-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, a0redDfBu/h1xdY477ilvoFoLQX5ylFiT3+uTOQOOmfXYnEjUT3ZrXW+qJvnmAW8 dzHzWiqmEjxAh6O82bpw7A== 0000826619-94-000015.txt : 19941122 0000826619-94-000015.hdr.sgml : 19941122 ACCESSION NUMBER: 0000826619-94-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN A P INDUSTRIES INC CENTRAL INDEX KEY: 0000826619 STANDARD INDUSTRIAL CLASSIFICATION: 3250 IRS NUMBER: 430899374 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16452 FILM NUMBER: 94559367 BUSINESS ADDRESS: STREET 1: GREEN BLVD CITY: MEXICO STATE: MO ZIP: 65265 BUSINESS PHONE: 3144733626 FORMER COMPANY: FORMER CONFORMED NAME: A P GREEN INDUSTRIES INC DATE OF NAME CHANGE: 19900619 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 _______________ For the quarter ended September 30, 1994 Commission File No. 0-16452 A. P. GREEN INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 43-0899374 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Green Boulevard, Mexico, Missouri 65265 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 473-3626 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 the past 90 days. Yes x No Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: As of November 11, 1994, 4,027,282 shares of Common Stock, $1 par value, were outstanding. Page 1 of 24 A. P. GREEN INDUSTRIES, INC. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) September 30, December 31, 1994 1993 (Dollars in thousands, except per share data) ASSETS Current Assets Cash and cash equivalents $ 5,465 $ 16,331 Receivables (net of allowances - 1994, $1,727; 1993, $1,198) 40,012 26,873 Reimbursement due on paid asbestos claims 13,659 5,929 Inventories 54,230 25,735 Projected insurance recovery on asbestos claims 36,837 35,779 Deferred income tax benefit 5,705 4,493 Other 4,055 1,811 Total current assets 159,963 116,951 Property, plant and equipment, net 98,152 81,474 Non-current projected insurance recovery on asbestos claims 104,705 130,646 Long-term pensions 9,372 8,372 Other assets 6,929 1,871 Total assets $379,121 $339,314 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 20,024 $ 12,691 Accrued expenses Payrolls 6,221 4,342 Taxes other than on income 2,220 1,161 Insurance reserves 7,849 2,951 Current portion of projected asbestos claims 37,812 36,754 Other 11,275 4,130 Current maturities of long-term debt 135 123 Income taxes 1,178 601 Total current liabilities 86,714 62,753 Deferred income taxes 16,374 15,538 Long-term non-pension benefits 15,011 14,123 Long-term pensions 12,557 587 Long-term debt 37,057 12,160 Non-current projected asbestos claims 106,490 133,223 Total liabilities 274,203 238,384 Stockholders' Equity Preferred stock - $1 par value; authorized: 2,000,000 shares; issued and outstanding: none --- --- Common stock - $1 par value; authorized: 10,000,000 shares; issued: 4,475,629 in 1994 and 4,459,129 in 1993 4,476 4,459 Additional paid-in capital 72,739 72,492 Retained earnings 46,810 43,800 Less: Deferred currency translation (2,076) (2,301) Treasury stock of 448,347 shares, at cost (9,003) (9,003) Note receivable - ESOT (8,021) (8,491) Deferred compensation-restricted stock (7) (26) Total stockholders' equity 104,918 100,930 Total liabilities and stockholders' equity $379,121 $339,314 See accompanying notes to consolidated financial statements. -2- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollars in thousands, Three months ended September 30, except per share data) 1994 1993 Net sales $ 54,255 $ 40,723 Cost of sales 44,967 32,831 Gross profit 9,288 7,892 Expenses and other income Selling & administrative expenses 6,438 5,832 Interest expense 633 262 Interest income (343) (443) Other income, net (541) (394) Earnings before income taxes 3,101 2,635 Income tax expense 995 865 Equity in net income of affiliates 70 - Net earnings 2,176 1,770 Net earnings per common share $ 0.54 $ 0.44 Weighted average number of common shares 4,027,282 4,010,782 Dividends per common share $ 0.06 $ - See accompanying notes to consolidated financial statements. -3- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollars in thousands, Nine months ended September 30, except per share data) 1994 1993 Net sales $ 132,607 $ 121,281 Cost of sales 109,761 96,738 Gross profit 22,846 24,543 Expenses and other income Selling & administrative expenses 18,183 18,204 Interest expense 1,153 795 Interest income (986) (1,011) Other income, net (1,141) (922) Earnings before income taxes and cumulative effect of an accounting change 5,637 7,477 Income tax expense 1,739 2,597 Equity in net income of affiliates 70 - Earnings before cumulative effect of an accounting change 3,968 4,880 Cumulative effect of an accounting change Postemployment benefits, net of tax (255) - Net earnings $ 3,713 $ 4,880 Earnings per common share before cumulative effect of an accounting change $ 0.98 $ 1.22 Cumulative effect of an accounting change Postemployment benefits, net of tax (0.06) - Net earnings per common share $ 0.92 $ 1.22 Weighted average number of common shares 4,023,980 4,010,782 Dividends per common share $ 0.18 $ - See accompanying notes to consolidated financial statements. -4- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine Months Ended September 30, (Dollars in thousands) 1994 1993 Cash flows from operating activities Net earnings $ 3,713 $ 4,880 Adjustments for items not requiring cash Cumulative effect of an accounting change- Postemployment benefits, net of tax 255 - Depreciation, depletion, and amortization 6,187 5,701 Deferred compensation 19 45 Stock compensation to directors 28 - Provision for losses on accounts receivable 178 47 Loss (gain) on sale of assets (415) 41 Decrease (increase) in assets, net of effects from purchase of General Refractories operations Trade receivables (1,013) 764 Asbestos claim and fee reimbursements received 24,906 21,735 Inventories (5,746) (2,654) Receivable and prepaid taxes 509 - Other current assets (1,702) (319) Increase (decrease) in liabilities, net of effects from purchase of General Refractories operations Accounts payable and accrued expenses (1,260) 2,081 Asbestos claims paid (33,429) (25,488) Pensions 392 321 Income taxes 577 353 Deferred income taxes (229) 200 Long-term non-pension benefits 393 442 Net cash from (used in) operating activities (6,637) 8,149 Cash flows from investing activities Capital expenditures (5,133) (2,655) Decrease (increase) in other long-term assets 332 (507) Increase in pension assets (517) (742) Proceeds from sales of assets 494 23 Payment received on ESOT note 471 430 Purchase General Refractories operations (24,497) - Net cash used in investing activities (28,850) (3,451) Cash flows from financing activities Payment of debt (91) (94) Proceeds from issuance of long-term debt 25,000 - Dividends paid (725) - Exercised stock options 237 - Tax benefit on dividends paid to ESOP 22 - Tax effect on stock plan (3) (59) Net cash from (used in) financing activities 24,440 (153) Effect of exchange rate changes 181 (482) Net increase (decrease) in cash and cash equivalents (10,866) 4,063 Cash and cash equivalents at beginning of year 16,331 7,118 Cash and cash equivalents at end of period $ 5,465 $ 11,181 See accompanying notes to consolidated financial statements. -5- A. P. GREEN INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. MANAGEMENT'S COMMENTS REGARDING ADJUSTMENTS AND RESULTS OF OPERATIONS In the opinion of management, the accompanying consolidated financial statements include all adjustments of a normal and recurring nature necessary for a fair presentation of the financial position and results of operations for the periods presented. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1993. The results for the quarter ended September 30, 1994 are not necessarily indicative of the results which may occur for the full year. Certain balance sheet accounts as of September 30, 1993 and December 31, 1993 have been reclassified to be consistent with the presentation at September 30, 1994. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Investments in Other Companies and Ventures Equity investments of 20% to 49% are accounted for using the equity method. This method increases or decreases the investment through recognition of the Company's share of undistributed earnings or losses of the investee company. Equity investments of more than 50% in entities are consolidated for financial reporting purposes. All intercompany balances and transactions have been eliminated. Related party transactions are not material. 3. ACQUISITIONS Effective August 1, 1994, the Company acquired substantially all of the assets and assumed most of the liabilities of the refractory operations of General Refractories Company and its affiliated companies (collectively referred to as "General"). These operations include nine plants in the United States, a plant near Toronto, Canada and 49% equity interests in two Colombian refractory companies. In addition to the assumption of designated liabilities, the Company paid at closing a cash amount of $23,450,000. The acquisition was funded by the borrowing of $25,000,000 from a group of institutional lenders. The acquisition was accounted for using the purchase method, with the operating results of General included in consolidated operating results since the date of acquisition. -6- No financial statements of General for periods prior to the acquisition or pro forma financial information reflecting the acquisition of General as of the beginning of the year have been provided because the U.S. refractory operations of General were not combined for financial reporting purposes for the three most recently completed fiscal years and were not capable of being audited for the most recently completed fiscal year. The Company concluded, after analyzing the financial books and records of the refractory operations of General, that there could be no assurance that such financial statements or pro forma financial information would accurately reflect the financial condition, results of operations, cash flows or changes in stockholder's equity for General's refractory operations. 4. CHANGES IN METHOD OF ACCOUNTING Postemployment Benefits The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," in November 1992. The standard requires application of the accrual method of accounting to all benefits provided to former or inactive employees, their beneficiaries and covered dependents, subsequent to their employment by the Company and prior to retirement, rather than recognizing these expenses as they are paid. Effective January 1, 1994, the Company adopted this standard and recognized the projected benefit obligation relating to short-term and long-term disability benefits as a cumulative effect of an accounting change, reducing net income by $255,000, or $.06 per share. The annual incremental expense is not expected to be material. Projected Asbestos Claims and Insurance Reimbursements In prior years, the Company reported its projected asbestos claims and projected insurance reimbursements relating to such claims net within accrued liabilities. With the issuance of FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," the Company has determined that the amounts should be reported gross rather than net. As such, the consolidated statements of financial position and cash flows as of September 30, 1994 reflect both the gross projected liability for asbestos claims and gross projected insurance reimbursements related to those claims on a current and non-current basis. The consolidated statement of financial position as of December 31, 1993 and the consolidated statement of cash flows as of September 30, 1993 have been restated to be consistent with the 1994 presentation. There was no impact on operating results of this "grossed-up" presentation. -7- 5. INVENTORIES September 30, 1994 December 31, 1993 Finished goods & work-in-process Valued at LIFO: FIFO cost $ 38,941 $25,150 Less LIFO reserve (14,718) (14,003) LIFO cost 24,223 11,147 Valued at FIFO 7,674 3,935 TOTAL 31,897 15,082 Raw materials and supplies Valued at LIFO: FIFO cost 19,324 11,017 Less LIFO reserve (5,468) (5,431) LIFO cost 13,856 5,586 Valued at FIFO 8,477 5,067 TOTAL 22,333 10,653 $54,230 $25,735 6. LONG-TERM DEBT On July 28, 1994, the Company's $15 million U.S. long-term line of credit was extended to March 1, 1996. Certain restrictive covenants were amended and added to mirror those reflected in the new borrowing agreement, as described below. On July 29, 1994, the Company borrowed $25 million from a group of institutional lenders to finance the acquisition of General. The notes are unsecured and bear an 8.55% fixed rate of interest, with semi-annual interest payments commencing January 29, 1995. Annual principal repayments, which management believes will be funded out of working capital, will commence July 29, 1996 and continue through July 29, 2001. Aggregate maturities of these notes are $0, $2.5 million, $2.5 million, $5.0 million and $5.0 million for 1995 through 1999, respectively. Under the Note Purchase Agreement, A. P. Green is subject to certain restrictive covenants including levels of tangible net worth, working capital, fixed charge coverage, permitted encumbrances and loans from and to other institutions. Management does not expect these restrictive covenants to have a material adverse effect on A. P. Green's operations. -8- 7. ACQUIRED PENSION PLANS In connection with the General acquisition, the Company acquired the assets and assumed the liabilities of various Canadian and U.S. pension plans covering the Canadian employees and substantially all of the U.S. hourly employees. Plan benefits are generally based on years of service and compensation during the last year of employment. Company contributions are made in accordance with independent actuarial reports. The assets consist primarily of listed common stocks and debt securities. All of the acquired U.S. plans and the acquired Canadian hourly plan are underfunded, while the acquired Canadian salaried plan is overfunded. The following table sets forth the actuarial present values of benefit obligations and funded status of the acquired plans as of August 1, 1994: _______________________________________________________________________ Underfunded Overfunded (In thousands) Plans Plan _______________________________________________________________________ Projected benefit obligations $ 29,157 $ 1,180 Plans' assets at fair value 17,579 1,663 Net over (under) funding $(11,578) $ 483 The actuarial present value of projected benefit obligations for the acquired U.S. plans were measured using an expected long-term rate of return on plan assets of 8.5%, a discount rate of 8.25% and no assumed increase in future compensation levels. For the acquired Canadian plans, an expected long-term rate of return on plan assets of 8.5%, a discount rate of 8.0% and 6.5% rate of increase in future compensation levels were assumed. 8. LITIGATION Asbestos-related Claims - Personal Injury A. P. Green is among numerous defendants in lawsuits pending as of September 30, 1994 that seek to recover compensatory, and in many cases, punitive damages for personal injury allegedly resulting from exposure to asbestos-containing products manufactured, sold or installed by A. P. Green. A. P. Green is a member of the Center for Claims Resolution (the Center), an organization of twenty companies (Members) who were formerly distributors or manufacturers of asbestos-containing products. The Center administers, evaluates, settles, pays and defends all of the asbestos-related personal injury lawsuits involving its Members. Under the terms of the Center Agreement, each Member's portion of the liability payments and defense costs are based upon, among other things, the number and type of claims brought against it. Claims activity for the Company for each of the years ended December 31, 1993 and 1992 was as follows: -9- ____________________________________________________________________ 1993 1992 ____________________________________________________________________ Claims pending at January 1 50,007 38,681 Claims filed 26,100 19,767 Cases settled, dismissed or otherwise resolved (23,985) (8,441) Claims pending at December 31 52,122 50,007 Average settlement amount per claim(1) $ 1,728 $ 1,875 ____________________________________________________________________ (1) Substantially all settlements are covered by the Company's insurance program. On January 15, 1993, the Members were named as defendants in a class action lawsuit pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania brought on behalf of all persons who have been occupationally exposed to asbestos-containing products of the Members and who have not filed suit against any Member for such exposure (the Class). At about the same time, the Center negotiated and filed with the Court a settlement (the Settlement) between the Members and the Class. Under the terms of the Settlement, the Members have agreed to pay compensation to any member of the Class who has, according to objective medical criteria, physical impairment as a result of such exposure. Different levels of compensation will be paid depending on the type and degree of physical impairment. No punitive damages will be paid. The Settlement provides, among other things, for a cap on the number of claims to be processed each year during the next ten years and a range of settlement values for each disease category. Settlement values are based on historical average payments by the Center for similar cases. Each Member will be responsible for its percentage share of each claim payment (no joint and several liability), such shares having been previously negotiated among the Members. The Settlement does not become operative until it has received appropriate court approval. In accordance with Rule 23, the Court ordered that appropriate notice be given to the Class. Hearings were held to determine the fairness of the Settlement and the court ruled that the settlement was fair. In a third party action filed simultaneously with the class action, the Members have asked for a declaratory judgment against their respective insurers that such insurers cannot use the Settlement as a defense to their payment under applicable policies of insurance. The Settlement is expressly contingent upon such declaratory relief. In addition, some Members, including A. P. Green, have asked for a declaratory judgment against their insurers with whom they have not reached coverage resolutions. -10- Under the assumption that it receives these court approvals, the Settlement has provided the Company with a basis for estimating its potential liability and related insurance recovery associated with asbestos cases. The Company has reviewed its policies of insurance, historical settlement amounts, the number of pending cases and the projected number of claims to be filed pursuant to the Settlement and the Company's share of amounts to be paid thereunder. The Company has also reviewed its contractual liability for the payment of deductibles under insurance policies defending asbestos cases brought against a former subsidiary. Based upon such reviews, the Company has estimated and recorded its liability for such cases and claims as well as its projected insurance reimbursements related to such claims. While management understands the inherent uncertainty in litigation of this type and the possibility that past costs may not be indicative of future costs, management does not believe that these claims and cases will have any additional material adverse effect on the Company's consolidated financial position or results of operations. Management anticipates that payments for these claims will occur over at least ten years and can be made from normal operating cash sources. In addition to asbestos-related personal injury claims asserted against A. P. Green, a number of claims have been asserted against Bigelow- Liptak Corporation (now known as A. P. Green Services, Inc.), a subsidiary of the Company. These claims have been and are currently being handled by such subsidiary's insurance carriers. No claim for reimbursement of defense or indemnity payments has been made against the Company or such subsidiary by any such carriers. The Company is also contractually liable to The E. J. Bartells Company (Bartells), a former subsidiary, for deductible amounts on certain insurance policies insuring Bartells against asbestos-related personal injury claims issued when it was owned by A. P. Green. The Company has estimated the amounts of such deductibles and provision for such estimate was made in the Company's 1992 financial statements. Asbestos-related Claims - Property Damage A. P. Green is also among numerous defendants in a property damage class action suit pending in South Carolina. A. P. Green previously has been dismissed from a number of property damage cases and believes that it should be dismissed from the South Carolina case based on the end uses of its products. A similar suit pending in the State of Oregon involves a former wholly owned subsidiary of the Company and is being defended by the Company's insurance carrier. Based upon the Company's history in these asbestos-related property damage claims, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. There was no assumption of asbestos-related liability, either personal injury or property damage, in connection with the acquisition of General. -11- Environmental The EPA or other private parties have named the Company or one of its subsidiaries as a potentially responsible party in connection with three superfund sites in the United States. The Company is a de minimis party with respect to two of the sites and expects to arrive at settlement agreements with respect to them for amounts of not more than $10,000 per site. With respect to the third, involving a wholly owned subsidiary of the Company, there does not appear to be any evidence of delivery to the site of hazardous material by the subsidiary. An estimate has been made of the costs to be incurred in these matters and the Company has recorded a reserve respecting those costs. Other A. P. Green is subject to numerous claims and lawsuits that arise in the ordinary course of business, some of which seek damages in substantial amounts, including punitive or extraordinary damages. Reserves for these claims and lawsuits have been recorded to the extent that losses are deemed probable and are estimable. Although the ultimate outcome of these claims and lawsuits cannot be accurately predicted and liabilities in indeterminate amounts may be imposed on A. P. Green, it is the opinion of management that the disposition of such claims and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of A. P. Green. -12- A. P. GREEN INDUSTRIES, INC. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1993 Total sales increased 33.2% from $40.7 million for the three months ended September 30, 1993 to $54.3 million for the comparable 1994 three- month period. Gross profit increased 17.7% from $7.9 million to $9.3 million for the comparable periods. The impact from the addition of General products for August and September, 1994 was to increase sales by $11.3 million and gross profit by $1.5 million. Refractory Products and Services Refractory products and services sales increased 41.9% from $32.1 million for the third quarter of 1993 to $45.6 million for third quarter of 1994. United States refractory sales increased 45.8% from $27.3 million to $39.8 million for the comparable three-month periods, of which $10.0 million was due to the General acquisition. Excluding this acquisition impact, brick, specialties and ceramic fiber volumes all increased, partially offset by a reduction in clays and grogs, for a net increase of 12.5%. U.S. refractory prices were up 0.6% for the comparable quarters, with price increases in specialties and ceramic fibers offset by a decline in brick pricing. Sales of the Canadian subsidiary showed significant improvement from $3.5 million for the three-month period ended September 30, 1993 to $5.3 million for the comparable 1994 period, a 54.0% increase. The impact from the General acquisition was to increase Canadian sales by $1.3 million. Excluding this impact, volumes increased across all product lines with the exception of specialties, which was unchanged for the comparable quarters, for an overall volume improvement of 15.4%. Price increases for specialties, ceramic fibers and pre-cast shapes were partially offset by declines in brick and crucibles pricing, resulting in an overall price improvement of 7.7%. The higher Canadian sales, as well as cost savings resulting from the restructuring which took place during the first quarter of 1994, generated pre-tax earnings of $372,000 including a $3,000 pre-tax loss from the acquired Canadian company, a 109.0% increase over 1993 earnings of $178,000. Sales in the United Kingdom (U.K.) declined 14.5% from $2.8 million to $2.4 million due to continuing weakness in the U.K. market. This decrease in sales resulted in a reduction in pre-tax income from $244,000 in the third quarter of 1993 to $187,000 in the comparable 1994 period. -13- Cost of sales as a percentage of sales increased from 81.0% to 82.9% for the three months ended September 30, 1993 and 1994, respectively. This increase was primarily due to higher raw material costs, increased workers compensation costs and higher brick breakage costs in the U.S. during 1994 compared to 1993. Also contributing to the cost increase were higher U.S. pension costs due to plan benefit changes and a lower favorable LIFO inventory cost adjustment in the third quarter of 1994 compared to the same period in 1993, partially offset by reduced freight and processing fuel costs. Cost of sales as a percentage of sales at the acquired General plants also contributed to the increase due primarily to maintenance costs necessary to bring these facilities up to an appropriate state of repair. Refractory operating profits increased 41.4% from $2.7 million in 1993 to $3.8 million in 1994 due primarily to the results of the General operations. Industrial Lime Industrial lime sales increased 0.9% from $8.6 million to $8.7 million for the respective third quarters of 1993 and 1994. Volume was mixed, with reductions in quicklime and hydrate sales at the Kimballton, Virginia plant and road stabilization lime at the New Braunfels, Texas plant partially offset by increases in all other product lines for a net volume reduction of 0.7%. Cal-Dol prices declined at the Kimballton plant, offset by increases in all other Kimballton and New Braunfels product lines, resulting in a 1.7% overall price increase. Gross profit and operating profit for the industrial lime operations decreased 16.0% and 17.3%, respectively, primarily due to higher equipment repair costs at both plants. Also contributing to this decline were increased purchased raw material, processing fuel and workers' compensation costs at the New Braunfels plant and higher depreciation at both plants due to increased capital expenditures. Partially offsetting these increases were lower processing fuel costs at the Kimballton plant and improved production efficiencies as compared to the third quarter of 1993. Expenses and Other Income Selling and administrative expenses increased 10.4% from $5.8 million in the third quarter of 1993 to $6.4 million for the comparable 1994 period. Increases in salaries and related costs, primarily due to the addition of General sales personnel, and professional and legal fees, partially offset by a reduction in management incentives, contributed the majority of the increase. Also contributing to the increase was a partial recovery during the third quarter of 1993 of a trade receivable previously written off. Interest expense was up 141.5% from 1993 to 1994 due to interest on the additional debt related to the General acquisition. There were no bank line borrowings during the third quarter of either period. Interest income for the third quarter of 1994 declined 22.6% from the comparable -14- 1993 three-month period due primarily to interest received during the third quarter of 1993 in connection with partial recovery of a trade receivable previously written off. This was partially offset by increased interest income on time deposits as a result of increased funds available for investing and higher interest rates. Other income increased 37.4% for the comparable three-month periods due to a gain on the sale of a warehouse property in Los Angeles, California, partially offset by lower royalty income and currency conversion losses on U.S. dollar denominated accounts at the Canadian subsidiary compared to gains during the third quarter of 1993. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and accordingly are not subject to significant currency conversion gains and losses. During the third quarter of 1994, a license agreement with a significant Mexican licensee was canceled by mutual agreement due to the acquisition of the licensee by a competitor of A. P. Green. This will result in a loss of royalty income to the Company of approximately $400,000 on an annual basis, $100,000 in the current year. This should be more than offset by the Company's share of income from the two new Colombian affiliates. RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1993 Total sales increased 9.3% from $121.3 million for the nine months ended September 30, 1993 to $132.6 million for the comparable 1994 nine-month period. Gross profit declined 6.9% from $24.5 million to $22.8 million for the comparable periods. The impact from the addition of General products for August and September, 1994 was to increase sales by $11.3 million and gross profit by $1.5 million. Refractory Products and Services Refractory products and services sales were $95.2 million and $107.0 million for the nine months ended September 30, 1993 and September 30, 1994, respectively, reflecting an increase of 12.4%. U.S. refractory sales were up 12.9% from $83.8 million for the nine months ended September 30, 1993 to $94.6 million for the comparable 1994 period, of which $10.0 million was due to the General acquisition. Excluding this acquisition impact, increased volumes in specialties and ceramic fibers were partially offset by reduced volumes in brick and clays and grogs, resulting in an overall volume increase of 1.4%. Prices were up slightly for the comparable nine-month periods, with price increases on specialties and ceramic fibers partially offset by brick price reductions. -15- Sales at the Canadian subsidiary increased 29.1% from $9.2 million for the nine months ended September 30, 1993 to $11.8 million for the comparable 1994 period. The impact from the General acquisition was to increase Canadian sales by $1.3 million. Excluding this impact, volumes increased across all product lines by an average of 18.7%, reflecting increased sales to previous competitors in the Canadian refractory installation business. Price increases on specialties, ceramic fibers and pre-cast shapes were partially offset by price declines on brick and crucibles, resulting in an overall price increase of 4.3%. Pre-tax earnings of $589,000, including a pre-tax loss of $3,000 from the acquired Canadian company, increased 50.6% over 1993 pre-tax earnings due to higher sales and cost savings resulting from the restructuring which took place during the first quarter of 1994. Current year results also include a pre-tax reserve of approximately $315,000 which was established during the first quarter for the cost of Canadian personnel reductions made during that quarter. Absent that adjustment, the Canadian subsidiary generated a pre-tax margin of 7.6% during the first nine months of 1994 compared to 4.3% during the comparable 1993 period. Continuing weakness in the United Kingdom market resulted in a sales decline at that subsidiary of 12.6% from $5.8 million for the first nine months of 1993 compared to $5.1 million for the first nine months of 1994. This lower sales level resulted in a pre-tax earnings decline from $105,000 in 1993 to $67,000 in 1994. Refractory products cost of sales as a percentage of sales increased from 80.0% in 1993 to 82.8% in 1994. This increase was primarily due to higher raw material costs, equipment maintenance expense and group insurance cost. Also contributing to the increase were higher U.S. pension costs due to plan benefit changes, a lower favorable LIFO inventory cost adjustment in 1994 compared to 1993 and higher brick breakage costs in the U.S. during 1994 compared to 1993. Cost of sales as a percentage of sales at the acquired General plants also contributed to the increase due primarily to maintenance costs necessary to bring these facilities up to an appropriate state of repair. Partially offsetting these increases were reduced utilities, freight, casualty insurance and processing fuel costs. Refractory operating profits declined 13.0% from $8.3 million to $7.2 million in 1993 and 1994, respectively. Industrial Lime Industrial lime sales decreased 1.9% from $26.2 million to $25.7 million for the nine-month periods ended September 30, 1993 and 1994, respectively. Volume reductions in hydrate and quicklime at the Kimballton plant and road stabilization lime at the New Braunfels plant, partially offset by increases in sales to the steel, aluminum and building lime markets at New Braunfels, combined for an overall volume reduction of 3.6%. A production curtailment of several days at the Kimballton plant during the first quarter as a result of severe weather conditions contributed to the volume decline at that facility. Prices increased an average of 1.8%, with increases across all product lines with the exception of hydrate at the Kimballton plant. -16- The gross margins of the Company's industrial lime operations are sensitive to volume changes due to the capital intensive nature of the operations and semi-fixed nature of other costs. As a result of the sales decline, gross profit and operating profit decreased 18.7% and 19.5%, respectively. Also contributing to this decline were increased depreciation expense due to increased capital expenditures at both plants, higher purchased raw material costs at the New Braunfels plant and increased group insurance costs at both plants. Partially offsetting these increases were reduced workers' compensation and palletizing costs at the New Braunfels plant. Expenses and Other Income Selling and administrative expenses were unchanged at $18.2 million for both nine-month periods. Reductions in management incentives and annual sales meeting costs were offset by increases in salaries and related costs, primarily due to the addition of General sales personnel, an increase in sales promotion costs and a partial recovery during the third quarter of 1993 of a trade receivable previously written off. Interest expense increased 45.1% from 1993 to 1994 due to the additional debt associated with the acquisition of General. There were no bank line borrowings during either period. Interest income decreased 2.4% due to interest received during the third quarter of 1993 in connection with partial recovery of a trade receivable previously written off. This was partially offset by increased interest income on time deposits as a result of increased funds available for investing and higher interest rates. Other income increased 23.7% due to a gain on the sale of land during the first quarter of 1994, gain on the sale of a Los Angeles warehouse during the third quarter of 1994 and a business interruption insurance recovery in 1994 related to a loss incurred at the New Braunfels, Texas lime plant during 1993. Partially offsetting these improvements were currency conversion losses on U.S. dollar denominated accounts at the Canadian subsidiary compared to gains during the third quarter of 1993 and reduced royalty income. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and accordingly are not subject to significant currency conversion gains and losses. Income Taxes The 30.8% effective income tax rate in 1994 as compared to 34.7% in 1993 is primarily due to higher depletion expense at APG Lime for tax purposes than for book. Accounting Changes The cumulative effect of adopting the Financial Accounting Standards Board Statement No. 112, "Employer's Accounting for Postemployment Benefits," further reduced 1994 net income by $255,000. -17- INDUSTRY SEGMENTS (In thousands) Nine Months Ended September 30, 1994 1993 Net Sales Refractory products and services $106,978 $ 95,210 Industrial lime 25,745 26,235 Intersegment eliminations (116) (164) $132,607 $121,281 Gross Profit Refractory products and services $ 18,380 $ 19,053 Industrial lime 4,466 5,490 $ 22,846 $ 24,543 Gross Profit Percentage Refractory products and services 17.2% 20.0% Industrial lime 17.3% 20.9% 17.2% 20.2% Operating Profit Refractory products and services $ 7,186 $ 8,264 Industrial lime 3,661 4,547 10,847 12,811 Other Charges to Income General corporate expenses, net 5,043 5,550 Interest expense 1,153 795 Interest income (986) (1,011) Total other charges 5,210 5,334 Earnings Before Income Taxes and Cumulative Effect of an Accounting Change $ 5,637 $ 7,477 Identifiable Assets (at period end) Refractory products and services $322,084 $285,884 Industrial lime 47,396 44,004 Corporate 9,641 15,466 $379,121 $345,354 -18- Nine Months Ended September 30, 1994 1993 Depreciation and Depletion Refractory products and services $ 3,466 $ 3,250 Industrial lime 1,998 1,776 Corporate 723 675 $ 6,187 $ 5,701 Capital Expenditures Refractory products and services $ 1,644 $ 1,056 Industrial lime 2,986 1,190 Corporate 503 409 $ 5,133 $ 2,655 GEOGRAPHIC SEGMENTS (In thousands) Nine Months Ended September 30, 1994 1993 Net Sales United States $120,333 $110,033 Canada 11,843 9,175 United Kingdom 5,065 5,798 Intersegment transfers (primarily U.S.) (4,634) (3,725) $132,607 $121,281 Earnings Before Income Taxes and Cumulative Effect of an Accounting Change United States $ 4,981 $ 6,981 Canada 589 391 United Kingdom 67 105 $ 5,637 $ 7,477 Identifiable Assets (at period end) United States $348,481 $316,406 Canada 16,760 8,688 United Kingdom 4,239 4,794 Corporate 9,641 15,466 $379,121 $345,354 -19- PRICE/VOLUME SUMMARY 1994 AS COMPARED TO 1993 PERCENT INCREASE (DECREASE) Three Nine Months Months Ended Ended September 30, 1994 September 30, 1994 U.S. Refractory Products Sales (excluding impact of General Refractories acquisition) Volume 12.5% 1.4% Price 0.6 0.5 Industrial Lime Sales Volume (0.7) (3.6) Price 1.7 1.8 -20- FINANCIAL CONDITION The Company continues to maintain a strong balance sheet. Summary Information (Dollars in thousands) September 30, December 31, 1994 1993 1993 Working capital $ 73,249 $ 52,981 $ 54,198 Current ratio 1.8:1 1.9:1 1.9:1 Total assets $379,121 $345,354 $339,314 Current maturities of long-term debt 135 118 123 Long-term debt 37,057 12,193 12,160 Stockholders' equity $104,918 $ 99,502 $100,930 Debt to total capitalization(1) 26.2% 11.0% 10.8% (1) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. The following balance sheet increases (decreases) resulted from the General acquisition on August 1, 1994 (in millions): Receivables, net $12.3 Inventories 22.7 Deferred income tax benefit 1.1 Other current assets 0.4 Total current assets 36.5 Property, plant and equipment 18.7 Long-term pension assets 0.5 Other long-term assets 5.4 Total assets $61.1 -21- Accounts payable $ 8.9 Accrued payrolls 1.5 Accrued taxes other than on income 0.6 Accrued insurance 4.7 Accrued other 7.6 Total current liabilities 23.3 Deferred income taxes 1.1 Long-term non-pension benefits 0.1 Long-term pensions 11.6 Notes payable 25.0 Total liabilities $61.1 Working capital $13.2 In connection with the General acquisition, the Company obtained a Phase I and II Environmental Site Assessment (ESA) in order to determine the potential environmental impact of specific recognized environmental conditions at each of the acquired properties and estimate the costs for remediation. Based upon the results of the ESA and a report and opinion provided thereon, the Company established a $3.4 million liability for remediation costs (in accrued other) as part of the General acquisition purchase accounting. The majority of this liability relates to known or potential leakage and spills from underground and aboveground storage tanks and drums, and action is being taken to remediate all identified conditions in the near future. Appropriate state agencies have been notified of contamination where required, and there have been no resulting actions taken or proposed against the Company. There was no asbestos-related liability, either for bodily injury or property damage, assumed in connection with the General acquisition. In order to increase the efficiency of refractory operations, the Company has announced the closing of three of the acquired General plants. In connection therewith, a $3.5 million liability was established (in accrued other) as part of the General acquisition purchase accounting. Included in this amount are estimated operating costs of these facilities prior to their disposal, severance pay and costs associated with clean-up and sale of the facilities. The Company expects to dispose of these facilities within twelve months of their closing. The net realizable value of the properties to be sold of approximately $900,000 was included in other current assets at September 30, 1994. Excluding the impact from the General acquisition, working capital increased $7.1 million from September 30, 1993 to September 30, 1994 due primarily to a $5.9 million increase in reimbursements due on paid asbestos claims. This change, as well as the $7.8 million increase in such reimbursements since December 31, 1993, was a result of an -22- increase in the number of asbestos cases settled rather than the aging of receivables. Also contributing to the increase in working capital since September 30, 1993 was a $2.5 million increase in trade receivables due to increased sales, a $1.9 million increase in inventories, a $1.8 million increase in projected insurance recovery on asbestos claims and a $2.1 million increase in other current assets, partially offset by a $4.6 million reduction in cash and cash equivalents and a $2.8 million increase in current portion of projected asbestos claims. The increase in other current assets was due primarily to $900,000 in fixed assets held for sale from closed plants and a $600,000 advance payment on raw materials in Canada. The decrease in assets of $26.2 million, net of the acquisition impact, from September 30, 1993 to September 30, 1994 was due to a decrease in non- current projected insurance recovery on asbestos claims of $35.6 million, partially offset by the current asset increases discussed above. The liability for projected asbestos claims declined $37.1 million during the same period. These reductions were due primarily to asbestos claim payments recovered from insurance carriers during the 12 month period ended September 30, 1994, partially offset by adjustments to the Company's projected asbestos liability. The decrease in assets from December 31, 1993 to September 30, 1994 of $20.2 million, net of the acquisition impact, was due to decreases of $9.7 million in cash and cash equivalents and $24.9 million in projected insurance recovery on asbestos claims, including current portion, partially offset by increases of $7.8 million in reimbursement due on paid asbestos claims, as previously discussed, $5.8 million in inventories and $1.9 million in other current assets. The increase in inventories was due primarily to recent receipts of bauxite and temporary increases in inventories of certain products manufactured by the General plants being shut down to ensure the ability to service customer demand during the period in which production of these products is transferred to the remaining plants. The decrease in projected insurance recovery on asbestos claims, as well as a decrease of $25.7 million in projected insurance claims, including current portion, were due primarily to asbestos claim payments recovered from insurance carriers during the first nine months of 1994. The increase in other current assets was due primarily to $900,000 in fixed assets held for sale from closed plants and a $600,000 advance payment on raw materials in Canada. Capital spending for the industrial lime operation increased 150.9% from $1.2 million to $3.0 million for the comparable nine-month periods. The majority of these expenditures related to productivity improvements, enhanced environmental controls and replacement of existing equipment which could no longer be maintained in service cost effectively. -23- A. P. GREEN INDUSTRIES, INC. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit No. 27 Financial Data Schedule for Nine Months Ended September 30, 1994 (b) Reports on Form 8-K: On August 12, 1994, the Company filed Form 8- K to report, under Item 2, the acquisition of substantially all of the assets and assumption of most of the liabilities of the refractory operations of General Refractories Company and its affiliated companies. No financial statements of the acquired business or pro forma financial statements reflecting the acquisition were provided under Item 7 for reasons described in Note 3 to the Consolidated Financial Statements included herein. 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. A. P. Green Industries, Inc. (Registrant) By: /s/ Gary L. Roberts Gary L. Roberts Vice President, Chief Financial Officer and Treasurer Date: November 11, 1994 -24- EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF SEPTEMBER 30, 1994 AND THE CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1994 SEP-30-1994 5,465 0 40,012 1,727 54,230 159,963 98,152 0 379,121 86,714 37,192 4,476 0 0 100,442 379,121 132,607 132,607 109,761 109,761 18,183 0 1,153 5,637 1,739 3,968 0 0 (255) 3,713 .92 0
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