-----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, Pl3OEdflkjj6dDV6VNXj93Vj/kz9J1p6OHt36uikOUdHGmPGMw7KCGGTf2bBVtPI ml2uFV3LSBD4aJYB5yKIAg== 0000826619-97-000020.txt : 19971117 0000826619-97-000020.hdr.sgml : 19971117 ACCESSION NUMBER: 0000826619-97-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: 97719110 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 QUARTERLY REPORT ON FORM 10-Q 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, 1997 Commission File No. 0-16452 ------------------ ------- A. P. GREEN INDUSTRIES, INC. ---------------------------- (Exact name of registrant as specified in its charter) Delaware 43-0899374 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Green Boulevard, Mexico, Missouri 65265 --------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (573) 473-3626 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: As of November 14, 1997, 8,060,665 shares of Common Stock, $1 par value, were outstanding. Page 1 of 27 A. P. GREEN INDUSTRIES, INC. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) September 30, December 31, 1997 1996 ------------- ------------ (Dollars in thousands, except per share data) ASSETS Current Assets Cash and cash equivalents $ 5,539 $ 9,477 Receivables (net of allowances - 1997, $1,600; 1996, $1,701) 44,717 42,084 Reimbursement due on paid asbestos claims - 3,898 Inventories 53,648 53,674 Deferred income tax asset 3,089 3,374 Other 6,717 7,030 ------- ------- Total current assets 113,710 119,537 Property, plant and equipment, net 105,961 107,394 Projected insurance recovery on asbestos claims 82,556 110,374 Pension assets 9,180 9,044 Intangible assets, net 4,415 4,132 Other assets 4,079 4,648 ------- ------- Total assets $319,901 $355,129 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 16,202 $ 20,408 Accrued expenses Payrolls 6,689 6,267 Taxes other than on income 2,490 1,860 Insurance reserves 4,242 3,574 Other 6,473 6,528 Current maturities of long-term debt 6,599 4,168 Income taxes 1,423 1,191 ------- ------- Total current liabilities 44,118 43,996 Deferred income taxes 7,863 10,228 Long-term non-pension benefits 17,568 16,583 Long-term pensions 12,287 12,449 Long-term debt 30,680 40,109 Projected asbestos claims 82,556 111,966 ------- ------- Total liabilities 195,072 235,331 ------- ------- Minority Interests 1,486 1,414 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: 9,014,099 in 1997 and 8,975,442 in 1996 9,014 8,975 Additional paid-in capital 68,505 68,309 Retained earnings 65,830 61,151 Less: Deferred foreign currency translation (3,448) (2,875) Treasury stock of 953,934 shares in 1997 and 1996, at cost (9,498) (9,498) Note receivable-ESOT (6,323) (6,941) Minimum pension liability adjustment, net of tax (737) (737) ------- ------- Total stockholders' equity 123,343 118,384 ------- ------- Total liabilities and stockholders' equity $319,901 $355,129 ======= ======= See accompanying notes to consolidated financial statements. 2 A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three months ended September 30, ------------------------------- (Dollars in thousands, except per share data) 1997 1996 -------------- -------------- Net sales $ 70,696 $ 61,948 Cost of sales 57,907 52,856 --------- --------- Gross profit 12,789 9,092 Expenses and other income Selling & administrative expenses 9,447 8,798 Interest expense 817 766 Interest income (232) (279) Minority interest in loss of partnerships (124) (35) Other income, net (83) (324) --------- --------- Earnings before income taxes 2,964 166 Income tax expense (benefit) 1,003 (66) Equity in net income of affiliates (143) - Minority interest in loss of consolidated subsidiaries (56) (112) --------- --------- Net earnings $ 2,160 $ 344 ========= ========= Net earnings per common share $ 0.27 $ 0.04 ========= ========= Weighted average number of common shares 8,055,114 8,021,508 ========= ========= Dividends per common share $ 0.04 $ 0.04 ========= ========= See accompanying notes to consolidated financial statements. 3 A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Nine months ended September 30, ------------------------------ (Dollars in thousands, except per share data) 1997 1996 -------------- -------------- Net sales $ 207,365 $ 195,720 Cost of sales 170,160 161,511 --------- --------- Gross profit 37,205 34,209 Expenses and other income Selling & administrative expenses 27,846 27,015 Interest expense 2,463 2,343 Interest income (731) (885) Minority interest in loss of partnerships (209) (76) Other income, net (200) (591) --------- --------- Earnings before income taxes 8,036 6,403 Income tax expense 2,797 2,307 Equity in net income of affiliates (174) (379) Minority interest in loss of consolidated subsidiaries (209) (437) --------- --------- Net earnings $ 5,622 $ 4,912 ========= ========= Net earnings per common share $ 0.70 $ 0.61 ========= ========= Weighted average number of common shares 8,034,771 8,043,150 ========= ========= Dividends per common share $ 0.12 $ 0.11 ========= ========= See accompanying notes to consolidated financial statements. 4 A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30, ------------------------------ (Dollars in thousands) 1997 1996 -------------- -------------- Cash flows from operating activities Net earnings $ 5,622 $ 4,912 Adjustments for items not requiring (providing) cash Depreciation, depletion and amortization 9,014 7,902 Stock compensation to directors 39 28 Provision for losses on accounts receivable 542 511 Loss on sale of assets 42 14 Equity in earnings of affiliates, net of dividends received (26) (95) Minority interest in losses of consolidated subsidiaries and partnerships (418) (513) Decrease (increase) in assets Trade receivables (3,188) 2,834 Asbestos claim and fee reimbursements received 21,681 17,260 Inventories 26 3,340 Receivable and prepaid taxes 45 (137) Other current assets 132 (1,626) Increase (decrease) in liabilities Accounts payable and accrued expenses (2,541) (5,258) Asbestos claims paid (19,361) (18,508) Pensions (163) (1,588) Income taxes 232 (418) Deferred income taxes (2,080) (527) Long-term non-pension benefits 986 784 ------- ------- Net cash provided by operating activities 10,584 8,915 ------- ------- Cash flows from investing activities Capital expenditures (6,598) (9,374) Increase in other long-term assets (187) (454) Increase in pension assets (136) (30) Proceeds from sales of assets 314 389 Payment received on ESOT note 618 564 ------- ------- Net cash used in investing activities (5,989) (8,905) ------- ------- Cash flows from financing activities Repayments of debt (17,702) (2,669) Proceeds from borrowings 10,000 325 Exercised stock options 195 - Dividends paid (964) (884) Capital contributions from minority partner 490 - Purchase of common stock for treasury - (480) Tax benefit on dividends paid to ESOT 21 22 ------- ------- Net cash used in financing activities (7,960) (3,686) ------- ------- Effect of exchange rate changes (573) (144) ------- ------- Net decrease in cash and cash equivalents (3,938) (3,820) Cash and cash equivalents at beginning of year 9,477 9,284 ------- ------- Cash and cash equivalents at end of period $ 5,539 $ 5,464 ======= ======= 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, 1996. The results for the quarter and nine-month period ended September 30, 1997 are not necessarily indicative of the results which may occur for the full year. All per share amounts have been restated to reflect the two-for-one stock split effective September 20, 1996. Certain prior year amounts have been reclassified to conform to the 1997 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 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 the 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. The U.S. facilities are held for sale at their estimated net realizable value, one of which was sold in October 1997 as discussed under Financial Condition. 6 3. INVENTORIES ----------- September 30, 1997 December 31, 1996 ------------------ ----------------- Finished goods & work-in-process Valued at LIFO: FIFO cost $ 32,633 $ 31,278 Less LIFO reserve (14,300) (14,907) ------ ------ LIFO cost 18,333 16,371 Valued at FIFO 12,460 13,225 ------ ------ TOTAL 30,793 29,596 ------ ------ Raw materials and supplies Valued at LIFO: FIFO cost 16,381 17,702 Less LIFO reserve (5,914) (6,129) ------ ------ LIFO cost 10,467 11,573 Valued at FIFO 12,388 12,505 ------ ------ TOTAL 22,855 24,078 ------ ------ $ 53,648 $ 53,674 ====== ====== 4. LITIGATION ---------- Asbestos-related Claims - Personal Injury ----------------------------------------- A. P. Green is among numerous defendants in lawsuits pending as of September 30, 1997 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, 1996, 1995 and 1994 was as follows: 7 1996 1995 1994 ---- ---- ---- Claims pending at January 1 48,367 50,920 52,122 Claims filed 29,702 12,560 14,836 Cases settled, dismissed or otherwise resolved (19,184) (15,113) (16,038) ------ ------ ------ Claims pending at December 31 58,885 48,367 50,920 ====== ====== ====== Average settlement amount per claim(1) $1,582 $1,778 $1,816 (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. 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. The amounts reported for projected asbestos claims and projected insurance recovery on asbestos claims in the consolidated statements of financial position as of December 31, 1996 were determined based upon the Settlement. 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 September 30, 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 a reduction in both the liability and asset of $19.4 million during the third quarter of 1997. There was no effect on the consolidated earnings of the Company. Management anticipates that the Company's insurance carriers will make all required payments for these claims. While management understands the inherent uncertainty in 8 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 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. 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. 9 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. 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, 1997 - ------------------------------------------------------------- COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996 - ------------------------------------------------- Total sales increased 14.1% to $70.7 million for the three months ended September 30, 1997 from $61.9 million for the comparable 1996 three-month period. Gross profit increased 40.7% to $12.8 million from $9.1 million for the comparable periods. The impact from the December 31, 1996 acquisition of the Eastern Ridge Lime facility in Ripplemead, Virginia was to increase sales by approximately $2.8 million, with a slight increase in gross profit which was immaterial to the consolidated results. Refractory Products and Services - -------------------------------- Total refractory products and services sales increased 10.2% to $57.5 million for the three months ended September 30, 1997 from $52.2 million for the comparable 1996 period. United States refractory sales were $47.9 million and $43.9 million for the three-month periods ended September 30, 1997 and 1996, respectively, an increase of 9.1%. U.S. refractory product sales volumes increased an average of 4.6%, with increases in specialties, INTOGREEN Co. and Lanxide ThermoComposites, Inc. (LTI) products partially offset by declines in brick, precast shape and ceramic fiber volumes. Prices for brick, ceramic fiber, precast shapes and LTI products were up compared to the third quarter of 1996, partially offset by decreases in specialties and INTOGREEN pricing for a net price increase of 3.5%. U.S. export sales declined 1.4% to $5.7 million in the third quarter of 1997 from $5.8 million for the third quarter of 1996, due primarily to weaker sales to the Far East and the Middle East, partially offset by increased sales to South America. Sales of the Canadian subsidiary increased 8.1% to $6.6 million for the three-month period ended September 30, 1997 from $6.1 million for the comparable 1996 period. Increases in brick, ceramic fiber, precast shape and crucible volumes were partially offset with a decline in specialties volumes for a net volume increase of 8.0%. Prices increased an average of 2.5%, with increases in specialties, brick and crucibles pricing partially offset by price reductions in ceramic fiber and precast shapes. The Canadian operation generated pre-tax earnings of $42,000 for the third quarter of 1997 compared to a pre-tax loss of $53,000 for the comparable 1996 period. The increase in earnings was primarily due to improved efficiencies leading to improved gross margins, partially offset by an increase in the provision for doubtful accounts in the third quarter of 1997 compared to the same period of 1996 and currency 11 exchange losses on U.S. dollar denominated accounts. Sales in the United Kingdom (U.K.) were flat at $2.4 million for the third quarters of 1997 and 1996. Lower production volume levels compared to 1996 resulted in reduced production efficiencies, contributing to a decline in pre-tax earnings to $18,000 for the three months ended September 30, 1997 from $186,000 for the 1996 period. Also contributing to the reduced earnings were increased depreciation expense and higher salary and related costs. Sales at A. P. Green de Mexico for the three months ended September 30, 1997 increased 22.0% to $2.7 million compared to $2.2 million for the 1996 period, with 1997 pre-tax earnings of $303,000 compared to $258,000 for the third quarter of 1996. Sales at PT AP Green Indonesia were $197,000, with a pre-tax loss of $229,000 due to the relatively high fixed costs at the low initial volume level. This operation is expected to be near break even on a monthly basis by the end of the first quarter of 1998. The Indonesian operation incurred a pre-tax start-up loss of $160,000 during the third quarter of 1996. Total refractory products cost of sales as a percentage of sales decreased to 82.2% compared to 87.4% for the three months ended September 30, 1997 and 1996, respectively. This reduction was primarily due to higher production levels contributing to improved production efficiencies, as well as lower equipment maintenance, casualty insurance and depreciation expenses. Partially offsetting these improvements were increased workers compensation and group health insurance costs. Total refractory operating profits increased to $3.6 million from $388,000 for the comparable three-month periods primarily due to the improvement in gross margins. Industrial Lime - --------------- Industrial lime sales increased 35.0% to $13.2 million for the third quarter of 1997 from $9.8 million for the third quarter of 1996. Sales from the plant in Ripplemead, Virginia, acquired December 31, 1996, accounted for $2.8 million of the increase. Volumes increased an average of 0.6% at the Kimballton, Virginia plant, with increases in hydrate and Cal-Dol partially offset by a reduction in quicklime volume. Prices at Kimballton increased 1.3%, with higher quicklime and Col-Dol prices partially offset by lower pricing on hydrate. Volumes increased an average of 11.3% across all product lines at the New Braunfels, Texas plant. Prices for road stabilization lime declined at New Braunfels, partially offset by increases in industrial and building lime, resulting in an overall price decrease of 1.1%. Gross profit increased 8.3% to $2.5 million from $2.3 million for the respective third quarters of 1997 and 1996. Gross profit as a percentage of sales declined to 19.2% for the third quarter of 1997 compared to 23.9% for the third quarter of 1996. This 12 decline in gross profit percentage was primarily due to the relatively high operating costs and depreciation related to the newly acquired Ripplemead plant. Improvements continue to be made at this facility, which generated a small net profit for the quarter, and the impact of these improvements, coupled with increased synergies with the nearby Kimballton plant, should result in improved gross profit percentages in future periods. Also contributing to the lower gross profit percentage were increased power and processing fuel costs at the Kimballton plant, increased purchased material and workers compensation costs at New Braunfels and increased group health insurance costs at both plants. Partially offsetting these cost increases were improved efficiencies at both plants and reduced equipment maintenance, processing fuel and contract demolition expense at the New Braunfels plant. Industrial lime operating profit increased 7.4% to $2.2 million from $2.0 million for the comparable quarters due primarily to the increase in gross profit. Expenses and Other Income - ------------------------- Selling and administrative expenses increased 7.4% to $9.4 million in the third quarter of 1997 from $8.8 million for the comparable 1996 period. The increase was primarily due to higher management incentive, travel and group health insurance costs, partially offset by reduced LTI research expenditures. Interest expense increased 6.6% to $817,000 in 1997 from $766,000 in 1996, due to interest associated with borrowings against the Company's U.S. long-term line of credit. Daily average bank line borrowings were approximately $2.8 million during the third quarter of 1997, while there were no bank line borrowings during the same period of 1996. Interest income for the third quarter of 1997 declined 16.9% to $232,000 from $279,000 in the comparable 1996 three-month period due to reduced funds available for investing and reduced interest on notes receivable, including the note due from the ESOT. Other income declined 74.2% for the comparable three-month periods, primarily due to an increase in currency conversion losses on the U.S. dollar at the Company's Canadian subsidiary and gains on the sale of the Pueblo, Colorado plant and certain equipment at the closed Warren, Ohio plant during the third quarter of 1996. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and accordingly are not subject to significant currency conversion gains and losses. A. P. Green de Mexico and PT 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. 13 Income Taxes - ------------ The tax benefit in the third quarter of 1996 was due primarily to partial recognition of benefits from the pre-tax start up losses of LTI during the first half of 1996. Long- term projections of LTI's operating results indicate future earnings should be adequate to ensure realization of the benefits from the tax losses in future periods. As such, a portion of the tax benefits earned during the first half of 1996 were recognized in the third quarter of 1996, with the balance recognized during the fourth quarter of that year. Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from its two Colombian affiliates was $143,000 for the three months ended September 30, 1997. There was no income from these affiliates during the same period of 1996 due to a recession in the Colombian construction industry, political uncertainty and a general decline in economic conditions in Colombia. 14 RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED - --------------------------------------------------------------------- TO NINE MONTHS ENDED SEPTEMBER 30, 1996 - --------------------------------------- Total sales increased 6.0% to $207.4 million for the nine months ended September 30, 1997 from $195.7 million for the comparable 1996 nine-month period. Gross profit increased 8.8% to $37.2 million from $34.2 million for the comparable periods. The impact from the December 31, 1996 acquisition of the Eastern Ridge Lime facility was to increase sales by approximately $7.5 million, with a slight increase in gross profit which was immaterial to the consolidated results. Refractory Products and Services - -------------------------------- Total refractory products and services sales were $170.0 million and $165.9 million for the nine months ended September 30, 1997 and September 30, 1996, respectively, increasing 2.5%. U.S. refractory sales increased 0.6% to $143.0 million for the nine months ended September 30, 1997 from $142.2 million for the comparable 1996 period. Significantly limiting this increase were lower sales of silica products from the Company's Lehi, Utah plant, which experienced high sales in 1996 due to capital projects at several glass and coke oven customers. A significant increase in Chinese imports has also negatively impacted the Company's silica business. U.S. refractory sales volumes increased 1.1%, with increases in specialties, LTI and INTOGREEN products partially offset by declines in brick and ceramic fiber, with precast shapes essentially flat for the comparable periods. Price increases for specialties, precast shapes and ceramic fiber were partially offset by brick price reductions for a net price increase of 0.8%. U.S. export sales declined 21.8% to $15.3 million for the nine-month period ended September 30, 1997 from $19.6 million for the comparable 1996 period, due primarily to reduced sales to the Far East, Europe and the Middle East, partially offset by increased sales to South America. Reduced U.S. export sales to Mexico and the Caribbean were offset with increased sales by A. P. Green de Mexico. Sales at the Canadian subsidiary increased 5.7% to $19.1 million for the nine months ended September 30, 1997 from $18.1 million for the comparable 1996 period. Increased volumes in brick, ceramic fiber, crucibles and precast shapes were partially offset by a decline in specialties volume for a net volume increase of 7.9%. Prices increased across all product lines with the exception of precast shapes, resulting in an overall price increase of 1.9%. Improved production efficiencies at the Canadian subsidiary resulted in a 24% improvement in gross profit, resulting in pre-tax income of $218,000 for the nine months ended September 30, 1997 compared to $50,000 for the comparable 1996 period. Also contributing to the improved Canadian earnings were reduced salaries and related costs, property taxes and pension and freight expense compared to 1996, partially offset by increased equipment maintenance, a higher provision for doubtful 15 accounts and higher currency exchange losses on U.S. dollar denominated accounts. Sales by the United Kingdom subsidiary declined 7.3% to $6.5 million for the first nine months of 1997 compared to $7.1 million for the same period of 1996 due to weak market conditions. Planned inventory reductions contributed to lower volume levels which resulted in reduced production efficiencies, contributing to a pre-tax loss of $40,000 in 1997 compared to pre-tax earnings of $428,000 in 1996. Also contributing to the reduced earnings were increased depreciation expense and higher salary and related costs. A. P. Green de Mexico's sales for the nine months ended September 30, 1997 increased 32.1% to $7.6 million compared to $5.8 million in 1996. Increased maintenance, royalty and freight costs and a weakening Mexican peso contributed to a decline in pre-tax earnings to $801,000 for the first nine months of 1997 compared to $823,000 for the same period of 1996. Sales at PT AP Green Indonesia were $665,000 for the nine months ended September 30, 1997, with a pre-tax loss of $698,000 due to the relatively high fixed costs at the low initial volume level. This operation is expected to be near break even on a monthly basis by the end of the first quarter of 1998. The Indonesian operation incurred a pre-tax start-up loss of $238,000 for the nine months ended September 30, 1996. Total refractory products cost of sales as a percentage of sales decreased to 82.4% in 1997 from 83.6% in 1996. This improvement was primarily due to greater production efficiencies, reduced equipment maintenance expense and reduced costs in Canada as discussed above. Partially offsetting these improvements were increased raw materials, workers compensation insurance and employee relocation costs in the U.S. and high relative fixed costs at PT AP Green Indonesia. Total refractory operating profits increased 28.5% to $10.1 million from $7.9 million in 1997 and 1996, respectively, primarily due to the improved gross profit partially offset by increased selling and administrative costs at LTI and PT AP Green Indonesia. Industrial Lime - --------------- Industrial lime sales increased 25.6% to $37.6 million from $29.9 million for the nine-month periods ended September 30, 1997 and 1996, respectively, including $7.5 million from the Ripplemead plant acquired December 31, 1996. A decline in quicklime volume was partially offset by increases in Cal-Dol and hydrate volumes for a net volume decline of 2.1% at the Kimballton plant. Also contributing to the volume decline at Kimballton was a strike at one of the plant's major customers. Kimballton prices increased an average of 1.4% across all major product lines. Volumes at the New Braunfels plant improved 2.7%, with increases in road stabilization and building lime partially offset by reduced industrial lime volume. Prices were essentially flat at New Braunfels, with increased industrial lime pricing 16 offset by price reductions in road stabilization and building lime. Industrial lime gross profit increased 2.4% to $7.2 million or 19.2% of sales for 1997 from $7.1 million or 23.6% of sales for 1996. The decline in gross profit percentage was due primarily to the relatively high operating costs and depreciation related to the newly acquired Ripplemead plant. Improvements continue to be made at this facility, which generated a small net profit for the nine-month period, and the impact of these improvements, coupled with increased synergies with the nearby Kimballton plant, should result in improved gross profit percentages in future periods. Also contributing to the decline in gross profit percentage were increased workers compensation costs at New Braunfels, higher power, processing fuel and depreciation expense at Kimballton and increased purchased material and group health insurance costs at both plants. Partially offsetting these increases were reductions in maintenance, power and processing fuel costs at New Braunfels, lower workers compensation insurance cost at Kimballton and improved production efficiencies at both plants. Industrial lime operating profit increased 1.0% to $6.2 million for the first nine months of 1997 compared to $6.1 million for the comparable 1996 period primarily due to the improvement in gross profit. Expenses and Other Income - ------------------------- Selling and administrative expenses increased 3.1% to $27.8 million in 1997 from $27.0 million in 1996. The increase was primarily due to higher management incentive, group health insurance and workers compensation insurance costs and increased expenses at LTI and PT AP Green Indonesia, partially offset by reduced sales incentives and LTI research costs. Interest expense increased 5.1% to $2.5 million in 1997 from $2.3 million in 1996, due to interest associated with borrowings against the Company's U.S. long-term line of credit offset by reduced interest on the unsecured notes associated with the 1994 General acquisition. Daily average bank line borrowings were approximately $3.1 million during the first nine months of 1997, while there were no bank line borrowings during the same period of 1996. Interest income decreased 17.5% to $731,000 in 1997 from $885,000 in 1996 due to reduced funds available for investing. Other income declined 66.2% to $200,000 in 1997 from $591,000 in 1996, due primarily to increased currency conversion losses on U.S. dollar denominated accounts at the Company's Canadian subsidiary and currency conversion losses on Mexican peso accounts at the Company's Mexican subsidiary during 1997 compared to gains during 1996. Also contributing to the reduction of other income were gains on the sale of the Pueblo, Colorado plant and certain equipment at the closed Warren, Ohio plant during the third quarter of 1996. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and accordingly are not subject to significant currency 17 conversion 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. Income Taxes - ------------ The 1997 effective tax rate was 34.8% compared to 36.0% in 1996. The higher 1996 effective rate was due primarily to limited recognition of tax benefits from the pre-tax start up losses of LTI. A portion of those benefits were recognized during the third quarter of 1996, as long-term projections of LTI's operating results indicated future earnings should be adequate to ensure realization of the benefits of the estimated tax loss in future periods. The balance of those benefits were recognized during the fourth quarter of 1996. Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from its two Colombian affiliates was $174,000 for the nine months ended September 30, 1997 compared to $379,000 for the comparable 1996 period. The reduction was due to a recession in the Colombian construction industry, political uncertainty and a general decline in economic conditions in Colombia. Accounting Standards Not Yet Implemented - ---------------------------------------- The Company is required to implement Statement of Financial Accounting Standards No. 128, "Earnings per Share," for the quarter and year ending December 31, 1997. The standard requires presentation of both basic and diluted earnings per share on the face of the consolidated statement of earnings, using the treasury stock method to calculate the net impact of dilutive securities. In addition, a reconciliation of both the numerator and denominator of the two calculations is required in the footnotes to the financial statements. Implementation of the standard would cause basic earnings per share to be the same as primary earnings per share reported herein, whereas diluted earnings per share would be $.26 and $.04 for the quarters ended September 30, 1997 and 1996, respectively, and $.68 and $.60 per share for the nine months ended September 30, 1997 and 1996, respectively. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure", which the Company is required to implement for the year ending December 31, 1997. In June 1997 the Board issued Statement No. 130, "Reporting Comprehensive Income", and No. 131, "Disclosures about Segments of an Enterprise and Related Information", which the Company is required to implement for the year ending December 31, 1998. Although the implementation of these statements will 18 have no impact on the financial results of the Company, it is assessing the impact of these statements on the disclosures provided in its quarterly and annual reports. 19 INDUSTRY SEGMENTS (In thousands) Nine Months Ended September 30, ------------------------------- 1997 1996 ---- ---- Net Sales Refractory products and services $ 170,030 $ 165,887 Industrial lime 37,601 29,933 Intersegment eliminations (266) (100) -------- -------- $ 207,365 $ 195,720 ======== ======== Gross Profit Refractory products and services $ 29,981 $ 27,153 Industrial lime 7,224 7,056 -------- -------- $ 37,205 $ 34,209 ======== ======== Gross Profit Percentage Refractory products and services 17.6% 16.4% Industrial lime 19.2% 23.6% 17.9% 17.5% ======== ======== Operating Profit Refractory products and services $ 10,108 $ 7,864 Industrial lime 6,192 6,132 -------- -------- 16,300 13,996 -------- -------- Other Charges to Income General corporate expenses, net 6,532 6,135 Interest expense 2,463 2,343 Interest income (731) (885) -------- -------- Total other charges 8,264 7,593 -------- -------- Earnings Before Income Taxes $ 8,036 $ 6,403 ======== ======== 20 Nine Months Ended September 30, ------------------------------- 1997 1996 ---- ---- Identifiable Assets (at period end) Refractory products and services $252,064 $292,639 Industrial lime 59,082 47,127 Corporate 8,755 8,381 ------- ------- $319,901 $348,147 ======= ======= Depreciation, Depletion and Amortization Refractory products and services $ 5,263 $ 5,050 Industrial lime 3,251 2,100 Corporate 500 752 ------- ------- $ 9,014 $ 7,902 ======= ======= Capital Expenditures Refractory products and services $ 3,725 $ 7,275 Industrial lime 2,358 1,832 Corporate 515 267 ------- ------- $ 6,598 $ 9,374 ======= ======= GEOGRAPHIC SEGMENTS (In thousands) Nine Months Ended September 30, ------------------------------- 1997 1996 ---- ---- United States $ 180,609 $ 172,128 Canada 19,122 18,089 United Kingdom 6,545 7,058 Mexico 7,629 5,776 Far East 665 - Intersegment transfers (primarily U.S.) (7,205) (7,331) -------- -------- $ 207,365 $ 195,720 ======== ======== 21 Nine Months Ended September 30, ------------------------------- 1997 1996 ---- ---- Earnings (Loss) Before Income Taxes United States $ 7,755 $ 5,340 Canada 218 50 United Kingdom (40) 428 Mexico 801 823 Far East (698) (238) -------- -------- $ 8,036 $ 6,403 ======== ======== Identifiable Assets (at period end) United States $ 274,953 $ 304,651 Canada 17,521 19,348 United Kingdom 4,684 4,865 Mexico 6,601 5,851 Far East 7,387 5,051 Corporate 8,755 8,381 -------- -------- $ 319,901 $ 348,147 ======== ======== PRICE/VOLUME SUMMARY 1997 AS COMPARED TO 1996 PERCENT INCREASE (DECREASE) Three Nine Months Months Ended Ended September 30, 1997 September 30, 1997 ------------------ ------------------ U.S. Refractory Products Sales Volume 4.6% 1.1% Price 3.5 0.8 Industrial Lime Sales (excluding impact of Eastern Ridge acquisition) Volume 6.1 (0.2) Price 0.2 0.7 22 FINANCIAL CONDITION - ------------------- The Company continues to maintain a strong balance sheet. Summary Information (Dollars in thousands) September 30, December 31, ------------- ------------ 1997 1996 1996 ---- ---- ---- Working capital $ 69,592 $ 75,383 $ 75,541 Current ratio 2.6:1 3.0:1 2.7:1 Total assets $319,901 $348,147 $355,129 Current maturities of long-term debt 6,599 2,942 4,168 Long-term debt 30,680 31,804 40,109 Stockholders' equity $123,343 $118,017 $118,384 Debt to total capitalization (1) 23.2% 22.7% 27.2% (1) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. Working capital declined 7.7%, or $5.8 million, to $69.6 million at September 30, 1997 from $75.4 million at September 30, 1996, while the ratio of current assets to current liabilities decreased to 2.6:1 from 3.0:1. Excluding the impact of the acquisition of the Eastern Ridge Lime facility, working capital decreased $7.5 million, primarily due to a $4.1 million reduction in reimbursement due on paid asbestos claims and a $3.5 million increase in current portion of long-term debt. Working capital declined 7.9%, or $5.9 million, since December 31, 1996, primarily due to a decline in cash of $3.9 million, a $3.9 million reduction in reimbursement due on paid asbestos claims and a $2.4 million increase in current maturities of long-term debt, partially offset by a $4.2 million reduction in accounts payable. The reduction in reimbursement due on paid asbestos claims since both September 30, 1996 and December 31, 1996 was due to asbestos claim settlements with the 23 Company's insurance carriers and the Center and reimbursements from them. The increase in current maturities of long-term debt since both September 30, 1996 and December 31, 1996 was due primarily to a $2.5 million reclassification from long-term debt for a scheduled increase in the payment due against the unsecured notes payable. Long-term debt decreased $9.4 million from December 31, 1996 due primarily to this reclassification, a scheduled payment of $2.5 million against the unsecured notes payable and a $5.0 million reduction in outstanding borrowings against the U.S. long-term line of credit. Partially offsetting these reductions was a ten-year capital lease on a warehouse in Houston, Texas, which bears an interest rate of 10.9% and expires December 1, 2006. Approximately $3.6 million of the U.S. long-term line of credit was being utilized at September 30, 1997 for outstanding letters of credit and $4.0 million of borrowings remained outstanding, leaving an available balance of approximately $22.4 million. Projected insurance recovery on asbestos claims declined $8.4 million and projected asbestos claims declined $10.0 million since December 31, 1997 due to asbestos claim payments by insurance carriers and settlements by the Company with those carriers during the first nine months of 1997. The net projected asbestos liability included in the Company's statement of financial position has been reduced to zero as a result of final settlements with the Company's insurance carriers. Future payments of asbestos claims will be made directly to the Center by those carriers. An additional $19.4 million reduction in both the projected asbestos claims and projected insurance recovery on asbestos claims since both September 30, 1996 and December 31, 1996 was due to a change in the information available to the Company to make these projections, as discussed in Note 4 of Notes to Consolidated Financial Statements. Included in the $38.8 million reduction in total assets since September 30, 1996 (exclusive of the impact from the Eastern Ridge acquisition) was a $35.4 million reduction in projected insurance recovery on asbestos claims due to payments by insurance carriers and revision to the estimated recovery as discussed. Deferred income tax liabilities declined $2.4 million due to reductions in prepaid pension costs and depreciation method differences. Capital expenditures for the first nine months of 1997 totaled $6.6 million compared to $9.4 million for the same period of 1996, with capital expenditures for the refractories business declining $3.6 million. This reduction was primarily due to the completion of the new plant in Indonesia and the movement of operations previously at Weston, Ontario to the Smithville, Ontario plant during 1996. Forward-Looking Information - --------------------------- The statements contained in Management's Discussion and Analysis concerning the Company's future profitability, outcome of lawsuits, utilization of tax loss 24 carryforwards, currency fluctuation effects, adequacy of insurance proceeds and market demand 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; performance issues with key suppliers and subcontractors; the Company's successful execution of internal operating plans; global monetary policies and trends; collective bargaining labor disputes; litigation claims filed and judgements or settlements paid that are of a greater magnitude than the Company has experienced in the past; and the continued financial stability of the Company's insurance carriers covering such claims. Subsequent Event - ---------------- In October 1997 the Hitchins, Kentucky plant and Kentucky timber property were sold. The combined net gain after all closing costs and expenses on the sales of these properties is approximately $400,000. 25 A. P. GREEN INDUSTRIES, INC. PART II. OTHER INFORMATION Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits: --------- Exhibit No. ----------- 27 Financial Data Schedule as of and for the Nine Months Ended September 30, 1997. (b) Reports on Form 8-K: -------------------- No reports on Form 8-K were filed during the quarter ended September 30, 1997 26 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 14, 1997 ----------------- 27 EX-27 2 FINANCIAL DATA SCHEDULE AS OF SEPTEMBER 30, 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE A. P. GREEN INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q AS OF AND FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 SEP-30-1997 5,539 0 46,317 1,600 53,648 113,710 105,961 0 319,901 44,118 37,279 0 0 9,014 114,329 319,901 207,365 207,365 170,160 170,160 0 0 2,463 8,036 2,797 5,622 0 0 0 5,622 .70 0
-----END PRIVACY-ENHANCED MESSAGE-----