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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

For the Quarterly Period Ended January 31, 2013

OR

 

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

For the transition period from              to             

Commission file number 0-14450

 

 

AEP Industries Inc.

(Exact name of registrant as specified in its charter)

 

Delaware		22-1916107
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
125 Phillips Avenue South Hackensack, New Jersey		07606
(Address of principal executive offices)		(Zip code)

(201) 641-6600

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

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 requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer		¨		Accelerated filer		x
Non-accelerated filer		¨  (Do not check if a smaller reporting company)		Smaller reporting company		¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

The number of outstanding shares of the registrant’s common stock, $0.01 par value, as of March 8, 2013 was 5,535,870.

 

 

 

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AEP INDUSTRIES INC.

TABLE OF CONTENTS

 

				Page Number
PART I		FINANCIAL INFORMATION
ITEM 1:		Financial Statements			3
		Consolidated Balance Sheets at January 31, 2013 (unaudited) and October 31, 2012			3
		Consolidated Statements of Operations for the three months ended January  31, 2013 and 2012 (unaudited)			4
		Consolidated Statements of Comprehensive Income for the three months ended January  31, 2013 and 2012 (unaudited)			5
		Consolidated Statements of Cash Flows for the three months ended January  31, 2013 and 2012 (unaudited)			6
		Notes to Consolidated Financial Statements			7
ITEM 2:		Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
ITEM 3:		Quantitative and Qualitative Disclosures About Market Risk			30
ITEM 4:		Controls and Procedures			31
PART II		OTHER INFORMATION
ITEM 1:		Legal Proceedings			33
ITEM 1A:		Risk Factors			33
ITEM 2:		Unregistered Sales of Equity Securities and Use of Proceeds			33
ITEM 3:		Defaults Upon Senior Securities			33
ITEM 4:		Mine Safety Disclosures			33
ITEM 5:		Other Information			33
ITEM 6:		Exhibits			33
		Signatures			34

 

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PART I—FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

AEP INDUSTRIES INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share amounts)

 

		January 31, 2013				October 31, 2012
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	2,838			$	2,807
Accounts receivable, less allowance for doubtful accounts of $3,131 and $3,198 in 2013 and 2012, respectively			102,825				109,895
Inventories, net			110,662				95,128
Deferred income taxes			2,737				2,677
Other current assets			3,789				2,919
Total current assets			222,851				213,426
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $330,286 and $324,355 in 2013 and 2012, respectively			210,933				195,986
GOODWILL			6,871				6,871
INTANGIBLE ASSETS, net of accumulated amortization of $1,468 and $1,376 in 2013 and 2012, respectively			4,944				3,536
OTHER ASSETS			6,158				11,624
Total assets		$	451,757			$	431,443
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank borrowings, including current portion of long-term debt		$	3,355			$	2,604
Accounts payable			88,923				78,637
Accrued expenses			31,352				35,816
Total current liabilities			123,630				117,057
LONG-TERM DEBT			221,476				214,728
DEFERRED INCOME TAXES			20,150				18,212
OTHER LONG-TERM LIABILITIES			5,692				7,717
Total liabilities			370,948				357,714
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock, $1.00 par value; 970,000 shares authorized; none issued			—				—
Series A junior participating preferred stock, $1.00 par value; 30,000 shares authorized; none issued			—				—
Common stock, $0.01 par value; 30,000,000 shares authorized; 11,138,519 and 11,136,777 shares issued in 2013 and 2012, respectively			111				111
Additional paid-in capital			111,640				111,549
Treasury stock at cost, 5,605,783 shares in 2013 and 2012, respectively			(169,826	)			(169,826	)
Retained earnings			138,226				131,316
Accumulated other comprehensive income			658				579
Total shareholders’ equity			80,809				73,729
Total liabilities and shareholders’ equity		$	451,757			$	431,443

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

 

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AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

 

		For the Three Months Ended January 31,
		2013				2012
NET SALES		$	267,142			$	267,664
COST OF SALES			224,708				233,010
Gross profit			42,434				34,654
OPERATING EXPENSES:
Delivery			12,366				12,487
Selling			9,498				9,794
General and administrative			6,889				6,986
Total operating expenses			28,753				29,267
Operating income			13,681				5,387
OTHER INCOME (EXPENSE):
Interest expense			(4,566	)			(4,837	)
Gain on bargain purchase of a business			1,001				—
Other, net			69				85
Income before provision for income taxes			10,185				635
PROVISION FOR INCOME TAXES			(3,275	)			(281	)
Net income		$	6,910			$	354
BASIC EARNINGS PER COMMON SHARE:
Net income per common share		$	1.25			$	0.06
DILUTED EARNINGS PER COMMON SHARE:
Net income per common share		$	1.23			$	0.06

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

 

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AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands, except per share data)

 

		For the Three Months Ended January 31,
		2013				2012
Net income		$	6,910			$	354
Other comprehensive income (loss):
Foreign currency translation adjustments			33				(26	)
Amortization of prior service cost and actuarial net loss, net of tax of $16 and $11 for 2013 and 2012, respectively			46				34
Total other comprehensive income			79				8
Comprehensive income		$	6,989			$	362

 

 

 

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

 

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AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

		For the Three Months Ended January 31,
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	6,910			$	354
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization			6,001				5,691
Gain on bargain purchase of a business			(1,001	)			—
Change in LIFO reserve			(3,066	)			3,293
Amortization of debt fees			239				265
Provision for losses on accounts receivable and inventories			20				72
Provision for deferred income taxes			598				125
Share-based compensation expense			1,269				879
Excess tax benefit from stock option exercises			(21	)			—
Other			10				43
Changes in operating assets and liabilities:
Decrease in accounts receivable			7,066				10,121
Increase in inventories			(12,466	)			(23,271	)
Increase in other current assets			(858	)			(1,405	)
(Increase) decrease in other assets			(93	)			60
Increase in accounts payable			10,283				967
Decrease in accrued expenses			(6,358	)			(5,388	)
Increase (decrease) in other long-term liabilities			35				(11	)
Net cash provided by (used in) operating activities			8,568				(8,205	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures			(14,482	)			(4,359	)
Net proceeds from dispositions of property, plant and equipment			124				—
Net cash used in investing activities			(14,358	)			(4,359	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from credit facility			2,897				11,054
Proceeds from capital lease obligations			4,134				—
Repayments of Pennsylvania Industrial Loans			(37	)			(36	)
Principal payments on capital lease obligations			(573	)			(305	)
Principal payments on mortgage loan note			(29	)			—
Proceeds from exercise of stock options			16				227
Excess tax benefit from stock option exercises			21				—
Other			(644	)			(313	)
Net cash provided by financing activities			5,785				10,627
EFFECTS OF EXCHANGE RATE CHANGES ON CASH			36				3
Net increase (decrease) in cash			31				(1,934	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			2,807				6,445
CASH AND CASH EQUIVALENTS AT END OF PERIOD			2,838			$	4,511
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Equipment financed through capital lease obligation		$	1,107			$	—
Cash paid during the period for interest		$	286			$	409
Cash paid during the period for income taxes		$	480			$	135

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

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of AEP Industries Inc. and all of its subsidiaries (the “Company”). All significant intercompany transactions and balances have been eliminated in consolidation. In management’s opinion, all adjustments necessary for the fair presentation of the consolidated financial position as of January 31, 2013, and the consolidated results of operations, consolidated comprehensive income and consolidated cash flows for the three months ended January 31, 2013 and 2012, respectively, have been made. The consolidated results of operations for the three months ended January 31, 2013 are not necessarily indicative of the results to be expected for the full fiscal year.

The consolidated financial information included herein has been prepared by the Company, without audit, for filing with the U.S. Securities and Exchange Commission (the “Commission”) pursuant to the rules and regulations of the Commission. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated 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 product returns, customer rebates and incentives, doubtful accounts, inventories, including LIFO inventory valuations, acquisitions, including fair value estimates related to acquisitions, pension obligations, incurred but not reported medical claims, litigation and contingency accruals, income taxes, including valuation of deferred taxes and assessment of unrecognized tax benefits for uncertain tax positions, share-based compensation, and impairment of long-lived assets and intangibles, including goodwill. 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 value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Certain information and footnote disclosures normally included in audited annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended October 31, 2012, filed with the Commission on January 22, 2013.

The Company evaluates all subsequent events prior to filing and has implemented all new accounting pronouncements that are in effect and that may materially impact its financial statements, and the Company does not believe that there are any other new accounting pronouncements that have been issued that would be expected to have a material impact on its financial position, results of operations or cash flows.

(2) EARNINGS PER SHARE

Basic earnings per share (“EPS”) is calculated by dividing net income by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is calculated by dividing net income by the weighted average number of common shares outstanding, adjusted to reflect potentially dilutive securities (options) using the treasury stock method, except when the effect would be anti-dilutive.

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(2)	EARNINGS PER SHARE (Continued)

 

The number of shares used in calculating basic and diluted earnings per share is as follows:

 

		For the Three Months Ended January 31,
		2013				2012
Weighted average common shares outstanding:
Basic			5,531,355				5,494,848
Effect of dilutive securities:
Options to purchase shares of common stock			80,634				35,759
Diluted			5,611,989				5,530,607

For the three months ended January 31, 2013 and 2012, the Company had zero and 125,180 stock options outstanding, respectively, that could potentially dilute earnings per share in future periods but were excluded from the computation of diluted EPS as their exercise price was higher than the Company’s average stock price during the respective periods.

(3) ACQUISITIONS

Transco Plastics Industries Ltd.

On November 8, 2012, the Company completed its purchase of certain machinery and equipment and related assets necessary to manufacture the performance films, specialty bags and industrial films of Transco Plastics Industries Ltd. (“Transco”), a Quebec company, for a purchase price of $5.3 million (deposit was made and included in other assets at October 31, 2012), excluding a one-year commission and transition service costs. The Company financed the transaction through a combination of cash on hand and availability under its credit facility.

The Transco acquisition expands the Company’s presence in the plastic packaging industry and enhances the Company’s suite of products. The acquisition resulted in a gain on bargain purchase as the seller was motivated to sell these assets since they were no longer a part of the seller’s intended ongoing business and the seller was under a time constraint to vacate the building in which these assets were located.

The Company has concluded that the Transco acquisition represents a business because it is an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return to the Company and its shareholders. As such, the acquisition has been accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The following table summarizes the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date. The allocation of fair value is still preliminary due to the short duration since the acquisition date and will be finalized as soon as possible but no later than one year from the acquisition date.

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(3)	ACQUISITIONS (Continued)

 

		Preliminary Allocation At January 31, 2013
		(in thousands)
Property, plant and equipment		$	5,380
Intangible asset (customer list)			1,500
Total identifiable assets acquired			6,880
Deferred income tax liability			579
Total liabilities assumed			579
Net identifiable assets acquired			6,301
Purchase price			5,300
Gain on bargain purchase		$	1,001

Upon the determination that the Company was going to recognize a gain related to the bargain purchase of Transco, the Company reassessed its assumptions and measurement of identifiable assets acquired and liabilities assumed, and concluded that the preliminary valuation procedures and resulting measures were appropriate. As a result, the Company had determined that the estimated fair values of assets acquired and liabilities assumed exceeded the purchase price by approximately $1.0 million, which was recorded as a gain on bargain purchase in its consolidated statement of operations for the quarter ended January 31, 2013. The gain on bargain purchase is subject to change as the Company completes its analysis of the fair values of Transco’s assets.

The intangible asset will be amortized over a straight-line basis over ten years.

The Company incurred $0.1 million of acquisition-related costs during the quarter ended January 31, 2013. These costs were expensed when incurred and are recorded in general and administrative expenses in the consolidated statement of operations for the quarter ended January 31, 2013.

Pro forma results of operations and other disclosures for the Transco acquisition have not been presented as they are not material in relation to the Company’s reported results.

Webster Industries

On October 14, 2011, the Company completed the acquisition of substantially all of the assets and specified liabilities of Webster Industries (“Webster”), a national manufacturer and distributor of retail and institutional private label food and trash bags, for a purchase price of $25.9 million which was subject to a post-closing true-up and a corresponding purchase price adjustment (up to a maximum of $1.3 million downwards, although no limit upwards). During February 2012, the Company settled the net current asset adjustment with Chelsea Industries (the “seller”), Webster’s former parent. The full 5% escrow amount was distributed to seller, and additionally the Company paid approximately $749,000 on February 15, 2012. The amount was reflected as an increase to the purchase price bringing the purchase price to $26.7 million, before expenses. The fair value of the assets acquired and the liabilities assumed was $51.9 million and $16.9 million, respectively.

In addition to the $0.7 million of acquisition-related costs expensed in fiscal 2011, the Company recognized $0.6 million of acquisition-related costs for the fiscal year ended October 31, 2012; $0.4 million of which was

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(3)	ACQUISITIONS (Continued)

 

recognized during the three months ended January 31, 2012. These costs were expensed when incurred and were recorded in general and administrative expenses in the consolidated statement of operations for the quarter ended January 31, 2012.

The prior year results of operations for Webster have been included in all periods presented.

(4) INVENTORIES

Inventories, stated at the lower of cost (last-in, first-out method (“LIFO”) for the U.S. operations, and the first-in, first-out method (“FIFO”) for the Canadian operation, supplies and printed and converted finished goods for the U.S. operation, and certain Webster finished goods) or market, include material, labor and manufacturing overhead costs, less vendor rebates. The Company establishes a reserve in those situations in which cost exceeds market value.

Inventories are comprised of the following:

 

		January 31, 2013				October 31, 2012
		(in thousands)
Raw materials		$	52,425			$	52,932
Finished goods			81,390				68,057
Supplies			4,932				5,290
			138,747				126,279
Less: LIFO reserve			(28,085	)			(31,151	)
Inventories, net		$	110,662			$	95,128

The LIFO method was used for determining the cost of approximately 89% and 87% of total inventories at January 31, 2013 and October 31, 2012, respectively. Since the actual valuation of inventory under the LIFO method can only be made at the end of the fiscal year based on inventory levels and costs at that time, the interim LIFO calculations are based on management’s best estimate of expected fiscal year-end inventory levels and costs. Due to the volatility of resin pricing, the Company consistently uses current pricing as its estimate of fiscal year-end costs. Therefore, interim LIFO calculations are subject to the final fiscal year-end LIFO inventory valuation. Because of the Company’s continuous manufacturing process, there is no significant work in process at any point in time.

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(5) DEBT

A summary of the components of debt is as follows:

 

		January 31, 2013				October 31, 2012
		(in thousands)
Credit facility (a)		$	5,697			$	2,800
8.25% senior notes due 2019 (b)			200,000				200,000
Pennsylvania industrial loans (c)			1,171				1,208
Mortgage loan note (d)			3,312				3,341
Capital leases (e)			14,651				9,983
Foreign bank borrowings (f)			—				—
Total debt			224,831				217,332
Less: current portion			3,355				2,604
Long-term debt		$	221,476			$	214,728

 

(a)	Credit Facility

The Company is party to the Second Amended and Restated Loan and Security Agreement (the “credit facility”), dated February 22, 2012, with Wells Fargo Bank National Association (“Wells Fargo”), successor to Wachovia Bank N.A., as a lender thereunder and as agent for the secured parties thereunder. Financial information below for periods prior to February 22, 2012 reflects the prior credit facility with Wells Fargo. The maximum borrowing amount under the credit facility is $150.0 million with a maximum for letters of credit of $20.0 million. The credit facility’s maturity date is February 21, 2017.

The Company utilizes the credit facility to provide funding for operations and other corporate purposes through daily bank borrowings and/or cash repayments to ensure sufficient operating liquidity and efficient cash management. The Company had average borrowings under the credit facility of $13.5 million and $48.9 million, with a weighted average interest rate of 3.3% and 2.9% during the three months ended January 31, 2013 and 2012, respectively. Under the credit facility, interest rates are based upon the Quarterly Average Excess Availability (as defined therein) at a margin of the prime rate (defined as the greater of Wells Fargo’s prime rate or the Federal Funds rate plus 0.5%) plus 0% to 0.25% or LIBOR plus 1.75% to 2.50%.

Borrowings and letters of credit available under the credit facility are limited to a borrowing base based upon specific advance percentage rates on eligible accounts receivable and inventory, subject, in the case of inventory, to amount limitations. The sum of the eligible assets at January 31, 2013 and October 31, 2012 supported a borrowing base of $149.1 million and $150.0 million, respectively. Availability was reduced by the aggregate amount of letters of credit outstanding totaling $1.1 million and $45,000 at January 31, 2013 and October 31, 2012, respectively. Availability at January 31, 2013 and October 31, 2012 under the credit facility was $142.3 million and $147.2 million, respectively. The credit facility is secured by liens on most of the Company’s domestic assets (other than real property and equipment) and on 66% of the Company’s ownership interest in certain foreign subsidiaries.

The credit facility provides for events of default. If an event of default occurs and is continuing, amounts due under the credit facility may be accelerated and the commitments to extend credit thereunder terminated, and the rights and remedies of the lenders may be exercised including rights with respect to the collateral securing the obligations under the credit facility. The credit facility also contains covenants, including, but not limited to, limitations on the incurrence of debt and liens, the disposition and acquisition of assets, and the making of

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(5)	DEBT (Continued)

 

investments and restricted payments, including the payment of cash dividends. The credit facility has a fixed charge coverage ratio test of 1.0x, which test is triggered when Excess Availability is below $22.5 million for the immediately preceding fiscal quarter.

In addition, if Excess Availability under the credit facility is less than $25.0 million, a springing cash dominion is activated and all remittances received from customers in the United States will automatically be applied to repay the balance outstanding. The automatic repayments through the springing cash dominion remain in place until Excess Availability exceeds $25.0 million, and no other event of default has occurred and is continuing, in each case for 30 consecutive days. Excess Availability under the credit facility ranged from $115.4 million to $150.0 million during the three months ended January 31, 2013 and from $67.9 million to $124.4 million during the three months ended January 31, 2012.

The Company capitalized $1.3 million of fees related to the credit facility. These fees, along with the unamortized fees of $0.4 million related to the prior credit facility, are being amortized on a straight line basis over 60 months, the term of the credit facility.

The Company was in compliance with the financial covenants at January 31, 2013 and October 31, 2012.

 

(b)	8.25% Senior Notes due 2019

The Company has $200 million aggregate principal amount of 8.25% senior notes due 2019 (the “2019 notes”).

The 2019 notes mature on April 15, 2019, and the indenture governing the 2019 notes contains certain customary covenants that, among other things, limit the Company’s ability and the ability of its subsidiaries to incur additional indebtedness, declare or pay dividends, purchase or redeem its capital stock, make investments, sell assets, merge or consolidate, guarantee or pledge any assets or create liens. The Company was in compliance with all of these covenants at January 31, 2013 and October 31, 2012.

The 2019 notes do not have any sinking fund requirements. If the Company experiences certain changes in control, it must offer to repurchase all of the 2019 notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest. In addition, if the Company sells certain assets, under certain circumstances, it must offer to repurchase the 2019 notes pro rata up to a maximum amount equal to the proceeds of such sale at 100% of the principal amount, plus accrued and unpaid interest.

The 2019 notes are redeemable at the option of the Company, in whole or in part, at any time on or after April 15, 2014 and prior to maturity at certain fixed redemption prices plus accrued and unpaid interest. The 2019 notes may be redeemed, in whole or in part, at any time prior to April 15, 2014 at a redemption price equal to 100% of the principal amount of the 2019 notes plus a make-whole premium, as defined, together with accrued and unpaid interest. In addition, the Company may redeem up to 35% of the 2019 notes prior to April 15, 2014, using net proceeds from certain equity offerings.

Interest is paid semi-annually on April 15 and October 15 of each year beginning on October 15, 2011.

$4.9 million of fees were capitalized related to the issuance of the 2019 notes. These fees are being amortized on a straight line basis over eight years, the term of the 2019 notes.

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(5)	DEBT (Continued)

 

(c)	Pennsylvania Industrial Loans

The Company has certain amortizing fixed rate term loans in connection with the expansion in fiscal 2008 of its Wright Township, Pennsylvania manufacturing facility with interest rates ranging from 4.75% to 5.0%. These financing arrangements are secured by the real property of the manufacturing facility located in Wright Township, Pennsylvania, which had a net carrying value of $11.5 million at January 31, 2013.

 

(d)	Mortgage note payable

On July 25, 2012, concurrent with the purchase of the Company’s new corporate headquarters building in Montvale, New Jersey, the Company entered into a mortgage loan note (the “mortgage note”) having a principal amount of $3,360,000 with TD Bank, N.A. The mortgage note bears interest at a rate equal to one-month LIBOR plus 1.75% and matures on August 1, 2022. Interest is paid monthly. The mortgage note is secured by the Montvale building.

In connection with the mortgage note, the Company also entered into a ten-year floating-to-fixed interest rate swap agreement with TD Bank, N.A. with a notional value of $3,360,000, the outstanding principal balance on the mortgage note. The interest rate swap fixes the interest rate at 3.52% per year and matures on July 25, 2022 (see Note 9 for further discussion).

 

(e)	Capital leases

From time to time, the Company enters into capital leases for certain of its machinery and equipment. The interest rates on the capital leases range from 3.5% to 8.5%, with a weighted average interest rate of 4.5%. As a result of the capital lease treatment, the equipment remains as a component of property, plant and equipment in the Company’s consolidated balance sheet and is depreciated in accordance with the Company’s depreciation policy.

Under the terms of the capital leases, the payments are as follows:

 

For the years ending October 31,		Capital Leases
		(in thousands)
2013		$	2,748
2014			3,548
2015			2,541
2016			1,834
2017			1,834
Thereafter			3,809
Total minimum lease payments			16,314
Less: Amounts representing interest			1,663
Present value of minimum lease payments			14,651
Less: Current portion of obligations under capital leases			3,094
Long-term portion of obligations under capital leases		$	11,557

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(5)	DEBT (Continued)

 

(f)	Foreign bank borrowings

In addition to the amounts available under the credit facility, the Company also maintains a secured credit facility at its Canadian subsidiary, used to support operations, which is generally serviced by local cash flows from operations. There was zero outstanding under this arrangement at January 31, 2013 and October 31, 2012. Availability under the Canadian credit facility at January 31, 2013 and October 31, 2012 was $5.0 million.

(6) ACCRUED EXPENSES

At January 31, 2013 and October 31, 2012, accrued expenses consist of the following:

 

		January 31, 2013				October 31, 2012
		(in thousands)
Payroll and employee related		$	7,725			$	13,695
Customer rebates			5,861				9,662
Interest			4,856				749
Accrual for performance units			4,737				3,754
Other (A)			8,173				7,956
Accrued expenses		$	31,352			$	35,816

 

(A)	No individual item exceeded 5% of current liabilities.

(7) SHAREHOLDERS’ EQUITY

Share-Based Compensation

At January 31, 2013, the Company has a share-based plan which provides for the granting of stock options and performance units to officers, directors and key employees of the Company. Total share-based compensation expense related to the Company’s stock option plans are recorded in the consolidated statements of operations as follows:

 

		For the Three Months Ended January 31,
		2013				2012
		(in thousands)
Cost of sales		$	232			$	111
Selling expense			248				139
General and administrative expense			789				629
Total		$	1,269			$	879

Stock Option Plans

The Company’s 1995 Stock Option Plan (“1995 Option Plan”) expired on December 31, 2004, except as to options granted prior to that date. The Board adopted the AEP Industries Inc. 2005 Stock Option Plan (“2005 Option Plan”) and the Company’s shareholders approved the 2005 Option Plan at its annual shareholders

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(7)	SHAREHOLDERS’ EQUITY (Continued)

 

meeting. The 2005 Option Plan became effective January 1, 2005 and will expire in October 2013. The 2005 Option Plan provides for the granting of various awards, including incentive stock options, which may be exercised over a period of ten years, stock appreciation rights, restricted stock, performance units and non-qualified stock options, including fixed annual grants to non-employee directors. Under the 2005 Option Plan for fiscal 2011 and fiscal 2012, each non-employee director received a fixed annual grant of 2,000 stock options as of the date of the annual meeting of shareholders. Beginning in fiscal 2013, the non-employee directors will receive annual restricted stock awards as of the date of the annual meeting of shareholders, with a grant date fair value of $55,000. The Company initially reserved 1,000,000 shares of the Company’s common stock for issuance under the 2005 Option Plan. These shares of common stock may be made available from authorized but unissued common stock, from treasury shares or from shares purchased on the open market. The issuance of common stock resulting from the exercise of stock options and settlement of the vesting of performance units (for those employees who elected shares) during fiscal 2013 and 2012 has been made from new shares. At January 31, 2013, 334,479 shares are available to be issued under the 2005 Option Plan.

Stock Options

The fair value of options granted is estimated on the date of grant using a Black-Scholes options pricing model. Expected volatilities are calculated based on the historical volatility of the Company’s stock. Management monitors stock option exercise and employee termination patterns to estimate forfeitures rates within the valuation model. Separate groups of employees, including executive officers and directors, that have similar historical exercise behavior are considered separately for valuation purposes. The expected holding period of stock options represents the period of time that stock options granted are expected to be outstanding. The risk-free interest rate is based on the Treasury note interest rate in effect on the date of grant for the expected term of the stock option.

There were no options granted during the three months ended January 31, 2013 or 2012.

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(7)	SHAREHOLDERS’ EQUITY (Continued)

 

The following table summarizes the Company’s stock option plans as of January 31, 2013, and changes during the three months ended January 31, 2013:

 

		1995 Option Plan				2005 Option Plan				Total Number Of Options				Weighted Average Exercise Price per Option				Option Price Per Share				Weighted Average Remaining Contractual Term (years)				Aggregate Intrinsic Value $(000)
Options outstanding at October 31, 2012 (108,959 options exercisable)			57,359				86,000				143,359			$	22.15			$	9.30-42.60				4.2			$	5,990
Granted			—				—				—				—				—
Exercised			(1,480	)			—				(1,480	)		$	10.95			$	9.30-11.74
Forfeited/Cancelled			—				—				—				—				—
Expired			—				—				—				—				—
Options outstanding at January 31, 2013			55,879				86,000				141,879			$	22.26			$	9.30-42.60				4.0			$	5,976
Vested and expected to vest at January 31, 2013			55,879				86,000				141,879			$	22.26								4.0			$	5,976
Exercisable at January 31, 2013			55,879				54,000				109,879			$	20.41								2.8			$	4,831

The table below presents information related to stock option activity for the three months ended January 31, 2013 and 2012:

 

		For the Three Months Ended January 31,
		2013				2012
		(in thousands)
Total intrinsic value of stock options exercised		$	76			$	153
Total fair value of stock options vested		$	59			$	59

Share-based compensation expense related to the Company’s stock options recorded in the consolidated statements of operations for the three months ended January 31, 2013 and 2012 was approximately $38,000 and $57,000, respectively. No compensation cost related to stock options was capitalized in inventory or any other assets for the three months ended January 31, 2013 and 2012. For the three months ended January 31, 2013, there was approximately $21,000 in excess tax benefits recognized resulting from share-based compensation awards, which reduced taxes otherwise payable. The excess benefit is recorded as additional paid in capital at January 31, 2013. For the three months ended January 31, 2012, there were no excess tax benefits recognized resulting from share-based compensation awards as the Company was not in a federal tax paying position.

As of January 31, 2013, there was $0.3 million of total unrecognized compensation cost related to non-vested stock options granted under the plans. That cost is expected to be recognized over a weighted-average period of 3.2 years.

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(7)	SHAREHOLDERS’ EQUITY (Continued)

 

Non-vested Stock Options

A summary of the Company’s non-vested stock options at January 31, 2013 and changes during the three months ended January 31, 2013 are presented below:

 

Non-vested stock options		Shares				Weighted Average Grant Date Fair Value
Non-vested at October 31, 2012			34,400			$	15.43
Granted			—				—
Vested			(2,400	)		$	24.42
Forfeited			—				—
Non-vested at January 31, 2013			32,000			$	14.76

Performance Units

The 2005 Option Plan also provides for the granting of Board approved performance units (“Units”). Outstanding Units are subject to forfeiture based on an annual Adjusted EBITDA performance goal, as determined and adjusted by the Board. If the Company’s Adjusted EBITDA equals or exceeds the performance goal, no Units will be forfeited. If the Company’s Adjusted EBITDA is between 80% and less than 100% of the performance goal, such employee will forfeit such number of Units equal to (a) the Units granted multiplied by (b) the percentage Adjusted EBITDA is less than the performance goal. If Adjusted EBITDA is below 80% of the performance goal, the employee will forfeit all Units. Subsequent to the satisfaction of the performance goal, the vesting of the Units will occur equally over five years on the first through the fifth anniversaries of the grant date, provided that such person continues to be employed by the Company on such respective dates.

The Units will immediately vest (subject to pro-ration, if such termination event occurs during or as of the end of the fiscal year in which the initial grant was made) in the event of (1) the death of an employee, (2) the permanent disability of an employee (within the meaning of the Internal Revenue Code of 1986, as amended) or (3) a termination of employment due to the disposition of any asset, division, subsidiary, business unit, product line or group of the Company or any of its affiliates. In the case of any other termination, any unvested performance units will be forfeited. Notwithstanding the foregoing, the Compensation Committee retains discretionary authority at any time, including immediately prior to or upon a change of control, to accelerate the exercisability of any award, or the end of a performance period. For each Unit, upon vesting and the satisfaction of any required tax withholding obligation, the employee has the option to receive one share of the Company’s common stock, the equivalent cash value or a combination of both.

Due to the cash settlement feature, the Units are liability classified and are recognized at fair value, depending on the percentage of requisite service rendered at the reporting date, and are remeasured at each balance sheet date to the market value of the Company’s common stock at the reporting date.

As the Units contain both a performance and service condition, the Units have been treated as a series of separate awards or tranches for purposes of recognizing compensation expense. The Company will recognize compensation expense on a tranche-by-tranche basis, recognizing the expense as the employee works over the requisite service period for that specific tranche. The Company has applied the same assumption for forfeitures as employed in the Company’s stock option plans, discussed above.

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(7)	SHAREHOLDERS’ EQUITY (Continued)

 

Total share-based compensation expense related to the Units was $1.2 million and $0.8 million for the three months ended January 31, 2013 and 2012, respectively. At January 31, 2013 and October 31, 2012, there was $4.7 million and $3.8 million in accrued expenses, respectively, and $2.0 million and $4.0 million in long-term liabilities, respectively, related to outstanding Units.

The following table summarizes the Units as of January 31, 2013, and changes during the three months ended January 31, 2013:

 

		2005 Option Plan				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (years)				Aggregate Intrinsic Value $(000)
Units outstanding at October 31, 2012			233,992			$	0.00				1.7			$	14,959
Units granted			45,258			$	0.00
Units exercised			(66,135	)		$	0.00							$	4,031
Units forfeited or cancelled			—
Units outstanding at January 31, 2013			213,115			$	0.00				2.3			$	13,720
Vested and expected to vest at January 31, 2013			205,965								2.2			$	13,260
Exercisable at January 31, 2013			—

The Company paid in January 2013, $1.4 million in cash and issued 262 shares of its common stock (issued from new shares), in each case net of withholdings, in settlement of the vesting of certain Units occurring during the first quarter of fiscal 2013. Subsequent to the first quarter, in February 2013, the Company paid $1.1 million in cash and issued 495 shares of its common stock (issued from new shares), in each case net of withholdings, in settlement of the vesting of the remaining Units occurring during the first quarter of 2013. The Company paid in January 2012, $0.7 million in cash, net of withholdings, in settlement of the vesting of certain Units occurring during the first quarter of 2012. Subsequent to the first quarter of the prior year, in February 2012, the Company paid $0.2 million in cash and issued 1,591 shares of its common stock (issued from new shares), in each case net of withholdings, in settlement of the vesting of the remaining Units occurring during the first quarter of 2012.

Treasury Shares

On January 21, 2013, the Company’s Board terminated the September 2010 Stock Repurchase Program (which had $1.0 million remaining as of such date). There was no stock repurchase activity during fiscal 2012 or the three months ended January 31, 2013.

Preferred Shares

The Board may direct the issuance of up to one million shares of the Company’s $1.00 par value Preferred Stock and may, at the time of issuance, determine the rights, preferences and limitations of each series.

On March 31, 2011, the Company adopted a stockholder rights plan (the “Rights Plan”), which entitles the holders of the rights to purchase from the Company 1/1,000^th of a share of Series A Junior Participating Preferred

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(7)	SHAREHOLDERS’ EQUITY (Continued)

 

Stock, par value $1.00 per share, at a purchase price of $150.00 per share, as adjusted ( a “Right”), upon certain trigger events. The Company’s Board declared a dividend of one Right per each share of common stock of the Company outstanding as of April 11, 2011. Each 1/1,000^th of a share of Series A Junior Participating Preferred Stock has terms that are substantially the economic and voting equivalent of one share of the Company’s common stock. However, until a Right is exercised or exchanged in accordance with the provisions of the Rights Plan, the holder thereof will have no rights as a stockholder of the Company. The Rights Plan has a three-year term and the Board may terminate the Rights Plan at any time (subject to the redemption of the Rights for a nominal value). The Rights may cause substantial dilution to a person or group (together with all affiliates and associates of such person or group and any person or group of persons acting in concert therewith) that acquires beneficial ownership of 15% or more of the Company’s stock on terms not approved by the Board or takes other specified actions.

(8) SEGMENT AND GEOGRAPHIC INFORMATION

The Company’s operations are conducted within one business segment—the production, manufacture and distribution of plastic packaging products, primarily for the food/beverage, industrial and agricultural markets. The Company operates in the United States and Canada.

Operating income includes all costs and expenses directly related to the geographical area.

 

		For the Three Months Ended January 31, 2013
		United States				Canada				Total
		(in thousands)
Sales—external customers		$	251,144			$	15,998			$	267,142
Intercompany sales			7,333				—				7,333
Gross profit			38,729				3,705				42,434
Operating income			12,086				1,595				13,681

 

		For the Three Months Ended January 31, 2012
		United States				Canada				Total
		(in thousands)
Sales—external customers		$	250,826			$	16,838			$	267,664
Intercompany sales			9,159				—				9,159
Gross profit			32,003				2,651				34,654
Operating income			4,886				501				5,387

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(8)	SEGMENT AND GEOGRAPHIC INFORMATION (Continued)

 

Net sales by product line are as follows:

 

		For the Three Months Ended January 31,
		2013				2012
		(in thousands)
Custom films		$	78,612			$	81,291
Stretch (pallet) wrap			83,264				79,778
Food contact			43,960				45,344
Canliners			30,397				30,217
PROformance® films			17,603				17,627
Printed and converted films			4,261				3,404
Other products and specialty films			9,045				10,003
Total		$	267,142			$	267,664

(9) FAIR VALUE MEASUREMENTS

Fair Value Measurements

The carrying amount reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, other current assets, accounts payable and accrued expenses approximates fair value because of the short-term nature of these assets and liabilities. The fair value of the Company’s variable rate debt (credit facility) approximates fair value due to the availability and floating rate for similar instruments.

The carrying value and fair value of the Company’s fixed rate debt at January 31, 2013 and October 31, 2012 are as follows:

 

		January 31, 2013								October 31, 2012
		Carrying Value				Fair Value				Carrying Value				Fair Value
		(in thousands)
2019 notes		$	200,000			$	217,376			$	200,000			$	211,126
Mortgage loan note(a)			3,312				3,312				3,341				3,341
Pennsylvania industrial loans			1,171				1,171				1,208				1,208
Capital leases			14,651				14,651				9,983				9,983
Total		$	219,134			$	236,510			$	214,532			$	225,658

 

(a)	The Company entered into an interest rate swap fixing the variable rate loan to a fixed rate loan at an interest rate of 3.52% per year.

The fair value of the 2019 notes and the mortgage note are based on quoted market rates (Level 1). The Company derives its fair value estimates of the Pennsylvania industrial loans and the capital leases based on observable inputs (Level 2). Observable market inputs used in the calculation of the fair value of the Pennsylvania industrial loans and the capital leases include evaluating the nature and terms of each instrument, considering prevailing economic and market conditions, and examining the cost of similar debt offered at the balance sheet date.

 

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AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

 

(9)	FAIR VALUE MEASUREMENTS (Continued)

 

The interest rate swap is recorded at fair value on the Company’s consolidated balance sheet using an income approach valuation technique based on observable market inputs (Level 2). Observable market inputs used in the calculation of the fair value of interest rate swaps include pricing data from counterparties to these swaps.

As of January 31, 2013, the notional amount and the fair value of the interest rate swap were $3,311,931, and a liability of $2,880, respectively. The Company recorded a $65,256 gain on the mark-to-market on the interest rate swap in interest expense in the consolidated statement of operations for the three months ended January 31, 2013. As of October 31, 2012, the notional amount and the fair value of the interest rate swap were $3,340,794, and a liability of $68,136, respectively.

(10) COMMITMENTS AND CONTINGENCIES

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.

 

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Forward-Looking Statements

Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of this report contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent our goals, beliefs, plans and expectations about our prospects for the future and other future events, such as our ability to generate sufficient working capital, the amount of availability under our credit facility, the anticipated pricing in resin markets, our ability to continue to maintain sales and profits of our operations, and the sufficiency of our cash balances and cash generated from operating, investing, and financing activities for our future liquidity and capital resource needs. Forward-looking statements include all statements that are not historical fact and can be identified by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “anticipate,” “expect,” “believe,” “estimate,” “plan,” “project,” “predict,” “potential,” or the negative of these terms. Although these forward-looking statements reflect our good-faith belief and reasonable judgment based on current information, these statements are qualified by important factors, many of which are beyond our control, that could cause our actual results to differ materially from those in the forward-looking statements, including, but not limited to: the availability of raw materials; the ability to pass raw material price increases to customers in a timely fashion; the continuing impact of the U.S. recession and the global credit and financial environment and other changes in the United States or international economic or political conditions; the integration of Webster Industries and Transco Plastics Industries; the potential of technological changes that would adversely affect the need for our products; price fluctuations which could adversely impact our inventory; and other factors described from time to time in our reports filed or furnished with the U.S. Securities and Exchange Commission (the “SEC”), and in particular those factors set forth in Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended October 31, 2012 and other reports subsequently filed with the SEC. Given these uncertainties, you should not place undue reliance on any such forward-looking statements. The forward-looking statements included in this report are made as of the date hereof or the date specified herein, based on information available to us as of such date. Except as required by law, we assume no obligation to update these forward-looking statements, even if new information becomes available in the future.

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is designed to provide a reader of our financial statements with a narrative explanation from the perspective of our management on our business, financial condition, results of operations, and cash flows. Our MD&A is presented in six sections:

 

•

Overview

 

•

Results of Operations

 

•

Liquidity and Capital Resources

 

•

Contractual Obligations and Off-Balance-Sheet Arrangements

 

•

Critical Accounting Policies

 

•

New Accounting Pronouncements

Investors should review this MD&A in conjunction with the consolidated financial statements and related notes included in this report under Item 1, our Annual Report on Form 10-K for the fiscal year ended October 31, 2012 and reports filed thereafter with the SEC, and other publicly available information.

Company Overview

AEP Industries Inc. is a leading manufacturer of plastic packaging films. We manufacture and market an extensive and diverse line of polyethylene and polyvinyl chloride flexible packaging products, with consumer,

 

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industrial and agricultural applications. Our plastic packaging films are used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture, carpeting, furniture and textile industries.

We manufacture plastic films, principally from resins blended with other raw materials, which we either sell or further process by printing, laminating, slitting or converting. Our processing technologies enable us to create a variety of value-added products according to the specifications of our customers. Our manufacturing operations are located in the United States and Canada.

The primary raw materials used in the manufacture of our products are polyethylene and polyvinyl chloride resins. The prices of these materials are primarily a function of the price of petroleum and natural gas, and therefore typically are volatile. Since resin costs fluctuate, selling prices are generally determined as a “spread” over resin costs, usually expressed as cents per pound. Consequently, we review and manage our operating revenues and expenses on a per pound basis. The historical increases and decreases in resin costs have generally been reflected over a period of time in the sales prices of the products on a penny-for-penny basis. Assuming a constant volume of sales, an increase in resin costs would, therefore, result in increased sales revenues but lower gross profit as a percentage of sales or gross profit margin, while a decrease in resin costs would result in lower sales revenues with higher gross profit margins. Further, the gap between the time at which an order is taken, resin is purchased, production occurs and shipment is made, has an impact on our financial results and our working capital needs. In a period of rising resin prices, this impact is generally negative to operating results and in periods of declining resin prices, the impact is generally positive to operating results.

On November 8, 2012, we completed our purchase of certain machinery and equipment and related assets necessary to manufacture the performance films, specialty bags and industrial films of Transco Plastics Industries Ltd. (“Transco”), a Quebec company, for a purchase price of $5.3 million (deposit was made in October 2012), excluding a one-year commission and transition service costs. We financed the transaction through a combination of cash on hand and availability under our credit facility. The Transco acquisition will expand our presence in the plastic packaging industry and enhance our suite of products. The acquisition resulted in a gain on bargain purchase as the seller was motivated to sell these assets since they were no longer a part of the seller’s intended ongoing business and the seller was under a time constraint to vacate the building in which these assets were located.

Market Conditions

As discussed above, the primary raw materials used in the manufacture of our products are polyethylene and polyvinyl chloride resins. In recent years, the market for resins has been extremely volatile, with record price increases followed by significant decreases and vice versa. Average resin cost during the three months ended January 31, 2013 was 4% lower, or $0.03 per pound, than the average resin cost during the three months ended January 31, 2012. We believe that resin prices will be volatile throughout the remainder of fiscal 2013 due to production issues among the resin suppliers, complicated by fluctuating feedstock costs and exporting activities. In order to maintain margins it is essential that resin cost increases be matched by selling price adjustments. There can be no assurance that we will be able to continue to secure sufficient supply or be able to pass on resin price increases on a penny-for-penny basis in the future.

The marketplace in which we sell our products remains very competitive, and has been further complicated in recent years by adverse economic circumstances affecting many of our customers, distributors and suppliers. We have seen positive signs of stabilization in our markets, although the impact of the recession continues. It is, however, difficult to predict the continuing pace of marketplace consolidation or the impact of current and future economic circumstances on our business. The economy may continue to strain the resources of our customers, distributors and suppliers and negatively impact our businesses and operations. Resin prices remain volatile and in periods of rising prices, we may be unable to adjust selling prices to our customers on a timely basis. We have implemented cost-reduction initiatives in recent years that are designed to increase efficiency and improve

 

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internal practices to meet the challenges of a volatile economic environment, as well as take advantage of opportunities in the marketplace. We are limited, however, in our ability to reduce costs to offset the results of a prolonged or severe downturn given the fixed cost nature of our business combined with our long term business strategy which demands that we remain in a position to respond when market conditions improve. We believe the implementation of these cost-reduction initiatives have and will continue to minimize the impact of these conditions.

Defined Terms

The following table illustrates the primary costs classified in each major operating expense category:

 

Cost of Sales:		Materials, including packaging
		Fixed manufacturing costs
		Labor, direct and indirect
		Depreciation
		Inbound freight charges, including intercompany transfer freight charges
		Utility costs used in the manufacturing process
		Research and development costs
		Quality control costs
		Purchasing and receiving costs
		Any inventory adjustments, including LIFO adjustments,
		Warehousing costs
Delivery Expenses:		All costs related to shipping and handling of products to customers, including transportation costs to third party providers
Selling, General and Administrative Expenses:		Personnel costs, including salaries, bonuses, commissions and employee benefits
		Facilities and equipment costs
		Insurance
		Professional fees, including audit and Sarbanes-Oxley compliance

Our gross profit may not be comparable to that of other companies, since some companies include all the costs related to their distribution network in cost of sales and others, like us, include costs related to the shipping and handling of products to customers in delivery expenses, which is not a component of our cost of sales.

 

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Results of Operations—First Quarter of Fiscal 2013 Compared to First Quarter of Fiscal 2012

The following table presents unaudited selected financial data for the three months ended January 31, 2013 and 2012 (dollars per lb. sold is calculated by dividing the applicable consolidated statements of operations category by pounds sold in the period):

 

		For the Three Months Ended
		January 31, 2013								January 31, 2012								% increase/ (decrease) of $
		$				$ Per lb. sold				$				$ Per lb. sold								$ increase/ (decrease)
		(in thousands, except for per pound data)
Net sales		$	267,142			$	1.16			$	267,664			$	1.16				(0.2	)%		$	(522	)
Gross profit			42,434				0.18				34,654				0.15				22.5	%			7,780
Operating expenses:
Delivery			12,366				0.06				12,487				0.06				(1.0	)%			(121	)
Selling			9,498				0.04				9,794				0.04				(3.0	)%			(296	)
General and administrative			6,889				0.03				6,986				0.03				(1.4	)%			(97	)
Total operating expenses		$	28,753			$	0.13			$	29,267			$	0.13				(1.8	)%		$	(514	)
Pounds sold							229,516 lbs.								231,312 lbs.

Net Sales

The decrease in Net sales for the three months ended January 31, 2013 was the result of a 0.8% decrease in sales volume negatively affecting net sales by $2.1 million, partially offset by a 0.4% increase in average selling prices and improved sales mix positively affecting net sales by $1.2 million. The first quarter of 2013 also included a $0.4 million positive impact of foreign exchange relating to our Canadian operations.

Gross Profit

There was a $3.1 million decrease in the LIFO reserve during the first quarter of fiscal 2013 versus a $3.3 million increase in the LIFO reserve during the first quarter of fiscal 2012, representing a decrease of $6.4 million year-over-year. Excluding the impact of the LIFO reserve change during the quarter gross, profit increased $1.4 million primarily due to improvements in material margins, plant utilization and sales mix.

Operating Expenses

Operating expenses decreased $0.5 million during the first quarter of fiscal 2013 versus the first quarter of fiscal 2012. Included in the prior year was $0.4 million of acquisition-related fees associated with the Webster acquisition. Without these items, operating expenses decreased $0.1 million primarily due to $0.4 million of synergies recognized related to Webster, partially offset by $0.3 million increase in share-based compensation costs associated with our stock options and performance units.

Interest Expense

Interest expense for the three months ended January 31, 2013 decreased $0.3 million as compared to the prior year period resulting primarily from lower average borrowings on our credit facility partially offset by higher interest rates on our credit facility borrowings.

Gain On Bargain Purchase of a Business

Gain on bargain purchase of $1.0 million during the quarter ended January 31, 2013 resulted from the fair value of the identifiable assets acquired in the Transco acquisition exceeding the purchase price (see Note 3).

 

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Income Tax Provision

The provision for income taxes for the three months ended January 31, 2013 was $3.3 million on income before the provision for income taxes of $10.2 million, which includes the gain on bargain purchase of $1.0 million which is non-taxable. The effective tax rate including the gain on bargain purchase is 32.2 percent. The difference between our effective tax rate of 32.2 percent for the three months ended January 31, 2013 and the U.S. statutory tax rate of 35.0 percent, primarily relates to the non-taxable gain on the bargain purchase (-3.4%), the differential in the U.S. and Canadian statutory rates (-1.1%) and net permanent difference relating to our Section 199 manufacturing deduction (-2.1%), partially offset by a foreign withholding taxes paid and provision for state taxes in the United States, net of federal benefit (+3.8%).

The provision for income taxes for the three months ended January 31, 2012 was $0.3 million on income before the provision for income taxes of $0.6 million. The difference between our effective tax rate of 44.3 percent for the three months ended January 31, 2012 and the U.S. statutory tax rate of 35.0 percent, primarily relates to a provision for state taxes in the United States, net of federal benefit (+3.3%) and a provision for foreign taxes paid (+6.0%), partially offset by the differential in the U.S and the Canadian statutory rates (-2.8%).

Reconciliation of Non-GAAP Measures to GAAP

We define Adjusted EBITDA as net income (loss) before discontinued operations, interest expense, income taxes, depreciation and amortization, changes in LIFO reserve, other non-operating income (expense) and non-cash share-based compensation expense (income). We believe Adjusted EBITDA is an important measure of operating performance because it allows management, investors and others to evaluate and compare our core operating results, including our return on capital and operating efficiencies, from period to period by removing the impact of our capital structure (interest expense from our outstanding debt), asset base (depreciation and amortization), tax consequences, changes in LIFO reserve (a non-cash charge/benefit to our consolidated statements of operations), other non-operating items and non-cash share-based compensation. Furthermore, we use Adjusted EBITDA for business planning purposes and to evaluate and price potential acquisitions. In addition to its use by management, we also believe Adjusted EBITDA is a measure widely used by securities analysts, investors and others to evaluate the financial performance of our company and other companies in the plastic films industry. Other companies may calculate Adjusted EBITDA differently, and therefore our Adjusted EBITDA may not be comparable to similarly titled measures of other companies.

Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from Adjusted EBITDA are significant and necessary components to the operations of our business, and, therefore, Adjusted EBITDA should only be used as a supplemental measure of our operating performance.

The following is a reconciliation of our net income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:

 

		First Quarter Fiscal 2013				First Quarter Fiscal 2012
		(in thousands)				(in thousands)
Net income		$	6,910			$	354
Provision for taxes			3,275				281
Interest expense			4,566				4,837
Depreciation and amortization expense			6,001				5,691
(Decrease) increase in LIFO reserve			(3,066	)			3,293
Gain on bargain purchase of a business			(1,001	)			—
Other non-operating income			(69	)			(85	)
Non-cash share-based compensation			1,269				879
Adjusted EBITDA		$	17,885			$	15,250

 

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Liquidity and Capital Resources

Summary

We have historically financed our operations through cash flows 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, and to buy back shares of our common stock and senior notes. In addition, we evaluate acquisitions of businesses or assets from time to time. Generally, our need to access the capital markets is limited to refinancing debt obligations and funding significant acquisitions. Market conditions may limit our sources of funds and the terms for these financing activities. As market conditions change, we continue to monitor our liquidity position.

We continue to maintain what we believe to be a strong balance sheet and sufficient liquidity to provide us with financial flexibility. As of January 31, 2013, we had a net debt position (current bank borrowings plus long term debt less cash and cash equivalents) of $222.0 million, compared with $214.5 million at the end of fiscal 2012. Availability under our credit facility and credit line available to our Canadian subsidiary for local currency borrowings was an aggregate of $147.3 million at January 31, 2013.

In addition to our normal operating activities during the first quarter of fiscal 2013:

 

•

We completed our purchase in November 2012 of certain machinery and equipment and related assets necessary to manufacture the performance films, specialty bags and industrial films of Transco, a Quebec company, for a purchase price of $5.3 million (deposit was made in October 2012), excluding a one-year commission and transition service costs. During the first quarter of fiscal 2013, we incurred an additional $1.6 million in capital expenditures to ship and install this machinery and equipment to various AEP plants as well as infrastructure enhancements to accommodate this machinery and equipment.

 

•

We exercised in December 2012 our option to purchase our Bowling Green, Kentucky facility for $3.4 million. We had been previously leasing this building at a cost of approximately $58,000 per month, excluding utility costs.

 

•

We incurred $5.5 million of capital expenditures related to upgrading Webster’s machinery and equipment; $1.1 million of which was financed through a capital lease.

Our working capital amounted to $99.2 million at January 31, 2013 compared to $96.4 million at October 31, 2012. We used the LIFO method for determining the cost of approximately 89% of our total inventories at January 31, 2013. Under LIFO, the units remaining in ending inventory are valued at the oldest unit costs and the units sold in cost of sales are valued at the most recent unit costs. If the FIFO method for valuing inventory had been used exclusively, working capital would have been $127.3 million and $127.5 million at January 31, 2013 and October 31, 2012, respectively. Despite the possible negative effects on our results of operations and our financial position during periods of rising inventory costs, we believe the use of LIFO maximizes our after tax cash flow from operations.

We believe that our expected cash flow from operations, assuming no material adverse change, combined with the availability of funds under our worldwide credit facilities, will be sufficient to meet our working capital and debt service requirements and planned capital expenditures for at least the next 12 months.

 

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Cash Flows

The following table summarizes our cash flows from operating, investing, and financing of our operations for each of the three months ended January 31, 2013 and 2012:

 

		For the Three Months Ended January 31,
		2013				2012
		(in thousands)
Total cash provided by (used in):
Operating activities		$	8,568			$	(8,205	)
Investing activities			(14,358	)			(4,359	)
Financing activities			5,785				10,627
Effect of exchange rate changes on cash			36				3
Increase (decrease) in cash and cash equivalents		$	31			$	(1,934	)

 

Note:

See consolidated statements of cash flows included in Item 1, Financial Statements, of this Form 10-Q for additional information.

Operating Activities

Our cash and cash equivalents were $2.8 million at both January 31, 2013 and at October 31, 2012. Cash provided by operating activities during the three months ended January 31, 2013 was $8.6 million, which includes net income of $6.9 million adjusted for non-cash items totaling $4.0 million primarily related to depreciation and amortization of $6.0 million, a decrease in LIFO reserve of $3.1 million and $1.3 million in share-based compensation expense. Cash provided by operating activities also includes a $7.1 million decrease in accounts receivable resulting primarily from improved collections and a decrease in dollar sales in the first quarter of fiscal 2013 as compared to the fourth quarter of fiscal 2012 and a $10.3 million increase in accounts payable primarily due to higher resin purchases in the month of January 2013. Cash used by operating activities primarily includes a $12.5 million increase in inventories excluding the non-cash effects of LIFO due to our increased investment in inventory and a $6.4 million decrease in accrued expenses, primarily as a result of bonus payments accrued at October 31, 2012 and paid during the first quarter of fiscal 2013.

Investing Activities

Net cash used in investing activities during the three months ended January 31, 2013 was $14.4 million, resulting primarily from capital expenditures during the period.

Financing Activities

Net cash provided by financing activities during the three months ended January 31, 2013 was $5.8 million, resulting primarily from $4.1 million in proceeds from a new capital lease obligation and $2.9 million in increased borrowings under our credit facility.

Sources and Uses of Liquidity

Credit Facility

We maintain a credit facility with Wells Fargo. The credit facility matures on February 21, 2017 and has a maximum borrowing amount of $150.0 million with a maximum for letters of credit of $20.0 million. The credit facility is secured by liens on most of our domestic assets (other than real property and equipment) and on 66% of our ownership interest in certain foreign subsidiaries.

 

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We utilize the credit facility to provide funding for operations and other corporate purposes through daily bank borrowings and/or cash repayments to ensure sufficient operating liquidity and efficient cash management. Availability at January 31, 2013 and October 31, 2012 under the credit facility was $142.3 million and $147.2 million, respectively.

In addition to the amounts available under the credit facility, we also maintain a credit facility at our Canadian subsidiary which is used to support operations and is serviced by local cash flows from operations. There were no borrowings outstanding under the Canadian credit facility at January 31, 2013 and October 31, 2012. Availability under the Canadian credit facility at January 31, 2013 and October 31, 2012 was $5.0 million.

Please refer to Note 5 of the consolidated financial statements for further discussion of our debt.

Contractual Obligations and Off-Balance-Sheet Arrangements

Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments as of January 31, 2013 are as follows:

 

		For the Years Ending October 31,
		Borrowings (1) (2) (3)				Interest on Fixed Rate Borrowings (4)				Capital Leases, Including Amounts Representing Interest				Operating Leases				Total Commitments
		(in thousands)
Remainder of 2013		$	204			$	16,627			$	2,748			$	5,765			$	25,344
2014			212				16,661				3,548				7,257				27,678
2015			214				16,653				2,541				5,174				24,582
2016			222				16,644				1,834				3,138				21,838
2017			5,929				16,634				1,834				2,188				26,585
Thereafter			203,399				25,401				3,809				1,668				234,277
Total		$	210,180			$	108,620			$	16,314			$	25,190			$	360,304

 

(1)	Borrowings include $5.7 million under our credit facility maturing on February 21, 2017. See Note 5 of the consolidated financial statements for further discussion of our debt.

(2)	Borrowings include $200.0 million aggregate principal amount of 2019 Notes. See Note 5 of the consolidated financial statements for further discussion of our debt.

(3)	Includes a $3.3 million ten-year mortgage note due July 2022 related to the purchase of the Company’s new corporate headquarters.

(4)	In connection with the mortgage note on the new headquarters, we entered into a ten-year floating-to-fixed interest rate swap agreement with TD Bank, N.A that fixes the interest rate at 3.52% per year and matures on July 25, 2022.

In addition to the amounts reflected in the table above:

We expect to incur approximately $20 million of capital expenditures during the remainder of fiscal 2013. This amount includes expenditures to improve the efficiency and productivity of the Webster plant in Montgomery, Alabama acquired in October 2011, expansion in our Waxahachie plant, and the installation of the Transco machines in various AEP plants

With regards to the AEP Industries Inc. 401(k) Savings Plan (“401(k) Plan”) (formerly the US 401(k) Savings and Employee Stock Ownership Plan), we estimate contributing $3.0 million in cash in March 2013 to our 401(k) Plan effective for the 2012 year employer contributions.

 

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Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing arrangements with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Effects of Inflation

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

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, the disclosure of contingent assets and liabilities at the date of the consolidated 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 product returns, customer rebates and incentives, doubtful accounts, inventories, including LIFO inventory valuations, acquisitions, including fair value estimates related to the Webster and Transco acquisition, pension obligations, incurred but not reported medical claims, litigation and contingency accruals, income taxes, including valuation of deferred taxes and assessment of unrecognized tax benefits for uncertain tax positions, share-based compensation, and impairment of long-lived assets and intangibles, including goodwill. 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.

Our critical accounting policies are described in detail in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in the notes to the consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended October 31, 2012, filed with the U.S. Securities and Exchange Commission on January 22, 2013.

There were no material changes to our critical accounting policies during the three months ended January 31, 2013.

New Accounting Pronouncements

We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements and do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position, results of operations or cash flows.

 

Item 3.

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

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 January 31, 2013, the carrying value of our total debt was $224.8 million of which $219.1 million was fixed rate debt (2019 notes,

 

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mortgage note, capital leases and the Pennsylvania industrial loans). As of January 31, 2013, the estimated fair value of our 2019 notes, which had a carrying value of $200.0 million, was $217.4 million. As of January 31, 2013, the carrying value of our mortgage note, capital leases and the Pennsylvania industrial loans was $19.1 million which approximates fair value because the interest rate on these debt instruments approximate market yields for similar debt instruments.

In order to manage the exposure to interest rate risks inherent in variable rate debt, as is the case in the mortgage note, we entered into a floating-to-fixed interest rate swap agreement with TD Bank, N.A. with a notional value of $3,360,000, the outstanding principal balance on the mortgage note. The interest rate swap fixed the interest rate at 3.52% per year and matures on July 25, 2022. The notional amount and fair value at January 31, 2013 of the interest rate swap was $3,311,931 and a liability of $2,880, respectively.

Floating rate debt at January 31, 2013 and October 31, 2012 totaled $5.7 million and $2.8 million, respectively. Based on the average floating rate debt outstanding during the three months ended January 31, 2013 (our credit facility), a one-percent increase or decrease in the average interest rate during the period would have resulted in a change to interest expense of approximately $34,000 for the three months ended January 31, 2013.

Foreign Exchange

We enter into derivative financial instruments (principally foreign exchange forward contracts) primarily to hedge intercompany transactions, 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 do not use foreign currency forward contracts for speculative or trading purposes. We enter into foreign exchange forward contracts with financial institutions and have not experienced nonperformance by counterparties. We anticipate performance by all counterparties to such agreements.

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.

We are exposed to market risk from changes in resin prices that could impact our results of operations and financial condition. Our resin purchasing strategy is to deal with only high-quality, dependable suppliers. We believe that we have maintained strong relationships with these key suppliers and expect that such relationships will continue into the foreseeable future. The resin market is a global market and, based on our experience, we believe that adequate quantities of plastic resins will be available to us at market prices, but we can give no assurances as to such availability or the prices thereof. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview—Market Conditions” for further discussion of market risks related to resin prices.

 

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer (together, the “Certifying Officers”), as appropriate, to allow for timely decisions regarding required disclosure.

 

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In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance, not absolute assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

As of January 31, 2013, the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including the Certifying Officers, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their stated objectives and our Certifying Officers concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of January 31, 2013.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the three months ended January 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

 

Item 1.

Legal Proceedings

We are involved in routine litigation in the normal course of our business. The proceedings are not expected to have a material adverse impact on our results of operations, financial position or liquidity.

 

Item 1A.

Risk Factors

You should carefully consider the risks and uncertainties we describe in our Annual Report on Form 10-K for the fiscal year ended October 31, 2012, and in other reports filed thereafter with the SEC, before deciding to invest in or retain shares of our common stock. We do not believe there are any material changes to the risk factors discussed in Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended October 31, 2012.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the first quarter of 2013, there were no shares purchased under the current stock repurchase program. On January 21, 2013, the Company’s Board terminated the September 2010 Stock Repurchase Program (which had $1.0 million remaining as of such date).

 

Item 3.

Defaults Upon Senior Securities

None

 

Item 4.

Mine Safety Disclosures

None

 

Item 5.

Other Information

None

 

Item 6.

Exhibits

 

Exhibit #		Description
31.1*		Certification of the Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of the Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**		Certification of the Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**		Certification of the Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS**		XBRL Instance Document
101.SCH**		XBRL Taxonomy Extension Schema Document
101.CAL**		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF**		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB**		XBRL Taxonomy Extension Label Linkbase Document
101.PRE**		XBRL Taxonomy Extension Presentation Linkbase Document

 

*	Filed herewith

**	Furnished herewith

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

						AEP Industries Inc.
Dated: March 12, 2013						By:		/s/    J. BRENDAN BARBA
								J. Brendan Barba Chairman of the Board, President and Chief Executive Officer (principal executive officer)
Dated: March 12, 2013						By:		/s/    PAUL M. FEENEY
								Paul M. Feeney Executive Vice President, Finance and Chief Financial Officer (principal financial officer)

 

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