Mergers and acquisitions

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 13/101

Table of Contents

furnished to the SEC: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and our proxy statement on Schedule 14A related to our annual stockholders’ meeting. All such filings are available in the Investor Relations section of our web- site free of charge. Copies of any of the above-referenced information will also be made available, free of charge, by calling (201) 641-6600 or upon written request to: Corporate Secretary, AEP Industries, Inc., 95 Chestnut Ridge Road, Montvale, NJ 07645. The content on our website is not incorporated by reference into this Form 10-K unless expressly noted. ITEM 1A. RISK FACTORS

You should carefully consider each of the risks and uncertainties described below and elsewhere in this Annual Report on Form 10- K, as well as any amendments or updates reflected in subsequent filings with the SEC. We believe these risks and uncertainties, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results and could materially and adversely affect our business operations, results of operations, financial condition and liquidity.

Industry Risks

Our business is dependent on the price and availability of resin, our principal raw material, and our ability to pass on resin price increases to our customers.

The principal raw materials that we use in our products are polyethylene and polyvinyl chloride resins. Our ability to operate profitably is dependent, in a large part, on the markets for these resins. These resins are derived from petroleum and natural gas, and therefore prices of such resins fluctuate substantially as a result of changes in petroleum and natural gas prices, demand and the capacity of resin suppliers. Instability in the world markets for petroleum and natural gas could adversely affect the prices of our raw materials and their general availability. We have at times experienced significant fluctuations in resin prices and availability, and in the last two fiscal years we have experienced unprecedented resin price increases resulting in an aggregate increase of $0.23 per pound from November 1, 2012 to October 31, 2014. Such resin price increases have materially and adversely impacted our revenue and profitability, given the challenge of passing through such significant pricing changes under existing customer agreements with short-term and long-term pricing protection. Further, many customers have determined to seek new competitive bids as a result of such pricing increases being passed through, which has resulted in significant margin pressure and the loss of some significant customers. In the long term, such price increases may adversely impact our leverage in negotiating new agreements, and our customers may consider product substitution alternatives. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the impact of resin costs on results of operations in fiscal 2014.

Polyethylene resin is expected to incur a major growth phase in the United States, with billions of pounds of new capacity expected over the next several years because of low-priced natural gas feedstock in North America. Availability of skilled labor and a variety of other reasons could delay this new capacity coming on stream.

Our ability to maintain profitability is heavily dependent upon our ability to pass through to our customers the full amount of any increase in raw material costs on a timely basis. Since resin costs fluctuate significantly, selling prices are determined generally as a “spread” over resin costs, usually expressed as cents per pound. The historical increases and decreases in resin costs have generally been reflected over a period of time in the sales prices of the products on a penny-for-penny basis. Assuming a constant volume of sales, an increase in resin costs would, therefore, result in increased sales revenues but lower gross profit as a percentage of sales or gross profit margin, while a decrease in resin costs would result in lower sales revenues with a higher gross profit margin. Further, the gap between the

11

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 14/101

Table of Contents

time at which an order is taken, resin is purchased, production occurs and shipment is made, has an impact on our financial results and our working capital needs. In a period of rising resin prices, this impact is generally negative to operating results and in periods of declining resin prices, the impact is generally positive to operating results. If there is overcapacity of, or significant competition of comparable quality in any specific product that we manufacture and sell, we frequently are not able to pass through the full amount of any cost increase and we may be required to participate in a re-bid process for future business.

Intense competition in the flexible packaging markets may adversely affect our operating results.

The business of supplying flexible plastic packaging products is extremely competitive and the current economic environment has only intensified an already competitive marketplace. The competition in our market is highly price sensitive; we also compete on the basis of quality, service, timely delivery and product differentiation, development and availability. We face intense competition from numerous private and public companies, including from local manufacturers which specialize in the extrusion of a limited group of products, which they market nationally, and a limited number of manufacturers of flexible packaging products which offer a broad range of products and maintain production and marketing facilities domestically and internationally. Certain of our competitors may have more efficient production facilities (including more advanced technologies), well-developed sales and marketing staffs and greater financial resources than we do. We believe that there are few barriers to entry into many of our product markets. As a result, we have experienced, and may continue to experience, competition from new manufacturers. When new manufacturers enter the market for a flexible plastic packaging product or existing manufacturers increase capacity, they frequently reduce prices to achieve increased market share. In addition, we compete with other packaging product manufacturers, many of which can offer consumers non-plastic packaging solutions. Many of these competitors have greater financial resources than we do, and such competition can result in additional pricing pressures, reduced sales and lower margins.

An increase in competition could result in material reductions in margins or loss of our market share, which could materially adversely affect our operations and financial condition. In recent years, focusing on maintaining margins has negatively impacted sales volume; while focusing on maintaining market share has negatively affected margins. In addition, since we do not have long-term arrangements with many of our customers, these competitive factors could cause our customers to shift suppliers and/or products quickly. Further, rising costs in freight, utility, packaging and health costs have negatively impacted our results in recent years and we were unable to implement a non-resin price increase in the third quarter of fiscal 2014 to counter such costs due to resistance from our customers, which we attribute to intense competition in the industry. Certain consolidation of our customers has also resulted in customers having greater purchasing power. There can be no assurance that we will be able to compete successfully in the markets for our products or that competition will not intensify.

We are subject to various environmental and health and safety laws and regulations which govern our operations and which may result in potential liability. In addition, consumer preferences and ongoing health and safety studies on plastics and resins may adversely affect our business.

Our operations are subject to various federal, state, local and foreign environmental laws and regulations which govern:

• discharges into the air and water;

• the storage, handling and disposal of solid and hazardous substances and waste;

• the remediation of soil and ground water contaminated by petroleum products or hazardous substances or waste; and

• the health and safety of our employees.

12

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 15/101

Table of Contents

Compliance with these laws and regulations may require material expenditures by us. Actions by federal, state, local and foreign governments concerning environmental and health and safety matters could result in laws or regulations that could increase the cost of manufacturing our products. In addition, the nature of our current and former operations and the history of industrial uses at some of our manufacturing facilities expose us to the risk of liabilities or claims with respect to environmental and worker health and safety matters. We may also be exposed to claims for violations of environmental laws and regulations by previous owners or operators of our property. Such liability may be imposed without regard to fault, and under certain circumstances, can be joint and several, resulting in one party being held responsible for the entire obligation. In addition, the presence of, or failure to remediate, hazardous substances or waste may adversely affect our ability to sell or rent any property or to use it as collateral for a loan. We also may be liable for costs relating to the investigation, remediation or removal of hazardous waste and substances from a disposal or treatment facility to which we or our predecessors sent waste or materials. We have limited insurance coverage for potential environmental liabilities associated with historic and current operations and we do not anticipate increasing such coverage in the future. We may also assume, or be deemed to assume, significant environmental liabilities in acquisitions.

While we have not been required historically to make significant capital expenditures in order to comply with applicable environmental laws and regulations, we cannot predict with any certainty our future capital expenditure requirements because of continually changing compliance standards and environmental technology. Furthermore, violations or contaminated sites that we do not know about, including contamination caused by prior owners and operators of such sites, or at sites formerly owned or operated by us or our predecessors in connection with discontinued operations, could result in additional compliance or remediation costs or other liabilities, which could be material.

Additionally, a decline in consumer preference for plastic products due to environmental considerations could have a material adverse effect on our business, financial condition and results of operations. In addition, a number of governmental authorities, both in the United States and abroad, have considered, or are expected to consider, legislation aimed at reducing the amount of plastic wastes disposed. Programs have included, for example, mandating certain rates of recycling and/or the use of recycled materials, imposing deposits or taxes on flexible plastic packaging material and requiring retailers or manufacturers to take back packaging used for their products. Legislation, as well as voluntary initiatives similarly aimed at reducing the level of plastic wastes, could reduce the demand for certain flexible plastic packaging, result in greater costs for flexible plastic packaging manufacturers or otherwise impact our business. Some consumer products companies, including some of our customers, have responded to these governmental initiatives and to perceived environmental concerns of consumers by using containers made in whole or in part of recycled plastic, which we do not manufacture. Future legislation and initiatives could adversely affect us in a manner that would be material.

Also, continuing studies of potential health and safety effects of various resins and plastics, including polyvinyl chlorides and other materials that we use in our products, are being conducted by industry groups, government agencies and others. The results of these studies, along with the development of any other new information, may adversely affect our ability to market and sell certain of our products or may give rise to claims for damages from persons who believe they have been injured by such products, any of which could adversely affect our operations and financial condition.

The Food and Drug Administration (“FDA”) regulates the material content of direct-contact food and drug packages we manufacture pursuant to the Federal Food, Drug and Cosmetic Act. Furthermore, some of our products are regulated by the Consumer Product Safety Commission (“CPSC”) pursuant to various federal laws, including the Consumer Product Safety Act and the Poison Prevention Packaging Act. Both the FDA and the CPSC can require the manufacturer of defective products to repurchase or

13

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 16/101

Table of Contents

recall these products and may also impose fines or penalties on the manufacturer. Similar laws exist in some states, cities and other countries in which we sell products. In addition, laws exist in certain states restricting the sale of packaging with certain levels of heavy metals and imposing fines and penalties for noncompliance. Although we use FDA-approved resins and pigments in our products that directly contact food and drug products and we believe our products are in material compliance with all applicable requirements, we remain subject to the risk that our products could be found not to be in compliance with these and other requirements. A recall of any of our products or any fines and penalties imposed in connection with non-compliance could have a materially adverse effect on us.

Company Risks

Disruptions in the global economic and financial market environment may have a negative effect on our business and operations.

Disruptions in the global economy and volatility in the financial markets could cause, among other things, lower levels of liquidity, increased borrowing rates, increased rates of default and bankruptcy, lower consumer and business spending, and lower consumer net worth, all of which may have a negative effect on our business, results of operations, financial condition and liquidity. Customers, distributors and suppliers may be negatively affected by the ongoing impacts of the economic and financial market difficulties. Current or potential customers and suppliers may no longer be in business, may be unable to fund purchases or may determine to reduce purchases, all of which could lead to reduced demand for our products, reduced gross margins and increased customer payment delays or defaults. Further, suppliers may not be able to supply us with needed raw materials on a timely basis, may increase prices or may go out of business, which could result in our inability to meet consumer demand or affect our gross margins. We are also limited in our ability to reduce costs to offset the results of a prolonged or severe economic downturn given certain fixed costs associated with our operations, difficulties if we overstrained our resources, and our long-term business approach that necessitates we remain in position to respond when market conditions improve. Future weakness in the global economy could adversely affect our operations, financial condition and cash flows in future periods.

See “—Financial Risks” below for a discussion of additional risks to our liquidity resulting from the current economic and financial market environment.

The loss of a key supplier could lead to increased costs, lower profit margins and short-term production issues

The majority of the resins purchased by us are purchased under supply contracts which are typically renewed annually. In fiscal 2014, we purchased approximately 28%, 22% and 17% of our resin requirements from our three largest suppliers. Each of these suppliers produces resins in multiple locations, and should any one, or a combination of these locations fail to meet our needs, we believe sufficient capacity exists among our remaining contract holders, the open market and the secondary markets to supply any shortfall that may result. Nevertheless, it is not always possible to replace a specialty resin without a disruption in our operations and replacement of significant supply is often at higher prices, and such impact may materially and adversely harm our competitive position.

We negotiate and award our supply contracts annually. The resin contracts generally serve to establish the basic terms and conditions between the parties, including rebates based on the volume of resin purchases, but do not bind us in a materially significant way. Should any of our existing relationships fail to bid or survive the bid process, the position previously enjoyed by that contract holder typically migrates to another supplier. While this process has served us well in the past, there is no guarantee that the future replacement of any supplier will always result in a more effective and efficient relationship in the future.

14

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 17/101

Table of Contents

We have limited contractual relationships with our customers and, as a result, our customers may unilaterally reduce the purchase of our products. The loss of several customers could, in the aggregate, materially adversely affect our operations and financial condition.

A substantial portion of our business is in the merchant market, in which we do not have long-term contractual relationships with our customers. As a result, our customers may unilaterally reduce the purchase of our products or, in certain cases, terminate existing orders for which we may have incurred significant production costs. The loss of several customers could, in the aggregate, materially adversely affect our operations and financial condition.

Many of our larger packaging customers are multinational companies that purchase large quantities of packaging materials, some of whom have recently consolidated. Many of these companies are purchasers with centralized procurement departments. They generally enter into supply arrangements through a tender process of soliciting bids from several potential suppliers and selecting the winning bid based on several attributes, including price and service. The significant negotiating leverage possessed by many of our customers and potential customers limits our ability to negotiate supply arrangements with favorable terms and creates pricing pressure, reducing margins industry wide. As noted, recent rising resin prices have resulted in many multinational companies re-soliciting bids from several potential suppliers of packaging materials. In addition, our customers may vary their order levels significantly from period to period, and customers may not continue to place orders with us in the future at the same levels as in prior periods. In the event we lose any of our larger customers, we may not be able to quickly replace that revenue source, which could harm our financial results.

Loss of third-party transportation providers upon whom we depend or increases in fuel prices could increase our costs or cause a disruption in our operations.

We depend generally upon third-party transportation providers for delivery of our products to our customers. Strikes, slowdowns, transportation disruptions or other conditions in the transportation industry, including, but not limited to, shortages of truck drivers, disruptions in rail service, decreases in the availability of vessels or increases in fuel prices, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis.

We may, from time to time, experience problems in our labor relations.

Unions represent 480 employees, or 19% of our workforce, at October 31, 2014, under three collective bargaining agreements which expire in January 2015 (representing 6% of our workforce negotiations are currently underway), March 2017 and December 2018, respectively. Although we believe that our present labor relations with our employees are satisfactory, our failure to renew these agreements on reasonable terms could result in labor disruptions and increased labor costs, which could adversely affect our financial performance.

We cannot assure you that our relations with the unionized portion of our workforce will remain positive or that such employees will not initiate a strike, work stoppage or slowdown in the future. In the event of such an action, our business, prospects, results of operations and financial condition could be adversely affected and we cannot assure you that we would be able to adequately meet the needs of our customers using our remaining workforce. In addition, we cannot assure you that we will not have similar actions with our non-unionized workforce or that our non-unionized workforce will not become unionized in the future.

Acquisitions inherently involve significant risks and uncertainties.

We continually review acquisition opportunities that will enhance our market position, expand our product lines and provide sufficient synergies. Any of the following risks associated with our past

15

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 18/101

Table of Contents

acquisitions or future acquisitions, individually or in aggregate may have a material adverse effect on our business, financial condition, operating results or stock price:

• difficulties in realizing anticipated financial or strategic benefits of such acquisition;

• diversion of capital from other uses and potential dilution of stockholder ownership;

• the risks related to increased indebtedness;

• significant capital expenditures may be required to integrate the acquired business into our operations;

• disruption of our ongoing business or the ongoing acquired business, including impairment of existing relationships with our

employees, distributors, suppliers or customers or those of the acquired companies;

• diversion of management’s attention and other resources from current operations, including potential strain on financial and

managerial controls and reporting systems and procedures;

• difficulty in integrating acquired operations, including restructuring and realigning activities, personnel, technologies and

products, including the loss of key employees, distributors, suppliers or customers of acquired businesses;

• inability to realize cost savings, sales increases or other benefits that we anticipate from such acquisitions, either as to amount

or in the expected time frame;

• the risks of managing new product lines or new business segments within the flexible plastic packaging films industry;

• assumption of known and unknown liabilities, some of which may be difficult or impossible to quantify; and

• non-cash impairment charges or other accounting charges relating to the acquired assets.

We are dependent on the management experience of our key personnel and our ability to attract and retain additional personnel.

Our future success depends to a large extent on the experience, business relationships and continued service of our key managerial employees, including J. Brendan Barba, our Chairman, President and Chief Executive Officer, and Paul M. Feeney, our Executive Vice President, Finance and Chief Financial Officer, both of whom are also directors. Although the Company significantly benefits from the 70 years of combined service of Messrs. Barba and Feeney, any failure to ensure effective transfer of institutional knowledge and to implement a well-run succession plan could hinder our strategic planning and growth upon their termination of employment. We do not maintain key-person insurance for any of our officers. We may not be able to retain our executive officers and key personnel or attract additional qualified key employees in the future. Competition for qualified employees is intense, and the loss of such persons, or an inability to attract, retain and motivate additional highly skilled employees, could have a material adverse effect on our results of operations and financial condition and prospects. There can be no assurance that we will be able to retain our existing personnel or attract and retain additional qualified employees.

Our executive officers beneficially own a substantial amount of our common stock and have significant influence over our business.

At October 31, 2014, our executive officers beneficially owned 1,096,849 shares of our common stock, representing 22% of our outstanding shares as of such date. Their ownership and voting control, together with their duties as executive officers and directors, gives them significant influence on the

16

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 19/101

Table of Contents

outcome of corporate transactions or other matters submitted to the Board of Directors or stockholders for approval, including acquisitions, mergers, consolidations, the sale of all or substantially all of our assets and director elections.

Our business is subject to risks associated with manufacturing our own products.

We internally manufacture our own products at our production facilities. While we maintain insurance covering our manufacturing and production facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of our facilities due to accident, fire, explosion, labor or other employee issues, weather conditions, other natural disaster or otherwise, whether short or long- term, could have a material adverse effect on us.

Unexpected failures of our equipment and machinery may result in production delays, loss of customers and revenues, significant repair costs, injuries to our employees, and customer claims. Any interruption in production capability may require us to make large capital expenditures to remedy the situation, which could have a negative impact on our profitability and cash flows. Our business interruption insurance may not be sufficient to offset the lost revenues or increased costs that we may experience during a disruption of our operations.

Security breaches and other disruptions to our information technology networks and systems could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and reduce the benefits of our investment in cloud computing and other advanced technologies.

We depend on information technology to record and process Company and customer transactions, inventory control, purchasing and supply chain management, payroll and human resources, and financial reporting, including significant proprietary and sensitive data of the Company and our business partners and personally identifiable information of our employees. The Company’s information technology systems may be susceptible to damage, disruptions or shutdowns due to failures during the process of upgrading or replacing software, databases or components thereof, power outages, acts of sabotage, hardware failures, computer viruses, telecommunication failures, user errors or catastrophic events. Failure to effectively prevent, detect and recover from system failures, viruses, security breaches or other cyber incidents could significantly disrupt our operations, result in lost or misappropriated information, and adversely affect our internal control over financial reporting and our ability to timely and accurately report financial results.

Increasingly, we are relying on third parties to provide software, support and management with respect to a variety of business processes and activities as part of our information technology network, and we are utilizing cloud computing through certain of our third- party vendors. The security and privacy measures we and our vendors implement are critical to our business, our key relationships, and compliance with applicable law. Despite security measures and business continuity plans, our information technology networks may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers, natural disasters or catastrophic events, or breaches due to errors or malfeasance by employees, contractors and others who have access to our networks and systems. The occurrence of any of these events could compromise our networks and the information stored therein could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability or regulatory penalties under laws protecting the privacy of personal information, disrupt operations, and reduce the benefits of our investment in cloud computing and other advanced technologies. Our insurance coverage may not be adequate to cover all of the costs and liabilities related to significant security and privacy violations.

17

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 20/101

Table of Contents

We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others.

In addition to relying on patent and trademark rights, we rely on unpatented proprietary know-how and trade secrets, and employ various methods, including confidentiality agreements with employees and consultants, customers and suppliers to protect our know-how and trade secrets. However, these methods and our patents and trademarks may not afford complete protection and there can be no assurance that others will not independently develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights. Additionally, we have licensed, and may license in the future, patents, trademarks, trade secrets, and similar proprietary rights to third parties. While we attempt to ensure that our intellectual property and similar proprietary rights are protected when entering into business relationships, third parties may take actions that could materially and adversely affect our rights or the value of our intellectual property, similar proprietary rights or reputation. In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights, and, if not successful, we may not be able to protect the value of our intellectual property. Any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome.

Our success depends in part on our ability to obtain, or license from third parties, patents, trademarks, trade secrets and similar proprietary rights without infringing on the proprietary rights of third parties. Although we believe our intellectual property rights are sufficient to allow us to conduct our business without incurring liability to third parties, our products may infringe on the intellectual property rights of such persons. Furthermore, no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products. Any such litigation could be protracted and costly and could have a material adverse effect on our business, financial condition and results of operations.

We face risks related to sales through distributors and other third parties.

In fiscal 2014, 2013 and 2012, approximately 61%, 61%, and 66%, respectively, of our worldwide sales were directly to distributors. Using third parties for distribution exposes us to many risks, including competitive pressure, concentration, credit risk and compliance risks. Distributors may sell products that compete with our products, and we may need to provide financial incentives to focus distributors on the sale of our products. We may rely on one or more key distributors for product sales, and the loss of these distributors could reduce our revenues. Distributors may face financial difficulties, including bankruptcy, which could harm our collection of accounts receivable and financial results. Violations of the Foreign Corrupt Practices Act of 1977 or similar laws by distributors or other third-party intermediaries could have a material impact on our business. Failing to manage risks related to our use of distributors may reduce sales, increase expenses, and weaken our competitive position.

18

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 21/101

Table of Contents

Financial Risks

Our substantial debt could adversely affect our financial health and prevent us from fulfilling our obligations under our indebtedness.

As of October 31, 2014, we had $256.3 million of total debt outstanding (including capital lease obligations of $11.8 million).

Our substantial debt could have important consequences to you. For example, it could:

• make it more difficult for us to satisfy our obligations with respect to our debt;

• increase our vulnerability to general adverse economic and industry conditions;

• require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby limiting our

ability to fund working capital, capital expenditures and other general corporate purposes;

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;

• place us at a competitive disadvantage compared to our competitors that may have less debt; and

• limit, among other things, our ability to borrow additional funds.

We and our subsidiaries may be able to incur substantial additional debt in the future. As of October 31, 2014, we would have been permitted to borrow up to an additional $107.4 million under the credit facility (after taking into account $2.1 million of outstanding letters of credit) and $4.4 million under our credit line available to our Canadian subsidiary, in each case based on the respective available borrowing base. As of October 31, 2014, we had $40.5 million in borrowings under our credit facilities. In addition, the terms of the indenture that governs the senior notes do not prohibit us or our subsidiaries from issuing and incurring additional debt upon satisfaction of certain conditions. If new debt is added to our current debt levels, the related risks described above that we and our subsidiaries face could intensify.

To service our debt or redeem such debt upon a change of control, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to service our debt and to fund our operations and planned capital expenditures will depend on our financial and operating performance. This, in part, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If our cash flow from operations is insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets, obtain additional equity capital or indebtedness, or refinance or restructure our debt. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial cash flow problems and might be required to sell material assets or operations to meet our debt service and other obligations. We cannot assure you as to the timing of such sales or the proceeds that we could realize from such sales or if additional debt or equity financing would be available on acceptable terms, if at all.

A provision of the senior notes requires us, upon a change of control, to offer to purchase the outstanding senior notes. If a change of control were to occur and we could not obtain a waiver or if we do not have the funds to make the purchase, we would be in default under the senior notes, which could, in turn, cause any of our debt to which a cross-acceleration or cross-default provision applies to become immediately due and payable. If our debt were to be accelerated, we cannot assure you that we would be able to repay it.

19

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 22/101

Table of Contents

We are subject to a number of restrictive debt covenants which may restrict our business and financing activities.

Our credit facility and the indenture that governs the senior notes contain restrictive debt covenants that, among other things, restrict our ability to:

• borrow money;

• pay dividends and make distributions;

• issue stock of subsidiaries;

• make certain investments;

• repurchase stock;

• use assets as security in other transactions;

• create liens;

• enter into affiliate transactions;

• merge or consolidate; and

• transfer and sell assets.

Our agreement relating to the credit line available to our Canadian subsidiary also contains certain of these restrictive debt covenants. These covenants could adversely limit the Company’s ability to plan for or react to market conditions, meet its capital needs and execute its business strategy.

In addition, our credit facility also requires us to meet certain financial tests, and our agreement relating to the credit line available to our Canadian subsidiary requires it to meet certain financial tests. These restrictive covenants may limit our ability to expand or to pursue our business strategies. Furthermore, any indebtedness that we incur in the future may contain similar or more restrictive covenants.

Our ability to comply with the restrictions contained in our credit facility, the senior notes indenture and the credit line available to our Canadian subsidiary may be affected by changes in our business condition or results of operations, adverse regulatory developments or other events beyond our control. A failure to comply with these restrictions could result in a default under our credit facility, the senior notes indenture and the credit line available to our Canadian subsidiary, or any other subsequent financing agreement, which could, in turn, cause any of our debt to which a cross-acceleration or cross-default provision applies to become immediately due and payable. If our debt were to be accelerated, we cannot assure you that we would be able to repay it. In addition, a default could give our lenders the right to terminate any commitments that they had made to provide us with additional funds. Further, the credit facility is secured by liens on most of our domestic assets (other than real property and equipment) and on 66% of our ownership interest in certain foreign subsidiaries and, in the event of a default thereunder, the lenders generally would be entitled to seize the collateral.

Risks Related to an Investment in Our Common Stock

Our common stock price has been and may continue to be volatile.

The market price of our common stock has fluctuated regularly in the past. The market price of our common stock will continue to be subject to significant fluctuations in response to a variety of factors, including:

• fluctuations in operating results, including as a result of changes in resin prices, LIFO reserve, and the other variables;

20

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 23/101

Table of Contents

• our liquidity needs and constraints;

• the business environment, including the operating results and stock prices of companies in the industries we serve;

• changes in general conditions in the U.S. and global economies or financial markets, including those resulting from war,

incidents of terrorism and natural disasters or responses to such events;

• announcements concerning our business or that of our competitors or customers;

• acquisitions and divestitures;

• the introduction of new products or changes in product pricing policies by us or our competitors;

• change in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other

companies in our industry or failure of analysts to cover our common stock;

• changes in accounting standards, policies, guidance, interpretations or principles;

• sales of common stock by our employees, directors and executive officers;

• prevailing interest rates; and

• perceived dilution from stock issuances.

Some companies that have had volatile market prices for their securities have been subject to securities class action suits filed against them. If a suit were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of our management’s attention and resources. This could have a material adverse effect on our business, results of operation and financial condition.

Although our common stock has had increased trading volume for periods of time in the last few years, our common stock generally has had a low trading volume historically, which could cause further volatility in our stock.

Shares of common stock eligible for future sale, and additional equity offerings by us, may adversely affect our common stock price.

The market price of our common stock could decline as a result of sales of substantial amounts of additional shares of our common stock in the public market or in connection with future acquisitions, or the perception that such sales could occur. This could also impair our ability to raise additional capital through the sale of equity securities at a time and price favorable to us. As of October 31, 2014, under our certificate of incorporation, as amended, we are authorized to issue 30 million shares of common stock, of which 5.1 million shares of common stock were outstanding, 0.1 million shares of common stock were issuable upon the exercise of currently outstanding stock options and 0.1 million shares of common stock were issuable upon the settlement of performance units if the performance unit holders elect settlement in stock.

We may also decide to raise additional funds through public or private equity financing to fund our operations or for other business purposes. New issuances of equity securities would reduce your percentage ownership in us and the new equity securities could have rights and preferences with priority over those of our common stock.

21

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 24/101

Table of Contents

Delaware law and our charter documents may impede or discourage a takeover, which could cause the market price of our shares to decline.

We are a Delaware corporation and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. For example, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder.

In addition, our restated certificate of incorporation and seventh amended and restated by-laws contain provisions that may discourage, delay or prevent a third party from acquiring us, even if doing so would be beneficial to our stockholders. These provisions include:

• requiring supermajority approval of stockholders for certain business combinations or an amendment to, or repeal of, the by-

laws;

• prohibiting stockholders from acting by written consent without Board approval;

• prohibiting stockholders from calling special meetings of stockholders;

• establishing a classified Board of Directors, which allows approximately one-third of our directors to be elected each year;

• limitations on the removal of directors;

• advance notice requirements for nominating candidates for election to our Board of Directors or for proposing matters that can

be acted upon by stockholders at stockholder meetings;

• permitting the Board of Directors to amend or repeal the by-laws; and

• permitting the Board of Directors to designate one or more series of preferred stock.

Further, on March 28, 2014, our Board adopted an amended and restated stockholder rights plan, which amended and restated in its entirety the prior three-year stockholder rights plan that was to expire on March 31, 2014. The amended and restated stockholder rights plan is designed to assure that all of our stockholders receive fair and equal treatment in the event of any proposed takeover of the Company and to guard against partial tender offers, open market accumulations and other abusive or coercive tactics without paying stockholders a control premium. The amended and restated stockholder rights plan may have anti-takeover effects by discouraging potential proxy contests and other takeover methods, particularly those that have not been negotiated with the Board, and the amended and restated stockholder rights plan may also inhibit the acquisition of a controlling position in our common stock. Therefore, transactions may not occur that stockholders would otherwise support and/or from which they would receive a substantial premium for their shares over the current market price. The amended and restated stockholder rights plan may also make it more difficult to remove members of the current Board or management.

Our issuance of preferred stock could adversely affect holders of our common stock.

We are currently authorized to issue 1,000,000 shares of preferred stock in accordance with our restated certificate of incorporation, 30,000 of which is designated as Series A Preferred Stock in connection with the amended and restated stockholder rights plan and none of which is issued and outstanding. Our Board of Directors has the power, without stockholder approval, to set the terms of any such series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue preferred stock in the future that has preference over our common

22

10/17/21, 10:35 AM 10-K

https://www.sec.gov/Archives/edgar/data/785787/000119312515010419/d793230d10k.htm#tx793230_4 25/101

Table of Contents

stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected. ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable. ITEM 2. PROPERTIES

Our corporate headquarters is located in Montvale, New Jersey in a 48,000 square foot building.

The following table describes the manufacturing and warehousing facilities that we owned or leased and utilized for operations as of October 31, 2014. All of these facilities are located in the United States and Canada. The Wright Township, Pennsylvania facility is pledged under the Pennsylvania industrial loan. The following chart sets forth the square footage of such manufacturing facilities, including warehousing space.

Location

Approximate Square

Footage Types of Film

Produced Alsip, Illinois 182,000 Custom Bowling Green, Kentucky .

171,000

Printed and converted, custom, PROformance

Chino, California 275,000 Custom and stretch Griffin, Georgia

322,000

Food contact, other products and specialty films

Mankato, Minnesota 104,000 Custom, PROformance Mankato, Minnesota 65,000 Other products and specialty films Matthews, North Carolina 394,000 Custom and stretch Montgomery, Alabama 125,000 Food contact Montgomery, Alabama 130,000 Canliners, Food contact Nicholasville, Kentucky 125,000 Stretch Tulsa, Oklahoma 126,000 Stretch Waxahachie, Texas 403,000 Custom, Canliners West Hill, Ontario, Canada 138,000 Food contact Wright Township, Pennsylvania 433,000 Custom, PROformance and stretch

Total 2,993,000

As of October 31, 2014, we also had a manufacturing facility located in Cartersville, Georgia that was part of the Atlantis acquisition in 2008. Production in Cartersville ceased on October 31, 2009, although we remain party to the facility lease ending July 31, 2015. Beginning in January 2011, we entered into a sublease for the Cartersville property aggregating $0.3 million in sublease income for the period January 2013 to July 2015.

We believe that all of our properties are well maintained and in good condition, and that the current operating facilities are adequate for present and immediate future business needs.

As of October 31, 2014, our manufacturing facilities (excluding Cartersville) had a combined average annual production capacity exceeding one billion pounds.

23