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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File Number 0-7163
AMERICAN FILTRONA CORPORATION
(Registrant)
Virginia 54-0574583
(State of incorporation) (I.R.S. employer
identification no.)
3951 WESTERRE PARKWAY, SUITE 300
RICHMOND, VIRGINIA 23233
(Executive offices) (Zip code)
Registrant's telephone number: 804-346-2400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days. Yes. X No.
Number of shares of common stock outstanding as of May 6, 1997: 3,816,629
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<PAGE>
AMERICAN FILTRONA CORPORATION
INDEX
Page No.
--------
Part I. Financial Information
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statement of Income 4
Condensed Consolidated Statement of Cash Flows 5
Notes to Condensed Consolidated Financial
Statements 5
Management's Discussion and Analysis of
Financial Statements 6
Part II. Other Information 7
Signatures 7
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PART I. FINANCIAL INFORMATION
AMERICAN FILTRONA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
ASSETS
<S> <C>
Current assets
Cash and equivalents $ 44,197,689 $ 43,267,438
Accounts receivable 21,048,142 17,573,501
Inventories 18,293,910 18,621,047
Prepaid expenses and deferred income taxes 3,243,314 2,889,743
------------ ------------
Total current assets 86,783,055 82,351,729
Property, plant and equipment 27,073,032 27,699,964
Other assets
Excess cost over net assets of businesses acquired 4,585,196 4,692,821
Notes receivable 2,434,843 2,434,843
Other assets 354,376 374,536
------------ ------------
7,374,415 7,502,200
------------ ------------
$121,230,502 $117,553,893
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 14,469,086 $ 15,342,954
Accrued expenses 5,047,745 5,165,485
Income taxes 2,824,969 1,367,795
------------ ------------
Total current liabilities 22,341,800 21,876,234
Other liabilities
Deferred income taxes 1,046,647 516,417
Other liabilities 354,191 1,764,276
------------ ------------
1,400,838 2,280,693
Shareholders' equity
Common stock, $1 par value 3,816,629 3,754,758
Additional capital 2,542,910 926,673
Retained earnings 92,238,150 89,703,400
Cumulative translation adjustment (1,109,825) (987,865)
------------ ------------
97,487,864 93,396,966
------------ ------------
$121,230,502 $117,553,893
============ ============
</TABLE>
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AMERICAN FILTRONA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Three-Month Periods Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Revenues
Net sales $52,966,728 $47,700,214
Investment income 368,431 329,985
----------- -----------
53,335,159 48,030,199
Costs and expenses
Cost of products sold 41,784,987 38,459,662
Selling, research,
administrative and
general 5,896,761 5,187,476
----------- -----------
47,681,748 43,647,138
----------- -----------
Income before income taxes 5,653,411 4,383,061
Income taxes 2,050,000 1,550,000
----------- -----------
Net income $ 3,603,411 $ 2,833,061
=========== ===========
Average shares outstanding 3,805,358 3,737,391
Earnings per share $.95 $ .76
Dividends per share $.28 $.265
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AMERICAN FILTRONA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three-Month Periods Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C>
Operating
Net income $ 3,603,411 $ 2,833,061
Reconciling items
Depreciation and amortization 1,488,919 1,515,984
Deferred income taxes 254,999 (245,571)
(Decrease) from noncash working capital (2,760,277) (1,904,386)
Other - net (1,449,820) 145,656
----------- -----------
1,137,232 2,344,744
Investing
Acquisitions of property, plant and equipment (816,428) (1,388,286)
Financing
Issuance of common stock 1,678,109 87,900
Repurchase of common stock - (20,981)
Dividends paid (1,068,662) (990,118)
----------- -----------
609,447 (923,199)
----------- -----------
Net increase in cash and equivalents $ 930,251 $ 33,259
=========== ===========
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
all adjustments (consisting only of normal recurring accruals) which the Company
considers necessary to present fairly the financial position, results of
operations, and cash flows for the interim periods.
The results of operations for the three-month period ended March 31, 1997 are
not necessarily indicative of the results to be expected for the entire year.
The financial statements have been prepared in accordance with instructions to
Form 10-Q and, therefore, do not include all information and notes necessary for
a fair presentation in conformity with generally accepted accounting principles.
For additional information regarding significant accounting policies and other
financial data see the Company's December 31, 1996 Form 10-K.
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NOTE B. MERGER OF COMPANY
On February 19, 1997 the Company entered into a definitive merger agreement with
WBT Holdings, LLC (WBT Holdings), a limited liability company owned by several
trusts of which a director of the Company is a co-trustee. The agreement
provides for a merger between the Company and a wholly-owned subsidiary of WBT
Holdings in which shareholders of the Company (except for WBT Holdings and its
affiliates) will receive a per share cash price of $46.52. In addition WBT
Holdings has executed a definitive acquisition agreement with Bunzl plc, an
international paper and plastics group quoted on the London Stock Exchange,
pursuant to which, following the merger, the Company will sell its bonded fibers
business to Bunzl plc for $72,450,000 in cash, subject to certain adjustments.
Consummation of any transaction would be subject to normal regulatory filings,
shareholder approval, and certain other conditions.
NOTE C. INVENTORIES
At March 31, 1997 and December 31, 1996 inventories consisted of (in thousands):
1997 1996
---- ----
FIFO
Finished products $11,006 $10,522
Work in process 1,444 1,448
Raw materials 8,360 9,098
------- -------
20,810 21,068
Less excess of FIFO over LIFO
inventory value 2,516 2,447
------- -------
$18,294 $18,621
======= =======
Inventories stated at LIFO approximated $9,210 (1996 - $9,103).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
The Company has entered into a definitive merger agreement which provides for
its shareholders to receive a per share cash price of $46.52 (see Note B of
Notes to Condensed Consolidated Financial Statements).
BALANCE SHEET
The Company's strong financial condition and liquidity were maintained in the
1997 first quarter. Cash and equivalents represented 36% of total assets at
March 31, 1997 compared to 37% at December 31, 1996. The ratio of current assets
to current liabilities was 3.9 at March 31, 1997 compared to 3.8 at December 31,
1996. The accounts receivable increase from the historically lower year-end
amount reflects the higher level of business activity in the quarter. The change
in other liabilities arose primarily from the January, 1997 distribution of
performance shares for the three-year period ended December 31, 1996 and the
adjustment of related deferred income taxes.
INCOME STATEMENT
Comparison Between Three-Month Periods Ended March 31, 1997 and 1996
Net sales increased 11% between the first quarters of each year. The bonded
fibers segment had higher sales in each of its product lines with very
significant increases in tobacco filters and diagnostic test device components.
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The plastic products segment growth resulted from a solid increase by the
plastic extrusion companies which more than offset the expected lower sales of
the Canadian flexible packaging company. Investment income increased 12% between
the first quarters primarily as a result of the higher level of investments.
Cost of products sold increased 9% while selling, research, administrative and
general expenses increased at a somewhat higher rate. However, the overall
increase was also 9% for total costs and expenses.
Bonded fibers segment operating earnings increased very substantially for the
1997 first quarter because of the higher sales and improved operating
efficiencies. The plastic products segment recorded a strong rise in operating
earnings. Overall performance of the plastic extrusion companies was very good
and the Canadian flexible packaging company posted a profit compared to a modest
loss in 1996's first quarter. The combination of these factors produced a 29%
increase in pretax income.
Income taxes increased 32% reflecting the higher level of income and estimate of
the effective tax rate for 1997. Therefore, net income and related earnings per
share increased by 27% and 25%.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K -- The Company filed Current Reports on Form 8-K on
February 14, 1997 and February 28, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN FILTRONA CORPORATION
(Registrant)
Date May 6, 1997 /s/ John D. Barlow, Jr.
-------------------------------------------
John D. Barlow, Jr., Vice President-Finance
(Chief Financial Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Mar-31-1997
<CASH> 44,198
<SECURITIES> 0
<RECEIVABLES> 21,564
<ALLOWANCES> 516
<INVENTORY> 18,294
<CURRENT-ASSETS> 86,783
<PP&E> 69,539
<DEPRECIATION> 42,466
<TOTAL-ASSETS> 121,231
<CURRENT-LIABILITIES> 22,342
<BONDS> 0
0
0
<COMMON> 3,817
<OTHER-SE> 93,671
<TOTAL-LIABILITY-AND-EQUITY> 121,231
<SALES> 52,967
<TOTAL-REVENUES> 53,335
<CGS> 41,785
<TOTAL-COSTS> 47,682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,653
<INCOME-TAX> 2,050
<INCOME-CONTINUING> 3,603
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,603
<EPS-PRIMARY> .95
<EPS-DILUTED> .95
</TABLE>
