NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AEP
Industries Inc. (the Company) is a manufacturer of flexible plastic packaging films in North America. The Company manufactures and markets a wide range of polyethylene and polyvinyl chloride flexible packaging products, with
consumer, industrial and agricultural applications. The flexible plastic packaging films are primarily used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture, carpeting,
furniture and textile industries.
(2)
|
Significant Accounting Policies
|
Fiscal Year:
The Companys fiscal
year-end
is October 31.
Principles of Consolidation:
The consolidated financial statements include the accounts of all subsidiaries. All significant intercompany transactions
have been eliminated in consolidation.
Revenue Recognition:
The Company recognizes revenue when products are shipped and the customer takes ownership and assumes risk of loss, which
is primarily on the date of shipment, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists and the sales price is fixed and determinable. Concurrently, the Company records reductions to revenue for
estimated returns and customer rebates, customer deductions, promotions or other incentive programs that are estimated using historical experience and current economic trends. Material differences may result in the amount and timing of net sales for
any period if management makes different judgments or uses different estimates.
Cost of Sales:
The most significant components of cost of sales are materials, including packaging, fixed manufacturing costs, labor
(including share-based compensation and incentive-based compensation), depreciation, inbound freight charges, utility costs used in the manufacturing process, any inventory adjustments, including LIFO adjustments, purchasing and receiving costs,
research and development costs, quality control costs, and warehousing costs.
Delivery:
Delivery costs represent all costs incurred by the Company for shipping and handling of its products to the customer,
including transportation costs paid to third party shippers.
Selling, General & Administrative:
Selling and general and administrative expenses consist primarily of personnel costs (including salaries, bonuses,
commissions, share-based compensation and employee benefits), facilities and equipment costs and other support costs including utilities, insurance and professional fees.
Cash and Cash Equivalents:
The Company considers all highly
liquid investments purchased with an initial maturity of three months or less to be cash equivalents.
91
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2)
|
Significant Accounting Policies (Continued)
|
Accounts Receivable:
Trade accounts receivable are recorded at the invoice amount and do not bear interest. The allowance for doubtful accounts
is the Companys best estimate of the amount of probable credit losses in the Companys existing accounts receivable. The Company determines the allowance based on historical
write-off
experience and
an evaluation of the likelihood of success in collecting specific customer receivables. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for
collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and potential for recovery is considered remote. In addition, the Company maintains allowances for customer returns, discounts
and invoice pricing discrepancies, primarily based on historical experience. The Company does not have any
off-balance-sheet
exposure related to its customers.
Use of Estimates:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the 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. These estimates and assumptions
are based on managements best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. The Company adjusts such
estimates and assumptions when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates are recorded in results of
operations in the period that the event or circumstances giving rise to such changes occur.
The Companys
significant estimates include those related to revenue recognition, customer rebates and incentives, and allowance for doubtful accounts.
Property, Plant and Equipment:
Property, plant and equipment are
stated at cost and at fair value for acquisitions. Depreciation and amortization are computed using 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. Maintenance and repairs that do not improve efficiency or extend
economic life are charged to expense as incurred.
Leases:
The Company operates certain warehousing facilities, an office building and machinery and equipment under operating leases
with terms greater than one year and with minimum lease payments associated with these agreements. Rent expense is recognized on a straight-line basis over the expected lease term. Within the provisions of certain leases are predetermined fixed
escalations of the minimum rental payments over the base lease term (none of the leases contain lease concessions, including capital improvement funding, or contingent rental clauses). The
92
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2)
|
Significant Accounting Policies (Continued)
|
effects of the escalations have been reflected in rent expense on a straight-line basis over the lease term, and the difference between the recognized rental expense and the amounts payable under
the lease is recorded as deferred lease payments. The amortization period for leasehold improvements is the term used in calculating straight-line rent expense or their estimated economic life, whichever is shorter.
Impairment Charges:
Property, plant and equipment, and purchased intangibles subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. Fair value is determined based on discounted cash flows, recent
buy offers or appraised values, depending on the nature of the asset. Assets to be disposed of are separately presented in the consolidated balance sheets and reported at the lower of the carrying amount or the fair value less costs to sell, and are
no longer depreciated. The asset and liabilities of a disposed group, classified as held for sale, are presented separately in the appropriate asset and liability sections of the consolidated balance sheets.
Foreign Currency Translation:
Financial statements of international subsidiaries are translated into U.S. dollars using the exchange rate at each balance sheet date for assets and liabilities and the weighted average exchange rate for
each period for revenues, expenses, gains, losses and cash flows. Translation adjustments are recorded as a separate component of accumulated other comprehensive (loss) income in the consolidated balance sheets and a component in arriving at
comprehensive income (loss). Foreign currency transaction gains and losses are recorded in other income (expense) in the consolidated statements of operations.
Derivative Instruments:
The Company enters into derivative
financial instruments to manage exposures arising in the normal course of business. The Company enters into foreign exchange forward contracts primarily to hedge intercompany transactions and forecasted purchases. Foreign currency forward contracts
reduce the Companys exposure to the risk that the eventual cash inflows and outflows, resulting from these intercompany and third party trade transactions denominated in a currency other than the functional currency, will be adversely affected
by changes in exchange rates. Foreign exchange forward contracts generally have maturities of less than six months and relate primarily to the Canadian dollar. The Company also enters into interest rate swap contracts to economically convert a
variable-rate debt to a fixed-rate debt. The Company does not apply hedge accounting for foreign exchange forward contracts and interest rate swaps and as a result, these hedging instruments are adjusted to fair value through income and expense. The
fair value and notional value of these contracts were immaterial at October 31, 2016 and 2015.
93
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2)
|
Significant Accounting Policies (Continued)
|
Fair Value Measurements:
In determining the fair value of financial instruments, the Company utilizes valuation techniques that maximize the use of
observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value. The Company determines the fair value of its financial instruments based on assumptions that
market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between
observable and unobservable inputs, which are categorized in one of the following levels:
|
|
|
Level 1
|
|
Unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.
|
|
|
Level 2
|
|
Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets
or liabilities in inactive markets.
|
|
|
Level 3
|
|
Unobservable inputs reflecting managements own assumptions about the inputs used in pricing the asset or liability at the measurement date.
|
The carrying amount reported in the consolidated balance sheets for cash and cash
equivalents, accounts receivable and accounts payable approximates fair value because of the short-term nature of these assets and liabilities. The Company did not have any nonfinancial assets and liabilities that were carried at fair
value on a recurring basis in the consolidated financial statements or for which a fair value measurement was required at October 31, 2016. See Notes 8 and 9 for discussion of the fair value of the Companys debt and the
assets held in the Companys two defined benefit pension plans, respectively.
Research and Development Costs:
Research and development costs are charged to expense as incurred and included in cost of sales in the
consolidated statements of operations. Research and development costs were $2.0 million during each of fiscal 2016, 2015 and 2014.
Share-Based Compensation:
Compensation expense for our
shared-based compensation plans is based on the fair value of the awards granted and is recognized in income on a straight-line basis over the requisite service period of each award.
Due to the cash settlement feature of the performance units granted under the Companys share-based plan to directors
and key employees of the Company, the performance units are liability classified and are recognized at fair value, depending on the percentage of requisite service rendered at the reporting date, and are remeasured at each balance sheet date to the
market value of the Companys common stock at the reporting date. As the Units contain both a performance and service condition, the Units have been treated as a series of separate awards or tranches for purposes of recognizing compensation
expense. The Company recognizes compensation expense on a
tranche-by-tranche
basis, recognizing the expense as the employee works over the requisite service period for
that specific tranche.
94
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2)
|
Significant Accounting Policies (Continued)
|
Income Taxes:
Income taxes are accounted for using the asset and liability method. Such approach results in the recognition of deferred
tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Valuation allowances are established where expected future taxable income,
the reversal of deferred tax liabilities and development of tax strategies does not support the realization of the deferred tax assets.
The Company recognizes in its consolidated financial statements the impact of a tax position if that position is more likely than not of being sustained based on the technical merits of the position.
There is a
two-step
approach for evaluating uncertain tax positions. Step one, recognition, requires a company to determine if the weight of available evidence indicates that a tax position is more likely than
not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two, measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing
authority.
The Company and its subsidiaries file separate foreign, state and local income tax returns and,
accordingly, provide for such income taxes on a separate company basis.
Goodwill:
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in purchase business
combinations. The Company has determined that it consists of a single reporting unit for the purpose of the goodwill impairment test. The Company performs its annual impairment analysis on September 30 based on a comparison of the
Companys market capitalization to its book value at that date. On September 30, 2016 and 2015, the Company concluded that there was no impairment because the Companys market capitalization was above book value. On October 31,
2016 and 2015, the Companys market capitalization was above book value. The Companys policy is that impairment of goodwill will have occurred if the market capitalization of the Company were to remain below book value for a reasonable
period of time. The Company would consider a control premium in its analysis.
Concentration of Risk:
The Company sells its products to a large number of geographically diverse customers in a number of different industries,
thus spreading the trade credit risk. The Company extends credit based on an evaluation of the customers financial condition, generally without requiring collateral. The Company performs ongoing credit evaluations of its customers
financial condition and maintains appropriate allowances for anticipated losses. No single customer accounted for more than 10% of net sales during any of the years in the three year period ended October 31, 2016. No single customer accounted
for more than 10% of the Companys account receivable balance at October 31, 2016 or 2015.
The
Company purchases its resin from three principal suppliers that provided the Company with approximately 28%, 22% and 13%, respectively, of the Companys fiscal 2016 resin supply, approximately 27%, 22% and 16%, respectively, of the
Companys fiscal 2015 resin supply and approximately 28%, 22% and 17%, respectively, of the Companys fiscal 2014 resin supply.
95
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2)
|
Significant Accounting Policies (Continued)
|
Earnings Per Common Share (EPS):
Basic earnings (loss) per common share (EPS) is calculated by dividing net income (loss) by the weighted
average number of shares of common stock outstanding during the period. Diluted EPS is calculated by dividing net income (loss) by the weighted average number of common shares outstanding, adjusted to reflect potentially dilutive securities
(options) using the treasury stock method, except when the effect would be anti-dilutive.
The number of shares
used in calculating basic and diluted earnings (loss) per share is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
5,110,049
|
|
|
|
5,093,878
|
|
|
|
5,323,131
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase shares of common stock
|
|
|
29,794
|
|
|
|
22,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,139,843
|
|
|
|
5,116,079
|
|
|
|
5,323,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended October 31, 2016, 2015 and 2014 the Company had zero, zero and
10,000 stock options outstanding, respectively, that could potentially dilute earnings per share in future periods but were excluded from the computation of diluted EPS because their exercise price was higher than the Companys average stock
price during the respective periods. For the year ended October 31, 2014, the Company had 16,168 stock options outstanding that could potentially dilute earnings per share in future periods that were excluded from the computation of diluted EPS
because their effect would have been anti-dilutive given the net loss during the period.
The Company includes
any
non-vested
restricted stock issued under the Companys 2013 Omnibus Incentive Plan (see Note 10) in the weighted average common shares outstanding from the date of issuance as the restricted stock
entitles the participant to all rights of a stockholder, including the right to vote the shares and the right to receive dividends.
Dividends:
In fiscal year 2016 the Companys Board of
Directors declared the following dividends:
|
|
|
|
|
|
|
|
|
Dividend Per Share of
Common Stock
|
|
Total Amount
(in
thousands)
|
|
Declaration Date
|
|
Record Date
|
|
Payment Date
|
$0.25
|
|
$1,278
|
|
October 19, 2016
|
|
November 1, 2016
|
|
November 16, 2016
|
$0.25
|
|
$1,278
|
|
July 20, 2016
|
|
August 1, 2016
|
|
August 16, 2016
|
$0.25
|
|
$1,278
|
|
April 20, 2016
|
|
May 2, 2016
|
|
May 17, 2016
|
$0.25
|
|
$1,278
|
|
January 13, 2016
|
|
February 1, 2016
|
|
February 16, 2016
|
The dividend payable on November 16, 2016 of $1.3 million is recorded in
accrued expenses at October 31, 2016.
96
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2)
|
Significant Accounting Policies (Continued)
|
Comprehensive Income (Loss):
Comprehensive income (loss) consists of net income (loss) and other gains and losses that are not included in net income
(loss), but are recorded directly in the consolidated statements of shareholders equity, such as the unrealized gains and losses on the translation of the assets and liabilities of the Companys foreign operations and gains or losses and
prior service costs associated with pension benefits, net of tax, that have not been recognized as components of net periodic benefit cost, and changes in deferred prior service costs and net actuarial losses, net of tax.
Reclassifications:
Certain prior year amounts as it relates to the adoption of ASU
No. 2015-03,
Interest-Imputation of Interest (Subtopic
835-30):
Simplifying the Presentation of Debt Issuance Costs,
have been reclassified in order to conform to the fiscal 2016 presentation. The reclassifications had no effect on net income.
In April 2015, the Financial Accounting Standards Board (FASB) issued ASU
No. 2015-03.
The new guidance simplifies the presentation of debt issuance costs by requiring debt issuance costs to be presented as a deduction from the corresponding debt liability. In August 2015, the
FASB issued ASU
2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with
Line-of-Credit
Arrangements
.
This ASU clarified guidance in ASU
No. 2015-03
stating that the SEC would not object to a company presenting debt issuance costs related to a
line-of-credit
arrangement on the balance sheet as a deferred asset, regardless of whether there were any outstanding borrowings at
period-end.
The Company adopted the
ASUs as of October 31, 2016 and has retrospectively applied the provisions to all prior periods presented. The Company reclassified $0.9 million and $2.1 million as of October 31, 2016 and 2015, respectively, of deferred costs
related to the Companys 8.25% senior notes due 2019. This reclassification reduced total assets and total long-term debt by the same amounts. The Company continues to present those capitalized costs paid related to the Companys credit
facility ($0.6 million at October 31, 2016) separately in other current assets and other assets on its consolidated balance sheet.
New Accounting Pronouncements
In August 2016, the FASB issued ASU
No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,
which
provides guidance on
how certain cash receipts and cash payments, including, among other items, debt prepayment costs, are presented and classified in the statement of cash flows under FASB Accounting Standards Codification Topic 230,
Statement of Cash Flows
, and other Topics. The standard is effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within those annual periods. Early adoption is permitted. The
Company has early adopted the new guidance and has presented the call premium paid related to the partial redemption of the 8.25% senior notes due 2019 as a cash outflow from financing activities in accordance with ASU
No. 2016-15.
Due to the anticipated timing of the consummation of the integrated
merger with Berry Plastics Group, Inc. (see Note 3), the evaluation of the effects on the consolidated financial statements and the timing of adoption of the following standards will be determined by Berry Plastics Group, Inc.
97
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(2)
|
Significant Accounting Policies (Continued)
|
In March 2016, the FASB issued ASU
No. 2016-09,
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
, which is intended to simplify various aspects of the accounting for share-based
payments, including treatment of excess tax benefits and forfeitures and consideration of minimum statutory tax withholding requirements. The guidance is required to be applied by the Company beginning in the Companys first quarter of fiscal
2018, but early adoption is permitted.
In February 2016, the FASB issued ASU
2016-02,
Leases
. The new guidance amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. The standard requires a modified retrospective transition to recognize and
measure leases at the beginning of the earliest period presented and includes a number of optional practical expedients. ASU
2016-02
is required to be applied by the Company beginning in the Companys
first quarter of fiscal 2020. Early adoption is permitted.
In November 2015, the FASB issued ASU
2015-17,
Balance Sheet Classification of Deferred Taxes
, which simplifies the presentation of deferred income taxes. This new guidance requires that all deferred tax assets and liabilities be classified
as
non-current
in the balance sheet. The guidance is required to be applied by the Company beginning in the Companys first quarter of fiscal 2018, but early adoption is permitted. The Company expects
this new guidance will reduce its total current assets, total assets and total liabilities on its consolidated balance sheet by the amount classified as deferred income taxes within current assets, and does not expect application to have any other
effect on its consolidated financial statements.
In May 2014, the FASB issued ASU
No. 2014-09,
Revenue from Contracts with Customers,
which supersedes nearly all existing revenue recognition guidance under accounting principles generally accepted in the United States of America.
The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. Additionally, the guidance
requires improved disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. In July 2015, the FASB approved a
one-year
deferral of the effective date of ASU
2014-09,
which will be effective for the Company in the first quarter of fiscal 2019 and may be applied on a full retrospective
or modified retrospective approach.
On
August 24, 2016, the Company entered into an Agreement and Plan of Merger with Berry Plastics Group, Inc. (Berry) and certain of its subsidiaries, which was amended on December 7, 2016 (as so amended, the Merger
Agreement). The Merger Agreement provides that, upon the terms and subject to the conditions and merger steps set forth therein (the Integrated Mergers), the Company will merge with and into a Berry subsidiary, with the Berry
subsidiary as the surviving corporation.
Subject to the terms and conditions set forth in the Merger Agreement, each share of
common stock of the Company will be converted into the right to receive, at the stockholders election, $110 in cash (the Cash Consideration) or 2.5011 shares (the Exchange Ratio) of Berrys common stock (the
Stock Consideration and, together with the Cash Consideration, the Merger Consideration). The Merger Consideration in the Integrated Mergers will be prorated as necessary to ensure that 50% of the total outstanding shares of
the Company (excluding treasury stock) will be exchanged for cash and 50%
98
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3)
|
Business Combination (Continued)
|
of such shares will be exchanged for Berrys common stock. However, in the event that Berry has had a material adverse effect (as defined in the Merger Agreement) since the date of the
Merger Agreement or if the written tax opinion required to be delivered to the Company in connection with the Integrated Mergers cannot be delivered, Berry may elect, in its sole discretion, to pay $110.00 in cash for each share of the
Companys common stock, subject to certain conditions (the Alternative Funding Election).
The Integrated
Mergers are expected to close shortly after the special meeting of the Companys stockholders scheduled for January 18, 2017, although consummation of the Integrated Mergers is subject to customary conditions set forth in the Merger
Agreement, including the approval by the holders of at least a majority of the outstanding shares of the Companys common stock entitled to vote thereon.
The Merger Agreement contains certain termination rights for the Company and Berry. If the Merger Agreement is terminated under certain circumstances, the Company may be required to pay a termination fee
of $20 million and reimburse expenses of Berry and its affiliates up to $5 million. If the Merger Agreement is terminated by the Company, Berry may be required to pay the expenses of the Company and its affiliates up to $5 million.
Under the Merger Agreement, the Company is subject to certain restrictions on the conduct of its business and generally must operate the business in the ordinary course in all material respects prior to completing the Integrated Mergers unless the
Company obtains the consent of Berry.
The Company incurred $4.1 million of transaction costs through October 31, 2016
associated with the proposed Integrated Mergers which are included in general and administrative expenses in the consolidated statement of operations for fiscal 2016. In connection with the Integrated Mergers, the Company must pay Merrill Lynch,
Pierce, Fenner & Smith Incorporated, its financial advisor, a fee of approximately $11.5 million, $1.0 million of which was paid upon execution of the merger agreement in connection with the delivery of its opinion with the remainder payable
upon the successful completion of the Integrated Mergers.
Inventories,
stated at the lower of cost
(last-in,
first-out
method (LIFO) for the U.S. operations, except as noted, and the
first-in,
first-out
method (FIFO) for the Canadian operation, supplies, and printed and converted finished goods for the U.S. operations) or market, include
material, labor and manufacturing overhead costs, less vendor rebates. The Company establishes a reserve in those situations in which cost exceeds market value.
99
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(4)
|
Inventories (Continued)
|
Inventories are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
October 31,
2016
|
|
|
October 31,
2015
|
|
|
|
(in thousands)
|
|
Raw materials
|
|
$
|
42,375
|
|
|
$
|
47,593
|
|
Finished goods
|
|
|
67,466
|
|
|
|
66,484
|
|
Supplies
|
|
|
4,772
|
|
|
|
5,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
114,613
|
|
|
|
119,357
|
|
Less: LIFO reserve
|
|
|
(21,928
|
)
|
|
|
(18,093
|
)
|
|
|
|
|
|
|
|
|
|
Inventories, net
|
|
$
|
92,685
|
|
|
$
|
101,264
|
|
|
|
|
|
|
|
|
|
|
The LIFO method was used for determining the cost of approximately 89% at October 31, 2016 and 2015.
During fiscal 2016, 2015 and 2014, the Company had decrements in certain of its LIFO pools, which increased or (reduced) cost of sales by $1.5 million, $0.1 million and $(2.4) million, respectively. Because of the Companys continuous
manufacturing process, there is no significant work in process at any point in time.
(5)
|
Property, Plant and Equipment
|
A summary of the components of property, plant and equipment and their estimated useful lives is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Estimated Useful Lives
|
|
|
(in thousands)
|
|
|
|
Land
|
|
$
|
11,743
|
|
|
$
|
11,777
|
|
|
|
Buildings
|
|
|
100,939
|
|
|
|
100,263
|
|
|
15 to 31.5 years
|
Machinery and equipment
|
|
|
471,078
|
|
|
|
459,247
|
|
|
5 to 9 years
|
Furniture and fixtures
|
|
|
26,062
|
|
|
|
25,725
|
|
|
3 to 9 years
|
Leasehold improvements
|
|
|
290
|
|
|
|
290
|
|
|
Lesser of lease term or useful
lives of 15 to 31.5 years
|
Motor vehicles
|
|
|
383
|
|
|
|
383
|
|
|
3 years
|
Construction in progress
|
|
|
3,809
|
|
|
|
2,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
614,304
|
|
|
|
600,251
|
|
|
|
Less: Accumulated depreciation and amortization
|
|
|
434,638
|
|
|
|
406,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
$
|
179,666
|
|
|
$
|
193,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance and repairs expense was $16.3 million, $15.3 million, and $15.2 million for
the years ended October 31, 2016, 2015 and 2014, respectively. Asset impairment charges were $0.8 million, $1.6 million and $0.3 million for the years ended October 31, 2016, 2015 and 2014, respectively. Included in the
charge for fiscal 2016 and 2015 is $0.7 million and $1.2 million, respectively, related to the poor performance of a new machine.
100
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Changes in the carrying amount of intangible assets during the years ended October 31, 2016, 2015 and 2014 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade names
|
|
|
Leasehold
Interests
|
|
|
Customer
relationships
|
|
|
Total
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
Balance at October 31, 2013
|
|
$
|
687
|
|
|
$
|
(11
|
)
|
|
$
|
3,842
|
|
|
$
|
4,518
|
|
Amortization
|
|
|
(137
|
)
|
|
|
6
|
|
|
|
(387
|
)
|
|
|
(518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2014
|
|
|
550
|
|
|
|
(5
|
)
|
|
|
3,455
|
|
|
|
4,000
|
|
Amortization
|
|
|
(137
|
)
|
|
|
5
|
|
|
|
(387
|
)
|
|
|
(519
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2015
|
|
|
413
|
|
|
|
|
|
|
|
3,068
|
|
|
|
3,481
|
|
Amortization
|
|
|
(137
|
)
|
|
|
|
|
|
|
(387
|
)
|
|
|
(524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at October 31, 2016
|
|
$
|
276
|
|
|
$
|
|
|
|
$
|
2,681
|
|
|
$
|
2,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average amortization periods over a straight-line basis are as follows:
|
|
|
|
|
|
|
In Years
|
|
Trade names
|
|
|
9
|
|
Customer relationships
|
|
|
12
|
|
Leasehold Interest
|
|
|
7
|
|
The estimated future amortization expense during each of the next five fiscal years is as follows:
|
|
|
|
|
For the fiscal year ending October 31,
|
|
(in thousands)
|
|
2017
|
|
$
|
479
|
|
2018
|
|
|
479
|
|
2019
|
|
|
397
|
|
2020
|
|
|
397
|
|
2021
|
|
|
397
|
|
Thereafter
|
|
|
808
|
|
|
|
|
|
|
Total estimated future amortization expense
|
|
$
|
2,957
|
|
|
|
|
|
|
101
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At
October 31, 2016 and 2015, accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Payroll and employee related
|
|
$
|
16,021
|
|
|
$
|
12,799
|
|
Customer rebates
|
|
|
10,141
|
|
|
|
8,952
|
|
Interest
|
|
|
461
|
|
|
|
688
|
|
Accrued income taxes
|
|
|
3,090
|
|
|
|
3,326
|
|
Accrual for performance units
|
|
|
6,947
|
|
|
|
5,451
|
|
Other(A)
|
|
|
12,928
|
|
|
|
9,179
|
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
$
|
49,588
|
|
|
$
|
40,395
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
No individual item exceeded 5% of current liabilities.
|
A summary of the
components of debt is as follows:
|
|
|
|
|
|
|
|
|
|
|
October 31,
2016
|
|
|
October 31,
2015
|
|
|
|
(in thousands)
|
|
Credit facility(a)
|
|
$
|
1,300
|
|
|
$
|
|
|
8.25% senior notes due 2019 (net of debt issuance costs of $938 and $2,111 at October 31, 2016 and 2015,
respectively)(b)
|
|
|
124,062
|
|
|
|
197,889
|
|
Pennsylvania industrial loan(c)
|
|
|
|
|
|
|
879
|
|
Mortgage loan note(d)
|
|
|
2,843
|
|
|
|
2,974
|
|
Capital leases(e)
|
|
|
7,320
|
|
|
|
9,573
|
|
Foreign bank borrowings(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
135,525
|
|
|
|
211,315
|
|
Less: current portion
|
|
|
2,400
|
|
|
|
2,475
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
133,125
|
|
|
$
|
208,840
|
|
|
|
|
|
|
|
|
|
|
(a) Credit facility
The Company is party to the Second Amended and
Restated Loan and Security Agreement (the base credit facility), dated February 22, 2012, with Wells Fargo Bank National Association (Wells Fargo), successor to Wachovia Bank N.A., as a lender thereunder and as agent for
the secured parties thereunder. On January 29, 2016, the Company entered into Amendment No. 2 to Second Amended and Restated Loan and Security Agreement with Wells Fargo, as agent and lender, and the other financial institution party
thereto, as lender (Amendment No. 2), which amended the base credit facility. On September 13, 2016, the Company entered into Amendment No. 3 to Second Amended and Restated Loan and Security Agreement with Wells Fargo, as
agent and lender, and the other financial institution party thereto, as lender (Amendment No. 3), which further amended the base credit facility. As used herein credit facility refers to the base credit facility or as
amended by Amendment No. 2 or Amendment No. 3 as the context requires. The maximum borrowing amount remains the same
102
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
at $150.0 million with a maximum for letters of credit of $20.0 million. The maturity date of the credit facility was extended from February 21, 2017 to February 1, 2019.
Amendment No. 2 permits the Companys sale to receivables purchasers of certain accounts (and all proceeds,
supporting obligations and ancillary rights with respect to such accounts) arising from the sales of goods and services, excludes such assets from the borrowing base and permits the release of the lenders liens over such assets (but not the
proceeds therefrom) at the time such assets are sold; provided, among other specified conditions, that the aggregate amount of receivables sold in any month will not exceed 10% of the gross amount of eligible accounts.
Under Amendment No. 3, the agent and lenders consented to the redemption (the Redemption) of up to $75 million
aggregate principal amount of the 8.25% senior notes due 2019, together with accrued and unpaid interest and any premium thereon, and agreed to certain amendments to the credit facility to adjust certain permitted transaction baskets in connection
with the Redemption.
The other terms and conditions of the credit facility, including the terms under which the amounts due
thereunder may be accelerated or increased, were not materially amended by Amendment No. 2 or Amendment No. 3 and remain in full force and effect.
The Company utilizes the credit facility to provide funding for operations and other corporate purposes through daily bank borrowings and/or cash repayments to ensure sufficient operating liquidity and
efficient cash management. The Company had weighted average borrowings under the credit facility of $0.9 million and $25.3 million, with a weighted average interest rate of 3.5% and 2.8% during fiscal 2016 and 2015, respectively. Under the
credit facility, interest rates are based upon the Quarterly Average Excess Availability (as defined in the credit facility) at a margin of the prime rate (defined as the greater of Wells Fargos prime rate and the Federal Funds rate plus 0.5%)
plus 0% to 0.25%, which remains unchanged, or LIBOR plus 1.50% to 2.00%, revised from 1.75% to 2.50% prior to Amendment No. 2.
The Company is obligated to pay a monthly undrawn commitment fee equal to a percentage of the average daily unused portion of the commitments under the credit facility. Amendment No. 2 revised such
fee from 0.375% per annum to (i) 0.375% per annum, if the sum of the average daily balance of loans and letters of credit accommodations in the month are less than 50% of the maximum credit, or (ii) 0.250% per annum, if the sum of the average
daily balance of loans and letters of credit accommodations in the month are 50% or more of the maximum credit.
Borrowings and
letters of credit available under the credit facility are limited to a borrowing base based upon specific advance percentage rates on eligible accounts receivable and inventory, subject, in the case of inventory, to amount limitations. The sum of
the eligible assets at October 31, 2016 and October 31, 2015 supported a borrowing base of $146.9 million $150.0 million, respectively. Availability was reduced by the aggregate amount of letters of credit outstanding totaling
$4.1 million and $2.9 million at October 31, 2016 and October 31, 2015, respectively. Borrowings outstanding under the credit facility were $1.3 million and zero at October 31, 2016 and 2015, respectively. Availability
at October 31, 2016 and October 31, 2015 under the credit facility was $141.5 million and $147.1 million, respectively; however, certain provisions of the Merger Agreement currently restrict the Company from incurring more than
$65 million in total in the ordinary course under the credit facility and the Canadian credit facility without the consent of Berry. The credit facility is secured by liens on most of the Companys domestic assets (other than real property
and equipment) and on 66% of the Companys ownership interest in certain foreign subsidiaries.
103
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The credit facility provides for events of default. If an event of default occurs and is
continuing, amounts due under the credit facility may be accelerated and the commitments to extend credit thereunder terminated, and the rights and remedies of the lenders may be exercised including rights with respect to the collateral securing the
obligations under the credit facility. The credit facility also contains covenants, including, but not limited to, limitations on the incurrence of debt and liens, the disposition and acquisition of assets, and the making of investments and
restricted payments, including the payment of cash dividends. The credit facility has a fixed charge coverage ratio test of 1.0x, which test is triggered when Excess Availability is below $22.5 million for the immediately preceding fiscal
quarter.
In addition, if Excess Availability under the credit facility is less than $25.0 million, a springing cash
dominion is activated and all remittances received from customers in the United States will automatically be applied to repay the balance outstanding. The automatic repayments through the springing cash dominion remain in place until Excess
Availability exceeds $25.0 million, and no other event of default has occurred and is continuing, in each case for 30 consecutive days. Excess Availability under the credit facility ranged from $124.0 million to $145.9 million during
fiscal 2016 and from $86.2 million to $147.1 million during fiscal 2015.
During fiscal year 2016, the Company
incurred and capitalized $0.5 million of fees related to Amendment No. 2. These fees, along with the unamortized fees of $0.3 million paid to the lenders that were party to the base credit facility, are being amortized on a straight
line basis over 36 months, the revised term of the credit facility, and are included in other current assets and other assets on the consolidated balance sheets.
The Company was in compliance with the financial covenants at October 31, 2016 and October 31, 2015.
(b) 8.25% senior notes due 2019
On October 13, 2016, with Board
approval, the Company redeemed $75 million of the $200 million aggregate principal amount of the 8.25% senior notes due 2019 (the 2019 notes). The Company paid a call premium of 2.06% which equated to $1.5 million and is
included in interest expense in the consolidated statement of operations for fiscal 2016. At October 31, 2016 the outstanding principal amount of the 2019 notes was $125 million. In connection with the partial redemption of the 2019 Notes,
the Company
wrote-off
to interest expense $0.6 million of capitalized fees which represents 37.5% of the unamortized capitalized fees at the time of redemption.
The 2019 notes mature on April 15, 2019, and the indenture governing the 2019 notes contains certain customary covenants that, among
other things, limit the Companys ability and the ability of its subsidiaries to incur additional indebtedness, declare or pay dividends, purchase or redeem its capital stock, make investments, sell assets, merge or consolidate, guarantee or
pledge any assets or create liens.
The 2019 notes do not have any sinking fund requirements. If the Company experiences
certain changes in control, it must offer to repurchase all of the 2019 notes at a price equal to 101% of the principal amount, plus accrued and unpaid interest. In addition, if the Company sells certain assets, under certain circumstances, it must
offer to repurchase the 2019 notes pro rata up to a maximum amount equal to the proceeds of such sale at 100% of the principal amount, plus accrued and unpaid interest.
104
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The 2019 notes are redeemable at the option of the Company, in whole or in part, at
certain fixed redemption prices plus accrued and unpaid interest. The 2019 notes are callable on and any time after the following dates at the following redemption prices:
April 15, 2016102.06%
April 15, 2017100.00%.
Interest is paid semi-annually on April 15 and October 15 of each year.
(c) Pennsylvania industrial loan
During fiscal 2016, the Company repaid in full the $0.9 million balance of the amortizing fixed rate 4.75% loan that was due November 1, 2023. This loan was obtained in connection with the
Companys expansion in fiscal 2008 of its Wright Township, Pennsylvania manufacturing facility.
(d) Mortgage loan
note
On July 25, 2012, concurrent with the purchase of the Companys corporate headquarters building in
Montvale, New Jersey, the Company entered into a mortgage loan note (the mortgage note) having a principal amount of $3.4 million with TD Bank, N.A. The mortgage note bears interest at a rate equal to
one-month
LIBOR plus 1.75% and matures on August 1, 2022. Interest is paid monthly. The mortgage note is secured by the Montvale building.
In connection with the mortgage note, the Company also entered into a
ten-year
floating-to-fixed
interest rate swap agreement with TD Bank, N.A. with a notional value of $3.4 million, the original outstanding principal balance on the mortgage note.
The interest rate swap fixes the interest rate at 3.52% per year and matures on July 25, 2022. The fair value of the Companys interest rate swap was immaterial at October 31, 2016 and 2015.
(e) Capital leases
From time to time, the Company enters into capital leases for certain of its machinery and equipment. The interest rates on the capital leases range from 3.5% to 4.5%, with a weighted average interest
rate of 3.7%
.
As a result of the capital lease treatment, the equipment is included as a component of property, plant and equipment in the Companys consolidated balance sheet and is depreciated in accordance with the Companys
depreciation policy.
105
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the terms of the capital leases, the payments are as follows:
|
|
|
|
|
For the years ended October 31,
|
|
Capital
Leases
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
2,495
|
|
2018
|
|
|
2,479
|
|
2019
|
|
|
2,261
|
|
2020
|
|
|
469
|
|
2021
|
|
|
64
|
|
Thereafter
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
7,768
|
|
Less: Amounts representing interest
|
|
|
448
|
|
|
|
|
|
|
Present value of minimum lease payments
|
|
|
7,320
|
|
Less: Current portion of obligations under capital leases
|
|
|
2,264
|
|
|
|
|
|
|
Long-term portion of obligations under capital leases
|
|
$
|
5,056
|
|
|
|
|
|
|
(f) Foreign bank borrowings
In addition to the amounts available under the credit facility, the Company also maintains a secured credit facility at its Canadian
subsidiary, used to support operations, which is generally serviced by local cash flows from operations. There was zero outstanding under this arrangement at October 31, 2016 and October 31, 2015. Availability under the Canadian credit
facility at October 31, 2016 and October 31, 2015 was $5.0 million in Canadian dollars or US$3.7 million and US$3.8 million, respectively.
Principal payments required on all debt outstanding during each of the next five fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
|
|
Debt
|
|
|
Capital
leases
|
|
|
Total
|
|
2017
|
|
$
|
136
|
|
|
$
|
2,264
|
|
|
$
|
2,400
|
|
2018
|
|
|
141
|
|
|
|
2,333
|
|
|
|
2,474
|
|
2019
|
|
|
126,446
|
|
|
|
2,199
|
|
|
|
128,645
|
|
2020
|
|
|
151
|
|
|
|
460
|
|
|
|
611
|
|
2021
|
|
|
157
|
|
|
|
64
|
|
|
|
221
|
|
Thereafter
|
|
|
2,112
|
|
|
|
|
|
|
|
2,112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,143
|
|
|
$
|
7,320
|
|
|
$
|
136,463
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest during fiscal 2016, 2015 and 2014 was $18.5 million, $17.9 million and
$18.5 million, respectively, including $0.3 million, $0.4 million and $0.5 million paid as part of the capitalized leases during fiscal years 2016, 2015 and 2014, respectively.
106
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value
The carrying value and fair value of the Companys fixed rate debt at October 31, 2016 and October 31, 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2016
|
|
|
October 31, 2015
|
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
Carrying Value
|
|
|
Fair Value
|
|
|
|
(in thousands)
|
|
2019 notes
|
|
$
|
125,000
|
|
|
$
|
127,812
|
|
|
$
|
200,000
|
|
|
$
|
206,750
|
|
Debt issuance costs
|
|
|
(938
|
)
|
|
|
N/A
|
|
|
|
(2,111
|
)
|
|
|
N/A
|
|
Mortgage loan note(a)
|
|
|
2,843
|
|
|
|
2,843
|
|
|
|
2,974
|
|
|
|
2,974
|
|
Pennsylvania industrial loans
|
|
|
|
|
|
|
|
|
|
|
879
|
|
|
|
879
|
|
Capital leases
|
|
|
7,320
|
|
|
|
7,320
|
|
|
|
9,573
|
|
|
|
9,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
134,225
|
|
|
$
|
137,975
|
|
|
$
|
211,315
|
|
|
$
|
220,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Company entered into an interest rate swap fixing the variable rate loan to a fixed rate loan at an interest rate of 3.52% per year.
|
The fair value of the 2019 notes is based on quoted market rates (Level 1). The Company derives its fair value estimates of the
Pennsylvania industrial loan, the mortgage note and the capital leases based on observable inputs (Level 2). Observable market inputs used in the calculation of the fair value of the Pennsylvania industrial loan, the mortgage loan note and the
capital leases include evaluating the nature and terms of each instrument, considering prevailing economic and market conditions, and examining the cost of similar debt offered at the balance sheet date. The fair value of the Companys variable
rate debt (credit facility), if any, approximates fair value due to the availability and floating rate for similar instruments.
(9)
|
Pensions and Retirement Savings Plan
|
The Company sponsors defined contribution and defined benefit plans in the United States and in its Canadian subsidiary. Total expense for these plans for fiscal 2016, 2015 and 2014 was $4.0 million,
$3.6 million and $3.8 million, respectively.
401(k) Savings Plan
Employees of the Company in the United States may participate in the AEP Industries Inc. 401(k) Savings Plan (the Plan).
Effective for the fiscal 2006 plan year and thereafter, the Company no longer contributes its shares to the Plan.
Eligible
employees may contribute a portion of their compensation as elective deferrals to their Plan account. The Company makes matching contributions on employees deferrals at the rate of 100% on an employees deferrals up to 3% of the
employees compensation and 50% on an employees deferrals up to the next 2% of the employees compensation; provided, however, that matching contributions are not made for collectively-bargained employees at the Companys
Montgomery, Alabama facility. The Company may also make discretionary contributions to the Plan at a uniform, Company-specified percentage of compensation, for eligible participants. In fiscal 2016, 2015 and 2014, the Company contributed
$3.3 million, $3.1 million and $3.1 million in cash to the Plan in fulfillment of the 2015, 2014 and 2013 contribution requirement, respectively.
107
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9)
|
Pensions and Retirement Savings Plan (Continued)
|
At October 31, 2016, there were 109,551 shares of the Companys common stock
held by the Plan, representing approximately 2% of the total number of shares outstanding. Shares of the Companys common stock credited to each members account under the Plan are voted by the trustee under instructions from each
individual plan member. Shares, for which no instructions are received, along with any unallocated shares held in the Plan, are not voted.
Defined Contribution Plan
The Company sponsors a defined contribution plan
in Canada. The plan covers full time employees of the Companys Canadian facility and provides for a base employer contribution of 4.5% of salary plus an additional matching contribution of 50% of employee contributions up to 5% (for a maximum
employer contribution of 7% of salary). The Companys cash contributions related to this plan for each of the fiscal years ending 2016, 2015 and 2014 totaled $0.2 million.
Defined Benefit Plans
The Company has a defined benefit plan in Canada and a defined benefit plan in the United States. Benefits under these plans are based on specified amounts per year of credited service. The Company funds
these plans in accordance with the funding requirements of local law and regulations.
Effective March 31, 2014, the
Company amended its Alabama Union Employees Pension Plan (Alabama Plan) to freeze additional participant benefit accruals and close the plan to new participants. Benefits under the Alabama Plan are based on years of service and a
plan-specified benefit rate. Additionally, during the fourth quarter of fiscal 2014, the Company terminated employment with certain members of the Alabama Plan and paid each a lump sum payment. Due to the volume of lump sum payments processed during
the 2014 fiscal year, the Company incurred a pension curtailment settlement loss.
The components of the net periodic pension
costs for the Canadian defined benefit plan and the Alabama Plan in fiscal 2016, 2015 and 2014, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Service cost
|
|
$
|
162
|
|
|
$
|
170
|
|
|
$
|
276
|
|
Interest cost
|
|
|
332
|
|
|
|
343
|
|
|
|
388
|
|
Expected return on assets
|
|
|
(380
|
)
|
|
|
(430
|
)
|
|
|
(440
|
)
|
Curtailment, settlement loss
|
|
|
|
|
|
|
|
|
|
|
53
|
|
Amortization of net actuarial loss
|
|
|
38
|
|
|
|
46
|
|
|
|
56
|
|
Amortization of prior service cost
|
|
|
99
|
|
|
|
106
|
|
|
|
119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
251
|
|
|
$
|
235
|
|
|
$
|
452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9)
|
Pensions and Retirement Savings Plan (Continued)
|
The estimated net actuarial loss and prior service cost that will be amortized from
accumulated other comprehensive loss into net periodic pension cost in fiscal 2017 are:
|
|
|
|
|
|
|
(in thousands)
|
|
Amortization of prior service cost
|
|
$
|
99
|
|
Amortization of net actuarial loss
|
|
|
85
|
|
|
|
|
|
|
Total
|
|
$
|
184
|
|
|
|
|
|
|
A reconciliation of the change in benefit obligation, the change in plan assets and the net amount
recognized in the consolidated balance sheets for the Canadian defined benefit plan and the Alabama Plan is shown below (based on an October 31 measurement date):
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
Pension benefit obligation at beginning of year
|
|
$
|
7,743
|
|
|
$
|
8,708
|
|
Service cost
|
|
|
162
|
|
|
|
170
|
|
Interest cost
|
|
|
332
|
|
|
|
343
|
|
Benefit and expense payments
|
|
|
(364
|
)
|
|
|
(554
|
)
|
Actuarial losses (gains)
|
|
|
650
|
|
|
|
(60
|
)
|
Foreign currency exchange rate impact
|
|
|
(142
|
)
|
|
|
(864
|
)
|
|
|
|
|
|
|
|
|
|
Pension benefit obligation at end of year
|
|
|
8,381
|
|
|
|
7,743
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
6,786
|
|
|
|
7,464
|
|
Company contributions
|
|
|
374
|
|
|
|
430
|
|
Benefit and expense payments
|
|
|
(364
|
)
|
|
|
(554
|
)
|
Actual return on plan assets
|
|
|
382
|
|
|
|
332
|
|
Foreign currency exchange rate impact
|
|
|
(145
|
)
|
|
|
(886
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
7,033
|
|
|
|
6,786
|
|
|
|
|
|
|
|
|
|
|
Funded statusconsolidated
|
|
|
(1,348
|
)
|
|
|
(957
|
)
|
|
|
|
|
|
|
|
|
|
Funded statusCanada
|
|
|
(177
|
)
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
Funded statusU.S.
|
|
|
(1,171
|
)
|
|
|
(1,309
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
(1,348
|
)
|
|
|
(1,309
|
)
|
Other assets
|
|
|
|
|
|
|
352
|
|
Amounts recognized in accumulated other comprehensive (loss):
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
(334
|
)
|
|
|
(442
|
)
|
Net actuarial loss
|
|
|
(1,912
|
)
|
|
|
(1,328
|
)
|
Tax effect
|
|
|
645
|
|
|
|
520
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized, after tax
|
|
$
|
(1,601
|
)
|
|
$
|
(1,250
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation
|
|
$
|
8,381
|
|
|
$
|
7,743
|
|
|
|
|
|
|
|
|
|
|
109
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9)
|
Pensions and Retirement Savings Plan (Continued)
|
Investment Policy:
It is the objective of the plan sponsor to maintain an adequate level of diversification to balance market risk, to prudently invest to
preserve capital and to provide sufficient liquidity while maximizing earnings for near-term payments of benefits accrued under the plans and to pay plan administrative expenses. The assumption used for the expected long-term rate of return on plan
assets is based on the long-term expected returns for the investment mix of assets currently in the portfolio. Historical return trends for the various asset classes in the class portfolio are combined with current and anticipated future market
conditions to estimate the rate of return for each class. These rates are then adjusted for anticipated future inflation to determine estimated nominal rates of return for each class. The following table presents the weighted average actual asset
allocations as of October 31, 2016 and 2015 and the target allocation of pension plan assets for fiscal 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
Target
Allocation
|
|
|
|
2016
|
|
|
2015
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
61
|
%
|
|
|
60
|
%
|
Debt securities
|
|
|
36
|
%
|
|
|
33
|
%
|
|
|
37
|
%
|
Cash
|
|
|
4
|
%
|
|
|
6
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
weighted-average
assumptions that were used to determine the
Companys benefit obligations as of the measurement date (October 31) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
Salary progression rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
The discount rates used for the defined benefit plans in Canada and for U.S. are based on high quality
AA-rated
corporate bonds with durations corresponding to the expected durations of the benefit obligations.
The
weighted-average
assumptions that were used to determine the Companys net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Discount rate
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
5
|
%
|
Salary progression rate
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected long-term rate of return on plan assets
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
6
|
%
|
The overall expected long-term rate of return on plan assets is a weighted-average expectation based on
the targeted portfolio composition. Historical experience and current benchmarks are considered to arrive at expected long-term rates of return in each asset category.
The Company expects the following benefit payments to be paid out of the Canada and U.S. plans for the fiscal years indicated. The expected benefit payments are based on the same assumptions used to
110
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(9)
|
Pensions and Retirement Savings Plan (Continued)
|
measure the Companys benefit obligation at October 31, 2016 and include estimated future employee service. The Company does not expect any plan assets to be returned to it during
fiscal 2017. Payments from the pension plan are made from the plan assets.
|
|
|
|
|
|
|
(in thousands)
|
|
2017
|
|
$
|
212
|
|
2018
|
|
|
253
|
|
2019
|
|
|
297
|
|
2020
|
|
|
344
|
|
2021
|
|
|
375
|
|
2022-2026, in the aggregate
|
|
|
2,454
|
|
During fiscal 2017, the Company expects to contribute $0.2 million to its Canada defined benefit
plan and $0.1 million to the U.S. defined benefit plan.
The fair values by category of the plan assets as of
October 31, 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as of
October 31,
2016
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
(Amounts in thousands)
|
|
Cash
|
|
$
|
330
|
|
|
$
|
15
|
|
|
$
|
315
|
|
|
$
|
|
|
Equity securities
|
|
|
4,199
|
|
|
|
674
|
|
|
|
3,525
|
|
|
|
|
|
Fixed income/debt securities
|
|
|
2,471
|
|
|
|
378
|
|
|
|
2,093
|
|
|
|
|
|
Other
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,033
|
|
|
$
|
1,067
|
|
|
$
|
5,966
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair values by category of the plan assets as of October 31, 2015 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
as of
October 31,
2015
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
|
|
|
Significant
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
(Amounts in thousands)
|
|
Cash
|
|
$
|
397
|
|
|
$
|
26
|
|
|
$
|
371
|
|
|
$
|
|
|
Equity securities
|
|
|
4,154
|
|
|
|
668
|
|
|
|
3,486
|
|
|
|
|
|
Fixed income/debt securities
|
|
|
2,203
|
|
|
|
382
|
|
|
|
1,821
|
|
|
|
|
|
Other
|
|
|
32
|
|
|
|
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,786
|
|
|
$
|
1,076
|
|
|
$
|
5,710
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10)
|
Shareholders Equity
|
Share-Based
Compensation
The Company has a
share-based
compensation plan that provides for the granting of stock options, restricted stock, performance units and other awards to officers, directors and key employees of the
111
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Shareholders
|
Equity (Continued)
|
Company. Total share-based compensation expense related to the Companys share-based plans is recorded in the consolidated statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Cost of sales
|
|
$
|
1,866
|
|
|
$
|
1,805
|
|
|
$
|
86
|
|
Selling expense
|
|
|
1,509
|
|
|
|
1,574
|
|
|
|
103
|
|
General and administrative expense
|
|
|
5,442
|
|
|
|
5,024
|
|
|
|
884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,817
|
|
|
$
|
8,403
|
|
|
$
|
1,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shared-Based Plans
At the annual meeting of stockholders of the Company on April 9, 2013, stockholders approved the AEP Industries Inc. 2013 Omnibus Incentive Plan (the 2013 Plan). The 2013 Plan provides
for the award to
non-employee
directors and key employees of the Company of options, restricted stock, restricted stock units, stock appreciation rights, performance awards (which may take the form of
performance units or performance shares) and other awards to acquire up to an aggregate of 375,000 shares of the Companys common stock. These shares of common stock may be made available from authorized but unissued common stock, from treasury
shares or from shares purchased on the open market. The issuance of common stock resulting from the exercise of stock options and settlement of the vesting of performance units (for those employees who elected shares) during fiscal 2016, 2015 and
2014 was made from new shares.
As a result of stockholder approval of the 2013 Plan, all awards of stock and stock unit awards
subsequent to April 9, 2013 have been granted under the 2013 Plan and no new awards have been made after such date under the AEP Industries Inc. 2005 Stock Option Plan (the 2005 Option Plan), which expired in October 2013 except as
to awards previously granted prior to that date. At October 31, 2016, 166,534 shares were available to be issued under the 2013 Plan.
Stock Options
The fair value of options granted is estimated on the date of grant using a
Black-Scholes
options
pricing model. Expected volatilities are calculated based on the historical volatility of the Companys stock. Management monitors stock option exercise and employee termination patterns to estimate forfeitures rates within the valuation model.
Separate groups of employees, including executive officers and directors, that have similar historical exercise behavior are considered separately for valuation purposes. The expected holding period of stock options represents the period of time
that stock options granted are expected to be outstanding. The risk-free interest rate is based on the Treasury note interest rate in effect on the date of grant for the expected term of the stock option.
There were no options granted, forfeited, cancelled or expired during the years ended October 31, 2016, 2015 and 2014.
112
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Shareholders
|
Equity (Continued)
|
The following table summarizes the Companys stock option plan as of
October 31, 2016 and changes during each of the years in the three year period ended October 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
Option
Plan
|
|
|
Weighted
Average
Exercise
Price
per
Option
|
|
|
Option
Price Per
Share
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
$(000)
|
|
Options outstanding at October 31, 2013 (50,846 options exercisable)
|
|
|
72,446
|
|
|
$
|
29.62
|
|
|
$
|
17.07-42.60
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at October 31, 2014 (61,646 options exercisable)
|
|
|
72,446
|
|
|
$
|
29.62
|
|
|
$
|
17.07-42.60
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(16,446
|
)
|
|
$
|
28.40
|
|
|
$
|
17.07-42.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at October 31, 2015 (50,400 options exercisable)
|
|
|
56,000
|
|
|
$
|
29.98
|
|
|
$
|
17.07-42.60
|
|
|
|
3.7
|
|
|
$
|
2,801
|
|
Exercised
|
|
|
(7,200
|
)(a)
|
|
$
|
33.81
|
|
|
$
|
33.67-33.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at
October 31, 2016
|
|
|
48,800
|
|
|
$
|
29.41
|
|
|
$
|
17.07-42.60
|
|
|
|
3.0
|
|
|
$
|
3,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at October 31, 2016
|
|
|
48,800
|
|
|
$
|
29.41
|
|
|
|
|
|
|
|
3.0
|
|
|
$
|
3,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at October 31, 2016
|
|
|
46,800
|
|
|
$
|
29.23
|
|
|
|
|
|
|
|
2.9
|
|
|
$
|
3,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Includes 2,000 options exercised at an exercise price of $33.84 per option and 1,200 options exercised at an exercise price of $33.67 per option for which an aggregate
of 1,293 shares of common stock of the Company were tendered to the Company by the holders of the stock options for the payment of the exercise price of these options.
|
The table below presents information related to stock option activity for the years ended October 31, 2016, 2015 and 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Total intrinsic value of stock options exercised
|
|
$
|
314
|
|
|
$
|
439
|
|
|
$
|
|
|
Total fair value of stock options vested
|
|
$
|
54
|
|
|
$
|
80
|
|
|
$
|
155
|
|
The fair value of the options, less expected forfeitures, is amortized over five years on a straight-line
basis.
Share-based
compensation expense related to the Companys stock options recorded in the consolidated statements of operations for the years ended October 31, 2016, 2015 and 2014 was
approximately $41,000, $65,000 and $96,000, respectively. No compensation cost related to stock options was capitalized in inventory or any other assets for the years ended October 31, 2016, 2015 and 2014, respectively. For fiscal 2016 and
2015, there was zero and $1.1 million in excess tax benefits
113
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Shareholders
|
Equity (Continued)
|
recognized resulting from
share-based
compensation awards which reduced taxes otherwise payable. The excess benefit was recorded as additional paid in
capital at October 31, 2015.
As of October 31, 2016, there was $13,000 of total unrecognized compensation cost
related to
non-vested
stock options granted under the plans. That cost is expected to be recognized over a
weighted-average
period of 0.4 years.
Non-vested
Stock Options
A summary of the Companys
non-vested
stock options at October 31, 2016 and changes
during fiscal 2016 are presented below:
|
|
|
|
|
|
|
|
|
Non-vested
stock options
|
|
Shares
|
|
|
Weighted Average
Grant Date Fair
Value
|
|
Non-vested
at October 31, 2015
|
|
|
5,600
|
|
|
$
|
15.33
|
|
Vested
|
|
|
(3,600
|
)
|
|
$
|
15.08
|
|
|
|
|
|
|
|
|
|
|
Non-vested
at October 31, 2016
|
|
|
2,000
|
|
|
$
|
15.79
|
|
|
|
|
|
|
|
|
|
|
Performance Units
The 2013 Plan provides for, and the 2005 Option Plan provided for, the granting of Board approved performance units (Units). Outstanding Units are subject to forfeiture based on an annual
adjusted EBITDA performance goal, as determined and adjusted by the Board. If the Companys adjusted EBITDA equals or exceeds the performance goal, no Units will be forfeited. If the Companys adjusted EBITDA is between 80% and less than
100% of the performance goal, such employee will forfeit such number of Units equal to (a) the Units granted multiplied by (b) the percentage adjusted EBITDA is less than the performance goal. If adjusted EBITDA is below 80% of the
performance goal, the employee will forfeit all Units. Subsequent to the satisfaction of the performance goal, the vesting of the Units will occur equally over five years on the first through the fifth anniversaries of the grant date, provided that
such person continues to be employed by the Company on such respective dates. For each Unit, upon vesting and the satisfaction of any required tax withholding obligation, the employee has the option to receive one share of the Companys common
stock, the equivalent cash value or a combination of both.
For Units granted under the 2005 Option Plan, the Units will
immediately vest in the event of (1) the death of an employee, (2) the permanent disability of an employee (within the meaning of the Internal Revenue Code of 1986, as amended) or (3) a termination of employment due to the disposition
of any asset, division, subsidiary, business unit, product line or group of the Company or any of its affiliates. In the case of any other termination, any unvested performance units will be forfeited. Notwithstanding the foregoing, the Compensation
Committee retains discretionary authority at any time, including immediately prior to or upon a change of control, to accelerate the vesting of any award.
For Units granted under the 2013 Plan, if a participant dies during the performance year, the Compensation Committee has the discretion to waive all or a portion of the performance conditions of the Units
and any earned Units will be fully vested. If a participant dies after the end of the performance year, all earned Units will become immediately vested upon death. If a participant is terminated for disability during the performance year, the
Compensation Committee has the discretion to waive all or a
114
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Shareholders
|
Equity (Continued)
|
portion of the performance conditions of the Units and to waive all or a portion of the vesting conditions. If a participant is terminated for disability after the performance year, the
Compensation Committee has the discretion to waive all or a portion of the vesting conditions. If a participant retires or is terminated by the Company without cause (each as defined in the 2013 Plan) during the performance year, the Compensation
Committee has the discretion to permit the participant to receive a pro rata portion of the earned Units based on the Companys actual performance at the end of the performance year, and has the discretion to waive all or a portion of the
vesting conditions. If a participant retires or is terminated by the Company without cause after the performance year, the Compensation Committee has the discretion to waive all or a portion of the vesting conditions. In the event of a change in
control (as defined in the 2013 Plan) or immediately prior to such event during the performance year, the Compensation Committee has the discretion to permit the participant to receive a pro rata portion of the earned Units based on a calculation
specified in the award agreement and to waive all or a portion of the vesting conditions. In the event of a change in control (as defined in the 2013 Plan) or immediately prior to such event after the performance year, the Compensation Committee has
the discretion to waive all or a portion of the vesting conditions. Upon the occurrence of any other termination of service, any unearned or unvested Units will be forfeited.
Total
share-based
compensation expense related to the Units was $8.5 million, $8.1 million and $0.7 million for the years ended October 31,
2016, 2015 and 2014, respectively. During the year ended October 31, 2016, the Company paid $3.5 million in cash and issued 860 shares of its common stock, in each case net of withholdings, in settlement of the vesting of Units occurring
during fiscal 2016. During the year ended October 31, 2015, the Company paid $1.6 million in cash and issued 867 shares of its common stock, in each case net of withholdings, in settlement of the vesting of the Units occurring during
fiscal 2015. During the year ended October 31, 2014, the Company paid $2.4 million in cash and issued 1,067 shares of its common stock, in each case net of withholdings, in settlement of the vesting of Units occurring during fiscal 2014.
At October 31, 2016 and October 31, 2015, there was $6.9 million and $5.5 million in accrued expenses and $5.6 million and $4.3 million in long-term liabilities, respectively, related to outstanding Units.
115
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Shareholders
|
Equity (Continued)
|
The following table summarizes the Units as of October 31, 2016 and changes during
each of the three year periods ended October 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
Option
Plan
|
|
|
2013
Option
Plan
|
|
|
Total
Number
Of Units
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
$(000)
|
|
Units outstanding at October 31, 2013
|
|
|
204,161
|
|
|
|
|
|
|
|
204,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units granted
|
|
|
|
|
|
|
52,896
|
(a)
|
|
|
52,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units exercised
|
|
|
(73,650
|
)
|
|
|
|
|
|
|
(73,650
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
3,890
|
|
Units forfeited or cancelled
|
|
|
(1,200
|
)
|
|
|
(52,896
|
)(a)
|
|
|
(54,096
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units outstanding at October 31, 2014
|
|
|
129,311
|
|
|
|
|
|
|
|
129,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units granted
|
|
|
|
|
|
|
148,497
|
(b)
|
|
|
148,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units exercised
|
|
|
(44,209
|
)
|
|
|
|
|
|
|
(44,209
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
2,454
|
|
Units forfeited or cancelled
|
|
|
(2,000
|
)
|
|
|
(3,000
|
)
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units outstanding at October 31, 2015
|
|
|
83,102
|
|
|
|
145,497
|
|
|
|
228,599
|
|
|
|
|
|
|
|
1.6
|
|
|
$
|
18,288
|
|
Units granted
|
|
|
|
|
|
|
43,571
|
(c)
|
|
|
43,571
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
Units exercised
|
|
|
(43,016
|
)
|
|
|
(32,057
|
)
|
|
|
(75,073
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
5,820
|
|
Units forfeited or cancelled
|
|
|
(600
|
)
|
|
|
(2,000
|
)
|
|
|
(2,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units outstanding at October 31, 2016
|
|
|
39,486
|
|
|
|
155,011
|
|
|
|
194,497
|
|
|
$
|
0.00
|
|
|
|
1.5
|
|
|
$
|
21,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at October 31, 2016
|
|
|
39,486
|
|
|
|
149,011
|
|
|
|
188,497
|
|
|
$
|
0.00
|
|
|
|
1.5
|
|
|
$
|
20,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at October 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.00
|
|
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
The Units in fiscal 2014 were forfeited in their entirety because the Company did not achieve at least 80% of the Adjusted EBITDA performance goal in such fiscal year.
|
(b)
|
More than 100% of the fiscal 2015 Adjusted EBITDA goal was achieved.
|
(c)
|
More than 100% of the fiscal 2016 Adjusted EBITDA goal was achieved.
|
Restricted Stock
Each
non-employee
director receives an annual restricted stock award with a grant date fair value of $55,000 under the 2013 Plan (4,380 shares, 4,745 shares and 7,575 shares granted, in aggregate, on April 12,
2016, April 14, 2015 and April 8, 2014, respectively). During the
one-year
restricted period, the restricted stock entitles the participant to all of the rights of a stockholder, including the right
to vote the shares and the right to receive any dividends thereon. Prior to the end of the restricted period, restricted stock generally may not be sold, assigned, pledged, or otherwise disposed of or hypothecated by participants.
116
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Shareholders
|
Equity (Continued)
|
The share-based compensation expense associated with the restricted stock is based on
the quoted market price of the Companys common stock on the date of grant. The Company recognizes share-based compensation associated with the restricted stock on a straight-line basis over the term which is one year. Total share-based
compensation expense related to the restricted stock recorded in the consolidated statements of operations for each of the years ended October 31, 2016, 2015 and 2014 was $0.3 million. As of October 31, 2016, there was
$0.1 million of total unrecognized compensation cost related to restricted stock. That cost is expected to be recognized over five months.
Treasury Shares
In
February 2014, the Companys Board of Directors authorized a stock repurchase program (the February 2014 Stock Repurchase Program) under which the Company could purchase up to $10.0 million of the Companys common stock.
On April 8, 2014, the Board approved an increase of $10.0 million to the February 2014 Stock Repurchase Program. Repurchases could be made in the open market, in privately negotiated transactions or by other means, from time to time,
subject to market conditions, applicable legal requirements and other factors, including the limitations set forth in the Companys debt covenants and the Merger Agreement.
During fiscal 2014, the Company repurchased 529,312 shares of common stock at an average cost of $37.76 per share, totaling
$20.0 million. Following such transactions, there is no amount available for repurchases under the Companys February 2014 Stock Repurchase Program.
Treatment of Equity Awards in Merger Agreement
The Merger Agreement
provides for specified treatment of the outstanding options, restricted stock and performance units in connection with the consummation of the Integrated Mergers.
Preferred Shares
The Board may direct the issuance of up to one million
shares of the Companys $1.00 par value Preferred Stock and may, at the time of issuance, determine the rights, preferences and limitations of each series.
Stockholder Rights Plan
The Company has a stockholder
rights plan (the Rights Plan), which entitles the holders of the rights to purchase from the Company
1/1,000
th
of a share of Series A Junior Participating
Preferred Stock, par value $1.00 per share, at a purchase price of $330.00 per share, as adjusted (a Right), upon certain trigger events. Each 1/1,000
th
of a share of Series A Junior Participating Preferred Stock has terms that are substantially the economic and voting
equivalent of one share of the Companys common stock. However, until a Right is exercised or exchanged in accordance with the provisions of the Rights Plan, the holder thereof will have no rights as a stockholder of the Company. The
Rights Plan has a three-year term ending March 31, 2017 and the Board may terminate the Rights Plan at any time (subject to the redemption of the Rights for a nominal value). The Rights may cause substantial dilution to a person or group
(together with all affiliates and associates of such person or group and any person or group of persons acting in concert therewith) that acquires beneficial ownership of 10% or more of the Companys stock on terms not approved by the Board or
that takes other specified actions. On August 24, 2016, in connection with the execution of the Merger Agreement, the Company and
117
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(10) Shareholders
|
Equity (Continued)
|
American Stock Transfer & Trust Company, LLC, as rights agent, entered into Amendment No. 3 to the Rights Plan, which permits the execution of the Merger Agreement and the
performance and consummation of the transactions contemplated by the Merger Agreement, including the Integrated Mergers, without triggering the provisions of the Rights Plan and provides for the expiration of the Rights Plan immediately prior to the
effective time of the Integrated Mergers (but only if the effective time occurs).
The U.S. and
foreign components of income (loss) before (provision) benefit for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
U.S.
|
|
$
|
44,243
|
|
|
$
|
43,171
|
|
|
$
|
(12,403
|
)
|
Foreign
|
|
|
2,279
|
|
|
|
1,074
|
|
|
|
2,963
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,522
|
|
|
$
|
44,245
|
|
|
$
|
(9,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The (provision) benefit for income taxes is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(12,799
|
)
|
|
$
|
(6,646
|
)
|
|
$
|
(108
|
)
|
State
|
|
|
(2,339
|
)
|
|
|
(2,816
|
)
|
|
|
206
|
|
Foreign
|
|
|
(723
|
)
|
|
|
(376
|
)
|
|
|
(952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,861
|
)
|
|
|
(9,838
|
)
|
|
|
(854
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,101
|
)
|
|
|
(6,102
|
)
|
|
|
4,412
|
|
State
|
|
|
301
|
|
|
|
589
|
|
|
|
475
|
|
Foreign
|
|
|
(59
|
)
|
|
|
(57
|
)
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,859
|
)
|
|
|
(5,570
|
)
|
|
|
4,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total (provision) benefit for income taxes
|
|
$
|
(17,720
|
)
|
|
$
|
(15,408
|
)
|
|
$
|
3,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company has $14.3 million of undistributed earnings from its Canadian subsidiary at
October 31, 2016 after currency translation adjustments. It is anticipated that the balance of these earnings will be remitted in the foreseeable future and the Company has accrued taxes attributable to the repatriation resulting in a net
liability of $7.9 million at October 31, 2016. The net liability or tax cost of the repatriation, other than $0.7 million of withholding taxes, will be offset by available foreign tax credits. Undistributed earnings of the
Companys Canadian subsidiary were $13.0 million at October 31, 2015.
118
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Income
|
Taxes (Continued)
|
The tax effects of significant temporary differences that comprise the deferred tax
assets (liabilities) at October 31, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
(in thousands)
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,709
|
|
|
$
|
1,937
|
|
Inventories
|
|
|
909
|
|
|
|
924
|
|
Alternative minimum tax credits carryforwards
|
|
|
|
|
|
|
3,264
|
|
State net operating loss carryforwards
|
|
|
62
|
|
|
|
716
|
|
Stock based compensation
|
|
|
5,324
|
|
|
|
4,810
|
|
Capital loss carryforwards
|
|
|
23
|
|
|
|
30
|
|
Foreign tax credits carryforwards
|
|
|
7,112
|
|
|
|
7,422
|
|
Other
|
|
|
2,696
|
|
|
|
1,973
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax assets
|
|
|
18,835
|
|
|
|
21,076
|
|
Valuation allowance
|
|
|
(23
|
)
|
|
|
(30
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax asset
|
|
$
|
18,812
|
|
|
$
|
21,046
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
$
|
(23,319
|
)
|
|
$
|
(23,856
|
)
|
Deferred tax liability on undistributed earnings of foreign subsidiary
|
|
|
(7,901
|
)
|
|
|
(7,250
|
)
|
Deferred gain on redemption of senior notes
|
|
|
(761
|
)
|
|
|
(1,187
|
)
|
Basis differences related to acquisitions
|
|
|
(5,275
|
)
|
|
|
(5,275
|
)
|
Other
|
|
|
(1,269
|
)
|
|
|
(1,622
|
)
|
|
|
|
|
|
|
|
|
|
Total gross deferred tax liabilities
|
|
$
|
(38,525
|
)
|
|
$
|
(39,190
|
)
|
|
|
|
|
|
|
|
|
|
Total net deferred tax liabilities
|
|
$
|
(19,713
|
)
|
|
$
|
(18,144
|
)
|
|
|
|
|
|
|
|
|
|
Valuation allowances reduced the deferred tax assets attributable to capital loss carryforwards to an
amount that, based on all available information, is more likely than not to be realized.
Net operating loss carryforwards,
capital loss carryforwards and foreign tax credits, before valuation allowances, at October 31, 2016 expire as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Related Tax
Amount
|
|
|
Deferred Tax
Asset
|
|
|
Expiration Date
|
|
|
(in thousands)
|
|
|
|
Loss carryforwards:
|
|
|
|
|
|
|
|
|
|
|
State net operating loss
|
|
$
|
96
|
|
|
$
|
62
|
|
|
Fiscal 2027
|
Capital loss carryforwards:
|
|
|
|
|
|
|
|
|
|
|
Canada
|
|
$
|
179
|
|
|
$
|
23
|
|
|
Indefinite
|
Tax credit carryforwards:
|
|
|
|
|
|
|
|
|
|
|
Foreign tax credits
|
|
$
|
7,112
|
|
|
$
|
7,112
|
|
|
Fiscal 2025 - 2026
|
119
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Income
|
Taxes (Continued)
|
The benefits of these carryforwards are dependent on the taxable income in those
jurisdictions in which they arose, and accordingly, a valuation allowance has been provided where management has determined that it is more likely than not that the carryforwards will not be utilized. The Company realized $3.4 million in tax
credit carryforwards in fiscal 2016 to reduce its federal income taxes payable for the year. Management believes that the remaining deferred tax assets will more likely than not, net of existing valuation allowances, at October 31, 2016 be
realized, excluding any impact resulting from the Integrated Mergers.
A reconciliation of the (provision) benefit for income
taxes on income (loss) before (provision) benefit for income taxes to that which would be computed at the statutory rate of 35% for each of the fiscal years 2016, 2015 and 2014, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Provision at statutory rate
|
|
$
|
(16,283
|
)
|
|
$
|
(15,486
|
)
|
|
$
|
3,304
|
|
State tax provision, net of federal tax benefit
|
|
|
(1,324
|
)
|
|
|
(1,448
|
)
|
|
|
443
|
|
Differential in the U.S. and Canadian statutory rate
|
|
|
211
|
|
|
|
100
|
|
|
|
275
|
|
Foreign taxes paid and accrued
|
|
|
(147
|
)
|
|
|
(153
|
)
|
|
|
(260
|
)
|
Net permanent adjustments
|
|
|
253
|
|
|
|
1,678
|
|
|
|
|
|
Other, net
|
|
|
(430
|
)
|
|
|
(99
|
)
|
|
|
172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Provision) benefit for income taxes
|
|
$
|
(17,720
|
)
|
|
$
|
(15,408
|
)
|
|
$
|
3,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As with most companies, the Companys income tax returns are periodically audited by domestic and
foreign tax authorities. These audits include questions regarding tax filing positions, including the timing and amount of deductions taken. At any time, multiple tax years are subject to audit by various tax authorities. A number of years may
elapse before a particular tax position, for which a reserve has been established, is audited and fully resolved. When the actual result of a tax settlement differs from the Companys estimated reserve for a tax position, the Company adjusts
the tax contingency reserve and income tax provision.
As of October 31, 2016 and 2015, the Companys liabilities for
unrecognized tax benefits for uncertain tax positions related to certain federal deductions taken for tax purposes and state income taxes, including interest and penalties, were $58,000 and $53,000, respectively, and are included in other long term
liabilities in the consolidated balance sheets. The Company classifies interest and penalties on uncertain tax positions as a component of the provision for income taxes. Interest and penalties recognized in the provision for income taxes were
deminimus during fiscal 2016, 2015 and 2014, respectively.
The Company files income tax returns in the U.S. federal
jurisdiction, sixteen U.S. states and various foreign jurisdictions. Tax years ended October 31, 2015, 2014 and 2013 remain open for U.S. federal taxes and for sixteen states. The Company has one state under current examination for tax years
2012 through 2014 and all other states are no longer subject to examination for years beginning prior to 2012. Additionally, tax years ended October 31, 2013 through 2015, remain open and subject to examination by the governmental agencies in
the Companys foreign jurisdictions, primarily Canada. The Company does not anticipate any adjustments that would have a material adverse effect on its financial condition or results of operations.
120
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(11) Income
|
Taxes (Continued)
|
Cash paid for income taxes during fiscal 2016, 2015 and 2014 was $16.0 million,
$3.6 million and $2.0 million, respectively.
(12) Commitments
|
and Contingencies
|
Operating Lease Commitments:
The Company has lease agreements for several of its facilities and certain of its equipment expiring at various dates through July 31, 2025. Rental expense under all leases was $8.6 million,
$8.3 million and $8.1 million for fiscal 2016, 2015 and 2014, respectively. Rental income under all
non-cancellable
subleases was immaterial for each of the three fiscal years ended October 31,
2016.
Under the terms of noncancellable operating leases with terms greater than one year, the minimum rental, excluding the
provision for real estate taxes, is as follows:
|
|
|
|
|
For the years ended October 31,
|
|
Operating
Leases
|
|
2017
|
|
$
|
8,081
|
|
2018
|
|
|
6,901
|
|
2019
|
|
|
5,144
|
|
2020
|
|
|
3,665
|
|
2021
|
|
|
3,050
|
|
Thereafter
|
|
|
6,148
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
32,989
|
|
|
|
|
|
|
Claims and Lawsuits:
The Company and its subsidiaries are subject to claims and lawsuits which arise in the ordinary course of business. On the basis of information presently available and advice received from counsel
representing the Company and its subsidiaries, it is the opinion of management that the disposition or ultimate determination of such claims and lawsuits against the Company will not have a material adverse effect on the Companys financial
condition or results of operations.
Employment Contracts:
The Company has employment agreements with seven of its key employees. Each November 1
st
, these agreements are extended for successive periods of one year,
unless either party gives written notice to the other at least 180 days prior to the expiration of the then current term that it does not wish to extend the agreement beyond the term. The employment agreements also include terms relating to
severance upon termination or a change of control, confidentiality,
non-competition,
non-solicitation
and other customary provisions.
(13) Segment
|
and Geographic Information
|
The Companys operations are conducted within one business segmentthe production, manufacture and distribution of flexible
plastic packaging products, primarily for the food/beverage, industrial and agricultural markets. The Company operates in the United States and Canada.
121
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) Segment
|
and Geographic Information (Continued)
|
Income from operations includes all costs and expenses directly related to the
geographical area, including intercompany interest income and expense. Identifiable assets are those used in the operations of those geographical areas.
Information about the Companys operations by geographical area, with United States and Canada stated separately, as of and for the years ended October 31, 2016, 2015 and 2014, respectively, is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Canada
|
|
|
Total
|
|
|
|
(in thousands)
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Salesexternal customers
|
|
$
|
1,030,603
|
|
|
$
|
65,227
|
|
|
$
|
1,095,830
|
|
Intercompany sales
|
|
|
37,444
|
|
|
|
|
|
|
|
37,444
|
|
Gross profit
|
|
|
179,709
|
|
|
|
10,634
|
|
|
|
190,343
|
|
Operating income
|
|
|
62,441
|
|
|
|
4,066
|
|
|
|
66,507
|
|
Interest income
|
|
|
|
|
|
|
38
|
|
|
|
38
|
|
Interest expense
|
|
|
19,873
|
|
|
|
9
|
|
|
|
19,882
|
|
Depreciation and amortization
|
|
|
29,233
|
|
|
|
243
|
|
|
|
29,476
|
|
Provision for income taxes
|
|
|
(17,085
|
)
|
|
|
(635
|
)
|
|
|
(17,720
|
)
|
Net income
|
|
|
27,158
|
|
|
|
1,644
|
|
|
|
28,802
|
|
Provision for losses on accounts receivable, note receivable
and inventories
|
|
|
348
|
|
|
|
102
|
|
|
|
450
|
|
Geographical area assets
|
|
|
375,534
|
|
|
|
17,097
|
|
|
|
392,631
|
|
Goodwill
|
|
|
3,697
|
|
|
|
3,174
|
|
|
|
6,871
|
|
Capital expenditures
|
|
|
15,868
|
|
|
|
47
|
|
|
|
15,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Canada
|
|
|
Total
|
|
|
|
(in thousands)
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Salesexternal customers
|
|
$
|
1,073,417
|
|
|
$
|
67,974
|
|
|
$
|
1,141,391
|
|
Intercompany sales
|
|
|
39,429
|
|
|
|
|
|
|
|
39,429
|
|
Gross profit
|
|
|
171,589
|
|
|
|
10,073
|
|
|
|
181,662
|
|
Operating income
|
|
|
60,231
|
|
|
|
2,487
|
|
|
|
62,718
|
|
Interest income
|
|
|
32
|
|
|
|
26
|
|
|
|
58
|
|
Interest expense
|
|
|
18,780
|
|
|
|
10
|
|
|
|
18,790
|
|
Depreciation and amortization
|
|
|
31,321
|
|
|
|
246
|
|
|
|
31,567
|
|
Provision for income taxes
|
|
|
(15,128
|
)
|
|
|
(280
|
)
|
|
|
(15,408
|
)
|
Net income
|
|
|
28,043
|
|
|
|
794
|
|
|
|
28,837
|
|
Provision for losses on accounts receivable, note receivable
and inventories
|
|
|
2,099
|
|
|
|
743
|
|
|
|
2,842
|
|
Geographical area assets
|
|
|
413,992
|
|
|
|
24,102
|
|
|
|
438,094
|
|
Goodwill
|
|
|
3,697
|
|
|
|
3,174
|
|
|
|
6,871
|
|
Capital expenditures
|
|
|
11,981
|
|
|
|
205
|
|
|
|
12,186
|
|
122
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(13) Segment
|
and Geographic Information (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
|
Canada
|
|
|
Total
|
|
|
|
(in thousands)
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
Salesexternal customers
|
|
$
|
1,117,404
|
|
|
$
|
75,586
|
|
|
$
|
1,192,990
|
|
Intercompany sales
|
|
|
43,739
|
|
|
|
|
|
|
|
43,739
|
|
Gross profit
|
|
|
109,901
|
|
|
|
12,004
|
|
|
|
121,905
|
|
Operating income
|
|
|
5,448
|
|
|
|
4,413
|
|
|
|
9,861
|
|
Interest income
|
|
|
17
|
|
|
|
67
|
|
|
|
84
|
|
Interest expense
|
|
|
19,557
|
|
|
|
14
|
|
|
|
19,571
|
|
Depreciation and amortization
|
|
|
31,244
|
|
|
|
263
|
|
|
|
31,507
|
|
Benefit (provision) for income taxes
|
|
|
4,725
|
|
|
|
(791
|
)
|
|
|
3,934
|
|
Net (loss) income
|
|
|
(7,678
|
)
|
|
|
2,172
|
|
|
|
(5,506
|
)
|
Provision for losses on accounts receivable
and inventories
|
|
|
2,042
|
|
|
|
81
|
|
|
|
2,123
|
|
Geographical area assets
|
|
|
422,812
|
|
|
|
21,413
|
|
|
|
444,225
|
|
Goodwill
|
|
|
3,697
|
|
|
|
3,174
|
|
|
|
6,871
|
|
Capital expenditures
|
|
|
26,353
|
|
|
|
190
|
|
|
|
26,543
|
|
Net sales by product line are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Custom films
|
|
$
|
334,418
|
|
|
$
|
357,742
|
|
|
$
|
372,204
|
|
Stretch (pallet) wrap
|
|
|
323,876
|
|
|
|
332,857
|
|
|
|
361,067
|
|
Food contact
|
|
|
167,997
|
|
|
|
165,566
|
|
|
|
183,366
|
|
PROformance Films
®
|
|
|
52,270
|
|
|
|
63,158
|
|
|
|
76,698
|
|
Canliners
|
|
|
144,404
|
|
|
|
144,416
|
|
|
|
126,737
|
|
Printed and converted films
|
|
|
29,906
|
|
|
|
30,552
|
|
|
|
25,648
|
|
Other products and specialty films
|
|
|
42,959
|
|
|
|
47,100
|
|
|
|
47,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,095,830
|
|
|
$
|
1,141,391
|
|
|
$
|
1,192,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14) Accumulated
|
Other Comprehensive (Loss) Income
|
The accumulated balances at October 31, related to each component of accumulated other comprehensive loss are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
(in thousands)
|
|
Foreign currency translation adjustments
|
|
$
|
24
|
|
|
$
|
238
|
|
|
$
|
1,400
|
|
Unrecognized prior service cost and actuarial losses related to Canadian and U.S. defined benefit pension plans, net of
tax
|
|
|
(1,601
|
)
|
|
|
(1,250
|
)
|
|
|
(1,541
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accumulated other comprehensive loss
|
|
$
|
(1,577
|
)
|
|
$
|
(1,012
|
)
|
|
$
|
(141
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
123
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(14) Accumulated
|
Other Comprehensive (Loss) Income (Continued)
|
The accumulated other comprehensive loss related to the Companys pension plans is
net of tax benefits of $0.6 million, $0.5 million and $0.6 million at October 31, 2016, 2015 and 2014, respectively.
(15) Related
|
Party Transactions
|
During fiscal 2016, 2015 and 2014, $1,107,513, $42,904 and 71,619, was paid to Skadden, Arps, Slate, Meagher and Flom LLP, one of the
Companys outside legal counsel, in which the brother of the Companys Vice President, Finance and Controller is a partner. At October 31, 2016 and 2015, the Company owed $582,000 and $20,716, respectively, to Skadden, Arps, Slate,
Meagher and Flom LLP.
During fiscal 2016, 2015 and 2014, $88,263, $79,720 and $56,610, was paid to D.E. Smith Corp., a company
owned by the
son-in-law
of the Chief Financial Officer and
brother-in-law
of the Vice
President, Finance and Controller, for the production of the Companys Annual Report and the production of marketing brochures. At October 31, 2016 and 2015, the Company owed zero to D.E. Smith Corp.
During fiscal 2016, 2015 and 2014, the Company sold $916,183, $746,549 and $650,591 of product, respectively, to Allstate Poly in which
the brother of the President and Chief Operating Officer is a partner. At October 31, 2016 and 2015, the Company was owed $188,147 and $152,722 from Allstate Poly, respectively.
(16) Quarterly
|
Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
(in thousands, except per share data)
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
253,553
|
|
|
$
|
273,162
|
|
|
$
|
283,689
|
|
|
$
|
285,426
|
|
Gross profit
|
|
$
|
43,727
|
|
|
$
|
54,082
|
|
|
$
|
46,203
|
|
|
$
|
46,331
|
|
Net income
|
|
$
|
7,895
|
|
|
$
|
13,780
|
(A)
|
|
$
|
6,269
|
|
|
$
|
858
|
(B)
|
Basic Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
1.55
|
|
|
$
|
2.70
|
|
|
$
|
1.23
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
1.54
|
|
|
$
|
2.68
|
|
|
$
|
1.22
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
April 30,
|
|
|
July 31,
|
|
|
October 31,
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
275,439
|
|
|
$
|
285,722
|
|
|
$
|
301,982
|
|
|
$
|
278,248
|
|
Gross profit
|
|
$
|
32,564
|
|
|
$
|
49,816
|
|
|
$
|
48,161
|
|
|
$
|
51,121
|
|
Net income
|
|
$
|
476
|
|
|
$
|
11,128
|
(C)
|
|
$
|
6,567
|
|
|
$
|
10,666
|
(D)
|
Basic Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
0.09
|
|
|
$
|
2.19
|
|
|
$
|
1.29
|
|
|
$
|
2.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Common Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
0.09
|
|
|
$
|
2.18
|
|
|
$
|
1.28
|
|
|
$
|
2.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
AEP INDUSTRIES INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(16) Quarterly
|
Financial Data (Unaudited) (Continued)
|
Earnings per share are computed independently for each of the quarters presented.
(A)
|
Includes $0.7 million asset impairment charge related to the poor performance of a new machine.
|
(B)
|
Includes $4.1 million in transaction costs incurred related to the proposed Integrated Mergers (see Note 3), $1.5 million call premium paid and
write-off
of $0.6 million of capitalized fees related to the early redemption of $75 million of the 8.25% senior notes due 2019 (see Note 8). All amounts before tax.
|
(C)
|
Includes $2.1 million in bad debt expense,
pre-tax,
primarily related to the bankruptcy of customers.
|
(D)
|
Includes a $1.2 million gain on the sale of a warehouse in the Companys Texas facility and a $1.2 million asset impairment charge related to the poor
performance of a new machine. All amounts before tax.
|
125
AEP INDUSTRIES INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
SCHEDULE
II Valuation and Qualifying Accounts
Schedules other than those listed above have been omitted either because the required information is contained in the consolidated
financial statements or notes thereto or because such schedules are not required or applicable.
126