<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2000
</TABLE>
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</TABLE>
COMMISSION FILE NUMBER 0-14450
AEP INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 22-1916107
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
125 PHILLIPS AVENUE 07606
SOUTH HACKENSACK, NEW JERSEY (Zip Code)
(Address of principal executive offices)
</TABLE>
(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
CLASS OF COMMON STOCK MAY 31, 2000
--------------------- --------------
<S> <C>
$.01 Par Value 7,507,825
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEP INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS,EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,673 $ 3,103
Accounts receivable, less allowance of $5,333 in 2000 and
$5,342 in 1999 for doubtful accounts.................... 105,195 110,848
Inventories, net.......................................... 79,443 74,260
Net assets of discontinued operations..................... 4,519 4,249
Other current assets...................................... 11,981 11,309
-------- --------
Total current assets.................................... 204,811 203,769
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $135,872 in 2000 and
$132,320 in 1999.......................................... 214,802 232,421
GOODWILL, less accumulated amortization of $4,505 in 2000
and $3,858 in 1999........................................ 39,417 40,064
INVESTMENT IN JOINT VENTURE................................. 15,828 15,722
OTHER ASSETS................................................ 24,133 23,015
-------- --------
TOTAL ASSETS............................................ $498,991 $514,991
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 28,793 $ 27,433
Accounts payable.......................................... 99,632 89,459
Accrued expenses.......................................... 35,864 42,454
-------- --------
Total current liabilities............................... 164,289 159,346
LONG-TERM DEBT.............................................. 269,799 281,172
OTHER LONG TERM LIABILITIES................................. 6,682 7,635
-------- --------
Total liabilities....................................... 440,770 448,153
-------- --------
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;10,173,981 and 10,093,793 shares, issued in
2000 and 1999, respectively............................. 101 101
Additional paid-in capital................................ 93,864 92,992
Treasury stock--common stock; at cost, 2,666,156 shares in
2000 and 2,696,380 shares in 1999....................... (59,221) (59,892)
Retained earnings......................................... 62,842 64,444
Accumulated other comprehensive income (loss)............. (39,365) (30,807)
-------- --------
Total shareholders' equity.............................. 58,221 66,838
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $498,991 $514,991
======== ========
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
2
<PAGE>
AEP INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX MONTHS
MONTHS ENDED ENDED
APRIL 30, APRIL 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................... $184,139 $165,754 $347,985 $317,652
COST OF SALES............................................... 150,675 126,196 286,155 243,259
RESTRUCTURING CHARGE........................................ -- 1,457 -- 1,457
-------- -------- -------- --------
Gross profit............................................ 33,464 38,101 61,830 72,936
-------- -------- -------- --------
OPERATING EXPENSES
Delivery.................................................. 9,617 9,839 17,478 18,640
Selling................................................... 9,847 10,046 19,463 19,162
General and Administrative................................ 6,734 7,243 13,894 13,581
-------- -------- -------- --------
Total operating expenses................................ 26,198 27,128 50,835 51,383
-------- -------- -------- --------
Income from operations.................................. 7,266 10,973 10,995 21,553
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net..................................... (8,604) (7,977) (15,987) (16,268)
Other, net................................................ 577 443 2,277 1,196
-------- -------- -------- --------
(8,027) (7,534) (13,710) (15,072)
-------- -------- -------- --------
Income (loss) before provision for income taxes......... (761) 3,439 (2,715) 6,481
PROVISION FOR INCOME TAXES.................................. (312) 1,368 (1,113) 2,575
-------- -------- -------- --------
Income (loss) from continuing operations................ (449) 2,071 (1,602) 3,906
DISCONTINUED OPERATIONS
(Loss) from operation of discontinued businesses (less
applicable income tax benefit of $770 for the six months
ended April 30, 1999.................................... -- -- -- (1,205)
Loss on disposal of discontinued Proponite operations,
including provision for operating losses through
disposal date (less applicable income tax benefit of
$507 and $10,989)....................................... -- (793) -- (17,189)
-------- -------- -------- --------
Loss from discontinued operations....................... -- (793) -- (18,394)
Net income (loss)....................................... (449) 1,278 (1,602) (14,488)
Retained earnings, beginning of period...................... 63,291 63,176 64,444 78,942
-------- -------- -------- --------
Retained earnings, end of period............................ $ 62,842 $ 64,454 $ 62,842 $ 64,454
======== ======== ======== ========
EARNINGS PER SHARE--Basic and Diluted:
Income (loss) from continuing operations.................. $ (0.06) $ 0.28 $ (0.21) $ 0.54
Loss from discontinued operations......................... -- (0.11) -- (2.53)
-------- -------- -------- --------
Basic and Diluted net income (loss)..................... $ (0.06) $ 0.17 $ (0.21) $ (1.99)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX MONTHS
MONTHS ENDED ENDED
APRIL 30, APRIL 30,
---------------------- ----------------------
2000 1999 2000 1999
Consolidated Statements of Comprehensive Income (Loss) -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income (Loss)........................................... $ (449) $1,278 $ (1,602) $(14,488)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments..... (3,832) 1,577 (8,558) (2,384)
------- ------ -------- --------
Comprehensive income (loss)............................... $(4,281) $2,855 $(10,160) $(16,872)
======= ====== ======== ========
</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
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED APRIL 30,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. (1,602) (14,488)
Adjustments to reconcile net loss to net cash provided by
operating activities -
Loss from discontinued Proponite operations............. -- 1,205
Estimated loss on disposal.............................. -- 17,189
Depreciation and amortization........................... 15,836 15,900
Net (gain) on sale of equipment......................... (1,041) (223)
Provision for losses on accounts receivable and
inventory............................................. 906 1,030
Joint venture income.................................... (256) (205)
Decrease (increase) in accounts receivable.............. 5,021 3,159
Decrease (increase) in inventories...................... (5,457) (4,132)
Decrease (increase) in other current assets............. (672) (931)
Decrease (increase) in net assets held for sale......... (270) 8,904
Decrease (increase) in other assets..................... (3,571) (12,219)
Increase (decrease) in accounts payable................. 10,173 (684)
Increase (decrease) in accrued expenses................. (3,151) (4,339)
Increase (decrease) in other long term liabilities...... (951) 130
-------- --------
Net cash provided by operating activities............. 14,965 10,296
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures...................................... (7,686) (14,362)
Sales and retirements of property, plant and equipment,
net..................................................... 2,842 315
Acquisition of subsidiary................................. -- (1,948)
Proceeds from sale of businesses.......................... -- 13,316
-------- --------
Net cash used in investing activities................. (4,844) (2,679)
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings (repayments)............................... (10,015) (12,371)
Proceeds from issuance of common stock.................... 558 363
-------- --------
Net cash used in financing activities................. (9,457) (12,008)
-------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH.................... (94) 4,143
-------- --------
NET INCREASE (DECREASE) IN CASH:............................ 570 (248)
CASH AT BEGINNING OF PERIOD:................................ 3,103 3,994
-------- --------
CASH AT END OF PERIOD:...................................... $ 3,673 $ 3,746
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--interest................. $ 14,081 $ 15,737
-------- --------
Cash paid during the period for--income taxes............. $ 1,852 $ 1,338
-------- --------
</TABLE>
The accompanying notes to financial statement are an integral part of these
statements.
4
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial information included herein has been prepared by AEP
Industries Inc. (the "Company") without audit, for filing with the Securities
and Exchange Commission pursuant to the rules and regulations of the 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,
1999.
Certain prior period amounts have been reclassified in order to conform with
the current quarter's presentation.
(2) EARNINGS PER SHARE (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, 2000 and 1999, were 7,493,930 and 7,293,743, respectively. The number
of shares used in such computation for the six months ended April 30, 2000 and
1999, were 7,464,005 and 7,287,019, 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 (options). The number of shares used in such computation for the
three months ended April 30, 2000 and 1999 were 7,595,298 and 7,451,401,
respectively. The computation of diluted EPS includes 101,368 and 157,658 of
incremental shares attributable to options outstanding and excludes 284,250 and
485,590 anti-dilutive options for the three months April 30, 2000 and 1999,
respectively. The number of shares used in such computation for the six months
ended April 30, 2000 and 1999 were 7,553,996 and 7,444,677, respectively. The
computation of diluted EPS includes 89,991 and 157,658 of incremental shares
attributable to options outstanding and excludes 284,250 and 485,590
anti-dilutive options for the six months April 30, 2000 and 1999, respectively.
Due to the net loss for the three and six months ended April 30, 2000, the
101,368 and 89,991 of incremental shares attributable to options were not
considered in computing diluted EPS as such options would be anti-dilutive.
5
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(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, 2000 OCTOBER 31, 1999
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Raw Materials.................................... $23,282 $18,095
Finished Goods................................... 53,402 52,941
Supplies......................................... 3,886 4,543
------- -------
80,570 75,579
Less: Inventory Reserve.......................... (1,127) (1,319)
------- -------
Total Inventories, net......................... $79,443 $74,260
------- -------
</TABLE>
The LIFO method was used for determining the cost of approximately 51% and
50% of total inventories at April 30, 2000 and October 31, 1999, respectively.
(4) OTHER INCOME (EXPENSE)
For the periods ended April 30, 2000 and 1999, other income (expense)
consisted of the following:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX MONTHS
MONTHS ENDED ENDED
APRIL 30, APRIL 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Foreign currency exchange gains, net......... $230 $372 $1,062 $ 810
Gain on sale of building and equipment....... 472 164 1,041 195
Joint venture income, net.................... 53 41 256 205
Other miscellaneous.......................... (178) (134) (82) (14)
---- ---- ------ ------
Total...................................... $577 $443 $2,277 $1,196
---- ---- ------ ------
</TABLE>
(5) SEGMENT INFORMATION
The Company's operations are conducted within one business segment, the
production, manufacture and distribution of plastic packaging products,
primarily for the food/beverage, industrial and agricultural markets. The
Company operates in three geographical regions, North America, Europe and
Asia/Pacific.
6
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(5) SEGMENT INFORMATION (CONTINUED)
Information about the Company's operations by geographical area as of and
for the periods ended April 30, 2000 and 1999, respectively is as follows:
For the three months ended April 30,:
<TABLE>
<CAPTION>
UNITED ASIA/
2000 STATES CANADA EUROPE PACIFIC TOTAL
---- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--external customers.................... $107,574 $11,288 $47,223 $18,054 $184,139
Intersegment sales........................... 5,022 1,269 1,334 -- 7,625
Income (loss) from operations................ 5,621 1,145 654 (154) 7,266
</TABLE>
<TABLE>
<CAPTION>
UNITED ASIA/
1999 STATES CANADA EUROPE PACIFIC TOTAL
---- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--external customers...................... $90,193 $9,083 $47,760 $18,718 $165,754
Intersegment sales............................. 2,945 2,321 797 -- 6,063
Income from operations......................... 8,448 1,472 666 387 10,973
</TABLE>
For the six months ended April 30,:
<TABLE>
<CAPTION>
UNITED ASIA/
2000 STATES CANADA EUROPE PACIFIC TOTAL
---- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--external customers.................... $198,738 $20,066 $91,452 $37,729 $347,985
Intersegment sales........................... 8,213 3,946 2,260 -- 14,419
Income from operations....................... 7,212 2,699 832 252 10,995
</TABLE>
<TABLE>
<CAPTION>
UNITED ASIA/
1999 STATES CANADA EUROPE PACIFIC TOTAL
---- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--external customers.................... $170,232 $16,506 $93,080 $37,834 $317,652
Intersegment sales........................... 5,219 4,157 1,401 -- 10,777
Income from operations....................... 17,977 2,483 602 491 21,553
</TABLE>
(6) DISCONTINUED OPERATIONS
In February 1999, the Company's management, with the concurrence of its
Board of Directors, approved a formal plan to dispose of its Proponite business.
On April 30,1999, the Company sold certain assets of the Proponite business to
Applied Extrusion Technologies Inc. pursuant to a sales agreement, dated
March 4, 1999. The Company is in the process of cleaning its building site in
readiness for its sale.
The disposal of the Proponite business has been accounted for as a
discontinued operation and, accordingly, its net assets (liabilities) have been
segregated from continuing operations in the accompanying consolidated balance
sheets, and its operating results are segregated and reported as discontinued
operations in the accompanying consolidated statements of income and cash flows.
The estimated loss on disposal includes the writedown of property, plant and
equipment, inventory and other assets, closedown expenses, and losses of the
Proponite business through the date of disposal.
7
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(6) DISCONTINUED OPERATIONS (CONTINUED)
The total loss on disposal of the Proponite operations for the year ended
October 31, 1999 was $17,189,000, net of tax benefits.
Condensed financial information relating to the discontinued operations of
Proponite is as follows:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net assets of discontinued operations:
Current assets......................................... $ 736 $ 785
Property, plant & equipment,-net....................... 6,555 6,555
------ ------
Total assets......................................... 7,291 7,340
Current liabilities (including provision for Disposal)... 2,772 3,091
------ ------
Net assets of discontinued operations.................... $4,519 $4,249
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS
ENDED
APRIL 30,1999
-------------
<S> <C>
Results of Operations:
Net sales................................................. $ 6,633
-------
Gross profit (loss)....................................... (873)
-------
Net loss.................................................. $(1,205)
=======
</TABLE>
(7) DEBT
On April 19, 2000, the Company entered into an amendment to the Credit
Agreement (the "Amendment"), dated as of October 11, 1996, as amended by
Amendment No. 1, dated as of October 24, 1997 and Amendment No. 2, dated as of
October 31, 1999. The principal effects of the Amendment relate to certain
changes in the financial ratios contained in the Credit Agreement, the interest
rates applicable to the Credit Agreement and the granting of security interests
in accounts receivables and inventory located in North America and in 66% of the
equity interest in certain foreign subsidiaries and the requirement, under
certain circumstances to prepay amounts, as defined, under the Credit Agreement.
The interest rate margins which determine the interest rates applicable to the
loans under the Credit Agreement increased as follows: the margin applicable to
Base Rate loans (formerly 0% to .75%) increased to a range from .25% to 2.00%
and the margin applicable to LIBOR Rate loans (formerly .45% to 1.75%) increased
to a range from 1.25% to 3.00%.
As a result of the Amendment, the Company wrote off in April 2000 the
unamortized prior amendment costs of $787,000 and capitalized $864,000 of new
amendment fees in accordance with EITF 96-19
The Amendment contains certain customary representations, warranties,
covenants and conditions such as, but not limited to, cash flow ratio, fixed
charge coverage ratio and certain restrictions on, and not limited to,
dividends, mergers, investments, asset sales and additional indebtedness.
The Company was in compliance with all the covenants of the Amendment at
April 30, 2000.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2000 AS COMPARED TO THREE MONTHS ENDED APRIL 30,
1999
NET SALES AND GROSS PROFIT
Net sales for the three months ended April 30, 2000 increased by
$18.3 million, or 11.1%, to $184.1 million from $165.8 million for the three
months ended April 30, 1999. Net sales in North America increased to
$118.9 million during the 2000 period from $99.3 million during the 1999 period.
This increase of 19.7% was primarily due to a 10.5% increase in per unit selling
prices as a result of higher raw material costs, primarily resin, which were
partially passed through to our customers. In addition to this increase in
selling prices, sales volume increased by 8.4% for the quarter. Net sales in
Europe decreased 1.1% to $47.2 million for the second quarter of fiscal 2000
from $47.8 million for the same period in fiscal 1999, primarily due to a 1.4%
decrease in average selling prices attributable to the competitive market place.
Net sales in Asia/Pacific decreased by 3.7% to $18.1 million during the 2000
period from $18.8 million for the 1999 period, primarily due to a 1.5% sales
volume decrease in addition to a decrease of 2.1% in average selling prices
which both resulted from the economic pressures in the region.
Gross profit for the three months ended April 30, 2000 was $33.5 million
compared to $38.1 million for the three months ended April 30, 1999. Gross
profit in North America decreased $2.9 million or 10.8% to $23.5 million for the
three months ended April 30, 2000 due to higher raw material costs, primarily
resin, which have progressively increased in fiscal 1999 and the first six
months of fiscal 2000. These increases have not all been passed through to
customers and have been partially offset by lower fixed overhead costs per unit
due to higher production volume for the period. Gross profit in Europe decreased
14.4% to $7.8 million for the three months ended April 30, 2000 primarily due to
the continuing general economic pressures of the region and lower average
selling prices, which resulted in lower margins. Asia/Pacific gross profit for
the three months ended April 30, 2000 decreased by 18.0%, due to a 1.5% decrease
in volume and lower average per unit selling prices in the region which were
offset somewhat by benefits being realized in the consolidation of plant
facilities in Australia.
OPERATING EXPENSES
Operating expenses for the three months ended April 30, 2000, decreased 3.4%
to $26.2 million from $27.1 million for the three months ended April 30, 1999.
There were no significant decreases in any one major area of delivery, selling
and general and administrative expenses for the period.
INTEREST EXPENSE
Interest expense for the three months ended April 30, 2000 was $8.6 million
compared to $8.0 million for the three months ended April 30, 1999. This
increase in interest expense was primarily due to the amendment of the Company's
Credit Agreement in April, 2000. This resulted in a write off in April 2000 of
the unamortized prior debt issuance costs of $787,000 which was partially offset
by having lower average debt outstanding for the period.
OTHER INCOME (EXPENSE)
Other income (expense) for the three months ended April 30, 2000, amounted
to $577,000. This amount included foreign currency exchange gains realized
during the period, gains on sales of building and equipment and income from
investment in a joint venture.
INCOME (LOSS) FROM CONTINUING OPERATIONS
Net loss from continuing operations for the three months ended April 30,
2000, was $449,000 compared to net income from continuing operations of
$2.1 million for the three months ended
9
<PAGE>
April 30, 1999. This decrease was primarily due to the decrease in per unit
gross profit margins, which was a direct result of increased raw material costs
that were only partially passed through to customers as discussed above.
DISCONTINUED OPERATIONS
In April, 1999, the Company revised its estimate of the net realizable value
of the Proponite inventory on hand and charged an additional loss on disposal of
assets for $793,000 net of tax benefits.
SIX MONTHS ENDED APRIL 30, 1999 AS COMPARED TO SIX MONTHS ENDED APRIL 30, 1998
NET SALES AND GROSS PROFIT
Net sales for the six months ended April 30, 2000 increased by
$30.3 million, or 9.5%, to $348.0 million from $317.7 million for the six months
ended April 30, 1999. Net sales in North America increased 17.2% to
$218.8 million during the 2000 period from $186.7 million during the 1999
period. This increase was primarily due to a 4.1% increase in sales volume and a
12.6% increase in per unit selling prices as a result of higher raw material
costs which were partially passed through to customers. Net sales in Europe
decreased 1.8% to $91.5 million for the first six months of fiscal 2000 from
$93.1 million for the first six months of fiscal 1999, primarily due to a 3.2%
decrease in average selling prices, offset by a 1.5% volume increase. Net sales
in Asia/Pacific decreased slightly to $37.7 million during the 2000 period from
$37.8 million for the 1999 period, primarily due to a 1.7% decrease in average
selling prices, which resulted from the economic pressures of the region, offset
by an increase of 1.4% in sales volume.
Gross profit for the six months ended April 30, 2000 was $61.8 million
compared to $72.9 million for the six months ended April 30, 1999. Gross profit
in North America decreased 18.2% to $41.5 million for the six months ended
April 30, 2000 due to higher raw material costs, primarily resin, which
progressively increased in fiscal 1999 and the first six months of fiscal 2000
and a change in product mix to lower margin products. The Company's increased
sales volume for the period helped lower fixed overhead costs which offset some
of the increased costs. Gross profit in Europe decreased 8.4% to $15.5 million
for the six months ended April 30, 2000, primarily due to increased raw material
prices not passed through to customers and a charge to operations of
approximately $551,000 relating to employee severance. This charge was partially
offset by additional gross profit realized from the 1.5% increase in sales
volume in spite of continuing general economic pressures in Europe, which
resulted in lower average selling prices and lower margins. Asia/Pacific gross
profit for the six months ended April 30, 2000 decreased by $422,000, or 8.1%,
due to a 1.7% decrease in lower average per unit selling prices which resulted
from the economic pressures of the region.
OPERATING EXPENSES
Operating expenses for the six months ended April 30, 2000 decreased
$548,000, or 1.1%, to $50.8 million from $51.4 million for the six months ended
April 30, 1999. Selling and general and administrative expenses increased by
$614,000 with no major increase in any one area, offset by a reduction in
delivery expenses of $1.2 million, primarily due to a decrease in average third
party delivery costs in North America.
INTEREST EXPENSE
Interest expense for the six months ended April 30, 2000 was $16.0 million
compared to $16.3 million for the six months ended April 30, 1999. This decrease
in interest expense resulted from lower average debt outstanding for the period,
which was offset by a charge to interest expense of $787,000, primarily due to
the Company's amendment of its Credit Agreement in April 2000, which was a write
off of the unamortized prior debt issuance costs.
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<PAGE>
OTHER INCOME (EXPENSE)
Other income (expense) for the six months ended April 30, 2000 increased
90.4% to $2.3 million from $1.2 million for the period ended April 30, 1999.
This amount included foreign currency exchange gains realized during the period,
gains on sales of machinery and equipment, interest income earned for the period
and income from investment in a joint venture.
NET INCOME (LOSS) FROM CONTINUING OPERATIONS
Net loss from continuing operations for the six months ended April 30, 2000,
was $1.6 million compared to net income from continuing operations of
$3.9 million for the six months ended April 30, 1999. This decrease was
primarily due to the decrease in per unit gross profit margins, which was a
direct result of increased raw material costs that were only partially passed
through to customers as discussed above.
DISCONTINUED OPERATIONS
The loss from discontinued operations in 1999 of $18.4 million includes the
net losses of the Proponite business of $1.2 million for the period ended
January 31, 1999. This loss also consists of an after tax charge of
$17.2 million, established to write down property, plant and equipment,
inventory and other assets and to provide for closedown expenses and the net
losses for the period ended October 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed operations through cash flow generated from
operations and borrowings by us or our subsidiaries under various credit
facilities. Our principal uses of cash have been to fund working capital,
including operating expenses, debt service and capital expenditures.
Our working capital was $40.5 million at April 30, 2000, compared to
$44.4 million at October 31, 1999. This decrease of $3.9 million in working
capital is primarily the result of the strengthening of the United States dollar
during the first six months ended April 30, 2000, which further reduced
translated working capital balances. The remaining increases and decreases in
components of our financial position reflect normal operating activity.
On October 11, 1996, we entered into the Credit Agreement with the Morgan
Guaranty Trust Company, as Agent. The Credit Agreement provided us with two
credit facilities consisting of a term credit facility in the amount of
$350.0 million and a revolving credit facility for an amount up to
$75.0 million. As of April 30, 2000, there was $92.0 million outstanding under
the term credit facility, which currently bears interest at the rate of 6.63%
per annum. There are no outstanding borrowings under the revolving credit
facility.
On April 19, 2000, we entered into an amendment to the Credit Agreement (the
"Amendment"). The principal effects of the Amendment relate to certain changes
in the financial ratios contained in the Credit Agreement, the change of the
interest rate applicable to the Credit Agreement and the granting of security
interests in our accounts receivables and inventory located in North America and
in 66% of our equity interest in certain foreign subsidiaries and the
requirement, under certain circumstances to prepay amounts, as defined, under
the Credit Agreement. The interest rate margins which determine the interest
rates applicable to the loans under the Credit Agreement increased as follows:
the margin applicable to Base Rate loans (formerly 0% to .75%) increased to a
range from .25% to 2.00% and the margin applicable to LIBOR Rate loans (formerly
.45% to 1.75%) increased to a range from 1.25% to 3.00%.
The Credit Agreement, as amended, contains financial covenants, the most
significant of which are a cash flow ratio and a fixed charge coverage ratio.
For the period from February 1, 2000 through July 31, 2000, the cash flow ratio
may not exceed 5.5:1. The fixed charge coverage ratio may not be less
11
<PAGE>
than 1.15:1 for the same period. The Indenture pursuant to which the 9.875%
Senior Subordinated Notes were issued also contains customary covenants
including limitations on the incurrence of debt, the disposition of assets and
the making of restricted payments. We are currently in compliance with all of
these covenants and we expect to remain in compliance with these covenants.
We maintain various unsecured short-term credit facilities at our foreign
subsidiaries. At April 30, 2000 our aggregate amount outstanding under these
facilities was approximately $7.2 million and approximately $44.0 million 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.
Our cash and cash equivalents were $3.7 million at April 30, 2000, as
compared to $3.1 million at October 31, 1999. Net cash provided by operating
activities during the six months ended April 30, 2000, was $15.0 million,
primarily due to depreciation and amortization expense of $15.8 million, an
increase in collection of accounts receivable of $5.0 million and an increase in
trade accounts payable of $10.2 million offset by a net loss from continuing
operations of $1.6 million, reduction in accrued liabilities of $4.1 million and
additional investment in inventories and other assets of $10.3 million. In each
period, the net decreases in other operating assets and liabilities reflect
normal operating activity.
Net cash used in investing activities during the six months ended April 30,
2000, was $4.8 million, resulting primarily from the net investment in capital
expenditures of $7.7 million, which was offset by sales of machinery and
equipment in the period of $2.9 million.
Net cash used in financing activities for the six months ended April 30,
2000, was $9.5 million, reflecting net repayments of $10.0 million of current
credit facilities offset by proceeds received from stock issuances of $558,000.
The remaining increases and decreases in the components of our financial
position reflect normal operating activity.
We believe that our cash flow from operations, combined with the
availability of funds under the Credit Agreement and credit lines available to
our foreign subsidiaries for local currency borrowings, will be sufficient to
meet our working capital, capital expenditure and debt service requirements for
the foreseeable future.
EFFECTS OF INFLATION
Inflation is not expected to have a significant impact on our business.
FORWARD LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and the Results
of Operations and other sections of this report contain "Forward Looking
Statements" about prospects for the future, such as our ability to generate
sufficient working capital, our ability to continue to maintain sales and
profits of our operations and our ability to generate sufficient funds to meet
our cash requirements. We wish to caution readers that the assumptions which
form the basis for forward-looking statements with respect to, or that may
impact earnings for, the year ending October 31, 2000, include many factors that
are beyond our ability to control or estimate precisely. These risks and
uncertainties include, but are not limited to, availability of raw materials,
ability to pass raw material price increases to customers in a timely fashion,
the potential of technological changes which would adversely affect the need for
our products, price fluctuations which could adversely impact our inventory, and
changes in United States or international economic or political conditions, such
as inflation or fluctuations in interest or foreign exchange rates. Parties are
cautioned not to rely on any such forward-looking benefits or judgments in this
section and in other parts of this report.
12
<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.
<TABLE>
<S> <C> <C>
AEP INDUSTRIES INC.
Date: June 13, 2000 By: /s/ J. BRENDAN BARBA
-----------------------------------------
J. Brendan Barba
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
Date: June 13, 2000 By: /s/ PAUL M. FEENEY
-----------------------------------------
Paul M. Feeney
EXECUTIVE VICE PRESIDENT PRINCIPAL
FINANCIAL AND ACCOUNTING OFFICER
</TABLE>
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<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 11, 2000, for the purpose of electing three Class B directors and
ratification of 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 solicitation.
1. Management's nominee's for Class B 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>
William H. Carter......................... 6,209,602 18,610 1,231,438
Adam H. Clammer........................... 6,210,052 18,160 1,231,438
Paul M. Feeney............................ 6,210,037 18,175 1,231,438
</TABLE>
2. The appointment of Arthur Andersen LLP as independent auditors was ratified
by the following vote:
<TABLE>
<CAPTION>
SHARES VOTED SHARES VOTED SHARES SHARES NOT
"FOR" "AGAINST" "ABSTAINING" VOTED
--------------------- ------------ -------------- ----------
<S> <C> <C> <C>
6,225,166 796 2,250 1,231,438
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 10(f)(3)--Amendment No. 2 to Credit Agreement dated
October 31,1999. Page 18
Exhibit 10(f)(4)--Amendment No. 3 to Credit Agreement dated
April 19,2000. Pages 19-27
Exhibit 11--Computation of weighted average number of shares outstanding.
Page 28
(b) There were no current reports on Form 8-K filed during the quarter ended
April 30, 2000.
14
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE
-------------- ------------------------------------------------------------ --------
<C> <S> <C>
3(a) Restated Certificate of Incorporation of the Company as
filed April 11, 1997 (incorporated by reference to Exhibit
3(a) to Registrants 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 Current 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 quarter ended January 31, 1993)
10(c) 1995 Stock Option Plan of the Company (incorporated by
reference to Exhibit 4 to the Registration Statement on
Form S-8 No. 33-58747)
10(d) 1995 Employee Stock Purchase Plan of the Company
(incorporated by reference to Exhibit 4 to the Registration
Statement on Form S-8 No. 33-58743)
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 Registrant's 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 Current 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 Banks
party thereto (incorporated by Reference to
Exhibit 10(f)(2) to the Annual Report on Form 10-K for the
year ended October 31, 1997)
10(f)(3) Amendment No. 2, dated as of October 31, 1999, to the 18
Credit Agreement dated as of October 11, 1996, among the
Company, the Morgan Guaranty Trust Company as Agent and the
Banks party thereto.
10(f)(4) Amendment No. 3, dated as of April 19, 2000, to the 19-27
Credit Agreement dated as of October 11, 1996, among the
Company, the Morgan Guaranty Trust Company as Agent and the
Banks party thereto.
10(g) Tender Offer to Purchase, dated as of August 10, 1995,
(incorporated by reference to Exhibit (a)(1) to
Schedule 13E-4, as filed on August 10, 1995)
10(h) Stock Purchase Agreement, dated as of August 2, 1995,
between the Company and J. Brendan Barba (incorporated by
reference to Exhibit (c) to Schedule 13E-4 as filed on
August 10, 1995)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE
-------------- ------------------------------------------------------------ --------
<C> <S> <C>
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 Current 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 Current Report on Form 8-K,
dated October 11, 1996)
10(i)(3) Combined Financial Statements of Borden Global Packaging
Operations as of December 31, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995
(incorporated by reference to Annex F to Registrant's Proxy
Statement, dated September 11, 1996)
10(j)(1) Governance Agreement, dated as of June 20, 1996, without
exhibits, between the Company and Borden, Inc. (incorporated
by reference to Exhibit C-2 to Registrant's Current 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 Current 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 (incorporated by reference
to Exhibit 10(k) to Registrant's Annual Report on Form 10-K
for the year ended October 31, 1996)
10(l) Employment Agreement, dated as of October 11, 1996, between
the Company and Paul M. Feeney (incorporated by reference to
Exhibit 10(l) to Registrant's Annual Report on Form 10-K for
the year ended October 31, 1996)
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 Current 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
Current 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
Current 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>
16
