0000826619-95-000014.txt : 19950815 0000826619-95-000014.hdr.sgml : 19950815 ACCESSION NUMBER: 0000826619-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN A P INDUSTRIES INC CENTRAL INDEX KEY: 0000826619 STANDARD INDUSTRIAL CLASSIFICATION: STRUCTURAL CLAY PRODUCTS [3250] IRS NUMBER: 430899374 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16452 FILM NUMBER: 95563803 BUSINESS ADDRESS: STREET 1: GREEN BLVD CITY: MEXICO STATE: MO ZIP: 65265 BUSINESS PHONE: 3144733626 FORMER COMPANY: FORMER CONFORMED NAME: A P GREEN INDUSTRIES INC DATE OF NAME CHANGE: 19900619 10-Q 1 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 June 30, 1995 Commission File No. 0-16452 ------------- ------- A. P. GREEN INDUSTRIES, INC. ---------------------------- (Exact name of registrant as specified in its charter) Delaware 43-0899374 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Green Boulevard, Mexico, Missouri 65265 --------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 473-3626 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- -- Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: As of August 14, 1995, 4,028,532 shares of Common Stock, $1 par value, were outstanding. Page 1 of 23 A. P. GREEN INDUSTRIES, INC. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) June 30, December 31, 1995 1994 -------- ------------- (Dollars in thousands, except per share data) ASSETS Current Assets Cash and cash equivalents $ 10,606 $ 9,637 Receivables (net of allowances - 1995, $2,032; 1994, $1,992) 44,603 43,728 Reimbursement due on paid asbestos claims 5,510 11,475 Inventories 51,102 53,452 Projected insurance recovery on asbestos claims 35,540 35,540 Deferred income tax benefit 4,685 5,355 Other 5,800 4,965 -------- -------- Total current assets 157,846 164,152 Property, plant and equipment, net 93,713 95,412 Non-current projected insurance recovery on asbestos claims 77,972 97,344 Long-term pensions 9,219 9,166 Other assets 6,841 7,048 -------- -------- Total assets $345,591 $373,122 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 14,938 $ 22,874 Accrued expenses Payrolls 6,118 6,044 Taxes other than on income 2,113 1,961 Insurance reserves 5,746 6,995 Current portion of projected asbestos claims 35,794 35,793 Other 9,702 10,650 Current maturities of long-term debt 152 139 Income taxes 795 1,384 -------- -------- Total current liabilities 75,358 85,840 Deferred income taxes 14,102 15,677 Long-term non-pension benefits 15,455 15,270 Long-term pensions 12,714 12,472 Long-term debt 36,945 37,023 Non-current projected asbestos claims 79,881 99,802 -------- -------- Total liabilities 234,455 266,084 -------- -------- Minority interest 93 - Stockholders' Equity Preferred stock - $1 par value; authorized: 2,000,000 shares; issued and outstanding: none - - Common stock - $1 par value; authorized: 10,000,000 shares; issued: 4,476,879 in 1995 and 4,475,629 in 1994 4,477 4,476 Additional paid-in capital 72,761 72,739 Retained earnings 52,925 49,279 Less: Deferred currency translation (2,096) (2,428) Treasury stock of 448,347 shares, at cost (9,003) (9,003) Note receivable - ESOT (8,021) (8,021) Deferred compensation-restricted stock - (4) -------- -------- Total stockholders' equity 111,043 107,038 -------- -------- Total liabilities and stockholders' equity $345,591 $373,122 ======== ======== See accompanying notes to consolidated financial statements. -2- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three months ended June 30, (Dollars in thousands, --------------------------- except per share data) 1995 1994 ---- ---- Net sales $ 64,315 $ 40,849 Cost of sales 54,356 33,397 --------- --------- Gross profit 9,959 7,452 Expenses and other income Selling & administrative expenses 7,692 5,776 Interest expense 798 257 Interest income (388) (325) Minority interest in losses of consolidated subsidiary (27) - Other income, net (58) (247) --------- --------- Earnings before income taxes 1,942 1,991 Income tax expense (benefit) (398) 635 Equity in net income of affiliates 166 - --------- --------- Net earnings $ 2,506 $ 1,356 ========= ========= Net earnings per common share $ 0.62 $ 0.34 ========= ========= Weighted average number of common shares 4,028,532 4,027,282 ========= ========= Dividends per common share $ 0.07 $ 0.06 ========= ========= See accompanying notes to consolidated financial statements. -3- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Six months ended June 30, (Dollars in thousands, ------------------------- except per share data) 1995 1994 ---- ---- Net sales $ 126,204 $ 78,352 Cost of sales 105,807 64,794 --------- --------- Gross profit 20,397 13,558 Expenses and other income Selling & administrative expenses 15,659 11,745 Interest expense 1,590 520 Interest income (710) (643) Minority interest in losses of consolidated subsidiary (27) - Other income, net (262) (600) --------- --------- Earnings before income taxes and cumulative effect of an accounting change 4,147 2,536 Income tax expense 359 744 Equity in net income of affiliates 406 - --------- --------- Earnings before cumulative effect of an accounting change 4,194 1,792 Cumulative effect of an accounting change Postemployment benefits, net of tax - (255) --------- --------- Net earnings $ 4,194 $ 1,537 ========= ========= Earnings per common share before cumulative effect of an accounting change $ 1.04 $ 0.44 Cumulative effect of an accounting change Postemployment benefits, net of tax - (0.06) --------- --------- Net earnings per common share $ 1.04 $ 0.38 ========= ========= Weighted average number of common shares 4,028,332 4,022,329 ========= ========= Dividends per common share $ 0.14 $ 0.12 ========= ========= See accompanying notes to consolidated financial statements. -4- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, ------------------------- (Dollars in thousands) 1995 1994 ---- ---- Cash flows from operating activities Net earnings $ 4,194 $ 1,537 Adjustments for items not requiring cash Cumulative effect of an accounting change- Postemployment benefits, net of tax - 255 Equity in undistributed earnings of affiliates (62) - Depreciation, depletion and amortization 4,964 3,930 Deferred compensation earned 4 17 Stock compensation to directors 23 28 Provision for losses on accounts receivable 249 94 Loss (gain) on sale of assets 34 (6) Minority interest in losses of consolidated subsidiary (27) - Decrease (increase) in assets Trade receivables (1,124) 368 Asbestos claim and fee reimbursements received 19,391 14,969 Inventories 2,351 (4,428) Receivable and prepaid taxes - 228 Other current assets (782) (659) Increase (decrease) in liabilities Accounts payable and accrued expenses (9,047) (1,771) Asbestos claims paid (14,834) (21,544) Pensions 242 191 Income taxes (589) (190) Deferred income taxes (906) 152 Long-term non-pension benefits 185 263 -------- -------- Net cash from (used in) operating activities 4,266 (6,566) -------- -------- Cash flows from investing activities Capital expenditures (3,420) (3,322) Decrease in other long-term assets 118 216 Increase in pension assets (53) (231) Proceeds from sales of assets 220 48 -------- -------- Net cash used in investing activities (3,135) (3,289) -------- -------- Cash flows from financing activities Repayments of debt (65) (61) Capital contribution to Intogreen Co. from minority partner 120 - Dividends paid (564) (483) Exercised stock options - 237 Tax benefit on dividends paid to ESOP 15 15 Tax effect on stock plan - (3) -------- -------- Net cash used in financing activities (494) (295) -------- -------- Effect of exchange rate changes 332 (258) -------- -------- Net increase (decrease) in cash and cash equivalents 969 (10,408) Cash and cash equivalents at beginning of year 9,637 16,331 -------- -------- Cash and cash equivalents at end of period $ 10,606 $ 5,923 ======== ======== See accompanying notes to consolidated financial statements. -5- A. P. GREEN INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. MANAGEMENT'S COMMENTS REGARDING ADJUSTMENTS AND RESULTS OF OPERATIONS --------------------------------------------------------------------- In the opinion of management, the accompanying consolidated financial statements include all adjustments of a normal and recurring nature necessary for a fair presentation of the financial position and results of operations for the periods presented. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1994. The results for the quarter ended June 30, 1995 are not necessarily indicative of the results which may occur for the full year. 2. INVENTORIES ----------- June 30, 1995 December 31, 1995 --------------- ----------------- Finished goods & work-in-process Valued at LIFO: FIFO cost $ 34,846 $ 36,233 Less LIFO reserve (14,393) (14,919) -------- -------- LIFO cost 20,453 21,314 Valued at FIFO 9,342 9,033 -------- -------- TOTAL 29,795 30,347 -------- -------- Raw materials and supplies Valued at LIFO: FIFO cost 17,023 20,007 Less LIFO reserve (5,221) (5,875) -------- -------- LIFO cost 11,802 14,132 Valued at FIFO 9,505 8,973 -------- -------- TOTAL 21,307 23,105 -------- -------- $ 51,102 $ 53,452 ======== ======== -6- 3. LITIGATION ---------- Asbestos-related Claims - Personal Injury ----------------------------------------- A. P. Green is among numerous defendants in lawsuits pending as of June 30, 1995 that seek to recover compensatory, and in many cases, punitive damages for personal injury allegedly resulting from exposure to asbestos-containing products manufactured, sold or installed by A. P. Green. A. P. Green is a member of the Center for Claims Resolution (the Center), an organization of twenty companies (Members) who were formerly distributors or manufacturers of asbestos-containing products. The Center administers, evaluates, settles, pays and defends all of the asbestos-related personal injury lawsuits involving its Members. Under the terms of the Center Agreement, each Member's portion of the liability payments and defense costs are based upon, among other things, the number and type of claims brought against it. Claims activity for the Company for each of the years ended December 31, 1994 and 1993 was as follows: ------------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------------- Claims pending at January 1 52,122 50,007 Claims filed 14,836 26,100 Cases settled, dismissed or otherwise resolved (16,038) (23,985) ------- ------- Claims pending at December 31 50,920 52,122 ------- ------- Average settlement amount per claim (1) $ 1,816 $ 1,728 =============================================================================== (1) Substantially all settlements are covered by the Company's insurance program. On January 15, 1993, the Members were named as defendants in a class action lawsuit brought on behalf of all persons who have been occupationally exposed to asbestos-containing products of the Members and who have unasserted claims for such exposure (the Class) pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania. At about the same time, the Center negotiated and filed with the Court a settlement (the Settlement) between the Members and the Class. Under the terms of the Settlement, the Members have agreed to pay compensation to any member of the Class who has, according to objective medical criteria, physical impairment as a result of such exposure. Different levels of compensation will be paid depending on the type and degree of physical impairment. No punitive damages will be paid. The -7- Settlement provides, among other things, for a cap on the number of claims to be processed each year during the next ten years and a range of settlement values for each disease category. Settlement values are based on historical average payments by the Center for similar cases. Each Member will be responsible for its percentage share of each claim payment (no joint and several liability), such shares having been previously established. Hearings were held to determine the fairness of the Settlement and the court ruled that the Settlement was fair. This ruling has been appealed by certain objectors. In a third party action filed simultaneously with the class action (and in parallel Alternate Dispute Resolution proceedings), the Members have asked for a declaratory judgment against their respective insurers that such insurers cannot use the Settlement as a defense to their payment under applicable insurance policies. The Settlement is expressly contingent upon such declaratory relief. In addition, some Members, including A. P. Green, have asked for a declaratory judgment against their insurers with whom they have not reached coverage resolutions. No decision has been rendered at this date with respect to these issues. Under the assumption that it receives these court approvals, the Settlement has provided the Company with a basis for estimating its potential liability and related insurance policies recovery associated with asbestos cases. The Company has reviewed its insurance policies, historical settlement amounts, the number of pending cases and the projected number of claims to be filed pursuant to the Settlement and the Company's share of amounts to be paid thereunder. The Company has also reviewed its contractual liability for the payment of deductibles under certain insurance policies insuring the E. J. Bartells Company (Bartells), a former subsidiary, against asbestos-related personal injury claims, such policies having been issued when Bartells was owned by A. P. Green. Based upon such reviews, the Company has estimated its liability for such cases and claims to be approximately $115.7 million and $135.6 million at June 30, 1995 and December 31, 1994, respectively, with partially offsetting projected insurance reimbursements of approximately $113.5 million and $132.9 million, respectively. While management understands the inherent uncertainty in litigation of this type and the possibility that past costs may not be indicative of future costs, management does not believe that these claims and cases will have any additional material adverse effect on the Company's financial position or results of operations. Management anticipates that payments for these claims will occur over at least ten years and can be made from normal operating cash sources. In addition to asbestos-related personal injury claims asserted against A. P. Green, a number of claims have been asserted against Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a subsidiary of the Company. These claims have been and are currently being handled by such subsidiary's insurance carriers. Except for deductible amounts or retentions provided for under insurance policies, no claim for reimbursement of defense or indemnity payments has been made against the Company or such subsidiary by any such carriers. -8- Asbestos-related Claims - Property Damage ----------------------------------------- A. P. Green is also among numerous defendants in a property damage class action suit pending in South Carolina. A. P. Green previously has been dismissed from a number of property damage cases and believes that it should be dismissed from the South Carolina case based on the end uses of its products. A similar suit pending in the State of Oregon involves a former wholly owned subsidiary of the Company and is being defended by the Company's insurance carrier. Based upon the Company's history in these asbestos-related property damage claims, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. There was no assumption of asbestos-related liability, either personal injury or property damage, in connection with the August 1994 acquisition of the refractories business of General Refractories Company and its affiliated companies (General). Environmental ------------- The EPA or other private parties have named the Company or one of its subsidiaries as a potentially responsible party in connection with two superfund sites in the United States. The Company is a de minimis party with respect to one of the sites and expects to arrive at a settlement agreement and Consent Decree with respect to it for an amount of not more than $10,000. With respect to the second, involving a wholly owned subsidiary of the Company, there does not appear to be any evidence of delivery to the site of hazardous material by the subsidiary. An estimate has been made of the costs to be incurred in these matters and the Company has recorded a reserve respecting those costs. Other ----- A. P. Green is subject to claims and other lawsuits that arise in the ordinary course of business, some of which may seek damages in substantial amounts, including punitive or extraordinary damages. Reserves for these claims and lawsuits are recorded to the extent that losses are deemed probable and are estimable. In the opinion of management, the disposition of all current claims and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of A. P. Green. -9- 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 JUNE 30, 1995 COMPARED TO THREE ------------------------------------------------------------------------------ MONTHS ENDED JUNE 30, 1994 -------------------------- Total sales increased 57.5% to $64.3 million for the three months ended June 30, 1995 from $40.8 million for the comparable 1994 three-month period. Gross profit increased 33.6% to $10.0 million from $7.5 million for the comparable periods. The impact from the August 1994 General acquisition was to increase sales by approximately $16.1 million and gross profit by approximately $1.3 million. Refractory Products and Services -------------------------------- Refractory products and services sales increased 68.2% to $54.3 million for the three months ended June 30, 1995 from $32.3 million for the comparable 1994 period. United States refractory sales were $46.4 million and $28.8 million for the three-month periods ended June 30, 1995 and 1994, respectively, an increase of 61.3%. The impact from the General acquisition was to increase U.S. refractory sales by $13.6 million. Excluding this acquisition impact, U.S. refractory product sales volumes increased an average of 18.6%, with increases in all product lines except ceramic fiber products. Brick and specialty prices were down, partially offset by increases in pricing of ceramic fiber products and cast shapes for a net price decrease of 3.3%. U.S. export sales improved 78.1% to $4.2 million in the second quarter of 1995 from $2.4 million for the second quarter of 1994, largely due to the General acquisition. Sales of the Canadian subsidiary continued to show significant improvement, increasing 99.0% to $7.1 million for the three-month period ended June 30, 1995 from $3.6 million for the comparable 1994 period. The impact from the General acquisition was to increase Canadian sales by $2.9 million. Excluding this impact, volumes increased across all major product lines an average of 8.8%. Price increases for specialties and crucibles were partially offset by declines in brick and ceramic fiber pricing, resulting in an overall price improvement of 2.7%. The Canadian operation generated a pre-tax loss of $107,000 for the second quarter of 1995 compared to pre-tax earnings of $280,000 for the comparable 1994 period. The 1995 loss was due to interest expense of $105,000 on the debt associated with the acquisition of the General operation in Canada and establishment of a reserve of approximately $380,000 for exit costs and termination benefits for 26 employees associated with the closing and sale of the Weston, Ontario plant, which was announced in June 1995. -10- Sales in the United Kingdom (U.K.) doubled to $2.6 million for the second quarter of 1995 from $1.3 million for the comparable 1994 period, reflecting continued improvement in the U.K. market. The sales increase generated pre- tax earnings of $135,000 for the three months ended June 30, 1995 compared to a pre-tax loss of $68,000 for the 1994 period. Refractory products cost of sales as a percentage of sales increased to 86.3% compared to 82.3% for the three months ended June 30, 1995 and 1994, respectively. This increase was primarily due to a higher percentage of lower margin sales to the steel industry at the acquired General facilities, increased raw material costs and equipment maintenance expenses and larger unfavorable brick breakage variances in the U.S. during 1995 compared to 1994, partially offset by improved labor efficiencies and reduced group insurance and workers' compensation costs. Also contributing to the cost increase were increases in the obsolete inventory and U.S. plant shutdown reserves, both of which were established at the time of the General acquisition related to facilities to be closed, as well as establishment of the Canadian plant shutdown reserve previously mentioned. The U.S. plant shutdown reserve was increased approximately $330,000 due primarily to revised estimates of employee termination benefits resulting from the sale of these facilities taking longer than anticipated. Substantially all employees at these facilities have been terminated, and approximately $2.8 million of termination benefits and plant closing costs have been charged against the reserve to date. Refractory operating profits were flat at $2.2 million in both three-month periods due primarily to the reduced gross margins and increased research and selling expenses resulting from the General acquisition. Industrial Lime --------------- Industrial lime sales increased 17.4% to a quarterly record $10.1 million from $8.6 million for the respective second quarters of 1995 and 1994. Volumes increased an average of 17.8% across all product lines at both plants. Price declines across all New Braunfels, Texas product lines and in cal-dol at the Kimballton, Virginia plant were partially offset by increases in quicklime and hydrate at the Kimballton plant for a slight overall price decrease. The gross margins of the Company's industrial lime operations are sensitive to volume changes due to the capital intensive nature of the operations and semi-fixed nature of other costs. As a result of the sales increase, gross profit and operating profit increased 44.0% and 46.7%, respectively. Also contributing to these increases were reduced group insurance, processing fuel and labor costs at both plants, reduced equipment maintenance costs and purchased materials costs at the New Braunfels plant and reduced power costs at the Kimballton plant, partially offset by increased outside processing costs at Kimballton. -11- Expenses and Other Income ------------------------- Selling and administrative expenses increased 33.2% to $7.7 million in the second quarter of 1995 from $5.8 million for the comparable 1994 period. Increases in salaries and related costs, salaried pensions, travel, professional fees and amortization of intangibles were all largely related to the addition of General sales and research personnel and intangible assets included in the acquisition. Also contributing to the increase were an increased provision for losses on accounts receivable, primarily due to the higher sales and accounts receivable levels, and higher management and sales incentive and director retirement plan expenses. Interest expense increased to $798,000 in 1995 from $257,000 in 1994 due to the additional debt associated with the General acquisition. There were no bank line borrowings during either three-month period. Interest income for the second quarter of 1995 increased 19.0% to $387,000 from $325,000 in the comparable 1994 three-month period due to increased funds available for investing and higher interest rates. Other income declined 76.5% for the comparable three-month periods primarily due to a reduction in royalty income resulting from cancellation of a licensing agreement with a significant Mexican licensee during the fourth quarter of 1994. Also contributing to the decrease were a 1994 business interruption insurance recovery and gains on land sales in 1994, partially offset by 1995 currency conversion gains on U.S. dollar denominated debt at the Canadian subsidiary. 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. Income Taxes ------------ During the second quarter of 1995, a review of tax years 1988 through 1993 was completed by the Internal Revenue Service, resulting in a small additional payment to clear those federal tax years. Due to the outcome of this review being more favorable than accrued, the Company reduced its provision for federal income taxes by $1.1 million. Absent that adjustment, the tax rate for the second quarter of 1995 was 34.6% compared to 31.9% for the second quarter of 1994. Equity in Net Income of Affiliates ---------------------------------- The Company's share of income from two Colombian affiliates acquired from General in August 1994 was $166,000 for the three months ended June 30, 1995. -12- RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995 COMPARED TO SIX MONTHS ----------------------------------------------------------------------------- ENDED JUNE 30, 1994 ------------------- Total sales increased 61.1% to $126.2 million for the six months ended June 30, 1995 from $78.4 million for the comparable 1994 six-month period. Gross profit increased 50.4% to $20.4 million from $13.6 million for the comparable periods. The impact from the August 1994 General acquisition was to increase sales by approximately $33.9 million and gross profit by approximately $3.2 million. Refractory Products and Services -------------------------------- Refractory products and services sales were $107.3 million and $61.4 million for the six months ended June 30, 1995 and June 30, 1994, respectively, reflecting an increase of 74.8%. U.S. refractory sales increased 71.8% to $94.1 million for the six months ended June 30, 1995 from $54.8 million for the comparable 1994 period. The impact from the General acquisition was to increase U.S. refractory sales by $29.4 million. Excluding this impact, volumes increased across all product lines an average of 20.6%. Lower brick and specialties prices were partially offset by increases in ceramic fiber and precast shape prices, resulting in an overall price decline of 2.1%. U.S. export sales increased 80.0% to $8.3 million for the six-month period ended June 30, 1995 from $4.6 million for the comparable 1994 period, due largely to the General acquisition. Sales at the Canadian subsidiary increased 93.4% to $12.6 million for the six months ended June 30, 1995 from $6.5 million for the comparable 1994 period, of which $5.2 million was due to the General acquisition. Excluding this acquisition impact, increases in brick, crucible and ceramic fiber volumes were partially offset by declines in precast shape volumes for a net volume increase of 7.6%. Specialties products sales were essentially flat for the comparable six-month periods. Prices increased across all product lines with the exception of ceramic fibers, resulting in an overall price increase of 3.8%. The Canadian operation generated a pre-tax loss of $126,000 for the six months ended June 30, 1995 compared to pre-tax earnings of $217,000 for the comparable 1994 period. The 1995 loss was due to the $380,000 plant closing reserve previously discussed and interest expense of $210,000 on the debt associated with the acquisition of the General operation in Canada. Earnings in 1994 included a pre-tax reserve of approximately $315,000 which was established during the first quarter of 1994 for the cost of Canadian personnel reductions made during that quarter. The United Kingdom market continued to show signs of strength as sales by the U.K. subsidiary increased 64.6% to $4.4 million for the first six months of 1995 from $2.7 million for the first six months of 1994. The sales increase generated pre-tax earnings of $242,000 for the six months ended June 30, 1995 compared to a pre-tax loss of $120,000 for the 1994 period. -13- Refractory products cost of sales as a percentage of sales increased to 85.2% in 1995 from 82.7% in 1994. This increase was primarily due to a higher percentage of lower margin sales to the steel industry at the acquired General facilities, increased costs associated with closed facilities as previously discussed, increased raw material costs and higher unfavorable brick breakage variances. Partially offsetting these increases were improved labor efficiencies and reduced power, processing fuel and group insurance expenses. Refractory operating profits increased 52.3% to $5.1 million from $3.4 million in 1995 and 1994, respectively. Industrial Lime --------------- Industrial lime sales increased 11.6% to $19.0 million from $17.1 million for the six-month periods ended June 30, 1995 and 1994, respectively. Volumes increased across all product lines at both plants for an overall increase of 9.7%. Prices increased an average of 1.7%, with increases in quicklime and hydrate prices at the Kimballton plant partially offset by price declines in Kimballton cal-dol and all product lines at the New Braunfels plant. The gross margins of the Company's industrial lime operations are sensitive to volume changes due to the capital intensive nature of the operations and semi-fixed nature of other costs. As a result of the sales increase, gross profit and operating profit increased 53.2% and 62.7%, respectively. Also contributing to this increase were reduced group insurance, processing fuel and labor costs at both plants, lower equipment maintenance and purchased materials costs at the New Braunfels plant and lower power costs at the Kimballton plant, partially offset by increased clay hauling expense at Kimballton. Production variances at the Kimballton plant also improved in 1995 compared to 1994, when a first quarter weather-related production curtailment of several days was incurred at that facility. Expenses and Other Income ------------------------- Selling and administrative expenses increased 33.3% to $15.7 million in 1995 from $11.7 million in 1994. Increases in salaries and related costs, salaried pensions, travel, office expenses, professional fees and amortization of intangibles were all largely related to the addition of General sales and research personnel and intangible assets included in the acquisition. Also contributing to the increase were an increased provision for losses on accounts receivable, primarily due to the higher sales and accounts receivable levels, and higher management and sales incentive and director retirement plan expenses. Interest expense increased to $1.6 million in 1995 from $520,000 in 1994 due to the additional debt associated with the General acquisition. There were no bank line borrowings during either six-month period. Interest income increased 10.5% due to increased funds available for investing and higher interest rates. Other income decreased 56.4% to $262,000 in 1995 from $600,000 in 1994 due to a reduction in royalty income resulting from -14- cancellation of a licensing agreement with a significant Mexican licensee during the fourth quarter of 1994. Also contributing to the decrease were increased bank charges in 1995 and a business interruption insurance recovery and gains on land sales in 1994 which did not reoccur in 1995, partially offset by 1995 currency conversion gains on U.S. dollar denominated accounts at the Canadian subsidiary compared to losses in 1994. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and accordingly are not subject to significant currency conversion gains and losses. Income Taxes ------------ The 8.7% effective tax rate in 1995 compared to 29.3% in 1994 was due to the $1.1 million tax adjustment previously discussed. Absent that adjustment, the tax rate for the six months ended June 30, 1995 was 34.5% compared to 29.3% for the same period in 1994. Accounting Changes ------------------ The cumulative effect of adopting the Financial Accounting Standards Board Statement No. 112, "Employer's Accounting for Postemployment Benefits," further reduced 1994 net income by $255,000. Equity in Net Income of Affiliates ---------------------------------- The Company's share of income from two Colombian affiliates acquired from General in August 1994 was $406,000 for the six months ended June 30, 1995. -15- INDUSTRY SEGMENTS (In thousands) Six Months Ended June 30, ------------------------- 1995 1994 ---- ---- Net Sales Refractory products and services $107,286 $ 61,370 Industrial lime 19,042 17,062 Intersegment eliminations (124) (80) -------- -------- $126,204 $ 78,352 Gross Profit ======== ======== Refractory products and services $ 15,856 $ 10,594 Industrial lime 4,541 2,964 -------- -------- $ 20,397 $ 13,558 Gross Profit Percentage ======== ======== Refractory products and services 14.8% 17.3% Industrial lime 23.8% 17.4% 16.2% 17.3% Operating Profit ========= ========= Refractory products and services $ 5,105 $ 3,351 Industrial lime 3,960 2,434 -------- -------- 9,065 5,785 Other Charges to Income -------- -------- General corporate expenses, net 4,038 3,372 Interest expense 1,590 520 Interest income (710) (643) -------- -------- Total other charges 4,918 3,249 -------- -------- Earnings Before Income Taxes and Cumulative Effect of an Accounting Change $ 4,147 $ 2,536 ======== ======== Identifiable Assets (at period end) Refractory products and services $284,054 $265,439 Industrial lime 47,286 47,487 Corporate 14,251 10,028 -------- -------- $345,591 $322,954 ======== ======== -16- Six Months Ended June 30, -------------------------- 1995 1994 ---- ---- Depreciation, Depletion and Amortization Refractory products and services $ 3,088 $ 2,104 Industrial lime 1,362 1,344 Corporate 514 482 -------- -------- $ 4,964 $ 3,930 ======== ======== Capital Expenditures Refractory products and services $ 2,635 $ 555 Industrial lime 749 2,300 Corporate 36 467 -------- -------- $ 3,420 $ 3,322 ======== ======== GEOGRAPHIC SEGMENTS (In thousands) Six Months Ended June 30, -------------------------- 1995 1994 ---- ---- Net Sales United States $113,128 $ 71,815 Canada 12,592 6,512 United Kingdom 4,383 2,663 Intersegment transfers (primarily U.S.) (3,899) (2,638) -------- -------- $126,204 $ 78,352 ======== ======== Earnings (Loss) Before Income Taxes and Cumulative Effect of an Accounting Change United States $ 4,031 $ 2,439 Canada (126) 217 United Kingdom 242 (120) -------- -------- $ 4,147 $ 2,536 ======== ======== Identifiable Assets (at period end) United States $308,519 $301,043 Canada 17,588 8,766 United Kingdom 5,051 3,117 Far East 181 - Corporate 14,252 10,028 -------- -------- $345,591 $322,954 ======== ======== -17- PRICE/VOLUME SUMMARY 1995 AS COMPARED TO 1994 PERCENT INCREASE (DECREASE) Three Six Months Months Ended Ended June 30, 1995 June 30, 1995 ------------- ------------- U.S. Refractory Products Sales (excluding impact of General acquisition) Volume 18.6% 20.6% Price (3.3) (2.1) Industrial Lime Sales Volume 17.8 9.7 Price (0.4) 1.7 -18- FINANCIAL CONDITION ------------------- The Company continues to maintain a strong balance sheet. Summary Information (Dollars in thousands) June 30, ---------------------- December 31, 1995 1994 1994 -------- -------- ------------ Working capital $ 82,488 $ 54,613 $ 78,312 Current ratio 2.1:1 1.9:1 1.9:1 Total assets $345,591 $322,954 $373,122 Current maturities of long-term debt 152 131 139 Long-term debt 36,945 12,091 37,023 Stockholders' equity $111,043 $102,020 $107,038 Debt to total capitalization (1) 25.0% 10.7% 25.7% (1) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. The following balance sheet increases resulted from the General acquisition on August 1, 1994 (in millions): Receivables, net $12.3 Inventories 22.7 Deferred income taxes 1.1 Other current assets 0.4 ----- Total current assets 36.5 Property, plant and equipment 18.7 Long-term pension assets 0.5 Other long-term assets 5.4 ----- Total assets $61.1 ===== -19- Accounts payable $ 8.9 Accrued payrolls 1.5 Accrued taxes other than on income 0.6 Accrued insurance 4.7 Accrued other 7.6 ---- Total current liabilities 23.3 Deferred income taxes 1.1 Long-term non-pension benefits 0.1 Long-term pensions 11.6 Notes payable 25.0 ---- Total liabilities $61.1 ===== Working Capital $13.2 Working capital increased 51.0%, or $27.9 million, to $82.5 million at June 30, 1995 from $54.6 million at June 30, 1994, including the $13.2 million obtained through the General acquisition, while the ratio of current assets to current liabilities increased to 2.1:1 from 1.9:1. Excluding the acquisition impact, the increase in working capital was primarily due to increases in cash of $4.7 million, trade receivables of $5.8 million and closed plants' fixed assets held for sale (included in other current assets) of $2.4 million, partially offset by a reduction in reimbursement due on paid asbestos claims of $6.2 million. Also contributing to the increased working capital was a reduction in accounts payable of $5.9 million. The increase in cash and decrease in reimbursement due on paid asbestos claims since June 30, 1994, as well as the $6.0 million decrease in reimbursement due on paid asbestos claims since December 31, 1994, were due primarily to payments being made directly to the Center for Claims Resolution by one insurance carrier starting in May 1995. These direct payments are expected to continue for the foreseeable future, with a resulting favorable impact on the Company's cash balances and cash requirements. The increase in trade receivables since June 30, 1994 was primarily due to the increased sales level. The reduction in accounts payable since June 30, 1994, as well as the $7.9 million reduction since December 31, 1994, was primarily due to a $6.5 million payment to the Center for Claims Resolution in January 1995. The decreases in non-current projected insurance recovery on asbestos claims and non-current projected asbestos claims were due to asbestos claim payments recovered from insurance carriers. The increase in debt since June 30, 1994 was due to the $25 million in additional debt incurred for the General acquisition. -20- Capital expenditures for the refractories business increased by $2.1 million in the first six months of 1995 compared to the same period in 1994, offset by reductions in capital expenditures related to corporate functions and the lime plants. The refractories increase was due to both upgrading and modernization of the acquired General facilities and replacement, modernization and expansion of pre- acquisition operations. During the first half of 1995, capital contributions were made by A. P. Green and INTOCAST AG to form a joint venture partnership, INTOGREEN Co., which will sell and install cast monolithic ladle linings to the steel industry in the United States, Canada and Mexico. INTOCAST AG is a world leader in the development of cast ladle linings. Its contribution to the partnership is reflected in the balance sheet net of INTOCAST's share of the year-to-date loss at INTOGREEN. Subsequent Event ---------------- On July 26, 1995 the Company acquired a 51% ownership interest in Plibrico de Mexico SA de CV, a refractory manufacturer located in Monterrey, Mexico, effective July 3, 1995. Plibrico de Mexico, which will be renamed A. P. Green de Mexico SA de CV, has one plant with annual sales of approximately $7.0 million. The Company acquired all of the ownership interest of Cookson America, Inc., a subsidiary of Cookson PLC, and a portion of the holdings of Grupo Industrial Trebol SA de CV, which will continue to own a 49% interest in A. P. Green de Mexico. The purchase price and transaction costs of approximately $2.0 million were paid out of operating capital. -21- A. P. GREEN INDUSTRIES, INC. PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- The Annual Meeting of Stockholders of A. P. Green was held on May 11, 1995 at which the stockholders voted on the following matters: 1. the election of two Class I directors to hold office for a term of three years; 2. the ratification of the appointment of KPMG Peat Marwick as A. P. Green's auditors for the year ending December 31, 1995. With regard to the election of the Class I directors, Paul F. Hummer was reelected and P. J. O'Bryan was elected as directors of A. P. Green in an uncontested election. The vote with respect to Mr. Hummer was 3,603,323 shares FOR and 32,206 shares WITHHOLD AUTHORITY TO VOTE. The vote with respect to Mr. O'Bryan was 3,521,890 shares FOR and 113,639 shares WITHHOLD AUTHORITY TO VOTE. The other directors whose term of office continued after the Annual Meeting are Donald E. Lasater, William F. Morrison and Daniel R. Toll. With regard to the ratification of the approval of KPMG Peat Marwick as auditors for the year ending December 31, 1995, the ratification was approved by the following vote: 3,618,296 shares FOR, 5,478 shares AGAINST and 11,755 shares ABSTAIN and BROKER NON-VOTES. Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits: -------- Exhibit No. ---------- 27 Financial Data Schedule as of and for the Six Months Ended June 30, 1995. (b) Reports on Form 8-K: -------------------- No reports on Form 8-K were filed during the quarter ended June 30, 1995. -22- 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: August 14, 1995 --------------- -23- EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A. P. GREEN INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JUN-30-1995 10,606 0 46,635 2,032 51,102 157,846 93,713 0 345,591 75,358 37,097 4,477 0 0 106,566 345,591 126,204 126,204 105,807 105,807 15,659 0 1,590 4,147 359 4,194 0 0 0 4,194 1.04 0