News

Archive for September, 2008

AEP INDUSTRIES INC. REPORTS FISCAL 2008 THIRD QUARTER RESULTS

Monday, September 8th, 2008

Contact: Paul Feeney
Executive Vice President
and Chief Financial Officer
AEP Industries
(201) 807-2330
feeneyp@aepinc.com

South Hackensack, NJ, September 8, 2008 – AEP Industries Inc. (Nasdaq: AEPI, the “Company”) today reported financial results for its fiscal third quarter ended July 31, 2008.

Net sales increased $33.2 million, or 19%, in the third quarter of fiscal 2008 to $207.0 million compared with $173.8 million in the third quarter of fiscal 2007.  For the first nine months of fiscal 2008, net sales increased $78.2 million, or 16%, to $561.9 million compared with $483.7 million in the same period last year.  The increases are primarily the result of increases in average selling prices, driven by higher resin costs in the current period in comparison to the same period of fiscal 2007, combined with increases in sales volume.  The effect of foreign exchange on net sales during the three and nine months ended July 31, 2008 was a positive $1.3 million and $5.5 million, respectively, reflecting the impact of the strengthened Canadian currency.

Gross profit for the third quarter of fiscal 2008 decreased $14.3 million to $18.1 million as compared to $32.4 million in the prior year quarter.  The decrease in gross profit was largely due to a cumulative increase in LIFO reserves of $8.8 million between the periods combined with current quarter margin erosion resulting from lagging increases in selling prices. The effect of foreign exchange on gross profit for the current quarter was a positive $0.1 million.

For the first nine months of fiscal 2008, gross profit decreased $38.6 million to $68.2 million as compared to $106.8 million in the prior year nine-month period.  The decrease in gross profit was primarily due to a $17.3 million cumulative gross profit impact related to the LIFO reserve combined with lagging sales price increases partially offset by an increase of sales volume and a positive foreign exchange effect of $0.9 million relating to the Company’s Canadian operations.

Operating expenses for the three months ended July 31, 2008, decreased $1.2 million to $21.9 million, and for the nine months ended July 31, 2008, increased $1.8 million to $66.5 million, as compared to the same periods of the prior fiscal year.  The decrease for the three-month period is primarily due to a decrease in the accrual for bonuses and a decrease in compensation costs recorded in accordance with SFAS 123R for stock options and performance units, partially offset by an increase in delivery expense resulting from higher fuel costs.  The increase for the nine-month period is primarily due to a payment of approximately $1.6 million, excluding professional fees, related to a commercial dispute, an increase in delivery and selling expenses resulting from higher volumes sold, higher fuel costs, an increase in bad debt expense resulting from a customer’s bankruptcy and advisory costs incurred as a result of the exploration of strategic alternatives related to the Company’s April 2008 sale of its AEP Industries Nederland B.V. (“AEP Netherlands”) subsidiary, partially mitigated by a decrease in bonus accruals and compensation costs recorded in accordance with SFAS 123R for stock options and performance units.

“AEP continues to focus on strengthening its business during this period of difficult economic conditions marked by unprecedented price increases in resin,” said Brendan Barba, Chairman and Chief Executive Officer of the Company.  “Despite the challenges of the current market, we have made several strategic decisions during the first nine months of this fiscal year, which we believe will have a significant impact on our business operations.  Most notably were our sale of AEP Netherlands in April and our recently announced acquisition of the Plastic Films segment of Atlantis Plastics, which we believe to be a compelling strategic opportunity for AEP that is consistent with our efforts to create additional long-term value for our shareholders.”

Interest expense for the three and nine months ended July 31, 2008, decreased $0.1 million to $3.8 million and increased $0.5 million to $11.9 million, respectively, as compared to the same periods of the prior fiscal year.  The decrease for the three month period resulted primarily from lower average borrowings on the Company’s credit facility combined with lower interest rates on these borrowings. The increase for the nine-month period resulted primarily from higher average borrowings on the Company’s credit facility, partially offset by lower interest rates on these borrowings.

Net income (loss) for the three and nine months ended July 31, 2008 was a $4.8 million net loss or $(0.71) per diluted share and $2.7 million of net income or $0.40 per diluted share, respectively.  Net income for the three and nine months ended July 31, 2007 was $4.8 million or $0.63 per diluted share and $21.6 million or $2.75 per diluted share, respectively.

On April 4, 2008, the Company completed the sale of AEP Netherlands, the last remaining component of the Company’s European segment that manufactured custom films, stretch wrap and printed and converted films, to Euro-M Flexible Packaging S.A. and Ghlin S.r.L, and received in cash approximately $26.8 million (approximately $3.2 million for the shares of AEP Netherlands, net of closing and other costs totaling $1.5 million, and approximately $23.6 million for the settlement of all intercompany loans).  In connection with the sale of AEP Netherlands, the Company recorded a $10.7 million gain on disposition from discontinued operations for the nine months ended July 31, 2008, including a $1.5 million pre-tax gain on sale of shares of AEP Netherlands, $6.9 million of realized foreign currency exchange gains ($4.1 million after tax) resulting from the settlement of all intercompany loans, denominated in Euros ($5.1 million of which had been previously recognized in accumulated other comprehensive income at October 31, 2007) and the reclassification of AEP Netherlands’ accumulated foreign currency translation gains into income in the amount of $2.3 million.

Adjusted EBITDA was $13.8 million in the current quarter as compared to $19.3 million for the three months ended July 31, 2007.  Adjusted EBITDA was negatively impacted between three and four cents per pound in the current period resulting from a delay in passing increased resin costs through to our market place.  Adjusted EBITDA for the nine months ended July 31, 2008 was $34.3 million, as compared to $60.7 million for the nine months ended July 31, 2007.  See “Reconciliation of Non-GAAP Measures to GAAP” for reconciliation of adjusted EBITDA and net income (loss).

On August 9, 2008, the Company entered into an Asset Purchase Agreement (the “Atlantis Agreement”) for the purchase of substantially all of the assets of the stretch films, custom films and institutional products divisions of Atlantis Plastics, Inc. (OTC: ATPL.PK)  and certain of its subsidiaries (“Seller”) for $87.0 million in cash plus the assumption of certain liabilities (the “Atlantis Acquisition”). On August 28, 2008, the United States Bankruptcy Court for the Northern District of Georgia Court appointed the Company as the “stalking horse” bidder for the Plastic Films assets.  The “stalking horse” bid is subject to higher and better offers at a Court sponsored auction, scheduled to be held on October 2, 2008.  In addition to the Seller not receiving a higher or better offer from a qualified bidder, the transaction is subject to approval by the Court and other customary closing conditions set forth in the Atlantis Agreement.  Either party may terminate the Atlantis Agreement by November 3, 2008 if the terminating party is not the primary cause of the closing not having occurred by such date.

The Company believes that the Atlantis Plastic Films segment complements its existing business portfolio and creates an even stronger suite of products and services to meet the unique needs of both companies’ customers.

Reconciliation of Non-GAAP Measures to GAAP

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

Adjusted EBITDA is not a measure of financial performance under generally accepted accounting principles (GAAP), and should not be considered in isolation or as an alternative to net income, 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 the Company’s business, and, therefore, Adjusted EBITDA should only be used as a supplemental measure of the Company’s operating performance.

The following is a reconciliation of the Company’s net income (loss), the most directly comparable GAAP financial measure, to Adjusted EBITDA:

The Company invites all interested parties to listen to its third quarter conference call live over the Internet at www.aepinc.com on September 9, 2008 at 10:00 a.m. EDT.  An archived version of the call will be made available on the Company’s website after the call is concluded and will remain available for one year.

AEP Industries Inc. manufactures, markets, and distributes an extensive range of plastic packaging products for the food/beverage, industrial and agricultural markets.  The Company has operations in the United States and Canada.

Except for historical information contained herein, statements in this release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements involve known and unknown risks and uncertainties which may cause the Company’s actual results in future periods to differ materially from forecasted results.  Those risks include, but are not limited to, risks associated with pricing, volume, cash flow guidance and market conditions.  Those and other risks are described in the Company’ annual report on Form 10-K for the year ended October 31, 2007 and subsequent reports filed with or furnished to the Securities and Exchange Commission (SEC), copies of which are available from the SEC or may be obtained from the Company.  Except as required by law, the Company assumes no obligation to update the forward-looking statements, which are made as of the date hereof, even if new information become available in the future.

AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

AND OTHER COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(in thousands, except per share data)

For the Three Months Ended

July 31,

For the Nine Months Ended

July 31,

2008

2007

2008

2007

NET SALES

$207,020

$173,812

$561,921

$483,693

COST OF SALES

188,959

141,405

493,681

376,922

Gross profit

18,061

32,407

68,240

106,771

OPERATING EXPENSES:

Delivery

10,340

9,699

27,565

25,511

Selling

7,981

8,237

24,055

23,677

General and administrative

3,584

5,194

14,856

15,502

Total operating expenses

21,905

23,130

66,476

64,690

OTHER OPERATING INCOME:

Gain (loss) on sales of property, plant and equipment, net  ……………………………………………..

98

15

(336)

19

Operating income (loss)

(3,746)

9,292

1,428

42,100

OTHER INCOME (EXPENSE):

Interest expense

(3,772)

(3,918)

(11,911)

(11,380)

Other, net

237

766

732

952

Income (loss) from continuing operations before benefit (provision) for income taxes

(7,281)

6,140

(9,751)

31,672

BENEFIT (PROVISION) FOR INCOME TAXES

2,547

(2,466)

3,351

(12,747)

Income (loss) from continuing operations

(4,734)

3,674

(6,400)

18,925

DISCONTINUED OPERATIONS:

Income (loss) from discontinued operations

(38)

1,103

1,201

2,697

Gain from disposition

10,708

Provision for income taxes

(2,778)

Income (loss) from discontinued operations

(38)

1,103

9,131

2,697

Net income (loss)

$(4,772)

$4,777

$2,731

$21,622

BASIC EARNINGS (LOSS) PER COMMON SHARE:

Income (loss) from continuing operations

$(0.70)

$0.50

$(0.94)

$2.45

Income (loss) from discontinued operations

$(0.01)

$0.15

$1.34

$0.35

Net income (loss) per common share

$(0.71)

$0.65

$0.40

$2.80

DILUTED EARNINGS (LOSS) PER COMMON SHARE:

Income (loss) from continuing operations

$(0.70)

$0.49

$(0.94)

$2.40

Income (loss) from discontinued operations

$(0.01)

$0.15

$1.34

$0.34

Net income (loss) per common share

$(0.71)

$0.63

$0.40

$2.75