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

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended October 31, 2004

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

For the transition period from              to             

Commission file number 0-14550

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

Registrant's telephone number, including area code: (201) 641-6600

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 amendments to this Form 10-K.    ý

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

        The aggregate market value of the shares of the voting and non-voting stock held by nonaffiliates of the Registrant was approximately $55,932,942 based upon the closing price of the common stock, which was $11.94 on April 30, 2004, the last business day of the Registrant's most recently completed second fiscal quarter.

        The number of shares of the Registrant's common stock outstanding as of January 21, 2005, was 8,436,775.

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 12, 2005—Part III, except as specifically excluded in the Proxy Statement.

PART I

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, 2005, 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 report.

        This Annual Report 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.

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 eight countries in North America, Europe and the Asia/Pacific Region.

Recent Developments

        In December 2004, we engaged a global investment banker to explore strategic alternatives to our Australasian flexible packaging businesses including a sale, which may be in the best interests of these businesses as well as the parent company. We entered the Australasian market in 1996 through the purchase of Borden Global Packaging and through further investment and acquisition has grown the businesses to the number two market position in Australasia.

Fiscal 2004 Developments

        In July 2004, our management approved a plan to dispose of our Spanish subsidiary, a component of our European segment, because of its continued losses. We actively commenced marketing the sale of our Spanish subsidiary to interested parties in July 2004 and on July 26, 2004, placed the Spanish subsidiary in a Suspension of Payments status under Spanish law. The Spanish subsidiary manufactured a range of products in PVC stretch film, primarily for the automatic and manual wrapping of fresh food and for catering film use. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the disposal of the Spanish subsidiary has been accounted for as a discontinued operation and, accordingly, its assets and liabilities have been segregated from continuing

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operations in the accompanying consolidated balance sheets, and its operating results are segregated and reported as discontinued operations in the accompanying consolidated statements of operations for all fiscal years presented. After failed attempts to sell the Spanish operations, management placed the operation in liquidation on September 30, 2004 and initiated the process of selling the assets and settling the liabilities of the subsidiary. The net loss from discontinued operations for the year ended October 31, 2004 was $17.1 million. This loss includes a loss from Spanish operations of $5.7 million, including employee termination costs of $3.3 million and a reserve for lease termination of $0.9 million and losses from disposition of $9.9 million comprised of the write-down of machinery and equipment of $5.3 million to its estimated net realizable value less costs to sell, and the realization of $4.6 million of accumulated foreign currency translation losses, which, in accordance with SFAS No. 52, Foreign Currency Translation, have been included in the determination of the loss from disposition and an equal and offsetting amount is reported in accumulated other comprehensive loss.

        In July 2004, Kohlberg, Kravis Roberts & Co.("KKR") sold its 100% interest in Borden Holdings, Inc., now known as Borden Holdings, LLC ("Borden") to Apollo Management, L.P. ("Apollo") and the directors of our company serving by reason of designation by Borden when owned by KKR resigned from our Board of Directors, and Apollo designated Matthew Constantino, Eric L. Press, Robert V. Seminara and Jordan C. Zaken as persons designated by Borden to serve on our Board, pursuant to the Governance Agreement between our company and Borden described elsewhere in this report. They were then duly elected as directors.

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.

        The following table summarizes our product lines:

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        We currently have manufacturing operations located in eight countries. We divide our operations geographically into three principal regions, North America, Europe and Asia/Pacific. During fiscal 2004, North America, Europe and Asia/Pacific represented approximately 65%, 18% and 17%, 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 65 different formulations. These stretch and shrink PVC films are used for packaging of fresh red meats, poultry, fish, fruits, vegetables and bakery products. We also provide PVC films for windowing, blister packaging and aseptic shrink bundling film in the industrial marketplace.

        Our Resinite facility also manufactures dispenser (ZipSafe® 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.

        We manufacture unplasticized polyvinyl chloride film for use in battery labels and credit card laminates. The characteristics of this product are similar to cellophane and can be used as a low cost substitute.

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 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 variety of product applications, 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.

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        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. In fiscal 2004, 2003 and 2002, we sold approximately 88%, 90% and 86%, respectively, 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 some cost reductions.

Performance Films

        We manufacture a full range of co-extruded polyolefin films, and custom designed monolayer films designed specifically to service the flexible packaging market. These films are capable of being printed and laminated by third party flexible packaging converters and are used in the food, pharmaceutical, medical businesses and in a variety of other flexible packaging end users.

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, which are usually made directly for 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 66% of its stretch wrap to distributors, and 34% directly to end-users.

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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 food products, we expect to participate in the growing export market as packaged products are exported to China and Southeast Asia.

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 at two regionally selected facilities in Canada, at one Resinite plant in Europe strategically located in France, and in Australia and in New Zealand. We also manufacture unplasticized polyvinyl chloride films at our Griffin, Georgia facility.

        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.

        We manufacture flexible packaging and converted films in Europe at facilities strategically located in Holland and Belgium. We also manufacture custom films and converted films at our facilities in Australia and New Zealand.

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 layers of a co-extrusion 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.

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        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 by closing facilities and consolidating operations, 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 2004, we installed two ten-color printing presses, one each in Australia and New Zealand and we ordered a new cast stretch line for our North Carolina facility, a stretch hooder line for our Pennsylvania facility and a new UPVC line for our Georgia facility. We expect final installations to be completed in fiscal 2005.

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 2004 were from 25 major international resin suppliers, none of which accounted for more than 23% 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 cannot be passed on to customers. 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. The cost of resin, depending on the product line, averaged between 55% and 74% of the cost of goods during fiscal 2004. Resin pricing increased by 19.6% during fiscal 2004 in North America and at a much higher rate in European and Asia/Pacific regions. In North America, we were able to pass through the current and previous periods, resin increases in fiscal 2004; however resin increases in the European and Asia/Pacific markets were not all passed through in fiscal 2004 due to customer resistance and competitive pressure. This adversely affected our revenue, gross profit and earnings of our international businesses. 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 and other concentrates, are available from many sources.

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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 customer's particular needs and then 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 customer's 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 2004, 2003 and 2002 approximately 67%, 66% and 68%, respectively, of our sales in North America were directly to distributors with the balance representing sales to end-users. We serve approximately 6,000 customers worldwide, none of which accounts for more than 3% of our net sales.

        Sales and marketing efforts in Europe and in the Asia/Pacific region are made primarily by our sales force to end-users, although distributors are used in cases where the distributor/converter adds value to the product. Sales offices are usually assigned to each of our plants.

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.

        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 Asia/Pacific.

        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 16 persons. In addition, other members of management and supervisory personnel, from time to time, devote various

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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 2004 and 2003, we focused a significant portion of our research and development efforts on co-extruded high barrier products, one sided cling films, premium and hooder stretch film products, UPVC and shrink PVC products, and bundle film products.

        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 2004, 2003 and 2002, we spent approximately $1.7 million, $1.8 million and $1.5 million, respectively, for research and development activities for continuing operations. Research and development expense is included in cost of sales in our consolidated statements of 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 commodities. As a result, competition in such markets is based almost entirely on price and service.

Environmental Matters

        Our operations are subject to various federal, national, 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 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

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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 are not able to estimate any possible liability for these matters. However, 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, 2004, we had 2,734 employees worldwide, including officers and administrative personnel. In North America, we have three collective bargaining agreements covering 289 employees. These agreements expire in March 2007 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, which could effect our financial position, results of operations or liquidity.

Management

        At January 28, 2005, our directors and executive officers are as follows:

        In accordance with our Governance Agreement with Borden, Inc., now known as Borden Holdings, LLC ("Borden"), Messrs. Constantino, Press, Seminara, and Zaken are directors designated by Borden, Messrs. Barba, Feeney, Avia, Davis and Gelbard are directors designated by Management, and Mr. Stewart is jointly designated by Management and Borden.

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

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        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 has been Executive Vice President, Sales and Marketing since 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 has been Executive Vice President, Operations since December 1999. Prior thereto, he was Vice President, Operations since June 1997 and held various other positions with our company since 1994.

        Lawrence R. Noll has been a Vice President since September 1993 and Controller since 1996. He was a director of our company from September 1993 through January 2004, Vice President of Finance from September 1993 through November 1996, 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.

        Jack P. Adler has been employed by our company since December 2003. He was elected Vice President and General Counsel and Secretary in January 2004. Prior thereto, Mr. Adler was Chief Legal Counsel of AlphaNet Solutions, Inc. (an information technology and network services firm) from 1999 to 2003.

        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 was Executive Vice President of First Data Merchant Services (a global electric payment services firm) from 1993 to January 2002 and served as Divisional Vice President of Automatic Data Processing, Inc. (a global independent computing services firm) from 1984 to 1993.

        Matthew Constantino has served as a director of our company since July 2004. Mr. Constantino has been a principal of Apollo Management, L. P. (a private equity fund) ("Apollo") since 2002. Prior thereto, he was a student at the Wharton School of the University of Pennsylvania from 2000 to 2002 and an associate at ZS Fund (a private equity fund) from 1997 to 2000. He is currently a member of the board of directors of Resolution Specialty Materials, Inc. (a chemical supplier for coatings, composites, graphic arts and textile industries) and Young Patrons Society of Lincoln Center for the Performing Arts.

        Richard E. Davis has served as a director of our company since January 2004. Mr. Davis has been Vice President of Finance and Chief Financial Officer of Glatt Air Techniques, Inc. (a supplier of solids processing technology to pharmaceutical research and development and manufacturing organizations) since 1988. Prior thereto, Mr. Davis was Vice President, Finance and Chief Financial Officer of the GMI Group (a conglomerate with computer graphics, advertising, audio visual presentations, music and book publishing operations) from 1985 to 1988.

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        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 outside counsel to our company, from January 1997 to December 1999 and was a partner of such firm from 1974 to 1996.

        Eric L. Press has served as a director of our company since July 2004. Mr. Press has been a partner of Apollo from 1998 and was an associate of Wachtell, Lipton, Rosen & Katz (attorneys) from 1992 to 1998. He is currently a member of the board of directors of Quality Distribution, Inc (a public warehousing and distribution services company) and Quality Distribution, LLC.

        Robert V. Seminara has served as a director of our company since July 2004. Mr. Seminara has been a partner of Apollo since 2003. He was a managing director of Evercore Partners (a private equity group) from 1996 to 2003. He is currently a member of the board of directors of Borden Chemical, Inc. (a chemicals and consumer adhesive company), a subsidiary of Borden.

        Lee C. Stewart has served as a director of our company since December 1996. Mr. Stewart has been a financial 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. (a manufacturer of polyurethane products) from March 2001 to May 2001. Prior thereto, he was a Vice President of Union Carbide Corporation (a manufacturer of petrochemicals) 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. (a Toronto exchange company, providing outsourced environmental compliance services) and of P.H. Glatfelter Company, (a global manufacturer of specialty papers and engineering products) and a member of the Advisory Board of Daniel Stewart & Company.

        Jordan C. Zaken, Jr.    has served as a director of our company since July 2004. Mr. Zaken has been a principal of Apollo since 1999. Prior thereto he was an analyst with Goldman, Sachs & Co. from 1997 to 1999.

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, 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%. Apollo Management L.P. is the indirect owner of Borden.

        The Governance Agreement also provides that Borden will have certain rights to designate directors to serve on specified committees of the Board of Directors, 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 25% or more 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 (with certain specified exceptions) in order to maintain its percentage ownership of our outstanding shares so long as Borden holds at least 20% of our outstanding shares.

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ITEM 2.    PROPERTIES

        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, New Zealand and Italy. Sales offices are usually located at our plants.

        We are in the process of selling the land and building at our Turate, Italy, manufacturing site because of the liquidation of our FIAP operations, and we anticipate that the sale will be completed in fiscal 2005. The land and building are included in assets held for sale in our Consolidated Balance Sheets at October 31, 2004.

        We have closed our operations in Alicante, Spain, and are in the process of negotiating the termination of our operating lease with the owner of the land and building.

        The following chart sets forth the 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: Seano, Italy, Auckland, New Zealand, Melbourne, Australia (one of two facilities), and Sydney, Australia (one of two facilities).

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

        In the aggregate, we currently use approximately 2.7 million square feet of manufacturing, office and warehouse space. Usually we assign sales offices to each of our plants. As of October 31, 2004, our

13

manufacturing facilities had a combined average annual production capacity exceeding one billion pounds.

ITEM 3.    LEGAL PROCEEDINGS

        In February 2004, our New Zealand subsidiary was served with two summonses and complaints applicable to a business acquired by the subsidiary on November 2, 2001, and immediately transferred to a joint venture company, Rapak Asia Pacific Limited, in which the subsidiary held a 50.1% interest. The complaints allege approximately $9.0 million in damages for defective products manufactured both before and after November 2, 2001. We have referred these complaints to the insurance carriers that we believe are responsible to defend and indemnify our New Zealand subsidiary for the alleged liability. The insurance carriers have agreed to defend the actions subject to reservations of rights. We also believe we may be entitled to indemnification under various agreements. Based on developments to date, we believe that the outcome of these actions will not have a material adverse effect on our results of operations, financial position or liquidity.

        In addition, the Company and its subsidiaries are subject to claims and lawsuits which arise in the ordinary course of business. On the basis of information presently available and advice received from counsel representing the Company and its subsidiaries, it is the opinion of management that the disposition or ultimate determination of such claims and lawsuits against the Company will not have a material adverse effect on the Company's financial position, results of operations, or liquidity.

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

        Not applicable.

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PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

        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 The Nasdaq Stock Market, Inc., for the two fiscal years ended October 31, 2003 and 2004, respectively, are as follows:

        On January 21, 2005, the closing price for a share of our Common Stock, as reported by Nasdaq, was $18.75.

        On January 21, 2005, our Common Stock was held by approximately 1,700 stockholders of record or through nominee or street name accounts with brokers.

        No dividends have been paid to stockholders since December 1995. The payments of future dividends are restricted and 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.

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ITEM 6.    SELECTED FINANCIAL DATA

(1)

Operating income from continuing operations for the years ended October 31, 2004 and 2003 is net of FIAP shutdown costs (reversal) of $(2.0) million and $13.3 million, respectively.

(2)

On November 1, 2001, the Company adopted Statement of Financial Accounting Standards ("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, all goodwill must was 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:

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

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 eight 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, depending on the product line, average between 55% and 74% of the cost of goods sold. Since resin costs 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 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, and thus in both cases with no impact on gross profit. While we experienced some pricing relief during the second half of fiscal 2003, the frequent increases in resin prices during our first and second quarters of fiscal 2003, resulted in customer resistance and competitive pressure, and we were not able to pass all of these increases to our customers effectively during the fiscal year ended October 31, 2003. This adversely affected our revenue, gross profit and earnings in fiscal 2003. Resin pricing increased 19.6% during fiscal 2004 in North America and at a much higher rate in our European and Asia/Pacific regions. In North America, we were able to pass through the current and previous periods resin increases in fiscal 2004; however resin increases in the European and Asia/Pacific markets were not all passed through in fiscal 2004 due to the competitive market place. During the first quarter of fiscal 2005, we had a 9.8% increase in per pound resin costs and we anticipate future price increases in resin worldwide for the balance of fiscal 2005. 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.

Results of Continuing Operations

Year Ended October 31, 2004, as Compared to Year Ended October 31, 2003

Net Sales and Gross Profit

        Net sales for the year ended October 31, 2004, increased by $66.0 million, or 8.9%, to $811.0 million from $745.0 million for the year ended October 31, 2003. The increase in net sales included $39.8 million of positive impact of foreign exchange, in addition to $14.1 million from higher per unit selling prices and $12.1 million from increased sales volume. Net sales in North America increased $64.7 million, which included $3.9 million of positive impact of foreign exchange relating to our Canadian operations, to $526.8 million in fiscal 2004 from $462.1 million the prior fiscal year. The increase was primarily due to a 7.8% increase in per unit selling prices along with an increase of 5.0% in sales volume. The increase in per unit selling prices is attributable to higher raw material costs, primarily resin, which because of the competitive market place were not entirely passed through to customers during fiscal 2003; but we were able to pass through such increased costs during fiscal 2004 along with current year increases. Net sales in Europe decreased $12.5 million to $148.0 million for the year ended October 31, 2004, from $160.5 million for the year ended October 31, 2003. This decrease was a result of the continuing general economic pressures of the region which was affected by continuing strength of the Euro and its ongoing negative impact on the operations export business and

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the overall competitive marketplace. These conditions reduced per unit selling prices and sales volume by 9.2% and 9.4%, respectively. This resulted in a reduction in net sales of $28.4 million, which was offset, in part, by the positive impact of foreign exchange of $15.9 million for the fiscal year ended October 31, 2004. Net sales in Asia/Pacific increased $13.8 million to $136.2 million for the year ended October 31, 2004, from $122.4 million for the year ended October 31, 2003, primarily due to the positive impact of foreign exchange of $20.0 million offset, in part, by a 2.0% decrease in per unit prices and a 3.1% decrease in sales volume, which reduced net sales by $6.2 million.

        Gross profit for the year ended October 31, 2004, was $142.9 million compared to $128.2 million for the prior fiscal year. This increase of $14.7 million in gross profit was a result of the positive impact of foreign exchange of $5.2 million and increased per unit selling prices and sales volume, primarily in North America, which improved worldwide gross profit by $9.5 million. Gross profit in North America increased $15.1 million, or 15.9%, to $110.2 million for the year ended October 31, 2004, which includes positive impact of foreign exchange of approximately $0.9 million. The North American increase was primarily due to our ability to increase customer per unit selling prices by 7.8% during the current fiscal year, which enabled us to recover current and the prior periods higher raw material costs, primarily resin, which we were not able to pass through in fiscal 2003 and the increased sales volume of 5.0% versus the same period in the prior fiscal year. Gross profit in Europe decreased $1.9 million, or 11.3%, to $15.2 million for the year ended October 31, 2004, from $17.1 million for the year ended October 31, 2003. The decrease in Europe was primarily due to the continuing general economic pressures of the region, which decreased sales volume by 9.4%, and lowered per unit selling prices by 11.3%, which reduced gross profit by $3.6 million. The reduction in volume, which was specifically effected by the strengthing of the Euro, had an adverse effect on per unit manufacturing cost for the year. This decrease was offset by $1.7 million of positive impact of foreign exchange. Asia/Pacific gross profit for fiscal 2004 increased $0.9 million to $17.5 million from $16.6 million for the prior fiscal year. This increase was primarily the result of the positive impact of foreign exchange of $2.6 million offset by lower per unit margins and a reduction of 3.1% in sales volume, which reduced gross profit by $1.7 million. This decrease in gross profit was the result of the region's competitive market place.

Operating expenses

        Operating expenses for the year ended October 31, 2004, were $104.5 million, a decrease of $16.0 million, or 13.3%, from $120.5 million for the year ended October 31, 2003. This reduction in operating expenses resulted from the close-down of our FIAP and United Kingdom operations during fiscal 2003, which reduced operating expenses by $9.7 million and shut-down costs of $11.2 million related to these operations. These decreases were offset by $4.4 million of negative impact of foreign exchange and other net increases of $0.5 million. Delivery expenses for fiscal 2004 were $37.7 million versus $35.5 million in the prior year. After giving effect to the negative foreign exchange impact of $1.2 million and the reduction in delivery expense from the closedown of our FIAP and United Kingdom operations of $0.8 million, delivery expenses increased by $1.8 million from the prior year as a result of the 5.8% increase in sales volume in United States offset by lower worldwide third party delivery costs. Selling expenses decreased by $2.5 million to $39.8 million for fiscal 2004 from $42.3 million in fiscal 2003. This decrease is primarily attributed to $2.6 million resulting from the closedown of our FIAP and United Kingdom operations and net reductions in selling expenses of $1.5 million, which resulted from lower salaries and related payroll costs due to reduced head count and lower commissions paid due to reduction in sales volume in our foreign operations. These reductions were offset by the negative impact of foreign exchange of $1.6 million. General and administrative expenses for the year ended October 31, 2004, decreased by $4.5 million to $27.5 million from $32.0 million for the year ended October 31, 2003. This decrease was primarily due to the decrease of $6.2 million in general and administrative expenses resulting from the closedown of our FIAP and United Kingdom operations offset by negative foreign exchange impact of $1.6 million.

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Other Operating Income (Expense)

        Other operating income for the year ended October 31, 2004, amounted to $17,000, which resulted from net gains from sales of machinery and equipment. Other operating income for the year ended October 31, 2003, amounted to a $3.5 million in income for the period, which included the gain on sale of our United Kingdom land of $3.7 million offset by $117,000 in losses on sales of machinery and equipment during the year.

Interest Expense

        Interest expense for the year ended October 31, 2004, was $25.6 million versus $25.4 million for fiscal 2003. The fiscal 2004 interest expense includes $374,000 of negative impact of foreign exchange offset by decreases of $184,000 in interest expense, which was a result of lower average debt outstanding offset by slightly higher interest rates for the year ended October 31, 2004 as compared to the prior year.

Gain on Sale of Joint Venture

        On May 14, 2003, we sold our 50.1 percent ownership of Rapak Asia Pacific Limited ("Rapak") to our joint venture partner, DS Smith (UK) Limited and received sale proceeds of $7.5 million, net of expenses. During fiscal 2003, our share of Rapak losses amounted to approximately $1.0 million, which reduced the investment value to $1.6 million and produced a gain on the sale of $5.9 million.

Other Income (Expense)

        Other income (expense) for year ended October 31, 2004, amounted to $412,000 in expense, a decrease of $3.1 million in expense from $3.5 million in expense in the comparable prior year period. The fiscal 2004 amount is net of $486,000 of interest income received in May 2004 from the Internal Revenue Service based on calculations on our prior period's tax refund claims. During fiscal 2004, we realized $1.2 million of foreign currency transaction losses versus losses of $2.5 million during the prior fiscal year. We also recorded a loss on our investment in our joint venture of $1.0 million in the prior year. Other miscellaneous income amounted to $277,000 for the year ended October 31, 2004 versus $4,000 in the prior fiscal period.

Provision (Benefit) for Income Taxes

        The provision for income taxes for the year ended October 31, 2004, was $12.8 million on income before the provision for income taxes of $12.4 million. The fiscal 2004 provision for income taxes includes an $8.2 million increase in valuation allowances relating to certain foreign deferred tax assets for net operating loss carryforwards in which we determined that it is more likely than not that the carryforwards will not be fully utilized. The provision for income taxes for the year ended October 31, 2003 was $13.3 million on a loss before the provision for income taxes of $11.8 million. The fiscal 2003 provision for income taxes includes a $15.1 million increase in valuation allowances relating to certain foreign deferred tax assets for net operating loss carryforwards in which we determined that it is more likely than not that the carryforwards will not be fully utilized. See Note No. 11 to the Consolidated Financial Statements for the reconciliation of the provision for income taxes to the benefit that would be computed for statutory purposes.

Discontinued Operations

        In July 2004, our management approved a plan to dispose of our Spanish subsidiary, a component of our European segment, because of its continued losses. We actively commenced marketing the sale of our Spanish subsidiary to interested parties in July 2004. On July 26, 2004, AEP Industries Packaging Espana SA, filed for Suspension of Payments status under Spanish law, which was prompted by a demand for repayment by one of the Spanish subsidiary's lending banks. A payment was remitted to

20

the bank in July 2004 of $1.1 million by the U.S. operations to satisfy this demand. The Spanish subsidiary manufactured a range of products in PVC stretch film, primarily for the automatic and manual wrapping of fresh food and for catering film use. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the disposal of the Spanish subsidiary has been accounted for as a discontinued operation and, accordingly, its assets and liabilities have been segregated from continuing operations in the accompanying consolidated balance sheets, and its operating results are segregated and reported as discontinued operations in the accompanying consolidated statements of operations for all fiscal years presented. After failed attempts to sell the Spanish operations, management placed the operation in liquidation on September 30, 2004 and initiated the process of selling the assets and settling the liabilities of the Spanish subsidiary. The loss from discontinued operations for the year ended October 31, 2004 was $17.1 million. This loss includes $5.7 million from operations, including employee termination costs of $3.3 million and a charge for lease termination of $0.9 million and losses from disposition of $9.9 million comprised of the write-down of machinery and equipment of $5.3 million to its estimated net realizable value less costs to sell, and the recognition of $4.6 million of accumulated foreign currency translation losses. The loss from discontinued operations also includes a valuation allowance of $1.6 million on deferred tax assets arising from net operating loss carryforwards of the Spanish subsidiary, we previously determined in fiscal 2004 would not be fully utilized.

Year Ended October 31, 2003, as Compared to Year Ended October 31, 2002

Net Sales and Gross Profit

        Net sales for the year ended October 31, 2003, increased by $95.9 million, or 14.8%, to $745.0 million from $649.1 million for the year ended October 31, 2002. The increase in net sales included $48.3 million of positive impact of foreign exchange and other increases comprised primarily of price increases attributable to higher raw material costs (primarily resin) which were partially passed on to customers of $47.6 million or 7.3% for the 2003 fiscal year. Net sales in North America increased to $462.1 million during fiscal 2003 from $408.7 million during fiscal 2002, primarily due to a 12.9% increase in per unit average selling prices combined with a less that 1% increase in sales volume. The increase in average selling prices is attributable to higher raw material costs, primarily resin, which because of the competitive market place were not entirely passed through to customers during fiscal 2003. Net sales in Europe increased $19.0 million to $160.5 million for fiscal 2003 from $141.5 million for fiscal 2002, primarily due to the positive impact of foreign exchange of $25.0 million, which was partially offset by $5.7 million due to lower per unit selling prices primarily as a result of the continuing general economic pressures of the region and the competitive marketplace. Net sales in Asia/Pacific increased $23.5 million to $122.4 million during fiscal 2003 from $98.9 million for fiscal 2002, primarily due to the positive impact of foreign exchange of $19.6 million, which increased average selling prices. A change in product mix also had a positive impact on pricing, which increased per unit average selling price.

        Gross profit for the year ended October 31, 2003, was $128.2 million compared to $120.4 million for the year ended October 31, 2002. This increase of $7.8 million in gross profit was primarily a result of the positive impact of foreign exchange of $6.2 million, higher gross profit realized in North American and Asia/Pacific of $6.5 million offset by lower gross profit margin in Europe of $4.9 million. Gross profit in North America increased $3.7 million, or 4.1%, to $95.1 million for the year ended October 31, 2003, as a result of the positive impact of foreign exchange of approximately $800,000 and being able to pass through to customers higher raw material costs, primarily resin, during the third and fourth quarter of fiscal 2003, which we were not able to pass through in fiscal 2002, and a 4.2% increase in fourth quarter volume. Gross profit in Europe decreased $2.0 million, or 10.5% to $17.2 million for fiscal 2003 from $19.2 million for the year ended October 31, 2002. This decrease, without the positive effect of foreign exchange of $2.7 million, would have been $4.9 million for the period. This decrease was primary due to the continuing general economic pressures of the region, the

21

competitive marketplace and the inability to pass through all resin cost increases during the period. This decrease also included $300,000 of restructuring charges relating to the final phase of our shutdown of the United Kingdom facilities and a $232,000 inventory write-down associated with the liquidation of FIAP (see Note No. 20 to our Consolidated Financial Statements). Asia/Pacific gross profit for the year ended October 31, 2003, increased to $16.3 million from $10.0 million for the prior fiscal year. This increase was a result of the positive impact of foreign exchange of $2.7 million and change in sales mix to higher gross margin products and overall manufacturing efficiencies that were completed during the fiscal year.

Operating Expenses

        Operating expenses for the year ended October 31, 2003 were $120.5 million, an increase of $19.2 million, or 18.9%, from $101.3 million for the prior fiscal year. The fiscal 2003 operating expenses include $10.7 million of shut down costs and $2.4 of accounts receivable write-downs pertaining to the voluntarily liquidation of FIAP (see Note No. 20 to our consolidated financial statements) and also includes $6.9 million of negative impact of foreign exchange, partially offset by other decreases of $240,000, or 0.2%, for fiscal 2003. Delivery expenses for fiscal 2003 were $35.5 million versus $34.9 million in the prior year. After giving effect to the negative foreign exchange impact of $1.5 million, delivery expenses decreased by $0.9 million from the prior year as a result of lower worldwide third party delivery costs. Selling expenses increased by $2.3 million to $42.3 million from $40.0 million in the same period in the prior fiscal year. This increase can be primarily attributed to the negative impact of foreign exchange of $2.3 million. Total foreign selling expenses decreased by $954,000, which offset increased selling expenses in North America relating to commissions, general insurance, and healthcare costs of $919,000. General and administrative expenses in fiscal 2003, including $2.4 of accounts receivable write-downs pertaining to the voluntarily liquidation of FIAP, increased by $5.6 million to $32.0 million from $26.4 million in the same period in the prior fiscal year. This general increase of $3.2 million was primarily due to a negative foreign exchange impact of $3.1 million on overall foreign general and administrative expenses. The balance of the increases is attributable to increase in the cost of general insurance, healthcare and third party consulting fees.

Other Operating Income (Expense)

        Other operating income (expense) for the year ended October 31, 2003, amounted to a $3.5 million in income for the period, which included gains on sale of our United Kingdom land sale of $3.7 million offset by $116,000 in losses on sales of machinery and equipment during the period.

Interest Expense, Net

        Interest expense, net for the year ended October 31, 2003, was $25.4 million compared to $25.1 million for the year ended October 31, 2002. This slight increase in interest expense resulted from higher average debt outstanding during fiscal 2003 versus fiscal 2002, partially offset by lower average interest rates paid in fiscal 2003.

Gain on Sale of Interest in Joint Venture

        On May 14, 2003, we sold our 50.1 percent ownership of Rapak Asia Pacific Limited ("Rapak") to our joint venture partner, DS Smith (UK) Limited and received sale proceeds of $7.5 million, net of expenses. During fiscal 2003, our share of Rapak losses amounted to approximately $1.0 million, which reduced our investment value to $1.6 million. The sale produced a gain of $5.9 million.

Gain on Sale of Interests in Subsidiary

        On November 2, 2001, we 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.

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Immediately following the acquisition, we combined our Liquipac (bag-in-box) business with the liquibag systems business we 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.

Other Income (Expense)

        Other income (expense) for the year ended October 31, 2003, amounted to $3.5 million in expense, an increase of $1.9 million over fiscal 2002. This increase primarily relates to foreign currency transaction losses of $2.5 million realized during the year versus losses of $1.4 million in the prior year. We also recorded a loss of $1.0 million from the operations of our joint venture for the fiscal year, up from $165,000 in the prior year, and net reduction in other miscellaneous expenses of $47,000.

Provision for Income Taxes

        The provision for income taxes for year ended October 31, 2003, was $11.8 million on a loss before the provision for income taxes of $13.3 million. The fiscal 2003 provision for income taxes includes a $15.1 million increase in valuation allowances relating to certain foreign deferred tax assets for net operating loss carryforwards in which we determined that it is more likely than not that the carryforwards will not be fully utilized. See Note No. 11 to the Consolidated Financial Statements for the reconciliation of the provision for income taxes to the benefit that would be computed for statutory purposes.

Discontinued Operations

        In July 2004, our management approved a plan to dispose of our Spanish subsidiary, a component of our European segment, because of its continued losses. We actively commenced marketing the sale of our Spanish subsidiary to interested parties in July 2004. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the disposal of the Spanish subsidiary has been accounted for as a discontinued operation and, accordingly, its assets and liabilities have been segregated from continuing operations in the accompanying consolidated balance sheets, and its operating results are segregated and reported as discontinued operations in the accompanying consolidated statements of operations for the 2003 and 2002 fiscal years. Our Spanish subsidiary had a net (loss) income from discontinued operations of ($474,000) and $166,000 for the years ended October 31, 2003 and 2002, respectively. The decrease in the net (loss) income was due to deterioration in the PVC export business in Europe resulting primarily from the strengthening of the Euro against the U.S. dollar.

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 $69.8 million at October 31, 2004, compared to $53.7 million at October 31, 2003. This $16.1 million increase in working capital was primarily the result of an increase in trade accounts receivable of $6.1 million due to increased sales volumes in conjunction with increased unit pricing due to higher raw material costs that was passed though to our customers during the fiscal year. This increase in raw material costs and volume also increased our investment in inventories during the period by $9.2 million. In addition, we received net cash of $1.8 million from the liquidation of FIAP. The weakening of the United States dollar during fiscal 2004 increased translated working capital balances of our foreign subsidiaries by $0.3 million. The remaining increases and decreases in components of our net working capital reflect the normal operating activity for the year.

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        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 a maximum credit facility of $85 million, including a letter of credit facility of up to $20 million. This credit facility was a three year agreement with our option to extend for two additional one year terms. We exercised one of the options in August 2004, thereby extending the agreement until November 19, 2005, and we continue to maintain the option to extend one year. 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 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 bank covenants, including limitations on the incurrence of debt, the disposition of assets, the making of restricted payments and the payment of cash dividends. If the loan's Excess Availability, as defined, is less than $20.0 million, we must meet certain minimum financial covenants and activate a lock-box whereby daily cash collections would automatically pay down the credit facility. In addition, whenever the lock-box is activated, we are required to classify our debt outstanding from Congress Financial Corporation as a current liability, which may have a material negative impact on our working capital. If the loan's Excess Availability is less than $10.0 million, we are subject to further restrictions including limitations on inter-company funding. During fiscal 2004 the Excess Availability under this credit facility ranged from $31.6 million to $62.6 million. Our Excess Availability under this facility was $62.6 million at October 31, 2004. We currently project that our Excess Availability under this facility will exceed $20.0 million throughout the October 31, 2005, at a minimum, based upon budgeted financial statements and budgeted cash requirements. Interest payable under this facility is based upon Excess Availability levels or certain leverage ratios at a margin of prime rate plus .25% to 1.0% for overnight borrowings and LIBOR plus a range of 2.25% to 3.00% for LIBOR Rate borrowings up to one year. As of October 31, 2004, there was $22.1 million outstanding at a weighted average interest rate of 3.95% under this credit facility. This credit facility expires in November 2005 with the Company's option to extend to November 2006. The Company is expected to be refinanced at that time.

        In November 1997, we completed an offering of $200.0 million in aggregate principal amount of 9.875% Senior Subordinated Notes due November 15, 2007 ("Debentures"). The issue price was 99.224% resulting in an effective yield of 10%. The Debentures contain certain customary representations, warranties, covenants and conditions such as, but not limited to, cash flow ratio and certain restrictions on, but not limited to, dividends, consolidations and certain asset sales and additional indebtedness. We were in compliance with all of the covenants of the Debentures at October 31, 2004. In November 2003, we announced that from time to time and as permitted by our various loan agreements, we may repurchase up to $25.0 million of our 9.875% Senior Subordinated Notes. We have made no repurchases during the year ended October 31, 2004.

        We maintain various credit facilities at our foreign subsidiaries. At October 31, 2004, the aggregate amount outstanding under such facilities was $38.1 million, all of which is secured by various assets of the foreign subsidiaries, which may include accounts receivable, inventories, property and machinery and equipment and real estate. The carrying amount of the collateral at October 31, 2004, was $120.3 million. There was $7.6 million additional availability under these facilities at October 31, 2004. We guarantee certain of the debt of our foreign subsidiaries through corporate guarantees aggregating approximately $8.3 million at October 31, 2004. There are no existing events of default that would require us to satisfy these guarantees. Borrowings under these facilities are used to support operations at such subsidiaries and are generally serviced by local cash flow from operations.

        On July 28, 2004, AEP Industries Packaging Espana SA, filed for Suspension of Payments status under Spanish law, which was prompted by a demand for repayment by one of the Spanish subsidiary's lending banks. A payment was remitted to the bank in July 2004 of $1.1 million by the U.S. operations to satisfy this demand. The Suspension of Payments status under Spanish law allows the debtor to defer current payments to its creditors, which the parties will negotiate the final payment balances. As a

24

result of the continued losses of the Spanish subsidiary, management approved a plan to dispose of the Spanish subsidiary through a sale to a third party in July 2004. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, the disposal of the Spanish subsidiary is being accounted for as a discontinued operation. After failed attempts to sell the Spanish operations, management ceased operations and placed the operation in liquidation on September 30, 2004.

        Our cash and cash equivalents were $9.7 million at October 31, 2004, as compared to $4.2 million at October 31, 2003. Net cash provided by operating activities from continuing operations during the fiscal year ended October 31, 2004, was $10.1 million, comprised of a net loss of $0.4 million adjusted for non-cash operating charges for depreciation and amortization of $30.9 million, LIFO expense of $6.7 million, ESOP expense of $1.8 million, amortization of debt fees of $1.3 million, and deferred income taxes of $10.0 million. In addition to these positive adjustments we had refunds from the Internal Revenue Service of $1.8 million, a decrease in other current assets of $1.2 million and an increase in long term liabilities of $1.4 million. These were offset by a provision for subsidiary shutdown of $0.5 million, increases in net accounts receivable of $1.2 million, increases in net inventories of $14.8 million and in other assets of $3.0 million and a reduction in accounts payable and accrued expenses of $20.9 million and $4.2 million, respectively. In each period, the net changes in other operating assets and liabilities reflect normal operating activity.

        Net cash used in investing activities during the year ended October 31, 2004, was $10.4 million, resulting primarily from investments in capital expenditures of $15.1 million. This was offset by sales of property and equipment and proceeds from assets held for sale (FIAP) of $4.7 million.

        Net cash provided by financing activities during the fiscal year ended October 31, 2004, was $12.4 million, reflecting net borrowings of $10.7 million under available credit facilities and proceeds from stock issuances of $0.5 million offset by an increase in restricted cash of $2.6 million resulting from the sale-leaseback of equipment in Belgium and payments made under capital lease agreements of $1.4 million.

        Net cash used in our discontinued operation during the fiscal year ended October 31, 2004 was $5.7 million, resulting primarily from its net loss and the $1.1 million repayment of the Spanish debt by the U.S. operation.

        Our aggregate commitments under our Loan Agreement, Senior Subordinated Notes, foreign borrowings, capital leases and noncancelable operating lease agreements as of October 31, 2004, are as follows:

(1)

We expect to refinance our revolving credit facility, which expires in November 2005 with the option to extend to November 2006. The Credit Facility is expected to be refinanced at that time.

(2)

We expect to refinance our Senior Subordinated Notes, which mature in November 2007, during fiscal year 2007.

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        We expect to use approximately $300,000 of cash in the FIAP shutdown in fiscal 2005 and approximately $500,000 of cash for operating costs such as salaries, utilities and professional fees in Spain in fiscal 2005.

        We know of no current or pending demands or commitments that will materially affect liquidity, however we have $7.1 million in approved capital project spending that is scheduled to be incurred in fiscal 2005.

        We have approximately $3.3 million of unfunded pension benefit obligations at October 31, 2004 for foreign locations. The Company expects to contribute a total of approximately $1.0 million related to these foreign defined benefit plans during fiscal 2005.

        In November 2004, we exercised our early purchase option in Holland for certain operating leases for machinery under a new three year capital lease of which the principal payments aggregates $2.5 million over term.

        We announced in November 2003, that from time to time and as permitted by our various loan agreements, we may repurchase up to $25.0 million of our 9.875% Senior Subordinated Notes. No repurchases were made during fiscal 2004.

        We believe that our cash on hand at October 31, 2004, and our cash flow from operations, assuming no material adverse change, combined with the availability of funds under the current 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. At October 31, 2004, we had an aggregate of approximately $70.3 million available under these credit facilities.

Effects of Inflation

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

Contingencies

        In fiscal 2001, the European Commission 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 the subsidiary. We have cooperated with the European Commission in its investigation. Our last written communication with the European Commission was in January 2002. At this time, no litigation is pending against us or our subsidiary involving this matter, and we are not in a position to evaluate the outcome of this investigation. However, there can be no assurance that in the event that the European Commission serves a Statement of Objections instituting a proceeding against our Holland subsidiary which results in a fine being assessed, that the amount of the fine would not be material.

        In February 2004, our New Zealand subsidiary was served with two summonses and complaints applicable to a business acquired by the subsidiary on November 2, 2001, and immediately transferred to a joint venture company, Rapak Asia Pacific Limited, in which the subsidiary held a 50.1% interest. The complaints allege approximately $9.0 million in damages for defective products manufactured both before and after November 2, 2001. We have referred these complaints to the insurance carriers that we believe are responsible to defend and indemnify our New Zealand subsidiary for the alleged liability. Two of the insurance carriers have agreed to defend the actions subject to reservations of rights. We also believe we may be entitled to indemnification under various agreements. Based on developments to date, we believe that the outcome of these actions will not have a material adverse effect on our results of operations, financial position or liquidity.

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Critical Accounting Policies

        Our discussion and analysis of our financial condition and results of operations are based upon our 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 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, assets held for sale, assets of discontinued operations, income taxes, financing operations, retirement benefits, and contingencies and litigation. Management bases its estimates and judgments 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 judgments 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 judgments and estimates used in preparation of our consolidated financial statements.

•

Revenue recognition, including customer returns, 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 inventory valuations, litigation accruals and pension obligations



•

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



•

Derivative instruments—cash flow hedges



•

Valuation of stock options



•

Impairment of long-lived assets, including goodwill



•

Estimating the costs to shutdown divested entities and the loss from discontinued operations

        We recognize sales and cost of sales at the time the product is shipped to the customer and records estimated reductions to revenue for customer rebates, returns, promotions or other incentive programs. Customer rebate programs are based upon annual rebate agreements based upon predetermined sales volume requirements and accrued at each customer's agreed rebate percentage.

        Management estimates the allowance for doubtful accounts by analyzing accounts receivable balances by age, applying historical trend rates of write offs to the average accounts receivable balances over the last 60 months. When it is deemed probable that a customer account is uncollectible, that balance is added to the calculated reserve. Actual results could differ from these estimates under different assumptions and may be affected by changes in the general economic conditions.

        Management reviews our physical inventories at each business unit to determine the obsolescence of the products on hand. When it determines that we have obsolete inventory, our North America operations scrap these inventory items and our international operations establish the appropriate reserves for these items. We maintain our United States inventory on the LIFO method of inventory valuation, except for supplies. The LIFO inventory is reviewed quarterly for net realizable value and adjusted accordingly.

        Management's current estimated ranges of liabilities related to pending litigation are based on input from legal counsel and 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 our consolidated financial results in a future reporting period. We are involved in routine

27

litigation in the normal course of our business and based on facts currently available, we believe such matters will not have a material adverse impact on our results of operations, financial position or liquidity.

        We sponsor defined benefit plans for certain foreign employees. We account for defined benefit pension plans in accordance with U.S. GAAP, which requires the amount recognized in financial statements to be determined on an actuarial basis. To accomplish this, extensive use is made of assumptions about inflation, investment returns, mortality, turnover and discount rates. A change in these assumptions could cause actual results to differ from those reported. A reduction of 50 basis points in the long-term rate of return and a reduction of 50 basis points in the discount rate would have increased defined benefit pension expense $440,000 in fiscal 2004.

        Management accounts for income taxes in accordance with 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 our consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which we operate. 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 our consolidated balance sheet.

        The realizability of our 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 amounts, if necessary, could be material to our results of operations and financial position, as they were in fiscal 2004 and 2003. Management has provided additional valuation allowances during fiscal 2004 of $8.2 million for certain foreign operations because management has determined that it is more likely than not that the current tax benefit will not be fully utilized.

        We operate internationally, giving rise to exposure to market risks from fluctuations in interest rates and foreign exchange rates. To effectively manage these risks, we enter into foreign currency forward contracts and interest rate swaps. We have established policies and procedures for risk assessment and the approval, reporting and monitoring of derivative financial instrument activities. We do not hold or issue derivative financial instruments for trading purposes. We record all of our cash flow hedges in accordance with FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" and as amended by SFAS 138 and SFAS 149. For a derivative designated and qualifying as a cash flow hedge of anticipated foreign currency denominated transactions, the effective portions of changes in the fair value of the derivative are recorded in accumulated comprehensive income (loss) in shareholders' equity and are recognized in net income (loss) when the hedged item affects operations. 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, we assess hedge effectiveness for all cash flow designated hedges in order to determine that each derivative continues to be effective. If the transaction being hedged fails to occur, or if a portion of any derivative is ineffective, changes in the fair value of the derivative is recorded immediately in operations.

        In October 1996, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation". This statement encourages but does not require companies to account for employee stock compensation awards based on their estimate fair value at the date of the grant with the resulting cost charges to operations. We have elected to continue to account for employee stock-based compensation

28

using the intrinsic value method prescribed in Accounting Principles Boards Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations.

        We have used our best estimates in establishing the asset impairment charges, provisions, writedowns and reserves recorded as a result of the voluntary liquidation of FIAP. We estimated the net realizable value of FIAP's accounts receivable based on an analysis of collections made through October 31, 2004, as well as regarding the collectibility of the remaining customer balances for which payment has not yet been received. Inventories were reviewed at October 31, 2004, and it was determined that no additional reserves were necessary. The write-downs, provisions and reserves relating to the liquidation of FIAP were based upon our best estimates given the information available. Actual realizable values or payments to be made may be different from such estimates, and such differences will be recognized as incurred or as better information is received.

        Net assets held for sale include machinery, land and buildings for the FIAP location. We record net assets held for sale in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," ("SFAS No. 144") at the lower of carrying value or fair value less cost to sell. Fair value is based on estimated proceeds from the sale of the facility and equipment utilizing recent buy offers and data obtained from commercial real estate broker. Our estimate as to fair value is regularly reviewed and subject to changes in the commercial real estate markets and our continuing evaluation as to the facility's acceptable sale price.

        In July 2004, we approved a plan to dispose of our Spanish subsidiary, a component of our European segment, because of its continued losses. The Spanish subsidiary manufactured a range of products in PVC stretch film, primarily for the automatic and manual wrapping of fresh food and for catering film use. On July 26, 2004, we placed our Spanish subsidiary in a Suspension of Payments status under Spanish law. After failed attempts to sell the Spanish operation, management placed the operation into liquidation on September 30, 2004 and is in the process of selling the assets and settling the liabilities of the subsidiary. In accordance with SFAS No. 144, the disposal of the Spanish subsidiary has been accounted for as a discontinued operation and, accordingly, its assets and liabilities have been segregated from continuing operations in the accompanying consolidated balance sheets, and its operating results are segregated and reported as discontinued operations in the accompanying consolidated statements of operations. The pre-tax loss from discontinued operations includes a charge for employee termination benefits which were determined based on a negotiated plan with the local Spanish union. The results also include a charge for lease termination costs related to the building and are based on negotiations with the landlord. The estimated losses on disposal includes the write-down of machinery and equipment to fair value, less costs to sell, based on recent buy offers and write off of accumulated translation adjustments. The write-downs, provisions and reserves relating to the liquidation of the Spanish operation were based upon our best estimates given the information available. Actual realizable values or payments to be made may be different from such estimates, and such differences will be recognized as incurred or as better information is received.

        As required by SFAS No. 142, we perform an annual assessment as to whether there was an indication that goodwill is impaired. We performed our annual impairment analysis under SFAS 142 on September 30, 2004 based on a comparison of our market capitalization to our book value at that date. We also performed a supplemental estimate of the fair value of our company using comparable industry multiples of cash flows compared to our book value. Our policy is that impairment of goodwill will have occurred if the market capitalization of our company were to remain below book value for a period of more than six months or the estimated value of our company based on cash flow multiples is below book value. Should the carrying value of our company exceed its fair value for other than a temporary period of time, the amount of any resulting goodwill impairment may be material to our financial position and results of operations. We concluded that goodwill was not impaired at September 30, 2004. We plan to perform our impairment test at September 30 in each fiscal year. We also review our financial position quarterly for other triggering events as described in SFAS No. 142.

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New Accounting Pronouncements

        Financial Accounting Standards Board (FASB) Staff Position (FSP) 109-1, Application of FASB Statement No. 109, Accounting for Income Taxes, for the Tax Deduction Provided to U.S. Based Manufacturers by the American Job Creation Act of 2004, and FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provisions within the American Jobs Creation Act of 2004 were enacted on October 22, 2004.

        FSP No. 109-1 clarifies how to apply SFAS No. 109 to the new law's tax deduction for income attributable to "domestic production activities." The fully phased-in deduction is up to nine percent of the lesser of taxable income or "qualified production activities income." The staff proposal would require that the deduction be accounted for as a special deduction in the period earned, not as a tax-rate reduction.

        FSP No. 109-2, provides guidance under FASB Statement No. 109, "Accounting for Income Taxes," with respect to recording the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the "Jobs Act") on enterprises' income tax expense and deferred tax liability. FSP 109-2 states that an enterprise is permitted time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The Company has not yet completed evaluating the impact of the repatriation provisions. Accordingly, as provided for in FSP 109-2, the Company has not adjusted its tax expense or deferred tax liability to reflect the repatriation provisions of the Jobs Act.

        In November 2004, the FASB issued SFAS No. 151, "Inventory Costs—An Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Among other provisions, the new rule requires that items such as idle facility expense, excessive spoilage, double freight, and rehandling costs be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal" as stated in ARB No. 43. Additionally, SFAS 151 requires that the allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS 151 is effective for fiscal years beginning after June 15, 2005 and is required to be adopted by us in the first quarter of fiscal 2006, beginning on November 1, 2005. We are currently evaluating the effect that the adoption of SFAS 151 will have on our consolidated results of operations and financial condition but do not expect SFAS 151 to have a material impact.

        In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123R"), which replaces SFAS No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") and supercedes APB Opinion No. 25, "Accounting for Stock Issued to Employees." SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. We are required to adopt SFAS 123R in the fourth quarter of fiscal 2005, beginning August 1, 2005. Under SFAS 123R, we must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Under the retroactive option, prior periods may be restated either as of the beginning of the year of adoption or for all periods presented. The prospective method requires that compensation expense be recorded for all unvested stock options and restricted stock at the beginning of the first quarter of adoption of SFAS 123R, while the retroactive methods would record compensation expense for all unvested stock options and restricted stock beginning with the first period restated. We are evaluating the requirements of SFAS 123R and expect that the adoption of SFAS 123R will have a material impact on our consolidated results of operations and earnings per

30

share. The Company has not yet determined the method of adoption or the effect of adopting SFAS 123R, and have not determined whether the adoption will result in amounts that are similar to the current pro forma disclosures under SFAS 123.

        In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets—An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions," and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005 and is required to be adopted by us in the first quarter of fiscal 2006, beginning on November 1, 2005. We are currently evaluating the effect that the adoption of SFAS 153 will have on our consolidated results of operations and financial condition but does not expect it to have a material impact.

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, amount of Excess Availability under our credit facility, 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 or liquidity for, the year ending October 31, 2005, 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 that 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.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rates

        We may use interest rate swaps, collars and options to manage its exposure to fluctuations in interest rates. At October 31, 2004, there was one interest rate swap outstanding in connection with $3.2 million bank debt of our Netherlands subsidiary. We were not a party to any interest rate collars or options at October 31, 2004.

        The fair value of our 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, 2004, the carrying value of our company's total debt was $262.3 million of which approximately $202.1 million was fixed rate debt. As of October 31, 2004, the estimated fair value of our fixed rate debt, which includes the cost of replacing our fixed rate debt with borrowings at current market rates, was approximately $207.0 million.

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Foreign Exchange

        We enter 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 forecasted purchases. Foreign currency forward contracts reduce our 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.

        We had a total of 32 and 35 open foreign exchange contracts outstanding at October 31, 2004 and 2003, respectively, with a total notional contract amount of $31.5 million and $41.2 million, respectively, all of which have maturities of less than one year. At October 31, 2004 and 2003, the net fair value of foreign exchange forward contracts were losses of $0.3 million and $1.7 million, respectively, which are included in accrued expenses in the consolidated balance sheets and other, net in the consolidated statements of operations.

        We also had a total of 14 and 4 cash flow hedge contracts outstanding at October 31, 2004 and 2003, respectively, with a total notional contract amount of $1.8 million and $0.6 million, respectively, all of which have maturities of less than six months. The net fair value of derivative financial instruments designated as cash flow hedges were losses of $70,000 and $91,000, at October 31, 2004 and 2003, respectively, which are included in accumulated other comprehensive income.

        Our foreign subsidiaries had third party outstanding debt of approximately $38.1 million on October 31, 2004. Such debt is generally denominated in the functional currency of the borrowing subsidiary. We believe that this enables us to better match operating cash flows with debt service requirements and to better match foreign currency-denominated assets and liabilities, thereby reducing our need to enter into foreign exchange forward contracts.

Commodities

        We use commodity raw materials, primarily resin, and energy products in conjunction with our manufacturing process. Generally, we acquire such components at market prices and do not use financial instruments to hedge commodity prices. As a result, we are 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, operating results or liquidity 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

        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

32

the capacity of the companies that produce these products to meet market needs. 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.

        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 results of operations 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 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.

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Company Risks

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

        Our operating income (loss) has 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.

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 35% 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;



•

redundancy costs which limit our ability to reduce staff;



•

longer payment cycles;



•

problems in collecting accounts receivable;



•

political instability and economic downturns;

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•

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 289 employees under three collective bargaining agreements. Two of these agreements expire in February and March 2005 and one expires in March 2007. We have started negotiations with union representatives for the contracts that expire in 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 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, a person's rights as a common stockholder may be adversely affected.

        In connection with our 1997 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

        In fiscal 2001, the European Commission 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 cooperated 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.

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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 at October 31, 2004, our total consolidated indebtedness, including short-term borrowings and capitalized leases, was approximately $265 million and our total shareholders' equity was approximately $48 million. Total indebtedness represented 84.6% 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; and



•

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.

        Our parent company to some extent finances our foreign subsidiaries, and as these inter-company loans increase, our exposure to currency fluctuations 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.

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 lenders 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 default under the Indenture pursuant to which our Senior Subordinated Notes were issued.

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ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        Report of Independent Registered Public Accounting Firm:

Report of KPMG LLP, Independent Registered Public Accounting Firm

        Financial Statements:

Consolidated Balance Sheets as of October 31, 2004 and 2003

Consolidated Statements of Operations for the years ended October 31, 2004, 2003 and 2002

Consolidated Statements of Shareholders' Equity for the years ended October 31, 2004, 2003 and 2002

Consolidated Statements of Cash Flows for the years ended October 31, 2004, 2003 and 2002

Notes to Consolidated Financial Statements for the year ended October 31, 2004

        Financial Statement Schedules:

Schedules included are set forth in Item 15.

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

        There were no changes in and disagreements with accountants on accounting and financial disclosure during the fiscal year ended October 31, 2004 or during the current fiscal year through the date of this report.

PART III

ITEM 9A.    CONTROLS AND PROCEDURES

        We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission's rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officers (whom we refer to in this periodic report as our Certifying Officers), as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our Certifying Officers, the effectiveness of our disclosure controls and procedures as of October 31, 2004 (the "Evaluation Date"), pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that as of October 31, 2004, our disclosure controls and procedures were effective.

        There were no significant changes in our internal controls over financial reporting that occurred during our most recently completed fiscal quarter ended October 31, 2004 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting subsequent to the Evaluation Date.

        In response to recent legislation and regulations, we have begun a process of reviewing our internal control structure and our disclosure controls and procedures. Although we believe our pre-existing disclosure controls and procedures were adequate to enable us to comply with our disclosure obligations, as a result of such review, we are implementing minor changes, from time to time, primarily to formalize and document procedures already in place.

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ITEM 9B.    OTHER INFORMATION

        Not applicable.

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        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 C Directors and Nominee Biographies," "Standing Directors Biographies," "Board of Directors Information" and "Other Information Concerning Directors, Officers and Stockholders" in the Proxy Statement to be filed with respect to the Annual Meeting of Stockholders to be held on April 12, 2005 (the "Proxy Statement"), which information is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

        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.

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

        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.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        For information concerning this item, see the text under the caption "Other Information Concerning Directors, Officers and Shareholders" in the Proxy Statement, which information is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        For information concerning this item, see the text and tables under the caption "Audit Committee Report" in the Proxy Statement, which information is incorporated herein by reference.

PART IV

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

(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.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
AEP Industries Inc.:

        We have audited the accompanying consolidated balance sheets of AEP Industries Inc. and subsidiaries as of October 31, 2004 and 2003 and the related consolidated statements of operations, shareholders' equity and cash flows and the financial statement schedule for each of the years in the three-year period ended October 31, 2004. These consolidated financial statements and schedule 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 audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. and subsidiaries as of October 31, 2004 and 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended October 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ KPMG LLP

Short Hills, New Jersey
January 12, 2005

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AEP INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
AS OF OCTOBER 31, 2004 AND 2003
(in thousands, except share and per share amounts)

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

40

AEP INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 2004, 2003 AND 2002
(in thousands, except per share data)

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

41

AEP INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2004, 2003 AND 2002
(in thousands)