-----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, VwlXifMXHitUnI7S2LjM5VDdS4e73lA7/UPS9G/Q4JRSs8UeDwfhh33RLwMhvoLt cF1o2pHJstZy8Yj8CmCdzQ== 0000826619-98-000020.txt : 19980515 0000826619-98-000020.hdr.sgml : 19980515 ACCESSION NUMBER: 0000826619-98-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980514 SROS: NYSE 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: SEC FILE NUMBER: 001-13359 FILM NUMBER: 98619996 BUSINESS ADDRESS: STREET 1: GREEN BLVD CITY: MEXICO STATE: MO ZIP: 65265 BUSINESS PHONE: 5734733626 MAIL ADDRESS: STREET 1: GREEN BLVD CITY: MEXICO STATE: MO ZIP: 65265 FORMER COMPANY: FORMER CONFORMED NAME: A P GREEN INDUSTRIES INC DATE OF NAME CHANGE: 19900619 10-Q 1 REPORT ON FORM 10-Q FOR THE QUARTER ENDED 3/31/98 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 March 31, 1998 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 May 14, 1998, 8,070,515 shares of Common Stock, $1 par value, were outstanding. Page 1 of 22 A. P. GREEN INDUSTRIES, INC. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) March 31, December 31, 1998 1997 --------- ----------- (Dollars in thousands, except per share data) ASSETS Current Assets Cash and cash equivalents $ 3,576 $ 3,701 Receivables (net of allowances - 1998, $1,509; 1997, $1,448) 44,519 48,761 Inventories 57,155 53,705 Deferred income tax asset 2,255 2,574 Other 6,000 6,624 ------- ------- Total current assets 113,505 115,365 Property, plant and equipment, net 107,073 107,622 Projected insurance recovery on asbestos claims 154,778 116,314 Pension assets 9,393 9,251 Intangible assets, net 4,108 4,173 Other assets 4,844 4,989 ------- ------- Total assets $393,701 $357,714 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 17,735 $ 19,879 Accrued expenses Payrolls 6,009 6,867 Taxes other than on income 2,155 2,145 Insurance reserves 3,627 4,008 Other 5,855 7,381 Current maturities of long-term debt 6,006 5,716 Income taxes 1,105 801 ------- ------- Total current liabilities 42,492 46,797 Deferred income taxes 6,799 7,199 Long-term non-pension benefits 17,810 17,652 Long-term pensions 11,731 11,615 Long-term debt 31,953 31,034 Projected asbestos claims 154,778 116,314 ------- ------- Total liabilities 265,563 230,611 ------- ------- Minority Interests 3,403 2,568 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: 9,024,449 in 1998 and 9,014,599 in 1997 9,024 9,015 Additional paid-in capital 68,587 68,504 Retained earnings 67,599 67,285 Less: Deferred foreign currency translation (4,145) (3,939) Treasury stock of 953,934 shares in 1998 and 1997, at cost (9,498) (9,498) Note receivable-ESOT (6,323) (6,323) Minimum pension liability adjustment, net of tax (509) (509) ------- ------- Total stockholders' equity 124,735 124,535 ------- ------- Total liabilities and stockholders' equity $393,701 $357,714 ======= ======= See accompanying notes to consolidated financial statements. -2- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three months ended March 31, ---------------------------- (Dollars in thousands, except per share data) 1998 1997 ------------ ------------- Net sales $ 65,762 $ 64,816 Cost of sales 54,152 54,014 --------- --------- Gross profit 11,610 10,802 Expenses and other income Selling & administrative expenses 9,966 9,222 Interest expense 682 834 Interest income (233) (247) Minority interest in income (loss) of partnerships (226) 4 Other (income) expense, net 248 (66) --------- --------- Earnings before income taxes 1,173 1,055 Income tax expense 523 358 Equity in net income of affiliates (66) (15) Minority interest in income of consolidated subsidiaries 80 69 --------- --------- Net earnings $ 636 $ 643 ========= ========= Net earnings per common share - basic $ 0.08 $ 0.08 ========= ========= Weighted average number of common shares - basic 8,068,563 8,023,220 ========= ========= Net earnings per common share - diluted $ 0.07 $ 0.08 ========= ========= Weighted average number of common shares - diluted 8,547,241 8,171,034 ========= ========= Dividends per common share $ 0.04 $ 0.04 ========= ========= See accompanying notes to consolidated financial statements. -3- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended March 31, ---------------------------- (Dollars in thousands) 1998 1997 ------------ ------------- Cash flows from operating activities Net earnings $ 636 $ 643 Adjustments for items not requiring (providing) cash Depreciation, depletion and amortization 3,002 2,999 Stock compensation to directors 51 29 Provision for losses on accounts receivable 34 195 Loss (gain) on sale of assets 308 (58) Equity in earnings of affiliates, net of dividends received (66) (15) Minority interest in income (losses) of consolidated subsidiaries and partnerships (146) 73 Decrease (increase) in assets Trade receivables 4,208 (1,058) Asbestos claim and fee reimbursements received 5,070 5,236 Inventories (3,450) (2,639) Receivable and prepaid taxes 32 45 Other current assets 593 (6) Increase (decrease) in liabilities Accounts payable and accrued expenses (4,899) (447) Asbestos claims paid (5,070) (3,607) Pensions 116 277 Income taxes 304 (65) Deferred income taxes (82) (246) Long-term non-pension benefits 158 249 ------ ------ Net cash provided by operating activities 799 1,605 ------ ------ Cash flows from investing activities Capital expenditures (2,657) (1,589) Decrease (increase) in other long-term assets 100 (24) Increase in pension assets (142) (17) Proceeds from sales of assets 72 106 ------ ------ Net cash used in investing activities (2,627) (1,524) ------ ------ Cash flows from financing activities Repayments of debt (1,512) (6,100) Proceeds from borrowings 2,721 - Exercised stock options 42 - Dividends paid (323) (321) Capital contributions from minority partner 980 490 Tax benefit on dividends paid to ESOT - 7 ------ ------ Net cash provided by (used in) financing activities 1,908 (5,924) ------ ------ Effect of exchange rate changes (205) (311) ------ ------ Net decrease in cash and cash equivalents (125) (6,154) Cash and cash equivalents at beginning of year 3,701 9,477 ------ ------ Cash and cash equivalents at end of period $ 3,576 $ 3,323 ====== ====== See accompanying notes to consolidated financial statements. -4- 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, 1997. The results for the quarter ended March 31, 1998 are not necessarily indicative of the results which may occur for the full year. Certain prior year amounts have been reclassified to conform to the 1998 presentation. 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 1994 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 1995 this reserve was increased by approximately $700,000 due to the closing of the Weston, Ontario plant, which was sold in December 1995, and revised estimates of U. S. 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 $3.2 million of termination benefits and plant closing costs have been charged against the reserves to date. Two of the U.S. facilities were sold during 1997 and the third is held for sale at its estimated net realizable value. 3. EARNINGS PER SHARE ------------------ The following is a reconciliation of shares outstanding used in the computation of basic and diluted earnings per share for the three months ended March 31, 1998 and 1997: ----------------------------------------------------------------------- 1998 1997 ----------------------------------------------------------------------- Weighted average number of common shares - basic 8,068,563 8,023,220 Effect of dilutive securities Employee stock options 470,303 147,814 Other 8,375 - ----------------------------------------------------------------------- Weighted average number of common shares - diluted 8,547,241 8,171,034 ======================================================================= -5- Net earnings used in both earnings per share calculations were the same, as there would be no income effects related to the dilutive securities. Options to purchase 184,500 shares and 30,000 shares at $9.17 and $9.32 per share, respectively, were excluded from the March 31, 1997 diluted earnings per share computation as their inclusion would have been antidilutive. Options to purchase 82,500 shares at $6.17 per share were not included in the computation of the diluted earnings per share for March 31, 1997 as the options were not yet exercisable under the terms of the February 1993 option grant. These options became exercisable during the fourth quarter of 1997 when the last transaction price of the Company's common stock equaled or exceeded $11.00 for 30 consecutive trading days. In addition, options to purchase 120,428 shares at $8.75 per share were excluded from the March 31, 1997 diluted earnings per share computation as they were not exercisable under the terms of the February 1997 option grant until August 1997. 4. INVENTORIES ----------- March 31, 1998 December 31, 1997 -------------- ----------------- Finished goods & work-in-process Valued at LIFO: FIFO cost $33,925 $31,621 Less LIFO reserve (13,991) (13,947) ------ ------ LIFO cost 19,934 17,674 Valued at FIFO 12,159 10,683 ------ ------ TOTAL 32,093 28,357 ------ ------ Raw materials and supplies Valued at LIFO: FIFO cost 18,226 18,408 Less LIFO reserve (5,476) (5,698) ------ ------ LIFO cost 12,750 12,710 Valued at FIFO 12,312 12,638 ------ ------ TOTAL 25,062 25,348 ------ ------ $57,155 $53,705 ====== ====== -6- 5. LITIGATION ---------- Asbestos-related claims - Personal Injury ----------------------------------------- A. P. Green is among numerous defendants in lawsuits pending as of March 31, 1998 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 numbers and types of claims brought against it. Claims activity for the Company for each of the years ended December 31, 1997, 1996 and 1995, based upon information provided by the Center, was as follows: - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Claims pending at January 1 58,885 48,367 50,920 Claims filed 24,024 29,702 12,560 Cases settled, dismissed or otherwise resolved (10,709) (19,184) (15,113) ------- ------- ------- Claims pending at December 31 72,200 58,885 48,367 ======= ======= ======= Average settlement amount per claim(1) $ 1,611 $ 1,582 $ 1,778 ================================================================================ (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 the same time, a settlement (the Settlement) between the Members and the Class was filed with the Court. On June 25, 1997, after a favorable ruling in the Federal District Court for the Eastern District of Pennsylvania and a reversal of that ruling by the Third Circuit Court of Appeals, the United States Supreme Court upheld the ruling of the Third Circuit. The result of such ruling is that the class action lawsuit and the Settlement are of no effect. -7- As the Settlement established a numerical cap on the number of claims that could be processed each year during the ten years of the Settlement and because the Settlement provided for a range of payments for different disease categories, it was possible to estimate the aggregate amount of liability for the Company through 2004 and related insurance recoveries. Without the Settlement the Company can only estimate the liability and related insurance recoveries associated with known claims. As such, the amounts reported for projected asbestos claims and projected insurance recovery on asbestos claims as of March 31, 1998 and December 31, 1997 reflect only those claims known to have been filed as of that date. In order to arrive at these projected amounts, the Company also reviewed its insurance policies and historical settlement amounts. This resulted in an increase in both projected asbestos claims and projected insurance recovery on asbestos claims of $43.5 million during the first quarter of 1998. There was no effect on the consolidated earnings of the Company. These balances are expected to fluctuate from quarter to quarter as claims are filed and settled. The volume of claims settled by the Center on a quarterly basis can vary considerably. The projected asbestos claims and projected insurance recovery on asbestos claims are reduced each month by claim payments made directly to the Center by the Company's insurance carriers, which totaled $5.1 million during the first quarter of 1998. Management anticipates that the Company's insurance carriers will make all required payments for these claims. While management understands the inherent uncertainty in litigation of this type and the possibility that past costs may not be indicative of future costs, management does not believe that these claims and cases will have any additional material adverse effect on the Company's consolidated financial position or results of operations. In December 1996, the Company and a former subsidiary, The E. J. Bartells Company, reached a comprehensive settlement agreement with all insurance carriers except one. Under the terms of this settlement agreement, such carriers have agreed to pay (subject to applicable policy limits) on behalf of the insureds, liabilities arising out of asbestos personal injury claims. The Company is pursuing its claim for coverage against the non-settling carrier. 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 several of such subsidiary's insurance carriers. On January 29, 1998, Great American Insurance Company and American National Fire Insurance Company, two of such carriers, filed a lawsuit in the United States District Court for the Southern District of Ohio against certain of such subsidiary's insurance carriers and such subsidiary seeking (1) a determination of the rights and obligations of all of the parties under such policies and (2) contribution for amounts of indemnity costs previously paid. While it is not possible to predict the outcome of such suit, management believes that such -8- subsidiary will prevail in its position that all of such carriers are obligated to pay (subject to applicable policy limits) liabilities arising out of asbestos personal injury claims on behalf of the insured. 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. 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 which is not expected to be material. 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. Tender Offer ------------ On March 6, 1998, a lawsuit was filed in the Court of Chancery in the State of Delaware seeking to enjoin the tender offer by Global Industrial Technologies, Inc. (Global) and BGN Acquisition Corp. to purchase all outstanding shares of the Company's common stock. See Note 7 for further discussion of the tender offer and lawsuit. Other ----- From time to time, 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. -9- 6. COMPREHENSIVE INCOME -------------------- Total comprehensive income for the three months ended March 31, 1998 and 1997 was $430,000 and $332,000, respectively. In addition to net income, comprehensive income for 1998 and 1997 included $206,000 and $311,000, respectively, of foreign currency translation adjustments. The Company also maintains a minimum pension liability adjustment as a component of stockholders' equity, the balance of which did not change during the first quarter of 1998 or 1997. 7. PENDING ACQUISITION OF THE COMPANY ---------------------------------- On March 3, 1998, the Company entered into an Agreement and Plan of Merger with Global Industrial Technologies, Inc. and BGN Acquisition Corp. The Agreement and Plan of Merger calls for, among other things, Global to purchase for cash all outstanding shares of the Company at $22.00 per share, or approximately $195.0 million, plus the assumption of $23.0 million of net debt. The transaction, which will be effected by means of a tender offer, followed by a merger, if required, has been approved by the Boards of Directors of both companies and, subject to regulatory approval, is expected to be completed during the second quarter of 1998. Global is a manufacturer of technologically advanced industrial products that support high-growth markets around the world. Its subsidiary, Harbison-Walker Refractories Company, operates 15 refractory plants in five countries, including the United States, Canada, Mexico, Chile and Germany. On March 6, 1998, a lawsuit was filed against the Company, Global, BGN Acquisition Corp. and the directors of the Company in the Court of Chancery in the State of Delaware seeking to enjoin the tender offer and alleging, among other things, that the stockholders of the Company are not receiving fair and adequate consideration for their shares. The Company has entered into an agreement in principle to settle the lawsuit whereby, subject to the negotiation and execution of definitive agreements, including mutually acceptable releases, (i) the Company mailed to the stockholders of the Company on March 24, 1998 a supplemental disclosure statement on Schedule 14D-9 containing certain additional financial information and projections and (ii) Global will reimburse the plaintiff in the lawsuit for attorneys' fees and expenses, as awarded by the Court, up to an aggregate amount of $180,000. The lawsuit and/or settlement thereof is not expected to have any impact on the transactions contemplated by the Agreement and Plan of Merger. -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 - --------------------- Total sales increased 1.5% to $65.8 million for the three months ended March 31, 1998 from $64.8 million for the comparable 1997 three-month period. Gross profit increased 7.5% to $11.6 million from $10.8 million for the comparable periods. Refractory Products and Services -------------------------------- Refractory products and services sales declined slightly to $53.1 million for the three-month period ended March 31, 1998 from $53.5 million for the three-month period ended March 31, 1997. United States refractory sales declined 2.9% to $44.2 million from $45.5 million for the comparable three-month periods. Declines in brick, specialties, INTOGREEN products and precast shapes volumes were partially offset by increases in ceramic fiber and Lanxide ThermoComposites, Inc. (LTI) products for a net volume decline of 10.8%. Prices increased an average of 3.9% across all product lines except specialties. U.S. export sales declined 8.8% to $4.0 million from $4.4 million, primarily due to reduced sales to the Far East as a result of the economic difficulties being experienced in that region. Sales of the Canadian subsidiary increased 21.5% to $6.5 million for the three months ended March 31, 1998 from $5.4 million for the comparable 1997 period. Increases in brick and specialties volumes were partially offset by decreases in ceramic fiber, crucible and precast shape volumes, resulting in an overall volume increase of 9.2%. Price increases for specialties and ceramic fibers were partially offset by price reductions for brick, crucibles and pre-cast shapes resulting in an overall price increase of 2.4%. Gross profit at the Canadian subsidiary declined 28.4% primarily as a result of lower production volumes causing reduced production efficiencies. This lower gross profit was offset by reduced selling and administrative expenses, resulting in a pre-tax loss of $35,000 for the first quarter of 1998 compared to $74,000 in 1997. Sales in the United Kingdom increased 13.2% to $2.5 million for the three months ended March 31, 1998 from $2.2 million for the comparable 1997 quarter. The sales increase contributed to pre-tax earnings of $67,000 for the first quarter of 1998 compared to a pre-tax loss of $31,000 in the comparable 1997 period. -11- Sales at A. P. Green de Mexico for the first quarter of 1998 decreased 4.9% to $2.3 million from $2.4 million for the comparable 1997 period. Reduced raw material, freight and royalty costs and improved production efficiencies resulted in an improvement in the gross profit percentage to 31.7% from 22.4%, which contributed to an increase in pre-tax earnings to $258,000 from $218,000. Sales at PT AP Green Indonesia were up 51.7% to $179,000 for the first quarter of 1998 compared to $118,000 for the comparable 1997 period. The pre-tax loss of $417,000 for 1998 compared to $238,000 for 1997, reflecting higher administrative costs as a percentage of sales, increased financing costs and higher currency translation costs in 1998 compared to 1997. Utilizing the U.S. dollar as its primary trading currency has limited the currency translation exposure of the Indonesian subsidiary. However, the significant deterioration of economic conditions in Indonesia and the Far East region has resulted in sales growth being slower than planned, extending the time period anticipated for the operation to achieve profitability. Refractory cost of sales as a percentage of sales declined to 82.5% from 83.6% for the three months ended March 31, 1998 and 1997, respectively. This reduction was primarily due to reduced raw material and workers' compensation costs and improved production efficiencies, partially offset by higher group health insurance expenses. Refractory operating profits improved 6.7% to $2.0 million from $1.9 million in 1998 and 1997, respectively, primarily due to the gross profit improvement. Industrial Lime --------------- Industrial lime sales increased 11.7% to $12.8 million for the first quarter of 1998 from $11.4 million for the first quarter of 1997. Volumes at the New Braunfels, Texas plant increased an average of 10.1%, with increases in road stabilization and building lime partially offset with reduced volume of industrial lime. Prices were 1.1% higher at New Braunfels for the comparable quarters, with an increase in industrial lime prices and flat pricing for building lime partially offset with reduced road stabilization prices. At the Kimballton, Virginia plant a decline in quicklime volume was partially offset by an improvement in Cal-Dol volume, while hydrate volumes were unchanged, for an overall decline of 0.9%. Average selling prices were flat for the comparable periods at the Kimballton plant. Volume at the Ripplemead plant increased 36.5%, with the largest increase coming from quicklime, while prices increased an average of 2.7% across all product lines. Industrial lime gross profit was $2.3 million for the first quarter of 1998 compared to $2.0 million for the first quarter of 1997, an increase of 12.5%, with the gross profit percentage increasing slightly to 18.0% of sales in 1998 from 17.9% of sales in 1997. The improvement in gross profit percentage was due to improved production efficiencies and reduced workers' compensation expense at the New Braunfels plant. Operating profit increased to $1.9 million in 1998 compared to $1.8 million in 1997 as a result of the improvement in gross profit, -12- partially offset by professional fees associated with Palmetto Lime which did not qualify for capitalization. Expenses and Other Income ------------------------- Selling and administrative expenses increased 8.1% to $10.0 million for the three-month period ended March 31, 1998 from $9.2 million for the comparable 1997 period. The increase was primarily due to a general increase in salary levels and increased professional fees, travel and group insurance costs, partially offset by reductions in the provision for losses on accounts receivable and LTI research expenditures. Interest expense decreased 18.3% to $682,000 in 1998 from $834,000 in 1997, primarily due to a reduction in the debt outstanding associated with the General acquisition. Daily average bank line borrowings were approximately $3.5 million during the first quarter of 1998, compared to $4.2 million during the first quarter of 1997. Interest income for the first quarter of 1998 was $233,000 compared to $247,000 for the first quarter of 1997. The reduction was due primarily to reduced funds available for investing. Other expense of $248,000 for the three months ended March 31, 1998 compared to other income of $66,000 for the comparable 1997 period, primarily due to acquisition due diligence expenditures and costs associated with the pending sale of the Company. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and accordingly are not subject to significant currency transaction gains and losses. A. P. Green de Mexico and PT AP 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 Mexican peso and Indonesian rupiah transactions, A. P. Green's portion of which was not significant to the consolidated results. The decline in value of the Indonesian rupiah is not expected to significantly increase the Indonesian subsidiary's currency exposure. Income Taxes ------------ The effective tax rate for the three months ended March 31, 1998 was 44.5% compared to 33.9% for the comparable 1997 period. The increase in the effective tax rate was due primarily to establishment of a valuation allowance for part of the 1996 net operating loss carryforward from Indonesia due to a relatively short five-year carryforward period. Also contributing to the higher effective rate in 1998 were non-deductible travel and entertainment expenses which were higher during the first quarter of 1998 than in the comparable 1997 period. -13- Equity in Net Income of Affiliates ---------------------------------- The Company's share of income from its two Colombian affiliates was $66,000 in the first quarter of 1998 compared to $15,000 for the first quarter of 1997. The income recorded during the first quarter of 1997 does not include adjustments necessary to translate the Colombian financial statements to U.S. accounting principles and, as such, is not comparable to the income recorded during the first quarter of 1998. Had the full year adjustment for 1997, which could not be reasonably estimated or recorded until December 1997, been recorded evenly during 1997, the Company's share of Colombian earnings during the first quarter of 1997 would have been approximately $85,000. Accounting Standards Not Yet Implemented ---------------------------------------- In June 1997 the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information," which the Company is required to implement for the year ended December 31, 1998. Although the implementation of this statement is not required for interim periods and will have no impact on the financial results of the Company, it is assessing the impact on the disclosures provided in the annual report. Forward-Looking Information --------------------------- The statements contained in Management's Discussion and Analysis concerning the Company's future revenues, profitability, financial resources, product mix, market demand and product development are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company's operations and business environment including, but not limited to: delivery delays or defaults by customers; domestic and international market conditions; performance issues with key suppliers and contractors; the Company's successful execution of internal operating plans; and collective bargaining labor disputes. -14- INDUSTRY SEGMENTS (In thousands) Three Months Ended March 31, ---------------------------- 1998 1997 ---- ---- Net Sales Refractory products and services $ 53,072 $ 53,497 Industrial lime 12,760 11,429 Intersegment eliminations (70) (110) --------- --------- $ 65,762 $ 64,816 ========= ========= Gross Profit Refractory products and services $ 9,312 $ 8,759 Industrial lime 2,298 2,043 --------- --------- $ 11,610 $ 10,802 ========= ========= Gross Profit Percentage Refractory products and services 17.5% 16.4% Industrial lime 18.0% 17.9% 17.7% 16.7% ========= ========= Operating Profit Refractory products and services $ 2,044 $ 2,039 Industrial lime 1,872 1,766 --------- --------- 3,916 3,681 --------- --------- Other Charges to Income General corporate expenses, net 2,294 2,039 Interest expense 682 834 Interest income (233) (247) --------- --------- Total other charges 2,743 2,626 --------- --------- Earnings Before Income Taxes $ 1,173 $ 1,055 ========= ========= Identifiable Assets (at period end) Refractory products and services $ 327,172 $ 292,461 Industrial lime 61,223 59,021 Corporate 5,306 4,484 --------- --------- $ 393,701 $ 355,966 ========= ========= -15- Three Months Ended March 31, ---------------------------- 1998 1997 ---- ---- Depreciation, Depletion and Amortization Refractory products and services $1,823 $1,770 Industrial lime 1,026 1,074 Corporate 153 155 ------ ------ $3,002 $2,999 ====== ====== Capital Expenditures Refractory products and services $1,388 $1,116 Industrial lime 1,224 347 Corporate 45 126 ------ ------ $2,657 $1,589 ====== ====== GEOGRAPHIC SEGMENTS (In thousands) Three Months Ended March 31, ---------------------------- 1998 1997 ---- ---- Net Sales United States $ 56,915 $ 56,939 Canada 6,530 5,375 United Kingdom 2,501 2,210 Mexico 2,286 2,404 Far East 179 118 Intersegment transfers (primarily U.S.) (2,649) (2,230) -------- -------- $ 65,762 $ 64,816 ======== ======== Earnings (Loss) Before Income Taxes United States $ 1,300 $ 1,180 Canada (35) (74) United Kingdom 67 (31) Mexico 258 218 Far East (417) (238) -------- -------- $ 1,173 $ 1,055 ======== ======== -16- Three Months Ended March 31, ---------------------------- 1998 1997 ---- ---- Identifiable Assets (at period end) United States $348,266 $315,349 Canada 17,254 16,961 United Kingdom 4,487 4,694 Mexico 6,440 6,949 Far East 11,948 7,346 Corporate 5,306 4,667 -------- -------- $393,701 $355,966 ======== ======== PRICE/VOLUME SUMMARY 1998 AS COMPARED TO 1997 PERCENT INCREASE (DECREASE) Three Months Ended March 31, 1998 -------------- U. S. Refractory Products Sales Volume (10.8)% Price 3.9 Industrial Lime Sales Volume 10.4 Price 1.1 -17- FINANCIAL CONDITION ------------------- The Company continues to maintain a strong balance sheet. Summary Information (Dollars in thousands) March 31, ---------------------------- December 31, 1998 1997 1997 -------- -------- -------- Working capital $ 71,013 $ 69,591 $ 68,568 Current ratio 2.7:1 2.6:1 2.5:1 Total assets $393,701 $355,966 $357,714 Current maturities of long-term debt 6,006 4,145 5,716 Long-term debt 31,953 34,736 31,034 Stockholders' equity $124,735 $117,758 $124,535 Debt to total capitalization(1) 23.3% 24.8% 22.8% (1) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. Working capital increased $2.4 million from December 31, 1997 to March 31, 1998, while the ratio of current assets to current liabilities increased to 2.7 to 1 from 2.5 to 1 during the same period. The working capital increase was primarily due to a $3.5 million increase in inventories and a $3.6 million reduction in accounts payable and other accrued expenses, partially offset by a $4.2 million reduction in accounts receivable as a result of lower sales in March 1998 as compared to December 1997. Working capital increased $1.4 million as compared to March 31, 1997, primarily due to a $3.9 million decrease in accounts payable and other accrued expenses, partially offset by a $1.9 million increase in current maturities of long-term debt. The increase in inventories during the first quarter of 1998 was primarily due to market conditions being slower than anticipated in the U.S. and Canada, as well as an increase in raw materials inventories in the U.K. as a result of favorable pricing. The decline in accounts payable and other accrued expenses since December 31, 1997 and March 31, -18- 1997 was primarily due to reduced purchases of materials and supplies and reductions in stockholder reporting and similar reserves required as a public company but which will no longer be required subsequent to the pending acquisition of the Company. The increase in current maturities of long-term debt since March 31, 1997 was primarily due to a $2.5 million reclassification from long-term debt for a scheduled increase in the payment due against the unsecured notes payable, partially offset by a $1.0 million final payment on an industrial development revenue bond at the Bessemer, Alabama plant in December 1997. Projected asbestos claims and projected insurance recovery on asbestos claims both increased $38.5 million since December 31, 1997 and $36.4 million since March 31, 1997 as a result of revised estimates based upon information provided by the Center, net of payments made by the Company's insurance carriers. All payments of asbestos claims are now and will continue to be made directly to the Center by the insurance carriers. Capital expenditures for the first quarter of 1998 totaled $2.7 million compared to $1.6 million during the first quarter of 1997, with capital expenditures for the industrial lime business increasing approximately $900,000 due to breaking ground on the new Palmetto Lime facility in Charleston, South Carolina. PENDING ACQUISITION OF THE COMPANY ---------------------------------- On March 3, 1998, the Company entered into an Agreement and Plan of Merger with Global Industrial Technologies, Inc. and BGN Acquisition Corp. The Agreement and Plan of Merger calls for, among other things, Global to purchase for cash all outstanding shares of the Company at $22.00 per share, or approximately $195.0 million, plus the assumption of $23.0 million of net debt. The transaction, which will be effected by means of a tender offer, followed by a merger, if required, has been approved by the Boards of Directors of both companies and, subject to regulatory approval, is expected to be completed during the second quarter of 1998. Global is a manufacturer of technologically advanced industrial products that support high-growth markets around the world. Its subsidiary, Harbison-Walker Refractories Company, operates 15 refractory plants in five countries, including the United States, Canada, Mexico, Chile and Germany. On March 6, 1998, a lawsuit was filed against the Company, Global, BGN Acquisition Corp. and the directors of the Company in the Court of Chancery in the State of Delaware seeking to enjoin the tender offer and alleging, among other things, that the stockholders of the Company are not receiving fair and adequate consideration for their shares. The Company has entered into an agreement in principle to settle the lawsuit whereby, subject to the negotiation and execution of definitive agreements, including mutually acceptable releases, (i) the Company mailed to the stockholders of the Company on March 24, 1998 a supplemental disclosure statement on Schedule 14D-9 containing certain additional financial information and projections and (ii) Global will reimburse the plaintiff in the lawsuit for attorneys' fees and expenses, as awarded by the Court, up to an aggregate amount of -19- $180,000. The lawsuit and/or settlement thereof is not expected to have any impact on the transactions contemplated by the Agreement and Plan of Merger. -20- 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 Three Months Ended March 31, 1998 (b) Reports on Form 8-K: On January 6, 1998 the Company filed Form 8-K to report, under Item 5,a dividend distribution of one Preferred Stock Purchase Right for each outstanding share of common stock of the Company, payable to shareholders of record at the close of business on January 7, 1998. On March 17, 1998 the Company filed Form 8-K to report, under Item 5, that it had entered into an Agreement and Plan of Merger with Global Industrial Technologies, Inc. and BGN Acquisition Corp. -21- 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: May 13, 1998 ------------ -22- EX-27 2 FINANCIAL DATA SCHEDULE-THREE MONTHS ENDED 3/31/98
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 THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT. 1,000 3-MOS DEC-31-1998 MAR-31-1998 3,576 0 46,028 1,509 57,155 113,505 107,073 0 393,701 42,492 37,959 0 0 9,024 115,711 393,701 65,762 65,762 54,152 54,152 0 0 682 1,173 523 636 0 0 0 636 .08 .07
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