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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 31, 2000
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 0-14550
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AEP INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-1916107
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
125 PHILLIPS AVENUE 07606-1546
SOUTH HACKENSACK, NEW JERSEY (zip code)
(Address of principal executive offices)
(201) 641-6600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class) (Name of each exchange on which registered)
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of class)
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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
requirement for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the shares of the voting stock held by
nonaffiliates of the Registrant was approximately $166,832,693 based upon the
closing price of the stock, which was $44.69 on December 31, 2000.
The number of shares of the Registrant's common stock outstanding as of
December 31, 2000, was 7,610,544
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are incorporated by
reference herein and the Part of the Form 10-K into which the document is
incorporated:
Proxy Statement to be filed with respect to the Registrant's Annual Meeting
of Stockholders to be held on April 10, 2001--Part III, except as specifically
excluded in the Proxy statement.
2
PART I
ITEM 1. BUSINESS
GENERAL
AEP Industries Inc. is a leading worldwide manufacturer of plastic packaging
films. We manufacture both commodity films, which are made to general
specifications, and specialty films, which are made to customer specifications.
The films are used in the packaging, transportation, beverage, food, automotive,
pharmaceutical, chemical, electronics, construction, agriculture and textile
industries. Our manufacturing operations are located in 11 countries in North
America, Europe and the Asia/ Pacific Region.
PRODUCTS
We are a leading worldwide manufacturer of plastic packaging films. We
manufacture and market an extensive and diverse line of polyethylene, polyvinyl
chloride and polypropylene flexible packaging products, with consumer,
industrial and agricultural applications. Flexible packaging and film products
are thin, ductile bags, sacks, labels and films used for food and non-food
consumer, agricultural and industrial items. Flexible packaging containers not
only protect their contents, they are also cost-effective, space-saving,
lightweight, tamper-evident, convenient and often recyclable. The flexible
packaging and film products manufactured by us are used in a variety of
industries, including the packaging, transportation, beverage, food, automotive,
pharmaceutical, chemical, electronics, construction, agricultural and textile
industries.
The following table summarizes our product lines:
PRODUCT LOCATION MATERIAL USES
- ------- --------------------- --------------------- ---------------------
polyvinyl chloride North America, polyvinyl chloride meat and food wrap,
wrap Europe, Asia/Pacific institutional films
and twist wrap
industrial films United States, polyethylene drum, box, carton,
Europe, Asia/Pacific polypropylene and pail liners; bags
for furniture and
mattresses; films to
cover high value
products; barrier
films; cheese films
and freezer wraps
stretch (pallet) wrap North America, polyethylene pallet wrap
Europe, Asia/Pacific
printed and converted Europe, Asia/Pacific primarily printed, laminated
films polyethylene and/or converted
films providing
flexible packaging to
consumer markets
other products and North America, various manufactured and
specialty films Europe, Asia/Pacific thermoplastics and resale items used in
machinery packaging
3
We currently have manufacturing operations located in 11 countries. We
divide our operations geographically into three principal regions, North
America, Europe and Asia/Pacific. During fiscal 2000, North America, Europe and
Asia/Pacific represented 64%, 26% and 10%, respectively, of our sales.
NORTH AMERICAN OPERATIONS
RESINITE (POLYVINYL CHLORIDE)
We manufacture polyvinyl chloride food wrap for the supermarket, consumer,
institutional and industrial markets in North America, offering a broad range of
products with approximately 45 different formulations. These films are used for
packaging of fresh red meats, poultry, fish, fruits and vegetables and bakery
products.
Our Resinite facility also manufactures dispenser (cutter) boxes containing
polyvinyl chloride food wrap for sales to consumers and institutions, including
restaurants, schools, hospitals and penitentiaries. Our most popular branded
institutional polyvinyl chloride food wrap is marketed under the SEAL
WRAP-REGISTERED TRADEMARK- name. A substantial part of this product is sold to
large paper and food distributors, with the rest sold directly to supermarket
chains.
INDUSTRIAL FILMS
We manufacture a broad range of industrial films, generally custom designed,
including sheeting, tubing and bags. Bags are usually cut, rolled or perforated,
drum, box, carton and pail liners. These bags can be used to package specialty
items such as furniture and mattresses. We also manufacture films to protect
items stored outdoors or in transit, such as boats and cars, and a wide array of
shrink films, barrier films and overwrap films. We sell the majority of our
industrial film output directly to customers on a national account basis, with
approximately 20% sold through distributors.
Most of the industrial films manufactured by us, which may be as many as
20,000 separate and distinct products in any given year, are custom designed to
meet the specific needs of our customers.
We believe that the strength of our industrial film operations lies in our
technologically superior products, high quality control standards, well-trained
and knowledgeable sales force and commitment to customer service. Our sales
force has expertise in packaging systems, provides technical support to our
distribution network and focuses on product knowledge and customer relations.
The industrial films market is comprised of a large number of smaller
manufacturers who together constitute approximately two-thirds of all sales,
with the remainder of the market represented by a few large manufacturers. Our
research and development team continually improves applications and creates new
industrial film products. This has helped establish us as one of the largest
producers in this fragmented market. We believe we can continue to expand our
share of the industrial films market through our ability to offer a broad range
of industrial as well as other packaging films (including stretch wrap), thereby
offering our customers one-stop shopping.
STRETCH WRAP
We manufacture a family of high performance stretch wrap for wrapping and
securing palletized products for shipping. We also market a wide variety of
stretch wrap designed for commodity and specialty uses. We sell approximately
90% of our stretch wrap through distributors. The remainder of our output is
sold directly to customers on a national account basis. Since the industry still
is experiencing overcapacity in the marketplace, we have reduced our stretch
wrap capacity, rationalized our sales force, consolidated our distribution
activities and reformulated certain stretch products to help us realize
significant cost reductions.
4
EUROPEAN OPERATIONS
EUROPEAN RESINITE (POLYVINYL CHLORIDE)
Through our European Resinite division, we manufacture polyvinyl chloride
food wrap in cutter boxes and perforated rolls which are primarily sold to
restaurants and food service establishments. European Resinite sells films
across Europe (with the exception of Italy, which is covered by Fabbrica
Italiana Articoli Plastici, or FIAP) and sells most of its film directly to
end-users. We are rationalizing our labor force and believe that this will have
a positive impact on our operating results.
The market for polyvinyl chloride food wrap is relatively mature in Northern
Europe and is intensely competitive. We expect that growth in Europe will be
driven by developing catering, food service and volume feeding markets in
Eastern Europe and by developing food distribution markets in Southern and
Eastern Europe. In certain European markets, a tax is levied on packaging
materials based on weight, which has led to a demand for thinner but stronger
meat films. We have the technology to deliver films with such properties at a
low price. We believe this to be a competitive advantage.
EUROPEAN FLEXIBLES
Our European Flexibles division manufactures flexible packaging and
converted films used in the food processing and pharmaceutical industries,
including freezer film, processed cheese innerwrap and tamper-evident seals.
European Flexibles also manufactures and sells polyethylene-based stretch wrap
for wrapping and securing pallet loads. European Flexibles sells 73% of its
stretch wrap to distributors, and 27% directly to end-users.
FIAP
Through FIAP, we manufacture polyvinyl chloride food wrap, unplasticized
polyvinyl chloride twist wrap, and converted and printed films. FIAP is known as
a specialist in unplasticized polyvinyl chloride twist wrap, which is used to
wrap candles, candies and similar products. This product has performance
characteristics similar to cellophane and is emerging as a low cost substitute.
We believe unplasticized polyvinyl chloride, because of its performance
characteristics, has significant growth potential opportunities as a replacement
for cellophane. In addition, we believe opportunities are developing for new
uses for this wrap, such as battery covers and credit card laminates.
Films manufactured by FIAP are sold in the United States, Europe, Africa,
and the Middle East, mostly through an internal sales force directly to
end-users.
ASIA/PACIFIC OPERATIONS
We are a major manufacturer of industrial films, PVC films and printed and
converted films in Australia and New Zealand. Our operations in the Asia/Pacific
region resemble our North American and European operations with the same variety
of films.
We sell the majority of the products we manufacture in Australia and New
Zealand to end-users and the remainder to distributors. The markets for plastic
packaging products in Australia and New Zealand are relatively small, offering
limited growth opportunities. However, since New Zealand and Australia are
significant exporters of high protein products, we expect to participate in the
growing market for packaging materials for these products for export to China
and Southeast Asia.
We also have a 50% joint venture in Japan with Hitachi Chemical Co., Ltd.
The joint venture, known as Hitichi Chemical Filtee, Inc., supplies polyvinyl
chloride food wrap to the Japanese market. We account for the joint venture on
an equity basis.
5
MANUFACTURING
We manufacture both industrial grade products, which are manufactured to
industry specifications or for distribution from stock, and specialty products,
which are manufactured under more exacting standards to assure that their
chemical and physical properties meet the particular requirements of the
customer or the specialized application appropriate to its intended market.
Specialty products generally sell at higher margins than industrial grade
products.
We manufacture polyvinyl chloride food wrap in Griffin, Georgia, in Europe
at three Resinite plants strategically located in United Kingdom, Spain, and
France, in Australia and in New Zealand. In fiscal 2000, we announced the
closing of our United Kingdom manufacturing operations and the move of its
production equipment to Spain, and we are in the process of doing so.
We manufacture stretch wrap and industrial films at several large
geographically dispersed, integrated extrusion facilities located throughout the
world, which also have the ability to produce other products. The size and
location of those facilities, as well as their capacity to manufacture multiple
types of flexible packaging products and to re-orient equipment as market
conditions warrant, enable us to achieve savings and minimize overhead and
transportation costs.
At the FIAP facility in Italy, we manufacture polyvinyl chloride food wrap,
unplasticized polyvinyl chloride twist wrap, and converted and printed films. We
manufacture flexible packaging and converted films in Europe at facilities
strategically located in Holland and Belgium. We have installed new, efficient
pallet wrap equipment at these facilities which we believe will increase our
market presence in Europe in this product. We also manufacture industrial films
and flexible packaging and converted films at our facilities in Australia and
New Zealand.
PRODUCTION
In the film manufacturing process, resins with various properties are
blended with chemicals and other concentrates to achieve a wide range of
specified product characteristics, such as color, clarity, tensile strength,
toughness, thickness, shrinkability, surface friction, transparency, sealability
and permeability. The gauges of our products range from less than one mil (.001
inches) to more than 20 mils. Our extrusion equipment can produce printed
products and film up to 40 feet wide. The blending of various kinds of resin
combined with chemical and color additives is computer controlled to avoid waste
and to maximize product consistency. The blended mixture is melted by a
combination of applied heat and friction under pressure and then is mechanically
mixed. The mixture is then forced through a die, at which point it is expanded
into a flat sheet or a vertical tubular column of film and cooled. Several
mixtures can be forced through separate dies simultaneously to produce a
multi-layered film (co-extrusion), each layer having specific and distinct
characteristics. The film can then be shipped to a customer or can be further
processed and then shipped.
Generally, our manufacturing plants operate 24 hours a day, seven days a
week, except for plants located in areas where hours of operation are limited by
law, local custom or in cases when 24 hour operations are not economically
advantageous.
We have regularly upgraded or replaced older equipment in order to keep
abreast of technological advances and to maximize production efficiencies by
reducing labor costs, waste and production time. During the past five fiscal
years, we made significant capital improvements, which included the construction
of new manufacturing, warehouse and sales facilities, the purchase and lease of
new state-of-the-art extrusion equipment and the upgrading of older equipment.
We have shifted production among our plants to improve efficiency and cost
savings and are upgrading and replacing equipment at certain of these facilities
in order to increase production capacity and enhance efficiency. We will
continue to upgrade or replace equipment, as we deem appropriate.
6
QUALITY CONTROL
We believe that maintaining the highest standards of quality in all aspects
of our manufacturing operations plays an important part in our ability to
maintain our competitive position. To that end, we have adopted strict quality
control systems and procedures designed to test the mechanical properties of our
products, such as strength, puncture resistance, elasticity, abrasion
characteristics and sealability, which we regularly review and update, and
modify as appropriate.
RAW MATERIALS
We manufacture film products primarily from polyethylene, polypropylene and
polyvinyl chloride resins, all of which are available from a number of domestic
and foreign suppliers. We select our suppliers based on the price, quality and
characteristics of the resins they produce. Most of our purchases of resin in
fiscal 2000 have been from 17 of the 19 major international resin suppliers,
none of which accounted for more than 19% of our requirements. We believe that
the loss of any resin supplier would not have a materially adverse effect on us.
The resins used by us are produced from petroleum and natural gas.
Instability in the world markets for petroleum and natural gas could adversely
affect the prices of our raw materials and their general availability, and this
could have an adverse effect on our profitability if the increased costs can not
be passed on to customers. The cost of resin typically comprises approximately
67% of a manufacturer's cost of goods sold. With limited exceptions, we have
historically been able to pass on substantially all of the price increases in
raw materials to our customers on a penny for penny basis. During fiscal 1999
and fiscal 2000, as a result of the frequent increases in resin prices, customer
resistance and competitive pressure, we were not able to pass on a large part of
these increases, and this adversely affected our revenue, gross profit and
earnings. There can be no assurance that we will be able to pass on resin price
increases on a penny for penny basis in the future.
We generally maintain a resin inventory of less than one month's supply and
have not experienced any difficulty in maintaining our supplies. Other raw
materials, principally chemical colorings and other concentrates, are available
from many sources.
MARKETING AND SALES
We believe that our ability to continue to provide superior customer service
will be critical to our success. Even in those markets where our products are
considered commodities and price is the single most important factor, we believe
that our sales and marketing capabilities and our ability to timely deliver
products can be a competitive advantage. To that end, we have established good
relations with our suppliers and have long-standing relationships with most of
our customers, which we attribute to our ability to consistently manufacture
high-quality products and provide timely delivery and superior customer service.
We believe that our research and development efforts, our high efficiency
equipment, which is both automated and microprocessor-controlled, and the
technical training given to our sales personnel enhance our ability to expand
our sales in all of our product lines. An important component of our marketing
philosophy is the ability of our sales personnel to provide technical assistance
to customers. Our sales force regularly consults with customers with respect to
performance of our products and the customers' particular needs and communicates
with appropriate research and development staff regarding these matters. In
conjunction with the research and development staff, sales personnel are often
able to recommend a product or suggest a resin blend to produce the product with
the characteristics and properties which best suit the customers' requirements.
7
We market our polyethylene products in North America, principally through
our own sales force under the supervision of national and regional managers. We
generally sell either directly to customers who are end-users of our products or
to distributors for resale to end-users.
We market our polyvinyl chloride and our stretch film products in North
America primarily through large distributors. Because we have expanded and
continue to expand our product lines, sales personnel are able to offer a broad
line of products to our customers.
During fiscal 2000 and fiscal 1999, approximately 61% and 62%, respectively,
of our sales in North America were directly to distributors with the balance
representing sales to end-users. We serve approximately 16,000 customers, none
of which accounts for more than 5% of our net sales.
Sales and marketing efforts in Europe and in the Asia/Pacific region are
primarily by our sales force to end-users, although distributors are used in
cases where the distributor adds value to the customer. Sales offices are
assigned to each of our plants.
DISTRIBUTION
We believe that the timely delivery to customers of our products is a
critical factor in our ability to maintain our market position. Domestically, we
used both internal and external sources of distribution. Most of our deliveries
were by dedicated service haulers, contract carriers and common carriers.
Through September 2000, we maintained a fleet of 16 trucks, most of which we
leased, for the delivery to customers of approximately 9% of our products.
However, starting in October 2000, we only use dedicated service haulers,
contract carriers and common carriers for all of our deliveries. This will
enable us to better control the distribution process and thereby insure priority
handling and direct transportation of products to our customers, thus improving
the speed, reliability and efficiency of delivery.
Because of the geographic dispersion of our plants, we are able to deliver
most of our products within a 500-mile radius of our plants. This enables us to
reduce our use of warehouses to store products. However, we also ship products
great distances when necessary and export from the United States and Canada.
Internationally, we use common and contract carriers to deliver most of our
products, both in the country of origin and for export. We do not deliver our
own products to an appreciable degree.
RESEARCH AND DEVELOPMENT
We have a research and development department with a staff of approximately
17 persons. In addition, other members of management and supervisory personnel,
from time to time, devote substantial amounts of time to research and
development activities. The principal efforts of our research and development
department are directed to maintaining and improving quality control in our
manufacturing operations, assisting sales personnel in designing specialty
products to meet individual customer's needs, developing new products and
reformulating existing products to improve quality and/or reduce production
costs. During fiscal 2000, we focused a significant portion of our research and
development efforts on co-extruded, high barrier one sided cling film and
MAPAC-Registered Trademark- (modified atmosphere packaging, designed to either
contain gases or allow the migration of gases) technologies.
Our research and development department has developed a number of products
with unique properties, which we consider proprietary, certain of which are
protected by patents. In fiscal 2000, 1999 and 1998, we spent approximately
$1.5 million, $1.6 million and $1.5 million, respectively, for research and
development activities for continuing operations.
8
COMPETITION
The business of supplying plastic packaging products is extremely
competitive, and we face competition from a substantial number of companies,
which sell similar and substitute packaging products. Some of our competitors
are subsidiaries or divisions of large, international, diversified companies
with extensive production facilities, well-developed sales and marketing staffs
and substantial financial resources.
We compete principally with (i) local manufacturers, who compete with us in
specific geographic areas, generally within a 500 mile radius of their plants,
(ii) companies which specialize in the extrusion of a limited group of products,
which they market nationally, and (iii) a limited number of manufacturers of
flexible packaging products who offer a broad range of products and maintain
production and marketing facilities domestically and internationally. We believe
we also compete on the basis of quality, service and product differentiation.
Because many of our products are available from a number of local and
national manufacturers, competition is highly price-sensitive and margins are
relatively low. We believe that all of our products require efficient, low cost
and high-speed production to remain competitive.
We believe that there are few barriers to entry into many of our markets,
enabling new and existing competitors to rapidly affect market conditions. As a
result, we may experience increased competition resulting from the introduction
of products by new manufacturers. In addition, in several of our markets,
products are generally regarded as a commodity. As a result, competition in such
markets is based almost entirely on price and service.
ENVIRONMENTAL MATTERS
Our operations are subject to various federal, state and local environmental
laws and regulations, which govern discharges into the air and water, the
storage, handling and disposal of solid and hazardous wastes, the remediation of
soil and groundwater contaminated by petroleum products or hazardous substances
or wastes, and the health and safety of employees. Compliance with environmental
laws may require material expenditures by us. The nature of our current and
former operations and the history of industrial uses at some of our facilities
expose us to the risk of liabilities or claims with respect to environmental and
worker health and safety matters.
In addition, under certain environmental laws, a current or previous owner
or operator of property may be jointly and severally liable for the costs of
investigation, removal or remediation of certain substances on, under or in such
property, without regard to negligence or fault. The presence of, or failure to
remediate properly, such substances may adversely affect the ability to sell or
rent such property or to borrow using such property as collateral. In addition,
persons who generate or arrange for the disposal or treatment of hazardous
substances may be jointly and severally liable for the costs of investigation,
remediation or removal of such hazardous substances at or from the disposal or
treatment facility, regardless of whether the facility is owned or operated by
such person. Responsible parties also may be subject to common law claims by
third parties based on damages and costs resulting from environmental
contamination emanating from a site. We believe that there are no current
environmental matters, which would have a material adverse effect on our
financial position or results of operations.
EMPLOYEES
At October 31, 2000, we had approximately 3,100 employees worldwide,
including officers and administrative personnel. In North America, we have three
collective bargaining agreements covering 342 employees. These agreements expire
in March 2001, in February 2002 and in February 2005. Further, we have
collective bargaining agreements at 16 international facilities, covering
substantially all of the hourly employees at these facilities. As is common in
many foreign jurisdictions, substantially all
9
of our employees in these foreign jurisdictions are also covered by countrywide
collective bargaining agreements. While we believe that our relations with our
employees are satisfactory, a dispute between our employees and us could have a
material adverse effect on our business.
MANAGEMENT
At January 29, 2001, our directors and executive officers are as follows:
NAME AGE POSITION
- ---- -------- ------------------------------------------
J. Brendan Barba.......................... 60 Chairman of the Board, President and CEO
Paul M. Feeney............................ 58 Executive Vice President, Finance and CFO
and Director
John J. Powers............................ 36 Executive Vice President, Sales and
Marketing
David J. Cron............................. 46 Executive Vice President, Manufacturing
Edgar Reich............................... 58 Executive Vice President, International
Operations
Paul C. Vegliante......................... 35 Executive Vice President, Operations
Lawrence R. Noll.......................... 52 Vice President, Controller and Director
James B. Rafferty......................... 48 Vice President and Treasurer
Jean L'Allier............................. 45 Vice President, Secretary, and General
Counsel
Kenneth Avia.............................. 58 Director
William H. Carter......................... 47 Director
Adam H. Clammer........................... 30 Director
Paul E. Gelbard........................... 70 Director
Lee C. Stewart............................ 52 Director
William F. Stoll.......................... 52 Director
Scott M. Stuart........................... 41 Director
In accordance with a Governance Agreement with Borden, Inc.,
Messrs. Carter, Clamer, Stoll and Stuart are directors designated by Borden.
J. BRENDAN BARBA is one of the founders of our company and has been our
President, CEO and a director since our organization in January 1970. In
November 1985, Mr. Barba assumed the additional title of Chairman of the Board
of Directors.
PAUL M. FEENEY has been an Executive Vice President, Finance, CFO and a
director of our company since December 1988. From 1980 to 1988 Mr. Feeney was
Vice President and Treasurer of Witco Corporation.
JOHN J. POWERS was elected Executive Vice President, Sales and Marketing in
May 1996. Prior thereto, he was Vice President--Industrial Products of our
company.
DAVID J. CRON has been Executive Vice President, Manufacturing since
July 1997. Prior thereto he was Vice President, Manufacturing, a plant manager
and held various other positions since 1976.
EDGAR REICH has been employed by our company since July 1998 as director of
European operations. He was elected Vice President, International Operations in
November 1998 and Executive Vice President, International Operations in
December 1999. Prior to July 1998 he held various international management
positions with Witco Corporation.
PAUL C. VEGLIANTE was elected Executive Vice President, Operations in
December 1999. Prior thereto he was Vice President, Operations since June 1997
and held various other positions with our company during the previous three
years.
LAWRENCE R. NOLL has been a Vice President and a director of our company
since September 1993. For more than 13 years prior thereto, he was the
Controller of our company, and he was re-elected
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Controller in October 1996. He was the Secretary of our company from
September 1993 through April 1998.
JAMES B. RAFFERTY has been Vice President and Treasurer of our company since
October 1996. Prior thereto, he was Assistant Treasurer since July 1996. From
1989 to 1995, Mr. Rafferty was Director of Treasury Operations at Borden, Inc.
JEAN L'ALLIER has been employed by our company as general counsel since
April 1997. He was elected Vice President and General Counsel in November 1997
and elected Secretary in April 1998. For more than five years prior to
April 1997 Mr. L'Allier was engaged in the private practice of law as a sole
practitioner in New York City.
KENNETH AVIA has served as a director of our company since 1980. Mr Avia has
been Executive Vice President of First Data Merchant Services (a merchant credit
card processing company) since 1993 and served as Divisional Vice President of
Automatic Data Processing, Inc. from 1984 to 1993.
WILLIAM H. CARTER has served as a director of our company since
October 1996. Mr. Carter has been Executive Vice President, Chief Financial
Officer and a director of Borden, Inc. since 1995 and was employed by Price
Waterhouse & Co. from 1975 to 1994, most recently as a partner.
ADAM H. CLAMMER has served as a director of our company since
September 1999. Mr. Clamer has been an executive of Kohlberg Kravis Roberts &
Co. from 1996 and was employed by Morgan Stanley & Co. from 1992 to 1995 as a
investment banker.
PAUL E. GELBARD has served as a director of our company since 1991.
Mr. Gelbard, has been Of Counsel to Warshaw Burstein Cohen Schlesinger & Kuh
LLP, counsel to our company, since January 1, 2000. He was Of Counsel to Bachner
Tally & Polevoy LLP, prior counsel to our company, from January 1997 to
December 1999 and was a partner of such firm from 1974 to 1996.
LEE C. STEWART has served as a director of our company since December 1996.
Mr. Stewart has been a Vice President of Union Carbide Corporation since 1996
and was an investment banker with Bear Stearns & Co. Inc. for more than nine
years prior thereto.
WILLIAM F. STOLL has served as a director of our company since
December 1999. Mr. Stoll has been a Senior Vice President and General Counsel to
Borden, Inc. since April 1998 and is a partner of Borden Capital Management
Partners and Chairman of Wise Foods, Inc., affiliates of Borden, Inc. Prior
thereto he was employed as a counsel to Westinghouse Electric Corporation for
more than 20 years, his most recent position being Vice President and Deputy
General Counsel since 1993.
SCOTT M. STUART has served as a director of our company since October 1996.
Mr. Stuart has been a member of KKR & Co., LLC since 1996; general partner of
Kohlberg Kravis Roberts & Co., L.P. in 1995; and an executive of Kohlberg Kravis
Roberts & Co. from 1986 to 1994. Mr. Stuart also serves as a member of the Board
of Directors of Borden, Inc., Newsquest Capital PLC, World Color Press, Inc.,
Glenisla Group Ltd. (U.K.), KC Cable, KSL Golf Holdings, Inc., KSL Land
Corporation, KSL Recreation Corporation and Newsquest Media Group, Ltd.
GOVERNANCE AGREEMENT
In connection with the Borden packaging acquisition, we entered into a
Governance Agreement with Borden, dated as of June 20, 1996, with respect to
certain matters relating to the corporate governance of our company. The
Governance Agreement provides that our board of directors shall initially
consist of ten members. Borden is entitled to designate four persons to serve on
the board, subject to reduction in the event that Borden's stockholdings are
reduced below 25% of the outstanding common stock of our company, and to
participate in the selection of one independent director so long as Borden's
stockholdings remain at 10%.
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The Governance Agreement also provides that Borden will have certain rights
to designate directors to serve on specified committees, that the approval of a
number of directors that represent at least 66 2/3% of the total number of
directors will be required on certain specific board actions, and that, as long
as Borden owns in excess of 25% of our outstanding shares, a Borden-designated
director must be part of the 66 2/3% majority. The Governance Agreement also
provides Borden with preemptive rights to purchase additional shares in order to
maintain its percentage ownership of our outstanding shares so long as Borden
stockholdings is at least 20%.
ITEM 2. PROPERTIES
Our principal executive and administrative offices are located in a leased
building in South Hackensack, New Jersey.
We own all of our manufacturing facilities except for certain facilities in
Australia and New Zealand. Sales offices are located at each of our plants.
We are in the process of selling certain properties formerly used in the
business located at Moonachie, New Jersey, and Scarborough, Ontario, Canada.
The following chart sets forth the properties owned and operated by the
Company:
APPROXIMATE
LOCATION(1) SQUARE FOOTAGE
- ----------- --------------
NORTH AMERICA
Griffin, Georgia.......................................... 330,000
Wright Township, Pennsylvania............................. 328,000
Matthews, North Carolina.................................. 242,000
Gainesville, Texas........................................ 220,000
Alsip, Illinois........................................... 182,000
West Hill, Ontario, Canada................................ 117,000
Chino, California......................................... 115,000
Waxahachie, Texas......................................... 100,000
Edmonton, Alberta, Canada................................. 15,000
ASIA/PACIFIC
Auckland, New Zealand..................................... 154,000
Christchurch, New Zealand................................. 128,000
Shimodate, Japan.......................................... 69,000
Sydney, Australia......................................... 180,000
Melbourne, Australia...................................... 45,000
EUROPE
Apeldoorn, Holland........................................ 267,000
Ghlin, Belgium............................................ 223,000
Turate, Italy............................................. 220,000
Seano, Italy.............................................. 38,000
Fecamp, France............................................ 105,000
Southampton, England...................................... 61,000
Alicante, Spain........................................... 52,000
Barbezieux, France........................................ 25,000
- ------------------------
(1) Where we maintain multiple facilities at any particular location, the square
footage has been aggregated. All facilities are owned by us, except for the
following facilities, subject to leasehold interests, which begin expiring
in 2001: Christchurch, New Zealand, Auckland, New Zealand; Sydney, Australia
(one of two facilities); and Melbourne, Australia.
12
We believe that all of our properties are well maintained and in good
condition, and that the current operating facilities are adequate for present
and immediate future business needs. However, we are in the process of
increasing capacity and automating some manufacturing operations and relocating
and consolidating some manufacturing operations in Europe.
In fiscal 1999 we closed our Proponite facility in North Andover and
completed its sale during fiscal 2000. In aggregate, we currently use
approximately 4 million square feet of manufacturing, office and warehouse.
Sales offices are assigned to each of our plants. As of October 31, 2000, our
manufacturing facilities had a combined average annual production capacity
exceeding 1.2 billion pounds.
ITEM 3. LEGAL PROCEEDINGS
We are, from time to time, a party to litigation arising in the normal
course of its business. We believe that there are currently no material legal
proceedings the outcome of which would have a material adverse effect on our
financial position or our results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our Common Stock is quoted on the Nasdaq National Market under the symbol
"AEPI." The high and low closing prices for our Common Stock, as reported by
Nasdaq Stock Market, Inc., for the two fiscal years ended October 31, 2000 and
1999, respectively, are as follows:
PRICE RANGE
-------------------
FISCAL YEAR AND PERIOD HIGH LOW
- ---------------------- -------- --------
1999
First quarter ended (Nov.-Jan.)........................... $24.50 $19.38
Second quarter ended (Feb.-Apr.).......................... 31.50 17.88
Third quarter ended (May-July)............................ 38.13 24.75
Fourth quarter ended (Aug.-Oct)........................... 39.00 29.00
2000
First quarter ended (Nov.-Jan.)........................... $32.63 $23.50
Second quarter ended (Feb.-Apr.).......................... 33.75 21.00
Third quarter ended (May-July)............................ 27.00 15.75
Fourth quarter ended (Aug.-Oct)........................... 34.50 26.38
On December 31, 2000, the closing price for a share of our common stock, as
reported by Nasdaq, was $44.69.
As of December 31, 2000, our common stock was held by approximately 1,800
stockholders of record or through nominee or street name accounts with brokers.
No dividends have been paid to stockholders since December 1995. We paid
cash dividends to our stockholders each fiscal quarter during the period from
May 1, 1993, through October 31, 1995. In December 1995 our board of directors
announced that future dividends would be suspended and that otherwise available
funds would be reinvested in our business. The payment of future dividends is
within the discretion of the board of directors and will depend upon business
conditions, our earnings and financial condition and other relevant factors. We
are subject to a number of covenants under the term loan and revolving credit
facility and the Indenture pursuant to which our 9.875% Senior Subordinated
Notes were issued, including restrictions on the amount of dividends that may be
paid.
14
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED OCTOBER 31,
----------------------------------------------------
1996 1997* 1998* 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE)
STATEMENT OF OPERATIONS DATA:
Net sales................................. $270,534 $709,072 $666,556 $670,052 $701,321
Gross profit.............................. 54,853 145,037 146,835 142,005 123,509
Income from operations.................... 15,538 38,006 42,047 37,212 20,956
Interest (expense)........................ (11,517) (30,061) (33,780) (31,489) (31,845)
Other income (expense).................... 390 3,285 1,465 2,163 3,805
-------- -------- -------- -------- --------
Pre-tax income (loss)..................... 4,411 11,230 9,732 7,886 (7,084)
Income tax provision (benefit)............ 1,858 3,901 3,961 3,413 (2,813)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations.............................. 2,553 7,329 5,771 4,473 (4,271)
Income (loss) from discontinued operations
and extraordinary (loss)................ -- 1,242 (5,508) (18,971) 222
-------- -------- -------- -------- --------
Net income (loss)......................... $ 2,553 $ 8,571 $ 263 $(14,498) $ (4,049)
======== ======== ======== ======== ========
Basic net income (loss) per share:
Basic income (loss) from continuing
operations............................ $ 0.52 $ 1.02 $ 0.79 $ 0.61 $ (0.57)
Basic income (loss) from discontinued
operations and extraordinary (loss)... -- 0.17 (0.75) (2.59) 0.03
-------- -------- -------- -------- --------
Basic net income (loss)................. $ 0.52 $ 1.19 $ 0.04 $ (1.98) $ (0.54)
======== ======== ======== ======== ========
Diluted net income (loss) per share:
Diluted income from continuing
operations............................ $ 0.49 $ 0.98 $ 0.78 $ 0.60 $ (0.57)
Diluted income (loss) from discontinued
operations and extraordinary (loss)... -- 0.17 (0.75) (2.59) 0.03
-------- -------- -------- -------- --------
Diluted net income (loss)............... $ 0.49 $ 1.15 $ 0.03 $ (1.99) $ (0.54)
======== ======== ======== ======== ========
BALANCE SHEET DATA:
Total assets.............................. $611,665 $609,280 $569,090 $514,991 $471,690
Total debt (including current portion).... 377,545 377,006 332,785 308,605 281,182
Shareholders' equity...................... 95,133 87,982 86,301 66,838 52,830
- ------------------------
* Selected consolidated financial data for the years ended October 31, 1997
and 1998 have been restated to record the disposal of the Proponite
division, which has been accounted for as a discontinued operation.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Our primary business is the manufacture and marketing of plastic films for
use in the packaging, transportation, beverage, food, automotive,
pharmaceutical, chemical, electronics, construction, agricultural and textile
industries. We currently have manufacturing operations located in 11 countries
in North America, Europe, and the Asia/Pacific region. We manufacture plastic
films principally from resins blended with other raw materials. We may either
sell the film or further process it by metallizing, printing, laminating,
slitting or converting it. Our processing technologies enable us to create a
variety of value-added products according to the specifications of our
customers.
Resin costs generally constitute approximately 67% of the cost of goods
sold. Since resin costs typically fluctuate, selling prices are generally
determined as a "spread" over resin costs, usually expressed as cents per pound.
Accordingly, costs and profits are most often expressed in cents per pound, and,
with certain exceptions, the historical increases and decreases in resin costs
have generally been reflected over a period of time in the sales prices of the
products on a penny for penny basis. Assuming a constant volume of sales, an
increase in resin costs should therefore result in increased sales revenues but
lower gross profit as a percentage of sales or gross profit margin, while a
decrease in resin costs should result in lower sales revenues with higher gross
profit margins.
On October 11, 1996, we acquired the global packaging operations of
Borden, Inc., which we sometimes refer to as the Borden packaging acquisition.
The purchase price was approximately $280.0 million, including the assumption of
certain indebtedness and other purchase price adjustments, and 2.4 million
shares of our common stock.
During fiscal 1998 we sold the South African and all five of the rigids
businesses we acquired from Borden. After giving effect to working capital
adjustments and costs, net proceeds amounted to approximately $13.9 million. Net
losses from the rigids businesses are reflected in discontinued operations.
During fiscal 1999, we sold the Proponite business acquired from Borden and
some of its assets. The net proceeds of these sales amounted to approximately
$13.3 million. Net losses from the Proponite business are reflected in
discontinued operations. In fiscal 2000, we completed the disposition of this
business that resulted in a net gain of $222,000.
RESULTS OF OPERATIONS
YEAR ENDED OCTOBER 31, 2000, AS COMPARED TO YEAR ENDED OCTOBER 31, 1999
CONTINUING OPERATIONS
Net sales for the year ended October 31, 2000, increased by $31.3 million or
4.7% to $701.3 million from $670.1 million in the prior fiscal year. Net sales
in North America increased to $449.7 million during fiscal 2000 from
$408.2 million in fiscal 1999, or 10.2%, primarily due to a 1.2% increase in
sales volume in addition to a 8.9% 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 to $179.0 million for fiscal 2000 from
$186.1 million in fiscal 1999, or 3.8%, primarily due to a 3.6% decrease in
average selling prices. Net sales in Asia/Pacific decreased to $72.7 million in
fiscal 2000 from $75.7 million in fiscal 1999, or 4.1%, primarily due to a 5.3%
decrease in average selling prices which resulted from the economic pressures of
the region, offset by an increase in sales volume of 1.2%.
Gross profit for the year ended October 31, 2000, amounted to
$123.5 million compared to $142.0 million for fiscal 1999. North America
experienced a decrease in gross profit of $6.5 million for fiscal 2000 due to
higher raw material costs, primarily resin, which progressively increased during
the
16
latter part of fiscal 1999 and the first six months of fiscal 2000 which were
only partially passed through to our customers because of the competitive market
place. Gross profit in Europe decreased 29.5% to $26.5 million for fiscal 2000,
primarily due to increased raw material prices not completely passed through to
customers, a charge of $1.8 million associated with the shut down and
consolidation of our North Baddesley, England facilities, 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 fiscal 2000 decreased by
$881,000, or 8.8%, due to a 5.3% decrease in average per unit selling prices and
the inability to completely pass through raw material increased costs which
resulted from the economic pressures of the region.
Operating expenses for the year ended October 31, 2000 decreased
$2.2 million or 2.1% to $102.6 million from $104.8 million in fiscal 1999.
Selling and general and administrative expenses decreased by a net amount of
$800,000, with no significant increases or decreases in any one area. Delivery
expenses decreased $1.4 million, primarily due to a decrease in average third
party delivery costs in North America.
Interest expense for the year ended October 31, 2000 was $31.8 million
compared to $31.5 million for fiscal 1999. This increase in interest expense
resulted from a charge to interest expense of $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, which was offset by
lower average debt outstanding for the period.
Other income (expense) for fiscal 2000 amounted to $3.8 million. This amount
includes foreign currency transaction gains realized during the period, gains on
sale of equipment and income from investment in joint venture.
Net loss from continuing operations for fiscal 2000, was $4.3 million
compared to net income from continuing operations of $4.5 million for fiscal
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 $1.9 million for the period for the close down of its
manufacturing facilities in England.
DISCONTINUED OPERATIONS
The gain from discontinued operations in fiscal 2000 of $222,000 resulted
from the final disposition of the Proponite business that was sold in fiscal
1999. The loss from discontinued operations for fiscal 1999 of $18.9 million
included the net losses of the Proponite business of $1.2 million for the period
ended January 31, 1999. This loss also consisted 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. The rigids businesses in 1999 also
had an additional net charge of $577,000.
YEAR ENDED OCTOBER 31, 1999, AS COMPARED TO YEAR ENDED OCTOBER 31, 1998
CONTINUING OPERATIONS
Net sales for the year ended October 31, 1999, increased by $3.5 million or
1/2% to $670.1 million from $666.6 million in the same period in the prior year.
Net sales in North America increased to $408.2 million during the fiscal 1999
from $396.3million in fiscal 1998, or 3.0%, primarily due to a 5.9% increase in
sales volume offset by a 2.2% decrease in per unit selling prices. Net sales in
Europe decreased to $186.1 million for fiscal 1999 from $192.2 million in fiscal
1998, or 3.2%, primarily due to a 14.3% decrease in average selling prices
(local currency) offset by a 12.9% volume increase. Net sales in Asia/Pacific
decreased to $75.7 million in the current fiscal year from $78.0 million in the
prior year, or 2.9%, primarily due to a 3.5% decrease in average selling prices
(local currency) offset by a increase in sales volume of less than 1%.
17
Gross profit for fiscal 1999 amounted to $142.0 million compared to
$146.8 million for fiscal 1998. North America experienced a decrease in gross
profit of $1.0 million for the year ended October 31, 1999 due to increased raw
material costs, primarily resin, which could not be passed through to our
customers in the fourth quarter as a result of the competitive market place.
These increased costs were offset in part by the 5.9% increase in sales volume.
Gross profit in Europe decreased $2.4 million or 6.5% from the prior year
primarily due to a restructuring charge at our Belgian operations of
approximately $1.8 million relating to employee severance. In addition, there
were changes in product mix, higher raw material costs (resin), 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 fiscal 1999
decreased by $1.4 million or 11.8% from the prior year due to lower average per
unit selling prices and higher raw material costs that could not be passed
through our to customers which was a result of the economic pressures of the
region. In addition, Australia incurred certain costs associated with the shut
down and consolidation of a plant.
Operating expenses for the year ended October 31, 1999 were $104.8 million,
the same as in the prior fiscal year. Selling expenses increased by
$1.5 million in fiscal 1999 to $39.3 million due to increased expenses as a
result of increased sales volume offset by the realignment of staffing. Such
realignment also resulted in reduction of worldwide general and administrative
expenses of $1.4 million.
Interest expense for fiscal 1999, amounted to $31.5 million an decrease of
$2.3 million from the prior year. This decrease in interest expense resulted
from lower average debt outstanding for fiscal 1999.
Other income (expense) for the fiscal 1999 amounted to $2.2 million. This
amount includes foreign currency exchange gains realized during the period,
interest income earned for the period and income from investment in joint
venture.
Net income from continuing operations for fiscal 1999 decreased by 22.5% to
$4.5 million from $5.8 million in fiscal 1998. This decrease was due primarily
to the reduction in gross profit realized in our world-wide market place due to
increased raw material costs which could not entirely be passed through, as well
as the $1.8 million restructuring charge incurred at our Belgian operations.
DISCONTINUED OPERATIONS
The loss from discontinued operations for fiscal 1999 of $18.9 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. The rigids businesses also had an
additional net charge in 1999 of $577,000
The loss from discontinued operations for fiscal 1998 of $5.5 million
includes the net losses of the Proponite business of $2.7 million and net losses
of the rigids businesses of $2.8 million. The sale of the rigids businesses was
completed by October 31, 1998.
YEAR ENDED OCTOBER 31, 1998, AS COMPARED TO YEAR ENDED OCTOBER 31, 1997
CONTINUING OPERATIONS
Net sales in fiscal 1998 were $666.6 million, a decrease of $42.5 million,
or 6.0%, from fiscal 1997. Net sales in North America decreased to
$396.3 million in fiscal 1998 from $419.5 million for fiscal 1997, or 5.5%,
primarily due to a 9% decrease in per unit selling prices as a result of lower
raw material costs, which reductions were passed though to customers. This
decrease in selling prices was partially offset by an increase in sales volume
of 4.0% in North America. Net sales in Europe decreased to $192.2 million in
fiscal 1998 from $194.1 million in fiscal 1997, or 1.0%, primarily due to an
7.0% decrease in selling prices (local currency) partially offset by a 6.4%
increase in sales volume. Net sales in Asia/Pacific decreased to $78.0 million
in fiscal 1998 from $80.6 million in fiscal 1997, or
18
3.2%. The Asia/Pacific region had a 22.2% sales volume increase as a result of
our acquisition of certain businesses during the prior year, offset by a
decrease of 20.8% in average selling prices (local currency) because of the
change in the product mix as a result of the acquisitions described above,
average lower selling prices and economic pressures in the region. Our net sales
for fiscal 1997 included net sales of $14.8 million from our South African
operation, which was sold November 1, 1997.
Gross profit for fiscal 1998 was $146.8 million, as compared to
$145.0 million in fiscal 1997, an increase of $1.8 million. North America
experienced an increase in gross profit of $8.7 million, or 9.8%, for fiscal
1998 as a result of increased utilization of plant facilities, increased sales
volume and reduced raw material costs. Gross profit in Europe decreased by
$699,000 for fiscal 1998 when compared to fiscal 1997. This decrease was
primarily due to market conditions which prevented the timely passing through of
increased raw material costs to customers during the first six months of fiscal
1998 offset by increased sales volume. This volume increase also helped increase
utilization of manufacturing facilities. Gross profit for the Asia/Pacific
region decreased $2.9 million in fiscal 1998 when compared to fiscal 1997. This
decrease in gross profit is a result of economic pressures in the Asia/Pacific
region, which caused depressed unit selling prices, of approximately 20.8% as
compared to the prior year, and reduced plant utilization for the first half of
fiscal 1998. Our gross profit for fiscal 1997 included $3.3 million from our
South African operation, which was sold November 1, 1997.
Operating expenses for fiscal 1998 were $104.8 million, as compared to
$107.0 million in fiscal 1997. This net decrease of $2.2 million is attributable
to a reduction in selling expenses of $2.0 million as a result of the
realignment of our worldwide sales force at the beginning of fiscal 1998. This
reduction in selling expenses was offset by an increase of $2.6 million in
delivery costs resulting from increased sales volume and increased costs
incurred in the implementation of new delivery systems during the fiscal year.
Our general and administrative expenses for fiscal 1998 increased by $615,000
with no major increase in any one area. The operating expenses for fiscal 1997
included $3.4 million related to our South African operation, which was sold
November 1, 1997.
Interest expense for fiscal 1998 was $33.8 million, an increase of
$3.7 million from the prior year. This increase in interest expense resulted
from our issuance of $200.0 million of 9.875% Senior Subordinated Notes in
November 1997, which resulted in higher average interest rates for the fiscal
year, partially offset by lower average debt outstanding for fiscal 1998.
Other income for fiscal 1998 amounted to $1.5 million, which includes
foreign transaction gains, interest income and income from investment in a joint
venture
Net income from continuing operations for fiscal 1998 decreased by 21.3% to
$5.8 million from $7.3 million in fiscal 1997. This decrease was due primarily
to the reduction in gross profit realized in our Asia/Pacific market place, as
well as increased interest expense and a reduction in other income from the
prior year.
DISCONTINUED OPERATIONS
The loss from discontinued operations for fiscal 1998 of $5.5 million
includes the net losses of the Proponite business of $2.7 million and net losses
of the rigids businesses of $2.8 million. The sale of the rigids businesses was
completed by October 31, 1998. In fiscal 1997, the Proponite business had net
income of $1.2 million.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our 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.
19
Our working capital amounted to $32.6 million at October 31, 2000, compared
to $44.4 million at October 31, 1999. This decrease of $11.8 million in working
capital is primarily the result of the strengthening of the United States dollar
during fiscal 2000 which reduced translated working capital balances of foreign
subsidiaries. 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 currently for an amount up to
$75.0 million. As of October 31, 2000, there was $77 million outstanding under
the term credit facility. At October 31, 2000, there was a standby letter of
credit in the amount of $1 million held as security against the Pennsylvania
Industrial Loan due on February 24, 2002, thereby reducing the revolving credit
facility availablity to $74 million. There are no other outstanding borrowings
under this 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%.
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 August 1, 2000, through October 31, 2000, the cash flow
ratio may not exceed 5.15:1. The fixed charge coverage ratio may not be less
than 1.25:1 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 October 31, 2000, the aggregate amount outstanding under such
facilities was approximately $14,000, and approximately $36.5 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.
Our cash and cash equivalents were $2.9 million at October 31, 2000, as
compared to $3.1 million at the same date in the prior year. Net cash provided
by operating activities during fiscal 2000 was $34.4 million, primarily due to
depreciation and amortization expense of $30.4 million, final disposition of net
assets held for sale of $4.5 million and reduction of trade accounts receivable
by $9.4 million, offset by net loss from continuing operations of $4.0 million,
net investment in inventories of $2.7 million, and net increases in other
operating assets and liabilities of $3.2 million. In each period, the net
decreases in other operating assets and liabilities reflect normal operating
activity.
Net cash used in investing activities during fiscal 2000, was
$14.8 million, resulting primarily from the net investment in capital
expenditures of $18.6 million offset by the sales of property, plant and
equipment of $3.9 million.
Net cash used in financing activities for fiscal 2000 was $26.3 million,
reflecting net repayments of $27.4 million of available credit facilities and
proceeds from stock issuances of $1.1 million.
The remaining increases and decreases in the components of our financial
position reflect normal operating activity.
20
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. Although the Company anticipates that internal sources
will generate sufficient funds to pay the final principal installment of
approximately $34 million due on October 31, 2002, under the Credit Agreement,
if it is unable to do so, it will be required to refinance the obligation, and
there can be no assurances that the Company could do so on favorable terms.
EFFECTS OF INFLATION
Inflation is not expected to have significant impact on our business.
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains certain forward-looking statements
that involve risks and uncertainties. These statements relate to our future
plans, objectives, expectations and intentions. Such statements are subject to
certain risks and uncertainties, which could cause actual results to differ
materially from those projected in this Annual Report. These statements may be
identified by the use of words such as "expects," "anticipates," "intends,"
"plans" and similar expressions. Our actual results could differ materially from
those discussed in these statements. Factors that could contribute to such
differences include, but are not limited to, those discussed above and elsewhere
in this Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index:
Report of Independent Public Accountants
Financial Statements:
Consolidated Balance Sheets as of October 31, 2000 and 1999
Consolidated Statements of Operations--For the years ended October 31,
2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity--For the years ended
October 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows--For the years ended October 31,
2000, 1999 and 1998
Notes to Consolidated Financial Statements
Financial Statement Schedules:
Schedules included are set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business--Management" of
Part I hereof and the table and text under the captions "Election of Class C
Directors and Nominee Biographies," "Standing Directors Biographies" and "Board
of Directors Information" in the Proxy Statement to be filed with respect to the
Annual Meeting of Stockholders to be held on April 10, 2001 (the "Proxy
Statement"), which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning this item, see the text and table under the
caption "Executive Compensation "in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this item, see the table and text under the
caption "Stock Ownership" in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see the text under the caption "Other
Information Concerning Directors, Officers and Shareholders" in the Proxy
Statement, which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statements of the company filed in this Annual Report on
Form 10-K are listed in Item 8.
2. Financial Statement Schedules:
The financial statement schedules of the company filed in this Annual Report
on Form 10-K are listed in the attached Index to Financial Statement Schedules.
3. Exhibits:
The exhibits required to be filed as part of this Annual Report on
Form 10-K are listed in the attached Index to Exhibits.
(b) Current Reports on Form 8-K:
None
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AEP Industries Inc.:
We have audited the accompanying consolidated balance sheets of AEP
Industries Inc. (a Delaware corporation) as of October 31, 2000 and 1999, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended October 31, 2000. These
consolidated financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AEP
Industries Inc. as of October 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
October 31, 2000 in conformity with accounting principles generally accepted in
the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statement schedules is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 17, 2001
23
AEP INDUSTRIES INC.
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 31, 2000 AND 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
2000 1999
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 2,929 $ 3,103
Accounts receivable, less allowance of $4,940 and $5,342
in 2000 and 1999, respectively, for doubtful accounts... 100,544 110,848
Inventories, net.......................................... 76,076 74,260
Net assets of discontinued operations..................... -- 4,249
Other current assets...................................... 9,643 11,309
-------- --------
Total current assets.................................... 189,192 203,769
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost, less accumulated
depreciation and amortization............................. 200,862 232,421
GOODWILL, less accumulated amortization of $5,143 and $3,858
in 2000 and 1999, respectively............................ 37,629 40,064
INVESTMENT IN JOINT VENTURE, net............................ 16,104 15,722
DEFERRED TAX ASSET, net..................................... 9,911 3,728
OTHER ASSETS................................................ 17,992 19,287
-------- --------
Total assets............................................ $471,690 $514,991
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of debt................................... $ 25,406 $ 27,433
Accounts payable.......................................... 87,466 89,459
Accrued expenses.......................................... 43,752 42,454
-------- --------
Total current liabilities............................... 156,624 159,346
-------- --------
LONG-TERM DEBT.............................................. 255,776 281,172
OTHER LONG TERM LIABILITIES................................. 6,460 7,635
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock--$1.00 par value; 1,000,000 shares
authorized; none issued................................. -- --
Common stock--$.01 par value; 30,000,000 shares
authorized; 10,206,262 and 10,093,793 shares issued in
2000 and 1999, respectively............................. 102 101
Additional paid-in capital................................ 94,608 92,992
Treasury stock--common stock; at cost, 2,666,156 and
2,696,380 shares in 2000 and 1999, respectively......... (59,221) (59,892)
Retained earnings......................................... 60,395 64,444
Accumulated other comprehensive (loss).................... (43,054) (30,807)
-------- --------
Total shareholders' equity.............................. 52,830 66,838
-------- --------
Total liabilities and shareholders' equity.............. $471,690 $514,991
======== ========
The accompanying notes to financial statements are an integral part of these
balance sheets.
24
AEP INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000 1999 1998
-------- -------- --------
NET SALES................................................... $701,321 $670,052 $666,556
COST OF SALES............................................... 575,937 526,218 519,721
RESTRUCTURING CHARGE........................................ 1,875 1,829 --
-------- -------- --------
Gross profit.............................................. 123,509 142,005 146,835
-------- -------- --------
OPERATING EXPENSES:
Delivery.................................................. 36,989 38,427 38,529
Selling................................................... 39,202 39,350 37,811
General and administrative................................ 26,362 27,016 28,448
-------- -------- --------
Total operating expenses................................ 102,553 104,793 104,788
-------- -------- --------
Income from operations.................................. 20,956 37,212 42,047
OTHER INCOME (EXPENSE):
Interest expense.......................................... (31,845) (31,489) (33,780)
Other, net................................................ 3,805 2,163 1,465
-------- -------- --------
(28,040) (29,326) (32,315)
-------- -------- --------
Income (loss) from continuing operations before provision
(benefit) for income taxes................................ (7,084) 7,886 9,732
PROVISION (BENEFIT) FOR INCOME TAXES........................ (2,813) 3,413 3,961
-------- -------- --------
Income (loss) from continuing operations................ (4,271) 4,473 5,771
DISCONTINUED OPERATIONS
(Loss) income from operations of discontinued businesses
(less applicable income tax benefit of $770 and $3,237
for 1999 and 1998, respectively)........................ -- (1,205) (5,383)
Gain (loss) on disposal of discontinued businesses (less
applicable income taxes of $149, $11,299 and $932 for
2000, 1999 and 1998, respectively)...................... 222 (17,766) (125)
-------- -------- --------
(Loss) income from discontinued operations................ 222 (18,971) (5,508)
-------- -------- --------
Net income (loss)......................................... $ (4,049) $(14,498) $ 263
======== ======== ========
EARNINGS PER SHARE:
Basic income (loss) from continuing operations............ $ (0.57) $ 0.61 $ 0.79
Basic income (loss) from discontinued operations.......... 0.03 (2.59) (0.75)
-------- -------- --------
Basic net income (loss)................................. $ (0.54) $ (1.98) $ 0.04
======== ======== ========
Diluted income (loss) from continuing operations.......... $ (0.57) $ 0.60 $ 0.78
Diluted income (loss) from discontinued operations........ 0.03 (2.59) (0.75)
-------- -------- --------
Diluted net income (loss)............................... $ (0.54) $ (1.99) $ 0.03
======== ======== ========
The accompanying notes to financial statements are an integral part of these
statements.
25
AEP INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
ACCUMULATED
COMMON STOCK TREASURY STOCK ADDITIONAL OTHER TOTAL
------------------- ------------------- PAID-IN COMPREHENSIVE RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT CAPITAL (LOSS) EARNINGS (LOSS)
-------- -------- -------- -------- ---------- ------------- -------- -------------
BALANCES AT OCTOBER 31,
1997........................ 9,988 100 2,782 (61,783) 89,974 (18,988) 78,679 $
Issuance of common stock upon
exercise of stock options... 18 -- -- -- 231 -- --
Issuance of common stock
pursuant to stock purchase
plan........................ 16 -- -- -- 348 -- --
Tax benefit from stock option
exercises................... -- -- -- -- 295 -- --
ESOP contribution............. -- -- (37) 820 476 -- --
Net Income.................... -- -- -- -- -- -- 263 263
Translation adjustments....... -- -- -- -- -- (4,114) -- (4,114)
--------
Comprehensive (loss):......... $ (3,851)
------ ---- ----- -------- ------- -------- -------- ========
BALANCES AT OCTOBER 31,
1998........................ 10,022 100 2,745 (60,963) 91,324 (23,102) 78,942
Issuance of common stock upon
exercise of stock options... 53 1 -- -- 769 -- --
Issuance of common stock
pursuant to stock purchase
plan........................ 18 -- -- -- 341 -- --
Tax benefit from stock option
exercises................... -- -- -- -- 657 -- --
ESOP contribution............. -- -- (49) 1,071 (99) -- --
Net Loss...................... -- -- -- -- -- -- (14,498) (14,498)
Translation adjustments....... -- -- -- -- -- (7,705) -- (7,705)
--------
Comprehensive (loss):......... $(22,203)
------ ---- ----- -------- ------- -------- -------- ========
BALANCES AT OCTOBER 31,
1999........................ 10,093 101 2,696 (59,892) 92,992 (30,807) 64,444
Issuance of common stock upon
exercise of stock options... 97 1 -- -- 809 -- --
Issuance of common stock
pursuant to stock purchase
plan........................ 16 -- -- -- 350 -- --
Tax benefit from stock option
exercises................... -- -- -- -- 142 -- --
ESOP contribution............. -- -- (30) 671 315 -- --
Net Loss...................... -- -- -- -- -- -- (4,049) (4,049)
Translation adjustments....... -- -- -- -- -- (12,247) -- (12,247)
--------
Comprehensive (loss):......... $(16,296)
------ ---- ----- -------- ------- -------- -------- ========
BALANCES AT OCTOBER 31,
2000........................ 10,206 $102 2,666 $(59,221) $94,608 $(43,054) $ 60,395
====== ==== ===== ======== ======= ======== ========
The accompanying notes to financial statements are an integral part of these
statements.
26
AEP INDUSTRIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 2000, 1999 AND 1998
(IN THOUSANDS)
2000 1999 1998
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income......................................... $ (4,049) $(14,498) $ 263
Adjustments to reconcile net income (loss) to net cash
provided by operating activities--
Loss from discontinued operations....................... -- 1,205 5,383
(Gain) loss from disposal of discontinued businesses.... (222) 17,766 125
Depreciation and amortization........................... 30,412 31,554 30,378
Gain on sale of property, plant and equipment........... (905) (211) --
Other................................................... (685) (443) (320)
Provision for losses on accounts receivable and
inventory............................................. 1,776 2,353 2,048
Write-off of debt issuance costs........................ 787 -- --
Provision (benefit) for deferred income taxes........... (5,149) 563 2,242
Changes in operating assets and liabilities, net of
acquisition of business (Increase) decrease in accounts
receivable.............................................. 9,401 (13,581) 3,707
(Increase) decrease in inventories...................... (2,689) 5,764 1,231
(Increase) decrease in other current assets............. 1,561 3,162 (3,877)
Decrease (increase) in other assets..................... 613 (1,815) (11,738)
(Increase) decrease in net assets held for sale......... 4,471 (1,882) (3,108)
(Decrease) increase in accounts payable................. (1,993) 1,476 17,392
Increase (decrease) in accrued expenses................. 2,284 (1,150) 7,492
Increase (decrease) in other long term liabilities...... (1,175) 434 7,992
-------- -------- --------
Net cash provided by operating activities............. 34,438 30,697 59,210
-------- -------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures...................................... (18,635) (22,235) (24,444)
Dispositions of property, plant and equipment, net........ 3,873 744 3,182
Acquisition of subsidiary................................. -- (1,948) --
Net proceeds from sale of subsidiaries.................... -- 13,316 13,224
-------- -------- --------
Net cash used in investing activities................. (14,762) (10,123) (8,038)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Subordinated Debentures......... -- -- 198,500
Repayments of Term Loan................................... -- -- (196,591)
Net repayments............................................ (27,423) (24,180) (44,954)
Proceeds from issuance of common stock.................... 1,160 1,039 857
-------- -------- --------
Net cash used in financing activities................. (26,263) (23,141) (42,188)
-------- -------- --------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH.................... 6,413 1,676 (9,133)
-------- -------- --------
Net decrease in cash.................................. (174) (891) (149)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 3,103 3,994 4,143
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 2,929 $ 3,103 $ 3,994
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING AND INVESTING
ACTIVITIES
LONG TERM NOTE RECEIVED FROM SALE OF PORTION OF RIGIDS'
BUSINESSES................................................ -- -- $ 3,004
======== ======== ========
The accompanying notes to financial statements are an integral part of these
statements
27
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
AEP Industries Inc. (the "Company") is an international manufacturer of a
wide range of plastic film products. The Company's products are used in a number
of industrial, commercial, food and agricultural applications and are sold
worldwide, including North America, Western Europe and the Asia/Pacific regions.
(2) SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION--
The consolidated financial statements include the accounts of all
majority-owned subsidiaries. All significant intercompany transactions have been
eliminated.
REVENUE RECOGNITION--
Revenues are recognized when products are shipped to customers.
CASH AND CASH EQUIVALENTS--
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
USE OF ESTIMATES--
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
PROPERTY, PLANT AND EQUIPMENT--
Property, plant and equipment is stated at cost. Depreciation and
amortization are computed using primarily the straight-line method over the
estimated useful lives of the assets. The cost of property, plant and equipment
and the related accumulated depreciation and amortization is removed from the
accounts upon the retirement or disposal of such assets and the resulting gain
or loss is recognized at the time of disposition. The cost of maintenance and
repairs is charged to expense as incurred.
FOREIGN CURRENCY TRANSLATION--
Financial statements of international subsidiaries are translated into U.S.
dollars using the exchange rate at each balance sheet date for assets and
liabilities and the weighted average exchange rate for each period for revenues,
expenses, gains and losses. Translation adjustments are recorded as a separate
component of shareholders' equity and transaction adjustments are recorded in
other income and expense. Cumulative translation losses of approximately
$43.1 million, $30.8 million and $23.1 million have been included as a component
of accumulated other comprehensive loss for the years ending October 31, 2000,
1999 and 1998, respectively.
28
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RESEARCH AND DEVELOPMENT COSTS--
Research and development costs are charged to expense as incurred.
Approximately $1.5 million, $1.6 million and $1.5 million for 2000, 1999 and
1998, respectively, were incurred for such research and development.
INCOME TAXES--
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under
SFAS 109, an asset and liability approach is required. Such approach results in
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the book carrying amounts and
the tax basis of assets and liabilities.
The Company and its subsidiaries file separate foreign, state and local
income tax returns and, accordingly, provide for such income taxes on a separate
company basis.
DERIVATIVES--
The Company operates internationally, giving rise to exposure to market
risks from changes in interest rates and foreign exchange rates. Derivative
financial instruments are utilized by the Company to reduce these risks. The
Company has established policies and procedures for risk assessment and the
approval, reporting and monitoring of derivative financial instrument
activities. The Company does not hold or issue derivative financial instruments
for trading or speculative purposes.
Gains and losses on contracts designated as hedges of net investments in
foreign subsidiaries are accrued as exchange rates change and are recognized in
shareholders' equity as cumulative translation adjustments. Gains and losses on
contracts designated as hedges of identifiable foreign currency firm commitments
are included in the measurement of the related foreign currency transaction.
GOODWILL--
Goodwill, representing the excess of the purchase price over the fair value
of the net assets of acquired entities, is being amortized on a straight line
basis over the period of expected benefit of 35 years. The Company evaluates
whether changes have occurred that would require revision of the remaining
estimated useful life of the assigned goodwill or render the goodwill not
recoverable.
FAIR VALUE OF FINANCIAL INSTRUMENTS--
Cash, accounts receivable, accounts payable and accrued expenses are
reflected in the financial statements at fair value because of the short term
maturity of those instruments. The fair value of the Company's debt and hedge
contracts is discussed in Notes 6 and 7, respectively.
CONCENTRATION OF CREDIT RISK--
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash equivalents, trade receivables and
financial instruments used in hedging activities.
The Company places its cash equivalents and short-term investments with
high-quality-credit institutions and limits the amount of credit exposure with
any one financial institution.
The Company sells its products to a large number of geographically diverse
customers, thus spreading the trade credit risk. The Company extends credit
based on an evaluation of the customer's
29
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
financial condition, generally without requiring collateral. The Company
monitors its exposure for credit losses and maintains allowances for anticipated
losses.
The counterparties to the agreements relating to the Company's foreign
exchange and interest rate instruments consist of a number of major,
international financial institutions. The Company does not believe that there is
significant risk of nonperformance by these counterparties as the Company
continually monitors the credit ratings of such counterparties and limits the
financial exposure and the amount of agreements entered into with any one
institution.
EARNINGS PER SHARE--
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 years ended
October 31, 2000, 1999 and 1998, were 7,493,685, 7,333,670 and 7,266,888,
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 years ended October 31, 2000, 1999 and
1998, were 7,636,047, 7,509,672 and 7,401,431, respectively. The computation of
diluted EPS includes incremental shares of 134,543 options outstanding and
excludes 309,590 anti-dilutive options for the year ended October 31, 1998. Due
to the net loss for the years ended October 31, 2000 and 1999, 142,362 and
176,002 options were not considered in computing diluted EPS as such options
would be anti-dilutive.
STOCK BASED COMPENSATION--
The Company accounts for its stock-based compensation awards to employees
and directors under the accounting prescribed by APB Opinion No. 25 and provides
the disclosures required by SFAS No.123 "Accounting for Stock-Based
Compensation" (See Note 8).
LONG-LIVED ASSETS--
Long-lived assets and certain identifiable intangibles held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be recovered. Assets to be
disposed of are reported at the lower of the carrying value or the fair market
value less costs to sell. In 1999, the Company recognized an impairment loss in
the net assets of discontinued operations. The fair value estimated by the
Company was determined by market evaluations by qualified brokers (see
Note 16).
NEW ACCOUNTING STANDARDS--
Effective November 1, 2000, the Company adopted FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("FAS 133").
FAS 133 requires that all derivative financial instruments such as interest rate
swap contracts and foreign exchange contracts, be recognized in the financial
statements and measured at fair value regardless of the purpose or intent for
holding them. Changes in the fair value of derivative financial instruments are
either recognized periodically in income or shareholders' equity (as a component
of comprehensive income), depending on whether the derivative is being used to
hedge changes in fair value or cash flows. The adoption of FAS 133 did not have
a material impact on the Company's financial statements, but did have a positive
effect on other comprehensive income.
30
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS--
Certain prior year amounts have been reclassified in order to conform to the
fiscal 2000 presentation.
(3) INVENTORIES:
Inventories, stated at the lower of cost (last-in, first-out method for
domestic operations and first-in, first-out method for foreign operations and
for supplies) or market, include material, labor and manufacturing overhead
costs and are comprised of the following:
OCTOBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Raw materials............................................. $18,220 $18,095
Finished goods............................................ 55,243 52,941
Supplies.................................................. 3,781 4,543
------- -------
77,244 75,579
Less: Inventory reserve................................... 1,168 1,319
------- -------
Inventories, net........................................ $76,076 $74,260
======= =======
The last-in, first-out (LIFO) method was used for determining the cost of
approximately 60% and 50% of total inventories at October 31, 2000 and 1999,
respectively. Inventories would have been increased by $1.3 million and
$4.5 million at October 31, 2000 and 1999, respectively, if the FIFO method had
been used exclusively. Due to the Company's continuous manufacturing process,
there is no significant work in process at any point in time.
(4) PROPERTY, PLANT AND EQUIPMENT:
A summary of the components of property, plant and equipment and their
estimated useful lives is as follows:
OCTOBER 31,
------------------- ESTIMATED
2000 1999 USEFUL LIVES
-------- -------- ----------------
(IN THOUSANDS)
Land.................................... $ 11,296 $ 12,943
Buildings............................... 64,684 68,278 15 to 31.5 years
Machinery and equipment................. 241,760 259,327 3 to 16 years
Furniture and fixtures.................. 8,731 5,528 9 years
Leasehold improvements.................. 2,185 2,856 6 to 25 years
Motor vehicles.......................... 1,386 3,888 3 years
Construction in progress................ 12,013 11,921
-------- --------
342,055 364,741
Less: Accumulated depreciation and
amortization..................... 141,193 132,320
-------- --------
$200,862 $232,421
======== ========
Maintenance and repairs expense was approximately $10.1 million,
$12.9 million and $11.3 million for the years ended October 31, 2000, 1999 and
1998, respectively.
31
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) ACCRUED EXPENSES:
At October 31, 2000 and 1999, accrued expenses consisted of the following:
2000 1999
-------- --------
(IN THOUSANDS)
Payroll and employee related.............................. $12,052 $14,604
Interest.................................................. 10,139 10,425
Taxes (other than income)................................. 1,973 2,607
Customer rebates.......................................... 5,489 4,286
Insurance related......................................... 1,851 2,025
Other..................................................... 12,248 8,507
------- -------
$43,752 $42,454
======= =======
(6) DEBT:
A summary of the components of debt is as follows:
OCTOBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Term loan facility(a)....................................... $ 77,000 $ 97,000
Senior Subordinated Debentures, less unamortized discount
of $931 and $1,035, respectively(b)....................... 199,069 198,965
Pennsylvania Industrial Loans(c)............................ 5,099 5,484
Foreign bank borrowings(d).................................. 14 7,156
-------- --------
Total Debt.............................................. 281,182 308,605
Less: Current portion....................................... 25,406 27,433
-------- --------
Long-Term Debt.............................................. $255,776 $281,172
======== ========
- ------------------------
(a) The Company has a long term credit agreement (the "Credit Agreement") with a
consortium of banks arranged by Morgan Guaranty Trust Company of New York.
The Credit Agreement provided the Company with two credit facilities
consisting of (1) a six year amortizing term loan facility in the amount of
$350 million and (2) a six year revolving credit facility in the amount of
$100 million at October 31, 1999 and $75 million at October 31, 2000, as
amended by Amendment No.3, as discussed below. At October 31, 2000 and 1999,
there was a standby letter of credit in the amount of $1 million held as
security against the Pennsylvania Industrial Loan due on February 24, 2002
thereby reducing the revolving credit facility availablity to $74 million
and $99 million, respectively. There are no other outstanding borrowings
under this facility.
On April 19, 2000, the Company entered into an amendment to the Credit
Agreement ("Amendment No. 3") 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 Amendment No. 3 relate to
certain changes in the financial ratios contained in the Credit Agreement,
the interest rates applicable to the Credit Agreement, the granting of
security interests in accounts receivable 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%.
32
As a result of Amendment No. 3, 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.
Amendment No. 3 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 Amendment No. 3 at
October 31, 2000.
(b) In November 1997, the Company completed an offering of $200 million in
aggregate principal amount of 9.875% Senior Subordinated Debentures due
November 15, 2007 (the"Debentures"). The issue price was 99.224% resulting
in an effective yield of 10%. The net proceeds (approximately $193 million
after fees and discount) from the Debentures were used to repay a portion of
the indebtedness outstanding under the Company's then outstanding Credit
Agreement.
The Debentures contain certain customary representations, warranties,
covenants and conditions such as, but not limited to, cash flow ratio and
certain restrictions on, but not limited to, dividends, consolidations and
certain asset sales and additional indebtedness.
The Company was in compliance with all the covenants of the Debentures at
October 31, 2000.
(c) The Company has in place the following financing arrangements in connection
with the construction of its Wright Township, Pennsylvania manufacturing
facility:
$1,600,000 fifteen year fixed rate 2% loan due on August 1, 2011;
$3,300,000 fifteen year fixed rate 2% loan due on July 1, 2011;
$400,000 seven year fixed rate 2% loan due on July 1, 2003;
$1,000,000 five year fixed rate 1% loan due on February 24, 2002;
$400,000 fifteen year fixed rate 2% loan due on August 1, 2011.
The Company has repaid $385,000 and $378,000 of these borrowings during 2000
and 1999, respectively.
These financing arrangements are secured by the real and personal property of
our manufacturing facility located in Wright Township, Pennsylvania.
(d) In addition to the amounts available under the revolving credit facilities,
the Company also maintains unsecured short-term credit facilities at its
foreign subsidiaries. At October 31, 2000 and 1999, the aggregate amount
outstanding under such facilities was approximately zero and $7.2 million
respectively and are contained within the foreign bank borrowings amount.
Interest rates on these borrowings range from 4.45% to 8.625%. There was
approximately $36.5 and $41.8 million available for borrowing at
October 31, 2000 and 1999, respectively.
33
Payments required on all debt outstanding during each of the next five
fiscal years are as follows-
(Amounts in table stated in thousands)
2001........................................................ $ 25,406
2002........................................................ 53,400
2003........................................................ 394
2004........................................................ 354
2005........................................................ 361
Thereafter.................................................. 202,198
--------
$282,113
========
Cash paid for interest during 2000, 1999 and 1998 was approximately
$29.7 million, $29.5 million and $26.7 million, respectively.
The Company was contingently liable for debt of certain of its foreign
subsidiaries aggregating approximately $14,000 and $5.3 million at October 31,
2000 and 1999, respectively. The Company knows of no event of default that would
require it to satisfy these guarantees.
The fair value of the Company's debt is estimated based on the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities. The fair value of the
Debentures at October 31, 2000 and 1999 was $164 million and $192 million. The
Company believes that the stated values of the Company's remaining debt
instruments represent the estimated fair values.
(7) FINANCIAL INSTRUMENTS:
The Company enters into foreign currency forward contracts (principally
against the Euro, Canadian dollar, Australian dollar and New Zealand dollar)
primarily to hedge intercompany transactions and the net receivable/payable
position arising from trade sales and purchases. Foreign currency forward
contracts reduce the Company's exposure to the risk that the eventual net cash
inflows and outflows resulting from the sales of products and the purchases from
suppliers denominated in a currency other than the functional currency will be
adversely affected by changes in exchange rates. Gains and losses from such
transactions are recognized when realized.
The Company had 32 and 25 contracts outstanding at October 31, 2000 and
1999, respectively, with a total notional contract amount of $121.1 million and
$109.2 million, respectively, all of which have maturities of less than one
year. While it is not the Company's intention to terminate any of these
contracts, the fair values were estimated by obtaining quotes for each contract
from financial institutions. These contracts had a fair market value of
$115.9 million and $107.5 million at October 31, 2000 and 1999, respectively.
These fair values indicate that termination of the contracts would have resulted
in a $5.2 million and a $1.7 million gain, respectively.
(8) SHAREHOLDERS' EQUITY:
The Company has three stock plans: two stock option plans, which provide for
the granting of options to officers, directors and key employees of the Company,
and an employee stock purchase plan.
The 1995 Stock Option Plan ("1995 Option Plan") provides for the granting of
500,000 options. In 1999, an amendment to the Plan was approved increasing the
number of shares available for grant under the Plan to 1,000,000 shares. The
1995 Option Plan became effective January 1, 1995, and will
34
terminate December 31, 2004. The 1995 Option Plan, provides for the granting of
incentive stock options ("ISOs") which may be exercised over a period of ten
years, issuance of SARS, restricted stock, performance shares and nonqualified
stock options, including fixed annual grants, to nonemployee directors. Under
the 1995 Option Plan, options have been granted to key employees and outside
directors for terms of up to ten years, at an exercise price not less than the
fair value at the date of grant, with the exception of participants who were
granted ISOs at 110% of the fair value because they possessed more than 10% of
the voting rights of the Company's outstanding common stock at the time of
grant, which options are exercisable in whole or in part at stated times from
the date of grant up to five years from the date of grant. The Stock Option
Committee is made up entirely of outside directors who administer the 1995
Option Plan. Under the Plan, outside directors receive a fixed annual grant of
1,000 options at the time of the annual meeting of shareholders. As of
October 31, 2000, 1999, and 1998, 436,010, 463,850 and 99,710 options
respectively, were available for grant.
Under the 1985 Option Plan, 772,500 options were granted to officers,
directors and key employees of the Company. At October 31, 2000, 1999 and 1998,
137,912, 45,318, and 17,260 options, respectively, had been exercised and
134,670, 273,982 and 322,900 options were outstanding. During 2000, 1999 and
1998, 1,400, 3,600 and 13,130 options respectively, under the 1985 Option Plan
were canceled. The 1985 Option Plan expired on October 31, 1995, except for the
then outstanding options.
The 1995 Employee Stock Purchase Plan ("1995 Purchase Plan") became
effective July 1, 1995 and will terminate June 30, 2005. The 1995 Purchase Plan
provides for an aggregate of 300,000 shares of common stock which has been made
available for purchase by eligible employees of the Company, including directors
and officers, through payroll deductions over successive six-month offering
periods. The purchase price of the common stock under the 1995 Purchase Plan is
85% of the lower of the last sales price per share of common stock in the
over-the-counter market on either the first or last day of each six-month
offering period.
Transactions under the 1995 Purchase Plan were as follows:
NUMBER OF PURCHASE PRICE
SHARES PER SHARE
--------- --------------
Available at October 31, 1997........................ 274,142
Purchased.......................................... (15,972) $21.81
-------
Available at October 31, 1998........................ 258,170
Purchased.......................................... (18,470) $18.49
-------
Available at October 31, 1999........................ 239,700
Purchased.......................................... (16,312) $21.47
-------
Available at October 31, 2000........................ 223,388
=======
35
Transactions under the Option Plans were as follows:
OPTION PRICE WEIGHTED AVERAGE
NUMBER OF SHARES PER SHARE EXERCISE PRICE
---------------- ------------------- ----------------
Outstanding at October 31, 1997
(245,396 options exercisable)................ 689,270 $ 5.09-51.15 $26.61
Granted.................................... 239,350 $ 20.88-46.50 $34.95
Exercised.................................. (18,860) $ 6.00-24.93 $13.97
Forfeited/Cancelled........................ (186,570) $ 6.00-51.15 $42.86
--------
Outstanding at October 31, 1998
(262,900 options exercisable)................ 723,190 $ 5.09-46.50 $25.51
Granted.................................... 183,500 $ 20.88-36.56 $26.87
Exercised.................................. (56,618) $ 5.09-33.00 $15.97
Forfeited/Cancelled........................ (39,940) $ 18.75-46.00 $30.11
--------
Outstanding at October 31, 1999
(350,686 options exercisable)................ 810,132 $ 5.09-46.50 $26.26
Granted.................................... 67,300 $ 26.75-31.94 $28.65
Exercised.................................. (155,512) $ 5.08-33.00 $17.38
Forfeited/Cancelled........................ (23,260) $ 22.50-46.00 $28.63
-------- ------------------- ------
Outstanding at October 31, 2000
(339,794 options exercisable)................ 698,660 $ 5.09-46.50 $28.39
======== =================== ======
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 1998
----------- ----------- -----------
Weighted average fair value of options
granted at prices above market value...... $ 0 $ 0 $ 0
Weighted average fair value of options
granted at prices at market value......... $17.39 $15.14 $16.29
Weighted average exercise price of options
granted at prices above market value...... $ 0 $ 0 $ 0
Weighted average exercise price of options
granted at prices at market value......... $28.65 $26.87 $34.95
The fair value of each stock option grant is estimated as of the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions:
2000 1999 1998
-------- -------- --------
Risk-Free Interest Rates.................... 6.22% 5.14% 5.83%
Expected Lives.............................. 7.5 7.5 7.5
Expected Volatility......................... 48.2% 44.8% 58.5%
36
The following table summarizes information about stock options outstanding
at October 31, 2000:
WEIGHTED NUMBER
NUMBER OF OPTIONS WEIGHTED AVERAGE AVERAGE EXERCISABLE WEIGHTED AVERAGE
OUTSTANDING AT REMAINING EXERCISE AT EXERCISE
RANGE OF EXERCISE PRICES OCTOBER 31, 2000 CONTRACTUAL LIFE PRICE OCTOBER 31, 2000 PRICE
- -------- --------------- ----------------- ---------------- -------- ---------------- ----------------
$5.09 $ 7.36 10,500 1.60 $ 6.00 10,500 $ 6.00
7.37 10.64 3,000 1.40 $ 7.67 3,000 $ 7.67
10.65 15.39 7,500 2.80 $11.33 7,500 $11.33
15.40 22.26 66,400 4.60 $18.50 59,000 $18.17
22.27 32.18 454,310 7.03 $27.48 196,014 $26.66
32.19 46.50 156,950 7.14 $37.91 63,780 $38.00
----- ------ ------- ---- ------ ------- ------
$5.09 $46.50 698,660 6.68 $28.39 339,794 $26.17
===== ====== ======= ==== ====== ======= ======
Had compensation expense, net of taxes, for all stock option grants in
fiscal years 2000, 1999 and 1998 been determined in accordance with SFAS
No. 123, the Company's net income and income (loss) per share would have been as
follows:
2000 1999 1998
-------- -------- --------
Net Income (loss): As Reported ($4,049) $(14,498) $ 263
(IN THOUSANDS) Pro Forma ($5,802) $(15,326) $ (409)
Basic earnings (loss) per As Reported
share: ($ 0.54) $ (1.98) $ 0.04
Pro Forma ($ 0.77) $ (2.09) $(0.06)
Diluted earnings (loss) per As Reported
share: ($ 0.54) $ (1.99) $ 0.03
Pro Forma ($ 0.77) $ (2.10) $(0.06)
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
fiscal 1996. Additional awards in future years are anticipated.
During 2000, 1999 and 1998, the Company issued 30,224, 48,220 and 36,943
shares, respectively from treasury to fund the Company's ESOP. Pursuant to a
self-tender offering commencing in August 1995 to its shareholders, the Company
purchased and placed into treasury during fiscal 1996, 168,000 shares of the
Company's common stock. The purchases of treasury stock were accounted for under
the cost method.
The Company's Board of Directors may direct the issuance of the Company's
$1.00 par value Preferred Stock in series and may, at the time of issuance,
determine the rights, preferences and limitations of each series.
37
(9) PENSIONS AND RETIREMENT SAVINGS PLAN:
The Company sponsors various post retirement plans for most full-time
employees. Total expense for these plans for 2000, 1999 and 1998 was $3,675,000,
$3,635,000 and $2,885,000, respectively. The Company sponsors a defined
contribution plan in the United States and defined benefit and defined
contribution plans in its foreign locations.
Employees of the Company in the United States who have completed one year of
service and are over the age of 21 (with the exception of those employees
covered by a collective bargaining agreement) may participate in a 401(k)
Savings and Employee Stock Ownership Plan (the "Plan"). The Plan is required to
be primarily invested in the common stock of the Company. The Company uses
shares currently held in treasury for contributions to the Plan.
The Company makes a contribution to the Plan of the Company's common stock
equal to 1% of a participant's compensation for the Plan year and will match 75%
of a participant's contribution up to 4% of the participant's compensation. For
the purpose of determining the number of shares of Company common stock to be
contributed to the Plan, the Company's common stock will be valued for the first
ten business days of the month of February following the close of any Plan year.
In 2000, 1999 and 1998, 30,224, 48,220, and 36,943 shares of Treasury Stock,
respectively, were contributed. The Company has expensed approximately
$1,030,000, $972,000 and $1,057,000 in 2000, 1999 and 1998, respectively,
related to the Plan.
The Company also sponsors defined contribution plans at selected foreign
locations. The plans cover full time employees and provide for employer
contributions of between 3% and 5% of salary or a percentage of employee
contributions. The Company's contributions related to these plans for 2000, 1999
and 1998 totaled approximately $1,180,000, $1,142,000 and $622,000,
respectively.
The Company also has defined benefit plans in certain of its foreign
locations. For most salaried employees, benefits under these plans generally are
based on compensation and credited service. For most hourly employees, benefits
under these plans are based on specified amounts per year of credited service.
The Company funds these plans in amounts actuarially determined or with the
funding requirements of federal law and regulations.
OCTOBER 31, OCTOBER 31,
CHANGES IN BENEFIT OBLIGATIONS 2000 1999
- ------------------------------ ----------- -----------
(IN THOUSANDS)
Projected benefit obligations at beginning of year.......... $(18,175) $(18,376)
Service cost................................................ (1,240) (1,199)
Interest cost............................................... (994) (985)
Plan participant's contributions............................ (281) (312)
Benefits paid............................................... 528 1,556
Actuarial gains (losses).................................... 593 (552)
Amendments.................................................. -- (184)
Foreign currency changes.................................... 3,346 1,877
-------- --------
Benefit obligations at end of year.......................... $(16,223) $(18,175)
======== ========
38
OCTOBER 31, OCTOBER 31,
CHANGES IN PLAN ASSETS 2000 1999
- ---------------------- ----------- -----------
(IN THOUSANDS)
Fair value of plan assets at beginning of year.............. $ 9,871 $11,887
Employer contributions...................................... 509 499
Employee contributions...................................... 281 312
Actual return on plan assets................................ 4,990 (464)
Acquisitions................................................ -- --
Actual distributions........................................ (69) (1,363)
Foreign currency changes.................................... (2,167) (1,000)
------- -------
Fair value of plan assets at end of year.................... $13,415 $ 9,871
======= =======
Funded status: (deficit).................................... $(2,808) $(8,304)
Unrecognized net actuarial (gains) losses................... (2,536) 2,169
Unrecognized prior service cost............................. 173 183
------- -------
(Accrued) benefit cost...................................... $(5,171) $(5,952)
======= =======
The above amounts are included in other long term liabilities.
The components of net periodic pension costs for the foreign defined benefit
pension plans are as follows:
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 1998
----------- ----------- -----------
(IN THOUSANDS)
Service costs of benefits earned during the year............ $1,515 $1,533 $1,365
Interest cost of projected benefit obligation............... 993 985 1,116
Actual return (gain) on assets.............................. (759) (691) (842)
Employee contributions...................................... (275) (297) (438)
Amortization of unrecognized net gains...................... (9) (9) 5
------ ------ ------
Net Pension Expense......................................... $1,465 $1,521 $1,206
====== ====== ======
The assumptions used, shown based on a weighted average, in determining the
status of the foreign pension plans at October 31, 2000, 1999 and 1998, were as
follows:
OCTOBER 31, OCTOBER 31, OCTOBER 31,
2000 1999 1998
----------- ----------- -----------
Discount rate............................................... 6% 6% 6%
Salary progression rate..................................... 4% 3% 4%
Long term rate of return.................................... 6% 6% 6%
39
(10) OTHER INCOME (EXPENSE):
For the years ended October 31, 2000, 1999 and 1998, other income (expense)
consisted of the following:
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Foreign currency transaction gains, net..................... $2,389 $1,374 $ 712
Interest income............................................. 292 437 419
Joint venture income, net................................... 569 428 252
Gain on sale of property, plant and equipment, net.......... 905 211 --
Other, net.................................................. (350) (287) 82
------ ------ ------
Total....................................................... $3,805 $2,163 $1,465
====== ====== ======
(11) INCOME TAXES:
The provision (benefit) for income taxes for continuing operations is
summarized as follows:
YEAR ENDED OCTOBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Current:
Federal and State......................................... $ -- $ -- $ --
Foreign................................................... 3,189 2,850 1,719
------- ------ ------
3,189 2,850 1,719
------- ------ ------
Deferred:
Federal and State......................................... (1,817) 2,446 2,551
Foreign................................................... (4,185) (1,883) (309)
------- ------ ------
(6,002) 563 2,242
------- ------ ------
Total provision (benefit) for income taxes.................. $(2,813) $3,413 $3,961
======= ====== ======
Undistributed earnings of the Company's foreign subsidiaries of
approximately $2.0 million (losses), $.5 million and $2.2 million for 2000, 1999
and 1998, respectively, are considered permanently invested outside the United
States, and as a result, the Company has not provided federal income taxes on
the unremitted earnings. A determination of the deferred tax liability from a
distribution of foreign earnings has not been made as such determination is not
practicable.
40
The tax effects of significant temporary differences that comprise the
deferred tax assets (liabilities) at October 31, 2000 and 1999 are as follows:
OCTOBER 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
Deferred tax asset--
Net operating loss carryforwards.......................... $ 37,612 $ 38,449
Allowance for doubtful accounts........................... 854 882
Alternative minimum tax................................... 830 830
Other..................................................... 2,242 2,508
-------- --------
Gross deferred tax asset................................ 41,538 42,669
Valuation Allowance....................................... (9,498) (13,230)
-------- --------
Net deferred tax asset.................................. $ 32,040 $ 29,439
======== ========
Deferred tax liability
Depreciation.............................................. $(20,808) $(24,705)
Other..................................................... (1,321) (1,006)
-------- --------
Deferred tax liability.................................. $(22,129) $(25,711)
======== ========
Net deferred tax asset (liability).......................... $ 9,911 $ 3,728
======== ========
Included in the net operating loss carryforwards at October 31, 2000 and
1999, are approximately $11.8 million of tax benefits recognized as a result of
the loss on the disposal of a discontinued operation in the United States (see
Note 16).
During each of fiscal 2000 and fiscal 1999, the Company reduced goodwill by
approximately $1.1 million, relating to the deferred tax assets established as a
result of the acquisition of the Borden Global Packaging business in fiscal
1996.
Approximately $100.2 million of total net operating losses remained at
October 31, 2000, $6.6 million of which expire in the years 2001 through 2005,
$57.6 million of which expire in the years 2012 through 2020, and $36.0 million
of which can be carried forward indefinitely. The benefits of these
carryforwards are dependent on the taxable income in those jurisdictions in
which they arose, and, accordingly, a valuation allowance has been provided
where management has determined that it is more likely than not that the
carryforwards will not be utilized. In the event that the tax benefits relating
to the valuation allowance are realized, substantially all of such benefits
would reduce goodwill. Included in the $100.2 million above is approximately
$50.5 million of federal and $7.1 million of state net operating losses in the
United States available to be carried forward, which will begin expiring in the
year 2012.
41
A reconciliation of the provision for taxes on income from continuing
operations to that which would be computed at the statutory rate of 34% in 2000,
1999 and 1998 is as follows:
YEAR ENDED OCTOBER 31,
------------------------------
2000 1999 1998
-------- -------- --------
(IN THOUSANDS)
Provision (benefit) at statutory rate....................... $(2,408) $2,681 $3,309
State tax provision, net of federal tax benefit............. (247) 254 92
Foreign branch earnings..................................... (927) 80 --
Prior year issues and taxes................................. 501 -- --
Effect of non U.S. operations taxed at rates different than
U.S federal statutory rate................................ 264 465 197
Other, net.................................................. 4 (67) 363
------- ------ ------
$(2,813) $3,413 $3,961
======= ====== ======
United States income tax returns for fiscal years 1994 through 1998 are
currently under examination by the Internal Revenue Service. Assessments, if
any, are not expected to have a material adverse effect on the Company's
financial position or results of operations.
Cash paid for income taxes during 2000, 1999 and 1998 was approximately
$2,990,000, $3,361,000 and $3,136,000, respectively.
(12) LEASE COMMITMENTS:
The Company has lease agreements for several of its facilities and certain
equipment expiring at various dates through October 31, 2015. Rental expense
under all leases was $7,465,000, $6,706,000 and $5,187,000 for 2000, 1999 and
1998, respectively.
Under the terms of noncancellable operating leases with terms greater than
one year, the minimum rental, excluding the provision for real estate taxes and
net of sublease rentals, is as follows:
(IN THOUSANDS)
- --------------
2001........................ $ 6,251
2002........................ 5,745
2003........................ 5,272
2004........................ 3,684
2005........................ 3,395
Thereafter.................. 8,117
-------
$32,464
=======
42
(13) COMMITMENTS AND CONTINGENCIES:
EMPLOYMENT CONTRACTS--
On October 11, 1996, the Company entered into employment agreements with the
Chairman of the Board, President and Chief Executive Officer and with the
Executive Vice President, Finance and Chief Financial Officer of the Company.
Each contract has a term of five years with a base salary of $500,000 for the
Chairman and $240,000 for the Executive Vice President. The base salary is
increased each year by a percentage equal to the percentage increase, if any, in
the consumer price index. The employment agreements provide that each individual
may be terminated without cause prior to the expiration of the agreement, and in
such case, such person would be entitled to severance payments equal to two
times the sum of the annual base salary then in effect plus the bonus earned for
the immediate preceding year, payable over a two year period.
CLAIMS AND LAWSUITS--
The Company and its subsidiaries are subject to claims and lawsuits which
arise in the ordinary course of business. On the basis of information presently
available and advice received from counsel representing the Company and its
subsidiaries, it is the opinion of management that the disposition or ultimate
determination of such claims and lawsuits against the Company will not have a
material adverse effect on the Company's financial position or results of
operations.
43
(14) QUARTERLY FINANCIAL DATA (UNAUDITED):
JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
----------- --------- -------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000
Net sales.......................................... $163,846 $184,139 $178,160 $175,176
Gross profit....................................... 28,366 33,464 28,661 33,018
Loss from continuing operations.................... (1,153) (449) (2,276) (392)
Income from discontinued operations................ -- -- -- 222
-------- -------- -------- --------
Net loss........................................... $ (1,153) $ (449) $ (2,276) $ (170)
======== ======== ======== ========
Earnings Per Share:
Basic and diluted loss from continuing
operations..................................... $ (0.15) $ (0.06) $ (0.30) $ (0.05)
Basic and diluted income from discontinued
operations..................................... -- -- -- 0.02
-------- -------- -------- --------
Basic and diluted net (loss)................... $ (0.15) $ (0.06) $ (0.30) $ (0.03)
======== ======== ======== ========
1999
Net sales.......................................... $151,898 $165,754 $172,786 $179,614
Gross profit....................................... 34,835 38,101 39,609 29,460
Income (loss) from continuing operations........... 1,835 2,071 3,036 (2,469)
Loss from discontinued operations.................. (17,601) (793) -- (577)
-------- -------- -------- --------
Net income (loss).................................. $(15,766) $ 1,278 $ 3,036 $ (3,046)
======== ======== ======== ========
Earnings Per Share:
Basic income (loss) from continuing operations... $ 0.25 $ 0.28 $ 0.41 $ (0.33)
Basic loss from discontinued operations.......... (2.42) (0.11) -- (0.08)
-------- -------- -------- --------
Basic net income (loss)........................ $ (2.17) $ 0.17 $ 0.41 $ (0.41)
======== ======== ======== ========
Diluted income (loss) from continuing
operations..................................... $ 0.25 $ 0.28 $ 0.40 $ (0.33)
Diluted loss from discontinued operations........ (2.42) (0.11) -- (0.08)
-------- -------- -------- --------
Diluted net income (loss)...................... $ (2.17) $ 0.17 $ 0.40 $ (0.41)
======== ======== ======== ========
Earnings per share are computed independently for each of the quarters
presented.
(15) 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.
44
Information about the Company's operations by geographical area, with United
States and Canada stated separately as of and for the years ended October 31,
2000, 1999 and 1998, respectively is as follows:
UNITED ASIA/
2000 STATES CANADA EUROPE PACIFIC CORPORATE TOTAL
- ---- -------- -------- -------- -------- --------- --------
(IN THOUSANDS)
Sales--external customers................. $407,575 $42,117 $178,965 $72,664 $ -- $701,321
Intersegment sales........................ 17,771 5,704 4,442 -- -- 27,917
Income from operations.................... 17,185 4,748 (1,413) 436 -- 20,956
Interest income........................... 253 -- 39 -- -- 292
Interest expense.......................... 30,182 306 926 431 -- 31,845
Depreciation and Amortization............. 16,824 1,474 8,074 3,737 303 30,412
Provision for income taxes................ (2,050) 1,294 (1,962) (328) 233 (2,813)
Income (loss) from continuing
operations.............................. (7,621) 3,136 (233) 111 336 (4,271)
Provision for losses on accounts
receivable
and inventory........................... 500 42 1,082 152 -- 1,776
Segment assets............................ 250,080 29,010 126,287 50,209 16,104 471,690
Capital expenditures...................... $ 10,111 $ 224 $ 4,308 $ 3,992 $ -- $ 18,635
UNITED ASIA/
1999 STATES CANADA EUROPE PACIFIC CORPORATE TOTAL
- ---- -------- -------- -------- -------- --------- --------
(IN THOUSANDS)
Sales--external customers................. $370,571 $37,634 $186,098 $75,749 $ -- $670,052
Intersegment sales........................ 13,505 8,655 3,246 -- -- 25,406
Income from operations.................... 26,944 6,064 3,507 697 -- 37,212
Interest income........................... 391 -- 28 18 -- 437
Interest expense.......................... 29,077 565 1,419 428 -- 31,489
Depreciation and Amortization............. 17,782 1,432 8,488 3,852 -- 31,554
Provision for income taxes................ 2,275 1,675 (406) (302) 171 3,413
Income (loss) from continuing
operations.............................. 3,707 2,945 (1,882) (554) 257 4,473
Provision for losses on accounts
receivable
and inventory........................... 905 94 1,241 113 -- 2,353
Segment assets............................ 255,469 30,759 157,512 55,529 15,722 514,991
Capital expenditures...................... $ 11,208 $ 544 $ 4,842 $ 5,641 $ -- $ 22,235
UNITED ASIA/
1998 STATES CANADA EUROPE PACIFIC CORPORATE TOTAL
- ---- -------- -------- -------- -------- --------- --------
(IN THOUSANDS)
Sales--external customers................. $359,243 $37,059 $192,248 $78,006 $ -- $666,556
Intersegment sales........................ 14,372 8,586 5,784 -- -- 28,742
Income from operations.................... 27,041 5,970 7,230 1,806 -- 42,047
Interest expense.......................... 29,967 798 2,341 674 -- 33,780
Interest income........................... 218 -- 197 4 -- 419
Depreciation and Amortization............. 17,767 1,338 7,715 3,558 -- 30,378
Provision for income taxes................ 2,356 1,434 36 34 101 3,961
Income (loss) from continuing
operations.............................. 2,843 2,548 166 63 151 5,771
Provision for losses on accounts
receivable
and inventory........................... 456 -- 1,483 109 -- 2,048
Segment assets............................ 253,923 30,628 168,998 54,798 60,743 569,090
Capital expenditures...................... $ 9,455 $ 375 $ 8,645 $ 5,969 $ -- $ 24,444
45
Included in Corporate assets are the investment in joint venture and the net
assets of discontinued operations.
Income from operations includes all costs and expenses directly related to
the geographical area. Identifiable assets are those used in each segment's
operations, except net assets held for sale which represents the fair market
value of those assets.
No single customer accounted for more than 10% of sales in any year.
(16) 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
pursuant to a sales agreement dated March 4, 1999.
The disposal of the Proponite business has been accounted for as a
discontinued operation and, accordingly, the Proponite net assets and
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 twelve months 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:
OCTOBER 31,1999
---------------
(IN THOUSANDS)
Net assets of discontinued operations:
Current assets............................................ $ 785
Property, plant and equipment-net......................... 6,555
------
7,340
Current liabilities (including provision for disposal in
1999)................................................... 3,091
------
Net assets held for sale-................................... $4,249
======
FOR THE YEAR ENDED
-----------------------------------------------------
OCTOBER 31, 2000 OCTOBER 31, 1999 OCTOBER 31,1998
---------------- ---------------- ---------------
(IN THOUSANDS)
Results of Operations:
Net sales...................................... $ -- $ 6,633 $34,683
--------- ------- -------
Gross profit (loss)............................ -- (873) 1,182
--------- ------- -------
Net income (loss).............................. $ -- $(1,205) $(2,603)
========= ======= =======
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 fiscal 1999. Beginning November 1, 1997, the Company
began recording these businesses as discontinued operations.
During 1998, the Company sold all five of its Rigids' businesses to three
separate purchasers. Losses from these operations were approximately
$2.8 million for the year ending October 31, 1999. Gross proceeds from the sales
of these operations were approximately $16.4 million. After giving effect
46
to working capital adjustments and payment of professional fees, net proceeds
amounted to approximately $13.9 million.
Remaining assets and liabilities of the Proponite business were collected,
sold and settled during fiscal 2000, and a net gain of $222,000 was realized and
is recorded in discontinued operations.
(17) RESTRUCTURING CHARGES:
In July 2000, the Board of Directors of the Company approved a restructuring
plan designed to improve the 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 $1.9 million recorded in the cost of
sales section of the income statement relates to the following: $1.5 million
reserve for the severance of all manufacturing personnel, of which approximately
$84,000 was paid in October 2000, and $375,000 of actual cash expenditures
related to environmental costs, legal costs and dismantling and relocation of
certain fixed assets.
The Company expects to incur approximately $2.4 million 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 restructuring plan and all
related costs to be completed by April 2001.
During the second quarter of Fiscal 1999, management and the Belgian
Workers' Council approved a plan to eliminate 17 manufacturing positions in the
Company's Belgium operations. As a result, a restructuring charge of
$1.8 million was recorded in the cost of sales section of the income statement
for the year ending October 31, 1999. This amount related to severance,
professional fees and the repayment of government subsidies. The amount had been
fully paid to all respective parties by October 31, 1999.
(18) RELATED PARTY TRANSACTIONS:
In connection with the acquisition of Borden Global Packaging ("BGP"),
Borden, Inc. and the Company entered into a Governance Agreement, dated as of
June 20, 1996 with respect to certain matters relating to the corporate
governance of the Company. For the years ending October 31, 2000, 1999 and 1998,
the Company purchased resin from BCP in the amount of $22.8 million,
$19.7 million and $27.6 million, respectively. BCP is a limited partnership in
which BCP Management Inc., a wholly owned subsidiary of Borden Inc., is general
partner.
47
AEP INDUSTRIES INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
SCHEDULES:
II--Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted either because the
required information is contained in the financial statements or notes
thereto or because such schedules are not required or applicable.
48
SCHEDULE II
AEP INDUSTRIES INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED OCTOBER 31, 2000
(IN THOUSANDS)
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO DEDUCTIONS AT END
YEAR EARNINGS FROM RESERVES OTHER OF YEAR
------------ ---------- ------------- -------- --------
YEAR ENDED OCTOBER 31, 2000:
Allowance for doubtful accounts......... $5,342 $ 903 $ 882 $(423) $4,940
====== ====== ====== ===== ======
Inventory............................... $1,319 $ 873 $ 780 $(244) $1,168
====== ====== ====== ===== ======
YEAR ENDED OCTOBER 31, 1999:
Allowance for doubtful accounts......... $4,686 $1,389 $ 623 $(110) $5,342
====== ====== ====== ===== ======
Inventory............................... $1,418 $ 964 $ 938 $(125) $1,319
====== ====== ====== ===== ======
YEAR ENDED OCTOBER 31, 1998:
Allowance for doubtful accounts......... $4,863 $1,423 $1,301 $(299) $4,686
====== ====== ====== ===== ======
Inventory............................... $1,497 $ 625 $ 888 $ 184 $1,418
====== ====== ====== ===== ======
49
POWER OF ATTORNEY
The registrant and each person whose signature appears below hereby appoint
J. Brendan Barba and Paul M. Feeney as attorneys-in-fact with full power of
substitution, severally, and to execute in the name and on behalf of the
registrant and each such person, individually and in each capacity stated below,
one or more amendments to this annual report which amendments may make such
changes in the report as the attorney-in-fact acting in the premises deems
appropriate and to file any such amendment to the report with the Securities and
Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: January 29, 2001 AEP INDUSTRIES INC.
By: /s/ J. Brendan Barba
---------------------------------------
J. Brendan Barba
Chairman of the Board,
President and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: January 29, 2001 AEP INDUSTRIES INC.
By: /s/ J. Brendan Barba
---------------------------------------
J. Brendan Barba
Chairman of the Board,
President and Principal
Executive Officer
Dated: January 29, 2001
By: /s/ Paul M. Feeney
---------------------------------------
Paul M. Feeney
Executive Vice President,
Principal Financial Officer and
Director
50
Dated: January 29, 2001
By: /s/ Lawrence R. Noll
---------------------------------------
Lawrence R. Noll
Vice President--Controller,
Principal Accounting Officer
and Director
Dated: January 29, 2001
By: /s/ Kenneth Avia
---------------------------------------
Kenneth Avia
Director
Dated: January 29, 2001
By: /s/ William H. Carter
---------------------------------------
William H. Carter
Director
Dated: January 29, 2001
By: /s/ Adam H. Clammer
---------------------------------------
Adam H. Clammer
Director
Dated: January 29, 2001
By: /s/ Lee C. Stewart
---------------------------------------
Lee C. Stewart
Director
Dated: January 29, 2001
By: /s/ Paul E. Gelbard
---------------------------------------
Paul E. Gelbard
Director
Dated: January 29, 2001
By: /s/ William F. Stoll
---------------------------------------
William F. Stoll
Director
Dated: January 29, 2001
By: /s/ Scott M. Stuart
---------------------------------------
Scott M. Stuart
Director
51
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------------- ---------------------- --------
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 Bank's
party thereto (incorporated by reference to Exhibit 10(f)(2)
to the Registrant's 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 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)(3)
to the Registrant's Quarterly Report on Form 10-Q, for the
quarter ended April 30, 2000)
10(f)(4) Amendment No. 3, dated as of April 19, 2000, 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)(3)
to the Registrant's Quarterly Report on Form 10-Q, for the
quarter ended April 30, 2000)
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)
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT PAGE
- -------------- ---------------------- --------
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, date 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
Registrant's Annual Report on Form 10-K for the year ended
October 31, 1997)
23 Consent of Arthur Andersen LLP
24 Power of Attorney (see "Power of Attorney" on signature
page)