SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarter ended September 30, 1996 Commission File No. 0-16452
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A. P. GREEN INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 43-0899374
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Green Boulevard, Mexico, Missouri 65265
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 473-3626
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: As of November 12, 1996,
8,021,508 shares of Common Stock, $1 par value, were outstanding.
Page 1 of 24
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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,
1996 1995
------------- ------------
(Dollars in thousands, except per share data)
ASSETS
Current Assets
Cash and cash equivalents $ 5,464 $ 9,284
Receivables (net of allowances -
1996, $1,684; 1995, $1,930) 40,837 44,183
Reimbursement due on paid asbestos claims 4,098 3,696
Inventories 52,217 55,557
Projected insurance recovery on asbestos claims 24,590 21,990
Deferred income tax asset 2,601 4,115
Other 8,049 6,411
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Total current assets 137,856 145,236
Property, plant and equipment, net 98,418 96,785
Non-current projected insurance recovery
on asbestos claims 93,354 113,168
Pension assets 9,101 9,071
Intangible assets, net 4,232 3,941
Other assets 5,186 5,367
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Total assets $348,147 $373,568
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 15,347 $ 18,254
Accrued expenses
Payrolls 5,850 6,281
Taxes other than on income 2,307 1,889
Insurance reserves 3,848 4,657
Current portion of projected asbestos claims 24,811 22,198
Other 6,906 8,534
Current maturities of long-term debt 2,942 2,705
Income taxes 684 1,103
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Total current liabilities 62,695 65,621
Deferred income taxes 10,630 12,671
Long-term non-pension benefits 16,381 15,597
Long-term pensions 12,646 14,233
Long-term debt 31,804 34,384
Non-current projected asbestos claims 94,472 115,048
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Total liabilities 228,628 257,554
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Minority Interests 1,502 2,015
Stockholders' Equity
Preferred stock - $1 par value;
authorized: 2,000,000 shares;
issued and outstanding: none -- --
Common stock - $1 par value;
authorized: 10,000,000 shares;
issued: 8,975,442 in 1996
and 4,486,221 in 1995 8,975 4,486
Additional paid-in capital 68,309 72,770
Retained earnings 61,030 56,981
Less:Deferred foreign currency translation (3,075) (2,931)
Treasury stock of 953,934 shares in 1996,
448,962 in 1995, at cost (9,497) (9,018)
Note receivable-ESOT (6,941) (7,505)
Minimum pension liability adjustment,
net of tax (784) (784)
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Total stockholders' equity 118,017 113,999
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Total liabilities and stockholders' equity $348,147 $373,568
======= =======
See accompanying notes to consolidated financial statements.
2
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three months ended September 30,
--------------------------------
(Dollars in thousands, except per share data) 1996 1995
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Net sales $61,948 $62,652
Cost of sales 53,006 51,464
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Gross profit 8,942 11,188
Expenses and other income
Selling & administrative expenses 8,648 8,029
Interest expense 766 806
Interest income (279) (414)
Minority interest in loss of partnership (35) (15)
Other income, net (324) (382)
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Earnings before income taxes 166 3,164
Income tax expense (benefit) (66) 920
Equity in net income of affiliates -- (136)
Minority interest in income (loss) of
consolidated subsidiaries (112) 115
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Net earnings $ 344 $ 2,265
====== ======
Net earnings per common share $ 0.04 $ 0.28
====== ======
Weighted average number of common shares 8,021,508 8,057,064
========= =========
Dividends per common share $ 0.04 $ 0.04
====== ======
See accompanying notes to consolidated financial statements.
3
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Nine months ended September 30,
-------------------------------
(Dollars in thousands, except per share data) 1996 1995
------------ ------------
Net sales $195,720 $188,856
Cost of sales 161,927 157,271
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Gross profit 33,793 31,585
Expenses and other income
Selling & administrative expenses 26,599 23,688
Interest expense 2,343 2,396
Interest income (885) (1,124)
Minority interest in loss of partnership (76) (42)
Other income, net (591) (644)
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Earnings before income taxes 6,403 7,311
Income tax expense 2,307 1,279
Equity in net income of affiliates (379) (542)
Minority interest in income (loss) of
consolidated subsidiaries (437) 115
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Net earnings $ 4,912 $ 6,459
======= =======
Net earnings per common share $ 0.61 $ 0.80
======= =======
Weighted average number of common shares 8,043,150 8,056,798
========= =========
Dividends per common share $ 0.11 $ 0.11
======= =======
See accompanying notes to consolidated financial statements.
4
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30,
-------------------------------
(Dollars in thousands) 1996 1995
------------ ------------
Cash flows from operating activities
Net earnings $ 4,912 $ 6,459
Adjustments for items not requiring
(providing) cash
Depreciation, depletion and amortization 7,902 7,538
Deferred compensation earned -- 4
Stock compensation to directors 28 23
Provision for losses on accounts receivable 511 483
Loss on sale of assets 14 79
Equity in undistributed earnings of affiliates (95) (127)
Minority interest in earnings (losses) of
consolidated subsidiaries and partnership (513) 73
Decrease (increase) in assets
Trade receivables 2,834 2,488
Asbestos claim and fee reimbursements received 17,260 24,295
Inventories 3,340 1,211
Receivable and prepaid taxes (137) --
Other current assets (1,626) (896)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (5,258) (12,628)
Asbestos claims paid (18,508) (17,755)
Pensions (1,588) 77
Income taxes (418) (386)
Deferred income taxes (527) (1,189)
Long-term non-pension benefits 784 239
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Net cash provided by operating activities 8,915 9,988
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Cash flows from investing activities
Capital expenditures (9,374) (6,924)
Decrease (increase) in other long-term assets (454) 677
Increase in pension assets (30) (34)
Proceeds from sales of assets 389 252
Payment received on ESOT note 564 --
Purchase of Plibrico de Mexico operation,
net of cash acquired -- (1,763)
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Net cash used in investing activities (8,905) (7,792)
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Cash flows from financing activities
Repayments of debt (2,669) (131)
Proceeds from borrowings 325 --
Dividends paid (884) (846)
Purchases of common stock for treasury (480) --
Capital contribution from minority partner -- 120
Tax benefit on dividends paid to ESOT 22 23
Tax effect on stock plan -- 2
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Net cash used in financing activities (3,686) (832)
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Effect of exchange rate changes (144) 33
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Net increase (decrease) in cash and cash equivalents (3,820) 1,397
Cash and cash equivalents at beginning of year 9,284 9,637
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Cash and cash equivalents at end of period $ 5,464 $ 11,034
======= =======
See accompanying notes to consolidated financial statements.
5
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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, 1995. The results for the quarter
and nine-month period ended September 30, 1996 are not necessarily
indicative of the results which may occur for the full year. All per
share amounts have been restated to reflect the two-for-one stock split
effective September 20, 1996.
2. RESERVES FOR PLANT CLOSINGS
---------------------------
The Company has reserves for estimated exit costs and termination
benefits in connection with the shutdown of certain facilities in the
U.S. and Canada. Three of the plants acquired in the acquisition of the
refractories assets of General Refractories Company and its affiliated
companies ("General") were closed during 1994, a $3.6 million reserve
for which was established at the time of acquisition and included on
the opening balance sheet. During the second quarter of 1995 this
reserve was increased by approximately $330,000, primarily to revise
estimates of employee termination benefits resulting from the sale of
these facilities taking longer than anticipated. A $380,000 reserve was
also established during the second quarter of 1995 for the closing of
the Weston, Ontario plant, which was sold in December 1995.
Substantially all employees at these facilities (approximately 210 in
total) have been terminated and approximately $3.1 million of
termination benefits and plant closing costs have been charged against
the reserves to date. The U.S. facilities are held for sale at their
estimated net realizable value.
6
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3. INVENTORIES
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September 30, 1996 December 31, 1995
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Finished goods & work-in-process
Valued at LIFO:
FIFO cost $ 33,435 $ 36,429
Less LIFO reserve (15,221) (14,186)
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LIFO cost 18,214 22,243
Valued at FIFO 10,805 10,404
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TOTAL 29,019 32,647
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Raw materials and supplies
Valued at LIFO:
FIFO cost 17,823 18,187
Less LIFO reserve (5,992) (5,234)
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LIFO cost 11,831 12,953
Valued at FIFO 11,367 9,957
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TOTAL 23,198 22,910
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$ 52,217 $ 55,557
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4. LITIGATION
----------
Asbestos-related Claims - Personal Injury
-----------------------------------------
A. P. Green is among numerous defendants in lawsuits pending as of
September 30, 1996 that seek to recover compensatory, and in many
cases, punitive damages for personal injury allegedly resulting from
exposure to asbestos-containing products.
A. P. Green is a member of the Center for Claims Resolution (the
Center), an organization of twenty companies (Members) who were
formerly distributors or manufacturers of asbestos-containing products.
The Center administers, evaluates, settles, pays and defends all of the
asbestos-related personal injury lawsuits involving its Members. Under
the terms of the Center Agreement, each Member's portion of the
liability payments and defense costs are based upon, among other
things, the number and type of claims brought against it. Claims
activity for the Company for each of the years ended December 31, 1995,
1994 and 1993 was as follows:
7
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----------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------
Claims pending at January 1 50,920 52,122 50,007
Claims filed 12,560 14,836 26,100
Cases settled, dismissed or
otherwise resolved (15,113) (16,038) (23,985)
------- ------- -------
Claims pending at December 31 48,367 50,920 52,122
======= ======= =======
Average settlement amount per claim(1) $ 1,778 $ 1,816 $ 1,728
(1)Substantially all settlements are covered by the Company's insurance
program.
On January 15, 1993, the Members were named as defendants in a class
action lawsuit brought on behalf of all persons who have been
occupationally exposed to asbestos-containing products of the Members
and who have unasserted claims for such exposure (the Class) pursuant
to Federal Rule of Civil Procedure 23(b)(3) in the Federal District
Court for the Eastern District of Pennsylvania. At about the same time,
the Center negotiated and filed with the Court a settlement (the
Settlement) between the Members and the Class. Under the terms of the
Settlement, the Members have agreed to pay compensation to any member
of the Class who has, according to objective medical criteria, physical
impairment as a result of such exposure. Different levels of
compensation will be paid depending on the type and degree of physical
impairment. No punitive damages will be paid. The Settlement provides,
among other things, for a cap on the number of claims to be processed
each year during the next ten years and a range of settlement values
for each disease category. Settlement values are based on historical
average payments by the Center for similar cases. Each Member will be
responsible for its percentage share of each claim payment (no joint
and several liability), such shares having been previously established.
Hearings were held to determine the fairness of the Settlement and the
court ruled that the Settlement was fair and enjoined Class members
from filing lawsuits in the tort system against the Members. The Center
is processing and settling claims filed by Class members pursuant to
the Settlement. This ruling has been appealed by certain objectors. On
May 10, 1996, the United States Court of Appeals for the Third Circuit
ordered the District Court to decertify the Class and vacate the
injunction prohibiting Class members from filing suit in the tort
system against the Members of the Center. A petition for rehearing was
denied. A petition to the Supreme Court for a writ of certiorari was
filed and, on November 1, 1996, was granted.
In a third party action filed simultaneously with the class action (and
in parallel Alternate Dispute Resolution proceedings), the Members have
asked for a declaratory judgment against their respective insurers that
such insurers cannot use the Settlement as a defense to their payment
under applicable insurance policies. The Settlement is expressly
contingent upon such declaratory relief. In addition, some Members,
8
<PAGE>
including A. P. Green, have asked for a declaratory judgment against
their insurers with whom they have not reached coverage resolutions. No
decision has been rendered at this date with respect to these issues.
Under the assumption that it receives these court approvals, the
Settlement has provided the Company with a basis for estimating its
potential liability and related insurance recovery associated with
asbestos cases. The Company has reviewed its insurance policies,
historical settlement amounts, the number of pending cases and the
projected number of claims to be filed pursuant to the Settlement and
the Company's share of amounts to be paid thereunder. The Company has
also reviewed its contractual liability for the payment of deductibles
under certain insurance policies insuring the E. J. Bartells Company
(Bartells), a former subsidiary, against asbestos-related personal
injury claims, such policies having been issued when Bartells was owned
by A. P. Green. Additionally, the Company has reviewed the claims
asserted by Bartells against the issuers of such policies and any
exposure of the Company to such claims. Based upon such reviews, the
Company has estimated its liability for such cases and claims to be
approximately $119.3 million and $137.2 million at September 30, 1996
and December 31, 1995, respectively, with partially offsetting
projected insurance reimbursements of approximately $117.9 million and
$135.1 million, respectively. While management understands the inherent
uncertainty in litigation of this type and the possibility that past
costs may not be indicative of future costs, management does not
believe that these claims and cases will have any additional material
adverse effect on the Company's financial position or results of
operations. Management anticipates that payments for these claims will
occur over at least ten years and can be made from normal operating
cash sources.
In addition to asbestos-related personal injury claims asserted against
A. P. Green, a number of claims have been asserted against
Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a
subsidiary of the Company. These claims have been and are currently
being handled by such subsidiary's insurance carriers. Except for
deductible amounts or retentions provided for under insurance policies,
no claim for reimbursement of defense or indemnity payments has been
made against the Company or such subsidiary by any such carriers.
Asbestos-related Claims - Property Damage
-----------------------------------------
A. P. Green is also among numerous defendants in a property damage
class action suit pending in South Carolina. A. P. Green previously has
been dismissed from a number of property damage cases and believes that
it should be dismissed from the South Carolina case based on the end
uses of its products. A similar suit pending in the State of Oregon
involves a former wholly owned subsidiary of the Company and is being
defended by the Company's insurance carrier. Based upon the Company's
history in these asbestos-related property damage claims, management
does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's consolidated financial
position or results of operations.
9
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There was no assumption of asbestos-related liability, either personal
injury or property damage, in connection with the August 1994
acquisition of the refractory assets of General.
Environmental
-------------
The EPA or other private parties have named the Company or one of its
subsidiaries as a potentially responsible party in connection with two
superfund sites in the United States. The Company is a de minimis party
with respect to one of the sites and expects to arrive at a settlement
agreement and consent decree with respect to it for an amount of not
more than $10,000. With respect to the second, involving a wholly owned
subsidiary of the Company, there does not appear to be any evidence of
delivery to the site of hazardous material by the subsidiary. An
estimate has been made of the costs to be incurred in these matters and
the Company has recorded a reserve respecting those costs.
Other
-----
A. P. Green is subject to claims and other lawsuits that arise in the
ordinary course of business, some of which may seek damages in
substantial amounts, including punitive or extraordinary damages.
Reserves for these claims and lawsuits are recorded to the extent that
losses are deemed probable and are estimable. In the opinion of
management, the disposition of all current claims and lawsuits will not
have a material adverse effect on the consolidated financial position
or results of operations of A. P. Green.
10
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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, 1996 COMPARED TO
- -------------------------------------------------------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1995
- -------------------------------------
Total sales decreased 1.1% to $61.9 million for the three months ended
September 30, 1996 from $62.7 million for the comparable 1995
three-month period. Gross profit decreased 20.1% to $8.9 million from
$11.2 million for the comparable periods. The impact from the December
1995 acquisition of Lanxide ThermoComposites, Inc. and subsidiary,
Chiam Technologies, Inc. (collectively referred to as LTI) was to
increase sales by $588,000 and reduce gross profit by $105,000 due to
the relatively high percentage of fixed costs at the initial low volume
level. The impact from the INTOGREEN partnership formed in January 1995
was to increase sales by $357,000 and gross profit by $34,000. The
additional sales from new ventures were offset by a decline in U.S.
refractory sales as discussed below.
Refractory Products and Services
- --------------------------------
Refractory products and services sales decreased 1.9% to $52.2 million
for the three months ended September 30, 1996 from $53.2 million for
the comparable 1995 period. United States refractory sales were $43.9
million and $44.6 million for the three-month periods ended September
30, 1996 and 1995, respectively, a decrease of 1.6%. The impact from
LTI and INTOGREEN was to increase U.S. refractory sales by $945,000.
Excluding this acquisition impact, U.S. refractory product sales
volumes decreased an average of 0.5%, with decreases in brick volumes
partially offset by increases in all other product lines. Prices for
brick, specialties and precast shapes were down compared to the third
quarter of 1995, partially offset by an increase in ceramic fiber
pricing for a net price decline of 1.0%. U.S. export sales improved
13.3% to $5.8 million in the third quarter of 1996 from $5.1 million
for the third quarter of 1995 as the Company's international business
continued to expand.
Sales of the Canadian subsidiary increased 7.0% to $6.1 million for the
three-month period ended September 30, 1996 from $5.7 million for the
comparable 1995 period. Specialties and crucible volume increases were
partially offset by declines in brick, ceramic fiber and precast shape
volumes for an average volume increase of 1.0%. Prices increased an
average of 7.3% across all product lines except clays and grogs. As a
result of the sales increase and continuing cost control measures, the
Canadian operation generated pre-tax earnings of $253,000 for the third
quarter of 1996 compared to a pre-tax loss of $120,000 for the
comparable 1995 period.
11
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Sales in the United Kingdom (U.K.) declined to $2.4 million for the
third quarter of 1996 from $2.7 million for the comparable 1995 period.
U.K. pre-tax earnings were $185,000 for the three months ended
September 30, 1996 compared to $196,000 for the 1995 period.
Sales at A. P. Green de Mexico for the three months ended September 30,
1996 increased 24.4% to $2.2 million compared to $1.8 million for the
1995 period, with 1996 pre-tax earnings of $258,000 compared to
$249,000 for the third quarter of 1995.
Start up expenses at the new plant in Indonesia resulted in a $36,000
pre-tax loss for the third quarter of 1996. Electrical problems
unexpectedly delayed the opening of this facility until the fourth
quarter of 1996, with delivery of customer orders commencing the first
quarter of 1997.
Refractory products cost of sales as a percentage of sales increased to
87.4% compared to 83.3% for the three months ended September 30, 1996
and 1995, respectively. This increase was primarily due to the high
level of fixed costs at LTI, increased raw material costs, higher brick
breakage variances and a higher unfavorable LIFO inventory adjustment
during the third quarter of 1996 than in the same period of 1995.
Partially offsetting these cost increases were improved production
efficiencies and reduced workers' compensation insurance, group health
insurance and processing fuels expense. Refractory operating profits
declined 88.2% to $388,000 from $3.3 million for the comparable
three-month periods, due to both the reduction in gross margins and
additional selling and administrative costs associated with LTI and the
new plant in Indonesia.
Industrial Lime
- ---------------
Industrial lime sales increased 3.4% to $9.8 million from $9.5 million
for the respective third quarters of 1996 and 1995. Volumes increased
an average of 0.5%, with increases in building lime at the New
Braunfels, Texas plant and Cal-Dol at the Kimballton, Virginia plant
partially offset by declines in road stabilization lime at New
Braunfels and quicklime and hydrate at Kimballton. Prices for
industrial and road stabilization lime improved at New Braunfels,
partially offset by a decline in building lime prices, while quicklime
and hydrate prices improved and Cal-Dol prices declined at Kimballton,
resulting in an overall price increase of 2.9%.
The gross margins of the Company's industrial lime operations are
sensitive to volume changes due to the capital intensive nature of the
operations and semi-fixed nature of other costs. As a result of the
sales increase, gross profit and operating profit increased 2.2% and
2.1%, respectively. Increased equipment maintenance expense, purchased
material costs and professional fees were offset by improved
efficiencies and lower workers' compensation insurance costs at New
Braunfels, while costs at Kimballton were essentially level with prior
year.
12
<PAGE>
Expenses and Other Income
- -------------------------
Selling and administrative expenses increased 7.7% to $8.6 million in
the third quarter of 1996 from $8.0 million for the comparable 1995
period. The increase was primarily due to the addition of LTI,
INTOGREEN and the new plant in Indonesia.
Interest expense declined to $766,000 in 1996 from $806,000 in 1995,
due primarily to a $2.5 million payment made on July 29, 1996 against
the debt incurred for the General acquisition. There were no bank line
borrowings during either three-month period. Interest income for the
third quarter of 1996 decreased 32.6% to $279,000 from $414,000 in the
comparable 1995 three-month period due to reduced funds available for
investing and a shortening of the average investment maturity resulting
in lower average interest rates.
Other income declined 15.2% for the comparable three-month periods.
This decline was primarily due to a reduction in royalty income
resulting from a final payment received in the third quarter of 1995
related to an expired royalty agreement. Partially offsetting this
decline in royalties were gains on the sale of the Pueblo, Colorado
plant and certain equipment at the closed Warren, Ohio plant.
Termination benefits and exit costs associated with the Pueblo plant
were not material to the consolidated results.
The Company and its Canadian and U.K. subsidiaries typically transact
business in their own currencies and accordingly are not subject to
significant currency conversion gains and losses. A. P. Green de Mexico
and PT A. P. Green Indonesia transact a significant portion of their
business in U.S. dollars and, as such, use the dollar as their
functional currency. This results in currency conversion gains and
losses on transactions in their local currencies, the Mexican peso and
Indonesian Rupiah, A. P. Green's portion of which were not significant
to the consolidated results.
Income Taxes
- ------------
The tax benefit in the third quarter of 1996 was due primarily to
partial recognition of benefits from the pre-tax start up losses of LTI
during the first half of 1996. Long-term projections of LTI's operating
results indicate future earnings should be adequate to ensure
realization of the benefits from the tax loss in future periods.
Equity in Net Income of Affiliates
- ----------------------------------
Due to a recession in the Colombian construction industry, political
uncertainty and a general decline in economic conditions in Colombia,
there was no income from the Company's two Colombian affiliates for the
three months ended September 30, 1996, whereas the Company's share of
income for the comparable 1995 period was $136,000. Current projections
do not indicate a significant improvement in these results in the near
future.
13
<PAGE>
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE
- -----------------------------------------------------------------------------
MONTHS ENDED SEPTEMBER 30, 1995
- -------------------------------
Total sales increased 3.6% to $195.7 million for the nine months ended
September 30, 1996 from $188.9 million for the comparable 1995
nine-month period. Gross profit increased 7.0% to $33.8 million from
$31.6 million for the comparable periods. The impact from the July 1995
A. P. Green de Mexico acquisition was to increase sales by $3.6 million
and gross profit by approximately $1.1 million. The impact from the
December 1995 acquisition of LTI was to increase sales by $1.5 million
and reduce gross profit by $153,000 due to the relatively high
percentage of fixed costs at the initial low volume level. The impact
from the INTOGREEN partnership formed in January 1995 was to increase
sales by $596,000 and gross profit by $81,000, while the new Indonesian
plant reduced gross profit by $53,000 with no sales.
Refractory Products and Services
- --------------------------------
Refractory products and services sales were $165.9 million and $160.5
million for the nine months ended September 30, 1996 and September 30,
1995, respectively, reflecting an increase of 3.4%. U.S. refractory
sales increased 2.6% to $142.2 million for the nine months ended
September 30, 1996 from $138.7 million for the comparable 1995 period.
The impact from LTI and INTOGREEN was to increase U.S. refractory sales
by $2.1 million. Excluding this impact, volume declines in brick and
precast shapes were partially offset by increases in specialties and
ceramic fiber volume for a net volume decline of 2.5%. Prices improved
across all product lines an average of 4.0%. U.S. export sales
increased 45.4% to $19.6 million for the nine-month period ended
September 30, 1996 from $13.4 million for the comparable 1995 period.
Sales at the Canadian subsidiary declined 1.3% to $18.1 million for the
nine months ended September 30, 1996 from $18.3 million for the
comparable 1995 period. Reduced volumes in brick, specialties, ceramic
fibers and precast shapes were partially offset by a 31.7% improvement
in high-margin crucible volume for a net volume decline of 8.7%. Prices
increased across all product lines with the exception of ceramic
fibers, resulting in an overall price increase of 9.7%. Also
contributing to the sales decline were an unexpected repair requiring a
one month kiln shutdown and a slower than anticipated start up of the
new specialties line at the Smithville, Ontario plant, which was built
to absorb the production from the Weston, Ontario plant closed during
1995.
The Canadian subsidiary generated pre-tax income of $357,000 for the
nine months ended September 30, 1996 compared to a pre-tax loss of
$138,000 for the comparable 1995 period. Improvements in production
efficiency and reduced property taxes compared to 1995 were partially
offset by increased equipment maintenance and pension costs. The 1995
loss was primarily due to establishment of a reserve of approximately
$380,000 for exit costs and termination benefits for 26 employees
associated with the closing and sale of the Weston, Ontario plant,
which was announced in June 1995.
14
<PAGE>
Sales by the United Kingdom subsidiary were unchanged at $7.1 million
for the first nine months of both 1996 and 1995. Pre-tax earnings
declined slightly to $428,000 for the nine months ended September 30,
1996 compared to $438,000 for the 1995 period.
A. P. Green de Mexico's sales for the nine months ended September 30,
1996 were $5.8 million, with pre-tax earnings of $823,000. For the
three-month period of 1995 under A. P. Green ownership, A. P. Green de
Mexico's sales were $1.8 million, with pre-tax earnings of $249,000.
Start up expenses at the new plant in Indonesia resulted in a $114,000
pre-tax loss for the nine months ended September 30, 1996.
Refractory products cost of sales as a percentage of sales decreased to
83.9% in 1996 from 84.6% in 1995. This improvement was primarily due to
greater production efficiencies and reduced workers' compensation
insurance, processing fuels and freight expense. The first nine months
of 1995 also included increases in the obsolete inventory and U.S.
plant shutdown reserves, both of which were established at the time of
the General acquisition related to facilities to be closed, as well as
establishment of the Canadian plant shutdown reserve previously
mentioned. Partially offsetting these improvements were increased group
health insurance and equipment maintenance costs, high fixed costs at
LTI and unfavorable LIFO inventory adjustments during the first nine
months of 1996 compared to favorable adjustments during the same period
of 1995. Refractory operating profits declined 6.4% to $7.9 million
from $8.4 million in 1996 and 1995, respectively, primarily due to
selling and administrative expenses associated with the new
acquisitions and ventures.
Industrial Lime
- ---------------
Industrial lime sales increased 4.9% to $29.9 million from $28.5
million for the nine-month periods ended September 30, 1996 and 1995,
respectively. Volumes were essentially flat, with increases across all
product lines at the New Braunfels plant offset by declines across all
product lines at the Kimballton plant. Average selling prices increased
an average of 4.5% across all product lines at both plants with the
exception of Cal-Dol at Kimballton.
As a result of the sales increase, industrial lime gross profit
increased 3.3% to $7.1 million, or 23.6% of sales, from $6.8 million,
or 24.0% of sales. The decline in gross profit percentage was due
primarily to increased equipment maintenance costs at both plants and
higher workers' compensation insurance cost at Kimballton, partially
offset by lower outside processing costs at Kimballton. Industrial lime
operating profit increased 3.2% to $6.1 million for the first nine
months of 1996 compared to $5.9 million for the comparable 1995 period.
15
<PAGE>
Expenses and Other Income
- -------------------------
Selling and administrative expenses increased 12.3% to $26.6 million in
1996 from $23.7 million in 1995. The increase was primarily due to the
addition of A. P. Green de Mexico, LTI, INTOGREEN and PT A. P. Green
Indonesia, general salary and related expense increases and an increase
in postretirement benefit costs, partially offset by lower salaried
pension costs.
Interest expense decreased to $2.3 million in 1996 from $2.4 million in
1995, due primarily to a $2.5 million payment made on July 29, 1996
against the debt incurred for the General acquisition. There were no
bank line borrowings during either nine-month period. Interest income
decreased 21.2% due to reduced funds available for investing and a
shortening of the average investment maturity resulting in lower
average interest rates. Other income decreased 8.2% to $591,000 in 1996
from $644,000 in 1995, due primarily to a decrease in royalty income
and reduced currency translation gains, partially offset by the gains
on asset sales previously mentioned.
The Company and its Canadian and U.K. subsidiaries typically transact
business in their own currencies and accordingly are not subject to
significant currency conversion gains and losses. A. P. Green de Mexico
and PT A. P. Green Indonesia transact a significant portion of their
business in U.S. dollars and, as such, use the dollar as their
functional currency. This results in currency conversion gains and
losses on transactions in their local currencies, the Mexican peso and
Indonesian Rupiah, A. P. Green's portion of which were not significant
to the consolidated results.
Income Taxes
- ------------
The 1996 effective tax rate was 36.0% compared to 17.5% in 1995. The
higher 1996 effective rate was due primarily to limited recognition of
tax benefits from the pre-tax start up losses of LTI. A portion of
those benefits were recognized during the third quarter of 1996, as
long-term projections of LTI's operating results indicate future
earnings should be adequate to ensure realization of the benefits from
the tax loss in future periods.
During the second quarter of 1995, a review of tax years 1988 through
1993 was completed by the Internal Revenue Service, resulting in a
small additional payment to clear federal tax liability for those
years. Due to the outcome of this review being more favorable than
originally anticipated, the Company reduced its provision for federal
income taxes by $1.1 million. Absent that adjustment, the tax rate for
the nine months ended September 30, 1995 would have been 32.1%.
16
<PAGE>
Equity in Net Income of Affiliates
- ----------------------------------
The Company's share of income from its two Colombian affiliates was
$379,000 for the nine months ended September 30, 1996 compared to
$542,000 for the comparable 1995 period. The reduction was due to a
recession in the Colombian construction industry, political uncertainty
and a general decline in economic conditions in Colombia. Third quarter
1996 results and current projections indicate reduced income levels
will continue in the near future.
17
<PAGE>
INDUSTRY SEGMENTS
(In thousands)
Nine Months Ended September 30,
-------------------------------
1996 1995
-------- --------
NET SALES
Refractory products and services $ 165,887 $ 160,472
Industrial lime 29,933 28,523
Intersegment eliminations (100) (139)
-------- --------
$ 195,720 $ 188,856
======== ========
GROSS PROFIT
Refractory products and services $ 26,737 $ 24,753
Industrial lime 7,056 6,832
-------- --------
$ 33,793 $ 31,585
======== ========
GROSS PROFIT PERCENTAGE
Refractory products and services 16.1% 15.4%
Industrial lime 23.6% 24.0%
17.3% 16.7%
======== ========
OPERATING PROFIT
Refractory products and services $ 7,864 $ 8,402
Industrial lime 6,132 5,945
-------- --------
13,996 14,347
-------- --------
OTHER CHARGES TO INCOME
General corporate expenses, net 6,135 5,764
Interest expense 2,343 2,396
Interest income (885) (1,124)
-------- --------
Total other charges 7,593 7,036
-------- --------
EARNINGS BEFORE INCOME TAXES $ 6,403 $ 7,311
======== ========
18
<PAGE>
Nine Months Ended September 30,
-------------------------------
1996 1995
-------- --------
IDENTIFIABLE ASSETS (AT PERIOD END)
Refractory products and services $ 292,639 $ 280,188
Industrial lime 47,127 46,935
Corporate 8,381 14,553
-------- --------
$ 348,147 $ 341,676
======== ========
DEPRECIATION, DEPLETION AND AMORTIZATION
Refractory products and services $ 5,050 $ 4,720
Industrial lime 2,100 2,043
Corporate 752 775
-------- --------
$ 7,902 $ 7,538
======== ========
CAPITAL EXPENDITURES
Refractory products and services $ 7,275 $ 5,208
Industrial lime 1,832 1,531
Corporate 267 185
-------- --------
$ 9,374 $ 6,924
======== ========
GEOGRAPHIC SEGMENTS
(In thousands)
Nine Months Ended September 30,
-------------------------------
1996 1995
-------- --------
NET SALES
United States $ 172,128 $ 167,183
Canada 18,089 18,332
United Kingdom 7,058 7,108
Far East -- --
Mexico 5,776 1,754
Intersegment transfers (primarily U.S.) (7,331) (5,521)
-------- --------
$ 195,720 $ 188,856
======== ========
19
<PAGE>
Nine Months Ended September 30,
-------------------------------
1996 1995
-------- --------
EARNINGS (LOSS) BEFORE INCOME TAXES
United States $ 4,909 $ 6,762
Canada 357 (138)
United Kingdom 428 438
Mexico 823 249
Far East (114) --
-------- --------
$ 6,403 $ 7,311
======== ========
IDENTIFIABLE ASSETS (AT PERIOD END)
United States $ 304,651 $ 298,713
Canada 19,348 16,909
United Kingdom 4,865 4,930
Mexico 5,851 5,460
Far East 5,051 1,111
Corporate 8,381 14,553
-------- --------
$ 348,147 $ 341,676
======== ========
PRICE/VOLUME SUMMARY
1996 AS COMPARED TO 1995
PERCENT INCREASE (DECREASE)
Three Nine
Months Months
Ended Ended
September 30, 1996 September 30, 1996
------------------ ------------------
U.S. REFRACTORY PRODUCTS SALES
(excluding impact of LTI and INTOGREEN)
Volume (0.5)% (2.5)%
Price (1.0) 4.0
INDUSTRIAL LIME SALES
Volume 0.5 0.4
Price 2.9 4.5
20
<PAGE>
FINANCIAL CONDITION
The Company continues to maintain a strong balance sheet.
Summary Information
(Dollars in thousands)
September 30,
------------------------ December 31,
1996 1995 1995
------ ------ ------------
Working capital $ 75,161 $ 80,488 $ 79,615
Current ratio 2.2:1 2.1:1 2.2:1
Total assets $ 348,147 $ 341,676 $ 373,568
Current maturities of
long-term debt 2,942 2,655 2,705
Long-term debt 31,804 34,469 34,384
Stockholders' equity $ 118,017 $ 112,735 $ 113,999
Debt to total
capitalization(1) 22.7% 24.8% 24.5%
(1)Calculated as total Debt (long-term debt including current maturities)
divided by total stockholders' equity plus total Debt.
Working capital declined 6.6%, or $5.3 million, to $75.2 million at September
30, 1996 from $80.5 million at September 30, 1995, while the ratio of current
assets to current liabilities increased to 2.2:1 from 2.1:1. The decline in
working capital was primarily due to a reduction in cash of $5.6 million as
funds were used for the new Indonesian plant and the operation of new ventures.
The impact from the December 1995 acquisition of LTI was not material.
Working capital declined 5.6%, or $4.5 million, since December 31, 1995.
Declines in cash of $3.8 million, accounts receivable of $3.3 million and
inventories of $3.3 million were partially offset by decreases in accounts
payable of $2.9 million and insurance reserves and other accrued expenses of
$2.4 million.
The decrease in accounts receivable and inventories since December 31, 1995, as
well as the reduction in accounts payable, were due to reduced third quarter
sales levels. In addition, planned reductions in finished goods and raw
materials levels at certain refractory plants contributed to
21
<PAGE>
the decline in inventory and accounts payable balances. The reduction in
insurance reserves was due to improved claims experience in 1996, while the
reduction in other accrued expenses was primarily due to expenditures against
the plant closing and environmental reserves.
The $19.8 million decrease in non-current projected insurance recovery on
asbestos claims and the $20.6 million decrease in non-current projected asbestos
claims since December 31, 1995 were due primarily to asbestos claim payments by
insurance carriers during the first nine months of 1996. In addition, a $2.6
million reallocation from long-term to current was made since December 31, 1995
based upon data provided by the Center for Claims Resolution.
Deferred income tax assets decreased by $1.5 million since December 31, 1995 due
primarily to reductions in alternative minimum tax carryforwards and adjustment
to the original deferred tax assets related to the acquisition of A. P. Green de
Mexico. Deferred income tax liabilities declined approximately $2.0 million due
to reductions in prepaid pension costs and depreciation method differences.
The $2.6 million reduction in long-term debt since December 31, 1995 was due
primarily to a $2.5 million payment made in July 1996 against the debt
associated with the General acquisition.
Capital expenditures for the first nine months of 1996 totaled $9.4 million
compared to $6.9 million for the same period of 1995, with capital expenditures
for the refractories business increasing $2.1 million. Of this refractories
increase, $1.1 million was for construction of the new specialties plant in
Indonesia and $600,000 was for expansion of the Smithville, Ontario plant to
accommodate the production from the closed plant in Weston, Ontario. The balance
of the increase was for replacement, modernization and expansion of operations.
On August 19, 1996, the Company's Board of Directors approved a two-for-one
stock split, effected in the form of a stock dividend payable September 20, 1996
to stockholders of record on September 6, 1996. The stock split resulted in the
issuance of 4,487,721 additional shares from authorized but unissued shares. A
transfer of $4,487,721 was made from additional paid-in capital to common stock
at the stated par value. In addition, the Board of Directors approved a 14%
increase in the quarterly dividend to $.04 per share (an increase to $.08 per
share from $.07 per share on a pre-split basis) effective with the dividend paid
September 13, 1996.
22
<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 as of and for the Nine Months
Ended September 30, 1996.
(b) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
23
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A. P. Green Industries, Inc.
(Registrant)
By: /s/Gary L. Roberts
-----------------------------
Gary L. Roberts
Vice President, Chief Financial
Officer and Treasurer
Date: November 12, 1996
-----------------
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE A.P.
GREEN INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q AS OF AND FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,464
<SECURITIES> 0
<RECEIVABLES> 42,521
<ALLOWANCES> 1,684
<INVENTORY> 52,217
<CURRENT-ASSETS> 137,856
<PP&E> 98,418
<DEPRECIATION> 0
<TOTAL-ASSETS> 348,147
<CURRENT-LIABILITIES> 62,695
<BONDS> 34,746
0
0
<COMMON> 8,975
<OTHER-SE> 109,042
<TOTAL-LIABILITY-AND-EQUITY> 348,147
<SALES> 195,720
<TOTAL-REVENUES> 195,720
<CGS> 161,927
<TOTAL-COSTS> 161,927
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,343
<INCOME-PRETAX> 6,403
<INCOME-TAX> 2,307
<INCOME-CONTINUING> 4,096
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,912
<EPS-PRIMARY> .61
<EPS-DILUTED> 0
</TABLE>