-----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, TKeqaIC7tjq6bvzU+S/T9Mru256WCh5ap2F3Zcn1Gi8A0/3vtVlIdXMGMKqNdNol 2R5SSFUVp7UKi089K5bfug== 0000826619-98-000014.txt : 19980203 0000826619-98-000014.hdr.sgml : 19980203 ACCESSION NUMBER: 0000826619-98-000014 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19980202 SROS: NYSE 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-K405/A SEC ACT: SEC FILE NUMBER: 001-13359 FILM NUMBER: 98519547 BUSINESS ADDRESS: STREET 1: GREEN BLVD CITY: MEXICO STATE: MO ZIP: 65265 BUSINESS PHONE: 5734733626 MAIL ADDRESS: STREET 1: GREEN BLVD CITY: MEXICO STATE: MO ZIP: 65265 FORMER COMPANY: FORMER CONFORMED NAME: A P GREEN INDUSTRIES INC DATE OF NAME CHANGE: 19900619 10-K405/A 1 AMENDED ANNUAL REPORT FOR YEAR ENDED 12/31/96 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A 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 Page 1 of 28 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company acquired a 51% ownership interest in Lanxide ThermoComposites, Inc. and Subsidiary (LTI) on December 31, 1995, at which date total stockholders' equity of LTI was $196,078. LTI has incurred quarterly net losses since the acquisition. Accounting Research Bulletin No. 51, "Consolidated Financial Statements" (ARB 51), requires that "...In the unusual case in which losses applicable to the minority interest in a subsidiary exceed the minority interest in the equity capital of the subsidiary, such excess and any further losses applicable to the minority interest shall be charged against the majority interest..." The Company did not become aware of this requirement until recently and, as such, has been charging 49% of all LTI losses against the minority interest. In order to correct its prior accounting treatment, the Company has adjusted its consolidated statements of earnings for the year ended December 31, 1996 and the first three quarters of 1997. The impact on the year ended December 31, 1996 was to increase minority interest in income of consolidated subsidiaries by approximately $674,000 through the elimination of the minority interest in all LTI losses that were incurred after the minority interest in such losses exceeded the minority interest in the equity capital of LTI, which reduced net income by the same amount, or $.09 per share. In addition, minority interests was increased and retained earnings reduced by approximately $674,000 on the adjusted consolidated statement of financial position as of December 31, 1996. These adjustments are reflected in the adjusted consolidated financial statements included herein under Item 8., as well as wherever these items appear in or impact the supplementary data. In accordance with ARB 51, for future periods in which LTI has earnings the Company, as majority stockholder, will be credited with 100% of those earnings until such time as total stockholders' equity of LTI is positive. -2- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ADJUSTED 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 of consolidated subsidiaries, net 200 164 -- ------- ------- ------- Earnings before cumulative effect of an accounting change 4,673 8,800 6,673 ------- ------- ------- Cumulative effect of an accounting change - postemployment benefits, net of tax -- -- (255) ------- ------- ------- Net earnings $ 4,673 $ 8,800 $ 6,418 ============================================================================================== Earnings per common share before cumulative effect of an accounting change $ .58 $ 1.09 $ .83 Cumulative effect of an accounting change - postemployment benefits, net of tax -- -- (.03) ----------- ----------- ----------- Net earnings per common share $ .58 $ 1.09 $ .80 Weighted average number of common shares 8,037,710 8,060,118 8,049,624 ============================================================================================== See accompanying notes to adjusted consolidated financial statements.
-3- ADJUSTED 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 2,088 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 60,477 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 117,710 113,999 - ------------------------------------------------------------------------------- Total liabilities and stockholders' equity $355,129 $373,568 =============================================================================== See accompanying notes to adjusted consolidated financial statements. -4- ADJUSTED 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 ($.14 per share) (1,128) Currency translation adjustment (503) Payment on ESOT note 516 Minimum pension liability adjustment, net of tax (784) Other, net 10 31 30 (15) 4 - ------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 4,486 72,770 56,981 (2,931) (9,018) (7,505) (784) -- - ------------------------------------------------------------------------------------------------------------------------ Net earnings 4,673 Dividends ($.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 $60,477 $(2,875) $(9,498) $(6,941) $(737) $ -- - ------------------------------------------------------------------------------------------------------------------------ See accompanying notes to adjusted consolidated financial statements.
-5- ADJUSTED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
- ----------------------------------------------------------------------------------------------- Years ended December 31, 1996 1995 1994 - ----------------------------------------------------------------------------------------------- Cash flows from operating activities Net earnings $ 4,673 $ 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 of consolidated subsidiaries and partnership, net 73 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 adjusted consolidated financial statements.
-6- NOTES TO ADJUSTED 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. -7- 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. 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. -8- 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 1,723 5,072 Net earnings per common share .21 .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 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 -9- 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 pro forma 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 -10- 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. 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. -11- 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. 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 -12- 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% ================================================================================ -13- 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 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: -14- - -------------------------------------------------------------------------------- 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. 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 -15- 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. -16- 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. 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. -17- 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. 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 -18- 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. -19- Research and development expenditures in 1996 included costs associated with LTI product development. 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. -20- 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 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. -21- 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. -22- 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 ================================================================================ -23- 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 ================================================================================ -24- Note 20: Quarterly Financial Highlights (Unaudited) - --------------------------------------------------- - -------------------------------------------------------------------------------- First Second Third Fourth (Dollars in thousands, except per share data) Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------- 1996 (adjusted) Net sales $64,234 $69,538 $61,948 $62,741 Gross profit 11,355 13,496 8,942 10,315 Net earnings 1,604 2,571 162 336 Net earnings per common share .20 .32 .02 .04 - -------------------------------------------------------------------------------- 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. Note 21: Subsequent Event - ------------------------- The Company acquired a 51% ownership interest in Lanxide ThermoComposites, Inc. and Subsidiary (LTI) on December 31, 1995, at which date total stockholders' equity of LTI was $196,078. LTI has incurred quarterly net losses since the acquisition. ARB 51 requires that "...In the unusual case in which losses applicable to the minority interest in a subsidiary exceed the minority interest in the equity capital of the subsidiary, such excess and any further losses applicable to the minority interest shall be charged against the majority interest..." The Company did not become aware of this requirement until recently and, as such, has been charging 49% of all LTI losses against the minority interest. In order to correct its prior accounting treatment, the Company has adjusted its consolidated statements of earnings for the year ended December 31, 1996 and the first three quarters of 1997. The impact, by quarter, on the year ended December 31, 1996 was as follows: - -------------------------------------------------------------------------------- First Second Third Fourth (Dollars in thousands, except per share data) Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------- Minority interest in income of consolidated subsidiaries, net (as reported) $ (140) $ (186) $(112) $(36) Minority interest in income of consolidated subsidiaries, net (as adjusted) (13) 80 70 63 Net earnings (as reported) 1,731 2,837 344 435 Net earnings (as adjusted) 1,604 2,571 162 336 Net earnings per common share (as reported) .22 .36 .04 .05 Net earnings per common share (as adjusted) .20 .32 .02 .04 In accordance with ARB 51, for future periods in which LTI has earnings the Company, as majority stockholder, will be credited with 100% of those earnings until such time as total stockholders' equity of LTI is positive. -25- 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 (all as restated, see note 21). 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, except for note 21, as to which the date is January 13, 1998 -26- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 3. Exhibits -------- Exhibit No. ----------- 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule as of December 31, 1996 (as adjusted). -27- 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: February 2, 1998 By: /s/ Gary L. Roberts ---------------- --------------------------- Gary. L. Roberts, Vice President, Chief Financial Officer and Treasurer -28- EX-23 2 KPMG CONSENT Exhibit 23 to Form 10-K/A Independent Auditors' Consent The Board of Directors and Stockholders A.P. Green Industries, Inc.: We consent to incorporation by reference in the registration statement (Nos. 33-21012, 33-26035, 33-35475 and 33-38323) on Form S-8 of A.P. Green Industries, Inc. and subsidiaries of our report dated February 10, 1997, except for note 21, as to which the date is January 13, 1998, 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 (all as restated, see note 21), 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 February 2, 1998 EX-27 3 FDS FOR YEAR ENDED 12/31/96
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ADJUSTED ANNUAL REPORT ON FORM 10-K/A 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 ADJUSTED 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 8,975 108,735 355,129 258,461 258,461 214,353 214,353 0 0 3,112 6,833 2,396 4,673 0 0 0 4,673 .58 0
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