CHARLOTTE, N.C., Aug. 14 /PRNewswire-FirstCall/ -- Polymer Group, Inc. (BULLETIN BOARD: POLGA/POLGB) (PGI) announced today preliminary summary results of operations for the second quarter and six-months ended July 4, 2009.
Operational highlights included: -- Underlying profitability from continuing operations for the first six months continued to show improvement over the prior year despite lower sales volumes, primarily in the industrial markets. Gross profit for the first six months was $92.0 million, representing a gross profit margin of 22.1% compared to $85.8 million and 16.2%, respectively, for the first six months of 2008. Year-to-date operating income from continuing operations was $34.3 million compared to $25.8 million the prior year. Second quarter profitability was relatively stable compared to the prior year with gross profit and operating income of $42.6 million and $14.2 million, respectively compared to gross profit and operating income of $43.9 million and $13.6 million, respectively, for the second quarter of 2008; -- Net sales from continuing operations for the first six months were $416.0 million compared to $528.3 million for the same period the prior year. Sales for the second quarter of 2009 were $206.0 million compared to $270.7 million in the second quarter of 2008. The reduction in sales was due primarily to a reduction in industrial sales volumes and lower selling prices reflecting lower raw material costs combined with changes in foreign currency exchange rates; -- Cash flows from operations for the first six months of 2009 of approximately $60 million increased significantly over cash flows generated during the first six months of 2008, resulting in a significant reduction in net debt over the last six months; -- The company began commercial production on its state-of-the-art spunmelt line in San Luis Potosi, Mexico during the quarter.
Additionally, the company announced it is unable to timely file its Quarterly Report on Form 10-Q for the fiscal quarter ended July 4, 2009 primarily due to the additional time and effort necessary to finalize the company's accounting for income taxes, to ensure that foreign currency effects of certain intercompany loans are properly accounted for and to reconcile intercompany account balances.
PGI's chief executive officer, Veronica (Ronee) Hagen, stated, "The core operations of PGI continued to show strength during the quarter, even as we address the unexpected delays in filing our results. We continued to experience stability in our global hygiene and medical markets and have achieved a successful start-up of our new capacity in Mexico to serve North America. While industrial volumes remained weak, we are taking necessary steps to align our cost structure with demand levels and to ensure that we maintain a sustainable long-term position in targeted niche markets."
During the quarter, the company concluded that it was probable within a twelve month time period that it would sell the operations associated with its FabPro Oriented Polymers, LLC ("FabPro") subsidiary. However, at this time, no definitive agreement has been entered into associated with FabPro. In accordance with requirements of SFAS No. 144 "Accounting for Impairment and Disposal of Long-Lived Assets", the FabPro business has been classified as held for sale. FabPro income was $2.0 million for the second quarter of 2009 compared to $0.8 million for the second quarter of 2008. For the first six months of 2009, FabPro income was $4.2 million compared to $0.7 million for the same period the prior year.
Net sales were $206.0 million for the three months ended July 4, 2009, a decrease of $64.7 million from the comparable period of fiscal 2008 net sales of $270.7 million. The decline in sales was primarily driven by lower volumes in the industrial segment as a result of the recessionary environment, and by lower overall selling prices to reflect lower raw material costs. Global hygiene and medical spunmelt volumes remained relatively stable and supported solid results in the U.S., Latin America and Asia. Additionally, foreign currency translation rates impacted sales by approximately $12.6 million as most currencies weakened against the U.S. dollar. The declines were offset somewhat by improvements in sales product mix, primarily in Asia, reflecting an increase in medical product volumes. Similar overall trends drove net sales for the first six months of 2009 of $416.0 million compared to $528.3 million for the first six months of 2008.
Gross profit for the second quarter of 2009 of $42.6 million was relatively flat compared to the second quarter of 2008 gross profit of $43.9 million. As a percent of sales, the gross profit margin for the second quarter was 20.7% compared to 16.2% for the same period the prior year, reflecting an improved spread of sales prices to raw materials that offset lower sales volumes. Raw material costs during the quarter were reduced by $30.9 million while the combination of price and mix changes declined only $19.2 million. For the year-to-date period, gross profit was $92.0 million, representing a gross margin of 22.1%, compared to $85.8 million and 16.2% for the first six months of 2008. The improvement in gross profit and, more significantly, gross profit margin, for the first six months was primarily due to significant reductions in raw material costs experienced during the fourth quarter of 2008 that remained at low levels during the first quarter of 2009. Generally, the Company's sales prices lag changes in raw material cost changes by approximately one quarter. As raw material costs began to increase during the first quarter and continued to increase into the second quarter, gross profit was impacted but continued to be at higher levels than the prior year period.
Operating income for the second quarter of 2009 was $14.2 million compared to $13.6 million in the second quarter of 2008. Selling, general and administrative (SG&A) expenses decreased $3.7 million, from $29.5 million in 2008 to $25.8 million in 2009, due primarily to the movement of foreign currencies versus the U.S. dollar and lower overall costs in the U.S. and Europe. Included in operating income were special charges of $5.2 million in the second quarter of 2009 primarily associated with plant consolidation and cost reduction activities the U.S. and Europe. Special charges amounted to $1.4 million in the second quarter of 2008. For the first six months of 2009, operating income was $34.3 million compared to $25.8 million for the first six months of 2008. The improvement in operating income was driven by the combination of the above factors with lower SG&A expenses of $6.5 million, offset somewhat by higher special charges of $8.1 million compared to $2.8 million for the first six months of 2008. Depreciation and amortization expense included in operating income for the second quarter and six-month period ended July 4, 2009 was $12.1 million and $24.0 million, respectively compared to $12.2 million and $24.5 million, respectively for the second quarter and six-month periods in 2008.
Interest expense for the quarter was $6.8 million compared to $7.9 million for the second quarter of 2008. Year-to-date interest expense was $14.5 million compared to $16.7 million for the first six months of 2008. The lower costs were due primarily to lower overall debt balances combined with lower effective interest rates on floating rate debt balances.
The preliminary summary results above are subject to final validation of reconciling activities associated with intercompany balances and foreign currency transactions and income tax accounting. Currently, the company does not expect to file the Form 10-Q for the period ended July 4, 2009 within the extension time allowed under the filing requirements due to the complex nature of the company's intercompany structure and the activities required to reconcile the outstanding issues.
Robert J. Kocourek, PGI's chief financial officer, stated, "During the quarter close, certain matters were identified with respect to procedures relating to our accounting for income taxes, foreign currency effects attributable to intercompany loans and intercompany balance reconciliations. Accordingly, there will be a delay in our quarter close process until the impacts of such matters are analyzed. PGI is committed to maintaining effective reporting procedures and internal controls and we will appropriately modify our procedures to remedy the identified issues. With respect to our finances, the company's financial position remains strong with continued improvements in operating cash flow and lower net debt balances."
The company intends to hold its regularly scheduled investor conference call, including presentation slides, after it has filed the Form 10-Q for the period ended July 4, 2009. Additionally, the company does not intend to execute its previously announced amendment and extension transaction related to its senior secured credit facility until after the Form 10-Q is filed.
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 17 manufacturing and converting facilities in 8 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, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that involve certain risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These forwardlooking 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 forwardlooking 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; cost and availability of raw materials, labor and natural and other resources and the inability to pass raw material cost increases along to customers; changes to selling prices to customers which are based, by contract, on an underlying raw material index; substantial debt levels and potential inability to maintain sufficient liquidity to finance our operations and make necessary capital expenditures; inability to meet existing debt covenants; achievement of objectives for strategic acquisitions and dispositions; inability to achieve successful or timely start-up on new or modified production lines; reliance on major customers and suppliers; domestic and foreign competition; information and technological advances; risks related to operations in foreign jurisdictions; and changes in environmental laws and regulations. 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 Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q.
For further information, please contact: Dennis Norman Vice President - Strategy & Corporate Development (704) 697-5186 normand@pginw.com
Polymer Group, Inc.
CONTACT: Dennis Norman, Vice President - Strategy & Corporate
Development of Polymer Group, Inc., +1-704-697-5186, normand@pginw.com
Web Site: http://www.polymergroupinc.com/
