MONTVALE, N.J., Sept. 9, 2016 /PRNewswire/ -- AEP Industries Inc.
(Nasdaq: AEPI) (the "Company" or "AEP") today reported financial
results for its third quarter ended July 31,
2016.
Brendan Barba, Chairman and Chief
Executive Officer of the Company, said, "Our recently announced
acquisition by Berry Plastics is a transformational combination
that will propel our business into its next chapter of growth. We
expect to optimize our complementary production capacities, reduce
material and conversion costs and become better-positioned to serve
our customers. These improvements, together with the significant
expected synergies and other cash flow benefits, are expected to
accelerate value creation for all AEP shareholders and provide
compelling upside for their investment. As we move forward, we will
remain focused on executing on our operating plans and strategy. We
look forward to realizing the significant benefits of this
transaction."
Net sales for the third quarter of fiscal 2016 decreased
$18.3 million, or 6%, to $283.7 million as compared to the third quarter
of fiscal 2015. The decrease in net sales for the third quarter of
fiscal 2016 was the result of a 4% decrease in average selling
prices, primarily due to the pass through of lower resin costs, and
a 2% decrease in sales volume compared to the same period in the
prior fiscal year. Volume in the prior fiscal year third quarter
benefited from customers' buying in to the expected resin price
increase while we believe customers in the current fiscal year
third quarter delayed purchases in anticipation of a decrease in
resin prices.
Net sales for the nine months ended July
31, 2016 decreased $52.7
million, or 6%, to $810.4
million as compared to the same period in the prior fiscal
year. The decrease in net sales for the nine months ended
July 31, 2016 was the result of a 7%
decrease in average selling prices, primarily due to the pass
through of lower resin costs, partially offset by a 2% increase in
sales volume compared to the same period in the prior fiscal year.
Net sales for the three and nine months ended July 31, 2016 included a $0.9 million and $4.5
million, respectively, negative impact of foreign exchange
relating to the Company's Canadian operations.
Gross profit for the third quarter of fiscal 2016 was
$46.2 million, a decrease of
$2.0 million, or 4%, compared to the
same period in the prior fiscal year. Excluding the impact of the
LIFO reserve change of $0.9 million
year-over-year, gross profit decreased $1.1
million as compared to the same period in the prior fiscal
year primarily resulting from a decrease in volumes sold. Excluding
the impact of increasing the LIFO reserve during the third quarter
of fiscal 2016 by approximately $0.02
per pound, gross profit per pound in the third quarter fiscal 2016
was $0.20 per pound.
Gross profit for the nine months of fiscal 2016 was $144.0 million, an increase of $13.5 million, or 10%, compared to the same
period in the prior fiscal year. Excluding the impact of the LIFO
reserve change of $14.9 million
year-over-year, gross profit increased $28.4
million as compared to the same period in the prior fiscal
year primarily resulting from improved material margins and
increased volumes sold. Excluding the impact of LIFO during the
periods, gross profit per pound for the nine months ended
July 31, 2016 was $0.20 per pound as compared to $0.17 per pound in the prior fiscal year
period.
Operating expenses for the third quarter of fiscal 2016 were
$32.4 million, an increase of
$0.1 million, or 0.3%, compared to
the same period in the prior fiscal year primarily due to an
increase in share-based compensation expense associated with the
Company's performance units, partially offset by a decrease in fuel
costs and a decrease in bad debt expense primarily due to a
customer's bankruptcy filing in the prior year period.
Operating expenses for the nine months of fiscal 2016 were
$87.4 million, a decrease of
$0.9 million, or 1%, compared to the
same period in the prior fiscal year primarily due to a decrease in
bad debt expense largely due to customers' bankruptcy filings in
the prior year period and a decrease in fuel costs, partially
offset by an increase in the provision related to employee cash
performance incentives and an increase in share-based compensation
expense associated with the Company's performance units. Operating
expenses for the current period were also positively impacted by
foreign exchange related to the Company's Canadian operations.
Interest expense for the three and nine months ended
July 31, 2016 decreased $0.1 million and $0.6
million, respectively, as compared to the prior year periods
primarily resulting from lower average borrowings under the
Company's U.S. credit facility during the comparable
periods.
Net income for the three months ended July 31, 2016 was $6.3
million, or $1.22 per diluted
share, as compared to net income of $6.6
million, or $1.28 per diluted
share, for the three months ended July 31,
2015. Net income for the nine months ended July 31, 2016 was $27.9
million, or $5.44 per diluted
share, as compared to net income of $18.2
million, or $3.56 per diluted
share, for the nine months ended July 31,
2015.
We added a total of approximately 28 million pounds of custom
film of annual capacity during the third quarter of fiscal 2016
spread across three of the Company's plants. We are in the
process of completing an automation project in our Waxahachie plant
related to the institutional canliners division which we expect
will reduce staffing and increase production efficiencies; positive
effects we expect will be seen in fiscal 2017. We believe these and
similar efforts over the past few years directed at increasing
capacities and improving operating efficiencies have furthered
strengthened our competitiveness.
During the quarter ended July 31,
2016, polyethylene resin costs increased due to temporary
supply disruptions, including planned maintenance activities and
some unexpected operating issues. There is an announced
$0.05 increase in polyethylene resin
prices in the month of September which we believe, due to the
unexpected operating issues, will be effective. We believe such
price increases are temporary and continue to believe that the
addition of significant new polyethylene resin capacity starting at
the end of calendar 2016 will put downward pressure on resin prices
in fiscal 2017.
We believe we continue to maintain a strong balance sheet and
sufficient liquidity to provide us with financial flexibility. As
of July 31, 2016, we had a net debt
position (current bank borrowings plus long term debt less cash and
cash equivalents) of $147.4 million,
compared with $193.3 million at
the end of fiscal 2015. As of September 9,
2016 we have paid $3.8 million
year to date in dividends.
Adjusted EBITDA (defined below) was $28.5
million for the three months ended July 31, 2016 as compared to $27.8 million for the three months ended
July 31, 2015. Adjusted EBITDA for
the nine months ended July 31, 2016
was $85.5 million, as compared to
$57.4 million for the nine months
ended July 31, 2015.
Execution of Merger Agreement with Berry Plastics Group,
Inc.
On August 24, 2016, the Company, Berry Plastics Group, Inc.
(Berry) and certain subsidiaries of Berry entered into an agreement
and plan of merger (the Merger Agreement) pursuant to which Berry
will acquire all of the outstanding shares of the Company in a cash
and stock transaction (the mergers). Each Company shareholder will
elect to receive either $110 in cash
or 2.5011 shares of Berry common stock per Company share in the
transaction, subject to an overall 50/50 proration to ensure that
50% of the total outstanding Company shares are exchanged for the
cash consideration and 50% are exchanged for Berry common stock.
Upon closing, the Company's shareholders would own approximately 5
percent of Berry on a fully diluted basis based on Berry's
outstanding common stock. Berry will apply to list the Berry shares
to be issued on the New York Stock Exchange.
The transaction is subject to the approval of the Company's
shareholders and customary closing conditions, including applicable
regulatory approvals.
Reconciliation of Non-GAAP Measures to GAAP Measure
The Company defines Adjusted EBITDA as net income (loss) before
discontinued operations, interest expense, income taxes,
depreciation and amortization, changes in LIFO reserve, other
non-operating income (expense), net, and share-based compensation
expense (income). The Company believes Adjusted EBITDA is an
important measure of operating performance because it allows
management, investors and others to evaluate and compare its core
operating results, including its return on capital and operating
efficiencies, from period to period by removing the impact of its
capital structure (interest expense from its outstanding debt),
asset base (depreciation and amortization), tax consequences,
changes in LIFO reserve (a non-cash charge/benefit to its
consolidated statements of operations), other non-operating items
and share-based compensation. Furthermore, management uses Adjusted
EBITDA for business planning purposes and to evaluate and price
potential acquisitions. The Company further emphasizes the
importance of Adjusted EBITDA as an operating performance measure
by utilizing a similarly defined metric as the sole performance
measure in its annual bonus plan and performance unit program. In
addition to its use by management, the Company also believes
Adjusted EBITDA is a measure widely used by securities analysts,
investors and others to evaluate the financial performance of the
Company and other companies in the plastic films industry. Other
companies may calculate Adjusted EBITDA differently, and therefore
the Company's Adjusted EBITDA may not be comparable to similarly
titled measures of other companies.
Adjusted EBITDA is not a measure of financial performance under
U.S. generally accepted accounting principles (GAAP), and should
not be considered in isolation or as an alternative to net income
(loss), cash flows from operating activities and other measures
determined in accordance with GAAP. Items excluded from Adjusted
EBITDA are significant and necessary components to the operations
of the Company's business, and, therefore, Adjusted EBITDA should
only be used as a supplemental measure of the Company's operating
performance.
The following is a reconciliation of the Company's net income,
the most directly comparable GAAP financial measure, to Adjusted
EBITDA:
|
Third
Quarter
|
Third
Quarter
|
July YTD
|
July YTD
|
|
Fiscal
2016
|
Fiscal
2015
|
Fiscal
2016
|
Fiscal
2015
|
|
(in
thousands)
|
|
|
Net
income
|
$ 6,269
|
$ 6,567
|
$ 27,944
|
$ 18,171
|
Provision for
taxes
|
3,239
|
4,814
|
14,858
|
10,048
|
Interest expense
|
4,513
|
4,617
|
13,625
|
14,252
|
Depreciation and
amortization expense
|
7,369
|
7,418
|
22,054
|
24,148
|
Increase (decrease) in LIFO
reserve
|
4,492
|
3,613
|
2,598
|
(12,348)
|
Other non-operating (income)
expense, net
|
(250)
|
(163)
|
229
|
(220)
|
Share-based
compensation
|
2,894
|
911
|
4,191
|
3,328
|
Adjusted EBITDA
|
$
28,526
|
$
27,777
|
$
85,499
|
$
57,379
|
AEP Industries Inc. manufactures, markets, and distributes an
extensive range of flexible plastic packaging products for the
consumer, industrial and agricultural markets. The Company has
manufacturing operations in the United
States and Canada.
Certain statements in this release are forward-looking
statements that are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are statements that do not relate to
historical information or current facts, which in this report
include statements about the Company's outlook for sales volume,
resin pricing, future cost reductions, other expectations regarding
future growth or financial performance, and anticipated benefits
and closing date of the mergers. Forward-looking statements involve
known and unknown risks and uncertainties which may cause the
Company's actual results in future periods to differ materially
from forecasted results. Those risks include, but are not limited
to, the timing and completion, in part or full, of the significant
capacity increase by North American resin producers in future years
and its impact on future resin pricing; the ability to manage resin
price volatility, including passing raw material price increases to
customers in full or in a timely fashion; delayed purchases by
certain customers during periods when resin prices are expected to
decrease in the near term; the availability of raw materials;
competition in existing and future markets; disruptions in the
global economic and financial market environment; resin price
reductions leading to the utilization of LIFO reserves and
resulting in the payment of additional taxes in cash; limited
contractual relationships with customers; the Board's discretion to
pay future dividends; future cash flows, liquidity, contractual and
legal restrictions related thereto; that the mergers with Berry may
not be consummated in a timely manner or at all; the failure to
complete the mergers could negatively impact the stock price and
the future business and financial results of the Company; that the
definitive Merger Agreement may be terminated in circumstances that
require the Company to pay Berry a termination fee of $20 million and/or reimbursement of its expenses
of up to $5 million; the diversion of
management's attention from the Company's ongoing business
operations to the closing of the mergers; the failure of the
Company to obtain the requisite consents to the mergers, including
the receipt of approval of the Company's stockholders, the timing
(including possible delays) and receipt of regulatory approvals
from governmental entities (including any conditions, limitations
or restrictions placed on these approvals) and the risk that one or
more governmental entities may deny approval; the effect of the
announcement of the mergers on the Company's business relationships
(including, without limitation, customers and suppliers), operating
results and business generally. Those and other risks are described
in the Company's annual report on Form 10-K for the fiscal year
ended October 31, 2015 and subsequent
reports filed with the Securities and Exchange Commission (SEC),
copies of which are available from the SEC or may be obtained from
the Company. Except as required by law, the Company assumes no
obligation to update the forward-looking statements, which are made
as of the date hereof, even if new information becomes available in
the future.
AEP
INDUSTRIES INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands,
except per share data)
|
|
|
For the Three Months Ended
July 31,
|
For the Nine Months Ended
July 31,
|
|
2016
|
2015
|
2016
|
2015
|
NET SALES
|
$283,689
|
$301,982
|
$810,404
|
$863,143
|
COST OF
SALES
|
237,486
|
253,821
|
666,392
|
732,602
|
Gross
profit
|
46,203
|
48,161
|
144,012
|
130,541
|
OPERATING
EXPENSES:
|
|
|
|
|
Delivery
|
12,696
|
13,863
|
35,278
|
37,454
|
Selling
|
10,170
|
10,204
|
28,485
|
27,957
|
General and
administrative
|
9,566
|
8,259
|
23,593
|
22,879
|
Total operating
expenses
|
32,432
|
32,326
|
87,356
|
88,290
|
Operating
income
|
13,771
|
15,835
|
56,656
|
42,251
|
OTHER (EXPENSE)
INCOME:
|
|
|
|
|
Interest
expense
|
(4,513)
|
(4,617)
|
(13,625)
|
(14,252)
|
Other, net
|
250
|
163
|
(229)
|
220
|
Income before
provision for income taxes
|
9,508
|
11,381
|
42,802
|
28,219
|
PROVISION FOR INCOME
TAXES
|
(3,239)
|
(4,814)
|
(14,858)
|
(10,048)
|
Net income
|
$6,269
|
$6,567
|
$27,944
|
18,171
|
BASIC EARNINGS PER
COMMON SHARE:
|
|
|
|
|
Net income per common
share
|
$1.23
|
$1.29
|
$5.47
|
$3.57
|
DILUTED EARNINGS PER
COMMON SHARE:
|
|
|
|
|
Net income per common
share
|
$1.22
|
$1.28
|
$5.44
|
$3.56
|
CASH DIVIDEND
DECLARED PER COMMON SHARE
|
$0.25
|
—
|
$0.75
|
—
|
No Offer or Solicitation
This communication is not intended to and does not constitute an
offer to sell or the solicitation of an offer to buy, sell or
solicit any securities or any proxy, vote or approval, nor shall
there be any sale of securities in any jurisdiction in which such
offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such
jurisdiction. No offer of securities shall be deemed to
be made except by means of a prospectus meeting the requirements of
Section 10 of the Securities Act of 1933, as amended. In
connection with the proposed transaction, Berry expects to prepare
and file with the SEC a registration statement on Form S-4
containing a proxy statement/prospectus and other documents with
respect to Berry's proposed acquisition of
AEP. Investors are urged to read the proxy
statement/prospectus (including all amendments and supplements
thereto) and other relevant documents filed with the SEC if and
when they become available because they will contain important
information about the proposed transaction.
Additional Information and Where to Find It
Investors may obtain free copies of the registration statement,
the proxy statement/prospectus and other relevant documents filed
by Berry and AEP with the SEC (when and if they become available)
through the website maintained by the SEC at www.sec.gov. Copies of
the documents filed by Berry with the SEC will also be available
free of charge on Berry's website at www.berryplastics.com or by
contacting Dustin Stilwell,
Head-Investor Relations, Berry Plastics Group, Inc., 101 Oakley
Street, PO Box 959, Evansville,
Indiana 47710, (812) 306-2964, ir@berryplastics.com. Copies
of the documents filed by AEP with the SEC are available free of
charge on AEP's website at www.aepinc.com or by contacting
Paul M. Feeney, Executive Vice
President, Finance and Chief Financial Officer, AEP Industries
Inc., 95 Chestnut Ridge Road, Montvale,
New Jersey 07645, (201) 807-2330, feeneyp@aepinc.com.
Participants in Solicitation Relating to the Merger
Berry, AEP and their respective directors and executive officers
may be deemed to be participants in the solicitation of proxies
from AEP's shareholders in respect of the proposed transaction.
Investors may obtain information regarding the names, affiliations
and interests of Berry's directors and executive officers in
Berry's Annual Report on Form 10-K for the year ended September 26, 2015, which was filed with the SEC
on November 23, 2015, and its proxy
statement for its 2016 Annual Meeting, which was filed with the SEC
on January 20, 2016. Investors may
obtain information regarding the names, affiliations and interests
of AEP's directors and executive officers in AEP's Annual Report on
Form 10-K for the year ended October 31,
2015, which was filed with the SEC on January 14, 2016, and its proxy statement for its
2016 Annual Meeting, which was filed with the SEC on February 25, 2016. Additional information
regarding the interests of such participants will be included in
the proxy statement/prospectus and other relevant documents filed
with the SEC in connection with the proposed transaction if and
when they become available. These documents are available free of
charge on the SEC's website and from Berry and AEP, as applicable,
using the sources indicated above.
Contact:
Paul M.
Feeney
Executive Vice President, Finance
and Chief Financial Officer
AEP Industries Inc.
(201) 807-2330
feeneyp@aepinc.com
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SOURCE AEP Industries Inc.