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EX-31.2 - EXHIBIT 31.2 - AVINTIV Specialty Materials Inc.ex312-sox302.htm
EX-99.1 - EXHIBIT 99.1 - AVINTIV Specialty Materials Inc.ex991-section13rq12015.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-Q

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
Or
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
EXCHANGE ACT OF 1934
For the transition period from _____ to _____                    
Commission file number: 001-14330
_____________________________________________ 
POLYMER GROUP, INC.
(Exact name of registrant as specified in its charter)
_____________________________________________ 

Delaware
 
57-1003983
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
9335 Harris Corners Parkway, Suite 300
Charlotte, North Carolina 28269
 
(704) 697-5100
(Address of principal executive offices)
 
(Registrant's telephone number, including area code)
____________________________________________ 

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.    Yes  ¨    No  þ *

* The registrant is a voluntary filer of reports required to be filed by certain companies under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed all reports that would have been required to have been filed by the registrant during the preceding 12 months had it been subject to such filing requirements during the entirety of such period.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).    Yes  þ    No  ¨

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. (Check one):
Large accelerated filer
 
¨
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
þ  (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  þ
Number of common shares outstanding at May 8, 2015: 1,000.



POLYMER GROUP, INC.
FORM 10-Q

INDEX
 


2


PART I — FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS
POLYMER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousands, except share data
 
March 31,
2015
 
December 31,
2014
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
160,601

 
$
178,491

Accounts receivable, net
 
251,881

 
247,727

Inventories, net
 
157,016

 
173,701

Deferred income taxes
 
15,958

 
16,776

Other current assets
 
79,375

 
89,121

Total current assets
 
664,831

 
705,816

Property, plant and equipment, net of accumulated depreciation of $241,524 and $230,681, respectively
 
807,244

 
870,230

Goodwill
 
201,347

 
220,554

Intangible assets, net
 
171,976

 
178,911

Deferred income taxes
 
20,073

 
18,231

Other noncurrent assets
 
36,290

 
41,431

Total assets
 
$
1,901,761

 
$
2,035,173

LIABILITIES AND EQUITY
 
 
 
Current liabilities:
 
 
 
 
Short-term borrowings
 
$
25,742

 
$
17,665

Accounts payable and accrued liabilities
 
281,908

 
321,313

Income taxes payable
 
7,719

 
9,636

Deferred income taxes
 
10,899

 
10,217

Current portion of long-term debt
 
23,394

 
31,892

Total current liabilities
 
349,662

 
390,723

Long-term debt
 
1,426,371

 
1,433,283

Deferred purchase price
 
35,998

 
42,440

Deferred income taxes
 
37,568

 
36,223

Other noncurrent liabilities
 
64,733

 
67,124

Total liabilities
 
1,914,332

 
1,969,793

Commitments and contingencies
 

 

Redeemable noncontrolling interest
 
76,584

 
89,181

Shareholders’ equity:
 
 
 
 
Common stock — 1,000 shares issued and outstanding
 

 

Additional paid-in capital
 
280,494

 
277,248

Accumulated deficit
 
(282,397
)
 
(242,439
)
Accumulated other comprehensive income (loss)
 
(87,842
)
 
(59,164
)
Total Polymer Group, Inc. shareholders' equity (deficit)
 
(89,745
)
 
(24,355
)
Noncontrolling interest
 
590

 
554

Total equity (deficit)
 
(89,155
)
 
(23,801
)
Total liabilities and equity
$
1,901,761

 
$
2,035,173

See accompanying Notes to Consolidated Financial Statements.

3


POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Net sales
$
461,238

 
$
422,584

Cost of goods sold
(355,820
)
 
(348,119
)
Gross profit
105,418

 
74,465

Selling, general and administrative expenses
(64,989
)
 
(55,534
)
Special charges, net
(6,022
)
 
(8,711
)
Other operating, net
1,423

 
(1,069
)
Operating income (loss)
35,830

 
9,151

Other income (expense):
 
 
 
Interest expense
(27,633
)
 
(17,906
)
Foreign currency and other, net
(43,923
)
 
4,959

Income (loss) before income taxes
(35,726
)
 
(3,796
)
Income tax (provision) benefit
(4,548
)
 
(5,700
)
Net income (loss)
(40,274
)
 
(9,496
)
Less: Earnings attributable to noncontrolling interest
and redeemable noncontrolling interest
(316
)
 
(16
)
Net income (loss) attributable to Polymer Group, Inc.
$
(39,958
)
 
$
(9,480
)
 
 
 
 
Other comprehensive income (loss):
 
 
 
Currency translation, net of tax
$
(38,139
)
 
$
1,713

Employee postretirement benefits, net of tax

 

Other comprehensive income (loss), net of tax
(38,139
)
 
1,713

Comprehensive income (loss)
(78,413
)
 
(7,783
)
Less: Comprehensive income (loss) attributable to noncontrolling
interest and redeemable noncontrolling interest
(9,777
)
 
10

Comprehensive income (loss) attributable to Polymer Group, Inc.
$
(68,636
)
 
$
(7,793
)
See accompanying Notes to Consolidated Financial Statements.


4


POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(UNAUDITED)
 
In thousands
Polymer Group, Inc. Shareholders' Equity
 
 
 
 
Common Stock
 
Additional
Paid-in Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total Polymer Group, Inc. Shareholders' Equity
 
Noncontrolling Interest
 
Total Equity
Shares
 
Amount
Balance - December 31, 2014
1

 
$

 
$
277,248

 
$
(242,439
)
 
$
(59,164
)
 
$
(24,355
)
 
$
554

 
$
(23,801
)
Net income (loss)

 

 

 
(39,958
)
 

 
(39,958
)
 
29

 
(39,929
)
Periodic adjustment to redemption value

 

 
2,784

 

 

 
2,784

 

 
2,784

Share-based compensation

 

 
462

 

 

 
462

 

 
462

Currency translation, net of tax

 

 

 

 
(28,678
)
 
(28,678
)
 
7

 
(28,671
)
Balance - March 31, 2015
1

 
$

 
$
280,494

 
$
(282,397
)
 
$
(87,842
)
 
$
(89,745
)
 
$
590

 
$
(89,155
)
See accompanying Notes to Consolidated Financial Statements.

5


POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
In thousands
 
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Operating activities:
 
 
 
 
Net income (loss)
 
$
(40,274
)
 
$
(9,496
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
 
Deferred income taxes
 

 
1,623

Depreciation and amortization expense
 
30,255

 
24,606

Inventory step-up
 

 
2,537

Accretion of deferred purchase price
 
903

 

(Gain) loss on financial instruments
 
1,844

 
(10,756
)
(Gain) loss on sale of assets, net
 
(431
)
 
114

Non-cash compensation
 
462

 
561

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(18,073
)
 
(20,554
)
Inventories
 
7,566

 
388

Other current assets
 
3,440

 
(6,572
)
Accounts payable and accrued liabilities
 
(24,212
)
 
(2,799
)
Other, net
 
37,991

 
5,759

Net cash provided by (used in) operating activities
 
(529
)
 
(14,589
)
Investing activities:
 
 
 
 
Purchases of property, plant and equipment
 
(11,010
)
 
(14,115
)
Proceeds from sale of assets
 
532

 

Acquisition of intangibles and other
 
(113
)
 
(57
)
Net cash provided by (used in) investing activities
 
(10,591
)
 
(14,172
)
Financing activities:
 
 
 
 
Proceeds from long-term borrowings
 
15

 
3,152

Proceeds from short-term borrowings
 
18,974

 
7,606

Repayment of long-term borrowings
 
(11,785
)
 
(5,960
)
Repayment of short-term borrowings
 
(8,948
)
 
(1,949
)
Net cash provided by (used in) financing activities
 
(1,744
)
 
2,849

Effect of exchange rate changes on cash
 
(5,026
)
 
(512
)
Net change in cash and cash equivalents
 
(17,890
)
 
(26,424
)
Cash and cash equivalents at beginning of period
 
178,491

 
86,064

Cash and cash equivalents at end of period
 
$
160,601

 
$
59,640

 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
Cash payments for interest
 
$
31,725

 
$
27,434

Cash payments (receipts) for taxes, net
 
$
2,666

 
$
2,344

See accompanying Notes to Consolidated Financial Statements.

6


POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1.  Description of Business
Polymer Group, Inc. (“Polymer” or “PGI”), a Delaware corporation, and its consolidated subsidiaries (the “Company”) is a leading global innovator and manufacturer of specialty materials for use in a broad range of products that make the world safer, cleaner and healthier. The Company has one of the largest global platforms in the industry, with a total of 22 manufacturing and converting facilities located in 14 countries throughout the world. The Company operates through four reportable segments: North America, South America, Europe and Asia, with the main sources of revenue being the sales of primary and intermediate products to consumer and industrial markets.
Note 2.  Basis of Presentation
The accompanying consolidated financial statements reflect the consolidated operations of the Company and have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) as defined by the Financial Accounting Standards Board (“FASB”) within the FASB Accounting Standards Codification (“ASC”). In the opinion of management, the accompanying consolidated financial statements contain all adjustments, which include normal recurring adjustments, necessary to present fairly the consolidated results for the periods presented. Certain reclassifications of amounts reported in prior periods have been made to conform with the current period presentation.
On January 28, 2011, pursuant to an Agreement and Plan of Merger, dated as of October 4, 2010, the Company was acquired by affiliates of Blackstone Capital Partners V L.P. (“Blackstone”), along with certain members of the Company's management (the "Merger"), for an aggregate purchase price valued at $403.5 million, excluding the repayment of pre-acquisition indebtedness. Under the guidance provided by the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Topic 5J, “New Basis of Accounting Required in Certain Circumstances,” push-down accounting is required when such transactions result in an entity becoming substantially wholly-owned. Therefore, the basis in shares of common stock of the Company has been pushed down to the Company from PGI Specialty Materials, Inc., a Delaware corporation ("PGI-SMI") that owns 100% of the issued and outstanding common stock of Scorpio Acquisition Corporation, a Delaware corporation ("Parent") that owns 100% of the issued and outstanding common stock of the Company.
On December 11, 2014, the Board of Directors of the Company approved a change in the Company's fiscal year-end to a calendar year ending on December 31, effective with the fiscal year 2014. The change was made on a prospective basis and prior periods were not adjusted. Historically, the Company's fiscal years were based on a 52/53 week period ending on the Saturday closest to each December 31, such that each quarterly period was 13 weeks in length. Under the guidance provided by the SEC, the change was not deemed a change in fiscal year for purposes of reporting.
Note 3. Recent Accounting Pronouncements
The FASB ASC is the sole source of authoritative GAAP other than SEC issued rules and regulations that apply only to SEC registrants. The FASB issues an Accounting Standard Update ("ASU") to communicate changes to the codification. The Company considers the applicability and impact of all ASU's. The followings are those ASU's that are relevant to the Company.
In April 2015, the FASB issued ASU No. 2015-03, “Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (ASU 2015-03) which requires an entity to present debt issuance costs related to a recognized debt liability in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. ASU 2015-03 is effective on a retrospective basis for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years beginning after December 15, 2016. The adoption of this guidance concerns presentation only and will not have any impact on the Company’s financial results.
In January 2015, the FASB issued ASU No. 2015-01, "Income Statement - Extraordinary and Unusual Items" ("ASU 2015-01") which eliminates from GAAP the concept of extraordinary items. Under the new guidance, an event or transaction that meets the criteria for extraordinary classification is segregated from the results of ordinary operations and shown as a separate item in the income statement, net of tax. In addition, certain other related disclosures are required. ASU 2015-01 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company does not expect that the adoption of this guidance will have a material effect on its financial results.

7


In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern” (“ASU 2014-15”). The new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Substantial doubt is defined as an indication that it is probable that an entity will be unable to meet its obligations as they become due within one year after the date that financial statements are issued. Management’s evaluation should be based on relevant conditions or events, considered in the aggregate, that are known and reasonably knowable at the date that the financial statements are issued. ASU 2014-15 is effective prospectively for reporting periods beginning after December 15, 2016, with early adoption permitted. The Company does not expect that the adoption of this guidance will have a material effect on its financial results.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which creates a comprehensive, five-step model for revenue recognition that requires a company to recognize revenue to depict the transfer of promised goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. Under the new guidance, a company will be required to use more judgment and make more estimates when considering contract terms as well as relevant facts and circumstances when identifying performance obligations, estimating the amount of variable consideration in the transaction price and allocating the transaction price to each separate performance obligation. In addition, ASU 2014-09 enhances disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively and improves guidance for multiple-element arrangements. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016 and allows for either full retrospective or modified retrospective adoption. Early application is not permitted. The Company is currently evaluating the impact of adopting ASU 2014-09 on its financial results.
Note 4. Acquisitions
Providência Acquisition
On January 27, 2014, the Company announced that PGI Polímeros do Brazil, a Brazilian corporation and wholly-owned subsidiary of the Company ("PGI Acquisition Company"), entered into a Stock Purchase Agreement with Companhia Providência Indústria e Comércio, a Brazilian corporation ("Providência") and certain shareholders named therein. Pursuant to the terms and subject to the conditions of the Stock Purchase Agreement, PGI Acquisition Company agreed to acquire a 71.25% controlling interest in Providência (the “Providência Acquisition”). Providência is a leading manufacturer of nonwovens primarily used in hygiene applications as well as industrial and healthcare applications. Based in Brazil, Providência has three locations, including one in the United States.
The Providência Acquisition was completed on June 11, 2014 (the "Providência Acquisition Date") for an aggregate purchase price of $424.8 million and funded with the proceeds from borrowings under an incremental term loan amendment to the Company's existing Senior Secured Credit Agreement as well as the proceeds from the issuance of $210.0 million of 6.875% Senior Unsecured Notes due in 2019.
The components of the purchase price are as follows:
In thousands
Consideration
Cash consideration paid to selling shareholders
$
188,117

Cash consideration deposited into escrow
8,252

Deferred purchase price
47,931

Debt repaid
180,532

Total consideration
$
424,832

Total consideration paid included $47.9 million of deferred purchase price (the "Deferred Purchase Price"). The Deferred Purchase Price is held by the Company and relates to certain unaccrued tax claims of Providência (the "Providência Tax Claims"). The Deferred Purchase Price is denominated in Brazilian Reals (R$) and accretes at a rate of 9.5% per annum compounded daily. If the Providência Tax Claims are resolved in the Company's favor, the Deferred Purchase Price will be paid to the selling shareholders. However, if the Company or Providência incur actual tax liability in respect to the Providência Tax Claims, the amount of Deferred Purchase Price owed to the selling shareholders will be reduced by the amount of such actual tax liability. The Company will be responsible for any actual tax liability in excess of the Deferred Purchase Price and the cash consideration deposited into escrow. Based on the Company's best estimate, resolution of the Providência Tax Claims is expected to take longer than a year. As a result, the Deferred Purchase Price is classified as a noncurrent liability with accretion recognized within Interest expense.

8


As required by Brazilian law, PGI Acquisition Company filed a mandatory tender offer registration request with the Securities Commission of Brazil (Comissão de Valores Mobiliários or the “CVM”) in order to launch, as required by Brazilian law, after the CVM's approval, a tender offer to acquire the remaining 28.75% of the outstanding capital stock of Providência that is currently held by the minority shareholders (the “Mandatory Tender Offer”). The price per share to be paid to the minority shareholders in connection with the Mandatory Tender Offer will be substantially the same as paid to the selling shareholders upon acquisition of control, including the portion allocated to deferred purchase price and escrow. In addition, the Company voluntarily opted to amend the Mandatory Tender Offer to provide the minority shareholders with an alternative price structure with no escrow or deferred purchase price. Based on the alternative offer, the minority shareholders would receive an all-cash purchase price at closing. The Mandatory Tender Offer registration request is currently under review with the CVM. Once the Mandatory Tender Offer is approved and launched, the minority shareholders have the right, but not the obligation, to sell their remaining outstanding capital stock of Providência. Given such right of the minority shareholders, the Company determined that ASC 480, "Distinguishing Liabilities from Equity" ("ASC 480") requires the noncontrolling interest to be presented as mezzanine equity on the Consolidated Balance Sheets and adjusted to its estimated maximum redemption amount at each balance sheet date. Refer to Note 14, "Redeemable Noncontrolling Interest" for further information on the accounting of the redeemable noncontrolling interest.
The Providência Acquisition was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations. As a result, the total purchase price was allocated to assets acquired and liabilities assumed based on the preliminary estimate of fair market value of such assets and liabilities at the Providência Acquisition Date. Any excess of the purchase price is recognized as goodwill, which is not expected to be deductible for tax purposes. The Company has not completed the detailed valuation work necessary to finalize its valuation of assets acquired and liabilities assumed. Additional information related to acquired intangible assets, property, plant and equipment as well as accounting for certain tax matters is still pending. As a result, current amounts recorded are subject to adjustment as the Company finalizes its analysis. The Company will complete its final purchase price allocation during the second quarter of 2015.
Pro Forma Information
The following unaudited pro forma information for the three months ended March 29, 2014 assumes the acquisition of Providência occurred as of the beginning of 2014.
In thousands
Three Months
Ended
March 29,
2014
Net sales
$
512,105

Net income (loss)
(19,755
)
The unaudited pro forma information does not purport to be indicative of the results that actually would have been achieved had the operations been combined during the periods presented, nor is it intended to be a projection of future results or trends. Net sales and Operating income (loss) attributable to Providência for the three months ended March 31, 2015 was $73.6 million and $13.4 million, respectively.
Dounor Acquisition
On March 25, 2015, the Company announced that PGI France Holdings SAS, a wholly-owned subsidiary of the Company, entered into an agreement to acquire Dounor SAS. (“Dounor”) for a purchase price of €55 million. The acquisition was completed on April 17, 2015 and funded through the Company's Senior Secured Credit Agreement, as amended. Located in France, Dounor is a manufacturer of nonwoven materials used in the hygiene, healthcare and industrial applications. The Company is currently in the process of evaluating the purchase accounting implications of the Dounor acquisition.
Note 5.  Accounts Receivable Factoring Agreements
In the ordinary course of business, the Company may utilize accounts receivable factoring agreements with third-party financial institutions in order to accelerate its cash collections from product sales. In addition, these agreements provide the Company with the ability to limit credit exposure to potential bad debts, to better manage costs related to collections as well as to enable customers to extend their credit terms. These agreements involve the ownership transfer of eligible trade accounts receivable, without recourse or discount, to a third party financial institution in exchange for cash.
The Company accounts for these transactions in accordance with ASC 860, "Transfers and Servicing" ("ASC 860"). ASC 860 allows for the ownership transfer of accounts receivable to qualify for sale treatment when the appropriate criteria is met, which permits the Company to present the balances sold under the program to be excluded from Accounts receivable, net on the

9


Consolidated Balance Sheets. Receivables are considered sold when (i) they are transferred beyond the reach of the Company and its creditors, (ii) the purchaser has the right to pledge or exchange the receivables, and (iii) the Company has surrendered control over the transferred receivables. In addition, the Company provides no other forms of continued financial support to the purchaser of the receivables once the receivables are sold. Amounts due from financial institutions are included in Other current assets in the Consolidated Balance Sheets.
The Company has a U.S. based program where certain U.S. based receivables are sold to an unrelated third-party financial institution. Under the current terms of the U.S. agreement, the maximum amount of outstanding advances at any one time is $20.0 million, which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold. In addition, the Company's subsidiaries in Brazil, Colombia, France, Italy, Mexico, Netherlands and Spain have entered into factoring agreements to sell certain receivables to unrelated third-party financial institutions. Under the terms of the non-U.S. agreements, the maximum amount of outstanding advances at any one time is $78.0 million (measured at March 31, 2015 foreign exchange rates), which limitation is subject to change based on the level of eligible receivables, restrictions on concentrations of receivables and the historical performance of the receivables sold.
The following is a summary of receivables sold to the third-party financial institutions that existed at the following balance sheet dates:
In thousands
March 31, 2015
 
December 31, 2014
Trade receivables sold to financial institutions
$
81,810

 
$
92,528

Net amounts advanced from financial institutions
71,065

 
78,900

Amounts due from financial institutions
$
10,745

 
$
13,628

The Company sold $174.6 million and $131.7 million of receivables under the terms of the factoring agreements during the three months ended March 31, 2015 and March 29, 2014, respectively. The year-over-year increase in receivables sold is primarily attributable to accounts receivable factoring agreements associated with our recent acquisitions. In addition, a new agreement that was established in France during 2014 contributed to the increase. The Company pays a factoring fee associated with the sale of receivables based on the invoice value of the receivables sold. During the three months ended March 31, 2015 and March 29, 2014, factoring fees incurred were $0.4 million and $0.4 million, respectively. These amounts are recorded within Foreign currency and other, net in the Consolidated Statements of Comprehensive Income (Loss).
Note 6.  Inventories
At March 31, 2015 and December 31, 2014, the major classes of inventory are as follows: 
In thousands
March 31,
2015
 
December 31,
2014
Raw materials and supplies
$
55,251

 
$
58,951

Work in process
19,194

 
19,151

Finished goods
82,571

 
95,599

Total
$
157,016

 
$
173,701

Inventories are stated at the lower of cost, determined on the first-in, first-out ("FIFO") method, or fair market value. The Company performs periodic assessments to determine the existence of obsolete, slow-moving and non-saleable inventories and records necessary provisions to reduce such inventories to net realizable value. Reserve balances, primarily related to obsolete and slow-moving inventories, were $9.3 million and $7.8 million at March 31, 2015 and December 31, 2014, respectively.
Note 7. Intangible Assets
Indefinite-lived intangible assets are tested and reviewed annually for impairment during the fourth quarter or whenever there is a significant change in events or circumstances that indicate that the fair value of the asset may be less than the carrying amount of the asset. All other intangible assets with finite useful lives are being amortized on a straight-line basis over their estimated useful lives.

10


The following table sets forth the gross amount and accumulated amortization of the Company's intangible assets at March 31, 2015 and December 31, 2014:
 
March 31, 2015
 
 
December 31, 2014
In thousands
Gross Carrying Amount
 
Accumulated Amortization
 
Net
 
 
Gross Carrying Amount
 
Accumulated Amortization
 
Net
Technology
$
63,726

 
$
(16,230
)
 
$
47,496

 
 
$
63,726

 
$
(14,902
)
 
$
48,824

Customer relationships
73,511

 
(13,844
)
 
59,667

 
 
76,242

 
(12,735
)
 
63,507

Loan acquisition costs
40,612

 
(16,101
)
 
24,511

 
 
40,612

 
(14,447
)
 
26,165

Other
7,219

 
(1,829
)
 
5,390

 
 
7,104

 
(1,601
)
 
5,503

Tradenames (indefinite-lived)
34,912

 

 
34,912

 
 
34,912

 

 
34,912

Total
$
219,980

 
$
(48,004
)
 
$
171,976

 
 
$
222,596

 
$
(43,685
)
 
$
178,911

As of March 31, 2015, the Company had recorded intangible assets of $172.0 million, which includes amounts associated with loan acquisition costs. These expenditures represent the cost of obtaining financings that are capitalized in the balance sheet and amortized over the term of the loans to which such costs relate.
The following table presents amortization of the Company's intangible assets for the following periods:
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Intangible assets
$
2,764

 
$
3,102

Loan acquisition costs
1,654

 
1,026

Total
$
4,418

 
$
4,128

Estimated amortization expense on existing intangible assets for each of the next five years is expected to approximate $15 million in 2015, $16 million in 2016, $16 million in 2017, $16 million in 2018 and $16 million in 2019.
Note 8.  Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of the following:
In thousands
March 31,
2015
 
December 31,
2014
Accounts payable to vendors
$
177,592

 
$
209,527

Accrued compensation and benefits
44,330

 
42,485

Accrued interest
13,429

 
19,748

Other accrued expenses
46,557

 
49,553

Total
$
281,908

 
$
321,313


11


Note 9.  Debt
The following table presents the Company's outstanding debt at March 31, 2015 and December 31, 2014: 
In thousands
March 31,
2015
 
December 31,
2014
Term Loans
$
701,328

 
$
703,029

Senior Secured Notes
504,000

 
504,000

Senior Unsecured Notes
210,000

 
210,000

ABL Facility

 

Argentina credit facilities:
 
 
 
Nacion Facility
4,177

 
5,010

Galicia Facility
1,700

 
2,047

China Credit Facility
10,468

 
18,920

Brazil Export Credit Facility
15,231

 
18,871

India loans
2,124

 
2,437

Capital lease obligations
737

 
861

Total long-term debt including current maturities
1,449,765

 
1,465,175

Short-term borrowings
25,742

 
17,665

Total debt
$
1,475,507

 
$
1,482,840

The fair value of the Company's long-term debt was $1,461.4 million at March 31, 2015 and $1,463.9 million at December 31, 2014. The fair value of long-term debt is based upon quoted market prices in inactive markets or on available rates for debt with similar terms and maturities (Level 2).
Term Loans
On December 19, 2013, the Company entered into a Senior Secured Credit Agreement (the loans thereunder, the "Term Loans") with a maturity date upon the earlier of (i) December 19, 2019 and (ii) the 91st day prior to the scheduled maturity of the Company's 7.75% Senior Secured Notes; provided that on such 91st day, the Company's 7.75% Senior Secured Notes have an outstanding aggregate principal amount in excess of $150.0 million. The Term Loans provide for a commitment by the lenders to make secured term loans in an aggregate amount not to exceed $295.0 million, the proceeds of which were used to partially repay amounts outstanding under the Senior Secured Bridge Credit Agreement and the Senior Unsecured Bridge Credit Agreement (the "Bridge Facilities").
Borrowings bear interest at a fluctuating rate per annum equal to, at the Company's option, (i) a base rate equal to the highest of (a) the federal funds rate plus ½ of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Citicorp North America, Inc. as its "prime rate" and (c) the LIBOR rate for a one-month interest period plus 1.0% (provided that in no event shall such base rate with respect to the Term Loans be less than 2.0% per annum), in each case plus an applicable margin of 3.25% or (ii) a LIBOR rate for the applicable interest period (provided that in no event shall such LIBOR rate with respect to the Term Loans be less than 1.0% per annum) plus an applicable margin of 4.25%. The applicable margin for the Term Loans is subject to a 25 basis point step-down upon the achievement of a certain senior secured net leverage ratio. The Company is required to repay installments on the Term Loans in quarterly installments in aggregate amounts equal to 1.0% per annum of their funded total principal amount, with the remaining amount payable on the maturity date.
On June 10, 2014, the Company entered into an incremental term loan amendment (the "Incremental Amendment") to the existing Term Loans in which the Company obtained $415.0 million of commitments for incremental term loans from the existing lenders, the terms of which are substantially identical to the terms of the Term Loans. Pursuant to the Incremental Amendment, the Company borrowed $310.0 million, the proceeds of which were used to fund a portion of the consideration paid for the Providência Acquisition. The remaining commitments were used during the third quarter of 2014 to repay existing indebtedness.
The Term Loans are secured (i) together with the Tranche 2 (as defined below) loans, on a first-priority lien basis by substantially all of the Company's assets and the assets of any existing and future subsidiary guarantors (other than collateral securing the ABL Facility on a first-priority basis), including all of the Company's capital stock and the capital stock of each restricted subsidiary (which, in the case of foreign subsidiaries, will be limited to 65% of the capital stock of each first-tier foreign subsidiary) and (ii) on a second-priority basis by the collateral securing the ABL Facility, in each case, subject to certain exceptions and permitted liens. The Company may voluntarily repay outstanding loans at any time without premium or penalty, other than

12


voluntary prepayment of Term Loans in connection with a repricing transaction on or prior to the date that is six months after the closing date of the Incremental Amendment and customary "breakage" costs with respect to LIBOR loans.
The agreement governing the Term Loans, among other restrictions, limit the Company's ability and the ability of its restricted subsidiaries to: (i) incur or guarantee additional debt or issue disqualified stock or preferred stock; (ii) pay dividends and make other distributions on, or redeem or repurchase, capital stock; (iii) make certain investments; (iv) repurchase stock; (v) incur certain liens; (vi) enter into transactions with affiliates; (vii) merge or consolidate; (viii) enter into agreements that restrict the ability of subsidiaries to make dividends or other payments to Polymer Group, Inc.; (ix) designate restricted subsidiaries as unrestricted subsidiaries; and (x) transfer or sell assets. In addition, the Term Loans contain certain customary representations and warranties, affirmative covenants and events of default.
Under the credit agreement governing the Term Loans, the Company's ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by the Company's ability to satisfy tests based on Adjusted EBITDA (defined as Consolidated EBITDA in the credit agreement governing the Terms Loans).
Senior Secured Notes
In connection with the Merger, the Company issued $560.0 million of 7.75% Senior Secured Notes due 2019 on January 28, 2011. The Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior secured basis, by each of the Polymer Group's wholly-owned domestic subsidiaries. Interest on the Senior Secured Notes is paid semi-annually on February 1 and August 1 of each year. On July 23, 2014, the Company redeemed $56.0 million aggregate principal amount of the Senior Secured Notes at a redemption price of 103.0% of the aggregate principal amount plus any accrued and unpaid interest to, but excluding, July 23, 2014. The redemption amount was funded by proceeds from the Incremental Amendment.
The indenture governing the Senior Secured Notes limits, subject to certain exceptions, the Company's ability and the ability of its restricted subsidiaries to: (i) incur or guarantee additional debt or issue disqualified stock or preferred stock; (ii) pay dividends and make other distributions on, or redeem or repurchase, capital stock; (iii) make certain investments; (iv) incur certain liens; (v) enter into transactions with affiliates; (vi) merge or consolidate; (vii) enter into agreements that restrict the ability of subsidiaries to make dividends or other payments to Polymer Group, Inc.; (viii) designate restricted subsidiaries as unrestricted subsidiaries; and (ix) transfer or sell assets. It does not limit the activities of the Parent or the amount of additional indebtedness that Parent or its parent entities may incur. In addition, it also provides for specified events of default, which, if any of them occurs, would permit or require the principal of and accrued interest on the Senior Secured Notes to become or to be declared due and payable.
Under the indenture governing the Senior Secured Notes, the Company's ability to engage in certain activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by the Company's ability to satisfy tests based on Adjusted EBITDA (defined as EBITDA in the indenture governing the Senior Secured Notes).
Senior Unsecured Notes
In connection with the Providência Acquisition, the Company issued $210.0 million of 6.875% Senior Unsecured Notes due 2019 on June 11, 2014. The Senior Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis, by each of the Polymer Group's wholly-owned domestic subsidiaries. Interest on the Senior Unsecured Notes is paid semi-annually on June 1 and December 1 of each year.
The indenture governing the Senior Unsecured Notes limits, subject to certain exceptions, the Company's ability and the ability of its restricted subsidiaries to: (i) incur or guarantee additional debt or issue disqualified stock or preferred stock; (ii) pay dividends and make other distributions on, or redeem or repurchase, capital stock; (iii) make certain investments; (iv) incur certain liens; (v) enter into transactions with affiliates; (vi) merge or consolidate; (vii) enter into agreements that restrict the ability of subsidiaries to make dividends or other payments to Polymer Group, Inc.; (viii) designate restricted subsidiaries as unrestricted subsidiaries; and (iv) transfer or sell assets. It does not limit the activities of Parent or the amount of additional indebtedness that Parent or its parent entities may incur. In addition, it also provides for specified events of default which, if any occurs, would permit or require the principal of and accrued interest on the Senior Unsecured Notes to become or to be declared due and payable.
Under the indenture governing the Senior Unsecured Notes, the Company's ability to engage in certain activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part, by the Company's ability to satisfy tests based on Adjusted EBITDA (defined as EBITDA in the indenture governing the Senior Unsecured Notes).

13


ABL Facility
On January 28, 2011, the Company entered into a senior secured asset-based revolving credit facility which was amended and restated on October 5, 2012 (the "ABL Facility") to provide for borrowings not to exceed $50.0 million, subject to borrowing base availability. The ABL Facility provides borrowing capacity available for letters of credit and borrowings on a same-day basis and is comprised of (i) a revolving tranche of up to $42.5 million (“Tranche 1”) and (ii) a first-in, last out revolving tranche of up to $7.5 million (“Tranche 2”). Provided that no default or event of default was then existing or would arise therefrom, the Company had the option to request that the ABL Facility be increased by an amount not to exceed $20.0 million. The facility matures on October 5, 2017.
On November 26, 2013, the Company entered into an amendment to the ABL Facility which increased the Tranche 1 revolving credit commitments by $30.0 million (for a total aggregate revolving credit commitment of $80.0 million) as well as made certain other changes to the agreement. In addition, the Company increased the amount by which the Company can request that the ABL Facility be increased at the Company's option to an amount not to exceed $75.0 million. The effectiveness of the amendment was subject to the satisfaction of certain specified closing conditions by no later than January 31, 2014, all of which were satisfied prior to such date.
Based on current average excess availability, the borrowings under the ABL Facility will bear interest at a rate per annum equal to, at the Company's option, either (A) British Bankers Association LIBOR Rate (“LIBOR”) (adjusted for statutory reserve requirements) plus a margin of (i) 2.00% in the case of Tranche 1 or (ii) 4.00% in the case of Tranche 2; or (B) the higher of (a) the rate of interest in effect for such day as publicly announced from time to time by Citibank, N.A. as its "prime rate" and (b) the federal funds effective rate plus 0.5% of 1.0% (“ABR”) plus a margin of (x) 1.00% in the case of Tranche 1 or (y) 3.00% in the case of the Tranche 2. As of March 31, 2015, the Company had no outstanding borrowings under the ABL Facility. The borrowing base availability was $71.0 million. Outstanding letters of credit in the aggregate amount of $19.3 million left $51.7 million available for additional borrowings. The aforementioned letters of credit were primarily provided to certain administrative service providers and financial institutions. None of these letters of credit had been drawn on as of March 31, 2015.
The ABL Facility contains certain restrictions which limit the Company's ability and the ability of its restricted subsidiaries to: (i) incur or guarantee additional debt; (ii) pay dividends and make other distributions on, or redeem or repurchase, capital stock; (iii) make certain investments; (iv) repurchase stock; (v) incur certain liens; (vi) enter into transactions with affiliates; (vii) merge or consolidate or other fundamental changes; (viii) enter into agreements that restrict the ability of subsidiaries to make dividends or other payments; (ix) designate restricted subsidiaries as unrestricted subsidiaries; (x) transfer or sell assets and (xi) prepay junior financing or other restricted debt. In addition, it contains certain customary representations and warranties, affirmative covenants and events of default. If such an event of default occurs, the lenders under the ABL Facility would be entitled to take various actions, including the acceleration of amounts due under the ABL Facility and all actions permitted to be taken by a secured creditor.
Under the credit agreement governing the ABL Facility, the Company's ability to engage in activities such as incurring additional indebtedness, making investments, refinancing certain indebtedness, paying dividends and entering into certain merger transactions is governed, in part by, the Company's ability to satisfy tests based on Adjusted EBITDA (defined as Consolidated EBITDA in the credit agreement governing the ABL Facility).
Nacion Facility
In January 2007, the Company's subsidiary in Argentina entered into an arrangement with banking institutions in Argentina in order to finance the installation of a new spunmelt line at its facility located near Buenos Aires, Argentina. The maximum borrowings available under the facility, excluding any interest added to principal, were 33.5 million Argentine pesos with respect to an Argentine peso-denominated loan and $26.5 million with respect to a U.S. dollar-denominated loan. The loans are secured by pledges covering (i) the subsidiary's existing equipment lines; (ii) the outstanding stock of the subsidiary; and (iii) the new machinery and equipment being purchased, as well as a trust assignment agreement related to a portion of receivables due from certain major customers of the subsidiary.
The interest rate applicable to borrowings under these term loans is based on LIBOR plus 290 basis points for the U.S. dollar-denominated loan and Buenos Aires Interbanking Offered Rate plus 475 basis points for the Argentine peso-denominated loan. Principal and interest payments began in July 2008 with the loans maturing as follows: annual amounts of $3.5 million beginning in 2011 and continuing through 2015, and the remaining $1.7 million in 2016.
In connection with the Merger, the Company repaid and terminated the Argentine peso-denominated loan. In addition, the U.S. dollar denominated loan was adjusted to reflect its fair value as of the date of the Merger. As a result, the Company recorded a contra-liability in Long-term debt and will amortize the balance into Interest expense over the remaining life of the facility. At

14


March 31, 2015, the face amount of the outstanding indebtedness under the U.S. dollar-denominated loan was $4.3 million, with a carrying amount of $4.2 million and a weighted average interest rate of 3.13%.
Galicia Facility
On September 27, 2013, the Company's subsidiary in Argentina entered into an arrangement with a banking institution in Argentina in order to partially finance the upgrade of a manufacturing line at its facility located near Buenos Aires, Argentina. The maximum borrowings available under the facility, excluding any interest added to principal, is 20.0 million Argentine pesos (approximately $3.5 million). The three-year term of the agreement began with the date of the first draw down on the facility, which occurred in the third quarter of 2013, with payments required in twenty-five equal monthly installments beginning after one year. Borrowings will bear interest at 15.25%. As of March 31, 2015, the outstanding balance under the facility was $1.7 million. The remainder of the upgrade is expected to be financed by existing cash balances and cash generated from operations.
China Credit Facility
In the third quarter of 2012, the Company's subsidiary in China entered into a three-year U.S. dollar denominated construction loan agreement (the “Hygiene Facility”) with a banking institution in China to finance a portion of the installation of a new spunmelt line at its manufacturing facility in Suzhou, China. The interest rate applicable to borrowings under the Hygiene Facility is based on three-month LIBOR plus an amount to be determined at the time of funding based on the lender's internal head office lending rate (520 basis points at the time the credit agreement was executed).
The maximum borrowings available under the facility, excluding any interest added to principal, were $25.0 million. At December 31, 2014, the outstanding balance under the Hygiene Facility was $18.9 million with a weighted average interest rate of 5.43%. The Company repaid $8.4 million of the principal balance during the current period using a combination of existing cash balances and cash generated from operations. As a result, the outstanding balance under the Hygiene Facility was $10.5 million at March 31, 2015 with a weighted-average interest rate of 5.62%.
Brazil Export Credit Facility
As a result of the acquisition of Providência, the Company assumed a Brazilian real-denominated export credit facility with Itaú Unibanco S.A., pursuant to which Providência borrowed R$50.0 million in the first quarter of 2013 for the purpose of financing certain export transactions from Brazil. Borrowings bear interest at 8.0% per annum, payable quarterly. The facility matures in February 2016 and is unsecured. As of the date of the acquisition, the Company adjusted the outstanding balance to reflect its fair value. As a result, the Company recorded a contra-liability in Long-term debt and will amortize the balance into Interest expense over the remaining life of the facility. At March 31, 2015, the face amount of the outstanding indebtedness under the facility was $15.6 million, with a carrying amount of $15.2 million.
India Indebtedness
As a result of the acquisition of Fiberweb Limited ("Fiberweb"), the Company indirectly assumed control of Terram Geosynthetics Private Limited, a joint venture located in Mundra, India in which the Company maintains a 65% controlling interest. As part of the net assets acquired, the Company assumed $3.8 million of debt (including short-term borrowings) that was entered into with a banking institution in India. Current amounts outstanding primarily relate to a 14.70% term loan, due in 2017, used to purchase fixed assets. Other amounts relate to short-term credit facilities used to finance working capital requirements (included in Short-term borrowings in the Consolidated Balance Sheets). Combined, the outstanding balances totaled $3.2 million at March 31, 2015.
Other Indebtedness
The Company periodically enters into short-term credit facilities in order to finance various liquidity requirements, including insurance premium payments and short-term working capital needs. At March 31, 2015 and December 31, 2014, outstanding amounts related to such facilities were $25.7 million and $17.0 million, respectively. Borrowings under these facilities are included in Short-term borrowings in the Consolidated Balance Sheets.
The Company also has documentary letters of credit not associated with the ABL Facility. These letters of credit are primarily provided to certain raw material vendors and amounted to $8.0 million and $7.8 million at March 31, 2015 and December 31, 2014, respectively. None of these letters of credit have been drawn upon.
Note 10.  Derivative Instruments
In the normal course of business, the Company is exposed to certain risks arising from business operations and economic factors. These fluctuations can increase the cost of financing, investing and operating the business. The Company may use

15


derivative financial instruments to help manage market risk and reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments are not used for trading or other speculative purposes.
All derivatives are recognized on the Consolidated Balance Sheets at their fair value as either assets or liabilities. On the date the derivative contract is entered into, the Company designates the derivative as (1) a hedge of the fair value of a recognized asset or liability (fair value hedge), (2) a hedge of a forecasted transaction or the variability of cash flow to be paid (cash flow hedge), or (3) an undesignated instrument. Changes in the fair value of a derivative that is designated as a fair value hedge and determined to be highly effective are recorded in current earnings, along with the gain or loss on the recognized hedged asset or liability that is attributable to the hedged risk. Changes in the fair value of a derivative that is designated as a cash flow hedge and considered highly effective are recorded in Accumulated other comprehensive income (loss) until they are reclassified to earnings in the same period or periods during which the hedged transaction affects earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current earnings.
The Company formally documents all relationships between hedging instruments and hedged items, as well as the risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value hedges to specific assets and liabilities on the Consolidated Balance Sheets and linking cash flow hedges to specific forecasted transactions or variability of cash flow to be paid.
The Company also formally assesses, both at the hedge's inception and on an ongoing basis, whether the designated derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flow of hedged items. When a derivative is determined not to be highly effective as a hedge or the underlying hedged transaction is no longer probable, hedge accounting is discontinued prospectively, in accordance with current accounting standards.
The following table presents the fair values of the Company's derivative instruments for the following periods:
 
As of March 31, 2015
 
As of December 31, 2014
In thousands
Notional
 
Fair Value
 
Notional
 
Fair Value
Undesignated hedges:
 
 
 
 
 
 
 
Providência Contracts
$
56,542

 
$
2,159

 
$
140,623

 
$
3,962

Providência Instruments
16,715

 
(618
)
 
20,179

 
(560
)
Dounor Contract
59,037

 
53

 

 

Total
$
132,294

 
$
1,594

 
$
160,802

 
$
3,402

Asset derivatives are recorded within Other current assets and liability derivatives are recorded within Accounts payable and accrued expenses on the Consolidated Balance Sheets.
Providência Contracts
On January 27, 2014, the Company entered into a series of financial instruments with a third-party financial institution used to minimize foreign exchange risk on the future consideration to be paid for the Providência Acquisition and the Mandatory Tender Offer (the "Providência Contracts"). Each contract allows the Company to purchase fixed amounts of Brazilian reals (R$) in the future at specified U.S. dollar exchange rates, coinciding with either the Providência Acquisition or the Mandatory Tender Offer. The Providência Contracts do not qualify for hedge accounting treatment, and therefore, are considered undesignated hedges. As the nature of these transactions are related to non-operating notional amounts, changes in fair value are recorded in Foreign currency and other, net in the respective period.
The primary financial instrument was related to the Providência Acquisition and consisted of a foreign exchange forward contract with an aggregate notional amount equal to the estimated purchase price. Prior to the Providência Acquisition Date, the Company amended the primary financial instrument to reduce the notional amount to align with the consideration to be paid to the selling shareholders, which resulted in a realized gain for the Company. Upon consummation of the Providência Acquisition, the Company purchased the required Brazilian real at the specified rate thus fulfilling its obligations under the terms of the contract that specifically related to the primary financial instrument. Due to a strengthening U.S. Dollar, the contract was settled in the Company's favor which resulted in a realized gain of $18.9 million recognized within Foreign currency and other, net. The remaining financial instruments relate to a series of foreign exchange call options that expire between 1 year and 5 years associated with the Mandatory Tender Offer and the deferred portion of the consideration paid for the Providência Acquisition. Each option provides the Company with the right, but not the obligation to purchase a fixed amount of Brazilian real in the future at a specified U.S. Dollar rate.

16


Providência Instruments
As a result of the acquisition of Providência, the Company assumed a variety of derivative instruments used to reduce the exposure to fluctuations in interest rates and foreign currencies. These financial instruments include an interest rate swap, forward foreign exchange contracts and call option contracts (the "Providência Instruments"). The counterparty to each financial instrument is a third-party financial institution. The Providência Instruments do not qualify for hedge accounting treatment, and therefore, are considered undesignated derivatives. As the nature of the foreign exchange contracts and call option contracts relate to operating notional amounts, changes in the fair value are recorded in Other operating, net in the current period. Changes in the fair value of the interest rate swap is recorded in Interest expense in the current period as the nature of the transaction relates to interest on our outstanding third-party debt.
Dounor Contract
On March 27, 2015, the Company entered into a foreign exchange call option with a third-party financial institution used to minimize the foreign exchange risk on the future consideration to be paid for the acquisition of Dounor (the "Dounor Contract"). The Dounor Contract provides the Company the right, but not the obligation, to purchase a fixed amount of Euros in the future at a specified U.S. Dollar rate. The Dounor Contract does not qualify for hedge accounting treatment, therefore, it is considered an undesignated hedge. As the nature of this transaction is related to a non-operating notional amount, changes in the fair value are recorded in Foreign currency and other, net in the current period.
The following table represents the amount of (gain) or loss associated with derivative instruments in the Consolidated Statements of Comprehensive Income (Loss):
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Undesignated hedges:
 
 
 
Providência Contracts
$
1,925

 
$
(10,756
)
Providência Instruments
(240
)
 

Dounor Contract
159

 

Total
$
1,844

 
$
(10,756
)
Gains and losses associated with the Company's designated fair value hedges are offset by the changes in the fair value of the underlying transactions. However, once the hedge is undesignated, the fair value of the hedge is no longer offset by the fair value of the underlying transaction.
Note 11.  Fair Value of Financial Instruments
The accounting standard for fair value measurements establishes a framework for measuring fair value that is based on the inputs market participants use to determine the fair value of an asset or liability and establishes a fair value hierarchy to prioritize those inputs. The fair value hierarchy is comprised of three levels that are described below:
Level 1 — Inputs based on quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs other than Level 1 quoted prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3 — Unobservable inputs based on little or no market activity and that are significant to the fair value of the assets and liabilities, therefore requiring an entity to develop its own assumptions.
The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs are obtained from independent sources and can be validated by a third party, whereas unobservable inputs reflect assumptions regarding what a third party would use in pricing an asset or liability based on the best information available under the circumstances. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

17


Recurring Basis
The following tables present the fair value and hierarchy levels for the Company's assets and liabilities, which are measured at fair value on a recurring basis as of March 31, 2015:
In thousands
Level 1
 
Level 2
 
Level 3
 
March 31, 2015
Assets
 
 
 
 
 
 
 
Providência Contracts
$

 
$
2,159

 
$

 
$
2,159

Dounor Contract

 
53

 

 
53

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Providência Instruments
$

 
$
(618
)
 
$

 
$
(618
)
The following tables present the fair value and hierarchy levels for the Company's assets and liabilities, which are measured at fair value on a recurring basis as of December 31, 2014:
In thousands
Level 1
 
Level 2
 
Level 3
 
December 31, 2014
Assets
 
 
 
 
 
 
 
Providência Contracts
$

 
$
3,962

 
$

 
$
3,962

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Providência Instruments
$

 
$
(560
)
 
$

 
$
(560
)
ASC 820 "Fair Value Measurements and Disclosures" (ASC 820) defines fair value as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company determines the fair value of its financial assets and liabilities using the following methodologies:
Foreign Exchange Forward Contracts - Fair value is based upon a comparison of the contracted forward exchange rates to the current market exchange rates, discounted at the currency-appropriate rate.
Foreign Exchange Option Contracts - Fair value is based upon quantitative models that utilize multiple market inputs (including interest rates, prices and indices to generate continuous yield or pricing curves, discount rates and volatility factors).
The fair values of cash and cash equivalents, accounts receivable, inventories, short-term borrowings and accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these instruments. The methodologies used by the Company to determine the fair value of its financial assets and liabilities at March 31, 2015 are the same as those used at December 31, 2014. As a result, there have been no transfers between Level 1 and Level 2 categories.
Note 12.  Pension and Postretirement Benefit Plans
The Company and its subsidiaries sponsor multiple defined benefit plans that cover certain employees. Postretirement benefit plans, other than pensions, provide healthcare benefits for certain eligible employees. Benefits are primarily based on years of service and employee compensation.
Pension Plans
The Company has both funded and unfunded pension benefit plans. It is the Company’s policy to fund such plans in accordance with applicable laws and regulations in order to ensure adequate funds are available in the plans to make benefit payments to plan participants and beneficiaries when required.

18


The components of the Company's pension related costs for the following periods are as follows:
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Service cost
$
1,001

 
$
873

Interest cost
1,975

 
2,458

Expected return on plan assets
(2,686
)
 
(3,118
)
Curtailment / settlement (gain) loss

 

Net amortization of:
 
 
 
Actuarial (gain) loss
98

 
(4
)
Transition costs and other
(9
)
 

Net periodic benefit cost
$
379

 
$
209

The Company’s practice is to fund amounts for its qualified pension plans at least sufficient to meet the minimum requirements set forth in applicable employee benefit laws and local tax laws. In addition, the Company manages these plans to ensure that all present and future benefit obligations are met as they come due. Full year contributions are expected to approximate $3.4 million.
Postretirement Plans
The Company sponsors several Non-U.S. postretirement plans that provide healthcare benefits to cover certain eligible employees. These plans have no plan assets, but instead are funded by the Company on a pay-as-you-go basis in the form of direct benefit payments.
The components of the Company's postretirement related costs for the following periods are as follows:
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Service cost
$
2

 
$
9

Interest cost
44

 
93

Curtailment / settlement (gain) loss

 

Net amortization of:
 
 
 
Actuarial (gain) loss
2

 
5

Transition costs and other

 

Net periodic benefit cost
$
48

 
$
107

Defined Contribution Plans
The Company sponsors several defined contribution plans through its domestic subsidiaries covering employees who meet certain service requirements. The Company makes matching contributions to the plans based upon a percentage of the employees’ contribution in the case of its 401(k) plans or upon a percentage of the employees’ salary or hourly wages in the case of its non-contributory money purchase plans.

19


Note 13.  Income Taxes
The Company accounts for its provision for income taxes in accordance with ASC 740, "Income Taxes," which requires an estimate of the annual effective income tax rate for the full year to be applied to the respective interim period, taking into account year-to-date amounts and projected results for the full year. For the three months ended March 31, 2015, the Company's effective income tax rate was 12.7% (compared with a negative effective income tax rate of 150.2% for the three months ended March 29, 2014). The change in our effective income tax rate was primarily driven by incremental operating losses of $42.2 million in the current period for which we recorded a full valuation allowance. In addition, our effective income tax rate was impacted by foreign withholding taxes for which tax credits are not anticipated, changes in the amounts recorded for tax uncertainties, and foreign taxes calculated at statutory rates different than the U.S. federal statutory rate. During the three months ended March 29, 2014, a French subsidiary of the Company joined the Company’s unitary French filing group. This resulted in a $1.9 million increase to the Company's French valuation allowance discrete to the prior year period.
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax reporting purposes and (b) operating loss and tax credit carryforwards. A valuation allowance is recorded when, based on the weight of the evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. The realization of the deferred tax asset depends on the ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdiction. At March 31, 2015, the Company has a net deferred tax liability of $12.4 million.
At March 31, 2015, the Company had unrecognized tax benefits of $20.7 million, of which $9.5 million relates to accrued interest and penalties. These amounts are included within Other noncurrent liabilities within the accompanying Consolidated Balance Sheets. The total amount of unrecognized tax benefits that, if recognized, would affect the Company's effective income tax rate is $20.7 million as of March 31, 2015. Included in the balance as of March 31, 2015 is $2.8 million, including $1.6 million of interest and penalties, related to income tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. This amount is comprised of items which relate to the lapse of statute of limitations or the settlement of issues. The Company recognizes interest and/or penalties related to income taxes as a component of income tax expense.
Management judgment is required in determining tax provisions and evaluating tax positions. Although management believes its tax positions and related provisions reflected in the consolidated financial statements are fully supportable, it recognizes that these tax positions and related provisions may be challenged by various tax authorities. These tax positions and related provisions are reviewed on an ongoing basis and are adjusted as additional facts and information become available, including progress on tax audits, changes in interpretations of tax laws, developments in case law and closing of statute of limitations. The Company’s tax provision includes the impact of recording reserves and any changes thereto.
The major jurisdictions where the Company files income tax returns include the United States, Canada, China, India, the Netherlands, France, Germany, Spain, United Kingdom, Italy, Mexico, Colombia, Brazil, and Argentina. As of March 31, 2015, the Company has a number of open tax years with various taxing jurisdictions that range from 2003 to 2013. The results of current tax audits and reviews related to open tax years have not been finalized, and management believes that the ultimate outcomes of these audits and reviews will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Note 14.  Redeemable Noncontrolling Interest
In connection with the Providência Acquisition, as required by Brazilian law, PGI Acquisition Company filed the Mandatory Tender Offer registration request with the CVM in order to launch, after its approval, a tender offer to acquire all of the remaining outstanding capital stock of Providência from the minority shareholders. As of March 31, 2015, the Mandatory Tender Offer was still under review by the CVM. Hence, the conditions for the launch of the Mandatory Tender Offer have not been met as of March 31, 2015. However, once the Mandatory Tender Offer is approved and launched, the minority shareholders will have the right, but not the obligation, to sell their remaining outstanding capital stock of Providência. Given such right of the minority shareholders, the Company determined that ASC 480 requires the noncontrolling interest to be presented as mezzanine equity on the Consolidated Balance Sheets and adjusted to its estimated maximum redemption amount at each balance sheet date.
Financial results of Providência are attributed to the minority shareholders based on their ownership percentage and accordingly disclosed in the Consolidated Statements of Comprehensive Income (Loss). Subsequent to the allocation of earnings, the carrying value is then adjusted to its redemption value as of each balance sheet date with a corresponding adjustment to additional paid-in capital.

20


A reconciliation of the redeemable noncontrolling interest is as follows:
In thousands
2015
December 31, 2014
$
89,181

Comprehensive income (loss) attributable to redeemable noncontrolling interest
(9,813
)
Periodic adjustment to redemption value, net of currency adjustment
(2,784
)
March 31, 2015
$
76,584

The estimated redemption value of the redeemable noncontrolling interest is determined based on the terms and conditions of the Mandatory Tender Offer, which state that the purchase price payable for the tendered shares is not impacted by the earnings attributable to the redeemable noncontrolling interest. As a result, earnings attributable to the redeemable noncontrolling interest are offset by a deemed dividend, as a periodic adjustment to the recorded redemption value, to the minority shareholders recognized in additional paid-in capital. In addition, the recorded redemption value accretes at a variable interest rate which is also recognized as a periodic adjustment to the redemption value. Lastly, the Mandatory Tender Offer is denominated in Brazilian Reais. Therefore, the redemption value is recorded at the U.S. Dollar equivalent on the Consolidated Balance Sheets, initially using the exchange rate in effect on the date of issuance and translated using the current exchange rate at each subsequent balance sheet date. The respective currency exchange rate movement is recognized as a periodic adjustment to the recorded redemption value in additional paid-in capital.
Note 15.  Equity
In connection with the closing of the Merger on January 28, 2011, Blackstone, along with certain members of the Company's management, contributed $259.9 million (the "Initial Capital") through the purchase of Holdings. As consideration for the Initial Capital, the Company issued a total of 259,865 shares of common stock, with a par value of $0.01 per share. Simultaneously, all prior existing shares of Polymer Group, Inc's common and preferred stock were canceled and converted into the right to redeem for a portion of the merger consideration. As a result of the Merger, Scorpio Acquisition Corporation owns 100% of the Company's issued and outstanding common stock.
Common Stock
The authorized share capital of the Company is $10, consisting of 1,000 shares, par value $0.01 per share. The Company did not pay any dividends since the Merger and intends to retain future earnings, if any, to finance the further expansion and continued growth of the business. In addition, our indebtedness obligations limit certain restricted payments, which include dividends payable in cash, unless certain conditions are met.
Additional Paid-in-Capital
In accordance with push-down accounting, the basis in the Initial Capital has been pushed down from Holdings to the Company. Amounts related to Blackstone and certain board members are recorded in Additional paid-in capital. The remaining portion, related to certain members of the Company's management, was recorded in Other noncurrent liabilities as they contained a three-year call option feature which specifies that the employer can repurchase the shares at the original purchase price (or less) if the employee terminates within the specified time period. Upon the expiration of the three-year call option, associated amounts were no longer considered a liability and recorded in Additional paid-in capital. Subsequent to January 28, 2011, certain members of the Company's management and certain board members purchased common stock of Holdings. In addition, the Company has repurchased common stock from former employees. At March 31, 2015, the net amount purchased was $2.1 million and accordingly, the Company recorded the basis in these shares as additional paid-in capital or as a noncurrent liability, as necessary.
On December 18, 2013, the Company received an additional equity investment of $30.7 million from Blackstone (the "Equity Investment"). The Equity Investment, along with the proceeds received from the Term Loans, were used to repay all outstanding borrowings under the Senior Secured Bridge Credit Agreement and the Senior Unsecured Bridge Credit Agreement.
In connection with Providência Acquisition, the Company determined that the related noncontrolling interest is required to be presented as mezzanine equity on the Consolidated Balance Sheets and adjusted to its estimated maximum redemption amount at each balance sheet date. As a result, adjustments to the redeemable noncontrolling interest are offset by a deemed dividend to the minority shareholders recognized in Additional paid-in capital. Refer to Note 14, "Redeemable Noncontrolling Interest" for further information on the accounting of the redeemable noncontrolling interest.

21


Accumulated Other Comprehensive Income (Loss)
The changes in Accumulated other comprehensive income (loss) by component are as follows:
In thousands
Pension and Postretirement Benefit Plans
 
Cumulative Translation Adjustments
 
Total
December 31, 2014
$
(30,959
)
 
$
(28,205
)
 
$
(59,164
)
     Other comprehensive income (loss) before reclassifications
(90
)
 
(28,678
)
 
(28,768
)
     Amounts reclassified out of accumulated comprehensive income (loss)
90

 

 
90

     Net current period other comprehensive income (loss)

 
(28,678
)
 
(28,678
)
March 31, 2015
$
(30,959
)
 
$
(56,883
)
 
$
(87,842
)
Amounts presented in Other comprehensive income (loss) before reclassifications are net of tax. For the three months ended March 31, 2015, the Company did not record any income tax expense for pension and postretirement benefit plans and cumulative translation adjustments.
Amounts reclassified out of Accumulated other comprehensive income (loss) is as follows:
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Pension and other postretirement benefit plans:
 
 
 
Net amortization of actuarial gains (losses)
$
91

 
$
1

Curtailment / settlement gain (loss)

 

Total reclassifications, before tax
91

 
1

Income tax (provision) benefit
(1
)
 
(1
)
Total reclassifications, net of tax
$
90

 
$

Amounts associated with pension and postretirement benefit plans reclassified from Accumulated other comprehensive income (loss) are recorded within Selling, general and administrative expenses on the Consolidated Statements of Comprehensive Income (Loss). The components are included in the computation of net periodic benefit cost.
Note 16.  Special Charges
As part of our business strategy, the Company incurs amounts related to corporate-level decisions or actions by the Board of Directors. These actions are primarily associated with initiatives attributable to acquisition integration, restructuring and realignment of manufacturing operations and management structures as well as the pursuit of certain transaction opportunities when applicable. In addition, the Company evaluates its long-lived assets for impairment whenever events or changes in circumstances including the aforementioned, indicate that the carrying amounts may not be recoverable. These amounts are included in Special charges, net in the Consolidated Statements of Comprehensive Income (Loss).
A summary for each respective period is as follows:
 
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Restructuring and plant realignment costs
$
1,008

 
$
2,912

Acquisition and integration - Providência
1,093

 
2,431

Acquisition and integration - Fiberweb
1,816

 
3,034

Other charges
2,105

 
334

Total restructuring and plant realignment costs
$
6,022

 
$
8,711


22


Restructuring and Plant Realignment Costs
The Company incurs costs associated with restructuring initiatives intended to result in improved operating performance, profitability and working capital levels. Actions associated with these initiatives include reducing headcount, improving manufacturing productivity, realignment of management structures, reducing corporate costs and rationalizing certain assets, businesses and employee benefit programs. Amounts incurred for the current and prior period primarily relate to cost improvement initiatives associated with the acquisition and integration of Fiberweb. In addition, the Company incurs costs associated with less significant ongoing restructuring initiatives resulting from the continuous evaluation of opportunities to optimize manufacturing facilities and manufacturing processes. Costs associated with these initiatives primarily relate to professional consulting fees.
Acquisition and Integration - Providência
In association with the Providência Acquisition, the Company incurred direct acquisition costs associated with the transaction including investment banking, legal, accounting and other fees for professional services. Other costs included direct financing costs associated with both the Senior Unsecured Notes and the Incremental Amendment to the Term Loans. A majority of these costs have been capitalized as intangible assets on the Consolidated Balance Sheets as of the date of the Providência Acquisition. However, a portion of these costs related to the Incremental Term Loan were expensed as incurred. Costs incurred in the current period relate to integration activities and the Mandatory Tender Offer.
Acquisition and Integration - Fiberweb
In association with the Fiberweb Acquisition, the Company incurred direct acquisition costs associated with the transaction including investment banking, legal, accounting and other fees for professional services. Other expenses included direct financing costs associated with both the Secured Bridge Facility and the Unsecured Bridge Facility, as well as with the Term Loans. These costs have been capitalized as intangible assets on the Consolidated Balance Sheets as of the date of the Fiberweb Acquisition. In addition, the Company launched several initiatives during 2014 focused on the integration of Fiberweb into the existing operations and underlying processes of the Company. These initiatives include cost reduction initiatives and costs associated with integrating the back office activities of the combined business. As a result, the Company incurred costs directly associated with these activities which include legal, accounting and other fees for professional services.
Other Charges
In general, other charges consist primarily of expenses related to the Company’s pursuit of other business opportunities. The Company reviews its business operations on an ongoing basis in light of current and anticipated market conditions and other factors and, from time to time, may undertake certain actions in order to optimize overall business, performance or competitive position. To the extent any such decisions are made, the Company would likely incur costs associated with such actions, which could be material. Other charges also include various corporate-level initiatives and most recently, the relocation of our Nanhai, China manufacturing facility.
Restructuring Reserve
Amounts accrued for Restructuring and Plant Realignment costs are included in Accounts payable and accrued liabilities in the Consolidated Balance Sheets. Changes in the Company's reserves for the respective periods presented are as follows:
In thousands
North America
 
South America
 
Europe
 
Asia
 
Corporate
 
Total
December 31, 2014
$
598

 
$
1,145

 
$
1,718

 
$
39

 
$
180

 
$
3,680

Additions
248

 
(15
)
 
783

 

 
(8
)
 
1,008

Acquisitions

 

 

 

 

 

Cash payments
(458
)
 
(277
)
 
(1,146
)
 
(50
)
 
(131
)
 
(2,062
)
Adjustments
4

 
(59
)
 
(172
)
 
11

 
1

 
$
(215
)
March 31, 2015
$
392

 
$
794

 
$
1,183

 
$

 
$
42

 
$
2,411

The Company accounts for its restructuring programs in accordance with ASC 712, "Compensation - Non-retirement Postemployment Benefits" ("ASC 712") and ASC 420, "Exit of Disposal Cost Obligations" ("ASC 420"). Costs incurred for the respective periods presented primarily consisted of employee separation and severance expenses. Programs in existence prior to the acquisition of Fiberweb are substantially complete as of March 31, 2015. As a result of the acquisition of Fiberweb, the Company has initiated a restructuring program to integrate and optimize the combined footprint. Total projected costs for these programs are expected to range between $16.0 million and $23.0 million with payments continuing into 2015. Cost incurred since the Fiberweb Acquisition Date totaled $13.4 million.

23


A summary of special charges by reportable segment is as follows:
In thousands
Restructuring and Plant Realignment Costs
 
Acquisition and Integration Costs
 
Other Special Charges
 
Total Special Charges, Net
For the three months ended March 31, 2015
 
 
 
 
 
 
 
North America
$
248

 
$
490

 
$
71

 
$
809

South America
(15
)
 
227

 

 
212

Europe
783

 
225

 
(5
)
 
1,003

Asia

 

 
1,193

 
1,193

Corporate
(8
)
 
1,967

 
846

 
2,805

     Total
$
1,008

 
$
2,909

 
$
2,105

 
$
6,022

 
 
 
 
 
 
 
 
For the three months ended March 29, 2014
 
 
 
 
 
 
 
North America
$
203

 
$
500

 
$
173

 
$
876

South America
57

 
9

 

 
66

Europe
2,628

 
605

 
1

 
3,234

Asia
6

 

 
100

 
106

Corporate
18

 
4,351

 
60

 
4,429

     Total
$
2,912

 
$
5,465

 
$
334

 
$
8,711

Note 17.  Other Operating, Net
Transactions that are denominated in a currency other than an entity's functional currency are subject to changes in exchange rates with the resulting gains and losses recorded within current earnings. The Company includes gains and losses related to receivables and payables as well as the impacts of other operating transactions as a component of Operating income (loss).
Amounts associated with these components for the respective periods are as follows:
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Foreign currency gains (losses)
$
936

 
$
(1,926
)
Other operating income (expense)
487

 
857

Total
$
1,423

 
$
(1,069
)
Note 18. Foreign Currency and Other, Net
Transactions that are denominated in a currency other than an entity's functional currency are subject to changes in exchange rates with the resulting gains and losses recorded within current earnings. The Company includes gains and losses related to intercompany loans and third-party debt as well as other non-operating activities (primarily factoring fees and the gain or loss on the sale of assets) as a component of Other income (expense).
Amounts associated with these components for the respective periods are as follows:
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Foreign currency gains (losses)
$
(41,905
)
 
$
(5,400
)
Other non-operating income (expense)
(2,018
)
 
10,359

Total
$
(43,923
)
 
$
4,959


24


On January 27, 2014, the Company entered into a series of financial instruments with a third-party financial institution used to minimize foreign exchange risk on the future consideration to be paid for the Providência Acquisition and the Mandatory Tender Offer. The primary financial instrument was related to the Providência Acquisition and consisted of a foreign exchange forward contract with an aggregate notional amount equal to the estimated purchase price. The remaining financial instruments relate to a series of foreign exchange call options that expire between 1 year and 5 years associated with the Mandatory Tender Offer and the deferred portion of the consideration paid for the Providência Acquisition. As the nature of these transactions are related to a non-operating notional amount, changes in fair value are included in other non-operating income (expense) in the respective period. The Company recognized a gain of $10.8 million during the three months ended March 29, 2014 associated with the changes in fair value of these financial instruments. The amount associated with the remaining financial instruments recognized during the three months ended March 31, 2015 was a loss of $1.9 million.
Note 19.  Commitments and Contingencies
The Company is involved from time to time in various litigations, claims and administrative proceedings arising out of the ordinary conduct of its business. Amounts recorded for identified contingent liabilities are estimates, which are reviewed periodically and adjusted to reflect additional information when it becomes available. Subject to the uncertainties inherent in estimating future costs for contingent liabilities, management believes that any liability which may result from these legal matters would not have a material adverse effect on the Company's business or financial condition.
Equipment Lease Agreement
In the third quarter of 2011, the Company's state-of-the-art spunmelt line in Waynesboro, Virginia commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in the hygiene and healthcare applications in the U.S. The line was principally funded by a seven year equipment lease with a capitalized cost of $53.6 million. From the commencement of the lease to its fourth anniversary date, the Company will make annual lease payments of $8.3 million. From the fourth anniversary date to the end of the lease term, the Company's annual lease payments may change, as defined in the lease agreement. The aggregate future lease payments under the agreement, subject to adjustment, are expected to approximate $58 million. The lease includes covenants, events of default and other provisions that requires the Company to maintain certain financial ratios and other requirements.
Providência Tax Claims
In connection with the acquisition of Providência, the Company is party to the Providência Tax Claims. The Providência Tax Claims relate to two tax deficiency notices received in August and November 2013 relating to Providência's 2007 and 2008 tax filings. At the Providência Acquisition Date and at each subsequent reporting period, the Company evaluated whether the Providência Tax Claims qualified for recognition and determined it was more likely than not that Providência's position would be sustained upon challenge by the the Brazilian courts. This determination was based on advice received from the Company's Brazilian legal counsel. Therefore, the Company did not record an uncertain tax position liability for this matter.
At the Providência Acquisition Date, the Deferred Purchase Price was $47.9 million. If the Providência Tax Claims are resolved in the Company's favor, the Deferred Purchase Price will be paid to the selling shareholders. However, if the Company or Providência incur actual tax liability in respect to the Providência Tax Claims, the amount of Deferred Purchase Price owed to the selling shareholders will be reduced by the amount of such actual tax liability. At March 31, 2015, the remeasured and accreted balance of the Deferred Purchase Price was $36.0 million. Based on the Company's estimate, the resolution of the Providência Tax Claims is expected to take longer than a year. Refer to Note 4, "Acquisitions" for further information on the accounting of the Deferred Purchase Price and the Providência Tax Claims.
Redeemable Noncontrolling Interest
In connection with the Providência Acquisition, as required by Brazilian law, PGI Acquisition Company filed the Mandatory Tender Offer registration request with the CVM in order to launch, after its approval, a tender offer to acquire all of the remaining outstanding capital stock of Providência from the minority shareholders. As of March 31, 2015, the Mandatory Tender Offer was still under review by the CVM. Hence, the conditions for the launch of the Mandatory Tender Offer have not been met as of March 31, 2015. However, once the Mandatory Tender Offer is approved and launched, the minority shareholders will have the right, but not the obligation, to sell their remaining outstanding capital stock of Providência. Given such right of the minority shareholders, the Company determined that ASC 480 requires the noncontrolling interest to be presented as mezzanine equity on the Consolidated Balance Sheets and adjusted to its estimated maximum redemption amount at each balance sheet date. At March 31, 2015, the redemption value of the redeemable noncontrolling interest was $76.6 million. Refer to Note 14, "Redeemable Noncontrolling Interest" for further information on the accounting of the redeemable noncontrolling interest.

25


Financing Obligation
As a result of the Fiberweb Acquisition, the Company acquired a manufacturing facility in Old Hickory, Tennessee, the assets of which included a utility plant used to generate steam for use in its manufacturing process. Upon completion of its construction in 2011, the utility plant was sold to a unrelated third-party and subsequently leased back by Fiberweb for a period of 10 years. The Company has accounted for this transaction as a direct financing lease, recognizing the assets as part of property, plant and equipment and a related financing obligation as a long-term liability. Cash payments to the lessor are allocated between interest expense and amortization of the financing obligation. At the end of the lease term, the Company will recognize the sale of the utility plant, however, no gain or loss will be recognized as the financing obligation will equal the expected carrying value of the assets. At March 31, 2015, the outstanding balance of the financing obligation was $18.0 million, which is included in Other noncurrent liabilities in the Consolidated Balance Sheets.
Environmental
The Company is subject to a broad range of federal, foreign, state and local laws and regulations relating to pollution and protection of the environment. The Company believes that it is currently in substantial compliance with applicable environmental requirements and does not currently anticipate any material adverse effect on its operations, financial or competitive position as a result of its efforts to comply with environmental requirements. Some risk of environmental liability is inherent, however, in the nature of the Company’s business and, accordingly, there can be no assurance that material environmental liabilities will not arise.
Note 20.  Segment Information
The Company is a leading global innovator and manufacturer of specialty materials, primarily focused on the production of nonwoven products. The Company operates through four operating segments, which represent its four reportable segments: North America, South America, Europe and Asia, with the main source of revenue being the sales of primary and intermediate products to consumer and industrial markets. The Company has one major customer, Procter & Gamble, which accounts for approximately 12% of its business, the loss of which would have a material adverse impact on reported financial results. Sales to this customer are reported within each of the reportable segments.
Segment information is based on the “management” approach which designates the internal reporting used by management for making decisions and assessing performance. The Company manages its business on a geographic basis, as each region provides similar products and services. The reportable segments are consistent with the manner in which financial information is disaggregated for internal review and decision making. The accounting policies of the reportable segments are the same as those described in Note 3, “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in Part II, Item 8 of the Company’s 2014 Form 10-K. Intercompany sales between the segments are eliminated.

26


Financial data by reportable segment is as follows: 
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Net sales:
 
 
 
North America
$
208,322

 
$
193,298

South America
93,086

 
38,150

Europe
112,389

 
143,621

Asia
47,441

 
47,515

Total
$
461,238

 
$
422,584

 
 
 
 
Operating income (loss):
 
 
 
North America
$
29,197

 
$
17,783

South America
13,674

 
2,986

Europe
9,755

 
6,232

Asia
5,283

 
4,152

Unallocated Corporate
(16,417
)
 
(13,254
)
Eliminations
360

 
(37
)
Subtotal
41,852

 
17,862

Special charges, net
(6,022
)
 
(8,711
)
Total
$
35,830

 
$
9,151

 
 
 
 
Depreciation and amortization expense:
 
 
 
North America
$
12,677

 
$
9,828

South America
5,845

 
1,953

Europe
4,000

 
5,887

Asia
5,521

 
5,572

Unallocated Corporate
558

 
340

Subtotal
28,601

 
23,580

Amortization of loan acquisition costs
1,654

 
1,026

Total
$
30,255

 
$
24,606

 
 
 
 
Capital spending:
 
 
 
North America
$
3,447

 
$
6,051

South America
802

 
2,208

Europe
3,107

 
2,509

Asia
3,468

 
2,600

Corporate
186

 
747

Total
$
11,010

 
$
14,115

 

27


In thousands
March 31,
2015
 
December 31,
2014
Division assets:
 
 
 
North America
$
825,545

 
$
819,133

South America
463,527

 
536,140

Europe
266,879

 
304,879

Asia
263,865

 
261,172

Corporate
81,945

 
113,849

Total
$
1,901,761

 
$
2,035,173

The Company serves customers focused on personal care, infection prevention and high performance solutions, where our products are critical components used in a broad array of consumer and commercial products. Products within each of these three applications are as follows:
Personal Care - Specialty materials used for hygiene, dryer sheets and personal wipes products
Infection Prevention - Specialty materials used for healthcare, filtration and disinfectant wipes products
High Performance Solutions - Specialty materials used for Building & Construction/Geosynthetics & Agriculture, industrial wipes, filtration, and various other applications
Net sales by key application is as follows:
In thousands
Three Months
Ended
March 31,
2015
 
Three Months
Ended
March 29,
2014
Personal Care
$
235,229

 
$
194,470

Infection Prevention
79,856

 
80,439

High Performance Solutions
146,153

 
147,675

   Total
$
461,238

 
$
422,584

Note 21.  Certain Relationships and Related Party Transactions
In connection with the Merger, Holdings entered into a shareholders agreement (the “Shareholders Agreement”) with Blackstone and certain members of the Company's management. The Shareholders Agreement governs certain matters relating to ownership of Holdings, including with respect to the election of directors of our parent companies, restrictions on the issuance or transfer of shares, including tag-along rights and drag-along rights, other special corporate governance provisions and registration rights (including customary indemnification provisions). Each party to the Shareholders Agreement also agrees to vote all of its voting securities, whether at a shareholders meeting, or by written consent, in the manner which Blackstone directs, except that an employee shareholder shall not be required to vote in favor of any changes to the organizational documents of Holdings that would have a disproportionate adverse effect on the terms of such employee shareholder's shares of Common Stock relative to other shareholders. Each employee shareholder also grants to the Chief Executive Officer of Holdings a proxy to vote all of the securities owned by such employee shareholder in the manner described in the preceding sentence. As of March 31, 2015, the Board of Directors of the Company includes one Blackstone member, five outside members and the Company’s Chief Executive Officer as an employee director. Furthermore, Blackstone has the power to designate all of the members of the Board of Directors of the Company and the right to remove any or all directors that it appoints, with or without cause.
Advisory Agreement
Upon the completion of the Merger, the Company became subject to a transaction and fee advisory agreement (“Advisory Services Agreement”) with Blackstone Management Partners V L.L.C. (“BMP”), an affiliate of Blackstone. Under the Advisory Services Agreement, BMP (including through its affiliates) has agreed to provide certain monitoring, advisory and consulting services for an annual non-refundable advisory fee, to be paid at the beginning of each fiscal year, equal to the greater of (i) $3.0 million or (ii) 2.0% of the Company’s consolidated EBITDA (as defined under the credit agreement governing our ABL Facility) for the immediately preceding fiscal year. The amount of such fee shall be initially paid based on the Company’s then most current estimate of the Company’s projected EBITDA amount for the fiscal year immediately preceding the date upon which the advisory fee is paid. After completion of the fiscal year to which the fee relates and following the availability of audited financial statements for such period, the parties will recalculate the amount of such fee based on the actual consolidated EBITDA for such period and

28


the Company or BMP, as applicable, shall adjust such payment as necessary based on the recalculated amount. Since the Merger until fiscal 2014, the Company's advisory fee has been $3.0 million, which is paid at the beginning of each year. However, as a result of actual Consolidated EBITDA for the fiscal year ended December 31, 2014, the Company's advisory fee was adjusted to $5.2 million and was paid in December 2014. The amount is included in Selling, general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss).
In addition, in the absence of an express agreement to provide investment banking or other financial advisory services to the Company, and without regard to whether such services were provided, BMP will be entitled to receive a fee equal to 1.0% of the aggregate transaction value upon the consummation of any acquisition, divestiture, disposition, merger, consolidation, restructuring, refinancing, recapitalization, issuance of private or public debt or equity securities (including an initial public offering of equity securities), financing or similar transaction by the Company. The fee associated with the Fiberweb transaction totaled $2.5 million and was paid in December 2013. The fee associated with the Providência Acquisition totaled $5.3 million and was paid in October 2014. These amount are included in Special charges, net in the Consolidated Statements of Comprehensive Income (Loss).
At any time in connection with or in anticipation of a change of control of the Company, a sale of all or substantially all of the Company’s assets or an initial public offering of common equity of the Company or parent entity of the Company or their successors, BMP may elect to receive, in consideration of BMP’s role in facilitating such transaction and in settlement of the termination of the services, a single lump sum cash payment equal to the then-present value of all then-current and future annual advisory fees payable under the Advisory Services Agreement, assuming a hypothetical termination date of the Advisory Service Agreement to be the twelfth anniversary of such election. The Advisory Service Agreement will continue until the earlier of the twelfth anniversary of the date of the agreement or such date as the Company and BMP may mutually determine. The Company will agree to indemnify BMP and its affiliates, directors, officers, employees, agents and representatives from and against all liabilities relating to the services contemplated by the transaction and advisory fee agreement and the engagement of BMP pursuant to, and the performance of BMP and its affiliates of the services contemplated by, the Advisory Services Agreement.
Other Relationships and Transactions
An affiliate of Blackstone, the Blackstone Group International Partners, LLP (“BGIP”), provided certain financial advisory services to the Company in connection with the acquisition of Fiberweb. The Company reimbursed BGIP for its reasonable documented expenses, and agreed to indemnify BGIP and related persons against certain liabilities arising out of its engagement.
Blackstone and its affiliates have ownership interests in a broad range of companies. The Company has entered into commercial transactions in the ordinary course of our business with some of these companies, including the sale of goods and services and the purchase of goods and services.
Under our Restated Articles of Incorporation, the Company's directors do not have a duty to refrain from engaging in similar business activities as the Company or doing business with any client, customer or vendor of the Company engaging in any other corporate opportunity that the Company has any expectancy or interest in engaging in. The Company has also waived, to the fullest extent permitted by law, any expectation or interest or right to be informed of any corporate opportunity, and any director acquiring knowledge of a corporate opportunity shall have no duty to inform the Company of such corporate opportunity.
Note 22.  Financial Guarantees and Condensed Consolidating Financial Statements
Polymer’s Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally on a senior secured basis, by each of Polymer’s 100% owned domestic subsidiaries (collectively, the “Guarantors”). As substantially all of Polymer’s operating income and cash flow is generated by its subsidiaries, funds necessary to meet Polymer’s debt service obligations may be provided, in part, by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of Polymer’s subsidiaries, could limit Polymer’s ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Senior Secured Notes. Although holders of the Senior Secured Notes will be direct creditors of Polymer’s principal direct subsidiaries by virtue of the guarantees, Polymer has subsidiaries that are not included among the Guarantors (collectively, the “Non-Guarantors”), and such subsidiaries will not be obligated with respect to the Senior Secured Notes. As a result, the claims of creditors of the Non-Guarantors will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of Polymer, including the holders of the Senior Secured Notes.
The following Condensed Consolidating Financial Statements are presented to satisfy the disclosure requirements of Rule 3-10 of Regulation S-X. In accordance with Rule 3-10, the subsidiary guarantors are all 100% owned by PGI (the “Issuer”). The guarantees on the Senior Secured Notes are full and unconditional and all guarantees are joint and several. The information presents Condensed Consolidating Balance Sheets as of March 31, 2015 and December 31, 2014, Condensed Consolidating Statements of Comprehensive Income (Loss) for the three months ended March 31, 2015 and March 29, 2014, and Condensed

29


Consolidating Statements of Cash Flows for the three months ended March 31, 2015 and March 29, 2014 of (1) PGI (Issuer), (2) the Guarantors, (3) the Non-Guarantors and (4) consolidating eliminations to arrive at the information for the Company on a consolidated basis.

Condensed Consolidating Balance Sheet
As of March 31, 2015

In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
3,026

 
$
91,898

 
$
65,677

 
$

 
$
160,601

Accounts receivable, net

 
48,403

 
203,478

 

 
251,881

Inventories, net

 
56,117

 
101,659

 
(760
)
 
157,016

Deferred income taxes

 
3,081

 
15,904

 
(3,027
)
 
15,958

Other current assets
10,595

 
16,748

 
52,032

 

 
79,375

Total current assets
13,621

 
216,247

 
438,750

 
(3,787
)
 
664,831

Property, plant and equipment, net
5,229

 
199,584

 
602,431

 

 
807,244

Goodwill

 
55,999

 
145,348

 

 
201,347

Intangible assets, net
32,688

 
116,595

 
22,693

 

 
171,976

Net investment in and advances to (from) subsidiaries
1,389,585

 
429,901

 
(774,303
)
 
(1,045,183
)
 

Deferred income taxes
2,315

 

 
19,337

 
(1,579
)
 
20,073

Other noncurrent assets
281

 
7,273

 
28,736

 

 
36,290

Total assets
$
1,443,719

 
$
1,025,599

 
$
482,992

 
$
(1,050,549
)
 
$
1,901,761

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
1,139

 
$

 
$
24,603

 
$

 
$
25,742

Accounts payable and accrued liabilities
36,928

 
55,903

 
189,077

 

 
281,908

Income taxes payable
169

 
756

 
6,794

 

 
7,719

Deferred income taxes
2,896

 

 
10,162

 
(2,159
)
 
10,899

Current portion of long-term debt
7,145

 

 
16,249

 

 
23,394

Total current liabilities
48,277

 
56,659

 
246,885

 
(2,159
)
 
349,662

Long-term debt
1,408,345

 

 
18,026

 

 
1,426,371

Deferred income taxes

 
14,699

 
25,316

 
(2,447
)
 
37,568

Other noncurrent liabilities
258

 
36,257

 
64,216

 

 
100,731

Total liabilities
1,456,880

 
107,615

 
354,443

 
(4,606
)
 
1,914,332

Redeemable noncontrolling interest
76,584

 

 

 

 
76,584

Common stock

 

 
16,966

 
(16,966
)
 

Polymer Group, Inc. shareholders’ equity
(89,745
)
 
917,984

 
110,993

 
(1,028,977
)
 
(89,745
)
Noncontrolling interest

 

 
590

 

 
590

Total equity
(89,745
)
 
917,984

 
128,549

 
(1,045,943
)
 
(89,155
)
Total liabilities, redeemable noncontrolling interest and equity
$
1,443,719

 
$
1,025,599

 
$
482,992

 
$
(1,050,549
)
 
$
1,901,761


30



Condensed Consolidating Balance Sheet
As of December 31, 2014
 
In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
34,720

 
$
76,744

 
$
67,027

 
$

 
$
178,491

Accounts receivable, net

 
39,504

 
208,223

 

 
247,727

Inventories, net

 
54,044

 
120,775

 
(1,118
)
 
173,701

Deferred income taxes

 
3,279

 
16,523

 
(3,026
)
 
16,776

Other current assets
10,465

 
19,250

 
59,406

 

 
89,121

Total current assets
45,185

 
192,821

 
471,954

 
(4,144
)
 
705,816

Property, plant and equipment, net
5,445

 
204,800

 
659,985

 

 
870,230

Goodwill

 
55,999

 
164,555

 

 
220,554

Intangible assets, net
34,529

 
118,283

 
26,099

 

 
178,911

Net investment in and advances to (from) subsidiaries
1,437,946

 
494,906

 
(811,794
)
 
(1,121,058
)
 

Deferred income taxes
1,578

 

 
18,232

 
(1,579
)
 
18,231

Other noncurrent assets
285

 
7,111

 
34,035

 

 
41,431

Total assets
$
1,524,968

 
$
1,073,920

 
$
563,066

 
$
(1,126,781
)
 
$
2,035,173

LIABILITIES AND EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
405

 
$

 
$
17,260

 
$

 
$
17,665

Accounts payable and accrued liabilities
39,529

 
64,552

 
217,232

 

 
321,313

Income taxes payable
223

 
2,986

 
6,427

 

 
9,636

Deferred income taxes
2,322

 

 
10,216

 
(2,321
)
 
10,217

Current portion of long-term debt
7,143

 

 
24,749

 

 
31,892

Total current liabilities
49,622

 
67,538

 
275,884

 
(2,321
)
 
390,723

Long-term debt
1,410,059

 

 
23,224

 

 
1,433,283

Deferred income taxes

 
14,897

 
23,760

 
(2,434
)
 
36,223

Other noncurrent liabilities
461

 
36,839

 
72,264

 

 
109,564

Total liabilities
1,460,142

 
119,274

 
395,132

 
(4,755
)
 
1,969,793

Redeemable noncontrolling interest
89,181

 

 

 

 
89,181

Common stock

 

 
16,966

 
(16,966
)
 

Polymer Group, Inc. shareholders’ equity
(24,355
)
 
954,646

 
150,414