Business News

Polymer Group, Inc. Announces First Quarter Results

Thursday 08. May 2008 - Polymer Group, Inc. (OTC Bulletin Board: POLGA; POLGB) (PGI) announced results of operations for the first quarter ended March 29, 2008.

Operational highlights included:

— Sales continued to increase to record levels with first quarter sales growing 2.5% to $273.8 million compared to the first quarter of 2007 and 3.1% compared to $265.4 million in the fourth quarter of 2007
— Gross profit increased 10.4% compared to the fourth quarter of 2007 and the gross profit margin increased from 14.6% to 15.7% during the same time period
— Total debt levels were reduced by over $14 million during the quarter supported by improvements in cash flow from operations
— The new spunbond line in Argentina began commercial production during the quarter.

Net sales for the first quarter of 2008 were $273.8 million compared to $267.0 million in the first quarter of 2007 and $265.4 million in the previous quarter. Sales growth was primarily driven by the impact of price increases implemented to address higher raw material costs during the period and favorable foreign currency translation rates as most currencies strengthened against the U.S. dollar. Underlying Nonwovens volume increases from the company’s new medical business in Suzhou, China, improved industrial sales in North American markets and higher volumes in the hygiene markets in Latin America were offset by the effect of businesses that the company strategically exited during 2007 in the U.S. and in Europe. Sales from the Oriented Polymers segment were down slightly year-over-year due primarily to lower sales in Canada resulting from interruptions in supply of Nomex(R) fibers used to make high value flame retardant materials.

Reductions in overhead costs, including lower depreciation costs as a result of special charges taken in the fourth quarter of 2007, resulted in an improvement in gross profit compared to the prior quarter. Gross profit was $42.9 million for the first quarter of 2008, representing a gross profit margin of 15.7%, compared to a gross profit of $38.9 million, or a 14.6% margin, for the previous quarter and $46.0 million, or a 17.2% margin, for the same period in 2007. During the quarter, the effect of higher raw material costs experienced late in the fourth quarter continued to negatively impact profitability. Raw material costs represented 55.9% of sales in the first quarter compared to 53.2% in the first quarter of 2007. The company’s customer agreements, representing approximately 35% – 40% of total volume, generally provide for price adjustments on a quarterly basis based on the average index price in the previous quarter. This lag can result in an impact to earnings during periods of significant increases on raw materials. Initiatives to shorten this lag time to mitigate the impact are being pursued during the year.

Operating income for the first quarter of 2008 was $12.1 million, compared to an operating loss of $17.8 million in the fourth quarter of 2007 and operating income of $11.7 million in the first quarter of the prior year. Operating income during the quarter included $1.4 million of special charges primarily associated with plant consolidation initiatives in Europe. Special charges were $31.5 million in the fourth quarter of 2007 and were $6.4 million in the first quarter of 2007. Additionally, the company recognized $1.8 million of noncash compensation costs during the quarter compared to $0.7 million in first quarter of 2007.

The company continued to successfully manage the balance sheet during the quarter. Total debt levels were reduced by $14.0 million during the quarter to $412.9 million. The company was in compliance with its senior debt covenant ratios at the end of the quarter. Additionally, working capital, defined as accounts receivable plus inventories less accounts payable and accrued liabilities, was 11.9% of annualized sales at the end of the quarter compared to 13.6% for the first quarter of 2007 and 12.2% in the fourth quarter of 2007.

Net income for the quarter was $1.4 million, or $0.07 per fully diluted share, compared to $0.3 million, or $0.01 per fully diluted share, for the same period the prior year.

PGI’s chief executive officer, Veronica (Ronee) Hagen, stated, “While our results for the first quarter were in line with our expectations and prior indications, I am very pleased with our success in improving cash flow and reducing our debt levels. More importantly, we made progress implementing initiatives that will drive profit improvement throughout the year and into 2009. We expect this improvement to begin in the second quarter and continue into the second half of the year.

“The improvement will be supported by our new spunbond line in Argentina and the Spinlace(TM) line in the U.S., continued growth in the Asia medical business, and implementing initiatives to better match the way we buy and sell products. Additionally, we are continuing to invest for future growth with the initiation of construction on our previously announced barrier spunmelt capacity expansion in Mexico. This line is targeted to serve the hygiene and medical markets in the U.S. as well as in Mexico and is projected to begin commercial production by mid-year 2009,” she said.

Hagen added, “PGI has set its sights on market leadership by leveraging our core strengths of innovation, operational excellence, customer satisfaction and global capabilities. We have initiated global marketing efforts to refresh and improve our brand image and position in the market. This includes the development of a new logo that represents the brand character and provides a framework for how we interact in the marketplace.”

ADJUSTED EBITDA

Adjusted EBITDA, a non-GAAP financial measure defined below, for the first quarter of 2008 was $27.4 million. Fourth quarter 2007 Adjusted EBITDA was $27.4 million and $32.7 million in the first quarter of 2007.

NON-GAAP FINANCIAL MEASURE

Adjusted EBITDA (as defined below) is used in this release as a “non-GAAP financial measure,” which is a measure of the company’s financial performance that is different from measures calculated and presented in accordance with generally accepted accounting principles, or GAAP, within the meaning of applicable Securities and Exchange Commission rules. A non-GAAP financial measure, such as EBITDA or Adjusted EBITDA, should not be viewed as an alternative to GAAP measures of performance such as (1) net income determined in accordance with GAAP or (2) operating cash flows determined in accordance with GAAP. Our calculation of Adjusted EBITDA may not be comparable to the calculation of similarly titled measures reported by other companies.

As defined in the company’s credit agreement, Adjusted EBITDA equals net income (loss) before income and franchise tax expense (benefit), interest expense net, depreciation and amortization, minority interests net of cash distributions, write-off of loan acquisition costs, non-cash compensation, foreign currency gain and losses, net, and special charges net of unusual or non-recurring gains. The company presents Adjusted EBITDA as defined in its credit facility as the measurement is used as a basis for determining our compliance with several covenants thereunder. It is also generally consistent with the metric used by management as a performance measurement for certain performance-based incentive compensation plans. In addition, the company considers Adjusted EBITDA an important supplemental measure of our performance and believes it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry. The company has conformed its definition of Adjusted EBITDA this period to the definition in its senior secured credit facility as the company believes such measurement is more relevant to evaluating the results of the business.

Included in this release is a reconciliation of net income (loss) to Adjusted EBITDA, which illustrates the difference in these measures of operating performance.