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 September 28, 2013 and December 29, 2012, Condensed Consolidating Statements of Comprehensive Income (Loss) for the three and nine months ended September 28, 2013 and September 29, 2012, and Condensed Consolidating Statements of Cash Flows for the nine months ended September 28, 2013 and September 29, 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.

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.

Condensed Consolidating Balance Sheet

As of September 28, 2013



In thousands	PGI (Issuer)			Guarantors		Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	1,535		$	11,975	$	61,168		$	—		$	74,678
Accounts receivable, net	—			23,482		120,462			—			143,944
Inventories, net	(181		)	23,245		79,366			—			102,430
Deferred income taxes	—			613		3,841			(613		)	3,841
Other current assets	5,773			8,386		25,206			—			39,365
Total current assets	7,127			67,701		290,043			(613		)	364,258
Property, plant and equipment, net	1,767			92,529		376,099			—			470,395
Goodwill	—			20,718		60,159			—			80,877
Intangible assets, net	21,922			40,302		14,476			—			76,700
Net investment in and advances to (from) subsidiaries	685,438			797,496		(234,657		)	(1,248,277		)	—
Deferred income taxes	—			—		1,650			—			1,650
Other noncurrent assets	300			5,613		20,889			—			26,802
Total assets	$	716,554		$	1,024,359	$	528,659		$	(1,248,890	)	$	1,020,682
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings	$	216		$	—	$	—		$	—		$	216
Accounts payable and accrued liabilities	26,455			38,675		141,092			—			206,222
Income taxes payable	—			—		1,587			—			1,587
Deferred income taxes	(14		)	—		19			134			139
Current portion of long-term debt	143			—		19,540			—			19,683
Total current liabilities	26,800			38,675		162,238			134			227,847
Long-term debt	560,152			—		32,337			—			592,489
Deferred income taxes	601			9,045		24,355			(747		)	33,254
Other noncurrent liabilities	1,876			11,557		26,534			—			39,967
Total liabilities	589,429			59,277		245,464			(613		)	893,557
Common stock	—			—		16,966			(16,966		)	—
Other shareholders’ equity	127,125			965,082		266,229			(1,231,311		)	127,125
Total shareholders' equity	127,125			965,082		283,195			(1,248,277		)	127,125
Total liabilities and shareholders' equity	$	716,554		$	1,024,359	$	528,659		$	(1,248,890	)	$	1,020,682

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 Comprehensive Income (Loss)

For the Three Months Ended September 28, 2013



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	93,021		$	201,840		$	(5,882	)	$	288,979
Cost of goods sold	(93		)	(77,996		)	(168,572		)	5,882			(240,779		)
Gross profit	(93		)	15,025			33,268			—			48,200
Selling, general and administrative expenses	(9,078		)	(6,060		)	(18,325		)	—			(33,463		)
Special charges, net	(6,539		)	(37		)	(517		)	—			(7,093		)
Other operating, net	36			(92		)	(615		)	—			(671		)
Operating income (loss)	(15,674		)	8,836			13,811			—			6,973
Other income (expense):
Interest expense	(14,800		)	6,924			(5,309		)	—			(13,185		)
Intercompany royalty and technical service fees	1,425			1,681			(3,106		)	—			—
Foreign currency and other, net	2,815			(5		)	(512		)	—			2,298
Equity in earnings of subsidiaries	15,695			989			—			(16,684		)	—
Income (loss) before income taxes	(10,539		)	18,425			4,884			(16,684		)	(3,914		)
Income tax (provision) benefit	2,272			(2,815		)	(3,810		)	—			(4,353		)
Net income (loss)	$	(8,267	)	$	15,610		$	1,074		$	(16,684	)	$	(8,267	)
Comprehensive income (loss)	$	(3,272	)	$	23,413		$	1,603		$	(25,016	)	$	(3,272	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the Three Months Ended September 29, 2012



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	92,443		$	203,125		$	(5,471	)	$	290,097
Cost of goods sold	12			(78,461		)	(165,145		)	5,471			(238,123		)
Gross profit	12			13,982			37,980			—			51,974
Selling, general and administrative expenses	(9,141		)	(5,491		)	(18,412		)	—			(33,044		)
Special charges, net	(759		)	294			(1,267		)	—			(1,732		)
Other operating, net	(7		)	19			223			—			235
Operating income (loss)	(9,895		)	8,804			18,524			—			17,433
Other income (expense):
Interest expense	(12,485		)	4,690			(4,692		)	—			(12,487		)
Intercompany royalty and technical service fees	1,563			1,853			(3,416		)	—			—
Foreign currency and other, net	18,932			(19,092		)	(839		)	—			(999		)
Equity in earnings of subsidiaries	686			7,754			—			(8,440		)	—
Income (loss) before income taxes	(1,199		)	4,009			9,577			(8,440		)	3,947
Income tax (provision) benefit	2,553			(3,260		)	(1,886		)	—			(2,593		)
Net income (loss)	$	1,354		$	749		$	7,691		$	(8,440	)	$	1,354
Comprehensive income (loss)	$	5,536		$	5,180		$	9,258		$	(14,438	)	$	5,536

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the Nine Months Ended September 28, 2013



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	275,850		$	607,758		$	(16,009	)	$	867,599
Cost of goods sold	(129		)	(234,710		)	(504,313		)	16,009			(723,143		)
Gross profit	(129		)	41,140			103,445			—			144,456
Selling, general and administrative expenses	(33,053		)	(17,824		)	(56,299		)	—			(107,176		)
Special charges, net	(8,364		)	(176		)	(2,107		)	—			(10,647		)
Other operating, net	55			(313		)	(1,717		)	—			(1,975		)
Operating income (loss)	(41,491		)	22,827			43,322			—			24,658
Other income (expense):
Interest expense	(37,274		)	13,111			(13,429		)	—			(37,592		)
Intercompany royalty and technical service fees	4,181			4,985			(9,166		)	—			—
Foreign currency and other, net	2,815			(252		)	(2,585		)	—			(22		)
Equity in earnings of subsidiaries	42,848			6,679			—			(49,527		)	—
Income (loss) before income taxes	(28,921		)	47,350			18,142			(49,527		)	(12,956		)
Income tax (provision) benefit	6,521			(4,502		)	(11,463		)	—			(9,444		)
Net income (loss)	$	(22,400	)	$	42,848		$	6,679		$	(49,527	)	$	(22,400	)
Comprehensive income (loss)	$	(18,652	)	$	48,449		$	6,939		$	(55,388	)	$	(18,652	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the Nine Months Ended September 29, 2012



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	286,210		$	610,967		$	(15,665	)	$	881,512
Cost of goods sold	42			(246,998		)	(498,641		)	15,665			(729,932		)
Gross profit	42			39,212			112,326			—			151,580
Selling, general and administrative expenses	(27,420		)	(18,051		)	(56,883		)	—			(102,354		)
Special charges, net	(6,082		)	(2,004		)	(4,818		)	—			(12,904		)
Other operating, net	3			240			511			—			754
Operating income (loss)	(33,457		)	19,397			51,136			—			37,076
Other income (expense):
Interest expense	(41,624		)	17,968			(14,418		)	—			(38,074		)
Intercompany royalty and technical service fees	4,492			5,295			(9,787		)	—			—
Foreign currency and other, net	18,934			(18,854		)	(4,175		)	—			(4,095		)
Equity in earnings of subsidiaries	32,229			16,078			—			(48,307		)	—
Income (loss) before income taxes	(19,426		)	39,884			22,756			(48,307		)	(5,093		)
Income tax (provision) benefit	8,421			(7,465		)	(6,868		)	—			(5,912		)
Net income (loss)	$	(11,005	)	$	32,419		$	15,888		$	(48,307	)	$	(11,005	)
Comprehensive income (loss)	$	(12,339	)	$	32,562		$	15,864		$	(48,426	)	$	(12,339	)

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 28, 2013



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(42,502	)	$	46,834		$	(226	)	$	—		$	4,106
Investing activities:
Purchases of property, plant and equipment	(23,703		)	(2,663		)	(9,133		)	—			(35,499		)
Proceeds from the sale of assets	—			—			25			—			25
Acquisition of intangibles and other	(260		)	—			(4,226		)	—			(4,486		)
Intercompany investing activities, net	6,408			(59,073		)	(5,000		)	57,665			—
Net cash provided by (used in) investing activities	(17,555		)	(61,736		)	(18,334		)	57,665			(39,960		)
Financing activities:
Proceeds from long-term borrowings	234			—			18,256			—			18,490
Proceeds from short-term borrowings	1,879			—			—			—			1,879
Repayment of long-term borrowings	(109		)	—			(5,157		)	—			(5,266		)
Repayment of short-term borrowings	(2,476		)	—			—			—			(2,476		)
Issuance of common stock	(222		)	—			—			—			(222		)
Intercompany financing activities, net	61,800			(1,408		)	(2,727		)	(57,665		)	—
Net cash provided by (used in) financing activities	61,106			(1,408		)	10,372			(57,665		)	12,405
Effect of exchange rate changes on cash	—			—			248			—			248
Net change in cash and cash equivalents	1,049			(16,310		)	(7,940		)	—			(23,201		)
Cash and cash equivalents at beginning of period	486			28,285			69,108			—			97,879
Cash and cash equivalents at end of period	$	1,535		$	11,975		$	61,168		$	—		$	74,678

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended September 29, 2012



In thousands	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(73,342	)	$	70,705		$	58,267		$	—		$	55,630
Investing activities:
Purchases of property, plant and equipment	(20,399		)	(2,483		)	(17,264		)	—			(40,146		)
Proceeds from the sale of assets	—			1,646			11			—			1,657
Acquisition of intangibles and other	(175		)	—			—			—			(175		)
Intercompany investing activities, net	57,118			(37,389		)	(25,118		)	5,389			—
Net cash provided by (used in) investing activities	36,544			(38,226		)	(42,371		)	5,389			(38,664		)
Financing activities:
Proceeds from long-term borrowings	—			—			10,977			—			10,977
Proceeds from short-term borrowings	1,943			—			3,000			—			4,943
Repayment of long-term borrowings	(79		)	—			(3,170		)	—			(3,249		)
Repayment of short-term borrowings	(1,894		)	—			(5,000		)	—			(6,894		)
Intercompany financing activities, net	41,253			(23,530		)	(12,334		)	(5,389		)	—
Net cash provided by (used in) financing activities	41,223			(23,530		)	(6,527		)	(5,389		)	5,777
Effect of exchange rate changes on cash	—			—			(386		)	—			(386		)
Net change in cash and cash equivalents	4,425			8,949			8,983			—			22,357
Cash and cash equivalents at beginning of period	3,135			14,574			55,033			—			72,742
Cash and cash equivalents at end of period	$	7,560		$	23,523		$	64,016		$	—		$	95,099