-----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, BboWwYIuGFm9WPh3YUw1I6W/Cgmip/8AQIPasYSVKQF2sywppV03vZQVCbuzXD0s 7SrLn/RKtKy6PNDoagmCLw== 0000826619-98-000018.txt : 19980402 0000826619-98-000018.hdr.sgml : 19980402 ACCESSION NUMBER: 0000826619-98-000018 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 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-K SEC ACT: SEC FILE NUMBER: 001-13359 FILM NUMBER: 98584338 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-K 1 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, 1997 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 27, 1998, the market value of A. P. Green Industries, Inc. Common Stock held by non-affiliates was approximately $170,500,000. 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 27, 1998, 8,070,515 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: None - 1 - PART 1 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. Recent Developments ------------------- On March 3, 1998, the Company entered into an Agreement and Plan of Merger with Global Industrial Technologies, Inc. (Global) and BGN Acquisition Corp. The Agreement and Plan of Merger calls for, among other things, Global to purchase for cash all outstanding shares of the Company at $22.00 per share, or approximately $195.0 million, plus the assumption of $23.0 million of net debt. The transaction, which will be effected by means of a tender offer, has been approved by the Boards of Directors of both companies and, subject to regulatory approval, is expected to be completed during the second quarter of 1998. Global is a manufacturer of technologically advanced industrial products that support high-growth markets around the world. Its subsidiary, Harbison-Walker Refractories Company, operates 15 refractory plants in five countries, including the United States, Canada, Mexico, Chile and Germany. On March 6, 1998, a lawsuit was filed in the Court of Chancery in the state of Delaware seeking to enjoin the tender offer and alleging, among other things, that the stockholders of the Company are not receiving fair and adequate consideration for their shares. The Company has entered into an agreement in principle to settle the lawsuit whereby, subject to the negotiation and execution of definitive agreements, including mutually acceptable releases, (i) the Company mailed to the stockholders of the Company on March 24, 1998 a supplemental disclosure statement on Schedule 14D-9 containing certain financial information and projections and (ii) Mack G. Nichols, James M. Stolze, William F. Morrison, Daniel Toll, Paul F. Hummer II, P. Jack O'Bryan, the Company, Global and BGN Acquisition Corp. will reimburse the plaintiff in the lawsuit for attorneys' fees and expenses, as awarded by the Court, in an aggregate amount of $180,000. The lawsuit and/or settlement thereof is not expected to have any impact on the transactions contemplated by the Agreement and Plan of Merger. (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. - 2 - 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. In 1997, Palmetto Lime LLC, a 51%-owned joint venture with SCANA Corp., leased the property on which it will build a new lime processing facility in Charleston, South Carolina. Construction commenced in January 1998 and is expected to be completed by the end of 1998. 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. 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 from purchased limestone and Cal-Dol lime, a blended lime product. APG Lime operates three plants, one in Kimballton, Virginia, one in Ripplemead, Virginia and one in New Braunfels, Texas, and is a 51% owner of Palmetto Lime LLC, which is constructing a new lime processing facility in Charleston, South Carolina. 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. - 3 - 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, substantially 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 continuously improve quality, production efficiency and environmental controls. A. P. Green's safety record is consistently at or near the top of the refractory industry. 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 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(R) is custom designed for each user. The system is gaining acceptance throughout North America and has become a major component of sales efforts to the steel industry. 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. LTI is expanding both its product line and market share, and during 1997 became a distributor of flow control technologies developed and manufactured by Krosaki Corporation of Japan. 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. - 4 - (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 starting on page F-25 of this Annual Report on Form 10-K. (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 1997 and 1996 domestic refractory sales to such users are as follows: Percent of 1997 Percent of 1996 U.S. Refractory U.S. Refractory End-User Industry Category Products Sales Products Sales - -------------------------- -------------- -------------- Iron and Steel 30% 33% Nonferrous Metals 17% 15% Cement, Lime, Gypsum, Paper, Ceramics, Glass and Clay 11% 12% Metal Castings and Fabrication 6% 6% Chemicals and Petrochemicals 6% 6% Other 30% 28% 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 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 pumpable, 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. New castables based on cordierite aggregate have rapidly gained market acceptance. The Company's employee sales force is located throughout the United States, Canada and Mexico and in the Caribbean, Australia, Germany, the Philippines, 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 geographic regions as well as 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 - 5 - 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 1997 and 1996 lime sales to such users is as follows: Percent of 1997 Percent of 1996 End-User Industry Category Lime Products Sales Lime Products Sales -------------------------- ------------------- ------------------- Pulp and Paper Processing 38% 36% Steel and Aluminum Production 28% 28% Road Construction 14% 15% Environmental/Water Treatment 16% 14% Masonry 3% 4% Chemical and Industrial 1% 3% 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. Lime products include Cal-Dol lime blend; high calcium quicklime noted for chemical purity and 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, distribution through terminals 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, 1997. Average annual mining of clay and silica during the last five years was 266,000 tons, with 1997 at 238,000 tons. Proven reserves are - 6 - estimated to be sufficient for approximately 40 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 25% 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. 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 50,800,000 tons of usable reserves as of December 31, 1997. The average annual mining of limestone at New Braunfels during the five-year period ended December 31, 1997 was 1,062,000 tons, with 1997 mining at 1,140,000 tons. Reserves of limestone at this location are estimated to be sufficient for about 48 years of operations, based on recent average annual usage. Company-owned and leased reserves at the Kimballton plant were estimated at 19,300,000 tons as of December 31, 1997. The average annual mining of limestone at Kimballton during the five-year period ended December 31, 1997 was 752,000 tons, with 1997 mining at 770,000 tons. 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 originally estimated to have been obtained in the 1996 Eastern Ridge acquisition. During 1997 this estimate was increased by 13,400,000 tons, with an estimated 25,000,000 tons remaining at December 31, 1997 after mining 600,000 tons during 1997. Reserves at this location are estimated to be sufficient for 47 years of operations. Dolomitic lime and limestone are purchased from outside suppliers. Energy. Natural gas used in the production of refractory products represents approximately 65 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. 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 and Ripplemead plants and about 64 percent of the total fuel used at the New Braunfels plant during 1997. Natural gas (in lieu of coal) is the other major energy source used at New Braunfels, accounting for approximately 36 percent of that facility's total fuel usage in 1997. 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. - 7 - Both of the Company's industry segments are sensitive to cyclical fluctuations in the iron, steel and nonferrous 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 $28.9 million and $31.1 million at December 31, 1997 and 1996, respectively, requiring seven to eight weeks to service for 1997 as compared with eight to nine weeks for 1996. 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 $3.1 million and $3.2 million at December 31, 1997 and 1996, 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. Although the manufacturing sector of the U. S. economy continues to move forward, improvements in process control and refractory material improvements have maintained a constant pressure on refractory pricing. 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. The Virginia and Texas lime plants compete with two and three 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, 1997, A. P. Green invested approximately $34.7 million for such purposes. Of those expenditures, 74% ($25.7 million) were for refractories operations and information systems and 26% ($9.0 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 funded and directed by A. P. Green at the Lanxide facilities in Newark, Delaware. 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. - 8 - Research and development expenditures amounted to approximately $2.8 million, $3.9 million and $2.9 million during 1997, 1996 and 1995, respectively. Research and development expenditures in 1996 included approximately $800,000 in 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 1997, 1996 or 1995. Employees. The average number of persons employed by A. P. Green during 1997, 1996 and 1995 was 1,906, 1,759 and 1,966, respectively. Approximately 900 employees are members of collective bargaining units. The represented unions in the U.S. and Canada are: 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. The collective bargaining agreement covering approximately 525 employees at the Mexico, Missouri and Fulton, Missouri plants expires during 1998. A new collective bargaining agreement is expected to be successfully negotiated. 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 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. - 9 - 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 starting on Page F-22 of this Annual Report on Form 10-K. Capital expenditures have been made over the last several years and are planned in 1998 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 18 U.S. patents, and had one patent application outstanding at December 31, 1997. 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 nine license agreements with foreign, unaffiliated companies, two 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 starting on page F-25 of this Annual Report on Form 10-K. 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 land and buildings at the Ellisville, Mississippi plant used to secure the industrial development revenue bond indebtedness at that plant. 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. The plant in Warren, Ohio, obtained in the General acquisition, is excluded as it is no longer in operation and is currently held for sale. - 10 - 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 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 - 11 - Location and Nature Approximate Square Products of Property Feet of Floor Space Manufactured - ------------------- ------------------- ------------ 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 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. - 12 - 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. The facility at Ripplemead, Virginia consists of a surface mine, rail and various plant buildings, totaling 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. APG Lime is also 51% owner of Palmetto Lime LLC, which is constructing a new lime processing facility in Charleston, South Carolina. When completed, this facility will consist of a rail, ship unloading and stone conveying equipment and various plant buildings, totaling approximately 9,000 square feet of floor space, situated on approximately 7.9 leased acres. - 13 - 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 principally imported, are stored there. Distribution centers and/or sales offices are maintained at the following locations: Delta, British Columbia, Toronto, Ontario, and Montreal, Quebec, which are leased under initial lease terms of one to five years; and Ottawa, Ontario, Quebec City, Quebec, Edmonton, Alberta and Winnipeg, Manitoba, which are public warehouses under no fixed term commitment. 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 and Sheffield 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. ITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings is set forth in Note 18 of Notes to Consolidated Financial Statements starting on page F-22 of this Annual Report on Form 10-K. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. - 14 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS A. P. Green Industries, Inc.'s common stock is traded on the New York Stock Exchange under the symbol APK. The approximate number of stockholders of record of A. P. Green's common stock at December 31, 1997 was 3,400. The following table sets forth the high and low per share sale prices, as reported on the New York Stock Exchange at December 31, 1997 and in the NASDAQ Stock Market for all other periods, and dividends for each quarter during the last two years, adjusted for the two-for-one stock split effected September 20, 1996. 1997 1996 ---------------------------- ---------------------------- Cash Cash Sale Price Dividend Sale Price Dividend Quarter Ended High Low Declared High Low Declared - ------------- ---- --- -------- ---- --- -------- March 31 $ 10.25 $ 8.25 $ .04 $ 10.00 $ 8.25 $ .035 June 30 10.50 7.75 .04 10.75 8.00 .035 September 30 14.25 9.00 .04 12.00 9.81 .04 December 31 13.94 11.00 .04 11.50 9.25 .04 - 15 - ITEM 6. SELECTED FINANCIAL INFORMATION (Dollars in thousands, except per share data)
- ------------------------------------------------------------------------------------------------------------ For years ended December 31, 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------ Operating Items Net sales $277,907 $258,461 $249,715 $195,918 $162,962 Gross profit 50,056 44,108 41,406 34,498 32,083 Earnings before income taxes and cumulative effect of accounting changes 11,136 6,833 10,365 9,295 9,392 Earnings before cumulative effect of accounting changes 8,068 4,673 8,800 6,673 6,497 Cumulative effect of accounting changes, net of tax - - - (255) - ------- ------- ------- ------- ------- Net earnings 8,068 4,673 8,800 6,418 6,497 ======= ======= ======= ======= ======= Per share data (1) Basic Earnings before cumulative effect of accounting changes, net of tax $ 1.00 $ .58 $ 1.09 $ .83 $ .81 Cumulative effect of accounting changes, net of tax - - - (.03) - ------- ------- ------- ------- ------- Net earnings per common share 1.00 .58 1.09 .80 .81 ======= ======= ======= ======= ======= Diluted Earnings before cumulative effect of accounting changes, net of tax .98 .57 1.07 .81 .81 Cumulative effect of accounting changes, net of tax - - - (.03) - ------- ------- ------- ------- ------- Net earnings per common share .98 .57 1.07 .78 .81 ======= ======= ======= ======= ======= Dividends .16 .15 .14 .12 .03 Other Financial Items Working capital $68,568 $75,541 $79,823 $ 78,565 $ 55,173 Current ratio 2.5:1 2.7:1 2.8:1 2.6:1 3.1:1 Capital expenditures $11,671 $12,892 $10,156 $ 6,482 $ 6,149 Depreciation, depletion and amortization 12,139 10,582 10,174 8,725 7,671 Total assets 357,714 355,129 373,568 373,122 339,314 Long-term debt 31,034 40,109 34,384 37,023 12,160 Stockholders' equity 124,535 117,710 113,999 107,038 100,930 Debt to total capitalization (2) 22.8% 27.3% 24.5% 25.8% 10.8% (1) All per share data has been restated to reflect the two-for-one stock split effected September 20, 1996. (2) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt.
- 16 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 1997 Compared to 1996 - --------------------- Net sales increased 7.5% to $277.9 million in 1997 from $258.5 million in 1996. The impact from the December 31, 1996 acquisition of the Ripplemead, Virginia lime plant from Eastern Ridge Lime, L.P. (Eastern Ridge) was to increase sales by approximately $10.5 million. Gross profit increased 13.5% to $50.1 million in 1997 from $44.1 million in 1996, while net earnings increased 72.7% to $8.1 million, or $.98 per share, diluted, in 1997 from $4.7 million, or $.57 per share, diluted, in 1996. The impact from the Ripplemead plant on gross profit and net earnings was not material to the consolidated results. Refractory Operations - --------------------- Net sales from refractory operations increased 4.3% to $227.9 million in 1997 compared to $218.4 million in 1996. U.S. refractory sales increased 3.0% to $191.8 million in 1997 from $186.1 million in 1996. Significantly limiting this increase were lower sales of silica products from the Company's Lehi, Utah plant, which were high in 1996 due to capital projects at several glass and coke oven customers. U.S. refractory sales volumes increased 2.5% in 1997, with increases in brick, specialties, precast shapes, Lanxide ThermoComposites, Inc. (LTI) and INTOGREEN products partially offset by a decline in ceramic fiber volumes. Price increases for specialties, precast shapes, ceramic fiber and LTI products were partially offset by brick and INTOGREEN product price reductions for a net price increase of 1.0%. U.S. export sales declined 11.9% to $20.8 million in 1997 from $23.6 million in 1996 due primarily to reduced sales to the Middle East, Mexico and the Caribbean. Reduced U.S. export sales to Mexico and the Caribbean were more than offset with increased sales by A. P. Green de Mexico. Sales at the Canadian subsidiary increased 5.9% to $25.2 million in 1997 from $23.8 million in 1996. Increased volumes in brick, crucibles and precast shapes were partially offset by a decline in specialties volume, with ceramic fiber volume flat for the comparable periods, for a net volume increase of 5.0%. Prices increased across all product lines with the exception of precast shapes, resulting in an overall 1997 price increase of 2.8%. The higher sales and resulting gross profit improvement reduced the pretax loss of the Canadian subsidiary to $84,000 in 1997 compared to $324,000 in 1996. Contributing to the 1997 loss were a higher provision for doubtful accounts and higher currency exchange losses on U.S. dollar denominated accounts. Sales by the United Kingdom subsidiary declined 11.0% to $8.9 million in 1997 compared to $10.0 million in 1996 due to continuing weak market conditions. Planned inventory reductions contributed to lower volume levels which resulted in reduced production efficiencies, contributing to a pre-tax loss of $200,000 in 1997 compared to pre-tax earnings of $607,000 in 1996. Also contributing to the 1997 loss were increased equipment rental, depreciation expense and salary and related costs. A. P. Green de Mexico's sales for 1997 increased 22.1% to $9.9 million compared to $8.1 million in 1996. Increased royalty and freight costs and a weakening Mexican peso partially offset this sales increase, resulting in pre-tax earnings of $1.0 million in 1997 compared to $992,000 in 1996. Sales at PT AP Green Indonesia were $1.0 million in 1997, with a pre-tax loss of $1.2 million due to relatively high fixed costs at the low initial volume level. The Indonesian operation incurred a pre-tax start-up loss of $325,000 for 1996. Utilizing the U.S. dollar as its primary trading currency has limited the - 17 - currency translation exposure of the Indonesian subsidiary. However, the significant deterioration of economic conditions in Indonesia and the Far East region has resulted in sales growth being slower than planned, extending the time period anticipated for the operation to achieve profitability. Refractory gross profit increased 16.1% to $40.1 million in 1997 from $34.5 million in 1996. Refractory products cost of sales as a percentage of sales decreased to 82.4% in 1997 from 84.2% in 1996. This improvement was primarily due to greater production efficiencies and reduced casualty and group health insurance, equipment rental, utilities and equipment maintenance expense. Partially offsetting these improvements were increased workers compensation insurance costs in the U.S., increased royalty expense at A.P. Green de Mexico and high relative fixed costs at PT AP Green Indonesia. Refractory operating profits increased 72.7% to $13.8 million from $8.0 million in 1997 and 1996, respectively, primarily due to the improved gross profit and reduced research expenses at LTI, partially offset by increased selling and administrative costs at LTI and PT AP Green Indonesia. Industrial Lime Operations - -------------------------- Industrial lime sales increased 25.5% to $50.4 million from $40.2 million for 1997 and 1996, respectively, including $10.5 million from the Ripplemead plant. A decline in quicklime volume was partially offset by increases in Cal-Dol and hydrate volumes for a net volume decline of 2.6% at the Kimballton plant. Also contributing to the volume decline at Kimballton was a strike at one of the plant's major customers. Kimballton prices increased an average of 0.8% across all major product lines. Volumes at the New Braunfels plant were essentially flat, with increases in road stabilization and building lime offset by reduced industrial lime volume. Prices were also flat at New Braunfels, with increased industrial lime pricing offset by price reductions in road stabilization and building lime. Industrial lime gross profit increased 2.6% to $9.9 million or 19.7% of sales for 1997 from $9.6 million or 23.8% of sales for 1996. The decline in gross profit percentage was due primarily to the relatively high operating costs and depreciation related to the newly acquired Ripplemead plant. Improvements continue to be made at this facility, which generated a small net profit for the year. The impact of these improvements, coupled with increased synergies with the nearby Kimballton plant, should result in improved gross profit percentages in future periods. Also contributing to the decline in gross profit percentage were higher power and equipment maintenance expense at Kimballton and increased purchased material and group health insurance costs at both plants. Partially offsetting these increases were reductions in maintenance, power and processing fuel costs at New Braunfels, lower workers compensation insurance cost and improved production efficiencies at both plants. Industrial lime operating profit increased 2.6% to $8.5 million in 1997 compared to $8.3 million in 1996 primarily due to the improvement in gross profit. Selling and Administrative Expenses - ----------------------------------- Selling and administrative expenses increased 3.8% to $37.4 million in 1997 from $36.1 million in 1996. The increase was primarily due to higher professional fees, management incentive and group health insurance costs. Expenses at Palmetto Lime and increased expenses at LTI and PT AP Green Indonesia also contributed $536,000 of the increase, partially offset by reduced LTI research costs and lower costs at A.P. Green de Mexico. - 18 - Interest Expense and Income - --------------------------- Interest expense increased 5.9% to $3.3 million in 1997 from $3.1 million in 1996 due to interest associated with borrowings against the Company's U.S. long-term line of credit offset by reduced interest on the unsecured notes associated with the 1994 General acquisition. Daily average bank line borrowings were approximately $2.9 million during 1997, while $9.0 million was borrowed against the U.S. long-term line of credit at the end of 1996 to fund the acquisition of the Ripplemead plant. There were no other bank line borrowings during 1996. Interest income decreased 23.7% to $958,000 in 1997 from $1.3 million in 1996 due to reduced funds available for investing and a reduction in notes receivable. Other Income, Net - ----------------- Other income declined slightly to $535,000 in 1997 from $542,000 in 1996. Increased currency conversion losses on U.S. dollar denominated accounts at the Company's Canadian subsidiary and currency conversion losses on Mexican peso accounts at the Company's Mexican subsidiary during 1997 compared to gains during 1996 were partially offset by increased royalty income. Other income in 1997 included a gain on the sale of the Hitchins, Kentucky plant and a loss on the sale of the Troup, Texas plant. Other income in 1996 included gains on the sale of the Pueblo, Colorado plant and certain equipment at the closed Warren, Ohio 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. The decline in value of the Indonesian rupiah is not expected to significantly increase the Indonesian subsidiary's currency exposure. Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from its two Colombian affiliates was $1.2 million in 1997 compared to $436,000 in 1996. The increase was primarily due to adjustments required to translate the 1997 and 1996 financial statements of these affiliates to U.S. accounting principles, which could not be reasonably estimated until December 1997. Changes in reporting methods for these affiliates should allow estimation of such adjustments on a quarterly basis starting in the first quarter of 1998. Had income been reflected in the period earned, the Company's share of income from its two Colombian affiliates would have been $625,000 in 1997 compared to $1.0 million in 1996. Although the Colombian economy showed signs of improvement in the second half of 1997, lower production levels resulting in reduced efficiency and price reductions required to compete with imported products reduced 1997 margins on level sales. Also contributing to the lower earnings were increased pension and postretirement benefits costs. Minority Interest in Income of Consolidated Subsidiaries - -------------------------------------------------------- Until recently, the Company had been charging 49% of all LTI losses since the December 31, 1995 acquisition of A.P. Green's 51% interest in LTI against the minority interest. However, Accounting Research - 19 - Bulletin No. 51, "Consolidated Financial Statements" (ARB51), requires that those losses in excess of the minority interest in the equity capital of LTI be absorbed by the majority interest. In order to correct its prior accounting treatment, on February 2, 1998 the Company adjusted its consolidated statements of earnings for the first three quarters of 1997 and the year ended December 31, 1996. The impact on the nine months ended September 30, 1997 was to increase minority interest in income of consolidated subsidiaries by approximately $459,000 through the elimination of the minority interest in all LTI losses for the nine-month period, which reduced net income by the same amounts, or $.06 per share. The impact on the year ended December 31, 1996 was to increase minority interest in income of consolidated subsidiaries by approximately $674,000, which reduced net income by the same amount, or $.08 per share. In addition, on the adjusted consolidated statements of financial position minority interests was increased and retained earnings reduced by approximately $1,133,000 as of September 30, 1997 and approximately $674,000 as of December 31, 1996. These adjustments are reflected in the consolidated financial statements included herein as well as the Notes to Consolidated Financial Statements and 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. Financial Condition - ------------------- Working capital declined 9.2%, or $7.0 million, to $68.6 million at December 31, 1997 from $75.5 million at September 30, 1996, while the ratio of current assets to current liabilities decreased to 2.5 to 1 from 2.7 to 1. Increases of $2.2 million in accrued expenses and $1.5 million in current portion of long-term debt and reductions of $5.8 million in cash and $3.9 million in reimbursement due on paid asbestos claims were partially offset by a $6.7 million increase in accounts receivable resulting from increased sales in December 1997 compared to December 1996. The increase in current maturities of long-term debt since December 31, 1996 was due to a $2.5 million reclassification from long-term debt for a scheduled increase in the payment due against the unsecured notes payable, partially offset by a $1.0 million final payment on an industrial development revenue bond at the Bessemer, Alabama plant in December 1997. Long-term debt decreased $9.1 million from December 31, 1996 due primarily to the $2.5 million reclassification, a scheduled payment of $2.5 million against the unsecured notes payable and a $4.5 million reduction in outstanding borrowings against the U.S. long-term line of credit. Partially offsetting these reductions was a ten-year capital lease on a warehouse in Houston, Texas, which bears an interest rate of 10.9% and expires December 1, 2006. The reduction in reimbursement due on paid asbestos claims since December 31, 1996 was due to asbestos claim settlements with and reimbursements from the Company's insurance carriers and the Center for Claims Resolution (the Center). Projected insurance recovery on asbestos claims increased $5.9 million and projected asbestos claims increased $4.3 million since December 31, 1996 due to revised estimates based upon the most recent claims information provided by the Center for Claims Resolution, partially offset by $28.8 million in asbestos claim payments by insurance carriers and settlements by the Company with those carriers during 1997. The net projected asbestos liability included in the Company's statement of financial position has been reduced to zero as a result of final settlements with the Company's insurance carriers. Future payments of asbestos claims will be made directly to the Center by those carriers. As discussed in Note 18 of Notes to Consolidated Financial Statements, during 1997 there was a change in the information available to the Company to make projections of its asbestos liability and related insurance recoveries. - 20 - Net deferred income tax liabilities declined $2.2 million due primarily to reductions in prepaid pension costs, depreciation method differences and net operating loss carryforwards resulting from start-up operations at LTI and PT AP Green Indonesia. Long-term debt, including current portion, at December 31, 1997 consisted of industrial development revenue bonds totaling $10.8 million which bear interest rates ranging from 70% of prime (8.5% at December 31, 1997) to 8.6% and mature at various times from 2000 through 2014 and unsecured notes payable of $20.5 million ($20.0 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 $4.5 million borrowed against the U.S. line of credit, which expires May 2, 1999 and bears an interest rate of 2% above the federal funds rate (5.84% at December 31, 1997) and capitalized leases of $914,000 which expire in 1999 and 2006 and bear interest rates ranging from 6.7 % to 10.9%. Management believes that the Company's financial position will support additional borrowing should the need arise. During 1997 the Company's U.S. long-term line of credit was extended to May 2, 1999. Restrictive covenants coincide with those reflected in the agreement associated with the unsecured notes payable. Approximately $4.9 million of this line of credit was being utilized at December 31, 1997 for outstanding letters of credit and $4.5 million of borrowings remained outstanding, leaving an available balance of approximately $20.6 million Capital expenditures for 1997 totaled $11.7 million compared to $12.9 million for 1996, with capital expenditures for the refractories business declining $3.4 million. This reduction was primarily due to the completion of the new plant in Indonesia and the movement of operations previously at Weston, Ontario to the Smithville, Ontario plant during 1996. Capital expenditures for the industrial lime business increased $1.9 million, $1.4 million of which was for the new Palmetto Lime facility in Charleston, South Carolina being built as a joint venture with SCANA. Capital expenditure commitments for the replacement, modernization and expansion of operations amounted to $27.5 million at December 31, 1997 and $4.2 million at December 31, 1996. Of the 1997 commitment, approximately $21.3 million was for completion of the Palmetto Lime facility and $4.2 million was for replacement and modernization of equipment at the APG Lime plants. Of the 1996 commitment, approximately $1.9 million was for expansion and modernization of the Mexico, Missouri and Fulton, Missouri plants. A.P. Green believes it has sufficient liquidity and borrowing capacity to meet both its normal working capital requirements and its planned capital expenditures in 1998. 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 $3.9 million at December 31, 1997 and $2.9 million at December 31, 1996. The primary reason for the increase during 1997 was adjustments relating to translation of the financial statements of the Colombian affiliates. The Board of Directors declared a regular quarterly dividend of $.04 per share in the first quarter of 1998. - 21 - 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 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 INTOGREEN joint venture partnership, formed in January 1995, increased 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 $4.1 million to $4.7 million, or $.57 per share, diluted, in 1996 from $8.8 million, or $1.07 per share, diluted, 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 the impact related to these acquisitions, 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 - 22 - 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. 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. 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%. 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 the Ripplemead plant; 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. - 23 - 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. In December 1997, an adjustment was recorded to increase A. P. Green's share of 1996 income from these affiliates. This adjustment resulted from translation of the Colombian financial statements to U. S. accounting principles, the impact of which could not be reasonably estimated until December 1997. Had income been reflected in the period earned, the Company's share of income from its two Colombian affiliates would have been $1.0 million in 1996 compared to $718,000 in 1995. Accounting Standards Not Yet Implemented - ---------------------------------------- In June 1997 the Financial Accounting Standards Board issued Statement No. 130, "Reporting Comprehensive Income," and No. 131, "Disclosures about Segments of an Enterprise and Related Information," which the Company is required to implement for the year ending December 31, 1998. Although the implementation of these statements will have no impact on the financial results of the Company, it is assessing the impact of these statements on the disclosures provided in its quarterly and annual reports. Forward-Looking Information - --------------------------- The statements contained in 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. t - 24 - Subsequent Even - --------------- On March 3, 1998, the Company entered into an Agreement and Plan of Merger with Global Industrial Technologies, Inc. and BGN Acquisition Corp. The Agreement and Plan of Merger calls for, among other things, Global to purchase for cash all outstanding shares of the Company at $22.00 per share, or approximately $195.0 million, plus the assumption of $23.0 million of net debt. The transaction, which will be effected by means of a tender offer, has been approved by the Boards of Directors of both companies and, subject to regulatory approval, is expected to be completed during the second quarter of 1998. Global is a manufacturer of technologically advanced industrial products that support high-growth markets around the world. Its subsidiary, Harbison-Walker Refractories Company, operates 15 refractory plants in five countries, including the United States, Canada, Mexico, Chile and Germany. On March 6, 1998, a lawsuit was filed in the Court of Chancery in the state of Delaware seeking to enjoin the tender offer and alleging, among other things, that the stockholders of the Company are not receiving fair and adequate consideration for their shares. The Company has entered into an agreement in principle to settle the lawsuit whereby, subject to the negotiation and execution of definitive agreements, including mutually acceptable releases, (i) the Company mailed to the stockholders of the Company on March 24, 1998 a supplemental disclosure statement on Schedule 14D-9 containing certain financial information and projections and (ii) Mack G. Nichols, James M. Stolze, William F. Morrison, Daniel Toll, Paul F. Hummer II, P. Jack O'Bryan, the Company, Global and BGN Acquisition Corp. will reimburse the plaintiff in the lawsuit for attorneys' fees and expenses, as awarded by the Court, in an aggregate amount of $180,000. The lawsuit and/or settlement thereof is not expected to have any impact on the transactions contemplated by the Agreement and Plan of Merger. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of A. P. Green as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997, notes thereto (including the quarterly supplementary data) and the Independent Auditors' Report appear on pages F-1 through F-29 of this Annual Report on Form 10-K. The financial statement schedule required by Regulation S-X for each of the years in the three-year period ended December 31, 1997 and the Independent Auditors' Report thereon appear on pages F-30 and F-31 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. - 25 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and Executive Officers - -------------------------------- The name, principal occupation or position and other directorships with respect to each of the directors are set forth below. Except as otherwise indicated, each of the directors has held the position or another executive position with the same entity shown or an affiliated entity for in excess of five years. Paul F. Hummer II, 56 - Director since 1988; Chairman of the Board, Chief Executive Officer and President of A. P. Green. P. Jack O'Bryan, 62 - Director since 1995; President, Chief Operating Officer, USG Corporation (a building materials manufacturer which filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code in March 1993). Daniel R. Toll, 70 - Director since 1988; Corporate and Civic Director; Director of Brown Group, Inc., Mallinckrodt, Inc., Kemper National Insurance Companies, NICOR, Inc., Lincoln National Convertible Securities Fund, Inc., and Lincoln National Income Fund, Inc. Mack G. Nichols, 59 - Director since 1997; President and Chief Operating Officer, Mallinckrodt, Inc. since 1995; Senior Vice President, Mallinckrodt Group, Inc. from 1993 to 1995; President and Chief Executive Officer, Mallinckrodt Chemical, Inc. from 1989 to 1995. William F. Morrison, 60 - Director since 1993; Private Investor. James M. Stolze, 54 - Director since 1997; Vice President and Chief Financial Officer of MEMC Electronic Materials, Inc. since June 1995; Partner, KPMG Peat Marwick LLP from June 1977 to June 1995. - 26 - The following is a list as of March 27, 1998 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 56 Chairman of the Board, President and Chief Executive Officer Jurgen H. Abels 53 Vice President, International Max C. Aiken 60 Executive Vice President David G. Binder 61 Vice President and Controller Ronald L. Bramblett 60 Vice President, Human Resources Michael B. Cooney 57 Senior Vice President, Law/Administration and Secretary Frank J. Cordie 45 Vice President, Refractory Manufacturing Daniel Y. Hagan 58 Vice President, Refractory Sales Orville Hunter, Jr. 59 Vice President, Refractory Technology John L. Kelsey 47 Vice President, Refractory Marketing Gary L. Roberts 51 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. Compliance with Section 16(a) of the Securities Exchange Act of 1934 - -------------------------------------------------------------------- Section 16(a) of the Securities Exchange Act of 1934 requires A. P. Green's directors and executive officers to file with the Securities and Exchange Commission initial reports of beneficial ownership and changes in ownership of A. P. Green common stock. To the knowledge of management, based solely on its review of copies of such reports furnished to A. P. Green, all Section 16(a) filing requirements were met, except: (i) a Form 3, Initial Statement of Beneficial Ownership, filed by each of Messrs. Bramblett, Cordie and Kelsey after their respective elections as executive officers of the Company, which reports should have been filed in March 1996 and were filed on March 7, 1997; and (ii) a Form 5, Annual Statement of Changes in Beneficial Ownership, filed by each of Messrs. Bramblett, Cordie and Kelsey for the fiscal year ended December 31, 1996, which reports should have been filed on or before February 14, 1997 and were filed on or about March 7, 1997. The Form 5 reports that were not filed on a timely basis reported transactions consisting of monthly purchases of the Company's common stock under the Company's 401(k) Plan and an - 27 - allocation of the Company's common stock from the Employee Stock Ownership Trust to each such executive officer's 401(k) Plan account. ITEM II. EXECUTIVE COMPENSATION The following table sets forth the cash and non-cash compensation of the named executive for each of the last three years: Summary Compensation Table Long-Term Compensation ----------- Annual Compensation Securities Name and ------------------- Underlying All Other Principal Position Year Salary ($) Bonus($) Options(#) Compensation($)(1) - ------------------ ---- ---------- -------- ---------- ------------------ Paul F. Hummer, II 1997 $365,028 $149,600 55,000/-0- $4,046 Chairman of the Board, 1996 334,186 -0- -0-/-0- 3,751 President and Chief 1995 302,079 75,600 -0-/-0- 4,926 Executive Officer Max C. Aiken, 1997 196,668 106,875 18,000/-0- 3,590 Executive Vice 1996 183,328 -0- -0-/-0- 3,810 President 1995 163,992 32,832 -0-/-0- 5,471 Gary L. Roberts, 1997 155,012 42,000 12,000/-0- 3,280 Vice President, CFO 1996 148,678 -0- -0-/-0- 3,516 and Treasurer 1995 141,132 25,515 -0-/-0- 4,678 Michael B. Cooney 1997 152,500 42,000 12,000/-0- 3,220 Sr. Vice President, 1996 147,081 -0- -0-/-0- 3,517 Law/Administration 1995 141,496 37,240 -0-/-0- 4,724 and Secretary Daniel Y. Hagan 1997 129,500 45,755 8,000/-0- 2,730 Vice President, 1996 122,834 -0- -0-/-0- 2,764 Refractory Sales 1995 112,336 14,904 -0-/-0- 2,752 (1) The totals set forth in this column represent the value of shares of A. P. Green common stock allocated under the A. P. Green Employee Stock Ownership Plan to the account of the named executive officer for the years ended December 31, 1997, 1996 and 1995. - 28 - Option Grants in Last Fiscal Year The following table summarizes stock options granted during 1997 to the executive officers named in the Summary Compensation Table and the potential value of the shares subject to such options upon their expiration in February 2007:
Potential Realizable Value at Assumed Number of % of Total Annual Rates of Stock Securities Options Price Appreciation Underlying Granted to Exercise or For Option Term Options Employees in Base Price Expiration --------------------- Name Granted (#) Fiscal Year ($/Share) Date 5%($) 10%($) - ------------------- ----------- ----------- --------- ---------- ----- ------ Paul F. Hummer 55,000 23% $8.75 2/12/07 $302,500 $767,250 Max C. Aiken 18,000 8 8.75 2/12/07 99,000 251,100 Gary L. Roberts 12,000 5 8.75 2/12/07 66,000 167,400 M. B. Cooney 12,000 5 8.75 2/12/07 66,000 167,400 Dan Y. Hagan 8,000 3 8.75 2/12/07 44,000 111,600
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values The following table summarizes the value at December 31, 1997 of all shares subject to options granted to the named executive officers of the Company to the extent not then exercised and information concerning option exercises during 1997:
Number of Securities Value of Underlying Unexercised Unexercised In-the Money Shares Options Options Acquired Value at 12/31/97 (#) at 12/31/97($)(3) On Realized ---------------------------- --------------------------- Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable - --------------------- ------------ ------------ ----------- ------------- ----------- ------------- Paul F. Hummer -0- $ -0- 298,000 -0- $1,298,565 $ -0- Max C. Aiken (1) 30,737 322,739 57,000 -0- 179,933 -0- Gary L. Roberts (2) 1,109 12,476 90,000 -0- 415,365 -0- M. B. Cooney -0- -0- 105,000 -0- 443,753 -0- Daniel Y. Hagan -0- -0- 66,500 -0- 282,461 -0- - --------------------- (1) Mr. Aiken received 30,737 shares by means of the tendering to the Company of options to purchase 78,000 shares of common stock at an average exercise price of $6.36 per share. (2) Mr. Roberts received 1,109 shares by means of the tendering to the Company of options to purchase 6,000 shares of common stock at an exercise price of $9.17. (3) The market value of the common stock at December 31, 1997 was $11.5625 per share.
- 29 - Retirement Plan - --------------- Officers and employees of A. P. Green participate in a retirement plan (the "Retirement Plan"). In addition, A. P. Green sponsors supplemental retirement plans (the "Supplemental Plans") which allow the payment of benefits exceeding the maximum limits set forth in the Internal Revenue Code of 1986, as amended (the "Code"). Under the Retirement Plan and the Supplemental Plans, each eligible participant of A. P. Green will receive an annual retirement benefit based upon such employee's highest average annualized earnings over any period of 36 consecutive months during the last 120 consecutive months of employment immediately preceding retirement ("Final Average Compensation"). The benefits shown in the following table as payable under the Retirement Plan and Supplemental Plans are not subject to offset for Social Security benefits received by the participant. Annual retirement benefits under the Retirement Plan and the Supplemental Plans, assuming normal retirement at age of 65 during 1997, payment based under the straight life annuity option, and Final Average Compensation and credited service are set forth in the following table:
Final Average Years of Credited Service ($)(2)(3) Annual --------------------------------------------------------------------------------------- Compensation ($)(1) 5 10 15 20 25 30 35 - ------------------- - -- -- -- -- -- -- $150,000 $ 9,648 $19,297 $28,945 $ 38,593 $ 48,241 $ 57,890 $ 67,538 200,000 13,055 26,110 39,165 52,221 65,276 78,331 91,386 250,000 16,462 32,924 49,386 65,848 82,310 98,772 115,234 300,000 19,869 39,738 59,607 79,476 99,344 119,213 139,082 350,000 23,276 46,552 69,827 93,103 116,379 139,655 162,930 450,000 30,090 60,179 90,269 120,358 150,448 180,537 210,627 - ---------------------------- (1) Final Average Compensation under the Retirement Plan and the Supplemental Plans includes the employee's salary and any cash bonus awards under the Management Incentive Compensation Plan. The amount shown in the Summary Compensation Table as salary and bonus for each of the five executive officers named therein is compensation for purposes of the Retirement Plan and the Supplemental Plans. (2) The credited years of service for the five executive officers named in the Summary Compensation Table as of December 31, 1997 are as follows: Mr. Hummer, 9 years; Mr. Aiken, 23 years; Mr. Cooney, 9 years; Mr. Roberts, 8 years; and Mr. Hagan, 31 years. (3) The maximum amount payable under the Retirement Plan is limited by the Code to $130,000 annually, subject to cost-of-living increases and reduction of reason of contributions under tax- qualified defined contribution plans maintained by A. P. Green. To the extent benefits under the Retirement Plan are limited by the Code, they will be paid under the Supplemental Plans.
- 30 - Compensation of Directors During fiscal 1997, directors who were not also employees of A. P. Green received an annual retainer of $20,000 and 1,000 shares of A. P. Green common stock in lieu of fees for meetings of the Board of Directors or committees. Directors were also reimbursed for expenses incurred in attending Board or committee meetings. Prior to May 31, 1997, pursuant to the Retirement Plan for Directors ("Directors Plan"), A. P. Green provided retirement benefits to any non-employee director who retired as a director of A. P. Green or who terminated his directorship with A. P. Green due to a disability, after serving as a director of A. P. Green for a minimum of five years. The benefits that were payable to each director were determined by multiplying the annual retainer paid to directors of A. P. Green on the date of such director's retirement or termination of service due to disability by 10% for each year of service as an A. P. Green director, with the maximum annual benefit for any director being 100% of the then-applicable annual retainer. Benefits commenced upon the later of the date that the former director attained the age of 65 or the date that such former director ceased to be a director of A. P. Green due to retirement or disability. An eligible director continued to receive benefits under the plan during his lifetime on a quarterly basis for a maximum of ten years. As of May 31, 1997, the Directors' Plan was terminated with respect to the accrual of any future benefits. In its stead, the Board of Directors adopted the 1997 Stock Plan for Non-Employee Directors (the "Plan"). Under the terms of the Plan, benefits accrued under the Directors Plan were converted to Stock Units (as defined in the Plan) and Stock Units were credited to the accounts of non-employee directors as follows: William F. Morrison, 3,679 units; P. J. O'Bryan, 2,133 units; and, if he irrevocably elects to waive participation in the Retirement Plan prior to November 1, 1998, Daniel R. Toll, 11,658 units. Neither Mr. Nichols nor Mr. Stolze had accrued any benefits under the Directors' Plan. Stock units credited to the accounts of directors are fully vested at all times. On June 1, 1997 and each June 1 thereafter, 500 stock units will be credited to the account of each non-employee director. In addition, as of each dividend payment date with respect to the Company's common stock, each non-employee director's account shall be credited with additional Stock Units equal to the product of the per share dividend rate times the number of Stock Units credited to such director's account divided by the fair market value of the Company's common stock on the dividend payment date. Unless payable earlier upon the death of a director, Stock Units are payable in shares of the Company's common stock on the later of termination of the director's service on the Board of Directors or the attainment of age sixty-five. Employment Arrangements A. P. Green currently has separate agreements with each of Paul F. Hummer II, Max C. Aiken, Michael B. Cooney and Gary L. Roberts under which each would be given severance benefits in the event that his employment with A. P. Green is "terminated" within three years of a change in control of A. P. Green (except that in all such agreements the rights to severance benefits terminate upon reaching age 65 if it occurs before the expiration of three years after a change in control). Each agreement is for a term of three years, subject to automatic extension each year for an additional year unless A. P. Green gives a 60-day notice that the term will not be so extended, except if there is a change in control of A. P. Green prior to such notice. Each agreement would require a lump-sum cash payment generally in an amount equal to 2.99 times the officer's then-current annual base salary and then-current full year bonus (except that such multiplier will be subject to a declining pro rata reduction from the date of such officer's 62nd birthday until his 65th birthday, based upon the number of months left until such officer's 65th birthday at the effective date of his termination). - 31 - If payment of the foregoing amounts and any other benefits received or receivable subject such officer to payment of federal excise tax, the total amount payable to such officer shall be increased by an amount sufficient to satisfy the excise tax and the additional excise and income taxes thereon. In addition, the Company is a party to a severance enhancement agreement ("Severance Enhancement Agreement") with Daniel Y. Hagan under which Mr. Hagan would be given enhanced severance benefits in addition to those that Mr. Hagan would otherwise be entitled under the Company's normal severance policies in the event that Mr. Hagan's employment with the Company is terminated by the Company for reasons other than death, disability, retirement or cause or by Mr. Hagan for "good reason" within one year of a change in control of the Company. The Severance Enhancement Agreement would require a lump-sum cash payment in an amount equal to Mr. Hagan's then-current annual base salary, in addition to a cash payment equal to two times Mr. Hagan's weekly base salary in the event that less than two weeks' notice of termination is given to Mr. Hagan. The Severance Enhancement Agreement also provides for the continuation of medical benefits for one year following any such termination. "Good reason" is generally defined in the Severance Enhancement Agreement as: (i) reduction of Mr. Hagan's then-current base salary; (ii) elimination of Mr. Hagan's then-current participation level in the Company's bonus plans or employee benefit plans; (iii) the non-payment of moving expenses in connection with a geographic relocation of Mr. Hagan; or (iv) failure by the Company to continue in effect any employee benefit plan in which Mr. Hagan was participating at the time of the change in control or the deprivation of Mr. Hagan of any benefits thereunder or under the Company's normal vacation policy. - 32 - ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Security Ownership of Certain Beneficial Owners - ----------------------------------------------- The following persons were known to management of A. P. Green Industries, Inc. to be the beneficial owners of five percent or more of A. P. Green's common stock: Number of Shares Percent of Outstanding Name and Address of Beneficial Owner Beneficially Owned Common Stock(1) - ------------------------------------ ------------------ ---------------------- Dimensional Fund Advisors Inc. 559,794 (2) 6.94% 1299 Ocean View, 11th floor Santa Monica, California 90401 Franklin Resources, Inc. 684,900 (3) 8.49 777 Mariners Island Blvd. San Mateo, California 94404 LaSalle National Bank 420,054 (4) 5.20 135 South LaSalle Street Chicago, Illinois 60603 Mercantile Bancorporation Inc. 1,359,929 (5) 16.85 One Mercantile Center St. Louis, Missouri 63101 Sogen International Fund, Inc. 569,700 (6) 7.06 Societe Generale Asset Management Corp. 1221 Avenue of the Americas New York, New York 10020 St. Denis J. Villere & Company 630,900 (7) 7.82 210 Baronne Street, Suite 808 New Orleans, Louisiana 70112-1727 - --------------------------------- (1) The percentage calculations are based upon 8,070,515 shares of A. P. Green common stock that were issued and outstanding on March 27, 1998. (2) The shares reported as beneficially owned are based upon information contained in a Schedule 13G filed February 10, 1998. Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment advisor, is deemed to have beneficial ownership of 559,794 shares of A. P. Green Industries, Inc. stock as of December 31, 1997. Dimensional disclaims beneficial ownership of all such shares. (3) The shares reported as beneficially owned are based upon information contained in an Amendment No. 1 to Schedule 13G dated January 27, 1998, which has been filed with the Securities and Exchange Commission by a group consisting of Franklin Resources Inc., Charles B. Johnson, Rupert H. - 33 - Johnson, Jr. and Franklin Advisory Services, Inc. The Schedule 13G states that the 684,900 shares reported as beneficially owned by Franklin Resources, Inc. are owned by one or more open or closed- end investment companies or other managed accounts which are advised by investment advisory subsidiaries of Franklin Resources, Inc., including Franklin Advisory Services, Inc. Franklin Advisory Services, Inc. reported sole voting and investment power with respect to all 684,900 shares reported. In addition, Charles B. Johnson and Rupert H. Johnson, Jr. each own in excess of 10% of the outstanding common stock of Franklin Resources, Inc. and may be deemed to be the beneficial owners of securities held by persons advised by Franklin Resources, Inc. or its subsidiaries. Each of Franklin Resources, Inc., its advisory subsidiaries, Charles B. Johnson and Rupert H. Johnson, Jr. have specifically disclaimed beneficial ownership of all shares reported in the Schedule 13G. (4) The shares reported as beneficially owned are based upon information contained in an Amendment No. 7 to Schedule 13G dated February 17, 1998, which has been filed with the Securities and Exchange Commission. The Schedule 13G states that the beneficial ownership attributed to LaSalle National Bank is solely in a fiduciary capacity as trustee of the trust established pursuant to the A. P. Green Employee Stock Ownership Plan. LaSalle National Bank reported shared voting and investment power (subject to the participants' right to direct the Trustee) with regard to all shares beneficially owned. The amount reported in the table does not include 393,440 additional shares held by the trust but allocated to the accounts of participants. LaSalle National Bank has specifically disclaimed beneficial ownership of all shares reported in the Schedule 13G. (5) The shares reported as beneficially owned are based upon information contained in an Amendment No. 6 to Schedule 13G dated February 12, 1998, which has been filed with the Securities and Exchange Commission. The Schedule 13G states that 1,359,929 shares reported as beneficially owned by Mercantile Bancorporation Inc. are held by its subsidiary, Mercantile Bank National Association, solely in a fiduciary capacity as trustee of the trusts established pursuant to the A. P. Green 401(k) Plan and the A. P. Green Hourly Investment Plan. Mercantile Bancorporation Inc. reported sole voting and investment power (subject to the participants' right to direct the Trustee) with regard to all shares held in such trusts. Mercantile Bancorporation Inc., Mercantile Bank National Association, the A. P. Green 401(k) Plan and the A. P. Green Hourly Investment Plan have specifically disclaimed beneficial ownership of all shares reported in the Schedule 13G. (6) The shares reported as beneficially owned are based upon information contained in an Amendment No. 1 to Schedule 13G dated January 28, 1998, which has been filed with the Securities and Exchange Commission. Societe Generale Asset Management Corp., an investment advisor registered under the Investment Advisors Act of 1940 which acts as investment advisor to SoGen International Fund, Inc., an investment company registered under the Investment Company Act of 1940, reported shared voting power and investment power with respect to all 569,700 shares reported in the Schedule 13G. (7) The shares reported as beneficially owned are based upon information contained in a Schedule 13G dated January 23, 1998, which has been filed with the Securities and Exchange Commission. St. Denis J. Villere & Company, a Louisiana partnership and an Investment Advisor registered under the Investment Advisors Act of 1940, reported shared voting and investment power with respect to all 630,900 shares reported in the Schedule 13G. - 34 - Security Ownership By Management - -------------------------------- The following table indicates, as of March 27, 1998, the beneficial ownership of A. P. Green common stock by each director and each executive officer named in the Summary Compensation Table, individually, and all directors and executive officers as a group: Number of Shares Name of Beneficial Owner Beneficially Owned(2) Percent of Class(1) - ------------------------ --------------------- ------------------- Max C. Aiken 95,016 1.2% Michael B. Cooney 121,852 1.5% Daniel Y. Hagan 105,101 1.3% Paul F. Hummer 349,683 4.2% William F. Morrison 6,050 (3) Mack G. Nichols 1,650 (3) P. Jack O'Bryan 4,850 (3) Gary L. Roberts 100,996 1.2% James M. Stolze 1,650 (3) Daniel R. Toll 7,250 (3) All directors and officers as a group (16 persons) 1,046,848 11.8% (1) Based upon 8,070,515 shares of A. P. Green common stock issued and outstanding as of March 27, 1998 and, for each executive officer or the group, the number of shares subject to options that may be acquired within 60 days upon exercise of the option. (2) Total includes 57,000, 105,000, 66,500, 298,000, 90,000 and 815,000 shares subject to stock options which are presently exercisable by Messrs. Aiken, Cooney, Hagan, Hummer and Roberts, and all directors and executive officers as a group, respectively, under the A. P. Green Long-Term Performance Plans. Under applicable regulations of the Securities and Exchange Commission, the shares subject to options are deemed to be beneficially owned because such shares may be acquired within 60 days upon exercise of the options. (3) Less than one percent. Changes In Control - ------------------ Information regarding an Agreement and Plan of Merger entered into on March 3, 1998 appears on page 2 under the heading "Recent Developments" in Part 1, Item 1 of this Annual Report on Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. - 35 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements --------------------------------- The Consolidated Financial Statements of A. P. Green appear on the following pages of this Annual Report on Form 10-K: Page Reference -------------- Consolidated Statements of Earnings - Years Ended December 31, 1997, 1996 and 1995 F-2 Consolidated Statements of Financial Position - December 31, 1997 and 1996 F-3 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1997, 1996 and 1995 F-4 Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996 and 1995 F-5 Notes to Consolidated Financial Statements - December 31, 1997, 1996 and 1995 F-6 to F-28 Independent Auditors' Report as of December 31, 1997 and 1996 and for each of the years in the three-year period ended December 31, 1997 F-29 2. Financial Statement Schedule ---------------------------- Financial Statement Schedule II, Valuation and Qualifying Account of A. P. Green, is set forth on page F-30 of this Annual Report on Form 10-K. 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. ----------- 2 Agreement and Plan of Merger, dated March 3,1998, by and among A. P. Green, Global Industrial Technologies, Inc. and BGN Acquisition Corp., is incorporated herein by reference to Exhibit 1 to Schedule 14D-9 filed by A. P. Green on March 6, 1998. - 36 - 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 November 13, 1997, between A. P. Green and Harris Trust and Savings Bank, as Rights Agent, as amended by the First Amendment to Rights Agreement dated as of March 5, 1998, is incorporated herein by reference to Exhibits 1 and 4 of the Registration Statement on Form 8-A, dated January 2, 1998, as amended by the Amendment No. 1 to the Registration Statement on Form 8-A, dated March 30, 1998. 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. 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, as amended on August 13, 1997 by the Amendment to the A. P. Green Industries, Inc. 1987 Long-Term Incentive Plan filed herewith. 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, as amended on August 13, 1997 by the Amendment to the 1989 Performance Plan of A. P. Green Industries, Inc. filed herewith. 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. - 37 - 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. 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. 10(o) 1997 Stock Plan for Non-Employee Directors. 10(p) Form of Severance Enhancement Agreement, dated March 2, 1998, between A. P. Green and Jurgen H. Abels, Ronald L. Bramblett, Frank J. Cordie, Daniel Y. Hagan, John L. Kelsey and one other employee. 21 Subsidiaries of A. P. Green. - 38 - 23 Consent of KPMG Peat Marwick LLP. 27 Financial Data Schedule as of December 31, 1997. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter ended December 31, 1997. (c) See Item 14(a) above. (d) See Item 14(a)(2) above. - 39 - 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 24, 1998 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 II Chairman of the Board, March 24, 1998 - ------------------------------- President, Chief Executive Paul F. Hummer II Officer and Director (Principal Executive Officer) /s/ Gary L. Roberts Vice President, Chief Financial March 24, 1998 - ------------------------------- Officer and Treasurer Gary L. Roberts (Principal Financial and Accounting Officer /s/ William F. Morrison - ------------------------------- William F. Morrison Director March 28, 1998 /s/ Mack G. Nichols - ------------------------------- Mack G. Nichols Director March 27, 1998 /s/ P. J. O'Bryan - ------------------------------- P. J. O'Bryan Director March 24, 1998 /s/ James M. Stolze - ------------------------------- James M. Stolze Director March 27, 1998 /s/ Daniel R. Toll - ------------------------------- Daniel R. Toll Director March 25, 1998 - 40 - A. P. Green Industries, Inc. Annual Report On Form 10-K Item 14(a)(1) and (2) Financial Statements Year Ended December 31, 1997 F- 1 CONSOLIDATED STATEMENTS OF EARNINGS (Dollars in thousands, except per share data) - -------------------------------------------------------------------------------- Years ended December 31, 1997 1996 1995 - -------------------------------------------------------------------------------- Net sales $ 277,907 $ 258,461 $ 249,715 Cost of sales 227,851 214,353 208,309 - ------------------------------------------------------------------------------- Gross profit 50,056 44,108 41,406 Expense and other income Selling and administrative expense 37,445 36,087 31,312 Interest expense 3,297 3,112 3,190 Interest income (958) (1,255) (1,513) Minority interest in loss of partnerships (329) (127) (67) Other income, net (535) (542) (1,881) - -------------------------------------------------------------------------------- Earnings before income taxes 11,136 6,833 10,365 Income tax expense 3,943 2,396 2,182 Equity in net income of affiliates (1,194) (436) (781) Minority interest in income of consolidated subsidiaries, net 319 200 164 - -------------------------------------------------------------------------------- Net earnings $ 8,068 $ 4,673 $ 8,800 ================================================================================ Net earnings per common share Basic $ 1.00 $ .58 $ 1.09 Diluted $ .98 $ .57 $ 1.07 Weighted average number of common shares Basic 8,041,266 8,037,710 8,060,118 Diluted 8,269,275 8,216,616 8,236,848 ================================================================================ See accompanying notes to consolidated financial statements. F- 2 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Dollars in thousands, except per share data) - -------------------------------------------------------------------------------- December 31, 1997 1996 - -------------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 3,701 $ 9,477 Trade receivables (net of allowances - 1997, $1,448; 1996, $1,701) 48,761 42,084 Reimbursement due on paid asbestos claims - 3,898 Inventories 53,705 53,674 Deferred income tax asset 2,574 3,374 Other 6,624 7,030 - -------------------------------------------------------------------------------- Total current assets 115,365 119,537 Property, plant and equipment, net 107,622 107,394 Projected insurance recovery on asbestos claims 116,314 110,374 Pension assets 9,251 9,044 Intangible assets, net 4,173 4,132 Other assets 4,989 4,648 - -------------------------------------------------------------------------------- Total assets $ 357,714 $ 355,129 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 19,879 $ 20,408 Accrued expenses Payrolls 6,867 6,267 Taxes other than on income 2,145 1,860 Insurance reserves 4,008 3,574 Other 7,381 6,528 Current maturities of long-term debt 5,716 4,168 Income taxes 801 1,191 - -------------------------------------------------------------------------------- Total current liabilities 46,797 43,996 Deferred income taxes 7,199 10,228 Long-term non-pension benefits 17,652 16,583 Long-term pensions 11,615 12,449 Long-term debt 31,034 40,109 Projected asbestos claims 116,314 111,966 - -------------------------------------------------------------------------------- Total liabilities 230,611 235,331 - -------------------------------------------------------------------------------- Minority interests 2,568 2,088 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: 9,014,599 in 1997 and 8,975,442 in 1996 9,015 8,975 Additional paid-in capital 68,504 68,309 Retained earnings 67,285 60,477 Less: Deferred foreign currency translation (3,939) (2,875) Treasury stock of 953,934 shares in 1997 and 1996, at cost (9,498) (9,498) Note receivable-ESOT (6,323) (6,941) Minimum pension liability adjustment, net of tax (509) (737) - -------------------------------------------------------------------------------- Total stockholders' equity 124,535 117,710 - -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 357,714 $ 355,129 ================================================================================ See accompanying notes to consolidated financial statements. F-3 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, 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) - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 8,068 Dividends ($.16 per share) (1,287) Currency translation adjustment (1,064) Payment on ESOT note 618 Minimum pension liability adjustment, net of tax 228 Other, net 40 195 27 - ------------------------------------------------------------------------------------------------------------------------------------ Balance at December 31, 1997 $9,015 $68,504 $67,285 $(3,939) $(9,498) $(6,323) $(509) $ - ==================================================================================================================================== See accompanying notes to consolidated financial statements.
F-4 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands)
- ------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities Net earnings $ 8,068 $ 4,673 $ 8,800 Adjustments for items not requiring (providing) cash Depreciation, depletion and amortization 12,139 10,582 10,174 Deferred compensation earned - - 4 Stock compensation to directors 40 28 23 Provision for losses on accounts receivable 656 740 120 Loss (gain) on sale of assets 183 (58) (1,272) Equity in earnings of affiliates, net of dividends received (1,047) 33 (227) Minority interest in earnings (loss) of consolidated subsidiaries and partnerships (10) 73 97 Decrease (increase) in assets, net of effects from acquisitions Trade receivables (7,333) 2,881 1,143 Asbestos claim and fee reimbursements received 28,832 17,276 30,232 Inventories (31) 2,999 (1,758) Receivable and prepaid taxes 13 315 (360) Other current assets (435) (1,053) (712) Increase (decrease) in liabilities, net of effects from acquisitions Accounts payable and accrued expenses 1,642 (958) (9,925) Asbestos claims paid (26,526) (18,573) (23,937) Pensions (526) (1,715) 279 Income taxes (390) 88 (322) Deferred income taxes (2,366) (1,725) (1,185) Long-term non-pension benefits 1,069 986 286 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 13,978 16,592 11,460 - ------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities Capital expenditures (11,671) (12,892) (10,156) Decrease (increase) in other long-term assets (76) 47 (726) Increase in pension assets (84) (82) (34) Proceeds from sales of assets 1,328 807 1,843 Payment received on ESOT note 618 564 516 Acquisition of businesses, net of cash acquired - (10,059) (1,614) - ------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (9,885) (21,615) (10,171) - ------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Repayments of debt (20,730) (2,708) (165) Proceeds from borrowings 12,500 9,525 - Dividends paid (1,287) (1,205) (1,128) Purchases of common stock for treasury - (480) - Capital contributions from minority partner 490 - 121 Exercised stock options 195 - 2 Tax benefit on dividends paid to ESOT 27 28 30 Tax effect on restricted stock plan - - 1 - ------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (8,805) 5,160 (1,139) - ------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes (1,064) 56 (503) - ------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (5,776) 193 (353) Cash and cash equivalents at beginning of year 9,477 9,284 9,637 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 3,701 $ 9,477 $ 9,284 =================================================================================================================== See accompanying notes to consolidated financial statements.
F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ December 31, 1997, 1996 and 1995 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 82% of 1997 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 1997 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 F-6 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 benefitted, 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 $1.8 million and $1.1 million at December 31, 1997 and 1996, 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 bases, 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 F-7 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 continue to apply the provisions of 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, basic, are computed based on the weighted average number of shares of common stock outstanding during the period. Earnings per common share, diluted, are computed assuming common shares are issued for all dilutive potential common shares outstanding during the period. Dilutive potential common shares included primarily outstanding stock options. All earnings per share figures have been restated to reflect the application of Statement of Financial Accounting Standards No. 128, "Earnings per Share," and to reflect the two-for-one stock split effected 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. F-8 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 charged 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 which were approximately $7.0 million in the year of acquisition and have grown to nearly $10.0 million in 1997. 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 F-9 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. 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 plants acquired in the 1994 acquisition of the refractories assets of General Refractories Company and its affiliated companies (General) were closed during 1994, a $3.6 million reserve for which was established at the time of acquisition and included on the opening balance sheet. During 1995 this reserve was increased by approximately $700,000 due to the closing of the Weston, Ontario plant, which was sold in December 1995, and revised estimates of U.S. employee termination benefits resulting from the sale of these facilities taking longer than anticipated. Substantially all employees at these facilities have been terminated and approximately $3.2 million of termination benefits and plant closing costs have been charged against the reserves to date. Two of the U. S. facilities were sold during 1997 and the third is held for sale at its estimated net realizable value. Note 5: Earnings Per Share - --------------------------- The following is a reconciliation of shares outstanding used in the computation of basic and diluted earnings per share for the years ended December 31, 1997, 1996 and 1995: - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Weighted average number of common shares - basic 8,041,266 8,037,710 8,060,118 Effect of dilutive securities Employee stock options 223,141 178,906 176,730 Other 4,868 - - - -------------------------------------------------------------------------------- Weighted average number of common shares - diluted 8,269,275 8,216,616 8,236,848 - -------------------------------------------------------------------------------- F-10 Net earnings used in both earnings per share calculations were the same, as there would be no income effects related to the dilutive securities. Options to purchase 82,500 shares at $8.75 per share were not included in the computation of diluted earnings per share for 1996 and 1995 as the options were not yet exercisable under the terms of the February 1993 option grant. These options became exercisable during 1997 when the last transaction price of the Company's common stock equaled or exceeded $11.00 for 30 consecutive trading days. Note 6: Inventories - ------------------- Inventory classifications as of December 31, 1997 and 1996 were as follows: - ------------------------------------------------------------------------------- (In thousands) 1997 1996 - ------------------------------------------------------------------------------- Finished goods and work in process Valued at LIFO FIFO cost $ 31,621 $ 31,278 Less LIFO reserve (13,947) (14,907) - ------------------------------------------------------------------------------- LIFO cost 17,674 16,371 Valued at FIFO 10,683 13,225 - ------------------------------------------------------------------------------- 28,357 29,596 - ------------------------------------------------------------------------------- Raw materials and supplies Valued at LIFO FIFO cost 18,408 17,702 Less LIFO reserve (5,698) (6,129) - ------------------------------------------------------------------------------- LIFO cost 12,710 11,573 Valued at FIFO 12,638 12,505 - ------------------------------------------------------------------------------- 25,348 24,078 - ------------------------------------------------------------------------------- $ 53,705 $ 53,674 - ------------------------------------------------------------------------------- For the years ended December 31, 1997, 1996 and 1995, 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, 1997 and 1996 were as follows: - -------------------------------------------------------------------------------- (In thousands) 1997 1996 - -------------------------------------------------------------------------------- Land and mineral deposits $ 11,153 $ 9,926 Buildings and realty improvements 51,285 47,199 Machinery and equipment 145,288 144,154 Construction in progress 5,970 9,075 - -------------------------------------------------------------------------------- 213,696 210,354 Less accumulated depreciation and depletion 106,074 102,960 - -------------------------------------------------------------------------------- $107,622 $107,394 - -------------------------------------------------------------------------------- F-11 Closed production facilities held for sale are included in other current assets at estimated net realizable value of $1.4 million as of December 31, 1997. Note 8: Short-Term Lines of Credit - ---------------------------------- Short-term lines of credit have been established with banks in the United Kingdom for 50,000 British pounds and Canada for Cdn$250,000, each of which was unused at December 31, 1997 and 1996. Note 9: Long-Term Debt - ---------------------- Long-term debt as of December 31, 1997 and 1996 was as follows: - -------------------------------------------------------------------------------- (In thousands) 1997 1996 - -------------------------------------------------------------------------------- Unsecured notes payable $ 20,525 $ 23,048 Industrial development revenue bonds 10,811 11,848 U.S. line of credit 4,500 9,000 Capitalized lease obligations 914 381 - -------------------------------------------------------------------------------- 36,750 44,277 Less current maturities 5,716 4,168 - -------------------------------------------------------------------------------- $ 31,034 $ 40,109 - -------------------------------------------------------------------------------- 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 1999 and 2006 and carry interest rates ranging from 6.7% to 10.9%. A significant portion of the industrial development revenue bonds require the payment of interest only until they mature in 2000 and thereafter. Interest rates range from 70% of prime to 8.6%. Prime was 8.5% at December 31, 1997. In 1997, the Company's U.S. long-term line of credit of $30.0 million was extended to May 2, 1999. 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 (5.84% at December 31, 1997) plus 2%. Approximately $4.9 million of standby letters of credit and $4.5 million of borrowings were outstanding against the line at December 31, 1997, leaving an available balance of approximately $20.6 million. F-12 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, unsecured notes payable and capital leases would not differ materially from carrying value at December 31, 1997. Aggregate maturities of long-term debt are approximately $9.8 million, $5.1 million, $5.1 million and $70,000 for 1999 through 2002, respectively. The net book value of property, plant and equipment pledged as security or collateral for outstanding long-term debt was $644,000 at December 31, 1997. Note 10: Income Taxes - --------------------- Income tax expense (benefit) attributable to earnings from continuing operations for the years ended December 31, 1997, 1996 and 1995 consists of the following: - -------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Current Federal $ 5,418 $ 3,642 $ 2,347 State 747 523 514 Foreign 111 78 539 Deferred (2,333) (1,847) (1,218) - -------------------------------------------------------------------------------- $ 3,943 $ 2,396 $ 2,182 - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- U.S. statutory rate 34.0% 34.0% 34.0% Reversal of provision for closed tax years - - (9.7) Excess tax depletion (4.0) (4.9) (4.0) State and local income taxes, net 3.0 2.4 2.1 Foreign tax rate differential .5 .5 .9 Other, net (.7) (1.1) (3.4) - -------------------------------------------------------------------------------- Effective tax rate 32.8% 30.9% 19.9% - -------------------------------------------------------------------------------- F-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, 1997 and 1996 consist of the following: - -------------------------------------------------------------------------------- (In thousands) 1997 1996 - -------------------------------------------------------------------------------- Deferred tax assets Accrued liabilities, differences in expense recognition $10,901 $10,983 Inventories, overhead capitalization differences 220 169 Capital loss carryforward - 301 Net operating loss carryforwards 1,642 855 - -------------------------------------------------------------------------------- 12,763 12,308 Less valuation allowance - - - -------------------------------------------------------------------------------- 12,763 12,308 - -------------------------------------------------------------------------------- Deferred tax liabilities Fixed assets, principally depreciation method differences 13,755 14,679 Prepaid pension costs 600 1,054 State, local and other taxes 819 1,069 Inventories, differences in LIFO methods 2,193 2,236 Asset valuation differences 21 124 - -------------------------------------------------------------------------------- 17,388 19,162 - -------------------------------------------------------------------------------- Net deferred tax liability $ 4,625 $ 6,854 - -------------------------------------------------------------------------------- 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 through 1997. 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 1997 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, 1997, 1996 and 1995, the undistributed earnings of these subsidiaries were approximately $4.2 million, $4.9 million and $4.4 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. F-14 The Company's stock option activity for the years ended December 31, 1997, 1996 and 1995 is summarized as follows: - -------------------------------------------------------------------------------------------------------------------
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price - ------------------------------------------------------------------------------------------------------------------- 1987, 1989 and 1996 Plans Outstanding - January 1 403,500 $8.01 373,500 $7.90 394,500 $7.86 Granted 237,500 8.75 30,000 9.32 - - Exercised (45,500) 7.19 - - (21,000) 7.03 Expired/Lapsed (7,850) 8.75 - - - - - ------------------------------------------------------------------------------------------------------------------- Outstanding - December 31 587,650 $8.36 403,500 $8.01 373,500 $7.90 =================================================================================================================== Exercisable at December 31 587,650 $8.36 403,500 $8.01 373,500 $7.90 =================================================================================================================== 1993 Plan Outstanding - January 1 382,500 $6.17 382,500 $6.17 412,500 $6.17 Granted - - - - - - Exercised (48,000) 6.17 - - (18,000) 6.17 Expired/Lapsed - - - - (12,000) 6.17 - ------------------------------------------------------------------------------------------------------------------- Outstanding - December 31 334,500 $6.17 382,500 $6.17 382,500 $6.17 =================================================================================================================== Exercisable at December 31 334,500 $6.17 300,000 $6.17 300,000 $6.17 ===================================================================================================================
Exercise prices and weighted average remaining contractual lives of options outstanding at December 31, 1997 are summarized as follows: - ---------------------------------------------------------------------- Exercise Remaining Options Price Life - ---------------------------------------------------------------------- 334,500 $6.17 5 years 153,000 6.67 3 years 229,150 8.75 9 years 175,500 9.17 2 years 30,000 9.32 8 years - ---------------------------------------------------------------------- Stock options granted under the 1987, 1989 and 1996 plans expire ten years after grant date. All options outstanding at December 31, 1997 are exercisable. There were a total of 259,258 remaining shares available for grant under all plans as of December 31, 1997. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock option plans. Had compensation cost for these plans been determined based upon the fair value at grant date, consistent with the methodology prescribed in Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123), the Company's net income and earnings per share for the year ended December 31, 1997 would have been reduced by $340,000, or $.04 per share, diluted, to $7,728,000, or $.94 per share, diluted. The impact on the year ended December F-15 31, 1996 would not have been material to the consolidated results, and there were no stock options granted during 1995. Using the Black-Scholes option valuation model, the estimated fair values of options granted during 1997 and 1996 were $2.29 and $2.93, respectively. The Black-Scholes model was developed for use in estimating the fair value of traded options which have no vesting or other restrictions. In addition, such models require the use of subjective assumptions. In management's opinion, such valuation models do not necessarily provide a reliable single measure of the fair value of its employee stock options. Principal assumptions used in applying the Black-Scholes model were as follows: - -------------------------------------------------------------------------------- 1997 1996 - -------------------------------------------------------------------------------- Risk free interest rate 6.06% 5.50% Expected life, in years 5 5 Expected volatility 22.3% 30.2% Expected dividend yield 1.8% 1.5% - -------------------------------------------------------------------------------- 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 $2.5 million and $3.7 million to these plans during 1997 and 1996, respectively. The plans' assets consist primarily of listed common stocks and debt securities. Net pension expense for the years ended December 31, 1997, 1996 and 1995 included the following components: - -------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost of benefits earned during period $ 1,868 $ 1,885 $ 1,676 Interest cost on projected benefit obligations 9,244 9,077 8,703 Actual gain on assets (30,232) (11,712) (20,964) Net amortization and deferral 20,783 2,603 12,454 - -------------------------------------------------------------------------------- Net pension expense 1,663 1,853 1,869 Multiemployer pension expense 231 183 170 - -------------------------------------------------------------------------------- Total pension expense $ 1,894 $ 2,036 $ 2,039 - -------------------------------------------------------------------------------- F-16 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, 1997 and 1996. Plan asset values and benefit obligations are measured as of September 30, 1997 and 1996: - -------------------------------------------------------------------------------------------------------------------------
1997 1996 - ------------------------------------------------------------------------------------------------------------------------- Assets Accum. Assets Accum. Exceed Benefits Exceed Benefits Accum. Exceed Accum, Exceed (In thousands) Benefits Assets Benefits Assets - ------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligations, substantially all of which are vested $(94,643) $(27,434) $(90,474) $(27,414) Effect of projected future compensation levels (5,518) (18) (6,027) (55) - ------------------------------------------------------------------------------------------------------------------------- Projected benefit obligations (100,161) (27,452) (96,501) (27,469) Plans' assets at fair value 123,682 20,744 104,405 17,218 - ------------------------------------------------------------------------------------------------------------------------- Excess (deficiency) 23,521 (6,708) 7,904 (10,251) Unrecognized net asset at transition (2,466) (4) (3,031) (21) Unrecognized net (gain) loss (18,443) (1,337) (1,889) 630 Unrecognized prior service cost 3,917 798 4,307 945 Minimum pension liability adjustment - (1,207) - (1,639) - ------------------------------------------------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 6,529 $ (8,458) $ 7,291 $(10,336) - -------------------------------------------------------------------------------------------------------------------------
In accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the Company recorded an additional minimum pension liability of approximately $1.2 million at December 31, 1997 and approximately $1.6 million at December 31, 1996. 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, 1997, an intangible asset of approximately $388,000 was recorded, along with a reduction in stockholders' equity of $509,000, net of related tax benefits. At December 31, 1996, an intangible asset of approximately $454,000 was recorded, along with a reduction of stockholders' equity of $737,000, net of related tax benefits. U.S. Pensions - ------------- The expected long-term rate of return on plan assets was 8.75% for 1997, 1996 and 1995. A weighted average discount rate of 7.5%, 7.75%, and 7.5% was used for 1997, 1996 and 1995, respectively. A rate of increase in future compensation levels of 5.0% for 1997, 1996 and 1995 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 1997, 1996 and 1995. A weighted average discount rate of 7.25% was used for 1997 and 8.0% was used for 1996 and 1995. A 5.0% rate of increase in future compensation levels was used for 1997, 1996 and 1995. F-17 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, 1997 and 1996. The accumulated postretirement benefit obligation was measured as of September 30, 1997 and 1996. - -------------------------------------------------------------------------------- (In thousands) 1997 1996 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees, dependents and beneficiaries $11,934 $11,405 Fully eligible active plan participants 2,866 2,669 Other active plan participants 3,843 3,486 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation 18,643 17,560 Unrecognized prior service cost (173) (202) Unrecognized net loss from past experience different from that assumed (1,454) (1,343) - -------------------------------------------------------------------------------- Accrued postretirement benefits other than pensions $17,016 $16,015 - -------------------------------------------------------------------------------- The Company's postretirement health care plan and life insurance plan are unfunded; the accumulated postretirement benefit obligation at December 31, 1997 and 1996 is $17.6 million and $16.5 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, 1997, 1996 and 1995 included the following components: - -------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Service cost of benefits earned during the period $ 628 $ 617 $ 344 Interest cost on accumulated postretirement benefit obligation 1,323 1,313 1,106 Net amortization 29 108 - - -------------------------------------------------------------------------------- Net postretirement benefits cost other than pensions $ 1,980 $ 2,038 $ 1,450 - -------------------------------------------------------------------------------- For measurement purposes, a 9% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1997; 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, 1997 by 7.0%, or $1.2 million, and would increase the service and interest costs of net postretirement health care benefits for the year then ended by 8.8%, or $164,000. F-18 The discount rate used in determining the accumulated postretirement benefit obligation was 7.5%, 7.75% and 7.5% at December 31, 1997, 1996 and 1995, respectively. Short-term and long-term disability benefits provided by the Company to salaried employees may, under certain circumstances, continue to be provided to those employees subsequent to their employment by the Company and prior to retirement. The annual incremental expense for these postemployment benefits for 1997, 1996 and 1995 was not material and the projected benefit obligation was $636,000 and $568,000 as of December 31, 1997 and 1996, 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 $220,000, $204,000 and $214,000 in 1997, 1996 and 1995, 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. Amounts charged against income were not material to the consolidated results in either 1997 or 1996. 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 F-19 A. P. Green. A. P. Green makes the necessary contributions to the ESOT to allow the interest and principal payments to be made. - -------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Interest payments on ESOT debt $ 659 $ 713 $ 762 Principal payments 618 564 515 Less Dividends on ESOT shares used for debt service (130) (120) (114) Forfeitures (22) (21) (104) Interest income (1) (1) (3) - -------------------------------------------------------------------------------- Contributions to ESOT 1,124 1,135 1,056 Administrative expenses 143 109 147 - -------------------------------------------------------------------------------- Employee savings plan cost $1,267 $1,244 $1,203 - -------------------------------------------------------------------------------- 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 $650,000, $700,000 and $750,000 in 1997, 1996 and 1995, respectively. Note 16: Preferred and Common Stock - ----------------------------------- The Company's preferred stock can be issued in one or more series without stockholder approval. Prior to January 6, 1998, Preferred Share Purchase Rights (Rights) were attached to each outstanding share of common stock, which, when exercisable, entitled each 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, at a price of $45 per 1/10 of a preferred share, subject to adjustment. On January 6, 1998, such Rights expired and were replaced on January 7, 1998 by new Preferred Share Purchase Rights which, when exercisable, entitle each registered holder to purchase from A. P. Green 1/100 of a share of a junior participating preferred stock, Series B, $1 par value per share, at a price of $45 per 1/100 of a preferred share, subject to adjustment. The new Rights become exercisable 10 days following a public announcement that a party acquired, or obtained the right to acquire, beneficial ownership representing 20% or more of A. P. Green's outstanding common shares. If A. P. Green is involved in a merger or business combination after the Rights become exercisable in which A. P. Green is not the surviving entity, A. P. Green's common stock is changed or exchanged or 50% or more of A. P. Green's assets or earning power is sold, the Rights will entitle the holder to buy a number of shares of common stock of the acquiring entity or A. P. Green, as the case may be, having a fair market value at that time of twice the exercise price of the Right. The new Rights were issued pursuant to a Rights Agreement, dated as of November 13, 1997, between A. P. Green and Harris Trust & Savings Bank, as Rights Agent. The Rights Agreement was amended on March 5, 1998 to provide that the Rights would not become exercisable upon the execution of the Agreement and Plan of Merger, dated as of March 3, 1998, by and among A. P. Green, Global Industrial Technologies, Inc. (Global) and BGN Acquisition Corp. (BGN), and that the Rights would expire upon the acceptance F-20 for payment by Global or BGN of a majority of A. P. Green's common shares pursuant to the tender offer provided for in the Agreement and Plan of Merger. See Note 21 for further discussion of the Agreement and Plan of Merger. Note 17: Supplemental Financial Information - ------------------------------------------- Cash payments and selected non-cash investing and financing activities during 1997, 1996 and 1995 were as follows: - -------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Income taxes paid $6,597 $3,763 4,093 Interest paid 3,279 3,206 3,191 Capitalized lease obligations incurred 704 - - - -------------------------------------------------------------------------------- Rental payments were approximately $1.2 million in 1997 and $1.0 million in 1996 and 1995. Minimum future payments under noncancellable operating leases are approximately $1.2 million in 1998 and decline progressively to $0 in 2004. 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 $2.8 million, $3.9 million and $2.9 million during 1997, 1996 and 1995, respectively. Research and development expenditures in 1997 and 1996 included approximately $225,000 and $800,000, respectively, in 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, 1997 that seek to recover compensatory, and in many cases, punitive damages for personal injury allegedly resulting from exposure to asbestos-containing products. A. P. Green is a member of the Center, 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 is based upon, among other things, the number and type of claims brought against it. Claims activity for the Company for each of the years ended December 31, 1997, 1996 and 1995 was as follows: F-21 - -------------------------------------------------------------------------------- 1997 1996 1995 - -------------------------------------------------------------------------------- Claims pending at January 1 58,885 48,367 50,920 Claims filed 24,024 29,702 12,560 Cases settled, dismissed or otherwise resolved (10,709) (19,184) (15,113) - -------------------------------------------------------------------------------- Claims pending at December 31 72,200 58,885 48,367 - -------------------------------------------------------------------------------- Average settlement amount per claim (1) $ 1,611 $ 1,582 $ 1,778 - -------------------------------------------------------------------------------- (1) All settlements are covered by the Company's insurance program. On January 15, 1993, the Members were named as defendants in a class action lawsuit brought on behalf of all persons who have been occupationally exposed to asbestos-containing products of the Members and who have unasserted claims for such exposure (the Class) pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania. At the same time, a settlement (the Settlement) between the Members and the Class was filed with the Court. On June 25, 1997, after a favorable ruling in the Federal District Court for the Eastern District of Pennsylvania and a reversal of that ruling by the Third Circuit Court of Appeals, the United States Supreme Court upheld the ruling of the Third Circuit. The result of such ruling is that the class action lawsuit and the Settlement are of no effect. As the Settlement established a numerical cap on the number of claims that could be processed each year during the ten years of the Settlement and because the Settlement provided for a range of payments for different disease categories, it was possible to estimate the aggregate amount of liability for the Company through 2004 and related insurance recoveries. The amounts reported for projected asbestos claims and projected insurance recovery on asbestos claims in the consolidated statements of financial position as of December 31, 1996 were determined based upon the Settlement. Without the Settlement the Company can only estimate the liability and related insurance recoveries associated with known claims. As such, the amounts reported for projected asbestos claims and projected insurance recovery on asbestos claims as of December 31, 1997 reflect only those claims known to have been filed as of that date. In order to arrive at these projected amounts, the Company also reviewed its insurance policies and historical settlement amounts. This resulted in an increase in both the liability and asset of $40.9 million during the fourth quarter of 1997 following a reduction of $19.4 million in the third quarter of 1997. There was no effect on the consolidated earnings of the Company. These balances are expected to fluctuate from quarter to quarter as claims are filed and settled. The volume of claims settled by the Center on a quarterly basis can vary considerably. Management anticipates that the Company's insurance carriers will make all required payments for these claims. While management understands the inherent uncertainty in litigation of this type and the possibility that past costs may not be indicative of future costs, management does not believe that these claims and cases will have any additional material adverse effect on the Company's consolidated financial position or results of operations. F-22 In December 1996, the Company and a former subsidiary, The E. J. Bartells Company, reached a comprehensive settlement agreement with all insurance carriers except one. Under the terms of this settlement agreement, such carriers have agreed to pay (subject to applicable policy limits) on behalf of the insureds, liabilities arising out of asbestos personal injury claims. The Company is pursuing its claim for coverage against the non-settling carrier. In addition to asbestos-related personal injury claims asserted against A. P. Green, a number of claims have been asserted against Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a subsidiary of the Company. These claims have been and are currently being handled by such subsidiary's insurance carriers. Except for deductible amounts or retentions provided for under insurance policies, no claim for reimbursement of defense or indemnity payments has been made against the Company or such subsidiary by any such carriers. Asbestos-related Claims - Property Damage - ----------------------------------------- A. P. Green is also among numerous defendants in a property damage class action suit pending in South Carolina. A. P. Green previously has been dismissed from a number of property damage cases and believes that it should be dismissed from the South Carolina case based on the end uses of its products. A similar suit pending in the State of Oregon involves a former wholly owned subsidiary of the Company and is being defended by the Company's insurance carrier. Based upon the Company's history in these asbestos-related property damage claims, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial position or results of operations. Environmental - ------------- The EPA or other private parties have named the Company or one of its subsidiaries as a potentially responsible party in connection with two superfund sites in the United States. The Company is a de minimis party with respect to one of the sites and expects to arrive at a settlement agreement and consent decree with respect to it for an amount which is not expected to be material. With respect to the second, involving a wholly owned subsidiary of the Company, there does not appear to be any evidence of delivery to the site of hazardous material by the subsidiary. An estimate has been made of the costs to be incurred in these matters and the Company has recorded a reserve respecting those costs. Tender Offer - ------------ On March 6, 1998, a lawsuit was filed in the Court of Chancery in the State of Delaware seeking to enjoin the tender offer by Global Industrial Technologies, Inc. and BGN Acquisition Corp. to purchase all outstanding shares of the Company's common stock. See Note 21 for further discussion of the tender offer and lawsuit. F-23 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. F-24 Industry Segments - -------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------- Net Sales - -------------------------------------------------------------------------------- Refractory products and services $227,874 $218,400 $212,203 Industrial lime 50,410 40,168 37,727 Intersegment eliminations (377) (107) (215) - -------------------------------------------------------------------------------- $277,907 $258,461 $249,715 - -------------------------------------------------------------------------------- Operating Profit - -------------------------------------------------------------------------------- Refractory products and services $ 13,761 $ 7,972 $ 12,565 Industrial lime 8,503 8,287 6,911 - -------------------------------------------------------------------------------- 22,264 16,259 19,476 - -------------------------------------------------------------------------------- Other charges to income General corporate expenses, net 8,789 7,569 7,434 Interest expense 3,297 3,112 3,190 Interest income (958) (1,255) (1,513) - -------------------------------------------------------------------------------- 11,128 9,426 9,111 - -------------------------------------------------------------------------------- Earnings before income taxes $ 11,136 $ 6,833 $ 10,365 - -------------------------------------------------------------------------------- Identifiable Assets - -------------------------------------------------------------------------------- Refractory products and services $289,889 $284,180 $313,165 Industrial lime 60,563 58,514 47,698 Corporate 7,262 12,435 12,705 - -------------------------------------------------------------------------------- $357,714 $355,129 $373,568 - -------------------------------------------------------------------------------- Depreciation, Depletion & Amortization - -------------------------------------------------------------------------------- Refractory products and services $ 7,072 $ 6,811 $ 6,375 Industrial lime 4,368 2,813 2,751 Corporate 699 958 1,048 - -------------------------------------------------------------------------------- $ 12,139 $ 10,582 $ 10,174 - -------------------------------------------------------------------------------- Capital Expenditures - -------------------------------------------------------------------------------- Refractory products and services $ 6,229 $ 9,675 $ 7,597 Industrial lime 4,416 2,470 2,137 Corporate 1,026 747 422 - -------------------------------------------------------------------------------- $ 11,671 $ 12,892 $ 10,156 - -------------------------------------------------------------------------------- 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. F-25 Geographic Segments - ------------------------------------------------------------------------------- (In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------- Net Sales - ------------------------------------------------------------------------------- United States $242,166 $226,290 $219,571 Canada 25,151 23,759 24,045 United Kingdom 8,885 9,978 9,745 Mexico 9,914 8,123 3,242 Far East 1,004 - - Intersegment transfers (9,213) (9,689) (6,888) - ------------------------------------------------------------------------------- $277,907 $258,461 $249,715 - ------------------------------------------------------------------------------- Earnings (Loss) Before Income Taxes - ------------------------------------------------------------------------------- United States $ 11,596 $ 5,883 $ 8,352 Canada (84) (324) 999 United Kingdom (200) 607 673 Mexico 1,048 992 341 Far East (1,224) (325) - - ------------------------------------------------------------------------------- $ 11,136 $ 6,833 $ 10,365 - ------------------------------------------------------------------------------- Identifiable Assets - ------------------------------------------------------------------------------- United States $315,568 $306,945 $330,285 Canada 16,816 17,143 18,000 United Kingdom 4,266 5,234 5,020 Mexico 6,784 6,447 5,451 Far East 7,018 6,925 2,107 Corporate 7,262 12,435 12,705 - ------------------------------------------------------------------------------- $357,714 $355,129 $373,568 - ------------------------------------------------------------------------------- F-26 Note 20: Quarterly Financial Highlights (Unaudited) - --------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, First Second Third Fourth except per share data) Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------------------------- 1997 Net sales $64,816 $71,853 $70,696 $70,542 Gross profit 10,802 13,614 12,789 12,851 Net earnings 643 2,511 2,009 2,905 Net earnings per common share -basic .08 .31 .25 .36 -diluted .08 .31 .24 .35 - ------------------------------------------------------------------------------------------------------------------- 1996 Net sales $64,234 $69,538 $61,948 $62,741 Gross profit 11,492 13,625 9,092 9,899 Net earnings 1,604 2,571 162 336 Net earnings per common share -basic .20 .32 .02 .04 -diluted .20 .31 .02 .04 - -------------------------------------------------------------------------------------------------------------------
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 - -------------------------- On March 3, 1998, the Company entered into an Agreement and Plan of Merger with Global Industrial Technologies, Inc. and BGN Acquisition Corp. The Agreement and Plan of Merger calls for, among other things, Global to purchase for cash all outstanding shares of the Company at $22.00 per share, or approximately $195.0 million, plus the assumption of $23.0 million of net debt. The transaction, which will be effected by means of a tender offer, has been approved by the Boards of Directors of both companies and, subject to regulatory approval, is expected to be completed during the second quarter of 1998. Global is a manufacturer of technologically advanced industrial products that support high-growth markets around the world. Its subsidiary, Harbison-Walker Refractories Company, operates 15 refractory plants in five countries, including the United States, Canada, Mexico, Chile and Germany. On March 6, 1998, a lawsuit was filed in the Court of Chancery in the State of Delaware seeking to enjoin the tender offer and alleging, among other things, that the stockholders of the Company are not receiving fair and adequate consideration for their shares. The Company has entered into an agreement in principle to settle the lawsuit whereby, subject to the negotiation and execution of definitive agreements, including mutually acceptable releases, (i) the Company mailed to the stockholders of the Company on March 24, 1998 a supplemental disclosure statement on Schedule 14D-9 containing certain financial information and projections and (ii) Mack G. Nichols, James M. Stolze, William F. Morrison, Daniel Toll, Paul F. Hummer II, P. Jack O'Bryan, the Company, Global F-27 and BGN Acquisition Corp. will reimburse the plaintiff in the lawsuit for attorneys' fees and expenses, as awarded by the Court, in an aggregate amount of $180,000. The lawsuit and/or settlement thereof is not expected to have any impact on the transactions contemplated by the Agreement and Plan of Merger. F-28 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, 1997 and 1996, 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, 1997. In connection with our audits of the aforementioned financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. 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, 1997 and 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1997, in conformity with generally accepted accounting principles. Also in our opinion, the related 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 9, 1998 F-29 SCHEDULE II A. P. GREEN INDUSTRIES, INC. SUPPLEMENTAL INFORMATION VALUATION AND QUALIFYING ACCOUNTS An analysis of doubtful accounts for 1995, 1996 and 1997 is as follows: Doubtful Accounts ----------------- (Dollars In Thousands) 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 Additions in 1997 - Current year provision 656 Less - Receivables written off, net (909) ------ Balance, December 31, 1997 $1,448 ====== F-30 EX-10 2 Exhibit 10(b) to Form 10-K Amendment to the A. P. Green Industries, Inc. 1987 Long-Term Incentive Plan The A. P. Green Industries, Inc. 1987 Long-Term Incentive Plan (the "Plan") is hereby amended as follows: 1. Section Six of the Plan is hereby amended by deleting the second sentence thereof in its entirety and inserting in lieu thereof the following: Said purchase price may be paid (i) by check, or, in the discretion of the Committee, either (ii) by the delivery of shares of Common Stock of the Corporation then owned by the participant or (iii) by directing the Company to withhold from the number of shares of Common Stock otherwise issuable upon exercise of the option that whole number of shares of Common Stock having an aggregate fair market value on the date of exercise at least equal to the exercise price for all of the shares of Common Stock subject to such exercise, or (iv) by a combination of any of the foregoing, in the manner provided in the option agreement. This amendment was adopted by the Compensation and Organization Committee of the Board of Directors at its meeting held on August 13, 1997. EX-10 3 Exhibit 10(c) to Form 10-K Amendment to the 1989 Performance Plan of A. P. Green Industries, Inc. The 1989 Performance Plan of A. P. Green Industries, Inc. (The "Plan) is hereby amended as follows: 1. Section Six of the Plan is hereby amended by deleting the second sentence thereof in its entirety and inserting in lieu thereof the following: Said purchase price may be paid (i) by check, or, in the discretion of the Committee, either (ii) by the delivery of shares of Common Stock of the Corporation then owned by the participant or (iii) by directing the Company to withhold from the number of shares of Common Stock otherwise issuable upon exercise of the option that whole number of shares of Common Stock having an aggregate fair market value on the date of exercise at least equal to the exercise price for all of the shares of Common Stock subject to such exercise, or (iv) by a combination of any of the foregoing, in the manner provided in the option agreement. 2. Section Seven of the Plan is hereby amended by deleting the second sentence thereof in its entirety and inserting in lieu thereof the following: Said purchase price may be paid (i) by check, or, in the discretion of the Committee, either (ii) by the delivery of shares of Common Stock of the Corporation then owned by the participant or (iii) by directing the Company to withhold from the number of shares of Common Stock otherwise issuable upon exercise of the option that whole number of shares of Common Stock having an aggregate fair market value on the date of exercise at least equal to the exercise price for all of the shares of Common Stock subject to such exercise, or (iv) by a combination of any of the foregoing, in the manner provided in the option agreement. This amendment was adopted by the Compensation and Organization Committee of the Board of Directors at its meeting held on August 13, 1997. EX-10 4 Exhibit 10(o) to Form 10-K 1997 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS ARTICLE 1 - PURPOSE OF PLAN 1.1 Purpose of Plan A. P. Green Industries, Inc. (the "Corporation") has adopted the 1997 Stock Plan for Non-Employee Directors (the "Plan") to provide for payment in shares of the Corporation's Common Stock, par value $1.00 per share ("Stock"), to members of the Board of Directors of the Corporation who are not employees of the Corporation or any of its affiliates or subsidiaries ("Non-Employee Directors"). The Plan also provides certain deferred payments of Stock for Non-Employee Directors that are intended as a replacement for the prior retirement program maintained by the Corporation for Non-Employee Directors. The Plan is intended to provide Non-Employee Directors with a larger equity interest in the Corporation in order to attract and retain well-qualified individuals to serve as Non-Employee Directors and to enhance the identity of interest between Non-Employee Directors and the shareholders of the Corporation. ARTICLE II - ELIGIBILITY AND PARTICIPATION 2.1 Eligibility and Participation Only Non-Employee Directors shall be eligible to participate in the Plan, and participation in the Plan is mandatory for all Non-Employee Directors. ARTICLE III - STOCK AWARDS 3.1 Stock Awards On each June 1 through and including June 1, 2007 (each such date hereinafter a "Grant Date"), in consideration for services previously rendered as a Non-Employee Director of the Corporation, the Corporation shall issue to each Non-Employee Director who has served as such for at least six (6) months immediately preceding such Grant Date, one thousand (1,000) shares of Stock (a "Stock Award"). ARTICLE IV - DEFERRED STOCK UNITS 4.1 Deferred Stock Units for Non-Employee Directors on the Effective Date The following Non-Employee Directors shall have credited to their Accounts (defined in section 4.3) as of May 1, 1997, a number of Stock Units (defined in section 4.3) specified as follows: W. Morrison 3,679; P. J. O'Bryan 2,133. Further, director D. Toll shall have credited to his Account 11,658 Stock Units provided that he makes an irrevocable election, on or before October 1, 1998, to waive participation in, and any benefits under any prior retirement program maintained by the Corporation for Non-Employee Directors. If director Toll does not make such an election, he will not be entitled to have his Account credited with Stock Units pursuant to this section 4.1 (but will be entitled to receive additional Stock Units pursuant to section 4.2) and will continue to be entitled to benefits under the prior retirement program to the extent provided under the terms of that prior retirement program. 4.2 Deferred Stock Units for Non-Employee Directors After the Effective Date Commencing as of June 1, 1997 and each succeeding June 1 thereafter, each Non-Employee Director who is serving as such on that date or anniversary shall have credited to his Account a number of Stock Units equal to $5,000 divided by the Fair Market Value of Stock on the applicable June 1. For purposes of this Plan, the "Market Value" of Stock on any business day shall be the average of the high and low sales prices quoted on the New York Stock Exchange Composite Listing on the day in question, or if there was no quotation on such date, on the next preceding business day on which there were such quotations. To the extent that the formula described in this Section 4.2 does not result in a whole number of Stock Units, the result shall be rounded upwards to the next whole number. 4.3 Crediting Stock Units to Accounts Amounts credited pursuant to Section 4.1 and section 4.2 shall be credited as of the date of the deferral to a bookkeeping reserve account maintained by the Corporation ("Account") in units which are equivalent in value to shares of Stock ("Stock Units"). 4.4 Vesting of Stock Units Stock Units credited to a Non-Employee Director's Account pursuant to this Article IV shall be fully vested at all times. 4.5 Payment of Stock Units Stock Units credited to a Non-Employee Director's Account pursuant to this Article IV shall be payable in shares of Stock commencing within a reasonable period of time not to exceed 90 days following the later of (I) termination of the Non-Employee Director's service on the Board or (ii) the attainment by the Non-Employee Director (or former Non-Employee Director of age 65). The form of payment shall be either a lump sum or 10 approximately equal annual installments determined as one tenth of the number of Stock Units in the first year, one ninth in the second year and so on. To the extent that the formula described in this Section 4.5 for installment payments does not result in a whole number of shares of Stock being distributed, the result shall be rounded upwards to next whole number. The form of payment shall be elected by the Non-Employee Director in a manner specified by the company and may be subsequently modified provided that the new election is received at least 12 months before the payments are scheduled to commence. ARTICLE V - DIVIDEND EQUIVALENT PAYMENTS 5.1 Dividend Equivalent Payment As of each dividend payment date with respect to Stock, each Non-Employee Director shall receive credit for additional Stock Units equal to the product of (i) the per-share cash dividend payable with respect to each share of Stock on such date, and (ii) the total number of Stock Units credited to his Account as of the record date corresponding to such dividend payment date, (iii) divided by the Fair Market Value of the Stock on the dividend payment date. To the extent that the formula described in this Section 5.1 does not result in a whole number of Stock Units, the result shall be rounded upwards to next whole number. ARTICLE VI - DELIVERY OF STOCK CERTIFICATES 6.1 Stock Unit Payments The Corporation shall issue and deliver to the Non-Employee Director a stock certificate (or the bookkeeping equivalent of an actual certificate, if elected by the Director) for payment of Stock Units as soon as practicable following the date on which Stock Units are payable. ARTICLE VII - STOCK 7.1 Stock The Aggregate number of shares of Stock that may be issued under the Plan shall not exceed two hundred thousand (200,000) shares, unless such number of shares is adjusted as provided in Article VIII of this Plan. ARTICLE VIII - ADJUSTMENT UPON CHANGES IN CAPITALIZATION 8.1 Adjustment Upon Changes in Capitalization In the event of a stock dividend, stock split or combination, reclassification, recapitalization or other capital adjustment of shares of Stock, the number of shares of Stock that may be issued pursuant to Stock Awards and Stock units and the number of Stock Units credited to Accounts shall be appropriately adjusted by the Board of Directors of the Corporation, whose determination shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan on account of any adjustment specified herein. The grant of Stock Awards or Stock Units pursuant to this Plan shall not affect in any way the right or power of the Corporation to issue additional Stock or other securities, make adjustments, reclassifications, reorganizations or other changes in its corporate, capital or business structure, to participate in a merger, consolidation or share exchange or to transfer its assets or dissolve or liquidate. ARTICLE IX - TERMINATION OF AMENDMENT OF PLAN 9.1 In General The Board of Directors of the Corporation may, at any time, terminate, suspend or amend this Plan. The Board of Directors shall have the authority to interpret the Plan and adopt such supplemental rules as it deems appropriate. Any interpretations rendered by the Board shall be final, binding and conclusive. 9.2 Written Consents No amendment may adversely affect the right of any Non-Employee director to receive any Stock previously issued as a Stock Award or to receive any stock or Dividend Equivalent credits pursuant to an outstanding Stock unit without the written consent of such Non-Employee Director. 9.3 Termination of Stock Award Unless the Plan is sooner terminated, no Stock Award or Stock Unit shall be granted after June 1, 2007. ARTICLE X - GOVERNMENT REGULATIONS 10.1 Government Regulations a) The obligations of the Corporation to issue any Stock granted under this Plan shall be subject to all applicable laws, rules and regulations and the obtaining of all such approvals by governmental agencies as may be deemed necessary or appropriate by the Board of Directors of the Corporation. b) Except as otherwise provided in Article IX of this Plan, the Board of Directors of the Corporation may make such changes as may be necessary or appropriate to comply with the rules and regulations of any governmental authority. ARTICLE XI - MISCELLANEOUS 11.1 Unfunded Plan The Plan shall be unfunded with respect to the Corporation's obligation to pay any amount due pursuant to Stock Units and a Non-Employee Director's's rights to receive any payment of any Stock Unit shall be no greater than the rights of an unsecured general creditor of the Corporation. 11.2 Assignment; Encumbrances The right to receive a Stock Award or Stock Unit and right to receive payment with respect to a Stock Unit under this Plan are not assignable or transferable and shall not be subject to any encumbrances, liens, pledges or charges of the Non-Employee Director or his or her creditors. Any attempt to assign, transfer or hypothecate any Stock Award or Stock Unit or any right to receive a Stock Award or Stock Unit shall be void and of no force and effect whatsoever. 11.3 Designation of Beneficiaries A Non-Employee Director may designate a beneficiary or beneficiaries to receive any distributions under the Plan upon his or her death. Any payment due in this event shall be made as soon as practicable following the death of the Non-Employee Director in a lump sum in shares of Stock or in such other manner as the Board of Directors, in their absolute discretion, may permit. 11.4 Applicable Law The validity, interpretation and administration of this plan and any rules, regulations, determinations or decisions made hereunder, and the rights of any and all persons having or claiming to have any interest herein or hereunder, shall be determined exclusively in accordance with the laws of the State of Missouri, without regard to the choice of laws provisions thereof. 11.5 Headings The headings in this Plan are for reference purposes only and shall not affect meaning or interpretation of this Plan. 11.6 Notices All notices or other communications made or given pursuant to this Plan shall be in writing and shall be sufficiently made or given if hand-delivered or mailed by certified mail, addressed to any Non-Employee Director at the address contained in the records of the corporation or to the Corporation at its principal office. ARTICLE XII - EFFECTIVE DATE OF PLAN 12.1 Effective Date of Plan This plan shall become effective on the date on which it is adopted by the Board of Directors of the Corporation, subject, however, to the approval by the affirmative vote of the holders of a majority of the votes cast by stockholders of the Corporation present, or represented and entitled to vote, at the next annual meeting of the stockholders of the Corporation duly held in accordance with the laws of the State of Delaware. EX-10 5 Exhibit 10(p) to Form 10-K [COMPANY LETTERHEAD] March 2, 1998 - -------------------- A.P. Green Industries, Inc. Green Boulevard Mexico, Missouri 65265 Dear _______: This letter will confirm our agreement with respect to the severance benefits to which you are entitled in the event that a Change In Control (as defined below) of A.P. Green Industries, Inc. (the "Company") occurs on or before June 1, 1998 and your employment by the Company and/or its successor(s) is thereafter terminated, as described further below. This letter contains the entire agreement between us in respect of the severance benefits to which you are entitled in the event that a Change In Control occurs on or before June 1, 1998 and supersedes all prior oral or written understandings, arrangements and agreements between us in connection with respect to such matters, specifically including the Company's Permanent Lay-Off Guidelines, dated April 1, 1997. In the event a Change In Control occurs on or before June 1, 1998 and your employment is terminated within one (1) year of the date that such Change In Control occurs, you will be entitled to your full base salary through the date of termination at the rate in effect at the time you receive notice of such termination, plus a cash payment for any vacation earned but not taken. In addition, unless your termination is due to your death, "Disability" (as defined below) or retirement, or is by the Company for "Cause" (as defined below), or is a result of your voluntary resignation for other than "Good Reason" (as defined below), in lieu of any further salary payments for periods subsequent to the date of termination, the Company shall pay to you as severance pay on or before the fifth (5th) day following the date of termination (i) a lump sum amount equal to the sum of: (a) an amount equal to ________ (__) time(s) your then ________ [annual base salary/weekly base salary, computed at 1/52 of your then annual salary], and (b) in the event that your employment is terminated by the Company with less than two (2) weeks notice, an amount equal to _____ (__) time(s) your then _______ [weekly/annual] base salary, subject to withholdings for any required tax or other deductions, and (ii) for a period of _______ (__) [year/month(s)] following the date of termination, you will be entitled to continue to participate in the Company's health insurance and medical plans on the same basis as you participated in such plans prior to the Change In Control, including with respect to the relative percentage of the cost of coverage payable by employees of the Company. For purposes of this letter, the following terms will have the following meanings: "Change In Control" shall mean: (i) a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"); provided, however, that a Change In Control shall be deemed to have occurred if (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company's then outstanding securities or (b) on or before June 1, 1998, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof; (ii) a consummation of (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation pursuant to which shares of the common stock of the Company would be converted into cash, securities or other property or (b) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company; or (iii) approval by the stockholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. "Disability" shall mean that you are unable to perform the services required of you hereunder on a full-time basis for a period of 180 days or more by reason of a physical and/or mental condition certified by a physician selected by the Company and reasonably acceptable to you or your legal representative. "Cause" shall mean termination upon (i) the willful and continued failure by you to substantially perform your duties (other than any such failure resulting from incapacity due to physical or mental illness) after a demand for substantial performance has been delivered by the Chief Executive Officer of the Company or his duly appointed representative, which specifically identifies the manner in which it is believed that you have not substantially performed your duties, or (ii) the willful engaging by you in misconduct which is materially injurious to the Company. "Good Reason" shall mean resignation subsequent to a Change In Control of the Company based upon: (i) a reduction by the Company in your base salary as in effect on the date hereof or as the same may be increased from time to time; (ii) a failure by the Company to continue any bonus plans in which you are presently entitled to participate as the same may be modified from time to time but substantially the same in form and substance as currently in effect or a failure by the Company to continue your participation in any bonus plans on at least the same basis as you presently participate in accordance with any such bonus plans; (iii) the Company's failure to pay your moving expenses in connection with the Company's request that you relocate; (iv) the failure by the Company to continue in effect any benefit or compensation plan, stock ownership plan, stock purchase plan, stock option plan, life insurance plan, health and accident plan or disability plan in which you were participating at the time of the Change In Control (or plans providing you with substantially similar benefits), the taking of any action by the Company which would adversely affect your participation in or deprive you of any material fringe benefit enjoyed by you at the time of such Change In Control, or the failure by the Company to provide you with the number of paid vacation days to which you were then entitled in accordance with the Company's normal vacation policy in effect on the date hereof. If the foregoing correctly sets forth the understandings between you and the Company with respect to any severance benefits to which you may be entitled upon a Change In Control of the Company prior to June 2, 1998, please evidence such by executing the enclosed duplicate copy of this letter in the place provided and return the same to me. Sincerely, A.P. GREEN INDUSTRIES, INC. By:___________________________________ Paul F. Hummer II President and Chief Executive Officer AGREED TO AND ACCEPTED: EX-21 6 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 7 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 statements (No. 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 9, 1998, relating to the consolidated statements of financial position of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, 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, 1997, and the related schedule, which report appears in the December 31, 1997 annual report on Form 10-K of A. P. Green Industries, Inc. /s/KPMG Peat Marwick St. Louis, Missouri March 27, 1998 EX-27 8 FINANCIAL DATA SCHEDULE FOR YEAR ENDED 12/31/97
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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT. 1,000 12-MOS DEC-31-1997 DEC-31-1997 3,701 0 50,209 1,448 53,705 115,365 213,696 106,074 357,714 46,797 36,750 0 0 9,015 115,520 357,714 277,907 277,907 227,851 227,851 0 0 3,297 11,136 3,943 8,068 0 0 0 8,068 1.00 .98
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