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, 1994 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 4, 1994, 4,027,282
shares of Common Stock, $1 par value, were outstanding.
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A. P. GREEN INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
June 30, December 31,
1994 1993
(Dollars in thousands, except per share data)
ASSETS
Current Assets
Cash and cash equivalents $ 5,923 $ 16,331
Receivables (net of allowances -
1994, $1,040; 1993, $1,198) 26,411 26,873
Reimbursement due on paid asbestos
claims 11,736 5,929
Inventories 30,163 25,735
Projected insurance recovery on
asbestos claims 36,837 35,779
Deferred income tax benefit 3,941 4,493
Other 2,238 1,811
Total current assets 117,249 116,951
Property, plant and equipment, net 80,839 81,474
Non-current projected insurance
recovery on asbestos claims 114,620 130,646
Other assets 10,246 10,243
Total assets $322,954 $339,314
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 11,938 $ 12,691
Accrued expenses
Payrolls 4,026 4,342
Taxes other than on income 1,089 1,161
Current portion of projected
asbestos claims 37,812 36,754
Other 7,229 7,668
Current maturities of long-term debt 131 123
Income taxes 411 601
Total current liabilities 62,636 63,340
Deferred income taxes 14,991 15,538
Long-term non-pension benefits 14,788 14,123
Long-term debt 12,091 12,160
Non-current projected asbestos claims 116,428 133,223
Total liabilities 220,934 238,384
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: 4,475,629 in 1994 and
4,459,129 in 1993 4,476 4,459
Additional paid-in capital 72,738 72,492
Retained earnings 44,868 43,800
Less: Deferred currency translation (2,559) (2,301)
Treasury stock of 448,347
shares, at cost (9,003) (9,003)
Note receivable - ESOT (8,491) (8,491)
Deferred compensation-restricted
stock (9) (26)
Total stockholders' equity 102,020 100,930
Total liabilities and stockholders'
equity $322,954 $339,314
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars in thousands, Three months ended June 30,
except per share data) 1994 1993
Net sales $ 40,849 $ 41,053
Cost of sales 33,397 32,241
Gross profit 7,452 8,812
Expenses and other income
Selling & administrative expenses 5,776 6,355
Interest expense 257 267
Interest income (325) (279)
Other income, net (247) (266)
Earnings before taxes 1,991 2,735
Income tax expense 635 959
Net earnings 1,356 1,776
Net earnings per common share $ 0.34 $ 0.44
Weighted average number of
common shares 4,027,282 4,010,782
Dividends per common share $ 0.06 $ -
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(Dollars in thousands, Six months ended June 30,
except per share data) 1994 1993
Net sales $ 78,352 $ 80,558
Cost of sales 64,794 63,907
Gross profit 13,558 16,651
Expenses and other income
Selling & administrative expenses 11,745 12,372
Interest expense 520 533
Interest income (643) (567)
Other income, net (600) (529)
Earnings before taxes and cumulative
effect of an accounting change 2,536 4,842
Income tax expense 744 1,732
Earnings before cumulative effect of
an accounting change 1,792 3,110
Cumulative effect of an accounting change
Postemployment benefits, net of tax (255) -
Net earnings $ 1,537 $ 3,110
Earnings per common share before
cumulative effect of an accounting
change $ 0.44 $ 0.77
Cumulative effect of an accounting change
Postemployment benefits, net of tax (0.06) -
Net earnings per common share $ 0.38 $ 0.77
Weighted average number of
common shares 4,022,301 4,010,782
Dividends per common share $ 0.12 $ -
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended June 30,
(Dollars in thousands) 1994 1993
Cash flows from operating activities
Net earnings $ 1,537 $ 3,110
Adjustments for items not requiring cash
Cumulative effect of an accounting change-
Postemployment benefits, net of tax 255 -
Depreciation, depletion, and amortization 3,915 3,814
Deferred compensation 17 34
Stock compensation to directors 28 -
Provision for losses on accounts receivable 94 186
Loss (gain) on sale of assets (6) 19
Decrease (increase) in assets
Trade receivables 368 (1,213)
Asbestos claim and fee reimbursements
received 14,969 14,090
Inventories (4,428) (1,915)
Receivable and prepaid taxes 228 -
Other current assets (655) (269)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (1,580) 1,247
Asbestos claims paid (21,544) (16,787)
Income taxes (190) 87
Deferred income taxes 152 307
Long-term non-pension benefits 263 276
Net cash from (used in) operating
activities (6,577) 2,986
Cash flows from investing activities
Capital expenditures (3,339) (1,700)
Decrease (increase) in other long-term assets 227 (258)
Increase in pension assets (231) (540)
Proceeds from sales of assets 48 9
Net cash used in investing activities (3,295) (2,489)
Cash flows from financing activities
Payment of debt (61) (67)
Dividends paid (483) -
Exercised stock options 237 -
Tax benefit on dividends paid to ESOP 15 -
Tax effect on stock plan (3) (59)
Net cash used in financing activities (295) (126)
Effect of exchange rate changes (241) (57)
Net increase (decrease) in cash and cash
equivalents (10,408) 314
Cash and cash equivalents at beginning
of year 16,331 7,118
Cash and cash equivalents at end of
period $ 5,923 $ 7,432
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. MANAGEMENT'S COMMENTS REGARDING ADJUSTMENTS AND RESULTS OF OPERATIONS
In the opinion of management, the accompanying consolidated financial
statements include all adjustments of a normal and recurring nature
necessary for a fair presentation of the financial position and results of
operations for the periods presented. These financial statements should be
read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 1993. The results for the quarter ended June 30,
1994 are not necessarily indicative of the results which may occur for the
full year.
2. INVENTORIES
June 30, 1994 December 31, 1993
Finished goods & work-in-process
Valued at LIFO:
FIFO cost $ 26,394 $25,150
Less LIFO reserve (13,721) (14,003)
LIFO cost 12,673 11,147
Valued at FIFO 5,432 3,935
TOTAL 18,105 15,082
Raw materials and supplies
Valued at LIFO:
FIFO cost 11,767 11,017
Less LIFO reserve (5,457) (5,431)
LIFO cost 6,310 5,586
Valued at FIFO 5,748 5,067
TOTAL 12,058 10,653
$30,163 $25,735
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3. CHANGES IN METHOD OF ACCOUNTING
Postemployment Benefits
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," in November 1992. The standard requires
application of the accrual method of accounting to all benefits provided to
former or inactive employees, their beneficiaries and covered dependents,
subsequent to their employment by the Company and prior to retirement,
rather than recognizing these expenses as they are paid. Effective January
1, 1994, the Company adopted this standard and recognized the projected
benefit obligation relating to short-term and long-term disability benefits
as a cumulative effect of an accounting change, reducing net income by
$255,000, or $.06 per share. The annual incremental expense is not
expected to be material.
Projected Asbestos Claims and Insurance Reimbursements
In prior years, the Company reported its projected asbestos claims and
projected insurance reimbursements relating to such claims net within
accrued liabilities. With the issuance of FASB Interpretation No. 39,
"Offsetting of Amounts Related to Certain Contracts," the Company has
determined that the amounts should be reported gross rather than net. As
such, the consolidated statements of financial position and cash flows as
of June 30, 1994 reflect both the gross projected liability for asbestos
claims and gross projected insurance reimbursements related to those claims
on a current and non-current basis. The consolidated statement of
financial position as of December 31, 1993 and the consolidated statement
of cash flows as of June 30, 1993 have been restated to be consistent with
the 1994 presentation. There was no impact on operating results of either
period as a result of this "grossed-up" presentation.
4. LITIGATION
Asbestos-related Claims - Personal Injury
A. P. Green is among numerous defendants in lawsuits pending as of June 30,
1994 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
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claims brought against it. Claims activity for the Company for each of the
years ended December 31, 1993 and 1992 was as follows:
______________________________________________________________________
1993 1992
______________________________________________________________________
Claims pending at January 1 50,007 38,681
Claims filed 26,100 19,767
Cases settled, dismissed or
otherwise resolved (23,985) (8,441)
Claims pending at December 31 52,122 50,007
Average settlement amount per claim (1) $ 1,728 $ 1,875
______________________________________________________________________
(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 pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal
District Court for the Eastern District of Pennsylvania brought on behalf
of all persons who have been occupationally exposed to asbestos-containing
products of the Members and who have not filed suit against any Member for
such exposure (the Class). At about the same time, the Center negotiated
and filed with the Court a settlement (the Settlement) between the Members
and the Class. Under the terms of the Settlement, the Members have agreed
to pay compensation to any member of the Class who has, according to
objective medical criteria, physical impairment as a result of such
exposure. Different levels of compensation will be paid depending on the
type and degree of physical impairment. No punitive damages will be paid.
The Settlement provides, among other things, for a cap on the number of
claims to be processed each year during the next ten years and a range of
settlement values for each disease category. Settlement values are based
on historical average payments by the Center for similar cases. Each
Member will be responsible for its percentage share of each claim payment
(no joint and several liability), such shares having been previously
negotiated among the Members. The Settlement does not become operative
until it has received appropriate court approval. In accordance with Rule
23, the Court ordered that appropriate notice be given to the Class.
Hearings have been held to determine the fairness of the Settlement.
Rulings from these hearings have not yet been made.
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In a third party action filed simultaneously with the class action, the
Members have asked for a declaratory judgment against their respective
insurers that such insurers cannot use the Settlement as a defense to their
payment under applicable policies of insurance. The Settlement is
expressly contingent upon such declaratory relief. In addition, some
Members, including A. P. Green, have asked for a declaratory judgment
against their insurers with whom they have not reached coverage
resolutions.
Under the assumption that it receives these court approvals, the Settlement
has provided the Company with a basis for estimating its potential
liability and related insurance recovery associated with asbestos cases.
The Company has reviewed its policies of insurance, 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 insurance policies defending
asbestos cases brought against a former subsidiary. Based upon such
reviews, the Company has estimated and recorded its liability for such
cases and claims as well as its projected insurance reimbursements related
to such 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. 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. No claim for reimbursement of defense or
indemnity payments has been made against the Company or such subsidiary by
any such carriers.
The Company is also contractually liable to The E. J. Bartells Company
(Bartells), a former subsidiary, for deductible amounts on certain
insurance policies insuring Bartells against asbestos-related personal
injury claims issued when it was owned by A. P. Green. The Company has
estimated the amounts of such deductibles and provision for such estimate
was made in the Company's 1992 financial statements.
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
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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
In the third quarter of 1993, the United States Environmental Protection
Agency (EPA) filed a lawsuit against the Company in the Federal District
Court for the Northern District of Oklahoma alleging violations of the
Clean Water Act at the Company's Pryor, Oklahoma facility. The alleged
violations involved discharges without a permit. After discussions, an
agreement in principle to settle the matter has been reached between the
Company and the EPA and Department of Justice. Under the terms of the
agreement in principle, the Company paid a civil penalty in the amount of
$450,000, expense for which was recognized in prior periods.
The EPA or other private parties have named the Company or one of its
subsidiaries as a potentially responsible party in connection with three
superfund sites in the United States. The Company is a de minimis party
with respect to two of the sites and expects to arrive at settlement
agreements with respect to them for amounts of not more than $10,000 per
site. With respect to the third, 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 numerous claims and lawsuits that arise in the
ordinary course of business, some of which seek damages in substantial
amounts, including punitive or extraordinary damages. Reserves for these
claims and lawsuits have been recorded to the extent that losses are deemed
probable and are estimable.
Although the ultimate outcome of these claims and lawsuits cannot be
accurately predicted and liabilities in indeterminate amounts may be
imposed on A. P. Green, it is the opinion of management that the
disposition of such claims and lawsuits will not have a material adverse
effect on the consolidated financial position or results of operations of
A. P. Green.
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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 JUNE 30, 1994 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1993
Total sales decreased 0.5% from $41.1 million for the three months ended
June 30, 1993 to $40.8 million for the comparable 1994 three-month period.
Gross profit declined 15.4% from $8.8 million to $7.5 million for the
comparable periods.
Refractory Products and Services
Refractory products and services sales were unchanged at $32.3 million for
each of the three-month periods ended June 30, 1993 and 1994. United
States refractory sales were $28.8 million for both three-month periods,
with a brick volume decrease of 6.2% offset by volume increases on all
other product lines. U.S. specialties prices were flat with 1993 levels
while brick and ceramic fiber prices declined, resulting in an overall
price decrease of 1.2%.
Sales of the Canadian subsidiary showed continued improvement from $3.1
million for the three-month period ended June 30, 1993 to $3.6 million for
the comparable 1994 period, a 14.9% increase. Volumes increased across all
product lines with the exception of crucibles, which was unchanged for the
comparable quarters, for an overall volume improvement of 20.6%, reflecting
increased sales to previous competitors in the Canadian refractory
installation business. Price increases for specialties, ceramic fibers and
pre-cast shapes were partially offset by declines in brick and crucibles
pricing, resulting in an overall price improvement of 3.6%. The higher
Canadian sales, as well as cost savings resulting from the restructuring
which took place during the first quarter of 1994, generated pre-tax
earnings of $280,000, a 241.5% increase over 1993 earnings of $82,000.
Sales in the United Kingdom (U.K.) declined 14.3% from $1.5 million to $1.3
million due to continuing weakness in the U.K. market. Despite this
decrease in sales, continuing cost control efforts in the U.K. narrowed the
pre-tax loss to $68,000 in the second quarter of 1994 compared to a
$103,000 loss in the comparable 1993 period.
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Cost of sales as a percentage of sales increased from 78.6% to 82.3% for
the three months ended June 30, 1993 and 1994, respectively. This increase
was primarily due to higher raw material costs, increased group insurance
costs and unfavorable brick breakage variances in the U.S. during 1994
compared to favorable variances during 1993. Also contributing to the cost
increase were higher U.S. pension costs due to plan benefit changes and no
LIFO inventory cost adjustment in the second quarter of 1994 compared to a
favorable adjustment in the comparable 1993 period, partially offset by
reduced workers' compensation costs. Refractory operating profits declined
30.7% from $3.1 million to $2.2 million in 1993 and 1994, respectively.
Industrial Lime
Industrial lime sales declined 2.2% from $8.8 million to $8.6 million for
the respective second quarters of 1993 and 1994. Volume was mixed, with
reductions in hydrate sales at the Kimballton, Virginia plant and road
stabilization lime at the New Braunfels, Texas plant partially offset by
increases in all other product lines for a net volume reduction of 3.5%.
Hydrate prices declined at the Kimballton plant, offset by increases in all
other Kimballton product lines, while prices were level at the New
Braunfels plant, resulting in a 1.3% overall price increase.
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 decline, gross
profit and operating profit decreased 8.3% and 6.6%, respectively. Also
contributing to this decline were increased purchased raw material and
group insurance costs, partially offset by reduced workers' compensation
costs.
Expenses and Other Income
Selling and administrative expenses declined 9.1% from $6.4 million in the
second quarter of 1993 to $5.8 million for the comparable 1994 period.
Reductions in management incentives, travel costs, annual sales meeting
costs and professional fees contributed the majority of the decrease.
Interest expense decreased slightly from 1993 to 1994, with no bank line
borrowings during the second quarter of either period. Interest income for
the second quarter of 1994 increased 16.6% from the comparable 1993 three-
month period due to increased funds available for investing and higher
interest rates. Other income declined 7.2% for the comparable three-month
periods primarily due to transaction losses on U.S. dollar denominated
accounts at the Canadian subsidiary compared to a small gain during the
second quarter of 1993, partially offset by a business interruption
insurance recovery in 1994 related to a loss incurred at the New Braunfels,
Texas lime plant during 1993. The Company and its Canadian and U.K.
subsidiaries typically transact business in their own currencies and
accordingly are not subject to significant transaction gains and losses.
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RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1993
Total sales decreased 2.7% from $80.6 million for the six months ended June
30, 1993 to $78.4 million for the comparable 1994 six-month period. Gross
profit declined 18.6% from $16.7 million to $13.6 million for the
comparable periods.
Refractory Products and Services
Refractory products and services sales were $63.1 million and $61.4 million
for the six months ended June 30, 1993 and June 30, 1994, respectively,
reflecting a decline of 2.7%. U.S. refractory sales were down 3.1% from
$56.5 million for the six months ended June 30, 1993 to $54.8 million for
the comparable 1994 period. Reduced brick volumes were partially offset by
increases in specialties and ceramic fibers, resulting in an overall volume
decline of 3.9%. Prices were essentially flat for the comparable six-month
periods, with price increases on specialties and ceramic fibers offset by
brick price reductions.
Sales at the Canadian subsidiary increased 14.0% from $5.7 million for the
six months ended June 30, 1993 to $6.5 million for the comparable 1994
period. Volumes increased across all product lines by an average of 22.0%,
reflecting increased sales to previous competitors in the Canadian
refractory installation business. Price increases on specialties, ceramic
fibers and pre-cast shapes were partially offset by price declines on brick
and crucibles, resulting in an overall price increase of 1.3%. Pre-tax
earnings of $217,000 were level with 1993 due to 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. Absent that adjustment, the Canadian subsidiary generated a pre-
tax margin of 8.2% during the first six months of 1994 compared to 3.7%
during the comparable 1993 period.
Continuing weakness in the United Kingdom market resulted in a sales
decline at that subsidiary of 10.8% from $3.0 million for the first six
months of 1993 compared to $2.7 million for the first six months of 1994.
Continued cost reduction efforts narrowed the pre-tax loss from $139,000 in
1993 to $120,000 in 1994, despite the lower sales during the 1994 period.
Refractory products cost of sales as a percentage of sales increased from
79.5% in 1993 to 82.7% in 1994. This increase was primarily due to
increased group insurance cost, higher U.S. pension cost due to plan
benefit changes, a lower favorable LIFO inventory cost adjustment in 1994
compared to 1993 and unfavorable brick breakage variances in the U.S.
during 1994 compared to favorable variances in 1993. Partially
offsetting this were reduced casualty insurance and processing fuel costs.
Refractory operating profits declined 39.6% from $5.6 million to $3.4
million in 1993 and 1994, respectively.
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Industrial Lime
Industrial lime sales decreased 3.2% from $17.6 million to $17.1 million
for the six-month periods ended June 30, 1993 and 1994, respectively.
Volume reductions in hydrate and quicklime at the Kimballton plant and road
stabilization lime at the New Braunfels plant, partially offset by
increases in sales to the steel, aluminum and building lime markets at New
Braunfels, combined for an overall volume reduction of 4.9%. A production
curtailment of several days at the Kimballton plant during the first
quarter as a result of severe weather conditions contributed to the volume
decline at that facility. Prices increased an average of 1.8%, with
increases across all product lines with the exception of hydrate at the
Kimballton 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 decline, gross
profit and operating profit decreased 19.9% and 20.5%, respectively. Also
contributing to this decline were increased depreciation expense and group
insurance costs and unfavorable production variances at both plants due to
the previously mentioned production curtailment at the Kimballton plant and
downtime at the New Braunfels plant related to the installation of a new
kiln preheater and dust collection system. These increases were partially
offset by reduced workers' compensation costs at the New Braunfels plant
and lower processing fuel costs at both plants.
Expenses and Other Income
Selling and administrative expenses decreased 5.1% from $12.4 million in
1993 to $11.7 million in 1994. This decrease was due to reductions in
management incentives, professional fees, travel costs and annual sales
meeting costs and reduced provisions for doubtful accounts, partially
offset by an increase in sales promotion costs.
Interest expense decreased slightly from 1993 to 1994, with no bank line
borrowings during either period. Interest income increased 13.4% due to
increased funds available for investing and higher interest rates,
partially reduced by lower interest income from the employee stock
ownership trust. Other income increased 13.5% due to a gain on the sale of
land during the first quarter of 1994 and a business interruption insurance
recovery in 1994 related to a loss incurred at the New Braunfels, Texas
lime plant during 1993. Partially offsetting these improvements were higher
transaction losses on U.S. dollar denominated accounts at the Canadian
subsidiary during the first six months of 1994 compared to the same period
in 1993. The Company and its Canadian and U.K. subsidiaries typically
transact business in their own currencies and accordingly are not subject
to significant transaction gains and losses.
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Income Taxes
The 29.3% effective income tax rate in 1994 as compared to 35.8% in 1993 is
primarily due to higher depletion expense at APG Lime for tax purposes than
for book.
Accounting Changes
The cumulative effect of adopting the FASB Statement No. 112, "Employers'
Accounting for Postemployment Benefits," further reduced 1994 net income by
$255,000.
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INDUSTRY SEGMENTS
(thousands)
Six Months Ended June 30,
1994 1993
Net Sales
Refractory products and services $ 61,370 $ 63,061
Industrial lime 17,062 17,630
Intersegment eliminations (80) (133)
$ 78,352 $ 80,558
Gross Profit
Refractory products and services $ 10,594 $ 12,950
Industrial lime 2,964 3,701
$ 13,558 $ 16,651
Gross Profit Percentage
Refractory products and services 17.3% 20.5%
Industrial lime 17.4% 21.0%
17.3% 20.7%
Operating Profit
Refractory products and services $ 3,351 $ 5,552
Industrial lime 2,434 3,063
5,785 8,615
Other Charges to Income
General corporate expenses, net 3,372 3,807
Interest expense 520 533
Interest income (643) (567)
Total other charges 3,249 3,773
Earnings Before Income Taxes and Cumulative
Effect of an Accounting Change $ 2,536 $ 4,842
Identifiable Assets (at period end)
Refractory products and services $265,439 $276,966
Industrial lime 47,487 44,470
Corporate 10,028 11,891
$322,954 $333,327
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Six Months Ended June 30,
1994 1993
Depreciation and Depletion
Refractory products and services $ 2,093 $ 2,168
Industrial lime 1,344 1,202
Corporate 478 444
$ 3,915 $ 3,814
Capital Expenditures
Refractory products and services $ 572 $ 493
Industrial lime 2,300 830
Corporate 467 377
$ 3,339 $ 1,700
GEOGRAPHIC SEGMENTS
(In thousands)
Six Months Ended June 30,
1994 1993
Net Sales
United States $ 71,815 $ 74,108
Canada 6,512 5,714
United Kingdom 2,663 2,987
Intersegment transfers (primarily U.S.) (2,638) (2,251)
$ 78,352 $ 80,558
Earnings (Loss) Before Income Taxes and Cumulative
Effect of an Accounting Change
United States $ 2,439 $ 4,768
Canada 217 213
United Kingdom (120) (139)
$ 2,536 $ 4,842
Identifiable Assets (at period end)
United States $301,043 $309,487
Canada 8,766 8,237
United Kingdom 3,117 3,712
Corporate 10,028 11,891
$322,954 $333,327
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PRICE/VOLUME SUMMARY
1994 AS COMPARED TO 1993
PERCENT INCREASE (DECREASE)
Three Six
Months Months
Ended Ended
June 30, 1994 June 30, 1994
U.S. Refractory Products Sales
Volume 0.5% (3.9)%
Price (1.2) 0.3
Industrial Lime Sales
Volume (3.5) (4.9)
Price 1.3 1.8
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FINANCIAL CONDITION
The Company continues to maintain a strong balance sheet.
Summary Information
(Dollars in thousands)
June 30, December 31,
1994 1993 1993
Working capital $ 54,613 $ 49,883 $ 53,611
Current ratio 1.9:1 1.9:1 1.8:1
Total assets $322,954 $333,327 $339,314
Current maturities of
long-term debt 131 114 123
Long-term debt 12,091 12,224 12,160
Stockholders' equity $102,020 $ 97,784 $100,930
Debt to total
capitalization(1) 10.7% 11.2% 10.8%
(1) Calculated as total Debt (long-term debt including current
maturities) divided by total stockholders' equity plus total Debt.
The increase in working capital of $4.7 million from June 30, 1993 to June
30, 1994 was due to a $5.0 million increase in reimbursements due on paid
asbestos claims. This change, as well as the $5.8 million increase in such
reimbursements due from December 31, 1993, is a result of an increase in the
number of asbestos cases settled rather than the ageing of receivables.
The decrease in assets of $10.4 million from June 30, 1993 to June 30, 1994
was due to a decrease in projected insurance recovery on asbestos claims,
including current portion, of $15.3 million, partially offset by the
increase in reimbursements due on paid asbestos claims discussed above. The
liability for projected asbestos claims, including current portion, declined
$16.3 million during the same period. These reductions in projected
asbestos claims and related insurance recoveries were due primarily to
asbestos claim payments recovered from insurance carriers during the 12
month period ended June 30, 1994, partially offset by adjustments to the
Company's projected asbestos liability.
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The decrease in assets of $16.4 million from December 31, 1993 to June 30,
1994 was due to decreases in cash and cash equivalents of $10.4 million and
projected insurance recovery on asbestos claims, including current portion,
of $15.0 million, partially offset by increases in reimbursement due on paid
asbestos claims of $5.8 million, as previously discussed, and inventories of
$4.4 million. The increase in inventories was a result of higher sales in
June 1993 as compared to June 1994 and the receipt of a large shipment of
South American bauxite in June 1994. The decrease in projected insurance
recovery on asbestos claims, as well as a decrease of $15.7 million in
projected asbestos claims, including current portion, were due primarily to
asbestos claim payments recovered from insurance carriers during the first
six months of 1994.
Capital spending for the industrial lime operation increased 177.1% from
$830,000 to $2.3 million for the comparable six-month periods. The majority
of these expenditures related to productivity improvements, enhanced
environmental controls and replacement of existing equipment which could no
longer be maintained in service cost effectively.
SUBSEQUENT EVENTS
On July 11, 1994 the Company executed a definitive agreement to acquire all
of the assets and assume most of the liabilities of the refractories
operations of General Refractories Company and its affiliated companies.
These operations include nine plants in the U.S., one plant near Toronto,
Canada and a 49% equity interest in a Colombian refractory operation.
Under the terms of the definitive agreement, the Company paid $23,450,000
and assumed most of the liabilities of the refractory operations being
acquired. The transaction was closed August 1, 1994. The acquisition was
financed by borrowings of $25 million from a group of institutional lenders.
The notes bear an 8.55% fixed rate of interest, with semi-annual interest
payments commencing January 29, 1995. Annual principal repayments will
commence July 29, 1996 and continue, in accordance with amortization
schedules attached to each note, through July 29, 2001.
On July 28, 1994, the Company's $15 million U.S. long-term line of credit
was extended to March 1, 1996. Certain restrictive covenants were amended
and added to mirror those reflected in the new borrowing agreement, but are
not expected to have a material adverse effect on A. P. Green's operations.
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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 12,
1994 at which the stockholders voted on the following matters:
1. the election of two Class II 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, 1994.
With regard to the election of the Class II directors, Donald E.
Lasater and William F. Morrison were reelected as directors of A. P.
Green in an uncontested election. The vote with respect to Mr.
Lasater was 3,556,283 shares FOR and 29,116 shares WITHHOLD AUTHORITY
TO VOTE. The vote with respect to Mr. Morrison was 3,557,309 shares
FOR and 28,090 shares WITHHOLD AUTHORITY TO VOTE. The other directors
whose term of office continued after the Annual Meeting are Paul F.
Hummer, Jack R. Janney and Daniel R. Toll.
With regard to the ratification of the approval of KPMG Peat Marwick
as auditors for the year ending December 31, 1994, the ratification
was approved by the following vote: 3,558,653 shares FOR, 13,840
shares AGAINST, and 12,906 shares ABSTAIN and BROKER NON-VOTES.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended June 30, 1994.
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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 4, 1994
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