Paragon Announces Fourth Quarter and Full Year 1998

Results; $58.4 Million of EBITDA Reported Company Anticipates Lower 1999 Operating Earnings and EBITDA NORCROSS, Ga. (PROTEXT) - Paragon Trade Brands, Inc. (NYSE: PTB) today reported its fourth quarter and full year 1998 financial results. The results reported include the effect of previously announced settlements with The Procter & Gamble Company (P&G) and Kimberly-Clark Corporation (K-C) related to patent disputes, as well as expenses related to the Company's Chapter 11 filing. Paragon reported a net loss of $78.8 million, or $6.59 per share, for the fourth quarter ended December 27, 1998, including non-recurring fourth quarter charges of approximately $81.9 million, all of which are non-cash. These non-recurring charges include $78.5 million of settlement contingencies related to the P&G and K-C settlements. The balance of the non-recurring charges relates to a write down of the tampon manufacturing assets of Paragon's feminine care and adult incontinence business. Net sales for the fourth quarter of 1998 were $132.9 million compared to $136.4 million for the same period in 1997. For the fiscal year ended December 27, 1998, the Company reported a net loss of $65.4 million, or $5.48 per share, compared to a net loss of $212.7 million, or $17.86 per share, for the year ended December 28, 1997. Net sales for the fiscal year were $535.2 million compared to $562 million for the year ended December 28, 1997. Excluding non-recurring charges, operating earnings before interest, taxes, depreciation and amortization ("EBITDA") totaled approximately $58.4 million in 1998, compared to $62.5 million for the prior period. The Company's earnings do not reflect any potential tax benefits which would accrue to the Company should all or a portion of the losses provided for be ultimately realized. In addition, net deferred tax assets of $32.5 million related to future tax benefits previously recorded on the Company's balance sheet were reserved, resulting in net tax expense of $6.9 million and $8.1 million in the fourth quarter and full year 1998, respectively. Commenting on the 1998 results, Chairman and Chief Executive Officer, Bobby Abraham, said, "Despite the distraction of the Chapter 11 case and the disruptive effect of various product changes to accommodate patent issues, we were able to continue to deliver quality products and service to our customers during 1998. We also implemented more creative marketing programs to build our customers' brand names. As a result we delivered sales volume that allowed us to remain a profitable company, excluding the effects of the litigation settlement costs. In addition, significant growth in earnings in our Latin American joint ventures made significant positive contributions to our 1998 results." "Unfortunately, our feminine care and adult incontinence product lines were not profitable as we continued to operate significantly below the designed capacity of our plant. While some retailers have been reluctant to award us business prior to the Company's emergence from Chapter 11, we are pleased that we have gained distribution with several significant retailers, including Albertson's, Winn Dixie, BJ's Wholesale Club, Fleming and Dollar General. Once we emerge from Chapter 11, we expect the sales growth in these product lines to accelerate." Mr. Abraham stated. Paragon Named 1998 Supplier of the Year by Two of North America's Largest Retailers Paragon also reported that it was named 1998 Supplier of the Year by both Target Stores and by K-mart. In both cases, Paragon was the only store brand supplier included in the select few that were honored among the thousands of companies that supply Target Stores and K-mart. Commenting on the awards, Mr. Abraham stated, "To be awarded these honors during the most challenging year in our history was especially gratifying. These honors are a testament to our dedicated associates and their relentless commitment to partnering with our customers and providing them the highest quality store brand products coupled with outstanding service." Settlement Agreements and Chapter 11 As has been previously reported, Paragon has entered into settlement agreements with P&G and K-C that resolve all outstanding claims against the Company by both P&G and K-C, including the P&G patent judgment, and provide a clear path to market for the Company's products through licenses of certain patents and broad covenants not to sue. The settlements, which remain subject to Bankruptcy Court approval, and the corresponding licenses granted by P&G and K-C, will serve as the cornerstone of what the Company intends to be a consensual plan of reorganization. The Company is unable at this time to predict when it will emerge from Chapter 11. Commenting on the settlements and Chapter 11 status of the Company, Mr. Abraham noted, "In assessing the risks to the Company associated with going forward with the various litigation actions with P&G and K-C, management and the Board of Directors in consultation with the Company's legal and financial advisors, determined that resolving these matters through negotiated settlements was prudent and necessary, even though we continue to have faith in our legal positions. Accordingly we entered into settlement agreements with both P&G and K-C. With the P&G and K-C license agreements in place, we have moved quickly to convert to production of a dual leg gather product. We are pleased to report that we have completed the conversion of nearly all our manufacturing lines and are shipping a dual leg gather product today." Outlook for 1999 With respect to the outlook for 1999, Paragon reported that the Company has experienced some product performance issues which it believes have impacted volume for the first quarter of 1999. As a result, the Company expects that it will incur increased manufacturing, marketing and selling expenditures in 1999 to address the product performance issues. The increased manufacturing costs that the Company is encountering are largely due to increased raw material prices and usage related to the conversion to a new super-absorbent polymer as part of its patent settlement with K-C. In addition, the Company reported that it will incur significant costs in 1999 in the form of running royalties payable under the license agreements entered into in connection with the P&G and K-C settlements. Paragon reported that it cannot predict, at this time, the impact of these increased costs on the Company's total enterprise value, but did report that it may not be possible to satisfy in full all of the claims against the Company. Commenting on the outlook for 1999 Mr. Abraham noted, "While 1999 started off with a strong January, volume, and in particular, operating profits and EBITDA for the first quarter will be substantially below 1998 levels and the Company's initial 1999 forecast. In addition to lower volume, increased raw material prices and usage, royalty costs and increased marketing costs will severely impact our 1999 results. Over time, however, we believe that the introduction of our new, improved diaper, coupled with an improved super- absorbent polymer, will help us grow sales volume and thereby improve our bottom line." Annual Meeting and Record Dates Set Paragon also announced that its Board of Directors has determined that the 1999 Annual Meeting of shareholders will be held at 9:00 a.m., Monday, November 29, 1999 at the Company's headquarters. Detailed information regarding the Annual Meeting will be contained in the Notice of Annual Meeting and Proxy Statement to be sent to each shareholder of record on the Record Date, which has been set by Paragon's Board of Directors at October 1, 1999. Paragon Trade Brands is the leading manufacturer of store brand infant disposable diapers in the United States and Canada. Paragon manufactures a line of premium and economy diapers, training pants, and feminine care and adult incontinence products, which are distributed throughout the United States and Canada, primarily through grocery and food stores, mass merchandisers, warehouse clubs, toy stores and drug stores that market the products under their own store brand names. Paragon has also established international joint ventures in Mexico, Argentina, Brazil and China for the sale of infant disposable diapers and other absorbent personal care products. Statements made in this press release, other than those concerning historical information, should be considered forward- looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in the Company's forward-looking statements. Factors which could affect the Company's financial results, including, but not limited to: the Company's Chapter 11 filing; increased raw material prices; new product and packaging introductions by competitors; increased price and promotion pressure from competitors; Year 2000 compliance issues; and patent litigation, are described in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on the forward- looking statements contained herein, which speak only as of the date hereof, and which are made by management pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED LOSS STATEMENTS (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA) (Unaudited) Thirteen Weeks Ended Fifty-Two Weeks Ended December 27, December 28, December 27,December28, 1998 1997 1998 1997 Sales, net of discounts and allowances $ 132,926 $ 136,405 $ 535,207 $ 561,975 Cost of sales 106,348 109,709 428,572 454,911 Gross profit 26,578 26,696 106,635 107,064 Selling, general and administrative expense 17,492 17,790 78,447 76,347 Research and development expense 804 1,821 4,248 5,063 Total expenses 18,296 19,611 82,695 81,410 Asset impairment 3,416 9,442 3,416 9,442 Settlement contingencies 78,500 200,000 78,500 200,000 Operating loss (73,634) (202,357) (57,976) (183,788) Other income (expenses), net 3,489 (954) 6,986 (995) Loss before income taxes and bankruptcy costs (70,145) (203,311) (50,990) (184,783) Bankruptcy costs 1,772 -- 6,302 -- Loss before income taxes (71,917) (203,311) (57,292) (184,783) Provision for income taxes 6,865 21,621 8,091 27,934 Net loss ($78,782) ($224,932) ($65,383) ($212,717) Basic and diluted loss per share $ (6.59) $ (18.82) $ (5.48) $ (17.86) Average common shares outstanding 11,946 11,952 11,937 11,913 PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLAR AMOUNTS IN THOUSANDS) (Unaudited) Assets As of As of December 27, 1998 December 28, 1997 Cash and short-term investments $ 22,625 $ 991 Receivables 79,156 70,616 Inventories 53,282 48,257 Current portion of deferred income taxes 4,260 1,800 Other current assets 4,323 697 Total current assets 163,646 122,361 Net property, plant and equipment 125,826 129,537 Assets held for sale 4,691 11,073 Goodwill 32,819 34,739 Investment in and advances to unconsolidated subsidiaries 88,784 73,808 Other assets 13,521 4,624 Total assets $429,287 $376,142 Liabilities and Shareholders' Equity (Deficit) Short-term borrowings $ -- $ 14,185 Accounts payable 44,849 49,680 Accrued liabilities and loss contigency 33,646 232,392 Total current liabilities 78,495 296,257 Liabilities subject to compromise 406,859 - - Long-term debt -- 70,000 Other long-term liabilities 5,773 4,931 Total liabilities 491,127 371,188 Total shareholders' equity (deficit) (61,840) 4,954 Total liabilities and shareholders equity (deficit) $429,287 $376,142 ots Original Text Service: Paragon Trade Brands, Inc. Internet: http://www.newsaktuell.de Contact: Alan J. Cyron, Executive Vice President and Chief Financial Officer of Paragon Trade Brands, 678-969-5200; or Kurt P. Ross or Guy B. Lawrence, both of K.P. Ross, Inc., 212-308-3333 or kpross1@msn.com Subscribers please note that material bearing the slug "PROTEXT" is not part of CTK's news service and is not to be published under the "CTK" slug. Protext is a commercial service providing distribution of press releases from clients, who are identified in the text of Protext reports and who bear full responsibility for their contents. PROTEXT