Financial Guarantees and Condensed Consolidating Financial Statements

Polymer’s Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally on a senior secured basis, by each of Polymer’s 100% owned domestic subsidiaries (collectively, the “Guarantors”). As substantially all of Polymer’s operating income and cash flow is generated by its subsidiaries, funds necessary to meet Polymer’s debt service obligations may be provided, in part, by distributions or advances from its subsidiaries. Under certain circumstances, contractual and legal restrictions, as well as the financial condition and operating requirements of Polymer’s subsidiaries, could limit Polymer’s ability to obtain cash from its subsidiaries for the purpose of meeting its debt service obligations, including the payment of principal and interest on the Senior Secured Notes. Although holders of the Senior Secured Notes will be direct creditors of Polymer’s principal direct subsidiaries by virtue of the guarantees, Polymer has subsidiaries that are not included among the Guarantors (collectively, the “Non-Guarantors”), and such subsidiaries will not be obligated with respect to the Senior Secured Notes. As a result, the claims of creditors of the Non-Guarantors will effectively have priority with respect to the assets and earnings of such companies over the claims of creditors of Polymer, including the holders of the Senior Secured Notes.

The following Condensed Consolidating Financial Statements are presented to satisfy the disclosure requirements of Rule 3-10 of Regulation S-X. In accordance with Rule 3-10, the subsidiary guarantors are all 100% owned by PGI (the “Issuer”). The guarantees on the Senior Secured Notes are full and unconditional and all guarantees are joint and several. The information presents Condensed Consolidating Balance Sheets as of March 30, 2013 and December 29, 2012 and Condensed Consolidating Statements of Operations and Condensed Consolidating Statements of Cash Flows for the three months ended March 30, 2013 and March 31, 2012 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.

The Company has 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. Certain prior period intercompany activities included in this note disclosure for the Condensed Consolidating Balance Sheets, the Condensed Consolidating Statements of Operations 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 Operations and Condensed Consolidating Statements of Cash Flows included herein are not comparable to presentation included in prior period disclosures.

Condensed Consolidating Balance Sheet

As of March 30, 2013



In thousands	PGI (Issuer)			Guarantors		Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	4,060		$	15,234	$	55,333		$	—		$	74,627
Accounts receivable, net	—			24,913		114,935			—			139,848
Inventories, net	(52		)	21,025		75,919			—			96,892
Deferred income taxes	—			613		3,806			(613		)	3,806
Other current assets	3,908			10,017		26,153			—			40,078
Total current assets	7,916			71,802		276,146			(613		)	355,251
Property, plant and equipment, net	38,212			96,687		343,059			—			477,958
Goodwill	—			20,718		59,994			—			80,712
Intangible assets, net	23,483			41,715		8,439			—			73,637
Net investment in and advances to (from) subsidiaries	644,908			756,142		(169,899		)	(1,231,151		)	—
Deferred income taxes	—			—		1,222			—			1,222
Other noncurrent assets	306			5,645		18,904			—			24,855
Total assets	$	714,825		$	992,709	$	537,865		$	(1,231,764	)	$	1,013,635
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings	$	1,411		$	—	$	—		$	—		$	1,411
Accounts payable and accrued liabilities	17,985			38,875		136,316			—			193,176
Income taxes payable	—			—		3,716			—			3,716
Deferred income taxes	331			—		14			134			479
Current portion of long-term debt	107			—		21,356			—			21,463
Total current liabilities	19,834			38,875		161,402			134			220,245
Long-term debt	560,019			—		23,180			—			583,199
Deferred income taxes	273			9,149		24,370			(747		)	33,045
Other noncurrent liabilities	5,164			14,935		27,512			—			47,611
Total liabilities	585,290			62,959		236,464			(613		)	884,100
Common stock	—			—		36,083			(36,083		)	—
Other shareholders’ equity	129,535			929,750		265,318			(1,195,068		)	129,535
Total shareholders' equity	129,535			929,750		301,401			(1,231,151		)	129,535
Total liabilities and shareholders' equity	$	714,825		$	992,709	$	537,865		$	(1,231,764	)	$	1,013,635

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

Condensed Consolidating Statement of Operations

For the Three Months Ended March 30, 2013



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	93,012		$	199,529		$	(5,459	)	$	287,082
Cost of goods sold	(25		)	(81,846		)	(164,804		)	5,459			(241,216		)
Gross profit	(25		)	11,166			34,725			—			45,866
Selling, general and administrative expenses	(9,644		)	(5,760		)	(18,938		)	—			(34,342		)
Special charges, net	(1,354		)	(37		)	(413		)	—			(1,804		)
Other operating, net	2			(76		)	(266		)	—			(340		)
Operating income (loss)	(11,021		)	5,293			15,108			—			9,380
Other income (expense):
Interest expense	(10,228		)	3,101			(4,957		)	—			(12,084		)
Intercompany royalty and technical service fees	1,327			1,607			(2,934		)	—			—
Foreign currency and other, net	(2		)	(97		)	(1,321		)	—			(1,420		)
Equity in earnings of subsidiaries	11,524			3,817			—			(15,341		)	—
Income (loss) before income taxes	(8,400		)	13,721			5,896			(15,341		)	(4,124		)
Income tax (provision) benefit	2,173			(2,145		)	(2,131		)	—			(2,103		)
Net income (loss)	$	(6,227	)	$	11,576		$	3,765		$	(15,341	)	$	(6,227	)
Comprehensive income (loss)	$	(9,903	)	$	16,102		$	5,384		$	(21,486	)	$	(9,903	)

Condensed Consolidating Statement of Operations

For the Three Months Ended March 31, 2012



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	95,414		$	204,541		$	(4,784	)	$	295,171
Cost of goods sold	17			(82,447		)	(164,338		)	4,784			(241,984		)
Gross profit	17			12,967			40,203			—			53,187
Selling, general and administrative expenses	(9,291		)	(5,917		)	(18,923		)	—			(34,131		)
Special charges, net	(1,478		)	(216		)	(725		)	—			(2,419		)
Other operating, net	—			103			258			—			361
Operating income (loss)	(10,752		)	6,937			20,813			—			16,998
Other income (expense):
Interest expense	(11,275		)	3,315			(4,888		)	—			(12,848		)
Intercompany royalty and technical service fees	1,490			1,811			(3,301		)	—			—
Foreign currency and other, net	(30		)	(163		)	255			—			62
Equity in earnings of subsidiaries	18,165			9,151			—			(27,316		)	—
Income (loss) before income taxes	(2,402		)	21,051			12,879			(27,316		)	4,212
Income tax (provision) benefit	2,137			(2,832		)	(3,782		)	—			(4,477		)
Net income (loss)	$	(265	)	$	18,219		$	9,097		$	(27,316	)	$	(265	)
Comprehensive income (loss)	$	4,558		$	24,380		$	12,228		$	(36,608	)	$	4,558

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 30, 2013



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(15,118	)	$	16,397		$	(15,990	)	$	—		$	(14,711	)
Investing activities:
Purchases of property, plant and equipment	(10,592		)	(682		)	(3,043		)	—			(14,317		)
Proceeds from the sale of assets	—			—			11			—			11
Acquisition of intangibles and other	(53		)	—			—			—			(53		)
Intercompany investing activities, net	5,766			(23,000		)	—			17,234			—
Net cash provided by (used in) investing activities	(4,879		)	(23,682		)	(3,032		)	17,234			(14,359		)
Financing activities:
Proceeds from long-term borrowings	—			—			6,666			—			6,666
Proceeds from short-term borrowings	1,446			—			—			—			1,446
Repayment of long-term borrowings	(27		)	—			(885		)	—			(912		)
Repayment of short-term borrowings	(848		)	—			—			—			(848		)
Intercompany financing activities, net	23,000			(5,766		)	—			(17,234		)	—
Net cash provided by (used in) financing activities	23,571			(5,766		)	5,781			(17,234		)	6,352
Effect of exchange rate changes on cash	—			—			(534		)	—			(534		)
Net change in cash and cash equivalents	3,574			(13,051		)	(13,775		)	—			(23,252		)
Cash and cash equivalents at beginning of period	486			28,285			69,108			—			97,879
Cash and cash equivalents at end of period	$	4,060		$	15,234		$	55,333		$	—		$	74,627

Condensed Consolidating Statement of Cash Flows

For the Three Months Ended March 31, 2012



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(31,450	)	$	28,014		$	23,050		$	—		$	19,614
Investing activities:
Purchases of property, plant and equipment	(8,316		)	(623		)	(4,373		)	—			(13,312		)
Proceeds from the sale of assets	—			1,646			11			—			1,657
Acquisition of intangibles and other	(56		)	—			—			—			(56		)
Intercompany investing activities, net	15,771			(25,770		)	(8,781		)	18,780			—
Net cash provided by (used in) investing activities	7,399			(24,747		)	(13,143		)	18,780			(11,711		)
Financing activities:
Proceeds from long-term borrowings	—			—			24			—			24
Proceeds from short-term borrowings	1,436			—			5			—			1,441
Repayment of long-term borrowings	(22		)	—			(918		)	—			(940		)
Repayment of short-term borrowings	(72		)	—			(2,000		)	—			(2,072		)
Intercompany financing activities, net	25,770			(6,990		)	—			(18,780		)	—
Net cash provided by (used in) financing activities	27,112			(6,990		)	(2,889		)	(18,780		)	(1,547		)
Effect of exchange rate changes on cash	—			—			523			—			523
Net change in cash and cash equivalents	3,061			(3,723		)	7,541			—			6,879
Cash and cash equivalents at beginning of period	3,135			14,574			55,033			—			72,742
Cash and cash equivalents at end of period	$	6,196		$	10,851		$	62,574		$	—		$	79,621