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, 1997
_____ 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. Yes X No
The number of shares of common stock outstanding at November 10, 1997
was 16,446,312 shares.
Yes X No
----- ---------
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, 1997 and 1996 (Unaudited) 3
Consolidated Balance Sheet -
September 30, 1997 (Unaudited) and
December 31, 1996 4
Consolidated Statement of Cash Flows -
nine months ended September 30, 1997 and
1996 (Unaudited) 5
Consolidated Statement of Changes in
Stockholders' Equity for the nine months
ended September 30, 1997 (Unaudited) 6
Notes to Consolidated Financial Statements 7 - 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 19
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 19
Signature 20
Page 2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
GREENFIELD INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $139,836 $121,370 $419,480 $ 384,089
Cost of sales 98,773 86,371 295,167 266,835
-------- -------- -------- ---------
Gross profit 41,063 34,999 124,313 117,254
Selling, general and
administrative expenses 27,032 20,045 77,777 66,367
Restructuring costs 4,000 4,000
------ ------ ------ ------
Operating income 14,031 10,954 46,536 46,887
Interest expense 3,670 2,567 9,699 8,729
Dividends at 6% per annum on company-obligated,
mandatorily redeemable convertible preferred securities
of subsidiary Greenfield Capital Trust holding solely
convertible junior subordinated debentures of the company 1,725 1,725 5,175 3,009
----- ----- ----- -----
Income before provision for
income taxes 8,636 6,662 31,662 35,149
Provision for income taxes 3,541 2,703 13,003 14,264
------- ------- ------ ------
Net income $ 5,095 $ 3,959 $ 18,659 $ 20,885
------- ------- ------ ------
------- ------- ------ ------
Earnings per share:
Primary $ 0.31 $ 0.24 $ 1.14 $ 1.28
------- ------- -------- ---------
------- ------- -------- ---------
Fully diluted (See Note 10) $ ** $ ** $ 1.13 $ 1.25
------- ------- -------- ---------
------- ------- -------- ---------
Weighted average common and common
equivalent shares outstanding:
Primary 16,423 16,358 16,404 16,313
------- ------- -------- ---------
------- ------- -------- ---------
Fully diluted 19,211 19,146 19,192 17,941
------- ------- -------- ---------
------- ------- -------- ---------
Dividends per common share $ 0.05 $ 0.04 $ 0.15 $ 0.12
------- ------- ------ ------
------- ------- ------ ------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 3
<PAGE>
GREENFIELD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
September 30, December 31,
1997 1996
---- ----
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ 1,721
Accounts receivable 98,100 83,199
Inventories, net 182,524 152,659
Prepaid expenses and other 5,875 8,034
---------- -----------
Total current assets 286,499 245,613
Property, plant and equipment, net 169,179 144,300
Goodwill, net 180,187 169,958
Other assets, net 2,302 2,773
---------- -----------
Total assets $ 638,167 $ 562,644
---------- -----------
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 6,632 $ 513
Accounts payable 31,026 22,392
Accrued liabilities 41,561 35,411
---------- -----------
Total current liabilities 79,219 58,316
Long-term debt 197,734 162,625
Deferred income taxes 10,302 9,524
Other long-term liabilities 18,891 16,451
---------- -----------
Total liabilities 306,146 246,916
---------- -----------
Commitments and contingencies (see Note 9)
Company-obligated, mandatorily redeemable
convertible preferred securities of
subsidiary Greenfield Capital Trust
holding solely convertible junior
subordinated debentures of the
company 115,000 115,000
---------- -----------
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;
16,445,757 and 16,374,925
shares issued and outstanding,
respectively 164 164
Additional paid-in capital and other 111,331 109,759
Retained earnings 108,622 92,425
Cumulative translation adjustment (3,096) (1,620)
---------- -----------
Total stockholders' equity 217,021 200,728
---------- -----------
Total liabilities and stock-
holders' equity $ 638,167 $ 562,644
---------- -----------
---------- -----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 4
<PAGE>
GREENFIELD INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In thousands)
Nine months ended
September 30,
<TABLE>
<CAPTION>
<S> <C> <C>
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 18,659 $ 20,885
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation 13,423 10,967
Amortization 3,755 3,274
Deferred income taxes 3,848 2,514
Tax benefits relating to exercise of stock options 197 302
Other 1,625 (821)
Changes in operating assets and liabilities, net of
the effects of acquisitions:
Accounts receivable, net (7,683) (2,874)
Inventories, net (19,327) (17,242)
Prepaid expenses and other 2,479 (2,411)
Accounts payable 306 (17,949)
Accrued liabilities 1,282 (1,358)
--------- ----------
Net cash provided by (used in)
operating activities 18,564 (4,713)
--------- ----------
Cash flows from investing activities:
Capital expenditures (26,189) (21,789)
Purchase of businesses, net of cash acquired
(see Note 3) (33,725) (96,503)
Other 1,733 2,352
--------- ----------
Net cash used in investing activities (58,181) (115,940)
--------- ----------
Cash flows from financing activities:
Proceeds from borrowings 49,673 128,375
Payments on borrowings (7,258) (116,660)
Net proceeds from issuance of 6% company-obligated,
mandatorily redeemable convertible preferred
securities of subsidiary Greenfield Capital Trust
holding solely convertible junior subordinated
debentures of the company -- 110,775
Dividends paid on common stock (2,462) (1,959)
Other 650 2,571
--------- ----------
Net cash provided by financing activiti 40,603 123,102
--------- ----------
Effect of exchange rate changes on cash (2,707) (970)
--------- ----------
Net decrease in cash (1,721) 1,479
Cash at beginning of period 1,721 5,258
--------- ----------
Cash at end of period $ 0 $ 6,737
--------- ----------
--------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
Page 5
<PAGE>
GREENFIELD INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Additional Cumulative
Common Paid-In Retained Translation
Stock Capital & Other Earnings Adjustment Total
------ --------------- -------- ----------- -----
Balance, December 31, 1996 $ 164 $ 109,759 $ 92,425 $ (1,620) $ 200,728
Net income 18,659 18,659
Exercise of stock options and
tax benefits related thereto 753 753
Dividends declared and paid
($0.15 per common share) (2,462) (2,462)
Partial repayment of stock
subscriptions receivable 133 133
Executive stock awards 686 686
Cumulative translation
adjustment (1,476) (1,476)
------- ----------- -------- ------------ ------------
Balance, September 30, 1997 $ 164 $ 111,331 $108,622 $ (3,096) $ 217,021
------- ----------- -------- ------------ ------------
------- ----------- -------- ------------ ------------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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 relating thereto included in the Company's Form 10-K for
the year ended December 31, 1996.
2. Principles of consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation.
3. Acquisitions
On March 31, 1997, the Company acquired the outstanding shares of Hanita
Metal Works, Ltd., an Israeli-based company, and its U. S. subsidiary Hanita
Cutting Tools, Inc. (collectively, Hanita) for approximately $20,800 and assumed
indebtedness of approximately $14,600. Hanita, with its primary manufacturing,
sales and distribution operations in Israel, is a leading manufacturer of
high-quality, high performance end mills and other cutting tools for the
metalworking industry. Hanita also sells and distributes products around the
world, including the United States. The acquisition was accounted for using the
purchase method of accounting and was financed through the Company's existing
unsecured credit facility. For the year ended December 31, 1996, Hanita had net
sales of approximately $27,000.
The pro forma effects of the acquisition on the Company's results of
operations are not material. The results of operations of Hanita are included in
the Company's consolidated financial statements from the date of acquisition.
Page 7
<PAGE>
4. Financing
The Company has a $180 million senior unsecured credit facility provided by
six institutions. The facility includes a $130 million multi-currency revolving
credit line and a $50 million U.S. acquisition line. The multi-currency
revolving facility provides for loans of up to DM 30 million and British Pounds
15 million. 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, 1997, borrowings under the multi-currency facility were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Currency Amount US $ Equivalent Interest Rates
-------- ------ --------------- --------------
U. S. Dollars $89,600 $89,600 6.6% to 6.8%
British Pounds Sterling British Pounds 8,100 $13,013 8.0% to 8.2%
German DeutscheMarks DM4,200 $2,394 4.0% to 4.2%
</TABLE>
As of September 30, 1997, there were no borrowings outstanding under the
acquisition facility.
On April 3, 1997, the Company issued $7,000 City of Pine Bluff, Arkansas
Tax- Exempt Adjustable Mode Industrial Development Revenue Bonds (Greenfield
Industries, Inc. Project), Series 1997 (Bonds) to pay for the planned equipment
purchases for its facility in Pine Bluff, Arkansas. The Bonds mature on April 3,
2009 and bear interest at 3.8% at September 30, 1997. The proceeds from the
Bonds are held in trust until needed for the equipment purchases. Approximately
$1,222 has been received from the Bonds as of September 30, 1997.
5. Company-Obligated, Mandatorily Redeemable Convertible Preferred Securities
of Subsidiary Greenfield Capital Trust Holding Solely Convertible Junior
Subordinated Debentures of the Company
On April 24, 1996, the Company completed a private placement to
institutional investors of $115,000 of 6% Convertible Preferred Securities
(liquidation preference $50 per Convertible Preferred Security). The placement
was made through the Company's wholly-owned subsidiary, Greenfield Capital Trust
(Trust), a newly-formed Delaware business trust. The securities represent
undivided beneficial ownership interests in the Trust. The sole asset of the
Trust is the $118,557 aggregate principal amount of the 6% Convertible Junior
Subordinated Deferrable Interest Debentures Due 2016 which were acquired with
the proceeds from the private placement of the Convertible Preferred Securities
and the offering and sale of Common Securities to the Company. The Company's
obligations under the Convertible Junior Subordinated Debentures, the Indenture
pursuant to which they were issued, the Amended and Restated Declaration of
Page 8
<PAGE>
Trust of the Trust and the Guarantee of Greenfield, taken together, constitute a
full and unconditional guarantee by Greenfield of amounts due on the Convertible
Preferred Securities. 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 $110,746 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.
In the event the tender offer described in Note 11 is consummated, it is
expected that the effective conversion price of the Convertible Preferred
Securities will be adjusted to approximately $36.05.
6. Dividends
On March 31, June 30 and September 30, 1997, the Company paid a cash
dividend of $0.05 per share to common stockholders of record on March 10, June
10 and September 10, 1997, respectively. Total dividends paid for the nine
months ended September 30, 1997 approximated $2,462.
On March 31, June 30 and September 30, 1997, Greenfield Capital Trust paid
quarterly cash dividends totaling approximately $5,175 to holders of the
Convertible Preferred Securities.
7. Supplemental balance sheet information
Supplemental balance sheet information is detailed below:
September 30, December 31,
1997 1996
---- ----
(Unaudited)
Inventories:
Raw material and component parts $ 68,988 $ 49,500
Work in process 43,060 38,055
Finished goods 70,476 65,104
------- --------
$182,524 $152,659
Accrued liabilities:
Employee compensation and benefits $ 22,566 $ 19,151
Restructuring costs 2,363 3,371
Interest 3,395 1,656
Other 13,237 11,233
-------- --------
$ 41,561 $ 35,411
-------- --------
-------- --------
Page 9
<PAGE>
8. Employee stock option plan
The Amended and Restated Employee Stock Option Plan (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 Employee
Plan was amended effective May 6, 1997, to, among other things, increase the
number of options to purchase shares of common stock from 1,000,000 to
2,000,000.
9. 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 or results of operations.
10. 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 quarters ended September 30, 1997 and 1996 due to the
anti-dilutive effect thereof.
11. Subsequent events
On October 10, 1997, the Company entered into a definitive merger agreement
with Kennametal Inc. (KMT), whereby Kennametal Acquisition Corp. (a wholly-owned
subsidiary of KMT) commenced a tender offer on October 17, 1997 for all of the
outstanding shares of the Company for $38 per share. The tender offer is
currently scheduled to expire on November 14, 1997. The tender offer is
conditioned on, among other things, there being tendered a majority of the
outstanding shares of the Company on a fully diluted basis. Under the terms of
the merger agreement, all outstanding options to acquire shares of the Company
will be cancelled in exchange for a payment equal to the difference between $38
per share and the strike price. The consummation of the merger is subject to the
satisfaction or waiver of a number of conditions, including the approval of the
merger by the requisite vote of the stockholders of the Company. Under the
General Corporation Law of the State of Delaware, the stockholder vote necessary
to approve the merger will be the affirmative vote of at least a majority of the
outstanding shares of the Company. Accordingly, if KMT, through Kennametal
Acquisition Corp., acquires a majority of the Company's outstanding shares, it
will have the voting power required to approve the merger without the
affirmative vote of any other stockholders of the Company.
Page 10
<PAGE>
In the fourth quarter of 1997, pursuant to a plan approved by the Company's
Board of Directors, the Company recorded a charge of $11.5 million for
non-recurring expenses primarily related to the restructuring of the Company's
South Deerfield, Massachusetts operations. These costs primarily included
write-downs to estimatd net realizable value of inventory and machinery and
equipment, severance costs and other miscellaneous expenses relative to the
Company's decision to discontinue the manufacture and sale of certain low margin
product lines. The restructuring will result in a reduction in personnel,
thereby eliminating excessive costs and redundancies in future periods. The
Company expects to record additional non-recurring expenses of approximately
$2.0 million in 1998 related to the rearrangement of the remaining operations at
its South Deerfield, Massachusetts facility.
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, 1997 compared to the
three and nine months ended September 30, 1996. 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, 1996.
The Company has made the following acquisitions in the past two years:
January 1996 Rule Industries, Inc. (Rule)
June 1996 Boride Products, Inc. (Boride)
July 1996 Arkansas Cutting Tools, a division of Production
Carbide & Steel Company (ACT)
December 1996 Bassett Rotary Tool Company (Bassett)
March 1997 Hanita Metal Works, Ltd. (Hanita)
Page 11
<PAGE>
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>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
1997 1996 1997 1996
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 70.6 71.2 70.4 69.5
----- ----- ----- -----
Gross profit 29.4 28.8 29.6 30.5
Selling, general and administrative
expenses 19.4 16.5 18.5 17.3
Restructuring costs -- 3.3 -- 1.0
----- ----- ----- -----
Operating income 10.0 9.0 11.1 12.2
Interest expense 2.6 2.1 2.4 2.3
Dividends at 6% per annum on company-
obligated, mandatorily redeemable
convertible preferred securities of subsidiary
Greenfield Capital Trust holding solely
convertible junior subordinated debentures
of the company 1.2 1.4 1.2 0.8
----- ----- ----- -----
Income before provision for income taxes 6.2 5.5 7.5 9.1
Provision for income taxes 2.6 2.2 3.1 3.7
----- ----- ----- -----
Net income 3.6% 3.3% 4.4% 5.4%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
Page 12
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS
ENDED SEPTEMBER 30, 1996
Net sales for the three months ended September 30, 1997 were $139.8
million, an increase of $18.4 million, or 15.2%, over net sales of $121.4
million for the three months ended September 30, 1996. Net sales for the three
months ended September 30, 1997 were favorably affected by incremental sales of
$10.9 million in the industrial products group as a result of acquisitions since
September 30, 1996. Excluding the effect of acquisitions, sales increased
primarily as a result of strong sales in the energy and construction,
engineered, electronics and consumer products groups due to strong customer
demand for those products. Net sales of the six product groups, including the
effects of acquisitions, were as follows:
($ in millions)
Three months
ended September 30,
Increase
1997 1996 (Decrease)
---- ---- ----------
Industrial $ 72.0 $ 59.1 $12.9
Engineered 20.4 18.2 2.2
Energy & Construction 17.1 15.6 1.5
Electronics 15.0 14.0 1.0
Consumer 9.8 8.7 1.1
Marine 5.5 5.8 (0.3)
------ ------ -------
$139.8 $121.4 $18.4
------ ------ -------
------ ------ -------
Gross profit increased 17.3% to $41.1 million for the three months ended
September 30, 1997 from $35.0 million in the comparable period in 1996 primarily
as a result of the sales increases discussed above. The gross profit margin
increased to 29.4% from 28.8%. The increase in gross profit margin resulted
primarily from improved manufacturing efficiencies experienced at certain
industrial and consumer products facilities, as compared to the same period in
1996.
Selling, general and administrative (SG&A) expenses increased $7.0 million
in the three months ended September 30, 1997 primarily as a result of the
acquisitions of Hanita and Bassett, and the costs associated with the higher
sales levels discussed above. SG&A expenses, as a percentage of sales, increased
to 19.4% from 16.5% in the comparable period in 1996, primarily as a result of
the acquisitions of Hanita and Bassett.
Page 13
<PAGE>
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 were 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.
Interest expense increased $1.1 million to $3.7 million for the three
months ended September 30, 1997 from $2.6 million for the three months ended
September 30, 1996. The increase in interest expense resulted from the increase
in the debt level of the Company primarily to finance acquisitions.
Net income increased to $5.1 million for the three months ended September
30, 1997, an increase of $1.1 million, or 28.7%, from the same period in 1996 as
a result of the factors noted above. Primary earnings per share increased to
$0.31 from $0.24 for the three months ended September 30, 1997 and 1996,
respectively.
Page 14
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the nine months ended September 30, 1997 were $419.5 million,
an increase of $35.4 million, or 9.2%, over net sales of $384.1 million for the
nine months ended September 30, 1996. The increases in net sales of the
industrial and engineered products groups resulted primarily from sales of newly
acquired businesses of $23.7 million and $5.5 million, respectively, while the
increase in net sales of the energy and construction, electronics and consumer
products groups was due to strong customer demand. Including the effect of the
newly acquired businesses, net sales of the six product groups were as follows:
($ in millions)
Nine months
ended September 30,
Increase
1997 1996 (Decrease)
---- ---- ---------
Industrial Products $216.8 $196.8 $20.0
Engineered Products 59.6 50.7 8.9
Energy & Construction Products 51.4 46.3 5.1
Electronics Products 45.6 45.5 0.1
Consumer Products 27.8 26.1 1.7
Marine Products 18.3 18.7 (0.4)
------ ------ -----
$419.5 $384.1 $35.4
------ ------ -----
------ ------ -----
Gross profit increased 6.0% to $124.3 million for the nine months ended
September 30, 1997 from $117.3 million in the comparable period in 1996
primarily as a result of the sales increases discussed above. The gross profit
margin decreased to 29.6% from 30.5%. The decrease in gross profit margin
resulted primarily from manufacturing inefficiencies experienced at certain
industrial and consumer products facilities.
SG&A expenses increased $11.4 million in the nine months ended September
30, 1997 and SG&A expenses as a percentage of net sales increased to 18.5% from
17.3% in the comparable period in 1996, primarily as a result of acquisitions
and higher costs necessary to support the higher sales levels.
Restructuring costs of $4.0 million were recorded for the quarter ended
September 30, 1996 relating primarily to severance and other employee-related
costs
Page 15
<PAGE>
associated with the reorganization and restructuring of the Company's business
groups. In connection with this reorganization, certain functions were
identified as redundant and were 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.
Dividends on company-obligated, mandatorily redeemable convertible
preferred securities of Greenfield Capital Trust (Convertible Preferred
Securities) were $5.2 million for the nine months ended September 30, 1997
compared to $3.0 million for the nine months ended September 30, 1996. In April
1996, the Company sold $115 million of 6% Convertible Preferred Securities. The
proceeds from the Convertible Preferred Securities, which are effectively
guaranteed by the Company, were used to repay existing indebtedness.
Net income decreased to $18.7 million for the nine months ended September
30, 1997, a decrease of $2.2 million, or 10.7%, from the nine months ended
September 30, 1996 as a result of the factors noted above. Primary and fully
diluted earnings per share decreased to $1.14 and $1.13 from $1.28 and $1.25 for
the nine months ended September 30, 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1997, cash provided by operating
activities was approximately $18.6 million while during the nine months ended
September 30, 1996, cash used in operating activities was approximately $4.7
million. In 1996, the Company paid certain past due account payables of the
acquired business of Rule.
Cash provided by operating and financing activities during the nine months
ended September 30, 1997 was used to fund the purchase of Hanita, to finance
capital expenditures of approximately $26.2 million and to pay dividends of
approximately $2.5 million on the common stock. Net borrowings of the Company
increased by approximately $42.4 million in the nine months ended September 30,
1997. During the nine months ended September 30, 1996, cash provided by
operating and financing activities was used to acquire Rule, Boride and ACT for
approximately $96.5 million, to finance capital expenditures of approximately
$21.8 million and to pay 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, primarily due to the acquisitions of
Rule, Boride and ACT offset by the repayment of indebtedness from the net
proceeds from the issuance of the Convertible Preferred Securities issued by the
Company's wholly-owned subsidiary Greenfield Capital Trust.
Page 16
<PAGE>
On March 31, 1997, the Company acquired all of the outstanding capital
stock of Hanita for approximately $20.8 million, and assumed indebtedness of
approximately $14.6 million. Hanita is a leading manufacturer of high quality,
high performance end mills for the metalworking industry.
The Company has a $180 million senior unsecured credit facility provided by
six institutions. The facility includes a $130 million multi-currency revolving
credit line and a $50 million U.S. acquisition line. The multi-currency
revolving facility provides for loans of up to DM30 million and British Pounds
15 million. As of September 30, 1997, the Company had approximately $89.6
million, British Pounds 8.1 million and DM4.2 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, 1997, the interest rates on the revolving credit line ranged
from approximately 4.0% to 8.2%. As of September 30, 1997, the buying rates for
British pounds and German DeutscheMarks were $1.61 per British pound and DM1.77
per dollar, respectively. As of September 30, 1997, the Company had no
borrowings outstanding under the acquisition line.
The senior unsecured multi-currency credit facility has a scheduled
maturity in December 2001. The agreement relating to the credit facility
contains provisions which, among other things, limit certain additional
borrowings and capital expenditures, require maintenance of certain
debt-to-capital and debt-to-cash-flow ratios and net worth levels. At September
30, 1997 and 1996, the Company was in compliance with such provisions.
On April 3, 1997, the Company issued $7 million City of Pine Bluff,
Arkansas Tax- Exempt Adjustable Mode Industrial Development Revenue Bonds
(Greenfield Industries, Inc. Project), Series 1997 (Bonds) to pay for the
planned equipment purchases for its facility in Pine Bluff, Arkansas. The Bonds
mature on April 3, 2009 and bear interest at 3.8% at September 30, 1997. The
proceeds from the Bonds are held in trust until needed for the equipment
purchases. Approximately $1.2 million has been received from the Bonds as of
September 30, 1997.
On May 19, 1997, the Company repaid in full the South Carolina
Jobs-Economic Development Authority Tax-Exempt Adjustable Mode Economic
Development Revenue Bonds (Greenfield Industries, Inc. Project), Series 1995.
On March 31, June 30 and September 30, 1997, the Company paid a quarterly
cash dividend of $0.05 per share to common stockholders of record on March 10,
June 10, and September 10, 1997, respectively. On March 31, June 30 and
September 30, 1997, Greenfield Capital Trust paid quarterly cash dividends
totaling approximately $5.2 million to holders of the Convertible Preferred
Securities.
Page 17
<PAGE>
On October 10, 1997, the Company entered into a definitive merger agreement
with Kennametal Inc. (KMT), whereby Kennametal Acquisition Corp. (a wholly owned
subsidiary of KMT) commenced a tender offer on October 17, 1997 for all of the
outstanding shares of the Company for $38 per share. The tender offer is
currently scheduled to expire on November 14, 1997. The tender offer is
conditioned on, among other things, there being tendered a majority of the
outstanding shares of the Company on a fully diluted basis. Under the terms of
the merger agreement, all outstanding options to acquire shares of the Company
will be cancelled in exchange for a payment equal to the difference between $38
per share and the strike price. The consummation of the merger is subject to the
satisfaction or waiver of a number of conditions, including the approval of the
merger by the requisite vote of the stockholders of the Company. Under the
General Corporation Law of the State of Delaware, the stockholder vote necessary
to approve the merger will be the affirmative vote of at least a majority of the
outstanding shares of the Company. Accordingly, if KMT, through Kennametal
Acquisition Corp., acquires a majority of the Company's outstanding shares, it
will have the voting power required to approve the merger without the
affirmative vote of any other stockholders of the Company.
In the fourth quarter of 1997, pursuant to a plan approved by the Company's
Board of Directors, the Company recorded a charge of $11.5 million for
non-recurring expenses primarily related to the restructuring of the Company's
South Deerfield, Massachusetts operations. These costs primarily included
write-downs to estimatd net realizable value of inventory and machinery and
equipment, severance costs and other miscellaneous expenses relative to the
Company's decision to discontinue the manufacture and sale of certain low margin
product lines. The restructuring will result in a reduction in personnel,
thereby eliminating excessive costs and redundancies in future periods. The
Company expects to record additional non-recurring expenses of approximately
$2.0 million in 1998 related to the rearrangement of the remaining operations at
its South Deerfield, Massachusetts facility.
As of September 30, 1997, the Company had a backlog of $51.2 million as
compared to $45.8 million as of December 31, 1996. 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 its existing credit facilities to meet
its currently anticipated needs for liquidity and capital expenditures.
Page 18
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, Statement of Financial Accounting Standards No. 128,
Earnings Per Share, (FAS 128), was issued. Management intends to adopt FAS 128
for the quarter ending December 31, 1997 and does not expect any material effect
from this adoption.
FORWARD-LOOKING STATEMENTS
Certain statements included herein are forward-looking statements. Actual
results could differ materially from those anticipated as a result of various
factors, including cyclical or other downturns in demand for the Company
products, manufacturing inefficiencies, the inability to achieve cost reductions
through consolidation and restructuring of acquired companies, and possible
future acquisitions that may not be complementary or additive.
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a)Exhibits
Exhibit 2.1 Solicitation/Recommendation Statement on Schedule 14D-9
filed with the Securities and Exchange Commission on October
17, 1997 ("Schedule 14D-9")
Exhibit 2.2 Agreement and Plan of Merger by and among Kennametal
Inc. Palmer Acquisition Corp. and the Company (filed as
Exhibit 1 to Schedule 14D-9 and incorporated herein by
reference thereto)
Exhibit 11 Statement Re: Computation of Per Share Earnings
Exhibit 27 Financial Data Schedule
Page 19
<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 13, 1997 /s/ Gary L. Weller
--------------------------------
Gary L. Weller
Executive Vice President and
Chief Financial Officer
(Principal Accounting and Financial Officer)
Page 20
GREENFIELD INDUSTRIES, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE: 1997 1996 1997 1996
---- ---- ---- ----
Weighted average number of common shares outstanding 16,423 16,358 16,404 16,313
------ ------ ------ ------
------ ------ ------ ------
Net income $5,095 $3,959 $18,659 $20,885
------ ------ ------ ------
------ ------ ------ ------
Net income per common share $0.31 $0.24 $1.14 $1.28
------ ------ ------ ------
------ ------ ------ ------
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of common shares outstanding 16,423 16,358 16,404 16,313
Shares issued upon assumed conversion of the
Mandatorily Redeemable Convertible Preferred
Securities 2,788 2,788 2,788 1,628
------ ------ ------ ------
Weighted average number of common and common
equivalent shares outstanding 19,211 19,146 19,192 17,941
------ ------ ------ ------
------ ------ ------ ------
Net income $5,095 $3,959 $18,659 $20,885
Interest expense on Mandatorily Redeemable
Convertible Preferred Securities, net of
applicable income 1,035 771 3,105 1,542
------ ------ ------ ------
Net income, adjusted $6,130 $4,730 $21,764 $22,427
------ ------ ------ ------
------ ------ ------ ------
Net income per common share ** ** $1.13 $1.25
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
(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> <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, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 103,453
<ALLOWANCES> 5,353
<INVENTORY> 182,609
<CURRENT-ASSETS> 281,904
<PP&E> 241,110
<DEPRECIATION> 71,931
<TOTAL-ASSETS> 638,454
<CURRENT-LIABILITIES> 78,301
<BONDS> 197,734
115,000
0
<COMMON> 164
<OTHER-SE> 218,032
<TOTAL-LIABILITY-AND-EQUITY> 638,454
<SALES> 419,480
<TOTAL-REVENUES> 419,480
<CGS> 295,167
<TOTAL-COSTS> 295,167
<OTHER-EXPENSES> 77,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,699
<INCOME-PRETAX> 31,662
<INCOME-TAX> 13,003
<INCOME-CONTINUING> 18,659
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,659
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.13
</TABLE>
