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FORM 10-K
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, 1996, 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
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Commission file number 0-14550
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AEP INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-1916107
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
125 Phillips Avenue
South Hackensack, New Jersey 07606-1546
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (201) 641-6600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
TITLE OF EACH CLASS which registered
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None ---------
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of class)
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
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Form 10-K. [ X ]
The aggregate market value of the shares of the voting stock held by
nonaffiliates of the Registrant was approximately $165,000,000 based upon the
average of the bid and asked prices of the stock, which was $53.75 on December
31, 1996.
The number of shares of the Registrant's $.01 par value common stock outstanding
as of December 31, 1996, was 7,136,673.
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are incorporated by
reference herein and the Part of the Form 10-K into which the document is
incorporated: Proxy Statement to be filed with respect to the Registrants Annual
Meeting of Stockholders to be held on April 8, 1997 -- Part III.*
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*As stated under various items of this Annual Report, only certain
specified portions of such document are incorporated by reference herein.
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PART I
ITEM 1. BUSINESS
GENERAL
AEP Industries Inc. ("AEP") is a manufacturer of a wide range of low density
flexible polyethylene plastic film products, utilizing both cast and blown film
technologies. AEP'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.
On October 11, 1996, AEP acquired the packaging division of Borden, Inc.
("Borden") which consisted of certain assets of Borden and certain of its
foreign subsidiaries and the stock of other Borden foreign subsidiaries, all
relating to Borden's business of manufacturing and selling packaging materials
(the "Acquisition").
Reference to "AEP" in this Annual Report shall be deemed to be reference to the
business as conducted by AEP prior to the Acquisition. Reference to "Borden" in
this Annual Report shall be deemed to be reference to the packaging business of
Borden as conducted prior to the Acquisition, and reference to "the Company"
shall be deemed to be reference to the combined enterprise subsequent to the
Acquisition.
AEP manufactures a wide selection of speciality and standard plastic film for
industrial, commercial and agricultural applications. AEP's film products are
used in the packaging, transportation, beverage, food, automotive,
pharmaceutical, chemical, electronics, construction, agricultural and textile
industries.
Borden was an international producer of a diverse range of flexible and rigid
plastic packaging materials, predominantly for the food and industrial markets.
Borden's major product lines are used in the packaging, food, and transportation
industries and for consumer products.
As a result of the Acquisition, the Company is now engaged in two business
segments, the flexible packaging segment, which was AEP's sole business prior to
the Acquisition, and the rigid packaging business which represents a portion of
the Borden business acquired by the Company.
AEP PRODUCTS
The products manufactured and marketed by AEP consist of an extensive line of
polyethylene film products, which the Company believes is one of the most
diverse product lines available from a single source in the polyethylene film
industry. AEP's film products are used in the packaging, transportation,
textile, food, automotive, pharmaceutical, chemical, electronics, construction,
agricultural and other industries.
The principal products of AEP include a wide assortment of packaging materials,
such as carton and drum liners (used to protect the contents from damage),
bundle film (used to package beverages and other products), furniture and
mattress covers, shrink film, stretch film (used for covering and securing
shipping pallets), textile and carpet wrappers and bags, sheeting materials
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and a variety of other packaging films. The Company also produces heavy duty
films used in the construction industry as moisture and insulating barriers,
mulch films, silage wrap and IRT (Infra Red Transmitting) films (used in the
agricultural industry to achieve more efficient plant growth) and nursery film
(used to cover greenhouses). Other products include embossed, laminating and
high clarity films for special applications, and a wide variety of printed and
converted products.
While most of its products are extruded from low and linear low density
polyethylene resin, AEP also uses small amounts of high density polyethylene and
polypropylene resins in its products. In fiscal 1996, sales of high density
polyethylene and polypropylene products by AEP accounted for less than 3% of the
Company's total sales. Foreign sales by AEP, without giving effect to the
Acquisition, accounted for less than 8% of the Company's total sales.
BORDEN PRODUCTS
The major Borden product lines include polyvinyl chloride stretch films for
packaging of meats, poultry and produce for industrial applications and use in
supermarkets; polyvinyl chloride-based food wrap films in cutter boxes and in
perforated rolls for institutions, including restaurants, schools, hospitals and
penitentiaries; polyethylene-based stretch wrap films for unitizing pallet
loads; oriented polypropylene films for flexible packaging of salted snacks,
confectionery and baked goods; and polypropylene films for processed cheese
products; and rigid containers and trays. Borden is also a leading converter of
flexible food packaging materials in Europe and Asia.
Borden organized its operations into three groups: the North American group,
the Europe and South African group and the Asia-Pacific group. The following
description describes these groups as operated by Borden prior to the
Acquisition.
The North American group is organized into two divisions: North American
Resinite and Proponite. North American Resinite is a producer of polyvinyl
chloride films for the supermarket, institutional and industrial markets and
polyethylene stretch film primarily used as pallet wrap in the United States and
Canada. The Company believes that it is the largest producer of polyvinyl
chloride films for these uses in North America. Proponite is a manufacturer of
oriented polypropylene films, serving the flexible packaging market with
products used to package foods, such as snack foods. The division sells its
products primarily to packaging converters who further process the film for
end-users.
The European and South African group is organized in five divisions: European
Resinite, European Flexibles, FIAP, Rigids and Resinite South Africa. The
European business was founded in 1965 when Borden started its Resinite operation
in the United Kingdom after introducing polyvinyl chloride and polyethylene
packaging films for the supermarket, institutional and industrial markets,
printed and unprinted films for the flexible packaging market, and rigid
containers and trays in Europe and South Africa. The Company believes European
Resinite is one of the largest suppliers in Europe of polyvinyl chloride meat
and food wrap products.
The Asia Pacific group produces and markets polyvinyl chloride and polyethylene
packaging films and converted flexible packaging in New Zealand, Australia and
Japan. The business in
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Japan operates through a 50/50 joint venture with Hitachi Chemical Company Ltd.
("Hitachi Chemical") and primarily produces polyvinyl chloride meat and food
wrap films and polyethylene pallet wrap products.
Following the Acquisition, the Company commenced closing of the Borden Resinite
plant in North Andover, Massachusetts, and moving its operations and equipment
to other Company plant facilities, and the Company is in the process of
integrating the Borden United States and Canada operations into the AEP
operations in the United States and Canada. The European and South African
group and the Asia-Pacific group continue to be operated by the Company in
substantially the same manner in which they were operated by Borden prior to the
Acquisition.
MANUFACTURING AND PRODUCTION
The Company manufactures both industrial grade products, which are manufactured
to either customer or industry specification, and specialty products, which are
manufactured under more exacting standards to assure that their chemical and
physical properties meet the particular requirements of the customer or the
specialized application appropriate to its intended market. Specialty products
generally sell at higher margins than the Company's industrial grade products.
In the film manufacturing process, resins (primarily polyethylene, polyvinyl
chloride, polypropylene and polystyrene) with various properties are blended
with chemicals and other concentrates (including coloring, where appropriate) to
achieve a wide range of specified product characteristics, such as color,
clarity, tensile strength, toughness, thickness, shrinkability, surface
friction, transparency, sealability, and permeability. The gauges of the Company
products range from less than one mil (.001 inches) to more than 20 mils. The
Company's extrusion equipment can produce printed products and film up to 40
feet wide. The blending of various kinds of resin combined with chemical and
color additives is computer controlled to avoid waste and to maximize product
consistency. The blended mixture is then melted by a combination of applied heat
and friction, under pressure and then is mechanically mixed. The mixture is then
forced (extruded) through a die, at which point it is expanded into a flat sheet
or a vertical tubular column of film and is cooled. The cooled film can then be
shipped to a customer or can be further processed and then shipped. Generally,
the Company's manufacturing plants operate 24 hours a day, seven days a week,
except for plants located in areas where hours of operation are limited by law,
local custom or for economic reasons or in cases when 24 hour operations are not
economically advantageous.
AEP's domestic equipment has several processing features, including the
capability to print "in-line" and to cut tubular film at either end to produce
"bags'' or to cut the side of the tubes to produce "sheeting." This sheeting'
can then be sold or further processed by metallizing, perforating and/or heat
sealing it into a variety of products according to customer specifications.
The Company's foreign operations have the capability of further processing the
"sheeting" using the Company's flexographic or rotogravure printing
capabilities. The printed sheet is then laminated, slit and/or converted into a
form desired by the customer. Sale to the customer can occur after any process
or combination of processes.
The Company's rigid operations apply heat to sheets of polypropylene or
polystyrene to form
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containers, lids, trays, and other rigid plastic products. These products can
then be sold or then printed for sale to the customer.
AEP has regularly upgraded or replaced older equipment in order to keep abreast
of technological advances and to maximize production efficiencies. During the
past five fiscal years, AEP spent in excess of $88,000,000 in capital
improvements, which included the construction of new manufacturing, warehouse
and sales facilities in Alsip, Illinois and Wright Township, Pennsylvania, the
purchase of new state-of-the-art extrusion equipment and the upgrading of older
equipment. As part of the Acquisition AEP acquired the Borden manufacturing
facilities in Griffin, Georgia; North Andover, Massachusetts; Gainesville,
Texas; Edmonton, Alberta; Scarborough, Ontario; England, France, Holland,
Belgium, Spain, Italy, South Africa, Australia and New Zealand and in Japan in a
joint venture operation accounted for on an equity basis. The Company is in the
process of reviewing and upgrading and replacing equipment at certain of these
facilities in order to increase production capacity and promote efficiency and
will continue to upgrade or replace the equipment as appropriate in its business
judgment.
QUALITY CONTROL
The Company believes that maintaining the highest standards of quality in all
aspects of its manufacturing operations plays an important part in its ability
to maintain its competitive position. To that end the Company has adopted strict
quality control systems and procedures which it regularly reviews, updates and
modifies as appropriate. These quality control systems and procedures are now
being implemented in the manufacturing facilities acquired as part of the
Acquisition.
MARKETING AND SALES
AEP markets its products in the United States and Canada principally through its
own sales force under the supervision of national and regional managers. The AEP
sales force sells directly to its customers, who are generally the end users of
the products and also utilizes distributors for the sale of some of its
products. During the fiscal year ended October 31, 1996, approximately 52% of
the sales by AEP in the United States and Canada were directly to end users with
the balance representing sales to distributors.
Sales by Borden in the United States and Canada had been made primarily through
large distributors by the Resinite division and primarily to packaging
converters by the Proponite division. The Company is in the process of
integrating the Borden sales and marketing in the United States and Canada with
the AEP sales and marketing efforts.
Sales and marketing efforts in Europe, South Africa and in the Asia Pacific
region are primarily by Company salesmen to the end user, however, distributors
are used in cases where distribution adds value to the customer.
During fiscal 1996, AEP served approximately 4,500 customers from its
manufacturing plants located in Pennsylvania, Illinois, North Carolina, Texas
and California and from its Moonachie, New Jersey facility prior to the transfer
of such operations to Pennsylvania. During fiscal 1996,
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no single customer accounted for more than 3% of AEP's net sales.
During the twelve months ended October 31, 1996, Borden served approximately
2,100 customers from its manufacturing plants located in the United States and
Canada and approximately 9,800 customers from its plants in Europe, South Africa
and the Asia Pacific area. During fiscal 1996, no single customer accounted for
more than 6% of the Borden net sales.
AEP's marketing orientation of its line of industrial products in the United
States and Canada emphasizes commercial grade sheeting and bags, which are
manufactured to customer specifications. AEP's stretch film, agricultural, and
can-liner products are manufactured to industry standards. All of the Company's
products require efficient, low cost and high-speed production to remain
competitive in virtually all of their markets. Since these products can
generally be obtained from a number of local and national manufacturers, the
competition in this market is intense, and the margins are relatively low.
Borden's North American stretch film business is in the process of being
combined with AEP's stretch film business. Sales of oriented polypropylene film
by the Proponite Division will continue to be primarily directed to converters.
North American Resinite polyvinyl chloride film sales are expected to continue
to be focused toward the major food service distributors and industrial users.
Sales of flexibles in Europe, South Africa and in the Asia Pacific regions will
continue to emphasize marketing efforts oriented toward the end user.
Simultaneously, the Company will continue to maintain and attempt to enhance
distribution relationships where value is added to the end user. The Company's
rigids business also sells primarily to end users. This business has been under
margin pressure for years. Rigids' marketplace has been consolidating and this
overall business continues to be reviewed by the Company. As is the case with
AEP's business, Borden's business is extremely competitive, utilizing efficient
business manufacturing methods and controlling operating costs are keys to
profitability. The Company believes that its research and development efforts,
its high efficiency equipment (which is both automated and
microprocessor-controlled) and the technical training given to its sales
personnel enables the Company to expand its sales in all of its product lines.
An important component of the Company's marketing philosophy is the ability of
its sales personnel to provide technical assistance to customers. The Company's
sales force regularly consults with customers with respect to performance of its
products and the customers' particular needs and communicates with appropriate
research and development staff regarding these matters. In conjunction with the
research and development staff, sales personnel are often able to recommend a
product or suggest a polyethylene resin blend to produce the product with the
characteristics/properties which best suit the customers' requirements.
RAW MATERIALS
The resins used by the Company in its manufacturing operations are available
from a number of domestic and foreign suppliers. The Company selects its
suppliers based on the price, quality and characteristics of the resins they
produce. Most of the Company purchases of resin in fiscal 1996 were made from 15
of the 20 international resin suppliers, none of which accounted for more than
17% of the Company's requirements.
The Company believes that the added purchasing power achieved by its acquisition
of Borden
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will enable it to achieve economies by reason of increased purchasing power,
although there is no assurance that it will be able to do so. The Company
believes that the loss of any resin supplier would not have a materially adverse
impact on the Company. Other raw materials, principally chemical colorings and
other concentrates, are available from many sources.
The resins used by the Company are produced from petroleum and natural gas.
Instability in the world markets could adversely affect the prices of the
Company's raw materials and their general availability, this could have an
adverse effect on the Company's profitability if the increased costs could not
be passed on to customers. The Company generally maintains a resin inventory of
less than one month's supply and has not experienced any difficulty in
maintaining its supply.
DISTRIBUTION
Domestically AEP maintains a fleet of approximately 40 trucks, most of which it
leases, for the delivery to customers of approximately 51% of AEP products.
Domestically, Borden uses common carriers, contract carriers, and dedicated
service haulers where appropriate for its deliveries, and AEP uses these
services for the remainder of its deliveries. This combination enables the
Company to control the distribution process and thereby insure priority handling
and direct transportation of its products to its customers, thus improving the
speed, reliability, and efficiency of delivery. Although most of the products of
the Company are delivered within a 500 mile radius of its plants, the Company
ships product greater distances and also exports to other countries.
Internationally, the Company uses common and contract carriers to deliver most
of its products. The Company does not deliver its own products to an
appreciable degree.
RESEARCH AND DEVELOPMENT
The Company has a full time research and development department with a staff of
seven persons. In addition, other members of management and supervisory
personnel, from time to time, devote substantial amounts of time to research and
development activities. The principal efforts of the research and development
department are directed to maintaining and improving quality control in the
Company's manufacturing operations, assisting sales personnel in designing
specialty products to meet individual customer's needs, and developing new
products.
The Company's research and development department has developed a number of
products with unique properties which the Company considers proprietary and are
appropriately protected by patents. AEP's research and development efforts over
the past fiscal year have concentrated on development of a family of new
products generically called co-ex products. These projects are continuing in
fiscal 1997 and are expected to continue thereafter.
For the three years ended October 31, 1996, AEP incurred expenses aggregating
approximately $1,707,000 for research and development activities, consisting of
$635,000 in fiscal 1996, $698,000 in fiscal 1995, and $374,000 in fiscal 1994.
During that period the Company
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understands that Borden had spent approximately $13,800,000 for research and
development activities.
PROPRIETARY RIGHTS
AEP owns several trademarks, has applied for patent protection for a line of
industrial stretch film products, and has developed certain other proprietary
products, and the Company also owns a number of trademarks and patents which it
acquired as part of the Acquisition. The Company does not consider that any of
these are material to its overall business. The Company also has the right to
use the trademark "Borden" for a period of six months from October 11, 1996, and
thereafter to use the Borden trademark in conjunction with the AEP trademark for
an additional 18 months as the Borden trademark is phased out.
COMPETITION
The business of supplying flexible and rigid packaging products is extremely
competitive. Although the Company believes it is one of the largest extruders of
its film products in North America and Europe, it faces competition from a great
number of companies engaged in similar and alternative packaging products
businesses. The Company believes its manufacturing capacity, including the
capacity acquired by it in the Acquisition, puts the Company in the position of
having major international and regional market presence in many product
categories.
The Company's principal competitors fall into three categories. The first
consists of local extruders and converters that compete with the Company in
specific geographic areas, generally within a 500 mile radius of its plants. The
second group of competitors are companies which specialize in the extrusion of a
limited group of products, which they market nationally. The third group of
competitors is the few manufacturers of flexible packaging products who offer a
broad range of products and maintain production and marketing facilities across
many borders. Some of these competitors are subsidiaries or divisions of large
international, diversified companies with extensive production facilities, well
developed sales and marketing staffs and substantially greater financial
resources than the Company.
The Company believes that its utilization of proprietary blends and its ability
to design products which meet the customers' particular requirements enhances
the Company's competitive position in its worldwide markets.
The Company believes that it can effectively compete with its competitors based
on the broad variety and high quality of the products it offers, the scope,
efficiency and knowledge of its sales, customer service and technical support
personnel, prompt delivery and the competitiveness of its pricing.
BACKLOG
The Company estimates that the total dollar volume of its backlog as of the end
of the 1996 and 1995 fiscal years was approximately $35.0 million and $9.5
million, respectively. These backlogs represent approximately 14 days of
production in 1996 and 10 days in 1995. The 1996 backlog includes the Borden
backlog. AEP believes that because the great majority of its
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production is based upon purchase orders rather than long term contracts, the
amount of its backlog is not an important indicator of future sales.
ENVIRONMENTAL MATTERS
Except for relatively small amounts of printing ink, the Company's manufacturing
operations do not involve the handling of toxic chemicals or emissions or
discharge of toxic fumes or other wastes into the environment. Accordingly, the
Company's operations are not significantly affected by any environmental or
other similar regulations affecting any of its plants in the respective
countries and geographic subdivisions in which they are located.
FORWARD LOOKING STATEMENTS
Certain statements by the Company in this Annual Report in its description of
the business of the Company, both prior to and subsequent to the Acquisition,
including its contemplated activities with respect to the Borden packaging
business operations which it acquired, its statements as to its beliefs with
respect to its business and its prospects and its statements of potential
changes in the operations of the combined AEP and Borden business, potential
savings and the integration of the Borden operations into the Company's business
and statements about the Company's prospects for the future, such as its ability
to generate sufficient working capital, its ability to continue to maintain
sales to justify capital expenses, and its ability to generate additional sales
and cash flow to meet the added costs incurred by the Company as a result of the
Acquisition and the debt incurred, including its ability to meet the required
payments under the credit agreement pursuant to which a portion of the purchase
price of the Acquisition was financed. Such statements are subject to certain
risks and uncertainties which could cause actual results to differ materially
from those projected, including risks associated with the ability of the Company
management to integrate the Borden operations with the AEP operations, the
ability of the Company to effect cost savings in the combined operations of AEP
and Borden, the ability of the Company to manage both operations efficiently,
changes in market conditions, inability to pass on raw material cost increases,
and competitive factors.
EMPLOYEES
At October 31, 1996, the Company had approximately 4,600 employees worldwide,
including officers and administrative personnel. The Company has collective
bargaining agreements at four North American and 16 international facilities and
has never experienced a work stoppage. The Company considers its relationship
with its work force to be good. The Company understands that Borden has not
experienced a work stoppage for more than the past three years preceding the
Acquisition, and the Company believes that the relationship with the continuing
former Borden employees is good.
EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company are as follows:
Age at
Name October 31, 1996 Position with the Company
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J. Brendan Barba 55 Chairman of the Board,
President and Director
Paul M. Feeney 54 Executive Vice President
and Director
John J. Powers 32 Executive Vice President
-- Sales and Marketing
Lawrence R. Noll 48 Vice President,
Secretary, Controller and
Director
Officers serve at the discretion of the Board of Directors.
J. Brendan Barba is one of the founders of the Company and has been its
President and a director since its organization in January 1971. In November
1985 Mr. Barba assumed the additional title of Chairman of the Board of
Directors of the Company.
Paul M. Feeney has been an Executive Vice President and a director of the
Company since December 1988. From 1980 to 1988 Mr. Feeney was Vice President and
Treasurer of Witco Corporation. He became a director of the Company in January
1989.
John J. Powers was elected Executive Vice President - Sales and Marketing in May
1996. Prior thereto, he was Vice President - Industrial Products, since
November 1993.
Lawrence R. Noll has been a Vice President, Secretary and a director of the
Company since September 1993; for more than 16 years prior thereto, he was the
Controller of the Company, and he was re-elected Controller in October 1996.
Mr. Barba is the father-in-law of Mr. Powers. No other family relationships
exist between any of the directors and executive officers of AEP.
ACQUISITION PURCHASE PRICE; GOVERNANCE AGREEMENT
The purchase price ("Purchase Price") for the Acquisition was paid by the
delivery of (a) 2,412,818 shares of the Company's Common Stock, $.01 par value,
and (b) $280,000,000 of cash. The Company has accounted for the Acquisition as
a purchase. The cash portion of the Purchase Price is subject to increase or
decrease (to be paid by Borden in cash or Common Stock of the Company, at
Borden's option, if there is a decrease, or in cash by the Company, if there is
an increase ) equal to the increase or decrease in the net working capital
(excluding cash and cash equivalents) of Borden Packaging and the decrease or
increase in the long term liabilities of Borden Packaging between December 31,
1995, and October 11, 1996. The shares issued to Borden represent 34% of the
Company's shares outstanding following the Acquisition.
In order to pay the cash portion of the Purchase Price, to refinance the
outstanding balance of a prior credit facility and to pay the expenses and
related costs of the Acquisition, the Company entered into a Credit Agreement
with the Morgan Guaranty Trust Company, as Agent, and the
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banks signatory thereto.
Pursuant to a Governance Agreement between the Company and Borden, Borden was
granted certain rights to nominate and to participate in the nomination of a
number of directors, to designate certain committee members and to require
certain specified corporate actions to be approved by a super majority of
directors that includes a Borden designee, as described in the sections of the
Proxy Statement incorporated herein by reference.
ITEM 2. PROPERTIES
The Company's principal executive and administrative offices are located in a
leased building in South Hackensack, New Jersey.
At October 31, 1996, the Company operated 11 manufacturing facilities in the
United States and Canada, which are located in Wright Township, Pennsylvania;
Alsip, Illinois; Matthews, North Carolina; Waxahachie, Texas; Chino, California;
Griffin, Georgia; North Andover, Massachusetts (2); Gainesville, Texas;
Edmonton, Alberta, Canada; and Scarborough, Ontario, Canada; all of which are
owned by the Company.
At October 31, 1996, the Company operated 12 manufacturing facilities in Europe,
two in South Africa, two in Australia, four in New Zealand and one in Japan
(joint venture with Hitachi Chemical).
At October 31, 1996, the Company had two separate manufacturing operations in
North Andover, Massachusetts. The Company is in the process of closing one of
these facilities and transferred the operations and equipment to other Company
manufacturing facilities. In addition, as part of the Acquisition, the Company
acquired ten leaseholds for warehouse and office facilities, nine in the United
States and one in Canada. The Company is in the process of closing down many of
these facilities and transferring warehouse and office operations to existing
Company facilities.
In aggregate, the Company currently utilizes approximately 6 million square feet
of manufacturing, office and warehouse space excluding the North Andover
facility being closed. Sales offices are assigned to each of the Company
plants. As of October 31, 1996, the Company's manufacturing facilities had a
combined average annual production capacity exceeding 1 billion pounds.
All of the Company properties are well-maintained and in good condition. The
Company believes the current operating facilities are adequate for its present
and immediate future business needs. However, the Company is in the process of
increasing capacity and automating some manufacturing operations in Europe and
relocating and consolidating some manufacturing operations in North America.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings the outcome of which would have a
material adverse effect on the Company's financial position or the results of
its operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Company's stockholders was held on October 9, 1996.
The meeting was called to approve the issuance of shares of Company Common Stock
to Borden in connection with the Acquisition. The stockholders approved the
issuance of 2,412,818 shares of Common Stock to Borden by a vote of 3,345,276
shares in favor and 3,055 against, with 6,824 shares abstaining.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
AEP's Common Stock is quoted on the Nasdaq National Market ("NNM") under the
symbol "AEPI." The high and low closing prices for the Company's Common Stock,
as reported in NNM, are as follows:
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FISCAL YEAR AND PERIOD
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PRICE RANGE Per Share
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HIGH LOW Dividend
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1996
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First quarter $23.75 $21.50 -0-
Second quarter 26.50 22.00 -0-
Third quarter 43.50 24.50 -0-
Fourth quarter 51.25 36.00 -0-
1995
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First quarter $18.50 $15.75 $.020
Second quarter 25.25 17.25 .025
Third quarter 27.25 18.25 .025
Fourth quarter 24.75 20.75 .025
On December 31, 1996, the closing price for a share of the Company's Common
Stock, as reported by NNM, was $55.00.
As of December 31, 1996, the Company's Common Stock was held by approximately
600 stockholders of record through nominee or street name accounts with brokers.
The Company paid cash dividends to its stockholders each fiscal quarter
commencing with the quarter ended July 31, 1993, through the quarter ended
October 31, 1995. The Board of Directors announced in December 1995 the
suspension of future dividends and that the funds would be reinvested into the
Company. The restoration of future dividends is within the discretion of the
Board of Directors and will depend upon business conditions, earnings, the
financial condition of the Company and other relevant factors. The Company is
subject to a number of covenants under the new term loan and revolving credit
agreements, including restrictions on the amount of dividends that may be paid.
On October 11, 1996 the Company issued 2,412,818 shares of Common Stock to
Borden in partial payment of the Purchase Price for the Acquisition.
In August 1995, the Company and J. Brendan Barba, the Chairman of the Board,
President and Chief Executive Officer of the Company, entered into a Stock
Purchase Agreement (the "Barba Purchase Agreement"), pursuant to which the
Company purchased from Mr. Barba on such date an aggregate of 1,550,000 shares
of Common Stock for a cash purchase price of $21.04 per share (the "Barba
Purchase").
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 owned
-14-
<PAGE>
beneficially approximately 32% of the outstanding shares. The Company purchased
an additional 168,000 shares of Common Stock from a shareholder at $22.75 per
share on March 18, 1996.
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 was 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
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ----- ----
(in thousands, except per share amounts)
Income Statement Data:
Net sales $270,534 $242,886 $184,669 $153,307 $142,621
Operating profit $ 15,538 $ 25,224 $ 19,734 $ 14,277 $ 6,660
Income before
extraordinary
item and
provision for
income taxes $ 4,411 $ 22,399 $ 18,801 $ 11,906 $ 5,236
Income before
extraordinary
item $ 2,553 $ 13,676 $ 11,404 $ 7,334 $ 3,577
Net income $ 2,553 $ 13,486 $ 11,404 $ 6,880 $ 3,577
Net income per
common share
before extra
ordinary item(a) $ .50 $1.99 $1.55 $1.01 $0.49
Net income per
common share(a) $ .50 $1.96 $1.55 $0.95 $0.49
Dividends declared
and paid per
-15-
<PAGE>
common share(a) -0- $0.10 $0.08 $0.03 -0-
Balance Sheet Data:
Total assets $641,678 $143,287 $118,496 $ 88,992 $ 84,393
Long-term debt $325,438 $ 82,523 $ 23,500 $ 20,095 $ 17,612
Shareholder's
Equity $ 95,133 $ 16,808 $ 61,789 $ 50,616 $ 43,734
(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 CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
On October 11, 1996, the Company acquired the Borden global packaging business.
This Acquisition was accounted for using the purchase method of accounting. The
results of operations for the 20 day period following the Acquisition are
included in the Company's results of operations for the fiscal year ended
October 31, 1996 ("Fiscal 1996"). A summary of unaudited pro forma consolidated
results of operations of the Company as if the Acquisition had occurred at
November 1, 1994, has been presented in Note 3 to the Consolidated Financial
Statements.
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFIT
Net sales for Fiscal 1996 increased by 11% to $270,534,000 as compared to
$242,886,000 reported in the prior fiscal year. This increase can be attributed
to the additional sales generated from the Borden Acquisition. The AEP business
alone had an increase in sales volume of 19% which was offset by an 18% decrease
in per unit selling prices.
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%.
In Fiscal 1996 the Company's gross profit was $59,770,000 as compared with
$60,373,000 in Fiscal 1995, a decrease of 1%. The Fiscal 1996 gross profit was
adversely impacted by approximately $7,300,000 because the Company absorbed
inventory valuation charges of $5,600,000 related to the acquisition of Borden
inventory and an additional charge of $1,700,000
-16-
<PAGE>
incurred in the build up of AEP inventory levels. These charges were primarily
a result of the Company's consistent costing of its inventories using the
last-in, first-out (LIFO) method.
Fiscal 1995 gross profit was $60,373,000, an increase of 12% or $6,305,000. 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.
OPERATING EXPENSES
In Fiscal 1996, operating expenses increased by $9,083,000 or 26% to
$44,232,000, of which $5,200,000 can be directly attributed to the additional
expenses absorbed by the Company for the 20 day period of operations after the
acquisition of the Borden business. The AEP business had an increase of
$2,200,000 or 13% in shipping and warehousing costs and an increase of
$1,500,000 or 12% in selling expenses which were directly attributable to the
19% increase in sales volume.
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 were also related
to the volume increase.
INTEREST EXPENSE
The Company's interest expense increased by $8,308,000 to $11,517,000 for Fiscal
1996 as compared with $3,209,000 for Fiscal 1995. This increase in interest
expense can be attributed to new credit facilities and increased borrowings
during both Fiscal 1996 and 1995. In Fiscal 1996, the Company incurred interest
expense associated with the credit facility that was put in place during the
fourth quarter of Fiscal 1995, which financed the Company's purchase of shares
of Common Stock for its treasury. In October 1996, the Company replaced that
credit facility with a new credit facility used to finance the acquisition of
the Borden business and retire the existing credit facility. The Company
absorbed an additional charge to interest expense in Fiscal 1996 of $2,900,000
for loan origination fees applicable to the old credit facility.
Fiscal 1995 interest expense amounted to $3,209,000, an increase of $1,753,000
from Fiscal 1994. This increase in interest expense was due to the Company's new
credit facilities, which replaced 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.
-17-
<PAGE>
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.
OTHER INCOME (EXPENSE)
In Fiscal 1996 the Company had $390,000 in other income, which primarily
consisted of interest and dividend income of $113,000, net gains on sale of
machinery and equipment of $71,000, foreign currency exchange gains of $135,000,
and other miscellaneous income of $71,000.
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.
NET INCOME
Net income for Fiscal 1996 decreased by 81% or $10,933,000 to $2,553,000. This
decrease was due primarily to the aforementioned charges totaling $7,300,000
related to valuation of inventories and increased interest expense incurred
during the period, including the charge of $2,900,000 for loan origination fees
on the old credit facility.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital amounted to $60,536,000 at October 31, 1996, as
compared with $15,030,000 at October 31, 1995. This increase of $45,506,000 in
working capital in Fiscal 1996 as compared to Fiscal 1995 is primarily
attributable to the Acquisition.
On October 11, 1996, the Company entered into a Credit Agreement (the "Credit
Agreement") with the Morgan Guaranty Trust Company, as Agent, and the banks
party thereto. The Credit Agreement provided the Company with two credit
facilities, consisting of a term credit facility in the amount of $350,000,000
and a revolving credit facility for an amount up to $100,000,000. The proceeds
borrowed under the long-term credit facility were used to pay the $280,000,000
cash portion of the Purchase Price, to repay the $95,400,000 balance under the
then existing term credit and revolving credit obligations and to pay the
expenses and related costs of the Acquisition.
-18-
<PAGE>
As of October 31, 1996, there was $350,000,000 and $10,000,000 outstanding under
the term and revolving credit facilities, respectively.
In Fiscal 1996 the Company's cash and cash equivalents increased by $11,758,000.
Cash flow from operating activities of $7,356,000 was offset by funds used in
investing activities, primarily the Borden acquisition and capital expenditures
which amounted to $269,018,000. Cash flow from financing activities included
$370,300,000 in funds received under the aforementioned new Credit Agreement.
These funds from financing activities were used primarily for the Acquisition
($263,000,000, net) and to repay existing long-term debt of $101,710,000.
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 purchasing new
equipment, upgrading old equipment and facilities, and promoting new and
existing products. The Company believes that internally generated cash flow
combined with the availability of funds under the Company's credit facility
discussed above are sufficient to meet its additional capital and debt
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. The Company expects to continue to account for employee
stock-based compensation under APB opinion No. 25, "Accounting for Stock Issued
to Employees" and provide the required pro-forma disclosures.
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 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.
FORWARD LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and the Results of
Operations contains "Forward Looking Statements" about the Company's prospects
for the future such as its ability to generate sufficient working capital, its
ability to continue to maintain sales and profits of its combined AEP and Borden
operations and its ability to generate sufficient funds to meet its cash
requirements. Such statements are subject to certain risks and uncertainties
which can cause actual results to differ materially from those projected,
including availability of raw materials, ability to pass raw material price
increases to customers in a timely fashion, the potential of technological
changes which would adversely affect the need for the Company's
-19-
<PAGE>
products and price fluctuations which could adversely impact the Company's
inventory. Parties are cautioned not to rely on any such forward looking
beliefs or judgments in this section and in other parts of this Annual Report.
-20-
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index:
Report of Independent Public Accountants
Financial Statements:
Consolidated Balance Sheets as of October 31, 1996 and 1995
Consolidated Statements of Income -- For the years ended
October 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity -- For the
years ended October 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows -- For the years ended
October 31, 1996, 1995 and 1994
Notes to Consolidated 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 8,
1997 (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
-21-
<PAGE>
For information concerning this item, see the table and text under the caption
"Information Concerning Certain Shareholders" in the Proxy Statement, which
information is 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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statements of the Company filed in this Annual Report on
Form 10-K are listed in Item 8.
2. Financial Statement Schedules:
The financial statement schedules of the Company filed in this Annual
Report on Form 10-K are listed in the attached Index to Financial Statement
Schedules.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report on
Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K:
The Company filed a report on Form 8-K, dated October 11, 1996, with
respect to the acquisition by the Company of the Borden packaging business and
the Company's new Credit Agreement with Morgan Guaranty Trust Company, as Agent,
and the banks signatory thereto for its long-term and revolving credit
facilities.
-22-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AEP Industries Inc.:
We have audited the accompanying consolidated balance sheets of AEP Industries
Inc. (a Delaware corporation) as of October 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended October 31, 1996. These consolidated
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AEP Industries Inc.
as of October 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1996 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 statement 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 our 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
January 6, 1997
F-1
<PAGE>
AEP INDUSTRIES INC.
-------------------
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 1996 AND 1995
-----------------------------------------------------------
(in thousands, except share amounts)
ASSETS 1996 1995
------ ------------ ------------
CURRENT ASSETS:
Cash and cash equivalents $12,087 $329
Marketable securities 2,070 1,718
Accounts receivable, less allowance
of $5,516 in 1996 and $1,421
in 1995 for doubtful accounts 113,190 26,333
Inventories, net (Note 4) 107,663 20,021
Deferred income taxes (Note 11) 1,633 846
Other current assets 17,583 972
Total current assets 254,226 50,219
PROPERTY, PLANT AND EQUIPMENT, at
cost, less accumulated depreciation
and amortization (Note 5) 325,271 90,244
INTANGIBLE ASSETS 34,187 2,824
INVESTMENT IN JOINT VENTURE (Note 10) 15,028 -
OTHER ASSETS 12,966 -
Total assets $641,678 $143,287
LIABILITIES AND
SHAREHOLDERS' EQUITY 1996 1995
-------------------- --------- ----------
CURRENT LIABILITIES:
Current portion of debt (Note 7) $52,107 $3,477
Accounts payable 86,029 27,678
Accrued expenses (Note 6) 55,554 4,034
Total current liabilities 193,690 35,189
LONG-TERM DEBT (Note 7) 325,438 82,523
OTHER LONG TERM LIABILITIES 7,041 -
DEFERRED INCOME TAXES (Note 11) 20,376 8,767
COMMITMENTS AND CONTINGENCIES
(Notes 12 and 13)
SHAREHOLDERS' EQUITY (Note 8):
Preferred stock -- $1.00 par value; 1,000,000
shares authorized; none issued - -
Common stock -- $.01 par value; 20,000,000
shares authorized; 9,931,303 and 7,437,225
shares issued in 1996 and 1995, respect ively 99 74
Additional paid-in capital 88,052 7,483
Treasury stock -- common stock; at cost,
2,801,000 and 2,633,000 shares in 1996 and
1995, respectively (62,142) (58,304)
Retained earnings 70,108 67,555
Cumulative translation adjustment (1,283) -
Net unrealized investment gain, net of taxes 299 -
Total shareholders' equity 95,133 16,808
Total liabilities and shareholders'
equity $641,678 $143,287
The accompanying notes to financial statements are an integral part of these
balance sheets.
F-2
<PAGE>
AEP INDUSTRIES INC.
-------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
---------------------------------------------------
(in thousands, except per share data)
1996 1995 1994
NET SALES $270,534 $242,886 $184,669
COST OF SALES 210,764 182,513 130,601
Gross profit 59,770 60,373 54,068
OPERATING EXPENSES:
Delivery and warehousing 20,825 16,666 16,722
Selling 15,701 12,940 11,981
General and administrative 7,706 5,543 5,631
Total operating expenses 44,232 35,149 34,334
Income from operations 15,538 25,224 19,734
OTHER INCOME (EXPENSE):
Interest expense (Note 7) (11,517) (3,209) (1,456)
Other, net 390 384 523
(11,127) (2,825) (933)
Income before extraordinary
item and provision
for income taxes 4,411 22,399 18,801
PROVISION FOR INCOME TAXES (Note 11) 1,858 8,723 7,397
Income before
extraordinary item 2,553 13,676 11,404
EXTRAORDINARY ITEM, net of income
tax benefit of $120,000 in 1995 (Note 7) - (190) -
Net income $2,553 $13,486 $11,404
INCOME PER SHARE OF COMMON STOCK
(Note 8):
Before extraordinary item $.50 $1.99 $1.55
Extraordinary item - (.03) -
Net income $.50 $1.96 $1.55
The accompanying notes to financial statements are an integral part of these
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
AEP INDUSTRIES INC.
-------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
-----------------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
---------------------------------------------------
(in thousands)
Net
Additional Cumulative Unrealized
Common Stock Treasury Stock Paid-in Translation Investment Retained
--------------------------------------
Shares Amount Shares Amount Capital Adjustment Gain Earnings
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT OCTOBER 31,1993 7,317 $ 73 $ 6,677 $ 43,866
Issuance of common stock upon
exercise of stock options(Note 8) 39 1 215
Issuance of common stock pursuant
to stock purchase plan (Note 8) 12 117
Net income 11,404
Cash dividends (564)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT OCTOBER 31, 1994 7,368 74 7,009 54,706
Issuance of common stock upon
exercise of stock options(Note 8) 62 470
Issuance of common stock pursuant
to stock purchase plan (Note 8) 10 66
Net income 13,486
Cash dividends (637)
Purchase of treasury stock (Note 8) 2,633 $ (58,304)
Other (3) (62)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT OCTOBER 31, 1995 7,437 74 2,633 (58,304) 7,483 67,555
Issuance of common stock upon
exercise of stock options(Note 8) 66 1 308
Issuance of common stock pursuant
to stock purchase plan (Note 8) 15 285
Issuance of common stock pursuant
to acquisition of Borden Global
Packaging (Note 8) 2,413 24 79,976
Net income 2,553
Purchase of treasury stock (Note 8) 168 (3,838)
Translation adjustments $ (1,283)
Net unrealized investment gain $ 299
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCES AT OCTOBER 31, 1996 9,931 $ 99 2,801 $(62,142) $ 88,052 $ (1,283) $ 299 $ 70,108
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes to financial statements are an integral part of these statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
AEP INDUSTRIES INC.
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 1996, 1995 AND 1994
---------------------------------------------------
(in thousands)
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $2,553 $13,486 $11,404
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 12,534 9,822 8,280
Provision for losses on accounts receivable 527 500 865
Changes in operating assets and liabilities, net of
acquisition of business
(Increase) in accounts receivable (4,383) (2,750) (6,016)
(Increase) decrease in inventories 4,393 (2,323) (5,432)
(Increase) decrease in other current assets (1,573) (684) 149
(Increase) decrease in other assets 11,332 (2,531) 22
Increase (decrease) in accounts payable (8,576) 6,047 12,071
Increase (decrease) in accrued expenses (9,739) (167) 1,088
(Increase) decrease in deferred income taxes, net 288 1,190 1,282
----------- ----------- -----------
Net cash provided by operating
activities 7,356 22,590 23,713
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Acquisition of Borden Global Packaging, net of
cash acquired (254,939) - -
Capital expenditures (14,040) (28,402) (28,007)
Sales and retirements of property,
plant and equipment, net 14 20 586
Purchases of marketable securities (53) - (4,483)
Sales of marketable securities - 1,925 4,845
----------- ----------- -----------
Net cash used in investing activities (269,018) (26,457) (27,059)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
long-term credit facilities 9,357 (2,500) 3,500
Issuance of long-term debt 370,300 92,964 -
Net repayments on long-term debt (101,710) (28,059) (159)
Proceeds from issuance of common stock 594 474 332
Purchase of treasury stock (3,838) (58,304) -
Payment of cash dividends - (637) (564)
----------- ----------- -----------
Net cash provided by financing
activities 274,703 3,938 3,109
----------- ----------- -----------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (1,283) - -
----------- ----------- -----------
Net increase (decrease) in cash 11,758 71 (237)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 329 258 495
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $12,087 $329 $258
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $7,546 $3,273 $1,526
----------- ----------- -----------
----------- ----------- -----------
Income taxes $3,990 $7,101 $6,283
----------- ----------- -----------
----------- ----------------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
F-5
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
AEP Industries Inc. (the "Company") is an international manufacturer
of a wide range of plastic film products and rigid packaging
materials. The Company's products are used in a number of industrial,
commercial, food and agricultural applications and are sold worldwide,
including North America, Western Europe and the Asia/Pacific regions.
(2) SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION -
The consolidated financial statements include the accounts of all
majority-owned subsidiaries. All significant intercompany
transactions have been eliminated.
REVENUE RECOGNITION -
Revenues are recognized when products are shipped.
CASH AND CASH EQUIVALENTS -
The Company considers all highly liquid investments purchased
with an initial maturity of three months or less to be cash
equivalents.
MARKETABLE SECURITIES -
At October 31, 1995 and 1996, in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 115, marketable
securities classified as available-for-sale securities are
carried at fair market value with unrealized gains and losses
excluded from income and recorded, net of income tax, as a
separate component of shareholders' equity. The Company has no
securities classified as trading or held-to-maturity.
Gains and losses on investment transactions are recognized when
realized based on trade dates. Dividends are recorded in income
based on payment dates. Interest is recognized when earned.
F-6
<PAGE>
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.
FOREIGN CURRENCY TRANSLATION -
Financial statements of international subsidiaries are translated
into U.S. dollars using the exchange rate at each balance sheet
date for assets and liabilities and the weighted average exchange
rate for each period for revenues, expenses, gains and losses. The
related translation adjustments are recorded as a separate component of
shareholders' equity.
RESEARCH AND DEVELOPMENT COSTS -
Research and development costs are charged to expense as
incurred. Approximately $635,000, $698,000 and $374,000 for
1996, 1995 and 1994, respectively, was incurred for such research
and development.
INCOME TAXES -
Income taxes are accounted for in accordance with SFAS 109,
"Accounting for Income Taxes." Under SFAS 109, an asset and
liability approach is required. Such approach results in the
recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between
the book carrying amounts and the tax basis of assets and
liabilities.
The Company and its subsidiaries file separate foreign, state and
local income tax returns and, accordingly, provide for such
income taxes on a separate company basis.
DERIVATIVES -
Derivative financial instruments are utilized by the Company to
reduce interest rate and foreign exchange risks. The Company has
established a control environment which includes policies and
procedures for risk assessment and the approval, reporting and
monitoring of derivative financial instrument activities. The Company
does not hold or issue derivative financial instruments for trading
purposes.
F-7
<PAGE>
FOREIGN EXCHANGE CONTRACTS -
Gains and losses on contracts designated as hedges of net
investments in foreign subsidiaries are accrued as exchange rates
change and are recognized in shareholders' equity as cumulative
translation adjustments. Gains and losses on contracts
designated as hedges of identifiable foreign currency firm
commitments are deferred and included in the measurement of the
related foreign currency transaction.
INTANGIBLES -
Goodwill, representing the excess of the purchase price over the
fair value of the net assets of the acquired entities (Note 3),
is being amortized on a straight line basis over the period of
expected benefit of thirty (30) years. The Company evaluates
whether changes have occurred that would require revision of the
remaining estimated useful life of the assigned goodwill or
rendered the goodwill not recoverable. If such circumstances
arise, the Company uses an estimate of the related business'
after-tax income contribution on a discounted basis to determine
whether the goodwill is recoverable.
Other intangibles include patents and trademarks. These are
carried at cost less accumulated amortization, which is
calculated on a straight-line basis over the legal or estimated
useful lives of the assets, not to exceed seventeen (17) years.
DEBT ISSUANCE COSTS -
The costs of approximately $3,697,000 related to the issuance of
debt are capitalized and amortized to interest expense using the
effective interest method over the life of the debt and are
recorded in other current and non-current assets.
FAIR VALUE OF FINANCIAL INSTRUMENTS -
Cash, accounts receivable, accounts payable and accrued
liabilities are reflected in the financial statements at fair
value because of the short term maturity of those instruments.
The fair value of the Company's debt is discussed in Note 7.
CONCENTRATION OF CREDIT RISK -
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash
equivalents, short-term investments, trade receivables and
financial instruments used in hedging activities.
The Company places its cash equivalents and short-term
investments with high-quality-credit institutions and limits the
amount of credit exposure with any one financial institution.
The Company sells its products to a large number of
geographically diverse customers, thus spreading the trade credit
risk. The Company extends credit based on an evaluation of the
customer's financial condition, generally without requiring
collateral. The Company monitors its exposure for credit losses
and maintains allowances for anticipated losses.
F-8
<PAGE>
The counterparties to the agreements relating to the Company's
foreign exchange and interest rate instruments consist of a
number of major, high-quality-credit international financial
institutions. The Company does not believe that there is
significant risk of nonperformance by these counterparties as the
Company continually monitors the credit ratings of such
counterparties, and limits the financial exposure and the amount
of agreements entered into with any one institution.
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 5,077,725 in 1996, 6,883,306 in 1995, and
7,347,341 in 1994.
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.
LONG-LIVED ASSETS -
In March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long Lived Assets
and for Long-Lived Assets to be Disposed Of' ("SFAS No. 121").
This statement establishes financial accounting and reporting
standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to
be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement is
effective for financial statements for fiscal years beginning
after December 15, 1995. The Company does not expect the
adoption of SFAS No. 121 to have a material effect on its
financial position or results of operations.
RECLASSIFICATIONS -
Certain prior year amounts have been reclassified in order to
conform with the 1996 presentation.
(3) ACQUISITION OF BUSINESS
On October 11, 1996, the Company acquired the Global Packaging
Business ("BGP") of Borden, Inc. for a combination of cash and shares
of Company common stock, $.01 par value. The cash portion of the
purchase price was $263,000,000, subject to adjustment under certain
circumstances, and the stock portion of the purchase price totaled $80
million and consisted of 2,412,818 shares valued at $33.15625 per
share, representing the average market share price at the time the
acquisition was agreed to and announced. The cash portion of the
purchase price was financed through bank debt.
The acquisition was accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to
the assets purchased and the liabilities assumed based upon the fair
values at the date of acquisition. Fair value has been based on
preliminary estimates and therefore, the purchase price allocation may
be revised. Included in accrued expenses are approximately $14
million of additional acquisition costs (Note 6). The acquisition
resulted in goodwill of approximately $20 million which is being
amortized on a straight line basis over thirty years.
F-9
<PAGE>
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and BGP as if the
acquisition had occurred at November 1, 1994, with pro forma
adjustments to give effect to amortization of goodwill, interest
expense on acquisition debt and certain other adjustments, together
with related income tax effects.
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS) OCTOBER 31, 1996 OCTOBER 31, 1995
---------------- ----------------
Net Sales $832,825 $871,897
Operating Income 36,086 50,395
Net Income 8,853 15,364
Earnings per Share $1.20 $1.65
These pro forma results have been prepared for comparative purposes
only. They do not purport to be indicative of the results of the
operations which actually would have resulted had the combination been
in effect on November 1, 1994 and 1995 or of the future results of
operations of the Company.
(4) INVENTORIES:
Inventories, stated at the lower of cost (last-in, first-out method
for domestic operations and first-in, first-out method for foreign
operations and supplies) or market, include material, labor and
manufacturing overhead costs and are comprised of the following-
October 31,
-------------------------
1996 1995
--------- -----------
(IN THOUSANDS)
Raw materials $34,299 $8,010
Finished goods 72,942 11,380
Supplies 2,689 631
---------- -----------
109,930 20,021
Less: Inventory Reserve 2,267 -
---------- -----------
Total Inventories, net $107,663 $20,021
---------- -----------
---------- -----------
The last-in, first-out (LIFO) method was used for determining the cost
of approximately 44% of total inventories at October 31, 1996 and
substantially all raw materials and finished goods inventory at
October 31, 1995. Inventories would have been increased by
$9,358,000 and $2,320,000 at October 31, 1996 and 1995, respectively,
if the FIFO method had been used exclusively. Due to the Company's
continuous manufacturing process, there is no significant work in
process at any point in time.
F-10
<PAGE>
(5) PROPERTY, PLANT AND EQUIPMENT:
A summary of the components of property, plant and equipment and their
estimated useful lives is as follows-
October 31, Estimated
-------------------------
(IN THOUSANDS) 1996 1995 Useful Lives
------------ ----------- ----------------
Land $13,983 $3,017
Building 85,233 20,246 15 to 31.5 years
Machinery and equipment 347,916 93,736 3 to 9 years
Furniture and fixtures 6,304 3,954 9 years
Leasehold improvements 2,521 1,896 6 to 25 years
Motor Vehicles 7,075 1,895 3 years
Construction in progress 13,873 18,338
------------- -----------
476,905 143,082
Less- Accumulated depreciation
and amortization 151,634 52,838
------------- ----------
$325,271 $90,244
------------- ----------
------------- ----------
Maintenance and repairs expense was $1,845,000, $2,283,000 and
$2,045,000 for the years ended October 31, 1996, 1995 and 1994,
respectively.
(6) ACCRUED EXPENSES
At October 31, 1996 and 1995 accrued expenses consisted of the following-
(IN THOUSANDS) 1996 1995
------------ ------------
Payroll and employee benefits $14,786 $1,780
Interest 1,208 633
Taxes (other than income) 6,673 -
Acquisition Related:
Severance 7,800 -
Professional Fees 2,200 -
Relocation of machinery and equipment 2,800 -
Other 1,527 -
Other 18,560 1,621
------------ ------------
$55,554 $4,034
------------ ------------
------------ ------------
F-11
<PAGE>
(7) DEBT:
A summary of the components of debt is as follows-
October 31,
---------------------------------
(IN THOUSANDS) 1996 1995
------------ ---------------
Term loan facility 350,000 (a) $85,000 (d)
Revolving credit facility 10,000 (a) 1,000 (d)
Pennsylvania Industrial Loans 5,196 (b) -
Foreign bank borrowings 12,349 (c) -
------------- ---------------
Total Debt 377,545 86,000
Less- Current portion 52,107 3,477
------------- ---------------
Long-Term Debt $325,438 $82,523
------------- ---------------
------------- ---------------
(a) On October 11, 1996, to facilitate the acquisition of BGP, the
Company entered into a long term credit agreement with a consortium
of banks arranged by Morgan Guaranty Trust Company of New York.
The agreement provides the Company with two credit facilities
consisting of (1) a six year amortizing term loan facility in the
amount of $350,000,000 and (2) a six year revolving credit facility
in the amount of $100,000,000. The Company borrowed under the
agreement: (1) a $5,000,000 prime rate loan at 8.25% (this was
repaid prior to October 31, 1996); (2) $10,000,000 under the
revolving credit facility; and (3) $350,000,000 term loan with
installment payments of $10,000,000 due quarterly in 1997 and
increasing amounts thereafter. The interest rates under the term
loan facility and the revolving credit facility will be, at the
option of the Company, at the U.S. prime rate or the London
Interbank Offered Rate (LIBOR) plus defined basis points. At
October 31, 1996 the interest rates ranged from 5.8875% to 6.075%.
Concurrent with the above, the Company repaid its prior credit
facilities totaling $95,356,869.
The new credit facilities contain certain customary
representations, warranties, covenants and conditions such as, but
not limited to, maximum cash flow ratio, minimum fixed charge
coverage ratio and restrictions on dividends, mergers, investments,
asset sales and additional indebtedness.
(b) During 1996, the Company entered into the following financing
arrangements in connection with the construction of the Wright
Township, Pennsylvania manufacturing facility:
$1,600,000 fifteen year fixed rate 2% loan due on August 1, 2011;
$3,300,000 fifteen year fixed rate 2% loan due on July 1, 2011;
$ 400,000 seven year fixed rate 2% loan due on July 1, 2003.
The Company has repaid approximately $100,000 of these borrowings
during 1996.
(c) This amount consists of short term foreign bank borrowings at an
average interest rate of approximately 6.1% and long term debt of
$615,000. The long term debt is held in Italy and South Africa
with average interest rates of 12.36% and 18.59%, respectively.
F-12
<PAGE>
(d) In August 1995, the Company entered into a long-term credit
facility agreement with a consortium of banks. The agreement
provided 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 were, 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 agreement 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. The Company repaid these borrowings with proceeds
from the facilities described in (a) above.
Payments required on long-term debt during each of the next five years are
as follows-
(IN THOUSANDS)
1997 $52,107
1998 50,568
1999 60,532
2000 60,378
2001 70,384
Thereafter 83,576
--------------
$377,545
--------------
--------------
The fair value of the Company's debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The
Company believes that the stated values represent the estimated fair values
of the Company's debt instruments.
(8) SHAREHOLDERS' EQUITY:
On October 11, 1996, in connection with the acquisition of BGP (as
discussed in Note 3), the Company issued 2,412,818 shares of the Company's
common stock at a price of $33.15625 per share or a total of $80,000,000.
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 commencing in August
1995 to its shareholders, the Company purchased and placed into treasury
during 1996 and 1995 168,000 and 1,083,000 shares, respectively, of the
Company's stock at $22.75 per share. The purchases of treasury stock were
accounted for under the cost method.
F-13
<PAGE>
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 shareholders of the Company approved the Company's 1995
Stock Option Plan and the 1995 Employee Stock Purchase Plan, previously
adopted by the Board of Directors.
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 nonqualified stock options, including fixed annual
grants, 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 entirely of outside
directors who administer the 1995 Option Plan and will receive a fixed
annual grant of 1,000 options. During 1996, 2,000 options under the 1995
Option Plan were canceled. As of October 31, 1996 and 1995, 171,000 and
498,000 options respectively, 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 is 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, 1996 and
1995, 15,176 and 0 shares respectively, 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 were granted to key employees
of the Company, including directors and officers. At October 31, 1996 and
1995, 79,075 and 265,500 options, respectively, have been exercised and
420,425 and 507,000 options, respectively, are outstanding. During 1996,
7,500 options under the 1985 Option Plan were canceled. The 1985 Option
Plan expired on October 31, 1995.
Under the 1985 Purchase Plan, an aggregate of 187,500 shares of common
stock were made available for purchase through December 31, 1995. As of
October 31, 1995, 139,063 shares had been issued under the Purchase Plan
and 48,437 shares which were available for purchase through December 31,
1995, have expired as of October 31, 1996.
F-14
<PAGE>
Transactions under the Option Plans are as follows-
Option
Number Price
of Shares Per Share
------------ --------------
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 $5.09-23.13
Granted 329,000 $23.75-51.15
Exercised (79,075) $5.66-18.75
Terminated (9,500) $5.66-24.93
----------- --------------
Outstanding at October 31, 1996 749,425 $5.09-51.15
----------- --------------
----------- --------------
Transactions under the Purchase Plans are as follows-
Number of Number of Purchase
Shares Shares Price
1995 Plan 1985 Plan Per Share
---------- --------- ---------
Available at October 31, 1994 58,282
Purchased (9,845) $14.13-14.24
------------
Available at October 31, 1995 300,000 48,437
Expired (48,437)
Purchased (15,176) $18.12
---------- ------------
Available October 31, 1996 284,824 -
---------- ------------
---------- ------------
SFAS 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 expects to continue to account for employee stock-based
compensation under APB Opinion No. 25, "Accounting for Stock Issued to
Employees", and provide the required pro forma disclosures. The Company
does not expect that adoption of this standard will have a material effect
on its financial position or results of operations.
(9) PENSIONS AND RETIREMENT SAVINGS PLAN
Effective January 1, 1996, the Company amended its 401(k) savings plan to
become a 401(k) Savings and Employee Stock Ownership Plan (the "Plan").
Employees of the Company who have completed one year of service and are over the
age of 21 (with the exception of those employees covered by a collective
bargaining agreement) may participate. The Plan shall be primarily invested in
the common stock of the Company. The Company will use shares currently held in
treasury for contributions to the Plan.
F-15
<PAGE>
The Company will make a contribution of the Company's common stock equal to
1% of a participant's compensation for the plan year. In addition, the Company
will match 75% of a participant's contribution up to 4% of the participant's
compensation. For the purpose of determining the number of shares of Company
common stock to be contributed to the Plan, the Company's stock will be valued
for the first ten business days of the month of February following the close of
any Plan year. No shares were issued in 1996. The Company has expensed
approximately $814,000 in 1996 related to this Plan.
Under the Company's previous 401(k) savings plan, the Company matched 25%
of eligible employee contributions up to 6% of compensation. Costs charged to
expense relating to this plan were $166,000 and $170,000 for the years ended
October 31, 1995 and 1994, respectively.
Employee pension benefits are provided under the Borden foreign pension
plans to which the Company will continue to contribute. For most salaried
employees, benefits under these plans generally are based on compensation and
credited service. For most hourly employees, benefits under these plans are
based on specified amounts per year of credited service.
The following table presents a reconciliation of the status of the foreign
pension plans to accrued pension liability:
(in thousands) October 31,
1996
----
Vested benefit obligation $(20,907)
Accumulated benefit obligation (22,621)
Projected benefit obligation (27,512)
Plan assets at fair value 20,794
Plan assets less than projected
benefit obligation $ (6,718)
The assumptions used, shown based on a weighted average, in determining the
status of the foreign pension plans at October 31, 1996 were as follows:
Discount Rate 7.5%
Salary Progression Rate 4.1%
Long term Rate of Return 8.4%
(10) INVESTMENT IN JOINT VENTURE
In connection with the acquisition of BGP, the Company acquired for
$15 million, fifty percent of Borden Hitachi, a joint venture with
Hitachi. The joint venture manufactures pallet-wrap and polyvinyl
chloride ("PVC") food films for the Japanese industrial, institutional
and consumer markets.
The investment is being accounted for using the equity method of
accounting. The investment account has been increased for income of
the joint venture during the period October 12 to October 31, 1996,
totaling $28,000, which is included in other income.
F-16
<PAGE>
(11) INCOME TAXES:
The provision for income taxes is summarized as follows-
Year Ended October 31,
----------------------------------------
(IN THOUSANDS) 1996 1995 1994
---------- ------------- -------------
Current
Federal $976 $6,176 $5,041
State and Local 416 1,357 1,074
Foreign 178 - -
---------- ------------- -------------
1,570 7,533 6,115
---------- ------------- -------------
Deferred:
Federal and State $728 $1,190 $1,282
Foreign (440) - -
---------- ------------- -------------
288 1,190 1,282
---------- ------------- -------------
Total provision for income taxes $1,858 $8,723 $7,397
---------- ------------- -------------
---------- ------------- -------------
The Company has not provided for federal income taxes on the unremitted earnings
of its international operations that have been, or are intended to be,
reinvested indefinitely.
The tax effects of significant temporary differences which comprise the deferred
tax assets (liabilities) at October 31, 1996 and 1995 are as follows-
(IN THOUSANDS) 1996 1995
------------ ------------
Deferred tax asset-
Bad debt expense $389 $390
Relocation expense - 265
Unicap adjustment 189 176
Alternative minimum tax 1,048 -
Other 7 15
------------ ------------
$1,633 $846
------------ ------------
------------ ------------
Deferred tax liability, net
Domestic - Depreciation $(10,348) $(8,767)
Foreign - Depreciation (9,459) -
Pension (1,789) -
Employee benefits 286 -
Vacation 287 -
Loss carryforwards 512 -
Other, net 135 -
------------ ------------
$(20,376) $(8,767)
------------ ------------
------------ ------------
F-17
<PAGE>
A reconciliation of the provision for taxes on income before extraordinary item
to that which would be computed at the statutory rate of 34%, 35% and 35% in
1996, 1995 and 1994, respectively is as follows-
Year Ended October 31,
---------------------------------------
(IN THOUSANDS) 1996 1995 1994
---------- ----------- -----------
Provision at statutory rate $1,500 $7,840 $6,580
State tax provision, net
of Federal tax benefit 275 882 698
Non U.S. operations taxed at rates
lower than U.S Federal statutory
rate (73) - -
Other, net 156 1 119
---------- ----------- -----------
$1,858 $8,723 $7,397
---------- ----------- -----------
---------- ----------- -----------
(12) 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 $2,366,000, $2,617,000 and
$2,221,000 for 1996, 1995 and 1994, respectively.
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-
(IN THOUSANDS)
1997 $6,199
1998 4,832
1999 3,860
2000 2,988
2001 2,441
Thereafter 10,821
-----------
$31,141
-----------
-----------
(13) COMMITMENTS AND CONTINGENCIES
Employment Contracts -
On October 11, 1996, the Company entered into employment agreements with
the Chairman of the Board , President and Chief Executive Officer and with
the Executive Vice President of the Company. Each contract has a term of
five years with a base salary of $500,000 for the Chairman and $240,000 for
the Executive Vice President. The employment agreements provide that each
individual may be terminated without cause prior to the expiration of the
agreement, and in such case, each person would be entitled to severance
payments equal to two times the sum of the annual base salary then in
effect plus the bonus earned for the immediate preceding year, payable over
a two year period.
Claims and Lawsuits -
The Company and its subsidiaries are subject to claims and lawsuits which
arise in the ordinary course of business. On the basis of information
presently available and advice received from counsel representing the
Company and its subsidiaries, it is the opinion of management that the
disposition or ultimate determination of such claims and lawsuits against
the Company will not have a material adverse effect on the Company's
financial position or results of operations.
F-18
<PAGE>
(14) QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA) January 31, April 30, July 31, October 31,
---------- --------- -------- -----------
1996
- ----
<S> <C> <C> <C> <C>
Net sales $54,770 $55,821 $63,907 $96,036
Gross profit 16,235 15,097 15,619 12,819
Net income(loss) 3,205 2,464 2,305 (5,421)
---------- ------------ ------------ ------------
Net income (loss) per share of
common stock $0.64 $0.50 $0.47 ($1.03)
---------- ------------ ------------ -------------
---------- ------------ ------------ -------------
<CAPTION>
1995
- ----
<S> <C> <C> <C> <C>
Net sales $58,687 $58,347 $64,218 $61,634
Gross profit 16,136 12,709 14,078 17,450
Net income 4,059 2,874 3,003 3,550
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
---------- ------------ ------------ -------------
---------- ------------ ------------ -------------
</TABLE>
Earnings per share are computed independently for each of the quarters
presented.
F-19
<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 this 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 28, 1997 AEP INDUSTRIES INC.
By: /s/ 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 28, 1997 AEP INDUSTRIES INC.
By: /s/ J. Brendan Barba
-------------------------------
J. Brendan Barba
Chairman of the Board, President
and Principal Executive Officer
Dated: January 28, 1997
By: /s/ Paul M. Feeney
-------------------------------
Paul M. Feeney
Executive Vice President,
Principal Financial Officer and
Director
Dated: January 28, 1997
By: /s/ Lawrence R. Noll
-------------------------------
Lawrence R. Noll
Controller, Principal Accounting
Officer and Director
-23-
<PAGE>
Dated: January 28, 1997
By: /s/ Kenneth Avia
-------------------------------
Kenneth Avia
Director
Dated: January 28, 1997
By: /s/ William Carter
--------------------------------
William Carter
Director
Dated: January 28, 1997
By: /s/ Paul E. Gelbard
--------------------------------
Paul E. Gelbard
Director
Dated: January 28, 1997
By: /s/ C. Robert Kidder
--------------------------------
C. Robert Kidder
Director
Dated: January 28, 1997
By: /s/ Clifton S. Robins
--------------------------------
Clifton S. Robins
Director
Dated: January 28, 1997
By: /s/ Lee Stewart
--------------------------------
Lee Stewart
Director
Dated: January 28, 1997
By: /s/ Scott A. Stuart
--------------------------------
Scott A. Stuart
Director
-24-
<PAGE>
AEP INDUSTRIES INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
SCHEDULES:
II -- Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted either because the
equired information is contained in the financial statements or notes thereto or
because such schedules are not required or applicable.
S-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
AEP INDUSTRIES INC.
-------------------
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
------------------------------------------------
FOR THE THREE YEARS ENDED OCTOBER 31, 1996
------------------------------------------
(in thousands)
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, 1996:
Allowance for doubtful
accounts $1,421 $527 $390 $3,958 A. $5,516
------------- ------------- ----------- ----------- ------------
------------- ------------- ----------- ----------- ------------
Inventory $ 0 $253 $ - $2,014 A. $2,267
------------- ------------- ----------- ----------- ------------
------------- ------------- ----------- ----------- ------------
YEAR ENDED
OCTOBER 31, 1995:
Allowance for doubtful
accounts $1,498 $500 $577 $ 0 $1,421
------------- ------------- ----------- ----------- ------------
------------- ------------- ----------- ----------- ------------
YEAR ENDED
OCTOBER 31, 1994:
Allowance for doubtful
accounts $1,614 $865 $981 $ 0 $1,498
------------- ------------- ----------- ----------- ------------
------------- ------------- ----------- ----------- ------------
</TABLE>
Note A: Amounts were obtained through the purchase of Borden Global Packaging.
S-2
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE
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) Amended and Restated By-Laws of the Company
(incorporated by reference to Exhibit 4 to
Registrant's report on Form 8-K, dated October 11,
1996)
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) 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(c) 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(d) 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(e) 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 Annual Report on Form 10-K for the year ended
October 31, 1990)
10(f) Credit Agreement, dated as of October 11, 1996,
among the Company, the Morgan Guaranty Trust
Company, as Agent, and the banks party thereto
(incorporated by reference to Exhibit 3 to
Registrant's report on Form 8-K, dated October 11,
1996)
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, dated 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)(1) Purchase Agreement, dated as of June 20, 1996,
without exhibits, between the Company and Borden
Inc. (incorporated by reference to Exhibit C-1 to
Registrant's report on Form 8-K, dated June 20,
1996)
10(i)(2) Amendment No. 1, dated as of October 11, 1996, to
<PAGE>
the Purchase Agreement, dated as of June 20, 1996,
between the Company and Borden, Inc. (incorporated
by reference to Exhibit 1(b) to Registrant's
report on Form 8-K, dated October 11, 1996)
10(i)(3) Combined Financial Statements of Borden Global
Packaging Operations as of December 31, 1995 and
1994 and for each of the three years in the period
ended December 31, 1995 (incorporated by reference
to Annex F to Registrant's Proxy Statement, dated
September 11, 1996)
10(j)(1) Governance Agreement, dated as of June 20, 1996,
without exhibits, between the Company and Borden,
Inc. (incorporated by reference to Exhibit C-2 to
Registrant's report on Form 8-K, dated June 20,
1996)
10(j)(2) Amendment No. 1, dated as of October 11, 1996, to
the Governance Agreement dated as of June 20,
1996, between the Company and Borden, Inc.
(incorporated by reference to Exhibit 2(b) to
Registrant's report on Form 8-K, dated October 11,
1996)
10(k) Employment Agreement, dated as of October 11,
1996, between the Company and J. Brendan Barba
10(l) Employment Agreement, dated as of October 11,
1996, between the Company and Paul M. Feeney
23 Consent of Arthur Andersen LLP
24 Power of Attorney (see "Power of Attorney" on
signature page)
<PAGE>
Exhibit 10(K)
EMPLOYMENT AGREEMENT
AGREEMENT, made as of October 11, 1996, by and between AEP INDUSTRIES
INC., a Delaware corporation (the "Company") and J. Brendan Barba ("Executive").
RECITALS
In order to induce Executive to serve as Chairman of the Board and
Chief Executive Officer of the Company, the Company desires to provide Executive
with compensation and other benefits on the terms and conditions set forth in
this Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. EMPLOYMENT.
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its Chairman of the
Board and Chief Executive Officer.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as Chairman of the Board and Chief Executive Officer
of the Company and agrees to devote his full working time and efforts, to the
best of his ability, experience and talent, to the performance of services,
duties and responsibilities in connection therewith.
<PAGE>
2
2. TERM OF EMPLOYMENT. Executive's term of employment under this
Agreement shall commence on the Closing Date (as such term is used in the
Purchase Agreement dated as of June [__], 1996) and, subject to the terms
hereof, shall terminate on the earlier of (i) the fifth anniversary of the
Closing Date (the "Termination Date") or (ii) termination of Executive's
employment pursuant to this Agreement (such term of employment being known
herein as the "Term"); PROVIDED, HOWEVER, that any termination of employment by
Executive (other than for death or Permanent Disability) may only be made upon
30 days prior written notice to the Company.
3. COMPENSATION.
3.1 SALARY. During the Term, the Company shall pay Executive a base
salary at the rate of $500,000 per annum, increased on each anniversary of the
Closing Date by a percentage equal to the percentage increase, if any, in the
Consumer Price Index for all Urban Consumers for the New York--Northeastern New
Jersey Metropolitan Area (or any successor Consumer Price Index), based on data
published by the Bureau of Labor Statistics of the United States Department of
Labor for the twelve-month period that ends on the last day on the month
immediately preceding such anniversary ("Base Salary"). Base Salary shall be
payable in accordance with the ordinary payroll practices of the Company, but no
less frequently than semi-monthly. Any additional increase in Base Salary shall
be in the reasonable discretion of the Company and, as so increased, shall
constitute "Base Salary" hereunder.
<PAGE>
3
3.2 ANNUAL BONUS. In addition to his Base Salary, Executive shall be
paid an annual bonus (the "Bonus") during the term of his employment hereunder
as follows: for fiscal year 1996, the Bonus shall be $187,500; for fiscal years
1997 and beyond, the Bonus shall be based upon performance criteria determined
by the Compensation Committee of the Board of Directors of the Company in its
reasonable discretion.
3.3 COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible to
participate in any compensation plan or program maintained by the Company in
which other senior executives of the Company participate on terms comparable to
those applicable to such other senior executives.
4. EMPLOYEE BENEFITS.
4.1 EMPLOYEE BENEFIT PROGRAM, PLANS AND PRACTICES. The Company shall
provide Executive during the term of his employment hereunder with coverage
under all employee pension and welfare benefit programs, plans and practices
(commensurate with his positions in the Company and to the extent permitted
under any employee benefit plan) in accordance with the terms thereof, which the
Company makes available to its senior executives.
4.2 VACATION AND FRINGE BENEFITS. Executive shall be entitled to
paid vacation in accordance with existing company policies and past practice;
PROVIDED, HOWEVER, that such paid vacation shall be taken at such times as are
consistent with Executive's responsibilities hereunder. Unless otherwise
approved by the Company, any vacation days not taken in any calendar year shall
be forfeited without payment therefor;
<PAGE>
4
PROVIDED, HOWEVER, that no such vacation days shall be forfeited to the extent
that such vacation days are not taken at the request of the Company. In
addition, Executive shall be entitled to the perquisites and other fringe
benefits (including, but not limited to, car allowances, club memberships and
business entertainment expenses made available to senior executives of the
Company, in accordance with existing company policies and past practice.
5. EXPENSES. Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such
expenses upon presentation by Executive from time to time of appropriately
itemized and approved (consistent with the Company's policy) accounts of such
expenditures.
6. TERMINATION OF EMPLOYMENT. The Company may terminate Executive's
employment at any time for any reason.
6.1 TERMINATION OTHER THAN FOR CAUSE; TERMINATION FOR GOOD REASON.
(a) If Executive's employment is terminated (i) by the Company other than for
Cause (as defined in this Section 6.1) or (ii) by executive for Good Reason (as
defined in this Section 6.1) prior to the Termination Date, Executive shall
receive a severance payment equal to two (2) times the sum of (i) the Base
Salary in effect immediately prior to the event giving rise to such termination
and (ii) the Bonus earned, if any, for the
<PAGE>
5
fiscal year immediately preceding the fiscal year in which the event giving rise
to such termination occurs. The severance payment shall be payable over a
period of two (2) years in accordance with the ordinary payroll practices of the
Company, but no less frequently than semi-monthly following such termination of
employment. In addition, the Company shall pay to Executive (i) any earned but
unpaid Bonus of Executive with respect to the fiscal year preceding this
termination and (ii) any earned but unpaid Bonus of Executive with respect to
the fiscal year in which his termination occurs, multiplied by a fraction, the
numerator of which is the number of days during such fiscal year that Executive
was employed by the Company, and the denominator of which is 365.
(b) For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent):
(i) Any material breach by the Company of any provision of this
Agreement, including a demotion by the Company in Executive's position or
the assignment to executive of duties or responsibilities which are
materially inconsistent with the Executive's position (except, in either
case, in connection with the termination of Executive's employment for
Cause, as a result of Permanent Disability, as a result of Executive's
death or by Executive other than for Good Reason); or
(ii) A reduction by the Company in Executive's Base Salary, other than
a reduction which is part of a general salary reduction program affecting
senior executives of the Company and which reduction is not, on average,
greater than the salary reduction (as a percentage of the sum of (A) Base
Salary and (B) any Bonus earned in the immediately preceding fiscal year)
of other senior executives of the Company.
(c) For purposes of this Agreement, "Cause" mean any of the
following:
<PAGE>
6
(i) material willful malfeasance or willful misconduct by Executive
in connection with his employment;
(ii) continuing refusal by Executive to perform his duties hereunder
or any lawful direction of the Chief Executive Officer of the Company
("CEO"), within 10 days after notice of any such refusal to perform such
duties or direction was given to Executive;
(iii)any breach of the provisions of Section 12 of this Agreement by
Executive or any other material breach of this Agreement by Executive; or
(iv) the commission by Executive of (A) any felony or (B) a
misdemeanor involving moral turpitude.
(d) For purposes of this Agreement, "Permanent Disability" shall mean
a "Permanent and Total Disability" as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended.
6.2 TERMINATION FOR CAUSE; TERMINATION OTHER THAN FOR GOOD REASON;
TERMINATION AS A RESULT OF DEATH OR PERMANENT DISABILITY. (a) In the event
that Executive's employment is terminated prior to the Termination Date (i) by
the Company for Cause; (ii) by Executive other than for Good Reason; or (iii) as
a result of the Executive's Permanent Disability or death, Executive shall only
be entitled to receive (i) any earned but unpaid Base Salary through the date of
the termination event, (ii) any earned but unpaid Bonus of Executive with
respect to the fiscal year preceding his termination and (iii) any earned but
unpaid Bonus of Executive with respect to the fiscal year in which his
termination occurs, multiplied by a fraction, the numerator of which is the
number of days during such fiscal year that Executive was employed by the
Company, and the denominator of which is 365. After the termination of
Executive's employment
<PAGE>
7
under this Section 6.2 and payment of all amounts due to Executive pursuant to
this Section 6.2, the obligations of the Company under this Agreement to make
any further payments, or provide any benefits specified herein (other than
benefits required to be provided by applicable law or under the terms of any
employee benefit of the Company in which the Executive was a participant), to
Executive shall thereupon cease and terminate. Termination of Executive
pursuant to this Section 6.2 shall be made by delivery to Executive of a notice
from the Board of Directors setting forth in reasonable detail the reasons for
such termination.
7. MITIGATION OF DAMAGES. Executive shall not be required to
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise after the termination of his employment
hereunder, and no amounts earned by Executive, whether from self-employment, as
a common-law employee or otherwise, shall reduce the amount of any Termination
Amount otherwise payable to him.
8. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
<PAGE>
8
To the Company:
AEP Industries Inc.
125 Phillips Avenue
South Hackensack, NJ 07606
Attn: General Counsel
with a copy to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
Attn: Paul E. Gelbard, Esq.
To Executive:
J. Brendan Barba
343 Algonquin Road
Franklin Lakes, NJ 07417
9. SEVERABILITY; EXPENSES. If any provision of this Agreement shall
be declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. Each party shall bear the costs of any legal
fees and other fees and expenses which may be incurred in respect of negotiating
or enforcing its respective rights under this Agreement.
10. ASSIGNMENT. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock,
<PAGE>
9
assets or businesses of the Company, if such successor expressly agrees to
assume the obligations of the Company hereunder.
11. AMENDMENT. This Agreement may only be amended by written
agreement of the parties hereto.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION; NON-COMPETITION. (a)
Executive shall not, without the prior written consent of the Company, use,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Company or any of its affiliates, except (i) while employed by
the Company, in the business of and for the benefit of the Company, or (ii) when
required to do so by a court of competent jurisdiction, by any governmental
agency having supervisory authority over the business of the Company, or by any
administrative body or legislative body (including a committee thereof) with
jurisdiction to order Executive to divulge, disclose or make accessible such
information. For purposes of this Section 12(a), "Confidential Information"
shall mean non-public information concerning the financial data, strategic
business plans, product development ( or other proprietary product data),
customer lists, marketing plans and other non-public, proprietary and
confidential information of the Company or its respective affiliates (the
"Restricted Group") or customers, that, in any case, is not otherwise available
to the public (other than by Executive's breach of the terms hereof).
(b) During the period of his employment hereunder and for twenty-four
(24) months thereafter, Executive agrees that,
<PAGE>
10
without the prior written consent of the Company, (i) he will not, directly or
indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender of employee or in any other capacity,
carry on, be engaged in or have any financial interest in, any business which is
in competition with the business of the Company and (ii) he shall not, on his
own behalf or on behalf of any person, firm or company, directly or indirectly,
solicit or offer employment to any person who has been employed by the
Restricted Group at any time during the twenty-four (24) months immediately
preceding such solicitation.
(c) For purposes of this Section 12, a business shall be deemed to be
in competition with the Company if it is involved in the purchase, sale or other
dealing in any property or the rendering of any service purchased, sold, dealt
in or rendered by the Company as a material part of the business of the Company
within the same geographic area in which the Company effects such purchases,
sales or dealings or renders such services. Nothing in this Section 12 shall be
construed so as to preclude Executive from investing in any publicly or
privately held company, provided Executive's beneficial ownership of any class
of such company's securities does not exceed 5% of the outstanding securities of
such class.
(d) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any
<PAGE>
11
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of this covenant as to the court shall
appear not reasonable and to enforce the remainder of the covenant as so
amended. Executive agrees that any breach of the covenants contained in this
Section 12 would irreparably injure the Company. Accordingly, Executive agrees
that the Company may, in addition to pursuing any other remedies it may have in
law or in equity, cease making any payments otherwise required by this Agreement
and obtain an injunction against Executive from any court having jurisdiction
over the matter restraining any further violation of this Agreement by
Executive.
13. BENEFICIARIES; REFERENCES. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
14. SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations. The
<PAGE>
12
provisions of this Section 14 are in addition to the survivorship provisions of
any other section of this Agreement.
15. GOVERNING LAW. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of New Jersey, without
reference to rules relating to conflicts of law.
16. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior agreement or understanding between the Company or any affiliate of the
Company and Executive as to employment matters.
17. WITHHOLDING. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
19. DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
<PAGE>
13
IN WITNESS WHEREOF, the parties have duly executed and entered into
this Agreement, as of the date first above written.
AEP INDUSTRIES INC.
By: /s/ Paul M. Fenney
----------------------------------------
Name: Paul M. Fenney
Title: Executive Vice President
/s/ J. Brendan Barba
----------------------------------------
Executive
<PAGE>
Exhibit 10(L)
EMPLOYMENT AGREEMENT
AGREEMENT, made as of October 11, 1996, by and between AEP INDUSTRIES
INC., a Delaware corporation (the "Company") and Paul M. Feeney ("Executive").
RECITALS
In order to induce Executive to serve as Executive Vice
President--Finance of the Company, the Company desires to provide Executive with
compensation and other benefits on the terms and conditions set forth in this
Agreement.
Executive is willing to accept such employment and perform services
for the Company, on the terms and conditions hereinafter set forth.
It is therefore hereby agreed by and between the parties as follows:
1. EMPLOYMENT
1.1 Subject to the terms and conditions of this Agreement, the
Company agrees to employ Executive during the term hereof as its Executive Vice
President --Finance.
1.2 Subject to the terms and conditions of this Agreement, Executive
hereby accepts employment as Executive Vice President--Finance of the Company
and agrees to devote his full working time and efforts, to the best of his
ability, experience and talent, to the performance of services, duties and
responsibilities in connection therewith.
<PAGE>
2
2. TERM OF EMPLOYMENT. Executive's term of employment under this
Agreement shall commence on the Closing Date (as such term is used in the
Purchase agreement dated as of June (___), 1996) and, subject to the terms
hereof, shall terminate on the earlier of (i) the fifth anniversary of the
Closing Date (the "Termination Date") or (ii) termination of Executive's
employment pursuant to this agreement (such term of employment being known
herein as the "Term"): PROVIDED, HOWEVER, that any termination of employment by
Executive (other than for death or Permanent Disability) may only be made upon
30 days prior written notice to the Company.
3. COMPENSATION.
3.1 SALARY. During the Term, the Company shall pay Executive a base
salary at the rate of $240,000 per annum, increased on each anniversary of the
Closing Date by a percentage equal to the percentage increase, if any, in the
Consumer Price Index for all Urban Consumers for the New York--Northeastern New
Jersey Metropolitan Area (or any successor Consumer Price Index), based on data
published by the Bureau of Labor Statistics of the United States Department of
Labor for the twelve-month period that ends on the last day on the month
immediately preceding such anniversary ("Base Salary"). Base Salary shall be
payable in accordance with the ordinary payroll practices of the Company, but no
less frequently than semi-monthly. Any additional increase in Base Salary shall
be in the reasonable discretion of the Company and, as so increased, shall
constitute "Base Salary" hereunder.
<PAGE>
3
3.2 ANNUAL BONUS. In addition to his Base Salary, Executive shall be
paid an annual bonus (the "Bonus") during the term of his employment hereunder
as follows: for fiscal year 1996, the Bonus shall be $85,000; for fiscal years
1997 and beyond, the Bonus shall be based upon performance criteria determined
by the Compensation Committee of the Board of Directors of the Company in its
reasonable discretion.
3.3 COMPENSATION PLANS AND PROGRAMS. Executive shall be eligible to
participate in any compensation plan or program maintained by the Company in
which other senior executives of the Company participate on terms comparable to
those applicable to such other senior executives.
4. EMPLOYEE BENEFITS.
4.1 EMPLOYEE BENEFIT PROGRAM, PLANS AND PRACTICES. The Company shall
provide Executive during the term of his employment hereunder with coverage
under all employee pension and welfare benefit programs, plans and practices
(commensurate with his positions in the Company and to the extent permitted
under any employee benefit plan) in accordance with the terms thereof, which the
Company makes available to its senior executives.
4.2 VACATION AND FRINGE BENEFITS. Executive shall be entitled to
paid vacation in accordance with existing company policies and past practice;
PROVIDED, HOWEVER, that such paid vacation shall be taken at such times as are
consistent with Executive's responsibilities hereunder. Unless otherwise
approved by the Company, any vacation days not taken in any calendar year shall
be forfeited without payment therefore;
<PAGE>
4
PROVIDED, HOWEVER, that no such vacation days shall be forfeited to the extent
that such vacation days are not taken at the request of the Company. In
addition, Executive shall be entitled to the perquisites and other fringe
benefits (including, but not limited to, car allowances, club memberships and
business entertainment expenses made available to senior executives of the
Company, in accordance with existing company policies and past practice.
5. EXPENSES. Executive is authorized to incur reasonable expenses
in carrying out his duties and responsibilities under this Agreement, including,
without limitation, expenses for travel and similar items related to such duties
and responsibilities. The Company will reimburse Executive for all such
expenses upon presentation by Executive from time to time of appropriately
itemized and approved (consistent with the Company's policy) accounts of such
expenditures.
6. TERMINATION OF EMPLOYMENT. The Company may terminate Executive's
employment at any time for any reason.
6.1 TERMINATION OTHER THAN FOR CAUSE; TERMINATION FOR GOOD REASON.
(a) If Executive's employment is terminated (i) by the Company other than for
Cause (as defined in this Section 6.1) or (ii) by executive for Good Reason (as
defined in this Section 6.1) prior to the Termination Date, Executive shall
receive a severance payment equal to two (2) times the sum of (i) the base
Salary in effect immediately prior to the event giving rise to such termination
and (ii) the Bonus earned, if any, for the
<PAGE>
5
fiscal year immediately preceding the fiscal year in which the event giving rise
to such termination occurs. The severance payment shall be payable over a
period of two (2) years in accordance with the ordinary payroll practices of the
Company, but no less frequently than semi-monthly following such termination of
employment. In addition, the Company shall pay to Executive (i) any earned but
unpaid Bonus of Executive with respect to the fiscal year preceding this
termination and (ii) any earned but unpaid Bonus of Executive with respect to
the fiscal year in which his termination occurs, multiplied by a fraction, the
numerator of which is the number of days during such fiscal year that Executive
was employed by the Company, and the denominator of which is 365.
(b) For purposes of this Agreement, "Good Reason" shall mean any of
the following (without Executive's express prior written consent):
(i) Any material breach by the Company of any provision of this
Agreement, including a demotion by the Company in Executive's position or
the assignment to executive of duties or responsibilities which are
materially inconsistent with the Executive's position (except, in either
case, in connection with the termination of Executive's employment for
Cause, as a result of Permanent Disability, as a result of Executive's
death or by Executive other than for Good Reason); or
(ii) A reduction by the Company in Executive's Base Salary, other than
a reduction which is part of a general salary reduction program affecting
senior executives of the Company and which reduction is not, on average,
greater than the salary reduction (as a percentage of the sum of (A) Base
Salary and (B) any Bonus earned in the immediately preceding fiscal year)
of other senior executives of the Company.
(c) For purposes of this Agreement, "Cause" means any of the
following:
<PAGE>
6
(i) material willful malfeasance or willful misconduct by Executive
in connection with his employment;
(ii) continuing refusal by executive to perform his duties hereunder
or any lawful direction of the Chief Executive Officer of the Company
("CEO"), within 10 days after notice of any such refusal to perform such
duties or direction was given to Executive;
(iii)any breach of the provisions of Section 12 of this Agreement by
Executive or any other material breach of this Agreement by Executive; or
(iv) the commission by Executive of (A) any felony or (B) a
misdemeanor involving moral turpitude.
(d) For purposes of this Agreement, "Permanent Disability" shall mean
a "Permanent and Total Disability" as defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended.
6.2 TERMINATION FOR CAUSE; TERMINATION OTHER THAN FOR GOOD REASON;
TERMINATION AS A RESULT OF DEATH OR PERMANENT DISABILITY. (a) In the event
that Executive's employment is terminated prior to the Termination Date (i) by
the Company for Cause; (ii) by executive other than for Good reason; or (iii) as
a result of the Executive's Permanent Disability or death, Executive shall only
be entitled to receive (i) any earned but unpaid Base Salary through the date of
the termination event, (ii) any earned but unpaid Bonus of Executive with
respect to the fiscal year preceding his termination and (iii) any earned but
unpaid Bonus of Executive with respect to the fiscal year in which his
termination occurs, multiplied by a fraction, the numerator of which is the
number of days during such fiscal year that Executive was employed by the
Company, and the denominator of which is 365. After the termination of
Executive's employment
<PAGE>
7
under this Section 6.2 and payment of all amounts due to Executive pursuant to
this Section 6.2, the obligations of the Company under this agreement to make
any further payments, or provide any benefits specified herein (other than
benefits required to be provided by applicable law or under the terms of any
employee benefit of the Company in which the Executive was a participant), to
Executive shall thereupon cease and terminate. Termination of Executive
pursuant to this Section 6.2 shall be made by delivery to Executive of a notice
from the Board of Directors setting forth in reasonable detail the reasons for
such termination.
7. MITIGATION OF DAMAGES. Executive shall not be required to
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise after the termination of his employment
hereunder, and no amounts earned by Executive, whether from self-employment, as
a common-law employee or otherwise, shall reduce the amount of any Termination
Amount otherwise payable to him.
8. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
<PAGE>
8
To the Company:
AEP Industries Inc.
125 Phillips Avenue
South Hackensack, NJ 07606
Attn: General Counsel
with a copy to:
Bachner, Tally, Polevoy & Misher LLP
380 Madison Avenue
New York, New York 10017
Attn: Paul E. Gelbard, Esq.
To Executive:
Paul M. Feeney
12 Sloping Hill Terrace
Wayne, NJ 07470
9. SEVERABILITY; EXPENSES. If any provision of this Agreement shall
be declared to be invalid or unenforceable, in whole or in part, such invalidity
or unenforceability shall not affect the remaining provisions hereof which shall
remain in full force and effect. Each party shall bear the costs of any legal
fees and other fees and expenses which may be incurred in respect of negotiating
or enforcing its respective rights under this Agreement.
10. ASSIGNMENT. This contract shall be binding upon and inure to the
benefit of the heirs and representatives of Executive and the assigns and
successors of the Company, but neither this Agreement nor any rights or
obligations hereunder shall be assignable or otherwise subject to hypothecation
by Executive (except by will or by operation of the laws of intestate
succession) or by the Company, except that the Company may assign this Agreement
to any successor (whether by merger, purchase or otherwise) to all or
substantially all of the stock,
<PAGE>
9
assets or businesses of the Company, if such successor expressly agrees to
assume the obligations of the Company hereunder.
11. AMENDMENT. This Agreement may only be amended by written
agreement of the parties hereto.
12. NONDISCLOSURE OF CONFIDENTIAL INFORMATION; NON-COMPETITION. (a)
Executive shall not, without the prior written consent of the Company, use,
divulge, disclose or make accessible to any other person, firm, partnership,
corporation or other entity any Confidential Information pertaining to the
business of the Company or any of its affiliates, except (i) while employed by
the Company, in the business of and for the benefit of the Company, or (ii) when
required to do so by a court of competent jurisdiction, by any governmental
agency having supervisory authority over the business of the Company, or by any
administrative body or legislative body (including a committee thereof) with
jurisdiction to order Executive to divulge, disclose or make accessible such
information. For purposes of this Section 12(a), "Confidential Information"
shall mean non public information concerning the financial data, strategic
business plans, product development ( or other proprietary product data),
customer lists, marketing plans and other non-public, proprietary and
confidential information for the Company or its respective affiliates (the
"Restricted Group") or customers, that, in any case, is not otherwise available
to the public (other than by Executive's breach of the terms hereof).
(b) During the period of his employment hereunder and for twenty-four
(24) months thereafter, Executive agrees that,
<PAGE>
10
without the prior written consent of the Company, (i) he will not, directly or
indirectly, either as principal, manager, agent, consultant, officer,
stockholder, partner, investor, lender of employee or in any other capacity,
carry on, be engaged in or have any financial interest in, any business which is
in competition with the business of the Company and (ii) he shall not, on his
own behalf or on behalf of any person, firm or company, directly or indirectly,
solicit or offer employment to any person who has been employed by the
Restricted Group at any time during the twenty-four (24) months immediately
preceding such solicitation.
(c) For purposes of this Section 12, a business shall be deemed to be
in competition with the Company if it is involved in the purchase, sale or other
dealing in any property or the rendering of any service purchased, sold, dealt
in or rendered by the Company as a material part of the business of the Company
within the same geographic area in which the Company effects such purchases,
sales or dealings or renders such services. Nothing in this Section 12 shall be
construed so as to preclude Executive from investing in any publicly or
privately held company, provided Executive's beneficial ownership of any class
of such company's securities does not exceed 5% of the outstanding securities of
such class.
(d) Executive and the Company agree that this covenant not to compete
is a reasonable covenant under the circumstances, and further agree that if in
the opinion of any court of competent jurisdiction such restraint is not
reasonable in any
<PAGE>
11
respect, such court shall have the right, power and authority to excise or
modify such provision or provisions of this covenant as to the court shall
appear not reasonable and to enforce the remainder of the covenant as so
amended. Executive agrees that any breach of the covenants contained in this
Section 12 would irreparably injure the Company. Accordingly, Executive agrees
that the Company may, in addition to pursuing any other remedies it may have in
law or in equity, cease making any payments otherwise required by this Agreement
and obtain an injunction against Executive from any court having jurisdiction
over the matter restraining any further violation of this Agreement by
Executive.
13. BENEFICIARIES; REFERENCES. Executive shall be entitled to select
(and change, to the extent permitted under any applicable law) a beneficiary or
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such election, in either case by giving the
Company written notice thereof. In the event of Executive's death or a judicial
determination of his incompetence, reference in this Agreement to Executive
shall be deemed, where appropriate, to refer to his beneficiary, estate or other
legal representative. Any reference to the masculine gender in this Agreement
shall include, where appropriate, the feminine.
14. SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
<PAGE>
12
The provisions of this Section 14 are in addition to the survivorship provisions
of any other section of this Agreement.
15. GOVERNING LAW. This Agreement shall be construed, interpreted
and governed in accordance with the laws of the State of New Jersey, without
reference to rules relating to conflicts of law.
16. EFFECT ON PRIOR AGREEMENTS. This Agreement contains the entire
understanding between the parties hereto and supersedes in all respects any
prior agreement or understanding between the Company or any affiliate of the
Company and Executive as to employment matters.
17. WITHHOLDING. The Company shall be entitled to withhold from
payment any amount of withholding required by law.
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original.
19. DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
<PAGE>
13
IN WITNESS WHEREOF, the parties have duly executed and entered into
this Agreement, as of the date first above written.
AEP INDUSTRIES INC.
By: /s/ J. Brendan Barba
----------------------------------------
Name: J. Brendan Barba
Title: President
/s/ Jane M. Fenney
----------------------------------------
Executive
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, dated January 6, 1996, included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-6355, 33-6365, 33-58747 and
33-58743 on Form S-8.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
AEP INDUSTRIES INC. FORM 10-K FOR THE TWELVE MONTHS ENDED OCTOBER -31-1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-1-1995
<PERIOD-END> OCT-31-1996
<CASH> 12,087
<SECURITIES> 2,070
<RECEIVABLES> 118,706
<ALLOWANCES> 5,516
<INVENTORY> 107,663
<CURRENT-ASSETS> 254,226
<PP&E> 476,905
<DEPRECIATION> 151,634
<TOTAL-ASSETS> 641,678
<CURRENT-LIABILITIES> 193,690
<BONDS> 0
0
0
<COMMON> 99
<OTHER-SE> 95,034
<TOTAL-LIABILITY-AND-EQUITY> 641,678
<SALES> 270,534
<TOTAL-REVENUES> 270,924
<CGS> 210,764
<TOTAL-COSTS> 210,764
<OTHER-EXPENSES> 15,011
<LOSS-PROVISION> 527
<INTEREST-EXPENSE> 11,517
<INCOME-PRETAX> 4,411
<INCOME-TAX> 1,858
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,553
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
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