SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
For the quarter ended March 31, 1998 Commission File No. 0-16452
-------------- -------
A. P. GREEN INDUSTRIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0899374
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Green Boulevard, Mexico, Missouri 65265
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 473-3626
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
--- ---
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: As of May 14, 1998, 8,070,515
shares of Common Stock, $1 par value, were outstanding.
Page 1 of 22
<PAGE>
A. P. GREEN INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
March 31, December 31,
1998 1997
--------- -----------
(Dollars in thousands, except per share data)
ASSETS
Current Assets
Cash and cash equivalents $ 3,576 $ 3,701
Receivables (net of allowances -
1998, $1,509; 1997, $1,448) 44,519 48,761
Inventories 57,155 53,705
Deferred income tax asset 2,255 2,574
Other 6,000 6,624
------- -------
Total current assets 113,505 115,365
Property, plant and equipment, net 107,073 107,622
Projected insurance recovery on asbestos claims 154,778 116,314
Pension assets 9,393 9,251
Intangible assets, net 4,108 4,173
Other assets 4,844 4,989
------- -------
Total assets $393,701 $357,714
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 17,735 $ 19,879
Accrued expenses
Payrolls 6,009 6,867
Taxes other than on income 2,155 2,145
Insurance reserves 3,627 4,008
Other 5,855 7,381
Current maturities of long-term debt 6,006 5,716
Income taxes 1,105 801
------- -------
Total current liabilities 42,492 46,797
Deferred income taxes 6,799 7,199
Long-term non-pension benefits 17,810 17,652
Long-term pensions 11,731 11,615
Long-term debt 31,953 31,034
Projected asbestos claims 154,778 116,314
------- -------
Total liabilities 265,563 230,611
------- -------
Minority Interests 3,403 2,568
Stockholders' Equity
Preferred stock - $1 par value;
authorized: 2,000,000 shares;
issued and outstanding: none - -
Common stock - $1 par value;
authorized: 10,000,000 shares;
issued: 9,024,449 in 1998
and 9,014,599 in 1997 9,024 9,015
Additional paid-in capital 68,587 68,504
Retained earnings 67,599 67,285
Less: Deferred foreign currency translation (4,145) (3,939)
Treasury stock of 953,934 shares in 1998
and 1997, at cost (9,498) (9,498)
Note receivable-ESOT (6,323) (6,323)
Minimum pension liability adjustment,
net of tax (509) (509)
------- -------
Total stockholders' equity 124,735 124,535
------- -------
Total liabilities and stockholders' equity $393,701 $357,714
======= =======
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three months ended March 31,
----------------------------
(Dollars in thousands, except per share data) 1998 1997
------------ -------------
Net sales $ 65,762 $ 64,816
Cost of sales 54,152 54,014
--------- ---------
Gross profit 11,610 10,802
Expenses and other income
Selling & administrative expenses 9,966 9,222
Interest expense 682 834
Interest income (233) (247)
Minority interest in income (loss) of
partnerships (226) 4
Other (income) expense, net 248 (66)
--------- ---------
Earnings before income taxes 1,173 1,055
Income tax expense 523 358
Equity in net income of affiliates (66) (15)
Minority interest in income of
consolidated subsidiaries 80 69
--------- ---------
Net earnings $ 636 $ 643
========= =========
Net earnings per common share - basic $ 0.08 $ 0.08
========= =========
Weighted average number of common shares - basic 8,068,563 8,023,220
========= =========
Net earnings per common share - diluted $ 0.07 $ 0.08
========= =========
Weighted average number of common shares - diluted 8,547,241 8,171,034
========= =========
Dividends per common share $ 0.04 $ 0.04
========= =========
See accompanying notes to consolidated financial statements.
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<PAGE>
A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three months ended March 31,
----------------------------
(Dollars in thousands) 1998 1997
------------ -------------
Cash flows from operating activities
Net earnings $ 636 $ 643
Adjustments for items not requiring
(providing) cash
Depreciation, depletion and amortization 3,002 2,999
Stock compensation to directors 51 29
Provision for losses on accounts receivable 34 195
Loss (gain) on sale of assets 308 (58)
Equity in earnings of affiliates,
net of dividends received (66) (15)
Minority interest in income (losses) of
consolidated subsidiaries and partnerships (146) 73
Decrease (increase) in assets
Trade receivables 4,208 (1,058)
Asbestos claim and fee reimbursements received 5,070 5,236
Inventories (3,450) (2,639)
Receivable and prepaid taxes 32 45
Other current assets 593 (6)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (4,899) (447)
Asbestos claims paid (5,070) (3,607)
Pensions 116 277
Income taxes 304 (65)
Deferred income taxes (82) (246)
Long-term non-pension benefits 158 249
------ ------
Net cash provided by operating activities 799 1,605
------ ------
Cash flows from investing activities
Capital expenditures (2,657) (1,589)
Decrease (increase) in other long-term assets 100 (24)
Increase in pension assets (142) (17)
Proceeds from sales of assets 72 106
------ ------
Net cash used in investing activities (2,627) (1,524)
------ ------
Cash flows from financing activities
Repayments of debt (1,512) (6,100)
Proceeds from borrowings 2,721 -
Exercised stock options 42 -
Dividends paid (323) (321)
Capital contributions from minority partner 980 490
Tax benefit on dividends paid to ESOT - 7
------ ------
Net cash provided by (used in) financing activities 1,908 (5,924)
------ ------
Effect of exchange rate changes (205) (311)
------ ------
Net decrease in cash and cash equivalents (125) (6,154)
Cash and cash equivalents at beginning of year 3,701 9,477
------ ------
Cash and cash equivalents at end of period $ 3,576 $ 3,323
====== ======
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
A. P. GREEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. MANAGEMENT'S COMMENTS REGARDING ADJUSTMENTS AND RESULTS OF OPERATIONS
---------------------------------------------------------------------
In the opinion of management, the accompanying consolidated financial
statements include all adjustments of a normal and recurring nature
necessary for a fair presentation of the financial position and results
of operations for the periods presented. These financial statements
should be read in conjunction with the Company's Annual Report on Form
10- K for the year ended December 31, 1997. The results for the quarter
ended March 31, 1998 are not necessarily indicative of the results
which may occur for the full year. Certain prior year amounts have been
reclassified to conform to the 1998 presentation.
2. RESERVES FOR PLANT CLOSINGS
---------------------------
The Company has reserves for estimated exit costs and termination
benefits in connection with the shutdown of certain facilities in the
U.S. and Canada. Three of the plants acquired in the 1994 acquisition
of the refractories assets of General Refractories Company and its
affiliated companies (General) were closed during 1994, a $3.6 million
reserve for which was established at the time of acquisition and
included on the opening balance sheet. During 1995 this reserve was
increased by approximately $700,000 due to the closing of the Weston,
Ontario plant, which was sold in December 1995, and revised estimates
of U. S. employee termination benefits resulting from the sale of these
facilities taking longer than anticipated. Substantially all employees
at these facilities have been terminated and approximately $3.2 million
of termination benefits and plant closing costs have been charged
against the reserves to date. Two of the U.S. facilities were sold
during 1997 and the third is held for sale at its estimated net
realizable value.
3. EARNINGS PER SHARE
------------------
The following is a reconciliation of shares outstanding used in the
computation of basic and diluted earnings per share for the three
months ended March 31, 1998 and 1997:
-----------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------
Weighted average number of
common shares - basic 8,068,563 8,023,220
Effect of dilutive securities
Employee stock options 470,303 147,814
Other 8,375 -
-----------------------------------------------------------------------
Weighted average number of
common shares - diluted 8,547,241 8,171,034
=======================================================================
-5-
<PAGE>
Net earnings used in both earnings per share calculations were the
same, as there would be no income effects related to the dilutive
securities. Options to purchase 184,500 shares and 30,000 shares at
$9.17 and $9.32 per share, respectively, were excluded from the March
31, 1997 diluted earnings per share computation as their inclusion
would have been antidilutive. Options to purchase 82,500 shares at
$6.17 per share were not included in the computation of the diluted
earnings per share for March 31, 1997 as the options were not yet
exercisable under the terms of the February 1993 option grant. These
options became exercisable during the fourth quarter of 1997 when the
last transaction price of the Company's common stock equaled or
exceeded $11.00 for 30 consecutive trading days. In addition, options
to purchase 120,428 shares at $8.75 per share were excluded from the
March 31, 1997 diluted earnings per share computation as they were not
exercisable under the terms of the February 1997 option grant until
August 1997.
4. INVENTORIES
-----------
March 31, 1998 December 31, 1997
-------------- -----------------
Finished goods & work-in-process
Valued at LIFO:
FIFO cost $33,925 $31,621
Less LIFO reserve (13,991) (13,947)
------ ------
LIFO cost 19,934 17,674
Valued at FIFO 12,159 10,683
------ ------
TOTAL 32,093 28,357
------ ------
Raw materials and supplies
Valued at LIFO:
FIFO cost 18,226 18,408
Less LIFO reserve (5,476) (5,698)
------ ------
LIFO cost 12,750 12,710
Valued at FIFO 12,312 12,638
------ ------
TOTAL 25,062 25,348
------ ------
$57,155 $53,705
====== ======
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<PAGE>
5. LITIGATION
----------
Asbestos-related claims - Personal Injury
-----------------------------------------
A. P. Green is among numerous defendants in lawsuits pending as of
March 31, 1998 that seek to recover compensatory and, in many cases,
punitive damages for personal injury allegedly resulting from exposure
to asbestos-containing products.
A. P. Green is a member of the Center for Claims Resolution (the
Center), an organization of twenty companies (Members) who were
formerly distributors or manufacturers of asbestos-containing products.
The Center administers, evaluates, settles, pays and defends all of the
asbestos-related personal injury lawsuits involving its Members. Under
the terms of the Center Agreement, each Member's portion of the
liability payments and defense costs are based upon, among other
things, the numbers and types of claims brought against it.
Claims activity for the Company for each of the years ended December 31, 1997,
1996 and 1995, based upon information provided by the Center, was as follows:
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------
Claims pending at January 1 58,885 48,367 50,920
Claims filed 24,024 29,702 12,560
Cases settled, dismissed or
otherwise resolved (10,709) (19,184) (15,113)
------- ------- -------
Claims pending at December 31 72,200 58,885 48,367
======= ======= =======
Average settlement amount per claim(1) $ 1,611 $ 1,582 $ 1,778
================================================================================
(1)Substantially all settlements are covered by the Company's insurance program.
On January 15, 1993, the Members were named as defendants in a class
action lawsuit brought on behalf of all persons who have been
occupationally exposed to asbestos-containing products of the Members
and who have unasserted claims for such exposure (the Class) pursuant
to Federal Rule of Civil Procedure 23(b)(3) in the Federal District
Court for the Eastern District of Pennsylvania. At the same time, a
settlement (the Settlement) between the Members and the Class was filed
with the Court. On June 25, 1997, after a favorable ruling in the
Federal District Court for the Eastern District of Pennsylvania and a
reversal of that ruling by the Third Circuit Court of Appeals, the
United States Supreme Court upheld the ruling of the Third Circuit. The
result of such ruling is that the class action lawsuit and the
Settlement are of no effect.
-7-
<PAGE>
As the Settlement established a numerical cap on the number of claims
that could be processed each year during the ten years of the
Settlement and because the Settlement provided for a range of payments
for different disease categories, it was possible to estimate the
aggregate amount of liability for the Company through 2004 and related
insurance recoveries. Without the Settlement the Company can only
estimate the liability and related insurance recoveries associated with
known claims. As such, the amounts reported for projected asbestos
claims and projected insurance recovery on asbestos claims as of March
31, 1998 and December 31, 1997 reflect only those claims known to have
been filed as of that date. In order to arrive at these projected
amounts, the Company also reviewed its insurance policies and
historical settlement amounts. This resulted in an increase in both
projected asbestos claims and projected insurance recovery on asbestos
claims of $43.5 million during the first quarter of 1998. There was no
effect on the consolidated earnings of the Company. These balances are
expected to fluctuate from quarter to quarter as claims are filed and
settled. The volume of claims settled by the Center on a quarterly
basis can vary considerably. The projected asbestos claims and
projected insurance recovery on asbestos claims are reduced each month
by claim payments made directly to the Center by the Company's
insurance carriers, which totaled $5.1 million during the first quarter
of 1998.
Management anticipates that the Company's insurance carriers will make
all required payments for these claims. While management understands
the inherent uncertainty in litigation of this type and the possibility
that past costs may not be indicative of future costs, management does
not believe that these claims and cases will have any additional
material adverse effect on the Company's consolidated financial
position or results of operations.
In December 1996, the Company and a former subsidiary, The E. J.
Bartells Company, reached a comprehensive settlement agreement with all
insurance carriers except one. Under the terms of this settlement
agreement, such carriers have agreed to pay (subject to applicable
policy limits) on behalf of the insureds, liabilities arising out of
asbestos personal injury claims. The Company is pursuing its claim for
coverage against the non-settling carrier.
In addition to asbestos-related personal injury claims asserted against
A. P. Green, a number of claims have been asserted against
Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a
subsidiary of the Company. These claims have been and are currently
being handled by several of such subsidiary's insurance carriers. On
January 29, 1998, Great American Insurance Company and American
National Fire Insurance Company, two of such carriers, filed a lawsuit
in the United States District Court for the Southern District of Ohio
against certain of such subsidiary's insurance carriers and such
subsidiary seeking (1) a determination of the rights and obligations of
all of the parties under such policies and (2) contribution for amounts
of indemnity costs previously paid. While it is not possible to predict
the outcome of such suit, management believes that such
-8-
<PAGE>
subsidiary will prevail in its position that all of such carriers are
obligated to pay (subject to applicable policy limits) liabilities
arising out of asbestos personal injury claims on behalf of the
insured.
Asbestos-related Claims - Property Damage
-----------------------------------------
A. P. Green is also among numerous defendants in a property damage
class action suit pending in South Carolina. A. P. Green previously has
been dismissed from a number of property damage cases and believes that
it should be dismissed from the South Carolina case based on the end
uses of its products. A similar suit pending in the State of Oregon
involves a former wholly owned subsidiary of the Company and is being
defended by the Company's insurance carrier. Based upon the Company's
history in these asbestos-related property damage claims, management
does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's consolidated financial
position or results of operations.
Environmental
-------------
The EPA or other private parties have named the Company or one of its
subsidiaries as a potentially responsible party in connection with two
superfund sites in the United States. The Company is a de minimis party
with respect to one of the sites and expects to arrive at a settlement
agreement and consent decree with respect to it for an amount which is
not expected to be material. With respect to the second, involving a
wholly owned subsidiary of the Company, there does not appear to be any
evidence of delivery to the site of hazardous material by the
subsidiary. An estimate has been made of the costs to be incurred in
these matters and the Company has recorded a reserve respecting those
costs.
Tender Offer
------------
On March 6, 1998, a lawsuit was filed in the Court of Chancery in the
State of Delaware seeking to enjoin the tender offer by Global
Industrial Technologies, Inc. (Global) and BGN Acquisition Corp. to
purchase all outstanding shares of the Company's common stock. See Note
7 for further discussion of the tender offer and lawsuit.
Other
-----
From time to time, A. P. Green is subject to claims and other lawsuits
that arise in the ordinary course of business, some of which may seek
damages in substantial amounts, including punitive or extraordinary
damages. Reserves for these claims and lawsuits are recorded to the
extent that losses are deemed probable and are estimable. In the
opinion of management, the disposition of all current claims and
lawsuits will not have a material adverse effect on the consolidated
financial position or results of operations of A. P. Green.
-9-
<PAGE>
6. COMPREHENSIVE INCOME
--------------------
Total comprehensive income for the three months ended March 31, 1998
and 1997 was $430,000 and $332,000, respectively. In addition to net
income, comprehensive income for 1998 and 1997 included $206,000 and
$311,000, respectively, of foreign currency translation adjustments.
The Company also maintains a minimum pension liability adjustment as a
component of stockholders' equity, the balance of which did not change
during the first quarter of 1998 or 1997.
7. PENDING ACQUISITION OF THE COMPANY
----------------------------------
On March 3, 1998, the Company entered into an Agreement and Plan of
Merger with Global Industrial Technologies, Inc. and BGN Acquisition
Corp. The Agreement and Plan of Merger calls for, among other things,
Global to purchase for cash all outstanding shares of the Company at
$22.00 per share, or approximately $195.0 million, plus the assumption
of $23.0 million of net debt. The transaction, which will be effected
by means of a tender offer, followed by a merger, if required, has been
approved by the Boards of Directors of both companies and, subject to
regulatory approval, is expected to be completed during the second
quarter of 1998. Global is a manufacturer of technologically advanced
industrial products that support high-growth markets around the world.
Its subsidiary, Harbison-Walker Refractories Company, operates 15
refractory plants in five countries, including the United States,
Canada, Mexico, Chile and Germany.
On March 6, 1998, a lawsuit was filed against the Company, Global, BGN
Acquisition Corp. and the directors of the Company in the Court of
Chancery in the State of Delaware seeking to enjoin the tender offer
and alleging, among other things, that the stockholders of the Company
are not receiving fair and adequate consideration for their shares. The
Company has entered into an agreement in principle to settle the
lawsuit whereby, subject to the negotiation and execution of definitive
agreements, including mutually acceptable releases, (i) the Company
mailed to the stockholders of the Company on March 24, 1998 a
supplemental disclosure statement on Schedule 14D-9 containing certain
additional financial information and projections and (ii) Global will
reimburse the plaintiff in the lawsuit for attorneys' fees and
expenses, as awarded by the Court, up to an aggregate amount of
$180,000. The lawsuit and/or settlement thereof is not expected to have
any impact on the transactions contemplated by the Agreement and Plan
of Merger.
-10-
<PAGE>
A. P. GREEN INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
- ---------------------
Total sales increased 1.5% to $65.8 million for the three months ended
March 31, 1998 from $64.8 million for the comparable 1997 three-month
period. Gross profit increased 7.5% to $11.6 million from $10.8 million
for the comparable periods.
Refractory Products and Services
--------------------------------
Refractory products and services sales declined slightly to $53.1
million for the three-month period ended March 31, 1998 from $53.5
million for the three-month period ended March 31, 1997. United States
refractory sales declined 2.9% to $44.2 million from $45.5 million for
the comparable three-month periods. Declines in brick, specialties,
INTOGREEN products and precast shapes volumes were partially offset by
increases in ceramic fiber and Lanxide ThermoComposites, Inc. (LTI)
products for a net volume decline of 10.8%. Prices increased an average
of 3.9% across all product lines except specialties. U.S. export sales
declined 8.8% to $4.0 million from $4.4 million, primarily due to
reduced sales to the Far East as a result of the economic difficulties
being experienced in that region.
Sales of the Canadian subsidiary increased 21.5% to $6.5 million for
the three months ended March 31, 1998 from $5.4 million for the
comparable 1997 period. Increases in brick and specialties volumes were
partially offset by decreases in ceramic fiber, crucible and precast
shape volumes, resulting in an overall volume increase of 9.2%. Price
increases for specialties and ceramic fibers were partially offset by
price reductions for brick, crucibles and pre-cast shapes resulting in
an overall price increase of 2.4%.
Gross profit at the Canadian subsidiary declined 28.4% primarily as a
result of lower production volumes causing reduced production
efficiencies. This lower gross profit was offset by reduced selling and
administrative expenses, resulting in a pre-tax loss of $35,000 for the
first quarter of 1998 compared to $74,000 in 1997.
Sales in the United Kingdom increased 13.2% to $2.5 million for the
three months ended March 31, 1998 from $2.2 million for the comparable
1997 quarter. The sales increase contributed to pre-tax earnings of
$67,000 for the first quarter of 1998 compared to a pre-tax loss of
$31,000 in the comparable 1997 period.
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<PAGE>
Sales at A. P. Green de Mexico for the first quarter of 1998 decreased
4.9% to $2.3 million from $2.4 million for the comparable 1997 period.
Reduced raw material, freight and royalty costs and improved production
efficiencies resulted in an improvement in the gross profit percentage
to 31.7% from 22.4%, which contributed to an increase in pre-tax
earnings to $258,000 from $218,000.
Sales at PT AP Green Indonesia were up 51.7% to $179,000 for the first
quarter of 1998 compared to $118,000 for the comparable 1997 period.
The pre-tax loss of $417,000 for 1998 compared to $238,000 for 1997,
reflecting higher administrative costs as a percentage of sales,
increased financing costs and higher currency translation costs in 1998
compared to 1997. Utilizing the U.S. dollar as its primary trading
currency has limited the currency translation exposure of the
Indonesian subsidiary. However, the significant deterioration of
economic conditions in Indonesia and the Far East region has resulted
in sales growth being slower than planned, extending the time period
anticipated for the operation to achieve profitability.
Refractory cost of sales as a percentage of sales declined to 82.5%
from 83.6% for the three months ended March 31, 1998 and 1997,
respectively. This reduction was primarily due to reduced raw material
and workers' compensation costs and improved production efficiencies,
partially offset by higher group health insurance expenses. Refractory
operating profits improved 6.7% to $2.0 million from $1.9 million in
1998 and 1997, respectively, primarily due to the gross profit
improvement.
Industrial Lime
---------------
Industrial lime sales increased 11.7% to $12.8 million for the first
quarter of 1998 from $11.4 million for the first quarter of 1997.
Volumes at the New Braunfels, Texas plant increased an average of
10.1%, with increases in road stabilization and building lime partially
offset with reduced volume of industrial lime. Prices were 1.1% higher
at New Braunfels for the comparable quarters, with an increase in
industrial lime prices and flat pricing for building lime partially
offset with reduced road stabilization prices. At the Kimballton,
Virginia plant a decline in quicklime volume was partially offset by an
improvement in Cal-Dol volume, while hydrate volumes were unchanged,
for an overall decline of 0.9%. Average selling prices were flat for
the comparable periods at the Kimballton plant. Volume at the
Ripplemead plant increased 36.5%, with the largest increase coming from
quicklime, while prices increased an average of 2.7% across all product
lines.
Industrial lime gross profit was $2.3 million for the first quarter of
1998 compared to $2.0 million for the first quarter of 1997, an
increase of 12.5%, with the gross profit percentage increasing slightly
to 18.0% of sales in 1998 from 17.9% of sales in 1997. The improvement
in gross profit percentage was due to improved production efficiencies
and reduced workers' compensation expense at the New Braunfels plant.
Operating profit increased to $1.9 million in 1998 compared to $1.8
million in 1997 as a result of the improvement in gross profit,
-12-
<PAGE>
partially offset by professional fees associated with Palmetto Lime
which did not qualify for capitalization.
Expenses and Other Income
-------------------------
Selling and administrative expenses increased 8.1% to $10.0 million for
the three-month period ended March 31, 1998 from $9.2 million for the
comparable 1997 period. The increase was primarily due to a general
increase in salary levels and increased professional fees, travel and
group insurance costs, partially offset by reductions in the provision
for losses on accounts receivable and LTI research expenditures.
Interest expense decreased 18.3% to $682,000 in 1998 from $834,000 in
1997, primarily due to a reduction in the debt outstanding associated
with the General acquisition. Daily average bank line borrowings were
approximately $3.5 million during the first quarter of 1998, compared
to $4.2 million during the first quarter of 1997. Interest income for
the first quarter of 1998 was $233,000 compared to $247,000 for the
first quarter of 1997. The reduction was due primarily to reduced funds
available for investing. Other expense of $248,000 for the three months
ended March 31, 1998 compared to other income of $66,000 for the
comparable 1997 period, primarily due to acquisition due diligence
expenditures and costs associated with the pending sale of the Company.
The Company and its Canadian and U.K. subsidiaries typically transact
business in their own currencies and accordingly are not subject to
significant currency transaction gains and losses. A. P. Green de
Mexico and PT AP Green Indonesia transact a significant portion of
their business in U.S. dollars and, as such, use the dollar as their
functional currency. This results in currency conversion gains and
losses on Mexican peso and Indonesian rupiah transactions, A. P.
Green's portion of which was not significant to the consolidated
results. The decline in value of the Indonesian rupiah is not expected
to significantly increase the Indonesian subsidiary's currency
exposure.
Income Taxes
------------
The effective tax rate for the three months ended March 31, 1998 was
44.5% compared to 33.9% for the comparable 1997 period. The increase in
the effective tax rate was due primarily to establishment of a
valuation allowance for part of the 1996 net operating loss
carryforward from Indonesia due to a relatively short five-year
carryforward period. Also contributing to the higher effective rate in
1998 were non-deductible travel and entertainment expenses which were
higher during the first quarter of 1998 than in the comparable 1997
period.
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<PAGE>
Equity in Net Income of Affiliates
----------------------------------
The Company's share of income from its two Colombian affiliates was
$66,000 in the first quarter of 1998 compared to $15,000 for the first
quarter of 1997. The income recorded during the first quarter of 1997
does not include adjustments necessary to translate the Colombian
financial statements to U.S. accounting principles and, as such, is not
comparable to the income recorded during the first quarter of 1998. Had
the full year adjustment for 1997, which could not be reasonably
estimated or recorded until December 1997, been recorded evenly during
1997, the Company's share of Colombian earnings during the first
quarter of 1997 would have been approximately $85,000.
Accounting Standards Not Yet Implemented
----------------------------------------
In June 1997 the Financial Accounting Standards Board issued Statement
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which the Company is required to implement for the year
ended December 31, 1998. Although the implementation of this statement
is not required for interim periods and will have no impact on the
financial results of the Company, it is assessing the impact on the
disclosures provided in the annual report.
Forward-Looking Information
---------------------------
The statements contained in Management's Discussion and Analysis
concerning the Company's future revenues, profitability, financial
resources, product mix, market demand and product development are
forward-looking statements made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995. The Company's
actual results in the future may differ materially from those projected
in the forward-looking statements due to risks and uncertainties that
exist in the Company's operations and business environment including,
but not limited to: delivery delays or defaults by customers; domestic
and international market conditions; performance issues with key
suppliers and contractors; the Company's successful execution of
internal operating plans; and collective bargaining labor disputes.
-14-
<PAGE>
INDUSTRY SEGMENTS
(In thousands)
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
Net Sales
Refractory products and services $ 53,072 $ 53,497
Industrial lime 12,760 11,429
Intersegment eliminations (70) (110)
--------- ---------
$ 65,762 $ 64,816
========= =========
Gross Profit
Refractory products and services $ 9,312 $ 8,759
Industrial lime 2,298 2,043
--------- ---------
$ 11,610 $ 10,802
========= =========
Gross Profit Percentage
Refractory products and services 17.5% 16.4%
Industrial lime 18.0% 17.9%
17.7% 16.7%
========= =========
Operating Profit
Refractory products and services $ 2,044 $ 2,039
Industrial lime 1,872 1,766
--------- ---------
3,916 3,681
--------- ---------
Other Charges to Income
General corporate expenses, net 2,294 2,039
Interest expense 682 834
Interest income (233) (247)
--------- ---------
Total other charges 2,743 2,626
--------- ---------
Earnings Before Income Taxes $ 1,173 $ 1,055
========= =========
Identifiable Assets (at period end)
Refractory products and services $ 327,172 $ 292,461
Industrial lime 61,223 59,021
Corporate 5,306 4,484
--------- ---------
$ 393,701 $ 355,966
========= =========
-15-
<PAGE>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
Depreciation, Depletion and Amortization
Refractory products and services $1,823 $1,770
Industrial lime 1,026 1,074
Corporate 153 155
------ ------
$3,002 $2,999
====== ======
Capital Expenditures
Refractory products and services $1,388 $1,116
Industrial lime 1,224 347
Corporate 45 126
------ ------
$2,657 $1,589
====== ======
GEOGRAPHIC SEGMENTS
(In thousands)
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
Net Sales
United States $ 56,915 $ 56,939
Canada 6,530 5,375
United Kingdom 2,501 2,210
Mexico 2,286 2,404
Far East 179 118
Intersegment transfers (primarily U.S.) (2,649) (2,230)
-------- --------
$ 65,762 $ 64,816
======== ========
Earnings (Loss) Before Income Taxes
United States $ 1,300 $ 1,180
Canada (35) (74)
United Kingdom 67 (31)
Mexico 258 218
Far East (417) (238)
-------- --------
$ 1,173 $ 1,055
======== ========
-16-
<PAGE>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
Identifiable Assets (at period end)
United States $348,266 $315,349
Canada 17,254 16,961
United Kingdom 4,487 4,694
Mexico 6,440 6,949
Far East 11,948 7,346
Corporate 5,306 4,667
-------- --------
$393,701 $355,966
======== ========
PRICE/VOLUME SUMMARY
1998 AS COMPARED TO 1997
PERCENT INCREASE (DECREASE)
Three
Months
Ended
March 31, 1998
--------------
U. S. Refractory Products Sales
Volume (10.8)%
Price 3.9
Industrial Lime Sales
Volume 10.4
Price 1.1
-17-
<PAGE>
FINANCIAL CONDITION
-------------------
The Company continues to maintain a strong balance sheet.
Summary Information
(Dollars in thousands)
March 31,
---------------------------- December 31,
1998 1997 1997
-------- -------- --------
Working capital $ 71,013 $ 69,591 $ 68,568
Current ratio 2.7:1 2.6:1 2.5:1
Total assets $393,701 $355,966 $357,714
Current maturities of
long-term debt 6,006 4,145 5,716
Long-term debt 31,953 34,736 31,034
Stockholders' equity $124,735 $117,758 $124,535
Debt to total
capitalization(1) 23.3% 24.8% 22.8%
(1) Calculated as total Debt (long-term debt including current
maturities) divided by total stockholders' equity plus total Debt.
Working capital increased $2.4 million from December 31, 1997 to March
31, 1998, while the ratio of current assets to current liabilities
increased to 2.7 to 1 from 2.5 to 1 during the same period. The working
capital increase was primarily due to a $3.5 million increase in
inventories and a $3.6 million reduction in accounts payable and other
accrued expenses, partially offset by a $4.2 million reduction in
accounts receivable as a result of lower sales in March 1998 as
compared to December 1997. Working capital increased $1.4 million as
compared to March 31, 1997, primarily due to a $3.9 million decrease in
accounts payable and other accrued expenses, partially offset by a $1.9
million increase in current maturities of long-term debt.
The increase in inventories during the first quarter of 1998 was
primarily due to market conditions being slower than anticipated in the
U.S. and Canada, as well as an increase in raw materials inventories in
the U.K. as a result of favorable pricing. The decline in accounts
payable and other accrued expenses since December 31, 1997 and March
31,
-18-
<PAGE>
1997 was primarily due to reduced purchases of materials and supplies
and reductions in stockholder reporting and similar reserves required
as a public company but which will no longer be required subsequent to
the pending acquisition of the Company. The increase in current
maturities of long-term debt since March 31, 1997 was primarily due to
a $2.5 million reclassification from long-term debt for a scheduled
increase in the payment due against the unsecured notes payable,
partially offset by a $1.0 million final payment on an industrial
development revenue bond at the Bessemer, Alabama plant in December
1997.
Projected asbestos claims and projected insurance recovery on asbestos
claims both increased $38.5 million since December 31, 1997 and $36.4
million since March 31, 1997 as a result of revised estimates based
upon information provided by the Center, net of payments made by the
Company's insurance carriers. All payments of asbestos claims are now
and will continue to be made directly to the Center by the insurance
carriers.
Capital expenditures for the first quarter of 1998 totaled $2.7 million
compared to $1.6 million during the first quarter of 1997, with capital
expenditures for the industrial lime business increasing approximately
$900,000 due to breaking ground on the new Palmetto Lime facility in
Charleston, South Carolina.
PENDING ACQUISITION OF THE COMPANY
----------------------------------
On March 3, 1998, the Company entered into an Agreement and Plan of
Merger with Global Industrial Technologies, Inc. and BGN Acquisition
Corp. The Agreement and Plan of Merger calls for, among other things,
Global to purchase for cash all outstanding shares of the Company at
$22.00 per share, or approximately $195.0 million, plus the assumption
of $23.0 million of net debt. The transaction, which will be effected
by means of a tender offer, followed by a merger, if required, has been
approved by the Boards of Directors of both companies and, subject to
regulatory approval, is expected to be completed during the second
quarter of 1998. Global is a manufacturer of technologically advanced
industrial products that support high-growth markets around the world.
Its subsidiary, Harbison-Walker Refractories Company, operates 15
refractory plants in five countries, including the United States,
Canada, Mexico, Chile and Germany.
On March 6, 1998, a lawsuit was filed against the Company, Global, BGN
Acquisition Corp. and the directors of the Company in the Court of
Chancery in the State of Delaware seeking to enjoin the tender offer
and alleging, among other things, that the stockholders of the Company
are not receiving fair and adequate consideration for their shares. The
Company has entered into an agreement in principle to settle the
lawsuit whereby, subject to the negotiation and execution of definitive
agreements, including mutually acceptable releases, (i) the Company
mailed to the stockholders of the Company on March 24, 1998 a
supplemental disclosure statement on Schedule 14D-9 containing certain
additional financial information and projections and (ii) Global will
reimburse the plaintiff in the lawsuit for attorneys' fees and
expenses, as awarded by the Court, up to an aggregate amount of
-19-
<PAGE>
$180,000. The lawsuit and/or settlement thereof is not expected to have
any impact on the transactions contemplated by the Agreement and Plan
of Merger.
-20-
<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 Three Months Ended
March 31, 1998
(b) Reports on Form 8-K: On January 6, 1998 the Company filed Form 8-K
to report, under Item 5,a dividend distribution of one Preferred
Stock Purchase Right for each outstanding share of common stock of
the Company, payable to shareholders of record at the close of
business on January 7, 1998.
On March 17, 1998 the Company filed Form 8-K to report, under Item
5, that it had entered into an Agreement and Plan of Merger with
Global Industrial Technologies, Inc. and BGN Acquisition Corp.
-21-
<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: May 13, 1998
------------
-22-
<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
THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,576
<SECURITIES> 0
<RECEIVABLES> 46,028
<ALLOWANCES> 1,509
<INVENTORY> 57,155
<CURRENT-ASSETS> 113,505
<PP&E> 107,073
<DEPRECIATION> 0
<TOTAL-ASSETS> 393,701
<CURRENT-LIABILITIES> 42,492
<BONDS> 37,959
0
0
<COMMON> 9,024
<OTHER-SE> 115,711
<TOTAL-LIABILITY-AND-EQUITY> 393,701
<SALES> 65,762
<TOTAL-REVENUES> 65,762
<CGS> 54,152
<TOTAL-COSTS> 54,152
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 682
<INCOME-PRETAX> 1,173
<INCOME-TAX> 523
<INCOME-CONTINUING> 636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 636
<EPS-PRIMARY> .08
<EPS-DILUTED> .07
</TABLE>
