
<PAGE>
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-Q
 
                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                      FOR THE QUARTER ENDED MARCH 31, 1999
 
                              --------------------
 
                      APPLIED EXTRUSION TECHNOLOGIES, INC.
             (Exact Name of Registrant as Specified in Its Charter)
 
<TABLE>
<S>                           <C>                           <C>
          DELAWARE                      0-19188                        51-0295865
  (State of Incorporation)       (Commission File No.)      (I.R.S. Employer Identification
                                                                          No.)
</TABLE>
 
                               3 CENTENNIAL DRIVE
                          PEABODY, MASSACHUSETTS 01960
                    (Address of Principal Executive Offices)
 
                                 (978) 538-1500
              (Registrant's Telephone Number, Including Area Code)
 
    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 /X/ NO / /.
 
    The number of shares of the Registrant's Common Stock, $.01 par value per
share, outstanding as of May 6, 1999 was 11,314,989.
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
                         PART I--FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                         MARCH 31,   SEPTEMBER 30,
                                                                                            1999         1998
                                                                                         ----------  -------------
<S>                                                                                      <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents............................................................  $    6,572   $     2,279
  Accounts receivable, net of allowance for doubtful accounts of $1,271 at March 31,
    1999 and $1,056 at September 30, 1998..............................................      41,704        38,467
  Inventory............................................................................      36,180        39,192
  Prepaid expenses and deferred taxes..................................................       5,707         5,063
                                                                                         ----------  -------------
      Total current assets.............................................................      90,163        85,001
Property, plant and equipment, net.....................................................     278,196       278,905
Intangibles and deferred finance charges, net..........................................       3,202         3,636
Long-term note receivable and other assets.............................................       4,232         3,184
                                                                                         ----------  -------------
                                                                                         $  375,793   $   370,726
                                                                                         ----------  -------------
                                                                                         ----------  -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
 
LIABILITIES:
Current liabilities:
  Accounts payable.....................................................................  $   17,809   $    15,259
  Accrued interest.....................................................................       9,457         9,145
  Accrued expenses and other current liabilities.......................................      25,447        27,126
                                                                                         ----------  -------------
      Total current liabilities........................................................      52,713        51,530
Long-term debt.........................................................................     199,000       185,500
Deferred taxes and other credits.......................................................      27,127        33,259
Commitments and contingencies
 
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; authorized, 1,000 shares, of which 150 are designated
  Junior Preferred Stock; no stock outstanding
Common stock, $.01 par value:
  Authorized, 30,000 shares; issued, 11,498 and 11,357 shares
    at March 31, 1999 and September 30, 1998, respectively.............................         115           114
Additional paid-in capital.............................................................      96,940        95,867
Retained earnings......................................................................       4,340         9,938
Cumulative translation adjustments.....................................................      (2,448)       (2,396)
                                                                                         ----------  -------------
                                                                                             98,947       103,523
Treasury stock, at cost, and other, 244 and 327 shares at March 31, 1999 and September
  30, 1998, respectively...............................................................      (1,994)       (3,086)
                                                                                         ----------  -------------
      Total stockholders' equity.......................................................      96,953       100,437
                                                                                         ----------  -------------
                                                                                         $  375,793   $   370,726
                                                                                         ----------  -------------
                                                                                         ----------  -------------
</TABLE>
 
See notes to condensed consolidated financial statements.
 
                                       1
<PAGE>
                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   THREE MONTHS ENDED MARCH 31, 1999 AND 1998
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                                1999       1998
                                                                                              ---------  ---------
<S>                                                                                           <C>        <C>
SALES.......................................................................................  $  58,979  $  62,439
COST OF SALES...............................................................................     47,327     51,025
                                                                                              ---------  ---------
GROSS PROFIT................................................................................     11,652     11,414
 
OPERATING EXPENSES:
  Selling, general and administrative.......................................................      6,383      6,054
  Research and development..................................................................      1,839      1,801
  Start-up costs............................................................................         --      1,402
                                                                                              ---------  ---------
    Total operating expenses................................................................      8,222      9,257
                                                                                              ---------  ---------
OPERATING PROFIT............................................................................      3,430      2,157
 
NON-OPERATING EXPENSES:
  Interest expense, net.....................................................................      4,869      3,161
                                                                                              ---------  ---------
    Total non-operating expenses............................................................      4,869      3,161
                                                                                              ---------  ---------
Loss before income taxes....................................................................     (1,439)    (1,004)
                                                                                              ---------  ---------
Income tax benefit..........................................................................       (576)      (402)
                                                                                              ---------  ---------
NET LOSS....................................................................................  $    (863) $    (602)
                                                                                              ---------  ---------
                                                                                              ---------  ---------
BASIC AND DILUTED LOSS PER COMMON SHARE:....................................................  $    (.08) $    (.05)
                                                                                              ---------  ---------
                                                                                              ---------  ---------
AVERAGE COMMON AND POTENTIAL COMMON SHARES OUTSTANDING:
  Basic and Diluted.........................................................................     11,309     11,119
</TABLE>
 
See notes to condensed consolidated financial statements.
 
                                       2
<PAGE>
                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                    SIX MONTHS ENDED MARCH 31, 1999 AND 1998
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                               1999        1998
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
SALES.....................................................................................  $  114,424  $  118,855
COST OF SALES.............................................................................      94,831      95,594
                                                                                            ----------  ----------
GROSS PROFIT..............................................................................      19,593      23,261
 
OPERATING EXPENSES:
  Selling, general and administrative.....................................................      12,262      11,870
  Research and development................................................................       3,478       3,499
  Start-up costs..........................................................................          --       1,539
                                                                                            ----------  ----------
    Total operating expenses..............................................................      15,740      16,908
                                                                                            ----------  ----------
OPERATING PROFIT..........................................................................       3,853       6,353
 
NON-OPERATING EXPENSES:
  Interest expense, net...................................................................       9,721       7,193
  Acquisition costs.......................................................................       3,462          --
                                                                                            ----------  ----------
    Total non-operating expenses..........................................................      13,183       7,193
                                                                                            ----------  ----------
Loss before income taxes and change in accounting.........................................      (9,330)       (840)
Income tax benefit........................................................................      (3,732)       (336)
                                                                                            ----------  ----------
Loss before change in accounting..........................................................      (5,598)       (504)
Change in accounting, net of related tax benefits of $568.................................          --        (852)
                                                                                            ----------  ----------
NET LOSS..................................................................................  $   (5,598) $   (1,356)
                                                                                            ----------  ----------
                                                                                            ----------  ----------
BASIC AND DILUTED LOSS PER COMMON SHARE:..................................................  $     (.50) $     (.12)
                                                                                            ----------  ----------
                                                                                            ----------  ----------
AVERAGE COMMON AND POTENTIAL COMMON SHARES OUTSTANDING:
  Basic and Diluted.......................................................................      11,209      10,900
</TABLE>
 
See notes to condensed consolidated financial statements.
 
                                       3
<PAGE>
                      APPLIED EXTRUSION TECHNOLOGIES, INC.
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                    SIX MONTHS ENDED MARCH 31, 1999 AND 1998
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                               1999        1998
                                                                                            ----------  ----------
<S>                                                                                         <C>         <C>
OPERATING ACTIVITIES:
  Net loss................................................................................  $   (5,598) $   (1,356)
  Adjustment to reconcile net loss to net cash used in operating activities:
    Provision for doubtful accounts.......................................................         180         209
    Depreciation and amortization.........................................................      10,133       9,101
    Deferred taxes and other credits......................................................      (6,056)    (12,969)
    Changes in assets and liabilities which provided (used) cash:
      Prepaid expenses and other current assets...........................................      (1,775)      1,410
      Accounts payable and accrued expenses...............................................       1,388       6,033
      Accounts receivable and inventory...................................................        (405)     (6,013)
                                                                                            ----------  ----------
        Net cash used in operating activities.............................................      (2,133)     (3,585)
 
INVESTING ACTIVITIES:
  Additions to property, plant and equipment..............................................      (8,907)    (26,781)
  Proceeds from sale/leaseback transaction................................................          --      44,625
                                                                                            ----------  ----------
        Net cash provided by (used in) investing activities...............................      (8,907)     17,844
 
FINANCING ACTIVITIES:
  Borrowings (repayments) under line of credit agreement, net.............................      13,500     (13,625)
  Proceeds from issuance of stock, net....................................................       1,885       2,735
                                                                                            ----------  ----------
        Net cash provided by (used in) financing activities...............................      15,385     (10,890)
  Effect of exchange rate changes on cash.................................................         (52)       (690)
                                                                                            ----------  ----------
  Increase in cash and cash equivalents, net..............................................       4,293       2,679
  Cash and cash equivalents, beginning....................................................       2,279       3,054
                                                                                            ----------  ----------
  Cash and cash equivalents, ending.......................................................  $    6,572  $    5,733
                                                                                            ----------  ----------
                                                                                            ----------  ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest, including capitalized interest of $1,371 and $4,020, respectively...........  $   10,387  $   11,288
    Income taxes                                                                            $       --  $    3,000
</TABLE>
 
See notes to condensed consolidated financial statements.
 
                                       4
<PAGE>
                      APPLIED EXTRUSION TECHNOLOGIES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                    SIX MONTHS ENDED MARCH 31, 1999 AND 1998
                                 (IN THOUSANDS)
 
1. BASIS OF PRESENTATION
 
    The information set forth in these statements is unaudited and may be
subject to normal year-end adjustments. The information reflects all adjustments
that, in the opinion of management, are necessary to present a fair statement of
the results of operations of Applied Extrusion Technologies, Inc. (the "Company"
or "AET") for the periods indicated. Results of operations for the interim
period ended March 31, 1999 are not necessarily indicative of the results of
operations for the full fiscal year.
 
    Certain information in footnote disclosures normally included in financial
statements has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. These statements should
be read in conjunction with the Company's Annual Report for the year ended
September 30, 1998, filed on Form 10-K with the Securities and Exchange
Commission.
 
2. INVENTORY
 
    Inventory is valued at the lower of cost or market, with cost determined
using an average-cost method. Inventories consisted of the following on March
31, 1999 and September 30, 1998:
 
<TABLE>
<CAPTION>
                                                           MARCH     SEPTEMBER
                                                           1999        1998
                                                         ---------  -----------
<S>                                                      <C>        <C>
Raw materials..........................................  $   7,932   $   8,410
Finished goods.........................................     28,248      30,782
                                                         ---------  -----------
Total..................................................  $  36,180   $  39,192
                                                         ---------  -----------
                                                         ---------  -----------
</TABLE>
 
3. CHANGE IN ACCOUNTING
 
    During the third quarter of 1998, the Company elected early adoption of the
American Institute of Certified Public Accountants' Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities" ("SOP 98-5"). Effective with the
adoption of SOP 98-5, the Company changed its method of accounting for start-up
costs on major projects to expense these costs as incurred. Prior to this
accounting change, the Company capitalized these costs and amortized them over a
five year period. Amounts included in these financial statements for the quarter
and six months ended March 31, 1998 have been revised to reflect this adoption
by recording charges of $1,402 and $1,539, respectively, representing costs
capitalized during the quarter which were expensed upon adoption, and $852, net
of related income tax benefits of $568, resulting from costs incurred in prior
periods. Previously reported net income for the quarter ended March 31, 1998 was
$239 and earnings per share, both basic and diluted, was $0.02.
 
4. EARNINGS PER SHARE
 
    53,600 and 112,300 potential shares from options for the three months ended
March 31, 1999 and for the six months ended March 31, 1999, respectively, were
excluded from the shares used to calculate diluted earnings per share as the
effect of including these shares in the calculation would be to decrease the
loss per share.
 
5. COMMITMENTS AND FOREIGN EXCHANGE CONTRACTS
 
    The Company has entered into foreign exchange contracts, the last of which
expires in May 1999, to hedge firm purchase commitments for the purchase of
equipment denominated in German Marks. Gains and losses on the contracts which
result from market risk associated with changes in the market values of the
underlying currencies are deferred and reported as part of the capitalized
asset. In entering into these
 
                                       5
<PAGE>
contracts, the Company has assumed the risk which might arise from the possible
inability of counterparties to meet the terms of their contracts. The Company
does not expect any losses as a result of counterparty defaults. At March 31,
1999, the Company had outstanding foreign exchange contracts with notional
values of $2,198. These contracts had no carrying value and a net unrealized
loss of $482. The Company does not enter into foreign exchange contracts for
trading purposes.
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
 
COMPARATIVE RESULTS OF OPERATIONS FOR THE QUARTER AND SIX MONTHS ENDED MARCH 31,
  1999 WITH THE QUARTER AND SIX MONTHS ENDED MARCH 31, 1998
 
INTRODUCTION
 
    AET is the largest producer of oriented polypropylene ("OPP") films in North
America. Consumer product companies worldwide use the Company's OPP films in
labeling, packaging and overwrap applications that often require special
attributes such as high gloss, vivid graphics, exceptional clarity and barriers
to air, light and moisture to preserve freshness. AET's film products are
generally sold to "converters," which are companies that specialize in processes
such as laminating multiple films or other materials together and printing text
and graphics to form the final label or packaging material for end-users.
 
    Certain of the end-use markets for the Company's OPP films are seasonal. For
example, demand in the snack food and soft drink markets is generally higher in
the spring and summer. As a result, sales and net income are generally higher in
those periods.
 
    For the purposes of this discussion and analysis, the periods ended March
31, 1999 and 1998 are referred to as the second quarters of 1999 and 1998,
respectively.
 
RESULTS OF OPERATIONS
 
    The following table sets forth, for the periods indicated, the percentages
of the Company's sales represented by certain income and expense items in its
income statement:
 
<TABLE>
<CAPTION>
                                        THREE MONTHS ENDED     SIX MONTHS ENDED
                                            MARCH 31,             MARCH 31,
                                       --------------------  --------------------
                                         1999       1998       1999       1998
                                       ---------  ---------  ---------  ---------
<S>                                    <C>        <C>        <C>        <C>
Sales................................      100.0%     100.0%     100.0%     100.0%
Cost of sales........................       80.2       81.7       82.9       80.4
Gross profit.........................       19.8       18.3       17.1       19.6
Selling, general and
  administrative.....................       10.8        9.7       10.7       10.0
Research and development.............        3.1        2.9        3.0        2.9
Operating profit.....................        5.8        3.5        3.4        5.3
Interest expense.....................        8.3        5.1        8.5        6.1
Net loss.............................        1.5        1.0        4.9        1.1
</TABLE>
 
    Sales for the second quarter of 1999 were $58,979 versus $62,439 for the
comparable period of fiscal 1998. The $3,460, or 5.5 percent, decrease is due to
divestitures of certain non-core businesses during fiscal 1998 and lower average
selling prices of OPP films. Sales volume increased 17.3 percent over the second
quarter of 1998 and sales revenues increased 3.6 percent, exclusive of the
divested businesses. These volume increases were partially offset by
significantly lower selling prices resulting from continued industry
overcapacity. For the six months ended March 31, 1999, sales were $114,424
versus $118,855 for the comparable period of fiscal 1998. Exclusive of the
aforementioned divestitures, sales increased $6,431 or 6 percent due to strong
volume increases, offset in part by lower average selling prices for OPP films.
Sales and operating profit derived from sales outside the United States were
19.7 percent of sales and 31.7 percent of operating profit, respectively, for
the quarter ended March 31, 1999 compared to 15.6 percent of sales and 30.8
percent of operating profit for the quarter ended March 31, 1998. For the six
months ended March 31, 1999, sales and operating profit derived from sales
outside the United States were 19.5 percent
 
                                       6
<PAGE>
of sales and 29 percent of operating profit, respectively, compared to 17
percent of sales and 25.4 percent of operating profit for the six months ended
March 31, 1998.
 
    Gross profit for the second quarter of 1999 was $11,652, or 19.8 percent of
total sales, versus $10,416, or 18.3 percent of sales, exclusive of the divested
businesses, for the same quarter of fiscal 1998. This increase is primarily the
result of improved manufacturing efficiencies achieved in the quarter. Exclusive
of the $2,905 of plant shutdown costs incurred in the first fiscal quarter of
1999, gross profit for the six months ended March 31, 1999 was $22,498, or 19.7
percent of total sales versus $21,016 or 19.6 percent of total sales for the six
months ended March 31, 1998 exclusive of the divested businesses. This slight
increase is primarily due to increases in sales volume and lower manufacturing
costs, offset by lower average selling prices.
 
    Total operating expenses were $8,222 and $15,740 for the three months and
six months ended March 31, 1999, respectively, compared to $9,257 and $16,908
for the three and six months ended March 31, 1998. Exclusive of divestitures and
write off of startup costs in 1998, operating expenses were 13.8 percent and
13.4 percent of sales for the six months ended March 31, 1999 and March 31,
1998, respectively, reflecting the company's investment in expanded sales reach
and new product development.
 
    Net interest expense was $4,869 and $9,721 for the second quarter and the
six months ended March 31, 1999, respectively, compared to $3,161 and $7,193 for
the same periods of 1998. Net interest expense was higher in fiscal 1999
primarily as a result of capitalized interest in 1998 associated with a capacity
expansion project which was completed in March 1998. Exclusive of capitalized
interest, interest expense for the six months ended March 31, 1999 and March 31,
1998 was $11,092 and $11,213, respectively.
 
    Net loss for the three and six months ended March 31, 1999 was $863 and
$5,598, respectively, compared to net loss of $602 and $1,356 for the three and
six months ended March 31, 1998, respectively. The net loss increased for the
six months ended March 31, 1999 compared to the six months ended March 31, 1998
primarily as a result of the write off of $2,905 of plant shut down costs and
$3,462 of costs related to terminated acquisition discussions in the first
quarter of 1999.
 
LIQUIDITY AND CAPITAL RESOURCES
 
    In conjunction with the Company's 1994 acquisition of the OPP films
business, AET entered into a Credit Agreement with a group of lenders to provide
the Company with senior bank financing. In January 1998, AET amended and
restated this Credit Agreement and combined the revolving credit facility and
revolving term facility thereunder into a $70,000 revolving credit facility (the
"Credit Facility") with a final maturity of the earlier of (i) November 1, 2001,
if the AET Senior Notes are not refinanced prior to such date, or (ii) January
29, 2003. The Credit Agreement was further amended in March 1999. The Credit
Facility is secured by all the assets of AET. It includes covenants which, among
other things, limit borrowings based on certain asset levels, requires AET to
maintain a minimum tangible net worth and specified interest coverage and
leverage ratios, and establishes maximum capital expenditure levels. It also
contains other covenants customary in documents relating to transactions of this
type. At March 31, 1999 the Company had $42,500 in borrowings and $6,910 in
letters of credit outstanding under the Credit Facility. The Company also has
$150,000 of Senior Notes, which bear interest at 11.5 percent payable
semi-annually, which mature in full in 2002 and $6,500 of Industrial Revenue
Bonds outstanding, which are due November 4, 2004.
 
    Operating activities for the six months ended March 31, 1999 used $2,133 of
cash, which was the result of a net loss of $1,341 before depreciation and
amortization and other non-cash expenditures offset slightly by an increase in
working capital of $792. The net working capital increase was primarily the
result of increases in prepaid expenses and other assets and inventory and
accounts receivable of $1,775 and $405, respectively, and an increase in
accounts payable and accrued expenses of $1,388. During the quarter payments
related to restructuring of the Company's Covington, Virginia manufacturing
facility were $1,772, resulting in a restructuring reserve balance of $14,342 at
March 31, 1999.
 
                                       7
<PAGE>
    In April of 1999, the Company acquired certain assets of AEP Industries
Inc.'s OPP film business. The net purchase price of approximately $13,500 in
cash was funded with a portion of the proceeds of a sale/ leaseback transaction
involving other assets of the Company which yielded net proceeds to the Company
of approximately $29,000 and was also completed in April. The proceeds from the
sale/leaseback transaction in excess of the purchase price for the AEP assets
were used to pay down indebtedness outstanding under the Company's Credit
Facility.
 
YEAR 2000
 
    AET's Company-wide Year 2000 project, which is addressing the issue of
computer programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000, is proceeding on schedule. The project
is comprised of five major phases: (1) taking inventory of systems potentially
impacted by the Year 2000 issue; (2) assessing the Year 2000 compliance or
capability of systems determined to be material to the Company; (3) repairing or
replacing material systems that are determined not to be Year 2000 compliant or
capable; (4) testing the critical repaired or replaced systems; and (5)
designing and implementing contingency and business continuation plans.
 
    At March 31, 1999, AET had completed the inventory and assessment phases of
the project. Those systems with identified Year 2000 compliance or capability
issues are currently being repaired or replaced, as required. The largest part
of this effort is the continuing implementation of a new enterprise-wide
information system which commenced in 1996. The financial, sales, order entry,
electronic data interchange, and administrative portions of the implementation
are complete. The inventory, shop floor and related manufacturing portions of
the system have been implemented at two production sites, with the remaining two
plants expected to be completed by the end of the fiscal year.
 
    Once Year 2000 compliance repairs or replacements have been made, AET plans
to test critical systems to verify that compliance has been achieved. Third
parties will validate the Year 2000 compliance of our manufacturing control
systems, and internal resources will validate the compliance of the remainder of
our systems. The target completion date for the systems testing is September 30,
1999.
 
    The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition.
 
    The Company's contingency planning process for Year 2000 problems is
ongoing. Contingency plans could include having arrangements for alternate
suppliers when available, re-running certain processes if errors occur, using
manual intervention to ensure the continuation of operations where possible, and
scheduling activity in December 1999 that would normally occur at the beginning
of January 2000. If it becomes necessary for the Company to take corrective
actions, it is uncertain whether this would result in significant delays in
business operations or have a material adverse effect on the company's results
of operations, financial position or cash flow. AET believes that with the
completion of the Year 2000 project as scheduled, the possibility of significant
interruptions of normal operations should be substantially reduced.
 
    The total cost associated with Year 2000 compliance activities is estimated
to be $10,000, of which $8,000 will be spent on the new enterprise-wide system
which offers many other enhancements in comparison to our current systems.
Approximately $7,000 has been spent to date, and cash flow from operations is
expected to fund the balance of the project. No critical information technology
projects have been deferred due to our Year 2000 compliance efforts.
 
INFLATION
 
    Management reviews the prices charged for its products on a regular basis.
When market conditions allow, adjustments are made to reflect changes in product
costs due to fluctuations in the cost of materials and labor as well as
inflation. The costs of raw materials make up a significant portion of AET's
costs and have historically fluctuated. There can be no assurance, however, that
future market conditions will support any direct correlation between raw
material cost fluctuations and finished product films pricing.
 
                                       8
<PAGE>
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
FOREIGN EXCHANGE CONTRACTS
 
    See Note 5, "Commitments and Foreign Exchange Contracts". With respect to
these foreign exchange contracts, an adverse change in the underlying exchange
rates would not have a significant effect on the Company's reported results as
any gain or loss on the contract would be offset by changes in the value of the
firm purchase commitment.
 
SHORT-TERM AND LONG-TERM DEBT
 
    The Company is exposed to interest rate risk primarily through its borrowing
activities. The Company's policy has been to utilize United States dollar
denominated borrowings to fund its working capital and investment needs.
Short-term debt, if required, is used to meet working capital requirements,
while long-term debt is generally used to finance long-term investments. There
is inherent roll-over risk for borrowings as they mature and are renewed at
current market rates. The extent of this risk is not quantifiable or predictable
because of the variability of future interest rates and the Company's future
financing requirements. At March 31, 1999, the Company had no short-term debt
outstanding and had long-term debt outstanding of $199,000, of which $42,500 was
outstanding on its revolving credit facility, which has a variable interest
rate, based on either LIBOR or prime rates. A 10% adverse change in interest
rates on the portion of the Company's debt bearing interest at a variable rate
would result in an increase in interest expense of approximately $93.
 
    The Company does not enter into financial instrument transactions for
trading or other speculative purposes or to manage interest rate exposure.
 
    EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS
DISCUSSED IN THIS REPORT ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
IN THE FORWARD-LOOKING STATEMENTS, INCLUDING THOSE RELATED TO THE TIMELY
DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS, FLUCTUATIONS IN RAW MATERIALS AND
OTHER PRODUCTION COSTS, THE LOSS OF ONE OR MORE SIGNIFICANT CUSTOMERS, THE
IMPACT OF COMPETITIVE PRODUCTS AND PRICING, THE TIMELY COMPLETION OF CAPITAL
PROJECTS, THE SUCCESS OF THE COMPANY'S EFFORTS TO ACCESS CAPITAL MARKETS ON
SATISFACTORY TERMS, AND TO ACQUIRE, INTEGRATE, AND OPERATE NEW BUSINESSES AND
EXPAND INTO NEW MARKETS, AS WELL AS OTHER RISKS DETAILED IN EXHIBIT 99 OF THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND
FROM TIME TO TIME IN THE COMPANY'S OTHER REPORTS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION.
 
                           PART II--OTHER INFORMATION
 
ITEM 1.  LEGAL PROCEEDINGS
 
    The Company is subject to legal proceedings and claims which have arisen in
the ordinary course of its business and have not been fully adjudicated. These
actions, when ultimately concluded and determined, will not, in the opinion of
management, have a material adverse effect upon the financial position or
results of operations of the Company.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
    The Annual Meeting of Stockholders of the Company was held on March 1, 1999
(the "Annual Meeting"). Proxies for the Annual Meeting were solicited pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended. A total
of 9,725,306 shares of common stock were represented at the meeting by proxy.
 
    At the Annual Meeting, Messrs. Amin J. Khoury, Thomas E. Williams, and Mark
M. Harmeling were elected as Class I directors of the Company for a term of
three years expiring at the Company's 2002 Annual Meeting. In the case of Mr.
Khoury, 8,863,983 shares were voted in favor of his election and 861,323 votes
were withheld; in the case of Mr. Williams, 8,864,087 shares were voted in favor
of his election and 861,219 votes were withheld; and in the case of Mr.
Harmeling, 8,853,990 shares were voted in favor of his election and 871,316
votes were withheld. The following directors' terms continued after the Annual
Meeting: Nader Golestaneh, Paul W. Marshall, Richard G. Hamermesh, and Joseph J.
O'Donnell.
 
                                       9
<PAGE>
    The number of authorized shares of the Corporation's Common Stock, $.01 par
value per share, was increased from 15,000,000 to 30,000,000 shares. The voting
on this matter was as follows: 8,786,680 in favor; 838,157 opposed; 98,237
abstained; and 2,196 did not vote.
 
    In addition, the number of option shares available for grant under the
Company's 1994 Stock Option Plan (the "Option Plan") was increased by 500,000
shares. The voting for the amendment to the Option Plan was as follows:
6,509,871 in favor; 2,897,564 opposed; 286,567 abstained; and 31,304 did not
vote.
 
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
 
A. EXHIBITS
 
<TABLE>
<S>          <C>
3.1.1(a)     Amended and Restated Certificate of Incorporation.
3.1.2(i)     Amendment dated February 26, 1992 to Amended and Restated Certificate of
             Incorporation.
3.1.3*       Amendment dated March 26, 1999 to Amended and Restated Certificate of
             Incorporation
3.2(i)       Amended and Restated By-Laws.
4.1(d)       Indenture dated as of April 7,1994 between the Registrant and United States
             Trust Company of New York, Trustee.
4.2(d)       Form of 11 1/2 percent Senior Note due 2002 (included in Exhibit 4.1).
4.3(a)       Specimen Common Stock Certificate.
4.4(m)       Rights Agreement dated as of March 2, 1998 between the Company and BankBoston,
             N.A., as Rights Agent.
10.1(i)      Amended and Restated Credit Agreement dated as of January 29, 1998 by and
             between the Registrant and The Chase Manhattan Bank as Administrative Agent and
             LaSalle Business Credit, Inc. as Co-Agent.
10.1.1(h)    Waiver and Amendment No. 1 dated as of December 16, 1998 to Amended and
             Restated Credit Agreement dated as of January 29, 1998 between the Registrant
             and The Chase Manhattan Bank as Administrative Agent.
10.1.2(k)    Waiver and Amendment No. 2 dated as of December 31, 1998 to Amended and
             Restated Credit Agreement dated as of January 29, 1998 between the Registrant
             and The Chase Manhattan Bank as Administrative Agent.
10.1.3*      Amended and Restated Credit Agreement dated as of March 15, 1999.
10.1.4*      Amendment No. 1 dated as of April 23, 1999 to the Credit Agreement dated as of
             April 7, 1994 as amended and restated as of January 29, 1998 and March 15,
             1999.
10.2(b)      1986 Stock Option Plan, as amended.
10.3(c)      1991 Stock Option Plan, as amended.
10.4(b)      1991 Stock Option Plan for Directors, as amended.
10.5(d)      1994 Stock Option Plan, as amended.
10.6(f)      Employment Agreement dated as of June 1, 1996 between the Registrant and Mark
             S. Abrahams.
10.7*        Employment Agreement dated as of April 1, 1999 between the Registrant and David
             N. Terhune.
10.8(g)      Agreement dated as of August 22, 1997 between the Registrant and Anthony J.
             Allott.
10.9(j)      Letter Agreement dated May 18, 1998 between the Registrant and Anthony J.
             Allott.
10.10*       Employment Agreement dated as of April 1, 1999 between the Registrant and Amin
             J. Khoury.
10.11*       Employment Agreement dated as of April 1, 1999 between the Registrant and
             Thomas E. Williams.
10.12(h)     Employment Agreement dated as of August 15, 1998 between the Registrant and
             Anthony J. Allott.
</TABLE>
 
                                       10
<PAGE>
<TABLE>
<S>          <C>
10.13(h)     Employment Agreement dated as of September 19, 1998 between the Registrant and
             Gerald M. Haines II.
10.14(e)     Executive Deferred Compensation Plan dated as of September 1, 1994.
10.15.1(l)   Equipment Lease Agreement dated as of December 29, 1997 between Registrant and
             LaSalle National Leasing Corporation.
10.15.2*     Letter Agreement dated April 28, 1999 Amending Equipment Lease Agreement dated
             as of December 29, 1997 between Registrant and LaSalle National Leasing
             Corporation.
10.16(j)     Asset Purchase and Sale Agreement dated as of April 6, 1998 between the
             Registrant and ProNet Corporation.
24(h)        Powers of Attorney.
27*          Financial Data Schedule.
99(g)        Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
             Private Securities Litigation Reform Act of 1995.
</TABLE>
 
------------------------
 
*   Filed herewith
 
(a) Contained in Exhibits to the Registrant's Registration Statement on Form
    S-1, as amended (No. 33-40145), filed with the Commission on April 24, 1991.
 
(b) Contained in Exhibits to the Registrant's Registration Statement on Form S-8
    (No. 33-44449), filed with the Commission on December 18, 1991.
 
(c) Contained in Exhibits to the Registrant's Registration Statement on Form S-8
    (No. 33-48841), filed with the Commission on June 25, 1992.
 
(d) Contained in Exhibits to the Registrant's Registration Statement on Form S-4
    (No. 33-78006), filed with the Commission on April 21, 1994.
 
(e) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
    ended September 30, 1994.
 
(f) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
    ended September 30, 1996.
 
(g) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
    ended September 30, 1997.
 
(h) Contained in Exhibits to the Registrant's Form 10-K for the fiscal year
    ended September 30, 1998.
 
(i) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended December 31, 1997.
 
(j) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended June 30, 1998.
 
(k) Contained in Exhibits to the Registrant's Form 10-Q for the fiscal quarter
    ended December 31, 1998.
 
(l) Contained in Exhibits to the Registrant's Form 8-K dated January 2, 1998.
 
(m) Contained in Exhibits to the Registrant's Form 8-K dated March 6, 1998.
 
                                       11
<PAGE>
    The above referenced exhibits are, as indicated, either filed herewith or
have heretofore been filed with the Commission under the Securities Act and the
Exchange Act and are referred to and incorporated herein by reference to such
filings.
 
B. REPORTS ON FORM 8-K
 
    None.
 
                                   SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
 
<TABLE>
<S>                             <C>  <C>
                                APPLIED EXTRUSION TECHNOLOGIES, INC.
                                (REGISTRANT)
 
                                By:  /s/ ANTHONY J. ALLOTT
                                     -----------------------------------------
                                     Anthony J. Allott
                                     Vice President, Chief Financial
                                     Officer and Treasurer
                                     May 7, 1999
</TABLE>
 
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