<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 July 31, 2000
OR
/ / 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
incorporation or organization) Identification No.)
125 PHILLIPS AVENUE
SOUTH HACKENSACK, NEW JERSEY 07606
(Address of principal executive offices) (Zip Code)
</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.
<TABLE>
<S> <C>
YES /X/ NO / /
</TABLE>
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 AUGUST 31, 2000
--------------------- ---------------------
<S> <C>
$.01 Par Value 7,525,006
</TABLE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AEP INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS,EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 3,666 $ 3,103
Accounts receivable, less allowance of $5,516 in 2000 and
$5,342 in 1999 for doubtful accounts.................... 99,016 110,848
Inventories, net.......................................... 77,260 74,260
Net assets of discontinued operations..................... 5,372 4,249
Other current assets...................................... 13,819 11,309
-------- --------
Total current assets.................................... 199,133 203,769
======== ========
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $142,616 in 2000 and
$132,320 in 1999.......................................... 210,482 232,421
GOODWILL, less accumulated amortization of $4,826 in 2000
and $3,858 in 1999........................................ 39,096 40,064
INVESTMENT IN JOINT VENTURE................................. 16,077 15,722
OTHER ASSETS................................................ 25,216 23,015
-------- --------
TOTAL ASSETS............................................ $490,004 $514,991
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings..................................... $ 28,578 $ 27,433
Accounts payable.......................................... 94,797 89,459
Accrued expenses.......................................... 35,297 42,454
-------- --------
Total current liabilities............................... 158,672 159,346
LONG-TERM DEBT.............................................. 264,722 281,172
OTHER LONG TERM LIABILITIES................................. 6,801 7,635
-------- --------
Total liabilities....................................... 430,195 448,153
======== ========
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; 10,182,042 and 10,093,793 shares, issued in
2000 and 1999, respectively............................. 102 101
Additional paid-in capital................................ 94,032 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......................................... 60,565 64,444
Accumulated other comprehensive income (loss)............. (35,669) (30,807)
-------- --------
Total shareholders' equity.............................. 59,809 66,838
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $490,004 $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 NINE
MONTHS ENDED MONTHS ENDED
JULY 31, JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES................................................... $178,160 $172,786 $526,145 $490,438
COST OF SALES............................................... 147,999 133,177 434,154 376,436
RESTRUCTURING CHARGE........................................ 1,500 -- 1,500 1,457
-------- -------- -------- --------
Gross profit.......................................... 28,661 39,609 90,491 112,545
-------- -------- -------- --------
OPERATING EXPENSES
Delivery.................................................. 9,581 9,749 27,059 28,389
Selling................................................... 9,929 9,964 29,392 29,126
General and Administrative................................ 6,687 7,312 20,581 20,893
-------- -------- -------- --------
Total operating expenses.............................. 26,197 27,025 77,032 78,408
-------- -------- -------- --------
Income from operations................................ 2,464 12,584 13,459 34,137
-------- -------- -------- --------
OTHER INCOME (EXPENSE):
Interest expense, net..................................... (7,278) (7,853) (23,265) (24,121)
Other, net................................................ 955 358 3,232 1,554
-------- -------- -------- --------
(6,323) (7,495) (20,033) (22,567)
-------- -------- -------- --------
Income (loss) before provision (benefit) for income
taxes............................................... (3,859) 5,089 (6,574) 11,570
PROVISION (BENEFIT) FOR INCOME TAXES........................ (1,583) 2,053 (2,695) 4,628
-------- -------- -------- --------
Income (loss) from continuing operations.............. (2,276) 3,036 (3,879) 6,942
DISCONTINUED OPERATIONS
(Loss) from operation of discontinued businesses (less
applicable income tax benefit of $770 for the nine
months ended July 31,1999............................... -- -- -- (1,205)
Loss on disposal of discontinued Proponite operations,
including provision for operating losses through
disposal date (less applicable income tax benefit of
$10,989 for the nine months ended July 31, 1999.)....... -- -- -- (17,189)
-------- -------- -------- --------
Loss from discontinued operations..................... -- -- -- (18,394)
Net income (loss)..................................... (2,276) 3,036 (3,879) (11,452)
Retained earnings, beginning of period...................... 62,841 64,454 64,444 78,942
-------- -------- -------- --------
Retained earnings, end of period............................ $ 60,565 $ 67,490 $ 60,565 $ 67,490
======== ======== ======== ========
EARNINGS PER SHARE--Basic:
Income (loss) from continuing operations.................. $ (0.30) $ 0.41 $ (0.52) $ 0.95
Loss from discontinued operations......................... -- -- -- (2.52)
-------- -------- -------- --------
Basic net income (loss)............................... $ (0.30) $ 0.41 $ (0.52) $ (1.57)
======== ======== ======== ========
EARNINGS PER SHARE--Diluted:
Income (loss) from continuing operations.................. $ (0.30) $ 0.40 $ (0.52) $ 0.92
Loss from discontinued operations......................... -- -- -- (2.52)
-------- -------- -------- --------
Diluted net income (loss)............................. $ (0.30) $ 0.40 $ (0.52) $ (1.60)
======== ======== ======== ========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net Income (Loss)........................................... $ (2,276) $ 3,036 $ (3,879) $(11,452)
Other comprehensive income (loss):
Unrealized foreign currency translation adjustments..... 3,696 (233) (4,862) (2,617)
-------- -------- -------- --------
Comprehensive income (loss)............................... $ 1,420 $ 2,803 $ (8,741) $(14,069)
======== ======== ======== ========
</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 NINE MONTHS
ENDED JULY 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $ (3,879) $(11,452)
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........................... 23,241 23,372
Net (gain) on sale of equipment......................... (1,013) (304)
Provision for losses on accounts receivable and
inventory............................................. 1,318 1,424
Joint venture income.................................... (580) (179)
Decrease (increase) in accounts receivable.............. 10,819 (3,458)
(Increase) in inventories............................... (3,305) (5,459)
Decrease (increase) in other current assets............. (2,510) 590
Decrease (increase) in net assets held for sale......... (1,123) 8,886
(Increase) in other assets.............................. (2,201) (11,889)
Increase (decrease) in accounts payable................. 5,338 (989)
(Decrease) in accrued expenses.......................... (6,172) (5,623)
Increase (decrease) in other long term liabilities...... (834) 1,288
-------- --------
Net cash provided by operating activities............. 19,099 14,601
-------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Capital expenditures...................................... (10,558) (15,580)
Sales and retirements of property, plant and equipment,
net..................................................... 2,953 488
Acquisition of subsidiary................................. -- (1,948)
Proceeds from sale of businesses.......................... -- 13,316
-------- --------
Net cash used in investing activities................. (7,605) (3,724)
-------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net borrowings (repayments)............................... (15,305) (16,893)
Proceeds from issuance of common stock.................... 727 901
-------- --------
Net cash used in financing activities................. (14,578) (15,992)
-------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH.................... 3,647 4,298
-------- --------
NET INCREASE (DECREASE) IN CASH............................. 563 (817)
CASH AT BEGINNING OF PERIOD................................. 3,103 3,994
======== ========
CASH AT END OF PERIOD....................................... $ 3,666 $ 3,177
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for--interest................. $ 26,637 $ 27,609
-------- --------
Cash paid during the period for--income taxes............. $ 2,700 $ 3,724
======== ========
</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
July 31, 2000 and 1999, were 7,510,156 and 7,363,249, respectively. The number
of shares used in such computation for the nine months ended July 31, 2000 and
1999, were 7,481,632 and 7,313,437, 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 July 31, 2000 and 1999 were 7,564,522 and 7,621,374
respectively. The computation of diluted EPS includes 54,366 and 258,125 options
outstanding and excludes 351,270 and 12,520 anti-dilutive options for the three
months July 31, 2000 and 1999, respectively. The number of shares used in such
computation for the nine months ended July 31, 2000 and 1999 were 7,538,171 and
7,571,562, respectively. The computation of diluted EPS includes 56,539 and
258,125 options outstanding and excludes 332,070 and 12,520 anti-dilutive
options for the months July 31, 2000 and 1999, respectively. Due to the net loss
for the three and nine months ended July 31, 2000, the 54,366 and 56,539 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>
JULY 31, 2000 OCTOBER 31, 1999
------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Raw Materials..................................... $19,176 $18,095
Finished Goods.................................... 55,156 52,941
Supplies.......................................... 3,935 4,543
------- -------
78,267 75,579
Less: Inventory Reserve........................... (1,007) (1,319)
------- -------
Total Inventories, net...................... $77,260 $74,260
======= =======
</TABLE>
The LIFO method was used for determining the cost of approximately 49% and
50% of total inventories at July 31, 2000 and October 31, 1999, respectively.
(4) OTHER INCOME (EXPENSE)
For the periods ended July 31, 2000 and 1999, other income (expense)
consisted of the following:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
JULY 31, JULY 31,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Foreign currency exchange gains, net.......... $769 $ 401 $1,831 $1,211
Gain (loss) on sale of property & equipment... (28) 109 1,013 304
Joint Venture, net............................ 197 (26) 355 179
Other miscellaneous........................... 17 (126) 33 (140)
---- ----- ------ ------
Total................................... $955 $ 358 $3,232 $1,554
==== ===== ====== ======
</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 and for the
periods ended July 31, 2000 and 1999, respectively is as follows:
For the three months ended July 31,
<TABLE>
<CAPTION>
2000
----------------------------------------------------
UNITED ASIA
STATES CANADA EUROPE PACIFIC TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--external customers.................... $102,917 $11,617 $46,552 $17,074 $178,160
Intersegment sales........................... 5,591 786 1,479 -- 7,856
Income (loss) from operations................ 2,951 939 (1,106) (320) 2,464
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------------------------------------
UNITED ASIA
STATES CANADA EUROPE PACIFIC TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--external customers..................... $97,018 $10,853 $46,193 $18,722 $172,786
Intersegment sales............................ 4,056 2,414 1,423 -- 7,893
Income from operations........................ 8,219 2,315 1,996 54 12,584
</TABLE>
For the nine months ended July 31,
<TABLE>
<CAPTION>
2000
----------------------------------------------------
UNITED ASIA
STATES CANADA EUROPE PACIFIC TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--external customers................... $301,655 $31,683 $138,004 $54,803 $526,145
Intersegment sales.......................... 13,804 4,732 3,739 -- 22,275
Income (loss) from operations............... 10,163 3,638 (274) (68) 13,459
</TABLE>
<TABLE>
<CAPTION>
1999
----------------------------------------------------
UNITED ASIA
STATES CANADA EUROPE PACIFIC TOTAL
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Sales--external customers................... $267,250 $27,359 $139,273 $56,556 $490,438
Intersegment sales.......................... 9,275 6,571 2,824 18,670
---
Income from operations...................... 26,196 4,798 2,598 545 34,137
</TABLE>
Income (loss) from operations in European segment for the three months ended
July 31, 2000 and for the nine months ended July 31, 2000 include $1.5 million
restructuring charge. See Note 8 for further discussion.
7
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(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 building site has been prepared for its sale in the fourth
quarter of fiscal 2000.
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. 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>
JULY 30, OCTOBER 31,
2000 1999
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Net assets of discontinued operations:
Current assets......................................... $ 736 $ 785
Property and plant--net................................ 6,555 6,555
------ ------
Total assets....................................... 7,291 7,340
Current liabilities (including provision for
Disposal)............................................ 1,919 3,091
------ ------
Net assets of discontinued operations.................... $5,372 $4,249
====== ======
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED
JULY 31, 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
8
<PAGE>
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(7) DEBT (CONTINUED)
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 the second quarter of
fiscal 2000 the unamortized prior amendment costs of $787,000 to interest
expense 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, but not limited to,
dividends, mergers, investments, asset sales and additional indebtedness.
The Company was in compliance with all the covenants of the Amendment at
July, 31, 2000.
8) RESTRUCTURING CHARGE
In July 2000, the Board of Directors of the Company approved a restructuring
plan designed to improve operating efficiencies of its European operations and
enhance its competitiveness in that market. The plan involves the closure of the
North Baddesley, England manufacturing facility, the transfer of the
manufacturing equipment to a more cost effective facility, cleanup and
demolition of the manufacturing site and severance and other benefits for 33
employees. The restructuring charge of $1,500,000 recorded in the third quarter
in the cost of sales section of the income statement relates to the severance of
all manufacturing personnel. The Company expects to incur approximately
$2,800,000 in additional charges related to this restructuring plan and will
record these charges in the appropriate periods in accordance with the
requirements of Emerging Issues Task Force Pronouncement 94-3. The Company
expects the plan and all related costs to be completed by April 2001.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED JULY 31, 2000 AS COMPARED TO THREE MONTHS ENDED JULY 31, 1999
NET SALES AND GROSS PROFIT
Net sales for the three months ended July 31, 2000, increased by
$5.4 million, or 3.1%, to $178.2 million from $172.8 million for the three
months ended July 31, 1999. Net sales in North America increased to
$114.5 million during the 2000 period from $107.8 million during the 1999
period. This increase of 6.2% was primarily due to a 9.0% increase in per unit
selling prices as a result of higher raw material costs, primarily resin, which
were partially passed through to our customers which was partially offset by a
decrease of 2.6% in sales volume for the quarter. Net sales in Europe increased
1.0% to $46.6 million for the third quarter of fiscal 2000 from $46.2 million
for the same period in fiscal 1999, primarily due to a 4.3% increase in average
selling prices offset by a 3.3% reduction in sales volume attributable to the
competitive market place. Net sales in Asia/Pacific decreased by 8.8% to
$17.1 million during the 2000 period from $18.7 million for the 1999 period,
primarily due to a 1.0% sales volume decrease in addition to a decrease of 8.0%
in average selling prices both of which resulted from the economic pressures in
the region.
Gross profit for the three months ended July 31, 2000 was $28.7 million
compared to $39.6 million for the three months ended July 31, 1999. Gross profit
in North America decreased $5.8 million or 21.6% to $21.0 million for the three
months ended July 31, 2000 due to higher raw material costs, primarily resin,
which have progressively increased during fiscal 1999 and the first six months
of fiscal 2000. These increases still have not all been passed through to
customers and in addition as a result of the decrease in sales volume for the
quarter, the company experienced additional costs for under-absorbed fixed
overhead costs per unit due to lower production volume for the period. Gross
profit in Europe decreased 43.5% to $5.8 million for the three months ended
July 31, 2000 partially due to a charge of $1.5 million associated with the shut
down and consolidation of the Company's North Baddesley, England facilities.
This charge and the continuing general economic pressures of the region resulted
in lower volume, increased resin costs not completely passed through to
customers and under-absorbed fixed overhead costs, which resulted in lower gross
profit margins.. Asia/Pacific gross profit for the three months ended July 31,
2000 decreased by 26.9%, due to a 1.0% decrease in volume, an 8% decrease in
average per unit selling prices and the inability to pass through increased raw
material costs to its customers. The general economic pressures of the region
would not allow any of the pass through of such costs.
OPERATING EXPENSES
Operating expenses for the three months ended July 31, 2000, decreased 3.0%
to $26.2 million from $27.0 million for the three months ended July 31, 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 July 31, 2000 was $7.3 million
compared to $7.9 million for the three months ended July 31, 1999. This decrease
in interest expense was due to lower average debt outstanding for the period.
OTHER INCOME (EXPENSE)
Other income (expense) for the three months ended July 31, 2000, amounted to
$955,000. This amount included foreign currency exchange gains realized during
the period, gains on sales of property and equipment and income from investment
in a joint venture.
10
<PAGE>
NET INCOME (LOSS)
Net loss from continuing operations for the three months ended July 31,
2000, was $2.3 million compared to net income from continuing operations of
$3.0 million for the three months ended July 31, 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. The Company also incurred a charge of
$1.5 million for the period for the close down of its facilities in England.
NINE MONTHS ENDED JULY 31, 2000 AS COMPARED TO NINE MONTHS ENDED JULY, 1999
NET SALES AND GROSS PROFIT
Net sales for the nine months ended July 31, 2000 increased by
$35.7 million, or 7.3%, to $526.1 million from $490.4 million for the nine
months ended July 31, 1999. Net sales in North America increased 13.2% to
$333.3 million during the 2000 period from $294.6 million during the 1999
period. This increase was primarily due to a 1.8% increase in sales volume and
an 11.2% 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 1.0% to $138.0 million for the first nine months of fiscal 2000 from
$139.3 million for the first nine months of fiscal 1999, primarily due to a 1.0%
decrease in average selling prices. Net sales in Asia/Pacific decreased 3.1% to
$54.8 million during the 2000 period from $56.6 million for the 1999 period,
primarily due to a 3.7% decrease in average selling prices, which resulted from
the economic pressures of the region, offset by an increase of 1.0% in sales
volume.
Gross profit for the nine months ended July 31, 2000 was $90.5 million
compared to $112.5 million for the nine months ended July 31, 1999. Gross profit
in North America decreased 19.4% to $62.5 million for the nine months ended
July 31, 2000 due to higher raw material costs, primarily resin, which
progressively increased during 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 per unit
which offset some of the increased raw material costs. Gross profit in Europe
decreased 25.6% to $22.8 million for the nine months ended July 31, 2000,
primarily due to increased raw material prices not completely passed through to
customers, a charge of $1.5 million associated with the shut down and
consolidation of the Company's North Baddesley, England facilities and a
additional charge to operations of approximately $551,000 relating to employee
severance that was recorded in the second quarter of fiscal 2000. Asia/Pacific
gross profit for the nine months ended July 31, 2000 decreased by $1.1 million,
or 14.2%, due to a 3.8% decrease in lower average per unit selling prices and
the inability to completely pass through raw material increased costs which all
result from the economic pressures of the region.
OPERATING EXPENSES
Operating expenses for the nine months ended July 31, 2000 decreased
$1.4 million, or 1.8%, to $77.0 million from $78.4 million for the nine months
ended July 31, 1999. Selling and general and administrative expenses had no
major increases or decreases in any one area. Delivery expenses decreased
$1.3 million, primarily due to a decrease in average third party delivery costs
in North America.
INTEREST EXPENSE
Interest expense for the nine months ended July 31, 2000 was $23.3 million
compared to $24.1 million for the nine months ended July 31, 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
11
<PAGE>
$787,000, primarily due to the Company's amendment of its Credit Agreement in
April 2000, which represented a write off of the unamortized prior debt issuance
costs.
OTHER INCOME (EXPENSE)
Other income (expense) for the nine months ended July 31, 2000 increased to
$3.2 million from $1.6 million for the period ended July 31, 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 nine months ended July 31, 2000,
was $3.9 million compared to net income from continuing operations of
$6.9 million for the nine months ended July 31, 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. The Company also incurred a charge of
$1.5 million for the period for the close down of its manufacturing facilities
in England.
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 July 31 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 nine months ended July 31, 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 July 31, 2000, there was $82.0 million outstanding under
the term credit facility. There were 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. 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%.
12
<PAGE>
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 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 July 31, 2000, our aggregate amount outstanding under these
facilities was approximately $5.9 million and approximately $34.9 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 July 31, 2000, as
compared to $3.1 million at October 31, 1999. Net cash provided by operating
activities during the nine months ended July 31, 2000, was $19.1 million,
primarily due to depreciation and amortization expense of $23.2 million, an
increase in collection of accounts receivable of $10.8 million and an increase
in trade accounts payable of $5.3 million offset by a net loss from continuing
operations of $3.9 million, reduction in accrued liabilities of $7.0 million and
additional investment in inventories and other assets of $11.0 million. The net
decreases in other operating assets and liabilities reflect normal operating
activity.
Net cash used in investing activities during the nine months ended July 31,
2000, was $7.6 million, resulting primarily from the net investment in capital
expenditures of $10.6 million, which was offset by sales of machinery and
equipment in the period of $3.0 million.
Net cash used in financing activities for the nine months ended July 31,
2000, was $14.6 million, reflecting net repayments of $15.3 million of current
credit facilities offset by proceeds received from stock issuances of $727,000.
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.
13
<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>
AEP INDUSTRIES INC.
Date: September 8, 2000 /s/ J. BRENDAN BARBA
------------------------------------------------
J. Brendan Barba
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
Date: September 8, 2000 /s/ PAUL M. FEENEY
------------------------------------------------
Paul M. Feeney
EXECUTIVE VICE PRESIDENT
PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
</TABLE>
14
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in routine litigation in the normal course of its
business. The proceedings are not expected to have a material adverse impact on
the Company's results of operations or financial position.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11--Computation of weighted average number of shares
outstanding. Page 17
(b) There were no current reports on Form 8-K filed during the quarter ended
July 31, 2000.
15
<PAGE>
EXHIBIT 11
AEP INDUSTRIES INC.
COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2000
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JULY 31, FOR THE NINE MONTHS ENDED JULY 31,
----------------------------------------- -----------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES OF DAYS DAYS IN SHARES DAYS DAYS IN SHARES
COMMON STOCK OUTSTANDING PERIOD OUTSTANDING OUTSTANDING PERIOD OUTSTANDING
-------------- ----------- -------- ---------------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
2000
November 1-October 31.... 7,397,413 7,397,413 7,397,413
Shares Issued:
November 8, 1999......... 90,200 92 92 90,200 267 274 87,896
November 8, 1999......... (49,552) 92 92 (49,552) 267 274 (48,286)
November 11, 1999........ 3,000 92 92 3,000 264 274 2,891
November 19, 1999........ 600 92 92 600 256 274 561
November 23, 1999........ 200 92 92 200 252 274 184
December 7, 1999......... 300 92 92 300 238 274 261
December 29, 1999........ 3,200 92 92 3,200 216 274 2,523
January 3, 2000.......... 8,451 92 92 8,451 211 274 6,508
January 28, 2000......... 17,400 92 92 17,400 186 274 11,812
January 28, 2000......... (7,708) 92 92 (7,708) 186 274 (5,232)
February 4, 2000......... 1,340 92 92 1,340 179 274 875
February 4, 2000......... (493) 92 92 (493) 179 274 (322)
February 9, 2000......... 1,000 92 92 1,000 174 274 635
February 10, 2000........ 2,750 92 92 2,750 173 274 1,736
February 16, 2000........ 1,800 92 92 1,800 167 274 1,097
February 25, 2000........ 30,224 92 92 30,224 158 274 17,428
March 23, 2000........... 1,000 92 92 1,000 131 274 478
March 27, 2000........... 3,000 92 92 3,000 127 274 1,391
April 6, 2000............ 3,000 92 92 3,000 117 274 1,281
April 10, 2000........... 300 92 92 300 113 274 124
April 13, 2000........... 200 92 92 200 110 274 80
April 25, 2000........... 200 92 92 200 98 274 72
July 5, 2000............. 7,861 27 92 2,307 27 274 227
July 21, 2000............ 200 11 92 24 11 274 1
--------- --------- ---------
Total Weighted Average
Shares................. 7,515,886 7,510,156 7,481,632
Total Dilutive Stock
options................ -- 54,366 56,539
--------- --------- ---------
Total Shares....... 7,515,886 7,564,522 7,538,171
========= ========= =========
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JULY 31, FOR THE NINE MONTHS ENDED JULY 31,
----------------------------------------- -----------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
NUMBER OF NUMBER OF NUMBER OF NUMBER OF
SHARES OF DAYS DAYS IN SHARES DAYS DAYS IN SHARES
COMMON STOCK OUTSTANDING PERIOD OUTSTANDING OUTSTANDING PERIOD OUTSTANDING
-------------- ----------- -------- ---------------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
November 1-October 31.... 7,277,701 7,277,701 7,277,701
Shares Issued:
November 4, 1998......... 400 92 92 400 270 273 396
November 18, 1998........ 1,800 92 92 1,800 256 273 1,688
January 4, 1999.......... 10,187 92 92 10,187 209 273 7,799
January 29, 1999......... 600 92 92 600 184 273 404
March 5, 1999............ 1,800 92 92 1,800 149 273 982
April 19, 1999........... 900 92 92 900 104 273 343
April 23, 1999........... 1,400 92 92 1,400 100 273 513
April 27, 1999........... 200 92 92 200 96 273 70
April 28, 1999........... 48,420 92 92 48,420 95 273 16,849
April 29, 1999........... 200 92 92 200 94 273 69
April 29, 1999........... 400 92 92 400 94 273 138
May 4, 1999.............. 3,700 89 92 3,579 89 273 1,206
May 7, 1999.............. 400 86 92 374 86 273 126
May 10, 1999............. 400 83 92 361 83 273 122
May 12, 1999............. 2,200 81 92 1,937 81 273 653
May 17, 1999............. 180 76 92 149 76 273 50
May 18, 1999............. 400 75 92 326 75 273 110
May 19, 1999............. 1,200 74 92 965 74 273 325
May 21, 1999............. 200 72 92 157 72 273 53
May 25, 1999............. 400 68 92 296 68 273 100
May 26, 1999............. 400 67 92 291 67 273 98
May 28, 1999............. 2,400 65 92 1,696 65 273 571
June 2, 1999............. 1,300 60 92 848 60 273 286
June 11, 1999............ 3,900 51 92 2,162 51 273 729
June 17, 1999............ 200 45 92 98 45 273 33
June 18, 1999............ 400 44 92 191 44 273 64
July 1, 1999............. 8,283 31 92 2,791 31 273 941
July 8, 1999............. 1,200 24 92 313 24 273 105
July 9, 1999............. 8,372 23 92 2,093 23 273 705
July 12, 1999............ 600 20 92 130 20 273 44
July 13, 1999............ 200 19 92 41 19 273 14
July 16, 1999............ 200 16 92 35 16 273 12
July 19, 1999............ 600 13 92 85 13 273 29
July 20, 1999............ 1,000 12 92 130 12 273 44
July 21, 1999............ 200 11 92 24 11 273 8
July 26, 1999............ 200 6 92 13 6 273 4
July 27, 1999............ 1,200 5 92 65 5 273 22
July 29, 1999............ 2,800 3 92 91 3 273 31
--------- --------- ---------
Total Weighted Average
Shares................. 7,386,543 7,363,249 7,313,437
Total Dilutive Stock
options................ -- 258,125 258,125
--------- --------- ---------
Total Shares....... 7,386,543 7,621,374 7,571,562
========= ========= =========
</TABLE>
17
