Acquisitions

Providência Acquisition

On January 27, 2014, the Company announced that PGI Polímeros do Brazil, a Brazilian corporation and wholly-owned subsidiary of the Company ("PGI Acquisition Company"), entered into a Stock Purchase Agreement with Companhia Providência Indústria e Comércio, a Brazilian corporation ("Providência") and certain shareholders named therein. Pursuant to the terms and subject to the conditions of the Stock Purchase Agreement, PGI Acquisition Company agreed to acquire a 71.25% controlling interest in Providência (the “Providência Acquisition”). Providência is a leading manufacturer of nonwovens primarily used in hygiene applications as well as industrial and healthcare applications. Based in Brazil, Providência has three locations, including one in the United States.

The Providência Acquisition was completed on June 11, 2014 (the "Providência Acquisition Date") for an aggregate purchase price of $424.6 million and funded with the proceeds from borrowings under an incremental term loan amendment to the Company's existing Senior Secured Credit Agreement as well as the proceeds from the issuance of $210.0 million of 6.875% Senior Unsecured Notes due in 2019.

The components of the purchase price are as follows:



In thousands	Consideration
Cash consideration paid to selling stockholders	$	187,885
Cash consideration deposited into escrow	8,242
Deferred consideration	47,931
Debt repaid	180,532
Total consideration	$	424,590

Total consideration paid included $47.9 million of deferred consideration, which shall accrete at a rate of 9.5% per annum compounded daily, which shall be paid to the selling stockholders to the extent certain existing and potential tax claims are resolved. Based on management's best estimate, resolution and payment of the existing and potential tax claims is anticipated in 2016 or later. As a result, the deferred consideration is classified as a noncurrent liability.

As required by Brazilian law, PGI Acquisition Company filed a mandatory tender offer registration request with the Securities Commission of Brazil (Comissão de Valores Mobiliários or the “CVM”) in order to launch, after its approval, a tender offer to acquire all of the remaining outstanding capital stock of Providência from the minority shareholders (the “Mandatory Tender Offer”). Once the Mandatory Tender Offer is approved and launched, the minority shareholders have the right, but not the obligation, to sell their remaining outstanding capital stock of Providência. Given such right of the minority shareholders, the Company determined that ASC 480 requires the noncontrolling interest to be presented as mezzanine equity on the Consolidated Balance Sheets and adjusted to its estimated maximum redemption amount at each balance sheet date. Refer to Note 15, "Redeemable Noncontrolling Interest" for further information on the accounting of the redeemable noncontrolling interest.

The Providência Acquisition was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations. As a result, the total purchase price has been allocated to assets acquired and liabilities assumed based on the preliminary estimate of fair market value of such assets and liabilities at the Providência Acquisition Date. Any excess of the purchase price is recognized as goodwill.

During the third quarter of 2014, the Company obtained new information related to the assets acquired and liabilities assumed of Providência. The facts and circumstances existed at the date of acquisition and, if known, would have affected the measurement of the amounts recognized at that date. In accordance with ASC 805, "Business Combinations" ("ASC 805"), measurement period adjustments are not included in current earnings, but recognized as of the date of acquisition with a corresponding adjustment to goodwill resulting from the change in preliminary amounts. As a result, the Company adjusted the preliminary allocation of the purchase price initially recorded at the Providência Acquisition Date to reflect these measurement period adjustments. The final valuation associated with the Providência Acquisition is expected to be completed during the first half of 2015.

The initial allocation of the purchase price and related measurement period adjustments are as follows:



In thousands	Preliminary June 11, 2014		Measurement Period Adjustments			Adjusted June 11, 2014
Cash	$	20,621	$	—		$	20,621
Accounts receivable	56,976		(4,047		)	52,929
Inventory	33,000		1,451			34,451
Other current assets	27,748		4,100			31,848
Total current assets	138,345		1,504			139,849

Property, plant and equipment	400,000		—			400,000
Goodwill	106,335		1,162			107,497
Intangible assets	4,770		(270		)	4,500
Other noncurrent assets	12,288		—			12,288
Total assets acquired	$	661,738	$	2,396		$	664,134

Current liabilities	$	28,863	$	2,742		$	31,605
Total debt	74,930		—			74,930
Deferred income taxes	38,373		(346		)	38,027
Other noncurrent liabilities	1,992		—			1,992
Total liabilities assumed	144,158		2,396			146,554
Redeemable noncontrolling interest	92,990		—			92,990
Net assets acquired	$	424,590	$	—		$	424,590

Cash, accounts receivable and current liabilities were stated at their historical carrying values, which approximate fair value, given the short-term nature of these assets and liabilities. The preliminary estimate of fair value for inventories was 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 $4.9 million. The preliminary estimate of fair value for 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 increased the carrying value of property, plant and equipment by $77.8 million. The preliminary estimate of fair value of the redeemable noncontrolling interest was based upon management's preliminary assessment of the current market value of the outstanding shares of stock.

The Company recorded intangible assets based on a preliminary estimate of fair value, and consisted of a finite-lived customer relationship intangible asset with an estimated fair value of $4.5 million. The valuation was determined using an income approach methodology using the multi-period excess earnings method. The average estimated useful life of the intangible asset is considered to be 15 years, determined based upon various accounting studies, historical acquisition experience, economic factors and future cash flows.

The excess of the purchase price over the preliminary 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 Providência broadens our scale and further solidifies the Company's position as the largest manufacturer of nonwovens in the world. The Company anticipates that the broad base of clients associated with the acquisition of Providência will enhance the Company's position in hygiene products and markets as well as strengthen our position in the Americas. In the short-term, the Company anticipates realizing operational and cost synergies at Providência that include purchasing optimization due to larger volumes, reduced manufacturing costs and lower general and administrative costs.

Acquisition related costs were as follows:



In thousands	Amount
Loan acquisition costs	$	21,297
Transaction expenses	15,766
Total	$	37,063

Capitalized loan acquisition costs related to the Providência Acquisition of $10.6 million were recorded within Intangible assets, net in the Consolidated Balance Sheets and are amortized over the term of the loan to which such costs relate. The remainder, $10.7 million, was expensed as incurred during the second quarter and included within Debt modification and extinguishment costs in the Consolidated Statements of Comprehensive Income (Loss). In accordance with ASC 805, transaction expenses related to the Providência Acquisition were expensed as incurred within Special charges, net in the Consolidated Statements of Comprehensive Income (Loss).

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 "Fiberweb 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 "Fiberweb 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 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 Fiberweb Acquisition was recorded using the acquisition method of accounting in accordance with the accounting guidance for business combinations. As a result, the total purchase price was allocated to assets acquired and liabilities assumed based on the preliminary estimated fair market value of such assets and liabilities at the Fiberweb Acquisition Date. Any excess of the purchase price was recognized as goodwill. During the third quarter of 2014, the Company finalized its fair market value estimates of assets acquired and liabilities assumed with the assistance of a third-party valuation specialist. In accordance with ASC 805, measurement period adjustments are not included in current earnings, but recognized as of the date of acquisition with a corresponding adjustment to goodwill resulting from the change in preliminary amounts. As a result, the Company adjusted the preliminary allocation of the purchase price initially recorded at the Fiberweb Acquisition Date and retrospectively adjusted its Consolidated Balance Sheet at December 28, 2013 to reflect these measurement period adjustments. The preliminary allocation of the purchase price and related measurement period adjustments are as follows:



In thousands	Preliminary November 15, 2013		Measurement Period Adjustments			Adjusted November 15, 2013
Cash	$	8,792	$	—		$	8,792
Accounts receivable	49,967		—			49,967
Inventory	71,050		31			71,081
Other current assets	29,889		—			29,889
Total current assets	159,698		31			159,729

Property, plant and equipment	158,000		29,529			187,529
Goodwill	38,514		(4,815		)	33,699
Intangible assets	85,000		996			85,996
Other noncurrent assets	1,403		—			1,403
Total assets acquired	$	442,615	$	25,741		$	468,356

Current liabilities	$	84,185	$	70		$	84,255
Financing Obligation	20,300		—			20,300
Total debt	19,391		—			19,391
Deferred income taxes	20,649		25,325			45,974
Other noncurrent liabilities	9,479		346			9,825
Noncontrolling interest	849		—			849
Total liabilities assumed	$	154,853	$	25,741		$	180,594
Net assets acquired	$	287,762	$	—		$	287,762

Cash, accounts receivable and current liabilities were stated at their historical carrying values, which approximate fair value, given the short-term nature of these assets and liabilities. The estimate of fair value for inventories was 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 $9.7 million. The estimate of fair value for 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 increased the carrying value of property, plant and equipment by $24.5 million.

The Company recorded intangible assets based on an estimate of fair value, and consisted of the following:



In thousands	Useful Life	Amount
Technology	15 years	$	31,827
Trade names	Indefinite	11,412
Customer relationships	20 years	42,757
Total		$	85,996

The Company allocated $11.4 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 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 manufacturer 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 customers 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 at Fiberweb that include purchasing optimization due to larger volumes, reduced manufacturing costs and lower general and administrative costs.

Acquisition related costs were as follows:



In thousands	Amount
Loan acquisition costs	$	16,094
Transaction expenses	15,764
Total	$	31,858

Loan acquisition costs related to the Fiberweb 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, transaction expenses related to the Fiberweb Acquisition were expensed as incurred within Special charges, net in the Consolidated Statements of Comprehensive Income (Loss).

Pro Forma Information

The following unaudited pro forma information assumes the acquisition of both Fiberweb and Providência occurred as of the beginning of the earliest period presented:



In thousands	Three Months Ended September 27, 2014			Nine Months Ended September 27, 2014			Three Months Ended September 28, 2013			Nine Months Ended September 28, 2013
Net sales	$	498,013		$	1,505,053		$	495,215		$	1,475,186
Net income (loss)	(55,228		)	(121,007		)	(44,199		)	(57,341		)

The unaudited pro forma information does not purport to be indicative of the results that actually would have been achieved had the operations been combined during the periods presented, nor is it intended to be a projection of future results or trends. Net sales attributable to Providência for the three and nine months ended September 27, 2014 was $91.1 million and $111.8 million, respectively. Gross profit attributable to Providência for the three and nine months ended September 27, 2014 was $9.0 million and $14.5 million.

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 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 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.