-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ALsA7fL0kW5AQPA0fTCTq6j+52GpOkIbGwfqdICg8z4qlPCr6JC8sk3GMnz1Gs0B JpMqkcmC6//MFPES560mYA== 0000826619-96-000013.txt : 19961118 0000826619-96-000013.hdr.sgml : 19961118 ACCESSION NUMBER: 0000826619-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN A P INDUSTRIES INC CENTRAL INDEX KEY: 0000826619 STANDARD INDUSTRIAL CLASSIFICATION: STRUCTURAL CLAY PRODUCTS [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: 96665831 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, 1996 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: (573) 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 12, 1996, 8,021,508 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, 1996 1995 ------------- ------------ (Dollars in thousands, except per share data) ASSETS Current Assets Cash and cash equivalents $ 5,464 $ 9,284 Receivables (net of allowances - 1996, $1,684; 1995, $1,930) 40,837 44,183 Reimbursement due on paid asbestos claims 4,098 3,696 Inventories 52,217 55,557 Projected insurance recovery on asbestos claims 24,590 21,990 Deferred income tax asset 2,601 4,115 Other 8,049 6,411 ------- ------- Total current assets 137,856 145,236 Property, plant and equipment, net 98,418 96,785 Non-current projected insurance recovery on asbestos claims 93,354 113,168 Pension assets 9,101 9,071 Intangible assets, net 4,232 3,941 Other assets 5,186 5,367 ------- ------- Total assets $348,147 $373,568 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 15,347 $ 18,254 Accrued expenses Payrolls 5,850 6,281 Taxes other than on income 2,307 1,889 Insurance reserves 3,848 4,657 Current portion of projected asbestos claims 24,811 22,198 Other 6,906 8,534 Current maturities of long-term debt 2,942 2,705 Income taxes 684 1,103 ------- ------- Total current liabilities 62,695 65,621 Deferred income taxes 10,630 12,671 Long-term non-pension benefits 16,381 15,597 Long-term pensions 12,646 14,233 Long-term debt 31,804 34,384 Non-current projected asbestos claims 94,472 115,048 ------- ------- Total liabilities 228,628 257,554 ------- ------- Minority Interests 1,502 2,015 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: 8,975,442 in 1996 and 4,486,221 in 1995 8,975 4,486 Additional paid-in capital 68,309 72,770 Retained earnings 61,030 56,981 Less:Deferred foreign currency translation (3,075) (2,931) Treasury stock of 953,934 shares in 1996, 448,962 in 1995, at cost (9,497) (9,018) Note receivable-ESOT (6,941) (7,505) Minimum pension liability adjustment, net of tax (784) (784) ------- ------- Total stockholders' equity 118,017 113,999 ------- ------- Total liabilities and stockholders' equity $348,147 $373,568 ======= ======= See accompanying notes to consolidated financial statements. 2 A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three months ended September 30, -------------------------------- (Dollars in thousands, except per share data) 1996 1995 ------------ ------------ Net sales $61,948 $62,652 Cost of sales 53,006 51,464 ------ ------ Gross profit 8,942 11,188 Expenses and other income Selling & administrative expenses 8,648 8,029 Interest expense 766 806 Interest income (279) (414) Minority interest in loss of partnership (35) (15) Other income, net (324) (382) ------ ------ Earnings before income taxes 166 3,164 Income tax expense (benefit) (66) 920 Equity in net income of affiliates -- (136) Minority interest in income (loss) of consolidated subsidiaries (112) 115 ------ ------ Net earnings $ 344 $ 2,265 ====== ====== Net earnings per common share $ 0.04 $ 0.28 ====== ====== Weighted average number of common shares 8,021,508 8,057,064 ========= ========= Dividends per common share $ 0.04 $ 0.04 ====== ====== See accompanying notes to consolidated financial statements. 3 A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Nine months ended September 30, ------------------------------- (Dollars in thousands, except per share data) 1996 1995 ------------ ------------ Net sales $195,720 $188,856 Cost of sales 161,927 157,271 ------- ------- Gross profit 33,793 31,585 Expenses and other income Selling & administrative expenses 26,599 23,688 Interest expense 2,343 2,396 Interest income (885) (1,124) Minority interest in loss of partnership (76) (42) Other income, net (591) (644) ------- ------- Earnings before income taxes 6,403 7,311 Income tax expense 2,307 1,279 Equity in net income of affiliates (379) (542) Minority interest in income (loss) of consolidated subsidiaries (437) 115 ------- ------- Net earnings $ 4,912 $ 6,459 ======= ======= Net earnings per common share $ 0.61 $ 0.80 ======= ======= Weighted average number of common shares 8,043,150 8,056,798 ========= ========= Dividends per common share $ 0.11 $ 0.11 ======= ======= 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) 1996 1995 ------------ ------------ Cash flows from operating activities Net earnings $ 4,912 $ 6,459 Adjustments for items not requiring (providing) cash Depreciation, depletion and amortization 7,902 7,538 Deferred compensation earned -- 4 Stock compensation to directors 28 23 Provision for losses on accounts receivable 511 483 Loss on sale of assets 14 79 Equity in undistributed earnings of affiliates (95) (127) Minority interest in earnings (losses) of consolidated subsidiaries and partnership (513) 73 Decrease (increase) in assets Trade receivables 2,834 2,488 Asbestos claim and fee reimbursements received 17,260 24,295 Inventories 3,340 1,211 Receivable and prepaid taxes (137) -- Other current assets (1,626) (896) Increase (decrease) in liabilities Accounts payable and accrued expenses (5,258) (12,628) Asbestos claims paid (18,508) (17,755) Pensions (1,588) 77 Income taxes (418) (386) Deferred income taxes (527) (1,189) Long-term non-pension benefits 784 239 ------- ------- Net cash provided by operating activities 8,915 9,988 ------- ------- Cash flows from investing activities Capital expenditures (9,374) (6,924) Decrease (increase) in other long-term assets (454) 677 Increase in pension assets (30) (34) Proceeds from sales of assets 389 252 Payment received on ESOT note 564 -- Purchase of Plibrico de Mexico operation, net of cash acquired -- (1,763) ------- ------- Net cash used in investing activities (8,905) (7,792) ------- ------- Cash flows from financing activities Repayments of debt (2,669) (131) Proceeds from borrowings 325 -- Dividends paid (884) (846) Purchases of common stock for treasury (480) -- Capital contribution from minority partner -- 120 Tax benefit on dividends paid to ESOT 22 23 Tax effect on stock plan -- 2 ------- ------- Net cash used in financing activities (3,686) (832) ------- ------- Effect of exchange rate changes (144) 33 ------- ------- Net increase (decrease) in cash and cash equivalents (3,820) 1,397 Cash and cash equivalents at beginning of year 9,284 9,637 ------- ------- Cash and cash equivalents at end of period $ 5,464 $ 11,034 ======= ======= 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, 1995. The results for the quarter and nine-month period ended September 30, 1996 are not necessarily indicative of the results which may occur for the full year. All per share amounts have been restated to reflect the two-for-one stock split effective September 20, 1996. 2. RESERVES FOR PLANT CLOSINGS --------------------------- The Company has reserves for estimated exit costs and termination benefits in connection with the shutdown of certain facilities in the U.S. and Canada. Three of the plants acquired in the acquisition of the refractories assets of General Refractories Company and its affiliated companies ("General") were closed during 1994, a $3.6 million reserve for which was established at the time of acquisition and included on the opening balance sheet. During the second quarter of 1995 this reserve was increased by approximately $330,000, primarily to revise estimates of employee termination benefits resulting from the sale of these facilities taking longer than anticipated. A $380,000 reserve was also established during the second quarter of 1995 for the closing of the Weston, Ontario plant, which was sold in December 1995. Substantially all employees at these facilities (approximately 210 in total) have been terminated and approximately $3.1 million of termination benefits and plant closing costs have been charged against the reserves to date. The U.S. facilities are held for sale at their estimated net realizable value. 6 3. INVENTORIES ----------- September 30, 1996 December 31, 1995 ------------------ ----------------- Finished goods & work-in-process Valued at LIFO: FIFO cost $ 33,435 $ 36,429 Less LIFO reserve (15,221) (14,186) ------- ------- LIFO cost 18,214 22,243 Valued at FIFO 10,805 10,404 ------- ------- TOTAL 29,019 32,647 ------- ------- Raw materials and supplies Valued at LIFO: FIFO cost 17,823 18,187 Less LIFO reserve (5,992) (5,234) ------- ------- LIFO cost 11,831 12,953 Valued at FIFO 11,367 9,957 ------- -------- TOTAL 23,198 22,910 ------- ------- $ 52,217 $ 55,557 ======= ======= 4. LITIGATION ---------- Asbestos-related Claims - Personal Injury ----------------------------------------- A. P. Green is among numerous defendants in lawsuits pending as of September 30, 1996 that seek to recover compensatory, and in many cases, punitive damages for personal injury allegedly resulting from exposure to asbestos-containing products. 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, 1995, 1994 and 1993 was as follows: 7 ---------------------------------------------------------------------- 1995 1994 1993 ---------------------------------------------------------------------- Claims pending at January 1 50,920 52,122 50,007 Claims filed 12,560 14,836 26,100 Cases settled, dismissed or otherwise resolved (15,113) (16,038) (23,985) ------- ------- ------- Claims pending at December 31 48,367 50,920 52,122 ======= ======= ======= Average settlement amount per claim(1) $ 1,778 $ 1,816 $ 1,728 (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 brought on behalf of all persons who have been occupationally exposed to asbestos-containing products of the Members and who have unasserted claims for such exposure (the Class) pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania. 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 established. Hearings were held to determine the fairness of the Settlement and the court ruled that the Settlement was fair and enjoined Class members from filing lawsuits in the tort system against the Members. The Center is processing and settling claims filed by Class members pursuant to the Settlement. This ruling has been appealed by certain objectors. On May 10, 1996, the United States Court of Appeals for the Third Circuit ordered the District Court to decertify the Class and vacate the injunction prohibiting Class members from filing suit in the tort system against the Members of the Center. A petition for rehearing was denied. A petition to the Supreme Court for a writ of certiorari was filed and, on November 1, 1996, was granted. In a third party action filed simultaneously with the class action (and in parallel Alternate Dispute Resolution proceedings), 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 insurance policies. The Settlement is expressly contingent upon such declaratory relief. In addition, some Members, 8 including A. P. Green, have asked for a declaratory judgment against their insurers with whom they have not reached coverage resolutions. No decision has been rendered at this date with respect to these issues. 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 insurance policies, 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 certain insurance policies insuring the E. J. Bartells Company (Bartells), a former subsidiary, against asbestos-related personal injury claims, such policies having been issued when Bartells was owned by A. P. Green. Additionally, the Company has reviewed the claims asserted by Bartells against the issuers of such policies and any exposure of the Company to such claims. Based upon such reviews, the Company has estimated its liability for such cases and claims to be approximately $119.3 million and $137.2 million at September 30, 1996 and December 31, 1995, respectively, with partially offsetting projected insurance reimbursements of approximately $117.9 million and $135.1 million, respectively. 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 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. Except for deductible amounts or retentions provided for under insurance policies, no claim for reimbursement of defense or indemnity payments has been made against the Company or such subsidiary by any such carriers. 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. 9 There was no assumption of asbestos-related liability, either personal injury or property damage, in connection with the August 1994 acquisition of the refractory assets of General. Environmental ------------- The EPA or other private parties have named the Company or one of its subsidiaries as a potentially responsible party in connection with two superfund sites in the United States. The Company is a de minimis party with respect to one of the sites and expects to arrive at a settlement agreement and consent decree with respect to it for an amount of not more than $10,000. With respect to the second, 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 claims and other lawsuits that arise in the ordinary course of business, some of which may seek damages in substantial amounts, including punitive or extraordinary damages. Reserves for these claims and lawsuits are recorded to the extent that losses are deemed probable and are estimable. In the opinion of management, the disposition of all current claims and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of A. P. Green. 10 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, 1996 COMPARED TO - ------------------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 1995 - ------------------------------------- Total sales decreased 1.1% to $61.9 million for the three months ended September 30, 1996 from $62.7 million for the comparable 1995 three-month period. Gross profit decreased 20.1% to $8.9 million from $11.2 million for the comparable periods. The impact from the December 1995 acquisition of Lanxide ThermoComposites, Inc. and subsidiary, Chiam Technologies, Inc. (collectively referred to as LTI) was to increase sales by $588,000 and reduce gross profit by $105,000 due to the relatively high percentage of fixed costs at the initial low volume level. The impact from the INTOGREEN partnership formed in January 1995 was to increase sales by $357,000 and gross profit by $34,000. The additional sales from new ventures were offset by a decline in U.S. refractory sales as discussed below. Refractory Products and Services - -------------------------------- Refractory products and services sales decreased 1.9% to $52.2 million for the three months ended September 30, 1996 from $53.2 million for the comparable 1995 period. United States refractory sales were $43.9 million and $44.6 million for the three-month periods ended September 30, 1996 and 1995, respectively, a decrease of 1.6%. The impact from LTI and INTOGREEN was to increase U.S. refractory sales by $945,000. Excluding this acquisition impact, U.S. refractory product sales volumes decreased an average of 0.5%, with decreases in brick volumes partially offset by increases in all other product lines. Prices for brick, specialties and precast shapes were down compared to the third quarter of 1995, partially offset by an increase in ceramic fiber pricing for a net price decline of 1.0%. U.S. export sales improved 13.3% to $5.8 million in the third quarter of 1996 from $5.1 million for the third quarter of 1995 as the Company's international business continued to expand. Sales of the Canadian subsidiary increased 7.0% to $6.1 million for the three-month period ended September 30, 1996 from $5.7 million for the comparable 1995 period. Specialties and crucible volume increases were partially offset by declines in brick, ceramic fiber and precast shape volumes for an average volume increase of 1.0%. Prices increased an average of 7.3% across all product lines except clays and grogs. As a result of the sales increase and continuing cost control measures, the Canadian operation generated pre-tax earnings of $253,000 for the third quarter of 1996 compared to a pre-tax loss of $120,000 for the comparable 1995 period. 11 Sales in the United Kingdom (U.K.) declined to $2.4 million for the third quarter of 1996 from $2.7 million for the comparable 1995 period. U.K. pre-tax earnings were $185,000 for the three months ended September 30, 1996 compared to $196,000 for the 1995 period. Sales at A. P. Green de Mexico for the three months ended September 30, 1996 increased 24.4% to $2.2 million compared to $1.8 million for the 1995 period, with 1996 pre-tax earnings of $258,000 compared to $249,000 for the third quarter of 1995. Start up expenses at the new plant in Indonesia resulted in a $36,000 pre-tax loss for the third quarter of 1996. Electrical problems unexpectedly delayed the opening of this facility until the fourth quarter of 1996, with delivery of customer orders commencing the first quarter of 1997. Refractory products cost of sales as a percentage of sales increased to 87.4% compared to 83.3% for the three months ended September 30, 1996 and 1995, respectively. This increase was primarily due to the high level of fixed costs at LTI, increased raw material costs, higher brick breakage variances and a higher unfavorable LIFO inventory adjustment during the third quarter of 1996 than in the same period of 1995. Partially offsetting these cost increases were improved production efficiencies and reduced workers' compensation insurance, group health insurance and processing fuels expense. Refractory operating profits declined 88.2% to $388,000 from $3.3 million for the comparable three-month periods, due to both the reduction in gross margins and additional selling and administrative costs associated with LTI and the new plant in Indonesia. Industrial Lime - --------------- Industrial lime sales increased 3.4% to $9.8 million from $9.5 million for the respective third quarters of 1996 and 1995. Volumes increased an average of 0.5%, with increases in building lime at the New Braunfels, Texas plant and Cal-Dol at the Kimballton, Virginia plant partially offset by declines in road stabilization lime at New Braunfels and quicklime and hydrate at Kimballton. Prices for industrial and road stabilization lime improved at New Braunfels, partially offset by a decline in building lime prices, while quicklime and hydrate prices improved and Cal-Dol prices declined at Kimballton, resulting in an overall price increase of 2.9%. 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 increase, gross profit and operating profit increased 2.2% and 2.1%, respectively. Increased equipment maintenance expense, purchased material costs and professional fees were offset by improved efficiencies and lower workers' compensation insurance costs at New Braunfels, while costs at Kimballton were essentially level with prior year. 12 Expenses and Other Income - ------------------------- Selling and administrative expenses increased 7.7% to $8.6 million in the third quarter of 1996 from $8.0 million for the comparable 1995 period. The increase was primarily due to the addition of LTI, INTOGREEN and the new plant in Indonesia. Interest expense declined to $766,000 in 1996 from $806,000 in 1995, due primarily to a $2.5 million payment made on July 29, 1996 against the debt incurred for the General acquisition. There were no bank line borrowings during either three-month period. Interest income for the third quarter of 1996 decreased 32.6% to $279,000 from $414,000 in the comparable 1995 three-month period due to reduced funds available for investing and a shortening of the average investment maturity resulting in lower average interest rates. Other income declined 15.2% for the comparable three-month periods. This decline was primarily due to a reduction in royalty income resulting from a final payment received in the third quarter of 1995 related to an expired royalty agreement. Partially offsetting this decline in royalties were gains on the sale of the Pueblo, Colorado plant and certain equipment at the closed Warren, Ohio plant. Termination benefits and exit costs associated with the Pueblo plant were not material to the consolidated results. 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. A. P. Green de Mexico and PT A. P. Green Indonesia transact a significant portion of their business in U.S. dollars and, as such, use the dollar as their functional currency. This results in currency conversion gains and losses on transactions in their local currencies, the Mexican peso and Indonesian Rupiah, A. P. Green's portion of which were not significant to the consolidated results. Income Taxes - ------------ The tax benefit in the third quarter of 1996 was due primarily to partial recognition of benefits from the pre-tax start up losses of LTI during the first half of 1996. Long-term projections of LTI's operating results indicate future earnings should be adequate to ensure realization of the benefits from the tax loss in future periods. Equity in Net Income of Affiliates - ---------------------------------- Due to a recession in the Colombian construction industry, political uncertainty and a general decline in economic conditions in Colombia, there was no income from the Company's two Colombian affiliates for the three months ended September 30, 1996, whereas the Company's share of income for the comparable 1995 period was $136,000. Current projections do not indicate a significant improvement in these results in the near future. 13 RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE - ----------------------------------------------------------------------------- MONTHS ENDED SEPTEMBER 30, 1995 - ------------------------------- Total sales increased 3.6% to $195.7 million for the nine months ended September 30, 1996 from $188.9 million for the comparable 1995 nine-month period. Gross profit increased 7.0% to $33.8 million from $31.6 million for the comparable periods. The impact from the July 1995 A. P. Green de Mexico acquisition was to increase sales by $3.6 million and gross profit by approximately $1.1 million. The impact from the December 1995 acquisition of LTI was to increase sales by $1.5 million and reduce gross profit by $153,000 due to the relatively high percentage of fixed costs at the initial low volume level. The impact from the INTOGREEN partnership formed in January 1995 was to increase sales by $596,000 and gross profit by $81,000, while the new Indonesian plant reduced gross profit by $53,000 with no sales. Refractory Products and Services - -------------------------------- Refractory products and services sales were $165.9 million and $160.5 million for the nine months ended September 30, 1996 and September 30, 1995, respectively, reflecting an increase of 3.4%. U.S. refractory sales increased 2.6% to $142.2 million for the nine months ended September 30, 1996 from $138.7 million for the comparable 1995 period. The impact from LTI and INTOGREEN was to increase U.S. refractory sales by $2.1 million. Excluding this impact, volume declines in brick and precast shapes were partially offset by increases in specialties and ceramic fiber volume for a net volume decline of 2.5%. Prices improved across all product lines an average of 4.0%. U.S. export sales increased 45.4% to $19.6 million for the nine-month period ended September 30, 1996 from $13.4 million for the comparable 1995 period. Sales at the Canadian subsidiary declined 1.3% to $18.1 million for the nine months ended September 30, 1996 from $18.3 million for the comparable 1995 period. Reduced volumes in brick, specialties, ceramic fibers and precast shapes were partially offset by a 31.7% improvement in high-margin crucible volume for a net volume decline of 8.7%. Prices increased across all product lines with the exception of ceramic fibers, resulting in an overall price increase of 9.7%. Also contributing to the sales decline were an unexpected repair requiring a one month kiln shutdown and a slower than anticipated start up of the new specialties line at the Smithville, Ontario plant, which was built to absorb the production from the Weston, Ontario plant closed during 1995. The Canadian subsidiary generated pre-tax income of $357,000 for the nine months ended September 30, 1996 compared to a pre-tax loss of $138,000 for the comparable 1995 period. Improvements in production efficiency and reduced property taxes compared to 1995 were partially offset by increased equipment maintenance and pension costs. The 1995 loss was primarily due to establishment of a reserve of approximately $380,000 for exit costs and termination benefits for 26 employees associated with the closing and sale of the Weston, Ontario plant, which was announced in June 1995. 14 Sales by the United Kingdom subsidiary were unchanged at $7.1 million for the first nine months of both 1996 and 1995. Pre-tax earnings declined slightly to $428,000 for the nine months ended September 30, 1996 compared to $438,000 for the 1995 period. A. P. Green de Mexico's sales for the nine months ended September 30, 1996 were $5.8 million, with pre-tax earnings of $823,000. For the three-month period of 1995 under A. P. Green ownership, A. P. Green de Mexico's sales were $1.8 million, with pre-tax earnings of $249,000. Start up expenses at the new plant in Indonesia resulted in a $114,000 pre-tax loss for the nine months ended September 30, 1996. Refractory products cost of sales as a percentage of sales decreased to 83.9% in 1996 from 84.6% in 1995. This improvement was primarily due to greater production efficiencies and reduced workers' compensation insurance, processing fuels and freight expense. The first nine months of 1995 also included increases in the obsolete inventory and U.S. plant shutdown reserves, both of which were established at the time of the General acquisition related to facilities to be closed, as well as establishment of the Canadian plant shutdown reserve previously mentioned. Partially offsetting these improvements were increased group health insurance and equipment maintenance costs, high fixed costs at LTI and unfavorable LIFO inventory adjustments during the first nine months of 1996 compared to favorable adjustments during the same period of 1995. Refractory operating profits declined 6.4% to $7.9 million from $8.4 million in 1996 and 1995, respectively, primarily due to selling and administrative expenses associated with the new acquisitions and ventures. Industrial Lime - --------------- Industrial lime sales increased 4.9% to $29.9 million from $28.5 million for the nine-month periods ended September 30, 1996 and 1995, respectively. Volumes were essentially flat, with increases across all product lines at the New Braunfels plant offset by declines across all product lines at the Kimballton plant. Average selling prices increased an average of 4.5% across all product lines at both plants with the exception of Cal-Dol at Kimballton. As a result of the sales increase, industrial lime gross profit increased 3.3% to $7.1 million, or 23.6% of sales, from $6.8 million, or 24.0% of sales. The decline in gross profit percentage was due primarily to increased equipment maintenance costs at both plants and higher workers' compensation insurance cost at Kimballton, partially offset by lower outside processing costs at Kimballton. Industrial lime operating profit increased 3.2% to $6.1 million for the first nine months of 1996 compared to $5.9 million for the comparable 1995 period. 15 Expenses and Other Income - ------------------------- Selling and administrative expenses increased 12.3% to $26.6 million in 1996 from $23.7 million in 1995. The increase was primarily due to the addition of A. P. Green de Mexico, LTI, INTOGREEN and PT A. P. Green Indonesia, general salary and related expense increases and an increase in postretirement benefit costs, partially offset by lower salaried pension costs. Interest expense decreased to $2.3 million in 1996 from $2.4 million in 1995, due primarily to a $2.5 million payment made on July 29, 1996 against the debt incurred for the General acquisition. There were no bank line borrowings during either nine-month period. Interest income decreased 21.2% due to reduced funds available for investing and a shortening of the average investment maturity resulting in lower average interest rates. Other income decreased 8.2% to $591,000 in 1996 from $644,000 in 1995, due primarily to a decrease in royalty income and reduced currency translation gains, partially offset by the gains on asset sales previously mentioned. 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. A. P. Green de Mexico and PT A. P. Green Indonesia transact a significant portion of their business in U.S. dollars and, as such, use the dollar as their functional currency. This results in currency conversion gains and losses on transactions in their local currencies, the Mexican peso and Indonesian Rupiah, A. P. Green's portion of which were not significant to the consolidated results. Income Taxes - ------------ The 1996 effective tax rate was 36.0% compared to 17.5% in 1995. The higher 1996 effective rate was due primarily to limited recognition of tax benefits from the pre-tax start up losses of LTI. A portion of those benefits were recognized during the third quarter of 1996, as long-term projections of LTI's operating results indicate future earnings should be adequate to ensure realization of the benefits from the tax loss in future periods. During the second quarter of 1995, a review of tax years 1988 through 1993 was completed by the Internal Revenue Service, resulting in a small additional payment to clear federal tax liability for those years. Due to the outcome of this review being more favorable than originally anticipated, the Company reduced its provision for federal income taxes by $1.1 million. Absent that adjustment, the tax rate for the nine months ended September 30, 1995 would have been 32.1%. 16 Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from its two Colombian affiliates was $379,000 for the nine months ended September 30, 1996 compared to $542,000 for the comparable 1995 period. The reduction was due to a recession in the Colombian construction industry, political uncertainty and a general decline in economic conditions in Colombia. Third quarter 1996 results and current projections indicate reduced income levels will continue in the near future. 17 INDUSTRY SEGMENTS (In thousands) Nine Months Ended September 30, ------------------------------- 1996 1995 -------- -------- NET SALES Refractory products and services $ 165,887 $ 160,472 Industrial lime 29,933 28,523 Intersegment eliminations (100) (139) -------- -------- $ 195,720 $ 188,856 ======== ======== GROSS PROFIT Refractory products and services $ 26,737 $ 24,753 Industrial lime 7,056 6,832 -------- -------- $ 33,793 $ 31,585 ======== ======== GROSS PROFIT PERCENTAGE Refractory products and services 16.1% 15.4% Industrial lime 23.6% 24.0% 17.3% 16.7% ======== ======== OPERATING PROFIT Refractory products and services $ 7,864 $ 8,402 Industrial lime 6,132 5,945 -------- -------- 13,996 14,347 -------- -------- OTHER CHARGES TO INCOME General corporate expenses, net 6,135 5,764 Interest expense 2,343 2,396 Interest income (885) (1,124) -------- -------- Total other charges 7,593 7,036 -------- -------- EARNINGS BEFORE INCOME TAXES $ 6,403 $ 7,311 ======== ======== 18 Nine Months Ended September 30, ------------------------------- 1996 1995 -------- -------- IDENTIFIABLE ASSETS (AT PERIOD END) Refractory products and services $ 292,639 $ 280,188 Industrial lime 47,127 46,935 Corporate 8,381 14,553 -------- -------- $ 348,147 $ 341,676 ======== ======== DEPRECIATION, DEPLETION AND AMORTIZATION Refractory products and services $ 5,050 $ 4,720 Industrial lime 2,100 2,043 Corporate 752 775 -------- -------- $ 7,902 $ 7,538 ======== ======== CAPITAL EXPENDITURES Refractory products and services $ 7,275 $ 5,208 Industrial lime 1,832 1,531 Corporate 267 185 -------- -------- $ 9,374 $ 6,924 ======== ======== GEOGRAPHIC SEGMENTS (In thousands) Nine Months Ended September 30, ------------------------------- 1996 1995 -------- -------- NET SALES United States $ 172,128 $ 167,183 Canada 18,089 18,332 United Kingdom 7,058 7,108 Far East -- -- Mexico 5,776 1,754 Intersegment transfers (primarily U.S.) (7,331) (5,521) -------- -------- $ 195,720 $ 188,856 ======== ======== 19 Nine Months Ended September 30, ------------------------------- 1996 1995 -------- -------- EARNINGS (LOSS) BEFORE INCOME TAXES United States $ 4,909 $ 6,762 Canada 357 (138) United Kingdom 428 438 Mexico 823 249 Far East (114) -- -------- -------- $ 6,403 $ 7,311 ======== ======== IDENTIFIABLE ASSETS (AT PERIOD END) United States $ 304,651 $ 298,713 Canada 19,348 16,909 United Kingdom 4,865 4,930 Mexico 5,851 5,460 Far East 5,051 1,111 Corporate 8,381 14,553 -------- -------- $ 348,147 $ 341,676 ======== ======== PRICE/VOLUME SUMMARY 1996 AS COMPARED TO 1995 PERCENT INCREASE (DECREASE) Three Nine Months Months Ended Ended September 30, 1996 September 30, 1996 ------------------ ------------------ U.S. REFRACTORY PRODUCTS SALES (excluding impact of LTI and INTOGREEN) Volume (0.5)% (2.5)% Price (1.0) 4.0 INDUSTRIAL LIME SALES Volume 0.5 0.4 Price 2.9 4.5 20 FINANCIAL CONDITION The Company continues to maintain a strong balance sheet. Summary Information (Dollars in thousands) September 30, ------------------------ December 31, 1996 1995 1995 ------ ------ ------------ Working capital $ 75,161 $ 80,488 $ 79,615 Current ratio 2.2:1 2.1:1 2.2:1 Total assets $ 348,147 $ 341,676 $ 373,568 Current maturities of long-term debt 2,942 2,655 2,705 Long-term debt 31,804 34,469 34,384 Stockholders' equity $ 118,017 $ 112,735 $ 113,999 Debt to total capitalization(1) 22.7% 24.8% 24.5% (1)Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. Working capital declined 6.6%, or $5.3 million, to $75.2 million at September 30, 1996 from $80.5 million at September 30, 1995, while the ratio of current assets to current liabilities increased to 2.2:1 from 2.1:1. The decline in working capital was primarily due to a reduction in cash of $5.6 million as funds were used for the new Indonesian plant and the operation of new ventures. The impact from the December 1995 acquisition of LTI was not material. Working capital declined 5.6%, or $4.5 million, since December 31, 1995. Declines in cash of $3.8 million, accounts receivable of $3.3 million and inventories of $3.3 million were partially offset by decreases in accounts payable of $2.9 million and insurance reserves and other accrued expenses of $2.4 million. The decrease in accounts receivable and inventories since December 31, 1995, as well as the reduction in accounts payable, were due to reduced third quarter sales levels. In addition, planned reductions in finished goods and raw materials levels at certain refractory plants contributed to 21 the decline in inventory and accounts payable balances. The reduction in insurance reserves was due to improved claims experience in 1996, while the reduction in other accrued expenses was primarily due to expenditures against the plant closing and environmental reserves. The $19.8 million decrease in non-current projected insurance recovery on asbestos claims and the $20.6 million decrease in non-current projected asbestos claims since December 31, 1995 were due primarily to asbestos claim payments by insurance carriers during the first nine months of 1996. In addition, a $2.6 million reallocation from long-term to current was made since December 31, 1995 based upon data provided by the Center for Claims Resolution. Deferred income tax assets decreased by $1.5 million since December 31, 1995 due primarily to reductions in alternative minimum tax carryforwards and adjustment to the original deferred tax assets related to the acquisition of A. P. Green de Mexico. Deferred income tax liabilities declined approximately $2.0 million due to reductions in prepaid pension costs and depreciation method differences. The $2.6 million reduction in long-term debt since December 31, 1995 was due primarily to a $2.5 million payment made in July 1996 against the debt associated with the General acquisition. Capital expenditures for the first nine months of 1996 totaled $9.4 million compared to $6.9 million for the same period of 1995, with capital expenditures for the refractories business increasing $2.1 million. Of this refractories increase, $1.1 million was for construction of the new specialties plant in Indonesia and $600,000 was for expansion of the Smithville, Ontario plant to accommodate the production from the closed plant in Weston, Ontario. The balance of the increase was for replacement, modernization and expansion of operations. On August 19, 1996, the Company's Board of Directors approved a two-for-one stock split, effected in the form of a stock dividend payable September 20, 1996 to stockholders of record on September 6, 1996. The stock split resulted in the issuance of 4,487,721 additional shares from authorized but unissued shares. A transfer of $4,487,721 was made from additional paid-in capital to common stock at the stated par value. In addition, the Board of Directors approved a 14% increase in the quarterly dividend to $.04 per share (an increase to $.08 per share from $.07 per share on a pre-split basis) effective with the dividend paid September 13, 1996. 22 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 as of and for the Nine Months Ended September 30, 1996. (b) Reports on Form 8-K: -------------------- No reports on Form 8-K were filed during the quarter ended September 30, 1996. 23 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 12, 1996 ----------------- 24 EX-27 2 FINANCIAL DATA SCHEDULE AS OF SEPTEMBER 30, 1996
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE A.P. GREEN INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 SEP-30-1996 5,464 0 42,521 1,684 52,217 137,856 98,418 0 348,147 62,695 34,746 0 0 8,975 109,042 348,147 195,720 195,720 161,927 161,927 0 0 2,343 6,403 2,307 4,096 0 0 0 4,912 .61 0
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