Profits soar at PGI

13 November 2009, Charlotte, NC - Polymer Group, Inc. has reported results of operations for the third quarter and nine-month period ended October 3, 2009.

Highlights included:

Gross profit for the quarter was up 16.4% over the prior year to $47.2 million and up 10.1% for the nine-month period to $139.2 million. As a result of lower sales due to lower selling prices and lower volumes, gross profit margins were 21.2% and 21.8% for the three-month and nine-month period compared to 14.3% and 15.6%, respectively, for the prior year.

Operating income from continuing operations for the third quarter of 2009 increased 148.9% over the same period the prior year to $18.7 million.  Year-to-date, operating income from continuing operations increased 60.9% over the first nine months of 2008.

For the year-to-date period, cash flow from operations increased 131.2% to $79.5 million.

Following finalization of the sale of the FabPro division and the amendment to the company's senior credit facility, net debt (defined as total debt less cash balances) was $289.5 million at the end of the         third quarter; approximately $100 million lower than the third quarter 2008 level of $388.9 million.

The company continued to execute on its growth strategy with the purchase of the minority portion of its joint venture in Argentina and the signing of a definitive agreement to purchase a nonwovens business in Spain.  Additionally, the company's new state-of-the-art capacity in Mexico was in full commercial production during the third quarter.

Third quarter results

Sales from continuing operations for the third quarter of 2009 were $223.0 million compared to $284.1 million for the third quarter of 2008. The decline was due primarily to lower selling prices to reflect lower overall raw material costs and lower volumes in the industrial segments, which most affected the U.S. and European nonwovens businesses and the Canadian business in Oriented Polymers. Volumes in Latin America and Asia were stable compared to the prior year period. Foreign currency changes impacted sales by approximately $9.0 million as the U.S. dollar weakened to most currencies.

While sales were lower during the third quarter of 2009, gross profit from continuing operations increased $6.6 million to $47.1 million. Raw material costs were significantly lower during the quarter compared to the third quarter of 2008. During the third quarter of 2008, raw material costs increased dramatically, resulting in a negative impact to gross profit as the company's selling prices generally lag approximately one quarter to changes in raw material costs. Results for the third quarter of 2009 reflected the impact of positive mix improvements and other proactive steps the company has taken to improve the spread of selling prices over raw material costs such that changes in selling prices have been less than the overall decreases in raw material costs by approximately $12.1 million compared to the third quarter of 2008. Manufacturing costs in the Nonwovens businesses improved $2.0 million year-over-year, offset by an increase of $2.2 million in the Oriented Polymers business impacted by inefficiencies caused by the dramatic reductions in volume.

Operating income for the third quarter of 2009 was $18.7 million compared to $7.5 million in the third quarter of 2008. Included in operating income were special charges of $1.8 million in the third quarter of 2009 primarily related to our previously announced plant consolidations in the U.S. and restructuring plans in Europe. Special charges amounted to $1.7 million in the third quarter of 2008. Selling, general and administrative (SG&A) expenses for the third quarter of 2009 were lower than the prior year period by $1.6 million, due primarily to movement of foreign currencies against the U.S. dollar and lower compensation expenses.

PGI reported net income attributable to PGI, including earnings from discontinued operations, for the third quarter of $15.2 million compared to $3.4 million in the third quarter of 2008. Earnings per share from continuing operations were $0.32 per share for the third quarter of 2009 compared to $0.12 per share for the third quarter of 2008. Included in net income attributable to PGI for the quarter was $4.7 million of adjustments for out-of-period items primarily related to income tax expense and non-controlling interests.

PGI's chief executive officer, Veronica (Ronee) M. Hagen, stated, "We continued to achieve solid improvement in the third quarter. Our strategy of investing in developing regions continued to generate profitable growth in Asia as well as in Latin America where our new investment in Mexico attained full commercial production levels during the quarter. We improved efficiencies throughout the business through implementation of our operational excellence initiatives. The consumer oriented markets we serve have been very stable and although the industrial markets remain at low volume levels, we are seeing signs of stability in those markets."

"Our success in our base business has given us confidence to invest in further growth initiatives. During October, we announced an investment to purchase the minority interest in our Argentina operation which we believe will contribute to profit growth in the future. Additionally, we announced an agreement to acquire a nonwovens business in Spain that will give us a new presence in the European hygiene market with state-of-the-art technology," Hagen said.

The company's continued strong cash flow generation has enabled PGI to reduce net debt by nearly $100 million over the course of the last twelve months to $289.5 million as of October 3, 2009 (net debt defined as total debt less cash balances). For the first nine months, cash flows from operations increased $45.1 million to $79.5 million. Capital expenditures for the quarter were $18.8 million and were $33.7 million year-to-date compared to $7.5 million in the third quarter of 2008 and $28.4 million for the first nine months of 2008. Operating working capital, defined as accounts receivable plus inventories less trade accounts payable and accrued liabilities, was $95.8 million and represented 10.7% of annualized sales compared to 10.8% of annualized sales for the third quarter of 2008. On September 1, 2009, PGI completed the sale of Fabpro and received net proceeds from the sale of approximately $32.9 million. Of such net proceeds, $31.6 million has been applied to reduce amounts outstanding under the first-lien term loan. Additionally, in conjunction with the senior credit facility amendment, we repaid approximately $24.0 million of the net outstanding borrowings.

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