging
tubes, balewrap for synthetic cotton and fibers, steel and aluminum wrap, and
coated oriented bags for specialty chemicals and mineral fibers. Industrial
wiping products include: (i) branded and unbranded, light to heavyweight,
cloth wipes, towels and aprons; (ii) medium to heavyweight open weave towels;
and (iii) cleaning and sanitizing wipes. Products for the industrial,
janitorial and institutional markets include light to heavy-duty towels and
cloths sold under a variety of trademarks. Specialty wipes consist of products
designed to meet specialized customer requirements and specifications.
New Product Development
The Company continually develops new products that incorporate the
Company's wide variety of technologies. Through the use of the proprietary
APEX(R) technology, the Company is developing a market for its Miratec(R)
products as a "textile replacement." Miratec(R) fabrics have the look, feel,
strength and durability of traditional woven or knit textiles, but are
manufactured with substantially less labor at significantly faster speeds, and
with greater design capability. End-use applications include home furnishings,
floor coverings, home fashion/decorating, automotive interior fabrics,
apparel, medical, industrial and specialty uses.
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Marketing and Sales
The Company sells to customers in the domestic and international
marketplace. Approximately 55%, 24%, 11%, 8% and 2% of the Company's 2000 net
sales were from manufacturing facilities in the United States, Europe, Canada,
Latin America and Asia respectively. The Procter & Gamble Company and Johnson
& Johnson, the Company's largest customers, accounted for 17% and 14%
respectively of the Company's 2000 net sales. Sales to the Company's top 20
customers represented approximately 51% of the Company's 2000 net sales.
The Company employs direct sales representatives, a number of whom are
engineers and each of whom has advanced technical knowledge of the Company's
products and the applications for which they are used. The Company's sales
representatives are active in the Company's new product development efforts
and are strategically located in the major geographic regions in which the
Company's products are utilized. The oriented polyolefin products are sold
primarily through a well-established network of converters and distributors.
Converters add incremental value to the Company's products and service the
small order size requirements typical of many end users.
The Company offers a broad range of high-quality products, utilizing
multiple technologies and materials, allowing its sales force to offer
customers what the Company believes is the widest range and variety of
nonwoven and oriented polyolefin products available to meet customers'
requirements from a single source.
Manufacturing Processes
General. The Company's competitive strengths include high-quality
manufacturing processes and a broad range of process technologies, which allow
the Company to offer its customers the best-suited product for each respective
application. Additionally, the Company has made significant capital
investments in modern technology and has developed proprietary equipment and
manufacturing techniques. The Company believes that it exceeds industry
standards in productivity, reduction of variability and delivery lead time.
The Company has a wide range of manufacturing capabilities (many of which are
patented) that allow it to produce specialized products which, in certain
cases, cannot be reproduced in the market. Substantially all of the Company's
manufacturing sites have plant-wide real time control and monitoring systems
that constantly monitor key process variables using a sophisticated closed
loop system of computers, sensors and custom software.
Nonwovens. The Company believes that it has the most comprehensive array of
nonwoven manufacturing technologies in the industry. The Company has
capabilities spanning the entire spectrum of nonwoven technologies, including
the following manufacturing processes: spunbond/ meltblown/spunbond ("SMS"),
spunbond/meltblown/meltblown/spunbond ("SMMS"), thermal and adhesive bond,
spunlace, wet-laid, dry-laid, film extrusion and aperturing, through-air bond
and ultrasonic bond as well as other processes.
Nonwoven rollgoods typically have three process steps: web formation, web
consolidation or bonding and finishing. Web formation is the process by which
previously prepared fibers, filaments or films are arranged into loosely held
networks called webs, batts or sheets. In each process, the fiber material is
laid onto a forming or conveying surface, which may be dry, wet or molten. The
dry-laid process utilizes textile fiber processing equipment, called "cards,"
that have been specifically designed for high-capacity nonwoven production.
The carding process converts bales of entangled fibers into uniform oriented
webs that then feed into the bonding process. The wet-laid process utilizes
papermaking technology in which the fibers are suspended in a water slurry and
deposited onto a moving screen, allowing the water to pass through and the
fibers to collect. In a molten polymer-laid process, extrusion technology is
used to transform polymer pellets into filaments, which are laid on a
conveying screen and interlocked by thermal fusion. In this process, the fiber
formation, web formation and web consolidation are generally performed as a
continuous simultaneous operation, making this method very efficient.
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Web consolidation is the process by which the fibers or film are bonded
together using either mechanical, thermal, chemical or solvent means. The
bonding method greatly influences the end products' strength, softness, loft
and utility. The principal bonding processes are thermal bond, resin or
adhesive bond, hydroentanglement or spunlace, binder fiber or through-air
bond, calender, spunbond, meltblown, SMS, ultrasonic bond and needlepunch.
Thermal bond utilizes heated calender rolls with embossed patterns to point
bond or fuse the fibers together. In the resin bond process, an adhesive,
typically latex, is pad rolled onto the web to achieve a bond. Spunlace, or
hydroentanglement, uses high pressure water jets to mechanically entangle the
fibers. Through-air bonding takes place through the fusion of bi-component
fibers in a blown hot air drum. Spunbond and meltblown take advantage of the
melt properties of the resins and may use thermal fusion with the aid of
calender rolls. SMS and SMMS are integrated processes of combining spunbond
and meltblown sheets in a laminated structure, creating very strong,
lightweight and uniform fabrics. Ultrasonic bonding utilizes high-frequency
sound waves that heat the bonding sites. Needlepunch is a mechanical process
in which beds of needles are punched through the web, entangling the fibers.
Finishing, or post-treatment, adds value and functionality to the product
and typically includes surface treatments for fluid repellency, aperturing,
embossing, laminating, printing and slitting. Spunlace and resin bond systems
also have a post-treatment drying or curing step. Certain products also go
through an aperturing process in which holes are opened in the fabric,
improving absorbency.
Oriented Polyolefins. The oriented/film process begins with plastic resin,
which is extruded into a thin plastic film or into monofilament strands. The
film is slit into narrow tapes. The slit tapes or monofilament strands are
then stretched or "oriented," the process through which it derives its high
strength. The tapes are wound onto spools which feed weaving machines or
twisters. In the finishing process, the product is coated for water or
chemical resistance, ultraviolet stabilization and protection, flame
retardancy, color and other specialized characteristics. In the twisting
process, either oriented slit tapes or monofilament strands are twisted and
packaged on tightly spooled balls for distribution as agricultural and
commercial twine. The Company operates coating lines that have been equipped
with the latest technology for gauge control, print treating, lamination,
anti-slip finishes and perforation. At its Portland, Oregon facility, the
Company laminates oriented products to paper and has the additional capability
of printing up to four colors on one of the widest printing presses in North
America.
Competition
The Company's primary competitors in its industrial and specialty product
markets are: E.l. du Pont de Nemours & Co. ("DuPont"), Freudenberg Nonwovens
L.P. ("Freudenberg"), Kuraray Co., Ltd., BBA Group plc ("BBA"), Lohmann GmbH &
Company and Lantor International (an operating unit of IPT Group) for nonwoven
products; and Intertape Polymer Group Inc. and Amoco Fabrics and Fibers Co.
for oriented polymer products. Generally, product innovation and performance,
quality, service and cost are the primary competitive factors, with technical
support being highly valued by the largest customers.
The Company's primary competitors in its consumer product markets are
DuPont, BBA, Kimberly-Clark Corporation and Fort James Corporation. Generally,
cost, distribution, utility, variety and innovation of product offerings, and
technical capacity are the principal factors considered in consumer product
end uses.
Raw Materials
The primary raw materials used in the manufacture of most of the Company's
products are polypropylene resin, polyester and polyester fiber, polyethylene
and, to a lesser extent, rayon, tissue paper and cotton. The prices of
polypropylene and polyethylene are a function of, among other things,
manufacturing capacity, demand and the price of crude oil and natural gas
liquids. Historically, the
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prices of polypropylene and polyethylene resins have fluctuated. During 2000,
resin prices increased significantly resulting in increased raw material
prices which adversely affected the Company's results of operations for the
full year because soft demand prevented the Company from passing such
increased costs to its customers. There can be no assurance that the prices of
polypropylene and polyethylene will not continue to increase in the future or
that the Company will be able to pass on any increases to its customers as it
has generally been able to do in the past. A further increase in these raw
material prices that cannot be passed on to customers would continue to have a
material adverse effect on the Company's results of operations and financial
condition. See "Recent Developments" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" within this Annual Report on
Form 10-K.
The Company primarily purchases its polypropylene resin from Indelpro, S.A.
de C.V. and Exxon Mobil Chemical Company with smaller quantities purchased
from Arco Polypropylene LLC and Aristech Chemical Corporation. The Company's
major suppliers of polyester and polyester fiber are Wellman, Inc., DuPont-
Akra and Swicofil A.G. Textile Services. Novacor Chemicals Inc. is the
Company's major supplier for polyethylene and Crown Vantage Inc. is the major
supplier of its tissue paper. The Company's major supplier of polypropylene
fiber is FiberVisions L.L.C. The Company is also a purchaser of polyolefin
films from Huntsman Packaging Corporation.
The Company believes that the loss of any one or more of its suppliers
would not have a long-term material adverse effect on the Company because
other manufacturers with whom the Company conducts business would be able to
fulfill the Company's requirements. However, the loss of certain of the
Company's suppliers could, in the short term, adversely affect the Company's
business until alternative supply arrangements were secured. In addition,
there can be no assurance that any new supply arrangements entered into by the
Company will have terms as favorable as those contained in current supply
arrangements. The Company has not experienced any significant disruptions in
supply as a result of shortages in raw materials.
Environmental
The Company is subject to a broad range of federal, foreign, state and
local laws and regulations relating to the pollution and protection of the
environment. Among the many environmental requirements applicable to the
Company are laws relating to air emissions, wastewater discharges and the
handling, disposal and release of solid and hazardous substances and wastes.
Based on continuing internal review and advice from independent consultants,
the Company believes that it is currently in substantial compliance with
applicable environmental requirements.
The Company is also subject to laws, such as CERCLA, that may impose
liability retroactively and without fault for releases or threatened releases
of hazardous substances at on-site or off-site locations. The Company is not
aware of any releases for which it may be liable under CERCLA or any analogous
provision.
Actions by federal, state and local governments in the United States and
abroad concerning environmental matters could result in laws or regulations
that could increase the cost of producing the products manufactured by the
Company or otherwise adversely affect demand for its products. For example,
certain local governments have adopted ordinances prohibiting or restricting
the use or disposal of certain plastic products, such as certain of the
plastic wrapping materials which are produced by the Company. Widespread
adoption of such prohibitions or restrictions could adversely affect demand
for the Company's products and thereby have a material adverse effect upon the
Company. In addition, a decline in consumer preference for plastic products
due to environmental considerations could have a material adverse effect upon
the Company.
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The Company does not currently anticipate any material adverse effect on
its operations, financial condition or competitive position as a result of its
efforts to comply with environmental requirements. Some risk of environmental
liability is inherent, however, in the nature of the Company's business, and
there can be no assurance that material environmental liabilities will not
arise. It is also possible that future developments in environmental
regulation could lead to material environmental compliance or cleanup costs.
Patents and Trademarks
The Company considers its patents and trademarks, in the aggregate, to be
important to its business and seeks to protect this proprietary know-how in
part through United States and foreign patent and trademark registrations. The
Company maintains over 100 registered trademarks and over 150 patents in the
United States. In addition, the Company maintains certain trade secrets for
which, in order to maintain the confidentiality of such trade secrets, it has
not sought patent protection. From time to time, the Company enters into
transactions whereby technology is licensed or made available to developmental
partners within the industry.
Inventory and Backlogs
Unfilled orders as of December 30, 2000 and January 1, 2000 amounted to
approximately $52.9 million and $106.6 million, respectively. The decline in
unfilled orders at the end of 2000 versus 1999 is due primarily to lower sales
volume in certain technologies.
Research and Development
The Company continually invests in research and development, focusing its
efforts on increasing production capacity, improving production processes, and
developing new product and process technologies. The Company spent
approximately $18.9, $17.2 and $13.2 million in research and development
during 2000, 1999 and 1998, respectively.
Seasonality
Use and consumption of the Company's products exhibits some seasonality,
with lighter volumes generally experienced in the first quarter of the fiscal
year. However, during 2000 the typical increase in sales volumes due to
seasonality was offset by factors which resulted in decreased sales during the
second, third and fourth quarters as compared to the first quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Annual Report on Form 10-K.
Employees
As of December 30, 2000, the Company employed approximately 4,300 persons.
Of this total, approximately 1,700 employees are represented by labor unions
or trade councils that have entered into separate collective bargaining
agreements with the Company. Approximately 19% of the Company's labor force
are covered by collective bargaining agreements that will expire in 2001.
During 2000 there was one unionizing attempt which was not successful;
however, the Company considers its employee relations to be good.
Recent Developments
On March 13, 2001, the Company announced that first quarter and fiscal year
2001 financial results were expected to be materially below previous
expectations, and as a result, did not expect to be in compliance with its
bank covenants.
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The factors that impacted 2000 results continue to have a negative impact
on operations in 2001. Demand for certain high margin consumer products has
not returned to forecasted levels resulting in certain specialized
manufacturing assets remaining under utilized. In addition, the
commercialization of certain APEX(R) programs has taken longer than
anticipated. However, the Company currently expects the ramp-up of APEX(R)
products to accelerate in the third and fourth fiscal quarters of 2001. Raw
material prices have not declined as anticipated and soft demand has prevented
the Company from passing along the increased raw material costs. However, the
Company currently anticipates raw material pricing to stabilize during fiscal
2001. In addition, there continues to be pricing pressure and margin erosion
within the spunmelt technologies. Finally, in addition to these factors which
are a carry over from 2000, the Company is experiencing short-term order
reductions and an unfavorable shift in product mix due to adjustments of
certain customers. The Company currently expects demand for certain consumer
products to accelerate during the third and fourth fiscal quarters of 2001.
On April 11, 2001, the Company entered into Amendment No. 6 dated as of
April 11, 2001 ("Amendment No. 6") to its Credit Facility (as defined below),
which waived the leverage covenant default that existed as of March 31, 2001.
The amendment modified the existing financial covenants relating to senior
leverage ratio, fixed charge coverage ratio and minimum required levels of
EBITDA. The amendment also increases the interest rate on the outstanding
amounts under the Credit Facility, limits amounts outstanding under the
revolving portion of the Credit Facility (together with outstanding letters of
credit) to $260 million, limits capital expenditures to $35 million for fiscal
year 2001, restricts the Company from incurring new indebtedness or creating
certain liens, restricts the Company from making new investments or
acquisitions and prevents the Company from paying dividends on its Common
Stock or making other restricted payments. The Company was required to pay a
fee to the lenders equal to 1/2 of 1% of the outstanding commitments of the
lenders. The Company also affirmed its intention in the amendment to reduce
the amount outstanding under the Credit Facility by not less than $150 million
through one or more asset dispositions, including sale-leaseback transactions,
synthetic leases or asset securitizations on or before August 15, 2001. In the
event that the Company does not complete such asset dispositions and reduce
outstanding indebtedness under the Credit Facility by not less than $150
million on or before August 15, 2001, the rate of interest on the outstanding
loans will increase by 50 basis points and the Company will be required to pay
a fee equal to 1/2 of 1% of the outstanding commitments of the lenders. The
Company is currently in active discussions to undertake such asset
dispositions to improve its financial condition. In addition, the Company
intends to take certain actions designed to alter its capital structure which
may include raising additional equity and/or reducing outstanding
indebtedness. However, there can be no assurance that the Company will
complete any of the potential transactions or that the transactions can be
completed on terms and conditions acceptable to the Company.
Amendment No. 6 also grants the Company a waiver with respect to the
existing default under the leverage covenant through and including December
29, 2001, at which time the waiver expires. Based upon current operating
projections, the Company would be in default under the Credit Facility upon
the expiration of the waiver, unless the actions described above were
completed. A failure by the Company to complete the actions discussed above in
order to comply with the financial covenants under the Credit Facility,
including the leverage ratio and fixed charge coverage ratio covenants, would
result in an event of default under the Credit Facility, which could have a
material adverse effect on the Company.
9
DESCRIPTION OF CERTAIN INDEBTEDNESS
Credit Facility
General. The Company's credit facility (as amended through and including
Amendment No. 6, the "Credit Facility") currently provides for secured
revolving credit borrowings with aggregate commitments of up to $325.0 million
and aggregate term loans of $275.0 million. Subject to certain terms and
conditions a portion of the Credit Facility may be used for letters of credit.
Amendment No. 6 imposes a limit of $260 million under the revolving portion
for borrowings and outstanding letters of credit, with not more than $15
million of such revolving borrowings permitted to be outstanding in Canadian
dollar equivalent borrowings. A portion of the Credit Facility may be
denominated in Dutch guilders and in Canadian dollars. All indebtedness under
the Credit Facility (including any hedging arrangements provided by a lender)
is guaranteed, on a joint and several basis, by each and all of the direct and
indirect domestic subsidiaries of the Company.
Security. The Credit Facility and the related guarantees are secured by (i)
a lien on substantially all of the assets of the Company and its domestic
subsidiaries, (ii) a pledge of all or a portion of the stock of the domestic
subsidiaries of the Company and of certain non-domestic subsidiaries of the
Company, (iii) a lien on substantially all of the assets of direct foreign
borrowers (to secure direct borrowings by such borrowers), and (iv) a pledge
of certain secured intercompany notes issued to the Company or one of its
subsidiaries by non-domestic subsidiaries.
Maturity; Prepayment. The revolving credit portion of the Credit Facility
terminates in June 2003. The term loan portion terminates in December 2005 and
December 2006. The loans are subject to mandatory prepayment out of proceeds
received in connection with certain casualty events, asset sales and debt
issuances.
Interest Rates. The interest rate applicable to borrowings under the Credit
Facility is based on, in the case of U.S. dollar denominated loans, a
specified base rate or a specified Eurocurrency base rate 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 specified Eurocurrency base rate 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
specified Canadian base rate plus a specified margin or the bankers'
acceptance discount rate at the Company's option. The applicable margin for
loans bearing interest based on the base rate or Canadian base rate will range
from 2.75% to 3.50% and the margin for loans bearing interest on a
Eurocurrency rate will range from 3.75% to 4.50%, based on the Company's ratio
of total consolidated indebtedness to consolidated EBITDA calculated on a
rolling four quarter basis. In addition, in the event the Company does not
complete asset dispositions, including a sale-leaseback, synthetic lease or
asset securitization, which result in proceeds to the Company used to reduce
outstanding indebtedness under the Credit Facility by not less than $150
million by August 15, 2001, such interest rates will increase by 50 basis
points and the Company would also owe the lenders an additional fee equal to
1/2 of 1% of the total outstanding commitments.
Covenants; Events of Default. The Credit Facility contains covenants and
events of default customary for financings of this type. A failure by the
Company to complete the actions described above under "Recent Developments" in
order to comply with the covenants under the Credit Facility, including the
leverage ratio and fixed charge coverage ratio covenants, would result in an
event of default under the Credit Facility, which could have a material
adverse effect on the Company. See "Recent Developments" in this Annual Report
on Form 10-K with respect to existing covenant defaults and the waiver thereof
by the lenders.
8 3/4% Notes
In March 1998, the Company issued $200 million of 8 3/4% Senior
Subordinated Notes due 2008 (the "March 1998 Notes") in a private placement
transaction pursuant to an indenture dated as of March 1, 1998. In August
1998, the Company completed its exchange of $200 million of the March 1998
Notes, Series B (the "8 3/4% Notes") which have been registered for public
trading for all outstanding March 1998 Notes.
10
The 8 3/4% Notes are unsecured senior subordinated indebtedness of the
Company and are subordinated in right of payment to all existing and future
senior indebtedness of the Company. The 8 3/4% Notes indenture contains
several covenants, including: limitations on indebtedness; limitations on
certain restricted payments; limitations on transactions with affiliates;
restrictions on the disposition of proceeds of asset sales; limitations on
liens; limitations on dividend and other payment restrictions affecting
certain subsidiaries; limitations on guarantees by certain subsidiaries; and
limitations on certain transactions including mergers and sales of assets. In
addition, in the event of certain defaults under the Credit Facility, the
lenders under the Credit Facility may exercise a right to block any payments
of interest or principal on the 8 3/4% Notes for, in general, up to 179 days
during any period of 360 consecutive days. In such event, a failure by the
Company to make any such required payment would be an event of default under
the 8 3/4% Notes.
9% Notes
In July 1997, the Company issued $400 million of 9% Senior Subordinated
Notes due 2007 (the "July 1997 Notes") in a private placement transaction
pursuant to an indenture dated as of July 1, 1997. In October 1997, the
Company completed its exchange of $400 million of July 1997 Notes, Series B
(the "9% Notes"), which have been registered for public trading for all
outstanding July 1997 Notes.
The 9% Notes are unsecured senior subordinated obligations of the Company
and are subordinated in right of payment to all existing and future senior
indebtedness of the Company. The 9% Notes indenture contains several
covenants, including: limitations on indebtedness; limitations on certain
restricted payments; limitations on transactions with affiliates; restrictions
on the disposition of proceeds of asset sales; limitations on liens;
limitations on dividend and other payment restrictions affecting certain
subsidiaries; limitations on guarantees by certain subsidiaries; and
limitations on certain transactions including mergers and sales of assets. In
addition, in the event of certain defaults under the Credit Facility, the
lenders under the Credit Facility may exercise a right to block any payments
of interest or principal on the 9% Notes for, in general, up to 179 days
during any period of 360 consecutive days. In such event, a failure by the
Company to make any such required payment would be an event of default under
the 9% Notes.
Safe Harbor Statement
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. In addition, from time to time,
the Company or its representatives have made or may make forward-looking
statements orally or in writing. Such forward-looking statements may be
included in, but not limited to, various filings made by the Company with the
Securities and Exchange Commission, press releases or oral statements made
with the approval of an authorized executive officer of the Company. Actual
results could differ materially from those projected or suggested in any
forward-looking statements as a result of a variety of factors and conditions
which include, but are not limited to: adverse economic conditions, demand for
the Company's products, competition in the Company's markets, dependence on
key customers, increases in raw material costs, the amount of capital
expenditures, fluctuations in foreign currency exchange rates, the Company's
substantial leverage position and other risks detailed in documents filed by
the Company with the Securities and Exchange Commission.
ITEM 2. PROPERTIES
The Company and its subsidiaries operate the following principal
manufacturing plants and other facilities, all of which are owned, except as
noted. All of the Company's owned properties are subject to liens in favor of
the lenders under the Company's credit facilities.
11
Total
Location Square Feet Principal Function
-------- ----------- ------------------
North Little Rock,
Arkansas 415,000
(Plant 1).............. Manufacturing and Warehousing
North Little Rock,
Arkansas 119,000
(Plant 2).............. Manufacturing and Warehousing
Rogers, Arkansas........ 238,000 Manufacturing and Warehousing
Gainesville, Georgia.... 121,000(1) Manufacturing and Warehousing
Kingman, Kansas......... 190,000 Manufacturing, Marketing, Warehousing and
Administration
Dayton, New Jersey...... 30,000(2) Administration
Landisville, New Jersey. 245,000 Manufacturing, Sales, Marketing and Research
and Development
Vineland, New Jersey.... 83,500(3) Warehousing
Albany, New York........ 83,000(1) Manufacturing and Warehousing
Benson, North Carolina.. 469,000 Manufacturing, Sales, Marketing and Warehousing
Raleigh, North Carolina. 5,300(1) Administration
Mooresville, North 114,300 Manufacturing, Sales, Marketing, Research
Carolina............... and Development and Warehousing
Mooresville, North 10,577(1)
Carolina............... Administration, Sales and Marketing
Mooresville, North 356,000
Carolina Manufacturing, Warehousing and Administration
Portland (Clackamas),
Oregon................. 30,000 Manufacturing
North Charleston, South
Carolina............... 16,500(3) Corporate
Clearfield, Utah........ 100,000(1) Manufacturing and Warehousing
Waynesboro, Virginia.... 207,000 Manufacturing, Warehousing, Marketing and Research
and Development
Waynesboro, Virginia.... 125,500(1) Warehousing
Mississauga, Ontario.... 2,900(1) Sales and Marketing
North Bay, Ontario...... 350,000 Manufacturing
North Bay, Ontario...... 80,000(1) Warehousing
Magog, Quebec........... 732,000 Manufacturing, Marketing, Warehousing and
Administration
Montreal, Quebec........ 68,500(1) Administration
Bailleul, France........ 410,000 Manufacturing, Marketing, Warehousing and
Administration
Neunkirchen, Germany.... 560,000 Manufacturing, Sales, Marketing and Warehousing
Cuijk, The Netherlands.. 415,000 Manufacturing, Sales, Marketing, Warehousing and
Research and Development
Tilburg, The 29,052(1) Manufacturing, Marketing, Warehousing and
Netherlands............ Administration
Buenos Aires, Argentina. 79,000(4) Manufacturing, Marketing, Warehousing and
Administration
Guadalajara, Mexico..... 6,200(1) Sales, Marketing and Warehousing
Cali, Colombia.......... 68,000 Manufacturing, Marketing, Warehousing and
Administration
Monterrey, Mexico....... 2,325(1) Sales, Marketing and Warehousing
Mexico City, Mexico..... 9,850(1) Sales, Marketing and Warehousing
San Luis Potosi, Mexico. 100,000 Manufacturing, Warehousing and Marketing
Istanbul, Turkey........ 113,700(5) Manufacturing, Marketing, Warehousing and
Administration
Nanhai, China........... 213,050(6) Manufacturing, Marketing, Warehousing and
Administration
Molnlycke, Sweden....... 37,000(1) Manufacturing
12
- --------
(1) Leased.
(2) The Company owns this 239,200 square foot facility, leases it to an
unaffiliated tenant, and subleases 23,000 square feet from such tenant.
The tenant can terminate the Company's sublease upon 12 months' notice.
(3) Leased from entities affiliated with one of the Company's stockholders.
See "Certain Relationships and Related Transactions."
(4) 60% interest joint venture (DNS) with Sauler Group. During fiscal 2000,
the Company acquired an additional 10% interest in Dominion Nonwovens
Sudamerica S.A. which brought its total ownership interest to 60%.
(5) 80% interest joint venture (Vateks) with Erol Tezman. The sales, marketing
and administrative offices are in a 15,000 square foot leased facility.
(6) 80% interest joint venture (Nanhai Nanxin Non-Woven Co. Ltd.) with Nanhai
Chemical Fiber Enterprises Co.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently a party to various claims and legal actions which
arise in the ordinary course of business. The Company believes such claims and
legal actions, individually and in the aggregate, will not have a material
adverse effect on the business, financial condition or results of operations
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange, under
the symbol PGI. The Company paid a $.02 per share cash dividend on its common
stock during each quarter of 2000 and the fourth quarter of 1999. Amendment
No. 6 to the Credit Facility prevents the Company from paying quarterly
dividends on its common stock in the future. The following table sets forth
for the calendar periods the high and low market prices of the Company's
common stock.
2000
------------
High Low
------ -----
First Quarter................................................ $19.41 $7.97
Second Quarter............................................... 13.72 7.12
Third Quarter................................................ 9.60 6.50
Fourth Quarter............................................... 7.95 4.61
1999
------------
High Low
------ -----
First Quarter................................................ $12.69 $8.75
Second Quarter............................................... 12.69 9.63
Third Quarter................................................ 15.75 10.88
Fourth Quarter............................................... 20.50 14.50
As of April 9, 2001, there were 87 holders of record.
13
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain historical financial information of
the Company. The statement of operations data for each of the five years ended
and the balance sheet data as of December 30, 2000, January 1, 2000, January
2, 1999, January 3, 1998 and December 28, 1996 have been derived from audited
financial statements. The table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements of the Company and related notes thereto
and other information included elsewhere in this Annual Report on Form 10-K.
Year Ended
-------------------------------------------------------------
December 30, January 1, January 2, January 3, December 28,
2000 2000 1999 1998 1996
------------ ---------- ---------- ---------- ------------
(In Thousands, Except Per Share Data)
Statement of Operations:
Net sales............... $ 862,035 $ 889,795 $ 802,948 $ 535,267 $521,368
Cost of goods sold...... 670,012 650,185 599,894 402,058 389,013
---------- ---------- ---------- ---------- --------
Gross profit........... 192,023 239,610 203,054 133,209 132,355
Selling, general and
administrative
expenses............... 107,460 119,385 97,499 74,600 70,207
---------- ---------- ---------- ---------- --------
Operating income....... 84,563 120,225 105,555 58,609 62,148
Other (income) expense:
Interest expense, net.. 91,805 71,882 67,444 30,499 33,641
Investment income--
(gain) on marketable
securities, net....... -- (2,942) (795) (11,880) --
Foreign currency and
other................. 549 (739) 806 (452) 2,955
Income taxes (benefit). (2,727) 18,584 14,157 13,009 10,730
---------- ---------- ---------- ---------- --------
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle............. (5,064) 33,440 23,943 27,433 14,822
Extraordinary item, net
of income taxes
(benefit).............. 741 -- (2,728) (12,005) (13,932)
Cumulative effect of
change in accounting
principle, net of
income tax benefit..... -- -- (1,511) -- --
---------- ---------- ---------- ---------- --------
Net income (loss)....... (4,323) 33,440 19,704 15,428 890
Redeemable preferred
stock dividends and
accretion.............. -- -- -- -- (3,020)
---------- ---------- ---------- ---------- --------
Net income (loss)
applicable to common
stock.................. $ (4,323) $ 33,440 $ 19,704 $ 15,428 $ (2,130)
========== ========== ========== ========== ========
Per Share Data:
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle per common
share--basic........... $ (.16) $ 1.05 $ .75 $ .86 $ .43
========== ========== ========== ========== ========
Income (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle per common
share--diluted......... $ (.16) $ 1.04 $ .75 $ .86 $ .43
========== ========== ========== ========== ========
Cash dividends.......... $ .08 $ .02 $ -- $ -- $ --
========== ========== ========== ========== ========
Operating and other
data:
Cash provided by
operating activities... $ 51,477 $ 107,400 $ 74,074 $ 18,362 $ 36,097
Cash provided by (used
in) investing
activities............. (107,818) (224,620) 131,343 (491,901) (86,422)
Cash provided by (used
in) financing
activities............. 46,725 106,766 (194,440) 485,953 64,391
Gross margin (a)........ 22.3% 26.9% 25.3% 24.9% 25.4%
EBITDA (b).............. $ 156,828 $ 186,771 $ 164,880 $ 98,921 $ 98,915
EBITDA margin (c)....... 18.2% 21.0% 20.5% 18.5% 19.0%
Depreciation and
amortization........... $ 72,265 $ 66,546 $ 59,325 $ 40,312 $ 36,767
Capital expenditures.... 86,022 189,996 90,096 60,144 26,739
Balance sheet data (at
end of period):
Cash and equivalents and
short-term investments. $ 30,588 $ 56,295 $ 58,308 $ 50,190 $ 37,587
Working capital......... 190,459 188,905 212,456 220,025 93,154
Total assets............ 1,507,994 1,466,246 1,282,967 1,627,753 708,115
Total debt, excluding
short-term bridge
financing.............. 1,056,149 987,092 866,499 745,136 382,242
Minority interest....... -- -- -- 54,730 --
Shareholders' equity.... 226,235 242,284 220,125 199,090 195,918
See Notes to Selected Consolidated Financial Data.
14
Notes to Selected Consolidated Financial Data
(a) Gross margin represents gross profit as a percentage of net sales.
(b) EBITDA is defined as operating income plus depreciation, amortization and
Mexican statutory employee profit sharing and is presented because it is
generally accepted as providing useful information regarding a company's
ability to service and/or incur debt. EBITDA should not be considered in
isolation from or as a substitute for net income, cash flows from
operating activities and other consolidated income or cash flow statement
data prepared in accordance with generally accepted accounting principles
or as a measure of profitability or liquidity.
(c) EBITDA margin represents EBITDA as a percentage of net sales.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
The following table sets forth the percentage relationships to net sales of
certain income statement items. Due to a change in the Company's internal
reporting structure, continued product diversification and end market
expansion, the Company changed its reportable segments during the first
quarter of fiscal 2000 to Consumer and Industrial and Specialty and restated
prior period segment information to reflect this change.
Fiscal Year Ended
----------------------------------
December 30, January 1, January 2,
2000 2000 1999
------------ ---------- ----------
Net sales:
Consumer.................................. 56.4% 57.5% 55.2%
Industrial and Specialty.................. 43.6 42.5 44.8
----- ----- -----
100.0 100.0 100.0
Cost of goods sold:
Material.................................. 41.0 37.9 41.2
Labor..................................... 8.7 8.9 8.1
Overhead.................................. 28.0 26.3 25.4
----- ----- -----
77.7 73.1 74.7
----- ----- -----
Gross profit.............................. 22.3 26.9 25.3
Selling, general and administrative
expenses................................... 12.5 13.4 12.1
----- ----- -----
Operating income............................ 9.8 13.5 13.2
Other (income) expense:
Interest expense, net..................... 10.6 8.1 8.4
Investment income, (gain) on marketable
securities, net.......................... -- (0.3) (0.1)
Foreign currency and other................ 0.1 (0.1) 0.1
----- ----- -----
Income (loss) before income taxes,
extraordinary item and cumulative effect of
change in accounting principle............. (0.9) 5.8 4.8
Income taxes (benefit)...................... (0.3) 2.1 1.8
----- ----- -----
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle.................................. (0.6) 3.7 3.0
Extraordinary item, net of income taxes..... 0.1 -- (0.3)
Cumulative effect of change in accounting
principle, net of income tax benefit....... -- -- (0.2)
----- ----- -----
Net income (loss)........................... (0.5)% 3.7% 2.5%
===== ===== =====
16
Comparison of Year Ended December 30, 2000 and January 1, 2000
The following table sets forth components of the Company's net sales and
operating income by segment for 2000 and the corresponding decrease from 1999:
Fiscal Year
-------------
2000 1999 Decrease % Decrease
------ ------ -------- ----------
(Dollars in thousands)
Net sales:
Consumer.............................. $486.3 $511.2 $(24.9) (4.9)%
Industrial and Specialty.............. 375.7 378.6 (2.9) (0.8)
------ ------ ------
$862.0 $889.8 $(27.8) (3.1)%
====== ====== ======
Operating income:
Consumer.............................. $ 62.2 $ 94.0 $(31.8) (33.8)%
Industrial and Specialty.............. 22.4 26.2 (3.8) (14.5)
------ ------ ------
$ 84.6 $120.2 $(35.6) (29.6)%
====== ====== ======
Net Sales
Consolidated net sales were $862.0 million in 2000, a decrease of $27.8
million or 3.1% over 1999 consolidated net sales of $889.8 million.
Consumer net sales were $486.3 million in 2000 compared to $511.2 million
in 1999, a decrease of $24.9 million or 4.9%. This decrease is due to lower
sales of certain high margin wiping products to certain customers and overall
lower sales to certain consumer products customers during 2000. In addition
the trend continues from 1999 of an industry-wide over-capacity position
resulting in increased competition and pricing pressure within the spunmelt
technology. Net sales have also been negatively impacted by the weak Euro
throughout 2000 and a slower than anticipated ramp-up of sales of products
utilizing APEX(R) technology.
Industrial and Specialty net sales were $375.7 million in 2000 compared to
$378.6 million in 1999, a decrease of $2.9 million or 0.8%. Higher volume
shipments offset by the continued trend during 2000 of sales of lower margin
products and lower than anticipated selling prices have resulted in flat
growth in this segment during 2000. In addition the weak Euro throughout 2000
has negatively impacted sales.
Operating Income
Consolidated operating income was $84.6 million in 2000, a decrease of
$35.6 million or 29.6% from 1999 consolidated operating income of $120.2
million.
Consumer operating income was $62.2 million in 2000 compared to $94.0
million in 1999, a decrease of $31.8 million or 33.8%. This decrease is due in
part to lower sales of certain high margin wiping products to certain
customers during 2000. In addition the trend continues from 1999 of an
industry-wide over-capacity position resulting in increased competition and
pricing pressure within the spunmelt technology. Operating income has also
been negatively impacted by the weak Euro and continued raw material price
increases throughout 2000 that the Company has not been able to pass on to
customers as a result of lower demand.
Industrial and Specialty operating income was $22.4 million in 2000
compared to $26.2 million in 1999, a decrease of $3.8 million or 14.5%. This
decrease is due to higher period expenses associated with the Company's two
new APEX(R) lines, offset in part by the achievement of initiatives designed
to mitigate development and product qualification costs. Operating income has
also been negatively impacted by the weak Euro and continued raw material
price increases throughout 2000 that the Company has not been able to pass on
to customers.
17
Offsetting the negative impacts to operating income in both segments was a
reduction of selling, general and administrative expenses as a percentage of
net sales from 13.4% in 1999 to 12.5% in 2000.
Interest Expense and Other
Interest expense increased $19.9 million, from $71.9 million in 1999 to
$91.8 million in 2000. The increase in interest expense is primarily due to a
higher average amount of indebtedness outstanding resulting from increased
capital spending, principally on the Company's two new APEX(R) lines, and an
increase in interest rates resulting from higher outstanding debt balances.
The Company recognized gains on marketable securities of $2.9 million in
1999. In addition, foreign currency losses were approximately $0.5 million in
2000 compared to gains of approximately $0.7 million in 1999.
Income Taxes (Benefit)
The Company recorded an income tax benefit of $2.7 million in 2000,
representing an effective tax benefit rate of 35.0% before extraordinary item.
During 1999 the Company recorded income taxes of $18.6 million, representing
an effective tax rate of 35.7%.
Income (Loss) Before Extraordinary Item
Income (loss) before extraordinary item decreased $38.5 million from income
of $33.4 million, or $1.04 per diluted share, in 1999 to a loss of $(5.1)
million, or $(0.16) per diluted share, in 2000.
Extraordinary Item
During the second quarter of 2000, the Company recorded a one-time gain
from the extinguishment of debt of $0.7 million, net of $0.4 million in taxes.
Net Income (Loss)
Net income (loss) decreased $37.8 million from income of $33.4 million, or
$1.04 per diluted share, in 1999 to a loss of $(4.3) million, or $(0.13) per
diluted share, in 2000 as a result of the above mentioned factors.
Comparison of Year Ended January 1, 2000 and January 2, 1999
The following table sets forth components of the Company's net sales and
operating income by segment for 1999 and the corresponding increase/(decrease)
over 1998:
Fiscal Year
-------------
Increase/ % Increase/
1999 1998 (Decrease) (Decrease)
------ ------ ---------- -----------
(Dollars in thousands)
Net sales:
Consumer........................... $511.2 $443.4 $ 67.8 15.3%
Industrial and Specialty........... 378.6 359.5 19.1 5.3
------ ------ ------
$889.8 $802.9 $ 86.9 10.8%
====== ====== ======
Operating income:
Consumer........................... $ 94.0 $ 62.9 $ 31.1 49.4%
Industrial and Specialty........... 26.2 42.7 (16.5) (38.6)
------ ------ ------
$120.2 $105.6 $ 14.6 13.8%
====== ====== ======
18
Net Sales
Consolidated net sales were $889.8 million in 1999, an increase of $86.9
million or 10.8% over 1998 consolidated net sales of $802.9 million.
Consumer net sales were $511.2 million in 1999 compared to $443.4 million
in 1998, an increase of $67.8 million or 15.3%. The increase in sales was
partially due to the introduction of a new wiping product by a leading
customer. In addition, during 1999 there was an increase in demand for certain
new medical products. Sales were negatively impacted by an increase in
competition and pricing pressure in the North American spunmelt markets which
partially offset the increase in sales due to new product offerings.
Industrial and Specialty net sales were $378.6 million in 1999 compared to
$359.5 million in 1998, an increase of $19.1 million or 5.3%. The increase was
primarily due to organic growth within non-agricultural product lines and
sales growth in international markets.
Operating Income
Consolidated operating income was $120.2 million in 1999 compared to $105.6
million in 1998, an increase of $14.6 million or 13.8%.
Consumer operating income was $94.0 million in 1999 compared to $62.9
million in 1998, an increase of $31.1 million or 49.4%. The increase in
operating income was primarily due to the introduction of new high margin
wiping products and increased sales in certain product areas.
Industrial and Specialty operating income was $26.2 million in 1999
compared to $42.7 million in 1998, a decrease of $16.5 million or 38.6%. The
decrease in Industrial and Specialty operating income, despite higher sales,
was a result of incremental costs associated with the start up of new
manufacturing programs and increased research and development and customer
service costs stemming from the development and testing of new products. In
addition, certain agricultural products within the industrial and specialty
segment were negatively impacted by the weak farm economy.
Interest Expense and Other
Interest expense increased $4.4 million, from $67.4 million in 1998 to
$71.9 million in 1999. The increase in interest expense was principally due to
a higher average amount of indebtedness outstanding. Interest expense as a
percentage of sales decreased year over year.
The Company recognized gains on marketable securities of $2.9 million in
1999 compared to gains of $0.8 million in 1998. In addition, foreign currency
and other gains were approximately $0.7 million in 1999 compared to losses of
approximately $0.8 million in 1998.
Income Taxes
The Company recorded income taxes of $18.6 million in 1999, representing an
effective tax rate of 35.7%. During 1998 the Company recorded income taxes of
$14.2 million, representing an effective tax rate of 37.2% before
extraordinary item and cumulative effect of accounting change. During the
third quarter of 1999, the Company completed the tax-efficient realignment of
its European operations that resulted in a slightly lower effective income tax
rate during 1999 versus 1998.
Income Before Extraordinary Item and Cumulative Effect of Change in Accounting
Principle
Income before extraordinary item and cumulative effect of change in
accounting principle increased $9.5 million from $23.9 million, or $0.75 per
diluted share, for fiscal 1998 to $33.4 million, or $1.04 per diluted share,
for fiscal 1999.
19
Extraordinary Item and Cumulative Effect of Change in Accounting Principle
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.
In April 1998, the American Institute of Certified Public Accountants
issued SOP 98-5, "Reporting the Costs of Start-Up Activities" ("SOP 98-5").
SOP 98-5 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 to 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 SOP 98-5. The after-tax charge for this write-off approximated
$1.5 million.
Net Income
Net income increased $13.7 million from $19.7 million, or $0.62 per diluted
share, in 1998 to $33.4 million, or $1.04 per diluted share, in 1999 as a
result of the above mentioned factors.
Liquidity and Capital Resources
Operating Activities
The Company generated cash from operations of $51.5 million in 2000 as
compared to $107.4 million in 1999. The decrease of $55.9 million in 2000
reflects: (i) lower operating income resulting from lower sales of certain
high margin products, lower sales prices in the spunmelt technologies due to
industry over capacity, higher period expenses associated with the two new
APEX lines and higher raw material costs in 2000 that were not passed through
to customers; and (ii) higher interest costs resulting from higher levels of
outstanding indebtedness. Working capital at December 30, 2000 was $190.5
million as compared to $188.9 million at January 1, 2000, an increase of $1.6
million.
Investing and Financing Activities
Capital Expenditures
Capital expenditures for 2000 totaled $86.0, a decrease of $104.0 million
from capital spending of $190.0 million in 1999. During 1999 and 2000 the
Company completed three new APEX(R) lines and additional lines associated with
its international expansion. These strategic initiatives have been
substantially completed and the Company currently anticipates capital spending
to decrease to a range of $30.0 million to $35.0 million during 2001. The
Company is limited to capital spending of $35.0 million during 2001 under
Amendment No. 6 to the Credit Facility. See "Recent Developments" in this
Annual Report on Form 10-K.
8 3/4% and 9% Notes
On July 3, 1997, the Company issued $400 million of 9% Senior Subordinated
Notes due 2007. In addition, on March 5, 1998 the Company issued $200 million
of 8 3/4% Senior Subordinated Notes due 2008. These senior subordinated notes
are unsecured obligations subordinate in right of payment to all existing and
future senior indebtedness of the Company and have customary provisions
regarding redemption and changes in control. The indentures for the $400
million senior subordinated notes and $200 million senior subordinated notes
contain covenants including limitations on indebtedness, certain restricted
payments, transactions with affiliates, disposition of proceeds of asset
sales, liens, dividends and other payment restrictions affecting certain
subsidiaries, guarantees by certain subsidiaries, mergers and asset sales. At
December 30, 2000 the Company was in compliance with such covenants.
20
Credit Facility
On April 9, 1999, the Company amended its credit facility (as amended, the
"Credit Facility") to add an additional term loan in the amount of $50.0
million. The Company borrowed the entire amount of the additional term loan
and used the proceeds to reduce amounts outstanding under the revolving
portion of the Credit Facility.
As of March 30, 2000, the Company amended its Credit Facility to add an
additional term loan in the amount of $100.0 million. The amendment also
modified certain covenants, including leverage and fixed charge coverage. 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.
On August 10, 2000, the Company amended its Credit Facility to modify
certain covenants, including leverage and fixed charge coverage, and to amend
the Credit Facility in certain other respects.
On April 11, 2001, the Company amended its Credit Facility to modify
certain covenants, including leverage and fixed charge coverage, and to amend
the Credit Facility in certain other respects. See "Recent Developments" and
"Description of Certain Indebtedness" in this Annual Report on Form 10-K for a
discussion of Amendment No. 6 to the Credit Facility.
The Credit Facility currently provides for secured revolving credit
borrowings with aggregate commitments of up to $325.0 million (currently
limited to $260 million outstanding) and aggregate term loans of $275.0
million. Subject to certain terms and conditions, a portion of the revolving
portion of the Credit Facility may be used for letters of credit. The Company
had outstanding letters of credit of approximately $16.7 million and unused
commitments, including cash and short-term investments, of approximately
$183.9 million under the Credit Facility as of December 30, 2000. The Credit
Facility contains covenants and events of default customary for financings of
this type, including leverage, fixed charge coverage and net worth. At
December 30, 2000 the Company was in compliance with such covenants. See
"Recent Developments" and "Description of Certain Indebtedness" in this Annual
Report on Form 10-K for additional discussion surrounding the Credit Facility.
Other
During 1999, the Company acquired an 80% interest in Vateks Tekstil Sanayi
ve Ticaret AS ("Vateks") and Nanhai Nanxin Non-Woven Co. Ltd. ("Nanhai"). The
Company also acquired the assets of Molnlycke Health Care AB ("Sweden").
Vateks, Nanhai and Sweden manufacture and market nonwoven products for
predominant use in consumer and industrial applications. The Company does not
anticipate these transactions, as a whole, will have a material impact on
liquidity.
During 2000, the Company acquired an additional 10% interest in Dominion
Nonwovens Sudamerica S.A. ("DNS"), an Argentine joint venture. The 10%
acquisition increased the Company's 50% interest in DNS to a 60% interest. DNS
manufactures and markets nonwoven products for predominant use in consumer
applications. The Company does not anticipate this transaction to have a
material impact on liquidity.
The Board of Directors declared a quarterly dividend of $0.02 per share
each quarter in 2000. Amendment No. 6 to the Credit Facility currently
prevents the Company from paying quarterly dividends on its Common Stock
during fiscal 2001, with the exception of the first quarter. See "Recent
Developments" in this Annual Report on Form 10-K.
The Company believes that based on current levels of operations, its cash
from operations, together with potential asset sales and other available
sources of liquidity (including but not limited to borrowings under the
amended credit facility) will be adequate through the end of fiscal 2001 to
make required debt payments, including interest thereon, to permit anticipated
capital expenditures and to fund the Company's working capital requirements.
See "Recent Developments" in this Annual Report on Form 10-K.
21
Effect of Inflation
Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has
had any material effect on the Company's business during 1999. For a
discussion of certain raw material price increases during 2000, see
"Quantitative and Qualitative Disclosures About Market Risk--Raw Material and
Commodity Risks."
Foreign Currency
The Company's substantial foreign operations expose it to the risk of
foreign currency 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. For a discussion of certain
adverse foreign currency exchange rate fluctuations during fiscal years 2000
and 1999, see "Quantitative and Qualitative Disclosures About Market Risk--
Foreign Currency Exchange Rate Risk."
Derivatives
The Company does not use derivative financial instruments for trading
purposes and may enter into financial instruments, limited in duration and
scope, to manage its exposure to fluctuations of foreign currency rates.
Premiums paid for purchased interest rate cap agreements are charged to
expense over the rate cap period. The Company's London Interbank Offered Rate-
based interest rate cap agreement provides for a notional amount of $100.0
million which declines ratably over the rate cap term. If the rate cap exceeds
9% on each quarterly reset date, as defined in the agreement, the Company is
entitled to receive an amount by which the rate cap exceeds 9%. Over the term
of the agreement in 2000, such amount did not exceed 9%. Charges to income in
1999, 1998 and 1997 related to derivative products and hedging activities were
not significant.
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") as
amended which is effective for fiscal years beginning after June 15, 2000. 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 contains disclosure
requirements based on the type of hedge and the type of market risk that is
being hedged. The Company has elected to defer the adoption of FAS 133 until
fiscal year 2001. The Company does not anticipate FAS 133 to have a material
financial or operational impact on the Company.
Recent Accounting Standard
In December 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 did not
change existing accounting rules on revenue recognition but specifies how
existing rules should be applied to transactions in the absence of
authoritative literature. Based on the guidelines of current accounting rules
and SAB 101, revenue should not be recognized until it is realized or
realizable and earned. The adoption of SAB 101 during the fourth quarter of
2000 had no material impact on the operational results of the Company.
Environmental
The Company is subject to a broad range of federal, foreign, state and
local laws governing regulations relating to the pollution and protection of
the environment. The Company believes that it is currently in substantial
compliance with environmental requirements and does not currently anticipate
any material adverse effect on its operations, financial condition or
competitive position as a result of its efforts to comply with environmental
requirements. Some risk of environmental liability is inherent, however, in
the nature of the Company's business, and there can be no assurance that
material environmental liabilities will not arise.
22
Euro Conversion
On January 1, 1999, member countries of the European Monetary Union 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 the
future costs of the euro conversion will not have a material impact on the
results of operations or the financial condition of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Long-Term Debt and Interest Rate Market Risk
Variable Rate Debt
The Credit Facility permits the Company to borrow up to $600 million,
subject in the case of borrowings under the revolving portion to the
satisfaction of certain conditions, a portion of which may be denominated in
Dutch guilders and in Canadian dollars. Amendment No. 6 currently limits
amounts outstanding under the revolving portion of the Credit Facility
(together with outstanding letters of credit) to $260 million. The variable
interest rate applicable to borrowings under the Credit Facility is based on,
in the case of U.S. dollar denominated loans, the base rate referred to
therein or the Eurocurrency base 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 December 30, 2000, the Company had borrowings under the
Credit Facility of $425.6 million that were subject to interest rate risk.
Each hypothetical 1.0% increase in interest rates would impact pretax earnings
by $4.3 million. The Company has an interest rate cap agreement that limits
the amount of interest expense on $100 million of this debt to a LIBOR rate of
9%. The Company does not use these products for trading purposes.
Fixed Rate Debt
The fair market value of the Company's long-term fixed interest rate debt
is also subject to interest rate risk. Generally, the fair market value of
fixed interest rate debt will increase as interest rates fall and decrease as
interest rates rise. The estimated fair value of the Company's total long-term
fixed-rate debt at December 30, 2000 was approximately $386.5 million, which
was less than its carrying value by approximately $205.0 million. A 100 basis
points decrease in the prevailing interest rates at December 30, 2000 would
result in an increase in fair value of total fixed rate debt by approximately
$17.4 million. A 100 basis points increase in the prevailing interest rates at
December 30, 2000 would result in a decrease in fair value of total fixed rate
debt by approximately $16.8 million. Fair market values were determined from
quoted market prices or based on estimates made by investment bankers.
Foreign Currency Exchange Rate Risk
The Company manufactures, markets and distributes certain of its products
in Europe, Canada, Latin America and the Far East. As a result, the Company's
financial results could be significantly
23
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the foreign markets in which the Company maintains a
manufacturing or distribution presence. 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. For example, during fiscal
2000, certain currencies of countries in which the Company conducts foreign
currency denominated business, predominantly in Europe, weakened against the
U.S. dollar and had a significant impact on sales and operating income. See
"Recent Developments" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in this Annual Report on Form 10-K.
For the year ending December 30, 2000, the result of a uniform 10%
strengthening in the value of the dollar relative to the currencies in which
the Company's sales are denominated would have decreased operating income by
approximately $4.8 million. This calculation assumes that each exchange rate
would change in the same direction relative to the U.S. dollar. In addition to
the direct effects of changes in exchange rates, which are a changed dollar
value of the resulting sales, changes in exchange rates also affect the volume
of sales or the foreign currency sales price as competitors' products become
more or less attractive. The Company's sensitivity analysis of the effects of
changes in foreign currency exchange rates does not factor in a potential
change in sales levels or local currency prices.
Raw Material and Commodity Risks
The primary raw materials used in the manufacture of most of the Company's
products are polypropylene and polyester fiber, polyethylene and polypropylene
resin, and, to a lesser extent, rayon, tissue paper and cotton. The prices of
polypropylene and polyethylene are a function of, among other things,
manufacturing capacity, demand and the price of crude oil and natural gas
liquids. During 2000 raw material prices as a percentage of sales increased
significantly from 37.9% of sales in 1999 to 41.0% of sales in 2000. The
increase in raw material cost had a significant negative impact on operating
income because the increase could not be passed on to customers. As in 2000, a
significant increase in the prices of polyolefin resins that cannot be passed
on to customers could have a material adverse effect on the Company's results
of operations and financial condition. See "Recent Developments" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in this Annual Report on Form 10-K. At December 30, 2000, the
Company had commitments related to raw materials of approximately $49.6
million.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Ernst & Young LLP, Independent Auditors......................... 25
Consolidated Balance Sheets as of December 30, 2000 and January 1, 2000... 26
Consolidated Statements of Operations for the fiscal years ended December
30, 2000, January 1, 2000 and January 2, 1999............................ 27
Consolidated Statements of Shareholders' Equity for the fiscal years ended
December 30, 2000, January 1, 2000 and January 2, 1999................... 28
Consolidated Statements of Cash Flows for the fiscal years ended December
30, 2000, January 1, 2000 and January 2, 1999............................ 29
Notes to Consolidated Financial Statements for the fiscal years ended
December 30, 2000, January 1, 2000 and January 2, 1999................... 30
24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Polymer Group, Inc.
We have audited the accompanying consolidated balance sheets of Polymer
Group, Inc. as of December 30, 2000 and January 1, 2000 and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended December 30, 2000. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Polymer
Group, Inc. at December 30, 2000 and January 1, 2000 and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 30, 2000 in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
In 1998, the Company changed its method of accounting for the costs of
start-up activities.
/s/ Ernst & Young LLP
Greenville, South Carolina
February 2, 2001, except for Note 16,
as to which the date is April 12, 2001
25
POLYMER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
December 30, January 1,
ASSETS 2000 2000
------ ------------ ----------
Current assets:
Cash and equivalents................................ $ 12,276 $ 37,180
Short-term investments.............................. 18,312 19,115
Accounts receivable, net............................ 136,746 133,249
Inventories......................................... 122,751 113,229
Deferred income taxes............................... 7,944 9,315
Other............................................... 43,028 36,897
---------- ----------
Total current assets.............................. 341,057 348,985
Property, plant and equipment, net.................... 858,338 823,349
Intangibles and loan acquisition costs, net........... 246,058 246,403
Deferred income taxes................................. 37,057 19,238
Other................................................. 25,484 28,271
---------- ----------
Total assets...................................... $1,507,994 $1,466,246
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................... $ 61,579 $ 80,476
Accrued liabilities................................. 53,407 49,892
Income taxes payable................................ 2,917 5,300
Deferred income taxes............................... 532 497
Short-term borrowings............................... 18,605 19,073
Current portion of long-term debt................... 13,558 4,842
---------- ----------
Total current liabilities......................... 150,598 160,080
Long-term debt, less current portion.................. 1,023,986 963,177
Deferred income taxes................................. 82,574 83,424
Other noncurrent liabilities.......................... 24,601 17,281
Shareholders' equity:
Series preferred stock--$.01 par value, 10,000,000
shares authorized at 2000 and 1999; 0 shares issued
and outstanding at 2000 and 1999................... -- --
Common stock--$.01 par value, 100,000,000 shares
authorized at 2000 and 1999; 32,004,200 shares
issued and outstanding at 2000; 32,001,800 shares
issued and outstanding at 1999..................... 320 320
Non-voting common stock--$.01 par value; 3,000,000
shares authorized at 2000 and 1999; 0 shares issued
and outstanding at 2000 and 1999................... -- --
Additional paid-in capital.......................... 243,722 243,688
Retained earnings................................... 6,266 13,149
Accumulated other comprehensive (loss).............. (24,073) (14,873)
---------- ----------
226,235 242,284
---------- ----------
Total liabilities and shareholders' equity........ $1,507,994 $1,466,246
========== ==========
See accompanying notes.
26
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
For the Fiscal Years Ended
-------------------------------
January January
December 30, 1, 2,
2000 2000 1999
------------ -------- --------
Net sales..................................... $862,035 $889,795 $802,948
Cost of goods sold............................ 670,012 650,185 599,894
-------- -------- --------
Gross profit.................................. 192,023 239,610 203,054
Selling, general and administrative expenses.. 107,460 119,385 97,499
-------- -------- --------
Operating income.............................. 84,563 120,225 105,555
Other expense (income):
Interest expense, net....................... 91,805 71,882 67,444
Investment income--(gain) on marketable
securities, net............................ -- (2,942) (795)
Foreign currency and other.................. 549 (739) 806
-------- -------- --------
92,354 68,201 67,455
-------- -------- --------
Income (loss) before income taxes,
extraordinary item and cumulative effect of
change in accounting principle............... (7,791) 52,024 38,100
Income taxes (benefit)........................ (2,727) 18,584 14,157
-------- -------- --------
Income (loss) before extraordinary item and
cumulative effect of change in accounting
principle.................................... (5,064) 33,440 23,943
Extraordinary item, net of taxes of $399 in
2000 and $0 in 1998.......................... 741 -- (2,728)
Cumulative effect of change in accounting
principle, net of tax benefit of $907........ -- -- (1,511)
-------- -------- --------
Net income (loss)............................. $ (4,323) $ 33,440 $ 19,704
======== ======== ========
Net income (loss) per common share:
Basic:
Average common shares outstanding......... 32,004 32,000 32,000
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle..................... $ (.16) $ 1.05 $ .75
Extraordinary item, net of tax............ .02 -- (.08)
Cumulative effect of change in accounting
principle, net of tax.................... -- -- (.05)
-------- -------- --------
Net income (loss) per common share--basic. $ (.14) $ 1.05 $ .62
======== ======== ========
Diluted:
Average common shares outstanding......... 32,040 32,089 32,000
Income (loss) before extraordinary item
and cumulative effect of change in
accounting principle..................... $ (.16) $ 1.04 $ .75
Extraordinary item, net of tax............ .02 -- (.08)
Cumulative effect of change in accounting
principle, net of tax.................... -- -- (.05)
-------- -------- --------
Net income (loss) per common share--
diluted.................................. $ (.13) $ 1.04 $ .62
======== ======== ========
Cash dividends................................ $ .08 $ .02 $ --
======== ======== ========
See accompanying notes.
27
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Fiscal Years Ended December 30, 2000, January 1, 2000 and January 2,
1999
(In Thousands, Except Share Data)
Accumulated
Common Stock Additional Retained Other
----------------- Paid-in Earnings/ Comprehensive Comprehensive
Shares Amount Capital (Deficit) Income (Loss) Total Income (Loss)
---------- ------ ---------- --------- ------------- -------- -------------
Balance--January 3, 1998...................... 32,000,000 $320 $243,662 $(39,355) $ (5,537) $199,090
Net income.................................... -- -- -- 19,704 -- 19,704 $ 19,704
Foreign currency translation adjustments, net
of income taxes of $(800).................... -- -- -- -- 1,338 1,338 1,338
Unrealized holding (loss) on marketable
securities, net of income tax benefit of $0.. -- -- -- -- (7) (7) (7)
---------- ---- -------- -------- -------- -------- --------
Balance--January 2, 1999...................... 32,000,000 320 243,662 (19,651) (4,206) 220,125
Comprehensive income for the year ended
January 2, 1999.............................. $ 21,035
========
Net income.................................... -- -- -- 33,440 -- 33,440 $ 33,440
Foreign currency translation adjustments, net
of income tax benefit of $10,739............. -- -- -- -- (7,816) (7,816) (7,816)
Unrealized holding (loss) on marketable
securities, net of income tax benefit of
$529......................................... -- -- -- -- (2,851) (2,851) (2,851)
Dividends paid................................ -- -- -- (640) -- (640) --
Exercise of stock options..................... 1,800 -- 26 -- -- 26 --
---------- ---- -------- -------- -------- -------- --------
Balance--January 1, 2000...................... 32,001,800 320 243,688 13,149 (14,873) 242,284
Comprehensive income for the year ended
January 1, 2000.............................. $ 22,773
========
Net (loss).................................... -- -- -- (4,323) -- (4,323) $ (4,323)
Foreign currency translation adjustments, net
of income tax benefit of $8,804.............. -- -- -- -- (8,669) (8,669) (8,669)
Unrealized holding (loss) on marketable
securities, net of income tax benefit of
$279......................................... -- -- -- -- (531) (531) (531)
Dividends paid................................ -- -- -- (2,560) -- (2,560) --
Exercise of stock options..................... 2,400 -- 34 -- -- 34 --
---------- ---- -------- -------- -------- -------- --------
Balance December 30, 2000..................... 32,004,200 $320 $243,722 $ 6,266 $(24,073) $226,235
========== ==== ======== ======== ======== ========
Comprehensive (loss) for the year ended
December 30, 2000............................ $(13,523)
- --------------------------------------------------
========
See accompanying notes.
28
POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
For the Fiscal Years Ended
-----------------------------------
December 30, January 1, January 2,
2000 2000 1999
------------ ---------- ----------
Operating activities
Net income (loss).......................... $ (4,323) $ 33,440 $ 19,704
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Extraordinary item, net of tax............. (741) -- 2,728
Cumulative effect of change in accounting
principle, net of income tax benefit...... -- -- 1,511
Depreciation and amortization expense...... 72,265 66,546 59,325
Provision for deferred income taxes........ 5,158 3,612 (585)
Changes in operating assets and
liabilities, net of effect of
acquisitions:
Accounts receivable...................... 3,784 (26,601) 9,520
Inventories.............................. (7,411) (10,938) 697
Accounts payable and accrued expenses.... (20,507) 28,060 (16,098)
Other, net................................. 3,252 13,281 (2,728)
--------- --------- ---------
Net cash provided by operating
activities............................ 51,477 107,400 74,074
Investing activities
Purchases of property, plant and
equipment................................. (86,022) (189,996) (90,096)
Purchases of marketable securities
classified as available for sale.......... -- (23,530) (16,672)
Proceeds from sales of marketable
securities classified as available for
sale...................................... -- -- 24,485
Acquisition of businesses, net of cash
acquired.................................. (18,076) (19,251) (47,423)
Proceeds from sale of assets, net of
canceled subordinated advance............. -- -- 323,524
Minority interest.......................... -- -- (54,730)
Other, net................................. (3,720) 8,157 (7,745)
--------- --------- ---------
Net cash provided by (used in)
investing activities.................. (107,818) (224,620) 131,343
Financing activities
Proceeds from debt......................... 291,520 196,194 621,481
Payments of debt........................... (237,435) (85,293) (804,361)
Dividends to shareholders.................. (2,560) (640) --
Exercise of stock options.................. 34 26 --
Loan acquisition costs and other, net...... (4,834) (3,521) (11,560)
--------- --------- ---------
Net cash provided by (used in)
financing activities.................. 46,725 106,766 (194,440)
Effect of exchange rate changes on cash..... (15,288) (10,674) (2,859)
--------- --------- ---------
Net increase (decrease) in cash and
equivalents........................... (24,904) (21,128) 8,118
Cash and equivalents at beginning of
year.................................. 37,180 58,308 50,190
--------- --------- ---------
Cash and equivalents at end of year.... $ 12,276 $ 37,180 $ 58,308
========= ========= =========
Noncash investing and financing activities
Cancellation of subordinated advance....... $ -- $ -- $ 141,000
Supplemental information
Cash paid for interest, net of amounts
capitalized............................... 88,882 52,783 68,725
Cash paid for income taxes................. 14,520 19,396 13,498
Acquisition of businesses
Fair value of assets acquired.............. 47,716 39,657 48,453
Liabilities assumed and incurred........... (29,640) (20,406) (1,030)
Acquisition of businesses, net of cash
acquired.................................. 18,076 19,251 47,423
See accompanying notes.
29
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles in the United States
which contemplates that the Company will continue operations, realize assets
and satisfy liabilities in the ordinary course of business. The Company
incurred a net loss before extraordinary item of $5.1 million for the year
ended December 30, 2000. The Company expects such losses to continue over the
2001 fiscal year. On March 13, 2001, the Company disclosed that management
anticipates reporting a net loss in the range of $35 million to $45 million
for fiscal year 2001. As a result of the anticipated operating results for
fiscal year 2001 the Company obtained an amendment to its Credit Facility
dated April 11, 2001 (see Note 16. "Subsequent Event"). Management believes
that its available cash and cash equivalents and short term investments of
$30.6 million at December 30, 2000, cash expected to be generated by
operations during 2001 and availability under its Credit Facility, as amended
on April 11, 2001, will be adequate to fund planned operations through and
including December 29, 2001. If the Company is unable to meet its operating
projections or complete the actions described in Note 16. "Subsequent Event",
the Company, among other things, may be required to obtain further bank
amendments or covenant waivers. The Company is not assured of being able to
obtain such amendments or waivers or that any amendments or waivers would be
on terms and conditions acceptable to the Company. The consolidated financial
statements do not include any adjustments that might result from the outcome
of these uncertainties.
All material intercompany accounts are eliminated in consolidation. 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 conformity with generally accepted
accounting principles in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates. Investments in 20% to 50% owned affiliates are accounted for on the
equity method.
Revenue Recognition
Revenue from product sales is recognized at the time ownership of goods
transfers to the customer and the earnings process is complete. In December
1999, the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements" ("SAB 101"). SAB 101 did not change existing
accounting rules on revenue recognition but specifies how existing rules
should be applied to transactions in the absence of authoritative literature.
Based on the guidelines of current accounting rules and SAB 101, revenue
should not be recognized until it is realized or realizable and earned. The
adoption of SAB 101 during the fourth quarter of 2000 had no material impact
on the operational results of the Company.
Cash Equivalents and Interest Income
Investment securities that mature in three months or less from the date of
purchase are considered cash equivalents. Interest and other income
approximated $2.4, $3.5 and $5.1 million during 2000, 1999 and 1998,
respectively, and consists primarily of income from highly liquid investment
sources. Interest expense in the consolidated statements of operations is net
of interest and other income and capitalized interest.
30
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Short-Term Investments
The Company accounts for its investments using Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115") which requires that certain debt and equity
securities be adjusted to market value at the end of each accounting period.
Market value gains and losses are charged to earnings if the securities are
traded for short-term profit. Otherwise, such gains and losses are charged or
credited to the comprehensive income component of shareholders' equity.
Management determines the proper classifications of investments at the time of
purchase and reevaluates such designation as of each balance sheet date.
Realized gains and losses on sales of investments, as determined on the
specific identification basis, are included in the determination of net income.
As of December 30, 2000, the Company's marketable securities were invested in
equity securities with a market value of approximately $18.3 million, and were
designated as available for sale.
Accounts Receivable and Concentration of Credit Risks
Accounts receivable potentially expose the Company to concentration of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance Sheet
Risk and Financial Instruments with Concentration of Credit Risk." The Company
provides credit in the normal course of business and performs ongoing credit
evaluations on certain of its customers' financial condition, but generally
does not require collateral to support such receivables. The Company also
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
The allowance for doubtful accounts was $8.5 and $10.6 million at December 30,
2000 and January 1, 2000, respectively, which management believes is adequate
to provide for credit loss in the normal course of business, as well as losses
for customers who have filed for protection under the bankruptcy law. In 2000,
Johnson & Johnson ("J&J") and The Procter & Gamble Company ("P&G") accounted
for approximately 14% and 17%, respectively, of the Company's sales. In 1999,
J&J and P&G accounted for approximately 16% and 21%, respectively, of the
Company's sales.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method of accounting and, as of December 30, 2000 and January 1, 2000
consist of the following:
2000 1999
-------- --------
(In Thousands)
Finished goods.......................................... $ 60,931 $ 51,588
Work in process......................................... 19,020 16,753
Raw materials........................................... 42,800 44,888
-------- --------
$122,751 $113,229
======== ========
Long-Lived Assets
Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed for financial reporting purposes on the
straight-line method over the estimated useful lives of the related assets. The
estimated useful lives established for building and land improvements range
from 18 to 33 years, and the estimated useful lives established for machinery,
equipment and other fixed assets range from 3 to 15 years. Costs of the
construction of certain long-term assets include capitalized interest that is
amortized over the estimated useful life of the related asset. The Company
capitalized approximately $6.6, $8.4 and $4.2 million of interest costs during
2000, 1999 and 1998, respectively.
31
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Intangible assets are amortized using the straight-line method over periods
ranging from 5 to 40 years. Loan acquisition costs, which approximated $4.8
million and $3.0 million in 2000 and 1999, respectively, are amortized over the
term of the related debt.
The Company continually reviews the recoverability of the carrying value of
long-lived assets in accordance with Statement of Financial Accounting Standard
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Assets to
be Disposed Of" ("FAS 121"). The Company also reviews long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of such assets may not be recoverable. When the future undiscounted cash
flows of the operation to which the assets relate do not exceed the carrying
value of the asset, the intangible assets are written down, followed by the
other long-lived assets, to fair value. FAS 121 write-downs have not been
material to the Company's financial condition or results of operations.
Derivatives
The Company does not use derivative financial instruments for trading
purposes. Such products are used to manage interest rate and foreign currency
risks. Premiums paid for purchased interest rate cap agreements are charged to
expense over the rate cap period. The Company maintains a London Interbank
Offered Rate ("LIBOR")-based interest rate cap agreement which provides for a
notional amount of $100.0 million. The notional amount declines ratably over
the rate cap term and if the rate cap exceeds 9% on each quarterly reset date,
as defined in the agreement, the Company is entitled to receive an amount by
which the rate cap exceeds 9%. Over the term of the agreement in 2000, such
amount did not exceed 9%.
The Company may enter into financial instruments, which are limited in
duration and scope, to manage its exposure to fluctuations of foreign currency
rates. These instruments are used for hedging purposes and are employed in
connection with an underlying asset, liability, firm commitment or anticipated
transaction. Gains and losses on hedges of existing assets and liabilities are
included in the carrying amounts of those assets or liabilities and are
ultimately recognized in income as part of those carrying amounts. Gains and
losses related to qualifying hedges of firm commitments or anticipated
transactions are also deferred and recognized in income or as adjustments of
carrying amounts when the hedged transaction occurs. Gains and losses, if any,
on financial instruments that do not qualify as hedges for accounting purposes
are recognized in the determination of net income. Charges to expense in 2000,
1999 and 1998 related to derivative products were not significant.
In 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133") as
amended, which is effective for fiscal years beginning after June 15, 2000. FAS
133 establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires an entity to recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. FAS 133 contains disclosure requirements based
on the type of hedge and the type of market risk that is being hedged. The
Company has elected to defer the adoption of FAS 133 until fiscal year 2001.
The Company does not anticipate FAS 133 to have a material financial or
operational impact on the Company.
Fair Value of Financial Instruments
The Company has estimated the fair value amounts of financial instruments as
required by Statement of Financial Accounting Standards No. 107, "Disclosures
about Fair Value of Financial Instruments", using available market information
and appropriate valuation methodologies. However,
32
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, such estimates are not necessarily
indicative of the amounts that the Company would realize in a current market
exchange. The carrying amount of cash and equivalents, short term investments,
accounts receivable, other assets, accounts payable and derivative financial
instruments are reasonable estimates of their fair values. The contract amounts
of outstanding letters of credit approximate their fair value. Fair value of
the Company's long-term debt was estimated using interest rates at those dates
for issuance of such financial instruments with similar terms and remaining
maturities and other independent valuation methodologies. The estimated fair
value of debt, based on appropriate valuation methodologies, at December 30,
2000 and January 1, 2000 was $832.5 and $967.1 million, respectively.
Income Taxes
The provision for income taxes and corresponding balance sheet accounts are
determined in accordance with Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109"). Under FAS 109, the deferred tax
liabilities and assets are determined based upon temporary differences between
the basis of certain assets and liabilities for income tax and financial
reporting purposes. A valuation allowance is recognized if it is likely that
some portion of a deferred tax asset will not be realized in the future.
Research and Development
The cost of research and development is charged to expense as incurred and
is included in selling, general and administrative expense in the consolidated
statement of operations. The Company incurred approximately $18.9, $17.2 and
$13.2 million of research and development expense during 2000, 1999 and 1998,
respectively.
Shipping and Handling Costs
The cost of shipping and handling is charged to expense as incurred and is
included in selling, general and administrative expense in the consolidated
statement of operations. The Company incurred approximately $19.2, $15.9 and
$12.7 million of shipping and handling costs during 2000, 1999 and 1998,
respectively.
Foreign Currency Translation
The Company accounts for and reports translation of foreign currency
transactions and foreign currency financial statements in accordance with SFAS
No. 52, "Foreign Currency Translation." All assets and liabilities in the
balance sheets of foreign subsidiaries whose functional currency is other than
the U.S. dollar are translated at year-end exchange rates. Translation gains
and losses are not included in determining net income but are accumulated as a
separate component of shareholders' equity. However, subsidiaries considered to
be operating in highly inflationary countries use the U.S. dollar as the
functional currency and translation gains and losses are included in
determining net income. In addition, foreign currency transaction gains and
losses are included in determining net income.
Comprehensive Income (Loss)
Comprehensive income (loss) is reported in accordance with the Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130"). FAS 130 establishes rules for the reporting and display of comprehensive
income and its components. FAS 130
33
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
requires unrealized gains or losses on the Company's available for sale
securities and the foreign currency translation adjustments, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. Cumulative foreign currency translation adjustments
and unrealized (loss) on marketable securities are as follows:
2000 1999 1998
-------- -------- -------
(In Thousands)
Cumulative foreign currency translation
adjustments...................................... $(20,691) $(12,022) $(4,206)
Cumulative unrealized (loss) on marketable
securities....................................... (3,382) (2,851) --
-------- -------- -------
Accumulated other comprehensive (loss)............ $(24,073) $(14,873) $(4,206)
======== ======== =======
Net Income (Loss) Per Share
The Company discloses earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." Basic earnings per share excludes any dilutive effects of
options, warrants and convertible securities and is computed using the number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution that could occur if stock options were
exercised and is based upon the weighted average number of common and common
equivalent shares outstanding for the period. Common equivalent shares are
represented by shares under option. The numerator for both basic and diluted
earnings per share is net income (loss) applicable to common stock.
Note 2. Acquisitions
On December 19, 1997, DT Acquisition Inc. ("DTA"), a special-purpose
subsidiary of the Company, completed the purchase of approximately 98% of the
outstanding common shares of Dominion Textiles Inc. ("Dominion") for Cdn$14.50
per share and approximately 96% of the outstanding first preferred shares of
Dominion for Cdn$150 per share. The acquisition was accounted for in 1997 using
the purchase method of accounting. On January 29, 1998, DTA acquired all
remaining common and preferred shares, at which time Dominion underwent a
"winding-up." All assets and liabilities of Dominion were transferred to DTA
and all outstanding common and first preferred shares held by DTA were
redeemed. Immediately thereafter, pursuant to a purchase agreement dated
October 27, 1997, the apparel fabrics business of Dominion was sold, at no gain
or loss, to Galey & Lord, Inc. ("Galey") for approximately $464.5 million, and
the Company acquired the nonwovens and industrial fabrics operations for
approximately $351.6 million, including fees and expenses. The Company and
Galey finalized the cash settlement during 2000 pursuant to the Master
Separation Agreement dated January 29, 1998. The result of such settlement was
not material to the Company's financial condition.
On March 16, 1998, the Company acquired a leading North American
manufacturer of polypropylene-based commercial twine and polyethylene-based
specialty knitted products for approximately $47.4 million in a transaction
accounted for by the purchase method of accounting.
During 1999, the Company acquired an 80% interest in Vateks Tekstil Sanayi
ve Ticaret AS ("Vateks") and Nanhai Nanxin Non-Woven Co. Ltd. ("Nanhai"). The
Company also acquired the assets of Molnlycke Health Care AB ("Sweden").
Vateks, Nanhai and Sweden manufacture and market nonwoven products for
predominant use in consumer and industrial applications. These transactions
have been accounted for using the purchase method of accounting. The combined
purchase price for these acquisitions, including assets acquired by the Company
during 1999 for which separate disclosure is not considered significant,
totaled $19.3 million.
34
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 2000, the Company acquired an additional 10% interest in Dominion
Nonwovens Sudamerica S.A. ("DNS"), an Argentine joint venture. DNS manufactures
and markets nonwoven products for predominant use in consumer applications. The
incremental 10% acquisition increased the Company's 50% interest in DNS, which
was previously accounted for using the equity method of accounting, to a 60%
majority interest. The transaction was accounted for using the purchase method
of accounting and results of operations for DNS have been included in the
Company's results since the date of acquisition. The total acquisition price of
approximately $18.1 million for the Company's 60% majority interest has been
allocated to the underlying assets acquired and liabilities assumed based on
their fair value at the date of purchase. Such allocation may be revised at a
later date. Supplemental pro forma information has not been presented as it is
not material to the consolidated results of operations.
Note 3. Property, Plant and Equipment
Property, plant and equipment as of December 30, 2000 and January 1, 2000,
consist of the following:
2000 1999
---------- ----------
(In Thousands)
Cost:
Land............................................ $ 15,739 $ 13,263
Buildings and land improvements................. 158,105 145,806
Machinery, equipment and other.................. 830,608 698,884
Construction in progress........................ 92,474 146,190
---------- ----------
1,096,926 1,004,143
Less accumulated depreciation..................... (238,588) (180,794)
---------- ----------
$ 858,338 $ 823,349
========== ==========
Depreciation charged to expense was $62.5, $55.3 and $47.8 million during
2000, 1999 and 1998, respectively.
Note 4. Intangibles and Loan Acquisition Costs
Intangibles and loan acquisition costs as of December 30, 2000 and January
1, 2000 consist of the following:
2000 1999
-------- --------
(In Thousands)
Cost:
Goodwill............................................ $225,198 $221,507
Supply agreement.................................... 13,431 13,431
Proprietary technology.............................. 27,550 24,100
Loan acquisition costs and other.................... 38,696 34,151
-------- --------
304,875 293,189
Less accumulated amortization......................... (58,817) (46,786)
-------- --------
$246,058 $246,403
======== ========
Amortization charged to expense was $9.8, $11.2 and $11.5 million during
2000, 1999 and 1998, respectively.
35
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5. Accrued Liabilities
Accrued liabilities as of December 30, 2000 and January 1, 2000, consist of
the following:
2000 1999
------- -------
(In Thousands)
Interest payable......................................... $25,343 $25,780
Salaries, wages and other fringe benefits................ 9,440 11,417
Other.................................................... 18,624 12,695
------- -------
$53,407 $49,892
======= =======
Note 6. Commitments and Contingencies
Leases
The Company leases certain manufacturing, warehousing and other facilities
and equipment under operating leases. The leases on most of the properties
contain renewal provisions. Rent expense (net of sub-lease income), including
incidental leases, approximated $5.9, $6.0 and $4.7 million in 2000, 1999 and
1998, respectively. The Company leases a building under a non-cancelable lease
expiring in June 2012 to an unrelated party. Rental income approximated $2.3,
$1.9 and $1.7 million in 2000, 1999 and 1998, respectively. The approximate net
minimum rental payments required under operating leases that have initial or
remaining non-cancelable lease terms in excess of one year at December 30, 2000
are:
Gross Lease Net
Minimum and Sub- Minimum
Rental Lease Rental
Payments (Income) Payments
-------- -------- --------
(In Thousands)
2001.......................................... $ 6,431 $ (2,234) $4,197
2002.......................................... 5,079 (2,004) 3,075
2003.......................................... 4,041 (1,894) 2,147
2004.......................................... 2,686 (1,769) 917
2005.......................................... 430 (1,425) (995)
Thereafter.................................... 68 (9,563) (9,495)
------- -------- ------
$18,735 $(18,889) $ (154)
======= ======== ======
Purchase Commitments
At December 30, 2000, the Company had commitments of approximately $53.8
million related to the purchase of raw materials, maintenance and converting
services and approximately $3.5 million related to capital projects.
Collective Bargaining Agreements
At December 30, 2000, the Company had a total of approximately 4,300
employees worldwide. Approximately 1,700 employees are represented by labor
unions or trade councils which have entered into separate collective bargaining
agreements with the Company. Approximately 19% of the Company's labor force are
covered by collective bargaining agreements that will expire within one year.
Environmental
The Company is subject to a broad range of federal, foreign, state and local
laws governing regulations relating to the pollution and protection of the
environment. The Company believes that it is currently in substantial
compliance with environmental requirements and does not currently anticipate
any material adverse effect on its operations, financial condition or
competitive position as a result of
36
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
its efforts to comply with environmental requirements. Some risk of
environmental liability is inherent, however, in the nature of the Company's
business, and there can be no assurance that material environmental liabilities
will not arise.
Note 7. Debt
Short-term borrowings amounted to $18.6 million at the end of 2000 and are
composed of $8.2 million in U.S. loans with a weighted average interest rate of
8.5% and $10.4 million of local borrowings, principally by international
subsidiaries. Long-term debt as of December 30, 2000 and January 1, 2000,
consists of the following (in thousands):
2000 1999
---------- --------
Senior subordinated notes, due July 2007, interest rate
9%, subject to
redemption on or after July 1, 2002 at the option of
the Company based on certain redemption prices (a)..... $ 395,000 $400,000
Senior subordinated notes, due March 2008, interest rate
8.75%, subject to redemption on or after March 1, 2003
at the option of the Company based on certain
redemption prices (a).................................. 196,500 200,000
Revolving credit facility, due June 2003, interest at
rates ranging from 8.00% to 9.75%, interest rates for
U.S. dollar loans are based on LIBOR or prime; Canadian
dollar loans are based on Canadian base rates and Dutch
guilder loans are based on Eurocurrency rates (b)...... 155,042 188,085
Term loans, due December 2005 and 2006, interest at
rates ranging from 8.30% to 10.5% (b).................. 270,540 172,520
Other................................................... 25,266 12,736
---------- --------
1,042,348 973,341
Less: Unamortized debt discount......................... (4,804) (5,322)
---------- --------
1,037,544 968,019
Less: Current maturities................................ (13,558) (4,842)
---------- --------
$1,023,986 $963,177
========== ========
- --------
(a) The senior subordinated notes are unsecured obligations subordinate in
right of payment to all existing and future senior indebtedness of the
Company and have customary provisions regarding redemption and changes in
control. The indentures for the senior subordinated notes contain covenants
including limitations on indebtedness, certain restricted payments,
transactions with affiliates, disposition of proceeds of asset sales,
liens, dividends and other payment restrictions affecting certain
subsidiaries, guarantees by certain subsidiaries, mergers and asset sales.
At December 30, 2000 the Company was in compliance with such covenants.
During the second quarter of 2000 the Company purchased $5.0 million
principal amount of its senior subordinated notes due July 2007 and $3.5
million principal amount of its senior subordinated notes due March 2008.
The Company recognized an extraordinary gain of $0.7 million, net of taxes,
on the retirement of these notes.
(b) On April 18, 2000, the Company amended its Credit Facility to add an
additional term loan in the amount of $100.0 million. The Company borrowed
the entire amount of the additional term loan and used the proceeds to
reduce amounts outstanding under the revolving portion of the Credit
Facility. The Credit Facility provides for secured revolving credit
borrowings with aggregate
37
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
commitments of up to $325.0 million and aggregate term loans of $275.0
million. Subject to certain terms and conditions, a portion of the Credit
Facility may be used for letters of credit. The Company had outstanding
letters of credit of approximately $16.7 million and unused commitments of
approximately $153.3 million under the Credit Facility as of December 30,
2000. Commitment fees under the Credit Facility are generally equal to a
percentage of the daily unused amount of such commitment. The Credit
Facility contains covenants and events of default customary for financings
of this type, to include leverage, fixed charge coverage and net worth. At
December 30, 2000 the Company was in compliance with such covenants.
The Credit Facility and the related guarantees are secured by (i) a lien on
substantially all of the assets of the Company and its domestic
subsidiaries, (ii) a pledge of all or a portion of the stock of the
domestic subsidiaries of the Company and of certain non-domestic
subsidiaries of the Company, (iii) a lien on substantially all of the
assets of direct foreign borrowers (to secure direct borrowings by such
borrowers), and (iv) a pledge of certain secured intercompany notes issued
to the Company or one of its subsidiaries by non-domestic subsidiaries.
See Note 16. "Subsequent Event" for a discussion of recent developments
surrounding the Company's financial performance and Amendment No. 6 to the
Credit Facility.
Long-term debt maturities consist of the following (in thousands):
2001.............................................................. 13,558
2002.............................................................. 6,819
2003.............................................................. 162,832
2004.............................................................. 88,006
2005.............................................................. 84,816
Thereafter........................................................ 681,513
38
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8. Condensed Consolidating Financial Statements
Payment of the Company's senior subordinated notes is unconditionally
guaranteed, jointly and severally, on a senior subordinated basis by certain
of the Company's wholly-owned subsidiaries. Management has determined that
separate complete financial statements of the guarantor entities would not be
material to users of the financial statements; therefore, the following sets
forth condensed consolidating financial statements (in thousands):
Condensed Consolidating Balance Sheet
As of December 30, 2000
Combined
Combined Non-
Guarantor Guarantor The Reclassifications
ASSETS Subsidiaries Subsidiaries Company and Eliminations Consolidated
------ ------------ ------------ ---------- ----------------- ------------
Cash and investments.... $ 663 $ 11,238 $ 18,687 $ -- $ 30,588
Accounts receivable,
net.................... 51,634 85,112 -- -- 136,746
Inventories............. 50,012 72,929 -- (190) 122,751
Other................... 22,136 19,200 8,735 901 50,972
---------- -------- ---------- ----------- ----------
Total current assets.. 124,445 188,479 27,422 711 341,057
Investment in
subsidiaries........... 689,130 -- 680,450 (1,369,580) --
Property, plant and
equipment, net......... 551,909 306,084 345 -- 858,338
Other................... 1,064,294 105,420 444,329 (1,305,444) 308,599
---------- -------- ---------- ----------- ----------
Total assets.......... $2,429,778 $599,983 $1,152,546 $(2,674,313) $1,507,994
========== ======== ========== =========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Accounts payable and
other.................. $ 13,175 $ 57,470 $ 46,889 $ 901 $ 118,435
Short-term borrowings... -- 10,416 8,189 -- 18,605
Current portion of long-
term debt ............. 46 11,032 2,480 -- 13,558
---------- -------- ---------- ----------- ----------
Total current
liabilities.......... 13,221 78,918 57,558 901 150,598
Long-term debt, less
current portion........ 1,703 22,527 999,756 -- 1,023,986
Other................... 1,115,684 273,711 30,076 (1,312,296) 107,175
Shareholders' equity.... 1,299,170 224,827 65,156 (1,362,918) 226,235
---------- -------- ---------- ----------- ----------
Total liabilities and
shareholders' equity. $2,429,778 $599,983 $1,152,546 $(2,674,313) $1,507,994
========== ======== ========== =========== ==========
39
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Balance Sheet
As of January 1, 2000
Combined
Combined Non-
Guarantor Guarantor The Reclassifications
ASSETS Subsidiaries Subsidiaries Company and Eliminations Consolidated
------ ------------ ------------ ---------- ----------------- ------------
Cash and investments.... $ 15,929 $ 20,253 $ 20,113 $ -- $ 56,295
Accounts receivable,
net.................... 66,264 66,985 -- -- 133,249
Inventories............. 50,879 62,751 -- (401) 113,229
Other................... 21,933 14,234 9,475 570 46,212
---------- -------- ---------- ----------- ----------
Total current assets.. 155,005 164,223 29,588 169 348,985
Investment in
subsidiaries........... 689,932 -- 802,348 (1,492,280) --
Property, plant and
equipment, net......... 519,846 284,834 18,528 141 823,349
Other................... 1,318,868 155,340 277,290 (1,457,586) 293,912
---------- -------- ---------- ----------- ----------
Total assets.......... $2,683,651 $604,397 $1,127,754 $(2,949,556) $1,466,246
========== ======== ========== =========== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
--------------------
Accounts payable and
other.................. $ 58,185 $ 51,841 $ 25,318 $ 821 $ 136,165
Short-term borrowings... -- 9,505 9,568 -- 19,073
Current portion of long-
term debt.............. -- 3,362 1,480 -- 4,842
---------- -------- ---------- ----------- ----------
Total current
liabilities.......... 58,185 64,708 36,366 821 160,080
Long-term debt, less
current portion........ 4,667 34,292 924,218 -- 963,177
Other................... 1,237,709 275,843 48,276 (1,461,123) 100,705
Shareholders' equity.... 1,383,090 229,554 118,894 (1,489,254) 242,284
---------- -------- ---------- ----------- ----------
Total liabilities and
shareholders' equity. $2,683,651 $604,397 $1,127,754 $(2,949,556) $1,466,246
========== ======== ========== =========== ==========
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended December 30, 2000
Combined
Combined Non-
Guarantor Guarantor The Reclassifications
Subsidiaries Subsidiaries Company and Eliminations Consolidated
------------ ------------ ------- ----------------- ------------
Net sales............... $494,061 $390,369 $ -- $(22,395) $862,035
Gross profit............ 94,719 97,389 -- (85) 192,023
Operating income (loss). 29,324 55,721 (397) (85) 84,563
Interest expense, income
taxes and other, net... (12,686) 41,170 3,926 56,476 88,886
-------- -------- ------- -------- --------
Net income (loss)....... $ 42,010 $ 14,551 $(4,323) $(56,561) $ (4,323)
======== ======== ======= ======== ========
40
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended January 1, 2000
Combined
Combined Non-
Guarantor Guarantor The Reclassifications
Subsidiaries Subsidiaries Company and Eliminations Consolidated
------------ ------------ -------- ----------------- ------------
Net sales............... $532,789 $399,756 $ -- $(42,750) $889,795
Gross profit............ 136,460 103,768 -- (618) 239,610
Operating income........ 67,445 51,767 1,631 (618) 120,225
Interest expense, income
taxes and other, net... 2,141 22,634 (31,809) 93,819 86,785
-------- -------- -------- -------- --------
Net income.............. $ 65,304 $ 29,133 $ 33,440 $(94,437) $ 33,440
======== ======== ======== ======== ========
Condensed Consolidating Statement of Operations
For the Fiscal Year Ended January 2, 1999
Combined
Combined Non-
Guarantor Guarantor The Reclassifications
Subsidiaries Subsidiaries Company and Eliminations Consolidated
------------ ------------ -------- ----------------- ------------
Net sales............... $513,057 $305,485 $ -- $(15,594) $802,948
Gross profit............ 122,305 80,579 -- 170 203,054
Operating income........ 63,423 36,438 5,646 48 105,555
Interest expense, income
taxes and other, net... 15,452 26,240 (14,058) 58,217 85,851
-------- -------- -------- -------- --------
Net income.............. $ 47,971 $ 10,198 $ 19,704 $(58,169) $ 19,704
======== ======== ======== ======== ========
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended December 30, 2000
Combined
Combined Non-
Guarantor Guarantor The Reclassifications
Subsidiaries Subsidiaries Company and Eliminations Consolidated
------------ ------------ -------- ----------------- ------------
Net cash provided by
(used in) operating
activities............. $ 53,894 $ 25,293 $(14,160) $(13,550) $ 51,477
Net cash provided by
(used in) investing
activities............. (66,307) (31,952) (24,430) 14,871 (107,818)
Net cash provided by
(used in) financing
activities............. (2,932) (18,365) 68,022 -- 46,725
Effect of exchange rate
changes on cash........ 79 16,009 (30,055) (1,321) (15,288)
-------- -------- -------- -------- ----------
Net change in cash and
equivalents............ (15,266) (9,015) (623) (24,904)
Cash and equivalents at
beginning of year...... 15,929 20,253 998 -- 37,180
-------- -------- -------- -------- ----------
Cash and equivalents at
end of year............ $ 663 $ 11,238 $ 375 $ -- $ 12,276
======== ======== ======== ======== ==========
41
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended January 1, 2000
Combined
Combined Non-
Guarantor Guarantor The Reclassifications
Subsidiaries Subsidiaries Company and Eliminations Consolidated
------------ ------------ -------- ----------------- ------------
Net cash provided by
(used in) operating
activities............. $ 95,842 $ 33,383 $(41,807) $ 19,982 $ 107,400
Net cash provided by
(used in) investing
activities............. (98,315) (65,068) (41,184) (20,053) (224,620)
Net cash provided by
(used in) financing
activities............. (1,074) 3,695 104,145 -- 106,766
Effect of exchange rate
changes on cash........ -- 17,177 (27,922) 71 (10,674)
-------- -------- -------- -------- ---------
Net change in cash and
equivalents............ (3,547) (10,813) (6,768) -- (21,128)
Cash and equivalents at
beginning of year...... 19,476 31,066 7,766 -- 58,308
-------- -------- -------- -------- ---------
Cash and equivalents at
end of year............ $ 15,929 $ 20,253 $ 998 $ -- $ 37,180
======== ======== ======== ======== =========
Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended January 2, 1999
Combined
Combined Non-
Guarantor Guarantor The Reclassifications
Subsidiaries Subsidiaries Company and Eliminations Consolidated
------------ ------------ --------- ----------------- ------------
Net cash provided by
(used in) operating
activities............. $120,057 $ (18,608) $ (42,744) $ 15,369 $ 74,074
Net cash provided by
(used in) investing
activities............. (89,930) 580,456 (343,272) (15,911) 131,343
Net cash provided by
(used in) financing
activities............. (16,840) (566,348) 388,748 -- (194,440)
Effect of exchange rate
changes on cash........ (2,532) (2,186) 1,317 542 (2,859)
-------- --------- --------- -------- ---------
Net change in cash and
equivalents............ 10,755 (6,686) 4,049 -- 8,118
Cash and equivalents at
beginning of year...... 8,721 37,752 3,717 -- 50,190
-------- --------- --------- -------- ---------
Cash and equivalents at
end of year............ $ 19,476 $ 31,066 $ 7,766 $ -- $ 58,308
======== ========= ========= ======== =========
42
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 9. Income Taxes
Significant components of the provision for income taxes are as follows:
Fiscal Year
-------------------------
2000 1999 1998
------- ------- -------
(In Thousands)
Current:
Federal and state................................. $(5,101) $ 6,878 $ 8,864
Foreign........................................... 7,532 8,094 5,878
Deferred:
Federal and state................................. (4,951) (80) (1,464)
Foreign........................................... (207) 3,692 879
------- ------- -------
Income tax (benefit) before extraordinary item and
cumulative effect of change in accounting
principle.......................................... (2,727) 18,584 14,157
Income tax (benefit) from:
Cumulative effect of change in accounting
principle........................................ -- -- (907)
Extraordinary item, gain from early extinguishment
of debt.......................................... 399 -- --
------- ------- -------
Total income tax expense (benefit).............. $(2,328) $18,584 $13,250
======= ======= =======
At December 30, 2000, the Company had: (i) operating loss carryforwards of
approximately $40.6 million for federal income tax purposes expiring in the
year 2020; (ii) German operating loss carryforwards of approximately $6.2
million with no expiration date; and (iii) Canadian capital loss carryforwards
of approximately $4.6 million with no expiration date. The Company has not
provided U.S. income taxes for undistributed earnings of foreign subsidiaries
that are considered to be retained indefinitely for reinvestment. The
distribution of these earnings would result in additional foreign withholding
taxes and additional U.S. federal income taxes to the extent they are not
offset by foreign tax credits, but it is not practicable to estimate the total
liability that would be incurred upon such a distribution. Significant
components of the Company's deferred tax assets and liabilities as of December
30, 2000 and January 1, 2000 are as follows:
2000 1999
-------- --------
(In Thousands)
Deferred tax assets:
Provision for bad debts................................... $ 2,573 $ 3,109
Inventory capitalization and allowances................... 2,717 3,715
Net operating loss and capital loss carryforwards......... 16,864 2,905
Tax credits (primarily alternative minimum tax credits)... 6,670 6,192
Foreign currency translation adjustment................... 19,543 10,739
Foreign tax credits....................................... 12,152 10,474
Other..................................................... 7,547 8,690
-------- --------
Total deferred tax assets............................... 68,066 45,824
Valuation allowance......................................... (15,077) (9,996)
-------- --------
Net deferred tax assets..................................... 52,989 35,828
Deferred tax liabilities:
Fixed assets and intangibles, net......................... (79,939) (83,302)
Other, net................................................ (11,155) (7,892)
-------- --------
Total deferred tax liabilities.......................... (91,094) (91,194)
-------- --------
Net deferred tax liabilities............................ $(38,105) $(55,366)
======== ========
43
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Taxes on income (loss) are based on earnings as follows:
Fiscal Year
-------------------------
2000 1999 1998
-------- ------- -------
(In Thousands)
Domestic........................................ $(31,003) $12,458 $16,233
Foreign......................................... 23,212 39,566 21,867
-------- ------- -------
$ (7,791) $52,024 $38,100
======== ======= =======
The provision for income taxes at the Company's effective tax rate differed
from the provision for income taxes at the statutory rate as follows:
Fiscal Year
-------------------------
2000 1999 1998
------- ------- -------
(In Thousands)
Computed income tax (benefit) at statutory
rate......................................... $(2,727) $18,208 $13,335
Goodwill and other............................ 1,257 596 2,307
Valuation allowance........................... 5,081 -- (1,999)
Interest...................................... (1,832) -- --
Tax credits................................... (2,869) (500) --
Effect of foreign operations, net............. (954) (2,063) 173
Other, net.................................... (683) 2,343 341
------- ------- -------
Provision for income taxes (benefit) before
extraordinary item and cumulative effect of
change in accounting principle............... (2,727) 18,584 14,157
Income tax (benefit) related to extraordinary
item and cumulative effect of change in
accounting principle......................... 399 -- (907)
------- ------- -------
Provision for income taxes (benefit).......... $(2,328) $18,584 $13,250
======= ======= =======
Note 10. Stock Option and Employee Stock Purchase Plans
Stock Option Plan
The Company's 1996 Key Employee Stock Option Plan is administered by the
Stock Option Committee, which is composed of non-management members of the
Company's Board of Directors. Any person who is a full-time, salaried employee
(excluding non-management directors) is eligible to participate in the plan.
The Stock Option Committee selects the participants and determines the terms
and conditions of the options. The plan provides for the issuance of options
covering 1.5 million shares of common stock, subject to certain adjustments
reflecting changes in the Company's capitalization. Options granted under the
plan may be either incentive stock options ("ISOs") or such other forms of
non-qualified stock options ("NQOs") as the Stock Option Committee may
determine. Option prices shall not be less than the fair value of the shares
at the date of grant and options vest in equal 20% increments over five years.
Options expire over a three or ten year period. The following table summarizes
the transactions of the plan for the three year period ended December 30,
2000:
44
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Weighed
Average
Number of Exercise
Shares Price
--------- --------
Unexercised options outstanding--January 3, 1998...... 719,775 14.90
Granted............................................. -- --
Exercised........................................... -- --
Forfeited........................................... (65,555) 14.91
Expired/canceled.................................... -- --
--------- ------
Unexercised options outstanding--January 2, 1999...... 654,220 14.90
Granted............................................. 636,000 12.00
Exercised........................................... (1,800) 14.25
Forfeited........................................... (9,700) 14.60
Expired/canceled.................................... -- --
--------- ------
Unexercised options outstanding--January 1, 2000...... 1,278,720 $13.46
Granted............................................. -- --
Exercised........................................... (2,400) 14.25
Forfeited........................................... (34,000) 14.11
Expired/canceled.................................... (126,344) 14.86
--------- ------
Unexercised options outstanding--December 30, 2000.... 1,115,976 $13.28
========= ======
Exercisable options:
January 2, 1999..................................... 261,688 14.90
January 1, 2000..................................... 280,520 15.13
December 30, 2000................................... 499,832 13.43
Shares available for future grant..................... 384,024
At December 30, 2000, the exercise price of the outstanding options ranges
from $12.00 to $18.00 and the weighted average remaining contractual life of
the outstanding options is approximately six years.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123") establishes financial accounting and reporting
standards for stock-based compensation plans. As permitted by FAS 123, the
Company elected to account for stock-based compensation awards in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees." Accordingly, no compensation cost has been recognized in the
Company's financial statements for the plan. The fair value for each option
grant was determined by using the Black-Scholes option-pricing model with the
following weighted average assumptions used for 2000, 1999 and 1998; dividend
yield of 1.0% in 2000 and 1999 and 0.0% in 1998; expected volatility of 0.44
in 2000 and 1999 and 0.56 in 1998; risk-free interest rate of 6.1% in 2000,
1999 and 1998; and weighted average expected lives of five years in 2000, 1999
and 1998. Had compensation cost been determined based on the fair value at the
grant date for such awards in 2000, 1999 and 1998, respectively, consistent
with the provisions of FAS 123, the Company's net income (loss) and net income
(loss) per share would have been reduced to the pro forma amounts indicated
below.
Fiscal year
------------------------
2000 1999 1998
------- ------- -------
(In Thousands, Except
Per Share Data)
Net income (loss):
As reported.................................... $(4,323) $33,440 $19,704
Pro forma...................................... (5,356) 32,579 19,033
Net income (loss) per common share--basic:
As reported.................................... $ (.14) $ 1.05 $ .62
Pro forma...................................... (.17) 1.02 .59
Net income (loss) per common share--diluted:
As reported.................................... $ (.13) $ 1.04 $ .62
Pro forma...................................... (.17) 1.02 .59
Weighted average fair value per option granted... $ -- $ 5.19 $ --
45
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The pro forma impact of these options is not likely to be representative of
the effects on reported net income for future years.
Employee Stock Purchase Plan
The Company sponsors a stock purchase plan that allows employee
participants to purchase common stock of the Company through payroll
deductions. Purchases of shares are made by a third party administrator at the
fair value of the Company's common stock on the transaction date. The cost of
the stock purchase plan was not significant during 2000, 1999 or 1998.
Note 11. Shareholders' Equity
The Company's authorized capital stock consists of 100,000,000 shares of
common stock, par value $0.01 per share, 3,000,000 shares of non-voting common
stock, par value $0.01 per share, and 10,000,000 shares of preferred stock,
par value $0.01 per share. Subject to certain regulatory limitations, the non-
voting common stock is convertible on a one-for-one basis into common stock at
the option of the holder. The Company's Board of Directors may, without
further action by the shareholders, direct the issuance of shares of preferred
stock and may determine the rights, preferences, conversion features, dividend
rate (including whether such dividend shall be cumulative or noncumulative)
and limitations of each issue. Satisfaction of any dividend preferences of
outstanding shares of preferred stock would reduce the amount of funds
available for common dividends. Holders of shares of preferred stock may be
entitled to receive a preference before any payment is made to common
shareholders.
On April 15, 1996, the Company's Board of Directors declared a dividend of
one right for each share of common stock outstanding at the close of business
on June 3, 1996. The holders of additional common stock issued subsequent to
such date and before the occurrence of certain events are entitled to one
right for each additional share. Each right entitles the registered holder
under certain circumstances to purchase from the Company one-thousandth of a
share of Series A junior preferred stock at a price of $80 per one-thousandth
share of junior preferred stock, subject to adjustment. The Company may redeem
the rights at $.01 per right prior to the occurrence of certain events. Prior
to exercise of a right, the holder will have no rights as a stockholder of the
Company, including, without limitation, the right to vote or to receive
dividends or distributions. In addition, the rights have certain anti-takeover
effects. The rights are not issued in separate form and may not be traded
other than with the shares to which they attach. If unexercised, the rights
expire on June 3, 2006. 100,000 shares of junior preferred stock are reserved
for issuance under this plan.
46
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 12. Pension Benefits and Postretirement Plans
The Company and its subsidiaries sponsor multiple defined benefit plans and
other postretirement benefit plans that cover certain employees. Benefits are
based on years of service and the employee's compensation. It is the Company's
policy to fund such plans in accordance with applicable laws and regulations.
Postretirement
Pension Benefits Plans
------------------ ----------------
2000 1999 2000 1999
-------- -------- ------- -------
(In Thousands)
Benefit obligation at beginning of
year.............................. $(50,961) $(47,864) $(5,411) $(6,267)
Service costs...................... (2,124) (2,116) (84) (77)
Interest costs..................... (3,300) (2,926) (402) (366)
Actuarial (loss)/gain.............. (839) (2,749) (976) 942
Currency translation adjustment and
other............................. 1,647 2,684 95 (152)
Benefit payments................... 1,669 1,501 334 509
Curtailments....................... -- 509 -- --
-------- -------- ------- -------
Benefit obligation at end of year.. $(53,908) $(50,961) $(6,444) $(5,411)
-------- -------- ------- -------
Fair value of plan assets at
beginning of year................. $ 57,597 $ 54,576 $ -- $ --
Actual return on plan assets....... 4,588 4,525 -- --
Employer contribution.............. 2,232 3,317 334 509
Plan amendments.................... (154) (53) -- --
Benefit payments................... (1,583) (1,521) (334) (509)
Currency translation adjustment and
other............................. (1,995) (3,247) -- --
-------- -------- ------- -------
Fair value of plan assets at end of
year.............................. $ 60,685 $ 57,597 $ -- $ --
======== ======== ======= =======
Funded status at year-end.......... $ 6,777 $ 6,636 $(6,444) $(5,411)
Unrecognized transition net
(liability)....................... (447) (477) -- --
Unrecognized transition net
gain/(loss)....................... 3,294 3,150 280 (695)
Unrecognized prior service cost.... 229 309 -- --
Currency translation adjustment and
other............................. 1,244 1,486 (97) (10)
-------- -------- ------- -------
Prepaid (accrued) benefit cost..... $ 11,097 $ 11,104 $(6,261) $(6,116)
======== ======== ======= =======
47
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pension Benefits Postretirement Plans
---------------------------- ---------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- ------- ------- ---------
(In Thousands, Except Percent Data)
Components of net
periodic benefit cost:
Current service costs. $ 2,124 $ 2,116 $ 1,827 $ 84 $ 77 $ 72
Interest costs on
projected benefit
obligation and other. 3,300 2,926 3,098 402 366 360
(Return) on plan
assets............... (4,033) (3,622) (2,943) -- -- --
Net amortization of
transition obligation
and other............ 467 (320) (1,512) -- -- --
-------- -------- -------- ------- ------- ---------
Periodic benefit cost,
net.................. $ 1,858 $ 1,100 $ 470 $486 $443 $432
======== ======== ======== ======= ======= =========
Weighted average
assumption rates:
Return on plan assets. 6.5-9.0% 6.5-9.0% 6.5-9.0% -- -- --
Discount rate on
projected benefit
obligations.......... 6.25-7.5% 6.25-7.5% 5.25-9.0% 6.5-7.5% 6.5-7.5% 5.75-7.75%
Salary and wage
escalation rate...... 3.0-5.0% 3.0-5.0% 2.5-6.5% -- -- --
The assumed annual composite rate of increase in the per capita cost of
Company provided health care benefits are reflected in the following table:
Composite
Rate of
Year Increase
---- ---------
1998........................................................... 7.0-9.0%
1999........................................................... 6.0-10.0
2000........................................................... 1.0-10.0
2001........................................................... 7.1-8.0
2002........................................................... 6.6-8.0
2003........................................................... 6.0-6.1
2004........................................................... 5.0-6.0
2005........................................................... 5.0-5.1
2006 and thereafter............................................ 4.6-5.0
48
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A one-percentage point change in assumed health care cost trend rates would
have the following effects:
1-Percentage 1-Percentage
Point Point
Increase Decrease
------------ ------------ ---
(In Thousands)
Effect on total of service and interest
cost components.......................... $ 51 $ (44)
Effect on postretirement benefit
obligation............................... 531 (452)
The Company sponsors several defined contribution plans through its
domestic subsidiaries covering employees who meet certain service
requirements. The Company makes contributions to the plans based upon a
percentage of the employees' contribution in the case of its 401(k) plans or
upon a percentage of the employees' salary or hourly wages in the case of its
noncontributory money purchase plans. The cost of the plans was $3.9, $3.5 and
$2.9 million for 2000, 1999 and 1998, respectively.
49
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 13. Segments and Geographic Information
The Company discloses information about segments and geographic data in
accordance with SFAS 131, "Disclosures about Segments of an Enterprise and
Related Information." 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. Due to a change in the Company's
internal reporting structure, continued product diversification and end market
expansion, the Company changed its reportable segments during the first
quarter of fiscal 2000 to Consumer and Industrial & Specialty and restated
prior period segment information to reflect this change. Sales to P&G and J&J
who each account for greater than 10% of the Company's sales, are reported
primarily within the Consumer segment. The loss of these sales would have a
material adverse effect on this segment. 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 segment assets and
certain costs is the percent of net sales method. Financial data by segment is
as follows (in thousands):
Fiscal Year
--------------------------------
2000 1999 1998
---------- ---------- ----------
Net sales to unaffiliated customers
Consumer............................. $ 486,328 $ 511,211 $ 443,453
Industrial and specialty............. 375,707 378,584 359,495
---------- ---------- ----------
$ 862,035 $ 889,795 $ 802,948
========== ========== ==========
Operating income
Consumer............................. $ 62,191 $ 94,046 $ 62,847
Industrial and specialty............. 22,372 26,179 42,708
---------- ---------- ----------
$ 84,563 $ 120,225 $ 105,555
========== ========== ==========
Depreciation and amortization
Consumer............................. $ 43,499 $ 37,083 $ 35,229
Industrial and specialty............. 28,766 29,463 24,096
---------- ---------- ----------
$ 72,265 $ 66,546 $ 59,325
========== ========== ==========
Identifiable assets
Consumer............................. $ 767,866 $ 783,893 $ 638,911
Industrial and specialty............. 652,197 585,948 560,475
Corporate (1)........................ 87,931 96,405 83,581
---------- ---------- ----------
Total.............................. $1,507,994 $1,466,246 $1,282,967
========== ========== ==========
Capital spending
Consumer............................. $ 48,530 $ 109,158 $ 49,758
Industrial and specialty............. 37,492 80,838 40,338
---------- ---------- ----------
$ 86,022 $ 189,996 $ 90,096
========== ========== ==========
- --------
(1) Consists primarily of cash, short-term investments, loan acquisition costs
and other corporate related assets.
50
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Geographic data for the Company's operations are presented in the following
table. Export sales from the Company's United States operations to unaffiliated
customers approximated $95.8, $110.0 and $93.9 million during 2000, 1999 and
1998, respectively.
Fiscal Year
--------------------------------
2000 1999 1998
---------- ---------- ----------
(In Thousands)
Net sales to unaffiliated customers
United States........................ $ 471,666 $ 490,039 $ 467,836
Canada............................... 98,152 106,253 104,518
Europe............................... 202,699 241,669 186,656
Asia................................. 18,081 8,302 --
Latin America........................ 71,437 43,532 43,938
---------- ---------- ----------
$ 862,035 $ 889,795 $ 802,948
========== ========== ==========
Identifiable assets
United States........................ $ 924,022 $ 908,306 $ 801,791
Canada............................... 154,254 155,208 154,070
Europe............................... 239,202 262,137 240,004
Asia................................. 42,104 50,101 10,425
Latin America........................ 148,412 90,494 76,677
---------- ---------- ----------
$1,507,994 $1,466,246 $1,282,967
========== ========== ==========
Note 14. Quarterly Results of Operations (Unaudited)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
(In Thousands, Except Per Share
Data)
Fiscal year ended December 30, 2000
Net sales................................ $231,952 $223,801 $203,516 $202,766
Gross profit............................. 51,536 50,851 41,805 47,831
Income (loss) before extraordinary item.. 2,137 679 (5,646) (2,234)
Extraordinary item....................... -- 741 -- --
Net income (loss)........................ 2,137 1,420 (5,646) (2,234)
Net income (loss) per common share--basic
and diluted:
Income (loss) before extraordinary item.. $ 0.07 $ 0.02 $ (0.18) $ (0.07)
Extraordinary item....................... -- 0.02 -- --
-------- -------- -------- --------
Net income (loss) per common share--basic
and diluted............................. $ 0.07 $ 0.04 $ (0.18) $ (0.07)
======== ======== ======== ========
Fiscal year ended January 1, 2000
Net sales................................ $210,147 $223,819 $222,486 $233,343
Gross profit............................. 53,268 61,920 60,820 63,602
Net income............................... 5,832 8,645 8,203 10,760
Net income per common share--basic....... $ 0.18 $ 0.27 $ 0.26 $ 0.34
Net income per common share--diluted..... $ 0.18 $ 0.27 $ 0.26 $ 0.33
During the second quarter of 2000, the Company recorded a one-time gain from
the extinguishment of debt of $0.7 million, net of $0.4 million in taxes.
51
POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 15. Certain Matters
From time to time, the Company enters into transactions whereby technology
is licensed or made available to developmental partners within the industry.
Amounts recognized for technology transfers during 2000 and 1998 were not
material when compared to consolidated net sales. There were no technology
transfers made during 1999. In addition, from time to time, the Company enters
into transactions where strategic partners share in the achievement of
initiatives designed to mitigate development and product qualification costs.
Such amounts were not material when compared to consolidated cost of sales
during 2000, 1999 or 1998.
The Company's corporate headquarters are housed in space leased by a
shareholder of the Company from an affiliate of the shareholder. A portion of
the payments and other expenses, primarily insurance and allocated costs, are
charged to the Company. Such amounts approximated $1.7, $2.7 and $1.8 million
in 2000, 1999 and 1998 respectively. The Company leases a manufacturing
facility from an affiliated entity that the Company believes is comparable to
similar properties in the area. Annual rent expense relating to this lease
approximated $0.2 million in 2000, 1999 and 1998. In addition, during 2000 the
Company purchased equipment for approximately $0.3 million from an entity
affiliated with the Company. The Company believes that the purchase price for
this equipment was comparable to that which would have been paid to an
unaffiliated third party.
As part of the acquisition of Dominion, $69.0 million was received from ZB
Holdings, Inc. ("ZB Holdings"), an entity affiliated with the Company. This
amount, including interest of approximately $0.6 million, was repaid during
January 1998. In connection with this transaction, ZB Holdings requested
consideration from the Company in return for providing a portion of the
financing required to complete the tender offer for the outstanding shares of
Dominion. Independent members of the Board of Directors engaged outside legal
counsel and an independent banking firm to evaluate this request. Pursuant to
the review, ZB Holdings received $5.3 million during 1998 from the Company
that was capitalized as part of the cost of the acquisition.
Note 16. Subsequent Event
On March 13, 2001, the Company announced that first quarter and fiscal year
2001 financial results were expected to be materially below previous
expectations, and as a result, did not expect to be in compliance with its
bank covenants.
The factors that impacted 2000 results continue to have a negative impact
on operations in 2001. Demand for certain high margin consumer products has
not returned to forecasted levels resulting in certain specialized
manufacturing assets remaining under utilized. In addition, the
commercialization of certain APEX(R) programs has taken longer than
anticipated. However, the Company currently expects the ramp-up of APEX(R)
products to accelerate in the third and fourth fiscal quarters of 2001. Raw
material prices have not declined as anticipated and soft demand has prevented
the Company from passing along the increased raw material costs. However, the
Company currently anticipates raw material pricing to stabilize during fiscal
2001. In addition, there continues to be pricing pressure and margin erosion
within the spunmelt technologies. Finally, in addition to these factors which
are a carry over from 2000, the Company is experiencing short-term order
reductions and an unfavorable shift in product mix due to adjustments of
certain customers. The Company currently expects demand for certain consumer
products to accelerate during the third and fourth fiscal quarters of 2001.
On April 11, 2001, the Company entered into Amendment No. 6 dated as of
April 11, 2001 to its Credit Facility, which waived the leverage covenant
default that existed as of March 31, 2001. The amendment modified the existing
financial covenants relating to senior leverage ratio, fixed charge coverage
ratio and minimum required levels of EBITDA. The amendment also increases the
52
interest rate by 75 basis points on the outstanding amounts under the Credit
Facility, limits amounts outstanding under the revolving portion of the Credit
Facility (together with outstanding letters of credit) to $260 million, limits
capital expenditures to $35 million for fiscal year 2001, restricts the
Company from incurring new indebtedness or creating certain liens, restricts
the Company from making new investments or acquisitions and prevents the
Company from paying dividends on its Common Stock or making other restricted
payments. The Company was required to pay a fee to the lenders equal to 1/2 of
1% of the outstanding commitments of the lenders. The Company also affirmed
its intention in the amendment to reduce the amount outstanding under the
Credit Facility by not less than $150 million through one or more asset
dispositions, including sale-leaseback transactions, synthetic leases or asset
securitizations on or before August 15, 2001. In the event that the Company
does not complete such asset dispositions and reduce outstanding indebtedness
under the Credit Facility by not less than $150 million on or before August
15, 2001, the rate of interest on the outstanding loans will increase by 50
basis points and the Company will be required to pay a fee equal to 1/2 of 1%
of the outstanding commitments of the lenders. The Company is currently in
active discussions to undertake such asset dispositions to improve its
financial condition. In addition, the Company intends to take certain actions
designed to alter its capital structure which may include raising additional
equity and/or reducing outstanding indebtedness. However, there can be no
assurance that the Company will complete any of the potential transactions or
that the transactions can be completed on terms and conditions acceptable to
the Company.
Amendment No. 6 also grants the Company a waiver with respect to the
existing default under the leverage covenant through and including December
29, 2001, at which time the waiver expires. Based upon current operating
projections, the Company would be in default under the Credit Facility upon
the expiration of the waiver, unless the actions described above were
completed. A failure by the Company to complete the actions described above in
order to comply with the financial covenants under the Credit Facility
including the leverage ratio and fixed charge coverage ratio covenants, would
result in an event of default under the Credit Facility, which could have a
material adverse effect on the Company.
The Company will evaluate any potential non-cash write-off of loan
acquisition costs as a result of Amendment No. 6 prior to the end of the
second fiscal quarter of 2001. At December 30, 2000, the net book value of
loan acquisition costs related to the Company's Credit Facility was $10.8
million.
53
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In connection with the Nonwovens Acquisition on January 29, 1998, the
Company appointed Ernst & Young LLP, independent auditors, as independent
accountants for the subsidiaries comprising the nonwovens and industrial
fabrics business of Dominion to replace Deloitte & Touche LLP ("Deloitte &
Touche"), chartered accountants, whom the Company dismissed as of January 29,
1998.
Deloitte & Touche has been provided with a copy of this disclosure and
requested by the Company to furnish a letter addressed to the Commission
stating whether they agree with the above statements. A copy of Deloitte &
Touche's letter to the Commission is filed as an exhibit to this Annual Report
on Form 10-K.
PART III
ITEM 10. MANAGEMENT
Information required under this item is incorporated by reference from the
Proxy Statement under the captions "Election of Directors" and "Executive
Compensation."
ITEM 11. EXECUTIVE COMPENSATION
Information required under this Item is incorporated by reference from the
Proxy Statement under the caption "Executive Compensation."
ITEM 12. SECURITY OWNERSHIP
Information required under this Item is incorporated by reference from the
Proxy Statement under the caption "Security Ownership."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required under this Item is incorporated by reference from the
Proxy Statement under the caption "Certain Relationships and Related
Transactions."
54
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements and Schedules
(a) The following financial statements and independent auditors report
required by this Item are filed herewith under Item 8.
(i) Report of Ernst & Young LLP, Independent Auditors.
(ii) Consolidated Balance Sheets.
(iii) Consolidated Statements of Operations.
(iv) Consolidated Statements of Shareholders' Equity.
(v) Consolidated Statements of Cash Flows.
(vi) Notes to Consolidated Financial Statements.
(b) Schedule II--Valuation and Qualifying Accounts ("Schedule II").
Supplemental schedules other than Schedule II are omitted because of the
absence of conditions under which they are required or because the required
information is included in the consolidated financial statements or in the
notes thereto.
Exhibits
Exhibits required to be filed with this Form 10-K are listed in the
following Exhibit Index.
Form 8-K
The Company filed no reports on Form 8-K during the fourth quarter of 2000.
55
POLYMER GROUP, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ------------ ---------------- ---------- --------
ADDITIONS
---------------- Balance
Balance at Charged to at End
Beginning of Costs and Deductions of
Description Period Expenses Other (Describe) Period
----------- ------------ ---------- ----- ---------- --------
Year ended December 30,
2000
Allowance for doubtful
accounts.................. $10,587 122 21 2,191(1) $ 8,539
Valuation allowance for
deferred tax assets....... $ 9,996 5,081 -- -- $15,077
Year ended January 1, 2000
Allowance for doubtful
accounts.................. $ 7,603 5,638 -- 2,654(1) $10,587
Valuation allowance for
deferred tax assets....... $ 4,848 5,148 -- -- $ 9,996
Year ended January 2, 1999
Allowance for doubtful
accounts.................. $ 5,503 6,860 100(2) 4,860(1) $ 7,603
Valuation allowance for
deferred tax assets....... $ 5,927 -- -- 1,079(3) $ 4,848
Restructuring costs........ $ 5,484 -- -- 5,484(3) --
- --------
(1) Uncollectible accounts written-off and price concessions.
(2) Reserve established as part of business acquisition.
(3) Charges to reserve.
56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 and
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Report has been signed below by the following
persons on behalf of the registrant in the capacities indicated on April 11,
2001.
Signature Title
--------- -----
/s/ Jerry Zucker Chairman, Chief Executive Officer,
___________________________________________ President and Director (principal
Jerry Zucker executive officer)
/s/ James G. Boyd Executive Vice President, Chief Financial
___________________________________________ Officer, Treasurer and Director
James G. Boyd (principal financial officer and
principal accounting officer)
/s/ Bruce V. Rauner Director
___________________________________________
Bruce V. Rauner
/s/ David A. Donnini Director
___________________________________________
David A. Donnini
/s/ L. Glenn Orr, Jr. Director
___________________________________________
L. Glenn Orr, Jr.
/s/ Duncan M. O'Brien, Jr. Director
___________________________________________
Duncan M. O'Brien, Jr.
57
EXHIBIT INDEX
Exhibit
Number Document Description
------- -------------------- ---
2.1 Agreement dated October 27, 1997, among Polymer Group, Inc.,
Galey & Lord, Inc. and DT Acquisition Inc.(1)
2.2 Letter Agreement, dated October 27, 1997, among Polymer Group,
Inc., Galey & Lord, Inc. and DT Acquisition Inc.(2)
2.3 Operating Agreement, dated December 19, 1997, among Polymer
Group, Inc., Galey & Lord, Inc. and DT Acquisition Inc.(1)
2.4 DT Acquisition Inc. Offers to Purchase Statement for all
outstanding Common Shares and all outstanding First Preferred
Shares of Dominion Textile Inc., dated October 29, 1997.(2)
2.5 Notice of Extension and Variation by DT Acquisition Inc. in
respect of its Offers to Purchase, dated November 18, 1997.(2)
2.6 Notice of Extension by DT Acquisition Inc. in respect of its
Offers to Purchase, dated December 2, 1997.(2)
2.7 Notice of Extension and Variation by DT Acquisition Inc. in
respect of its Offers to Purchase, dated December 8, 1997.(2)
2.8 Notice of Extension by DT Acquisition Inc. in respect of its
Offers to Purchase, dated December 17, 1997.(2)
2.9 Letter Agreement between DT Acquisition Inc., PGI and DTI dated
November 16, 1997.(2)
2.10 Notice of Redemption pursuant to the provisions of Section 206
of the Canada Business Corporations Act in regard to holders of
Common Shares of Dominion Textile Inc., dated December 30,
1997.(2)
2.11 Notice of Redemption pursuant to the provisions of Section 206
of the Canada Business Corporations Act in regard to holders of
First Preferred Shares of Dominion Textile Inc., dated December
30, 1997.(2)
2.12 Notice of Redemption in regard to holders of Second Preferred
Shares, Series D of Dominion Textile Inc., dated December 23,
1997.(2)
2.13 Notice of Redemption in regard to holders of Second Preferred
Shares, Series E of Dominion Textile Inc., dated December 23,
1997.(2)
2.14 Indenture, winding up Dominion Textile Inc. pursuant to the
Canada Business Corporations Act, dated January 29, 1998.(2)
2.15 Master Separation Agreement, among Polymer Group, Inc., Galey &
Lord, Inc. and DT Acquisition Inc., dated January 29, 1998.(3)*
3.1(i) Form of Amended and Restated Certificate of Incorporation of the
Company.(4)
3.1(ii) Certificate of Designation of the Company.(7)
3.2 Amended and Restated By-laws of the Company.(4)
4.1 Indenture dated as of July 1, 1997 among the Company, the
Guarantors and Harris Trust and Savings Bank, as trustee.(7)
4.2 Forms of Series A and Series B 9% Senior Subordinated Notes due
2007.(5)
4.3 Form of Guarantee.(5)
1
Exhibit
Number Document Description
------- -------------------- ---
4.4 Registration Rights Agreement dated as of July 3, 1997 among the
Company, the Guarantors and Chase Securities Inc.(7)
4.5 Indenture, dated as of March 1, 1998 among Polymer Group, Inc.,
the Guarantors named therein and Harris Trust and Savings Bank,
as trustee.(5)
4.6 Forms of Series A and Series B 8 3/4% Senior Subordinated Notes
due 2008.(5)
4.7 Form of Guarantee.(5)
4.8 Registration Rights Agreement dated as of March 5, 1998, among
Polymer Group, Inc., the Guarantors named therein and Chase
Securities Inc.(6)
4.9 Amended and Restated Credit Agreement dated July 3, 1997 by and
among the Company, the Guarantors named therein, the lenders
named therein and The Chase Manhattan Bank, as agent.(7)
The Registrant will furnish to the Commission, upon request,
each instrument defining the rights of holders of long-term debt
of the Registrant and its subsidiaries where the amount of such
debt does not exceed 10 percent of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
4.10 First Supplemental Indenture, dated October 27, 1997, between
Polymer Group Inc., Harris Trust and Savings Bank and Loretex
Corporation.(2)
4.11 Second Supplemental Indenture dated January 29, 1998, to
indenture dated June 30, 1997, among Polymer Group, Inc.,
Dominion Textile (USA) Inc., with respect to the 9% Senior
Subordinated Notes due 2008.(2)
10.1 Purchase Agreement, dated February 27, 1998, by and among
Polymer Group, Inc., the Guarantors named herein and Chase
Securities Inc., as Initial Purchaser, with respect to the 8
3/4% Senior Subordinated Notes due 2008.(6)
10.2 Amendment No. 2, dated January 29, 1998, to the Amended,
Restated and Consolidated Credit Agreement dated July 3, 1997 by
and among Polymer Group, Inc., the Guarantors named therein, the
lenders named therein and The Chase Manhattan Bank, as agent.(6)
10.3 Amendment No. 3, dated April 9, 1999, to the Amended, Restated
and Consolidated Credit Agreement dated July 3, 1997 by and
among Polymer Group, Inc., the Guarantors named therein, the
lenders named therein and the Chase Manhattan Bank, as agent.(9)
10.5 Amendment No. 4, dated March 30, 2000, the Amended, Restated and
Consolidated Credit Agreement dated July 3, 1997 by and among
Polymer Group, Inc., the Guarantors named therein, the lenders
named therein and the Chase Manhattan Bank, as agent. (11)
10.6 Amendment No. 5, dated August 10, 2000, the Amended, Restated
and Consolidated Credit Agreement dated July 3, 1997 by and
among Polymer Group, Inc., the Guarantors named therein, the
lenders named therein and the Chase Manhattan Bank, as agent.
(13)
11 Statement of Computation of Per Share Earnings.
16 Letter of Deloitte & Touche regarding a change in certified
accountants.(2)
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP.
99.1 Press release dated March 13, 2001.
2
- --------
* Certain portions of the Agreement have been omitted and filed separately
with the Commission pursuant to an Application for Confidential Treatment.
(1) Incorporated by reference to the respective exhibit to the Company's Form
8-K, dated February 13, 1998.
(2) Incorporated by reference to the respective exhibit to the Company's Form
10-K, dated April 3, 1998, for the fiscal year ended January 3, 1998.
(3) Incorporated by reference to the respective exhibit to the Company's Form
8-K/A, dated April 14, 1998.
(4) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-1 (Reg. No. 333-2424).
(5) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-4 (Reg. No. 333-55863).
(6) Incorporated by reference to the respective exhibit to the Company's Form
10-Q, dated May 19, 1998, for the fiscal quarter ended April 4, 1998.
(7) Incorporated by reference to the respective exhibits to the Company's
Registration Statement on Form S-4 (Reg. No. 333-32605).
(8) Incorporated by reference to the respective exhibit to the Company's Form
10-Q, dated November 14, 2000 for the fiscal quarter ended September 30,
2000.
(9) Incorporated by reference to the respective exhibit to the Company's Form
10-Q, dated August 17, 1999 for the fiscal quarter ended July 3, 1999.
(10) Incorporated by reference to the respective exhibit to the Company's Form
10-Q, dated May 15, 2000 for the fiscal quarter ended April 1, 2000.
(11) Incorporated by reference to the respective exhibit to the Company's Form
10-Q, dated August 14, 2000 for the fiscal quarter ended July 1, 2000.
3