SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
For the quarter ended September 30, 1997 Commission File No. 0-16452
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A. P. GREEN INDUSTRIES, INC.
----------------------------
(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
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 473-3626
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: As of November 14, 1997,
8,060,665 shares of Common Stock, $1 par value, were outstanding.
Page 1 of 27
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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,
1997 1996
------------- ------------
(Dollars in thousands, except per share data)
ASSETS
Current Assets
Cash and cash equivalents $ 5,539 $ 9,477
Receivables (net of allowances -
1997, $1,600; 1996, $1,701) 44,717 42,084
Reimbursement due on paid asbestos claims - 3,898
Inventories 53,648 53,674
Deferred income tax asset 3,089 3,374
Other 6,717 7,030
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Total current assets 113,710 119,537
Property, plant and equipment, net 105,961 107,394
Projected insurance recovery on asbestos claims 82,556 110,374
Pension assets 9,180 9,044
Intangible assets, net 4,415 4,132
Other assets 4,079 4,648
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Total assets $319,901 $355,129
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 16,202 $ 20,408
Accrued expenses
Payrolls 6,689 6,267
Taxes other than on income 2,490 1,860
Insurance reserves 4,242 3,574
Other 6,473 6,528
Current maturities of long-term debt 6,599 4,168
Income taxes 1,423 1,191
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Total current liabilities 44,118 43,996
Deferred income taxes 7,863 10,228
Long-term non-pension benefits 17,568 16,583
Long-term pensions 12,287 12,449
Long-term debt 30,680 40,109
Projected asbestos claims 82,556 111,966
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Total liabilities 195,072 235,331
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Minority Interests 1,486 1,414
Stockholders' Equity
Preferred stock - $1 par value;
authorized: 2,000,000 shares;
issued and outstanding: none - -
Common stock - $1 par value;
authorized: 10,000,000 shares;
issued: 9,014,099 in 1997
and 8,975,442 in 1996 9,014 8,975
Additional paid-in capital 68,505 68,309
Retained earnings 65,830 61,151
Less: Deferred foreign currency translation (3,448) (2,875)
Treasury stock of 953,934 shares in 1997
and 1996, at cost (9,498) (9,498)
Note receivable-ESOT (6,323) (6,941)
Minimum pension liability adjustment, net of
tax (737) (737)
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Total stockholders' equity 123,343 118,384
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Total liabilities and stockholders' equity $319,901 $355,129
======= =======
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) 1997 1996
-------------- --------------
Net sales $ 70,696 $ 61,948
Cost of sales 57,907 52,856
--------- ---------
Gross profit 12,789 9,092
Expenses and other income
Selling & administrative expenses 9,447 8,798
Interest expense 817 766
Interest income (232) (279)
Minority interest in loss of partnerships (124) (35)
Other income, net (83) (324)
--------- ---------
Earnings before income taxes 2,964 166
Income tax expense (benefit) 1,003 (66)
Equity in net income of affiliates (143) -
Minority interest in loss of consolidated
subsidiaries (56) (112)
--------- ---------
Net earnings $ 2,160 $ 344
========= =========
Net earnings per common share $ 0.27 $ 0.04
========= =========
Weighted average number of common shares 8,055,114 8,021,508
========= =========
Dividends per common share $ 0.04 $ 0.04
========= =========
See accompanying notes to consolidated financial statements.
3
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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) 1997 1996
-------------- --------------
Net sales $ 207,365 $ 195,720
Cost of sales 170,160 161,511
--------- ---------
Gross profit 37,205 34,209
Expenses and other income
Selling & administrative expenses 27,846 27,015
Interest expense 2,463 2,343
Interest income (731) (885)
Minority interest in loss of partnerships (209) (76)
Other income, net (200) (591)
--------- ---------
Earnings before income taxes 8,036 6,403
Income tax expense 2,797 2,307
Equity in net income of affiliates (174) (379)
Minority interest in loss of consolidated
subsidiaries (209) (437)
--------- ---------
Net earnings $ 5,622 $ 4,912
========= =========
Net earnings per common share $ 0.70 $ 0.61
========= =========
Weighted average number of common shares 8,034,771 8,043,150
========= =========
Dividends per common share $ 0.12 $ 0.11
========= =========
See accompanying notes to consolidated financial statements.
4
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine months ended September 30,
------------------------------
(Dollars in thousands) 1997 1996
-------------- --------------
Cash flows from operating activities
Net earnings $ 5,622 $ 4,912
Adjustments for items not requiring
(providing) cash
Depreciation, depletion and amortization 9,014 7,902
Stock compensation to directors 39 28
Provision for losses on accounts receivable 542 511
Loss on sale of assets 42 14
Equity in earnings of affiliates,
net of dividends received (26) (95)
Minority interest in losses of consolidated
subsidiaries and partnerships (418) (513)
Decrease (increase) in assets
Trade receivables (3,188) 2,834
Asbestos claim and fee reimbursements received 21,681 17,260
Inventories 26 3,340
Receivable and prepaid taxes 45 (137)
Other current assets 132 (1,626)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (2,541) (5,258)
Asbestos claims paid (19,361) (18,508)
Pensions (163) (1,588)
Income taxes 232 (418)
Deferred income taxes (2,080) (527)
Long-term non-pension benefits 986 784
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Net cash provided by operating activities 10,584 8,915
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Cash flows from investing activities
Capital expenditures (6,598) (9,374)
Increase in other long-term assets (187) (454)
Increase in pension assets (136) (30)
Proceeds from sales of assets 314 389
Payment received on ESOT note 618 564
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Net cash used in investing activities (5,989) (8,905)
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Cash flows from financing activities
Repayments of debt (17,702) (2,669)
Proceeds from borrowings 10,000 325
Exercised stock options 195 -
Dividends paid (964) (884)
Capital contributions from minority partner 490 -
Purchase of common stock for treasury - (480)
Tax benefit on dividends paid to ESOT 21 22
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Net cash used in financing activities (7,960) (3,686)
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Effect of exchange rate changes (573) (144)
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Net decrease in cash and cash equivalents (3,938) (3,820)
Cash and cash equivalents at beginning of year 9,477 9,284
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Cash and cash equivalents at end of period $ 5,539 $ 5,464
======= =======
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, 1996. The results for the quarter
and nine-month period ended September 30, 1997 are not necessarily
indicative of the results which may occur for the full year. All per
share amounts have been restated to reflect the two-for-one stock split
effective September 20, 1996. Certain prior year amounts have been
reclassified to conform to the 1997 presentation.
2. RESERVES FOR PLANT CLOSINGS
---------------------------
The Company has reserves for estimated exit costs and termination
benefits in connection with the shutdown of certain facilities in the
U.S. and Canada. Three of the plants acquired in the acquisition of the
refractories assets of General Refractories Company and its affiliated
companies ("General") were closed during 1994, a $3.6 million reserve
for which was established at the time of acquisition and included on
the opening balance sheet. During 1995 the reserve was increased by
approximately $700,000 due to the closing of the Weston, Ontario Plant,
which was sold in December 1995, and revised estimates of U. S.
employee termination benefits resulting from the sale of these
facilities taking longer than anticipated. Substantially all employees
at these facilities have been terminated and approximately $3.2 million
of termination benefits and plant closing costs have been charged
against the reserves to date. The U.S. facilities are held for sale at
their estimated net realizable value, one of which was sold in October
1997 as discussed under Financial Condition.
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3. INVENTORIES
-----------
September 30, 1997 December 31, 1996
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Finished goods & work-in-process
Valued at LIFO:
FIFO cost $ 32,633 $ 31,278
Less LIFO reserve (14,300) (14,907)
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LIFO cost 18,333 16,371
Valued at FIFO 12,460 13,225
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TOTAL 30,793 29,596
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Raw materials and supplies
Valued at LIFO:
FIFO cost 16,381 17,702
Less LIFO reserve (5,914) (6,129)
------ ------
LIFO cost 10,467 11,573
Valued at FIFO 12,388 12,505
------ ------
TOTAL 22,855 24,078
------ ------
$ 53,648 $ 53,674
====== ======
4. LITIGATION
----------
Asbestos-related Claims - Personal Injury
-----------------------------------------
A. P. Green is among numerous defendants in lawsuits pending as of
September 30, 1997 that seek to recover compensatory, and in many
cases, punitive damages for personal injury allegedly resulting from
exposure to asbestos-containing products.
A. P. Green is a member of the Center for Claims Resolution (the
Center), an organization of twenty companies (Members) who were
formerly distributors or manufacturers of asbestos-containing products.
The Center administers, evaluates, settles, pays and defends all of the
asbestos-related personal injury lawsuits involving its Members. Under
the terms of the Center Agreement, each Member's portion of the
liability payments and defense costs are based upon, among other
things, the number and type of claims brought against it. Claims
activity for the Company for each of the years ended December 31, 1996,
1995 and 1994 was as follows:
7
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1996 1995 1994
---- ---- ----
Claims pending at January 1 48,367 50,920 52,122
Claims filed 29,702 12,560 14,836
Cases settled, dismissed or
otherwise resolved (19,184) (15,113) (16,038)
------ ------ ------
Claims pending at December 31 58,885 48,367 50,920
====== ====== ======
Average settlement amount per claim(1) $1,582 $1,778 $1,816
(1)Substantially all settlements are covered by the Company's insurance
program.
On January 15, 1993, the Members were named as defendants in a class
action lawsuit brought on behalf of all persons who have been
occupationally exposed to asbestos-containing products of the Members
and who have unasserted claims for such exposure (the Class) pursuant
to Federal Rule of Civil Procedure 23(b)(3) in the Federal District
Court for the Eastern District of Pennsylvania. At the same time, a
settlement (the Settlement) between the Members and the Class was filed
with the court. On June 25, 1997, after a favorable ruling in the
Federal District Court for the Eastern District of Pennsylvania and a
reversal of that ruling by the Third Circuit Court of Appeals, the
United States Supreme Court upheld the ruling of the Third Circuit. The
result of such ruling is that the class action lawsuit and the
Settlement are of no effect.
As the Settlement established a numerical cap on the number of claims
that could be processed each year during the ten years of the
Settlement and because the Settlement provided for a range of payments
for different disease categories, it was possible to estimate the
aggregate amount of liability for the Company through 2004 and related
insurance recoveries. The amounts reported for projected asbestos
claims and projected insurance recovery on asbestos claims in the
consolidated statements of financial position as of December 31, 1996
were determined based upon the Settlement.
Without the Settlement the Company can only estimate the liability and
related insurance recoveries associated with known claims. As such, the
amounts reported for projected asbestos claims and projected insurance
recovery on asbestos claims as of September 30, 1997 reflect only those
claims known to have been filed as of that date. In order to arrive at
these projected amounts, the Company also reviewed its insurance
policies and historical settlement amounts. This resulted in a
reduction in both the liability and asset of $19.4 million during the
third quarter of 1997. There was no effect on the consolidated earnings
of the Company.
Management anticipates that the Company's insurance carriers will make
all required payments for these claims. While management understands
the inherent uncertainty in
8
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litigation of this type and the possibility that past costs may not be
indicative of future costs, management does not believe that these
claims and cases will have any additional material adverse effect on
the Company's consolidated financial position or results of operations.
In December 1996, the Company and a former subsidiary, The E. J.
Bartells Company, reached a comprehensive settlement agreement with all
insurance carriers except one. Under the terms of this settlement
agreement, such carriers have agreed to pay (subject to applicable
policy limits) on behalf of the insureds, liabilities arising out of
asbestos personal injury claims. The Company is pursuing its claim for
coverage against the non-settling carrier.
In addition to asbestos-related personal injury claims asserted against
A. P. Green, a number of claims have been asserted against
Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a
subsidiary of the Company. These claims have been and are currently
being handled by such subsidiary's insurance carriers. Except for
deductible amounts or retentions provided for under insurance policies,
no claim for reimbursement of defense or indemnity payments has been
made against the Company or such subsidiary by any such carriers.
Asbestos-related Claims - Property Damage
-----------------------------------------
A. P. Green is also among numerous defendants in a property damage
class action suit pending in South Carolina. A. P. Green previously has
been dismissed from a number of property damage cases and believes that
it should be dismissed from the South Carolina case based on the end
uses of its products. A similar suit pending in the State of Oregon
involves a former wholly owned subsidiary of the Company and is being
defended by the Company's insurance carrier. Based upon the Company's
history in these asbestos-related property damage claims, management
does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's consolidated financial
position or results of operations.
Environmental
-------------
The EPA or other private parties have named the Company or one of its
subsidiaries as a potentially responsible party in connection with two
superfund sites in the United States. The Company is a de minimis party
with respect to one of the sites and expects to arrive at a settlement
agreement and consent decree with respect to it for an amount which is
not expected to be material. With respect to the second, involving a
wholly owned subsidiary of the Company, there does not appear to be any
evidence of delivery to the site of hazardous material by the
subsidiary. An estimate has been made of the costs to be incurred in
these matters and the Company has recorded a reserve respecting those
costs.
9
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Other
-----
From time to time, A. P. Green is subject to claims and other lawsuits
that arise in the ordinary course of business, some of which may seek
damages in substantial amounts, including punitive or extraordinary
damages. Reserves for these claims and lawsuits are recorded to the
extent that losses are deemed probable and are estimable. In the
opinion of management, the disposition of all current claims and
lawsuits will not have a material adverse effect on the consolidated
financial position or results of operations of A. P. Green.
10
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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, 1997
- -------------------------------------------------------------
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1996
- -------------------------------------------------
Total sales increased 14.1% to $70.7 million for the three months
ended September 30, 1997 from $61.9 million for the comparable
1996 three-month period. Gross profit increased 40.7% to $12.8
million from $9.1 million for the comparable periods. The impact
from the December 31, 1996 acquisition of the Eastern Ridge Lime
facility in Ripplemead, Virginia was to increase sales by
approximately $2.8 million, with a slight increase in gross
profit which was immaterial to the consolidated results.
Refractory Products and Services
- --------------------------------
Total refractory products and services sales increased 10.2% to
$57.5 million for the three months ended September 30, 1997 from
$52.2 million for the comparable 1996 period. United States
refractory sales were $47.9 million and $43.9 million for the
three-month periods ended September 30, 1997 and 1996,
respectively, an increase of 9.1%. U.S. refractory product sales
volumes increased an average of 4.6%, with increases in
specialties, INTOGREEN Co. and Lanxide ThermoComposites, Inc.
(LTI) products partially offset by declines in brick, precast
shape and ceramic fiber volumes. Prices for brick, ceramic fiber,
precast shapes and LTI products were up compared to the third
quarter of 1996, partially offset by decreases in specialties and
INTOGREEN pricing for a net price increase of 3.5%. U.S. export
sales declined 1.4% to $5.7 million in the third quarter of 1997
from $5.8 million for the third quarter of 1996, due primarily to
weaker sales to the Far East and the Middle East, partially
offset by increased sales to South America.
Sales of the Canadian subsidiary increased 8.1% to $6.6 million
for the three-month period ended September 30, 1997 from $6.1
million for the comparable 1996 period. Increases in brick,
ceramic fiber, precast shape and crucible volumes were partially
offset with a decline in specialties volumes for a net volume
increase of 8.0%. Prices increased an average of 2.5%, with
increases in specialties, brick and crucibles pricing partially
offset by price reductions in ceramic fiber and precast shapes.
The Canadian operation generated pre-tax earnings of $42,000 for
the third quarter of 1997 compared to a pre-tax loss of $53,000
for the comparable 1996 period. The increase in earnings was
primarily due to improved efficiencies leading to improved gross
margins, partially offset by an increase in the provision for
doubtful accounts in the third quarter of 1997 compared to the
same period of 1996 and currency
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exchange losses on U.S. dollar denominated accounts.
Sales in the United Kingdom (U.K.) were flat at $2.4 million for
the third quarters of 1997 and 1996. Lower production volume
levels compared to 1996 resulted in reduced production
efficiencies, contributing to a decline in pre-tax earnings to
$18,000 for the three months ended September 30, 1997 from
$186,000 for the 1996 period. Also contributing to the reduced
earnings were increased depreciation expense and higher salary
and related costs.
Sales at A. P. Green de Mexico for the three months ended
September 30, 1997 increased 22.0% to $2.7 million compared to
$2.2 million for the 1996 period, with 1997 pre-tax earnings of
$303,000 compared to $258,000 for the third quarter of 1996.
Sales at PT AP Green Indonesia were $197,000, with a pre-tax loss
of $229,000 due to the relatively high fixed costs at the low
initial volume level. This operation is expected to be near break
even on a monthly basis by the end of the first quarter of 1998.
The Indonesian operation incurred a pre-tax start-up loss of
$160,000 during the third quarter of 1996.
Total refractory products cost of sales as a percentage of sales
decreased to 82.2% compared to 87.4% for the three months ended
September 30, 1997 and 1996, respectively. This reduction was
primarily due to higher production levels contributing to
improved production efficiencies, as well as lower equipment
maintenance, casualty insurance and depreciation expenses.
Partially offsetting these improvements were increased workers
compensation and group health insurance costs. Total refractory
operating profits increased to $3.6 million from $388,000 for the
comparable three-month periods primarily due to the improvement
in gross margins.
Industrial Lime
- ---------------
Industrial lime sales increased 35.0% to $13.2 million for the
third quarter of 1997 from $9.8 million for the third quarter of
1996. Sales from the plant in Ripplemead, Virginia, acquired
December 31, 1996, accounted for $2.8 million of the increase.
Volumes increased an average of 0.6% at the Kimballton, Virginia
plant, with increases in hydrate and Cal-Dol partially offset by
a reduction in quicklime volume. Prices at Kimballton increased
1.3%, with higher quicklime and Col-Dol prices partially offset
by lower pricing on hydrate. Volumes increased an average of
11.3% across all product lines at the New Braunfels, Texas plant.
Prices for road stabilization lime declined at New Braunfels,
partially offset by increases in industrial and building lime,
resulting in an overall price decrease of 1.1%.
Gross profit increased 8.3% to $2.5 million from $2.3 million for
the respective third quarters of 1997 and 1996. Gross profit as a
percentage of sales declined to 19.2% for the third quarter of
1997 compared to 23.9% for the third quarter of 1996. This
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decline in gross profit percentage was primarily due to the
relatively high operating costs and depreciation related to the
newly acquired Ripplemead plant. Improvements continue to be made
at this facility, which generated a small net profit for the
quarter, and the impact of these improvements, coupled with
increased synergies with the nearby Kimballton plant, should
result in improved gross profit percentages in future periods.
Also contributing to the lower gross profit percentage were
increased power and processing fuel costs at the Kimballton
plant, increased purchased material and workers compensation
costs at New Braunfels and increased group health insurance costs
at both plants. Partially offsetting these cost increases were
improved efficiencies at both plants and reduced equipment
maintenance, processing fuel and contract demolition expense at
the New Braunfels plant. Industrial lime operating profit
increased 7.4% to $2.2 million from $2.0 million for the
comparable quarters due primarily to the increase in gross
profit.
Expenses and Other Income
- -------------------------
Selling and administrative expenses increased 7.4% to $9.4
million in the third quarter of 1997 from $8.8 million for the
comparable 1996 period. The increase was primarily due to higher
management incentive, travel and group health insurance costs,
partially offset by reduced LTI research expenditures.
Interest expense increased 6.6% to $817,000 in 1997 from $766,000
in 1996, due to interest associated with borrowings against the
Company's U.S. long-term line of credit. Daily average bank line
borrowings were approximately $2.8 million during the third
quarter of 1997, while there were no bank line borrowings during
the same period of 1996. Interest income for the third quarter of
1997 declined 16.9% to $232,000 from $279,000 in the comparable
1996 three-month period due to reduced funds available for
investing and reduced interest on notes receivable, including the
note due from the ESOT. Other income declined 74.2% for the
comparable three-month periods, primarily due to an increase in
currency conversion losses on the U.S. dollar at the Company's
Canadian subsidiary and gains on the sale of the Pueblo, Colorado
plant and certain equipment at the closed Warren, Ohio plant
during the third quarter of 1996.
The Company and its Canadian and U.K. subsidiaries typically
transact business in their own currencies and accordingly are not
subject to significant currency conversion gains and losses. A.
P. Green de Mexico and PT AP Green Indonesia transact a
significant portion of their business in U.S. dollars and, as
such, use the dollar as their functional currency. This results
in currency conversion gains and losses on Mexican peso and
Indonesian rupiah transactions, A. P. Green's portion of which
was not significant to the consolidated results.
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Income Taxes
- ------------
The tax benefit in the third quarter of 1996 was due primarily to
partial recognition of benefits from the pre-tax start up losses
of LTI during the first half of 1996. Long- term projections of
LTI's operating results indicate future earnings should be
adequate to ensure realization of the benefits from the tax
losses in future periods. As such, a portion of the tax benefits
earned during the first half of 1996 were recognized in the third
quarter of 1996, with the balance recognized during the fourth
quarter of that year.
Equity in Net Income of Affiliates
- ----------------------------------
The Company's share of income from its two Colombian affiliates
was $143,000 for the three months ended September 30, 1997. There
was no income from these affiliates during the same period of
1996 due to a recession in the Colombian construction industry,
political uncertainty and a general decline in economic
conditions in Colombia.
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RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
- ---------------------------------------------------------------------
TO NINE MONTHS ENDED SEPTEMBER 30, 1996
- ---------------------------------------
Total sales increased 6.0% to $207.4 million for the nine months
ended September 30, 1997 from $195.7 million for the comparable
1996 nine-month period. Gross profit increased 8.8% to $37.2
million from $34.2 million for the comparable periods. The impact
from the December 31, 1996 acquisition of the Eastern Ridge Lime
facility was to increase sales by approximately $7.5 million,
with a slight increase in gross profit which was immaterial to
the consolidated results.
Refractory Products and Services
- --------------------------------
Total refractory products and services sales were $170.0 million
and $165.9 million for the nine months ended September 30, 1997
and September 30, 1996, respectively, increasing 2.5%. U.S.
refractory sales increased 0.6% to $143.0 million for the nine
months ended September 30, 1997 from $142.2 million for the
comparable 1996 period. Significantly limiting this increase were
lower sales of silica products from the Company's Lehi, Utah
plant, which experienced high sales in 1996 due to capital
projects at several glass and coke oven customers. A significant
increase in Chinese imports has also negatively impacted the
Company's silica business.
U.S. refractory sales volumes increased 1.1%, with increases in
specialties, LTI and INTOGREEN products partially offset by
declines in brick and ceramic fiber, with precast shapes
essentially flat for the comparable periods. Price increases for
specialties, precast shapes and ceramic fiber were partially
offset by brick price reductions for a net price increase of
0.8%. U.S. export sales declined 21.8% to $15.3 million for the
nine-month period ended September 30, 1997 from $19.6 million for
the comparable 1996 period, due primarily to reduced sales to the
Far East, Europe and the Middle East, partially offset by
increased sales to South America. Reduced U.S. export sales to
Mexico and the Caribbean were offset with increased sales by A.
P. Green de Mexico.
Sales at the Canadian subsidiary increased 5.7% to $19.1 million
for the nine months ended September 30, 1997 from $18.1 million
for the comparable 1996 period. Increased volumes in brick,
ceramic fiber, crucibles and precast shapes were partially offset
by a decline in specialties volume for a net volume increase of
7.9%. Prices increased across all product lines with the
exception of precast shapes, resulting in an overall price
increase of 1.9%.
Improved production efficiencies at the Canadian subsidiary
resulted in a 24% improvement in gross profit, resulting in
pre-tax income of $218,000 for the nine months ended September
30, 1997 compared to $50,000 for the comparable 1996 period. Also
contributing to the improved Canadian earnings were reduced
salaries and related costs, property taxes and pension and
freight expense compared to 1996, partially offset by increased
equipment maintenance, a higher provision for doubtful
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accounts and higher currency exchange losses on U.S. dollar
denominated accounts.
Sales by the United Kingdom subsidiary declined 7.3% to $6.5
million for the first nine months of 1997 compared to $7.1
million for the same period of 1996 due to weak market
conditions. Planned inventory reductions contributed to lower
volume levels which resulted in reduced production efficiencies,
contributing to a pre-tax loss of $40,000 in 1997 compared to
pre-tax earnings of $428,000 in 1996. Also contributing to the
reduced earnings were increased depreciation expense and higher
salary and related costs.
A. P. Green de Mexico's sales for the nine months ended September
30, 1997 increased 32.1% to $7.6 million compared to $5.8 million
in 1996. Increased maintenance, royalty and freight costs and a
weakening Mexican peso contributed to a decline in pre-tax
earnings to $801,000 for the first nine months of 1997 compared
to $823,000 for the same period of 1996.
Sales at PT AP Green Indonesia were $665,000 for the nine months
ended September 30, 1997, with a pre-tax loss of $698,000 due to
the relatively high fixed costs at the low initial volume level.
This operation is expected to be near break even on a monthly
basis by the end of the first quarter of 1998. The Indonesian
operation incurred a pre-tax start-up loss of $238,000 for the
nine months ended September 30, 1996.
Total refractory products cost of sales as a percentage of sales
decreased to 82.4% in 1997 from 83.6% in 1996. This improvement
was primarily due to greater production efficiencies, reduced
equipment maintenance expense and reduced costs in Canada as
discussed above. Partially offsetting these improvements were
increased raw materials, workers compensation insurance and
employee relocation costs in the U.S. and high relative fixed
costs at PT AP Green Indonesia. Total refractory operating
profits increased 28.5% to $10.1 million from $7.9 million in
1997 and 1996, respectively, primarily due to the improved gross
profit partially offset by increased selling and administrative
costs at LTI and PT AP Green Indonesia.
Industrial Lime
- ---------------
Industrial lime sales increased 25.6% to $37.6 million from $29.9
million for the nine-month periods ended September 30, 1997 and
1996, respectively, including $7.5 million from the Ripplemead
plant acquired December 31, 1996. A decline in quicklime volume
was partially offset by increases in Cal-Dol and hydrate volumes
for a net volume decline of 2.1% at the Kimballton plant. Also
contributing to the volume decline at Kimballton was a strike at
one of the plant's major customers. Kimballton prices increased
an average of 1.4% across all major product lines. Volumes at the
New Braunfels plant improved 2.7%, with increases in road
stabilization and building lime partially offset by reduced
industrial lime volume. Prices were essentially flat at New
Braunfels, with increased industrial lime pricing
16
<PAGE>
offset by price reductions in road stabilization and building
lime.
Industrial lime gross profit increased 2.4% to $7.2 million or
19.2% of sales for 1997 from $7.1 million or 23.6% of sales for
1996. The decline in gross profit percentage was due primarily to
the relatively high operating costs and depreciation related to
the newly acquired Ripplemead plant. Improvements continue to be
made at this facility, which generated a small net profit for the
nine-month period, and the impact of these improvements, coupled
with increased synergies with the nearby Kimballton plant, should
result in improved gross profit percentages in future periods.
Also contributing to the decline in gross profit percentage were
increased workers compensation costs at New Braunfels, higher
power, processing fuel and depreciation expense at Kimballton and
increased purchased material and group health insurance costs at
both plants. Partially offsetting these increases were reductions
in maintenance, power and processing fuel costs at New Braunfels,
lower workers compensation insurance cost at Kimballton and
improved production efficiencies at both plants. Industrial lime
operating profit increased 1.0% to $6.2 million for the first
nine months of 1997 compared to $6.1 million for the comparable
1996 period primarily due to the improvement in gross profit.
Expenses and Other Income
- -------------------------
Selling and administrative expenses increased 3.1% to $27.8
million in 1997 from $27.0 million in 1996. The increase was
primarily due to higher management incentive, group health
insurance and workers compensation insurance costs and increased
expenses at LTI and PT AP Green Indonesia, partially offset by
reduced sales incentives and LTI research costs.
Interest expense increased 5.1% to $2.5 million in 1997 from $2.3
million in 1996, due to interest associated with borrowings
against the Company's U.S. long-term line of credit offset by
reduced interest on the unsecured notes associated with the 1994
General acquisition. Daily average bank line borrowings were
approximately $3.1 million during the first nine months of 1997,
while there were no bank line borrowings during the same period
of 1996. Interest income decreased 17.5% to $731,000 in 1997 from
$885,000 in 1996 due to reduced funds available for investing.
Other income declined 66.2% to $200,000 in 1997 from $591,000 in
1996, due primarily to increased currency conversion losses on
U.S. dollar denominated accounts at the Company's Canadian
subsidiary and currency conversion losses on Mexican peso
accounts at the Company's Mexican subsidiary during 1997 compared
to gains during 1996. Also contributing to the reduction of other
income were gains on the sale of the Pueblo, Colorado plant and
certain equipment at the closed Warren, Ohio plant during the
third quarter of 1996.
The Company and its Canadian and U.K. subsidiaries typically
transact business in their own currencies and accordingly are not
subject to significant currency
17
<PAGE>
conversion gains and losses. A. P. Green de Mexico and PT AP
Green Indonesia transact a significant portion of their business
in U.S. dollars and, as such, use the dollar as their functional
currency. This results in currency conversion gains and losses on
Mexican peso and Indonesian rupiah transactions, A. P. Green's
portion of which was not significant to the consolidated results.
Income Taxes
- ------------
The 1997 effective tax rate was 34.8% compared to 36.0% in 1996.
The higher 1996 effective rate was due primarily to limited
recognition of tax benefits from the pre-tax start up losses of
LTI. A portion of those benefits were recognized during the third
quarter of 1996, as long-term projections of LTI's operating
results indicated future earnings should be adequate to ensure
realization of the benefits of the estimated tax loss in future
periods. The balance of those benefits were recognized during the
fourth quarter of 1996.
Equity in Net Income of Affiliates
- ----------------------------------
The Company's share of income from its two Colombian affiliates
was $174,000 for the nine months ended September 30, 1997
compared to $379,000 for the comparable 1996 period. The
reduction was due to a recession in the Colombian construction
industry, political uncertainty and a general decline in economic
conditions in Colombia.
Accounting Standards Not Yet Implemented
- ----------------------------------------
The Company is required to implement Statement of Financial
Accounting Standards No. 128, "Earnings per Share," for the
quarter and year ending December 31, 1997. The standard requires
presentation of both basic and diluted earnings per share on the
face of the consolidated statement of earnings, using the
treasury stock method to calculate the net impact of dilutive
securities. In addition, a reconciliation of both the numerator
and denominator of the two calculations is required in the
footnotes to the financial statements. Implementation of the
standard would cause basic earnings per share to be the same as
primary earnings per share reported herein, whereas diluted
earnings per share would be $.26 and $.04 for the quarters ended
September 30, 1997 and 1996, respectively, and $.68 and $.60 per
share for the nine months ended September 30, 1997 and 1996,
respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure
of Information about Capital Structure", which the Company is
required to implement for the year ending December 31, 1997. In
June 1997 the Board issued Statement No. 130, "Reporting
Comprehensive Income", and No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which the Company is
required to implement for the year ending December 31, 1998.
Although the implementation of these statements will
18
<PAGE>
have no impact on the financial results of the Company, it is
assessing the impact of these statements on the disclosures
provided in its quarterly and annual reports.
19
<PAGE>
INDUSTRY SEGMENTS
(In thousands)
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
Net Sales
Refractory products and services $ 170,030 $ 165,887
Industrial lime 37,601 29,933
Intersegment eliminations (266) (100)
-------- --------
$ 207,365 $ 195,720
======== ========
Gross Profit
Refractory products and services $ 29,981 $ 27,153
Industrial lime 7,224 7,056
-------- --------
$ 37,205 $ 34,209
======== ========
Gross Profit Percentage
Refractory products and services 17.6% 16.4%
Industrial lime 19.2% 23.6%
17.9% 17.5%
======== ========
Operating Profit
Refractory products and services $ 10,108 $ 7,864
Industrial lime 6,192 6,132
-------- --------
16,300 13,996
-------- --------
Other Charges to Income
General corporate expenses, net 6,532 6,135
Interest expense 2,463 2,343
Interest income (731) (885)
-------- --------
Total other charges 8,264 7,593
-------- --------
Earnings Before Income Taxes $ 8,036 $ 6,403
======== ========
20
<PAGE>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
Identifiable Assets (at period end)
Refractory products and services $252,064 $292,639
Industrial lime 59,082 47,127
Corporate 8,755 8,381
------- -------
$319,901 $348,147
======= =======
Depreciation, Depletion and Amortization
Refractory products and services $ 5,263 $ 5,050
Industrial lime 3,251 2,100
Corporate 500 752
------- -------
$ 9,014 $ 7,902
======= =======
Capital Expenditures
Refractory products and services $ 3,725 $ 7,275
Industrial lime 2,358 1,832
Corporate 515 267
------- -------
$ 6,598 $ 9,374
======= =======
GEOGRAPHIC SEGMENTS
(In thousands)
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
United States $ 180,609 $ 172,128
Canada 19,122 18,089
United Kingdom 6,545 7,058
Mexico 7,629 5,776
Far East 665 -
Intersegment transfers (primarily U.S.) (7,205) (7,331)
-------- --------
$ 207,365 $ 195,720
======== ========
21
<PAGE>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
Earnings (Loss) Before Income Taxes
United States $ 7,755 $ 5,340
Canada 218 50
United Kingdom (40) 428
Mexico 801 823
Far East (698) (238)
-------- --------
$ 8,036 $ 6,403
======== ========
Identifiable Assets (at period end)
United States $ 274,953 $ 304,651
Canada 17,521 19,348
United Kingdom 4,684 4,865
Mexico 6,601 5,851
Far East 7,387 5,051
Corporate 8,755 8,381
-------- --------
$ 319,901 $ 348,147
======== ========
PRICE/VOLUME SUMMARY
1997 AS COMPARED TO 1996
PERCENT INCREASE (DECREASE)
Three Nine
Months Months
Ended Ended
September 30, 1997 September 30, 1997
------------------ ------------------
U.S. Refractory Products Sales
Volume 4.6% 1.1%
Price 3.5 0.8
Industrial Lime Sales
(excluding impact of Eastern
Ridge acquisition)
Volume 6.1 (0.2)
Price 0.2 0.7
22
<PAGE>
FINANCIAL CONDITION
- -------------------
The Company continues to maintain a strong balance sheet.
Summary Information
(Dollars in thousands)
September 30, December 31,
------------- ------------
1997 1996 1996
---- ---- ----
Working capital $ 69,592 $ 75,383 $ 75,541
Current ratio 2.6:1 3.0:1 2.7:1
Total assets $319,901 $348,147 $355,129
Current maturities of
long-term debt 6,599 2,942 4,168
Long-term debt 30,680 31,804 40,109
Stockholders' equity $123,343 $118,017 $118,384
Debt to total
capitalization (1) 23.2% 22.7% 27.2%
(1) Calculated as total Debt (long-term debt including current
maturities) divided by total stockholders' equity plus total
Debt.
Working capital declined 7.7%, or $5.8 million, to $69.6 million
at September 30, 1997 from $75.4 million at September 30, 1996,
while the ratio of current assets to current liabilities
decreased to 2.6:1 from 3.0:1. Excluding the impact of the
acquisition of the Eastern Ridge Lime facility, working capital
decreased $7.5 million, primarily due to a $4.1 million reduction
in reimbursement due on paid asbestos claims and a $3.5 million
increase in current portion of long-term debt.
Working capital declined 7.9%, or $5.9 million, since December
31, 1996, primarily due to a decline in cash of $3.9 million, a
$3.9 million reduction in reimbursement due on paid asbestos
claims and a $2.4 million increase in current maturities of
long-term debt, partially offset by a $4.2 million reduction in
accounts payable.
The reduction in reimbursement due on paid asbestos claims since
both September 30, 1996 and December 31, 1996 was due to asbestos
claim settlements with the
23
<PAGE>
Company's insurance carriers and the Center and reimbursements
from them.
The increase in current maturities of long-term debt since both
September 30, 1996 and December 31, 1996 was due primarily to a
$2.5 million reclassification from long-term debt for a scheduled
increase in the payment due against the unsecured notes payable.
Long-term debt decreased $9.4 million from December 31, 1996 due
primarily to this reclassification, a scheduled payment of $2.5
million against the unsecured notes payable and a $5.0 million
reduction in outstanding borrowings against the U.S. long-term
line of credit. Partially offsetting these reductions was a
ten-year capital lease on a warehouse in Houston, Texas, which
bears an interest rate of 10.9% and expires December 1, 2006.
Approximately $3.6 million of the U.S. long-term line of credit
was being utilized at September 30, 1997 for outstanding letters
of credit and $4.0 million of borrowings remained outstanding,
leaving an available balance of approximately $22.4 million.
Projected insurance recovery on asbestos claims declined $8.4
million and projected asbestos claims declined $10.0 million
since December 31, 1997 due to asbestos claim payments by
insurance carriers and settlements by the Company with those
carriers during the first nine months of 1997. The net projected
asbestos liability included in the Company's statement of
financial position has been reduced to zero as a result of final
settlements with the Company's insurance carriers. Future
payments of asbestos claims will be made directly to the Center
by those carriers.
An additional $19.4 million reduction in both the projected
asbestos claims and projected insurance recovery on asbestos
claims since both September 30, 1996 and December 31, 1996 was
due to a change in the information available to the Company to
make these projections, as discussed in Note 4 of Notes to
Consolidated Financial Statements. Included in the $38.8 million
reduction in total assets since September 30, 1996 (exclusive of
the impact from the Eastern Ridge acquisition) was a $35.4
million reduction in projected insurance recovery on asbestos
claims due to payments by insurance carriers and revision to the
estimated recovery as discussed.
Deferred income tax liabilities declined $2.4 million due to
reductions in prepaid pension costs and depreciation method
differences.
Capital expenditures for the first nine months of 1997 totaled
$6.6 million compared to $9.4 million for the same period of
1996, with capital expenditures for the refractories business
declining $3.6 million. This reduction was primarily due to the
completion of the new plant in Indonesia and the movement of
operations previously at Weston, Ontario to the Smithville,
Ontario plant during 1996.
Forward-Looking Information
- ---------------------------
The statements contained in Management's Discussion and Analysis
concerning the Company's future profitability, outcome of
lawsuits, utilization of tax loss
24
<PAGE>
carryforwards, currency fluctuation effects, adequacy of
insurance proceeds and market demand are forward-looking
statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. The Company's
actual results in the future may differ materially from those
projected in the forward- looking statements due to risks and
uncertainties that exist in the Company's operations and business
environment including, but not limited to: delivery delays or
defaults by customers; performance issues with key suppliers and
subcontractors; the Company's successful execution of internal
operating plans; global monetary policies and trends; collective
bargaining labor disputes; litigation claims filed and judgements
or settlements paid that are of a greater magnitude than the
Company has experienced in the past; and the continued financial
stability of the Company's insurance carriers covering such
claims.
Subsequent Event
- ----------------
In October 1997 the Hitchins, Kentucky plant and Kentucky timber
property were sold. The combined net gain after all closing costs
and expenses on the sales of these properties is approximately
$400,000.
25
<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, 1997.
(b) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed during the quarter ended
September 30, 1997
26
<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 14, 1997
-----------------
27
<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
MONTH PERIOD ENDED SEPTEMBER 30, 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,539
<SECURITIES> 0
<RECEIVABLES> 46,317
<ALLOWANCES> 1,600
<INVENTORY> 53,648
<CURRENT-ASSETS> 113,710
<PP&E> 105,961
<DEPRECIATION> 0
<TOTAL-ASSETS> 319,901
<CURRENT-LIABILITIES> 44,118
<BONDS> 37,279
0
0
<COMMON> 9,014
<OTHER-SE> 114,329
<TOTAL-LIABILITY-AND-EQUITY> 319,901
<SALES> 207,365
<TOTAL-REVENUES> 207,365
<CGS> 170,160
<TOTAL-COSTS> 170,160
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,463
<INCOME-PRETAX> 8,036
<INCOME-TAX> 2,797
<INCOME-CONTINUING> 5,622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,622
<EPS-PRIMARY> .70
<EPS-DILUTED> 0
</TABLE>
