-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DU9vLL9Tm38nMy75V1MnFnqkKyeJBfQz6qmC20Ofwv5lKXmcNin1HKpN4Q9Qb/17 oeYcVqwRuA1wkyyRKGVsyQ== 0000826619-96-000011.txt : 19960816 0000826619-96-000011.hdr.sgml : 19960816 ACCESSION NUMBER: 0000826619-96-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN A P INDUSTRIES INC CENTRAL INDEX KEY: 0000826619 STANDARD INDUSTRIAL CLASSIFICATION: STRUCTURAL CLAY PRODUCTS [3250] IRS NUMBER: 430899374 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16452 FILM NUMBER: 96613640 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, 1996 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: (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, 1996, 4,010,754 shares of Common Stock, $1 par value, were outstanding. Page 1 of 23 A. P. GREEN INDUSTRIES, INC. PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) June 30, December 31, (Dollars in thousands, except per share data) 1996 1995 ---- ---- ASSETS Current Assets Cash and cash equivalents $ 3,563 $ 9,284 Receivables (net of allowances - 1996, $1,786; 1995, $1,930) 48,084 44,183 Reimbursement due on paid asbestos claims 3,497 3,696 Inventories 55,310 55,557 Projected insurance recovery on asbestos claims 23,723 21,990 Deferred income tax asset 2,709 4,115 Other 6,879 6,411 ------- ------- Total current assets 143,765 145,236 Property, plant and equipment, net 98,740 96,785 Non-current projected insurance recovery on asbestos claims 106,323 113,168 Pension assets 9,019 9,071 Intangible assets, net 4,120 3,941 Other assets 5,293 5,367 ------- ------- Total assets $367,260 $373,568 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 15,673 $ 18,254 Accrued expenses Payrolls 5,899 6,281 Taxes other than on income 2,407 1,889 Insurance reserves 4,315 4,657 Current portion of projected asbestos claims 23,940 22,198 Other 8,199 8,534 Current maturities of long-term debt 2,867 2,705 Income taxes 1,211 1,103 ------- ------- Total current liabilities 64,511 65,621 Deferred income taxes 11,031 12,671 Long-term non-pension benefits 16,172 15,597 Long-term pensions 14,168 14,233 Long-term debt 34,341 34,384 Non-current projected asbestos claims 108,170 115,048 ------- ------- Total liabilities 248,393 257,554 ------- ------- Minority Interests 1,649 2,015 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: 4,487,721 in 1996 and 4,486,221 in 1995 4,488 4,486 Additional paid-in capital 72,797 72,770 Retained earnings 60,999 56,981 Less:Deferred foreign currency translation (3,279) (2,931) Treasury stock of 476,967 shares in 1996, 448,962 in 1995, at cost (9,498) (9,018) Note receivable-ESOT (7,505) (7,505) Minimum pension liability adjustment, net of tax (784) (784) ------- ------- Total stockholders' equity 117,218 113,999 ------- ------- Total liabilities and stockholders' equity $367,260 $373,568 ======= ======= See accompanying notes to consolidated financial statements. 2 A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Three months ended June 30, --------------------------- (Dollars in thousands, except per share data) 1996 1995 ---- ---- Net sales $69,538 $64,315 Cost of sales 56,042 54,356 ------ ------ Gross profit 13,496 9,959 Expenses and other income Selling & administrative expenses 9,082 7,692 Interest expense 791 798 Interest income (285) (388) Minority interest in loss of partnership (7) (27) Other income, net (125) (58) ------ ------ Earnings before income taxes 4,040 1,942 Income tax expense (benefit) 1,588 (398) Equity in net income of affiliates (199) (166) Minority interest in loss of consolidated subsidiaries (186) - ------ ------ Net earnings $ 2,837 $ 2,506 ====== ====== Net earnings per common share $ 0.71 $ 0.62 ====== ====== Weighted average number of common shares 4,015,369 4,028,532 ========= ========= Dividends per common share $ 0.07 $ 0.07 ====== ====== See accompanying notes to consolidated financial statements. 3 A. P. GREEN INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED) Six months ended June 30, ------------------------- (Dollars in thousands, except per share data) 1996 1995 ---- ---- Net sales $133,772 $126,204 Cost of sales 108,921 105,807 ------- ------- Gross profit 24,851 20,397 Expenses and other income Selling & administrative expenses 17,951 15,659 Interest expense 1,577 1,590 Interest income (606) (710) Minority interest in loss of partnership (41) (27) Other income, net (268) (262) ------- ------- Earnings before income taxes 6,238 4,147 Income tax expense 2,374 359 Equity in net income of affiliates (379) (406) Minority interest in loss of consolidated subsidiaries (325) - ------- ------- Net earnings $ 4,568 $ 4,194 ======= ======= Net earnings per common share $ 1.13 $ 1.04 ======= ======= Weighted average number of common shares 4,027,045 4,028,332 ========= ========= Dividends per common share $ 0.14 $ 0.14 ======= ======= 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) 1996 1995 ---- ---- Cash flows from operating activities Net earnings $ 4,568 $ 4,194 Adjustments for items not requiring (providing) cash Depreciation, depletion and amortization 5,205 4,964 Deferred compensation earned - 4 Stock compensation to directors 28 23 Provision for losses on accounts receivable 333 249 Loss on sale of assets 110 34 Equity in undistributed earnings of affiliates (191) (62) Minority interest in losses of consolidated subsidiaries and partnership (366) (27) Decrease (increase) in assets Trade receivables (4,234) (1,124) Asbestos claim and fee reimbursements received 5,144 19,391 Inventories 247 2,351 Receivable and prepaid taxes 336 - Other current assets (806) (782) Increase (decrease) in liabilities Accounts payable and accrued expenses (3,123) (9,047) Asbestos claims paid (4,968) (14,834) Pensions (65) 242 Income taxes 109 (589) Deferred income taxes (234) (906) Long-term non-pension benefits 575 185 ----- ------ Net cash from operating activities 2,668 4,266 ----- ------ Cash flows from investing activities Capital expenditures (7,047) (3,420) Decrease (increase) in other long-term assets (204) 118 Decrease (increase) in pension assets 52 (53) Proceeds from sales of assets 69 220 ----- ------ Net cash used in investing activities (7,130) (3,135) ----- ------ Cash flows from financing activities Repayments of debt (107) (65) Capital contributions from minority partner - 120 Proceeds from borrowings 225 - Dividends paid (563) (564) Purchases of common stock for treasury (480) - Tax benefit on dividends paid to ESOT 14 15 ----- ------ Net cash used in financing activities (911) (494) ----- ------ Effect of exchange rate changes (348) 332 ----- ------ Net increase (decrease) in cash and cash equivalents (5,721) 969 Cash and cash equivalents at beginning of year 9,284 9,637 ----- ------ Cash and cash equivalents at end of period $ 3,563 $ 10,606 ===== ====== 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, 1995. The results for the quarter and six-month period ended June 30, 1996 are not necessarily indicative of the results which may occur for the full year. 2. RESERVES FOR PLANT CLOSINGS --------------------------- The Company has reserves 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 the second quarter of 1995 this reserve was increased by approximately $330,000, primarily to revise estimates of employee termination benefits resulting from the sale of these facilities taking longer than anticipated. A $380,000 reserve was also established during the second quarter of 1995 for the closing of the Weston, Ontario plant, which was sold in December 1995. Substantially all employees at these facilities (approximately 210 in total) have been terminated and approximately $3.2 million of termination benefits and plant closing costs have been charged against the reserves to date. The U.S. facilities are held for sale at their estimated net realizable value. 6 3. INVENTORIES ----------- June 30, 1996 December 31, 1995 ------------- ----------------- Finished goods & work-in-process Valued at LIFO: FIFO cost $ 38,162 $ 36,429 Less LIFO reserve (15,471) (14,186) ------ ------ LIFO cost 22,691 22,243 Valued at FIFO 9,691 10,404 ------ ------ TOTAL 32,382 32,647 ------ ------ Raw materials and supplies Valued at LIFO: FIFO cost 18,239 18,187 Less LIFO reserve (5,500) (5,234) ------ ------ LIFO cost 12,739 12,953 Valued at FIFO 10,189 9,957 ------ ------ TOTAL 22,928 22,910 ------ ------ $ 55,310 $ 55,557 ====== ====== 4. LITIGATION ---------- Asbestos-related Claims - Personal Injury ----------------------------------------- A. P. Green is among numerous defendants in lawsuits pending as of June 30, 1996 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, 1995, 1994 and 1993 was as follows: 7 - -------------------------------------------------------------------------------- 1995 1994 1993 - -------------------------------------------------------------------------------- Claims pending at January 1 50,920 52,122 50,007 Claims filed 12,560 14,836 26,100 Cases settled, dismissed or otherwise resolved (15,113) (16,038) (23,985) ------ ------ ------ Claims pending at December 31 48,367 50,920 52,122 ====== ====== ====== Average settlement amount per claim(1) $ 1,778 $ 1,816 $ 1,728 ================================================================================ (1) Substantially all settlements are covered by the Company's insurance program. On January 15, 1993, the Members were named as defendants in a class action lawsuit brought on behalf of all persons who have been occupationally exposed to asbestos-containing products of the Members and who have unasserted claims for such exposure (the Class) pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania. At about the same time, the Center negotiated and filed with the Court a settlement (the Settlement) between the Members and the Class. Under the terms of the Settlement, the Members have agreed to pay compensation to any member of the Class who has, according to objective medical criteria, physical impairment as a result of such exposure. Different levels of compensation will be paid depending on the type and degree of physical impairment. No punitive damages will be paid. The Settlement provides, among other things, for a cap on the number of claims to be processed each year during the next ten years and a range of settlement values for each disease category. Settlement values are based on historical average payments by the Center for similar cases. Each Member will be responsible for its percentage share of each claim payment (no joint and several liability), such shares having been previously established. Hearings were held to determine the fairness of the Settlement and the court ruled that the Settlement was fair and enjoined Class members from filing lawsuits in the tort system against the Members. The Center is processing and settling claims filed by Class members pursuant to the Settlement. This ruling has been appealed by certain objectors. On May 10, 1996, the United States Court of Appeals for the Third Circuit ordered the District Court to decertify the Class and vacate the injunction prohibiting Class members from filing suit in the tort system against the Members of the Center. A petition for rehearing was denied. It is expected that a petition to the Supreme Court for a writ of certiorari will be filed. In a third party action filed simultaneously with the class action (and in parallel Alternate Dispute Resolution proceedings), the Members have asked for a declaratory judgment against their respective insurers that such insurers cannot use the Settlement as a defense to their payment under applicable insurance policies. The Settlement is expressly contingent upon such declaratory relief. In addition, some Members, including A. P. 8 Green, have asked for a declaratory judgment against their insurers with whom they have not reached coverage resolutions. No decision has been rendered at this date with respect to these issues. Under the assumption that it receives these court approvals, the Settlement has provided the Company with a basis for estimating its potential liability and related insurance policies recovery associated with asbestos cases. The Company has reviewed its insurance policies, historical settlement amounts, the number of pending cases and the projected number of claims to be filed pursuant to the Settlement and the Company's share of amounts to be paid thereunder. The Company has also reviewed its contractual liability for the payment of deductibles under certain insurance policies insuring the E. J. Bartells Company (Bartells), a former subsidiary, against asbestos-related personal injury claims, such policies having been issued when Bartells was owned by A. P. Green. Additionally, the Company has reviewed the claims asserted by Bartells against the issuers of such policies and any exposure of the Company to such claims. Based upon such reviews, the Company has estimated its liability for such cases and claims to be approximately $132.1 million and $137.2 million at June 30, 1996 and December 31, 1995, respectively, with partially offsetting projected insurance reimbursements of approximately $130.0 million and $135.1 million, respectively. While management understands the inherent uncertainty in litigation of this type and the possibility that past costs may not be indicative of future costs, management does not believe that these claims and cases will have any additional material adverse effect on the Company's financial position or results of operations. Management anticipates that payments for these claims will occur over at least ten years and can be made from normal operating cash sources. In addition to asbestos-related personal injury claims asserted against A. P. Green, a number of claims have been asserted against Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a subsidiary of the Company. These claims have been and are currently being handled by such subsidiary's insurance carriers. Except for deductible amounts or retentions provided for under insurance policies, no claim for reimbursement of defense or indemnity payments has been made against the Company or such subsidiary by any such carriers. 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. 9 There was no assumption of asbestos-related liability, either personal injury or property damage, in connection with the August 1994 acquisition of the refractory assets of General. Environmental ------------- The EPA or other private parties have named the Company or one of its subsidiaries as a potentially responsible party in connection with two superfund sites in the United States. The Company is a de minimis party with respect to one of the sites and expects to arrive at a settlement agreement and consent decree with respect to it for an amount of not more than $10,000. With respect to the second, involving a wholly owned subsidiary of the Company, there does not appear to be any evidence of delivery to the site of hazardous material by the subsidiary. An estimate has been made of the costs to be incurred in these matters and the Company has recorded a reserve respecting those costs. Other ----- A. P. Green is subject to claims and other lawsuits that arise in the ordinary course of business, some of which may seek damages in substantial amounts, including punitive or extraordinary damages. Reserves for these claims and lawsuits are recorded to the extent that losses are deemed probable and are estimable. In the opinion of management, the disposition of all current claims and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of A. P. Green. 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, 1996 COMPARED TO THREE MONTHS - ------------------------------------------------------------------------------- ENDED JUNE 30, 1995 - ------------------- Total sales increased 8.1% to a quarterly record $69.5 million for the three months ended June 30, 1996 from $64.3 million for the comparable 1995 three-month period. Gross profit increased 35.5% to $13.5 million from $10.0 million for the comparable periods. The impact from the July 1995 acquisition of A. P. Green de Mexico was to increase sales by $2.0 million and gross profit by approximately $579,000, while the impact from the December 1995 acquisition of Lanxide ThermoComposites, Inc. and subsidiary, Chiam Technologies, Inc. (collectively referred to as LTI) was to increase sales by $516,000 and reduce gross profit by $6,000 due to the relatively high percentage of fixed costs at the initial low volume level. The impact from the INTOGREEN partnership formed in January 1995 was to increase sales by $228,000 and gross profit by $61,000. Refractory Products and Services - -------------------------------- Refractory products and services sales increased 9.2% to $59.3 million for the three months ended June 30, 1996 including $2.7 million from acquisitions and new ventures, from $54.3 million for the comparable 1995 period. United States refractory sales were $50.7 million and $46.4 million for the three-month periods ended June 30, 1996 and 1995, respectively, an increase of 9.3%. The impact from LTI and INTOGREEN was to increase U.S. refractory sales by $744,000. Excluding this impact, U.S. refractory product sales volumes increased an average of 2.3%, with increases in specialties and ceramic fiber volumes partially offset by declines in brick and precast shape volumes. Prices were up an average of 4.2% across all product lines. The Company's international business continued to expand, with U.S. export sales improving 81.1% to $7.6 million in the second quarter of 1996 from $4.2 million for the second quarter of 1995. Sales of the Canadian subsidiary declined 9.1% to $6.5 million for the three-month period ended June 30, 1996 from $7.1 million for the comparable 1995 period. Volumes declined an average of 22.6% across all major product lines except crucibles. The volume decline was partially offset by price increases averaging 17.7% across all product lines. Also contributing to the sales decline was an unexpected repair requiring a one-month kiln shutdown and a slower than anticipated startup of the new specialties line at the Smithville, Ontario plant, which was built to absorb the production from the Weston, Ontario plant closed during 1995. 11 The Canadian operation generated pre-tax income of $180,000 for the second quarter of 1996 compared to a pre-tax loss of $107,000 for the comparable 1995 period. The 1995 loss was due primarily to establishment of a reserve of approximately $380,000 for exit costs and termination benefits for 26 employees associated with the closing and sale of the Weston, Ontario plant which was announced in June 1995. Sales in the United Kingdom (U.K.) were unchanged at $2.6 million for the second quarters of 1996 and 1995. The U.K. subsidiary generated pre-tax earnings of $169,000 for the three months ended June 30, 1996 compared to $135,000 for the 1995 period. Sales at A.P. Green de Mexico for the three months ended June 30, 1996 were $2.0 million, with pre-tax earnings of $335,000. Start up expenses at the new plant in Indonesia resulted in a $72,000 pre-tax loss for the second quarter of 1996. This facility is expected to be in operation during the third quarter of 1996. Refractory products cost of sales as a percentage of sales decreased to 81.6% compared to 86.3% for the three months ended June 30, 1996 and 1995, respectively. This reduction was primarily due to favorable raw materials pricing, improved brick breakage variances, improved labor efficiencies and reduced workers' compensation insurance and processing fuels expense. The second quarter of 1995 also included increases in the obsolete inventory and U.S. plant shutdown reserves, both of which were established at the time of the General acquisition related to facilities to be closed, as well as establishment of the Canadian plant shutdown reserve previously mentioned. Partially offsetting these improvements was a small unfavorable LIFO inventory adjustment during the second quarter of 1996 compared to a favorable adjustment during the same period of 1995. Refractory operating profits improved 104.0% to $4.4 million in the second quarter of 1996 from $2.2 million during the 1995 period due primarily to the improved gross margins. Industrial Lime - --------------- Industrial lime sales increased 1.6% to $10.2 million from $10.1 million for the respective second quarters of 1996 and 1995. Volumes declined an average of 3.3%, with declines in all product lines at the Kimballton, Virginia plant and industrial lime at the New Braunfels, Texas plant partially offset by volume improvements in road stabilization and building lime at New Braunfels. Prices improved across all New Braunfels product lines and in quicklime at the Kimballton plant, partially offset by price declines in Cal-Dol and hydrate at the Kimballton plant for an overall price increase of 5.0%. As a result of the sales increase, industrial lime gross profit and operating profit increased 2.0% and 2.7%, respectively. Higher processing fuel costs at Kimballton and increased equipment maintenance costs at both plants were offset by reduced outside processing costs at Kimballton. 12 Expenses and Other Income - ------------------------- Selling and administrative expenses increased 18.1% to $9.1 million in the second quarter of 1996 from $7.7 million for the comparable 1995 period. The increase was primarily due to the addition of A. P. Green de Mexico, LTI and INTOGREEN, general salary and related expense increases and an increase in postretirement benefit costs. Interest expense decreased slightly to $791,000 in 1996 from $798,000 in 1995. There were no bank line borrowings during either three-month period. Interest income for the second quarter of 1996 declined 26.5% to $285,000 from $388,000 in the comparable 1995 three-month period due to reduced funds available for investing and a shortening of the average investment maturity resulting in lower average interest rates. Other income increased 115.4% for the comparable three-month periods due to increases in royalty income and currency conversion gains. 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 transacts a significant portion of its business in U.S. dollars and, as such, uses the dollar as its functional currency. This results in currency conversion gains and losses on Mexican peso transactions, A. P. Green's portion of which were not significant to the consolidated results. Income Taxes - ------------ During the second quarter of 1995, a review of tax years 1988 through 1993 was completed by the Internal Revenue Service, resulting in a small additional payment to clear federal tax liability for those years. Due to the outcome of this review being more favorable than originally anticipated, the Company reduced its provision for federal income taxes by $1.1 million. Absent that adjustment, the tax rate for the second quarter of 1995 would have been 34.6% compared to 39.3% for the second quarter of 1996. The higher 1996 effective rate was due primarily to limited recognition of tax benefits from the pre-tax startup losses of LTI pending improvements in operating results which indicate a clear trend toward future earnings. Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from its two Colombian affiliates was $199,000 for the three months ended June 30, 1996 compared to $166,000 for the comparable 1995 period. 13 RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS - ----------------------------------------------------------------------------- ENDED JUNE 30, 1995 - ------------------- Total sales increased 6.0% to a six-month record $133.8 million for the six months ended June 30, 1996 from $126.2 million for the comparable 1995 period. Gross profit increased 21.8% to $24.9 million from $20.4 million for the comparable periods. The impact from the July 1995 acquisition of A. P. Green de Mexico was to increase sales by $3.6 million and gross profit by approximately $1.1 million, while the impact from the December 1995 acquisition of LTI was to increase sales by $918,000 and reduce gross profit by $47,500 due to the relatively high percentage of fixed costs at the initial low volume level. The impact from the INTOGREEN partnership formed in January 1995 was to increase sales by $241,000 and gross profit by $45,000. Refractory Products and Services - -------------------------------- Refractory products and services sales were $113.7 million and $107.3 million for the six months ended June 30, 1996 and June 30, 1995, respectively, reflecting an increase of 6.0%, including $4.8 million from acquisitions and new ventures. U.S. refractory sales increased 4.5% to $98.3 million for the six months ended June 30, 1996 from $94.1 million for the comparable 1995 period. The impact from LTI and INTOGREEN was to increase U.S. refractory sales by $1.2 million. Excluding this impact, volume declines in brick and precast shapes were partially offset by increases in specialties and ceramic fiber volume for a net volume decline of 2.5%. Prices improved across all product lines an average of 5.7%. U.S. export sales increased 65.0% to $13.8 million for the six-month period ended June 30, 1996 from $8.3 million for the comparable 1995 period. Sales at the Canadian subsidiary declined 5.1% to $11.9 million for the six months ended June 30, 1996 from $12.6 million for the comparable 1995 period. Reduced volumes in brick, specialties and precast shapes were partially offset by an improvement in crucible volume for a net volume decline of 14.7%. Ceramic fiber sales volumes were flat for the comparable six-month periods. Prices increased across all product lines with the exception of ceramic fibers, resulting in an overall price increase of 13.0%. Also contributing to the sales decline were an unexpected repair requiring a one-month kiln shutdown and a slower than anticipated startup of the new specialties line at the Smithville, Ontario plant, which was built to absorb the production from the Weston, Ontario plant closed during 1995. The Canadian operation generated pre-tax income of $104,000 for the six months ended June 30, 1996 compared to a pre-tax loss of $126,000 for the comparable 1995 period. The 1995 loss was due to the $380,000 plant closing reserve previously discussed. Sales by the United Kingdom subsidiary increased 7.1% to $4.7 million for the first six months of 1996 from $4.4 million for the first six months of 1995. Pre-tax earnings in the U.K. were $243,000 for the six months ended June 30, 1996 compared to $242,000 for the 1995 period. 14 A. P. Green de Mexico sales for the first six months of 1996 were $3.6 million, with pre-tax earnings of $565,000. Startup expenses at the new plant in Indonesia resulted in a $78,000 pre-tax loss for the six months ended June 30, 1996. Refractory products cost of sales as a percentage of sales decreased to 82.3% in 1996 from 85.2% in 1995. This improvement was primarily due to improved labor efficiencies, improved brick breakage variances and reduced raw materials, workers' compensation insurance, processing fuels and freight expense. The first six months of 1995 also included increases in the obsolete inventory and U.S. plant shutdown reserves, both of which were established at the time of the General acquisition related to facilities to be closed, as well as establishment of the Canadian plant shutdown reserve previously mentioned. Partially offsetting these improvements were increased group health insurance and equipment maintenance costs and unfavorable LIFO inventory adjustments during the first six months of 1996 compared to favorable adjustments during the same period of 1995. Refractory operating profits increased 46.4% to $7.5 million from $5.1 million in 1996 and 1995, respectively, primarily due to the improved gross margins and lower selling expenses. Industrial Lime - --------------- Industrial lime sales increased 5.7% to $20.1 million from $19.0 million for the six-month periods ended June 30, 1996 and 1995, respectively. Volumes were essentially flat, with increases across all product lines at the New Braunfels plant offset by declines across all product lines at the Kimballton plant. Average selling prices increased an average of 5.4% across all product lines at both plants. As a result of the sales increase, industrial lime gross profit increased 3.8% to $4.7 million, or 23.4% of sales, from $4.5 million, or 23.8% of sales. The decline in gross profit percentage was due to increased equipment maintenance and workers' compensation insurance costs at both plants and higher processing fuel costs and reduced labor efficiencies at Kimballton, partially offset by reduced purchased materials costs at New Braunfels and lower outside processing costs at Kimballton. Industrial lime operating profit increased 3.7% to $4.1 million for the first six months of 1996 compared to $4.0 million for the comparable 1995 period. Expenses and Other Income - ------------------------- Selling and administrative expenses increased 14.6% to $18.0 million in 1996 from $15.7 million in 1995. The increase was primarily due to the addition of A.P. Green de Mexico, LTI and INTOGREEN, general salary and related expense increases and an increase in postretirement benefit costs, partially offset by lower salaried pension costs. 15 Interest expense was unchanged at $1.6 million for both six-month periods. There were no bank line borrowings during either six-month period. Interest income decreased 14.7% due to reduced funds available for investing and a shortening of the average investment maturity resulting in lower average interest rates. Other income increased 2.2% due to an increase in royalty income and gains on asset sales, partially offset by reduced currency translation gains. 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 transacts a significant portion of its business in U.S. dollars and, as such, uses the dollar as its functional currency. This results in currency conversion gains and losses on Mexican peso transactions, A. P. Green's portion of which were not significant to the consolidated results. Income Taxes - ------------ The 1996 effective tax rate was 38.1% compared to 8.7% in 1995. The lower effective rate in 1995 was due to the $1.1 million tax adjustment previously discussed. Absent that adjustment, the tax rate for the six months ended June 30, 1995 would have been 34.5%. The higher 1996 effective rate was due primarily to limited recognition of tax benefits from the pre-tax startup losses of LTI pending improvements in operating results which indicate a clear trend toward future earnings. Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from its two Colombian affiliates was $379,000 for the six months ended June 30, 1996 compared to $406,000 for the comparable 1995 period. 16 INDUSTRY SEGMENTS (In thousands) Six Months Ended June 30, ------------------------- 1996 1995 ---- ---- NET SALES Refractory products and services $113,700 $107,286 Industrial lime 20,132 19,042 Intersegment eliminations (60) (124) ------- ------- $133,772 $126,204 ======= ======= GROSS PROFIT Refractory products and services $ 20,136 $ 15,856 Industrial lime 4,715 4,541 ------- ------- $ 24,851 $ 20,397 ======= ======= GROSS PROFIT PERCENTAGE Refractory products and services 17.7% 14.8% Industrial lime 23.4% 23.8% 18.6% 16.2% ======= ======= OPERATING PROFIT Refractory products and services $ 7,476 $ 5,105 Industrial lime 4,105 3,960 ------- ------- 11,581 9,065 ------- ------- OTHER CHARGES TO INCOME General corporate expenses, net 4,372 4,038 Interest expense 1,577 1,590 Interest income (606) (710) ------- ------- Total other charges 5,343 4,918 ------- ------- EARNINGS BEFORE INCOME TAXES $ 6,238 $ 4,147 ======= ======= 17 Six Months Ended June 30, ------------------------- 1996 1995 ---- ---- IDENTIFIABLE ASSETS (AT PERIOD END) Refractory products and services $313,072 $284,054 Industrial lime 47,512 47,286 Corporate 6,676 14,251 ------- ------- $367,260 $345,591 ======= ======= DEPRECIATION, DEPLETION AND AMORTIZATION Refractory products and services $ 3,292 $ 3,088 Industrial lime 1,387 1,362 Corporate 526 514 ------- ------- $ 5,205 $ 4,964 ======= ======= CAPITAL EXPENDITURES Refractory products and services $ 5,386 $ 2,635 Industrial lime 1,433 749 Corporate 228 36 ------- ------- $ 7,047 $ 3,420 ======= ======= GEOGRAPHIC SEGMENTS (In thousands) Six Months Ended June 30, ------------------------- 1996 1995 ---- ---- NET SALES United States $118,467 $113,128 Canada 11,947 12,592 United Kingdom 4,692 4,383 Mexico 3,594 - Intersegment transfers (primarily U.S.) (4,928) (3,899) ------- ------- $133,772 $126,204 ======= ======= 18 Six Months Ended June 30, ------------------------- 1996 1995 ---- ---- EARNINGS (LOSS) BEFORE INCOME TAXES United States $ 5,404 $ 4,031 Canada 104 (126) United Kingdom 243 242 Mexico 565 - Far East (78) - ------- ------- $ 6,238 $ 4,147 ======= ======= IDENTIFIABLE ASSETS (AT PERIOD END) United States $331,606 $308,519 Canada 17,676 17,588 United Kingdom 4,671 5,051 Mexico 5,633 - Far East 998 182 Corporate 6,676 14,251 ------- ------- $367,260 $345,591 ======= ======= PRICE/VOLUME SUMMARY 1996 AS COMPARED TO 1995 PERCENT INCREASE (DECREASE) Three Six Months Months Ended Ended June 30, 1996 June 30, 1996 ------------- ------------- U.S. REFRACTORY PRODUCTS SALES (excluding impact of LTI and INTOGREEN) Volume 2.3% (2.5)% Price 4.2 5.7 INDUSTRIAL LIME SALES Volume (3.3) 0.3 Price 5.0 5.4 19 FINANCIAL CONDITION - ------------------- The Company continues to maintain a strong balance sheet. Summary Information (Dollars in thousands) June 30, ------------------------- December 31, 1996 1995 1995 -------- -------- -------- Working capital $ 79,254 $ 82,488 $ 79,615 Current ratio 2.2:1 2.1:1 2.2:1 Total assets $367,260 $345,591 $373,568 Current maturities of long-term debt 2,867 152 2,705 Long-term debt 34,341 36,945 34,384 Stockholders' equity $117,218 $111,043 $113,999 Debt to total capitalization(1) 24.1% 25.0% 24.5% (1) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. The 51% ownership interests acquired during 1995 in A. P. Green de Mexico and LTI resulted in an increase in working capital of approximately $1.1 million (net of 1996 adjustments to original acquisition valuations, primarily LTI inventories and Mexican deferred tax assets, which resulted in a net reduction in working capital of approximately $450,000.) This working capital increase was comprised primarily of $2.0 million in accounts receivable, $400,000 in inventories and $200,000 in cash, partially offset by $1.8 million in accounts payable and accrued expenses. In addition, property, plant and equipment increased $1.6 million, intangible assets increased $1.9 million and deferred tax liabilities increased $300,000 as a result of these acquisitions. Working capital declined 3.9%, or $3.2 million, to $79.3 million at June 30, 1996 from $82.5 million at June 30, 1995, net of the $1.1 million obtained through acquisitions, while the ratio of current assets to current liabilities increased to 2.2:1 from 2.1:1. Excluding the impact of acquisitions, working capital decreased $4.3 million, primarily due to a reduction in cash of $7.3 million, partially offset by an increase in inventories of $3.8 million. Also contributing to the working capital decrease was a $2.7 million increase in current portion of long-term debt. 20 The increase in inventories since June 30, 1995, as well as the $3.9 million increase in accounts receivable since December 31, 1995, was primarily due to increased sales levels. The increase in current portion of long-term debt since June 30, 1995 was due to a payment due July 1996 against the debt incurred in connection with the General acquisition and thus was offset by a decrease in long-term debt. The $6.9 million decrease in both the non-current projected insurance recovery on asbestos claims and non-current projected asbestos claims since December 31, 1995 was due to asbestos claim payments by insurance carriers during the first six months of 1996 and reallocation between current and long-term based upon data provided by the Center for Claims Resolution. Deferred income tax assets decreased by $1.4 million since December 31, 1995 due primarily to reductions in alternative minimum tax carryforwards and adjustment to the original deferred tax assets related to the acquisition of A. P. Green de Mexico. Deferred income tax liabilities declined approximately $1.6 million due to reductions in prepaid pension costs and depreciation method differences. Capital expenditures for the first six months of 1996 totaled $7.0 million compared to $3.4 million for the same period of 1995, with capital expenditures for the refractories business increasing $2.8 million. Of this refractories increase, $1.5 million was for construction of the new specialties plant in Indonesia and $500,000 was for expansion of the Smithville, Ontario plant to accommodate the production from the closed plant in Weston, Ontario. The balance of the increase was for replacement, modernization and expansion of operations. On May 2, 1996, the Company's $30.0 million long-term line of credit was extended to May 2, 1998. At June 30, 1996 approximately $2.3 million in standby letters of credit were outstanding against the line, leaving an available balance of approximately $27.7 million. On April 16, 1996, the Company purchased 28,000 shares of its common stock for approximately $480,000. 21 A. P. GREEN INDUSTRIES, INC. PART II. OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS --------------------------------------------------- The Annual Meeting of Stockholders of A. P. Green was held on May 9, 1996 at which the stockholders voted on the following matters: 1. the election of one Class II director to hold office for a term of three years; 2. the approval of the A. P. Green 1996 Long-Term Performance Plan; and 3. the ratification of the appointment of KPMG Peat Marwick LLP as A. P. Green's auditors for the year ending December 31, 1996. With regard to the election of the Class II director, Daniel R. Toll was reelected as a director of A. P. Green in an uncontested election. The vote with respect to Mr. Toll was 3,234,306 shares FOR and 120,981 shares WITHHOLD AUTHORITY TO VOTE. The other directors whose term of office continued after the Annual Meeting are Paul F. Hummer, Donald E. Lasater, William F. Morrison and P. J. O'Bryan. With regard to the approval of the A. P. Green 1996 Long-Term Performance Plan, the plan was approved by the following vote: 2,736,785 shares FOR, 190,336 shares AGAINST and 428,166 shares ABSTAIN and BROKER NON-VOTES. With regard to the ratification of the approval of KPMG Peat Marwick LLP as auditors for the year ending December 31, 1996, the ratification was approved by the following vote: 3,299,991 shares FOR, 29,686 shares AGAINST and 25,610 shares ABSTAIN and BROKER NON-VOTES. Item 6. EXHIBITS AND REPORTS ON FORM 8-K -------------------------------- (a) Exhibits: --------- Exhibit No. ----------- 10 1996 Long-Term Performance Plan of A. P. Green is incorporated herein by reference to Appendix A of A.P. Green's Proxy Statement for the 1996 Annual Meeting of Stockholders. 27 Financial Data Schedule as of and for the Six Months Ended June 30, 1996. (b) Reports on Form 8-K: -------------------- No reports on Form 8-K were filed during the quarter ended June 30, 1996. 22 SIGNATURE --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. A. P. Green Industries, Inc. (Registrant) By: /s/ Gary L. Roberts -------------------------------- Gary L. Roberts Vice President, Chief Financial Officer and Treasurer Date: August 13, 1996 --------------- 23 EX-27 2
5 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 THREE MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1996 JUN-30-1996 3,563 0 49,870 1,786 55,310 143,765 98,740 0 367,260 64,511 37,208 0 0 4,488 112,730 367,260 69,538 69,538 56,042 56,042 0 0 791 4,040 1,588 2,452 0 0 0 2,837 .71 0
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