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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended October 31, 1995
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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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 (I.R.S. Employer Identification
incorporation or organization) Number)
125 Phillips Avenue
South Hackensack, New Jersey 07606-1546
- ---------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (201) 641-6600
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ------------------- ------------------------
Common Stock, $.01 par value NASDAQ
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. [ X ]
The aggregate market value of the shares of the voting stock held by
non-affiliates of the Registrant was approximately $70,000,000 based upon the
average of the bid and asked prices of the stock, which was $22.00 on December
29, 1995.
The number of shares of the Registrant's $.01 par value common stock outstanding
as of December 29, 1995, was 4,804,675.
---------
1
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 9, 1996 -- Part III.*
- -------------------------
*As stated under various items of this Annual Report, only certain specified
portions of such document are incorporated by reference herein.
2
PART I
ITEM 1. BUSINESS
GENERAL
AEP Industries Inc. ("AEP") manufactures a wide range of low density
polyethylene plastic film products at its facilities in New Jersey, Illinois,
North Carolina, Texas and California, utilizing both cast and blown film
technologies. The Company will be relocating its New Jersey plant facility to a
newly constructed facility in Wright Township, Pennsylvania during the second
quarter of Fiscal 1996. AEP's products are used in a number of industrial,
commercial and agricultural applications and are sold throughout the United
States and in a limited number of foreign countries. Average annual production
capacity exceeded 400 million pounds in 1995.
PRODUCTS
The Company manufactures and markets an extensive line of polyethylene film
products, which it believes is one of the most diverse product lines available
from a single source in the polyethylene film industry. AEP's film products are
used in the packaging, transportation, textile, food, automotive,
pharmaceutical, chemical, electronics, construction, agricultural and other
industries.
AEP's principal products include a wide assortment of packaging materials, such
as carton and drum liners (used to protect the contents from damage), bundle
film (used to package small containers, periodicals and other products),
furniture and mattress covers, shrink film, stretch film (used for covering and
securing shipping pallets), textile and carpet wrappers and bags, sheeting
materials and a variety of other packaging films. The Company also produces
heavy duty films used in the construction industry as moisture and insulating
barriers, mulch films, silage wrap and IRT (Infra Red Transmitting) films (used
in the agricultural industry to achieve more efficient plant growth) and nursery
film (used to cover greenhouses). Other products include embossed, laminating
and high clarity films for special applications, and a wide variety of printed
and converted products.
Through the use of certain concentrates, AEP has the capability to produce
products of all colors. In addition, by adding other chemical components,
blending resins with different chemical characteristics, and varying the
production processes, the Company can control a wide range of other film
properties such as clarity, tensile strength, toughness, thickness,
shrinkability, surface friction, transparency, sealability, and permeability.
The gauges of its products range from less than one mil (.001 inches) to ten
mils. The Company's extrusion equipment can produce printed products and film
up to 40 feet wide.
The Company manufactures both industrial grade products, which are manufactured
to either customer or industry specification, 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 the Company's industrial grade products.
While most of its products are extruded from low and linear low density
polyethylene resin, AEP also uses small amounts of high density polyethylene
and polypropylene resins in its products. In 1995, sales of high density
polyethylene and polypropylene products accounted for less than 2% of the
Company's total sales.
Foreign sales accounted for less than 7% of the Company's total sales. The
Company considers that its present products comprise a single industry segment.
3
MANUFACTURING AND PRODUCTION
In the Company's manufacturing process, polyethylene resin pellets with various
properties are blended with chemical concentrates (including coloring, where
appropriate) to achieve specified product characteristics. 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 then melted by a combination of applied heat and friction, under
pressure and then is mechanically mixed. The mixture is then forced (extruded)
through a die, at which point it is expanded into a flat sheet or a vertical
tubular column of film and is cooled. The cooled film can then be shipped to a
customer or can be further processed and then shipped. AEP's manufacturing
plants operate 24 hours a day, seven days a week.
The Company's equipment has several processing features, including the
capability to print "in-line" and to cut tubular film at either end to produce
"bags" or to cut the side of the tubes to produce "sheeting." This "sheeting"
can then be sold or further processed by imprinting, perforating and/or heat
sealing it into a variety of products according to customer specifications.
AEP regularly upgrades or replaces older equipment to keep abreast of
technological advances and to maximize production efficiencies. During the past
five fiscal years, the Company spent in excess of $87 million in capital
improvements, which included the construction of new manufacturing, warehouse
and sales facilities in Alsip, Illinois and Wright Township, Pennsylvania, the
purchase of new state-of-the-art extrusion equipment and the upgrading of older
equipment.
QUALITY CONTROL
The Company believes that maintaining the highest standards of quality in all
aspects of its manufacturing operations plays an important part in its ability
to maintain its competitive position. To that end, AEP has adopted strict
quality control systems and procedures which it regularly reviews, updates and
modifies as appropriate.
MARKETING AND SALES
AEP markets its products principally through its own sales force under the
supervision of national and regional managers. The Company's sales force sells
directly to its customers, who are generally the end users of the products and
also utilizes distributors for the sale of some of its products. During the
fiscal year ended October 31, 1995, approximately 52% of the Company's sales
were direct to end users with the balance representing sales to distributors.
The Company serves approximately 4,500 customers from its manufacturing plants
located in New Jersey, Illinois, North Carolina, Texas and California. During
the fiscal year ended October 31, 1995, no single customer accounted for more
than 2% of the Company's net sales.
AEP's marketing orientation of its line of industrial products emphasizes
commercial grade sheeting and bags, which are manufactured to customer
specifications and require efficient, low cost and high-speed production. Since
these products can generally be obtained from a number of local and national
manufacturers, the competition in this market is intense, and the margins are
relatively low. In contrast, the margins are higher in the Company's line of
industrial stretch film and agricultural stretch films and certain other
specialty products. AEP believes that its research and development efforts, its
high efficiency equipment (which is both automated and microprocessor-
controlled) and the technical training given to its sales personnel enables the
Company to expand its sales in all of its product lines.
4
An important component of the Company's marketing philosophy is the ability of
its sales personnel to provide technical assistance to customers. AEP's sales
force regularly consults customers with respect to performance of its products,
the customers' particular need and communicates with its research and
development staff regarding these matters. In conjunction with the research and
development staff, AEP sales personnel are often able to recommend a product or
suggest a polyethylene resin blend to produce the product which best suits the
customers' requirements.
RAW MATERIALS
The low and linear low density polyethylene resins used by the Company in its
manufacturing operations are available from a number of domestic suppliers. The
Company selects its suppliers based on the price, quality and characteristics of
the resins they produce. Most of its purchases of resin in the 1995 fiscal year
were made from ten of the fifteen national resin suppliers, none of which
accounted for more than 17% of the Company's requirements. AEP believes that
the loss of any resin supplier would not have a materially adverse impact on the
Company. Other raw materials, principally chemical colorings and other
concentrates, are available from many sources.
The low and linear low density polyethylene resins used by the Company are
produced from petroleum and natural gas. Instability in the world markets could
adversely affect the prices of the Company's raw materials and their general
availability, this could have an adverse effect on if the increased costs could
not be passed on to customers. AEP generally maintains a resin inventory of
less than one month's supply and has not experienced any difficulty in
maintaining its supply.
DISTRIBUTION
AEP maintains a fleet of approximately 40 trucks, most of which it leases, for
the delivery of approximately 51% of its products to customers. The Company
uses common carriers, contract carriers, and dedicated service haulers where
appropriate for the remainder of its deliveries. This combination enables AEP
to control the distribution process and thereby insure priority handling and
direct transportation of its products to its customers, thus improving the
speed, reliability, and efficiency of delivery. Although most of the Company's
products are delivered within a 500 mile radius of its plants, the Company ships
product to all parts of the country and overseas.
RESEARCH AND DEVELOPMENT
The Company has a full time research and development department with a staff of
four 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 the research and development
department are directed to maintaining and improving quality control in AEP's
manufacturing operations, assisting sales personnel in designing specialty
products to meet individual customer's needs, and developing new products.
AEP's research and development department has developed a number of products
with unique properties which the Company considers proprietary including a new
family of industrial stretch film products for which a patent is pending. The
Company has also developed its AEPLEX-X -Registered Trademark- line of
super-tough film products, proven to be up to 30% stronger than comparable
films. AEP's research and development efforts over the past year have
concentrated on development of a family of new products generically called
co-ex products. These projects are expected to continue into 1996 and beyond.
5
For the three years ended October 31, 1995, the Company incurred expenses
aggregating approximately $1,403,000 for research and development activities,
consisting of $698,000 in Fiscal 1995, $374,000 in Fiscal 1994 and $331,000 in
Fiscal 1993.
PROPRIETARY RIGHTS
Although AEP owns several trademarks, has applied for patent protection for a
line of industrial stretch film products and has developed certain other
proprietary products, it does not consider that any of these are material to its
overall business.
COMPETITION
The business of supplying low and linear low density polyethylene film products
is extremely competitive. Although AEP believes it is one of the largest
extruders of such film in the United States, it faces competition from a great
number of companies engaged in the low and linear low density polyethylene film
extrusion business. The Company believes its manufacturing capacity accounts
for less than 11% of the entire low and linear low density polyethylene film
market in the United States.
AEP's principal competitors fall into three categories. The first consists of
local extruders that compete with the Company in specific geographic areas,
generally within a 500 mile radius of its plants. The second group of
competitors are companies which specialize in the extrusion of a limited group
of products, which they market nationally. The third group of competitors is
the few extruders of a broad range of polyethylene products which maintain
production and marketing facilities across the United States. Some of these
competitors are subsidiaries or divisions of large and diversified companies
with extensive production facilities, well developed sales and marketing staffs
and substantially greater financial resources than the Company.
AEP believes that its utilization of proprietary blends and its ability to
design film products which meet the customers' particular requirements enhances
the Company's competitive position in its industrial, industrial stretch and
specialty polyethylene film markets.
The Company believes that it can effectively compete with its competitors based
on the broad variety and high quality of the products it offers, the scope,
efficiency and knowledge of its sales, customer service and technical support
personnel, prompt delivery and the competitiveness of its pricing.
BACKLOG
The Company estimates that the total dollar volume of its backlog as of the end
of the 1995 and 1994 fiscal years was approximately $9.5 million and $7.8
million respectively. These backlogs represent approximately 10 days of
production in 1995 and 11 days in 1994. AEP believes that because the great
majority of its production is based upon purchase orders rather than long term
contracts, the amount of its backlog is not an important indicator of future
sales.
ENVIRONMENTAL MATTERS
Except for relatively small amounts of printing ink, AEP's manufacturing
operations do not involve the handling of toxic chemicals or emissions or
discharge of toxic fumes or other wastes into the environment. Accordingly, the
Company's operations are not significantly affected by any Federal, state or
local environmental or other similar regulations.
6
EMPLOYEES
At October 31, 1995, AEP had approximately 1,100 employees, including officers
and administrative personnel. The Company has collective bargaining agreements
with the United Textile Workers of America covering its production employees at
the Moonachie, New Jersey facility and with the Warehouse, Processing and
Distribution Workers' Union, Local No. 26, International Longshoremans' and
Warehousemans' Union covering production employees in the Chino,
California facility. In December 1995, Teamsters Local Union No. 71 was
decertified as the collective bargaining unit by the truck drivers at the
Matthews, North Carolina facility, which union had been recognized in the prior
year. The Company has never experienced a work stoppage and considers its
relationship with its work force to be good.
EXECUTIVE OFFICERS OF THE COMPANY
The current executive officers of the Company are as follows:
Age at
Name Position with the Company October 31, 1995
- ---- ------------------------- ----------------
J. Brendan Barba Chairman of the Board, 54
President and Director
Robert W. Cron Executive Vice President - 48
Sales and Marketing and Director
Paul M. Feeney Executive Vice President - 53
Finance and Director
Lawrence R. Noll Vice President - Finance, Secretary 47
and Director
Officers serve at the discretion of the Board of Directors.
J. Brendan Barba is one of the founders of the Company and has been its
President and a director since its organization in January 1971. In November
1985 Mr. Barba assumed the additional title of Chairman of the Board of
Directors of the Company.
Robert W. Cron was elected Executive Vice President - Sales and Marketing in
January 1989; before that he was Vice President of Sales and held various sales
positions within the Company. Mr. Cron became a director in November 1985.
Paul M. Feeney has been Executive Vice President - Finance of the Company since
December 1988. From 1980 to 1988 Mr. Feeney was Vice President and Treasurer of
Witco Corporation. He became a director of the Company in January 1989.
Lawrence R. Noll has been Vice President - Finance, Secretary and Director of
the Company since September 1993; before that, he was the Controller of the
Company.
Mr. Barba and Mr. Cron are cousins. No other family relationships exist between
any of the directors and executive officers of AEP.
ITEM 2. PROPERTIES
The Company's principal executive and administrative offices are located in a
leased building in South Hackensack, New Jersey.
On October 31, 1995, AEP operated five manufacturing facilities, which are
located in Moonachie, New Jersey; Alsip, Illinois; Matthews, North Carolina;
Waxahachie, Texas and Chino, California all of which are owned by the Company.
7
Sales offices are assigned to each of these plants. AEP will be relocating its
New Jersey plant facility to a newly constructed 303,000 square foot facility
located in Wright Township, Pennsylvania during the second quarter of Fiscal
1996. In aggregate the Company utilizes approximately 862,000 square feet of
manufacturing, office and warehouse space. In 1995 the Company's manufacturing
facilities had a combined average annual production capacity exceeding 400
million pounds of extruded polyethylene film, and estimated that it operated at
approximately 73% of capacity.
Following is a more detailed description of each of the Company's facilities.
NEW JERSEY
The Company's New Jersey plant, warehouse, administrative and executive offices
are located in three facilities, one in Moonachie, one in Wood-Ridge, and one in
South Hackensack. The Company has operated the Moonachie plant since May 1973.
This manufacturing facility is a one-story industrial building containing
approximately 50,000 square feet. This facility will discontinue operations
upon its relocation to the new Pennsylvania facility and will be sold when the
relocation is completed.
AEP leases 130,000 square feet of office and warehouse space in South Hackensack
from an unaffiliated lessor. This building houses its executive, sales,
shipping, accounting and administrative offices. The lease expires February 28,
2015, and provides for an annual rental through February 29, 2000 of
approximately $494,000.
The Company leases 43,000 square feet of warehouse space in Wood-Ridge from
Barstrom Associates, a New Jersey general partnership of which Mr. Barba is one
of two partners. AEP's lease expired on May 1, 1995, and currently the Company
leases this facility on a month to month basis. The lease provides for a
monthly rental of $14,000, which the Company believes is lower than what it
would have paid to a non-affiliated landlord. AEP has notified Barstrom that
effective March 31, 1996 the Company will vacate this facility.
ILLINOIS
The Alsip, Illinois, manufacturing, sales and warehouse facility is a 182,000
square foot industrial building situated on approximately 14 acres of land.
TEXAS
The Waxahachie, Texas manufacturing, sales and warehouse facility is located in
a 100,000 square foot one-story industrial building situated on approximately 10
acres of land.
NORTH CAROLINA
The Matthews, North Carolina manufacturing, sales and warehouse facility is a
242,000 square foot one-story industrial building situated on 13 acres of land.
CALIFORNIA
The Chino, California manufacturing, sales and warehouse facility is located in
a 115,000 square foot one-story industrial building on approximately 9 acres of
land.
PENNSYLVANIA
AEP is completing construction of its one story, 303,000 square foot
manufacturing facility that is situated on 43 acres of land in Wright Township,
Pennsylvania and intends to begin operations at this facility in February, 1996.
All of its properties are well-maintained and in good condition. The Company
believes the current operating facilities and the addition of the Pennsylvania
facility will be suitable for its present and immediate future business needs.
8
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings which are not
covered by insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
AEP's Common Stock is quoted on the Nasdaq Stock Market's National Market
("NNM") under the symbol "AEPI." The high and low closing prices for the
Company's Common Stock, as reported in NNM, are as follows:
Fiscal Year and Period
- ----------------------
Price Range
----------------------- Per Share
High Low Dividend
------ ------- --------
1995
- ----
First quarter $18.50 $15.75 $.020
Second quarter 25.25 17.25 .025
Third quarter 27.25 18.25 .025
Fourth quarter 24.75 20.75 .025
1994
- ----
First quarter $15.50* $11.32* $.017*
Second quarter 21.00 14.75 .020
Third quarter 19.25 15.00 .020
Fourth quarter 18.75 16.00 .020
*AEP's Board of Directors declared a 3-for-2 stock split effected in the form
of a stock dividend to stockholders of record as of December 30, 1993, effective
January 11, 1994. Closing prices and per share dividend amounts prior to
January 11, 1994, have been retroactively restated to give effect to the stock
split.
On December 29, 1995, the closing price for the Company's Common Stock was
$22.00.
As of December 29, 1995 the Company's Common Stock was held by approximately 600
stockholders of record through nominee or street name accounts with brokers.
AEP has paid cash dividends to its stockholders each fiscal quarter commencing
with the quarter ended July 31, 1993 through the quarter ended October 31, 1995.
The Company is subject to a number of covenants under the new term loan and
revolving credit agreements including restrictions on the amount of dividends
that may be paid. The Board of Directors announced in December 1995 the
suspension of future dividends and that the funds would be reinvested into the
Company. The restoration of future dividends is within the discretion of the
Board of Directors and will depend upon business conditions, earnings, the
financial condition of the Company and other relevant factors.
In August 1995, the Company and J. Brendan Barba, the Chairman of the Board,
President and Chief Executive Officer of the Company, entered into a Stock
Purchase Agreement (the "Barba Purchase Agreement"), pursuant to which the
Company purchased from Mr. Barba on such date an aggregate of 1,550,000 shares
of Common Stock for a cash purchase price of $21.04 per share (the "Barba
Purchase").
9
In September 1995, AEP completed a Self-Tender Offer (the "Offer") and purchased
1,083,000 shares of Common Stock for a cash purchase price of $22.75 per share.
Pursuant to the Barba Purchase Agreement, none of the shares beneficially owned
by him or any of his affiliates or over which he otherwise exercises dispositive
power were tendered and sold to the Company pursuant to the Offer. The
Company's other directors and executive officers did not tender shares owned by
them pursuant to the Offer. After giving effect to the consummation of the
Barba Purchase and the repurchase of shares by the Company pursuant to the
Offer, Mr. Barba owns beneficially approximately 32% of the outstanding shares.
Shares acquired by AEP pursuant to the Offer and the Barba Purchase are being
held in the Company's treasury and will be available for the Company to issue
without further stockholder action (except as required by applicable law or the
rules of the NNM on which the shares are traded). Shares could be issued for
such purposes as, among others, the acquisition of businesses, the raising of
additional capital for use in the Company's business, the distribution of stock
dividends and the implementation of employee benefit plans. Specifically the
Board of Directors of the Company has authorized the establishment of an
employee stock ownership plan (the "ESOP") which is being implemented effective
January 1, 1996. Shares acquired by AEP pursuant to the Barba Purchase and the
Offer may over time, subject to the determination of the Board as to the
appropriate level of considerations, be contributed by the Company to the ESOP.
The purpose of the ESOP is to attract and retain key employees of the Company,
to encourage an ownership commitment by those employees and to motivate such
persons by providing incentives for the successful implementation of the
Company's strategic plans.
ITEM 6. SELECTED FINANCIAL DATA
Year Ended October 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
Income Statement
Data:
Net sales $242,886 $184,669 $153,307 $142,621 $133,448
Operating profit $ 25,225 $ 19,734 $ 14,277 $ 6,660 $ 8,085
Income before
extraordinary
item and
provision for
income taxes $ 22,400 $ 18,801 $ 11,906 $ 5,236 $ 6,038
Income before
extraordinary
item $ 13,677 $ 11,404 $ 7,334 $ 3,577 $ 3,505
Net income $ 13,486 $ 11,404 $ 6,880 $ 3,577 $ 3,505
Net income per
common share
before extra-
ordinary item(a) $1.99 $1.55 $1.01 $0.49 $0.49
Net income per
common share(a) $1.96 $1.55 $0.95 $0.49 $0.49
Dividends declared
and paid per
common share(a) $0.10 $0.08 $0.03 - -
Balance Sheet
Data:
Total assets $143,287 $118,496 $ 88,992 $ 84,393 $ 79,298
Long-term debt $ 81,523 $ 23,500 $ 20,095 $ 17,612 $ 18,426
Shareholder's
Equity $ 16,808 $ 61,789 $ 50,616 $ 43,734 $ 39,985
10
(a) All fiscal years prior to 1994 have been restated to give effect to a
3-for-2 stock split in the form of a dividend declared by the Company's
Board of Directors in December 1993.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES AND GROSS PROFIT
Net sales for the fiscal year ended October 31, 1995 ("Fiscal 1995") increased
by $58,217,000 or 32% to $242,886,000 over the Company's fiscal year ended
October 31, 1994 ("Fiscal 1994"). The increase was primarily attributable to a
27% increase in average selling prices combined with a 4% increase in sales
volume. The Company's net sales for Fiscal 1994 were $184,669,000 as compared
to $153,307,000 for the fiscal year ended October 31, 1993 ("Fiscal 1993"), an
increase of $31,362,000 or 20%. The increase in sales for Fiscal 1994 was
primarily the result of a 21% increase in sales volume partially offset by a
decline in average selling prices of less than 1%. Net sales of $153,307,000
for Fiscal 1993 were $10,686,000 or 8% higher than the fiscal year ended
October 31, 1992 ("Fiscal 1992") largely due to a 5% increase in volume combined
with a 2% increase in average selling prices.
Fiscal 1995 gross profit was $60,373,000, an increase of 12% or $6,306,000. The
increase in gross profit resulted from volume increases and higher selling
prices per unit offset by start-up costs associated with the implementation of
new production lines in the Company's Midwest facility and a provision of
$740,000 related to the 1996 relocation of the Company's New Jersey
manufacturing facility to Pennsylvania. Gross profit for Fiscal 1994 was
$54,068,000, an increase of $10,229,000 over that of Fiscal 1993. This increase
in gross profit over Fiscal 1993 can be directly attributed to reduced per unit
manufacturing expenses resulting from increased volume. Fiscal 1993 gross
profit increased by $7,702,000 over the prior year to $43,839,000 or 29% of net
sales. The increase in gross profit over Fiscal 1992 results from a reduction
in per unit manufacturing expenses, resulting from volume increases, and
increased selling prices.
OPERATING EXPENSES
The Company's Fiscal 1995 operating expenses totaled $35,149,000, an increase of
2% or $815,000 over Fiscal 1994. This increase in operating expenses can be
directly attributed to the Company's 4% increase in sales volume over the prior
year which increased selling expenses. These increased costs were offset by a
reduction in per unit delivery costs during the year, which can be attributed to
the opening of the Company's Midwest plant. Fiscal 1994 operating expenses
increased 16% or $4,772,000 over Fiscal 1993 to $34,334,000. This overall
increase was attributable to increased shipping costs as a result of a 21%
increase in sales volume and increased selling expenses which are also related
to the volume increase. Operating expenses for Fiscal 1993 were $29,562,000, an
increase of $85,000 over Fiscal 1992 or less than 1%. Selling and delivery and
warehousing costs increased in Fiscal 1993 by 2% and 3% respectively; this
increase was attributable to increases in sales volume and was partially offset
by a decrease in personnel costs and by an 8% decrease in general and
administrative expenses.
11
INTEREST EXPENSE
Fiscal 1995 interest expense amounted to $3,209,000, an increase of $1,753,000
from Fiscal 1994. This increase in interest expense is due to the Company's new
credit facilities, which replaces its existing credit facilities and was used to
finance the purchase of shares of Common Stock for its treasury from its
stockholders and its Chief Executive Officer. These purchases were completed
during the fourth quarter of Fiscal 1995. The Company's Fiscal 1994 interest
expense decreased by $441,000 to $1,456,000, representing a 23% decrease from
Fiscal 1993. This decrease was attributable to the decrease in average debt
outstanding during the major portion of Fiscal 1994 as well as the full impact
of the reduced interest rates on the Company's senior notes which were placed in
May 1993. Interest expense increased by 3% or $61,000 in Fiscal 1993 to
$1,897,000. This increase over Fiscal 1992 was the result of an increase in
average debt outstanding partially offset by lower interest rates.
OTHER INCOME (EXPENSE)
Other income for Fiscal 1995 totaled $384,000 which included interest and
dividend income of $213,000 and gain on sales of machinery and equipment of
$109,000. In Fiscal 1994 the Company's other income of $523,000 was primarily
attributable to the sale of certain fixed assets at a gain of $355,000. Other
income and expense for Fiscal 1993 included foreign currency losses both
realized and unrealized in the amount of $397,000. These losses were incurred
as a result of the decrease in valuation of the U.S. Dollar versus other foreign
currencies. These losses were partially offset by gains on sales of machinery
and equipment.
NET INCOME
The Company's net income increased in Fiscal 1995 by 18% or $2,082,000 to
$13,486,000. This increase over Fiscal 1994 was a result of the improvement in
gross profit due to increased sales volume and a nominal increase in operating
expenses. This improvement was partially offset by an extraordinary net of tax
charge of $190,000 associated with the prepayment penalty paid when the Company
prepaid its 6.59% Senior Notes. In Fiscal 1994 the Company's net income
increased from Fiscal 1993 net income by $4,524,000 or 66% to $11,404,000. This
increase in net income can be attributed to increased sales volume in most of
the Company's lines of business, reductions in per unit manufacturing costs,
reduced financing costs and continued control over operating expenses. Net
income for Fiscal 1993 increased by $3,303,000 to $6,880,000 from Fiscal 1992
net income of $3,577,000. This 92% increase in net income primarily resulted
from the previously mentioned improvement in gross profit resulting from
increases in sales volume and selling prices combined with reductions in
manufacturing costs. The improvement in net income was partially offset by an
extraordinary net of tax charge of $454,000 associated with the prepayment
penalty paid when the Company refinanced its 10.65% Senior Notes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital amounted to $14,030,000 at October 31, 1995 as
compared with $20,592,000 at October 31, 1994. This decrease of $6,562,000 in
working capital in Fiscal 1995 as compared to Fiscal 1994 is primarily
attributable to an increase in accounts payable for capital expenditures and
inventory on hand combined with the increased portion of long term debt payable
during the fiscal year ending October 31, 1996.
In August, 1995, the Company entered into a Credit Agreement (the "Agreement")
with a consortium of banks. The Agreement provided the Company with two credit
facilities consisting of a term credit facility in the amount of $92,964,000 and
a revolving credit facility for an amount up to $30,000,000. The proceeds
12
borrowed under the long-term credit facility were used to redeem, with penalty,
the 6.59% Senior Notes due in 2003, pay revolving credit obligations, and
finance the shares acquired by the Company pursuant to the completed Self-Tender
Offer and Barba Purchase Agreement.
As of October 31, 1995, there was $85,000,000 and $1,000,000 outstanding under
the term and revolving credit facilities, respectively.
In Fiscal 1995 the Company's cash and cash equivalents increased by $71,000.
Cash flow from operating activities of $22,590,000 was offset by funds used in
investing activities, primarily capital expenditures which amounted to
$28,402,000. Cash flow from financing activities included $92,964,000 in funds
received from the aforementioned new Credit Agreement. These funds were used
primarily to repay existing long-term debt of $28,059,000 and purchase
$58,304,000 in shares of Common Stock for the treasury.
The remaining increases and decreases in the components of the Company's
financial position reflect normal operating activity.
The Company's future capital requirements relate principally to completing
construction costs of its new facility in Wright Township, Pennsylvania,
purchasing new equipment for this facility, upgrading old equipment and
facilities, and promoting new and existing products in the polyethylene film
market. Upon completion of the construction of the Pennsylvania facility, the
Company will receive financing from the State of Pennsylvania to partially fund
the construction of the facility which will reimburse the Company for funds
disbursed in Fiscal 1995. The Company believes that internally generated cash
flow combined with availability under the Company's credit facilities discussed
above are sufficient to meet its additional capital requirements for the
foreseeable future.
Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123") establishes permissible methods for valuing
compensation attributable to stock options and is effective for the fiscal year
beginning November 1, 1996. The Company does not expect that the adoption of
this standard will have a material effect on its financial position or results
of operations.
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121") establishes accounting and reporting standards for long-lived
assets is effective for the fiscal year beginning November 1, 1996. The Company
does not expect that the adoption of this standard will have a material effect
on its financial position or results of operations.
Inflation is not expected to have significant impact on the Company's business.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index:
Report of Independent Public Accountants
Financial Statements:
Balance Sheets as of October 31, 1995 and 1994
Statements of Income -- For the years ended
October 31, 1995, 1994 and 1993
Statements of Shareholders' Equity -- For the years
ended October 31, 1995, 1994 and 1993
Statements of Cash Flows -- For the years ended
October 31, 1995, 1994 and 1993
Notes to 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.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business - Executive
Officers of the Company" of Part I hereof and the table and text under the
caption "Name of Nominee and Certain Biographical Information" in the Proxy
Statement to be filed with respect to the Annual Meeting of Shareholders to be
held on April 9, 1996 (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
"Compensation of Executive Officers" 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
"Information Concerning Certain Shareholders" in the Proxy Statement, which
information in 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.
14
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:
Report on Form 8-K dated August 2, 1995, with respect to the Company's
Stock Purchase Agreement with J. Brendan Barba, the Company's new Credit
Agreement for its long-term and revolving credit facilities and press releases
with respect thereto and the Company's Self-Tender Offer.
15
PRELIMINARY AND TENTATIVE
FOR DISCUSSION PURPOSES ONLY
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AEP Industries Inc.:
We have audited the accompanying balance sheets of AEP Industries Inc. (a
Delaware corporation) as of October 31, 1995 and 1994, and the related
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended October 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial statements referred to above present fairly, in
all material respects, the financial position of AEP Industries Inc. as of
October 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended October 31, 1995 in conformity
with generally accepted accounting principles.
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 statements 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 the 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
December 15, 1995
-16-
AEP INDUSTRIES INC.
BALANCE SHEETS AS OF OCTOBER 31, 1995 AND 1994
ASSETS (Note 6) 1995 1994
- ------ -------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $329,000 $258,000
Marketable securities (Note 2) 1,718,000 3,643,000
Accounts receivable, less allowance of
$1,421,000 in 1995 and $1,498,000
in 1994 for doubtful accounts 26,333,000 24,083,000
Inventories (Note 3) 20,021,000 17,698,000
Deferred income taxes (Note 8) 846,000 549,000
Other current assets 972,000 288,000
-------------- --------------
Total current assets 50,219,000 46,519,000
PROPERTY, PLANT AND EQUIPMENT, at
cost, less accumulated depreciation
and amortization (Notes 2, 4 and 6) 90,244,000 71,684,000
OTHER ASSETS 2,824,000 293,000
-------------- --------------
Total assets $143,287,000 $118,496,000
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
- ------------------------------------ -------------- --------------
CURRENT LIABILITIES:
Current portion of long-term debt (Note 6) $4,477,000 $95,000
Accounts payable 27,678,000 21,631,000
Accrued expenses (Notes 2 and 5) 4,034,000 4,201,000
-------------- --------------
Total current liabilities 36,189,000 25,927,000
LONG-TERM DEBT (Note 6) 81,523,000 23,500,000
DEFERRED INCOME TAXES (Note 8) 8,767,000 7,280,000
COMMITMENTS AND CONTINGENCIES (Notes 7 and 9)
SHAREHOLDERS' EQUITY (Notes 6 and 7):
Preferred stock -- $1.00 par value; 1,000,000
shares authorized; none issued 0 0
Common stock -- $.01 par value; 20,000,000
and 8,000,000 shares authorized in 1995
and 1994, respectively; 7,437,225 and
7,367,921 shares, issued in 1995 and 1994,
respectively 74,000 74,000
Additional paid-in capital 7,483,000 7,009,000
Treasury stock -- common stock; at cost,
2,633,000 shares in 1995 (58,304,000) 0
Retained earnings 67,555,000 54,706,000
-------------- --------------
Total shareholders' equity 16,808,000 61,789,000
-------------- --------------
Total liabilities and shareholders'
equity $143,287,000 $118,496,000
-------------- --------------
-------------- --------------
The accompanying notes to financial statements are an integral part of these
balance sheets.
-17-
AEP INDUSTRIES INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993
-------------- -------------- --------------
NET SALES $242,886,000 $184,669,000 $153,307,000
COST OF SALES 182,513,000 130,601,000 109,468,000
-------------- -------------- --------------
Gross profit 60,373,000 54,068,000 43,839,000
OPERATING EXPENSES (Notes
2, 5 and 9):
Delivery and warehousing 16,666,000 16,722,000 12,623,000
Selling 12,940,000 11,981,000 11,002,000
General and administrative 5,543,000 5,631,000 5,937,000
-------------- -------------- --------------
Total operating expenses 35,149,000 34,334,000 29,562,000
-------------- -------------- --------------
Income from operations 25,224,000 19,734,000 14,277,000
OTHER INCOME (EXPENSE):
Interest expense (Note 6) (3,209,000) (1,456,000) (1,897,000)
Other, net 384,000 523,000 (474,000)
-------------- -------------- --------------
(2,825,000) (933,000) (2,371,000)
-------------- -------------- --------------
Income before
extraordinary item
and provision for
income taxes 22,399,000 18,801,000 11,906,000
-------------- -------------- --------------
PROVISION FOR INCOME TAXES
(Note 8) 8,723,000 7,397,000 4,572,000
-------------- -------------- --------------
Income before
extraordinary item 13,676,000 11,404,000 7,334,000
EXTRAORDINARY ITEM, net of
income tax benefit of
$120,000 and $285,000 in
1995 and 1993, respectively
(Note 6) (190,000) 0 (454,000)
-------------- -------------- --------------
Net income $13,486,000 $11,404,000 $6,880,000
-------------- -------------- --------------
-------------- -------------- --------------
INCOME PER SHARE OF COMMON
STOCK (Notes 2, 6 and 7):
Before extraordinary item $1.99 $1.55 $1.01
Extraordinary item (.03) 0 (.06)
-------------- -------------- --------------
Net income $1.96 $1.55 $.95
-------------- -------------- --------------
-------------- -------------- --------------
The accompanying notes to financial statements are an integral part of these
statements.
-18-
AEP INDUSTRIES INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
Common Stock
(Note 7) Treasury Stock Additional
-------------------------- ---------------------------- Paid-in Retained
Shares Amount Shares Amount Capital Earnings
------------ ------------ ------------ ------------ ------------ ------------
BALANCES AT OCTOBER 31, 1992 4,837,252 $48,000 0 $0 $6,433,000 $37,253,000
Issuance of common stock upon
exercise of stock options (Note 7) 27,500 1,000 0 0 114,0000
Issuance of common stock pursuant
to stock purchase plan (Note 7) 13,257 0 0 0 130,000 0
Net income 0 0 0 0 0 6,880,000
Cash dividends 0 0 0 0 0 (243,000)
Stock split (Note 7) 2,439,005 24,000 0 0 0 (24,000)
------------ ------------ ------------ ------------ ------------ ------------
BALANCES AT OCTOBER 31, 1993 7,317,014 73,000 0 0 6,677,000 43,866,000
Issuance of common stock upon
exercise of stock options (Note 7) 39,050 1,000 0 0 215,000 0
Issuance of common stock pursuant
to stock purchase plan (Note 7) 11,888 0 0 0 117,000 0
Net income 0 0 0 0 0 11,404,000
Cash dividends 0 0 0 0 0 (564,000)
Stock split (fractional shares
not issued) (31) 0 0 0 0 0
------------ ------------ ------------ ------------ ------------ ------------
BALANCES AT OCTOBER 31, 1994 7,367,921 74,000 0 0 7,009,000 54,706,000
Issuance of common stock upon
exercise of stock options (Note 7) 62,175 0 0 0 470,0000
Issuance of common stock pursuant
to stock purchase plan (Note 7) 9,845 0 0 0 66,0000
Net income 0 0 0 0 0 13,486,000
Cash dividends 0 0 0 0 0 (637,000)
Purchase of treasury stock (Notes 2 and 7) 0 0 2,633,000 (58,304,000) 0 0
Other (2,716) 0 0 0 (62,000) 0
------------ ------------ ------------ ------------ ------------ ------------
BALANCES AT OCTOBER 31, 1995 7,437,225 $74,000 2,633,000 ($58,304,000) $7,483,000 $67,555,000
------------ ------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------ ------------
The accompanying notes to financial statements are an integral part of
these statements.
-19-
AEP INDUSTRIES INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED OCTOBER 31, 1995, 1994 AND 1993
1995 1994 1993
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $13,486,000 $11,404,000 $6,880,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 9,822,000 8,280,000 6,875,000
Provision for losses on accounts receivable 500,000 865,000 1,181,000
Increase in accounts receivable (2,750,000) (6,016,000) (280,000)
Increase in inventories (2,323,000) (5,432,000) (257,000)
(Increase) decrease in other current assets (684,000) 149,000 475,000
(Increase) decrease in other assets (2,531,000) 22,000 375,000
Increase (decrease) in accounts payable 6,047,000 12,071,000 (4,457,000)
(Decrease) increase in accrued expenses (167,000) 1,088,000 813,000
Increase in deferred income taxes 1,190,000 1,282,000 1,021,000
------------ ------------ ------------
Net cash provided by operating
activities 22,590,000 23,713,000 12,626,000
------------ ------------ ------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures (28,402,000) (28,007,000) (9,319,000)
Sales and retirements of property,
plant and equipment, net 20,000 586,000 524,000
Purchases of marketable securities 0 (4,483,000) (4,005,000)
Sales of marketable securities 1,925,000 4,845,000 0
------------ ------------ ------------
Net cash used in investing activities (26,457,000) (27,059,000) (12,800,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under
long-term credit facilities (2,500,000) 3,500,000 (4,500,000)
Issuance of long-term debt 92,964,000 0 20,000,000
Net repayments on long-term debt (28,059,000) (159,000) (15,160,000)
Proceeds from issuance of common stock 474,000 332,000 245,000
Purchase of treasury stock (58,304,000) 0 0
Payment of cash dividends (637,000) (564,000) (243,000)
------------ ------------ ------------
Net cash provided by financing
activities 3,938,000 3,109,000 342,000
------------ ------------ ------------
Net increase (decrease) in cash 71,000 (237,000) 168,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 258,000 495,000 327,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR $329,000 $258,000 $495,000
------------ ------------ ------------
------------ ------------ ------------
-20-
1995 1994 1993
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $3,273,000 $1,526,000 $1,880,000
Income taxes 7,101,000 6,283,000 2,705,000
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes to financial statements are an integral part of these
statements.
-21-
AEP INDUSTRIES INC.
NOTES TO FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION:
AEP Industries Inc. ("the Company") is a manufacturer of a wide range of
plastic film products. The Company's products are used in a number of
industrial, commercial and agricultural applications and are sold
throughout the United States and in a limited number of foreign
countries.
(2) SIGNIFICANT ACCOUNTING POLICIES:
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 are 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
are 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.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of" ("SFAS 121"), establishes accounting and reporting standards for
long-lived assets and is effective for the fiscal year beginning
November 1, 1996. The Company does not expect that adoption of this
standard will have a material effect on its financial position or
results of operations.
CASH FLOWS-
The Company considers all highly liquid investments purchased with an
initial maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES-
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," ("SFAS 115") which
became effective November 1, 1994, requires that the Company carry its
short-term investments at market value. Investments classified as
held-to-maturity securities are carried at amortized cost in the balance
sheet. The cumulative effect as of November 1, 1994 of adopting SFAS
115 was immaterial.
-22-
Gains and losses on investment transactions are recognized when realized
based on settlement dates. Dividends are recorded in income based on
payment dates. Interest is recognized when earned.
RESEARCH AND DEVELOPMENT COSTS-
Research and development costs are charged to expense as incurred.
Approximately $698,000, $374,000 and $331,000 for 1995, 1994 and 1993,
respectively, was incurred for such research and development.
NET INCOME PER SHARE OF COMMON STOCK-
Net income per share of common stock is calculated using the weighted
average number of shares of common stock and (where dilutive) common
stock equivalents (options) outstanding during the period. The number
of shares used in the per share computations was 6,883,306 in 1995,
7,347,341 in 1994, and 7,286,250 in 1993 (see Note 7).
During 1995, the Company acquired 2,633,000 shares of its common stock,
the purchase of which has been reflected in the computation of earnings
per share on the basis of the weighted shares outstanding. Had the
shares been purchased at the beginning of fiscal 1995 and had the debt,
the proceeds from which the purchase was made, been outstanding since
that date, earnings per share for 1995 would have been increased by
$.30.
ACCRUED EXPENSES-
At October 31, 1995 and 1994 accrued expenses consisted of the
following-
1995 1994
------------ ------------
Payroll and employee benefits $1,780,000 $1,912,000
Interest 633,000 697,000
Other 1,621,000 1,592,000
------------ ------------
$4,034,000 $4,201,000
------------ ------------
------------ ------------
(3) INVENTORIES:
Inventories, stated at the lower of cost (generally last-in, first-out
method) or market, include material, labor and manufacturing overhead
costs and are comprised of the following-
October 31
---------------------------
1995 1994
------------ ------------
Raw materials $8,010,000 $7,699,000
Finished goods 11,380,000 9,465,000
Supplies 631,000 534,000
------------ ------------
$20,021,000 $17,698,000
------------ ------------
------------ ------------
The Company uses the last-in, first-out (LIFO) method to price
substantially all raw materials and finished goods inventory. Supplies
are priced using the first-in, first-out (FIFO) method.
-23-
Inventories would have been increased by $2,320,000 and $2,095,000 at
October 31, 1995 and 1994, respectively, if the FIFO method had been
used. 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
1995 1994 Useful Lives
------------ ------------ ------------------
Land $3,017,000 $2,580,000
Building 20,246,000 18,384,000 15 to 31.5 years
Machinery and equipment 95,631,000 77,948,000 3 to 9 years
Furniture and fixtures 3,954,000 3,404,000 9 years
Leasehold improvements 1,896,000 1,896,000 6 to 25 years
Construction in progress 18,338,000 11,325,000
------------ ------------
143,082,000 115,537,000
Less- Accumulated
depreciation and
amortization 52,838,000 43,853,000
------------ ------------
$90,244,000 $71,684,000
------------ ------------
------------ ------------
Maintenance and repairs expense was $2,283,000, $2,045,000 and
$1,483,000 for the years ended October 31, 1995, 1994 and 1993,
respectively.
(5) DEFINED CONTRIBUTION PLAN:
Effective January 1, 1993, the Company's profit sharing plan was merged
into a new 401(k) savings plan for all eligible employees, as defined,
other than the union employees at its California plant. Under the
401(k) savings plan, the Company matches 25% of eligible employee
contributions up to 6% of compensation. Costs charged to expense
relating to this plan were $166,000, $170,000 and $122,000 for the years
ended October 31, 1995, 1994 and 1993, respectively.
(6) LONG-TERM DEBT:
A summary of the components of long-term debt is as follows-
October 31
---------------------------
1995 1994
------------- -------------
Term loan facility (a) $85,000,000 $0
Revolving credit facility (a) 1,000,000 0
Senior notes (a) (b) 0 20,000,000
Long-term credit facilities (a) 0 3,500,000
Revenue Bonds 0 90,000
Other 0 5,000
------------- -------------
86,000,000 23,595,000
Less- Current portion 4,477,000 95,000
------------- -------------
$81,523,000 $23,500,000
------------- -------------
------------- -------------
-24-
(a) In August 1995, the Company entered into a long-term credit facility
agreement with a consortium of banks. The agreement provides the
Company with two credit facilities consisting of (1) a seven-year
amortizing term loan in the amount of $92,964,000 with the first
quarterly installment due in January 1996 and (2) a three year
revolving credit facility in an amount up to $30,000,000 maturing in
July 1998. The interest rates under the term loan facility and the
revolving credit facility will be, at the option of the Company, at
the prime rate or London Interbank Offered Rate, plus defined basis
points. During the fourth fiscal quarter of 1995 the Company
prepaid $7,964,000 of the term loan principal and as of October 31,
1995 there was $85,000,000 ($80,000,000 at an effective interest
rate of 8.38% and $5,000,000 at an effective interest rate of 10.0%)
and $1,000,000 (at an effective interest rate of 10.0%) outstanding
under the term loan and revolving credit facilities, respectively.
The proceeds borrowed under the credit facility were used to repay
and retire the $20,000,000 outstanding principal, accrued interest
and prepayment penalties on the 6.59% senior notes due May 2003 and
outstanding balances under the long-term revolving credit agreements
the Company entered into during 1993. The prepayment penalties
resulted in an extraordinary charge of $190,000 (net of income tax
benefit of $120,000). The remaining balance of the proceeds
borrowed were used to acquire 2,633,000 shares of the Company's
common stock in August and September 1995 (see Note 7). The new
credit facilities contain certain customary representations
warranties, covenants and conditions such as, but not limited to,
interest coverage ratio, fixed charge ratio, maintenance of minimum
tangible net worth levels and dividend limitations. Under the most
restrictive provisions of these agreements for any fiscal year
commencing after October 31, 1995 the Company may not declare and
make dividend payments in cash in excess of $750,000. Under the
terms of the credit facility, all the assets of the Company are
pledged as collateral.
(b) In May 1993, the Company issued $20,000,000 of 6.59% senior notes
due May 15, 2003. The proceeds were used to prepay the entire
principal balance with accrued interest and prepayment penalties of
the 10.65% notes issued May 1989. The prepayment penalty resulted
in an extraordinary charge of $454,000 (net of income tax benefit of
$285,000) as reflected in the 1993 results.
Payments required on long-term debt during each of the next five years
are as follows-
1996 $4,477,000
1997 6,955,000
1998 11,205,000
1999 13,136,000
2000 14,682,000
Thereafter 35,545,000
------------
------------
(7) SHAREHOLDERS' EQUITY:
In August 1995, the Company executed a stock purchase agreement with J.
Brendan Barba, the Chairman of the Board, President and Chief Executive
Officer of the Company under which the Company purchased and placed into
treasury 1,550,000 shares of the Company's stock owned by Mr. Barba at
$21.04 per share. Pursuant to a Self Tender offering made in August
1995 to its shareholders, the Company purchased and placed into treasury
1,083,000 shares of the Company's stock at $22.75 per share. Both
purchases of treasury stock were accounted for under the cost method.
-25-
In December 1993, the Company's Board of Directors authorized a 50%
stock split effected in the form of a dividend for shareholders of
record as of December 30, 1994. The effect of this split has been
retroactively reflected in the financial statements and notes thereto
including all appropriate share and per share amounts.
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.
In April 1995, the Board of Directors and the Shareholders of the
Company approved and adopted the Company's 1995 Stock Option Plan and
the 1995 Employee Stock Purchase Plan.
The 1995 Stock Option Plan ("1995 Option Plan") has reserved 500,000
shares of Common Stock for the granting of options to key employees of
the Company, including directors and officers. The 1995 Option Plan
became effective January 1, 1995, and will terminate December 31, 2004.
The 1995 Option Plan, provides for the grant of incentive stock options
which may be exercised over a period of ten years, issuance of SARS,
restricted stock, performance shares and fixed annual grants of
nonqualified stock options to nonemployee directors. The options
granted to outside directors are exercisable over ten years from date of
grant and in no event can the option price be lower than the fair market
value of the common stock at the date of grant. The Stock Option
Committee is made up of entirely outside directors who will administer
the 1995 Option Plan and will receive a fixed annual grant of 1,000
options. As of October 31, 1995, 498,000 options are available for
grant.
The 1995 Employee Stock Purchase Plan ("1995 Purchase Plan") became
effective July 1, 1995 and will terminate June 30, 2005. The 1995
Purchase Plan has 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 will be 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. As of October 31, 1995, no shares had been issued under the
1995 Purchase Plan.
In November 1985, the Board of Directors and the shareholders of the
Company adopted the Company's 1985 Stock Option Plan (the "1985 Option
Plan") and 1985 Employee Stock Purchase Plan (the "1985 Purchase Plan").
Under the 1985 Option Plan, 772,500 options have been granted to key
employees of the Company, including directors and officers of which
265,500 have been exercised and 507,000 are outstanding. The 1985
Option Plan expired on October 31, 1995.
Under the 1985 Purchase Plan, an aggregate of 187,500 shares of common
stock has been made available for purchase through December 31, 1995.
As of October 31, 1995, 129,218 shares had been issued under the
Purchase Plan and 48,437 shares are available for purchase through
December 31, 1995.
-26-
Transactions under the Option Plans are as follows-
Option
Number Price
of Shares Per Share
----------- ------------
Outstanding at October 31, 1993 286,125 $2.22-11.33
Granted 76,500 18.13-18.75
Exercised (39,050) 2.22-9.83
Terminated (2,850) 8.17-9.83
----------- ------------
Outstanding at October 31, 1994 320,725 $2.22-18.75
Granted 276,750 17.25-23.13
Exercised (62,175) 2.22-18.13
Terminated (26,300) 5.66-18.75
----------- ------------
Outstanding at October 31, 1995 509,000 $2.22-23.13
----------- ------------
----------- ------------
Transactions under the Purchase Plans are
as follows-
Purchase
Number Price
of Shares Per Share
----------- ------------
Available at October 31, 1993 70,170
Purchased (11,888) $9.63-10.20
-----------
Available at October 31, 1994 58,282
Purchased (9,845) $14.13-14.24
-----------
Available at October 31, 1995 48,437
-----------
-----------
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), establishes permissible methods
for valuing compensation attributable to stock options and is effective
for the fiscal year beginning November 1, 1996. The Company does not
expect that adoption of this standard will have a material effect on its
financial position or results of operations.
The Board of Directors of the Company has authorized the establishment
of an employee stock ownerhsip plan which will be implemented effective
January 1, 1996.
(8) INCOME TAXES:
Effective November 1, 1993, the Company adopted SFAS No. 109,
"Accounting for Income Taxes," which requires the use of the liability
method of accounting for deferred income taxes. The cumulative effect
of this accounting change did not have a material effect on the
Company's financial statements.
-27-
The provision for income taxes is summarized as follows-
Year Ended October 31
-------------------------------------------
1995 1994 1993
------------ ------------ -------------
Federal-
Current $6,176,000 $5,041,000 $2,916,000
Deferred 1,190,000 1,282,000 1,021,000
------------ ------------ -------------
7,366,000 6,323,000 3,937,000
State 1,357,000 1,074,000 635,000
------------ ------------ -------------
$8,723,000 $7,397,000 $4,572,000
------------ ------------ -------------
------------ ------------ -------------
The tax effects of significant temporary differences which comprise the
deferred tax assets (liabilities) at October 31, 1995 and 1994 are as
follows-
1995 1994
------------ -------------
Deferred tax asset-
Bad debt expense $390,000 $324,000
Relocation expense 265,000 0
Unicap adjustment 176,000 48,000
IRS audit 11,000 138,000
Other 4,000 39,000
------------ -------------
$846,000 $549,000
------------ -------------
------------ -------------
Deferred tax liability --
Depreciation ($8,767,000) ($7,280,000)
------------ -------------
------------ -------------
A reconciliation of the provision for taxes on income before
extraordinary item to that which would be computed at the statutory rate
of 35%, 35% and 34.8% in 1995, 1994 and 1993, respectively is as
follows-
Year Ended October 31
-------------------------------------------
1995 1994 1993
------------ ------------ -------------
Provision at statutory
rate $7,840,000 $6,580,000 $4,143,000
State tax provision, net
of Federal tax benefit 882,000 698,000 414,000
Other, net 1,000 119,000 15,000
------------ ------------ -------------
$8,723,000 $7,397,000 $4,572,000
------------ ------------ -------------
------------ ------------ -------------
(9) LEASE COMMITMENTS:
The Company has lease agreements for several of its facilities and
certain transportation equipment expiring at various dates through
October 31, 2015. Rental expense under all leases was $2,617,000,
$2,221,000 and $2,370,000 for 1995, 1994 and 1993, respectively. The
Company rented space from Barstrom Associates ("Barstrom") whose lease
expired on May 1, 1995 and currently leases this facility on a
month-to-month basis. The lease provides for a monthly rental of
$14,000. During the years ended October 31, 1994 and 1993, the Company
rented space from Barstrom at a cost of $145,000 per year. Barstrom is
a general partnership in which the Company's president is one of two
partners.
-28-
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 minor sublease rentals, is as follows-
1996 $1,437,000
1997 1,275,000
1998 1,131,000
1999 931,000
2000 728,000
Thereafter 5,816,000
------------
$11,318,000
------------
------------
(10) QUARTERLY FINANCIAL DATA (UNAUDITED):
January 31 April 30 July 31 October 31
------------ ------------- ------------ ------------
1995
- ----
Net sales $58,687,000 $58,347,000 $64,218,000 $61,634,000
Gross profit 16,136,000 12,709,000 14,078,000 17,450,000
Net income 4,059,000 2,874,000 3,003,000 3,550,000
Income per share of common stock-
Before extraordinary item $.55 $.39 $.41 $.70
Extraordinary item 0 0 0 (.04)
------------ ------------- ------------ ------------
Net income per share of
common stock $.55 $.39 $.41 $.66
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
1994
- ----
Net sales $39,108,000 $43,046,000 $46,895,000 $55,620,000
Gross profit 12,248,000 13,492,000 13,107,000 15,221,000
Net income 2,618,000 2,889,000 2,563,000 3,334,000
------------ ------------- ------------ ------------
Net income per share
of common stock $.36 $.39 $.35 $.45
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
Earnings per share are computed independently for each of the quarters
presented.
-29-
AEP INDUSTRIES INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
SCHEDULES: Page
----
II -- Valuation and Qualifying Accounts F-1
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.
-30-
SCHEDULE II
AEP INDUSTRIES INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED OCTOBER 31, 1995
Additions
Balance at Charged Deductions Balance
Beginning to From at End
of Year Earnings Reserves Other of Year
------------ ------------ ------------ ------------ ------------
YEAR ENDED
OCTOBER 31, 1995:
Allowance for doubtful
accounts $1,498,000 $500,000 $577,000 $0 $1,421,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
YEAR ENDED
OCTOBER 31, 1994:
Allowance for doubtful
accounts $1,614,000 $865,000 $981,000 $0 $1,498,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
YEAR ENDED
OCTOBER 31, 1993:
Allowance for doubtful
accounts $1,254,000 $1,181,000 $990,000 $169,000 $1,614,000
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
-31-
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 the 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 and
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 26, 1996 AEP INDUSTRIES INC.
By S/A J. Brendan Barba
--------------------------------
J. Brendan Barba
Chairman of the Board, President
and Principal Executive Officer
Pursuant to the requirements of the Securities and 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 26, 1996 AEP INDUSTRIES INC.
By S/A J. Brendan Barba
--------------------------------
J. Brendan Barba
Chairman of the Board, President
and Principal Executive Officer
Dated: January 26, 1996
By S/A Paul M. Feeney
--------------------------------
Paul M. Feeney
Executive Vice President-Finance
Principal Financial and Accounting
Officer, and Director
Dated: January 26, 1996
By S/A Robert W. Cron
--------------------------------
Robert W. Cron
Director
Dated: January 26, 1996
By S/A Lawrence R. Noll
--------------------------------
Lawrence R. Noll
Director
Dated: January 26, 1996
By S/A Kenneth Avia
--------------------------------
Kenneth Avia
Director
Dated: January 26, 1996
By S/A Paul E. Gelbard
--------------------------------
Paul E. Gelbard
Director
-32-
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, dated December 15, 1995, included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-6355, 33-6365, 33-58747 and
33-58743 on Form S-8.
ARTHUR ANDERSEN LLP
Roseland, New Jersey
January 22, 1996
-33-
INDEX TO EXHIBITS
Exhibit
Number Description of Exhibit Page Number
- ------- ---------------------- -----------
3(a)(1) Composite Certificate of Incorporation of the Company as 36
amended through May 3, 1995
3(a)(2) Amendment to the Certificate of Incorporation of the Company 45
as filed May 3, 1995
3(b) By-Laws of the Company (incorporated by reference
to Exhibit 3(b) to Registration Statement on
Form S-1 No. 33-2242)
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) 1985 Employee Stock Purchase Plan of the Company
as amended April 11, 1989 (incorporated by reference
to Exhibit 10(aa) to the Annual Report on Form 10-K
for the year ended October 31, 1989)
10(c) The Employee Profit Sharing and 401(k) Retirement
Plan and Trust as adopted on March 3, 1993 (incorporated
by reference to Exhibit 10(g) to Registrant's Quarterly
Report of Form 10-Q for the period ended January 31, 1993
10(d) Lease dated as of March 20, 1990 between the Company
and Phillips and Huyler Assoc., L.P. (incorporated by
reference to Exhibit 10(aa) to the October 31, 1990 Form 10-K)
10(e) 1995 Stock Option Plan of the Company (incorporated by
reference to Exhibit 4 to the Registration Statement
to Exhibit 4 to the Registration Statement No. 33-58747
on Form S-8)
10(f) 1995 Employee Stock Purchase Plan of the Company
(incorporated by reference to Exhibit 4 to the Registration
Statement No. 33-58743 on Form S-8)
10(g) Tender Offer to Purchase, dated as of August 10, 1995
(incorporated by reference to Exhibit (a)(1) as filed on
August 10, 1995 with Schedule 13E-4)
-34-
Exhibit
Number Description of Exhibit Page Number
- ------- ---------------------- -----------
10(h) Stock Purchase Agreement, dated as of August 2, 1995
between the Company and J. Brendan Barba (incorporated by
reference to Exhibit (c) as filed on August 10, 1995 with
Schedule 13E-4)
10(i) Credit Agreement, dated as of August 3, 1995, among the
Company, The Chase Manhattan Bank (National Association),
as Administrative Agent and Mellon Bank, N.A., as
Documentation Agent and the lenders party thereto
(incorporated by reference to Exhibit (b) as filed on
August 10, 1995 with Schedule 13E-4)
23 Consent of Arthur Andersen LLP 33
24 Power of Attorney (see "Power of Attorney") in Form 10-K 32
-35-
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
AEP INDUSTRIES INC.
Pursuant to Section 242 of the
General Corporation Law of
The State of Delaware
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is AEP Industries Inc.
2. The Corporation hereby amends its Certificate of
Incorporation as follows:
The first sentence of paragraph FOURTH of the Certificate of
Incorporation relating to the total number of authorized
shares of the Corporation, is hereby deleted in its entirety
and shall now read as follows:
"The total number of shares of Capital Stock which the
Corporation shall have authority to issue is 1,000,000
shares of Preferred Stock, $1.00 par value ("Preferred
Stock") and 20,000,000 shares of Common Stock, $.01 par
value ("Common Stock")."
3. This Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
4. The effective time of the amendment herein certified shall
be upon the filing of this Certificate with the Secretary of
State.
IN WITNESS WHEREOF, we have hereunto signed our names and affirm
that the statements herein are true under the penalties of perjury, as of the
11th day of April, 1995.
AEP INDUSTRIES INC.
s/a J. Brendan Barba
--------------------
J. Brendan Barba
President
Attest:
s/a Lawrence R. Noll
- ---------------------
Lawrence R. Noll, Secretary
45
CERTIFICATE OF INCORPORATION
OF
AEP INDUSTRIES INC.
THE UNDERSIGNED, for the purpose of forming a corporation pursuant to the
provisions of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: The name of the Corporation is AEP Industries Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is 32 Loockerman Square, Suite L-100, Dover, Kent County,
Delaware 19901, and the name of the Corporation's registered agent at such
address is The Prentice-Hall Corporation System, Inc.
THIRD: The purpose for which the Corporation is organized is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of Capital Stock which the
Corporation shall have authority to issue is 1,000,000 shares of Preferred
Stock, $1.00 par value ("Preferred Stock"), and 20,000,000 shares of Common
Stock, $0.01 par value ("Common Stock"). The powers, designations, preferences
and relative, participating, optional or other special rights, qualifications,
limitation or restrictions of the Preferred Stock shall be as follows:
1. (a) The Preferred Stock may be issued from time to time as shares of
one or more series of Preferred Stock, and in the resolutions or
resolutions providing for the issue of shares of each particular series,
before issuance, the Board of Directors of the Corporation is expressly
authorized to fix:
(i) the distinctive designation of such series and the number of
shares which shall constitute such series, which number may be
increased (except where otherwise provided by the Board of Directors
in creating such series) or decreased (but not below the number of
shares thereof then outstanding) from time to time by like action of
the Board of Directors;
(ii) the rate of dividends payable on such series, whether or not
dividends shall be cumulative, the date or dates from which dividends
shall accrue and, if cumulative, shall be cumulative and the
relationship which such dividends shall bear to dividends payable on
any other series;
(iii) whether or not the shares of such series shall be subject to
redemption by the Corporation and, if so, the times, prices and other
terms and conditions of such redemption;
-36-
(iv) whether or not the shares of such series shall be subject to the
operation of a sinking fund or a fund of similar nature and, if so,
the terms thereof;
(v) the rights of the shares of each series in case of liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, or upon any distribution of its assets;
(vi) whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other series or class of stock
of the Corporation and, if so, the terms of conversion or exchange;
(vii) whether or not the shares of such series shall have voting
rights in addition to the voting rights provided by law and in
paragraph 5 below and, if so, the nature and extent thereof; and
(viii) the consideration to be received by the Corporation for the
shares of such series.
(b) The shares of the Preferred Stock of any one series shall be
identical with each other in all respects except as to the dates from which
dividends thereon shall accrue or be cumulative.
(c) In case the stated dividends and the amounts, if any, payable on
liquidation, dissolution or winding up of the Corporation are not paid in
full, the shares of each series of the Preferred Stock, after the payment
in full of such dividends and amounts to all series of the Preferred Stock
ranking senior to such series and before any payment to any series ranking
junior thereto, shall share ratably in the payment of dividends, including
accumulations, if any, in accordance with the sums which would be payable
on said shares if all dividends were declared and paid in full, and in any
distribution of assets other than by way of dividends, in accordance with
the sums which would be payable on such distribution if all sums payable
were discharged in full.
(d) Upon the issuance of any series of Preferred Stock, a certificate
setting forth the resolution or resolutions (including the designation,
description and terms of such series) adopted by the Board of Directors
with respect to such series shall be made and filed in accordance with the
then applicable requirements, if any, of the laws of the State of Delaware,
or, if no certificate is then so required, such certificates shall be
signed and acknowledged on behalf of the Corporation by its President or a
Vice President, and its corporate seal shall be affixed thereto and
attested by its Secretary or an Assistant Secretary, and such certificate
shall be filed and kept on file at the principal office of the Corporation
in the State of Delaware or at such other place or places as the Board of
Directors shall designate.
37
2. The holders of each series of the Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors, but only out of
funds of the Corporation legally available for the payment of dividends,
dividends in cash at the annual rate for such series provided by the Board
of Directors in the certificate made pursuant to subparagraph (d) of
paragraph 1 with respect to such series, before any dividends shall be
declared and paid upon or set apart for the holders of any series of
Preferred Stock ranking junior to such series as to dividends or of any
junior stock, payable in respect of each calendar quarter on a date, which
shall be provided by the Board of Directors in such certificate with
respect to such series, within fifty (50) days following the end of the
such quarter. Such dividends on the Preferred Stock shall be payable to
holders of such series of record on the date, not exceeding fifty (50) days
preceding the dividend payment date, fixed for such purpose by the Board of
Directors with respect to such series in advance of the payment of each
particular dividend.
3. If so provided by the Board of Directors in the certificate made
pursuant to subparagraph (d) of paragraph 1, the Corporation, at the option
of the Board of Directors (or in accordance with the requirements of any
sinking fund for any one or more series of Preferred Stock established by
the Board of Directors), may redeem the whole or any part of the Preferred
Stock at any time outstanding, or the whole or any part of any series
thereof, at such time or times and from time to time and at such redemption
price or prices as may be provided by the Board of Directors in such
certificate together in each case with all dividends accrued and
accumulated but unpaid (other than non-cumulative dividends from past
dividend periods), but computed without interest, and otherwise upon the
terms and conditions fixed by the Board of Directors for any such
redemptions.
4. In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of each series
of the Preferred Stock then outstanding shall be entitled to receive, after
the payment in full of all amounts to which the holders of all series of
the Preferred Stock ranking senior thereto are entitled, out of the assets
of the Corporation, before any distribution or payment shall be made to the
holders of any series of the Preferred Stock ranking junior to such series
upon liquidation, dissolution or winding up of the Corporation or of any
junior stock, the amount, if any, for each share provided by the Board of
Directors in the certificate made pursuant to subparagraph (d) of paragraph
1, plus, in respect or each such share, all dividends accrued and
accumulated but unpaid (other than non-cumulative dividends from past
dividend periods), but computed without interest. If payment shall have
been made in full to the holders of each series of the Preferred Stock, the
remaining shares of the Corporation shall be distributed among the holders
of the junior stock, according to their respective rights and preferences
and pro rata in accordance with their respective holdings.
5. On all matters with respect to which holders of the Preferred Stock or
of certain series thereof are entitled to vote as a single class, each
holder of Preferred Stock afforded such class voting right shall be
entitled to one vote for each share held.
38
6. For purposes of this Article FOURTH, the term "junior stock" shall
mean the Common Stock and any other class of stock of the Corporation
hereafter authorized which shall rank junior to all series of the Preferred
Stock as to all dividends or preference on dissolution, liquidation or
winding up of the Corporation.
FIFTH: The number of directors of the Corporation shall be fixed as
provided in the by-laws of the Corporation (the "By-laws"). The directors shall
be divided into three classes, each class to contain as near as possible to one-
third (1/3) of the total number of directors of the Board of Directors so fixed
in the By-laws, and, except as otherwise provided by statute, in the case of any
increase in the number of directors fixed in the By-laws, such increase shall be
apportioned among the classes of directors so as to maintain each class as near
as possible to one-third of the total number of directors as so increased. The
initial term of office for members of the first class shall expire at the annual
meeting of stockholders next following; the initial term for members of the
second class shall expire at the annual meeting of stockholders one year
thereafter; and the initial term for members of the third class shall expire at
the annual meeting of stockholders two years thereafter. At the expiration of
the initial term, and of each succeeding term of each class, the directors of
each class shall be elected to serve for a term of three years. The By-laws may
contain any provision regarding classification not inconsistent with the terms
hereof.
SIXTH: The Corporation shall indemnify and hold harmless any
director, officer, employee or agent of the Corporation from and against any and
all expenses and liabilities that may be imposed upon or incurred by him in
connection with, or as result of, any proceeding in which he may become
involved, as a party or otherwise, by reason of the fact that he is or was such
a director, officer, employee or agent of the Corporation, whether or not he
continues to be such at the time such expenses and liabilities shall have been
imposed or incurred, to the extent permitted by the laws of the State of
Delaware, as they may be amended from time to time.
SEVENTH: In furtherance and not in limitation of the general powers
conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to make, alter or repeal the By-laws of the Corporation,
except as specifically stated therein.
EIGHTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors of any class of them and/or between this
Corporation and it stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation; as the case may
be, to be summoned in such manner as the said Court directs. If a majority in
number representing three-fourth in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of
39
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the Court to which the said application
has been made, be biding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders of this Corporation, as the case
may be, and also on this Corporation.
NINTH: Except as otherwise required by the laws of the State of
Delaware, the stockholders and Directors shall have the power to hold their
meetings and to keep the books, documents and papers of the Corporation outside
of the State of Delaware, and the Corporation shall have the power to have one
or more offices within or without the State of Delaware, at such places as may
be from time to time designated by the By-laws or by resolution of the
stockholders or Directors. Elections of Directors need not be by ballot unless
the By-laws of the Corporation shall so provide.
TENTH: Subject to the terms of Article FOURTEEN hereof, the
Corporation reserves the right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
ELEVENTH: The affirmative vote of the holders of not less than eighty
percent (80%) of the outstanding shares of "Voting Stock" (as hereinafter
defined) of the Corporation shall be required for the approval or authorization
of any "Business Combination" (as hereinafter defined); provided, however, that
the eight percent (80%) voting requirement referred to above shall not be
applicable if:
(1) The Board of Directors of the Corporation by a vote of not less than a
majority of the directors then holding office (a) expressly approved in
advance the acquisition of outstanding shares of Voting Stock of the
Corporation that resulted in any "Related Person" (as hereinafter defined)
becoming a Related Person or (b) expressly approved the Business
Combination prior to the Related Person involved in the Business
Combination having become a Related Person;
(2) The Business Combination is solely between the Corporation and another
Corporation, one hundred percent (100%) of the Voting Stock of which is
owned directly or indirectly by the Corporation; or
40
(3) All of the following conditions have been met or have been waived by a
vote of not less than a majority of the "Continuing Directors" (as
hereinafter defined): (a) The Business Combination is a merger or
consolidation proposed to be consummated within one year after the date of
the transaction pursuant to which such Related Person became a Related
Person, and the cash or fair market value of the property, securities or
other considerations are received per share by holders of Common Stock in
the Business Combination is not less than the highest per share price (with
appropriate adjustments for recapitalizations, reclassifications, stock
splits, reverse stock splits and stock dividends) paid by the Related
Person in acquiring any of its holdings of Common Stock; (b) the
consideration to be received by such holders is either cash or, if the
Related Person acquired the majority of its holdings of Common Stock for a
form of consideration other than cash, in the same form of consideration;
(c) after such Related Person has become a Related Person and prior to
consummation of such Business Combination: (i) there shall have been no
failure to declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding shares of
Preferred Stock, (ii) there shall have been no reduction in the dividends
paid per share on the Common Stock (adjusted as appropriate for
recapitalizations, reclassifications, stock splits, reverse stock splits
and stock dividends), (iii) such Related Person shall not have become the
"Beneficial Owner" (as hereinafter defined) of any additional shares of
Voting Stock of the Corporation except as part of the transaction that
results in such Related Person becoming a Related Person, and (iv) such
Related Person shall not have received any benefit directly or indirectly
(except proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits or
other tax advantages provided by the Corporation, whether in anticipation
of or in connection with such Business Combination or otherwise; and (d) a
proxy statement in compliance with the requirements of the Exchange Act (as
hereinafter defined) and the rules and regulations promulgated thereunder
(or any subsequent provisions replacing the Exchange Act, rules or
regulations) shall be mailed to the public stockholders of the Corporation
at least forty (40) days prior to the consummation of the Business
Combination for the purpose of soliciting stockholder approval of the
Business Combination, and shall contain at the front thereof in a prominent
place any recommendations as to the advisability or inadvisability of the
Business Combination that the Continuing Directors or any of them may
choose to state and an opinion of a reputable investment banking firm as to
the fairness (or otherwise) of the terms of such Business Combination from
the point of view of the remaining public stockholders of the Corporation
(such investment banking firm to be selected by a majority of the
Continuing Directors and to be paid a reasonable fee for its services by
the Corporation).
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For the purposes of this Article and Article TWELFTH:
(i) The term "Business Combination" shall mean (a) any merger or
consolidation of the Corporation or a subsidiary of the Corporation
with or into a Related Person, (b) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of all or any
"Substantial part" (as hereinafter defined) of the assets either of
the Corporation (including, without limitation, any voting securities
of a subsidiary) or of a subsidiary, to or with a Related Person,
(c) any sale, lease, exchange, transfer or other disposition of assets
having a fair market value of $2,000,000 or more of a Related Person
to the Corporation or a subsidiary of the Corporation, (d) the
issuance or transfer by the Corporation or a subsidiary (other than by
way of a pro rata distribution to all stockholders ) of any securities
of the Corporation or a subsidiary of the Corporation to a Related
Person, (e) any reclassification of securities (including any reverse
stock split) or recapitalization by the Corporation, the effect of
which would be to increase the voting power (whether or not then
exercisable) of a Related Person, (f) the adoption of any plan or
proposal for the liquidation or dissolution of the Corporation
proposed by or on behalf of a Related Person, (g) any series or
combination of transactions directly or indirectly having the same
effect as any of the foregoing and (h) any agreement, contract or
other arrangement providing directly or indirectly for any of the
foregoing.
(ii) The term "Continuing Director" shall mean any member of the Board
of Directors who is not affiliated with a Related Person and who was a
member of the Board of Directors immediately prior to the time that
the Related Person became a Related Person, and any successor to a
Continuing Director who is not affiliated with the Related Person and
is recommended to succeed a Continuing Director by a majority of
Continuing Directors who are then member of the Board of Directors.
(iii) The term "Related Person" shall mean and include any
individual, corporation, partnership or other "person" or "group" of
persons or entities (as such terms are used on January 1, 1985 in Rule
13d under the Securities Exchange Act of 1934 (the "Exchange Act")),
and the "Affiliates" and "Associates" (as such terms are defined on
January 1, 1985 in Rule 12b-2 under the Exchange Act) of any such
individual, corporation, partnership or other person or group of
persons, other than the Corporation or any employee benefit plan or
plans sponsored by the Corporation, that individually or together
constitute the "Beneficial Owner" (as defined on January 1, 1985 in
Rule 13d-3 and Rule 14d-1(b)(4) under the Exchange Act) of an
aggregate of twenty percent (20%) or more of the outstanding Voting
Stock of the Corporation.
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(iv) The term "Substantial Part" shall mean more than five percent
(5%) of the book value of the total assets of the subject entity as of
the end of the fiscal year ending prior to the time of the
determination of, in the case of Voting Stock of a subsidiary of the
Corporation, twenty percent (20%) or more of the outstanding shares of
such subsidiary's Voting Stock.
(v) Any person or group that has the right to acquire any shares of
Voting Stock of the Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise,
shall be deemed a Beneficial Owner for purposes of determining whether
such person or group, individually or together with its Affiliates and
Associates, is a Related Person.
(vi) For purposes of subparagraph (3) of this Article ELEVENTH, the
expression "other considerations to be received" shall include,
without limitation, Common Stock retained by the Corporation's
existing public stockholders in the event of a Business Combination in
which the Corporation is the surviving corporation.
(vii) The term "Voting Stock" shall mean all outstanding shares of
capital stock of the Corporation or other corporation entitled to vote
generally in the election of directors, and each reference to a
proportion of shares of Voting Stock shall refer to shares having such
proportion of the number of shares entitled to be cast.
TWELFTH: Except as approved by a vote of not less than a majority of
the directors of the Corporation then holding office (or, in the event that the
Corporation at the time has a Related Person, then by a vote of not less than a
majority of the Continuing Directors), no action shall be taken by the
stockholders of the Corporation except at an annual or special meeting with
prior notice and a vote; provided, however, that holders of the Preferred Stock
may act by written consent to the extend provided in the resolution or
resolutions referred to in Article FOURTH hereof. Except as provided herein
above, no action shall be taken by the stockholders by written consent.
THIRTEENTH: The stockholders shall not make, repeal, alter, amend or
rescind the By-laws except by the vote of the holders of not less than eighty
percent (80%) of the total voting power of all shares of stock of the
Corporation entitled to vote in the election of directors, considered for
purposes of this Article THIRTEENTH as one class.
FOURTEENTH: Articles, FIFTH, SIXTH, ELEVENTH, TWELFTH, THIRTEENTH hereof
and this Article FOURTEENTH may not be amended, altered, changed, repealed or
rescinded in any respect unless such action is approved by the affirmative vote
of the holders of not less than eighty percent (80%) of the outstanding shares
of stock of the Corporation entitled to vote in the election of directors,
considered for purposes of this Article FOURTEENTH as one class. The voting
requirements contained in this Article FOURTEENTH and in Articles ELEVENTH and
THIRTEENTH hereof shall be in addition to voting requirements imposed by law or
other provisions of this Certificate of Incorporation or any designation of
preferences in favor of certain classes or series of classes of shares of
capital stock of the Corporation.
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FIFTEENTH: The name and address of the incorporator is
Miroslav M. Fajt, 437 Madison Avenue, New York, New York 10022.
SIXTEENTH: A director of the Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the unlawful payment of dividends or
unlawful stock purchases under Section 174 of the General Corporation Law of
Delaware, or (iv) for any transaction from which the director derived any
improper personal benefit. If after approval by the stockholders of this
provision the General Corporation Law of Delaware is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of Delaware, as so amended. Any repeal or modification of this Article by
the stockholders of the Corporation shall be by the affirmative vote of the
holders of not less than eighty percent (80%) of the outstanding shares of stock
of the Corporation and entitled to vote in the election of Directors, considered
for the purposes of this Article SIXTEENTH as one class, shall be prospective
only and shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinabove named, does hereby execute this Certificate of Incorporation this
11th day of November, 1985.
s/a
------------------------------
Miroslav M. Fajt
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