-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KvEqlvYMds41KKkrK1YKUGNriAIhSEL96Nz58wzJlgh4pm+v5PclpR+o//blSv1i f65Sjmc6FQuPcFHrQO1fEw== 0001047469-99-010147.txt : 19990318 0001047469-99-010147.hdr.sgml : 19990318 ACCESSION NUMBER: 0001047469-99-010147 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AEP INDUSTRIES INC CENTRAL INDEX KEY: 0000785787 STANDARD INDUSTRIAL CLASSIFICATION: UNSUPPORTED PLASTICS FILM & SHEET [3081] IRS NUMBER: 221916107 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14450 FILM NUMBER: 99567312 BUSINESS ADDRESS: STREET 1: 125 PHILLIPS AVE CITY: SOUTH HACKENSACK STATE: NJ ZIP: 07606 BUSINESS PHONE: 2016416600 MAIL ADDRESS: STREET 1: 125 PHILLIPS AVE CITY: SOUTH HACKENSACK STATE: NJ ZIP: 07606 10-Q 1 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 January 31, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-14450 ------------------------ AEP INDUSTRIES INC. (Exact name of registrant as specified in its charter) DELAWARE 22-1916107 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 125 PHILLIPS AVENUE 07606 SOUTH HACKENSACK, NEW JERSEY (Zip Code) (Address of principal executive offices)
(201) 641-6600 (Registrant's telephone number, including area code) NOT APPLICABLE (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
SHARES OUTSTANDING AT CLASS OF COMMON STOCK MARCH 1, 1999 - ---------------------------------------------------------------------------------- -------------- $.01 Par Value.................................................................... 7,290,688
- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS AEP INDUSTRIES INC. CONSOLIDATED BALANCE SHEETS
JANUARY 31, OCTOBER 31, 1999 1998 -------------- -------------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents...................................................... $ 2,368,000 $ 3,994,000 Accounts receivable, less allowance of $4,772,000 in 1999 and $4,686,000 in 1998 for doubtful accounts................................................... 87,678,000 98,656,000 Inventories, net............................................................... 83,510,000 80,836,000 Net assets of discontinued operations.......................................... 20,214,000 45,146,000 Other current assets........................................................... 15,816,000 16,458,000 -------------- -------------- Total current assets....................................................... 209,586,000 245,090,000 -------------- -------------- PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated depreciation and amortization of $116,226,000 in 1999 and $110,515,000 in 1998.................. 245,430,000 250,032,000 GOODWILL less accumulated amortization of $2,947,000 in 1999 and $2,629,000 in 1998........................................................................... 42,128,000 40,817,000 INVESTMENT IN JOINT VENTURE...................................................... 15,761,000 15,597,000 OTHER ASSETS..................................................................... 52,342,000 40,950,000 -------------- -------------- TOTAL ASSETS............................................................... $ 565,247,000 $ 592,486,000 -------------- -------------- -------------- -------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Short-term borrowings.......................................................... $ 46,459,000 $ 30,968,000 Accounts payable............................................................... 76,780,000 87,893,000 Accrued expenses............................................................... 35,366,000 44,621,000 -------------- -------------- Total current liabilities.................................................. 158,605,000 163,482,000 LONG-TERM DEBT................................................................... 302,511,000 301,817,000 OTHER LONG TERM LIABILITIES...................................................... 6,407,000 6,440,000 DEFERRED INCOME TAXES............................................................ 30,930,000 34,446,000 -------------- -------------- Total liabilities.......................................................... 498,453,000 506,185,000 -------------- -------------- 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; 10,035,288 and 10,022,301 shares, issued in 1999 and 1998, respectively..................... 100,000 100,000 Additional paid-in capital..................................................... 91,544,000 91,324,000 Treasury stock--common stock; at cost, 2,744,600 shares in 1999 and 1998....... (60,963,000) (60,963,000) Retained earnings.............................................................. 63,176,000 78,942,000 Accumulated other comprehensive income......................................... (27,063,000) (23,102,000) -------------- -------------- Total shareholders' equity................................................. 66,794,000 86,301,000 -------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................. $ 565,247,000 $ 592,486,000 -------------- -------------- -------------- --------------
The accompanying notes to financial statements are an integral part of these balance sheets. 2 AEP INDUSTRIES INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, ------------------------------ 1999 1998 -------------- -------------- NET SALES........................................................................ $ 151,898,000 $ 168,378,000 COST OF SALES.................................................................... 114,632,000 129,960,000 -------------- -------------- Gross profit............................................................. 37,266,000 38,418,000 -------------- -------------- OPERATING EXPENSES: Delivery and warehousing....................................................... 11,232,000 11,141,000 Selling........................................................................ 9,116,000 9,367,000 General and administrative..................................................... 6,338,000 7,182,000 -------------- -------------- Total operating expenses................................................. 26,686,000 27,690,000 -------------- -------------- OTHER INCOME (EXPENSE): Interest expense............................................................... (8,291,000) (8,151,000) Other, net..................................................................... 753,000 316,000 -------------- -------------- (7,538,000) (7,835,000) -------------- -------------- Income before provision for income taxes................................. 3,042,000 2,893,000 PROVISION FOR INCOME TAXES....................................................... 1,207,000 1,009,000 -------------- -------------- Income from continuing operations........................................ 1,835,000 1,884,000 -------------- -------------- DISCONTINUED OPERATIONS: (Loss) from operations of discontinued businesses (less applicable income tax benefit of $770,000 and $407,000, respectively).............................. (1,205,000) (630,000) Estimated (loss) on disposal of discontinued Proponite operations, including provision for operating losses through disposal date, (less applicable income tax benefit of $10,482,000).................................................. (16,396,000) -- -------------- -------------- Loss from discontinued operations........................................ (17,601,000) (630,000) -------------- -------------- Net Income (Loss)........................................................ (15,766,000) 1,254,000 Retained earnings, beginning of period........................................... 78,942,000 78,679,000 -------------- -------------- Retained earnings, end of period................................................. $ 63,176,000 $ 79,933,000 -------------- -------------- -------------- -------------- Earnings Per Share--Basic and Diluted: Income from continuing operations................................................ $ 0.25 $ 0.26 (Loss) from discontinued operations.............................................. (2.42) (0.09) -------------- -------------- Basic and Diluted net income............................................. $ (2.17) $ 0.17 -------------- -------------- -------------- -------------- Consolidated Statements of Comprehensive Income Net (Loss) Income................................................................ $ (15,766,000) $ 1,254,000 Other comprehensive income: Unrealized foreign currency translation adjustments.......................... (3,961,000) (319,000) -------------- -------------- Comprehensive (loss) income.................................................... $ (19,727,000) $ 935,000 -------------- -------------- -------------- --------------
The accompanying notes to financial statements are an integral part of these statements. 3 AEP INDUSTRIES INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED JANUARY 31, ------------------------------ 1999 1998 -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income............................................................... $ (15,766,000) $ 1,254,000 Adjustments to reconcile net income to net cash provided by operating activities -- Loss from discontinued Proponite operations................................. 1,205,000 630,000 Estimated loss on disposal.................................................. 16,396,000 -- Depreciation and amortization............................................... 7,983,000 7,595,000 Net (gain) on sale of equipment............................................. (31,000) (38,000) Provision for losses on accounts receivable and inventory................... 461,000 391,000 Minority interest income.................................................... (164,000) (89,000) Decrease in accounts receivable............................................. 10,593,000 7,849,000 Increase in inventories..................................................... (2,598,000) (4,058,000) Decrease in other current assets............................................ 1,018,000 2,034,000 Decrease (Increase) in net assets of discontinued operations................ 7,331,000 (416,000) Increase in other assets.................................................... (11,392,000) (8,683,000) (Decrease) increase in accounts payable..................................... (11,203,000) 1,194,000 (Decrease) in accrued expenses.............................................. (9,378,000) (8,066,000) (Decrease) in long term liabilities......................................... (3,549,000) (127,000) -------------- -------------- Net cash used in by operating activities.................................. (9,094,000) (530,000) -------------- -------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Capital expenditures............................................................ (4,954,000) (4,030,000) Sales and retirements of property, plant and equipment, net..................... 112,000 27,000 Acquisition of subsidiary....................................................... (1,948,000) -- Proceeds from sale of subsidiary................................................ -- 2,284,000 -------------- -------------- Net cash used in investing activities..................................... (6,790,000) (1,719,000) -------------- -------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Proceeds from issuance of Subordinated Notes.................................... -- 198,500,000 Repayments on Term Loan......................................................... -- (196,591,000) Net borrowings.................................................................. 16,185,000 933,000 Proceeds from issuance of common stock.......................................... 220,000 87,000 -------------- -------------- Net cash provided by financing activities................................. 16,405,000 2,929,000 -------------- -------------- EFFECTS OF EXCHANGE RATE CHANGES ON CASH.......................................... (2,147,000) (2,534,000) -------------- -------------- NET (DECREASE) INCREASE IN CASH:.................................................. (1,626,000) (1,854,000) CASH AT BEGINNING OF PERIOD:...................................................... 3,994,000 4,143,000 -------------- -------------- CASH AT END OF PERIOD:............................................................ $ 2,368,000 $ 2,289,000 -------------- -------------- -------------- -------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for--interest....................................... $ 7,972,000 $ 6,062,000 -------------- -------------- Cash paid during the period for--income taxes................................... $ 229,000 $ 730,000 -------------- --------------
The accompanying notes to financial statements are an integral part of these statements. 4 AEP INDUSTRIES INC. NOTES TO 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, 1998. 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 January 31, 1999, and 1998 were 7,282,675 and 7,209,016, 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), which were antidilutive for the periods presented. The number of shares used in such computation for the three months ended January 31, 1999, and 1998 were 7,357,938 and 7,380,642, 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:
JANUARY 31, OCTOBER 31, 1999 1998 --------------- --------------- Raw Materials.............................................. $ 21,832,000 $ 19,684,000 Finished Goods............................................. 58,780,000 57,952,000 Supplies................................................... 4,321,000 4,618,000 --------------- --------------- 84,933,000 82,254,000 Less: Inventory Reserve.................................... (1,423,000) (1,418,000) --------------- --------------- Total Inventories, Net..................................... $ 83,510,000 $ 80,836,000 --------------- --------------- --------------- ---------------
The (LIFO) method was used for determining the cost of approximately 50% and 47% of total inventories at January 31, 1999 and October 31, 1998, respectively. 5 AEP INDUSTRIES INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (4) 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 division. On March 4,1999, the Company entered into an agreement to sell certain assets of the Proponite division to Applied Extrusion Technologies Inc. and will wind down this non-core business during the current fiscal year. The disposal of the Proponite division 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 anticipated losses of the Proponite division through the date of disposal. Condensed financial information relating to the discontinued operations of Proponite is as follows:
JANUARY 31, OCTOBER 31, 1999 1998 --------------- --------------- Net assets of discontinued operations: Current assets........................................... $ 15,676,000 $ 13,882,000 Property, plant & equipment--net......................... 34,126,000 34,976,000 --------------- --------------- Total assets........................................... 49,802,000 48,858,000 Current liabilities...................................... 2,710,000 3,712,000 --------------- --------------- Net assets................................................. 47,092,000 45,146,000 Provision for disposal................................... 26,878,000 -- --------------- --------------- Net assets of discontinued operations.................. $ 20,214,000 $ 45,146,000 --------------- --------------- --------------- ---------------
FOR THE THREE FOR THE THREE MONTHS ENDED MONTHS ENDED JANUARY 31, JANUARY 31, 1999 1998 --------------- --------------- Results of Operations: Net sales................................................ $ 6,633,000 $ 9,914,000 --------------- --------------- Gross profit (loss)...................................... (873,000) 1,329,000 --------------- --------------- Net loss................................................. $ (1,205,000) $ (27,000) --------------- --------------- --------------- ---------------
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 manufactured, marketed and distributed wet food containers, dry food trays and disposable food service products. These businesses were not core and were sold by the Company in the prior fiscal year. Beginning November 1, 1997, the Company began recording these businesses as discontinued operations and for the three months ended January 31, 1998 recorded a net loss from these discontinued operations of $603,000. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF CONTINUING OPERATIONS NET SALES AND GROSS PROFIT Net sales for the first quarter ended January 31, 1999 decreased by $16,480,000 or 10% to $151,898,000 from $168,378,000 in the same period in the prior year. Net sales in North America decreased to $87,462,000 during the current period from $97,953,000 in the first quarter of 1998, or 11%, primarily due to an 11% decrease in per unit selling prices as a result of lower raw material costs which were passed though to the customers and a change in product mix. Net sales in Europe decreased to $45,320,000 for the first quarter of 1999 from $48,171,000 in fiscal 1998, or 6%, primarily due to a 13% decrease in average selling prices (local currency) offset by a 7% volume increase. Net sales in Asia / Pacific decreased to $19,116,000 in the current period from $22,254,000 in the same period in the prior year, or 14%, primarily due to a 4% sales volume decrease and a 10% decrease in average selling prices (local currency). Gross profit for the first quarter of Fiscal 1999 amounted to $37,266,000 compared to $38,418,000 for the first quarter of Fiscal 1998. North America experienced an increase in gross profit of $489,000 or 2% for the period due to increased sales volume as well as reduced raw material costs. Gross profit in Europe decreased $794,000 or 8% from the same period in the prior year due to changes in product mix, as well as, the general economic pressures in Eastern Europe, which resulted in lower average selling prices and lower margins. Asia / Pacific gross profit for the first quarter ended January 31, 1999 decreased by $847,000 or 24% from the same period in the prior year due to lower volume resulting from the economic pressures of the region combined with the shut down and consolidation of a plant in Australia. OPERATING EXPENSES Operating expenses for the three months ended January 31, 1999 were $26,686,000 as compared to $27,690,000 for the same period in the prior fiscal year. This decrease of $1,004,000 or 4% in operating expenses can be attributed to decreased selling expenses of $251,000 due to the realignment of the company's sales force and a reduction in worldwide general and administrative expenses of $844,000 offset by an increase of $91,000 in warehousing and delivery costs which resulted from increased sales volume for the period. INTEREST EXPENSE Interest expense for the three months ended January 31, 1999, amounted to $8,291,000, an increase of $140,000 from the same period in the prior year. This increase in interest expense is due to higher average interest rates for the period. OTHER INCOME (EXPENSE) Other income for the three months ended January 31, 1999, amounted to $753,000. This amount includes 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 joint venture. DISCONTINUED OPERATIONS Net sales of the discontinued Proponite operations were $6,633,000 and $9,914,000 for the three months ended January 31, 1999 and 1998, respectively. This decrease of $3,281,000 or 33% can be attributed to a 24% reduction in sales volume coupled with a decrease in average selling prices of 12% due to the competitive nature of the market place and product mix. The Proponite operations had a gross loss of $874,000 for the three months ended January 31,1999 compared with a gross profit of 7 $1,329,000 in the same period in the prior year. This reduction in gross profit can be attributed to under utilization of plant facilities due to lower sales volume and unscheduled line shutdown for maintenance. Net losses from discontinued Proponite operations were $1,205,000 and $27,000 for the three months ended January 31,1999 and 1998, respectively. The Company's first quarter 1997 included a net loss from discontinued operations of the rigids businesses of $603,000. The rigids businesses had net sales of $16,607,000 and a gross profit of $1,657,000 for the period ended January 31,1998. 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 $50,981,000 at January 31, 1999, compared to $81,608,000 at October 31, 1998. This decrease of $30,627,000 in working capital is primarily the result of a non-cash provision for disposal of net assets of the discontinued Proponite operations, including a reserve for operating losses through the disposal date, of $26,878,000 and the strengthening of the United States dollar during Fiscal 1998, thereby reducing the translation of working capital balances of foreign subsidiaries. The remaining increases and decreases in 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. The term loan commitment expired on the date of the closing of the Credit Agreement and the borrowing of the term loan thereunder. Amounts repaid or prepaid with respect to the term loan may not be reborrowed. As of January 31, 1999, there was $108,000,000 outstanding under the term credit facility and no outstanding borrowings under the revolving credit facility. 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. The Company also has a $10,000,000 unsecured revolving credit facility available for working capital purposes. As of January 31, 1999, there was $4,000,000 outstanding under this credit facility. The Company also maintains various unsecured short-term credit facilities at its foreign subsidiaries. At January 31, 1999, the aggregate amount outstanding under such facilities was approximately $37,000,000 and approximately $31,000,000 was available for borrowing. Borrowings from these facilities are used to support operations at such subsidiaries and are generally serviced by cash flow from operations at such subsidiaries. The Company's cash and cash equivalents decreased by $1,626,000 for the first quarter ended January 31,1999, as compared to a decrease of $1,854,000 during the same period in the prior year. Net cash used by operating activities during the three months ended January 31, 1999 was $9,094,000, which was primarily due to a reduction in trade accounts payable and accrued expenses of $20,581,000 offset by depreciation and amortization expense of $7,983,000, net income from continuing operations of 8 $1,835,000, and net increases in other operating assets and liabilities of $2,979,000. In each period, the net decreases in other operating assets and liabilities reflect normal operating activity. Net cash used in investing activities during the first three months ended January 31, 1999, was $6,790,000, resulting primarily from the net investment in capital expenditures of $4,954,000 and the acquisition of the Thermofilm subsidiary for $1,948,000, which was offset by proceeds received from the sales of machinery and equipment in the period of $112,000. Net cash provided by financing activities for the quarter ended January 31, 1999 was $16,405,000, reflecting net borrowings of $16,185,000 from available credit facilities and proceeds from stock issuances of $220,000. The remaining increases and decreases in the components of the Company's financial position reflect normal operating activity. In March 1999, the company announced that it will discontinue operations at its Proponite facility and entered into an into an agreement to sell certain assets of this division and wind down this non-core business during the current fiscal year. The net proceeds from the closing of Proponite operations will be approximately $20,000,000. The Company believes that net proceeds from the wind down of Proponite operations and its cash flow from operations, combined with the availability of funds under the Credit Agreement and credit lines available to the Company's foreign subsidiaries for local currency borrowings, will be sufficient to meet the Company's working capital, capital expenditure and debt service requirements for the foreseeable future. EFFECTS OF INFLATION Inflation is not expected to have significant impact on the Company's business. YEAR 2000 The Company is currently undertaking a systems readiness review that will help mitigate the risks associated with the Year 2000 issue, that is, computer programs that were written to store only two digits of the year portion of date-related information in order to more efficiently handle and store data. Thus, the programs were unable to properly distinguish between the year 1900 and the year 2000. The Company's review addresses: (a) the Company's application software and hardware and related operating systems; (b) embedded technology in production equipment; and (c) Year 2000 compliance by third parties, principally suppliers and customers. In Fiscal 1997, the Company initiated programs to upgrade and enhance its international business systems in order to replace aging technologies and provide infrastructure to support these businesses. In connection with these upgrades and enhancements, the Company is in the process of installing these new systems which are designed to be Year 2000 compliant. The domestic businesses application software and hardware have been inventoried and are in the process of being modified or being upgraded to be Year 2000 compliant. The Company is in the process of completing its inventories and assessments in regard to embedded technology, such as microcontrollers in its production equipment, at each of its worldwide businesses. This process is expected to be completed in the first calendar quarter of 1999. Until the inventories and assessments are completed, it is not possible to determine what action, if any, will be required to be taken. In evaluating the impact on the Company of Year 2000 compliance by significant third parties, each of the Company's business locations is in the process of identifying and contacting each significant third party to ascertain such third party's Year 2000 readiness. It is expected that this process will be completed in the first calendar quarter of 1999. Until this process is completed, it is not possible to 9 determine which third parties will not be Year 2000 compliant and the effect of such failure on the Company. Once Year 2000 compliance areas are reviewed and necessary upgrades are completed, the Company plans to test systems to verify that compliance has been achieved. The target completion date for system testing is October 31, 1999. The Company estimates the total cost associated with Year 2000 compliance activities, including upgrades in the international business systems will be approximately $7.0 million of which $5.5 million has been incurred through January 31, 1999. Cash flow from operations has funded this project to date and is expected to fund the balance of the project. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity, and financial condition. Because of the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of Year 2000 readiness of third party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity, and financial condition. 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 the Company's prospects for the future such as its ability to generate sufficient working capital, its ability to continue to maintain sales and profits of its operations and its ability to generate sufficient funds to meet its cash requirements. The Company wishes 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, 1999, include many factors that are beyond the Company's 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 the Company's products, price fluctuations which could adversely impact the Company's 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. 10 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/A J. BRENDAN BARBA ------------------------------------------ J. Brendan Barba Chairman of the Board, President Date: March 17, 1999 and Chief Executive Officer S/A PAUL M. FEENEY ------------------------------------------ Paul M. Feeney Executive Vice President Principal Financial and Accounting Date: March 17, 1999 Officer
11 PART II--OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in routine litigation in the normal course of its business. The proceedings are not expected to have a material adverse impact on the Company's results of operations or financial position. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 11--Computation of weighted average number of shares outstanding. Page 15 (b) There were no current reports on Form 8-K filed during the quarter ended January 31, 1999. 12 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------------------- ------------------------------------------------------------------------------------------------- 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) 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)
13
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------------------- ------------------------------------------------------------------------------------------------- 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)
14 EXHIBIT 11 AEP INDUSTRIES INC. COMPUTATION OF THE WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING FOR THE THREE MONTHS ENDED JANUARY 31 , 1999
FOR THE THREE MONTHS ENDED JANUARY 31, -------------------------------------------------- NUMBER OF WEIGHTED AVERAGE SHARES OF DAYS DAYS IN NUMBER OF SHARES 1999 COMMON STOCK OUTSTANDING PERIOD OUTSTANDING - -------------------------------------------------------- -------------- ----------------- ------------- ---------------- November 1--October 31.................................. 7,277,701 7,277,701 Shares Issued: November 4, 1998........................................ 400 89 92 387 November 18, 1998....................................... 1,800 75 92 1,467 January 4, 1999......................................... 10,187 28 92 3,100 January 29, 1999........................................ 600 3 92 20 -------------- ---------------- Total Weighted Average Shares........................... 7,290,688 7,282,675 Total Dilutive Stock options.......................... -- 75,263 -------------- ---------------- Total Shares...................................... 7,290,688 7,357,938 -------------- ---------------- -------------- ---------------- 1998 - -------------------------------------------------------- November 1--October 31.................................. 7,206,787 7,206,787 Shares Issued: November 18, 1997....................................... 60 75 92 49 December 3, 1997........................................ 400 60 92 261 December 9, 1997........................................ 100 54 92 59 December 15, 1997....................................... 200 48 92 104 December 18, 1997....................................... 1,900 45 92 929 December 19, 1997....................................... 1,000 44 92 478 January 16, 1998........................................ 800 16 92 139 January 20, 1998........................................ 200 12 92 26 January 27, 1998........................................ 600 5 92 33 January 30, 1998........................................ 6,950 2 92 151 -------------- ---------------- Total Weighted Average Shares........................... 7,218,997 7,209,016 Total Dilutive Stock options.......................... -- 171,626 -------------- ---------------- Total Shares...................................... 7,218,997 7,380,642 -------------- ---------------- -------------- ----------------
15 EX-27 2 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AEP INDUSTRIES INC. FORM 10-Q FOR THE THREE MONTHS ENDED JAN-31-1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS OCT-31-1999 NOV-1-1998 JAN-31-1999 2,368 0 92,450 4,772 83,510 209,586 361,656 116,226 565,247 158,605 0 0 0 100 66,694 565,247 151,898 152,651 114,632 114,632 26,225 461 8,291 3,042 1,207 1,835 (17,601) 0 0 (15,766) (2.17) (2.17)
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