WPR HOLDINGS LLC
Consolidated Financial Statements
December 31, 2012 and 2013
and September 27, 2014
WPR HOLDINGS LLC
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s) Report of IndependentAuditor…………………………………………………………………………………………… 1 Consolidated Financial Statements
Consolidated BalanceSheets………………………………………………………………………………………………. 2 Consolidated Statements of Operations and ComprehensiveIncome………………………………… 3 Consolidated Statements of CashFlows………………………………............................................. 4 Consolidated Statements of Change inMembers’Equity…………………………………………….. 5 Notes to the Consolidated FinancialStatements………………………………………………….…………….. 6– 15
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Shanghai Pret Composites Co., Ltd.
To the Board of Directors and Members of
WPR HOLDINGS LLC
We have audited the accompanying consolidated financial statements of WPR Holdings LCC (a partnership), which comprise the consolidated balance sheets as of December 31, 2012, 2013 and September 27, 2014, and the related consolidated statements of operations and comprehensive income, changes inmembers’ equity, and cash flows for the years ended December 31, 2012 and 2013 and the period from January 1 to September 27, 2014, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express and opinion on the consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on theauditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to theentity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theentity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of WPR Holdings LLC as of December 31, 2012, 2013 and September 27, 2014 and the consolidated results of its operations and its cash flows for the years ended December 31, 2012 and 2013 and the period from January 1 to September 27, 2014 in conformity with U.S. generally accepted accounting principles. January 4, 2015
WPR HOLDINGS LLC
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2012 AND 2013 AND SEPTEMBER 27, 2014
December 31, December 31, September 27, 2012 2013 2014 ASSETS
Current assets:
Cash and cash equivalents 186,802 297,064 231,649 Accounts receivable - net of allowance for doubtful accounts 13,099,914 16,076,656 17,701,960 Inventories, net of reserves 27,113,202 27,069,664 34,216,691 Prepaid expenses and other current assets 328,053 633,570 396,986 Deferred tax assets 58,332 43,675 43,675 Total current assets 40,786,303 44,120,629 52,590,961 Property, plant and equipment, net 14,089,304 20,418,323 20,638,591 Other assets:
Deferred financing costs 143,419 138,909 341,115 Deposits 115,521 91,792 70,746 Total other assets 25 8,940 230,701 411,861 TOTAL ASSETS 55,134,547 64,769,653 73,641,413 LIABILITIES ANDMEMBERS’ EQUITY
LIABILITIES
Current liabilities:
Line of credit 12,236,731 6,862,031 24,713,518 Accounts payable 9,867,097 12,985,604 15,520,031 Accrued liabilities 3,299,136 3,750,012 3,421,858 Income tax payable - 144,221 392,093 Current portion of long-term debt 395,130 1,354,397 3,265,816 Total current liabilities 25,798,094 25,096,265 47,313,316 Long-term liabilities:
Long-term debt, less current maturities 1,239,321 4,717,940 10,789,794 Deferred tax liabilities - 310,716 310,716 Provisions 439,094 413,436 361,757 Total non-current liabilities 1,678,415 5,442,092 11,462,267 Total liabilities 27,476,509 30,538,357 58,775,583MEMBERS’ EQUITY 27,658,038 34,231,296 14,865,830 TOTAL LIABILITIES ANDMEMBERS’ EQUITY 55,134,547 64,769,653 73,641,413
The accompanying notes are an integral part of the consolidated financial statements.
WPR HOLDINGS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
Year ended Year ended Period from January 1 December 31, December 31, to September 27, 2012 2013 2014 Net sales 162,237,940 163,566,302 124,460,640 Cost of goods sold 147,876,950 145,789,677 111,735,507 Gross profit 14,360,990 17,776,625 12,725,133 Selling, general and administrative expenses:
Payroll and related costs 6,619,575 7,098,667 4,886,571 Data processing 222,230 268,947 218,533 Telecommunications 256,597 263,070 173,653 Lease and rental costs 166,869 227,091 180,466 Maintenance contracts and services 133,688 135,151 102,597 Outside services 320,905 605,534 470,936 Travel and entertainment 194,309 208,938 170,982 Professional fees 137,812 388,842 167,084 Other 456,395 282,530 188,077 Total selling, general and administrative expenses 8,508,380 9,478,770 6,558,899 Operating profit 5,852,610 8,297,855 6,166,234 Other non-operating expenses/(income):
Interest expense 506,951 367,938 284,470 Amortization of deferred financing costs 40,977 38,827 28,386 Rental income (79,200) (166,700) (123,400) Loss/(Gain) on disposal of equipment (20,370) (12,671) 29,642 Sale of scrap metal and other miscellaneous sales (131,333) (83,771) (97,355) Other (22,989) 28,539 (444,840) Total other non-operating expenses/(income) 294,036 172,162 (323,097) Income before income taxes 5,558,574 8,125,693 6,489,331 Income taxes expense (47,826) 473,085 362,741 Net income and comprehensive income 5,606,400 7,652,608 6,126,590
The accompanying notes are an integral part of the consolidated financial statements.
WPR HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
Year ended Year ended Period from January 1 December 31, December 31, to September 27, 2012 2013 2014 CASH FLOWS FROM OPERATING ACTIVITIES:
Consolidated net income 5,606,400 7,652,608 6,126,590 Adjustments to reconcile net income to net cash from
operating activities:
Non-cash charges:
Depreciation 1,609,994 1,965,655 2,042,273 Loss/(Gain) on sale of assets (20,370) (12,671) 29,642 Amortization of deferred financing costs 40,977 38,827 28,386 Changes in:
Accounts receivable, net 1,199,614 (2,976,742) (1,625,304) Prepaid expenses and other current assets 234,350 (305,517) 236,584 Inventory, net (35,900) 43,538 (7,147,027) Deposits (52,274) 23,729 21,046 Deferred tax assets (58,332) 14,657 - Accounts payable (3,278,335) 3,118,507 2,534,427 Accrued liabilities 1,358,808 450,876 (328,154) Income tax payable - 144,221 247,872 Deferred tax liabilities - 310,716 - Provisions 81,227 (25,658) (51,679) Total adjustments 1,079,759 2,790,138 (4,011,934) NET CASH PROVIDED BY OPERATING ACTIVITIES 6,686,159 10,442,746 2,114,656 CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,183,996) (8,421,302) (2,292,183) Proceeds from sale of property, plant and equipment 359,000 139,299 - NET CASH USED BY INVESTING ACTIVITIES (1,824,996) (8,282,003) (2,292,183) CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds/(repayments) of revolving line of credit (5,355,713) (5,374,700) 17,851,487 Proceeds from long-term debt 994,868 4,835,945 14,081,354 Repayments of long-term debt (102,985) (398,059) (6,098,081) Proceeds from issuance of incentive units 392 2,370 7,690 Redemption of incentive units (91) (1,948) (40,138) Distributions to members (333,903) (1,079,772) (25,459,608) Deferred financing costs incurred - (34,317) (230,592) NET CASH PROVIDED/(USED) IN FINANCING ACTIVITIES (4,797,432) (2,050,481) 112,112 NET INCREASE/(DECREASE) IN CASH 63,731 110,262 (65,415) CASH AND EQUIVALENTS, BEGINNING OF YEAR/PERIOD 123,071 186,802 297,064 CASH AND EQUIVALENTS, END OF YEAR/PERIOD 186,802 297,064 231,649
The accompanying notes are an integral part of the consolidated financial statements.
WPR HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CHANGES INMEMBERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
Members’ equity Balance as of January 1, 2012 22,385,240 Net income 5,606,400 Dividend payments (333,903) Others 301 Balance as of December 31, 2012 27,658,038 Net income 7,652,608 Dividend payments (1,079,772) Others 422 Balance as of December 31, 2013 34,231,296 Net income 6,126,590 Dividend payments (25,459,608) Others (32,448) Balance as of September 27, 2014 14,865,830
The accompanying notes are an integral part of the consolidated financial statements.
WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
1. Description of Business and Basis of Presentation
Company Operations
WPR Holdings LLC (the “Company”), a Delaware company, is a holding company which owns two subsidiaries, Wellman Plastics Recycling, LLC (“Wellman”) and DC Foam, Inc. (“DC Foam”). The principal businesses of the Company and its subsidiaries (collectively referred to as the “Group”) are: (i) the production of nylon based engineered plastic resins using post-consumer products (principally carpet) which are used in a wide variety of applications including automotive, lawn and garden, and electronics, (ii) the manufacture of polyester fiber and clear flake from post-consumer plastic products containing polyethylene terephthalate (“PET”), principally bottles, and (iii) the collection of post-consumer carpet (for use in the production of nylon based engineered plastic resins) and carpet padding for resale.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the U.S. generally accepted accounting principles (the “US GAAP”).
TheGroup’s functional and presentation currency is U.S. dollars($).
Principles of Consolidation
TheCompany’s consolidation policy requires the consolidation of entities where a controlling financial interest is held in accordance with theFASB’s ASC 810 Consolidations. The consolidated financial statements include the accounts of the Company, Wellman and DC Foam. In the opinion of the management of the Company, Wellman and DC Foam are both wholly-owned by the Company. All significant intercompany transactions and balances have been eliminated.
Business Combination
The Company accounts for business combinations using the purchase method of accounting in accordance with theFASB’s ASC 805 Business Combinations. The purchase method accounting requires that the consideration transferred to be allocated to the assets, including separately identifiable assets and liabilities we acquired, based on their estimated fair values. The consideration transferred of an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations and all contractual contingencies as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any non-controlling interests.
The excess of (i) the total of cost of acquisition, fair value of the non-controlling interests and acquisition date fair value of any previously held equity interest in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in earnings.
The determination and allocation of fair values to the identifiable assets acquired, liabilities assumed and non- controlling interests is based on various assumptions and valuation methodologies requiring considerable judgment from management. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. We determine discount rates to be used based on the risk inherent in the relatedactivity’s current business model and industry comparisons. Terminal values are based on the expected life of assets, forecasted life cycle and forecasted cash flows over that period.
WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
1. Description of Business and Basis of Presentation(Cont’d)
Use of Estimates
The preparation of consolidated financial statements in conformity with the US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities and the reported amounts of revenues and expenses in the consolidated statements of operations and comprehensive income.
Assets and liabilities which are subject to estimates include an allowance for the collection of receivables, the estimate of slow moving and obsolete inventory reserves, the estimated lives of depreciable property, and the settlement of accrued liabilities at amounts recorded. Estimates could also affect the reported amounts of revenues and expenses during the reporting period. While actual results could differ from those estimates, management believes the estimates are reasonable.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid investments with an original maturity of three months or less.
Accounts Receivable
Accounts receivables are stated at amounts estimated by management to be the net realizable value. An allowance for doubtful accounts is recorded when it is probable receivables will not be collected. Management estimates the allowance based on specific identification and historical collection experience.
Inventories
Inventories are valued at the lower of cost or market, on the weighted average basis. Market is defined as current replacement cost, but not greater than net realizable value (estimated selling price less reasonable costs of completion and sale) and not less than net realizable value reduced by a normal sales margin. Any write- down of inventory to the lower of cost or market creates a new cost basis that subsequently cannot be reversed. Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Depreciation of plant and equipment is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. All improvements, which increase the productive capacity or economic lives of assets, are capitalized as are outside costs associated with the engineering and design of new facilities. The cost and related accumulated depreciation are removed from the respective accounts when assets are retired or otherwise disposed. Maintenance and repair expenditures are expensed as incurred.
Depreciable property is depreciated over the following useful lives:
Number of Years
Buildings 40
Leasehold Improvements 15
Machinery and Equipment 3 to 13
Land is not depreciated and construction in progress is not depreciated until ready for service.
WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
1. Description of Business and Basis of Presentation(Cont’d)
Impairment or Disposal of Long-Lived Assets
The Company reviews the carrying value of property, plant, and equipment, amortizable intangible assets, and other noncurrent assets to be held and used or disposed of for impairment when events or circumstances indicate that the carrying value may not be recoverable. In cases where undiscounted expected net cash flows are less than the carrying value, an impairment loss is recognized in the consolidated statements of operations and comprehensive income equal to an amount by which the carrying value exceeds the fair value less cost to dispose for assets to be sold or abandoned.
Fair Value
The Group determines fair value in accordance with ASC 820, Fair Value Measurement and Disclosures (“ASC 820”), which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands the disclosure requirements regarding fair value measurements. When other accounting standards require or permit the fair value measurement of financial assets and liabilities, the Group follows the definition of fair value in accordance with ASC 820. The statement defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. Such definition is based on an exit price rather than an entry price, regardless of whether the Group plans to hold or sell the asset.
Financial Instruments
TheGroup’s financial instruments include cash equivalents, accounts receivables, accounts payables and debts. Management of the Company believes that the fair value of these financial instruments approximate their carrying values.
Provisions
The Group makes provisions for environmental assessment and/or cleanup and other items when it is probable a loss has been incurred and the costs can be reasonably estimated.
Environmental liability estimates may include costs such as anticipated site testing, consulting, remediation, disposal, post-remediation monitoring and legal fees, as appropriate.
Revenue Recognition
Revenue from sales is recorded when goods are shipped and title to inventory and risk of loss passes to the customer. The point at which an exchange occurs and control of the inventory is relinquished is determined by the mode of transportation used to deliver the product to the customer. For the majority of theGroup’s sales, the exchange occurs and control is relinquished as soon as the product is shipped from the Group's facilities. In addition, if the Group enters into retroactive price adjustments with certain of its customers, these adjustments are recorded in revenue when they are determined to be probable and estimable.
Leases
Leases have been classified as either capital or operating leases. Leases that transfer substantially all the benefits and risks incidental to the ownership of assets are accounted for as capital leases as if there was an acquisition of an asset and incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases wherein rental payments are expensed as incurred.
WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
1. Description of Business and Basis of Presentation(Cont’d)
Income Taxes
The Company is a limited liability corporation (“LLC”) and taxed as a partnership for federal income tax purposes. Members (owners) of the Company are liable individually for federal income taxes on their respective ownership interest of theCompany’s taxable income or loss. Wellman is an LLC that is treated as a pass- through entity and is accordingly treated as a non-taxable entity for federal income tax purposes. DC Foam is a “C” Corporation and thus is responsible for all income taxes attributable to its income.
DC Foam determines its deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities. The deferred tax assets and liabilities are measured using the enacted tax rates that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when it is more likely than not that the deferred tax asset will not be recovered. DC Foam applies judgment in the determination of the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return.
DC Foam is required to file income tax returns in the U.S. federal jurisdiction.
Recent Accounting Pronouncements
In 2014, the FASB released various Accounting Standards Updates (“ASU”). In the opinion of the management of the Company, these ASU do not have material impacts on the accompanying financial statements.
2. Related-Party Transactions
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|In the opinion of the management of the Company, the Group does not enter into any significant transactions|
|nor balances with related parties.|

3. Accounts Receivables, Net
As of
December 31, December 31, September 27, 2012 2013 2014 Trade accounts receivable 13,850,008 16,698,355 18,274,294 Less: Allowance for doubtful accounts (750,094) (621,699) (572,334) Total 13,099,914 16,076,656 17,701,960
WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
4. Inventories, Net
As of
December 31, December 31, September 27, 2012 2013 2014 Raw materials 11,738,436 11,998,504 16,869,965 Work in process 655,052 531,421 690,172 Finished goods 11,414,494 11,094,253 12,122,750 Additives and supplies 3,895,551 4,339,464 5,405,135 Total 27,703,533 27,963,642 35,088,022 Less: reserves (590,331) (893,978) (871,331) Total, net 27,113,202 27,069,664 34,216,691 5. Prepaid Expense and Other current assets
As of
December 31, December 31, September 27, 2012 2013 2014 Prepaid accounts - 42,000 62,500 Other receivables 4,815 2,419 1,808 Other prepayments 323,238 589,151 332,678 Total 328,053 633,570 396,986 6. Property, Plant and Equipment, Net
As of
December 31, December 31, September 27, Estimated 2012 2013 2014 Useful Lives Land 200,536 200,536 200,536 Infinite Building and Leasehold
improvements 1,111,581 1,256,194 1,425,677 15 to 40 years Machinery and equipment 15,575,571 22,954,128 24,704,770 3 to 13 years Construction in progress 516,095 1,239,556 1,565,975
Total 17,403,783 25,650,414 27,896,958
Less: Accumulated depreciation (3,314,479) (5,232,091) (7,258,367)
Total, net 14,089,304 20,418,323 20,638,591
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|Depreciation expense for the years ended December 31, 2012 and 2013 and the period from January 1 to|
|September 27, 2014 was $1,609,994, $1,965,655 and $2,042,273, respectively.|

WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
7. Debt
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|As of December 31, 2012, 2013 and September 27, 2014, debt and credit facilities consisted of the following:|

 As of
December 31, December 31, September 27, 2012 2013 2014 Line of credit (revolving) 12,236,731 6,862,031 24,713,518 Term loan 1,261,012 5,756,757 13,739,682 Other loans 373,439 315,580 315,928 Total debt 13,871,182 12,934,368 38,769,128 Less: Current maturities of long-term debt (395,130) (1,354,397) (3,265,816) Line of credit (revolving) (12,236,731) (6,862,031) (24,713,518) Total long-term debt 1,239,321 4,717,940 10,789,794
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|Lines of Credit (revolving) and Term Loan|
|During the year ended December 31, 2012, the Group had a revolving credit agreement with a U.S bank (the|
|“Bank”) that consist of a $22.5 million revolving line of credit (the “Revolver”). Borrowing under the Revolver|
|bore interest, at Wellman’s choice, at either: (i) the greater of the federal funds rate plus 0.50% or the Bank’s|
|prime rate, or (ii) the London Interbank Offered Rate (“LIBOR”) plus a margin that varies based on the|
|availability of borrowings under the Revolver. On August 26, 2014, the Revolver was increased to $33 million.|
|Borrowing under the updated Revolver bears interest at Wellman’s choice at either: (i) the greater of the federal|
|funds rate plus 0.50% to 1.00%, or (ii) the Eurodollar rate plus 1.50% to 2.00%, or (iii) Eurodollar market index|
|rate plus 1.50% to 2.00%. The line of credit agreement matures on August 26, 2019.|
|Wellman’s ability to borrow under the Revolver is based upon a specific borrowing base consisting of trade|
|accounts receivable and inventory. At December 31, 2012 and 2013 and September 27, 2014, outstanding|
|borrowings under the Revolver were $12,236,731, $6,862,031 and $24,713,518, respectively. The Revolver also|
|has a $3.0 million letter of credit sub-limit.|
|In addition, the Group had two term loans related to advances for capital equipment purchases with the Bank.|
|The first term loan originated on August 13, 2012 and the second term loan originated on December 31, 2013.|
|Both term loans bore interest on a variable rate basis as noted above. Monthly principal repayments are based|
|ratably over a five year term. All outstanding principal under both term loans are due on July 25, 2017.|
|On August 26, 2014, the two term loans noted above were repaid ahead of schedule with two new term loans|
|being borrowed:|
| The first term loan amounted to $8,100,000, repayable of the principal equally over a seven-year period. It|
|bears interest at Wellman’s choice at either: (i) the federal funds rate plus 1.00% to 1.50%, or (ii) the|
|Eurodollar rate plus 2.00% to 2.50%, or (iii) Eurodollar market index rate plus 2.00% to 2.50%;|
| The second term loan amounted to $5,900,000, repayable of the principal equally over a three-year period.|
|It bears interest at Wellman’s choice at either: (i) the federal funds rate plus 2.00%, or (ii) the Eurodollar|
|rate plus 3.00%, or (iii) Eurodollar market index rate plus 3.00%.|

WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
7. Debt(Cont’d)
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|Lines of Credit (revolving) and Term Loan (Cont’d)|
|All borrowings are collateralized by the personal property of Wellman, including, but not limited to Wellman|
|accounts receivable, inventory and property, plant and equipment, etc., and contains customary affirmative|
|and negative covenants. Among other things, these covenants restrict or prohibit Wellman’s ability to incur|
|certain types or amounts of indebtedness, incur liens on certain assets, or engage in a change in control|
|transactions. The credit agreement also contains a financial covenant that requires Wellman to maintain a|
|minimum fixed charge coverage ratio. At December 31, 2012 and 2013 and September 27, 2014, in the opinion|
|of the management of the Company, Wellman was in compliance with all such covenants.|
|Other loans|
|DC Foam has various collateralized loans, principally for vehicles, throughout the period January 1, 2012 to|
|September 27, 2014 with interest rates ranging from 2.90% to 8.33% and terms ranging from three years to six|
|years.|
|Scheduled payments of principal on the long-term debt, other than current maturities, at September 27, 2014|
|are as follows:|

September 28 to December 31, 2015 867,913 Year ended 31 December 2016 3,210,771 Year ended 31 December 2017 2,468,254 Year ended 31 December 2018 1,157,143 Year ended 31 December 2019 1,157,143 Year ended 31 December 2020 1,157,143 Year ended 31 December 2021 771,427 Total 10,789,794 8. Income taxes
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|DC Foam’s provision for income taxes is as follows:|

Period from Year ended Year ended January 1 to December 31, December 31, September 27, 2012 2013 2014 Current 10,496 147,712 362,741 Deferred (58,322) 325,373 - Total (47,826) 473,085 362,741
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|The deferred tax assets are mainly derived from the net operating losses and the deferred tax liabilities from the|
|basis differences in property and equipment.|
|The Company is unaware of any uncertain tax positions taken in open tax years.|

WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
9. Incentive unit plan
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|The Group has an incentive unit plan (the “plan”) to attract and retain key employees. Under the Plan, the|
|Board of Directors of the Company has the sole and complete authority to determine the participants to whom|
|incentive units shall be granted. The incentive units represent economic interests in the Group. Participation in|
|distribution is based on the allocation provisions under the Group’s operating agreement. Additionally, the|
|incentive units do not carry any voting rights, nor are they transferable without the express consent of the|
|Board of Directors of the Company.|

10. Lease
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|The Group leases certain manufacturing and office space, machinery, automobiles, and other equipment. The|
|leases, many of which are non-cancelable, are set to expire at various dates. The leases are subject to differing|
|terms and conditions, including renewal options.|
|Rent expense for operating leases was approximately $995,000, $1,010,000 and $902,000, for the years ended|
|December 31, 2012 and 2013 and the period from January 1 to September 27, 2014, respectively.|

11. Employee Benefit Plan
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|Wellman has a 401(k) plan for employees meeting eligibility requirements. The 401(k) plan allows eligible|
|employees to contribute a percentage of their compensation, subject to the limits defined in the plans and in|
|Section 401(k) of the Internal Revenue Code. The Group can make discretionary matching contributions as a|
|percentage of participant’s salary.|

12.Worker’s Compensation
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|In October 2013, Wellman converted its premium based worker’s compensation insurance program from a fully-|
|insured policy to a self-insured policy with stated individual and aggregate claims limits of $100,000 and|
|$300,000, respectfully. The insurance carrier required Wellman to provide a stand-by letter of credit of $140,000|
|for the policy year beginning in October 2013. As of December 31, 2013 and September 27, 2014, Wellman|
|recorded the related liability related to worker’s compensation amounting of $41,000 and $111,000,|
|respectively.|

13. Contingencies and concentrations
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|From time to time, the Group may be involved in various legal actions arising in the ordinary course of business.|
|At December 31, 2012 and 2013 and September 27, 2014, management of the Company is not aware of any|
|matters which may result in a liability to the Group.|
|Wellman is a party to a collective bargaining agreement with the labor union Workers United. Approximately 23|
|and 28% of Wellman employees were represented by Workers United as at December 31, 2012 and 2013,|
|respectively. The collective bargaining agreement expires on July 29, 2014 and has not been renewed.|

WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
13. Contingencies and concentrations(Cont’d)
The percentages of Group's revenues of the two most important customers for the years ended December 31, 2012 and 2013 and the period from January 1 to September 27, 2014 are listed below:
Period from Year ended Year ended January 1 to December 31, December 31, September 27, 2012 2013 2014 Customer 1 16.0% 12.5% 13.4% Customer 2 13.5% 11.5% 11.3% The amounts due from these two customers as percentages of trade receivable outstanding as at December, 2012 and 2013 and September 27, 2014 are listed below:
As of
December 31, December 31, September 27, 2012 2013 2014 Customer 1 8.2% 12.4% 1.2% Customer 2 2.3% 6.3% 11.0% 14. Subsequent Events
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|-|
|The Company has evaluated subsequent events through January 4, 2015, the date the consolidated financial|
|statements were available to be issued. The Company has determined that there are no subsequent events that|
|require disclosure in ASC 855, Subsequent Events.|

15. Fair Value Measurement
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|-|
|Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly|
|transaction between market participants at the measurement date. The accounting guidance classifies the|
|inputs used to measure fair value into the following hierarchy:|
| Level 1 - Quoted prices in active markets for identical assets or liabilities|
| Level 2 - Quoted prices in active markets for similar assets or liabilities, or quoted prices for identical or|
|similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are|
|observable for assets or liabilities|
| Level 3 - Unobservable inputs for assets or liabilities|
|Level 1 inputs are considered to be the most reliable evidence of fair value and the Group utilizes these inputs|
|whenever available. Financial and nonfinancial assets and liabilities are classified in their entirety based on the|
|lowest level of input that is significant to the fair value measurement.|
|Assets and liabilities measured at fair value are based on or more of the following three valuation techniques|
|noted in ASC 820:|
|A. Market approach: Prices and other relevant information generated by market transactions involving|
|identical or comparable assets or liabilities;|

WPR HOLDINGS LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2013 AND THE PERIOD FROM JANUARY 1 TO SEPTEMBER 27, 2014
15. Fair Value Measurement (Continued)
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|-|
|B. Cost approach: Amount that would be required to replace the service capacity of an asset (replacement|
|cost);|
|C. Income approach: Techniques to convert future amounts to a single present amount based upon market|
|expectations (including present value techniques, option-pricing and excess earnings models).|
|The Group’s fair value considerations relating to the consolidated balance sheets are as follows:|
|Cash and Cash Equivalents|
|Cash and cash equivalents had carrying values that approximate fair values due to their short-term nature.|
|Accounts Receivable and Payable|
|The carrying amounts of these items approximate fair values due to their short-term nature.|
|Debts|
|The fair value of long-term debt and lines of credit approximates fair value due to applicable floating interest|
|rates.|