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's 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 30, 2015 and December 31, 2014, Condensed Consolidating Statements of Comprehensive Income (Loss) for the three months ended June 30, 2015 and June 28, 2014, and Condensed Consolidating Statements of Cash Flows for the three months ended June 30, 2015 and June 28, 2014 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 30, 2015



In thousands	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	153		$	116,870	$	70,228		$	—		$	187,251
Accounts receivable, net	—			47,929		203,089			—			251,018
Inventories, net	—			45,901		103,681			—			149,582
Deferred income taxes	—			258		14,831			(3,231		)	11,858
Other current assets	15,664			12,730		52,762			—			81,156
Total current assets	15,817			223,688		444,591			(3,231		)	680,865
Property, plant and equipment, net	6,011			202,011		646,865			—			854,887
Goodwill	—			55,999		162,862			—			218,861
Intangible assets, net	28,586			114,907		39,080			—			182,573
Net investment in and advances to (from) subsidiaries	1,472,392			462,664		(843,916		)	(1,091,140		)	—
Deferred income taxes	2,315			—		18,343			(3,158		)	17,500
Other noncurrent assets	279			7,367		29,112			—			36,758
Total assets	$	1,525,400		$	1,066,636	$	496,937		$	(1,097,529	)	$	1,991,444
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	977		$	—	$	35,784		$	—		$	36,761
Accounts payable and accrued liabilities	30,029			51,662		190,207			—			271,898
Income taxes payable	52			1,371		8,091			—			9,514
Deferred income taxes	2,896			1,148		10,214			(5,465		)	8,793
Current portion of long-term debt	9,976			—		21,803			—			31,779
Total current liabilities	43,930			54,181		266,099			(5,465		)	358,745
Long-term debt	1,485,511			—		1,184			—			1,486,695
Deferred income taxes	—			10,728		40,287			(923		)	50,092
Other noncurrent liabilities	256			35,445		64,119			—			99,820
Total liabilities	1,529,697			100,354		371,689			(6,388		)	1,995,352
Redeemable noncontrolling interest	82,130			—		—			—			82,130
Common stock	—			—		16,966			(16,966		)	—
AVINTIV shareholders’ equity (deficit)	(86,427		)	966,282		107,893			(1,074,175		)	(86,427		)
Noncontrolling interest	—			—		389			—			389
Total equity (deficit)	(86,427		)	966,282		125,248			(1,091,141		)	(86,038		)
Total liabilities and equity	$	1,525,400		$	1,066,636	$	496,937		$	(1,097,529	)	$	1,991,444

Condensed Consolidating Balance Sheet

As of December 31, 2014



In thousands	Issuer			Guarantors		Non-Guarantors			Eliminations			Consolidated
ASSETS
Current Assets:
Cash and cash equivalents	$	34,720		$	76,744	$	67,027		$	—		$	178,491
Accounts receivable, net	—			39,504		208,223			—			247,727
Inventories, net	—			54,044		120,775			(1,118		)	173,701
Deferred income taxes	—			3,279		16,523			(3,026		)	16,776
Other current assets	10,465			19,250		59,406			—			89,121
Total current assets	45,185			192,821		471,954			(4,144		)	705,816
Property, plant and equipment, net	5,445			204,800		659,985			—			870,230
Goodwill	—			55,999		164,555			—			220,554
Intangible assets, net	34,529			118,283		26,099			—			178,911
Net investment in and advances to (from) subsidiaries	1,437,946			494,906		(811,794		)	(1,121,058		)	—
Deferred income taxes	1,578			—		18,232			(1,579		)	18,231
Other noncurrent assets	285			7,111		34,035			—			41,431
Total assets	$	1,524,968		$	1,073,920	$	563,066		$	(1,126,781	)	$	2,035,173
LIABILITIES AND EQUITY
Current liabilities:
Short-term borrowings	$	405		$	—	$	17,260		$	—		$	17,665
Accounts payable and accrued liabilities	39,529			64,552		217,232			—			321,313
Income taxes payable	223			2,986		6,427			—			9,636
Deferred income taxes	2,322			—		10,216			(2,321		)	10,217
Current portion of long-term debt	7,143			—		24,749			—			31,892
Total current liabilities	49,622			67,538		275,884			(2,321		)	390,723
Long-term debt	1,410,059			—		23,224			—			1,433,283
Deferred income taxes	—			14,897		23,760			(2,434		)	36,223
Other noncurrent liabilities	461			36,839		72,264			—			109,564
Total liabilities	1,460,142			119,274		395,132			(4,755		)	1,969,793
Redeemable noncontrolling interest	89,181			—		—			—			89,181
Common stock	—			—		16,966			(16,966		)	—
AVINTIV shareholders’ equity (deficit)	(24,355		)	954,646		150,414			(1,105,060		)	(24,355		)
Noncontrolling interest	—			—		554			—			554
Total equity (deficit)	(24,355		)	954,646		167,934			(1,122,026		)	(23,801		)
Total liabilities and equity	$	1,524,968		$	1,073,920	$	563,066		$	(1,126,781	)	$	2,035,173

Condensed Consolidating Statement of Comprehensive Income (Loss)

For the Three Months Ended June 30, 2015



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	140,017		$	325,305		$	(7,628	)	$	457,694
Cost of goods sold	—			(105,334		)	(254,464		)	7,628			(352,170		)
Gross profit	—			34,683			70,841			—			105,524
Selling, general and administrative expenses	(15,278		)	(13,484		)	(37,413		)	—			(66,175		)
Special charges, net	(2,142		)	(129		)	(4,342		)	—			(6,613		)
Other operating, net	(44		)	(72		)	(73		)	—			(189		)
Operating income (loss)	(17,464		)	20,998			29,013			—			32,547
Other income (expense):
Interest expense	(20,867		)	3,906			(10,050		)	—			(27,011		)
Debt modification and extinguishment costs	(13,004		)	—			—			—			(13,004		)
Intercompany royalty and technical service fees	1,947			1,430			(3,377		)	—			—
Foreign currency and other, net	526			1,733			958			—			3,217
Equity in earnings of subsidiaries	38,282			13,600			—			(51,882		)	—
Income (loss) before income taxes	(10,580		)	41,667			16,544			(51,882		)	(4,251		)
Income tax (provision) benefit	1,836			(3,378		)	(1,775		)	—			(3,317		)
Net income (loss)	(8,744		)	38,289			14,769			(51,882		)	(7,568		)
Less: Earnings attributable to noncontrolling interest and redeemable noncontrolling interest	—			—			1,176			—			1,176
Net income (loss) attributable to AVINTIV	$	(8,744	)	$	38,289		$	13,593		$	(51,882	)	$	(8,744	)
Comprehensive income (loss) attributable to AVINTIV	$	5,483		$	52,559		$	24,103		$	(76,662	)	$	5,483

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 Six Months Ended June 30, 2015



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net sales	$	—		$	281,817		$	653,080		$	(15,965	)	$	918,932
Cost of goods sold	—			(214,103		)	(509,852		)	15,965			(707,990		)
Gross profit	—			67,714			143,228			—			210,942
Selling, general and administrative expenses	(31,270		)	(26,690		)	(73,204		)	—			(131,164		)
Special charges, net	(4,824		)	(867		)	(6,944		)	—			(12,635		)
Other operating, net	220			(637		)	1,651			—			1,234
Operating income (loss)	(35,874		)	39,520			64,731			—			68,377
Other income (expense):
Interest expense	(37,118		)	2,008			(19,534		)	—			(54,644		)
Debt modification and extinguishment costs	(13,004		)	—			—			—			(13,004		)
Intercompany royalty and technical service fees	4,052			2,989			(7,041		)	—			—
Foreign currency and other, net	(2,361		)	2,611			(40,956		)	—			(40,706		)
Equity in earnings of subsidiaries	30,311			(9,985		)	—			(20,326		)	—
Income (loss) before income taxes	(53,994		)	37,143			(2,800		)	(20,326		)	(39,977		)
Income tax (provision) benefit	5,292			(7,190		)	(5,967		)	—			(7,865		)
Net income (loss)	(48,702		)	29,953			(8,767		)	(20,326		)	(47,842		)
Less: Earnings attributable to noncontrolling and redeemable noncontrolling interest	—			—			860			—			860
Net income (loss) attributable to AVINTIV	$	(48,702	)	$	29,953		$	(9,627	)	$	(20,326	)	$	(48,702	)
Comprehensive income (loss) attributable to AVINTIV	$	(63,153	)	$	15,194		$	(15,318	)	$	124		$	(63,153	)

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 Cash Flows

For the Six Months Ended June 30, 2015



In thousands	Issuer			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net cash provided by (used in) operating activities	$	(112,038	)	$	36,337		$	106,783		$	—		$	31,082
Investing activities:
Purchases of property, plant and equipment	(1,226		)	(12,748		)	(15,046		)	—			(29,020		)
Proceeds from the sale of assets	—			940			3,099			—			4,039
Acquisition of intangibles and other	(411		)	—			—			—			(411		)
Acquisitions, net of cash acquired	—			—			(58,158		)	—			(58,158		)
Intercompany investing activities, net	11,465			26,412			—			(37,877		)	—
Net cash provided by (used in) investing activities	9,828			14,604			(70,105		)	(37,877		)	(83,550		)
Financing activities:
Proceeds from long-term borrowings	282,293			—			15			—			282,308
Proceeds from short-term borrowings	1,157			—			36,410			—			37,567
Repayment of long-term borrowings	(204,201		)	—			(21,826		)	—			(226,027		)
Repayment of short-term borrowings	(585		)	—			(17,050		)	—			(17,635		)
Loan acquisition costs	(3,271		)	—			—			—			(3,271		)
Debt modification and extinguishment costs	(7,750		)	—			—			—			(7,750		)
Intercompany financing activities, net	—			(10,815		)	(27,062		)	37,877			—
Net cash provided by (used in) financing activities	67,643			(10,815		)	(29,513		)	37,877			65,192
Effect of exchange rate changes on cash	—			—			(3,964		)	—			(3,964		)
Net change in cash and cash equivalents	(34,567		)	40,126			3,201			—			8,760
Cash and cash equivalents at beginning of period	34,720			76,744			67,027			—			178,491
Cash and cash equivalents at end of period	$	153		$	116,870		$	70,228		$	—		$	187,251

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