AEP Industries reports fiscal Q2 net income of US$4.8M compared to a net loss of US$0.7M in 2011 on cost cutting, 2011 Webster acquisition; Net sales up 19% to US$296.7, attributable to increased average selling prices

SOUTH HACKENSACK, NJ , June 11, 2012 (press release) – AEP Industries Inc. today reported financial results for its second quarter ended April 30, 2012. Net sales for the second quarter of fiscal 2012 increased $48.2 million, or 19%, to $296.7 million from $248.5 million for the second quarter of fiscal 2011. Net sales for the six months ended April 30, 2012 increased $98.0 million, or 21%, to $564.3 million from $466.3 million in the same period of the prior fiscal year. Excluding the impact of the Company’s October 14, 2011 acquisition of Webster Industries, the increases were the result of an increase in average selling prices primarily attributable to the pass-through of higher resin costs to customers during the comparable periods, combined with a 2% and 4% increase in sales volume for the three and six months ended April 30, 2012, respectively. The acquisition of Webster added $29.4 million and $59.2 million in net sales during the three and six months ended April 30, 2012, respectively.

Gross profit for the second quarter of fiscal 2012 was $43.1 million, an increase of $13.3 million, or 44%, compared to the comparable period in the prior fiscal year. Excluding the impact of the LIFO reserve change during the periods and $3.3 million in gross profit contributed from Webster, gross profit increased $6.3 million primarily due to increased sales volumes and improved material margins and plant utilization. Gross profit for the first six months of fiscal 2012 was $77.8 million, an increase of $18.4 million, or 31%, compared to the comparable period in the prior fiscal year. Excluding the impact of the LIFO reserve change during the periods and $5.7 million in gross profit contributed from Webster, gross profit increased $8.2 million primarily due to increased sales volumes and improved material margins and plant utilization.

Operating expenses for the second quarter of fiscal 2012 were $30.4 million, an increase of $4.9 million, or 19%, compared to the comparable period in the prior fiscal year and for the first six months of fiscal 2012 were $59.7 million, an increase of $9.7 million, or 19%, compared to the comparable period in the prior fiscal year. Webster incurred $3.9 million and $7.5 million in operating expenses for the three and six months ended April 30, 2012, respectively. Without the Webster impact, operating expenses increased $1.0 million and $2.2 million for the three and six months ended April 30, 2012, respectively, primarily due to an increase in selling and delivery costs as a result of more volumes sold, increased fuel costs, and an increase in share based compensation costs associated with the Company’s stock options and performance units.

“We are very pleased to deliver sales growth in our traditional businesses particularly with such a high degree of economic pessimism in our markets,” said Brendan Barba, Chairman,

President and Chief Executive Officer of the Company. “Despite fluctuating resin costs, we have improved margins through a combination of cost controls and. We are excited by the improvement in the results of our 2011 Webster acquisition. We expect Webster‘s operating income will steadily increase as we continue to implement synergies and to improve efficiencies.” Interest expense for the three months ended April 30, 2012 decreased $0.8 million as compared to the prior year period and for the six months ended April 30, 2012 increased $0.2 million as compared to the prior year period. Included in the prior year periods are the writeoff of unamortized issuance costs related to the 2013 senior notes, the early tender fee paid to the holders of 2013 senior notes and fees related to the partial repurchase of the 2012 senior notes. Without these items, interest expense increased $0.8 million and $1.8 million for the three and six months ended April 30, 2012, respectively, resulting primarily from higher borrowings and interest rates payable under the Company’s senior notes due 2019.

Net income for the three months ended April 30, 2012 was $4.8 million, or $0.87 per diluted share, as compared to a net loss of $0.7 million, or $(0.11) per diluted share, for the three months ended April 30, 2011. Net income for the six months ended April 30, 2012 was $5.2 million, or $0.94 per diluted share, as compared to net income of $0.4 million, or $0.06 per diluted share, for the six months ended April 30, 2011.

Adjusted EBITDA (defined below) was $24.8 million in the current quarter as compared to $19.9 million for the three months ended April 30, 2011. Adjusted EBITDA for the six months ended April 30, 2012 was $40.1 million, as compared to $35.0 million for the six months ended April 30, 2011.

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, other non-operating income (expense) and non-cash share-based compensation 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), other non-operating
items and non-cash share-based compensation. 

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 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 the Company’s business, and, therefore, Adjusted EBITDA should only be used as a supplemental measure of the Company’s operating performance. 

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