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, 1997 Commission File No. 0-16452
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A. P. GREEN INDUSTRIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0899374
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Green Boulevard, Mexico, Missouri 65265
--------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 473-3626
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: As of August 13, 1997, 8,059,056
shares of Common Stock, $1 par value, were outstanding.
Page 1 of 24
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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,
1997 1996
-------- ------------
(Dollars in thousands, except per share data)
ASSETS
Current Assets
Cash and cash equivalents $ 6,129 $ 9,477
Receivables (net of allowances -
1997, $1,732; 1996, $1,701) 43,865 42,084
Reimbursement due on paid asbestos claims -- 3,898
Inventories 55,217 53,674
Deferred income tax asset 2,685 3,374
Other 7,619 7,030
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Total current assets 115,515 119,537
Property, plant and equipment, net 106,386 107,394
Projected insurance recovery on asbestos claims 108,437 110,374
Pension assets 9,106 9,044
Intangible assets, net 4,601 4,132
Other assets 4,363 4,648
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Total assets $348,408 $355,129
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 16,798 $ 20,408
Accrued expenses
Payrolls 6,121 6,267
Taxes other than on income 1,934 1,860
Insurance reserves 4,103 3,574
Other 6,942 6,528
Current maturities of long-term debt 4,120 4,168
Income taxes 1,183 1,191
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Total current liabilities 41,201 43,996
Deferred income taxes 8,533 10,228
Long-term non-pension benefits 17,258 16,583
Long-term pensions 12,652 12,449
Long-term debt 37,710 40,109
Projected asbestos claims 108,437 111,966
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Total liabilities 225,791 235,331
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Minority Interests 1,666 1,414
Stockholders' Equity
Preferred stock - $1 par value;
authorized: 2,000,000 shares;
issued and outstanding: none -- --
Common stock - $1 par value;
authorized: 10,000,000 shares;
issued: 8,980,092 in 1997
and 8,975,442 in 1996 8,980 8,975
Additional paid-in capital 68,334 68,309
Retained earnings 63,985 61,151
Less: Deferred foreign currency translation (3,172) (2,875)
Treasury stock of 953,934 shares in
1997 and 1996, at cost (9,498) (9,498)
Note receivable - ESOT (6,941) (6,941)
Minimum pension liability adjustment,
net of tax (737) (737)
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Total stockholders' equity 120,951 118,384
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Total liabilities and stockholders' equity $348,408 $355,129
======= =======
See accompanying notes to consolidated financial statements.
2
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Three months ended June 30,
---------------------------
(Dollars in thousands, except per share data) 1997 1996
--------- ---------
Net sales $ 71,853 $ 69,538
Cost of sales 58,239 55,913
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Gross profit 13,614 13,625
Expenses and other income
Selling & administrative expenses 9,176 9,211
Interest expense 812 791
Interest income (251) (285)
Minority interest in loss of partnership (89) (7)
Other income, net (50) (125)
--------- ---------
Earnings before income taxes 4,016 4,040
Income tax expense 1,435 1,588
Equity in net income of affiliates (15) (199)
Minority interest in loss of consolidated subsidiaries (55) (186)
--------- ---------
Net earnings $ 2,651 $ 2,837
========= =========
Net earnings per common share $ 0.33 $ 0.36
========= =========
Weighted average number of common shares 8,025,629 8,030,739
========= =========
Dividends per common share $ 0.040 $ 0.035
========= =========
See accompanying notes to consolidated financial statements.
3
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
Six months ended June 30,
-------------------------
(Dollars in thousands, except per share data) 1997 1996
--------- ---------
Net sales $ 136,669 $ 133,772
Cost of sales 112,253 108,655
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Gross profit 24,416 25,117
Expenses and other income
Selling & administrative expenses 18,398 18,217
Interest expense 1,646 1,577
Interest income (499) (606)
Minority interest in loss of partnership (85) (41)
Other income, net (116) (268)
--------- ---------
Earnings before income taxes 5,072 6,238
Income tax expense 1,793 2,374
Equity in net income of affiliates (30) (379)
Minority interest in loss of consolidated subsidiaries (153) (325)
--------- ---------
Net earnings $ 3,462 $ 4,568
========= =========
Net earnings per common share $ 0.43 $ 0.57
========= =========
Weighted average number of common shares 8,024,431 8,054,090
========= =========
Dividends per common share $ 0.08 $ 0.07
========= =========
See accompanying notes to consolidated financial statements.
4
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A. P. GREEN INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six months ended June 30,
-------------------------
(Dollars in thousands) 1997 1996
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Cash flows from operating activities
Net earnings $ 3,462 $ 4,568
Adjustments for items not requiring (providing) cash
Depreciation, depletion and amortization 5,985 5,205
Stock compensation to directors 29 28
Provision for losses on accounts receivable 363 333
Loss (gain) on sale of assets (39) 110
Equity in earnings of affiliates,
net of dividends received (30) (191)
Minority interest in losses of consolidated
subsidiaries and partnership (238) (366)
Decrease (increase) in assets
Trade receivables (2,144) (4,234)
Asbestos claim and fee reimbursements received 15,162 5,144
Inventories (1,543) 247
Receivable and prepaid taxes 45 336
Other current assets (761) (806)
Increase (decrease) in liabilities
Accounts payable and accrued expenses (2,739) (3,123)
Asbestos claims paid (12,855) (4,968)
Pensions 203 (65)
Income taxes (9) 109
Deferred income taxes (1,006) (234)
Long-term non-pension benefits 675 575
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Net cash provided by operating activities 4,560 2,668
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Cash flows from investing activities
Capital expenditures (4,001) (7,047)
Increase in other long-term assets (467) (204)
Decrease (increase) in pension assets (62) 52
Proceeds from sales of assets 208 69
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Net cash used in investing activities (4,322) (7,130)
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Cash flows from financing activities
Repayments of debt (11,151) (107)
Proceeds from borrowings 8,000 225
Dividends paid (642) (563)
Capital contributions from minority partner 490 --
Purchase of common stock for treasury -- (480)
Tax benefit on dividends paid to ESOT 14 14
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Net cash used in financing activities (3,289) (911)
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Effect of exchange rate changes (297) (348)
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Net decrease in cash and cash equivalents (3,348) (5,721)
Cash and cash equivalents at beginning of year 9,477 9,284
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Cash and cash equivalents at end of period $ 6,129 $ 3,563
======= ======
See accompanying notes to consolidated financial statements.
5
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A. P. GREEN INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. MANAGEMENT'S COMMENTS REGARDING ADJUSTMENTS AND RESULTS OF OPERATIONS
---------------------------------------------------------------------
In the opinion of management, the accompanying consolidated financial
statements include all adjustments of a normal and recurring nature
necessary for a fair presentation of the financial position and results
of operations for the periods presented. These financial statements
should be read in conjunction with the Company's Annual Report on Form
10-K for the year ended December 31, 1996. The results for the quarter
and six-month period ended June 30, 1997 are not necessarily indicative
of the results which may occur for the full year. All per share amounts
have been restated to reflect the two-for-one stock split effective
September 20, 1996. Certain prior year amounts have been reclassified
to conform to the 1997 presentation.
2. RESERVE FOR PLANT CLOSINGS
--------------------------
The Company has a reserve for estimated exit costs and termination
benefits in connection with the shutdown of certain facilities in the
U.S. and Canada. Three of the plants acquired in the acquisition of the
refractories assets of General Refractories Company and its affiliated
companies ("General") were closed during 1994, a $3.6 million reserve
for which was established at the time of acquisition and included on
the opening balance sheet. During 1995 the reserve was increased by
approximately $700,000 due to the closing of the Weston, Ontario plant,
which was sold in December 1995, and revised estimates of U.S. employee
termination benefits resulting from the sale of these facilities taking
longer than anticipated. Substantially all employees at these
facilities have been terminated and approximately $3.2 million of
termination benefits and plant closing costs have been charged against
the reserve to date. The U.S. facilities are held for sale at their
estimated net realizable value.
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3. INVENTORIES
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June 30, 1997 December 31, 1996
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Finished goods & work-in-process
Valued at LIFO:
FIFO cost $ 32,721 $ 31,278
Less LIFO reserve (14,272) (14,907)
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LIFO cost 18,449 16,371
Valued at FIFO 13,127 13,225
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TOTAL 31,576 29,596
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Raw materials and supplies
Valued at LIFO:
FIFO cost 17,131 17,702
Less LIFO reserve (6,012) (6,129)
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LIFO cost 11,119 11,573
Valued at FIFO 12,522 12,505
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TOTAL 23,641 24,078
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$ 55,217 $ 53,674
======= =======
4. LITIGATION
----------
Asbestos-related Claims - Personal Injury
-----------------------------------------
A. P. Green is among numerous defendants in lawsuits pending as of June
30, 1997 that seek to recover compensatory, and in many cases, punitive
damages for personal injury allegedly resulting from exposure to
asbestos-containing products.
A. P. Green is a member of the Center for Claims Resolution (the
Center), an organization of twenty companies (Members) who were
formerly distributors or manufacturers of asbestos-containing products.
The Center administers, evaluates, settles, pays and defends all of the
asbestos-related personal injury lawsuits involving its Members. Under
the terms of the Center Agreement, each Member's portion of the
liability payments and defense costs are based upon, among other
things, the number and type of claims brought against it. Claims
activity for the Company for each of the years ended December 31, 1996,
1995 and 1994 was as follows:
7
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1996 1995 1994
------- ------- -------
Claims pending at January 1 48,367 50,920 52,122
Claims filed 29,702 12,560 14,836
Cases settled, dismissed or
otherwise resolved (19,184) (15,113) (16,038)
------- ------- -------
Claims pending at December 31 58,885 48,367 50,920
======= ======= =======
Average settlement amount per claim(1) $ 1,582 $ 1,778 $ 1,816
(1) Substantially all settlements are covered by the Company's
insurance program.
On January 15, 1993, the Members were named as defendants in a class
action lawsuit brought on behalf of all persons who have been
occupationally exposed to asbestos-containing products of the Members
and who have unasserted claims for such exposure (the Class) pursuant
to Federal Rule of Civil Procedure 23(b)(3) in the Federal District
Court for the Eastern District of Pennsylvania. At the same time, a
settlement (the Settlement) between the Members and the Class was filed
with the court. On June 25, 1997, after a favorable ruling in the
Federal District Court for the Eastern District of Pennsylvania and a
reversal of that ruling by the Third Circuit Court of Appeals, the
United States Supreme Court upheld the ruling of the Third Circuit. The
result of such ruling is that the class action lawsuit and the
Settlement are of no effect.
In December 1996, the Company and a former subsidiary, The E. J.
Bartells Company, reached a comprehensive settlement agreement with all
insurance carriers except one. Under the terms of this settlement
agreement, such carriers have agreed to pay (subject to applicable
policy limits) on behalf of the insureds, liabilities arising out of
asbestos personal injury claims. The Company will pursue coverage
litigation against the non-settling carrier.
As the Settlement established a numerical cap on the number of claims
that could be processed each year during the ten years of the
Settlement and because the Settlement provided for a range of payments
for different disease categories, it was possible to estimate the
aggregate amount of liability for the Company through 2004 and related
insurance recoveries. The amounts reported for projected asbestos
claims and projected insurance recovery on asbestos claims in the
consolidated statements of financial position as of June 30, 1997 and
December 31, 1996 were determined based upon the Settlement. However,
without the Settlement the Company can only estimate the liability and
related insurance recoveries associated with known claims.
The Company is assessing the impact of the recent Supreme Court ruling
on its projected asbestos liability and insurance recoveries. In doing
so, the Company will review its insurance policies, historical
settlement amounts and the number of cases pending against it.
Management believes the outcome of this assessment will not have an
effect on the
8
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consolidated earnings of the Company. It is anticipated that future
projections of asbestos liabilities and insurance recoveries and
related adjustments to the amounts reported in the Company's statement
of financial position will be based primarily on known claims and
cases, as unreported claims cannot be estimated with a reasonable
degree of accuracy.
Management does not anticipate that the Company will be required to
make any payments for these claims. While management understands the
inherent uncertainty in litigation of this type and the possibility
that past costs may not be indicative of future costs, management does
not believe that these claims and cases will have any additional
material adverse effect on the Company's consolidated financial
position or results of operations.
In addition to asbestos-related personal injury claims asserted against
A. P. Green, a number of claims have been asserted against
Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a
subsidiary of the Company. These claims have been and are currently
being handled by such subsidiary's insurance carriers. Except for
deductible amounts or retentions provided for under insurance policies,
no claim for reimbursement of defense or indemnity payments has been
made against the Company or such subsidiary by any such carriers.
Asbestos-related Claims - Property Damage
-----------------------------------------
A. P. Green is also among numerous defendants in a property damage
class action suit pending in South Carolina. A. P. Green previously has
been dismissed from a number of property damage cases and believes that
it should be dismissed from the South Carolina case based on the end
uses of its products. A similar suit pending in the State of Oregon
involves a former wholly owned subsidiary of the Company and is being
defended by the Company's insurance carrier. Based upon the Company's
history in these asbestos-related property damage claims, management
does not believe that the ultimate resolution of these matters will
have a material adverse effect on the Company's consolidated financial
position or results of operations.
Environmental
-------------
The EPA or other private parties have named the Company or one of its
subsidiaries as a potentially responsible party in connection with two
superfund sites in the United States. The Company is a de minimis party
with respect to one of the sites and expects to arrive at a settlement
agreement and consent decree with respect to it for an amount which is
not expected to be material. With respect to the second, involving a
wholly owned subsidiary of the Company, there does not appear to be any
evidence of delivery to the site of hazardous material by the
subsidiary. An estimate has been made of the costs to be incurred in
these matters and the Company has recorded a reserve respecting those
costs.
Other
-----
From time to time, A. P. Green is subject to claims and other lawsuits
that arise in the
9
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ordinary course of business, some of which may seek damages in
substantial amounts, including punitive or extraordinary damages.
Reserves for these claims and lawsuits are recorded to the extent that
losses are deemed probable and are estimable. In the opinion of
management, the disposition of all current claims and lawsuits will not
have a material adverse effect on the consolidated financial position
or results of operations of A. P. Green.
10
<PAGE>
A. P. GREEN INDUSTRIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO
- --------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 1996
- --------------------------------
Total sales increased 3.3% to a quarterly record $71.9 million for the
three months ended June 30, 1997 from $69.5 million for the comparable
1996 three-month period. Gross profit was unchanged at $13.6 million.
The impact from the December 31, 1996 acquisition of Eastern Ridge Lime
in Ripplemead, Virginia was to increase sales by approximately $2.6
million, with a slight increase in gross profit which was not material
to the consolidated results.
Refractory Products and Services
- --------------------------------
Refractory products and services sales declined 0.5% to $59.0 million
for the three months ended June 30, 1997 from $59.3 million for the
comparable 1996 period. United States refractory sales were $49.6
million and $50.7 million for the three-month periods ended June 30,
1997 and 1996, respectively, a decline of 2.2%. This decline was
primarily due to lower sales of silica products from the Lehi, Utah
plant, which were high in 1996 due to capital projects at several glass
and coke oven customers. A significant increase in Chinese imports has
also negatively impacted the Company's silica business.
U.S. refractory product sales volumes increased an average of 0.8%,
with increases in brick, INTOGREEN Co. and Lanxide ThermoComposites,
Inc. (LTI) products partially offset by decreases in specialties,
precast shapes and ceramic fiber volumes. Prices declined an average of
0.2%, with decreases in brick, INTOGREEN Co. and ceramic fiber prices
partially offset with increased prices for specialties, precast shapes
and LTI products. U.S. export sales declined 32.2% to $5.2 million in
the second quarter of 1997 from $7.6 million for the second quarter of
1996, primarily due to reduced sales to the Far East and the Middle
East.
Sales of the Canadian subsidiary increased 10.0% to $7.1 million for
the three-month period ended June 30, 1997 from $6.5 million for the
comparable 1996 period. Volumes increased an average of 13.2% across
all major product lines. Prices increased an average of 1.0%, with an
8.9% increase in specialty prices and slightly higher brick prices
partially offset by lower pricing for ceramic fibers, crucibles and
precast shapes. The sales increase, coupled with a 16.2% reduction in
selling and administrative expenses, resulted in pre-tax income of
$250,000 for the second quarter of 1997 compared to $75,000 for the
comparable 1996 period.
11
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Sales in the United Kingdom (U.K.) declined 24.1% to $2.0 million for
the second quarter of 1997 compared to $2.6 million for the second
quarter of 1996 due to weak market conditions. Lower volume levels
resulted in reduced production efficiencies, contributing to a pre-tax
loss of $28,000 for the three months ended June 30, 1997 compared to
pre-tax earnings of $169,000 for the 1996 period.
Sales at A. P. Green de Mexico for the three months ended June 30, 1997
were $2.6 million compared to $2.0 million for the comparable 1996
period, a 26.7% increase. However, increased maintenance, material and
freight costs and a weakening Mexican peso contributed to a decline in
pre-tax earnings to $280,000 for the second quarter of 1997 compared to
$333,000 for the same period in 1996.
Sales at PT AP Green Indonesia were $350,000, with a pre-tax loss of
$231,000 due to the relatively high fixed costs at the low initial
volume level. This operation is expected to have profitable monthly
results by the end of 1997, however, a loss is anticipated for the full
year. The Indonesian operation incurred a pre-tax start-up loss of
$114,000 during the second quarter of 1996.
Refractory products cost of sales as a percentage of sales decreased to
81.2% compared to 81.4% for the three months ended June 30, 1997 and
1996, respectively. This reduction was primarily due to improved
production efficiencies and lower equipment maintenance costs.
Partially offsetting these improvements were higher group health
insurance and workers' compensation insurance costs. Refractory
operating profits improved 2.5% to $4.5 million in the second quarter
of 1997 from $4.4 million during the 1996 period due primarily to the
improved gross margins.
Industrial Lime
- ---------------
Industrial lime sales increased 26.4% to $12.9 million for the second
quarter of 1997, including $2.6 million from the plant in Ripplemead,
Virginia acquired December 31, 1996, from $10.2 million for the second
quarter of 1996. Volumes at the New Braunfels, Texas plant declined an
average of 2.0%, with reductions in building and industrial lime
partially offset by increased road stabilization lime volume. Prices of
industrial and road stabilization lime increased slightly while
building lime prices declined for a net price increase of 0.4%. At the
Kimballton, Virginia plant Cal-Dol and hydrate lime volumes increased
while quicklime volumes declined for a net volume reduction of 0.8%.
Also contributing to the volume decline at Kimballton was a strike at
one of its major customers. Kimballton prices increased an average of
4.3% across all product lines.
Industrial lime gross profit declined 2.1% to $2.5 million from $2.6
million for the respective second quarters of 1997 and 1996. Gross
profit as a percentage of sales declined to 19.4% for the second
quarter of 1997 from 25.0% for the second quarter of 1996. This decline
was due to increased purchased material and group health insurance
costs at both the Kimballton and New Braunfels plants and reduced
efficiencies at the Kimballton plant occasioned by lower volumes as a
result of the strike previously
12
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mentioned. Also contributing to the decline in gross profit percentage
were the relatively high operating costs and depreciation related to
the newly acquired Ripplemead plant. Significant improvements continue
to be made at this facility, which generated a small net profit for the
quarter, and the impact of these improvements, coupled with increased
synergies with the nearby Kimballton plant, should result in improved
gross profit percentages in future periods. Partially offsetting these
cost increases were reduced processing fuel costs at both the
Kimballton and New Braunfels plants and reduced power and explosives
costs at the New Braunfels plant. Industrial lime operating profit
declined 3.4% to $2.2 million for the three months ended June 30, 1997
from $2.3 million for the comparable 1996 period.
Expenses and Other Income
- -------------------------
Selling and administrative expenses were unchanged at $9.2 million for
the second quarters of 1997 and 1996. Higher professional fees and
group health insurance expenses were offset by reduced sales incentives
and LTI research costs.
Interest expense increased 2.7% to $812,000 in 1997 from $791,000 in
1996 due to interest associated with borrowings against the Company's
line of credit. Daily average bank line borrowings were approximately
$2.4 million during the second quarter of 1997, while there were no
bank line borrowings during the same period of 1996. Interest income
for the second quarter of 1997 declined 11.8% to $251,000 from $285,000
in the comparable 1996 three-month period due primarily to reduced
funds available for investing. Other income declined 60.4% for the
comparable three-month periods primarily due to currency conversion
losses on the Mexican peso at the Company's Mexican subsidiary compared
to gains during the second quarter of 1996.
The Company and its Canadian and U.K. subsidiaries typically transact
business in their own currencies and accordingly are not subject to
significant currency conversion gains and losses. A. P. Green de Mexico
and PT AP Green Indonesia transact a significant portion of their
business in U.S. dollars and, as such, use the dollar as their
functional currency. This results in currency conversion gains and
losses on Mexican peso and Indonesian rupiah transactions, A. P.
Green's portion of which was not significant to the consolidated
results.
Income Taxes
- ------------
The 35.7% effective tax rate for the second quarter of 1997 was due to
reduced tax depletion on lime reserves, increased royalty receipts and
an increase in meals and entertainment expense. The 39.3% effective tax
rate for the second quarter of 1996 was due primarily to limited
recognition of tax benefits from the pre-tax startup losses of LTI.
Those benefits were subsequently recognized during the second half of
1996.
13
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Equity in Net Income of Affiliates
- ----------------------------------
The Company's share of income from its two Colombian affiliates was
$15,000 for the three months ended June 30, 1997 compared to $199,000
for the comparable 1996 period. The reduction was due to a recession in
the Colombian construction industry, political uncertainty and a
general decline in economic conditions in Colombia. Current projections
indicate reduced income levels will continue in the near future.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX
- ----------------------------------------------------------------------
MONTHS ENDED JUNE 30, 1996
- --------------------------
Total sales increased 2.2% to a record $136.7 million for the six
months ended June 30, 1997 from $133.8 million for the comparable 1996
period. Gross profit declined 2.8% to $24.4 million from $25.1 million
for the comparable periods. The impact from the December 31, 1996
acquisition of Eastern Ridge Lime in Ripplemead, Virginia was to
increase sales by approximately $4.7 million, with a slight increase in
gross profit which was not material to the consolidated results.
Refractory Products and Services
- --------------------------------
Refractory products and services sales were $112.5 million and $113.7
million for the six months ended June 30, 1997 and 1996, respectively,
reflecting a decline of 1.1%. U.S. refractory sales declined 3.2% to
$95.2 million for the six months ended June 30, 1997 from $98.3 million
for the comparable 1996 period. This decline was primarily due to lower
sales of silica products from the Lehi, Utah plant, which were high in
1996 due to capital projects at several glass and coke oven customers.
A significant increase in Chinese imports has also negatively impacted
the Company's silica business.
Volume declined 0.3%, with declines in brick, specialties and ceramic
fibers largely offset by volume increases in precast shapes, INTOGREEN
and LTI products. Price declines in brick, precast shapes, ceramic
fibers and INTOGREEN products were partially offset by improvements in
specialties and LTI products pricing for a net average price decline of
0.7%. U.S. export sales declined 30.5% to $9.6 million for the
six-month period ended June 30, 1997 from $13.8 million for the
comparable 1996 period, primarily due to reduced sales to the Far East,
Europe and the Middle East. Reduced U.S. export sales to Mexico and the
Caribbean were offset with increased sales by A. P. Green de Mexico.
Sales at the Canadian subsidiary increased 4.5% to $12.5 million for
the six months ended June 30, 1997 from $11.9 million for the
comparable 1996 period. Increased volumes in brick, crucibles and
precast shapes were partially offset by reduced specialties volume for
a net volume increase of 4.6%. Ceramic fiber sales volumes were flat
for the comparable six-month periods. Brick, specialties and ceramic
fiber pricing improvements were partially offset by declines in
crucible and precast shape pricing, resulting in an overall price
increase of 3.4%.
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<PAGE>
The first quarter of 1996 included costs associated with the final
shutdown of the Weston, Ontario plant, which was sold in December 1995,
and relocation of the related inventory and equipment. Elimination of
those costs resulted in a gross margin improvement of nearly 22.0%. As
a result of that gross margin improvement, the Canadian operation
generated pre-tax income of $176,000 for the six months ended June 30,
1997 compared to a pre-tax loss of $106,000 for the comparable 1996
period.
Sales by the United Kingdom subsidiary declined 10.9% to $4.2 million
for the first six months of 1997 from $4.7 million for the first six
months of 1996 due to weak market conditions. Lower volume levels
resulted in reduced production efficiencies, contributing to a pre-tax
loss of $58,000 for the six months ended June 30, 1997 compared to
pre-tax earnings of $243,000 for the 1996 period.
A. P. Green de Mexico sales for the first six months of 1997 were $5.0
million, a 38.2% increase over 1996 sales of $3.6 million. Increased
maintenance, material and freight costs, higher selling and
administrative costs and a weakening Mexican peso contributed to a
decline in pre-tax earnings to $498,000 for the first half of 1997
compared to $560,000 for the same period in 1996.
Sales at PT AP Green Indonesia were $468,000, with a pre-tax loss of
$469,000 due to the relatively high fixed costs at the low initial
volume level. This operation is expected to have profitable monthly
results by the end of 1997, however, a loss is anticipated for the full
year. The Indonesian operation incurred a pre-tax start-up loss of
$125,000 during the first half of 1996.
Refractory products cost of sales as a percentage of sales increased
slightly to 82.5% in 1997 from 82.1% in 1996. This increase was
primarily due to lower margins at A. P. Green de Mexico and in the U.K.
as discussed above, high relative fixed costs at PT AP Green Indonesia
and increased material costs in the U.S.. Also contributing to the
higher 1997 costs was reduced production at the Mexico, Missouri plant
as new mixing and batching equipment was installed in January.
Partially offsetting these cost increases were lower equipment repair
and maintenance expense and reduced costs in Canada as discussed above.
Refractory operating profits declined 13.9% to $6.4 million from $7.5
million in 1997 and 1996, respectively, due to the reduced gross
margins, higher group health insurance expense and increased selling
and administrative costs at A. P. Green de Mexico, INTOGREEN, LTI and
PT AP Green Indonesia.
Industrial Lime
- ---------------
Industrial lime sales increased 21.0% to $24.4 million from $20.1
million for the six-month periods ended June 30, 1997 and 1996,
respectively, including $4.7 million from the plant in Ripplemead,
Virginia acquired December 31, 1996. A decline in quicklime volume was
partially offset by increased Cal-Dol volume at the Kimballton plant,
with hydrate volume flat for the comparable quarters, for a net volume
decline of 2.6%. Also contributing to the volume decline at Kimballton
was a strike at one of the plant's major
15
<PAGE>
customers. Kimballton hydrate and quicklime prices improved slightly
from the comparable 1996 period, with Cal-Dol prices flat, for a small
overall price increase. New Braunfels volumes declined an average of
1.7% across all product lines, while price increases for industrial and
road stabilization lime were offset by a decline in building lime
prices.
Industrial lime gross profit was unchanged at $4.7 million for the
comparable six-month periods, representing 19.2 % of sales and 23.4% of
sales for 1997 and 1996, respectively. The decline in gross profit
percentage was due to increased purchased material, depreciation and
group health insurance costs at both the Kimballton and New Braunfels
plants and reduced efficiencies at the Kimballton plant occasioned by
lower volumes as a result of a the strike previously mentioned. Also
contributing to the decline in gross profit percentage were the
relatively high operating costs and depreciation related to the newly
acquired Ripplemead plant. Significant improvements continue to be made
at this facility, which generated a small net profit for the first half
of 1997, and the impact of these improvements, coupled with increased
synergies with the nearby Kimballton plant, should result in improved
gross profit percentages in future periods. Partially offsetting these
cost increases were reduced processing fuel costs at both the
Kimballton and New Braunfels plants and reduced equipment maintenance,
power and explosives costs at the New Braunfels plant. Industrial lime
operating profit declined 2.2% to $4.0 million for the first six months
of 1997 compared to $4.1 million for the comparable 1996 period,
primarily due to the reduced gross profit.
Expenses and Other Income
- -------------------------
Selling and administrative expenses increased 1.0% to $18.4 million in
1997 from $18.2 million in 1996. Higher group health insurance costs
and increased expenses at INTOGREEN, LTI, A. P. Green de Mexico and PT
AP Green Indonesia were largely offset with reductions in management
and sales incentives and LTI research costs.
Interest expense was $1.6 million for the first half of both years,
with increased interest related to borrowings against the Company's
line of credit offset by reduced interest on the unsecured notes
associated with the 1994 General acquisition. Daily average bank line
borrowings were approximately $3.3 million during the first six months
of 1997, while there were no bank line borrowings during the same
period of 1996. Interest income declined 17.8% due primarily to reduced
funds available for investing. Other income declined 56.6% due to
currency conversion losses on U.S. dollar denominated accounts at the
Company's Canadian subsidiary and Mexican peso accounts at the
Company's Mexican subsidiary compared to gains during the first half of
1996, partially offset by increased 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. A. P. Green de Mexico
and PT AP Green Indonesia transact a significant portion of their
business in U.S. dollars and, as such, use the dollar as their
functional
16
<PAGE>
currency. This results in currency conversion gains and losses on
Mexican peso and Indonesian rupiah transactions, A. P. Green's portion
of which was not significant to the consolidated results.
Income Taxes
- ------------
The 35.4% effective tax rate for the first six months of 1997 was due
to reduced tax depletion on lime reserves, increased royalty receipts
and an increase in meals and entertainment expense. The 38.1% effective
tax rate for the first half of 1996 was due primarily to limited
recognition of tax benefits from the pre-tax startup losses of LTI.
Those benefits were subsequently recognized during the second half of
1996.
Equity in Net Income of Affiliates
- ----------------------------------
The Company's share of income from its two Colombian affiliates was
$30,000 for the three months ended June 30, 1997 compared to $379,000
for the comparable 1996 period. The reduction was due to a recession in
the Colombian construction industry, political uncertainty and a
general decline in economic conditions in Colombia. Current projections
indicate reduced income levels will continue in the near future.
Accounting Standards Not Yet Implemented
- ----------------------------------------
The Company is required to implement Statement of Financial Accounting
Standards No. 128, "Earnings per Share," for the quarter and year
ending December 31, 1997. The standard requires presentation of both
basic and diluted earnings per share on the face of the consolidated
statement of earnings, using the treasury stock method to calculate the
net impact of dilutive securities. In addition, a reconciliation of
both the numerator and denominator of the two calculations is required
in the footnotes to the financial statements. Implementation of the
standard would have no impact on basic earnings per share as reported
herein, whereas diluted earnings per share would be $.32 and $.35 for
the quarters ended June 30, 1997 and 1996, respectively, and $.42 and
$.56 per share for the six months ended June 30, 1997 and 1996,
respectively.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of
Information about Capital Structure", which the Company is required to
implement for the year ending December 31, 1997. In June 1997 the Board
issued Statement No. 130, "Reporting Comprehensive Income", and No.
131, "Disclosures about Segments of an Enterprise and Related
Information", which the Company is required to implement for the year
ending December 31, 1998. Although the implementation of these
statements will have no impact on the financial results of the Company,
it is assessing the impact of these statements on the disclosures
provided in its quarterly and annual reports.
17
<PAGE>
INDUSTRY SEGMENTS
(In thousands)
Six Months Ended June 30,
-------------------------
1997 1996
------- -------
Net Sales
Refractory products and services $112,505 $113,700
Industrial lime 24,367 20,132
Intersegment eliminations (203) (60)
------- -------
$136,669 $133,772
======= =======
Gross Profit
Refractory products and services $ 19,728 $ 20,402
Industrial lime 4,688 4,715
------- -------
$ 24,416 $ 25,117
======= =======
Gross Profit Percentage
Refractory products and services 17.5% 17.9%
Industrial lime 19.2% 23.4%
17.9% 18.8%
======= =======
Operating Profit
Refractory products and services $ 6,439 $ 7,476
Industrial lime 4,016 4,105
------- -------
10,455 11,581
Other Charges to Income
General corporate expenses, net 4,236 4,372
Interest expense 1,646 1,577
Interest income (499) (606)
------- -------
Total other charges 5,383 5,343
------- -------
Earnings Before Income Taxes $ 5,072 $ 6,238
======= =======
18
<PAGE>
Six Months Ended June 30,
-------------------------
1997 1996
------- -------
Identifiable Assets (at period end)
Refractory products and services $279,699 $313,072
Industrial lime 59,391 47,512
Corporate 9,318 6,676
------- -------
$348,408 $367,260
======= =======
Depreciation, Depletion and Amortization
Refractory products and services $ 3,464 $ 3,292
Industrial lime 2,168 1,387
Corporate 353 526
------- -------
$ 5,985 $ 5,205
======= =======
Capital Expenditures
Refractory products and services $ 2,407 $ 5,386
Industrial lime 1,217 1,433
Corporate 377 228
------- -------
$ 4,001 $ 7,047
======= =======
GEOGRAPHIC SEGMENTS
(In thousands)
Six Months Ended June 30,
-------------------------
1997 1996
------- -------
Net Sales
United States $119,520 $118,467
Canada 12,481 11,947
United Kingdom 4,183 4,692
Mexico 4,967 3,594
Far East 468 --
Intersegment transfers (primarily U.S.) (4,950) (4,928)
------- -------
$136,669 $133,772
======= =======
19
<PAGE>
Six Months Ended June 30,
-------------------------
1997 1996
------- -------
Earnings (Loss) Before Income Taxes
United States $ 4,925 $ 5,666
Canada 176 (106)
United Kingdom (58) 243
Mexico 498 560
Far East (469) (125)
------- -------
$ 5,072 $ 6,238
======= =======
Identifiable Assets (at period end)
United States $303,073 $331,606
Canada 17,682 17,676
United Kingdom 4,053 4,671
Mexico 6,837 5,633
Far East 7,445 998
Corporate 9,318 6,676
------- -------
$348,408 $367,260
======= =======
PRICE/VOLUME SUMMARY
1997 AS COMPARED TO 1996
PERCENT INCREASE (DECREASE)
Three Six
Months Months
Ended Ended
June 30, 1997 June 30, 1997
------------- -------------
U.S. Refractory Products Sales
Volume 0.8% (0.3)%
Price (0.2) (0.7)
Industrial Lime Sales
(excluding impact of Eastern Ridge acquisition)
Volume (1.5) (2.8)
Price 2.2 0.5
20
<PAGE>
FINANCIAL CONDITION
- -------------------
The Company continues to maintain a strong balance sheet.
Summary Information
(Dollars in thousands)
June 30, December 31,
------------------- ------------
1997 1996 1996
---- ---- ----
Working capital $ 74,314 $ 79,471 $ 75,541
Current ratio 2.8:1 3.0:1 2.7:1
Total assets $348,408 $367,260 $355,129
Current maturities of
long-term debt 4,120 2,867 4,168
Long-term debt 37,710 34,341 40,109
Stockholders' equity 120,951 117,218 118,384
Debt to total
capitalization(1) 25.7% 24.1% 27.2%
(1) Calculated as total Debt (long-term debt including current maturities)
divided by total stockholders' equity plus total Debt.
Working capital declined $5.2 million to $74.3 million at June 30, 1997 from
$79.5 million at June 30, 1996, net of $1.8 million obtained in the Eastern
Ridge acquisition, while the ratio of current assets to current liabilities
decreased to 2.8:1 from 3.0:1. Excluding the impact of the acquisition, working
capital decreased $7.0 million, primarily due to a $5.3 million reduction in
accounts receivable resulting from improved collection efforts and a $3.5
million reduction in reimbursement due on paid asbestos claims, partially offset
by a $1.5 million increase in cash.
As compared to December 31, 1996, working capital declined $1.2 million,
primarily due to a $3.9 million reduction in reimbursement due on paid asbestos
claims and a $3.3 million reduction in cash, partially offset by a $1.8 million
increase in accounts receivable due to increased sales levels and a $3.6 million
reduction in accounts payable. The reduction in reimbursement due on paid
asbestos claims since both June 30, 1996 and December 31, 1996 was due to
asbestos claim settlements with and reimbursements from the Company's insurance
carriers and the Center.
21
<PAGE>
The $1.3 million increase in current maturities of long-term debt since June 30,
1996 was due primarily to reclassification from long-term debt of the final
payment on an industrial development revenue bond at the Bessemer, Alabama plant
which matures in December 1997. Long-term debt decreased $2.4 million since
December 31, 1996 due primarily to a net $3.0 million reduction in outstanding
borrowings against the U.S. long-term line of credit. This reduction was
partially offset by a $700,000 ten-year capital lease on a warehouse in Houston,
Texas, which bears an interest rate of 10.9% and expires December 1, 2006.
Projected insurance recovery on asbestos claims declined $1.9 million and
projected asbestos claims declined $3.5 million since December 31, 1996 due to
asbestos claim payments by insurance carriers and settlements by the Company
with those carriers during the first six months of 1997. The net projected
asbestos liability included in the Company's consolidated statement of financial
position has been reduced to zero as a result of final settlements with the
Company's insurance carriers. Future payments of asbestos claims will be made
directly to the Center by those carriers.
Deferred income tax assets decreased by approximately $700,000 since December
31, 1996 due primarily to payment by the Company of asbestos liabilities.
Deferred income tax liabilities declined approximately $1.7 million primarily
due to reductions in prepaid pension costs and depreciation method differences.
Capital expenditures for the first six months of 1997 totaled $4.0 million
compared to $7.0 million for the same period of 1996, with capital expenditures
for the refractories business declining $3.0 million. This reduction was
primarily due to completion of both the new plant in Indonesia and the movement
of operations previously at Weston, Ontario to the Smithville, Ontario plant
during 1996.
In May 1997, the Company's $30.0 million U.S. long-term line of credit was
extended to May 2, 1999. At the same time, certain restrictive covenants
associated with the Company's U.S. long-term line of credit and the unsecured
notes payable were amended effective January 1, 1997 to terms more favorable to
the Company. Approximately $1.5 million of this line of credit was being
utilized at June 30, 1997 for outstanding letters of credit and $6.0 million in
borrowings remained outstanding, leaving an available balance of approximately
$22.5 million.
22
<PAGE>
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 8, 1997 at which the stockholders voted on the following
matters:
1. the election of one Class II director to hold office for a
term of two years;
2. the election of two Class III directors to hold office for a
term of three years; and
3. the ratification of the appointment of KPMG Peat Marwick LLP
as A. P. Green's auditors for the year ending December 31,
1997.
With regard to the election of the Class II director, Mack G.
Nichols was elected as a director of A. P. Green in an
uncontested election. The vote with respect to Mr. Nichols was
6,749,070 shares FOR and 117,804 shares WITHHOLD AUTHORITY TO
VOTE.
With regard to the election of the Class III directors, James
M. Stolze and William F. Morrison were elected and reelected,
respectively, as directors of A. P. Green in an uncontested
election. The vote with respect to Mr. Stolze was 6,742,429
shares FOR and 124,445 shares WITHHOLD AUTHORITY TO VOTE. The
vote with respect to Mr. Morrison was 6,745,171 shares FOR and
121,703 shares WITHHOLD AUTHORITY TO VOTE.
The other directors whose term of office continued after the
Annual Meeting are Paul F. Hummer, P. Jack O'Bryan and Daniel
R. Toll.
With regard to the ratification of the approval of KPMG Peat
Marwick LLP as auditors for the year ending December 31, 1997,
the ratification was approved by the following vote: 6,754,598
shares FOR, 55,038 shares AGAINST and 57,238 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, 1997.
(b) Reports on Form 8-K:
--------------------
No reports on Form 8-K were filed during the quarter
ended June 30, 1997.
23
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A. P. Green Industries, Inc.
(Registrant)
By: /s/Gary L. Roberts
------------------
Gary L. Roberts
Vice President, Chief Financial
Officer and Treasurer
Date: August 13, 1997
---------------
24
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE A. P.
GREEN INDUSTRIES, INC. QUARTERLY REPORT ON FORM 10-Q AS OF AND FOR THE SIX
MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 6,129
<SECURITIES> 0
<RECEIVABLES> 45,597
<ALLOWANCES> 1,732
<INVENTORY> 55,217
<CURRENT-ASSETS> 115,515
<PP&E> 106,386
<DEPRECIATION> 0
<TOTAL-ASSETS> 348,408
<CURRENT-LIABILITIES> 41,201
<BONDS> 41,830
0
0
<COMMON> 8,980
<OTHER-SE> 111,971
<TOTAL-LIABILITY-AND-EQUITY> 348,408
<SALES> 136,669
<TOTAL-REVENUES> 136,669
<CGS> 112,253
<TOTAL-COSTS> 112,253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,646
<INCOME-PRETAX> 5,072
<INCOME-TAX> 1,793
<INCOME-CONTINUING> 3,279
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,462
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
