<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14450
------------------------
AEP INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-1916107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 Phillips Avenue 07606
South Hackensack, New Jersey (Zip Code)
(Address of principal executive offices)
(201) 641-6600
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares Outstanding
at September 1,
Class of Common Stock 1998
- --------------------------------------------- ---------------------------------------------
<S> <C>
$.01 Par Value 7,277,701
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEP INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 1,537,000 $ 4,143,000
Accounts receivable, less allowance of $5,039,000 in 1998 and $5,226,000 in
1997 for doubtful accounts................................................... 103,114,000 112,219,000
Inventories, net............................................................... 92,812,000 92,021,000
Net assets of discontinued operations.......................................... 3,000,000 15,000,000
Other current assets........................................................... 14,664,000 12,978,000
-------------- --------------
Total current assets..................................................... 215,127,000 236,361,000
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and
amortization of $107,368,000 in 1998 and $89,498,000 in 1997................... 279,860,000 292,743,000
-------------- --------------
GOODWILL less accumulated amortization of $2,309,000 in 1998 and $1,351,000 in
1997........................................................................... 42,225,000 43,183,000
INVESTMENT IN JOINT VENTURE...................................................... 15,514,000 15,345,000
OTHER ASSETS..................................................................... 36,429,000 25,451,000
-------------- --------------
TOTAL ASSETS............................................................. $ 589,155,000 $ 613,083,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings.......................................................... $ 51,415,000 $ 65,484,000
Accounts payable............................................................... 72,798,000 74,720,000
Accrued expenses............................................................... 35,106,000 40,112,000
-------------- --------------
Total current liabilities................................................ 159,319,000 180,316,000
LONG-TERM DEBT................................................................... 308,923,000 311,522,000
OTHER LONG TERM LIABILITIES...................................................... 5,911,000 6,278,000
DEFERRED INCOME TAXES............................................................ 30,935,000 26,985,000
-------------- --------------
Total liabilities........................................................ 505,088,000 525,101,000
-------------- --------------
SHAREHOLDERS' EQUITY:
Preferred stock--$1.00 par value, 1,000,000 shares authorized; none
outstanding.................................................................. -- --
Common stock--$.01 par value, 30,000,000 shares authorized in 1998 and 1997,
respectively; 10,022,301 and 9,988,330 shares issued and outstanding in 1998
and 1997, respectively....................................................... 100,000 100,000
Additional paid-in capital..................................................... 91,064,000 89,974,000
Treasury stock--common stock; at cost, 2,744,600 and 2,781,543 shares in 1998
and 1997, respectively....................................................... (60,983,000) (61,783,000)
Retained earnings.............................................................. 78,875,000 78,679,000
Cumulative translation adjustment.............................................. (24,989,000) (18,988,000)
-------------- --------------
Total shareholders' equity............................................... 84,067,000 87,982,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................... $ 589,155,000 $ 613,083,000
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets
2
<PAGE>
AEP INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
JULY 31, JULY 31,
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
1998 1997 1998 1997
-------------- -------------- -------------- --------------
NET SALES...................................... $ 173,025,000 $ 198,031,000 $ 530,373,000 $ 570,019,000
COST OF SALES.................................. 133,787,000 158,323,000 412,642,000 451,771,000
-------------- -------------- -------------- --------------
Gross profit............................. 39,238,000 39,708,000 117,731,000 118,248,000
-------------- -------------- -------------- --------------
OPERATING EXPENSES
Delivery and Warehousing..................... 13,167,000 10,592,000 36,507,000 33,207,000
Selling...................................... 9,889,000 11,182,000 29,780,000 32,598,000
General and Administrative................... 7,182,000 7,257,000 22,002,000 22,201,000
-------------- -------------- -------------- --------------
Total operating expenses................. 30,238,000 29,031,000 88,289,000 88,006,000
-------------- -------------- -------------- --------------
Income from operations..................... 9,000,000 10,677,000 29,442,000 30,242,000
-------------- -------------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest expense, net........................ (8,391,000) (6,893,000) (24,976,000) (19,923,000)
Other, net................................... 232,000 338,000 498,000 2,498,000
-------------- -------------- -------------- --------------
(8,159,000) (6,555,000) (24,478,000) (17,425,000)
-------------- -------------- -------------- --------------
Income before provision for income taxes... 841,000 4,122,000 4,964,000 12,817,000
PROVISION FOR INCOME TAXES..................... 331,000 1,908,000 1,935,000 4,556,000
-------------- -------------- -------------- --------------
Income from continuing operations.......... 510,000 2,214,000 3,029,000 8,261,000
-------------- -------------- -------------- --------------
DISCONTINUED OPERATIONS
(Loss) from operations of discontinued
Rigids' business (less applicable income
tax benefit of $436,000 and $1,461,000
for the respective periods).............. (802,000) -- (2,637,000) --
-------------- -------------- -------------- --------------
(Loss) on disposal of Rigids' business
(less applicable income tax benefit
$106,000)................................ (196,000) -- (196,000) --
-------------- -------------- -------------- --------------
(Loss) from discontinued operations........ (998,000) -- (2,833,000) --
-------------- -------------- -------------- --------------
Net income (loss).......................... (488,000) 2,214,000 196,000 8,261,000
Retained earnings, beginning of period......... 79,363,000 76,155,000 78,679,000 70,108,000
-------------- -------------- -------------- --------------
Retained earnings, end of period............... $ 78,875,000 $ 78,369,000 $ 78,875,000 $ 78,369,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
EARNINGS PER SHARE:
Basic income from continuing operations...... $ 0.07 $ 0.31 $ 0.42 $ 1.15
Basic loss from discontinued operations...... $ (0.14) $ -- $ (0.39) $ --
-------------- -------------- -------------- --------------
Basic net income (loss).................... $ (0.07) $ 0.31 $ 0.03 $ 1.15
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Diluted income from continuing operations.... $ 0.07 $ 0.30 $ 0.42 $ 1.11
Diluted loss from discontinued operations.... $ (0.14) $ -- $ (0.39) $ --
-------------- -------------- -------------- --------------
Diluted net income (loss).................. $ (0.07) $ 0.30 $ 0.03 $ 1.11
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
3
<PAGE>
AEP INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED JULY 31,
-----------------------------
<S> <C> <C>
1998 1997
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 196,000 $ 8,261,000
Adjustments to reconcile net income to net cash provided by operating activities
-
Depreciation and amortization.................................................. 25,816,000 24,162,000
Net (gain) loss on sale of equipment........................................... 73,000 (235,000)
Loss on sale of Rigids......................................................... 302,000 --
Provision for losses on accounts receivable.................................... 1,530,000 1,304,000
Joint venture income........................................................... (169,000) --
Net (gain)/loss on sale of securities.......................................... -- (416,000)
Decrease (Increase) in accounts receivable..................................... 6,658,000 (7,549,000)
Decrease (Increase) in inventories............................................. (2,531,000) 3,616,000
Decrease (Increase) in other current assets.................................... (2,054,000) 18,161,000
Decrease (Increase) in other assets............................................ (10,978,000) (3,805,000)
Increase (decrease) in accounts payable........................................ (342,000) (8,516,000)
Increase (decrease) in accrued expenses........................................ (4,247,000) (3,285,000)
Increase (decrease) in other long term liabilities............................. 3,952,000 (9,123,000)
-------------- -------------
Net cash provided by operating activities.................................. 18,206,000 22,575,000
-------------- -------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures............................................................. (19,922,000) (34,638,000)
Sales and retirements of property, plant and equipment, net...................... 2,875,000 298,000
Sales of marketable securities................................................... -- 2,486,000
Net proceeds from sale of Rigids................................................. 11,823,000 --
Proceeds from sale of subsidiary................................................. 2,284,000 --
-------------- -------------
Net cash provided by (used in) investing activities........................ (2,940,000) (31,854,000)
-------------- -------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of Subordinated Notes..................................... 198,500,000 --
Repayments of Term Loan.......................................................... (196,591,000) --
Net borrowings................................................................... (17,401,000) 5,036,000
Issuance of common stock related to ESOP......................................... 1,297,000 --
Proceeds from issuance of common stock........................................... 593,000 1,976,000
-------------- -------------
Net cash provided by (used in) financing activities........................ (13,602,000) 7,012,000
-------------- -------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH........................................... (4,270,000) (5,071,000)
-------------- -------------
NET INCREASE (DECREASE) IN CASH:................................................... (2,606,000) (7,338,000)
CASH AT BEGINNING OF PERIOD:....................................................... 4,143,000 12,067,000
-------------- -------------
CASH AT END OF PERIOD:............................................................. $ 1,537,000 $ 4,729,000
-------------- -------------
-------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--interest........................................ $ 23,050,000 $ 16,770,000
-------------- -------------
Cash paid during the period for--income taxes.................................... $ 3,952,000 $ 2,204,000
-------------- -------------
</TABLE>
The accompanying notes to financial statement are an integral part of these
statements.
4
<PAGE>
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information included herein has been prepared by the Company
without audit, for filing with the Securities and Exchange Commission pursuant
to the rules and regulations of said Commission. The financial information
presented herein, while not necessarily indicative of results to be expected for
the year, reflects all adjustments (which include only normal recurring
adjustments) which in the opinion of the Company are necessary for a fair
presentation of the results for the periods indicated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report to Shareholders for the fiscal year ended October 31,
1997.
Certain prior period amounts have been reclassified in order to conform to
the current quarter's presentation.
(2) NET INCOME PER SHARE OF COMMON STOCK
The Company has adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share", which establishes new standards for computing and
presenting earnings per share ("EPS"). The new standard requires the
presentation of basic EPS and diluted EPS. Basic EPS is calculated by dividing
income available to common shareholders by the weighted average number of shares
of common stock outstanding during the period. The number of shares used in such
computation for the three months ended July 31, 1998, and 1997 were 7,272,728
and 7,190,446, respectively. The number of shares used in such computation for
the nine months ended July 31, 1998, and 1997 were 7,243,090 and 7,159,725,
respectively. Diluted EPS is calculated by dividing income available to common
shareholders by the weighted average number of common shares outstanding,
adjusted to reflect potentially dilutive securities (stock options). The number
of shares used in such computation for the three months ended July 31, 1998, and
1997 were 7,386,002 and 7,434,457, respectively. The number of shares used in
such computation for the nine months ended July 31, 1998, and 1997 were
7,401,810 and 7,440,241, respectively. Prior periods have been restated to
reflect such adoption.
3) INVENTORIES
Inventories, stated at the lower of cost (last-in, first-out (LIFO) method
for domestic operations and first-in, first-out (FIFO) method for foreign
operations and for supplies) or market, include material, labor and
manufacturing overhead costs and are comprised of the following:
<TABLE>
<CAPTION>
OCTOBER 31,
JULY 31, 1998 1997
------------- ---------------
<S> <C> <C>
Raw Materials................................................ $ 23,702,000 $ 22,212,000
Finished Goods............................................... 65,861,000 67,246,000
Supplies..................................................... 4,645,000 4,060,000
------------- ---------------
94,208,000 93,518,000
Less: Inventory Reserve...................................... (1,396,000) (1,497,000)
------------- ---------------
Total Inventories, Net....................................... $ 92,812,000 $ 92,021,000
------------- ---------------
------------- ---------------
</TABLE>
5
<PAGE>
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3) INVENTORIES (CONTINUED)
The LIFO method was used for determining the cost of approximately 59% and
50% of total inventories at July 31, 1998 and October 31, 1997, respectively.
(4) DISCONTINUED OPERATIONS
At the time of the Company's acquisition of Borden Global Packaging (BGP),
management decided not to retain the Rigids' businesses of BGP. The Rigids'
businesses manufacture, market and distribute wet food containers, dry food
trays and disposable food service products. These businesses are not core and
the Company has offered these businesses for sale. Beginning November 1, 1997,
the Company began recording these businesses as discontinued operations.
In June 1998, the Company sold four of its five Rigids' businesses for
approximately $11.8 million of net proceeds, subject to certain post-closing
adjustments.
The carrying value of the net assets of discontinued operations at July 31,
1998 represents the Company's best estimate as to the fair market value of the
remaining Rigids' business based on recent market information.
(5) DEBT
On November 19, 1997, the Company completed an offering of $200 million in
aggregate principal amount of 9.875% Senior Subordinated Notes due November 15,
2007 (the "Notes"). The issue price was 99.224% resulting in an effective yield
of 10%. The net proceeds (approximately $198.5 million) from the Notes was used
to repay a portion of the indebtedness outstanding under the Company's
outstanding Credit Agreement ($196.6 million).
(6) SALE OF SOUTH AFRICA OPERATIONS
On November 1, 1997, the Company sold its operations in South Africa to
local management for $1 million plus the settlement of all intercompany items.
The sale did not result in any gain or loss.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 31, 1998 AS COMPARED TO THREE MONTHS ENDED JULY 31, 1997
NET SALES AND GROSS PROFIT
Net sales for the third quarter ended July 31, 1998 decreased, by
$25,006,000 or 13% to $173,025,000 from $198,031,000 in the same period in the
prior year. Net sales in North America decreased to $107,331,000 during the
current period from $124,741,000 in the third quarter of 1997, or 14%, primarily
due to a 13% decrease in per unit selling prices as a result of lower raw
material costs which were passed though to the customers. In addition to
decrease in selling prices, sales volume declined by 1% in North America. Net
sales in Europe decreased to $48,266,000 for the third quarter of 1998 from
$50,830,000 in Fiscal 1997, or 5%, primarily due to a 26% decrease in average
selling prices offset by a 28% increase in sales volume (local currency). Net
sales in Asia Pacific decreased to $17,428,000 in the current period from
$18,672,000 in the same period in the prior year, or 7%. This region had a 30%
sales volume increase resulting from the Company's acquisition of certain
businesses during the prior year offset by a decrease of 28% in average selling
prices (local currency). This decrease in selling prices resulted from a change
in the product mix as a result of the aforementioned acquisitions, which had
lower average selling prices, as well as from economic pressures in the region.
The Company's net sales for the third quarter of 1997 included net sales of
$3,788,000 from its South African Operation which, was sold November 1, 1997.
Gross profit for the second quarter of Fiscal 1998 amounted to $39,238,000
compared to $39,708,000, a decrease of $470,000 from the third quarter of Fiscal
1997. North America operations experienced an increase in gross profit of
$349,000 or 1% for the period due to reduced raw material costs and various
plant efficiencies. Europe's gross profit increased in the third quarter of
Fiscal 1998 by $908,000, primarily due to the increased sales volume, which
resulted in improved plant efficiencies. Gross profit for the Asia Pacific
region decreased $880,000 in the current period when compared to the same period
in the prior year. This decrease in gross profit is a result of economic
pressures in the Asia Pacific region, which resulted in depressed unit selling
prices. The Company's gross profit for the third quarter of 1997 included gross
profit of $847,000 from its South African Operation, which was sold November 1,
1997.
OPERATING EXPENSES
Operating expenses for the three months ended July 31, 1998 were $30,238,000
as compared to $29,031,000 over the same period in the prior fiscal year. This
increase of $1,207,000 in operating can be primarily attributed to a slight
increase in average delivery costs per unit coupled with an 6% increase in
worldwide sales volume that increased warehousing and delivery costs by
$2,575,000. Selling expenses for the period decreased by $1,293,000 as a result
of the realignment of the Company's worldwide sales force implemented at the
beginning of Fiscal 1998.
INTEREST EXPENSE
Interest expense for the three months ended July 31, 1998, amounted to
$8,391,000, an increase of $1,498,000 from the same period in the prior year.
This increase in interest expense is due to the Company's higher average debt
outstanding for the current period and the issuance of its $200,000,000 of
9.875% Senior Subordinated Notes in November 1997, which resulted in higher
average interest rates for the period.
OTHER INCOME (EXPENSE)
Other expense for the three months ended July 31, 1998, amounted to
$232,000. This amount includes foreign currency exchange losses realized during
the period offset by gains on sales of machinery and equipment and interest
income earned for the period.
7
<PAGE>
NINE MONTHS ENDED JULY 31, 1998 AS COMPARED TO NINE MONTHS ENDED JULY 31, 1997
NET SALES AND GROSS PROFIT
Net sales for the nine months ended July 31, 1998, were $530,373,000, a
decrease of $39,646,000 from the same period in the prior year. Net sales in
North America decreased to $323,868,000 during the current period from
$348,557,000 for the same period in Fiscal 1997, or 7%, primarily due to a 9%
decrease in per unit selling prices as a result of lower raw material costs,
which were passed though to the customers. This decrease in selling prices was
offset by an increase in sales volume of 2% in North America. Net sales in
Europe decreased to $146,735,000 for the nine month period ended July 31, 1998,
from $152,256,000 in Fiscal 1997, or 3%, primarily due to an 11% decrease in
selling prices (local currency) offset by an 8% increase in sales volume. Net
sales in Asia Pacific increased to $59,770,000 in the current period from
$58,319,000 in the same period in the prior year, or 3%. The Asia Pacific region
had a 51% sales volume increase due to the Company's acquisition of certain
businesses during the prior year offset by a decrease of 32% in average selling
prices (local currency), which resulted from a change in the product mix as a
result of the aforementioned acquisitions, which had lower selling prices, and
from economic pressures in the region. The Company's net sales for the nine
months ended July 31, 1997 included net sales of $10,887,000 from its South
African Operation, which was sold November 1, 1997.
Gross profit for the nine months ended July 31, 1998 amounted to
$117,731,000 compared to $118,248,000 a decrease of $517,000 from the same
period in Fiscal 1997. North America experienced an increase in gross profit of
$4,228,000 or 6% for the period due to the increased utilization of plant
facilities, from increased sales volume, as well as reduced raw material costs.
Europe's gross profit decreased by $594,000 for the first nine months of the
current fiscal year when compared to the same period in the prior year. This
decrease was due to market conditions which prevented the timely passing through
of increased raw material costs to its customers during the first six months of
the current fiscal year which was offset by increased utilization of its plant
facilities, from increased sales volume. Gross profit for the Asia Pacific
region decreased $1,403,000 in the current period when compared to the same
period in the prior year. This decrease in gross profit is a result of economic
pressures in the Asia Pacific region, which resulted in depressed unit selling
prices and reduced plant utilization from the prior six months. The Company's
gross profit for the nine months ended July 31, 1997 included $2,748,000 from
its South African Operation that was sold November 1, 1997.
OPERATING EXPENSES
Operating expenses for the nine months ended July 31, 1998 were $88,289,000
as compared to $88,006,000 over the same period in the prior fiscal year. This
net increase of $283,000 can be attributed to the reduction in selling expenses
for the period of $2,818,000 due to the realignment of the Company's worldwide
sales force implemented at the beginning of Fiscal 1998. This decrease in
selling expenses was offset by an increase of $3,300,000 in warehousing and
delivery costs resulting from increased sales volume as well as costs incurred
in the implementation of new delivery systems during the first six months of the
fiscal year. The Company's operating expenses for the nine months ended July 31,
1997 included $2,944,000 of its South African Operation, which was sold November
1, 1997.
INTEREST EXPENSE
Interest expense for the nine months ended July 31, 1998, amounted to
$24,976,000, an increase of $5,053,000 from the same period in the prior year.
This increase in interest expense is due to the Company's higher average debt
outstanding for the current period and the issuance of its $200,000,000 of
9.875% Senior Subordinated Notes in November 1997, which resulted in higher
average interest rates for the period.
8
<PAGE>
OTHER INCOME (EXPENSE)
Other income for the nine months ended July 31, 1998, amounted to $498,000.
This amount includes $140,000 in interest income, and income from investment in
a joint venture of $169,000. These items were partially offset by $41,000 in
foreign currency exchange losses realized during the period and $73,000 in
losses from sales of fixed assets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through cash flow
generated from operations and borrowings by the Company or its subsidiaries
under various credit facilities. The Company's principal uses of cash have been
to fund working capital, including operating expenses, debt service, and capital
expenditures.
The Company's working capital amounted to $55,808,000 at July 31, 1998,
compared to $56,045,000 at October 31, 1997. This decrease of $237,000 in
working capital is primarily the result of net repayment of short term
borrowings from proceeds received from the sale of four of the Company's five
Rigids' businesses in June, 1998. The Company's cash and cash equivalents
decreased by $2,606,000 for the nine months ended July 31,1998. Net cash
provided by operating activities during the period was $18,206,000, primarily
due to depreciation and amortization expense of $25,816,000 and collection of
accounts receivable of $6,658,000 offset by increased investment in inventories
of $2,531,000 , in other assets of $10,978,000 and in other operating assets and
liabilities of $759,000
Net cash used in investing activities for the nine months ended July 31,
1998 was $2,940,000. The net investing activities resulted primarily from the
investment in capital expenditures of $19,922,000, which were offset by the
proceeds the Company received from the sale of its South Africa operation of
$2,284,000 in November 1997, its disposal of its Rigids businesses in June 1998
for $11,823,000 and the sale of certain facilities and machinery and equipment
for $2,875,000 during fiscal 1998.
Net cash used in financing activities for the nine months ended July 31,
1998 was $13,602,000, reflecting the proceeds from the issuance of the Company's
9.875% Subordinated Notes of $198,500,000 and common stock issued under the
Company's Stock Option Employee Stock Purchase and ESOP plans of $1,890,000.
These proceeds were used to make net repayments under the unsecured revolving
credit facility of $17,401,000 and a repayment under the term portion of the
Credit Agreement of $196,591,000.
The remaining increases and decreases in the components of the Company's
financial position reflect normal operating activity.
On October 11, 1996, the Company entered into 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 Credit
Agreement were used to pay the $263,000,000 cash portion of the purchase price
for the Borden Acquisition, 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 Borden Acquisition and the borrowing under the Credit
Agreement.
On November 19, 1997, the Company completed an offering of $200,000,000 in
aggregate principal amount of 9.875% Senior Subordinated Notes due November 15,
2007. The issue price was 99.224% resulting in an effective yield of 10%. The
net proceeds from the Notes have been used to repay a portion of the
indebtedness outstanding under the Company's outstanding Credit Agreement.
At July 31, 1998, the Company had $115,750,000 outstanding under the term
credit facility, no outstanding borrowings under its $100,000,000 revolving
credit facility, and $200,000,000 in outstanding Notes due November 2007.
9
<PAGE>
The Company also has a $10,000,000 unsecured revolving credit facility
available for working capital purposes. At July 31, 1998, there was $200,000 in
outstanding borrowings under this facility.
The Company also maintains various unsecured short-term credit facilities at
its foreign subsidiaries. At July 31, 1998, the aggregate amount outstanding
under such facilities was approximately $40,000,000 and approximately
$31,000,000 was available for borrowing. Borrowings from these facilities are
used to support operations at such subsidiaries and are generally serviced by
cash flow from operations at such subsidiaries. Approximately $35,000,000 of
such indebtedness is guaranteed by the Company.
The Company believes that its cash flow from operations, combined with the
availability of funds under the Credit Agreement and credit lines available to
the Company's foreign subsidiaries for local currency borrowings, will be
sufficient to meet the Company's working capital, capital expenditure and debt
service requirements for the foreseeable future.
EFFECTS OF INFLATION
Inflation is not expected to have significant impact on the Company's
business.
YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Company is currently undertaking a systems readiness review, which
will help mitigate the risks associated with the Year 2000 issue. The Company
has purchased certain new operating systems during Fiscal 1997 and as a result,
management believes that the Year 2000 issues will not have a material effect on
its financial position and results of operations.
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 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,
changes in market conditions, the potential of technological changes which would
adversely affect the need for the Company's products and price fluctuations
which could adversely impact the Company's inventory. Parties are cautioned not
to rely on any such forward-looking benefits or judgments in this section and in
other parts of this report.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AEP INDUSTRIES INC.
<TABLE>
<S> <C>
Date: September 14, 1998 /s/ J. BRENDAN BARBA
--------------------------------------------
J. Brendan Barba
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Date: September 14, 1998 /s/ PAUL M. FEENEY
--------------------------------------------
Paul M. Feeney
EXECUTIVE VICE PRESIDENT PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER
</TABLE>
11
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine litigation in the normal course of its
business. The proceedings are not expected to have a material adverse impact on
the Company's results of operations or financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11--Computation of weighted average number of shares
outstanding. Page 15-16
(b) No reports on Form 8-K were filed during the quarter ended July 31,
1998.
27. Financial Data Schedule (for electronic submission only).
12
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
3(a) Restated Certificate of Incorporation of the Company as filed April 11, 1997 (incorporated by
reference to Exhibit 3(a) to the Quarterly Report on 10-Q for the quarter ended July 31, 1997)
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)(1) 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(f)(2) Amendment No. 1, dated as of October 24, 1997, to the Credit Agreement dated as of October 11,
1996, among the Company, the Morgan Guaranty Trust Company as Agent and the Bank's party thereto
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 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)
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- --------------- -------------------------------------------------------------------------------------------------
<C> <S>
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
10(m) Purchase Agreement, dated November 14, 1997, among Registrant and J.P. Morgan Securities, Inc.,
Morgan Stanley & Co. Incorporated and Salomon Brothers Inc (incorporated by reference to Exhibit
1 to Registrant's report on Form 8-K, dated November 19, 1997)
10(n) Registration Rights Agreement, dated as of November 19, 1997, among Registrant and J.P. Morgan
Securities, Inc., Morgan Stanley & Co. Incorporated and Salomon Brothers, Inc (incorporated by
reference to Exhibit 1 to Registrant's report on Form 8-K, dated November 19, 1997)
10(o) Indenture, dated as of November 19, 1997, between the Registrant and The Bank of New York, as
Trustee (incorporated by reference to Exhibit 1 to Registrant's report on Form 8-K, dated
November 19, 1997)
10(p) Agreement for Sale of Business, dated July 18, 1997, between ICI Australia Limited and ICI
Australia Operations PTY Limited as Seller, and Registrant's subsidiary AEP Industries
(Australia) PTY Limited, as Purchaser (incorporated by reference to Exhibit 10(p) to the Annual
Report on Form 10-K for the year ended October 31, 1997)
</TABLE>
14
<PAGE>
AEP INDUSTRIES INC.
COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1998
EXHIBIT 11
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE THREE MONTHS ENDED JULY 31, JULY 31,
-------------------------------------------------- ----------------------------
NUMBER OF WEIGHTED AVERAGE NUMBER OF
SHARES OF DAYS DAYS IN NUMBER OF SHARES DAYS DAYS IN
1998 COMMON STOCK OUTSTANDING PERIOD OUTSTANDING OUTSTANDING PERIOD
- ---------------------------- -------------- ----------------- ------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
November 1-
October 31................ 7,206,787 7,206,787
Shares Issued:
November 18, 1997........... 60 92 92 60 256 273
December 3, 1997............ 400 92 92 400 241 273
December 9, 1997............ 100 92 92 100 235 273
December 15, 1997........... 200 92 92 200 229 273
December 18, 1997........... 1,900 92 92 1,900 226 273
December 19, 1997........... 1,000 92 92 1,000 225 273
January 16, 1998............ 800 92 92 800 197 273
January 20, 1998............ 200 92 92 200 193 273
January 27, 1998............ 600 92 92 600 186 273
January 30, 1998............ 6,950 92 92 6,950 183 273
February 6, 1998............ 200 92 92 200 176 273
February 9, 1998............ 200 92 92 200 173 273
February 11, 1998........... 2,000 92 92 2,000 171 273
February 12, 1998........... 4,500 92 92 4,500 170 273
February 19, 1998........... 2,900 92 92 2,900 163 273
February 19, 1998........... (861) 92 92 (861) 163 273
February 26, 1998........... 217 92 92 217 156 273
March 5, 1998............... 36,071 92 92 36,071 149 273
March 26, 1998.............. 200 92 92 200 128 273
April 1, 1998............... 400 92 92 400 122 273
April 6, 1998............... 400 92 92 400 117 273
April 20, 1998.............. 200 92 92 200 103 273
April 21, 1998.............. 200 92 92 200 102 273
April 23, 1998.............. 600 92 92 600 100 273
April 29, 1998.............. 200 92 92 200 100 273
May 4, 1998................. 200 89 92 193 89 273
May 5, 1998................. 200 88 92 191 88 273
May 6, 1998................. 200 87 92 189 87 273
May 22, 1998................ 400 71 92 309 71 273
June 9, 1998................ 400 53 92 230 53 273
June 10, 1998............... 872 52 92 493 52 273
July 14, 1998............... 9,005 48 92 4,698 48 273
-------------- ----------------
Total Weighted Average
Shares.................... 7,277,701 7,272,728
Total Dilutive Stock
options................... -- 113,274
-------------- ----------------
Total Shares................ 7,277,701 7,386,002
-------------- ----------------
-------------- ----------------
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES
1998 OUTSTANDING
- ---------------------------- ----------------
<S> <C>
November 1-
October 31................ 7,206,787
Shares Issued:
November 18, 1997........... 56
December 3, 1997............ 353
December 9, 1997............ 86
December 15, 1997........... 168
December 18, 1997........... 1,573
December 19, 1997........... 824
January 16, 1998............ 577
January 20, 1998............ 141
January 27, 1998............ 409
January 30, 1998............ 4,659
February 6, 1998............ 129
February 9, 1998............ 127
February 11, 1998........... 1,253
February 12, 1998........... 2,802
February 19, 1998........... 1,732
February 19, 1998........... (514)
February 26, 1998........... 124
March 5, 1998............... 19,687
March 26, 1998.............. 94
April 1, 1998............... 179
April 6, 1998............... 171
April 20, 1998.............. 75
April 21, 1998.............. 75
April 23, 1998.............. 220
April 29, 1998.............. 73
May 4, 1998................. 63
May 5, 1998................. 62
May 6, 1998................. 60
May 22, 1998................ 80
June 9, 1998................ 45
June 10, 1998............... 94
July 14, 1998............... 826
----------------
Total Weighted Average
Shares.................... 7,243,090
Total Dilutive Stock
options................... 158,720
----------------
Total Shares................ 7,401,810
----------------
----------------
</TABLE>
15
<PAGE>
AEP INDUSTRIES INC.
COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1998
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
FOR THE THREE MONTHS ENDED JULY 31, JULY 31,
-------------------------------------------------- ----------------------------
NUMBER OF WEIGHTED AVERAGE NUMBER OF
SHARES OF DAYS DAYS IN NUMBER OF SHARES DAYS DAYS IN
1997 COMMON STOCK OUTSTANDING PERIOD OUTSTANDING OUTSTANDING PERIOD
- ---------------------------- -------------- ----------------- ------------- ---------------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
November 1--
October 31................ 7,130,303 7,130,303
Shares Issued:
November 5, 1996............ 1,600 92 92 1,600 269 273
November 7, 1996............ 200 92 92 200 267 273
November 8, 1996............ 200 92 92 200 266 273
November 11, 1996........... 500 92 92 500 263 273
November 12, 1996........... 600 92 92 600 262 273
November 14, 1996........... 400 92 92 400 260 273
November 18, 1996........... 400 92 92 400 256 273
November 20, 1996........... 60 92 92 60 254 273
November 26, 1996........... 400 92 92 400 248 273
December 9, 1996............ 460 92 92 460 235 273
December 13, 1996........... 350 92 92 350 231 273
December 26, 1996........... 1,000 92 92 1,000 216 273
December 27, 1996........... 200 92 92 200 217 273
January 1, 1997............. 4,553 92 92 4,553 212 273
January 2, 1997............. 500 92 92 500 211 273
January 3, 1997............. 600 92 92 600 210 273
January 6, 1997............. 1,600 92 92 1,600 207 273
January 8, 1997............. 800 92 92 800 205 273
January 13, 1997............ 1,300 92 92 1,300 200 273
January 14, 1997............ 3,200 92 92 3,200 199 273
January 15, 1997............ 600 92 92 600 198 273
January 20, 1997............ 200 92 92 200 193 273
January 21, 1997............ 400 92 92 400 192 273
January 27, 1997............ 300 92 92 300 186 273
February 7, 1997............ 400 92 92 400 175 273
February 13, 1997........... 4,200 92 92 4,200 169 273
February 18, 1997........... 200 92 92 200 164 273
February 20, 1997........... 400 92 92 400 162 273
February 27, 1997........... 400 92 92 400 155 273
March 5, 1997............... 1,000 92 92 1,000 149 273
March 27, 1997.............. 300 92 92 300 127 273
April 17, 1997.............. 700 92 92 700 106 273
April 22, 1997.............. 200 92 92 200 101 273
April 23, 1997.............. 500 92 92 500 100 273
April 25, 1997.............. 200 92 92 200 98 273
April 29, 1997.............. 700 92 92 700 94 273
May 5, 1997................. 800 88 92 765 88 273
May 6, 1997................. 800 87 92 757 87 273
May 8, 1997................. 200 85 92 185 85 273
May 13, 1997................ 800 80 92 696 80 273
May 15, 1997................ 18,019 78 92 15,277 78 273
May 19, 1997................ 825 74 92 664 74 273
May 20, 1997................ 11,450 73 92 9,085 73 273
May 20, 1997................ (1,450) 73 92 (1,151) 73 273
May 23, 1997................ 200 70 92 152 70 273
May 28, 1997................ 200 65 92 141 65 273
June 2, 1997................ 200 60 92 130 60 273
June 3, 1997................ 600 59 92 385 59 273
June 4, 1997................ 400 58 92 252 58 273
June 5, 1997................ 300 57 92 186 57 273
June 6, 1997................ 100 56 92 61 56 273
June 18, 1997............... 400 44 92 191 44 273
June 23, 1997............... 1,600 39 92 678 39 273
July 1, 1997................ 6,129 31 92 2,065 31 273
-------------- ----------------
Total Weighted Average
Shares.................... 7,201,499 7,190,446
Total Dilutive Stock
options................... -- 244,011
-------------- ----------------
Total Shares................ 7,201,499 7,434,457
-------------- ----------------
-------------- ----------------
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES
1997 OUTSTANDING
- ---------------------------- ----------------
<S> <C>
November 1--
October 31................ 7,130,303
Shares Issued:
November 5, 1996............ 1,577
November 7, 1996............ 196
November 8, 1996............ 195
November 11, 1996........... 482
November 12, 1996........... 576
November 14, 1996........... 381
November 18, 1996........... 375
November 20, 1996........... 56
November 26, 1996........... 363
December 9, 1996............ 396
December 13, 1996........... 296
December 26, 1996........... 791
December 27, 1996........... 159
January 1, 1997............. 3,536
January 2, 1997............. 386
January 3, 1997............. 462
January 6, 1997............. 1,213
January 8, 1997............. 601
January 13, 1997............ 952
January 14, 1997............ 2,333
January 15, 1997............ 435
January 20, 1997............ 141
January 21, 1997............ 281
January 27, 1997............ 204
February 7, 1997............ 256
February 13, 1997........... 2,600
February 18, 1997........... 120
February 20, 1997........... 237
February 27, 1997........... 227
March 5, 1997............... 546
March 27, 1997.............. 140
April 17, 1997.............. 272
April 22, 1997.............. 74
April 23, 1997.............. 183
April 25, 1997.............. 72
April 29, 1997.............. 241
May 5, 1997................. 247
May 6, 1997................. 241
May 8, 1997................. 58
May 13, 1997................ 204
May 15, 1997................ 4,365
May 19, 1997................ 180
May 20, 1997................ 2,429
May 20, 1997................ (308)
May 23, 1997................ 39
May 28, 1997................ 34
June 2, 1997................ 29
June 3, 1997................ 83
June 4, 1997................ 54
June 5, 1997................ 39
June 6, 1997................ 12
June 18, 1997............... 31
June 23, 1997............... 97
July 1, 1997................ 235
----------------
Total Weighted Average
Shares.................... 7,159,725
Total Dilutive Stock
options................... 280,516
----------------
Total Shares................ 7,440,241
----------------
----------------
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AEP
INDUSTRIES INC. FORM 10-Q FOR THE NINE MONTHS ENDED JUL 31-1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 1,537
<SECURITIES> 0
<RECEIVABLES> 108,153
<ALLOWANCES> 5,039
<INVENTORY> 92,812
<CURRENT-ASSETS> 215,127
<PP&E> 387,228
<DEPRECIATION> 107,368
<TOTAL-ASSETS> 589,155
<CURRENT-LIABILITIES> 159,319
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 83,967
<TOTAL-LIABILITY-AND-EQUITY> 589,155
<SALES> 530,373
<TOTAL-REVENUES> 530,871
<CGS> 412,642
<TOTAL-COSTS> 412,642
<OTHER-EXPENSES> 86,759
<LOSS-PROVISION> 1,530
<INTEREST-EXPENSE> 24,976
<INCOME-PRETAX> 4,964
<INCOME-TAX> 1,935
<INCOME-CONTINUING> 3,029
<DISCONTINUED> (2,833)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196
<EPS-PRIMARY> .42
<EPS-DILUTED> .03
</TABLE>
