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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

Commission file number 0-14550

AEP INDUSTRIES INC.
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

        Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
(Title of class)

        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 and (2) has been subject to such filing requirement for the past 90 days. Yes ý    No o

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

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

        The aggregate market value of the shares of the voting stock held by nonaffiliates of the Registrant was approximately $41,947,513 based upon the closing price of the stock, which was $9.75 on January 24, 2003.

        The number of shares of the Registrant's common stock outstanding as of January 24, 2003, was 7,901,374.

DOCUMENTS INCORPORATED BY REFERENCE

        List hereunder the documents, all or portions of which are incorporated by reference herein and the Part of the Form 10-K into which the document is incorporated:

        Proxy Statement to be filed with respect to the Registrant's Annual Meeting of Stockholders to be held on April 8, 2003—Part III, except as specifically excluded in the Proxy statement.

PART I

ITEM 1.    BUSINESS

General

        AEP Industries Inc. ("AEP") is a leading worldwide manufacturer of plastic packaging films. We manufacture both commodity films, which are made to general specifications, and specialty films, which are made to customer specifications. The films are used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture and textile industries. Our manufacturing operations are located in nine countries in North America, Europe and the Asia/ Pacific Region.

Fiscal 2002 Developments

        On November 2, 2001, we entered into a series of transactions with Visypak Operations Pty Ltd. ("Visy") and DS Smith (UK) Ltd., ("DS Smith"), a subsidiary of DS Smith Plc. We formed a New Zealand company, Rapak Asia Pacific Limited ("Rapak")™ and sold 49.9% of the venture to DS Smith as part of a joint venture agreement for the operation of Rapak. Rapak acquired the "bag-in-box" business conducted by Visy in New Zealand and Australia and we transferred our New Zealand Liquipac business to Rapak. Our investment in Rapak has been reflected in our consolidated financial statements using the equity method of accounting. In addition, our acquisition of the flexible packaging businesses of Visy helps expand the market share of our films and laminating business in the Asia/Pacific region.

        On November 20, 2001, we entered into a loan and security agreement with Congress Financial Corporation, as agent, and the financial institutions named in the agreement, as Lenders. Under this agreement the Lenders provided us with a maximum credit facility of $85 million, including a letter of credit facility of up to $20 million. Amounts available for borrowing are based upon the sum of eligible domestic values of building and equipment at closing date and eligible accounts receivable and inventories on a monthly basis. The new credit facility is secured by mortgages and liens on our domestic assets and in 66% of our ownership interest in certain foreign subsidiaries. The agreement contains customary covenants including limitations on the incurrence of debt, the disposition of assets, the making of restricted payments, and minimum EBITDA requirements if the loan's excess availability is less than $20.0 million. Amounts to be borrowed are limited by these available assets. At the closing, we borrowed the sum of $52.1 million, of which $51.8 million was used to pay off the existing long-term credit facility. Rates under the new facility are comparable to those under the prior facility.

Products

        We are a leading worldwide manufacturer of plastic packaging films. We manufacture and market an extensive and diverse line of polyethylene, polyvinyl chloride and polypropylene flexible packaging products, with consumer, industrial and agricultural applications. Flexible packaging and film products are thin, ductile bags, sacks, labels and films used for food and non-food consumer, agricultural and industrial items. Flexible packaging containers not only protect their contents, they are also cost-effective, space-saving, lightweight, tamper-evident, convenient and often recyclable. The flexible packaging and film products manufactured by us are used in a variety of industries, including the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agricultural and textile industries.

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The following table summarizes our product lines:

        We currently have manufacturing operations located in nine countries. We divide our operations geographically into three principal regions, North America, Europe and Asia/Pacific. During fiscal 2002, North America, Europe and Asia/Pacific represented approximately 62%, 23% and 15%, respectively of our net sales.

North American Operations

Resinite (polyvinyl chloride)

        We manufacture polyvinyl chloride food wrap for the supermarket, consumer, institutional and industrial markets in North America, offering a broad range of products with approximately 45 different formulations. These films are used for packaging of fresh red meats, poultry, fish, fruits and vegetables and bakery products.

        Our Resinite facility also manufactures dispenser (cutter) boxes containing polyvinyl chloride food wrap for sale to consumers and institutions, including restaurants, schools, hospitals and penitentiaries. Our most popular institutional polyvinyl chloride food wrap is marketed under several private labels and under our own Seal Wrap® name. A substantial portion of the sales of this product is to large paper and food distributors, with the rest sold directly to supermarket chains.

Custom Films

        We manufacture a broad range of custom films, generally for industrial applications, including sheeting, tubing and bags. Bags are usually cut, rolled or perforated, drum, box, carton and pail liners. These bags can be used to package specialty items such as furniture and mattresses. We also manufacture films to protect items stored outdoors or in transit, such as boats and cars, and a wide array of shrink films, barrier films and overwrap films. We sell the majority of our custom film output

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directly to customers often on a national account basis, with approximately 40% sold through distributors.

        Most of the custom films manufactured by us, which may be as many as 20,000 separate and distinct products in any given year, are custom designed to meet the specific needs of our customers.

        We believe that the strength of our custom film operations lies in our technologically superior products, high quality control standards, well-trained and knowledgeable sales force and commitment to customer service. Our sales force has expertise in packaging systems, provides technical support to our distribution network and focuses on product knowledge and customer relations.

        The custom films market is comprised of a large number of smaller manufacturers who together constitute approximately two-thirds of all sales, with the remainder of the market represented by a few large manufacturers. Our research and development team continually improves applications and creates new custom film products. This has helped establish us as one of the largest producers in this fragmented market. We believe we can expand our share of the custom films market through our ability to offer a broad range of industrial as well as other packaging films (including stretch wrap), thereby offering our customers one-stop shopping.

Stretch Wrap

        We manufacture a family of high performance stretch wrap for wrapping and securing palletized products for shipping. We also market a wide variety of stretch wrap designed for commodity and specialty uses. We sell approximately 86% of our stretch wrap through distributors. The remainder of our output is sold directly to customers on a national account basis. Since the industry still is experiencing overcapacity in the marketplace, we have rationalized our sales force, consolidated our distribution activities and reformulated certain stretch products to help us realize significant cost reductions.

European Operations

European Resinite (polyvinyl chloride)

        Through our European Resinite division, we manufacture polyvinyl chloride food wrap in cutter boxes and perforated rolls which are primarily sold to restaurants and food service establishments. European Resinite sells films across Europe (with the exception of Italy, which is covered by Fabbrica Italiana Articoli Plastici, or FIAP) and sells most of its film directly to end-users. We are rationalizing our labor force and believe that this will have a positive impact on our operating results.

        The market for polyvinyl chloride food wrap is relatively mature in Northern Europe and is intensely competitive. We expect that growth in Europe will be driven by developing catering, food service and volume feeding markets in Eastern Europe and by developing food distribution markets in Southern and Eastern Europe. In certain European markets, a tax is levied on packaging materials based on weight, which has led to a demand for thinner but stronger meat films. We have the technology to deliver films with such properties at a low price. We believe this to be a competitive advantage.

European Flexibles

        Our European Flexibles division manufactures flexible packaging and converted films used in the food processing and pharmaceutical industries, including freezer film, processed cheese innerwrap and tamper-evident seals. European Flexibles also manufactures and sells polyethylene-based stretch wrap for wrapping and securing pallet loads. European Flexibles sells 68% of its stretch wrap to distributors, and 32% directly to end-users.

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FIAP

        Through FIAP, we manufacture polyvinyl chloride food wrap, unplasticized polyvinyl chloride twist wrap, and converted and printed films. FIAP is known as a specialist in unplasticized polyvinyl chloride twist wrap, which is used to wrap candles, candies and similar products. This product can also be used for battery covers and credit card laminates. The characteristics of this product are similar to cellophane and can be used as a low cost substitute. Films manufactured by FIAP are sold in the United States, Europe, Africa, and the Middle East, mostly through an internal sales force directly to end-users.

Asia/Pacific Operations

        We are a major manufacturer of industrial films, PVC films and printed and converted films in Australia and New Zealand. Our operations in the Asia/Pacific region resemble our North American and European operations with the same variety of films.

        We sell the majority of the products we manufacture in Australia and New Zealand to end-users and the remainder to distributors. The markets for plastic packaging products in Australia and New Zealand are relatively small, offering limited growth opportunities. However, since New Zealand and Australia are significant exporters of high protein products, we expect to participate in the growing export market as packaged products are exported to China and Southeast Asia.

        In November 2001, we combined our Liquipac (bag-in-box) business with the Liquibag systems business which we acquired at that time from Visy, and we placed these combined businesses into a new company, Rapak Asia Pacific, Limited. We then entered into a joint venture with DS Smith for the combined business. This venture will strengthen and expand the packaging solutions available to our customers in the Asia/Pacific marketplace. Our share of the net results of this operation is reported on our consolidated statement of operations in other income (expense).

Manufacturing

        We manufacture both industrial grade products, which are manufactured to industry specifications or for distribution from stock, and specialty products, which are manufactured under more exacting standards to assure that their chemical and physical properties meet the particular requirements of the customer or the specialized application appropriate to its intended market. Specialty products generally sell at higher margins than industrial grade products.

        We manufacture polyvinyl chloride food wrap worldwide, in North America at one facility in Griffin, Georgia and two regionally selected facilities in Canada, in Europe at two Resinite plants strategically located in Spain, and France, and in Australia and in New Zealand. In fiscal 2001, we closed our United Kingdom manufacturing operations and then moved its production equipment to Spain during the current fiscal year.

        We manufacture stretch wrap and custom films at several large geographically dispersed, integrated extrusion facilities located throughout the world, which also have the ability to produce other products. The size and location of those facilities, as well as their capacity to manufacture multiple types of flexible packaging products and to re-orient equipment as market conditions warrant, enable us to achieve savings and minimize overhead and transportation costs.

        At the FIAP facility in Italy, we manufacture polyvinyl chloride food wrap, unplasticized polyvinyl chloride twist wrap, and converted and printed films. We manufacture flexible packaging and converted films in Europe at facilities strategically located in Holland and Belgium. We also manufacture PVC films, custom films and converted films at our facilities in Australia and New Zealand.

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Production

        In the film manufacturing process, resins with various properties are blended with chemicals and other additives to achieve a wide range of specified product characteristics, such as color, clarity, tensile strength, toughness, thickness, shrinkability, surface friction, transparency, sealability and permeability. The gauges of our products range from less than one mil (.001 inches) to more than 10 mils. Our extrusion equipment can produce printed products and film up to 40 feet wide. The blending of various kinds of resin combined with chemical and color additives is computer controlled to avoid waste and to maximize product consistency. The blended mixture is melted by a combination of applied heat and friction under pressure and is then mechanically mixed. The mixture is then forced through a die, at which point it is expanded into a flat sheet or a vertical tubular column of film and cooled. Several mixtures can be forced through separate co-ex die to produce a multi-layered film (co-extrusion), each layer having specific and distinct characteristics. The cooled film can then be shipped to a customer or can be further processed and then shipped.

        Generally, our manufacturing plants operate 24 hours a day, seven days a week, except for plants located in areas where hours of operation are limited by law, local custom or in cases when 24 hour operations are not economically advantageous.

        We have regularly upgraded or replaced older equipment in order to keep abreast of technological advances and to maximize production efficiencies by reducing labor costs, waste and production time. During the past five fiscal years, we made significant capital improvements, which included the construction of new manufacturing, warehouse and sales facilities, the purchase and lease of new state-of-the-art extrusion equipment and the upgrading of older equipment. We have shifted production among our plants to improve efficiency and cost savings and are upgrading and replacing equipment at certain of these facilities in order to increase production capacity and enhance efficiency. We will continue to upgrade or replace equipment, as we deem appropriate, to improve our efficiencies and quality and at the same time expand our product mix. In fiscal 2002, we installed a second eight color printing press in Holland and two new extrusion lines in North America for our can liner and UPVC businesses.

Quality Control

        We believe that maintaining the highest standards of quality in all aspects of our manufacturing operations plays an important part in our ability to maintain our competitive position. To that end, we have adopted strict quality control systems and procedures designed to test the mechanical properties of our products, such as strength, puncture resistance, elasticity, abrasion characteristics and sealability, which we regularly review and update, and modify as appropriate.

Raw Materials

        We manufacture film products primarily from polyethylene, polypropylene and polyvinyl chloride resins, all of which are available from a number of domestic and foreign suppliers. We select our suppliers based on the price, quality and characteristics of the resins they produce. Most of our purchases of resin in fiscal 2002 have been from 20 of the 23 major international resin suppliers, none of which accounted for more than 21% of our requirements. We believe that the loss of any resin supplier would not have a materially adverse effect on us.

        The resins used by us are produced from petroleum and natural gas. Instability in the world markets for petroleum and natural gas could adversely affect the prices of our raw materials and their general availability, and this could have an adverse effect on our profitability if the increased costs can not be passed on to customers. The cost of resin typically averages 60% to 65% of cost of goods sold. Historically, with limited exceptions, we have been able to pass on substantially all of the price increases and decreases in raw materials to our customers on a penny for penny basis. During fiscal

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2002 and 2001, as a result of frequent increases in resin prices, customer resistance and competitive pressure, we were not able to pass on a large part of these increases, and this adversely affected our revenue, gross profit and earnings. There can be no assurance that we will be able to pass on resin price increases on a penny for penny basis in the future.

        We generally maintain a resin inventory of less than or about one month's supply and have not experienced any difficulty in maintaining our supplies. Other raw materials, principally chemical colorings and other concentrates, are available from many sources.

Marketing and Sales

        We believe that our ability to continue to provide superior customer service will be critical to our success. Even in those markets where our products are considered commodities and price is the single most important factor, we believe that our sales and marketing capabilities and our ability to timely deliver products can be a competitive advantage. To that end, we have established good relations with our suppliers and have long-standing relationships with most of our customers, which we attribute to our ability to consistently manufacture high-quality products and provide timely delivery and superior customer service.

        We believe that our research and development efforts, our high efficiency equipment, which is both automated and microprocessor-controlled, and the technical training given to our sales personnel enhance our ability to expand our sales in all of our product lines. An important component of our marketing philosophy is the ability of our sales personnel to provide technical assistance to customers. Our sales force regularly consults with customers with respect to performance of our products and the customers' particular needs and communicates with appropriate research and development staff regarding these matters. In conjunction with the research and development staff, sales personnel are often able to recommend a product or suggest a resin blend to produce the product with the characteristics and properties which best suit the customers' requirements.

        We market our polyethylene products in North America, principally through our own sales force under the supervision of national and regional managers. We generally sell either directly to customers who are end-users of our products or to distributors for resale to end-users.

        We market our polyvinyl chloride and our stretch film products in North America primarily through large distributors. Because we have expanded and continue to expand our product lines, sales personnel are able to offer a broad line of products to our customers.

        In fiscal 2002 and 2001 approximately 68% and 64%, respectively, of our sales in North America were directly to distributors with the balance representing sales to end-users. We serve approximately 9,000 customers worldwide, none of which accounts for more than 5% of our net sales.

        Sales and marketing efforts in Europe and in the Asia/Pacific region are primarily by our sales force to end-users, although distributors are used in cases where the distributor adds value to the customer. Sales offices are assigned to each of our plants and a sales office is located in the United Kingdom.

Distribution

        We believe that the timely delivery to customers of our products is a critical factor in our ability to maintain our market position. In North America, all of our deliveries are by dedicated service haulers, contract carriers and common carriers. This enables us to better control the distribution process and thereby insures priority handling and direct transportation of products to our customers, thus improving the speed, reliability and efficiency of delivery.

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        Because of the geographic dispersion of our plants, we are able to deliver most of our products within a 500-mile radius of our plants. This enables us to reduce our use of warehouses to store products. However, we also ship products great distances when necessary and export from the United States, Canada and Italy.

        Internationally, we use common and contract carriers to deliver most of our products, both in the country of origin and for export.

Research and Development

        We have a research and development department with a staff of approximately 17 persons. In addition, other members of management and supervisory personnel, from time to time, devote various amounts of time to research and development activities. The principal efforts of our research and development department are directed to assisting sales personnel in designing specialty products to meet individual customer's needs, developing new products and reformulating existing products to improve quality and/or reduce production costs. During fiscal 2002 and 2001, we focused a significant portion of our research and development efforts on co-extruded high barrier products, one sided cling films, UPVC and shrink PVC products, and MAPAC (modified atmosphere packaging, designed to either contain gases or allow the migration of gases) technologies.

        Our research and development department has developed a number of products with unique properties, which we consider proprietary, certain of which are protected by patents. In fiscal 2002, 2001 and 2000, we spent approximately $1.5 million, $1.2 million, and $1.5 million, respectively, for research and development activities for continuing operations.

Competition

        The business of supplying plastic packaging products is extremely competitive, and we face competition from a substantial number of companies, which sell similar and substitute packaging products. Some of our competitors are subsidiaries or divisions of large, international, diversified companies with extensive production facilities, well-developed sales and marketing staffs and substantial financial resources.

        We compete principally with (i) local manufacturers, who compete with us in specific geographic areas, generally within a 500 mile radius of their plants, (ii) companies which specialize in the extrusion of a limited group of products, which they market nationally, and (iii) a limited number of manufacturers of flexible packaging products who offer a broad range of products and maintain production and marketing facilities domestically and internationally.

        Because many of our products are available from a number of local and national manufacturers, competition is highly price-sensitive and margins are relatively low. We believe that all of our products require efficient, low cost and high-speed production to remain cost competitive. We believe we also compete on the basis of quality, service and product differentiation.

        We believe that there are few barriers to entry into many of our markets, enabling new and existing competitors to rapidly affect market conditions. As a result, we may experience increased competition resulting from the introduction of products by new manufacturers. In addition, in several of our markets, products are generally regarded as a commodity. As a result, competition in such markets is based almost entirely on price and service.

Environmental Matters

        Our operations are subject to various federal, state and local environmental laws and regulations, which govern discharges into the air and water, the storage, handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by petroleum products or

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hazardous substances or wastes, and the health and safety of employees. Compliance with environmental laws may require material expenditures by us. The nature of our current and former operations and the history of industrial uses at some of our facilities expose us to the risk of liabilities or claims with respect to environmental and worker health and safety matters.

        In addition, under certain environmental laws, a current or previous owner or operator of property may be jointly and severally liable for the costs of investigation, removal or remediation of certain substances on, under or in such property, without regard to negligence or fault. The presence of, or failure to remediate properly, such substances may adversely affect the ability to sell or rent such property or to borrow using such property as collateral. In addition, persons who generate or arrange for the disposal or treatment of hazardous substances may be jointly and severally liable for the costs of investigation, remediation or removal of such hazardous substances at or from the disposal or treatment facility, regardless of whether the facility is owned or operated by such person. Responsible parties also may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from a site. We believe that there are no current environmental matters, which would have a material adverse effect on our financial position, results of operations, or liquidity.

Employees

        At October 31, 2002, we had approximately 3,100 employees worldwide, including officers and administrative personnel. In North America, we have three collective bargaining agreements covering 265 employees. These agreements expire in March 2004 and in February and March 2005. Further, we have 17 collective bargaining agreements at our international facilities, covering substantially all of the hourly employees at these facilities. As is common in many foreign jurisdictions, substantially all of our employees in these foreign jurisdictions are also covered by countrywide collective bargaining agreements. While we believe that our relations with our employees are satisfactory, a dispute between our employees and us could have a material adverse effect on our business.

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Management

        At January 29, 2003, our directors and executive officers are as follows:

        In accordance with our Governance Agreement with Borden, Inc., now known as Borden Chemical, Inc. ("Borden"), Messrs. Carroll, Clammer, Kelley, and Stoll are directors designated by Borden.

        J. Brendan Barba is one of the founders of our company and has been our President, CEO and a director since our organization in January 1970. In November 1985, Mr. Barba assumed the additional title of Chairman of the Board of Directors.

        Paul M. Feeney has been an Executive Vice President, Finance, CFO and a director of our company since December 1988. From 1980 to 1988 Mr. Feeney was Vice President and Treasurer of Witco Corporation.

        John J. Powers was elected Executive Vice President, Sales and Marketing in May 1996. Prior thereto, he was Vice President—Custom Products of our company.

        David J. Cron has been Executive Vice President, Manufacturing since July 1997. Prior thereto, he was Vice President, Manufacturing, a plant manager and held various other positions with our company since 1976.

        Edgar Reich has been employed by our company since July 1998 as director of European operations. He was elected Vice President, International Operations in November 1998 and Executive Vice President, International Operations in December 1999. Prior to July 1998, he held various international management positions with Witco Corporation.

        Paul C. Vegliante was elected Executive Vice President, Operations in December 1999. Prior thereto, he was Vice President, Operations since June 1997 and held various other positions with our company since 1994.

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        Lawrence R. Noll has been a Vice President and a director of our company since September 1993 and Controller since 1996. He was the Controller of our company from 1980 to 1993 and the Secretary of our company from September 1993 through April 1998.

        James B. Rafferty has been Vice President and Treasurer of our company since October 1996. Prior thereto, he was Assistant Treasurer since July 1996. From 1989 to 1995, Mr. Rafferty was Director of Treasury Operations at Borden, Inc.

        Jean L'Allier has been employed by our company as general counsel since April 1997. He was elected Vice President and General Counsel in November 1997 and elected Secretary in April 1998. For more than five years prior to April 1997 Mr. L'Allier was engaged in the private practice of law as a sole practitioner in New York City.

        Kenneth Avia has served as a director of our company since 1980. Mr. Avia has been the managing principal of Avia Consulting Group LLC since February 2002. Prior thereto, Mr. Avia has been Executive Vice President of First Data Merchant Services (a merchant credit card processing company) from 1993 to January 2002 and served as Divisional Vice President of Automatic Data Processing, Inc. from 1984 to 1993.

        Brian F. Carroll has served as a director of our company since June 2002. Mr. Carroll has been an associate of Kohlberg Kravis Roberts & Co. since July 1999. Prior thereto, he was a student at Stanford University Graduate School of Business.

        Adam H. Clammer has served as a director of our company since September 1999. Mr. Clammer has been an associate of Kohlberg Kravis Roberts & Co. from 1995 and was employed by Morgan Stanley & Co. from 1992 to 1995 as an investment banker.

        Paul E. Gelbard has served as a director of our company since 1991. Mr. Gelbard, has been Of Counsel to Warshaw Burstein Cohen Schlesinger & Kuh LLP, counsel to our company, since January 2000. He was Of Counsel to Bachner Tally & Polevoy LLP, prior counsel to our company, from January 1997 to December 1999 and was a partner of such firm from 1974 to 1996.

        Kevin M. Kelley has served as a director of our company since December 2001. Mr. Kelley has been Senior Managing Director of Borden Capital, Inc. since 2002. He was an Executive Vice President of Borden Capital Management Partners from 1999 through 2002 and was employed by Ripplewood Holdings LLC as a managing director from 1996 to 1999.

        Lee C. Stewart has served as a director of our company since December 1996. Mr. Stewart has been a business consultant since March 2001. He has been an investment banker with Daniel Stewart and Company since May 2001, executive vice president and CFO of Foamex International, Inc. from March 2001 to May 2001. Prior thereto, he was a vice president of Union Carbide Corporation from January 1996 to March 2001. He was previously an investment banker with Bear Stearns & Co. Inc. for more than nine years prior thereto. He is currently a member of the board of directors of Marsulex Inc. and of P.H. Glatfelter Company.

        William F. Stoll, Jr.    has served as a director of our company since December 1999. Mr. Stoll has been an Executive Vice President and General Counsel to Borden Chemical, Inc. (formerly Borden, Inc.) since 2001 and was an Senior Vice President and General Counsel from 1996 through 2001. Prior thereto he was employed as a counsel to Westinghouse Electric Corporation for more than 20 years, his most recent position being Vice President and Deputy General Counsel from 1993 to 2001. He is currently a member of the board of directors of Borden Chemical & Plastics, L.P.

Governance Agreement

        In connection with the Borden packaging acquisition, we entered into a Governance Agreement with Borden, dated as of June 20, 1996, with respect to certain matters relating to the corporate governance of our company. The Governance Agreement provides that our board of directors shall initially consist of ten members. Borden is entitled to designate four persons to serve on the board,

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subject to reduction in the event that Borden's stockholdings are reduced below 25% of the outstanding common stock of our company, and to participate in the selection of one independent director so long as Borden's stockholdings remain at 10%.

        The Governance Agreement also provides that Borden will have certain rights to designate directors to serve on specified committees, that the approval of a number of directors that represent at least 66²/3% of the total number of directors will be required on certain specific board actions, and that, as long as Borden owns in excess of 25% of our outstanding shares, a Borden-designated director must be part of the 66²/3% majority. The Governance Agreement also provides Borden with preemptive rights to purchase additional shares in order to maintain its percentage ownership of our outstanding shares so long as Borden holds at least 20% of our outstanding shares.

        Our principal executive and administrative offices are located in a leased building in South Hackensack, New Jersey.

        We own all of our manufacturing facilities except for certain facilities in Australia and New Zealand. Sales offices are located at each of our plants.

        We are in the process of selling the land where our former United Kingdom's manufacturing plant and sales office previously stood with an anticipated closing during the first six months of fiscal 2003.

        The following chart sets forth manufacturing facilities operated by the Company:

(1)

Where we maintain multiple facilities at any particular location, the square footage has been aggregated. All facilities are owned by us, except for the following facilities, subject to leasehold interests: Christchurch, New Zealand (one of two facilities), Auckland, New Zealand, and Sydney, Australia (one of two facilities).

(2)

We also have one manufacturing facility used by Rapak, our joint venture, which is owned and located in Feilding, New Zealand (86,000 sq.ft.).

        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. However, we

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are in the process of increasing capacity and automating some manufacturing operations and relocating and consolidating some manufacturing operations in Europe and in Asia/Pacific.

        In aggregate, we currently use approximately 3.2 million square feet of manufacturing, office and warehouse. Usually our sales offices are assigned to each of our plants. As of October 31, 2002, our manufacturing facilities had a combined average annual production capacity exceeding one billion pounds.

        We are, from time to time, a party to litigation arising in the normal course of its business. We believe that there are currently no material legal proceedings the outcome of which would have a material adverse effect on our financial position, our results of operations or our liquidity.

        Not applicable.

PART II

        Our Common Stock is quoted on the NASDAQ National Market under the symbol "AEPI." The high and low closing prices for our Common Stock, as reported by NASDAQ Stock Market, Inc., for the two fiscal years ended October 31, 2001 and 2002, respectively, are as follows:

        On January 24, 2003, the closing price for a share of our common stock, as reported by Nasdaq, was $9.75.

        As of January 24, 2003, our common stock was held by approximately 1,800 stockholders of record or through nominee or street name accounts with brokers.

        No dividends have been paid to stockholders since December 1995. We paid cash dividends to our stockholders each fiscal quarter during the period from May 1, 1993, through October 31, 1995. In December 1995 our board of directors announced that future dividends would be suspended and that otherwise available funds would be reinvested in our business. The payment of future dividends is within the discretion of the board of directors and will depend upon business conditions, our earnings and financial condition and other relevant factors. We are subject to a number of covenants under our Loan and Security Agreement and under the Indenture pursuant to which our 9.875% Senior Subordinated Notes were issued, including restrictions on the amount of dividends that may be paid.

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*

Selected consolidated financial data for the year ended October 31, 1998, has been restated to record the disposal of the Proponite division, which has been accounted for as a discontinued operation.

        In June 2001, the Financial Accounting Standards Board issued SFAS No. 142, "Goodwill and Other Intangibles". Under the provisions of SFAS No. 142, goodwill and intangible assets with indefinite lives are not amortized, but tested annually for impairment or whenever there is an impairment indicator. In addition, upon adoption of SFAS No. 142, all goodwill must be assigned to reporting units for purposes of impairment testing and is no longer subject to amortization.

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        The following table sets forth the net loss and earnings per common share computations for the years ended October 31, 2001 and 2000, respectively, as if SFAS No. 142 was adopted as of November 1, 1999:

Overview

        Our primary business is the manufacturing and marketing of plastic films for use in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agricultural and textile industries. We currently have manufacturing operations located in nine countries in North America, Europe, and the Asia/Pacific region. We manufacture plastic films principally from resins blended with other raw materials. We may either sell the film or further process it by metallizing, printing, laminating, slitting or converting it. Our processing technologies enable us to create a variety of value-added products according to the specifications of our customers.

        Resin costs generally average between 60% and 65% of the cost of goods sold. Since resin costs typically fluctuate, selling prices are generally determined as a "spread" over resin costs, usually expressed as cents per pound. Accordingly, costs and profits are most often expressed in cents per pound, and, with certain exceptions, 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 should, 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 should result in lower sales revenues with higher gross profit margins. During fiscal 2002, as a result of frequent increases in resin prices, customer resistance and competitive pressure, we were not able to pass on a large part of these increases, and this adversely affected our revenue, gross profit and earnings. There can be no assurance that we will be able to pass on resin price increases on a penny for penny basis in the future.

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Results of Operations

Year ended October 31, 2002, as compared to Year Ended October 31, 2001

        Net sales for the year ended October 31, 2002, increased by $20.9 million, or 3.3%, to $660.6 million from $639.7 million for the year ended October 31, 2001. Net sales in North America decreased to $408.7 million in fiscal 2002 from $417.2 million during fiscal 2001. The decline resulted from an overall decrease in raw materials cost as compared to the prior fiscal year, resulting in a 9.5% decrease in per unit selling prices partially offset by a 8.3% increase in sales volume. Net sales in Europe decreased $3.2 million or 2.1% to $153.0 million for fiscal 2002 from $156.2 million for fiscal 2001. This decrease was primarily due to a 1.4% decrease in average selling prices and 1.0% decrease in sales volume as a result of the competitive market place in the region. Net sales in Asia/Pacific increased 49.2% to $98.9 million during fiscal 2002 from $66.3 million for fiscal 2001, primarily due to the acquisition of the Visypak film and laminating businesses located in New Zealand and Australia, which increased sales volume by 36.8% and average selling prices by 9.1%.

        Gross profit for the year ended October 31, 2002, was $122.5 million compared to $121.7 million for the year ended October 31, 2001. Gross profit in North America decreased $3.5 million or 3.7% to $91.3 million for the year ended October 31, 2002. Although average raw materials cost per unit was below those incurred in the prior year, resin costs increased substantially during the last four months of fiscal 2002. Reductions in per unit manufacturing costs resulting from the company's cost containment efforts combined with the effects of increases in volume were insufficient to fully offset the company's inability to pass though these increased resin costs to our customers in the highly competitive market place. Gross profit in Europe decreased 7.3% to $21.2 million for the year ended October 31, 2002, primarily due to the continuing general economic pressures of the region and the competitive marketplace, which resulted in lower average selling prices. During the same period in fiscal 2001, the European region incurred additional costs of $1.8 million relating to its shutdown of the UK manufacturing facility and set up costs on the transfer of the UK manufacturing equipment to Spain. Asia/Pacific gross profit for fiscal 2002, increased by 71.4% to $10.0 million, as a result of the acquisition of the Visypak film and laminates businesses, which increased sales volume of higher gross margin products in the region, which offset lower average per unit selling prices of other products. The general economic pressures and highly competitive marketplace in the region negatively effected the Asia/Pacific margins. Gross profit for fiscal 2001 included $1.4 million of restructuring charges recorded for the shut down of the Melbourne, Australia facility.

        Operating expenses for the year ended October 31, 2002, were $103.7 million, an increase of $4.5 million or 4.5% from $99.2 million for the year ended October 31, 2001. Delivery expenses increased to $35.9 million in the current period from $33.8 million in the prior fiscal year, primarily due to the 8.4% increase in worldwide sales volume, which increased our third party delivery costs. Selling and general and administrative expenses increased by $2.4 million to $67.8 million in fiscal 2001 from $65.4 million in fiscal 2001. This increase can be primarily attributed to the Visypak acquisition and commissions paid on the increased sales volume sold during the year offset by a decrease of $1.4 million of goodwill amortization from fiscal 2001. Effective November 1, 2001, the company adopted the provisions of SFAS No. 142 and therefore ceased the amortization of its goodwill.

        Interest expense for the year ended October 31, 2002, was $25.2 million compared to $28.2 million for the prior year. The decrease in interest expense resulted from lower average interest rates paid during the current period partially offset by higher average debt outstanding for the period.

        On November 2, 2001, the Company acquired all of the shares of the New Zealand and Australian flexible packaging businesses of Visypak Operations PTY Limited ("Visypak") for approximately $9.3 million US dollars. Immediately following the acquisition, the Company combined its Liquipac (bag-in-box) business with the liquibag systems business it had acquired from Visypak and sold 49.9% of the new company to DS Smith (UK) Limited, a wholly-owned subsidiary of DS Smith, Plc., for $8.9 million, resulting in a gain of $6.8 million.

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        Other income (expense), net for the year ended October 31, 2002, amounted to a $1.6 million expense versus other income of $5.1 million for fiscal 2001. This amount included foreign currency transaction losses of $1.4 million realized during the current period versus gains of $607,000 in the prior year. The Company also had gains on sales of building and equipment of $37,000 versus $4.2 million in the prior year, which included a $2.5 million gain on the sale of its former New Jersey operating facility, and other miscellaneous income and expenses

Results of Operations

Year Ended October 31, 2001, as Compared to Year Ended October 31, 2000

        Net sales for the year ended October 31, 2001, decreased by $61.6 million or 8.8% to $639.7 million from $701.3 million in the prior fiscal year. Net sales in North America decreased to $417.2 million during fiscal 2001 from $449.7 million in fiscal 2000, or 7.2%, primarily due to a 4.2% decrease in sales volume in addition to a 3.2% decrease in per unit selling prices as a result of lower raw material costs, primarily resin, which were partially passed through to customers. Net sales in Europe decreased to $156.2 million for fiscal 2001 from $179.0 million in fiscal 2000, or 12.7%, primarily due to a 7.9% decrease in average selling prices in addition to a decrease in sales volume of 5.2% because of the continuing economic pressures of the region. Net sales in Asia/Pacific decreased to $66.2 million in fiscal 2001 from $72.7 million in fiscal 2000, or 8.8%, primarily due to decreases of 4.9% in average selling prices and 4.2% in sales volume, which resulted from the economic pressures of the region.

        Gross profit for the year ended October 31, 2001, amounted to $121.7 million compared to $123.5 million for fiscal 2000. North America experienced an 8.0% increase in gross profit of $7.0 million to $94.8 million for fiscal 2001 as a result of lower raw material costs and change in product mix. Gross profit in Europe decreased 19.5% to $21.1 million for fiscal 2001, primarily due to a decrease in average selling prices of 7.9% in addition to a reduction in sales volume of 5.2%, both of which resulted from the continuing economic pressures of the region. The European businesses also incurred additional costs of $1.8 million in both fiscal 2001 and 2000 associated with the shutdown of our North Baddesley, England, facilities and costs associated with the transfer of the manufacturing equipment from the UK to Spain. Asia/Pacific gross profit for fiscal 2001 decreased by $3.8 million, or 39.6%, as a result of a 4.9% decrease in average per unit selling prices and a 4.2% decrease in volume due to the competitive and economic pressures of the region. Gross profit was further reduced by $1.4 million for fiscal 2001 for the restructuring charges recorded for the shut down of the Melbourne, Australia, facility.

        Operating expenses for the year ended October 31, 2001 decreased $3.3 million, or 3.2%, to $99.2 million from $102.6 million in fiscal 2000. Delivery expenses decreased $3.2 million, primarily due to a decrease in average third party delivery costs in North America and the reduction in worldwide sales volume of 4.4% in fiscal 2001 versus fiscal 2000. Selling and general and administrative expenses decreased by approximately $200,000, with no significant increases or decreases in any one area.

        Interest expense for the year ended October 31, 2001, was $28.2 million compared to $31.8 million for the year ended October 31, 2000. This decrease in interest expense resulted from lower average debt outstanding for the period combined with lower average interest rates paid during the current period.

        Other income (expense) for fiscal 2001 amounted to $5.1 million. This amount included foreign currency exchange gains realized during the period, gains on sales of property, plant and equipment and interest income.

        In April 2001, the Company sold its one half interest in Hitachi Filtec joint venture for $10.1 million, which resulted in a loss of $6.5 million after all fees and investment costs.

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        Net loss from continuing operations for fiscal 2001, was $4.4 million compared to net loss from continuing operations of $4.3 million for fiscal 2000. This additional loss was primarily due to the decrease in average selling prices and sales volume for the fiscal year. The Company also incurred additional restructuring charges of $1.8 million for the close down of its manufacturing facilities in England and $1.4 million of restructuring charges for the closedown of its Melbourne, Australia, plant.

Liquidity and Capital Resources

        We have historically financed our operations through cash flow generated from operations and borrowings by us and our subsidiaries under various credit facilities. Our principal uses of cash have been to fund working capital, including operating expenses, debt service and capital expenditures.

        Our working capital amounted to $46.6 million at October 31, 2002, compared to $42.2 million at October 31, 2001. This $4.4 million increase in working capital is primarily the result of our acquisition of Visypak in Asia/Pacific, which increased net working capital, and an increase of $1.8 million in current assets representing the net book value of our property which is held for sale in the United Kingdom. Such sale is expected to close during the first six months of fiscal 2003. These increases were offset by increased short-term borrowings of our foreign subsidiaries due to the weakening of the United States dollar during the year ended October 31, 2002. The remaining increases and decreases in components of our financial position reflect normal operating activity.

        On November 20, 2001, we entered into a Loan and Security Agreement with Congress Financial Corporation, as agent, and the financial institutions named in the agreement, as Lenders. Under this new credit facility the Lenders provided a maximum credit facility of $85 million, including a letter of credit facility of up to $20 million. Amounts available for borrowing are based upon the sum of eligible domestic values of buildings and equipment at the closing date and eligible accounts receivable and inventories on a monthly basis. The new credit facility is secured by mortgages and liens on our domestic assets and on 66% of our equity ownership in certain foreign subsidiaries. The agreement contains customary covenants, including limitations on the incurrence of debt, the disposition of assets, the making of restricted payments, and minimum EBITDA requirements if the loan's excess availability is less than $20.0 million. At the closing, we borrowed the sum of $52.1 million, of which $51.8 million was used to pay off and terminate the existing term loan and revolving credit facility. Rates under the new facility are comparable to those under the prior facility. As of October 31, 2002, there was $38.2 million outstanding under this credit facility with additional availability of $37.6 million. This credit facility expires in November 2006 and is expected to be refinanced at that time.

        We maintain various unsecured short-term credit facilities at our foreign subsidiaries. At October 31, 2002, the aggregate amount outstanding under such facilities was $15.2 million, and $19.8 million was available for borrowing. Borrowings with these facilities are used to support operations at such subsidiaries and are generally serviced by local cash flow from operations.

        Our cash and cash equivalents were $2.7 million at October 31, 2002, as compared to $3.2 million at October 31, 2001. Net cash provided in operating activities during the fiscal year ended October 31, 2002, was $20.0 million, primarily due to depreciation and amortization of $29.0 million, decreases in other current and long term assets of $4.2 million and an increase in accounts payable of $16.5 million offset by a net loss for the period of $1.8 million, increases in accounts receivable and inventories (net of provision for losses) of $13.4 million, in deferred tax assets of $1.4 million, the net gain of $6.8 million on the sale of a business, and reductions in accrued expenses and long-term liabilities of $6.6 million. In each period, the net decreases in other operating assets and liabilities reflect normal operating activity.

        Net cash used in investing activities during the twelve months ended October 31, 2002, was $23.1 million, resulting primarily from the acquisition of the Visypak business for $9.3 million and investment in capital expenditures of $23.3 million offset by the sales of interest in subsidiary, which resulted in net proceeds of $8.9 million and sales of equipment for approximately $540,000.

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        Net cash provided by financing activities during the fiscal 2002, was $11.7 million, reflecting net borrowings of $11.1 million under available credit facilities and proceeds from stock issuances of $631,000.

        The remaining increases and decreases in the components of our financial position reflect normal operating activity.

        The Company's aggregate commitments under its Loan Agreement, Senior Subordinated Debentures, foreign borrowings and noncancelable operating lease agreements as of October 31, 2002 are as follows:

(1)

The Company expects to refinance this debt during fiscal year 2007.

        The Company knows of no current or pending demands or commitments that will materially affect its liquidity.

        The Company's has approximately $5.8 million of unfunded pension benefit obligations for its foreign locations at October 31, 2002.

        We believe that our cash flow from operations, combined with the availability of funds under the new credit facility and credit lines available to our foreign subsidiaries for local currency borrowings will be sufficient to meet our working capital, capital expenditure and debt service requirements for the foreseeable future.

Effects of Inflation

        Inflation is not expected to have significant impact on our business.

Contingencies

        The Company's Holland subsidiary has been served by the European Commission with a notice to produce various documents and other evidence relating to its investigation of a possible violation of European Competition Law by the subsidiary. The Company is cooperating with the European Commission in its investigation. At this time, no litigation is pending against the Company involving this matter and the Company is not in a position to evaluate the outcome of this investigation. However, there can be no assurance that, in the event the European Commission serves a Statement of Objections instituting a proceeding against the Company's Holland subsidiary which results in a fine being assessed, that the amount of the fine would not be material.

Recently Issued Statements of Financial Accounting Standards

        In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from acquisitions, construction, development and/or normal use of assets. The Company also records a corresponding asset, which is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation will be

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adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. The Company adopted SFAS No. 143 on November 1, 2002. The Company does not expect that the adoption of SFAS No. 143 will have a material effect on the Company's financial position or results of operations.

        In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This Statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. The Company adopted SFAS No. 144 on November 1, 2002. The Company does not expect the adoption of SFAS No. 144 will have a material effect on the Company's financial position or results of operations.

        In July 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146") and nullifies EITF Issue No. 94-3. SFAS 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No. 94-3 had recognized the liability at the commitment date to an exit plan. The Company is required to adopt the 18 provisions of SFAS 146 effective for exit or disposal activities initiated after December 31, 2002. The Company does not expect that the adoption of SFAS 146 will have a material effect on the Company's financial position or results of operations.

        In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure an amendment of FASB Statement No. 123." SFAS 148 amends FASB Statement No. 123, "Accounting for Stock-Based Compensation", to provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation. It also amends the disclosure provisions of SFAS 123 to require prominent disclosures about the effects on reported net income of an entity's accounting policy decisions with respect to stock-based employee compensation. SFAS 148 also amends APB Opinion No. 28, "Interim Financial Reporting," to require disclosures about those effects in interim financial information. The amendments to SFAS 123 in paragraphs 2(a)-2(e) of the statement shall be effective for financial statements for fiscal years ending after December 15, 2002. The amendment to SFAS 123 in paragraph 2(f) of this statement and the amendment to Opinion 28 in paragraph 3 shall be effective for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. The Company currently accounts for its stock-based compensation awards to employees and directors under the accounting prescribed by Accounting Principles Board Opinion No. 25 and provides the disclosures required by SFAS No. 123. The Company believes that it will continue to account for its stock-based compensation awards to employees and directors under the accounting prescribed by Accounting Principles Board Opinion No. 25 and will adopt the additional disclosure provisions of SFAS 148 during the first quarter of its fiscal year ending October 31, 2003.

Critical Accounting Policies

        Management's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect

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the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to customer incentives, product returns, doubtful accounts, inventories, investments, intangible assets, income taxes, financing operations, retirement benefits, and contingencies and litigation. Management bases its estimates and judgements on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Management believes the following critical accounting policies affect its more significant judgements and estimates used in preparation of its consolidated financial statements.

•

Revenue recognition, including customer rebates, promotions and other incentive programs

•

Estimating valuation allowances and accrued liabilities, specifically the allowance for doubtful accounts, reserves for obsolete or potentially obsolete inventories, LIFO valuations and litigation accruals

•

Accounting for income taxes and estimating the realizability of deferred tax assets

•

Derivative instruments—cash flow hedges

•

Purchase accounting and valuation of investment in joint venture

•

Impairment of long-lived assets

        The Company recognizes sales and cost of sales at the time the product is shipped to the customer and records estimated reductions to revenue for customer rebates, promotions or other incentive programs. If market conditions were to decline, the Company may take actions to increase customer incentive programs, thus resulting in a reduction of gross sales and profit at the time the incentive is offered.

        Management estimates the allowance for doubtful accounts by analyzing accounts receivable balances by age, applying historical trend rates to the most recent 60 months' sales, less account write-offs to date. When it is deemed probable that a customer account is uncollectable, that balance is added to the calculated reserve. Actual results could differ from these estimates under different assumptions.

        Management reviews its physical inventories at each business unit to determine the obsolescence of the products on hand. When the Company determines it has some obsolete inventory, our North America operations scrap those inventory items and our international operations establish the appropriate reserve for these items. The Company maintains its United States inventory on the LIFO method of inventory valuation, except for supplies. The LIFO valuation is reviewed quarterly for net realizable value and adjusted accordingly.

        Management's current estimated ranges of liabilities related to pending litigation are based on management's best estimate of future costs. Final resolution of the litigation contingencies could result in amounts different from current accruals and, therefore, have an impact on the Company's consolidated financial results in a future reporting period. The Company is involved in routine litigation in the normal course of its business and these proceedings are not expected to have a material adverse impact on the Company's results of operations, financial position or liquidity.

        Management accounts for income taxes in accordance SFAS No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, an asset and liability approach is required. Such approach results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. As part of the process of preparing the Company's consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which the Company

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operates. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in the Company's consolidated balance sheet.

        The realizability of the Company's deferred tax assets is primarily dependent on the future taxable income of the entity to which the deferred tax asset relates. Management assesses the likelihood that such deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, a valuation allowance must be established. Should the future taxable income of such entities be materially different from management's estimates an additional valuation allowance may be necessary in future periods. Such future amounts, if necessary, could be material to our results of operations and financial position.

        The Company operates internationally, giving rise to exposure to market risks from changes in interest rates and foreign exchange rates. Derivative financial instruments are utilized by the Company to reduce these risks. The Company has established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. The Company does not hold or issue derivative financial instruments for trading purposes. The Company primarily enters into forward exchange contracts with terms that mirror the existing intercompany loans, which give rise to the foreign currency risk. These derivatives do not qualify as hedges and gains and losses are recorded in the consolidated statements of operations. In addition, the Company hedges third party commitments with cash flow hedges. At the inception of the hedge the derivative is designated as a cash flow hedge and appropriate documentation is prepared. On an on going basis the Company assesses hedge effectiveness for all designated hedges in order to determine that each derivative continues to be effective.

        The acquisition of Visypak in November 2001 was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the assets acquired and the liabilities assumed based upon the estimated fair values at the date of the acquisition. We formed a New Zealand company, Rapak Asia Pacific Ltd. ("Rapak") and sold 49.9% of the venture to DS Smith as part of a joint venture agreement for the operation of Rapak. Rapak acquired the "bag-in-box" business conducted by Visy in New Zealand and Australia, and we transferred our New Zealand Liquipac business to Rapak. Since the Company does not have an effective controlling voting interest in this venture, it has accounted for its investment under the equity method of accounting. The Company records its equity in the income or losses of this investee based upon the best information available as of the date of the financial statements. Adjustments, if any, to these amounts are made in the period that such information becomes available.

        Prior to November 1, 2001, long-lived assets and certain identifiable intangibles held and used by the Company were reviewed for impairment whenever events or changes in circumstances indicated the carrying amount of an asset may not be recovered under the provisions of SFAS No. 121. Assets to be disposed of were reported at the lower of the carrying value or the fair market value less costs to sell. On November 1, 2001, the Company elected to adopt the provisions of SFAS No. 142. As required by SFAS No. 142, the Company performed an assessment of whether there was an indication that goodwill was impaired at the date of adoption. In connection therewith, the Company determined that its operations represented one reporting unit and determined the reporting unit's fair value and compared it to the reporting unit's book value. As of November 1, 2001, the Company's reporting unit's fair value exceeded its carrying amounts. Accordingly, the Company was not required to perform any further transitional impairment tests. As of September 30, 2002, the Company updated its test concluding that there were no indications of impairment. The Company plans to perform its impairment test each September 30 in the future. The Company continued to review its other long-lived assets, primarily property, plant and equipment, in accordance with the provisions of SFAS No. 121 through October 31, 2002.

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Forward Looking Statements

        Management's Discussion and Analysis of Financial Condition and the Results of Operations and other sections of this report contain "Forward Looking Statements" about prospects for the future, such as our ability to generate sufficient working capital, our ability to continue to maintain sales and profits of our operations and our ability to generate sufficient funds to meet our cash requirements. We wish to caution readers that the assumptions which form the basis for forward-looking statements with respect to, or that may impact earnings for the year ending October 31, 2003, include many factors that are beyond our ability to control or estimate precisely. These risks and uncertainties include, but are not limited to, availability of raw materials, ability to pass raw material price increases to customers in a timely fashion, the potential of technological changes which would adversely affect the need for our products, price fluctuations which could adversely impact our inventory, and changes in United States or international economic or political conditions, such as inflation or fluctuations in interest or foreign exchange rates. Parties are cautioned not to rely on any such forward-looking statements or judgments in this section and in other parts of this report.

        The Company is exposed to market risk from changes in interest rates and foreign currency exchange rates, which may adversely affect its results of operations and financial condition. The Company seeks to minimize these risks through operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company does not purchase, hold or sell derivative financial instruments for trading purposes.

Interest Rates

        The Company may use interest rate swaps, collars and options to manage its exposure to fluctuations in interest rates. At October 31, 2002, the Company was not a party to any interest rate swaps, collars or options.

        The fair value of the Company's fixed interest rate debt varies with changes in interest rates. Generally, the fair value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. At October 31, 2002, the carrying value of the Company's total debt was $255.9 million of which approximately $202.5 million was fixed rate debt.

        As of October 31, 2002, the estimated fair value of the Company's fixed rate debt, which includes the cost of replacing the Company's fixed rate debt with borrowings at current market rates, was approximately $198.9 million

Foreign Exchange

        The Company enters into derivative financial instruments (principally foreign exchange forward contracts against the Euro, Canadian dollar, Australian dollar and New Zealand dollar) primarily to hedge intercompany transactions and trade sales and purchases. Foreign currency forward contracts reduce the Company's exposure to the risk that the eventual cash inflows and outflows, resulting from these intercompany and third party trade transactions denominated in a currency other than the functional currency, will be adversely affected by changes in exchange rates.

        As of October 31, 2002, the Company had foreign exchange forward contracts outstanding with a notional contract amount of $120.2 million, all of which have a maturity of less than one year. At October 31, 2002, the net fair value of derivative financial instruments designated as cash flow hedges by the Company was a loss of $11,000, which is included in accrued expenses, and at October 31, 2001, the fair value of derivative financial instruments held by the Company was a gain of $956,000, which was recognized for the period in other current assets and was also reflected in shareholders' equity as a component of other comprehensive income.

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        The Company's foreign subsidiaries had third party outstanding debt of approximately $15.2 million and $1.5 million on October 31, 2002 and 2001, respectively. Such debt is generally denominated in the functional currency of the borrowing subsidiary. The Company believes that this enables it to better match operating cash flows with debt service requirements and to better match foreign currency-denominated assets and liabilities, thereby reducing its need to enter into foreign exchange contracts.

Commodities

        The Company uses commodity raw materials, primarily resin, and energy products in conjunction with its manufacturing process. Generally, the Company acquires such components at market prices and does not use financial instruments to hedge commodity prices. As a result, the Company is exposed to market risks related to changes in commodity prices in connection with these components.

Risk Factors

        You should carefully consider the risks and uncertainties we describe below and the other information in this Annual Report or incorporated by reference before deciding to invest in, or retain, shares of our common stock. These are not the only risks and uncertainties that we face. Additional risks and uncertainties that we do not currently know about or that we currently believe are immaterial, or that we have not predicted, may also harm our business operations or adversely affect us. If any of these risks or uncertainties actually occurs, our business, financial condition or operating results could be materially harmed.

Industry Risks

Our business is dependent on the availability of raw materials and our ability to pass on price increases to our customers

        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. The principal raw materials that we use in our products are polyethylene, polypropylene and polyvinyl chloride resins. Our ability to operate profitably is dependent, in large part, on the market for these resins. The supply and demand for these resins and the petro-chemical intermediates from which they are produced are subject to substantial price fluctuations and market disturbances, including occasional shortages of supply. Prices fluctuate as a result of changes in natural gas and oil prices and the capacity of the companies that produce these products.

        If there is overcapacity in the production of any specific product that we manufacture and sell, we frequently are not able to pass through the full amount of any cost increase. If resin prices increase and we are not able to fully pass on the increases to our customers, our profits and our financial condition will be adversely affected.

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

        The business of supplying plastic packaging products is extremely competitive. We believe that there are few barriers to entry into many of our markets. As a result, we have experienced, and may continue to experience, competition resulting from new manufacturers of various types of film in our product line. Also, when new manufacturers enter the market for a product or existing manufacturers increase capacity, they frequently reduce prices to achieve increased market share. Companies can also develop products that have superior performance characteristics to our products. Any of these actions by our competitors can adversely affect our sales.

        In addition, we face competition from a substantial number of companies, which sell similar and substitute packaging products. Some of these competitors are subsidiaries or divisions of large

24

international diversified companies with extensive production facilities, well-developed sales and marketing staffs and substantial financial resources. Competitive products are also available from a number of local manufacturers. This results in competition which is highly price sensitive. We also compete on the basis of quality, service, timely delivery and differentiation of product properties.

        An increase in competition could result in material selling price reductions or loss of our market share. This could materially adversely affect our operations and financial condition.

We are subject to various environmental laws and regulations which govern our operations and which may result in potential liability

        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 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.

        Future compliance with these laws and regulations may require material expenditures by us. 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. 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.

Company Risks

We experience fluctuations in operating results, which may cause our stock price to fluctuate

        Our operating results have been subject to significant quarterly and annual fluctuations. These fluctuations can be caused by:

•

global economic conditions;

•

competition;

•

variability in raw material prices;

•

acquisitions;

•

asset sales;

•

business restructuring initiatives;

•

seasonality; and

•

foreign currency fluctuations

        These fluctuations make it more difficult for investors to compare our operating results to corresponding prior year periods. These fluctuations may also cause our stock price to fluctuate. You should not rely on our results of operations for any particular quarter or year as indicative of our results for a full year or any other quarter.

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Because we have limited contractual relationships with our customers, our customers may unilaterally reduce the purchase of our products

        We generally do not enter into 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.

Our business may be adversely affected by risks associated with foreign operations

        Approximately 38% of our revenues are generated from operations conducted outside North America. Conducting an international business inherently involves a number of difficulties and risks, including the following:

•

currency fluctuations;

•

inflation;

•

export restrictions;

•

compliance with existing and changing regulatory requirements;

•

tariffs and other trade barriers;

•

difficulties in staffing and managing international operations;

•

difficulties in shifting production between different facilities;

•

longer payment cycles;

•

problems in collecting accounts receivable;

•

political instability and economic downturns;

•

seasonal reductions in business activity in Europe during the summer months; and

•

potentially adverse tax consequences.

        We have experienced and may continue to experience any or all of these risks. Any of these factors may materially adversely affect our sales, profits, cash flow and financial position, which could adversely affect our stock price.

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

        Of our employees in North America, unions represent 265 employees under three collective bargaining agreements. These agreements expire in March 2004 and in February and March 2005. Further, we have 17 collective bargaining agreements at our international facilities, covering substantially all of the hourly employees at these facilities. Changes in these agreements, over which we have no control, could adversely affect us.

Our business may be adversely affected by results of ongoing health and safety studies on plastics and resins

        Continuing studies of the potential effect on health and safety of various resins and plastics, including polyvinyl chlorides, 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 profits and financial condition.

Anti-takeover and change of control provisions may adversely affect our stockholders

        Our directors are elected for three-year terms, so approximately one-third of the board is elected each year. We are subject to a Delaware statute regulating business combinations. These factors could

26

discourage, hinder or preclude an unsolicited acquisition of our company and could make it less likely that stockholders receive a premium for their shares as a result of any such attempt. In addition, our Board of Directors may issue, without stockholder approval, shares of preferred stock. The preferred stock could have voting, liquidation, dividend or other rights superior to those of the common stock. Therefore, if we issue preferred stock, your rights as a common stockholder may be adversely affected.

        In connection with our 1998 Senior Subordinated Notes offering, we entered into an Indenture which requires us, upon a change of control, to offer to purchase the outstanding Senior Subordinated 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 Subordinated Notes, which could depress our stock price.

Possible Violation of European Competition Law could adversely affect us

        The European Commission has served our Holland subsidiary with a notice to produce various documents and other evidence relating to its investigation of a possible violation of European Competition Law by that subsidiary. We are cooperating in this investigation. No litigation has been instituted against us involving this matter. However, we are not in a position to evaluate the outcome of the investigation. If the litigation is instituted, a fine may be assessed. We are not in a position to predict whether litigation will be commenced and, if commenced, and our subsidiary is found guilty, that the fine would not be material.

Financial Risks

We have a high level of debt relative to our equity, which reduces cash available for our business, may adversely affect our ability to obtain additional funds and increases our vulnerability to economic or business downturns

        We are highly leveraged and our operations are subject to restrictions imposed by the terms of our indebtedness. As of October 31, 2002, our total consolidated indebtedness, including short-term borrowings, was approximately $256 million and our total shareholders' equity was approximately $62 million. Total indebtedness represented 80.5% of the total capitalization.

        Accordingly, we are subject to all of the risks associated with substantial indebtedness, including:

•

a substantial portion of our cash flow from operations will be used to service our indebtedness;

•

we will have reduced funds available for operations, future business opportunities and other purposes;

•

our ability to obtain additional financing for acquisitions, working capital, capital. expenditures, general corporate or other purposes may be impaired;

•

we are more vulnerable to economic downturns and less able to withstand competitive pressures and react to changes in our industry and general economic conditions.

•

The parent company to some extent finances its foreign subsidiaries. As these inter-company loans increase, our exposure to currency flucuations and costs associated with these loans increases.

        In addition, the Indenture under which our $200.0 million outstanding Senior Subordinated Notes were issued and the Loan and Security Agreement under which a major portion of our other borrowings were made contain covenants which may limit our operating flexibility with respect to certain business matters.

27

If we fail to meet our scheduled debt service requirements, we will need to refinance our indebtedness or sell material assets, and if we fail to do so, a substantial portion of our assets can be sold by the lender under the Loan and Security Agreement.

        If we are unable to meet our future debt service requirements from our cash flow, we will be required to adopt one or more alternatives such as refinancing or restructuring our indebtedness, selling material assets or operations or seeking to raise additional debt or equity capital. There can be no assurance that any of these actions could be taken on a timely basis or on satisfactory terms or that we will be able to satisfy our additional capital requirements. In addition, the terms of the Indenture and the Loan and Security Agreement may prohibit us from adopting any of one or more of the alternatives which might otherwise be available.

        Our borrowings under the Loan and Security Agreement are secured by mortgages and liens on our domestic assets and on 66% of our ownership interest in certain foreign subsidiaries. Accordingly if a default occurs under the Loan and Security Agreement and is not cured, it may result in a substantial reduction or termination of our business. Further, such default would also constitute a default under the Indenture pursuant to which our Senior Subordinated Notes were issued.

This Annual Report also contains certain forward-looking statements that involve risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as "expects," "anticipates," "intends," "plans" and similar expressions. Our actual results could differ materially from those discussed in these statements. Factors that could contribute to such differences, include, but are not limited to, those discussed above and elsewhere in this Annual Report

        Index:

        Report of Independent Public Accountants:

A.

Report of KPMG LLP, Independent Public Accountants

B.

Copy of report of Arthur Andersen LLP previously issued and not reissued

        Financial Statements:

Consolidated Balance Sheets as of October 31, 2002 and 2001

Consolidated Statements of Operations for the years ended October 31, 2002, 2001 and 2000

Consolidated Statements of Shareholders' Equity for the years ended October 31, 2002, 2001 and 2000

Consolidated Statements of Cash Flows for the years ended October 31, 2002, 2001 and 2000

Notes to Consolidated Financial Statements for the year ended October 31, 2002

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        Financial Statement Schedules:

Schedules included are set forth in Item 15.

        On July 15, 2002, the Company's Board of Directors, based on the recommendation of its Audit Committee, dismissed Arthur Andersen LLP ("Andersen") as the Company's independent public accountants and engaged KPMG LLP ("KPMG") to serve as the Company's independent public accountants for the fiscal year ending October 31, 2002.

        Andersen's reports on the Company's consolidated financial statements for each of the fiscal years ended October 31, 2001 and 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principals.

        During the fiscal years ended October 31, 2001 and 2000 and thru July 15, 2002, there were no disagreements with Andersen on any matter of accounting principal or practice, financial statement disclosure or auditing scope or procedure which, if not resolved to Andersen's satisfaction, would have caused them to make reference to the subject matter in connection with their report on the Company's consolidated financial statements for such years and there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K.

        The Company requested Andersen to furnish a letter addressed to the Securities and Exchange Commission stating whether Andersen agreed with the statements made above by the Company. The Company was informed by Arthur Andersen LLP that because of its current situation, Arthur Andersen LLP would not be able to provide such a letter.

        During the years ended October 31, 2001 and 2000 and thru July 15, 2002, the Company did not consult KPMG with respect to the application of accounting principals to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.

PART III

        For information concerning this item, see "Item 1. Business Management" of Part I hereof and the table and text under the captions "Election of Class B Directors and Nominee Biographies," "Standing Directors Biographies" and "Board of Directors Information" in the Proxy Statement to be filed with respect to the Annual Meeting of Stockholders to be held on April 8, 2003 (the "Proxy Statement"), which information is incorporated herein by reference.

        For information concerning this item, see the text and table under the caption "Executive Compensation" in the Proxy Statement, which information is incorporated herein by reference.

        For information concerning this item, see the table and text under the caption "Stock Ownership" in the Proxy Statement, which information is incorporated herein by reference.

        For information concerning this item, see the text under the caption "Other Information

29

Concerning Directors, Officers and Shareholders" in the Proxy Statement, which information is incorporated herein by reference.

PART IV

        Within 90 days prior to the filing of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's senior management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in its periodic filings with the SEC, including annual reports such as this Annual Report, as reported accurately and suitably within the time period specified in the SEC's Rules and Forms. Based upon that evaluation, senior management concluded that the Company's disclosure controls and procedures are effective in causing material information related to the Company (including its consolidated subsidiaries) to be recorded, processed, summarized and reported by the Company's management on a timely basis and to ensure that the quality and timeliness of the Company's public disclosures comply with applicable disclosure obligations.

        There were no significant changes in the Company's internal controls, implemented during the quarter ended October 31, 2002, or in other factors that in management's estimation could significantly affect these internal controls after the date of the Company's most effective evaluation.

(a)

1.    Financial Statements:

        The financial statements of the Company filed in this Annual Report on Form 10-K are listed in Part II, Item 8.

2.

Financial Statement Schedules:

        The financial statement schedules of the Company filed in this Annual Report on Form 10-K are listed in the attached Index to Financial Statement Schedules.

3.

Exhibits:

        The exhibits required to be filed as part of this Annual Report on Form 10-K are listed in the attached Index to Exhibits.

(b)

Current Reports on Form 8-K:            

None

30

INDEPENDENT AUDITORS' REPORT

The Board of Directors
AEP Industries Inc.:

        We have audited the accompanying consolidated balance sheet of AEP Industries Inc. and subsidiaries as of October 31, 2002 and the related consolidated statement of operations, shareholders' equity and cash flows for the year then ended. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit. The consolidated balance sheet of AEP Industries Inc. as of October 31, 2001 and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended October 31, 2001 and 2000 and schedule referred to below for the years ended October 31, 2001 and 2000 were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those consolidated financial statements and schedule in their report dated January 17, 2002.

        We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of AEP Industries Inc. and subsidiaries as of October 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

        Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule for the year ended October 31, 2002 listed in the index to financial statement schedules is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic 2002 consolidated financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic 2002 consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic 2002 consolidated financial statements taken as a whole.

        As discussed above, the 2001 and 2000 consolidated financial statements of AEP Industries Inc. and subsidiaries were audited by other auditors who have ceased operations. As described in Notes 2 and 22, these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," which was adopted by the Company as of November 1, 2001. In our opinion, the disclosures for 2001 and 2000 in Notes 2 and 22 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 consolidated financial statements of AEP Industries, Inc. and subsidiaries other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 consolidated financial statements taken as a whole.

/s/ KPMG LLP
Short Hills, New Jersey
January 13, 2003

31

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

This is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur Andersen LLP:

To AEP Industries Inc.:

        We have audited the accompanying consolidated balance sheets of AEP Industries Inc. (a Delaware corporation) as of October 31, 2001 and 2000, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended October 31, 2001. These consolidated financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AEP Industries Inc. as of October 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 2001, in conformity with accounting principles generally accepted in the United States.

        Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statement schedules is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Roseland, New Jersey
January 17, 2002

32

AEP INDUSTRIES INC.

CONSOLIDATED BALANCE SHEETS

AS OF OCTOBER 31, 2002 AND 2001

(in thousands, except share amounts)

The accompanying notes to consolidated financial statements are an integral part of these
consolidated balance sheets.

33

AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000

(in thousands, except per share data)

The accompanying notes to consolidated financial statements are an integral part of these statements.

34

AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000

(in thousands)

The accompanying notes to consolidated financial statements are an integral part of these statements.

35

AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED OCTOBER 31, 2002, 2001 AND 2000
(in thousands)