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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number 333-40067

PLIANT CORPORATION
(Exact Name of the Registrant as Specified in its Charter)

1475 Woodfield Road, Suite 700
Schaumburg, IL 60173
(847) 969-3300
(Address of principal executive offices and telephone number)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o    No ý

        At March 21, 2005 there were 571,711 outstanding shares of the Registrant's common stock. As of June 30, 2004, 71,659, or approximately 12.5%, of the outstanding shares of the Registrant's common stock were held by persons other than affiliates of the Registrant. There is no established trading market for the Registrant's common stock and, therefore, the aggregate market value of shares held by non-affiliates cannot be determined by reference to recent sales or bid and asked prices.

        This report contains certain forward-looking statements that involve risks and uncertainties, including statements about our plans, objectives, goals, strategies and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements. Some of the factors that could negatively affect our performance are discussed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations—Cautionary Statement for Forward-Looking Information" and elsewhere in this report.

PART I

ITEM 1.    BUSINESS

General

        Pliant Corporation ("Pliant," the "Company," "we" or "us"), with 2004 revenues of approximately $968.7 million, is one of North America's leading manufacturers of value-added films and flexible packaging for food, personal care, medical, agricultural and industrial applications. We offer some of the most diverse product lines in the film industry and have achieved leading positions in many of these product lines. We operate 24 manufacturing and research and development facilities worldwide and we currently have approximately 1.0 billion pounds of annual production capacity.

        Pliant has a proud heritage that traces back many decades. We have combined strategic acquisitions, internal growth, product innovation and operational improvements to grow our business from net sales of $310.8 million in 1996 to $968.7 million in 2004. We have invested heavily to expand our capabilities and value-added product offerings for our customers. Between January 1, 2000 and December 31, 2004, we invested a total of $212.3 million to expand, upgrade and maintain our asset base and information systems.

Recapitalization

        On May 31, 2000, we consummated a recapitalization pursuant to an agreement dated March 31, 2000 among us, our then existing stockholders and an affiliate of J.P. Morgan Partners, LLC, whereby the affiliate acquired majority control of our common stock. The total consideration paid in the recapitalization was approximately $1.1 billion, including transaction costs. Pursuant to the recapitalization agreement:

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we redeemed all of the shares of our common stock held by Jon M. Huntsman, our founder, then majority stockholder and then Chairman of the Board;



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an affiliate of J.P. Morgan Partners, LLC purchased approximately one-half of the shares of our common stock held collectively by The Christena Karen H. Durham Trust and by members of our current and former senior management;



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an affiliate of J.P. Morgan Partners, LLC and certain other institutional investors purchased shares of common stock directly from us;



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the trust and the management investors at that time retained or "rolled-over" approximately one-half of the shares of our common stock collectively owned by them prior to the recapitalization; and



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we issued to an affiliate of J.P. Morgan Partners, LLC and to certain other institutional investors a new series of senior cumulative exchangeable redeemable preferred stock and detachable warrants for our common stock.

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Controlling Shareholders

        As of March 21, 2005, J.P. Morgan Partners (BHCA), L.P. and/or affiliates owned approximately 55% of our outstanding common stock, 74% of our detachable warrants to purchase common stock issued in connection with our Series A preferred stock and 59% of our outstanding Series A preferred stock. J.P. Morgan Partners, LLC serves as investment advisor to J.P. Morgan Partners (BHCA), L.P. J.P. Morgan Partners, LLC is the private equity group of J.P. Morgan Chase & Co., which is one of the largest financial holding companies in the United States. J.P. Morgan Partners, LLC is a global partnership, with approximately $21 billion in capital under management as of December 31, 2004. It is a leading provider of equity capital for middle market buyouts, growth equity and venture capital and has closed over 1,300 individual transactions since its inception in 1984. (See "Risk Factors")

Recent Developments

        Restructuring of Executive Management.    In October 2003, Harold C. Bevis was appointed as our President and Chief Executive Officer and was elected to our Board of Directors. Edward A. Lapekas, who had served as our interim Chief Executive Officer since August 24, 2003, was named the Non-Executive Chairman of our Board of Directors. We entered into a consulting agreement with Mr. Lapekas in 2003. In November 2003, R. David Corey was named our Executive Vice President of Global Operations and was promoted to Executive Vice President and Chief Operating Officer in March 2004. Brian Johnson, who served as Chief Financial Officer of the Company beginning in July 2001, resigned as Executive Vice President and Chief Financial Officer of the Company in May 2004, although he continued to be employed as a non-executive officer of the Company until December 31, 2004. In September 2004, James Ide was hired as the Chief Financial Officer of the Company, a position from which he resigned effective January 26, 2005. Since that time, Mr. Bevis has served as the acting Chief Financial Officer of the Company. In May 2004, Lori Roberts was hired as Senior Vice President, Human Resources, a position from which she resigned effective March 18, 2005. Since that time, Mr. Corey has served as the acting director of Human Resources of the Company.

        Sale of Senior Secured Discount Notes.    On February 17, 2004, we completed the sale of $306,000,000 in aggregate principal amount at maturity of 11¹/8% Senior Secured Discount Notes due 2009 (the "Senior Secured Discount Notes"). The net proceeds from such sale in the amount of $220.2 million (after deducting underwriters fees) together with borrowings of $30.0 million under our revolving credit facility described below, were used to pay off our then existing term loan facilities in the amount of $219.6 million and our then existing revolving loan facility of $20 million and $3.8 million in fees and other costs, leaving $6.8 million of cash on hand. Subsequently the Senior Secured Discount Notes were exchanged for publicly held notes with substantially similar terms that were registered under the Securities Act of 1933, as amended.

        Revolving credit facility.    On February 17, 2004, we terminated our then existing credit facilities and entered into a revolving credit facility in the principal amount of up to $100 million. The new revolving credit facility contains substantially fewer financial covenants than our prior credit facilities and therefore substantially reduces our exposure to covenant default risk. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations")

        Sale of Pliant Solutions and Reorganization of Company Operations.    On September 30, 2004, we sold substantially all of the assets of our wholly-owned subsidiary, Pliant Solutions Corporation for a total consideration of $9 million. We acquired Pliant Solutions Corporation from Décora in 2002. Pliant Solutions Corporation, previously reported as a separate operating segment during the first three quarters of the 2004 fiscal year, manufactured decorative and surface coverings through the conversion of various films into consumer packaged goods. The Pliant Solutions operating segment had net sales for the nine months ended September 30, 2004 of $22.5 million; net sales for the twelve months ended December 31, 2003 of $34.9 million; and net sales for the eight months ended December 31, 2002 of

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$28.3 million. As a result of our sale of Pliant Solutions Corporation, during the fourth quarter of 2004, we reorganized our operations under four operating segments: Specialty Products Group, Industrial Films, Engineered Films and Performance Films.

        Adoption of 2004 Incentive Plans and Issuance of Series B Preferred Stock.    Effective January 1, 2004, our Board of Directors adopted two new benefit plans in which some or all of our named executive officers may participate: the 2004 Management Incentive Compensation Plan and the 2004 MIP Long Term Incentive Plan. The participants in the 2004 Management Incentive Compensation Plan were paid cash bonuses relating to achievement of certain EBITDA and operating free cash flow goals for 2004. In addition, participants in the 2004 MIP Long Term Incentive Plan, which includes all officers and other key management personnel of the Company (except the Chief Executive Officer), received a credit of half of the 2004 bonus amount to the accumulated amount of their Long Term Incentive Plan Award that they can earn under the 2004 MIP Long Term Incentive Plan, which will become payable on December 31, 2007 under the terms of that plan to eligible employees who are then employed by the Company and who have satisfied certain other conditions as set forth in the plan. (See "Executive Compensation")

        In August 2004, our Board of Directors adopted the 2004 Restricted Stock Incentive Plan. Since the adoption of the 2004 Restricted Stock Incentive Plan, we sold 720 shares of a newly created Series B Preferred Stock to our Chief Executive Officer and certain other officers in a private transaction at $162 per share, which was determined to be the fair market value of those shares based on an independent appraisal received by the Board.

        Termination of Alliant Joint Venture.    On January 5, 2005, we terminated our joint venture with Supreme Plastics Group PLC by purchasing all of the equity interests in the joint venture Supreme Plastics Group PLC owned for $400,000. As of January 5, 2005, Alliant Company LLC became a wholly-owned subsidiary of the Company. On January 5, 2005, Pliant Corporation signed a nonbinding letter of intent to sell the intellectual property, working capital, and equipment assets used in the Alliant operation to an independent third party for a purchase price of $6.3 million, subject to certain adjustments. Although a purchase agreement is being negotiated, there is no assurance if or when this sale will be completed. Any such sale will require the consent of or waivers by the Company's lenders, who may require that the proceeds of that sale be used to repay indebtedness.

Industry Overview

        We manufacture and sell a variety of plastic films and flexible packaging products. The plastic film industry serves a variety of flexible packaging markets, including the pharmaceutical, medical, personal care, household, industrial and agricultural film markets, as well as secondary packaging and non-packaging end use markets. According to the Flexible Packaging Association, the North American market for flexible packaging was approximately $20.5 billion in 2003 and has grown at a compound annual growth rate, or CAGR, of approximately 3.7% from 1992-2003. Many of our plastic films are flexible packaging products as defined by the Flexible Packaging Association. However, the flexible packaging market, as defined by the Flexible Packaging Association, does not include certain of the products we sell, such as agricultural films, and includes certain products we do not sell, such as wax papers and aluminum foils. We believe, however, that trends affecting the flexible packaging industry also affect the markets for many of our other products.

        Flexible packaging is used to package a variety of products, particularly food, which accounts for approximately half of all flexible packaging shipments. Recent advancements in film extrusion and resin technology have produced new, sophisticated films that are thinner and stronger and have better barrier and sealant properties than other materials or predecessor films. These technological advances have facilitated the replacement of many traditional forms of rigid packaging with film-based, flexible packaging that is lighter, is lower in cost and has enhanced performance characteristics. For example, in

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consumer applications, stand-up pouches that use plastic films are now often used instead of paperboard boxes, glass jars and metal cans. In industrial markets, stretch and shrink films are often used instead of corrugated boxes and metal strapping to unitize, bundle and protect items during shipping and storage.

        Except as otherwise indicated, all industry and market share data reported herein is based on estimates made by the Flexible Packaging Association in a "State of the Industry Report 2004," which was compiled based on data compiled from surveys submitted by its members beginning in December of 2003, or from data provided by the Flexible Packaging Association in an investment bank report titled "Paper and Packaging: Industry Overview and Outlook" issued in December 2003. Mr. Bevis serves on the Board of Directors of the Flexible Packaging Association and Pliant is a dues-paying member of the Flexible Packaging Association. Unless otherwise indicated, the market share and industry data used throughout this report were obtained primarily from internal company surveys and management estimates based on these surveys and our management's knowledge of the industry. We have not independently verified any of the data from third-party sources. Similarly, internal company surveys and management estimates, while we believe them to be reliable, have not been verified by any independent sources. While we are not aware of any misstatements regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed in "Cautionary Statement for Forward-Looking Information."

Products, Markets and Customers

        Our products are sold into numerous markets for a wide variety of end uses and are offered through four operating segments: Specialty Products Group, Industrial Films, Engineered Films, and Performance Films. Operating segments are components of our business for which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. In previous reporting periods, we had four operating segments: Pliant U.S., Pliant International, Pliant Flexible Packaging and Pliant Solutions. During the third quarter of 2004, we sold Pliant Solutions and reorganized our operations under our four current operating segments: Specialty Products Group, Industrial Films, Engineered Films and Performance Films. Segment information in this report with respect to 2003 and 2002 has been restated for comparative purposes. For more information on our operating segments and geographic information, see Note 14 to the consolidated financial statements included elsewhere in this report.

Specialty Products Group

        The Specialty Products Group includes our Specialty Films and Printed Products Films divisions and accounted for 40.3%, 41.1% and 40.7% of our consolidated net sales in 2004, 2003 and 2002, respectively. Our Specialty Films division produces personal care films, medical films, and agricultural films.

        Personal Care.    We are a leading producer of personal care films used in disposable diapers, feminine care products and adult incontinence products. Personal care films must meet diverse and highly technical specifications. Many of these films must "breathe," allowing water vapors to escape. In some applications, the softness or "quietness" of the film is important, as in adult incontinence products. We are one of North America's leading producers of personal care films, with an estimated market share of approximately 35% in 2003 based on sales dollars.

        Medical.    We are a specialized niche manufacturer of medical films. Our medical films are used in disposable surgical drapes and gowns. We also produce protective packaging for medical supplies, such as disposable syringes and intravenous fluid bags. In addition, our products include packaging for disposable medical devices. Our medical films are manufactured in "clean-room" environments and must meet stringent barrier requirements. A sterile barrier is necessary to provide and assure the

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integrity of the devices and to prevent contamination and tampering. These films must also be able to withstand varied sterilization processes.

        Agricultural.    We are a leading manufacturer of polyethylene mulch films that are sold to fruit and vegetable growers and to nursery operators. Our mulch films are used extensively in North America and Latin America. Commercial growers of crops like peppers, tomatoes, cucumbers and strawberries are the primary consumers of our mulch films. These crops are typically planted on raised beds that are tightly covered with mulch film. The mulch film eliminates or retards weed growth, significantly reduces the amount of water required by plants, controls soil bed temperatures for ideal growing conditions and allows easy application of fertilizer. We are one of North America's two largest producers of mulch films, with an estimated market share of approximately 31%.

        Our Printed Products Films division provides printed rollstock, bags and sheets used to package food and consumer goods. Printed bags or rollstock are sold to bakeries, fresh and frozen food processors, manufacturers of personal care products, textile manufacturers and other dry goods processors. Bread and bakery bags represent a significant portion of our Printed Products Films business. Our Printed Products Films division produces approximately four billion bread and bakery bags each year, with an estimated share of 20% of the North American market.

        The Specialty Products Group also includes our Mexican subsidiary, Pliant de Mexico S.A. de C.V., which produces printed products for Mexico and other Latin American countries. Pliant de Mexico S.A. de C.V. also produces personal care and barrier films for these markets. In 2004, management estimates that approximately 10% of our Printed Products sales were outside the United States, primarily in Mexico and Latin America.

Industrial Films

        The Industrial Films segment accounted for 26.2%, 24.6% and 22.5% of our consolidated net sales in 2004, 2003 and 2002, respectively.

        Our Industrial Films segment manufactures stretch and PVC films. In 2004, approximately 23% of our Industrial Films sales were outside the United States, primarily in Canada, Europe and Australia. Our customers in this segment include national distributors, such as Bunzl, and Xpedx; grocery chains, such as A&P, Kroger, Publix and Safeway; and end-users, such as P&G, Costco, and Wal-Mart.

        Stretch Films.    Our stretch films are used to bundle, unitize and protect palletized loads during shipping and storage. Stretch films continue to replace more traditional packaging, such as corrugated boxes and metal strapping, because of stretch films' lower cost, higher strength, and ease of use. We are North America's fourth largest producer of stretch films, with an estimated share of 10% of the North America Market.

        PVC Films.    Our PVC films are used by supermarkets, delicatessens and restaurants to wrap meat, cheese and produce. PVC films are preferred in these applications because of their clarity, elasticity and cling. We also produce PVC films for laundry and dry cleaning bags. Finally, we produce PVC films for companies that repackage the films in smaller cutterbox rolls for sale in retail markets in North America, Latin America and Asia. In 2004, we were the one of the largest producers of PVC films in North America, with an estimated market share of approximately 27%. In addition, we are the leading producer of PVC films in Australia, with an estimated market share of 60%, and have an estimated market share of approximately 15% in Europe.

Engineered Films

        The Engineered Films segment accounted for 22.6%, 21.9% and 24.1% of our consolidated net sales in 2004, 2003 and 2002, respectively.

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        Engineered films are sold to converters of flexible packaging who laminate them to foil, paper or other films, print them, and ultimately fabricate them into the final flexible packaging product. Our engineered films are a key component in a wide variety of flexible packaging products, such as fresh-cut produce packages, toothpaste tubes and stand-up pouches. Generally, our engineered films add value by providing the final packaging product with specific performance characteristics, such as moisture, oxygen or odor barriers, ultraviolet protection or desired sealant properties. Because engineered films are sold for their sealant, barrier or other properties, they must meet stringent performance specifications established by the converter, including gauge control, clarity, sealability and width accuracy. We are a leader in introducing new engineered film products to meet flexible packaging industry trends and specific customer needs. We are one of North America's leading manufacturer of films sold to converters, with an estimated market share of approximately 30%.

Performance Films

        The Performance Films segment accounted for 10.1%, 11.8% and 11.6% of our consolidated net sales in 2004, 2003 and 2002, respectively.

        We manufacture a variety of barrier and custom films, primarily for smaller, but profitable, niche segments in flexible packaging and industrial markets. For example, we have an estimated share of 20% of the North American market for films for cookie, cracker and cereal box liners. We are also a leading manufacturer of barrier films for liners in multi-wall pet food bags, films for photoresist coatings for the electronics industry, and films for the protection and transportation of sheet molding compound used in the manufacture of boats and automotive parts.

Sales and marketing

        Because of our broad range of product offerings and customers, our sales and marketing efforts are generally product or customer specific. We market in various ways, depending on both the customer and the product. However, most of our salespeople are dedicated to a specific product line and sometimes to specific customers.

        The majority of our Specialty Films, Engineered Films and Performance Films are sold by our own direct sales force. These salespeople are supported by customer service and technical specialists assigned to each salesperson, and in some cases, to specific customers. Customer service representatives assist with order intake, scheduling and product information. Technical support personnel assist the salesperson and the customer with technical expertise, quality control and product development. We believe it is critical that our sales, marketing and technical support teams work together in order to meet our customers' product needs and provide meaningful product development.

        We sell some of our Specialty Films, such as our agricultural films, through regional distributors. In addition, certain of our personal care films in Specialty Films and barrier films in Performance Films are sold through brokers who have long-standing relationships with customers.

        Most of our Printed Products are sold through brokers. National grocery chains and some smaller customer accounts are serviced by our own direct sales force. Generally, each salesperson is supported individually by a customer service specialist and by a group of technical specialists.

        Industrial Films are generally sold through distributors. We have an independent contract sales force that sells our stretch films to national and regional distributors. Our PVC films are sold by our own sales force to regional and national distributors, directly to national grocery chains, and directly to converters, who repackage the film into cutterbox rolls for sale in retail markets.

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Manufacturing

        Between January 1, 2000 and December 31, 2004, excluding acquisitions, we have invested a total of $212.3 million to expand, upgrade and maintain our asset base and information systems. With 24 plants, we are often able to allocate lines to specific products. Our multiple manufacturing sites and varied production capabilities also allow us to offer multiple plant service to our national customers. Generally, our manufacturing plants operate 24 hours a day, seven days a week.

        We manufacture our film products using both blown and cast extrusion processes. In each process, thermoplastic resin pellets are combined with other resins, plasticizers or modifiers in a controlled, high temperature, pressurized process to create films with specific performance characteristics. Blown film is produced by extruding molten resin through a circular die and chilled air ring to form a bubble. In the cast film process, molten resin is extruded through a horizontal die onto a chill roll, where the film is quickly cooled. These two basic film manufacturing processes produce films with uniquely different performance characteristics. Cast films are generally clearer, softer and more uniform in thickness. Blown films offer enhanced physical properties, such as increased tear and puncture resistance and better barrier protection.

        We also produce a significant amount of printed films and bags. We employ both flexographic and rotogravure printing equipment in our printing operations.

Technology and research and development

        We believe our technology base and research and development provide critical support to our business and customers. Our research and development group provides the latest resin and extrusion technology to our manufacturing facilities and allows us to test new resins and process technologies. Our technical center in Newport News, Virginia has a pilot plant that allows the technical center to run commercial "scale-ups" for new products. We are able to use our broad product offerings and technology to transfer technological innovations from one market to another.

        Our technical representatives often work with customers to help them develop new, more competitive products. This allows us to enhance our relationships with these customers by providing the technical service needed to support commercialization of new products and by helping them to improve operational efficiency and quality throughout a product's life cycle.

        We spent $6.5 million, $7.3 million and $8.1 million on research and development for the years ended December 31, 2004, 2003 and 2002, respectively, before giving effect to revenues from pilot plant sales. In addition, we participate in several U.S. government funded research and development programs.

Intellectual property rights

        Patents, trademarks and licenses are significant to our business. We have patent protection on many of our products and processes, and we regularly apply for new patents on significant product and process developments. We have registered trademarks on many of our products. We also rely on unpatented proprietary know-how, continuing technological innovation and other trade secrets to develop and maintain our competitive position. In addition to our own patents, trade secrets and proprietary know-how, we license from third parties the right to use some of their intellectual property. Although we constantly seek to protect our patents, trademarks and other intellectual property, our precautions may not provide meaningful protection against competitors and the value of our trademarks could be diluted.

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Raw materials

        Polyethylene, PVC, polypropylene and other resins and additives constitute the major raw materials for our products. We purchase most of our resin from major oil companies and petrochemical companies in North America. For the year ended December 31, 2004, resin costs comprised approximately 61% of our total manufacturing costs. Significant increases in the price of resins increase our costs, reduce our operating margins, and impair our ability to service our debt unless we are able to pass all of the increases on to our customers. The price of resins is a function of, among other things, manufacturing capacity, demand, and the price of crude oil and natural gas feed stocks. Resin shortages or significant increases in the price of resin have had and could continue to have a significant adverse effect on our business. Since the middle of 2002, we have experienced a period of significant uncertainty with respect to resin supplies and prices. High crude oil and natural gas pricing have had significant impact on the price and supply of resins. Prices for resin have risen dramatically during 2004 and are expected to continue to rise. Pliant's costs for resin on a weighted-average basis rose 29% from December 2003 to December 2004, with over half of that increase occurring in the fourth quarter of 2004.

        Major suppliers of resin have implemented price increases to cover their increases in petroleum costs, and to improve their operating margins as capacity utilization increases. Due in part to consolidation in the resin supply industry, suppliers have resisted the consumers' efforts to limit or defer the effect of these increases. Our goal is for the prices of our products generally to fluctuate with the price of resins. Approximately half of our sales are made on a transactional basis, which allows us to pass through resin price increases, although competitive market conditions in our industry from time to time limit our ability to pass the full cost of higher resin pricing through to our customers immediately or completely. The other approximately one half of our sales are made pursuant to customer contracts, most of which dictate the timing in our ability to pass through the increase. A large majority of these contracts allow resin cost increases to be passed along quarterly, with some allowing increased costs to be passed on more quickly and a small number requiring a longer delay. In combination, the cost to the Company of the gap between the speed in which increased costs are passed on to us and the time in which we can pass these costs on to our customers has a negative impact on both our results of operations and our working capital needs. This trend is industry wide and its impact was significant in 2004 and is likely to continue and possibly increase in the future.

        As one of the largest consumers of packaging resin in the United States, the Company is working on behalf of its customers with its suppliers to minimize the effects and the timing of the pass through of increased resin costs and to maximize the likelihood that resin supplies continue to be available to the Company in sufficient quantities and on timetables necessary to meet the needs of our customers. We also regularly evaluate commodity hedging, collar agreements, and other protective strategies and will implement them if and when appropriate. However, if this period of high resin pricing continues, the limits on our ability to pass through these costs to our customers will exert downward pressure on profits and negatively effect our cash flow and our working capital requirements.

Competition

        The markets in which we operate are highly competitive on the basis of service, product quality, product innovation and price. Small and medium-sized manufacturers that compete primarily in regional markets service a large portion of the film and flexible packaging market, and there are relatively few large national manufacturers. In addition to competition from many smaller competitors, we face strong competition from a number of large film and flexible packaging companies. Some of our competitors are substantially larger, are more diversified, and have greater resources than we have, and, therefore, may have certain competitive advantages.

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Employees

        As of December 31, 2004, we had approximately 3,025 employees, of which approximately 850 employees were subject to a total of 9 collective bargaining agreements that expire on various dates between February 28, 2005 and March 7, 2007. The collective bargaining agreement covering our Langley union employees expired on February 28, 2005. We are currently operating under an informal extension of the terms of that agreement and are in negotiations with the union for a new collective bargaining agreement. We consider our current relations with our employees to be good. However, if major work disruptions were to occur, our business could be adversely affected.

Environmental matters

        Our operations are subject to environmental laws in the United States and abroad, including those described below. Our capital and operating budgets include costs and expenses associated with complying with these laws, including the acquisition, maintenance and repair of pollution control equipment, and routine measures to prevent, contain and clean up spills of materials that occur in the ordinary course of our business. In addition, our production facilities require environmental permits that are subject to revocation, modification and renewal. We believe that we are in substantial compliance with environmental laws and our environmental permit requirements, and that the costs and expenses associated with such compliance are not material to our business. However, additional operating costs and capital expenditures could be incurred if, for example, additional or more stringent requirements relevant to our operations are promulgated.

        From time to time, contaminants from current or historical operations have been detected at some of our present and former sites, principally in connection with the removal or closure of underground storage tanks. The cost to remediate these sites has not been material, and we are not currently aware that any of our facility locations have material outstanding claims or obligations relating to contamination issues.

Available Information

        We file annual, quarterly and current reports and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference facility at 450 Fifth Street, N.W., Washington, D.C. 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20459. Please call the SEC at 1-800-SEC-0330 for further information on the public reference facility.

        We maintain an Internet web site at http://www.pliantcorp.com. We do not currently make our annual, quarterly and current reports available on or through our web site. We do not have publicly traded stock, and copies of our reports are mailed to holders of our outstanding debt securities under the terms of our indentures. In addition, we believe virtually all of our investors and potential investors in our debt securities have access to our reports through the SEC's web site or commercial services. Therefore, we do not believe it is necessary to make our reports available through our web site. We also provide electronic or paper copies of our filings free of charge upon written or oral request directed to Pliant Corporation, 1475 Woodfield Road, Suite 700, Schaumburg, Illinois 60173, telephone: (866) 878-6188.

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Cautionary Statement for Forward-Looking Information

        Certain information set forth in this report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that is based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to our future prospects, developments and business strategies.

        These forward-looking statements are identified by their use of terms and phrases such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will" and similar terms and phrases, including references to assumptions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. These factors include, but are not limited to, the following:

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general economic and business conditions, particularly an economic downturn;



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industry trends;



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increases in our leverage;



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interest rate increases;



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changes in our ownership structure;



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raw material costs and availability, particularly resin;



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competition;



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the loss of any of our major customers;



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changes in demand for our products;



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new technologies;



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changes in distribution channels or competitive conditions in the markets or countries where we operate;



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costs of integrating any future acquisitions;



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loss of our intellectual property rights;



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foreign currency fluctuations and devaluations and political instability in our foreign markets;



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changes in our business strategy or development plans;



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availability, terms and deployment of capital;



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availability of qualified personnel;



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increases in the cost of compliance with laws and regulations, including environmental laws and regulations; and



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other risks and uncertainties listed or described from time to time in reports we periodically file with the SEC.

        We may also make additional forward-looking statements from time to time. All such subsequent forward-looking statements, whether written or oral, by us or on our behalf, are also expressly qualified by these cautionary statements. All forward-looking statements, including, without limitation, management's examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. But, there can be no assurance that management's expectations, beliefs and projections will result or be achieved. All forward-looking statements apply

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only as of the date made. We undertake no obligation to publicly update or revise forward-looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

        Our risks are more specifically described in the "Risk Factors" section of this report. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those expected, estimated or projected.

Risk Factors

        There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in or contemplated by this report. The following risks and uncertainties are among the factors that could cause our actual results to differ materially from the forward-looking statements made in this report. There may be other factors, including those discussed elsewhere in this report, that may cause our actual results to differ materially from the forward-looking statements. Any forward-looking statements should be considered in light of these factors.

Risks related to the Financial Structure of the Company

Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry and prevent us from meeting our debt obligations.

        We are highly leveraged, which means that we have a large amount of indebtedness relative to our stockholders' deficit. We are highly leveraged particularly in comparison to some of our competitors. As of December 31, 2004, we had total debt of $842.3 million, and for the 2004 fiscal year, earnings were insufficient to cover fixed charges by approximately $112.3 million. It may be difficult for us to generate sufficient earnings to cover fixed changes in future years.

        Our high degree of leverage may limit our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes. In addition, a substantial portion of our cash flows from operations must be dedicated to the payment of principal and interest on our indebtedness and is not available for other purposes, including our operations, capital expenditures, new investments and future business opportunities. Our leveraged position may limit our ability to adjust to changing market conditions and to withstand competitive pressures, putting us at a competitive disadvantage; and we may be vulnerable in a downturn in general economic conditions or in our business, or we may be unable to carry out capital spending that is important to our growth and productivity improvement programs.

We may not be able to generate sufficient cash to service all of our indebtedness and could be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

        Our estimated debt service for 2005 will be approximately $73.5 million, consisting of $2.0 million of scheduled mandatory principal payments and approximately $71.5 million of interest payments.

        Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. These factors include:

•

fluctuations in interest rates;



•

unscheduled plant shutdowns;



•

increased operating costs;

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•

prices and supply of raw materials; and



•

product prices and regulatory developments.

        We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. See "Cautionary statements for forward-looking statements" and "Management's discussion and analysis of financial condition and results of operations—Liquidity and capital resources."

        If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such cash flows and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our revolving credit facility and indentures restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

        If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness (including covenants in our indentures and credit facility), we could be in default under the terms of the agreements governing such indebtedness, including our indentures and revolving credit facility. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the credit facility could elect to terminate their commitments thereunder, cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation. If our operating performance declines, we may, in the future, need to obtain waivers from the required lenders under our credit facility to avoid being in default. If we breach our covenants under the revolving credit facility and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we could be in default under the revolving credit facility and the lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.

Our variable rate indebtedness subjects us to interest rate risk.

        Although we have substantially reduced our variable rate indebtedness, our borrowings under our revolving credit facility are and will be at variable rates of interest. An increase of 1% in interest rates would result in an additional $100,000 of annual interest expense for each $10.0 million in borrowings under our revolving credit facility. We are thus exposed to interest rate risk to the extent of our borrowings under the revolving credit facility.

Limits on our borrowing capacity under our revolving credit facility and other indebtedness may affect our ability to finance our operations.

        While our revolving credit facility provides for $100.0 million of commitments, our ability to borrow funds under our revolving credit facility is subject to the amount of eligible receivables and inventory in our borrowing base under the facility. Further, if we do not maintain a specified fixed charge coverage ratio, the availability under our revolving credit facility may be limited. Our ability to make borrowings under our revolving credit facility will also be conditioned upon our compliance with other covenants in the credit agreement, including financial covenants that apply when our borrowings exceed certain amounts. In addition, the terms of our indentures currently limit the amount we may borrow under our revolving credit facility. Because of these limitations, we may not always be able to

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meet our cash requirements with funds borrowed under our revolving credit facility. See "Description of credit facilities and other indebtedness—revolving credit facility."

We will rely significantly on the funds received from our subsidiaries to meet our debt service obligations, but our subsidiaries may not be able to distribute sufficient funds to us.

        Although we are an operating company, a significant amount of our revenue is generated by our subsidiaries. For the year ended December 31, 2004, 21% of our net sales was generated by our subsidiaries. As a result, our ability to satisfy our debt service obligations will depend significantly on our receipt of dividends or other intercompany transfers of funds from our operating subsidiaries. The payment of dividends to us by our subsidiaries is contingent upon the earnings of those subsidiaries and is subject to various business considerations as well as certain contractual provisions which may restrict the payment of dividends and the transfer of assets to us. In the event of bankruptcy, liquidation or reorganization of our subsidiaries, claims of creditors of our subsidiaries will generally have priority as to the assets of such subsidiaries over our claims as the holder of the equity of our subsidiaries.

Risks related to our business

Continued increases in resin prices or the loss of a key resin supplier could lead to increased costs and lower profit margins.

        Polyethylene, PVC, polypropylene and other resins and additives constitute the major raw materials for our products. We purchase most of our resin from major oil companies and petrochemical companies in North America. For the year ended December 31, 2004, resin costs comprised approximately 61% of our total manufacturing costs. Significant increases in the price of resins increase our costs, reduce our operating margins, and impair our ability to service our debt unless we are able to pass all of the increases on to our customers. The price of resins is a function of, among other things, manufacturing capacity, demand, and the price of crude oil and natural gas feed stocks. Resin shortages or significant increases in the price of resin have had and could continue to have a significant adverse effect on our business. Since the middle of 2002, we have experienced a period of significant uncertainty with respect to resin supplies and prices. High crude oil and natural gas pricing have had significant impact on the price and supply of resins. Prices for resin have risen dramatically during 2004 and are expected to continue to rise. Pliant's costs for resin on a weighted-average basis rose 29% from December 2003 to December 2004, with over half of that increase occurring in the fourth quarter of 2004.

        Major suppliers of resin have implemented price increases to cover their increases in petroleum costs, and to improve their operating margins as capacity utilization increases. Due in part to consolidation in the resin supply industry, suppliers have resisted the consumers' efforts to limit or defer the effect of these increases. Our goal is for the prices of our products generally to fluctuate with the price of resins. Approximately half of our sales are made on a transactional basis, which allows us to pass through resin price increases, although competitive market conditions in our industry from time to time limit our ability to pass the full cost of higher resin pricing through to our customers immediately or completely. The other approximately one half of our sales are made pursuant to customer contracts, most of which dictate the timing in our ability to pass through the increase. A large majority of these contracts allow resin cost increases to be passed along quarterly, with some allowing increased costs to be passed on more quickly and a small number requiring a longer delay. In combination, the cost to the Company of the gap between the speed in which increased costs are passed on to us and the time in which we can pass these costs on to our customers has a negative impact on both our results of operations and our working capital needs. This trend is industry wide and its impact was significant in 2004 and is likely to continue and possibly increase in the future.

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        As one of the largest consumers of packaging resin in the United States, the Company is working on behalf of its customers with its suppliers to minimize the effects and the timing of the pass through of increased resin costs and to maximize the likelihood that resin supplies continue to the Company in sufficient quantities and on timetables necessary to meet the needs of our customers. We also regularly evaluate commodity hedging, collar agreements, and other protective strategies and will implement them if and when appropriate. However, if this period of high resin pricing continues, the limits on our ability to pass through these costs to our customers will exert downward pressure on profits and negatively effect our cash flow and our working capital requirements.

We operate in highly competitive markets and our customers may not continue to purchase our products, which could lead to our having reduced revenues and loss of market share.

        The markets in which we operate are highly competitive on the basis of service, product quality, product innovation and price. Small and medium-sized manufacturers that compete primarily in regional markets service a large portion of the film and flexible packaging market, and there are relatively few large national manufacturers. In addition to competition from many smaller competitors, we face strong competition from a number of large film and flexible packaging companies. Some of our competitors are substantially larger, are more diversified, and have greater resources than we have, and, therefore, may have certain competitive advantages.

If we lose one or more of our major customers, our results of operations and our ability to service our indebtedness could be adversely affected.

        Although no single customer accounted for more than 10% of our net sales for the year ended December 31, 2004, we are dependent upon a limited number of large customers with substantial purchasing power for a significant percentage of our sales. Our top ten customers accounted for approximately 29.7% of our net sales in 2004. Several of our largest customers satisfy some of their film requirements by manufacturing film themselves. The loss of one or more major customers, or a material reduction in sales to these customers as a result of competition from other film manufacturers, insourcing of film requirements or other factors, would have a material adverse effect on our results of operations and on our ability to service our indebtedness. See "Management's discussion and analysis of financial condition and results of operations" and "Business—Products, markets and customers."

Our ongoing efforts to achieve cost savings may not improve our operating results.

        We regularly evaluate our operations in order to identify potential cost savings. From time to time, we implement plant restructurings or other initiatives designed to improve the efficiency of our operations and reduce our costs. These initiatives may not result in cost savings, however, particularly if our estimates and assumptions relating to the anticipated cost savings prove to be incorrect. Further, even if a cost savings initiative is successful, we may not be able to improve our operating results as a result of other factors discussed in this report, many of which are beyond our control, such as a reduction in the demand for our products or increases in raw material costs.

We may not be able to adequately protect our intellectual property, which could cause our revenues to decrease.

        We rely on patents, trademarks and licenses to protect our intellectual property, which is significant to our business. We also rely on unpatented proprietary know-how, continuing technological innovation and other trade secrets to develop and maintain our competitive position. We routinely seek to protect our patents, trademarks and other intellectual property, but our precautions may not provide meaningful protection against competitors or protect the value of our trademarks. In addition to our own patents, trade secrets and proprietary know-how, we license from third parties the right to use some of their intellectual property. We routinely enter into confidentiality agreements to protect our

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trade secrets and proprietary know-how. However, these agreements may be breached, may not provide meaningful protection or may not contain adequate remedies for us if they are breached.

Any future acquisitions may not be successfully integrated with our business and could cause our revenues to decrease, operating costs to increase or reduce cash flows.

        Our efforts to integrate any businesses acquired in the future may not result in increased profits. Difficulties encountered in any transition and integration process for newly acquired companies could cause revenues to decrease, operating costs to increase or reduce cash flows.

Our operations outside of the United States are subject to additional currency exchange, political, investment and other risks that could hinder us from making our debt service payments, increase our operating costs and adversely affect our results of operations.

        We operate facilities and sell products in several countries outside the United States. Our operations outside the United States include plants and sales offices in Mexico, Canada, Germany and Australia. As a result, we are subject to risks associated with selling and operating in foreign countries which could have an adverse affect on our financial condition and results of operations, our operating costs and our ability to make payments on our debt obligations, including our ability to make payments on our debt obligations under our revolving credit facility. These risks include devaluations and fluctuations in currency exchange rates, unstable political conditions, imposition of limitations on conversion of foreign currencies into U.S. dollars and remittance of dividends and other payments by foreign subsidiaries. The imposition or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries, hyperinflation in certain foreign countries, and restrictions on investments and other restrictions by foreign governments could also have a negative effect on our business and profitability.

We are controlled by affiliates of J.P. Morgan Partners, LLC and its interests as an equity holder may conflict with your interests.

        Affiliates of J.P. Morgan Partners, LLC own approximately 55% of our outstanding common stock, 74% of our detachable warrants to purchase common stock issued in connection with our preferred stock and 59% of our outstanding preferred stock. Subject to certain limitations contained in the stockholders' agreement among us, our stockholders, and holders of detachable warrants to purchase common stock issued in connection with our preferred stock, affiliates of J.P. Morgan Partners, LLC controls us. The interests of the affiliates of J.P. Morgan Partners, LLC may not in all cases be aligned with your interests.

        On March 1, 2005, JPMorgan Chase & Co. announced that J.P. Morgan Partners, LLC will become independent when it completes the investment of its current $6.5 billion Global Fund and that the independent unit will retain portfolio management responsibility for the Global Fund and heritage investments of affiliates of J.P. Morgan Partners, LLC. However, at this time the Company has no additional information as to the impact, if any, that J.P. Morgan Partners, LLC becoming independent of JPMorgan Chase & Co. may have on the Company or its investments in the Company.

If we do not maintain good relationships with our employees, our business could be adversely affected by a loss of revenues, increased costs or reduced profitability.

        Although we consider our current relations with our employees to be good, if major work disruptions were to occur, our business could be adversely affected by, for instance, a loss of revenues, increased costs or reduced profitability. As December 31, 2004, we had approximately 3,025 employees, of which approximately 850 employees were subject to a total of 9 collective bargaining agreements that expire on various dates between February 28, 2005 and March 7, 2007. The collective bargaining

15

agreement covering our Langley union employees expired on February 28, 2005. We are currently operating under an informal extension of the terms of that agreement and are in negotiations with the union for a new collective bargaining agreement. We have had one labor strike in the United States in our history, which occurred at our Chippewa Falls, WI plant in March 2000 and lasted approximately two weeks. In October 2001, we entered into a five-year agreement with the union representing the approximately 150 employees at our Chippewa Falls, WI manufacturing plant. We also had a temporary work stoppage at our Australia facility in 2001 that lasted approximately 30 days.

The cost of complying with federal and state environmental laws could be significant and increase our operating costs.

        Complying with existing and future environmental laws and regulations that affect our business could impose material costs and liabilities on us. Our manufacturing operations are subject to certain federal, state, local and foreign laws, regulations, rules and ordinances relating to pollution, the protection of the environment and the generation, storage, handling, transportation, treatment, disposal and remediation of hazardous substances and waste materials. In the ordinary course of business, we are subject to periodic environmental inspections and monitoring by governmental enforcement authorities. We could incur substantial costs, including fines and civil or criminal sanctions, as a result of actual or alleged violations of environmental laws. In addition, our production facilities require environmental permits that are subject to revocation, modification and renewal. Violations of environmental permits can also result in substantial fines and civil or criminal sanctions. The ultimate costs under environmental laws and the timing of such costs are difficult to predict and potentially significant expenditures could be required in order to comply with environmental laws that may be adopted or imposed in the future.

Other Uncertainties

        In addition to the factors described above, we face a number of uncertainties, including: (1) general economic and business conditions, particularly a continuing economic downturn; (2) industry trends; (3) changes in demand for our products; (4) potential legislation and regulatory changes; (5) new technologies; (6) changes in distribution channels or competitive conditions in the markets or countries where we operate; and (7) changes in our business strategy or development plans.

ITEM 2.    PROPERTIES

        Our principal executive offices are located at 1475 Woodfield Road, Suite 700, Schaumburg, IL 60173. We own most of the improved real property and other assets used in our operations. We lease all or part of six of the sites at which we have manufacturing operations. We also lease warehouse and office space at various locations. We consider the condition of our plants, warehouses and other properties and the other assets owned or leased by us to be generally good.

        Since 2001, the Company has undertaken an effort to maximize the efficiency of our facilities by closing and disposing of a number of facilities. Production from these facilities was moved in large part to plants that were not operating at capacity. During 2004, we closed our Harrisville, Rhode Island manufacturing facility and transferred production to more efficient plants. We also acquired ownership of that portion of our Macedon, New York facility that we previously leased from ExxonMobil Oil Corporation.

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        We have an annual film production capacity of approximately 1 billion pounds. Our principal manufacturing plants are listed below. Unless otherwise indicated, we own each of these properties.

*

Indicates a leased building. In the case of Orillia, Canada, one of the two plants is leased.

ITEM 3.    LEGAL PROCEEDINGS

        On June 14, 2004, we settled the complaint filed against us by S.C. Johnson & Sons, Inc. and S.C. Johnson Home Storage filed in the U.S. District Court for the District of Michigan, Northern Division (Case No. 01-CV-10343-BC) for $6.0 million plus legal fees which was within management's estimated costs of $7.2 million accrued in the fourth quarter of 2003.

        On February 26, 2003, former employees of our Fort Edward, NY manufacturing facility, which we acquired as part of the Decora acquisition, named us as defendants in a complaint filed in the Supreme Court of the State of New York, County of Washington (Index No. 4417E). We received service of this complaint on April 2, 2003, and successfully removed the case to the United States District Court for the Northern District of New York (Case No. 1:03cv00533). The complaint alleged claims against us for conspiracy to defraud and breach of contract arising out of our court-approved purchase of the assets of Decora Industries, Inc. and Decora, Incorporated. Plaintiffs' complaint sought compensatory and punitive damages and a declaratory judgment nullifying severance agreements for lack of consideration and economic duress. On December 15, 2004, the case was dismissed in response to our motions to dismiss. On January 13, 2005, the Plaintiff appealed the dismissal of the case to the United States

17

Court of Appeals for the Second District. We intend to resist the plaintiffs' claims vigorously. We do not believe this proceeding will have a material adverse affect on our financial condition or results of operations.

        We are involved in ongoing litigation matters from time to time in the ordinary course of our business. In our opinion, none of such litigation is material to our financial condition or results of operations.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        We did not submit any matters to a vote of security holders during the fourth quarter of 2004.

PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information, Holders and Dividends

        At March 21, 2005, we had 571,711 shares of common stock outstanding and there were 37 holders of record of our common stock. There is no established trading market for our common stock.

        We have not declared or paid any cash dividends on our common stock during the last two years and do not anticipate paying any cash dividends in the foreseeable future. The indentures governing our outstanding debt securities contain certain restrictions on the payment of cash dividends with respect to our common stock, and our revolving credit facility also restricts such payments. In addition, the terms of our outstanding Series A Preferred Stock restrict the payment of cash dividends with respect to our common stock unless all accrued dividends on the Series A Preferred Stock have been paid.

Recent Sales of Unregistered Securities

        Since the adoption of the 2004 Restricted Stock Incentive Plan, we sold 720 shares of a newly created Series B Preferred Stock to our Chief Executive Officer and certain other officers in private transactions at $162 per share, which was determined to be the fair market value of those shares based on an independent appraisal received by the Board. We believe that the issuance of these shares was exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof because the issuance did not involve a public offering or sale.

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ITEM 6.    SELECTED FINANCIAL DATA

        The following selected financial data have been summarized from our consolidated financial statements and are qualified in their entirety by reference to, and should be read in conjunction with, such consolidated financial statements and the notes thereto included elsewhere in this report and in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

(1)

On September 30, 2004, we sold substantially all of the assets of Pliant Solutions Corporation which was previously reported as one of our operating segments. In accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, Pliant Solutions is being accounted

19

for as a discontinued operation and, accordingly, its assets are segregated from continuing operations, and its operating results are segmented and reported as discontinued operations in all periods presented. Net sales for the nine months ended December 31, 2004 and the twelve months ended December 31, 2003 were $22.5 million and $34.9 million, respectively. Net sales for the eight months ended December 31, 2002 were $28.3 million. No tax benefits were recorded on the losses from discontinued operations or the loss on sale of discontinued operations as realization of these tax benefits is not certain.

(2)

Total operating expenses include restructuring and other costs of $2.1 million for the year ended December 31, 2004 for fixed asset impairment charges of $1.4 million and restructuring and other costs of $0.7 million related to closure of our Harrisville, RI facility. For the year ended December 31, 2003, restructuring and other costs of $12.6 million were included which consisted of $2.0 million for fixed asset impairment charges related to the closure of our facility in Shelbyville, IN, $0.7 million related to the closure of our facility in Brazil consisting primarily of fixed asset impairment charges, $2.6 million related to the closure and transfer of the production from our facility in Fort Edward, NY to our facilities in Mexico and Danville, KY, $1.4 million related to the consolidation of two plants in Mexico, $2.6 million related to the closure and transfer of production from our Merced, CA facility, and other costs related to the closure of our Shelbyville, IN facility, our Singapore office and a section of our Toronto facility. In addition, during 2003 we accrued the present value of future lease payments on three buildings we do not currently occupy in an amount equal to $3.3 million and a provision for litigation of $7.2 million.

Total operating expenses for the year ended December 31, 2003 also included $18.2 million for the impairment of goodwill, consisting of $10 million in our Engineered Films segment for Canada, $7.2 million in our Specialty Products Group segment for Mexico and $1.0 million in our Industrial segment for Germany and Australia, and $4.8 million for impairment of fixed assets, $2.4 million in our Performance Films segment and $1.2 million in both our Specialty Products Group and Industrial Films segment.

Total operating expenses for 2002 include $30.1 million of restructuring and other costs, including $14.8 million related to the closure of our plant in Merced, CA, a portion of our plant in Shelbyville, IN, a part of our plant in Toronto, Canada, and one of our plants in Mexico. In addition, these costs reflect $7.9 million for the costs of relocating several of our production lines related to plant closures and costs associated with production rationalizations at several plants. Total operating expenses for 2002 also include $7.4 million related to severance costs, including benefits for several companywide workforce reduction programs that were completed in 2002.

Total operating expenses for the year ended December 31, 2002 also included $8.6 million for the impairment of goodwill associated with Mexico in our Specialty Products Group segment.

Total operating expenses for 2001 include $7.0 million of non-cash stock-based compensation expense, $3.0 million of restructuring and other costs, $4.0 million for expenses related to the relocation of our corporate headquarters, $6.0 million of fees and expenses relating to our supply chain cost initiative, and a $3.0 million increase in depreciation expenses relating primarily to the purchase of a new computer system. In addition, total operating expenses for 2001 include a credit for $7.6 million related to the reversal of a previously accrued charge for the closure of our Harrington, DE plant. In 2001, we decided not to proceed with our previously announced closure of our Harrington, DE plant.

Total operating expenses for 2000 include $10.8 million of costs related to the recapitalization and related transactions, $10.8 million of fees and expenses relating to our supply chain cost initiative, $19.4 million of restructuring and other costs, $7.1 million of costs related to the relocation of our corporate headquarters and a reduction in force, and $2.6 million of non-cash stock-based compensation expense.

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(3)

In May 2003, we prepaid a total of $75 million of revolving loans and $165 million of our term loans with the net cash proceeds from the issuance of $250 million of Senior Secured Notes. As a result, interest expense for 2003 included a $5.3 million charge for expensing a portion of previously capitalized financing fees incurred in connection with our credit facilities. In February 2004, we paid off our then existing term loan facility of $219.6 million and revolving loan facility of $20 million with proceeds from the issuance of $306 million Senior Secured Discount Notes. As a result, interest expense in 2004 included a $7.9 million charge for expensing a portion of our previously capitalized financing fees.

(4)

In 2000, we refinanced most of our long-term debt and recorded a loss of $18.7 million to write-off unamortized deferred debt issuance costs and costs related to our tender offer for our 9¹/8% Senior Subordinated Notes due 2007. In 2004, we recognized $35.3 million of dividends and accretion on redeemable preferred stock as interest expense in accordance with SFAS 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.

(5)

EBITDA from continuing operations reflects income from continuing operations before interest expense, income taxes, depreciation and amortization. We believe that EBITDA information enhances an investor's understanding of our ability to satisfy principal and interest obligations with respect to our indebtedness and to utilize cash for other purposes. EBITDA does not represent and should not be considered as an alternative to net income or cash flows from operating activities as determined by U.S. generally accepted accounting principles and may not be comparable to other similarly titled measures of other companies. In addition, there may be contractual, legal, economic or other reasons which may prevent us from satisfying principal and interest obligations with respect to our indebtedness and may require us to allocate funds for other purposes. A reconciliation of EBITDA to net cash provided by (used in) operating activities as set forth in our consolidated statements of cash flows is as follows:

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(6)

The Company adopted Statement of Financial Accounting Standard No. 150 ("SFAS 150"), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, effective January 1, 2004. As a result, our Series A redeemable preferred stock, which has an unconditional mandatory redemption feature, was recorded as a liability on the date of adoption. In addition, effective January 1, 2004, the dividends and accretion on the preferred shares are included as a part of interest expense in the statement of operations. As a result of adopting SFAS 150, the Company's redeemable common shares that have been put for redemption by a shareholder have also been recorded as a liability.

(7)

The amount presented includes proceeds of $141.0 million from the issuance of our Series A Preferred Stock in 2000, 2001 and 2003, plus the accrued and unpaid dividends, less the unamortized discount due to detachable warrants to purchase common stock issued in connection with our Series A Preferred Stock and unamortized issuance costs which were $76.3 million and $29.1 million, respectively as of December 31, 2003. The amount as of December 31, 2004 includes $0.1 million of proceeds from the sale of 720 shares of newly-created, non-voting Series B Redeemable Preferred Stock to selected officers of the Company.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The purpose of this section is to discuss and analyze our consolidated financial condition, liquidity and capital resources and results of operations. This analysis should be read in conjunction with the consolidated financial statements and notes which appear elsewhere in this report. This section contains certain "forward-looking statements" within the meaning of federal securities laws that involve risks and uncertainties, including statements regarding our plans, objectives, goals, strategies and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements as a result of factors set forth under "Disclosure regarding forward-looking statements" and "Risk factors" and elsewhere in this report.

        All references in this section to the consolidated financial statements or condensed consolidated financial statements and related notes included elsewhere in this report refer to those of Pliant Corporation and its subsidiaries.

Company Profile

        Pliant generates revenues, earnings and cash flows from the sale of film and flexible packaging products throughout the world. We manufacture these products at 24 facilities located in the United States, Australia, Canada, Germany and Mexico. Our sales have grown primarily as a result of strategic acquisitions made over the past several years, increased levels of production at acquired facilities, return on capital expenditures and the overall growth in the market for film and flexible packaging products.

Overview

        For 2004, the Company's net sales were $968.7 million, up $74.2 million or 8.3% over 2003, excluding Pliant Solutions, which was sold in the third quarter of 2004 and is accounted for as a discontinued operation. This growth was in large part due to increased volume as trade pound sold for 2004 were 878.9 million, up 35.7 million or 4.2% from 843.2 million in 2003. Overall, average selling price per pounds increased by 3.9% primarily due to pass-through of resin cost increases along with favorable product mix changes. Three of our four operating segments reported increased growth, with our Industrial Films segment leading the way with a $34.5 million, or 15.7%, increase in net sales.

        Segment profit, defined as net income adjusted for interest expense, income taxes, depreciation, amortization, restructuring and other non-cash charges (principally the impairment of goodwill, intangible assets and fixed assets), was $94.6 million in 2004, up $3.4 million or 3.7% from 2003. Sales volume and mix contributed $9.8 million to the increased profit while operational excellence programs, including significant reductions in waste, improved by $15.5 million. Selling, general and administrative costs were better by $4.7 million. Offsetting these improvements was a $16.3 million negative impact from increased resin costs. This resin cost impact reflected a lag in our ability to increase selling prices as well as an adverse effect on waste costs and sales commissions. We use large quantities of polyethylene, PVC, and polypropylene and other resins in manufacturing our products. For the year ended December, 31, 2004, resin costs approximated 61% of our total manufacturing costs. Average resin prices increased approximately 29% during 2004 with half of the increase occurring in the fourth quarter of 2004. To address fluctuations in resin prices we have pass-through or cost-sharing arrangements covering a large portion of our sales, but most of these lag the increase in our cost by 30 to 90 days. We are implementing price increases for many customers that are currently not subject to pass-through adjustments and most new customer contracts contain resin pass-through agreements. However, if resin prices continue to rise, the delayed pass-through will exert downward pressure on short-term segment profit. Freight expenses increased by $4.6 million in 2004 as compared with 2003.

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In addition to these factors, at year-end we recorded an unfavorable $4.5 million non-cash adjustment to employee vacation accruals.

        On September 30, 2004, we sold substantially all the assets of our wholly owned subsidiary, Pliant Solutions Corporation. Pliant Solutions, previously reported as a separate operating segment, manufactured decorative and surface coverings through the conversion of various films into consumer packaged goods. In accordance with SFAS No. 144, Accounting for the Impairment of Long-Lived Assets, Pliant Solutions is being accounted for as a discontinued operation and, accordingly, the assets are segregated from continuing operations in the accompanying consolidated balance sheet, and its operating results are segmented and reported as discontinued operations in the consolidated statement of operations. Net sales for Pliant Solutions for the nine months ended September 30, 2004 were $22.5 million, for the twelve months ended December 31, 2003 were $34.9 million, and for the eight months ended December 31, 2002 were $28.3 million. No tax benefits were recorded on the losses from discontinued operations or the loss on sale of discontinued operations as realization of these tax benefits is not certain.

        In the third quarter of 2004, we closed our Harrisville, Rhode Island facility and moved its production to more modern and efficient facilities. The costs related to this restructuring plan are now anticipated to total $2.7 million, consisting primarily of $1.4 million of fixed asset impairments, $0.4 million in equipment relocation, $0.3 million in severance and other personnel related costs and $0.4 million of other costs. Through December 31, 2004, approximately $2.1 million of these costs have been incurred.

        Effective Janaury 1, 2004, the Company adopted Statement of Financial Accounting Standard No. 150 ("SFAS 150"), Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. As a result, our Series A redeemable preferred stock, which has an unconditional mandatory redemption feature, was recorded as a liability on the date of adoption of SFAS 150 at fair market value measured as the value of the securities on the date of issuance plus accretion of discount from the date of issuance through December 31, 2003 and the cumulative unpaid dividends from the date of issuance through December 31, 2003. Effective January 1, 2004, the dividends and accretion on the preferred shares are included as a part of interest expense in the statement of operations.

        In addition, as a result of adopting SFAS 150, the Company's redeemable common shares that have been put for redemption by a shareholder were recorded as a liability at fair value. The fair value was computed using the agreed upon redemption price per share times the number of shares put by the shareholder. In accordance with SFAS 150, prior periods were not restated.

        On September 24, 2004, the Company adopted a 2004 Restricted Stock Incentive Plan, pursuant to which we sold to our President and Chief Executive Officer and selected additional officers of the Company 704 shares of a total of 720 authorized shares of a newly-created, non-voting Series B Redeemable Preferred Stock for a cash purchase price of $162 per share. These shares were issued in private transactions with officers of the Company and therefore were exempt from the registration requirements of the Securities Act of 1933. On December 22, 2004, the remaining 16 authorized shares were issued to an officer for a cash purchase price of $162 per share.

        On February 17, 2004, we completed the sale of $306,000,000 in aggregate principal amount at maturity of 11¹/8% Senior Secured Discount Notes due 2009 (the "Senior Secured Discount Notes"). The net proceeds from such sale in the amount of $220.2 million (after deducting underwriters' fees) together with borrowings of $30 million under our revolving credit facility described below, were used to pay off our then existing term loan facilities in the amount of $219.6 million and our then existing revolving loan facility of $20 million and $3.8 million in fees and other costs, leaving $6.8 million of cash on hand. Subsequently, the Senior Secured Discount Notes were exchanged for publicly held notes on substantially similar terms.

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Critical accounting policies

        In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial position in the preparation of financial statements in conformity with generally accepted accounting principles. Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies. These policies require management to exercise judgments that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.

        Revenue recognition.    Sales revenue is recognized when title transfers, the risks and rewards of ownership have been transferred to the customer, the price is fixed and determinable and collection of the related receivable is probable, which is generally at the time of shipment.

        We have several rebate programs with certain of our customers and a cash discount program on accounts receivable. These costs are estimated at the time of sale and are reported as a reduction to sales revenue. Periodic adjustments are made as a part of our ongoing evaluation of all receivable related allowances.

        Accounts receivable.    We evaluate accounts receivable on a quarterly basis and review any significant customers with delinquent balances to determine future collectibility. We base our determinations on legal issues (such as bankruptcy status), past history, current financial and credit agency reports, and the experience of the credit representatives. We reserve accounts that we deem to be uncollectible in the quarter in which we make the determination. We maintain additional reserves based on our historical bad debt experience. Although there is a greater risk of uncollectibility in an economic downturn, we believe, based on past history and proven credit policies, that the net accounts receivable as of December 31, 2004 are of good quality.

        Goodwill and other identifiable intangible assets.    Goodwill associated with the excess purchase price over the fair value of assets acquired is currently not amortized. This is in accordance with Statement of Financial Accounting Standards No. 142 effective for fiscal years beginning after December 15, 2001. Goodwill is tested annually for impairment or more frequently if circumstances indicate that they may be impaired. Other identifiable intangible assets, such as customer lists, and other intangible assets are currently amortized on the straight-line method over their estimated useful lives. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may be less than the undiscounted cash flows.

        Retirement plans.    We value retirement plan assets and liabilities based on assumptions and actuarial valuations. Assumptions for the retirement plans are subject to the occurrence of future events, which are out of our control and could differ materially from the amounts currently reported.

        Insurance.    Our insurance for workers' compensation and employee-related health care benefits are covered using high deductible insurance policies. A third-party administrator is used to process such claims. We require all workers' compensation claims to be reported within 24 hours. As a result, we accrue our workers' compensation liability based upon the claim reserves established by the third-party administrator each month. Our employee health insurance benefit liability is based on our historical claims experience rate. Our earnings would be impacted to the extent actual claims vary from historical experience. We review our accruals associated with the exposure to these liabilities for adequacy at the end of each reporting period.

        Inventory reserves.    Each quarter we review our inventory and identify slow moving and obsolete items. Thereafter, we create allowances and reserves based on the realizable value of specific inventory items.

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        Fixed asset impairments.    We review our fixed assets at each manufacturing facility as a group of assets with a combined cash flow. Any difference between the future cash flows and the carrying value of the asset grouping is recorded as a fixed asset impairment. In addition, we periodically review any idle production lines within a manufacturing facility to determine if the assets need to be disposed.

        Deferred taxes.    We record deferred tax assets and liabilities for the differences in the carrying amounts of assets and liabilities for financial and tax reporting purposes. Deferred tax assets include amounts for net operating loss, foreign tax credit and alternative minimum tax credit carry forwards. Valuation allowances are recorded for amounts that management believes are not recoverable in future periods.

Recent accounting pronouncements

        In December 2004, the FASB issued SFAS 123(R) (revised December 2004), "Share-Based Payment", which is a revision of SFAS 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." This statement requires that the fair value at the grant date resulting from all share-based payment transactions be recognized in the financial statements. Further SFAS 123(R) requires entities to apply a fair-value based measurement method in accounting for these transactions. The minimum value method currently used by the Company is not allowed and the Company will be required to adopt the prospective method as proscribed by SFAS 123R. This value is recorded over the vesting period. This statement is effective for the first interim reporting period beginning after June 15, 2005. We are currently evaluating the provisions of SFAS 123(R), and the impact on our consolidated financial position and results of operations.

Results of operations

        The following table sets forth the amount of certain statement of operations items and such amounts as a percentage of net sales, for the periods indicated.

Year ended December 31, 2004 compared with the year ended December 31, 2003

        Net sales.    Net sales increased by $74.2 million, or 8.3%, to $968.7 million for the year ended December 31, 2004 from $894.5 million for the year ended December 31, 2003. The increase was primarily due to a 4.2% increase in sales volume and a 3.9% increase in our average selling prices. See "Operating segment review" below for a detailed discussion of sales volumes and selling prices by segment and division.

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        Gross profit.    Gross profit increased by $5.6 million, or 4.1%, to $141.9 million for the year ended December 31, 2004, from $136.3 million for the year ended December 31, 2003. This increase was due to better volume and mix by $9.8 million, improvements in manufacturing conversion costs of $10.1 million, and $5.4 million in waste improvements. Partially offsetting these was $11.2 million from the impact of rising resin costs which could not be immediately passed along in customer prices and a $3.1 million unfavorable impact on waste. Higher freight costs adversely affected gross margins by $4.6 million.

        Total operating expenses before restructuring and other costs.    Total operating expenses before restructuring and other costs decreased by $4.9 million, or 5.3%, to $87.5 million for the year ended December 31, 2004 from $92.4 million for the year ended December 31, 2003. This decrease includes a provision for litigation of $7.2 million recorded in 2003. Excluding the 2003 litigation provision, other operating expenses increased $2.3 million primarily due to increased sales commissions.

        Restructuring and other costs.    Restructuring and other costs were $2.1 million for the year ended December 31, 2004 as compared to $12.6 million for the year ended December 31, 2003, a decrease of $10.5 million. These costs in 2004 include $1.4 million in fixed asset impairment charges and severance and other costs of $0.2 million and $0.5 million, respectively related to the closure of our Harrisville, facility. Restructuring and other costs for the year ended December 31, 2003 included $2.0 million for fixed asset impairment charges related to the partial closure of our facility in Shelbyville, IN, $0.7 million related to the closure of our facility in Brazil consisting primarily of fixed asset impairment charges, $2.6 million related to the closure and transfer of the production from our facility in Fort Edward, NY to our facilities in Mexico and Danville, KY, $1.4 million related to the consolidation of two plants in Mexico, $2.6 million related to the closure and transfer of production from our Merced, CA facility, and other costs related to the closure of our Shelbyville, IN facility. In addition, during 2003 we accrued the present value of future lease payments on three buildings we do not currently occupy in an amount equal to $3.3 million. We also closed our office in Singapore in the fourth quarter of 2003.

        Impairment of goodwill and intangible assets.    There were no impairment charges for goodwill or intangible assets in the year ended December 31, 2004. In the year ended December 31,2003 goodwill impairment charges totaling $18.3 million were recorded, including $10.1 million in our Engineered Films segment for Canadian operations, $7.2 million in our Specialty Products Group segment related to Mexico and $1.0 million in our Industrial segment related to Australia and Germany.

        Impairment of fixed assets.    These charges reflect costs associated with abandoning production lines and related equipment with total carrying values of $0.4 million in our Engineered Films and Industrial Films segments in the year ended December 31, 2004 and $2.4 million, $1.2 million and $1.2 million in our Performance Films, Specialty Products Group and Industrial segments, respectively, in the year ended December 31, 2003.

        Operating income (loss).    Operating income increased by $43.7 million to $51.9 million for the year ended December 31, 2004 from $8.2 million for the year ended December 31, 2003, due to the factors discussed above.

        Interest expense.    Interest expense increased $49.3 million, or 51%, to $145.7 million for the year ended December 31, 2004 from $96.4 million for 2003. Effective January 1, 2004, dividends and accretion on the preferred shares are included as a part of interest expense in the statement of operations. For the year ended December 31, 2004 these costs were $35.3 million. Furthermore, the increase in interest expense resulted from higher interest costs from the issuance of our $306 million Senior Secured Discount Notes in February 2004 and our $250 million Senior Secured Notes in May of 2003. Also, the write-off of an incremental $2.6 million of previously capitalized financing fees, as a result of the repayment of our old bank credit facilities from the proceeds of the Senior Secured Discount Notes, contributed to the increase.

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        Other income (expense).    Other expense was $(0.7) million for the year ended December 31, 2004, as compared to other income of $0.5 million for the year ended December 31, 2003. Other expense for the year ended December 31, 2004 includes $1.3 million loss on the sale of real property, $0.1 million currency gain, and $0.5 million other less significant items. Other expense for 2003 included a $1.4 million for losses on disposal of real property, $0.1 million currency gain, $0.2 million of royalty income, $0.2 million of rental income, and $1.4 million of other less significant items.

        Income tax expense (benefit).    In 2004 our income tax expense was $1.6 million, compared to an income tax expense of $5.2 million in 2003. These amounts represent effective tax rates of 1.7% and 5.9% for the years ended December 31, 2004 and 2003, respectively. The fluctuation in the effective tax rate is principally the result of foreign tax rate differences, the provision for valuation allowances, the write-off of goodwill and the accrued dividends on preferred stock. As of December 31, 2004, our deferred tax assets totaled approximately $125.7 million, of which $100.3 million related to net operating loss carry forwards. Our deferred tax liabilities totaled approximately $83.5 million. Due to uncertainty regarding the timing of the future reversals of existing deferred tax liabilities, the realization of our foreign tax credit carry forwards, and the realization of other deferred tax assets and carry forwards, we have recorded valuation allowances of approximately $61.7 million to offset the net operating loss carry forward and certain other deferred tax assets and carry forwards. Net taxes of zero were provided for the losses from discontinued operations due to any potential tax benefit being offset by the valuation allowance for net operating loss carry forwards.

Year ended December 31, 2003 compared with the year ended December 31, 2002

        Net sales.    Net sales increased by $43.6 million, or 5.1%, to $894.5 million for the year ended December 31, 2003 from $850.9 million for the year ended December 31, 2002. The increase was primarily due to an 8.3% increase in average selling prices, partially offset by a 3.0% decrease in sales volume. Our average selling prices increased primarily due to the pass through of increases in our raw material costs. See "Operating segment review" below for a detailed discussion of sales volumes and selling prices by segment and division.

        Gross profit.    Gross profit decreased by $20.9 million, or 13.3%, to $136.3 million for the year ended December 31, 2003, from $157.2 million for the year ended December 31, 2002. This decrease was primarily due to lower aggregate sales volumes and lower margins in certain segments. See "Operating segment review" below for a detailed discussion of the sales volumes and margins by segment.

        Total operating expenses before restructuring and other costs.    Total operating expenses before restructuring and other costs increased $4.9 million, or 5.6%, to $92.4 million for the year ended December 31, 2003 from $87.5 million for the year ended December 31, 2002. This increase was principally due to severance costs of $1.1 million related to recent organizational changes, increased lease expenses resulting from a sale-leaseback of equipment we entered into during the third quarter of 2002, as well as increases in legal, consulting, and commissions expense. The increase in total operating expenses was partially offset by a general decrease in sales and administrative costs. In addition, we recorded a provision for litigation of $7.2 million in 2003.

        Restructuring and other costs.    Restructuring and other costs were $12.6 million for the year ended December 31, 2003 as compared to $30.1 million for the year ended December 31, 2002. The costs for the year ended December 31, 2003 included $2.0 million for fixed asset impairment charges related to the partial closure of our facility in Shelbyville, IN, $0.7 million related to the closure of our facility in Brazil consisting primarily of fixed asset impairment charges, $2.6 million related to the closure and transfer of the production from our facility in Fort Edward, NY to our facilities in Mexico and Danville, KY, $1.4 million related to the consolidation of two plants in Mexico, $2.6 million related to the closure and transfer of production from our Merced, CA facility, and other costs related to the closure of our Shelbyville, IN facility. In addition, during 2003 we accrued the present value of future

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lease payments on three buildings we do not currently occupy in an amount equal to $3.3 million. We also closed our office in Singapore in the fourth quarter of 2003. Restructuring and other costs for 2002 reflect approximately $13.2 million related to the partial closure of our Shelbyville, IN facility (including non-cash charges of $12.2 million related to impaired assets), $3.7 million related to the closure of our Merced, CA facility (including non-cash charges of $0.7 million related to impaired assets), $3.9 million related to costs associated with moving production lines purchased in the Uniplast acquisition, approximately $7.4 million related to severance costs related to several company-wide workforce reduction programs implemented in 2002, approximately $2.3 million related to costs associated with moving production equipment from our Fort Edward, NY facility to our Mexico facility, a non-cash charge of $1.0 million related to the impairment of certain manufacturing assets in our U.S. plants and approximately $3.0 million related to other costs associated with re-alignment of production resources at several other plants. See Note 3 to the consolidated financial statements included elsewhere in this report.

        Impairment of goodwill and intangible assets.    In the year ended December 31, 2003, goodwill impairment charges totaling $18.3 million were recorded, including $10.1 million in our Engineered Films segment for Canadian operations, $7.2 million in our Specialty Products Group segment related to Mexico and $1.0 million in our Industrial segment related to Australia and Germany. In the year ended December 31, 2002, goodwill impairments of $8.6 million were recorded related to Mexico in our Specialty Products Group segment.

        Impairment of fixed assets.    These charges reflect costs associated with abandoning production lines and related equipment with carrying values of $2.4 million, $1.2 million and $1.2 million in our Performance Films, Specialty Products Group and Industrial Segments, respectively.

        Operating income (loss).    Operating income decreased by $22.8 million to $8.2 million for the year ended December 31, 2003 from $31.0 million for the year ended December 31, 2002, due to the factors discussed above.

        Interest expense.    Interest expense increased $21.1 million, or 28%, to $96.4 million for the year ended December 31, 2003 from $75.3 million for 2002. The increase in interest expense resulted from higher interest costs from the issuance of $100 million of subordinated debt in April 2002 and $250 million of Senior Secured Notes in May 2003. In addition, interest expense for 2003 included a $5.3 million charge in the second quarter of 2003 for previously capitalized financing fees written-off as a result of the repayment of a portion of our credit facilities from the proceeds of the 11¹/8% Senior Secured Notes in May 2003.

        Other income (expense).    Other income was $0.5 million for the year ended December 31, 2003, as compared to other income of $2.3 million for the year ended December 31, 2002. Other income for 2003 included $1.4 million of losses on disposal of real property, $0.1 million of currency gain, $0.2 million of royalty income, $0.2 million of rental income, and $1.4 million of other less significant items. Other income for 2002 included $0.7 million related to a settlement with a customer in our Industrial segment and $1.6 million of other less significant items.

        Income tax expense (benefit).    In 2003 our income tax expense was $5.2 million, compared to an income tax benefit of $1.5 million in 2002. These amounts represent effective tax rates of 5.9% and (3.5%) for the years ended December 31, 2003 and 2002, respectively. The fluctuation in the effective tax rate is principally the result of foreign tax rate differences, the provision for valuation allowances and the write-off of goodwill. As of December 31, 2003, our deferred tax assets totaled approximately $105.8 million, of which $78.3 million related to net operating loss carry forwards. Our deferred tax liabilities totaled approximately $84.5 million. Due to uncertainty regarding the timing of the future reversals of existing deferred tax liabilities and the realization of our foreign tax credit carry forwards, we have recorded a valuation allowance of approximately $39.7 million to offset the net operating loss carry forwards and the foreign tax credit carry forwards.

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Operating Segment Review

General

        Operating segments are components of our business for which separate financial information is available that is evaluated regularly by our chief operating decision maker in deciding how to allocate resources and in assessing performance. We evaluate the performance of our operating segments based on net sales (excluding intercompany sales) and segment profit. The segment profit reflects income before interest expense, income taxes, depreciation, amortization, restructuring and other costs and other non-cash charges. For more information on our operating segments, including a reconciliation of segment profit to income before taxes, see Note 14 to the consolidated financial statements included elsewhere in this report.

        We have four operating segments: Specialty Products Group, Industrial Films, Engineered Films and Performance Films.

        Summary for years ended December 31, 2004, 2003, and 2002:

(1)

See Note 14 to the consolidated financial statements included elsewhere in this report for a reconciliation of segment profit to income before taxes.

Year ended December 31, 2004 compared to the year ended December 31, 2003

Specialty Products Group

        Net sales.    The net sales of our Specialty Products Group segment increased $23.0 million, or 6.3% to $390.7 million for the year ended December 31, 2004 from $367.7 million for 2003. This increase was primarily due to a 3.8% increase in our sales volumes and a 2.3% increase in our average selling prices.

        Net sales in our Specialty Films division increased $10.7 million, or 6.2%, to $183.8 million for the year ended December 31, 2004 from $173.1 million for 2003. This increase was principally due to an increase in our sales volume of 5.0% and an increase in our average selling price of 1.1%. Net sales in our Printed Products Films division increased $12.4 million, or 6.4%, to $206.9 million for the year ended December 31, 2004 from $194.5 million for 2003. This increase was principally due to an increase in our sales volume of 2.3% and an increase in our average selling prices of 4.0%. We continue to experience market growth in our agricultural product market, along with growth in our printed products with tortilla, bakery and frozen food customers and with new and existing U.S. customers in our personal care and medical products markets, offset by a loss of personal care business in Mexico due to a diaper platform change for major customers.

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        Segment profit.    The Specialty Products Group segment profit was $47.0 million for the year ended December 31, 2004, as compared to $49.0 million for the same period in 2003. This $2.0 million decrease was due to an $2.8 million increase in selling, general and administrative costs driven by higher commission costs associated with average sales prices and an accrual of $2.2 million in vacation related payroll costs, offset by reductions in other general and administrative costs.

Industrial Films

        Net sales.    The net sales of our Industrial Films segment increased $34.5 million, or 15.7%, to $254.1 million for the year ended December 31, 2004 from $219.6 million for 2003. This increase was principally due to an increase in our sales volumes of 6.7% and an increase in our average selling prices of 8.4%, primarily due to the pass through of raw material price increases and increased sales of value added products.

        Segment profit.    Industrial Films segment profit was $26.2 million for the year ended December 31, 2004, as compared to $27.2 million for the same period in 2003. This decrease in segment profit was primarily due to lower gross margins from compression between our average selling price and average raw material costs associated with sales to contractual customers and price erosion on sales to one of our more significant international customers. In addition, this segment experienced $0.5 million of start-up costs for new product launch with a major customer and $0.8 million in higher sales commissions and recorded an accrual of $0.6 million in vacation related payroll costs.

Engineered Films

        Net sales.    Net sales in Engineered Films increased $22.9 million, or 11.7%, to $219.0 million for the year ended December 31, 2004 from $196.1 million for 2003. This increase was principally due to an increase in our sales volume of 6.7% and an increase in our average selling prices of 4.7% principally due to the pass-through of raw material price increases and improvements in our sales mix. Increased sales activity and focus on major customers resulted in incremental sales volume in our converter, industrial and custom sales markets.

        Segment profit.    Engineered Films segment profit was $32.2 million for the year ended December 31, 2004, as compared to $34.1 million for the same period in 2003. This decrease in segment profit was primarily due to lower gross margins from compression between our average selling price and average raw material costs to contractual customers and the competitive environment with customers who are not parties to purchase agreements. In addition, this segment recorded an accrual of $0.7 million in vacation related payroll costs.

Performance Films

        Net sales.    The net sales of our Performance Films segment decreased $7.1 million, or 6.7%, to $98.1 million for the year ended December 31, 2004 from $105.2 million for 2003. This decrease was principally due to a decrease in our sales volumes of 8.2%, primarily in our custom and barrier films markets due to increased internal manufacturing by customers. This volume decrease was partially offset by an increase in our average selling prices of 1.6%, primarily due to pass through of resin price increases to customers.

        Segment profit.    Performance Films segment profit was $19.8 million for the year ended December 31, 2004, as compared to $24.0 million for the same period in 2003. This decrease in segment profit was primarily due to lower gross margins from compression between our average selling price and average raw material costs to contractual customers.

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Corporate/Other

        Corporate/Other includes our corporate headquarters and our research and development facility in Newport News, Virginia. Unallocated corporate expenses decreased $13.6 million to $30.6 million for the year ended December 31, 2004 from $43.0 million for 2003. This decrease was principally due an accrual in 2003 of $7.2 million for the estimated costs of litigation discussed in Note 13 to the consolidated financial statements and to elimination of administrative cost associated with our former international segment and Singapore operations. Unallocated research and development costs increased $2.9 million to $4.2 million.

Year ended December 31, 2003 compared to the year ended December 31, 2002

Specialty Products Group

        Net sales.    The net sales of our Specialty Products Group segment increased $21.1 million, or 6.1% to $367.7 million for the year ended December 31, 2003 from $346.6 million for 2002. This increase was primarily due to a 3.0% increase in our average selling prices, primarily due to the pass-through of raw material price increases, and in increase in sales volumes of 3.0%.

        Net sales in our Specialty Films division increased $25.8 million, or 17.5%, to $173.2 million for the year ended December 31, 2003 from $147.4 million for 2002. This increase was principally due to an increase in our sales volume of 13.0% and an increase in our average selling prices of 3.9%. The increase in sales volume was primarily the result of incremental sales from a new film line at our Washington, GA plant and the transfer of business from our Engineered Films segment. Average selling prices increased due to the pass-through of raw material price increases and improvements in our sales mix.

        Net sales of our Printed Products Film division decreased $4.7 million, or 2.3%, to $194.5 million for the year ended December 31, 2003 from $199.2 million for 2002. This decrease was principally due to a decrease in our sales volumes of 7.7%, partially offset by an increase in our average selling prices of 5.8%.

        Segment profit.    The Specialty Films segment profit decreased $6.2 million, to $49.0 million for the year ended December 31, 2003 from $55.2 million for 2002. This decrease in segment profit was primarily due to incremental volumes at lower margins and the competitive environment in the personal care business resulted in less than complete recovery of the increase in raw material prices and thus lower margins.

Industrial Films

        Net sales.    Net sales in our Industrial Films segment increased $28.2 million, or 14.7%, to $219.6 million for the year ended December 31, 2003 from $191.4 million for 2002. This increase was principally due to an increase in our average selling prices of 15.4%, principally due to the pass-through of raw material price increases, and offset by a 0.6% decrease in our sales volumes.

        Segment profit.    Industrial Films segment profit decreased $3.3 million, to $27.2 million for the year ended December 31, 2003 from $30.5 million for 2002. This decrease in segment profit was primarily due to lower gross margins resulting from higher waste and packaging costs of $2.1 million, machine start up costs in Germany and our Toronto Facilities and to $1.2 million increases in selling, general and administrative costs related to higher commission expense.

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Engineered Films

        Net sales.    Net sales in our Engineered Films segment decreased $9.3 million, or 4.5%, to $196.1 million for the year ended December 31, 2003 from $205.4 million for 2002. This decrease was principally due to a decrease in our sales volume of 13.2%, partially offset by an increase in our average selling prices of 10.0% principally due to the pass-through of raw material price increases. The sales volumes decreased primarily as a result of the slowdown in the economy and the transfer of business to our Specialty Films division. Excluding the transfer of business to the Specialty Films division, sales volume of the Converter Films division decreased 11.0% for the year ended December 31, 2003 as compared to 2002.

        Segment profit.    Engineered Films segment profit decreased $4.0 million, to $34.1 million for the year ended December 31, 2003 from $38.1 million for 2002. This decrease was principally due to the decrease in sales volume, offset in part by increases in our average selling price exceeding increases in our average raw material costs.

Performance Films

        Net sales.    The net sales of our Performance Films segment increased $6.6 million, or 6.7%, to $105.2 million for the year ended December 31, 2003 from $98.6 million for 2002. This increase was principally due to an increase in our sales volumes of 1.3%, and an increase in our average selling prices of 5.4%, largely due to a favorable shift in the mix of higher value added products.

        Segment profit.    Performance Films segment profit increased $0.8 million, to $24.0 million for the year ended December 31, 2003 from $23.2 million for 2003. This increase in segment profit was primarily due to the shift to a more favorable product mix.

Corporate/Other

        Corporate/Other includes our corporate headquarters and research and development facility in Newport, Virginia. Unallocated corporate expenses increased $14.8 million due primarily to an accrual of $7.2 million for the estimated costs of litigation discussed in Note 13 to the consolidated financial statements, $1.1 million of severance costs related to recent organizational changes, and increases in legal and consulting expenses. Unallocated research and development costs increased $0.8 million to $1.3 million.

Liquidity and Capital Resources

Sources of capital

        Our principal sources of funds are cash generated by our operations and borrowings under our revolving credit facility. In addition, we have raised funds through the issuance of our 13% Senior Subordinated Notes due 2010, 11¹/8% Senior Secured Notes due 2009, 11¹/8% Senior Secured Discount Notes due 2009 and the sale of shares of our preferred stock.

        All of the term debt and revolver debt under the credit facilities that existed at December 31, 2003 had been at variable rates of interest, so payment of the term loans with the proceeds of our 11¹/8% Senior Secured Discount Notes and borrowings under our revolving credit facility substantially reduced our exposure to interest rate risk. Although our new $100 million revolving credit facility is at a variable rate of interest, there are substantially fewer financial covenants than our credit facilities that existed at December 31, 2003, which will substantially reduce our exposure to covenant default risk. While the effective interest rate on the Senior Secured Discount Notes is higher than the term loans retired from the proceeds of the February 2004 offering, we will realize greater short-term liquidity and flexibility in our debt structure resulting from the elimination of a number of the financial and other

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covenants in our then existing credit facilities and the deferral of the cash interest requirements of the Senior Secured Discount Notes.

        In an attempt to manage our liquidity needs, we and our affiliates are analyzing and formulating potential strategic alternatives to reduce our leverage. In this regard, we or our affiliates may repurchase all or a portion of our Notes, through an exchange offer, a tender offer or open-market or privately-negotiated purchases, or through a combination of any of these or other alternatives. The funds for any such repurchases may be raised by selling additional equity, seeking additional capital contributions from our existing equity holders or by other means. There can be no assurance that any plan to reduce our indebtedness, if commenced, would be successfully completed.

Revolving credit facility

        On February 17, 2004, we paid off and terminated our then existing credit facilities and entered into a revolving credit facility providing up to $100 million (subject to a borrowing base). The revolving credit facility includes a $15 million letter of credit subfacility, with letters of credit reducing availability under our revolving credit facility.

        The revolving credit facility is secured by a first priority security interest in substantially all inventory, receivables, deposit accounts, 100% of capital stock of, or other equity interests in existing and future domestic subsidiaries and foreign subsidiaries that are guarantors of the Senior Secured Discount Notes, and 65% of the capital stock of, or other equity interests in existing and future first-tier foreign subsidiaries, investment property and certain other assets of the Company and the note guarantors (the "Second Priority Collateral"), and a second priority security interest in our real property, fixtures, equipment, intellectual property and other assets (the "First Priority Collateral").

        The revolving credit facility matures on February 17, 2009. The Company is subject to periodic reporting of a borrowing base consisting of eligible accounts receivable and eligible inventory. The interest rates are at LIBOR plus 2.5% to 3.0% or ABR plus 1.5% - 2.0%.

        The borrowings under the new revolving credit facility may be limited to a reduced availability. If the borrowing base is less than $110,000,000 and the Fixed Charge Coverage Ratio (FCCR) is less than 1.1, the reduced availability is the borrowing base minus $10,000,000. Furthermore, if the FCCR is less than that prescribed in our credit agreement, reduced availability is the lessor of the commitment or the borrowing base minus $15,000,000. As of December 31, 2004, we had approximately $60.1 million available for borrowing under our revolving credit agreement.

Issuance of 11¹/8% Senior Secured Discount Notes due 2009

        On February 17, 2004 we completed the sale of $306 million principal amount at maturity (gross proceeds of $225.3 million) of 11¹/8% Senior Secured Discount Notes due 2009. The proceeds of the offering and borrowings under the revolving credit facility were used to repay and terminate the credit facilities that existed at December 31, 2003.

        The Senior Secured Discount Notes mature on June 15, 2009, and are secured by a first priority security interest in the First Priority Collateral and a second priority security interest in the Second Priority Collateral. The Senior Secured Discount Notes are guaranteed by our existing and future domestic restricted subsidiaries and certain foreign subsidiaries.

        Unless we elect to pay cash interest as described below, and except under certain limited circumstances, the Senior Secured Discount Notes will accrete from the date of issuance at the rate of 11¹/8% until December 15, 2006, compounded semiannually on each June 15 and December 15 commencing June 15, 2004, to an aggregate principal amount of $1,000 per note ($306.0 million in the aggregate assuming no redemption or other repayments). Commencing on December 15, 2006, interest

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on the Senior Secured Discount Notes will accrue at the rate of 11¹/8% per annum and will be payable in cash semiannually on June 15 and December 15, commencing on June 15, 2007.

        On any interest payment date prior to December 15, 2006, we may elect to commence paying cash interest (from and after such interest payment date) in which case (i) we will be obligated to pay cash interest on each subsequent interest payment date, (ii) the notes will cease to accrete after such interest payment date and (iii) the outstanding principal amount at the stated maturity of each note will equal the accreted value of such note as of such interest payment date.

        On or after June 15, 2007, we may redeem some of all of the Senior Secured Discount Notes at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest: 105.563% if redeemed prior to June 15, 2008; 102.781% if redeemed prior to June 15, 2009; and 100% if redeemed on or after June 15, 2009. Prior to such date, we may not redeem the notes except as described in the following paragraph.

        At any time prior to June 15, 2007, we may redeem up to 35% of the accreted value of the Senior Secured Discount Notes with the net cash proceeds of certain equity offerings by us at a redemption price equal to 111.125% of the accreted value thereof plus accrued interest, so long as (i) at least 65% of the accreted value of the notes remains outstanding after such redemption and (ii) any such redemption by us is made within 120 days after such equity offering.

11¹/8% Senior Secured Notes due 2009

        On May 30, 2003, we completed the sale of $250 million aggregate principal amount of our 11¹/8% Senior Secured Notes due 2009. The 11¹/8% Senior Secured Notes due 2009 mature on September 1, 2009, and interest is payable on March 1 and September 1 of each year. The net proceeds from the sale of the 11¹/8% Senior Secured Notes due 2009 were used to repay borrowings under our then existing credit facilities in accordance with an amendment to our then existing credit facilities. The 11¹/8% Senior Secured Notes due 2009 rank equally with our existing and future senior debt and rank senior to our existing and future subordinated indebtedness, including the 13% Senior Subordinated Notes due 2010. The 11¹/8% Senior Secured Notes due 2009 are secured by a first priority security interest in the First Priority Collateral and a second priority security interest in the Second Priority Collateral. The 11¹/8% Senior Secured Notes due 2009 are guaranteed by some of our subsidiaries.

        Prior to June 1, 2007, we may, on one or more occasions, redeem up to a maximum of 35% of the original aggregate principal amount of the 11¹/8% Senior Secured Notes due 2009 with the net cash proceeds of one or more equity offerings by us at a redemption price equal to 111.125% of the principal amount thereof, plus accrued and unpaid interest. Otherwise, we may not redeem the 11¹/8% Senior Secured Notes due 2009 prior to June 1, 2007. On or after that date, we may redeem some or all of the 11¹/8% Senior Secured Notes due 2009 at the following redemption prices (expressed as a percentage of principal amount), plus accrued and unpaid interest: 105.563% if redeemed prior to June 1, 2008; 102.781% if redeemed prior to June 1, 2009; and 100% if redeemed on or after June 1, 2009.

13% Senior Subordinated Notes due 2010

        In 2000, we issued $220 million aggregate principal amount of 13% Senior Subordinated Notes due 2010. In 2002, we issued an additional $100 million of 13% Senior Subordinated Notes due 2010. The 13% Senior Subordinated Notes due 2010 mature on June 1, 2010, and interest on the 13% Senior Subordinated Notes due 2010 is payable on June 1 and December 1 of each year. The 13% Senior Subordinated Notes due 2010 are subordinated to all of our existing and future senior debt, rank equally with any future senior subordinated debt, and rank senior to any future subordinated debt. The 13% Senior Subordinated Notes due 2010 are guaranteed by some of our subsidiaries. The 13% Senior Subordinated Notes due 2010 are unsecured. Prior to June 1, 2003, we may, on one or more occasions,

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redeem up to a maximum of 35% of the original principal amount of the 13% Senior Subordinated Notes due 2010 with the net cash proceeds of one or more equity offerings by us at a redemption price equal to 113% of the principal amount thereof, plus accrued and unpaid interest. Otherwise, we may not redeem the 13% Senior Subordinated Notes due 2010 prior to June 1, 2005. On or after that date, we may redeem the 13% Senior Subordinated Notes due 2010, in whole or in part, at the following redemption prices (expressed as percentages of principal amount), plus accrued and unpaid interest: 106.5% if redeemed prior to June 1, 2006; 104.333% if redeemed prior to June 1, 2007; 102.167% if redeemed prior to June 1, 2008; and 100% if redeemed on or after June 1, 2008.

Preferred stock

        We have approximately $223.5 million of Series A Cumulative Exchangeable Redeemable Preferred Stock outstanding. The Series A preferred stock accrues dividends at the rate of 14% per annum; however, our board of directors has never declared or paid any dividends on the Series A preferred stock. Unpaid dividends accumulate and are added to the liquidation amount of the Series A preferred stock. After May 31, 2005 the annual dividend rate increases to 16% unless we pay dividends in cash. The dividend rate also increases to 16% if we fail to comply with certain of our obligations or upon certain events of bankruptcy. The Series A preferred stock is mandatorily redeemable on June 1, 2011. See Note 10 to the consolidated financial statements included elsewhere in this report. The shares of Series A Preferred Stock are non-voting.

        On September 24, 2004, we adopted a 2004 Restricted Stock Incentive Plan, pursuant to which we sold to our President and Chief Executive Officer and selected additional officers of the Company, 704 shares of a total of 720 shares of a newly-created, non-voting Series B Redeemable Preferred Stock for a cash purchase price of $162 per share. These shares were issued in private transactions with officers of the Company and therefore were exempt from the registration requirements of the Securities Act of 1933. On December 22, 2004, the remaining 16 authorized shares were issued to an officer for a cash purchase price of $162 per share.

        Upon the sale of all or substantially all of the Company's assets, sale of the majority of the outstanding Common Stock of the Company to a person other than J.P. Morgan or its affiliates; merger or consolidation of the Company, or the consummation of a liquidation, as those events are specifically described in the Company's Articles of Incorporation, we are required to redeem all shares of Series B Redeemable Preferred Stock by payment of cash in an amount equal to the product of (x) .000104166; times (y) the sum of the amount of cash distributions actually paid and the fair market value of assets distributed by the Company to its stockholders during the period commencing on September 24, 2004 through the date of such event, plus the net proceeds payable, whether in cash, stock or other assets, to the stockholders of the Company in respect of such event.

        Upon a redemption by the Company of any shares of Series A Preferred Stock (or any payment on any notes issued in exchange therefor), the holder of each share of Series B Redeemable Preferred Stock shall be entitled to receive a cash dividend equal to the product of (x) .000104166; times (y) the net proceeds payable, whether in cash, stock or other assets, to the stockholders of the Company in respect to such redemption or such payment.

        Upon an underwritten public offering of shares of capital stock of the Company to the public resulting in aggregate net proceeds to the Company of not less than $100 million each share of Series B Redeemable Preferred Stock shall be automatically converted into that number of shares of the class of common equity securities of the Company that are outstanding immediately following such public offering equal to the product of (x) .000104166; times (y) the total number of shares of such class of stock outstanding immediately following the consummation of the public offering. The shares of Series B Redeemable Preferred Stock are non-voting and do not bear dividends except as noted above.

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Net cash used in operating activities

        Net cash used in operating activities was $1.4 million for the year ended December 31, 2004, compared to net cash used in operations of $14.2 million for the same period in 2003, a difference of $12.8 million. This difference is primarily attributable to the recognition of $35.3 million in deferred dividends, accretion on the Series A preferred stock and $23.5 million of accretion on the senior secured discount notes, offset by reductions in goodwill and fixed asset impairments of $18.3 million and $4.4 million, respectively, $12.7 million in increased working capital requirements, $7.0 million in less losses from discontinued operations and $6.2 million less depreciation and amortization.

Net cash used in investing activities

        Net cash used in investing activities was $17.6 million for the year ended December 31, 2004, as compared to $17.0 million for the same period in 2003. Capital expenditures in 2004 of $24.1 million included $8.7 million for new production lines, while capital expenditures in 2003 were principally for upgrading the operating efficiencies at our manufacturing facilities. In addition, during the third quarter of 2004, the Company sold substantially all the assets of our wholly-owned subsidiary, Pliant Solutions, receiving $6.5 million in cash proceeds.

Net cash provided by financing activities

        Net cash provided by financing activities was $25.5 million for the year ended December 31, 2004, as compared to net cash provided by financing activities of $46.0 million for the year ended December 31, 2003. As a condition to the effectiveness of the March 2003 amendment to our then existing credit facilities, J.P. Morgan Partners agreed to purchase Series A preferred stock and warrants for $10 million. The activity for 2003 includes the net proceeds from the issuance of such $10 million of Series A preferred stock and warrants, the net proceeds from the issuance of $250 million principal amount of Senior Secured Notes in May 2003, and the use of these proceeds to repay term debt. In addition, we paid $10.5 million in financing fees for a related amendment to our then existing credit facilities and the issuance of the Series A preferred stock and warrants. The activity for both periods also includes scheduled principal payments on our term loans and borrowings and repayments under our then existing revolving credit facility.

        As of December 31, 2004, we had approximately $78.5 million of working capital, approximately $60.1 million available for borrowings under our then existing revolving credit facility, with no outstanding borrowings under that facility, and approximately $6.7 million in letters of credit issued under our then existing revolving credit facility. Our outstanding borrowings under our then existing revolving credit facility fluctuated significantly during each quarter as a result of the timing of payments for raw materials, capital and interest, as well as the timing of customer collections. See "Sources of Capital" above for a discussion of the refinancing done in February 2004.

        As of December 31, 2004, we had approximately $5.6 million in cash and cash equivalents. A portion of this amount was held by our foreign subsidiaries. Repatriation tax rates may limit our ability to access cash and cash equivalents generated by our foreign operations for use in our U.S. operations, including to pay principal and interest on outstanding borrowings.

        Our total capital expenditures in 2004, 2003 and 2002 were approximately $24.1 million, $17.0 million, and $49.2 million, respectively. We currently estimate that our total capital expenditures will be approximately $30 to 35 million in 2005. These expenditures will consist of ongoing projects, productivity improvement projects and minor expansion of business and growth projects. Of this amount, approximately $12 million will be spent on projects to improve operational efficiencies.

        Although our outstanding preferred stock accrues dividends, these dividends are only paid if declared. We do not expect to pay any dividends on our preferred stock for the foreseeable future.

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        Our revolving credit facility and the indentures relating to the 11¹/8% Senior Secured Discount Notes due 2009, and the 13% Senior Subordinated Notes due 2010 impose certain restrictions on us, including restrictions on our ability to incur indebtedness, pay dividends, make investments, grant liens, sell our assets and engage in certain other activities.

        The interest expense and scheduled principal payments on our borrowings affect our future liquidity requirements. We expect that cash flows from operating activities and available borrowings under our revolving credit facility of up to $100 million (excluding $6.7 million of outstanding letters of credit) will provide sufficient cash flow to operate our business, to make expected capital expenditures and to meet foreseeable liquidity requirements. However, our ability to borrow under our revolving credit facility at any time will be subject to the borrowing base in effect at that time (which will vary depending upon the value of our accounts receivable and inventory). Our ability to make borrowings under our revolving credit facility will also be conditioned upon our compliance with other covenants in the new credit agreement, including financial covenants that apply when our borrowings exceed certain amounts. In addition, the terms of our indentures currently limit the amount we may borrow under our revolving credit facility.

        Changes in raw material costs can significantly affect the amount of cash provided by our operating activities, which can affect our liquidity. Over the past several months, we have experienced a period of extreme uncertainty with respect to resin supplies and prices. High crude oil and natural gas pricing, have had a significant impact on the price and supply of resins. During the same period, many major suppliers of resin have announced price increases to cover their increases in feedstock costs. While the prices of our products generally fluctuate with the prices of resins, certain of our customers have contracts that limit our ability to pass the full cost of higher resin pricing through to our customers immediately. Further, competitive conditions in our industry may make it difficult for us to sufficiently increase our selling prices for all customers to reflect the full impact of increases in raw material costs. If this period of high resin pricing continues, we may be unable to pass on the entire effect of the price increases to our customers, which would adversely affect our profitability and working capital. In addition, further increases in crude oil and natural gas prices could make it difficult for us to obtain an adequate supply of resin from manufacturers affected by these factors.

        If (a) we are not able to increase prices to cover historical and future raw materials cost increases, (b) we are unable to obtain adequate supply of resin, (c) volume growth does not continue as expected, or (d) we experience any significant negative effects to our business, we may not have sufficient cash flow to operate our business, make expected capital expenditures or meet foreseeable liquidity requirements. Any such event would have a material adverse effect on our liquidity and financial condition.

        The following table sets forth our total contractual cash obligations excluding cash interest payments, as of December 31, 2004 (in thousands):

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Cash used in discontinued operations

        Net cash used in discontinued operations was $4.8 million for the year ended December 31, 2004 compared to net cash used of $14.8 million for the year ended December 31, 2003.

Other developments

        For a discussion of material litigation in which we are involved, see Item 3—"Legal Proceedings."

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to various interest rate and resin price risks that arise in the normal course of business. We regularly evaluate the advisability of entering into interest rate hedging agreements to manage interest rate market risks and commodity hedging agreements to manage resin market risks. However, significant increases in interest rates or the price of resins could adversely affect our operating margins, results of operations and ability to service our indebtedness.

        Since the repayment of $219.6 million of variable rate term debt with the proceeds of our Senior Secured Discount Notes due 2009 and borrowings under our revolving credit facility on February 17, 2004, our interest rate risk has decreased substantially.

        Our revolving credit facility is at a variable rate of interest. An increase of 1% in interest rates would result in an additional $100,000 of annual interest expense for each $10.0 million in borrowings under our revolving credit facility. We will thus be exposed to interest rate risk to the extent of our borrowings under the revolving credit facility.

        Our raw material costs are comprised primarily of resins. Our resin costs comprised approximately 61% of our total manufacturing costs in 2004. Market risk arises from changes in resin costs. Although the average selling prices of our products generally increase or decrease as the cost of resins increases or decreases, the impact of a change in resin prices is more immediately reflected in our raw material costs than in our selling prices. From time to time we enter into commodity collar agreements to manage resin market risks. At December 31, 2004, we did not have any commodity collar agreements outstanding. Prices for resin have risen dramatically during 2004 and are expected to continue to rise. Pliant's costs for resin on a weighted-average basis rose 29% higher from December of 2003 to December of 2004, with over half of that increase occurring in the fourth quarter of 2004.

        Fluctuations in exchange rates may also adversely affect our financial results. The functional currencies for our foreign subsidiaries are the local currency. As a result, certain of our assets and liabilities, including certain bank accounts, accounts receivable and accounts payable, exist in non U.S. dollar-denominated currencies, which are sensitive to foreign currency exchange rate fluctuations.

        We enter into certain transactions denominated in foreign currencies and when advisable we have employed hedging techniques designed to mitigate foreign currency exposures. Gains and losses from these transactions as of December 31, 2004, have been immaterial and are reflected in the results of operations.

        We are exposed to credit losses in the event of nonperformance by the counterparty to a financial instrument to which we are a party. We anticipate, however, that each of the counterparties to the financial instruments to which we are a party will be able to fully satisfy its obligations under the contract.

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Financial statements and supplementary data required by this Item 8 are set forth at the pages indicated in Item 15(a) below.

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

        None.

ITEM 9A.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

        We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the periods specified in the rules and forms of the Securities and Exchange Commission. This information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, including our principal executive officer and our principal financial officer, recognizes that any set of controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

        Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in alerting them on a timely basis to material information required to be disclosed in our periodic filings.

Changes in Internal Controls

        There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation referenced in the foregoing paragraph.

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PART III

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        Certain information about our executive officers and directors is presented below. Pursuant to the stockholders' agreement among us, the holders of our common stock and the holders of warrants to purchase our common stock, our board of directors currently consists of eight members, four of whom are designated by our institutional common stockholders and warrant holders, one of whom is designated by The Christena Karen H. Durham Trust, two of whom are independent, and one of whom is appointed by our board of directors and must be a member of our senior management. The trust has the right to designate a second director to the Board, but that Board seat is currently vacant.

        Harold C. Bevis was named President and Chief Executive Officer in October 2003. Mr. Bevis also serves on our Board of Directors and is currently serving as our Chief Financial Officer. He has over 20 years of global experience with multiple types of technology-driven manufactured products sold across a full range of sales channels. Mr. Bevis joined Pliant from Emerson Electric, where he served as President of Emerson Telecommunications Products, a group of manufacturing companies, beginning in 1998. Mr. Bevis led the sale of this group to Emerson while he was President and CEO of Jordan Telecommunication Products, Inc., a manufacturer of nonproprietary communications products. Prior to that, Mr. Bevis served as Senior Vice President and General Manager of General Cable Corporation, a large, vertically integrated domestic manufacturer of wire and cable products sold through wholesale and retail channels to companies such as The Home Depot, True Value Hardware, Rexel and Graybar. Mr. Bevis has also held positions of increasing responsibility with General Electric, Booz, Allen & Hamilton, and General Dynamics, where he began his career as an engineer. Mr. Bevis holds a B.S. in

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Industrial Engineering from Iowa State University and an MBA in Marketing from Columbia University in New York. Mr. Bevis is the director who is a member of our senior management.

        John D. Bowlin became one of our directors on January 31, 2005. Mr. Bowlin was President and Chief Executive Officer of Miller Brewing Company from 1999 until 2003, leading its sale to South African Breweries in 2002. From 1985 until 2002, Mr. Bowlin was employed by Philip Morris Companies, Inc., in various leadership capacities, including President, International, Kraft, Inc. (1996 - 1999), President and Chief Operating Officer, Kraft Foods, Inc. (1994 - 1996), President and Chief Operating Officer, Miller Brewing Company (1993 - 1994), and President, Oscar Mayer Food Corporation (1991-1993). Mr. Bowlin holds an MBA from Columbia University and a BS from Georgetown University. He is also a director of the Rayovac Corporation. Mr. Bowlin is one of the two independent directors.

        Richard P. Durham became one of our directors on May 31, 2000. Mr. Durham also served as our President, from March 1997 through March 2001, and as our Chief Executive Officer from March 1997 through June 2002. He was also the chairman of our board of directors from May 31, 2000 to June 2002. Mr. Durham has been with various Huntsman Corporation affiliates since 1987. Prior to becoming our President, Mr. Durham served as Co-President and Chief Financial Officer of Huntsman Corporation. Mr. Durham is also a director of Huntsman Corporation. Mr. Durham is a graduate of The Wharton School of Business at the University of Pennsylvania. Mr. Durham is the Trust's designee to the board.

        Sean Epps became one of our directors on January 31, 2005. Mr. Epps has been a Principal of J.P. Morgan Partners, LLC, the company's principal stockholder since 2000, and prior to that was an associate of that entity. Mr. Epps has extensive experience managing J.P. Morgan Partners, LLC' portfolio companies, and is also on the Board of Directors of Brand Services, Inc. and Chromalox Corporation. Mr. Epps holds a BA from Hamilton College and an MBA from The Wharton School, University of Pennsylvania. Mr. Epps is one of the persons designated to serve on the board by our institutional common stockholders and warrant holders.

        Edward A. Lapekas became one of our directors on December 19, 2001 and became our Non-Executive Chairman on October 22, 2003. Mr. Lapekas served as our interim Chief Executive Officer from August 24, 2003 until October 22, 2003. From November 2002 until March 2003, Mr. Lapekas served as Chairman and Chief Executive Officer of NexPak Corporation, a media packaging company. Prior to that, Mr. Lapekas was Executive Chairman of Packtion Corporation, an e-commerce venture, from October 2000 until June 2001. From May 1996 until July 2000, Mr. Lapekas was employed by American National Can Group, Inc., last serving as Chairman and Chief Executive Officer. Prior to that, Mr. Lapekas served as Deputy Chairman and Chief Operating Officer of Schmalbach-Lubeca AG. From 1971 until 1991, Mr. Lapekas was employed by Continental Can Company, where he served in various strategy, planning, operating and marketing capacities. Mr. Lapekas is also a director of Silgan Corp. He received a B.A. degree from Albion College and an M.B.A. degree from Wayne State University. Mr. Lapekas is one of the two independent directors.

        Albert (Pat) MacMillan became one of our directors on December 19, 2001. Mr. MacMillan is the founder and CEO of Team Resources, a consulting firm with offices in the United States, Venezuela, Peru, Chile, and Mexico. Founded in 1980, Team Resources provides client services in the areas of strategy, building team-based organizations, and designing leadership development strategies. He also serves on the boards of directors of Unum/Provident and Metokote Corporation, as well as several foundations and non-profit organizations. He received a B.A. degree in Business and an M.B.A. degree from the University of Washington. Pursuant to the stockholders' agreement, Mr. MacMillan is one of the designees to the board by our institutional common stockholders and warrant holders.

        Jeffrey C. Walker became one of our directors on July 1, 2004. Mr. Walker is Managing Partner of J.P. Morgan Partners, LLC and Vice Chairman of JPMorgan Chase. J.P. Morgan Partners, LLC is a

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global partnership and is our principal stockholder. Before co-founding JPMorgan Partners in 1984, Mr. Walker worked in the Investment Banking and Finance Divisions of Chemical Bank and the Audit and Consulting Divisions of Arthur Young & Co. He is also a director of numerous private and public corporations (1-800-Flowers, Metroplex, Doane Pet Care, House of Blues, Metokote and Axis Insurance). Mr. Walker is a Certified Public Accountant and a Certified Management Accountant, and holds a BS degree from the University of Virginia and an MBA from the Harvard Business School. Mr. Walker is one of the designees to the board by our institutional common stockholders and warrant holders.

        Timothy J. Walsh became one of our directors on May 31, 2000. He served as Non-Executive Chairman from June 2002 until October 2003. Mr. Walsh is an executive officer of JPMP Capital Corp., which is the general partner of JPMP Master Fund Manager, L.P., which is the general partner of J.P. Morgan Partners (BHCA), L.P., our principal stockholder. Since 1999, Mr. Walsh has been a Partner of J.P. Morgan Partners, LLC (formerly, Chase Capital Partners). JP Morgan Partners is a global partnership. It is a leading provider of private equity and has closed over 1,300 individual transactions since its inception in 1984. JP Morgan Partners has more than 140 investment professionals in eight regional offices throughout the world. JP Morgan Partners' primary limited partner is J.P. Morgan Chase & Co. (NYSE: JPM), one of the largest financial institutions in the United States. From 1993 to 1999, Mr. Walsh held various positions with J.P. Morgan Partners in Europe and North America. Prior to 1993, he was a Vice President of J.P. Morgan Chase & Co. (formerly, The Chase Manhattan Corporation). Mr. Walsh is also a director of Better Minerals & Aggregates Company, Klockner Pentaplast S.A. and Metokote Corporation. Mr. Walsh received a B.S. degree from Trinity College and an M.B.A. degree from the University of Chicago. Pursuant to the stockholders' agreement, Mr. Walsh is one of the designees to the board by our institutional common stockholders and warrant holders.

        R. David Corey was named Chief Operating Officer in March 2004. He joined Pliant as Executive Vice President for Global Operations in November 2003. Mr. Corey has over 30 years of experience leading extrusion-based manufacturing businesses. Mr. Corey was a senior executive at Emerson Electric where he was President of Dura-Line, a manufacturing business that produced telecom, gas and water conduit products. He supervised plants and sales forces in the US, Mexico, UK, Spain, Brazil, Czech Republic, Malaysia, India and China. Previously, Mr. Corey was President of International Wire with operations in the US and Asia. Prior to that, Mr. Corey was Senior Vice President and General Manager of Telecom products for General Cable Corporation. He earned a B.S. in Business from Eastern Illinois University.

        Paul R. Frantz is currently the Senior Vice President and General Manager of the Performance Films Division. Mr. Frantz joined Pliant Corporation in July of 1992 following the acquisition of Goodyear Tire and Rubber Company's Film Division. Since that time, he has held numerous positions within the company. Most recently he has served as Senior Vice President Sales and Marketing Marquee Accounts. In 2003 he served as Senior Vice President Sales and Marketing for Pliant Solutions, from 2001 - 2003 he was Vice President Sales and Marketing for Secondary Packaging, and from 1999 - 2000 he was Managing Director—Europe. Other positions have included Director Sales and Marketing for Secondary Packaging and Marketing Manager for Secondary Packaging. Prior to joining Pliant Corporation, Mr. Frantz held various sales management positions with Goodyear and operations management positions in the thermoforming segment of the plastics industry. He holds a B.B.A. degree in Economics and Finance from Baylor University.

        Greg E.Gard joined Pliant Corporation in 1989 and has held numerous technical positions supporting the various market segments within Pliant Corporation. Today, he serves as Senior Vice President of Technology and Innovation. His responsibilities in this regard include Product Development and Technical Service for the Corporation, with particular focus on shortening product development cycles, improving speed to market, and directing a team of packaging professionals in the

43

development of packages that protect and preserve while improving functionality and appearance. Before joining Pliant, Mr. Gard held engineering and management positions with Cryovac Sealed Air Corporation. Prior to this he worked for several years as an engineer with Dresser Atlas in oil and gas exploration. He holds a B.S. degree in electrical and computer engineering from the University of Wisconsin Madison. Mr. Gard is actively involved with Clemson University's Packaging Science program, one of only four academic institutions in the United States that offers a four-year program leading to a B.S. degree in Packaging Science. Currently, he serves on the Packaging Advisory Board at Clemson.

        Joseph J. Kwederis joined Pliant Corporation as Senior Vice President, Finance in February 2005. Prior to joining Pliant Corporation, Mr. Kwederis was Senior Vice President/CFO of Dura-line Corporation from 1999 - 2004, and VP of Finance for International Wire Group from 1996 - 1999. From 1974 until 1996 he held positions of increasing responsibility in Accounting and Finance at General Cable Corporation. Mr. Kwederis holds a BS in Accounting from Rutgers University and an MBA from the University of Connecticut.

        Robert J. Maltarich joined Pliant Corporation in July of 1992 following the acquisition of Goodyear Tire & Rubber Company's Films Division. Since that time, he has held numerous positions within Pliant Corporation. From 1992 - 1993 he served as Marketing Manager Film Products Worldwide, from 1994 - 1996 he was Director of National Accounts, and from 1997 - 1998 he was General Manager Custom Films Group. Other positions included Vice President and General Manager Barrier and Custom Films and, most recently, Senior Vice President of Sales, Flexible Packaging. Mr. Maltarich was promoted in October 2002 to Vice President and General Manager, Industrial Films, where he oversees Pliant's Stretch, Custom, and PVC film businesses. Prior to joining Pliant Corporation, Mr. Maltarich held numerous national and international positions in both sales and marketing with Goodyear Tire & Rubber Company. During his 18-year career at Goodyear, he served as General Marketing Manager Film Products Worldwide, General Manager European Film Products, Manager Film Products USA and District Sales Manager. He holds a B.S. degree in Business Administration from the University of Akron.

        Kenneth J. Swanson is currently President, Specialty Products. Prior to this position, Mr. Swanson was the Senior Vice President and General Manager of the Specialty Films Division at Pliant. Since 1992, Mr. Swanson has had various leadership positions with CT Film, Huntsman Packaging, and Pliant. Prior to 1992, Mr. Swanson held multiple sales management positions in the injection molding segment of the plastics industry. Mr. Swanson holds a B.Sc. degree in Business Management from the University of Redlands, Redlands, CA.

        Coleman R. Wooldridge joined Pliant Corporation in 1993 as the Plant Manager of the Dalton, Ga. Facility and in 1997 moved to Bloomington, Indiana as Plant Manager of the Bloomington and Odon plants. He was promoted to Vice President of Manufacturing in May of 1999, where he was responsible for the Converter, Personal Care and Barrier Division manufacturing operations. He was promoted to his current role of Vice President and General Manager of the Converter Division in October of 2002. Prior to joining Pliant, Mr. Wooldridge spent 4 years at Sonoco Products Company, where he held several positions in the manufacturing area, including Plant Manager in the High Density Film Products Division. Mr. Wooldridge began his career at General Electric, where he spent 15 years working in Supervisory roles and as a Product Development Engineer in plastics processing, which included work in injection and compression molding, vacuum forming and engineering resins. He holds a B.Sc. degree in Business Management from the University of Louisville, and a M.A. degree in Human Resource Development and Management from Webster University, St. Louis.

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Code of Ethics for Officers

        Our board of directors plans to adopt a code of ethics for all officers and directors which will be available upon request, but has not yet done so because the Company's equity securities are not registered under the Exchange Act or subject to the listing rules of any stock exchange or automated quotation system.

Audit Committee

        Our Board of Directors has an audit committee. The audit committee maintains oversight responsibilities with respect to our accounting, auditing, financial reporting and internal control processes generally. The members of the audit committee are Timothy J. Walsh and Edward A. Lapekas. Mr. Lapekas is considered independent within the meaning of Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended. Mr. Walsh may not be deemed independent in light of the numerous transactions between the Company and J.P. Morgan Partners and its affiliates (see Item 13, "Certain Relationships and Related Transactions"). A person who at the time was serving as a Director was appointed as the financial expert of the audit committee during 2004. However that member resigned from our Board of Directors and as Chairman of the audit committee on January 31, 2005.

Compensation Committee

        Our Board of Directors has a compensation committee. The compensation committee maintains oversight responsibilitieswith respect to the compensation of our officers and directors. The members of the compensation committee are Albert (Pat) MacMillan, Timothy J. Walsh and Harold C. Bevis.

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ITEM 11.    EXECUTIVE COMPENSATION

        The following summary compensation table sets forth information about compensation earned in the fiscal years ended December 31, 2004, 2003 and 2002 by each person serving as Chief Executive Officer during 2004 and the four other most highly compensated persons who were serving as executive officers of the Company (other than the Chief Executive Officer) as of the end of the last fiscal year and one other individual who would have been in that group of the most highly compensated persons but was not serving as an executive officer as of the end of the last fiscal year (collectively, the "Named Executive Officers").

Summary compensation table

(1)

Perquisites and other personal benefits, securities or property, in the aggregate, are less than either $50,000 or 10% of the total annual salary and bonus reported for the applicable Named Executive Officer.

(2)

All amounts for 2004 paid pursuant to 2004 Management Incentive Plan, except as indicated.

(3)

Pursuant to the 2004 Restricted Stock Incentive Plan, certain executive officers of the Company were permitted to purchase shares of Series B Redeemable Preferred Stock in September of 2004 for $162.00 per share, which we determined to be the fair market value of those shares pursuant to an independent appraisal. One 48^th of those shares vest each month, subject to the holder being employed by the Company as of such dates. Three months (or .0625%) of the restricted shares granted to each such individual other than Mr. Frantz vested during 2004. Mr. Frantz' shares were not issued until December 2004, therefore none of his shares vested in 2004.

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(4)

All amounts reflect contributions for employer's 401(k) contributions, except as indicated.

(5)

Mr. Bevis was appointed President and Chief Executive Officer in October 2003.

(6)

Includes bonus of $850,000, paid in 2005 pursuant to the 2004 Management Incentive Compensation Plan and an additional discretionary bonus of $78,974 paid in 2004.

(7)

Mr. Corey was appointed Executive Vice President of Global Operations in November 2003. He was promoted to Chief Operating Officer in March 2004.

(8)

Includes bonus of $200,000, paid in 2005 pursuant to the 2004 Management Incentive Compensation Plan and an additional discretionary bonus of $24,880 paid in 2004.

(9)

Includes $61,101 of moving expenses paid in 2004.

(10)

Mr. Frantz was appointed Senior Vice President and General Manager—Performance films and became an executive officer on March 1, 2004.

(11)

Mr. Swanson was appointed Senior Vice President and General Manager—Specialty Products Group and became an executive officer on February 16, 2004.

(12)

Mr. Gard was appointed Senior Vice President, Technology and Innovation and became an executive officer on March 11, 2004.

(13)

Mr. Johnson resigned as Executive Vice President and Chief Financial Officer effective September 16, 2004, but remained an non-executive officer employee of the Company until December 31, 2004.

Incentive Plans Adopted in 2004

        Effective January 1, 2004, our Board of Directors adopted two new benefit plans in which some or all of the Named Executive Officers may participate: the 2004 Management Incentive Compensation Plan and the 2004 MIP Long Term Incentive Plan. The participants in the 2004 Management Incentive Compensation Plan were paid a bonus of $4,075,780 in 2005 relating to achievement of certain EBITDA and operating free cash flow goals for 2004. All Named Executive Officers participated in this plan and received bonuses for their 2004 performance, except the Chief Executive Officer, in the amounts indicated in the foregoing table. In addition, participants in the 2004 MIP Long Term Incentive Plan, which includes all officers and other key management personnel of the Company (except the Chief Executive Officer), received a credit of half of the 2004 bonus amount to the accumulated amount of their Long term Incentive Plan Award that they can earn under the 2004 MIP Long Term Incentive Plan, which can be become payable on December 31, 2007 under the terms of that plan. In August 2004, our Board of Directors adopted the 2004 Restricted Stock Incentive Plan. The grants under the 2004 Restricted Stock Incentive Plan are described below.

Stock Options and Restricted Stock

        Pursuant to the recapitalization, options covering a total of 8,902 common shares were rolled over from a previous plan. In addition, we adopted our 2000 Stock Incentive Plan. The 2000 plan became effective as of the consummation of the recapitalization and authorizes grants of nonqualified stock options or restricted stock to employees, officers, directors, managers or advisors of Pliant or any of its subsidiaries. As amended, a total of 65,600 shares are authorized for issuance under the 2000 plan. As of December 31, 2003, we had outstanding grants of restricted stock covering 8,041 shares of common stock and options to acquire 45,012 shares of common stock under the 2000 plan. Shares of restricted stock that are forfeited, and unissued shares reserved for issuance pursuant to options that terminate, expire or are cancelled without having been fully exercised, become available to be issued pursuant to new grants under the 2000 Plan.

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        In August 2002, we adopted our 2002 Stock Incentive Plan. The 2002 plan authorizes grants of incentive stock options, nonqualified stock options and stock bonuses, as well as the sale of shares of common stock, to our and any of our subsidiaries' employees, officers, directors and consultants. A total of 4,793 shares are authorized for issuance under the 2002 plan.

        Since the adoption of our 2004 Restricted Stock Incentive Plan in September 2004, we have sold to our President and Chief Executive Officer and certain other Named Executive Officers a total of 720 shares of a newly-created, non-voting Series B Redeemable Preferred Stock for a cash purchase price of $162 per share, which was determined by our Board to be the fair market value of these shares as of such date based on an independent appraisal received by the Company. The Series B Preferred Stock will be automatically converted into common equity of the Company upon the consummation of an underwritten public offering registered under the Securities Act of shares of capital stock of the Company resulting in aggregate proceeds (net of underwriters discounts and commissions) to the Company of not less than $100 million.

        During the year ended December 31, 2004, 3,850 options to purchase common stock were granted and 17,394 options were cancelled. No stock options were granted to the Named Executive Officers during 2004.

        The following table provides information as to the options held by each of the Named Executive Officers at the end of 2004. There is no established trading market for our common stock and, therefore, the aggregate market value of our shares cannot be determined by reference to recent sales or bid and asked prices. The value of unexercised in-the-money options was assumed to be equal to the price per share paid in the recapitalization $483.13 per share. None of the Named Executive Officers exercised any options during the last fiscal year.

Aggregated option exercises in last fiscal year and FY-end option values

(1)

Mr. Johnson has the right to exercise all of his options on or before March 30, 2005. All options unexercised on such date will lapse.

        The options or restricted common stock granted prior to January 1, 2001 pursuant to the 2000 plan, as amended, provide for vesting as follows: (1) one-sixth are "time-vested" options or shares, which vested on January 1, 2001, so long as the recipient was still our employee on such date, and (2) the remainder are "performance-vesting" options or shares, which vest in increments upon the achievement of performance targets as follows: (a) vesting in full, if 100% or more of the applicable performance target is achieved as of the end of any calendar quarter during the option term and (b) partial vesting if more than 90% of the applicable performance target is achieved as of the end of any calendar quarter during the option term. Moreover, all performance-vesting options or shares not previously vested in accordance with the preceding sentence will vest automatically in full on December 31, 2009 so long as the recipient is still our employee on such date. Options granted pursuant to the 2000 plan subsequent to January 1, 2001 vest similarly, except that all of the options are "performance-vesting" options, which vest in increments upon the achievement of performance targets.

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Long Term Incentive Plan

        Effective January 1, 2004, we adopted the 2004 MIP Long Term Incentive Plan to provide performance based incentives to eligible management associates who maintain their relationship with the Company over a period of years. Pursuant to this plan, one half of any award earned by any participants under each applicable management incentive plan during the four-year period beginning January 1, 2004 through December 31, 2007, will be added to the amount of the award that can be earned by the participant under this Long Term Incentive Plan. Such amounts can be earned by a participant if he or she (i) is actively employed by the Company or an affiliate during that four-year period and on the date of the payment of the award (March 15, 2008), (ii) has performed his or her duties to the satisfaction of the Board, and (iii) meets certain other criteria requiring not acting in a way that is inimical to the best interests of the Company, complying with Company policies, not breaching agreements benefiting the Company. Mr. Bevis does not participate in the 2004 MIP Long Term Incentive Plan. The following Named Executive Officers participate in this plan and accrued the following award amounts under the plan as a result of bonuses paid with respect to performance during 2004 under the 2004 Management Incentive Compensation Plan:

Long-Term Incentive Plans—Awards in 2004

Pension plans

        Effective July 1, 2004, we adopted the Fourth Amendment to the Pliant Corporation Defined Benefit Pension Plan. The purpose of this amendment was to "freeze" the benefits payable under such plan as of June 30, 2004, for all participants in the plan who are not subject to the collective bargaining agreement between the Company, South Deerfield, Massachusetts and the United Electrical Radio and Machine Workers of America and Local 274, such that no further benefits will accrue to current or future employees under that plan. Persons employed by the Company as of December 31, 2002, who did not have 5 years of vesting service as of June 30, 2004 (the minimum service period required to qualify for benefits under the Plan) will continue to accrue vesting service toward this minimum so long as they continue to be employed by the Company after June 30, 2004. For all employees that qualify for benefits under the Plan, as amended, their average final compensation and years of service credit (except as noted above) will be fixed as of June 30, 2004. Mr. Frantz, Mr. Gard and Mr. Swanson were the only Named Executive officers that met the 5 year service requirement at June 30, 2004. As of June 30, 2004, the accrued pension plan benefit for (i) Mr. Frantz was $2,671 per month payable beginning December 1, 2030 or $1,051 per month payable beginning June 1, 2017; (ii) Mr. Gard $1,968 per month payable beginning December 1, 2025 or $628 per month payable beginning June 1, 2015; and (iii) Mr. Swanson $1,878 per month payable beginning November 1, 2031 or $600 per month payable beginning January 1, 2020. None of the other Named Executive Officers are eligible to participate in the Pliant Corporation Defined Benefit Pension Plan.

Employment agreements

        Effective January 1, 2004, the Company entered into a four-year employment agreement with Mr. Bevis, our President and Chief Executive Officer. The employment agreement provides for the

49

payment of a base salary of $650,000. Mr. Bevis is guaranteed an annual bonus of $650,000 if he is employed during the calendar year, payable no later than ten business days following the Company's receipt from its public accountants of the audited consolidated financial statements of the Company for such calendar year. The employment agreement also provides that Mr. Bevis will participate in all bonus and incentive plans or arrangements which may be provided by the Company from time to time to its senior executives, with award opportunities commensurate with this position, duties and responsibilities. The employment agreement expressly excludes from these benefits the Management Incentive Plan, the Pliant 2000 Stock Incentive Plan, the Pliant 2002 Stock Incentive Plan and any other equity based incentive or compensation plans. The employment agreement expressly includes the Pliant 2004 Restricted Stock Incentive Plan, at least four weeks paid vacation per year, and includes non-disclosure of confidential information provisions and a non-compete provision for one year following termination of employment with us (unless termination was due to the term expiring). Mr. Bevis has agreed in his employment agreement that any inventions, improvements, technical or software developments, trademarks, patents and similar information relating to us or our business, products or services conceived, developed or made by him while employed by us belong to us. If Mr. Bevis' employment is terminated without cause or he resigns for good reason, he will be entitled to receive severance payments and continue to participate in our medical and dental plans for one year.

        On March 30, 2001, we entered into a five-year employment agreement with Brian E. Johnson, our Executive Vice President and Chief Financial Officer. On December 31, 2004 we entered into a Release Agreement with Mr. Johnson, whereby Mr. Johnson terminated his employment with the Company. Pursuant to the Release Agreement, Mr. Johnson acknowledged that he had received all of his compensation from the Company and that the only equity interests Mr. Johnson would hold in the Company post-termination would be 18 shares of Series A Preferred Stock, Warrants to purchase 18,270 shares of common stock and the option to purchase 1,000 shares of common stock pursuant to the 2000 Stock Incentive Plan and the Option Agreement related thereto. The Company agreed to pay Mr. Johnson his base salary until December 31, 2005 and his bonus based on the 2004 calendar year under the Management Incentive Plan. Mr. Johnson also receives medical and dental benefits until December 31, 2005 and outplacement service benefits for six months not to exceed $20,000.

        We have not entered into employment agreements with Mr. Corey, Mr. Frantz, Mr. Swanson and Mr. Gard.

Compensation of directors

        Each director who is not an employee of ours or a partner or senior advisor of J.P. Morgan Partners, LLC is entitled to receive an annual fee of $30,000, plus $10,000 per year for any committee service. Currently there are three directors who receive director fees: Messrs. Durham, Lapekas and MacMillan. In addition, Mr. Lapekas will receive a fee of $100,000 per year for his service as Non-Executive Chairman and a fee of $30,000 per year for serving on our audit committee.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management

        The following table contains information with respect to the ownership of our common stock as of March 21, 2005 by:

•

each person known to own beneficially more than 5% of our common stock,



•

each of our directors,



•

each of our Named Executive Officers, and

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•

all of our executive officers and directors as a group.

        The amounts set forth in the table and footnotes below do not include shares of restricted common stock issued under the 2000 plan that remain subject to performance vesting requirements that had not been met as of March 21, 2005.

        Pursuant to a stockholders' agreement dated May 31, 2000, the parties to that agreement have committed to vote their shares in the election of directors in the manner described in "Certain relationships and related transactions—The stockholders' agreement."

        The amounts and percentages of shares beneficially owned are reported on the basis of SEC regulations governing the determination of beneficial ownership of securities. Under SEC rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares voting power or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Securities that can be so acquired are deemed to be outstanding for purposes of computing such person's ownership percentage, but not for purposes of computing any other person's percentage. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.

        Except as otherwise indicated in these footnotes, each of the beneficial owners listed has, to our knowledge, sole voting and investment power with respect to the indicated shares of common stock.

*

Less than 1%.

(1)

Includes (i) 317,306 shares of common stock held by Southwest Industrial Films, LLC, which is controlled by J.P. Morgan Partners (BHCA), L.P., as managing member, (ii) 43,047 shares of common stock which are issuable upon exercise of warrants to purchase common stock issued in

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connection with our Series A preferred stock held by Southwest Industrial Films II, LLC, which is controlled by J.P. Morgan (BHCA), L.P., as managing member, and (iii) 44,816 shares of common stock which are issuable upon exercise of warrants to purchase common stock issued in connection with our preferred stock held by Southwest Industrial Films, LLC. JPMP Capital Corp. is the indirect general partner of J.P. Morgan Partners (BHCA), L.P., and a wholly-owned subsidiary of J.P. Morgan Chase & Co., a publicly traded company. JPMP Capital Corp. and each of the foregoing entities is an affiliate of J.P. Morgan Partners, LLC and has an address c/o J.P. Morgan Partners, LLC, 1221 Avenue of the Americas, 39^th Floor, New York, New York 10020.

(2)

Mr. Walsh, Mr. Walker and Mr. Epps may be deemed the beneficial owners of the shares of common stock and warrants owned by each of Southwest Industrial Films, LLC and Southwest Industrial Films II, LLC, respectively, due to their positions with JPMP Capital Corp. and J.P. Morgan Partners, LLC, which are affiliates of J.P. Morgan Partners (BHCA), L.P., which in turn controls each of Southwest Industrial Films, LLC and Southwest Industrial Films II, LLC, as managing member.

(3)

The address of The Christena Karen H. Durham Trust is P.O. Box 17600, Salt Lake City, Utah 84117. The trustee of the Trust is Richard P. Durham. The Trust was established for the benefit of Christena H. Durham and her children. Christena H. Durham is the wife of Richard P. Durham.

(4)

Includes 23,033 shares of Common Stock held by Durham Capital Limited, an entity controlled by Richard P. Durham, and 1,250 shares of common stock held by Durham Capital Limited issuable upon exercise of warrants to purchase common stock issued in connection with our Series A preferred stock. As trustee of The Christena Karen H. Durham Trust and the spouse of Christena H. Durham, who is a beneficiary of the Trust, Richard P. Durham may be deemed the beneficial owner of the shares of common stock owned by the Trust. Richard P. Durham disclaims beneficial ownership of the shares of common stock owned by the Trust. The address for each of these persons and entities is 5772 South Holladay Blvd., Salt Lake City, Utah 84121.

(5)

Includes 231 shares of common stock held by Perry Principals Holdings, LLC and 4,060 shares of common stock which are issuable upon exercise of warrants to purchase common stock issued in connection with our preferred stock held by Perry Acquisition Partners-3, L.P. Richard C. Perry is the managing member of Perry Principals Holdings, LLC and the managing member of Perry Investors-2, LLC, which is the general partner of Perry Acquisition Partners-2, L.P. Richard C. Perry is also the president of Perry Corp., which is the indirect general partner of Perry Acquisition Partners-3, L.P. As such, Richard C. Perry may be deemed to have voting and investment power with respect to the shares of common stock and warrants owned by Perry Acquisition Partners-2, L.P., Perry Acquisition Partners-3, L.P. and Perry Principals Holdings, LLC. Richard C. Perry disclaims beneficial ownership of such shares and warrants, except to the extent of his pecuniary interest therein. Each of the foregoing entities is an affiliate of Perry Acquisition Partners L.P. and has an address c/o Perry Acquisition Partners L.P., 599 Lexington Avenue, New York, New York 10022.

(6)

Includes 20 shares of issued Common Stock and 14.21 shares of Common Stock issuable upon exercise of warrants.

(7)

Includes 80 shares of issued Common Stock and 32.48 shares of Common Stock issuable upon exercise of warrants.

Securities Authorized for Issuance under Equity Compensation Plans

        The following table sets forth information relating to our equity compensation plans as of December 31, 2004. Our equity securities are closely held and are not publicly traded. In addition, as required by our stockholders' agreement, a majority of our board of directors has been appointed by

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our institutional common stockholders and warrant holders, including our controlling shareholder. Therefore, our board of directors approves our equity compensation plans without obtaining approval directly from our shareholders.

Equity Compensation Plan Information

(1)

Pursuant to the 2004 Restricted Stock Incentive Plan, during 2004 the Company issued 720 shares of Series B Redeemable Preferred Stock to the officers at a purchase price of $162 per share, which was deemed to be the fair market value of those shares based on an independent appraisal received by the Board.

(2)

Includes 8,041 shares of restricted stock issued under the 2000 Stock Incentive Plan.

        The equity compensation plans not approved by security holders include our 2000 Stock Incentive Plan 2002 Stock Incentive Plan, and 2004 Restricted Stock Incentive Plan. The material features of these plans are described under Item 11, "Executive Compensation—Stock Options and Restricted Stock," Item 13 "Certain Relationships and Related Transactions," and in Note 11 to our consolidated financial statements.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions with Management

Agreements with Executive Officers and Directors

        Effective January 1, 2004, we entered into a four -year employment agreement with Harold C. Bevis, our President and Chief Executive Officer and on December 31, 2004, we entered into a Release Agreement with Brian E. Johnson (see Item 11—Executive Compensation).

        On January 26, 2005, we entered into a Letter Agreement with James Ide, terminating his employment as our Executive Vice President and Chief Financial Officer, effective February 28, 2005. Pursuant to such Letter Agreement, Mr. Ide received a $70,000 bonus for 2004.

        On March 18, 2005, we entered into a Severance and Release Agreement with Lori Roberts, terminating her employment as our Senior Vice President, Human Resources, effective April 1, 2005. Pursuant to the Severance and Release Agreement, Ms. Roberts will receive a lump sum severance payment in the amount of $404,437, which includes the Company's payment for 28 shares of the Company's Series B Preferred Stock at $162 per share held by Ms. Roberts pursuant to the Company's right to repurchase such shares pursuant to the 2004 Restricted Stock Incentive Plan. After such repurchase, Ms. Roberts will retain four shares of the Series B Preferred Stock and will be entitled to continue participation in the Company's medical, dental and basic life insurance plans through March 31, 2006. Beginning April 1, 2006, Ms. Roberts may elect extended continuation coverage under

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such plans for a period of 18 months. Ms. Roberts is also entitled to receive outplacement services for a period of 12 months, which shall not exceed $20,000, as well as reimbursement by the Company of Ms. Robert's legal fees incurred in connection with the negotiation of the Severance and Release Agreement, which shall not to exceed $7,500. Ms. Roberts has agreed not to compete with the Company for one year.

        Richard P. Durham is a Director of the Company. On June 10, 2002, we entered into a separation agreement with Mr. Durham terminating his employment as our Chairman and Chief Executive Officer. Pursuant to the separation agreement, Mr. Durham agreed to convert an outstanding promissory note issued as payment for a portion of his shares into two promissory notes. The first note (the "Vested Secured Note"), in the principal amount of $2,430,798, related to Mr. Durham's time-vested shares and the vested portion of his performance-vesting shares. The separation agreement preserved a put option established by Mr. Durham's employment agreement with respect to his shares. For purposes of this put option, the separation agreement provides that the price per share to be paid by us is $483.13 with respect to common stock, $483.13 less any exercise price with respect to warrants, and the liquidation preference with respect to preferred stock. Mr. Durham's put option is subject to any financing or other restrictive covenants to which we are subject at the time of the proposed repurchase. Restrictive covenants under our existing credit facilities limit the number of shares we can currently repurchase from Mr. Durham. As of December 31, 2004, our total remaining purchase obligation to Mr. Durham was approximately $10,623,097, excluding accrued preferred dividends.

2004 Restricted Stock Incentive Plan and Series B Preferred Stock

        On September 24, 2004, we adopted a 2004 Restricted Stock Incentive Plan, pursuant to which we sold to our President and Chief Executive Officer and selected additional officers of the Company, 704 shares of a total of 720 shares of a newly-created, non-voting Series B Redeemable Preferred Stock for a cash purchase price of $162 per share. These shares were issued in private transactions with officers of the Company and therefore were exempt from the registration requirements of the Securities Act of 1933. On December 22, 2004, the remaining 16 authorized shares were issued to an officer for a cash purchase price of $162 per share.

        Upon the sale of all or substantially all of the Company's assets, sale of the majority of the outstanding Common Stock of the Company to a person other than J.P. Morgan or its affiliates; merger or consolidation of the Company, or the consummation of a liquidation, as those events are specifically described in the Company's Articles of Incorporation, we are required to redeem all shares of Series B Redeemable Preferred Stock by payment of cash in an amount equal to the product of (x) .000104166; times (y) the sum of the amount of cash distributions actually paid and the fair market value of assets distributed by the Company to its stockholders during the period commencing on September 24, 2004 through the date of such event, plus the net proceeds payable, whether in cash, stock or other assets, to the stockholders of the Company in respect of such event.

        Upon a redemption by the Company of any shares of Series A Preferred Stock (or any payment on any notes issued in exchange therefor), the holder of each share of Series B Redeemable Preferred Stock shall be entitled to receive a cash dividend equal to the product of (x) .000104166; times (y) the net proceeds payable, whether in cash, stock or other assets, to the stockholders of the Company in respect to such redemption or such payment.

        Upon an underwritten public offering of shares of capital stock of the Company to the public resulting in aggregate net proceeds to the Company of not less than $100 million each share of Series B Redeemable Preferred Stock shall be automatically converted into that number of shares of the class of common equity securities of the Company that are outstanding immediately following such public offering equal to the product of (x) .000104166; times (y) the total number of shares of such

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class of stock outstanding immediately following the consummation of the public offering. The shares of Series B Redeemable Preferred Stock are non-voting and do not bear dividends except as noted above.

Transactions Between Pliant and Stockholders

Common Stock Registration Rights Agreement

        Pursuant to a registration rights agreement entered into on May 31, 2000, as amended, we granted to our institutional common stockholders and warrant holders certain "demand" and "piggyback" registration rights for the registration under the Securities Act of the shares of common stock owned by them. Under the registration rights agreement, upon request of holders holding in excess of 50% of the shares of common stock held by our institutional investors and their transferees and affiliates (the "Requisite Investor Stockholders"), we are required to use our best efforts to register the shares. The Requisite Investor Stockholders are entitled to request two demand registrations. Also, if we are not a public company or sold to a third party prior to May 31, 2005, the Trust and its transferees and affiliates will be entitled to request one demand registration. Further, at any time 60 days after any initial public offering of common stock, holders holding in excess of 60% of the shares of common stock underlying our warrants to purchase common stock issued in connection with our preferred stock, and holders holding in excess of 60% of the shares of common stock underlying the note warrants will each be entitled to exercise one demand registration. At any time after we have qualified for use of Form S-3, all parties to the registration rights agreement will have the right to request that we effect a registration under the Securities Act of their shares of common stock, subject to customary "blackout" and "cutback" provisions. The stockholders and holders of the warrants to purchase common stock issued in connection with our preferred stock, and note warrants party to the registration rights agreement also may request that we use our best efforts to register shares of common stock held by them in other registrations initiated by us on our own behalf or on behalf of any other stockholder. We must pay all reasonable out-of-pocket costs and expenses, other than underwriting discounts and commissions, of any registration under the registration rights agreement. The registration rights agreement also contains customary provisions with respect to registration procedures, underwritten offerings and indemnification and contribution rights in connection with the registration of common stock on behalf of the stockholders, holders of the warrants to purchase common stock issued in connection with our preferred stock, and holders of the note warrants party to the registration rights agreement.

The stockholders' agreement

        A stockholders' agreement entered into on May 31, 2000, as amended, governs the exercise of voting rights by our stockholders, including holders of our warrants to purchase common stock issued in connection with our preferred stock, who exercise their warrants for common stock, with respect to the election of directors and certain other material events. The parties to the stockholders' agreement agreed initially to vote their shares of common stock to elect (i) four directors designated by the Requisite Investor Stockholders, (ii) two directors designated by the Trust and (iii) one director appointed by our board of directors, who must be a member of our senior management. At the request of the Requisite Investor Stockholders, the size of our board of directors may be increased from seven to nine. If so increased, one of the two additional directors will be designated by the Requisite Investor Stockholders and the other will be our chief executive officer.

        The provisions of the stockholders' agreement also govern:

•

restrictions on the transfer of shares of common stock and warrants to purchase common stock issued in connection with our preferred stock;



•

preemptive rights for holders of our common stock and warrants to purchase certain equity securities to be issued by us in the amounts required to maintain their percentage ownership;

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•

stockholder or company rights of first refusal to purchase certain shares of our common stock to be sold by other stockholders;



•

agreement by stockholders and holders of the warrants to consent to the sale of all of, or a controlling interest in, us to a third party, if such sale is approved by our board of directors, and to sell their shares of common stock and warrants if so required;



•

rights of stockholders and holders of the warrants to participate in certain sales of the shares of our common stock by other stockholders; and



•

rights of holders of our common stock and warrants to receive certain financial and other information.

Credit facilities and note offerings

        JPMorgan Chase Bank (formerly known as The Chase Manhattan Bank) is the syndication agent and is a lender under our revolving credit facility. JPMorgan Chase Bank received customary fees under our revolving credit facility for acting in such capacities. J.P. Morgan Securities Inc. served as the arranger for our revolving credit facility and in connection with certain amendments to our previous credit facilities and received customary fees in such capacity. An affiliate of JPMorgan Chase Bank received customary fees for arranging the December 2003 waiver with respect to our then existing credit facilities.

        J.P. Morgan Securities Inc. was one of the initial purchasers in our May 2000 offering of our 13% Senior Subordinated Notes due 2010 and was also the dealer manager for the debt tender offer and consent solicitation relating to our 9¹/8% Senior Subordinated Notes due 2007. J.P. Morgan Securities Inc. received fees of approximately $8.7 million for acting in such capacities. J.P. Morgan Securities Inc. was also one of the initial purchasers in our April 2002 offering of our 13% Senior Subordinated Notes due 2010 and received fees of approximately $1.9 million for acting in such capacity. We used approximately $93.3 million of the net proceeds from the April 2002 offering to repay indebtedness under our then existing credit facilities. J.P. Morgan Securities Inc. was an initial purchaser in our May 2003 offering of 11¹/8% Senior Secured Notes due 2009 and received fees of approximately $4.4 million for acting in such capacity. We used approximately $240 million of the net proceeds from the May 2003 offering to repay indebtedness under our then existing credit facilities. J.P. Morgan Securities Inc. was an initial purchaser in our February 2004 offering of 11¹/8% Senior Secured Discount Notes due 2009 and received fees of approximately $2.5 million for acting in such capacity. We used the proceeds of this February 2004 offering to repay and terminate then existing credit facilities. In addition, JP Morgan Chase Bank is a lending party under our existing credit facility completed in February 2004 and received fees of approximately $0.9 million for acting in such capacity. In addition, we paid fees of approximately $0.6 million in September 2000, approximately $0.5 million in July 2001, approximately $0.6 million in April 2002, approximately $0.6 million in October 2002, approximately $0.5 million in March 2003, approximately $0.3 million in May 2003 and approximately $0.1 million in December 2003, to JPMorgan Chase Bank, in each case in connection with amendments to our then existing credit facilities.

        Each of JPMorgan Chase Bank, J.P. Morgan Chase & Co. and J.P. Morgan Securities Inc. is an affiliate of Southwest Industrial Films, LLC, which owns approximately 55% of our outstanding common stock and currently has the right under the stockholders' agreement to appoint four of our directors, and of Flexible Films, LLC, which, together with affiliates, owns approximately 59% of our outstanding preferred stock, subject to certain preemptive rights with respect to 10,000 shares of preferred stock issued on March 25, 2003. Southwest Industrial Films, LLC and Flexible Films, LLC are subsidiaries of J.P. Morgan Partners (BHCA), L.P. Timothy J. Walsh and Jeffrey Walker, who serve on our board of directors, are partners of J.P. Morgan Partners, LLC and Sean Epps who also serves on our board of directors is a principal of J.P. Morgan Partners, LLC. J.P. Morgan Partners, LLC serves

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as investment advisor to J.P. Morgan Partners (BHCA), L.P. and JPMP Capital Corp. JPMP Capital Corp. is a subsidiary of J.P. Morgan Chase & Co. and is the general partner JPMP Master Fund Manager, L.P., which is the general partner of J.P. Morgan Partners (BHCA), L.P. Messr. Walsh and Walker are executive officers of JPMP Capital Corp. and a limited partner of JPMP Master Fund Manager, L.P.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Fees for professional services provided by our independent auditors in each of the last two fiscal years, in each of the following categories are:

        Fees for audit services include fees associated with the annual audit, the reviews of the Company's quarterly reports on Form 10-Q, statutory audit requirements internationally, comfort letters and responses to SEC comments regarding Form S-1 and Form S-4 filings. Tax fees included tax planning and restructuring matters. Audit related fees included due diligence fees for acquisitions and advisory services related to Sarbanes-Oxley matters.

        All audit and other fees paid to our independent auditor are pre-approved by the Audit Committee.

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ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

INDEX TO EXHIBITS

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59

60

61

62