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Acquisitions | 6 Months Ended
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Jun. 28, 2014
Business Combinations [Abstract] |
Acquisitions | 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 will 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 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. Following the closing of the Providência Acquisition, pursuant to Brazilian Corporation Law and Providência’s Bylaws, PGI Acquisition Company launched a tender offer on substantially the same terms and conditions as the Stock Purchase Agreement to acquire the remaining outstanding capital stock of Providência from the minority shareholders (the “Mandatory Tender Offer”). 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. The final valuation associated with the Providência Acquisition is expected to be completed during the fourth quarter of 2014. The preliminary allocation of the purchase price was as follows:
In thousands | June 11, 2014
Cash | $ | 20,621 |
Accounts receivable | 56,976 |
Inventory | 33,000 |
Other current assets | 27,748 |
Total current assets | 138,345 |
Property, plant and equipment | 400,000 |
Goodwill | 106,335 |
Intangible assets | 4,770 |
Other noncurrent assets | 12,288 |
Total assets acquired | $ | 661,738 |
Current liabilities | $ | 28,863 |
Long-term debt | 74,930 |
Deferred income taxes | 38,373 |
Other noncurrent liabilities | 1,992 |
Noncontrolling interest | 92,990 |
Total liabilities assumed | $ | 237,148 |
Net assets acquired | $ | 424,590 |
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. 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 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. In addition, the Company acquired $0.3 million of loan acquisition costs related to debt assumed in the Providência Acquisition. These costs are stated at their historical carrying value, which approximate their fair value, and amortized over the term of the loan to which such costs relate. 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, improvement in manufacturing costs and lower general and administrative costs. Acquisition related costs were as follows:
In thousands | Amount
Loan acquisition costs | $ | 21,312 |
Transaction expenses | 14,880 |
Total | $ | 36,192 |
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 Interest expense in the Consolidated Statements of Comprehensive Income (Loss). In accordance with ASC 805, "Business Combinations" ("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 second quarter of 2014, the Company updated its fair market value estimates for inventory, property, plant and equipment and intangible assets with the assistance of a third-party valuation specialist. 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 Fiberweb Acquisition Date and retrospectively adjusted its Consolidated Balance Sheet at December 28, 2013 to reflect these measurement period adjustments. The initial 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 |  | (12,320 | ) | 26,194 |
Intangible assets | 85,000 |  | 996 |  | 85,996 |
Other noncurrent assets | 1,403 |  | — |  | 1,403 |
Total assets acquired | $ | 442,615 |  | $ | 18,236 |  | $ | 460,851 |
Current liabilities | $ | 84,185 |  | $ | — |  | $ | 84,185 |
Financing Obligation | 20,300 |  | — |  | 20,300 |
Long-term debt | 19,391 |  | — |  | 19,391 |
Deferred income taxes | 20,649 |  | 18,236 |  | 38,885 |
Other noncurrent liabilities | 9,479 |  | — |  | 9,479 |
Noncontrolling interest | 849 |  | — |  | 849 |
Total liabilities assumed | $ | 154,853 |  | $ | 18,236 |  | $ | 173,089 |
Net assets acquired | $ | 287,762 |  | $ | — |  | $ | 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. 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 $9.3 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, 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 | 16,133 |
Total | $ | 32,235 |
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, "Business Combinations" ("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). The update of fair value estimates for inventory, property, plant and equipment and intangible assets increase net assets by $30.6 million. As a result, the Company increased its deferred tax liabilities associated with these items by $18.2 million, of which $12.2 million reduced the Company's valuation allowance. The Company anticipates that the final evaluation of the fair market value of Fiberweb's assets acquired and liabilities assumed will be completed in the third quarter of 2014. Pro Forma Information The following unaudited pro forma information for the three and six months ended June 29, 2013 assumes the acquisition of both Fiberweb and Providência occurred as of the beginning of the period presented:
In thousands | Three Months Ended June 28, 2014 | Six Months Ended June 28, 2014 | Three Months Ended June 29, 2013 | Six Months Ended June 29, 2013
Net sales | $ | 493,668 |  | $ | 1,005,773 |  | $ | 495,464 |  | $ | 980,327 |
Net income (loss) | (31,097 | ) | (49,066 | ) | (7,405 | ) | (15,420 | )
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. 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.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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