<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1995
OR
[ ] 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 0-14450
AEP INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
Delaware 22-1916107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Phillips Avenue
South Hackensack, New Jersey 07606
(Address of principal executive offices) (Zip Code)
(201) 641-6600
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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.
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Shares
Outstanding At
Class of Common Stock March 1, 1995
--------------------- --------------
$.01 Par Value 7,381,273
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEP INDUSTRIES INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, October 31,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 442,000 $ 258,000
Marketable securities 3,643,000 3,643,000
Accounts receivable, less allowance of $1,673,000 in
1995 and $1,498,000 in 1994 for doubtful accounts 23,742,000 24,083,000
Inventories 20,469,000 17,698,000
Other current assets 444,000 288,000
Deferred federal income tax benefit 589,000 549,000
------------ ------------
Total current assets 49,329,000 46,519,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost, less
accumulated depreciation and amortization of
$46,019,000 in 1995 and $43,853,000 in 1994 76,040,000 71,684,000
OTHER ASSETS 310,000 293,000
------------ ------------
TOTAL ASSETS $125,679,000 $118,496,000
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 56,000 $ 95,000
Accounts payable 25,003,000 21,631,000
Accrued expenses 4,764,000 4,201,000
------------ ------------
Total current liabilities 29,823,000 25,927,000
------------ ------------
LONG-TERM DEBT 22,000,000 23,500,000
DEFERRED FEDERAL INCOME TAXES - LONG TERM 8,068,000 7,280,000
------------ ------------
Total liabilities 59,891,000 56,707,000
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SHAREHOLDERS' EQUITY:
Preferred stock -- $1.00 par value, 1,000,000
shares authorized; none outstanding -- --
Common stock - $.01 par value, 8,000,000 shares
authorized; 7,380,073 and 7,367,921 shares issued
and outstanding in 1995 and 1994, respectively 74,000 74,000
Additional paid-in capital 7,097,000 7,009,000
Retained earnings 58,617,000 54,706,000
------------ ------------
Total shareholders' equity 65,788,000 61,789,000
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $125,679,000 $118,496,000
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
2
<PAGE>
AEP INDUSTRIES INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended January 31,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
NET SALES $ 58,687,000 $ 39,108,000
COST OF SALES 42,551,000 26,860,000
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Gross profit 16,136,000 12,248,000
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OPERATING EXPENSES
Delivery and Warehousing 4,397,000 3,736,000
Selling 3,344,000 2,819,000
General and Administrative 1,422,000 1,346,000
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Total operating expenses 9,163,000 7,901,000
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6,973,000 4,347,000
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OTHER INCOME (EXPENSE):
Interest expense (403,000) (343,000)
Other, net 63,000 248,000
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(340,000) (95,000)
------------ ------------
Income before provision for income taxes 6,633,000 4,252,000
PROVISION FOR INCOME TAXES 2,574,000 1,634,000
------------ ------------
Net income 4,059,000 2,618,000
Retained earnings, beginning of period 54,706,000 43,866,000
Cash dividends paid 148,000 122,000
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Retained earnings, end of period $ 58,617,000 $ 46,362,000
------------ ------------
------------ ------------
Net income per share of common stock $.55 $.36
---- ----
---- ----
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
AEP INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended January 31,
--------------------------------
1995 1994
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,059,000 $ 2,618,000
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 2,103,000 1,629,000
Provision for losses on accounts receivable 185,000 135,000
Decrease in accounts receivable 156,000 2,546,000
Increase in inventories (2,771,000) (1,610,000)
Increase in other current assets (156,000 (156,000)
Increase in other assets (17,000) (759,000)
Increase in accounts payable 3,372,000 841,000
Increase in accrued expenses 563,000 16,000
Increase in deferred federal income taxes 748,000 105,000
------------ ------------
Net cash provided by operating
activities 8,242,000 5,365,000
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CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures (6,505,000) (6,200,000)
Sales and retirements of property, plant and
equipment, net 46,000 530,000
Sale of marketable securities -- 492,000
------------ ------------
Net cash provided by (used in) investing
activities (6,459,000) (5,178,000)
------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net repayments under revolving credit facility (1,500,000) --
Net repayments on long-term debt (39,000) (40,000)
Proceeds from issuance of common stock 88,000 23,000
Payment of cash dividends (148,000) (122,000)
------------ ------------
Net cash provided by (used in) financing
activities (1,599,000) (139,000)
------------ ------------
NET INCREASE IN CASH: 184,000 48,000
CASH AT BEGINNING OF FISCAL PERIOD: 258,000 495,000
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CASH AT END OF PERIOD: $ 442,000 $ 543,000
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for - interest $ 795,000 $ 622,000
------------ ------------
- income taxes $ 9,000 $ 105,000
------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
4
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information included herein has been prepared by the
Company without audit, for filing with the Securities and Exchange
Commission pursuant to the rules and regulations of said Commission.
The financial information presented herein, while not necessarily
indicative of results to be expected for the year, reflects all
adjustments (which include only normal recurring adjustments) which in
the opinion of the Company are necessary for a fair presentation of
the results for the periods indicated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report
to Shareholders for the fiscal year ended October 31, 1994.
AEP adopted Statement of Financial Accounting Standards No. 105
"Accounting for Certain Debt and Equity Securities" during the quarter
ended January 31, 1995. Adoption of this Standard did not have a
material affect on the Company's financial position or results of
operations. Prior periods have not been restated to reflect this
Standard.
(2) NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is calculated using the weighted
average number of shares of common stock and common stock equivalents
(stock options) outstanding during each period. The number of shares
used in such computation for the three months ended January 31, 1995,
and 1994 were 7,371,628 and 7,320,217, respectively.
(3) INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
January 31, 1995 October 31, 1994
---------------- ----------------
<S> <C> <C>
Raw Materials $ 7,729,000 $ 7,699,000
Finished Goods 12,206,000 9,465,000
Supplies 534,000 534,000
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$20,469,000 $17,698,000
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----------- -----------
</TABLE>
The Company uses the last-in, first-out (LIFO) method to price
substantially all of the raw materials and finished goods inventory.
(4) SHAREHOLDER'S EQUITY
The Company's Board of Directors declared a 3-for-2 stock split effected in
the form of a dividend for shareholders of record on December 30, 1993,
effective January 11, 1994. The effect of this split has been
retroactively reflected in the financial statements and notes thereto
including all appropriate share and per share amounts.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFIT
Net sales during the first quarter ended January 31, 1995 were $58,687,000, an
increase of $19,579,000 or 50% over the same period in the prior year. This
increase in net sales is a result of a 9% increase in sales volume combined with
a 32% increase in unit selling prices.
The first quarter Fiscal 1995 gross profit increased by $3,888,000 or 32% to
$16,136,000. The gross profit margin was 28% for the three months ended
January 31, 1995 as compared to 31% for the first three months of the prior
fiscal year. The decline in gross profit margin is primarily attributed to
increased raw material costs, which were passed through to customers on a dollar
for dollar basis, but at a sacrifice to the maintenance of traditional margins.
Start-up costs associated with the Company's Midwest plant also contributed to
gross margin decline. These increased costs were partially offset by improved
plant efficiencies which resulted in reductions in per unit labor and overhead
costs. The Company increased the plants manufacturing capacity by 17% during
the fiscal quarter. The Company operated its plants at 83% of capacity in both
the current and prior year's first quarters.
OPERATING EXPENSES
Operating expenses for the three months ended January 31, 1995 increased by 16%
to $9,163,000 over the same period in the prior fiscal year. This increase of
$1,262,000 can be attributed to the 9% increase in sales volume during the
period which resulted in increased sales commissions earned and delivery charges
incurred during the period.
INTEREST EXPENSE
Interest expense for the period increased by $60,000 to $403,000 representing a
17% increase from the same period in the prior year. This increase was
attributable to a increase in the average debt outstanding during the quarter
ended January 31, 1995.
OTHER INCOME (EXPENSE)
Other income for the three months ended January 31, 1995 amounted to $63,000.
This amount includes gains on sales of machinery and equipment of $53,000 and
$10,000 of interest income earned for the period on corporate investments. In
the prior fiscal quarter ended January 31, 1994, other income amounted to
$248,000 which included gains on sales of machinery and equipment of $230,000
and interest income of $18,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital amounted to $19,506,000 at January 31, 1995, as
compared to $20,592,000 at October 31, 1994. The decrease of $1,086,000 in
working capital is attributed to the Company's investments in machinery and
equipment and reduction in long term debt. These capital expenditures were
funded by internally generated cash flow combined with a reduction in current
working capital. The remaining increases and decreases in components of the
Company's financial position reflect normal operating activity.
The Company's future capital requirements relate principally to the construction
of its new facility in Wright Township, Pennsylvania, purchasing new equipment
for this facility, upgrading existing equipment and facilities, and promoting
new and existing products in the polyethylene film market. The Company will
receive financing from the State of Pennsylvania to partially fund the
construction of the facility and believes that this borrowing combined with
internally generated cash flow plus availability of the Company's credit
facilities are sufficient to meet its normal and additional capital requirements
for the foreseeable future.
6
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Date: March 15, 1995 S/A J. Brendan Barba
--------------------------------
J. Brendan Barba
Chairman of the Board, President
and Chief Executive Officer
Date: March 15, 1995 S/A Paul M. Feeney
--------------------------------
Paul M. Feeney
Executive Vice President-Finance
Principal Financial and Accounting
Officer
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine litigation in the normal course of its
business. The proceedings are not expected to have a material adverse impact on
the Company's results of operations or financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11 - Computation of weighted average number of shares
outstanding.
(b) There were no current reports on Form 8-K filed during the quarter
ended January 31, 1995.
8
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit
-------- ----------------------
3(a) Certificate of Incorporation of the Company (incorporated by
reference to Exhibit 3(a) to Registration Statement on Form S-1
No. 33-2242)
3(b) By-Laws of the Company (incorporated by reference to Exhibit 3(b)
to Registration Statement on Form S-1 No. 33-2242)
4 Form of Note Agreement dated as of May 15, 1995 among the Company
and certain institutional lenders providing for the issuance of
the Company's 6.59% Senior Notes due May 15, 2003 (incorporated
by reference to Exhibit 4 to Registrant's Quarterly Report on
Form 10-Q for the period ended July 31, 1993)
10(a) Loan Agreement dated as of May 1, 1984 between the Company and
Waxahachie Industrial Development Authority (incorporated by
reference to Exhibit 10(g) to Registration Statement on Form S-1
No. 33-2242)
10(b) Trust Indenture dated as of May 1, 1984 between Waxahachie
Industrial Development Authority and Allied Bank of Texas
(incorporated by reference to Exhibit 10(h) to Registration
Statement on Form S-1 No. 33-2242)
10(c) Deed of Trust and Security Agreement dated as of May 1, 1984 by
the Company for the use and benefit of Allied Bank of Texas to
James H. Albert as mortgage trustee (incorporated by reference to
Exhibit 10(j) to Registration Statement on Form S-1 No. 33-2242)
10(d) Security Agreement dated May 1, 1984 between the Company and
Allied Bank of Texas (incorporated by reference to Exhibit 10(1)
to Registration Statement on Form S-1 No. 3-2242)
10(e) 1985 Stock Option Plan of the Company (incorporated by reference
to Exhibit 10(mm) to Amendment No. 2 to Registration Statement on
Form S-1 No. 33-2242)
10(f) 1985 Employee Stock Purchase Plan of the Company a amended
April 11, 1989 (incorporated by reference to Exhibit 10(aa) to
the Annual Report on Form 10-K for the year ended October 31,
1989)
10(g) The Employees Profit Sharing Retirement Plan and Trust of the
Company (incorporated by reference to Exhibit 10(g) to
Registration Statement on Form S-1 No. 33-2242)
10(i) Lease dated as of March 20, 1990 between the Company and Phillips
and Huyler Assoc., L.P
10(l) 1985 Stock Option Plan of the Company (incorporated by reference
to Exhibit 4(i) to the Amendment No. 1 to the Registration
Statement No. 33-6365)
10(m) 1985 Employee Stock Purchase Plan of the Company (incorporated by
reference to Exhibit 4(i) to the Amendment No. 1 to the
Registration Statement No. 33-6355)
10(n) Amendment to loan agreement between the Company and Mellon Bank
dated October 21, 1991 (incorporated by reference to Exhibit
10(gg) to the Annual Report on Form 10-K for the year ended
October 31, 1991)
10(o) Loan Agreement dated as of October 25, 1992 between the Company
and Chase Manhattan Bank, N.A. (incorporated by reference to
Exhibit 10hh) to the Annual Report on Form 10-K for the year
ended October 31, 1191)
9
<PAGE>
Exhibit
Number Description of Exhibit
-------- ----------------------
10(p) Amendment No. 1 to Revolving Credit Agreement and Revolving
Credit Note between the Company and Mellon Bank dated
July 31, 1994 (incorporated by reference to Exhibit 10(p) to the
Annual Report on Form 10-K for the year ended October 31, 1994)
10(q) Amendment No. 1 to Revolving Credit Agreement and Revolving
Credit Note between the Company and Chase Manhattan Bank dated
October 19, 1994 (incorporated by reference to Exhibit 10(q) to
the Annual Report on Form 10-K for the year ended October 31,
1994)
10
<PAGE>
Exhibit 11
AEP INDUSTRIES INC.
COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
For the Three Months Ended January 31, 1995
<TABLE>
<CAPTION>
Number of Days Weighted Average
Shares of Days In Number of Shares
Common Stock Outstanding Period Outstanding
------------ ----------- ------ ----------------
<S> <C> <C> <C> <C>
1995
-----------------------
November 1 - January 31 7,367,921 7,367,921
Shares Issued:
December 7 2,400 56 92 1,461
December 19 600 44 92 287
January 1 4,652 31 92 1,568
January 24 3,000 8 92 261
January 24 1,500 8 92 130
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7,380,073 7,371,628
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--------- ---------
1994
-----------------------
November 1 - January 31 7,317,014 7,317,014
Shares Issued
November 23 1,500 70 92 1,140
November 24 400 69 92 300
December 2 1,500 61 92 995
December 22 800 41 92 357
January 27 7,500 5 92 408
January 31 300 1 92 3
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7,329,014 7,320,217
--------- ---------
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</TABLE>
