SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_______________
For the quarter ended September 30, 1995 Commission File No. 0-16452
------------------ -------
A. P. GREEN INDUSTRIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0899374
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Green Boulevard, Mexico, Missouri 65265
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 473-3626
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date: As of November
13, 1995, 4,037,259 shares of Common Stock, $1 par value, were outstanding.
Page 1 of 24
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A. P. GREEN INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
September 30, December 31,
1995 1994
------------- ------------
(Dollars in thousands, except per share data)
ASSETS
Current Assets
Cash and cash equivalents $ 11,034 $ 9,637
Receivables (net of allowances -
1995, $2,441; 1994, $1,992) 42,835 43,728
Reimbursement due on paid asbestos
claims 3,485 11,475
Inventories 52,833 53,452
Projected insurance recovery on
asbestos claims 35,540 35,540
Deferred income tax benefit 4,671 5,355
Other 5,913 4,965
-------- --------
Total current assets 156,311 164,152
Property, plant and equipment, net 96,268 95,412
Non-current projected insurance
recovery on asbestos claims 73,082 97,344
Long-term pensions 9,200 9,166
Other assets 6,815 7,048
-------- --------
Total assets $341,676 $373,122
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 14,323 $ 22,874
Accrued expenses
Payrolls 6,176 6,044
Taxes other than on income 2,297 1,961
Insurance reserves 4,838 6,995
Current portion of projected
asbestos claims 35,793 35,793
Other 8,703 10,650
Current maturities of long-term debt 2,655 139
Income taxes 1,038 1,384
-------- --------
Total current liabilities 75,823 85,840
Deferred income taxes 13,692 15,677
Long-term non-pension benefits 15,550 15,270
Long-term pensions 12,562 12,472
Long-term debt 34,469 37,023
Non-current projected asbestos claims 74,950 99,802
-------- --------
Total liabilities 227,046 266,084
-------- --------
Minority Interests 1,895 -
Stockholders' Equity
Preferred stock - $1 par value;
authorized: 2,000,000 shares;
issued and outstanding: none - -
Common stock - $1 par value;
authorized: 10,000,000 shares;
issued: 4,476,879 in 1995 and
4,475,629 in 1994 4,477 4,476
Additional paid-in capital 72,762 72,739
Retained earnings 54,916 49,279
Less: Deferred currency translation (2,396) (2,428)
Treasury stock of 448,347
shares, at cost (9,003) (9,003)
Note receivable - ESOT (8,021) (8,021)
Deferred compensation-restricted
stock - (4)
-------- --------
Total stockholders' equity 112,735 107,038
-------- --------
Total liabilities and stockholders'
equity $341,676 $373,122
======== ========
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars in thousands, Three months ended September 30,
except per share data) --------------------------------
1995 1994
---- ----
Net sales $ 62,652 $ 54,255
Cost of sales 51,464 44,967
-------- --------
Gross profit 11,188 9,288
Expenses and other income
Selling & administrative expenses 8,029 6,438
Interest expense 806 633
Interest income (414) (343)
Minority interest in loss of
partnership (15) -
Other income, net (382) (541)
-------- --------
Earnings before income taxes 3,164 3,101
Income tax expense 920 995
Equity in net income of affiliates (136) (70)
Minority interest in income of
consolidated subsidiary 115 -
-------- --------
Net earnings $ 2,265 $ 2,176
======== ========
Net earnings per common share and
common equivalent share $ 0.55 $ 0.54
======== ========
Weighted average number of common shares
used in primary calculation 4,124,047 4,027,282
========= =========
Earnings per common share assuming full
dilution $ 0.54 $ 0.54
======== ========
Weighted average number of common shares
used in fully diluted calculation 4,158,432 4,027,282
========= =========
Dividends per common share $ 0.07 $ 0.06
========= =========
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars in thousands, Nine months ended September 30,
except per share data) ------------------------------
1995 1994
---- ----
Net sales $ 188,856 $ 132,607
Cost of sales 157,271 109,761
-------- --------
Gross profit 31,585 22,846
Expenses and other income
Selling & administrative expenses 23,688 18,183
Interest expense 2,396 1,153
Interest income (1,124) (986)
Minority interest in loss of partnership (42) -
Other income, net (644) (1,141)
-------- --------
Earnings before income taxes and
cumulative effect of an accounting
change 7,311 5,637
Income tax expense 1,279 1,739
Equity in net income of affiliates (542) (70)
Minority interest in income of
consolidated subsidiary 115 -
-------- --------
Earnings before cumulative effect of an
accounting change 6,459 3,968
Cumulative effect of an accounting change
Postemployment benefits, net of tax - (255)
-------- --------
Net earnings $ 6,459 $ 3,713
======== ========
Earnings per common share and common
equivalent share:
Earnings before cumulative
effect of an accounting change $ 1.59 $ 0.98
Cumulative effect of an accounting change
Postemployment benefits, net of tax - (0.06)
--------- ---------
Net earnings $ 1.59 $ 0.92
========= =========
Weighted average number of common shares
used in primary calculation 4,060,587 4,023,980
========= =========
Earnings per common share assuming full
dilution:
Earnings before cumulative effect of an
accounting change $ 1.55 $ 0.98
Cumulative effect of an accounting change
Postemployment benefits, net of tax - (0.06)
--------- ---------
Net earnings $ 1.55 $ 0.92
========= =========
Weighted average number of common shares
used in fully diluted calculation 4,158,299 4,023,980
========= =========
Dividends per common share $ .21 $ 0.18
========= =========
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
------------------------------
(Dollars in thousands) 1995 1994
---- ----
Cash flows from operating activities
Net earnings $ 6,459 $ 3,713
Adjustments for items not requiring cash
Cumulative effect of an accounting change-
Postemployment benefits, net of tax - 255
Equity in undistributed earnings of
affiliates (127) -
Depreciation, depletion and amortization 7,538 6,256
Deferred compensation earned 4 19
Stock compensation to directors 23 28
Provision for losses on accounts receivable 483 178
Loss (gain) on sale of assets 79 (415)
Minority interest in earnings of consolidated
subsidiaries 73 -
Decrease (increase) in assets
Trade receivables 2,488 (1,013)
Asbestos claim and fee reimbursements
received 24,295 24,906
Inventories 1,211 (5,746)
Receivable and prepaid taxes - 509
Other current assets (896) (1,709)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (12,628) (1,260)
Asbestos claims paid (17,755) (33,429)
Pensions 77 392
Income taxes (386) 577
Deferred income taxes (1,189) (229)
Long-term non-pension benefits 239 393
-------- --------
Net cash from (used in) operating
activities 9,988 (6,575)
-------- --------
Cash flows from investing activities
Capital expenditures (6,924) (5,177)
Decrease in other long-term assets 677 270
Increase in pension assets (34) (517)
Proceeds from sales of assets 252 494
Payment received on ESOT note - 471
Purchase of General Refractory operations - (24,497)
Purchase of Plibrico de Mexico operation,
net of cash acquired (1,763) -
-------- --------
Net cash used in investing activities (7,792) (28,956)
-------- --------
Cash flows from financing activities
Repayments of debt (131) (91)
Capital contribution from minority partner 120 -
Proceeds from issuance of long-term debt - 25,000
Dividends paid (846) (725)
Exercised stock options - 237
Tax benefit on dividends paid to ESOP 23 22
Tax effect on stock plan 2 (3)
-------- --------
Net cash from (used in) financing activities (832) 24,440
-------- --------
Effect of exchange rate changes 33 225
-------- --------
Net increase (decrease) in cash and cash
equivalents 1,397 (10,866)
Cash and cash equivalents at beginning of year 9,637 16,331
-------- --------
Cash and cash equivalents at end of period $ 11,034 $ 5,465
======== ========
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. MANAGEMENT'S COMMENTS REGARDING ADJUSTMENTS AND RESULTS OF OPERATIONS
---------------------------------------------------------------------
In the opinion of management, the accompanying consolidated financial
statements include all adjustments of a normal and recurring nature
necessary for a fair presentation of the financial position and results
of operations for the periods presented. These financial statements
should be read in conjunction with the Company's Annual Report on Form
10-K for the year ended December 31, 1994. The results for the quarter
ended September 30, 1995 are not necessarily indicative of the results
which may occur for the full year.
2. EARNINGS PER SHARE
------------------
Earnings per common share and common equivalent share are computed based
on the weighted average number of common shares outstanding during the
period and the assumed exercise of dilutive stock options, less the
number of treasury shares assumed to be purchased from the proceeds
using the average market price of the Company's common stock during the
period. Earnings per common share assuming full dilution are computed
based on the assumption that the options were exercised at the beginning
of the period, and reflect additional dilution due to the use of the
market price at the end of the period, when higher than the average
price for the period. The impact of stock options in 1994 was not
significant.
3. ACQUISITIONS
------------
On July 26, 1995 the Company acquired a 51% ownership interest in
Plibrico de Mexico SA de CV, a refractory manufacturer located in
Monterrey, Mexico, effective July 3, 1995. Plibrico de Mexico, which
has been renamed A. P. Green de Mexico SA de CV, has one plant with
annual sales of approximately $7.0 million. The Company acquired all of
the ownership interest of Cookson America, Inc., a subsidiary of Cookson
PLC, and a portion of the holdings of Grupo Industrial Trebol SA de CV,
which will continue to own a 49% interest in A. P. Green de Mexico. The
purchase price and transaction costs of approximately $2.0 million were
paid out of operating capital.
The acquisition was accounted for using the purchase method, with the
operating results of A. P. Green de Mexico included in consolidated
operating results since the date of acquisition. Goodwill of
approximately $560,000, which represents the excess of cost over the fair
value of net tangible assets acquired, is being amortized on a straight-
line basis over a ten-year period.
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4. INVENTORIES
-----------
September 30, 1995 December 31, 1994
------------------ -----------------
Finished goods and work-in-process
Valued at LIFO:
FIFO cost $ 34,684 $ 36,233
Less LIFO reserve (14,219) (14,919)
-------- --------
LIFO cost 20,465 21,314
Valued at FIFO 9,971 9,033
-------- --------
TOTAL 30,436 30,347
-------- --------
Raw materials and supplies
Valued at LIFO:
FIFO cost 17,713 20,007
Less LIFO reserve (5,164) (5,875)
-------- --------
LIFO cost 12,549 14,132
Valued at FIFO 9,848 8,973
-------- --------
TOTAL 22,397 23,105
-------- --------
$52,833 $53,452
======== ========
5. LITIGATION
----------
Asbestos-related Claims - Personal Injury
- -----------------------------------------
A. P. Green is among numerous defendants in lawsuits pending as of
September 30, 1995 that seek to recover compensatory, and in many cases,
punitive damages for personal injury allegedly resulting from exposure
to asbestos-containing products.
A. P. Green is a member of the Center for Claims Resolution (the
Center), an organization of twenty companies (Members) who were formerly
distributors or manufacturers of asbestos-containing products. The
Center administers, evaluates, settles, pays and defends all of the
asbestos-related personal injury lawsuits involving its Members. Under
the terms of the Center Agreement, each Member's portion of the
liability payments and defense costs are based upon, among other things,
the number and type of claims brought against it. Claims activity for
the Company for each of the years ended December 31, 1994 and 1993 was
as follows:
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- ------------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------------
Claims pending at January 1 52,122 50,007
Claims filed 14,836 26,100
Cases settled, dismissed or
otherwise resolved (16,038) (23,985)
------- -------
Claims pending at December 31 50,920 52,122
======= =======
Average settlement amount per claim (1) $ 1,816 $ 1,728
==============================================================================
(1) Substantially all settlements are covered by the Company's insurance
program.
On January 15, 1993, the Members were named as defendants in a class
action lawsuit brought on behalf of all persons who have been
occupationally exposed to asbestos-containing products of the Members
and who have unasserted claims for such exposure (the Class) pursuant to
Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court
for the Eastern District of Pennsylvania. At about the same time, the
Center negotiated and filed with the Court a settlement (the Settlement)
between the Members and the Class. Under the terms of the Settlement,
the Members have agreed to pay compensation to any member of the Class
who has, according to objective medical criteria, physical impairment as
a result of such exposure. Different levels of compensation will be
paid depending on the type and degree of physical impairment. No
punitive damages will be paid. The Settlement provides, among other
things, for a cap on the number of claims to be processed each year
during the next ten years and a range of settlement values for each
disease category. Settlement values are based on historical average
payments by the Center for similar cases. Each Member will be
responsible for its percentage share of each claim payment (no joint and
several liability), such shares having been previously established.
Hearings were held to determine the fairness of the Settlement and the
court ruled that the Settlement was fair. The ruling has been appealed
by certain objectors.
In a third party action filed simultaneously with the class action (and
in parallel Alternate Dispute Resolution proceedings), the Members have
asked for a declaratory judgment against their respective insurers that
such insurers cannot use the Settlement as a defense to their payment
under applicable policies of insurance. The Settlement is expressly
contingent upon such declaratory relief. In addition, some Members,
including A. P. Green, have asked for a declaratory judgment against
their insurers with whom they have not reached coverage resolutions. No
decision has been rendered at this date with respect to these issues.
-8-
<PAGE>
Under the assumption that it receives these court approvals, the
Settlement has provided the Company with a basis for estimating its
potential liability and related insurance recovery associated with
asbestos cases. The Company has reviewed its insurance policies,
historical settlement amounts, the number of pending cases and the
projected number of claims to be filed pursuant to the Settlement and
the Company's share of amounts to be paid thereunder. The Company has
also reviewed its contractual liability for the payment of deductibles
under certain insurance policies insuring The E. J. Bartells Company
(Bartells), a former subsidiary, against asbestos-related personal
injury claims, such policies having been issued when Bartells was owned
by A. P. Green. Based upon such reviews, the Company has estimated its
liability for such cases and claims to be approximately $110.7 million
and $135.6 million at September 30, 1995 and December 31, 1994,
respectively, with partially offsetting projected insurance
reimbursements of approximately $108.6 million and $132.9 million,
respectively. While management understands the inherent uncertainty in
litigation of this type and the possibility that past costs may not be
indicative of future costs, management does not believe that these
claims and cases will have any additional material adverse effect on the
Company's consolidated financial position or results of operations.
Management anticipates that payments for these claims will occur over at
least ten years and can be made from normal operating cash sources.
In addition to asbestos-related personal injury claims asserted against
A. P. Green, a number of claims have been asserted against Bigelow-
Liptak Corporation (now known as A. P. Green Services, Inc.), a
subsidiary of the Company. These claims have been and are currently
being handled by such subsidiary's insurance carriers. Except for
deductible amounts or retentions provided for under insurance policies,
no claim for reimbursement of defense or indemnity payments has been
made against the Company or such subsidiary by any such carriers.
Asbestos-related Claims - Property Damage
- -----------------------------------------
A. P. Green is also among numerous defendants in a property damage class
action suit pending in South Carolina. A. P. Green previously has been
dismissed from a number of property damage cases and believes that it
should be dismissed from the South Carolina case based on the end uses
of its products. A similar suit pending in the State of Oregon involves
a former wholly owned subsidiary of the Company and is being defended by
the Company's insurance carrier. Based upon the Company's history in
these asbestos-related property damage claims, management does not
believe that the ultimate resolution of these matters will have a
material adverse effect on the Company's consolidated financial position
or results of operations.
There was no assumption of asbestos-related liability, either personal
injury or property damage, in connection with the August 1994
acquisition of the refractories business of General Refractories Company
and its affiliated companies (General).
-9-
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Environmental
- -------------
The EPA or other private parties have named the Company or one of its
subsidiaries as a potentially responsible party in connection with two
superfund sites in the United States. The Company is a de minimis party
with respect to one of the sites and expects to arrive at a settlement
agreement and Consent Decree with respect to it for an amount of not
more than $10,000. With respect to the second, involving a wholly owned
subsidiary of the Company, there does not appear to be any evidence of
delivery to the site of hazardous material by the subsidiary. An
estimate has been made of the costs to be incurred in these matters and
the Company has recorded a reserve respecting those costs.
Other
- -----
A. P. Green is subject to claims and other lawsuits that arise in the
ordinary course of business, some of which may seek damages in
substantial amounts, including punitive or extraordinary damages.
Reserves for these claims and lawsuits are recorded to the extent that
losses are deemed probable and are estimable. In the opinion of
management, the disposition of all current claims and lawsuits will not
have a material adverse effect on the consolidated financial position or
results of operations of A. P. Green.
-10-
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A. P. GREEN INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO
---------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1994
-------------------------------------
Total sales increased 15.5% to $62.7 million for the three months ended
September 30, 1995 from $54.3 million for the comparable 1994 three-
month period. Gross profit increased 20.5% to $11.2 million from $9.3
million for the comparable periods. The impact from the August 1994
General acquisition was to increase sales by approximately $4.9 million
and gross profit by approximately $670,000. The impact from the July
1995 A. P. Green de Mexico acquisition was to increase sales by $1.8
million and gross profit by approximately $710,000.
Refractory Products and Services
--------------------------------
Refractory products and services sales increased 16.6% to $53.2 million
for the three months ended September 30, 1995 from $45.6 million for the
comparable 1994 period. United States refractory sales were $44.6
million and $39.8 million for the three-month periods ended September
30, 1995 and 1994, respectively, an increase of 11.9%. The impact from
the General acquisition was to increase U.S. refractory sales by $3.9
million. Excluding this acquisition impact, U.S. refractory product
sales volumes increased an average of 1.7%, with increases in brick and
ceramic fiber products partially offset by decreases in specialties and
precast shape volumes. Specialty and precast shape prices increased,
partially offset by decreases in pricing of brick and ceramic fiber
products for a net price increase of 3.1%. U.S. export sales improved
43.5% to $5.1 million in the third quarter of 1995 from $3.6 million for
the third quarter of 1994, largely due to the General acquisition.
Sales of the Canadian subsidiary increased 7.7% to $5.7 million for the
three-month period ended September 30, 1995 from $5.3 million for the
comparable 1994 period. The impact from the General acquisition was to
increase Canadian sales by $1.0 million. Excluding this impact, brick,
specialty and precast shape volumes declined, partially offset by
increases in ceramic fiber products and crucibles for a net volume
decrease of 12.8%. Prices increased an average of 5.9% across all
product lines except precast shapes. The Canadian operation generated a
pre-tax loss of $12,000 for the third quarter of 1995 compared to pre-
tax earnings of $372,000 for the comparable 1994 period. The 1995 loss
was due to unfavorable production variances resulting from reduced
volumes, increased salaries and pension expense (primarily related to
the General acquisition), higher equipment maintenance expense and
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additional expense in 1995 for obsolete inventory, partially offset
by 1995 currency conversion gains on U.S. dollar denominated accounts
compared to losses in 1994.
Sales in the United Kingdom (U.K.) increased to $2.7 million for the
third quarter of 1995 from $2.4 million for the comparable 1994 period,
reflecting continued improvement in the U.K. market. The sales increase
generated pre-tax earnings of $196,000 for the three months ended
September 30, 1995 compared to $187,000 for the 1994 period. The
Company's 51% share of A.P. Green de Mexico's pre-tax earnings was
$127,000 on sales of $1.8 million for the first three months under
A. P. Green ownership.
Refractory products cost of sales as a percentage of sales increased
slightly to 83.3% compared to 82.9% for the three months ended September
30, 1995 and 1994, respectively. Increased raw material, freight and
mold building costs were largely offset by reduced maintenance costs and
a reduction in estimated environmental remediation costs at the acquired
General facilities, as well as reduced group health insurance and
workers' compensation costs. Refractory operating profits declined
14.0% to $3.3 million from $3.8 million for the comparable three-month
periods, due primarily to increased research and selling expenses
resulting from the General acquisition.
Industrial Lime
---------------
Industrial lime sales increased 9.2% to $9.5 million from $8.7 million
for the respective third quarters of 1995 and 1994. Volumes increased
an average of 6.6%, with increases in industrial and road stabilization
lime at the New Braunfels, Texas plant and quicklime at the Kimballton,
Virginia plant partially offset by declines in building lime at New
Braunfels and cal-dol and hydrate at Kimballton. Prices increased
across all product lines at both plants with the exception of industrial
lime at New Braunfels for an overall price increase of 2.4%.
The gross margins of the Company's industrial lime operations are
sensitive to volume changes due to the capital intensive nature of the
operations and semi-fixed nature of other costs. As a result of the
sales increase, gross profit and operating profit increased 52.4% and
61.8%, respectively. Also contributing to these increases were reduced
processing fuel, equipment maintenance and purchased materials costs at
both plants and reduced workers' compensation expense at the New
Braunfels plant, partially offset by increased outside processing costs
at Kimballton.
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<PAGE>
Expenses and Other Income
-------------------------
Selling and administrative expenses increased 24.7% to $8.0 million in
the third quarter of 1995 from $6.4 million for the comparable 1994
period. Increases in salaries and related costs, salaried pensions,
travel, professional fees and amortization of intangibles were all
largely related to the addition of General sales and research personnel
and intangible assets included in the acquisition. Selling and
administrative expenses at A. P. Green de Mexico contributed $465,000 of
the increase. Also contributing to the increase were an increased
provision for losses on accounts receivable, primarily due to the higher
sales and accounts receivable levels and the bankruptcy of a steel
customer, and higher employee recruiting and relocation, sales
promotion, sales incentive and director retirement plan expenses,
partially offset by reduced legal fees and management incentive expense.
Interest expense increased to $806,000 in 1995 from $633,000 in 1994 due
primarily to three months of interest expense in 1995 on the additional
debt associated with the General acquisition compared to two months in
1994. There were no bank line borrowings during either three-month
period. Interest income for the third quarter of 1995 increased 20.7%
to $414,000 from $343,000 in the comparable 1994 three-month period due
to increased funds available for investing and higher interest rates.
Other income declined 29.4% for the comparable three-month periods
primarily due to a gain on the sale of a warehouse property in Los
Angeles, California in 1994, partially offset by 1995 currency conversion
gains on U.S. dollar denominated accounts at the Canadian subsidiary
compared to losses in 1994 and an increase in royalty income.
The Company and its Canadian and U.K. subsidiaries typically transact
business in their own currencies and accordingly are not subject to
significant currency conversion gains and losses. A. P. Green de Mexico
transacts a significant portion of its business in U.S. dollars and, as
such, uses the dollar as its functional currency. This results in
currency conversion gains and losses on Mexican peso transactions,
A. P. Green's portion of which are not significant to the
consolidated results.
Equity in Net Income of Affiliates
----------------------------------
The Company's share of income from two Colombian affiliates acquired
from General in August 1994 was $136,000 for the three months ended
September 30, 1995 compared to $70,000 for August and September 1994.
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<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO
---------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1994
------------------------------------
Total sales increased 42.4% to $188.9 million for the nine months ended
September 30, 1995 from $132.6 million for the comparable 1994 nine-
month period. Gross profit increased 38.3% to $31.6 million from $22.8
million for the comparable periods. The impact from the August 1994
General acquisition was to increase sales by approximately $38.8 million
and gross profit by approximately $3.9 million. The impact from the
July 1995 A. P. Green de Mexico acquisition was to increase sales by
$1.8 million and gross profit by approximately $710,000.
Refractory Products and Services
--------------------------------
Refractory products and services sales were $160.5 million and $107.0
million for the nine months ended September 30, 1995 and September 30,
1994, respectively, reflecting an increase of 50.0%. U.S. refractory
sales increased 46.6% to $138.7 million for the nine months ended
September 30, 1995 from $94.6 million for the comparable 1994 period.
The impact from the General acquisition was to increase U.S. refractory
sales by $33.3 million. Excluding this impact, volumes increased across
all product lines except precast shapes an average of 12.1%. Lower
brick and ceramic fiber prices were offset by increases in specialty and
precast shape prices, resulting in a slight overall price increase.
U.S. export sales increased 64.2% to $13.4 million for the nine-month
period ended September 30, 1995 from $8.2 million for the comparable
1994 period, due largely to the General acquisition.
Sales at the Canadian subsidiary increased 54.8% to $18.3 million for
the nine months ended September 30, 1995 from $11.8 million for the
comparable 1994 period, of which $6.2 million was due to the General
acquisition. Excluding this acquisition impact, decreases in brick,
specialties and precast shape volumes were partially offset by increases
in crucible and ceramic fiber volumes for a net volume decrease of 2.1%.
Prices increased across all product lines with the exception of
crucibles, resulting in an overall price increase of 4.8%. The Canadian
operation generated a pre-tax loss of $138,000 for the nine months ended
September 30, 1995 compared to pre-tax earnings of $589,000 for the
comparable 1994 period. The change from 1994 was primarily due to
establishment of a reserve of approximately $380,000 for exit costs and
termination benefits for 26 employees associated with the closing and
sale of the Weston, Ontario plant, which was announced in June 1995, and
additional interest expense of $244,000 for the first seven months of
1995 on the debt associated with the acquisition of the General
operation in Canada. Earnings in 1994 included a pre-tax reserve of
approximately $315,000 which was established during the first quarter of
1994 for the cost of Canadian personnel reductions made during that
quarter.
-14-
<PAGE>
The United Kingdom market continued to show signs of strength as sales
by the U.K. subsidiary increased 40.3% to $7.1 million for the first
nine months of 1995 from $5.1 million for the first nine months of 1994.
The sales increase generated pre-tax earnings of $438,000 for the nine
months ended September 30, 1995 compared to pre-tax earnings of $67,000
for the 1994 period. The Company's 51% share of A.P. Green de Mexico's
pre-tax earnings was $127,000 on sales of $1.8 million for the first
three months under A. P. Green ownership.
Refractory products cost of sales as a percentage of sales increased to
84.6% in 1995 from 82.8% in 1994. This increase was primarily due to a
higher percentage of lower margin sales to the steel industry at the
acquired General facilities, increased raw material and mold building
costs and higher unfavorable brick breakage variances. Also
contributing to the cost increase were increases in the obsolete
inventory and U.S. plant shutdown reserves, both of which were
established at the time of the General acquisition related to facilities
to be closed, as well as establishment of the Canadian plant shutdown
reserve previously mentioned. The U.S. plant shutdown reserve was
increased approximately $330,000 due primarily to revised estimates of
employee termination benefits resulting from the sale of these
facilities taking longer than anticipated. Substantially all employees
at these facilities have been terminated, and approximately $2.8 million
of termination benefits and plant closing costs have been charged
against the reserve to date. Partially offsetting these increases were
improved labor efficiencies and reduced power, processing fuel, freight
out and group insurance expenses. Refractory operating profits
increased 16.9% to $8.4 million from $7.2 million in 1995 and 1994,
respectively.
Industrial Lime
---------------
Industrial lime sales increased 10.8% to $28.5 million from $25.7
million for the nine-month periods ended September 30, 1995 and 1994,
respectively. Volumes increased across all product lines at both plants
for an overall increase of 8.7%. Prices increased an average of 1.9%,
with increases in quicklime and hydrate prices at the Kimballton plant
partially offset by price declines in cal-dol at the Kimballton plant
and industrial lime at the New Braunfels plant. New Braunfels pricing
was unchanged on road stabilization and building lime.
The gross margins of the Company's industrial lime operations are
sensitive to volume changes due to the capital intensive nature of the
operations and semi-fixed nature of other costs. As a result of the
sales increase, gross profit and operating profit increased 53.0% and
62.4%, respectively. Also contributing to this increase were improved
labor efficiencies and reduced group insurance and processing fuel costs
at both plants, lower equipment maintenance, workers' compensation and
purchased materials costs at the New Braunfels plant and lower power
costs at the Kimballton plant, partially offset by increased outside
processing costs at Kimballton. Production variances at both plants
also improved in 1995 compared to 1994, when
-15-
<PAGE>
a first-quarter weather-related production curtailment of several days
was incurred at Kimballton and downtime was incurred at the New
Braunfels plant related to installation of a new kiln preheater and dust
collection system.
Expenses and Other Income
-------------------------
Selling and administrative expenses increased 30.3% to $23.7 million in
1995 from $18.2 million in 1994. Increases in salaries and related
costs, salaried pensions, travel, office expenses, professional fees and
amortization of intangibles were all largely related to the addition of
General sales and research personnel and intangible assets included in
the acquisition. Selling and administrative expenses at A. P. Green de
Mexico contributed $465,000 of the increase. Also contributing to the
increase were an increased provision for losses on accounts receivable,
primarily due to the higher sales and accounts receivable levels and the
bankruptcy of a steel customer, and higher sales promotion, sales
incentive, employee recruiting and relocation and director retirement
plan expenses.
Interest expense increased to $2.4 million in 1995 from $1.2 million in
1994 due to the additional debt associated with the General acquisition.
There were no bank line borrowings during either nine-month period.
Interest income increased 14.0% due to increased funds available for
investing and higher interest rates. Other income decreased 43.6% to
$644,000 in 1995 from $1.1 million in 1994, due primarily to a gain on
the sale of a warehouse property in Los Angeles, California in 1994
and a reduction in royalty income resulting from cancellation of a
licensing agreement with a significant Mexican licensee during the fourth
quarter of 1994. Also contributing to the decrease were increased
bank charges, a 1994 business interruption insurance recovery and
gains on land sales in 1994, partially offset by 1995 currency conversion
gains on U.S. dollar denominated accounts at the Canadian subsidiary
compared to losses in 1994.
The Company and its Canadian and U.K. subsidiaries typically transact
business in their own currencies and accordingly are not subject to
significant currency conversion gains and losses. A. P. Green de Mexico
transacts a significant portion of its business in U.S. dollars and, as
such, uses the dollar as its functional currency. This results in
currency conversion gains and losses on Mexican peso transactions,
A. P. Green's portion of which are not significant to the
consolidated results.
Income Taxes
------------
During the second quarter of 1995, a review of tax years 1988 through
1993 was completed by the Internal Revenue Service, resulting in a small
additional payment to clear those federal tax years. Due to the
outcome of this review being more favorable than accrued, the Company
reduced its provision for federal income taxes by $1.1 million. The
17.5% effective tax rate in 1995 compared to 30.8% in 1994 was
-16-
<PAGE>
due to this tax adjustment. Absent the adjustment, the tax rate for the
nine months ended September 30, 1995 was 32.1% compared to 30.8% for the
same period in 1994.
Accounting Changes
------------------
The cumulative effect of adopting the Financial Accounting Standards
Board Statement No. 112, "Employer's Accounting for Postemployment
Benefits," further reduced 1994 net income by $255,000.
Equity in Net Income of Affiliates
----------------------------------
The Company's share of income from two Colombian affiliates acquired
from General in August 1994 was $542,000 for the nine months ended
September 30, 1995 compared to $70,000 for August and September 1994.
-17-
<PAGE>
INDUSTRY SEGMENTS
(In thousands)
Nine Months Ended September 30,
------------------------------
1995 1994
---- ----
Net Sales
Refractory products and services $160,472 $106,978
Industrial lime 28,523 25,745
Intersegment eliminations (139) (116)
-------- --------
$188,856 $132,607
======== ========
Gross Profit
Refractory products and services $ 24,753 $ 18,380
Industrial lime 6,832 4,466
-------- --------
$ 31,585 $ 22,846
======== ========
Gross Profit Percentage
Refractory products and services 15.4% 17.2%
Industrial lime 24.0% 17.3%
16.7% 17.2%
===== =====
Operating Profit
Refractory products and services $ 8,402 $ 7,186
Industrial lime 5,945 3,661
-------- --------
14,347 10,847
-------- --------
Other Charges to Income
General corporate expenses, net 5,764 5,043
Interest expense 2,396 1,153
Interest income (1,124) (986)
-------- --------
Total other charges 7,036 5,210
-------- --------
Earnings Before Income Taxes and Cumulative
Effect of an Accounting Change $ 7,311 $ 5,637
======== ========
Identifiable Assets (at period end)
Refractory products and services $280,188 $322,084
Industrial lime 46,935 47,396
Corporate 14,553 9,641
-------- --------
$341,676 $379,121
======== ========
-18-
<PAGE>
Nine Months Ended September 30,
------------------------------
1995 1994
---- ----
Depreciation, Depletion and Amortization
Refractory products and services $ 4,720 $ 3,528
Industrial lime 2,043 1,998
Corporate 775 730
-------- --------
$ 7,538 $ 6,256
======== ========
Capital Expenditures
Refractory products and services $ 5,208 $ 1,688
Industrial lime 1,531 2,986
Corporate 185 503
-------- --------
$ 6,924 $ 5,177
======== ========
GEOGRAPHIC SEGMENTS
(In thousands)
Nine Months Ended September 30,
------------------------------
1995 1994
---- ----
Net Sales
United States $167,183 $120,333
Canada 18,332 11,843
United Kingdom 7,108 5,065
Mexico 1,754 -
Intersegment transfers (primarily U.S.) (5,521) (4,634)
-------- --------
$188,856 $132,607
======== ========
Earnings (Loss) Before Income Taxes and
Cumulative Effect of an Accounting Change
United States $ 6,762 $ 4,981
Canada (138) 589
United Kingdom 438 67
Mexico 249 -
-------- --------
$ 7,311 $ 5,637
======== ========
Identifiable Assets (at period end)
United States $298,713 $348,481
Canada 16,909 16,760
United Kingdom 4,930 4,239
Mexico 5,460 -
Far East 1,111 -
Corporate 14,553 9,641
-------- --------
$341,676 $379,121
======== ========
-19-
<PAGE>
PRICE/VOLUME SUMMARY
1995 AS COMPARED TO 1994
PERCENT INCREASE
Three Nine
Months Months
Ended Ended
September 30, 1995 September 30, 1995
------------------ ------------------
U.S. Refractory Products Sales
(excluding impact of General
acquisition)
Volume 1.7% 12.1%
Price 3.1 0.3
Industrial Lime Sales
Volume 6.6 8.7
Price 2.4 1.9
-20-
<PAGE>
FINANCIAL CONDITION
-------------------
The Company continues to maintain a strong balance sheet.
Summary Information
(Dollars in thousands)
September 30, December 31,
------------------- ------------
1995 1994 1994
---- ---- ----
Working capital $ 80,488 $ 73,249 $ 78,312
Current ratio 2.1:1 1.8:1 1.9:1
Total assets $341,676 $379,121 $373,122
Current maturities of
long-term debt 2,655 135 139
Long-term debt 34,469 37,057 37,023
Stockholders' equity $112,735 $104,918 $107,038
Debt to total
capitalization (1) 24.8% 26.2% 25.7%
(1) Calculated as total Debt (long-term debt including current
maturities) divided by total stockholders' equity plus total
Debt.
The following balance sheet increases resulted from the General acquisition
on August 1, 1994 (in millions):
Receivables, net $12.3
Inventories 22.7
Deferred income tax benefit 1.1
Other current assets 0.4
-----
Total current assets 36.5
Property, plant and equipment 18.7
Long-term pension assets 0.5
Other long-term assets 5.4
-----
Total assets $61.1
=====
-21-
<PAGE>
Accounts payable $ 8.9
Accrued payrolls 1.5
Accrued taxes other than on income 0.6
Accrued insurance 4.7
Accrued other 7.6
-----
Total current liabilities 23.3
Deferred income taxes 1.1
Long-term non-pension benefits 0.1
Long-term pensions 11.6
Notes payable 25.0
-----
Total liabilities $61.1
=====
Working Capital $13.2
Working capital increased 9.9%, or $7.2 million, to $80.5 million at
September 30, 1995 from $73.2 million at September 30, 1994, while the
ratio of current assets to current liabilities increased to 2.1:1 from
1.8:1. The increase in working capital was primarily due to increases
in cash of $5.6 million, trade receivables of $2.8 million and closed
plants' fixed assets held for sale (included in other current assets) of
$1.4 million, partially offset by a reduction in reimbursement due on
paid asbestos claims of $10.2 million and an increase in current portion
of long-term debt of $2.5 million. Also contributing to the increased
working capital were reductions in accounts payable of $5.7 million,
plant shutdown reserves (included in other current liabilities) of $1.9
million and insurance reserves of $3.0 million.
The increase in cash and decrease in reimbursement due on paid asbestos
claims since September 30, 1994, as well as the $8.0 million decrease in
reimbursement due on paid asbestos claims since December 31, 1994, were
due primarily to payments being made directly to the Center for Claims
Resolution by one insurance carrier starting in May 1995. These direct
payments are expected to continue for the foreseeable future, with a
resulting favorable impact on the Company's cash balances and cash
requirements.
The increase in trade receivables since September 30, 1994 was primarily
due to the increased sales level. The reduction in accounts payable
since September 30, 1994, as well as the $8.6 million reduction since
December 31, 1994, was primarily due to a $6.5 million payment to the
Center for Claims Resolution in January 1995.
The increase in current portion of long-term debt since September 30,
1994, as well as the increase since December 31, 1994, was due to a $2.5
million payment due July 29, 1996 against the debt incurred for the
General acquisition. As such, long-term debt declined by the same $2.5
million.
-22-
<PAGE>
The decline in plant shutdown reserves since September 30, 1994 was due
to termination benefits and plant closing costs charged against the
reserve during the past 12 months, partially offset by increases in the
U.S. and Canadian reserves as discussed above. The decrease in
insurance reserves since September 30, 1994, as well as the decline of
$2.2 million since December 31, 1994, was due to payments to insurance
carriers and favorable workers' compensation claims experience in
comparison to the historical experience used to establish the reserve.
The decreases in non-current projected insurance recovery on asbestos
claims and non-current projected asbestos claims were due to asbestos
claim payments recovered from insurance carriers.
Capital expenditures for the refractories business increased by $3.5
million in the first nine months of 1995 compared to the same period in
1994, partially offset by reductions in capital expenditures related to
corporate functions and the lime plants. The refractories increase was
due to both upgrading and modernization of the acquired General
facilities and replacement, modernization and expansion of pre-
acquisition operations.
During 1995 capital contributions were made by A. P. Green and INTOCAST
AG to form a joint venture partnership, INTOGREEN Co., which will sell
and install cast monolithic ladle linings to the steel industry in the
United States, Canada and Mexico. INTOCAST AG is a world leader in the
development of cast ladle linings. Its contribution to the partnership
is reflected in minority interests on the balance sheet, net of
INTOCAST AG's share of the year-to-date loss at INTOGREEN. Also included
in minority interests is Grupo Industrial Trebol's 49% interest in
A. P. Green de Mexico.
In September 1995 the Company reached an agreement in principle to
acquire a majority interest in privately held Lanxide ThermoComposites,
Inc., (LTI). The joint venture will focus on commercializing refractory
products for the steel industry utilizing ceramic composites technology
licensed from Lanxide Corporation (Lanxide), currently the sole
shareholder of LTI. The acquisition is expected to close during the
fourth quarter.
In a separate licensing agreement with Lanxide, A. P. Green will develop
and market refractory products utilizing the advanced materials
technology developed by Lanxide for certain non-steel refractories
applications. In addition, A. P. Green will obtain worldwide rights,
excluding Japan, for certain refractories products utilizing Lanxide's
technology. Included under the terms of the agreements are all future
technologies developed by Lanxide and its licensees and joint ventures
as applicable to the refractories market.
SUBSEQUENT EVENT
----------------
On November 3, 1995, the Company executed a contract to sell the Weston,
Ontario plant, with closing scheduled for December 20, 1995. The
estimated after-tax gain on the sale of this property is approximately
$900,000.
-23-
<PAGE>
A. P. GREEN INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
--------
Exhibit No.
-----------
27 Financial Data Schedule for Nine Months Ended September 30,
1995
(b) Reports on Form 8-K: No reports on Form 8-K were filed during
the quarter ended September 30, 1995.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A. P. Green Industries, Inc.
(Registrant)
By: /s/ Gary L. Roberts
---------------------------------
Gary L. Roberts
Vice President, Chief Financial
Officer and Treasurer
Date: November 13, 1995
-----------------
-24-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A. P. GREEN
INDUSTRIES, INC. QUARTERLY FINANCIAL STATEMENTS ON FORM 10-Q AS OF AND FOR THE
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 11,034
<SECURITIES> 0
<RECEIVABLES> 45,276
<ALLOWANCES> 2,441
<INVENTORY> 52,833
<CURRENT-ASSETS> 156,311
<PP&E> 96,268
<DEPRECIATION> 0
<TOTAL-ASSETS> 341,676
<CURRENT-LIABILITIES> 75,823
<BONDS> 37,124
<COMMON> 4,477
0
0
<OTHER-SE> 108,258
<TOTAL-LIABILITY-AND-EQUITY> 341,676
<SALES> 62,652
<TOTAL-REVENUES> 62,652
<CGS> 51,464
<TOTAL-COSTS> 51,464
<OTHER-EXPENSES> 8,029
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 806
<INCOME-PRETAX> 3,164
<INCOME-TAX> 920
<INCOME-CONTINUING> 2,265
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,265
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
</TABLE>