AEP Industries Inc. Reports 2007 Second Quarter Results

    SOUTH HACKENSACK, N.J., June 11 /PRNewswire-FirstCall/ -- AEP Industries Inc. (Nasdaq: AEPI) (the "Company") today reported financial results for its fiscal second quarter ended April 30, 2007.

    Net sales decreased 3% in the second quarter of fiscal 2007 to $187.8 million compared with $193.3 million in the second quarter of fiscal 2006, despite a 9% increase in sales volume.  The decrease is primarily the result of a 12% decrease in average selling prices, driven by lower resin costs.  The effect of foreign exchange on net sales in the 2007 period was a net positive $2.6 million, primarily reflecting the impact of the strengthened Euro.

    For the first six months of fiscal 2007, net sales decreased $18.9 million or 5% to $367.1 million compared with $386.0 million in the same period last year.  The decrease in net sales was the result of a 13% selling price decrease resulting from resin price decreases mitigated by a sales volume increase of 8% combined with the net positive impact of foreign exchange of $5.0 million, primarily reflecting the impact of the strengthened Euro.

    Gross profit for the second quarter of fiscal 2007 decreased $7.0 million to $36.1 million as compared to $43.1 million in the same quarter of the prior year.  The decrease in gross profit for the second quarter of fiscal 2007 was primarily due to an approximately $6.3 million increase in LIFO inventory reserves during the second quarter of fiscal 2007 as compared to a $10.1 million decrease in LIFO inventory reserves during the second quarter of fiscal 2006.  The effect of foreign exchange on gross profit in the 2007 period was a net positive $0.3 million.

    For the first six months of fiscal 2007, gross profit decreased $0.8 million or 1% to $80.2 million from $81.0 million recorded in the first half of fiscal 2006.  The decrease in gross profit is primarily due to a delayed sales price response during the second quarter to rising resin costs and $0.4 million additional charge related to share-based compensation.  The net effect of foreign exchange on gross profit in the first half of 2007 was a positive $0.5 million.


    Operating expenses for the three and six months ended April 30, 2007, increased $1.4 million to $22.8 million and $2.1 million to $45.4 million, respectively.  These increases are primarily due to the negative effect of foreign exchange, increased compensation costs recorded in accordance with SFAS 123R for stock options and performance units and increased selling and delivery costs resulting from higher volumes sold in the 2007 periods.

    Other operating income consists of gains resulting from the routine disposition of assets.  In the first quarter of the prior year, a gain of $1.4 million resulted from the sale of our FIAP land and building.

    Interest expense for the three and six months ended April 30, 2007 decreased $0.2 million in each period to $3.9 million and $7.9 million, respectively.  This decrease is the result of a reduction in borrowings offset by an increase in interest rates.

    Other, net expenses in the 2006 year-to-date period includes the non cash write-off of accumulated foreign currency translation losses applicable to FIAP of $8.0 million.

    "We are pleased to note that year-to-date income from continuing operations improved an impressive $3.6 million over the prior year, sales volume increased a substantial 8% and basic earnings per share from continuing operations increased $0.59 over the prior year to $2.13 per share," stated Brendan Barba, Chairman and Chief Executive Officer of the Company.

    "Our confidence in and commitment to our Company and its future remains strong and are evidenced by our continuing purchases of our own stock."

    Net income for the three months ended April 30, 2007 was $6.2 million or $0.77 per diluted share as compared to $18.2 million or $2.08 per diluted share in the second quarter of 2006.  Net income for the six months ended April 30, 2007 was $16.8 million or $2.09 per diluted share as compared to $18.4 million or $2.12 per diluted share in 2006.

    Adjusted EBITDA was $25.4 million in the current quarter, an increase of $9.3 million over the second quarter of 2006.  Adjusted EBITDA for the six months ended April 30, 2007 was $45.9 million, an increase of $8.3 million over the first half of 2006.

    Reconciliation of Non-GAAP Measures to GAAP

    The Company defines Adjusted EBITDA as net income before discontinued operations, interest expense, income taxes, depreciation and amortization, changes in LIFO reserve, non-operating income (expense), non-cash share-based compensation expense and non-cash employee stock ownership plan ("ESOP") expense.  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 and non-cash ESOP charges.  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. Furthermore, management uses Adjusted EBITDA for business planning purposes and to evaluate and price potential acquisitions.

    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 Adjusted EBITDA to net income, the most directly comparable GAAP financial measure:

    Reconciliation of Net Income to Adjusted EBITDA

   

                                         Second             Second 

                                         Quarter April YTD  Quarter April YTD

                                         Fiscal   Fiscal    Fiscal   Fiscal 

                                          2007     2007      2006     2006

                                          (in      (in       (in      (in  

                                      thousands)thousands)thousands)thousands)

   

    Net income                            $6,153  $16,845  $18,173  $18,429

    Income from discontinued operations       50       31    5,907    5,199

    Income from continuing operations      6,103   16,814   12,266   13,230

        Provision for taxes                3,381   10,281    5,938   10,913

        Interest expense                   3,919    7,917    4,150    8,152

        Depreciation and amortization    

         expense                           4,897    9,798    3,979    7,722

        Write off FIAP CTA                   -        -        -      7,986

        Gain on sale of FIAP land and    

         building                            -        -        -     (1,442)

        Increase (decrease) in LIFO     

         reserve                           6,280     (605) (10,145)  (9,241)

        Other non-operating income          (152)    (228)    (648)  (1,094)

        Non-cash share-based compensation  1,020    1,963      223      468

        Non-cash ESOP expense                -        -        394      946

   

                      Adjusted EBITDA    $25,448  $45,940  $16,157  $37,640

   

    The Company invites all interested parties to listen to its second quarter conference call live over the Internet at www.aepinc.com on June 12, 2007 at 10.00 a.m. EDT.  An archived version of the call will be made available after the call is concluded.

    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 three countries in North America and Europe.

    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, 2006 and subsequent filings with 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, even if new information become available in the future.

AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

                                         For the Three       For the Six   

                                         Months Ended       Months Ended   

                                           April 30,          April 30,    

                                         2007     2006      2007      2006

    NET SALES                         $187,791 $193,251  $367,126  $386,011

    COST OF SALES                      151,713  150,181   286,935   305,012

      Gross profit                      36,078   43,070    80,191    80,999

    OPERATING EXPENSES:                                                  

      Delivery                           8,750    8,209    17,182    16,152

      Selling                            8,456    7,631    16,809    15,245

      General and administrative         5,625    5,568    11,420    11,886

        Total operating expenses        22,831   21,408    45,411    43,283

    OTHER OPERATING INCOME:                                             

      Gain on sales of property, plant                                    

       and equipment, net                    4       44         4     1,471

        Operating income                13,251   21,706    34,784    39,187

    OTHER INCOME (EXPENSE):                                             

      Interest expense                  (3,919)  (4,150)   (7,917)   (8,152)

      Other, net                           152      648       228    (6,892)

    Income from continuing operations                                   

     before provision for income taxes   9,484   18,204    27,095    24,143

    PROVISION FOR INCOME TAXES           3,381    5,938    10,281    10,913

      Income from continuing operations  6,103   12,266    16,814    13,230

    DISCONTINUED OPERATIONS:                                            

      Pre-tax income (loss) from                                          

       discontinued operations              50      (70)       31      (758)

      Loss from disposition                  -      (43)        -       (43)

      Income tax benefit                     -   (6,020)        -    (6,000)

        Income from discontinued

         operations                         50    5,907        31     5,199

    Net income                          $6,153  $18,173   $16,845   $18,429

    BASIC EARNINGS PER COMMON SHARE:                                     

      Income from continuing operations  $0.77    $1.42     $2.13     $1.54

      Income from discontinued

       operations                        $0.01    $0.68     $0.00     $0.60

      Net income per common share        $0.78    $2.10     $2.13     $2.14

    DILUTED EARNINGS PER COMMON SHARE:                                  

      Income from continuing operations  $0.76    $1.40     $2.09     $1.52

      Income from discontinued

       operations                        $0.01    $0.68     $0.00     $0.60

      Net income per common share        $0.77    $2.08     $2.09     $2.12

SOURCE  AEP Industries Inc.

    -0-                             06/11/2007

    /CONTACT:  Paul Feeney, Executive Vice President and Chief Financial Officer of AEP Industries Inc., +1-201-807-2330, feeneyp@aepinc.com/

    /Web site:  http://www.aepinc.com /

    (AEPI)