Financial Guarantees and Condensed Consolidating Financial Statements

AVINTIV Specialty Materials Inc's. (the "Issuer") Senior Secured Notes are fully and unconditionally guaranteed, jointly and severally on a senior secured basis, by each of the Issuer' 100% owned domestic subsidiaries (collectively, the “Guarantors”). As substantially all of the Issuer’s operating income and cash flow is generated by its subsidiaries, funds necessary to meet the Issuer'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 the Issuer’s subsidiaries, could limit the Issuer’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 the Issuer’s principal direct subsidiaries by virtue of the guarantees, the Issuer 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 the Issuer, 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 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 June 28, 2014 and December 28, 2013, Condensed Consolidating Statements of Comprehensive Income (Loss) for the three and six months ended June 28, 2014 and June 29, 2013, and Condensed Consolidating Statements of Cash Flows for the six months ended June 28, 2014 and June 29, 2013 of (1) the Issuer, (2) the Guarantors, (3) the Non-Guarantors and (4) consolidating eliminations to arrive at the information for the Company on a consolidated basis.

Condensed Consolidating Balance Sheet

As of June 28, 2014



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS	RESTATED												RESTATED
Current Assets:
Cash and cash equivalents	$	296		$	121,459		$	89,441		$	—		$	211,196
Accounts receivable, net	—			46,040			211,571			—			257,611
Inventories, net	(789		)	48,683			141,771			—			189,665
Deferred income taxes	385			2,439			5,634			(2,823		)	5,635
Other current assets	17,342			12,165			80,567			—			110,074
Total current assets	17,234			230,786			528,984			(2,823		)	774,181
Property, plant and equipment, net	3,636			209,255			731,124			—			944,015
Goodwill	—			54,417			196,005			—			250,422
Intangible assets, net	39,348			113,975			38,236			—			191,559
Net investment in and advances to (from) subsidiaries	1,572,311			530,756			(811,791		)	(1,291,276		)	—
Deferred income taxes	—			—			5,116			—			5,116
Other noncurrent assets	291			8,976			27,992			—			37,259
Total assets	$	1,632,820		$	1,148,165		$	715,666		$	(1,294,099	)	$	2,202,552
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	719		$	—		$	13,351		$	—		$	14,070
Accounts payable and accrued liabilities	42,335			57,952			236,087			—			336,374
Income taxes payable	399			145			606			—			1,150
Deferred income taxes	—			(148		)	518			1,148			1,518
Current portion of long-term debt	62,090			—			48,236			—			110,326
Total current liabilities	105,543			57,949			298,798			1,148			463,438
Long-term debt	1,311,050			—			63,446			—			1,374,496
Deferred income taxes	973			12,737			26,531			(3,971		)	36,270
Other noncurrent liabilities	407			27,179			85,208			—			112,794
Total liabilities	1,417,973			97,865			473,983			(2,823		)	1,986,998
Redeemable noncontrolling interest	100,467			—			—			—			100,467
Common stock	—			—			16,966			(16,966		)	—
AVINTIV shareholders’ equity	114,380			1,050,300			224,010			(1,274,310		)	114,380
Noncontrolling interest	—			—			707			—			707
Total equity	114,380			1,050,300			241,683			(1,291,276		)	115,087
Total liabilities and equity	$	1,632,820		$	1,148,165		$	715,666		$	(1,294,099	)	$	2,202,552

Condensed Consolidating Balance Sheet

As of December 28, 2013



In thousands	Issuer		Guarantors		Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	2,068	$	13,103	$	70,893		$	—		$	86,064
Accounts receivable, net	—		46,828		147,999			—			194,827
Inventories, net	—		46,428		109,646			—			156,074
Deferred income taxes	385		2,438		2,318			(2,823		)	2,318
Other current assets	1,887		12,696		44,513			—			59,096
Total current assets	4,340		121,493		375,369			(2,823		)	498,379
Property, plant and equipment, net	2,756		207,256		442,768			—			652,780
Goodwill	—		54,683		60,645			—			115,328
Intangible assets, net	31,525		125,146		12,728			—			169,399
Net investment in and advances to (from) subsidiaries	1,013,856		615,314		(363,414		)	(1,265,756		)	—
Deferred income taxes	—		—		2,582			—			2,582
Other noncurrent assets	298		8,869		16,885			—			26,052
Total assets	$	1,052,775	$	1,132,761	$	547,563		$	(1,268,579	)	$	1,464,520
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	410	$	—	$	2,062		$	—		$	2,472
Accounts payable and accrued liabilities	36,510		61,950		209,271			—			307,731
Income taxes payable	369		—		3,244			—			3,613
Deferred income taxes	—		—		194			1,148			1,342
Current portion of long-term debt	3,039		—		10,758			—			13,797
Total current liabilities	40,328		61,950		225,529			1,148			328,955
Long-term debt	850,767		—		29,632			—			880,399
Deferred income taxes	974		12,543		23,689			(3,970		)	33,236
Other noncurrent liabilities	1,810		31,718		28,663			—			62,191
Total liabilities	893,879		106,211		307,513			(2,822		)	1,304,781
Common stock	—		—		16,966			(16,966		)	—
AVINTIV shareholders’ equity	158,896		1,026,550		222,241			(1,248,791		)	158,896
Noncontrolling interest	—		—		843			—			843
Total equity	158,896		1,026,550		240,050			(1,265,757		)	159,739
Total liabilities and equity	$	1,052,775	$	1,132,761	$	547,563		$	(1,268,579	)	$	1,464,520

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the Three Months Ended June 28, 2014



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	147,350		$	308,021		$	(15,473	)	$	439,898
Cost of goods sold	(93		)	(114,025		)	(254,667		)	15,473			(353,312		)
Gross profit	(93		)	33,325			53,354			—			86,586
Selling, general and administrative expenses	(12,101		)	(14,909		)	(37,159		)	—			(64,169		)
Special charges, net	(14,972		)	(1,681		)	(7,611		)	—			(24,264		)
Other operating, net	—			509			(4,364		)	—			(3,855		)
Operating income (loss)	(27,166		)	17,244			4,220			—			(5,702		)
Other income (expense):
Interest expense	(13,487		)	(482		)	(6,948		)	—			(20,917		)
Debt modification and extinguishment costs	(10,738		)	—			—			—			(10,738		)
Intercompany royalty and technical service fees	(9,893		)	1,140			8,753			—			—
Foreign currency and other, net	12,117			(678		)	(1,436		)	—			10,003
Equity in earnings of subsidiaries	26,163			(1,712		)	—			(24,451		)	—
Income (loss) before income taxes	(23,004		)	15,512			4,589			(24,451		)	(27,354		)
Income tax (provision) benefit	3,340			(671		)	2,744			—			5,413
Net income (loss)	(19,664		)	14,841			7,333			(24,451		)	(21,941		)
Less: Earnings attributable to noncontrolling interest and redeemable noncontrolling interest	—			—			(2,277		)	—			(2,277		)
Net income (loss) attributable to AVINTIV	$	(19,664	)	$	14,841		$	9,610		$	(24,451	)	$	(19,664	)
Comprehensive income (loss) attributable to AVINTIV	$	(17,661	)	$	17,046		$	12,561		$	(29,607	)	$	(17,661	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the Three Months Ended June 29, 2013



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	89,817		$	206,389		$	(4,668	)	$	291,538
Cost of goods sold	(11		)	(74,870		)	(170,935		)	4,668			(241,148		)
Gross profit	(11		)	14,947			35,454			—			50,390
Selling, general and administrative expenses	(14,331		)	(6,004		)	(19,036		)	—			(39,371		)
Special charges, net	(471		)	(103		)	(1,176		)	—			(1,750		)
Other operating, net	16			(145		)	(835		)	—			(964		)
Operating income (loss)	(14,797		)	8,695			14,407			—			8,305
Other income (expense):
Interest expense	(12,246		)	3,086			(3,163		)	—			(12,323		)
Intercompany royalty and technical service fees	1,428			1,697			(3,125		)	—			—
Foreign currency and other, net	2			(150		)	(752		)	—			(900		)
Equity in earnings of subsidiaries	15,630			1,872			—			(17,502		)	—
Income (loss) before income taxes	(9,983		)	15,200			7,367			(17,502		)	(4,918		)
Income tax (provision) benefit	2,077			458			(5,523		)	—			(2,988		)
Net income (loss)	$	(7,906	)	$	15,658		$	1,844		$	(17,502	)	$	(7,906	)
Comprehensive income (loss) attributable to AVINTIV	$	(5,477	)	$	8,930		$	(44	)	$	(8,886	)	$	(5,477	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the Six Months Ended June 28, 2014



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	296,246		$	594,687		$	(28,451	)	$	862,482
Cost of goods sold	(130		)	(236,612		)	(493,140		)	28,451			(701,431		)
Gross profit	(130		)	59,634			101,547			—			161,051
Selling, general and administrative expenses	(23,030		)	(28,460		)	(68,213		)	—			(119,703		)
Special charges, net	(18,937		)	(2,214		)	(11,824		)	—			(32,975		)
Other operating, net	11			299			(5,234		)	—			(4,924		)
Operating income (loss)	(42,086		)	29,259			16,276			—			3,449
Other income (expense):
Interest expense	(33,418		)	6,601			(12,006		)	—			(38,823		)
Debt modification and extinguishment costs	(10,738		)	—			—			—			(10,738		)
Intercompany royalty and technical service fees	(7,198		)	2,793			4,405			—			—
Foreign currency and other, net	22,916			(125		)	(7,829		)	—			14,962
Equity in earnings of subsidiaries	34,449			(10,138		)	—			(24,311		)	—
Income (loss) before income taxes	(36,075		)	28,390			846			(24,311		)	(31,150		)
Income tax (provision) benefit	6,931			(5,586		)	(1,632		)	—			(287		)
Net income (loss)	(29,144		)	22,804			(786		)	(24,311		)	(31,437		)
Less: Earnings attributable to noncontrolling interest and redeemable noncontrolling interest	—			—			(2,293		)	—			(2,293		)
Net income (loss) attributable to AVINTIV	$	(29,144	)	$	22,804		$	1,507		$	(24,311	)	$	(29,144	)
Comprehensive income (loss) attributable to AVINTIV	$	(25,454	)	$	26,507		$	6,502		$	(33,009	)	$	(25,454	)

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the Six Months Ended June 29, 2013



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	182,829		$	405,918		$	(10,127	)	$	578,620
Cost of goods sold	(36		)	(156,714		)	(335,741		)	10,127			(482,364		)
Gross profit	(36		)	26,115			70,177			—			96,256
Selling, general and administrative expenses	(23,975		)	(11,764		)	(37,974		)	—			(73,713		)
Special charges, net	(1,826		)	(139		)	(1,589		)	—			(3,554		)
Other operating, net	18			(222		)	(1,100		)	—			(1,304		)
Operating income (loss)	(25,819		)	13,990			29,514			—			17,685
Other income (expense):
Interest expense	(22,474		)	6,187			(8,120		)	—			(24,407		)
Intercompany royalty and technical service fees	2,756			3,304			(6,060		)	—			—
Foreign currency and other, net	—			(247		)	(2,073		)	—			(2,320		)
Equity in earnings of subsidiaries	27,155			5,690			—			(32,845		)	—
Income (loss) before income taxes	(18,382		)	28,924			13,261			(32,845		)	(9,042		)
Income tax (provision) benefit	4,249			(1,687		)	(7,653		)	—			(5,091		)
Net income (loss)	$	(14,133	)	$	27,237		$	5,608		$	(32,845	)	$	(14,133	)
Comprehensive income (loss) attributable to AVINTIV	$	(15,380	)	$	25,035		$	5,339		$	(30,374	)	$	(15,380	)

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 28, 2014



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	195,187		$	148,994		$	(333,947	)	$	—		$	10,234
Investing activities:
Purchases of property, plant and equipment	(1,703		)	(16,422		)	(15,675		)	—			(33,800		)
Proceeds from the sale of assets	—			—			47			—			47
Acquisition of intangibles and other	(124		)	—			—			—			(124		)
Acquisitions, net of cash acquired	(356,281		)	—			—			—			(356,281		)
Intercompany investing activities, net	(372,158		)	(399,794		)	(6,450		)	778,402			—
Net cash provided by (used in) investing activities	(730,266		)	(416,216		)	(22,078		)	778,402			(390,158		)
Financing activities:
Proceeds from long-term borrowings	523,000			—			152			—			523,152
Proceeds from short-term borrowings	1,265			—			16,156			—			17,421
Repayment of long-term borrowings	(3,808		)	—			(4,049		)	—			(7,857		)
Repayment of short-term borrowings	(956		)	—			(4,893		)	—			(5,849		)
Loan acquisition costs	(21,312		)	—			—			—			(21,312		)
Intercompany financing activities, net	35,118			375,578			367,706			(778,402		)	—
Net cash provided by (used in) financing activities	533,307			375,578			375,072			(778,402		)	505,555
Effect of exchange rate changes on cash	—			—			(499		)	—			(499		)
Net change in cash and cash equivalents	(1,772		)	108,356			18,548			—			125,132
Cash and cash equivalents at beginning of period	2,068			13,103			70,893			—			86,064
Cash and cash equivalents at end of period	$	296		$	121,459		$	89,441		$	—		$	211,196

Condensed Consolidating Statement of Cash Flows

For the Six Months Ended June 29, 2013



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(10,239	)	$	22,547		$	(13,926	)	$	—		$	(1,618	)
Investing activities:
Purchases of property, plant and equipment	(23,207		)	(1,658		)	(1,635		)	—			(26,500		)
Proceeds from the sale of assets	—			—			75			—			75
Acquisition of intangibles and other	(135		)	—			—			—			(135		)
Intercompany investing activities, net	5,766			(28,500		)	(4,000		)	26,734			—
Net cash provided by (used in) investing activities	(17,576		)	(30,158		)	(5,560		)	26,734			(26,560		)
Financing activities:
Issuance of common stock	(232		)	—			—			—			(232		)
Proceeds from long-term borrowings	—			—			14,177			—			14,177
Proceeds from short-term borrowings	1,879			—			—			—			1,879
Repayment of long-term borrowings	(65		)	—			(3,252		)	—			(3,317		)
Repayment of short-term borrowings	(1,554		)	—			—			—			(1,554		)
Loan acquisition costs	—			—			—			—			—
Intercompany financing activities, net	28,000			(1,766		)	500			(26,734		)	—
Net cash provided by (used in) financing activities	28,028			(1,766		)	11,425			(26,734		)	10,953
Effect of exchange rate changes on cash	—			—			(183		)	—			(183		)
Net change in cash and cash equivalents	213			(9,377		)	(8,244		)	—			(17,408		)
Cash and cash equivalents at beginning of period	486			28,285			69,108			—			97,879
Cash and cash equivalents at end of period	$	699		$	18,908		$	60,864		$	—		$	80,471