Page 1 OF 7
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 June 30, 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 July 28, 1997: 3,817,629
-1-
<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
-2-
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
AMERICAN FILTRONA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1997 (Unaudited) and December 31, 1996
<CAPTION>
1997 1996
------------ ------------
ASSETS
<S> <C>
Current assets
Cash and equivalents $ 46,268,401 $ 43,267,438
Accounts receivable 20,961,285 17,573,501
Inventories 16,618,590 18,621,047
Prepaid expenses and deferred income taxes 3,362,701 2,889,743
------------ ------------
Total current assets 87,210,977 82,351,729
Property, plant and equipment 28,319,240 27,699,964
Other assets
Excess cost over net assets of businesses acquired 4,484,336 4,692,821
Notes receivable 2,434,843 2,434,843
Other assets 211,136 374,536
------------ ------------
7,130,315 7,502,200
------------ ------------
$122,660,532 $117,553,893
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 14,532,761 $ 15,342,954
Accrued expenses 5,683,435 5,165,485
Income taxes 1,301,451 1,367,795
------------ ------------
Total current liabilities 21,517,647 21,876,234
Other liabilities
Deferred income taxes 1,063,247 516,417
Other liabilities 347,046 1,764,276
------------ ------------
1,410,293 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 94,473,915 89,703,400
Cumulative translation adjustment (1,100,862) (987,865)
------------ ------------
99,732,592 93,396,966
------------ ------------
$122,660,532 $117,553,893
============ ============
-3-
<PAGE>
AMERICAN FILTRONA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
Periods Ended June 30, 1997 and 1996
(Unaudited)
<CAPTION>
Three Months Six Months
-------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ------------ -----------
Revenues
Net sales $51,155,184 $49,458,610 $104,121,912 $97,158,824
Investment income 522,157 403,351 890,588 733,336
----------- ----------- ------------ -----------
51,677,341 49,861,961 105,012,500 97,892,160
Costs and expenses
Cost of products sold 40,649,961 39,893,626 82,434,948 78,353,288
Selling, research,
administrative and
general 5,872,958 5,298,553 11,769,719 10,486,029
----------- ----------- ------------ -----------
46,522,919 45,192,179 94,204,667 88,839,317
----------- ----------- ------------ -----------
Income before income taxes 5,154,422 4,669,782 10,807,833 9,052,843
Income taxes 1,850,000 1,625,000 3,900,000 3,175,000
----------- ----------- ------------ -----------
Net income $ 3,304,422 $ 3,044,782 $ 6,907,833 $ 5,877,843
=========== =========== ============ ===========
Average shares outstanding 3,816,629 3,741,027 3,811,025 3,739,209
Earnings per share $.86 $ .81 $1.81 $1.57
Dividends per share $.28 $.265 $ .56 $ .53
-4-
<PAGE>
AMERICAN FILTRONA CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six-Month Periods Ended June 30, 1997 and 1996
(Unaudited)
<CAPTION>
1997 1996
---------- ----------
Operating
Net income $6,907,833 $5,877,843
Reconciling items
Depreciation and amortization 3,023,754 3,062,058
Deferred income taxes 98,112 (387,365)
(Decrease) from noncash working capital (1,768,153) (419,045)
Other - net (1,319,261) 11,185
---------- ----------
6,942,285 8,144,676
Investing
Acquisitions of property, plant and equipment (3,482,112) (2,639,195)
Financing
Decrease in notes payable - (650,000)
Issuance of common stock 1,678,108 135,335
Dividends paid (2,137,318) (1,981,470)
---------- ----------
(459,210) (2,496,135)
---------- ----------
Net increase in cash and equivalents $3,000,963 $3,009,346
========== ==========
</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 six-month period ended June 30, 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.
NOTE B. MERGER OF COMPANY
On July 1, 1997 the Company entered into a letter of intent for the acquisition
by Bunzl plc of all outstanding shares of the Company for a per share cash price
of $46.52. The trustees of trusts for members of the family of the late Walter
Bunzl, trustees of trusts for certain members of the family of Rudolph H. Bunzl,
-5-
<PAGE>
and Mr. Bunzl individually have signed letters of commitment to vote their
shares in favor of the transaction. Such shareholders have the right to vote
approximately 46% of the Company's outstanding shares.
Execution of a definitive acquisition agreement is subject to final negotiation
of terms and conditions and completion of business and financial reviews.
Consummation of this transaction would be subject to normal regulatory filings,
Company shareholder approval, and other usual conditions.
NOTE C. INVENTORIES
At June 30, 1997 and December 31, 1996 inventories consisted of (in thousands):
1997 1996
------- -------
FIFO
Finished products $10,288 $10,522
Work in process 1,342 1,448
Raw materials 7,617 9,098
------- -------
19,247 21,068
Less excess of FIFO over LIFO
inventory value 2,628 2,447
------- -------
$16,619 $18,621
======= =======
Inventories stated at LIFO approximated $7,771 (1996 - $9,103).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
The Company has entered into a letter of intent for the acquisition of all of
its outstanding stock for 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 half. Cash and equivalents represented 38% of total assets at
June 30, 1997 compared to 37% at December 31, 1996. The ratio of current assets
to current liabilities was 4.0 at June 30, 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 first half. 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 and Six-Month Periods Ended
June 30, 1997 and 1996
Net sales increased 3% between the second quarters and 7% between the six months
of each year. The bonded fibers segment had lower sales for the second quarter
as a decrease in tobacco filter sales from the strong 1996 period more than
offset increased sales in other product lines. The plastic products segment
sales growth resulted from a solid increase by the plastic extrusion companies
offsetting expected lower sales of the Canadian flexible packaging company.
-6-
<PAGE>
Investment income increased 30% between the second quarters and 21% between the
six months of each year primarily as a result of the higher level of
investments.
Costs and expenses increased 3% between the second quarters and 6% between the
six months of each year which were generally in line with the sales increases.
Cost of products sold increased at lower rates than the sales increases while
selling, research, administrative and general expenses increased at somewhat
higher rates in the periods.
The bonded fibers segment second quarter operating earnings decreased from the
strong 1996 period because of the sales decrease; however, for the six months
earnings were well ahead of the prior year's six-month period. The plastic
products segment posted substantially increased earnings for the second quarter
and six months compared to the 1996 periods. Overall performance of the plastic
extrusion companies was very good in both periods and the Canadian flexible
packaging company recorded profits compared to losses in last year's periods.
The combination of these factors produced pretax income increases of 10% between
the second quarters and 19% between the six months of each year.
Income taxes increased 14% between the second quarters and 23% between the six
months of each year 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 9% and 6% between the second quarters and by 18% and 15%
between the six months of each year.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed
for the three months ended June 30, 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 July 28, 1997 /s/ John D. Barlow, Jr.
-------------------------------------------
John D. Barlow, Jr., Vice President-Finance
(Chief Financial Officer)
-7-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 46,268
<SECURITIES> 0
<RECEIVABLES> 21,644
<ALLOWANCES> 683
<INVENTORY> 16,619
<CURRENT-ASSETS> 87,211
<PP&E> 71,951
<DEPRECIATION> 43,632
<TOTAL-ASSETS> 122,661
<CURRENT-LIABILITIES> 21,518
<BONDS> 0
0
0
<COMMON> 3,817
<OTHER-SE> 95,916
<TOTAL-LIABILITY-AND-EQUITY> 122,661
<SALES> 104,122
<TOTAL-REVENUES> 105,013
<CGS> 82,435
<TOTAL-COSTS> 94,205
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,808
<INCOME-TAX> 3,900
<INCOME-CONTINUING> 6,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,908
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.81
</TABLE>
