10-K 1 pgi-12282013x10k.htm 10-K PGI - 12/28/2013 - 10K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 
EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 2013
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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨  No  ý
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes ý  No  ¨
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  ¨    No  ý *
* 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  ý    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
 
¨
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  ý
Number of common shares outstanding at March 24, 2014: 1,000. There is no public trading of the registrant's shares.


POLYMER GROUP, INC.
FORM 10-K
For the Fiscal Year Ended December 28, 2013
INDEX
 
 
Page
PART I
 
PART II
 
PART III
 
PART IV
 


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CAUTIONARY STATEMENT FOR FORWARD LOOKING STATEMENTS
From time to time, we may publish forward-looking statements relative to matters, including, without limitation, anticipated financial performance, business prospects, technological developments, new product introductions, cost savings, research and development activities and similar matters. Forward-looking statements are generally accompanied by words such as “anticipate”, “believe”, “estimate”, “expect”, “forecast”, “intend”, “may”, “plans”, “predict”, “project”, “schedule”, “seeks”, “should”, “target” or other words that convey the uncertainty of future events or outcomes. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements.
Various statements contained in this report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements speak only as of the date of this report.
These forward-looking statements are based on current expectations and assumptions about future events. Although management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. There can be no assurance that these events will occur or that our results will be as anticipated. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the foregoing cautionary statements.
Important factors that could cause actual results to differ materially from those discussed in such forward-looking statements include, among other things:
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general economic factors including, but not limited to, changes in interest rates, foreign currency translation rates, consumer confidence, trends in disposable income, changes in consumer demand for goods produced, and cyclical or other downturns;
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cost and availability of raw materials, labor and natural and other resources, and our ability to pass raw material cost increases along to customers;
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changes to selling prices to customers which are based, by contract, on an underlying raw material index;
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substantial debt levels and potential inability to maintain sufficient liquidity to finance our operations and make necessary capital expenditures;
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ability to meet existing debt covenants or obtain necessary waivers;
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achievement of objectives for strategic acquisitions and dispositions;
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ability to achieve successful or timely start-up of new or modified production lines;
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reliance on major customers and suppliers;
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domestic and foreign competition;
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information and technological advances;
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risks related to operations in foreign jurisdictions; and
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changes in environmental laws and regulations, including climate change-related legislation and regulation.
The risks described in Item 1A. “Risk Factors” in this Form 10-K are not exhaustive. Other sections of this Form 10-K describe additional factors that could adversely affect our business, financial condition or results of operations. New risk factors emerge from time to time and it is not possible for us to predict all such risk factors, nor can we assess the impact of all such risk factors on our business or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. We undertake no obligations to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.


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PART I
The terms "Polymer Group," " PGI," "the Company," "we," "us," and "our" and similar terms in this Report on Form 10-K refer to Polymer Group, Inc and its consolidated subsidiaries. The term "Parent" as used within this Report on Form 10-K refers to Scorpio Acquisition Corporation, a Delaware corporation that owns 100% of the issued and outstanding capital stock of Polymer Group, Inc. The term "Holdings" as used within this Report on Form 10-K refers to Scorpio Holdings Corporation, a Delaware corporation that owns 100% of the Parent.
ITEM 1. BUSINESS
Our Company
We are a leading global, technology-driven developer, producer and marketer of engineered materials, primarily focused on the production of nonwoven products. Nonwovens are a high-performance and low-cost fabric-like alternative to traditional textiles, paper and other materials. They can be made with specific value-added characteristics including absorbency, tensile strength, softness and barrier properties, among others. Our nonwoven products are critical components used in consumer and industrial products for use in a wide array of applications. Primary applications in each of our target markets are as follows:        

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Hygiene:
Baby diapers, feminine hygiene products and adult incontinence products
 
 
 
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Healthcare:
Single-use surgical gowns and drapes, hospital apparel and infection control supplies
 
 
 
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Wipes:
Household, personal care and commercial cleaning wipes, dryer sheets
 
 
 
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Building and Geosynthetics:
House wrap, construction, roofing, geosynthetic fabrics, road underlayment, liners, and railroad materials
 
 
 
Ÿ
Technical Specialties:
Filtration, cable wrap, agriculture, forestry/horticulture, landscape, composites, industrial packaging, technical nonwovens and other specialty areas

Over the past five years, we have undertaken a series of capital expansions and business acquisitions that have broadened our technology base, increased our product lines and expanded our global presence. As a result of the 2013 acquisition of Fiberweb plc ("Fiberweb"), one of the largest manufacturers of specialty technical materials, we have solidified our position as the largest manufacturer of nonwovens in the world with a total of 21 manufacturing and converting facilities located in 13 countries on 4 continents. Our facilities are strategically located near many of our key customers in order to increase our effectiveness in addressing local and regional demand. We work closely with our customers, which include well-established multinational and regional consumer and industrial product manufacturers, to provide engineered solutions to meet increasing demand for more sophisticated products. Our global reach coupled with our broad range of applications bolsters our ability to partner with customers to make the world safer, cleaner and healthier.
On April 10, 2012, our Board of Directors approved an internal redesign and restructuring of our global operations for the purposes of realigning and repositioning our businesses to consolidate the benefits of our global footprint, align resources and capabilities with future growth opportunities and provide for a more efficient structure to serve existing markets. The major component of the organizational change involved combining the strength of the Company's existing U.S. and Latin American footprint to create a consolidated Americas region that contains greater efficiencies to serve broader markets. In addition, we plan to gain further efficiencies through a focused and standardized approach to world-class operational excellence across the supply chain. The final component includes the heightening focus of concentrated resources around the Company's global markets, with a consolidated strategic approach to each of its geographic and scalable innovation capabilities. As a result, we realigned our external reporting structure to more closely reflect our corporate and business strategies.
On January 28, 2011, pursuant to an Agreement and Plan of Merger, dated as of October 4, 2010, we were acquired by affiliates of the Blackstone Group ("Blackstone"), along with certain members of our management (the "Merger"), for an aggregate purchase price valued at $403.5 million. As a result, we became a privately-held company. The Merger was financed by $560.0 million in aggregate principal of debt financing as well as common equity capital.
Our Industry
We compete primarily in the global nonwovens market, which is estimated to be approximately $30 billion globally in 2013. Nonwovens are broadly defined as engineered sheet or web structures, made from polymers and or natural fibers that are bonded together by entangling fiber or filaments mechanically, thermally or chemically. They are flat sheets that are made directly

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from separate fibers or from molten plastic or plastic film. By definition, they are not made by weaving or knitting and do not require converting the fibers to yarn.
Nonwovens can be created through several different manufacturing techniques. Principal technologies utilized in the industry today include:
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Spunmelt technology uses thermoplastic polymers that are melt-spun to manufacture continuous-filament fabrics.
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Carded technologies (chemical, thermal and spunlace) involve fibers laid on a conveyor belt, teased apart and consolidated into a web and then bonded with chemical adhesive, heat or high pressure water, respectively.
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Air-laid technology uses high-velocity air to condense fibers.
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Wet-laid technology drains fibers through a wire screen similar to papermaking.
Nonwoven fabrics provide specific product attributes that differentiate them from alternative materials. These attributes include absorbency, liquid repellence, resilience, stretch, softness, strength, flame retardancy, washability, cushioning, filtering, bacterial barrier and sterility. They are used in a wide range of consumer and industrial applications and are categorized as either disposable or durable. We believe spunmelt technology is the fastest-growing manufacturing technology for disposable applications, due to its ability to cost-effectively provide nonwovens with product characteristics including barrier properties, strength, softness and other attributes for disposable applications. It uses large, high-volume equipment to manufacture large rolls of nonwoven fabrics. We use both spunmelt and other manufacturing technologies, but have invested significant capital over the last five years to construct several new spunmelt lines and to restructure several legacy operations.
The global nonwovens market has historically experienced stable growth and favorable pricing dynamics. However, since late 2010, several of our competitors, primarily in the hygiene markets, installed or announced an intent to install, capacity in excess of what we believe to be current market demand in the regions that we conduct business. As additional nonwovens manufacturing capacity entered into commercial production, in excess of market demand, the short-term to mid-term excess supply created unfavorable market dynamics, resulting in a downward pressure on selling prices.
As a result, we have undertaken a series of actions to expand our global capabilities as well as focus on economic leadership. We believe these initiatives will help drive performance in our businesses, improve our overall cost structure and drive value for our stakeholders. The acquisition of Fiberweb further promotes our global capabilities with a differentiated product offering, but also increases our technological diversity with entry into an even broader array of products and applications, both of which reduces our exposure to any one region or manufacturing facility.
Going forward, we believe the global nonwovens market will continue to be driven by:
•
Increases in global demand for disposable products driven by the increase in sanitary standards;
•
Increases in performance standards such as barrier properties, strength, softness and other attributes;
•
Global economic development coupled with the development of new nonwoven applications and technologies; and
•
Shifts to materials and technology that deliver a lower total cost of use.
We believe we have one of the broadest and most advanced technology portfolios in the industry. Our current global footprint, coupled with our access to capital, enables us to continue to realize cost synergies and greater growth from our core operations. In addition, we are investing in technology and new initiatives which will help fuel our future growth. As a result, we believe we are well positioned to remain competitive within our markets as well as leverage our solid foundation across the company to drive future growth.
Our Strategy
Our mission is to provide superior products and services which enable our customers to create a healthier, safer and cleaner world by leveraging our diverse portfolio of assets, technologies and intellectual property to engineer customized solutions for our key customers. We are focused on supplying consistent quality standards from our global footprint, supported by local sales and technical service. We believe that the improved diversity associated with the acquisition of Fiberweb will provide a foundation for enhanced access to clients in highly specialized, niche end markets as well as provide complementary solutions and new technologies to address our customer's desire for innovation and customized solutions. To accomplish our mission and drive continued success, we are focused on the following:

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•
Achieve Economic Leadership and Operational Excellence - We will operate our facilities with a focus on manufacturing excellence, reliability, performance, yield, product quality and consistency in an effort to maximize our value delivered to customers and enhance customer satisfaction. We intend to leverage our global platform and look for opportunities to improve our supply chain management, while offering solutions to customers to reduce their costs and streamline their operations.
•
Grow in New Markets - We intend to leverage our capabilities to strategically redirect resources to systematically pursue growth opportunities in new business that share one or more key characteristics with our core business: customers, distribution channels, products, technologies and value chain. Additional focus directed on higher value niche applications with greater product differentiation, stable pricing, higher margins and lower capital intensity to drive gains in market share.
•
Win in Emerging Markets - We intend to establish stronger positions in emerging markets through partnerships with new customers as well as expand and accelerate growth with existing accounts where we are viewed as a strategic supplier.
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Develop and Attract Top Talent - We strive to build the best talent in the industry, and work as a team to make a positive impact to the organization, our customers and suppliers, and the community.
Our Segments
We manage our business primarily on a geographic basis. Accordingly, we determined our reportable operating segments to be the Americas, Europe, Asia and Oriented Polymers, which are generally based on the nature and location of our customers. The ability to provide consistent high-quality products across a variety of geographies is a strong competitive advantage in serving global customers. In addition, our geographic reach reduces exposure to any one region or manufacturing facility. The acquisition of Fiberweb will broaden the scope of our customer base to afford us with access to customers operating in highly specialized niche end markets. It will also provide us with entry into an even broader array of applications, further diversifying the business and reducing exposure to volatility in any one application. Together, these elements will lead to a stronger, better positioned company with greater profitability, cash flow and customer satisfaction.
In April 2012, we repositioned the organization to consolidate the benefits of our global footprint, align resources and capabilities with future growth opportunities and provide for a more efficient structure to serve existing markets. As part of the change, the Company eliminated the Latin America Nonwovens segment and merged it with the U.S. Nonwoven segment to create the Americas Nonwoven segment. Further information regarding our reportable operating segments may be found in Part II, Item 7 of this 10-K under the subheading "Results of Operations" and in Part II, Item 8 of this Form 10-K in the Notes to Consolidated Financial Statements within Note 23, "Segment Information."
Nonwovens Segments
The Nonwovens Segments develop and sell products that are critical substrates and components used in various consumer and industrial products. Our key customers include global and regional manufacturers such as Procter & Gamble (diapers, feminine sanitary protection, household wipes), Kimberly-Clark (diapers, surgical drapes, face masks) and Cardinal Health (surgical drapes, medical accessories). Combined, these segments had total net sales of $1,149.8 million in fiscal 2013, of which, one customer represented more than 10% of our business.
Hygiene Applications
For hygiene applications, our substrates are critical components providing superior absorbency, barrier properties, strength, fit, and softness in baby diapers, feminine hygiene products, adult incontinence products, and training pants. Our broad product offering provides customers with a full range of these specialized and highly engineered components, including top sheet, transfer layer, backsheet fabric, leg cuff fabric, sanitary protective facings, and absorbent pads for incontinence guard, panty shield, and absorbent core applications. We frequently partner with select, industry-leading manufacturers to jointly develop innovative products to meet changing consumer demands. We believe we are differentiated by our ability to serve global manufacturers while providing substrate consistency across geographical regions.
Healthcare Applications
Our healthcare products are high-performance materials that are used in disposable surgical packs, surgical gowns and drapes, face masks, shoe covers and wound care sponges and dressings. Our nonwovens feature characteristics and properties which address barrier performance, breathability, strength and softness. Our customers’ healthcare end products are predominantly manufactured in lower labor cost countries, such as China, for export to Western markets. Our high-quality finished nonwoven

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manufacturing capabilities in China, located strategically near the manufacturing and converting operations of our customers, combined with our global position, provide a competitive advantage in serving these customers.
Wipes Applications
We produce nonwoven products for consumer wipes applications, which include personal care and facial wipes, baby wipes, household cleaning wipes as well as nonwovens used as substrates for dryer sheets. We also directly market a line of packaged wipes under our Chix brand to industrial, foodservice, and janitorial customers. Wipes producers rely on nonwovens to provide enhanced characteristics such as superior absorbency, strength, durability and softness, which enable product performance to meet customer demands. Other key features include abrasiveness and liquid dispensability.
Building & Geosysthetics Applications
Our nonwovens serve a diverse collection of industrial applications used in the building and construction markets. Primary characteristics of these materials include, fire-resistance and barrier protection, insulation and durability. The acquisition of Fiberweb provided complimentary building and construction products with meaningful brand equity as well as the addition of their Geosynthetics segment. Products in this business include various specialty materials used to improve the environmental impact of civil engineering and construction, which deepened and broadened our product base.
Technical Specialties Applications
Nonwovens can be engineered to serve a large range of characteristics that meet stringent, diverse performance demands. As a result, our nonwovens serve a diverse collection of specialty industrial end product applications which include the filtration, home furnishings, agriculture, cable wrap, composites and industrial packaging markets. Primary characteristics of these materials include durability, efficiency, barrier protection and insulation. We focus on applications where our technological capabilities enable us to effectively serve customers who place significant value on highly engineered, high performance and tailored materials. The acquisition of Fiberweb increased our presence and capabilities to serve theses applications in the filtration and other specialty applications.
Oriented Polymers Segment
The Oriented Polymers segment utilizes extruded polyolefin processes and woven technologies to produce a wide array of products for industrial packaging, building and agriculture applications. Previously, this segment included the assets of Difco Performance Fibers, Inc ("Difco"), our former woven protective apparel business and the assets of FabPro Oriented Polymers, LLC ("FabPro"), our concrete fiber, agricultural twine and netting business. This segment had total net sales of $65.1 million in fiscal 2013.
Expansion and Optimization
Over the past five years, we have undertaken a series of actions to expand our global capabilities as well as to focus on operational excellence. Initiatives include capacity expansion projects, plant consolidations, plant alignment, acquisitions and divestitures. We believe these initiatives will help drive performance in our businesses, improve our overall cost structure and drive value for our stakeholders.
Providência Acquisition
On January 27, 2014, we 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 will acquire a 71% controlling interest in Providência (the “Potential Acquisition”). Following the closing of the Potential Acquisition, pursuant to Brazilian Corporation Law and Providência’s Bylaws, PGI Acquisition Company will be required to launch a tender offer on substantially the same terms and conditions of the Stock Purchase Agreement to acquire the remaining outstanding capital stock of Providência from the minority shareholders (the “Mandatory Tender Offer”). We expect to fund the Potential Acquisition and the Mandatory Tender Offer with new secured and/or unsecured debt. We have obtained approximately $570.0 million of financing commitments from lenders in connection with the Potential Acquisition. Completion of the transaction is subject to customary closing conditions, including approval of the Potential Acquisition by antitrust authorities. Providência is a leading manufacturer of nonwovens primarily used in hygiene applications as well as industrial and healthcare applications. Based in Brazil, Providência has four locations, including one in the United States.
Fiberweb Acquisition

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On September 17, 2013, PGI Acquisition Limited, a wholly-owned subsidiary of the Company, entered into an agreement with Fiberweb containing the terms of a cash offer to purchase 100% of the issued and to be issued ordinary share capital of Fiberweb at a cash price of £1.02 per share (the "Acquisition"). Under the terms of the agreement, Fiberweb would become a wholly-owned subsidiary of the Company. The offer was effected by a court sanctioned scheme of arrangement of Fiberweb under Part 26 of the UK Companies Act 2006 and consummated on November 15, 2013 (the "Acquisition Date"). The aggregate purchase price was valued at $287.8 million and funded on November 27, 2013 with the proceeds of borrowings under a $268.0 million Senior Secured Bridge Credit Agreement and a $50.0 million Senior Unsecured Bridge Credit Agreement (together, the "Bridge Facilities"). The Bridge Facilities were subsequently refinanced, along with transaction expenses, with the proceeds from a $295.0 million Senior Secured Credit Agreement (the "Term Loans") and a $30.7 million equity investment from Blackstone. Fiberweb is one of the largest global manufacturers of specialized technical fabrics with eight production sites in six countries. The Acquisition will provide us with an entrance into attractive niche industrial applications such as filtration, dryer sheets and house wrap, which have a higher degree of specialization and a higher value contribution of nonwoven inputs to end products.
Expansion Initiatives
In order to address the growing demand for hygiene and healthcare products, we have completed four capacity expansions since 2009. In addition, we recently commenced the upgrade of a manufacturing line at our facility located near Buenos Aires, Argentina and announced the strategic investment to upgrade machinery and expand our manufacturing facility in Waynesboro, Virginia, both of which are expected to be completed by the end of 2014. A description of our completed capacity expansion initiatives are as follows:
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In the second quarter of 2013, our spunmelt hygiene line in Suzhou, China commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in hygiene applications in China.
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In the third quarter of 2011, our spunmelt line in Waynesboro, Virginia commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in hygiene and healthcare applications in the U.S.
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In the third quarter of 2011, our spunmelt healthcare line in Suzhou, China commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in healthcare applications in China.
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In the second quarter of 2009, our spunmelt line in San Luis Potosi, Mexico commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in hygiene and healthcare applications in the U.S. and Mexico.
Our expansion projects are funded using a combination of existing cash balances, internal cash flows and financing arrangements with third-party financial institutions. We intend to continue to expand in markets we believe have attractive supply and demand characteristics as well as maintain and upgrade manufacturing lines to improve our global competitive position.
Optimization Initiatives to Achieve Economic Leadership
We actively and continuously pursue initiatives to prolong the useful life of our assets through product and process innovation. In some instances, we have determined that our fixed cost structure would be enhanced through consolidation. While investing in several new manufacturing lines in high-growth regions, we have simultaneously undertaken a number of initiatives to rationalize low-margin legacy operations and relocate certain assets to improve our cost structure. These initiatives are intended to result in lower working capital levels and improve operating performance and profitability. Our strategy with respect to past consolidation efforts in the U.S. and Europe was focused on the elimination of costs associated with underutilized legacy capacity, and we believe our current footprint reflects an appropriate and sustainable asset base.
Other Acquisitions and Divestitures
On April 29, 2011, we entered into an agreement to sell certain assets and the working capital of Difco for cash proceeds of $10.9 million. The agreement provided that Difco would continue to produce goods during the three month manufacturing transition services agreement that expired in the third quarter of 2011. The sale was completed on May 10, 2011 and resulted in a loss of $0.7 million recognized during the eleven months ended December 31, 2011.
On May 26, 2010, we signed an equity transfer agreement (the "Agreement") to purchase the remaining 20% interest in our Chinese subsidiary, Nanhai Nanxin Non-Woven Co. Ltd, subject to Chinese government approval. Pursuant to the Agreement, we deposited $1.5 million into an escrow account with a bank to serve as a performance guarantee. On March 9, 2011, we received government approval and subsequently completed the noncontrolling interest acquisition for a purchase price of $7.2 million. The acquisition was accounted as an equity transaction in which no gain or loss was recognized.

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On December 2, 2009, we completed an acquisition from Grupo Corinpa S.L of certain assets and the operations of the nonwovens business of Tesalca-99, S.A. and Texnovo, S.A. (the “Sellers”) located in Barcelona, Spain. Consideration for the acquired assets consisted of 1.049 million shares of the Predecessor's Class A common stock which had a fair value of $14.5 million on the date of acquisition. The agreement contained a provision under which the Sellers were granted a put option on the Sellers land, building and equipment that were included in a lease under which we were provided full and exclusive use of the assets. In addition, the agreement contained a provision under which we were granted a call option for the same assets. On January 28, 2011, immediately prior to the Merger, we exercised our call option and purchased the remaining assets for an aggregate purchase price of $41.2 million.
Competition
Our products are sold in highly competitive markets throughout the world. Due to the diversity of the products we sell and the variety of markets we serve, we encounter a wide variety of regional and global competitors that vary by product line. They include well-established regional competitors, competitors who are more specialized than we are in particular markets, as well as larger companies or divisions of larger companies with substantial sales, marketing, research, and financial capabilities. Generally, the principal methods of competition in these markets relate to product innovation and performance, product quality, service, distribution and cost. In addition, technical support is highly valued by the largest customers.
The primary competitors in our nonwoven product applications include Ahlstrom Corporation, Avgol Industries Ltd., Companhia Providência Indústria e Comércio, E.I. du Pont de Nemours & Co., First Quality Enterprises, Inc., Fitesa, Toray Saehan, Inc. and Mitsui Chemicals, Inc., among others. Our primary competitor in the oriented polymers segment is Intertape Polymer Group Inc. Recently, we have been facing increased competition in a number of our served areas as several competitors have announced the intent to install or installed additional capacity into the market.
Raw Materials
The primary raw materials used to manufacture most of our products are polypropylene resin, polyester fiber, polyethylene resin and, to a lesser extent, rayon and tissue paper. These raw materials are available from multiple sources and we purchase such materials from a variety of global suppliers. In certain regions of the world, we may source certain raw materials from a limited number of suppliers or on a sole-source basis. In addition, to the extent that we cannot procure our raw material requirements from a local country supplier, we will import raw materials from outside refiners.
We believe that the loss of any one or more of our suppliers would not have a long-term material adverse effect on us because other suppliers with whom we conduct business would be able to fulfill our long-term requirements. However, the loss of certain of our suppliers or the delay in the import of raw materials could, in the short-term, adversely affect our business until alternative supply arrangements are secured and the respective suppliers were qualified with our customers, or when importation delays of raw material are resolved. We have not historically experienced, and do not expect, any significant disruptions in the long-term supply of raw materials.
Inventory and Backlogs
At December 28, 2013 and December 29, 2012, our inventory balance was $156.4 million and $95.0 million, respectively. As a result, our days of inventory on hand represented 41 days at December 28, 2013 and 38 days at December 29, 2012. Unfilled orders as of December 28, 2013 and December 29, 2012 amounted to approximately $145.2 million and $112.0 million, respectively. The level of unfilled orders is affected by many factors, including the timing of orders and the delivery time for the specific products. Consequently, we do not consider the amount of unfilled orders a meaningful indicator of future sales.
Patents and Trademarks
We consider our patents and trademarks to be important to our business and seek to protect our proprietary know-how in part through United States and foreign patent and trademark registrations. We have a total of over 1,100 pending and approved trademark and domain name registrations worldwide and over 800 pending and approved patents worldwide, and maintain certain trade secrets.
Research and Development
We engage in research and development activities in an effort to introduce new products, enhance existing products effectiveness, increase safety, improve ease of use and reliability as well as expand the various applications for which our products may be appropriate. In addition, we continually evaluate developing technologies in areas that we believe will enhance our business for possible investment or acquisition. We will continue to make expenditures for research and development activities as we look to maintain and improve our competitive position.

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Environmental Regulations
We are subject to a broad range of federal, foreign, state and local laws and regulations relating to the pollution and protection of the environment. Various environmental requirements are applicable to us, including laws relating to air emissions, wastewater discharges, the handling, disposal and release of solid and hazardous substances and wastes and remediation of soil, surface and groundwater contamination. We believe we are in substantial compliance with current applicable environmental requirements and do not currently anticipate any material adverse effect on our operations, financial or competitive position as a result of our efforts to comply with environmental requirements. However, some risk of environmental liability is inherent due to the nature of our business and, accordingly, there can be no assurance that material environmental liabilities will not arise.
Seasonality
Historically, use and consumption of our products in most regions and markets do not fluctuate significantly due to seasonality. However, with the acquisition of Fiberweb, we expect to see increased exposure to seasonality in certain markets, such as the building and construction, agriculture and geosynthetics markets, as sales volumes correspond to the applicable building or growing season as the case may be.
Employees
As of December 28, 2013, the Company had approximately 4,000 employees worldwide. Of this total, approximately 40% of these employees are represented by labor unions or trade councils that have entered into separate collective bargaining agreements with the Company. All of these collective bargaining agreements will expire within one year. We believe our employee relations are satisfactory.
Iran Related Disclosure
Under the Iran Threat Reduction and Syrian Human Rights Act of 2012, which added Section 13(r) of the Exchange Act, we are required to include certain disclosures in our periodic reports if we or any of our “affiliates” knowingly engaged in certain specified activities during the period covered by the report. Because the SEC defines the term “affiliate” broadly, it includes any entity controlled by us as well as any person or entity that controls us or is under common control with us (“control” is also defined broadly by the SEC). We are not presently aware that we have knowingly engaged in any transaction or dealing reportable under Section 13(r) of the Exchange Act during the year ended December 28, 2013. Except as described below, we are not presently aware of any such reportable transactions or dealings by other such companies.
Blackstone informed us that Travelport Limited, a company that may be considered one of its affiliates, included a disclosure in its annual report on Form 10-K as filed with the SEC on March 10, 2014 as required by Section 13(r) of the Exchange Act. We have no involvement in or control over the activities of Travelport Limited, any of their respective predecessor companies or any of their subsidiaries, and we have not independently verified or participated in the preparation of any of their disclosures.
Additional Information
In accordance with the requirements of the Securities Exchange Act of 1934, we file reports and other information with the Securities and Exchange Commission (the "SEC"). The public may read and, for a fee, copy any document that we file with the SEC at the public reference room maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. Our SEC filings are also available to the public from commercial document retrieval services and at the website maintained by the SEC at www.sec.gov.
In addition, our website is located at www.polymergroupinc.com. Through the website, we make available, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) under the Securities Exchange Act. These reports are available as soon as reasonably practicable after they have been electronically filed with the Securities and Exchange Commission.

10

ITEM 1A. RISK FACTORS
Set forth below are risks and uncertainties that, if they were to occur, could materially and adversely affect our business, financial condition, cash flows or results of operations or could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements made by us.
Bondholders and prospective investors should carefully consider and evaluate all of the risk factors described below. These risk factors may change from time to time and may be amended, supplemented, or superseded by updates to the risk factors contained in periodic reports on Form 10-Q and Form 10-K that we file with the Securities and Exchange Commission in the future.
Risks Related To Our Business
Because the specialized markets in which we sell our products are highly competitive, we may have difficulty growing our business year after year and maintaining profit margins.
The markets for our products are highly competitive. The primary competitive factors include product innovation and performance, quality, service, cost, distribution and technical support. In addition, we compete against a number of competitors in each of our markets. Some of these competitors are larger companies that have greater financial, technological, manufacturing and marketing resources than we do. A reduction in overall demand, a significant increase in manufacturing market capacity in excess of market demand or increased costs to design and produce our products would likely further increase competition and that increased competition could cause us to reduce our prices, which could lower our profit margins and impair our ability to grow from year to year.
We must continue to invest significant resources in developing innovative products in order to maintain a competitive edge in the highly specialized markets in which we operate.
Our continued success depends, in part, upon our ability to maintain our technological capabilities and to continue to identify, develop and commercialize innovative products for the nonwoven and oriented polymer industries. We must also protect the intellectual property rights underlying our new products to realize the full benefits of our efforts. If we fail to continue to develop products for our markets or to keep pace with technological developments by our competitors, we may lose market share, which could reduce product sales, lower our profits and impair our financial condition.
The loss of any of our large volume customers could significantly reduce our revenues and profits.
A significant amount of our products are sold to large volume customers. We have one major customer that accounts for over 10% of our business and our 20 largest customers represented approximately 60% of our sales in 2013. As a result, a decrease in business from, or the loss of any large volume customers, could materially reduce our product sales, lower our profits and impair our financial condition.
Increases in prices for raw materials and energy could reduce our profit margins.
The primary raw materials used to manufacture most of our products are polypropylene resins, polyester fiber, polyethylene resin and, to a lesser extent, rayon and tissue paper. In addition, energy related costs are a significant expense for us. The prices of raw materials and energy can be volatile and are susceptible to rapid and substantial changes due to factors beyond our control such as changing economic conditions, currency fluctuations, political unrest and instability in energy-producing nations, and supply and demand considerations. To the extent that we are able to pass along raw material price increases to some of our customers, there is often a delay between the time we are required to pay the increased raw material price and the time we are able to pass the increase on to our customers. To the extent we are not able to pass along all or a portion of such increased prices of raw materials, our cost of goods sold would increase and our operating income would correspondingly decrease. There can be no assurance that the prices of raw materials and energy will not increase in the future or that we will be able to pass on any increases to our customers. Material increases in raw material and energy prices that cannot be passed on to customers could have a material adverse effect on our profit margins, results of operations and financial condition.
Delay in the procurement of raw materials could reduce our revenues and profits.
In certain regions of the world, we may source certain key raw materials from a limited number of suppliers or on a sole source basis. In addition, to the extent that we cannot procure our raw material requirements from a local country supplier, we will import raw materials from outside refiners. The loss of any of our key suppliers or the delay in the import of raw materials could, in the short-term, adversely affect our business until alternative supply arrangements are secured and the respective suppliers

11

are qualified with our customers, or until importation delays of raw material are resolved. Accordingly, a delay in the procurement of raw materials could reduce product sales, lower our profits and impair our financial condition.
Reductions in our selling prices to customers could reduce our profit margins.
In cases where changes in our selling prices to customers are determined via contract based on changes in an underlying raw material price index, such as the index for polypropylene, and the index decreases, sales would decrease and our operating income would correspondingly decrease if we are not able to obtain corresponding reductions in our raw material costs. Such decreases in operating income could be material. There can be no assurance that the index used in such contracts will not decrease in the future or that we will be able to obtain corresponding reductions in our raw material costs. Additionally, unfavorable market dynamics could cause us to lower our selling prices without a change in raw material cost.
A material disruption at one of our manufacturing facilities could prevent us from meeting customer demand, reduce our sales or negatively affect our results of operation and financial condition.
Any of our manufacturing facilities, or any of our machines or equipment within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:
•unscheduled maintenance outages;
•prolonged power failures;
•an equipment failure;
•a chemical spill or release;
•labor difficulties;
•disruptions in transportation infrastructure, including roads, bridges, railroad tracks and tunnels;
•fires, floods, windstorms, earthquakes, hurricanes or other catastrophes;
•terrorism or threats of terrorism;
•governmental regulations; and
•other operational problems.
Any such disruption could prevent us from meeting customer orders, reduce our sales or profits and negatively affect our results of operations and financial condition.
We rely on a limited number of suppliers to provide significant machinery and components used in our production facilities. A material interruption in supply could prevent or limit our ability to accept and fill orders for our products.
We currently depend upon a limited number of outside unaffiliated suppliers for key machinery and components used in our manufacturing and converting facilities. We cannot produce most of our nonwoven and oriented polyolefin products within the specifications required by our customers without such key machinery and components. If any of our suppliers cease to provide new machinery and components or replacement parts for existing machinery and components in sufficient quantity to meet our needs, there may not be adequate alternative sources of supply. To date, we have been able to obtain the required machinery and components to allow us to expand our business and supply products to our customers within their required specifications without any significant delays or interruptions. Obtaining alternative sources of such machinery and components could involve significant delays and other costs, and these supply sources may not be available to us on reasonable terms or at all. In some cases, we expect that it would take several months, or longer, for a new supplier to begin providing machinery and components to specification. Any disruption of machinery and component supplies could result in lost or deferred sales which could adversely affect our business and financial results.
Because a significant number of our employees are represented by labor unions or trade councils and work under collective bargaining agreements, any employee slowdown or strikes or the failure to renew our collective bargaining agreements could disrupt our business.
As of December 28, 2013, approximately 40% of our employees were represented by labor unions or trade councils and worked under collective bargaining agreements, all of which expire within one year. We may not be able to maintain constructive relationships with these labor unions or trade councils. We may not be able to successfully negotiate new collective bargaining agreements on satisfactory terms in the future. The loss of a substantial number of these employees or a prolonged labor dispute could disrupt our business. Any such disruption could reduce our revenues, increase our costs and result in significant losses.
The success of our business depends, in part, on achieving our objectives for strategic acquisitions and dispositions.

12

We may pursue acquisitions or joint ventures as part of our long-term business strategy. In pursuing these transactions, we may encounter significant challenges and risks including that the transaction does not advance our business strategy, that we do not realize a satisfactory return on the investment made, that we increase our debt levels beyond what the acquired business can support, or that we experience difficulty in completing such transactions or in the integration of new operations, employees, business systems, and technology, or diversion of management’s attention from our other businesses. These factors could adversely affect our operating results or financial condition.
We may, as part of our long-term business strategy, evaluate the potential disposition of assets and businesses that may no longer be in alignment with our strategic direction. When we decide to sell assets or businesses, we may encounter difficulty finding buyers or alternative exit strategies on acceptable terms in a timely manner, which could delay the accomplishment of strategic objectives, or we may dispose of a business at a price or on terms which are less than optimal. In addition, there is a risk that we sell a business whose subsequent performance exceeds expectations, in which case the decision would have potentially sacrificed enterprise value. Alternatively, we may be too optimistic about a particular business’s prospects, in which case we may be unable to find a buyer at an acceptable price or sacrifice enterprise value by retaining such business.
Our international operations pose risks to our business that may not be present with our domestic operations.
Our manufacturing facilities in the United States accounted for approximately 31% of net sales for 2013, with facilities in Europe, Latin America, Canada and Asia accounting for approximately 69% of net sales for the same period. As part of our growth strategy, we may expand operations in foreign countries where we have an existing presence or enter new foreign markets. Our foreign operations are, and any future foreign operations will be, subject to certain risks that are unique to doing business in foreign countries. These risks include fluctuations in foreign currency exchange rates, inflation, economic or political instability, shipping delays in both our products and receiving delays of raw materials, changes in applicable laws, including assessments of income and non-income related taxes, reduced protection of intellectual property and regulatory policies and various trade restrictions including potential changes to export taxes or countervailing and anti-dumping duties for exported products from these countries. Any of these risks could have a negative impact on our ability to deliver products to customers on a competitive and timely basis. This could reduce or impair our net sales, profits, cash flows and financial position. We have not historically hedged our exposure to foreign currency risk except for risk associated with certain capital spending projects.
We generate most of our revenue from the sale of manufactured products that are used in a wide variety of consumer and industrial applications and the potential for product liability exposure could be significant.
We manufacture a wide variety of products that are used in consumer and industrial applications, such as disposable diapers, baby wipes, surgical gowns, wound dressings, carpet backing and industrial packaging. As a result, we may face exposure to product liability claims in the event that the failure of our products results, or is alleged to result, in property damage, bodily injury and/or death. In addition, if any of our products are, or are alleged to be, defective, we may be required to make warranty payments or to participate in a recall of those products.
The future costs associated with defending product liability claims or responding to product warranty claims could be material and we may experience significant losses in the future as a result. A successful product liability claim brought against us in excess of available insurance coverage or a requirement to participate in any product recall could substantially reduce our profitability and cash generated from operations.
We could incur substantial costs to comply with environmental laws, and violations of such laws may increase costs or require us to change certain business practices.
We use and generate a variety of chemicals in our manufacturing operations. As a result, we are subject to a broad range of federal, state, local and foreign environmental laws and regulations. These environmental laws govern, among other things, air emissions, wastewater discharges, the handling, storage and release of wastes and hazardous substances and cleanup of contaminated sites. We regularly incur costs to comply with environmental requirements, and such costs could increase significantly with changes in legal requirements or their interpretation or enforcement. For example, certain local governments have adopted ordinances prohibiting or restricting the use or disposal of certain plastic products, such as certain of the plastic wrapping materials that we produce. Widespread adoption of such prohibitions or restrictions could adversely affect demand for our products and thereby have a material adverse effect upon us. In addition, a decline in consumer preference for plastic products due to environmental considerations could have a material adverse effect upon us. We could incur substantial costs, including clean-up costs, fines and sanctions and third-party property damage or personal injury claims, as a result of violations of environmental laws. Failure to comply with environmental requirements could also result in enforcement actions that materially limit or otherwise affect our operations at our manufacturing facilities. We are also subject to laws, such as the CERCLA, that may impose liability retroactively and without fault for releases or threatened releases of regulated materials at on-site or off-site locations.

13

Additionally, greenhouse gas (“GHG”) emissions have increasingly become the subject of a large amount of international, national, regional, state and local attention. Cap and trade initiatives to limit GHG emissions have been enacted in the European Union. Numerous bills related to climate change have been introduced in the U.S. Congress, and various states have taken or are considering actions to regulate GHG emissions, which could adversely impact many industries including our suppliers or customers, which may result in higher costs or other impacts to our business. Within the U.S., most of these proposals would regulate and/or tax, in one fashion or another, the production of carbon dioxide and other GHGs to facilitate the reduction of carbon compound emissions to the atmosphere, and provide tax and other incentives to produce and use more clean energy.
If we are unable to adequately protect our intellectual property, we could lose a significant competitive advantage.
Our success depends, in part, on our ability to protect our technologies and products against competitive pressure and to defend our intellectual property rights. If we fail to adequately protect our intellectual property rights, competitors may manufacture and market similar products, which could adversely affect our market share and results of operations. We consider our patents and trademarks, in the aggregate, to be important to our business and seek to protect our proprietary know-how in part through United States and foreign patent and trademark registrations. We have a total of over 1,100 pending and approved trademark and domain name registrations worldwide and over 800 pending and approved patents worldwide, and maintain certain trade secrets. We may not receive patents for all our pending patent applications, and existing or future patents or licenses may not provide competitive advantages for our products. Our competitors may challenge, invalidate or avoid the application of any existing or future patents, trademarks, or other intellectual property rights that we receive or license. In addition, patent rights may not prevent our competitors from developing, using or selling products that are similar or functionally equivalent to our products. The loss of protection for our intellectual property could reduce the market value of our products, reduce product sales, lower our profits, and impair our financial condition.
We may not be able to recover the carrying value of our long-lived assets, which could require us to record additional asset impairment charges and materially and adversely affect our results of operations.
Property, plant and equipment represent a significant portion of our assets. Restructuring initiatives and changing market conditions can impact our ability to recover the carrying value of our long-lived assets. The continuing presence of these factors, as well as other factors, could require us to record asset impairment charges in future periods which could materially and adversely affect our results of operations.
Goodwill and other identifiable intangible assets represent a significant portion of our total assets, and we may never realize the full value of our intangible assets.
Goodwill and other intangible assets represent a significant portion of our assets. Goodwill is the excess of cost over the fair market value of net assets acquired in business combinations. In the future, goodwill and intangible assets may increase as a result of future acquisitions. We review goodwill and intangible assets for impairment at least annually for impairment. Impairment may result from, among other things, deterioration in performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services we sell, challenges to the validity of certain registered intellectual property, reduced sales of certain products incorporating registered intellectual property, and a variety of other factors. Any impairment of goodwill or other intangible assets would result in a non-cash charge against earnings, which would adversely affect our results of operations.
If we fail to maintain effective internal control over financial reporting at a reasonable assurance level, we may not be able to accurately report our financial results, and may require the restatement of previously published financial information which could have a material adverse effect on our operations, investor confidence in our business and the trading prices of our securities.
We have identified past accounting errors which resulted in the restatement of previously issued financial statements, including the financial statements for the fiscal years ended January 2, 2010 and January 1, 2011. Such accounting errors resulted from a material weakness and other identified deficiencies in our internal control over financial reporting associated with processes related to (i) the preparation and adjustment of our tax accounts and (ii) intercompany reconciliations. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
We have designed and have implemented extensive remediation programs to address these internal control deficiencies and material weaknesses and to strengthen our internal controls over financial reporting. Management believes that our remediation efforts have been effective with respect to our internal control over financial reporting associated with tax accounting and intercompany reconciliations and that the previous material weaknesses in our internal controls have been remediated. Management concluded that our internal controls over financial reporting are both designed and operating effectively as of December 28, 2013.

14

If additional material weaknesses in our internal controls are discovered in the future, they may adversely affect our ability to record, process, summarize and report financial information timely and accurately and, as a result, we may fail to prevent or detect material misstatements in our annual or interim financial statements.
In addition, it is possible that control deficiencies could be identified by our management or by our independent registered accounting firm in the future or may occur without being identified. Such a failure could result in regulatory scrutiny, cause investors to lose confidence in our reported financial condition, lead to a default under our indebtedness and otherwise materially adversely affect our business and financial condition.
The failure of our information technology systems could disrupt our business operations which could have a material adverse effect on our business, financial condition and/or results of operations.
The operation of our business depends on our information technology systems. The failure of our information technology systems to perform as we anticipate could disrupt our business and could result in, among other things, transaction errors, processing inefficiencies, loss of data and the loss of sales and customers, which could cause our business and results of operations to suffer. In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including, without limitation, fire, natural disasters, power outages, systems failure, system conversions, security breaches, cyber-attacks, viruses and/or human error. In any such event, we could be required to make a significant investment to fix or replace information technology systems, and we could experience interruptions in our ability to service our customers. Any such damage or interruption could adversely effect our business, financial condition and/or results of operations.
The loss of our senior management could disrupt our business.
Our senior management is important to the success of our business because there is significant competition for executive personnel with experience in the nonwoven and oriented polyolefin industries. As a result of this need and the competition for a limited pool of industry-based executive experience, we may not be able to retain our existing senior management. In addition, we may not be able to fill new positions or vacancies created by expansion or turnover. The loss of any member of our senior management team without retaining a suitable replacement (either from inside or outside our existing management team) could restrict our ability to enhance existing products in a timely manner, sell products to our customers or manage the business effectively.
Blackstone owns substantially all of the equity interests in us and may have conflicts of interest with us or the holders of the Senior Secured Notes in the future.
As a result of the Merger, Blackstone owns a substantial majority of our capital stock, and Blackstone's designees hold a majority of the seats on our board of directors. As a result, Blackstone will have control over our decisions to enter into any corporate transaction and will have the ability to prevent any transaction that requires the approval of stockholders regardless of whether holders of our Senior Secured Notes believe that any such transactions are in their own best interests.
For example, affiliates of Blackstone could collectively cause us to make acquisitions that increase the amount of our indebtedness or to sell assets, or could cause us to issue additional capital stock or declare dividends. So long as Blackstone continues to indirectly own a significant amount of the outstanding shares of our common stock, affiliates of Blackstone will continue to be able to strongly influence or effectively control our decisions. The indenture governing the Senior Secured Notes and the credit agreement governing our senior secured asset-based revolving credit facility (the "ABL Facility") will permit us to pay advisory and other fees, dividends and make other restricted payments to Blackstone under certain circumstances and Blackstone or its affiliates may have an interest in our doing so. In addition, Blackstone has no obligation to provide us with any additional debt or equity financing.
Blackstone is in the business of making investments in companies and may from time to time acquire and hold interests in businesses that compete directly or indirectly with us or that supply us with goods and services. Blackstone may also pursue acquisition opportunities that may be complementary to our business and, as a result, those acquisition opportunities may not be available to us.
Risks Relating to Our Indebtedness
Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our indebtedness.
We have a substantial amount of debt, which requires significant interest and principal payments. As of December 28, 2013, our total debt was approximately $896.7 million. Our high level of debt could have important consequences, including the following:
•
making it more difficult for us to satisfy our obligations with respect to our debt;

15

•
limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions or other general corporate requirements;
•
requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, acquisitions and other general corporate purposes;
•
increasing our vulnerability to general adverse economic and industry conditions;
•
exposing us to the risk of increased interest rates as certain of our borrowings are at variable rates of interest;
•
limiting our flexibility in planning for and reacting to changes in the industry in which we compete;
•
placing us at a disadvantage compared to other, less leveraged competitors; and
•
increasing our cost of borrowing.
Despite our current level of indebtedness, we may be able to incur substantially more debt. This could further exacerbate the risks to our financial condition described above.
We may be able to incur significant additional indebtedness in the future. Although the indenture governing the Senior Secured Notes and the credit agreements governing the ABL Facility and the Term Loans contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of qualifications and exceptions and additional indebtedness incurred in compliance with these restrictions could be substantial.
For example, there is no limit under the indenture governing the Senior Secured Notes or under the credit agreements governing the ABL Facility and the Term Loans on the amount of the indebtedness that Polymer Group and its subsidiaries that are guarantors of the Senior Secured Notes can incur if the Fixed Charge Coverage Ratio (as such term is defined in the indenture and the credit agreement governing the Term Loans), determined on a pro forma basis, is at least 2.00 to 1.00. In addition, the indenture and the credit agreements include a number of negotiated exceptions, or “baskets” allowing Polymer Group or any of its restricted subsidiaries to incur specified additional indebtedness. For example, both the indenture and the credit agreements include a basket providing for additional indebtedness up to the greater of $75 million and 5% of Total Assets (as such term is defined in the indenture and the credit agreements). The restrictions contained in the indenture and the credit agreements also will not prevent us from incurring obligations, such as trade payables, that do not constitute indebtedness as defined under our debt instruments. In addition, our ABL Facility provides for unused commitments of $37.5 million (subject to availability under a borrowing base and after giving effect to $11.0 million of outstanding letters of credit) as of December 28, 2013. Furthermore, we may increase our commitments under our ABL Facility without the consent of lenders under our ABL Facility other than those lenders, who, in their discretion, issue a commitment to provide all or a portion of such increase by up to an additional $75.0 million, subject to certain customary conditions, and available debt capacity under the indenture governing the Senior Secured Notes and the credit agreement governing the Term Loans. In addition, we expect to fund the potential acquisition of Providência and the Mandatory Tender Offer with new secured and/or unsecured debt. If we complete the acquisition of Providência, we expect to incur additional debt, and we have obtained $570.0 million of financing commitments from lenders. To the extent new debt is added to our currently anticipated debt levels, the substantial leverage risks described in the previous risk factor would increase.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.
Borrowings under our ABL Facility, the Term Loans and certain of our foreign indebtedness are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.
We may be unable to service our indebtedness.
Our ability to make scheduled payments on and to refinance our indebtedness depends on and is subject to our financial and operating performance, which in turn is affected by general and regional economic, financial, competitive, business and other factors beyond our control, including the availability of financing in the international banking and capital markets. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us in an amount sufficient to enable us to service our debt, to refinance our debt or to fund our other liquidity needs. If we are unable to meet our debt service obligations or to fund our other liquidity needs, we will need to restructure or refinance all or a portion of our debt which could cause us to default on our debt obligations and impair our liquidity. Any refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants that could further restrict our business operations.

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Moreover, in the event of a default, the holders of our indebtedness, including the Senior Secured Notes, the Term Loans and the ABL Facility, could elect to declare all the funds borrowed to be due and payable, together with accrued and unpaid interest. The lenders under our ABL Facility could also elect to terminate their commitments thereunder, cease making further loans, and institute foreclosure proceedings against their collateral, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under our ABL Facility to avoid being in default. If we breach our covenants under our ABL Facility, we would be in default under our ABL Facility. The lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
The indenture governing the Senior Secured Notes, the credit agreements governing our ABL Facility, the Term Loans and the Lease Agreements associated with two of our U.S. spunmelt lines (the "Lease Agreements") impose significant operating and financial restrictions on us, which may prevent us from capitalizing on business opportunities.
The indenture governing the Senior Secured Notes, the credit agreements governing our ABL Facility, the Term Loans and the Lease Agreements associated with the two of our U.S. spunmelt line impose significant operating and financial restrictions on us. These restrictions limit our ability to, among other things:
•
incur additional indebtedness, issue preferred stock or enter into sale and leaseback obligations;
•
pay certain dividends or make certain distributions on our capital stock or repurchase or redeem our capital stock;
•
make certain capital expenditures;
•
make certain loans, investments or other restricted payments;
•
place restrictions on the ability of subsidiaries to pay dividends or make other payments to us;
•
engage in transactions with stockholders or affiliates;
•
sell certain assets or engage in mergers, acquisitions and other business combinations;
•
amend or otherwise alter the terms of our indebtedness;
•
alter the business that we conduct;
•
guarantee indebtedness or incur other contingent obligations; and
•
create liens.
In addition, the restrictive covenants in our ABL Facility may require us to maintain a specified financial ratio and satisfy other financial condition tests, under certain conditions. Our ability to comply with those financial ratios and tests can be affected by factors beyond our control. As a result, we are limited as to how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants or could impact compliance with existing restrictive covenants.
We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants. Our failure to comply with the restrictive covenants described above as well as other terms of our existing indebtedness and/or the terms of any future indebtedness from time to time could result in an event of default, which, if not cured or waived, could result in our being required to repay these borrowings before their due date. If we are forced to refinance these borrowings on less favorable terms or cannot refinance these borrowings, our results of operations and financial condition could be adversely affected.
Our failure to comply with the agreements relating to our outstanding indebtedness, including as a result of events beyond our control, could result in an event of default that could materially and adversely affect our results of operations and our financial condition.
If there were an event of default under any of the agreements relating to our outstanding indebtedness, the holders of the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately. We cannot assure you that our assets or cash flow would be sufficient to fully repay borrowings under our outstanding debt instruments if accelerated upon an event of default. Further, if we are unable to repay, refinance or restructure our indebtedness under our secured debt, the holders of such debt could proceed against the collateral securing that indebtedness. In addition, any event of default or declaration of acceleration under one debt instrument could also result in an event of default under one or more of our other debt instruments.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None

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ITEM 2. PROPERTIES
The Company and its subsidiaries operate several manufacturing plants and facilities, a majority of which are owned by us, with the remainder under long-term lease agreements. The Company believes that its facilities are generally well-maintained, in good condition and adequate for our current needs. A list of our principal manufacturing plants and facilities in addition to the principal functions performed at each respective location is as follows:
 
Principal Function
Location
Manufacturing
Warehousing
Research and Development
Sales and Marketing
Administration
Americas Nonwovens
 
 
 
 
 
Benson, North Carolina
X
X
X
—
—
Mooresville, North Carolina
X
X
X
—
—
Old Hickory, Tennessee
X
X
X
X
X
Waynesboro, Virginia
X
X
X
—
—
Buenos Aires, Argentina
X
X
X
X
X
Cali, Colombia
X
X
X
X
X
San Luis, Potosi, Mexico
X
X
X
X
X
 
 
 
 
 
 
Europe Nonwovens
 
 
 
 
 
Bailleul, France
X
X
X
X
X
Biesheim, France
X
X
X
X
X
Aschersleben, Germany
X
X
—
—
—
Berlin, Germany (Leased)
X
X
—
X
X
Terno d'Isola, Italy
X
X
—
X
X
Cuijk, the Netherlands
X
X
X
X
X
Tarragona, Spain
X
X
X
X
—
Aberdare, United Kingdom
X
X
—
—
—
Maldon, United Kingdom
X
X
X
X
X
Mundra, India
X
X
—
—
X
 
 
 
 
 
 
Asia Nonwovens
 
 
 
 
 
Nanhai, China
X
X
—
X
X
Suzhou, China
X
X
X
X
X
 
 
 
 
 
 
Oriented Polymers
 
 
 
 
 
Portland (Clackamas), Oregon
X
X
—
—
—
North Bay (Ontario), Canada
X
X
X
X
X
 
 
 
 
 
 
Global Headquarters
 
 
 
 
 
Charlotte, NC (Leased)
—
—
X
X
X
Capacity utilization during 2013 varied by geographic location and manufacturing capabilities. However, most of the facilities operated moderately below capacity.
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings
We are engaged in the defense of certain claims and lawsuits arising out of the ordinary course and conduct of our business, the outcomes of which are not determinable at this time. We have insurance policies covering such potential losses where such

18

coverage is cost effective. In our opinion, any liability that might be incurred by us upon the resolution of these claims and lawsuits will not, in the aggregate, have a material adverse effect on our financial condition or results of operations.
We are subject to a broad range of federal, foreign, state and local laws and regulations relating to pollution and protection of the environment. We believe that we are currently in substantial compliance with applicable environmental requirements and do not currently anticipate any material adverse effect on our operations, financial or competitive position as a result of our efforts to comply with environmental requirements. Some risk of environmental liability is inherent, however, in the nature of our business and, accordingly, there can be no assurance that material environmental liabilities will not arise.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.

19


PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
As of January 28, 2011, we are a wholly-owned subsidiary of Scorpio Acquisition Corporation, which in turn is wholly owned through an intermediary holding company by affiliates of the Blackstone Group, along with certain members of the Company's management. Accordingly, presently there is no public trading market for our common stock.
We did not pay any dividends during fiscal years 2013, 2012 or 2011. We currently intend to retain future earnings, if any, to finance the further expansion and continued growth of our business. In addition, our indebtedness obligations limit certain restricted payments, which include dividends payable in cash, unless certain conditions are met. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Indebtedness”.
ITEM 6. SELECTED FINANCIAL DATA
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 the Blackstone Group (“Blackstone”), along with certain members of our management (the "Merger"), for an aggregate purchase price valued at $403.5 million. As a result, the Company became a privately-held company. Although the Company continues to operate as the same legal entity subsequent to the acquisition, periods prior to January 28, 2011 reflect the financial position, results of operations, and changes in financial position of the Company prior to the Merger (the “Predecessor”) and periods after January 28, 2011 reflect the financial position, results of operations, and changes in financial position of the Company after the Merger (the “Successor”).
The following table sets forth both the Predecessor and Successor selected historical consolidated financial data for the periods indicated. Selected historical financial data for fiscal years 2009, 2010 and the one month ended January 28, 2011 is derived from the Predecessor's consolidated financial statements as of and for those periods. Selected historical financial data for the eleven months ended December 31, 2011, fiscal year 2012 and fiscal year 2013 is derived from the Successor's consolidated financial statements as of and for those periods. Fiscal year 2009 included the results of operations for a fifty-three week period. Other fiscal years presented below included fifty-two weeks.
On November 15, 2013, the acquisition of Fiberweb became effective pursuant to a court sanctioned scheme of arrangement under Part 26 of the UK Companies Act of 2006 whereby Fiberweb became a wholly-owned subsidiary of the Company. As a result, the results of operations of Fiberweb have been included in the Consolidated Balance Sheet at December 28, 2013 and the Consolidated Statement of Operations since November 15, 2013.
The following selected historical consolidated financial information and other data set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of Part II to this Annual Report on Form 10-K and our consolidated financial statements and related notes thereto included in Item 8 of Part II to this Annual Report on Form 10-K.

20

In thousands
Successor
 
 
Predecessor
Fiscal Year Ended December 28, 2013
Fiscal Year Ended December 29, 2012
Eleven Months Ended December 31, 2011
 
 
One Month Ended January 28, 2011
Fiscal Year Ended
January 1, 2011
January 2, 2010
 
 
 
 
 
 
 
 
 
Statement of Operations:
 
 
 
 
 
 
 
 
Net sales
$
1,214,862

$
1,155,163

$
1,102,929

 
 
$
84,606

$
1,106,211

$
850,605

Cost of goods sold
(1,018,456
)
(957,917
)
(932,523
)
 
 
(68,531
)
(896,319
)
(667,255
)
   Gross profit
196,406

197,246

170,406

 
 
16,075

209,892

183,350

Selling, general and administrative expenses
(153,412
)
(140,776
)
(134,483
)
 
 
(11,564
)
(141,461
)
(113,318
)
Special charges, net
(33,188
)
(19,592
)
(41,345
)
 
 
(20,824
)
(17,993
)
(20,763
)
Acquisition and integration expenses
—

—

—

 
 
—

(1,742
)
(1,789
)
Other operating, net
(2,512
)
287

(2,634
)
 
 
564

815

4,736

Operating income (loss)
7,294

37,165

(8,056
)
 
 
(15,749
)
49,511

52,216

Other income (expense):
 
 
 
 
 
 
 
 
   Interest expense
(55,974
)
(50,414
)
(46,409
)
 
 
(1,922
)
(31,728
)
(26,712
)
   Gain on reacquisition of debt
—

—

—

 
 
—

—

2,431

   Loss on extinguishment of debt
—

—

—

 
 
—

—

(5,088
)
   Foreign currency and other, net
(12,185
)
(5,134
)
(18,636
)
 
 
(82
)
(1,454
)
(5,246
)
Income (loss) before income taxes
(60,865
)
(18,383
)
(73,101
)
 
 
(17,753
)
16,329

17,601

Income tax (provision) benefit
22,593

(7,655
)
3,272

 
 
(549
)
(4,534
)
(8,578
)
Income (loss) from continuing operations
(38,272
)
(26,038
)
(69,829
)
 
 
(18,302
)
11,795

9,023

Discontinued operations, net
—

—

(6,283
)
 
 
182

(765
)
8,915

Net income (loss)
(38,272
)
(26,038
)
(76,112
)
 
 
(18,120
)
11,030

17,938

Less: Earnings attributable to noncontrolling interests
(34
)
—

59

 
 
83

623

(2,137
)
Net income (loss) attributable to Polymer Group, Inc.
$
(38,238
)
$
(26,038
)
$
(76,171
)
 
 
$
(18,203
)
$
10,407

$
20,075

 
 
 
 
 
 
 
 
 
Operating and other data:
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
16,850

$
75,471

$
24,117

 
 
$
(25,270
)
$
63,244

$
99,009

Net cash provided by (used in) investing activities
(337,759
)
(50,233
)
(467,968
)
 
 
(8,305
)
(41,276
)
(14,567
)
Net cash provided by (used in) financing activities
308,190

(42
)
445,110

 
 
31,442

(8,086
)
(72,651
)
Gross margin
16.2
%
17.1
%
15.5
%
 
 
19.0
%
19.0
%
21.6
%
Depreciation and amortization
76,488

66,706

57,290

 
 
3,535

46,353

50,370

Capital expenditures
54,642

51,625

68,428

 
 
8,405

45,183

43,477








21

In thousands
Successor
 
 
Predecessor
December 28, 2013
December 29, 2012
December 31, 2011
 
 
January 28, 2011
January 1, 2011
January 2, 2010
Balance sheet data (at end of period):
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
86,064

$
97,879

$
72,742

 
 
$
70,771

$
72,355

$
57,894

Operating working capital (a)
43,531

29,628

54,567

 
 
52,662

53,068

79,215

Total assets
1,438,905

1,022,069

1,060,578

 
 
819,259

731,977

699,911

Long-term debt, less current portion
880,399

579,399

587,853

 
 
359,525

328,170

322,021

Noncontrolling interests
843

—

—

 
 
—

8,916

8,038

Total Polymer Group, Inc. shareholders’ equity
145,591

139,202

187,297

 
 
148,187

134,336

116,357

Ratio of earnings to fixed charges (b)
—

—

—

 
 
—

 1.5x

 1.6x


(a)
Operating working capital is defined as accounts receivable plus inventories less trade accounts payable and accrued liabilities.
(b)
For purposes of determining the ratio of earnings to fixed charges, earnings are defined as pre-tax earnings from continuing operations plus fixed charges. Fixed charges include interest expense on all indebtedness, amortization of debt issuance fees and one-third of rental expense on operating leases representing that portion of rental expense deemed to be attributable to interest. Earnings for the Predecessor were insufficient to cover fixed charges for the one month ended January 28, 2011 by $17.9 million. For the Successor, earnings were insufficient to cover fixed charges for the eleven months ended December 31, 2011, the fiscal year ended December 29, 2012 and the fiscal year ended December 28, 2013 by $74.8 million, $20.0 million and $39.4 million, respectively.

22


ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our consolidated results of operations and financial condition. The discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in Item 8 of Part II to this Annual Report on Form 10-K. It should be noted that our gross profit margins may not be comparable to other companies since some entities classify shipping and handling costs in cost of goods sold and others, including us, include such costs in selling, general and administrative expenses. Similarly, some entities, including us, include foreign currency gains and losses resulting from operating activities as a component of operating income, and some entities classify all foreign currency gains and losses outside of operating income.
The terms "Polymer Group," " PGI," "the Company," "we," "us," and "our" and similar terms in this Report on Form 10-K refer to Polymer Group, Inc. and its consolidated subsidiaries. The term "Parent" as used within this Report on Form 10-K refers to Scorpio Acquisition Corporation, a Delaware corporation that owns 100% of the issued and outstanding capital stock of Polymer Group, Inc. The term "Holdings" as used within this Report on Form 10-K refers to Scorpio Holdings Corporation, a Delaware corporation that owns 100% of the Parent.
Overview
We are a leading global, technology-driven developer, producer and marketer of engineered materials, focused primarily on the production of nonwoven products. Nonwovens are a high-performance and low-cost fabric-like alternative to traditional textiles, paper and other materials. They can be made with specific value-added characteristics including absorbency, tensile strength, softness and barrier properties, among others. Our nonwoven products are critical components used in consumer and industrial products for use in a wide array of applications. Primary applications in each of our target markets are as follows:
•
Hygiene:            Baby diapers, feminine hygiene products and adult incontinence products
•
Healthcare:            Single-use surgical gowns and drapes, hospital apparel and infection control supplies
•
Wipes:            Household, personal care and commercial cleaning wipes, dryer sheets
•
Building and Geosynthetics:    House wrap, construction, roofing, geosynthetic fabrics, road underlayment, liners,     and railroad materials
•
Technical Specialties:    Filtration, cable wrap, agriculture, forestry/horticulture, landscape, composites,     
industrial packaging, technical nonwovens and other specialty areas
Over the past five years, we have undertaken a series of capital expansions and business acquisitions that have broadened our technology base, increased our product lines and expanded our global presence. As a result of the 2013 acquisition of Fiberweb plc ("Fiberweb"), one of the largest manufacturers of specialty technical materials, we have solidified our position as the largest manufacturer of nonwovens in the world with a total of 21 manufacturing and converting facilities located in 13 countries on 4 continents. Our facilities are strategically located near many of our key customers in order to increase our effectiveness in addressing local and regional demand. We work closely with our customers, which include well-established multinational and regional consumer and industrial product manufacturers, to provide engineered solutions to meet increasing demand for more sophisticated products. Our global reach coupled with our broad range of applications bolsters our ability to partner with customers to make the world safer, cleaner and healthier.
The global nonwovens market has historically experienced stable growth and favorable pricing dynamics. However, since late 2010, several of our competitors, primarily in the hygiene markets, installed or announced an intent to install, capacity in excess of what we believe to be current market demand in the regions that we conduct business. As additional nonwovens manufacturing capacity entered into commercial production, in excess of market demand, the short-term to mid-term excess supply created unfavorable market dynamics, resulting in a downward pressure on selling prices. As a result, we have undertaken a series of actions to expand our global capabilities as well as focus on operational excellence.
We believe we have one of the broadest and most advanced technology portfolios in the industry. Our current global footprint, coupled with our access to capital, enables us to continue to realize cost synergies and greater growth from our core operations. In addition, we are investing in technology and new initiatives which will help fuel our future growth. As a result, we believe we are well positioned to remain competitive within our markets as well as leverage our solid foundation across the company to drive future growth.

23

Recent Developments
Providência Acquisition
On January 27, 2014, we 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 will acquire a 71% controlling interest in Providência (the “Potential Acquisition”). Following the closing of the Potential Acquisition, pursuant to Brazilian Corporation Law and Providência’s Bylaws, PGI Acquisition Company will be required to launch a tender offer on substantially the same terms and conditions of the Stock Purchase Agreement to acquire the remaining outstanding capital stock of Providência from the minority shareholders (the “Mandatory Tender Offer”). We expect to fund the Potential Acquisition and the Mandatory Tender Offer with new secured and/or unsecured debt. We have obtained approximately $570.0 million of financing commitments from lenders in connection with the Potential Acquisition. Completion of the transaction is subject to customary closing conditions, including approval of the Potential Acquisition by antitrust authorities. Providência is a leading manufacturer of nonwovens primarily used in hygiene applications as well as industrial and healthcare applications. Based in Brazil, Providência has four locations, including one in the United States.
CEO Transition
On June 18, 2013, we announced the appointment of J. Joel Hackney Jr. as President and Chief Executive Officer ("CEO") of the Company, effective June 19, 2013. Simultaneously, we announced the planned retirement of Veronica Hagen, effective August 31, 2013, as well as her retirement as President and CEO, effective June 19, 2013. Ms. Hagen continues to serve on the Company's Board of Directors and worked with her successor to ensure a seamless transition.
Nanhai Relocation
On June 12, 2013, our Board of Directors approved a plan to relocate our Nanhai, China manufacturing facilities to another manufacturing facility which will be constructed within the same district as our current facilities as well as increase our current capital investment. The authorization included the execution of an agreement with the Nanhai District People's Government (the "Government"), which will allow the Government to reclaim the land currently occupied by the existing Nanhai manufacturing facilities and will further provide certain Government support and incentives to assist in the relocation.
Possession of the land at the new location and initial construction began during the second half of 2013, with the final shut-down of the existing facilities and start-up of the new facility estimated to occur by the first half of 2016 with no disruption to customers. We estimate total construction, relocation and other associated costs of this project to approximate 225 RMB ($36 million), which will be primarily funded through cash generated by operations. Government incentives are expected to approximate 165 RMB ($26 million). We have accelerated the depreciation of the existing facilities and related assets being decommissioned in order to properly align the remaining useful lives with the timing of the relocation. Associated amounts are expected to be in the range of $8 to $10 million recognized over the next three years.
Expansion and Optimization Initiatives
Over the past five years, we have undertaken a series of actions to expand our global capabilities as well as to focus on operational excellence. Initiatives include capacity expansion projects, plant consolidations, plant alignment, acquisitions and divestitures. We believe these initiatives will help drive performance in our businesses, improve our overall cost structure and drive value for our stakeholders.
Fiberweb Acquisition
On September 17, 2013, PGI Acquisition Limited, a wholly-owned subsidiary of the Company, entered into an agreement with Fiberweb containing the terms of a cash offer to purchase 100% of the issued and to be issued ordinary share capital of Fiberweb at a cash price of £1.02 per share (the "Acquisition"). Under the terms of the agreement, Fiberweb would become a wholly-owned subsidiary of the Company. The offer was effected by a court sanctioned scheme of arrangement of Fiberweb under Part 26 of the UK Companies Act 2006 and consummated on November 15, 2013 (the "Acquisition Date"). The aggregate purchase price was valued at $287.8 million and funded on November 27, 2013 with the proceeds of borrowings under a $268.0 million Senior Secured Bridge Credit Agreement and a $50.0 million Senior Unsecured Bridge Credit Agreement (together, the "Bridge Facilities"). Fiberweb is one of the largest global manufacturers of specialized technical fabrics with eight production sites in six countries. The Bridge Facilities were subsequently refinanced, along with transaction expenses, with the proceeds from a $295.0 million Senior Secured Credit Agreement and a $30.7 million equity investment from Blackstone. The Acquisition

24

will provide us with an entrance into attractive niche industrial applications such as filtration, dryer sheets and house wrap, which have a higher degree of specialization and a higher value contribution of nonwoven inputs to end products.
Expansion Initiatives
In order to address the growing demand for hygiene and healthcare products, we have completed four capacity expansions since 2009. In addition, we recently commenced the upgrade of a manufacturing line at our facility located near Buenos Aires, Argentina, and announced the strategic investment to upgrade machinery and expand our manufacturing facility in Waynesboro, Virgina, both of which are expected to be completed by the end of 2014. A description of our completed expansion initiatives are as follows:
•
In the second quarter of 2013, our spunmelt hygiene line in Suzhou, China commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in hygiene applications in China.
•
In the third quarter of 2011, our spunmelt line in Waynesboro, Virginia commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in hygiene and healthcare applications in the U.S.
•
In the third quarter of 2011, our spunmelt healthcare line in Suzhou, China commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in healthcare applications in China.
•
In the second quarter of 2009, our spunmelt line in San Luis Potosi, Mexico commenced commercial production. The plant expansion increased capacity to meet demand for nonwoven materials in hygiene and healthcare applications in the U.S. and Mexico.
Our expansion projects are funded using a combination of existing cash balances, internal cash flows as well as financing arrangements with third-party financial institutions. We intend to continue to expand in markets we believe have attractive supply and demand characteristics as well as maintain and upgrade manufacturing lines to improve our global competitive position.
Optimization Initiatives
We actively and continuously pursue initiatives to prolong the useful life of our assets through product and process innovation. In some instances, we have determined that our fixed cost structure would be enhanced through consolidation. While investing in several new manufacturing lines in high-growth regions, we have simultaneously undertaken a number of initiatives to rationalize low-margin legacy operations and relocate certain assets to improve our cost structure. These initiatives are intended to result in lower working capital levels and improve operating performance and profitability. Our strategy with respect to past consolidation efforts in the U.S. and Europe was focused on the elimination of costs associated with underutilized legacy capacity, and we believe our current footprint reflects an appropriate and sustainable asset base.
Other Acquisitions and Divestitures
On April 29, 2011, we entered into an agreement to sell certain assets and the working capital of Difco Performance Fibers, Inc. ("Difco") for cash proceeds of $10.9 million. The agreement provided that Difco would continue to produce goods during the three month manufacturing transition services agreement that expired in the third quarter of 2011. The sale was completed on May 10, 2011 and resulted in a loss of $0.7 million recognized during the eleven months ended December 31, 2011.
The assets of Difco represented assets held for sale, since the cash flows of Difco were eliminated from our ongoing operations and we had no continuing involvement in the operations of the business after the disposal transaction. Accordingly, the results of operations of Difco, previously included in the Oriented Polymers segment, have been segregated from continuing operations and included in Discontinued operations, net in the Consolidated Statements of Operations.
On May 26, 2010, we signed an equity transfer agreement (the "Agreement") to purchase the remaining 20% interest in our Chinese subsidiary, Nanhai Nanxin Non-Woven Co. Ltd, subject to Chinese government approval. Pursuant to the Agreement, we deposited $1.5 million into an escrow account with a bank to serve as a performance guarantee. On March 9, 2011, we received government approval and subsequently completed the noncontrolling interest acquisition for a purchase price of $7.2 million. The acquisition was accounted as an equity transaction in which no gain or loss was recognized.
On December 2, 2009, we completed an acquisition from Grupo Corinpa S.L of certain assets and the operations of the nonwovens business of Tesalca-99, S.A. and Texnovo, S.A. (the “Sellers”) located in Barcelona, Spain. Consideration for the acquired assets consisted of 1.049 million shares of the Predecessor's Class A common stock which had a fair value of $14.5 million on the date of acquisition. The agreement contained a provision under which the Sellers were granted a put option on the Sellers land, building and equipment that were included in a lease under which we were provided full and exclusive use of

25

the assets. In addition, the agreement contained a provision under which we were granted a call option for the same assets. On January 28, 2011, immediately prior to the Merger, we exercised our call option and purchased the remaining assets for an aggregate purchase price of $41.2 million.
Results of Operations
We operate our business in four segments: Americas Nonwovens, Europe Nonwovens, Asia Nonwovens (collectively, the “Nonwovens Segments”) and Oriented Polymers. This reflects how the overall business is currently managed by our senior management and reviewed by the Board of Directors.
Gross Profit Drivers
Our net sales are driven principally by the following factors:
•
Volumes sold, which are tied to our available production capacity and customer demand for our products;
•
Prices, which are tied to the quality of our products, the overall supply and demand dynamics in our regional markets, and the cost of our raw material inputs, as changes in input costs have historically been passed through to customers through either contractual mechanisms or business practices. This can result in significant increases in total net sales during periods of sustained raw material cost increases as well as significant declines in net sales during periods of raw material cost declines; and
•
Product mix, which is tied to demand from various markets and customers, along with the type of available capacity and technological capabilities of our facilities and equipment. Average selling prices can vary for different product types, which impacts our total revenue trends.
Our primary costs of goods sold (“COGS”) include:
•
Raw material costs (primarily polypropylene resins, which generally comprise over 75% of our raw material purchases) represent approximately 60% to 70% of COGS. We purchase raw materials, including polypropylene resins, from a number of qualified vendors located in the regions in which we operate. Polypropylene is a petroleum-based commodity material and its price historically has exhibited volatility. As discussed in the revenue factors above, we have historically been able to mitigate volatility in polypropylene prices through changes in our selling prices to customers, enabling us to maintain a more stable gross profit per kilogram;
•
Other variable costs include direct labor, utilities (primarily electricity), maintenance and variable overhead. Utility rates vary depending on the regional market and provider. In Asia, we have experienced a trend of increasing utility rates that we do not expect to stabilize in the near-term. Our focus on operating efficiencies and initiatives associated with sustainability has resulted in a general trend of lower kilowatts used per ton produced over the last three years. Labor generally represents less than 10% of COGS and varies by region. Historically, we have been able to mitigate wage rate inflation with operating initiatives resulting in higher productivity and improvements in throughput and yield; and
•
Fixed overhead consists primarily of depreciation expense, which is impacted by our level of capital investments and structural costs related to our locations. We believe our strategically located manufacturing facilities provide sufficient scale to maintain competitive unit manufacturing costs.
The level of our revenue and COGS vary due to changes in raw material cost. As a result, our gross profit margin as a percent of net sales can vary significantly from period to period. As such, we believe total gross profit provides a clearer representation of our operating trends. Changes in raw material costs historically have not resulted in a significant sustained impact on gross profit, as we have been able to effectively mitigate changes in raw material costs through changes in our selling prices to customers in order to maintain a more steady gross profit per kilogram sold.
Comparability of Periods
Due to the Merger and related change in control, a new entity was created for accounting purposes as of January 28, 2011. Although we continue to operate as the same legal entity subsequent to the acquisition, periods prior to January 28, 2011 reflect our results of operations prior to the Merger (the "Predecessor") and periods after January 28, 2011 reflect our results of operations after the Merger (the "Successor"). Furthermore, generally accepted accounting principles require us to present separately our operating results to the Predecessor and Successor periods. As a result, periods prior to the Merger are not comparable to subsequent periods due to the difference in the basis of presentation of purchase accounting as compared to historical cost.
On November 15, 2013, the acquisition of Fiberweb became effective pursuant to a court sanctioned scheme of arrangement under Part 26 of the UK Companies Act of 2006 whereby Fiberweb became a wholly-owned subsidiary of the Company. As a

26

result, the results of operations of Fiberweb have been included in the Consolidated Balance Sheet at December 28, 2013 and the Consolidated Statement of Operations since November 15, 2013.
In December 2010, a severe rainy season impacted many parts of Colombia and caused us to temporarily cease manufacturing at our Cali, Colombia facility due to a breach of a levy and flooding at the industrial park where our manufacturing facility is located. We established temporary offices away from the flooded area and worked with customers to meet their critical needs through the use of our global manufacturing base. The facility re-established manufacturing operations on April 4, 2011 and operations reached full run rates in third quarter 2011.
Our sales are impacted by our selling prices, which is influenced by the cost of our raw material inputs. Historically, changes in input costs have been passed through to customers either by contractual mechanisms or business practices. This can result in significant increases in total net sales during periods of sustained raw material cost increases as well as significant declines in net sales during periods of raw material cost declines. As a result, financial statement items that use percentage of net sales as an economic indicator are influenced by the changes in our selling prices. In general, average prices for polypropylene resin and other raw material costs increased during 2011 which negatively impacted our results. During 2012, these prices modestly trended downward throughout the year. However, we have seen overall raw material prices trend upwards throughout 2013. As a result, we continue to operate in a volatile raw material environment.
Comparison of Successor Fiscal Year Ended December 28, 2013 and Successor Fiscal Year Ended December 29, 2012
The following table sets forth the period change for each category of the Statement of Operations for the fiscal year ended December 28, 2013 for the Successor as compared to the fiscal year ended December 29, 2012 for the Successor, as well as each category as a percentage of net sales:
 
Successor
 
Successor
 
 
Percentage of Net Sales for the Respective Period End
In thousands
Fiscal Year Ended December 29, 2013
 
Fiscal Year Ended December 29, 2012
 
Period Change Favorable (Unfavorable)
December 28, 2013
December 29, 2012
Net sales
$
1,214,862

 
$
1,155,163

 
$
59,699

100.0
 %
100.0
 %
Cost of goods sold:
 
 
 
 
 
 
 
  Raw materials
(665,363
)
 
(624,795
)
 
(40,568
)
54.8
 %
54.1
 %
  Labor
(71,692
)
 
(76,132
)
 
4,440

5.9
 %
6.6
 %
  Overhead
(281,401
)
 
(256,990
)
 
(24,411
)
23.2
 %
22.2
 %
  Gross profit
196,406

 
197,246

 
(840
)
16.2
 %
17.1
 %
Selling, general and administrative expenses
(153,412
)
 
(140,776
)
 
(12,636
)
12.6
 %
12.2
 %
Special charges, net
(33,188
)
 
(19,592
)
 
(13,596
)
2.7
 %
1.7
 %
Other operating, net
(2,512
)
 
287

 
(2,799
)
0.2
 %
—
 %
  Operating income (loss)
7,294

 
37,165

 
(29,871
)
0.6
 %
3.2
 %
Other income (expense):
 
 
 
 
 
 
 
  Interest expense
(55,974
)
 
(50,414
)
 
(5,560
)
4.6
 %
4.4
 %
  Foreign currency and other, net
(12,185
)
 
(5,134
)
 
(7,051
)
1.0
 %
0.4
 %
Income (loss) before income taxes
(60,865
)
 
(18,383
)
 
(42,482
)
(5.0
)%
(1.6
)%
Income tax (provision) benefit
22,593

 
(7,655
)
 
30,248

(1.9
)%
0.7
 %
Net income (loss)
(38,272
)
 
(26,038
)
 
(12,234
)
(3.2
)%
(2.3
)%
Less: Earnings attributable to noncontrolling interests
(34
)
 
—

 
(34
)
—
 %
—
 %
Net income (loss) attributable to Polymer Group, Inc
$
(38,238
)
 
$
(26,038
)
 
$
(12,200
)
(3.1
)%
(2.3
)%
Net Sales
Net sales for the fiscal year ended December 28, 2013 were $1,214.9 million, a $59.7 million increase compared with the fiscal year ended December 29, 2012. A reconciliation presenting the components of the period change by each of our operating divisions is as follows:

27

 
Nonwovens
 
Oriented
Polymers
 
Total
In millions
Americas
 
Europe
 
Asia
 
Total
 
Beginning of period
$
641.5

 
$
294.1

 
$
156.8

 
$
1,092.4

 
$
62.8

 
$
1,155.2

Changes due to:
 
 
 
 
 
 
 
 
 
 
 
Volume
16.9

 
11.8

 
19.7

 
48.4

 
1.7

 
50.1

Price/product mix
2.4

 
2.6

 
(5.2
)
 
(0.2
)
 
1.0

 
0.8

Currency translation
—

 
7.9

 
1.3

 
9.2

 
(0.4
)
 
8.8

Sub-total
19.3

 
22.3

 
15.8

 
57.4

 
2.3

 
59.7

End of period
$
660.8

 
$
316.4

 
$
172.6

 
$
1,149.8

 
$
65.1

 
$
1,214.9

Nonwovens Segments:
Net sales for the fiscal year ended December 28, 2013 were $1,149.8 million, a $57.4 million increase compared with the fiscal year ended December 29, 2012. The primary driver of the increase related to the contribution of Fiberweb results since the Acquisition Date, representing an incremental $51.9 million for the period. Excluding the results of the Acquisition, net sales increased $5.5 million compared with the fiscal year ended December 29, 2012.
For the fiscal year ended December 28, 2013, volumes increased by $48.4 million compared with the fiscal year ended December 29, 2012. The increase was primarily driven by the contribution of Fiberweb results since the Acquisition Date, representing an incremental $51.9 million for the period. In addition, incremental volume growth of $19.7 million in Asia was driven by higher volumes sold in the hygiene and healthcare markets, both of which were supported by our recent capacity expansions. These amounts were partially offset by volume reductions in the Americas and Europe, which had a combined net impact of $23.2 million. European results reflected the stabilization of underlying demand in our industrial, consumer disposables and healthcare markets. However, they were more than offset by reductions in the hygiene market. Volumes were lower in the Americas, primarily driven by the exit of certain low-margin business in the healthcare market during 2012 as well as lower consumer disposable volume.
For the fiscal year ended December 28, 2013, net selling prices decreased $0.2 million compared with the fiscal year ended December 29, 2012. The pricing decrease was primarily driven by product mix movements in Asia, a result of a larger proportion of current year sales in the hygiene market compared with more prior year sales in the healthcare market, which have higher average selling prices. However, selling price increases in the Americas and European industrial and consumer disposable markets, partially offset the negative impacts in Asia. The pricing increases, which resulted from our passing through higher raw material costs associated with index-based selling agreements and market-based pricing trends, were partially offset by product mix movements in the Americas as we shifted products between sites and end market uses.
Oriented Polymers
Net sales for the fiscal year ended December 28, 2013 were $65.1 million, a $2.3 million increase compared with the fiscal year ended December 29, 2012. The increase was primarily driven by an increase in volume attributable to higher demand in the building products market, offset lower demand in the industrial packaging and agriculture markets. In addition, higher net selling prices resulted from our passing through higher raw material cost associated with index-based selling agreements and market-based pricing trends. Combined, these factors had a $2.7 million impact on net sales. However, unfavorable foreign currency impacts of $0.4 million resulted in lower translation of sales generated in foreign jurisdictions.
Gross Profit
Gross profit for the fiscal year ended December 28, 2013 was $196.4 million, a $0.8 million decrease compared with the fiscal year ended December 29, 2012. The overall decrease in gross profit was primarily driven by higher overall cost for the raw materials of resin and fibers, especially polypropylene resin. The increase, which impacted gross profit by $40.6 million, included $24.8 million related to the inclusion of Fiberweb results since the Acquisition Date. In addition, our overhead component increased $24.4 million, of which $20.1 million related to Fiberweb. The $4.4 million increase in costs were primarily associated with volume-related inefficiencies in the Americas as well as increased depreciation in Asia. However, the decrease in gross profit was partially offset by our labor component of cost of goods sold which reflects the positive benefits of our cost reduction initiatives implemented during 2012. These results were impacted by the inclusion of Fiberweb results since the Acquisition Date which added an incremental $3.7 million of labor costs during the period. Incremental costs associated with Fiberweb include $7.0 million related to the non-recurring amortization of the inventory step-up established as a result of the Acquisition. As a result, gross profit as a percentage of net sales for the fiscal year ended December 28, 2013 decreased to 16.2% from 17.1% for the fiscal year ended December 29, 2012.

28

Operating Income (Loss)
Operating income for the fiscal year ended December 28, 2013 was $7.3 million, a $29.9 million decrease compared with the fiscal year ended December 29, 2012. A reconciliation presenting the components of the period change by each of our operating divisions is as follows:
 
Nonwovens
 
 
 
 
 
 
In millions
Americas
 
Europe
 
Asia
 
Total
 
Oriented
Polymers
 
Corporate/
Other
 
Total
Beginning of period
$
64.7

 
$
11.1

 
$
18.1

 
$
93.9

 
$
3.4

 
$
(60.1
)
 
$
37.2

Changes due to:
 
 
 
 
 
 
 
 
 
 
 
 
 
Volume
(0.2
)
 
(3.9
)
 
7.8

 
3.7

 
0.6

 
—

 
4.3

Price/product mix
2.4

 
2.6

 
(5.2
)
 
(0.2
)
 
1.1

 
—

 
0.9

Raw material cost
(10.9
)
 
(0.2
)
 
(1.1
)
 
(12.2
)
 
(0.7
)
 
—

 
(12.9
)
Manufacturing costs
2.5

 
(0.4
)
 
4.8

 
6.9

 
(1.0
)
 
—

 
5.9

Currency translation
(0.3
)
 
1.5

 
(0.4
)
 
0.8

 
0.5

 
—

 
1.3

Depreciation and amortization
3.1

 
(1.1
)
 
(6.2
)
 
(4.2
)
 
0.1

 
—

 
(4.1
)
Purchase accounting
(5.0
)
 
(2.6
)
 
—

 
(7.6
)
 
—

 
—

 
(7.6
)
Special charges
—

 
—

 
—

 
—

 
—

 
(13.6
)
 
(13.6
)
All other
(1.8
)
 
1.6

 
—

 
(0.2
)
 
0.7

 
(4.6
)
 
(4.1
)
Sub-total
(10.2
)
 
(2.5
)
 
(0.3
)
 
(13.0
)
 
1.3

 
(18.2
)
 
(29.9
)
End of period
$
54.5

 
$
8.6

 
$
17.8

 
$
80.9

 
$
4.7

 
$
(78.3
)
 
$
7.3

The amounts for acquisition and integration expenses as well as special charges have not been allocated to our reportable business divisions because our management does not evaluate such charges on a division-by-division basis. Division operating performance is measured and evaluated before such items.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal year ended December 28, 2013 were $153.4 million, a $12.6 million increase compared with the fiscal year ended December 29, 2012. As a result, selling, general and administrative expenses as a percentage of net sales increased to 12.6% for the fiscal year ended December 28, 2013 from 12.2% for the fiscal year ended December 29, 2012. The increase was primarily related to the inclusion of Fiberweb results since the Acquisition Date, which added an incremental $8.7 million for the period. In addition, costs related to the announced retirement of our previous Chief Executive Officer and simultaneous appointment of our new Chief Executive Officer totaled $6.5 million, which included $2.0 million of non-cash stock compensation expense. Combined, these expenses had a 1.3 point impact on selling, general and administrative expenses as a percentage of net sales. Other factors that contributed to the increase include shipping and handling costs as activity between regions increased with the ramp up of certain new products, higher depreciation and amortization on new capital investments as well as increase in third-party fees and expenses. However, these amounts were more than offset by lower short-term incentive compensation as well as the impacts of our cost reduction initiatives implemented during the year which reduced employee-related expenses.
Special Charges, net
As part of our business strategy, we incur costs related to corporate-level decisions or Board of Director actions. These actions are primarily associated with initiatives attributable to restructuring and realignment of manufacturing operations and management structures as well as the pursuit of certain transaction opportunities when applicable. In addition, we evaluate our long-lived assets for impairment whenever events or changes in circumstances including the aforementioned, indicate that the carrying amounts may not be recoverable.
Special charges for the fiscal year ended December 28, 2013 were $33.2 million and consisted of the following components:
•
$18.3 million related to professional fees and other transaction costs associated with our acquisition of Fiberweb
•
$8.5 million related to separation and severance expenses associated with our plant realignment cost initiatives
•
$2.3 million related to cost associated with our internal redesign and restructuring of global operations initiatives

29

•
$2.2 million non-cash impairment charge related to the fair value adjustment of property and equipment at our manufacturing facility in Buenos Aires, Argentina
•
$1.9 million related to other corporate initiatives
Special charges for the fiscal year ended December 29, 2012 were $19.6 million and consisted of the following components:
•
$12.4 million related to cost associated with our internal redesign and restructuring of global operations initiatives
•
$4.1 million related to separation and severance expenses associated with our plant realignment cost initiatives
•
$0.9 million related to separation and severance expenses associated with our IS support initiative
•
$0.5 million related to professional fees and other transaction costs associated with the Merger
•
$1.7 million related to other corporate initiatives
The amounts included in Special charges, net have not been allocated to our reportable business divisions because our management does not evaluate such charges on a division-by-division basis. Division operating performance is measured and evaluated before such items.
Other Operating, net
Other operating expense for the fiscal year ended December 28, 2013 was $2.5 million. Amounts associated with foreign currency losses on operating assets and liabilities totaled $2.8 million. These losses were partially offset by $0.3 million of other operating income. For the fiscal year ended December 29, 2012, other operating income totaled $0.3 million, of which $0.2 million was associated with foreign currency gains and $0.1 million related to other operating income.
Other Income (Expense)
Interest expense for the fiscal year ended December 28, 2013 and the fiscal year ended December 29, 2012 was $56.0 million and $50.4 million, respectively. The increase primarily relates to interest expense and amortization of debt issuance costs associated with the Secured Bridge Facility and the Unsecured Bridge Facility, which were used to fund the acquisition of Fiberweb. Interest expense on the Senior Secured Credit Agreement, which was used to partially repay both bridge facilities, also contributed to the increase. Combined, we realized an additional $4.4 million associated with changes to our debt structure as a result of the Fiberweb transaction.
Foreign currency and other was an expense of $12.2 million for the fiscal year ended December 28, 2013. Items impacting the results include $6.7 million associated with foreign currency losses on non-operating assets and liabilities as well as $1.7 million of other non-operating expenses, primarily associated with factoring fees. In addition, we incurred $0.5 million related to the release of a tax indemnification asset that was established in the opening balance sheet in connection with the Merger. In connection with the refinancing of the Bridge Facilities with the Senior Secured Credit Agreement, we recognized a loss on the extinguishment of debt of $3.3 million.
For the fiscal year ended December 29, 2012, foreign currency and other was an expense of $5.1 million. Items impacting the results include $3.4 million associated with foreign currency losses on non-operating assets and liabilities as well as $1.0 million of other non-operating expenses, primarily associated with factoring fees. In addition, we incurred $0.7 million related to the release of a tax indemnification asset that was established in the opening balance sheet in connection with the Merger.
Income Tax (Provision) Benefit
During the fiscal year ended December 28, 2013, we recognized an income tax benefit of $22.6 million on consolidated pre-tax book loss from continuing operations of $60.9 million. During the fiscal year ended December 29, 2012, we recognized income tax expense of $7.7 million on consolidated pre-tax book loss from continuing operations of $18.4 million. Our income tax expense in 2013 and 2012 is different than such expense determined at the U.S. federal statutory rate due to losses in certain jurisdictions for which no income tax benefits are anticipated, foreign withholding taxes for which tax credits are not anticipated, changes in the amounts recorded for Personal Holding Company ("PHC") tax uncertainties, foreign taxes calculated at statutory rates different than the U.S. federal statutory rate, and the application of intraperiod tax allocation rules.
Earnings Attributable to Noncontrolling Interests
Earnings attributable to noncontrolling interests for the fiscal year ended December 28, 2013 was $0.1 million. Noncontrolling interests represent the minority partners' interest in the income or loss of consolidated subsidiaries which are not wholly-owned by us. In association with the acquisition of Fiberweb, the Company assumed control of Terram Geosynthetics

30

Private Limited, a joint venture located in Gujarat, India in which we maintain a 65% controlling interest. As a result, we incurred $0.1 million related to the noncontrolling interest.
Comparison of Successor Eleven Months Ended December 29, 2012 and Successor Eleven Months Ended December 31, 2011
The following table sets forth the period change for each category of the Statement of Operations for the eleven months ended December 29, 2012 for the Successor as compared to the eleven months ended December 28, 2011 for the Successor, as well as each category as a percentage of net sales:
 
Successor
 
Successor
 
 
Percentage of Net Sales for the Respective Period End
In thousands
Eleven Months Ended December 29, 2012
 
Eleven Months Ended December 31, 2011
 
Period Change Favorable (Unfavorable)
December 29, 2012
December 31, 2011
Net sales
$
1,069,218

 
$
1,102,929

 
$
(33,711
)
100.0
 %
100.0
 %
Cost of goods sold:
 
 
 
 
 
 
 
  Raw materials
(579,644
)
 
(641,803
)
 
62,159

54.2
 %
58.2
 %
  Labor
(70,402
)
 
(68,508
)
 
(1,894
)
6.6
 %
6.2
 %
  Overhead
(238,294
)
 
(222,212
)
 
(16,082
)
22.3
 %
20.1
 %
  Gross profit
180,878

 
170,406

 
10,472

16.9
 %
15.5
 %
Selling, general and administrative expenses
(130,338
)
 
(134,483
)
 
4,145

12.2
 %
12.2
 %
Special charges, net
(18,982
)
 
(41,345
)
 
22,363

1.8
 %
3.7
 %
Other operating, net
(338
)
 
(2,634
)
 
2,296

—
 %
0.2
 %
  Operating income (loss)
31,220

 
(8,056
)
 
39,276

2.9
 %
(0.7
)%
Other income (expense):
 
 
 
 
 
 
 
  Interest expense
(46,376
)
 
(46,409
)
 
33

4.3
 %
4.2
 %
  Foreign currency and other, net
(4,877
)
 
(18,636
)
 
13,759

0.5
 %
1.7
 %
Income (loss) before income taxes
(20,033
)
 
(73,101
)
 
53,068

(1.9
)%
(6.6
)%
Income tax (provision) benefit
(6,420
)
 
3,272

 
(9,692
)
0.6
 %
(0.3
)%
Income (loss) from continuing operations
(26,453
)
 
(69,829
)
 
43,376

(2.5
)%
(6.3
)%
Discontinued operations, net
—

 
(6,283
)
 
6,283

—
 %
(0.6
)%
Net income (loss)
(26,453
)
 
(76,112
)
 
49,659

(2.5
)%
(6.9
)%
Less: Earnings attributable to noncontrolling interests
—

 
59

 
(59
)
—
 %
—
 %
Net income (loss) attributable to Polymer Group, Inc
$
(26,453
)
 
$
(76,171
)
 
$
49,718

(2.5
)%
(6.9
)%
Net Sales
Net sales for the eleven months ended December 29, 2012 were $1,069.2 million, a $33.7 million decrease compared with the eleven months ended December 31, 2011. A reconciliation presenting the components of the period change by each of our operating divisions is as follows:
 
Nonwovens
 
Oriented
Polymers
 
Total
In millions
Americas
 
Europe
 
Asia
 
Total
 
Beginning of period
$
613.3

 
$
297.9

 
$
135.6

 
$
1,046.8

 
$
56.1

 
$
1,102.9

Changes due to:
 
 
 
 
 
 
 
 
 
 
 
Volume
36.7

 
3.0

 
16.0

 
55.7

 
0.7

 
56.4

Price/product mix
(47.3
)
 
(6.2
)
 
(5.1
)
 
(58.6
)
 
2.3

 
(56.3
)
Currency translation
(10.9
)
 
(23.4
)
 
0.9

 
(33.4
)
 
(0.4
)
 
(33.8
)
Sub-total
(21.5
)
 
(26.6
)
 
11.8

 
(36.3
)
 
2.6

 
(33.7
)
End of period
$
591.8

 
$
271.3

 
$
147.4

 
$
1,010.5

 
$
58.7

 
$
1,069.2


31

Nonwovens Segments:
Net sales for the eleven months ended December 29, 2012 were $1,010.5 million, a $36.3 million decrease compared with the eleven months ended December 31, 2011. The decrease in net sales was primarily driven by lower net selling prices of $58.6 million. The pricing decrease, which included $47.3 million in the Americas and $6.2 million in Europe, resulted from our passing through lower raw material costs associated with index-based selling agreements and market-based pricing trends. In addition, unfavorable foreign currency impacts of $33.4 million resulted in lower translation of sales generated in foreign jurisdictions, particularly in Europe and the Latin Americas region.
For the eleven months ended December 29, 2012, volumes increased by $55.7 million compared with the eleven months ended December 31, 2011. However, the eleven months ended December 29, 2012 includes a $25.3 million increase in volume at our plant in Colombia related to the disruption of operations during the prior year due to a severe flood in late 2010. Incremental volume primarily related to healthcare products and wipes, contributed $11.4 million in the Americas as demand increased with the overall markets. Additional growth of $16.0 million in Asia was primarily driven by higher volumes sold in the hygiene markets as well as healthcare product sales from the new spunmelt line installed in 2011. Higher volumes in Europe were due to the stabilization of underlying demand in our industrial markets as well as additional volume for consumer disposables, particularly wipes.
Oriented Polymers
Net sales for the eleven months ended December 29, 2012 were $58.7 million, a $2.6 million increase compared with the eleven months ended December 31, 2011. The increase was primarily driven by higher net selling prices of $2.3 million, which resulted from our passing through higher raw material cost associated with index-based selling agreements and market-based pricing trends. In addition, a increase in volume attributable to higher demand in the building products market offset lower demand in the industrial packaging and agriculture markets. Combined, these factors had a $0.7 million impact on net sales.
Gross Profit
Gross profit for the eleven months ended December 29, 2012 was $180.9 million, an $10.5 million increase compared with the eleven months ended December 31, 2011. As a result, gross profit as a percentage of sales increased from 15.5% to 16.9%. The increase in gross margin was primarily driven by the lower cost for the raw materials of resin and fibers, especially polypropylene resin. As a percentage of net sales, the raw material component of cost of goods sold decreased from 58.2% to 54.2%. However, the eleven months ended December 31, 2011 includes $12.5 million related to the non-recurring amortization of the inventory step-up established as a result of the Merger. The charge had a 1.1 point impact on gross profit as a percentage of net sales in the period. In addition, during the eleven months ended December 31, 2011, we incurred higher relative manufacturing costs associated with the disruption of operations at our plant in Colombia due to a severe flood.
The increase in gross profit was partially offset by our labor and overhead components of cost of goods sold which reflects higher manufacturing costs primarily associated with volume-related manufacturing inefficiencies. As a percentage of net sales, labor increased from 6.2% to 6.6% and overhead increased from 20.1% to 22.3%. Also, the additional full year impacts of both the incremental depreciation on our new spunmelt manufacturing lines in the U.S. and China as well as the incremental lease expense related to the new U.S. line impacted our results. These amounts were partially offset by the positive benefits of our plant consolidation activity in the U.S.
Operating Income
Operating income for the eleven months ended December 29, 2012 was $31.2 million, a $39.3 million increase compared with the eleven months ended December 31, 2011. A reconciliation presenting the components of the period change by each of our operating divisions is as follows:

32

 
Nonwovens
 
 
 
 
 
 
In millions
Americas
 
Europe
 
Asia
 
Total
 
Oriented
Polymers
 
Corporate/
Other
 
Total
Beginning of period
$
41.6

 
$
8.4

 
$
19.8

 
$
69.8

 
$
1.8

 
$
(79.7
)
 
$
(8.1
)
Changes due to:
 
 
 
 
 
 
 
 
 
 
 
 
 
Volume
10.4

 
0.2

 
5.1

 
15.7

 
(0.1
)
 
—

 
15.6

Price/product mix
(47.4
)
 
(6.0
)
 
(5.1
)
 
(58.5
)
 
2.3

 
—

 
(56.2
)
Raw material cost
50.7

 
5.1

 
2.7

 
58.5

 
(2.0
)
 
0.1

 
56.6

Manufacturing costs
(2.1
)
 
(0.9
)
 
(3.3
)
 
(6.3
)
 
0.3

 
0.1

 
(5.9
)
Currency translation
(1.4
)
 
(0.7
)
 
(0.1
)
 
(2.2
)
 
0.1

 
2.0

 
(0.1
)
Depreciation and amortization
(1.5
)
 
(0.5
)
 
(2.7
)
 
(4.7
)
 
(0.1
)
 
—

 
(4.8
)
Purchase accounting
4.6

 
5.0

 
1.4

 
11.0

 
0.8

 
—

 
11.8

Special charges
—

 
—

 
—

 
—

 
—

 
22.4

 
22.4

All other
4.1

 
(0.5
)
 
(1.0
)
 
2.6

 
(0.2
)
 
(2.5
)
 
(0.1
)
Sub-total
17.4

 
1.7

 
(3.0
)
 
16.1

 
1.1

 
22.1

 
39.3

End of period
$
59.0

 
$
10.1

 
$
16.8

 
$
85.9

 
$
2.9

 
$
(57.6
)
 
$
31.2

The amounts for acquisition and integration expenses as well as special charges have not been allocated to our reportable business divisions because our management does not evaluate such charges on a division-by-division basis. Division operating performance is measured and evaluated before such items.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the eleven months ended December 29, 2012 were $130.3 million, a $4.1 million decrease compared with the eleven months ended December 31, 2011. The decrease in selling, general and administrative expenses was primarily related to cost reduction initiatives implemented during the year which reduced employee-related expenses such as salaries, benefits, relocation, travel and entertainment by $2.7 million. Other drivers of the decrease included lower sales related taxes of $1.3 million and favorable changes in foreign currency rates of $3.9 million. These amounts were partially offset by an $0.9 million increase in volume-related expenses such as shipping and handling costs, higher short-term incentive compensation of $0.8 million as well as incremental selling and marketing costs. As a result, selling, general and administrative expenses as a percentage of net sales remained at 12.2% for each respective period.
Special Charges, net
As part of our business strategy, we incur costs related to corporate-level decisions or Board of Director actions. These actions are primarily associated with initiatives attributable to restructuring and realignment of manufacturing operations and management structures as well as the pursuit of certain transaction opportunities when applicable. In addition, we evaluate our long-lived assets for impairment whenever events or changes in circumstances including the aforementioned, indicate that the carrying amounts may not be recoverable.
Special charges for the eleven months ended December 29, 2012 were $19.0 million and consisted of the following components:
•
$12.4 million related to cost associated with our internal redesign and restructuring of global operations initiatives
•
$3.8 million related to separation and severance expenses associated with our plant realignment cost initiatives
•
$0.9 million related to separation and severance expenses associated with our IS support initiative
•
$0.3 million related to professional fees and other transaction costs associated with the Merger
•
$1.6 million related to other corporate initiatives
Special charges for the eleven months ended December 31, 2011 were $41.3 million and consisted of the following components:
•
$27.9 million related to professional fees and other transaction costs associated with the Merger
•
$7.6 million non-cash impairment charge related to goodwill associated with four reporting units

33

•
$1.6 million non-cash impairment charge related to the fair value adjustment of a former manufacturing facility in North Little Rock, Arkansas
•
$1.5 million related to plant realignment costs
•
$1.0 million related to costs incurred to re-establish manufacturing operations at our Cali, Colombia facility after a severe flood that occurred in December 2010
•
$1.7 million related to other corporate initiatives
The amounts included in Special charges, net have not been allocated to our reportable business divisions because our management does not evaluate such charges on a division-by-division basis. Division operating performance is measured and evaluated before such items.
Other Operating, net
Other operating expense for the eleven months ended December 29, 2012 was $0.3 million, all of which were associated with foreign currency losses. For the eleven months ended December 31, 2011, other operating expense was $2.6 million. Amounts associated with foreign currency losses totaled $3.3 million and income related to a customer licensing agreement with a third-party manufacturer was $0.7 million.
Other Income (Expense)
Interest expense for the eleven months ended December 29, 2012 and the eleven months ended December 31, 2011 was $46.4 million, primarily related to our Senior Secured Notes issued in connection with the Merger. The notes bear interest at 7.75% and pay interest semi-annually each February 1 and August 1. Average outstanding debt levels and weighted-average interest rates have been consistent over each of the respective periods.
Foreign currency and other, net for the eleven months ended December 29, 2012 was an expense of $4.9 million, a $13.8 million decrease compared with the eleven months ended December 31, 2011. The decrease was primarily driven by the write-off of a $16.6 million tax indemnification asset that was established in the opening balance sheet in connection with the Merger. The amount was established to offset a $16.2 million unrecognized tax benefit that was resolved during 2011.
Income Tax (Provision) Benefit
During the eleven months ended December 29, 2012, we recognized income tax expense of $6.4 million on consolidated pre-tax book loss from continuing operations of $20.0 million. Our income tax expense in 2012 and 2011 is different than such expense determined at the U.S. federal statutory rate due to losses in certain jurisdictions for which no income tax benefits are anticipated, foreign withholding taxes for which tax credits are not anticipated, changes in the amounts recorded for Personal Holding Company ("PHC") tax uncertainties, foreign taxes calculated at statutory rates different than the U.S. federal statutory rate, and the application of intraperiod tax allocation rules.
During the eleven months ended December 31, 2011, we recognized an income tax benefit of $3.3 million on consolidated pre-tax book losses from continuing operations of $73.1 million. We determined the Company may be subject to PHC tax for past periods and therefore, established an unrecognized tax benefit in 2010. During the eleven months ended December 31, 2011, the Internal Revenue Service issued a favorable ruling determining the Company was not a PHC and $16.6 million was released, which represented the full amount of the unrecognized tax benefit associated with the PHC matter, including interest and penalties.
Discontinued Operations, net
Discontinued operations for the eleven months ended December 31, 2011 was a loss $6.3 million. In April 2011, we entered into an agreement to sell certain assets and the working capital of Difco for cash proceeds of $10.9 million. As a result, we accounted for Difco as a discontinued operation for all periods presented. The sale was completed on May 10, 2011 and resulted in a pre-tax loss of $0.7 million.
Earnings Attributable to Noncontrolling Interests
Earnings attributable to noncontrolling interests for the eleven months ended December 31, 2011 was $0.1 million. Noncontrolling interests represent the minority partners' interest in the income or loss of consolidated subsidiaries which are not wholly-owned by us. During 2010, these interests included a 20% noncontrolling interest in our Chinese subsidiary, Nanhai Nanxin. We completed our acquisition of the remaining interest in the first quarter of 2011, and as a result, no longer incur charges or income associated with noncontrolling interests.
Comparison of Successor One Month Ended January 28, 2012 and Predecessor One Month Ended January 28, 2011

34

The following table sets forth the period change for each category of the Statement of Operations for the one month ended January 28, 2012 for the Successor as compared to the one month ended January 28, 2011 for the Predecessor, as well as each category as a percentage of net sales:
 
Successor
 
Predecessor
 
 
Percentage of Net Sales for the Respective Period End
In thousands
One Month Ended January 28, 2012
 
One Month Ended January 28, 2011
 
Period Change Favorable (Unfavorable)
January 28, 2012
January 28, 2011
Net sales
$
85,945

 
$
84,606

 
$
1,339

100.0
 %
100.0
 %
Cost of goods sold
 
 
 
 
 
 
 
  Raw materials
(45,151
)
 
(45,417
)
 
266

52.5
 %
53.7
 %
  Labor
(5,730
)
 
(5,584
)
 
(146
)
6.7
 %
6.6
 %
  Overhead
(18,696
)
 
(17,530
)
 
(1,166
)
21.8
 %
20.7
 %
  Gross profit
16,368

 
16,075

 
293

19.0
 %
19.0
 %
Selling, general and administrative expenses
(10,438
)
 
(11,564
)
 
1,126

12.1
 %
13.7
 %
Special charges, net
(610
)
 
(20,824
)
 
20,214

0.7
 %
24.6
 %
Other operating, net
625

 
564

 
61

(0.7
)%
(0.7
)%
  Operating income (loss)
5,945

 
(15,749
)
 
21,694

6.9
 %
(18.6
)%
Other income (expense):
 
 
 
 
 
 
 
  Interest expense
(4,038
)
 
(1,922
)
 
(2,116
)
4.7
 %
2.3
 %
  Foreign currency and other, net
(257
)
 
(82
)
 
(175
)
0.3
 %
0.1
 %
Income (loss) before income taxes
1,650

 
(17,753
)
 
19,403

1.9
 %
(21.0
)%
Income tax (provision) benefit
(1,235
)
 
(549
)
 
(686
)
1.4
 %
0.6
 %
Income (loss) from continuing operations
415

 
(18,302
)
 
18,717

0.5
 %
(21.6
)%
Discontinued operations, net
—

 
182

 
(182
)
—
 %
0.2
 %
Net income (loss)
415

 
(18,120
)
 
18,535

0.5
 %
(21.4
)%
Less: Earnings attributable to noncontrolling interests
—

 
83

 
(83
)
—
 %
(0.1
)%
Net income (loss) attributable to Polymer Group, Inc
$
415

 
$
(18,203
)
 
$
18,618

0.5
 %
(21.5
)%
Net Sales
Net sales for the one month ended January 28, 2012 were $85.9 million, a $1.3 million increase compared with the one month ended January 28, 2011. A reconciliation presenting the components of the period change by each of our operating segments is as follows:
 
Nonwovens
 
Oriented
Polymers
 
Total
In millions
Americas
 
Europe
 
Asia
 
Total
 
Beginning of period
$
46.1

 
$
24.3

 
$
9.4

 
$
79.8

 
$
4.8

 
$
84.6

Changes due to:
 
 
 
 
 
 
 
 
 
 
 
Volume
4.7

 
0.2

 
—

 
4.9

 
(1.0
)
 
3.9

Price/product mix
(0.2
)
 
(0.9
)
 
(0.1
)
 
(1.2
)
 
0.3

 
(0.9
)
Currency translation
(1.0
)
 
(0.8
)
 
0.1

 
(1.7
)
 
—

 
(1.7
)
Sub-total
3.5

 
(1.5
)
 
—

 
2.0

 
(0.7
)
 
1.3

End of period
$
49.6

 
$
22.8

 
$
9.4

 
$
81.8

 
$
4.1

 
$
85.9

Nonwovens Segments:
Net sales for the one month ended January 28, 2012 were $81.8 million, an $2.0 million increase compared with the one month ended January 28, 2011. The increase in net sales was primarily driven by higher volumes in the Americas. However, of the $4.7 million volume increase in the Americas, $6.8 million relates to higher volumes at our Colombia facility which experienced a reduction in volume related to the disruption of operations due to a severe flood in December 2010. The Americas were already

35

impacted by lower volumes as demand for hygiene and industrial products declined with the overall markets, although they were partially offset by higher U.S. demand in the wipes and healthcare markets. Combined, these factors reduced net sales by $2.1 million. Higher volumes in Europe were due to the stabilization of underlying demand in our industrial markets as well as additional volume for consumer disposables, particularly wipes.
For the one month ended January 28, 2012, net selling prices decreased $1.2 million compared with the one month ended January 28, 2011. The pricing decrease, which included $0.2 million in the Americas and $0.9 million in Europe, resulted from our passing through lower raw material costs associated with index-based selling agreements and market-based pricing trends. In addition, unfavorable foreign currency impacts of $1.7 million, particularly in Europe and the Latin America region, resulted in lower translation of sales generated in foreign jurisdictions.
Oriented Polymers
Net sales for the one month ended January 28, 2012 were $4.1 million, a $0.7 million decrease compared with the one month ended January 28, 2011. The decrease was primarily driven by a reduction in volume attributable to lower demand in the industrial packaging and agriculture markets, partially offset by higher demand in the building products market. Combined, these factors had a $1.0 million impact on net sales. However, the volume decrease was partially offset by sales of products with higher average selling prices. The improved product mix added $0.3 million of incremental revenue to the one month ended January 28, 2012.
Gross Profit
Gross profit for the one month ended January 28, 2012 was $16.4 million, a $0.3 million increase compared with the one month ended January 28, 2011. The increase in gross profit was primarily driven by the lower cost for the raw materials of resin and fibers, especially polypropylene resin. As a percentage of net sales, the raw material component of our cost of goods sold decreased from 53.7% to 52.5%. However, the increase in gross profit was partially offset by an increase in both our labor and overhead components of cost of goods sold. As a percentage of net sales, labor increased from 6.6% to 6.7% and overhead increased from 20.7% to 21.8%. The primary drivers of the increase included the additional lease expense related to our new U.S. spunmelt manufacturing line, the incremental depreciation on fixed assets revalued as a result of the Merger as well as the incremental depreciation on our new spunmelt manufacturing lines in the U.S. and China. As a result, gross profit as a percentage of net sales remained at 19.0% for each respective period.
Operating Income
Operating income for the one month ended January 28, 2012 was $5.9 million, a $21.6 million increase compared with the one month ended January 28, 2011. A reconciliation presenting the components of the period change by each of our operating divisions is as follows:
 
Nonwovens
 
 
 
 
 
 
In millions
Americas
 
Europe
 
Asia
 
Total
 
Oriented
Polymers
 
Corporate/
Other
 
Total
Beginning of period
$
4.6

 
$
1.8

 
$
1.7

 
$
8.1

 
$
0.6

 
$
(24.4
)
 
$
(15.7
)
Changes due to:
 
 
 
 
 
 
 
 
 
 
 
 
 
Volume
1.1

 
(0.1
)
 
(0.3
)
 
0.7

 
(0.3
)
 
—

 
0.4

Price/product mix
(0.1
)
 
(0.8
)
 
—

 
(0.9
)
 
0.3

 
—

 
(0.6
)
Raw material cost
3.3

 
0.2

 
0.1

 
3.6

 
0.2

 
—

 
3.8

Manufacturing costs
(2.6
)
 
0.3

 
0.3

 
(2.0
)
 
(0.2
)
 
—

 
(2.2
)
Currency translation
(0.6
)
 
(0.2
)
 
(0.1
)
 
(0.9
)
 
(0.1
)
 
0.8

 
(0.2
)
Depreciation and amortization
(0.2
)
 
(0.3
)
 
(0.5
)
 
(1.0
)
 
(0.1
)
 
(0.1
)
 
(1.2
)
Special charges
—

 
—

 
—

 
—

 
—

 
20.2

 
20.2

All other
0.2

 
0.1

 
0.1

 
0.4

 
0.1

 
0.9

 
1.4

Sub-total
1.1

 
(0.8
)
 
(0.4
)
 
(0.1
)
 
(0.1
)
 
21.8

 
21.6

End of period
$
5.7

 
$
1.0

 
$
1.3

 
$
8.0

 
$
0.5

 
$
(2.6
)
 
$
5.9

The amounts for acquisition and integration expenses as well as special charges have not been allocated to our reportable business divisions because our management does not evaluate such charges on a division-by-division basis. Division operating performance is measured and evaluated before such items.

36

Selling, General and Administrative Expenses
Selling, general and administrative expenses for the one month ended January 28, 2012 were $10.4 million, a $1.1 million decrease compared to the one month ended January 28, 2011. The decrease was primarily related to lower stock-based compensation expense of $1.0 million. In addition, we experienced a $0.3 million decrease in volume related expenses such as shipping and handling costs, selling and marketing costs as well as sales related taxes. Also, lower general spending of $0.2 million during the one month ended January 28, 2012 contributed to the decrease. However, the decrease in selling, general and administrative expenses was partially offset by a $0.4 million increase related to the amortization of intangible assets established as a result of the Merger. As a result, selling, general and administrative expenses as a percentage of net sales decreased from 13.7% for the one month ended January 28, 2011 to 12.1% for the one month ended January 28, 2012.
Special Charges, net
As part of our business strategy, we incur costs related to corporate-level decisions or Board of Director actions. These actions are primarily associated with initiatives attributable to restructuring and realignment of manufacturing operations and management structures as well as the pursuit of certain transaction opportunities when applicable. In addition, we evaluate our long-lived assets for impairment whenever events or changes in circumstances including the aforementioned, indicate that the carrying amounts may not be recoverable.
Special charges for the one month ended January 28, 2012 were $0.6 million and consisted of the following components:
•
$0.4 million related to separation and severance expenses associated with our plant realignment cost initiatives
•
$0.2 million related to professional fees and other transaction costs associated with the Merger
Special charges for the one month ended January 28, 2011 were $20.8 million and consisted of the following components:
•
$12.7 million related to the accelerated vesting of share-based awards associated with the Merger
•
$6.2 million related to professional fees and other transaction costs associated with the Merger
•
$1.7 million related to costs incurred to re-establish manufacturing operations at our Cali, Colombia facility after a severe flood that occurred in December 2010
•
$0.2 million related to restructuring and plant realignment costs
The amounts included in Special charges, net have not been allocated to our reportable business divisions because our management does not evaluate such charges on a division-by-division basis. Division operating performance is measured and evaluated before such items.
Other Operating, net
Other operating income for the one months ended January 28, 2012 was $0.6 million, all of which was associated with foreign currency gains. Other operating income for the one month ended January 28, 2011 was $0.6 million. Amounts associated with foreign currency gains totaled $0.5 million and income related to a customer licensing agreement with a third-party manufacturer was $0.1 million.
Other Income (Expense)
Interest expense for the one month ended January 28, 2012 was $4.0 million, a $2.1 million increase compared with the one month ended January 28, 2011. The increase in interest expense is primarily related to higher debt levels due to our Senior Secured Notes issued in connection with the Merger. These notes bear interest at 7.75% compared with our Predecessor borrowings which were subject to a LIBOR floor of 2.5% with an effective rate of 7.0%. In addition, the one month ended January 28, 2011 was impacted by an interest rate swap used to mitigate interest rate exposure on a portion of our Predecessor debt. Foreign currency and other, net for the one month ended January 28, 2012 was an expense of $0.3 million, a increase of $0.2 million compared with the one month ended January 28, 2011.
Income Tax (Provision) Benefit
During the one month ended January 28, 2012, we recognized an income tax expense of $1.2 million on consolidated pre-tax book income from continuing operations of $1.7 million. During the one month ended January 28, 2011, we recognized income tax expense of $0.5 million on consolidated pre-tax book loss from continuing operations of $17.8 million. Our income tax expense in 2012 and 2011 is different than such expense determined at the U.S. federal statutory rate due to losses in certain jurisdictions for which no income tax benefits are anticipated, foreign taxes calculated at statutory rates different than the U.S. federal statutory rate, U.S. state taxes as well as miscellaneous items (none of which are material individually).

37

Discontinued Operations, net
Income associated with discontinued operations for the one month ended January 28, 2011 was $0.2 million. In April 2011, we entered into an agreement to sell certain assets and the working capital of Difco for cash proceeds of $10.9 million. As a result, we accounted for Difco as a discontinued operation for all periods presented. The divestiture was competed in the second quarter of 2011.
Earnings Attributable to Noncontrolling Interests
Earnings attributable to noncontrolling interests for the one month ended January 28, 2011 were $0.1 million. Noncontrolling interests represent the minority partners' interest in the income or loss of consolidated subsidiaries which are not wholly-owned by us. During 2010, these interests included a 20% noncontrolling interest in our Chinese subsidiary, Nanhai Nanxin. We completed our acquisition of the remaining interest in the first quarter of 2011, and as a result, no longer incur charges or income associated with noncontrolling interests.
Liquidity and Capital Resources
The following table contains several key indicators to measure our financial condition and liquidity:
In millions
December 28,
2013
 
December 29,
2012
Balance Sheet Data:
 
 
 
Cash and cash equivalents
$
86.1

 
$
97.9

Operating working capital (1)
43.5

 
29.6

Total assets
1,438.9

 
1,022.1

Total debt
896.7

 
599.7

Total Polymer Group Inc. shareholders’ equity
145.6

 
139.2

(1) Operating working capital represents accounts receivable plus inventory less accounts payable and accrued liabilities
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. In doing so, we review and analyze our current cash on hand, the number of days our sales are outstanding, inventory turns, capital expenditure commitments and income tax rates. Our cash requirements primarily consist of the following:
•Debt service requirements
•Funding of working capital
•Funding of capital expenditures
Our primary sources of liquidity include cash balances on hand, cash flows from operations, cash inflows from the sale of certain accounts receivables through our factoring arrangements, borrowing availability under our existing credit facilities and our ABL facility. We expect our cash on hand and cash flow from operations (which may fluctuate due to short-term operational requirements), combined with the current borrowing availability under our existing credit facilities and our ABL Facility, to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending during the next twelve month period and our ongoing operations, projected working capital requirements and capital spending during the foreseeable future.
On January 28, 2011, pursuant to an Agreement and Plan of Merger, dated as of October 4, 2010, we were acquired by affiliates of Blackstone along with certain members of the Company's management for an aggregate purchase price of $403.5 million. As a result, we are significantly leveraged. Accordingly, our liquidity requirements are significant, primarily due to our debt service requirements. Cash interest payments for the fiscal year ended December 28, 2013 were $50.5 million. We had $86.1 million of cash and cash equivalents on hand and an additional $37.5 million of availability under our ABL Facility as of December 28, 2013, none of which were outstanding at the balance sheet date. The availability under our ABL Facility is determined in accordance with a borrowing base which can decline due to various factors.
We currently have multiple intercompany loan agreements, and in certain circumstances, management services agreements in place that allow us to repatriate foreign subsidiary cash balances to the U.S. without being subject to significant amounts of either foreign jurisdiction withholding taxes or adverse U.S. taxation. In addition, our U.S. legal entities have royalty arrangements, associated with our foreign subsidiaries’ use of U.S. legal entities intellectual property rights that allow us to repatriate foreign subsidiary cash balances, subject to foreign jurisdiction withholding tax requirements. Should we decide to permanently repatriate foreign jurisdiction earnings by means of a dividend, the repatriated cash would be subject to foreign jurisdiction withholding tax requirements. We believe that any such dividend activity and the related tax effect would not be material.

38

At December 28, 2013, we had $86.1 million of cash and cash equivalents on hand, of which $72.8 million was held by subsidiaries outside of the U.S., the majority of which was available for repatriation through various intercompany arrangements. In addition, our U.S. legal entities in the past have also borrowed cash, on a temporary basis, from our foreign subsidiaries to meet U.S. obligations via short-term intercompany loans. Our U.S. legal entities may in the future borrow from our foreign subsidiaries.
Our liquidity and our ability to fund our capital requirements is dependent on our future financial performance, which is subject to general economic, financial and other factors that are beyond our control and many of which are described under "Item 1A - Risk Factors." If those factors significantly change or other unexpected factors adversely affect us, our business may not generate sufficient cash flow from operations or we may not be able to obtain future financings to meet our liquidity needs. We anticipate that to the extent additional liquidity is necessary to fund our operations, it would be funded through borrowings under our ABL Facility, incurring other indebtedness, additional equity financings or a combination of these potential sources of liquidity. We may not be able to obtain this additional liquidity on terms acceptable to us or at all.
Cash Flows
Due to the Merger and related change in control, a new entity was created for accounting purposes as of January 28, 2011. As a result, generally accepted accounting principles require us to present separately our operating results for the Successor and Predecessor periods.
The following table sets forth the major categories of cash flows:
 
Successor
 
 
Predecessor
In millions
Fiscal Year Ended December 28, 2013
 
Fiscal Year Ended December 29, 2012
 
Eleven Months Ended December 31, 2011
 
 
One Month
Ended
January 28,
2011
Cash Flow Data:
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities
$
16.9

 
$
75.5

 
$
24.1

 
 
$
(25.3
)
Net cash provided by (used in) investing activities
(337.8
)
 
(50.2
)
 
(468.0
)
 
 
(8.3
)
Net cash provided by (used in) financing activities
308.2

 
(0.1
)
 
445.2

 
 
31.4

Total
$
(12.7
)
 
$
25.2

 
$
1.3

 
 
$
(2.2
)
Operating Activities
Net cash provided by operating activities for the fiscal year ended December 28, 2013 was $16.9 million, of which working capital requirements provided $19.9 million. The primary driver of the inflow related to a $22.3 million increase in accounts payable and accruals. Trade accounts payable were impacted by the timing of supplier payments while accrued expenses were impacted by the timing of vendor payments, restructuring programs and employee-related expenses. As a result, accounts payable days increase to 80 days at December 28, 2013. In addition, inventory decreased $4.4 million as a result of the lower average purchase price of raw materials. Inventory on hand was 41 days at December 28, 2013. These amounts were partially offset by an increase in accounts receivable, which reduced net cash provided by operating activities by $12.4 million. The increase, which resulted from our passing through higher raw material costs associated with index-based selling agreements and market-based pricing trends, increased days sales outstanding to 45 days.
Net cash provided by operating activities for the fiscal year ended December 29, 2012 was $75.5 million, of which working capital requirements provided $33.2 million. The primary driver of the inflow related to decreases in both accounts receivable and inventory during the year. Accounts receivable decreased $9.4 million as a result of lower selling prices coupled with an increase of amounts sold through factoring agreements. The $9.3 million decrease in inventory was impacted by the lower overall purchase price of raw materials. At December 29, 2012, days sales outstanding was 44 days and inventory on hand was 38 days. Accounts payable and accruals increased $13.2 million. The increase was driven by the lower overall purchase price of raw materials partially offset by savings related to our internal redesign and restructure of our global operations. Accounts payable days was 79 days at December 29, 2012.
Net cash provided by operating activities for the eleven months ended December 31, 2011 was $24.1 million, of which $25.6 million was generated by changes in working capital. The primary driver of the inflow related to the release of restricted cash of $31.1 million, classified in Other current assets, associated with the Merger. Accounts receivable increased $12.6 million primarily a result of higher selling prices in the fourth quarter of 2011, however, inventory decreased by $10.7 million as a result of the lower overall purchase price of raw materials throughout the year. At December 31, 2011, days sales outstanding was 44 days and inventory on hand was 39 days. Accounts payable and accruals decreased $14.9 million, however, the decrease included $34.1 million for professional fees and other transaction costs related to the Merger that were paid during the period. Excluding

39

the transaction payments, the increase in accounts payable and accruals primarily related to accrued interest on our Senior Secured Notes. Accounts payable days was 71 days at December 31, 2011.
Net cash used in operating activities for the one month ended January 28, 2011 was $25.3 million, of which working capital requirements used $27.1 million. The primary driver of the outflow related to the establishment of restricted cash of $31.1 million, classified in Other current assets, associated with the Merger. Accounts receivable increased $3.3 million primarily a result of higher selling prices as we pass through raw material cost to our customers. As well, inventory increased $3.0 million a result of higher overall purchase price of raw materials throughout the one month period. At January 28, 2011, days sales outstanding was 42 days and inventory on hand was 48 days. Accounts payable and accruals increased $17.2 million, primarily related to costs associated with the Merger, partially offset by related cash payments of $6.1 million. Accounts payable days was 79 days at January 28, 2011.
As sales volume and raw material costs vary, inventory and accounts receivable balances are expected to rise and fall accordingly, which in turn, result in changes in our levels of working capital and cash flows going forward. In addition, we review our business on an ongoing basis relative to current and expected market conditions, attempting to match our production capacity and cost structure to the demands of the markets in which we participate, and strive to continuously streamline our manufacturing operations consistent with world-class standards. Accordingly, in the future we may decide to undertake certain restructuring efforts to improve our competitive position. To the extent from time to time further decisions are made to restructure our business, such actions could result in cash restructuring charges and asset impairment charges, which could be material. Cash tax payments are significantly influenced by, among other things, actual operating results in each of our tax jurisdictions, changes in tax law, changes in our tax structure and any resolutions of uncertain tax positions.
Investing Activities
Net cash used in investing activities for the fiscal year ended December 28, 2013 was $337.8 million. The primary driver of the outflow related to the Acquisition, where we acquired Fiberweb for an aggregate purchase price of $287.8 million. Property, plant and equipment expenditures totaled $54.6 million, primarily associated with our manufacturing expansion project in China which was completed in May 2013. Other items included in our capital expenditures relates to machinery and equipment upgrades that extend the useful life and/or increased the functionality of the asset. In addition, we acquired $4.6 million of intangible assets, primarily related to the purchase of land-use rights in connection with the plan to relocate our Nanhai, China manufacturing facilities.
Net cash used in investing activities for the fiscal year ended December 29, 2012 was $50.2 million. The primary driver of the balance related to $51.6 million of property, plant and equipment expenditures associated with our manufacturing expansion project in China. In addition, other items included in our capital expenditures relates to machinery and equipment upgrades that extend the useful life and/or increased the functionality of the asset. These amounts were partially offset by $1.7 million of proceeds recognized in the first quarter of 2012 associated with the sale of a former manufacturing facility in North Little Rock, Arkansas.
Net cash used in investing activities for the eleven months ended December 31, 2011 was $468.0 million. The primary driver of the balance related to the Merger, where we were acquired for an aggregate purchase price valued at $403.5 million. In addition, we invested $68.4 million on property, plant and equipment purchases primarily associated with manufacturing expansion projects in both the U.S. and China. Other items included in our capital expenditures relates to annual maintenance on our machinery and equipment. Lastly, we spent $7.2 million to acquire the remaining interest in Nanhai, China.
Net cash used in investing activities for the one month ended January 28, 2011 was $8.3 million, primarily associated with capital expenditures associated with manufacturing expansion projects in both the U.S. and China. Other items included in our capital expenditures related to annual maintenance on our machinery and equipment.
Financing Activities
Net cash provided by financing activities for the fiscal year ended December 28, 2013 was $308.2 million. The primary driver of the inflow related to the proceeds received from a Senior Secured Credit Agreement and an additional equity investment from our owners (the "Equity Investment") used to repay outstanding borrowings under our Senior Secured Bridge Credit Agreement and the Senior Unsecured Bridge Credit Agreement used in connection with the Acquisition. Proceeds from other borrowings included $13.9 million related to a credit facility funding our manufacturing expansion project in China. In addition, proceeds of $3.5 million related to a new credit facility in Argentina used to fund the upgrade of one of our manufacturing lines. Other amounts were related to short-term facilities.
Net cash used in financing activities for the fiscal year ended December 29, 2012 was $0.1 million. Proceeds from borrowings totaled $16.7 million and primarily related to our credit facility in China funding our manufacturing expansion project in China. Other proceeds were related to short-term facilities. These amounts were more than offset by repayments of $17.6 million.

40

Net cash provided by financing activities for the eleven months ended December 31, 2011 was $445.1 million. The primary driver of the increase related to the Merger, where we issued Senior Secured Notes and received proceeds of $560.0 million as well as an equity contribution of $259.9 million from our owners and certain members of our management. Also in connection with the Merger, we repaid $374.0 million of our Predecessor's outstanding debt obligations in addition to loan acquisition costs of $19.3 million. In addition, we received $18.5 million of proceeds from other borrowings.
Net cash provided for the one month ended January 28, 2011 was $31.4 million primarily associated with $31.5 million of cash proceeds attributable to borrowings in connection with the Merger.
Indebtedness
The following table summarizes our outstanding debt at December 28, 2013:
In thousands
Currency
Matures
Interest Rate
Outstanding Balance
Senior Secured Notes
USD
2019
7.75%
$
560,000

ABL Facility
USD
2016
—
—

Term Loans
USD
2018
5.25%
293,545

Argentine credit facilities:
 
 
 
 
Argentina Credit Facility — Nacion
USD
2016
3.14%
8,341

Argentina Credit Facility — Galicia
ARS
2016
15.25%
3,082

China credit facilities:
 
 
 
 
China Credit Facility — Healthcare
USD
2013
n/a
—

China Credit Facility — Hygiene
USD
2015
5.51%
24,920

India Loans
INR
2017
14.70%
3,216

Capital lease obligations
Various
2014-2018
Various
1,092

Total long-term debt
 
 

894,196

Short-term borrowings
Various
2014
Various
2,472

Total debt
 
 

$
896,668

    
Senior Secured Notes
In connection with the Merger, we issued $560.0 million of 7.75% Senior Secured Notes on January 28, 2011. The notes are due in 2019 and 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 notes is paid semi-annually on February 1 and August 1 of each year.
The indenture governing the Senior Secured Notes, among other restrictions, limits our ability and the ability of our 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. However, subject to certain exceptions, the indenture permits us and our restricted subsidiaries to incur additional indebtedness, including senior indebtedness and secured indebtedness. The indenture also does not limit the amount of additional indebtedness that Parent or its parent entities may incur.
Under the indenture governing the Senior Secured Notes and under the credit agreement governing the senior secured asset-based revolving credit facility, our 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 our ability to satisfy tests based on Adjusted EBITDA as defined in the indenture.
ABL Facility
On October 5, 2012, we entered into a senior secured asset-based revolving credit facility (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, we had the option to request that the ABL Facility be increased by an amount

41

not to exceed $20.0 million, subject to certain rights of the administrative agent, swing line lender and issuing banks with respect to the lenders providing commitments for such increase. The facility was set to expire on January 28, 2015.
On November 26, 2013, we entered into an amendment to the ABL Facility which increased the Tranche 1 revolving commitments by $30.0 million, extended the maturity date to October 5, 2016 as well as made certain other changes to the agreement. In addition, we maintained our option to request that the ABL Facility be increased subject to certain rights of the administrative agent, swing line lender and issuing banks with respect to the lenders providing commitments for such increase. However, the option was amended to be an amount not to exceed $80.0 million. The effectiveness of the amendment was subject to the satisfaction of certain specified closing conditions by no later than January 30, 2014, all of which were satisfied prior to the required deadline.
Based on current borrowing base availability, the borrowings under the ABL Facility will bear interest at a rate per annum equal to, at our option, either (A) Adjusted London Interbank Offered Rate (“LIBOR”) (adjusted for statutory reserve requirements) plus (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 administrative agent's Prime Rate and (b) the federal funds effective rate plus 0.5% (“ABR”) plus (x) 1.00% in the case of Tranche 1 or (y) 3.00% in the case of the Tranche 2. As of December 28, 2013, we had no outstanding borrowings under the ABL Facility. The borrowing base availability was $48.5 million based on initial advance rate formulas prior to the completion of the field exam. Outstanding letters of credit in the aggregate were $11.0 million, resulting in $37.5 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 December 28, 2013. The field exam was completed in February 2014. As a result, proforma availability as of December 28, 2013 would have increased to $58.5 million.
The ABL Facility contains certain customary representations and warranties, affirmative covenants and events of default, including among other things payment defaults, breach of representations and warranties, covenant defaults, cross-defaults and cross acceleration to certain indebtedness, bankruptcy and insolvency defaults, certain events under ERISA, certain monetary judgment defaults, invalidity of guarantees or security interests, and change of control. 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.
Term Loans
On December 19, 2013, we entered into a Senior Secured Credit Agreement (the "Term Loans") with a maturity date upon the earlier of (i) six years from the date of borrowing and (ii) the 91st day prior to the scheduled maturity of our 7.75% Senior Secured Notes. The Term Loans provides 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 Secured Bridge Facility and the Unsecured Bridge Facility.
Borrowings bear interest at a fluctuating rate per annum equal to, at our option, (i) a base rate equal to the highest of (a) the federal funds rate plus 1/2 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 certain a senior secured net leverage ratio. We are 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.
The agreement governing the Term Loans, among other restrictions, limit our ability and the ability of our 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; (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.
Secured Bridge Facility
On September 17, 2013, and subsequently amended on November 27, 2013, we entered into a Senior Secured Bridge Credit Agreement (the "Secured Bridge Facility") with a final maturity date of February 1, 2019. The Secured Bridge Facility provided for a commitment by the lenders to make secured bridge loans in an aggregate amount not to exceed $268.0 million, the proceeds

42

of which were used to partially fund the acquisition of Fiberweb. The Acquisition, which became effective on November 15, 2013, was funded on November 27, 2013.
Borrowings bear interest at a rate equal to the Eurodollar rate plus an applicable margin of 6.00% for the initial three-month period following the date of borrowing, increasing by 0.50% after each subsequent three-month period, subject to a specified maximum rate. Amounts outstanding were senior secured obligations of ours and unconditionally guaranteed, jointly and severally on a senior secured basis, by Holdings and Polymer’s 100% owned domestic subsidiaries. As a result of the Term Loans and the Equity Contribution, all outstanding borrowings under the Secured Bridge Facility were repaid and the facility was subsequently terminated.
Unsecured Bridge Facility
On November 27, 2013, we entered into a Senior Unsecured Bridge Credit Agreement (the "Unsecured Bridge Facility") with a final maturity date of February 1, 2019. The Unsecured Bridge Facility provided for a commitment by the lenders to make secured bridge loans in an aggregate amount not to exceed $50.0 million, the proceeds of which were used to partially fund the acquisition of Fiberweb. The acquisition, which became effective on November 15, 2013, was funded on November 27, 2013.
Borrowings bear interest at a rate equal to the Eurodollar rate plus an applicable margin of 9.25% for the initial three-month period following the date of borrowing, increasing by 0.50% after each subsequent three-month period, subject to a specified maximum rate. Amounts outstanding were senior secured obligations of ours and unconditionally guaranteed, jointly and severally on a senior secured basis, by Holdings and Polymer’s 100% owned domestic subsidiaries. As a result of the Term Loans and the Equity Contribution, all outstanding borrowings under the Unsecured Bridge Facility were repaid and the facility was subsequently terminated.
Argentina Credit Facility - Nacion
In January 2007, our 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, we repaid and terminated the Argentine peso-denominated loans. 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, we recorded a contra-liability in Long-term debt and will amortize the balance over the remaining life of the facility. At December 28, 2013, the face amount of the outstanding indebtedness under the U.S. dollar-denominated loan was $8.6 million, with a carrying amount of $8.3 million and a weighted average interest rate of 3.14%.
Argentina Credit Facility - Galicia
On September 27, 2013, our 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 December 28, 2013, the outstanding balance under the facility was $3.1 million. The remainder of the upgrade is expected to be financed by existing cash balances and cash generated from operations.
China Credit Facility — Healthcare
In the third quarter of 2010, our subsidiary in China entered into a three-year U.S. dollar-denominated construction loan agreement (the “Healthcare 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 three-year term of the agreement began with the date of the first draw down on the Healthcare Facility, which occurred in fourth quarter of 2010. The interest rate applicable to borrowings 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

43

(400 basis points at the time the credit agreement was executed), but in no event would the interest rate be less than 1-year LIBOR plus 250 points.
The maximum borrowings available under the facility, excluding any interest added to principal, were $20.0 million. We repaid $4.0 million of the principle balance in the fourth quarter of 2012. As a result, the outstanding balance under the Healthcare Facility was $16.0 million at December 29, 2012, with a weighted average interest rate of 5.44%. The final principle payment was made during the fourth quarter using a combination of existing cash balances and cash generated from operations. As a result, we had no outstanding borrowings under the Healthcare Facility at December 28, 2013.
China Credit Facility — Hygiene
In the third quarter of 2012, our 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 29, 2012, the outstanding balance under the Hygiene Facility was $11.0 million with a weighted average interest rate of 5.51%. At December 28, 2013, the outstanding balance under the Hygiene Facility was $24.9 million with a weighted-average interest rate of 5.46%. Our first payment on the outstanding principal is due in the first quarter of 2014, which we expect to fund using existing cash balances and cash generated from operations.
Other Subsidiary Indebtedness
We periodically enter into short-term credit facilities in order to finance various liquidity requirements. At December 28, 2013 and December 29, 2012, outstanding amounts related to such facilities were $0.4 million and $0.8 million, respectively, which are being used to finance insurance premium payments. The weighted average interest rate on these borrowings was 2.67% and 2.46%, respectively. Borrowings under these facilities are included in Short-term borrowings in the Consolidated Balance Sheets.
As a result of the acquisition of Fiberweb, the Company assumed control of Terram Geosynthetics Private Limited, a joint venture located in Mundra, India in which we maintain a 65% controlling interest. As part of the net assets acquired, we assumed $3.8 million of debt that was entered into with a banking institution in India. Amounts outstanding primarily relate to a 14.70% term loan, due in 2017, used to purchase fixed assets. Other amounts relate to a short-term credit facility used to finance working capital requirements and an existing automobile loan.
We also have documentary letters of credit not associated with the ABL Facility or the Hygiene Facility. These letters of credit were primarily provided to certain raw material vendors and amounted to $8.5 million and $6.7 million at December 28, 2013 and December 29, 2012, respectively. None of these letters of credit have been drawn on.
Factoring Agreements
In the ordinary course of business, we may utilize accounts receivable factoring arrangements with third-party financial institutions in order to accelerate its cash collections from product sales. These arrangements involve the ownership transfer of eligible U.S. and non-U.S. trade accounts receivable, without recourse or discount, to a third party financial institution in exchange for cash. The maximum amount of outstanding advances at any one time is $20.0 million under the U.S. based program and $62.7 million under the non-U.S. based program. At December 28, 2013, the net amount of trade accounts receivable sold to third-party financial institutions, and therefore excluded from our accounts receivable balance, was $68.1 million. Amounts due from the third-party financial institutions were $7.9 million at December 28, 2013. In the future, we may increase the sale of receivables or enter into additional factoring agreements.
Contractual Obligations
As of December 28, 2013, we had certain cash obligations associated with contractual commitments. The amounts due under these commitments are as follows:

44

 
Payments Due by Period
In millions
Total
 
Less
than 1
Year
 
1 - 3
Years
 
3 - 5
Years
 
More
than 5
Years
Short-term borrowings
$
2.5

 
$
2.5

 
$
—

 
$
—

 
$
—

Long-term debt (fixed)
560.0

 
—

 
—

 
—

 
560.0

Long-term debt (variable)
334.8

 
13.6

 
34.8

 
286.4

 
—

Estimated interest payments (1)
317.2

 
61.5

 
119.0

 
115.0

 
21.7

Capital lease obligation (2)
1.1

 
0.3

 
0.4

 
0.4

 
—

Operating lease obligations (3)
79.3

 
14.1

 
24.6

 
20.5

 
20.1

Purchase commitments (4)
106.2

 
106.2

 
—

 
—

 
—

Total
$
1,401.1

 
$
198.2

 
$
178.8

 
$
422.3

 
$
601.8


(1)
Represents the annual interest expense on fixed and variable rate debt. Projections on variable rate debt are based on current interest rates.
(2)
Represents rental payments under capital leases with initial or remaining non-cancelable terms in excess of one year.
(3)
We lease certain manufacturing, warehousing and other facilities and equipment under operating leases. The leases on most of the properties contain renewal provisions.
(4)
Represents our commitments related to the purchase of raw materials and capital projects.
Future expected obligations under our pension and postretirement benefit plans as well as our unrecognized tax obligations have not been included in the Contractual Obligations table as these items are difficult to make reasonably reliable estimates of the timing and amount to be paid.
Financing Obligation
As a result of the acquisition of Fiberweb, we 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 transaction was appropriately accounted for by Fiberweb under International Financial Reporting Standards ("IFRS") as a sale-leaseback whereby the assets were excluded from the balance sheet and monthly lease payments were recorded as rent expense.
We determined that current accounting guidance under Generally Accepted Accounting Principles in the United States (“GAAP”) disallowed sale-leaseback treatment if there was continuing involvement with the property. As a result, the transaction is not accounted for as a sale-leaseback, but as a direct financing lease under GAAP, 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, we 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 December 28, 2013, the outstanding balance of the financing obligation was $20.1 million.
Operating Lease Obligations
We lease certain manufacturing, warehousing and other facilities and equipment under operating leases. The leases on most of the properties contain renewal provisions. Rent expense (net of sub-lease income), including incidental leases, was $15.4 million, $14.5 and $8.3 million for the Successor during the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012 and the eleven months ended December 31, 2011, respectively. For the one month ended January 28, 2011, rent expense for the Predecessor was $0.9 million. These expenses are recognized on a straight-line basis over the life of the lease.
In the third quarter of 2011, our 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, we will make annual lease payments of $8.3 million. From the fourth anniversary date to the end of the lease term, our annual lease payments may change, as defined in the lease agreement. The aggregate monthly 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 us to maintain certain financial ratios and other requirements.
Purchase Commitments

45

At December 28, 2013, we had purchase commitments of $106.2 million, of which $73.4 million related to the purchase of raw materials in the normal course of business. The remaining $32.8 million related to capital projects, primarily associated with the plan to relocate our Nanhai, China manufacturing facilities and the warehouse expansion project at the Company's Old Hickory, Tennessee manufacturing facilities.
Pensions Plans
At December 28, 2013, we had a net surplus of $6.5 million related to our pension plans. It is our objective to contribute to pension plans to ensure adequate funds are available in the plans to make benefit payments to plan participants and beneficiaries when required. Because the timing and amounts of long-term funding requirements for pension obligations are uncertain, they have been excluded from the Contractual Obligations table.
Postretirement Benefit Plans
At December 28, 2013, we had postretirement benefit obligations of $7.5 million. We fund postretirement benefit costs principally on a pay-as-you-go basis as medical costs are incurred by covered retiree populations. Because the timing and amounts of long-term funding requirements for postretirement obligations are uncertain, they have been excluded from the Contractual Obligations table.
Uncertain Tax Positions
At December 28, 2013, we have total unrecognized tax benefits for uncertain tax positions of $23.6 million, which includes $9.3 million of related accrued interest and penalties. The liability has been excluded from the Contractual Obligations table as we are unable to reasonably estimate the amount and period in which these liabilities might be paid.
Covenant Compliance
We report our financial results in accordance with GAAP. In addition, we present Adjusted EBITDA as a supplemental financial measure in order to provide a more complete understanding of the factors and trends affecting our business. Adjusted EBITDA is a non-GAAP financial measure that should be considered supplemental to, not a substitute for or superior to, the financial measure calculated in accordance with GAAP. It has limitations in that it does not reflect all of the costs associated with the operations of our business as determined in accordance with GAAP. In addition, this measure may not be comparable to non-GAAP financial measures reported by other companies. We believe that Adjusted EBITDA provides important supplemental information to both management and investors regarding financial and business trends used in assessing our financial condition as well as provides additional information to investors about the calculation of, and compliance with, certain financial covenants in the indentures governing the Senior Secured Notes, the Term Loans and in our ABL Facility. As a result, one should not consider Adjusted EBITDA in isolation or as a substitute for our results reported under GAAP. We compensate for these limitations by analyzing results on a GAAP basis as well as on a non-GAAP basis, predominantly disclosing GAAP results and providing reconciliations from GAAP results to non-GAAP results.
The following table shows a reconciliation of the Successor's Adjusted EBITDA from the most directly comparable GAAP measure, Net income (loss) in order to show the differences in these measures of operating performance:

46

In thousands
Fiscal Year Ended
December 28, 2013
Net income (loss) attributable to Polymer Group, Inc.
$
(38,238
)
Discontinued operations, net of tax
—

Net income attributable to noncontrolling interest
(34
)
Interest expense, net
55,974

Income and franchise tax
(22,227
)
Depreciation & amortization (a)
71,692

Purchase accounting adjustments(b)
6,967

Non-cash compensation (c)
4,329

Special charges, net (d)
33,188

Foreign currency and other non-operating, net (e)
11,689

Loss on debt modification
3,334

Severance and relocation expenses (f)
4,943

Unusual or non-recurring charges, net
958

Business optimization expense (g)
319

Management, monitoring and advisory fees (h)
3,855

Proforma Adjusted EBITDA contribution from Acquisition (i)
37,946

Proforma Adjusted EBITDA contribution from estimated synergies (j)
35,716

Adjusted EBITDA (Term Loans)
210,411

Portion of synergies above allowed amount in Senior Secured Notes (k)
(14,675
)
Adjusted EBITDA (Senior Secured Notes)
$
195,736


(a)
Excludes amortization of loan acquisition costs that are included in interest expense.
(b)
2012 amounts reflect fair market value adjustments as a result of purchase accounting associated with the Merger, primarily related to the step-up in inventory value. 2013 amounts reflect the fair market adjustments as a result of purchase accounting associated with the Acquisition.
(c)
Reflects non-cash compensation costs related to employee and director restricted stock, restricted stock units and stock options.
(d)
Reflects costs associated with non-cash asset impairment charges, the restructuring and realignment of manufacturing operations and management organizational structures, pursuit of certain transaction opportunities and other charges included in Special charges, net.
(e)
Reflects (gains) losses from foreign currency translation of intercompany loans, unrealized (gains) losses on interest rate and foreign currency hedging transactions, (gains) losses on sales of assets outside the ordinary course of business, factoring costs and certain other non-operating (gains) losses recorded in Foreign Currency and Other, net as well as (gains) losses from foreign currency transactions recorded in Other Operating, net.
(f)
Reflects severance and relocation expenses not included under Special charges, net as well as costs incurred with the CEO Transition.
(g)
Reflects costs incurred to improve IT and accounting functions, costs associated with establishing new facilities and certain other expenses.
(h)
Reflects management, monitoring and advisory fees paid under the Sponsor management agreement.
(i)
Represents Adjusted EBITDA on a proforma basis for the period January 2, 2013 through November 15, 2013.
(j)
Per the Term Loan, amounts represent estimated impacts from synergies to be implemented within 12 months of the Fiberweb transaction, capped at 20% of proforma Adjusted EBITDA.
(k)
The Senior Secured Notes limit the amount of synergies included in the definition of Adjusted EBITDA to the greater of $20 million or 10% of Proforma Adjusted EBITDA.
Off Balance Sheet Arrangements
We do not have any off-balance sheet arrangements
Recent Accounting Standards
In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"), which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting

47

date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013, with retroactive application permitted. We are currently assessing the potential impacts, if any, on our financial results.
In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, ASU 2013-02 requires an entity to present, either on the face of the income statement or in the notes to the financial statements, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this guidance concerns disclosure only and did not have an impact on our financial results.
In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” which amended the guidance on the annual impairment testing of indefinite-lived intangible assets other than goodwill. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, based on the qualitative assessment, it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if a company concludes otherwise, quantitative impairment testing is not required. This new guidance was adopted in the fourth quarter of 2012 and its adoption did not significantly impact the Company's consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU No. 2011-12 revises ASU No. 2011-05 to defer the presentation in the financial statements of reclassifications out of accumulated other comprehensive income for annual and interim financial statements. The deferral is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The Company adopted this guidance on January 1, 2012. The revised presentation requirements are reflected in the Company's consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about Offsetting Assets and Liabilities" which requires enhanced disclosures about financial instruments and derivative instruments eligible for offset in accordance with U.S. GAAP or subject to an enforceable master netting arrangement or similar agreement. This new guidance is effective for annual reporting periods beginning on or after January 1, 2013 and subsequent interim periods. The Company adopted this guidance in the fourth quarter 2012 and its adoption did not significantly impact the Company's consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, “Testing for Goodwill Impairment” which amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance on January 1, 2012 and its adoption did not significantly impact the Company's consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 requires the Company to present the components of other comprehensive income and of net income in one continuous statement of comprehensive income, or in two separate, but consecutive statements. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The option to report other comprehensive income within the statement of equity has been removed. This new presentation is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The revised presentation requirements are reflected in the Company's consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS").” ASU No. 2011-04 represents converged guidance between U.S. GAAP and IFRS resulting in a consistent definition of fair value as well as provides common requirements for measuring fair value and disclosing information about fair value measurements. This new guidance is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The Company

48

adopted this guidance on January 1, 2012 and its adoption did not significantly impact the Company's consolidated financial statements.
Critical Accounting Policies and Other Matters
Management’s Discussion and Analysis of Financial Condition and Results of Operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of financial statements in conformity with those accounting principles requires management to use judgment in making estimates and assumptions based on the relevant information available at the end of each period. These estimates and assumptions have a significant effect on reported amounts of assets and liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities because they result primarily from the need to make estimates and assumptions on matters that are inherently uncertain. Actual results may differ from estimates. The following is a summary of certain accounting estimates and assumptions made by management that we consider critical.
Long-Lived Assets. Management reviews long-lived assets, which consist of property, leasehold improvements, equipment and definite-lived intangibles, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. For long-lived assets to be held and used, management evaluates recoverability by comparing the carrying value of the asset to future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying value of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the asset. For long-lived assets for which we have committed to a disposal plan, we report such assets at the lower of the carrying value or fair value less the cost to sell.
In determining the fair value of long-lived assets, we make judgments relating to the expected useful lives of long-lived assets and our ability to realize any undiscounted cash flows in excess of the carrying amounts of such assets. Factors that impact these judgments include the ongoing maintenance and improvements of the assets, changes in the expected use of the assets, changes in economic conditions, changes in operating performance and anticipated future cash flows. If actual fair value is less than our estimates, long-lived assets may be overstated on the balance sheet, which would adversely impact our financial position.
Goodwill and Indefinite-Lived Intangible Assets. Goodwill and intangible assets with indefinite useful lives are no longer amortized, but 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.
Recoverability of goodwill is measured at the reporting unit level and begins with a qualitative assessment to determine, as a basis for whether it is necessary to perform the two-step impairment test under U.S. GAAP, if it more likely than not that the fair value of each reporting unit is less than its carrying amount. For the reporting units where it is required, the first step compares the carrying amount of the reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit’s carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.
2013 Impairment Test
For our annual impairment test performed during the fourth quarter of 2013, we concluded it was necessary to calculate the fair value of each of our reporting units. Based on the result of these calculations, we determined that none of our reporting units failed the step 1 impairment calculation. The estimates of fair value are based on the best information available as of the date of assessment, which primarily incorporates managements assumptions about expected future cash flows.
Although all our reporting units passed the step 1 calculation, the excess of their estimated fair value over carrying value (expressed as a percentage of carrying value) was below 15%. These reporting units, reported within the Americas Nonwovens segment and the Asia Nonwoven segment, exceeded their carrying value by 8.7% and 0.1%, respectively. An increase in the discount rate, decrease in the long-term growth rate, or substantial reduction in our end markets and volume assumptions could have a negative impact on the estimated fair value of these reporting units. Goodwill amounts related to these reporting units were $46.0 million and $34.9 million, respectively.
2012 Impairment Test
For our annual impairment test performed during the fourth quarter of 2012, we concluded it was necessary to calculate the fair value of each of our reporting units. Based on the result of these calculations, we determined that the fair value of two reporting units failed the step 1 impairment calculation. However, based on our step 2 calculations, no impairment of goodwill was necessary.

49

The estimates of fair value are based on the best information available as of the date of assessment, which primarily incorporates managements assumptions about expected future cash flows.
For all reporting units that passed the step 1 calculation, the excess of their estimated fair value over carrying value (expressed as a percentage of carrying value) was a minimum of 15% except for two. These two reporting units, reported within the Americas Nonwovens segment and the Asia Nonwoven segment, exceeded their carrying value by 6.4% and 0.7%, respectively. A significant increase in the discount rate, decrease in the long-term growth rate, or substantial reduction in our end markets and volume assumptions could have a negative impact on the estimated fair value of these reporting units. Goodwill amounts related to these reporting units were $20.7 million and $23.1 million, respectively.
Recoverability of other intangible assets with indefinite useful lives begins with a qualitative assessment to determine, as a basis for whether it is necessary to calculate the fair value of the indefinite-lived intangible asset, if it is more likely than not that the asset is impaired. When required, recoverability is measured by a comparison of the carrying amount of the intangible assets to the estimated fair value of the respective intangible assets. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.
The determination of estimated fair value requires management to make assumptions about estimated cash flows, including profit margins, long-term forecasts, discount rates, royalty rates and terminal growth rates. Management developed these assumptions based on the best information available as of the date of the assessment. We completed our assessment of goodwill and intangible assets with indefinite useful lives during the fourth quarter of 2013 and determined that no impairment existed at that date. Although no impairment was recognized, there can be no assurances that future impairments will not occur. Future adverse developments in market conditions or our current or projected operating results could cause the fair value of our goodwill and intangible assets with indefinite useful lives to fall below carrying value, which would result in an impairment charge that would adversely affect our financial position.
Income Taxes. We record an income tax valuation allowance 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 ultimate realization of the deferred tax asset depends on our ability to generate sufficient taxable income of the appropriate character in the future and in the appropriate taxing jurisdictions. In assessing the realization of the deferred tax assets, consideration is given to, among other factors, the trend of historical and projected future taxable income, the scheduled reversal of deferred tax liabilities, the carryforward period for net operating losses and tax credits, as well as tax planning strategies available to us. Additionally, we have not provided U.S. income taxes for undistributed earnings of certain foreign subsidiaries that are considered to be retained indefinitely for reinvestment. Certain judgments, assumptions and estimates are required in assessing such factors and significant changes in such judgments and estimates may materially affect the carrying value of the valuation allowance and deferred income tax expense or benefit recognized in our consolidated financial statements.
We recognize a tax benefit associated with an uncertain tax position when, in our judgment, it is more likely than not that the position will be sustained upon examination by a taxing authority. For a tax position that meets the more-likely-than-not recognition threshold, we initially and subsequently measure the tax benefit as the largest amount that we judge to have a greater than 50% likelihood of being realized upon ultimate settlement with a taxing authority. The liability associated with unrecognized tax benefits is adjusted periodically due to changing circumstances, such as the progress of tax audits, case law developments and new or emerging legislation. Such adjustments are recognized entirely in the period in which they are identified. The effective tax rate includes the net impact of changes in the liability for unrecognized tax benefits and subsequent adjustments as considered appropriate by management.
A number of years may elapse before a particular matter for which a liability related to an unrecognized tax benefit is audited and finally resolved. The number of years with open tax audits varies by jurisdiction. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe our liability for unrecognized tax benefits is adequate. Favorable resolution of an unrecognized tax benefit could be recognized as a reduction in the effective tax rate in the period of resolution. Unfavorable settlement of an unrecognized tax benefit could increase the effective tax rate and may require the use of cash in the period of resolution. Accordingly, our future results may include favorable or unfavorable adjustments due to the closure of tax examinations, new regulatory or judicial pronouncements, changes in tax laws or other relevant events.
Revenue Recognition. Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. We recognize revenue when the title and the risks and rewards of ownership have substantially transferred to the customer. We permit customers from time to time to return certain products and we continuously monitor and track such returns and record an estimate of such future returns, which is based on historical experience and recent trends. While such returns have historically been within management's expectations and the provisions established have been

50

adequate, we cannot guarantee that we will continue to experience the same return rates that we have in the past. If future returns increase significantly, it could adversely impact our results of operations.
Stock-Based Compensation. We account for stock-based compensation awards in accordance with ASC 718, "Compensation - Stock Compensation" ("ASC 718"), which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. Our stock-based compensation plans have included programs for stock options and restricted stock units. Determining the appropriate fair value model and calculating the fair value of stock-based payment awards require the input of subjective assumptions, including the expected life of the awards and stock price volatility. The assumptions used in calculating the fair value of stock-based payment awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and we use different assumptions, our equity-based compensation expense could be materially different in the future.
Employee Benefit Plans. We provide a range of benefits to eligible employees and retired employees, including pension and postretirement benefits. Determining the cost associated with such benefits is dependent on various actuarial assumptions including discount rates, expected return on plan assets, compensation increases, employee mortality and turnover rates and healthcare cost trend rates. Actuarial valuations are performed to determine expense in accordance with U.S. GAAP. Actual results may differ from the actuarial assumptions and are generally accumulated and amortized into earnings over future periods. We review our actuarial assumptions at each measurement date and make modifications to the assumptions based on current rates and trends, if appropriate. We believe that the assumptions utilized in recording our obligations under our plans are reasonable based on input from actuaries, outside investment advisor's and information as to assumptions used by plan sponsors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to fluctuations in currency exchange rates, interest rates and commodity prices which could impact our results of operations and financial condition. As a result, we employ a financial risk management program, whose objective is to seek a reduction in the potential negative earnings impact of changes in interest rates, foreign exchange rates and raw material pricing arising in our business activities. To manage these exposures, we primarily use operational means. However, to manage certain of these exposures, we used derivative instruments as described below. Derivative instruments utilized by us in our hedging activities are viewed as risk management tools, involve little complexity and are not used for trading or speculative purposes. To minimize the risk of counterparty non-performance, agreements are made only through major financial institutions with significant experience in such derivative instruments.
Long-Term Debt and Interest Rate Market Risk
Our objective in managing exposure to interest rate changes is to manage the impact of interest rate changes on earnings and cash flows as well as to minimize our overall borrowing costs. To achieve these objectives, we may use financial instruments such as interest rate swaps, in order to manage our mix of floating and fixed-rate debt.
The majority of our long-term financing consists of $560.0 million of 7.75% fixed-rate, Senior Secured Notes due 2019. However, the remaining portion of our indebtedness, including the Term Loans, do have variable interest rates, for which we have not hedged the risks attributable to fluctuations in interest rates. Hypothetically, a 1% change in the interest rate affecting our outstanding variable interest rate subsidiary indebtedness, as of December 28, 2013, would change our interest expense by approximately $3.3 million.
Foreign Currency Exchange Rate Risk
We have operations throughout the world that manufacture and sell their products in various international markets. As a result, we are exposed to movements in exchange rates of various currencies against the U.S. dollar as well as against other currencies throughout the world. Such currency fluctuations have much less effect on our local operating results because we, to a significant extent, sell our products within the countries in which they are manufactured.
On June 30, 2011, we entered into a series of foreign exchange forward contracts with a third-party financial institution used to minimize foreign exchange risk on certain future cash commitments related to a new spunmelt line under construction in China. The contracts allow us to purchase fixed amounts of Euros on specified future dates, coinciding with the payment amounts and dates of equipment purchase contracts. During the fourth quarter of 2013, we remitted the final payment on the hygiene line and simultaneously fulfilled our obligation under these forward contracts.
On September 17, 2013, we entered into a foreign exchange forward contract with a third-party financial institution used to minimize foreign exchange risk on our cash commitment related to the acquisition of Fiberweb during the fourth quarter of 2013. The Bridge Loan Contract allowed us to purchase a fixed amount of pounds sterling in the future at a specified U.S. Dollar rate.

51

On November 15, 2013, the acquisition of Fiberweb became effective pursuant to a court sanctioned scheme of arrangement under Part 26 of the UK Companies Act of 2006 whereby Fiberweb became a wholly-owned subsidiary of the Company. The Acquisition was funded on November 27, 2013, at which time we settled the Bridge Loan Contract and terminated the agreement.
Raw Material and Commodity Risks
The primary raw materials used in the manufacture of most of our products are polypropylene resin, polyester fiber, polyethylene resin, and, to a lesser extent, rayon and tissue paper. The prices of polypropylene, polyethylene and polyester are a function of, among other things, manufacturing capacity, demand and the price of crude oil and natural gas liquids. In certain regions of the world, we may source certain key raw materials from a limited number of suppliers or on a sole source basis. In addition, to the extent that we cannot procure our raw material requirements from a local country supplier, we will import raw materials from outside refiners. We believe that the loss of any one or more of our suppliers would not have a long-term material adverse effect on us because other suppliers with whom we conduct business would be able to fulfill our long-term requirements. However, the loss of certain of our suppliers or the delay in the import of raw materials could, in the short-term, adversely affect our business until alternative supply arrangements are secured and the respective suppliers were qualified with our customers, or when importation delays of raw material are resolved. We have not historically experienced, and do not expect, any significant disruptions in the long-term supply of raw materials.
We have not historically hedged our exposure to raw material increases with synthetic financial instruments. However, we have certain customer contracts with price adjustment provisions which provide for index-based pass-through of changes in the underlying raw material costs, although there is often a delay between the time we incur the new raw material cost and the time that we are able to adjust the selling price to our customers. On a global basis, raw material costs continue to fluctuate in response to certain global economic factors, including the regional supply versus demand dynamics for the raw materials and the volatile price of oil.
In periods of rising raw material costs, to the extent we are not able to pass along price increases of raw materials, or to the extent any such price increases are delayed, our cost of goods sold would increase and our operating profit would correspondingly decrease. Based on our current purchase volume for the year ended December 28, 2013, if the price of polypropylene was to rise $.01 per pound and we were not able to pass along any of such increase to our customers, we would realize a $5.6 million impact in our cost of goods sold. Significant increases in raw material prices that cannot be passed on to customers could have a material adverse effect on our results of operations and financial condition. In periods of declining raw material costs, if sales prices do not decrease at a corresponding rate, our cost of goods sold would decrease and our operating profit would correspondingly increase.

52

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
Page

53



Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Polymer Group, Inc.

We have audited the accompanying consolidated balance sheets of Polymer Group, Inc. as of December 28, 2013 and December 29, 2012, and the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' equity, and cash flows for the years ended December 28, 2013 and December 29, 2012. Our audits also included the financial statement schedule listed in the Index at Item 15(a)(2). These financial statements and schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Polymer Group, Inc. at December 28, 2013 and December 29, 2012, and the consolidated results of its operations and its cash flows for the years ended December 28, 2013 and December 29, 2012, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ Ernst & Young LLP
Charlotte, North Carolina
March 28, 2014















54




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders
Polymer Group, Inc.:

We have audited the accompanying consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity, and cash flows of Polymer Group, Inc. (a Delaware corporation) and subsidiaries (the “Company”) for the period from January 29, 2011 to December 31, 2011 (Successor) and for the period from January 2, 2011 to January 28, 2011 (Predecessor). These financial statements are the responsibility of the Company’s management. Our audit of the basic consolidated financial statements included the financial statement schedule listed in the index appearing under Item 15(a)(2). Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Polymer Group, Inc. and subsidiaries for the period from January 29, 2011 to December 31, 2011 (Successor) and the period from January 2, 2011 to January 28, 2011 (Predecessor) in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ GRANT THORNTON LLP
Charlotte, North Carolina
March 30, 2012, except for Note 23 “Segment Information,” as to which the date is March 28, 2013

55


POLYMER GROUP, INC.
CONSOLIDATED BALANCE SHEETS
In thousands, except share data
December 28,
2013
 
December 29,
2012
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
86,064

 
$
97,879

Accounts receivable, net
194,827

 
131,569

Inventories, net
156,365

 
94,964

Deferred income taxes
2,318

 
3,832

Other current assets
59,096

 
33,414

Total current assets
498,670

 
361,658

Property, plant and equipment, net
623,279

 
479,169

Goodwill
120,143

 
80,608

Intangible assets, net
168,179

 
75,663

Deferred income taxes
2,582

 
945

Other noncurrent assets
26,052

 
24,026

Total assets
$
1,438,905

 
$
1,022,069

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term borrowings
$
2,472

 
$
813

Accounts payable and accrued liabilities
307,661

 
196,905

Income taxes payable
3,613

 
3,841

Deferred income taxes
1,523

 
479

Current portion of long-term debt
13,797

 
19,477

Total current liabilities
329,066

 
221,515

Long-term debt
880,399

 
579,399

Deferred income taxes
21,161

 
33,181

Other noncurrent liabilities
61,845

 
48,772

Total liabilities
1,292,471

 
882,867

Commitments and contingencies

 

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

 
—

Additional paid-in capital
294,144

 
256,180

Retained earnings (deficit)
(140,447
)
 
(102,209
)
Accumulated other comprehensive income (loss)
(8,106
)
 
(14,769
)
Total Polymer Group, Inc. shareholders' equity
145,591

 
139,202

Noncontrolling interests
843

 
—

Total shareholders' equity
146,434

 
139,202

Total liabilities and shareholders' equity
$
1,438,905

 
$
1,022,069

See accompanying Notes to Consolidated Financial Statements.

56

POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 
In thousands
Successor
 
 
Predecessor
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Net sales
$
1,214,862

 
$
1,155,163

 
$
1,102,929

 
 
$
84,606

Cost of goods sold
(1,018,456
)
 
(957,917
)
 
(932,523
)
 
 
(68,531
)
Gross profit
196,406

 
197,246

 
170,406

 
 
16,075

Selling, general and administrative expenses
(153,412
)
 
(140,776
)
 
(134,483
)
 
 
(11,564
)
Special charges, net
(33,188
)
 
(19,592
)
 
(41,345
)
 
 
(20,824
)
Acquisition and integration expenses
—

 
—

 
—

 
 
—

Other operating, net
(2,512
)
 
287

 
(2,634
)
 
 
564

Operating income (loss)
7,294

 
37,165

 
(8,056
)
 
 
(15,749
)
Other income (expense):
 
 
 
 
 
 
 
 
Interest expense
(55,974
)
 
(50,414
)
 
(46,409
)
 
 
(1,922
)
Foreign currency and other, net
(12,185
)
 
(5,134
)
 
(18,636
)
 
 
(82
)
Income (loss) before income taxes
(60,865
)
 
(18,383
)
 
(73,101
)
 
 
(17,753
)
Income tax (provision) benefit
22,593

 
(7,655
)
 
3,272

 
 
(549
)
Income (loss) from continuing operations
(38,272
)
 
(26,038
)
 
(69,829
)
 
 
(18,302
)
Discontinued operations, net of tax
—

 
—

 
(6,283
)
 
 
182

Net income (loss)
(38,272
)
 
(26,038
)
 
(76,112
)
 
 
(18,120
)
Less: Earnings attributable to noncontrolling interests
(34
)
 
—

 
59

 
 
83

Net income (loss) attributable to Polymer Group, Inc.
$
(38,238
)
 
$
(26,038
)
 
$
(76,171
)
 
 
$
(18,203
)
See accompanying Notes to Consolidated Financial Statements.


57

POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Net income (loss)
$
(38,272
)
 
$
(26,038
)
 
$
(76,112
)
 
 
$
(18,120
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Currency translation
12,731

 
2,287

 
(3,290
)
 
 
2,845

Employee postretirement benefits
(738
)
 
(19,912
)
 
7,042

 
 
—

Cash flow hedge adjustments
—

 
—

 
—

 
 
183

Total other comprehensive income (loss)
11,993

 
(17,625
)
 
3,752

 
 
3,028

Income tax (provision) benefit
(5,302
)
 
(15
)
 
(881
)
 
 
—

Total other comprehensive income (loss), net of tax
6,691

 
(17,640
)
 
2,871

 
 
3,028

Comprehensive income (loss)
(31,581
)
 
(43,678
)
 
(73,241
)
 
 
(15,092
)
Less: Comprehensive income (loss) attributable to noncontrolling interests
(6
)
 
—

 
121

 
 
83

Comprehensive income (loss) attributable to Polymer Group, Inc.
$
(31,575
)
 
$
(43,678
)
 
$
(73,362
)
 
 
$
(15,175
)
See accompanying Notes to Consolidated Financial Statements.

58

POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
 
In thousands
Polymer Group, Inc. Shareholders
 
 
 
 
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
Predecessor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance — January 1, 2011
21,429

 
$
214

 
$
216,888

 
$
(121,819
)
 
$
39,053

 
$
134,336

 
$
8,916

 
$
143,252

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
—

 
—

 
—

 
(18,203
)
 
—

 
(18,203
)
 
83

 
(18,120
)
Cash flow hedge adjustment
—

 
—

 
—

 
—

 
183

 
183

 
—

 
183

Share-based compensation
—

 
—

 
13,591

 
—

 
—

 
13,591

 
—

 
13,591

Issuance of Class A common shares
394

 
4

 
6,432

 
—

 
—

 
6,436

 
—

 
6,436

Currency translation
—

 
—

 
—

 
—

 
2,845

 
2,845

 
—

 
2,845

Balance — January 28, 2011
21,823

 
$
218

 
$
236,911

 
$
(140,022
)
 
$
42,081

 
$
139,188

 
$
8,999

 
$
148,187

Successor
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance of noncontrolling interest
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
7,247

 
$
7,247

Issuance of stock
1

 
—

 
259,865

 
—

 
—

 
259,865

 
—

 
259,865

Net income (loss)
—

 
—

 
—

 
(76,171
)
 
—

 
(76,171
)
 
59

 
(76,112
)
Amounts due from shareholders
—

 
—

 
(58
)
 
—

 
—

 
(58
)
 
—

 
(58
)
Buyout of noncontrolling interest
—

 
—

 
59

 
—

 
62

 
121

 
(7,368
)
 
(7,247
)
Share-based compensation
—

 
—

 
731

 
—

 
—

 
731

 
—

 
731

Employee benefit plans, net of tax
—

 
—

 
—

 
—

 
6,161

 
6,161

 
—

 
6,161

Currency translation
—

 
—

 
—

 
—

 
(3,352
)
 
(3,352
)
 
62

 
(3,290
)
Balance — December 31, 2011
1

 
—

 
260,597

 
(76,171
)
 
2,871

 
187,297

 
—

 
187,297

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts due to shareholders
—

 
—

 
1,087

 
—

 
—

 
1,087

 
—

 
1,087

Common stock call option reclass
—

 
—

 
(5,144
)
 
—

 
—

 
(5,144
)
 
—

 
(5,144
)
Net income (loss)
—

 
—

 
—

 
(26,038
)
 
—

 
(26,038
)
 
—

 
(26,038
)
Intercompany equipment sale elimination
—

 
—

 
(1,202
)
 
—

 
—

 
(1,202
)
 
—

 
(1,202
)
Share-based compensation
—

 
—

 
842

 
—

 
—

 
842

 
—

 
842

Employee benefit plans, net of tax
—

 
—

 
—

 
—

 
(19,927
)
 
(19,927
)
 
—

 
(19,927
)
Currency translation
—

 
—

 
—

 
—

 
2,287

 
2,287

 
—

 
2,287

Balance — December 29, 2012
1

 
—

 
256,180

 
(102,209
)
 
(14,769
)
 
139,202

 
—

 
139,202

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amounts due to shareholders
—

 
—

 
(222
)
 
—

 
—

 
(222
)
 
—

 
(222
)
Issuance of stock
—

 
—

 
30,726

 
—

 
—

 
30,726

 
—

 
30,726

Common stock call option reclass
—

 
—

 
3,340

 
—

 
—

 
3,340

 
—

 
3,340

Net income (loss)
—

 
—

 
—

 
(38,238
)
 
—

 
(38,238
)
 
(34
)
 
(38,272
)
Acquisition of noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
849

 
849

Intercompany equipment sale elimination
—

 
—

 
130

 
—

 
—

 
130

 
—

 
130

Share-based compensation
—

 
—

 
3,990

 
—

 
—

 
3,990

 
—

 
3,990

Employee benefit plans, net of tax
—

 
—

 
—

 
—

 
(2,046
)
 
(2,046
)
 
—

 
(2,046
)
Currency translation, net of tax
—

 
—

 
—

 
—

 
8,709

 
8,709

 
28

 
8,737

Balance — December 28, 2013
1

 
$
—

 
$
294,144

 
$
(140,447
)
 
$
(8,106
)
 
$
145,591

 
$
843

 
$
146,434

See accompanying Notes to Consolidated Financial Statements.

59

POLYMER GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Operating activities:
 
 
 
 
 
 
 
 
Net income (loss)
$
(38,272
)
 
$
(26,038
)
 
$
(76,112
)
 
 
$
(18,120
)
Adjustments for non-cash transactions:
 
 
 
 
 
 
 
 
Deferred income taxes
(31,093
)
 
(1,123
)
 
(4,311
)
 
 
—

Depreciation and amortization expense
76,488

 
66,706

 
57,290

 
 
3,523

Asset impairment charge
2,213

 
—

 
9,267

 
 
—

Inventory step-up
6,967

 
—

 
13,012

 
 
—

Inventory absorption on step-up
—

 
—

 
(85
)
 
 
—

(Gain) loss on extinguishment of debt
3,334

 
—

 
—

 
 
—

(Gain) loss on financial instruments
(799
)
 
(147
)
 
—

 
 
187

(Gain) loss on sale of assets, net
185

 
3

 
716

 
 
(25
)
Non-cash compensation
3,990

 
842

 
868

 
 
13,591

Changes in operating assets and liabilities:
 
 
 
 
 
 
 
 
Accounts receivable
(12,380
)
 
9,427

 
(12,615
)
 
 
(3,287
)
Inventories
4,412

 
9,295

 
10,682

 
 
(2,988
)
Other current assets
5,346

 
1,221

 
42,421

 
 
(38,025
)
Accounts payable and accrued liabilities
22,509

 
13,214

 
(14,924
)
 
 
17,238

Other, net
(26,050
)
 
2,071

 
(2,092
)
 
 
2,636

Net cash provided by (used in) operating activities
16,850

 
75,471

 
24,117

 
 
(25,270
)
Investing activities:
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
(54,642
)
 
(51,625
)
 
(68,428
)
 
 
(8,405
)
Proceeds from sale of assets
435

 
1,660

 
11,395

 
 
105

Acquisition of noncontrolling interest
—

 
—

 
(7,246
)
 
 
—

Acquisition of intangibles and other
(4,582
)
 
(268
)
 
(193
)
 
 
(5
)
Acquisitions, net of cash acquired
(278,970
)
 
—

 
(403,496
)
 
 
—

Net cash provided by (used in) investing activities
(337,759
)
 
(50,233
)
 
(467,968
)
 
 
(8,305
)
Financing activities:
 
 
 
 
 
 
 
 
Proceeds from issuance of Senior Secured Notes
—

 
—

 
560,000

 
 
—

Proceeds from long-term borrowings
629,999

 
10,977

 
10,281

 
 
31,500

Proceeds from short-term borrowings
4,087

 
5,725

 
8,245

 
 
631

Repayment of Term Loan
—

 
—

 
(286,470
)
 
 
—

Repayment of long-term borrowings
(337,679
)
 
(7,678
)
 
(51,045
)
 
 
(24
)
Repayment of short-term borrowings
(2,619
)
 
(9,933
)
 
(36,456
)
 
 
(665
)
Loan acquisition costs
(16,102
)
 
(220
)
 
(19,252
)
 
 
—

Issuance of common stock
30,504

 
1,087

 
259,807

 
 
—

Net cash provided by (used in) financing activities
308,190

 
(42
)
 
445,110

 
 
31,442

Effect of exchange rate changes on cash
904

 
(59
)
 
712

 
 
549

Net change in cash and cash equivalents
(11,815
)
 
25,137

 
1,971

 
 
(1,584
)
Cash and cash equivalents at beginning of period
97,879

 
72,742

 
70,771

 
 
72,355

Cash and cash equivalents at end of period
$
86,064

 
$
97,879

 
$
72,742

 
 
$
70,771

 
 
 
 
 
 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
 
 
 
 
 
Cash payments for interest
$
49,671

 
$
47,711

 
$
27,676

 
 
$
203

Cash payments (receipts) for taxes, net
$
17,158

 
$
8,381

 
$
14,058

 
 
$
772

See accompanying Notes to Consolidated Financial Statements.

60

POLYMER GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.  Description of Business
Polymer Group, Inc. (“Polymer” or “PGI”), a Delaware corporation, and its consolidated subsidiaries (the “Company”) is a leading global, technology-driven developer, producer and marketer of engineered materials, primarily focused on the production of nonwoven products. The Company has one of the largest global platforms in the industry, with a total of 21 manufacturing and converting facilities located in 13 countries throughout the world. The Company operates through 4 reportable segments, 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.
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 the Blackstone Group (“Blackstone”), along with certain members of the Company's management (the "Merger"), for an aggregate purchase price valued at $403.5 million. As a result, the Company became a privately-held company. Although the Company continues to operate as the same legal entity subsequent to the acquisition, periods prior to January 28, 2011 reflect the financial position, results of operations, and changes in financial position of the Company prior to the Merger (the “Predecessor”) and periods after January 28, 2011 reflect the financial position, results of operations, and changes in financial position of the Company after the Merger (the “Successor”).
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 Scorpio Holdings Corporation, a Delaware corporation ("Holdings") 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. In addition, the Merger was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The guidance prescribes that the purchase price be allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of acquisition. As a result, periods prior to the Merger are not comparable to subsequent periods due to the difference in the basis of presentation of purchase accounting as compared to historical cost.
The Company's fiscal year is based on a 52 week period ending on the Saturday closest to each December 31. The fiscal year ended December 28, 2013 and the fiscal year ended December 29, 2012 for the Successor each contain operating results for 52 weeks, respectively. The eleven months ended December 31, 2011 for the Successor contains 48 weeks while the one month ended January 28, 2011 for the Predecessor contains 4 weeks (52 weeks inclusive of both the Successor and Predecessor periods).
Note 3. Summary of Significant Accounting Policies
A summary of significant accounting policies used in the preparation of the accompanying financial statements is as follows:
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates are based on several factors including the facts and circumstances available at the time the estimates are made, historical experience, risk of loss, general economic conditions and trends, and the assessment of the probable future outcome. Estimates and assumptions are reviewed periodically, and the effects of changes, if any, are reflected in the statement of operations in the period that they are determined.
Currency Translation

61

Assets and liabilities of non-U.S. subsidiaries, where the functional currency is not the U.S. dollar, have been translated at year-end exchange rates, and income and expense accounts have been translated using average exchange rates throughout the year. Adjustments resulting from the process of translating an entity's financial statements into the U.S. dollar have been recorded in the Shareholders' Equity section of the Consolidated Balance Sheet within Accumulated other comprehensive income (loss). 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.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and short-term investments with original maturities at the time of purchase of three months or less. The Company maintains amounts on deposit at various financial institutions, which may at times exceed federally insured limits. However, management periodically evaluates the credit-worthiness of those institutions and has not experienced any losses on such deposits.
Allowance for Doubtful Accounts
The allowance for doubtful accounts represents the best estimate of probable loss inherent within the Company's accounts receivable balance. Estimates are based upon both the creditworthiness of specific customers and the overall probability of losses based upon an analysis of the overall aging of receivables as well as past collection trends and general economic conditions. As of December 28, 2013 and December 29, 2012, the allowance for doubtful accounts was $0.8 million and $1.2 million, respectively.
Inventories
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. Costs include direct materials, direct labor and applicable manufacturing overhead.
Property, Plant and Equipment
Property and equipment are stated at cost, less accumulated depreciation. For financial reporting purposes, assets placed in service are recorded at cost and depreciated using the straight-line method over the estimated useful life of the asset. Leasehold improvements are amortized over the shorter of their economic useful life or the related lease term. The range of useful lives used to depreciate property and equipment is as follows:
 
Range of Useful Lives
Building and improvements
5 to 31 years
Machinery and equipment
2 to 15 years
Other
2 to 15 years
Major expenditures for replacements and significant improvements that increase asset values and extend useful lives are also capitalized. Capitalized costs are amortized over their estimated useful lives using the straight-line method. Repairs and maintenance expenditures that do not extend the useful life of the asset are charged to expense as incurred. The carrying amounts of assets that are sold or retired and the related accumulated depreciation are removed from the accounts in the year of disposal, and any resulting gain or loss is reflected in within current earnings.
The Company capitalizes costs, including interest, incurred to develop or acquire internal-use software. These costs are capitalized subsequent to the preliminary project stage once specific criteria are met. Costs incurred in the preliminary project planning stage are expensed. Other costs, such as maintenance and training, are also expensed as incurred. Capitalized costs are amortized over their estimated useful lives using the straight-line method.
The Company assesses the recoverability of the carrying value of its property and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the assets.
Goodwill and Intangible Assets

62

Pursuant to ASC 350, "Intangibles - Goodwill and Other" ("ASC 350"), goodwill and intangible assets with indefinite useful lives are no longer amortized, but 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.
Recoverability of goodwill is measured at the reporting unit level and begins with a qualitative assessment to determine, as a basis for whether it is necessary to perform the two-step impairment test under ASC 350, if it is more likely than not that the fair value of each reporting unit is less than its carrying amount. For the reporting units where it is required, the first step compares the carrying amount of the reporting unit to its estimated fair value. If the estimated fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. To the extent that the carrying value of the reporting unit exceeds its estimated fair value, a second step is performed, wherein the reporting unit's carrying value of goodwill is compared to the implied fair value of goodwill. To the extent that the carrying value exceeds the implied fair value, impairment exists and must be recognized.
Recoverability of other intangible assets with indefinite useful lives begins with a qualitative assessment to determine, as a basis for whether it is necessary to calculate the fair value of the indefinite-lived intangible assets, if it is more likely than not that the asset is impaired. When required, recoverability is measured by a comparison of the carrying amount of the intangible assets to the estimated fair value of the respective intangible assets. Any excess of the carrying value over the estimated fair value is recognized as an impairment loss equal to that excess.
Intangible assets such as customer-related intangible assets and non-compete agreements with finite useful lives are amortized on a straight-line basis over their estimated economic lives. The weighted-average useful lives approximate the following:
 
Weighted-Average Useful Lives
Technology
10 years
Customer relationships
10 years
Other intangibles, principally patents
6 years
The Company assesses the recoverability of the carrying value of its intangible assets with finite useful lives whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset to the future net undiscounted cash flows expected to be generated by the asset. If the undiscounted cash flows are less than the carrying amount of the asset, an impairment loss is recognized for the amount by which the carrying value of the asset exceeds the fair value of the assets.
Loan Acquisition Costs
Loan acquisition costs are expenditures associated with obtaining financings that are capitalized in the Consolidated Balance Sheets and amortized over the term of the loans to which such costs relate. Amounts capitalized are recorded within Intangible assets, net in the Consolidated Balance Sheets and amortized to Interest expense in the Consolidated Statements of Operations.
Derivative Instruments
For derivative instruments, the Company applies ASC 815, "Derivatives and Hedging" ("ASC 815") which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. This statement requires that changes in the derivative's fair value be recognized in current earnings unless specific hedge accounting criteria are met. In addition, a company must also formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.
Revenue Recognition
Revenue is recognized and earned when all of the following criteria are satisfied: (a) persuasive evidence of a sales arrangement exists; (b) price is fixed or determinable; (c) collectability is reasonably assured; and (d) delivery has occurred or service has been rendered. The Company recognizes revenue when the title and the risks and rewards of ownership have substantially transferred to the customer. The Company permits customers from time to time to return certain products and continuously monitors and tracks such returns and records an estimate of such future returns, which is based on historical experience and recent trends.
In the normal course of business, the Company extends credit, on open accounts, to its customers after performing a credit analysis based on a number of financial and other criteria. The Company performs ongoing credit evaluations of its customers'

63

financial condition and does not normally require collateral; however, letters of credit and other security are occasionally required for certain new and existing customers.
Shipping and Handling Fees and Costs
Pursuant to ASC 605, "Revenue Recognition" ("ASC 605"), the Company determined that shipping fees shall be reported on a gross basis. As a result, all amounts billed to a customer in a sale transaction related to shipping and handling fees represent revenues earned for the goods provided and therefore recorded within Net sales in the Consolidated Statement of Operations. Shipping and handling costs include expenses incurred to store, move, and prepare products for shipment. The Company classifies these costs as Selling, general and administrative expenses within the Consolidated Statement of Operations, and includes a portion of internal costs such as salaries and overhead related to these activities. For the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012 and the eleven months ended December 31, 2011, the Successor incurred $38.5 million, $33.8 million and $30.7 million related to these costs, respectively. For the Predecessor, cost incurred were $2.6 million for the one month ended January 28, 2011.
Research and Development Costs
The Company conducts research and development activities for the purpose of developing and improving new products and services. These costs are expensed when incurred and included in Selling, general and administrative expenses in the Consolidated Statement of Operations. For the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012 and the eleven months ended December 31, 2011, these expenditures amounted to $11.8 million and $12.5 million and $12.4 million, respectively, for the Successor. Research and development costs for the Predecessor were $1.0 million for the one month ended January 28, 2011.
Income Taxes
The Company records a tax provision for the anticipated tax consequences of the reported results of operations. The provision is computed using the asset and liability method of accounting, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. In addition, the Company recognizes future tax benefits, such as net operating losses and tax credits, to the extent that realizing these benefits is considered in its judgment to be more likely than not. Deferred tax assets and liabilities are measured using currently enacted tax rates that apply to taxable income in effect for the years in which those tax items are expected to be realized or settled. The Company regularly reviews the recoverability of its deferred tax assets considering historic profitability, projected future taxable income, and timing of the reversals of existing temporary differences as well as the feasibility of our tax planning strategies. Where appropriate, a valuation allowance is recorded if available evidence suggests that it is more likely than not that some portion or all of a deferred tax asset will not be realized. Changes to valuation allowances are recognized in earnings in the period such determination is made.
The Company accounts for uncertain tax positions by recognizing the financial statement effects of a tax position only when, based upon the technical merits, it is more-likely-than-not that the position will be sustained upon examination. The tax impacts recognized in the financial statements from such positions are then measured based on the largest impact that has a greater than 50% likelihood of being realized upon settlement. The Company recognizes potential accrued interest and penalties associated with unrecognized tax positions as a component of the provision for income taxes.
Recent Accounting Standards
In July 2013, the FASB issued Accounting Standards Update ("ASU") No. 2013-11, "Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" ("ASU 2013-11"), which requires an unrecognized tax benefit, or a portion of an unrecognized tax benefit, be presented in the financial statements as a reduction of a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward if such settlement is required or expected in the event the uncertain tax position is disallowed. In situations where a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction or the tax law of the jurisdiction does not require, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. ASU 2013-11 is effective prospectively for reporting periods beginning after December 15, 2013, with retroactive application permitted. The Company is currently assessing the potential impacts, if any, on its financial results.
In February 2013, the FASB issued ASU No. 2013-02, "Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income" ("ASU 2013-02"), which requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, ASU 2013-02 requires an entity to present, either on the face of the income statement or in the notes to the financial statements, significant amounts reclassified out of accumulated other

64

comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts. The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income in the financial statements. ASU 2013-02 is effective prospectively for reporting periods beginning after December 15, 2012. The adoption of this guidance concerns disclosure only and did not have an impact on the Company's financial results.
In July 2012, the FASB issued ASU No. 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment” which amended the guidance on the annual impairment testing of indefinite-lived intangible assets other than goodwill. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount. If, based on the qualitative assessment, it is more-likely-than-not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if a company concludes otherwise, quantitative impairment testing is not required. This new guidance was adopted in the fourth quarter of 2012 and its adoption did not significantly impact the Company's consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU No. 2011-12 revises ASU No. 2011-05 to defer the presentation in the financial statements of reclassifications out of accumulated other comprehensive income for annual and interim financial statements. The deferral is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The Company adopted this guidance on January 1, 2012. The revised presentation requirements are reflected in the Company's consolidated financial statements.
In December 2011, the FASB issued ASU No. 2011-11, "Disclosures about Offsetting Assets and Liabilities" which requires enhanced disclosures about financial instruments and derivative instruments eligible for offset in accordance with U.S. GAAP or subject to an enforceable master netting arrangement or similar agreement. This new guidance is effective for annual reporting periods beginning on or after January 1, 2013 and subsequent interim periods. The Company adopted this guidance in the fourth quarter 2012 and its adoption did not significantly impact the Company's consolidated financial statements.
In September 2011, the FASB issued ASU No. 2011-08, “Testing for Goodwill Impairment” which amended the guidance on the annual testing of goodwill for impairment. The amended guidance will allow a company the option to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test required under current accounting standards. This new guidance is effective for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance on January 1, 2012 and its adoption did not significantly impact the Company's consolidated financial statements.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” ASU No. 2011-05 requires the Company to present the components of other comprehensive income and of net income in one continuous statement of comprehensive income, or in two separate, but consecutive statements. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The option to report other comprehensive income within the statement of equity has been removed. This new presentation is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The revised presentation requirements are reflected in the Company's consolidated financial statements.
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurements and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards ("IFRS").” ASU No. 2011-04 represents converged guidance between U.S. GAAP and IFRS resulting in a consistent definition of fair value as well as provides common requirements for measuring fair value and disclosing information about fair value measurements. This new guidance is effective for fiscal years beginning after December 15, 2011 and subsequent interim periods. The Company adopted this guidance on January 1, 2012 and its adoption did not significantly impact the Company's consolidated financial statements.
Note 4. Acquisitions
Fiberweb Acquisition
On September 17, 2013, PGI Acquisition Limited, a wholly-owned subsidiary of the Company, entered into an agreement with Fiberweb plc ("Fiberweb") containing the terms of a cash offer to purchase 100% of the issued and to be issued ordinary share capital of Fiberweb at a cash price of £1.02 per share (the "Acquisition"). Under the terms of the agreement, Fiberweb would become a wholly-owned subsidiary of the Company. The offer was effected by a court sanctioned scheme of arrangement of Fiberweb under Part 26 of the UK Companies Act 2006 and consummated on November 15, 2013 (the "Acquisition Date"). The

65

aggregate purchase price was valued at $287.8 million and funded on November 27, 2013 with the proceeds of borrowings under a $268.0 million Senior Secured Bridge Credit Agreement and a $50.0 million Senior Unsecured Bridge Credit Agreement (together, the "Bridge Facilities"). The Bridge Facilities were subsequently refinanced, along with transaction expenses, with the proceeds from a $295.0 million Senior Secured Credit Agreement and a $30.7 million equity investment from Blackstone. Fiberweb is one of the largest global manufacturers of specialized technical fabrics with eight production sites in six countries.
The Acquisition was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. As a result, the total purchase price has been preliminarily allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of Acquisition. Any excess of the purchase price is recognized as goodwill. The allocation of the purchase price was as follows:
In thousands
November 15, 2013
Cash
$
8,792

Accounts receivable
49,967

Inventory
71,050

Other current assets
29,889

Total current assets
159,698

 
 
Property, plant and equipment
158,000

Goodwill
38,514

Intangible assets
85,000

Other noncurrent assets
1,403

Total assets acquired
$
442,615

 
 
Current liabilities
$
84,185

Financing Obligation
20,300

Long-term debt
19,391

Deferred income taxes
20,649

Other noncurrent liabilities
9,479

Noncontrolling interest
849

Total liabilities assumed
$
154,853

Net assets acquired
$
287,762

Cash, accounts receivable and current liabilities were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventories were preliminarily recorded at estimated fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose of the inventory as well as the replacement cost of the inventory, where applicable. As a result, the Company increased the carrying value of inventory by $9.3 million in order to adjust to estimated fair value. The preliminary estimate of fair value of property, plant and equipment was based on management's assessment of the acquired assets' condition, as well as an evaluation of the current market value for such assets. In addition, the Company also considered the length of time over which the economic benefit of these assets is expected to be realized and adjusted the useful life of such assets accordingly as of the valuation date. As a result, the Company reduced the carrying value of property, plant and equipment by $5.1 million in order to adjust to estimated fair value.
The Company preliminarily recorded intangible assets based on their estimated fair value, and consisted of the following:
In thousands
Useful Life
 
Amount
Technology
15 years
 
$
9,000

Trade names
Indefinite
 
2,000

Customer relationships
15 years
 
69,000

Other
5 years
 
5,000

Total
 
 
$
85,000


66

The Company preliminarily allocated $2.0 million to trade names, primarily related to Typar and Reemay. Management considered many factors in the determination that it will account for the asset as an indefinite-lived, including the current market leadership position of the name as well as the recognition in the industry. Therefore, in accordance with current accounting guidance, the indefinite-lived intangible asset will not be amortized, but instead tested for impairment at least annually (more frequently if certain indicators are present).
The excess of the purchase price over the amounts allocated to specific assets and liabilities is included in goodwill. The premium in the purchase price paid by the Company for the acquisition of Fiberweb reflects the establishment of the largest manufacturers of nonwovens in the world. The Company anticipates that the improved diversity associated with the acquisition of Fiberweb will provide a foundation for enhanced access to clients in highly specialized, niche end markets as well as provide complementary solutions and new technologies to address our customer's desire for innovation and customized solutions. In the short-term, the Company anticipates realizing significant operational and cost synergies that include purchasing optimization due to larger volumes, improvement in manufacturing costs and lower general and administrative costs.
Acquisition related costs were as follows:
In thousands
Amount
Loan acquisition costs
$
16,102

Transaction expenses
18,306

Total
$
34,408

Loan acquisition costs related to the Acquisition were capitalized and recorded within Intangible assets, net in the Consolidated Balance Sheets and amortized over the term of the loan to which such costs relate. In accordance with ASC 805, "Business Combinations" ("ASC 805"), transaction expenses related to the Acquisition are expensed as incurred within Special charges, net in the Consolidated Statement of Operations.
The following unaudited pro forma information for the fiscal year ended December 28, 2013 and December 29, 2012 assumes the acquisition of Fiberweb occurred as of the beginning of the period presented:
In thousands
December 28, 2013
 
December 29, 2012
Net sales
$
1,637,605

 
$
1,639,865

Net income (loss)
(34,751
)
 
(32,737
)
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. During 2013, net sales and operating income (loss) attributable to Fiberweb since the Acquisition Date was $51.9 million and loss of $2.9 million, respectively, excluding amounts related to purchase accounting.
PGI Acquisition
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 the Blackstone Group (“Blackstone”), along with certain members of the Company's management (the "Merger"), for an aggregate purchase price valued at $403.5 million. As a result, the Company became a privately-held company. The Merger was financed by $560.0 million in aggregate principal of debt financing as well as common equity capital. In addition, the Company repaid its existing outstanding debt.
The Merger was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations and non-controlling interest. The purchase price has been allocated to assets acquired and liabilities assumed based on the estimated fair market value of such assets and liabilities at the date of merger and and resulted in goodwill of $86.4 million and intangible assets of $72.0 million, of which $48.5 million related to definite-lived intangible assets and $23.5 million related to indefinite-lived tradenames. Cash and cash equivalents, accounts receivable and accounts payable were stated at their historical carrying values, which approximate their fair value, given the short-term nature of these assets and liabilities. Inventories were recorded at fair value, based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose the inventory as well as the replacement cost of the inventory, where applicable.
Note 5.  Accounts Receivable Factoring Agreements

67

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 Consolidated Balance Sheet. 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 recorded with Other current assets in the Consolidated Balance Sheet.
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 Mexico, Colombia, Spain and the Netherlands have entered into factoring agreements to sell certain receivables to an 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 $54.4 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 connection with the acquisition of Fiberweb, the Company acquired an accounts receivable factoring agreement currently in use at a manufacturing location in France. Under the terms of the agreement, the maximum amount of outstanding advances at any one time is $8.3 million, which limitation is subject to change by the third-party financial institution based on the Company's needs. The Company determined that accounts receivable sold under this agreement qualify for sale treatment under ASC 860 as all of the appropriate criteria has been met as of the Acquisition Date.
The following is a summary of receivables sold to the third-party financial institutions that existed at the following balance sheet dates:
In thousands
December 28, 2013
 
December 29, 2012
Trade receivables sold to financial institutions
$
68,091

 
$
48,767

Net amounts advanced from financial institutions
60,216

 
41,937

Amounts due from financial institutions
$
7,875

 
$
6,830

The Company sold $414.0 million and $394.7 million of receivables under the terms of the factoring agreements during the fiscal years ended December 28, 2013 and December 29, 2012, respectively. The Netherlands, which entered into a factoring agreement in March 2012, contributed to the year-over-year increase in receivables sold. The Company pays a factoring fee associated with the sale of receivables based on the dollar of the receivables sold. Amounts incurred for the Successor was $1.2 million during the fiscal year ended December 28, 2013, $1.1 million for the fiscal year ended December 29, 2012, and $0.9 million for the eleven months ended December 31, 2011. The Predecessor incurred fees of $0.1 million for the one month ended January 28, 2011. These amounts are recorded within Foreign currency and other, net in the Consolidated Statements of Operations.
Note 6.  Inventories, Net
At December 28, 2013 and December 29, 2012, the major classes of inventory were as follows: 
In thousands
December 28,
2013
 
December 29,
2012
Raw materials and supplies
$
55,544

 
$
41,070

Work in process
19,102

 
14,299

Finished goods
81,719

 
39,595

Total
$
156,365

 
$
94,964

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 $3.3 million and $3.3 million at December 28, 2013 and December 29, 2012, respectively.
As a result of the acquisition of Fiberweb, the Company increased the carrying value of inventory by $9.3 million in order to adjust to estimated fair value in accordance with the accounting guidance for business combinations. The preliminary change in the fair value of the assets were based on computations which considered many factors including the estimated selling price of the inventory, the cost to dispose of the inventory as well as the replacement cost of the inventory, where applicable. The step-up in inventory value will be amortized into earnings over the period of the Company's normal inventory turns, which approximated two months. As of December 28, 2013, the remaining amount to be amortized into earnings is $2.3 million.
Note 7. Property, Plant and Equipment, Net
The major classes of property, plant and equipment consisted of the following:
In thousands
December 28,
2013
 
December 29,
2012
Land
$
34,857

 
$
31,989

Buildings and land improvements
166,214

 
116,225

Machinery, equipment and other
569,157

 
394,862

Construction in progress
28,181

 
42,227

Subtotal
798,409

 
585,303

Less: Accumulated depreciation
(175,130
)
 
(106,134
)
Total
$
623,279

 
$
479,169

Depreciation expense for the Successor was $64.3 million, $58.1 million and $49.3 million for the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012 and the eleven months ended December 31, 2011, respectively. The Predecessor recorded depreciation expense of $3.4 million during the one month ended January 28, 2011.
Note 8. Goodwill
The Company records as goodwill the excess of the purchase price over the fair value of the net assets acquired. Once the final valuation has been performed for each acquisition, adjustments may be recorded. Goodwill is 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.
The changes in the carrying amount of goodwill are as follows:
 
Nonwovens
 
 
In thousands
Americas
Europe
Asia
Oriented Polymers
Total
December 31, 2011
$
45,980

$
—

$
34,566

$
—

$
80,546

Acquisitions
—

—

—

—

—

Impairment
—

—

—

—

—

Translation
—

—

62

—

62

Other
—

—

—

—

—

December 29, 2012
$
45,980

$
—

$
34,628

$
—

$
80,608

Acquisitions
22,198

16,316

—

—

38,514

Impairment
—

—

—

—

—

Translation
—

781

240

—

1,021

Other
—

—

—

—

—

December 28, 2013
$
68,178

$
17,097

$
34,868

$
—

$
120,143


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As of December 29, 2012, the Company had recorded goodwill of $80.6 million. The balance primarily related to the Merger in which $86.4 million was recorded as goodwill. In addition, the Company recorded a $7.6 million impairment charge to goodwill in the fourth quarter of 2011. Other than the amount recorded during 2011, the Company does not have any accumulated impairment losses.
On September 15, 2013, PGI Acquisition Limited, a wholly-owned subsidiary of the Company, entered into an agreement with Fiberweb containing the terms of a cash offer to purchase 100% of the issued and to be issued ordinary share capital of Fiberweb. The Acquisition was consummated on November 15, 2013 and funded on November 27, 2013 with the proceeds of the Bridge Facilities. The purchase price has been allocated to assets acquired and liability assumed based on the preliminary fair value estimates of such assets and liabilities at the date of acquisition. As a result, the Company recorded $38.5 million as goodwill.
Note 9. 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.
The following table sets forth the gross amount and accumulated amortization of the Company's intangible assets at December 28, 2013 and December 29, 2012:
In thousands
December 28, 2013
 
December 29, 2012
Technology
$
41,029

 
$
31,900

Customer relationships
86,155

 
16,869

Loan acquisition costs
30,067

 
19,472

Other
6,929

 
446

Total gross finite-lived intangible assets
164,180

 
68,687

Accumulated amortization
(26,515
)
 
(16,524
)
Total net finite-lived intangible assets
137,665

 
52,163

Tradenames (indefinite-lived)
30,514

 
23,500

Total
$
168,179

 
$
75,663

As of December 28, 2013, the Company had recorded intangible assets of $168.2 million. Included in this amount are loan acquisition costs incurred in association with the Merger. 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.
As a result of the acquisition of Fiberweb, the Company preliminarily allocated $83.0 million to finite-lived intangible assets, including $69.0 million associated with a customer list and $9.0 million associated with technology. The intangible assets each had a useful life of 15 years. In addition, the Company allocated $2.0 million to an indefinite-lived intangible assets. See Note 4 for additional information regarding the Acquisition.
The following table presents amortization of the Company's intangible assets for the following periods:
 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Intangible assets
$
7,318

 
$
5,906

 
$
5,485

 
 
$
66

Loan acquisition costs
2,623

 
2,665

 
2,530

 
 
51

Total
$
9,941

 
$
8,571

 
$
8,015

 
 
$
117

Estimated amortization expense on existing intangible assets for each of the next five years is expected to approximate $17 million in 2014, $15 million in 2015, $15 million in 2016, $15 million in 2017 and $15 million in 2018.
Note 10.  Accounts Payable and Accrued Liabilities

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Accounts payable and accrued liabilities consist of the following:
In thousands
December 28,
2013
 
December 29,
2012
Accounts payable to vendors
$
209,031

 
$
127,969

Accrued salaries, wages, incentive compensation and other fringe benefits
33,889

 
21,759

Accrued interest
19,063

 
18,630

Other accrued expenses
45,678

 
28,547

Total
$
307,661

 
$
196,905

Note 11.  Debt
The following table presents the Company's outstanding debt at December 28, 2013 and December 29, 2012: 
In thousands
December 28,
2013
 
December 29,
2012
Senior Secured Notes
$
560,000

 
$
560,000

ABL Facility
—

 
—

Term Loans
293,545

 
—

Argentina credit facilities:
 
 
 
Argentina Credit Facility — Nacion
8,341

 
11,674

Argentina Credit Facility — Galicia
3,082

 
—

China credit facilities:
 
 
 
China Credit Facility — Healthcare
—

 
15,981

China Credit Facility — Hygiene
24,920

 
10,977

India Loans
3,216

 
—

Capital lease obligations
1,092

 
244

Total long-term debt
894,196

 
598,876

Short-term borrowings
2,472

 
813

Total debt
$
896,668

 
$
599,689

The fair value of the Company's long-term debt was $933.8 million at December 28, 2013 and $640.0 million at December 29, 2012. 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).
At December 28, 2013, long-term debt maturities are as follows:
In thousands
Amount
2014
$
13,917

2015
28,147

2016
7,135

2017
3,469

2018
283,269

2019 and thereafter
560,000

Total
$
895,937

Senior Secured Notes
In connection with the Merger, the Company issued $560.0 million of 7.75% Senior Secured Notes on January 28, 2011. The notes are due in 2019 and 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 notes is paid semi-annually on February 1 and August 1 of each year.

70

The indenture governing the Senior Secured Notes, among other restrictions, limits the Company's ability and the ability of the Company's 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. However, subject to certain exceptions, the indenture permits the Company and its restricted subsidiaries to incur additional indebtedness, including senior indebtedness and secured indebtedness. The indenture also does not limit the amount of additional indebtedness that Parent or its parent entities may incur.
Under the indenture governing the Senior Secured Notes and under the credit agreement governing the senior secured asset-based revolving credit 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 as defined in the indenture.
ABL Facility
On October 5, 2012, the Company entered into a senior secured asset-based revolving credit facility (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, subject to certain rights of the administrative agent, swing line lender and issuing banks with respect to the lenders providing commitments for such increase. The facility was set to expire on January 28, 2015.
On November 26, 2013, the Company entered into an amendment to the ABL Facility which increased the Tranche 1 revolving commitments in total by $30.0 million, extended the maturity date to October 5, 2016 as well as made certain other changes to the agreement. In addition, the Company maintained the option to request that the ABL Facility be increased subject to certain rights of the administrative agent, swing line lender and issuing banks with respect to the lenders providing commitments for such increase. However, the option was amended to be an amount not to exceed $80.0 million. The effectiveness of the amendment was subject to the satisfaction of certain specified closing conditions by no later than January 30, 2014, all of which were satisfied prior to the required deadline.
Based on current borrowing base availability, the borrowings under the ABL Facility will bear interest at a rate per annum equal to, at our option, either (A) Adjusted London Interbank Offered Rate (“LIBOR”) (adjusted for statutory reserve requirements) plus (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 administrative agent's Prime Rate and (b) the federal funds effective rate plus 0.5% (“ABR”) plus (x) 1.00% in the case of Tranche 1 or (y) 3.00% in the case of the Tranche 2. As of December 28, 2013, the Company had no outstanding borrowings under the ABL Facility. The borrowing base availability was $48.5 million based on initial advanced rate formulas prior to the completion of the field exam. Outstanding letters of credit in the aggregate amount of $11.0 million left $37.5 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 December 28, 2013. The field exam was completed in February 2014. As a result, proforma availability as of December 28, 2013 would have increased to $58.5 million.
The ABL Facility contains certain customary representations and warranties, affirmative covenants and events of default, including among other things payment defaults, breach of representations and warranties, covenant defaults, cross-defaults and cross acceleration to certain indebtedness, bankruptcy and insolvency defaults, certain events under ERISA, certain monetary judgment defaults, invalidity of guarantees or security interests, and change of control. 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.
Term Loans
On December 19, 2013, the Company entered into a Senior Secured Credit Agreement (the "Term Loans") with a maturity date upon the earlier of (i) six years from the date of borrowing and (ii) the 91st day prior to the scheduled maturity of our 7.75% Senior Secured Notes. The Term Loans provides 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 Secured Bridge Facility and the Unsecured Bridge Facility.
Borrowings bear interest at a fluctuating rate per annum equal to, at our option, (i) a base rate equal to the highest of (a) the federal funds rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Citicorp

71

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 certain a 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.
The agreement governing the Term Loans, among other restrictions, limit our ability and the ability of our 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; (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.
Secured Bridge Facility
On September 17, 2013, and subsequently amended on November 27, 2013, the Company entered into a Senior Secured Bridge Credit Agreement (the "Secured Bridge Facility") with a final maturity date of February 1, 2019. The Secured Bridge Facility provided for a commitment by the lenders to make secured bridge loans in an aggregate amount not to exceed $268.0 million, the proceeds of which were used to partially fund the acquisition of Fiberweb. The acquisition, which became effective on November 15, 2013, was funded on November 27, 2013.
Borrowings bear interest at a rate equal to the Eurodollar rate plus an applicable margin of 6.00% for the initial three-month period following the date of borrowing, increasing by 0.50% after each subsequent three-month period, subject to a specified maximum rate. Amounts outstanding were senior secured obligations of ours and unconditionally guaranteed, jointly and severally on a senior secured basis, by Holdings and Polymer’s 100% owned domestic subsidiaries. As a result of the Term Loans and the equity contribution from Blackstone, all outstanding borrowings under the Secured Bridge Facility were repaid and the facility was subsequently terminated.
Unsecured Bridge Facility
On November 27, 2013, the Company entered into a Senior Unsecured Bridge Credit Agreement (the "Unsecured Bridge Facility") with a final maturity date of February 1, 2019. The Unsecured Bridge Facility provided for a commitment by the lenders to make secured bridge loans in an aggregate amount not to exceed $50.0 million, the proceeds of which were used to partially fund the acquisition of Fiberweb. The acquisition, which became effective on November 15, 2013, was funded on November 27, 2013.
Borrowings bear interest at a rate equal to the Eurodollar rate plus an applicable margin of 9.25% for the initial three-month period following the date of borrowing, increasing by 0.50% after each subsequent three-month period, subject to a specified maximum rate. Amounts outstanding were senior secured obligations of ours and unconditionally guaranteed, jointly and severally on a senior secured basis, by Holdings and Polymer’s 100% owned domestic subsidiaries. As a result of the Term Loans and the equity contribution from Blackstone, all outstanding borrowings under the Unsecured Bridge Facility were repaid and the facility was subsequently terminated.
Argentina Credit Facility - Nacion
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 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.

72

In connection with the Merger, the Company repaid and terminated the Argentine peso-denominated loan. In addition, the U.S. 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 over the remaining life of the facility. At December 28, 2013, the face amount of the outstanding indebtedness under the U.S. dollar-denominated loan was $8.6 million, with a carrying amount of $8.3 million and a weighted average interest rate of 3.14%.
Argentina Credit Facility - Galicia
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 December 28, 2013, the outstanding balance under the facility was $3.1 million. The remainder of the upgrade is expected to be financed by existing cash balances and cash generated from operations.
China Credit Facility — Healthcare
In the third quarter of 2010, the Company's subsidiary in China entered into a three-year U.S. dollar denominated construction loan agreement (the “Healthcare Facility”) with a banking institution in China to finance a portion of the installation of the new spunmelt line at its manufacturing facility in Suzhou, China. The three-year term of the agreement began with the date of the first draw down on the Healthcare Facility, which occurred in fourth quarter of 2010. The interest rate applicable to borrowings 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 (400 basis points at the time the credit agreement was executed), but in no event would the interest rate be less than 1-year LIBOR plus 250 points.
The maximum borrowings available under the facility, excluding any interest added to principal, were $20.0 million. The Company repaid $4.0 million of the principle balance in the fourth quarter of 2012. As a result, the outstanding balance under the Healthcare Facility was $16.0 million at December 29, 2012 with a weighted average interest rate of 5.44%. The final principle payment was made during the fourth quarter using a combination of existing cash balances and cash generated from operations. As a result, the Company had no outstanding borrowing under the Healthcare Facility at December 28, 2013.
China Credit Facility — Hygiene
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 29, 2012, the outstanding balance under the Hygiene Facility was $11.0 million with a weighted average interest rate of 5.51%. At December 28, 2013, the outstanding balance under the Hygiene Facility was $24.9 million with a weighted-average interest rate of 5.46%. The Company's first payment on the outstanding principal is due in the first quarter of 2014, which the Company expects to fund using existing cash balances and cash generated from operations.
Other Indebtedness
The Company periodically enters into short-term credit facilities in order to finance various liquidity requirements. At December 28, 2013 and December 29, 2012, outstanding amounts related to such facilities were $0.4 million and $0.8 million, respectively, which are being used to finance insurance premium payments. The weighted average interest rate on these borrowings was 2.67% and 2.46%, respectively. Borrowings under these facilities are included in Short-term borrowings in the Consolidated Balance Sheets.
As a result of the acquisition of Fiberweb, the Company 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 that was entered into with a banking institution in India. Amounts outstanding primarily relate to a 14.70% term loan, due in 2017, used to purchase fixed assets. Other amounts relate to a short-term credit facility used to finance working capital requirements and an existing automobile loan.

73

The Company also has documentary letters of credit not associated with the ABL Facility, Healthcare Facility or the Hygiene Facility. These letters of credit were primarily provided to certain raw material vendors and amounted to $8.5 million and $6.7 million at December 28, 2013 and December 29, 2012, respectively. None of these letters of credit have been drawn upon.
Note 12.  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 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 Sheet 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 Sheet 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 December 28, 2013
 
As of December 29, 2012
In thousands
Notional
 
Fair Value
 
Notional
 
Fair Value
Designated hedges:
 
 
 
 
 
 
 
Hygiene Euro Contracts
$
—

 
$
—

 
$
22,554

 
$
(1,248
)
Undesignated hedges:
 
 
 
 
 
 
 
Bridge Loan Contract
—

 
—

 
—

 
—

Hygiene Euro Contracts
—

 
—

 
—

 
—

Healthcare Euro Contracts
—

 
—

 
—

 
—

Total
$
—

 
$
—

 
$
22,554

 
$
(1,248
)
Asset derivatives are recorded within Other current assets and liability derivatives are recorded within Accounts payable and accrued expenses on the Consolidated Balance Sheets.
Bridge Loan Contract
On September 17, 2013, the Company entered into a foreign exchange forward contract with a third-party financial institution used to minimize foreign exchange risk on the Secured Bridge Facility and Unsecured Bridge Facility, the proceeds of which were used to fund the Acquisition (the ”Bridge Loan Contract”). The contract allowed the Company to purchase a fixed amount of pounds sterling in the future at a specified U.S. Dollar rate. The Bridge Loan Contract did not qualify for hedge accounting treatment, therefore, it was considered an undesignated hedge. As the nature of this transaction is related to a non-operating notional amount, changes in fair value were recorded in Foreign currency and other, net in the current period.
The Acquisition was funded on November 27, 2013, at which time the Company purchased the underlying pounds sterling amount at the U.S. Dollar rate specified in the contract. Upon settlement, the Company benefited from a strengthening U.S. Dollar, whereby less U.S. Dollars were required to purchase the fixed notional amount. As a result, the Company fulfilled its obligations

74

under the terms of the contract, adjusted the fair value of the Bridge Loan Contract to zero with no gain or loss recognized and terminated the agreement.
Hygiene Euro Contracts
On June 30, 2011, the Company entered into a series of foreign exchange forward contracts with a third-party financial institution used to minimize foreign exchange risk on certain future cash commitments related to the new hygiene line under construction in China (the "Hygiene Euro Contracts"). The contracts allow the Company to purchase fixed amount of Euros on specified future dates, coinciding with the payment amounts and dates of equipment purchase contracts. The Hygiene Euro Contracts qualify for hedge accounting treatment and are considered a fair value hedge; therefore, changes in the fair value of each contract is recorded in Other operating, net along with the gain or loss on the recognized hedged asset or liability that is attributable to the hedged risk. Since inception, the Company amended the equipment purchase contract on the hygiene line to which the Hygiene Euro Contracts are linked. However, the Company modified the notional amounts of the Hygiene Euro Contracts to synchronize with the underlying updated contract payments. As a result, the Hygiene Euro Contracts remained highly effective and continued to qualify for hedge accounting treatment.
In May 2013, the Company completed commercial acceptance of the new hygiene line under construction in China and recorded a liability for the remaining balance due. As a result, the Company removed the hedge designation of the Hygiene Euro Contracts and continued to recognize changes in the fair value of the contracts in current earnings as an undesignated hedge until the final payment date. However, changes in the fair value of the hedged asset that is attributable to the hedged risk has been capitalized in the cost base of the hygiene line and no longer recognized in current earnings. During the fourth quarter of 2013, the Company remitted the final payment on the hygiene line and simultaneously fulfilled its obligations under the Hygiene Euro Contracts.
Healthcare Euro Contracts
In January 2011, the Company entered into a series of foreign exchange forward contracts with a third-party financial institution used to minimize foreign exchange risk on certain future cash commitments related to the new healthcare line under construction in China (the "Healthcare Euro Contracts"). The contracts allowed the Company to purchase fixed amount of Euros on specified future dates, coinciding with the payment amounts and dates of equipment purchase contracts. The Healthcare Euro Contracts qualified for hedge accounting treatment and were considered a fair value hedge; therefore, changes in the fair value of each contract was recorded in Other operating, net along with the gain or loss on the recognized hedged asset or liability that was attributable to the hedged risk.
In July 2011, the Company completed commercial acceptance of the new healthcare line under construction in China and recorded a liability for the remaining balance due. As a result, the Company removed the hedge designation of the Healthcare Euro Contracts and will continue to recognize changes in the fair value of the contracts in current earnings as an undesignated hedge. However, changes in the fair value of the hedged asset that is attributable to the hedged risk has been capitalized in the cost base of the healthcare line and no longer recognized in current earnings. During the first quarter of 2012, the Company remitted the final payment on the healthcare line and simultaneously fulfilled its obligations under the Healthcare Euro Contracts.
Healthcare Euro Hedges
In February 2010, the Company entered into a series of foreign exchange forward contracts with a third-party financial institution used to hedge the changes in fair value of a firm commitment to purchase equipment related to the new healthcare line under construction in China (the "Healthcare Euro Hedges"). The contracts allow for put and call options that provide for a floor and ceiling price on equipment payments to hedge fluctuations in currency rates between the U.S. dollar and the Euro. The Healthcare Hedges qualify for hedge accounting treatment and are considered a fair value hedge; therefore, changes in the fair value of each contract is recorded in Other operating, net along with the gain or loss on the recognized hedged asset or liability that is attributable to the hedged risk.
Since inception, the Company amended its equipment purchase contract on the healthcare line in which the Healthcare Euro Hedges are linked to. However, the Company modified the notional amounts of the Healthcare Euro Hedges to synchronize with the underlying updated contract payments. As a result, the Healthcare Euro Hedges remained highly effective and continue to qualify for hedge accounting treatment. At January 1, 2011, the fair value of the Healthcare Euro Hedges was $0.5 million recorded within Accounts payable and accrued expenses. In January 2011, the Company settled the Healthcare Euro Hedges for $0.5 million, removed the related liability and terminated the agreement prior to the Merger.
The following table represents the amount of (gain) or loss associated with derivative instruments in the Consolidated Statement of Operations:

75

In thousands
Successor
 
 
Predecessor
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Designated hedges:
 
 
 
 
 
 
 
 
Healthcare Euro Hedges
$
—

 
$
—

 
$
—

 
 
$
(29
)
Healthcare Euro Contracts
—

 
—

 
(544
)
 
 
(118
)
Hygiene Euro Contracts
(449
)
 
(2,559
)
 
3,807

 
 
—

Undesignated hedges:
 
 
 
 
 
 
 
 
Bridge Loan Contract
—

 
—

 
—

 
 
—

Healthcare Euro Contracts
—

 
(147
)
 
809

 
 
—

Hygiene Euro Contracts
$
(799
)
 
$
—

 
$
—

 
 
$
—

Total
$
(1,248
)
 
$
(2,706
)
 
$
4,072

 
 
$
(147
)
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. Changes in the fair value of derivative instruments are recognized in Other operating, net on the Consolidated Statements of Operations as they relate to notional amounts used in primary business operations. However, changes in the value of the Bridge Loan Contract were recognized in Foreign currency and other, net as it related to a non-operating notional amount.
Interest Rate Swap
In February 2009, the Company entered into an interest rate swap which converted the variable LIBOR-based interest payments on a portion of the Predecessor debt to a fixed amount. The interest rate swap qualified for hedge accounting treatment; therefore, changes in the fair value of each contract was recorded in the Accumulated other comprehensive income (loss). In September 2009, the Company amended the underlying debt and subsequently concluded that 92% of the notional amount of the interest rate swaps no longer met the criteria for cash flow hedge accounting and was undesignated. As a result, the related portion included in Accumulated other comprehensive income (loss) was frozen and will be reclassified to earnings as future interest payments are made. In connection with the Merger, the Company settled the interest rate swap and terminated the contract.
During the one month ended January 28, 2011, the amount of gain (loss) from the interest rate swap recognized in Accumulated other comprehensive income (loss) by the Predecessor was an immaterial loss. In addition, the amount of loss reclassified from Accumulated other comprehensive income (loss) to Interest expense was $0.2 million for the one month ended January 28, 2011.
Note 13.  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.
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 the following periods:

76

In thousands
Level 1
 
Level 2
 
Level 3
 
December 28, 2013
Assets
 
 
 
 
 
 
(1)
Bridge Loan Contract
$
—

 
$
—

 
$
—

 
$
—

Firm commitment
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Hygiene Euro Contracts
—

 
—

 
—

 
—

     Healthcare Euro Contracts
—

 
—

 
—

 
—

(1) At December 31, 2013, the Company did not have any financial assets or liabilities required to be measured at fair value.  
In thousands
Level 1
 
Level 2
 
Level 3
 
December 29, 2012
Assets
 
 
 
 
 
 
 
Firm commitment
$
—

 
$
1,248

 
$
—

 
$
1,248

 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
Hygiene contracts
—

 
(1,248
)
 
—

 
(1,248
)
     Healthcare contracts
—

 
—

 
—

 
—

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 fair value of its financial assets and liabilities using the following methodologies:

•
Firm Commitment — Assets recognized associated with an unrecognized firm commitment to purchase equipment. The fair value of the assets is based upon indicative price information obtained from a third-party financial institution that is the counterparty to the transaction.
•
Derivative instruments — These instruments consist of foreign exchange forward contracts. The fair value is based upon indicative price information obtained from a third-party financial institution that is the counterparty to the transaction.
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 December 28, 2013 are the same as those used at December 29, 2012. As a result, there have been no transfers between Level 1 and Level 2 categories.
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In the fourth quarter of 2013, the Company performed an impairment test on long-lived assets in Argentina. Based on third-party valuations, the Company determined the fair value of the long-lived assets to be $14.4 million . The amount is considered a non-recurring Level 3 fair value determination.
Note 14.  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 the employee’s 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.
The following table details information regarding the Company's pension plans:

77

In thousands
U.S. Pension Plans
 
Non-U.S. Pension Plans
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
Pension Plans
 
 
 
 
 
 
 
Change in Projected Benefit Obligation:
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
(16,309
)
 
$
(15,219
)
 
$
(131,580
)
 
$
(105,637
)
Service costs
(4
)
 
—

 
(3,398
)
 
(2,002
)
Interest costs
(1,067
)
 
(620
)
 
(4,980
)
 
(5,032
)
Participant contributions
—

 
—

 
(170
)
 
(173
)
Acquisition
(84,932
)
 
—

 
(1,602
)
 
—

Plan amendments
—

 
—

 
622

 
—

Actuarial gain / (loss)
2,670

 
(1,451
)
 
2,273

 
(25,848
)
Settlements / curtailments
—

 
—

 
—

 
5,520

Benefit payments
1,322

 
981

 
4,917

 
4,556

Currency translation
—

 
—

 
(4,386
)
 
(2,964
)
Benefit obligation at end of year
$
(98,320
)
 
$
(16,309
)
 
$
(138,304
)
 
$
(131,580
)
Change in Plan Assets:
 
 
 
 
 
 
 
Fair value at beginning of year
$
12,172

 
$
11,341

 
$
139,064

 
$
129,365

Actual return on plan assets
2,270

 
1,091

 
(877
)
 
12,611

Employer and participant contributions
721

 
721

 
4,788

 
3,493

Acquisition
84,981

 
—

 
1,203

 
—

Settlements / curtailments
—

 
—

 
(263
)
 
(4,542
)
Benefit payments
(1,322
)
 
(981
)
 
(4,618
)
 
(4,556
)
Currency translation
—

 
—

 
5,034

 
2,693

Fair value at end of year
$
98,822

 
$
12,172

 
$
144,331

 
$
139,064

Funded (unfunded) status
$
502

 
$
(4,137
)
 
$
6,027

 
$
7,484

Amounts included in the balance sheet:
 
 
 
 
 
 
 
Current assets
$
—

 
$
—

 
$
—

 
$
263

Other noncurrent assets
—

 
—

 
12,133

 
15,087

Accounts payable and accrued liabilities
—

 
—

 
(346
)
 
(334
)
Other noncurrent liabilities
502

 
(4,137
)
 
(5,760
)
 
(7,532
)
Net amount recognized
$
502

 
$
(4,137
)
 
$
6,027

 
$
7,484

The Company has plans whose fair value of plan assets exceeds the benefit obligation. In addition, the Company also has plans whose benefit obligation exceeds the fair value of plan assets. The total amount of prepaid benefit cost included in the net prepaid (accrued) benefit cost recognized for all pension plans approximates $6.5 million and $3.3 million at December 28, 2013 and December 29, 2012, respectively. The accumulated benefit obligation was $232.2 million and $145.9 million at December 28, 2013 and December 29, 2012, respectively.
The following table summarizes the pretax amounts recorded in Accumulated other comprehensive income (loss) for the Company’s pension plans as of December 28, 2013 and December 29, 2012:
In thousands
U.S. Pension Plans
 
Non-U.S. Pension Plans
December 28, 2013
 
December 29, 2012
 
December 28, 2013
 
December 29, 2012
Transition net asset
$
—

 
$
—

 
$
—

 
$
—

Net actuarial (gain) loss
1,174

 
4,688

 
12,583

 
7,737

Prior service cost
—

 
—

 
—

 
—

Net amounts recognized
$
1,174

 
$
4,688

 
$
12,583

 
$
7,737

The components of the Company's pension related costs for the following periods are as follows:

78

 
U.S. Pension Plans
 
Non-U.S. Pension Plans
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
In thousands, except percentage data
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
 
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Pension Benefit Plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
4

 
$
—

 
$
—

 
 
$
—

 
$
3,398

 
$
2,002

 
$
1,917

 
 
$
162

Interest cost
1,067

 
620

 
646

 
 
58

 
4,980

 
5,032

 
5,262

 
 
458

Return on plan assets
(2,270
)
 
(1,091
)
 
392

 
 
(29
)
 
877

 
(12,611
)
 
(21,492
)
 
 
3,785

Curtailment / settlement (gain) loss
—

 
—

 
—

 
 
—

 
—

 
792

 
—

 
 
—

Net amortization of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transition costs and other
844

 
373

 
(1,260
)
 
 
(36
)
 
(7,356
)
 
6,911

 
16,043

 
 
(4,293
)
Net periodic benefit cost
$
(355
)
 
$
(98
)
 
$
(222
)
 
 
$
(7
)
 
$
1,899

 
$
2,126

 
$
1,730

 
 
$
112

Weighted average assumptions used:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Return on plan assets
5.9 - 7.0%

 
8.0
%
 
8.0
%
 
 
8.0
%
 
3.0 - 5.5%

 
1.5 - 6.0%

 
2.4 - 6.0%

 
 
2.5 - 6.0%

Discount rate
4.6
%
 
3.8
%
 
5.6
%
 
 
5.4
%
 
3.4 - 8.0%

 
3.7 - 7.0%

 
4.0 - 7.3%

 
 
4.8 - 8.5%

Salary and wage escalation rate
N/A

 
N/A

 
N/A

 
 
N/A

 
2.8 - 4.5%

 
2.0 - 4.5%

 
2.0 - 4.5%

 
 
2.0 - 4.5%

During the fourth quarter of 2012, the Company completed the liquidation of two pension plans related to its former Dominion Textile, Inc. business in Canada. All pension benefits legally owed to plan participants were fully paid from plan assets by the end 2012. Excess plan assets left in the trust after all participants were paid was $0.3 million and is reported within Other current assets in the Company's Consolidated Balance Sheet at December 29, 2012. The surplus was received by the Company in the first quarter of 2013. As a result of the liquidation of these plans, the Company recognized a settlement loss of $0.8 million within Special charges, net in the Company's Consolidated Statement of Operations.
The expected long-term rate of return on plan assets reflects the average rate of returns expected on the funds invested or to be invested in order to provide for the benefits included in the projected benefit obligation. The expected long-term rate of return on plan assets is based on what is achievable given the plan's investment policy, the types of assets held and target asset allocations. The expected long-term rate of return is determined as of the measurement date. The Company reviews each plan and its historical returns and target asset allocations to determine the appropriate long-term rate of return on plan assets to be used. Discount rates are primarily based on the market yields of global bond indices for AA-rated corporate bonds, applied to a portfolio for which the term and currency correspond with the estimated term and currency of the obligation.
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. During 2014, employer contributions are expected to approximate $5.0 million. As well, the Company expects to recognize amortization of actuarial gains/losses as components of net periodic benefit cost of $0.1 million.
Investment decisions
The Company’s overall investment strategy for pension plan assets is to achieve a blend of approximately 80 percent of investments for long-term growth and 20 percent for near-term benefit payments with a wide diversification of asset types, fund strategies and fund managers. In the U.S., the target allocations for plan assets are 40-55 percent in equity securities, 40-55 percent in corporate bonds and U.S. Treasury securities and the remainder in cash, cash equivalents or other types of investments. Equity securities primarily include investments in large-cap, mid-cap and small-cap companies principally located in the U.S. Fixed income securities include corporate bonds of companies of diversified industries and U.S. Treasuries.
The plans’ weighted-average asset allocations by asset category are as follows:
 
December 28, 2013
 
December 29, 2012
Cash
12
%
 
1
%
Equity Securities
30
%
 
31
%
Fixed Income Securities
58
%
 
68
%
Total
100
%
 
100
%

79

The trust funds are sufficiently diversified to maintain a reasonable level of risk without imprudently sacrificing return. The investment managers select investment fund managers with demonstrated experience and expertise, and funds with demonstrated historical performance, for the implementation of the plans’ investment strategy. The investment managers will consider both actively and passively managed investment strategies and will allocate funds across the asset classes to develop an efficient investment structure. It is the responsibility of the trustee to administer the investments of the trust within reasonable costs. These costs include, but are not limited to, management and custodial fees, consulting fees, transaction costs and other administrative costs chargeable to the Trust.
The fair value of the Company's pension plan assets at December 28, 2013 by asset category is as follows:
In thousands
Total
 
Level 1
 
Level 2
 
Level 3
Cash
$
28,671

 
$
28,671

 
$
—

 
$
—

Equity securities:
 
 
 
 
 
 
 
U.S. equities (a)
16,566

 
11,023

 
5,543

 
—

Foreign equities (b)
16,233

 
4,993

 
11,240

 
—

Global equity funds (c)
37,697

 
5,079

 
32,618

 
—

Emerging markets (d)
2,423

 
1,083

 
1,340

 
—

Total equity securities
72,919

 
22,178

 
50,741

 
—

Fixed income securities:
 
 
 
 
 
 
 
U.S. fixed income funds (e)
43,069

 
11,030

 
27,332

 
4,707

Foreign fixed income funds (f)
97,264

 
—

 
97,264

 
—

Total fixed income securities
140,333

 
11,030

 
124,596

 
4,707

Insurance funds
1,230

 
—

 
—

 
1,230

Total
$
243,153

 
$
61,879

 
$
175,337

 
$
5,937

(a)
This category consists of commingled and registered mutual funds that focus on equity securities of U.S companies. It includes both indexed and actively managed funds.
(b)
This category consists of commingled and registered mutual funds that focus on equity securities of companies outside of the U.S. It includes both indexed and actively managed funds.
(c)
This category consists of commingled and registered mutual funds that invest in equity securities of both U.S. and foreign companies. It includes actively managed funds
(d)
This category consists of commingled and registered mutual funds that invest in equity securities of companies in emerging market economies. It includes actively managed funds.
(e)
This category consists of actively managed funds that invest in investment-grade bonds of U.S. issuers from diverse industries and U.S. government bonds and treasury notes.
(f)
This category consists of funds that invest in investment-grade bonds of foreign companies and Euro region government bonds.

The fair value of the Company's pension plan assets at December 29, 2012 by asset category is as follows:
In thousands
Total
 
Level 1
 
Level 2
 
Level 3
Cash
$
1,942

 
$
1,942

 
$
—

 
$
—

Equity securities:
 
 
 
 
 
 
 
U.S. equities (a)
7,877

 
6,190

 
1,687

 
—

Foreign equities (b)
10,509

 
522

 
9,987

 
—

Global equity funds (c)
25,483

 
—

 
25,483

 
—

Emerging markets (d)
2,424

 
1,094

 
1,330

 
—

Total equity securities
46,293

 
7,806

 
38,487

 
—

Fixed income securities:
 
 
 
 
 
 
 
U.S. fixed income funds (e)
4,121

 
4,121

 
—

 
—

Foreign fixed income funds (f)
98,880

 
—

 
98,880

 
—

Total fixed income securities
103,001

 
4,121

 
98,880

 
—

Total
$
151,236

 
$
13,869

 
$
137,367

 
$
—


80

(a)
This category consists of commingled and registered mutual funds that focus on equity securities of U.S companies. It includes both indexed and actively managed funds.
(b)
This category consists of commingled and registered mutual funds that focus on equity securities of companies outside of the U.S. It includes both indexed and actively managed funds.
(c)
This category consists of commingled and registered mutual funds that invest in equity securities of both U.S. and foreign companies. It includes actively managed funds
(d)
This category consists of commingled and registered mutual funds that invest in equity securities of companies in emerging market economies. It includes actively managed funds.
(e)
This category consists of actively managed funds that invest in investment-grade bonds of U.S. issuers from diverse industries and U.S. government bonds and treasury notes.
(f)
This category consists of funds that invest in investment-grade bonds of foreign companies and Euro region government bonds.
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 following table details information regarding the Company's postretirement plans:
In thousands
U.S. Postretirement Plans
 
Non-U.S. Postretirement Plans
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
Postretirement Benefit Plans
 
 
 
 
 
 
 
Change in Projected Benefit Obligation:
 
 
 
 
 
 
 
Benefit obligation at beginning of year
$
—

 
$
—

 
$
(4,864
)
 
$
(4,908
)
Additional benefit obligations
—

 
—

 
—

 
—

Service costs
—

 
—

 
(59
)
 
(69
)
Interest costs
(11
)
 
—

 
(187
)
 
(218
)
Acquisition
(2,030
)
 
—

 
(1,419
)
 
—

Actuarial gain / (loss)
7

 
—

 
305

 
(394
)
Settlements / curtailments
—

 
—

 
182

 
364

Benefit payments
—

 
—

 
381

 
407

Currency translation
—

 
—

 
150

 
(46
)
Benefit obligation at end of year
$
(2,034
)
 
$
—

 
$
(5,511
)
 
$
(4,864
)
Change in Plan Assets:
 
 
 
 
 
 
 
Fair value at beginning of year
$
—

 
$
—

 
$
—

 
$
—

Actual return on plan assets
—

 
—

 
—

 
—

Employer and participant contributions
—

 
—

 
381

 
407

Benefit payments
—

 
—

 
(381
)
 
(407
)
Currency translation
—

 
—

 
—

 
—

Fair value at end of year
$
—

 
$
—

 
$
—

 
$
—

Funded status
$
(2,034
)
 
$
—

 
$
(5,511
)
 
$
(4,864
)
Amounts included in the balance sheet:
 
 
 
 
 
 
 
Other noncurrent assets
$
—

 
$
—

 
$
—

 
$
—

Accounts payable and accrued liabilities
(119
)
 
—

 
(492
)
 
(449
)
Other noncurrent liabilities
(1,915
)
 
—

 
(5,019
)
 
(4,415
)
Net amount recognized
$
(2,034
)
 
$
—

 
$
(5,511
)
 
$
(4,864
)
The following table summarizes the pretax amounts recorded in Accumulated other comprehensive income (loss) for the Company’s postretirement benefit plans as of December 28, 2013 and December 29, 2012:

81

In thousands
U.S. Postretirement Plans
 
Non-U.S. Postretirement Plans
December 28, 2013
 
December 29, 2012
 
December 28, 2013
 
December 29, 2012
Transition net asset
$
—

 
$
—

 
$
—

 
$
—

Net actuarial (gain) loss
(7
)
 
—

 
(12
)
 
443

Prior service cost
—

 
—

 
—

 
—

Net amounts recognized
$
(7
)
 
$
—

 
$
(12
)
 
$
443

The components of the Company's postretirement related costs for the following periods are as follows:
 
U.S. Postretirement Plans
 
Non-U.S. Postretirement Plans
 
Successor
 
 
Predecessor
 
Successor
 
 
Predecessor
In thousands, except percentage data
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
 
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Postretirement Benefit Plans
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Service cost
$
—

 
$
—

 
$
—

 
 
$
—

 
$
59

 
$
69

 
$
75

 
 
$
7

Interest cost
11

 
—

 
—

 
 
—

 
187

 
218

 
279

 
 
24

Curtailment / settlement (gain) loss
—

 
—

 
—

 
 
—

 
114

 
186

 
(556
)
 
 
—

Net amortization of:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Transition costs and other
—

 
—

 
—

 
 
—

 
35

 
26

 
—

 
 
(26
)
Net periodic benefit cost
$
11

 
$
—

 
$
—

 
 
$
—

 
$
395

 
$
499

 
$
(202
)
 
 
$
5

Weighted average assumptions used:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Discount rate
4.6
%
 
N/A

 
N/A

 
 
N/A

 
4.1 - 4.8%

 
3.5 - 7.0%

 
5.3 - 8.0%

 
 
5.0 - 8.5%

Salary and wage escalation rate
N/A

 
N/A

 
N/A

 
 
N/A

 
3.0
%
 
3.0 - 4.5%

 
3.0 - 4.5%

 
 
3.0 - 4.5%

Due to the divestiture of Difco in May 2011, the Company terminated the employment of the remaining employees during the fourth quarter of 2011. The terminated employees are not entitled to postretirement benefits. As a result, the Company recognized a curtailment gain of $0.6 million related to the release of the benefit obligation associated with this event. This gain appears in the line, Discontinued Operations, net in the Company’s Consolidated Statement of Operations.
Assumed health care cost trend rates
The health care cost trend rate assumptions for the Company provided health care benefits for retirees in Canada are reflected in the following table. The Company does not provide post-employment health care benefits for retirees in other countries.
 
December 28, 2013
 
December 29, 2012
Weighted average health care cost trend rate assumed for next year
6.44
%
 
6.42
%
Rate to which the cost trend is expected to decline (the ultimate trend rate)
4.50
%
 
4.50
%
Year that the rate reached the ultimate trend rate
2028

 
2028

A one-percentage point increase in the assumed health care cost trend rate would have increased aggregate service and interest cost in 2013 by less than $0.1 million and the accumulated postretirement benefit obligation as of December 28, 2013 by $0.1 million. A one-percentage point decrease in the assumed health care cost trend rate would have decreased aggregate service and interest cost in 2013 by less than $0.1 million and the accumulated postretirement benefit obligation as of December 28, 2013 by $0.1 million.
Expected Benefit Payments
The following table reflects the total benefits projected to be paid from the pension plans or from the Company’s general assets, under the current actuarial assumptions used for the calculation of the projected benefit obligations. Therefore, actual payments may differ from projected benefit payments. The expected level of payments to, or on the behalf of, participants is as follows:

82

In thousands
Pension
 
Postretirement
2014
$
5,770

 
$
606

2015
5,830

 
547

2016
6,133

 
548

2017
6,867

 
534

2018
7,186

 
544

2019 to 2023
46,224

 
2,581

For the fiscal year ended December 28, 2013 and December 29, 2012, reclassifications out of accumulated other comprehensive income (loss) totaled $0.4 million and less than $0.1 million. These amounts related to net actuarial gains/losses included in the computation of net periodic benefit cost for both pension and postretirement benefit plans.
Defined Contribution Plans
The Company sponsors several defined contribution plans through its domestic subsidiaries covering employees who meet certain service requirements. The Company makes 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 noncontributory money purchase plans. The cost of the plans was $2.7 million, $2.5 million and $2.5 million for fiscal 2013, 2012 and 2011, respectively.
Note 15. Equity Compensation Plans
The Company accounts for stock-based compensation plans in accordance with ASC 718, "Compensation - Stock Compensation" ("ASC 718"), which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. The Company's stock-based compensation plans have included a program for stock options and restricted stock units.
Predecessor Equity Compensation Plans
The Predecessor adopted various compensation plans to attract, retain and motivate directors, officers and employees of the Company and its subsidiaries. These plans included nonqualified stock options of common stock, restricted shares and restricted share units. In association with the Merger, the Predecessor's stock options, as well as the restricted shares and restricted share units, vested, if unvested, and were canceled and converted into the right to receive cash for each share, without interest, on January 28, 2011. With respect to the Company's stock options, the amount in cash was adjusted by the exercise price of $6.00 per share. As a result, the Company recognized $12.7 million in the Consolidated Statement of Operations related to the accelerated vesting of its stock options, restricted shares and restricted share units during the one month ended January 28, 2011.
In addition, the Company maintained an employment agreement with its former Chief Executive Officer that provided for a one-time award of equity and cash at the expiration date of the agreement. The equity award component was dependent upon an ending stock price at the measurement date and the cash component would have been equal to thirty percent of the equity award component. In contemplation of the Merger, the former Chief Executive Officer entered into a new employment agreement which became effective as of the time of the Merger and superseded the previous employment agreement. Accordingly, the former Chief Executive Officer has no further rights under the previous employment agreement.
Successor Equity Compensation Plans
In January 2011, Holdings adopted an Incentive Stock Plan (the “2011 Plan”), pursuant to which Holdings will grant equity-based awards to selected employees and directors of the Company. The 2011 Plan, which included time-based, performance-based and exit-based options as well as restricted stock units, provided that 22,289 shares of common stock of Holdings are available for grant.
On June 17, 2013, Veronica Hagen and the Company entered into a Retirement Agreement (the "Retirement Agreement") whereby she retired from the position of President and Chief Executive Officer effective June 19, 2013 and retired from the Company on August 31, 2013. Per the terms of the Retirement Agreement, the Company modified her equity-based awards in that certain time-based and exit-based awards became fully vested, with all remaining awards forfeited. Per ASC 718, the change in vesting conditions was treated as a Type III modification whereby the original equity awards are considered forfeited and new, fully vested awards are granted.

83

On June 18, 2013, the Company announced the appointment of J. Joel Hackney Jr. as President and Chief Executive Officer, effective June 19, 2013. Per the terms of his employment agreement, Mr. Hackney received 9,000 equity-based awards, which included 3,000 restricted stock units. As a result, the Company amended the 2011 Plan to increase the number of shares of Holdings common stock available for grant from 22,289 to 31,289. At December 28, 2013, the indirect parent has 4,894 shares available for future incentive awards.
On July 3, 2013, Michael Hale accepted the position of Senior Vice President and Advisor to the Chief Executive Officer and subsequently announced his retirement from the Company effective January 31, 2014. Other than the change in title and role, all of the terms and conditions of his employment agreement remain as indicated except for certain modification to his equity-based awards in that certain time-based awards became fully vested. Per ASC 718, the change in vesting conditions was treated as a Type III modification whereby the original equity awards are considered forfeited and new, fully vested awards are granted.
During 2013, the Board of Directors reviewed the historical and projected financial performance of the Company in regard to the satisfaction of the performance-vested options. Under the current vesting conditions, a performance-based option would become vested if certain free cash flow targets are achieved in either a given fiscal year or based on cumulative targets over multiple fiscal years. As none of these targets have been achieved since the date of grant and, based on recent performance, not expected to be satisfied in the next several years, the Board of Directors decided to modify the terms of the performance-vesting options. As a result, on August 30, 2013, vesting terms for all performance-based options were modified to vest on terms similar to existing exit-based options, substituting 15% for 20% as the required annual internal rate of return component. In addition, to align the vesting conditions between the amended performance-based options and the exit-based options, the vesting terms of the exit-based options were modified to reduce the required annual internal rate of return component to 15%.
Stock Options
Options granted under the 2011 Plan expire on the tenth anniversary date of the date of grant and vest based on the type of option granted. Time-based options vest based upon the passage of time in equal installments at the respective anniversaries of the date of grant. Modified performance-based options and exit-based options vest on the date, if any, when Blackstone receives cash proceeds with respect to its investment in the Company's equity securities that meets a specified financial yield. All options are subject to continued employment with the Company.
Changes in options outstanding under the 2011 Plan are as follows:
 
Number of Shares
 
Weighted Average Exercise Price
Outstanding - January 1, 2011
—

 
$
—

Granted
17,699
 
1,000

Canceled / Forfeited
(842)
 
1,000

Exercised
—

 
—

Outstanding - December 31, 2011
16,857

 
1,000

Granted
4,582
 
1,000

Canceled / Forfeited
(979)
 
1,000

Exercised
—

 
—

Outstanding - December 29, 2012
20,460

 
1,000

Granted
6,817

 
1,000

Canceled / Forfeited
(3,882
)
 
1,000

Exercised
—

 
—

Outstanding - December 28, 2013
23,395

 
$
1,000

Exercisable - December 28, 2013
2,738

 
$
1,000

The fair value of each time-based award is expensed on a straight-line basis over the requisite service period, which is generally the three or five year vesting period of the options. However, for options granted with performance target requirements, compensation expense would have been recognized when it was probable that both the performance target will be achieved and the requisite service period was satisfied. Compensation expense is not recognized for modified performance-based options and exit-based options until they vest. As of December 28, 2013, unrecognized compensation expense related to non-vested options granted under the 2011 Plan totaled $2.2 million.

84

The weighted-average fair value of stock options granted during fiscal 2013 and 2012 was $568.420 and $275.079, respectively, using the Black-Scholes option pricing model. The following weighted-average assumptions were used:
 
Fiscal 2013
 
Fiscal 2012
Risk-free interest rate
1.55
%
 
0.35
%
Dividend yield
—
%
 
—
%
Expected life
6.4 years

 
3.3 years

Volatility
59.00
%
 
38.02
%
As the Company does not have sufficient historical volatility data for the common stock of Holdings, the stock price volatility utilized in the fair value calculation is based on the Company's peer group in the industry in which it does business. The risk-free interest rate is based on the yield-curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Prior to 2013, the expected life was based on the vesting schedule of the options and their contractual life, taking into consideration the expected time in which the share price of the option would exceed the exercise price of the option. However, subsequent equity grants utilize the Simplified Method as allowed under SAB Topic 14 to derive the expected life assumption. The estimated fair value of the options that have been granted under the 2011 Plan were determined using a third-party valuation specialist.
Restricted Stock Units
Restricted stock units represent a promise to deliver shares to the individual at a future date if certain vesting conditions are met. Under the Holdings Plan, restricted stock unit's will become vested on the third anniversary of the date of grant and will be settled in shares of Holdings. Dividend equivalent shares will accrue if dividends are paid on Holdings common stock and will vest proportionately with the restricted stock unit's to which they relate.
Changes in restricted stock units outstanding under the 2011 Plan are as follows:
 
Number of Shares
 
Weighted Average Exercise Price
Outstanding - December 29, 2012
$
—

 
$
—

Granted
3,000

 
1,000

Canceled / Forfeited
—

 
—

Exercised
—

 
—

Outstanding - December 28, 2013
3,000

 
$
1,000

The fair value of each restricted stock unit is measured as the grant-date price of the common stock which is expensed on a straight-line basis over the three year vesting period. As of December 28, 2013, unrecognized compensation expense related to non-vested restricted stock units granted under the 2011 Plan totaled $2.5 million.
Call Option on Common Stock
Under the 2011 Plan, the Company set forth a management equity subscription agreement whereby certain selected employees of the Company were able to invest in shares of Holding’s common stock. The agreement contains an employer call option clause that states that the Company can repurchase the common stock from the employee prior to the third anniversary of the purchase date. This feature creates an in-substance service period because the employer can repurchase the shares at the original purchase price (or less) if the employee terminates within the specified time period. The employee does not partake in any of the risks or rewards of stock ownership until the end of the three year implied service period. As a result, the cash acquired by the Company for the common stock shares have been recorded as a liability, as they are subject to repayment upon employee termination and compensation cost will be recognized over the implied three-year requisite service period equal to the fair value of the call option.
Other Compensation Agreements
In contemplation of the Merger, the former Chief Executive Officer entered into an employment agreement which became effective as of the time of the Merger. The agreement provided that as long as Ms. Hagen was an employee in good standing on April 23, 2013, that she would be entitled to a one-time grant of shares in Holdings having a value equal to $694,000 (the “Equity Award”). In accordance with the terms of her employment agreement, Ms. Hagen received the equity award of 694 shares of

85

Holdings common stock (less applicable withholding taxes) on the appropriate date. The Company recognized compensation expense on a straight-line basis over the requisite service period and has no further obligations under the agreement.
Compensation Expense
Stock-based compensation expense is included in Selling, general and administrative expenses in the Consolidated Statement of Operations. The amount of compensation expense recognized during the period is based on the portion of granted awards that are expected to vest. Ultimately, the total expense recognized of the vesting period will equal the fair value of the awards as of the grant date that actually vest. The following table summarizes the compensation expense recognized:
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Fiscal Year Ended December 31, 2011
Stock options
$
950

 
$
532

 
$
441

Restricted stock units
500

 
—

 
—

Employee call option
2,443

 
—

 
—

Equity award
97

 
310

 
287

Total
$
3,990

 
$
842

 
$
728

Note 16.  Income Taxes
The provision for income taxes was computed based on the following components of income (loss) before income tax expense and discontinued operations:
In thousands
Successor
 
 
Predecessor
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Domestic
$
(63,783
)
 
$
(44,664
)
 
$
(75,910
)
 
 
$
(19,238
)
Foreign
2,918

 
26,281

 
2,809

 
 
1,485

Total
$
(60,865
)
 
$
(18,383
)
 
$
(73,101
)
 
 
$
(17,753
)
The components of income tax (provision) benefit for the respective periods are as follows:
In thousands
Successor
 
 
Predecessor
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Current:
 
 
 
 
 
 
 
 
Federal and state
$
3,947

 
$
397

 
$
17,115

 
 
$
(302
)
Foreign
(12,474
)
 
(9,175
)
 
(17,498
)
 
 
(247
)
Deferred:
 
 
 
 
 
 
 
 
Federal and state
22,688

 
90

 
—

 
 
—

Foreign
8,432

 
1,033

 
3,655

 
 
—

Income tax (provision) benefit
$
22,593

 
$
(7,655
)
 
$
3,272

 
 
$
(549
)
The income tax (provision) benefit differs from the amount of income taxes determined by applying the applicable U.S. federal statutory rate of 35% to pretax income as a result of the following differences:

86

In thousands
Successor
 
 
Predecessor
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Computed income tax (provision) benefit at statutory rate
$
21,303

 
$
6,435

 
$
25,585

 
 
$
6,214

State income taxes, net of U.S. federal tax benefit
(540
)
 
(5
)
 
1,207

 
 
(27
)
Change in valuation allowance
(7,120
)
 
(17,035
)
 
(30,823
)
 
 
(6,579
)
Local country withholding tax
(5,307
)
 
(800
)
 
(3,574
)
 
 
(157
)
Tax attribute carryforward expiration
—

 
—

 
—

 
 
—

Intra-period allocation rule exception
5,201

 
—

 
970

 
 
—

Foreign rate difference
8,962

 
3,852

 
(6,338
)
 
 
56

Change in U.S. Personal Holding Company liability
—

 
—

 
16,221

 
 
(54
)
Other
94

 
(102
)
 
24

 
 
(2
)
Income tax (provision) benefit
$
22,593

 
$
(7,655
)
 
$
3,272

 
 
$
(549
)
In the fourth quarter of 2013, Mexico passed and implemented tax reform. Among the many changes, the IETU tax regime was repealed. The PGI Mexico subsidiary was paying tax under the IETU tax regime and all deferred taxes were on the balance sheet using the attributes of the IETU tax regime. With the appeal, the PGI Mexico subsidiary had to remove all deferred tax items related to the IETU and replace them with the attributes consistent with the ISR, or income tax regime. The income statement impact on the tax expense related to this change was benefit of $4.1 million.
During 2011, the Company determined that it may be subject to Personal Holding Company ("PHC") tax for past periods and established a liability in accordance with the recognition provisions of ASC 740 "Income Taxes" (ASC 740"). However, in the fourth quarter of 2011, the IRS issued a favorable ruling determining the Company was not a PHC. As a result, the Company released in its entirety the the unrecognized tax benefit (the “UTB”) associated with the PHC matter during the December 31, 2011 tax year. It included $2.2 million related to the expiration of the statute of limitations and $14.0 million related to the favorable Internal Revenue Service (the “IRS”) ruling.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as net operating losses and other tax credit carryforwards.
Deferred income tax assets and liabilities consist of the following:

87

In thousands
December 28, 2013
 
December 29, 2012
Deferred tax assets:
 
 
 
Provision for bad debts
$
1,169

 
$
1,263

Inventory capitalization and allowances
1,992

 
146

Net operating loss and capital loss carryforwards
223,013

 
183,917

Tax credits
5,748

 
3,681

Employee compensation and benefits
10,322

 
10,732

Property, plant and equipment
—

 
—

Other, net
14,509

 
18,291

Total deferred tax assets
256,753

 
218,030

Valuation allowance
(201,112
)
 
(203,837
)
Net deferred tax assets
$
55,641

 
$
14,193

 
 
 
 
Deferred tax liabilities:
 
 
 
Property, plant and equipment, net
$
(20,773
)
 
$
(29,832
)
Intangibles
(33,643
)
 
(4,593
)
Stock basis of subsidiaries
—

 
(281
)
Undistributed Earnings
(12,477
)
 
(1,762
)
Other, net
(6,532
)
 
(6,608
)
Total deferred tax liabilities
(73,425
)
 
(43,076
)
Net deferred tax liabilities
$
(17,784
)
 
$
(28,883
)
The Company records a deferred tax liability associated with the excess of book basis over tax basis in the shares of subsidiaries not considered indefinitely invested. At December 28, 2013, the Company has not provided deferred income taxes on approximately $50.7 million of unremitted earnings of its foreign subsidiaries where the earnings are considered indefinitely invested. If management decided to repatriate these earnings, they would become taxable and would incur approximately $19.6 million of tax. In the event of additional tax, unrecognized tax attributes may be available to reduce some portion of any U.S. income tax liability.
After Internal Revenue Code Section 382 (“Section 382”) limitations, the Company has $321.3 million of U.S. federal operating loss carryforwards that expire between 2024 and 2033. In addition, the Company has $659.8 million of aggregated state operating loss carryforwards that expire over various time periods, and has $286.5 million of foreign operating loss carryforwards, of which $153.8 million have an unlimited carryforward life and $93.0 million expire between 2014 and 2022. The remaining $39.7 million of foreign operating loss carryforwards expire between 2014 and 2033. The Company has potential tax benefits of $1.7 million of tax credit carryforwards on foreign jurisdictions, all of which expire between 2014 and 2023. The Company has $1.5 million of AMT credit with an unlimited carryforward life.
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. In assessing the likelihood that a deferred tax asset will be realized, management considers, among other factors, the trend of historical and projected future taxable income, the scheduled reversal of deferred tax liabilities, the carryforward period for net operating losses and credits as well as tax planning strategies available to the Company. After consideration of all available evidence both positive and negative, the Company has determined that valuation allowances of $201.1 million and $203.8 million are appropriate as of December 28, 2013 and December 29, 2012, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, included in Other noncurrent liabilities in the accompanying Consolidated Balance Sheet, excluding potential interest and penalties associated with uncertain tax positions, is as follows:

88

In thousands
Successor
 
 
Predecessor
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Unrecognized tax benefits at beginning of period
$
12,794

 
$
12,892

 
$
24,704

 
 
$
24,357

Gross increases for tax positions of prior years
—

 
—

 
—

 
 
—

Gross decreases for tax positions of prior years
(260
)
 
(127
)
 
(11,654
)
 
 
(239
)
Increases in tax positions for the current year
1,753

 
2,085

 
2,621

 
 
141

Lapse of statute of limitations
(1,873
)
 
(1,810
)
 
(2,898
)
 
 
—

Purchase accounting adjustment
2,594

 
—

 
—

 
 
445

Currency translation
(727
)
 
(246
)
 
119

 
 
—

Unrecognized tax benefits at end of period
$
14,281

 
$
12,794

 
$
12,892

 
 
$
24,704

The total amount of UTBs as of December 28, 2013 and December 29, 2012 were $23.6 million and $25.0 million, respectively. These amounts include accrued interest and penalties of $9.3 million and $12.2 million at December 28, 2013 and December 29, 2012, respectively. Further, UTBs of $23.6 million represent the amount that, if recognized, would affect the effective tax rate of the Company in future periods. Included in the balance as of December 28, 2013 was $3.8 million related to tax positions for which it is reasonably possible that the total amounts could significantly change during the next twelve months. This amount represents a decrease in UTBs comprised of items related to lapse of statute of limitations or settlement of issues. The Company continues to recognize interest and/or penalties related to income taxes as a component of income tax expense.
During 2013, Mexico initiated a tax amnesty program that provides a reduction in taxes owed and the elimination of all related penalties and interest. In May 2013, the Company exercised its right under the amnesty program related to the country's Asset Tax. As a result, the Company recorded a discrete tax expense of $2.9 million during the second quarter associated with the amnesty program. In July 2013, Colombia initiated a tax amnesty program under which the Company filed for tax amnesty for the 2007 tax year related to a transfer pricing issue. The Colombia tax authorities accepted the amnesty request and as a result, the Company paid $0.5 million to settle the outstanding issue.
During 2012, the Company completed a sale of leased equipment between its' Netherlands and Colombia subsidiaries. At December 29, 2012, the capitalized assets have a book value of $20.7 million, which will be depreciated over the remaining useful life of the equipment. The Company recognized no gain or loss on this intercompany transaction. However, due to different tax rates in each jurisdiction, the transaction resulted in a deferred tax expense of $0.1 million at December 28, 2013 and a deferred tax benefit of $1.2 million at December 29, 2012 which the Company recorded within Additional paid-in-capital during 2012. The equity adjustment will be recognized in earnings over the remaining useful life of the equipment.
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. As of December 28, 2013, 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.
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, and Argentina. The U.S. federal tax returns have been examined through fiscal 2004 and the various taxing jurisdictions generally remain open and subject to examination by the relevant tax authorities for the tax years 2003 through 2013.
As a result of the acquisition of Fiberweb, the Company now has operations in the U.S., France, United Kingdom, Germany, Italy and India. Based on the weight of the evidence, it is management's opinion, it is more likely than not that some portion, or all, of the deferred tax assets associated with these entities will not be realized. Therefore, the net deferred tax asset associated with these entities were fully valued as of the opening balance sheet date.
The Fiberweb U.S. operations are owned directly by Fiberweb PLC. Through tax planning, the U.S. entities became part of the Company's U.S. consolidated federal tax return on December 22, 2013. However, on the Acquisition Date, these entities were not part of the Company's U.S. consolidated federal tax return and as a result, it was management's opinion that it was more

89

likely than not that these entities would recognize their deferred tax assets. Therefore, there were no valuation allowances established at the opening balance sheet date. Once they became part of the Company's U.S. consolidated federal tax return, these amounts became fully valued. Fiberweb entities in the U.S. have a net deferred tax liability which created a tax benefit of $22.8 million.
Note 17.  Shareholders’ Equity
In connection with the Merger on January 28, 2011, all 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 during fiscal years 2013 or 2012 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 January 2011, Blackstone, along with certain members of the Company's management, contributed $259.9 million through the purchase of Holdings. In accordance with push-down accounting, the basis in these shares of common stock 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, are recorded in Other noncurrent liabilities as they contain 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. 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 December 28, 2013, the net amount purchased was $1.4 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.
Accumulated Other Comprehensive Income (Loss)
The components of Accumulated other comprehensive income (loss) are as follows:
In thousands
December 28, 2013
 
December 29, 2012
Currency translation
$
7,705

 
$
(1,003
)
Employee benefit plans, net of tax of ($2,204) as of December 28, 2013 and ($896) as of December 29, 2012
(15,811
)
 
(13,766
)
Change in the fair value of cash flow hedges, net of tax
—

 
—

Total
$
(8,106
)
 
$
(14,769
)
Note 18.  Special Charges, Net
As part of our business strategy, the Company incurs amounts related to corporate-level decisions or Board of Director actions. These actions are primarily associated with initiatives attributable to 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 Statement of Operations. A summary for each respective period is as follows:
 

90

 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Restructuring and plant realignment costs
 
 
 
 
 
 
 
 
Internal redesign and restructure of global operations
$
2,291

 
$
12,403

 
$
—

 
 
$
—

Plant realignment costs
8,395

 
4,096

 
1,515

 
 
194

IS support initiative
25

 
867

 
—

 
 
—

Other restructure initiatives
42

 
511

 
—

 
 
—

Total restructuring and plant realignment costs
10,753

 
17,877

 
1,515

 
 
194

Acquisition and merger related costs
 
 
 
 
 
 
 
 
Blackstone acquisition costs
37

 
452

 
27,919

 
 
6,137

Fiberweb acquisition costs
18,306

 
—

 
—

 
 
—

Accelerated vesting of share-based awards
—

 
—

 
—

 
 
12,694

Total acquisition and merger related costs
18,343

 
452

 
27,919

 
 
18,831

Other special charges
 
 
 
 
 
 
 
 
Colombia flood
—

 
57

 
1,037

 
 
1,685

Goodwill impairment
—

 
—

 
7,647

 
 
—

Asset impairment charges
2,259

 
—

 
1,620

 
 
—

Other charges
1,833

 
1,206

 
1,607

 
 
114

Total other special charges
4,092

 
1,263

 
11,911

 
 
1,799

Total
$
33,188

 
$
19,592

 
$
41,345

 
 
$
20,824

Restructuring and Plant Realignment Costs
Internal redesign and restructuring of global operations
During 2012, the Company initiated the internal redesign and restructuring of its global operations for the purposes of realigning and repositioning the Company to consolidate the benefits of its global footprint, align resources and capabilities with future growth opportunities and provide for a more efficient structure to serve existing markets.
Costs incurred for the respective periods presented consisted of the following:
 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Employee separation
$
171

 
$
8,788

 
$
—

 
 
$
—

Professional consulting fees
1,603

 
1,589

 
—

 
 
—

Relocation, recruitment and other
517

 
2,026

 
—

 
 
—

Total
$
2,291

 
$
12,403

 
$
—

 
 
$
—

Plant Realignment Costs
The Company incurs costs associated with ongoing restructuring initiatives intended to result in lower working capital levels and improve operating performance and profitability. Costs associated with these initiatives include improving manufacturing productivity, reducing headcount, realignment of management structures, reducing corporate costs and rationalizing certain assets, businesses and employee benefit programs. Costs incurred for the respective periods presented primarily consisted of plant realignment initiatives in the Americas and Europe regions. However, amounts recorded in the current period primarily relate to costs incurred in association with our acquisition of Fiberweb.
IS Support Initiative

91

During 2012, the Company launched an initiative to utilize a third-party service provider for its Information Systems support tactical functions, including: service desk; desktop/end-user computing; server administration; network services; data center operations; database and applications development; and maintenance. Cost incurred for the respective periods presented primarily consisted of employee separation and severance expenses.
Other Restructuring Initiatives
The Company incurs costs associated with less significant ongoing restructuring initiatives resulting from the continuous evaluation of opportunities to optimize manufacturing facilities and the manufacturing process. Costs associated with these initiatives primarily relate to professional consulting fees.
Amounts accrued for Restructuring and Plant Realignment costs are included in Accounts payable and accrued expenses in the Consolidated Balance Sheets. Changes in the Company's reserves for the respective periods presented were as follows:
 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Beginning balance
$
6,278

 
$
1,100

 
$
1,694

 
 
$
1,726

Additions
8,634

 
15,074

 
1,515

 
 
194

Acquisitions
2,010

 
—

 
—

 
 
—

Cash payments
(8,343
)
 
(9,930
)
 
(2,022
)
 
 
(220
)
Adjustments
(119
)
 
34

 
(87
)
 
 
(6
)
Ending balance
$
8,460

 
$
6,278

 
$
1,100

 
 
$
1,694

The Company accounts for its restructuring programs in accordance with ASC 712, "Compensation - Non-retirement Postemployment Benefits" ("ASC 712"). Programs in existence prior to the acquisition of Fiberweb are substantially complete with any year-end accrued liability remaining to be paid in early 2014. As a result of the acquisition of Fiberweb, the Company has initiated several restructuring programs to integrate and optimize the combined footprint. Projected costs for these programs are expected to range between $16.0 million and $23.0 million.
Acquisition and Merger Related Costs
Blackstone Acquisition Costs
As a result of the Merger on January 28, 2011, 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 the issuance of the Senior Secured Notes as well as the fee to enter into the ABL Facility, both of which have been capitalized as intangible assets on the Consolidated Balance Sheet as of the date of the Merger.
Fiberweb Acquisition Costs
As a result of the Acquisition on November 15, 2013, 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 Sheet as of the date of the Acquisition.
Accelerated Vesting of Share-Based Awards
Due to the change in control associated with the Merger, the Company's Predecessor stock options as well as the restricted shares and restricted share units underlying the Restricted Stock Plans vested, if unvested, were canceled and converted into the right to receive on January 28, 2011, (i) an amount in cash equal to the per share closing payment and (ii) on each escrow release date, an amount equal to the per share escrow payment, in each case, less any applicable withholding taxes. With respect to the Company's stock options, the amount in cash was adjusted by the exercise price of $6.00 per share.
Other Special Charges
Colombia Flood

92

In December 2010, a severe rainy season impacted many parts of Colombia and caused the Company to temporarily cease manufacturing at its Cali, Colombia facility due to a breach of a levy and flooding at the industrial park where its manufacturing facility is located. The Company established temporary offices away from the flooded area and worked with customers to meet their critical needs through the use of our global manufacturing base. The facility re-established manufacturing operations on April 4, 2011 and operations reached full run rates in third quarter of 2011. The costs related to restoration of the facility were net of insurance proceeds. In addition, the Company capitalized $8.0 million of costs that were incurred to bring the manufacturing equipment to a functional state during 2011.
Goodwill Impairment
Goodwill is 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. In the fourth quarter of 2011, the Company performed its annual impairment test of goodwill in accordance with current accounting standards. As a result, the Company recorded a $7.6 million non-cash impairment charge attributable to reporting units in Asia and the Americas.
Asset Impairment
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In the fourth quarter of 2013, the Company performed an impairment test on long-lived assets in Argentina. Based on third-party valuations, the Company determined the fair value of the long-lived assets to be $14.4 million fair value. As a result, the Company recorded an non-cash impairment charge of $2.2 million to adjust the carrying value to its fair value. In addition, a $1.6 million non-cash impairment charge was recorded during the fourth quarter of 2011. The charge related to the fair value adjustment of a former manufacturing facility in North Little Rock, Arkansas.
Other Charges
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 costs may include various corporate-level initiatives.
Note 19.  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 these 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:
 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Foreign currency gains (losses)
$
(2,838
)
 
$
151

 
$
(3,298
)
 
 
$
505

Other operating income (expense)
326

 
136

 
664

 
 
59

Total
$
(2,512
)
 
$
287

 
$
(2,634
)
 
 
$
564

Note 20. 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 these gains and losses related to intercompany loans and debt as well as other non-operating activities as a component of Other income (expense).
Amounts associated with these components for the respective periods are as follows:

93

 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Foreign currency gains (losses)
$
(6,689
)
 
$
(3,433
)
 
$
(715
)
 
 
$
(150
)
Other non-operating income (expense)
(5,496
)
 
(1,701
)
 
(17,921
)
 
 
68

Total
$
(12,185
)
 
$
(5,134
)
 
$
(18,636
)
 
 
$
(82
)
In connection with the refinancing of the Bridge Facilities with the Term Loans, we recognized a loss on the extinguishment of debt of $3.3 million during the fourth quarter of 2013. This amount represented debt issuance costs that were previously capitalized and required to be written off upon the refinancing. During the eleven months ended December 31, 2011, the Company recognized a loss of $18.6 million. Amounts associated with foreign currency losses totaled $0.7 million and other non-operating expenses were $1.3 million. In addition, the Company wrote-off a $16.6 million tax indemnification asset that was established during the Merger.
Note 21.  Discontinued Operations
The Company accounts for discontinued operations in accordance with ASC 205, "Discontinued Operations" ("ASC 205"), which allows a component of an entity that can be clearly distinguished operationally from the rest of an entity to be reported in discontinued operations, provided that the operations and cash flows of the component have been or will be eliminated and the entity will not have any significant continuing involvement in the component after the disposal.
The components of discontinued operations are as follows:
In thousands
Successor
 
 
Predecessor
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Revenues
$
—

 
$
—

 
$
27,221

 
 
$
4,060

 
 
 
 
 
 
 
 
 
Pre-tax earnings (loss) from operations
—

 
—

 
(6,105
)
 
 
320

Pre-tax gain (loss) on sale
—

 
—

 
(735
)
 
 
—

Tax (provision) benefit
—

 
—

 
557

 
 
(138
)
Discontinued operations, net
$
—

 
$
—

 
$
(6,283
)
 
 
$
182

On April 29, 2011, the Company entered into an agreement to sell certain assets and the working capital of Difco Performance Fibers, Inc. ("Difco") for cash proceeds of $10.9 million. The agreement provided that Difco would continue to produce goods during the three month manufacturing transition services agreement that expired in the third quarter of 2011. The sale was completed on May 10, 2011 and resulted in a loss of $0.7 million recognized during the eleven months ended December 31, 2011.
Note 22.  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.
Non-affiliate Leases
The Company leases certain manufacturing, warehousing and other facilities and equipment under operating leases. The leases on most of the properties contain renewal provisions. Future minimum rental payments required under non-affiliate operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 28, 2013 are presented in the following table:

94

In thousands
Gross Minimum Rental Payments
2014
$
14,141

2015
12,660

2016
11,910

2017
11,441

2018
9,067

Thereafter
20,098

Total
$
79,317

Rent expense (net of sub-lease income), including incidental leases, was $15.4 million, $14.5 million and $8.3 million for the Successor during the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012 and the eleven months ended December 31, 2011, respectively. For the one month ended January 28, 2011, rent expense for the Predecessor was $0.9 million. These expenses are generally recognized on a straight-line basis over the life of the lease.
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 monthly 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 us to maintain certain financial ratios and other requirements.
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.
Financing Obligation
As a result of the acquisition of Fiberweb, 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 transaction was appropriately accounted for by Fiberweb under International Financial Reporting Standards ("IFRS") as a sale-leaseback whereby the assets were excluded from the balance sheet and monthly lease payments were recorded as rent expense.
The Company determined that current accounting guidance under GAAP disallowed sale-leaseback treatment if there was continuing involvement with the property. As a result, the transaction is not accounted for as a sale-leaseback, but as a direct financing lease under GAAP, 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 December 28, 2013, the outstanding balance of the financing obligation was $20.1 million.
Purchase Commitments
At December 28, 2013, the Company had purchase commitments of $106.2 million, of which $73.4 million related to the purchase of raw materials in the normal course of business. The remaining $32.8 million related to capital projects, primarily associated with the plan to relocate the Company's Nanhai, China manufacturing facilities and the warehouse expansion project at the Company's Old Hickory, Tennessee manufacturing facilities.
Note 23.  Segment Information

95

The Company is a leading global, technology-driven developer, producer and marketer of engineered materials, primarily focused on the production of nonwoven products. The Company operates through four reportable segments, 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 that accounts for over 10% 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 the Nonwoven segments.
In April 2012, the Company approved the internal redesign and restructuring of its global operations for the purposes of realigning and repositioning the Company to consolidate the benefits of its global footprint, align resources and capabilities with future growth opportunities and provide for a more efficient structure to serve existing markets. The Company's segments are now as follows: Americas Nonwovens, Europe Nonwovens, Asia Nonwovens and Oriented Polymers segments. As part of the change, the Company eliminated the Latin America Nonwovens segment and merged it with the U.S. Nonwoven segment to create the Americas Nonwoven segment. Segment information for all years has been revised to reflect the new structure.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies except that the segment results are prepared on a management basis that is consistent with the manner in which the Company desegregates financial information for internal review and decision making. Intercompany sales between the segments are eliminated.
In April 2011, the Company entered into an agreement to sell certain assets and the working capital of Difco. As a result, the Company accounted for the transaction as discontinued operations in accordance with ASC 205. Difco was previously reported as part of the Oriented Polymers segment. Segment information has been revised to exclude the results of this business for all periods presented.
Financial data by segment is as follows: 

96

 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Net sales
 
 
 
 
 
 
 
 
Americas Nonwovens
$
660,792

 
$
641,532

 
$
613,355

 
 
$
46,093

Europe Nonwovens
316,400

 
294,120

 
297,869

 
 
24,305

Asia Nonwovens
172,597

 
156,746

 
135,591

 
 
9,403

Oriented Polymers
65,073

 
62,765

 
56,114

 
 
4,805

Total
$
1,214,862

 
$
1,155,163

 
$
1,102,929

 
 
$
84,606

 
 
 
 
 
 
 
 
 
Operating income (loss)
 
 
 
 
 
 
 
 
Americas Nonwovens
$
54,476

 
$
64,673

 
$
41,612

 
 
$
4,595

Europe Nonwovens
8,601

 
11,102

 
8,427

 
 
1,812

Asia Nonwovens
17,809

 
18,130

 
19,778

 
 
1,718

Oriented Polymers
4,729

 
3,362

 
1,802

 
 
553

Unallocated Corporate
(44,985
)
 
(40,586
)
 
(38,351
)
 
 
(3,603
)
Eliminations
(148
)
 
76

 
21

 
 
—

Subtotal
40,482

 
56,757

 
33,289

 
 
5,075

Special charges, net
(33,188
)
 
(19,592
)
 
(41,345
)
 
 
(20,824
)
Total
$
7,294

 
$
37,165

 
$
(8,056
)
 
 
$
(15,749
)
 
 
 
 
 
 
 
 
 
Depreciation and amortization expense
 
 
 
 
 
 
 
 
Americas Nonwovens
$
34,837

 
$
35,780

 
$
31,679

 
 
$
2,411

Europe Nonwovens
13,689

 
11,267

 
10,235

 
 
368

Asia Nonwovens
19,954

 
13,780

 
9,956

 
 
589

Oriented Polymers
1,396

 
1,496

 
1,306

 
 
36

Unallocated Corporate
1,816

 
1,718

 
1,584

 
 
68

Subtotal
71,692

 
64,041

 
54,760

 
 
3,472

Amortization of loan acquisition costs
4,796

 
2,665

 
2,530

 
 
51

Total
$
76,488

 
$
66,706

 
$
57,290

 
 
$
3,523

 
 
 
 
 
 
 
 
 
Capital spending
 
 
 
 
 
 
 
 
Americas Nonwovens
$
14,787

 
$
4,848

 
$
23,997

 
 
$
5,803

Europe Nonwovens
6,419

 
8,802

 
13,016

 
 
41

Asia Nonwovens
31,122

 
36,626

 
30,583

 
 
2,507

Oriented Polymers
958

 
672

 
375

 
 
38

Corporate
1,356

 
677

 
457

 
 
16

Total
$
54,642

 
$
51,625

 
$
68,428

 
 
$
8,405

 

97

In thousands
December 28,
2013
 
December 29,
2012
Division assets
 
 
 
Americas Nonwovens
$
700,725

 
$
513,765

Europe Nonwovens
403,184

 
202,139

Asia Nonwovens
265,729

 
248,790

Oriented Polymers
26,441

 
25,329

Corporate
42,826

 
32,046

Total
$
1,438,905

 
$
1,022,069

Geographic Data:
Export sales from the Successor's United States operations to unaffiliated customers were $20.1 million, $32.1 million and $37.9 million for the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012 and the eleven months ended December 31, 2011, respectively. For the one month ended January 28, 2011, export sales from the Predecessor's United States operations to unaffiliated customers were $3.0 million, respectively.
Geographic data for the Company's operations, based on the geographic region that the sale is made from, are presented as followings:
 
Successor
 
 
Predecessor
In thousands
Fiscal Year Ended
December 28,
2013
 
Fiscal Year
Ended
December 29,
2012
 
Eleven Months
Ended
December 31,
2011
 
 
One Month
Ended
January 28,
2011
Net sales
 
 
 
 
 
 
 
 
United States
$
380,836

 
$
357,193

 
$
330,347

 
 
$
26,409

Canada
60,808

 
57,312

 
50,989

 
 
4,529

Europe
316,401

 
294,120

 
297,869

 
 
24,305

Asia
172,596

 
156,746

 
135,591

 
 
9,402

Latin America
284,221

 
289,792

 
288,133

 
 
19,961

Total
$
1,214,862

 
$
1,155,163

 
$
1,102,929

 
 
$
84,606

In thousands
December 28,
2013
 
December 29,
2012
Property, plant and equipment, net
 
 
 
United States
$
179,136

 
$
105,335

Canada
5,026

 
5,707

Europe
156,758

 
89,678

Asia
158,006

 
137,196

Latin America
124,353

 
141,253

Total
$
623,279

 
$
479,169

Note 24. Selected Quarterly Financial Data
The unaudited quarterly financial data for the fiscal years ended December 28, 2013 and December 29, 2012 are presented below. All quarters included below were comprised of 13 weeks.

98

Quarterly data for fiscal 2013:
Successor
In thousands
Fourth Quarter Ended December 28, 2013
 
Third Quarter Ended September 28, 2013
 
Second Quarter Ended June 29, 2013
 
First Quarter Ended March 30, 2013
Operating Data:
 
 
 
 
 
 
 
Net sales
$
347,263

 
$
288,979

 
$
291,538

 
$
287,082

Gross profit
51,950

 
48,200

 
50,390

 
45,866

Net income (loss)
(15,872
)
 
(8,267
)
 
(7,906
)
 
(6,227
)
Net income (loss) attributable to Polymer Group, Inc.
(15,838
)
 
(8,267
)
 
(7,906
)
 
(6,227
)
Quarterly data for fiscal 2012:
Successor
In thousands
Fourth Quarter Ended December 29, 2012
 
Third Quarter Ended September 29, 2012
 
Second Quarter Ended June 30, 2012
 
First Quarter Ended March 31, 2012
Operating Data:
 
 
 
 
 
 
 
Net sales
$
273,651

 
$
290,097

 
$
296,244

 
$
295,171

Gross profit
45,666

 
51,974

 
46,419

 
53,187

Net income (loss)
(15,033
)
 
1,354

 
(12,094
)
 
(265
)
Note 25. Business Interruption and Insurance Recovery
As discussed in Note 18 "Special Charges, Net", a severe rainy season impacted many parts of Colombia in December 2010 and caused the Company to temporarily cease manufacturing at its facility in Cali, Colombia due to a breach of a levy and flooding at the industrial park where the facility is located. The Company established temporary offices away from the flooded area and worked with customers to meet their critical needs through the use of its global manufacturing base. The facility re-established manufacturing operations on April 4, 2011 and operations at this facility reached full run rates in the third quarter of 2011.
The Company maintains property and business interruption insurance policies. On March 4, 2011, the Company filed a $6.0 million claim under one of its insurance policies to cover both the property damage and the business interruption (the “Primary Policy”). The Primary Policy had a $1.0 million deductible. In fiscal 2011, the Company collected $5.0 million as settlement of its claim under the Primary Policy and $0.7 million as settlement of claims under other insurance policies.
Included in the Predecessor's Operating income (loss) for the one month ended January 28, 2011 is $1.0 million of insurance proceeds related to recovery of certain losses recognized for property damage and business interruption experienced by the Company during that period. Of the $1.0 million for the one month ended January 28, 2011, $0.3 million and $0.7 million were recorded in Selling, general and administrative expenses and Cost of goods sold, respectively, in order to offset the recognized losses included in the Primary Policy.
Note 26.  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). As of December 28, 2013, the Board of Directors of the Company includes two Blackstone members, four 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, with or without cause.
Blackstone Advisory Agreement
In the second quarter of 2010, the Company entered into an advisory services arrangement (the "Advisory Agreement") with Blackstone Advisory Partners L.P. ("Blackstone Advisory"), an affiliate of Blackstone. Pursuant to the terms of the Advisory Agreement, the Company paid a fee of $2.0 million following the announcement of the parties having entered into the Merger Agreement, and a fee of $4.5 million following consummation of the Merger. In addition, the Company reimbursed Blackstone Advisory for its reasonable documented expenses, and agreed to indemnify Blackstone Advisory and related persons against

99

certain liabilities arising out of its advisory engagement. As a result, the Predecessor recognized $4.5 million during the one month ended January 28, 2011, which is included within Special charges, net in the Consolidated Statement of Operations.
In the third quarter of 2013, the Company entered into an advisory services arrangement (the “International Advisory Agreement”) with Blackstone Group International Partners, LLP (“BGIP”), an affiliate of Blackstone. Pursuant to the terms of the International Advisory Agreement, the Company paid an aggregate fee of $3.0 million, associated with the acquisition of Fiberweb, of which 30% was paid following the announcement and the remaining 70% was paid following consummation of the transaction. In addition, the Company reimbursed BGIP for its reasonable documented expenses, and agreed to indemnify BGIP and related persons against certain liabilities arising out of its advisory engagement. As a result, the Successor recognized $3.2 million during the year ended December 28, 2013, which is included within Special charges, net in the Consolidated Statement of Operations.
Management Services Agreement
Upon the completion of the Merger, the Company became subject to a management services agreement (“Management Services Agreement”) with Blackstone Management Partners V L.L.C. (“BMP”), an affiliate of Blackstone. Under the Management 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 the Company or BMP, as applicable, shall adjust such payment as necessary based on the recalculated amount. Since the Merger, the Company's advisory fee has been $3.0 million, which is paid at the beginning of each year. The amount is included in Selling, general and administrative expenses in the Consolidated Statements of Operations.
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 of 2013. This amount is included in Special charges, net in the Consolidated Statement of Operations.
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 Management Services Agreement, assuming a hypothetical termination date of the Management Service Agreement to be the twelfth anniversary of such election. The Management 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 Management Services Agreement.
BMP also received transaction fees in connection with services provided related to the Merger. Pursuant to the Management Services Agreement, BMP received, at the closing of the Merger, an $8.0 million transaction fee as consideration for BMP undertaking financial and structural analysis, due diligence and other assistance in connection with the Merger. In addition, the Company agreed to reimburse BMP for any out-of-pocket expenses incurred by BMP and its affiliates in connection with the Merger. As a result, the Successor recognized $7.9 million within Special charges, net during the eleven months ended December 31, 2011, as well as capitalized $0.8 million as deferred financing costs as of January 28, 2011. BMP also receives reimbursement for out-of-pocket expenses in connection with the provision of services under the Management Services Agreement.
Other Relationships
Blackstone and its affiliates have ownership interests in a broad range of companies. We have 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. Blackstone Holdings Finance Co., LLC, a Blackstone subsidiary, participated in the Fiberweb financing group and received $0.6 million associated with their pro rata participation.

100

Note 27.  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 December 28, 2013 and December 29, 2012 and Condensed Consolidating Statements of Operations, Condensed Consolidating Statements of Other Comprehensive Income and Condensed Consolidating Statements of Cash Flows for the fiscal years ended December 28, 2013, December 29, 2012 and the eleven months ended December 31, 2011 for the Successor as well as the one month period ended January 28, 2011 for the Predecessor 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.
During 2012, the Company made changes to its presentation of certain intercompany activities between PGI (Issuer), the Guarantors, the Non-Guarantors and corresponding Eliminations within its Condensed Consolidating Financial Statements contained herein. As a result, certain prior period intercompany activities included in this note disclosure for the Condensed Consolidating Balance Sheets, the Condensed Consolidating Statements of Comprehensive Income (Loss) and the Condensed Consolidating Statements of Cash Flows have been recast to correct the classification of certain intercompany transactions. Management has determined that the adjustments were not material to prior periods and the nature of the changes is not material to the overall presentation. Accordingly, prior period Condensed Consolidating Balance Sheets, the Condensed Consolidating Statements of Comprehensive Income (Loss) and Condensed Consolidating Statements of Cash Flows included herein are not comparable to presentation included in prior period disclosures.


101


Successor Condensed Consolidating Balance Sheet
As of December 28, 2013
 
In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
2,068

 
$
13,103

 
$
70,893

 
$
—

 
$
86,064

Accounts receivable, net
—

 
46,828

 
147,999

 
—

 
194,827

Inventories, net
—

 
46,595

 
109,770

 
—

 
156,365

Deferred income taxes
385

 
2,438

 
2,318

 
(2,823
)
 
2,318

Other current assets
1,887

 
12,696

 
44,513

 
—

 
59,096

Total current assets
4,340

 
121,660

 
375,493

 
(2,823
)
 
498,670

Property, plant and equipment, net
2,756

 
176,380

 
444,143

 
—

 
623,279

Goodwill
—

 
43,182

 
76,961

 
—

 
120,143

Intangible assets, net
31,525

 
112,026

 
24,628

 
—

 
168,179

Net investment in and advances to (from) subsidiaries
1,000,551

 
615,314

 
(363,414
)
 
(1,252,451
)
 
—

Deferred income taxes
—

 
—

 
2,582

 
—

 
2,582

Other noncurrent assets
298

 
8,869

 
16,885

 
—

 
26,052

Total assets
$
1,039,470

 
$
1,077,431

 
$
577,278

 
$
(1,255,274
)
 
$
1,438,905

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
410

 
$
—

 
$
2,062

 
$
—

 
$
2,472

Accounts payable and accrued liabilities
36,510

 
61,950

 
209,201

 
—

 
307,661

Income taxes payable
369

 
—

 
3,244

 
—

 
3,613

Deferred income taxes
—

 
—

 
375

 
1,148

 
1,523

Current portion of long-term debt
3,039

 
—

 
10,758

 
—

 
13,797

Total current liabilities
40,328

 
61,950

 
225,640

 
1,148

 
329,066

Long-term debt
850,767

 
—

 
29,632

 
—

 
880,399

Deferred income taxes
974

 
8,053

 
16,104

 
(3,970
)
 
21,161

Other noncurrent liabilities
1,810

 
31,372

 
28,663

 
—

 
61,845

Total liabilities
893,879

 
101,375

 
300,039

 
(2,822
)
 
1,292,471

Common stock
—

 
—

 
16,966

 
(16,966
)
 
—

Other shareholders’ equity
145,591

 
976,056

 
259,430

 
(1,235,486
)
 
145,591

Noncontrolling interests
—

 
—

 
843

 
—

 
843

Total shareholders' equity
145,591

 
976,056

 
277,239

 
(1,252,452
)
 
146,434

Total liabilities and shareholders' equity
$
1,039,470

 
$
1,077,431

 
$
577,278

 
$
(1,255,274
)
 
$
1,438,905


102


Successor Condensed Consolidating Balance Sheet
As of December 29, 2012
 
In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
486

 
$
28,285

 
$
69,108

 
$
—

 
$
97,879

Accounts receivable, net
—

 
22,350

 
109,219

 
—

 
131,569

Inventories, net
—

 
23,843

 
71,121

 
—

 
94,964

Deferred income taxes
—

 
613

 
3,832

 
(613
)
 
3,832

Other current assets
1,821

 
7,710

 
23,883

 
—

 
33,414

Total current assets
2,307

 
82,801

 
277,163

 
(613
)
 
361,658

Property, plant and equipment, net
27,711

 
99,660

 
351,798

 
—

 
479,169

Goodwill
—

 
20,718

 
59,890

 
—

 
80,608

Intangible assets, net
24,313

 
42,422

 
8,928

 
—

 
75,663

Net investment in and advances to (from) subsidiaries
679,818

 
723,861

 
(188,670
)
 
(1,215,009
)
 
—

Deferred income taxes
—

 
—

 
945

 
—

 
945

Other noncurrent assets
275

 
5,787

 
17,964

 
—

 
24,026

Total assets
$
734,424

 
$
975,249

 
$
528,018

 
$
(1,215,622
)
 
$
1,022,069

LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Short-term borrowings
$
813

 
$
—

 
$
—

 
$
—

 
$
813

Accounts payable and accrued liabilities
28,511

 
33,344

 
135,050

 
—

 
196,905

Income taxes payable
—

 
89

 
3,752

 
—

 
3,841

Deferred income taxes
331

 
—

 
14

 
134

 
479

Current portion of long-term debt
107

 
—

 
19,370

 
—

 
19,477

Total current liabilities
29,762

 
33,433

 
158,186

 
134

 
221,515

Long-term debt
560,043

 
—

 
19,356

 
—

 
579,399

Deferred income taxes
273

 
9,149

 
24,506

 
(747
)
 
33,181

Other noncurrent liabilities
5,144

 
15,540

 
28,088

 
—

 
48,772

Total liabilities
595,222

 
58,122

 
230,136

 
(613
)
 
882,867

Common stock
—

 
—

 
36,083

 
(36,083
)
 
—

Other shareholders’ equity
139,202

 
917,127

 
261,799

 
(1,178,926
)
 
139,202

Total shareholders' equity
139,202

 
917,127

 
297,882

 
(1,215,009
)
 
139,202

Total liabilities and shareholders' equity
$
734,424

 
$
975,249

 
$
528,018

 
$
(1,215,622
)
 
$
1,022,069


 










103


Successor Condensed Consolidating Statement of Operations
For the Fiscal Year Ended December 28, 2013
 
In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
392,212

 
$
844,997

 
$
(22,347
)
 
$
1,214,862

Cost of goods sold
(103
)
 
(334,032
)
 
(706,668
)
 
22,347

 
(1,018,456
)
Gross profit
(103
)
 
58,180

 
138,329

 
—

 
196,406

Selling, general and administrative expenses
(44,835
)
 
(28,968
)
 
(79,609
)
 
—

 
(153,412
)
Special charges, net
(22,080
)
 
(1,381
)
 
(9,727
)
 
—

 
(33,188
)
Other operating, net
34

 
(442
)
 
(2,104
)
 
—

 
(2,512
)
Operating income (loss)
(66,984
)
 
27,389

 
46,889

 
—

 
7,294

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(51,558
)
 
14,655

 
(19,071
)
 
—

 
(55,974
)
Intercompany royalty and technical service fees
20,405

 
(4,445
)
 
(15,960
)
 
—

 
—

Foreign currency and other, net
(2,959
)
 
(246
)
 
(8,980
)
 
—

 
(12,185
)
Equity in earnings of subsidiaries
50,968

 
(1,179
)
 
—

 
(49,789
)
 
—

Income (loss) before income taxes
(50,128
)
 
36,174

 
2,878

 
(49,789
)
 
(60,865
)
Income tax (provision) benefit
11,890

 
14,745

 
(4,042
)
 
—

 
22,593

Net income (loss)
(38,238
)
 
50,919

 
(1,164
)
 
(49,789
)
 
(38,272
)
Less: Earnings attributable to noncontrolling interests
—

 
—

 
(34
)
 
—

 
(34
)
Net income (loss) attributable to Polymer Group, Inc.
$
(38,238
)
 
$
50,919

 
$
(1,130
)
 
$
(49,789
)
 
$
(38,238
)
Comprehensive income (loss)
$
(31,575
)
 
$
61,378

 
$
(810
)
 
$
(60,568
)
 
$
(31,575
)

Successor Condensed Consolidating Statement of Operations
For the Fiscal Year Ended December 29, 2012
 
In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
367,548

 
$
808,134

 
$
(20,519
)
 
$
1,155,163

Cost of goods sold
131

 
(319,537
)
 
(659,030
)
 
20,519

 
(957,917
)
Gross profit
131

 
48,011

 
149,104

 
—

 
197,246

Selling, general and administrative expenses
(40,053
)
 
(24,190
)
 
(76,533
)
 
—

 
(140,776
)
Special charges, net
(8,515
)
 
(2,305
)
 
(8,772
)
 
—

 
(19,592
)
Other operating, net
5

 
264

 
18

 
—

 
287

Operating income (loss)
(48,432
)
 
21,780

 
63,817

 
—

 
37,165

Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(52,090
)
 
21,192

 
(19,516
)
 
—

 
(50,414
)
Intercompany royalty and technical service fees
17,097

 
(4,132
)
 
(12,965
)
 
—

 
—

Foreign currency and other, net
18,938

 
(18,901
)
 
(5,171
)
 
—

 
(5,134
)
Equity in earnings of subsidiaries
32,077

 
19,260

 
—

 
(51,337
)
 
—

Income (loss) before income taxes
(32,410
)
 
39,199

 
26,165

 
(51,337
)
 
(18,383
)
Income tax (provision) benefit
6,372

 
(5,886
)
 
(8,141
)
 
—

 
(7,655
)
Net income (loss)
(26,038
)
 
33,313

 
18,024

 
(51,337
)
 
(26,038
)
Comprehensive income (loss)
$
(43,678
)
 
$
17,536

 
$
481

 
$
(18,017
)
 
$
(43,678
)


104






Successor Condensed Consolidating Statement of Operations
For the Eleven Months Ended December 31, 2011

In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
338,009

 
$
777,759

 
$
(12,839
)
 
$
1,102,929

Cost of goods sold
(70
)
 
(296,226
)
 
(649,066
)
 
12,839

 
(932,523
)
Gross profit
(70
)
 
41,783

 
128,693

 
—

 
170,406

Selling, general and administrative expenses
(35,025
)
 
(23,943
)
 
(75,515
)
 
—

 
(134,483
)
Special charges, net
(29,316
)
 
(3,102
)
 
(8,927
)
 
—

 
(41,345
)
Other operating, net
(696
)
 
360

 
(2,298
)
 
—

 
(2,634
)
Operating income (loss)
(65,107
)
 
15,098

 
41,953

 
—

 
(8,056
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(38,240
)
 
16,206

 
(24,375
)
 
—

 
(46,409
)
Intercompany royalty and technical service fees
6,543

 
7,845

 
(14,388
)
 
—

 
—

Foreign currency and other, net
(15,478
)
 
(718
)
 
(2,440
)
 
—

 
(18,636
)
Equity in earnings of subsidiaries
20,939

 
(19,608
)
 
—

 
(1,331
)
 
—

Income (loss) before income taxes
(91,343
)
 
18,823

 
750

 
(1,331
)
 
(73,101
)
Income tax (provision) benefit
15,172

 
1,868

 
(13,768
)
 
—

 
3,272

Income (loss) from continuing operations
(76,171
)
 
20,691

 
(13,018
)
 
(1,331
)
 
(69,829
)
Discontinued operations, net of tax
—

 
—

 
(6,283
)
 
—

 
(6,283
)
Net income (loss)
(76,171
)
 
20,691

 
(19,301
)
 
(1,331
)
 
(76,112
)
Less: Earnings attributable to noncontrolling interests
—

 
—

 
59

 
—

 
59

Net income (loss) attributable to PGI
$
(76,171
)
 
$
20,691

 
$
(19,360
)
 
$
(1,331
)
 
$
(76,171
)
Comprehensive income (loss)
$
(73,300
)
 
$
53,290

 
$
(3,081
)
 
$
(50,271
)
 
$
(73,362
)


105

Predecessor Condensed Consolidating Statement of Operations
For the One Month Ended January 28, 2011

In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
27,052

 
$
58,887

 
$
(1,333
)
 
$
84,606

Cost of goods sold
24

 
(22,587
)
 
(47,301
)
 
1,333

 
(68,531
)
Gross profit
24

 
4,465

 
11,586

 
—

 
16,075

Selling, general and administrative expenses
(3,620
)
 
(1,873
)
 
(6,071
)
 
—

 
(11,564
)
Special charges, net
(18,944
)
 
(170
)
 
(1,710
)
 
—

 
(20,824
)
Other operating, net
1

 
42

 
521

 
—

 
564

Operating income (loss)
(22,539
)
 
2,464

 
4,326

 
—

 
(15,749
)
Other income (expense):
 
 
 
 
 
 
 
 
 
Interest expense
(1,859
)
 
1,176

 
(1,239
)
 
—

 
(1,922
)
Intercompany royalty and technical service fees
546

 
683

 
(1,229
)
 
—

 
—

Foreign currency and other, net
(28
)
 
(85
)
 
31

 
—

 
(82
)
Equity in earnings of subsidiaries
5,198

 
1,672

 
—

 
(6,870
)
 
—

Income (loss) before income taxes
(18,682
)
 
5,910

 
1,889

 
(6,870
)
 
(17,753
)
Income tax (provision) benefit
479

 
(706
)
 
(322
)
 
—

 
(549
)
Income (loss) from continuing operations
(18,203
)
 
5,204

 
1,567

 
(6,870
)
 
(18,302
)
Discontinued operations, net of tax
—

 
—

 
182

 
—

 
182

Net income (loss)
(18,203
)
 
5,204

 
1,749

 
(6,870
)
 
(18,120
)
Less: Earnings attributable to noncontrolling interests
—

 
—

 
83

 
—

 
83

Net income (loss) attributable to PGI
$
(18,203
)
 
$
5,204

 
$
1,666

 
$
(6,870
)
 
$
(18,203
)
Comprehensive income (loss)
$
(15,175
)
 
$
8,014

 
$
2,024

 
$
(10,038
)
 
$
(15,175
)



106


Successor Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended December 28, 2013
 
In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
(97,500
)
 
$
64,440

 
$
49,910

 
$
—

 
$
16,850

Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
(1,356
)
 
(9,841
)
 
(43,445
)
 
—

 
(54,642
)
Proceeds from the sale of assets
—

 
—

 
435

 
—

 
435

Acquisition of intangibles and other
(356
)
 
—

 
(4,226
)
 
—

 
(4,582
)
Acquisitions, net of cash acquired
(278,970
)
 
—

 
—

 
—

 
(278,970
)
Intercompany investing activities, net
(12,783
)
 
(81,373
)
 
(15,000
)
 
109,156

 
—

Net cash provided by (used in) investing activities
(293,465
)
 
(91,214
)
 
(62,236
)
 
109,156

 
(337,759
)
Financing activities:
 
 
 
 
 
 
 
 
 
Issuance of common stock
30,504

 
—

 
—

 
—

 
30,504

Proceeds from long-term borrowings
612,602

 
—

 
17,397

 
—

 
629,999

Proceeds from short-term borrowings
2,216

 
—

 
1,871

 
—

 
4,087

Repayment of long-term borrowings
(318,154
)
 
—

 
(19,525
)
 
—

 
(337,679
)
Repayment of short-term borrowings
(2,619
)
 
—

 
—

 
—

 
(2,619
)
Loan acquisition costs
(16,102
)
 
—

 
—

 
—

 
(16,102
)
Intercompany financing activities, net
84,100

 
11,592

 
13,464

 
(109,156
)
 
—

Net cash provided by (used in) financing activities
392,547

 
11,592

 
13,207

 
(109,156
)
 
308,190

Effect of exchange rate changes on cash
—

 
—

 
904

 
—

 
904

Net change in cash and cash equivalents
1,582

 
(15,182
)
 
1,785

 
—

 
(11,815
)
Cash and cash equivalents at beginning of period
486

 
28,285

 
69,108

 
—

 
97,879

Cash and cash equivalents at end of period
$
2,068

 
$
13,103

 
$
70,893

 
$
—

 
$
86,064


107


Successor Condensed Consolidating Statement of Cash Flows
For the Fiscal Year Ended December 29, 2012
 
In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
(81,186
)
 
$
77,313

 
$
79,344

 
$
—

 
$
75,471

Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
(26,043
)
 
(4,021
)
 
(21,561
)
 
—

 
(51,625
)
Proceeds from the sale of assets
—

 
1,646

 
14

 
—

 
1,660

Acquisition of intangibles and other
(268
)
 
—

 
—

 
—

 
(268
)
Intercompany investing activities, net
57,118

 
(37,797
)
 
(25,218
)
 
5,897

 
—

Net cash provided by (used in) investing activities
30,807

 
(40,172
)
 
(46,765
)
 
5,897

 
(50,233
)
Financing activities:
 
 
 
 
 
 
 
 
 
Issuance of common stock
1,087

 
—

 
—

 
—

 
1,087

Proceeds from long-term borrowings
—

 
—

 
10,977

 
—

 
10,977

Proceeds from short-term borrowings
2,725

 
—

 
3,000

 
—

 
5,725

Repayment of long-term borrowings
(107
)
 
—

 
(7,571
)
 
—

 
(7,678
)
Repayment of short-term borrowings
(1,933
)
 
—

 
(8,000
)
 
—

 
(9,933
)
Loan acquisition costs
(220
)
 
—

 
—

 
—

 
(220
)
Intercompany financing activities, net
46,178

 
(23,430
)
 
(16,851
)
 
(5,897
)
 
—

Net cash provided by (used in) financing activities
47,730

 
(23,430
)
 
(18,445
)
 
(5,897
)
 
(42
)
Effect of exchange rate changes on cash
—

 
—

 
(59
)
 
—

 
(59
)
Net change in cash and cash equivalents
(2,649
)
 
13,711

 
14,075

 
—

 
25,137

Cash and cash equivalents at beginning of period
3,135

 
14,574

 
55,033

 
—

 
72,742

Cash and cash equivalents at end of period
$
486

 
$
28,285

 
$
69,108

 
$
—

 
$
97,879


108


Successor Condensed Consolidating Statement of Cash Flows
For the Eleven Months Ended December 31, 2011

In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net cash provided by (used in) operating activities
$
(39,211
)
 
$
27,013

 
$
36,315

 
$
—

 
$
24,117

Investing activities:
 
 
 
 
 
 
 
 
 
Acquisition of Polymer Group, Inc.
(403,496
)
 
—

 
—

 
—

 
(403,496
)
Purchases of property, plant and equipment
(21,599
)
 
(11,183
)
 
(35,646
)
 
—

 
(68,428
)
Proceeds from the sale of assets
—

 
85

 
11,310

 
—

 
11,395

Acquisition of noncontrolling interest
—

 
—

 
(7,246
)
 
—

 
(7,246
)
Acquisition of intangibles and other
(177
)
 
—

 
(16
)
 
—

 
(193
)
Intercompany investing activities, net
3,519

 
15,434

 
(20,572
)
 
1,619

 
—

Net cash provided by (used in) investing activities
(421,753
)
 
4,336

 
(52,170
)
 
1,619

 
(467,968
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from Issuance of Senior Notes
560,000

 
—

 
—

 
—

 
560,000

Issuance of common stock
259,807

 
—

 
—

 
—

 
259,807

Proceeds from long-term borrowings
—

 
—

 
10,281

 
—

 
10,281

Proceeds from short-term borrowings
—

 
—

 
8,245

 
—

 
8,245

Repayment of Term Loan
(286,470
)
 
—

 
—

 
—

 
(286,470
)
Repayment of long-term borrowings
(31,541
)
 
—

 
(19,504
)
 
—

 
(51,045
)
Repayment of short-term borrowings
(631
)
 
—

 
(35,825
)
 
—

 
(36,456
)
Loan acquisition costs
(19,252
)
 
—

 
—

 
—

 
(19,252
)
Intercompany financing activities, net
(17,856
)
 
(19,985
)
 
39,460

 
(1,619
)
 
—

Net cash provided by (used in) financing activities
464,057

 
(19,985
)
 
2,657

 
(1,619
)
 
445,110

Effect of exchange rate changes on cash
—

 
—

 
712

 
—

 
712

Net change in cash and cash equivalents
3,093

 
11,364

 
(12,486
)
 
—

 
1,971

Cash and cash equivalents at beginning of period
42

 
3,210

 
67,519

 
—

 
70,771

Cash and cash equivalents at end of period
$
3,135

 
$
14,574

 
$
55,033

 
$
—

 
$
72,742


109


Predecessor Condensed Consolidating Statement of Cash Flows
For the One Month Ended January 28, 2011

In thousands
PGI
(Issuer)
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Net cash (used in) provided by operating activities
$
(40,725
)
 
$
6,886

 
$
8,569

 
$
—

 
$
(25,270
)
Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of property, plant and equipment
(28
)
 
(5,652
)
 
(2,725
)
 
—

 
(8,405
)
Proceeds from the sale of assets
—

 
65

 
40

 
—

 
105

Acquisition of intangibles and other
(5
)
 
—

 
—

 
—

 
(5
)
Intercompany investing activities, net
2,805

 
(5,250
)
 
(4,000
)
 
6,445

 
—

Net cash provided by (used in) investing activities
2,772

 
(10,837
)
 
(6,685
)
 
6,445

 
(8,305
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from long-term borrowings
31,500

 
—

 
—

 
—

 
31,500

Proceeds from short-term borrowings
631

 
—

 
—

 
—

 
631

Repayment of long-term borrowings
—

 
—

 
(24
)
 
—

 
(24
)
Repayment of short-term borrowings
—

 
—

 
(665
)
 
—

 
(665
)
Intercompany financing activities, net
5,250

 
2,872

 
(1,677
)
 
(6,445
)
 
—

Net cash provided by (used in) financing activities
37,381

 
2,872

 
(2,366
)
 
(6,445
)
 
31,442

Effect of exchange rate changes on cash
—

 
—

 
549

 
—

 
549

Net change in cash and cash equivalents
(572
)
 
(1,079
)
 
67

 
—

 
(1,584
)
Cash and cash equivalents at beginning of period
614

 
4,289

 
67,452

 
—

 
72,355

Cash and cash equivalents at end of period
$
42

 
$
3,210

 
$
67,519

 
$
—

 
$
70,771


110

Note 28.  Subsequent Event
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 will acquire a 71% controlling interest in Providência (the “Potential Acquisition”). Following the closing of the Potential Acquisition, pursuant to Brazilian Corporation Law and Providência’s Bylaws, PGI Acquisition Company will be required to launch a tender offer on substantially the same terms and conditions of the Stock Purchase Agreement to acquire the remaining outstanding capital stock of Providência from the minority shareholders (the “Mandatory Tender Offer”). The Company expects to fund the Potential Acquisition and the Mandatory Tender Offer with new secured and/or unsecured debt. The Company has obtained approximately $570.0 million of financing commitments from lenders in connection with the Potential Acquisition. Completion of the transaction is subject to customary closing conditions, including approval of the Potential Acquisition by antitrust authorities. Providência is a leading manufacturer of nonwovens primarily used in hygiene applications as well as industrial and healthcare applications. Based in Brazil, Providência has four locations, including one in the United States.
On March 7, 2014, the Board of Directors of Polymer Group, Inc. (the “Company”) announced its intention for the Company to exit the European roofing business in an effort to optimize the Company’s portfolio. The Company will comply with all legal obligations associated with this expressed intention. The plan could include (1) the possible shutdown of two manufacturing lines at the Company’s Berlin, Germany manufacturing facility; (2) the possible closure of the Company’s manufacturing facilities in Aschersleben, Germany with the consolidation of its converting activities to Berlin and (3) possible workforce reductions at both facilities. The Company expects that the restructuring will be substantially complete by the end of 2014, subject to compliance with its legal obligations and any associated impacts on timing.
Total cash restructuring costs for the exit plan (including both facilities) are expected to be within the range of €5.2 million to €6.5 million. Of the total cash charge, approximately €5.0 million to €6.0 million is related to employee-related expenses, including termination expenses, site closure costs and advisory fees. The remaining charges of€0.2 million to €0.5 million are related to equipment relocation, startup and other costs. These estimates are subject to a number of assumptions (including the number of employees accepting severance packages and the specific timing of the implementation of the exit plan). Actual results may differ from expected results.



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING STANDARDS AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in Securities and Exchange Commission reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management including our Chief Executive Officer and the Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures, as such item is defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective, as of the end of the period covered by this report, in ensuring that material information required to be disclosed in reports that it files or submits under the Exchange Act, is recorded, processed, summarized and reported within the requisite time periods and is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company's internal control over financial reporting as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act during the most recent fiscal quarter of the fiscal year covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Company's assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company's management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management has assessed the effectiveness of the Company's internal control over financial reporting as of December 28, 2013. Our evaluation of internal control over financial reporting did not include the internal control over financial reporting of Fiberweb, which the Company acquired on November 15, 2013, as more fully described herein under "Business - Expansion and Optimization - Fiberweb Acquisition." The acquired business of Fiberweb is included in the Company's 2013 total consolidated financial statements and constituted approximately 30% of the Company's total assets as of December 28, 2013 and approximately 4% of net sales for the fiscal year then ended. In making this assessment, management used the criteria set forth in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on management's assessment and those criteria, management has concluded that the Company maintained effective internal control over financial reporting as of December 28, 2013.
ITEM 9B. OTHER INFORMATION

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On March 26, 2014, the Board of Directors of the Company approved the Polymer Group, Inc. 2014 Integration Incentive Compensation Plan (the “Plan”). The Plan was established to:
•
provide cash-based incentive compensation to certain key employees of the Company by directly linking financial rewards to achieving synergies in connection with the acquisition of Fiberweb plc and the specialty nonwoven products and materials business acquired by the Company in November 2013 (“Fiberweb”);
•
increase such key employees’ personal interest in achieving synergies among the Company’s operating units; and
•
enhance the Company’s ability to retain key employees who are integral to execution of integration activity, synergy attainment and overall performance of the Company.
The Compensation Committee of the Board (the “Committee”) will administer the Plan. This includes :
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selection of key employees as participants in the Plan;
•
determination of the cost saving, growth opportunities, and other efficiency goals related to the post-acquisition integration of Fiberweb (“Synergy Goals”) upon which awards under the Plan will be based and assessment of the extent to which they have been achieved (as described below);
•
determination of the applicable incentive percentage that will be multiplied by a participant’s base salary as in effect on March 18, 2014 to determine such participant’s potential award (the “Incentive Target Award”) (as described below);
•
interpretation of the Plan and any document or instrument issued under the Plan; and
•
establishment of rules and regulations for the Plan’s administration.
The potential awards under the Plan are as follows:
•
The Committee will evaluate the Company’s performance, on a run-rate basis, as of June 30, 2014 for the “Base Synergy Target” (a specific dollar value of Synergy Goals, as determined by the Committee in its sole discretion). If the Committee determines that the Base Synergy Target has been achieved on a run-rate basis, and the Company has achieved at least 95% of its consolidated EBITDA target for 2014 (as set by the Committee), then each eligible participant will receive a cash payment equal to 10% of his or her Incentive Target Award, anticipated to be paid in January 2015 subject to certain conditions.
•
The Committee will evaluate the Company’s actual performance as of June 30, 2015 for the Base Synergy Target. If the Committee determines that the Base Synergy Target has been achieved, and the Company has achieved at least 95% of its consolidated EBITDA target for 2014 (as set by the Committee), then each eligible participant will receive a cash payment equal to 30% of his or her Incentive Target Award, anticipated to be paid in July 2015 subject to certain conditions.
•
The Committee will evaluate the Company’s performance, on a run-rate basis, as of December 31, 2014 for the “Enhanced Synergy Target” (a specific dollar value of Synergy Goals, as determined by the Committee in its sole discretion). If the Committee determines that the Enhanced Synergy Target has been achieved on a run-rate basis, and the Company achieves at least 95% of its consolidated EBITDA target for 2014 (as set by the Committee), then each eligible participant will receive a cash payment equal to 15% of his or her Incentive Target Award, anticipated to be paid in January 2015 subject to certain conditions.
•
The Committee will evaluate the Company’s performance in the aggregate as of December 31, 2015 for the Enhanced Synergy Target. If the Committee determines that the Enhanced Synergy Target has been achieved, and the Company achieves at least 95% of its consolidated EBITDA target for 2015 (as set by the Committee), then each eligible participant will receive a cash payment equal to 45% of his or her Incentive Target Award, anticipated to be paid in January 2016 subject to certain conditions.
To receive payments, Participants must remain continuously employed with the Company through the applicable payment date. The Plan will terminate the day after the last incentive payments are made under the Plan, subject to the right of the Committee to earlier amend or terminate the Plan.


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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following table sets forth certain information regarding our directors and executive officers (age as of March 10, 2014):
Name
 
Age
 
Position
J. Joel Hackney, Jr.
 
45
 
President & Chief Executive Officer and Director
Dennis Norman
 
39
 
Executive Vice President & Chief Financial Officer
Mike S. Zafirovski
 
60
 
Director and Non-Executive Chairman
James S. Alder
 
65
 
Director
Jason Giordano
 
35
 
Director
Veronica Hagen
 
68
 
Director
Anjan Mukherjee
 
40
 
Director
Christine St.Clare
 
63
 
Director
Robert Dale
 
57
 
President, APAC & Global Hygiene
Jean-Marc Galvez
 
47
 
President, EMEA & Global Building and Geosynthetics
Scott Tracey
 
46
 
President, Americas & Global Wipes and Technical Specialties
Barry Murash
 
50
 
President, Global Operations & Business Excellence
Daniel Guerrero
 
49
 
Senior Vice President, Strategy & Business Development
Daniel L. Rikard
 
47
 
Senior Vice President, General Counsel, Secretary & Ethics Compliance Officer
Mary Tomasello
 
52
 
Senior Vice President, Global Human Resources & Employee Communications
J. Joel Hackney, Jr. has served as the President, Chief Executive Officer and Director of the Company since June 2013. Prior to joining the Company, Mr. Hackney served as the Senior Vice President and General Manager of Avaya Cloud Solutions since January 2013. Prior to that and since June 2010, he served as Avaya's Senior Vice President of Global Sales and Marketing and President of Field Operations. From December 2009 until June 2010, he was Avaya's Senior Vice President and President of Avaya Government and Data Solutions. Previously, he spend four years at Nortel Networks Corporation where, from September 2007 to December 2009, he served as the President of Nortel Enterprise Solutions and, from December 2005 to September 2007, he served as the Senior Vice President of Global Operations and Quality. Prior to this, Mr. Hackney was a member of the senior executive team within General Electric, where he had a 14-year career leading varied businesses and functions in the U.S. and Europe. He holds a B.S. degree in Business Administration from the University of North Carolina at Chapel Hill.
Dennis Norman was appointed Chief Financial Officer in December 2009. Prior to his current role as Chief Financial Officer, Mr. Norman served as Vice President, Strategy and Corporate Development with responsibilities for long-term planning, capital markets, mergers and acquisitions and investor relations. Mr. Norman joined the Company in November 1999 in investor relations and in 2001 he became Director of Investor Relations & Business Planning. In 2003, he was appointed as a member of the new global management team as Vice President, Strategic Planning and Communications. In 2008, his title changed to Vice President, Strategy & Corporate Development, reflecting a greater concentration on corporate strategy, development and capital markets activities. Prior to joining the Company, Mr. Norman was with First American Corporation, a regional financial services company, working in various roles in commercial banking then investor relations and strategic planning. Mr. Norman received a BA in both Business Administration and Accounting from Samford University in Birmingham, Alabama and an MBA from The Citadel.
Mike S. Zafirovski has served as a Director of the Company and non-executive Chairman of the Board since December 2012.  Mr. Zafirovski is the founder and president of The Zaf Group LLC, which he established in November 2012.  Since October 2011, Mr. Zafirovski has served as an Executive Advisor to The Blackstone Group, L.P.  Previously, he served as director, President and Chief Executive Officer of Nortel Networks Corporation from November 2005 to August 2009.  Prior to that, Mr. Zafirovski was director, President and Chief Operating Officer of Motorola, Inc. from July 2002 to January 2005, and remained a consultant to and a director of Motorola until May 2005. He served as Executive Vice President and President of the Personal Communications Sector (mobile devices) of Motorola from June 2000 to July 2002. Prior to joining Motorola, Mr. Zafirovski spent nearly 25 years with General Electric Company, where he served in management positions, including 13 years as President and Chief Executive Officer of five businesses in the industrial and financial services arenas, his most recent being President and Chief Executive Officer of GE Lighting from July 1999 to May 2000. Mr. Zafirovski also serves as Chairman of the Board of DJO Global, Inc. and on the boards of The Boeing Company, Stericycle, Inc., and Apria Healthcare Group, Inc.  Mr. Zafirovski received a BA in Mathematics from Edinboro University.

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James S. Alder has served as a Director of the Company since March 2011. Until his retirement in October 2011, Mr. Alder served as Senior Vice President, Operations and Technical of Celanese Corporation overseeing Celanese’s global manufacturing, supply chain, EHS, and technology operations, as well as the overall productivity efforts, including Six Sigma and operational excellence. Mr. Alder joined Celanese in 1974 and held various roles within Celanese in manufacturing, research and development, and business management. Mr. Alder has a BS in Chemical Engineering from the Massachusetts Institute of Technology.
Jason Giordano is a Managing Director in Blackstone’s Private Equity Group and has served as a Director of the Company since January 2011. Since joining Blackstone in 2006, Mr. Giordano has been involved in Blackstone’s investments in Pinnacle Foods, Birds Eye Foods, Wishbone, Crocs, Inc., Polymer Group and Achusnet (Titleist). Before joining Blackstone, Mr. Giordano was with Bain Capital where he evaluated and executed global private equity investments in a wide range of industries. Prior to that, he worked in investment banking at Goldman, Sachs, & Co. focused on Communications, Media and Entertainment clients. Mr. Giordano received an AB from Dartmouth College and an MBA from Harvard Business School. Mr. Giordano serves as a director of Pinnacle Foods and HealthMarkets.
Veronica Hagen has served as a Director of the Company since April 2007. From April 2007 until June 2013 she was Chief Executive Officer and was President between January 2011 and June 2013. Prior to joining the Company, Ms. Hagen served as the President and Chief Executive Officer of Sappi Fine Paper North America, a $1.4 billion division of the South African-based Sappi Limited, since November 2004. Prior to working for Sappi, Ms. Hagen served in various executive roles with Alcoa, Inc. since 1998, including Chief Customer Officer from 2003 to 2004 and President, Alcoa Engineered Products from 2001 to 2003. Ms. Hagen also serves as a director of Newmont Mining Corporation and Southern Company. Ms. Hagen holds a BS in International Relations from the University of Southern California and has participated in an Executive Education program in Finance from the Wharton School, University of Pennsylvania and an Executive Leadership program at Harvard University.
Anjan Mukherjee is a Senior Managing Director in Blackstone’s Private Equity Group and has served as a Director of the Company since January 2011. Since joining Blackstone in 2001, Mr. Mukherjee has been involved in Blackstone’s investments in Celanese, Freescale Semiconductor, Livewire, MegaBloks, Nycomed, Stiefel Laboratories and Emdeon. Prior to joining Blackstone, Mr. Mukherjee was with Thomas H. Lee Company where he was involved with the analysis and execution of private equity investments in a wide range of industries. Before that, Mr. Mukherjee worked in the Mergers & Acquisitions Department at Morgan Stanley & Co. Mr. Mukherjee received a BA from Harvard University and an MBA from Harvard Business School. He currently serves as a director of Teletech Holdings and Emdeon.
Christine St.Clare has served as a Director of the Company since February 2013.  Ms. St.Clare is the founder and president of St.Clare Advisors, LLC, a firm she founded after retiring from KPMG LLP in September 2010 following a 35-year career with the firm.  While at KPMG, Ms. St.Clare served a four-year term on the firm's Board of Directors from 1994 to 1998 and chaired the board's Audit and Finance Committee. As an Audit Partner from 1986 to 2004, she served as the engagement partner for some of KPMG's largest clients. She subsequently served as an Advisory Partner from 2004 to 2010 focusing on the Internal Audit, Risk and Compliance Practice. Concurrently, she was the Partner-in-Charge of the Southeast Consumer Markets practice. She currently serves as a director of Fibrocell Science, Inc.  Ms. St.Clare holds a BS in accounting from California State University, Long Beach.
Robert Dale was appointed President, APAC & Global Hygiene in January 2014. Mr. Dale is responsible for the strategic and operational management of our business in the Asia region and the Company’s global strategy and growth of our hygiene segment. Prior to his current role, since January 2013, Mr. Dale served as the Senior Vice President and General Manager of the Asia region. From April 2012 to January 2013, Mr. Dale served as Vice President & Global Segment Manager-Wipes & Filtration. From July 2007 to April 2012, Mr. Dale was our Senior Vice President, Research & Development. Mr. Dale has been a key employee of the Company since 1991, serving in a variety of commercial and operating roles. Prior to joining the Company, Mr. Dale held progressively more responsible positions in operations, process engineering, quality management and regulatory affairs at Johnson & Johnson, Kendall Health Care and Milliken. Mr. Dale is a graduate of the University of Georgia and received an MBA from Georgia Regents University.
Jean-Marc Galvez was appointed President, EMEA & Global Building and Geosynthetics in January 2014. Mr. Galvez is responsible for the strategic and operational management of our business in the EMEA region and the Company’s global strategy and growth of our building and geosynthetics segments. Prior to his current role, since April 2012, Mr. Galvez served as the Senior Vice President and General Manager of the EMEA region. Mr. Galvez joined the Company in July 2011 as the Vice President of Sales, Marketing and Development for the EMEA region. Prior to joining the Company, he was the Global Commercial General Manager at Merquinsa from May 2002 to July 2011. He has also held various commercial roles of increasing responsibility at Monsanto and Dow Chemical. Mr. Galvez holds a master's and bachelor's degree in chemical engineering from École Nationale Supérieure de Chimie of Montpellier, a PDG (general manager executive education) from IESE Business School, and has completed an executive finance course at Insead.

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Scott Tracey was appointed President, Americas & Global Wipes and Technical Specialties in January 2014. Mr. Tracey is responsible for the strategic and operational management of our business in the Americas region and the Company’s global strategy and growth of our wipes and technical specialties segments. Prior to his current role, since April 2012, Mr. Tracey served as the Senior Vice President and General Manager of our Americas region. From December 2009 to April 2012, Mr. Tracey served as the Senior Vice President and General Manager of the EMEA region. Mr. Tracey joined the Company in 2004 as Vice President, Sales and Marketing, Branded and has held various positions including U.S. Vice President of Sales, Marketing and Business Development. Prior to joining the Company, Mr. Tracey held multiple leadership positions at SOLO, Sweetheart Cup, Fonda Group and Anchor Packaging. Mr. Tracey received a BS in Marketing from Indiana University and an MBA from Georgia State University.
Barry Murash joined the Company in January 2014 as the President, Global Operations & Business Excellence. In this role, Mr. Murash assumed leadership of the Company’s global supply chain, business excellence, employee health and safety, capital engineering and regional manufacturing functions. Prior to joining the Company, since January 2013, Mr. Murash was the Corporate Vice President, Global Fulfillment for Applied Materials where he was responsible for procurement, logistics, service parts distribution and order management, leading an organization of over 650 employees. While at Applied Materials, Mr. Murash also served as Vice President, Global Sourcing from May 2012 to January 2013 and Vice President, Services Product Operations from November 2010 to May 2012. Prior to that, he served as Vice President, Global Operations for Avaya from November 2009 to November 2010. Prior to Avaya, and since 1987, Mr. Murash held several roles of increasing responsibility with Nortel. Mr. Murash holds a BA and an MBA from the University of Manitoba and is a Certified Management Accountant.
Daniel Guerrero was appointed Senior Vice President, Strategy & Business Development in January 2014. Mr. Guerrero is responsible for strategic planning, marketing, research & development, and business development, including pricing strategy. Prior to his current role, since July 2013, Mr. Guerrero served as the Senior Vice President, Global Supply Chain and from April 2012 to July 2013, as Vice President, Procurement & Process Excellence within the Global Supply Chain function. Previously, since November 2011, he was Senior Vice President, Global Operations and Business Excellence, and from November 2009 to November 2011, was Senior Vice President and General Manager for the U.S. Region. Mr. Guerrero joined the Company in 1999 as part of the leadership team at our Colombia manufacturing facility and over the course of his career has held various roles in finance, administration, sales and marketing, operations, and supply chain. Mr. Guerrero holds a BS in Business Administration and a Masters in Finance from the ICESI University.
Daniel L. Rikard has served as the Company’s General Counsel and Secretary since December 2004, when he joined the Company. He joined the Company as Vice President and, since February 2010, has served as Senior Vice President. Mr. Rikard is responsible for the legal affairs of the Company. Mr. Rikard also serves as the Ethics Compliance Officer and has done so since June 2012 and at various times previously. Prior to joining the Company, he was the Vice President and General Counsel for Cendian Corporation, a strategic venture of Eastman Chemical Company. Previously, he held various roles of increasing responsibility as in-house counsel for GTE Wireless, BWAY Corporation, and McKesson Corporation. Mr. Rikard began his career as a litigation attorney with the law firm of Alston & Bird. Mr. Rikard holds a BA in Economics from Davidson College and a law degree from the University of Pennsylvania.
Mary Tomasello has served as the Company’s Senior Vice President, Global Human Resources and Employee Communications leader since March 2011. She joined the company in January 2008 as Vice President, Global Human Resources with responsibilities for strategically aligning and integrating the organizational human system with the business objectives. From December 2009 to March 2011, Ms. Tomasello was also responsible for the Information Technology function. Prior to joining the Company, Ms. Tomasello served in human resource leadership and sales management roles in a variety of companies, including Alcoa, Sappi Fine Paper, National Semiconductor, Hechinger Company, Equibank, and Hanover Brands. Ms. Tomasello received a Doctorate of Education and Human Development from George Washington University with an emphasis on organization and leadership effectiveness, a Master of Science in Human Resource Management from LaRoche College, and a Bachelor of Science in Business from Robert Morris University. 
Governance Matters
Background and Experience of Directors and Executive Officers
When considering whether directors and nominees have the experience, qualifications, attributes or skills, taken as a whole, to enable our Board of Directors to satisfy its oversight responsibilities effectively in light of the Company's business and structure, our Board of Directors focuses primarily on each person’s background and experience as reflected in the information discussed in each of the directors’ individual biographies set forth immediately above. We believe that our directors provide an appropriate mix of experience and skills relevant to the size and nature of the Company's business. In particular, the members of our Board of Directors considered the following important characteristics of our directors: (i) Messrs. Mukherjee, Giordano and Zafirovski have significant financial and investment experience from their involvement in The Blackstone Group’s investment in numerous

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portfolio companies and have played active roles in overseeing those businesses, (ii) Ms. Hagen, our Director and former Chief Executive Officer and President, has extensive experience in leading corporations in the manufacturing sector, including her knowledge and skills in senior management and operations of the Company, among other attributes, (iii) Mr. Alder has extensive knowledge in capital intensive global manufacturing businesses, as well as manufacturing, technology and executive leadership experience; (iv) Mr. Hackney brings financial and executive leadership in a diverse range of businesses; and (v) Ms. St.Clare has expertise in the areas of accounting, audit, governance, risk and compliance matters.
In recommending directors, our Board of Directors consider the specific background and experience of the individual as well as other personal attributes in an effort to provide a diverse mix of capabilities, contributions and viewpoints which the Board of Directors believe enables it to function effectively for a company with our size and nature of business. The Company does not have a policy with respect to procedures by which security holders may recommend nominees to our Board of Directors due to the current ownership of the Company.
Board Committees
Prior to fiscal 2013, the Board of Directors had not established any committees. The full Board of Directors acted on all matters, including those typically delegated to a committee. With the appointment of Ms. St.Clare on February 20, 2013, the Board of Directors established an audit committee and a compensation committee. The audit committee is comprised of Ms. St.Clare, as chair, and includes Messrs. Giordano and Alder as members. The compensation committee is comprised of Mr. Alder, as chair, and includes Messrs. Mukherjee and Zafirovski as members.
Code of Conduct
We have a Code of Conduct that applies to all officers and employees, including our principal executive officer, principal financial officer, principal accounting officer, and other key financial and accounting officers. The Code of Conduct can be found on the Investors Relations page of our publicly available website (www.polymergroupinc.com). We plan to post any amendments to the Code of Conduct, or waivers applicable to our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions, on our website. Information contained in the Company's website is not part of or incorporated by reference into this Annual Report on Form 10-K.

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ITEM 11. EXECUTIVE COMPENSATION
Introduction
On January 28, 2011, pursuant to an Agreement and Plan of Merger dated as of October 4, 2010, Scorpio Merger Sub Corporation, merged with and into Polymer Group Inc. (the "Merger"), with Polymer Group, Inc. being the surviving corporation of the Merger. As a result, Polymer Group, Inc. (the "Company") became a direct, wholly-owned subsidiary of Scorpio Acquisition Corporation and an indirect wholly-owned subsidiary of Scorpio Holdings Corporation, substantially all of whose outstanding capital stock is owned by investment entities affiliated with the Blackstone Group ("Blackstone").
Impact of the Merger on Executive Compensation
Prior to the Merger, the Company maintained the 2003 Stock Option Plan (the “2003 Option Plan”), the 2005 Employee Restricted Stock Plan (the “2005 Stock Plan”), and the 2008 Long-Term Stock Incentive Plan (the “2008 Stock Plan”). Each of these plans were approved by the stockholders (both at inception and as each may have been amended and restated) and were administered by the prior Compensation Committee. Prior to the Merger, we also maintained the 2004 Restricted Stock Plan for Directors (the “2004 Restricted Plan”). Through the 2004 Restricted Plan, we granted equity awards to directors, including employee-directors. This plan was approved by our stockholders (at inception and as amended) and was administered by the prior Restricted Stock Committee. In connection with the Merger, the 2003 Option Plan, the 2004 Restricted Plan, the 2005 Stock Plan and the 2008 Stock Plan were terminated and all outstanding equity awards under those plans were cashed out. In addition, the prior employment agreement with Ms. Hagen and the prior severance agreements with Messrs. Hale and Norman were terminated upon the closing of the Merger.
Following the Merger and continuing through fiscal 2012, executive compensation and related decisions have been made by the Board of Directors as the Company did not have a compensation committee during this time. A compensation committee was only recently formed on February 20, 2013 following the appointment of Christine St.Clare as a member of the Board of Directors. In addition, we also adopted a new cash-based long-term incentive plan following the Merger that grants cash incentive awards to our senior managers in lieu of awarding annual equity awards as we had done prior to the Merger. This plan, however, does not affect the compensation of any of our executive officers, as they are not participants under the plan.
Other than as described above, we did not take any other actions relating to executive compensation in connection with the Merger. We continue to compensate our senior management, including our named executive officers, on a basis similar to immediately prior to the Merger, except that, in light of our status as a private company, we adopted less broad-based equity incentive arrangements for our senior executives and do not intend to continue the prior practice of granting equity awards on an annual basis.
Compensation Committee Report
The Compensation Committee has reviewed this Compensation Discussion & Analysis (CD&A) and has discussed it with management. Based on this review and discussion, we approved the inclusion of this CD&A in the Company's Annual Report on Form 10-K for fiscal 2013.
Submitted by the Compensation Committee:

James S. Alder (Chair)
Anjan Mukherjee
Mike S. Zafirovski


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Compensation Discussion and Analysis
This section provides an analysis of our compensation program and policies, the material compensation decisions made under those programs and policies, and the material factors considered in making those decisions. This section also includes a series of tables containing specific information about the compensation earned in fiscal 2013 by the following individuals, referred to as our named executive officers:
•
J. Joel Hackney, Jr., President and Chief Executive Officer;
•
Veronica M. Hagen, Former President and Chief Executive Officer;
•
Dennis Norman, Executive Vice President and Chief Financial Officer;
•
Michael W. Hale, Former Senior Vice President and Advisor to Chief Executive Officer;
•
Michael Modak, Former Senior Vice President, Global Growth and Innovation Officer.
On June 18, 2013, Ms. Hagen announced her retirement as President and Chief Executive Officer of the Company. Ms. Hagen retired from her position as President and Chief Executive Officer effective June 19, 2013, and from employment with the Company on August 31, 2013. Simultaneously, we announced the appointment of Mr. Hackney as President and Chief Executive Officer. As a result of the CEO transition, Mr. Hale accepted the position of Senior Vice President and Advisor to the Chief Executive Officer July 1, 2013 and subsequently announced his planned retirement from the Company effective January 31, 2014. On December 5, 2013, the Company and Mr. Modak agreed that his employment with the Company would terminate on December 31, 2013.
The discussion below is intended to help you understand the detailed information provided in those tables and put that information into context within our overall compensation program.
Compensation Philosophy
Prior to February 20, 2013, the Company's Board of Directors had not established a separate Compensation Committee. As a result, the Board of Directors was responsible for establishing, approving and reviewing our employee and executive compensation strategy for fiscal 2011 and 2012. On February 20, 2013, the Board of Directors established a Compensation Committee which, for fiscal 2013, determined that our executive compensation program should be grounded in the following objectives:
•
provide an externally competitive and internally equitable base salary and other current compensation necessary to attract, retain and motivate highly qualified executives who possess the skills and talent required for our success;
•
compensate executives in recognition of new responsibilities or new positions and motivate each executive to perform at the highest level;
•
encourage executive performance to fulfill our annual and long-term business objectives and strategy by balancing short-term and long-term compensation; and
•
provide variable compensation opportunities based on our performance and align executive compensation with the interests of stockholders through long-term equity compensation programs.
To achieve these objectives, we implemented and maintain compensation plans and policies to ensure that executive compensation was fair, reasonable and competitive and rewarded our executives’ contributions to our overall short-term and long-term growth as follows:
•
short-term compensation elements, which include: base salary, cash payouts under annual incentive plans, and other annual compensation, including perquisites; and
•
long-term compensation elements, which include: recommendations for grants of stock options under the 2011 Scorpio Holdings Corporation Stock Incentive Plan, administered by Holdings (the “Holdings Plan”), that vest over a prescribed service period or upon the achievement of financial performance targets, and other benefits provided under retirement plans and termination agreements.
The compensation levels provided under these plans varied based on the relative management experience, leadership and performance of each executive officer. The Compensation Committee reviewed our compensation plans to ensure that pay levels and the elements of compensation were consistent with our compensation philosophy. The goals of our compensation plans and compensation policies were generally to create a meritocracy by considering individual performance and contribution in making compensation decisions and to invest in future potential in every aspect of compensation. Compensation structures were designed

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to deliver median compensation when median performance was achieved at the individual, operating unit, or corporate level. When superior performance was achieved, the compensation structures would deliver above median compensation.
Elements of Compensation
As described in greater detail below, each element of short-term and long-term compensation serves a different objective. Base salary provides a known amount of compensation on a regular basis for executive performance that is at an acceptable level. Base salary also reflects the executive officer’s position in the corporate hierarchy, which is primarily based on his or her scope of responsibility, relative value to the Company, and long-term potential. Merit-based increases to base salary are granted (typically within a range of 0 to 6%) to reflect the executive officer’s service and performance during the prior year. Base salary is normally not reduced. The Short Term Incentive Compensation Plan (the “Annual Incentive Plan”), when offered, provides payouts based on the achievement of our financial and operating performance objectives, which includes a modifier for significant personal performance. Equity awards under the Holdings Plan that contained performance or multi-year service vesting schedules are intended to motivate the executive officer to remain with us over the long term and provide performance that is aligned with stockholder interests.
In fiscal 2013, we did not, and generally we do not, use formalized benchmarking criteria or benchmark compensation to designated peer companies when determining compensation. Historically, material increases for executive officers’ compensation typically happened in three situations: when performance was so outstanding that the Compensation Committee or the Board of Directors, at the CEO’s recommendation, awarded a cash payout and/or special equity award; when market salary survey data indicated a disparity; or when there was an internal disparity in levels of executive compensation considering the executive officer’s relative responsibilities and experience.
Our compensation decisions are also influenced by the general status of global economic activity. In times of uncertain global economic activity, our short-term and long-term financial planning are impacted. This activity may cause us to be more conservative in our compensation decisions to manage employment stability and profitability in the face of uncertain economic conditions.
The following sections discuss in further detail the Company's current and long-term incentive compensation components as well as retirement and termination benefits.
2013 Compensation
Base Salary
Executive officer salary levels are designed to ensure that we attract the necessary executive talent in the marketplace and are negotiated at the time of initial employment or promotion. Base salaries are established based on a consideration of the following variables: the scope of individual responsibilities, relative value compared with our other executives, experience, such market factors as the general status of the U.S. and international labor market and economies, previous employer compensation, salary surveys and market intelligence available in relevant publications and from our compensation consultant resources, and the experiences of our Board of Directors and management.
Base salaries of employees, including named executive officers, are reviewed at least annually, typically during the first quarter. During this time, our Chief Executive Officer (the "CEO") conducts executive performance reviews by identifying accomplishments and areas of strength and development based on performance during the prior year. Our CEO then recommends salary adjustments to the Compensation Committee based on these performance reviews. Salary decisions for the CEO, in turn, are determined annually by the Compensation Committee after conducting a review of the CEO’s performance in the prior year. Merit-based salary changes, if available, are typically made early in the Company’s second quarter. For fiscal 2013, merit-based salary changes were reviewed and approved by the Board of Directors given the timing of establishing the Compensation Committee and were made in April 2013.
The CEO’s performance and salary adjustments are reflected in the terms of the Executive Employment Agreement between the Company and Mr. Hackney, which was entered into on June 12, 2013 by the Company and became effective June 19, 2013 (the “2013 CEO Agreement”). The 2013 CEO Agreement provided for an annual base salary of $850,000 beginning with the date of his employment. In lieu of Mr. Hackney's participation in the 2013 Annual Incentive Plan, he received a sign-on bonus in an amount equal to his annual base salary adjusted by the number of days employed during 2013, plus $150,000, payable within 30 days of the effective date of his employment.
The former CEO’s performance and salary adjustments are reflected in the terms of the Executive Employment Agreement between the Company and Ms. Hagen, which was entered into on October 4, 2010 by Parent, assumed by the Company and became effective upon the closing of the Merger (the “2011 CEO Agreement”). The 2011 CEO Agreement provided for an annual base

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salary of $800,000 beginning at the date of the Merger. Based on the merits of her personal performance in connection with her annual performance review, Ms. Hagen's current base salary was increased by 3.0% from $828,230 to $853,086 effective April 1, 2013.
On June 17, 2013, Ms. Hagen and the Company entered into a Retirement Agreement (the "Retirement Agreement") whereby she retired from the position of President and CEO effective June 19, 2013 and retired from the Company on August 31, 2013. Ms. Hagen continued to receive her current base compensation until the date of her retirement. In addition, Ms. Hagen is entitled to receive a cash severance amount of $2,559,000 payable in equal amounts during the subsequent 18-month period following the date of her retirement.
The Chief Financial Officer's (the "CFO") performance and salary adjustments are reflected in the terms of the Executive Employment Agreement between the Company and Mr. Norman, which was entered into upon the closing of the Merger (the “2011 CFO Agreement”). The 2011 CFO Agreement provided for an annual base salary of $325,000 beginning at the date of the Merger. Based on the merits of his personal performance in connection with his annual performance review, the CFO’s current base salary was increased by 3.0% from $349,830 to $360,334 effective April 1, 2013.
The Chief Operating Officer’s (the "COO") performance and salary adjustments are reflected in the terms of the Executive Employment Agreement between the Company and Mr. Hale, which was entered into upon the closing of the Merger (the “2011 COO Agreement”). The 2011 COO Agreement provided for an annual base salary of $415,000. Based on the merits of his personal performance in connection with his annual performance review, the COO’s base salary was increased by 4% from $415,000 to $431,600 effective April 2, 2011. In lieu of any adjustment to the COO's base salary in response to his annual performance review, the Company and Mr. Hale entered into an amendment to the 2011 COO Agreement on June 14, 2012 (the "2012 COO Amendment"). The 2012 COO Amendment changed Mr. Hale's title from Chief Operating Officer to Senior Vice President, Global Supply Chain Lead. In addition, the 2012 COO Amendment reduced Mr. Hale's annual base salary from $431,600 to $275,002 effective May 1, 2012. As a result of the transition of his responsibilities, the 2012 COO Amendment also provided for a monthly payment of $13,050 (the "Transition Compensation") for the period from May 1, 2012 to December 31, 2013 (the "Transition Period").
Based on the merits of his personal performance in connection with his annual performance review, Mr. Hale's combined base salary was increased by 3.0% from $446,706 to $460,096 effective April 1, 2013. On July 3, 2013, he accepted the position of Senior Vice President and Advisor to Chief Executive Officer. Other than the change in title and role, all of the terms and conditions of his 2012 COO Amendment remained as indicated except for certain modifications to his equity awards.
Michael Modak joined the Company in September 2012 as the Senior Vice President, Global Growth and Innovation Officer. Mr. Modak does not have an employment agreement with the Company. His starting annual base salary was $375,024. In addition, Mr. Modak was provided with a $50,000 cash payment at the start of his employment and received a second cash payment of $50,000 on January 31, 2013. Both payments are considered to be a sign-on bonus. Based on the merits of his personal performance in connection with his annual performance review, Mr. Modak's current base salary was increased by 3.0% from $375,024 to $386,282 effective April 1, 2013.
On December 5, 2013, the Company and Mr. Modak agreed that his employment with the Company would terminate on December 31, 2013. In accordance with terms of his Separation Agreement, Mr. Modak is entitled to receive a severance payment that will consist of an amount equal to the sum of (i) twelve times his monthly base salary at the rate in effect at the time of a notice of termination and (ii) an amount equal to his annual target bonus for the year which includes the separation date. Severance amounts are payable in equal amounts during the subsequent 12-month period following the date of termination.
Payouts under the Annual Incentive Plan
Our Annual Incentive Plan is designed to reward our employees, including our executive officers, for achieving our annual financial and operating goals that are critical to our success and that are aligned with the interests of our stockholders. At the beginning of each fiscal year, the Board of Directors, working with management, sets annual goals. These goals influence performance-based compensation under our Annual Incentive Plan, which, if approved for a given year, is typically finalized in April.
During 2013, the Board of Directors established an Annual Incentive Plan (the “2013 AIP”) and provided cash bonus opportunities under the 2013 AIP targeted at 100% of annual base salary earned for the CEO and 55% of annual base salary for the CFO, with each having a maximum bonus opportunity equal to 200% of their target. We provided our Ms. Hagen a higher bonus potential due to her leadership role in the Company and in compliance with her employment agreement.
However, as a result of the retirement of Ms. Hagen as President and CEO and her related Retirement Agreement, she is entitled to receive her 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company. The award is subject to the terms of the 2011 Employment Agreement as if she continued to participate as an executive in the

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2013 AIP through the payment date. In addition, Ms. Hagen is entitled to receive a lump sum amount of $266,656, payable no later than March 15, 2014, for her continued service as a member of the Board of Directors. Furthermore, in lieu of Mr. Hackney's participation in the 2013 AIP, he is entitled to receive a sign-on bonus in an amount equal to his annual base salary adjusted by the number of days employed during 2013, plus $150,000, payable within 30 days of the effective date of his his employment.
For Mr. Hale, the 2012 COO Amendment modified his bonus opportunity. Mr. Hale's annual target bonus for his base compensation was lowered from 55% to 40% of his base compensation earned, with a maximum bonus opportunity equal to 80% of his base compensation. Under the 2013 AIP, Mr. Hale's maximum base compensation bonus opportunity equaled 200% of the target. As a result of the transition of his responsibilities, the 2012 COO Amendment also provided for a transition bonus opportunity equal to the sum of (1) a target of 15% up to a maximum of 30% of his base compensation earned, and (2) a target of 55% up to a maximum of 110% of the Transition Compensation earned for each fiscal year or portion thereof during the Transition Period (the "Transition Support Bonus"). Under the 2013 AIP, Mr Hale's maximum Transition Support Bonus opportunity equaled 200% of the target.
Mr. Modak was eligible to participate in our 2013 AIP with a target of 40% of annual base salary earned with a maximum bonus opportunity equal to 200% of his target. However, on December 5, 2013, the Company and Mr. Modak agreed that his employment with the Company would terminate on December 31, 2013. In accordance with the terms of his Separation Agreement, Mr. Modak is entitled to receive his 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company as if he continued to participate as an executive in the 2013 AIP through the payment date.
These bonus opportunities under the 2013 AIP for the executive officers were based upon achievement of a combination of three company-wide measures: consolidated EBITDA (weighted at 75.0%), operating working capital (weighted at 12.5%) and Company-wide safety performance, as measured by recordable incident rate (weighted at 12.5%). The definitions of these measures is as follows:
•
Consolidated EBITDA, which was defined substantially similarly to the definition of Management EBITDA shall mean net income attributable to Polymer Group, Inc. (“Net Income”), as disclosed in accordance with U.S. GAAP or IFRS as applicable: (a) increased by the sum of the following amounts, to the extent decreasing Net Income, without duplication: (i) provision for taxes based on income or profits or capital gains, including, without limitation, state, franchise and foreign withholding taxes; plus (ii) Consolidated Interest Expense as defined in the Credit Agreement; plus (iii) depreciation and amortization expense; plus (iv) non-cash charges relating to impairment of assets; plus (v) non-cash compensation expenses; plus (vi) restructuring and integration costs; plus (vii) management, monitoring and advisory fees (including termination fees) and related indemnities and expenses paid or accrued under the Sponsor Management Agreements; plus (viii) fees and expenses directly related to evaluation of potential acquisitions, mergers or consolidation; plus (ix) non-cash litigation charges to reserve for future liabilities; plus (x) factoring fees; plus (xi) lease expense associated with the GE Lease as defined in the Credit Agreement; (b) decreased by non-cash gains, to the extent increasing Net Income, without duplication, excluding reversals of an accrual or reserve for a potential cash item that previously reduced Net Income; (c) increased or decreased by, to the extent decreasing or increasing Net Income, without duplication: (i) net unrealized gains or losses (after any offset) resulting in such period from hedging obligations and the application of ASC 815 "Derivatives and Hedging"; (ii) net non-operating gains or losses attributable to currency translation and financing transactions; (iii) net gains or losses attributable to asset dispositions; (iv) increases or decreases resulting from adjustments to the tax indemnity asset; (v) increases or decreases resulting from the impact of purchase accounting adjustments; and (vi) other items included in special charges, net or other non-operating items included in other expense (income), as reported on the Company’s Consolidated Statements of Operations in public filings; (d) decreased by, to the extent increasing Net Income, without duplication, any net licensing profits earned by the Company related to its nanotechnology IP or related technologies; and (e) increased for the 2011 fiscal year only, to the extent decreasing Net Income, to account for the flood at the Cali, Columbia facility, the amount equal to the difference between $21.8 mm and the actual EBITDA of the Cali, Columbia facility for the 2011 fiscal year.
•
Operating working capital was defined as accounts receivable plus inventory less accounts payable and accrued liabilities. The target metric was calculated based on the average monthly ratio of operating working capital to annualized trailing three months sales.
•
The safety performance target was measured by recordable incident rate, which was derived from OIR (OSHA Incident Rate) and is calculated as follows: recordable injuries divided by number of hours worked multiplied by 200,000.
We believe evaluating management’s performance based on consolidated EBITDA and operating working capital motivated our executive officers and other key employees to focus on key aspects of stockholder value aligned with capital market value drivers and to work together to achieve the Company’s short- and long-term financial goals. Safety performance was included as a component of our annual incentive compensation program because we are committed to protecting safety and the personal well-

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being of our employees and the communities in which we operate, and we believe it to be an important indicator of the underlying health of our operations.
Under the 2013 AIP, the Board of Directors set a consolidated EBITDA target of $141.0 million, with a minimum threshold of $130.0 million and a maximum level of $155.0 million, and an operating working capital target of 10.0%, with a minimum threshold of 11.0% and maximum of 9.0%. The safety performance target was set at 0.95, with a minimum threshold of 1.05 and maximum of 0.85. No payment would be made under a particular performance measure if the minimum threshold level of achievement was not achieved, and no additional amount would be paid under a particular performance measure if greater than the maximum level of achievement was achieved for that measure. Bonus payments for actual results that fall between the threshold and maximum would be adjusted on a linear basis. The Company calculated the actual cash bonus independently for each component and added them together to determine the total annual cash bonus payout for each executive officer, which total amount was subject to adjustment by a personal performance modifier as described below. The payout percentage for the minimum threshold level of achievement for each of the targets equaled 50%, except for the EBITDA target, which had a payout percentage equal to 25% for the minimum threshold level of achievement.
Under the 2013 AIP, we also included a personal performance modifier to adjust individual incentive awards up or down to recognize individual performance or adjust for significant shortfalls in individual performance. The maximum potential upward adjustment was +50% of target based upon exceptional, “above and beyond” contributions, such as significant business impact (both financial/non-financial), results delivery, not just effort, embodiment of the Company’s core values, customer (internal/external) satisfaction, operational excellence and process improvement, and teamwork/leadership. The maximum potential downward adjustment was up to -100% of target based upon performance deficiencies (results or behaviors) or code of conduct violations. The decision to adjust payouts with a personal performance modifier was entirely discretionary and was not tied to a specific list of goals for any individual executives.
In 2013, we achieved consolidated EBITDA of $137.0 million (below the target); operating working capital of 9.0%  (outperforming the target); and a recordable incident rate of 1.33 (below the target).  The total bonus amount awarded before application of the personal performance modifier was below the targeted bonus for each of our named executive officers. Cash bonus payouts related to the achievement of our actual 2013 results are to be paid in April 2014.
Perquisites and other personal benefits
We provide certain executive officers with several perquisites and other personal benefits as additional compensation that the Board of Directors believe are reasonable and consistent with our overall compensation philosophy. We believe that perquisites should not comprise a significant component of compensation. These benefits are not paid through any formal compensation plan and are paid on a case-by-case basis. Benefits may vary among the executive officers based on business purpose. In certain instances, we may reimburse relocation expenses, pay relocation bonuses and provide tax gross-ups to executives who are required to move to another Company location due to promotions, reorganization or relocation of offices.
Please see footnote (4) to the “Summary Compensation Table” below for detail regarding the perquisites and other personal benefits received by our executive officers during fiscal 2013. Perquisites were paid in keeping with our compensation philosophy to enhance our ability to attract top-level management and to ensure the retention of key-impact executives.
Long-term Incentive Compensation
Upon consummation of the Merger, Holdings adopted the Holdings Plan, for our employees, directors, and certain other service providers and independent contractors. As part of our new equity-based arrangements with our employees, our management employees used cash proceeds from the sale of their common stock in the Company and the cashing out of all outstanding equity awards to purchase shares of Holdings. In addition, Holdings’ board of directors granted options to purchase shares of Holdings to those management employees who made the minimum required equity investment in Holdings. These arrangements were designed to more closely align our management’s interest with those of our shareholders and to incentivize our management employees to remain in our service by providing them with an opportunity to acquire equity interests in Holdings.
Of these initial options (and prior to the amendments discussed below), one third vest based on the passage of time, one third vest based on the achievement of certain annual performance goals established by Holdings, and one third vest based on the achievement of certain investment returns by Blackstone upon exiting its investment in the Company. The specific sizes of the option grants made to our named executive officers were determined based on the Board of Directors’ business judgment in light of the Blackstone's practices with respect to management equity programs at other private companies in its portfolio, the executive officer’s position and level of responsibilities within our company and the size of the executive officer’s equity investment in Holdings.

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During 2013, the Board of Directors reviewed the historical and projected financial performance of the Company in regard to the satisfaction of the performance-vested options. Under the current vesting conditions, a performance-based option would become vested if certain free cash flow targets are achieved in either a given fiscal year or based on cumulative targets over multiple fiscal years. As none of these targets have been achieved since the date of grant and, based on recent performance, are not expected to be satisfied in the next several years, the Holdings board of directors decided to modify the terms of the performance-vesting options. As a result, on August 30, 2013, vesting terms for all performance-based options were modified to vest on terms similar to existing exit-based options, substituting 15% for 20% as the required annual internal rate of return component. In addition, to align the vesting conditions between the amended performance-based options and the exit-based options, the vesting terms of the exit-based options were modified to reduce the required annual internal rate of return component from 20% to 15%.
In connection with Mr. Hackney's appointment as President and Chief Executive Officer, the Company granted Mr. Hackney Restricted Stock Units under the Holdings Plan. These shares represent a promise to deliver shares to the individual at a future date if certain vesting conditions are met. Under the Holdings Plan, Restricted Stock Units will become vested on the third anniversary of the date of grant and will be settled in shares of Holdings. Dividend equivalent shares will accrue if dividends are paid on Holdings common stock and will vest proportionately with the Restricted Stock Units to which they relate. In the event that Mr. Hackney is terminated by the Company with "cause" or by Mr. Hackney while grounds for "cause" exist, all Restricted Stock Units granted (whether or not then vested) as well as any accrued dividend equivalent shares will be forfeited. In the event of a change in control, all Restricted Stock Units granted (whether or not then vested) shall be distributed to Mr. Hackney effective as of immediately prior to the change in control.
Terms of Option Awards. The following describes the general terms of the options granted to our named executive officers. The terms and vesting conditions are as of December 28, 2013 and do not reflect previously in place conditions.
•
Vesting Terms
◦
Time-Vesting Options. The time-vesting options vest in equal annual installments beginning on the respective grant date of the employee, subject to the executive’s continued employment with us. These options will become fully vested upon a change in control that occurs during his or her employment with us, or during the 90 days following terminations of his or her employment without “cause” or with “good reason” or due to death or disability. In addition, if the executive’s employment is terminated (a) by us without “cause”, (b) by the executive as a result of his or her resignation with “good reason” or (c) as a result of the executive’s death or disability, an additional number of these time-vesting options will vest equal to the number that would have vested over the 12-month period following the applicable termination date. Any other time-vesting options that remain unvested on termination of employment and do not vest as described above will be forfeited.
◦
Amended Performance-Vesting Options. The amended performance-vesting options will vest on the date, if ever, that Blackstone receives cash proceeds from its investment in Holdings aggregating in excess of 2.0 times Blackstone's cumulative invested capital in Holdings’ securities, and such cash proceeds also result in an annual internal rate of return of at least 15% on its cumulative invested capital in the Holdings’ securities, subject to her or his continued employment with us. In addition, if an executive’s employment is terminated (a) by us without “cause”, (b) by the executive as a result of her or his resignation with “good reason” or (c) as a result of the executive’s death or disability, the amended performance-vesting options will remain outstanding and eligible to vest for 12 months following the applicable termination date. If the amended performance-vesting options do not vest as described above during the 12 months following such a termination, such options will terminate and be forfeited.
◦
Exit-Vesting Options. The exit-vesting options will vest on the date, if ever, that Blackstone receives cash proceeds from its investment in Holdings aggregating in excess of 2.0 times Blackstone's cumulative invested capital in Holdings’ securities, and such cash proceeds also result in an annual internal rate of return of at least 15% on its cumulative invested capital in the Holdings’ securities, subject to her or his continued employment with us. In addition, if an executive’s employment is terminated (a) by us without “cause”, (b) by the executive as a result of her or his resignation with “good reason” or (c) as a result of the executive’s death or disability, the exit-vesting options will remain outstanding and eligible to vest for 12 months following the applicable termination date. If the exit-vesting options do not vest as described above during the 12 months following such a termination, such options will terminate and be forfeited.
•
Put and Call Rights. If the executive’s employment is terminated due to death or disability, she or he has the right, subject to certain limitations, for a specified period following the termination date, to cause us to purchase on one occasion all, but not less than all, of the shares of our common stock held by her or him (whether or not acquired through the exercise of an option) at the fair market value of such shares.

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If (i) the executive’s employment is terminated by us with “cause”, (ii) the executive’s employment is terminated as a result of her or his resignation prior to the third anniversary of the Transactions (other than a resignation with “good reason”), or (iii) the executive violates a restrictive covenant (as described below), then we have the right for a specified period following the applicable event to cause the executive (or her or his permitted transferees) to sell to us all shares held by her or him at the lesser of fair market value thereof and cost, which means that any shares so repurchased will effectively be forfeited. If (i) the executive’s employment is terminated by us without “cause”, (ii) the executive’s employment is terminated as a result of his resignation following the third anniversary of the Transactions or is a resignation with “good reason”, (iii) the executive’s employment is terminated due to her or his death or by us as a result of her or his disability, or (iv) the executive engages in “competitive activity” (as described below), then we have the right for a specified period following the applicable event to cause the executive (or her or his permitted transferees) to sell to us all shares held by her or him at the fair market value thereof.
•
Restrictive Covenants. As a condition of receiving the options, our named executive officers have agreed to certain restrictive covenants, including confidentiality of information, non-competition, and non-solicitation covenants, which are contained in the option agreements pursuant to which the options were granted and are in addition to any other restrictive covenants agreed to by our named executive officers. As described above, we have the right to purchase our named executive officers’ shares of our common stock in the event of a breach of these restrictive covenants during the periods covered by the restrictive covenants, or if the named executive officer engages in a competitive activity, which is defined as providing services to one of our competitors at any time (regardless of whether the conduct would violate a restrictive covenant).
As described previously under “— Impact of the Merger on Executive Compensation,” all outstanding equity awards that existed prior to the Merger were cashed out in connection with the Merger.
Retirement Benefits
In addition to current and long-term incentive compensation, we provide retirement benefits to the named executive officers. The amount of retirement benefits provided are designed to attract and retain highly qualified executives and may depend on the retirement plans in place in the region where the named executive is employed. We currently provide defined contribution and savings plan benefits to named executives in the form of a qualified 401(k) plan in the United States. The named executive officers are eligible to receive the same level of matching Company 401(k) contributions as all our employees under this plan. See footnote (4) to the “Summary Compensation Table” below for detailed information regarding this compensation. We do not have a defined benefit plan for any of our named executive officers.
In 2012, the Board of Directors approved the establishment of an unfunded, deferred compensation plan for a select group of management or highly compensated employees of the Company (the "PGI Executive Savings Plan”). The PGI Executive Savings Plan is an unfunded plan maintained by the Company primarily for the purpose of providing a select group of management or highly compensated employees of the Company with an opportunity to defer all or part of the compensation payable to such employees (and is intended to be within the exemptions therefore in, without limitation, sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and section 2520.104-23 of the U.S. Department of Labor Regulations). The PGI Executive Savings Plan is intended to be "unfunded" for purposes of both ERISA and the Code. The PGI Executive Savings Plan is not intended to be a qualified plan under section 401(a) of the Code; rather, the PGI Executive Savings Plan is intended to be a "nonqualified" plan.
Termination Benefits
Under the 2013 CEO Agreement, subject to executing a general release, Mr. Hackney will be entitled to receive severance payments if he is terminated without "cause" or if he terminates his employment for "good reason." Such severance payments will consist of an amount equal to the sum of 1.5 times his then-current annual base compensation and 1.5 times the amount of his target annual bonus. Mr. Hackney will also be entitled to a pro rata portion of the annual bonus he would have received for the year in which his termination occurred, if any, as determined in accordance with the terms of the applicable annual bonus plan as well as a lump sum equal to 18 months of COBRA premiums to cover continued medical benefits.
Prior to her retirement from the Company on August 31, 2013, Ms. Hagen was entitled to receive severance payments if she was terminated without “cause” or if she terminated her employment for “good reason.” These termination benefits were covered under the 2011 CEO Agreement, subject to executing a general release. Payments made as a result of her retirement are covered by a Retirement Agreement. Under the terms of the Retirement Agreement, Ms. Hagen continued to receive her current base compensation until the date of her retirement and is entitled to receive a cash severance amount of $2,559,000 payable in equal amounts during the subsequent 18-month period following the date of her retirement. In addition, she is entitled to receive her 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company. The award is subject to the terms of the 2011 Employment Agreement as if she continued to participate as an executive in the 2013 AIP through the payment date. Furthermore, Ms. Hagen is entitled to receive a lump sum amount of $266,656, payable no later than March 15,

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2014, for her continued service as a member of the Board of Directors. Ms. Hagen is also entitled to participate in our medical, dental, and hospitalization benefit plans for 18 months following the date of her retirement.
Under the 2011 CFO Agreement, subject to executing a general release, Mr. Norman will be entitled to receive severance payments if he is terminated without “cause” or if he terminates his employment for “good reason.” Such severance payments will consist of an amount equal to the sum of 1.5 times his then-current annual base compensation and 1.5 times the amount of his target annual bonus. Mr. Norman will also be entitled to participate in our medical, dental, and hospitalization benefit plans for 18 months, and a pro rata portion of the annual bonus he would have received for the year in which his termination occurred, if any, as determined in accordance with the terms of the applicable annual bonus plan.
Under the 2011 COO Agreement, as amended by the 2012 COO Amendment, if Mr. Hale's employment is (1) terminated by the Company other than for “cause,” (2) terminated upon Mr. Hale's resignation with “good reason” during the term of the agreement, or (3) terminated upon Mr. Hale's resignation after the Transition Support Period and on or before January 31, 2014 other than for “good reason,” Mr. Hale will be entitled to receive, subject to his execution of a general release:
•
If the termination occurs during the Transition Support Period, (1) an amount equal to 1.5 times the sum of (a) Mr. Hale's base salary plus Transition Compensation, and (b) target annual bonus plus Transition Bonus, each as in effect immediately prior to the termination; (2) his annual bonus and Transition Bonus for the fiscal year in which the termination occurred prorated for the actual number of days employed; and (3) any annual bonus and Transition Bonus for a completed fiscal year that was earned but not yet paid to Mr. Hale. In addition, Mr. Hale will also be entitled to participate in our medical, dental, and hospitalization benefit plans for 18 months.
•
If the termination occurs after the Transition Support Period but on or before January 31, 2014, (1) an amount equal to the sum of (a) Mr. Hale's base salary plus Transition Compensation, and (b) target annual bonus plus Transition Bonus, each as in effect immediately prior to the termination; and (2) any annual bonus and Transition Bonus for a completed fiscal year that was earned but not yet paid to Mr. Hale. In addition, Mr. Hale will also be entitled to participate in our medical, dental, and hospitalization benefit plans for 12 months.
•
If the termination occurs on or after February 1, 2014 and before the term of the amended agreement expires, (1) an amount equal to the sum of (a) Mr. Hale's base salary, and (b) target annual bonus, each as in effect immediately prior to the termination; and (2) any annual bonus and Transition Bonus for a completed fiscal year that was earned but not yet paid to Mr. Hale. In addition, Mr. Hale will also be entitled to participate in our medical, dental, and hospitalization benefit plans for 12 months.
On July 3, 2013, Mr. Hale accepted the position of Senior Vice President and Advisor to Chief Executive Officer. Other than the change in title and role, all of the terms and conditions of his 2012 COO Amendment remained as indicated except for certain modifications to his equity awards. On July 9, 2013, Mr. Hale notified the Company that he would be retiring from the Company on January 31, 2014, which he did.
On December 5, 2013, the Company and Mr. Modak agreed that his employment with the Company would terminate on December 31, 2013. In accordance with the terms of his Separation Agreement, he is entitled to receive a severance payment that will consist of an amount equal to the sum of (i) twelve times his monthly base salary at the rate in effect at the time of a notice of termination and (ii) an amount equal to his annual target bonus. Mr. Modak is also entitled to receive his 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company as if he continued to participate as an executive in the 2013 AIP through the payment date. In addition, Mr. Modak will also be entitled to participate in our medical, dental, and hospitalization benefit plans for 12 months.
Certain Accounting and Tax Considerations
Accounting considerations
We accounted for awards issued under the Holdings Plan in accordance with the provisions of ASC 718. Under ASC 718, establishment of grant dates, vesting provisions, including performance-based vesting, the exercise prices for options, the maturity dates of the equity instruments and assumptions used for estimating fair value under the Black-Scholes methodology could all have a material impact on compensation relating to option awards.
Tax considerations
Section 162(m) of the Internal Revenue Code generally limits the corporate tax deduction for compensation paid to each executive officer to $1,000,000 in any given taxable year, unless certain requirements are met. The Board of Directors considered the impact of this tax code provision and believed that it had structured the compensation plans for the executive officers as necessary in order to maximize the Company’s corporate tax deduction without limiting our ability to meet the goals of our

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compensation program. The Board of Directors may from time to time exercise its discretion to award compensation that may not be deductible under section 162(m) when in its judgment such award would be in the best interest of the Company.

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Summary Compensation Table
The following table presents a summary of compensation for our named executive officers for the 2013, 2012 and 2011 fiscal years:
SUMMARY COMPENSATION TABLE
Name and Principal Position
Year
Salary
($)
Bonus
($)(4)
Stock Awards
($)(5)
Option Awards
($)(6)
Non-Equity Incentive Plan Compensation
($)(7)
Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)
All Other Compensation
($)(8)
Grand Total
($)
J. Joel Hackney Jr. (1)
2013
$
434,817

$
—

$
3,000,000

$
6,000,000

$
—

—

$
757,704

$
10,192,521

President & Chief Executive
2012
—

—

—

—

—

—

—

—

Officer
2011
—

—

—

—

—

—

—

—

 
 
 
 
 
 
 
 
 
 
Veronica M. Hagen (1)
2013
1,129,609

—

694,000

—

465,517

—

43,616

2,332,742

Former President & Chief
2012
811,196

266,657

—

—

544,539

—

46,966

1,669,358

Executive Officer
2011
796,786

—

—

4,521,750

653,498

—

5,076,100

11,048,134

 
 
 
 
 
 
 
 
 
 
Dennis Norman
2013
357,506

—

—

—

108,146

—

16,021

481,673

Executive Vice President &
2012
342,687

61,956

—

—

126,522

—

16,153

547,318

Chief Financial Officer
2011
334,024

—

—

2,260,860

150,747

—

457,371

3,203,002

 
 
 
 
 
 
 
 
 
 
Michael W. Hale (2)
2013
456,510

—

—

—

138,094

—

18,623

613,227

Former Senior Vice President, Advisor
2012
437,584

79,113

—

—

161,558

—

17,841

696,096

to Chief Executive Officer
2011
426,769

75,000

—

2,260,860

192,630

—

1,099,712

4,054,971

 
 
 
 
 
 
 
 
 
 
Michael Modak (3)
2013
383,251

—

—

—

84,315

—

74,198

541,764

Former Senior Vice President,
2012
108,180

14,224

—

1,200,000

29,048

—

84,573

1,436,025

Global Growth & Innovation
2011
—

—

—

—

—

—

—

—

(1)
Mr. Hackney joined the Company in June 2013 as President and Chief Executive Officer. He replaced Ms. Hagen, who retired from the position of President and Chief Executive Officer in June 2013 and retired from the Company in August 2013.
(2)
Mr. Hale retired from the Company on January 31, 2014.
(3)
Mr. Modak joined the Company in September 2012 as the Senior Vice President, Global Growth & Innovation. In December 2013, the Company and Mr. Modak agreed that his employment with the Company would terminate on December 31, 2013.
(4)
For 2012, reflects the portion of the bonus awarded by the Board of Directors, to be paid no later than December 2013, under the 2012 AIP as a result of the application of the personal performance modifier. For 2011, reflects the portion of the bonus awarded by the Board of Directors, paid in April 2012, under the 2011 AIP as a result of the application of the personal performance modifier.
(5)
Represents the grant date fair value of all stock awards issued during the respective period, calculated pursuant to ASC 718. Per the terms of his employment agreement, Mr. Hackney received restrictive stock awards in June 2013 associated with his appointment as President and Chief Executive Officer. Per the terms of her employment agreement, Ms. Hagen received a one-time grant of shares in our indirect parent on April 23, 2013.
(6)
Represents the grant date fair value of all option awards issued during the respective period, calculated pursuant to ASC 718.
(7)
Amounts for non-equity incentive plan compensation reflect payments for annual performance prior to the application of the personal performance modifier, paid in April of the subsequent year. However, the non-equity incentive plan compensation for fiscal 2012 represents amounts paid in the fourth quarter of fiscal 2012 and amounts to be paid in April 2013 under the 2012 AIP for fiscal 2012 performance prior to the application of the personal performance modifier.
(8)
All Other Compensation for executive officers in fiscal 2013 is as follows:    

128

 
 
Mr. Hackney
 
Ms. Hagen
 
Mr. Norman
 
Mr. Hale
 
Mr. Modak
Company Contributions to Defined Contribution and Savings Plans
 
$
5,639

 
$
15,300

 
$
15,300

 
$
15,300

 
$
15,300

Life Insurance Premiums Paid by the Company
 
596

 
5,557

 
326

 
3,323

 
1,520

Sign-on bonus (1)
 
606,448

 
—

 
—

 
—

 
50,000

Perquisites:
 
 
 
 
 
 
 
 
 
 
Car Usage (2)
 
10,464

 
10,259

 
—

 
—

 
—

Relocation
 
134,194

 
—

 
—

 
—

 
4,184

Other Perquisites (3)
 
363

 
12,500

 
395

 
—

 
3,194

Total All Other Compensation
 
$
757,704

 
$
43,616

 
$
16,021

 
$
18,623

 
$
74,198

(1)
In lieu of Mr. Hackney's participation in the 2013 AIP, he received a sign-on bonus in an amount equal to his annual base salary adjusted by the number of days employed during 2013, plus $150,000, payable within 30 days of the effective date of his employment. Mr. Modak was provided a cash payment at the start of his employment and received a second $50,000 cash payment on January 31, 2013.
(2)
Pursuant to Mr. Hackney's employment agreement, he is responsible for any automobile costs in excess of $20,000 per year. Pursuant to Ms. Hagen's employment agreement, she is responsible for any automobile costs in excess of $17,242 per year.
(3)
Other perquisites are primarily comprised of subscriptions, seminars, membership fees and annual credit card fees.
2013 Grants of Plan-Based Awards
The following table presents information regarding grants of plan-based awards to named executive officers during the 2013 fiscal year:
 
 
 
 
Estimated Future Payouts Under Non-Equity Incentive Plan Awards
 
Estimated Future Payouts Under Equity Incentive Plan Awards
 
All Other Stock Awards; Number of Shares of Stock or Units
(#)(6)
 
All Other Option Awards; Number of Securities Underlying Options
(#)(7)
 
Exercise or Base Price of Option Awards
($/Sh)(8)
 
Grant date Fair Value of Stock & Option Awards
Name
 
Grant
Date
 
Threshold
($)
 
Target
($)
 
Maximum
($)
 
Threshold
(#)
 
Target
(#)(5)
 
Maximum
(#)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Hackney (1)
 
6/19/2013
 
$
—

 
$
—

 
$
—

 
—

 
4,000.000

 
—

 
3,000.000

 
2,000.000

 
$
1,000

 
$
9,000,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ms. Hagen (2)
 
N/A
 
423,197

 
846,394

 
1,692,788

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Norman
 
N/A
 
98,314

 
196,628

 
393,256

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Hale (3)
 
N/A
 
125,540

 
251,080

 
502,160

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Modak (4)
 
N/A
 
76,650

 
153,300

 
306,600

 
—

 
—

 
—

 
—

 
—

 
—

 
—

(1)
Mr. Hackney was appointed President and Chief Executive Officer on June 19, 2013. In lieu of his participation in the 2013 AIP, he received a sign-on bonus in an amount equal to his annual base salary adjusted by the number of days employed during 2013, plus $150,000, payable within 30 days of the effective date of his employment.
(2)
Ms. Hagen retired from her position as President and Chief Executive Officer effective June 19, 2013, and retired from the Company on August 31, 2013. She is entitled to receive her 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company, subject to the terms of her 2011 Employment Agreement as if she continued to participate as an executive in the 2013 AIP through the payment date.
(3)
Mr. Hale retired from the Company on January 31, 2014. He is entitled to receive his 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company, subject to the terms of his 2012 COO Agreement as if he continued to participate as an executive in the 2013 AIP through the payment date.
(4)
Mr. Modak and the Company agreed that his employment with the Company would terminate on December 31, 2013. In accordance with the terms of his Separation Agreement, he is entitled to receive his AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company as if he continued to participate as an executive in the 2013 AIP through the payment date.
(5)
The named executive officers may receive all or a portion of the targeted amount, since the target amount reflects options in Holdings that vest based on amended performance-vesting and/or exit-vesting conditions. See “Compensation Discussion and Analysis —Elements of Compensation — Long-Term Incentive Compensation.”
(6)
Reflects Restricted Stock Units in Holdings that contain service-based vesting provisions. See “Compensation Discussion and Analysis —Elements of Compensation — Long-Term Incentive Compensation.”
(7)
Reflects options in Holdings that contain service-based vesting provisions. See “Compensation Discussion and Analysis —Elements of Compensation — Long-Term Incentive Compensation.”
(8)
The exercise price of $1,000 per share represents the fair market value of Holdings common shares on the date of grant.
Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table
The items described below support the data reported in the Summary Compensation Table and the 2013 Grants of Plan-Based Awards table.
Employment Agreements with Ms. Hagen

129

As a result of the Merger, the Company and Ms. Hagen entered an employment agreement, effective January 28, 2011 (the “2011 CEO Agreement”). The 2011 CEO Agreement terminated the prior employment agreement between the Company and Ms. Hagen, which had been entered into on March 31, 2010 (the “2010 CEO Agreement”). The 2010 CEO Agreement terminated the employment agreement between the Company and Ms. Hagen that had been entered into upon her joining the Company in April 2007. On June 17, 2013, Ms. Hagen and the Company entered into a Retirement Agreement whereby she retired from the position of President and CEO, effective June 19, 2013 and subsequently retired from the Company on August 31, 2013. The following is a discussion of the 2011 CEO Agreement and the Retirement Agreement.
The Retirement Agreement
Under the Retirement Agreement, Ms. Hagen is entitled to receive her current base compensation beginning on the date of retirement from the position of President and CEO and ending on August 31, 2013. In addition, she is entitled to receive (1) cash severance of $2,559,000 payable over the 18 month period following her retirement date, (2) a cash bonus with a target equal to 100% of her annual target bonus for 2013 and (3) a special bonus of $266,656 contingent on her willingness to continue serving on the Board of Directors of the Company. The Retirement Agreement also included modifications to her equity awards as well as continued her medical benefits for a period of 18 months following her retirement date.
The 2011 CEO Agreement
Unless earlier terminated pursuant to its terms, the term of the 2011 CEO Agreement was from January 28, 2011 until January 28, 2016. The employment agreement entitled Ms. Hagen to receive a current annual base compensation of $828,230 and an annual target bonus of 100% of her base compensation, with a maximum annual bonus of 200% of her base compensation, determined based upon the achievement of performance criteria as established by our Board of Directors in consultation with Ms. Hagen. In addition, Ms. Hagen was also entitled to a one-time grant of shares of Holdings on April 23, 2013 having a value equal to $694,000 (the “Equity Award”). The grant of shares was provided on April 23, 2013.
Employment Agreement with Mr. Hackney
The Company entered into an employment agreement with Mr. Hackney to serve as our President and Chief Executive Officer effective June 19, 2013 (the "2013 CEO Agreement"). The 2013 CEO agreement entitles Mr. Hackney to receive an annual base compensation of $850,000 and an annual target bonus of 100% of his base compensation, with a maximum annual bonus of 200% of his base compensation, determined based upon the achievement of performance criteria as established by our Board of Directors in consultation with Mr. Hackney. In lieu of Mr. Hackney's participation in the 2013 AIP, he received a sign-on bonus in an amount equal to his annual base salary adjusted by the number of days employed during 2013, plus $150,000, payable within 30 days of the effective date of his employment. A description of potential payments to Mr. Hackney upon his termination under the 2013 CEO Agreement is described in “Potential Payments Upon Termination or Change in Control.”
Employment Agreements with Mr. Norman
On January 28, 2011, in connection with the Merger, the Company entered into an employment agreement with Mr. Norman to serve as our Chief Financial Officer (the “2011 CFO Agreement”). The employment agreement entitles Mr. Norman to receive a current annual base compensation of $349,830 and an annual target bonus of 55% of his base compensation, with a maximum annual bonus of 110% of his base compensation, determined based upon the achievement of performance criteria as established by our Board in consultation with the Chief Executive Officer. A description of potential payments to Mr. Norman upon his termination under the 2011 CFO Agreement is described in “Potential Payments Upon Termination or Change in Control.”
Employment Agreements with Mr. Hale
On January 28, 2011, in connection with the Merger, the Company entered into an employment agreement with Mr. Hale to serve as our Chief Operating Officer (the “2011 COO Agreement”). The employment agreement entitled Mr. Hale to annual base compensation of $415,000 and an annual target bonus of 55% of his base compensation, with a maximum annual bonus of 110% of his base compensation, determined based upon the achievement of performance criteria as established by our Board of Directors in consultation with the Chief Executive Officer.
The Company and Mr. Hale entered into an amendment to the 2011 COO Agreement on June 14, 2012 (the “2012 COO Amendment”). The 2012 COO Amendment changed Mr. Hale's title from Chief Operating Officer to Senior Vice President, Global Supply Chain Lead. In addition, the 2012 COO Amendment reduced Mr. Hale's annual base salary from $431,600 to $275,002 effective May 1, 2012. As a result of the transition of his responsibilities, the 2012 COO Amendment also provided for a monthly payment of $13,050 (the "Transition Compensation") for the period from May 1, 2012 to December 31, 2013 (the "Transition Period").

130

For Mr. Hale, the 2012 COO Amendment modified his bonus opportunity. Mr. Hale's annual target bonus for his base compensation was lowered from 55% to 40% of his base compensation earned, with a maximum bonus opportunity equal to 80% of his base compensation. As a result of the transition of his responsibilities, the 2012 COO Amendment also provided for a transition bonus opportunity equal to the sum of (1) a target of 15% up to a maximum of 30% of his base compensation earned, and (2) a target of 55% up to a maximum of 110% of the Transition Compensation earned for each fiscal year or portion thereof during the Transition Period (the “Transition Support Bonus”).
On July 3, 2013, Mr. Hale accepted the position of Senior Vice President and Advisor to Chief Executive Officer. Other than the change in title and role, all of the terms and conditions of his 2012 COO Amendment remained as indicated except for certain modifications to his equity awards. On July 9, 2013, Mr. Hale notified the Company that he would be retiring from the Company on January 31, 2014. A description of the payments made to Mr. Hale upon his termination under the 2011 COO Agreement is set forth in “Potential Payments Upon Termination or Change in Control.”
Awards under the Holdings Plan
Upon consummation of the Merger, Holdings adopted the 2011 Scorpio Holdings Corporation Stock Incentive Plan (the “Holdings Plan”) for our employees, directors, and certain other service providers and independent contractors. The Holdings Plan is described in “Compensation Discussion and Analysis — Elements of Compensation — Long-Term Incentive Compensation.” Details regarding the grants made under the Holdings Plan are described in the notes to the “Grants of Plan-Based Awards Table.”
Incentive Plan Performance Targets
The total amounts awarded based on consolidated EBITDA, operating working capital and safety performance results are reported under the Non-Equity Incentive Plan Compensation column, and the amounts awarded as a result of the application of the personal performance modifier are reported under the Bonus column of the Summary Compensation Table.
For fiscal 2013, the Board of Directors established an Annual Incentive Plan for 2013. The following table illustrates the operation of the 2013 AIP with respect to each of our named executive officers. The relative weighting of each performance component was as follows: Consolidated EBITDA — 75.0%; Working Capital — 12.5%; and Safety Performance — 12.5%.
Name
 
Target Bonus (% of Base Salary)
 
Target Bonus Amount
 
EBITDA Component of Target Bonus
 
Amount Awarded for EBITDA Performance
 
Working Capital Component of Target Bonus
 
Amount Awarded for Working Capital Performance
 
Safety Performance Component of Target Bonus
 
Amount Awarded for Safety Performance
 
Total Bonus Amount Awarded
 
Discretionary Personal Performance Adjustment
 
Total Actual Bonus Awarded
Mr. Hackney(1)
 
—
%
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Ms. Hagen (2)
 
100
%
 
$
846,394

 
$
634,796

 
$
344,466

 
$
105,799

 
$
121,051

 
$
105,799

 
$
—

 
$
465,517

 
$
—

 
$
465,517

Mr. Norman
 
55
%
 
$
196,628

 
$
147,471

 
$
80,024

 
$
24,578

 
$
28,122

 
$
24,579

 
$
—

 
$
108,146

 
$
—

 
$
108,146

Mr. Hale (3)
 
55
%
 
$
251,080

 
$
188,310

 
$
102,185

 
$
31,385

 
$
35,909

 
$
31,385

 
$
—

 
$
138,094

 
$
—

 
$
138,094

Mr. Modak (4)
 
40
%
 
$
153,300

 
$
114,975

 
$
62,390

 
$
19,163

 
$
21,925

 
$
19,163

 
$
—

 
$
84,315

 
$
—

 
$
84,315

(1)
In lieu of Mr. Hackney's participation in the 2013 AIP, he is entitled to receive a sign-on bonus in an amount equal to his annual base salary adjusted by the number of days employed during 2013 plus $150,000, payable within 30 days of the effective date of his his employment.
(2)
Ms. Hagen retired from her position as President and Chief Executive Officer effective June 19, 2013, and retired from the Company on August 31, 2013. She is entitled to receive her 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company, subject to the terms of her 2011 Employment Agreement as if she continued to participate as an executive in the 2013 AIP through the payment date.
(3)
Mr. Hale retired from the Company on January 31, 2014. He is entitled to receive his 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company, subject to the terms of his 2012 COO Agreement as if he continued to participate as an executive in the 2013 AIP through the payment date.
(4)
On December 5, 2013, the Company and Mike Modak agreed that his employment with the Company would terminate on December 31, 2013. In accordance with the terms of his Separation Agreement, he is entitled to receive his 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company as if he continued to participate as an executive in the 2013 AIP through the payment date.
For fiscal 2012, the Board of Directors established an Annual Incentive Plan for 2012. The following table illustrates the operation of the 2012 AIP with respect to each of our named executive officers. The relative weighting of each performance component was as follows: Consolidated EBITDA — 75.0%; Working Capital — 12.5%; and Safety Performance — 12.5%.

131

Name
 
Target Bonus (% of Base Salary)
 
Target Bonus Amount
 
EBITDA Component of Target Bonus
 
Amount Awarded for EBITDA Performance
 
Working Capital Component of Target Bonus
 
Amount Awarded for Working Capital Performance
 
Safety Performance Component of Target Bonus
 
Amount Awarded for Safety Performance
 
Total Bonus Amount Awarded
 
Discretionary and/or Personal Performance Adjustment
 
Total Actual Bonus Awarded
Ms. Hagen
 
100
%
 
$
811,196

 
$
608,397

 
$
265,691

 
$
101,399

 
$
157,169

 
$
101,399

 
$
121,679

 
$
544,539

 
$
266,657

 
$
811,196

Mr. Norman
 
55
%
 
$
188,478

 
$
141,358

 
$
61,732

 
$
23,560

 
$
36,518

 
$
23,560

 
$
28,272

 
$
126,522

 
$
61,956

 
$
188,478

Mr. Hale (1)
 
55
%
 
$
240,671

 
$
180,504

 
$
78,827

 
$
30,084

 
$
46,630

 
$
30,084

 
$
36,101

 
$
161,558

 
$
79,113

 
$
240,671

Mr. Modak
 
40
%
 
$
43,272

 
$
32,454

 
$
14,173

 
$
5,409

 
$
8,384

 
$
5,409

 
$
6,491

 
$
29,048

 
$
14,224

 
$
43,272

(1)
Amounts for Mr. Hale include all compensation associated with the 2012 COO Amendment.
For fiscal 2011, the Board of Directors established an Annual Incentive Plan for 2011. The following table illustrates the operation of the 2011 AIP with respect to each of our named executive officers. The relative weighting of each performance component was as follows: Consolidated EBITDA — 70.0%; Working Capital — 17.5%; and Safety Performance — 12.5%.
Name
 
Target Bonus (% of Base Salary)
 
Target Bonus Amount
 
EBITDA Component of Target Bonus
 
Amount Awarded for EBITDA Performance
 
Working Capital Component of Target Bonus
 
Amount Awarded for Working Capital Performance
 
Safety Performance Component of Target Bonus
 
Amount Awarded for Safety Performance
 
Total Bonus Amount Awarded
 
Discretionary Personal Performance Adjustment
 
Total Actual Bonus Awarded
Ms. Hagen
 
100
%
 
$
795,978

 
$
557,185

 
$
376,498

 
$
139,296

 
$
157,604

 
$
99,497

 
$
119,397

 
$
653,498

 
$
—

 
$
653,498

Mr. Norman
 
55
%
 
$
183,614

 
$
128,530

 
$
86,849

 
$
32,132

 
$
36,356

 
$
22,952

 
$
27,542

 
$
150,747

 
$
—

 
$
150,747

Mr. Hale
 
55
%
 
$
234,629

 
$
164,240

 
$
110,980

 
$
41,060

 
$
46,457

 
$
29,329

 
$
35,194

 
$
192,630

 
$
75,000

 
$
267,630

Mr. Modak
 
—
%
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

2013 Outstanding Equity Awards at Fiscal Year-End
The following table presents information regarding outstanding equity awards held by named executive officers at the end of the 2013 fiscal year.
 
 
Option Awards
 
Stock Awards
Name
 
Number of Securities Underlying Unexercised Options
(#)
Exercisable
 
Number of Securities Underlying Unexercised Options
(#)
Unexercisable (1)
 
Equity Incentive Plan Awards; Number of Securities Underlying Unexercised Unearned Options
(#)
 
Option Exercise Price
($)
 
Option Expiration Date
 
Number of Shares or Units of Stock That Have Not Vested
(#)
 
Market Value of Shares or Units That Have Not Vested
($)
 
Equity Incentive Plan Awards; Number of Unearned Shares, Units, or Other Rights That Have Not Vested
(#)
 
Equity Incentive Plan Awards; Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Hackney
 
—

 
2,000.000

 
4,000.000

 
$
1,000

 
6/19/2023
 
3,000

 
3,000,000

 
3,000

 
3,000,000

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ms. Hagen
 
904.350

 
—

 
904.350

 
1,000

 
1/28/2021
 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Norman
 
301.448

 
452.172

 
1,507.240

 
1,000

 
1/28/2021
 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Hale
 
301.448

 
452.172

 
1,507.240

 
1,000

 
1/28/2021
 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Mr. Modak
 
200.000

 
200.000

 
800.000

 
1,000

 
9/28/2022
 
—

 
—

 
—

 
—

(1) The vesting dates of options containing service-based vesting are as follows:

132

 
 
Mr. Hackney
 
Ms. Hagen
 
Mr. Norman
 
Mr. Hale
 
Mr. Modak
January 28, 2014
 
—

 
—

 
150.724

 
150.724

 
—

March 31, 2014
 
—

 
—

 
—

 
—

 
200.000

May 1, 2014
 
—

 
—

 
—

 
301.448

 
—

June 19, 2014
 
400.000

 
—

 
—

 
—

 
—

January 28, 2015
 
—

 
—

 
150.724

 
—

 
—

June 19, 2015
 
400.000

 
—

 
—

 
—

 
—

January 28, 2016
 
—

 
—

 
150.724

 
—

 
—

June 19, 2016
 
400.000

 
—

 
—

 
—

 
—

June 19, 2017
 
400.000

 
—

 
—

 
—

 
—

June 19, 2018
 
400.000

 
—

 
—

 
—

 
—

     Total
 
2,000.000

 
—

 
452.172

 
452.172

 
200.000

Per the terms of her Retirement Agreement, Holdings modified certain equity awards granted to Ms. Hagen, particularly the awards granted in association with the Merger. As a result, the following options were modified on her retirement date:
•
602.900 time-based options were forfeited with the remaining 904.350 options deemed to be fully vested until the earlier of (1) the expiration date of the options or (2) if Ms. Hagen engages in a competitive activity or breaches any restrictive covenant.
•
602.900 exit-based options were forfeited with the remaining 904.350 options deemed eligible to vest if the applicable vesting conditions are satisfied prior to (1) the expiration date of the options or (2) if Ms. Hagen engages in a competitive activity or breaches any restrictive covenant.
•
1,507.250 performance-based options were forfeited.
In conjunction with the change in position from Senior Vice President, Global Supply Chain Lead to Senior Vice President and Advisor to the Chief Executive Officer, Holdings modified certain equity awards granted to Mr. Hale, particularly the awards granted in association with the Merger. As a result, the following options were modified as of July 1, 2013:
•
Any time-based options that are vested upon Mr. Hale's retirement from the Company will remain vested until the earlier of (1) the expiration date of the options or (2) if Mr. Hale engages in a competitive activity or breaches any restrictive covenant.
•
Any time-based options that are not vested upon Mr. Hale's retirement from the Company will remain outstanding and vest if a change in control occurs within 90 days of his retirement date. In addition, amended performance-vesting options and exit-vesting options will remain outstanding and eligible to vest for a 12 month period following his retirement date. If a change in control does not occur during this period, such options will terminate and be forfeited.
On December 5, 2013, the Company and Mr. Modak agreed that his employment with the Company would terminate on December 31, 2013. In connection with his termination, Holdings agreed to the following:
•
Any time-based options that are vested upon Mr. Modak's termination from the Company will remain vested until the earlier of (1) the expiration date of the options or (2) if Mr. Modak engages in a competitive activity or breaches any restrictive covenant.
•
Any time-based options that are not vested upon Mr. Modak's termination from the Company will remain outstanding and vest if a change in control occurs within 90 days of his termination date. In addition, amended performance-vesting options and exit-vesting options will remain outstanding and eligible to vest for a 12 month period following his termination date. If a change in control does not occur during this period, such options will terminate and be forfeited.
Pension Benefits
We have no pension benefits for the named executive officers.
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
We have no nonqualified defined contribution or other nonqualified deferred compensation plans for named executive officers.

133

Potential Payments Upon Termination or Change in Control
The Company has employment agreements with each of Messrs. Hackney, Norman, and Hale. In general, our named executive officers will be entitled to receive severance payments, subject to executing a general release, if they are terminated without “cause” or if they terminate their employment for “good reason.” These payments typically provide the payment of an annual base compensations and bonus opportunities, as well as participation by each of them in benefit plans and programs.
Under the 2013 CEO Agreement, subject to executing a general release, Mr. Hackney will entitled to receive severance payments of an amount equal to the sum of 1.5 times his then-current annual base compensation and 1.5 times the amount of his target annual bonus. Mr. Hackney will also be entitled to a pro rata portion of the annual bonus he would have received for the year in which her termination occurred, if any, as determined in accordance with the terms of the applicable annual bonus plan as well as a lump sum equal to 18 months of COBRA premiums to cover continued medical benefits.
Under the 2011 CFO Agreement, subject to executing a general release, Mr. Norman will be entitled to receive severance payments of an amount equal to the sum of 1.5 times his then-current annual base compensation and 1.5 times the amount of his target annual bonus. Mr. Norman will also be entitled to participate in our medical, dental, and hospitalization benefit plans for 18 months, and a pro rata portion of the annual bonus they would have received for the year in which their termination occurred, if any, as determined in accordance with the terms of the applicable annual bonus plan.
Payments made to Mr. Hale are covered under the 2011 COO Agreement, as amended, subject to executing a general release. If his termination occurs during the Transition Period, Mr. Hale is entitled to receive severance payments that will consist of (1) an amount equal to the sum of 1.5 times his (a) then-current annual base compensation plus (b) his Transition Compensation and (2) his annual bonus plus his Transition Bonus for the fiscal year in which the termination occurred prorated for the actual number of days employed and (3) and any bonus and Transition Bonus for a completed fiscal year that was earned but not yet paid. Mr. Hale will also be entitled to participate in our medical, dental and hospitalization benefits for either 18 or 12 months depending on the timing of the termination.
On December 5, 2013, the Company and Mr. Modak agreed that his employment with the Company would terminate on December 31, 2013. In accordance with the terms of his Separation Agreement, he is entitled to receive a severance payment that will consist of an amount equal to the sum of (i) twelve times his monthly base salary at the rate in effect at the time of a notice of termination and (ii) an amount equal to his annual target bonus for the year. In addition, he is entitled to receive his 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company as if he continued to participate as an executive in the 2013 AIP through the payment date. Mr. Modak will also be entitled to participate in our medical, dental, and hospitalization benefit plans for 12 months.
Prior to her retirement from the Company on August 31, 2013, Ms. Hagen was entitled to receive severance payments if she was terminated without “cause” or if she terminated her employment for “good reason.” These termination benefits were covered under the 2011 CEO Agreement, subject to executing a general release. Payments made as a result of her retirement are covered by a Retirement Agreement entered into on June 17, 2013. Under the terms of the agreement, Ms. Hagen continued to receive her current base compensation until the date of her retirement and is entitled to receive a cash severance amount of $2,559,000 payable in equal amounts during the subsequent 18-month period following the date of her retirement. In addition, she is entitled to receive her 2013 AIP award in a lump sum when annual bonuses are paid to other senior executives of the Company. The award is subject to the terms of the 2011 Employment Agreement as if she continued to participate as an executive in the 2013 AIP through the payment date. Furthermore, Ms. Hagen is entitled to receive a lump sum amount of $266,656, payable no later than March 15, 2014, for her continued service as a member of the Board of Directors. Ms. Hagen is also entitled to participate in our medical, dental, and hospitalization benefit plans for 18 months following the date of her retirement.
As described under “Compensation Discussion and Analysis — Elements of Compensation — Long-term Incentive Compensation,” under the named executive officers’ option award agreements, the time-vesting options will become fully vested upon a change in control that occurs during his or her employment or during the 90 days following an involuntary termination without cause, voluntary termination for good reason or termination due to death or disability. In addition, in the event of involuntary termination without “cause,” voluntary termination for “good reason” or termination due to death or disability, an additional number of these time-vesting options will vest equal to the number that would have vested over the 12-month period following the applicable termination date. For the purpose of this disclosure, we only considered the time-vesting options as options that would vest upon a change-in-control, since the terms and conditions associated with both the amended performance-vesting or exit-vesting options were not met as of December 28, 2013.
The following describes compensation and benefits payable to each named executive officer in connection with termination of employment or change in control pursuant to agreements that were in place at the end of 2013. The amounts shown assume that the applicable triggering event occurred on December 28, 2013:

134

 
 
Termination
 without "Cause"
 
Termination
for "Good Reason"
 
Additional Value if Termination without Cause, for Good Reason or Due to Death of Disability During 90 Days Prior to Change in Control
 
Change in Control
 
Death or Disability
Mr. Hackney
 
 
 
 
 
 
 
 
 
 
Cash Severance
 
$
3,400,000

 
$
3,400,000

 
$
—

 
$
—

 
$
—

Acceleration of Equity Awards (1)
 
—

 
—

 
—

 
—

 
—

Health Benefits
 
12,763

 
12,763

 
—

 
—

 
—

Total
 
$
3,412,763

 
$
3,412,763

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
Mr. Norman
 
 
 
 
 
 
 
 
 
 
Cash Severance
 
$
1,035,934

 
$
1,035,934

 
$
—

 
$
—

 
$
—

Acceleration of Equity Awards (1)
 
—

 
—

 
—

 
—

 
—

Health Benefits
 
21,879

 
21,879

 
—

 
—

 
—

Total
 
$
1,057,813

 
$
1,057,813

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
Mr. Hale
 
 
 
 
 
 
 
 
 
 
Cash Severance
 
$
1,322,808

 
$
1,322,808

 
$
—

 
$
—

 
$
—

Acceleration of Equity Awards (1)
 
—

 
—

 
—

 
—

 
—

Health Benefits
 
21,879

 
21,879

 
—

 
—

 
—

Total
 
$
1,344,687

 
$
1,344,687

 
$
—

 
$
—

 
$
—

 
 
 
 
 
 
 
 
 
 
 
Mr. Modak
 
 
 
 
 
 
 
 
 
 
Cash Severance
 
$
811,177

 
$
811,177

 
$
—

 
$
—

 
$
—

Acceleration of Equity Awards (1)
 
—

 
—

 
—

 
—

 
—

Health Benefits
 
10,515

 
10,515

 
—

 
—

 
—

Total
 
$
821,692

 
$
821,692

 
$
—

 
$
—

 
$
—


(1)
As of December 28, 2013, the fair market value of Holdings common stock was determined to be $1,000 per share, which equals the exercise price of the respective options. Thus, no value was associated with the acceleration of the time-vesting options.
2013 Compensation of Directors
The following table presents a summary of compensation for directors of the Company for the 2013 fiscal year:
 
 
Fees Earned or Paid in Cash
 
Stock Awards
 
Option Awards
 
Non-Equity Incentive Plan Compensation
 
Changes in Pension Value and Nonqualified Deferred Compensation Earnings
 
All Other Compensation
 
Total
Name (1)
 
($)
 
($)
 
($) (2)
 
($)
 
($)
 
($)
 
($)
Mr. Alder
 
$
80,000

 
$
—

 
$
50,000

 
$
—

 
$
—

 
$
—

 
$
130,000

Mr. Burgess (3)
 
37,500

 
—

 
—

 
—

 
—

 
—

 
37,500

Ms. Hagen (4)
 
31,250

 
—

 
—

 
—

 
—

 
—

 
31,250

Ms. St.Clare (5)
 
85,000

 
—

 
50,000

 
—

 
—

 
—

 
135,000

Mr. Zafirovski
 
300,000

 
—

 
—

 
—

 
—

 
—

 
300,000

(1)
Company directors, management directors and affiliates of Blackstone were not entitled to receive any fees for their service on the Board of Directors. Accordingly, Mr. Hackney and Messrs. Mukherjee and Giordano are not included in the Director Compensation table as they received no compensation for serving as directors during 2012.
(2)
Options to acquire shares of Holding common stock.
(3)
Mr. Burgess resigned from the Board of Directors on June 17, 2013, and forfeited all share-based awards.
(4)
Ms. Hagen resigned as President and Chief Executive Officer on June 17, 2013 and retired from the Company on August 31, 2013. Ms. Hagen will continue to serve on the Board of Directors as non-employee director. In addition, Ms. Hagen is entitled to receive a lump sum of $266,656, payable no later than March 15, 2014 for her continued service as a member of the Board of Directors.
(5)
Ms. St.Clare was elected to the Board of Directors on February 20, 2013, and also serves as chair of the Audit Committee
At fiscal year-end, the aggregate number of option awards for shares of Holdings that were outstanding for each Company director was as follows: Mr. Alder — 150 options; Ms. Hagen — 1,809 options; Ms. St.Clare — 50 options and Mr. Zafirovski — 2,000 options.

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Compensation for stock and option awards is determined in accordance with generally accepted accounting principles pertaining to share-based payments. For a discussion of terms and assumptions regarding the accounting for equity awards, see Note 3 “Summary of Significant Accounting Policies” and Note 15 “Equity Compensation Plans” to the Company’s Audited Consolidated Financial Statements included in Item 8 of Part II of this Annual Report on Form 10-K.
The grant date fair values of stock option awards granted to directors, for service as a director, in 2013 are as follows:
 
 
Award Date
 
Grant Date Fair Value of Awards Issued
Mr. Alder
 
4/19/2013
 
$
50,000

Ms. St.Clare
 
4/19/2013
 
50,000

Annual Board / Committee Retainer Fees
Under the Company’s compensation program for directors, the non-employee directors, Mr. Alder, Ms. Hagen and Ms. St.Clare each receive an annual retainer of $75,000, payable in four equal installments on the date of each quarterly scheduled Board of Directors meeting. Mr. Zafirovski, as the non-executive chairman of the Board of Directors, will receive an annual retainer of $300,000, payable in four equal installments at the beginning of each fiscal quarter. The Chair of the Audit Committee will receive an additional $10,000 annually, while each of the Chairs of the Compensation Committee and Nominating and Corporate Governance Committee will receive an additional $5,000 annually. Directors are also reimbursed for out-of-pocket expenses incurred in connection with attending Board of Directors meetings. In addition, each independent director receives an annual grant of options to acquire common stock of Holdings, which is designed to target a value after vesting of $60,000 and which vests annually over a 3 year period so long as the independent director continues to serve on the Board of Directors.
Compensation Committee Interlocks and Insider Participation
Prior to fiscal 2013, the Board of Directors had not established a compensation committee. The full Board of Directors acted on all matters, including those typically delegated to a committee. On February 20, 2013, the Board of Directors established a compensation committee that was responsible for establishing, approving and reviewing our employee and executive compensation strategy. However, deliberations concerning executive officer compensation for 2013 was determined by the Board of Directors due to the timing of the meetings. Ms. Hagen, our former CEO participated in the deliberations, except for deliberations regarding her compensation. In addition, none of our executive officers served on the compensation committee or board of a company that employed any of our directors. Our Compensation Committee is comprised of Mr. Alder (Chair), and Messrs. Zafirovski and Mukherjee.

136

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Parent owns 100% of the issued and outstanding shares of our common stock. Blackstone, along with certain members of our management, beneficially owns 100% of Holdings which, in turn, owns 100% of the issued and outstanding shares of common stock of Parent. The authorized capital stock of Holdings consists of one million shares of common stock (the “Common Stock”). The holders of Common Stock are generally entitled to one vote per share on all matters submitted for action by the stockholders; to receive ratably such dividends and distributions as may be declared or paid from time to time by the Board of Directors and to pro rata distribution of any available and remaining assets upon a liquidation or dissolution of Holdings. Shares of Common Stock held by employees are subject to certain restrictions including agreements to vote such shares of Common Stock, transfer restrictions, drag-along rights and call rights, described under “Certain Relationships and Related Transactions, and Director Independence — Shareholders Agreement.”
The following table sets forth certain information as of March 10, 2014 with respect to shares of Common Stock beneficially owned by (i) each of our directors, (ii) each of our named executive officers, (iii) all of our directors and executive officers as a group and (iv) each person known to us to be the beneficial owner of more than 5% of the outstanding Common Stock as of such date.
The amounts and percentages of shares of Common Stock beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person’s ownership percentage, but not for purposes of computing any other person’s percentage. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.
Except as indicated in the footnotes to the table, each of the stockholders listed below has sole voting and investment power with respect to shares of Common Stock owned by such stockholder. Unless otherwise noted, the address of each beneficial owner of is c/o Polymer Group, Inc., 9335 Harris Corners Parkway, Suite 300, Charlotte, North Carolina 28269.
 
 
Common Stock
Name and Address of Beneficial Owner
 
Amount and Nature of Beneficial Ownership
 
Percent of Class
Blackstone Funds (1)(2)
 
285,726

 
97.9
%
J. Joel Hackney, Jr. (2)
 
—

 
—
%
Dennis E. Norman (2)
 
755

 
*

Michael W. Hale (2)
 
1,192

 
*

Michael D. Modak (2)
 
200

 
*

James S. Alder (2)
 
50

 
*

Jason Giordano (3)
 
—

 
—
%
Veronica M. Hagen (2)
 
3,974

 
1.4
%
Anjan Mukherjee (4)
 
—

 
—
%
Christine St.Clare (2)
 
—

 
—
%
Mike S. Zafirovski (5)
 
972

 
*

Robert Dale (2)
 
315

 
*

Jean-Marc Galvez (2)
 
55

 
*

Scott Tracey (2)
 
268

 
*

Barry Muresh (2)
 
—

 
*

Daniel Guerrero (2)
 
233

 
*

Daniel Rikard (2)
 
315

 
*

Mary Tomasello (2)
 
248

 
*

All Directors and Executive Officers as a Group (17 persons)
 
8,577

 
2.91
%

137

* Represents less than one percent

(1)
Shares of Common Stock shown as beneficially owned by the Blackstone Funds (as hereinafter defined) are held by the following entities: (i) Blackstone Capital Partners (Cayman) V L.P. (“BCP Cayman V”) owns 121,440.731 shares of Common Stock representing 41.5906% of the outstanding shares of Common Stock, (ii) Blackstone Capital Partners (Cayman) V-A L.P. (“BCP Cayman VA”) owns 108,648.173 shares of Common Stock representing 37.2095% of the outstanding shares of Common Stock, (iii) Blackstone Capital Partners (Cayman) V-AC L.P. (“BCP Cayman VAC”) owns 54,679.914 shares of Common Stock representing 18.7266% of the outstanding shares of Common Stock, (iv) Blackstone Family Investment Partnership (Cayman) V L.P. (“BFIP”) owns 696.314 shares of Common Stock representing 0.2385% of the outstanding shares of Common Stock and (v) Blackstone Participation Partnership (Cayman) V L.P. (“BPP”) owns 260.868 shares of Common Stock representing 0.0893% of the outstanding shares of Common Stock (BCP Cayman V, BCP Cayman VA, BCP Cayman VAC, BFIP and BPP are collectively referred to as the “Blackstone Funds”). The general partner of BCP Cayman V, BCP Cayman VA and BCP Cayman VAC is Blackstone Management Associates (Cayman) V L.P. BCP V GP L.L.C. is a general partner and controlling entity of BFIP, BPP and Blackstone Management Associates (Cayman) V L.P. Blackstone Holdings III L.P. is the managing member and majority interest owner of BCP V GP L.L.C. Blackstone Holdings III L.P. is indirectly controlled by The Blackstone Group L.P. and is owned, directly or indirectly, by Blackstone professionals and The Blackstone Group L.P. The Blackstone Group L.P. is controlled by its general partner, Blackstone Group Management L.L.C., which is in turn wholly owned by Blackstone’s senior managing directors and controlled by its founder, Stephen A. Schwarzman. Each of such Blackstone entities and Mr. Schwarzman may be deemed to beneficially own the securities beneficially owned by the Blackstone Funds directly or indirectly controlled by it or him, but each disclaims beneficial ownership of such securities. The address of each of the entities listed in this note is c/o The Blackstone Group, L.P., 345 Park Avenue, New York, New York 10154.
(2)
The shareholders agreement of Holdings provides that (i) each share of Common Stock owned by an employee or director will vote in the manner as BCP Cayman V directs, (ii) BCP Cayman V has the right to require the Common Stock owned by an employee or director to participate in any transaction constituting a change of control or any other transaction involving a transfer of Common Stock owned by the Blackstone Funds to a third-party, and (iii) the transfer of Common Stock owned by an employee or director is restricted until the earlier of (x) a change of control and (y) the two year anniversary of an initial public offering. As a result, the Blackstone Funds may be deemed to beneficially own 100% of the outstanding Common Stock. The shares of Common Stock held by employees or directors that may be so deemed beneficially owned by the Blackstone Funds are not included in the number of shares of Common Stock held by the Blackstone Funds presented in the table above. For additional information see “Directors, Executive Officers and Corporate Governance” and “Certain Relationships and Related Transactions, and Director Independence.”
(3)
Mr. Giordano is a Managing Director in Blackstone’s Private Equity Group. Mr. Giordano disclaims beneficial ownership of any shares of Common Stock owned directly or indirectly by the Blackstone Funds. Mr. Giordano’s address is c/o The Blackstone Group, L.P., 345 Park Avenue, New York, New York 10154.
(4)
Mr. Mukherjee is a Senior Managing Director in Blackstone’s Private Equity Group. Mr. Mukherjee disclaims beneficial ownership of any shares of Common Stock owned directly or indirectly by the Blackstone Funds. Mr. Mukherjee’s address is c/o The Blackstone Group, L.P., 345 Park Avenue, New York, New York 10154.
(5)
Shares of Common Stock shown as beneficially owned by Mr. Zafirovski are held by the Zaf Group, LLC. an Illinois limited liability company for which Mr. Zafirovski is a managing member. Mr. Zafirovski is an Executive Advisor to the Blackstone Group L.P. Mr. Zafirovski disclaims beneficial ownership of any shares of Common Stock owned directly or indirectly by the Blackstone Funds.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Shareholders Agreement
In connection with the closing of 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 change 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.
The Board of Directors of the Company includes two Blackstone members, four 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 directors that it appoints.
Blackstone Advisory Agreement
In the second quarter of 2010, the Company entered into an advisory services arrangement (the “Advisory Agreement”) with Blackstone Advisory Partners L.P. (“Blackstone Advisory”), an affiliate of Blackstone. Pursuant to the terms of the Advisory Agreement, the Company paid a fee of approximately $2.0 million following announcement of the parties having entered into the Merger Agreement, and a fee of approximately $4.5 million following consummation of the Merger. In addition, the Company has reimbursed Blackstone Advisory for its reasonable documented expenses, and agreed to indemnify Blackstone Advisory and related persons against certain liabilities arising out of its advisory engagement. As a result, the Predecessor recognized recognized

138

$4.5 million during the one month ended January 28, 2011, which is included with Special charges, net in the Consolidated Statement of Operations.
In the third quarter of 2013, the Company entered into an advisory services arrangement (the “International Advisory Agreement”) with Blackstone Group International Partners, LLP (“BGIP”), an affiliate of Blackstone. Pursuant to the terms of the International Advisory Agreement, the Company paid an aggregate fee of $3.0 million, associated with the acquisition of Fiberweb, of which 30% was paid following the announcement and the remaining 70% was paid following consummation of the transaction. In addition, the Company reimbursed BGIP for its reasonable documented expenses, and agreed to indemnify BGIP and related persons against certain liabilities arising out of its advisory engagement. As a result, the Successor recognized $3.2 million during the year ended December 28, 2013, which is included within Special charges, net in the Consolidated Statement of Operations.
Management Services Agreement
Upon the completion of the Merger, the Company became subject to a management services agreement (“Management Services Agreement”) with Blackstone Management Partners V L.L.C. (“BMP”), an affiliate of Blackstone. Under the Management 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 the Company or BMP, as applicable, shall adjust such payment as necessary based on the recalculated amount. Since the Merger, the Company's advisory fee has been $3.0 million, which is paid at the beginning of each year. These amounts are included in Selling, general and administrative expenses in the Consolidated Statement of Operations.
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 of 2013. This amount is included in Special charges, net in the Consolidated Statement of Operations.
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 Management Services Agreement, assuming a hypothetical termination date of the Management Service Agreement to be the twelfth anniversary of such election. The Management Services Agreement will continue until the earliest 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 Management Services Agreement.
BMP also received transaction fees in connection with services provided related to the Merger. Pursuant to the Management Services Agreement, BMP received, at the closing of the Merger, an $8.0 million transaction fee as consideration for BMP undertaking financial and structural analysis, due diligence and other assistance in connection with the Merger. In addition, the Company agreed to reimburse BMP for any out-of-pocket expenses incurred by BMP and its affiliates in connection with the Merger. As a result, the Successor recognized $7.9 million million within Special charges, net during the eleven months ended December 31, 2011, as well as capitalized $0.8 million as deferred financing costs as of January 28, 2011. BMP also receives reimbursement for out-of-pocket expenses in connection with the provision of services under the Management Services Agreement.
Other Relationships
Blackstone and its affiliates have ownership interests in a broad range of companies. We have 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. Blackstone Holdings Finance Co., LLC, a Blackstone subsidiary, participated in the Fiberweb financing group and received $0.6 million associated with their pro rata participation.

139

Under our Restated Articles of Incorporation, our 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.
Procedures with Respect to Review and Approval of Related Person Transactions
Our Board of Directors has not adopted a formal written policy for the review and approval of transactions with related persons. However, our Board of Directors (or other appropriate persons as may be authorized by our Board of Directors) will review any transactions with related persons that meet the minimum threshold for disclosure under the applicable SEC rules (generally, transactions in which the Company was, is or is to be a participant involving amounts exceeding $120,000 in which a related person has a direct or indirect material interest). In connection with the review and approval or ratification of such related person transactions we will consider, among other things:
•the material terms of the transaction, including the type of the transaction and the amount involved;
•the identity of the related person and its relationship to us;
•the nature of the related person’s interest in the transaction;
•the importance of the transaction to the related person and to us;
•whether the transaction would impair the judgment of a director or executive officer to act in our best interest;
•whether the transaction complies with the terms of agreements governing our material outstanding indebtedness; and
•any other relevant facts and circumstances.
As a result of the Merger, the Company’s stock is no longer traded publicly and the Company’s Board of Directors are not required to have a majority of its directors be independent. However, the Board of Directors continue to use the listing standards of the New York Stock Exchange to determine whether the members of the Board of Directors are independent. Under these standards, we believe Mr. Alder and Ms. St.Clare are considered independent directors. Under these standards, Messrs. Mukherjee, Giordano and Zafirovski are considered non-independent directors because of their affiliation with Blackstone, an affiliate of our controlling stockholder. Ms. Hagen lacks independence because she was an executive officer of the Company within the last 3 years. Mr. Hackney lacks independence because he is an executive officer of the Company.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth fees for professional services rendered by the Company's auditors for the audit of our financial statements for the consolidated financial statements for the fiscal years ended December 28, 2013 ("Fiscal 2013") and December 29, 2012 (“Fiscal 2012”). The following table sets forth the aggregate fees of Ernst & Young LLP as well as all “out of pocket” costs incurred in connection with their services.
The nature of the services provided in each category is described in the notes to the table:
Fee Category
 
Fiscal 2013
 
Fiscal 2012
Audit Fees (1)
 
$
1,989,459

 
$
1,377,312

Audit-Related Fees (2)
 
771,091

 
—

Tax Fees (3)
 
867,673

 
41,705

All Other Fees (4)
 
2,566

 
106,700

Total
 
$
3,630,789

 
$
1,525,717

(1)
Audit Fees consist of fees billed or expected to be billed for the fiscal years ended December 28, 2013 and December 29, 2012 related to (i) professional services rendered for the audit of our annual financial statements, (ii) reviews of our unaudited quarterly financial statements, (iii) statutory audits, and (iv) other documents filed with the SEC.
(2)
Audit-Related Fees consist of assurance and related services which include due diligence services related to mergers and acquisitions, accounting consultations and audits in connection with acquisitions, services rendered for the audit of the Company’s employee benefit plans, advice as to the preparation of statutory financial statements, and consultation concerning financial accounting and reporting standards not classified as audit fees.
(3)
Tax Fees consist of professional services rendered for tax compliance, tax advice and tax planning.
(4)
All Other Fees consist of services rendered, other than for the services described under the headings “Audit Fees,” “Audit-Related Fees” and “Tax Fees” above. For 2012, amounts include Audit Fees and Audit-Related Fees associated with Grant Thornton LLP, our predecessor auditor.

140

All audit-related services were pre-approved by either the Board of Directors or our Audit Committee, which concluded that the provision of such services by Ernst & Young LLP was compatible with the maintenance of the independence of the firm in the conduct of its auditing functions. The Audit Committee’s Audit Policies provided for pre-approval of all audit, audit-related, tax and other fees and, in addition, individual engagements must be separately approved. These policies authorized the Audit Committee to delegate to one or more of its members with pre-approved authority regarding permitted services.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. Financial Statements
The following consolidated financial statements and report of Independent Registered Public Accounting Firm required by this Item are filed herewith under Item 8 of this Annual Report on Form 10-K:
•
Report of Ernst & Young LLP, Independent Registered Public Accounting Firm
•
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm
•
Consolidated Balance Sheets as of December 28, 2013 and December 29, 2012
•
Consolidated Statements of Operations for the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012, the eleven months ended December 31, 2011 and the one month ended January 28, 2011
•
Consolidated Statements of Changes in Shareholders’ Equity for the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012, the eleven months ended December 31, 2011 and the one month ended January 28, 2011
•
Consolidated Statements of Comprehensive Income (Loss) for the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012, the eleven months ended December 31, 2011 and the one month ended January 28, 2011
•
Consolidated Statements of Cash Flows for the fiscal year ended December 28, 2013, the fiscal year ended December 29, 2012, the eleven months ended December 31, 2011 and the one month ended January 28, 2011
•
Notes to the Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts (“Schedule II”). Supplemental schedules other than Schedule II are omitted because of the absence of conditions under which they are required or because the required information is included in the consolidated financial statements or in the notes thereto.
3. Exhibits
Exhibits required in connection with this Annual Report on Form 10-K are listed below. Certain exhibits are incorporated by reference to other documents on file with the Securities and Exchange Commission, with which they are physically filed, to be a part of this report as of their respective dates.
Exhibit No.
 
Description
2.1
 
Agreement and Plan of Merger, dated October 4, 2010, among the Company, Scorpio Acquisition Corporation, Scorpio Merger Sub Corporation, and Matlin Patterson Global Opportunities Partners L.P. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 4, 2010)
 
 
 
3.1
 
Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form S-4 (Registration No. 333-177497) filed on October 25, 2011 (the “S-4 Registration Statement”))
 
 
 
3.2
 
Bylaws of the Company, as amended on February 20, 2013 (incorporated by reference to Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed May 9, 2013
 
 
 
4.1
 
Indenture, dated as of January 28, 2011, among the Company, the guarantors named therein and Wilmington Trust Company as trustee (incorporated by reference to Exhibit 4.1 to the Company’s S-4 Registration Statement)
 
 
 
4.2
 
Form of Senior Secured Note (attached as an exhibit to Exhibit 4.1)
 
 
 

141

4.3
 
Registration Rights Agreement, dated as of January 28, 2011, among the Company, the guarantors named therein, Citigroup Global Markets Inc., Morgan Stanley & Co. Incorporated, Barclays Capital Inc. and RBC Capital Markets, LLC. (incorporated by reference to Exhibit 4.3 to the Company’s S-4 Registration Statement)
 
 
 
10.1
 
Credit Agreement, dated as of January 28, 2011, among Scorpio Acquisition Corporation, Scorpio Merger Sub Corporation as lead borrower, the lenders from time to time party thereto, Citibank, N.A., as administrative agent and collateral agent, Morgan Stanley Senior Funding, Inc. as syndication agent, Barclays Bank PLC and RBC Capital Markets as co-documentation agents, and Citigroup Global Markets Inc., Morgan Stanley Senior Funding, Inc., Barclays Capital and RBC Capital Markets, as joint lead arrangers and joint book runners (incorporated by reference to Exhibit 10.1 to the Company’s S-4 Registration Statement)
 
 
 
10.2
 
Amended and Restated Credit Agreement dated October 5, 2012 among Scorpio Acquisition Corporation, Polymer Group, Inc. as lead borrower, the lenders from time to time party thereto, Citibank, N.A., as administrative agent and collateral agent, Morgan Stanley Senior Funding, Inc. as syndication agent, Barclays Bank PLC and RBC Capital Markets as co-documentation agents, and Citigroup Global Markets Inc., Morgan Stanley Senior Funding, Inc., Barclays Capital, and RBC Capital Markets, as joint lead arrangers and joint book runners.
 
 
 
10.3
 
Security Agreement, dated as of January 28, 2011, among the Company, Scorpio Acquisition Corporation, certain other subsidiaries of Scorpio Acquisition Corporation named therein and Wilmington Trust Company as collateral agent (incorporated by reference to Exhibit 10.2 to the Company’s S-4 Registration Statement)
 
 
 
10.4
 
Security Agreement, dated as of January 28, 2011, among Scorpio Merger Sub Corporation, Scorpio Acquisition Corporation, certain other subsidiaries of Scorpio Acquisition Corporation named therein and Citibank, N.A., as collateral agent (incorporated by reference to Exhibit 10.3 to the Company’s S-4 Registration Statement)
 
 
 
10.5
 
Lien Subordination and Intercreditor Agreement, dated as of January 28, 2011, among Citibank, N.A., Wilmington Trust Company as noteholder collateral agent, Scorpio Acquisition Corporation, the Company and the subsidiaries of the Company named therein (incorporated by reference to Exhibit 10.4 to the Company’s S-4 Registration Statement)
 
 
 
10.6
 
Intercreditor Agreement and Collateral Agency Agreement, dated as of January 28, 2011, among Scorpio Acquisition Corporation, the Company, the subsidiaries of the Company named therein, Citibank, N.A., as Tranche 2 representative and Wilmington Trust Company as collateral agent and trustee (incorporated by reference to Exhibit 10.5 to the Company’s S-4 Registration Statement)
 
 
 
10.7
 
Guaranty Agreement, dated as of January 28, 2011, among Scorpio Acquisition Corporation, certain other subsidiaries of Scorpio Acquisition Corporation named therein and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 10.6 to the Company’s S-4 Registration Statement)
 
 
 
10.8
 
Transaction and Advisory Fee Agreement, dated as of January 28, 2011, between Scorpio Merger Sub-Corporation (merged with and into the Company) and Blackstone Management Partners V L.L.C. Incorporated by reference to Exhibit 10.18 to the Company’s Amendment No. 1 to the Registration Statement on Form S-4/A (Registration No. 333-177497) filed on December 5, 2011)
 
 
 
10.9
 
Equipment Lease Agreement, dated as of June 24, 2010, between Gossamer Holdings, LLC, as Lessor, and Chicopee, Inc., as Lessee (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 17, 2010)
 
 
 
10.10
 
Amendment and Waiver to Equipment Lease Agreement, dated as of January 19, 2011, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.16 to the Company’s S-4 Registration Statement)
 
 
 
10.11
 
Second Amendment to Equipment Lease Agreement, dated as of October 7, 2011, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.17 to the Company’s S-4 Registration Statement)
 
 
 
10.12
 
Third Amendment to Equipment Lease Agreement, dated as of February 28, 2012, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 15, 2012)
 
 
 
10.13
 
Fourth Amendment to Equipment Lease Agreement, dated as of March 22, 2013, between Chicopee, Inc., as Lessee and Gossamer Holdings, LLC, as Lessor (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed May 9, 2013)
 
 
 
10.14
 
Senior Secured Bridge Credit Agreement, dated as of September 17, 2013, among Polymer Group, Inc., Scorpio Acquisition Corporation, the lenders from time to time party thereto, Citicorp North America, Inc. as administrative agent, Barclays Bank plc as syndication agent and Citigroup Global Markets Inc. and Barclays Bank plc as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 17, 2013)
 
 
 

142

10.15
 
Guaranty, dated as of September 17, 2013 among Scorpio Acquisition Corporation, the subsidiaries of Scorpio Acquisition Corporation party thereto and Citicorp North America Inc., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 17, 2013)
 
 
 
10.16
 
Amendment No. 1, dated as of October 22, 2013, among Polymer Group, Inc., Scorpio Acquisition Corporation, Citicorp North America, Inc., as administrative agent, and the lenders party thereto from time to time, to the Senior Secured Bridge Credit Agreement, dated as of September 17, 2013, among Polymer Group, Inc., Scorpio Acquisition Corporation, the lenders from time to time party thereto, Citicorp North America, Inc. as administrative agent, Barclays Bank PLC as syndication agent and Citigroup Global Markets Inc. and Barclays Bank PLC as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 25, 2013)
 
 
 
10.17
 
Amendment No. 2, dated as of November 26, 2013, among Polymer Group, Inc., Scorpio Acquisition Corporation, Citicorp North America, Inc., as administrative agent, and the lenders party thereto from time to time, to the Senior Secured Bridge Credit Agreement, dated as of September 17, 2013, among Polymer Group, Inc., Scorpio Acquisition Corporation, the lenders from time to time party thereto, Citicorp North America, Inc. as administrative agent, Barclays Bank PLC as syndication agent and Citigroup Global Markets Inc. and Barclays Bank PLC as joint lead arrangers and joint bookrunners (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 3, 2013)
 
 
 
10.18
 
Senior Unsecured Bridge Credit Agreement, dated as of November 26, 2013, among Polymer Group, Inc., Scorpio Acquisition Corporation, the lenders from time to time party thereto, Citicorp North America, Inc. as administrative agent, Barclays Bank PLC as syndication agent, RBC Capital Markets and HSBC Bank USA, N.A., as co-documentation agents, Citigroup Global Markets Inc. and Barclays Bank PLC as joint lead arrangers and Citigroup Global Markets Inc., Barclays Bank PLC, RBC Capital Markets and HSBC Securities (USA) Inc. as joint bookrunners (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 3, 2013)
 
 
 
10.19
 
Guaranty, dated as of November 26, 2013 among Scorpio Acquisition Corporation, the subsidiaries of Scorpio Acquisition Corporation party thereto and Citicorp North America Inc., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 3, 2013)
 
 
 
10.20
 
Amendment No. 1, dated as of November 26, 2013, among Polymer Group, Inc., Scorpio Acquisition Corporation, the other borrowers party thereto, the incremental lenders party thereto, the lenders party thereto, and Citibank, N.A., as administrative agent, collateral agent, L/C Issuer and Swing Line Lender, to the Amended and Restated Credit Agreement, dated October 5, 2012, among the Company, Holdings , the other borrowers party thereto, the institutions from time to time party thereto as lenders, Citibank, N.A., as administrative agent and collateral agent, and the other parties named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 3, 2013)
 
 
 
10.21
 
Supplemental Indenture, dated as of December 20, 2013, among the subsidiaries of Polymer Group, Inc. party thereto and Wilmington Trust Company, as trustee, to the Indenture, dated as of January 28, 2011, among Polymer Group, Inc., the guarantors party thereto and Wilmington Trust Company, as trustee (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2013)
 
 
 
10.22
 
Senior Secured Credit Agreement, dated as of December 19, 2013, among Polymer Group, Inc., Scorpio Acquisition Corporation, the lenders from time to time party thereto, Citicorp North America, Inc. as administrative agent, Barclays Bank PLC as syndication agent, RBC Capital Markets and HSBC Bank USA, N.A. as co-documentation agents, Citigroup Global Markets Inc. and Barclays Bank PLC as joint lead arrangers and Citigroup Global Markets Inc., Barclays Bank PLC, RBC Capital Markets and HSBC Securities (USA) Inc. as joint bookrunners (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2013)
 
 
 
10.23
 
Guaranty, dated as of December 19, 2013 among Scorpio Acquisition Corporation, the subsidiaries of Scorpio Acquisition Corporation party thereto and Citicorp North America, Inc., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2013)
 
 
 
10.24
 
Joinder Agreement, dated as of December 20, 2013, among the subsidiaries of Polymer Group, Inc. party thereto and Citibank, N.A., as administrative agent and collateral agent, to the Amended and Restated Credit Agreement, dated as of October 5, 2012, among Scorpio Acquisition Corporation, Polymer Group, Inc., the other borrowers party thereto, the institutions from time to time party thereto as lenders, Citibank, N.A., as administrative agent and collateral agent, and the other parties named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2013)
 
 
 
10.25
 
Supplement No. 1, dated as of December 20, 2013, among the subsidiaries of Polymer Group, Inc. party thereto and Citibank, N.A. as administrative agent and collateral agent, to the Guaranty, dated as of January 28, 2011 among Scorpio Acquisition Corporation, certain subsidiaries of Scorpio Acquisition Corporation party thereto and Citibank, N.A., as administrative agent and collateral agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2013)
 
 
 

143

10.26
 
Supplement No. 1, dated as of December 20, 2013, among the subsidiaries of Polymer Group, Inc. party thereto and Citicorp North America, Inc. as administrative agent, to the Guaranty, dated as of December 19, 2013, among Scorpio Acquisition Corporation, the subsidiaries of Scorpio Acquisition Corporation party thereto and Citicorp North America, Inc., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2013)
 
 
 
10.27
 
Retirement Agreement, dated June 17, 2013, between Veronica M. Hagen, the Company and Scorpio Holdings Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 7, 2013)
 
 
 
10.28
 
Executive Employment Agreement, dated June 12, 2013, between Joel Hackney and the Company (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 7, 2013)
 
 
 
10.29
 
Form of Restricted Stock Unit Agreement under the 2011 Scorpio Holdings Corporation Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed August 7, 2013)
 
 
 
*10.30
 
Executive Employment Agreement, dated as of March 31, 2010, between the Company and Veronica M. Hagen (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 14, 2010)
 
 
 
*10.31
 
Executive Employment Agreement, dated as of October 4, 2010, between Scorpio Acquisition Corporation and Veronica M. Hagen (the “Hagen Employment Agreement”) (incorporated by reference to Exhibit 10.7 to the Company’s Registration Statement on Form S-4 (Registration No. 333-177497) filed on October 25, 2011)
 
 
 
*10.32
 
Assignment and Assumption Agreement, dated as of January 28, 2011, between Scorpio Acquisition Corporation and the Company with respect to the Hagen Employment Agreement (incorporated by reference to Exhibit 10.8 to the Company’s S-4 Registration Statement)
 
 
 
*10.33
 
Executive Employment Agreement, dated January 28, 2011, between Michael Hale and the Company (incorporated by reference to Exhibit 10.9 to the Company’s S-4 Registration Statement)
 
 
 
*10.34
 
Executive Employment Agreement, dated January 28, 2011, between Dennis Norman and the Company (incorporated by reference to Exhibit 10.10 to the Company’s S-4 Registration Statement)
 
 
 
*10.35
 
2011 Scorpio Holdings Corporation Stock Incentive Plan (incorporated by reference to Exhibit 10.11 to the Company’s S-4 Registration Statement)
 
 
 
*10.36
 
Form of Management Equity Subscription Agreement under the 2011 Scorpio Holdings Corporation Stock Incentive Plan (incorporated by reference to Exhibit 10.12 to the Company’s S-4 Registration Statement)
 
 
 
*10.37
 
Form of Nonqualified Stock Option Agreement under the 2011 Scorpio Holdings Corporation Stock Incentive Plan (incorporated by reference to Exhibit 10.13 to the Company’s S-4 Registration Statement)
 
 
 
*10.38
 
Amended and Restated Polymer Group, Inc. Short-Term Incentive Compensation Plan (incorporated by reference to Exhibit 10.14 to the Company’s S-4 Registration Statement)
 
 
 
*10.39
 
Amended and Restated Polymer Group, Inc. Short-Term Incentive Compensation Plan (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed on May 15, 2012)
 
 
 
*10.40
 
Amendment No.1, dated June 12, 2012, to Executive Employment Agreement, dated January 28, 2011, between Michael Hale and the Company (incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed on August 13, 2012)
 
 
 
16.1
 
Letter from Grant Thornton LLP to the Securities and Exchange Commission, dated April 3, 2012 (incorporated by reference to Exhibit 16.1 to the Company's Current Report of Form 8-K filed on April 3, 2012)
 
 
 
12.1
 
Computation of Ratio of Earnings to Fixed Charges
 
 
 
21.1
 
Subsidiaries of Polymer Group, Inc.
 
 
 
31.1
 
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
 
 
 
31.2
 
Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
 
 
 
32.1
 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer
 
 
 
32.2
 
Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer
 
 
 

144

101
 
The following materials from the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statement of Operations; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Stockholders' Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.
* Management contract or compensatory plan or arrangement

145

POLYMER GROUP, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
In thousands
 
Balance at Beginning of Period
 
Additions
 
Deductions
 
Balance at End of Period
Charged to Expenses
 
Charged to Other
Successor
 
 
 
 
 
 
 
 
 
 
Fiscal Year ended December 28, 2013
 
 
 
 
 
 
 
 
 
 
Allowance for Doubtful Accounts
 
1,179

 
483

 
(98
)
 
756

 
808

Valuation allowance for deferred tax assets
 
203,837

 
16,811

 
32,983

 
52,519

 
201,112

Plant realignment
 
8,288

(g)
8,634

 
(119
)
 
8,343

 
8,460

 
 
 
 
 
 
 
 
 
 
 
Fiscal Year ended December 29, 2012
 
 
 
 
 
 
 
 
 
 
Allowance for Doubtful Accounts
 
$
1,059

 
5

 
221

(f)
106

(e)
$
1,179

Valuation allowance for deferred tax assets
 
178,161

 
41,307

 
4,737

(b)
20,368

(c)
203,837

Plant realignment
 
1,100

 
15,074

 
34

 
9,930

(d)
6,278

 
 
 
 
 
 
 
 
 
 
 
Eleven Months ended December 31, 2011
 
 
 
 
 
 
 
 
 
 
Allowance for Doubtful Accounts
 
$
—

(a)
1,071

 
(12
)
 
—

 
$
1,059

Valuation allowance for deferred tax assets
 
134,796

(a)
28,568

 
16,311

(b)
1,514

(c)
178,161

Plant realignment
 
1,694

 
1,515

 
(87
)
 
2,022

(d)
1,100

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Predecessor
 
 
 
 
 
 
 
 
 
 
One Month ended January 28, 2011
 
 
 
 
 
 
 
 
 
 
Allowance for Doubtful Accounts
 
$
5,871

 
163

 
(3
)
 
49

 
$
5,982

Valuation allowance for deferred tax assets
 
190,495

 
—

 
—

 
11,096

(c)
179,399

Plant realignment
 
1,726

 
194

 
(6
)
 
220

(d)
1,694

(a)
Beginning balance reflects opening balance sheet purchase accounting adjustments.
(b)
Foreign currency translation adjustments and/or valuation allowance related to temporary differences not impacting the Consolidated Statement of Operations.
(c)
Net adjustments due to realizations of deferred tax assets and valuation allowance related to temporary differences.
(d)
Cash payments.
(e)
Primarily recoveries.
(f)
Foreign currency translation and revaluation adjustments.
(g)
Includes $2.0 million of charges associated with the Fiberweb Acquisition.


146

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  
POLYMER GROUP, INC.
 
 
By:
 
/s/ Dennis E. Norman
 
 
Dennis E. Norman
Executive Vice President & Chief Financial Officer
Date:
 
March 28, 2014
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature
 
Title
 
Date
/s/ J. Joel Hackney Jr.
 
 
 
 
J. Joel Hackney Jr.
 
President and Chief Executive Officer and Director (Principal Executive Officer)
 
March 28, 2014
 
 
 
 
 
/s/ Dennis E. Norman
 
 
 
 
Dennis E. Norman
 
Executive Vice President & Chief Financial Officer (Principal Financial Officer)
 
March 28, 2014
 
 
 
 
 
/s/ James L. Anderson
 
 
 
 
James L. Anderson
 
Vice President & Chief Accounting Officer (Principal Accounting Officer)
 
March 28, 2014
 
 
 
 
 
/s/ James S. Alder
 
 
 
 
James S. Alder
 
Director
 
March 28, 2014
 
 
 
 
 
/s/ Jason Giordano
 
 
 
 
Jason Giordano
 
Director
 
March 28, 2014
 
 
 
 
 
/s/ Veronica M. Hagen
 
 
 
 
Veronica M. Hagen
 
Director
 
March 28, 2014
 
 
 
 
 
/s/ Anjan Mukherjee
 
 
 
 
Anjan Mukherjee
 
Director
 
March 28, 2014
 
 
 
 
 
/s/ Christine St.Clare
 
 
 
 
Christine St.Clare
 
Director
 
March 28, 2014
 
 
 
 
 
/s/ Mike S. Zafirovski
 
 
 
 
Mike S. Zafirovski
 
Director
 
March 28, 2014


147

SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
The registrant has not sent and, following the filing of this Annual Report on Form 10-K with the Securities and Exchange Commission, does not intend to send to its securityholders an annual report to securityholders or proxy material for the year ended December 28, 2013 or with respect to any annual or other meeting of security holders, because all of its equity securities are held by Scorpio Acquisition Corporation.

148