Polymer Group, Inc. (PGI) is a global, technology-driven developer, manufacturer and marketer of engineered materials. With sales of over $844 million in 2004, PGI is one of the world's leading nonwoven producers. The company offers the industry's broadest range of technologies and operates 21 manufacturing facilities in 10 countries on 4 continents.
The world's leading consumer and industrial product manufacturers choose PGI to develop innovative, high-quality engineered materials for medical, hygiene, wiping, industrial and specialty uses. PGI employs more than 3,200 individuals, all working to realize the company's vision to become the industry leader by providing customers the best value proposition through quality production and innovation.

    Highlights included:
    - Net sales for the fiscal year of 2006 increased 7.7% to a record high
      $1.02 billion.
    - Fourth quarter net sales increased 9.8% to $263.9 million, while gross
      profit increased 12.8% to $41.4 million for the quarter. Fourth quarter
      profitability rebounded substantially over the prior year period and
      sequential quarter as a result of higher volumes and lower unit costs,
      including lower raw material costs during the quarter.
    - The company expects continued strength and improvement in 2007, as
      recent capacity expansions contribute to higher margins, coupled with
      productivity and cost improvements in North America.

"I am pleased to report that PGI ended 2006 on a strong note," said PGI's chairman and interim chief executive officer, William B. Hewitt. "Our fourth quarter returned to a more acceptable level of performance and we have the right initiatives in place to continue on a steady trend of improvement going forward. I am encouraged by the progress we are making with both our capacity expansions and new product introductions that will drive performance in 2007."

Fourth Quarter Overview

Net sales for the fourth quarter of 2006 were $263.9 million, up $23.5 million from $240.4 million in the fourth quarter of 2005, driven primarily by higher volumes from new capacity additions and price increases implemented to offset the effects of higher raw material costs experienced in the prior quarters. The recovery in certain base business volumes experienced in late third quarter of 2006 also contributed to higher sales in the fourth quarter.

Fourth quarter gross profit increased $4.7 million to $41.4 million compared to $36.7 million during the same period the prior year, representing an increase of 12.8%. The company's gross margin improved to 15.7% compared to 15.3% for the prior year and 14.1% in the third quarter of 2006. Cost of goods sold for the fourth quarter included $1.2 million of higher depreciation costs compared with the prior year period as a result of the capacity investments made during the year. The company continued to control selling, general and administrative (SG&A) expense during the quarter, reducing SG&A as a percent of sales to 10.3% compared to 10.7% the prior year. As a result, underlying performance improved substantially compared to the same period in 2005 and the prior quarter.

During the fourth quarter of 2006, the company recognized $21.9 million of special charges, primarily composed of non-cash asset impairment charges of $18.6 million. The largest component of the non-cash asset impairment charges relates to specific hydroentanglement-based lines in the U.S. and Europe where the company plans to exit low-margin business in efforts to optimize profit mix and manufacturing costs. Additionally, the company recognized non-cash asset impairment charges of $1.8 million in the U.S. associated with the previously announced plant consolidation plan. The company also recorded cash restructuring and plant realignment charges of $2.0 million during the quarter associated with the previously announced cost reduction initiatives in the U.S., Canada and Europe, and $1.3 million of other cash charges primarily associated with the investigation announced in the third quarter. After the $21.9 million of special charges, the company reported an operating loss of $7.1 million, compared to operating income of $11.0 million during the fourth quarter of 2005. The company reported a net loss of $18.9 million in the fourth quarter compared to a net loss of $2.4 million in the fourth quarter of 2005.

The company generated substantially higher levels of cash during the quarter as it continued to reduce relative working capital levels. Operating working capital (defined as accounts receivables plus inventories less accounts payable) was 15.1% of annualized fourth quarter sales compared to 16.4% the comparable prior-year period.

Full Year Overview

"2006 was a year of growth and challenges," Hewitt said. "We successfully started up three large- scale capacity expansions and generated record revenue, clearing $1 billion for the first time in the company's history. We continued to execute on the growth and innovation aspects of our strategy, even as economic and market conditions created an undertow that temporarily slowed the rate of profit growth in 2006. Contributing factors include elevated raw material prices in North America, a softening of the housing market, offshore competition for our Canadian lumber wrap sales, a downturn in the auto segment, and lower-than-projected demand in some consumer markets," he said. "Despite these challenges, we made significant progress positioning the company for industry leadership through our investments in new technology and capacity. Additionally, we have been focused on implementing the right initiatives to improve our competitive position and cost structure. I am convinced we have the right strategies in place to resume a trend of continued profit improvement and to become the industry leader."

2006 net sales were $1.02 billion, up $72.8 million over the prior year. The primary drivers of the increase were higher volumes from the new capacity additions and higher selling prices implemented to offset raw material price increases throughout the year.

Gross profit for the year was $156.2 million compared to $161.5 million in 2005. The decline was due partially to $3.8 million of higher depreciation costs as the new lines were commissioned, in addition to the lower profitability experienced during the second and third quarters of the year. The company improved SG&A as a percent of sales for the year to 10.8% compared to 11.0% the prior year. In addition to the special charges in the fourth quarter described above, the company previously reported charges associated with abandoned acquisition costs and plant realignment and restructuring costs. After $38.7 million of special charges recognized during 2006, the company's operating income for fiscal 2006 was $5.9 million compared to operating income of $56.3 million for the fiscal year of 2005.

The company refinanced its senior bank facility in November of 2005 resulting in a lower comparable interest rate and decreased its overall debt level during the year. As a result, interest expense declined $3.3 million over the prior fiscal year to $29.2 million. Total debt at the end of the year was $411.2 million compared to $415.2 million the prior year. As a result of the above and after income tax expense of $7.3 million, the company reported a net loss to common shareholders of $34.5 million compared to a net loss to common shareholders of $21.0 million the prior year.

2007 Outlook

The company expects to improve profits in 2007 as a result of the full year impact of capacity expansions that were completed in 2006, new technology commercializations in the second half of 2007, and lower costs from restructuring and consolidation plans that have been initiated.

The company commercialized its Mooresville, N.C. spunbond line in June of 2006 and expects 2007 to benefit from a full year of production from that line. Additionally, the new facility in Suzhou, China was starting up during the second half of 2006 and is expected to significantly contribute to sales and profit growth in fiscal 2007 as it transitions to full commercial production.

The company announced the introduction of new Spinlace(R) fabrics that are expected to begin production in late summer 2007 at PGI's Benson, N.C. plant. As the new product platforms ramp up, the company expects a portion of the sales and profit benefits to be recognized late in the year, with the predominant amount of the impact in fiscal year 2008.

Earlier this year, the company announced a U.S. plant consolidation plan that will result in the closure of its Rogers, Ark. and Gainesville, Ga. plants by mid year. These plans are expected to result in a reduction of fixed overhead of approximately $4 million to $6 million annualized, which is expected to have a partial benefit in the latter portion of 2007 and full year benefit in 2008. The company has also implemented a number of restructuring initiatives in North America and Europe to improve its productivity and cost position, while managing the exit of certain low-margin product lines associated with the plant consolidation plans previously announced. This is expected to result in higher profit levels in North America, albeit at slightly lower sales levels compared to fiscal year 2006. As a result of the initiatives in place for the year, the company expects year-over-year improvement in operating profitability, with sales in developing regions being driven by volume growth balanced against the consolidation plans in North America during the second half of the year.

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 21 manufacturing and converting facilities throughout the world.