AEP INDUSTRIES INC - FORM 10-K

Attached files

file	filename
EX-23 - CONSENT OF KPMG LLP - AEP INDUSTRIES INC	dex23.htm
EX-32.1 - SECTION 906 CERTIFICATION--CEO - AEP INDUSTRIES INC	dex321.htm
EX-31.1 - SECTION 302 CERTIFICATION--CEO - AEP INDUSTRIES INC	dex311.htm
EX-31.2 - SECTION 302 CERTIFICATION--CFO - AEP INDUSTRIES INC	dex312.htm
EX-32.2 - SECTION 906 CERTIFICATION--CFO - AEP INDUSTRIES INC	dex322.htm
EX-21 - LIST OF SUBSIDIARIES OF THE COMPANY AT JANUARY 14, 2011 - AEP INDUSTRIES INC	dex21.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended October 31, 2010

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 0-14550

AEP INDUSTRIES INC.

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		22-1916107 (I.R.S. Employer Identification No.)

125 Phillips Avenue, South Hackensack, New Jersey (Address of principal executive offices)		07606-1546 (Zip code)

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

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, $0.01 par value		Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨ Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes x No

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. x Yes ¨ 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 ¨ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨

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.

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 x No

The aggregate market value of the common stock held by non-affiliates of the registrant as of April 30, 2010 was $106,830,400, based upon the closing price of $27.63 as reported by the Nasdaq Global Select Market on such date. Shares of common stock held by officers, directors and holders of more than 5% of the outstanding common stock have been excluded from this calculation because such persons may be deemed to be affiliates; such exclusion shall not be deemed to constitute an admission that any such person is an affiliate of the registrant.

The number of shares of the registrant’s common stock outstanding as of January 11, 2011 was 6,141,602.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the 2011 annual meeting of stockholders are incorporated by reference into Part III of this report to the extent described herein.

AEP INDUSTRIES INC.

INDEX TO FORM 10-K


		Page Number
Cautionary Note Regarding Forward-Looking Statements			3

PART I

ITEM 1.	Business		4

ITEM 1A.	Risk Factors		11

ITEM 1B.	Unresolved Staff Comments		19

ITEM 2.	Properties		19

ITEM 3.	Legal Proceedings		20

ITEM 4.	Removed and Reserved		20

PART II

ITEM 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		21

ITEM 6.	Selected Financial Data		24

ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk		40

ITEM 8.	Financial Statements and Supplementary Data		42

ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		43

ITEM 9A.	Controls and Procedures		43

ITEM 9B.	Other Information		44

PART III

ITEM 10.	Directors, Executive Officers and Corporate Governance		45

ITEM 11.	Executive Compensation		45

ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		45

ITEM 13.	Certain Relationships and Related Transactions, and Director Independence		45

ITEM 14.	Principal Accounting Fees and Services		45

PART IV

ITEM 15.	Exhibits and Financial Statement Schedules		46

Signatures			95

Cautionary Note Regarding 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 costs associated with the shutdown of the Fontana and Cartersville plants (acquired as part of Atlantis acquisition on October 30, 2008); the implementation of the final phase of a new operating system; 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 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 this Annual Report on Form 10-K. 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.

PART I

ITEM 1.

BUSINESS

Overview

AEP Industries Inc., founded in 1970 and incorporated in Delaware in 1985, is a leading manufacturer of plastic packaging films in North America. We manufacture and market an extensive and diverse line of polyethylene, polyvinyl chloride and polypropylene flexible packaging products, with consumer, industrial and agricultural applications. Our plastic packaging films are used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture 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.

We manufacture both industrial grade products, which are manufactured to general industry specifications, and specialty products, which are manufactured under more exacting standards to assure certain required chemical and physical properties. Specialty products generally sell at higher margins than industrial grade products.

For a discussion of key operational developments occurring in fiscal 2010, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Products

As stated above, we manufacture and market an extensive and diverse line of polyethylene, polyvinyl chloride and polypropylene flexible packaging products, with consumer, industrial and agricultural applications. Flexible packaging and film products are thin, ductile bags, sacks, labels and films used for food and non-food consumer, agricultural and industrial items.

The following table summarizes our product lines:


Product	Material	Examples of Uses
custom films	polyethylene co-extruded and monolayer custom designed films	• drum, box, carton, and pail liners • furniture and mattress bags • films to cover high value products • magazine overwrap

stretch (pallet) wrap	polyethylene	• pallet wrap

PROformance^® films	Co-extruded and monolayer polyolefin films	• cereal box liners • fresh cut produce packaging • frozen foods • medical

polyvinyl chloride wrap	polyvinyl chloride	• food and freezer wrap

printed and converted films	polyethylene	• printed shrink films • printed, laminated, converted films for flexible packaging to consumer markets

Product

Material

Examples of Uses

other products and specialty films

unplasticized polyvinyl chloride polyethylene

• battery labels

• credit card laminate

• retail and institutional films and products

• twist wrap

• canliners

• table covers, aprons, bibs and gloves

• agricultural films

Net sales by product line for each of the years ended October 31, 2010, 2009 and 2008 are as follows:


	2010		2009		2008
	(in thousands)
Custom films	$	275,825	$	240,182	$	336,439
Stretch (pallet) wrap		245,232		217,999		184,516
PROformance^® films		65,137		77,804		18,189
Polyvinyl chloride wrap		79,881		77,870		88,672
Printed and converted films		9,660		9,659		10,006
Other products and specialty films		124,835		121,305		124,409

Total	$	800,570	$	744,819	$	762,231

No single customer accounted for more than 10% of net sales in any fiscal year. No single customer accounted for more than 10% of our accounts receivable balance at October 31, 2010. See Note 13 in our consolidated financial statements for information regarding the Company’s operations by geographical area (United States and Canada).

Custom Films

We believe that the strength of our custom film operations lies in our variety of product applications, high quality control standards, well-trained and knowledgeable sales force and commitment to customer service. Most of the custom films manufactured by us, which may be as many as 35,000 separate and distinct products in any given year, are custom designed to meet the specific needs of our customers.

We manufacture a broad range of custom films, generally for industrial applications, including sheeting, tubing and bags. Bags are drum, box, carton and pail liners that are usually cut, rolled or perforated. These bags can also be used to package specialty items such as furniture and mattresses. We also manufacture films to protect items stored outdoors or in transit, such as boats and cars, and a wide array of shrink films, barrier films and overwrap films.

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

Stretch (Pallet) Wrap

We manufacture the most complete line of stretch film products for both hand wrap and rotary applications, using both monolayer and co-extruded constructions used to wrap pallets of industrial and commercial goods for shipping or storage. We also market a wide variety of pre stretch and high performance products designed for commodity and specialty uses.

PROformance^® Films

We offer a full range of coextruded polyolefin films, and custom designed monolayer films designed specifically to service the flexible packaging market. Capable of being printed and laminated by flexible packaging applications, our PROformance^® films are used for food, pharmaceutical and medical applications and are available in up to five layers for applications requiring strength, clarity, sealability, barrier properties against oxygen or moisture transmission, and breathability for preserving freshness.

Polyvinyl Chloride Wrap

We manufacture specifically formulated in-store and pre-store films with our Resinite^® line of polyvinyl chloride (“PVC”) food wrap for the supermarket and industrial markets. We offer a broad range of products with approximately 50 different formulations. Our Griffin, Georgia facility also produces dispenser (ZipSafe^® cutter) boxes containing polyvinyl chloride food wrap for sale to consumers and institutions, including restaurants, schools, hospitals and penitentiaries. These institutional polyvinyl chloride food wrap products are marketed under several private labels and under our own Seal Wrap^® name. By allowing oxygen to pass through, our PVC films are ideal for packaging of fresh red meats, poultry, fish, fruits, vegetables and bakery products. We also provide PVC films for windowing, blister packaging and aseptic shrink bundling film in the industrial marketplace.

Printed and Converted Films

We manufacture six, eight and ten color printing, solventless lamination, bags, and wicketed bags. Our printed and converted films provide printed rollstock to the food and beverage industries and other manufacturing and distributing companies. We also convert printed rollstock to bags and pouches for use by bakeries, fresh or frozen food processors, manufacturers or other dry goods processors.

Other Products and Specialty Films

We also manufacture other products in order to meet the full spectrum of our customers’ total packaging requirements. We manufacture unplasticized polyvinyl chloride (“UPVC”) film for use in battery labels, twist films, credit card laminates, PVC films for sale to retailers for use by consumers and a variety of film products with agricultural applications such as mulch films, fumigation films and sileage films. We also produce disposable consumer and institutional plastic products for the food service, party supply and school/collegiate markets, marketed under the Sta-Dri^® brand name. Products produced include table covers and skirts, aisle runners, aprons, bibs, gloves, boots, freezer/storage bags, saddle pack bags, locker wrap and custom imprint designs.

Manufacturing

We conduct our manufacturing operations at 12 strategically located and integrated extrusion facilities in the United States and Canada. Each manufacturing facility is ISO-compliant (International Organization for Standardization) with the exception of our Mankato institutional products facility. We manufacture both industrial grade products, which are manufactured to industry specifications or for distribution from inventory, and specialty products, which are manufactured under more exacting standards to assure that their chemical and physical properties meet the particular requirements of the customer or the specialized application appropriate to its intended market. Specialty products generally sell at higher margins than industrial grade products. The size and location of our manufacturing facilities, as well as their capacity to manufacture multiple types of flexible packaging products and to re-orient equipment as market conditions warrant, enable us to achieve savings and minimize overhead and transportation costs, and to better serve our customers and remain competitive. See Item 2, “Properties” for a discussion of product lines manufactured at each facility as of October 31, 2010.

In the film manufacturing process, resins with various properties are blended with chemicals and other additives to achieve a wide range of specified product characteristics, such as color, clarity, tensile strength, toughness, thickness, shrinkability, surface friction, transparency, sealability and permeability. The gauges of our products range from less than one mil (.001 inches) to more than 10 mils (.01 inches). Our extrusion equipment can produce printed products and film up to 40 feet wide. The blending of various kinds of resin combined with chemical and color additives is computer controlled to avoid waste and to maximize product consistency. The blended mixture is melted by a combination of applied heat and friction under pressure and is then mechanically mixed. The mixture is then forced through a die, at which point it is expanded into a flat sheet or a vertical tubular column of film and cooled. Several mixtures can be forced through separate layers of a co-extrusion die to produce a multi-layered film (co-extrusion), each layer having specific and distinct characteristics. The cooled film can then be shipped to a customer or can be further processed and then shipped. Generally, our manufacturing plants operate 24 hours a day, seven days a week.

We regularly upgrade or replace older equipment in order to keep abreast of technological advances and to maximize production efficiencies by reducing labor costs, waste and production time. During the past five fiscal years, we made significant capital improvements, including the purchase and lease of new state-of-the-art extrusion equipment and the upgrading of older equipment.

Raw Materials

We manufacture film products primarily from polyethylene, polypropylene and polyvinyl chloride resins, all of which are available from a number of domestic and foreign suppliers. We select our suppliers based on the price, quality and characteristics of the resins they produce. We currently purchase resins from major North American resin suppliers and believe any combination of purchases from such suppliers, as well as other suppliers we do not currently do business with, could satisfy our ongoing resin requirements. Our top three suppliers of resin during fiscal 2010 supplied us with 30%, 28% and 21%, respectively. Given the significant effect of resin costs on our operations and financial results, we have elected to focus our purchases with three suppliers in order to take advantage of the volume rebates which are customary among resin suppliers and critical to our success. Although the plastics industry has from time to time experienced shortages of resin supply and we have limited contractual protections in the event of such shortage, we believe we are well positioned to deal with such risks given our significant relationships and history with existing suppliers, as well as suppliers with whom we currently do not do business.

The resins used by us are produced from petroleum and natural gas. Instability in the world markets for petroleum and natural gas could adversely affect the prices of our raw materials, and this could have an adverse effect on our profitability if the increased costs cannot be passed on to customers. See Item 1A, “Risk Factors.”

Backlog

Our total backlog at October 31, 2010 was approximately $54.9 million, compared with approximately $53.4 million at October 31, 2009. We do not consider any specific month’s backlog to be a significant indicator of sales trends due to the various factors that influence backlog.

Quality Control

We believe that maintaining the highest standards of quality in all aspects of our manufacturing operations plays an important part in our ability to maintain our competitive position. We have adopted strict quality control systems and procedures designed to test the mechanical properties of our products, such as strength, puncture resistance, elasticity, abrasion characteristics and sealability, which we regularly review and modify as appropriate. As part of our commitment in providing the highest level

of quality to our customers, we maintain an ISO 9001:2008 quality system in substantially all of manufacturing operations. ISO 9001:2008 is a quality management standard that helps organizations achieve standards of quality that are recognized and respected throughout the world.

Marketing and Sales

We believe that our ability to provide superior customer service is critical to our success. Even in those markets where our products are considered commodities and price is the single most important factor, we believe that our sales and marketing capabilities and our ability to timely deliver products is a competitive advantage. To that end, we have established good relations with our suppliers and have long-standing relationships with most of our customers, which we attribute to our ability to consistently manufacture high-quality products and provide timely delivery and superior customer service. We serve over 3,000 customers worldwide, none of which individually accounted for more than 4% of our net sales in fiscal 2010.

We believe that our research and development efforts, our high-efficiency equipment, which is automated and microprocessor-controlled, and the technical training given to our sales personnel enhance our ability to expand our sales in all of our product lines. An important component of our marketing philosophy is the ability of our sales personnel to provide technical assistance to customers. Our sales force regularly consults with customers with respect to performance of our products and the customer’s particular needs and then communicates with appropriate research and development staff regarding these matters. In conjunction with the research and development staff, sales personnel are often able to recommend a product or suggest a resin blend to produce the product with the characteristics and properties which best suit the customer’s requirements. Because we have expanded and continue to expand our product lines, sales personnel are able to offer a broad line of products to our customers.

We generally sell either directly to customers who are end-users of our products or to distributors, including nation-wide brokers, for resale to end-users. In fiscal 2010, 2009 and 2008 approximately 62%, 61%, and 62%, respectively, of our worldwide sales were directly to distributors with the balance representing sales to end-users.

Distribution

We believe that the timely delivery of our products to customers is a critical factor in our ability to maintain and grow our market position. In North America, all of our deliveries are by contracted third parties, and we monitor and control such shipments through “On Demand” Transportation Management System (TMS) software. The TMS system provides detailed reports, tracking of every shipment to customer delivery and carrier management. This enables us to better control the distribution process and ensure priority handling and direct transportation of products to our customers, thus improving the speed, reliability and efficiency of delivery.

Because of the geographic dispersion of our plants, we are able to deliver most of our products within a 500 mile radius of our plants. This enables us to reduce our use of warehouse space to store products and utilize the most efficient and economical shipping methods. We also ship products great distances when necessary and export from the United States and Canada.

Research and Development

We have a research and development department with a staff of approximately 17 persons. In addition, other members of management and supervisory personnel, from time to time, devote various amounts of time to research and development activities. The principal efforts of our research and development department are directed to assisting sales personnel in designing specialty products to meet individual customer’s needs, developing new products and reformulating existing products to

improve quality and/or reduce production costs. During fiscal 2010, we focused a significant portion of our research and development efforts toward analyzing, merging and validating the comparable products lines of AEP’s existing products with those of Atlantis. Our research and development department has developed a number of products with unique properties, which we consider proprietary, certain of which are protected by patents. In fiscal 2010, 2009 and 2008, we spent $1.8 million, $1.8 million and $1.1 million, respectively, for research and development activities for continuing operations. Research and development expense is included in cost of sales in our consolidated statements of operations.

Intellectual Property

We own a number of patents, trademarks and licenses that relate to some of our products and manufacturing processes, and apply for new patents on significant product and process developments when appropriate. Although we believe that our patents and trademarks collectively provide us a competitive advantage, we are not dependent on any single patent or trademark. Rather, we believe our success depends on our marketing, manufacturing, and purchasing skills, as well as our ongoing research and development and unpatented proprietary know-how. We believe that the expiration or unenforceability of any of our patents, trademark registrations or licenses would not be material to our financial position or results of operations.

Competition

The business of supplying plastic packaging products is extremely competitive, and we face competition from a substantial number of companies which sell similar and substitute packaging products. Some of our competitors are subsidiaries or divisions of large, international, diversified companies with extensive production facilities, well-developed sales and marketing staffs and substantial financial resources.

We compete principally with (i) local manufacturers, who compete with us in specific geographic areas, generally within a 500 mile radius of their plants, (ii) companies which specialize in the extrusion of a limited group of products, which they market nationally, and (iii) a limited number of manufacturers of flexible packaging products who offer a broad range of products and maintain production and marketing facilities domestically and internationally.

Because many of our products are available from a number of local and national manufacturers, competition is highly price-sensitive and margins are relatively low. We believe that all of our products require efficient, low cost and high-speed production to remain cost competitive. We believe we also compete on the basis of quality, service and product differentiation.

We believe that there are few barriers to entry into many of our markets, enabling new and existing competitors to rapidly affect market conditions. As a result, we may experience increased competition resulting from the introduction of products by new manufacturers. In addition, in several of our markets, products are generally regarded as commodities. As a result, competition in such markets is based almost entirely on price and service.

Environmental Matters

We believe that there are no current environmental matters which would have a material adverse effect on our financial position, results of operations or liquidity. See discussion of environmental risk factors in Item 1A, “Risk Factors.”

Employees

At October 31, 2010, we had approximately 2,000 full and part time employees worldwide, including officers and administrative personnel. As of such date, we had three collective bargaining agreements covering 316 employees, which expire in March 2011, January 2013, and May 2013,

respectively. While we believe that our relations with our employees are satisfactory, a dispute between our employees and us could have a material adverse effect on our business, which could affect our financial position, results of operations and liquidity.

Executive Officers of the Registrant

At January 14, 2011, our executive officers are as follows:


Name	Age		Position
J. Brendan Barba		69	Chairman of the Board of Directors, President and Chief Executive Officer
Paul M. Feeney		68	Executive Vice President, Finance and Chief Financial Officer and Director
John J. Powers		46	Executive Vice President, Sales and Marketing
David J. Cron		56	Executive Vice President, Manufacturing
Paul C. Vegliante		45	Executive Vice President, Operations
Lawrence R. Noll		62	Vice President, Tax and Administration, and Director
James B. Rafferty		58	Vice President, Treasurer and Secretary
Linda N. Guerrera		43	Vice President and Controller

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

Paul M. Feeney has been our Executive Vice President, Finance and Chief Financial Officer and a director since December 1988. From 1980 to 1988, Mr. Feeney was Vice President and Treasurer of Witco Corporation.

John J. Powers has been our Executive Vice President, Sales and Marketing since March 1996. Prior thereto, he was Vice President-Custom Film Division since 1993 and held various sales positions with us since 1989.

David J. Cron has been our Executive Vice President, Manufacturing since July 1997. Prior thereto, he was Vice President, Manufacturing, a plant manager and held various other positions with us since 1976.

Paul C. Vegliante has been our Executive Vice President, Operations since December 1999. Prior thereto, he was our Vice President, Operations since June 1997 and held various other positions with us since 1994.

Lawrence R. Noll has been our Vice President, Tax and Administration since April 2007 and a director since February 2005. Prior thereto, he was our Vice President and Controller from 1996 to April 2007, our Vice President, Finance from 1993 to 1996, our Controller from 1980 to 1993, and our corporate Secretary from 1993 to 1998 and April 2005 to April 2007. He also served as a director from 1993 to 2004.

James B. Rafferty has been our Vice President and Treasurer since November 1996 and Secretary since April 2007. Prior thereto, he was our Assistant Treasurer from July 1996 to November 1996. From 1989 to 1995, Mr. Rafferty was Director of Treasury Operations at Borden, Inc.

Linda N. Guerrera has been our Vice President and Controller since April 2007. Prior thereto, she was our Director of Financial Reporting from September 2006 to April 2007 and our Assistant Controller—International Operations from October 1996 to September 2006. Prior to joining the Company, Ms. Guerrera was a manager at Arthur Andersen LLP in New York City.

Certain family relationships exist between our directors and executive officers: Messrs. Powers and Vegliante are the sons-in-law of Mr. Barba; Messrs. Barba and Cron are cousins; and Ms. Guerrera is the daughter-in-law of Mr. Feeney.

Available Information

Our Internet address is www.aepinc.com. In the “Investor Relations” section of our website, we post the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement on Form 14A related to our annual stockholders’ meeting and any amendments to those reports or statements filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. All such filings are available on our Investor Relations web site free of charge. Copies of any of the above-referenced information will also be made available, free of charge, by calling (201) 641-6600 or upon written request to: Corporate Secretary, AEP Industries, Inc., 125 Phillips Avenue, South Hackensack, NJ 07606. The content on our website is not incorporated by reference into this Form 10-K unless expressly noted.

ITEM 1A.

RISK FACTORS

You should carefully consider each of the risks and uncertainties described below and elsewhere in this Annual Report on Form 10-K, as well as any amendments or updates reflected in subsequent filings with the SEC. We believe these risks and uncertainties, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results and could materially and adversely affect our business operations, results of operations, financial condition and liquidity. Further, additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our results and business operations.

Industry Risks

Our business is dependent on the price and availability of resin, our principal raw material, and our ability to pass on resin price increases to our customers.

The principal raw materials that we use in our products are polyethylene, polypropylene and polyvinyl chloride resins. Our ability to operate profitably is dependent, in a large part, on the markets for these resins. We use resins that are derived from petroleum and natural gas, and therefore prices of such resins fluctuate substantially as a result of changes in petroleum and natural gas prices, demand and the capacity of resin suppliers. Instability in the world markets for petroleum and natural gas could adversely affect the prices of our raw materials and their general availability. Over the past several years, we have at times experienced significant fluctuations in resin prices and availability.

Our ability to maintain profitability is heavily dependent upon our ability to pass through to our customers the full amount of any increase in raw material costs. Since resin costs fluctuate significantly, selling prices are generally determined as a “spread” over resin costs, usually expressed as cents per pound. 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 a higher gross profit margin. 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. If there is overcapacity in the production of any specific product that we manufacture and sell, we frequently are not able to pass through the full amount of any cost increase.

Economic conditions in the United States during fiscal 2010 were difficult with global economic and financial markets experiencing substantial disruption, which also increased the difficulty in passing through the full amount of cost increases. If resin prices increase and we are not able to fully pass on the increases to our customers, our results of operations, financial condition and liquidity will be adversely affected. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of the impact of resin costs on results of operations in fiscal 2010.

Intense competition in the flexible packaging markets may adversely affect our operating results.

The business of supplying plastic packaging products is extremely competitive. Lower volumes as a result of the current economic environment have intensified an already competitive marketplace. The competition in our market is highly price sensitive; we also compete on the basis of quality, service, timely delivery and differentiation of product properties. We face intense competition from numerous competitors, including from local manufacturers which specialize in the extrusion of a limited group of products, which they market nationally, and a limited number of manufacturers of flexible packaging products which offer a broad range of products and maintain production and marketing facilities domestically and internationally. Certain of our competitors may have extensive production facilities, well-developed sales and marketing staffs and greater financial resources than we do. We believe that there are few barriers to entry into many of our product markets. As a result, we have experienced, and may continue to experience, competition from new manufacturers. When new manufacturers enter the market for a plastic packaging product or existing manufacturers increase capacity, they frequently reduce prices to achieve increased market share. In addition, we compete with other packaging product manufacturers, many of which can offer consumers non-plastic packaging solutions. Many of these competitors have greater financial resources than we do and such competition can result in additional pricing pressures, reduced sales and lower margins. An increase in competition could result in material selling price reductions or loss of our market share, which could materially adversely affect our operations and financial condition. There can be no assurance that we will be able to compete successfully in the markets for our products or that competition will not intensify.

We are subject to various environmental and health and safety laws and regulations which govern our operations and which may result in potential liability. In addition, consumer preferences and ongoing health and safety studies on plastics and resins may adversely affect our business.

Our operations are subject to various federal, state, local and foreign environmental laws and regulations which govern:

•

discharges into the air and water;

•

the storage, handling and disposal of solid and hazardous waste;

•

the remediation of soil and ground water contaminated by petroleum products or hazardous substances or waste; and

•

the health and safety of our employees.

Compliance with these laws and regulations may require material expenditures by us. Actions by federal, state, local and foreign governments concerning environmental and health and safety matters could result in laws or regulations that could increase the cost of manufacturing our products. In addition, the nature of our current and former operations and the history of industrial uses at some of our manufacturing facilities expose us to the risk of liabilities or claims with respect to environmental and worker health and safety matters. We may also be exposed to claims for violations of environmental laws and regulations by previous owners or operators of our property. Such liability may be imposed without regard to fault, and under certain circumstances, can be joint and several, resulting

in one party being held responsible for the entire obligation. In addition, the presence of, or failure to remediate, hazardous substances or waste may adversely affect our ability to sell or rent any property or to use it as collateral for a loan. We also may be liable for costs relating to the investigation, remediation or removal of hazardous waste and substances from a disposal or treatment facility to which we or our predecessors sent waste or materials.

Additionally, a decline in consumer preference for plastic products due to environmental considerations could have a material adverse effect on our business, financial condition and results of operations. Also, continuing studies of potential health and safety effects of various resins and plastics, including polyvinyl chlorides and other materials that we use in our products, are being conducted by industry groups, government agencies and others. The results of these studies, along with the development of any other new information, may adversely affect our ability to market and sell certain of our products or may give rise to claims for damages from persons who believe they have been injured by such products, any of which could adversely affect our operations and financial condition.

Company Risks

The existing global economic and financial market environment has had and may continue to have a negative effect on our business and operations.

The existing global economic and financial market environment has caused, among other things, lower levels of liquidity, increased borrowing rates, increased rates of default and bankruptcy, lower consumer and business spending, and lower consumer net worth, all of which has had and may continue to have a negative effect on our business, results of operations, financial condition and liquidity. Many of our customers, distributors and suppliers have been severely affected by the ongoing impacts of the economic and financial market difficulties. Current or potential customers and suppliers may no longer be in business, may be unable to fund purchases or determine to reduce purchases, all of which has and could continue to lead to reduced demand for our products, reduced gross margins, and increased customer payment delays or defaults. Further, suppliers may not be able to supply us with needed raw materials on a timely basis, may increase prices or may go out of business, which could result in our inability to meet consumer demand or affect our gross margins. We are also limited in our ability to reduce costs to offset the results of a prolonged or severe economic downturn given certain fixed costs associated with our operations, difficulties if we overstrained our resources, and our long-term business approach that necessitates we remain in position to respond when market conditions improve.

There can be no assurance that market conditions will significantly improve in the near future or that our results will not continue to be materially and adversely affected. Such conditions make it very difficult to forecast operating results, make business decisions and identify and address material business risks. The foregoing conditions may also impact the valuation of certain long-lived or intangible assets that are subject to impairment testing, potentially resulting in impairment charges which may be material to our financial condition or results of operations. See “—Financial Risks” below for a discussion of additional risks to our liquidity resulting from the current economic and financial market environment.

The loss of a key supplier could lead to increased costs and lower profit margins.

The majority of the resins purchased by the Company are purchased under supply contracts which are typically renewed annually. In fiscal 2010, the Company purchased approximately 30%, 28% and 21% of its resin requirements from its three largest suppliers. Each of these suppliers produce resins in multiple locations, and should any one, or a combination of these locations fail to meet the Company’s needs, the Company believes sufficient capacity exists among its remaining contract holders, the open market and the secondary markets to supply any shortfall that may result. Nevertheless, it is not always possible to replace a specialty resin without a disruption in our operations and replacement of significant supply is often at higher prices.

The Company negotiates and awards its supply contracts annually. The resin contracts generally serve to establish the basic terms and conditions between the parties, but do not bind us in a materially significant way. Should any of our existing relationships fail to bid or survive the bid process, the position previously enjoyed by that contract holder typically migrates to another supplier. While this process has served the Company well in the past, there is no guarantee that the future replacement of any supplier will always result in a more effective and efficient relationship in the future.

We have limited contractual relationships with our customers and, as a result, our customers may unilaterally reduce the purchase of our products.

A substantial portion of our business is in the merchant market, in which we do not have long-term contractual relationships with our customers. As a result, our customers may unilaterally reduce the purchase of our products or, in certain cases, terminate existing orders for which we may have incurred significant production costs. The loss of several customers could, in the aggregate, materially adversely affect our operations and financial condition.

Many of our larger packaging customers are multinational companies that purchase large quantities of packaging materials. Many of these companies are purchasers with centralized procurement departments. They generally enter into supply arrangements through a tender process that solicits bids from several potential suppliers and selects the winning bid based on several attributes, including price and service. The significant negotiating leverage possessed by many of our customers and potential customers limits our ability to negotiate supply arrangements with favorable terms and creates pricing pressure, reducing margins industry wide. In addition, our customers may vary their order levels significantly from period to period, and customers may not continue to place orders with us in the future at the same levels as in prior periods. In the event we lose any of our larger customers, we may not be able to quickly replace that revenue source, which could harm our financial results.

Loss of third-party transportation providers upon whom we depend or increases in fuel prices could increase our costs or cause a disruption in our operations.

We depend upon third-party transportation providers for delivery of our products to our customers. Strikes, slowdowns, transportation disruptions or other conditions in the transportation industry, including, but not limited to, shortages of truck drivers, disruptions in rail service, decreases in ship building or increases in fuel prices, could increase our costs and disrupt our operations and our ability to service our customers on a timely basis.

We may, from time to time, experience problems in our labor relations.

Unions represent 316 employees, or 16% of our workforce, at October 31, 2010, under three collective bargaining agreements which expire in March 2011, January 2013 and May 2013, respectively. Although we believe that our present labor relations with our employees are satisfactory, our failure to renew these agreements on reasonable terms could result in labor disruptions and increased labor costs, which could adversely affect our financial performance.

We cannot assure you that our relations with the unionized portion of our workforce will remain positive or that such employees will not initiate a strike, work stoppage or slowdown in the future. In the event of such an action, our business, prospects, results of operations and financial condition could be adversely affected and we cannot assure you that we would be able to adequately meet the needs of our customers using our remaining workforce. In addition, we cannot assure you that we will not have similar actions with our non-unionized workforce or that our non-unionized workforce will not become unionized in the future.

We are dependent on the management experience of our key personnel and our ability to attract and retain additional personnel.

Our future success depends to a large extent on the experience and continued services of our key managerial employees, including J. Brendan Barba, our Chairman, President and Chief Executive Officer, and Paul M. Feeney, our Executive Vice President, Finance, and Chief Financial Officer. We do not maintain key-person insurance for any of our officers. We may not be able to retain our executive officers and key personnel or attract additional qualified key employees in the future. Competition for qualified employees is intense, and the loss of such persons, or an inability to attract, retain and motivate additional highly skilled employees, could have a material adverse effect on our results of operations and financial condition and prospects. There can be no assurance that we will be able to retain our existing personnel or attract and retain additional qualified employees.

Our executive officers beneficially own a substantial amount of our common stock and have significant influence over our business.

At October 31, 2010, our executive officers beneficially owned 1,313,746 shares of our common stock and have the right to acquire an additional 120,239 shares of our common stock. Their ownership and voting control over approximately 21% of our common stock, together with their duties as executive officers, gives them significant influence on the outcome of corporate transactions or other matters submitted to the Board of Directors or stockholders for approval, including acquisitions, mergers, consolidations and the sale of all or substantially all of our assets.

Our business is subject to risks associated with manufacturing processes.

We internally manufacture our own products at our production facilities. While we maintain insurance covering our manufacturing and production facilities, including business interruption insurance, a catastrophic loss of the use of all or a portion of our facilities due to accident, fire, explosion, labor issues, weather conditions, other natural disaster or otherwise, whether short or long-term, could have a material adverse effect on us.

Unexpected failures of our equipment and machinery may result in production delays, revenue loss and significant repair costs, injuries to our employees, and customer claims. Any interruption in production capability may require us to make large capital expenditures to remedy the situation, which could have a negative impact on our profitability and cash flows. Our business interruption insurance may not be sufficient to offset the lost revenues or increased costs that we may experience during a disruption of our operations.

Failure to successfully implement a new core operating system may adversely affect our business operations.

We are currently and will continue to be highly dependent on automated systems to record and process Company and customer transactions and certain other components of the Company’s financial statements. As of November 1, 2009, we began implementing the initial phase of a new integrated operating system to improve our ability to address the needs of our customers, as well as to create additional efficiencies and strengthen our internal control over our financial reporting. During fiscal 2010, we supplemented the automated internal controls with additional manual and analytical procedures with a focus on revenue completeness, billing accuracy and inventory valuation. During fiscal 2011, we will begin implementing the final phase of our new system, which is centered in our manufacturing facilities, and expected to be completed during fiscal 2012. We may not be able to successfully implement the final phase of the new system in an effective or timely manner or could fail to complete all necessary data reconciliation or other conversion controls when implementing the new system. In addition, we may incur significant increases in costs and encounter extensive delays in the implementation and rollout of the final phase of the new operating system. Failure to effectively implement our new operating system may adversely affect our operations as well as customer perceptions and our internal control over financial reporting.

Financial Risks

Capital markets have experienced a significant period of dislocation and instability, which has had and could continue to have a negative impact on the availability and cost of capital.

The recent disruptions in the U.S. capital markets have lowered the availability of capital and increased its cost. The impacts of these conditions could persist for a prolonged period of time or worsen in the future. Our ability to access the capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact on our flexibility to react to changing economic and business conditions. Limitations on available capital, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In addition, the cost of debt financing, and other important financing terms, has been and may continue to be materially adversely impacted by these market conditions.

To service our debt or redeem such debt upon a change of control, we will require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

Our ability to service our debt and to fund our operations and planned capital expenditures will depend on our operating performance. This, in part, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. If our cash flow from operations is insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, obtain additional equity capital or indebtedness, or refinance or restructure our debt. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. In the absence of such operating results and resources, we could face substantial cash flow problems and might be required to sell material assets or operations to meet our debt service and other obligations. We cannot assure you as to the timing of such sales or the proceeds that we could realize from such sales or if additional debt or equity financing would be available on acceptable terms, if at all. As of October 31, 2010, we could have borrowed up to an additional $103.5 million under our U.S. credit facility and an additional $4.9 million under our Canadian credit facility.

A provision of our senior notes requires us, upon a change of control, to offer to purchase the outstanding senior notes. If a change of control were to occur and we could not obtain a waiver or if we do not have the funds to make the purchase, we would be in default under the senior notes, which could, in turn, cause any of our debt to which a cross-acceleration or cross-default provision applies to become immediately due and payable. If our debt were to be accelerated, we cannot assure you that we would be able to repay it.

We are subject to a number of restrictive debt covenants which may restrict our business and financing activities.

Our credit facility, the indenture relating to our senior notes and the agreements relating to the indebtedness of our subsidiaries contain restrictive debt covenants that, among other things, restrict our ability to:

•

borrow money;

•

pay dividends and make distributions;

•

issue stock of subsidiaries;

•

make certain investments;

•

repurchase stock;

•

use assets as security in other transactions;

•

create liens;

•

enter into affiliate transactions;

•

merge or consolidate; and

•

transfer and sell assets.

In addition, our credit facility and the agreements relating to the indebtedness of our subsidiaries also require us to maintain certain financial tests. These restrictive covenants may limit our ability to expand or to pursue our business strategies. Furthermore, any indebtedness that we incur in the future may contain similar or more restrictive covenants.

Our ability to comply with the restrictions contained in our credit facility, our senior notes and the agreements relating to the indebtedness of our subsidiaries may be affected by changes in our business condition or results of operations, adverse regulatory developments or other events beyond our control. A failure to comply with these restrictions could result in a default under our credit facility, our senior notes and the agreements relating to the indebtedness of our subsidiaries, or any other subsequent financing agreement, which could, in turn, cause any of our debt to which a cross-acceleration or cross-default provision applies to become immediately due and payable. If our debt were to be accelerated, we cannot assure you that we would be able to repay it. In addition, a default could give our lenders the right to terminate any commitments that they had made to provide us with additional funds.

Risks Related to an Investment in Our Common Stock

Our common stock price may be volatile.

The market price of our common stock has fluctuated regularly in the past. The market price of our common stock will continue to be subject to significant fluctuations in response to a variety of factors, including:

•

fluctuations in operating results, including as a result of changes in resin prices, LIFO reserve, and the other variables;

•

our liquidity needs and constraints;

•

the business environment, including the operating results and stock prices of companies in the industries we serve;

•

changes in general conditions in the U.S. and global economies or financial markets, including those resulting from war, incidents of terrorism and natural disasters or responses to such events;

•

announcements concerning our business or that of our competitors or customers;

•

acquisitions and divestitures;

•

the introduction of new products or changes in product pricing policies by us or our competitors;

•

change in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other companies in our industry or failure of analysts to cover our common stock;

•

changes in accounting standards, policies, guidance, interpretations or principles;

•

sales of common stock by our employees, directors and executive officers;

•

prevailing interest rates; and

•

perceived dilution from stock issuances.

Some companies that have had volatile market prices for their securities have been subject to securities class action suits filed against them. If a suit were to be filed against us, regardless of the outcome, it could result in substantial costs and a diversion of our management’s attention and resources. This could have a material adverse effect on our business, results of operation and financial condition.

Our common stock generally has had a low trading volume historically, which could limit trading and cause further volatility in our stock.

Shares of common stock eligible for future sale, and additional equity offerings by us, may adversely affect our common stock price.

The market price of our common stock could decline as a result of sales of substantial amounts of additional shares of our common stock in the public market or in connection with future acquisitions, or the perception that such sales could occur. This could also impair our ability to raise additional capital through the sale of equity securities at a time and price favorable to us. As of October 31, 2010 under our certificate of incorporation, as amended, we are authorized to issue 30 million shares of common stock, of which approximately 6.1 million shares of common stock were outstanding and approximately 0.2 million shares of common stock were issuable related to the exercise of currently outstanding stock options and 0.2 million shares of common stock were issuable related to settlement of performance units if the performance unit holders elected settlement in stock.

We may also decide to raise additional funds through public or private equity financing to fund our operations or for other business purposes. New issuances of equity securities would reduce your percentage ownership in us and the new equity securities could have rights and preferences with priority over those of our common stock.

Our stock repurchase program could increase the volatility of the price of our common stock.

As of October 31, 2010, $4.9 million remains available under the current stock repurchase program. Repurchases may be made in the open market, in privately negotiated transactions or by other means, from time to time, subject to market conditions, applicable legal requirements and other factors, including the limitations set forth in the Company’s debt covenants. The program does not obligate the Company to acquire any particular amount of common stock and the program may be suspended at any time at the Company’s discretion.

Delaware law and our charter documents may impede or discourage a takeover, which could cause the market price of our shares to decline.

We are a Delaware corporation and the anti-takeover provisions of Delaware law imposes various impediments to the ability of a third party to acquire control of us, even if a change of control would be beneficial to our existing stockholders. For example, Section 203 of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder.

In addition, our restated certificate of incorporation and fifth amended and restated by-laws contain provisions that may discourage, delay or prevent a third party from acquiring us, even if doing so would be beneficial to our stockholders. These provisions include:

•

requiring supermajority approval of stockholders for certain business combinations or an amendment to, or repeal of, the by-laws;

•

prohibiting stockholders from acting by written consent without board approval;

•

prohibiting stockholders from calling special meetings of stockholders;

•

establishing a classified board of directors, which allows approximately one-third of our directors to be elected each year;

•

limitations on the removal of directors;

•

advance notice requirements for nominating candidates for election to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings;

•

permitting the board of directors to amend or repeal the by-laws; and

•

permitting the board of directors to designate one or more series of preferred stock.

Our issuance of preferred stock could adversely affect holders of our common stock.

We are currently authorized to issue one million shares of preferred stock in accordance with our restated certificate of incorporation, none of which is issued and outstanding. Our board of directors has the power, without stockholder approval, to set the terms of any such series of preferred stock that may be issued, including voting rights, dividend rights, and preferences over our common stock with respect to dividends or if we liquidate, dissolve or wind up our business and other terms. If we issue preferred stock in the future that has preference over our common stock with respect to the payment of dividends or upon our liquidation, dissolution or winding up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of holders of our common stock or the market price of our common stock could be adversely affected.

ITEM 1B.

UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2.

PROPERTIES

Our principal executive and administrative offices are located in a leased building in South Hackensack, New Jersey. The lease terminates in February 2015.

The following table describes the manufacturing facilities that we own or lease and currently utilize for operations as of October 31, 2010. All of these facilities are located in the United States and Canada. Substantially all of the owned properties are pledged as collateral under our various credit facilities and the Wright Township, Pennsylvania facility is pledged under the Pennsylvania Industrial Loans. The following chart sets forth the square footage of such manufacturing facilities, including warehousing space. All of the properties are owned unless noted otherwise.


Location	Approximate Square Footage		Types of Film Produced
Griffin, Georgia		322,000		PVC food wrap, UPVC
Wright Township, Pennsylvania		433,000		Custom, PROformance and stretch
Matthews, North Carolina		394,000		Custom and stretch
Alsip, Illinois		182,000		Custom
West Hill, Ontario, Canada		138,000		PVC food wrap
Chino, California		259,000		Custom and stretch
Waxahachie, Texas		216,000		Custom
Tulsa, Oklahoma		126,000		Stretch
Nicholasville, Kentucky		125,000		Stretch
Mankato, Minnesota		104,000		Custom, PROformance
Mankato, Minnesota		65,000		Institutional products
Bowling Green, Kentucky(A)		165,000		Printed and converted, custom, PROformance

Total		2,529,000

(A)	Lease ends February 2, 2012. The lease contains an option to purchase the facility. If we elect not to purchase, we have two five-year options to extend the lease with the initial extension based on an August 31, 2011 start date.

As of October 31, 2010, we also had manufacturing facilities located in each of Fontana, California and Cartersville, Georgia that were acquired from Atlantis on October 30, 2008. Production in the Fontana location ceased in November 2008 and such lease terminated December 15, 2010. Production in Cartersville ceased on October 31, 2009, although we remain party to the facility lease ending July 31, 2015. We have entered into a sublease for the Cartersville property aggregating approximately $0.4 million in sublease income for the period January 2011 to July 2015.

We believe that all of our properties are well maintained and in good condition, and that the current operating facilities are adequate for present and immediate future business needs.

As of October 31, 2010, our manufacturing facilities (excluding Fontana and Cartersville) had a combined average annual production capacity exceeding one billion pounds.

ITEM 3.

LEGAL PROCEEDINGS

We are, from time to time, party to litigation arising in the normal course of our business. We believe that there are currently no legal proceedings the outcome of which would have a material adverse effect on our financial position or our results of operations.

ITEM 4.

REMOVED AND RESERVED

Not applicable.

PART II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is quoted on the Nasdaq Global Select Market under the symbol “AEPI.” The high and low closing prices for our common stock, as reported by the Nasdaq Global Select Market for the two fiscal years ended October 31, 2009 and 2010, respectively, are as follows:


	Price Range
Fiscal Year and Period	High		Low
2009
First quarter (November-January)	$	20.73	$	13.16
Second quarter (February-April)		20.33		11.08
Third quarter (May-July)		31.91		20.81
Fourth quarter (August-October)		41.32		31.50
2010
First quarter (November-January)	$	41.94	$	33.22
Second quarter (February-April)		38.22		26.02
Third quarter (May-July)		28.90		22.76
Fourth quarter (August-October)		29.82		20.89

On January 11, 2011, the closing price for a share of our common stock, as reported by the Nasdaq Global Select Market, was $25.65.

Holders

On January 11, 2011, our common stock was held by approximately 1,500 stockholders of record. A substantially greater number of holders are beneficial owners whose shares are held of record by banks, brokers and other nominees.

Dividends

No dividends have been paid to stockholders since December 1995. The payment of future dividends is within the discretion of the board of directors and will depend upon business conditions, our earnings and financial condition and other relevant factors. The payments of future dividends, however, are restricted and subject to a number of covenants under our Loan and Security Agreement and under the Indenture pursuant to which our 7.875% Senior Notes were issued. The Company does not anticipate paying dividends in the foreseeable future.

Purchases of Equity Securities by the Issuer

The table below sets forth the total number of shares of our common stock that we repurchased in each month of the quarter ended October 31, 2010.


2010 period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Approximate dollar value of shares that may yet be purchased under the plans or programs
August 1-August 31		402,776	$	27.29		—	$	793,022	(a)
September 1-September 30		119,300	$	21.16		—	$	5,476,072	(b)
October 1-October 31		24,149	$	23.89		—	$	4,899,129

Total		546,225	$	25.80		—	$	4,899,129

(a)	On June 7, 2010, the Board approved a new $10.0 million stock repurchase program (the “June 2010 Repurchase Program”). On August 4, 2010, our Board authorized a $6.5 million increase to the June 2010 Repurchase Program.

(b)	On September 15, 2010, our Board terminated the June 2010 Repurchase Program and approved a new $8.0 million stock repurchase program (the “September 2010 Stock Repurchase Program”). Please refer to Note 10 of the Consolidated Financial Statements for further discussion of the program.

Performance Graph

The following graph compares, for the five-year period ended on October 31, 2010, the cumulative total stockholder return on our common stock against the cumulative total return of:

•

the S&P 500 Index and

•

a peer group consisting of twelve publicly traded plastic manufacturing companies that we have selected. The companies in the peer group are as follows: Aptar Group, Astronics Corporation, Ball Corporation, Bemis Company, Inc., Crown Holdings, Inc., Intertape Polymer Group Inc., Pactiv Corporation, Silgan Holdings Inc., Sonoco Products Company, Spartech Corporation, Dean Foods Company and West Pharmaceutical Services, Inc.

The graph assumes $100 was invested on October 31, 2005 in our common stock, the S&P 500 Index and the peer group consisting of twelve companies, and the reinvestment of all dividends.

LOGO

ITEM 6.

SELECTED FINANCIAL DATA

The following table presents our selected financial data. The table should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.


	For the Year Ended October 31,
	2010			2009			2008			2007			2006
	(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net sales	$	800,570		$	744,819		$	762,231		$	666,318		$	697,233
Gross profit		110,074			160,436			96,822			139,152			151,236
Operating income		15,720			60,387			9,593			52,866			66,964
Interest expense		(15,206	)		(15,749	)		(15,731	)		(15,551	)		(15,437	)
Other income (expense), net		455			4,785			916			779			(7,703	)
Income (loss) from continuing operations before (provision) benefit for income taxes		969			49,423			(5,222	)		38,094			43,824
(Provision) benefit for income taxes(1)		(1,492	)		(18,994	)		8,534			(15,217	)		(8,432	)
(Loss) income from continuing operations		(523	)		30,429			3,312			22,877			35,392
(Loss) income from discontinued operations		(43	)		1,099			8,932			7,175			27,537
Net (loss) income	$	(566	)	$	31,528		$	12,244		$	30,052		$	62,929
Basic (Loss) Earnings per Common Share:
(Loss) income from continuing operations	$	(0.08	)	$	4.48		$	0.49		$	3.05		$	4.20

(Loss) income from discontinued operations	$	(0.01	)	$	0.16		$	1.32		$	0.96		$	3.27

Net (loss) income per common share	$	(0.08	)	$	4.65		$	1.80		$	4.00		$	7.46

Diluted (Loss) Earnings per Common Share:
(Loss) income from continuing operations	$	(0.08	)	$	4.45		$	0.48		$	2.99		$	4.14

(Loss) income from discontinued operations	$	(0.01	)	$	0.16		$	1.31		$	0.94		$	3.22

Net (loss) income per common share	$	(0.08	)	$	4.61		$	1.79		$	3.93		$	7.35

Cash dividends declared and paid		—			—			—			—			—

	2010			2009			2008			2007			2006
Consolidated Balance Sheet Data (at period end):
Total assets	$	350,796		$	360,070		$	390,840		$	328,792		$	336,080
Total debt (including current portion)		185,700			170,000			249,155			184,077			182,802
Shareholders’ equity		56,630			75,800			40,140			42,370			57,593

(1)	Benefit for income taxes from continuing operations for the year ended October 31, 2008 includes $7.0 million in benefits arising from previously unrecognized tax benefits resulting from the completion in September 2008 of an IRS examination for fiscal 2005 and 2006.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 and

•

New Accounting Pronouncements

Investors should review this MD&A in conjunction with the consolidated financial statements and related notes included in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K.

Overview

AEP Industries Inc. is a leading manufacturer of plastic packaging films. We manufacture and market an extensive and diverse line of polyethylene, polyvinyl chloride and polypropylene flexible packaging products, with consumer, industrial and agricultural applications. Our plastic packaging films are used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture, carpeting, furniture and textile industries.

The primary raw materials used in the manufacture of our products are polyethylene, polypropylene 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.

Fiscal 2010 Developments

As of November 1, 2009, we implemented the initial phase of a new integrated operating system to improve our ability to address the needs of our customers, as well as to create additional efficiencies

and strengthen our internal control over financial reporting. In connection with the initial implementation of this system, we supplemented the automated internal controls with additional manual and analytical procedures with a focus on revenue completeness, billing accuracy and inventory valuation. We incurred and charged to operations approximately $1.7 million in consulting costs related to improving user functionality of the system during the fiscal year 2010. During fiscal 2011, we will begin implementing the final phase of our new system, which is centered in our manufacturing facilities. Completion is expected in early fiscal 2012.

Concurrent with the closing of the Atlantis acquisition, our Board approved a plan to realign and reorganize the Atlantis businesses. Management finalized its reorganization plan in October 2009. In addition to the shutdown of the acquired Fontana, California plant which commenced in November 2008, we completed the shut down of the acquired Cartersville, Georgia plant on October 31, 2009. Estimated costs of approximately $5.9 million associated with shutting down these plants were recorded as an adjustment to the allocation of the purchase price. Costs associated with this restructuring include additional severance costs, lease costs, costs to be incurred as a result of the contractual obligation to put the facilities back to their original condition, equipment dismantling costs and operating costs of the facilities from November 1, 2009 until lease expiration, including estimated costs for security service, minimal utilities and property taxes. We paid approximately $2.3 million of these restructuring costs during the fiscal year ended October 31, 2010. We completed the restructuring activities related to the Fontana facility in December 2010 and expect to complete the restructuring activities for the Cartersville facility by July 2015 (commensurate with the expiration of the Fontana and Cartersville leases, respectively). We have entered into a sublease for the Cartersville property commencing January 2011 and as such, our future costs associated with this facility have been reduced. Due to this sublease and the settlement of certain obligations for less than expected, $2.2 million of the $5.9 million restructuring reserve has been reversed in the fourth quarter of fiscal 2010 with a corresponding decrease in property, plant and equipment and intangible assets.

We incurred approximately $15.9 million of capital expenditures during fiscal 2010, primarily related to the moving and reinstallation of productions lines in our Chino, Mankato and Matthews plants from the shut-down of Fontana and Carterville plants, an addition to our Matthews plant and the new computer operating system.

During fiscal 2010, we repurchased 782,625 shares of our common stock at an aggregate purchase price of $20.7 million.

Market Conditions

As discussed above, the primary raw materials used in the manufacture of our products are polyethylene, polypropylene 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. During fiscal 2008, resin costs increased substantially, negatively impacting operating margins throughout the year. This was followed by rapid and sharp decreases in resin costs during the first three quarters of fiscal 2009 which caused our results to benefit from a temporary margin increase as resin costs decreased ahead of contractual selling price adjustments. The resin market continued to be volatile during fiscal 2010 with increasing resin costs during the first six months of the year totaling approximately $0.18 per pound followed by sharp decreases in the third quarter and ending with increasing costs in the fourth quarter. Average resin costs for fiscal 2010 was 27% higher, or $0.14 per pound, than the average resin costs during fiscal 2009. This volatility has had a negative impact on volumes and operating margins.

We believe that resin prices will continue to fluctuate widely during fiscal 2011 due to production issues among the resin suppliers, combined with fluctuating prices of oil and natural gas and exporting activities. The industry is currently experiencing a shortage of certain raw materials. At this time, we

have been able to secure sufficient supply to meet our production needs; however, the shortage has further increased raw material costs. 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, if such costs were to continue to increase.

The marketplace in which we sell our products remains very competitive, and is further complicated by continuing adverse economic circumstances affecting many of our customers, distributors and suppliers. It is difficult to predict the continuing impact of the economic slowdown on our business. The economy may continue to strain the resources of our customers, distributors and suppliers and negatively impact our businesses and operations. We have implemented cost-reduction initiatives in recent years that are designed to increase efficiency and improve the way we run our business 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 we have taken appropriate steps to minimize the impact of these conditions, primarily through staff reductions, shut downs of idle equipment and plant closures.

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 by 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 costs 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.

Results of Operations—Fiscal 2010 Compared to Fiscal 2009

The following table presents selected financial data for fiscal 2010 and 2009 (dollars per lb. sold is calculated by dividing the applicable consolidated statement of operations category by pounds sold in the period):


	For the Year Ended October 31,								% increase/ (decrease) of $			$ increase/ (decrease)
	2010				2009
	$		$ Per lb. sold		$		$ Per lb. sold
	(in thousands, except for per pound data)
Net sales	$	800,570	$	1.03	$	744,819	$	0.97		7.5	%	$	55,751
Gross profit		110,074		0.14		160,436		0.21		(31.4	)%		(50,362	)
Operating expenses:
Delivery		38,359		0.05		37,690		0.05		1.8	%		669
Selling		35,622		0.04		38,675		0.05		(7.9	)%		(3,053	)
General and administrative		20,510		0.03		23,691		0.03		(13.4	)%		(3,181	)

Total operating expenses	$	94,491	$	0.12	$	100,056	$	0.13		(5.6	)%	$	(5,565	)

Pounds sold				774,253 lbs.				764,795 lbs.

Net Sales

Net sales for fiscal 2010 increased $55.8 million, or 7.5%, to $800.6 million from $744.8 million for fiscal 2009. The increase was the result of a 5% increase in average selling prices attributable to the passing on to customers higher resin costs during the comparable periods, positively affecting net sales by $38.8 million, combined with a 1% increase in sales volume positively affecting net sales by $9.7 million. The effects of the economic recessionary environment on both customers and competitors, coupled with an extremely volatile resin pricing environment caused total volume to be below management expectations for fiscal 2010. Fiscal 2010 also included a $7.3 million positive impact of foreign exchange relating to our Canadian operations.

Gross Profit

Gross profit for fiscal 2010 decreased $50.3 million, or 31.4%, to $110.1 million from $160.4 million for fiscal 2009. There was a $10.5 million increase in the LIFO reserve during fiscal 2010 versus a $20.1 million decrease in the LIFO reserve during fiscal 2009, for an aggregate increase of $30.6 million year-over-year. Excluding the effects of the LIFO reserve increase, gross profit decreased $19.7 million primarily due to a decline in material margin resulting from competition and a lag in selling price increases during the period in which resin prices increased an average of $0.14 per pound over the average resin costs during fiscal 2009. Fiscal 2010 also included a $1.2 million positive impact of foreign exchange relating to our Canadian operations and a $0.6 million decrease in share-based compensation, partially offset by $1.0 million of consulting costs associated with the implementation of our new operating system.

Operating Expenses

Operating expenses for fiscal 2010 decreased $5.6 million, or 5.6%, from the prior fiscal year to $94.5 million in fiscal 2010. The decrease in operating expenses is primarily due to cost cutting initiatives implemented during fiscal 2009 reducing operating expenses, combined with decreased accruals of $3.3 million related to employee cash performance incentives and a decrease of $2.2 million related to share-based compensation costs associated with our stock options and performance units, partially offset by increased volumes sold in the current period increasing selling and delivery expenses by $0.9 million and $0.7 million of consulting costs associated with the implementation of our new

operating system. Fiscal 2010 also included $0.9 million unfavorable effect of foreign exchange increasing reported total operating expenses. Fiscal 2009 included approximately $0.8 million related to transitional services associated with the Atlantis acquisition.

Other Operating Income

Other operating income for fiscal 2010 was $137,000 and represented net gains on sales of fixed assets during the period as compared to net gains on sales of fixed assets of $7,000 in the prior fiscal year.

Interest Expense

Interest expense for fiscal 2010 decreased $0.5 million as compared to the prior fiscal year, to $15.2 million, resulting primarily from lower average borrowings and interest rates on our Credit Facility reducing interest expense by $0.2 million and $0.5 million lower interest expense on our 2013 Notes, as a result of the extinguishment of $14.8 million of the 2013 Notes in April 2009, partially offset by $0.1 million of increased interest expense incurred on the new capital leases originating in March 2009.

Other, net

Other, net for fiscal 2010 amounted to $0.5 million in income, as compared to $0.5 million in expense for fiscal 2009. The change between the periods is primarily attributable to unrealized gains in the current period compared to unrealized losses in the prior year period on foreign currency denominated payables and receivables which resulted from changes in foreign exchange rates, primarily the Canadian dollar.

Income Tax Provision

The provision for income taxes for fiscal 2010 was $1.5 million on income before the provision for income taxes of $1.0 million. The difference between the effective tax rate of 154.0 percent and the U.S. statutory tax rate of 35.0 percent primarily relates to a provision for a true-up of prior year’s estimates in the United States (+24.7 percent), a provision for state taxes and withholding taxes paid (+45.6 percent), a valuation allowance established for foreign tax credits (+21.3 percent), and a provision for a Canadian dividend received during fiscal 2010 (+19.3 percent).

The provision for income taxes for fiscal 2009 was $19.0 million on income from continuing operations before the provision for income taxes of $49.4 million. The difference between our effective tax rate of 38.4 percent and the U.S. statutory tax rate of 35.0 percent primarily related to the provision for state taxes in the United States, net of federal benefit (+3.3 percent).

Discontinued Operations—Fiscal 2010 Compared to Fiscal 2009

A consolidated summary of the operating results of discontinued operations for fiscal 2010 and 2009 is as follows:


	For the Year Ended October 31,
	2010			2009
	(in thousands)
Net sales	$	—		$	—
Gross profit		—			—
(Loss) income from discontinued operations		(43	)		85
Income tax benefit		—			1,014
(Loss) income from discontinued operations	$	(43	)	$	1,099

Loss from discontinued operations for fiscal 2010 represents payments made by the Company related to the liquidation of the Spanish subsidiary. Income from discontinued operations for fiscal 2009 represents income in our Spanish subsidiary resulting from the refund of value added taxes which had been fully reserved against. The income tax benefit of the discontinued operations for fiscal 2009 includes a $1.0 million income tax benefit related to a $2.6 million intercompany bad debt write-off associated with our Spanish subsidiary. The bad debt write-off has been taken as a deduction on our U.S. federal income tax return for fiscal 2009.

Reconciliation of Non-GAAP Measures to GAAP

We define Adjusted EBITDA as 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 (loss) income, the most directly comparable GAAP financial measure, to Adjusted EBITDA:


	October Year to Date Fiscal 2010			October Year to Date Fiscal 2009			October Year to Date Fiscal 2008
	(in thousands)			(in thousands)			(in thousands)
Net (loss) income	$	(566	)	$	31,528		$	12,244
(Loss) income from discontinued operations		(43	)		1,099			8,932

(Loss) income from continuing operations		(523	)		30,429			3,312
Provision (benefit) for taxes		1,492			18,994			(8,534	)
Interest expense		15,206			15,749			15,731
Depreciation and amortization expense		20,895			19,058			13,712
Increase (decrease) in LIFO reserve		10,486			(20,149	)		13,477
Gain on extinguishment of debt, net		—			(5,285	)		—
Other non-operating (income) expense		(455	)		500			(916	)
Non-cash share-based compensation		1,202			4,036			370

Adjusted EBITDA	$	48,303		$	63,332		$	37,152

Fiscal 2009 Compared to Fiscal 2008

On October 30, 2008, we completed the acquisition of substantially all the assets of the stretch films, custom films and institutional products division of Atlantis. No meaningful operational or financial information existed subsequent to the acquisition that segregates the impact of Atlantis from AEP as a whole. Therefore, although the Atlantis acquisition materially impacted AEP’s net sales and results of operations for fiscal 2009, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations does not include any separate information regarding Atlantis.

The following table presents selected financial data for fiscal 2009 and 2008 (dollars per lb. sold is calculated by dividing the applicable consolidated statement of operations category by pounds sold in the period):


	For the Year Ended October 31,								% increase/ (decrease) of $			$ increase/ (decrease)
	2009				2008
	$		$ Per lb. sold		$		$ Per lb. sold
	(in thousands, except for per pound data)
Net sales	$	744,819	$	0.97	$	762,231	$	1.16		(2.3	)%	$	(17,412	)
Gross profit		160,436		0.21		96,822		0.15		65.7	%		63,614
Operating expenses:
Delivery		37,690		0.05		36,425		0.05		3.5	%		1,265
Selling		38,675		0.05		31,866		0.05		21.4	%		6,809
General and administrative		23,691		0.03		18,596		0.03		27.4	%		5,095

Total operating expenses	$	100,056	$	0.13	$	86,887	$	0.13		15.2	%	$	13,169

Pounds sold				764,795 lbs.				659,887 lbs.

Net Sales

Net sales for fiscal 2009 decreased $17.4 million, or 2.3%, to $744.8 million from $762.2 million for fiscal 2008. The decrease was the result of a 14.8% decrease in average selling prices coinciding with decreases in resin costs from the prior year, negatively affecting net sales by $112.5 million, partially offset by a 15.9% increase in sales volume driven primarily by the Atlantis acquisition and positively affecting net sales by $103.3 million. Consolidated sales volume for fiscal 2009 was below management’s expectations due to the adverse effects of the economic recession, primarily in our construction and housing related products (affecting our custom film sales). Fiscal 2009 also included an $8.2 million negative impact of foreign exchange relating to our Canadian operations.

Gross Profit

Gross profit for fiscal 2009 increased $63.6 million, or 65.7%, to $160.4 million from $96.8 million for fiscal 2008. The improvement in gross profit is primarily due to the above-mentioned 15.9% increase in sales volume which increased gross profit by $17.5 million, combined with lower resin costs, cost saving programs including the shut down and consolidation of the Fontana, California plant into our Chino, California plant and internal efficiency initiatives designed to align production with demand at our manufacturing facilities, which positively affected gross profit by $14.6 million. The gross profit for fiscal 2009 included a decrease in the LIFO reserve of $20.1 million versus a $13.5 million increase in the LIFO reserve during fiscal 2008, for an aggregate decrease of $33.6 million year-over-year. Fiscal 2009 also included $1.4 million of negative impact of foreign exchange relating to our Canadian operations and a $0.7 million increase in share-based compensation.

Operating Expenses

Operating expenses for fiscal 2009 increased $13.2 million, or 15.2%, to $100.1 million from the prior fiscal year, but remained flat on a per-pound-sold basis. The increase in operating expenses is

primarily due to higher delivery and selling expenses of $10.8 million resulting from greater volumes sold in fiscal 2009 year, higher salaries and employee-related costs of $3.9 million as a result of an approximately 20% increase in the Company’s headcount due to the Atlantis acquisition, higher share-based compensation costs recorded in fiscal 2009 of $2.9 million associated with stock options and performance units and increased accruals of $3.6 million related to employee cash performance incentives. General and administrative expenses in fiscal 2009 also include costs of $0.8 million related to transitional services associated with the Atlantis acquisition. General and administrative expenses in fiscal 2008 included approximately $1.6 million, excluding professional fees, related to the settlement of a commercial dispute and approximately $0.4 million of advisory costs incurred as a result of our exploration of strategic alternatives related to our subsidiary in the Netherlands which was completed in April 2008. Fiscal 2009 includes $1.0 million favorable effect of foreign exchange decreasing reported total operating expense.

Other Operating Income (Expense)

Other operating income for fiscal 2009 was $7,000 and represented net gains on sales of fixed assets as compared to $0.3 million in expense during fiscal 2008 which represented net losses on sales of fixed assets.

Interest Expense

Interest expense for fiscal 2009 remained flat at $15.7 million as compared to the prior fiscal year, resulting primarily from lower interest rates on Credit Facility borrowings reducing interest expense by $0.9 million and $0.7 million lower interest expense on our 2013 Notes as a result of the extinguishment of $14.8 million of the 2013 Notes on April 1, 2009, offset by higher average borrowings on our Credit Facility during fiscal 2009 increasing interest expense by $1.1 million as compared to the prior fiscal year, $0.3 million higher amortization of fees associated with our Credit Facility, and $0.2 million interest expense incurred on the new capital leases originating on March 27, 2009.

Gain on Extinguishment of Debt

On April 1, 2009, we repurchased and retired $14.8 million (principal amount) of the Company’s 2013 Notes at a price of 62.8% of par. The cash paid was $9.4 million, which included $0.1 million of accrued interest. In connection with the partial retirement, we recognized a $5.3 million gain on extinguishment of debt, which is the difference between the repurchase amount of $9.3 million and the principal amount retired of $14.8 million, net of the pro-rata write-off of the unamortized debt financing costs related to the 2013 Notes of $0.2 million.

Other, net

Other, net for fiscal 2009 amounted to $0.5 million in expense, as compared to $0.9 million in income for fiscal 2008. The expense in fiscal 2009 is primarily attributable to higher foreign currency losses in fiscal 2009 as compared to gains in the prior period resulting from changes in foreign exchange rates and an increase in unrealized losses on foreign currency denominated payables and receivables resulting primarily from the deterioration during fiscal 2009 of the U.S. dollar to the Canadian dollar.

Income Tax (Provision) Benefit

The provision for income taxes for fiscal 2009 was $19.0 million on income from continuing operations before the provision for income taxes of $49.4 million. The difference between our effective tax rate of 38.4% and the U.S. statutory tax rate of 35.0% primarily relates to the provision for state taxes in the United States, net of federal benefit (+3.3%).

The benefit for income taxes for fiscal 2008 was $8.5 million on loss from continuing operations before the benefit for income taxes of $5.2 million. Included in this amount is a $7.0 million tax benefit arising from previously unrecognized tax benefits resulting from the completion in September 2008 of an IRS examination for fiscal years 2005 and 2006. The difference between the effective tax rate of 28.5%, excluding the $7.0 million benefit, and the U.S. statutory tax rate of 34.0% primarily relates to the following: (i) $0.2 million for state taxes in the United States, net of federal benefit (+4.1%); and (ii) $0.2 million true-up of prior year’s estimates in the United States (-4.7%).

Discontinued Operations—Fiscal 2009 Compared to Fiscal 2008

In April 2008, we completed the sale of our Netherlands operation. Our Netherlands operation was a component of our consolidated entity, and as such requires discontinued operations reporting treatment. The financial statements at and for fiscal 2009 and 2008 also include as discontinued operations our Spanish operation which is in liquidation. In addition, fiscal 2008 also includes our UK operations.

A consolidated summary of the operating results of discontinued operations for fiscal 2009 and 2008 is as follows:


	For the Year Ended October 31,
	2009		2008
	(in thousands)
Net sales	$	—	$	56,238
Gross profit		—		5,436
Income from discontinued operations		85		898
Gain from disposition		—		10,708
Income tax benefit (provision)		1,014		(2,674	)
Income from discontinued operations	$	1,099	$	8,932

Income from discontinued operations for fiscal 2009 represent income in our Spanish subsidiary resulting from the refund of value added taxes which had been fully reserved against. The income tax benefit of the discontinued operations for fiscal 2009 includes a $1.0 million income tax benefit related to a $2.6 million intercompany bad debt write-off associated with our Spanish subsidiary. The bad debt write-off will be taken as a deduction on our U.S. federal income tax return in fiscal 2009. The results of the discontinued operations for fiscal 2008 include the activity of our Netherlands operation up until its disposition on April 4, 2008, the gain on disposition of our Netherlands operation, and $0.3 million of income in our Spanish subsidiary resulting from the return of a deposit held for a tax assessment under appeal.

Included in the gain from disposition from discontinued operations for fiscal 2008 is $6.9 million of realized foreign currency exchange gains before provision for taxes ($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), $1.5 million gain on sale of AEP Netherlands, after all costs to sell, and the reclassification of AEP Netherlands accumulated foreign currency translation gains into income in the amount of $2.3 million.

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 2013 Notes.

Despite the challenging financial markets and economic conditions, the Company maintains a strong balance sheet and liquidity that provides us with financial flexibility. As market conditions change, we continue to monitor our liquidity position. We ended fiscal 2010 with a net debt position (current bank borrowings plus long term debt less cash and cash equivalents) of $184.7 million, compared with $169.7 million at the end of fiscal 2009. In addition to our normal operating activities, we incurred approximately $15.9 million of capital expenditures during fiscal 2010 and repurchased 782,625 shares of our common stock at an aggregate purchase price of $20.7 million.

Our working capital amounted to $70.5 million at October 31, 2010 compared to $74.1 million at October 31, 2009. The decrease in working capital of $3.6 million was primarily due to a $17.0 million increase in accounts payable reflecting higher resin costs and volume purchased in October 2010, partially offset by a $10.7 million increase in accounts receivable as a result of higher sales, an increase in our investment in inventories, excluding the non-cash effects of LIFO, of $10.2 million reflecting higher resin costs, and a $7.6 million decrease in accrued expenses resulting primarily from the payment of accrued fiscal 2009 bonuses and the payments made under our restructuring plan.

We believe that our cash flow from operations, assuming no material adverse change, combined with the availability of funds under our Credit Facility and credit lines available to our Canadian subsidiary for local currency borrowings (at October 31, 2010, we had an aggregate of approximately $108.4 million available under our various worldwide credit facilities), will be sufficient to meet our working capital and debt service requirements and planned capital expenditures for at least the next twelve months.

Market Conditions

The general disruption in the U.S. capital markets has impacted the broader financial and credit markets and increased the cost of debt and equity capital for the market as a whole. These conditions could persist for a prolonged period of time or worsen in the future. Although we are confident in our ability to access capital to meet our growth needs, there is a risk given the current economic environment that the capital markets may be restricted at a time when we would like, or need, to access those markets, which could have an impact on our flexibility to react to changing economic and business conditions, our ability to refinance our existing debt (at reasonable interest rates or at all) and our ability to consummate acquisitions. In addition, the cost of debt financing and the proceeds of equity financing may be materially adversely impacted by these market conditions. We believe our strong balance sheet affords us the flexibility to weather uncertain economic events from a position of strength.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing of our continuing operations and net cash flows from our discontinued operations for each of the past three fiscal years:


	For the Years Ended October 31,
	2010			2009			2008
	(in thousands)
Total cash provided by (used in) continuing operations:
Operating activities	$	21,702		$	88,052		$	40,798
Investing activities		(15,536	)		(21,691	)		(100,623	)
Financing activities		(5,932	)		(67,011	)		60,090
Net cash provided by discontinued operations		—			—			1,023
Effect of exchange rate changes on cash		514			727			(1,610	)

Increase (decrease) in cash and cash equivalents	$	748		$	77		$	(322	)

Note: See consolidated statements of cash flows included in Item 8, “Financial Statements and Supplementary Data”, of this Annual Report on Form 10-K for additional information.

Operating Activities

Our cash and cash equivalents were $1.0 million at October 31, 2010, as compared to $0.3 million at October 31, 2009. Net cash provided by operating activities during the fiscal year ended October 31, 2010 was $21.7 million, and was comprised of a loss from continuing operations of $0.5 million adjusted for non-cash operating income totaling $34.0 million primarily related to depreciation and amortization and change in LIFO reserve. Cash used in operating activities includes a $10.7 million increase in accounts receivable resulting primarily from an increase in sales revenue in fiscal 2010 as compared to fiscal 2009, a $10.2 million increase in inventories reflecting higher resin costs, and a $7.6 million decrease in accrued expenses, primarily as a result of bonus payments accrued at October 31, 2009 and paid during the first quarter of fiscal 2010 and payments made under our restructuring plan. Cash provided by operating activities includes a $17.0 million increase in accounts payable reflecting higher resin costs and volume purchased in October 2010.

Investing Activities

Net cash used in investing activities during fiscal 2010 was $15.5 million, resulting from $15.9 million in capital expenditures, partially offset by $0.4 million of proceeds received from sales of machinery and equipment.

Financing Activities

Net cash used by financing activities during fiscal 2010 was $5.9 million, resulting primarily from repurchases of our common stock totaling $20.7 million, $1.0 million of capital lease payments, and $0.5 million of repayments of our Pennsylvania loans, partially offset by $16.2 million in borrowings under our Credit Facility and $0.9 million of proceeds from issuance of common stock under our stock option and employee stock purchase plans.

Sources of Liquidity

We maintain a secured credit facility with Wells Fargo Bank N.A., successor to Wachovia Bank N.A, as initial lender thereunder and as agent for the lenders thereunder, which was last amended and restated on October 30, 2008 (the “Credit Facility”). The Credit Facility has a maximum borrowing amount of $150.0 million, including a maximum of $20.0 million for letters of credit, and matures on December 15, 2012. 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 October 31, 2010 and 2009 under the Credit Facility was $103.5 million and $113.3 million, respectively.

In addition to the amounts available under the Credit Facility, we also maintain a secured credit facility at our Canadian subsidiary which is used to support operations and is serviced by local cash flows from operations. Borrowings outstanding and availability under the Canadian credit facility were zero and $4.9 million, respectively, at October 31, 2010, and zero and $4.6 million, respectively at October 31, 2009.

Please refer to Note 8 of the consolidated financial statements for further discussion of our debt.

Repurchase Programs

On November 2, 2009, the Board of Directors terminated the 2009 Senior Note Repurchase Program and authorized the 2010 Senior Note Repurchase Program which allows us to spend up to $25.0 million to repurchase our outstanding 2013 Notes, all of which remains available for repurchase under the 2010 Senior Note Repurchase Program. Please refer to Note 8 of the consolidated financial statements for further discussion of the program.

On September 15, 2010, our board of directors terminated the June 2010 Stock Repurchase Program (which had approximately $0.8 million remaining as of such date) and approved a new $8.0 million stock repurchase program (the “September 2010 Stock Repurchase Program”). $4.9 million remains available for repurchase under such program. Please refer to Note 10 of the consolidated financials statements for further discussion of the program.

Contractual Obligations and Off-Balance-Sheet Arrangements

Contractual Obligations and Commercial Commitments

Our contractual obligations and commercial commitments as of October 31, 2010 are as follows:


	For the Years Ending October 31,
	Borrowings		Interest on Fixed Rate Borrowings		Capital Leases, Including Amounts Representing Interest		Operating Leases		Total Commitments
	(in thousands)
2011	$	441	$	12,683	$	1,386	$	5,622	$	20,132
2012		145		12,674		1,386		4,464		18,669
2013(1)		184,058		6,361		1,386		4,011		195,816
2014		89		48		1,386		3,381		4,904
2015		87		44		578		1,739		2,448
Thereafter		880		181		—		675		1,736

Total(1)	$	185,700	$	31,991	$	6,122	$	19,892	$	243,705

(1)	Borrowings include $160.2 million Senior Notes due on March 15, 2013 and $23.7 million of variable rate borrowings (outstanding borrowings under our Credit Facility) due December 15, 2012. See Note 8 of the Consolidated Financial Statements for further discussion of our debt.

In addition to the amounts reflected in the table above:

Concurrent with the closing of the Atlantis acquisition, our Board approved a plan to realign and reorganize the Atlantis businesses. Management finalized its reorganization plan in October 2009. In addition to the shutdown of the acquired Fontana, California plant, which commenced in November 2008, we shut down the acquired Cartersville, Georgia plant on October 31, 2009. Estimated costs of approximately $5.9 million associated with shutting down these plants were recorded as an adjustment to the allocation of the purchase price. Costs associated with this restructuring include additional severance costs, lease costs, costs to be incurred as a result of the contractual obligation to put the facilities back to their original condition, equipment dismantling costs and operating costs of the facilities from November 1, 2009 until lease expiration. We incurred approximately $2.3 million of these restructuring costs during the fiscal year ended October 31, 2010. We completed the restructuring activities related to the Fontana facility in December 2010 and expect to complete the activities for the Cartersville facility by July 2015, (commensurate with the expiration of the Fontana and Cartersville leases, respectively). We have entered into a sublease for the Cartersville property aggregating approximately $0.4 million in sublease income for the period January 2011 to July 2015 and as such, our future costs associated with this facility have been reduced. Due to this sublease arrangement and the settlement of certain obligations for less than expected, $2.2 million of the restructuring reserve has been reversed in the fourth quarter of 2010, with a corresponding decrease in property, plant and equipment and intangible assets. We estimate paying $0.4 million in fiscal 2011 related to the restructuring reserve and $0.8 million thereafter.

We expect to incur approximately $15.0 million of capital expenditures during fiscal 2011. We plan to fund these capital expenditures through cash flows from operations.

We expect to contribute approximately $0.4 million during fiscal 2011 to fund the Canadian defined benefit plan. With regards to the US’ 401(k) Savings and Employee Stock Ownership Plan (“ESOP”), we estimate contributing approximately $2.6 million in cash in February 2011 to our 401(k) and ESOP plan effective for the 2010 ESOP year contributions.

We expect approximately 64,000 performance units to vest during fiscal 2011, provided that each employee continues to be employed by the Company on the respective anniversary dates. Settlement of the units is based on the Company’s stock price on the anniversary date and will be settled at the employees’ option in cash, Company stock, or a combination thereof.

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 the Company’s 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 customer rebates and incentives, product returns, doubtful accounts, inventories, including LIFO inventory valuations, litigation and contingency accruals, income taxes, including valuation of deferred taxes and assessment of unrecognized tax benefits for uncertain tax positions, share-based compensation, impairment of long-lived assets and intangibles, including goodwill, and acquisitions, including costs associated with the restructuring of the Atlantis plants. 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.

Revenue Recognition. We recognize revenue when products are shipped and the customer takes ownership and assumes risk of loss, which generally occurs on the date of shipment, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed and determinable. Concurrently, we record reductions to revenue for customer rebate programs, returns, promotions or other incentive programs that are estimated using historical experience and current economic trends. Material differences may result in the amount and timing of net sales for any period if management makes different judgments or uses different estimates.

Allowance for Doubtful Accounts. Management estimates the allowance for doubtful accounts by analyzing accounts receivable balances by age, applying historical trend rates of write offs to the average accounts receivable balances over the last 60 months. When it is deemed probable that a

customer account is uncollectible, that balance is added to the calculated reserve. Actual results could differ from these estimates under different assumptions and may be affected by changes in general economic conditions.

Inventory Reserves. Management reviews our physical inventories at each business unit to determine the obsolescence of inventory on hand. These deemed obsolescent items are considered scrap. We maintain our United States inventory on the LIFO method of inventory valuation, except for supplies and printed and converted finished goods. The LIFO inventory is reviewed quarterly for net realizable value and adjusted accordingly.

Litigation Reserves. Management’s current estimated ranges of liabilities related to pending litigation are based on input from legal counsel and our best estimate of potential loss. Final resolution of the litigation contingencies could result in amounts different from current accruals and, therefore, have an impact on our consolidated financial results in a future reporting period. At October 31, 2010, we were involved in routine litigation in the normal course of our business and based on facts currently available we believe such matters, net of insurance recoveries, will not have a material adverse impact on our results of operations, financial position or liquidity.

Income Taxes. Management accounts for income taxes using an asset and liability approach. Such approach results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. As part of the process of preparing our consolidated financial statements, management is required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating actual current tax expense together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet.

The realizability of our deferred tax assets is primarily dependent on the future taxable income of the entity to which the deferred tax asset relates. Management assesses the likelihood that such deferred tax assets will be recovered from future taxable income and to the extent management believes that recovery is not likely, a valuation allowance must be established. Should the future taxable income of such entities be materially different from management’s estimates, an additional valuation allowance may be necessary in future periods. Such amounts, if necessary, could be material to our results of operations and financial position.

Effective November 1, 2007, we are required to recognize in our consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained based on the technical merits of the position. There is a two-step approach for evaluating uncertain tax positions. Step one, recognition, requires us to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority. Additionally, we are required to accrue interest and related penalties, if applicable, on all tax exposures for which reserves have been established consistent with jurisdictional tax laws. Interest and penalties on tax reserves continue to be classified as provision for income taxes in our consolidated statements of operations. For purposes of intraperiod allocation, we include changes in reserves for uncertain tax positions related to discontinued operations in continuing operations.

The recognition and measurement of uncertain tax positions involves significant management judgment. The ultimate resolution of uncertain tax positions could result in amounts different than the amounts reserved for, and, therefore have an impact on our consolidated financial results in the future.

Share-Based Compensation. Share-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. The

Company uses the Black Scholes option pricing model to estimate the fair value of stock options on the date of grant. The Black-Scholes option-pricing model incorporates various assumptions including expected volatility, expected term and risk-free interest rates. We estimate the expected volatility using the historical stock price volatility of our stock over the estimated term of our stock options. We determine the expected term of our stock options based on historical experiences. In addition, judgment is required in estimating the forfeiture rate on stock awards, such as performance units. We calculate the expected forfeiture rate based on average historical trends sorted by separate employee groups, including executive officers and directors. Fluctuations in the market that affect these estimates could have an impact on the resulting compensation cost. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the adoption date is recognized over the remaining service period after the adoption date.

Impairment. We review our long-lived assets, such as property, plant and equipment and intangible assets, such as trade names and customer relationships, primarily associated with the Atlantis acquisition, for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. Factors we consider important that could trigger an impairment review include:

•

Significant underperformance relative to expected historical or projected future operating results;

•

Significant change in the manner of or use of the acquired assets or the strategy of our overall business;

•

Significant negative industry or economic trends;

•

Significant decline in our stock price for a sustained period; and

•

Our market capitalization relative to net book value.

Recoverability is measured by a comparison of the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset. If the assets were considered to be impaired, the impairment to be recognized would be measured by the amount by which the carrying value of the assets exceeds their fair value. Fair value is determined based on discounted cash flows, recent buy offers or appraised values, depending on the nature of the asset. Assets to be disposed of are valued at the lower of the carrying amount or their fair value less disposal costs. Actual realizable values or payments to be made may differ from such estimates, and such differences will be recognized as incurred or as better information is received. Our estimate as to fair value is regularly reviewed and subject to change as new information is made available.

Also, we perform an annual assessment as to whether or not goodwill is impaired. We performed our annual impairment analysis on September 30 based on a comparison of the Company’s market capitalization to its book value at that date. On September 30, 2010, 2009 and 2008, we concluded that there was no impairment because our market capitalization was above book value. On October 31, 2010, our market capitalization was above book value. Our policy is that impairment of goodwill will have occurred if the market capitalization of our company were to remain below book value for a reasonable period of time. If we determine that an impairment has occurred, we would perform a second test to determine the amount of impairment loss. In the second test, the fair value of our company is estimated using comparable industry multiples of cash flows as part of an effort to measure the value of implied goodwill. We also review our financial position quarterly for other triggering events.

Acquisitions. We allocate at the time of acquisition, the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their relative fair values. Significant judgments and estimates are often made to determine these allocated values, and

may include the use of appraisals, market quotes for similar transactions, discounted cash flow techniques or other information we believe is relevant. The finalization of the purchase price allocation will typically take a number of months to complete, and if final values are materially different from initially recorded amounts adjustments are recorded. Any excess of the cost of a business acquisition over the fair values of the net assets and liabilities acquired is recorded as goodwill which is not amortized to expense. Any excess of the fair value of the net tangible and identifiable intangible assets acquired over the purchase price (negative goodwill) is allocated on a pro-rata basis to long-lived assets, including identified intangible assets. If negative goodwill exceeds the amount of those assets, the remaining excess shall be recognized as an extraordinary gain in the period which the acquisition is completed. As discussed above, goodwill is required to be tested for impairment on an annual basis, and between annual testing dates if events or circumstances change.

We established reserves for the Atlantis restructuring activities, which included lease costs, severance and facility costs, as part of the acquisition cost. Upon finalization of the restructuring plans or settlement of obligations for less than the expected amount, any excess reserves are reversed with a corresponding decrease in goodwill or other intangible assets when no goodwill exists.

A new accounting standard on accounting for business combinations applies to business acquisitions we consummate after November 1, 2009. The new standard retains the requirements that the acquisition method of accounting be used for all business combinations (whether full, partial or step acquisition) and for an acquirer to be identified for each business combination. In applying the acquisition method, the acquirer must determine the fair value of the acquired business as of the acquisition date and recognize the fair value of the acquired assets and liabilities assumed. The acquisition costs, however, will generally be expensed as incurred and restructuring costs will be expensed in periods after the acquisition date.

Recently Issued Accounting Pronouncements

Please refer to Note 2 of the consolidated financial statements for discussion on recently issued accounting pronouncements.

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Interest Rates

The fair value of our fixed interest rate debt varies with changes in interest rates. Generally, the fair value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise. At October 31, 2010, the carrying value of our total debt was $185.7 million of which approximately $162.0 million was fixed rate debt (2013 Notes and the Pennsylvania Industrial Loans). As of October 31, 2010, the estimated fair value of our 2013 Notes was approximately $161.9 million. As of October 31, 2010, the carrying value of our Pennsylvania Industrial Loans was $1.8 million which approximates fair value.

Floating rate debt at October 31, 2010 and 2009 totaled $23.7 million and $7.5 million, respectively. Based on the floating rate debt outstanding during fiscal 2010 (our Credit Facility), a one-percent increase or decrease in the average interest rate would result in a change to interest expense of approximately $0.3 million.

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.

The success of our hedging activities depends upon the accuracy of our estimates of various balances and transactions denominated in non-functional currencies. To the extent our estimates are correct, gains and losses on our foreign currency contracts will be offset by corresponding losses and gains on the underlying transactions. We had a total of 6 and 12 open foreign exchange forward contracts outstanding at October 31, 2010 and 2009, respectively, with total notional contract amounts of $2.4 million and $13.8 million, respectively, all of which have maturities of less than one year. The net fair value of foreign exchange forward contracts was a net liability of $3,000 and a net asset of $140,000 at October 31, 2010 and 2009, respectively.

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.

See Note 14 to the Consolidated Financial Statements for further discussion.

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.

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following financial statements and accompanying schedule and related report of our independent registered public accounting firm are set forth in a separate section of this Form 10-K beginning on page 47 and are hereby incorporated by reference.


Report of Independent Registered Public Accounting Firm			47
Financial Statements:
Consolidated Balance Sheets as of October 31, 2010 and 2009			49
Consolidated Statements of Operations for the years ended October 31, 2010, 2009 and 2008			50
Consolidated Statements of Shareholders’ Equity and Comprehensive Income for the years ended October 31, 2010, 2009 and 2008			51
Consolidated Statements of Cash Flows for the years ended October 31, 2010, 2009 and 2008			52
Notes to Consolidated Financial Statements			53
Financial Statement Schedule:
Schedule II: Valuation and Qualifying Accounts			94

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A.

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.

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, 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 October 31, 2010, 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 October 31, 2010.

Management Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and Board; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Our management, including our Certifying Officers, recognizes that our internal control over financial reporting cannot prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. 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. Further, 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. The design of any system of controls is based in part on 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.

Management, with the participation of the Certifying Officers, assessed our internal control over financial reporting as of October 31, 2010, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that our internal control over financial reporting was effective as of October 31, 2010.

Our independent registered public accounting firm, KPMG LLP, independently assessed the effectiveness of our internal control over financial reporting as stated in their report included herein.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recently completed fiscal quarter. There were changes in our internal control over financial reporting that occurred during the fiscal year ended October 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In particular, as of November 1, 2009, we implemented the initial phase of a new integrated operating system to improve our ability to address the needs of our customers, as well as to create additional efficiencies and strengthen our internal control over financial reporting. During fiscal year 2010, we supplemented the automated internal controls with additional manual and analytical procedures with a focus on revenue completeness, billing accuracy and inventory valuation.

ITEM 9B.

OTHER INFORMATION

None.

PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is set forth under the following captions in our proxy statement to be filed with respect to the 2011 annual meeting of stockholders (the “Proxy Statement”), all of which is incorporated herein by reference: “Proposal No. 1—Election of Directors,” “Board Matters—The Board of Directors and Committees,” “Board Matters—Corporate Governance,” “Certain Relationships and Related Person Transactions,” “Additional Information—Section 16(a) Beneficial Ownership Reporting Compliance,” and “Additional Information-Requirements for Submission of Stockholder Proposals and Nominations for 2012 Annual Meeting.”

ITEM 11.

EXECUTIVE COMPENSATION

The information required by this item is set forth under the following captions in our Proxy Statement, all of which is incorporated herein by reference: “Compensation Discussion and Analysis,” “Executive Compensation Tables,” “Board Matters—Director Compensation,” “Compensation Committee Interlocks and Insider Participation,” and “Compensation Committee Report.”

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is set forth under the following captions in our Proxy Statement, all of which is incorporated herein by reference: “Additional Information—Equity Compensation Plans” and “Security Ownership of Certain Beneficial Owners and Management.”

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is set forth under the following captions in our Proxy Statement, all of which is incorporated herein by reference: “Certain Relationships and Related Person Transactions” and “Board Matters—The Board of Directors and Committees.”

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is set forth under the following captions in our Proxy Statement, all of which is incorporated herein by reference: “Audit Committee Matters.”

PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


(a)	1.	Financial Statements:

		The financial statements of the Company filed in this Annual Report on Form 10-K are listed in Part II, Item 8.

	2.	Financial Statement Schedule:

		The financial statement schedule of the Company filed in this Annual Report on Form 10-K is listed in Part II, Item 8.

	3.	Exhibits:

		The exhibits required to be filed as part of this Annual Report on Form 10-K are listed in the attached Index to Exhibits.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

AEP Industries Inc.:

We have audited the accompanying consolidated balance sheets of AEP Industries Inc. and subsidiaries as of October 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended October 31, 2010. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedule II. We also have audited AEP Industries Inc.’s internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). AEP Industries Inc.’s management is responsible for these consolidated financial statements and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule, and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AEP Industries Inc. and subsidiaries as of October 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period

ended October 31, 2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule II, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, AEP Industries Inc. maintained, in all material respects, effective internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

/s/ KPMG LLP

Short Hills, New Jersey

January 14, 2011

AEP INDUSTRIES INC.

CONSOLIDATED BALANCE SHEETS

AS OF OCTOBER 31, 2010 AND 2009

(in thousands, except share amounts)


	October 31,
	2010			2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,049		$	301
Accounts receivable, less allowance for doubtful accounts of $4,345 and $5,214 in 2010 and 2009, respectively		86,625			75,681
Inventories, net		72,978			73,197
Deferred income taxes		3,336			8,699
Other current assets		3,262			8,603
Assets of discontinued operations		188			612

Total current assets		167,438			167,093
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization		169,343			175,963
GOODWILL		8,135			9,514
INTANGIBLE ASSETS, net of accumulated amortization of $726 and $430 in 2010 and 2009, respectively		2,181			2,602
OTHER ASSETS		3,699			4,898

Total assets	$	350,796		$	360,070

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Bank borrowings, including current portion of long-term debt	$	441		$	531
Accounts payable		72,564			55,379
Accrued expenses		23,886			36,716
Liabilities of discontinued operations		—			366

Total current liabilities		96,891			92,992
LONG-TERM DEBT		185,259			169,469
DEFERRED INCOME TAXES		4,836			11,447
OTHER LONG-TERM LIABILITIES		7,180			10,362

Total liabilities		294,166			284,270

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
Preferred stock $1.00 par value; 1,000,000 shares authorized; none issued		—			—
Common stock $0.01 par value; 30,000,000 shares authorized; 11,086,485 and 11,011,842 shares issued in 2010 and 2009, respectively		111			110
Additional paid-in-capital		109,047			107,509
Treasury stock at cost, 4,942,783 and 4,160,158 shares in 2010 and 2009, respectively		(150,424	)		(129,682	)
Retained earnings		95,776			96,342
Accumulated other comprehensive income		2,120			1,521

Total shareholders’ equity		56,630			75,800

Total liabilities and shareholders’ equity	$	350,796		$	360,070

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

AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED OCTOBER 31, 2010, 2009 AND 2008

(in thousands, except per share data)


	2010			2009			2008
NET SALES	$	800,570		$	744,819		$	762,231
COST OF SALES		690,496			584,383			665,409

Gross profit		110,074			160,436			96,822
OPERATING EXPENSES:
Delivery		38,359			37,690			36,425
Selling		35,622			38,675			31,866
General and administrative		20,510			23,691			18,596

Total operating expenses		94,491			100,056			86,887
OTHER OPERATING INCOME (EXPENSE):
Gain (loss) on sales of property, plant and equipment, net		137			7			(342	)

Operating income		15,720			60,387			9,593
OTHER INCOME (EXPENSE):
Interest expense		(15,206	)		(15,749	)		(15,731	)
Gain on extinguishment of debt, net		—			5,285			—
Other, net		455			(500	)		916

Income (loss) from continuing operations before (provision) benefit for income taxes		969			49,423			(5,222	)
(PROVISION) BENEFIT FOR INCOME TAXES		(1,492	)		(18,994	)		8,534

(Loss) income from continuing operations		(523	)		30,429			3,312
DISCONTINUED OPERATIONS:
(Loss) income from discontinued operations		(43	)		85			898
Gain from disposition		—			—			10,708
Benefit (provision) for income taxes		—			1,014			(2,674	)

(Loss) income from discontinued operations		(43	)		1,099			8,932

Net (loss) income	$	(566	)	$	31,528		$	12,244

BASIC (LOSS) EARNINGS PER COMMON SHARE:
(Loss) income from continuing operations	$	(0.08	)	$	4.48		$	0.49

(Loss) income from discontinued operations	$	(0.01	)	$	0.16		$	1.32

Net (loss) income per common share	$	(0.08	)	$	4.65		$	1.80

DILUTED (LOSS) EARNINGS PER COMMON SHARE:
(Loss) income from continuing operations	$	(0.08	)	$	4.45		$	0.48

(Loss) income from discontinued operations	$	(0.01	)	$	0.16		$	1.31

Net (loss) income per common share	$	(0.08	)	$	4.61		$	1.79

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

AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED OCTOBER 31, 2010, 2009 AND 2008

(in thousands)


										Additional Paid-in- Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Comprehensive Income

	Common Stock				Treasury Stock
	Shares		Amount		Shares		Amount
BALANCES AT OCTOBER 31, 2007		10,861	$	109		4,011	$	(125,378	)	$	104,201	$	10,868		$	52,570
Issuance of common stock pursuant to stock purchase plan		29									572
Issuance of common stock upon exercise of stock options		15									133
Issuance of common stock upon settlement of performance units		5									92
Share-based compensation											810
Buyback of common stock						149		(4,304	)
Net income																12,244		$	12,244
Translation adjustments													(4,282	)					(4,282	)
Change in deferred prior service cost and actuarial losses, net of tax													(322	)					(322	)
Amortization of prior service cost, net of tax (including $30 related to AEP Netherlands)													84						84
Translation adjustments and unamortized prior service cost reversals into income related to AEP Netherlands and AEP UK													(7,257	)					(7,257	)

Comprehensive income																		$	467

BALANCES AT OCTOBER 31, 2008		10,910	$	109		4,160	$	(129,682	)	$	105,808	$	(909	)	$	64,814
Issuance of common stock pursuant to stock purchase plan		40		1							596
Issuance of common stock upon exercise of stock options		61									532
Issuance of common stock upon settlement of performance units		1									16
Share-based compensation											557
Net income																31,528		$	31,528
Translation adjustments													2,578						2,578
Change in deferred prior service cost and actuarial losses, net of tax													(208	)					(208	)
Amortization of prior service cost, net of tax													60						60

Comprehensive income																		$	33,958

BALANCES AT OCTOBER 31, 2009		11,012	$	110		4,160	$	(129,682	)	$	107,509	$	1,521		$	96,342
Issuance of common stock pursuant to stock purchase plan		32									696
Issuance of common stock upon exercise of stock options		34		1							185
Issuance of common stock upon settlement of performance units		8									215
Share-based compensation											442
Buyback of common stock						783		(20,742	)
Net loss																(566	)		(566	)
Translation adjustments													841						841
Change in deferred prior service cost and actuarial losses, net of tax													(326	)					(326	)
Amortization of prior service cost, net of tax													84						84

Comprehensive income																		$	33

BALANCES AT OCTOBER 31, 2010		11,086	$	111		4,943	$	(150,424	)	$	109,047	$	2,120		$	95,776

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

AEP INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED OCTOBER 31, 2010, 2009 AND 2008

(in thousands)


	2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income	$	(566	)	$	31,528		$	12,244
(Loss) income from discontinued operations		(43	)		1,099			8,932

(Loss) income from continuing operations		(523	)		30,429			3,312
Adjustments to reconcile (loss) income from continuing operations to net cash provided by operating activities:
Depreciation and amortization		20,895			19,058			13,712
Gain on extinguishment of debt, net		—			(5,285	)		—
Change in LIFO reserve		10,486			(20,149	)		13,477
Amortization of debt fees		1,099			1,101			875
Provision for losses on accounts receivable and inventories		335			1,131			1,089
Change in deferred income taxes		11			17,036			(8,484	)
Share-based compensation expense		1,202			4,036			370
Other		(52	)		306			342
Changes in operating assets and liabilities, net of effects of Atlantis acquisition in fiscal 2008:
(Increase) decrease in accounts receivable		(10,735	)		25,504			(4,375	)
(Increase) decrease in inventories		(10,155	)		25,252			(4,486	)
Decrease (increase) in other current assets		439			8,769			(1,267	)
Decrease (increase) in other assets		22			(1,192	)		(591	)
Increase (decrease) in accounts payable		16,998			(19,622	)		30,856
(Decrease) increase in accrued expenses		(7,622	)		1,785			(4,066	)
(Decrease) increase in other long-term liabilities		(698	)		(107	)		34

Net cash provided by operating activities		21,702			88,052			40,798
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(15,904	)		(23,846	)		(27,984	)
Acquisition of Atlantis		—			—			(99,805	)
Net working capital true-up related to Atlantis acquisition		—			1,975			—
Net proceeds from dispositions of property, plant and equipment		368			180			402
Net proceeds from sale of discontinued operations		—			—			26,764

Net cash used in investing activities		(15,536	)		(21,691	)		(100,623	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) of Credit Facility		16,231			(62,486	)		62,400
Repurchase of 2013 Senior Notes		—			(9,320	)		—
Proceeds from sale leaseback transactions		—			6,638			—
Repayments of Pennsylvania Industrial Loans		(531	)		(507	)		(384	)
Borrowings of Pennsylvania Industrial Loans		—			—			1,740
Net (repayments) proceeds of current foreign debt		—			(1,376	)		1,565
Principal payments on capital lease obligations		(1,041	)		(621	)		—
Buyback of common stock		(20,742	)		—			(4,304	)
Payment of debt issuance costs		—			—			(1,428	)
Proceeds from issuance of common stock		696			597			572
Proceeds from exercise of stock options		186			532			133
Other		(731	)		(468	)		(204	)

Net cash (used in) provided by financing activities		(5,932	)		(67,011	)		60,090
CASH FLOWS FROM DISCONTINUED OPERATIONS
Net cash provided by operating activities		—			—			3,502
Net cash used in investing activities		—			—			(155	)
Net cash used in financing activities		—			—			(2,168	)
Effects of exchange rate changes on cash in discontinued operations		—			—			(156	)

Net cash provided by discontinued operations		—			—			1,023
EFFECTS OF EXCHANGE RATE CHANGES ON CASH		514			727			(1,610	)

Net increase (decrease) in cash		748			77			(322	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		301			224			546

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	1,049		$	301		$	224

SUPPLEMENTAL CASH FLOW INFORMATION:
Reclassification from intangibles to property, plant and equipment upon exercise of option to purchase land and building	$	—		$	1,105		$	—

Equipment financed through capital lease obligation	$	—		$	407		$	—

Equipment financed through buyout of operating lease deposit	$	—		$	156		$	—

Atlantis transaction costs yet to be paid	$	—		$	—		$	953

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

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)

Business

AEP Industries Inc. (the “Company”) is a manufacturer of plastic packaging films in North America. The Company manufactures and markets a wide range of polyethylene, polyvinyl chloride and polypropylene flexible packaging products, with consumer, industrial and agricultural applications. The plastic packaging films are primarily used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture and textile industries.

On October 30, 2008, the Company completed the acquisition of substantially all of the assets of the stretch films, custom films and institutional products divisions of Atlantis Plastics, Inc. (“Atlantis”) for a purchase price of $98.8 million after expenses and the net working capital true-up. Atlantis maintained a significant presence in many of its product categories, which are used in a variety of applications, including storage, transportation, food packaging and other commercial and consumer applications. Atlantis also converted some institutional products internally from custom films. This transaction enhanced the Company’s position as the preferred supplier of flexible packaging solutions.

(2)

Significant Accounting Policies

Fiscal Year:

The Company’s fiscal year-end is October 31.

Principles of Consolidation:

The consolidated financial statements include the accounts of all subsidiaries. All intercompany transactions have been eliminated.

Revenue Recognition:

The Company recognizes revenue when products are shipped and the customer takes ownership and assumes risk of loss, which is generally on the date of shipment, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed and determinable. Concurrently, the Company records reductions to revenue for estimated returns and customer rebates, promotions or other incentive programs that are estimated using historical experience and current economic trends. Material differences may result in the amount and timing of net sales for any period if management makes different judgments or uses different estimates.

Cost of Sales:

The most significant components of cost of sales are materials, including packaging, fixed manufacturing costs, labor, depreciation, inbound freight charges, utility costs used in the manufacturing process, any inventory adjustments, including LIFO adjustments, purchasing and receiving costs, research and development costs, quality control costs, and warehousing costs.

Delivery:

Delivery costs represent all costs incurred by the Company for shipping and handling of its products to the customer, including transportation costs paid to third party shippers.

Selling, General & Administrative:

Selling and general and administrative expenses consist primarily of personnel costs (including salaries, bonuses, commissions and employee benefits), facilities and equipment costs and other support costs including utilities, insurance and professional fees.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2)

Significant Accounting Policies (Continued)

Cash and Cash Equivalents:

The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents.

Accounts Receivable:

Trade accounts receivable are recorded at the invoice amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable. The Company determines the allowance based on historical write-off experience and an evaluation of the likelihood of success in collecting specific customer receivables. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and potential for recovery is considered remote. In addition, the Company maintains allowances for customer returns, discounts and invoice pricing discrepancies, primarily based on historical experience. The Company does not have any off-balance-sheet exposure related to its customers.

Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. The Company adjusts such estimates and assumptions when facts and circumstances dictate. Volatility in the credit, equity, and foreign currency markets and in the world markets for petroleum and natural gas, and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods, as necessary.

The Company’s significant estimates include those related to product returns, customer rebates and incentives, doubtful accounts, inventories, including LIFO inventory valuations, acquisitions, including costs associated with the restructuring of the Atlantis plants, litigation and contingency accruals, income taxes, including valuation of deferred income taxes and assessment of unrecognized tax benefits for uncertain tax positions, share-based compensation and impairment of long-lived assets and intangibles, including goodwill.

Property, Plant and Equipment:

Property, plant and equipment are stated at cost. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. The cost of property,

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2)

Significant Accounting Policies (Continued)

plant and equipment and the related accumulated depreciation and amortization are removed from the accounts upon the retirement or disposal of such assets and the resulting gain or loss is recognized at the time of disposition. Maintenance and repairs that do not improve efficiency or extend economic life are charged to expense as incurred.

Leases:

The Company operates certain warehousing facilities, office buildings and machinery and equipment under operating leases with terms greater than one year and with minimum lease payments associated with these agreements. Rent expense is recognized on a straight-line basis over the expected lease term. Within the provisions of certain leases, there are predetermined fixed escalations of the minimum rental payments over the base lease term (none of the leases contain renewal periods, lease concessions, including capital improvement funding, or contingent rental clauses). The effects of the escalations have been reflected in rent expense on a straight-line basis over the lease term, and the difference between the recognized rental expense and the amounts payable under the lease is recorded as deferred lease payments. The amortization period for leasehold improvements is the term used in calculating straight-line rent expense or their estimated economic life, whichever is shorter.

Impairment Charges:

Property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined based on discounted cash flows, recent buy offers or appraised values, depending on the nature of the asset. Assets to be disposed of are separately presented in the consolidated balance sheets and reported at the lower of the carrying amount or the fair value less costs to sell, and are no longer depreciated. The asset and liabilities of a disposed group, classified as held for sale, are presented separately in the appropriate asset and liability sections of the consolidated balance sheet.

Foreign Currency Translation:

Financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the weighted average exchange rate for each period for revenues, expenses, gains and losses. Translation adjustments are recorded as a separate component of accumulated other comprehensive income (loss) in the consolidated balance sheets and foreign currency transaction gains and losses are recorded in other income (expense) in the consolidated statements of operations.

Derivative Instruments:

The Company enters into derivative financial instruments (principally foreign exchange forward contracts) primarily to hedge intercompany transactions and trade sales and forecasted purchases. The Company does not apply hedge accounting for these transactions. Foreign currency

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2)

Significant Accounting Policies (Continued)

forward contracts reduce the Company’s 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.

Research and Development Costs:

Research and development costs are charged to expense as incurred and included in cost of sales in the consolidated statements of operations. Research and development costs were approximately $1.8 million, $1.8 million and $1.1 million during fiscal 2010, 2009 and 2008, respectively.

Acquisitions:

A new accounting standard on accounting for business combinations applies to business acquisitions the Company consummates after November 1, 2009. The new standard retains the requirements that the acquisition method of accounting be used for all business combinations (whether full, partial or step acquisition) and for an acquirer to be identified for each business combination. In applying the acquisition method, the acquirer must determine the fair value of the acquired business as of the acquisition date and recognize the fair value of the acquired assets and liabilities assumed. The acquisition costs, however, will generally be expensed as incurred and restructuring costs will be expensed in periods after the acquisition date.

For all acquisitions consummated prior to November 1, 2009, the Company allocated at the time of acquisition, the cost of a business acquisition to the specific tangible and intangible assets acquired and liabilities assumed based upon their relative fair values. Significant judgments and estimates are often made to determine these allocated values, and may include the use of appraisals, market quotes for similar transactions, discounted cash flow techniques or other information the Company believes relevant. The finalization of the purchase price allocation will typically take a number of months to complete, and if final values are materially different from initially recorded amounts adjustments are recorded. Any excess of the cost of a business acquisition over the fair values of the net assets and liabilities acquired is recorded as goodwill which is not amortized to expense. Any excess of the fair value of the net tangible and identifiable intangible assets acquired over the purchase price (negative goodwill) is allocated on a pro-rata basis to long-lived assets, including identified intangible assets. If negative goodwill exceeds the amount of those assets, the remaining excess shall be recognized as an extraordinary gain in the period in which the acquisition is completed. Recorded goodwill is required to be tested for impairment on an annual basis, and between annual testing dates if events or circumstances change.

Share-Based Compensation:

The Company recognizes in the financial statements all costs resulting from share-based payment transactions at their fair values. Compensation cost for the portion of the awards for which the requisite service had not been rendered is recognized in the consolidated statements of operations over the remaining service period after such date based on the award’s original estimate of fair value.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2)

Significant Accounting Policies (Continued)

Income Taxes:

Income taxes are accounted for using the asset and liability method. Such approach results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Valuation allowances are established where expected future taxable income, the reversal of deferred tax liabilities and development of tax strategies does not support the realization of the deferred tax assets.

The Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained based on the technical merits of the position. There is a two-step approach for evaluating uncertain tax positions. Step one, recognition, requires a company to determine if the weight of available evidence indicates that a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority.

The Company and its subsidiaries file separate foreign, state and local income tax returns and, accordingly, provide for such income taxes on a separate company basis.

Goodwill:

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in purchase business combinations. The Company has determined that it consists of a single reporting unit for the purpose of the goodwill impairment test. The Company performs its annual impairment analysis on September 30 based on a comparison of the Company’s market capitalization to its book value at that date. On September 30, 2010, 2009 and 2008, the Company concluded that there was no impairment because the Company’s market capitalization was above book value. On October 31, 2010 and 2009, the Company’s market capitalization was above book value. The Company’s policy is that impairment of goodwill will have occurred if the market capitalization of the Company were to remain below book value for a reasonable period of time. If the Company determines an impairment has occurred, it will perform a second test to determine the amount of the impairment loss. In the second test, the fair value of the Company is estimated using comparable industry multiples of cash flows as part of an effort to measure the value of implied goodwill.

Fair Value of Financial Instruments:

Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses reflected in the consolidated financial statements equal or approximate their fair values because of the short-term maturity of those instruments. The fair value of the Company’s debt and foreign currency contracts is discussed in Note 14.

Concentration of Risk:

The Company sells its products to a large number of geographically diverse customers in a number of different industries, thus spreading the trade credit risk. The Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2)

Significant Accounting Policies (Continued)

collateral. The Company performs ongoing credit evaluations of its customers’ financial condition and maintains appropriate allowances for anticipated losses. No single customer accounted for more than 10% of net sales during any of the years in the three year period ended October 31, 2010. No single customer accounted for more than 10% of the Company’s account receivable balance at October 31, 2010 and 2009.

The Company purchases its resin from three principal suppliers that provided the Company with approximately 30%, 28% and 21%, respectively, of the Company’s fiscal 2010 resin supply and approximately 36%, 24% and 19%, respectively, of the Company’s fiscal 2009 resin supply.

The Company has three collective bargaining agreements representing approximately 16% of its workforce.

Earnings Per Share (EPS):

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 (loss) 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.

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


	For the Year Ended October 31,
	2010		2009		2008
Weighted average common shares outstanding:
Basic		6,685,639		6,787,186		6,784,184
Effect of dilutive securities:
Options to purchase shares of common stock		—		47,877		57,415

Diluted		6,685,639		6,835,063		6,841,599

For the year ended October 31, 2010, the Company had 42,575 stock options outstanding that could potentially dilute earnings per share in future periods that were excluded from the computation of diluted EPS because their effect would have been anti-dilutive. For the years ended October 31, 2010, 2009 and 2008 the Company had 98,180, 27,000 and 120,780 stock options outstanding, respectively, that could potentially dilute earnings per share in future periods and were excluded from the computation of diluted EPS as their exercise price was higher than the Company’s average stock price during those periods.

Comprehensive Income:

Comprehensive income consists of net income (loss) and other gains and losses that are not included in net income (loss), but are recorded directly in the consolidated statements of shareholders’ equity, such as the unrealized gains and losses on the translation of the assets and liabilities of the Company’s foreign operations and gains or losses, prior service costs and transition assets or obligations associated with pension benefits, net of tax, that have not been recognized as components of net periodic benefit cost, and changes in deferred prior service costs and net actuarial losses, net of tax.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(2)

Significant Accounting Policies (Continued)

Reclassifications:

Certain prior year amounts have been reclassified in order to conform with the 2010 presentation.

Recently Issued Accounting Pronouncements

In January 2010, the FASB issued an amendment to the standard pertaining to fair value measurements and disclosures. This amendment requires reporting entities to make more robust disclosures about (1) the different classes of assets and liabilities measured at fair value, (2) the valuation techniques and inputs used, (3) the activity in Level 3 fair value measurements including information on purchases, sales, issuances, and settlements on a gross basis, and (4) the transfers between Levels 1, 2, and 3. The Company has adopted certain provisions of the standard and certain provisions of the standard are effective for the Company’s fiscal year beginning November 1, 2011. The Company does not expect the adoption of this standard to have a material impact on its consolidated financial statements.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

(3)

Acquisitions

On October 30, 2008, the Company completed the acquisition of substantially all of the assets of the stretch films, custom films and institutional products divisions of Atlantis Plastics, Inc. and certain of its subsidiaries (“Atlantis”) for an adjusted purchase price of $98.8 million after expenses. The purchase price was allocated to the specific tangible and intangible assets acquired and liabilities assumed, including the restructuring of the Atlantis plants, based upon the relative fair value, after allocating the negative goodwill resulting from the transaction to property, plant and equipment and intangible assets.

Concurrent with the closing of the Atlantis acquisition, the Company’s Board of Directors (the “Board”) approved a plan to realign and reorganize the Atlantis businesses. Management finalized its reorganization plan in October 2009. In addition to the shutdown of the acquired Fontana, California plant which commenced in November 2008, the Company completed the shut down of the acquired Cartersville, Georgia plant on October 31, 2009. Costs of approximately $5.9 million associated with shutting down these plants were recorded as an adjustment to the allocation of the purchase price. Costs associated with this restructuring include additional severance costs, lease costs, costs to be incurred as a result of the contractual obligation to put the facilities back to their original condition, equipment dismantling costs and operating costs of the facilities from November 1, 2009 until lease expiration, including estimated costs for security service, minimal utilities and property taxes. The Company completed its restructuring activities related to the Fontana facility in December 2010 and expects to complete such activities in the Cartersville facility by July 2015 (commensurate with the expiration of the Fontana and Cartersville leases, respectively). The Company has entered into a sublease for the Cartersville property aggregating approximately $0.4 million in sublease income for the period January 2011 to July 2015 and as such, the estimated future costs associated with this facility have been reduced. Due to this sublease arrangement and the settlement of certain obligations for less than

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(3)

Acquisitions (Continued)

expected, $2.2 million of the $5.9 million restructuring reserve has been reversed with a corresponding $2.1 million decrease in property, plant and equipment and a $0.1 million decrease in intangible assets.

The roll forward of the restructuring reserve, included in accrued expenses ($0.4 million and $3.7 million at October 31, 2010 and 2009, respectively) and other long-term liabilities ($0.8 million and $2.0 million at October 31, 2010 and 2009, respectively) in the consolidated balance sheets, is as follows:


	Severance			Facility Closure Costs			Lease Costs			Operating Costs			Total
	(in thousands)
Balance at October 31, 2008	$	50		$	—		$	—		$	—		$	50
Additional restructuring costs during the remainder of fiscal 2009		210			2,350			2,280			1,010			5,850
Payments during fiscal 2009		(173	)		—			—			—			(173	)

Balance at October 31, 2009		87			2,350			2,280			1,010			5,727
Payments during fiscal 2010		(81	)		(960	)		(821	)		(453	)		(2,315	)
Adjustment to reserve		—			(1,313	)		(444	)		(443	)		(2,200	)

Balance at October 31, 2010	$	6		$	77		$	1,015		$	114		$	1,212

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(3)

Acquisitions (Continued)

The following unaudited pro forma information summarizes the results of operations for the fiscal year ended October 31, 2008, as if the Atlantis acquisition had been completed as of November 1, 2007. The pro forma information below gives effect to actual operating results prior to the acquisition. Adjustments for additional interest expense related to the borrowings made under the Credit Facility and amortization of the related deferred financing costs, depreciation expense based on the fair value of the acquired property, plant and equipment using the Company’s depreciation policy, amortization expense related to separately identifiable intangible assets using the straight-line method over a weighted average life of 12 years and the increase in the LIFO reserve related to the Atlantis inventory added to the Company’s LIFO layers are reflected in the pro forma information. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of the beginning of the period presented or that may be obtained in the future.


	For the Year Ended October 31, 2008 (in thousands, except per share data) (unaudited)
Net sales	$	1,048,512
Operating income	$	4,187
Loss from continuing operations	$	(9,670	)
Net loss	$	(738	)
Basic (Loss) Earnings Per Common Share:
Loss from continuing operations	$	(1.43	)

Income from discontinued operations	$	1.32

Net loss per common share	$	(0.11	)

Diluted (Loss) Earnings Per Common Share:
Loss from continuing operations	$	(1.43	)

Income from discontinued operations	$	1.32

Net loss per common share	$	(0.11	)

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(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 and for U.S. supplies and printed and converted 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:


	October 31,
	2010		2009
	(in thousands)
Raw materials	$	27,600	$	34,442
Finished goods		41,892		35,543
Supplies		3,596		3,248

		73,088		73,233
Less: Inventory reserves		110		36

Inventories, net	$	72,978	$	73,197

The LIFO method was used for determining the cost of approximately 85% and 87% of total inventories at October 31, 2010 and 2009, respectively. Inventories would have increased by $22.1 million and $11.6 million at October 31, 2010 and 2009, respectively, if the FIFO method had been used exclusively. During fiscal 2010, 2009 and 2008, the Company had certain decrements in its LIFO pools, which reduced cost of sales by $1.8 million, $0.1 million and $0, respectively. Because of the Company’s continuous manufacturing process, there is no significant work in process at any point in time.

(5)

Property, Plant and Equipment

A summary of the components of property, plant and equipment and their estimated useful lives is as follows:


	October 31,
	2010		2009		Estimated Useful Lives
	(in thousands)
Land	$	9,528	$	8,738
Buildings		80,948		79,107	15 to 31.5 years
Machinery and equipment		332,221		329,199	5 to 9 years
Furniture and fixtures		14,593		10,964	3 to 9 years
Leasehold improvements		2,745		2,546	Lesser of lease term or useful lives of 6 to 25 years
Motor vehicles		356		349	3 years
Construction in progress		10,244		5,428

		450,635		436,331
Less: Accumulated depreciation and amortization		281,292		260,368

Property, plant and equipment, net	$	169,343	$	175,963

Maintenance and repairs expense was approximately $9.9 million, $9.5 million, and $7.8 million for the years ended October 31, 2010, 2008 and 2008, respectively.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6)

Goodwill and Intangible Assets

Changes in the carrying amount of goodwill during the years ended October 31, 2010 and 2009 are as follows:


	(in thousands)
Goodwill at October 31, 2008	$	10,894
Realization of deferred tax assets related to Borden Global Packaging acquisition		(1,380	)

Goodwill at October 31, 2009		9,514
Realization of deferred tax assets related to Borden Global Packaging acquisition		(1,379	)

Goodwill at October 31, 2010	$	8,135

Changes in the carrying amount of intangible assets during the years ended October 31, 2010, 2009 and 2008 are as follows:


	Customer List (Mercury)			Tradenames (Atlantis)			Leasehold Interests			Customer relationships			Total
	(in thousands)
Balance at October 31, 2007	$	253		$	—		$	—		$	—		$	253
Amortization		(58	)		—			—			—			(58	)
Atlantis acquisition		—			931			894			1,333			3,158

Balance at October 31, 2008		195			931			894			1,333			3,353
Exercise of option to purchase property		—			—			(1,105	)		—			(1,105	)
Amortization		(59	)		(85	)		(21	)		(110	)		(275	)
Final reallocation of negative goodwill		—			123			229			277			629

Balance at October 31, 2009		136			969			(3	)		1,500			2,602
Amortization		(58	)		(91	)		(28	)		(119	)		(296	)
Adjustment to purchase price allocation		—			(50	)		2			(77	)		(125	)

Balance at October 31, 2010	$	78		$	828		$	(29	)	$	1,304		$	2,181

Included in leasehold interests was the Company’s option to purchase a Mankato, Minnesota property (previously under an operating lease) from the lessor (the City of Mankato) for a purchase price of $2.3 million minus 50% of that portion of each rental payment that would be considered principal reduction (increasing to 75% during the last 24 months of the lease term). The Company allocated $1.1 million of value to this option to purchase. The Company exercised this option to purchase on June 26, 2009 for $1.4 million. The allocated value of the option to purchase was reclassified to property, plant and equipment at the time of purchase.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(6)

Goodwill and Intangible Assets (Continued)

Amortization periods over a straight-line basis are as follows:


	In Years
Customer list		6
Trade names—Linear Films		10
Trade names—Sta-Dri		20
Customer relationships		13
Unfavorable lease		6.8
Favorable lease		2

The estimated future amortization expense during each of the next five fiscal years is as follows:


For the fiscal year ending October 31,	(in thousands)
2011	$	263
2012		224
2013		204
2014		204
2015		205
Thereafter		1,081

Total estimated future amortization expense	$	2,181

(7)

Accrued Expenses

At October 31, 2010 and 2009, accrued expenses consist of the following:


	October 31,
	2010		2009
	(in thousands)
Payroll and employee related	$	7,675	$	12,076
Customer rebates		6,076		5,825
Interest		1,656		1,631
Taxes (other than income)		2,255		1,879
Accrual for performance units		1,409		1,942
Accrued professional fees		1,100		837
Current portion of capital lease		1,101		1,041
Reserve for Atlantis restructuring (see Note 3)(a)		425		3,727
Reserve for product liability claim(b)		—		4,660
Other		2,189		3,098

Accrued expenses	$	23,886	$	36,716

(a)	Total reserve for Atlantis restructuring is $1.2 million and $5.7 million at October 31, 2010 and 2009, respectively, of which $0.8 million and $2.0 million is recorded in other long-term liabilities, respectively.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(7)

Accrued Expenses (Continued)

(b)

This claim was settled in December 2009 and finalized during the third quarter of fiscal 2010. The amount was indemnified by the Company’s insurance carrier except for $25,000 representing the insurance deductible. The asset related to the insurance recovery was included in other current assets in the consolidated balance sheet at October 31, 2009.

(8)

Debt

A summary of the components of debt is as follows:


	October 31, 2010		October 31, 2009
	(in thousands)
Credit facility(a)	$	23,745	$	7,514
7.875% senior notes due 2013(b)		160,160		160,160
Pennsylvania Industrial Loans(c)		1,795		2,326
Foreign bank borrowings(d)		—		—

Total debt		185,700		170,000
Less: current portion		441		531

Long-term debt	$	185,259	$	169,469

(a) Credit facility

The Company maintains a secured credit facility with Wells Fargo Bank N.A., successor to Wachovia Bank N.A., as initial lender thereunder and as agent for the lenders thereunder, which was last amended and restated on October 30, 2008 (the “Credit Facility”). The Credit Facility has a maximum borrowing amount of $150.0 million, including a maximum of $20.0 million for letters of credit, and matures on December 15, 2012.

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 approximately $34.2 million and $37.6 million, with a weighted average interest rate of 3.1% and 3.3%, during fiscal 2010 and 2009, respectively. Under the Credit Facility, interest rates are based upon Excess Availability (as defined) at a margin of the prime rate (defined as the greater of Wells Fargo’s prime rate and the Federal Funds rate plus 0.50%) plus 0% to 0.25% for overnight borrowings and LIBOR plus 2.25% to 2.75% for LIBOR borrowings up to six months.

Borrowings and letters of credit available under the Credit Facility are limited to a borrowing base based upon specific advance percentage rates on eligible domestic assets (including receivables), subject, in the case of inventory, equipment and real property, to amount limitations. The sum of the eligible assets at October 31, 2010 and 2009 supported a borrowing base of $128.0 million and $122.0 million, respectively. Availability was reduced by the aggregate amount of letters of credit outstanding totaling $0.8 million and $1.2 million at October 31, 2010 and 2009, respectively. Availability at October 31, 2010 and 2009 under the Credit Facility was $103.5 million and $113.3 million, respectively. The Credit Facility is secured by mortgages and liens on most of the Company’s domestic assets and on 66% of the Company’s ownership interest in certain foreign subsidiaries.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8)

Debt (Continued)

The Credit Facility provides for events of default. If an event of default occurs and is continuing, amounts due under the Amended Credit Facility may be accelerated and the commitments to extend credit thereunder terminated. The Credit Facility also contains customary bank covenants, including, but not limited to, limitations on the incurrence of debt and liens, the disposition and acquisition of assets, and the making of investments and restricted payments, including the payment of cash dividends. The key covenants are applicable only if the Excess Availability is below a specified amount. In particular, if at any time average Excess Availability is less than $35.0 million for the immediately preceding fiscal quarter, a fixed charge coverage ratio test of 1.0x must be met. In addition, a minimum EBITDA (as defined) covenant of $35.0 million for the preceding 12-month period is triggered at any time Excess Availability is less than $25.0 million, and an annual capital expenditure limitation of $35.0 million is triggered at any time Excess Availability is less than $20.0 million. In addition, if Excess Availability under the Credit Facility is less than $15.0 million, a springing lock-box 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 lock-box remain in place until the Excess Availability exceeds $15.0 million for 30 consecutive days. During any period in which the lock-box is activated, all debt outstanding under the Credit Facility would be classified as a current liability, which classification may materially affect the Company’s working capital ratio. Excess Availability under the Credit Facility ranged from $70.2 million to $126.3 million during fiscal 2010 and $60.7 million to $113.3 million during 2009.

The Company has an unused line fee related to the Credit Facility. During fiscal 2010, 2009 and 2008, the Company paid unused line fees of approximately $0.3 million, $0.3 million and $0.2 million, respectively, which are included in general and administrative expenses in the consolidated statements of operations.

The Company has paid and capitalized $1.6 million of fees related to the Credit Facility. These fees are being amortized on a straight line basis over 50 months, the term of the Credit Facility.

The Company was in compliance with the financial and other covenants at October 31, 2010 and October 31, 2009.

(b) 7.875% Senior Notes due 2013

On March 18, 2005, the Company completed the sale of $175 million aggregate principal amount of 7.875% Senior Notes due March 15, 2013 (“2013 Notes”) through a private offering.

With Board approval, the Company repurchased and retired $14.8 million (principal amount) of the Company’s 2013 Notes at a price of 62.8% of par on April 1, 2009. The cash paid was $9.4 million which included $0.1 million of accrued interest. The Company used proceeds from sale-leaseback transactions and borrowings under its Credit Facility to fund the buyback of the 2013 Notes. In connection with the partial retirement, the Company recognized a gain on extinguishment of debt of $5.3 million, which is the difference between the repurchase amount of $9.3 million and the principal amount retired of $14.8 million, net of the pro-rata write-off of the unamortized debt financing costs related to the 2013 Notes of $0.2 million. On November 2, 2009, the Board terminated the 2009 Senior Note Repurchase Program and authorized the 2010 Senior Note Repurchase Program which allows the Company to spend up to $25.0 million to repurchase its outstanding 2013 Notes. Repurchases may be

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8)

Debt (Continued)

made in the open market, privately negotiated transactions or by other means from time to time, subject to conditions, applicable legal requirements and other factors, including the limitations set forth in the Company’s debt covenants. The amounts involved in any such transactions, individually or in the aggregate, may be material and may be funded from available cash or from additional borrowings. The program does not obligate the Company to acquire any particular amount of the 2013 Notes, and the program may be suspended at any time at management’s discretion. As of October 31, 2010, no repurchases have been made under the 2010 Senior Note Repurchase Program.

The 2013 Notes contain certain customary covenants that, among other things, limit the Company’s ability and the ability of its subsidiaries to incur additional indebtedness, pay dividends, sell assets, merge or consolidate or create liens. The Company was in compliance with the covenants at October 31, 2010 and 2009.

Interest is paid semi-annually on every March 15^th and September 15^th.

The 2013 Notes are subject to redemption, at the option of the Company, in whole or in part, at any time prior to maturity at certain fixed redemption prices plus accrued interest. The 2013 Notes do not have any sinking fund requirements. The 2013 Notes contain a provision that in the event of a change in control, the Company is required to offer to purchase the outstanding 2013 Notes. If a change of control were to occur and the Company was unable to obtain a waiver or did not have funds to make the purchase, the Company would be in default under the 2013 Notes.

During fiscal 2005, $5.5 million of fees were paid and capitalized related to the issuance of the 2013 Notes. These fees are being amortized on a straight line basis over eight years, the term of the 2013 Notes. During each of the fiscal years 2010, 2009 and 2008, in addition to the pro-rata write-off in April 2009 of the unamortized debt financing costs of $0.2 million discussed above, the Company amortized approximately $0.6 million, $0.7 million and $0.7 million, respectively, into interest expense related to these fees in the consolidated statements of operations.

(c) Pennsylvania Industrial Loans

The Company has certain amortizing fixed rate term loans in connection with the construction in fiscal 1995 and the expansion in fiscal 2008 of its Wright Township, Pennsylvania manufacturing facility. The following are outstanding at October 31, 2010 and 2009:

A $0.3 million five year fixed rate 5.0% loan, due on November 1, 2013, of which $0.2 million and $0.3 million was outstanding at October 31, 2010 and 2009, respectively;

A $1.4 million fifteen year fixed rate 4.75% loan, due November 1, 2023, of which $1.3 million and $1.3 million was outstanding at October 31, 2010 and 2009, respectively;

A $2.0 million fifteen year fixed rate 2.0% loan, due on July 1, 2011, of which $0.1 million and $0.3 million was outstanding at October 31, 2010 and 2009, respectively; and

A $3.3 million fifteen year fixed rate 2.0% loan, due on July 1, 2011, of which $0.2 million and $0.4 million was outstanding at October 31, 2010 and 2009, respectively.

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 $12.4 million and $12.6 million at October 31, 2010 and 2009, respectively.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(8)

Debt (Continued)

(d) 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 October 31, 2010 and 2009. Availability under the Canadian credit facility at October 31, 2010 and October 31, 2009 was $4.9 million and $4.6 million, respectively.

Payments required on all debt outstanding during each of the next five fiscal years are as follows:


	(in thousands)
2011	$	441
2012		145
2013		184,058
2014		89
2015		87
Thereafter		880

	$	185,700

Cash paid for interest during fiscal 2010, 2009 and 2008 was approximately $13.7 million, $14.6 million and $15.4 million, respectively, including interest paid by the discontinued operations of $0.4 million in fiscal 2008. In addition, cash paid for interest on capital leases during fiscal 2010, 2009 and 2008 was approximately $0.3 million, $0.2 million and zero, respectively.

(9)

Pensions and Retirement Savings Plan

The Company sponsors a defined contribution plan in the United States and defined benefit and defined contribution plans in its Canadian subsidiary. Total expense for these plans for 2010, 2009 and 2008 was $3.2 million, $2.6 million and $2.5 million, respectively.

401(k) Savings and Employee Stock Ownership Plan

Employees of the Company in the United States (with the exception of those employees covered by a collective bargaining agreement at its California facility) may participate in a 401(k) Savings and Employee Stock Ownership Plan (the “Plan”). Effective for the fiscal 2006 plan year and thereafter, the Company has and will contribute cash to the Plan. Prior to this, the Company contributed common stock held in treasury.

The Company makes contributions to the Plan, for eligible employees who have completed one year of service, equal to 1% of a participant’s compensation for the Plan year and matches 100% of the first 3% and 50% of the following 2% of each participant’s 401(k) contribution with a maximum of 5% of the participant’s annual compensation. In fiscal 2010, 2009 and 2008, the Company contributed $2.7 million, $2.2 million and $2.0 million in cash to the Plan in fulfillment of the 2009, 2008 and 2007 contribution requirement, respectively.

Effective January 1, 2007, the Plan was amended to permit participants 55 and over with three or more years of service to diversify up to 100 percent of the Company’s contributions previously allocated to the Company’s stock to a variety of funds. Participants under the age of 55 with three or

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(9)

Pensions and Retirement Savings Plan (Continued)

more years of service were permitted to diversify 33%, 66% and 100% during the plan years (January to December) ended 2007, 2008 and 2009 and thereafter, respectively. The diversification remains subject to the otherwise applicable securities law restrictions on making investments changes regarding the Company’s stock.

At October 31, 2010, there were 300,708 shares of the Company’s common stock held by the Plan, representing approximately 5% of the total number of shares outstanding. Shares of the Company’s common stock credited to each member’s account under the Plan are voted by the trustee under instructions from each individual plan member. Shares, for which no instructions are received, along with any unallocated shares held in the Plan, are not voted.

Defined Contribution Plans

The Company sponsors a defined contribution plan in Canada. The plan covers full time employees and provides for a base employer contribution of 4.5% of salary plus an additional matching contribution of 50% of employee contributions up to 5% (for a maximum employer contribution of 7% of salary). The Company’s contributions related to these plans for each of fiscal 2010, 2009 and 2008 totaled approximately $0.2 million.

Defined Benefit Plan

The Company has a defined benefit plan in Canada. Benefits under this plan are based on specified amounts per year of credited service. The Company funds this plan in accordance with the funding requirements of local law and regulations.

The net periodic pension costs for the Canadian defined benefit plan for fiscal 2010, 2009 and 2008 was $263,000, $217,000 and $162,000, respectively.

The funded status of the Canadian defined benefit plan and the net amount recognized in the consolidated balance sheets and in accumulated other comprehensive income (loss) is shown below (based on an October 31 measurement date):


	October 31,
	2010			2009
	(in thousands)
Pension benefit obligation at end of year	$	4,191		$	3,321
Fair value of plan assets at end of year	$	4,064		$	3,192

Funded status	$	(127	)	$	(129	)

Amounts recognized in the consolidated balance sheets consist of:
Other long-term liabilities	$	(127	)	$	(129	)
Other assets		—			—
Amounts recognized in accumulated other comprehensive income (loss):
Prior service cost	$	(848	)	$	(890	)
Net actuarial loss		(809	)		(519	)
Tax		443			437

Net amount recognized, after tax	$	(1,214	)	$	(972	)

Accumulated benefit obligation	$	4,191		$	3,321

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(9)

Pensions and Retirement Savings Plan (Continued)

The estimated net actuarial gain and prior service cost that will be amortized from accumulated other comprehensive income into net periodic pension cost in fiscal 2011 are:


	(in thousands)
Amortization of prior service cost	$	100
Amortization of net actuarial loss		33

Total	$	133

It is the objective of the plan sponsor to maintain an adequate level of diversification to balance market risk, to prudently invest to preserve capital and to provide sufficient liquidity while maximizing earnings for near-term payments of benefits accrued under the plan and to pay plan administrative expenses. Plan assets are diversified across several investment managers and are generally invested in liquid funds that are selected to track broad market equity and bond indices. Investment risk is carefully controlled with plan assets rebalanced to target allocations on a periodic basis and continual monitoring of investments managers performance. The assumption used for the expected long-term rate of return on plan assets is based on the long-term expected returns for the investment mix of assets currently in the portfolio. Historical return trends for the various asset classes in the class portfolio are combined with anticipated future market conditions to estimate the rate of return for each class. These rates are then adjusted for anticipated future inflation to determine estimated nominal rates of return for each class. The following table presents the weighted average actual asset allocations as of October 31, 2010 and 2009 and the target allocation of pension plan assets for fiscal 2011:


	October 31,						Target Allocation
	2010			2009			Target Allocation
Canadian equity securities		32	%		30	%		34	%
International equity securities		29	%		32	%		25	%
Debt securities		35	%		37	%		36	%
Other		4	%		1	%		5	%

Total		100	%		100	%		100	%

The Company expects to contribute a total of approximately $0.4 million to its Canada defined benefit plan during fiscal 2011.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(10)

Shareholders’ Equity

Share-Based Compensation

At October 31, 2010, 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. The Company also had an employee stock purchase plan which was terminated effective immediately following the end of the six-month offering period ended June 30, 2010. Total share-based compensation expense related to the Company’s stock options plans and employee stock purchase plan are recorded in the consolidated statements of operations as follows:


	For the Year Ended October 31,
	2010		2009		2008
	(in thousands)
Cost of sales	$	172	$	833	$	80
Selling expense		192		938		92
General and administrative expense		838		2,265		198

Total	$	1,202	$	4,036	$	370

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 meeting. The 2005 Option Plan became effective January 1, 2005 and will expire on December 31, 2014. The 2005 Option Plan provides for the granting of incentive stock options which may be exercised over a period of ten years, and the issuance of 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, each non-employee director receives a fixed annual grant of 2,000 stock options as of the date of the annual meeting of shareholders. The Company has 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 2010, 2009 and 2008 has been made from new shares. At October 31, 2010, 585,534 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.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(10)

Shareholders’ Equity (Continued)

The table below presents the weighted average assumptions used to calculate the fair value of stock options granted during the years ended October 31, 2010, 2009 and 2008.


	For the Year Ended October 31,
	2010			2009			2008
Expected volatility		54.10	%		54.51	%		56.88	%
Expected life in years		7.5			7.5			7.5
Risk-free interest rates		3.21	%		2.26	%		3.67	%
Dividend rate		0	%		0	%		0	%
Weighted average fair value per option at date of grant	$	16.08		$	9.95		$	20.47

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(10)

Shareholders’ Equity (Continued)

The following table summarizes the Company’s stock option plans as of October 31, 2010 and changes during each of the years in the three year period ended October 31, 2010:


	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, 2007 (177,714 options exercisable)		290,341			28,600			318,941		$	18.09	$	6.90-51.00
Granted		—			24,000			24,000		$	32.73	$	27.36-38.10
Exercised		(14,674	)		—			(14,674	)	$	9.08	$	6.90-9.30
Forfeited/Cancelled		(4,948	)		—			(4,948	)	$	9.18	$	7.87-9.30
Expired		(13,000	)		—			(13,000	)	$	45.63	$	35.25-46.50

Options outstanding at October 31, 2008 (215,011 options exercisable)		257,719			52,600			310,319		$	18.63	$	6.90-51.00
Granted		—			12,000			12,000		$	17.07	$	17.07
Exercised		(64,063	)(a)		(800	)		(64,863	)	$	10.38	$	6.90-32.80
Forfeited/Cancelled		(992	)		—			(992	)	$	9.30	$	9.30
Expired		(1,000	)		—			(1,000	)	$	26.63	$	26.63

Options outstanding at October 31, 2009 (211,664 options exercisable)		191,664			63,800			255,464		$	20.66	$	7.87-51.00
Granted		—			14,000			14,000		$	27.00	$	27.00
Exercised		(39,025	)(b)		(400	)		(39,425	)	$	9.65	$	9.30-19.83
Forfeited/Cancelled		(230	)		(2,000	)		(2,230	)	$	25.17	$	9.30-27.00
Expired		(1,000	)		—			(1,000	)	$	31.94	$	31.94

Options outstanding at October 31, 2010		151,409			75,400			226,809		$	22.87	$	7.87-51.00		4.0	$	1,410

Vested and expected to vest at October 31, 2010		151,409			75,400			226,809		$	22.87				4.0	$	1,410

Exercisable at October 31, 2010		151,409			32,600			184,009		$	21.50				3.1	$	1,340

(a)	Includes 16,395 options exercised at an exercise price of $9.30 per option for which 3,929 shares of common stock of the Company were tendered to the Company by the holder of the stock options for the payment of the exercise price of these options.

(b)	Includes 21,000 options exercised at an exercise price of $9.30 per option for which 4,926 shares of common stock of the Company were tendered to the Company by the holder of the stock options for the payment of the exercise price of these options.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(10)

Shareholders’ Equity (Continued)

The table below presents information related to stock option activity for the years ended October 31, 2010, 2009 and 2008:


	For the Year Ended October 31,
	2010		2009		2008
	(in thousands)
Total intrinsic value of stock options exercised	$	1,146	$	1,532	$	265
Total fair value of stock options vested	$	254	$	579	$	531

Share-based compensation expense related to the Company’s stock options recorded in the consolidated statements of operations for the years ended October 31, 2010, 2009 and 2008 was approximately $278,000, $302,000 and $621,000, respectively. No compensation cost related to stock options was capitalized in inventory or any other assets for the years ended October 31, 2010, 2009 and 2008, respectively. For fiscal 2010, 2009 and 2008 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 October 31, 2010, there was $0.6 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 3.1 years.

Non-vested Stock Options

A summary of the Company’s non-vested stock options at October 31, 2010 and changes during fiscal 2010 are presented below:


Non-vested stock options	Shares			Weighted Average Grant Date Fair Value
Non-vested at October 31, 2009		43,800		$	18.83
Granted		14,000		$	16.08
Vested		(13,000	)	$	19.51
Forfeited/cancelled		(2,000	)	$	16.08

Non-vested at October 31, 2010		42,800		$	17.85

If an employee is terminated for any reason by the Company, or due to disability or retirement, any outstanding stock options that are exercisable as of the termination date may be exercised until the earlier of (a) three months following the termination date and (b) the expiration of the stock option term. If an employee ceases to be employed due to death, any outstanding stock options will become exercisable in full and the employee’s beneficiary may exercise such stock options until the earlier of (a) one year following the date of death and (b) the expiration of the stock option term. 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.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(10)

Shareholders’ Equity (Continued)

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 (defined as net income before interest expense, income taxes, depreciation and amortization, discontinued operations, non-core business operating income, annual change in LIFO reserve, gain or loss on disposal of property, plant and equipment, non-operating income (expense) and share-based compensation expense, all as adjusted to remove foreign exchange effect), 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.

Total share-based compensation expense (income) related to the Units was approximately $760,000, $3.5 million, and $(440,000) (resulting from the decrease in the Company’s stock price) for the years ended October 31, 2010, 2009 and 2008, respectively. During the year ended October 31, 2010, the Company paid $1.2 million in cash and issued 8,150 shares of its common stock, in each case net of withholdings, in settlement of the vesting of Units occurring during fiscal 2010. During the year ended October 31, 2009, the Company paid $0.6 million in cash and issued 611 shares of its common stock, in each case net of withholdings, in settlement of the vesting of the Units occurring during fiscal 2009. During the year ended October 31, 2008, the Company paid $0.5 million in cash and issued 4,749

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(10)

Shareholders’ Equity (Continued)

shares of its common stock, in each case net of withholdings, in settlement of the vesting of Units occurring during fiscal 2008. At October 31, 2010 and October 31, 2009, there was $1.4 million and $1.9 million in current liabilities and $1.1 million and $2.0 million in long-term liabilities, respectively, related to outstanding Units.

The following table summarizes the Units as of October 31, 2010 and changes during each of the three year periods ended October 31, 2010:


	2005 Option Plan			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value $(000)
Units outstanding at October 31, 2007		156,267
Units granted		58,014
Units exercised		(38,040	)
Units forfeited or cancelled		(60,881	)A

Units outstanding at October 31, 2008		115,360
Units granted		165,450	B
Units exercised		(39,040	)
Units forfeited or cancelled		(7,950	)

Units outstanding at October 31, 2009		233,820					1.8	$	8,156
Units granted		44,930		$	0.00
Units exercised		(66,130	)	$	0.00			$	2,225
Units forfeited or cancelled		(51,830	)A

Units outstanding at October 31, 2010		160,790		$	0.00		1.4	$	3,918

Vested and expected to vest at October 31, 2010		157,190		$	0.00		1.4	$	3,831

Exercisable at October 31, 2010		—

(A)	The grants of Units in fiscal 2008 and 2010 have been forfeited in their entirety because the Company did not achieve at least 80% of the EBITDA performance goals in such fiscal years.

(B)	More than 100% of the fiscal 2009 EBITDA goal was achieved.

Employee Stock Purchase Plan

The Company terminated the Company’s 2005 Employee Stock Purchase Plan, as amended (“2005 Purchase Plan”), effective immediately following the end of the six-month offering period ended June 30, 2010.

The 2005 Purchase Plan became effective July 1, 2005 and provided for an aggregate of 250,000 shares of the Company’s common stock to be made available for purchase by eligible employees of the Company, including directors and officers, through payroll deductions over successive six-month offering periods. The purchase price of the common stock under the 2005 Purchase Plan was 85% of the lower of the closing sales price per share of the Company’s common stock on Nasdaq on either the

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(10)

Shareholders’ Equity (Continued)

first or last trading day of each six-month offering period. During the years ended October 31, 2010, 2009 and 2008, 31,994, 40,683 and 29,209 shares were purchased, respectively, by employees pursuant to the 2005 Purchase Plan. At July 1, 2010, 99,264 shares remained unsold under the 2005 Purchase Plan and were subsequently deregistered.

Total share-based compensation expense related to the 2005 Purchase Plan was approximately $164,000, $255,000 and $189,000 for the years ended October 31, 2010, 2009 and 2008, respectively.

Treasury Shares

On June 6, 2008, the Board approved an $8.0 million stock repurchase program (the “June 2008 Stock Repurchase Program”). Between November 9 and November 20, 2009, the Company repurchased under its June 2008 Stock Repurchase Program, 52,500 shares of its common stock in the open market at an average cost of $36.84 per share, totaling $1.9 million.

On June 7, 2010, the Board terminated the June 2008 Repurchase Program (which had approximately $6.1 million remaining as of such date) and approved a new $10.0 million stock repurchase program (the “June 2010 Repurchase Program”). During fiscal 2010, the Company repurchased under its June 2010 Stock Repurchase Program 186,200 shares of its common stock in the open market at an average cost of $25.68 per share, totaling $4.8 million.

On August 4, 2010, the Board authorized a $6.5 million increase to the June 2010 Repurchase Program. On August 5, 2010, the Company repurchased 400,476 shares of its common stock from investment funds affiliated with KSA Capital Management, LLC (“KSA Capital”), whose managing member is Daniel D. Khoshaba (who served as a director on the Company’s Board at such time), in a privately negotiated transaction at an aggregate purchase price of $10.9 million, or approximately $27.28 per share (including brokerage commissions). The purchase price per share represented a discount of 4.8% to the previous day’s closing price of the Company’s common stock.

On September 15, 2010, the Board terminated the June 2010 Stock Repurchase Program (which had approximately $0.8 million remaining as of such date) and approved a new $8.0 million stock repurchase program (the “September 2010 Stock Repurchase Program”). Repurchases may be made in the open market, in privately negotiated transactions or by other means, from time to time, subject to market conditions, applicable legal requirements and other factors, including the limitations set forth in the Company’s debt covenants. The program does not obligate the Company to acquire any particular amount of common stock and the program may be suspended at any time at the Company’s discretion. During the fiscal year 2010, the Company repurchased under its September 2010 Stock Repurchase Program 143,449 shares of its common stock in a privately negotiated transaction and in the open market at an average cost of $21.62 per share, totaling $3.1 million.

In the aggregate, during fiscal 2010, we repurchased 782,625 shares of our common stock at an aggregate purchase price of $20.7 million.

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.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11) Income Taxes

The U.S. and foreign components of income (loss) from continuing operations before (provision) benefit for income taxes are as follows:


	For the Year Ended October 31,
	2010			2009		2008
	(in thousands)
U.S.	$	(1,027	)	$	48,068	$	(7,359	)
Foreign		1,996			1,355		2,137

Total	$	969		$	49,423	$	(5,222	)

The (provision) benefit for income taxes from continuing operations is summarized as follows:


	For the Year Ended October 31,
	2010			2009			2008
	(in thousands)
Current:
Federal	$	(26	)	$	(666	)	$	455
State		(525	)		(1,063	)		(5	)
Foreign		(930	)		(229	)		(400	)

		(1,481	)		(1,958	)		50

Deferred:
Federal		(133	)		(15,428	)		7,953
State		91			(1,487	)		428
Foreign		31			(121	)		103

		(11	)		(17,036	)		8,484

Total (provision) benefit for income taxes from continuing operations	$	(1,492	)	$	(18,994	)	$	8,534

The provision for income taxes from continuing operations for the years ended October 31, 2009 and 2008 excludes approximately $1.0 million benefit for income taxes related to an intercompany bad debt write off of $2.6 million that was due from the Company’s Spanish subsidiary and $2.7 million provision for income taxes related to $6.9 million of realized foreign currency exchange gains resulting from the repayment of all the intercompany loans received by the U.S. company from its Netherlands’ subsidiary, respectively. These items were reclassified to discontinued operations in the statement of operations for the years ended October 31, 2009 and 2008, respectively.

Undistributed earnings of the Company’s foreign subsidiaries (primarily Canada) of approximately $11.2 million, $9.0 million and $11.7 million for fiscal 2010, 2009 and 2008, respectively, are considered permanently invested outside the United States, and as a result the Company has not provided federal income taxes on the unremitted earnings. It is not practicable to determine the tax liability, if any that would be payable if such earnings were not reinvested indefinitely.

In November 2009, the Company received approximately $4.5 million as a dividend from its Canadian subsidiary in which the Company utilized its current year’s loss to offset its federal tax

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11)

Income Taxes (Continued)

liability of $2.3 million on the dividend. The provision for income taxes includes a net tax expense of approximately $187,000 after recognizing the benefit of future foreign tax credits generated upon the receipt of the dividend.

The tax effects of significant temporary differences that comprise the deferred tax assets (liabilities) at October 31, 2010 and 2009 are as follows:


	October 31,
	2010			2009
	(in thousands)
Deferred income tax assets:
Allowance for doubtful accounts	$	1,056		$	1,188
Inventories		588			1,189
Alternative minimum tax credits carryforwards		5,572			5,572
State net operating loss carryforwards		1,617			936
Net operating loss carryforwards		5,801			4,841
Capital loss carryforwards		8,906			9,037
Foreign tax credits carryforwards		3,997			1,934
Other		4,044			4,746

Total gross deferred tax assets		31,581			29,443
Valuation allowance		(11,820	)		(13,141	)

Total net deferred tax asset	$	19,761		$	16,302
Deferred tax liabilities:
Depreciation	$	(17,479	)	$	(16,161	)
Accrued employee benefits		(388	)		(345	)
Deferred gain on redemption of Senior Notes		(2,049	)		(2,044	)
Other		(1,345	)		(500	)

Total gross deferred tax liabilities	$	(21,261	)	$	(19,050	)

Total net deferred tax liabilities	$	(1,500	)	$	(2,748	)

The Company reduced goodwill by approximately $1.4 million each year in fiscal 2010, 2009 and 2008 relating to the realization of deferred tax assets established as a result of the acquisition of the Borden Global Packaging business in fiscal 1996.

Valuation allowances reduced the deferred tax assets attributable to capital loss carryforwards, foreign tax credits carryforwards and foreign operating loss carryforwards to an amount that, based on all available information, is more likely than not to be realized. The net change in the valuation allowance from October 31, 2009 to October 31, 2010 was a decrease of $1.3 million. The change included a decrease of $1.4 million of operating loss carryforwards that were fully reserved which resulted from the liquidation of the Company’s subsidiary in Italy in fiscal 2010, a decrease of $0.3 million in capital loss carryforwards that were fully reserved which expired in fiscal 2010 and a decrease of $0.1 million relating to the utilization of net operating loss carryforwards in the foreign operations during fiscal 2010. These decreases were offset by an increase of $0.2 million in the valuation allowance for foreign tax credits as a result of the Company’s review of the future utilization of these credits and an increase of $0.3 million resulting from fluctuations in statutory tax rates and

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11)

Income Taxes (Continued)

foreign exchange. The net change in the valuation allowance from October 31, 2008 to October 31, 2009 was a decrease of $3.6 million. The change included a decrease of $2.9 million in foreign tax credits resulting from the Company’s election in fiscal 2009 to take a deduction for its fiscal 2002 and 2003 foreign taxes paid fully reserved against in the United States, a decrease of $0.9 million resulting from the expiration of net operating loss carryforwards fully reserved against in Italy, and a decrease of $0.2 million relating to the utilization of net operating loss carryforwards in the foreign operations during fiscal 2009, partially offset by an increase of $0.4 million resulting from fluctuations in foreign exchange.

Net operating loss carryforwards, capital loss carryforwards, foreign tax credits and alternative minimum tax credits, before valuation allowances, at October 31, 2010 expire as follows:


	Related Tax Amount		Deferred Tax Asset		Expiration Date
	(in thousands)
Loss carryforwards:
Federal net operating loss	$	14,079	$	4,927		Fiscal 2028 – 2030
State net operating loss		42,176		1,617		Fiscal 2014 – 2030
Foreign net operating loss:
New Zealand		2,648		874		Indefinite

Total net operating loss carryforwards	$	58,903	$	7,418

Capital loss carryforwards:
U.S.	$	22,784	$	8,876		Fiscal 2011 – 2013
Canada		235		30		Indefinite

Total capital loss carryforwards	$	23,019	$	8,906

Tax credit carryforwards:
Foreign tax credits	$	3,997	$	3,997		Fiscal 2015 – 2020
Alternative minimum tax credit		5,572		5,572		Indefinite

Total tax credit carryforwards	$	9,569	$	9,569

The benefits of these carryforwards are dependent on the taxable income in those jurisdictions in which they arose, and accordingly, a valuation allowance has been provided where management has determined that it is more likely than not that the carryforwards will not be utilized. Management believes that it is more likely than not that the Company’s deferred tax assets, net of existing valuation allowances, at October 31, 2010 will be realized.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11)

Income Taxes (Continued)

A reconciliation of the (provision) benefit for income taxes on income from continuing operations to that which would be computed at the statutory rate of 35%, 35% and 34% in 2010, 2009 and 2008, respectively, is as follows:


	For the Year Ended October 31,
	2010			2009			2008
	(in thousands)
(Provision) benefit at statutory rate	$	(339	)	$	(17,298	)	$	1,775
Recognition of previously unrecognized tax positions		—			—			7,046
State tax provision, net of federal tax benefit		23			(1,625	)		216
True-up of prior year tax returns		(239	)		455			(246	)
Foreign taxes paid		(386	)		(133	)		—
Foreign net operating losses expired		(1,371	)		—			—
Capital losses expired		(256	)		—			—
Net valuation allowances reversed		1,321			—			—
Net tax on foreign dividend		(187	)		—			—
Other, net		(58	)		(393	)		(257	)

(Provision) benefit for income taxes from continuing operations	$	(1,492	)	$	(18,994	)	$	8,534

As with most companies, the Company’s income tax returns are periodically audited by domestic and foreign tax authorities. These audits include questions regarding tax filing positions, including the timing and amount of deductions taken. At any time, multiple tax years are subject to audit by various tax authorities. A number of years may elapse before a particular tax position, for which a reserve has been established, is audited and fully resolved. When the actual result of a tax settlement differs from the Company’s estimated reserve for a tax position, the Company adjusts the tax contingency reserve and income tax provision. For purposes of intraperiod allocation, the Company includes changes in reserves for uncertain tax positions related to discontinued operations in continuing operations.

As of November 1, 2007, the Company’s unrecognized tax benefits for uncertain tax positions were $7.5 million, which primarily related to the abandonment of the Company’s investment in its French subsidiary in 2005 and expenses related to the Company’s sale of its Asia-Pacific subsidiaries in 2005, all of which, if recognized would favorably affect the effective income tax rate in future periods. The Company would have used tax operating loss carryforwards of $6.2 million, which have not been recognized for financial statement purposes, to offset the $7.5 million of unrecognized tax benefits. These unutilized and unrecognized tax operating loss carryforwards were generated in the same tax jurisdiction and in the same year that the unrecognized tax benefits were generated. During the fourth quarter of fiscal 2008, the Internal Revenue Service completed their examination of the Company’s United States income tax returns for the fiscal years 2005 and 2006 and accepted the tax returns as filed. The recognition of previously unrecognized tax benefits arising from the effective settlement of the IRS examination amounted to $7.0 million and an additional $0.5 million resulted from the lapse of the statute of limitations for fiscal 2004. The total unrecognized tax benefits were reduced by $7.5 million. As of October 31, 2010 and 2009, the Company’s liabilities for unrecognized tax benefits

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(11)

Income Taxes (Continued)

for uncertain tax positions related to certain federal deductions taken for tax purposes and state income taxes, including interest and penalties, were $48,000 and $23,000, respectively, and are included in other long term liabilities on the consolidated balance sheets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	Gross			Net
	(in thousands)
Balance at November 1, 2007	$	12,547		$	7,528
Additions based upon tax positions related to the current year		62			40
Settlements (Completion of IRS examination)		(11,743	)		(7,046	)
Lapse of applicable statute		(832	)		(500	)

Balance at October 31, 2008		34			22
Additions based upon tax positions related to the current year		28			18
Settlements (Completion of state examination)		(26	)		(17	)

Balance at October 31, 2009		36			23
Additions based upon tax positions related to the current year		38			25

Balance at October 31, 2010	$	74		$	48

The Company classifies interest and penalties on uncertain tax position as a component of the provision for income taxes. Interest and penalties recognized in the provision for income taxes were $20,740, $5,100, and $2,800 during fiscal 2010, 2009 and 2008, respectively. The balance of accrued interest and penalties included in the Company’s liability for unrecognized tax benefits as of October 31, 2010 and 2009 was $26,870 and $6,129, respectively.

The Company files income tax returns in the U.S. federal jurisdiction, sixteen U.S. states and various foreign jurisdictions. Tax years ended October 31, 2009, 2008 and 2007 remain open and subject to examination by the Internal Revenue Service. The Company is currently under examination by one state for the tax years ended October 31, 2005 through October 31, 2008. Tax years ended October 31, 2009, 2008 and 2007 remain open for thirteen states. Two states are open for the tax years ended October 31, 2009 which was the initial year of filing. With limited exception, the Company is no longer subject to examination by states for years beginning prior to 2004. Additionally, tax years 2004 through 2008 remain open and subject to examination by the governmental agencies in the Company’s various foreign jurisdictions. The Company does not anticipate any adjustments that would have a material effect on its consolidated financial statements.

Cash paid for income taxes during fiscal 2010, 2009 and 2008 was approximately $0.7 million, $2.3 million and $1.6 million, respectively. No taxes were paid by the Company’s discontinued operations for the three years ended October 31, 2010.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12) Commitments and Contingencies

Capital Lease Commitments:

During the second quarter of fiscal 2009, the Company entered into a transaction with General Electric Capital Corporation (“GE Capital”), whereby GE Capital purchased certain of the Company’s manufacturing equipment for $7.0 million and leased the equipment back to the Company under two six-year capital leases. The interest rates on the capital leases range from 3.9% to 8.5% with a weighted average rate of 5.78%. The current portion of these obligations is included in accrued liabilities and the long-term portion is included in other long-term liabilities in the consolidated balance sheets. As a result of the capital lease treatment, the equipment remained a component of property, plant and equipment in the Company’s consolidated balance sheet and will continue to be depreciated. No gain or loss was recognized related to this transaction.

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


For the years ending October 31,	Capital Leases
2011	$	1,386
2012		1,386
2013		1,386
2014		1,386
2015		578

Total minimum lease payments		6,122
Less: Amounts representing interest		739

Present value of minimum lease payments		5,383
Less: Current portion of obligations under capital leases		1,101

Long-term portion of obligations under capital leases	$	4,282

Assets subject to capitalized leases, included in property, plant and equipment in the consolidated balance sheets, are as follows:


	October 31,
	2010		2009
	(in thousands)
Machinery and equipment leased under capital leases	$	7,045	$	7,045
Less: Accumulated depreciation		1,305		522

Net machinery and equipment leased under capital leases	$	5,740	$	6,523

Interest paid as part of the capitalized lease obligations was approximately $0.3 million and $0.2 million during fiscal 2010 and 2009, respectively.

Operating Lease Commitments:

The Company has lease agreements for several of its facilities and certain of its equipment expiring at various dates through May 14, 2016. Rental expense under all leases was $5.3 million, $6.8 million and $5.1 million for fiscal 2010, 2009 and 2008, respectively. The Company also paid $0.8 million in rental payments related to its Cartersville and Fontana facilities, which amounts were

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12)

Commitments and Contingencies (Continued)

recorded as a reduction in restructuring reserve contained in accrued liabilities and long-term liabilities in the consolidated balance sheet at October 31, 2010 (see Note 3). Rental income under all non-cancellable subleases was $0.5 million, $0.5 million and $0.4 million for fiscal 2010, 2009 and 2008, respectively.

Under the terms of noncancellable operating leases with terms greater than one year (including the rental payments for the Cartersville and Fontana facilities), the minimum rental, excluding the provision for real estate taxes, is as follows:


For the years ending October 31,	Operating Leases		Sublease Income
	(in thousands)
2011	$	5,622	$	563
2012		4,464		382
2013		4,011		120
2014		3,381		120
2015		1,739		90
Thereafter		675		—

Total minimum lease payments	$	19,892	$	1,275

Claims and Lawsuits:

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. Included in general and administrative expenses for the year ended October 31, 2008 is a payment of approximately $1.6 million, excluding professional fees, related to a commercial dispute.

Letters of Credit

As of October 31, 2010, the Company had approximately $0.8 million outstanding in stand-by letters of credit issued under the main credit facility. These letters expire on various dates during fiscal 2011. All of the letters contain a feature that automatically renews the letter for an additional year if no cancellation notice is submitted. These letters of credit are being maintained as security.

Employment Contracts:

The Company has employment agreements with each of the following employees of the Company: J. Brendan Barba, Paul M. Feeney, John J. Powers, David J. Cron, Paul C. Vegliante, Robert Cron, Lawrence R. Noll and Linda N. Guerrera. Each November 1^st, these agreements are extended for successive periods of one year, unless either party gives written notice to the other at least 180 days prior to the expiration of the then current term that it does not wish to extend the agreement beyond the term. The employment agreements also include terms relating to severance upon termination or a change of control, confidentiality, non-competition, non-solicitation and other customary provisions.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(12)

Commitments and Contingencies (Continued)

John J. Powers, and Paul C. Vegliante are the sons-in-law of the Company’s Chairman, President and Chief Executive Officer, J. Brendan Barba. Additionally, Mr. Barba and David J. Cron and Robert Cron are cousins. Linda N. Guerrera is the daughter-in-law of Paul M. Feeney, the Company’s Executive Vice President, Finance and Chief Financial Officer.

(13) 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. In April 2008, the Company completed the sale of its subsidiary in the Netherlands, a primary component of the Company’s former European geographical area. As a result of the sale, the Company no longer has any operations outside of the United States and Canada. The geographical assets and operating results reported within the Other foreign operations primarily represent tax refunds and intercompany interest income in the Company’s New Zealand subsidiary and the wind down of the Company’s liquidated operations in Italy.

Income from operations includes all costs and expenses directly related to the geographical area, including intercompany interest income and expense. Identifiable assets are those used in the operations of those geographical areas.

Information about the Company’s operations by geographical area, with United States and Canada stated separately, as of and for the years ended October 31, 2010, 2009 and 2008, respectively, is as follows:


	North America					Other Foreign			Discontinued Operations			Total
	United States			Canada		Other Foreign			Discontinued Operations			Total
	(in thousands)
2010
Sales—external customers	$	733,503		$	67,067	$	—		$	—		$	800,570
Intercompany sales		36,646			—		—			—			36,646
Gross profit		98,755			11,319		—			—			110,074
Operating income (loss) from continuing operations		12,411			3,318		(9	)		—			15,720
Interest income		8			7		1			—			16
Interest expense		15,181			25		—			—			15,206
Depreciation and amortization		20,596			299		—			—			20,895
Provision for income taxes		593			899		—			—			1,492
Net (loss) income		(1,620	)		1,116		(19	)		(43	)		(566	)
Provision for losses on accounts receivable and inventories		103			232		—			—			335
Geographical area assets		328,629			21,883		96			188			350,796
Goodwill		4,961			3,174		—			—			8,135
Capital expenditures		15,680			224		—			—			15,904

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(13)

Segment and Geographic Information (Continued)


	North America				Other Foreign			Discontinued Operations		Total
	United States		Canada		Other Foreign			Discontinued Operations		Total
	(in thousands)
2009
Sales—external customers	$	685,364	$	59,455	$	—		$	—	$	744,819
Intercompany sales		29,374		—		—			—		29,374
Gross profit		150,178		10,258		—			—		160,436
Operating income (loss) from continuing operations		57,591		2,851		(55	)		—		60,387
Interest income		15		17		3			—		35
Interest expense		15,720		29		—			—		15,749
Depreciation and amortization		18,785		273		—			—		19,058
Provision for income taxes		18,644		350		—			—		18,994
Net income		29,424		824		181			1,099		31,528
Provision for losses on accounts receivable and inventories		940		191		—			—		1,131
Geographical area assets		339,660		19,701		97			612		360,070
Goodwill		6,340		3,174		—			—		9,514
Capital expenditures		23,748		98		—			—		23,846


	North America					Other Foreign			Discontinued Operations		Total
	United States		Canada			Other Foreign			Discontinued Operations		Total
	(in thousands)
2008
Sales—external customers	$	695,829	$	66,402		$	—		$	—	$	762,231
Intercompany sales		33,727		633			—			—		34,360
Gross profit		86,412		10,410			—			—		96,822
Operating income (loss) from continuing operations		7,167		2,471			(45	)		—		9,593
Interest income		63		88			20			—		171
Interest expense		15,681		50			—			—		15,731
Depreciation and amortization		13,392		320			—			—		13,712
Benefit (provision) for income taxes		8,831		(297	)		—			—		8,534
Net income		1,472		1,241			599			8,932		12,244
Provision for losses on accounts receivable and inventories		973		116			—			—		1,089
Geographical area assets		370,196		20,001			193			450		390,840
Goodwill		7,720		3,174			—			—		10,894
Capital expenditures		27,635		349			—			—		27,984

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(13)

Segment and Geographic Information (Continued)

Net sales by product line are as follows:


	For the Year Ended October 31,
	2010		2009		2008
	(in thousands)
Custom films	$	275,825	$	240,182	$	336,439
Stretch (pallet) wrap		245,232		217,999		184,516
PROformance^® films		65,137		77,804		18,189
Polyvinyl chloride wrap		79,881		77,870		88,672
Printed and converted films		9,660		9,659		10,006
Other products and specialty films		124,835		121,305		124,409

Total	$	800,570	$	744,819	$	762,231

(14) Fair Value Measurements and Derivative Instruments

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (the “FASB”) issued a standard defining fair value, establishing a framework for measuring fair value and expanding disclosures about fair value measurements. The Company adopted this guidance for financial assets and liabilities as of November 1, 2008 and for non-financial assets and liabilities as of November 1, 2009.

The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions used to value the assets and the liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

Level 2

Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

Level 3

Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability at the measurement date.

Cash and cash equivalents and accounts receivable are financial assets with carrying values that approximate fair value. Accounts payable and the Company’s variable rate debt (revolving credit facilities) are financial liabilities with carrying values that approximate fair value.

At October 31, 2010 and 2009, there was $162.0 million and $162.5 million, respectively, of fixed rate debt outstanding, substantially all of which relates to the 2013 Notes. The carrying value of the 2013 Notes was $160.2 million at October 31, 2010 and 2009, respectively. The fair value of the 2013 Notes at October 31, 2010 and 2009 was estimated to be $161.9 million and $155.4 million, respectively, based on quoted market rates (Level 1). The Company believes that the carrying value of the Company’s Pennsylvania Industrial Loans of $1.8 million at October 31, 2010 approximates its fair value based on observable inputs (Level 2).

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(14)

Fair Value Measurements and Derivative Instruments (Continued)

The Company’s foreign currency forward contracts are classified within Level 2 as the valuation inputs are based on quoted prices and market observable data of similar instruments.

Derivative Instruments

On February 1, 2009, the Company adopted new guidance which amends and expands the disclosure requirements to require qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements.

The Company seeks to minimize foreign exchange risks through operating and financing activities and, when deemed appropriate, through the use of derivative financial instruments. The Company utilizes foreign exchange forward contracts primarily to hedge intercompany transactions, foreign currency trade sales and anticipated foreign currency purchases of raw materials. The Company does not purchase, hold or sell derivative financial instruments for trading purposes.

The Company had a total of 6 and 12 open foreign exchange forward contracts outstanding at October 31, 2010 and 2009, respectively, with total notional contract amounts of $2.4 million and $13.8 million, respectively, all of which have maturities of less than one year. The fair value of these foreign exchange forward contracts is recorded in accounts payable in the consolidated balance sheet in the amount of $3,000 as of October 31, 2010 and $140,000 in other current assets in the consolidated balance sheet as of October 31, 2009.

The (loss) gain on the fair value for these foreign exchange forward contracts is recognized in other, net in the consolidated statement of operations and amounted to a loss of $143,000, income of $736,000 and a loss of $346,000 for the years ended October 31, 2010, 2009 and 2008, respectively.

(15) Accumulated Other Comprehensive Income (Loss)

The accumulated balances at October 31, related to each component of accumulated other comprehensive income (loss) are as follows:


	2010			2009			2008
	(in thousands)
Foreign currency translation adjustments	$	3,334		$	2,493		$	(85	)
Unrecognized prior service cost and actuarial losses related to Canadian pension plan, net of tax		(1,214	)		(972	)		(824	)

Total accumulated other comprehensive income (loss)	$	2,120		$	1,521		$	(909	)

The accumulated other comprehensive loss related to the Company’s pension plans is net of tax benefits of $0.4 million at October 31, 2010, 2009 and 2008, respectively.

The sale of AEP Netherlands in April 2008 resulted in the reclassification of AEP Netherlands’ accumulated foreign currency translation gains into income in the amount of $2.3 million ($2.4 million which existed at October 31, 2007), $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

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(15)

Accumulated Other Comprehensive Income (Loss) (Continued)

($5.1 million of which had been previously recognized in accumulated other comprehensive income at October 31, 2007), and the write-off of $0.2 million of unamortized prior service cost and actuarial losses.

(16) Related Party Transactions

During fiscal 2010, 2009 and 2008, $45,381, $120,773 and $131,074, respectively, was paid to Warshaw, Burstein Cohen, Schlesinger and Kuh, LLP, one of the Company’s outside legal counsel, in which Paul E. Gelbard, a member of the Board of Directors, is of counsel.

During fiscal 2010, 2009 and 2008, $61,790, $107,180 and $80,944, was paid to D.E. Smith Corp., a company owned by the son-in-law of the Chief Financial Officer, for the production of the Company’s Annual Report and the production of marketing brochures.

During fiscal 2010, 2009 and 2008, $38,784, $72,855 and $90,292, was paid to Omni Products, a company owned by the cousin of the Chief Executive Officer, for printing costs.

On September 1, 2008, the brother of the Executive Vice President, Sales and Marketing, became a partner in Allstate Poly, a distributor. During fiscal 2010 and 2009 the Company sold $542,428 and $501,627 of product, respectively, to Allstate Poly. From September 1, 2008 to October 31, 2008, the Company sold $92,774 of product to Allstate Poly and from November 1, 2007 to August 31, 2008, the Company sold $538,152 of product to Allstate Poly.

(17) Discontinued Operations

Netherlands

On April 4, 2008, the Company completed the sale of AEP Netherlands to Euro-M Flexible Packaging S.A. and Ghlin S.r.L (the “Buyers”). Pursuant to a Share Purchase Agreement, dated April 4, 2008, among the Company and the Buyers, the Company received in cash approximately $28.3 million (approximately $4.7 million for the shares of AEP Netherlands and approximately $23.6 million for the settlement of all intercompany loans), prior to the payment of fees and closing and other costs totaling $1.5 million. The Buyers also assumed all third party debt and capital lease obligations totaling approximately $12.0 million and approximately $5.6 million of unfunded pension obligations of AEP Netherlands outstanding as of the closing date.

In connection with the sale of AEP Netherlands, the Company recorded a $10.7 million pre-tax gain on disposition from discontinued operations during the second quarter of fiscal 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.

The sale of AEP Netherlands, however, resulted in a taxable loss in which the Company provided a full valuation allowance against the deferred tax asset attributable to the generated U.S. capital loss carryforward. The Company determined that it is more likely than not that this carryforward will not be utilized.

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(17)

Discontinued Operations (Continued)

United Kingdom

During October 2008, the liquidation of the UK operations was completed (liquidation had commenced in fiscal 2006) with 1.3 million British Pounds (approximately $2.1 million) paid to the trustees of the pension scheme in full and final settlement. There are no further liabilities of the UK company. The final settlement of the pension liabilities (which was fully funded with restricted cash in the UK company) constituted a substantial liquidation of the Company’s investment in the UK and as a result, the accumulated foreign currency translation losses of the Company’s UK subsidiary of $0.4 million were reclassified into income (loss) from discontinued operations in the consolidated statement of operations during the fourth quarter of fiscal 2008.

Spain

During the fourth quarter of fiscal 2006, the Company had substantially completed its liquidation of its Spanish operations which had commenced in September 2004. The Spanish liquidation committee met in February 2007 and approved the final allocation of Spain’s assets. The Company is working with the court-appointed Spanish liquidators on the final dissolution of the Spanish company.

Loss from discontinued operations in the consolidated statements of operations for fiscal 2010 of $43,000 represents payments made related to the Spanish liquidation. Income from discontinued operations in the consolidated statements of operations for fiscal 2009 of $0.1 million represents a refund of value added taxes which had been fully reserved against and an income tax benefit of $1.0 million related to a $2.6 million intercompany bad debt write-off. The bad debt write-off has been taken as a deduction on the Company’s U.S. federal income tax return in fiscal 2009. Included in income from discontinued operations in the consolidated statements of operations for fiscal 2008 is $0.3 million of income resulting from the return of a deposit held for a tax assessment under appeal. The asset had been previously fully reserved as the Company believed it was more likely than not that the deposit would not be recovered. In exchange for the release of the deposit, the U.S. company issued a standby letter of credit, reducing availability under its Credit Facility. The Company does not believe it will need to perform under this standby letter of credit.

Condensed financial information related to these discontinued operations is as follows:


	For the Year Ended October 31,
	2010			2009
	Spain			Spain
	(in thousands)
Net sales	$	—		$	—
Gross profit		—			—
(Loss) income from operations		(43	)		85
Income tax benefit		—			1,014

(Loss) income from discontinued operations	$	(43	)	$	1,099

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(17)

Discontinued Operations (Continued)


For the Year Ended October 31, 2008	Netherlands			Spain		UK			Total
	(in thousands)
Net sales	$	56,238		$	—	$	—		$	56,238
Gross profit		5,436			—		—			5,436
Income (loss) from operations		865			361		(328	)		898
Gain on disposal		10,708			—		—			10,708
Provision for income taxes		(2,674	)		—		—			(2,674	)

Income (loss) from discontinued operations	$	8,899		$	361	$	(328	)	$	8,932

Assets and liabilities of the Spanish discontinued operations are comprised of the following:


	At October 31, 2010		At October 31, 2009
	(in thousands)
Assets:
Cash	$	188	$	612

Total assets	$	188	$	612

Liabilities:
Accounts payable	$	—	$	366

Total liabilities	$	—	$	366

AEP INDUSTRIES INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(18) Quarterly Financial Data (Unaudited)


	January 31,			April 30,			July 31,		October 31,
	(in thousands, except per share data)
2010
Net sales	$	157,170		$	215,662		$	204,870	$	222,868
Gross profit	$	18,045		$	25,805		$	33,623	$	32,601
(Loss) income from continuing operations	$	(4,900	)	$	(1,497	)	$	3,746	$	2,128
Loss from discontinued operations	$	—		$	—		$	—	$	(43	)
Net (loss) income	$	(4,900	)	$	(1,497	)	$	3,746	$	2,085
Basic (Loss) Earnings per Common Share:
(Loss) income from continuing operations	$	(0.72	)	$	(0.22	)	$	0.55	$	0.34

(Loss) from discontinued operations	$	—		$	—		$	—	$	(0.01	)

Net (loss) income per common share	$	(0.72	)	$	(0.22	)	$	0.55	$	0.33

Diluted (Loss) Earnings per Common Share:
(Loss) income from continuing operations	$	(0.72	)	$	(0.22	)	$	0.55	$	0.34

(Loss) from discontinued operations	$	—		$	—		$	—	$	(0.01	)

Net (loss) income per common share	$	(0.72	)	$	(0.22	)	$	0.55	$	0.33

2009
Net sales	$	180,212		$	182,567		$	189,750	$	192,290
Gross profit	$	48,084		$	41,681		$	37,483	$	33,188
Income from continuing operations	$	12,125		$	11,570		$	5,417	$	1,317
Income from discontinued operations	$	—		$	—		$	—	$	1,099
Net income	$	12,125		$	11,570		$	5,417	$	2,416
Basic Earnings per Common Share:
Income from continuing operations	$	1.79		$	1.71		$	0.80	$	0.19

Income from discontinued operations	$	—		$	—		$	—	$	0.16

Net income per common share	$	1.79		$	1.71		$	0.80	$	0.35

Diluted Earnings per Common Share:
Income from continuing operations	$	1.79		$	1.71		$	0.79	$	0.19

Income from discontinued operations	$	—		$	—		$	—	$	0.16

Net income per common share	$	1.79		$	1.71		$	0.79	$	0.35

Earnings per share are computed independently for each of the quarters presented.

AEP INDUSTRIES INC.

INDEX TO FINANCIAL STATEMENT SCHEDULES

SCHEDULE

II Valuation and Qualifying Accounts

Schedules other than those listed above have been omitted either because the required information is contained in the consolidated financial statements or notes thereto or because such schedules are not required or applicable.

AEP INDUSTRIES INC.

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

FOR EACH OF THE YEARS IN THE THREE YEAR PERIOD ENDED OCTOBER 31, 2010

(in thousands)


	Balance at Beginning of Year		Atlantis Acquisition			Additions (Reversals) Charged to Operations		Deductions From Reserves		Other (b)			Balance at End of Year
YEAR ENDED OCTOBER 31, 2010:
Allowance for doubtful accounts	$	5,214	$	—		$	264	$	1,151	$	18		$	4,345
Inventories	$	36	$	—		$	71	$	—	$	3		$	110
YEAR ENDED OCTOBER 31, 2009:
Allowance for doubtful accounts	$	3,434	$	2,359	(a)	$	1,118	$	1,722	$	25		$	5,214
Inventories	$	811	$	(790	)(a)	$	13	$	—	$	2		$	36
YEAR ENDED OCTOBER 31, 2008:
Allowance for doubtful accounts	$	2,267	$	597		$	1,071	$	448	$	(53	)	$	3,434
Inventories	$	7	$	790		$	18	$	—	$	(4	)	$	811

The above table does not include discontinued operations.

(a)	Related to the true-up of working capital.

(b)	Represents foreign exchange effect

POWER OF ATTORNEY

Each person whose signature appears below hereby appoint J. Brendan Barba and Paul M. Feeney as attorneys-in-fact with full power of substitution, severally, to execute in the name and on behalf of each such person, individually and in each capacity stated below, one or more amendments to this annual report which amendments may make such changes in the report as the attorney-in-fact acting in the premises deems appropriate, to file any such amendment to the report with the Securities and Exchange Commission (“SEC”), and to take all other actions either of them deem necessary or advisable to enable the Company to comply with the rules, regulations and requirements of the SEC.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: January 14, 2011	By:	/S/ J. BRENDAN BARBA
		J. Brendan Barba Chairman of the Board, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


	AEP Industries Inc.

Dated: January 14, 2011	By:	/S/ J. BRENDAN BARBA
		J. Brendan Barba Chairman of the Board, President and Chief Executive Officer (principal executive officer)

Dated: January 14, 2011	By:	/S/ PAUL M. FEENEY
		Paul M. Feeney Executive Vice President, Finance Chief Financial Officer and Director (principal financial officer)

Dated: January 14, 2011	By:	/S/ LINDA N. GUERRERA
		Linda N. Guerrera Vice President, Controller (principal accounting officer)

Dated: January 14, 2011	By:	/S/ LAWRENCE R. NOLL
		Lawrence R. Noll Director



Dated: January 14, 2011	By:	/S/ KENNETH AVIA
		Kenneth Avia Director

Dated: January 14, 2011	By:	/S/ ROBERT T. BELL
		Robert T. Bell Director

Dated: January 14, 2011	By:	/S/ RICHARD E. DAVIS
		Richard E. Davis Director

Dated: January 14, 2011	By:	/S/ FRANK P. GALLAGHER
		Frank P. Gallagher Director

Dated: January 14, 2011	By:	/S/ PAUL E. GELBARD
		Paul E. Gelbard Director

Dated: January 14, 2011	By:	/S/ LEE C. STEWART
		Lee C. Stewart Director

INDEX TO EXHIBITS

Incorporated by reference

Exhibit
number

Exhibit description

Filed
herewith

Form

Period
ending

Exhibit
number

Filing
date

**2.1

Asset Purchase Agreement, dated August 9, 2008, by and among Atlantis Plastics, Inc, Atlantis Plastics Films, Inc., and Linear Films, Inc. and AEP Industries Inc.

8-K

2.1

08/12/08

3.1

Restated Certificate of Incorporation of AEP Industries Inc. (the “Company”)

10-Q

04/30/97

3(a)

06/13/97

3.2

Fifth Amended and Restated By-Laws of the Company

8-K

3.1

02/16/10

4.1

Indenture (7.875% senior notes due 2013), dated as of March 18, 2005, between the Company and The Bank of New York, as trustee

8-K

4.1

03/22/05

4.2

Registration Rights Agreement (7.875% senior notes due 2013), dated as of March 18, 2005, between the Company and the security holders named therein

8-K

4.2

03/22/05

4.3

Amended and Restated Loan and Security Agreement, dated October 30, 2008, by and among the Company, Wachovia Bank N.A., as Agent, and the financial institutions party thereto

8-K

11/05/08

4.4

Exhibits and Schedules to Amended and Restated Loan and Security Agreement dated October 30, 2008

10-Q

01/31/10

4.1

03/12/10

*10.1

Amended and Restated 2005 Stock Option Plan of the Company

10-K

10/31/08

10.1

01/27/09

*10.2

Form of Performance Unit Grant Agreement under the AEP Industries Inc. 2005 Stock Option Plan

8-K

10.1

06/20/06

Incorporated by reference

Exhibit
number

Exhibit description

Filed
herewith

Form

Period
ending

Exhibit
number

Filing
date

*10.3

Form of Performance Unit Grant Agreement under the AEP Industries Inc. 2005 Stock Option Plan, for 409A compliance

10-K

10/31/08

10.3

01/27/09

*10.4

Form of Stock Option Agreement (Employees) under the AEP Industries Inc. 2005 Stock Option Plan

8-K

10.4

05/10/06

*10.5

Form of Stock Option Agreement (Directors) under the AEP Industries Inc. 2005 Stock Option Plan

8-K

10.5

05/10/06

*10.6

2005 Employee Stock Purchase Plan of the Company, As Amended

10-K

10/31/09

10.6

01/14/10

*10.7

1995 Stock Option Plan of the Company

S-8, (No. 33-58747)

04/21/95

*10.8

Form of Management Incentive Plan of the Company

Schedule 14A

Annex A

02/27/08

*10.9

Summary of Non-Employee Director Compensation

8-K

10.2

05/10/06

10.10

Lease, dated as of March 20, 1990, between the Company and Phillips and Huyler Assoc., L.P.

10-K

10/31/90

10(aa)

01/29/91

*10.11

Employment Agreement, effective as of November 1, 2004, between the Company and J. Brendan Barba

8-K

10.1

05/13/05

*10.12

Employment Agreement, effective as of November 1, 2004, between the Company and Paul M. Feeney

8-K

10.2

05/13/05

*10.13

Employment Agreement, effective as of November 1, 2004, between the Company and John J. Powers

8-K

10.3

05/13/05

*10.14

Employment Agreement, effective as of November 1, 2004, between the Company and David J. Cron

8-K

10.4

05/13/05

*10.15

Employment Agreement, effective as of November 1, 2004, between the Company and Paul C. Vegliante

8-K

10.5

05/13/05

*10.16

Employment Agreement, effective as of November 1, 2004, between the Company and Lawrence R. Noll

8-K

10.6

05/13/05

Incorporated by reference

Exhibit
number

Exhibit description

Filed
herewith

Form

Period
ending

Exhibit
number

Filing
date

*10.17

Employment Agreement, effective as of November 1, 2008, between the Company and Linda N. Guerrera

10-K

10/31/08

10.17

01/27/09

*10.18

Form of Amendment to Employment Agreement, between the Company and each of J. Brendan Barba, Paul M. Feeney, John J. Powers, David J. Cron, Paul C. Vegliante and Linda N. Guerrera, for 409A compliance, effective December 2008

10-K

10/31/08

10.18

01/27/09

10.19

Letter Agreement, dated February 12, 2010, among AEP Industries Inc., KSA Capital Management, LLC, Daniel D. Khoshaba and each of the other persons set forth on the signature pages thereto

8-K

10.1

02/16/10

10.20

Purchase Agreement, dated August 5, 2010, among AEP Industries Inc., KSA Capital Management, LLC, Daniel D. Khoshaba and each of the other persons set forth on the signature pages thereto.

8-K

10.1

08/09/10

List of subsidiaries of the Company at January 14, 2011

Consent of KPMG LLP

Power of Attorney (set forth on signature page)

31.1

Section 302 Certification—CEO

31.2

Section 302 Certification—CFO

32.1

Section 906 Certification—CEO

32.2

Section 906 Certification—CFO

*	A management contract or compensatory arrangement required to be filed.

**	The schedules and appendices to the foregoing have been omitted. A copy of any omitted schedule or appendix will be furnished to the Securities and Exchange Commission supplementally upon request

AEP INDUSTRIES INC - FORM 10-K - January 14, 2011

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