CHARLOTTE, N.C., Aug. 11 /PRNewswire-FirstCall/ -- Polymer Group, Inc. (OTC Bulletin Board: POLGA; POLGB) announced today it filed a Form 12b-25 with the Securities Exchange Commission (SEC) to extend the time to file its Quarterly Report on Form 10-Q.
On August 7, 2006, the Audit Committee of the Board of Directors of Polymer Group, Inc. ("PGI" or "Company") became aware of issues relating to certain transactions that occurred in the quarter ended July 1, 2006 that created uncertainty regarding the appropriate accounting treatment for, and the economic substance of, those transactions, including whether income should be recognized in the second quarter of fiscal 2006 in connection with the transactions. As a result, the Audit Committee began an internal investigation and has engaged special counsel to assist with the investigation of the transactions and related matters. PGI cannot predict with certainty when the investigation will be completed.
Based on current information, PGI expects that income from the transactions will not be recognized in the quarter ended July 1, 2006, believes that no accounting periods prior to the quarter ended July 1, 2006 are affected, and will endeavor to file its second quarter Form 10-Q by August 15, 2006, which is the end of the extension period. However, because the investigation is preliminary and ongoing, no assurances can be given as to the outcome of these matters or when the Form 10-Q will be filed.
Preliminary Summary Results
While the Company expects to report that net sales increased from $235.9 million in the second quarter of 2005 to $248.7 million in the second quarter of 2006, estimated gross profit is expected to decrease from $41.9 million to $36.5 million during the same period. During the quarter, the Company expects to recognize several charges, both cash and non-cash, which negatively impacted operating income. These charges are expected to include $7.9 million for asset impairments, $2.7 million for restructuring and plant realignment costs and $3.7 million for costs associated with an abandoned acquisition. Additionally, the Company expects to recognize foreign currency losses of $2.4 million during the quarter compared to a gain of $0.07 million in the second quarter of 2005. As a result of the above, the Company currently estimates it will report an operating loss of $5.8 million for the second quarter of 2006 compared to operating income of $16.0 million in the second quarter of 2005.
The Company expects to incur $1.1 million of lower interest expense during the current quarter compared to the prior year, and to benefit from the absence of $2.4 million of accrued and paid-in-kind dividends on PIK preferred shares recognized during the second quarter of 2005. The resulting estimated net loss available to common shareholders for the three months ended July 1, 2006 is $12.6 million compared to net income available to shareholders of $1.7 million in the comparable period of the prior year.
The above amounts do not include the impacts, if any, which may result from the investigation described above.
The Company expects to report that net sales for the six month period ended July 1, 2006 increased $28.9 million over the prior year comparable period to $509.1 million in 2006. Gross profit for the six month period is expected to decrease in 2006 to $79.7 million from $85.9 million for the same period in 2005. Due primarily to the above-mentioned charges in the second quarter and the decline in gross profit, operating income is expected to decrease to $2.8 million for the six months ended July 1, 2006 from $32.4 million for the six months ended July 2, 2005.
For the six months ended July 1, 2006, the Company expects to incur $2.4 million of lower interest expense when compared to the comparable 2005 period. Additionally, in the 2005 period, income applicable to common shareholders was reduced in the amount of $13.2 million for accrued and paid-in-kind dividends on PIK preferred shares; as such shares were redeemed in 2005, no such charge will be reflected in the 2006 results. As a result of the above, the Company expects to report a net loss applicable to common shareholders of $14.2 million for the six months ended July 1, 2006 compared to a net loss applicable to common shareholders of $4.0 million for same period in 2005.
The above amounts do not include the impacts, if any, which may result from the investigation described above.
"The second quarter was a challenging quarter for Polymer Group. Our business was impacted by higher raw material costs coupled with continued weakness in some of the commodity markets within our Oriented Polymers Division (OPD). Additionally, we saw weaker volumes in our consumer markets as certain customers adjusted inventory levels," said James Schaeffer, chief executive officer of PGI.
"Despite the weak quarter, we continued to make progress with our expansion plans and put initiatives in place to improve profitability going forward. The anticipated non-cash asset impairment charges and the restructuring and plant realignment charges during the quarter were associated with profit improvement plans in our OPD businesses and management changes in our European division to improve the effectiveness of our global operations.
"During the quarter, we successfully addressed certain start-up issues related to our Cali, Colombia line and the line is expected to significantly contribute to operations in the second half of the year. Additionally, we held a commissioning ceremony for our new line in Mooresville in June, which is currently ramping up and also expected to contribute to volume growth in the second half. The new line in Suzhou, China is installed and shipped preliminary commercial product this month. The line will continue with qualification and is expected to contribute to performance in the latter portion of the year. These capital expansion programs are expected to provide strong momentum leading into 2007," Schaeffer said.
The company intends to fill a full earnings release upon the filing of the Form 10-Q with the SEC.
Polymer Group, Inc., one of the world's leading producers of nonwovens, is a global, technology-driven developer, producer and marketer of engineered materials. With the broadest range of process technologies in the nonwovens industry, PGI is a global supplier to leading consumer and industrial product manufacturers. The company operates 22 manufacturing facilities in 10 countries throughout the world.
Safe Harbor Statement
Except for historical information contained herein, the matters set forth in this press release are forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements speak only as of the date of this release. Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include: general economic factors including, but not limited to, changes in interest rates, foreign currency translation rates, consumer confidence, trends in disposable income, changes in consumer demand for goods produced, and cyclical or other downturns; substantial debt levels and potential inability to maintain sufficient liquidity to finance the company's operations and make necessary capital expenditures; inability to meet existing debt covenants; information and technological advances; changes in environmental laws and regulations; cost and availability of raw materials, labor and natural and other resources and the inability to pass raw material cost increases along to customers; domestic and foreign competition; reliance on major customers and suppliers; and risks related to operations in foreign jurisdictions. Investors and other readers are directed to consider the risks and uncertainties discussed in documents filed by Polymer Group, Inc. with the Securities and Exchange Commission, including the company's 2005 Annual Report on Form 10-K.
For further information, please contact:
Dennis Norman
Vice President - Strategic Planning & Communication
(704) 697-5186
