EXHIBIT 99.2
Unaudited Pro Forma Consolidated Financial Information
The following unaudited pro forma consolidated financial information reflects our pro forma financial position as of January 31, 2008, and our pro forma results of operations for the three months ended January 31, 2008 and for each year in the three-year period ended October 31, 2007, giving effect to the sale of AEP Industries Nederland B.V., a primary component of our European geographical area. The sale, completed on April 4, 2008, resulted in the Company receiving in cash approximately $28.3 million (approximately $4.7 million for the shares of AEP Industries Nederland B.V. and approximately $23.6 million for the settlement of all intercompany loans), prior to the payment of fees and closing and other costs of approximately $1.5 million. The Buyers also assumed all third party debt totaling approximately $12.0 million and approximately $5.7 million of unfunded pension obligations of AEP Industries Nederland B.V. outstanding as of the closing date.
The Company estimates that income from discontinued operations on the consolidated statement of operations for the second quarter ending April 30, 2008 will include approximately $11.1 million of gain from disposition before tax ($8.4 million after tax) consisting of approximately $1.9 million of gain from disposition of AEP Industries Nederland B.V., after an estimate of costs to sell of approximately $1.5 million, reclassification of AEP Industries Nederland B.V accumulated foreign currency translation gains into income in the amount of $2.4 million, and $6.8 million of realized foreign currency exchange gains before tax ($4.1 million after tax) resulting from the settlement of all intercompany loans, denominated in Euros ($5.6 million of which had been previously recognized in accumulated other comprehensive income at January 31, 2008).
Historical financial data used to prepare the pro forma financial statements was derived from the audited financial statements in our Annual Report on Form 10-K for the year ended October 31, 2007, and the unaudited financial statements in our Quarterly Report on Form 10-Q for the period ended January 31, 2008. This unaudited pro forma consolidated financial information should be read in conjunction with our historical consolidated financial statements and the notes thereto.
The unaudited pro forma consolidated balance sheet and unaudited pro forma consolidated statements of operations are based on assumptions and estimates that our management believes are reasonable. They do not reflect in precise numerical terms the impact of the transaction on the historical financial statements, and are subject to change. Such pro forma financial information should not be used as a basis for forecasting the future operations of AEP Industries Inc. The pro forma financial information is presented for illustrative purposes only, and is not necessarily indicative of any future results of operations, or the results that might have occurred if the sale of AEP Industries Nederland B.V. had actually occurred on the indicated dates.
AEP Industries Inc.
Pro Forma Consolidated Statement of Operations
For the Three Months Ended January 31, 2008
(unaudited)
(in thousands, except share and per share data)
| | Historical | | Netherlands
Pro Forma
Adjustments
(1) | | Other
Pro Forma
Adjustments
(2) | | Pro Forma | |
NET SALES | | $ | 204,989 | | $ | (31,291 | ) | $ | — | | $ | 173,698 | |
COST OF SALES | | 174,198 | | (28,338 | ) | — | | 145,860 | |
Gross profit | | 30,791 | | (2,953 | ) | — | | 27,838 | |
OPERATING EXPENSES | | | | | | | | | |
| | | | | | | | | |
Delivery | | 9,247 | | (717 | ) | — | | 8,530 | |
Selling | | 8,691 | | (709 | ) | — | | 7,982 | |
General and administrative | | 5,728 | | (804 | ) | — | | 4,924 | |
Total operating expenses | | 23,666 | | (2,230 | ) | — | | 21,436 | |
Operating income | | 7,125 | | (723 | ) | | | 6,402 | |
OTHER INCOME (EXPENSE): | | | | | | | | | |
Interest expense | | (4,310 | ) | 264 | | 339 | | (3,707 | ) |
Other, net | | 266 | | 100 | | — | | 366 | |
Income from continuing operations before provision for income taxes | | 3,081 | | (359 | ) | 339 | | 3,061 | |
PROVISION FOR INCOME TAXES | | 1,101 | | — | | 134 | | 1,235 | |
Income from continuing operations | | $ | 1,980 | | $ | (359 | ) | $ | 205 | | $ | 1,826 | |
BASIC EARNINGS PER COMMON SHARE: | | | | | | | | | |
Income from continuing operations | | $ | 0.29 | | | | | | $ | 0.27 | |
DILUTED EARNINGS PER COMMON SHARE: | | | | | | | | | |
Income from continuing operations | | $ | 0.29 | | | | | | $ | 0.26 | |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic. | | 6,850,433 | | | | | | 6,850,433 | |
Diluted | | 6,941,460 | | | | | | 6,941,460 | |
AEP Industries Inc.
Pro Forma Consolidated Statement of Operations
For the Fiscal Year Ended October 31, 2007
(unaudited)
(in thousands, except share and per share data)
| | Historical | | Netherlands
Pro Forma
Adjustments
(1) | | Other
Pro Forma
Adjustments
(2) | | Pro Forma | |
NET SALES | | $ | 786,015 | | $ | (119,697 | ) | $ | — | | $ | 666,318 | |
COST OF SALES | | 634,602 | | (107,436 | ) | — | | 527,166 | |
Gross profit | | 151,413 | | (12,261 | ) | — | | 139,152 | |
OPERATING EXPENSES | | | | | | | | | |
Delivery | | 37,498 | | (2,869 | ) | — | | 34,629 | |
Selling | | 34,503 | | (2,654 | ) | — | | 31,849 | |
General and administrative | | 22,484 | | (2,722 | ) | — | | 19,762 | |
Total operating expenses | | 94,485 | | (8,245 | ) | — | | 86,240 | |
OTHER OPERATING INCOME (EXPENSE): | | | | | | | | | |
Loss on sales of property and equipment, net | | (33 | ) | (13 | ) | — | | (46 | ) |
Operating income from continuing operations | | 56,895 | | (4,029 | ) | — | | 52,866 | |
OTHER INCOME (EXPENSE): | | | | | | | | | |
Interest expense | | (16,487 | ) | 936 | | 835 | | (14,716 | ) |
Other, net | | 745 | | 34 | | — | | 779 | |
Income from continuing operations before provision for income taxes | | 41,153 | | (3,059 | ) | 835 | | 38,929 | |
PROVISION FOR INCOME TAXES | | 15,217 | | — | | 334 | | 15,551 | |
Income from continuing operations | | $ | 25,936 | | $ | (3,059 | ) | $ | 501 | | $ | 23,378 | |
BASIC EARNINGS PER COMMON SHARE: | | | | | | | | | |
Income from continuing operations | | $ | 3.45 | | | | | | $ | 3.11 | |
DILUTED EARNINGS PER COMMON SHARE: | | | | | | | | | |
Income from continuing operations | | $ | 3.39 | | | | | | $ | 3.06 | |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic. | | 7,507,708 | | | | | | 7,507,708 | |
Diluted | | 7,647,674 | | | | | | 7,647,674 | |
AEP Industries Inc.
Pro Forma Consolidated Statement of Operations
For the Fiscal Year Ended October 31, 2006
(unaudited)
(in thousands, except share and per share data)
| | Historical | | Netherlands
Pro Forma
Adjustments
(1) | | Other
Pro Forma
Adjustments
(2) | | Pro Forma | |
NET SALES | | $ | 802,109 | | $ | (104,876 | ) | $ | — | | $ | 697,233 | |
COST OF SALES | | 640,397 | | (94,400 | ) | — | | 545,997 | |
Gross profit | | 161,712 | | (10,476 | ) | — | | 151,236 | |
OPERATING EXPENSES | | | | | | | | | |
Delivery | | 35,950 | | (2,581 | ) | — | | 33,369 | |
Selling | | 32,291 | | (2,414 | ) | — | | 29,877 | |
General and administrative | | 24,918 | | (2,551 | ) | — | | 22,367 | |
Total operating expenses | | 93,159 | | (7,546 | ) | — | | 85,613 | |
OTHER OPERATING INCOME (EXPENSE): | | | | | | | | | |
Gain on sales of property and equipment, net | | 1,341 | | — | | — | | 1,341 | |
Operating income from continuing operations | | 69,894 | | (2,930 | ) | — | | 66,964 | |
OTHER INCOME (EXPENSE): | | | | | | | | | |
Interest expense | | (16,541 | ) | 1,104 | | 549 | | (14,888 | ) |
Other, net | | (7,657 | ) | (46 | ) | — | | (7,703 | ) |
Income from continuing operations before provision for income taxes | | 45,696 | | (1,872 | ) | 549 | | 44,373 | |
PROVISION FOR INCOME TAXES | | 8,432 | | — | | 192 | | 8,624 | |
Income from continuing operations | | $ | 37,264 | | $ | (1,872 | ) | $ | 357 | | $ | 35,749 | |
BASIC EARNINGS PER COMMON SHARE: | | | | | | | | | |
Income from continuing operations | | $ | 4.42 | | | | | | $ | 4.24 | |
DILUTED EARNINGS PER COMMON SHARE: | | | | | | | | | |
Income from continuing operations | | $ | 4.35 | | | | | | $ | 4.18 | |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic. | | 8,433,385 | | | | | | 8,433,385 | |
Diluted | | 8,556,948 | | | | | | 8,556,948 | |
AEP Industries Inc.
Pro Forma Consolidated Statement of Operations
For the Fiscal Year Ended October 31, 2005
(unaudited)
(in thousands, except share and per share data)
| | Historical | | Netherlands
Pro Forma
Adjustments
(1) | | Other
Pro Forma
Adjustments
(2) | | Pro Forma | |
NET SALES | | $ | 732,724 | | $ | (99,451 | ) | $ | — | | $ | 633,273 | |
COST OF SALES | | 598,791 | | (89,396 | ) | — | | 509,395 | |
Gross profit | | 133,933 | | (10,055 | ) | — | | 123,878 | |
OPERATING EXPENSES | | | | | | | | | |
Delivery | | 33,090 | | (2,569 | ) | — | | 30,521 | |
Selling | | 31,295 | | (2,731 | ) | — | | 28,564 | |
General and administrative | | 24,230 | | (2,638 | ) | — | | 21,592 | |
Total operating expenses | | 88,615 | | (7,938 | ) | — | | 80,677 | |
OTHER OPERATING INCOME (EXPENSE): | | | | | | | | | |
Gain on sales of property and equipment, net | | 227 | | (104 | ) | — | | 123 | |
Operating income from continuing operations | | 45,545 | | (2,221 | ) | — | | 43,324 | |
OTHER INCOME (EXPENSE): | | | | | | | | | |
Interest expense | | (28,519 | ) | 1,027 | | 1,400 | | (26,092 | ) |
Other, net | | 844 | | (31 | ) | — | | 813 | |
Income from continuing operations before provision for income taxes | | 17,870 | | (1,225 | ) | 1,400 | | 18,045 | |
PROVISION FOR INCOME TAXES | | 15,269 | | — | | 490 | | 15,759 | |
Income from continuing operations | | $ | 2,601 | | $ | (1,225 | ) | $ | 910 | | $ | 2,286 | |
BASIC EARNINGS PER COMMON SHARE: | | | | | | | | | |
Income from continuing operations | | $ | 0.31 | | | | | | $ | 0.27 | |
DILUTED EARNINGS PER COMMON SHARE: | | | | | | | | | |
Income from continuing operations | | $ | 0.30 | | | | | | $ | 0.27 | |
Weighted average number of common shares outstanding: | | | | | | | | | |
Basic. | | 8,501,907 | | | | | | 8,501,907 | |
Diluted | | 8,618,363 | | | | | | 8,618,363 | |
Notes to Pro Forma Consolidated Statements of Operations
(1) The pro forma consolidated statements of operations assume that the sale of AEP Industries Nederland B.V occurred as of November 1 of each period presented. These adjustments are to eliminate the operations directly related to AEP Industries Nederland B.V.
(2) The pro forma adjustments assume net proceeds from the sale of approximately $26.8 million, after estimated costs to sell of approximately $1.5 million, were received on November 1 of each period presented resulting in a reduction of interest expense on outstanding monthly borrowings under our Credit Facility bearing a weighted average interest rate of 7.0 % during the three months ended January 31, 2008 , 7.9% during the fiscal year ended October 31, 2007, 8.1% during the fiscal year ended October 31, 2006, and 5.7% during the fiscal year ended October 31, 2005, tax effected at a rate of 39.6% for the three months ended January 31, 2008, 40.0% for the fiscal year ended October 31, 2007, 35.0% for the fiscal year ended October 31, 2006, and 35.0% for the fiscal year ended October 31, 2005
The Company estimates that income from discontinued operations on the consolidated statement of operations for the second quarter ending April 30, 2008 will include approximately $11.1 million of gain from disposition before tax ($8.4 million after tax) consisting of approximately $1.9 million of gain from disposition of AEP Industries Nederland B.V., after an estimate of costs to sell of approximately $1.5 million, reclassification of AEP Industries Nederland B.V accumulated foreign currency translation gains into income in the amount of $2.4 million, and $6.8 million of realized foreign currency exchange gains before tax ($4.1 million after tax) resulting from the settlement of all intercompany loans, denominated in Euros ($5.6 million of which had been previously recognized in accumulated other comprehensive income at January 31, 2008).
AEP Industries Inc.
Pro Forma Consolidated Balance Sheet
January 31, 2008
(unaudited)
(in thousands, except share amounts)
| | Historical | | Pro Forma
Adjustments
(3) | | Pro Forma | |
ASSETS | | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | | $ | 1,450 | | $ | (847 | ) | $ | 603 | |
Accounts receivable, less allowance for doubtful accounts of $2,739 in 2008 | | 81,137 | | (14,267 | ) | 66,870 | |
Inventories, net | | 102,892 | | (11,469 | ) | 91,423 | |
Deferred income taxes | | 6,379 | | (2,373 | ) | 4,006 | |
Other current assets | | 6,014 | | (1,806 | ) | 4,208 | |
Assets of discontinued operations | | 3,588 | | — | | 3,588 | |
Total current assets | | 201,460 | | (30,762 | ) | 170,698 | |
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $233,390 in 2008 | | 132,748 | | (19,809 | ) | 112,939 | |
GOODWILL | | 15,208 | | (3,280 | ) | 11,928 | |
DEFERRED INCOME TAXES | | 272 | | (64 | ) | 208 | |
OTHER ASSETS | | 4,406 | | (340 | ) | 4,066 | |
Total assets | | $ | 354,094 | | $ | (54,255 | ) | $ | 299,839 | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Bank borrowings, including current portion of long-term debt | | $ | 8,749 | | $ | (8,366 | ) | $ | 383 | |
Accounts payable | | 55,076 | | (8,073 | ) | 47,003 | |
Accrued expenses | | 22,382 | | (3,843 | ) | 18,539 | |
Liabilities of discontinued operations | | 3,415 | | — | | 3,415 | |
Total current liabilities | | 89,622 | | (20,282 | ) | 69,340 | |
LONG-TERM DEBT | | 210,105 | | (28,768 | ) | 181,337 | |
DEFERRED TAX LIABILITY | | 2,254 | | (12 | ) | 2,242 | |
OTHER LONG-TERM LIABILITIES | | 8,635 | | (5,635 | ) | 3,000 | |
Total liabilities | | 310,616 | | (54,697 | ) | 255,919 | |
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; 10,874,902 issued in 2008 | | 109 | | — | | 109 | |
Additional paid-in capital | | 104,726 | | — | | 104,726 | |
| | | | | | | |
Treasury stock at cost, 4,051,948 shares in 2008 respectively | | (126,601 | ) | — | | (126,601 | ) |
Retained earnings | | 54,550 | | 8,393 | | 62,943 | |
Accumulated other comprehensive income | | 10,694 | | (7,951 | ) | 2,743 | |
Total shareholders’ equity | | 43,478 | | 442 | | 43,920 | |
Total liabilities and shareholders’ equity | | $ | 354,094 | | $ | (54,255 | ) | $ | 299,839 | |
Notes to Pro Forma Consolidated Balance Sheet
(3) The pro forma consolidated balance sheet assumes that the sale of AEP Industries Nederland B.V. occurred as of January 31, 2008. The pro forma adjustments eliminate the assets and liabilities of AEP Industries Nederland B.V. that have been sold, record the reclassification of AEP Industries Nederland B.V accumulated foreign currency translation gains into income in the amount of $2.4 million, and record net cash received of approximately $26.8 million, after estimated costs to sell of approximately $1.5 million, which said proceeds were assumed to be used to reduce the Company’s borrowings under its Credit Facility. The sale is expected to result in approximately $11.1 million of gain from disposition before tax ($8.4 million after tax) consisting of $1.9 million of gain from disposition of AEP Industries Nederland B.V. (included in retained earnings) and $6.8 million of realized foreign currency exchange gains before tax ($4.1 million after tax) resulting from the settlement of all intercompany loans, denominated in Euros ($5.6 million of which had been previously recognized in accumulated other comprehensive income at January 31, 2008).
