<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 April 30, 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)
<TABLE>
<CAPTION>
22-1916107
Delaware (I.R.S. Employer
(State or other jurisdiction of Identification
incorporation or organization) No.)
<S> <C>
125 Phillips Avenue
South Hackensack, New Jersey
(Address of principal executive 07606
offices) (Zip Code)
(201) 641-6600
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
</TABLE>
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) hasbeen 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
CLASS OF COMMON STOCK AT MAY 29, 1998
- -------------------------------------------------------------------------- ------------------
<S> <C>
$.01 Par Value............................................................ 7,267,424
</TABLE>
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEP INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1998 1997
-------------- --------------
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents...................................................... $ 3,223,000 $ 4,143,000
Accounts receivable, less allowance of $4,649,000 in 1998 and $5,226,000 in
1997 for doubtful accounts................................................... 102,146,000 112,219,000
Inventories, net............................................................... 96,066,000 92,021,000
Net assets of discontinued operations.......................................... 15,000,000 15,000,000
Other current assets........................................................... 15,257,000 12,978,000
-------------- --------------
Total current assets......................................................... 231,692,000 236,361,000
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and
amortization of $100,395,000 in 1998 and $89,498,000 in 1997................... 287,523,000 292,743,000
-------------- --------------
GOODWILL less accumulated amortization of $1,672,000 in 1998 and $1,351,000 in
1997........................................................................... 42,544,000 43,183,000
INVESTMENT IN JOINT VENTURE...................................................... 15,434,000 15,345,000
OTHER ASSETS..................................................................... 36,863,000 25,451,000
-------------- --------------
TOTAL ASSETS................................................................. $ 614,056,000 $ 613,083,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings.......................................................... $ 78,921,000 $ 65,484,000
Accounts payable............................................................... 63,901,000 74,720,000
Accrued expenses............................................................... 41,138,000 40,112,000
-------------- --------------
Total current liabilities.................................................... 183,960,000 180,316,000
LONG-TERM DEBT................................................................... 309,381,000 311,522,000
OTHER LONG TERM LIABILITIES...................................................... 5,784,000 6,278,000
DEFERRED INCOME TAXES............................................................ 27,741,000 26,985,000
-------------- --------------
Total liabilities............................................................ 526,866,000 525,101,000
-------------- --------------
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; 10,011,896 and 9,988,330 shares issued and outstanding in 1998
and 1997, respectively....................................................... 100,000 100,000
Additional paid-in capital..................................................... 90,807,000 89,974,000
Treasury stock--common stock; at cost, 2,745,472 and 2,781,543 shares in 1998
and 1997, respectively....................................................... (60,983,000) (61,783,000)
Retained earnings.............................................................. 79,363,000 78,679,000
Cumulative translation adjustment.............................................. (22,097,000) (18,988,000)
-------------- --------------
Total shareholders' equity................................................... 87,190,000 87,982,000
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................... $ 614,056,000 $ 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 SIX
FOR THE THREE MONTHS ENDED MONTHS ENDED
APRIL 30, APRIL 30,
-------------------------------- ---------------
<S> <C> <C> <C>
1998 1997 1998
--------------- --------------- ---------------
NET SALES........................................................ $ 179,056,000 $ 190,302,000 $ 357,348,000
COST OF SALES.................................................... 140,310,000 151,237,000 278,855,000
--------------- --------------- ---------------
Gross profit................................................. 38,746,000 39,065,000 78,493,000
--------------- --------------- ---------------
OPERATING EXPENSES
Delivery and Warehousing....................................... 11,562,000 12,411,000 23,340,000
Selling........................................................ 10,062,000 10,869,000 19,891,000
General and Administrative..................................... 7,324,000 7,190,000 14,820,000
--------------- --------------- ---------------
Total operating expenses..................................... 28,948,000 30,470,000 58,051,000
--------------- --------------- ---------------
Income from operations....................................... 9,798,000 8,595,000 20,442,000
--------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense, net.......................................... (8,434,000) (6,452,000) (16,585,000)
Other, net..................................................... (89,000) 1,098,000 266,000
--------------- --------------- ---------------
(8,523,000) (5,354,000) (16,319,000)
--------------- --------------- ---------------
Income before provision for income taxes..................... 1,275,000 3,241,000 4,123,000
PROVISION FOR INCOME TAXES....................................... 613,000 1,250,000 1,604,000
--------------- --------------- ---------------
Income from continuing operations............................ 662,000 1,991,000 2,519,000
DISCONTINUED OPERATIONS
(Loss) from operations of discontinued Rigids business (less
applicable income tax benefit of $636,000 and $1,025,000 for
the respective periods)...................................... (1,232,000) -- (1,835,000)
--------------- --------------- ---------------
Net income (loss)............................................ (570,000) 1,991,000 684,000
Retained earnings, beginning of period........................... 79,933,000 74,164,000 78,679,000
--------------- --------------- ---------------
Retained earnings, end of period................................. $ 79,363,000 $ 76,155,000 $ 79,363,000
--------------- --------------- ---------------
--------------- --------------- ---------------
EARNINGS PER SHARE:
Basic income from continuing operations........................ $ 0.09 $ 0.28 $ 0.34
Basic loss from discontinued operations........................ $ (0.17) $ -- $ (0.25)
--------------- --------------- ---------------
Basic net income (loss)...................................... $ (0.08) $ 0.28 $ 0.09
--------------- --------------- ---------------
--------------- --------------- ---------------
Diluted income from continuing operations...................... $ 0.09 $ 0.27 $ 0.34
Diluted loss from discontinued operations...................... $ (0.17) $ -- $ (0.25)
--------------- --------------- ---------------
Diluted net income (loss).................................... $ (0.08) $ 0.27 $ 0.09
--------------- --------------- ---------------
--------------- --------------- ---------------
<CAPTION>
<S> <C>
1997
---------------
NET SALES........................................................ $ 371,988,000
COST OF SALES.................................................... 293,448,000
---------------
Gross profit................................................. 78,540,000
---------------
OPERATING EXPENSES
Delivery and Warehousing....................................... 22,615,000
Selling........................................................ 21,416,000
General and Administrative..................................... 14,944,000
---------------
Total operating expenses..................................... 58,975,000
---------------
Income from operations....................................... 19,565,000
---------------
OTHER INCOME (EXPENSE):
Interest expense, net.......................................... (13,030,000)
Other, net..................................................... 2,160,000
---------------
(10,870,000)
---------------
Income before provision for income taxes..................... 8,695,000
PROVISION FOR INCOME TAXES....................................... 2,648,000
---------------
Income from continuing operations............................ 6,047,000
DISCONTINUED OPERATIONS
(Loss) from operations of discontinued Rigids business (less
applicable income tax benefit of $636,000 and $1,025,000 for
the respective periods)...................................... --
---------------
Net income (loss)............................................ 6,047,000
Retained earnings, beginning of period........................... 70,108,000
---------------
Retained earnings, end of period................................. $ 76,155,000
---------------
---------------
EARNINGS PER SHARE:
Basic income from continuing operations........................ $ 0.85
Basic loss from discontinued operations........................ $ --
---------------
Basic net income (loss)...................................... $ 0.85
---------------
---------------
Diluted income from continuing operations...................... $ 0.81
Diluted loss from discontinued operations...................... $ --
---------------
Diluted net income (loss).................................... $ 0.81
---------------
---------------
</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 SIX MONTHS
ENDED APRIL 30,
-----------------------------
<S> <C> <C>
1998 1997
-------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $ 684,000 $ 6,047,000
Adjustments to reconcile net income to net cash
provided by operating activities...............................................
Depreciation and amortization................................................ 17,022,000 15,530,000
Net (gain) on sale of equipment.............................................. (93,000) (127,000)
Provision for losses on accounts receivable.................................. 831,000 597,000
Joint venture income......................................................... (89,000) 148,000
Net (gain)/loss on sale of securities........................................ -- (416,000)
Decrease (Increase) in accounts receivable................................... 6,875,000 154,000
Decrease (Increase) in inventories........................................... (5,865,000) 8,048,000
Decrease (Increase) in other current assets.................................. (2,647,000) 3,654,000
Decrease (Increase) in other assets.......................................... (11,412,000) 3,142,000
Increase (decrease) in accounts payable...................................... (9,239,000) (12,760,000)
Increase (decrease) in accrued expenses...................................... 1,785,000 (3,497,000)
Increase (decrease) in other long term liabilities........................... 631,000 (8,687,000)
-------------- -------------
Net cash provided by (used in) operating activities........................ (1,517,000) 11,833,000
-------------- -------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures............................................................. (12,112,000) (22,276,000)
Sales and retirements of property, plant and equipment, net...................... 122,000 1,763,000
Sales of marketable securities................................................... -- 2,486,000
Proceeds from sale of subsidiary................................................. 2,284,000 --
-------------- -------------
Net cash provided by (used in) investing activities........................ (9,706,000) (18,027,000)
-------------- -------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of Subordinated Notes..................................... 198,500,000 --
Repayments of Term Loan.......................................................... (196,591,000) (10,000,000)
Net borrowings................................................................... 10,563,000 7,771,000
Issuance of common stock related to ESOP......................................... 1,265,000 --
Proceeds from issuance of common stock........................................... 368,000 611,000
-------------- -------------
Net cash provided by (used in) financing activities........................ 14,105,000 (1,618,000)
-------------- -------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH........................................... (3,802,000) 156,000
-------------- -------------
NET INCREASE (DECREASE) IN CASH:................................................... (920,000) (7,656,000)
CASH AT BEGINNING OF PERIOD:....................................................... 4,143,000 12,067,000
-------------- -------------
CASH AT END OF PERIOD:............................................................. $ 3,223,000 $ 4,411,000
-------------- -------------
-------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--interest........................................ $ 10,119,000 $ 11,184,000
-------------- -------------
Cash paid during the period for--income taxes.................................... $ 2,404,000 $ 427,000
-------------- -------------
-------------- -------------
</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 with
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 April 30, 1998, and 1997 were 7,250,595
and 7,156,455, respectively. The number of shares used in such computation for
the six months ended April 30, 1998, and 1997 were 7,229,368 and 7,147,468,
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 April 30, 1998,
and 1997 were 7,471,306 and 7,476,631, respectively. The number of shares used
in such computation for the six months ended April 30, 1998, and 1997 were
7,440,257 and 7,470,249, 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>
APRIL 30, OCTOBER 31,
1998 1997
------------- ---------------
<S> <C> <C>
Raw Materials................................................ $ 23,550,000 $ 22,212,000
Finished Goods............................................... 69,748,000 67,246,000
Supplies..................................................... 4,170,000 4,060,000
------------- ---------------
97,468,000 93,518,000
Less: Inventory Reserve...................................... (1,402,000) (1,497,000)
------------- ---------------
Total Inventories, Net....................................... $ 96,066,000 $ 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 58% and
50% of total inventories at April 30, 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. The
carrying value at April 30, 1998 represents the Company's best estimate as to
the fair market value 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
In January 1998, the Company completed the sale of 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
NET SALES AND GROSS PROFIT
THREE MONTHS ENDED APRIL 30, 1998 AS COMPARED TO THREE MONTHS ENDED APRIL
30, 1997
Net sales for the first quarter ended April 30, 1998 decreased by
$11,246,000 or 6% to $179,056,000 from $190,302,000 in the same period in the
prior year. Net sales in North America decreased to $107,919,000 during the
current period from $115,339,000 in the second quarter of 1997, or 6%, primarily
due to a 6% 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 partially offset by an increase in sales volume of 1% in
North America. Net sales in Europe decreased to $50,298,000 for the second
quarter of 1998 from $51,013,000 in fiscal 1997, or 1%, primarily due to a 5%
decrease in sales volume offset by a 4% increase in average selling prices
(local currency). Net sales in Asia Pacific increased to $20,839,000 in the
current period from $20,152,000 in the same period in the prior year, or 3%,
primarily due to a 56% sales volume increase resulting from the Company's
acquisition of certain businesses during the prior year offset by a decrease of
35% in average selling prices (local currency), which resulted from a change in
the product mix from the aforementioned acquisitions which had lower selling
prices and from economic pressures in the region. The Company's net sales for
the second quarter of 1997 included net sales of $3,798,000 from its South
African Operation which was sold November 1, 1997.
Gross profit for the second quarter of Fiscal 1998 amounted to $38,746,000
compared to $39,065,000, a decrease of $319,000 from the second quarter of
Fiscal 1997. North America operations experienced an increase in gross profit of
$1,206,000 or 5% 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 in the second quarter 1998 by $38,000 primarily
due to market conditions which prevented the timely passing through of increased
raw material costs to its customers. Gross profit for the Asia Pacific region
decreased $487,000 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 second quarter of 1997 included gross profit of
$1,000,000 from its South African Operation which was sold November 1, 1997.
OPERATING EXPENSES
Operating expenses for the three months ended April 30, 1998 were
$28,948,000 as compared to $30,470,000 over the same period in the prior fiscal
year. This decrease of $1,522,000 in operating expenses can be attributed to the
implementation of new delivery systems during the period which decreased
warehousing and delivery costs by $850,000. Selling expenses for the period
decreased by $807,000 due to 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 April 30, 1998, amounted to
$8,434,000, an increase of $1,982,000 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.
7
<PAGE>
OTHER INCOME (EXPENSE)
Other expense for the three months ended April 30, 1998, amounted to
$89,000. 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.
SIX MONTHS ENDED APRIL 30, 1998 AS COMPARED TO SIX MONTHS ENDED APRIL 30,
1997
NET SALES AND GROSS PROFIT
Net sales for the six months ended April 30, 1998, were $357,348,000, a
decrease of $14,640,000 from the same period in the prior year. Net sales in
North America decreased to $215,786,000 during the current period from
$223,875,000 in the second quarter of 1997, or 4%, primarily due to a 4%
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 4% in North America. Net sales in
Europe decreased to $98,469,000 for the second quarter of 1998 from $101,425,000
in fiscal 1997, or 3%, primarily due to a 3% decrease in selling prices (local
currency) on approximately the same sales volume. Net sales in Asia Pacific
increased to $43,093,000 in the current period from $39,647,000 in the same
period in the prior year, or 9%, primarily due to a 61% sales volume increase
due to the Company's acquisition of certain businesses during the prior year
offset by a decrease of 33% in average selling prices (local currency), which
resulted from a change in the product mix from the aforementioned acquisitions
which had lower selling prices and from economic pressures in the region. The
Company's net sales for the second quarter of 1997 included net sales of
$7,041,000 from its South African Operation which was sold November 1, 1997.
Gross profit for the six months ended April 30, 1998 amounted to $78,493,000
compared to $78,540,000 a decrease of $47,000 from the same period in Fiscal
1997. North America experienced an increase in gross profit of $3,879,000 or 8%
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 $1,502,000 for the first six 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. Gross profit for the Asia Pacific region
decreased $523,000 in the current period when compared to the same period in the
prior year. This decrease is gross profit in a result of economic pressures in
the Asia Pacific region, which resulted in depressed unit selling prices. The
Company's gross profit for the six months ended April 30, 1997 included
$1,901,000 from its South African Operation which was sold November 1, 1997.
OPERATING EXPENSES
Operating expenses for the six months ended April 30, 1998 were $58,051,000
as compared to $58,975,000 over the same period in the prior fiscal year. This
net decrease of $924,000 in operating expenses can be attributed to the
reduction in selling expenses for the period of $1,525,000 due to the
realignment of the company's worldwide sales force implemented at the beginning
of Fiscal 1998. This decrease in selling expenses was partially offset by
increased warehousing and delivery costs resulting from increased sales volume
as well as costs incurred in the implementation of new delivery systems during
the second quarter. The Company's operating expenses for the six months ended
April 30, 1997 included $1,905,000 of its South African Operation which was sold
November 1, 1997.
INTEREST EXPENSE
Interest expense for the six months ended April 30, 1998, amounted to
$16,585,000, an increase of $3,555,000 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
8
<PAGE>
9.875% Senior Subordinated Notes in November 1997, which resulted in higher
average interest rates for the period.
OTHER INCOME (EXPENSE)
Other income for the six months ended April 30, 1998, amounted to $266,000.
This amount includes $107, 000 in interest income, $93,000 in gain from sales of
machinery equipment and income from investment in a joint venture of $89,000.
These items were offset by $23,000 in foreign currency exchange losses realized
during the period.
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 $47,732,000 at April 30, 1998,
compared to $56,045,000 at October 31, 1997. This decrease of $8,313,000 in
working capital is primarily the result of net repayment of long term debt and
the strengthening of the U.S. dollar during the first six months of fiscal 1998.
The Company's cash and cash equivalents decreased by $920,000 for the six months
ended April 30,1998. Net cash provided by operating activities during the period
was $2,256,000 primarily due to depreciation and amortization expense of
$17,022,000 and collection of accounts receivable of $6,875,000 offset by
increased investment in inventories of $5,865,000 , in other assets of
$11,412,000 and in other operating assets and liabilities of $4,364,000
Net cash used in investing activities for the six months ended April 30,
1998 was $9,706,000, resulting primarily from the net investment in capital
expenditures of $12,112,000 which were partially offset by the proceeds of
$2,284,000 the Company received from its sale of its South Africa operation in
November 1997 and the sale of some machinery and equipment.
Net cash provided by financing activities for the six months ended April 30,
1998 was $10,332,000, reflecting the proceeds from the issuance of the Company's
9.875% Subordinated Notes of $198,500,000 net borrowings under the unsecured
revolving credit facility of $6,790,000 and common stock issued under the
Company's ISO and ESOP plans of $1,633,000, offset by 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.
9
<PAGE>
At April 30, 1998, the Company had $119,500,000 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.
The Company also has a $10,000,000 unsecured revolving credit facility
available for working capital purposes. At April 30, 1998, there was 8,900,000
in outstanding borrowings under this facility.
The Company also maintains various unsecured short-term credit facilities at
its foreign subsidiaries. At April 30, 1998, the aggregate amount outstanding
under such facilities was approximately $55,000,000 and approximately
$15,000,000 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 $39,000,000 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. The Company also expects to
receive cash in the event that its rigids businesses are sold.
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.
/s/ S/A J. BRENDAN BARBA
------------------------------------------
J. Brendan Barba
CHAIRMAN OF THE BOARD, PRESIDENT AND
Date: June 12, 1998 CHIEF EXECUTIVE OFFICER
/s/ S/A PAUL M. FEENEY
------------------------------------------
Paul M. Feeney
EXECUTIVE VICE PRESIDENT
Date: June 12, 1998 PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of AEP Industries Inc. was held on April
8, 1997, for the purpose of electing two Class A directors and approving the
appointment of auditors. Proxies for the Meeting were solicited pursuant to
Section 14(A) of the Securities and Exchange Act of 1934 and there was no
solicitation in opposition to management's solicitations.
1. Management's nominee's for Class C directors as listed in the Proxy
Statement were elected with the following vote:
<TABLE>
<CAPTION>
SHARES VOTED SHARES SHARES NOT
"FOR" WITHHELD VOTED
------------ ---------- -----------
<S> <C> <C> <C>
J. Brendan Barba................................................ 6,907,841 13,542 304,514
C. Robert Kidder................................................ 6,910,621 10,762 304,514
Lawrence R. Noll................................................ 6,911,248 10,135 304,514
Lee C. Stewart.................................................. 6,910,812 10,571 304,514
</TABLE>
2. The appointment of Arthur Andersen LLP as independent auditors was approved
by the following vote:
<TABLE>
<CAPTION>
SHARES
SHARES VOTED SHARES VOTED SHARES NOT
"FOR" "AGAINST" "ABSTAINING" VOTED
- ------------ --------------- ------------- ---------
<S> <C> <C> <C>
6,917,697.. 820 2,866 304,514
</TABLE>
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 April 30,
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>
EXHIBIT 11
AEP INDUSTRIES INC.
COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE THREE MONTHS ENDED APRIL 30, APRIL 30,
--------------------------------------------------- ---------------
NUMBER OF WEIGHTED AVERAGE NUMBER OF
SHARES OF DAYS DAYS IN NUMBER OF SHARES DAYS
1998 COMMON STOCK OUTSTANDING PERIOD OUTSTANDING OUTSTANDING
- ------------------------------------ -------------- ----------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C> <C>
November 1-October 31............... 7,206,787 7,206,787
Shares Issued:
November 18, 1997................. 60 89 89 60 164
December 3, 1997.................. 400 89 89 400 149
December 9, 1997.................. 100 89 89 100 143
December 15, 1997................. 200 89 89 200 137
December 18, 1997................. 1,900 89 89 1,900 134
December 19, 1997................. 1,000 89 89 1,000 133
January 16, 1998.................. 800 89 89 800 105
January 20, 1998.................. 200 89 89 200 101
January 27, 1998.................. 600 94 89 634 94
January 30, 1998.................. 6,950 91 89 7,106 91
February 6, 1998.................. 200 84 89 189 84
February 9, 1998.................. 200 81 89 182 81
February 11, 1998................. 2,000 79 89 1,775 79
February 12, 1998................. 4,500 78 89 3,944 78
February 19, 1998................. 2,900 71 89 2,313 71
February 19, 1998................. (861) 71 89 (687) 71
February 26, 1998................. 217 64 89 156 64
March 5, 1998..................... 36,071 57 89 23,102 57
March 26, 1998.................... 200 36 89 81 36
April 1, 1998..................... 400 30 89 135 30
April 6, 1998..................... 400 25 89 112 25
April 20, 1998.................... 200 11 89 25 11
April 21, 1998.................... 200 10 89 22 10
April 23, 1998.................... 600 8 89 54 8
April 29, 1998.................... 200 2 89 4 2
-------------- -----------------
Total Weighted Average Shares....... 7,266,424 7,250,595
Total Dilutive Stock options...... -- 220,711
-------------- -----------------
Total Shares.................... 7,266,424 7,471,306
-------------- -----------------
-------------- -----------------
<CAPTION>
WEIGHTED AVERAGE
DAYS IN NUMBER OF SHARES
1998 PERIOD OUTSTANDING
- ------------------------------------ ----------- -----------------
<S> <C> <C>
November 1-October 31............... 7,206,787
Shares Issued:
November 18, 1997................. 181 54
December 3, 1997.................. 181 329
December 9, 1997.................. 181 79
December 15, 1997................. 181 151
December 18, 1997................. 181 1,407
December 19, 1997................. 181 735
January 16, 1998.................. 181 464
January 20, 1998.................. 181 112
January 27, 1998.................. 181 312
January 30, 1998.................. 181 3,494
February 6, 1998.................. 181 93
February 9, 1998.................. 181 90
February 11, 1998................. 181 873
February 12, 1998................. 181 1,939
February 19, 1998................. 181 1,138
February 19, 1998................. 181 (338)
February 26, 1998................. 181 77
March 5, 1998..................... 181 11,359
March 26, 1998.................... 181 40
April 1, 1998..................... 181 66
April 6, 1998..................... 181 55
April 20, 1998.................... 181 12
April 21, 1998.................... 181 11
April 23, 1998.................... 181 27
April 29, 1998.................... 181 2
-----------------
Total Weighted Average Shares....... 7,229,368
Total Dilutive Stock options...... 210,889
-----------------
Total Shares.................... 7,440,257
-----------------
-----------------
</TABLE>
15
<PAGE>
EXHIBIT 11
AEP INDUSTRIES INC.
COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1998
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED
FOR THE THREE MONTHS ENDED APRIL 30, APRIL 30,
-------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
NUMBER OF WEIGHTED AVERAGE NUMBER OF
SHARES OF DAYS DAYS IN NUMBER OF SHARES DAYS
1997 COMMON STOCK OUTSTANDING PERIOD OUTSTANDING OUTSTANDING
- ------------------------------------- -------------- ----------------- ------------- ---------------- ---------------
November 1 - October 31.............. 7,130,303 7,130,303
Shares Issued:
November 5, 1996..................... 1,600 89 89 1,600 177
November 7, 1996..................... 200 89 89 200 175
November 8, 1996..................... 200 89 89 200 174
November 11, 1996.................... 500 89 89 500 171
November 12, 1996.................... 600 89 89 600 170
November 14, 1996.................... 400 89 89 400 168
November 18, 1996.................... 400 89 89 400 164
November 20, 1996.................... 60 89 89 60 162
November 26, 1996.................... 400 89 89 400 156
December 9, 1996..................... 460 89 89 460 143
December 13, 1996.................... 350 89 89 350 139
December 26, 1996.................... 1,000 89 89 1,000 126
December 27, 1996.................... 200 89 89 200 125
January 1, 1997...................... 4,553 89 89 4,553 120
January 2, 1997...................... 500 89 89 500 119
January 3, 1997...................... 600 89 89 600 118
January 6, 1997...................... 1,600 89 89 1,600 115
January 8, 1997...................... 800 89 89 800 113
January 13, 1997..................... 1,300 89 89 1,300 108
January 14, 1997..................... 3,200 89 89 3,200 107
January 15, 1997..................... 600 89 89 600 106
January 20, 1997..................... 200 89 89 200 101
January 21, 1997..................... 400 89 89 400 100
January 27, 1997..................... 300 89 89 300 94
February 7, 1997..................... 400 83 89 373 83
February 13, 1997.................... 4,200 77 89 3,634 77
February 18, 1997.................... 200 72 89 162 72
February 20, 1997.................... 400 70 89 315 70
February 27, 1997.................... 400 63 89 283 63
March 5, 1997........................ 1,000 57 89 640 57
March 27, 1997....................... 300 35 89 118 35
April 17, 1997....................... 700 14 89 110 14
April 22, 1997....................... 200 9 89 20 9
April 23, 1997....................... 500 8 89 45 8
April 25, 1997....................... 200 6 89 13 6
April 29, 1997....................... 700 2 89 16 2
-- --
-------------- ---------------- ---
Total Weighted Average Shares........ 7,159,926 7,156,455
Total Dilutive Stock options......... -- 320,176
-- --
-------------- ---------------- ---
Total Shares..................... 7,159,926 7,476,631
-- --
-- --
-------------- ---------------- ---
-------------- ---------------- ---
<CAPTION>
<S> <C> <C>
WEIGHTED AVERAGE
DAYS IN NUMBER OF SHARES
1997 PERIOD OUTSTANDING
- ------------------------------------- ----------- ----------------
November 1 - October 31.............. 7,130,303
Shares Issued:
November 5, 1996..................... 181 1,565
November 7, 1996..................... 181 193
November 8, 1996..................... 181 192
November 11, 1996.................... 181 472
November 12, 1996.................... 181 564
November 14, 1996.................... 181 371
November 18, 1996.................... 181 362
November 20, 1996.................... 181 54
November 26, 1996.................... 181 345
December 9, 1996..................... 181 363
December 13, 1996.................... 181 269
December 26, 1996.................... 181 696
December 27, 1996.................... 181 138
January 1, 1997...................... 181 3,019
January 2, 1997...................... 181 329
January 3, 1997...................... 181 391
January 6, 1997...................... 181 1,017
January 8, 1997...................... 181 499
January 13, 1997..................... 181 776
January 14, 1997..................... 181 1,892
January 15, 1997..................... 181 351
January 20, 1997..................... 181 112
January 21, 1997..................... 181 221
January 27, 1997..................... 181 156
February 7, 1997..................... 181 183
February 13, 1997.................... 181 1,787
February 18, 1997.................... 181 80
February 20, 1997.................... 181 155
February 27, 1997.................... 181 139
March 5, 1997........................ 181 315
March 27, 1997....................... 181 58
April 17, 1997....................... 181 54
April 22, 1997....................... 181 10
April 23, 1997....................... 181 22
April 25, 1997....................... 181 7
April 29, 1997....................... 181 8
--- ----------------
Total Weighted Average Shares........ 7,147,468
Total Dilutive Stock options......... 322,781
--- ----------------
Total Shares..................... 7,470,249
--- ----------------
--- ----------------
</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 SIX MONTHS ENDED APR 30-1998 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 3,223
<SECURITIES> 0
<RECEIVABLES> 106,795
<ALLOWANCES> 4,649
<INVENTORY> 96,066
<CURRENT-ASSETS> 231,692
<PP&E> 387,918
<DEPRECIATION> 100,395
<TOTAL-ASSETS> 614,056
<CURRENT-LIABILITIES> 183,960
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 87,090
<TOTAL-LIABILITY-AND-EQUITY> 614,056
<SALES> 357,348
<TOTAL-REVENUES> 357,614
<CGS> 278,855
<TOTAL-COSTS> 278,855
<OTHER-EXPENSES> 57,220
<LOSS-PROVISION> 831
<INTEREST-EXPENSE> 16,585
<INCOME-PRETAX> 4,123
<INCOME-TAX> 1,604
<INCOME-CONTINUING> 2,519
<DISCONTINUED> (1,835)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 684
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
