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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
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(Mark One) |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended January 3, 2015 |
Or |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
from to
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Commission File Number 1-32266
Polypore International, Inc.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
(State or Other Jurisdiction of
Incorporation or Organization) |
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43-2049334
(IRS Employer
Identification No.) |
11430 North Community House Road, Suite 350
Charlotte, North Carolina
(Address of Principal Executive Offices) |
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28277
(Zip Code) |
(704) 587-8409
Registrant's
Telephone Number, Including Area Code
Securities
registered pursuant to Section 12(b) of the Act:
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Title of each class: |
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Name of each exchange on which registered: |
Common stock, par value $0.01 per share |
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New York Stock Exchange |
Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. ý Yes o No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes ý No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past
90 days. ý Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). ý Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the
definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ý |
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Accelerated filer o |
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Non-accelerated filer o (Do not check if a
smaller reporting company) |
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Smaller reporting company o |
Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). o Yes ý No
The aggregate market value of the voting common stock of the registrant held by non-affiliates at June 27, 2014 was $1,347,633,000, as computed by reference
to the closing price of such stock on such date. For purposes of this calculation, executive officers, directors and 10% shareholders are deemed to be affiliates of the registrant.
There
were 44,859,492 shares of the registrant's common stock outstanding as of February 20, 2015.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for the 2015 Annual Meeting of Stockholders, which is expected to be filed within 120 days of
January 3, 2015, are incorporated by reference into Part III.
Table of Contents
Polypore International, Inc.
Index to Annual Report on Form 10-K
For the Fiscal Year Ended January 3, 2015
In
this Annual Report on Form 10-K, the words "Polypore International," "Company," "we," "us" and "our" refer to Polypore International, Inc. together with its
subsidiaries, unless the context indicates otherwise. References to "fiscal year" mean the 52- or 53- week period ending on the Saturday that is closest to December 31. The fiscal year ended
January 3, 2015, or "fiscal 2014," included 53 weeks. The fiscal years ended December 28, 2013, or "fiscal 2013," and December 29, 2012, or "fiscal 2012," included
52 weeks.
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Forward-looking Statements
This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the Private Securities Litigation Reform Act of 1995.
All statements other than statements of historical facts included in this Annual Report on Form 10-K that address activities, events or developments that we expect, believe or anticipate will
or may occur in the future are forward-looking statements, including, in particular, the statements about Polypore International's plans, objectives, strategies and prospects regarding, among other
things, the financial condition, results of operations and business of Polypore International. We have identified some of these forward-looking statements with words like "believe," "may," "will,"
"should," "expect," "intend," "plan," "predict," "anticipate," "estimate" or "continue" and other words and terms of similar meaning. These forward-looking statements may be contained under the
captions entitled "Business," "Properties," "Controls and Procedures," "Management's Discussion and Analysis of Financial Condition and Results of Operations" or "Risk Factors," the Company's
financial statements or the notes thereto or elsewhere in this Annual Report on Form 10-K.
These
forward-looking statements are based on current expectations about future events affecting us and are subject to uncertainties and factors relating to our operations and business
environment, all of
which are difficult to predict and many of which are beyond our control. Many factors mentioned in our discussion in this Annual Report on Form 10-K, including the risks outlined under the
caption below entitled "Risk Factors," will be important in determining future results. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we do not
know whether our expectations will prove correct. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties, including with respect to Polypore
International, the following, among other things:
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- the ability to consummate the proposed transactions with 3M Company ("3M") and Asahi Kasei Corporation ("Asahi Kasei");
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- the highly competitive nature of the markets in which we sell our products;
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- the failure to continue to develop innovative products;
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- the loss of our customers;
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- the vertical integration by our customers of the production of our products into their own manufacturing processes;
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- increases in prices for raw materials or the loss of key supplier contracts;
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- our substantial indebtedness;
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- interest rate risk related to our variable rate indebtedness;
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- our inability to generate cash;
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- restrictions contained in our senior secured credit agreement;
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- employee slowdowns, strikes or similar actions;
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- product liability claims exposure;
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- risks in connection with our operations outside the United States, including compliance with applicable anti-corruption laws;
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- the incurrence of substantial costs to comply with, or as a result of violations of, or liabilities under environmental laws;
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- the failure to protect our intellectual property;
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- the loss of senior management;
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- the incurrence of additional debt, contingent liabilities and expenses in connection with future acquisitions;
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- the failure to effectively integrate newly acquired operations;
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- lithium market demand not materializing as anticipated;
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- the absence of expected returns from the intangible assets we have recorded;
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- natural disasters, epidemics, terrorist acts and other events beyond our control; and
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- cyber risk and failure to maintain the integrity of our information technology networks and systems.
Because
our actual results, performance or achievements could differ materially from those expressed in, or implied by, the forward-looking statements, we cannot give any assurance that
any of the events anticipated by the forward-looking statements will occur or, if any of them do, what impact they will have on Polypore International's results of operations and financial condition.
You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We do not undertake any obligation to
update these forward-looking statements or the factors set forth in the caption below entitled "Risk Factors" to reflect new information, future events or otherwise, except as may be required under
federal securities laws.
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Item 1. Business
General
Overview
Polypore International, Inc., a Delaware corporation, is a leading global high-technology filtration company that develops,
manufactures and markets specialized microporous membranes used in separation and filtration processes. The microporous membranes we produce are highly-engineered polymeric structures that contain
millions of pores per square inch, enabling the management of ions, gases and particles that range in size from the cellular to the nano or molecular level.
Our
products and technologies are used in two primary businesses: energy storage and separations media. The energy storage business produces and markets membranes that provide the
critical function of separating the cathode and anode in a variety of battery markets and is comprised of two reportable segments. The electronics and EDVs segment produces and markets membranes for
lithium batteries that are used in portable electronic devices, cordless power tools, electric drive vehicles ("EDVs") and emerging applications such as energy storage systems ("ESS"). The
transportation and industrial segment produces and markets membranes for lead-acid batteries that are used in automobiles, other motor vehicles, forklifts and uninterruptible power supply systems. The
separations media business, which is a reportable segment, produces and markets membranes and membrane modules used in hemodialysis, blood oxygenation, plasmapheresis, other medical applications and
various high-performance microfiltration, ultrafiltration and gasification/degasification applications.
Information
concerning segments and geographic information appears under Note 18, "Segment Information" in the notes to consolidated financial statements for the year ended
January 3, 2015 included in Item 8 of this Report.
On
February 23, 2015, we entered into integrated transactions with 3M Company ("3M"), Asahi Kasei Corporation ("Asahi Kasei") and EMS Holdings Corporation ("EMS"), an affiliate of
Asahi Kasei, pursuant to which we will sell our separations media business to 3M and, immediately thereafter, will be merged with EMS. In connection with the integrated transactions, at the time of
the merger, each share of our common stock (other than any (a) dissenting shares, (b) shares owned by Asahi Kasei and EMS, the Company or any of their respective subsidiaries (which will
be cancelled)) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive $60.50 in cash without interest (the "Merger Consideration"),
payable to the holder of such share. Each option to purchase shares of our common stock that is outstanding immediately prior to the effective time of the merger will immediately accelerate and vest
and be cancelled and converted into the right to receive a payment in cash of an amount, subject to the amount of any required tax withholding, equal to the product of the total number of shares of
our common stock subject to such cancelled option and the excess, if any, of the Merger Consideration over the applicable exercise price of the option; provided that any such option with respect to
which the exercise price per share subject to the option is equal to or greater than the Merger Consideration shall be cancelled in exchange for no consideration. Each restricted share of our common
stock that is outstanding immediately prior to the effective time of the merger will immediately accelerate and vest and be cancelled and converted into the right to receive a payment in cash of an
amount, subject to the amount of any tax withholding,
equal to the Merger Consideration, without interest, treating such restricted share in the same manner as the other shares of our common stock.
The
integrated transactions are subject to customary closing conditions, including regulatory and stockholder approval. Furthermore, we have the right to terminate the integrated
transactions if we enter into a definitive agreement for an alternative transaction that constitutes a "Superior Proposal" (as defined in the applicable agreements), provided we comply with certain
notice and other requirements, including paying Asahi Kasei and 3M a termination fee equal to $39.0 million and
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$16.8 million,
respectively. Certain other actions by us causing termination of the integrated transactions could result in our being required to pay the foregoing termination fees to Asahi
Kasei and 3M. There are no assurances that the proposed integrated transactions will be consummated on any given timetable, or at all.
Discontinued operations
On December 19, 2013, we completed the sale of the Microporous business, which consisted of the production facilities in Piney
Flats, Tennessee, and Feistritz, Austria. Microporous was previously included in the transportation and industrial segment. The results of operations from this business are classified as discontinued
operations and are excluded from continuing operations and segment results for all periods presented. All disclosures and amounts in this Annual Report on Form 10-K relate to our continuing
operations, unless otherwise indicated.
Competitive strengths
Serve end markets that have attractive long-term growth characteristics
We produce a variety of separation and filtration products for end markets with attractive growth characteristics, which in many cases
are supported by a growing, recurring revenue base.
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- The total lithium battery market is expected to grow at a compound annual growth rate of 16% through 2020 on an energy capacity basis,
driven by the application of lithium battery technology in new markets such as EDVs and ESS. We believe that growth in lithium battery separator demand will exceed battery growth due to increasing
demand for large-format lithium batteries used in EDVs and other new applications and increasing power cell requirements in end-user devices such as power tools and hybrid vehicles.
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- In the motor vehicle battery market, the high proportion of aftermarket sales and the steady growth of the worldwide fleet of motor
vehicles provide us with a growing, recurring revenue base in lead-acid battery separators. Lead-acid battery separator growth is strongest in the Asia Pacific region due, we believe, to increasing
per capita penetration of automobiles, growth in the industrial and manufacturing sectors and a high rate of conversion to polyethylene-based membrane separators.
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- The hemodialysis membrane market, which we believe will increase in excess of 6% annually, provides a growing, recurring revenue base
for our synthetic dialysis membranes.
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- The micro- and ultrafiltration membrane element market is expected to grow in excess of 8% annually, driven by several factors
including the superior performance of membrane filtration and the increasing need for purity in end markets such as water treatment, food and beverage processing and pharmaceutical, semiconductor and
flat panel display manufacturing as populations increase and water sources become more scarce.
Leading market positions
We believe that we are well-positioned in each of the markets in which we compete. For example, in terms of market share (based on
revenue and volume):
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- We believe, based on independent industry research, that we are among the top three lithium battery separator providers, serving the
entire breadth of lithium battery applications.
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- We believe, based on internal company estimates, that we are the global market leader in the lead-acid battery separator market.
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- We believe, based on internal company estimates, that we are the world's leading supplier of membranes used in blood oxygenation and
that we are uniquely positioned as the leading independent supplier of synthetic membranes used in hemodialysis (i.e., not a supplier of dialyzers).
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- We believe, based on internal company estimates, that in the industrial and specialty filtration market, we are the world leader in
membrane gasification and degasification for liquids with our Liqui-Cel® Membrane Contactors. We also believe, based on internal company estimates, that we are the world's leading
independent supplier of polyethersulfone flat sheet membranes.
We
believe, based on the information above and other company estimates, that we are among the top three in terms of market share (based on revenue and volume) in products comprising a
total of approximately 80% of our fiscal 2014 net sales. These products include lithium battery separators, lead-acid battery separators, blood oxygenation membranes and membrane contactors for
gasification/degasification of liquids.
Proven innovation through broad product and process technology
We have established our leading market positions through our ability to utilize core technical expertise and broad product and process
capabilities to develop customized solutions that meet demanding requirements in specific applications. Over time, we have demonstrated a commitment to innovation, developing technical expertise and a
high level of customer service. As of January 3, 2015, our research and development effort was supported by approximately 100 engineers, scientists, PhDs and other personnel, who work directly
with our manufacturing and marketing groups to commercialize innovative products that address market needs. We also maintain technical centers strategically located in Asia, Europe and North America.
We
have leveraged our established filtration and separation technology and membrane expertise to supply a broad portfolio of membranes based on flat sheet, hollow fiber and tubular
technology. We are able to draw upon our experiences across multiple end markets and various membrane technologies to create innovative solutions in new niche applications in addition to our existing
markets. For example, our Liqui-Cel® Membrane Contactor product line, which combines our gasification/degasification membrane technology with patented module design features, provides
superior performance to conventional gasification/degasification methods in multiple sectors such as semiconductor and flat panel display manufacturing, pharmaceutical processing and power and boiler
feedwater applications. We believe that our capabilities in product innovation, which combine multiple technologies, a global technical infrastructure and extensive experience in microporous membrane
development and manufacturing, are difficult to replicate.
Strong customer relationships with leading manufacturers
We have cultivated strong, collaborative relationships with a diverse base of customers worldwide who are among the leaders in their
respective industries. Our research and development, technical service and application development teams are closely involved with our customers. We often enter into joint agreements in which we
partner with our customers on product development and end-use testing. As a result, many of our products have been customized to our
customers' manufacturing processes and end-use specifications. In addition, we are often selected as a customer's exclusive supplier for our microporous membrane products.
Global presence
As of January 3, 2015, we manufacture, market and service our products through 15 manufacturing sites and 14 sales and service
locations throughout the Americas, Europe and Asia. In the energy storage business, we remain focused on growth in the Asia Pacific region and on driving worldwide
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improvements
in production efficiency. By strategically positioning our manufacturing, sales and marketing, and technical service personnel near our customers, we can respond to their needs more
effectively, provide a higher level of service, reduce shipping costs and improve delivery and response times. In addition, our global presence enables us to participate in faster growth markets in
developing regions of the world.
State-of-the-art manufacturing facilities
We believe we have state-of-the-art manufacturing facilities and capabilities. Our equipment, manufacturing techniques and process
technologies have been developed over many years with significant intellectual property, know-how and capital investments. Our wide range of manufacturing processes enables us to produce specialized
products that are difficult and costly to replicate in the market. We continually evaluate projects that will improve or enhance our global manufacturing capabilities.
Strong and experienced management team
Our senior management team has significant experience leading high-technology companies, driving growth through development of new
applications and technologies and cultivating strong relationships with existing customers. Management has also demonstrated a track record of successfully leading companies larger in size and scope
than ours. The team has an average of more than 20 years of management experience.
Business strategy
We intend to:
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- grow with our current customer and application base by capitalizing on our core capabilities in microporous membranes and modules;
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- leverage existing and developing product and process technologies to pursue new, high value-added markets and applications; and
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- maximize access to key customers and end markets through strategic relationships and acquisitions.
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Products and markets
Our two businesses, energy storage and separations media, are organized into three reportable segments. The following table describes
our key products and end markets served:
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Segment
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Applications |
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Major brands |
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End markets |
Energy storagetransportation and industrial |
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Lead-acid batteries |
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Daramic®
Duralife®
DARAK® |
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Transportation and industrial batteries |
Energy storageelectronics and EDVs |
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Rechargeable and disposable lithium batteries |
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CELGARD® |
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Consumer electronics devices (such as mobile phones, audio/video players, notebook computers, tablets and cameras), cordless power tools,
large-format applications such as EDVs (bikes, scooters, cars, trucks, buses and industrial utility vehicles) and emerging applications such as energy storage systems |
Separations media |
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Hemodialysis |
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PUREMA®
DIAPES®
SYNPHAN® |
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Hemodialysis dialyzers which replicate function of healthy kidneys to treat end-stage renal disease patients |
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Blood oxygenation |
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CELGARD®
HEXPET®
OXYPHAN®
OXYPLUS® |
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Heart-lung machine oxygenation unit for open-heart surgical procedures and intensive care artificial lung applications |
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Plasmapheresis |
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MicroPES®
PLASMAPHAN® |
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Blood cell and plasma separation equipment |
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Industrial and specialty filtration applications |
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Liqui-Cel® |
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Liquid gasification/degasification for beverage, pharmaceutical, semiconductor and flat panel display manufacturing, and power and boiler
feedwater applications |
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MicroPES®
DuraPES® |
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Specialty filtration applications including ultrapure water, cold sterile filtration of beverages, ultrapure chemicals for the electronics
industry and pharmaceutical processing |
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SuperPhobic® |
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Solvent/ink deaeration for ink jet printers, paper coating processes and semiconductor manufacturing |
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MicroModule® MiniModule® |
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Liquid degasification in laboratory, biotechnology and analytical testing equipment and ink degasification for ink jet printers |
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Accurel® |
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Specialty filtration applications including ultrapure chemicals for the electronics industry, vent and process air cleaning, industrial
wastewater treatment and pharmaceutical processing |
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Liqui-Flux® |
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Drinking water and beverage filtration, process water treatment and pre-filtration for reverse osmosis |
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Energy storage
In the energy storage business, our membrane separators are a critical performance component in lithium and lead-acid batteries,
performing the core function of regulating ion exchange and thus allowing the charge and discharge process to occur between a battery's positive and negative electrodes. These membrane separators
require specialized technical engineering and must be manufactured to extremely demanding requirements and specifications including thickness, porosity, mechanical strength and chemical and electrical
resistance. For example, membrane pores must be
large enough to allow ions to pass through, but small enough to prevent contamination from conductive particles that cause short circuits. The energy storage business is comprised of two reportable
segments.
Electronics and EDVs
We develop, manufacture and market a broad line of patented polypropylene and polyethylene monolayer and multilayer membrane separators
for lithium batteries that are used in numerous applications such as consumer electronics devices, EDVs, cordless power tools and ESS. Lithium batteries provide critical performance advantages
relative to alternative battery technologies, such as faster charging rates, improved battery life and higher power density, which results in more compact, lightweight batteries. These advantages
create the potential for expansion by lithium batteries into additional product designs. According to B3 Corporation, a research firm specializing in lithium batteries, the total lithium battery
market is expected to grow at a compound annual growth rate of 16% through 2020 on an energy capacity basis, driven by the application of lithium battery technology in new markets such as EDVs and
ESS. B3 Corporation forecasts a compound annual growth rate through 2020 on an energy capacity basis of greater than 30% for EDVs and ESS and 6% for consumer electronics applications. Many factors
influence membrane separator usage in lithium batteries, but because many new applications are incorporating large-format lithium batteries that require much greater membrane separator volume per
battery, we believe that membrane separator growth will exceed battery unit sales growth and, although not perfectly correlated, will more closely approximate the growth rate in energy capacity.
We
believe, based on independent industry research, that we are among the top three lithium battery separator providers, serving the entire breadth of lithium battery applications, and
have been among the top three since the market's inception in the early 1990s. Major lithium battery manufacturers include Automotive Energy Supply Corporation (AESC), Amperex Technology Limited, BYD
Company Limited, LG Chem Ltd., Nissan Motor Company, Ltd., Panasonic Corporation, Samsung SDI Co., Ltd., Sanyo Electric Company Limited (a Panasonic Corporation member
company), Sony Corporation, Tianjin Lishen Battery Joint Stock Co., Ltd. and ZhuHai Coslight Battery Co., Ltd.
Transportation and industrial
We develop, manufacture and market a complete line of high-performance polymer-based membrane separators for lead-acid batteries.
Approximately 75% of our lead-acid battery separators are used in batteries for automobiles and other motor vehicles. The remaining approximately 25% are used in industrial battery applications such
as forklifts, submarines and uninterruptible power supply systems. We believe that over 75% of lead-acid battery unit sales for motor vehicles are aftermarket batteries. Aftermarket sales are
primarily driven by the size of the
worldwide vehicle fleet rather than by new motor vehicle sales. According to independent industry research, the worldwide fleet of motor vehicles has averaged 3% annual growth for over
25 years, providing us with a growing, recurring revenue base. Lead-acid battery separator growth is strongest in the Asia Pacific region due, we believe, to increasing penetration of
automobile ownership, growth in industrial and manufacturing sectors, export incentives and ongoing conversion to polyethylene-based membrane separators.
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We
believe we are the global market leader in the lead-acid battery separator market. Major lead-acid battery manufacturers include Camel Group Co., Ltd., East Penn
Manufacturing Co., Inc., EnerSys, Exide Technologies, Johnson Controls, Inc. and Trojan Battery Company.
Separations media
In the separations media business, our filtration membranes and modules are used in healthcare and high-performance filtration and
specialty applications. These membranes perform the critical function of removing sub-micron particulates from fluids and introducing or removing gases (gasification/degasification) within liquids.
Both healthcare and specialty filtration applications require membranes with precisely controlled pore size, structure, distribution and uniformity. Our supply relationships with customers in
healthcare and certain filtration applications such as pharmaceutical manufacturing are reinforced by the rigorous testing, clinical studies and/or regulatory approval that our membranes undergo prior
to end-product commercialization. In some cases, several years of development and qualification are required. The separations media business is a reportable segment serving two broad application end
markets.
Healthcare
We develop, manufacture and market a complete portfolio of patented polyethersulfone membranes used in the hemodialysis market.
Hemodialysis is the artificial process that performs the function of a healthy kidney for patients with permanent kidney failure, a condition known as end-stage renal disease ("ESRD"). In a healthy
person, the kidney carries out certain excretory and endocrine functions, including filtering toxins from the blood and controlling blood pressure. For an ESRD patient on dialysis, the dialyzer
membrane performs these critical filtering
functions. The membranes are produced as hollow fibers slightly larger than a human hair and wound to bundles of thousands of fibers. These fibers have nanopores in their walls at a density of
millions of pores per square inch. The size and distribution of these nanopores are designed to separate harmful toxins from the healthy blood passing through the dialyzer. Growth in demand for
dialyzers and dialyzer membranes is driven by several factors, including the aging population in developed countries, longer life expectancy of treated ESRD patients and improving access to treatment
in developing countries. According to the European Renal AssociationEuropean Dialysis and Transplant Association, the number of worldwide ESRD patients has historically grown by a
compound annual growth rate of approximately 6%. We estimate that continued patient population growth combined with conversion to single-use dialyzers and increasing treatment frequency will result in
overall annual dialyzer market growth in excess of 6%.
Our
synthetic membrane, PUREMA®, is superior in performance compared to other synthetic membranes on the market. Dialyzers containing PUREMA® have been classified
in the highest level (category 5) of Japan's dialyzer reimbursement rate system, reflecting the efficacy of our PUREMA® membrane. We believe the superior performance of our
PUREMA® membranes is demonstrated by several long-term supply agreements with customers throughout the world. We are currently marketing PUREMA®'s performance advantages,
including co-branding our customers' dialyzers with the PUREMA® logo.
We
believe, based on independent industry research, that we are uniquely positioned as the leading independent supplier of synthetic membranes in the hemodialysis market
(i.e., not a supplier of dialyzers). Major dialyzer manufacturers include Asahi Kasei Kuraray Medical Co., Ltd., Bain Medical Equipment Co., Ltd., Baxter
International, Inc., Bellco S.r.l., Fresenius Medical Care AG and Nipro Corp.
We
develop, manufacture and market polyolefin membranes used in the blood oxygenation market. As a component of heart-lung machines, blood oxygenators temporarily replace the functions
of the lungs during on-pump open-heart surgery. The oxygenator contains highly specialized membranes which
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remove
carbon dioxide from the blood while oxygen is diffused into the blood. We estimate that growth in the blood oxygenation market is modest as a result of the use of less-invasive alternative
heart treatments. However, we believe that the market could grow as the number of patients receiving on-pump open-heart surgery increases due to the saturation of alternative heart treatments. Because
blood oxygenators are designed to utilize a specific membrane technology and require regulatory approval, an oxygenator manufacturer's relationship with its membrane supplier is vital and switching
costs can be substantial. We believe, based on independent industry research, that we are the world's leading supplier of membranes used in blood oxygenation. Major blood oxygenator producers include
Maquet Cardiopulmonary AG, Medtronic, Inc., Sorin Group S.r.l. and Terumo Medical Corp. Our Oxyplus® membranes, which are made of polymethylpentene, are increasingly used in
intensive care applications to serve as an artificial lung for patients with severe lung trauma or lung
failure following sepsis, multi-organ failure, or infectious diseases. Major producers of such artificial lungs are Sorin Group S.r.l., Maquet Cardiopulmonary AG, Terumo Medical Corp.,
Medtronic, Inc. and Medos AG.
We
develop, manufacture and market polypropylene and polyethersulfone membranes for the plasmapheresis market. In plasmapheresis, plasma is separated from the blood and either retained
for the production of therapeutic proteins or filtered and returned to the blood as a treatment for various autoimmune disorders. We believe that the plasmapheresis market is growing and that new
treatment methodologies based on blood filtration may lead to additional growth. We believe we are a leading supplier of extracorporeal therapeutic plasmapheresis membranes. Major manufacturers of
plasmapheresis equipment include Asahi Kasei Kuraray Medical Co., Ltd., Baxter International, Inc., Fresenius Medical Care AG and B. Braun AG.
Industrial and specialty filtration
We produce a wide range of membranes and membrane-based elements for microfiltration and ultrafiltration as well as
gasification/degasification of liquids, covering a broad range of applications in the filtration market. According to independent industry research, the global microfiltration and ultrafiltration
membrane element market is growing in excess of 8% annually. Market growth is being driven by several factors, including end-market growth in various water treatment and pharmaceutical processing
applications, displacement of conventional filtration media by membrane filtration due to membranes' superior cost and performance attributes, and increasing purity requirements in industrial and
other applications. We currently serve a variety of filtration end markets, including water treatment, food and beverage processing and pharmaceutical, semiconductor and flat panel display
manufacturing, and we are working closely with current and potential customers to develop innovative new products based on our technology and capabilities.
We
believe, based on internal company estimates, that we are the world leader in membrane gasification/degasification for liquids and that we are uniquely positioned as the leading
independent supplier of polyethersulfone flat sheet membranes.
New product development
We have focused our research and development efforts on developing products for new markets based on existing technologies and
developing new process technologies to enhance existing businesses and allow entry into new businesses. We spent $19.9 million (3% of our net
sales), $17.2 million (3% of our net sales) and $18.5 million (3% of our net sales) in fiscal 2014, fiscal 2013 and fiscal 2012, respectively, on research and development.
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Our transportation and industrial research and development is performed at technical centers at our facilities in Owensboro, Kentucky; Selestat, France; and
Bangalore, India. Our electronics and EDVs research and development is performed at technical centers at our facilities in Charlotte, North Carolina; Concord, North Carolina; and Ochang, South Korea.
Our separations media research and development is performed at technical centers at our facilities in Wuppertal, Germany, and Charlotte, North Carolina. All of the products that we develop are subject
to multiple levels of extensive and rigorous testing. The qualification of membrane separators for use in transportation and industrial applications, for instance, may require one or more years of
testing by our staff and battery manufacturers.
Sales and marketing
We sell our products and services to customers in both the domestic and international marketplace. We sell primarily to manufacturers
and converters that incorporate our products into their finished goods. We employ a direct worldwide sales force and utilize approximately 100 professionals with extensive experience who manage major
customer relationships. Many of our sales representatives are engineers or similarly trained technical personnel who have advanced knowledge of our products and the applications for which they are
used. Our sales representatives are
active in new product development efforts and are strategically located in the major geographic regions in which our products are sold. In certain geographic areas, we use distributors or other
agents. We typically seek to enter into supply contracts with our major customers. These contracts typically describe the volume and selling price. In addition, these contracts reflect our close
collaborative relationships with our customers, which are driven by our customers' need to develop new separators and membranes directly with us. In fiscal 2014, sales to our top five customers
represented approximately 27% of our total net sales. No sales to an individual customer accounted for more than 10% of total net sales in fiscal 2014, 2013 or 2012.
Manufacturing and operations
General
We have manufacturing facilities in the major geographic markets of the United States, Europe and Asia. We manufacture our lithium
battery separators at our facilities in Charlotte, North Carolina; Concord, North Carolina; and Ochang, South Korea, and we have a finishing operation in Shanghai, China. We manufacture our lead-acid
battery separators at our facilities in Owensboro, Kentucky; Corydon, Indiana; Selestat, France; Norderstedt, Germany; Prachinburi, Thailand; Tianjin, China; and Xiangyang, China (a 65% owned joint
venture). We also have finishing operations in Bangalore and Baddi, India. We manufacture our healthcare membranes and industrial and specialty filtration membranes and membrane modules at facilities
in Wuppertal and Obernburg, Germany, and Charlotte, North Carolina.
In
fiscal 2014, fiscal 2013 and fiscal 2012, we generated net sales from customers outside the United States of approximately 80%, 81% and 83%, respectively. We typically sell our
products in the currency of the country in which the products are manufactured rather than the local currency of our customers.
Our
manufacturing facilities in the United States accounted for 37% of total sales for fiscal 2014, with facilities in Europe and Asia accounting for 40% and 23%, respectively. Our
foreign operations are subject to certain risks that could materially affect our sales, profits, cash flows and financial position. These risks include fluctuations in foreign currency exchange rates,
inflation, economic or political instability, shipping delays, changes in applicable laws and regulatory policies and various trade restrictions, all of which could have a significant impact on our
ability to deliver products on a competitive and timely basis. The future imposition of, or significant increases in the level of, customs
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duties,
import quotas or other trade restrictions could also have a material adverse effect on our business, financial condition and results of operations.
Manufacturing processes
All of our membrane manufacturing processes involve an extrusion process. To produce our flat sheet and hollow fiber membranes, we use
one of three basic membrane processes that begin with an extrusion step. These include phase separation (thermally-induced, solvent-induced or reaction-induced), dry stretch and extrusion/extraction
processes. Each process, and its resulting product properties, is well-suited to the various membrane requirements for our target markets. To produce Liqui-Cel® Membrane Contactors and
Liqui-Flux® membrane modules, hollow fibers are bonded together into a cartridge form by extruding either a polyolefin resin or using an epoxy or polyurethane adhesive before final
assembly into a finished module.
Membrane separators for batteries. We manufacture our lithium battery separators using two processes, both of which begin with an
extrusion step.
Membrane porosity is created either during a thermal stretching process or during a solvent-induced process. Some special coated and non-woven laminate products are also manufactured for specialty
battery and other applications.
We
manufacture Daramic®, our principal lead-acid battery separator used in industrial and automotive applications, using a composite extrusion/extraction process. The process
stages are fully automated, although the process requires some handling as material is transferred from stage to stage. Initially, an ultra-high molecular weight polyethylene is mixed with porous
silica and oil, which are heated and extruded into a film. The film is passed through an extraction bath to remove the excess oil from the silica pores to create the proper microporosity and film
stiffness prior to drying.
Hemodialysis, blood oxygenation, plasmapheresis and filtration membranes. Membranes used in hemodialysis, blood oxygenation,
plasmapheresis and
filtration are produced using phase separation processes. For these phase separation processes, the polymer spinning solution is prepared by dissolving
the polymer in a solvent prior to extrusion. A porous membrane is formed by separating the solvent and polymer phases using temperature (thermally-induced) or a "non-solvent" (solvent-induced), and
then the solvent phase is extracted and the porous polymer membrane is dried. For blood oxygenation and certain filtration applications, hollow fiber and flat sheet membranes are also produced using
our "dry stretch" process. We utilize the molecular behavior of semi-crystalline polymers (polyolefins) to create microporous structures. By controlling the extrusion process under which the film or
fiber is formed, we create a distinct matrix of crystalline and amorphous regions that allows the formation of microvoids in a subsequent stretching step. After extrusion, our products can be stored
or immediately processed on thermal stretching lines that create the final porous form.
Competition
Our markets are highly competitive. Within our energy storage business, we face competition throughout the world. Our primary
competitors in the market for membrane separators used in lithium batteries are Asahi Kasei E-materials Corp. (a subsidiary of Asahi Kasei Corporation), Toray Battery Separator
Film Co., Ltd. (a subsidiary of Toray Industries, Inc.), Shenzhen Senior Technology Material Co., Ltd., SK Innovation Co., Ltd. (a subsidiary of SK
Holdings Co., Ltd.) and Ube Industries Limited, as well as a number of smaller competitors. Our primary competitors in the market for membrane separators used in lead-acid batteries for
transportation and industrial applications are Entek International LLC and Microporous, LLC in North America and Europe, Baoding Fengfan Rising Battery Separator Co., Ltd.
in China and Nippon Sheet Glass Co., Ltd. in Japan. In addition, we have a number of smaller competitors in South Korea, Indonesia, China and Taiwan.
Within
our separations media business, we compete in the market for membranes used in dialysis with Asahi Kasei Kuraray Medical Co., Ltd., Fresenius Medical Care AG, Baxter
International, Inc.
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and
Toyobo Co., Ltd. In addition, our primary competitor in the blood oxygenation market is Terumo Medical Corp., and in the plasmapheresis market, our competitors are Asahi Kasei
Kuraray Medical Co., Ltd. and Fresenius Medical Care AG. Our industrial and specialty filtration business competes across multiple markets and applications. Principal competitors include
Dainippon Ink and Chemicals, Inc., Koch Membrane Systems (a division of Koch Industries), X-Flow B.V. (a subsidiary of Pentair, Ltd.), Millipore (a division of Merck KGaA) and
Pall Corporation. Product innovation and performance, quality, service, utility and cost are the primary competitive factors, with technical support being highly valued by our customers. We believe
that we are well-positioned in our end markets for the reasons set forth under "Competitive strengths" above.
Raw materials
We employ a global purchasing strategy to achieve pricing leverage on our purchases of major raw materials. The major polyethylene and
polypropylene resins we use are specialized petroleum-based products that are less affected by commodity pricing cycles than other petroleum-based products. In the event of future price increases for
these major raw materials, we believe that we will generally be able to pass these increases on to our customers. The primary raw materials we use to manufacture most of our products are polyethylene
and polypropylene resins, silica and oil. Our major suppliers of polyethylene resins are Ticona LLC and Korea Petrochemical Ind. Co., Ltd., and our major suppliers of
polypropylene resins are Total Petrochemicals & Refining USA, Inc. and NEXEO Solutions. Our major suppliers of silica are PPG Industries, Inc. and Evonik Degussa GmbH,
while our major suppliers of oil are Shell Chemical LP and Ergon, Inc.
We
believe that the loss of any one or more of our suppliers would not have a long-term material adverse effect on us because other suppliers with whom we conduct business or have
conducted business in the past would be able to fulfill our requirements. However, the loss of one of our key suppliers could, in the short term, adversely affect our business until we secure
alternative supply arrangements. We have never experienced any significant disruptions in supply as a result of shortages in raw materials.
Employees
At January 3, 2015, we had approximately 2,400 employees worldwide. Employees at six of our 15 facilities are unionized
and account for approximately 34% of our total employees. The following summarizes those employees represented by unions as of January 3, 2015:
|
|
|
|
|
|
|
|
|
Location
|
|
Number of
unionized
employees |
|
% of total
employees |
|
Date of contract
renegotiation |
Norderstedt, Germany |
|
|
48 |
|
|
72 |
|
Annual |
Obernburg, Germany |
|
|
21 |
|
|
81 |
|
Annual |
Wuppertal, Germany |
|
|
422 |
|
|
86 |
|
Annual |
Selestat, France |
|
|
132 |
|
|
64 |
|
June 2016 |
Owensboro, Kentucky |
|
|
120 |
|
|
71 |
|
April 2017 |
Corydon, Indiana |
|
|
63 |
|
|
79 |
|
September 2018 |
|
|
|
|
|
|
|
|
|
Total |
|
|
806 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental matters
We are subject to a broad range of federal, state, local and foreign environmental laws and regulations which govern, among other
things, air emissions, wastewater discharges and the handling, storage, disposal and release of waste and hazardous substances. It is our policy to comply with applicable environmental requirements at
all of our facilities. We are also subject to laws, such as the
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Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), that may impose liability retroactively and without fault for releases or threatened releases of hazardous substances
at on-site or off-site locations. From time to time, we have identified environmental compliance issues at our facilities.
We
have conducted some cleanup of on-site releases at some facilities, and we may be required to conduct additional cleanups of on-site contamination at other facilities under regulatory
supervision or voluntarily. Costs for such work and related measures (such as eliminating sources of contamination) could be substantial. In connection with the acquisition of Membrana GmbH
("Membrana") in 2002, we recorded a reserve for costs to remediate known environmental issues and operational upgrades which
are required in order for us to remain in compliance with local regulations. We had indemnification agreements with the prior owners of Membrana for a substantial portion of these costs. As of
January 3, 2015, the reserve for such costs was $0.9 million. We do not anticipate that the remediation activities will disrupt operations at our facilities or have a material adverse
effect on our business, financial condition or results of operations.
Intellectual property rights
We consider our patents and trademarks, in the aggregate, to be important to our business and seek to protect our trade names,
trademarks, brand names, proprietary technology and know-how in part through United States and foreign patents and trademark registrations and applications. However, no individual patent is material
to our business, and the expiration or invalidation of any one patent would not have a material impact on our business. We own approximately 175 active unique patents and patent applications relating
to our separator, membrane and module technologies. In general, the term of each of our U.S. patents depends on when the patent was filed. If the application for a U.S. utility patent was filed prior
to June 8, 1995, the patent will expire either 20 years from the application filing date or 17 years from the patent issuance date, whichever is longer; if the application was
filed on or after June 8, 1995, the patent will expire 20 years from the earliest date the application was filed.
In
general, trademarks are valid as long as they are in use and/or their registrations are properly maintained, and trademark registrations can generally be renewed indefinitely so long
as the marks are in use. Some of our registered marks include CELGARD®, Liqui-Cel®, Daramic® and PUREMA®.
In
addition, we maintain certain trade secrets for which, in order to maintain the confidentiality of such trade secrets, we have not sought patent protection. Our policies require our
employees to assign their intellectual property rights to us and to treat all proprietary technology as our confidential information.
We
have granted security interests or liens on some of our patents to financial institutions, including lenders under our senior secured credit agreement.
If
we fail to adequately protect and enforce our intellectual property rights, competitors may manufacture and market products similar to ours. The loss of protection for or enforcement
of our intellectual property rights could reduce the market value of our products, reduce product sales, lower our profits or impair our financial condition. See "Risk Factors." If we are unable to
adequately protect, police or enforce our intellectual property, we could lose a significant competitive advantage.
Available Information
We are subject to the information reporting requirements of the Exchange Act, and, in accordance with these requirements, we file
annual, quarterly and other reports, proxy statements and other information with the Securities and Exchange Commission ("SEC") relating to our business, financial results and other matters. The
reports, proxy statements and other information we file may be
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inspected
and copied at prescribed rates at the SEC's Public Reference Room and via the SEC's website (see below for more information).
You
may inspect a copy of the reports, proxy statements and other information we file with the SEC, without charge, at the SEC's Public Reference Room, 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549, and you may obtain copies of the reports, proxy statements and other information we file with the SEC from those offices for a fee. You may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our filings are available to the public at the SEC's website at www.sec.gov.
Our
website address is www.polypore.net. We use the Investor Relations section of our website as a channel for routine distribution of important information, including news releases,
analyst presentations and financial information. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, on our website as soon as reasonably practicable after we electronically file or furnish them
to the SEC. The contents of our website are not part of this Annual Report on Form 10-K, and the reference to our website does not constitute incorporation by reference into this
Form 10-K of the information contained at that site.
Item 1A. Risk Factors
Our business faces many risks. As such, prospective investors and shareholders should carefully consider and evaluate all of the risk
factors described below. These risk factors may change from time to time and may be amended, supplemented, or superseded by updates to the risk factors contained in periodic reports on
Form 10-Q and Form 10-K that we file with the SEC in the future.
Our proposed transactions with 3M and Asahi Kasei may cause disruption in our business and, if the
proposed transactions do not occur, we will have incurred significant expenses, may need to pay a termination fee and our stock price may decline.
On February 23, 2015, we entered into integrated transactions with 3M, Asahi Kasei and EMS, pursuant to which we will sell our
separations media business to 3M and, immediately thereafter, will be merged with EMS. In connection with the integrated transactions, at the time of the merger, each share of our common stock (other
than any (a) dissenting shares, (b) shares owned by Asahi Kasei and EMS, the Company or any of their respective subsidiaries (which will be cancelled)) issued and outstanding immediately
prior to the effective time of the merger will be converted into the right to receive $60.50 in cash without interest, payable to the holder of such share. Each option to purchase shares of our common
stock that is outstanding immediately prior to the effective time of the merger will immediately accelerate and vest and be cancelled and converted into the right to receive a payment in cash of an
amount, subject to the amount of any required tax withholding, equal to the product of the total number of shares of our common stock subject to such cancelled option and the excess, if any, of the
Merger Consideration over the applicable exercise price of the option; provided that any such option with respect to which the exercise price per share subject to the option is equal to or greater
than the Merger Consideration shall be cancelled in exchange for no consideration. Each restricted share of our common stock that is outstanding immediately prior to the effective time of the merger
will immediately accelerate and vest and be cancelled and converted into the right to receive a payment in cash of an amount, subject to the amount of any tax withholding, equal to the Merger
Consideration, without interest, treating such restricted share in the same manner as the other shares of our common stock.
The
integrated transactions are subject to customary closing conditions, including regulatory and stockholder approval. Furthermore, we have the right to terminate the integrated
transactions if we enter into a definitive agreement for an alternative transaction that constitutes a Superior Proposal,
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provided
we comply with certain notice and other requirements, including paying Asahi Kasei and 3M a termination fee equal to $39.0 million and $16.8 million, respectively. Certain other
actions by us causing termination of the integrated transactions could result in our being required to pay the foregoing termination fees to Asahi Kasei and 3M.
The
announcement of the proposed integrated transactions, whether or not consummated, may result in a loss of key personnel and may disrupt our sales, strategic growth initiatives,
research and development or other key business activities, which may have an impact on our financial performance. The agreements governing the integrated transactions generally require us to operate
our business in the ordinary course pending consummation of the proposed transactions, but include certain contractual restrictions on the conduct of our business that may affect our ability to
execute on our business strategies and attain our financial goals. Additionally, the announcement of the integrated transactions, whether or not consummated, may impact our relationships with third
parties, including suppliers, customers and others.
The
consummation of the integrated transactions is subject to certain conditions, including, among others: (1) adoption of the merger agreement by the stockholders of the Company,
(2) expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other consents and approvals required under
applicable antitrust laws, (3) the absence of any law or order prohibiting the consummation of the integrated transactions, (4) the absence of certain governmental actions,
(5) the absence of a material adverse effect on either the separations media business or the remaining business of the Company, (6) subject to certain exceptions, the accuracy of
representations and warranties of the Company, Asahi Kasei, EMS and 3M and (7) the performance or compliance by the Company, Asahi Kasei, EMS and 3M with their respective covenants and
agreements.
We
cannot predict whether the closing conditions for the integrated transactions will be satisfied. As a result, we cannot assure that the integrated transactions will be completed. If
the closing conditions for the integrated transactions are not satisfied or waived, or if the transactions are not completed for any other reason, the market price of our common stock may decline. In
addition, if the integrated transactions do not occur, we will nonetheless remain liable for significant expenses that we have incurred related to the transactions.
Because the specialized markets in which we sell our products are highly competitive, we may have
difficulty growing our business.
The markets in which we sell our products are highly competitive. Many of these markets require highly specialized products that are
time and cost intensive to design and develop. In addition, innovative products, quality, service, utility, cost and technical support are the primary competitive factors in the separation and
filtration membrane industry. Some of our competitors are much larger companies that have greater financial, technological, manufacturing and marketing resources than we do. Many of these competitors
are also better established as suppliers to the markets that we serve. As a result, a reduction in overall demand or increased costs to design and produce our products within these markets could cause
us to reduce our prices, which could lower our profit margins and impair our ability to grow our business.
We must continue to invest significant resources in developing innovative products in order to
maintain a competitive edge in the highly specialized markets in which we operate.
Our continued success depends, in part, upon our ability to maintain our technological capabilities and to continue to identify,
develop and commercialize innovative products for the separation and filtration membrane industry. For example, products for some consumer electronics applications have a short lifecycle and require
constant development. If we fail to continue to develop products for those
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markets
or keep pace with technological developments by our competitors generally, we may lose market share which could result in reduced sales and impair our financial condition.
The loss of large volume customers could impact our sales and our profits.
Our products are often sold to a relatively small number of large volume customers. For example, in fiscal 2014, sales to our top five
customers represented approximately 27% of our total net sales. The loss of any large volume customer could impact our sales and our profits.
Vertical integration by our customers of the production of our products into their own manufacturing
processes could reduce our sales and our profits.
Our future sales and profits will depend to a significant extent upon whether our customers choose in the future to manufacture the
separation and filtration membranes used in their products instead of purchasing these components from us. If any of our existing customers choose to vertically integrate the production of our
products in such a manner, the loss of sales to these customers could reduce our sales and our profits.
Increases in prices for raw materials or the loss of key supplier contracts could reduce our profit
margins.
The primary raw materials we use in the manufacture of most of our products are polyethylene and polypropylene resins, silica and oil.
In fiscal 2014, raw materials accounted for approximately 34% of our cost of sales. Although our major customer contracts generally allow us to pass increased costs on to our customers, we may not be
able to pass on all raw material price increases to our customers in each case or without delay. The loss of any of our key suppliers could disrupt our business until we secure alternative supply
arrangements. Furthermore, any new supply agreement we enter into may not have terms as favorable as those contained in our current supply arrangements.
Our substantial indebtedness could harm our ability to react to changes in our business or to market
developments and prevent us from fulfilling our obligations under our indebtedness.
As of January 3, 2015, our consolidated indebtedness was $487.5 million. Our cash interest requirements for the next
twelve months are estimated to be $12.9 million. Our substantial level of indebtedness, as well as any additional borrowings we may make under the unused portions of our senior secured credit
agreement, increases the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our
substantial debt could increase our vulnerability to general economic downturns and adverse competitive and industry conditions by limiting our flexibility to plan for, or to react to, changes in our
business and in the industry in which we operate. This limitation could place us at a competitive disadvantage compared to competitors that have less debt and more cash to insulate their operations
from market downturns and to finance new business opportunities.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service
obligations to increase significantly.
At January 3, 2015, we had variable rate debt of $487.5 million. An interest rate increase would result in an increase in
interest expense. Our earnings may not be sufficient to allow us to meet any such increases in interest rate expense and to pay principal and interest on our debt and meet our other obligations. If we
do not have sufficient earnings, we may be required to refinance all or part of our existing debt, sell assets, borrow more money or sell more securities, none of which we can guarantee we will be
able to do on terms favorable to the Company or at all. We may, from time to time, enter into certain derivative instruments (or hedging agreements), in order to reduce our exposure to cash flow
variability that may arise from interest rate volatility. No hedging activity can
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completely
insulate us from the risks associated with changes in interest rates, and hedging agreements could also fix our interest rates above the market rates. As of January 3, 2015, we had
an interest rate swap agreement to economically convert a portion of our LIBOR-based, variable rate debt into fixed rate debt. See Note 8, "Derivative Instruments and Hedging Activities," in
the accompanying consolidated financial statements.
To service our indebtedness, we will require a significant amount of cash. Our ability to generate
cash depends on many factors beyond our control.
Our ability to make payments on and to refinance our indebtedness and to fund our operations will depend on our ability to generate
cash in the future. However, our business may not generate sufficient cash flow from operations for a variety of reasons, including those mentioned elsewhere in this "Risk Factors" section. Without
sufficient cash flow, future borrowings may not be available to us under our senior secured credit agreement in amounts sufficient to enable us to service our indebtedness or to fund our other
liquidity or capital needs. If we cannot generate sufficient cash to service our debt, we will have to take such actions as reducing or delaying capital investments, selling assets, restructuring or
refinancing our debt or seeking additional equity capital. Any of these actions may not be effected on commercially reasonable terms, or at all. In addition, our senior secured credit agreement may
restrict us from adopting any of these alternatives.
The terms of our senior secured credit agreement may restrict our current and future operations,
particularly our ability to respond to market changes or to take certain actions.
Our senior secured credit agreement contains a number of restrictive covenants that impose significant operating and financial
restrictions on us and may limit our ability to engage in acts that may be in our long-term best interests. For example, our senior secured credit agreement includes covenants restricting, among other
things, our ability to incur, assume or permit to exist additional indebtedness or guarantees, engage in mergers, acquisitions and other business combinations, or amend or otherwise alter terms of our
indebtedness and other material agreements. Our senior secured credit agreement also includes financial covenants requiring that we maintain a maximum leverage ratio and a minimum interest coverage
ratio.
A
breach of any of these covenants or the inability to comply with financial covenants could result in a default under our senior secured credit agreement. If any such default occurs,
the lenders may elect to declare all outstanding borrowings, together with accrued interest and other amounts payable thereunder, to be immediately due and payable. The lenders under our credit
agreement also have the right in these circumstances to terminate any commitments they have to provide further borrowings and to proceed against all collateral granted to them to secure the debt. If
collateral (such as available cash) is repossessed by the lenders, we will be unable to access the capital and other resources necessary to operate our business, and we could incur immediate and
significant losses.
Some of our employees are represented under collective bargaining agreements. Any employee
slowdowns, strikes or failure to renew our collective bargaining agreements could disrupt our business.
Approximately 34% of our employees are represented under collective bargaining agreements. A majority of those employees are located in
France and Germany and are represented under industry-wide agreements that are subject to national and local government regulations. Many of these collective bargaining agreements must be renewed
annually. Labor unions also represent our employees in Owensboro, Kentucky, and Corydon, Indiana.
Labor
organizing activities could result in additional employees becoming unionized. We may not be able to maintain constructive relationships with these labor unions or successfully
negotiate new collective bargaining agreements in the future. The loss of a substantial number of these employees or
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a
prolonged labor dispute could disrupt our business. Any such disruption could in turn reduce our sales, increase our costs to bring products to market and result in significant losses.
We generate most of our sales from manufacturing products that are used in a wide variety of
industries and the potential for product liability exposure for our products could be significant.
We manufacture a wide variety of products that are used in healthcare and consumer applications. Several of these products are used in
medical devices that some consumers require in order to sustain their lives. As a result, we may face exposure to product liability claims in the event that the failure of our products results, or is
alleged to result, in bodily injury and/or death. In addition, if any of our products are, or are alleged to be, defective, we may be required to make warranty payments or to participate in a recall
involving those products. Consequently, end users of our products may look to us for contribution when faced with product recalls, product liability or warranty claims. The future costs associated
with defending product liability claims or providing product warranties could be material and we may experience material losses in the future as a result. A successful product liability claim brought
against us in excess of available insurance coverage or a requirement to participate in any product recall could substantially reduce our available cash from operations. Reduced cash could in turn
reduce our profits or impair our financial condition.
Our operations outside the United States pose risks to our business that are not present with our
domestic business, including compliance with applicable anti-corruption laws.
Our manufacturing facilities in the United States accounted for 37% of total net sales for fiscal 2014, with facilities in Europe and
Asia accounting for 40% and 23%, respectively. Typically, we sell our products in the currency of the country where the manufacturing facility that produced the products is located. In addition, as
part of our growth and acquisition strategy, we may expand our operations in these or other foreign countries. Our foreign operations are, and any future foreign operations will be, subject to certain
risks that are unique to doing business in foreign countries. These risks include fluctuations in foreign currency exchange rates, inflation, economic or political instability, shipping delays,
changes in applicable laws and regulatory policies and inconsistent enforcement of such laws and policies and various trade restrictions. All of these risks could have a negative impact on our ability
to deliver products to customers on a competitive and timely basis. This could reduce or impair our sales, profits, cash flows and financial position. The future imposition of, or significant
increases in the level of, customs duties, import quotas or other trade restrictions could also increase our costs and reduce our profits.
Countries
around the world are increasingly enacting anti-corruption laws, many of which are patterned after the United States' Foreign Corrupt Practices Act ("FCPA"). The FCPA generally
prohibits companies and their intermediaries from giving, or offering to give, anything of value to foreign officials with the intent of obtaining an improper business advantage. The FCPA's foreign
counterparts contain similar prohibitions, although varying in both scope and jurisdiction. Our internal policies prohibit corruption in all forms and expressly mandate compliance with the FCPA in
particular. Despite such policies and the FCPA training we provide to our employees, we cannot guarantee that our employees', agents' or other intermediaries' conduct will not periodically violate the
anti-corruption laws of a particular nation. Our continued overseas expansion, especially in the aforementioned emerging markets, naturally increases the risk of such violations and consequently could
cause a material adverse effect on our operations or financial condition.
We could incur substantial costs to comply with environmental laws, and violations of such laws may
increase our costs or require us to change certain business practices.
We use and generate a variety of chemicals and other hazardous by-products in our manufacturing operations. As a result, we are subject
to a broad range of federal, state, local and foreign
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environmental
laws and regulations. These environmental laws govern, among other things, air emissions, wastewater discharges and the handling, storage and release of waste and hazardous substances.
Such laws and regulations can be complex and change often. We regularly incur costs to comply with environmental requirements, and such costs could increase significantly with changes in legal
requirements or their interpretation or enforcement. Some of our manufacturing facilities have been the subject of actions to enforce environmental requirements. We could incur substantial costs,
including clean-up costs, fines and sanctions and third-party property damage or personal injury claims, as a result of violations of environmental laws. Failure to comply with environmental
requirements could also result in enforcement actions that materially limit or otherwise affect the operations of the facilities involved.
Under
certain environmental laws, a current or previous owner or operator of an environmentally contaminated site may be held liable for the entire cost of investigation, removal or
remediation of hazardous materials at such property. This liability could result whether or not the owner or operator knew of, or was responsible for, the presence of any hazardous materials.
Contaminants
have been detected at some of our present facilities, principally in connection with historical operations. Investigations and/or clean-ups of these contaminants have been
undertaken by us or by former owners of the sites. The costs of investigating and remediating environmental conditions at some of our facilities may be substantial. If our remediation costs are higher
than expected, our exposure to these costs would increase. This exposure could reduce our cash available for operations, consume valuable management time and reduce our profits or impair our financial
condition.
We
anticipate additional investigations and clean-ups of on-site contamination under regulatory supervision or voluntarily at some of our sites. In addition, the imposition of more
stringent clean-up requirements, the discovery of additional contaminants or the discovery of off-site contamination at or from one or more of our facilities could result in significant additional
costs to us.
If we are unable to adequately protect our intellectual property, we could lose a significant
competitive advantage.
Our success with our products depends, in part, on our ability to protect our unique technologies and products against competitive
pressure and to defend our intellectual property rights. If we fail to adequately protect our intellectual property rights, competitors may manufacture and market products similar to ours.
Even
though we have filed patent applications, we may not be granted patents for those applications. Our failure to secure these patents may limit our ability to protect the intellectual
property rights that these applications were intended to cover. Moreover, even if we are granted a patent, that does not prove conclusively that the patent is valid and enforceable. Our existing or
future patents that we receive or license may not provide competitive advantages for our products. Our competitors may invalidate, narrow or avoid the scope of any existing or future patents,
trademarks, or other intellectual property rights that we receive or license. In addition, patent rights may not prevent our competitors from developing, using or selling products that are similar or
functionally equivalent to our products. Patent rights are territorial; thus, the patent protection we do have will only extend to those countries in which we have issued patents. Even so, the laws of
certain countries do not protect our intellectual property rights to the same extent as do the laws of the United States and various European countries. The loss of protection for our intellectual
property could reduce the market value of our products, reduce product sales and lower our profits or impair our financial condition.
We
intend to enforce our intellectual property rights vigorously, and from time to time we may initiate claims against third parties that we believe are infringing our intellectual
property rights if we are unable to resolve matters satisfactorily through negotiation or we may be required to participate in other administrative proceedings. Lawsuits brought to protect and enforce
our intellectual property
20
Table of Contents
rights
could be expensive, time-consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property. Our failure to secure, protect and enforce
our intellectual property rights could seriously harm our business.
Security
interests or liens have been granted to financial institutions on some of our patents. If we fail to satisfy our obligations, the financial institutions have rights to those
patents.
Due to the unique products that we produce and the particular industry in which we operate, the loss
of our senior management could disrupt our business.
Our senior management is important to the success of our business. There is significant competition for executive personnel with unique
experience in the separation and filtration membrane industry. As a result of this unique need and the competition for a limited pool of industry-based executive experience, we may not be able to
retain our existing senior management. In addition, we may not be able to fill new positions or vacancies created by expansion or turnover or attract additional senior management personnel. All of our
executive officers are free to pursue other business opportunities (other than our chief executive officer, who is bound by a non-compete provision of his employment agreement), including those that
may compete with us. The loss of any member of our senior management without retaining a suitable replacement (either from inside or outside our existing management team) could disrupt our business.
We may pursue future acquisitions. If we incur contingent liabilities and expenses or additional
debt in connection with future acquisitions or if we cannot effectively integrate newly acquired operations, our business could be disrupted.
Acquisitions involve risks that the businesses acquired will not perform in accordance with expectations or that business judgments
concerning the value, strengths and weaknesses of businesses acquired will prove incorrect. Future acquisitions would likely result in the incurrence of debt and contingent liabilities. Such
acquisitions could also increase our interest and amortization expenses as well as periodic impairment charges related to goodwill and other intangible assets. Acquisitions could also result in
significant charges relating to integration costs. We may not be able to integrate successfully any business we acquire into our existing business. Any acquired businesses may not be profitable or as
profitable as we had expected. The successful integration of new businesses depends on our ability to manage these new businesses and cut excess costs. The successful integration of future
acquisitions may also require substantial attention from our senior management
and the management of the acquired business. This could decrease the time that they have to service and attract customers and develop new products and services. In addition, because we may actively
pursue a number of opportunities simultaneously, we may encounter unforeseen expenses, complications and delays. Such expenses and delays could include difficulties in employing sufficient staff and
maintaining operational and management oversight. Our inability to complete the integration of new businesses in a timely and orderly manner could increase costs, reduce our profits and ultimately
disrupt our business.
As part of our lithium battery capacity expansions, we have purchased a significant amount of
property, plant and equipment, which may be subject to impairment if lithium market demand does not materialize as anticipated.
Since late 2009, we have invested over $300.0 million in capacity expansions for our electronics and EDVs segment. Demand for
lithium battery separators has been lower than originally anticipated, and we are currently operating our production facilities at levels below full capacity. If demand for lithium battery separators
does not materialize as expected, we may have to recognize an impairment charge to such assets. Long-lived assets are reviewed annually for impairment. Impairment may result from, among other things,
adverse market conditions, the loss of customers, significant changes in the expected adoption rate of EDVs and adverse changes in laws or regulations. Any future determination
21
Table of Contents
requiring
the impairment of long-lived assets would reduce our profits for the fiscal period in which the write-off occurs.
We have recorded a significant amount of intangible assets, which may never generate the returns we
expect.
Our net identifiable intangible assets at January 3, 2015 were approximately 6% of our total assets. Such assets include
customer relationships, trademarks and trade names, license agreements and technology acquired in acquisitions. Goodwill, which relates to the excess of cost over the fair value of the net assets of
the businesses acquired, was approximately 32% of our total assets at January 3, 2015. Goodwill and identifiable intangible assets are recorded at fair value on the date of acquisition and are
reviewed at least annually for impairment. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions and adverse changes in
applicable laws or regulations. We may never realize the full
value of our intangible assets. Any future determination requiring the write-off of a significant portion of intangible assets would reduce our profits for the fiscal period in which the write-off
occurs.
Our operations are vulnerable to interruption or loss due to natural disasters, epidemics, terrorist
acts and other events beyond our control, which could adversely affect our business.
Our operations may be subject to significant interruption if any of our facilities are damaged or destroyed. For example, certain of
our products are manufactured at a single facility location for which we do not maintain a backup manufacturing facility. A natural or other disaster, such as a fire or flood, could significantly
disrupt our operations, delay or prevent product manufacture and shipment for the time required to repair, rebuild or replace our manufacturing facilities, which could be lengthy, and result in large
expenses to repair or replace the facilities. In addition, concerns about terrorism or an outbreak of epidemic diseases, especially in our major markets of North America, Europe and Asia could have a
negative effect on travel and our business operations, and result in adverse consequences on our sales and financial performance.
Cyber risk and the failure to maintain the integrity of our operational or security systems or
infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, financial condition and results of operations.
We are increasingly dependent on information technology networks and systems, including the Internet, to process, transmit and store
information. In particular, we depend on our information technology infrastructure for electronic communications among our locations around the world and between our personnel and suppliers and
customers. Security breaches and other failures of this infrastructure can create system disruptions, shutdowns and unauthorized disclosure of confidential and/or proprietary information. If we are
unable to prevent or adequately respond to such failures and breaches, our operations could be disrupted and we may suffer reputational, financial or other damage that has a material adverse effect on
our business, financial condition or results of operations.
Item 1B. Unresolved Staff Comments
None.
22
Table of Contents
Item 2. Properties
Our manufacturing facilities are strategically located to serve our customers globally. We believe our facilities are suitable and
adequate for our present purposes.
|
|
|
|
|
|
|
|
Location
|
|
Floor area
(sq. ft.) |
|
Business segment |
|
Certification |
Owensboro, Kentucky(1) |
|
|
277,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001 |
Prachinburi, Thailand |
|
|
166,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001 |
Corydon, Indiana(1) |
|
|
161,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001 |
Selestat, France |
|
|
153,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001 |
Norderstedt, Germany |
|
|
124,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001 |
Bangalore, India(2) |
|
|
76,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001, OHSAS 18001 |
Baddi, India(2) |
|
|
20,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001, OHSAS 18001 |
Tianjin, China |
|
|
47,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001 |
Xiangyang, China(3) |
|
|
118,000 |
|
Transportation and Industrial |
|
ISO 14001, ISO 9001 |
Ochang, South Korea |
|
|
108,000 |
|
Electronics and EDVs |
|
ISO 14001, ISO 9001, OHSAS 18001, KOSHA 18001 |
Shanghai, China(2) |
|
|
47,000 |
|
Electronics and EDVs |
|
ISO 9001 |
Concord, North Carolina(1) |
|
|
230,000 |
|
Electronics and EDVs |
|
ISO/TS 16949 |
Charlotte, North Carolina(1) |
|
|
410,000 |
|
Electronics and EDVs and Separations Media |
|
ISO 14001, ISO 9001, ISO/TS 16949 |
Wuppertal, Germany |
|
|
1,503,000 |
|
Separations Media |
|
ISO 14001, ISO 9001 |
Obernburg, Germany(2) |
|
|
23,000 |
|
Separations Media |
|
ISO 9001 |
- (1)
- These
domestic facilities serve as collateral under the senior secured credit agreement.
- (2)
- Polypore
owns the equipment and leases the facility.
- (3)
- Polypore
holds a 65% ownership interest in the joint venture that owns this facility.
Our
corporate headquarters are located in leased office space in Charlotte, North Carolina, and we have leased sales offices in Shanghai, China; Shenzhen, China; Tokyo, Japan; and Sao
Paulo, Brazil.
Item 3. Legal Proceedings
On January 30, 2014, we filed a complaint against LG Chem. Ltd. ("LG") alleging infringement of our patent covering
ceramic coating technology. On July 21, 2014, the United States District Court for the Western District of North Carolina granted a motion for a preliminary injunction against LG relating to
patent infringement of our ceramic coating technology, although the court has stayed enforcement of the injunction pending appeal.
In
early 2014, separate Inter Partes Review petitions were filed by Mitsubishi Plastics, Inc., LG and SK Innovations Co. seeking to invalidate our patent covering our
ceramic coating technology. The Patent Trial and Appeal Board instituted proceedings for each, but not on all asserted grounds.
On
March 3, 2015, a putative class action lawsuit captioned Lax v. Toth, et al., Case No. 10741 (Del. Ch.) (the "Action") was filed in the Court of Chancery of the State of
Delaware against the Company, the current members of the Board of Directors, Asahi Kasei and EMS. The Action, filed by a purported shareholder of the Company's common stock, challenges the
contemplated integrated transactions with 3M, Asahi Kasei and EMS and alleges, among other things, that the members of the Board of Directors breached their fiduciary duties to our stockholders by
engaging in a flawed sales process, agreeing to a transaction price that does not adequately compensate our stockholders, and agreeing to certain unfair deal protection terms. The Action also alleges
that Asahi Kasei and EMS aided and abetted the alleged breaches of fiduciary duties. The Action seeks various remedies, including declaratory and injunctive relief, as well as damages and costs.
Item 4. Mine Safety Disclosures
Not applicable.
23
Table of Contents
Part II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange ("NYSE") under the symbol "PPO" and has been traded on the NYSE since our
initial public offering on June 28, 2007. As of February 13, 2015, there were approximately 8,600 holders of our common stock, representing primarily persons whose stock is held in
nominee or "street name" accounts through brokers.
We
did not declare or pay any dividends on our common stock in fiscal 2014 or 2013, and we do not expect to pay any such dividends in fiscal 2015. Our senior secured credit agreement
restricts or limits our ability to, among other things, declare dividends and make payments on or redeem or repurchase capital stock.
The
low and high sales prices for the Company's common stock for each full quarterly period within the two most recent fiscal years were as follows:
|
|
|
|
|
|
|
Fiscal 2014 |
|
Fiscal 2013 |
First Quarter |
|
$29.39 - $40.91 |
|
$35.10 - $48.42 |
Second Quarter |
|
$33.35 - $48.72 |
|
$36.80 - $45.00 |
Third Quarter |
|
$39.25 - $48.47 |
|
$39.52 - $48.41 |
Fourth Quarter |
|
$36.38 - $54.40 |
|
$35.53 - $46.21 |
Issuer Purchases of Equity Securities
The following table provides detail about our share repurchase activity during the three months ended January 3, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Month
|
|
Total
Number of
Shares
Purchased |
|
Average
Price
Paid per
Share |
|
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program |
|
Maximum
Number of
Shares that May
Yet Be Purchased
Under the
Program(1) |
|
September 28, 2014 - November 1, 2014(2) |
|
|
84 |
|
$ |
34.83 |
|
|
|
|
|
4,050,000 |
|
November 2, 2014 - November 29, 2014 |
|
|
|
|
|
|
|
|
|
|
|
4,050,000 |
|
November 30, 2013 - January 3, 2015 |
|
|
|
|
|
|
|
|
|
|
|
4,050,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
84 |
|
$ |
34.83 |
|
|
|
|
|
4,050,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- In
May 2014, the Company announced that its Board of Directors authorized the repurchase of up to 4,500,000 shares of the Company's common stock. The share
repurchase program has no expiration date. During 2014, the Company repurchased 450,000 shares of common stock under the share repurchase program.
- (2)
- The
Company withheld and repurchased 84 shares of common stock in October 2014 to satisfy certain employees' withholding tax liabilities related to
restricted stock grants.
Performance Graph
The following graph compares the cumulative total shareholder return of our common stock for the periods indicated with the total
return of the Russell 2000 Index and the Standard & Poor's Index of Industrial Machinery Companies ("S&P Industrial Machinery Index"). The graph assumes $100 invested on December 31,
2009 in our common stock, the Russell 2000 Index and the S&P Industrial Machinery Index. Total return represents stock price changes and assumes the reinvestment of dividends.
24
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec-09 |
|
Dec-10 |
|
Dec-11 |
|
Dec-12 |
|
Dec-13 |
|
Dec-14 |
|
Polypore International, Inc. |
|
|
100.00 |
|
|
342.27 |
|
|
369.66 |
|
|
390.76 |
|
|
326.89 |
|
|
395.38 |
|
Russell 2000 |
|
|
100.00 |
|
|
126.86 |
|
|
121.56 |
|
|
141.43 |
|
|
196.34 |
|
|
205.95 |
|
S&P Industrial Machinery Index |
|
|
100.00 |
|
|
135.94 |
|
|
123.35 |
|
|
157.25 |
|
|
229.28 |
|
|
240.86 |
|
Item 6. Selected Financial Data
The following table presents selected historical consolidated financial data of Polypore International for the fiscal years ended
January 3, 2015, December 28, 2013, December 29, 2012, December 31, 2011 and January 1, 2011. The fiscal year ended January 3, 2015 included 53 weeks,
while all other fiscal years presented below included 52 weeks. The selected historical consolidated financial data has been derived from Polypore International's audited consolidated financial
statements.
25
Table of Contents
The
information presented below should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial
statements and the notes thereto included in "Financial Statements and Supplementary Data."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statement of operations data
(in millions, except share data):
|
|
Fiscal
2014 |
|
Fiscal
2013 |
|
Fiscal
2012 |
|
Fiscal
2011 |
|
Fiscal
2010 |
|
Net sales |
|
$ |
658.4 |
|
$ |
636.3 |
|
$ |
648.7 |
|
$ |
685.7 |
|
$ |
551.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
230.0 |
|
|
220.7 |
|
|
245.2 |
|
|
299.5 |
|
|
227.7 |
|
Selling, general and administrative expenses |
|
|
145.2 |
|
|
132.8 |
|
|
121.4 |
|
|
129.8 |
|
|
111.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
84.8 |
|
|
87.9 |
|
|
123.8 |
|
|
169.7 |
|
|
116.4 |
|
Interest expense, net |
|
|
22.0 |
|
|
39.5 |
|
|
36.0 |
|
|
34.4 |
|
|
46.7 |
|
Costs related to purchase of 7.5% senior notes |
|
|
24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Write-off of loan acquisition costs and other expenses associated with refinancing of senior credit agreement |
|
|
1.1 |
|
|
|
|
|
2.5 |
|
|
|
|
|
|
|
Foreign currency and other |
|
|
(9.1 |
) |
|
0.1 |
|
|
0.2 |
|
|
(1.9 |
) |
|
(1.6 |
) |
Costs related to purchase of 8.75% senior subordinated notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.3 |
|
Gain on sale of Italian subsidiary |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
45.9 |
|
|
48.3 |
|
|
85.1 |
|
|
137.2 |
|
|
72.3 |
|
Income taxes |
|
|
9.7 |
|
|
14.2 |
|
|
25.3 |
|
|
46.0 |
|
|
22.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
36.2 |
|
|
34.1 |
|
|
59.8 |
|
|
91.2 |
|
|
50.2 |
|
Income from discontinued operations, net of income taxes |
|
|
|
|
|
12.3 |
|
|
10.9 |
|
|
14.0 |
|
|
13.4 |
|
Gain (loss) on sale of discontinued operations, net of income taxes |
|
|
(0.7 |
) |
|
35.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
(0.7 |
) |
|
48.1 |
|
|
10.9 |
|
|
14.0 |
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
35.5 |
|
|
82.2 |
|
|
70.7 |
|
|
105.2 |
|
|
63.6 |
|
Less: Net income (loss) attributable to noncontrolling interest |
|
|
1.6 |
|
|
0.6 |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. |
|
$ |
33.9 |
|
$ |
81.6 |
|
$ |
71.0 |
|
$ |
105.2 |
|
$ |
63.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
34.6 |
|
$ |
33.5 |
|
$ |
60.1 |
|
$ |
91.2 |
|
$ |
50.2 |
|
Income (loss) from discontinued operations |
|
|
(0.7 |
) |
|
48.1 |
|
|
10.9 |
|
|
14.0 |
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. |
|
$ |
33.9 |
|
$ |
81.6 |
|
$ |
71.0 |
|
$ |
105.2 |
|
$ |
63.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per sharebasic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.77 |
|
$ |
0.73 |
|
$ |
1.29 |
|
$ |
1.97 |
|
$ |
1.13 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
1.06 |
|
|
0.23 |
|
|
0.31 |
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per share |
|
$ |
0.76 |
|
$ |
1.79 |
|
$ |
1.52 |
|
$ |
2.28 |
|
$ |
1.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per sharediluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.76 |
|
$ |
0.72 |
|
$ |
1.27 |
|
$ |
1.93 |
|
$ |
1.10 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
1.04 |
|
|
0.23 |
|
|
0.30 |
|
|
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per share |
|
$ |
0.75 |
|
$ |
1.76 |
|
$ |
1.50 |
|
$ |
2.23 |
|
$ |
1.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic |
|
|
44,786,317 |
|
|
45,610,270 |
|
|
46,540,385 |
|
|
46,182,204 |
|
|
44,562,421 |
|
Weighted average shares outstandingdiluted |
|
|
45,382,074 |
|
|
46,239,796 |
|
|
47,229,595 |
|
|
47,119,997 |
|
|
45,748,058 |
|
Balance sheet data
(at end of period) (in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,375.3 |
|
$ |
1,554.0 |
|
$ |
1,591.6 |
|
$ |
1,481.9 |
|
$ |
1,348.5 |
|
Total debt, including current portion |
|
|
487.5 |
|
|
646.3 |
|
|
696.3 |
|
|
709.5 |
|
|
715.3 |
|
Shareholders' equity |
|
|
617.3 |
|
|
619.6 |
|
|
582.8 |
|
|
499.4 |
|
|
378.1 |
|
Other financial data
(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
$ |
55.2 |
|
$ |
56.3 |
|
$ |
55.7 |
|
$ |
51.3 |
|
$ |
47.9 |
|
Capital expenditures |
|
|
30.8 |
|
|
28.2 |
|
|
137.1 |
|
|
156.3 |
|
|
68.8 |
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
112.1 |
|
|
155.1 |
|
|
104.5 |
|
|
144.8 |
|
|
127.2 |
|
Investing activities |
|
|
(30.8 |
) |
|
88.4 |
|
|
(137.1 |
) |
|
(156.3 |
) |
|
(90.3 |
) |
Financing activities |
|
|
(194.4 |
) |
|
(125.8 |
) |
|
(16.5 |
) |
|
17.6 |
|
|
(61.3 |
) |
26
Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included in
"Financial Statements and Supplementary Data." Some of the information contained in this discussion and analysis or included elsewhere in this report, including information with respect to our plans
and strategy for our business, includes forward-looking statements that involve risks and uncertainties. Please see "Forward-looking Statements" for more information. You should review "Risk Factors"
for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained herein.
The
following discussion includes financial information prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"), as well as segment operating
income, which is considered a non-GAAP financial measure. Generally, a non-GAAP financial measure is a numerical measure of financial performance that excludes amounts that are included in the most
directly comparable measure calculated and presented in accordance with U.S. GAAP. The presentation of
segment operating income is intended to supplement investors' understanding of our operating performance and is not intended to replace net income as determined in accordance with U.S. GAAP.
Segment operating income is defined as operating income before stock-based compensation and certain non-recurring and other costs and is used by management to evaluate business segment performance and
allocate resources. See Note 18, "Segment Information," in the accompanying consolidated financial statements for a reconciliation of segment operating income to income from continuing
operations before income taxes.
The
results of operations of Microporous, which was sold in 2013, are classified as discontinued operations and are excluded from continuing operations and segment results for all
periods presented. See Note 19, "Discontinued Operations," in the accompanying consolidated financial statements. All disclosures and amounts in the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section relate to our continuing operations, unless otherwise indicated.
Overview
We are a leading global high-technology filtration company that develops, manufactures and markets specialized microporous membranes
used in separation and filtration processes. In fiscal 2014, we generated total net sales of $658.4 million. We operate in two primary businesses: energy storage, which includes the
transportation and industrial segment and the electronics and EDVs segment, and separations media. The transportation and industrial and separations media segments represent approximately 80% of our
total net sales and operate in stable, growing markets, have high recurring revenue bases and generate strong cash flows. In the electronics and EDVs segment, we have a presence in the more
established consumer electronics market, but our most significant growth opportunity is the potentially larger and developing electric drive vehicle ("EDV") and energy storage systems ("ESS") markets
where lithium is the disruptive technology. As described in more detail below, the long-term growth drivers for lithium batteries are positive, but we have experienced and may continue to experience
variability in the short term as these markets emerge.
During
fiscal 2014, we refinanced our existing senior secured credit agreement. We used cash on hand and borrowings under the new senior secured credit agreement to retire our previously
outstanding 7.5% senior notes and pay redemption premiums and other transaction-related expenses. The debt reduction and refinancing provides substantial interest savings and flexibility to pursue
growth and value-creation opportunities as we continue to generate cash. We will continue to evaluate our alternatives for uses of cash, including returning value to shareholders through share
repurchases.
On
February 23, 2015, we entered into integrated transactions with 3M Company ("3M"), Asahi Kasei Corporation ("Asahi Kasei") and EMS Holdings Corporation ("EMS"), an affiliate of
Asahi
27
Table of Contents
Kasei,
pursuant to which we will sell our separations media business to 3M and, immediately thereafter, will be merged with EMS. In connection with the integrated transactions, at the time of the
merger, each share of our common stock (other than any (a) dissenting shares, (b) shares owned by Asahi Kasei and EMS, the Company or any of their respective subsidiaries (which will be
cancelled)) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive $60.50 in cash without interest (the "Merger Consideration"),
payable to the holder of such share. Each option to purchase shares of our common stock that is outstanding immediately prior to the effective time of the merger will immediately accelerate and vest
and be cancelled and converted into the right to receive a payment in cash of an amount, subject to the amount of any required tax withholding, equal to the product of the total number of shares of
our common stock subject to such cancelled option and the excess, if any, of the Merger Consideration over the applicable exercise price of the option; provided that any such option with respect to
which the exercise price per share subject to the option is equal to or greater than the Merger Consideration shall be cancelled in exchange for no consideration. Each restricted share of our common
stock that is outstanding immediately prior to the effective time of the merger will immediately accelerate and vest and be cancelled and converted into the right to receive a payment in cash of an
amount, subject to the amount of any tax withholding, equal to the Merger Consideration, without interest, treating such restricted share in the same manner as the other shares of our common stock.
The
integrated transactions are subject to customary closing conditions, including regulatory and stockholder approval. Furthermore, we have the right to terminate the integrated
transactions if we enter into a definitive agreement for an alternative transaction that constitutes a "Superior Proposal" (as defined in the applicable agreements), provided we comply with certain
notice and other requirements, including paying Asahi Kasei and 3M a termination fee equal to $39.0 million and $16.8 million, respectively. Certain other actions by us causing
termination of the integrated transactions could result in our being required to pay the foregoing termination fees to Asahi Kasei and 3M. There are no assurances that the proposed integrated
transactions will be consummated on any given timetable, or at all.
Energy Storage
In the energy storage business, our membrane separators are a critical functional component in lithium batteries, which are primarily
used in consumer electronics and EDV applications, and lead-acid batteries, which are used globally in transportation and numerous industrial applications. We believe that the long-term growth drivers
for the energy storage businessgrowth in Asia, demand for consumer electronics, and growing demand for EDVsare positive. The energy storage business is comprised of two
reportable segments.
Electronics and EDVs. Lithium batteries are the power source in a wide variety of applications, including consumer electronics
applications such as
notebook computers, tablets, mobile phones and cordless power tools; EDVs; and emerging applications such as ESS. Demand for lithium batteries in consumer electronics is driven by the need for
increased mobility. In EDV applications, demand is driven by the need to increase fuel efficiency to meet mileage standards in many countries such as the U.S. and China, the need to reduce carbon
dioxide ("CO2") emissions around the world but especially in Europe due to regulations, conversion from nickel metal hydride to lithium battery technology in hybrid vehicles due to greater
energy and power density, concern in developed countries and emerging markets over future access to petroleum at stable prices, smog and pollution control, and the need to address increasing
transportation needs in developing economies. Since late 2009, we have expanded capacity at our existing Charlotte, North Carolina and Ochang, South Korea facilities and built a new facility in
Concord, North Carolina. Production started for portions of the Concord facility in 2012, and the remaining capacity will be completed, qualified and ramped up over time as the nascent market for EDVs
develops.
28
Table of Contents
In
2014, we entered into long-term supply agreements with Samsung SDI Co., Ltd. ("Samsung") and Panasonic Automotive and Industrial Division ("Panasonic"), respectively,
that include guaranteed purchase and supply volume requirements and volume-based price incentives. The Samsung agreement has an initial four-year term with a two-year extension provision and the
Panasonic agreement has a five-year term. We believe that these agreements highlight the value of our capacity investments and proven industry-leading products and technology.
Interest
in and usage of our patent-protected ceramic coating technology is growing in both EDV and consumer electronics applications. We believe that this technology has value for
current and future customers, and we have enforced and intend to continue to enforce our intellectual property rights around this and other patent-protected technology. In December 2013, we signed a
technology licensing agreement with Sumitomo Chemical Co., Ltd. ("Sumitomo"), which provides for an annual technology licensing fee. In January 2014, we filed a complaint against LG
Chem. Ltd. ("LG") alleging infringement of our patent covering ceramic coating technology. In July 2014, the United States District Court for the Western District of North Carolina granted a
motion for preliminary injunction against LG relating to patent infringement of our ceramic coating technology, although the court has stayed enforcement of the injunction pending appeal. We believe
that the recently signed long-term supply agreements, the licensing agreement with Sumitomo and the preliminary injunction against LG confirm our ability to provide certainty of supply for high-growth
applications like EDVs and ESS and the value of our technology and intellectual property.
We
believe the long-term demand drivers for our productsconsumer demand for mobility, regulations for better fuel efficiency and lower CO2 emissions, conversion
from nickel metal
hydride to lithium battery technology in hybrids, concerns about access to petroleum, efforts to reduce pollution, and increasing transportation needs in developing countriesremain
intact. While consumer electronics applications have attractive long-term market growth trends, EDV and ESS applications represent our most significant growth opportunity and the long-term outlook
continues to be positive. Based on industry forecasts and industry studies, the use of lithium technology in these applications is expected to grow at a compound annual growth rate in excess of 30%
through 2020 on an energy capacity basis. Many factors influence membrane separator usage in lithium batteries, but because many new applications are incorporating large-format lithium batteries that
require much greater membrane separator volume per battery, we believe that membrane separator growth will exceed battery unit sales growth and, although not perfectly correlated, will more closely
approximate the growth rate in energy capacity. We believe the electrification of the worldwide fleet of vehicles is just beginning, from hybrids to plug-ins to full battery electric vehicles,
including automobiles, buses, taxis and commercial fleet vehicles. We believe our dry process products continue to be the preferred product in large-format lithium batteries for EDVs and ESS. We are
currently working with existing and new customers on next-generation batteries, which is important considering the long lead times required to become qualified for EDV applications. EDV and ESS are
emerging market applications and are being adopted around the world in many forms. We are qualified on more than seventy-five EDV models and have field-proven products, significant production capacity
already in place, technical advantages, low-cost manufacturing capabilities and intellectual property around ceramic coatings for lithium battery separators. We believe the factors that influenced our
decision to expand capacity remain valid, and we continue to expect significant sales growth and utilization of our current production capacity as the EDV market develops and as ESS experiences more
meaningful adoption. Although the long-term growth drivers are positive for these applications, short-term fluctuations in demand can be expected in the early stages of adoption while initial
penetration rates are low. Given the high separator content for these applications and the potential size of these markets, small changes in end-market demand can have a significant impact on our
business.
Transportation and industrial. In the lead-acid battery market, the high proportion of aftermarket replacement sales and the steady
growth of the
worldwide fleet of motor vehicles provide us with a
29
Table of Contents
growing
recurring revenue base in lead-acid battery separators. Worldwide demand for lead-acid battery separators is expected to continue to grow at slightly more than annual economic growth. The Asia
Pacific region is the fastest growing market for lead-acid battery separators. Growth in this region is driven by the increasing penetration of automobile ownership, growth in industrial and
manufacturing sectors, export incentives and ongoing conversion to the polyethylene-based membrane separators we produce.
Separations Media
In the separations media business, our filtration membranes and modules are used in healthcare and high-performance filtration and
specialty applications. We believe that the separations media business will continue to benefit from continued growth in demand for higher levels of purity in a growing number of applications. The
separations media business is a reportable segment.
For
healthcare applications, we produce membranes used in blood filtration for hemodialysis, blood oxygenation and plasmapheresis. Growth in demand for hemodialysis membranes is driven
by the increasing worldwide population of end-stage renal disease patients. We believe that conversion to single-use dialyzers and increasing treatment frequency will result in additional dialyzer
market growth.
For
filtration and specialty applications, we produce a wide range of membranes and membrane-based elements used in the microfiltration, ultrafiltration and gasification/degasification
of liquids. Microfiltration and ultrafiltration membrane element market growth is being driven by several factors, including end-market growth in applications such as water treatment and
pharmaceutical processing, displacement of conventional filtration media by membrane filtration due to membranes' superior cost and performance attributes, and increasing purity requirements in
industrial and other applications.
Critical accounting policies
Critical accounting policies are those accounting policies that can have a significant impact on the presentation of our financial
condition and results of operations, and that require the use of complex and subjective estimates based on past experience and management's judgment. Because of the uncertainty inherent in such
estimates, actual results may differ from these estimates. Below are those policies that we believe are critical to the understanding of our operating results and financial condition. Management has
discussed the development and selection of these critical accounting policies with the Audit Committee of our Board of Directors. For additional accounting policies, see Note 2 of the
consolidated financial statements included in "Financial Statements and Supplementary Data."
Impairment of goodwill
Goodwill is subject to annual impairment testing unless circumstances dictate more frequent assessments. We perform our annual
impairment assessment for goodwill as of the first day of the fourth quarter of each fiscal year and more frequently whenever events or changes in circumstances indicate that the fair value of the
asset may be less than the carrying amount. Our reporting units are at the operating segment level.
We
perform a quantitative two-step goodwill impairment test. Step one of the goodwill impairment test compares the fair value of our reporting units to their carrying amount. The fair
value of the reporting unit is determined using the income approach, corroborated by comparison to market capitalization and key multiples of comparable companies. Under the income approach, we
determine fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital. If the fair value of the reporting unit is greater than
its carrying amount, there is no impairment. If the reporting unit's carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step
two calculates the
30
Table of Contents
implied
fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this
step, the fair value of the reporting unit is allocated to all of the reporting unit's assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on
that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss will be recognized in an amount equal to the excess.
Determining
the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans and
future market conditions, among others. There can be no assurance that our estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the
future. If our assumptions regarding forecasted revenue or margin growth rates of certain reporting units are not achieved or changes in strategy or market conditions occur, we may be required to
record goodwill impairment charges in future periods. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be
material.
In
fiscal 2014, our annual impairment test indicated that the fair value of the reporting units substantially exceeded their respective carrying amounts.
Pension benefits
Certain assumptions are used in the calculation of the actuarial valuation of our defined benefit pension plans. Two critical
assumptions, discount rate and expected return on assets, are important elements of plan expense and liability measurement, and differences between actual results and these two actuarial assumptions
can materially affect the valuation of our projected benefit obligation. Other assumptions involve demographic factors such as retirement, expected increases in compensation, mortality and turnover.
The discount rate enables us to state expected future cash flows at a present value on the measurement date. The discount rate assumptions are based on the market rate for high quality fixed-income
investments. At January 3, 2015, a decrease of one percentage point in the discount rate would increase our projected benefit obligations and the unfunded status of our pension plans by
$25.8 million. The expected rate of return on our pension plan assets is based on the asset allocation of each plan and the long-term projected return of those assets. For 2014, if the expected
rate of return on pension plan assets was reduced by one percentage point, the result would have increased our net periodic benefit expense for fiscal 2014 by $0.1 million. At January 3,
2015, if the actual plan assets were reduced by one percentage point, the unfunded status of our pension plans would increase by $0.2 million.
Repairs and maintenance
Repair and maintenance costs, which include indirect labor and employee benefits associated with maintenance personnel and utility,
maintenance and repair costs for equipment and facilities utilized in the manufacturing process, are treated as inventoriable costs. Repair and maintenance costs as a percent of cost of goods sold has
been consistent for fiscal 2014, 2013 and 2012. Major planned maintenance activities outside of the normal production process are capitalized as property, plant and equipment if the costs are expected
to provide future benefits by increasing the service potential of the asset to which the repair or maintenance applies. We have not had any major planned maintenance activities or capitalized
significant repair and maintenance costs as property, plant and equipment in the last three fiscal years.
Stock-based compensation
Stock-based compensation expense is based on the fair value of the award at grant date. The Black-Scholes option-pricing model, which
is used for valuation of stock option awards, requires the use
31
Table of Contents
of
significant assumptions, including expected term of the options and expected volatility. We determine expected term based on historical experience, vesting periods, structure of option plans and
contractual term of the options. Expected volatility is estimated based on our historical stock prices and implied volatility from traded options. The assumptions used in calculating the fair value of
awards involve inherent uncertainty and management judgment. If factors change or we use different assumptions for estimating stock-based compensation expense in future periods, stock-based
compensation expense may differ materially in the future.
Results of operations
The following table sets forth, for the fiscal years indicated, certain of our historical operating data in amount and as a percentage
of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
(in millions)
|
|
2014 |
|
2013 |
|
2012 |
|
Net sales |
|
$ |
658.4 |
|
$ |
636.3 |
|
$ |
648.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
230.0 |
|
|
220.7 |
|
|
245.2 |
|
Selling, general and administrative expenses |
|
|
145.2 |
|
|
132.8 |
|
|
121.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
84.8 |
|
|
87.9 |
|
|
123.8 |
|
Interest expense, net |
|
|
22.0 |
|
|
39.5 |
|
|
36.0 |
|
Costs related to purchase of 7.5% senior notes |
|
|
24.9 |
|
|
|
|
|
|
|
Write-off of loan acquisition costs and other expenses associated with refinancing of senior credit agreement |
|
|
1.1 |
|
|
|
|
|
2.5 |
|
Other |
|
|
(9.1 |
) |
|
0.1 |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
45.9 |
|
|
48.3 |
|
|
85.1 |
|
Income taxes |
|
|
9.7 |
|
|
14.2 |
|
|
25.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
36.2 |
|
$ |
34.1 |
|
$ |
59.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year |
|
(percent of sales)
|
|
2014 |
|
2013 |
|
2012 |
|
Net sales |
|
|
100.0 |
% |
|
100.0 |
% |
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
34.9 |
|
|
34.7 |
|
|
37.8 |
|
Selling, general and administrative expenses |
|
|
22.0 |
|
|
20.9 |
|
|
18.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
12.9 |
|
|
13.8 |
|
|
19.1 |
|
Interest expense, net |
|
|
3.3 |
|
|
6.2 |
|
|
5.5 |
|
Costs related to purchase of 7.5% senior notes |
|
|
3.8 |
|
|
|
|
|
|
|
Write-off of loan acquisition costs and other expenses associated with refinancing of senior credit agreement |
|
|
0.2 |
|
|
|
|
|
0.4 |
|
Other |
|
|
(1.4 |
) |
|
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
7.0 |
|
|
7.6 |
|
|
13.1 |
|
Income taxes |
|
|
1.5 |
|
|
2.2 |
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
5.5 |
% |
|
5.4 |
% |
|
9.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2014 compared with fiscal 2013
Net sales. Net sales for fiscal 2014 were $658.4 million, an increase of $22.1 million, or 3.5%, from fiscal 2013, due to
higher sales
in the transportation and industrial and separations media segments, partially offset by lower sales in the electronics and EDVs segment and the negative impact
32
Table of Contents
of
foreign currency translation of $3.0 million. See "Financial reporting segments" below for more information.
Gross profit. Gross profit was $230.0 million, an increase of $9.3 million from fiscal 2013, primarily due to higher sales in
the
transportation and industrial and separations media segments, partially offset by lower sales in the electronics and EDVs segment. Gross profit as a percent of net sales was 34.9% for fiscal 2014,
consistent with the prior year. See "Financial reporting segments" below for more information.
Selling, general and administrative expenses. Selling, general and administrative expenses were $145.2 million, an increase of
$12.4 million from fiscal 2013, primarily due to a $6.2 million increase in litigation costs associated with patent enforcement, a $1.3 million increase in performance-based
incentive compensation expense, and a $1.0 million increase in stock-based compensation expense. Selling, general and administrative expenses were 22.0% of consolidated net sales in fiscal 2014
and 20.9% in fiscal 2013.
Segment operating income. Segment operating income, which excludes stock-based compensation and certain non-recurring and other costs,
was
$115.3 million, an increase of $2.4 million from fiscal 2013 due to higher sales in the transportation and industrial and separations media segments, partially offset by lower sales in
the electronics and EDVs segment and a $1.3 million increase in performance-based incentive compensation expense. Segment operating income as a percent of net sales was 17.5% for fiscal 2014,
consistent with the prior year. See "Financial reporting segments" below for more information.
Interest expense. Interest expense was $22.0 million for fiscal 2014, a decrease of $17.5 million from the prior year. The
decrease was
the result of the debt reduction and refinancing transactions that were completed during the second quarter of 2014.
Income taxes. Income taxes as a percentage of pre-tax income for fiscal 2014 were 21.2% compared to
29.5% for fiscal 2013. Income taxes recorded in the financial statements differ from the federal statutory income tax rate and fluctuate between years due to a variety of factors including the mix of
income between the U.S. and foreign jurisdictions taxed at varying rates and changes in estimates of permanent differences and valuation allowances. The mix of earnings between the tax jurisdictions
has a significant impact on the effective tax rate. Each tax jurisdiction has its own set of tax laws and tax rates, and income earned by our subsidiaries is taxed independently by these various
jurisdictions. Currently, the applicable statutory income tax rates in the jurisdictions in which we operate range from 0% to 39%. During 2014, our effective tax rate was impacted by the reduction of
taxable income in the U.S. for the costs incurred in connection with the refinancing of our senior secured credit agreement and purchase of our 7.5% senior notes. Since the U.S. is a relatively high
tax rate jurisdiction, the decrease in U.S. taxable income from these costs resulted in a lower consolidated tax rate.
The
effect of each of these items on our effective tax rate is quantified as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal
2014 |
|
Fiscal
2013 |
|
U.S. federal statutory rate |
|
|
35.0 |
% |
|
35.0 |
% |
Mix of income in taxing jurisdictions |
|
|
(12.0 |
) |
|
(4.1 |
) |
Costs associated with debt reduction and refinancing |
|
|
(5.5 |
) |
|
|
|
Other |
|
|
3.7 |
|
|
(1.4 |
) |
|
|
|
|
|
|
|
|
Total effective tax rate |
|
|
21.2 |
% |
|
29.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
Table of Contents
Fiscal 2013 compared with fiscal 2012
Net sales. Net sales for fiscal 2013 were $636.3 million, a decrease of $12.4 million, or 1.9%, from fiscal 2012, as higher
sales in
the transportation and industrial and separations media segments and the positive impact of foreign currency translation of $4.9 million were more than offset by lower sales in the electronics
and EDVs segment. See "Financial reporting segments" below for more information.
Gross profit. Gross profit was $220.7 million, a decrease of $24.5 million from fiscal 2012. Gross profit as a percent of net
sales was
34.7% for fiscal 2013 compared to 37.8% for fiscal 2012. The decrease in consolidated gross profit and gross profit as a percent of net sales was primarily due to lower sales in the electronics and
EDVs segment. Gross profit as a percent of net sales was consistent with the prior year in the transportation and industrial and separations media segments. See "Financial reporting segments" below
for more information.
Selling, general and administrative expenses. Selling, general and administrative expenses were $132.8 million, an increase of
$11.4 million
from fiscal 2012, primarily due to a $6.1 million increase in performance-based incentive compensation expense and a $4.4 million increase in stock-based compensation expense. Selling,
general and administrative expenses were 20.9% of consolidated net sales in fiscal 2013 and 18.7% in fiscal 2012.
Segment operating income. Segment operating income, which excludes stock-based compensation and certain non-recurring and other costs,
was
$112.9 million, a decrease of $28.9 million from fiscal 2012. Segment operating income as a percent of net sales was 17.7% for fiscal 2013 compared to 21.9% for fiscal 2012. The decrease
in segment operating income and segment operating income as a percent of
net sales was primarily due to lower sales in the electronics and EDVs segment and an increase in performance-based incentive compensation expense. Operating income as a percent of net sales was
consistent with the prior year in the transportation and industrial and separations media segments. See "Financial reporting segments" below for more information.
Interest expense. Interest expense for fiscal 2013 increased by $3.5 million from fiscal 2012, primarily resulting from a decrease
in
capitalized interest.
Income taxes. Income taxes as a percentage of pre-tax income for fiscal 2013 were 29.5% compared to 29.7% for fiscal 2012. The income
tax expense
recorded in the financial statements fluctuates between years due to the mix of income between the U.S. and foreign jurisdictions taxed at varying rates and a variety of other factors, including
changes in estimates of permanent differences and valuation allowances. The mix of earnings between the tax jurisdictions has a significant impact on the effective tax rate. Each tax jurisdiction has
its own set of tax laws and tax rates, and income earned by our subsidiaries is taxed independently by these various jurisdictions. The applicable statutory income tax rates in the jurisdictions in
which we operate ranged from 0% to 42%.
The
effect of each of these items on our effective tax rate is quantified as follows:
|
|
|
|
|
|
|
|
|
|
Fiscal
2013 |
|
Fiscal
2012 |
|
U.S. federal statutory rate |
|
|
35.0 |
% |
|
35.0 |
% |
Mix of income in taxing jurisdictions |
|
|
(4.1 |
) |
|
(8.3 |
) |
Other |
|
|
(1.4 |
) |
|
3.0 |
|
|
|
|
|
|
|
|
|
Total effective tax rate |
|
|
29.5 |
% |
|
29.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Table of Contents
Discontinued operations
On December 19, 2013, we completed the sale of our Microporous business, which consisted of the production facilities in Piney
Flats, Tennessee, and Feistritz, Austria, for $120.0 million. We recognized a gain of $35.2 million on the sale, net of direct transaction costs and income taxes. Microporous was
previously included in the transportation and industrial segment. The results of operations from this business are classified as discontinued operations and are excluded from continuing operations and
segment results for all periods presented.
Financial reporting segments
Electronics and EDVs
Fiscal 2014 compared with fiscal 2013
Net sales. Net sales for fiscal 2014 were $126.8 million, a decrease of $3.5 million, or 2.7%, from fiscal 2013. Net sales
decreased by
3.9% due to changes in price/customer mix, reflecting the impact of recently signed long-term supply agreements, which include purchase commitments and lower pricing. Pricing for lithium battery
separators is generally volume-based, with higher volume customers receiving lower sales prices. Net sales increased by 1.2% due to higher sales volumes, as growth in sales into EDV applications more
than offset lower sales into consumer electronics applications. Sales volumes into EDV applications increased due to growth with current customers, partially offset by the $22.5 million decline
attributable to LG. We have had no sales to LG since the third quarter of 2013. EDV applications represent our most significant growth opportunity, and the long-term outlook continues to be positive,
given that we are qualified on more than seventy-five EDV models and have field-proven products, significant production capacity already in place, technical advantages, low-cost manufacturing
capabilities and intellectual property around ceramic coatings for lithium battery separators. For consumer electronics applications, we are working on new projects and development opportunities, but
we cannot currently predict when or if sales volumes into these applications will improve.
Segment operating income. Segment operating income was $15.8 million, a decrease of $3.7 million from fiscal 2013. Segment
operating
income as a percent of net sales was 12.5% for fiscal 2014 compared to 15.0% for fiscal 2013. The decrease in segment operating income and segment operating income as a percent of net sales was
primarily due to lower sales.
The
key drivers of operating income and operating income as a percent of net sales are sales and the amount of fixed costs relative to sales. In 2014, net sales were
$126.8 million, or 32% of our total production capacity in terms of sales, as compared to 2013 sales of $130.3 million, or 33% of capacity. In 2014 and 2013, excluding the final phase of
expansion at our Concord facility, which will be completed, qualified and ramped up as demand develops, we had total production capacity sufficient to
generate approximately $400.0 million in annual lithium battery separator sales, depending on the mix of products and grades produced. Because of the decrease in sales with no significant
change in fixed costs, operating income and operating income as a percent of net sales declined.
Fiscal 2013 compared with fiscal 2012
Net sales. Net sales for fiscal 2013 were $130.3 million, a decrease of $37.1 million, or 22.2%, from fiscal 2012. Net sales
decreased
primarily because of lower sales volumes in consumer electronics applications, partially offset by an increase in sales to EDV applications. Net sales decreased by $3.5 million due to
price/product mix. For consumer electronics, sales volumes were lower due to weakness in end-market demand for devices such as laptop computers and capacity limitations in 2011, which caused us to
miss some sales qualification opportunities for new devices such as smartphones and tablets. In 2013, sales volumes into EDV applications increased due to continued market growth,
35
Table of Contents
despite
lower sales to LG during the second half of 2013. We had no sales to them in the fourth quarter of 2013.
In
December 2013, we entered into an agreement with Sumitomo to license our intellectual property related to ceramic coating separators for lithium batteries. In connection with the
agreement, Sumitomo agreed to pay $3.5 million in technology licensing fees related to past usage of our ceramic coating technology and will also pay ongoing license fees based on future use of
this technology.
Segment operating income. Segment operating income was $19.5 million, a decrease of $27.9 million from fiscal 2012. Segment
operating
income as a percent of net sales was 15.0% for fiscal 2013 compared to 28.3% for fiscal 2012. The decrease in segment operating income and segment operating income as a percent of net sales was due to
lower sales volume.
The
key drivers of operating income and operating income as a percent of net sales are sales and the amount of fixed costs relative to sales. In 2013, net sales were
$130.3 million, or 33% of our total production capacity in terms of sales, as compared to 2012 sales of $167.4 million, or 42% of capacity. There were no changes in production capacity
in 2013 as compared to 2012. In 2013 and 2012, excluding the final phase of expansion at our Concord facility, which will be completed, qualified and ramped up as demand develops, we had total
production capacity sufficient to generate approximately $400.0 million in annual lithium battery separator sales, depending on the mix of products and grades produced. Because of the decrease
in sales with no significant change in fixed costs, operating income and operating income as a percent of net sales declined.
In
2012, we added approximately $15.0 million of incremental fixed costs (including non-cash depreciation expense) associated with our new production capacity. During 2013, we
recognized the full-year impact of these fixed costs, but also implemented certain cost savings actions, which resulted in fixed costs being relatively consistent between the two years. Since we have
added substantially all of the fixed costs required to operate the new production capacity, operating income and operating income margins will continue to fluctuate primarily based on changes in
sales.
Transportation and Industrial
Fiscal 2014 compared with fiscal 2013
Net sales. Net sales for fiscal 2014 were $323.2 million, an increase of $11.3 million, or 3.6%, from fiscal 2013, with higher
sales in
Asia and Europe partially offset by lower sales in the Americas and the negative impact of foreign currency translation of $2.7 million.
Segment operating income. Segment operating income was $71.3 million, an increase of $1.3 million from
fiscal 2013. Segment operating income as a percent of net sales was 22.1% for fiscal 2014, consistent with the prior year.
Fiscal 2013 compared with fiscal 2012
Net sales. Net sales for fiscal 2013 were $311.9 million, an increase of $12.9 million, or 4.3%, from fiscal 2012 due to an
increase in
sales volumes across all geographic regions.
Segment operating income. Segment operating income was $70.0 million, an increase of $3.9 million from fiscal 2012. Segment
operating
income as a percent of net sales was 22.4% for fiscal 2013, which is consistent with the prior year.
36
Table of Contents
Separations Media
Fiscal 2014 compared with fiscal 2013
Net sales. Net sales for fiscal 2014 were $208.4 million, an increase of $14.3 million, or 7.4%, from fiscal 2013 due to
higher sales
in both healthcare and filtration and specialty products, partially offset by the negative impact of foreign currency translation of $0.3 million.
Segment operating income. Segment operating income was $60.8 million, an increase of $6.7 million from fiscal 2013 due to
higher sales.
Segment operating income as a percent of net sales was 29.2% in fiscal 2014 compared to 27.9% in fiscal 2013. The increase in segment operating income as a percent of net sales was due to product mix
and production efficiencies.
Fiscal 2013 compared with fiscal 2012
Net sales. Net sales for fiscal 2013 were $194.1 million, an increase of $11.8 million, or 6.5%, from fiscal 2012 due to
higher sales
in both healthcare and filtration and specialty products and the positive impact of foreign currency translation of $4.7 million.
Segment operating income. Segment operating income was $54.1 million, an increase of $1.6 million from fiscal 2012. Segment
operating
income as a percent of net sales was 27.9% in fiscal 2013, which is consistent with the prior year.
Corporate and other costs
Corporate and other costs include costs associated with the corporate office and other costs that are not allocated to the reporting
segments for segment reporting purposes, including amortization of identified intangible assets and performance-based incentive compensation.
Fiscal 2014 compared with fiscal 2013. Corporate and other costs for fiscal 2014 were $32.6 million, an increase of
$1.9 million from
fiscal 2013, primarily due to higher performance-based incentive compensation expense.
Fiscal 2013 compared with fiscal 2012. Corporate and other costs for fiscal 2013 were $30.7 million, an increase of
$6.6 million from
fiscal 2012, primarily due to higher performance-based incentive compensation expense.
Foreign operations
As of January 3, 2015, we manufactured our products at 15 strategically located facilities in the United States, Europe and
Asia. Net sales from foreign locations were $416.9 million (63.3% of consolidated sales), $403.9 million (63.5% of consolidated sales) and $441.5 million (68.1% of consolidated
sales) for fiscal 2014, 2013 and 2012, respectively. Pre-tax income from foreign production facilities was $67.5 million (147.1% of consolidated pre-tax income), $51.1 million (105.6% of
consolidated pre-tax income) and $67.0 million (78.7% of consolidated pre-tax income) for fiscal 2014, 2013 and 2012, respectively. The fluctuation in the relationship between foreign net sales
and foreign pre-tax income as a percent of consolidated amounts is primarily due to the mix of operating results between segments and corporate costs incurred in the U.S., including interest expense,
stock-based compensation expense and in 2014, costs incurred in connection with the refinancing of our senior secured credit agreement and purchase of our 7.5% senior notes. The majority of sales and
pre-tax income from U.S. production facilities are attributable to the electronics and EDVs segment, where we primarily produce in the U.S. for customers located in Asia. The majority of sales and
pre-tax income from foreign production facilities are attributable to the transportation and industrial and separations media segments. In the transportation and industrial segment, we have production
facilities in the U.S., Europe and Asia and generally produce in the same geographic region that we sell, though we do
37
Table of Contents
export
some production from U.S. and European facilities to meet growing demand in Asia. In the separations media segment, the majority of production is at our manufacturing facility in Germany, and
sales are made to customers worldwide. Operating results generated by production facilities within business segments was not significantly impacted by differences in economic, regulatory, geographic
or other competitive factors.
Typically,
we sell our products in the currency of the country where the manufacturing facility that produces the product is located. Sales to foreign customers are subject to numerous
additional risks, including the impact of foreign government regulations, currency fluctuations, political uncertainties and differences in business practices. There can be no assurance that foreign
governments will not adopt regulations or take other actions that would have a direct or indirect adverse impact on our business or market opportunities within such governments' countries.
Furthermore, there can be no assurance that the political, cultural and economic climate outside the U.S. will be favorable to our operations and growth strategy.
Seasonality
Operations at our European production facilities are traditionally subject to shutdowns for approximately one month during the third
quarter of each year for employee vacations. As a result, operating income during the third quarter of any fiscal year may be lower than operating income in other quarters during the same fiscal year.
Because of the seasonal fluctuations, comparisons of our operating results for the third quarter of any fiscal year with those of the other quarters during the same fiscal year may be of limited
relevance in predicting our future financial performance.
Liquidity and capital resources
At January 3, 2015, cash and cash equivalents were $44.5 million, a decrease of $118.9 million from the prior
year, as we used cash on hand and cash generated from operations to fund capital expenditures, reduce and refinance our debt and repurchase shares of common stock.
Operating activities. Net cash provided by operating activities was $112.1 million in fiscal 2014, with cash generated from
operations of
$122.5 million partially offset by changes in operating assets and liabilities of $10.4 million. Accounts receivable increased due to the timing of sales and cash receipts, and days
sales outstanding was consistent with prior year. We have not experienced significant changes in accounts receivable aging or customer payment terms and believe that we have adequately provided for
potential bad debts. Inventory decreased from prior year, and days in ending inventory decreased by approximately 14%. Inventory levels are impacted by production schedules and expected future
customer demand, which is based on a number of factors, including discussions with customers, customer forecasts and industry and economic trends. Inventory is generally not subject to obsolescence
and does not have a shelf life, and we do not believe there is a significant risk of inventory impairment. Accounts payable and accrued liabilities decreased primarily due to timing of payments.
Investing activities. In fiscal 2014, capital expenditures were $30.8 million, as compared to $28.2 million in the prior
year. We
currently estimate capital expenditures to be approximately $85.0 million in fiscal 2015, including planned capacity expansions in the transportation and industrial and separations media
segments. Actual capital spending may vary depending on timing of payments and project approvals. As of January 3, 2015, we had $146.1 million of construction in progress, primarily
related to the capacity expansion projects in the electronics and EDVs segment, remaining portions of which will be completed, qualified and ramped up over time as market demand develops. In fiscal
2013, investing activities also included net proceeds of $116.6 million from the sale of discontinued operations.
38
Table of Contents
Financing activities. During the second quarter of 2014, we completed a debt reduction and refinancing, using cash on hand and
borrowings under the
new senior secured credit agreement to repay all outstanding obligations under our previous senior secured credit agreement, redeem and retire our previously outstanding 7.5% senior notes, and pay
loan acquisition costs. The total purchase price for the notes was $385.5 million, consisting of principal of $365.0 million and redemption premiums of $20.5 million.
In
May 2014, the Board of Directors authorized the repurchase of up to 4,500,000 shares of our common stock. The share repurchase program has no expiration date. During fiscal 2014, we
repurchased 450,000 shares of common stock for $20.0 million under the share repurchase program. The timing, price and volume of future purchases will be based on market conditions, relevant
securities laws and other factors. The share repurchases may be made from time to time on the open market or in privately negotiated transactions. The share repurchase program does not require us to
repurchase
any specific number of shares, and we may terminate the repurchase program at any time. In 2013, the Board of Directors authorized the repurchase of up to 4,000,000 shares of our common stock by
December 31, 2013. We repurchased 2,000,000 shares of common stock for $80.3 million under this authorization.
We
intend to fund our ongoing operations with cash on hand, cash generated by operations and borrowings under the senior secured credit agreement. As of January 3, 2015,
approximately 88% of our cash and cash equivalents were held by foreign subsidiaries. There were no significant restrictions on our ability to transfer funds with and among subsidiaries. Taxes have
been provided on earnings distributed and expected to be distributed by the Company's foreign subsidiaries. All other foreign earnings are undistributed and considered to be indefinitely reinvested
and, accordingly, no provision for U.S. federal and state taxes has been provided thereon. Our current operating plans do not demonstrate a need to repatriate additional foreign earnings to fund our
U.S. operations. However, if we decided to repatriate additional cash held by our foreign subsidiaries, we would be required to accrue and pay any applicable U.S. and local taxes to repatriate these
funds.
Our
new senior credit agreement provides for a $150.0 million revolving credit facility and a $500.0 million term loan facility and matures in April 2019. At
January 3, 2015, we had no amounts outstanding and $150.0 million available for borrowing under the revolving credit facility. Interest rates under the senior credit agreement are equal
to, at our option, either an alternate base rate or the Eurodollar base rate, plus a specified margin. At January 3, 2015, the interest rate on borrowings under the senior credit agreement was
2.17%.
39
Table of Contents
Under
the senior credit agreement, we are subject to a maximum ratio of indebtedness to adjusted EBITDA and a minimum ratio of adjusted EBITDA to cash interest expense. Adjusted EBITDA,
as defined under the senior credit agreement, was as follows:
|
|
|
|
|
(in millions)
|
|
Fiscal 2014 |
|
Income from continuing operations attributable to Polypore International, Inc. |
|
$ |
34.6 |
|
Add/Subtract: |
|
|
|
|
Depreciation and amortization expense |
|
|
55.2 |
|
Interest expense, net |
|
|
22.0 |
|
Income taxes |
|
|
9.7 |
|
Stock-based compensation |
|
|
21.7 |
|
Costs related to purchase of 7.5% senior notes |
|
|
24.9 |
|
Write-off of loan acquisition costs and other expenses associated with refinancing of senior credit agreement |
|
|
1.1 |
|
Foreign currency loss |
|
|
(8.6 |
) |
Litigation costs associated with patent enforcement |
|
|
8.4 |
|
Loss on disposal of property, plant and equipment |
|
|
0.3 |
|
Other non-cash or non-recurring charges |
|
|
(1.8 |
) |
|
|
|
|
|
Adjusted EBITDA |
|
$ |
167.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of January 3, 2015, the calculation of the leverage ratio, as defined under the senior credit agreement, was as follows:
|
|
|
|
|
(in millions)
|
|
Fiscal 2014 |
|
Indebtedness(1) |
|
$ |
443.0 |
|
Adjusted EBITDA |
|
$ |
167.5 |
|
Actual leverage ratio |
|
|
2.65x |
|
Required maximum leverage ratio |
|
|
4.25x |
|
- (1)
- Calculated
as the sum of outstanding borrowings under the senior credit agreement, less cash on hand (not to exceed $50.0 million).
As
of January 3, 2015, the calculation of the interest coverage ratio, as defined under the senior credit agreement, was as follows:
|
|
|
|
|
(in millions)
|
|
Fiscal 2014 |
|
Adjusted EBITDA |
|
$ |
167.5 |
|
Interest expense(1) |
|
$ |
12.0 |
|
Actual interest coverage ratio |
|
|
13.95x |
|
Required minimum interest coverage ratio |
|
|
3.00x |
|
- (1)
- Calculated
as cash interest expense for the twelve months ended January 3, 2015, as defined under the senior credit agreement and on a pro forma basis as if
the refinancing of our previous senior credit agreement and purchase and retirement of the previously outstanding 7.5% senior notes had occurred on the first day of fiscal 2014.
The
senior credit agreement contains certain restrictive covenants which, among other things, limit the incurrence of additional indebtedness, investments, dividends, transactions with
affiliates, asset sales, acquisitions, mergers and consolidations, prepayments of other indebtedness, liens and encumbrances, and other matters customarily restricted in such agreements. The agreement
also
40
Table of Contents
contains
certain customary events of default, subject to grace periods, as appropriate. As of January 3, 2015, the Company was in compliance with the covenants contained in the senior credit
agreement.
In
August 2014, we entered into a forward-starting interest rate swap to pay a fixed interest rate of 1.9% and receive one-month LIBOR on a notional amount of $250.0 million. The
interest rate swap economically converts a portion of the Company's LIBOR-based, variable rate debt into fixed rate debt from its effective date of July 31, 2015 through its expiration on
April 8, 2019.
Future
debt service payments are expected to be paid out of cash flows from operations, borrowings on our new revolving credit facility and future refinancing of our debt. Our cash
interest requirements for the next twelve months are estimated to be $12.9 million, including the impact of the interest rate swap.
We
believe we have sufficient liquidity to meet our cash requirements over both the short (next twelve months) and long term (in relation to our debt service requirements). In evaluating
the sufficiency of our liquidity, we considered cash on hand, expected cash flow to be generated from operations and available borrowings under our senior credit agreement compared to our anticipated
cash requirements for debt service, working capital, cash taxes, capital expenditures and funding requirements for long-term liabilities. We anticipate that our cash on hand and operating cash flow,
together with borrowings under the revolving credit facility, will be sufficient to meet our anticipated future operating expenses, capital expenditures and debt service obligations as they become due
for at least the next twelve months. However, our ability to make scheduled payments of principal, to pay interest on or to refinance our indebtedness and to satisfy our other debt obligations will
depend upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control. See the "Risk
Factors" in this Annual Report on Form 10-K.
From
time to time, we may explore additional financing methods and other means to lower our cost of capital, which could include equity or debt financings and the application of the
proceeds therefrom to the repayment of bank debt or other indebtedness. In addition, in connection with any future acquisitions, we may require additional funding which may be provided in the form of
additional debt or equity financing or a combination thereof. There can be no assurance that any additional financing will be available to us on acceptable terms or at all.
Contractual Obligations
The following table sets forth our contractual obligations at January 3, 2015. Some of the amounts included in this table are
based on management's estimates and assumptions about these obligations, including their duration, anticipated actions by third parties and other actions. Because these estimates and assumptions are
necessarily subjective, the timing and amount of payments under these obligations may vary from those reflected in this table. For more information on these obligations, see the notes to consolidated
financial statements included in "Financial Statements and Supplementary Data."
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by Period |
|
(in millions)
|
|
Total |
|
2015 |
|
2016 - 2017 |
|
2018 - 2019 |
|
Thereafter |
|
Long-term debt |
|
$ |
487.5 |
|
$ |
25.0 |
|
$ |
75.0 |
|
$ |
387.5 |
|
$ |
|
|
Cash interest payments(1) |
|
|
58.4 |
|
|
12.9 |
|
|
29.1 |
|
|
16.4 |
|
|
|
|
Operating lease obligations(2) |
|
|
9.5 |
|
|
3.5 |
|
|
4.3 |
|
|
1.5 |
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
555.4 |
|
$ |
41.4 |
|
$ |
108.4 |
|
$ |
405.4 |
|
$ |
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Includes
cash interest requirements on the term loan facility through its maturity in April 2019 and on the interest rate swap from its effective date in
July 2015 through its
41
Table of Contents
expiration
in April 2019. Variable interest rates used in determining cash interest requirements in the table are assumed to be the same rates that were in effect at January 3, 2015.
- (2)
- We
lease certain equipment and facilities under operating leases. Some lease agreements provide us with the option to renew the lease agreement. Our future
operating lease obligations would change if we exercised these renewal options. For leases denominated in foreign currencies, the table assumes that the exchange rate of the dollar to the respective
foreign currencies is the average rate for 2014 for all periods presented.
- (3)
- As
discussed in the notes to consolidated financial statements included in "Financial Statements and Supplementary Data," we have long-term liabilities for
pension obligations of $121.0 million as of January 3, 2015. Our contributions for these benefit plans are not included in the table above since the timing and amount of payments are
dependent upon many factors, including when an employee retires or leaves the Company, certain benefit elections by employees, return on plan assets, minimum funding requirements and foreign currency
exchange rates. We estimate that contributions to the pension plans in fiscal 2015 will be $1.8 million.
- (4)
- As
discussed in the notes to consolidated financial statements included in "Financial Statements and Supplementary Data," we have recorded a liability at
January 3, 2015 of $10.3 million, including accrued interest and penalties, for unrecognized tax benefits. Payments related to this liability are not included in the table above since
the timing and actual amounts of the payments, if any, are not known.
- (5)
- As
discussed in the notes to consolidated financial statements included in "Financial Statements and Supplementary Data," we have an environmental reserve
of $0.9 million at January 3, 2015. We anticipate the expenditures associated with the reserve will be made in the next twelve months.
Off-Balance Sheet Arrangements
We are not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future
effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, which are potential losses arising from adverse changes in market rates and prices, such as
interest rates and foreign exchange fluctuations. We do not enter into derivatives or other financial instruments for trading or speculative purposes.
Interest rate risk
At January 3, 2015, we had variable rate debt of $487.5 million. To reduce the interest rate risk inherent in our
variable rate debt, in August 2014 we entered into a forward-starting interest rate swap to pay a fixed interest rate of 1.9% and receive one-month LIBOR on a notional amount of $250.0 million.
The interest rate swap economically converts a portion of the Company's LIBOR-based, variable rate debt into fixed rate debt from its effective date of July 31, 2015 through its expiration on
April 8, 2019. The pre-tax earnings and cash flow impact resulting from a 100 basis point increase in interest rates on our variable rate debt, including the impact of the interest rate swap,
is estimated to be $3.7 million per year.
42
Table of Contents
Currency risk
Outside of the United States, we maintain assets and operations in Europe and Asia. The results of operations and financial position of
our foreign operations are principally measured in their respective currency and translated into U.S. dollars. As a result, exposure to foreign currency fluctuations exists. The reported income of
these subsidiaries will be higher or lower depending on a weakening or strengthening of the U.S. dollar against the respective foreign currency. Our subsidiaries and affiliates also purchase and sell
products and services in various currencies. As a result, we may be exposed to cost increases relative to the local currencies in the markets in which we sell. Because the percentage of our sales in
foreign currencies differs from the percentage of our costs in foreign currencies, a change in the relative value of the U.S. dollar could have a disproportionate impact on sales compared to costs,
which could impact margins. A portion of our assets are based in foreign locations and are translated into U.S. dollars at foreign currency exchange rates in effect as of the end of each period, with
the effect of such translation reflected in "Accumulated other comprehensive loss." Accordingly, our consolidated shareholders' equity will fluctuate depending upon the weakening or strengthening of
the U.S. dollar against the respective foreign currency, primarily the euro.
The
dollar/euro exchange rates used in our financial statements for the fiscal years ended as set forth below were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
2014 |
|
2013 |
|
2012 |
|
Period end rate |
|
|
1.2049 |
|
|
1.3760 |
|
|
1.3225 |
|
Period average rate |
|
|
1.3296 |
|
|
1.3280 |
|
|
1.2862 |
|
Our
strategy for management of currency risk relies primarily on conducting our operations in a country's respective currency and may, from time to time, involve foreign currency
derivatives. As of January 3, 2015, we did not have any foreign currency derivatives outstanding.
Item 8. Financial Statements and Supplementary Data
The Company's reports of independent registered public accounting firms and consolidated financial statements and related notes appear
on the following pages of this Annual Report on Form 10-K.
43
Table of Contents
Report of Independent Registered Public Accounting Firm
The
Board of Directors and Shareholders
Polypore International, Inc.:
We
have audited the accompanying consolidated balance sheet of Polypore International, Inc. and subsidiaries as of January 3, 2015, and the related consolidated statements
of income, comprehensive income (loss), shareholders' equity, and cash flows for the year ended January 3, 2015. In connection with our audit of the consolidated financial statements, we also
have audited the related financial statement Schedule II. These consolidated financial statements and schedule are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and schedule based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Polypore International, Inc. and
subsidiaries as of January 3, 2015, and the results of their operations and their cash flows for the year ended January 3, 2015, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Polypore International, Inc.'s internal control over
financial reporting as of January 3, 2015, based on criteria established in Internal ControlIntegrated Framework (1992) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 4, 2015 expressed an unqualified opinion on the effectiveness of the Company's internal
control over financial reporting.
Charlotte,
North Carolina
March 4, 2015
44
Table of Contents
Report of Independent Registered Public Accounting Firm
The
Board of Directors and Shareholders
Polypore International, Inc.:
We
have audited Polypore International, Inc.'s (the Company) internal control over financial reporting as of January 3, 2015, based on criteria established in Internal ControlIntegrated Framework (1992)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the
Company's internal control over financial reporting based on our audit.
We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 3, 2015, based on criteria established in Internal ControlIntegrated Framework
(1992) issued by COSO.
We
also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of
January 3, 2015, and the related consolidated statements of income, comprehensive income (loss), shareholders' equity, and cash flows for the year ended January 3, 2015, and our report
dated March 4, 2015 expressed an unqualified opinion on those consolidated financial statements.
Charlotte,
North Carolina
March 4, 2015
45
Table of Contents
Report of Independent Registered Public Accounting Firm
The
Board of Directors
of Polypore International, Inc.
We
have audited the accompanying consolidated balance sheets of Polypore International, Inc. as of December 28, 2013, and the related consolidated statements of income,
comprehensive income, shareholders' equity and cash flows for each of the two years in the period ended December 28, 2013. Our audits also included the financial statement schedule listed in
the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements
and schedule based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Polypore International, Inc. at
December 28, 2013, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 28, 2013, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
Charlotte,
North Carolina
February 25, 2014
46
Table of Contents
Polypore International, Inc.
Consolidated balance sheets
|
|
|
|
|
|
|
|
(in thousands, except share data)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
44,458 |
|
$ |
163,423 |
|
Accounts receivable, net |
|
|
121,755 |
|
|
113,506 |
|
Inventories |
|
|
101,176 |
|
|
113,860 |
|
Prepaid and other |
|
|
16,673 |
|
|
19,557 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
284,062 |
|
|
410,346 |
|
Property, plant and equipment, net |
|
|
558,235 |
|
|
595,375 |
|
Goodwill |
|
|
444,512 |
|
|
444,512 |
|
Intangibles and loan acquisition costs, net |
|
|
78,303 |
|
|
93,792 |
|
Other |
|
|
10,180 |
|
|
9,984 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,375,292 |
|
$ |
1,554,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
|
$ |
24,358 |
|
$ |
31,764 |
|
Accrued liabilities |
|
|
52,697 |
|
|
51,152 |
|
Income taxes payable |
|
|
2,310 |
|
|
4,215 |
|
Current portion of debt |
|
|
25,000 |
|
|
16,875 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
104,365 |
|
|
104,006 |
|
Debt, less current portion |
|
|
462,500 |
|
|
629,375 |
|
Pension obligations, less current portion |
|
|
121,038 |
|
|
102,821 |
|
Deferred income taxes |
|
|
40,319 |
|
|
72,082 |
|
Other |
|
|
29,736 |
|
|
26,149 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
Shareholders' equity: |
|
|
|
|
|
|
|
Preferred stock15,000,000 shares authorized, no shares issued and outstanding |
|
|
|
|
|
|
|
Common stock, $.01 par value200,000,000 shares authorized, 47,330,740 issued and 44,859,492 outstanding at January 3, 2015 and 46,926,205
issued and 44,916,570 outstanding at December 28, 2013 |
|
|
473 |
|
|
469 |
|
Paid-in capital |
|
|
600,418 |
|
|
569,362 |
|
Retained earnings |
|
|
171,287 |
|
|
137,379 |
|
Accumulated other comprehensive loss |
|
|
(61,308 |
) |
|
(12,865 |
) |
Treasury stock, at cost2,471,248 shares at January 3, 2015 and 2,009,635 shares at December 28, 2013 |
|
|
(100,998 |
) |
|
(80,668 |
) |
|
|
|
|
|
|
|
|
Total Polypore International, Inc. shareholders' equity |
|
|
609,872 |
|
|
613,677 |
|
Noncontrolling interest |
|
|
7,462 |
|
|
5,899 |
|
|
|
|
|
|
|
|
|
Total shareholders' equity |
|
|
617,334 |
|
|
619,576 |
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
|
$ |
1,375,292 |
|
$ |
1,554,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
47
Table of Contents
Polypore International, Inc.
Consolidated statements of income
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
Year ended
January 3, 2015 |
|
Year ended
December 28, 2013 |
|
Year ended
December 29, 2012 |
|
Net sales |
|
$ |
658,358 |
|
$ |
636,282 |
|
$ |
648,699 |
|
Cost of goods sold |
|
|
428,335 |
|
|
415,553 |
|
|
403,490 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
230,023 |
|
|
220,729 |
|
|
245,209 |
|
Selling, general and administrative expenses |
|
|
145,223 |
|
|
132,792 |
|
|
121,454 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
84,800 |
|
|
87,937 |
|
|
123,755 |
|
Other (income) expense: |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
22,007 |
|
|
39,473 |
|
|
36,049 |
|
Costs related to purchase of 7.5% senior notes |
|
|
24,937 |
|
|
|
|
|
|
|
Write-off of loan acquisition costs and other expenses associated with refinancing of senior credit agreement |
|
|
1,148 |
|
|
|
|
|
2,478 |
|
Foreign currency and other |
|
|
(9,166 |
) |
|
91 |
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,926 |
|
|
39,564 |
|
|
38,656 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
|
45,874 |
|
|
48,373 |
|
|
85,099 |
|
Income taxes |
|
|
9,728 |
|
|
14,289 |
|
|
25,267 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
36,146 |
|
|
34,084 |
|
|
59,832 |
|
Income from discontinued operations, net of income taxes |
|
|
|
|
|
12,302 |
|
|
10,877 |
|
Gain (loss) on sale of discontinued operations, net of income taxes |
|
|
(655 |
) |
|
35,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations |
|
|
(655 |
) |
|
48,157 |
|
|
10,877 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
35,491 |
|
|
82,241 |
|
|
70,709 |
|
Less: Net income (loss) attributable to noncontrolling interest |
|
|
1,583 |
|
|
630 |
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. |
|
$ |
33,908 |
|
$ |
81,611 |
|
$ |
70,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc.: |
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
34,563 |
|
$ |
33,454 |
|
$ |
60,074 |
|
Income (loss) from discontinued operations |
|
|
(655 |
) |
|
48,157 |
|
|
10,877 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. |
|
$ |
33,908 |
|
$ |
81,611 |
|
$ |
70,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per sharebasic: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.77 |
|
$ |
0.73 |
|
$ |
1.29 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
1.06 |
|
|
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per share |
|
$ |
0.76 |
|
$ |
1.79 |
|
$ |
1.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per sharediluted: |
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.76 |
|
$ |
0.72 |
|
$ |
1.27 |
|
Discontinued operations |
|
|
(0.01 |
) |
|
1.04 |
|
|
0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per share |
|
$ |
0.75 |
|
$ |
1.76 |
|
$ |
1.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstandingbasic |
|
|
44,786,317 |
|
|
45,610,270 |
|
|
46,540,385 |
|
Weighted average shares outstandingdiluted |
|
|
45,382,074 |
|
|
46,239,796 |
|
|
47,229,595 |
|
See notes to consolidated financial statements
48
Table of Contents
Polypore International, Inc.
Consolidated statements of comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Year ended
January 3, 2015 |
|
Year ended
December 28, 2013 |
|
Year ended
December 29, 2012 |
|
Net income |
|
$ |
35,491 |
|
$ |
82,241 |
|
$ |
70,709 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(31,918 |
) |
|
3,745 |
|
|
10,065 |
|
Change in net actuarial loss and prior service credit |
|
|
(23,785 |
) |
|
10,207 |
|
|
(20,883 |
) |
Unrealized loss on interest rate swap |
|
|
(2,265 |
) |
|
|
|
|
|
|
Income taxes related to other comprehensive income (loss) |
|
|
9,505 |
|
|
(4,285 |
) |
|
5,599 |
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
(48,463 |
) |
|
9,667 |
|
|
(5,219 |
) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
|
(12,972 |
) |
|
91,908 |
|
|
65,490 |
|
Less: Comprehensive income (loss) attributable to noncontrolling interest |
|
|
1,563 |
|
|
809 |
|
|
(235 |
) |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Polypore International, Inc. |
|
$ |
(14,535 |
) |
$ |
91,099 |
|
$ |
65,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
49
Table of Contents
Polypore International, Inc.
Consolidated statements of shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except share data)
|
|
Shares of
Common
Stock |
|
Common
Stock |
|
Shares of
Treasury
Stock |
|
Treasury
Stock |
|
Paid-in
Capital |
|
Retained
Earnings
(Accumulated
Deficit) |
|
Accumulated
Other
Comprehensive
Loss |
|
Non-
controlling
Interest |
|
Total |
|
Balance at December 31, 2011 |
|
|
46,499,180 |
|
$ |
465 |
|
|
|
|
$ |
|
|
$ |
527,243 |
|
$ |
(15,183 |
) |
$ |
(17,127 |
) |
$ |
3,995 |
|
$ |
499,393 |
|
Net income for the year ended December 29, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,951 |
|
|
|
|
|
(242 |
) |
|
70,709 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,278 |
|
|
|
|
|
|
|
|
|
|
|
16,278 |
|
Stock option exercises |
|
|
116,183 |
|
|
1 |
|
|
|
|
|
|
|
|
1,337 |
|
|
|
|
|
|
|
|
|
|
|
1,338 |
|
Excess tax benefit from stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338 |
|
|
|
|
|
|
|
|
|
|
|
338 |
|
Restricted stock grants |
|
|
11,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net actuarial loss and prior service credit, net of income tax benefit of $5,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,035 |
) |
|
|
|
|
(15,035 |
) |
Foreign currency translation adjustment, net of income tax expense of $249 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,809 |
|
|
7 |
|
|
9,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 29, 2012 |
|
|
46,627,064 |
|
|
466 |
|
|
|
|
|
|
|
|
545,196 |
|
|
55,768 |
|
|
(22,353 |
) |
|
3,760 |
|
|
582,837 |
|
Net income for the year ended December 28, 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81,611 |
|
|
|
|
|
630 |
|
|
82,241 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,687 |
|
|
|
|
|
|
|
|
|
|
|
20,687 |
|
Stock option exercises |
|
|
209,237 |
|
|
2 |
|
|
|
|
|
|
|
|
2,317 |
|
|
|
|
|
|
|
|
|
|
|
2,319 |
|
Excess tax benefit from stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,163 |
|
|
|
|
|
|
|
|
|
|
|
1,163 |
|
Restricted stock grants |
|
|
89,904 |
|
|
1 |
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeitures |
|
|
(1,374 |
) |
|
|
|
|
1,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
(2,008,261 |
) |
|
|
|
|
2,008,261 |
|
|
(80,668 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(80,668 |
) |
Contributions from noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,330 |
|
|
1,330 |
|
Change in net actuarial loss and prior service credit, net of income tax expense of $3,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,560 |
|
|
|
|
|
6,560 |
|
Foreign currency translation adjustment, net of income tax expense of $638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,928 |
|
|
179 |
|
|
3,107 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 28, 2013 |
|
|
44,916,570 |
|
|
469 |
|
|
2,009,635 |
|
|
(80,668 |
) |
|
569,362 |
|
|
137,379 |
|
|
(12,865 |
) |
|
5,899 |
|
|
619,576 |
|
Net income for the year ended January 3, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,908 |
|
|
|
|
|
1,583 |
|
|
35,491 |
|
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,737 |
|
|
|
|
|
|
|
|
|
|
|
21,737 |
|
Stock option exercises |
|
|
296,666 |
|
|
3 |
|
|
|
|
|
|
|
|
3,561 |
|
|
|
|
|
|
|
|
|
|
|
3,564 |
|
Excess tax benefit from stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,759 |
|
|
|
|
|
|
|
|
|
|
|
5,759 |
|
Restricted stock grants |
|
|
107,869 |
|
|
1 |
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock forfeitures |
|
|
(2,360 |
) |
|
|
|
|
2,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
(459,253 |
) |
|
|
|
|
459,253 |
|
|
(20,330 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,330 |
) |
Unrealized loss on interest rate swap, net of income tax benefit of $826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,439 |
) |
|
|
|
|
(1,439 |
) |
Change in net actuarial loss and prior service credit, net of income tax benefit of $9,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,605 |
) |
|
|
|
|
(14,605 |
) |
Foreign currency translation adjustment, net of income tax expense of $501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,399 |
) |
|
(20 |
) |
|
(32,419 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2015 |
|
|
44,859,492 |
|
$ |
473 |
|
|
2,471,248 |
|
$ |
(100,998 |
) |
$ |
600,418 |
|
$ |
171,287 |
|
$ |
(61,308 |
) |
$ |
7,462 |
|
$ |
617,334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
50
Table of Contents
Polypore International, Inc.
Consolidated statements of cash flows
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Year ended
January 3, 2015 |
|
Year ended
December 28, 2013 |
|
Year ended
December 29, 2012 |
|
Operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
35,491 |
|
$ |
82,241 |
|
$ |
70,709 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation expense |
|
|
44,122 |
|
|
44,812 |
|
|
42,320 |
|
Amortization expense |
|
|
11,112 |
|
|
11,491 |
|
|
13,347 |
|
Amortization of loan acquisition costs |
|
|
1,768 |
|
|
2,474 |
|
|
2,471 |
|
Stock-based compensation |
|
|
21,737 |
|
|
20,687 |
|
|
16,278 |
|
Excess tax benefit from stock-based compensation |
|
|
(5,759 |
) |
|
(1,163 |
) |
|
(338 |
) |
Costs related to purchase of 7.5% senior notes |
|
|
24,937 |
|
|
|
|
|
|
|
Write-off of loan acquisition costs and other expenses associated with refinancing of senior credit agreement |
|
|
1,148 |
|
|
|
|
|
2,478 |
|
Deferred income taxes |
|
|
(8,228 |
) |
|
(4,038 |
) |
|
9,822 |
|
Foreign currency (gain) loss |
|
|
(4,780 |
) |
|
(60 |
) |
|
729 |
|
Loss on disposal of property, plant and equipment |
|
|
335 |
|
|
1,161 |
|
|
971 |
|
(Gain) loss on sale of discontinued operations, net of income taxes |
|
|
655 |
|
|
(35,855 |
) |
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(14,023 |
) |
|
9,795 |
|
|
(2,810 |
) |
Inventories |
|
|
5,959 |
|
|
2,117 |
|
|
(28,304 |
) |
Prepaid and other current assets |
|
|
2,167 |
|
|
8,180 |
|
|
1,487 |
|
Accounts payable and accrued liabilities |
|
|
(10,533 |
) |
|
4,105 |
|
|
(23,003 |
) |
Income taxes payable |
|
|
(2,393 |
) |
|
1,217 |
|
|
(1,982 |
) |
Other, net |
|
|
8,414 |
|
|
7,926 |
|
|
369 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
112,129 |
|
|
155,090 |
|
|
104,544 |
|
Investing activities: |
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment, net |
|
|
(30,825 |
) |
|
(28,235 |
) |
|
(137,111 |
) |
Net proceeds from the sale of discontinued operations |
|
|
|
|
|
116,613 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
(30,825 |
) |
|
88,378 |
|
|
(137,111 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from new senior credit agreement |
|
|
500,000 |
|
|
|
|
|
350,000 |
|
Principal payments in connection with refinancing of senior credit agreement |
|
|
(273,750 |
) |
|
|
|
|
(342,291 |
) |
Purchase of 7.5% senior notes |
|
|
(385,542 |
) |
|
|
|
|
|
|
Loan acquisition costs |
|
|
(4,080 |
) |
|
|
|
|
(6,228 |
) |
Principal payments on debt |
|
|
(20,000 |
) |
|
(15,000 |
) |
|
(4,674 |
) |
Proceeds from revolving credit facility |
|
|
149,000 |
|
|
54,200 |
|
|
|
|
Payments on revolving credit facility |
|
|
(149,000 |
) |
|
(89,200 |
) |
|
(15,000 |
) |
Repurchases of common stock |
|
|
(20,330 |
) |
|
(80,668 |
) |
|
|
|
Proceeds from stock option exercises |
|
|
3,564 |
|
|
2,319 |
|
|
1,338 |
|
Excess tax benefit from stock-based compensation |
|
|
5,759 |
|
|
1,163 |
|
|
338 |
|
Contributions from noncontrolling interest |
|
|
|
|
|
1,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(194,379 |
) |
|
(125,856 |
) |
|
(16,517 |
) |
Effect of exchange rate changes on cash and cash equivalents |
|
|
(5,890 |
) |
|
938 |
|
|
1,383 |
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
(118,965 |
) |
|
118,550 |
|
|
(47,701 |
) |
Cash and cash equivalents at beginning of period |
|
|
163,423 |
|
|
44,873 |
|
|
92,574 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
44,458 |
|
$ |
163,423 |
|
$ |
44,873 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
Cash paid for interest, net of capitalized interest |
|
$ |
24,376 |
|
$ |
36,973 |
|
$ |
33,284 |
|
Cash paid for income taxes, net of refunds |
|
|
20,485 |
|
|
22,006 |
|
|
24,837 |
|
See notes to consolidated financial statements
51
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements
1. Description of Business
Polypore International, Inc. (the "Company") is a leading global high-technology filtration company that develops, manufactures and markets specialized microporous membranes used
in separation and filtration processes. The Company has a global presence in the major geographic markets of North America, South America, Europe and Asia.
2. Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries after
elimination of intercompany accounts and transactions. The consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles ("U.S. GAAP"). Certain
amounts previously presented in the consolidated financial statements for prior periods have been reclassified to conform to current classifications. The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
On
December 19, 2013, the Company completed the sale of its Microporous business. The results of operations from this business have been presented as discontinued operations. All
disclosures and amounts in the notes to the consolidated financial statements relate to the Company's continuing operations, unless otherwise indicated.
Accounting Period
The Company's fiscal year is the 52- or 53-week period ending the Saturday nearest to December 31. The fiscal year ended
January 3, 2015 included 53 weeks. The fiscal years ended December 28, 2013 and December 29, 2012 included 52 weeks.
Revenue Recognition
Revenue from product sales is recognized when a firm sales agreement is in place, delivery of the product has occurred and
collectibility of the fixed and determinable sales price is reasonably assured. Amounts billed to customers for shipping and handling are recorded in "Net sales" in the accompanying consolidated
statements of income. Shipping and handling costs incurred by the Company for the delivery of goods to customers are included in "Cost of goods sold" in the accompanying consolidated statements of
income. Estimates for sales returns and allowances and product returns are recognized in the period in which the revenue is recorded. Product returns and warranty expenses were not material for all
periods presented.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Accounts Receivable and Concentrations of Credit Risk
Accounts receivable potentially expose the Company to concentrations of credit risk. The Company provides credit in the normal course
of business and performs ongoing credit evaluations on certain of
52
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
2. Accounting Policies (Continued)
its
customers' financial condition, but generally does not require collateral to support such receivables. Accounts receivable, net of allowance for doubtful accounts, are carried at cost, which
approximates fair value. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The
allowance for doubtful accounts was $2,394,000 and $3,262,000 at January 3, 2015 and December 28, 2013, respectively. The Company believes that the allowance for doubtful accounts is
adequate to provide for potential losses resulting from uncollectible accounts. The Company charges accounts receivable off against the allowance for doubtful accounts when it deems them to be
uncollectible on a specific identification basis.
Inventories
Inventories are carried at the lower of cost or market using the first-in, first-out method of accounting and consist of:
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Raw materials |
|
$ |
35,700 |
|
$ |
39,357 |
|
Work-in-process |
|
|
11,846 |
|
|
22,079 |
|
Finished goods |
|
|
53,630 |
|
|
52,424 |
|
|
|
|
|
|
|
|
|
|
|
$ |
101,176 |
|
$ |
113,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation commences when the asset is substantially complete and ready for its
intended use. Depreciation is computed for financial reporting purposes on the straight-line method over the estimated useful lives of the related assets. The estimated useful lives for buildings and
land improvements range from 20 to 40 years, and the estimated useful lives for machinery and equipment range from 5 to 15 years. Costs of the construction of certain long-term assets
include capitalized interest, which is amortized over the estimated useful life of the related asset. The Company capitalized interest of $2,638,000 in 2012. Repair and maintenance costs, which
include indirect labor and employee benefits associated with maintenance personnel and utility, maintenance and repair costs for equipment and facilities utilized in the manufacturing process, are
treated as inventoriable costs. Major planned maintenance activities outside of the normal production process are capitalized as property, plant and equipment if the costs are expected to provide
future benefits by increasing the service potential of the asset to which the repair or maintenance applies.
Property,
plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected
undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group
of assets.
Goodwill, Intangible Assets and Loan Acquisition Costs
Goodwill and indefinite-lived intangible assets are not amortized, but are subject to annual impairment testing unless circumstances
dictate more frequent assessments. The Company performs its
53
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
2. Accounting Policies (Continued)
annual
impairment assessment as of the first day of the fourth quarter of each fiscal year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may
be less than the carrying amount. The Company's reporting units are at the operating segment level.
The
Company tests for goodwill impairment using the quantitative two-step goodwill impairment test. Step one of the goodwill impairment test compares the fair value of the Company's
reporting units to their carrying amount. The fair value of the reporting unit is determined using the income approach, corroborated by comparison to market capitalization and key multiples of
comparable companies. Under the income approach, the Company determines fair value based on estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of
capital. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit's carrying amount exceeds its fair value, the second step must be
completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting
unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit's assets and liabilities in a
hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss will
be recognized in an amount equal to the excess.
Intangible
assets with finite lives are amortized over their respective estimated useful lives using the straight-line method. The useful life of customer relationships is based upon
historical customer attrition rates and represents the estimated economic life of those relationships. Loan acquisition costs are amortized over the term of the related debt. Amortization expense for
loan acquisition costs is classified as interest expense. Intangible assets with finite lives are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset, a loss is recognized for the difference between the fair value and carrying value
of the intangible asset.
Income Taxes
Deferred tax assets and liabilities are based on temporary differences between the basis of certain assets and liabilities for income
tax and financial reporting purposes. A valuation allowance is recognized if it is more likely than not that a portion of the deferred tax assets will not be realized in the future. The tax effects
from unrecognized tax benefits are recognized in the financial statements if the position is more likely than not to be sustained upon audit, based on the technical merits of the position.
Stock-Based Compensation
The Company records stock-based compensation based on the fair value of the award at the grant date. Stock-based compensation expense
is recorded over the requisite service
period using the straight-line method for service-based awards and in the service period corresponding to the performance target for performance-based awards. Excess tax benefits from employee stock
option exercises are recorded as an increase to additional paid-in capital if an incremental tax benefit is realized following the ordering provisions of the tax law. Excess tax benefits are reported
as a financing cash inflow rather than as a reduction of income taxes paid in the statement of cash flows.
54
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
2. Accounting Policies (Continued)
Research and Development
The cost of research and development is charged to expense as incurred and is included in "Selling, general and administrative
expenses" in the accompanying consolidated statements of income. Research and development expense was $19,922,000, $17,184,000 and $18,487,000 in 2014, 2013 and 2012, respectively.
Net Income Per Share
Basic net income per common share is based on the weighted average number of common shares outstanding in each year. Diluted net income
per common share considers the impact of dilution from stock options and unvested restricted stock shares as measured under the treasury stock method. Potential common shares that would increase net
income per share amounts or decrease net loss per share amounts are antidilutive and excluded from the diluted net income per common share computation.
Foreign Currency Translation
The local currencies of the Company's foreign subsidiaries are the functional currencies. Assets and liabilities of the Company's
foreign subsidiaries are translated into
United States dollars at current exchange rates and resulting translation adjustments are reported in accumulated other comprehensive income (loss). Income statement amounts are translated at weighted
average exchange rates prevailing during the period. Transaction gains and losses are included in the determination of net income.
Fair Value of Financial Instruments
The Company's financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities,
long-term debt and an interest rate swap. The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximates the fair value due to the
short-term maturities of these assets and liabilities. The carrying value of borrowings under the senior credit agreement approximates fair value because the interest rates adjust to market interest
rates. See Note 8 for the fair value of the interest rate swap.
Fair Value Measurements
Authoritative guidance establishes the following hierarchy that prioritizes the inputs to valuation methodologies used to measure fair
value:
-
- Level one: observable inputs such as quoted market prices in active markets;
-
- Level two: inputs other than the quoted prices in active markets that are observable either directly or indirectly;
-
- Level three: unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions.
As
of January 3, 2015, the Company's only financial asset or liability required to be measured at fair value on a recurring basis was an interest rate swap, which is disclosed in
Note 8. See Note 10 for pension assets measured at fair value on a recurring basis.
55
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
2. Accounting Policies (Continued)
Derivative Instruments and Hedging Activities
The Company may use derivative financial instruments to manage interest rate risk and does not use derivative instruments for trading
or speculative purposes. The Company formally documents the nature of and relationship between the derivative instrument and the hedged item, as well as its risk management objective and strategy for
undertaking the hedge transaction, and the method of assessing hedge effectiveness. When the Company uses derivative instruments, it minimizes its credit risk by entering into transactions with
counterparties with high quality, investment-grade credit ratings, as well as limiting the amount of exposure with each counterparty and regularly monitoring its financial condition. The Company
manages market risk by limiting the type of derivative instruments and strategies it uses and the degree of market risk that it plans to hedge through the use of derivative instruments.
Derivative
instruments are recorded at fair value in the consolidated balance sheets. Changes in fair value of a derivative instrument are recorded in earnings or to shareholders' equity
in accumulated other comprehensive income (loss), depending on whether it has been designated as a hedge and, if so, the type of hedge. In order to qualify for hedge accounting, a specified level of
hedge effectiveness between the derivative instrument and the item being hedged must exist at inception and throughout the hedged period. Hedge ineffectiveness and any changes in fair value excluded
from the hedging transaction are recognized in earnings. For hedges of forecasted transactions, the significant characteristics and expected term of the forecasted transaction must be specifically
identified, and it must be probable that they will occur. If it is no longer probable that the hedged forecasted transaction will occur, the Company recognizes the gain or loss related to the
derivative instrument in earnings.
Recent Accounting Pronouncements
In July 2013, the FASB issued ASU No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized
Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which gives guidance on the presentation of certain unrecognized
tax benefits in the financial statements. This guidance requires that an unrecognized tax benefit be presented as a reduction to a deferred tax asset for a net operating loss carryforward, a similar
tax loss or a tax credit carryforward rather than as a liability if certain criteria are met. The guidance is effective for annual and interim periods beginning after December 15, 2013. The
adoption of this guidance in the Company's January 3, 2015 consolidated financial statements did not have an impact on the Company's financial statement presentation, financial condition or
results of operations.
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the
amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP
when it becomes effective. The new standard is effective for the Company on January 1, 2017. Early application is not permitted. The standard permits the use of either the retrospective or
cumulative effect transition method. The Company is evaluating the effect that this standard will have on its consolidated financial statements and related disclosures.
56
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
3. Property, Plant and Equipment
Property, plant and equipment consist of:
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Land |
|
$ |
22,593 |
|
$ |
24,184 |
|
Buildings and land improvements |
|
|
150,931 |
|
|
157,928 |
|
Machinery and equipment |
|
|
545,265 |
|
|
559,865 |
|
Construction in progress |
|
|
146,053 |
|
|
139,344 |
|
|
|
|
|
|
|
|
|
|
|
|
864,842 |
|
|
881,321 |
|
Less accumulated depreciation |
|
|
306,607 |
|
|
285,946 |
|
|
|
|
|
|
|
|
|
|
|
$ |
558,235 |
|
$ |
595,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4. Goodwill
There were no changes in the carrying amount of goodwill for the years ended January 3, 2015 and December 28, 2013, and the carrying amount of goodwill at those dates was
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Transportation
and Industrial |
|
Electronics
and EDVs |
|
Separations
Media |
|
Total |
|
Goodwill |
|
$ |
327,347 |
|
$ |
36,336 |
|
$ |
212,279 |
|
$ |
575,962 |
|
Accumulated impairment charges |
|
|
(131,450 |
) |
|
|
|
|
|
|
|
(131,450 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
195,897 |
|
$ |
36,336 |
|
$ |
212,279 |
|
$ |
444,512 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Intangibles, Loan Acquisition and Other Costs
Intangibles, loan acquisition and other costs consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2015 |
|
December 28, 2013 |
|
(in thousands)
|
|
Weighted
Average
Life (years) |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Gross
Carrying
Amount |
|
Accumulated
Amortization |
|
Intangible and other assets subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships |
|
17 |
|
$ |
180,192 |
|
$ |
117,785 |
|
$ |
181,464 |
|
$ |
107,554 |
|
Loan acquisition costs |
|
5 |
|
|
6,979 |
|
|
1,047 |
|
|
14,808 |
|
|
5,645 |
|
Intangible assets not subject to amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names |
|
Indefinite |
|
|
9,964 |
|
|
|
|
|
10,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
197,135 |
|
$ |
118,832 |
|
$ |
206,991 |
|
$ |
113,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
5. Intangibles, Loan Acquisition and Other Costs (Continued)
Amortization expense, including amortization of loan acquisition costs classified as interest expense, was $12,880,000, $13,595,000 and $15,078,000 in 2014, 2013 and 2012, respectively.
The Company's estimate of amortization expense for the next five years is as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
2015 |
|
$ |
12,442 |
|
2016 |
|
|
12,442 |
|
2017 |
|
|
12,442 |
|
2018 |
|
|
11,294 |
|
2019 |
|
|
4,110 |
|
6. Accrued Liabilities
Accrued liabilities consist of:
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Compensation expense and other fringe benefits |
|
$ |
17,196 |
|
$ |
18,421 |
|
Current deferred tax liability |
|
|
9,663 |
|
|
1,970 |
|
Other |
|
|
25,838 |
|
|
30,761 |
|
|
|
|
|
|
|
|
|
|
|
$ |
52,697 |
|
$ |
51,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Debt
Debt, in order of priority, consists of:
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Senior credit agreement: |
|
|
|
|
|
|
|
Revolving credit facility |
|
$ |
|
|
$ |
|
|
Term loan facility |
|
|
487,500 |
|
|
281,250 |
|
|
|
|
|
|
|
|
|
|
|
|
487,500 |
|
|
281,250 |
|
7.5% senior notes |
|
|
|
|
|
365,000 |
|
|
|
|
|
|
|
|
|
|
|
|
487,500 |
|
|
646,250 |
|
Less current portion |
|
|
25,000 |
|
|
16,875 |
|
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
462,500 |
|
$ |
629,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
April 8, 2014, the Company entered into a new senior secured credit agreement that provides for a $150,000,000 revolving credit facility and a $500,000,000 term loan facility.
At that date, the Company used cash on hand, proceeds from the initial draw of $100,000,000 under the new term loan facility and borrowings of $33,000,000 under the new revolving credit facility to
pay all outstanding principal and interest under the previous senior secured credit agreement and loan acquisition costs. The Company incurred loan acquisition costs of approximately $4,080,000, of
which $3,944,000 was capitalized and will be amortized over the life of the new credit agreement. The Company wrote off unamortized loan acquisition costs of $1,012,000 associated with the previous
credit agreement.
58
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
7. Debt (Continued)
On
May 8, 2014, the Company borrowed the remaining $400,000,000 available under the new term loan facility and used the proceeds to purchase and retire all of the previously
outstanding 7.5% senior notes. The total purchase price for the notes was $385,542,000, consisting of principal of $365,000,000, redemption premiums of $20,531,000 and other expenses associated with
the transaction. In connection with the purchase, the Company incurred a $24,937,000 charge to income, comprised of the redemption premiums, write-off of unamortized loan acquisition costs of
$4,395,000 and other expenses.
The
Company's domestic subsidiaries guarantee indebtedness under the credit agreement. Substantially all assets of the Company and its domestic subsidiaries and a first priority pledge
of 65% of the voting capital stock of its foreign subsidiaries secure indebtedness under the credit agreement. Interest rates are equal to, at the Company's option, either an alternate base rate or
the Eurodollar base rate, plus a specified margin. The Company's ability to pay dividends on its common stock is limited under the terms of the credit agreement. The Company is also subject to certain
financial covenants, including a maximum leverage ratio and a minimum interest coverage ratio, all of which the Company was in compliance with as of January 3, 2015. The revolving credit
facility and term loan facility mature in April 2019.
At
January 3, 2015, the Company had no amounts outstanding under the revolving credit facility and the entire amount was available for borrowing.
Minimum
scheduled principal repayments of the term loan facility are as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
2015 |
|
$ |
25,000 |
|
2016 |
|
|
31,250 |
|
2017 |
|
|
43,750 |
|
2018 |
|
|
62,500 |
|
2019 |
|
|
325,000 |
|
|
|
|
|
|
|
|
$ |
487,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8. Derivative Instruments and Hedging Activities
In August 2014, the Company entered into a forward-starting interest rate swap to pay a fixed interest rate of 1.9% and receive one-month LIBOR on a notional amount of $250,000,000 from
its effective date of July 31, 2015 through its expiration on April 8, 2019. The Company's principal objective is to reduce significant, unanticipated earnings fluctuations and cash flow
variability that may arise from volatility in interest rates. The interest rate swap economically converts a portion of the Company's LIBOR-based, variable rate debt into fixed rate debt. Under the
contract, the Company agrees with a counterparty to exchange, at specified intervals, the difference between floating- and fixed-rate interest payments on the notional amount. The Company's interest
rate swap is governed by a standard International Swaps and Derivatives Association master agreement.
The
interest rate swap has been designated as a cash flow hedge and is recorded at fair value in the consolidated balance sheet with changes in fair value, net of income taxes, recorded
to shareholders' equity in "Accumulated other comprehensive loss." The fair value of the interest rate swap is derived from a discounted cash flow analysis based on the terms of the contract and the
observable market interest rate curve (level two inputs in the fair value hierarchy), taking into
59
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
8. Derivative Instruments and Hedging Activities (Continued)
consideration
the risk of nonperformance, including counterparty credit risk. The interest rate swap is recorded in the consolidated balance sheet as of January 3, 2015 as follows:
|
|
|
|
|
|
|
(in thousands)
|
|
Balance Sheet Location |
|
|
|
Interest rate swap (current portion) |
|
Accrued liabilities |
|
$ |
(1,414 |
) |
Interest rate swap (non-current portion) |
|
Other liabilities |
|
|
(851 |
) |
|
|
|
|
|
|
|
Total fair value of interest rate swap |
|
|
|
$ |
(2,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the year ended January 3, 2015, cash flow hedge activity, net of income taxes, was included in "Accumulated other comprehensive loss" as follows:
|
|
|
|
|
(in thousands)
|
|
|
|
Beginning balance |
|
$ |
|
|
Hedging loss before reclassifications |
|
|
(1,439 |
) |
Amount reclassified into earnings |
|
|
|
|
|
|
|
|
|
Other comprehensive loss |
|
|
(1,439 |
) |
|
|
|
|
|
Ending balance |
|
$ |
(1,439 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Company will record gains or losses reclassified from "Accumulated other comprehensive loss" into earnings as an adjustment to interest expense in the periods when the hedged
interest payments occur. No derivative gains or losses, including those related to either ineffectiveness or to amounts excluded from effectiveness testing, were recognized in earnings during the
periods presented. The estimated loss, net of income taxes, expected to be reclassified out of "Accumulated other comprehensive loss" into earnings during the next twelve months is approximately
$899,000.
9. Income Taxes
Significant components of deferred tax assets and liabilities consist of:
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
Pension obligations |
|
$ |
36,936 |
|
$ |
29,683 |
|
Net operating loss carryforwards |
|
|
10,836 |
|
|
5,552 |
|
Foreign tax credits |
|
|
45,953 |
|
|
1,850 |
|
Other |
|
|
29,599 |
|
|
25,186 |
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
123,324 |
|
|
62,271 |
|
Valuation allowance |
|
|
(18,801 |
) |
|
(2,225 |
) |
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
104,523 |
|
|
60,046 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
(78,915 |
) |
|
(85,952 |
) |
Goodwill and intangibles |
|
|
(31,199 |
) |
|
(28,351 |
) |
Repatriation of foreign earnings |
|
|
(30,350 |
) |
|
(10,243 |
) |
Other |
|
|
(8,508 |
) |
|
(5,917 |
) |
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
(148,972 |
) |
|
(130,463 |
) |
|
|
|
|
|
|
|
|
Net deferred taxes |
|
$ |
(44,449 |
) |
$ |
(70,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
9. Income Taxes (Continued)
At
January 3, 2015, the Company has no deferred tax assets related to U.S. federal net operating loss ("NOL") carryforwards but has deferred tax assets of
$2,578,000 for Alternative Minimum Tax and state NOL carryforwards that will begin to expire in 2015. The Company has deferred tax assets of $45,953,000 related to foreign tax credit carryforwards
that will begin to expire in 2024 and $8,258,000 related to foreign NOL carryforwards that will begin to expire in 2018. The valuation allowance is provided for NOLs and foreign tax credits for which
realization is uncertain, and the current year increase in the valuation allowance of $16,576,000 is related to NOLs and foreign tax credits recognized during 2014.
Deferred
taxes are reflected in the consolidated balance sheets as follows:
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Prepaid and other assets |
|
$ |
1,227 |
|
$ |
1,278 |
|
Other non-current assets |
|
|
4,306 |
|
|
2,357 |
|
Accrued liabilities |
|
|
(9,663 |
) |
|
(1,970 |
) |
Deferred income taxes |
|
|
(40,319 |
) |
|
(72,082 |
) |
|
|
|
|
|
|
|
|
Net deferred taxes |
|
$ |
(44,449 |
) |
$ |
(70,417 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
Balance at beginning of year |
|
$ |
10,437 |
|
$ |
9,435 |
|
$ |
9,373 |
|
Increase related to current year positions |
|
|
|
|
|
980 |
|
|
|
|
Increase related to prior year positions |
|
|
|
|
|
160 |
|
|
62 |
|
Decrease related to prior year positions |
|
|
(495 |
) |
|
|
|
|
|
|
Settlements with tax authorities |
|
|
|
|
|
(138 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year |
|
$ |
9,942 |
|
$ |
10,437 |
|
$ |
9,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amount of unrecognized tax benefits that, if recognized, would affect the annual effective tax rate is $9,235,000, $9,183,000 and $8,168,000 as of January 3, 2015,
December 28, 2013 and December 29, 2012, respectively. Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense. Accrued interest
and penalties were $385,000, $362,000 and $399,000 at January 3, 2015, December 28, 2013 and December 29, 2012, respectively.
The
Company has operations in North America, Europe and Asia and files tax returns in numerous tax jurisdictions. The Company is not subject to income tax adjustments in the U.S. for tax
years prior to 2005 and in foreign jurisdictions for tax years prior to 2004. In the United States, tax audits are currently being conducted on the Company's operations by certain U.S. states while,
in foreign
jurisdictions, audits are currently being conducted on a French subsidiary for the tax years 2006 through 2008 and on a German subsidiary for tax years 2009 through 2013. Although the outcome of tax
audits is uncertain, management believes that adequate provisions have been made for potential liabilities resulting from such audits. Because audit outcomes and the timing of audit settlements are
subject to significant uncertainty, the Company cannot make a reasonable estimate of the impact on earnings in the next twelve months from these audits. Management is not aware of any issues for open
61
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
9. Income Taxes (Continued)
tax
years that upon final resolution will have a material adverse effect on the Company's consolidated financial position, cash flows or operating results.
Income
from continuing operations before income taxes includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
United States |
|
$ |
(21,619 |
) |
$ |
(2,762 |
) |
$ |
18,062 |
|
Foreign |
|
|
67,493 |
|
|
51,135 |
|
|
67,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
45,874 |
|
$ |
48,373 |
|
$ |
85,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
Current: |
|
|
|
|
|
|
|
|
|
|
U.S. taxes on domestic income |
|
$ |
(407 |
) |
$ |
806 |
|
$ |
658 |
|
Foreign taxes |
|
|
18,363 |
|
|
19,913 |
|
|
18,303 |
|
|
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
17,956 |
|
|
20,719 |
|
|
18,961 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|
U.S. taxes on domestic income |
|
|
(5,025 |
) |
|
(2,739 |
) |
|
7,859 |
|
Foreign taxes |
|
|
(3,203 |
) |
|
(3,691 |
) |
|
(1,553 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total deferred |
|
|
(8,228 |
) |
|
(6,430 |
) |
|
6,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
9,728 |
|
$ |
14,289 |
|
$ |
25,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes at the Company's effective tax rate differed from income taxes at the statutory rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended |
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
Computed income taxes at the U.S. federal statutory rate |
|
$ |
16,056 |
|
$ |
16,930 |
|
$ |
29,785 |
|
Foreign taxes |
|
|
(8,644 |
) |
|
(1,969 |
) |
|
(7,070 |
) |
Other |
|
|
2,316 |
|
|
(672 |
) |
|
2,552 |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
$ |
9,728 |
|
$ |
14,289 |
|
$ |
25,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
have been provided on earnings distributed and expected to be distributed by the Company's foreign subsidiaries. All other foreign earnings are undistributed and considered to be
indefinitely reinvested and, accordingly, no provision for U.S. federal and state income taxes has been provided thereon. The Company has not provided additional U.S. federal and state income taxes on
an estimated $247,000,000 of undistributed earnings of consolidated foreign subsidiaries. Upon distribution of these earnings in the form of dividends or otherwise, the Company would be subject to
both U.S. income taxes and withholding taxes payable to the various foreign countries. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable because of the
complexities associated with this hypothetical calculation.
62
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
9. Income Taxes (Continued)
The
Company has entered into an agreement with the Board of Investment in Thailand under which, subject to certain limitations, 100% of the Company's income from manufacturing activities
in Thailand was tax-free through 2010 and portions of income will be tax-free through 2019. The income tax benefits recognized from this tax holiday were $489,000, $1,293,000 and $1,821,000 in 2014,
2013 and 2012, respectively. The Company has entered into an agreement with the Ministry of Strategy and Finance in South Korea which, subject to certain limitations, effectively exempts 100% of the
Company's income in South Korea from income taxes through 2016. The Company recognized an income tax benefit from this tax holiday of $1,379,000 in 2012.
10. Employee Benefit Plans
Pension Plans
The Company and its subsidiaries sponsor multiple defined benefit pension plans based in subsidiaries located outside of the United
States. The following table sets forth the funded status of the defined benefit pension plans:
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Change in benefit obligation |
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
|
$ |
(123,374 |
) |
$ |
(123,825 |
) |
Service cost |
|
|
(2,037 |
) |
|
(2,255 |
) |
Interest cost |
|
|
(4,200 |
) |
|
(4,532 |
) |
Plan amendments |
|
|
|
|
|
1,084 |
|
Actuarial gain (loss) |
|
|
(30,606 |
) |
|
7,218 |
|
Benefit payments |
|
|
3,694 |
|
|
3,576 |
|
Foreign currency translation and other |
|
|
18,399 |
|
|
(4,640 |
) |
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
|
(138,124 |
) |
|
(123,374 |
) |
Change in plan assets |
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
|
18,493 |
|
|
18,529 |
|
Actual return on plan assets |
|
|
762 |
|
|
816 |
|
Company contributions |
|
|
1,994 |
|
|
2,002 |
|
Benefit payments |
|
|
(3,694 |
) |
|
(3,576 |
) |
Foreign currency translation and other |
|
|
(2,203 |
) |
|
722 |
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
|
15,352 |
|
|
18,493 |
|
|
|
|
|
|
|
|
|
Funded status at end of year |
|
$ |
(122,772 |
) |
$ |
(104,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheet consist of: |
|
|
|
|
|
|
|
Accrued liabilities |
|
$ |
(1,734 |
) |
$ |
(2,060 |
) |
Pension obligations |
|
|
(121,038 |
) |
|
(102,821 |
) |
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(122,772 |
) |
$ |
(104,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in accumulated other comprehensive loss, pre-tax, consist of: |
|
|
|
|
|
|
|
Net actuarial loss |
|
$ |
51,096 |
|
$ |
28,110 |
|
Prior service credit |
|
|
(990 |
) |
|
(1,259 |
) |
|
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
50,106 |
|
$ |
26,851 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
10. Employee Benefit Plans (Continued)
The funded status of the Company's pension plans is dependent upon many factors, including returns on invested assets and the level of market interest rates. The funded status of the
pension plans as of January 3, 2015 has decreased from December 28, 2013 primarily as a result of lower discount rates being used to value the pension plan obligations.
The
accumulated benefit obligation for all defined benefit pension plans was $124,762,000 and $113,092,000 at January 3, 2015 and December 28, 2013, respectively. Each of
the Company's defined benefit pension plans had accumulated benefit obligations in excess of plan assets at January 3, 2015.
The
following table provides the components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
Service cost |
|
$ |
2,037 |
|
$ |
2,255 |
|
$ |
1,658 |
|
Interest cost |
|
|
4,200 |
|
|
4,532 |
|
|
4,739 |
|
Expected return on plan assets |
|
|
(433 |
) |
|
(768 |
) |
|
(844 |
) |
Amortization of prior service credit |
|
|
(123 |
) |
|
(52 |
) |
|
(50 |
) |
Recognized net actuarial loss |
|
|
1,050 |
|
|
1,739 |
|
|
472 |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
6,731 |
|
$ |
7,706 |
|
$ |
5,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
amount of prior service credit and net actuarial loss included in "Accumulated other comprehensive loss" and expected to be recognized in net periodic benefit cost in 2015 is
$2,417,000.
Weighted
average assumptions used to determine the benefit obligation and net periodic benefit costs consist of:
|
|
|
|
|
|
|
|
Weighted average assumptions as of the end of the year
|
|
January 3, 2015 |
|
December 28, 2013 |
|
Discount rate used to determine the benefit obligation |
|
|
2.10 |
% |
|
3.70 |
% |
Discount rate used to determine the net periodic benefit costs |
|
|
3.70 |
% |
|
3.60 |
% |
Expected return on plan assets |
|
|
3.03 |
% |
|
3.51 |
% |
Rate of compensation increase |
|
|
2.53 |
% |
|
2.53 |
% |
The
Company's pension plan assets are invested to obtain a reasonable long-term rate of return at an acceptable level of investment risk. Risk tolerance is established through
consideration of plan liabilities, plan funded status and corporate financial condition. Investment risk is measured and monitored on an ongoing basis through periodic investment portfolio reviews,
liability measurements and asset/liability studies. The Company's expected return on plan assets is based on historical market
data for each asset class and expected market conditions. Pension plan assets are comprised of insurance contracts and mutual funds invested in European fixed income and equity securities. The
investment portfolio has asset allocation targets of approximately 85% fixed income investments and approximately 15% equity securities. The actual portfolio allocation was 88% fixed income
investments and 12% equity securities at January 3, 2015 and was 84% fixed income and 16% equity at
64
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
10. Employee Benefit Plans (Continued)
December 28,
2013. The insurance contracts and the mutual funds are considered level two assets in the fair value hierarchy.
In
2015, the Company expects to contribute $1,789,000 to its pension plans. The estimated future benefit payments expected to be paid for each of the next five years and the sum of
payments expected for the next five years thereafter are:
|
|
|
|
|
(in thousands)
|
|
|
|
2015 |
|
$ |
3,479 |
|
2016 |
|
|
3,530 |
|
2017 |
|
|
3,629 |
|
2018 |
|
|
3,702 |
|
2019 |
|
|
4,007 |
|
2020 - 2024 |
|
|
25,326 |
|
401(k) Plans
The Company sponsors a 401(k) plan for U.S. salaried employees. Salaried employees are eligible to participate in the plan on
January 1, April 1, July 1 or October 1 after their date of employment. Under the plan, employer contributions are defined as 5.00% of a participant's base salary plus a
matching of employee contributions allowing for a maximum matching contribution of 3.00% of a participant's earnings. The cost of the plan recognized as expense was $3,783,000, $3,551,000 and
$4,224,000 in 2014, 2013 and 2012, respectively.
The
Company sponsors a 401(k) plan for U.S. hourly employees subject to collective bargaining agreements. Depending on the applicable collective bargaining agreement, employer basic
contributions are defined as 3.00% or 3.50% of a participant's base earnings plus a company matching contribution, limited to certain maximum percentage contributions. The Company also makes a
separate contribution for employees who were hired prior to January 1, 2000 and who are not eligible for certain other benefit plans. The cost of the plan recognized as expense was $634,000,
$631,000 and $650,000 in 2014, 2013 and 2012, respectively.
11. Environmental Matters
Environmental obligations are accrued when such expenditures are probable and reasonably estimable. The amount of liability recorded is based on currently available information,
including the progress of remedial investigations, current status of discussions with regulatory authorities regarding the method and extent of remediation, presently enacted laws and existing
technology. Accruals for estimated losses from environmental obligations are adjusted as further information develops or circumstances change. Costs of future expenditures for environmental
obligations are not discounted to their present value. The Company does not currently anticipate any material loss in excess of the amounts accrued. However, the Company's future remediation expenses
may be affected by a number of uncertainties including, but not limited to, the difficulty in estimating the extent and method of remediation, the evolving nature of environmental regulations and the
availability and application of technology. The Company does not expect the resolution of such uncertainties to have a material adverse effect on its consolidated financial position or liquidity.
Recoveries of environmental costs from other parties are recognized as assets when receipt is deemed probable.
65
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
11. Environmental Matters (Continued)
In
connection with the acquisition of Membrana GmbH ("Membrana") in 2002, the Company recorded a reserve for environmental obligations. The reserve provides for costs to remediate
known environmental issues and operational upgrades which are required in order for the Company to remain in compliance with local regulations. The initial estimate and subsequent finalization of the
reserve was included in the allocation of purchase price at the date of acquisition. The environmental reserve for the Membrana facility, which is denominated in euros, was $917,000 and $2,882,000 at
January 3, 2015 and December 28, 2013, respectively. The Company anticipates the expenditures associated with the reserve will be made in the next twelve months. The reserve is included
in "Accrued liabilities" in the accompanying consolidated balance sheets.
The
Company had indemnification agreements with the prior owners of Membrana for a substantial portion of these costs. During 2013, the Company received $10,304,000 as final payment of
amounts outstanding under the indemnification agreements.
12. Commitments and Contingencies
Leases
The Company leases certain equipment and facilities under operating leases. Rent expense under operating leases was $4,001,000,
$3,376,000 and $3,416,000 in 2014, 2013 and 2012, respectively.
Future
minimum operating lease payments at January 3, 2015 are:
|
|
|
|
|
(in thousands)
|
|
|
|
2015 |
|
$ |
3,524 |
|
2016 |
|
|
2,518 |
|
2017 |
|
|
1,813 |
|
2018 |
|
|
962 |
|
2019 |
|
|
487 |
|
Thereafter |
|
|
152 |
|
|
|
|
|
|
|
|
$ |
9,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw Materials
The Company employs a global purchasing strategy to achieve pricing leverage on its purchases of major raw materials. Accordingly, the
Company purchases the majority of each type of raw material from one primary supplier with additional suppliers having been qualified to
supply the Company if an interruption in supply were to occur. The Company believes that alternative sources of raw materials are readily available and the loss of any particular supplier would not
have a material impact on the results of operations. However, the loss of raw material supply sources could, in the short term, adversely affect the Company's business until alternative supply
arrangements were secured.
Collective Bargaining Agreements
On January 3, 2015, approximately 34% of the Company's employees were represented under collective bargaining agreements. A
majority of those employees are located in Germany and France and are represented under industry-wide agreements that are subject to national and local government
66
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
12. Commitments and Contingencies (Continued)
regulations.
Labor unions also represent the Company's employees in Owensboro, Kentucky, and Corydon, Indiana.
Other
The Company is from time to time subject to various claims and other matters arising out of the normal conduct of business. The amount
recorded for identified contingent liabilities is based on estimates. Amounts recorded are reviewed periodically and adjusted to reflect additional information that becomes available. Actual costs to
be incurred in future periods may vary from the estimates, given the inherent uncertainties in evaluating certain exposures. Subject to the imprecision in estimating future contingent liability costs,
the Company believes that based on present information, it is unlikely that a liability, if any, exists that would have a material adverse effect on the consolidated operating results, financial
position or cash flows of the Company.
13. Stock-Based Compensation Plans
The Company offers stock-based compensation plans to attract, retain, motivate and reward key officers, non-employee directors and employees. Stock-based compensation expense includes
costs associated with stock options and restricted stock and is classified as "Selling, general and administrative expenses" in the accompanying consolidated statements of income.
The
2007 Stock Incentive Plan (the "2007 Plan") allows for the grant of stock options, restricted stock and other instruments for up to a total of 6,251,963 shares of common stock,
including the Company's registration in May 2014 of 1,500,000 additional shares of common stock available to be issued under the 2007 Plan. Stock options granted under the 2007 Plan have 10-year terms
and are issued with an exercise price not less than the fair market value of the Company's stock on the grant date. Stock options granted under the 2007 Plan may vest based on satisfaction of certain
annual performance criteria or may vest over time.
A
summary of outstanding stock options is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
Weighted-
average
exercise
price |
|
Weighted
average
remaining
contractual
term (years) |
|
Aggregate
intrinsic
value
(in thousands) |
|
Outstanding at December 28, 2013 |
|
|
3,230,341 |
|
$ |
39.23 |
|
|
|
|
|
|
|
Granted |
|
|
383,315 |
|
|
35.34 |
|
|
|
|
|
|
|
Exercised |
|
|
(296,666 |
) |
|
12.01 |
|
|
|
|
|
|
|
Forfeited |
|
|
(63,560 |
) |
|
52.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 3, 2015 |
|
|
3,253,430 |
|
|
41.00 |
|
|
6.6 |
|
$ |
35,306 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and exercisable at January 3, 2015 |
|
|
2,641,275 |
|
|
42.17 |
|
|
6.1 |
|
|
28,891 |
|
Expected to vest |
|
|
610,292 |
|
|
35.94 |
|
|
8.8 |
|
|
6,393 |
|
Stock
option expense was $18,995,000, $19,080,000 and $16,100,000 in 2014, 2013 and 2012, respectively. The income tax benefit related to stock option expense was $6,779,000, $6,773,000
and $5,724,000 in 2014, 2013 and 2012, respectively. As of January 3, 2015, the Company had $5,574,000 of
67
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
13. Stock-Based Compensation Plans (Continued)
total
pre-tax unrecognized stock option expense, net of estimated forfeitures, which is expected to be recognized over a weighted average period of 1.6 years.
Exercise
prices for options outstanding at January 3, 2015 ranged from $5.24 to $56.98. The intrinsic value is based on the Company's closing stock price of $46.40 at
January 3, 2015, which would have been received by the option holder had the options been exercised at that date. The total intrinsic value of options exercised during 2014, 2013 and 2012
amounted to $10,765,000, $6,402,000 and $3,116,000, respectively.
The
Company is required to estimate the fair value of stock options on the grant date using an option-pricing model. The weighted average grant-date fair value of options granted during
2014, 2013 and 2012 amounted to $17.27, $18.92 and $18.97 per share, respectively. The fair value of each stock option granted was estimated on the date of grant based on the Black-Scholes option
pricing model with the following weighted-average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
assumptions |
|
|
|
2014 |
|
2013 |
|
2012 |
|
Expected term (years) |
|
|
5.4 |
|
|
5.6 |
|
|
5.3 |
|
Risk-free interest rate |
|
|
1.61 |
% |
|
0.96 |
% |
|
0.86 |
% |
Expected volatility |
|
|
53.7 |
% |
|
57.3 |
% |
|
56.0 |
% |
Dividend yield |
|
|
|
|
|
|
|
|
|
|
The
potential expected term of the stock options ranges from the vesting period of the options (three years) to the contractual term of the options (ten years). The Company determines
the expected term of the options based on historical experience, vesting periods, structure of the option plans and contractual term of the options. The Company's risk-free interest rate is based on
the interest rate of U.S. Treasury bills with a term approximating the expected term of the options and is measured at the date of the stock option grant. Expected volatility is estimated based on the
Company's historical stock prices and implied volatility from traded options. The Company does not anticipate paying dividends.
A
summary of stock options that are expected to vest is as follows:
|
|
|
|
|
|
|
|
|
|
Stock Options |
|
Weighted-
average
grant-date
fair value |
|
December 28, 2013 |
|
|
969,582 |
|
$ |
22.98 |
|
Granted |
|
|
381,448 |
|
|
17.27 |
|
Vested |
|
|
(717,845 |
) |
|
25.40 |
|
Forfeited |
|
|
(22,893 |
) |
|
45.58 |
|
|
|
|
|
|
|
|
|
January 3, 2015 |
|
|
610,292 |
|
|
15.72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
total fair value of options vested during 2014, 2013 and 2012 was $18,233,000, $16,518,000 and $17,945,000, respectively.
On
February 25, 2013, the Company modified the terms of stock options granted on August 23, 2011. For participants that meet certain criteria upon retirement, the
modification extends the exercise
68
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
13. Stock-Based Compensation Plans (Continued)
period
for vested options from 90 days after retirement to the earlier of the option expiration date or three years after retirement and also allows unvested options to continue to vest for up
to three years after retirement as if the participant had remained in the service of the Company. The total incremental stock option expense associated with the modification, net of estimated
forfeitures, was $2,500,000, of which $920,000 and $1,580,000 were recognized in 2014 and 2013, respectively.
A
summary of the status of unvested restricted stock is as follows:
|
|
|
|
|
|
|
|
|
|
Restricted
stock |
|
Weighted-
average
grant-date
fair value |
|
Unvested at December 28, 2013 |
|
|
89,530 |
|
$ |
36.93 |
|
Granted |
|
|
107,869 |
|
|
35.30 |
|
Vested |
|
|
(32,085 |
) |
|
37.38 |
|
Withheld and repurchased |
|
|
(6,848 |
) |
|
35.01 |
|
Forfeited |
|
|
(2,360 |
) |
|
35.44 |
|
|
|
|
|
|
|
|
|
Unvested at January 3, 2015 |
|
|
156,106 |
|
|
35.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
expense associated with these restricted stock grants, which vest over three years, was $2,742,000, $1,607,000 and $178,000 in 2014, 2013 and 2012, respectively.
14. Accumulated Other Comprehensive Loss
The changes in "Accumulated other comprehensive loss" for the year ended January 3, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Pension
Plans |
|
Foreign
Currency
Translation
Adjustment |
|
Interest Rate
Swap |
|
Total
Accumulated Other
Comprehensive
Loss |
|
Balance at December 28, 2013 |
|
$ |
(19,542 |
) |
$ |
6,677 |
|
$ |
|
|
$ |
(12,865 |
) |
Other comprehensive loss before reclassifications, net of income taxes |
|
|
(15,236 |
) |
|
(32,399 |
) |
|
(1,439 |
) |
|
(49,074 |
) |
Amortization of net actuarial loss and prior service credit for defined benefit pension plans, net of income taxes of $296 |
|
|
631 |
|
|
|
|
|
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss for the year ended January 3, 2015 |
|
|
(14,605 |
) |
|
(32,399 |
) |
|
(1,439 |
) |
|
(48,443 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 3, 2015 |
|
$ |
(34,147 |
) |
$ |
(25,722 |
) |
$ |
(1,439 |
) |
$ |
(61,308 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
Note 10 for additional details on the amortization of net actuarial loss and prior service credit, which are included in the computation of net periodic benefit cost.
69
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
15. Treasury Stock
In May 2014, the Board of Directors authorized the repurchase of up to 4,500,000 shares of the Company's common stock. The share repurchase program has no expiration date. During 2014,
the Company repurchased 450,000 shares of common stock for $20,004,000. In 2013, the Board of Directors authorized the repurchase of up to 4,000,000 shares of the Company's common stock by
December 31, 2013. During 2013, the Company repurchased 2,000,000 shares of common stock for $80,343,000.
The
Company also repurchased shares of common stock to satisfy certain employees' statutory withholding tax liabilities for $326,000 and $325,000 during fiscal 2014 and fiscal 2013,
respectively,
related to restricted stock grants. Additionally, 2,360 and 1,374 shares of unvested restricted stock were forfeited and included in treasury stock during fiscal 2014 and fiscal 2013, respectively.
16. Related Party Transactions
The Company's German subsidiary has a 33% equity investment in a patent and trademark service provider and a 25% equity investment in a research company. The investments are accounted
for under the equity method of accounting and were $593,000 and $676,000 at January 3, 2015 and December 28, 2013, respectively. Charges from the affiliates for work performed were
$2,078,000, $1,628,000 and $1,801,000 in 2014, 2013 and 2012, respectively. Amounts due to the affiliates were $223,000 and $254,000 at January 3, 2015 and December 28, 2013,
respectively.
17. Noncontrolling Interest
In 2010, the Company formed a joint venture with Camel Group Co., Ltd ("Camel"), a leading battery manufacturer in China, to produce lead-acid battery separators primarily
for Camel's use. The joint
venture, Daramic Xiangyang Battery Separator Co., Ltd. ("Daramic Xiangyang"), is located at Camel's facility and owned 65% by the Company and 35% by Camel. During fiscal 2013, the
Company and Camel made equity contributions of $2,470,000 and $1,330,000, respectively, to fund capital expenditures.
In
exchange for notes payable, Daramic Xiangyang purchased from Camel a building and from the Company certain production equipment that was previously located at the Company's former
facility in Potenza, Italy. The notes payable and related interest will be paid by Daramic Xiangyang using available free cash flow, as defined in the joint venture agreement. The building note
payable to Camel has a principal balance of $10,348,000 and $5,910,000 at January 3, 2015 and December 28, 2013, respectively, and is included in "Other" non-current liabilities in the
accompanying consolidated balance sheets, and the equipment note payable to the Company eliminates in consolidation.
70
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
18. Segment Information
The Company's operations are principally managed on a products basis and are comprised of three reportable segments for financial reporting purposes. The Company's three reportable
segments are presented in the context of its two primary businessesenergy storage and separations media.
The
energy storage business produces and markets membranes that provide the critical function of separating the cathode and anode in a variety of battery markets and is comprised of the
following reportable segments:
-
- Electronics and EDVsproduces and markets membranes for lithium batteries that are used in portable electronic devices,
cordless power tools, electric drive vehicles ("EDVs") and energy storage systems ("ESS").
-
- Transportation and industrialproduces and markets membranes for lead-acid batteries that are used in automobiles, other
motor vehicles, forklifts and uninterruptible power supply systems.
The
separations media business is a reportable segment and produces and markets membranes and membrane modules used as the high-technology filtration element in various medical and
industrial applications.
The
Company evaluates the performance of segments and allocates resources to segments based on operating income before depreciation and amortization. In addition, it evaluates business
segment performance before stock-based compensation and certain non-recurring and other costs.
71
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
18. Segment Information (Continued)
Financial
information relating to the reportable segments is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
Net sales to external customers (by major product group): |
|
|
|
|
|
|
|
|
|
|
Electronics and EDVs |
|
$ |
126,836 |
|
$ |
130,301 |
|
$ |
167,370 |
|
Transportation and industrial |
|
|
323,184 |
|
|
311,859 |
|
|
299,010 |
|
|
|
|
|
|
|
|
|
|
|
|
Energy storage |
|
|
450,020 |
|
|
442,160 |
|
|
466,380 |
|
Healthcare |
|
|
131,258 |
|
|
124,169 |
|
|
114,778 |
|
Filtration and specialty |
|
|
77,080 |
|
|
69,953 |
|
|
67,541 |
|
|
|
|
|
|
|
|
|
|
|
|
Separations media |
|
|
208,338 |
|
|
194,122 |
|
|
182,319 |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
658,358 |
|
$ |
636,282 |
|
$ |
648,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income: |
|
|
|
|
|
|
|
|
|
|
Electronics and EDVs |
|
$ |
15,772 |
|
$ |
19,498 |
|
$ |
47,355 |
|
Transportation and industrial |
|
|
71,316 |
|
|
69,997 |
|
|
66,061 |
|
|
|
|
|
|
|
|
|
|
|
|
Energy storage |
|
|
87,088 |
|
|
89,495 |
|
|
113,416 |
|
Separations media |
|
|
60,859 |
|
|
54,077 |
|
|
52,479 |
|
Corporate and other |
|
|
(32,611 |
) |
|
(30,702 |
) |
|
(24,078 |
) |
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
115,336 |
|
|
112,870 |
|
|
141,817 |
|
Stock-based compensation |
|
|
21,737 |
|
|
20,687 |
|
|
16,278 |
|
Non-recurring and other costs |
|
|
8,799 |
|
|
4,246 |
|
|
1,784 |
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income |
|
|
84,800 |
|
|
87,937 |
|
|
123,755 |
|
Reconciling items: |
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
22,007 |
|
|
39,473 |
|
|
36,049 |
|
Costs related to purchase of 7.5% senior notes |
|
|
24,937 |
|
|
|
|
|
|
|
Write-off of loan acquisition costs and other expenses associated with refinancing of senior credit agreement |
|
|
1,148 |
|
|
|
|
|
2,478 |
|
Foreign currency and other |
|
|
(9,166 |
) |
|
91 |
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes |
|
$ |
45,874 |
|
$ |
48,373 |
|
$ |
85,099 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization: |
|
|
|
|
|
|
|
|
|
|
Electronics and EDVs |
|
$ |
17,479 |
|
$ |
17,607 |
|
$ |
16,137 |
|
Transportation and industrial |
|
|
11,736 |
|
|
11,366 |
|
|
9,708 |
|
|
|
|
|
|
|
|
|
|
|
|
Energy storage |
|
|
29,215 |
|
|
28,973 |
|
|
25,845 |
|
Separations media |
|
|
14,626 |
|
|
14,224 |
|
|
13,437 |
|
Corporate and other |
|
|
11,393 |
|
|
11,326 |
|
|
12,795 |
|
Discontinued operations |
|
|
|
|
|
1,780 |
|
|
3,590 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,234 |
|
$ |
56,303 |
|
$ |
55,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
Electronics and EDVs |
|
$ |
4,771 |
|
$ |
4,138 |
|
$ |
115,845 |
|
Transportation and industrial |
|
|
13,823 |
|
|
13,658 |
|
|
12,200 |
|
|
|
|
|
|
|
|
|
|
|
|
Energy storage |
|
|
18,594 |
|
|
17,796 |
|
|
128,045 |
|
Separations media |
|
|
12,231 |
|
|
9,674 |
|
|
8,282 |
|
Discontinued operations |
|
|
|
|
|
765 |
|
|
784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
30,825 |
|
$ |
28,235 |
|
$ |
137,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
Electronics and EDVs |
|
$ |
355,771 |
|
$ |
374,858 |
|
$ |
420,479 |
|
Transportation and industrial |
|
|
261,842 |
|
|
291,282 |
|
|
262,410 |
|
|
|
|
|
|
|
|
|
|
|
|
Energy storage |
|
|
617,613 |
|
|
666,140 |
|
|
682,889 |
|
Separations media |
|
|
222,094 |
|
|
266,220 |
|
|
246,086 |
|
Corporate and other |
|
|
535,585 |
|
|
621,649 |
|
|
570,334 |
|
Discontinued operations |
|
|
|
|
|
|
|
|
92,268 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,375,292 |
|
$ |
1,554,009 |
|
$ |
1,591,577 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
18. Segment Information (Continued)
Net
sales by geographic location, based on the country from which the product is shipped, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
Net sales to external customers: |
|
|
|
|
|
|
|
|
|
|
United States |
|
$ |
241,470 |
|
$ |
232,402 |
|
$ |
207,169 |
|
Germany |
|
|
186,325 |
|
|
177,928 |
|
|
164,896 |
|
France |
|
|
76,850 |
|
|
75,854 |
|
|
70,903 |
|
China |
|
|
60,238 |
|
|
67,545 |
|
|
86,627 |
|
Other |
|
|
93,475 |
|
|
82,553 |
|
|
119,104 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
658,358 |
|
$ |
636,282 |
|
$ |
648,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment by geographic location were as follows:
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
United States |
|
$ |
294,888 |
|
$ |
303,888 |
|
$ |
316,128 |
|
Germany |
|
|
133,785 |
|
|
153,913 |
|
|
152,943 |
|
Other |
|
|
129,562 |
|
|
137,574 |
|
|
138,395 |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
558,235 |
|
$ |
595,375 |
|
$ |
607,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19. Discontinued Operations
On December 19, 2013, the Company completed the sale of its Microporous business, which consisted of the production facilities in Piney Flats, Tennessee, and Feistritz, Austria,
for $120,000,000. The Company recognized a gain on sale of $35,200,000, net of direct transaction costs and income taxes, of which $35,855,000 was recognized in fiscal 2013. The initial gain was
subsequently reduced by $655,000 in fiscal 2014, as a result of the finalization of the working capital adjustment and income taxes associated with the sale. Microporous was previously included in the
transportation and industrial segment. The results of operations from this business are classified as discontinued operations and are presented separately in the accompanying consolidated statements
of income for all periods presented, summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended |
|
(in thousands)
|
|
January 3, 2015 |
|
December 28, 2013 |
|
December 29, 2012 |
|
Net sales |
|
$ |
|
|
$ |
71,441 |
|
$ |
68,674 |
|
Income (loss) from discontinued operations before income taxes |
|
|
|
|
|
19,525 |
|
|
16,171 |
|
Income (loss) from discontinued operations, net of income taxes |
|
|
|
|
|
12,302 |
|
|
10,877 |
|
73
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
20. Quarterly Results of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data)
|
|
First
Quarter |
|
Second
Quarter |
|
Third
Quarter |
|
Fourth
Quarter |
|
Fiscal year ended January 3, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
161,002 |
|
$ |
166,621 |
|
$ |
165,539 |
|
$ |
165,196 |
|
Gross profit |
|
|
58,516 |
|
|
58,638 |
|
|
53,503 |
|
|
59,366 |
|
Income (loss) from continuing operations |
|
|
8,742 |
|
|
(4,349 |
) |
|
13,425 |
|
|
18,328 |
|
Loss from discontinued operations |
|
|
|
|
|
(328 |
) |
|
(327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
8,742 |
|
|
(4,677 |
) |
|
13,098 |
|
|
18,328 |
|
Less: Net income attributable to noncontrolling interest |
|
|
345 |
|
|
208 |
|
|
409 |
|
|
621 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Polypore International, Inc. |
|
$ |
8,397 |
|
$ |
(4,885 |
) |
$ |
12,689 |
|
$ |
17,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Polypore International, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
$ |
8,397 |
|
$ |
(4,557 |
) |
$ |
13,016 |
|
$ |
17,707 |
|
Loss from discontinued operations |
|
|
|
|
|
(328 |
) |
|
(327 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Polypore International, Inc. |
|
$ |
8,397 |
|
$ |
(4,885 |
) |
$ |
12,689 |
|
$ |
17,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Polypore International, Inc. per sharebasic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.19 |
|
$ |
(0.10 |
) |
$ |
0.29 |
|
$ |
0.40 |
|
Discontinued operations |
|
|
|
|
|
(0.01 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Polypore International, Inc. per share |
|
$ |
0.19 |
|
$ |
(0.11 |
) |
$ |
0.28 |
|
$ |
0.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Polypore International, Inc. per sharediluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.18 |
|
$ |
(0.10 |
) |
$ |
0.29 |
|
$ |
0.39 |
|
Discontinued operations |
|
|
|
|
|
(0.01 |
) |
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Polypore International, Inc. per share |
|
$ |
0.18 |
|
$ |
(0.11 |
) |
$ |
0.28 |
|
$ |
0.39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year ended December 28, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
145,941 |
|
$ |
168,897 |
|
$ |
152,020 |
|
$ |
169,424 |
|
Gross profit |
|
|
49,195 |
|
|
60,426 |
|
|
47,631 |
|
|
63,477 |
|
Income from continuing operations |
|
|
5,827 |
|
|
12,727 |
|
|
4,745 |
|
|
10,785 |
|
Income from discontinued operations, net of income taxes |
|
|
3,364 |
|
|
2,944 |
|
|
2,514 |
|
|
3,480 |
|
Gain on sale of discontinued operations, net of income taxes |
|
|
|
|
|
|
|
|
|
|
|
35,855 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
3,364 |
|
|
2,944 |
|
|
2,514 |
|
|
39,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
9,191 |
|
|
15,671 |
|
|
7,259 |
|
|
50,120 |
|
Less: Net income (loss) attributable to noncontrolling interest |
|
|
170 |
|
|
231 |
|
|
240 |
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. |
|
$ |
9,021 |
|
$ |
15,440 |
|
$ |
7,019 |
|
$ |
50,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
$ |
5,657 |
|
$ |
12,496 |
|
$ |
4,505 |
|
$ |
10,796 |
|
Income from discontinued operations |
|
|
3,364 |
|
|
2,944 |
|
|
2,514 |
|
|
39,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. |
|
$ |
9,021 |
|
$ |
15,440 |
|
$ |
7,019 |
|
$ |
50,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per sharebasic: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.12 |
|
$ |
0.27 |
|
$ |
0.10 |
|
$ |
0.24 |
|
Discontinued operations |
|
|
0.07 |
|
|
0.06 |
|
|
0.06 |
|
|
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per share |
|
$ |
0.19 |
|
$ |
0.33 |
|
$ |
0.16 |
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per sharediluted: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
0.12 |
|
$ |
0.27 |
|
$ |
0.10 |
|
$ |
0.24 |
|
Discontinued operations |
|
|
0.07 |
|
|
0.06 |
|
|
0.05 |
|
|
0.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Polypore International, Inc. per share |
|
$ |
0.19 |
|
$ |
0.33 |
|
$ |
0.15 |
|
$ |
1.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21. Subsequent Events
On February 23, 2015, the Company entered into integrated transactions with 3M Company ("3M"), Asahi Kasei Corporation ("Asahi Kasei") and EMS Holdings Corporation ("EMS"), an
affiliate of Asahi Kasei, pursuant to which the Company will sell its separations media business to 3M and, immediately thereafter, will be merged with EMS. In connection with the integrated
transactions,
74
Table of Contents
Polypore International, Inc.
Notes to consolidated financial statements (Continued)
21. Subsequent Events (Continued)
at
the time of the merger, each share of the Company's common stock (other than any (a) dissenting shares, (b) shares owned by Asahi Kasei and EMS, the Company or any of their respective
subsidiaries (which will be cancelled)) issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive $60.50 in cash without interest (the
"Merger Consideration"), payable to the holder of such share. Each option to purchase shares of the Company's common stock that is outstanding immediately prior to the effective time of the merger
will immediately accelerate and vest and be cancelled and converted into the right to receive a payment in cash of an amount, subject to the amount of any required tax withholding, equal to the
product of the total number of shares of the Company's common stock subject to such cancelled option and the excess, if any, of the Merger Consideration over the applicable exercise price of the
option; provided that any such option with respect to which the exercise price per share subject to the option is equal to or greater than the Merger Consideration shall be cancelled in exchange for
no consideration. Each restricted share of the Company's common stock that is outstanding immediately prior to the effective time of the merger will immediately accelerate and vest and be cancelled
and converted into the right to receive a payment in cash of an amount, subject to the amount of any tax withholding, equal to the Merger Consideration, without interest, treating such restricted
share in the same manner as the other shares of the Company's common stock.
The
integrated transactions are subject to customary closing conditions, including regulatory and stockholder approval. Furthermore, the Company has the right to terminate the integrated
transactions
if it enters into a definitive agreement for an alternative transaction that constitutes a "Superior Proposal" (as defined in the applicable agreements), provided the Company complies with certain
notice and other requirements, including paying Asahi Kasei and 3M a termination fee equal to $39,000,000 and $16,750,000, respectively. Certain other actions by the Company causing termination of the
integrated transactions could result in it being required to pay the foregoing termination fees to Asahi Kasei and 3M.
The
consummation of the integrated transactions is subject to certain conditions, including, among others: (1) adoption of the merger agreement by the stockholders of the Company,
(2) expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other consents and approvals required under
applicable antitrust laws, (3) the absence of any law or order prohibiting the consummation of the integrated transactions, (4) the absence of certain governmental actions,
(5) the absence of a material adverse effect on either the separations media business or the remaining business of the Company, (6) subject to certain exceptions, the accuracy of
representations and warranties of the Company, Asahi Kasei, EMS and 3M and (7) the performance or compliance by the Company, Asahi Kasei, EMS and 3M with their respective covenants and
agreements. There are no assurances that the proposed integrated transactions will be consummated on any given timetable, or at all.
On
March 3, 2015, a putative class action lawsuit captioned Lax v. Toth, et al., Case No. 10741 (Del. Ch.) (the "Action") was filed in the Court of Chancery of the State of
Delaware against the Company, the current members of the Board of Directors, Asahi Kasei and EMS. The Action, filed by a purported shareholder of the Company's common stock, challenges the
contemplated integrated transactions with 3M, Asahi Kasei and EMS and alleges, among other things, that the members of the Board of Directors breached their fiduciary duties to the Company's
stockholders by engaging in a flawed sales process, agreeing to a transaction price that does not adequately compensate the Company, and agreeing to certain unfair deal protection terms. The Action
also alleges that Asahi Kasei and EMS aided and abetted the alleged breaches of fiduciary duties. The Action seeks various remedies, including declaratory and injunctive relief, as well as damages and
costs.
75
Table of Contents
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) or
15d-15(e) promulgated under the Exchange Act) was performed under the supervision, and with the participation of, the Company's management, including the Chief Executive Officer and Chief Financial
Officer. The Company's disclosure controls are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Based upon our evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of January 3, 2015 to ensure that information required to be disclosed in the reports that we file under the Exchange Act
is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in
Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act). Management has conducted an assessment of the effectiveness of the Company's internal control over financial reporting using the
criteria in Internal ControlIntegrated Framework (1992), issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with United States generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Based
on its assessment, management has concluded that the Company maintained effective internal control over financial reporting as of January 3, 2015, based on criteria in Internal ControlIntegrated Framework
(1992) issued by the COSO.
The
effectiveness of the Company's internal control over financial reporting as of January 3, 2015 has been audited by KPMG LLP, an independent registered public accounting
firm. KPMG LLP has issued an attestation report to the Company's internal control over financial reporting, which appears in Item 8
of Part II of this Annual Report on Form 10-K under the heading "Reports of Independent Registered Public Accounting Firms."
Changes in Internal Control over Financial Reporting
During the Company's fourth fiscal quarter of fiscal year 2014, there has been no change in the Company's internal control over
financial reporting (as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
76
Table of Contents
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this Item is incorporated by reference from the information contained in our Proxy Statement to be filed
with the Securities and Exchange Commission in connection with our 2015 Annual Meeting of Stockholders.
Members
of our Board of Directors and all of our employees, including our Chief Executive Officer and Chief Financial Officer, are required to abide by our Code of Business Conduct and
Ethics to ensure that our business is conducted in a consistently legal and ethical manner. The full text of the Code of Business Conduct and Ethics is published on our website at http://investor.polypore.net/governance.cfm. We will disclose any future amendments to, or waivers from,
these ethical policies and standards for senior officers and directors on our website within four business days following the date of such amendment or waiver.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the information contained in our Proxy Statement to be filed
with the Securities and Exchange Commission in connection with our 2015 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference from the information contained in our Proxy Statement to be filed
with the Securities and Exchange Commission in connection with our 2015 Annual Meeting of Stockholders.
The
following table summarizes information about the options under our equity compensation plans as of January 3, 2015.
|
|
|
|
|
|
|
|
|
|
|
Plan Category
|
|
Number of
securities to be
issued upon
exercise of
outstanding
options
(a) |
|
Weighted-average
exercise price
of outstanding
options
(b) |
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a))
(c) |
|
Equity compensation plans approved by security holders(1) |
|
|
3,253,425 |
|
$ |
41.00 |
|
|
1,826,654 |
|
Equity compensation plans not approved by security holders(2) |
|
|
5 |
|
$ |
5.24 |
|
|
|
|
- (1)
- Includes
options to purchase shares of our common stock under our amended and restated 2007 Stock Incentive Plan, which was approved by security holders on
May 13, 2014.
- (2)
- Includes
options to purchase shares of our common stock under our 2006 Stock Option Plan, which was adopted prior to our initial public offering and was
approved by our Board of Directors. Options granted under this Plan have a 10-year term and are fully vested.
77
Table of Contents
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated by reference from the information contained in our Proxy Statement to be filed
with the Securities and Exchange Commission in connection with our 2015 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference from the information contained in our Proxy Statement to be filed
with the Securities and Exchange Commission in connection with our 2015 Annual Meeting of Stockholders.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) Documents
filed as part of this report:
1. Financial Statements. The following items, including Consolidated Financial Statements of the Company, are
set forth in Item 8 of this Annual Report on Form 10-K:
-
- Reports of Independent Registered Public Accounting Firms
-
- Consolidated Balance Sheets as of January 3, 2015 and December 28, 2013
-
- Consolidated Statements of Income for the years ended January 3, 2015, December 28, 2013 and
December 29, 2012
-
- Consolidated Statements of Comprehensive Income (Loss) for the years ended January 3, 2015, December 28,
2013 and December 29, 2012
-
- Consolidated Statements of Shareholders' Equity for the years ended January 3, 2015, December 28, 2013 and
December 29, 2012
-
- Consolidated Statements of Cash Flows for the years ended January 3, 2015, December 28, 2013 and
December 29, 2012
-
- Notes to Consolidated Financial Statements
2. Financial Statement Schedules. The following schedule is set forth on page S-1 of this Annual Report
on Form 10-K.
-
- Valuation and Qualifying Accounts for the years ended January 3, 2015, December 28, 2013 and
December 29, 2012
Information
required by other schedules has either been incorporated in the consolidated financial statements and accompanying notes or is not applicable to us.
78
Table of Contents
|
|
|
|
Exhibit
Number |
|
Exhibit Description |
|
3.1 |
|
Form of Amended and Restated Certificate of Incorporation of Polypore International, Inc. (incorporated by reference to Exhibit 3.1 to Amendment No. 4 to the Company's Registration Statement on
Form S-1 filed on June 15, 2007 (Commission File No. 333-141273)) |
|
|
|
|
|
3.2 |
|
Form of Second Amended and Restated Bylaws of Polypore International, Inc., adopted on October 30, 2012 (incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed on
November 1, 2012) |
|
|
|
|
|
3.3 |
|
Certificate of Amendment to the Certificate of Incorporation of Polypore International, Inc. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on June 29,
2007) |
|
|
|
|
|
10.1 |
|
Tax Sharing Agreement, dated as of May 13, 2004, by and among Polypore International, Inc., PP Holding Corporation and Polypore, Inc. (incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q filed on May 9, 2013) |
|
|
|
|
|
10.2 |
* |
Form of Director and Officer Indemnification Agreement entered into between Polypore, Inc. and certain employees of Polypore, Inc. (incorporated by reference to Exhibit 10.12 to the Company's Registration
Statement on Form S-4 filed on April 18, 2005 (Commission File No. 333-124142)) |
|
|
|
|
|
10.3 |
* |
Amended and Restated Employment Agreement, dated as of April 28, 2008, by and between Polypore International, Inc. and Robert B. Toth (incorporated by reference to Exhibit 10.1 to the Company's Current
Report on Form 8-K filed on May 1, 2008) |
|
|
|
|
|
10.4 |
* |
Amendment to Employment Agreement, dated as of December 18, 2008, by and between Polypore International, Inc. and Robert B. Toth (incorporated by reference to Exhibit 10.8 to the Company's Annual Report on
Form 10-K filed on March 12, 2009) |
|
|
|
|
|
10.5 |
* |
Employment Agreement, dated as of April 7, 2006, by and between Polypore, Inc. and Mitchell J. Pulwer (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on
August 15, 2006) |
|
|
|
|
|
10.6 |
* |
Amended Employment Agreement, dated as of December 18, 2008, by and between Polypore International, Inc. and Mitchell J. Pulwer (incorporated by reference to Exhibit 10.10 to the Company's Annual Report on
Form 10-K filed on March 12, 2009) |
|
|
|
|
|
10.7 |
* |
Employment Agreement, dated as of April 4, 2006, by and between Membrana GmbH, an indirect subsidiary of Polypore International, Inc. and Josef Sauer (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q filed on August 15, 2006) |
|
|
|
|
|
10.8 |
* |
Polypore International, Inc. 2006 Stock Option Plan (incorporated by reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q filed on August 15, 2006) |
|
|
|
|
|
10.9 |
* |
Form of Executive Severance Plan Policy (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K filed on March 12, 2009) |
|
|
|
|
|
10.10 |
* |
Polypore International, Inc. 2007 Stock Incentive Plan (Amended and Restated Effective as of May 13, 2014) (incorporated by reference to Appendix A to the Company's definitive proxy statement filed on
April 7, 2014) |
|
|
|
|
79
Table of Contents
|
|
|
|
Exhibit
Number |
|
Exhibit Description |
|
10.11 |
* |
Form of Restricted Stock Grant Notice and Agreement under the Polypore International, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 99.2 to the Company's Registration Statement on
Form S-8 filed on May 13, 2011 (Commission File No. 333-174172)) |
|
|
|
|
|
10.12 |
* |
Form of Option Grant Notice and Agreement under the Polypore International, Inc. 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K filed
February 26, 2013) |
|
|
|
|
|
10.13 |
* |
Employment Agreement, dated as of April 1, 2011, by and among Daramic LLC and certain of its affiliates, Polypore International, Inc. and Pierre Hauswald (incorporated by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q filed on May 6, 2011) |
|
|
|
|
|
10.14 |
* |
Employment Contract, dated as of April 1, 2011, by and between Daramic SAS and Pierre Hauswald (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on May 6,
2011) |
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|
|
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10.15 |
* |
Agreement Organizing the Extension of the Expatriation of Mr. Pierre Hauswald in P.R. China with a Local Employment Contract, dated April 1, 2011, between Daramic SAS and Pierre Hauswald (incorporated by
reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q filed on May 6, 2011) |
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10.16 |
|
Amended and Restated Credit Agreement, dated as of April 8, 2014, among Polypore International, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and an L/C Issuer; and Wells Fargo Bank,
National Association, as Syndication Agent; Compass Bank, Fifth Third Bank, HSBC Bank USA, National Association, PNC Bank, National Association, RBS Citizens Bank, N.A., and Regions Bank as Co-Documentation Agents; and Bank of America Merrill Lynch
and Wells Fargo Securities, LLC as Joint Lead Arrangers and Joint Book Managers (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 8, 2014) |
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10.17 |
* |
Polypore International, Inc. Deferred Savings Plan (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-8 filed on December 28, 2012 (Commission File
No. 333-185741)) |
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10.18 |
* |
Form of Change in Control Agreement entered into between Polypore International, Inc. and certain senior executives (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
filed on May 9, 2013) |
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10.19 |
|
Stock Purchase Agreement, dated as of September 27, 2013, by and among Daramic Acquisition Corp., Polypore BV, Polypore International, Inc. (solely for purposes of Section 11.18 thereunder), Seven Mile
Capital Partners Top, Inc. and SASR Zweiundfünfzigste Beteiligungsverwaltung GmbH (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed on October 1, 2013) |
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21.1 |
|
Subsidiaries of Polypore International, Inc. |
|
23.1 |
|
Consent of KPMG LLP, Independent Registered Public Accounting Firm |
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23.2 |
|
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm |
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31.1 |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
80
Table of Contents
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Exhibit
Number |
|
Exhibit Description |
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|
|
32.1 |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
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|
|
32.2 |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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|
101 |
|
Interactive Data Files |
- *
- Management
contract or compensatory plan or arrangement
81
Table of Contents
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
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|
POLYPORE INTERNATIONAL, INC. |
|
|
By: |
|
/s/ ROBERT B. TOTH
Robert B. Toth President and Chief Executive Officer |
Date:
March 3, 2015
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
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|
|
/s/ ROBERT B. TOTH
Robert B. Toth |
|
Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer) |
|
March 3, 2015 |
/s/ LYNN AMOS
Lynn Amos |
|
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
|
March 3, 2015 |
/s/ MICHAEL GRAFF
Michael Graff |
|
Lead Independent Director of the Board |
|
March 3, 2015 |
/s/ CHARLES L. COONEY
Charles L. Cooney |
|
Director |
|
March 3, 2015 |
/s/ WILLIAM DRIES
William Dries |
|
Director |
|
March 3, 2015 |
/s/ FREDERICK C. FLYNN, JR.
Frederick C. Flynn, Jr. |
|
Director |
|
March 3, 2015 |
/s/ MICHAEL CHESSER
Michael Chesser |
|
Director |
|
March 3, 2015 |
/s/ CHRISTOPHER J. KEARNEY
Christopher J. Kearney |
|
Director |
|
March 3, 2015 |
/s/ DAVID A. ROBERTS
David A. Roberts |
|
Director |
|
March 3, 2015 |
82
Table of Contents
Schedule II
Polypore International, Inc.
Financial statement scheduleValuation and qualifying accounts
For the years ended January 3, 2015, December 28, 2013 and December 29, 2012:
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|
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|
Additions |
|
|
|
|
|
(in thousands)
|
|
Balance at
beginning
of year |
|
Charged to
costs and
expenses |
|
Charged to
other
accounts |
|
Deductions |
|
Balance at
end of year |
|
Year ended January 3, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
3,262 |
|
$ |
536 |
|
$ |
(216) |
(1) |
$ |
(1,188) |
(2) |
$ |
2,394 |
|
Valuation allowance for deferred tax asset |
|
|
2,225 |
|
|
9,076 |
(3) |
|
7,500 |
(3) |
|
|
|
|
18,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5,487 |
|
$ |
9,612 |
|
$ |
7,284 |
|
$ |
(1,188 |
) |
$ |
21,195 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Year ended December 28, 2013: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
2,995 |
|
$ |
732 |
|
$ |
47 |
(1) |
$ |
(512) |
(2) |
$ |
3,262 |
|
Valuation allowance for deferred tax asset |
|
|
3,797 |
|
|
(1,572 |
) |
|
|
|
|
|
|
|
2,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
6,792 |
|
$ |
(840 |
) |
$ |
47 |
|
$ |
(512 |
) |
$ |
5,487 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 29, 2012: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
2,648 |
|
$ |
565 |
|
$ |
79 |
(1) |
$ |
(297) |
(2) |
$ |
2,995 |
|
Valuation allowance for deferred tax asset |
|
|
9,580 |
|
|
(158 |
) |
|
(5,625) |
(4) |
|
|
|
|
3,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
12,228 |
|
$ |
407 |
|
$ |
(5,546 |
) |
$ |
(297 |
) |
$ |
6,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
- (1)
- Foreign
currency translation adjustment.
- (2)
- Charge-offs
net of recoveries.
- (3)
- Increase
in valuation allowance due to uncertain realization of deferred tax assets recognized during 2014 and related to foreign tax credits and foreign
net operating loss carryforwards.
- (4)
- Reduction
in valuation allowance as the benefit of certain net operating loss carryforwards that were previously fully offset by a valuation allowance will
not be realized.
S-1
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Exhibit 21.1
SUBSIDIARIES OF POLYPORE INTERNATIONAL, INC.
|
|
|
Name of Subsidiary
|
|
State or jurisdiction of
Incorporation or Organization |
Celgard Acquisition Corporation |
|
Cayman Islands |
Celgard Korea, Limited |
|
South Korea |
Celgard, LLC |
|
Delaware |
Daramic Battery Separator India Private Limited |
|
India |
Daramic Tianjin PE Separator Co., Ltd. |
|
China |
Daramic (Thailand) Limited |
|
Thailand |
Daramic Acquisition Corporation |
|
Delaware |
Daramic Asia, Inc. |
|
Delaware |
Daramic Holding S.A.S. |
|
France |
Daramic International, Inc. |
|
Delaware |
Daramic S.A.S. |
|
France |
Daramic Separadores de Baterias Ltda. |
|
Brazil |
Daramic, LLC |
|
Delaware |
Daramic Xiangyang Battery Separator Co., Ltd. |
|
China |
Membrana GmbH |
|
Germany |
Polypore Acquisition GmbH |
|
Germany |
Polypore B.V. |
|
Netherlands |
Polypore C.V. |
|
Netherlands |
Polypore Europe Services GmbH & Co. KG |
|
Germany |
Polypore Hong Kong, Limited |
|
Hong Kong |
Polypore K.K. |
|
Japan |
Polypore (Shanghai) Membrane Products Co., Ltd. |
|
China |
Polypore Verwaltungs GmbH |
|
Germany |
Separatorenerzeugung GmbH |
|
Austria |
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SUBSIDIARIES OF POLYPORE INTERNATIONAL, INC.
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Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors
Polypore International, Inc.:
We
consent to the incorporation by reference in the registration statements (Nos. 333-144846, 333-174172, 333-185741 and 333-196182) on Form S-8 of Polypore
International, Inc. of our reports dated March 4, 2015, with respect to the consolidated balance sheet of Polypore International, Inc. as of January 3, 2015, and the
related consolidated statements of income, comprehensive income (loss), shareholders' equity, and cash flows for the year ended January 3, 2015, and all related financial statement schedules,
and the effectiveness of internal control over financial reporting as of January 3, 2015, which reports appear in the January 3, 2015 annual report on Form 10-K of Polypore
International, Inc.
Charlotte,
NC
March 4, 2015
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the registration statements (Nos. 333-144846, 333-174172, 333-185741 and
333-196182) on Form S-8 of Polypore lnternational, lnc. of our report dated February 25, 2014, with respect to the consolidated financial statements and schedule of Polypore
lnternational, Inc. as of December 28, 2013, and for the two years then ended included in this Annual Report (Form 10-K) for the year ended January 3, 2015.
Charlotte,
North Carolina
March 3, 2015
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CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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Exhibit 31.1
Polypore International, Inc.
Chief Executive Officer Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002
I,
Robert B. Toth, certify that:
- 1.
- I
have reviewed this Annual Report on Form 10-K of Polypore International, Inc.;
- 2.
- Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3.
- Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4.
- The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
- (a)
- Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
- (b)
- Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
- (c)
- Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
- (d)
- Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
- 5.
- The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
- (a)
- All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
- (b)
- Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
|
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|
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|
|
By: |
|
/s/ ROBERT B. TOTH
Robert B. Toth President and Chief Executive Officer |
Date:
March 4, 2015
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Exhibit 31.2
Polypore International, Inc.
Chief Financial Officer Certification
Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002
I,
Lynn Amos, certify that:
- 1.
- I
have reviewed this Annual Report on Form 10-K of Polypore International, Inc.;
- 2.
- Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
- 3.
- Based
on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
- 4.
- The
registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
- (a)
- Designed
such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
- (b)
- Designed
such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
- (c)
- Evaluated
the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
- (d)
- Disclosed
in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over
financial reporting; and
- 5.
- The
registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
- (a)
- All
significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and report financial information; and
- (b)
- Any
fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over
financial reporting.
|
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|
|
|
|
By: |
|
/s/ LYNN AMOS
Lynn Amos Chief Financial Officer |
Date:
March 4, 2015
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Polypore International, Inc. Chief Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002
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Exhibit 32.1
Polypore International, Inc.
Chief Executive Officer Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Polypore International, Inc. (the "Company") for the year ended
January 3, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Robert B. Toth, President and Chief Executive Officer of the Company,
does hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:
- 1.
- The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
- 2.
- The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the
dates and for the periods expressed in the Report.
|
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|
|
By: |
|
/s/ ROBERT B. TOTH
Robert B. Toth President and Chief Executive Officer |
Date:
March 4, 2015
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Polypore International, Inc. Chief Executive Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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Exhibit 32.2
Polypore International, Inc.
Chief Financial Officer Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K of Polypore International, Inc. (the "Company") for the year ended
January 3, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned, Lynn Amos, Chief Financial Officer of the Company, does hereby certify,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to such officer's knowledge:
- 1.
- The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
- 2.
- The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the
dates and for the periods expressed in the Report.
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|
By: |
|
/s/ LYNN AMOS
Lynn Amos Chief Financial Officer |
Date:
March 4, 2015
QuickLinks
Polypore International, Inc. Chief Financial Officer Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002