SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of 1934.
For the quarterly period ended September 30, 1996
- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from _____________________ to ________________________
Commission File Number 0-21828
GREENFIELD INDUSTRIES, INC.
2743 Perimeter Parkway, Building 100, Suite 100
Augusta, Georgia 30909
706/863-7708
I.R.S. Employment I. D. 04-2917072
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 twelve months (or for such shorter periods that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days.
X
Yes ------------ No --------------
The number of shares of common stock outstanding at October 31, 1996 was
16,371,175 shares.
Page 1
<PAGE>
GREENFIELD INDUSTRIES, INC.
INDEX
Page
Number
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statement of Operations-
three months and nine months ended
September 30, 1996 and 1995 (Unaudited) 3
Consolidated Balance Sheet -
September 30, 1996 (Unaudited) and
December 31, 1995 4
Consolidated Statement of Cash Flows -
nine months ended September 30, 1996 and
1995 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the nine months
ended September 30, 1996 (Unaudited) 6
Notes to Consolidated Financial Statements 7 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13 - 22
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 22
(b) Reports on Form 8-K 22
Signature 23
Page 2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 121,370 $ 104,147 $ 384,089 $ 315,365
Cost of sales 86,371 71,464 266,835 217,206
----------- ---------- ----------- ----------
Gross profit 34,999 32,683 117,254 98,159
Selling, general and
administrative expenses 20,045 17,045 66,367 53,161
Restructuring costs 4,000 -- 4,000 --
----------- ---------- ----------- ----------
Operating income 10,954 15,638 46,887 44,998
Interest expense 2,567 2,102 8,729 6,232
Dividends on company-obligated,
mandatorily redeemable
convertible preferred securities
of Greenfield Capital
Trust at 6% per annum 1,725 -- 3,009 --
----------- ---------- ----------- ----------
Income before provision for
income taxes 6,662 13,536 35,149 38,766
Provision for income taxes 2,703 5,451 14,264 15,711
----------- ---------- ----------- ----------
Net income $ 3,959 $ 8,085 $ 20,885 $ 23,055
=========== ========== =========== ==========
Earnings per share:
Primary $ 0.24 $ 0.50 $ 1.28 $ 1.42
=========== ========== =========== ==========
Fully diluted (see Note 11) $ ** $ 0.50 $ 1.25 $ 1.42
=========== ========== =========== ==========
Weighted average shares outstanding:
Primary 16,358 16,252 16,313 16,251
=========== ========== =========== ==========
Fully diluted 19,146 16,252 17,941 16,251
=========== ========== =========== ==========
Dividends per common share $ 0.04 $ 0.03 $ 0.12 $ 0.09
=========== ========== =========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
Page 3
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
September 30, December 31,
1996 1995
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,737 $ 5,258
Accounts receivable, net of allowance for
doubtful accounts of $3,625 and $2,624,
respectively 81,347 63,618
Inventories, net 152,046 109,769
Prepaid expenses and other 7,279 4,069
------------ ------------
Total current assets 247,409 182,714
Property, plant and equipment, net 138,307 109,022
Goodwill, net 160,327 98,795
Other assets, net 2,053 7,932
------------ -------------
Total assets $ 548,096 $ 398,463
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 502 $ 633
Accounts payable 21,825 24,586
Accrued liabilities 42,743 33,688
----------- -------------
Total current liabilities 65,070 58,907
Long-term debt 151,320 140,198
Deferred taxes 4,971 4,207
Other long-term liabilities 16,216 15,891
----------- -------------
Total liabilities 237,577 219,203
----------- -------------
Commitments and contingencies (see Note 10)
Company-obligated, mandatorily redeemable
convertible preferred securities of subsidiary
Greenfield Capital Trust 115,000 --
----------- --------------
Stockholders' equity:
Preferred stock; $0.01 par value; 1,500,000 shares
authorized; no shares issued and outstanding
Common stock; $0.01 par value; 100,000,000
shares authorized; 16,370,925 and 16,260,377
shares issued and outstanding, respectively 164 163
Additional paid-in capital and other 109,315 111,615
Retained earnings 87,940 69,014
Cumulative translation adjustment (1,900) (1,532)
----------- --------------
Total stockholders' equity 195,519 179,260
----------- --------------
Total liabilities and stockholders' equity $ 548,096 $ 398,463
=========== ==============
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
Page 4
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine months ended
September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 20,885 $ 23,055
Adjustments to reconcile net income to net
cash (used in) provided by operating activities,
excluding the effects of acquisitions:
Depreciation 10,967 9,180
Amortization 3,274 2,166
Deferred income taxes 2,514 256
Tax benefits relating to exercise of stock options 302 3,186
Other (821) (553)
Changes in operating assets and liabilities:
Accounts receivable, net (2,874) (12,172)
Inventories, net (17,242) (16,701)
Prepaid expenses and other (2,411) (2,364)
Accounts payable (17,949) 5,386
Accrued liabilities (1,358) (6,069)
----------- -----------
Net cash (used in) provided by operating activities (4,713) 5,370
----------- -----------
Cash flows from investing activities:
Capital expenditures (21,789) (17,728)
Purchase of businesses, net of cash acquired (see Note 3) (96,503) (22,216)
Other 2,352 556
----------- -----------
Net cash used in investing activities (115,940) (39,388)
----------- -----------
Cash flows from financing activities:
Proceeds from borrowings 128,375 38,043
Payments on borrowings (116,660) (7,383)
Net proceeds from issuance of 6% company-obligated,
mandatorily redeemable convertible preferred
securities of subsidiary Greenfield Capital Trust 110,775 --
Dividends paid on common stock (1,959) (1,449)
Other 2,571 153
----------- -----------
Net cash provided by financing activities 123,102 29,364
----------- -----------
Effect of exchange rate changes on cash (970) 658
----------- -----------
Net increase (decrease) in cash 1,479 (3,996)
Cash at beginning of period 5,258 3,996
----------- -----------
Cash at end of period $ 6,737 $ 0
=========== ===========
See accompanying Notes to Consolidated Financial Statements.
Page 5
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
(In thousands, except per share data)
Additional Cumulative
Common Paid-In Retained Translation
Stock Capital & Other Earnings Adjustment Total
---------- --------------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 163 $ 111,615 $ 69,014 $ (1,532) $ 179,260
Net income 20,885 20,885
Exercise of stock options and
tax benefits related thereto 1 1,124 1,125
Dividends declared and paid
($0.12 per common share) (1,959) (1,959)
Partial repayment of stock
subscriptions receivable 40 40
Executive stock awards 761 761
Issuance costs of company-obligated,
mandatorily redeemable convertible
preferred securities of subsidiary
Greenfield Capital Trust (4,225) (4,225)
Cumulative translation
adjustment (368) (368)
-------- --------- --------- ----------- ---------
Balance, September 30, 1996 $ 164 $ 109,315 $ 87,940 $ (1,900) $ 195,519
======== ========= ========= =========== =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
Page 6
<PAGE>
GREENFIELD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share data)
1. Unaudited consolidated financial statements
The accompanying unaudited consolidated financial statements of
Greenfield Industries, Inc. (Company or Greenfield) have been prepared in
accordance with the instructions for Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. However, in the opinion of management, such
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations for
the periods presented. Operating results for any quarter are not necessarily
indicative of the results for any other quarter or for the full year. These
statements should be read in conjunction with the consolidated financial
statements and notes to the consolidated financial statements thereto included
in the Company's Form 10-K for the year ended December 31, 1995.
2. Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries: Rogers Tool Works, Inc. and subsidiaries (RTW),
Rule Industries, Inc. and subsidiaries (Rule), The Cleveland Twist Drill Company
and subsidiaries (CTD), Carbidie Corporation (Carbidie), Cirbo Limited and
subsidiary (Cirbo), Kemmer International, Inc. and subsidiaries (Kemmer),
Greenfield Capital Trust and Greenfield Industries Foreign Sales Corporation.
All significant intercompany transactions and balances are eliminated.
3. Acquisitions
The following table summarizes certain information regarding the
Company's acquisitions since December 31, 1995:
Net Cash
Date Business Purchase Price
---- -------- --------------
January 1996 Rule Industries, Inc. $83,300
June 1996 Boride Products, Inc. (Boride) $8,300
July 1996 Arkansas Cutting Tools (ACT) $4,900
These acquisitions were each accounted for using the purchase method of
accounting and financed primarily through bank borrowings, resulting in an
increase in the Company's outstanding debt. Results of operations of each
acquired company have been included
Page 7
<PAGE>
in the Company's consolidated financial statements from the date of acquisition.
The purchase price of each acquisition was allocated to the assets acquired and
liabilities assumed based on their estimated fair value at the date of
acquisition. The excess of purchase price over the estimated fair value of net
assets acquired was, in each instance, recorded as goodwill. Except for Rule,
the pro forma effects, individually and collectively, of the acquisitions on the
Company's consolidated results of operations and financial position are not
material.
The following table sets forth pro forma information for the Company for
the three and nine month periods ended September 30, 1995 as if the acquisition
of Rule had taken place on January 1, 1995. This information is unaudited and
does not purport to represent actual revenue, net income and primary earnings
per share had the acquisition actually taken place on January 1, 1995:
Three months ended Nine months ended
September 30, 1995 September 30, 1995
------------------ ------------------
Net sales $119,761 $366,211
======= =======
Net income $ 7,354 $ 23,686
======= =======
Primary earnings per share $ 0.45 $ 1.46
======= =======
In connection with the Company's acquisition of Rule in January 1996, the
Company recorded a restructuring reserve of $2,600 primarily related to the
closing of two Rule facilities (including the corporate office) and the
involuntary termination of a substantial number of Rule employees. Of the $2,600
reserve, $1,240 related to employee severance costs, $346 related to the closure
of the two facilities, and $1,014 related to other nonrecurring costs associated
with terminating certain Rule operations. This restructuring has resulted in a
reduction in personnel and the elimination of certain duplicate functions. Of
the total $2,600 reserve, approximately $2,500 had been incurred as of September
30, 1996. The Company expects to incur the remaining costs in the fourth quarter
of 1996.
4. Financing
In February 1996, in connection with the acquisition of Rule, the
Company amended its unsecured acquisition facility, increasing its availability
from $20,000 to $60,000. Such amount was reduced to $20,000 on April 24, 1996 in
connection with the Company's completion of a private placement as discussed in
Note 5. As of September 30, 1996 there were no borrowings under the acquisition
facility.
Page 8
<PAGE>
The Company also maintains unsecured revolving credit facilities with a
group of financial institutions which expire in November 1999 and March 2000.
The total amounts available under such agreements are $130,000, 9,500 pound
sterling and DM 21,000 of which $49,000, 7,100 pound sterling and DM 7,000,
respectively, was outstanding at September 30, 1996 at interest rates ranging
from 4.3% to 6.9% per annum.
5. Convertible Preferred Securities
On April 24, 1996, the Company completed a private placement to
institutional investors of $115,000 of 6% Convertible Preferred Securities
(liquidation preference of $50 per Convertible Preferred Security). The
placement was made through Greenfield Capital Trust (Trust), a newly-formed
Delaware business trust. The securities represent undivided beneficial ownership
interests in the Trust and are fully, irrevocably and unconditionally guaranteed
by Greenfield. Greenfield owns all of the common securities of the Trust. The
assets of the Trust consist solely of Greenfield's 6% Convertible Junior
Subordinated Deferrable Interest Debentures Due 2016 which were acquired with
the proceeds from the offering. The Convertible Preferred Securities are
convertible at the option of the holders at any time into the common stock of
Greenfield at an effective conversion price of $41.25 per share and are
redeemable at Greenfield's option after April 15, 1999. The net proceeds of the
offering of approximately $110,775 were used by Greenfield to retire
indebtedness. A registration statement relating to resales of such Convertible
Preferred Securities was declared effective by the Securities and Exchange
Commission on September 26, 1996.
6. Dividends
On March 29, June 28 and September 30, 1996, the Company paid a cash
dividend of $0.04 per share to common stockholders of record on March 8, June 10
and September 10, 1996, respectively. Total dividends paid for the nine months
ended September 30, 1996 approximated $1,959.
On July 1 and September 30, 1996, the Trust paid dividends on the
Convertible Preferred Securities totalling approximately $3,009.
Page 9
<PAGE>
7. Supplemental balance sheet information is detailed below:
September 30, December 31,
1996 1995
---- ----
(Unaudited)
Inventories:
Raw material and component parts $ 55,397 $ 28,248
Work in process 34,698 31,648
Finished goods 61,951 49,873
------- -------
$ 152,046 $ 109,769
======= =======
Accrued liabilities:
Employee compensation and benefits $ 21,154 $ 18,676
Restructuring costs 3,799 4,919
Interest 3,848 1,544
Income and other taxes 2,238 --
Other 11,704 8,549
------ ------
$ 42,743 $ 33,688
====== ======
8. Restructuring Costs
The results of operations for the three and nine months ended September
30, 1996 included restructuring costs of $4,000 ($2,400 net of tax benefits) of
$0.15 per common share on a primary basis. These costs were primarily related to
employee severance and certain other nonrecurring charges resulting from the
effects of the reorganization of the Company's business groups.
The restructuring costs included those costs associated with the
combination or elimination of certain functions or operations which were
identified as redundant. The $4,000 restructuring charge recorded in the third
quarter included $2,727 for employee-related costs consisting primarily of
severance costs, $585 for the write-down of plant assets where operations have
been or will be terminated, and $688 for other nonrecurring costs. Included in
the $2,727 of employee-related costs are $2,162 of employee severance costs for
personnel that have been terminated or will be terminated in future periods. Of
the total $4,000 charge, approximately $342 had been incurred through September
30, 1996.
Page 10
<PAGE>
9. Stock option and stock incentive plans consist of the following:
Stock Option Plans
- ------------------
The Company has three stock option plans: the Employee Stock Option Plan
(Employee Plan), the 1995 Directors Non-Qualified Stock Option Plan (Directors
Plan) and the 1993 Directors Non-Qualified Stock Option Plan (1993 Directors
Plan).
The Employee Plan provides for the granting of options to purchase up to
1,000,000 shares of common stock to the Company's executive officers and key
employees at prices equal to the fair market value of the stock on the date of
grant.
The Directors Plan provides for the granting of options to purchase up
to 125,000 shares of common stock to the Company's directors who are not
employees of the Company at prices equal to the fair market value of the stock
on the date of grant. Options are granted to each eligible director on the date
such person is first elected to the board of directors of the Company and on
each subsequent re-election date. The Directors Plan was approved in May 1996 by
the stockholders.
The 1993 Directors Plan provides for the granting of options to purchase
up to 100,000 shares of common stock to the Company's directors who are not
employees of the Company at prices equal to the fair market value of the stock
on the date of grant. Options are granted to each eligible director on the date
such person is first elected to the board of directors of the Company.
Subsequent to the May 1996 approval of the Directors Plan, no further grants
will be issued under the 1993 Directors Plan.
A summary of stock option activities for the nine months ended September
30, 1996 pursuant to the Employee Plan, Directors Plan and 1993 Directors Plan
follows:
Shares
Average Subject
Price To Option
------- ---------
Summary of stock options:
Beginning of period $21.95 788,175
Options granted 31.07 116,000
Options exercised 16.13 (51,000)
Options cancelled 26.49 (19,000)
--------
End of period 23.47 834,175
=======
Exercisable at September 30, 1996 118,875
=======
Page 11
<PAGE>
Stock Incentive Plans
- ---------------------
The Company has two stock incentive plans: the 1995 Equity Incentive
Plan (Incentive Plan) and the 1995 Restricted Stock Bonus Plan (Ownership Plan).
Both plans were approved in May 1996 by the stockholders of the Company.
The Incentive Plan provides for the granting of up to 273,000 shares of
common stock to certain senior executives of the Company in time-lapse
restricted stock, performance contingent restricted stock and performance
shares. Time-lapse restricted stock vests in one-third increments over a
three-year period commencing four years after the date of the award. Performance
contingent restricted stock is earned when the price for the Company's stock
reaches certain predetermined levels, and then vests over a three or five year
period. Performance shares are earned based on attainment of a predetermined
four-year cumulative earnings per share level. Attainment of between 50% and
200% of the predetermined objective will entitle the participants to receive
restricted performance shares of between 50% and 200% of the target award, which
then vests over a three-year period. No performance shares are earned if less
than 50% of the performance objective is obtained.
The Ownership Plan provides for the issuance of up to 250,000 shares of
common stock to certain employees, by allowing such employees to elect to defer
up to 50% of their annual cash bonus and receive, in lieu thereof, shares of the
Company's common stock. The Company will increase the employees' deferred bonus
by either 20% or 35% (depending on the employees' selection of 3 or 5 years,
respectively, for the restriction period).
Shares issued under the plans are restricted and are subject to
forfeiture upon termination of employment. During the restricted period, award
holders have the right to vote and to receive dividends on such shares.
A summary of stock issued pursuant to the Incentive Plan and Ownership
Plan for the nine months ended September 30, 1996 follows:
<TABLE>
Market Value
Shares At Award Date Vesting Period
------ -------------- --------------
<S> <C> <C> <C>
Incentive Plan
Time-lapse Restricted Stock 26,000 $30.50 Nov 1999 - Nov 2001
Time-lapse Restricted Stock 8,000 $31.625 July 2000 - July 2002
Performance Contingent Restricted Stock 7,700 $37.75 Nov 2000
------
Ownership Plan 41,700 Feb 1997 - Feb 2001
17,848 $30.50
------
59,548
======
</TABLE>
Page 12
<PAGE>
Shares issued but which remain restricted are recorded as deferred
compensation, a reduction to additional paid-in capital. The increase in
additional paid-in capital of $761 for the issuance of executive stock awards in
the nine months ended September 30, 1996 is net of this deferred compensation.
As the shares are earned and become unrestricted, additional paid-in capital
will increase. For the nine months ended September 30, 1996, the Company
recorded $1,500 in compensation expense which is included in selling, general
and administrative expenses in the accompanying consolidated statement of
operations.
10. Commitments and contingencies
The Company is involved in certain claims and legal proceedings in which
monetary damages are sought. The Company is vigorously contesting these claims.
However, resolution of these claims is not expected to occur quickly and their
ultimate outcome presently cannot be predicted. It is the opinion of management
that any liability of the Company for claims or proceedings will not materially
affect its financial position.
In connection with the acquisition of CTD, the Company recorded a
liability of $2,600 in purchase accounting for certain estimated environmental
clean-up costs to be incurred relative to acquired CTD facilities. This
estimated potential liability, which is included in other accrued liabilities,
has not been reduced for any expected proceeds from other potentially
responsible third parties. Proceeds therefrom are not expected to be material.
11. Earnings per share
Fully diluted earnings per share, which primarily reflect the effects of
conversion of the Company's Convertible Preferred Securities described in Note
5, are not presented for the quarter ended September 30, 1996 due to the
anti-dilutive effect thereof.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion summarizes the significant factors affecting
the consolidated operating results and financial condition of Greenfield
Industries, Inc. for the three and nine months ended September 30, 1996 compared
to the three and nine months ended September 30, 1995. This discussion should be
read in conjunction with the consolidated financial statements and notes to the
consolidated financial statements thereto included in the Company's Form 10-K
for the year ended December 31, 1995.
Page 13
<PAGE>
During the fourth quarter of 1995, the Company acquired the outstanding
common stock of Cleveland Europe Limited ("Cleveland Europe"). In the first nine
months of 1996, the Company acquired the outstanding common stock of Rule
Industries, Inc. ("Rule") and the net assets of Boride Products, Inc. ("Boride")
and of Arkansas Cutting Tools ("ACT").
Certain statements included herein are forward-looking statements.
Actual results could differ materially from those anticipated as a result of
various factors, including cyclical downturns, the inability to achieve cost
reductions through consolidation and restructuring of acquired companies, and
possible future acquisitions that may not be complementary or additive.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage
of net sales represented by certain items reflected in the Company's
consolidated statement of operations:
<TABLE>
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
(unaudited) (unaudited)
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 71.2 68.6 69.5 68.9
---- ---- ---- ----
Gross profit 28.8 31.4 30.5 31.1
Selling, general and administrative
expenses 16.5 16.4 17.3 16.8
Restructuring costs 3.3 -- 1.0 --
---- ---- ---- ----
Operating income 9.0 15.0 12.2 14.3
Interest expense 2.1 2.0 2.3 2.0
Dividends on company-obligated,
mandatorily redeemable convertible
preferred securities of Greenfield
Capital Trust at 6% per annum 1.4 -- 0.8 --
---- ---- ---- ----
Income before provision for income taxes 5.5 13.0 9.1 12.3
Provision for income taxes 2.2 5.2 3.7 5.0
---- ---- ---- ----
Net income 3.3% 7.8% 5.4% 5.4%
==== ===== ===== =====
</TABLE>
Page 14
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the three months ended September 30, 1996 were $121.4
million, an increase of $17.3 million, or 16.5%, over net sales of $104.1
million for the three months ended September 30, 1995. During the quarter, sales
from newly-acquired businesses were $18.3 million while sales from existing
businesses declined $1.0 million or 1%. The decline in sales from existing
businesses is generally believed to be caused by reduced demand as a result of
inventory destocking and softer market conditions.
Including the effect of the newly acquired businesses, net sales of the
Company's six product groups were as follows:
THREE MONTHS
ENDED SEPTEMBER 30,
($ in millions)
INCREASE
1996 1995 (DECREASE)
---- ---- ----------
Industrial Products $ 59.1 $ 55.1 $ 4.0
Engineered Products 18.2 15.4 2.8
Energy & Construction 15.6 14.2 1.4
Products
Electronics Products 14.0 14.6 (0.6)
Consumer Products 8.7 4.8 3.9
Marine Products 5.8 -- 5.8
------ ------ -----
$121.4 $104.1 $17.3
====== ====== =====
The increases in net sales of the industrial, consumer and marine product groups
were attributable to the sales from the newly-acquired businesses of Rule and
Cleveland Europe. The increase in net sales of engineered products was primarily
attributable to the sales from the newly-acquired business of Boride, while net
sales of energy and construction products were affected by the continued
increase in demand for energy products. Electronics products sales were down
slightly from 1995, primarily as a result of a decline in demand in Europe and,
to a lesser extent, in the United States relative to the second quarter of 1996.
Gross profit increased 7.1% to $35.0 million from $32.7 million in the
comparable period in 1995, primarily as a result of the sales increases
discussed above. The gross profit margin decreased to 28.8% from 31.4%. The
decrease in gross profit margin resulted primarily from lower production levels
and plant inefficiencies relating to the decline in sales from existing
businesses.
Page 15
<PAGE>
Selling, general and administrative ("SG&A") expenses increased $3.0
million in the three months ended September 30, 1996 and SG&A expenses as a
percentage of net sales increased to 16.5% from 16.4% in the comparable period
in 1995. The increase was primarily a result of the Rule, Cleveland Europe and
Boride acquisitions.
Restructuring costs of $4.0 million were recorded for the quarter ended
September 30, 1996 relating primarily to severance and other employee-related
costs associated with the reorganization and restructuring of the Company's
business groups. In connection with this reorganization, certain functions were
identified as redundant and will be combined or eliminated, with the objective
of making each business group more focused and responsible to its respective
customer base. The Company continues to evaluate its operations with an intent
to streamline operations, improve productivity and reduce costs, and may
implement additional rationalization programs in the future.
Operating income declined $4.7 million, or 30.0%, to $11.0 million while
operating margins decreased to 9.0% from 15.0% during the three months ended
September 30, 1996 as compared to the three months ended September 30, 1995. The
decreased operating profit was due primarily to the restructuring charge, while
the decreased operating margins were due to lower gross profit margins, both
discussed above.
Interest expense increased $0.5 million to $2.6 million for the three
months ended September 30, 1996 from $2.1 million for the three months ended
September 30, 1995. The increase in interest expense resulted from the increase
in the debt level of the Company, primarily due to acquisitions, largely offset
by the proceeds from the issuance of the company-obligated mandatorily
redeemable convertible preferred securities during April 1996. The net proceeds
from such issuance of approximately $110.8 million were used to repay Company
indebtedness.
Dividends on company-obligated, mandatorily redeemable convertible
preferred securities of Greenfield Capital Trust were $1.7 million for the
quarter ended September 30, 1996.
Provision for income taxes decreased to $2.7 million for the three
months ended September 30, 1996, a decrease of $2.7 million from the three
months ended September 30, 1995, reflecting the lower pretax income.
Net income decreased to $4.0 million for the three months ended
September 30, 1996, a decrease of $4.1 million, or 51.0%, from the same period
in 1995 as a result of the factors noted above. Primary earnings per share
decreased to $0.24 from $0.50 for the three months ended September 30, 1996 and
1995, respectively.
Page 16
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the nine months ended September 30, 1996 were $384.1
million, an increase of $68.7 million, or 21.8%, over net sales of $315.4
million for the nine months ended September 30, 1995. Of the $68.7 million
increase in sales, $61.1 million was due to the sales from newly-acquired
businesses, with the remaining $7.6 million resulting from increased sales from
existing businesses. The increase in sales from existing businesses was largely
the result of stronger market conditions for the first six months of fiscal
1996, offset by lower sales in the third quarter of 1996 which are generally
believed to be caused by reduced demand as a result of inventory destocking and
softer market conditions.
Including the effect of the newly-acquired businesses, net sales of the
Company's six product groups were as follows:
NINE MONTHS
ENDED SEPTEMBER 30,
($ in millions)
1996 1995 INCREASE
---- ---- --------
Industrial Products $196.8 $171.0 $25.8
Engineered Products 50.7 47.1 3.6
Energy & Construction Products 46.3 41.4 4.9
Electronics Products 45.5 44.9 0.6
Consumer Products 26.1 11.0 15.1
Marine Products 18.7 -- 18.7
------ ------ -----
$384.1 $315.4 $68.7
====== ====== =====
The increases in net sales of the industrial, consumer and marine product groups
were primarily attributable to the sales from the newly-acquired businesses of
Rule and Cleveland Europe. Net sales of engineered products were up from 1995
primarily due to the acquisition of Boride. Net sales of the electronics
products group increased for the nine months ended September 30, 1996, primarily
as a result of increased sales realized in the first quarter of 1996. Sales in
subsequent quarters of fiscal 1996 have been adversely affected by a decline in
demand in Europe and, to a lesser extent, in the United States. Net sales of
energy and construction products were affected by the continued increase in
demand for energy products.
Page 17
<PAGE>
Gross profit increased 19.5% to $117.3 million from $98.2 million in the
comparable period in 1995, primarily as a result of the sales increases
discussed above. The gross profit margin decreased to 30.5% from 31.1%. The
decrease in gross profit margin resulted primarily from lower production levels
and plant inefficiencies relating to the decline in sales from existing
businesses in the third quarter of 1996.
SG&A expenses increased $13.2 million in the nine months ended September
30, 1996 and SG&A expenses as a percentage of net sales increased to 17.3% from
16.8% in the comparable period in 1995. The increase was primarily a result of
the Rule, Cleveland Europe and Boride acquisitions, and a $1.5 million
stock-based compensation charge discussed below.
During the second quarter of 1996, the Company's stockholders approved
stock-based compensation plans for key executives of the Company under which
certain key executives may receive restricted stock awards if certain criteria,
including increases in the Company's stock price and earnings per share, are
achieved over the next several years. Compensation expense charged in the nine
months ended September 30, 1996 pursuant to such plans was $1.5 million.
Compensation charges attributable to the plans in future periods, if any, are
estimated to be less than the charge for the current period; however, such
charges will be based in part on changes in the Company's stock price and
therefore may fluctuate significantly from period to period.
Restructuring costs of $4.0 million were recorded for the quarter ended
September 30, 1996 relating primarily to severance and other employee-related
costs associated with the reorganization and restructuring of the Company's
business groups. In connection with this reorganization, certain functions were
identified as redundant and will be combined or eliminated, with the objective
of making each business group more focused and responsive to its respective
customer base. The Company continues to evaluate its operations with an intent
to streamline operations, improve productivity and reduce costs and may
implement additional rationalization programs in the future.
Operating income improved $1.9 million, or 4.2%, to $46.9 million while
operating margins decreased to 12.2% from 14.3% during the nine months ended
September 30, 1996 as compared to the nine months ended September 30, 1995. The
improved operating income was due to the acquisitions of Rule, Cleveland Europe
and Boride. Operating margins declined due to the lower operating margins of
Rule and Cleveland Europe as compared to the historical margins of the Company,
the lower gross margins on certain existing businesses, the stock-based
compensation charge and the restructuring charge, all discussed above.
Page 18
<PAGE>
Interest expense increased $2.5 million to $8.7 million for the nine
months ended September 30, 1996 from $6.2 million for the nine months ended
September 30, 1995. The increase in interest expense resulted from the increase
in the debt level of the Company, which was primarily due to acquisitions,
partially offset by the proceeds from the issuance of the company-obligated,
mandatorily redeemable convertible preferred securities during April 1996. The
net proceeds from such issuance of approximately $110.8 million were used to
repay Company indebtedness.
Dividends on company-obligated, mandatorily redeemable convertible
preferred securities of Greenfield Capital Trust were $3.0 million for the nine
months ended September 30, 1996.
Provision for income taxes decreased to $14.3 million for the nine
months ended September 30, 1996, a decrease of $1.4 million from the nine months
ended September 30, 1995, reflecting the lower pretax income.
Net income decreased to $20.9 million for the nine months ended
September 30, 1996, a decrease of $2.2 million, or 9.4%, from the nine months
ended September 30, 1995 as a result of the factors noted above. Primary and
fully diluted earnings per share decreased to $1.28 and $1.25 from $1.42 and
$1.42 for the nine months ended September 30, 1996 and 1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996, cash used in operating
activities was approximately $4.7 million, while during the nine months ended
September 30, 1995, cash provided by operating activities was approximately $5.4
million. Cash used in operating activities for the nine months ended September
30, 1996, was primarily due to a reduction in the accounts payable of Rule which
were past due at the time of the acquisition, and to increased inventory levels
in the industrial products group in order to improve customer service and sales.
The purchase prices for the 1996 acquisitions of Rule, Boride and ACT
totalled approximately $96.5 million in cash. In addition, the Company assumed
liabilities of the acquired companies totalling approximately $24.3 million,
including $2.4 million in acquisition costs. The Company expects that these
acquisitions will expand sales and product offerings in the industrial,
consumer, marine and engineered products markets.
Cash was also used during the nine months ended September 30, 1996 for
capital expenditures of approximately $21.8 million and the payment of dividends
of approximately $2.0 million on the common stock. Net borrowings of the Company
increased by approximately $11.7 million in the nine months ended September 30,
1996. During this period the Company borrowed approximately $128.4 million
primarily related to the
Page 19
<PAGE>
acquisitions of Rule, Boride and ACT totalling approximately $96.5 million, as
well as borrowings for operating activities. These borrowings were largely
offset by the repayment of indebtedness from the net proceeds of approximately
$110.8 million from the issuance of the convertible preferred securities.
During the nine months ended September 30, 1995, cash was used to
finance capital expenditures of approximately $17.7 million and pay dividends of
approximately $1.4 million on the common stock. Net borrowings of the Company
increased by approximately $30.7 million in the nine months ended September 30,
1995, primarily due to the acquisitions of the American Mine Tool Division of
Valenite, Inc. ("AMT") and Van Keuren, Inc. ("VK") and the exercise of an option
to purchase shares of Rule. The purchase prices for the 1995 acquisitions of AMT
and VK and the Rule shares totalled approximately $22.2 million in cash. In
addition, the Company assumed liabilities of AMT and VK totalling approximately
$3.0 million, including $0.3 million in acquisition costs.
The Company has a $130 million senior unsecured credit facility provided
by five institutions. The domestic facility includes a $110 million revolving
credit line and a $20 million acquisition line. As of September 30, 1996, the
Company had $49.0 million outstanding under the revolving credit line. The
revolving credit line generally bears interest at floating rates based upon the
prime rate or LIBOR, at the option of the Company. As of September 30, 1996, the
interest rate on borrowings under the revolving credit line ranged from
approximately 6.2% to 6.3%. During February 1996, in connection with the
acquisition of Rule described above, the Company amended its senior unsecured
credit facility to temporarily increase the acquisition line to $60 million from
$20 million. The additional $40 million acquisition line was subsequently
reduced to $20 million in connection with the issuance of the convertible
preferred securities. As of September 30, 1996, the Company had no indebtedness
outstanding under the acquisition line.
The Company also has a foreign revolving credit facility which provides
for loans denominated in British pounds or German Deutschemarks (limited to
9.5 pound sterling million and DM 21.0 million, respectively). At September 30,
1996, the Company had 7.1 pound sterling million and DM 7.0 million outstanding
under the foreign revolving credit facility. The foreign revolving credit
facility generally bears interest at floating rates based upon LIBOR. As of
September 30, 1996, the interest rates on this facility ranged from
approximately 4.3% to 6.9%. As of September 30, 1996, the buying rates for
British pounds and German Deutschemarks were $1.5653 per British pound and DM
1.5270 per dollar, respectively.
The senior unsecured domestic credit facility is scheduled to terminate
in November 1999 while the foreign revolving credit facility is scheduled to
terminate in March 2000. The agreements relating to both facilities contain
provisions which, among other things, limit certain additional borrowings and
capital expenditures, require maintenance of certain
Page 20
<PAGE>
minimum working capital ratios and net worth levels and prohibit any material
guaranty, endorsement or contingent liability with respect to the obligation or
liability of any other person. At September 30, 1996 and 1995, the Company was
in compliance with, or had obtained waivers of, such provisions.
In April 1996, the Company completed a private placement to
institutional investors of 2.3 million, or $115.0 million in aggregate amount,
of 6% convertible preferred securities (liquidation preference $50 per
convertible preferred security). The placement was made through Greenfield
Capital Trust, a newly-formed Delaware business trust. The securities represent
undivided beneficial ownership interests in the Trust and are fully, irrevocably
and unconditionally guaranteed by Greenfield. Greenfield owns all of the common
securities of the Trust. The assets of the Trust consist solely of Greenfield's
6% Convertible Junior Subordinated Deferrable Interest Debentures Due 2016 which
were acquired with the proceeds of the offering. The convertible preferred
securities are convertible at the option of the holders thereof at any time into
the common stock of Greenfield at an effective conversion price of $41.25 per
share and are redeemable at Greenfield's option after April 15, 1999. The
approximately $110.8 million net proceeds of the offering were used by
Greenfield to retire indebtedness. A registration statement relating to resales
of such convertible preferred securities was declared effective by the
Securities and Exchange Commission on September 26, 1996.
On March 29, June 28 and September 30, 1996, the Company paid a
quarterly cash dividend of $0.04 per share to common stockholders of record on
March 8, June 10 and September 10, 1996, respectively.
On July 1 and September 30, 1996, Greenfield Capital Trust paid
quarterly cash dividends totalling approximately $3.0 million to holders of the
convertible preferred securities.
As of September 30, 1996, the Company had a backlog of $40.1 million, as
compared to $44.3 million as of December 31, 1995. The Company's backlog
consists of firm customer purchase orders which are subject to cancellation by
the customer upon notification. The Company anticipates that approximately 90%
of its backlog at any given time will be shipped within the next three-month
period.
Based on its current operating plans, the Company believes that it will
have sufficient cash from operations and/or availability from its existing
credit facilities to meet its currently anticipated needs for liquidity and
capital expenditures.
Page 21
<PAGE>
RESTRUCTURING COSTS
During the third quarter of 1996, the Company recorded a restructuring
charge of $4 million ($2.4 million, net of tax benefits) or $0.15 per common
share. These costs were primarily related to employee severance and certain
other nonrecurring charges resulting from the effects of the reorganization of
the Company's business groups. In connection with this reorganization, certain
functions were identified as redundant and are being eliminated or consolidated
into other locations with the objective of making each business group more
responsive to its respective customer base and to enhance manufacturing
efficiencies. This restructuring has resulted in a reduction in personnel and
the elimination of certain duplicate functions, thereby eliminating excessive
costs and redundancies in future periods. The $4.0 million charge includes
employee-related costs (primarily severance and relocation), write-downs of
idled plant assets and other nonrecurring items. Of the total $4.0 million
charge, approximately $0.4 million had been incurred as of September 30, 1996.
The Company expects to incur the remaining costs during the fourth quarter of
1996 and early 1997.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 6, 1996, the Company filed a report on Form
8-K pertaining to the issuance of a press release concerning the
expected results for the fiscal quarter ending September 30,
1996.
Page 22
<PAGE>
SIGNATURE
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.
GREENFIELD INDUSTRIES, INC.
Date: November 12, 1996 /s/ Gary L. Weller
-----------------------------------
Gary L. Weller
Senior Vice President
Chief Financial Officer
(Principal Accounting and
Financial Officer)
Page 23
<PAGE>
<TABLE>
Exhibit 11
GREENFIELD INDUSTRIES, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- -------------------
PRIMARY EARNINGS PER SHARE: 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average number of common shares outstanding 16,358 16,252 16,313 16,251
=========== ========== =========== =========
Net income $3,959 $8,085 $20,885 $23,055
=========== ========== =========== =========
Net income per common share $0.24 $0.50 $1.28 $1.42
=========== ========== =========== =========
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common shares outstanding 16,358 16,252 16,313 16,251
Shares issued upon assumed conversion of the Mandatorily
Redeemable Convertible Preferred Securities 2,788 -- 1,628 --
----------- ---------- ----------- ---------
Weighted average number of common and common
equivalent shares outstanding 19,146 16,252 17,941 16,251
=========== ========== =========== =========
Net income $3,959 $8,085 $20,885 $23,055
Interest expense on Mandatorily Redeemable Convertible
Preferred Securities, net of applicable income taxes 771 -- 1,542 --
----------- ---------- ----------- ---------
Net income, adjusted $4,730 $8,085 $22,427 $23,055
=========== ========== =========== =========
Net income per common share ** $0.50 $1.25 $1.42
=========== ========== =========== =========
(1) All numbers of shares in this exhibit are weighted on the basis of the
number of days the shares were outstanding or assumed to be outstanding
during each period. The effect of shares to be issued upon the exercise
of outstanding stock options is not material.
** Anti-dilutive
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ATTACHED
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD FOR THE PERIOD ENDED SEPTEMBER 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 6,737
<SECURITIES> 0
<RECEIVABLES> 84,972
<ALLOWANCES> 3,625
<INVENTORY> 152,046
<CURRENT-ASSETS> 247,409
<PP&E> 195,096
<DEPRECIATION> 56,789
<TOTAL-ASSETS> 548,096
<CURRENT-LIABILITIES> 65,070
<BONDS> 151,320
115,000
0
<COMMON> 164
<OTHER-SE> 195,355
<TOTAL-LIABILITY-AND-EQUITY> 548,096
<SALES> 384,089
<TOTAL-REVENUES> 384,089
<CGS> 266,835
<TOTAL-COSTS> 266,835
<OTHER-EXPENSES> 66,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,729
<INCOME-PRETAX> 35,149
<INCOME-TAX> 14,264
<INCOME-CONTINUING> 20,885
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,885
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.25
</TABLE>
