SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
_______________
For the quarter ended September 30, 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 November 11, 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)
September 30, December 31,
1994 1993
(Dollars in thousands, except per share data)
ASSETS
Current Assets
Cash and cash equivalents $ 5,465 $ 16,331
Receivables (net of allowances -
1994, $1,727; 1993, $1,198) 40,012 26,873
Reimbursement due on paid asbestos
claims 13,659 5,929
Inventories 54,230 25,735
Projected insurance recovery on
asbestos claims 36,837 35,779
Deferred income tax benefit 5,705 4,493
Other 4,055 1,811
Total current assets 159,963 116,951
Property, plant and equipment, net 98,152 81,474
Non-current projected insurance
recovery on asbestos claims 104,705 130,646
Long-term pensions 9,372 8,372
Other assets 6,929 1,871
Total assets $379,121 $339,314
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 20,024 $ 12,691
Accrued expenses
Payrolls 6,221 4,342
Taxes other than on income 2,220 1,161
Insurance reserves 7,849 2,951
Current portion of projected
asbestos claims 37,812 36,754
Other 11,275 4,130
Current maturities of long-term debt 135 123
Income taxes 1,178 601
Total current liabilities 86,714 62,753
Deferred income taxes 16,374 15,538
Long-term non-pension benefits 15,011 14,123
Long-term pensions 12,557 587
Long-term debt 37,057 12,160
Non-current projected asbestos claims 106,490 133,223
Total liabilities 274,203 238,384
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 72,739 72,492
Retained earnings 46,810 43,800
Less: Deferred currency translation (2,076) (2,301)
Treasury stock of 448,347
shares, at cost (9,003) (9,003)
Note receivable - ESOT (8,021) (8,491)
Deferred compensation-restricted
stock (7) (26)
Total stockholders' equity 104,918 100,930
Total liabilities and stockholders'
equity $379,121 $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 September 30,
except per share data) 1994 1993
Net sales $ 54,255 $ 40,723
Cost of sales 44,967 32,831
Gross profit 9,288 7,892
Expenses and other income
Selling & administrative expenses 6,438 5,832
Interest expense 633 262
Interest income (343) (443)
Other income, net (541) (394)
Earnings before income taxes 3,101 2,635
Income tax expense 995 865
Equity in net income of affiliates 70 -
Net earnings 2,176 1,770
Net earnings per common share $ 0.54 $ 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, Nine months ended September 30,
except per share data) 1994 1993
Net sales $ 132,607 $ 121,281
Cost of sales 109,761 96,738
Gross profit 22,846 24,543
Expenses and other income
Selling & administrative expenses 18,183 18,204
Interest expense 1,153 795
Interest income (986) (1,011)
Other income, net (1,141) (922)
Earnings before income taxes and cumulative
effect of an accounting change 5,637 7,477
Income tax expense 1,739 2,597
Equity in net income of affiliates 70 -
Earnings before cumulative effect of
an accounting change 3,968 4,880
Cumulative effect of an accounting change
Postemployment benefits, net of tax (255) -
Net earnings $ 3,713 $ 4,880
Earnings per common share before
cumulative effect of an accounting
change $ 0.98 $ 1.22
Cumulative effect of an accounting change
Postemployment benefits, net of tax (0.06) -
Net earnings per common share $ 0.92 $ 1.22
Weighted average number of
common shares 4,023,980 4,010,782
Dividends per common share $ 0.18 $ -
See accompanying notes to consolidated financial statements.
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30,
(Dollars in thousands) 1994 1993
Cash flows from operating activities
Net earnings $ 3,713 $ 4,880
Adjustments for items not requiring cash
Cumulative effect of an accounting change-
Postemployment benefits, net of tax 255 -
Depreciation, depletion, and amortization 6,187 5,701
Deferred compensation 19 45
Stock compensation to directors 28 -
Provision for losses on accounts receivable 178 47
Loss (gain) on sale of assets (415) 41
Decrease (increase) in assets, net of
effects from purchase of General
Refractories operations
Trade receivables (1,013) 764
Asbestos claim and fee reimbursements
received 24,906 21,735
Inventories (5,746) (2,654)
Receivable and prepaid taxes 509 -
Other current assets (1,702) (319)
Increase (decrease) in liabilities, net of
effects from purchase of General
Refractories operations
Accounts payable and accrued expenses (1,260) 2,081
Asbestos claims paid (33,429) (25,488)
Pensions 392 321
Income taxes 577 353
Deferred income taxes (229) 200
Long-term non-pension benefits 393 442
Net cash from (used in) operating
activities (6,637) 8,149
Cash flows from investing activities
Capital expenditures (5,133) (2,655)
Decrease (increase) in other long-term assets 332 (507)
Increase in pension assets (517) (742)
Proceeds from sales of assets 494 23
Payment received on ESOT note 471 430
Purchase General Refractories operations (24,497) -
Net cash used in investing activities (28,850) (3,451)
Cash flows from financing activities
Payment of debt (91) (94)
Proceeds from issuance of long-term debt 25,000 -
Dividends paid (725) -
Exercised stock options 237 -
Tax benefit on dividends paid to ESOP 22 -
Tax effect on stock plan (3) (59)
Net cash from (used in) financing activities 24,440 (153)
Effect of exchange rate changes 181 (482)
Net increase (decrease) in cash and cash
equivalents (10,866) 4,063
Cash and cash equivalents at beginning
of year 16,331 7,118
Cash and cash equivalents at end of
period $ 5,465 $ 11,181
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 September 30, 1994 are not necessarily indicative of the results
which may occur for the full year. Certain balance sheet accounts as of
September 30, 1993 and December 31, 1993 have been reclassified to be
consistent with the presentation at September 30, 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in Other Companies and Ventures
Equity investments of 20% to 49% are accounted for using the equity
method. This method increases or decreases the investment through
recognition of the Company's share of undistributed earnings or losses
of the investee company. Equity investments of more than 50% in
entities are consolidated for financial reporting purposes. All
intercompany balances and transactions have been eliminated. Related
party transactions are not material.
3. ACQUISITIONS
Effective August 1, 1994, the Company acquired substantially all of the
assets and assumed most of the liabilities of the refractory operations
of General Refractories Company and its affiliated companies
(collectively referred to as "General"). These operations include nine
plants in the United States, a plant near Toronto, Canada and 49% equity
interests in two Colombian refractory companies.
In addition to the assumption of designated liabilities, the Company
paid at closing a cash amount of $23,450,000. The acquisition was
funded by the borrowing of $25,000,000 from a group of institutional
lenders. The acquisition was accounted for using the purchase method,
with the operating results of General included in consolidated operating
results since the date of acquisition.
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No financial statements of General for periods prior to the acquisition
or pro forma financial information reflecting the acquisition of General
as of the beginning of the year have been provided because the U.S.
refractory operations of General were not combined for financial
reporting purposes for the three most recently completed fiscal years
and were not capable of being audited for the most recently completed
fiscal year. The Company concluded, after analyzing the financial books
and records of the refractory operations of General, that there could be
no assurance that such financial statements or pro forma financial
information would accurately reflect the financial condition, results of
operations, cash flows or changes in stockholder's equity for General's
refractory operations.
4. 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 September 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 September
30, 1993 have been restated to be consistent with the 1994
presentation. There was no impact on operating results of this
"grossed-up" presentation.
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5. INVENTORIES
September 30, 1994 December 31, 1993
Finished goods & work-in-process
Valued at LIFO:
FIFO cost $ 38,941 $25,150
Less LIFO reserve (14,718) (14,003)
LIFO cost 24,223 11,147
Valued at FIFO 7,674 3,935
TOTAL 31,897 15,082
Raw materials and supplies
Valued at LIFO:
FIFO cost 19,324 11,017
Less LIFO reserve (5,468) (5,431)
LIFO cost 13,856 5,586
Valued at FIFO 8,477 5,067
TOTAL 22,333 10,653
$54,230 $25,735
6. LONG-TERM DEBT
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, as described below.
On July 29, 1994, the Company borrowed $25 million from a group of
institutional lenders to finance the acquisition of General. The notes
are unsecured and bear an 8.55% fixed rate of interest, with semi-annual
interest payments commencing January 29, 1995. Annual principal
repayments, which management believes will be funded out of working
capital, will commence July 29, 1996 and continue through July 29,
2001. Aggregate maturities of these notes are $0, $2.5 million,
$2.5 million, $5.0 million and $5.0 million for 1995 through 1999,
respectively. Under the Note Purchase Agreement, A. P. Green is
subject to certain restrictive covenants including levels of tangible
net worth, working capital, fixed charge coverage, permitted
encumbrances and loans from and to other institutions. Management does
not expect these restrictive covenants to have a material adverse
effect on A. P. Green's operations.
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7. ACQUIRED PENSION PLANS
In connection with the General acquisition, the Company acquired the
assets and assumed the liabilities of various Canadian and U.S. pension
plans covering the Canadian employees and substantially all of the U.S.
hourly employees. Plan benefits are generally based on years of service
and compensation during the last year of employment. Company
contributions are made in accordance with independent actuarial
reports. The assets consist primarily of listed common stocks and debt
securities.
All of the acquired U.S. plans and the acquired Canadian hourly plan are
underfunded, while the acquired Canadian salaried plan is overfunded.
The following table sets forth the actuarial present values of benefit
obligations and funded status of the acquired plans as of August 1,
1994:
_______________________________________________________________________
Underfunded Overfunded
(In thousands) Plans Plan
_______________________________________________________________________
Projected benefit obligations $ 29,157 $ 1,180
Plans' assets at fair value 17,579 1,663
Net over (under) funding $(11,578) $ 483
The actuarial present value of projected benefit obligations for the
acquired U.S. plans were measured using an expected long-term rate of
return on plan assets of 8.5%, a discount rate of 8.25% and no assumed
increase in future compensation levels. For the acquired Canadian
plans, an expected long-term rate of return on plan assets of 8.5%, a
discount rate of 8.0% and 6.5% rate of increase in future compensation
levels were assumed.
8. LITIGATION
Asbestos-related Claims - Personal Injury
A. P. Green is among numerous defendants in lawsuits pending as of
September 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 claims brought against it. Claims activity for
the Company for each of the years ended December 31, 1993 and 1992 was
as follows:
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____________________________________________________________________
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
were held to determine the fairness of the Settlement and the court
ruled that the settlement was fair.
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.
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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
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 acquisition of
General.
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Environmental
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 SEPTEMBER 30, 1994 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1993
Total sales increased 33.2% from $40.7 million for the three months
ended September 30, 1993 to $54.3 million for the comparable 1994 three-
month period. Gross profit increased 17.7% from $7.9 million to $9.3
million for the comparable periods. The impact from the addition of
General products for August and September, 1994 was to increase sales by
$11.3 million and gross profit by $1.5 million.
Refractory Products and Services
Refractory products and services sales increased 41.9% from $32.1
million for the third quarter of 1993 to $45.6 million for third quarter
of 1994. United States refractory sales increased 45.8% from $27.3
million to $39.8 million for the comparable three-month periods, of
which $10.0 million was due to the General acquisition. Excluding this
acquisition impact, brick, specialties and ceramic fiber volumes all
increased, partially offset by a reduction in clays and grogs, for a net
increase of 12.5%. U.S. refractory prices were up 0.6% for the
comparable quarters, with price increases in specialties and ceramic
fibers offset by a decline in brick pricing.
Sales of the Canadian subsidiary showed significant improvement from
$3.5 million for the three-month period ended September 30, 1993 to $5.3
million for the comparable 1994 period, a 54.0% increase. The impact
from the General acquisition was to increase Canadian sales by $1.3
million. Excluding this impact, volumes increased across all product
lines with the exception of specialties, which was unchanged for the
comparable quarters, for an overall volume improvement of 15.4%. 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 7.7%. 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 $372,000
including a $3,000 pre-tax loss from the acquired Canadian company, a
109.0% increase over 1993 earnings of $178,000.
Sales in the United Kingdom (U.K.) declined 14.5% from $2.8 million to
$2.4 million due to continuing weakness in the U.K. market. This
decrease in sales resulted in a reduction in pre-tax income from
$244,000 in the third quarter of 1993 to $187,000 in the comparable 1994
period.
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Cost of sales as a percentage of sales increased from 81.0% to 82.9% for
the three months ended September 30, 1993 and 1994, respectively. This
increase was primarily due to higher raw material costs, increased
workers compensation costs and higher brick breakage costs in the U.S.
during 1994 compared to 1993. Also contributing to the cost increase
were higher U.S. pension costs due to plan benefit changes and a lower
favorable LIFO inventory cost adjustment in the third quarter of 1994
compared to the same period in 1993, partially offset by reduced freight
and processing fuel costs. Cost of sales as a percentage of sales at
the acquired General plants also contributed to the increase due
primarily to maintenance costs necessary to bring these facilities up to
an appropriate state of repair. Refractory operating profits increased
41.4% from $2.7 million in 1993 to $3.8 million in 1994 due primarily to
the results of the General operations.
Industrial Lime
Industrial lime sales increased 0.9% from $8.6 million to $8.7 million
for the respective third quarters of 1993 and 1994. Volume was mixed,
with reductions in quicklime and 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 0.7%. Cal-Dol prices declined at the Kimballton
plant, offset by increases in all other Kimballton and New Braunfels
product lines, resulting in a 1.7% overall price increase.
Gross profit and operating profit for the industrial lime operations
decreased 16.0% and 17.3%, respectively, primarily due to higher
equipment repair costs at both plants. Also contributing to this
decline were increased purchased raw material, processing fuel and
workers' compensation costs at the New Braunfels plant and higher
depreciation at both plants due to increased capital expenditures.
Partially offsetting these increases were lower processing fuel costs at
the Kimballton plant and improved production efficiencies as compared to
the third quarter of 1993.
Expenses and Other Income
Selling and administrative expenses increased 10.4% from $5.8 million in
the third quarter of 1993 to $6.4 million for the comparable 1994
period. Increases in salaries and related costs, primarily due to the
addition of General sales personnel, and professional and legal fees,
partially offset by a reduction in management incentives, contributed
the majority of the increase. Also contributing to the increase was a
partial recovery during the third quarter of 1993 of a trade receivable
previously written off.
Interest expense was up 141.5% from 1993 to 1994 due to interest on the
additional debt related to the General acquisition. There were no bank
line borrowings during the third quarter of either period. Interest
income for the third quarter of 1994 declined 22.6% from the comparable
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1993 three-month period due primarily to interest received during the
third quarter of 1993 in connection with partial recovery of a trade
receivable previously written off. This was partially offset by
increased interest income on time deposits as a result of increased
funds available for investing and higher interest rates.
Other income increased 37.4% for the comparable three-month periods due
to a gain on the sale of a warehouse property in Los Angeles,
California, partially offset by lower royalty income and currency
conversion losses on U.S. dollar denominated accounts at the Canadian
subsidiary compared to gains during the third quarter of 1993. 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.
During the third quarter of 1994, a license agreement with a significant
Mexican licensee was canceled by mutual agreement due to the acquisition
of the licensee by a competitor of A. P. Green. This will result in a
loss of royalty income to the Company of approximately $400,000 on an
annual basis, $100,000 in the current year. This should be more than
offset by the Company's share of income from the two new Colombian
affiliates.
RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1993
Total sales increased 9.3% from $121.3 million for the nine months ended
September 30, 1993 to $132.6 million for the comparable 1994 nine-month
period. Gross profit declined 6.9% from $24.5 million to $22.8 million
for the comparable periods. The impact from the addition of General
products for August and September, 1994 was to increase sales by $11.3
million and gross profit by $1.5 million.
Refractory Products and Services
Refractory products and services sales were $95.2 million and $107.0
million for the nine months ended September 30, 1993 and September 30,
1994, respectively, reflecting an increase of 12.4%. U.S. refractory
sales were up 12.9% from $83.8 million for the nine months ended
September 30, 1993 to $94.6 million for the comparable 1994 period, of
which $10.0 million was due to the General acquisition. Excluding this
acquisition impact, increased volumes in specialties and ceramic fibers
were partially offset by reduced volumes in brick and clays and grogs,
resulting in an overall volume increase of 1.4%. Prices were up
slightly for the comparable nine-month periods, with price increases on
specialties and ceramic fibers partially offset by brick price
reductions.
-15-
<PAGE>
Sales at the Canadian subsidiary increased 29.1% from $9.2 million for
the nine months ended September 30, 1993 to $11.8 million for the
comparable 1994 period. The impact from the General acquisition was to
increase Canadian sales by $1.3 million. Excluding this impact, volumes
increased across all product lines by an average of 18.7%, 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 4.3%. Pre-tax
earnings of $589,000, including a pre-tax loss of $3,000 from the
acquired Canadian company, increased 50.6% over 1993 pre-tax earnings
due to higher sales and cost savings resulting from the restructuring
which took place during the first quarter of 1994. Current year results
also include a pre-tax reserve of approximately $315,000 which was
established during the first quarter for the cost of Canadian personnel
reductions made during that quarter. Absent that adjustment, the
Canadian subsidiary generated a pre-tax margin of 7.6% during the first
nine months of 1994 compared to 4.3% during the comparable 1993 period.
Continuing weakness in the United Kingdom market resulted in a sales
decline at that subsidiary of 12.6% from $5.8 million for the first nine
months of 1993 compared to $5.1 million for the first nine months of
1994. This lower sales level resulted in a pre-tax earnings decline
from $105,000 in 1993 to $67,000 in 1994.
Refractory products cost of sales as a percentage of sales increased
from 80.0% in 1993 to 82.8% in 1994. This increase was primarily due to
higher raw material costs, equipment maintenance expense and group
insurance cost. Also contributing to the increase were higher U.S.
pension costs due to plan benefit changes, a lower favorable LIFO
inventory cost adjustment in 1994 compared to 1993 and higher brick
breakage costs in the U.S. during 1994 compared to 1993. Cost of sales
as a percentage of sales at the acquired General plants also contributed
to the increase due primarily to maintenance costs necessary to bring
these facilities up to an appropriate state of repair. Partially
offsetting these increases were reduced utilities, freight, casualty
insurance and processing fuel costs. Refractory operating profits
declined 13.0% from $8.3 million to $7.2 million in 1993 and 1994,
respectively.
Industrial Lime
Industrial lime sales decreased 1.9% from $26.2 million to $25.7 million
for the nine-month periods ended September 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 3.6%. 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.
-16-
<PAGE>
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 18.7% and
19.5%, respectively. Also contributing to this decline were increased
depreciation expense due to increased capital expenditures at both
plants, higher purchased raw material costs at the New Braunfels plant
and increased group insurance costs at both plants. Partially
offsetting these increases were reduced workers' compensation and
palletizing costs at the New Braunfels plant.
Expenses and Other Income
Selling and administrative expenses were unchanged at $18.2 million for
both nine-month periods. Reductions in management incentives and annual
sales meeting costs were offset by increases in salaries and related
costs, primarily due to the addition of General sales personnel, an
increase in sales promotion costs and a partial recovery during the
third quarter of 1993 of a trade receivable previously written off.
Interest expense increased 45.1% from 1993 to 1994 due to the additional
debt associated with the acquisition of General. There were no bank
line borrowings during either period. Interest income decreased 2.4%
due to interest received during the third quarter of 1993 in connection
with partial recovery of a trade receivable previously written off.
This was partially offset by increased interest income on time deposits
as a result of increased funds available for investing and higher
interest rates.
Other income increased 23.7% due to a gain on the sale of land during
the first quarter of 1994, gain on the sale of a Los Angeles warehouse
during the third 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
currency conversion losses on U.S. dollar denominated accounts at the
Canadian subsidiary compared to gains during the third quarter of 1993
and reduced royalty income. 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 30.8% effective income tax rate in 1994 as compared to 34.7% 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 Financial Accounting Standards
Board Statement No. 112, "Employer's Accounting for Postemployment
Benefits," further reduced 1994 net income by $255,000.
-17-
<PAGE>
INDUSTRY SEGMENTS
(In thousands)
Nine Months Ended September 30,
1994 1993
Net Sales
Refractory products and services $106,978 $ 95,210
Industrial lime 25,745 26,235
Intersegment eliminations (116) (164)
$132,607 $121,281
Gross Profit
Refractory products and services $ 18,380 $ 19,053
Industrial lime 4,466 5,490
$ 22,846 $ 24,543
Gross Profit Percentage
Refractory products and services 17.2% 20.0%
Industrial lime 17.3% 20.9%
17.2% 20.2%
Operating Profit
Refractory products and services $ 7,186 $ 8,264
Industrial lime 3,661 4,547
10,847 12,811
Other Charges to Income
General corporate expenses, net 5,043 5,550
Interest expense 1,153 795
Interest income (986) (1,011)
Total other charges 5,210 5,334
Earnings Before Income Taxes and Cumulative
Effect of an Accounting Change $ 5,637 $ 7,477
Identifiable Assets (at period end)
Refractory products and services $322,084 $285,884
Industrial lime 47,396 44,004
Corporate 9,641 15,466
$379,121 $345,354
-18-
<PAGE>
Nine Months Ended September 30,
1994 1993
Depreciation and Depletion
Refractory products and services $ 3,466 $ 3,250
Industrial lime 1,998 1,776
Corporate 723 675
$ 6,187 $ 5,701
Capital Expenditures
Refractory products and services $ 1,644 $ 1,056
Industrial lime 2,986 1,190
Corporate 503 409
$ 5,133 $ 2,655
GEOGRAPHIC SEGMENTS
(In thousands)
Nine Months Ended September 30,
1994 1993
Net Sales
United States $120,333 $110,033
Canada 11,843 9,175
United Kingdom 5,065 5,798
Intersegment transfers (primarily U.S.) (4,634) (3,725)
$132,607 $121,281
Earnings Before Income Taxes and Cumulative
Effect of an Accounting Change
United States $ 4,981 $ 6,981
Canada 589 391
United Kingdom 67 105
$ 5,637 $ 7,477
Identifiable Assets (at period end)
United States $348,481 $316,406
Canada 16,760 8,688
United Kingdom 4,239 4,794
Corporate 9,641 15,466
$379,121 $345,354
-19-
<PAGE>
PRICE/VOLUME SUMMARY
1994 AS COMPARED TO 1993
PERCENT INCREASE (DECREASE)
Three Nine
Months Months
Ended Ended
September 30, 1994 September 30, 1994
U.S. Refractory Products Sales
(excluding impact of General
Refractories acquisition)
Volume 12.5% 1.4%
Price 0.6 0.5
Industrial Lime Sales
Volume (0.7) (3.6)
Price 1.7 1.8
-20-
<PAGE>
FINANCIAL CONDITION
The Company continues to maintain a strong balance sheet.
Summary Information
(Dollars in thousands)
September 30, December 31,
1994 1993 1993
Working capital $ 73,249 $ 52,981 $ 54,198
Current ratio 1.8:1 1.9:1 1.9:1
Total assets $379,121 $345,354 $339,314
Current maturities of
long-term debt 135 118 123
Long-term debt 37,057 12,193 12,160
Stockholders' equity $104,918 $ 99,502 $100,930
Debt to total
capitalization(1) 26.2% 11.0% 10.8%
(1) Calculated as total Debt (long-term debt including current
maturities) divided by total stockholders' equity plus total Debt.
The following balance sheet increases (decreases) resulted from the General
acquisition on August 1, 1994 (in millions):
Receivables, net $12.3
Inventories 22.7
Deferred income tax benefit 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
-21-
<PAGE>
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
In connection with the General acquisition, the Company obtained a Phase I
and II Environmental Site Assessment (ESA) in order to determine the
potential environmental impact of specific recognized environmental
conditions at each of the acquired properties and estimate the costs for
remediation. Based upon the results of the ESA and a report and opinion
provided thereon, the Company established a $3.4 million liability for
remediation costs (in accrued other) as part of the General acquisition
purchase accounting. The majority of this liability relates to known or
potential leakage and spills from underground and aboveground storage tanks
and drums, and action is being taken to remediate all identified conditions
in the near future. Appropriate state agencies have been notified of
contamination where required, and there have been no resulting actions
taken or proposed against the Company. There was no asbestos-related
liability, either for bodily injury or property damage, assumed in
connection with the General acquisition.
In order to increase the efficiency of refractory operations, the Company
has announced the closing of three of the acquired General plants. In
connection therewith, a $3.5 million liability was established (in accrued
other) as part of the General acquisition purchase accounting. Included in
this amount are estimated operating costs of these facilities prior to
their disposal, severance pay and costs associated with clean-up and sale
of the facilities. The Company expects to dispose of these facilities
within twelve months of their closing. The net realizable value of the
properties to be sold of approximately $900,000 was included in other
current assets at September 30, 1994.
Excluding the impact from the General acquisition, working capital
increased $7.1 million from September 30, 1993 to September 30, 1994 due
primarily to a $5.9 million increase in reimbursements due on paid asbestos
claims. This change, as well as the $7.8 million increase in such
reimbursements since December 31, 1993, was a result of an
-22-
<PAGE>
increase in the number of asbestos cases settled rather than the
aging of receivables. Also contributing to the increase in working capital
since September 30, 1993 was a $2.5 million increase in trade receivables
due to increased sales, a $1.9 million increase in inventories, a $1.8
million increase in projected insurance recovery on asbestos claims and a
$2.1 million increase in other current assets, partially offset by a $4.6
million reduction in cash and cash equivalents and a $2.8 million increase
in current portion of projected asbestos claims. The increase in other
current assets was due primarily to $900,000 in fixed assets held for sale
from closed plants and a $600,000 advance payment on raw materials in
Canada.
The decrease in assets of $26.2 million, net of the acquisition impact,
from September 30, 1993 to September 30, 1994 was due to a decrease in non-
current projected insurance recovery on asbestos claims of $35.6 million,
partially offset by the current asset increases discussed above. The
liability for projected asbestos claims declined $37.1 million during the
same period. These reductions were due primarily to asbestos claim
payments recovered from insurance carriers during the 12 month period ended
September 30, 1994, partially offset by adjustments to the Company's
projected asbestos liability.
The decrease in assets from December 31, 1993 to September 30, 1994 of
$20.2 million, net of the acquisition impact, was due to decreases of $9.7
million in cash and cash equivalents and $24.9 million in projected
insurance recovery on asbestos claims, including current portion, partially
offset by increases of $7.8 million in reimbursement due on paid asbestos
claims, as previously discussed, $5.8 million in inventories and $1.9
million in other current assets. The increase in inventories was due
primarily to recent receipts of bauxite and temporary increases in
inventories of certain products manufactured by the General plants being
shut down to ensure the ability to service customer demand during the
period in which production of these products is transferred to the
remaining plants. The decrease in projected insurance recovery on asbestos
claims, as well as a decrease of $25.7 million in projected insurance
claims, including current portion, were due primarily to asbestos claim
payments recovered from insurance carriers during the first nine months of
1994. The increase in other current assets was due primarily to $900,000
in fixed assets held for sale from closed plants and a $600,000 advance
payment on raw materials in Canada.
Capital spending for the industrial lime operation increased 150.9% from
$1.2 million to $3.0 million for the comparable nine-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.
-23-
<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 for Nine Months Ended September 30, 1994
(b) Reports on Form 8-K: On August 12, 1994, the Company filed Form 8-
K to report, under Item 2, the acquisition of substantially all of
the assets and assumption of most of the liabilities of the
refractory operations of General Refractories Company and its
affiliated companies. No financial statements of the acquired
business or pro forma financial statements reflecting the
acquisition were provided under Item 7 for reasons described in
Note 3 to the Consolidated Financial Statements included herein.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A. P. Green Industries, Inc.
(Registrant)
By: /s/ Gary L. Roberts
Gary L. Roberts
Vice President, Chief Financial
Officer and Treasurer
Date: November 11, 1994
-24-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS OF SEPTEMBER 30, 1994 AND THE
CONSOLIDATED STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 5,465
<SECURITIES> 0
<RECEIVABLES> 40,012
<ALLOWANCES> 1,727
<INVENTORY> 54,230
<CURRENT-ASSETS> 159,963
<PP&E> 98,152
<DEPRECIATION> 0
<TOTAL-ASSETS> 379,121
<CURRENT-LIABILITIES> 86,714
<BONDS> 37,192
<COMMON> 4,476
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<TOTAL-LIABILITY-AND-EQUITY> 379,121
<SALES> 132,607
<TOTAL-REVENUES> 132,607
<CGS> 109,761
<TOTAL-COSTS> 109,761
<OTHER-EXPENSES> 18,183
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