-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, J2YjA81otWPrGkqKYWKU9GzHBvW+/r07bmXSRRRHKliell6qi3/4B1YaiApA7u0l NJJWehbaLMocxSwA8p1GiA== 0000826619-94-000011.txt : 19940809 0000826619-94-000011.hdr.sgml : 19940809 ACCESSION NUMBER: 0000826619-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN A P INDUSTRIES INC CENTRAL INDEX KEY: 0000826619 STANDARD INDUSTRIAL CLASSIFICATION: 3250 IRS NUMBER: 430899374 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16452 FILM NUMBER: 94541775 BUSINESS ADDRESS: STREET 1: GREEN BLVD CITY: MEXICO STATE: MO ZIP: 65265 BUSINESS PHONE: 3144733626 FORMER COMPANY: FORMER CONFORMED NAME: A P GREEN INDUSTRIES INC DATE OF NAME CHANGE: 19900619 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _______________ FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 _______________ For the quarter ended June 30, 1994 Commission File No. 0-16452 A. P. GREEN INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 43-0899374 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Green Boulevard, Mexico, Missouri 65265 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 473-3626 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: As of August 4, 1994, 4,027,282 shares of Common Stock, $1 par value, were outstanding. Page 1 of 22 A. P. GREEN INDUSTRIES, INC. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) June 30, December 31, 1994 1993 (Dollars in thousands, except per share data) ASSETS Current Assets Cash and cash equivalents $ 5,923 $ 16,331 Receivables (net of allowances - 1994, $1,040; 1993, $1,198) 26,411 26,873 Reimbursement due on paid asbestos claims 11,736 5,929 Inventories 30,163 25,735 Projected insurance recovery on asbestos claims 36,837 35,779 Deferred income tax benefit 3,941 4,493 Other 2,238 1,811 Total current assets 117,249 116,951 Property, plant and equipment, net 80,839 81,474 Non-current projected insurance recovery on asbestos claims 114,620 130,646 Other assets 10,246 10,243 Total assets $322,954 $339,314 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 11,938 $ 12,691 Accrued expenses Payrolls 4,026 4,342 Taxes other than on income 1,089 1,161 Current portion of projected asbestos claims 37,812 36,754 Other 7,229 7,668 Current maturities of long-term debt 131 123 Income taxes 411 601 Total current liabilities 62,636 63,340 Deferred income taxes 14,991 15,538 Long-term non-pension benefits 14,788 14,123 Long-term debt 12,091 12,160 Non-current projected asbestos claims 116,428 133,223 Total liabilities 220,934 238,384 Stockholders' Equity Preferred stock - $1 par value; authorized: 2,000,000 shares; issued and outstanding: none --- --- Common stock - $1 par value; authorized: 10,000,000 shares; issued: 4,475,629 in 1994 and 4,459,129 in 1993 4,476 4,459 Additional paid-in capital 72,738 72,492 Retained earnings 44,868 43,800 Less: Deferred currency translation (2,559) (2,301) Treasury stock of 448,347 shares, at cost (9,003) (9,003) Note receivable - ESOT (8,491) (8,491) Deferred compensation-restricted stock (9) (26) Total stockholders' equity 102,020 100,930 Total liabilities and stockholders' equity $322,954 $339,314 See accompanying notes to consolidated financial statements. -2- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollars in thousands, Three months ended June 30, except per share data) 1994 1993 Net sales $ 40,849 $ 41,053 Cost of sales 33,397 32,241 Gross profit 7,452 8,812 Expenses and other income Selling & administrative expenses 5,776 6,355 Interest expense 257 267 Interest income (325) (279) Other income, net (247) (266) Earnings before taxes 1,991 2,735 Income tax expense 635 959 Net earnings 1,356 1,776 Net earnings per common share $ 0.34 $ 0.44 Weighted average number of common shares 4,027,282 4,010,782 Dividends per common share $ 0.06 $ - See accompanying notes to consolidated financial statements. -3- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) (Dollars in thousands, Six months ended June 30, except per share data) 1994 1993 Net sales $ 78,352 $ 80,558 Cost of sales 64,794 63,907 Gross profit 13,558 16,651 Expenses and other income Selling & administrative expenses 11,745 12,372 Interest expense 520 533 Interest income (643) (567) Other income, net (600) (529) Earnings before taxes and cumulative effect of an accounting change 2,536 4,842 Income tax expense 744 1,732 Earnings before cumulative effect of an accounting change 1,792 3,110 Cumulative effect of an accounting change Postemployment benefits, net of tax (255) - Net earnings $ 1,537 $ 3,110 Earnings per common share before cumulative effect of an accounting change $ 0.44 $ 0.77 Cumulative effect of an accounting change Postemployment benefits, net of tax (0.06) - Net earnings per common share $ 0.38 $ 0.77 Weighted average number of common shares 4,022,301 4,010,782 Dividends per common share $ 0.12 $ - See accompanying notes to consolidated financial statements. -4- A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Six Months Ended June 30, (Dollars in thousands) 1994 1993 Cash flows from operating activities Net earnings $ 1,537 $ 3,110 Adjustments for items not requiring cash Cumulative effect of an accounting change- Postemployment benefits, net of tax 255 - Depreciation, depletion, and amortization 3,915 3,814 Deferred compensation 17 34 Stock compensation to directors 28 - Provision for losses on accounts receivable 94 186 Loss (gain) on sale of assets (6) 19 Decrease (increase) in assets Trade receivables 368 (1,213) Asbestos claim and fee reimbursements received 14,969 14,090 Inventories (4,428) (1,915) Receivable and prepaid taxes 228 - Other current assets (655) (269) Increase (decrease) in liabilities Accounts payable and accrued expenses (1,580) 1,247 Asbestos claims paid (21,544) (16,787) Income taxes (190) 87 Deferred income taxes 152 307 Long-term non-pension benefits 263 276 Net cash from (used in) operating activities (6,577) 2,986 Cash flows from investing activities Capital expenditures (3,339) (1,700) Decrease (increase) in other long-term assets 227 (258) Increase in pension assets (231) (540) Proceeds from sales of assets 48 9 Net cash used in investing activities (3,295) (2,489) Cash flows from financing activities Payment of debt (61) (67) Dividends paid (483) - Exercised stock options 237 - Tax benefit on dividends paid to ESOP 15 - Tax effect on stock plan (3) (59) Net cash used in financing activities (295) (126) Effect of exchange rate changes (241) (57) Net increase (decrease) in cash and cash equivalents (10,408) 314 Cash and cash equivalents at beginning of year 16,331 7,118 Cash and cash equivalents at end of period $ 5,923 $ 7,432 See accompanying notes to consolidated financial statements. -5- A. P. GREEN INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. MANAGEMENT'S COMMENTS REGARDING ADJUSTMENTS AND RESULTS OF OPERATIONS In the opinion of management, the accompanying consolidated financial statements include all adjustments of a normal and recurring nature necessary for a fair presentation of the financial position and results of operations for the periods presented. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 1993. The results for the quarter ended June 30, 1994 are not necessarily indicative of the results which may occur for the full year. 2. INVENTORIES June 30, 1994 December 31, 1993 Finished goods & work-in-process Valued at LIFO: FIFO cost $ 26,394 $25,150 Less LIFO reserve (13,721) (14,003) LIFO cost 12,673 11,147 Valued at FIFO 5,432 3,935 TOTAL 18,105 15,082 Raw materials and supplies Valued at LIFO: FIFO cost 11,767 11,017 Less LIFO reserve (5,457) (5,431) LIFO cost 6,310 5,586 Valued at FIFO 5,748 5,067 TOTAL 12,058 10,653 $30,163 $25,735 -6- 3. CHANGES IN METHOD OF ACCOUNTING Postemployment Benefits The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," in November 1992. The standard requires application of the accrual method of accounting to all benefits provided to former or inactive employees, their beneficiaries and covered dependents, subsequent to their employment by the Company and prior to retirement, rather than recognizing these expenses as they are paid. Effective January 1, 1994, the Company adopted this standard and recognized the projected benefit obligation relating to short-term and long-term disability benefits as a cumulative effect of an accounting change, reducing net income by $255,000, or $.06 per share. The annual incremental expense is not expected to be material. Projected Asbestos Claims and Insurance Reimbursements In prior years, the Company reported its projected asbestos claims and projected insurance reimbursements relating to such claims net within accrued liabilities. With the issuance of FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," the Company has determined that the amounts should be reported gross rather than net. As such, the consolidated statements of financial position and cash flows as of June 30, 1994 reflect both the gross projected liability for asbestos claims and gross projected insurance reimbursements related to those claims on a current and non-current basis. The consolidated statement of financial position as of December 31, 1993 and the consolidated statement of cash flows as of June 30, 1993 have been restated to be consistent with the 1994 presentation. There was no impact on operating results of either period as a result of this "grossed-up" presentation. 4. LITIGATION Asbestos-related Claims - Personal Injury A. P. Green is among numerous defendants in lawsuits pending as of June 30, 1994 that seek to recover compensatory, and in many cases, punitive damages for personal injury allegedly resulting from exposure to asbestos- containing products manufactured, sold or installed by A. P. Green. A. P. Green is a member of the Center for Claims Resolution (the Center), an organization of twenty companies (Members) who were formerly distributors or manufacturers of asbestos-containing products. The Center administers, evaluates, settles, pays and defends all of the asbestos- related personal injury lawsuits involving its Members. Under the terms of the Center Agreement, each Member's portion of the liability payments and defense costs are based upon, among other things, the number and type of -7- claims brought against it. Claims activity for the Company for each of the years ended December 31, 1993 and 1992 was as follows: ______________________________________________________________________ 1993 1992 ______________________________________________________________________ Claims pending at January 1 50,007 38,681 Claims filed 26,100 19,767 Cases settled, dismissed or otherwise resolved (23,985) (8,441) Claims pending at December 31 52,122 50,007 Average settlement amount per claim (1) $ 1,728 $ 1,875 ______________________________________________________________________ (1) Substantially all settlements are covered by the Company's insurance program. On January 15, 1993, the Members were named as defendants in a class action lawsuit pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania brought on behalf of all persons who have been occupationally exposed to asbestos-containing products of the Members and who have not filed suit against any Member for such exposure (the Class). At about the same time, the Center negotiated and filed with the Court a settlement (the Settlement) between the Members and the Class. Under the terms of the Settlement, the Members have agreed to pay compensation to any member of the Class who has, according to objective medical criteria, physical impairment as a result of such exposure. Different levels of compensation will be paid depending on the type and degree of physical impairment. No punitive damages will be paid. The Settlement provides, among other things, for a cap on the number of claims to be processed each year during the next ten years and a range of settlement values for each disease category. Settlement values are based on historical average payments by the Center for similar cases. Each Member will be responsible for its percentage share of each claim payment (no joint and several liability), such shares having been previously negotiated among the Members. The Settlement does not become operative until it has received appropriate court approval. In accordance with Rule 23, the Court ordered that appropriate notice be given to the Class. Hearings have been held to determine the fairness of the Settlement. Rulings from these hearings have not yet been made. -8- In a third party action filed simultaneously with the class action, the Members have asked for a declaratory judgment against their respective insurers that such insurers cannot use the Settlement as a defense to their payment under applicable policies of insurance. The Settlement is expressly contingent upon such declaratory relief. In addition, some Members, including A. P. Green, have asked for a declaratory judgment against their insurers with whom they have not reached coverage resolutions. Under the assumption that it receives these court approvals, the Settlement has provided the Company with a basis for estimating its potential liability and related insurance recovery associated with asbestos cases. The Company has reviewed its policies of insurance, historical settlement amounts, the number of pending cases and the projected number of claims to be filed pursuant to the Settlement and the Company's share of amounts to be paid thereunder. The Company has also reviewed its contractual liability for the payment of deductibles under insurance policies defending asbestos cases brought against a former subsidiary. Based upon such reviews, the Company has estimated and recorded its liability for such cases and claims as well as its projected insurance reimbursements related to such claims. While management understands the inherent uncertainty in litigation of this type and the possibility that past costs may not be indicative of future costs, management does not believe that these claims and cases will have any additional material adverse effect on the Company's consolidated financial position or results of operations. Management anticipates that payments for these claims will occur over at least ten years and can be made from normal operating cash sources. In addition to asbestos-related personal injury claims asserted against A. P. Green, a number of claims have been asserted against Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a subsidiary of the Company. These claims have been and are currently being handled by such subsidiary's insurance carriers. No claim for reimbursement of defense or indemnity payments has been made against the Company or such subsidiary by any such carriers. The Company is also contractually liable to The E. J. Bartells Company (Bartells), a former subsidiary, for deductible amounts on certain insurance policies insuring Bartells against asbestos-related personal injury claims issued when it was owned by A. P. Green. The Company has estimated the amounts of such deductibles and provision for such estimate was made in the Company's 1992 financial statements. Asbestos-related Claims - Property Damage A. P. Green is also among numerous defendants in a property damage class action suit pending in South Carolina. A. P. Green previously has been dismissed from a number of property damage cases and believes that it -9- should be dismissed from the South Carolina case based on the end uses of its products. A similar suit pending in the State of Oregon involves a former wholly owned subsidiary of the Company and is being defended by the Company's insurance carrier. Based upon the Company's history in these asbestos-related property damage claims, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. Environmental In the third quarter of 1993, the United States Environmental Protection Agency (EPA) filed a lawsuit against the Company in the Federal District Court for the Northern District of Oklahoma alleging violations of the Clean Water Act at the Company's Pryor, Oklahoma facility. The alleged violations involved discharges without a permit. After discussions, an agreement in principle to settle the matter has been reached between the Company and the EPA and Department of Justice. Under the terms of the agreement in principle, the Company paid a civil penalty in the amount of $450,000, expense for which was recognized in prior periods. The EPA or other private parties have named the Company or one of its subsidiaries as a potentially responsible party in connection with three superfund sites in the United States. The Company is a de minimis party with respect to two of the sites and expects to arrive at settlement agreements with respect to them for amounts of not more than $10,000 per site. With respect to the third, involving a wholly owned subsidiary of the Company, there does not appear to be any evidence of delivery to the site of hazardous material by the subsidiary. An estimate has been made of the costs to be incurred in these matters and the Company has recorded a reserve respecting those costs. Other A. P. Green is subject to numerous claims and lawsuits that arise in the ordinary course of business, some of which seek damages in substantial amounts, including punitive or extraordinary damages. Reserves for these claims and lawsuits have been recorded to the extent that losses are deemed probable and are estimable. Although the ultimate outcome of these claims and lawsuits cannot be accurately predicted and liabilities in indeterminate amounts may be imposed on A. P. Green, it is the opinion of management that the disposition of such claims and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of A. P. Green. -10- A. P. GREEN INDUSTRIES, INC. PART I. FINANCIAL INFORMATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1994 COMPARED TO THREE MONTHS ENDED JUNE 30, 1993 Total sales decreased 0.5% from $41.1 million for the three months ended June 30, 1993 to $40.8 million for the comparable 1994 three-month period. Gross profit declined 15.4% from $8.8 million to $7.5 million for the comparable periods. Refractory Products and Services Refractory products and services sales were unchanged at $32.3 million for each of the three-month periods ended June 30, 1993 and 1994. United States refractory sales were $28.8 million for both three-month periods, with a brick volume decrease of 6.2% offset by volume increases on all other product lines. U.S. specialties prices were flat with 1993 levels while brick and ceramic fiber prices declined, resulting in an overall price decrease of 1.2%. Sales of the Canadian subsidiary showed continued improvement from $3.1 million for the three-month period ended June 30, 1993 to $3.6 million for the comparable 1994 period, a 14.9% increase. Volumes increased across all product lines with the exception of crucibles, which was unchanged for the comparable quarters, for an overall volume improvement of 20.6%, reflecting increased sales to previous competitors in the Canadian refractory installation business. Price increases for specialties, ceramic fibers and pre-cast shapes were partially offset by declines in brick and crucibles pricing, resulting in an overall price improvement of 3.6%. The higher Canadian sales, as well as cost savings resulting from the restructuring which took place during the first quarter of 1994, generated pre-tax earnings of $280,000, a 241.5% increase over 1993 earnings of $82,000. Sales in the United Kingdom (U.K.) declined 14.3% from $1.5 million to $1.3 million due to continuing weakness in the U.K. market. Despite this decrease in sales, continuing cost control efforts in the U.K. narrowed the pre-tax loss to $68,000 in the second quarter of 1994 compared to a $103,000 loss in the comparable 1993 period. -11- Cost of sales as a percentage of sales increased from 78.6% to 82.3% for the three months ended June 30, 1993 and 1994, respectively. This increase was primarily due to higher raw material costs, increased group insurance costs and unfavorable brick breakage variances in the U.S. during 1994 compared to favorable variances during 1993. Also contributing to the cost increase were higher U.S. pension costs due to plan benefit changes and no LIFO inventory cost adjustment in the second quarter of 1994 compared to a favorable adjustment in the comparable 1993 period, partially offset by reduced workers' compensation costs. Refractory operating profits declined 30.7% from $3.1 million to $2.2 million in 1993 and 1994, respectively. Industrial Lime Industrial lime sales declined 2.2% from $8.8 million to $8.6 million for the respective second quarters of 1993 and 1994. Volume was mixed, with reductions in hydrate sales at the Kimballton, Virginia plant and road stabilization lime at the New Braunfels, Texas plant partially offset by increases in all other product lines for a net volume reduction of 3.5%. Hydrate prices declined at the Kimballton plant, offset by increases in all other Kimballton product lines, while prices were level at the New Braunfels plant, resulting in a 1.3% overall price increase. The gross margins of the Company's industrial lime operations are sensitive to volume changes due to the capital intensive nature of the operations and semi-fixed nature of other costs. As a result of the sales decline, gross profit and operating profit decreased 8.3% and 6.6%, respectively. Also contributing to this decline were increased purchased raw material and group insurance costs, partially offset by reduced workers' compensation costs. Expenses and Other Income Selling and administrative expenses declined 9.1% from $6.4 million in the second quarter of 1993 to $5.8 million for the comparable 1994 period. Reductions in management incentives, travel costs, annual sales meeting costs and professional fees contributed the majority of the decrease. Interest expense decreased slightly from 1993 to 1994, with no bank line borrowings during the second quarter of either period. Interest income for the second quarter of 1994 increased 16.6% from the comparable 1993 three- month period due to increased funds available for investing and higher interest rates. Other income declined 7.2% for the comparable three-month periods primarily due to transaction losses on U.S. dollar denominated accounts at the Canadian subsidiary compared to a small gain during the second quarter of 1993, partially offset by a business interruption insurance recovery in 1994 related to a loss incurred at the New Braunfels, Texas lime plant during 1993. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and accordingly are not subject to significant transaction gains and losses. -12- RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1994 COMPARED TO SIX MONTHS ENDED JUNE 30, 1993 Total sales decreased 2.7% from $80.6 million for the six months ended June 30, 1993 to $78.4 million for the comparable 1994 six-month period. Gross profit declined 18.6% from $16.7 million to $13.6 million for the comparable periods. Refractory Products and Services Refractory products and services sales were $63.1 million and $61.4 million for the six months ended June 30, 1993 and June 30, 1994, respectively, reflecting a decline of 2.7%. U.S. refractory sales were down 3.1% from $56.5 million for the six months ended June 30, 1993 to $54.8 million for the comparable 1994 period. Reduced brick volumes were partially offset by increases in specialties and ceramic fibers, resulting in an overall volume decline of 3.9%. Prices were essentially flat for the comparable six-month periods, with price increases on specialties and ceramic fibers offset by brick price reductions. Sales at the Canadian subsidiary increased 14.0% from $5.7 million for the six months ended June 30, 1993 to $6.5 million for the comparable 1994 period. Volumes increased across all product lines by an average of 22.0%, reflecting increased sales to previous competitors in the Canadian refractory installation business. Price increases on specialties, ceramic fibers and pre-cast shapes were partially offset by price declines on brick and crucibles, resulting in an overall price increase of 1.3%. Pre-tax earnings of $217,000 were level with 1993 due to a pre-tax reserve of approximately $315,000 which was established during the first quarter of 1994 for the cost of Canadian personnel reductions made during that quarter. Absent that adjustment, the Canadian subsidiary generated a pre- tax margin of 8.2% during the first six months of 1994 compared to 3.7% during the comparable 1993 period. Continuing weakness in the United Kingdom market resulted in a sales decline at that subsidiary of 10.8% from $3.0 million for the first six months of 1993 compared to $2.7 million for the first six months of 1994. Continued cost reduction efforts narrowed the pre-tax loss from $139,000 in 1993 to $120,000 in 1994, despite the lower sales during the 1994 period. Refractory products cost of sales as a percentage of sales increased from 79.5% in 1993 to 82.7% in 1994. This increase was primarily due to increased group insurance cost, higher U.S. pension cost due to plan benefit changes, a lower favorable LIFO inventory cost adjustment in 1994 compared to 1993 and unfavorable brick breakage variances in the U.S. during 1994 compared to favorable variances in 1993. Partially offsetting this were reduced casualty insurance and processing fuel costs. Refractory operating profits declined 39.6% from $5.6 million to $3.4 million in 1993 and 1994, respectively. -13- Industrial Lime Industrial lime sales decreased 3.2% from $17.6 million to $17.1 million for the six-month periods ended June 30, 1993 and 1994, respectively. Volume reductions in hydrate and quicklime at the Kimballton plant and road stabilization lime at the New Braunfels plant, partially offset by increases in sales to the steel, aluminum and building lime markets at New Braunfels, combined for an overall volume reduction of 4.9%. A production curtailment of several days at the Kimballton plant during the first quarter as a result of severe weather conditions contributed to the volume decline at that facility. Prices increased an average of 1.8%, with increases across all product lines with the exception of hydrate at the Kimballton plant. The gross margins of the Company's industrial lime operations are sensitive to volume changes due to the capital intensive nature of the operations and semi-fixed nature of other costs. As a result of the sales decline, gross profit and operating profit decreased 19.9% and 20.5%, respectively. Also contributing to this decline were increased depreciation expense and group insurance costs and unfavorable production variances at both plants due to the previously mentioned production curtailment at the Kimballton plant and downtime at the New Braunfels plant related to the installation of a new kiln preheater and dust collection system. These increases were partially offset by reduced workers' compensation costs at the New Braunfels plant and lower processing fuel costs at both plants. Expenses and Other Income Selling and administrative expenses decreased 5.1% from $12.4 million in 1993 to $11.7 million in 1994. This decrease was due to reductions in management incentives, professional fees, travel costs and annual sales meeting costs and reduced provisions for doubtful accounts, partially offset by an increase in sales promotion costs. Interest expense decreased slightly from 1993 to 1994, with no bank line borrowings during either period. Interest income increased 13.4% due to increased funds available for investing and higher interest rates, partially reduced by lower interest income from the employee stock ownership trust. Other income increased 13.5% due to a gain on the sale of land during the first quarter of 1994 and a business interruption insurance recovery in 1994 related to a loss incurred at the New Braunfels, Texas lime plant during 1993. Partially offsetting these improvements were higher transaction losses on U.S. dollar denominated accounts at the Canadian subsidiary during the first six months of 1994 compared to the same period in 1993. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and accordingly are not subject to significant transaction gains and losses. -14- Income Taxes The 29.3% effective income tax rate in 1994 as compared to 35.8% in 1993 is primarily due to higher depletion expense at APG Lime for tax purposes than for book. Accounting Changes The cumulative effect of adopting the FASB Statement No. 112, "Employers' Accounting for Postemployment Benefits," further reduced 1994 net income by $255,000. -15- INDUSTRY SEGMENTS (thousands) Six Months Ended June 30, 1994 1993 Net Sales Refractory products and services $ 61,370 $ 63,061 Industrial lime 17,062 17,630 Intersegment eliminations (80) (133) $ 78,352 $ 80,558 Gross Profit Refractory products and services $ 10,594 $ 12,950 Industrial lime 2,964 3,701 $ 13,558 $ 16,651 Gross Profit Percentage Refractory products and services 17.3% 20.5% Industrial lime 17.4% 21.0% 17.3% 20.7% Operating Profit Refractory products and services $ 3,351 $ 5,552 Industrial lime 2,434 3,063 5,785 8,615 Other Charges to Income General corporate expenses, net 3,372 3,807 Interest expense 520 533 Interest income (643) (567) Total other charges 3,249 3,773 Earnings Before Income Taxes and Cumulative Effect of an Accounting Change $ 2,536 $ 4,842 Identifiable Assets (at period end) Refractory products and services $265,439 $276,966 Industrial lime 47,487 44,470 Corporate 10,028 11,891 $322,954 $333,327 -16- Six Months Ended June 30, 1994 1993 Depreciation and Depletion Refractory products and services $ 2,093 $ 2,168 Industrial lime 1,344 1,202 Corporate 478 444 $ 3,915 $ 3,814 Capital Expenditures Refractory products and services $ 572 $ 493 Industrial lime 2,300 830 Corporate 467 377 $ 3,339 $ 1,700 GEOGRAPHIC SEGMENTS (In thousands) Six Months Ended June 30, 1994 1993 Net Sales United States $ 71,815 $ 74,108 Canada 6,512 5,714 United Kingdom 2,663 2,987 Intersegment transfers (primarily U.S.) (2,638) (2,251) $ 78,352 $ 80,558 Earnings (Loss) Before Income Taxes and Cumulative Effect of an Accounting Change United States $ 2,439 $ 4,768 Canada 217 213 United Kingdom (120) (139) $ 2,536 $ 4,842 Identifiable Assets (at period end) United States $301,043 $309,487 Canada 8,766 8,237 United Kingdom 3,117 3,712 Corporate 10,028 11,891 $322,954 $333,327 -17- PRICE/VOLUME SUMMARY 1994 AS COMPARED TO 1993 PERCENT INCREASE (DECREASE) Three Six Months Months Ended Ended June 30, 1994 June 30, 1994 U.S. Refractory Products Sales Volume 0.5% (3.9)% Price (1.2) 0.3 Industrial Lime Sales Volume (3.5) (4.9) Price 1.3 1.8 -18- FINANCIAL CONDITION The Company continues to maintain a strong balance sheet. Summary Information (Dollars in thousands) June 30, December 31, 1994 1993 1993 Working capital $ 54,613 $ 49,883 $ 53,611 Current ratio 1.9:1 1.9:1 1.8:1 Total assets $322,954 $333,327 $339,314 Current maturities of long-term debt 131 114 123 Long-term debt 12,091 12,224 12,160 Stockholders' equity $102,020 $ 97,784 $100,930 Debt to total capitalization(1) 10.7% 11.2% 10.8% (1) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. The increase in working capital of $4.7 million from June 30, 1993 to June 30, 1994 was due to a $5.0 million increase in reimbursements due on paid asbestos claims. This change, as well as the $5.8 million increase in such reimbursements due from December 31, 1993, is a result of an increase in the number of asbestos cases settled rather than the ageing of receivables. The decrease in assets of $10.4 million from June 30, 1993 to June 30, 1994 was due to a decrease in projected insurance recovery on asbestos claims, including current portion, of $15.3 million, partially offset by the increase in reimbursements due on paid asbestos claims discussed above. The liability for projected asbestos claims, including current portion, declined $16.3 million during the same period. These reductions in projected asbestos claims and related insurance recoveries were due primarily to asbestos claim payments recovered from insurance carriers during the 12 month period ended June 30, 1994, partially offset by adjustments to the Company's projected asbestos liability. -19- The decrease in assets of $16.4 million from December 31, 1993 to June 30, 1994 was due to decreases in cash and cash equivalents of $10.4 million and projected insurance recovery on asbestos claims, including current portion, of $15.0 million, partially offset by increases in reimbursement due on paid asbestos claims of $5.8 million, as previously discussed, and inventories of $4.4 million. The increase in inventories was a result of higher sales in June 1993 as compared to June 1994 and the receipt of a large shipment of South American bauxite in June 1994. The decrease in projected insurance recovery on asbestos claims, as well as a decrease of $15.7 million in projected asbestos claims, including current portion, were due primarily to asbestos claim payments recovered from insurance carriers during the first six months of 1994. Capital spending for the industrial lime operation increased 177.1% from $830,000 to $2.3 million for the comparable six-month periods. The majority of these expenditures related to productivity improvements, enhanced environmental controls and replacement of existing equipment which could no longer be maintained in service cost effectively. SUBSEQUENT EVENTS On July 11, 1994 the Company executed a definitive agreement to acquire all of the assets and assume most of the liabilities of the refractories operations of General Refractories Company and its affiliated companies. These operations include nine plants in the U.S., one plant near Toronto, Canada and a 49% equity interest in a Colombian refractory operation. Under the terms of the definitive agreement, the Company paid $23,450,000 and assumed most of the liabilities of the refractory operations being acquired. The transaction was closed August 1, 1994. The acquisition was financed by borrowings of $25 million from a group of institutional lenders. The notes bear an 8.55% fixed rate of interest, with semi-annual interest payments commencing January 29, 1995. Annual principal repayments will commence July 29, 1996 and continue, in accordance with amortization schedules attached to each note, through July 29, 2001. On July 28, 1994, the Company's $15 million U.S. long-term line of credit was extended to March 1, 1996. Certain restrictive covenants were amended and added to mirror those reflected in the new borrowing agreement, but are not expected to have a material adverse effect on A. P. Green's operations. -20- A. P. GREEN INDUSTRIES, INC. PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Annual Meeting of Stockholders of A. P. Green was held on May 12, 1994 at which the stockholders voted on the following matters: 1. the election of two Class II directors to hold office for a term of three years; 2. the ratification of the appointment of KPMG Peat Marwick as A. P. Green's auditors for the year ending December 31, 1994. With regard to the election of the Class II directors, Donald E. Lasater and William F. Morrison were reelected as directors of A. P. Green in an uncontested election. The vote with respect to Mr. Lasater was 3,556,283 shares FOR and 29,116 shares WITHHOLD AUTHORITY TO VOTE. The vote with respect to Mr. Morrison was 3,557,309 shares FOR and 28,090 shares WITHHOLD AUTHORITY TO VOTE. The other directors whose term of office continued after the Annual Meeting are Paul F. Hummer, Jack R. Janney and Daniel R. Toll. With regard to the ratification of the approval of KPMG Peat Marwick as auditors for the year ending December 31, 1994, the ratification was approved by the following vote: 3,558,653 shares FOR, 13,840 shares AGAINST, and 12,906 shares ABSTAIN and BROKER NON-VOTES. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: None. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the quarter ended June 30, 1994. -21- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A. P. Green Industries, Inc. (Registrant) By: /s/ Gary L. Roberts Gary L. Roberts Vice President, Chief Financial Officer and Treasurer Date: August 4, 1994 -22- -----END PRIVACY-ENHANCED MESSAGE-----