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Description of Business and Basis of Presentation | 3 Months Ended
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Mar. 31, 2012
Description of Business and Basis of Presentation [Abstract] |
Description of Business and Basis of Presentation | Note 1. Description of Business and Basis of Presentation Description of Business Polymer Group, Inc. (“Polymer” or “PGI”) and its subsidiaries (together with PGI, the “Company”) is a leading global innovator, manufacturer and marketer of engineered materials, focused primarily on the production of nonwoven products. The Company has one of the largest global platforms in the industry, with fourteen manufacturing and converting facilities throughout the world, and a presence in nine countries. The Company’s main sources of revenue are the sales of primary and intermediate products to the hygiene, medical, wipes and industrial markets. Basis of Presentation Acquisition On January 28, 2011 (the “Merger Date”), pursuant to an Agreement and Plan of Merger dated as of October 4, 2010 (the “Merger Agreement”), Scorpio Merger Sub Corporation, a newly formed Delaware Corporation (“Merger Sub”), merged with and into Polymer, with Polymer surviving as a direct, wholly-owned subsidiary of Scorpio Acquisition Corporation, a Delaware corporation (“Parent”) (collectively the “Acquisition” or “Merger”). Parent’s sole asset is its 100% ownership of the stock of Polymer. Parent is owned 100% by Scorpio Holdings Corporation, a Delaware Corporation (“Holdings”), and certain private investment funds affiliated with The Blackstone Group (“Blackstone”), a private equity firm based in New York, along with its co-investors and certain members of the Company’s management, own 100% of the outstanding equity of Holdings. As a result, Polymer became a privately-held company. As more fully described in Note 4 “Acquisitions”, the Acquisition is being accounted for in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for business combinations and accordingly, the Company’s assets and liabilities, excluding deferred income taxes, were recorded using their fair value as of January 28, 2011. Although Polymer continued as the same legal entity after the Acquisition, the application of push down accounting represents the termination of the old reporting entity and the creation of a new one. In addition, the basis of presentation is not consistent between the successor and predecessor entities and the financial statements are not presented on a comparable basis. As a result, the accompanying consolidated balance sheets, statements of operations, cash flows, and comprehensive income (loss) are presented for two different reporting entities: Successor — relates to the financial periods and balance sheets succeeding the Acquisition; and Predecessor — relates to the financial periods preceding the Acquisition (prior to January 28, 2011). Unless otherwise indicated, the “Company” as used throughout the remainder of the notes, refers to both the Successor and Predecessor. Basis of Consolidation The accompanying unaudited interim consolidated financial statements include the accounts of Polymer and all majority-owned subsidiaries after elimination of all significant intercompany accounts and transactions. The accounts of all foreign subsidiaries have been included on the basis of fiscal periods ended on the same dates as the accompanying consolidated financial statements. All amounts are presented in United States (“U.S.”) dollars, unless otherwise noted. The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements of the Company and related notes contained in the Annual Report on Form 10-K for the period ended December 31, 2011. The Consolidated Balance Sheet data included herein as of December 31, 2011 have been derived from the audited consolidated financial statements included in the Annual Report on Form 10-K. In addition, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to applicable rules and regulations. In the judgment of management, these unaudited interim consolidated financial statements include all adjustments of a normal recurring nature and accruals necessary for a fair presentation of such statements. The results of operations for the interim period are not necessarily indicative of the results which may be realized for the full year. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP and in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“Codification” or “ASC”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the related disclosures within the accompanying notes. The accounting estimates that require management’s most significant and subjective judgments include the valuation of allowances for accounts receivable and inventory, the assessment of recoverability of long-lived assets and indefinite lived intangible assets, the recognition and measurement of severance-related liabilities, the recognition and measurement of current and deferred income tax assets and liabilities (including the measurement of uncertain tax positions), the valuation and recognition of share-based compensation, the valuation of obligations under the Company’s pension and postretirement benefit plans and the fair value of financial instruments and non-financial assets and liabilities. Actual results could differ from these estimates. These estimates are reviewed periodically to determine if a change is required. Revenue Recognition Revenue from product sales is recognized when title and risks of ownership pass to the customer, which is on the date of shipment to the customer, or upon delivery to a place named by the customer, dependent upon contract terms and when collectability is reasonably assured and pricing is fixed or determinable. Revenue includes amounts billed to customers for shipping and handling. Provision for rebates, promotions, product returns and discounts to customers is recorded as a reduction in determining revenue in the same period that the revenue is recognized. Cash Equivalents Cash equivalents are defined as short-term investments having an original maturity 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 the Company has not experienced any losses on such deposits. Interest income is presented as a reduction of Interest expense, net in the Consolidated Statements of Operations and consists primarily of income from highly liquid investment sources. Inventories Inventories are stated at the lower of cost or market primarily using the FIFO method of accounting. Costs include direct material, direct labor and applicable manufacturing overhead. Property, Plant and Equipment Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed for financial reporting purposes on the straight-line method over the estimated useful lives of the related assets. The estimated useful lives established for building and improvements range from 5 to 31 years, and the estimated useful lives established for machinery, equipment and other fixed assets range from 2 to 15 years. Costs of repairs and maintenance are charged to expense as incurred. Costs of the construction of certain long-lived assets include capitalized interest that is amortized over the estimated useful life of the related asset. The Company’s accumulated depreciation for property, plant and equipment was $62.2 million and $46.4 million as of March 31, 2012 and December 31, 2011, respectively. Derivatives The Company records all derivative instruments as either assets or liabilities on the balance sheet at their fair value in accordance with ASC 815, “Derivatives and Hedging” (“ASC 815”). Changes in the fair value of a derivative are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, depending on the type of hedge transaction. Ineffective portions, if any, of all hedges are recognized in earnings. As more fully described in Note 14 “Derivatives and Other Financial Instruments and Hedging Activities”, the Company, in the normal course of business, periodically enters into derivative financial instruments, principally swaps and forward contracts, with high-quality counterparties as part of its risk management strategy. These financial instruments are limited to non-trading purposes and are used principally to manage market risks and reduce the Company’s exposure to fluctuations in foreign currency and interest rates. Most interest rate swaps and foreign exchange forward contracts have been designated as cash flow hedges of the variability in cash flows associated with interest payments to be made on variable rate debt obligations or fair value hedges of foreign currency-denominated transactions. The Company documents all relationships between hedging instruments and hedged items, as well as the risk- management objective and strategy for undertaking various hedge transactions and the methodologies that will be used for measuring effectiveness and ineffectiveness. This process includes linking all derivatives that are designated as cash flow or fair value hedges to specific assets and liabilities on the balance sheet or to specific firm commitments. The Company then assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are expected to be highly effective in offsetting changes in fair values or cash flows of hedged items. Such assessments are conducted in accordance with the originally documented risk management strategy and methodology for that particular hedging relationship. For cash flow hedges, the effective portion of recognized derivative gains and losses reclassified from other comprehensive income is classified consistent with the classification of the hedged item. For example, derivative gains and losses associated with hedges of interest rate payments are recognized in Interest expense, net in the Consolidated Statements of Operations. For fair value hedges, changes in the value of the derivatives, along with the offsetting changes in the fair value of the underlying hedged exposure are recorded in earnings each period in Foreign currency and other (gain) loss, net in the Consolidated Statements of Operations. Stock-Based Compensation The Company accounts for stock-based compensation related to its employee share-based plans in accordance with ASC 718, “Compensation — Stock Compensation” (“ASC 718”). The compensation costs recognized are measured based on the grant-date fair value of the award. Consistent with ASC 718, awards are considered granted when all required approvals are obtained and when the participant begins to benefit from, or be adversely affected by, subsequent changes in the price of the underlying shares and, regarding awards containing performance conditions, when the Company and the participant reach a mutual understanding of the key terms of the performance conditions. Additionally, accruals for compensation costs for share-based awards with performance conditions are based on the probable outcome of such performance conditions. The Company has estimated the fair value of each stock option grant by using the Black-Scholes option-pricing model. Assumptions are evaluated and revised, as necessary, to reflect market conditions and experience. Research and Development Cost The cost of research and development is charged to expense as incurred and is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. Shipping and Handling Costs Shipping and handling costs include costs to store goods prior to shipment, prepare goods for shipment and physically move goods from the Company’s sites to the customers’ premises. The cost of shipping and handling is charged to expense as incurred and is included in Selling, general and administrative expenses in the Consolidated Statements of Operations. Special Charges The Company records severance-related expenses once they are both probable and estimable in accordance with ASC 712, “Compensation — Nonretirement Postemployment Benefits” (“ASC 712”), for severance provided under an ongoing benefit arrangement. One-time, involuntary benefit arrangements and disposal costs, contract termination costs and other exit costs are accounted in accordance with ASC 420, “Exit or Disposal Cost Obligations” (“ASC 420”). The company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying values may not be recoverable from future undiscounted cash flows. If the carrying amounts are not recoverable, the Company, consistent with the provisions of ASC 360, “Property, Plant and Equipment”, records a non-cash charge associated with the write-down of such assets to estimated fair value. Fair value is estimated based on the present value of expected future cash flows, appraisals and other indicators of value. The Company evaluates the impairment of indefinite-lived intangible assets in accordance with ASC 350. Foreign Currency Translation The Company accounts for, and reports, translation of foreign currency transactions and foreign currency financial statements in accordance with ASC 830, “Foreign Currency Matters” (“ASC 830”). All assets and liabilities in the balance sheets of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at period-end exchange rates, while income, expenses and cash flows are translated at average exchange rates during the period. Translation gains and losses are not included in determining net income, but are presented as a separate component of accumulated other comprehensive income (loss). In addition, foreign currency transaction gains and losses are included in the determination of net income (loss). Accumulated Other Comprehensive Income Accumulated other comprehensive income of $7.7 million at March 31, 2012 consisted of $1.5 million of unrealized currency translation adjustments and $6.2 million of transition net assets, gains or losses and prior service costs not recognized as components of net periodic benefit costs (net of income taxes of $0.9 million). Accumulated other comprehensive income of $2.9 million at December 31, 2011 consisted of $(3.3) million of unrealized currency translation adjustments and $6.2 million of transition net assets, gains or losses and prior service costs not recognized as components of net periodic benefit costs (net of income taxes of $0.9 million). The following tables provide information related to the Company’s other comprehensive income for the three months ended March 31, 2012, the two months ended April 2, 2011 and the one month ended January 28, 2011 (in thousands):
|  | Successor |
|  | Three Months Ended March 31, 2012 |
|  | Before-Tax Amount |  |  | Tax (Expense) or Benefit |  |  | Net-of-Tax Amount |
Foreign currency translation adjustments |  | $ | 4,823 |  |  | $ | — |  |  | $ | 4,823 |
Defined benefit pension plans |  |  | — |  |  |  | — |  |  |  | — |
Cash flow hedge adjustments |  |  | — |  |  |  | — |  |  |  | — |
Other comprehensive income |  | $ | 4,823 |  |  | $ | — |  |  | $ | 4,823 |
|  | Successor |
|  | Two Months Ended April 2, 2011 |
|  | Before-Tax Amount |  |  | Tax (Expense) or Benefit |  |  | Net-of-Tax Amount |
Foreign currency translation adjustments |  | $ | 6,160 |  |  | $ | — |  |  | $ | 6,160 |
Defined benefit pension plans |  |  | — |  |  |  | — |  |  |  | — |
Cash flow hedge adjustments |  |  | — |  |  |  | — |  |  |  | — |
Other comprehensive income |  | $ | 6,160 |  |  | $ | — |  |  | $ | 6,160 |
|  | Predecessor |
|  | One Month Ended January 28, 2011 |
|  | Before-Tax Amount |  |  | Tax (Expense) or Benefit |  |  | Net-of-Tax Amount |
Foreign currency translation adjustments |  | $ | 2,845 |  |  | $ | — |  |  | $ | 2,845 |
Defined benefit pension plans |  |  | — |  |  |  | — |  |  |  | — |
Cash flow hedge adjustments |  |  | 183 |  |  |  | — |  |  |  | 183 |
Other comprehensive income |  | $ | 3,028 |  |  | $ | — |  |  | $ | 3,028 |
Recent Accounting Standards In May 2011, the FASB issued ASU 2011-04 to amend certain guidance in ASC 820, “Fair Value Measurement”. This update provides guidance to improve the consistency of the fair value measurement and disclosure requirements between U.S. GAAP and International Financial Reporting Standards (“IFRS”). The provisions of this guidance change certain of the fair value principles related to the highest and best use premise, the consideration of blockage factors and other premiums and discounts, the measurement of financial instruments held in a portfolio and instruments classified within shareholders’ equity. Further, the guidance provides additional disclosure requirements surrounding Level 3 fair value measurements, the uses of non-financial assets in certain circumstances and identification of the level in the fair value hierarchy used for assets and liabilities which are not recorded at fair value, but where fair value is disclosed. The Company adopted this guidance effective January 1, 2012. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements. In June 2011, the FASB issued ASU 2011-05 to amend certain guidance in ASC 220, “Comprehensive Income”. This update requires total comprehensive income, the components of net income and the components of other comprehensive income to be presented either in a single continuous statement or in two separate but consecutive statements. Further, the guidance requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. In December 2011, the FASB issued ASU 2011-12 which indefinitely deferred the requirement to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The Company adopted this guidance effective January 1, 2012. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements. In September 2011, the FASB issued ASU 2011-08 to amend certain guidance in ASC 350, “Intangibles-Goodwill and Other”. This update allows an entity the option to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test for a reporting unit. If the entity elects the option and determines that the qualitative factors indicate that it is not more likely than not that a reporting unit’s fair value is less than its carrying amount, the entity is not required to calculate the fair value of the reporting unit and no further evaluation is necessary. The Company adopted this guidance effective January 1, 2012. The adoption of this guidance did not have a significant effect on the Company’s consolidated financial statements. In December 2011, the FASB issued ASU 2011-11 to amend certain guidance in ASC 210-20, “Balance Sheet: Offsetting”. This update enhances disclosures about financial instruments and derivative instruments that are either offset in accordance with US GAAP or are subject to an enforceable master netting arrangement or similar agreement. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods and should be applied retrospectively to all comparative periods presented. The Company is still assessing the potential impact of adoption.

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