-----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, FbQwnQqoNkcxZW5UC6tG/1jgUAkBCmP88CfvOGAy27Z2d7H51c0UlgQzkyuca0ey VcG8Bsele7Jq8MzXP5qSiQ== 0000826619-97-000005.txt : 19970328 0000826619-97-000005.hdr.sgml : 19970328 ACCESSION NUMBER: 0000826619-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16452 FILM NUMBER: 97565007 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-K 1 ANNUAL REPORT ON FORM 10-K FOR YEAR ENDED 12/31/96 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------- For the fiscal year ended December 31, 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 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 par value Preferred Share Purchase Rights 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] State the aggregate market value of the voting stock held by nonaffiliates of the registrant: As of March 25, 1997, the market value of A. P. Green Industries, Inc. Common Stock held by non-affiliates was approximately $75,300,000. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: As of March 25, 1997, 8,024,858 shares of Common Stock, $1.00 par value were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference into the indicated part of this report: Document Part of Form 10-K - -------- ----------------- 1996 Annual Report to Stockholders Parts I, II and IV Proxy Statement for 1997 Annual Meeting of Stockholders Part I - 1 - PART I ITEM 1. BUSINESS Introduction ------------ Unless the context otherwise requires, A. P. Green Industries, Inc. and its subsidiaries are referred to in this report collectively as "A. P. Green" or "the Company." In most instances, information about A. P. Green's primary businesses and reportable industry segments ("Refractory Products" and "Industrial Lime") is presented separately. (a) Development of Business ----------------------- General. A. P. Green Industries, Inc., a Delaware corporation, was incorporated as A. P. Green Refractories Co. in 1967. In that year, A. P. Green Refractories Co., a Missouri corporation, was acquired by United States Gypsum Company (now USG Corporation). The acquired company was a successor to a business purchased by Allen P. Green in approximately 1910. In 1987, A. P. Green Refractories Co. acquired all of the outstanding stock of APG Lime Corp., a Delaware corporation, and shortly after such acquisition changed its name to A. P. Green Industries, Inc. Effective February 3, 1988, through a distribution of all the outstanding capital stock of A. P. Green Industries, Inc. to the common stockholders of USG Corporation, A. P. Green Industries, Inc. became an independent publicly held company. In 1994, the Company acquired substantially all of the assets and assumed most of the liabilities of the refractory operations of General Refractories Company and its affiliated companies (collectively referred to as "General"). These operations include ten plants in the United States, a plant near Toronto, Canada and 49% equity interests in two Colombian refractory companies, Materiales Industriales S. A. and Empresa de Refractarios Colombianos S.A. In 1995, the Company acquired a 51% ownership interest in Plibrico de Mexico SA de CV (now A. P. Green de Mexico SA de CV), a refractory manufacturer near Monterrey, Mexico. In addition, during 1995 the Company acquired a 51% ownership interest in Lanxide ThermoComposites, Inc. (LTI) and its wholly owned subsidiary, Chiam Technologies, Inc., and established INTOGREEN Co., a partnership of which A. P. Green owns 51%. In 1996, the Company completed construction of a castables manufacturing plant in West Java, Indonesia. The plant began operations in November 1996. Also in 1996, the Company acquired substantially all of the assets and assumed certain of the liabilities of Eastern Ridge Lime, L.P. (Eastern Ridge). The operations include a mineral processing facility, quarrying and lime manufacturing business in Ripplemead, Virginia and a leased terminal facility in St. Matthews, South Carolina. The Company, headquartered in Mexico, Missouri, mines, processes, manufactures and distributes specialty minerals and mineral-based products, including industrial lime and refractories products in the United States and international markets. The Company operates 23 plants in the United States, Canada, Mexico, the United Kingdom (U.K.) and Indonesia. - 2 - Lime Operations. APG Lime Corp. (APG Lime), a wholly owned subsidiary of A. P. Green and headquartered in Mexico, Missouri, is involved in the mining and processing of limestone into lime for various industrial applications. Primary customer applications include steel and aluminum production, pulp and paper processing, soil stabilization for road construction, water and waste water treatment, masonry and various environmental applications. High calcium limestone, mined from Company-owned deposits, is processed into two basic end products - quicklime, produced by heating crushed limestone in a rotary kiln, and hydrated lime, produced by adding water to quicklime through a controlled process. In addition, the Company produces dolomitic quicklime and Cal-Dol lime by blending quicklime with purchased dolomitic limestone. APG Lime operates three plants, one in Kimballton, Virginia, one in Ripplemead, Virginia and one in New Braunfels, Texas. It generally serves customers in the geographic region surrounding its plants. Refractory Operations. Refractories are heat and atmosphere resistant materials that provide the structure or linings for high temperature furnaces and other vessels. In addition to being resistant to thermal stress and other physical phenomena induced by heat, refractories are often required to provide resistance to physical wear, thermal cycling and abrasion, as well as to provide insulating properties. A. P. Green offers a broad product line, including basic, clay/alumina and silica refractories and ceramic fiber products. Basic refractories are predominantly composed of magnesite ores, while clay/alumina refractories are predominantly composed of fireclays and bauxite ores. Ceramic fiber products are lightweight refractories similar in appearance to fiberglass insulation and are provided in many forms including bulk, blanket, folded modules and vacuum formed shapes. All are used in a wide variety of industries, including steel, aluminum, cement, chemicals, ceramics and glass. Basic, clay/alumina and silica refractories are manufactured in the form of bricks and specialties. Bricks are shaped products formed by mechanical pressing or die molding. Specialty products (also known as monolithics) include refractory cements, castables, plastics and mortars. Specialized shapes to serve specific industry needs are also custom made in seven cast shops located in the United States, Canada, Mexico and the United Kingdom. Although the Company purchases some refractory and refractory-related products from other manufacturers, predominantly all of the refractory products sold by it are manufactured in its own plants. The Company and its wholly owned subsidiaries, A. P. Green Refractories, Inc. and Detrick Refractory Fibers, Inc., manufacture refractories in 15 facilities located in the United States. The Company's wholly owned subsidiary, A. P. Green Refractories (Canada) Ltd., organized in 1931, and its subsidiary, 1086215 Ontario, Inc., operates two manufacturing facilities in Canada. The Company's wholly owned United Kingdom subsidiary, A. P. Green Refractories Limited, acquired by a predecessor of the Company in 1954, operates one manufacturing facility in Bromborough, England, and its subsidiary, Liptak Bradley Limited, installs refractory products worldwide except for North America. The Company's 51% owned Mexican subsidiary, A. P. Green de Mexico SA de CV, operates one manufacturing facility near Monterrey, Mexico. The Company's wholly owned Indonesian subsidiary, PT AP Green Indonesia, operates one manufacturing facility in Cilegon, West Java, Indonesia. Significant investment has been made, particularly in the United States plants, to improve quality, production efficiency and environmental controls. During 1995 the Company took steps to broaden its technology base. INTOGREEN Co., a joint venture partnership with INTOCAST AG, was formed to sell and install cast monolithic ladle linings to the - 3 - steel industry in the U. S., Canada and Mexico. INTOCAST AG, based in Germany, is a world leader in the development of cast ladle linings, which result in lower installation costs, reduced disposal of used refractory material and increased ladle availability to the steel plant. The INTOCAST Endless Lining System (Registered Trademark) is custom designed for each user. During 1996 the system was successfully installed on a trial basis at certain steel customers in the United States, one of which has signed a one-year contract. LTI, a 51% owned subsidiary purchased from Lanxide Corporation (Lanxide), which continues to own a substantial minority interest, concentrates on commercializing refractory products for the continuous casting segment of the steel industry utilizing ceramic composites technology licensed from Lanxide. Under a separate licensing agreement, A. P. Green will develop and market refractory products utilizing the advanced materials technology developed by Lanxide in non-steel refractory applications throughout the world, excluding Japan. Included under the terms of the agreement are all future technologies developed by Lanxide and its licensees and joint ventures as applicable to non-steel refractory applications. (b) Financial Information About Industry Segments --------------------------------------------- Information regarding industry segments of A. P. Green is set forth in Note 19 of Notes to Consolidated Financial Statements which is included in A. P. Green's 1996 Annual Report to Stockholders and incorporated herein by reference. (c) Narrative Description of Business --------------------------------- Refractory Operations. A. P. Green manufactures refractory products in its own plants located in the United States, Canada, Mexico, the United Kingdom and Indonesia. These products are sold world wide to industrial end-users and to installers of refractories. The major end-users of the Company's refractory products and the percentage of the Company's 1996 and 1995 domestic refractory sales to such users are as follows: Percent of 1996 Percent of 1995 U.S. Refractory U.S. Refractory End-User Industry Category Products Sales Products Sales - -------------------------- --------------- --------------- Iron and Steel 33% 34% Nonferrous Metals 15% 18% Cement, Lime, Gypsum, Paper, Ceramics, Glass and Clay 12% 12% Metal Castings and Fabrication 6% 6% Chemicals and Petrochemicals 6% 6% Other 28% 24% A. P. Green is a leader in the manufacture and distribution of refractory materials in North America and throughout the world. Refractory materials are sold through a direct sales force, Company-owned distribution centers, independent distributors, licensees and agents to a diverse cross section of basic industry. The Company believes that success in the refractory industry is dependent, to a large extent, upon developing new products and modifying existing products in order to provide more value to the industries served. A. P. Green has a fully equipped and staffed research facility that can analyze the refractory failure mechanisms in its customers' applications in order to determine the optimum refractory solution. Often the best solution is to use a more sophisticated product which increases the upfront costs but results in a lower - 4 - life cycle cost. The organization of research engineers, customer service engineers and product managers have a good track record of designing optimum solutions. Product design changes that have been introduced recently include self-leveling castables and low-rebound wet gunning products that reduce installation costs, as well as many products that have been optimized to serve specific operating conditions. Some of the new products are based on A. P. Green's proprietary Greenlite insulating aggregate which provides high strength in combination with low thermal conductivities. The Company's employee sales force is located throughout the United States, Canada and Mexico and in the Caribbean, Australia, Germany and the United Kingdom. Refractory products are shipped directly to customers from the Company's plants and from a large network of distribution centers and distribution representatives located in the United States, Canada and the United Kingdom. The United States sales force is divided into four geographic regions and three industry groups. The industry groups are specialized sales and marketing teams that target their efforts to steel, aluminum and cement end-users. This has allowed the Company to provide a higher degree of customer assistance on refractory usage and selection and has enabled sales and marketing personnel to develop additional expertise in those end-user industries. This alignment has been beneficial to specific industry sales of the Company. Canadian and United States refractory sales efforts are coordinated in order to take advantage of a centralized marketing plan and to source products more efficiently. Lime Operations. APG Lime is engaged in the production of lime for industrial applications. This process involves crushing, screening and calcining limestone to produce high calcium quicklime and hydrate, dolomitic quicklime and Cal-Dol lime blend. This processing takes place at Company-owned facilities in New Braunfels, Texas, Kimballton, Virginia and Ripplemead, Virginia. In 1994, the Company completed a project which increased production capacity at the New Braunfels, Texas facility to take advantage of higher demand for quicklime used in making precipitated calcium carbonate and in other growing markets. This project also reduced particulate air emissions and reduced the use of water. The major end-users of the Company's lime products and the percentage of the Company's 1996 and 1995 lime sales to such users is as follows: Percent of 1996 Percent of 1995 End-User Industry Category Lime Products Sales Lime Products Sales - -------------------------- ------------------- ------------------- Pulp and Paper Processing 36% 35% Steel and Aluminum Production 28% 26% Road Construction 15% 14% Environmental/Water Treatment 14% 16% Masonry 4% 3% Chemical and Industrial 3% 6% Increasing public awareness of and concern over environmental issues has resulted in increased lime demand for environmental applications. These include flue gas desulphurization, municipal waste treatment, drinking water treatment and remediation of hazardous waste. Lime demand from these markets is expected to increase and will provide APG Lime with opportunity for continued growth. - 5 - Recently developed lime products include Cal-Dol lime blend; high calcium quicklime noted for specialized sizing and chemical reactivity for use in production of precipitated calcium carbonate by paper producers; and several dolomitic building lime products. Due to their heavy, bulk nature, industrial lime products cannot be shipped economically over long distances. This has resulted in regional sales and distribution, generally within a 400-mile radius of each facility. APG Lime's facilities are well located to take advantage of demand in the Southeastern U.S. and Texas and surrounding states. Product distribution involves direct shipments via rail and/or truck from the plants to the customers and customer pick-up at the plants. Raw Materials. A. P. Green maintains programs to attempt to ensure the availability of raw materials, including the purchase of materials for its short-term needs and the development of long-term sources of supply. Refractory clay and silica requirements are obtained from Company-owned deposits located in Alabama, Arkansas, Georgia, Idaho, Missouri, Ohio, Texas and Utah. Proven deposits contained approximately 10,800,000 tons of clay and silica as of December 31, 1996. Average annual mining of clay and silica during the last five years was 234,000 tons, with 1996 at 240,000 tons. Proven reserves are estimated to be sufficient for approximately 38 years of operations, based on recent average annual usage. The remaining refractory raw materials requirements are obtained from numerous suppliers. Refractory-grade bauxite is imported from China, Guyana and Brazil, and approximately 30% of the Company's magnesite supply is obtained from China. On a long-term basis, there is an adequate supply of materials available from these countries. There has been no significant interruption in the availability of Chinese or Brazilian bauxite or Chinese magnesite. There have been brief periods of limited supplies of bauxite from Guyana. Some alumina raw materials are available from only one or two suppliers in the United States. Current supplies are adequate to meet A. P. Green's planned production volume for the foreseeable future. Aluminum Company of America is a major supplier of alumina chemicals and supplies up to 90 percent of certain chemicals used by A. P. Green. A. P. Green's lime products require two major raw materials, high calcium limestone and dolomitic limestone. High calcium limestone is quarried from Company-owned deposits at the New Braunfels, Texas and Ripplemead, Virginia plants and mined from Company-owned and leased deposits at the Kimballton, Virginia plant. The deposit at New Braunfels contained about 49,300,000 tons of usable reserves as of December 31, 1996. The average annual usage of quarried limestone at New Braunfels during the five-year period ended December 31, 1996 was 995,000 tons, with 1996 usage at 1,127,000 tons. Proven reserves of limestone at this location are estimated to be sufficient for about 50 years of operations, based on recent average annual usage. Company-owned and leased reserves at the Kimballton plant were estimated at 20,100,000 tons as of December 31, 1996. The average annual usage of mined limestone at Kimballton during the five-year period ended December 31, 1996 was 682,000 tons, with 1996 usage at 741,000 tons. Proven reserves of limestone at this location are estimated to be sufficient for 29 years of operations, based on recent average annual usage. Approximately 12,200,000 tons of limestone were also obtained in the 1996 Eastern Ridge acquisition, which should be sufficient for 45 years of operations based on projected usage. Dolomitic limestone is purchased from outside suppliers, primarily Chemical Lime Company for the New Braunfels plant and Rockydale Quarries Corp. for the Kimballton plant. Energy. Natural gas used in the production of refractory products represents approximately 60 percent of total refractory energy costs. However, natural gas usage accounts for only approximately 4 percent of the total cost of refractory sales. Most manufacturing plants maintain a supply of standby energy. Electrical costs vary between operations and account for the balance of refractory energy costs. - 6 - The primary energy source used in the production of lime products is coal, which accounted for virtually all of the total fuel used at the Kimballton plant and about 66 percent of the total fuel used at the New Braunfels plant during 1996. Coal will also be the primary energy source at the Ripplemead plant. Natural gas (in lieu of coal) is the other major energy source used at New Braunfels, accounting for approximately 34 percent of that facility's total fuel usage in 1996. Coal for all locations and gas for New Braunfels are readily available from numerous suppliers. Primary energy supplies for both segments have been ample and have not been a factor in terms of curtailed plant operations. No major shift in energy use patterns for either segment is anticipated. Seasonality/Cyclicality. Refractory sales are moderately seasonal and are directly related to cyclical fluctuations in production levels and new plant additions by refractory end-users. Lime demand is fairly uniform except for the negative impact of adverse weather on soil stabilization shipments. This factor is significant in Texas and surrounding states as soil stabilization shipments for road construction projects are somewhat depressed between November and February due to typically rainy weather conditions. Both of the Company's industry segments are sensitive to cyclical fluctuations in the iron, steel and non-ferrous metals industries. APG Lime is also sensitive to cyclical fluctuations in the pulp and paper processing industries. Order Backlog. Order backlog for refractories varies by month within a moderate range. The order backlog believed to be firm was approximately $31.1 million and $38.4 million at December 31, 1996 and 1995, respectively, requiring eight to nine weeks to service for 1996 as compared with eleven to twelve weeks for 1995. A significant portion of the 1996 decline was due to lower demand for silica brick as a result of reduced glass plant construction in both the U. S. and foreign markets. During 1996 the Company revised its method of calculating refractories order backlog to include orders held by distribution centers. Prior year data has been restated to reflect that change. Lime products normally do not have any significant backlog, other than for soil stabilization backlog related to state highway lettings, which can vary significantly from period to period. Such backlog was approximately $3.2 million and $3.0 million at December 31, 1996 and 1995, respectively. Competition. The refractory industry is highly competitive and demand for refractories fluctuates with the level of activity in the basic industries. A. P. Green is one of six major producers of domestic refractories. The Company competes internationally with several major domestic producers and a number of international companies. The Company continues to expand its international refractory sales efforts. In addition, there are numerous regional domestic refractory producers. The major areas of competition in the refractory industry are service, price and product performance. Due to the decline of the United States heavy manufacturing industrial base, the refractory industry has become more price sensitive in recent years. New product introductions are increasing to meet demands of customer operating practices. More stringent requirements placed on product quality are being met with improved quality control at A. P. Green manufacturing plants to minimize deviations from refractory manufacturing standards. The U.K. Bromborough facility and the Mexico, Missouri, Fulton, Missouri, Sproul, Pennsylvania and Oak Hill, Ohio plants have been ISO 9002 certified and efforts are being made for certification of the other major U.S. and Canadian plants. - 7 - The Virginia and Texas lime plants compete with three and four primary lime producers, respectively. Price-sensitive competition is strong within these areas. Capital Expenditures. A. P. Green has implemented a program of maintaining and modernizing its facilities to improve its competitive position. In the three years ended December 31, 1996, A. P. Green invested approximately $29.5 million for such purposes. Of those expenditures, 73% ($21.4 million) were for refractories operations and information systems and 27% ($8.1 million) were for improvements in lime production and environmental controls. A. P. Green believes that these expenditures have provided it with significant cost reductions in certain segments of its business. Research and Development. Product and process development activities are principally located at Mexico, Missouri, in a well equipped facility occupying 43,924 square feet. The major objective of the refractory technology department is to maintain A. P. Green at the technological forefront of the refractories industry with applied research and development of new and improved refractory products and high-temperature insulators. Product development related to LTI is also conducted by Lanxide and certain of their affiliated companies, as directed and funded by LTI. The refractory technology department also is responsible for quality systems implementation, analytical services, applications engineering, product installation technical support and technical liaison with foreign operations. A pilot plant allows testing during the transition of new products to the commercial stage. Research and development expenditures amounted to approximately $3.9 million, $2.9 million and $2.5 million during 1996, 1995 and 1994, respectively. Research and development expenditures in 1996 included costs associated with LTI product development. Significant Customers. A. P. Green is not dependent upon any single customer or group of customers on a regular basis, the loss of which would have a materially adverse effect on A. P. Green. No customer accounted for more than five percent of A. P. Green's consolidated annual net sales in 1996, 1995 or 1994. Employees. The average number of persons employed by A. P. Green during 1996, 1995 and 1994 was 1,759, 1,966 and 1,656, respectively. Approximately 900 employees are members of collective bargaining units. The represented unions in the U.S. and Canada are: the Aluminum Brick and Glass Workers International Union, the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, Laborers International, Brick Layers and Allied Craftsmen, and the United Steel Workers of America. The represented unions in the United Kingdom are: the Transport and General Workers' Union, the Amalgamated Union of Engineering Workers and the Union of Construction and Allied Trades. The represented union in Monterrey, Mexico is the Federation Nacional de Sindicatos Independientes. Five-year collective bargaining agreements were successfully negotiated in 1993 with the unions represented at the Mexico, Missouri and Fulton, Missouri plants, in 1994 with the unions represented at the Bessemer, Alabama and Little Rock, Arkansas plants and in 1995 with the unions represented at the Sulphur Springs, Texas, Gary, Indiana and Smithville, Ontario plants. New collective bargaining agreements were negotiated during 1996 at the Oak Hill, Ohio, Lehi, Utah, Rockdale, Illinois, Gary, Indiana and Sproul, Pennsylvania plants. A. P. Green considers its relations with its employees to be good. Environmental Matters. Laws and regulations currently in force which do or may affect A. P. Green's domestic operations include the Federal Clean Water Act, the Reauthorized Clean Air Act of 1990, the National Environmental Policy Act of 1969, the Solid Waste Disposal Act (including the Resource - 8 - Conservation and Recovery Act of 1976), the Comprehensive Environmental Response, Compensation and Liability Act (including the Superfund Amendments and Reauthorization Act of 1986), the Federal Surface Mining Control and Reclamation Act, the Toxic Substances Control Act, regulations under these Acts, the environmental protection regulations of various governmental agencies (e.g., the Bureau of Land Management Surface Management Regulations, Forest Service Regulations, Environment Canada Regulations and Department of Transportation Regulations) and laws and regulations concerned with mining techniques, reclamation of mined lands, air and water pollution and solid waste disposal. In Europe, environmental laws and regulations currently in force which do or may affect the Company's United Kingdom subsidiary include the Rivers (Prevention of Pollution - Scotland) Act of 1951, the Clean Air Act of 1968, the Control of Pollution Act of 1974 (amended in 1989), the Health and Safety at Work Act of 1974, the EC Waste Framework Directive of 1975, the Waste Regulation and Disposal (Authorities) Order of 1985, the Control of Substances Hazardous to Health Regulations of 1988, the Water Act of 1989, the Environmental Protection Act of 1990, local authority air pollution control, German packaging regulations and the Belgium eco-tax on waste disposal of packaging products. Environmental laws and regulations currently in force in Mexico which do or may affect the Company's Mexican subsidiary include Control of Hazardous Substances and Registry, Health and Safety Meeting Registration and Land Surface Management Regulations. From time to time, the Company experiences on-site inspections by environmental regulatory authorities who may impose penalties or require remedial actions. A. P. Green believes that it has substantially complied with, and it intends in the future to so comply with, all laws and regulations (including foreign) governing pollution control and other environmental conditions in all material respects. Such compliance has not had, and is not expected to have, a material adverse effect upon A. P. Green's earnings or competitive position. Information regarding environmental and asbestos-related legal proceedings is set forth in Note 18 of Notes to Consolidated Financial Statements which are included in A. P. Green's 1996 Annual Report to Stockholders and incorporated herein by reference. Capital expenditures have been made over the last several years and are planned in 1997 to install dust and emissions control equipment to improve the impact on the environment of refractory and lime manufacturing operations. Patents, Trademarks, and Licenses. All major product brand names, as well as the "A. P. Green" name, are registered in the United States and numerous other countries. A. P. Green currently holds 19 U.S. patents, and had two patent applications outstanding at December 31, 1996. The expiration of these patents will not have a significant financial impact on A. P. Green. A. P. Green licenses its refractory technology and formulations to refractory producers around the world. Currently, there are ten license agreements with foreign, unaffiliated companies, three of which cover A. P. Green's full range of refractory products and seven of which are for limited product lines. (d) Financial Information About Foreign and Domestic Operations and Export Sales ---------------------------------------------------------------------------- Financial information regarding geographic segments of A. P. Green is set forth in Note 19 of Notes to Consolidated Financial Statements which is included in A. P. Green's 1996 Annual Report to Stockholders and incorporated herein by reference. - 9 - ITEM 2. PROPERTIES General - ------- A. P. Green's principal properties are owned, except as noted, and none of the owned properties are subject to encumbrances, except for buildings and equipment at the Bessemer, Alabama plant and land and buildings at the Ellisville, Mississippi plant used to secure the industrial development revenue bond indebtedness at those plants. The buildings are adequate and suitable for the purposes for which they are used, have been well maintained, are in sound operating condition and are in regular use. Headquarters - ------------ The headquarters of A. P. Green, which consists of 62,800 square feet of floor space, is located in Mexico, Missouri. Refractory Manufacturing Facilities - ----------------------------------- The following table describes the U.S. refractory manufacturing facilities operated by A. P. Green. Facilities are owned unless otherwise indicated. Plants in Hitchins, Kentucky, Troup, Texas and Warren, Ohio, obtained in the General acquisition, are excluded as they are no longer in operation and are currently held for sale. Location and Nature Approximate Square Products of Property Feet of Floor Space Manufactured - ------------------- ------------------- ------------ Bessemer, Alabama 150,300 High Alumina and Manufacturing buildings, Fireclay Brick rail and office Ellisville, Mississippi 20,000 Board and Special Shape Manufacturing and office Refractory Fiber Products building Fulton, Missouri 240,200 High Alumina Brick, Manufacturing buildings, including Tar Impregnated rail and office and Coked Brick Gary, Indiana 98,500 Cast Shapes & Castables Manufacturing buildings and office Lehi, Utah 120,000 High Alumina, Silica and Manufacturing buildings, Basic Brick; Castables rail and office - 10 - Location and Nature Approximate Square Products of Property Feet of Floor Space Manufactured - ------------------- ------------------- ------------ Little Rock, Arkansas 37,800 Calcined Refractory Clay, Clay storage building, Refractory Clay rotary calcining kiln, rail and office Mexico, Missouri 1,142,700 Fireclay, High Alumina and Manufacturing buildings, Insulating Brick; Zirconia rail and office Brick; Mortars, Plastics, Castables and Light Weight Aggregate Middletown, Pennsylvania 119,000 Cast Shapes Manufacturing buildings and office Minerva, Ohio 9,500 Light Weight Aggregate Leased manufacturing and Castables building and office Oak Hill, Ohio 111,100 Mortars, Plastics Manufacturing buildings, and Castables rail and office Pryor, Oklahoma 65,800 Industrial Ceramic Manufacturing buildings, Fiber Insulation rail and office Rockdale, Illinois 78,000 Basic Brick Manufacturing buildings, rail and office Sproul, Pennsylvania 102,100 Mortars, Plastics and Manufacturing buildings, Castables rail and office Sulphur Springs, Texas 193,100 Fireclay and High Manufacturing buildings, Alumina Brick; rail and office Mortars, Plastics and Castables Thomasville, Georgia 24,000 Cast Shapes Leased manufacturing buildings and office - 11 - Mineral Properties - ------------------ Most of the refractory plants listed above utilize clay and/or silica, which A. P. Green mines or quarries from deposits leased or owned, or purchases from various sources. Clay and silica deposits include properties known to contain commercially recoverable quantities based on core and/or auger drilling, laboratory testing, surveying and mapping. Such properties are held outright in fee simple; under mineral deeds which convey title to all clay or minerals with full rights of ingress, egress and mining; and under lease. The clay reserves are located in Alabama, Arkansas, Georgia, Idaho, Missouri, Ohio and Texas, and a silica mine is located in Utah. Distribution Centers/Sales Offices - ---------------------------------- A. P. Green operates distribution centers and maintains refractory stocks and sales offices as indicated in the listing below. All distribution centers are on ground level and range up to approximately 22,000 square feet. With the exception of Chicago, Illinois, Baton Rouge, Louisiana and St. Louis, Missouri, which are owned, the distribution centers/sales office facilities are leased under initial lease terms of one to 20 years. Distribution Center/Sales Office Locations: Atlanta, Georgia Kearny, New Jersey Austin, Texas Knoxville, Tennessee Baltimore, Maryland Lehi, Utah Baton Rouge, Louisiana Los Angeles, California Birmingham, Alabama Orange, Connecticut Boston, Massachusetts Philadelphia, Pennsylvania Buffalo, New York Pittsburgh, Pennsylvania Charlotte, North Carolina Portland, Oregon Chicago, Illinois Roanoke, Virginia Cincinnati, Ohio Rockford, Illinois Cleveland, Ohio St. Louis, Missouri Dallas, Texas Salt Lake City, Utah Davenport, Iowa San Francisco, California Detroit, Michigan Seattle, Washington Evansville, Indiana Spokane, Washington Houston, Texas Tampa, Florida Kansas City, Missouri Lime Operations - --------------- APG Lime operates three industrial lime manufacturing plants. The facility at Kimballton, Virginia consists of an underground mine, rail and various plant buildings, totaling approximately 83,700 square feet of floor space, situated on approximately 680 owned acres. This plant primarily manufactures industrial lime products and a small amount of soil stabilization lime. APG Lime owns one-half of the mineral rights under national forest property adjacent to the Kimballton plant by royalty lease from the Bureau of Land Management. Such lease was renewed for an additional 20-year term in 1988. The royalty is 2.5 percent of the nominal value of limestone mined. - 12 - The facility at Ripplemead, Virginia consists of a surface mine, rail and various plant buildings, totalling approximately 75,000 square feet of floor space, situated on approximately 1,700 acres. This plant primarily manufactures industrial lime. In addition, a supply of finished goods is maintained at a leased warehouse facility near St. Matthews, South Carolina. The New Braunfels, Texas facility consists of a surface mine, rail and various plant buildings, totaling approximately 81,000 square feet of floor space, situated on approximately 1,010 owned acres. This plant manufactures industrial lime products, soil stabilization lime and lime-based mortars. Canadian Subsidiary - ------------------- A. P. Green Refractories (Canada) Ltd., a wholly owned subsidiary of A. P. Green, owns 17,100 square feet of manufacturing space at Acton, Ontario to produce crucibles used by the precious metal assaying industry and vacuum formed fiber products. 1086215 Ontario, Inc., a wholly owned subsidiary of A. P. Green Refractories (Canada) Ltd., owns a 170,000 square foot building in Smithville, Ontario used for manufacturing and storage of basic brick, refractory mortars, cements, plastics and castables. In addition, raw materials, which are imported principally from A. P. Green's U. S. facilities, are stored there. Distribution centers and/or sales offices are maintained at the following locations: Delta, British Columbia, Edmonton, Alberta, Montreal, Quebec, Ottawa, Ontario, Quebec City, Quebec, Toronto, Ontario, and Winnipeg, Manitoba. All of the facilities are leased under initial lease terms of one to five years. United Kingdom Subsidiaries - --------------------------- A. P. Green Refractories Limited, a wholly owned subsidiary of A. P. Green Industries, Inc., leases and operates its headquarters and manufacturing facility in Bromborough, Wirral, England. A full range of specialties, including mortars, plastics and dense and light weight castables are manufactured in a 76,600 square foot building at this location. Distribution centers and sales offices are maintained in Bromborough, Sheffield and London in England and Risca in Wales to ensure complete customer coverage in the U.K. All of these facilities are leased under initial lease terms of one to nine hundred ninety-nine years. Liptak Bradley Limited, a wholly owned subsidiary of A. P. Green Refractories Limited, operates out of the same premises in Bromborough, providing a refractory installation service using exclusively A. P. Green products. Mexican Subsidiary - ------------------ A. P. Green de Mexico SA de CV, a 51% owned subsidiary of A. P. Green Refractories Inc., owns and operates a manufacturing facility located in Salinas Victoria near Monterrey, Mexico. Cast shapes, castables, mortars and plastics are manufactured in a 53,800 square foot facility at this location. Indonesian Subsidiary - --------------------- PT AP Green Indonesia, a subsidiary owned 80% by A. P. Green Industries, Inc. and 20% by A. P. Green Refractories, Inc., owns and operates a 43,400 square foot castables manufacturing facility situated on 5.4 acres in Cilegon, West Java, Indonesia. - 13 - ITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings is set forth in Note 18 of Notes to Consolidated Financial Statements which is included in A. P. Green's 1996 Annual Report to Stockholders and incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information set forth below the caption "Common Stock, Market Prices and Dividends" on page 32 of A. P. Green's 1996 Annual Report to Stockholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL INFORMATION The information set forth below the caption "Comparative Five-Year Summary" on page 32 of A. P. Green's 1996 Annual Report to Stockholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information set forth below the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 10 through 14 of A. P. Green's 1996 Annual Report to Stockholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of A. P. Green as of December 31, 1996 and 1995 and for each of the years in the three-year period ended December 31, 1996, and notes thereto (including the quarterly supplementary data) and the Independent Auditors' Report appear on pages 15 through 31 of A. P. Green's 1996 Annual Report to Stockholders and are incorporated herein by reference. The Independent Auditors' Report for the financial statement schedule for each of the years in the three-year period ended December 31, 1996, and the financial statement schedule required by Regulation S-X appear on pages F-1 through F-2 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. - 14 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors is contained in A. P. Green's Proxy Statement for the 1997 Annual Meeting of Stockholders under the caption "Item 1 - - Election of Directors" and is incorporated herein by reference. The following is a list as of March 25, 1997 of the names and ages of the executive officers of A. P. Green and all positions and offices with A. P. Green presently held by the person named. There is no family relationship between any of the named persons. Name Age All Positions Held With A. P. Green - ---- --- ----------------------------------- Paul F. Hummer II 55 Chairman of the Board, President and Chief Executive Officer Jurgen H. Abels 52 Vice President, International Max C. Aiken 59 Executive Vice President David G. Binder 60 Vice President and Controller Ronald L. Bramblett 59 Vice President, Human Resources Michael B. Cooney 56 Senior Vice President, Law/Administration and Secretary Frank J. Cordie 44 Vice President, Refractory Manufacturing Daniel Y. Hagan 57 Vice President, Refractory Sales Orville Hunter, Jr. 58 Vice President, Refractory Technology John L. Kelsey 46 Vice President, Refractory Marketing Gary L. Roberts 50 Vice President, Chief Financial Officer and Treasurer The executive officers were appointed by, and serve at the pleasure of, the Board of Directors of A. P. Green. Except for Mr. Cordie, all executive officers have held the position listed or another position with A. P. Green or an entity affiliated with A. P. Green for at least five years. Mr. Cordie was Regional Director, Refractory Production of A. P. Green from October 1995 to February 1996 and Vice President of Production at Jenkins Brick Co. from February 1991 to September 1995. - 15 - ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is contained in A. P. Green's Proxy Statement for the 1997 Annual Meeting of Stockholders under the caption "Compensation of Executive Officers" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is contained in A. P. Green's Proxy Statement for the 1997 Annual Meeting of Stockholders under the captions "Voting Securities and the Principal Holders Thereof" and "Security Ownership by Management" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements --------------------------------- The following Consolidated Financial Statements of A. P. Green are contained in A. P. Green's 1996 Annual Report to Stockholders on the following pages thereof: Annual Report Page Reference -------------- Consolidated Statements of Earnings - Years Ended December 31, 1996, 1995 and 1994 15 Consolidated Statements of Financial Position - December 31, 1996 and 1995 16 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1996, 1995 and 1994 17 Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994 18 Notes to Consolidated Financial Statements - December 31, 1996, 1995 and 1994 19-31 Independent Auditors' Report as of December 31, 1996 and 1995 and for each of the years in the three-year period ended December 31, 1996 31 - 16 - 2. Financial Statement Schedule ---------------------------- The following financial statement schedule of A. P. Green and the accompanying Independent Auditors' Report are set forth on the following pages of this Annual Report on Form 10-K: Form 10-K Page Reference -------------- Independent Auditors' Report on the consolidated financial statement schedule for each of the years in the three-year period ended December 31, 1996. F-1 Schedule II Valuation and Qualifying Accounts F-2 Some schedules have been omitted because they are not applicable, are not required or the information is included in the consolidated financial statements or notes thereto. 3. Exhibits -------- Exhibit No. ----------- 3(a) Restated Certificate of Incorporation of A. P. Green is incorporated herein by reference to Exhibit 3(a) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1987. 3(b) By-Laws of A. P. Green, as amended on November 16, 1995, is incorporated herein by reference to Exhibit 3(b) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1995. 4(a) Specimen Common Stock Certificate of A. P. Green is incorporated herein by reference to Exhibit 4.1 of the Registration Statement on Form 10, dated February 3, 1988. 4(b) Rights Agreement, dated as of December 22, 1987, between A. P. Green and Harris Trust and Savings Bank, as Rights Agent, is incorporated herein by reference to Exhibit 4.2 of the Registration Statement on Form 10, dated February 3, 1988. 4(c) Note Purchase Agreement, dated July 28, 1994, by and between A. P. Green and certain of its subsidiaries and the purchasers of the unsecured notes, is incorporated herein by reference to Exhibit 10.1 of A. P. Green's Current Report on Form 8-K dated August 12, 1994. 10(a) A. P. Green Refractories Co. Supplemental Retirement Plan is incorporated herein by reference to Exhibit 10.10 of the Registration Statement on Form 10, dated February 3, 1988. - 17 - 10(b) 1987 Long-Term Performance Plan of A. P. Green is incorporated herein by reference to Exhibit 10(l) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1987. 10(c) 1989 Long-Term Performance Plan of A. P. Green is incorporated herein by reference to Exhibit 10(m) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1988. 10(d) Form of A. P. Green Management Incentive Compensation Plan is incorporated herein by reference to Exhibit 10(d) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1995. 10(e) Form of Indemnification Agreement between A. P. Green and each of its Directors and Officers is incorporated herein by reference to Exhibit 10(m) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1987. 10(f) Termination Compensation Agreement, dated March 1, 1988, between A. P. Green and Paul F. Hummer II, is incorporated herein by reference to Exhibit 10(o) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1987. 10(g) Termination Compensation Agreement, dated November 16, 1988, between A. P. Green and Michael B. Cooney, is incorporated herein by reference to Exhibit 10(r) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1988. 10(h) Form of Addendum No. 1 of Termination Compensation Agreement, dated October 19, 1989, by and between A. P. Green and Paul F. Hummer II or Michael B. Cooney, is incorporated herein by reference to Exhibit 10(w) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1989. 10(i) Form of Termination Compensation Agreement, dated October 19, 1989, between A. P. Green and Gary L. Roberts or Max C. Aiken, is incorporated herein by reference to Exhibit 10(x) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1989. 10(j) 1993 Performance Plan of A. P. Green is incorporated herein by reference to Exhibit 10(j) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1993. 10(k) Retirement Plan for Directors, dated February 16, 1995, is incorporated herein by reference to Exhibit 10(l) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1994. 10(l) A. P. Green Industries, Inc. Supplemental Retirement Income Plan, executed October 12, 1994, effective January 1, 1995, is incorporated herein by reference to Exhibit 10(m) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1994. - 18 - 10(m) 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. 10(n) Asset Acquisition Agreement dated December 27, 1996 by and among APG Lime Corp., Eastern Ridge Lime L.P. and Eastern Ridge Lime, Inc. is incorporated herein by reference to Exhibit 2.1 of A. P. Green's Current Report on Form 8-K dated January 13, 1997. 13 A. P. Green's 1996 Annual Report to Stockholders. 21 Subsidiaries of A. P. Green 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule as of December 31, 1996. (b) Reports on Form 8-K. No reports on form 8-K were filed during the quarter ended December 31, 1996. (c) See Item 14(a) above. (d) See Item 14(a)(2) above. - 19 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 Dated: March 25, 1997 By:/s/Michael B. Cooney --------------------------------- Michael B. Cooney, Senior Vice President, Law/Administration and Secretary Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- /s/Paul F. Hummer Chairman of the Board, March 25, 1997 - -------------------- President, Chief Executive Paul F. Hummer Officer and Director (Principal Executive Officer) /s/Gary L. Roberts Vice President, Chief Financial March 25, 1997 - -------------------- Officer and Treasurer Gary L. Roberts (Principal Financial and Accounting Officer) /s/Donald E. Lasater Director March 25, 1997 - -------------------- Donald E. Lasater /s/P. J. O'Bryan Director March 25, 1997 - -------------------- P. J. O'Bryan /s/Daniel R. Toll Director March 25, 1997 - -------------------- Daniel R. Toll /s/William F. Morrison Director March 25, 1997 - ---------------------- William F. Morrison - 20 - INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders A. P. Green Industries, Inc.: Under date of February 10, 1997, we reported on the consolidated statements of financial position of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the 1996 Annual Report to Stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1996. As discussed in note 5 of notes to consolidated financial statements, the Company changed its method of accounting for postemployment benefits in 1994. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG PEAT MARWICK LLP St. Louis, Missouri February 10, 1997 F-1 SCHEDULE II A. P. GREEN INDUSTRIES, INC. SUPPLEMENTAL INFORMATION VALUATION AND QUALIFYING ACCOUNTS An analysis of doubtful accounts for 1994, 1995 and 1996 is as follows: Doubtful Accounts -------- (Dollars In Thousands) Balance, December 31, 1993 $1,198 Additions in 1994 - Current Year Provision 373 Acquisition of General Refractories 1,088 Less - Receivables written off, net (667) ------ Balance December 31, 1994 1,992 Additions in 1995- Current year provision 120 Acquisitions 247 Less - Receivables written off, net (429) ------ Balance, December 31, 1995 1,930 Additions in 1996 - Current year provision 740 Less - Receivables written off, net (969) ------ Balance, December 31, 1996 $1,701 ====== F-2 EX-13 2 ANNUAL REPORT FOR YEAR ENDED 12/31/96 Exhibit 13 to Form 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 1996 Compared to 1995 - --------------------- Results of Operations - --------------------- Net sales of $258.5 million in 1996 were 3.5% higher than the $249.7 million in 1995. The impact from the December 1995 acquisition of Lanxide ThermoComposites, Inc. and subsidiary, Chiam Technologies, Inc. (collectively referred to as LTI) was to increase 1996 sales by approximately $2.1 million. The impact from the July 1995 A. P. Green de Mexico acquisition was to increase 1996 sales by approximately $3.6 million. The impact from the INTOGREEN joint venture partnership, formed in January 1995 but with no significant activity during 1995, was to increase 1996 sales by approximately $1.0 million. Excluding the impact of these acquisitions and ventures, sales increased by $2.1 million, or 0.8%. Gross profit increased 6.5% to $44.1 million in 1996 from $41.4 million in 1995, including approximately $340,000 due to the LTI acquisition, $1.1 million due to the A. P. Green de Mexico acquisition and $95,000 due to the INTOGREEN partnership. Net earnings declined $3.5 million to $5.3 million, or $.67 per share, in 1996 from $8.8 million, or $1.09 per share, in 1995. Refractory Operations - --------------------- Net sales from refractory operations increased 2.9% to $218.4 million in 1996 as compared to $212.2 million in 1995. U.S. refractory sales increased 2.4% to $186.1 million in 1996 as compared to $181.8 million in 1995, of which $3.1 million was due to LTI and INTOGREEN. Excluding this acquisition impact, volume of U.S. refractory products declined an average of 2.7% in 1996, with reductions in brick and precast shape volumes partially offset by increases in specialties and ceramic fibers. Prices increased 4.4% across all product lines. U.S. export sales increased 23.0% to $23.8 million in 1996 from $19.4 million in 1995. Sales at the Canadian subsidiary declined 1.2% to $23.8 million in 1996 from $24.0 million in 1995. Volumes declined across all product lines except crucibles by an average of 8.6%. Prices increased across all product lines except ceramic fibers, resulting in an overall 1996 price increase of 8.8%. The Canadian subsidiary had a pretax loss of $324,000 in 1996 compared to a pretax loss, excluding a $1.4 million gain on the sale of the Weston, Ontario plant, of $365,000 in 1995. Contributing to the 1996 loss were increased equipment maintenance expenses. The 1995 loss included the establishment of a reserve for exit costs and termination benefits for 26 employees associated with the closing and sale of the Weston, Ontario plant, which was substantially complete in December 1995. Sales in the United Kingdom increased 2.4% to $10.0 million in 1996 from $9.7 million in 1995, while pretax earnings declined to $607,000 in 1996 compared to $673,000 during 1995, primarily as a result of lower gross margins. A. P. Green de Mexico's pretax earnings were $992,000 on sales of $8.1 million in 1996 compared to pretax earnings of $341,000 on sales of $3.2 million during the six months of 1995 under A. P. Green ownership. PT AP Green Indonesia incurred a pretax start-up loss of $325,000 in 1996. Refractory gross profit increased 3.8% to $34.5 million in 1996 from $33.3 million in 1995. Refractory products cost of sales as a percentage of sales declined slightly to 84.2% in 1996 from 84.3% in 1995. The 1996 improvement was due primarily to higher margins at A. P. Green de Mexico. Also contributing to the cost reduction were lower workers compensation and processing fuels expense and improved labor efficiencies at U.S. plants, offset by increased equipment maintenance and higher inventory cost adjustments. Refractory operating profits declined 36.6% to $8.0 million in 1996 from $12.6 million in 1995 due to increased salary and related expenses and travel, partially offset by reduced sales incentives. Selling and administrative expenses at LTI, INTOGREEN, PT AP Green Indonesia and A. P. Green de Mexico, including over $800,000 in research and development expenses at LTI, also contributed to the reduction in operating profit. Management anticipates that these research expenditures at LTI will yield improved sales and operating results in the future. During the third and fourth quarters of 1996, lower sales and a planned reduction of refractory finished goods inventory resulted in reduced production efficiencies and declines in gross profit and net earnings for those periods. Inventory-related adjustments also contributed to the decline in gross profit and net earnings during the third and fourth quarters. Management does not anticipate a long-term continuation of these reduced sales levels and production inefficiencies. In addition, results from LTI, INTOGREEN and PT AP Green Indonesia should all improve as these subsidiaries progress beyond the start-up phase of operations. Industrial Lime Operations - -------------------------- Industrial lime sales increased 6.5% to a record $40.2 million in 1996 from $37.7 million in 1995. Volumes increased an average of 5.5% across all product lines at the New Braunfels, Texas plant, while volumes at the Kimballton, Virginia plant declined 2.3% overall, with reductions in quicklime and hydrate partially offset by an increase in Cal-Dol volume. Prices improved an average of 3.3% at the Kimballton plant during 1996, with increases across all product lines except Cal-Dol. At the New Braunfels plant, prices increased across all product lines an average of 4.5%. 10 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 increase, gross profit and operating profit increased 17.6% and 19.9%, respectively. Also contributing to the 1996 increase were reduced outside processing costs at Kimballton, lower depreciation expense at New Braunfels and a higher net favorable inventory cost adjustment in 1996 compared to 1995. Partially offsetting these improvements were increased raw material costs at both plants and increased equipment maintenance expense at New Braunfels. Selling and Administrative Expenses - ----------------------------------- Selling and administrative expenses increased 15.3% to $36.1 million in 1996 from $31.3 million in 1995. Selling and administrative expenses at A. P. Green de Mexico, LTI, INTOGREEN and PT AP Green Indonesia accounted for $917,000, $2.4 million, $177,000 and $256,000 of the increase, respectively. Expenses at LTI included over $800,000 in research and product development and significant market development costs. Also contributing to the 1996 increase were a higher provision for doubtful accounts receivable, normal increases in salaries and related costs, increased international travel due to expanding foreign operations and higher retiree health insurance costs. Partially offsetting these increases were reduced sales incentives, pension expense, moving and recruiting costs. Interest Expense and Income - --------------------------- Interest expense decreased 2.4% to $3.1 million in 1996 from $3.2 million in 1995 due primarily to a $2.5 million scheduled principal payment in July 1996 against the debt associated with the General acquisition. The Company borrowed $9.0 million against its U.S. long-term line of credit at the end of 1996 to fund the acquisition of Eastern Ridge Lime; there were no other bank line borrowings during 1996 or 1995. Interest income decreased 17.1% to $1.3 million in 1996 from $1.5 million in 1995 due to reduced funds available for investing and a shorter average investment term resulting in lower average interest rates. Other Income, Net - ----------------- Other income, net declined 71.2% to $542,000 in 1996 from $1.9 million in 1995. Other income in 1995 included a $1.4 million pretax gain on the sale of the Weston, Ontario plant. 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 - ------------ 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 reserved, the Company reduced its provision for federal income taxes by $1.1 million. The 19.9% effective tax rate in 1995 compared to 30.9% in 1996 was due primarily to this tax adjustment, without which the 1995 effective tax rate would have been 29.6%. Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from its two Colombian affiliates totaled $436,000 in 1996 compared to $781,000 in 1995. 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. Financial Condition - ------------------- Effective December 31, 1996, A. P. Green acquired substantially all of the assets and assumed certain of the liabilities of the operations of Eastern Ridge Lime, L.P. (Eastern Ridge). As a result of this acquisition, working capital increased approximately $2.0 million, composed primarily of $1.3 million in accounts receivable and $1.1 million in inventory, partially offset by $378,000 in accounts payable and $101,000 in short-term capital lease obligations. In addition, property, plant and equipment increased $8.3 million and long-term capital lease obligations increased $270,000 as a result of this acquisition. Working capital decreased 5.4%, or $4.3 million, to $75.5 million at December 31, 1996 from $79.8 million at December 31, 1995, including the $2.0 million obtained through acquisitions. The ratio of current assets to current liabilities declined to 2.7 to 1 from 2.8 to 1. Excluding the impact of acquisitions, working capital decreased $6.3 million. Reductions in accounts receivable of $3.4 million and inventories of $3.0 million and increases in accounts payable of $1.8 million and current maturities of long-term debt of $1.4 million accounted for the majority of the working capital decline, partially offset by reductions in insurance reserves of $1.1 million and other accrued expenses of $1.2 million. 11 The decrease in inventories was primarily due to a planned reduction of refractory finished goods. The decrease in accounts receivable was due to improvements in refractories collection efforts and a resulting improvement in days sales outstanding. The increase in accounts payable, partially offset by the reduction in other accrued expenses, was due primarily to increased levels of production associated with the 1995 acquisitions and ventures. Insurance reserves declined primarily due to continued favorable workers compensation and group health insurance claims experience. The increase in current maturities of long-term debt was due to reclassification from long-term to current of a $1.0 million final payment on an industrial development revenue bond at the Bessemer, Alabama plant which matures in December 1997, and INTOGREEN borrowings from the minority interest partner, INTOCAST AG. Long-term debt increased $5.5 million, net of the impact from the Eastern Ridge acquisition, due to borrowing $9.0 million against the U.S. line of credit, less a $2.5 million payment on the unsecured notes and the $1.0 million transfer to current maturities noted above. Deferred tax assets declined 18.0% due primarily to reductions in temporary differences created by accrued liabilities and utilization of the remaining alternative minimum tax carryforwards. Deferred tax liabilities declined 19.3% due primarily to depreciation method differences and a reduction in prepaid pension costs. The projected insurance recovery on asbestos claims and related projected asbestos claims decreased $24.8 million and $25.3 million, respectively. These decreases resulted from claim payments made by insurance carriers and revised estimates based upon settlement agreements reached with the Company's insurance carriers and information provided by the Center for Claims Resolution. The net projected asbestos liability included in the Company's statement of financial position declined from December 31, 1995 to December 31, 1996. All projected asbestos claims and projected insurance recoveries on asbestos claims were classified as long-term in the 1996 statement of financial position due to the inherent uncertainty with regard to timing of claims submissions and settlements. Prior years have been restated to conform to the 1996 presentation. Long-term debt, including current portion, at December 31, 1996 consisted of industrial development revenue bonds totaling $11.8 million which bear interest rates ranging from 70% of prime (8.25% at December 31, 1996) to 8.6% and mature at various times from 1997 through 2014 and unsecured notes of $23.0 million ($22.5 million of which bear an interest rate of 8.55%) with annual principal repayments which commenced in 1996 and will continue through 2001. Also included are $9.0 million borrowed against the U.S. line of credit, which expires May 2, 1998 and bears an interest rate of 2% above the federal funds rate (5.38% at December 31, 1996) and capitalized leases of $381,000 which expire in 1997 and 1999 and bear interest rates ranging from 6.7% to 11.1%. Management believes that the Company's financial position will support additional borrowing should the need arise. During 1996, the Company's U.S. long-term line of credit was extended to May 2, 1998. Restrictive covenants coincide with those reflected in the agreement associated with the unsecured notes payable. Approximately $2.7 million of this line of credit was being utilized at December 31, 1996 for outstanding letters of credit in addition to the $9.0 million borrowed against it, leaving an available balance of approximately $18.3 million. Capital expenditures for 1996 totaled $12.9 million compared to $10.2 million for 1995, with capital expenditures for the refractories business increasing $2.1 million. Of this refractories increase, approximately $900,000 was to complete construction of the new specialties plant in Indonesia. The balance of the refractories increase was for replacement, modernization and expansion of operations. Capital expenditure commitments for the replacement, modernization and expansion of operations amounted to $4.2 million and $7.0 million at December 31, 1996 and 1995, respectively. Of the 1996 commitment, approximately $1.9 million was for expansion and modernization of the Mexico, Missouri and Fulton, Missouri plants. Of the 1995 commitment, approximately $2.5 million was for building the plant in Indonesia and $895,000 was for expansion of the Smithville, Ontario plant. A. P. Green believes that it has sufficient liquidity and borrowing capacity to meet both its normal working capital requirements and its planned capital expenditures for 1997. The Company has investments in subsidiaries in Canada and the U.K. and two affiliates in Colombia. Adjustments resulting from the currency translation of these subsidiaries' and affiliates' financial statements are reflected as a component of stockholders' equity and were $2.9 million at both December 31, 1996 and 1995. The Board of Directors declared a regular quarterly dividend of $.04 per share in the first quarter of 1997. The continuation of such quarterly dividends will be evaluated by the Board of Directors from time to time in light of A. P. Green's financial position and results of operations. 12 1995 Compared to 1994 - --------------------- Results of Operations - --------------------- Net sales of $249.7 million in 1995 were 27.5% higher than the $195.9 million in 1994. The impact from the August 1994 acquisition of the refractories business of General Refractories Company and its affiliated companies ("General") was to increase 1995 sales by approximately $38.8 million. The impact from the July 1995 acquisition of 51% of A. P. Green de Mexico was to increase 1995 sales by approximately $3.2 million. Excluding the impact of these acquisitions, sales increased in 1995 by $11.8 million, or 6.0%. Gross profit increased 20.0% to $41.4 million in 1995 from $34.5 million in 1994, including $3.9 million due to the General acquisition and $1.3 million due to the A. P. Green de Mexico acquisition. Earnings before cumulative effect of an accounting change increased $2.1 million to $8.8 million, or $1.09 per share, in 1995 from $6.7 million, or $.83 per share, in 1994. The results of operations in 1994 included the cumulative effect of adopting Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which reduced net earnings by $255,000, or $.03 per share. Refractory Operations - --------------------- Net sales from refractory operations increased 31.9% to $212.2 million in 1995 as compared to $160.9 million in 1994. U.S. refractory sales increased 28.3% to $181.8 million in 1995 as compared to $141.7 million in 1994, of which $33.3 million was due to the General acquisition. Excluding this acquisition impact, volume of U.S. refractory products increased an average of 5.3% in 1995 across all product lines except precast shapes. Prices were essentially unchanged from 1994 levels, with increases in specialties and precast shape prices offset by declines in prices of brick and ceramic fibers. U.S. export sales increased 52.1% to $19.5 million in 1995 from $12.8 million in 1994, due largely to the General acquisition. Sales at the Canadian subsidiary increased 34.5% to $24.0 million in 1995 from $17.9 million in 1994, substantially all of which was the impact from the General acquisition ($6.2 million). Excluding this impact, decreases in brick, specialties and precast shape volumes were partially offset by increased ceramic fiber and crucible volumes for a net Canadian volume decline of 4.2%. Prices increased across all product lines except crucibles, resulting in an overall 1995 price increase of 4.3%. Excluding a $1.4 million pretax gain on the sale of the Weston, Ontario plant, the Canadian subsidiary had a pretax loss of $365,000 in 1995 compared to pretax earnings of $570,000 in 1994. The 1995 loss included the establishment of a reserve for exit costs and termination benefits for 26 employees associated with the closing and sale of the Weston, Ontario plant, which was substantially completed in December 1995, and additional interest expense on the debt associated with the acquisition of the General operation in Canada. Also contributing to the 1995 loss were increased salaries and related costs associated with the addition of General sales and administrative personnel. Sales in the United Kingdom increased 32.8% to $9.7 million in 1995 from $7.3 million in 1994 as the U.K. market showed signs of improvement. The sales increase generated pretax earnings of $673,000 in 1995, double the $336,000 earned in 1994. A. P. Green de Mexico's pretax earnings were $341,000 on sales of $3.2 million for the six months of 1995 under A. P. Green ownership. Refractory gross profit increased 18.8% to $33.3 million in 1995 from $28.0 million in 1994, largely as a result of the General and A. P. Green de Mexico acquisitions. Refractory products cost of sales as a percentage of sales increased to 84.3% in 1995 from 82.6% in 1994. The 1995 increase was due primarily to a higher percentage of lower margin sales to the steel industry at the acquired General facilities, increased raw material and inbound freight costs and higher equipment maintenance expense. Also contributing to the cost increase were 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. The U. S. plant shutdown reserve was increased due primarily to revised estimates of employee termination benefits resulting from the sale of these facilities taking longer than anticipated. Substantially all employees (approximately 210 in total) at these facilities have been terminated, approximately $3.2 million of termination benefits and plant closing costs have been charged against the reserve to date and the U. S. facilities are held for sale at their estimated net realizable value. Partially offsetting these increases were improved labor efficiencies, and reduced power, processing fuel, outbound freight and group insurance costs. Refractory operating profits increased 9.6% to $12.6 million in 1995 from $11.5 million in 1994. 13 Industrial Lime Operations - -------------------------- Industrial lime sales increased 7.4% to $37.7 million in 1995 from $35.1 million in 1994. Volume increased an average of 9.2% across all product lines at the New Braunfels, Texas plant, while volume at the Kimballton, Virginia plant was essentially unchanged from its 1994 levels, with a slight decline in quicklime volumes offset by slight increases in all other product lines. Prices improved an average of 5.5% at the Kimballton plant during 1995, with increases across all product lines, while prices remained steady at the New Braunfels plant as declines in industrial and building lime prices were offset by increases in pricing of road stabilization lime and lime by-products. 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 increase, gross profit and operating profit increased 25.5% and 27.3%, respectively. Also contributing to the 1995 increase were improved labor efficiencies and reduced group insurance and processing fuel costs at both plants, reduced raw materials and equipment maintenance costs at the New Braunfels plant and reduced power costs at the Kimballton plant. Partially offsetting these cost reductions were increases in workers' compensation costs at the New Braunfels plant and equipment maintenance and outside processing costs at the Kimballton plant. Selling and Administrative Expenses - ----------------------------------- Selling and administrative expenses increased 21.8% to $31.3 million in 1995 from $25.7 million in 1994. The 1995 increase was due to increases in salaries and related costs, pension costs, travel, office expenses, professional fees and the amortization of intangibles, which were all largely related to the addition of General sales and research personnel and intangible assets included in the acquisition. Selling and administrative expenses at A. P. Green de Mexico and INTOGREEN contributed $603,000 and $143,000 of the increase, respectively. Also contributing to the increase were higher sales promotion, sales incentive, employee recruiting and relocation and director retirement plan expenses, partially offset by a reduced provision for doubtful accounts receivable and lower postemployment benefits costs. Interest Expense and Income - --------------------------- Interest expense increased 63.8% to $3.2 million in 1995 from $1.9 million in 1994 due to the additional debt associated with the General acquisition. There were no bank line borrowings during either year. Interest income increased 16.7% to $1.5 million in 1995 from $1.3 million in 1994 due to increased funds available for investing, higher interest rates and interest received during 1995 on tax refunds. Other Income, Net - ----------------- Other income, net increased 62.9% to $1.9 million in 1995 from $1.2 million in 1994 due to the $1.4 million pretax gain on the sale of the Weston, Ontario plant in December 1995. Partially offsetting this gain were increased bank charges and a reduction in 1995 royalty income resulting from the cancellation of a licensing agreement with a significant Mexican licensee during the fourth quarter of 1994. Other income in 1994 included gains on sales of land and a warehouse in Los Angeles and a business interruption insurance recovery. 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 was 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 reserved, the Company reduced its provision for federal income taxes by $1.1 million. The 19.9% effective tax rate in 1995 compared to 30.3% in 1994 was due primarily to this tax adjustment, without which the 1995 effective tax rate would have been 29.6%. Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from two Colombian affiliates acquired from General in August 1994 totaled $781,000 in 1995 compared to $282,000 for the five-month period of 1994. Forward-Looking Information - --------------------------- The statements contained in the Letter to Stockholders, the Industrial Lime and Refractories business summaries and this Management's Discussion and Analysis concerning the Company's future revenues, profitability, financial resources, product mix, market demand and product development are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company's actual results in the future may differ materially from those projected in the forward-looking statements due to risks and uncertainties that exist in the Company's operations and business environment including, but not limited to: delivery delays or defaults by customers; performance issues with key suppliers and subcontractors; the Company's successful execution of internal operating plans; and collective bargaining labor disputes. 14 CONSOLIDATED STATEMENTS OF EARNINGS - ----------------------------------- (Dollars in thousands, except per share data) - -------------------------------------------------------------------------------- Years ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Net sales $ 258,461 $ 249,715 $ 195,918 Cost of sales 214,353 208,309 161,420 - -------------------------------------------------------------------------------- Gross profit 44,108 41,406 34,498 Expense and other income Selling and administrative expense 36,087 31,312 25,707 Interest expense 3,112 3,190 1,947 Interest income (1,255) (1,513) (1,296) Minority interest in loss of partnership (127) (67) -- Other income, net (542) (1,881) (1,155) - -------------------------------------------------------------------------------- Earnings before income taxes and cumulative effect of an accounting change 6,833 10,365 9,295 Income tax expense 2,396 2,182 2,904 Equity in net income of affiliates (436) (781) (282) Minority interest in income (loss) of consolidated subsidiaries (474) 164 -- - -------------------------------------------------------------------------------- Earnings before cumulative effect of an accounting change 5,347 8,800 6,673 Cumulative effect of an accounting change - postemployment benefits, net of tax -- -- (255) - -------------------------------------------------------------------------------- Net earnings $ 5,347 $ 8,800 $ 6,418 ================================================================================ Earnings per common share before cumulative effect of an accounting change $ .67 $ 1.09 $ .83 Cumulative effect of an accounting change - postemployment benefits, net of tax -- -- (.03) - -------------------------------------------------------------------------------- Net earnings per common share $ .67 $ 1.09 $ .80 ================================================================================ Weighted average number of common shares 8,037,710 8,060,118 8,049,624 ================================================================================ See accompanying notes to consolidated financial statements. 15 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Dollars in thousands, except per share data) - -------------------------------------------------------------------------------- December 31, 1996 1995 - -------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 9,477 $ 9,284 Trade receivables (net of allowances - 1996, $1,701; 1995, $1,930) 42,084 44,183 Reimbursement due on paid asbestos claims 3,898 3,696 Inventories 53,674 55,557 Deferred income tax asset 3,374 4,115 Other 7,030 6,411 - -------------------------------------------------------------------------------- Total current assets 119,537 123,246 Property, plant and equipment, net 107,394 96,785 Projected insurance recovery on asbestos claims 110,374 135,158 Pension assets 9,044 9,071 Intangible assets, net 4,132 3,941 Other assets 4,648 5,367 - -------------------------------------------------------------------------------- Total assets $355,129 $373,568 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 20,408 $ 18,254 Accrued expenses Payrolls 6,267 6,281 Taxes other than on income 1,860 1,889 Insurance reserves 3,574 4,657 Other 6,528 8,534 Current maturities of long-term debt 4,168 2,705 Income taxes 1,191 1,103 - -------------------------------------------------------------------------------- Total current liabilities 43,996 43,423 Deferred income taxes 10,228 12,671 Long-term non-pension benefits 16,583 15,597 Long-term pensions 12,449 14,233 Long-term debt 40,109 34,384 Projected asbestos claims 111,966 137,246 - -------------------------------------------------------------------------------- Total liabilities 235,331 257,554 - -------------------------------------------------------------------------------- Minority interests 1,414 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: 8,975,442 in 1996 and 4,486,221 in 1995 8,975 4,486 Additional paid-in capital 68,309 72,770 Retained earnings 61,151 56,981 Less: Deferred foreign currency translation (2,875) (2,931) Treasury stock of 953,934 shares in 1996 and 448,962 shares in 1995, at cost (9,498) (9,018) Note receivable-ESOT (6,941) (7,505) Minimum pension liability adjustment, net of tax (737) (784) - -------------------------------------------------------------------------------- Total stockholders' equity 118,384 113,999 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $355,129 $373,568 ================================================================================ See accompanying notes to consolidated financial statements. 16 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------------------ Minimum Deferred Pension Deferred Additional Foreign Treasury Note Liability Compensation- Common Paid-in Retained Currency Stock, Receivable- Adjustment, Restricted Stock Capital Earnings Translation At Cost ESOT Net of Tax Stock - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 $4,459 $72,492 $43,800 $(2,301) $(9,003) $(8,491) $ -- $(26) - ------------------------------------------------------------------------------------------------------------------------ Net earnings 6,418 Dividends ($.12 per share) (967) Currency translation adjustment (127) Payment on ESOT note 470 Other, net 17 247 28 22 - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 4,476 72,739 49,279 (2,428) (9,003) (8,021) -- (4) - ------------------------------------------------------------------------------------------------------------------------ Net earnings 8,800 Dividends ($.14 per share) (1,128) Currency translation adjustment (503) Payment on ESOT note 516 Minimum pension liability adjustment, net of tax (784) Other, net 10 31 30 (15) 4 - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 4,486 72,770 56,981 (2,931) (9,018) (7,505) (784) -- - ------------------------------------------------------------------------------------------------------------------------ Net earnings 5,347 Dividends ($.15 per share) (1,205) Two-for-one stock split 4,488 (4,488) Purchases of common stock for treasury (480) Currency translation adjustment 56 Payment on ESOT note 564 Other, net 1 27 28 47 - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1996 $8,975 $68,309 $61,151 $(2,875) $(9,498) $(6,941) $(737) $ -- ======================================================================================================================== See accompanying notes to consolidated financial statements.
17 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) - -------------------------------------------------------------------------------- Years ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Cash flows from operating activities Net earnings $ 5,347 $ 8,800 $ 6,418 Adjustments for items not requiring (providing) cash Cumulative effect of an accounting change- postemployment benefits, net of tax -- -- 255 Depreciation, depletion and amortization 10,582 10,174 8,725 Deferred compensation earned -- 4 22 Stock compensation to directors 28 23 28 Provision for losses on accounts receivable 740 120 373 Gain on sale of assets (58) (1,272) (403) Equity in earnings of affiliates, net of dividends received 33 (227) (282) Minority interest in earnings (loss) of consolidated subsidiaries and partnership (601) 97 -- Decrease (increase) in assets, net of effects from acquisitions Trade receivables 2,881 1,143 (4,924) Asbestos claim and fee reimbursements received 17,276 30,232 33,557 Inventories 2,999 (1,758) (4,968) Receivable and prepaid taxes 315 (360) 509 Other current assets (1,053) (712) (995) Increase (decrease) in liabilities, net of effects from acquisitions Accounts payable and accrued expenses (958) (9,925) (225) Asbestos claims paid (18,573) (23,937) (39,944) Pensions (1,715) 279 206 Income taxes 88 (322) 782 Deferred income taxes (1,725) (1,185) (575) Long-term non-pension benefits 986 286 653 - -------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 16,592 11,460 (788) - -------------------------------------------------------------------------------- Cash flows from investing activities Capital expenditures (12,892) (10,156) (6,482) Decrease (increase) in other long-term assets 47 (726) 355 Increase in pension assets (82) (34) (311) Proceeds from sales of assets 807 1,843 511 Payment received on ESOT note 564 516 470 Acquisition of businesses, net of cash acquired (10,059) (1,614) (24,497) - -------------------------------------------------------------------------------- Net cash used in investing activities (21,615) (10,171) (29,954) - -------------------------------------------------------------------------------- Cash flows from financing activities Repayments of debt (2,708) (165) (122) Proceeds from borrowings 9,525 -- 25,000 Dividends paid (1,205) (1,128) (967) Purchases of common stock for treasury (480) -- -- Capital contributions from minority partner -- 121 -- Exercised stock options -- 2 238 Tax benefit on dividends paid to ESOT 28 30 28 Tax effect on restricted stock plan -- 1 (2) - -------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 5,160 (1,139) 24,175 - -------------------------------------------------------------------------------- Effect of exchange rate changes 56 (503) (127) - -------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 193 (353) (6,694) Cash and cash equivalents at beginning of year 9,284 9,637 16,331 - -------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 9,477 $ 9,284 $ 9,637 ================================================================================ See accompanying notes to consolidated financial statements. 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996, 1995 and 1994 Note 1: Nature of Operations A. P. Green Industries, Inc. and its subsidiaries, collectively referred to as "A. P. Green" or "the Company", is a manufacturer of refractory products and industrial lime products. Refractory products, which accounted for 85% of 1996 revenues, are sold throughout North America and selected international markets to basic industries such as metals, glass, ceramics, paper and cement. Industrial lime products are sold to end-users for applications such as steel and aluminum production, pulp and paper processing, soil stabilization for road construction, water and waste water treatment and various environmental applications. The industrial lime market served is generally within a 400-mile radius of the Company's lime plants in New Braunfels, Texas, Kimballton, Virginia and Ripplemead, Virginia. Note 2: Summary of Significant Accounting Policies Basis of Presentation The Company's consolidated financial statements include all wholly owned subsidiaries and majority owned subsidiaries. Equity investments of 20% to 50% are accounted for using the equity method. All intercompany balances and transactions have been eliminated and there are no significant related party transactions. Certain prior year amounts have been reclassified to conform to the 1996 presentation. Cash and Cash Equivalents A. P. Green considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Due to their short maturity, these instruments are carried at cost which approximates fair value. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, trade receivables and accounts payable approximates fair value because of the short maturity of these instruments. The fair value of long-term debt is discussed in Note 9. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Reimbursement Due on Paid Asbestos Claims Until May 1996, A. P. Green made expense and indemnity payments on asbestos product claims directly to the Center for Claims Resolution on behalf of certain insurers. Reimbursement due on paid asbestos claims represents the recoverable portion of those payments. Commencing in June 1996 pursuant to agreements reached with its insurance carriers, the Company no longer makes payments to the Center on behalf of those insurers. See Note 18 for further discussion of asbestos claims and insurance recoveries. Inventories Predominantly all of A. P. Green's domestic inventories are stated at the lower of cost or market, with cost being determined using the last-in, first-out (LIFO) method. The remaining inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out (FIFO) or average production cost methods. Inventories include material, labor and applicable factory overhead costs. Property, Plant and Equipment, Net Property, plant and equipment, including significant renewals and improvements, are capitalized at cost. Provisions for depreciation are determined principally on a straight-line basis over the expected average useful lives of composite asset groups, which range from 3 to 50 years. Accelerated depreciation methods are used for tax purposes when permitted. Depletion is computed on a basis calculated to allocate the cost of clay, limestone and other applicable resources over the estimated quantities of recoverable material. Intangible Assets Intangible assets, primarily consisting of goodwill, customer lists, non-compete agreements, patents and trademarks, are amortized on a straight-line basis over the period benefited, which ranges from 2 to 12 years. Recoverability of these assets is considered in conjunction with the ongoing evaluation of long-term asset values. Accumulated amortization was approximately $1.1 million and $580,000 at December 31, 1996 and 1995, respectively. 19 Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, net operating loss carryforwards and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings during the period that includes the date of the change. Foreign Currency Translation The functional currencies of the Company's Canadian and United Kingdom subsidiaries and Colombian affiliates are their respective local currencies. Adjustments resulting from the currency translation of these subsidiaries' and affiliates' financial statements are reflected as a component of stockholders' equity. 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. Translation adjustments for these subsidiaries are reflected in the statement of earnings. Employee Stock Options The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related Interpretations in accounting for its employee stock options rather than the alternative fair value accounting provided for under Financial Accounting Standards Board Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123). Under APB 25, because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Disclosures with regard to employee stock options have been made in accordance with the requirements of Statement 123. Earnings Per Common Share Earnings per common share are computed based on the weighted average number of shares of common stock outstanding and have been restated to reflect the two-for-one stock split effective September 20, 1996. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 3: New Ventures and Acquisitions Effective December 31, 1996, the Company acquired substantially all of the assets and assumed certain of the liabilities of the operations of Eastern Ridge Lime, L. P. The operations include a mineral processing facility, quarrying and lime manufacturing business in Ripplemead, Virginia and a leased terminal facility in St. Matthews, South Carolina. In conjunction with the Company's adjacent lime plant in Kimballton, Virginia, the acquisition will enhance service of the growing lime market in the Southeastern United States and allow improved utilization of existing management. In addition to the assumption of approximately $300,000 of long-term lease obligations, A. P. Green paid Eastern Ridge approximately $10.0 million in cash. The acquisition was accounted for using the purchase method, which had no impact on 1996 consolidated operating results due to the December 31 transaction effective date. The following unaudited proforma information presents a summary of consolidated results of operations of the Company and Eastern Ridge as if the acquisition had occurred January 1, 1995: - -------------------------------------------------------------------------------- (Dollars in thousands, except per share data) 1996 1995 - -------------------------------------------------------------------------------- Net sales $264,782 $256,822 Net earnings 2,397 5,072 Net earnings per common share .30 .63 ================================================================================ These unaudited proforma results have been prepared for comparative purposes only and include certain adjustments, such as elimination of a 1995 asset write down loss incurred by Eastern Ridge in anticipation of the acquisition, reduced depreciation, depletion and amortization expense as a result of lower asset book values, elimination of a management service fee which will not be changed by A. P. Green and recognition of income tax benefit not previously recognized due to organization as a partnership. In management's opinion, they are not indicative of the results of operations which actually would have occurred had the acquisition been effective January 1, 1995, or of future results of operations and synergies of the consolidated entities. In January 1995, the Company formed INTOGREEN Co., a joint venture partnership with INTOCAST AG, to sell and install cast monolithic ladle linings to the steel industry in the United States, Canada and Mexico. INTOCAST AG, based in Germany, is a world leader in the development of cast ladle linings, which result in lower installation costs, reduced disposal of used refractory material and increased ladle 20 availability to the steel plant. The Company owns 51% of this partnership and, as such, includes INTOGREEN in the consolidated financial statements. Effective July 3, 1995, the Company acquired a 51% ownership interest in Plibrico de Mexico SA de CV, a refractory manufacturer located near Monterrey, Mexico. Plibrico de Mexico, which has been renamed A. P. Green de Mexico SA de CV, has one plant with annual sales of approximately $7.0 million. The purchase price and transaction costs totaled approximately $2.0 million and were paid in cash. The acquisition was accounted for using the purchase method, with the operating results of A. P. Green de Mexico included in consolidated operating results since the date of acquisition. Goodwill of approximately $800,000, which represents the excess of cost and liabilities assumed over the fair value of tangible assets acquired, is being amortized on a straight-line basis over a ten-year period. Effective December 31, 1995, the Company acquired a 51% ownership interest in Lanxide ThermoComposites, Inc. (LTI). Prior to the acquisition, LTI was a wholly owned subsidiary of Lanxide Corporation of Newark, Delaware, which continues to own a substantial minority interest in LTI. Immediately prior to the acquisition, LTI acquired Chiam Technologies, Inc., a company engaged in the sourcing of refractory products from several Chinese refractory producers. LTI is concentrating on commercializing refractory products for the continuous casting segment of the steel industry utilizing ceramic composites technology licensed from Lanxide Corporation. The acquisition was accounted for using the purchase method, which had no impact on 1995 consolidated operating results due to the December 31 transaction effective date. Goodwill of approximately $1.0 million for the two companies is being amortized on a straight-line basis over a ten-year period. The acquisitions completed during 1995 were not material to the Company's financial condition or results of operations, either individually or in the aggregate. As such, no financial statements of the acquired companies for periods prior to the acquisitions or proforma financial information reflecting the acquisitions as of the beginning of the year have been provided. Effective August 1, 1994, the Company acquired substantially all of the assets and assumed most of the liabilities of the refractory operations of General Refractories Company and its affiliated companies (collectively referred to as "General"). These operations include ten plants in the United States, a plant in Smithville, Ontario, Canada and 49% equity interests in two Colombian refractory companies. In addition to the assumption of designated liabilities, the Company paid at closing a cash amount of $23,450,000. The acquisition was accounted for using the purchase method, with the operating results of General included in consolidated operating results from the date of acquisition. In connection with the General acquisition, the Company obtained Phase I and II Environmental Site Assessments (ESA) in order to determine the potential environmental impact of specific recognized environmental conditions at each of the acquired properties and estimate the costs for remediation. Based upon the results of the ESA, the Company established a $3.4 million liability for remediation costs (in other accrued expenses) as part of the General acquisition. The majority of this liability relates to leakage and spills from underground and aboveground storage tanks and drums, and action is being taken to remediate all identified conditions, which is expected to be completed within five years. Appropriate state agencies have been notified of contamination where required, and there have been no resulting actions taken or proposed by such agencies against the Company. There was no asbestos-related liability, either for bodily injury or property damage, assumed in connection with the General acquisition. Note 4: 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 acquired General plants 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 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 1995 for the closing of the Weston, Ontario plant. 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. The income statement effect of establishment of and changes to these reserves in 1995 is included in cost of sales. 21 Note 5: Changes in Method of Accounting Postemployment Benefits Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement 112). 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. The Company recognized the projected benefit obligation relating to short-term and long-term disability benefits as a cumulative effect of an accounting change, reducing 1994 net income by $255,000, or $.03 per share. Note 6: Inventories Inventory classifications as of December 31, 1996 and 1995 were as follows: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 - -------------------------------------------------------------------------------- Finished goods and work in process Valued at LIFO FIFO cost $ 31,278 $ 36,429 Less LIFO reserve (14,907) (14,186) - -------------------------------------------------------------------------------- LIFO cost 16,371 22,243 Valued at FIFO 13,225 10,404 - -------------------------------------------------------------------------------- 29,596 32,647 - -------------------------------------------------------------------------------- Raw materials and supplies Valued at LIFO FIFO cost 17,702 18,187 Less LIFO reserve (6,129) (5,234) - -------------------------------------------------------------------------------- LIFO cost 11,573 12,953 Valued at FIFO 12,505 9,957 - -------------------------------------------------------------------------------- 24,078 22,910 - -------------------------------------------------------------------------------- $ 53,674 $ 55,557 ================================================================================ For the years ended December 31, 1996, 1995 and 1994, A. P. Green experienced liquidations of LIFO inventory quantities, none of which were significant. Note 7: Property, Plant and Equipment, Net Property, plant and equipment, net, as of December 31, 1996 and 1995 were as follows: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 - -------------------------------------------------------------------------------- Land and mineral deposits $ 9,926 $ 8,055 Buildings and realty improvements 47,199 46,580 Machinery and equipment 144,154 134,915 Construction in progress 9,075 5,015 - -------------------------------------------------------------------------------- 210,354 194,565 Less accumulated depreciation and depletion 102,960 97,780 - -------------------------------------------------------------------------------- $107,394 $ 96,785 ================================================================================ Closed production facilities held for sale are included in other current assets at estimated net realizable value of $2.2 million as of December 31, 1996. Note 8: Short-Term Lines of Credit Short-term lines of credit have been established with banks in the United Kingdom for 100,000 British pounds and Canada for Cdn$250,000, each of which was unused at December 31, 1996 and 1995. Note 9: Long-Term Debt Long-term debt as of December 31, 1996 and 1995 was as follows: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 - -------------------------------------------------------------------------------- Unsecured notes payable $23,048 $25,068 Industrial development revenue bonds 11,848 11,912 U.S. line of credit 9,000 -- Capitalized lease obligations 381 109 - -------------------------------------------------------------------------------- 44,277 37,089 Less current maturities 4,168 2,705 - -------------------------------------------------------------------------------- $40,109 $34,384 ================================================================================ In 1994, the Company issued $25 million in principal amount of unsecured notes to a group of institutional lenders to finance the acquisition of General. The notes bear an 8.55% fixed rate of interest, with semi-annual interest payments which commenced January 29, 1995. Annual principal repayments, which have been and will continue to be funded out of working capital, commenced July 29, 1996 and will continue through July 29, 2001. A. P. Green is subject to certain restrictive covenants, including minimum levels of tangible net worth, working capital and fixed charge coverage, permitted encumbrances, loans from and to other institutions and restricted payments. Management does not expect these restrictive covenants to have a material adverse effect on A. P. Green's operations. 22 The capitalized leases expire in 1997 and 1999 and carry interest rates ranging from 6.7% to 11.1%. A significant portion of the industrial development revenue bonds require the payment of interest only until they mature in 1997 and thereafter. Interest rates range from 70% of prime to 8.6%. Prime was 8.25% at December 31, 1996. In 1996, the Company's U.S. long-term line of credit of $30.0 million was extended to May 2, 1998. Restrictive covenants coincide with those reflected in the agreement associated with the unsecured notes payable. Borrowings under this line of credit may be made for working capital, acquisitions and other corporate purposes, with interest charged at the federal funds rate (5.38% at December 31, 1996) plus 2%. Approximately $2.7 million of standby letters of credit and $9.0 million of borrowings were outstanding against the line at December 31, 1996, leaving an available balance of approximately $18.3 million. Based on the borrowing rates currently available to the Company for debt with similar terms and average maturities, the fair value of the industrial development revenue bonds and unsecured notes payable would not differ materially from carrying value at December 31, 1996. Aggregate maturities of long-term debt are approximately $14.2 million, $5.2 million, $5.0 million and $5.0 million for 1998 through 2001, respectively. The net book value of property, plant and equipment pledged as security or collateral for outstanding long-term debt was approximately $2.8 million at December 31, 1996. Note 10: Income Taxes Income tax expense (benefit) attributable to earnings from continuing operations for the years ended December 31, 1996, 1995 and 1994 consists of the following: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Current Federal $ 3,642 $ 2,347 $2,774 State 523 514 423 Foreign 78 539 280 Deferred (1,847) (1,218) (573) - -------------------------------------------------------------------------------- $ 2,396 $ 2,182 $2,904 ================================================================================ The following schedule provides a reconciliation between expected tax at the U.S. statutory tax rate and the effective tax rate (total provision for income taxes as a percentage of earnings before income taxes). During 1995, a review of tax years 1988 through 1993 was completed by the Internal Revenue Service, resulting in less taxes than originally reserved. Accordingly, the Company reduced its provision for federal income taxes by approximately $1.1 million. - -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- U.S. statutory rate 34.0% 34.0% 34.0% Reversal of provision for closed tax years -- (9.7) -- Excess tax depletion (4.9) (4.0) (4.2) State and local income taxes, net 2.4 2.1 2.0 Foreign tax rate differential .5 .9 .3 Other, net (1.1) (3.4) (1.8) - -------------------------------------------------------------------------------- Effective tax rate 30.9% 19.9% 30.3% ================================================================================ The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1996 and 1995 consist of the following: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 - -------------------------------------------------------------------------------- Deferred tax assets Accrued liabilities, differences in expense recognition $10,983 $11,341 Alternative minimum tax carryforwards -- 448 Inventories, overhead capitalization differences 169 76 Capital loss carryforward 301 395 Net operating loss carryforwards 855 280 - -------------------------------------------------------------------------------- 12,308 12,540 Less valuation allowance -- -- - -------------------------------------------------------------------------------- 12,308 12,540 - -------------------------------------------------------------------------------- Deferred tax liabilities Fixed assets, principally depreciation method differences 14,679 15,897 Prepaid pension costs 1,054 1,452 State, local and other taxes 1,069 1,194 Inventories, differences in LIFO methods 2,236 2,365 Asset valuation differences 124 188 - -------------------------------------------------------------------------------- 19,162 21,096 - -------------------------------------------------------------------------------- Net deferred tax liability $ 6,854 $ 8,556 ================================================================================ Management believes it is more likely than not that all deferred tax assets will be realized and, accordingly, no valuation allowance is required. Tax years subject to review by the Internal Revenue Service are 1994, 1995 and 1996. All remaining alternative minimum tax credit carryforwards were utilized during 1996. A. P. Green has not recognized a deferred tax liability for the undistributed earnings of its wholly owned foreign subsidiaries that arose in 1996 and prior years since the Company plans to continue to finance foreign operations and expansion through reinvestment of those undistributed 23 earnings. A deferred tax liability will be recognized, if necessary, when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. The remittance of foreign earnings subjected to tax at a rate greater than the U.S. rate may create a tax asset for the Company to the extent foreign tax credits may be generated and are able to be utilized. As of December 31, 1996, 1995 and 1994, the undistributed earnings of these subsidiaries were approximately $4.9 million, $4.4 million and $3.3 million, respectively. Note 11: Incentive Plans A. P. Green maintains the 1987 Long-Term Performance Plan (the 1987 Plan), the 1989 Long-Term Performance Plan (the 1989 Plan), the 1993 Performance Plan (the 1993 Plan) and the 1996 Long-Term Performance Plan (the 1996 Plan). Under each of the plans, common stock has been reserved for issuance in the form of incentive stock options, nonqualified stock options, restricted stock and performance shares. Under the 1987 plan, shares are also available for issuance in the form of stock appreciation rights. The Company's stock option activity for the years ended December 31, 1996, 1995 and 1994 is summarized as follows: - -------------------------------------------------------------------------------- 1996 1995 1994 - -------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price - -------------------------------------------------------------------------------- 1987, 1989 and 1996 Plans - ------------------------- Outstanding - January 1 373,500 $7.90 394,500 $7.86 424,500 $7.86 Granted 30,000 9.32 -- -- -- -- Exercised -- -- (18,000) 6.67 (30,000) 7.92 Expired/Lapsed -- -- (3,000) 9.17 -- -- - -------------------------------------------------------------------------------- Outstanding - December 31 403,500 $8.01 373,500 $7.90 394,500 $7.86 ================================================================================ Exercisable at December 31 403,500 $8.01 373,500 $7.90 394,500 $7.86 ================================================================================ 1993 Plan - --------- Outstanding - January 1 382,500 $6.17 412,500 $6.17 412,500 $6.17 Granted -- -- -- -- -- -- Exercised -- -- (18,000) 6.17 -- -- Expired/Lapsed -- -- (12,000) 6.17 -- -- - -------------------------------------------------------------------------------- Outstanding - December 31 382,500 $6.17 382,500 $6.17 412,500 $6.17 ================================================================================ Exercisable at December 31 300,000 $6.17 300,000 $6.17 330,000 $6.17 ================================================================================ Exercise prices and weighted average remaining contractual lives of options outstanding at December 31, 1996 are summarized as follows: - -------------------------------------------------------------------------------- Exercise Remaining Options Price Life - -------------------------------------------------------------------------------- 382,500 $6.17 6 years 189,000 6.67 4 years 184,500 9.17 3 years 30,000 9.32 9 years - -------------------------------------------------------------------------------- Stock options granted under the 1987, 1989 and 1996 plans expire ten years after grant date. Of the options outstanding at December 31, 1996, 82,500 at an exercise price of $6.17 are not yet exercisable. Under the terms of the February 1993 grant, these options will become exercisable if, prior to February 18, 1998 and for a period of 30 consecutive trading days, the last transaction price of the common stock equals or exceeds $11.00. To the extent these options become exercisable, they will remain exercisable until February 18, 2003 along with the 300,000 options already exercisable under the 1993 Plan. To the extent these options do not become exercisable due to failure to reach the $11.00 stock price level, such options will become exercisable for one day on February 19, 1998. There were a total of 496,758 remaining shares available for grant under all plans as of December 31, 1996. 24 The Company has determined that the effect of applying the Statement 123 fair value method to options granted during 1996 would result in net earnings and earnings per share which are not materially different from reported amounts. Note 12: Pension Plans A. P. Green has various pension plans covering substantially all employees. Plan benefits are generally based on years of service and compensation during the last years of employment. A. P. Green's contributions are made in accordance with independent actuarial reports to meet minimum funding requirements. The Company contributed $3.7 million and $2.1 million to these plans during 1996 and 1995, respectively. The plans' assets consist primarily of listed common stocks and debt securities. Net pension expense for the years ended December 31, 1996, 1995 and 1994 included the following components: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost of benefits earned during period $ 1,885 $ 1,676 $ 1,793 Interest cost on projected benefit obligations 9,077 8,703 6,751 Actual (gain) loss on assets (11,712) (20,964) 1,055 Net amortization and deferral 2,603 12,454 (8,892) - -------------------------------------------------------------------------------- Net pension expense 1,853 1,869 707 Multiemployer pension expense 183 170 181 - -------------------------------------------------------------------------------- Total pension expense $ 2,036 $ 2,039 $ 888 ================================================================================ The majority of the Company's pension plans have plan assets that exceed accumulated benefit obligations. The following table sets forth the actuarial present value of benefit obligations and funded status for all of the Company's pension plans at December 31, 1996 and 1995. Plan asset values and benefit obligations are measured as of September 30, 1996 and 1995: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 Assets Accum. Assets Accum. Exceed Benefits Exceed Benefits Accum. Exceed Accum. Exceed Benefits Assets Benefits Assets - -------------------------------------------------------------------------------- Accumulated benefit obligations, substantially all of which are vested $(90,474) $(27,414) $(90,318) $(27,585) Effect of projected future compensation levels (6,027) (55) (7,442) (24) - -------------------------------------------------------------------------------- Projected benefit obligations (96,501) (27,469) (97,760) (27,609) Plans' assets at fair value 104,405 17,218 99,899 15,597 - -------------------------------------------------------------------------------- Excess (deficiency) 7,904 (10,251) 2,139 (12,012) Unrecognized net asset at transition (3,031) (21) (3,576) (24) Unrecognized net (gain) loss (1,889) 630 4,794 827 Unrecognized prior service cost 4,307 945 4,036 582 Minimum pension liability adjustment -- (1,639) -- (1,598) - -------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 7,291 $(10,336) $ 7,393 $(12,225) ================================================================================ In accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the Company recorded an additional minimum pension liability of approximately $1.6 million at both December 31, 1996 and 1995. This minimum liability represented the excess of unfunded accumulated benefit obligations over recorded pension liabilities, determined on an individual plan basis. A corresponding amount was recorded as an intangible asset except to the extent the minimum liability for a particular plan exceeded the related unrecognized prior service cost, in which case the excess was recorded as a reduction of stockholders' equity. As of December 31, 1996, an intangible asset of approximately $454,000 was recorded, along with a reduction in stockholders' equity of $737,000, net of related tax benefits. At December 31, 1995, an intangible asset of approximately $345,000 was recorded, along with a reduction of stockholders equity of $784,000, net of related tax benefits. U.S. Pensions The expected long-term rate of return on plan assets was 8.75% for 1996 and 1995 and 8.5% for 1994. A weighted average discount rate of 7.75%, 7.5% and 8.25% was used for 1996, 1995 and 1994, respectively. A rate of increase in future compensation levels of 5.0% for 1996, 1995 and 1994 was used in determining the actuarial present value of projected benefit obligations on all except hourly, collectively bargained plans. 25 Canadian Pensions The expected long-term rate of return on plan assets was 8.5% for 1996, 1995 and 1994. A weighted average discount rate of 8.0% was used for all three years, and a 5.0% rate of increase in future compensation levels was used for 1996 and 1995, 6.5% for 1994. Note 13: Long-Term Non-Pension Benefits The Company sponsors two defined benefit postretirement plans that cover both salaried and nonsalaried employees. One plan provides health care benefits to employees hired prior to January 1, 1991 and the other provides life insurance benefits. The health care plan is contributory, with retiree contributions, deductibles and benefit levels adjusted periodically; the life insurance plan is noncontributory. Under the terms of its health care plan, based on anticipated increases in future health care costs, the retirees' share of total costs will be adjusted so that the Company's share will not increase more than 7% per annum. The Company maintains the right to adjust benefits, deductibles, contributions or the Company's share of increases, at its sole discretion, at future dates. The following table sets forth the actuarial present value of the plans' benefit obligations at December 31, 1996 and 1995. The accumulated postretirement benefit obligation was measured as of September 30, 1996 and 1995. - -------------------------------------------------------------------------------- (In thousands) 1996 1995 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees, dependents and beneficiaries $11,405 $12,198 Fully eligible active plan participants 2,669 2,588 Other active plan participants 3,486 3,353 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 17,560 18,139 Unrecognized prior service cost (202) (231) Unrecognized net loss from past experience different from that assumed (1,343) (2,844) - -------------------------------------------------------------------------------- Accrued postretirement benefits other than pensions $16,015 $15,064 ================================================================================ The Company's postretirement health care plan and life insurance plan are unfunded; the accumulated postretirement benefit obligation at December 31, 1996 and 1995 is $16.5 million and $17.0 million, respectively, for the health care plan and $1.1 million in both years for the life insurance plan. Net postretirement benefits cost other than pensions for the years ended December 31, 1996, 1995 and 1994 included the following components: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Service cost of benefits earned during the period $ 617 $ 344 $ 355 Interest cost on accumulated postretirement benefit obligation 1,313 1,106 1,044 Net amortization 108 -- -- - -------------------------------------------------------------------------------- Net postretirement benefits cost other than pensions $2,038 $1,450 $1,399 ================================================================================ For measurement purposes, a 10% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1996; the rate was assumed to decrease gradually to 5% by 2001 and remain at that level thereafter. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the health care plan as of December 31, 1996 by 3.0%, or $502,000, and would increase the service and interest costs of net postretirement health care benefits for the year then ended by 3.9%, or $75,000. The discount rate used in determining the accumulated postretirement benefit obligation was 7.75%, 7.5% and 8.25% at December 31, 1996, 1995 and 1994, respectively. As discussed in Note 5, the Company adopted Statement 112 effective January 1, 1994. This standard requires use of the accrual method of accounting for benefits provided to former or inactive employees after employment but before retirement, rather than recognizing these expenses as they are paid. The projected benefit obligation relates to short-term and long-term disability benefits provided by the Company to salaried employees. The annual incremental expense for 1996, 1995 and 1994 was not material and the projected benefit obligation was $568,000 and $533,000 as of December 31, 1996 and 1995, respectively. Note 14: Employee Savings Plans The Company sponsors three defined contribution employee savings plans under Section 401(k) of the Internal Revenue Code. In one plan, all U.S. full-time salaried employees and the hourly employees of certain plants are eligible to participate. Participants are entitled to contribute between 2% and 15% of compensation. The Company makes contributions to the employee savings plans through the Employee Stock Ownership Trust. 26 The second plan, instituted in 1991, covers employees at certain locations who have negotiated participation through collective bargaining. Participants are eligible to contribute between 2% and 15% of compensation. For all of these locations, the Company matches 25% of the first 6% of a participant's contribution. Amounts charged against income were approximately $204,000, $214,000 and $151,000 in 1996, 1995 and 1994, respectively. Effective January 1, 1996, all employees at LTI were eligible to participate in a defined contribution plan. Participants can contribute between 1% and 15% of compensation. The Company matches 50% of the first 4% of a participant's contribution. During 1996 $12,000 was charged against income. Note 15: Employee Stock Ownership Trust The Company sponsors an Employee Stock Ownership Trust (ESOT). All U.S. full- time salaried employees and the hourly employees of certain plants are eligible to participate. The ESOT purchased a total of 895,520 previously unissued shares of A. P. Green common stock. The shares were issued to the ESOT in accordance with the Stock Purchase Agreement between LaSalle National Bank, as Trustee, and A. P. Green. The aggregate purchase price of $10.0 million was financed entirely by A. P. Green. To secure the financing, the ESOT has pledged the shares to A. P. Green. A. P. Green makes the necessary contributions to the ESOT. - -------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Interest payments on ESOT debt $ 713 $ 762 $ 806 Principal payments 564 515 471 Less Dividends on ESOT shares used for debt service (120) (114) (104) Forfeitures (21) (104) (58) Interest income (1) (3) -- - -------------------------------------------------------------------------------- Contributions to ESOT 1,135 1,056 1,115 Administrative expenses 109 147 159 - -------------------------------------------------------------------------------- Employee savings plan cost $1,244 $1,203 $1,274 ================================================================================ The loan to the ESOT is repayable in annual installments extending through September 30, 2004. Interest is payable semiannually at 9.5% per annum. The note receivable from the ESOT is reflected as a reduction of stockholders' equity in the accompanying consolidated financial statements. The Company recognized interest income on the ESOT note of $700,000, $750,000 and $795,000 in 1996, 1995 and 1994, respectively. Note 16: Preferred and Common Stock The Company's preferred stock can be issued in one or more series without stockholder approval. A Preferred Share Purchase Right (Right) is attached to each outstanding share of common stock. The Rights become exercisable 10 days following a public announcement that a party acquired, or obtained the right to acquire, beneficial ownership of 20% or more of A. P. Green's outstanding common shares, or 10 days following commencement or announcement of a tender offer or exchange offer for 30% or more of A. P. Green's outstanding common shares. When exercisable, each Right entitles the registered holder to purchase from A. P. Green 1/10 of a share of a junior participating preferred stock, Series A, $1 par value per share, which is substantially similar to one common share, at a price of $45 per 1/10 of a preferred share, subject to adjustment. If A. P. Green is involved in a merger or business combination or if the acquiring entity engages in "self dealing transactions" after the Rights become exercisable, the Rights will entitle the holder to buy a number of shares of common stock of the acquiring company or of A. P. Green, as the case may be, having a fair market value at that time of twice the exercise price of the Right. Note 17: Supplemental Financial Information Cash payments and selected non-cash investing and financing activities during 1996, 1995 and 1994 were as follows: - -------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Income taxes paid $3,763 $4,093 $2,125 Interest paid 3,206 3,191 1,039 ================================================================================ Rental payments were approximately $1.0 million in each of the last three years. Minimum future payments under non-cancellable operating leases are approximately $1.0 million in 1997 and decline progressively to $0 after 2001. In most cases, management expects expiring leases will be replaced by similar leases. The lease obligations relate primarily to office and warehouse space. Research and development costs are expensed as incurred and amounted to approximately $3.9 million, $2.9 million and $2.5 million during 1996, 1995 and 1994, respectively. Research and development expenditures in 1996 included costs associated with LTI product development. 27 Note 18: Litigation Asbestos-Related Claims - Personal Injury A. P. Green is among numerous defendants in lawsuits pending as of December 31, 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 numbers and types of claims brought against it. Claims activity for the Company for each of the years ended December 31, 1996, 1995 and 1994, based upon information provided by the Center, was as follows: - -------------------------------------------------------------------------------- 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 had not yet asserted 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. 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 through 2004 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. A five week hearing was held to determine the fairness of the Settlement. At the end of the hearing, the court ruled that the Settlement was fair and enjoined Class members from filing lawsuits in the tort system against the Members. The Center has been processing and settling claims filed by Class members pursuant to the Settlement since 1994. The ruling by the Eastern District Court of Pennsylvania was appealed by certain objectors. The Third Circuit Court of Appeals reversed the lower court, ruling that the Class should be decertified. The Class members and settling plaintiffs applied for a writ of certiorari to the U. S. Supreme Court which was granted. Oral arguments were heard in February 1997. 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 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. No decision has been rendered at this date with respect to these issues. However, in December 1996 A. P. Green and the E. J. Bartells Company (Bartells), a former subsidiary, reached a comprehensive settlement with all but one of their insurance carriers. Under the terms of that settlement agreement, the carriers have agreed to pay (subject to applicable policy limits), on behalf of the insureds, their liabilities arising out of asbestos personal injury claims. A. P. Green will maintain its coverage litigation against the non-settling carrier in the event that agreement cannot be reached with it. Under the assumption that it receives the necessary 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 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 Bartells against asbestos-related personal injury claims, such policies having been issued when Bartells was owned by A. P. Green. The Company has also reviewed the terms of the settlement agreement with its insurance carriers. Based upon such reviews, the Company has projected its liability for such cases and claims through 2004 to be approximately $112.0 million and $137.2 million at December 31, 1996 and 1995, respectively, with partially 28 offsetting projected insurance reimbursements of approximately $110.4 million and $135.2 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 the Company's payments for these claims will occur over at least seven 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 similar 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 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 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 financial position or results of operations. There was no assumption by the Company of asbestos-related liability, either personal injury or property damage, in connection with the August 1994 General acquisition. Environmental The EPA or 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 From time to time, 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. Note 19: Industry and Geographic Segments A. P. Green operates principally in two industry segments: Industrial Lime and Refractory Products and Services. Segment net sales include products sold and services rendered to unaffiliated customers. Interindustry segment sales were immaterial for the periods presented. No single customer accounted for more than 10% of consolidated annual net sales in any such period. Segment operating profit includes all costs and expenses directly related to the segment involved and a reasonable allocation of general costs and expenses which benefit more than one segment. General corporate expenses, interest income and interest expense are shown as separate line items in order to arrive at consolidated earnings before income taxes and cumulative effect of an accounting change. Corporate identifiable assets include cash and cash equivalents and those assets maintained for corporate purposes which are not directly related to the operations of either industry segment. 29 Industry Segments - -------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Net Sales - -------------------------------------------------------------------------------- Refractory products and services $218,400 $212,203 $160,933 Industrial lime 40,168 37,727 35,144 Intersegment eliminations (107) (215) (159) - -------------------------------------------------------------------------------- $258,461 $249,715 $195,918 ================================================================================ Operating Profit - -------------------------------------------------------------------------------- Refractory products and services $ 7,972 $ 12,565 $ 11,463 Industrial lime 8,287 6,911 5,429 - -------------------------------------------------------------------------------- 16,259 19,476 16,892 - -------------------------------------------------------------------------------- Other charges to income General corporate expenses, net 7,570 7,434 6,946 Interest expense 3,112 3,190 1,947 Interest income (1,256) (1,513) (1,296) - -------------------------------------------------------------------------------- 9,426 9,111 7,597 - -------------------------------------------------------------------------------- Earnings before income taxes and cumulative effect of an accounting change $ 6,833 $ 10,365 $ 9,295 ================================================================================ Identifiable Assets - -------------------------------------------------------------------------------- Refractory products and services $284,180 $313,165 $311,514 Industrial lime 58,514 47,698 47,995 Corporate 12,435 12,705 13,613 - -------------------------------------------------------------------------------- $355,129 $373,568 $373,122 ================================================================================ Depreciation, Depletion and Amortization - -------------------------------------------------------------------------------- Refractory products and services $ 6,811 $ 6,375 $ 4,967 Industrial lime 2,813 2,751 2,653 Corporate 958 1,048 1,105 - -------------------------------------------------------------------------------- $ 10,582 $ 10,174 $ 8,725 ================================================================================ Capital Expenditures - -------------------------------------------------------------------------------- Refractory products and services $ 9,675 $ 7,597 $ 2,154 Industrial lime 2,470 2,137 3,482 Corporate 747 422 846 - -------------------------------------------------------------------------------- $ 12,892 $ 10,156 $ 6,482 ================================================================================ A. P. Green's principal operations are located in the United States, the United Kingdom, Canada, Mexico and the Far East. Transactions between geographic areas are accounted for on an "arm's-length" basis. Export sales to foreign, unaffiliated customers represent less than 10% of consolidated annual net sales. - -------------------------------------------------------------------------------- Geographic Segments - -------------------------------------------------------------------------------- (In thousands) 1996 1995 1994 - -------------------------------------------------------------------------------- Net Sales - -------------------------------------------------------------------------------- United States $226,290 $219,571 $176,869 Canada 23,759 24,045 17,876 United Kingdom 9,978 9,745 7,336 Mexico 8,123 3,242 -- Intersegment transfers (9,689) (6,888) (6,163) - -------------------------------------------------------------------------------- $258,461 $249,715 $195,918 ================================================================================ Earnings (Loss) Before Income Taxes and Cumulative Effect of an Accounting Change - -------------------------------------------------------------------------------- United States $ 5,883 $ 8,352 $ 8,389 Canada (324) 999 570 United Kingdom 607 673 336 Mexico 992 341 -- Far East (325) -- -- - -------------------------------------------------------------------------------- $ 6,833 $ 10,365 $ 9,295 ================================================================================ Identifiable Assets - -------------------------------------------------------------------------------- United States $306,945 $330,285 $339,380 Canada 17,143 18,000 15,887 United Kingdom 5,234 5,020 4,242 Mexico 6,447 5,451 -- Far East 6,925 2,107 -- Corporate 12,435 12,705 13,613 - -------------------------------------------------------------------------------- $355,129 $373,568 $373,122 ================================================================================ 30 Note 20: Quarterly Financial Highlights (Unaudited) (Dollars in thousands, except per share data) - -------------------------------------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------- 1996 Net sales $64,234 $69,538 $61,948 $62,741 Gross profit 11,355 13,496 8,942 10,315 Net earnings 1,731 2,837 344 435 Net earnings per common share .22 .36 .04 .05 - -------------------------------------------------------------------------------- 1995 Net sales $61,889 $64,315 $62,652 $60,859 Gross profit 10,438 9,959 11,188 9,821 Net earnings 1,688 2,506 2,265 2,341 Net earnings per common share .21 .31 .28 .29 ================================================================================ Lower sales and a planned reduction of refractory finished goods inventory during the third and fourth quarters of 1996 resulted in reduced production efficiencies and declines in gross profit and net earnings. Also contributing to the decline were inventory-related adjustments resulting from changes in inventory levels. INDEPENDENT AUDITORS' REPORT THE BOARD OF DIRECTORS AND STOCKHOLDERS OF A. P. GREEN INDUSTRIES, INC.: We have audited the accompanying consolidated statements of financial position of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of A. P. Green's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in note 5 of notes to consolidated financial statements, the Company changed its method of accounting for postemployment benefits in 1994. /s/ KPMG Peat Marwick LLP St. Louis, Missouri February 10, 1997 31 COMPARATIVE FIVE-YEAR SUMMARY (Dollars in thousands, except per share data) - -------------------------------------------------------------------------------- For years ended December 31, 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------- Operating Items Net sales $258,461 $249,715 $195,918 $162,962 $168,309 Gross profit 44,108 41,406 34,498 32,083 24,217 Earnings (loss) before income taxes and cumulative effect of accounting changes 6,833 10,365 9,295 9,392 (5,188) Earnings (loss) before cumulative effect of accounting changes 5,347 8,800 6,673 6,497 (3,167) Cumulative effect of accounting changes, net of tax -- -- (255) -- (4,134) - -------------------------------------------------------------------------------- Net earnings (loss) 5,347 8,800 6,418 6,497 (7,301) Per share data(1) Earnings (loss) before cumulative effect of accounting changes, net of tax $ .67 $ 1.09 $ .83 $ .81 $ (.40) Cumulative effect of accounting changes, net of tax -- -- (.03) -- (.51) - -------------------------------------------------------------------------------- Net earnings (loss) per common share .67 1.09 .80 .81 ( .91) Dividends .15 .14 .12 .03 -- Other Financial Items Working capital $ 75,541 $ 79,823 $ 78,565 $ 55,173 $ 45,714 Current ratio 2.7:1 2.8:1 2.6:1 3.1:1 2.9:1 Capital expenditures $ 12,892 $ 10,156 $ 6,482 $ 6,149 $ 3,622 Depreciation, depletion and amortization 10,582 10,174 8,725 7,671 7,546 Total assets 355,129 373,568 373,122 339,314 343,412 Long-term debt 40,109 34,384 37,023 12,160 12,284 Stockholders' equity 118,384 113,999 107,038 100,930 94,751 Debt to total capitalization(2) 27.2% 24.5% 25.8% 10.8% 11.6% ================================================================================ (1) All per share data has been restated to reflect the December 10, 1993 three-for-two stock split and the September 20, 1996 two-for-one stock split. (2) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. Common Stock, Market Prices and Dividends A. P. Green Industries, Inc.'s common stock is traded in the over-the-counter market, and its quotations are reported in the National Market System of the NASDAQ Stock Market under the symbol APGI. The approximate number of stockholders of record of A. P. Green's common stock at December 31, 1996 was 3,600. The following table sets forth the high and low per share sale prices as reported in the NASDAQ Stock Market and dividends for each quarter during the last two years, adjusted for the September 20, 1996 two-for-one stock split. - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Cash Cash Quarter Ended Sale Price Dividend Sale Price Dividend High Low Declared High Low Declared - -------------------------------------------------------------------------------- March 31 $10.00 $8.25 $.035 $10.50 $9.13 $.035 June 30 10.75 8.00 .035 10.50 8.50 .035 September 30 12.00 9.81 .040 12.00 9.25 .035 December 31 11.50 9.25 .040 12.00 9.19 .035 ================================================================================ 32 EX-21 3 SUBSIDIARIES Exhibit 21 to Form 10-K SUBSIDIARIES OF A. P. GREEN INDUSTRIES, INC. Name Jurisdiction Incorporated - ---- ------------------------- APG Foreign Sales Corporation Virgin Islands APG Lime Corp. Delaware Palmetto Lime LLC South Carolina A. P. Green Refractories (Canada) Ltd. Canada 1086215 Ontario Inc. Ontario A. P. Green Refractories, Inc. Delaware A. P. Green de Mexico SA de CV Mexico Lanxide ThermoComposites, Inc. Delaware Chiam Technologies, Inc. Ohio A. P. Green Refractories Limited United Kingdom Liptak Bradley Limited United Kingdom APG Refractories Corp. Delaware INTOGREEN Co. (a partnership) Missouri Detrick Refractory Fibers, Inc. Mississippi PT AP Green Indonesia Indonesia APG Development Corp. Delaware EX-23 4 CONSENT OF KPMG PEAT MARWICK LLP Exhibit 23 to Form 10-K Independent Auditors' Consent The Board of Directors and Stockholders A. P. Green Industries, Inc.: We consent to incorporation by reference in the registration statement (No. 33-21012, 33-35475 and 33-38323) on Form S-8 of A. P. Green Industries, Inc. and subsidiaries of our report dated February 10, 1997, relating to the consolidated statements of financial position of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, and the related schedule, which report appears in the December 31, 1996 annual report on Form 10-K of A. P. Green Industries, Inc. Our report refers to a change in the method of accounting for postemployment benefits in 1994. /s/ KPMG Peat Marwick LLP St. Louis, Missouri March 26, 1997 EX-27 5 FINANCIAL DATA SCHEDULE FOR YEAR ENDED 12/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K OF A. P. GREEN INDUSTRIES, INC. AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT. 1,000 12-MOS DEC-31-1996 DEC-31-1996 9,477 0 43,785 1,701 53,674 119,537 210,354 102,960 355,129 43,996 44,277 0 0 8,975 109,409 355,129 258,461 258,461 214,353 214,353 0 0 3,112 6,833 2,396 5,347 0 0 0 5,347 .67 0
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