Financial Guarantees and Condensed Consolidating Financial Statements

Polymer’s Senior Secured Notes are fully, unconditionally and jointly and severally guaranteed on a senior secured basis by each of Polymer’s 100% owned domestic subsidiaries (collectively, the “Guarantors”). Substantially all of Polymer’s operating income and cash flow is generated by its subsidiaries. As a result, 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 29, 2012 and December 31, 2011; Condensed Consolidating Statements of Operations and Condensed Consolidating Statements of Other Comprehensive Income for the three month periods ended September 29, 2012 and October 1, 2011; and Condensed Consolidating Statements of Operations, Condensed Consolidating Statements of Other Comprehensive Income and Condensed Consolidating Statements of Cash Flows for the nine month period ended September 29, 2012 (Successor), the eight month period ended October 1, 2011 (Successor) and the one month period ended January 28, 2011 (Predecessor) 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 September 29, 2012

(In Thousands)



	PGI (Issuer)		Guarantors		Non-Guarantors			Eliminations			Consolidated
Current Assets:
Cash and cash equivalents	$	7,560	$	23,523	$	64,016		$	—		$	95,099
Accounts receivable, net	—		22,783		108,548			—			131,331
Inventories, net	—		26,602		72,207			—			98,809
Deferred income taxes	—		—		3,866			439			4,305
Other current assets	2,494		9,552		26,268			—			38,314
Total current assets	10,054		82,460		274,905			439			367,858
Property, plant and equipment, net	24,370		101,461		356,171			—			482,002
Goodwill	—		20,718		59,671			—			80,389
Intangible assets, net	24,878		43,127		9,400			—			77,405
Net investment in and advances to (from) subsidiaries	694,230		783,727		(195,397		)	(1,282,560		)	—
Deferred income taxes	—		—		1,944			—			1,944
Other noncurrent assets	197		5,803		34,972			—			40,972
Total assets	$	753,729	$	1,037,296	$	541,666		$	(1,282,121	)	$	1,050,570
Current liabilities:
Short-term borrowings	$	71	$	—	$	3,000		$	—		$	3,071
Accounts payable and accrued liabilities	16,953		38,130		133,252			—			188,335
Income taxes payable	—		—		2,923			—			2,923
Deferred income taxes	19		1,016		1,691			(1,035		)	1,691
Current portion of long-term debt	107		—		9,418			—			9,525
Total current liabilities	17,150		39,146		150,284			(1,035		)	205,545
Long-term debt	560,066		—		33,659			—			593,725
Deferred income taxes	571		7,623		25,127			1,474			34,795
Other noncurrent liabilities	—		14,433		26,130			—			40,563
Total liabilities	577,787		61,202		235,200			439			874,628
Common stock	—		—		36,083			(36,083		)	—
Other shareholders’ equity	175,942		976,094		270,383			(1,246,477		)	175,942
Total equity	175,942		976,094		306,466			(1,282,560		)	175,942
Total liabilities and equity	$	753,729	$	1,037,296	$	541,666		$	(1,282,121	)	$	1,050,570

Condensed Consolidating

Balance Sheet

As of December 31, 2011

(In Thousands)



	PGI (Issuer)		Guarantors		Non-Guarantors			Eliminations			Consolidated
Current Assets:
Cash and cash equivalents	$	3,135	$	14,574	$	55,033		$	—		$	72,742
Accounts receivable, net	—		18,270		122,902			—			141,172
Inventories, net	—		34,381		69,530			—			103,911
Deferred income taxes	80		—		3,866			458			4,404
Other current assets	1,173		8,783		26,088			—			36,044
Total current assets	4,388		76,008		277,419			458			358,273
Property, plant and equipment, net	9,267		111,469		372,616			—			493,352
Goodwill	—		20,718		59,828			—			80,546
Intangible assets, net	27,545		45,247		10,959			—			83,751
Net investment in and advances to (from) subsidiaries	739,121		754,930		(238,038		)	(1,256,013		)	—
Deferred income taxes	—		—		1,939			—			1,939
Other noncurrent assets	409		5,424		36,884			—			42,717
Total assets	$	780,730	$	1,013,796	$	521,607		$	(1,255,555	)	$	1,060,578
Current liabilities:
Short-term borrowings	$	—	$	—	$	5,000		$	—		$	5,000
Accounts payable and accrued liabilities	32,524		26,897		130,940			155			190,516
Income taxes payable	—		37		986			—			1,023
Deferred income taxes	—		1,016		1,691			(1,016		)	1,691
Current portion of long-term debt	107		—		7,485			—			7,592
Total current liabilities	32,631		27,950		146,102			(861		)	205,822
Long-term debt	560,132		—		27,721			—			587,853
Deferred income taxes	670		7,624		25,039			1,474			34,807
Other noncurrent liabilities	—		17,230		27,569			—			44,799
Total liabilities	593,433		52,804		226,431			613			873,281
Common stock	—		—		36,083			(36,083		)	—
Other shareholders’ equity	187,297		960,992		259,093			(1,220,085		)	187,297
Total equity	187,297		960,992		295,176			(1,256,168		)	187,297
Total liabilities and equity	$	780,730	$	1,013,796	$	521,607		$	(1,255,555	)	$	1,060,578

Condensed Consolidating

Statement of Operations

For the Three Months Ended September 29, 2012

Successor

(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 loss (income), net	7			(19		)	(223		)	—			(235		)
Operating (loss) income	(9,895		)	8,804			18,524			—			17,433
Other expense (income):
Interest expense, net	12,485			(4,690		)	4,692			—			12,487
Intercompany royalty and technical service fees, net	(1,563		)	(1,853		)	3,416			—			—
Foreign currency and other (gain) loss, net	(18,932		)	19,092			839			—			999
Equity in earnings of subsidiaries	686			7,754			—			(8,440		)	—
(Loss) income before income tax (benefit) expense	(1,199		)	4,009			9,577			(8,440		)	3,947
Income tax (benefit) expense	(2,553		)	3,260			1,886			—			2,593
Net income (loss)	$	1,354		$	749		$	7,691		$	(8,440	)	$	1,354

Condensed Consolidating

Statement of Operations

For the Three Months Ended October 1, 2011

Successor

(In Thousands)



	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net Sales	$	—		$	99,756		$	219,043		$	(3,301	)	$	315,498
Cost of goods sold	(26		)	86,025			183,811			(3,301		)	266,509
Gross profit	26			13,731			35,232			—			48,989
Selling, general and administrative expenses	9,677			6,020			18,819			—			34,516
Special charges, net	981			250			168			—			1,399
Other operating loss (income), net	23			(29		)	1,697			—			1,691
Operating (loss) income	(10,655		)	7,490			14,548			—			11,383
Other expense (income):
Interest expense, net	11,045			(3,388		)	5,209			—			12,866
Intercompany royalty and technical service fees, net	(2,655		)	(1,331		)	3,986			—			—
Foreign currency and other loss (gain), net	1,836			73			977			—			2,886
Equity in earnings of subsidiaries	6,971			(1,605		)	—			(5,366		)	—
(Loss) income before income tax expense and discontinued operations	(13,910		)	10,531			4,376			(5,366		)	(4,369		)
Income tax (benefit) expense	(4,722		)	3,520			2,138			—			936
(Loss) income before discontinued operations	(9,188		)	7,011			2,238			(5,366		)	(5,305		)
Loss from discontinued operations, net of tax	—			—			(3,363		)	—			(3,363		)
Loss on sale of discontinued operations	—			—			(520		)	—			(520		)
Net (loss) income	$	(9,188	)	$	7,011		$	(1,645	)	$	(5,366	)	$	(9,188	)

Condensed Consolidating

Statement of Operations

For the Nine Months Ended September 29, 2012

Successor

(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 (income) loss, net	(3		)	(240		)	(511		)	—			(754		)
Operating (loss) income	(33,457		)	19,397			51,136			—			37,076
Other expense (income):
Interest expense (income), net	41,624			(17,968		)	14,418			—			38,074
Intercompany royalty and technical service fees, net	(4,492		)	(5,295		)	9,787			—			—
Foreign currency and other (gain) loss, net	(18,934		)	18,854			4,175			—			4,095
Equity in earnings of subsidiaries	32,229			16,078			—			(48,307		)	—
(Loss) income before income tax (benefit) expense	(19,426		)	39,884			22,756			(48,307		)	(5,093		)
Income tax (benefit) expense	(8,421		)	7,465			6,868			—			5,912
Net (loss) income	$	(11,005	)	$	32,419		$	15,888		$	(48,307	)	$	(11,005	)

Condensed Consolidating

Statement of Operations

For the Eight Months Ended October 1, 2011

Successor

(In Thousands)



	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net Sales	$	—		$	253,997		$	566,907		$	(9,912	)	$	810,992
Cost of goods sold	20			221,734			476,841			(9,912		)	688,683
Gross profit	(20		)	32,263			90,066			—			122,309
Selling, general and administrative expenses	25,571			17,954			54,813			—			98,338
Special charges, net	27,275			846			1,346			—			29,467
Other operating loss (income), net	695			(174		)	2,371			—			2,892
Operating (loss) income	(53,561		)	13,637			31,536			—			(8,388		)
Other expense (income):
Interest expense, net	50,963			(29,695		)	12,245			—			33,513
Intercompany royalty and technical service fees, net	(4,841		)	(5,811		)	10,652			—			—
Foreign currency and other loss, net	1,132			480			2,637			—			4,249
Equity in earnings of subsidiaries	37,850			(4,577		)	—			(33,273		)	—
(Loss) income before income tax expense and discontinued operations	(62,965		)	44,086			6,002			(33,273		)	(46,150		)
Income tax (benefit) expense	(8,215		)	6,151			3,678			—			1,614
(Loss) income before discontinued operations	(54,750		)	37,935			2,324			(33,273		)	(47,764		)
Loss from discontinued operations, net of tax	—			—			(6,192		)	—			(6,192		)
Loss on sale of discontinued operations	—			—			(735		)	—			(735		)
Net (loss) income	(54,750		)	37,935			(4,603		)	(33,273		)	(54,691		)
Net income attributable to noncontrolling interests	—			—			(59		)	—			(59		)
Net (loss) income attributable to Polymer Group, Inc.	$	(54,750	)	$	37,935		$	(4,662	)	$	(33,273	)	$	(54,750	)

Condensed Consolidating

Statement of Operations

For the One Month Ended January 28, 2011

Successor

(In Thousands)



	PGI (Issuer)			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net Sales	$	—		$	27,052		$	58,887		$	(1,333	)	$	84,606
Cost of goods sold	(24		)	22,587			47,301			(1,333		)	68,531
Gross profit	24			4,465			11,586			—			16,075
Selling, general and administrative expenses	3,620			1,873			6,071			—			11,564
Special charges, net	18,944			170			1,710			—			20,824
Other operating (income) loss, net	(1		)	(42		)	(521		)	—			(564		)
Operating (loss) income	(22,539		)	2,464			4,326			—			(15,749		)
Other expense (income):
Interest expense, net	1,859			(1,176		)	1,239			—			1,922
Intercompany royalty and technical service fees, net	(546		)	(683		)	1,229			—			—
Foreign currency and other loss (gain), net	28			85			(31		)	—			82
Equity in earnings of subsidiaries	5,198			1,672			—			(6,870		)	—
(Loss) income before income tax expense and discontinued operations	(18,682		)	5,910			1,889			(6,870		)	(17,753		)
Income tax (benefit) expense	(479		)	706			322			—			549
(Loss) income before discontinued operations	(18,203		)	5,204			1,567			(6,870		)	(18,302		)
Income from discontinued operations, net of tax	—			—			182			—			182
Net (loss) income	(18,203		)	5,204			1,749			(6,870		)	(18,120		)
Net income attributable to noncontrolling interests	—			—			(83		)	—			(83		)
Net (loss) income attributable to Polymer Group, Inc.	$	(18,203	)	$	5,204		$	1,666		$	(6,870	)	$	(18,203	)

Condensed Consolidating