<PAGE>
AMENDMENT 1
FORM 10-K/405A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended October 31, 1995
--------------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
------------------- -----------------------
Commission file number 0-14550
----------------------------------------------------
AEP INDUSTRIES INC.
--------------------
(Exact name of registrant as specified in its charter)
Delaware 22-1916107
- -------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
125 Phillips Avenue
South Hackensack, New Jersey 07606-1546
- ---------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (201) 641-6600
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $.01 par value NASDAQ
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 requirement for
the past 90 days. Yes X 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. [ X ]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the Registrant was approximately $70,000,000 based upon the
average of the bid and asked prices of the stock, which was $22.00 on December
29, 1995.
The number of shares of the Registrant's $.01 par value common stock outstanding
as of December 29, 1995, was 4,804,675.
---------
1
<PAGE>
In September 1995, AEP completed a Self-Tender Offer (the "Offer") and purchased
1,083,000 shares of Common Stock for a cash purchase price of $22.75 per share.
Pursuant to the Barba Purchase Agreement, none of the shares beneficially owned
by him or any of his affiliates or over which he otherwise exercises dispositive
power were tendered and sold to the Company pursuant to the Offer. The
Company's other directors and executive officers did not tender shares owned by
them pursuant to the Offer. After giving effect to the consummation of the
Barba Purchase and the repurchase of shares by the Company pursuant to the
Offer, Mr. Barba owns beneficially approximately 32% of the outstanding shares.
Shares acquired by AEP pursuant to the Offer and the Barba Purchase are being
held in the Company's treasury and will be available for the Company to issue
without further stockholder action (except as required by applicable law or the
rules of the NNM on which the shares are traded). Shares could be issued for
such purposes as, among others, the acquisition of businesses, the raising of
additional capital for use in the Company's business, the distribution of stock
dividends and the implementation of employee benefit plans. Specifically the
Board of Directors of the Company has authorized the establishment of an
employee stock ownership plan (the "ESOP") which is being implemented effective
January 1, 1996. Shares acquired by AEP pursuant to the Barba Purchase and the
Offer may over time, subject to the determination of the Board as to the
appropriate level of considerations, be contributed by the Company to the ESOP.
The purpose of the ESOP is to attract and retain key employees of the Company,
to encourage an ownership commitment by those employees and to motivate such
persons by providing incentives for the successful implementation of the
Company's strategic plans.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended October 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement
Data:
Net sales $242,886 $184,669 $153,307 $142,621 $133,448
Operating profit $ 25,224 $ 19,734 $ 14,277 $ 6,660 $ 8,085
Income before
extraordinary
item and
provision for
income taxes $ 22,399 $ 18,801 $ 11,906 $ 5,236 $ 6,038
Income before
extraordinary
item $ 13,676 $ 11,404 $ 7,334 $ 3,577 $ 3,505
Net income $ 13,486 $ 11,404 $ 6,880 $ 3,577 $ 3,505
Net income per
common share
before extra-
ordinary item(a) $1.99 $1.55 $1.01 $0.49 $0.49
Net income per
common share(a) $1.96 $1.55 $0.95 $0.49 $0.49
Dividends declared
and paid per
common share(a) $0.10 $0.08 $0.03 - -
Balance Sheet
Data:
Total assets $143,287 $118,496 $ 88,992 $ 84,393 $ 79,298
Long-term debt $ 82,523 $ 23,500 $ 20,095 $ 17,612 $ 18,426
Shareholder's
Equity $ 16,808 $ 61,789 $ 50,616 $ 43,734 $ 39,985
</TABLE>
10
<PAGE>
(a) All fiscal years prior to 1994 have been restated to give effect to a
3-for-2 stock split in the form of a dividend declared by the Company's
Board of Directors in December 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFIT
Net sales for the fiscal year ended October 31, 1995 ("Fiscal 1995") increased
by $58,217,000 or 32% to $242,886,000 over the Company's fiscal year ended
October 31, 1994 ("Fiscal 1994"). The increase was primarily attributable to a
27% increase in average selling prices combined with a 4% increase in sales
volume. The Company's net sales for Fiscal 1994 were $184,669,000 as compared
to $153,307,000 for the fiscal year ended October 31, 1993 ("Fiscal 1993"), an
increase of $31,362,000 or 20%. The increase in sales for Fiscal 1994 was
primarily the result of a 21% increase in sales volume partially offset by a
decline in average selling prices of less than 1%. Net sales of $153,307,000
for Fiscal 1993 were $10,686,000 or 8% higher than the fiscal year ended
October 31, 1992 ("Fiscal 1992") largely due to a 5% increase in volume combined
with a 2% increase in average selling prices.
Fiscal 1995 gross profit was $60,373,000, an increase of 12% or $6,306,000. The
increase in gross profit resulted from volume increases and higher selling
prices per unit offset by start-up costs associated with the implementation of
new production lines in the Company's Midwest facility and a provision of
$740,000 related to the 1996 relocation of the Company's New Jersey
manufacturing facility to Pennsylvania. Gross profit for Fiscal 1994 was
$54,068,000, an increase of $10,229,000 over that of Fiscal 1993. This increase
in gross profit over Fiscal 1993 can be directly attributed to reduced per unit
manufacturing expenses resulting from increased volume. Fiscal 1993 gross
profit increased by $7,702,000 over the prior year to $43,839,000 or 29% of net
sales. The increase in gross profit over Fiscal 1992 results from a reduction
in per unit manufacturing expenses, resulting from volume increases, and
increased selling prices.
OPERATING EXPENSES
The Company's Fiscal 1995 operating expenses totaled $35,149,000, an increase of
2% or $815,000 over Fiscal 1994. This increase in operating expenses can be
directly attributed to the Company's 4% increase in sales volume over the prior
year which increased selling expenses. These increased costs were offset by a
reduction in per unit delivery costs during the year, which can be attributed to
the opening of the Company's Midwest plant. Fiscal 1994 operating expenses
increased 16% or $4,772,000 over Fiscal 1993 to $34,334,000. This overall
increase was attributable to increased shipping costs as a result of a 21%
increase in sales volume and increased selling expenses which are also related
to the volume increase. Operating expenses for Fiscal 1993 were $29,562,000, an
increase of $85,000 over Fiscal 1992 or less than 1%. Selling and delivery and
warehousing costs increased in Fiscal 1993 by 2% and 3% respectively; this
increase was attributable to increases in sales volume and was partially offset
by a decrease in personnel costs and by an 8% decrease in general and
administrative expenses.
11
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INTEREST EXPENSE
Fiscal 1995 interest expense amounted to $3,209,000, an increase of $1,753,000
from Fiscal 1994. This increase in interest expense is due to the Company's new
credit facilities, which replaces its 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. The Company's Fiscal 1994 interest
expense decreased by $441,000 to $1,456,000, representing a 23% decrease from
Fiscal 1993. This decrease was attributable to the decrease in average debt
outstanding during the major portion of Fiscal 1994 as well as the full impact
of the reduced interest rates on the Company's senior notes which were placed in
May 1993. Interest expense increased by 3% or $61,000 in Fiscal 1993 to
$1,897,000. This increase over Fiscal 1992 was the result of an increase in
average debt outstanding partially offset by lower interest rates.
OTHER INCOME (EXPENSE)
Other income for Fiscal 1995 totaled $384,000 which included interest and
dividend income of $213,000 and gain on sales of machinery and equipment of
$109,000. In Fiscal 1994 the Company's other income of $523,000 was primarily
attributable to the sale of certain fixed assets at a gain of $355,000. Other
income and expense for Fiscal 1993 included foreign currency losses both
realized and unrealized in the amount of $397,000. These losses were incurred
as a result of the decrease in valuation of the U.S. Dollar versus other foreign
currencies. These losses were partially offset by gains on sales of machinery
and equipment.
NET INCOME
The Company's net income increased in Fiscal 1995 by 18% or $2,082,000 to
$13,486,000. This increase over Fiscal 1994 was a result of the improvement in
gross profit due to increased sales volume and a nominal increase in operating
expenses. This improvement was partially offset by an extraordinary net of tax
charge of $190,000 associated with the prepayment penalty paid when the Company
prepaid its 6.59% Senior Notes. In Fiscal 1994 the Company's net income
increased from Fiscal 1993 net income by $4,524,000 or 66% to $11,404,000. This
increase in net income can be attributed to increased sales volume in most of
the Company's lines of business, reductions in per unit manufacturing costs,
reduced financing costs and continued control over operating expenses. Net
income for Fiscal 1993 increased by $3,303,000 to $6,880,000 from Fiscal 1992
net income of $3,577,000. This 92% increase in net income primarily resulted
from the previously mentioned improvement in gross profit resulting from
increases in sales volume and selling prices combined with reductions in
manufacturing costs. The improvement in net income was partially offset by an
extraordinary net of tax charge of $454,000 associated with the prepayment
penalty paid when the Company refinanced its 10.65% Senior Notes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital amounted to $15,030,000 at October 31, 1995 as
compared with $20,592,000 at October 31, 1994. This decrease of $5,562,000 in
working capital in Fiscal 1995 as compared to Fiscal 1994 is primarily
attributable to an increase in accounts payable for capital expenditures and
inventory on hand combined with the increased portion of long term debt payable
during the fiscal year ending October 31, 1996.
In August, 1995, the Company entered into a Credit Agreement (the "Agreement")
with a consortium of banks. The Agreement provided the Company with two credit
facilities consisting of a term credit facility in the amount of $92,964,000 and
a revolving credit facility for an amount up to $30,000,000. The proceeds
12
<PAGE>
borrowed under the long-term credit facility were used to redeem, with penalty,
the 6.59% Senior Notes due in 2003, pay revolving credit obligations, and
finance the shares acquired by the Company pursuant to the completed Self-Tender
Offer and Barba Purchase Agreement.
As of October 31, 1995, there was $85,000,000 and $1,000,000 outstanding under
the term and revolving credit facilities, respectively.
In Fiscal 1995 the Company's cash and cash equivalents increased by $71,000.
Cash flow from operating activities of $22,590,000 was offset by funds used in
investing activities, primarily capital expenditures which amounted to
$28,402,000. Cash flow from financing activities included $92,964,000 in funds
received from the aforementioned new Credit Agreement. These funds were used
primarily to repay existing long-term debt of $28,059,000 and purchase
$58,304,000 in shares of Common Stock for the treasury.
The remaining increases and decreases in the components of the Company's
financial position reflect normal operating activity.
The Company's future capital requirements relate principally to completing
construction costs of its new facility in Wright Township, Pennsylvania,
purchasing new equipment for this facility, upgrading old equipment and
facilities, and promoting new and existing products in the polyethylene film
market. Upon completion of the construction of the Pennsylvania facility, the
Company will receive financing from the State of Pennsylvania to partially fund
the construction of the facility which will reimburse the Company for funds
disbursed in Fiscal 1995. The Company believes that internally generated cash
flow combined with availability under the Company's credit facilities discussed
above are sufficient to meet its additional capital requirements for the
foreseeable future.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") establishes permissible methods for valuing
compensation attributable to stock options and is effective for the fiscal year
beginning November 1, 1996. The Company does not expect that the adoption of
this standard will have a material effect on its financial position or results
of operations.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121") establishes accounting and reporting standards for long-lived
assets is effective for the fiscal year beginning November 1, 1996. The Company
does not expect that the adoption of this standard will have a material effect
on its financial position or results of operations.
Inflation is not expected to have significant impact on the Company's business.
13
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index:
Report of Independent Public Accountants
Financial Statements:
Balance Sheets as of October 31, 1995 and 1994
Statements of Income -- For the years ended
October 31, 1995, 1994 and 1993
Statements of Shareholders' Equity -- For the years
ended October 31, 1995, 1994 and 1993
Statements of Cash Flows -- For the years ended
October 31, 1995, 1994 and 1993
Notes to Financial Statements
Financial Statement Schedules:
Schedules included are set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business - Executive
Officers of the Company" of Part I hereof and the table and text under the
caption "Name of Nominee and Certain Biographical Information" in the Proxy
Statement to be filed with respect to the Annual Meeting of Shareholders to be
held on April 9, 1996 (the "Proxy Statement"), which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning this item, see the text and table under the caption
"Compensation of Executive Officers" in the Proxy Statement, which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this item, see the table and text under the caption
"Information Concerning Certain Shareholders" in the Proxy Statement, which
information in incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see the text under the caption "Other
Information Concerning Directors, Officers and Shareholders" in the Proxy
Statement, which information is incorporated herein by reference.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AEP Industries Inc.:
We have audited the accompanying balance sheets of AEP Industries Inc. (a
Delaware corporation) as of October 31, 1995 and 1994, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended October 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AEP Industries Inc. as of
October 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended October 31, 1995 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements schedules is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
December 15, 1995
-16-
<PAGE>
AEP INDUSTRIES INC.
BALANCE SHEETS AS OF OCTOBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS (Note 6) 1995 1994
- ------ -------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $329,000 $258,000
Marketable securities (Note 2) 1,718,000 3,643,000
Accounts receivable, less allowance of
$1,421,000 in 1995 and $1,498,000
in 1994 for doubtful accounts 26,333,000 24,083,000
Inventories (Note 3) 20,021,000 17,698,000
Deferred income taxes (Note 8) 846,000 549,000
Other current assets 972,000 288,000
-------------- --------------
Total current assets 50,219,000 46,519,000
PROPERTY, PLANT AND EQUIPMENT, at
cost, less accumulated depreciation
and amortization (Notes 2, 4 and 6) 90,244,000 71,684,000
OTHER ASSETS 2,824,000 293,000
-------------- --------------
Total assets $143,287,000 $118,496,000
-------------- --------------
-------------- --------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ -------------- --------------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 6) $3,477,000 $95,000
Accounts payable 27,678,000 21,631,000
Accrued expenses (Notes 2 and 5) 4,034,000 4,201,000
-------------- --------------
Total current liabilities 35,189,000 25,927,000
LONG-TERM DEBT (Note 6) 82,523,000 23,500,000
DEFERRED INCOME TAXES (Note 8) 8,767,000 7,280,000
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
SHAREHOLDERS' EQUITY (Notes 6 and 7):
Preferred stock -- $1.00 par value; 1,000,000
shares authorized; none issued 0 0
Common stock -- $.01 par value; 20,000,000
and 8,000,000 shares authorized in 1995
and 1994, respectively; 7,437,225 and
7,367,921 shares, issued in 1995 and 1994,
respectively 74,000 74,000
Additional paid-in capital 7,483,000 7,009,000
Treasury stock -- common stock; at cost,
2,633,000 shares in 1995 (58,304,000) 0
Retained earnings 67,555,000 54,706,000
-------------- --------------
Total shareholders' equity 16,808,000 61,789,000
-------------- --------------
Total liabilities and shareholders'
equity $143,287,000 $118,496,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
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<PAGE>
AEP INDUSTRIES INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
NET SALES $242,886,000 $184,669,000 $153,307,000
COST OF SALES 182,513,000 130,601,000 109,468,000
-------------- -------------- --------------
Gross profit 60,373,000 54,068,000 43,839,000
OPERATING EXPENSES (Notes
2, 5 and 9):
Delivery and warehousing 16,666,000 16,722,000 12,623,000
Selling 12,940,000 11,981,000 11,002,000
General and administrative 5,543,000 5,631,000 5,937,000
-------------- -------------- --------------
Total operating expenses 35,149,000 34,334,000 29,562,000
-------------- -------------- --------------
Income from operations 25,224,000 19,734,000 14,277,000
OTHER INCOME (EXPENSE):
Interest expense (Note 6) (3,209,000) (1,456,000) (1,897,000)
Other, net 384,000 523,000 (474,000)
-------------- -------------- --------------
(2,825,000) (933,000) (2,371,000)
-------------- -------------- --------------
Income before
extraordinary item
and provision for
income taxes 22,399,000 18,801,000 11,906,000
-------------- -------------- --------------
PROVISION FOR INCOME TAXES
(Note 8) 8,723,000 7,397,000 4,572,000
-------------- -------------- --------------
Income before
extraordinary item 13,676,000 11,404,000 7,334,000
EXTRAORDINARY ITEM, net of
income tax benefit of
$120,000 and $285,000 in
1995 and 1993, respectively
(Note 6) (190,000) 0 (454,000)
-------------- -------------- --------------
Net income $13,486,000 $11,404,000 $6,880,000
-------------- -------------- --------------
-------------- -------------- --------------
INCOME PER SHARE OF COMMON
STOCK (Notes 2, 6 and 7):
Before extraordinary item $1.99 $1.55 $1.01
Extraordinary item (.03) 0 (.06)
-------------- -------------- --------------
Net income $1.96 $1.55 $.95
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
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<PAGE>
AEP INDUSTRIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
Common Stock
(Note 7) Treasury Stock Additional
-------------------------- ---------------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCES AT OCTOBER 31, 1992 4,837,252 $48,000 0 $0 $6,433,000 $37,253,000
Issuance of common stock upon
exercise of stock options (Note 7) 27,500 1,000 0 0 114,0000
Issuance of common stock pursuant
to stock purchase plan (Note 7) 13,257 0 0 0 130,000 0
Net income 0 0 0 0 0 6,880,000
Cash dividends 0 0 0 0 0 (243,000)
Stock split (Note 7) 2,439,005 24,000 0 0 0 (24,000)
------------ ------------ ------------ ------------ ------------ ------------
BALANCES AT OCTOBER 31, 1993 7,317,014 73,000 0 0 6,677,000 43,866,000
Issuance of common stock upon
exercise of stock options (Note 7) 39,050 1,000 0 0 215,000 0
Issuance of common stock pursuant
to stock purchase plan (Note 7) 11,888 0 0 0 117,000 0
Net income 0 0 0 0 0 11,404,000
Cash dividends 0 0 0 0 0 (564,000)
Stock split (fractional shares
not issued) (31) 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ ------------
BALANCES AT OCTOBER 31, 1994 7,367,921 74,000 0 0 7,009,000 54,706,000
Issuance of common stock upon
exercise of stock options (Note 7) 62,175 0 0 0 470,0000
Issuance of common stock pursuant
to stock purchase plan (Note 7) 9,845 0 0 0 66,0000
Net income 0 0 0 0 0 13,486,000
Cash dividends 0 0 0 0 0 (637,000)
Purchase of treasury stock (Notes 2 and 7) 0 0 2,633,000 (58,304,000) 0 0
Other (2,716) 0 0 0 (62,000) 0
------------ ------------ ------------ ------------ ------------ ------------
BALANCES AT OCTOBER 31, 1995 7,437,225 $74,000 2,633,000 ($58,304,000) $7,483,000 $67,555,000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of
these statements.
-19-
<PAGE>
AEP INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13,486,000 $11,404,000 $6,880,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 9,822,000 8,280,000 6,875,000
Provision for losses on accounts receivable 500,000 865,000 1,181,000
Increase in accounts receivable (2,750,000) (6,016,000) (280,000)
Increase in inventories (2,323,000) (5,432,000) (257,000)
(Increase) decrease in other current assets (684,000) 149,000 475,000
(Increase) decrease in other assets (2,531,000) 22,000 375,000
Increase (decrease) in accounts payable 6,047,000 12,071,000 (4,457,000)
(Decrease) increase in accrued expenses (167,000) 1,088,000 813,000
Increase in deferred income taxes 1,190,000 1,282,000 1,021,000
------------ ------------ ------------
Net cash provided by operating
activities 22,590,000 23,713,000 12,626,000
------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (28,402,000) (28,007,000) (9,319,000)
Sales and retirements of property,
plant and equipment, net 20,000 586,000 524,000
Purchases of marketable securities 0 (4,483,000) (4,005,000)
Sales of marketable securities 1,925,000 4,845,000 0
------------ ------------ ------------
Net cash used in investing activities (26,457,000) (27,059,000) (12,800,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
long-term credit facilities (2,500,000) 3,500,000 (4,500,000)
Issuance of long-term debt 92,964,000 0 20,000,000
Net repayments on long-term debt (28,059,000) (159,000) (15,160,000)
Proceeds from issuance of common stock 474,000 332,000 245,000
Purchase of treasury stock (58,304,000) 0 0
Payment of cash dividends (637,000) (564,000) (243,000)
------------ ------------ ------------
Net cash provided by financing
activities 3,938,000 3,109,000 342,000
------------ ------------ ------------
Net increase (decrease) in cash 71,000 (237,000) 168,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 258,000 495,000 327,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR $329,000 $258,000 $495,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
-20-
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $3,273,000 $1,526,000 $1,880,000
Income taxes 7,101,000 6,283,000 2,705,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
-21-
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
AEP Industries Inc. ("the Company") is a manufacturer of a wide range of
plastic film products. The Company's products are used in a number of
industrial, commercial and agricultural applications and are sold
throughout the United States and in a limited number of foreign
countries.
(2) SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and 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. Actual results could differ from those
estimates.
PROPERTY, PLANT AND EQUIPMENT-
Property, plant and equipment are stated at cost. Depreciation and
amortization are computed using primarily the straight-line method over
the estimated useful lives of the assets. The cost of property, 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. The cost of maintenance and repairs is charged to expense
as incurred.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS 121"), establishes accounting and reporting standards for
long-lived assets and is effective for the fiscal year beginning
November 1, 1996. The Company does not expect that adoption of this
standard will have a material effect on its financial position or
results of operations.
CASH FLOWS-
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES-
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," ("SFAS 115") which
became effective November 1, 1994, requires that the Company carry its
short-term investments at market value. Investments classified as
held-to-maturity securities are carried at amortized cost in the balance
sheet. The cumulative effect as of November 1, 1994 of adopting SFAS
115 was immaterial.
-22-
<PAGE>
Gains and losses on investment transactions are recognized when realized
based on settlement dates. Dividends are recorded in income based on
payment dates. Interest is recognized when earned.
RESEARCH AND DEVELOPMENT COSTS-
Research and development costs are charged to expense as incurred.
Approximately $698,000, $374,000 and $331,000 for 1995, 1994 and 1993,
respectively, was incurred for such research and development.
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 (options) outstanding during the period. The number
of shares used in the per share computations was 6,883,306 in 1995,
7,347,341 in 1994, and 7,286,250 in 1993 (see Note 7).
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 1995 would have been increased by
$.30.
ACCRUED EXPENSES-
At October 31, 1995 and 1994 accrued expenses consisted of the
following-
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Payroll and employee benefits $1,780,000 $1,912,000
Interest 633,000 697,000
Other 1,621,000 1,592,000
------------ ------------
$4,034,000 $4,201,000
------------ ------------
------------ ------------
</TABLE>
(3) INVENTORIES:
Inventories, stated at the lower of cost (generally last-in, first-out
method) or market, include material, labor and manufacturing overhead
costs and are comprised of the following-
<TABLE>
<CAPTION>
October 31
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Raw materials $8,010,000 $7,699,000
Finished goods 11,380,000 9,465,000
Supplies 631,000 534,000
------------ ------------
$20,021,000 $17,698,000
------------ ------------
------------ ------------
</TABLE>
The Company uses the last-in, first-out (LIFO) method to price
substantially all raw materials and finished goods inventory. Supplies
are priced using the first-in, first-out (FIFO) method.
-23-
<PAGE>
Inventories would have been increased by $2,320,000 and $2,095,000 at
October 31, 1995 and 1994, respectively, if the FIFO method had been
used. Due to the Company's continuous manufacturing process, there is
no significant work in process at any point in time.
(4) PROPERTY, PLANT AND EQUIPMENT:
A summary of the components of property, plant and equipment and their
estimated useful lives is as follows-
<TABLE>
<CAPTION>
October 31
-------------------------- Estimated
1995 1994 Useful Lives
------------ ------------ ------------------
<S> <C> <C> <C>
Land $3,017,000 $2,580,000
Building 20,246,000 18,384,000 15 to 31.5 years
Machinery and equipment 95,631,000 77,948,000 3 to 9 years
Furniture and fixtures 3,954,000 3,404,000 9 years
Leasehold improvements 1,896,000 1,896,000 6 to 25 years
Construction in progress 18,338,000 11,325,000
------------ ------------
143,082,000 115,537,000
Less- Accumulated
depreciation and
amortization 52,838,000 43,853,000
------------ ------------
$90,244,000 $71,684,000
------------ ------------
------------ ------------
</TABLE>
Maintenance and repairs expense was $2,283,000, $2,045,000 and
$1,483,000 for the years ended October 31, 1995, 1994 and 1993,
respectively.
(5) DEFINED CONTRIBUTION PLAN:
Effective January 1, 1993, the Company's profit sharing plan was merged
into a new 401(k) savings plan for all eligible employees, as defined,
other than the union employees at its California plant. Under the
401(k) savings plan, the Company matches 25% of eligible employee
contributions up to 6% of compensation. Costs charged to expense
relating to this plan were $166,000, $170,000 and $122,000 for the years
ended October 31, 1995, 1994 and 1993, respectively.
(6) LONG-TERM DEBT:
A summary of the components of long-term debt is as follows-
<TABLE>
<CAPTION>
October 31
---------------------------
1995 1994
------------- -------------
<S> <C> <C>
Term loan facility (a) $85,000,000 $0
Revolving credit facility (a) 1,000,000 0
Senior notes (a) (b) 0 20,000,000
Long-term credit facilities (a) 0 3,500,000
Revenue Bonds 0 90,000
Other 0 5,000
------------- -------------
86,000,000 23,595,000
Less- Current portion 3,477,000 95,000
------------- -------------
$82,523,000 $23,500,000
------------- -------------
------------- -------------
</TABLE>
-24-
<PAGE>
(a) In August 1995, the Company entered into a long-term credit facility
agreement with a consortium of banks. The agreement provides the
Company with two credit facilities consisting of (1) a seven-year
amortizing term loan in the amount of $92,964,000 with the first
quarterly installment due in January 1996 and (2) a three year
revolving credit facility in an amount up to $30,000,000 maturing in
July 1998. The interest rates under the term loan facility and the
revolving credit facility will be, at the option of the Company, at
the prime rate or London Interbank Offered Rate, plus defined basis
points. During the fourth fiscal quarter of 1995 the Company
prepaid $7,964,000 of the term loan principal and as of October 31,
1995 there was $85,000,000 ($80,000,000 at an effective interest
rate of 8.38% and $5,000,000 at an effective interest rate of 10.0%)
and $1,000,000 (at an effective interest rate of 10.0%) outstanding
under the term loan and revolving credit facilities, respectively.
The proceeds borrowed under the credit facility were used to repay
and retire the $20,000,000 outstanding principal, accrued interest
and prepayment penalties on the 6.59% senior notes due May 2003 and
outstanding balances under the long-term revolving credit agreements
the Company entered into during 1993. The prepayment penalties
resulted in an extraordinary charge of $190,000 (net of income tax
benefit of $120,000). The remaining balance of the proceeds
borrowed were used to acquire 2,633,000 shares of the Company's
common stock in August and September 1995 (see Note 7). The new
credit facilities contain certain customary representations
warranties, covenants and conditions such as, but not limited to,
interest coverage ratio, fixed charge ratio, maintenance of minimum
tangible net worth levels and dividend limitations. Under the most
restrictive provisions of these agreements for any fiscal year
commencing after October 31, 1995 the Company may not declare and
make dividend payments in cash in excess of $750,000. Under the
terms of the credit facility, all the assets of the Company are
pledged as collateral.
(b) In May 1993, the Company issued $20,000,000 of 6.59% senior notes
due May 15, 2003. The proceeds were used to prepay the entire
principal balance with accrued interest and prepayment penalties of
the 10.65% notes issued May 1989. The prepayment penalty resulted
in an extraordinary charge of $454,000 (net of income tax benefit of
$285,000) as reflected in the 1993 results.
Payments required on long-term debt during each of the next five years
are as follows-
1996 $3,477,000
1997 6,955,000
1998 12,205,000
1999 13,136,000
2000 14,682,000
Thereafter 35,545,000
------------
------------
(7) SHAREHOLDERS' EQUITY:
In August 1995, the Company executed a stock purchase agreement with J.
Brendan Barba, the Chairman of the Board, President and Chief Executive
Officer of the Company under which the Company purchased and placed into
treasury 1,550,000 shares of the Company's stock owned by Mr. Barba at
$21.04 per share. Pursuant to a Self Tender offering made in August
1995 to its shareholders, the Company purchased and placed into treasury
1,083,000 shares of the Company's stock at $22.75 per share. Both
purchases of treasury stock were accounted for under the cost method.
-25-
<PAGE>
In December 1993, the Company's Board of Directors authorized a 50%
stock split effected in the form of a dividend for shareholders of
record as of December 30, 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.
The Company's Board of Directors may direct the issuance of the
Company's $1.00 par value Preferred Stock in series and may, at the time
of issuance, determine the rights, preferences and limitations of each
series.
In April 1995, the Board of Directors and the Shareholders of the
Company approved and adopted the Company's 1995 Stock Option Plan and
the 1995 Employee Stock Purchase Plan.
The 1995 Stock Option Plan ("1995 Option Plan") has reserved 500,000
shares of Common Stock for the granting of options to key employees of
the Company, including directors and officers. The 1995 Option Plan
became effective January 1, 1995, and will terminate December 31, 2004.
The 1995 Option Plan, provides for the grant of incentive stock options
which may be exercised over a period of ten years, issuance of SARS,
restricted stock, performance shares and fixed annual grants of
nonqualified stock options to nonemployee directors. The options
granted to outside directors are exercisable over ten years from date of
grant and in no event can the option price be lower than the fair market
value of the common stock at the date of grant. The Stock Option
Committee is made up of entirely outside directors who will administer
the 1995 Option Plan and will receive a fixed annual grant of 1,000
options. As of October 31, 1995, 498,000 options are available for
grant.
The 1995 Employee Stock Purchase Plan ("1995 Purchase Plan") became
effective July 1, 1995 and will terminate June 30, 2005. The 1995
Purchase Plan has an aggregate of 300,000 shares of Common Stock which
has been 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 1995 Purchase Plan will be 85% of the lower of
the last sales price per share of Common Stock in the over-the-counter
market on either the first or last day of each six-month offering
period. As of October 31, 1995, no shares had been issued under the
1995 Purchase Plan.
In November 1985, the Board of Directors and the shareholders of the
Company adopted the Company's 1985 Stock Option Plan (the "1985 Option
Plan") and 1985 Employee Stock Purchase Plan (the "1985 Purchase Plan").
Under the 1985 Option Plan, 772,500 options have been granted to key
employees of the Company, including directors and officers of which
265,500 have been exercised and 507,000 are outstanding. The 1985
Option Plan expired on October 31, 1995.
Under the 1985 Purchase Plan, an aggregate of 187,500 shares of common
stock has been made available for purchase through December 31, 1995.
As of October 31, 1995, 129,218 shares had been issued under the
Purchase Plan and 48,437 shares are available for purchase through
December 31, 1995.
-26-
<PAGE>
Transactions under the Option Plans are as follows-
<TABLE>
<CAPTION>
Option
Number Price
of Shares Per Share
----------- ------------
<S> <C> <C>
Outstanding at October 31, 1993 286,125 $2.22-11.33
Granted 76,500 18.13-18.75
Exercised (39,050) 2.22-9.83
Terminated (2,850) 8.17-9.83
----------- ------------
Outstanding at October 31, 1994 320,725 $2.22-18.75
Granted 276,750 17.25-23.13
Exercised (62,175) 2.22-18.13
Terminated (26,300) 5.66-18.75
----------- ------------
Outstanding at October 31, 1995 509,000 $2.22-23.13
----------- ------------
----------- ------------
Transactions under the Purchase Plans are
as follows-
Purchase
Number Price
of Shares Per Share
----------- ------------
Available at October 31, 1993 70,170
Purchased (11,888) $9.63-10.20
-----------
Available at October 31, 1994 58,282
Purchased (9,845) $14.13-14.24
-----------
Available at October 31, 1995 48,437
-----------
-----------
</TABLE>
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), establishes permissible methods
for valuing compensation attributable to stock options and is effective
for the fiscal year beginning November 1, 1996. The Company does not
expect that adoption of this standard will have a material effect on its
financial position or results of operations.
The Board of Directors of the Company has authorized the establishment
of an employee stock ownerhsip plan which will be implemented effective
January 1, 1996.
(8) INCOME TAXES:
Effective November 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability
method of accounting for deferred income taxes. The cumulative effect
of this accounting change did not have a material effect on the
Company's financial statements.
-27-
<PAGE>
The provision for income taxes is summarized as follows-
<TABLE>
<CAPTION>
Year Ended October 31
-------------------------------------------
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Federal-
Current $6,176,000 $5,041,000 $2,916,000
Deferred 1,190,000 1,282,000 1,021,000
------------ ------------ -------------
7,366,000 6,323,000 3,937,000
State 1,357,000 1,074,000 635,000
------------ ------------ -------------
$8,723,000 $7,397,000 $4,572,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
The tax effects of significant temporary differences which comprise the
deferred tax assets (liabilities) at October 31, 1995 and 1994 are as
follows-
<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Deferred tax asset-
Bad debt expense $390,000 $324,000
Relocation expense 265,000 0
Unicap adjustment 176,000 48,000
IRS audit 11,000 138,000
Other 4,000 39,000
------------ -------------
$846,000 $549,000
------------ -------------
------------ -------------
Deferred tax liability --
Depreciation ($8,767,000) ($7,280,000)
------------ -------------
------------ -------------
</TABLE>
A reconciliation of the provision for taxes on income before
extraordinary item to that which would be computed at the statutory rate
of 35%, 35% and 34.8% in 1995, 1994 and 1993, respectively is as
follows-
<TABLE>
<CAPTION>
Year Ended October 31
-------------------------------------------
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Provision at statutory
rate $7,840,000 $6,580,000 $4,143,000
State tax provision, net
of Federal tax benefit 882,000 698,000 414,000
Other, net 1,000 119,000 15,000
------------ ------------ -------------
$8,723,000 $7,397,000 $4,572,000
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
(9) LEASE COMMITMENTS:
The Company has lease agreements for several of its facilities and
certain transportation equipment expiring at various dates through
October 31, 2015. Rental expense under all leases was $2,617,000,
$2,221,000 and $2,370,000 for 1995, 1994 and 1993, respectively. The
Company rented space from Barstrom Associates ("Barstrom") whose lease
expired on May 1, 1995 and currently leases this facility on a
month-to-month basis. The lease provides for a monthly rental of
$14,000. During the years ended October 31, 1994 and 1993, the Company
rented space from Barstrom at a cost of $145,000 per year. Barstrom is
a general partnership in which the Company's president is one of two
partners.
-28-
<PAGE>
Under the terms of noncancellable operating leases with terms greater
than one year, the minimum rental, excluding the provision for real
estate taxes and net of minor sublease rentals, is as follows-
<TABLE>
<CAPTION>
<S> <C>
1996 $1,437,000
1997 1,275,000
1998 1,131,000
1999 931,000
2000 728,000
Thereafter 5,816,000
------------
$11,318,000
------------
------------
</TABLE>
(10) QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
January 31 April 30 July 31 October 31
------------ ------------- ------------ ------------
1995
- ----
<S> <C> <C> <C> <C>
Net sales $58,687,000 $58,347,000 $64,218,000 $61,634,000
Gross profit 16,136,000 12,709,000 14,078,000 17,450,000
Net income 4,059,000 2,874,000 3,003,000 3,550,000
Income per share of common stock-
Before extraordinary item $.55 $.39 $.41 $.70
Extraordinary item 0 0 0 (.04)
------------ ------------- ------------ ------------
Net income per share of
common stock $.55 $.39 $.41 $.66
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
1994
- ----
Net sales $39,108,000 $43,046,000 $46,895,000 $55,620,000
Gross profit 12,248,000 13,492,000 13,107,000 15,221,000
Net income 2,618,000 2,889,000 2,563,000 3,334,000
------------ ------------- ------------ ------------
Net income per share
of common stock $.36 $.39 $.35 $.45
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
</TABLE>
Earnings per share are computed independently for each of the quarters
presented.
-29-
<PAGE>
AEP INDUSTRIES INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
SCHEDULES: Page
----
II -- Valuation and Qualifying Accounts F-1
Schedules other than those listed above have been omitted either
because the required information is contained in the financial
statements or notes thereto or because such schedules are not
required or applicable.
-30-
<PAGE>
SCHEDULE II
AEP INDUSTRIES INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1995
<TABLE>
<CAPTION>
Additions
Balance at Charged Deductions Balance
Beginning to From at End
of Year Earnings Reserves Other of Year
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED
OCTOBER 31, 1995:
Allowance for doubtful
accounts $1,498,000 $500,000 $577,000 $0 $1,421,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
YEAR ENDED
OCTOBER 31, 1994:
Allowance for doubtful
accounts $1,614,000 $865,000 $981,000 $0 $1,498,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
YEAR ENDED
OCTOBER 31, 1993:
Allowance for doubtful
accounts $1,254,000 $1,181,000 $990,000 $169,000 $1,614,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
-31-
<PAGE>
POWER OF ATTORNEY
The registrant and 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, and to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to the annual report which amendments may make such
changes in the report as the attorney-in-fact acting in the premises deems
appropriate and to file any such amendment to the report with the Securities and
Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: January 26, 1996 AEP INDUSTRIES INC.
By S/A J. Brendan Barba
--------------------------------
J. Brendan Barba
Chairman of the Board, President
and Principal Executive Officer
Pursuant to the requirements of the Securities and 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.
Dated: January 26, 1996 AEP INDUSTRIES INC.
By S/A J. Brendan Barba
--------------------------------
J. Brendan Barba
Chairman of the Board, President
and Principal Executive Officer
Dated: January 26, 1996
By S/A Paul M. Feeney
--------------------------------
Paul M. Feeney
Executive Vice President-Finance
Principal Financial and Accounting
Officer, and Director
Dated: January 26, 1996
By S/A Robert W. Cron
--------------------------------
Robert W. Cron
Director
Dated: January 26, 1996
By S/A Lawrence R. Noll
--------------------------------
Lawrence R. Noll
Director
Dated: January 26, 1996
By S/A Kenneth Avia
--------------------------------
Kenneth Avia
Director
Dated: January 26, 1996
By S/A Paul E. Gelbard
--------------------------------
Paul E. Gelbard
Director
-32-
