<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, 1996
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
------- ------
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 February 29, 1996
--------------------- -----------------
$.01 Par Value 4,813,615
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEP INDUSTRIES INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, October 31,
1996 1995
----------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 355,000 $ 329,000
Marketable securities 1,771,000 1,718,000
Accounts receivable, less allowance of $1,556,000
in 1996 and $1,421,000 in 1995 for doubtful accounts 21,983,000 26,333,000
Inventories 20,620,000 20,021,000
Other current assets 1,122,000 972,000
Deferred federal income tax benefit 798,000 846,000
---------------- ----------------
Total current assets 46,649,000 50,219,000
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT, at cost, less
accumulated depreciation and amortization of $55,303,000
in 1996 and $52,838,000 in 1995 92,356,000 90,244,000
OTHER ASSETS 2,865,000 2,824,000
---------------- ----------------
TOTAL ASSETS $ 141,870,000 $ 143,287,000
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 4,347,000 $ 3,477,000
Accounts payable 20,415,000 27,678,000
Accrued expenses 5,172,000 4,034,000
---------------- ----------------
Total current liabilities 29,934,000 35,189,000
LONG-TERM DEBT 82,784,000 82,523,000
DEFERRED FEDERAL INCOME TAXES - LONG TERM 8,985,000 8,767,000
----------------- ---------------
Total liabilities 121,703,000 126,479,000
----------------- ---------------
SHAREHOLDERS' EQUITY:
Preferred stock -- $1.00 par value, 1,000,000 shares
authorized; none outstanding
Common stock - $.01 par value, 20,000,000 shares
authorized; 7,446,165 and 7,437,225 shares, issued
in 1996 and 1995, respectively 74,000 74,000
Additional paid-in capital 7,637,000 7,483,000
Treasury stock -- common stock; at cost, 2,633,000 shares (58,304,000) (58,304,000)
Retained earnings 70,760,000 67,555,000
---------------- ----------------
Total shareholders' equity 20,167,000 16,808,000
---------------- ----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 141,870,000 $ 143,287,000
---------------- ----------------
---------------- ----------------
</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,
---------------------------------
1996 1995
------------- ----------------
<S> <C> <C>
NET SALES $ 54,770,000 $ 58,687,000
COST OF SALES 38,535,000 42,551,000
------------- ----------------
Gross profit 16,235,000 16,136,000
------------- ----------------
OPERATING EXPENSES
Delivery and warehousing 4,355,000 4,397,000
Selling 3,372,000 3,344,000
General and administrative 1,519,000 1,422,000
------------- ----------------
Total operating expenses 9,246,000 9,163,000
------------- ----------------
OTHER INCOME (EXPENSE):
Interest expense (1,889,000) (403,000)
Other, net 112,000 63,000
------------------ ----------------
(1,777,000) (340,000)
------------------ ----------------
Income before provision for income taxes 5,212,000 6,633,000
PROVISION FOR INCOME TAXES 2,007,000 2,574,000
------------------ ----------------
Net income 3,205,000 4,059,000
Retained earnings, beginning of period 67,555,000 54,706,000
Cash dividends paid - 148,000
Retained earnings, end of period $ 70,760,000 $ 58,617,000
----------------- ----------------
----------------- ----------------
Net income per share of common stock $0.64 $0.55
----------------- ----------------
----------------- ----------------
</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,
-------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,205,000 $4,059,000
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 2,728,000 2,103,000
Provision for losses on accounts receivable 135,000 185,000
Decrease in accounts receivable 4,215,000 156,000
Increase in inventories (599,000) (2,771,000)
Increase in other current assets (150,000) (156,000)
Increase in marketable securities (53,000) -
Increase in other assets (41,000) (17,000)
(Decrease) increase in accounts payable (7,263,000) 3,372,000
Increase in accrued expenses 1,138,000 563,000
Increase in deferred federal income taxes 266,000 748,000
----------- -----------
Net cash provided by
operating activities 3,581,000 8,242,000
----------- -----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures (4,867,000) (6,505,000)
Sales and retirements of property, plant
and equipment, net 27,000 46,000
----------- -----------
Net cash used in investing activities (4,840,000) (6,459,000)
----------- -----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings (repayments) under revolving credit facility 2,000,000 (1,500,000)
Net repayments on long-term debt (869,000) (39,000)
Proceeds from issuance of common stock 154,000 88,000
Payment of cash dividends - (148,000)
----------- -----------
Net cash provided by (used
in) financing activities 1,285,000 (1,599,000)
----------- -----------
NET INCREASE IN CASH: 26,000 184,000
CASH AT BEGINNING OF PERIOD: 329,000 258,000
----------- -----------
CASH AT END OF PERIOD: $ 355,000 $ 442,000
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for - interest $1,796,000 $ 795,000
----------- -----------
Cash paid during the period for - income taxes - $ 9,000
----------- -----------
</TABLE>
The accompanying notes to financial statement 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 on Form 10-K for the fiscal
year ended October 31, 1995.
(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 (where dilutive) common stock
equivalents (stock options) outstanding during the period. The number of
shares used in such computation for the three months ended January 31,
1996, and 1995 were 4,982,367 and 7,371,628, respectively.
During 1995, the Company acquired 2,633,000 shares of its common stock, the
purchase of which has been reflected in the computation of earnings per
share on the basis of the weighted shares outstanding. Had the shares been
purchased at the beginning of Fiscal 1995 and had the debt, the proceeds
from which the purchase was made, been outstanding since that date,
earnings per share for the three months ended January 31, 1995 would have
been increased by $.10.
(3) INVENTORIES
<TABLE>
<CAPTION>
Inventories are comprised of the following:
<S> <C> <C>
January 31, 1996 October 31, 1995
------------------ ----------------
Raw Materials $ 6,938,000 $ 8,010,000
Finished Goods 13,051,000 11,380,000
Supplies 631,000 631,000
------------ ------------
$ 20,620,000 $20,021,000
------------ ------------
------------ ------------
</TABLE>
The Company uses the last-in, first-out (LIFO) method to price
substantially all of the raw materials and finished goods inventory.
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 for the first quarter ended January 31, 1996, were $54,770,000, a
decrease of $3,917,000 or 7% from the same period in the prior year. This
decrease in net sales is the result of a 16% reduction in unit selling prices
partially offset by a 12% increase in sales volume.
Gross profit for the first quarter of Fiscal 1996 amounted to $16,235,000
compared to $16,136,000 for the first quarter of Fiscal 1995. The increased
gross profit resulted from manufacturing cost efficiencies caused by increased
volume, partially offset by reductions in material margins and the absorption of
increased costs resulting from the relocation of the Company's New Jersey
manufacturing operations to Wright Township, Pennsylvania. The Company
increased its overall plant capacity by 29% from the 1995 first quarter. Plant
utilization was 72% during the current quarter.
OPERATING EXPENSES
Operating expenses for the three months ended January 31, 1996 increased by 1%
to $9,246,000 over the same period in the prior fiscal year. This increase of
$83,000 can be attributed to the 12% increase in sales volume during the period
which resulted in increased selling costs partially offset by a reduction in per
unit delivery charges incurred during the period. The increased general and
administrative expenses for the current period were a result of the amortization
of loan fees attributable to the Company's new credit facilities entered into in
Fiscal 1995.
INTEREST EXPENSE
Interest expense for the three months ended January 31, 1996, amounted to
$1,889,000, an increase of $1,486,000 from the same period in the prior year.
This increase in interest expense is due to the Company's new credit facility,
which replaced existing credit facilities and was used to finance the purchase
of shares of Common Stock for its treasury from its stockholders and its Chief
Executive Officer. These purchases were completed during the fourth quarter of
Fiscal 1995.
OTHER INCOME (EXPENSE)
Other income for the three months ended January 31, 1996, amounted to $112,000.
This amount includes gains on sales of machinery and equipment and interest
income earned for the period on corporate investments.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital amounted to $16,715,000 at January 31, 1996,
compared to $15,030,000 at October 31, 1995. This increase of $1,685,000 in
working capital is primarily attributable to the reduction in accounts payable
which was funded by internally generated cash flow and increased long-term debt.
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 completing
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 14, 1996 S/A J. Brendan Barba
-------------------------------
J. Brendan Barba
Chairman of the Board, President
and Chief Executive Officer
Date: March 14, 1996 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. Page 9.
(b) There were no current reports on Form 8-K filed during the quarter
ended January 31, 1996.
INDEX TO EXHIBITS
Exhibit
NUMBER DESCRIPTION OF EXHIBIT
3(a)(1) Composite Certificate of Incorporation of the Company as amended
through May 3, 1995
3(a)(2) Amendment to the Certificate of Incorporation of the Company as
filed May 3, 1995
3(b) By-Laws of the Company (incorporated by reference to Exhibit 3(b)
to Registration Statement on Form S-1 No. 33-2242)
10(a) 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(b) 1985 Employee Stock Purchase Plan of the Company as 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(c) The Employee Profit Sharing and 401(k) Retirement Plan and Trust
as adopted March 3, 1993 (incorporated by reference to Exhibit
10(g) to Registrant's Quarterly Report on Form 10-Q for the
period ended January 31, 1993)
10(d) Lease dated as of March 20, 1990 between the Company and Phillips
and Huyler Assoc., L.P. (incorporated by reference to Exhibit
10(aa) to the October 31, 1990 Form 10-K)
10(e) 1995 Stock Option Plan of the Company (incorporated by reference
to Exhibit 4 to the Registration Statement No. 33-58747 on Form
S-8)
10(f) 1995 Employee Stock Purchase Plan of the Company (incorporated by
reference to Exhibit 4 to the Registration Statement no. 33-58743
on Form S-8)
10(g) Tender Offer to Purchase, dated as of August 10, 1995,
(incorporated by reference to Exhibit (a)(1) as filed on August
10, 1995 with Schedule 13E-4)
10(h) Stock Purchase Agreement, dates as of August 2, 1995 between the
Company and J. Brendan Barba (incorporated by reference to
Exhibit (c) as filed on August 10, 1995 with Schedule 13E-4)
10(i) Credit Agreement, dated as of August 3, 1995, among the Company,
The Chase Manhattan Bank (National Association), as
Administrative Agent and Mellon Bank, N.A., as Documentation
Agent and the lenders party thereto (incorporated by reference to
Exhibit (b) as filed on August 10, 1995 with Schedule 13E-4)
8
<PAGE>
Exhibit 11
AEP INDUSTRIES INC.
COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
For the Three Months Ended January 31
<TABLE>
<CAPTION>
Number of Days Weighted Average Dilutive
Shares of Days In Number of Shares Stock Total
Common Stock Outstanding Period Outstanding Options Shares
1996 ------------ ----------- ------- ---------------- --------- ------------
- -----------------------
<S> <C> <C> <C> <C> <C> <C>
November 1 - January 31 4,804,225 4,804,225 174,815 4,979,040
Shares Issued:
November 14 450 79 92 386 - 386
December 31 8,265 32 92 2,875 - 2,875
January 5 225 27 92 66 - 66
------------ --------------- --------- ------------
4,813,165 4,807,552 174,815 4,982,367
------------ --------------- --------- ------------
------------ --------------- --------- ------------
1995
- -----------------------
November 1 - January 31 7,367,921 7,367,921 - 7,367,921
Shares Issued:
December 7 2,400 56 92 1,461 - 1,461
December 19 600 44 92 287 - 287
January 1 4,652 31 92 1,568 - 1,568
January 24 3,000 8 92 261 - 261
January 24 1,500 8 92 130 - 130
-------------- --------------- --------- ------------
7,380,073 7,371,628 - 7,371,628
-------------- --------------- --------- ------------
-------------- --------------- --------- ------------
</TABLE>
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AEP
INDUSTRIES INC. FORM 10-Q FOR THE THREE MONTHS ENDED JAN-31-1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 355
<SECURITIES> 1,771
<RECEIVABLES> 23,540
<ALLOWANCES> 1,557
<INVENTORY> 20,620
<CURRENT-ASSETS> 46,649
<PP&E> 147,659
<DEPRECIATION> 55,303
<TOTAL-ASSETS> 141,870
<CURRENT-LIABILITIES> 29,934
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 20,093
<TOTAL-LIABILITY-AND-EQUITY> 141,870
<SALES> 54,770
<TOTAL-REVENUES> 54,882
<CGS> 38,535
<TOTAL-COSTS> 38,535
<OTHER-EXPENSES> 9,111
<LOSS-PROVISION> 135
<INTEREST-EXPENSE> 1,889
<INCOME-PRETAX> 5,212
<INCOME-TAX> 2,007
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,205
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
