-----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, G2iRj4GBm+AuoKa7ke/THQQOoL4ZstHoWp20mYM+rflu7ArsikqfRwe5VQHDyS8Z bcnfffYumisyF9KfW11WPQ== 0000826619-95-000016.txt : 19951119 0000826619-95-000016.hdr.sgml : 19951119 ACCESSION NUMBER: 0000826619-95-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 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: 95591839 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, 1995 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 13, 1995, 4,037,259 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, 1995 1994 ------------- ------------ (Dollars in thousands, except per share data) ASSETS Current Assets Cash and cash equivalents $ 11,034 $ 9,637 Receivables (net of allowances - 1995, $2,441; 1994, $1,992) 42,835 43,728 Reimbursement due on paid asbestos claims 3,485 11,475 Inventories 52,833 53,452 Projected insurance recovery on asbestos claims 35,540 35,540 Deferred income tax benefit 4,671 5,355 Other 5,913 4,965 -------- -------- Total current assets 156,311 164,152 Property, plant and equipment, net 96,268 95,412 Non-current projected insurance recovery on asbestos claims 73,082 97,344 Long-term pensions 9,200 9,166 Other assets 6,815 7,048 -------- -------- Total assets $341,676 $373,122 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 14,323 $ 22,874 Accrued expenses Payrolls 6,176 6,044 Taxes other than on income 2,297 1,961 Insurance reserves 4,838 6,995 Current portion of projected asbestos claims 35,793 35,793 Other 8,703 10,650 Current maturities of long-term debt 2,655 139 Income taxes 1,038 1,384 -------- -------- Total current liabilities 75,823 85,840 Deferred income taxes 13,692 15,677 Long-term non-pension benefits 15,550 15,270 Long-term pensions 12,562 12,472 Long-term debt 34,469 37,023 Non-current projected asbestos claims 74,950 99,802 -------- -------- Total liabilities 227,046 266,084 -------- -------- Minority Interests 1,895 - 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: 4,476,879 in 1995 and 4,475,629 in 1994 4,477 4,476 Additional paid-in capital 72,762 72,739 Retained earnings 54,916 49,279 Less: Deferred currency translation (2,396) (2,428) Treasury stock of 448,347 shares, at cost (9,003) (9,003) Note receivable - ESOT (8,021) (8,021) Deferred compensation-restricted stock - (4) -------- -------- Total stockholders' equity 112,735 107,038 -------- -------- Total liabilities and stockholders' equity $341,676 $373,122 ======== ======== 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) -------------------------------- 1995 1994 ---- ---- Net sales $ 62,652 $ 54,255 Cost of sales 51,464 44,967 -------- -------- Gross profit 11,188 9,288 Expenses and other income Selling & administrative expenses 8,029 6,438 Interest expense 806 633 Interest income (414) (343) Minority interest in loss of partnership (15) - Other income, net (382) (541) -------- -------- Earnings before income taxes 3,164 3,101 Income tax expense 920 995 Equity in net income of affiliates (136) (70) Minority interest in income of consolidated subsidiary 115 - -------- -------- Net earnings $ 2,265 $ 2,176 ======== ======== Net earnings per common share and common equivalent share $ 0.55 $ 0.54 ======== ======== Weighted average number of common shares used in primary calculation 4,124,047 4,027,282 ========= ========= Earnings per common share assuming full dilution $ 0.54 $ 0.54 ======== ======== Weighted average number of common shares used in fully diluted calculation 4,158,432 4,027,282 ========= ========= Dividends per common share $ 0.07 $ 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) ------------------------------ 1995 1994 ---- ---- Net sales $ 188,856 $ 132,607 Cost of sales 157,271 109,761 -------- -------- Gross profit 31,585 22,846 Expenses and other income Selling & administrative expenses 23,688 18,183 Interest expense 2,396 1,153 Interest income (1,124) (986) Minority interest in loss of partnership (42) - Other income, net (644) (1,141) -------- -------- Earnings before income taxes and cumulative effect of an accounting change 7,311 5,637 Income tax expense 1,279 1,739 Equity in net income of affiliates (542) (70) Minority interest in income of consolidated subsidiary 115 - -------- -------- Earnings before cumulative effect of an accounting change 6,459 3,968 Cumulative effect of an accounting change Postemployment benefits, net of tax - (255) -------- -------- Net earnings $ 6,459 $ 3,713 ======== ======== Earnings per common share and common equivalent share: Earnings before cumulative effect of an accounting change $ 1.59 $ 0.98 Cumulative effect of an accounting change Postemployment benefits, net of tax - (0.06) --------- --------- Net earnings $ 1.59 $ 0.92 ========= ========= Weighted average number of common shares used in primary calculation 4,060,587 4,023,980 ========= ========= Earnings per common share assuming full dilution: Earnings before cumulative effect of an accounting change $ 1.55 $ 0.98 Cumulative effect of an accounting change Postemployment benefits, net of tax - (0.06) --------- --------- Net earnings $ 1.55 $ 0.92 ========= ========= Weighted average number of common shares used in fully diluted calculation 4,158,299 4,023,980 ========= ========= Dividends per common share $ .21 $ 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) 1995 1994 ---- ---- Cash flows from operating activities Net earnings $ 6,459 $ 3,713 Adjustments for items not requiring cash Cumulative effect of an accounting change- Postemployment benefits, net of tax - 255 Equity in undistributed earnings of affiliates (127) - Depreciation, depletion and amortization 7,538 6,256 Deferred compensation earned 4 19 Stock compensation to directors 23 28 Provision for losses on accounts receivable 483 178 Loss (gain) on sale of assets 79 (415) Minority interest in earnings of consolidated subsidiaries 73 - Decrease (increase) in assets Trade receivables 2,488 (1,013) Asbestos claim and fee reimbursements received 24,295 24,906 Inventories 1,211 (5,746) Receivable and prepaid taxes - 509 Other current assets (896) (1,709) Increase (decrease) in liabilities Accounts payable and accrued expenses (12,628) (1,260) Asbestos claims paid (17,755) (33,429) Pensions 77 392 Income taxes (386) 577 Deferred income taxes (1,189) (229) Long-term non-pension benefits 239 393 -------- -------- Net cash from (used in) operating activities 9,988 (6,575) -------- -------- Cash flows from investing activities Capital expenditures (6,924) (5,177) Decrease in other long-term assets 677 270 Increase in pension assets (34) (517) Proceeds from sales of assets 252 494 Payment received on ESOT note - 471 Purchase of General Refractory operations - (24,497) Purchase of Plibrico de Mexico operation, net of cash acquired (1,763) - -------- -------- Net cash used in investing activities (7,792) (28,956) -------- -------- Cash flows from financing activities Repayments of debt (131) (91) Capital contribution from minority partner 120 - Proceeds from issuance of long-term debt - 25,000 Dividends paid (846) (725) Exercised stock options - 237 Tax benefit on dividends paid to ESOP 23 22 Tax effect on stock plan 2 (3) -------- -------- Net cash from (used in) financing activities (832) 24,440 -------- -------- Effect of exchange rate changes 33 225 -------- -------- Net increase (decrease) in cash and cash equivalents 1,397 (10,866) Cash and cash equivalents at beginning of year 9,637 16,331 -------- -------- Cash and cash equivalents at end of period $ 11,034 $ 5,465 ======== ======== 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, 1994. The results for the quarter ended September 30, 1995 are not necessarily indicative of the results which may occur for the full year. 2. EARNINGS PER SHARE ------------------ Earnings per common share and common equivalent share are computed based on the weighted average number of common shares outstanding during the period and the assumed exercise of dilutive stock options, less the number of treasury shares assumed to be purchased from the proceeds using the average market price of the Company's common stock during the period. Earnings per common share assuming full dilution are computed based on the assumption that the options were exercised at the beginning of the period, and reflect additional dilution due to the use of the market price at the end of the period, when higher than the average price for the period. The impact of stock options in 1994 was not significant. 3. ACQUISITIONS ------------ On July 26, 1995 the Company acquired a 51% ownership interest in Plibrico de Mexico SA de CV, a refractory manufacturer located in Monterrey, Mexico, effective July 3, 1995. Plibrico de Mexico, which has been renamed A. P. Green de Mexico SA de CV, has one plant with annual sales of approximately $7.0 million. The Company acquired all of the ownership interest of Cookson America, Inc., a subsidiary of Cookson PLC, and a portion of the holdings of Grupo Industrial Trebol SA de CV, which will continue to own a 49% interest in A. P. Green de Mexico. The purchase price and transaction costs of approximately $2.0 million were paid out of operating capital. The acquisition was accounted for using the purchase method, with the operating results of A. P. Green de Mexico included in consolidated operating results since the date of acquisition. Goodwill of approximately $560,000, which represents the excess of cost over the fair value of net tangible assets acquired, is being amortized on a straight- line basis over a ten-year period. -6- 4. INVENTORIES ----------- September 30, 1995 December 31, 1994 ------------------ ----------------- Finished goods and work-in-process Valued at LIFO: FIFO cost $ 34,684 $ 36,233 Less LIFO reserve (14,219) (14,919) -------- -------- LIFO cost 20,465 21,314 Valued at FIFO 9,971 9,033 -------- -------- TOTAL 30,436 30,347 -------- -------- Raw materials and supplies Valued at LIFO: FIFO cost 17,713 20,007 Less LIFO reserve (5,164) (5,875) -------- -------- LIFO cost 12,549 14,132 Valued at FIFO 9,848 8,973 -------- -------- TOTAL 22,397 23,105 -------- -------- $52,833 $53,452 ======== ======== 5. LITIGATION ---------- Asbestos-related Claims - Personal Injury - ----------------------------------------- A. P. Green is among numerous defendants in lawsuits pending as of September 30, 1995 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, 1994 and 1993 was as follows: -7- - ------------------------------------------------------------------------------ 1994 1993 - ------------------------------------------------------------------------------ Claims pending at January 1 52,122 50,007 Claims filed 14,836 26,100 Cases settled, dismissed or otherwise resolved (16,038) (23,985) ------- ------- Claims pending at December 31 50,920 52,122 ======= ======= Average settlement amount per claim (1) $ 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. The ruling has been appealed by certain objectors. 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 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. No decision has been rendered at this date with respect to these issues. -8- 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. Based upon such reviews, the Company has estimated its liability for such cases and claims to be approximately $110.7 million and $135.6 million at September 30, 1995 and December 31, 1994, respectively, with partially offsetting projected insurance reimbursements of approximately $108.6 million and $132.9 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 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. 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. There was no assumption of asbestos-related liability, either personal injury or property damage, in connection with the August 1994 acquisition of the refractories business of General Refractories Company and its affiliated companies (General). -9- 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, 1995 COMPARED TO --------------------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 1994 ------------------------------------- Total sales increased 15.5% to $62.7 million for the three months ended September 30, 1995 from $54.3 million for the comparable 1994 three- month period. Gross profit increased 20.5% to $11.2 million from $9.3 million for the comparable periods. The impact from the August 1994 General acquisition was to increase sales by approximately $4.9 million and gross profit by approximately $670,000. The impact from the July 1995 A. P. Green de Mexico acquisition was to increase sales by $1.8 million and gross profit by approximately $710,000. Refractory Products and Services -------------------------------- Refractory products and services sales increased 16.6% to $53.2 million for the three months ended September 30, 1995 from $45.6 million for the comparable 1994 period. United States refractory sales were $44.6 million and $39.8 million for the three-month periods ended September 30, 1995 and 1994, respectively, an increase of 11.9%. The impact from the General acquisition was to increase U.S. refractory sales by $3.9 million. Excluding this acquisition impact, U.S. refractory product sales volumes increased an average of 1.7%, with increases in brick and ceramic fiber products partially offset by decreases in specialties and precast shape volumes. Specialty and precast shape prices increased, partially offset by decreases in pricing of brick and ceramic fiber products for a net price increase of 3.1%. U.S. export sales improved 43.5% to $5.1 million in the third quarter of 1995 from $3.6 million for the third quarter of 1994, largely due to the General acquisition. Sales of the Canadian subsidiary increased 7.7% to $5.7 million for the three-month period ended September 30, 1995 from $5.3 million for the comparable 1994 period. The impact from the General acquisition was to increase Canadian sales by $1.0 million. Excluding this impact, brick, specialty and precast shape volumes declined, partially offset by increases in ceramic fiber products and crucibles for a net volume decrease of 12.8%. Prices increased an average of 5.9% across all product lines except precast shapes. The Canadian operation generated a pre-tax loss of $12,000 for the third quarter of 1995 compared to pre- tax earnings of $372,000 for the comparable 1994 period. The 1995 loss was due to unfavorable production variances resulting from reduced volumes, increased salaries and pension expense (primarily related to the General acquisition), higher equipment maintenance expense and -11- additional expense in 1995 for obsolete inventory, partially offset by 1995 currency conversion gains on U.S. dollar denominated accounts compared to losses in 1994. Sales in the United Kingdom (U.K.) increased to $2.7 million for the third quarter of 1995 from $2.4 million for the comparable 1994 period, reflecting continued improvement in the U.K. market. The sales increase generated pre-tax earnings of $196,000 for the three months ended September 30, 1995 compared to $187,000 for the 1994 period. The Company's 51% share of A.P. Green de Mexico's pre-tax earnings was $127,000 on sales of $1.8 million for the first three months under A. P. Green ownership. Refractory products cost of sales as a percentage of sales increased slightly to 83.3% compared to 82.9% for the three months ended September 30, 1995 and 1994, respectively. Increased raw material, freight and mold building costs were largely offset by reduced maintenance costs and a reduction in estimated environmental remediation costs at the acquired General facilities, as well as reduced group health insurance and workers' compensation costs. Refractory operating profits declined 14.0% to $3.3 million from $3.8 million for the comparable three-month periods, due primarily to increased research and selling expenses resulting from the General acquisition. Industrial Lime --------------- Industrial lime sales increased 9.2% to $9.5 million from $8.7 million for the respective third quarters of 1995 and 1994. Volumes increased an average of 6.6%, with increases in industrial and road stabilization lime at the New Braunfels, Texas plant and quicklime at the Kimballton, Virginia plant partially offset by declines in building lime at New Braunfels and cal-dol and hydrate at Kimballton. Prices increased across all product lines at both plants with the exception of industrial lime at New Braunfels for an overall price increase of 2.4%. 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 52.4% and 61.8%, respectively. Also contributing to these increases were reduced processing fuel, equipment maintenance and purchased materials costs at both plants and reduced workers' compensation expense at the New Braunfels plant, partially offset by increased outside processing costs at Kimballton. -12- Expenses and Other Income ------------------------- Selling and administrative expenses increased 24.7% to $8.0 million in the third quarter of 1995 from $6.4 million for the comparable 1994 period. Increases in salaries and related costs, salaried pensions, travel, professional fees and amortization of intangibles were all largely related to the addition of General sales and research personnel and intangible assets included in the acquisition. Selling and administrative expenses at A. P. Green de Mexico contributed $465,000 of the increase. Also contributing to the increase were an increased provision for losses on accounts receivable, primarily due to the higher sales and accounts receivable levels and the bankruptcy of a steel customer, and higher employee recruiting and relocation, sales promotion, sales incentive and director retirement plan expenses, partially offset by reduced legal fees and management incentive expense. Interest expense increased to $806,000 in 1995 from $633,000 in 1994 due primarily to three months of interest expense in 1995 on the additional debt associated with the General acquisition compared to two months in 1994. There were no bank line borrowings during either three-month period. Interest income for the third quarter of 1995 increased 20.7% to $414,000 from $343,000 in the comparable 1994 three-month period due to increased funds available for investing and higher interest rates. Other income declined 29.4% for the comparable three-month periods primarily due to a gain on the sale of a warehouse property in Los Angeles, California in 1994, partially offset by 1995 currency conversion gains on U.S. dollar denominated accounts at the Canadian subsidiary compared to losses in 1994 and an increase in 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. A. P. Green de Mexico transacts a significant portion of its business in U.S. dollars and, as such, uses the dollar as its functional currency. This results in currency conversion gains and losses on Mexican peso transactions, A. P. Green's portion of which are not significant to the consolidated results. Equity in Net Income of Affiliates ---------------------------------- The Company's share of income from two Colombian affiliates acquired from General in August 1994 was $136,000 for the three months ended September 30, 1995 compared to $70,000 for August and September 1994. -13- RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO --------------------------------------------------------------------------- NINE MONTHS ENDED SEPTEMBER 30, 1994 ------------------------------------ Total sales increased 42.4% to $188.9 million for the nine months ended September 30, 1995 from $132.6 million for the comparable 1994 nine- month period. Gross profit increased 38.3% to $31.6 million from $22.8 million for the comparable periods. The impact from the August 1994 General acquisition was to increase sales by approximately $38.8 million and gross profit by approximately $3.9 million. The impact from the July 1995 A. P. Green de Mexico acquisition was to increase sales by $1.8 million and gross profit by approximately $710,000. Refractory Products and Services -------------------------------- Refractory products and services sales were $160.5 million and $107.0 million for the nine months ended September 30, 1995 and September 30, 1994, respectively, reflecting an increase of 50.0%. U.S. refractory sales increased 46.6% to $138.7 million for the nine months ended September 30, 1995 from $94.6 million for the comparable 1994 period. The impact from the General acquisition was to increase U.S. refractory sales by $33.3 million. Excluding this impact, volumes increased across all product lines except precast shapes an average of 12.1%. Lower brick and ceramic fiber prices were offset by increases in specialty and precast shape prices, resulting in a slight overall price increase. U.S. export sales increased 64.2% to $13.4 million for the nine-month period ended September 30, 1995 from $8.2 million for the comparable 1994 period, due largely to the General acquisition. Sales at the Canadian subsidiary increased 54.8% to $18.3 million for the nine months ended September 30, 1995 from $11.8 million for the comparable 1994 period, of which $6.2 million was due to the General acquisition. Excluding this acquisition impact, decreases in brick, specialties and precast shape volumes were partially offset by increases in crucible and ceramic fiber volumes for a net volume decrease of 2.1%. Prices increased across all product lines with the exception of crucibles, resulting in an overall price increase of 4.8%. The Canadian operation generated a pre-tax loss of $138,000 for the nine months ended September 30, 1995 compared to pre-tax earnings of $589,000 for the comparable 1994 period. The change from 1994 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, and additional interest expense of $244,000 for the first seven months of 1995 on the debt associated with the acquisition of the General operation in Canada. Earnings in 1994 included a pre-tax reserve of approximately $315,000 which was established during the first quarter of 1994 for the cost of Canadian personnel reductions made during that quarter. -14- The United Kingdom market continued to show signs of strength as sales by the U.K. subsidiary increased 40.3% to $7.1 million for the first nine months of 1995 from $5.1 million for the first nine months of 1994. The sales increase generated pre-tax earnings of $438,000 for the nine months ended September 30, 1995 compared to pre-tax earnings of $67,000 for the 1994 period. The Company's 51% share of A.P. Green de Mexico's pre-tax earnings was $127,000 on sales of $1.8 million for the first three months under A. P. Green ownership. Refractory products cost of sales as a percentage of sales increased to 84.6% in 1995 from 82.8% in 1994. This increase was primarily due to a higher percentage of lower margin sales to the steel industry at the acquired General facilities, increased raw material and mold building costs and higher unfavorable brick breakage variances. Also contributing to the cost increase were 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. The U.S. plant shutdown reserve was increased approximately $330,000 due primarily to revised estimates of employee termination benefits resulting from the sale of these facilities taking longer than anticipated. Substantially all employees at these facilities have been terminated, and approximately $2.8 million of termination benefits and plant closing costs have been charged against the reserve to date. Partially offsetting these increases were improved labor efficiencies and reduced power, processing fuel, freight out and group insurance expenses. Refractory operating profits increased 16.9% to $8.4 million from $7.2 million in 1995 and 1994, respectively. Industrial Lime --------------- Industrial lime sales increased 10.8% to $28.5 million from $25.7 million for the nine-month periods ended September 30, 1995 and 1994, respectively. Volumes increased across all product lines at both plants for an overall increase of 8.7%. Prices increased an average of 1.9%, with increases in quicklime and hydrate prices at the Kimballton plant partially offset by price declines in cal-dol at the Kimballton plant and industrial lime at the New Braunfels plant. New Braunfels pricing was unchanged on road stabilization and building lime. 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 53.0% and 62.4%, respectively. Also contributing to this increase were improved labor efficiencies and reduced group insurance and processing fuel costs at both plants, lower equipment maintenance, workers' compensation and purchased materials costs at the New Braunfels plant and lower power costs at the Kimballton plant, partially offset by increased outside processing costs at Kimballton. Production variances at both plants also improved in 1995 compared to 1994, when -15- a first-quarter weather-related production curtailment of several days was incurred at Kimballton and downtime was incurred at the New Braunfels plant related to installation of a new kiln preheater and dust collection system. Expenses and Other Income ------------------------- Selling and administrative expenses increased 30.3% to $23.7 million in 1995 from $18.2 million in 1994. Increases in salaries and related costs, salaried pensions, travel, office expenses, professional fees and amortization of intangibles were all largely related to the addition of General sales and research personnel and intangible assets included in the acquisition. Selling and administrative expenses at A. P. Green de Mexico contributed $465,000 of the increase. Also contributing to the increase were an increased provision for losses on accounts receivable, primarily due to the higher sales and accounts receivable levels and the bankruptcy of a steel customer, and higher sales promotion, sales incentive, employee recruiting and relocation and director retirement plan expenses. Interest expense increased to $2.4 million in 1995 from $1.2 million in 1994 due to the additional debt associated with the General acquisition. There were no bank line borrowings during either nine-month period. Interest income increased 14.0% due to increased funds available for investing and higher interest rates. Other income decreased 43.6% to $644,000 in 1995 from $1.1 million in 1994, due primarily to a gain on the sale of a warehouse property in Los Angeles, California in 1994 and a reduction in royalty income resulting from cancellation of a licensing agreement with a significant Mexican licensee during the fourth quarter of 1994. Also contributing to the decrease were increased bank charges, a 1994 business interruption insurance recovery and gains on land sales in 1994, partially offset by 1995 currency conversion gains on U.S. dollar denominated accounts at the Canadian subsidiary compared to losses in 1994. 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 transacts a significant portion of its business in U.S. dollars and, as such, uses the dollar as its functional currency. This results in currency conversion gains and losses on Mexican peso transactions, A. P. Green's portion of which are not significant to the consolidated results. Income Taxes ------------ 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 those federal tax years. Due to the outcome of this review being more favorable than accrued, the Company reduced its provision for federal income taxes by $1.1 million. The 17.5% effective tax rate in 1995 compared to 30.8% in 1994 was -16- due to this tax adjustment. Absent the adjustment, the tax rate for the nine months ended September 30, 1995 was 32.1% compared to 30.8% for the same period in 1994. 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. Equity in Net Income of Affiliates ---------------------------------- The Company's share of income from two Colombian affiliates acquired from General in August 1994 was $542,000 for the nine months ended September 30, 1995 compared to $70,000 for August and September 1994. -17- INDUSTRY SEGMENTS (In thousands) Nine Months Ended September 30, ------------------------------ 1995 1994 ---- ---- Net Sales Refractory products and services $160,472 $106,978 Industrial lime 28,523 25,745 Intersegment eliminations (139) (116) -------- -------- $188,856 $132,607 ======== ======== Gross Profit Refractory products and services $ 24,753 $ 18,380 Industrial lime 6,832 4,466 -------- -------- $ 31,585 $ 22,846 ======== ======== Gross Profit Percentage Refractory products and services 15.4% 17.2% Industrial lime 24.0% 17.3% 16.7% 17.2% ===== ===== Operating Profit Refractory products and services $ 8,402 $ 7,186 Industrial lime 5,945 3,661 -------- -------- 14,347 10,847 -------- -------- Other Charges to Income General corporate expenses, net 5,764 5,043 Interest expense 2,396 1,153 Interest income (1,124) (986) -------- -------- Total other charges 7,036 5,210 -------- -------- Earnings Before Income Taxes and Cumulative Effect of an Accounting Change $ 7,311 $ 5,637 ======== ======== Identifiable Assets (at period end) Refractory products and services $280,188 $322,084 Industrial lime 46,935 47,396 Corporate 14,553 9,641 -------- -------- $341,676 $379,121 ======== ======== -18- Nine Months Ended September 30, ------------------------------ 1995 1994 ---- ---- Depreciation, Depletion and Amortization Refractory products and services $ 4,720 $ 3,528 Industrial lime 2,043 1,998 Corporate 775 730 -------- -------- $ 7,538 $ 6,256 ======== ======== Capital Expenditures Refractory products and services $ 5,208 $ 1,688 Industrial lime 1,531 2,986 Corporate 185 503 -------- -------- $ 6,924 $ 5,177 ======== ======== GEOGRAPHIC SEGMENTS (In thousands) Nine Months Ended September 30, ------------------------------ 1995 1994 ---- ---- Net Sales United States $167,183 $120,333 Canada 18,332 11,843 United Kingdom 7,108 5,065 Mexico 1,754 - Intersegment transfers (primarily U.S.) (5,521) (4,634) -------- -------- $188,856 $132,607 ======== ======== Earnings (Loss) Before Income Taxes and Cumulative Effect of an Accounting Change United States $ 6,762 $ 4,981 Canada (138) 589 United Kingdom 438 67 Mexico 249 - -------- -------- $ 7,311 $ 5,637 ======== ======== Identifiable Assets (at period end) United States $298,713 $348,481 Canada 16,909 16,760 United Kingdom 4,930 4,239 Mexico 5,460 - Far East 1,111 - Corporate 14,553 9,641 -------- -------- $341,676 $379,121 ======== ======== -19- PRICE/VOLUME SUMMARY 1995 AS COMPARED TO 1994 PERCENT INCREASE Three Nine Months Months Ended Ended September 30, 1995 September 30, 1995 ------------------ ------------------ U.S. Refractory Products Sales (excluding impact of General acquisition) Volume 1.7% 12.1% Price 3.1 0.3 Industrial Lime Sales Volume 6.6 8.7 Price 2.4 1.9 -20- FINANCIAL CONDITION ------------------- The Company continues to maintain a strong balance sheet. Summary Information (Dollars in thousands) September 30, December 31, ------------------- ------------ 1995 1994 1994 ---- ---- ---- Working capital $ 80,488 $ 73,249 $ 78,312 Current ratio 2.1:1 1.8:1 1.9:1 Total assets $341,676 $379,121 $373,122 Current maturities of long-term debt 2,655 135 139 Long-term debt 34,469 37,057 37,023 Stockholders' equity $112,735 $104,918 $107,038 Debt to total capitalization (1) 24.8% 26.2% 25.7% (1) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. The following balance sheet increases 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 Working capital increased 9.9%, or $7.2 million, to $80.5 million at September 30, 1995 from $73.2 million at September 30, 1994, while the ratio of current assets to current liabilities increased to 2.1:1 from 1.8:1. The increase in working capital was primarily due to increases in cash of $5.6 million, trade receivables of $2.8 million and closed plants' fixed assets held for sale (included in other current assets) of $1.4 million, partially offset by a reduction in reimbursement due on paid asbestos claims of $10.2 million and an increase in current portion of long-term debt of $2.5 million. Also contributing to the increased working capital were reductions in accounts payable of $5.7 million, plant shutdown reserves (included in other current liabilities) of $1.9 million and insurance reserves of $3.0 million. The increase in cash and decrease in reimbursement due on paid asbestos claims since September 30, 1994, as well as the $8.0 million decrease in reimbursement due on paid asbestos claims since December 31, 1994, were due primarily to payments being made directly to the Center for Claims Resolution by one insurance carrier starting in May 1995. These direct payments are expected to continue for the foreseeable future, with a resulting favorable impact on the Company's cash balances and cash requirements. The increase in trade receivables since September 30, 1994 was primarily due to the increased sales level. The reduction in accounts payable since September 30, 1994, as well as the $8.6 million reduction since December 31, 1994, was primarily due to a $6.5 million payment to the Center for Claims Resolution in January 1995. The increase in current portion of long-term debt since September 30, 1994, as well as the increase since December 31, 1994, was due to a $2.5 million payment due July 29, 1996 against the debt incurred for the General acquisition. As such, long-term debt declined by the same $2.5 million. -22- The decline in plant shutdown reserves since September 30, 1994 was due to termination benefits and plant closing costs charged against the reserve during the past 12 months, partially offset by increases in the U.S. and Canadian reserves as discussed above. The decrease in insurance reserves since September 30, 1994, as well as the decline of $2.2 million since December 31, 1994, was due to payments to insurance carriers and favorable workers' compensation claims experience in comparison to the historical experience used to establish the reserve. The decreases in non-current projected insurance recovery on asbestos claims and non-current projected asbestos claims were due to asbestos claim payments recovered from insurance carriers. Capital expenditures for the refractories business increased by $3.5 million in the first nine months of 1995 compared to the same period in 1994, partially offset by reductions in capital expenditures related to corporate functions and the lime plants. The refractories increase was due to both upgrading and modernization of the acquired General facilities and replacement, modernization and expansion of pre- acquisition operations. During 1995 capital contributions were made by A. P. Green and INTOCAST AG to form a joint venture partnership, INTOGREEN Co., which will sell and install cast monolithic ladle linings to the steel industry in the United States, Canada and Mexico. INTOCAST AG is a world leader in the development of cast ladle linings. Its contribution to the partnership is reflected in minority interests on the balance sheet, net of INTOCAST AG's share of the year-to-date loss at INTOGREEN. Also included in minority interests is Grupo Industrial Trebol's 49% interest in A. P. Green de Mexico. In September 1995 the Company reached an agreement in principle to acquire a majority interest in privately held Lanxide ThermoComposites, Inc., (LTI). The joint venture will focus on commercializing refractory products for the steel industry utilizing ceramic composites technology licensed from Lanxide Corporation (Lanxide), currently the sole shareholder of LTI. The acquisition is expected to close during the fourth quarter. In a separate licensing agreement with Lanxide, A. P. Green will develop and market refractory products utilizing the advanced materials technology developed by Lanxide for certain non-steel refractories applications. In addition, A. P. Green will obtain worldwide rights, excluding Japan, for certain refractories products utilizing Lanxide's technology. Included under the terms of the agreements are all future technologies developed by Lanxide and its licensees and joint ventures as applicable to the refractories market. SUBSEQUENT EVENT ---------------- On November 3, 1995, the Company executed a contract to sell the Weston, Ontario plant, with closing scheduled for December 20, 1995. The estimated after-tax gain on the sale of this property is approximately $900,000. -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, 1995 (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended September 30, 1995. 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 13, 1995 ----------------- -24- EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A. P. GREEN INDUSTRIES, INC. QUARTERLY FINANCIAL STATEMENTS ON FORM 10-Q AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 3-MOS DEC-31-1995 SEP-30-1995 11,034 0 45,276 2,441 52,833 156,311 96,268 0 341,676 75,823 37,124 4,477 0 0 108,258 341,676 62,652 62,652 51,464 51,464 8,029 0 806 3,164 920 2,265 0 0 0 2,265 .55 .54
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