10-K405 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, 1994 Commission File No. 0-16452 A. P. GREEN INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Delaware 43-0899374 State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Green Boulevard, Mexico, Missouri 65265 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (314) 473-3626 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 ( 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. [ X ] State the aggregate market value of the voting stock held by nonaffiliates of the registrant: As of March 24, 1995, the market value of A. P. Green Industries, Inc. Common Stock held by non-affiliates was approximately $76,700,000. 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 24, 1995, 4,028,532 shares of Common Stock, $1.00 par value were outstanding. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference into the indicated part of this report: Document Part of Form 10-K 1994 Annual Report to Stockholders Parts I, II and IV Proxy Statement for 1995 Annual Meeting of Stockholders Part III - 1 - PART I ITEM 1. BUSINESS Introduction Unless the context otherwise requires, A. P. Green Industries, Inc. and its subsidiaries are referred to in this report collectively as "A. P. Green" or "the Company." In most instances, information about A. P. Green's primary businesses and reportable industry segments ("Refractory Products" and "Industrial Lime") is presented separately. (a) Development of Business General. A. P. Green Industries, Inc., a Delaware corporation, was incorporated as A. P. Green Refractories Co. in 1967. In that year, A. P. Green Refractories Co., a Missouri corporation, was acquired by United States Gypsum Company (now USG Corporation). The acquired company was a successor to a business purchased by Allen P. Green in approximately 1910. In 1987, A. P. Green Refractories Co. acquired all of the outstanding stock of APG Lime Corp., a Delaware corporation, and shortly after such acquisition changed its name to A. P. Green Industries, Inc. Effective February 3, 1988, through a distribution of all the outstanding capital stock of A. P. Green Industries, Inc. to the common stockholders of USG Corporation, A. P. Green Industries, Inc. became an independent publicly held company. In 1994, the Company acquired substantially all of the assets and assumed most of the liabilities of the refractory operations of General Refractories Company and its affiliated companies (collectively referred to as "General"). These operations include ten plants in the United States, a plant near Toronto, Canada and 49% equity interests in two Colombian refractory companies. 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 21 plants in the United States, Canada and the United Kingdom. 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 for various industrial applications, including steel and aluminum production, pulp and paper processing, soil stabilization for road construction and water and waste water treatment. It operates two plants, one in Kimballton, Virginia, and one in New Braunfels, Texas. It generally serves customers in the geographic region surrounding its plants. Refractory Operations. Refractories are heat and atmosphere resistant materials that provide the structure or linings for high temperature furnaces and other vessels. In addition to being resistant to thermal stress and other physical phenomena induced by heat, refractories are often required to provide resistance to physical wear, thermal cycling and abrasion, as well as to provide insulating properties. - 2 - A. P. Green offers a broad product line, including basic and clay/alumina refractories and ceramic fiber products. Basic refractories are predominantly composed of magnesite ores or silica, 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 and clay/alumina 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 five cast shops located in the United States, Canada and the United Kingdom (U.K.). Although the Company purchases some refractory and refractory-related products from other manufacturers, predominantly all of the refractory products sold by it are manufactured in its own plants. The Company and its wholly owned subsidiaries, A. P Green Refractories Inc. and Detrick Refractory Fibers, Inc., manufacture refractories in 15 facilities located in the United States. The Company's wholly owned subsidiary, A. P. Green Refractories (Canada) Ltd., organized in 1931, and its subsidiary, 1086215 Ontario, Inc., operates three 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. Significant investment has been made, particularly in the United States plants, to improve quality, production efficiency and environmental controls. The Company started to withdraw from the refractory installation business in the United States in the latter part of 1988 and completed this withdrawal by 1991. This action was taken in order to concentrate on refractory production and sales to end users. In 1992, the Company's Canadian refractory installation business was also sold. Sales by these subsequently discontinued refractory installation operations in the U.S. and Canada from 1988 through 1992 were approximately as follows (in millions of U.S. dollars). There were no U.S. or Canadian refractory installation sales after 1992. These sales include both material and labor. 1988 1989 1990 1991 1992 $41.8 $31.9 $13.7 $9.9 $7.8 Refractory installation services are still performed by Liptak Bradley Limited; there are no plans to discontinue this business in the U.K. (b) Financial Information About Industry Segments Information regarding industry segments of A. P. Green is set forth in Note 19 of Notes to Consolidated Financial Statements which is included in A. P. Green's 1994 Annual Report to Stockholders and incorporated herein by reference. - 3 - (c) Narrative Description of Business Refractory Operations. A. P. Green manufactures refractory products in its own plants located in the United States, Canada and the United Kingdom. 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 1994 domestic refractory sales to such users are as follows: Percent of 1994 End-User Industry Category U.S. Refractory Products Sales Iron and Steel 33% Nonferrous Metals 14% Cement, Lime, Gypsum, Paper, Ceramics, Glass and Clay 13% Chemicals and Petrochemicals 8% Metal Castings and Fabrication 7% Other 25% A. P. Green is a leader in the manufacture and distribution of refractory materials in North America and throughout the world. The product is 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 up front 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 self-leveling castables and low-rebound gunning products that reduce installation costs, as well as many products that have been optimized to serve specific operating conditions. Many of the new products are based on A. P. Green's proprietary Greenlite insulating aggregate which provides high strength in combination with low thermal conductivities. The Company's employee sales force is located throughout the United States and Canada and in the Caribbean, Australia, Singapore, Germany and the United Kingdom. Refractory products are shipped directly to customers from the Company's plants and from a large network of distribution centers and distribution representatives located in the United States, Canada and the United Kingdom. The United States sales force is divided into four geographic regions and two industry groups. The industry groups are part of specialized sales and marketing teams that target their efforts to specific industrial end-users such as steel and aluminum. This has allowed the Company to provide a higher degree of customer assistance on refractory usage and selection and has enabled sales and marketing personnel to develop additional expertise in those end-user - 4 - industries. This alignment has been beneficial to specific industry sales of the Company. Starting in 1992, steps were taken to more effectively coordinate Canadian and United States refractory sales. These steps were designed 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. This processing takes place at Company-owned facilities in New Braunfels, Texas and Kimballton, 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 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 1994 lime sales to such users is as follows: Percent of 1994 End-User Industry Category Lime Products Sales Pulp and Paper Processing 36% Steel and Aluminum 32% Road Construction 14% Water and Waste Water Treatment 14% Masonry 3% Chemical Processing 1% Recently developed lime products include Cal-Dol lime blend; high calcium quicklime noted for specialized sizing and chemical reactivity for use in production of precipitated calcium carbonate by paper producers; and several dolomitic building lime products. Due to their heavy, bulk nature, industrial lime products cannot be shipped economically over long distances. This has resulted in regional sales and distribution, generally within a 300-mile radius of each facility. A. P. Green's lime facilities are well located to take advantage of demand in the Southeastern U.S. and Texas and surrounding states. Product distribution involves direct shipments via rail and/or truck from the plants to the customers and customer pick-up at the plants. Raw Materials. A. P. Green maintains programs to attempt to ensure the availability of raw materials, including the purchase of materials for its short-term needs and the development of long-term sources of supply. Refractory clay and silica requirements are obtained from Company-owned deposits located in Alabama, Arkansas, Colorado, Georgia, Idaho, Missouri, Ohio, Texas and Utah. Proven deposits contained approximately 10,900,000 tons of clay and silica as of December 31, 1994. Average annual mining of clay and silica during the last five years was 260,000 tons, with 1994 at 220,000 tons. Proven reserves are estimated to be sufficient for approximately 35 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 50% 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 - 5 - from Guyana. Some alumina raw materials are available from only one or two suppliers in the United States. Current supplies are adequate to meet A. P. Green's planned production volume for the foreseeable future. Aluminum Company of America is a major supplier of alumina chemicals and supplies up to 90 percent of certain chemicals used by A. P. Green. A. P. Green's lime products require two major raw materials, high calcium limestone and dolomitic limestone. High calcium limestone is mined and quarried, respectively, from Company-owned deposits at the Kimballton, Virginia and New Braunfels, Texas plants. The deposit at New Braunfels contained about 51,600,000 tons of usable reserves as of December 31, 1994. The average annual usage of quarried limestone at New Braunfels during the five-year period ended December 31, 1994 was 770,000 tons, with 1994 usage at 906,000 tons. Proven reserves of limestone at this location are estimated to be sufficient for about 67 years of operations, based on recent average annual usage. Company-owned and leased reserves at the Kimballton plant were estimated at 22,300,000 tons as of December 31, 1994. The average annual usage of mined limestone at Kimballton during the five-year period ended December 31, 1994 was 690,000 tons, with 1994 usage at 762,000 tons. Proven reserves of limestone at this location are estimated to be sufficient for 32 years of operations, based on recent average annual usage. Dolomitic limestone is purchased from outside suppliers, primarily The Dow Chemical Company. Energy. Natural gas used in the production of refractory products represents approximately 60 percent of total refractory energy costs. However, natural gas usage accounts for only approximately 4 percent of the total cost of refractory sales. Most manufacturing plants maintain a supply of standby energy. Electrical costs vary between operations and account for the balance of refractory energy costs. The primary energy source used in the production of lime products is coal, which accounted for virtually all of the total fuel used at the Kimballton plant and about 65 percent of the total fuel used at the New Braunfels plant during 1994. Natural gas (in lieu of coal) is the other major energy source used at New Braunfels, accounting for approximately 35 percent of that facility's total fuel usage in 1994. Coal for both 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. - 6 - Both of the Company's industry segments are sensitive to cyclical fluctuations in the iron, steel and non-ferrous metals industries. APG Lime is also sensitive to cyclical fluctuations in the pulp and paper processing industries. Order Backlog. Order backlog for refractories varies by month within a moderate range. The order backlog believed to be firm was approximately $19.0 million and $12.0 million at December 31, 1994 and 1993, respectively, requiring ten to eleven weeks to service for 1994 as compared with eight to nine weeks for 1993. During 1993, the Company changed its method of calculating order backlog for refractories by omitting orders from Company-owned distribution centers. It is estimated that the impact of this change was a reduction in refractories order backlog of approximately $2.5 million. 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 $1.2 million and $1.4 million at December 31, 1994 and 1993, 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 intends to expand its international refractory sales efforts. In addition, there are numerous regional domestic refractory producers. The six major producers are believed to represent approximately 53% of total U.S. annual refractory sales. The major areas of competition in the refractory industry are service, price and product performance. Due to the decline of the United States heavy manufacturing industrial base, the refractory industry has become more price sensitive in recent years. New product introductions are increasing to meet demands of customer operating practices. More stringent requirements placed on product quality are being met with improved quality control at A. P. Green manufacturing plants to minimize deviations from refractory manufacturing standards. The U.K. Bromborough facility and the Fulton, Missouri and Oak Hill, Ohio plants have been ISO 9002 certified and efforts are being made for certification of the other major U.S. plants. The Kimballton, Virginia and New Braunfels, Texas lime plants compete with three and four primary lime producers, respectively. Price-sensitive competition is strong within these areas. Capital Expenditures. A. P. Green has implemented a program of maintaining and modernizing its facilities to improve its competitive position. In the three years ended December 31, 1994, A. P. Green invested approximately $16.2 million for such purposes. Of those expenditures, 46% ($7.4 million) were for refractories operations and information systems and 54% ($8.8 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. Research activities are principally located at Mexico, Missouri, in a well equipped facility occupying 43,924 square feet. The major objective of the research department is to maintain A. P. Green at the - 7 - technological forefront of the refractories industry with applied research and development of new and improved refractory products and high-temperature insulators. The research department also is responsible for quality systems implementation, raw materials management, analytical and environmental services, and technical liaison with foreign operations. A pilot plant allows testing during the transition of new products to the commercial stage. During 1994, the research department was expanded with the addition of basic refractory products, as a result of the General acquisition, and the hiring of two world renowned PhD's. Research and development expenditures amounted to approximately $2.5 million, $2.2 million and $2.4 million during 1994, 1993 and 1992, respectively. 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 ten percent of A. P. Green's consolidated annual net sales in 1994, 1993 or 1992. Employees. The average number of persons employed by A. P. Green during 1994, 1993 and 1992 was 1,656, 1,447 and 1,471, respectively. Approximately 1,040 employees are members of collective bargaining units. The represented unions in the U.S. and Canada are: the Aluminum Brick and Glass Workers International Union, the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America 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. A 5-year collective bargaining agreement was successfully negotiated in 1993 with the unions represented at the Mexico, Missouri and Fulton, Missouri plants. A. P. Green considers its relations with its employees to be good. Environmental Matters. Laws and regulations currently in force which do or may affect A. P. Green's domestic operations include the Federal Clean Water Act, the Clean Air Act of 1970, 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 - 8 - Act of 1990, local authority air pollution control, German packaging regulations and the Belgium eco-tax on waste disposal of packaging products. From time to time, the Company experiences on-site inspections by environmental regulatory authorities who may impose penalties or require remedial actions. A. P. Green believes that it has substantially complied with, and it intends in the future to so comply with, all laws and regulations (including foreign) governing pollution control and other environmental conditions in all material respects. Such compliance has not had, and is not expected to have, a material adverse effect upon A. P. Green's earnings or competitive position. Information regarding environmental and asbestos-related legal proceedings is set forth in Note 18 of Notes to Consolidated Financial Statements which are included in A. P. Green's 1994 Annual Report to Stockholders and incorporated herein by reference. Capital expenditures have been made over the last several years and are planned in 1995 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 25 U.S. patents, and had two patent applications outstanding at December 31, 1994. The expiration of these patents will not have a significant financial impact on A. P. Green. A. P. Green has aggressively licensed its refractory technology and formulations to refractory producers around the world. Currently, there are 15 license agreements with foreign companies, ten of which cover A. P. Green's full range of refractory products and five of which are for limited product lines. License agreements have been added in Spain, Italy, Colombia, Saudi Arabia, Chile, Korea and the United Kingdom since 1988. (d) Financial Information About Foreign and Domestic Operations and Export Sales Financial information regarding geographic segments of A. P. Green is set forth in Note 19 of Notes to Consolidated Financial Statements which is included in A. P. Green's 1994 Annual Report to Stockholders and incorporated herein by reference. ITEM 2. PROPERTIES General A. P. Green's principal properties are owned, except as noted, and none of the owned properties are subject to encumbrances, except for buildings and equipment at the Bessemer, Alabama plant 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. - 9 - Refractory Manufacturing Facilities The following is a description of the U.S. refractory manufacturing facilities operated by A. P. Green. Facilities are owned unless otherwise indicated. Plants in Hitchins, Kentucky, Troup, Texas and Warren, Ohio, obtained in the General acquisition, are excluded: 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 Manufacturing buildings, and Insulating Brick; rail and office Zirconia Brick; Mortars, Plastics, Castables and Light Weight Aggregate Middletown, Pennsylvania 165,000 Cast Shapes Manufacturing buildings and office - 10 - Location and Nature Approximate Square Products of Property Feet of Floor Space Manufactured Minerva, Ohio 9,500 Light Weight Aggregate Leased manufacturing and Castables building and office Oak Hill, Ohio 111,100 Mortars, Plastics Manufacturing buildings, and Castables rail and office Pryor, Oklahoma 65,800 Industrial Ceramic Manufacturing buildings, Fiber Insulation rail and office Pueblo, Colorado 1,600 Ground Calcined Flint Manufacturing building 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 Mineral Properties 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 to determine quality. 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, Colorado, Georgia, Idaho, Missouri, Ohio and Texas, and a silica mine is located in Utah. - 11 - Distribution Centers/Sales Offices A. P. Green operates distribution centers and maintains refractory stocks and sales offices as indicated in the listing below. All distribution centers are on ground level and range up to approximately 22,000 square feet. With the exception of Chicago, Illinois, Baton Rouge, Louisiana and St. Louis, Missouri, which are owned, the distribution centers/sales office facilities are leased under initial lease terms of one to 20 years. Distribution Center/Sales Office Locations: Atlanta, Georgia Knoxville, Tennessee Baltimore, Maryland Lehi, Utah Baton Rouge, Louisiana Los Angeles, California Birmingham, Alabama Milwaukee, Wisconsin Boston, Massachusetts Orange, Connecticut Buffalo, New York Philadelphia, Pennsylvania Charlotte, North Carolina Pittsburgh, Pennsylvania Chicago, Illinois Portland, Oregon Cincinnati, Ohio Roanoke, Virginia Cleveland, Ohio Rockford, Illinois Dallas, Texas St. Louis, Missouri Detroit, Michigan Salt Lake City, Utah East Moline, Illinois San Francisco, California Evansville, Indiana Seattle, Washington Houston, Texas Spokane, Washington Kansas City, Missouri Tampa, Florida Kearny, New Jersey Lime Operations APG Lime operates two 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 floorspace, 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 New Braunfels, Texas facility consists of a surface mine, rail and various plant buildings, totaling approximately 81,000 square feet of floorspace, situated on approximately 1,010 owned acres. This plant manufactures industrial lime products, soil stabilization lime, and lime-based mortars. Canadian Subsidiary A. P. Green Refractories (Canada) Ltd., a wholly owned subsidiary of A. P. Green, owns and operates a refractory manufacturing facility in Weston, Ontario. A 73,900 square foot building is used for manufacturing and storage of - 12 - refractory mortars, cements, castables, and plastics. In addition, raw materials which are imported principally from A. P. Green's U.S. facilities, are stored there. A. P. Green Refractories (Canada) Ltd. also owns 17,000 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, plastics and castables. Distribution centers and sales offices are maintained at the following locations: Burnaby, British Columbia; Calgary, Alberta; Edmonton, Alberta; Montreal, Quebec; Ottawa, Ontario; Quebec City, Quebec; and Winnipeg, Manitoba. All of the facilities are leased under initial lease terms of one to five years. United Kingdom Subsidiaries A. P. Green Refractories Limited, a wholly owned subsidiary of A. P. Green Industries, Inc., leases and operates its headquarters and manufacturing facility in Bromborough, Wirral, England. A full range of specialties, including mortars, plastics and dense and light weight castables are manufactured in an 76,600 square foot building at this location. Distribution centers and sales offices are maintained in Bromborough, Sheffield and London in England and Risca in Wales to ensure complete customer coverage in the U.K. All of these facilities are leased under initial lease terms of one to nine hundred ninety-nine years. Liptak Bradley Limited, a wholly owned subsidiary of A. P. Green Refractories Limited, operates out of the same premises in Bromborough, providing a refractory installation service using exclusively A. P. Green products. ITEM 3. LEGAL PROCEEDINGS Information regarding legal proceedings is set forth in Note 18 of Notes to Consolidated Financial Statements which is included in A. P. Green's 1994 Annual Report to Stockholders and incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. - 13 - PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information set forth below the caption "Common Stock, Market Prices and Dividends" on page 32 of A. P. Green's 1994 Annual Report to Stockholders is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL INFORMATION The information set forth below the caption "Comparative Five-Year Summary" on page 32 of A. P. Green's 1994 Annual Report to Stockholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information set forth below the caption "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 13 through 16 of A. P. Green's 1994 Annual Report to Stockholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of A. P. Green as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994, and notes thereto (including the quarterly supplementary data) and the Independent Auditors' Report appear on pages 17 through 31 of A. P. Green's 1994 Annual Report to Stockholders and are incorporated herein by reference. The Independent Auditors' Report for the financial statement schedules for each of the years in the three-year period ended December 31, 1994, and the financial statement schedules required by Regulation S-X appear on pages F-1 through F-2 of this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information regarding directors is contained in A. P. Green's Proxy Statement for the 1995 Annual Meeting of Stockholders under the caption "Item 1 - Election of Directors" and is incorporated herein by reference. - 14 - The following is a list as of March 24, 1995 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 53 Chairman of the Board, President and Chief Executive Officer Jurgen H. Abels 50 Vice President, International Max C. Aiken 57 Executive Vice President David G. Binder 58 Vice President and Controller Michael B. Cooney 54 Senior Vice President, Law/Administration and Secretary Daniel Y. Hagan 55 Vice President, Domestic Refractory Sales Orville Hunter, Jr. 56 Vice President, Research Lester C. Reed 54 Vice President, Refractory Manufacturing Gary L. Roberts 48 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. Reed, all executive officers have held the position listed or another executive position with A. P. Green or an entity affiliated with A. P. Green in excess of five years. Mr. Reed has held his present position since May 1992. Prior thereto, Mr. Reed was Director, Refractory Production of A. P. Green from January 1990 and Vice President - Manufacturing of the Insulation Group at Certainteed Corporation from October 1981 to January 1990. ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is contained in A. P. Green's Proxy Statement for the 1995 Annual Meeting of Stockholders under the caption "Compensation of Executive Officers" and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding security ownership of certain beneficial owners and management is contained in A. P. Green's Proxy Statement for the 1995 Annual Meeting of Stockholders under the captions "Voting Securities and the Principal Holders Thereof" and "Security Ownership of Stock by Management" and is incorporated herein by reference. - 15 - ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements The following Consolidated Financial Statements of A. P. Green are contained in A. P. Green's 1994 Annual Report to Stockholders on the following pages thereof: Annual Report Page Reference Consolidated Statements of Earnings - Years Ended December 31, 1994, 1993 and 1992 17 Consolidated Statements of Financial Position - December 31, 1994 and 1993 18 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1994, 1993 and 1992 19 Consolidated Statements of Cash Flows - Years Ended December 31, 1994, 1993 and 1992 20 Notes to Consolidated Financial Statements - December 31, 1994, 1993 and 1992 21-31 Independent Auditors' Report as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994 31 2. Financial Statement Schedules The following financial statement schedules of A. P. Green and the accompanying Independent Auditors' Report are set forth on the following pages of this Annual Report on Form 10-K: - 16 - Form 10-K Page Reference Independent Auditors' Report on the consolidated financial statement schedules as of December 31, 1994 and 1993 and for each of the years in the three-year period ended December 31, 1994. F-1 Schedule VIII Valuation and Qualifying Accounts F-2 Some schedules have been omitted because they are not applicable, are not required or the information is included in the consolidated financial statements or notes thereto. 3. Exhibits Exhibit No. 3(a) Restated Certificate of Incorporation of A. P. Green is incorporated herein by reference to Exhibit 3(a) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1987. 3(b) By-Laws of A. P. Green 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, 1987. 4(a) Specimen Common Stock Certificate of A. P. Green is incorporated herein by reference to Exhibit 4.1 of the Registration Statement on Form 10, dated February 3, 1988. 4(b) Rights Agreement, dated as of December 22, 1987, between A. P. Green and Harris Trust and Savings Bank, as Rights Agent, is incorporated herein by reference to Exhibit 4.2 of the Registration Statement on Form 10, dated February 3, 1988. 4(c) Note Purchase Agreement, dated July 28, 1994, by and between A. P. Green and certain of its subsidiaries and the purchasers of the unsecured notes, is incorporated herein by reference to Exhibit 10.1 of A. P. Green's Current Report on Form 8-K dated August 12, 1994. 10(a) A. P. Green Refractories Co. Supplemental Retirement Plan is incorporated herein by reference to Exhibit 10.10 of the Registration Statement on Form 10, dated February 3, 1988. 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. - 17 - 10(c) 1989 Long-Term Performance Plan of A. P. Green is incorporated herein by reference to Exhibit 10(m) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1988. 10(d) A. P. Green Management Incentive Compensation Plan is incorporated herein by reference to Exhibit 10(g) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1989. 10(e) Form of Indemnification Agreement between A. P. Green and each of its Directors and Officers is incorporated herein by reference to Exhibit 10(m) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1987. 10(f) Termination Compensation Agreement, dated March 1, 1988, between A. P. Green and Paul F. Hummer II, is incorporated herein by reference to Exhibit 10(o) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1987. 10(g) Termination Compensation Agreement, dated November 16, 1988, between A. P. Green and Michael B. Cooney, is incorporated herein by reference to Exhibit 10(r) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1988. 10(h) Form of Addendum No. 1 of Termination Compensation Agreement, dated October 19, 1989, by and between A. P. Green and Paul F. Hummer II or Michael B. Cooney, is incorporated herein by reference to Exhibit 10(w) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1989. 10(i) Form of Termination Compensation Agreement, dated October 19, 1989, between A. P. Green and Gary L. Roberts or Max C. Aiken, is incorporated herein by reference to Exhibit 10(x) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1989. 10(j) 1993 Performance Plan of A. P. Green is incorporated herein by reference to Exhibit 10(j) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1993. 10(k) Asset Acquisition Agreement, dated July 11, 1994, by and among General Refractories Company and certain of its affiliates and A. P. Green and certain of its affiliates, is incorporated herein by reference to Exhibit 2.1 of A. P. Green's Current Report on Form 8-K dated August 12, 1994. 10(l) Retirement Plan for Directors, dated February 16, 1995. - 18 - 10(m) A. P. Green Industries, Inc. Supplemental Retirement Income Plan, executed October 12, 1994, effective January 1, 1995. 13 A. P. Green's 1994 Annual Report to Stockholders. 22 Subsidiaries of A. P. Green 24 Consent of KPMG Peat Marwick 28(a) Annual Report on Form 11-K for the year ended September 30, 1994 for the A. P. Green Industries, Inc. Investment Plan (including Exhibit thereto). 28(b) Financial Data Schedule as of December 31, 1994. (b) Reports on Form 8-K. None. (c) See Item 14(a) above. (d) See Item 14(a) (2) above. - 19 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. A. P. GREEN INDUSTRIES, INC. Registrant Dated: March 7, 1995 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 7, 1995 Paul F. Hummer II President, Chief Executive Officer and Director (Principal Executive Officer) /s/ Gary L. Roberts Vice President, Chief Financial March 7, 1995 Gary L. Roberts Officer and Treasurer (Principal Financial and Accounting Officer) /s/ Jack R. Janney Director March 9, 1995 Jack R. Janney /s/ Donald E. Lasater Director March 8, 1995 Donald E. Lasater /s/ Daniel R. Toll Director March 9, 1995 Daniel R. Toll /s/ William F. Morrison Director March 8, 1995 William F. Morrison - 20 - INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders A. P. Green Industries, Inc.: Under date of February 13, 1995, we reported on the consolidated statements of financial position of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, 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, 1994, as contained in the 1994 Annual Report to Stockholders. As discussed in Note 3 of Notes to Consolidated Financial Statements, the Company changed its method of accounting for postretirement benefits other than pensions and its method of accounting for income taxes in 1992 and changed its method of accounting for postemployment benefits in 1994. These consolidated financial statements and our report thereon are incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 1994. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related financial statement schedules as of December 31, 1994, 1993 and 1992 and for the years then ended. These financial statement schedules are the responsibility of A. P. Green's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/KPMG PEAT MARWICK LLP St. Louis, Missouri February 13, 1995 F-1 SCHEDULE VIII A. P. GREEN INDUSTRIES, INC. SUPPLEMENTAL INFORMATION VALUATION AND QUALIFYING ACCOUNTS An analysis of receivable reserves for 1992, 1993 and 1994 is as follows: Doubtful Accounts (Dollars In Thousands) Balance, December 31, 1991 $ 1,895 Additions in 1992- Current year provision 445 Reclassification to notes receivable reserves (113) Less - Receivables written off, net (918) Balance, December 31, 1992 1,309 Additions in 1993 - Current Year Provision 143 Less - Receivables written off, net (254) Balance, December 31, 1993 1,198 Additions in 1994 - Current Year Provision 373 Acquisition of General Refractories 1,088 Less - Receivables written off, net (667) Balance December 31, 1994 $1,992 F-2 EX-10 2 Exhibit 10(l) to Form 10-K A. P. GREEN INDUSTRIES, INC. RETIREMENT PLAN FOR DIRECTORS A. P. GREEN INDUSTRIES, INC. (the "Company") hereby establishes the A. P. Green Industries, Inc. Retirement Plan for Directors effective February 16, 1995. 1. Purpose. The purpose of this Retirement Plan is to provide retirement benefits to certain Directors of A. P. Green Industries, Inc. who have rendered extended service as a Director. 2. Definitions. Except where otherwise specifically provided, the following terms shall have the following meanings for purposes of this Plan: (a) Company means A. P. Green Industries, Inc. (b) Director means a member of the Board of Directors of A. P. Green Industries, Inc. (c) Disability means the inability of an Outside Director to perform the regular duties of a Director, as determined by a majority vote of the remaining Outside Directors. (d) Outside Director means a Director who (i) for the entire part of a Plan Year that he is a Director is not an employee of the Company and (ii) who is not entitled to receive a retirement benefit under the Retirement Plan for A. P. Green Industries, Inc. and Associated Employers. (e) Plan Year means the period from one annual meeting of shareholders of A. P. Green Industries, Inc. until the next annual meeting, except that the first Plan Year shall be the period from February 3, 1988, until May 9, 1989. (f) Retainer means the annual fee payable to an Outside Director without regard to attendance at meetings, service on a committee or an election to defer receipt of such fee. (g) Retirement means the termination of service as a Director by an Outside Director other than (i) because of death, or (ii) because of or following the Outside Director's commission of an act involving moral turpitude, dishonesty, malfeasance in office or breach of trust in connection with or with respect to his office as Outside Director. - 1 - (h) Year of Service means each Plan Year during which a Director serves as an Outside Director. Service during any part of a Plan Year shall be counted as a Year of Service, but only if the Director is an Outside Director during all of such service. If an Outside Director dies while serving as a Director, or ceases to be a Director because of Disability, his Years of Service shall be determined as if he had served through the end of his elected term. No more than ten (10) Years of Service shall be recognized under this Plan. For purposes of this Plan, an Outside Director who has served continuously as such between February 3, 1988, and February 16, 1995, shall be deemed to have ten (10) Years of Service. 3. Eligibility. An Outside Director shall be eligible to receive a benefit under this Plan if, after February 16, 1995, he retires as a Director and has five (5) or more Years of Service at the time of his retirement. An Outside Director whose service as a Director ends other than because of Retirement or Disability will not be eligible to receive a benefit under this Plan. 4. Benefits. (a) Amount. The benefit paid under this Plan shall be an annual benefit equal to the Retainer at the date of the Outside Director's retirement, multiplied by ten percent (10%) for each Year of Service the Outside Director has (or is deemed to have) at the time his service as a Director ends, with a maximum annual benefit equal to the full amount (100%) of the Retainer at the date of the Outside Director's retirement. (b) Payment. Benefits payable under this Plan shall be paid in cash in quarterly installments beginning with the February 1, May 1, August 1 or November 1 coinciding with or next following: (i) In the case of an Outside Director whose service as a Director ends before age 65 on account of Disability, the date the Outside Director's Disability is established; or (ii) In the case of any other Director, the later of (A) the date the Outside Director ceases to serve as a Director or (B) the date the Outside Director attains age 65. (c) Duration. Payments shall be made to an Outside Director for 40 quarters, but if the Outside Director dies before all such payments have been made no further payments shall be made after the date of his death. 5. Inalienability. The rights and benefits inuring to any Outside Director or beneficiary under this Plan may not be assigned, alienated or anticipated. - 2 - 6. Funding. Nothing contained in this Plan and no action taken pursuant to the provisions hereof shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and any Outside Director or any other person. Amounts due under this Plan at any time and from time to time shall be paid from the general funds of the Company. To the extent that any person acquires a right to receive payments hereunder, such right shall be that of an unsecured general creditor of the Company. 7. Amendment and Termination. The Company reserves the right at any time to amend or revoke this plan without liability to any Outside Director after the effective date of such amendment or termination, provided, however, that any benefit which has begun to be paid in accordance with the terms of the Plan may not be reduced or eliminated. 8. No Retention Rights. Nothing in this Plan shall give any Director the right to be retained as a Director of the Company. 9. Withholding. All amounts otherwise payable under this Plan shall be reduced by any amounts required to be withheld therefrom pursuant to Federal, state or local law. 10. Construction. This Plan shall be construed in accordance with and governed by the laws of the State of Missouri. Words in the masculine include the feminine, and words in the singular include the plural, as appropriate. IN WITNESS WHEREOF, A. P. GREEN INDUSTRIES, INC. has caused this instrument to be executed and to be attested and its corporate seal to be affixed by its duly authorized officers this 16th day of February, 1995. A. P. GREEN INDUSTRIES, INC. By /s/ Gary L. Roberts ATTEST: By /s/ Michael B. Cooney Secretary - 3 - EX-10 3 Exhibit 10(m) to Form 10-K A. P. GREEN INDUSTRIES,INC. SUPPLEMENTAL RETIREMENT INCOME PLAN WHEREAS, the Employee Retirement Income Security Act of 1974 permits the establishment of a nonqualified plan which is unfunded and is maintained "primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees;" and WHEREAS, the plan attached hereto as Exhibit A is a nonqualified plan that is (1) unfunded and (2) maintained "primarily for the purpose of providing deferred compensation to a select group of management or highly compensated employees" and is designed to provide pension and other benefits that otherwise would be provided under the Retirement Plan for A. P. Green Industries, Inc. and Associated Employers and any other qualified defined benefit plans maintained by A. P. Green Industries, Inc. and its subsidiaries but for the limitation on compensation imposed by Section 401(a)(17) of the Internal Revenue Code; NOW, THEREFORE, by virtue of the authority delegated to the undersigned officer of A. P. Green Industries, Inc. by resolution of its Board of Directors, the A. P. Green Industries, Inc. Supplemental Retirement Iincome Plan be and is established effective January 1, 1995 in the form attached hereto as Exhibit A. IN WITNESS WHEREOF, A. P. Green Industries, Inc. has caused these presents to be signed on its behalf by an officer thereunto duly authorized this 12th day of March, 1995. A. P. GREEN INDUSTRIES, INC. By /s/ Gary L. Roberts Its Vice-President - CFO - Treasurer Exhibit A A. P. GREEN INDUSTRIES, INC. SUPPLEMENTAL RETIREMENT INCOME PLAN Table of Contents Section Page 1 Introduction and Definitions 1.1 Plan, Company, Effective Date 1 1.2 Purpose 1 1.3 Employers 1 1.4 Plan Administration 1 1.5 Named Fiduciary 2 1.6 Eligible Spouse 2 1.7 Beneficiary 2 1.8 Actuarial Equivalent 2 2 Participation and Benefits 2.1 Eligibility 3 2.2 Amount of Supplemental Retirement Benefits 3 2.3 Form of Payment of Supplemental Retirement Benefits 3 2.4 Time of Payment of Supplemental Retirement Benefits 4 2.5 Early Retirement 4 2.6 Supplemental Death Benefits 4 2.7 Funding 5 2.8 Vesting 5 3 General Provisions 3.1 Employment Rights 6 3.2 Interests Not Transferable 6 3.3 Controlling Law 6 3.4 Gender and Number 6 3.5 Action by Company 6 3.6 Successor to the Company or Any Other Employer 6 3.7 Facility of Payment 6 3.8 Claims Procedure 6 4 Amendment and Termination 8 A. P. GREEN INDUSTRIES, INC. SUPPLEMENTAL RETIREMENT INCOME PLAN SECTION 1 Introduction and Definitions 1.1 Plan, Company, Effective Date. A. P. Green Industries, Inc. (the "company") has established the A. P. Green Industries, Inc. Supplemental Retirement Income Plan (the "plan") effective January 1, 1995 (the "effective date"). 1.2 Purpose. The company and certain of its subsidiaries maintain and are employers under the RETIREMENT PLAN FOR A. P. GREEN INDUSTRIES, INC. AND ASSOCIATED EMPLOYERS (the "retirement plan"), which is intended to meet the requirements of a "qualified plan" under Section 401(a) of the Internal Revenue Code. Section 401(a)(17) of the Internal Revenue Code places limitations on the amount of compensation that may be taken into account in determining the amount of benefits that may by paid from a qualified plan. However, the Employee Retirement Income Security Act of 1974 ("ERISA"), permits the payment under a nonqualified "deferred compensation plan" of the benefits that may not be paid under a qualified plan because of such limitations. The purpose of this plan is to provide benefits that may not be paid under the retirement plan and any other qualified defined benefit plans maintained by the controlled group of corporations of which the company is a member ("other controlled group retirement plans") because of the limitation on compensation imposed by Section 401(a)(17) of the Internal Revenue Code (the "compensation limit") with respect to participants in the retirement plan who are employed by an employer at the time of their retirement or other termination of employment. Benefits payable under this plan to a former employee are referred to as "supplemental retirement benefits" and benefits payable under this plan because of the death of an employee or a former employee are referred to as "supplemental death benefits." 1.3 Employers. The company and each subsidiary of the company that is an employer under the retirement plan shall be an "employer" under this plan unless specified to the contrary by the company by writing filed with the committee described in subsection 1.4. 1.4 Plan Administration. The plan is administered by the committee (the "committee") that is responsible for administration of the retirement plan. The committee has, to the extent appropriate, the same powers, rights, duties and obligations with respect to this plan. The committee shall determine all questions arising in the administration, interpretation and application of the plan and shall, in its sole discretion, construe and interpret the plan, decide all questions of eligibility and determine all claims for benefits. The committee's decision on these matters shall be conclusive and binding on all persons, and shall be upheld on review unless there is no rational basis for the decision. 1 1.5 Named Fiduciary. The company is the named fiduciary with respect to the right to amend or terminate the plan. The committee is the named fiduciary with respect to the administration of the plan. 1.6 Eligible Spouse. The spouse of a Participant will be considered as an eligible spouse as of any date if the spouse is treated as the Participant's eligible spouse under the retirement plan on the date of the Participant's death or, if earlier, on the date the Participant's benefit begins under the retirement plan. 1.7 Beneficiary. Each Participant shall, in accordance with procedures established by the committee, designate a beneficiary to receive any payments which may become payable in accordance with the plan following the Participant's death. If no designated beneficiary survives the Participant, death benefits, if any, shall be paid to the Participant's surviving spouse; if there is no spouse, to the Participant's surviving children; if there are no children, to the Participant's surviving parents; if there are no parents, to the Participant's surviving siblings; if there are no siblings, to the Participant's estate. 1.8 Actuarial Equivalent. For purposes of this plan, actuarially equivalent benefits shall be calculated on the basis of the actuarial factors, assumptions and tables applied for that purpose under the retirement plan. 2 SECTION 2 Participation and Benefits. 2.1 Eligibility. Subject to the conditions and limitations of the plan, each officer of an employer who is an employee of an employer shall become a "Participant" in this plan on or after the effective date if he is a participant in the retirement plan and accrues benefits under the retirement plan, or under the retirement plan and other controlled group retirement plans, which in the aggregate, are less than the aggregate benefits he otherwise would have accrued under the retirement plan and all other controlled group retirement plans (prior to the termination of any such plan or plans) if such compensation limit had not applied. Such Participant shall be entitled to supplemental retirement benefits under this plan as determined under subsection 2.2 if the Participant is employed by an employer at the time of his retirement or other termination of employment. 2.2 Amount of Supplemental Retirement Benefits. The supplemental retirement benefits payable under this plan to a Participant shall be actuarially equivalent to the amount by which (1) below exceeds (2) below, where: (1) is the aggregate benefits that would have been payable to him, and to any other person or persons in the event of his death while receiving benefits, under the retirement plan and all other controlled group retirement plans if the compensation limit had not applied to the Participant; and (2) is the aggregate benefits payable to him, and to any other person or persons in the event of his death while receiving benefits, under the retirement plans after application of the compensation limit. Benefits computed before and after application of the compensation limit include any benefits that would have been payable because of the termination of any such plan or plans. 2.3 Form of Payment of Supplemental Retirement Benefits. If the Participant does not have an eligible spouse when payment of his benefit begins, the supplemental retirement benefits that he becomes entitled to receive under this plan shall be paid to him in the form of an annuity for his lifetime with 120 months guaranteed. If the Participant dies before receiving 120 monthly payments, payments shall continue to his Beneficiary for the balance of the period. If the Participant has an eligible spouse when payment of his benefit begins, the supplemental retirement benefits that he becomes entitled to receive under this plan shall be paid to him in the form of an actuarially equivalent joint and 50% survivor annuity paying an annuity for the Participant's lifetime, with 50% of his monthly benefit continuing for the lifetime of his surviving eligible spouse, if any, following his death. 3 2.4 Time of Payment of Supplemental Retirement Benefit. Payment shall commence at such time after his employment with an employer terminates as the committee determines, taking into account the best interest of the Participant and his dependents, subject to the following: (a) Payment of the Participant's supplemental retirement benefits must not commence before the Participant's early retirement date under the retirement plan. (b) Payment of the Participant's supplemental retirement benefits must commence not later than the date payment of his retirement benefits begins under the retirement plan. (c) If the Participant's death occurs while employed by an employer or if the Participant's death occurs after he had become entitled to supplemental retirement benefits under this plan but before payment of such benefits has commenced, supplemental retirement benefits shall be payable under the plan with respect to the Participant only if and to the extent provided in subsection 2.6. 2.5 Early Retirement. If payment of a supplemental benefit under this plan begins before the Participant reaches age 65, it shall be reduced for early commencement in accordance with rules of the retirement plan that would apply to a retirement plan benefit commencing at the same time. 2.6 Supplemental Death Benefits. Supplemental death benefits shall be payable under the plan as follows: (a) If a Participant's death occurs while employed by an employer, his eligible spouse, if any, shall be entitled to monthly supplemental death benefits under this plan for life. The benefits shall be actuarially equivalent to the additional monthly preretirement survivor annuity benefits that would have been payable to the Participant's eligible spouse under the retirement plan and all other controlled group retirement plans if the compensation limit had not applied to the Participant. Payment shall begin as of the earliest the date the retirement survivor annuity could commence under the retirement plan. (b) If a Participant's death occurs after he had retired or otherwise terminated employment and had become entitled to supplemental retirement benefits under this plan but before payment of such benefits had commenced, his eligible spouse, if any, shall be entitled to monthly supplemental death benefits for life actuarially equivalent to 4 50 percent of the additional monthly amount that would have been payable to the Participant under the retirement plan and all other controlled group retirement plans in the form of a qualified joint and survivor annuity if the compensation limit had not applied to the Participant, determined as if the Participant had begun receiving the supplemental retirement benefits immediately prior to his death. (c) If the Participant does not have an eligible spouse at the time of his death prior to the date payment of his supplemental retirement benefit begins, no supplemental death benefits shall be payable under the plan with respect to that Participant. (d) If a Participant's death occurs while receiving supplemental retirement benefits, his surviving eligible spouse or beneficiary, as the case may be, if any, shall be entitled to supplemental retirement benefits, if any, payable following the death of the Participant under subsection 2.3. 2.7 Funding. Benefits payable under this plan to a Participant or his eligible spouse shall be paid directly by the employers from their general assets in such proportions as the company shall determine. The employers shall not be required to segregate on their books or otherwise any amount to be used for the payment of benefits under this plan. 2.8 Vesting. A Participant's right to benefits payable under this plan shall be 100% vested and nonforfeitable upon his completion of five years of continuous service as determined under the retirement plan. 5 SECTION 3 General Provisions 3.1 Employment Rights. Establishment of the plan shall not be construed to give any Participant the right to be retained in the employ of an employer or to any benefits not specifically provided by this plan. 3.2 Interests Not Transferable. Except as to withholding of any tax under the laws of the United States or any state or municipality, the interest of Participants and their beneficiaries under the plan are not subject to the claims of their creditors and may not be voluntarily or involuntarily transferred, assigned, alienated or encumbered. 3.3 Controlling Law. The laws of the State of Missouri shall be controlling in all matters relating to the plan. 3.4 Gender and Number. Where the context admits, words in the masculine gender shall include the feminine and neuter genders, the plural shall include the singular and the singular shall include the plural. 3.5 Action by the Company. Any action required of or permitted by the company under the plan shall be by resolution of its Board of Directors or by a duly authorized committee of its Board of Directors, or by a person or persons authorized by resolution of its Board of Directors or such committee. 3.6 Successor to the Company or Any Other Employer. The term "company" as used in the plan shall include any successor to the company by reason of merger, consolidation, the purchase or transfer of all or substantially all of the company's assets, or otherwise. The term "employer" as used in the plan with respect to the company or any subsidiary shall include any successor to that corporation by reason of merger, consolidation, the purchase or transfer of all substantially all of the assets of that corporation, or otherwise. 3.7 Facility of Payment. Any amounts payable hereunder to any person under a legal disability or who, in the judgement of the committee, is unable to properly manage his affairs may be paid to the legal representative of such person or may be applied for the benefit of such person in any manner which the committee may select. 3.8 Claims Procedure. Any application for benefits by a Participant, eligible spouse, or beneficiary submitted to the committee in writing shall constitute a claim. In any instance where such claim is denied in while or in part by the committee, the decision of the committee shall be provided in writing to the Participant, eligible spouse, or beneficiary setting forth the following: 6 (a) The basis for denial of the claim; (b) The plan provision on which the denial is based; (c) A description of any addition information required of the Participant, eligible spouse, or beneficiary; and (d) An explanation of the procedures for reviewing claims under the plan. A Participant, eligible spouse, or beneficiary may, within 60 days after receiving notice that a claim has been denied, submit a written request for review of the claim denial. Upon receipt of a request for review, the committee has 60 days to review the claim denial and issue a written explanation of its decision on review. If special circumstances require more time for the review, the committee will notify the Participant, eligible spouse, or beneficiary. A written explanation of the decision on review will be issued within 120 days after the committee received the request for review. 7 SECTION 4 Amendment and Termination While the employers expect to continue the plan, the company must necessarily reserve and reserves the right, by resolution of its Board of Directors, to amend the plan from time to time or terminate the plan at any time. In the event of termination, the benefits accrued as of the date of termination shall be frozen. The remaining provisions of the plan shall continue to apply with respect to such frozen benefits, but the amount of the benefit shall not increase, nor shall the amount of benefit payable under this plan exceed the amount that would have been payable had the plan remained in effect on the earliest of the Participant's death, retirement, or other termination of employment. In the event of amendment, the benefits accrued under the plan as of the effective date of any amendment will in no event be forfeited as a result of the amendment, nor shall the terms of the plan governing the benefits accrued as of such date be less favorable to any Participant as the result of such amendment. 8 EX-13 4 Exhibit 13 to Form 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations Net sales of $195.9 million in 1994 were 20.2% higher than the $163.0 million in 1993, following a 3.2% decline from $168.3 million in 1992. The impact from the acquisition of the refractories business of General Refractories Company and its affiliated companies ("General") from August 1, 1994 through December 31, 1994 was to increase sales by $29.7 million. Excluding this impact, refractory sales in the U.S. and Canada increased by $3.2 million and $1.9 million, respectively, while sales in the United Kingdom declined $1.0 million. The 1993 sales decrease was largely due to the sale of the Canadian refractory installation operation during the fourth quarter of 1992 and continuing depressed market conditions in the United Kingdom (U.K.). The lower sales at foreign subsidiaries were partially offset by a 12.4% increase in U.S. export sales, a 6.4% increase in sales of industrial lime products and product sales to previous competitors in the Canadian refractory installation business. Gross profit increased 7.5% from $32.1 million in 1993 to $34.5 million in 1994, including $3.8 million due to the addition of General products from August through December, 1994. This followed a 32.5% increase in 1993 from $24.2 million in 1992. Earnings before cumulative effect of an accounting change of $6.7 million, or $1.65 per share, in 1994 compared to $6.5 million, or $1.62 per share, in 1993 and a loss before cumulative effect of accounting changes of $3.2 million, or $.79 per share, in 1992. Results of operations in 1994 included the cumulative effect of adopting Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which reduced net earnings by $255,000, or $.06 per share. Results of operations in 1992 were significantly impacted by the adoption of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and No. 109, "Accounting for Income Taxes." The combined cumulative effect of the Company's adoption of these statements was to increase the 1992 net loss by $4.1 million, or $1.03 per share. In addition to the cumulative effect of the adoptions, the impact of these accounting changes on 1992 results of operations was to increase the net loss by $128,000, or $.03 per share. U.S. operations for 1992 also included the recognition of $2.4 million of costs related to settlement of litigation arising from the 1986 sale by the Company of a former subsidiary. In addition, a $4.0 million provision for estimated future asbestos liability claims and settlement costs was recognized during 1992 based upon review of the Company's insurance policies, historical settlement amounts, the number of pending cases and the projected number of claims associated with a class action settlement. Refractory Operations Net sales from refractory operations increased 25.1% from $128.6 million in 1993 to $160.9 million in 1994, following a decline of 5.5% from $136.1 million in 1992. U.S. refractory sales increased 25.7% from $112.8 million in 1993 to $141.7 million in 1994, of which $25.7 million was due to the General acquisition. Excluding this acquisition impact, volumes of U.S. refractory products increased an average of 6.9% in 1994. Prices increased slightly over 1993 levels, with a 2.5% increase in specialties prices partially offset by small declines in prices of brick and ceramic fibers. U.S. earnings before income taxes and cumulative effect of accounting changes declined 4.5% from $8.6 million in 1993 to $8.2 million in 1994, due primarily to higher raw material, equipment maintenance and group insurance costs, higher pension costs due to plan benefit changes, higher brick breakage costs and a lower favorable LIFO inventory cost adjustment in 1994 compared to 1993. Also contributing to the decrease were additional salaries and other personnel costs resulting from the General acquisition. U.S. refractory sales in 1993 were up slightly from the $112.3 million in 1992. Ceramic fiber volumes increased 8.5% in 1993, with reductions in all other product lines resulting in a 1.6% overall volume decline. Prices increased an average of 3.9% across all product lines during 1993. U.S. pretax earnings of $8.6 million in 1993 compared to a loss before income taxes and cumulative effect of accounting changes of $5.3 million in 1992. Sales at the Canadian subsidiary increased 48.8% from $12.0 million in 1993 to $17.9 million in 1994. The impact from the General acquisition was to increase 1994 Canadian sales by $4.0 million. Excluding this impact, volumes increased across all Canadian product lines an average of 14.6% during 1994, reflecting increased sales to previous competitors in the discontinued Canadian refractory installation business. Price increases in specialties, ceramic fibers and pre-cast shapes were partially offset by declines in brick and crucibles pricing, resulting in an overall 1994 price increase of 7.8%. Pretax earnings at the Canadian subsidiary increased 88.8% from $394,000 in 1993 to $744,000 in 1994, including pretax earnings of 13 $200,000 from the acquired Canadian operations. This increase reflected both the increased sales level and cost savings resulting from the restructuring which took place during the first quarter of 1994. Results for 1994 also included a pretax cost of approximately $315,000 during the first quarter for the Canadian personnel reductions made during that quarter. Absent that adjustment, the Canadian subsidiary generated a pretax margin of 5.9% compared to 3.3% during 1993. Canadian sales declined 37.2% in 1993 from $19.1 million in 1992, due primarily to the sale of the Canadian refractory installation operation in the fourth quarter of 1992. This decrease was partially offset by product sales to previous competitors in the Canadian refractory installation business, with volume increases, excluding installation sales, in all product lines except crucibles averaging 15.3%, and price increases averaging 3.2% in all but the pre-cast shapes and castables product lines. Despite the lower sales, the Canadian pretax earnings of $394,000 in 1993 compared favorably to pretax losses of $298,000 in 1992. This improvement reflected a reduction in fixed costs resulting from the reorganization of the Canadian operations in the fourth quarter of 1992 and a loss incurred on a large construction project in 1992. Sales in the U.K. declined 11.8% from $8.3 million in 1993 to $7.3 million in 1994, following a decline of 11.7% from $9.4 million in 1992, due to continuing weakness in the U.K. economy. Pretax earnings in the U.K. declined 16.0% from $400,000 in 1993 to $336,000 in 1994. Despite the 1993 U.K. sales decline, 1993 pretax earnings at that subsidiary increased from $376,000 in 1992. Refractory products cost of sales as a percentage of sales increased from 80.6% in 1993 to 82.6% in 1994, following a decline from 86.6% in 1992. The 1994 increase was due primarily to higher raw material costs, equipment maintenance expense and group insurance cost. Also contributing to the increase were higher U.S. pension costs due to plan benefit changes, a lower favorable LIFO inventory cost adjustment in 1994 compared to 1993 and higher brick breakage costs in the U.S. during 1994 compared to 1993. Cost of sales as a percentage of sales at the acquired General plants also contributed to the increase, due primarily to the maintenance costs necessary to bring these facilities up to an appropriate state of repair, higher pension costs and a higher percentage of lower margin sales to the steel industry. Partially offsetting these increases were reduced utilities, freight, casualty insurance and workers compensation insurance costs. The 1993 decrease in cost of sales as a percentage of sales was due to improved production efficiencies and lower raw material, inbound freight, brick breakage, workers' compensation and distribution costs, partially offset by increased processing fuel costs. Refractory operating profits increased 12.1% from $10.2 million in 1993 to $11.5 million in 1994, following a 237.6% increase over 1992 operating profits of $3.0 million. Industrial Lime Operations Net sales of $35.1 million in 1994 reflect a 1.6% improvement over 1993 sales of $34.6 million, which were up 6.4% over 1992 sales of $32.5 million. Volume increased 6.3% at the New Braunfels, Texas plant in 1994, with increased sales to the steel, aluminum and building lime markets partially offset by a decline in sales of road stabilization lime. Volume declined 1.9% at the Kimballton, Virginia plant, with decreased sales of hydrate partially offset by increases in sales of quicklime and cal-dol. A production curtailment of several days during the first quarter as a result of severe weather conditions also contributed to the volume decline at the Kimballton facility. In 1993, increases in volume at both plants from the steel, paper and road stabilization markets, partially offset by a reduction in building lime volumes at the New Braunfels plant, resulted in an overall volume increase of 4.9%. Prices improved an average of 1.5% at the Kimballton plant during 1994, with increases in quicklime and cal-dol prices partially offset by price reductions in hydrate. Prices remained steady at the Kimballton plant during 1993 compared to 1992. New Braunfels prices increased slightly during 1994, with increased building and road stabilization lime prices partially offset by reduced prices to the steel and aluminum markets. This followed price increases averaging 3.3% during 1993. Gross profit at the Company's industrial lime operations declined 9.9% during 1994 following a 19.9% increase in 1993, while operating profit declined 8.6% in 1994 following a 25.6% increase in 1993. Contributing to the 1994 declines were increased depreciation expense due to increased capital expenditures at both plants, higher purchased raw material costs at the New Braunfels plant and increased group insurance costs at both plants. Partially offsetting these increases were reduced workers' compensation and palletizing costs at the New Braunfels plant and lower processing fuel costs at the Kimballton plant. The 1993 increases in both gross profit and operating profit were primarily due to the sales increase. 14 Selling and Administrative Expenses Selling and administrative expenses increased 6.6% from $24.1 million in 1993 to $25.7 million in 1994, following a decline of 1.3% from $24.4 million in 1992. The 1994 increase was due to increases in salaries and related costs, primarily resulting from the addition of General sales and research personnel, and increased legal fees primarily related to foreign trademark renewals, partially offset by reduced management incentives. The 1993 decrease was due primarily to savings generated by 1992 personnel reductions and a decreased 1993 provision for losses on accounts receivable, partially offset by increased management and sales incentives. A partial recovery during 1993 of a trade receivable previously written off also reduced expenses in comparison to both 1994 and 1992. Interest Expense and Income Interest expense increased 84.0% from $1.1 million in 1993 to $1.9 million in 1994 due to the additional debt associated with the General acquisition. This followed a decline of 15.6% from $1.3 million in 1992. There were no bank borrowings during 1994 or 1993, compared to daily average bank line borrowings of approximately $4.7 million during 1992. Interest income declined 4.8% from $1.4 million in 1993 and 1992 to $1.3 million in 1994 due to interest received during 1993 in connection with partial recovery of a trade receivable previously written off. Interest income on time deposits increased in 1994 due to increased funds available for investing and higher interest rates. In 1993, higher average levels of investment compared to 1992 offset the effect of lower interest rates. Other Income (Net) Other income increased 2.0% to $1.2 million in 1994, with gains on the sale of land and a Los Angeles warehouse partially offset by reduced royalty income and higher currency conversion losses on U.S. dollar denominated transactions at the Canadian subsidiary. Other income declined 14.3% in 1993 from $1.3 million in 1992 due primarily to reduced royalty income, partially offset by reduced provisions for losses on long-term notes receivable. 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. During the third quarter of 1994, a license agreement with a significant Mexican licensee was cancelled by mutual agreement due to the acquisition of the licensee by a competitor of A. P. Green. This will result in a reduction of royalty income to the Company of approximately $400,000 on an annual basis, with a $100,000 reduction in 1994. Equity in Net Income of Affiliates For the period August 1 through December 31, 1994, the Company's share of income from two new Colombian affiliates acquired from General was $282,000. Financial Condition The following balance sheet increases resulted from the General acquisition on August 1, 1994 (in millions): Receivables $12.3 Inventories 22.7 Deferred income tax benefit 1.1 Other current assets 0.4 ----- Total current assets 36.5 Property, plant and equipment 18.7 Long-term pension assets 0.5 Other long-term assets 5.4 ----- Total assets $61.1 ===== Accounts payable $ 8.9 Accrued payrolls 1.5 Accrued taxes other than on income 0.6 Accrued insurance 4.7 Accrued other 7.6 ----- Total current liabilities 23.3 Deferred income taxes 1.1 Long-term non-pension benefits 0.1 Long-term pensions 11.6 Notes payable 25.0 ----- Total liabilities $61.1 ===== Working capital $13.2 Accrued other primarily represents estimated environmental and remediation costs and estimated costs to close certain plants and terminate the affected employees. See Note 2 of notes to consolidated financial statements for a discussion of the estimated environmental costs. At December 31, 1994, the majority of the affected employees (less than 300 in total) had been terminated and the closed plants are held for sale at net realizable value. Working capital increased 44.5%, or $24.1 million, from $54.2 million at December 31, 1993 to $78.3 million at December 31, 1994, including the $13.2 million obtained through the General acquisition, while the ratio of current assets to current liabilities remained level at 1.9 to 1. Excluding the acquisition impact, the increase in working capital was primarily due to increases in reimbursement due on paid asbestos claims of $5.6 million, inventories of $5.0 million, accounts receivable of $4.5 million and closed plants' fixed assets held for sale (included in other current assets) of $2.6 million, partially offset by a reduction in cash and cash equivalents of $6.7 15 million. The increase in reimbursement due on paid asbestos claims was due to an increase in the number of cases settled rather than the ageing of receivables. The increase in accounts receivable was due to increased sales, while the increase in inventories was due to higher sales levels anticipated in 1995. Also contributing to the inventory change were temporary increases in inventories of certain products manufactured by the General plants being shut down to ensure the ability to service customer demand during the period in which production of these products is transferred to the remaining plants. The $33.3 million decrease in non-current projected insurance recovery on paid asbestos claims and the related $33.4 million decrease in non-current projected asbestos claims were due primarily to asbestos claim payments recovered from insurance carriers during 1994. Long-term debt, including current portion, at December 31, 1994 consisted of industrial development revenue bonds totaling $12.0 million, which bear interest rates ranging from 70% of prime to 8.6% and mature at various times from 1997 through 2014, unsecured notes bearing an interest rate of 8.55% with annual principal repayments commencing in 1996 and continuing through 2001 and a capitalized lease of $189,000 with an interest rate of 11.1%. Long-term debt increased $24.9 million from the December 31, 1993 level of $12.3 million due to the additional debt associated with the General acquisition. During 1994, the Company's $15 million U.S. long-term line of credit was extended to March 1, 1996 and certain restrictive covenants were amended and added to coincide with those reflected in the new agreement under which the new unsecured notes payable were issued in connection with the financing of the General acquisition. Approximately $2.1 million of this line-of-credit was being utilized at December 31, 1994 for outstanding letters of credit. Capital expenditures for 1994 totaled $6.5 million compared to $6.2 million for 1993. Capital expenditure commitments for the replacement, modernization and expansion of operations amounted to $3.2 million and $5.1 million at December 31, 1994 and 1993, respectively. Approximately $1.4 million of the 1994 commitment and $3.8 million of the 1993 commitment was for expansion of production capacity, increased safety and improved environmental controls at the Lime plants. A. P. Green believes that it has sufficient liquidity and borrowing capacity to meet both its normal working capital requirements and its planned capital expenditures for 1995. The Company has investments in subsidiaries in Canada and the U.K. Adjustments resulting from the currency translation of these subsidiaries' financial statements are reflected as a component of stockholders' equity and were $2.4 million and $2.3 million, respectively, at December 31, 1994 and 1993. On November 10, 1993, A. P. Green's Board of Directors approved a three-for-two stock split, effected in the form of a stock dividend payable December 10, 1993 to stockholders of record on November 26, 1993. The stock split resulted in the issuance of 1,485,891 additional shares from authorized but unissued shares. A transfer of $1,485,891 was made from additional paid-in capital to common stock at the stated par value. All share and per share data have been restated to reflect this stock split. The Board of Directors reinstated the payment of dividends in the fourth quarter of 1993 with the declaration and payment of a dividend of $.06 per common share. The Board of Directors continued to declare quarterly dividends of $.06 per share throughout 1994. The continuation of such quarterly dividends will be evaluated by the Board of Directors from time to time in light of A. P. Green's financial position and results of operations. In 1992 and 1993, the Company reported its projected asbestos claims and projected insurance reimbursements relating to such claims net within accrued liabilities. With the issuance of FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," the Company determined that the amounts should be reported gross rather than net and, as such, restated certain amounts in the December 31, 1993 consolidated statement of financial position and consolidated statements of cash flows for the years ended December 31, 1992 and 1993 to be consistent with the 1994 presentation. Subsequent Events On January 31, 1995, the Company formed a joint venture 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. Their linings result in lower installation costs, significantly reduced disposal of used refractory material and increased ladle availability compared to traditional brick linings. The Company's investment in this joint venture will not be material. On February 16, 1995, the Board of Directors gave approval to the establishment of a refractory manufacturing plant near Jakarta, Indonesia. The plant will have the capacity to manufacture 25,000 metric tons of specialty refractory products per year. The plant is expected to cost approximately $4.5 million and could be in production by late 1995 or early 1996. The Board of Directors also increased the quarterly dividend from $.06 per common share to $.07 per common share, a 17% increase, in the first quarter of 1995. 16 CONSOLIDATED STATEMENTS OF EARNINGS ----------------------------------- (Dollars in thousands, except per share data) ------------------------------------------------------------------- Years ended December 31, 1994 1993 1992 ------------------------------------------------------------------- Net sales $ 195,918 $ 162,962 $ 168,309 Cost of sales 161,420 130,879 144,092 ------------------------------------------------------------------- Gross profit 34,498 32,083 24,217 Expense and other income Selling and administrative expense 25,707 24,125 24,435 Interest expense 1,947 1,058 1,255 Interest income (1,296) (1,361) (1,393) Other income, net (1,155) (1,131) (1,319) Provision for litigation and claim settlement - - 6,427 ------------------------------------------------------------------- Earnings (loss) before income taxes and cumulative effect of accounting changes 9,295 9,392 (5,188) Income tax expense (benefit) 2,904 2,895 (2,021) Equity in net income of affiliates 282 - - ------------------------------------------------------------------- Earnings (loss) before cumulative effect of accounting changes 6,673 6,497 (3,167) Cumulative effect of accounting changes Income taxes - - 3,848 Postretirement benefits other than pensions, net of tax - - (7,982) Postemployment benefits, net of tax (255) - - ------------------------------------------------------------------- Net earnings (loss) $ 6,418 $ 6,497 $ (7,301) =================================================================== Earnings (loss) per common share before cumulative effect of accounting changes $ 1.65 $ 1.62 $ (.79) Cumulative effect of accounting changes Income taxes - - .96 Postretirement benefits other than pensions, net of tax - - (1.99) Postemployment benefits, net of tax (.06) - - ------------------------------------------------------------------- Net earnings (loss) per common share $ 1.59 $ 1.62 $ (1.82) Weighted average number of common shares 4,024,812 4,010,782 4,010,782 =================================================================== See accompanying notes to consolidated financial statements. 17 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Dollars in thousands, except per share data) ------------------------------------------------------------------ December 31, 1994 1993 ------------------------------------------------------------------ ASSETS Current assets Cash and cash equivalents $ 9,637 $ 16,331 Trade receivables (net of allowances - 1994, $1,992;1993, $1,198) 43,728 26,873 Reimbursement due on paid asbestos claims 11,475 5,929 Inventories 53,452 25,735 Projected insurance recovery on asbestos claims 35,540 35,779 Deferred income tax benefit 5,355 4,493 Other 4,965 1,811 ------------------------------------------------------------------ Total current assets 164,152 116,951 Property, plant and equipment, net 95,412 81,474 Non-current projected insurance recovery on asbestos claims 97,344 130,646 Long-term pensions 9,166 8,372 Other assets 7,048 1,871 ------------------------------------------------------------------ Total assets $ 373,122 $ 339,314 ================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 22,874 $ 12,691 Accrued expenses Payrolls 6,044 4,342 Taxes other than on income 1,961 1,161 Insurance reserves 6,995 2,951 Current portion of projected asbestos claims 35,793 36,754 Other 10,650 4,130 Current maturities of long-term debt 139 123 Income taxes 1,384 601 ------------------------------------------------------------------ Total current liabilities 85,840 62,753 Deferred income taxes 15,677 15,538 Long-term non-pension benefits 15,270 14,123 Long-term pensions 12,472 587 Long-term debt 37,023 12,160 Non-current projected asbestos claims 99,802 133,223 ------------------------------------------------------------------ Total liabilities 266,084 238,384 ------------------------------------------------------------------ Stockholders' equity Preferred stock - $1 par value; authorized: 2,000,000 shares; issued and outstanding: none - - Common stock - $1 par value; authorized: 10,000,000 shares; issued: 4,475,629 in 1994 and 4,459,129 in 1993 4,476 4,459 Additional paid-in capital 72,739 72,492 Retained earnings 49,279 43,800 Less: Deferred currency translation (2,428) (2,301) Treasury stock of 448,347, at cost (9,003) (9,003) Note receivable-ESOT (8,021) (8,491) Deferred compensation- restricted stock (4) (26) ------------------------------------------------------------------ Total stockholders' equity 107,038 100,930 ------------------------------------------------------------------ Total liabilities and stockholders' equity $ 373,122 $ 339,314 ================================================================== See accompanying notes to consolidated financial statements. 18 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data) ---------------------------------------------------------------------------------------------------------------------
Deferred Additional Deferred Treasury Note Compensation- Common Paid-in Retained Currency Stock Receivable- Restricted Stock Capital Earnings Translation At Cost ESOT Stock --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1991 $2,973 $74,048 $44,837 $ (502) $(9,003) $(9,314) $(274) --------------------------------------------------------------------------------------------------------------------- Net loss before cumulative effect of accounting changes (3,167) Cumulative effect of accounting changes Income taxes 3,848 Postretirement benefits other than pensions, net of tax (7,982) Currency translation adjustment (1,298) Deferred compensation earned 192 Payment on ESOT note 393 --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1992 2,973 74,048 37,536 (1,800) (9,003) (8,921) (82) --------------------------------------------------------------------------------------------------------------------- Net earnings 6,497 Dividends ($.06 per share) (240) Three-for-two stock split 1,486 (1,497) Currency translation adjustment (501) Deferred compensation earned 56 Payment on ESOT note 430 Excess income tax expense related to issuance of restricted stock (59) Tax benefit on dividends paid to ESOT 7 --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 4,459 72,492 43,800 (2,301) (9,003) (8,491) (26) --------------------------------------------------------------------------------------------------------------------- Net earnings before cumulative effect of an accounting change 6,673 Cumulative effect of an accounting change Postemployment benefits, net of tax (255) Common stock issued under employee stock options 15 223 Common stock issued to nonemployee directors 2 26 Dividends ($.24 per share) (967) Currency translation adjustment (127) Deferred compensation earned 22 Payment on ESOT note 470 Excess income tax expense related to issuance of restricted stock (2) Tax benefit on dividends paid to ESOT 28 --------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 $4,476 $72,739 $49,279 $(2,428) $(9,003) $(8,021) $ (4) --------------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. 19
CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) -------------------------------------------------------------------------------- Years ended December 31, 1994 1993 1992 -------------------------------------------------------------------------------- Cash flows from operating activities Net earnings (loss) $ 6,418 $ 6,497 $ (7,301) Adjustments for items not requiring (providing) cash Cumulative effect of accounting changes Income taxes - - (3,848) Postretirement benefits other than pensions, net of tax - - 7,982 Postemployment benefits, net of tax 255 - - Depreciation, depletion and amortization 8,725 7,671 7,546 Increase in net projected asbestos liability - - 4,000 Deferred compensation earned 22 56 192 Stock compensation to directors 28 - - Provision for losses on accounts receivable 373 143 445 Loss (gain) on sale of assets (403) 168 (172) Equity in net income of affiliates (282) - - Decrease (increase) in assets, net of effects from purchase of General Refractories operations Trade receivables (4,924) (968) (52) Asbestos claim and fee reimbursements received 33,557 30,778 15,067 Inventories (4,968) 1,232 7,310 Receivable and prepaid taxes 509 - - Other current assets (995) (73) 239 Increase (decrease) in liabilities, net of effects from purchase of General Refractories operations Accounts payable and accrued expenses (225) 2,309 1,252 Asbestos claims paid (39,944) (32,851) (16,719) Pensions 206 461 (331) Income taxes 782 275 (762) Deferred income taxes (575) 271 (1,049) Long-term non-pension benefits 653 565 961 -------------------------------------------------------------------------------- Net cash from (used in) operating activities (788) 16,534 14,760 -------------------------------------------------------------------------------- Cash flows from investing activities Capital expenditures (6,482) (6,149) (3,622) Decrease (increase) in other long-term assets 355 (126) 1,023 Increase in pension assets (311) (1,004) (870) Proceeds from sales of assets 511 454 371 Payment received on ESOT note 470 430 393 Purchase of General Refractories operations (24,497) - - -------------------------------------------------------------------------------- Net cash used in investing activities (29,954) (6,395) (2,705) -------------------------------------------------------------------------------- Cash flows from financing activities Repayments of debt (122) (122) (33,190) Proceeds from borrowings 25,000 - 23,279 Dividends paid (967) (240) - Purchase of fractional shares in connection with stock split - (11) - Exercised stock options 238 - - Tax benefit on dividends paid to ESOP 28 7 - Tax effect on restricted stock plan (2) (59) - -------------------------------------------------------------------------------- Net cash from (used in) financing activities 24,175 (425) (9,911) -------------------------------------------------------------------------------- Effect of exchange rate changes (127) (501) (1,298) -------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (6,694) 9,213 846 Cash and cash equivalents at beginning of year 16,331 7,118 6,272 -------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 9,637 $ 16,331 $ 7,118 ================================================================================ See accompanying notes to consolidated financial statements. 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1994, 1993 and 1992 Note 1: Summary of Significant Accounting Policies Investments In Other Companies And Ventures Equity investments of 20% to 50% are accounted for using the equity method. This method increases or decreases the investment through recognition of the Company's share of undistributed earnings or losses of the investee company. Equity investments of more than 50% in entities are consolidated for financial reporting purposes. All intercompany balances and transactions have been eliminated. Related party transactions are not material. 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. Reimbursement Due on Paid Asbestos Claims A. P. Green typically makes expense and indemnity payments on asbestos product claims directly to the Center for Claims Resolution. Reimbursement due on paid asbestos claims represents the recoverable portion of such payments previously made by the Company. 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. 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. Income Taxes Effective January 1, 1992, A. P. Green adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," (Statement 109) and reported the cumulative effect of that accounting change in the 1992 consolidated statement of earnings. Statement 109 requires that deferred tax assets and liabilities be recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statement of earnings during the period that includes the date of the change. Foreign Currency Translation The functional currency of the Company's Canadian and United Kingdom subsidiaries is their local currency. Adjustments resulting from the currency translation of the subsidiaries' financial statements are reflected as a component of stockholders' equity. Earnings Per Share Earnings per common share are computed based on the weighted average number of shares of common stock outstanding and have been restated to reflect the three-for-two stock split effective December 10, 1993. Reclassification of Prior Year Amounts Certain prior year amounts have been reclassified to conform to the 1994 presentation. In 1992 and 1993, the Company reported its projected asbestos claims and projected insurance reimbursements relating to such claims net within accrued liabilities. With the issuance of FASB Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts," the Company determined that the amounts should be reported gross rather than net. As such, the consolidated statement of financial position as of December 31, 1994 and the consolidated statement of cash flows for the year ended December 31, 1994 reflect both the gross projected liability for asbestos claims and gross projected insurance recoveries related to those claims on a current and non-current basis. The consolidated statement of financial position as of December 31, 1993, the consolidated statements of cash flows for the years ended December 31, 1993 and 1992 and certain data for the years ended December 31, 1990 through 1993 in the comparative five-year summary have been restated to be consistent with the 1994 presentation. There was no impact on operating results of any period as a result of this "grossed-up" presentation. Note 2: Acquisitions Effective August 1, 1994, the Company acquired substantially all of the assets and assumed most of the liabilities of the refractory operations of General Refractories Company and its 21 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. Balance sheet increases resulting from this acquisition were as follows: ----------------------------------------------------------------- (In thousands) August 1, 1994 ----------------------------------------------------------------- Receivables $12,300 Inventories 22,700 Deferred income tax benefit 1,100 Other current assets 400 ----------------------------------------------------------------- Total current assets 36,500 Property, plant and equipment 18,700 Long-term pension assets 500 Other long-term assets 5,400 ----------------------------------------------------------------- Total assets $61,100 ================================================================= Accounts payable $ 8,900 Accrued payrolls 1,500 Accrued taxes other than on income 600 Accrued insurance 4,700 Accrued other 7,600 ----------------------------------------------------------------- Total current liabilities 23,300 Deferred income taxes 1,100 Long-term non-pension benefits 100 Long-term pensions 11,600 Notes payable 25,000 ----------------------------------------------------------------- Total liabilities $61,100 ================================================================= Working capital $13,200 ================================================================= In addition to the assumption of designated liabilities, the Company paid at closing a cash amount of $23,450,000. The acquisition was funded by the issuance of $25,000,000 in principal amount of unsecured notes to a group of institutional lenders. The acquisition was accounted for using the purchase method, with the operating results of General included in consolidated operating results since the date of acquisition. No financial statements of General for periods prior to the acquisition or pro forma financial information reflecting the acquisition of General as of the beginning of the year have been provided because the U.S. refractory operations of General were not combined for financial reporting purposes for the three most recently completed fiscal years and were not capable of being audited for the most recently completed fiscal year. The Company concluded, after analyzing the financial books and records of the refractory operations of General, that there could be no assurance that such financial statements or pro forma financial information would accurately reflect the financial condition, results of operations, cash flows or changes in stockholders' equity for General's refractory operations. In connection with the General acquisition, the Company obtained a Phase I and II Environmental Site Assessment (ESA) in order to determine the potential environmental impact of specific recognized environmental conditions at each of the acquired properties and estimate the costs for remediation. Based upon the results of the ESA and a report and opinion provided thereon, the Company established a $3.4 million liability for remediation costs (in accrued other) as part of the General acquisition. The majority of this liability relates to leakage and spills from underground and aboveground storage tanks and drums, and action is being taken to remediate all identified conditions, which is expected to be completed within five years. Appropriate state agencies have been notified of contamination where required, and there have been no resulting actions taken or proposed by such agencies against the Company. There was no asbestos-related liability, either for bodily injury or property damage, assumed in connection with the General acquisition. Note 3: Changes in Method of Accounting Postemployment Benefits Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." The standard requires application of the accrual method of accounting to all benefits provided to former or inactive employees, their beneficiaries and covered dependents, subsequent to their employment by the Company and prior to retirement, rather than recognizing these expenses as they are paid. The Company recognized the projected benefit obligation relating to short-term and long-term disability benefits as a cumulative effect of an accounting change, reducing net income by $255,000, or $.06 per share. The annual incremental expense is not expected to be material. Effective January 1, 1992, the Company adopted the following two Statements of Financial Accounting Standards: Income Taxes Statement 109 requires, among other things, use of the asset and liability method of accounting for income taxes rather than the deferred method previously used. The cumulative effect of this accounting change on years prior to 1992 was a reduction in the Company's deferred tax liability as of January 1, 1992. The reduction resulted in a decrease in the net loss for 1992 of $3.8 million, or $.96 per share. In addition to the cumulative effect recorded in the first quarter, the impact of the accounting change on the year ended December 31, 1992 was to increase the income tax benefit by approximately $100,000, or $0.03 per share. Postretirement Benefits Other Than Pensions Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," requires the application of accrual accounting to postretirement benefits rather than recognizing expense as claims are paid. The 22 projected benefit obligation relating to prior service cost was recognized as a cumulative effect of an accounting change as of January 1, 1992, thus increasing the net loss for 1992 by $8.0 million, or $1.99 per share. In addition to the cumulative effect recorded in the first quarter, the impact of the accounting change on the year ended December 31, 1992 was to increase the pretax loss by approximately $370,000, or $0.06 per share after tax. Note 4: Inventories Inventory classifications as of December 31, 1994 and 1993 were as follows: ----------------------------------------------------------------- (In thousands) 1994 1993 ----------------------------------------------------------------- Finished goods and work in process Valued at LIFO FIFO cost $ 36,233 $ 25,150 Less LIFO reserve (14,919) (14,003) ----------------------------------------------------------------- LIFO cost 21,314 11,147 Valued at FIFO 9,033 3,935 ----------------------------------------------------------------- 30,347 15,082 ----------------------------------------------------------------- Raw materials and supplies Valued at LIFO FIFO cost 20,007 11,017 Less LIFO reserve (5,875) (5,431) ----------------------------------------------------------------- LIFO cost 14,132 5,586 Valued at FIFO 8,973 5,067 ----------------------------------------------------------------- 23,105 10,653 ----------------------------------------------------------------- $ 53,452 $ 25,735 ================================================================= For the years ended December 31, 1994, 1993 and 1992, A. P. Green experienced liquidations of LIFO inventory quantities. The effect of these LIFO liquidations was to increase 1994 and 1993 pretax earnings by approximately $50,000 and $390,000, respectively, and decrease the 1992 pretax loss by approximately $280,000. Note 5: Property, Plant and Equipment, Net Property, plant and equipment, net, as of December 31, 1994 and 1993 was as follows: ----------------------------------------------------------------- (In thousands) 1994 1993 ----------------------------------------------------------------- Land and mineral deposits $ 7,778 $ 5,224 Buildings and realty improvements 45,618 44,198 Machinery and equipment 128,911 110,752 Construction in progress 2,973 4,725 ----------------------------------------------------------------- 185,280 164,899 Less accumulated depreciation and depletion 89,868 83,425 ----------------------------------------------------------------- $ 95,412 $ 81,474 ================================================================= Closed production facilities held for sale are included in other current assets at estimated net realizable value of $2.6 million. Note 6: Operating Leases Rental payments were approximately $1.0 million in each of the last three years. Minimum future payments under noncancellable operating leases are $800,000 in 1995 and decline progressively to $0 after 1999. In most cases, management expects expiring leases will be replaced by similar leases. Note 7: Short-Term Lines of Credit Short-term lines of credit have been established with banks in the United Kingdom for 50,000 and Canada for Cdn$250,000, each of which was unused at December 31, 1994 and 1993. Note 8: Long-Term Debt Long-term debt as of December 31, 1994 and 1993 was as follows: ----------------------------------------------------------------- (In thousands) 1994 1993 ----------------------------------------------------------------- Unsecured notes payable $25,000 $ - Industrial development revenue bonds 11,973 12,030 U.S. line of credit - - Capitalized lease obligation 189 253 ----------------------------------------------------------------- 37,162 12,283 Less: Current maturities 139 123 ----------------------------------------------------------------- $37,023 $12,160 ================================================================= The capitalized lease expires in 1997 and carries an interest rate of 11.1%. A significant portion of the industrial development revenue bonds require the payment of interest only until they mature in 1997 and thereafter. Interest rates range from 70% of prime to 8.6%. 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 commencing January 29, 1995. Annual principal repayments, which will be funded out of working capital, will commence July 29, 1996 and continue through July 29, 2001. A. P. Green is subject to certain restrictive covenants, including levels of tangible net worth, working capital, 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. In 1994, the Company's $15 million U.S. long-term line of credit was extended to March 1, 1996, and restrictive covenants were amended or added to coincide with those reflected in the agreement associated with the unsecured notes payable. Borrowings under this line of credit may be made for working 23 capital, acquisitions and other corporate purposes, with interest charged at prime, which was 8.5% at December 31, 1994. Approximately $2.1 million of standby letters of credit were outstanding against the line at December 31, 1994, leaving an available balance of approximately $12.9 million. Based on the borrowing rates currently available to the Company for debt with similar terms and average maturities, the fair value of the industrial development revenue bonds and unsecured notes payable would not differ materially from carrying value at December 31, 1994. Aggregate maturities of long-term debt are approximately $2.7 million, $3.5 million, $5.1 million and $5.1 million for 1996 through 1999, respectively. The net book value of property, plant and equipment pledged as security or collateral for outstanding long-term debt was approximately $2.3 million at December 31, 1994. Note 9: Income Taxes Income tax expense (benefit) attributable to income (loss) from continuing operations for the years ended December 31, 1994, 1993 and 1992 consists of the following: ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Current Federal $ 2,774 $ 1,536 $ 573 State 423 367 193 Foreign 280 264 (169) Deferred (573) 728 (2,618) ----------------------------------------------------------------- $ 2,904 $ 2,895 $(2,021) ================================================================= 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 (loss) before income taxes). The primary items contributing to the lower effective tax rate in 1994 were higher depletion at APG Lime and a lower Foreign Sales Corporation tax rate. The primary item contributing to the lower effective tax rate in 1993 results from the $1.3 million transfer of land to the City of Little Rock, Arkansas, which is tax deductible at fair value. ----------------------------------------------------------------- 1994 1993 1992 ----------------------------------------------------------------- U.S. statutory rate 34.0% 34.0% (34.0)% Transfer of appreciated land - (4.7) - Excess tax depletion (4.2) (4.1) (7.2) State and local income taxes, net 2.0 1.7 .3 Foreign tax rate differential .3 .1 .2 Other, net (1.8) 3.8 1.7 ----------------------------------------------------------------- Effective tax rate 30.3% 30.8% (39.0)% ================================================================= For the years ended December 31, 1994, 1993 and 1992, deferred income tax expense (benefit) of approximately $600,000, $700,000 and $(2.6) million, respectively, resulted from temporary differences in the recognition of income and expense for income tax and financial reporting purposes. The sources and tax effects of those temporary differences consist of the following: ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Accelerated tax depreciation $ (1,145) $ (951) $ (602) Accrued liabilities and allowances 1,250 516 (639) Allowances for asset valuation (1,346) - 24 Capital loss utilization (carryforward) 120 45 (598) Net operating loss utilization (carryforward) 5 1,783 (467) Alternative minimum tax utilization (carryforward) 183 (409) (510) Other, net 360 (256) 174 ----------------------------------------------------------------- Total deferred tax provision $ (573) $ 728 $(2,618) ================================================================= The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994, 1993 and 1992 consist of the following: ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Deferred tax assets Accrued liabilities, differences in expense recognition $12,087 $ 9,994 $ 9,540 Alternative minimum tax carryforwards 1,248 1,431 1,022 Inventories, overhead capitalization differences 492 723 697 Capital loss carryforward 432 552 598 Restricted stock, differences in compensation recognition 18 66 282 Net operating loss carryforwards 42 47 1,830 ----------------------------------------------------------------- 14,319 12,813 13,969 Less valuation allowance - - - ----------------------------------------------------------------- 14,319 12,813 13,969 Deferred tax liabilities Fixed assets, principally depreciation method differences 17,159 17,463 18,420 Prepaid pension costs 2,728 2,793 2,592 State, local and other taxes 2,423 2,613 2,347 Inventories, differences in LIFO methods 1,917 989 875 Asset valuation differences 415 - - ----------------------------------------------------------------- 24,642 23,858 24,234 ----------------------------------------------------------------- Net deferred tax liability $10,323 $11,045 $10,265 ================================================================= 24 At December 31, 1994, A. P. Green has alternative minimum tax credit carryforwards of approximately $1.2 million which are available to reduce future federal ordinary income taxes over an indefinite period. 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 1988 through 1994. As of December 31, 1994, the Internal Revenue Service was conducting a review of years 1988 through 1993, which should be completed during 1995. A. P. Green has not recognized a deferred tax liability for the undistributed earnings of its wholly owned foreign subsidiaries that arose in 1994 and prior years since the Company does not expect those unremitted earnings to become taxable in the foreseeable future. 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, 1994, 1993 and 1992, the undistributed earnings of these subsidiaries were approximately $3.3 million, $2.9 million and $2.8 million, respectively. Note 10: Research and Development Research and development costs are expensed as incurred and amounted to approximately $2.5 million, $2.2 million and $2.4 million during 1994, 1993 and 1992, 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) and the 1993 Performance Plan (the 1993 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 (in accordance with the Management Incentive Compensation Plan). Under the 1987 plan, shares are also available for issuance in the form of stock appreciation rights. Following is a summary by Plan of the common shares issued and available for issuance: ----------------------------------------------------------------- 1987 1989 1993 Plan Plan Plan Total ----------------------------------------------------------------- Common stock reserved for issuance 195,000 195,000 225,000 615,000 Shares issued 100,500 53,621 - 154,121 Shares committed in the form of stock options 86,250 111,000 206,250 403,500 ----------------------------------------------------------------- Remaining shares available for grant 8,250 30,379 18,750 57,379 ================================================================= All share amounts have been restated to reflect the three-for-two stock split effective December 10, 1993. At December 31, 1994, restrictions had lapsed with respect to 99,000 of the shares issued as restricted stock. Restrictions with respect to the remaining 3,000 shares are scheduled to lapse in 1995. Compensation expense relating to the restricted stock grants is recognized over the applicable vesting periods and the unamortized portion of the deferred compensation related to the restricted stock is reflected as a component of stockholders' equity. Stock options outstanding under each of the plans and their respective exercise prices are summarized as follows: ----------------------------------------------------------------- Number of Exercise Price at Which Shares Price Exercisable ----------------------------------------------------------------- 1987 Plan 86,250 $18.33 N/A 1989 Plan 111,000 13.33 N/A 1993 Plan 41,250 12.33 $15.33 41,250 12.33 17.00 41,250 12.33 18.67 41,250 12.33 20.00 41,250 12.33 22.00 ----------------------------------------------------------------- 206,250 ----------------------------------------------------------------- 403,500 ================================================================= All of the options having exercise prices of $18.33 and $13.33 per share were exercisable at December 31, 1994. All of the options having an exercise price of $12.33 become exercisable if, prior to February 18, 1998 and for a period of 30 consecutive trading days, the last transaction price of the common stock equals or exceeds the price at which the options become exercisable as outlined above. To the extent these options become exercisable, they will remain exercisable until February 18, 2003. To the extent that all or a portion of the options do not become exercisable due to failure to reach the designated stock price levels, such options will become exercisable for one day on February 19, 1998. At December 31, 1994, the options having a price at which exercisable of $15.33, $17.00 and $18.67 per share were exercisable. None of the remaining options having an exercise price of $12.33 per share were exercisable, as the last transaction price of the common stock had not equalled or exceeded $20.00 per share for 30 consecutive trading days. 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. The Company contributed $578,000 to these plans during 1994, primarily to those plans acquired from General, whereas the Company's previously held plans required minimal funding in 1993 and 1992. The plans' assets consist primarily of listed common stocks and debt securities. 25 Net pension (income) expense for the years ended December 31, 1994, 1993 and 1992 included the following components: ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Service cost of benefits earned during period $ 1,793 $ 1,289 $ 1,157 Interest cost on projected benefit obligations 6,751 5,554 5,516 Actual (gain) loss on assets 1,055 (10,149) (4,743) Net amortization and deferral (8,892) 2,754 (2,694) ----------------------------------------------------------------- Net pension (income) expense 707 (552) (764) Multiemployer pension expense 181 179 193 ----------------------------------------------------------------- Total pension (income) expense $ 888 $ (373) $ (571) ================================================================= The majority of the Company's pension plans have plan assets that exceed accumulated benefit obligations. However, of the plans acquired from General in 1994, two of the three U.S. plans and the Canadian hourly plan have accumulated benefit obligations that exceed plan assets. The following table sets forth the actuarial present value of benefit obligations and funded status at December 31, 1994 and 1993. Plan asset values are as of September 30, 1994 and 1993: ------------------------------------------------------------------------------- (In thousands) 1994 1993 ------------------------------------------------------------------------------- Assets Accum. Assets Accum. Exceed Benefits Exceed Benefits Accum. Exceed Accum. Exceed Benefits Assets Benefits Assets ------------------------------------------------------------------------------- Accumulated benefit obligations, substantially all of which are vested $(76,994) $(23,903) $(73,788) $(463) Effect of projected future compensation levels (5,800) - (5,770) - ------------------------------------------------------------------------------- Projected benefit obligations (82,794) (23,903) (79,558) (463) Plans' assets at fair value 87,694 13,686 89,404 380 ------------------------------------------------------------------------------- Excess (deficiency) 4,900 (10,217) 9,846 (83) Unrecognized net asset at transition (4,073) (27) (4,720) (9) Unrecognized net (gain) loss 2,747 (1,500) (2,442) 37 Unrecognized prior service cost 4,610 82 5,018 25 ------------------------------------------------------------------------------- Prepaid (accrued) pension cost $ 8,184 $(11,662) $ 7,702 $ (30) =============================================================================== U.S. Pensions The expected long-term rate of return on plan assets was 8.5% for 1994, 1993 and 1992. A weighted average discount rate of 8.25% was used for 1994, 7.5% was used for 1993 and 8.0% was used for 1992. A rate of increase in future compensation levels of 5.0% for 1994, 1993 and 1992 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 1994, 1993 and 1992. A weighted average discount rate of 8.0% and a 6.5% rate of increase in future compensation levels were used for all three years. Note 13: Long-term Non-Pension Benefits The Company sponsors two defined benefit postretirement plans that cover both salaried and nonsalaried employees hired prior to January 1, 1991. One plan provides health care benefits 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, 1994 and 1993: ----------------------------------------------------------------- (In thousands) 1994 1993 ----------------------------------------------------------------- Accumulated postretirement benefit obligation Retirees and beneficiaries $10,360 $11,232 Fully eligible active plan participants 1,341 1,280 Other active plan participants 1,928 2,212 ----------------------------------------------------------------- Accumulated postretirement benefit obligation 13,629 14,724 Unrecognized net gain (loss) from past experience different from that assumed 1,086 (601) ----------------------------------------------------------------- Accrued postretirement benefits other than pensions $14,715 $14,123 ================================================================= The Company's postretirement health care plan and life insurance plan are unfunded; the accumulated postretirement benefit obligation at December 31, 1994 and 1993 is $12.7 million and $13.8 million, respectively, for the health care plan and $906,000 and $915,000, respectively, for the life insurance plan. 26 Net postretirement benefits cost other than pensions for the years ended December 31, 1994, 1993 and 1992 included the following components: ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Service cost of benefits earned during the period $ 355 $ 337 $ 294 Interest cost on accumulated postretirement benefit obligation 1,044 1,051 1,056 Immediate recognition of transition obligation - - 12,597 ----------------------------------------------------------------- Net postretirement benefits cost other than pensions $ 1,399 $ 1,388 $13,947 ================================================================= For measurement purposes, a 15% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1992; the rate was assumed to decrease gradually to 6% by 2001 and remain at that level thereafter. The Company plans to limit its portion of future cost increases for postretirement health care to 7% per annum. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1994 by 9.4%, or $1.2 million, but would not alter the service and interest cost components of net postretirement benefits cost other than pensions for the year then ended due to the 7% cap on the Company's share of cost increases. The discount rate used in determining the accumulated postretirement benefit obligation was 8.25% at December 31, 1994, 7.5% at December 31, 1993 and 8.25% at December 31, 1992. Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." This standard requires use of the accrual method of accounting for benefits provided to former or inactive employees after employment but before retirement, rather than recognizing these expenses as they are paid. The projected benefit obligation relating to short-term and long-term disability benefits provided by the Company to salaried employees was recognized as a cumulative effect of an accounting change as of January 1, 1994, reducing net income by $255,000, or $.06 per share. The annual incremental expense for 1994 was not material and the projected benefit obligation was $555,000 as of December 31, 1994. Note 14: Employee Savings Plans The Company sponsors two 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 APG Lime Corp. and the Pryor, Oklahoma, Ellisville, Mississippi, Middletown, Pennsylvania, Minerva, Ohio and Pueblo, Colorado plants are eligible to participate. Participants are entitled to contribute between 2% and 15% of compensation. The Company makes contributions to the Employee Stock Ownership Trust. Amounts charged against income were approximately $1.2 million, $1.4 million and $1.4 million in 1994, 1993 and 1992, respectively. The other 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 some of these locations, the Company matches 25% of the first 6% of a participant's contribution. Amounts charged against income were approximately $151,000, $128,000 and $110,000 in 1994, 1993 and 1992, respectively. Note 15: Employee Stock Ownership Trust In 1989, A. P. Green established an Employee Stock Ownership Trust (ESOT). All U.S. full-time salaried employees and the hourly employees of APG Lime Corp. and the Pryor, Oklahoma, Ellisville, Mississippi, Middletown, Pennsylvania, Minerva, Ohio and Pueblo, Colorado plants are eligible to participate. The ESOT purchased 402,684 previously unissued shares of A. P. Green Common Stock. On February 1, 1990, 45,076 additional shares were issued to the ESOT in accordance with the Stock Purchase Agreement between LaSalle National Bank, as Trustee, and A. P. Green. The aggregate purchase price of $10.0 million was financed entirely by A. P. Green. To secure the financing, the ESOT has pledged the shares to A. P. Green. A. P. Green makes contributions to the ESOT, which are used by the Trustee to make interest and principal payments to A. P. Green. ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Interest payments on ESOT debt $ 806 $ 847 $ 885 Principal payments 471 430 393 Less Dividends on ESOT shares used for debt service (104) (27) - Forfeitures (58) - - ----------------------------------------------------------------- Contributions to ESOT 1,115 1,250 1,278 Administrative expenses 159 127 82 ----------------------------------------------------------------- Employee savings plan cost $1,274 $1,377 $1,360 ================================================================= 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 $795,000, $837,000 and $876,000 in 1994, 1993 and 1992, respectively. 27 Note 16: Preferred and Common Stock Authorized stock consists of 10,000,000 shares of common stock, $1 par value, and 2,000,000 shares of preferred stock, $1 par value. The preferred stock can be issued in one or more series without stockholder approval. One Preferred Share Purchase Right (Right) is attached to each outstanding share of common stock. The Rights become exercisable 10 days following a public announcement that a party acquired, or obtained the right to acquire, beneficial ownership of 20% or more of A. P. Green's outstanding common shares, or 10 days following commencement or announcement of a tender offer or exchange offer for 30% or more of A. P. Green's outstanding common shares. When exercisable, each Right entitles the registered holder to purchase from A. P. Green 1/10 of a share of a junior participating preferred stock, Series A, $1 par value per share, which is substantially similar to one common share, at a price of $45 per 1/10 of a preferred share, subject to adjustment. If A. P. Green is involved in a merger or business combination or if the acquiring entity engages in "self dealing transactions" after the Rights become exercisable, the Rights will entitle the holder to buy a number of shares of common stock of the acquiring company or of A. P. Green, as the case may be, having a fair market value at that time of twice the exercise price of the Right. On November 10, 1993 the Board of Directors approved a three-for- two stock split, effected in the form of a stock dividend payable December 10, 1993 to stockholders of record on November 26, 1993. The stock split resulted in the issuance of 1,485,891 additional shares from authorized but unissued shares. A transfer of $1,485,891 was made from additional paid-in capital to common stock at the stated par value. Per share amounts for all prior periods presented have been restated to reflect the stock split. Note 17: Supplemental Cash Flow Information Cash payments (receipts) and selected non-cash investing and financing activities during 1994, 1993 and 1992 were as follows: ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Income taxes paid (refunded) $2,125 $2,401 $ (635) Interest paid 1,039 1,058 1,309 ================================================================= The income tax refund received during 1992 was largely due to amended returns filed for 1988 and 1989 to carryback 1990 excess foreign tax credits. Other noncash activities during 1993 included a write-up to fair value of land in Little Rock, Arkansas and transfer of that same property to the City of Little Rock. Note 18: Litigation Asbestos-related claims - Personal Injury A. P. Green is among numerous defendants in lawsuits pending as of December 31, 1994 that seek to recover compensatory, and in many cases, punitive damages for personal injury allegedly resulting from exposure to asbestos-containing products manufactured, sold or installed by A. P. Green. A. P. Green is a member of the Center for Claims Resolution (the Center), an organization of twenty companies (Members) who were formerly distributors or manufacturers of asbestos-containing products. The Center administers, evaluates, settles, pays and defends all of the asbestos-related personal injury lawsuits involving its Members. Under the terms of the Center Agreement, each Member's portion of the liability payments and defense costs are based upon, among other things, the number and type of claims brought against it. Claims activity for each of the years ended December 31, 1994 and 1993 was as follows: ----------------------------------------------------------------- 1994 1993 ----------------------------------------------------------------- Claims pending at January 1 52,122 50,007 Claims filed 14,836 26,100 Cases settled, dismissed or otherwise resolved 16,038 23,985 ----------------------------------------------------------------- Claims pending at December 31 50,920 52,122 ================================================================= Average settlement amount per claim (1) $ 1,816 $ 1,728 ================================================================= (1) Substantially all settlements are covered by the Company's insurance program. On January 15, 1993, the Members were named as defendants in a class action lawsuit brought on behalf of all persons who have been occupationally exposed to asbestos-containing products of the Members and who have unasserted claims for such exposure (the Class) pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania. At about the same time, the Center negotiated and filed with the Court a settlement (the Settlement) between the Members and the Class. Under the terms of the Settlement, the Members have agreed to pay compensation to any member of the Class who has, according to objective medical criteria, physical impairment as a result of such exposure. Different levels of compensation will be paid depending on the type and degree of physical impairment. No punitive damages will be paid. The Settlement provides, among other things, for a cap on the number of claims to be processed each year during the next ten years and a range of settlement values for each disease category. Settlement values are based on historical average payments by the Center for similar cases. Each Member will be responsible for its percentage share of each claim payment (no joint and several liability), such shares having been previously established. Hearings were held to determine the fairness of the Settlement and the court ruled that the Settlement was fair. This ruling has been appealed by certain objectors. In a third party action filed simultaneously with the class action (and in parallel Alternate Dispute Resolution proceedings), the Members have asked for a declaratory judgment against their respective insurers that such insurers cannot use the Settlement as a defense to their payment under applicable 28 policies of insurance. The Settlement is expressly contingent upon such declaratory relief. In addition, some Members, including A. P. Green, have asked for a declaratory judgment against their insurers with whom they have not reached coverage resolutions. No decision has been rendered at this date with respect to these issues. Under the assumption that it receives these court approvals, the Settlement has provided the Company with a basis for estimating its potential liability and related insurance recovery associated with asbestos cases. The Company has reviewed its insurance policies, historical settlement amounts, the number of pending cases and the projected number of claims to be filed pursuant to the Settlement and the Company's share of amounts to be paid thereunder. The Company has also reviewed its contractual liability for the payment of deductibles under insurance policies defending asbestos cases brought against a former subsidiary. Based upon such reviews, the Company has estimated its liability for such cases and claims to be approximately $135.6 million and $170.0 million at December 31, 1994 and 1993, respectively, with partially offsetting projected insurance reimbursements of approximately $132.9 million and $166.4 million, respectively. While management understands the inherent uncertainty in litigation of this type and the possibility that past costs may not be indicative of future costs, management does not believe that these claims and cases will have any additional material adverse effect on the Company's financial position or results of operations. Management anticipates that payments for these claims will occur over at least ten years and can be made from normal operating cash sources. In addition to asbestos-related personal injury claims asserted against A. P. Green, a number of claims have been asserted against Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a subsidiary of the Company. These claims have been and are currently being handled by such subsidiary's insurance carriers. No claim for reimbursement of defense or indemnity payments has been made against the Company or such subsidiary by any such carriers. The Company is contractually liable to The E. J. Bartells Company (Bartells), a former subsidiary, for deductible amounts on certain insurance policies insuring Bartells against asbestos- related personal injury claims issued when it was owned by A. P. Green. The Company has estimated the amounts of such deductibles and provision for such estimate was made in the Company's 1992 financial statements. Asbestos-related claims-Property Damage A. P. Green is among numerous defendants in a property damage class action suit pending in South Carolina. A. P. Green previously has been dismissed from a number of property damage cases and believes that it should be dismissed from the South Carolina case based on the end uses of its products. A similar suit pending in the State of Oregon involves a former wholly owned subsidiary of the Company and is being defended by the Company's insurance carrier. Based upon the Company's history in these asbestos-related property damage claims, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's financial position or results of operations. There was no assumption of asbestos-related liability, either personal injury or property damage, in connection with the General acquisition. Environmental The EPA or private parties have named the Company or one of its subsidiaries as a potentially responsible party in connection with two superfund sites in the United States. The Company is a de minimis party with respect to one of the sites and expects to arrive at a settlement agreement and Consent Decree with respect to it for an amount of not more than $10,000. With respect to the second, involving a wholly owned subsidiary of the Company, there does not appear to be any evidence of delivery to the site of hazardous material by the subsidiary. An estimate has been made of the costs to be incurred in these matters and the Company has recorded a reserve respecting those costs. Other From time to time, A. P. Green is subject to claims and other lawsuits that arise in the ordinary course of business, some of which may seek damages in substantial amounts, including punitive or extraordinary damages. Reserves for these claims and lawsuits are recorded to the extent that losses are deemed probable and are estimable. In the opinion of management, the disposition of all current claims and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of A. P. Green. Note 19: Industry and Geographic Segments A. P. Green operates principally in two industry segments: Industrial Lime and Refractory Products and Services. Segment net sales include products sold and services rendered to unaffiliated customers. Interindustry segment sales were immaterial for the periods presented. No single customer accounted for more than 10% of consolidated annual net sales in any such period. Segment operating profit includes all costs and expenses directly related to the segment involved and a reasonable allocation of general costs and expenses which benefit more than one segment. General corporate expenses, interest income and interest expense are shown as separate line items in order to arrive at consolidated earnings (loss) before income taxes and cumulative effect of accounting changes. Corporate identifiable assets include those assets maintained for corporate purposes, which are not directly related to the operations of either industry segment. 29 Industry Segments ----------------------------------------------------------------- (In thousands) 1994 1993 1992 ----------------------------------------------------------------- Net Sales ----------------------------------------------------------------- Refractory products and services $160,934 $128,627 $136,070 Industrial lime 35,144 34,587 32,494 Intersegment eliminations (159) (252) (255) ----------------------------------------------------------------- $195,918 $162,962 $168,309 ================================================================= Operating Profit ----------------------------------------------------------------- Refractory products and services $ 11,463 $ 10,222 $ 3,028 Industrial lime 5,429 5,939 4,729 ----------------------------------------------------------------- 16,892 16,161 7,757 ----------------------------------------------------------------- Other charges to income General corporate expenses, net 6,946 7,072 6,656 Interest expense 1,947 1,058 1,255 Interest income (1,296) (1,361) (1,393) Provision for litigation and claim settlement - - 6,427 ----------------------------------------------------------------- 7,597 6,769 12,945 ----------------------------------------------------------------- Earnings (loss) before income taxes and cumulative effect of accounting changes $ 9,295 $ 9,392 $ (5,188) ================================================================= Identifiable Assets ----------------------------------------------------------------- Refractory products and services $311,514 $273,061 $287,531 Industrial lime 47,995 45,827 44,200 Corporate 13,613 20,426 11,681 ----------------------------------------------------------------- $373,122 $339,314 $343,412 ================================================================= Depreciation, Depletion and Amortization ----------------------------------------------------------------- Refractory products and services $ 4,967 $ 4,336 $ 4,286 Industrial lime 2,653 2,419 2,279 Corporate 1,105 916 981 ----------------------------------------------------------------- $ 8,725 $ 7,671 $ 7,546 ================================================================= Capital Expenditures ----------------------------------------------------------------- Refractory products and services $ 2,154 $ 1,448 $ 2,204 Industrial lime 3,482 4,220 1,126 Corporate 846 481 292 ----------------------------------------------------------------- $ 6,482 $ 6,149 $ 3,622 ================================================================= A. P. Green's principal operations are located in the United States, the United Kingdom and Canada. Transactions between geographic areas are accounted for on an "arm's length" basis. Export sales to foreign, unaffiliated customers represent less than 10% of consolidated annual net sales. --------------------------------------------------------- Geographic Segments --------------------------------------------------------- (In thousands) 1994 1993 1992 --------------------------------------------------------- Net Sales --------------------------------------------------------- United States $176,869 $147,362 $144,785 Canada 17,876 12,013 19,142 United Kingdom 7,336 8,316 9,415 Intersegment transfers (6,163) (4,729) (5,033) --------------------------------------------------------- $195,918 $162,962 $168,309 ========================================================= Earnings (Loss) Before Income Taxes and Cumulative Effect of Accounting Changes --------------------------------------------------------- United States $ 8,215 $ 8,598 $ (5,266) Canada 744 394 (298) United Kingdom 336 400 376 --------------------------------------------------------- $ 9,295 $ 9,392 $ (5,188) ========================================================= Identifiable Assets --------------------------------------------------------- United States $339,380 $307,967 $319,242 Canada 15,887 7,301 8,373 United Kingdom 4,242 3,620 4,116 Corporate 13,613 20,426 11,681 --------------------------------------------------------- $373,122 $339,314 $343,412 ========================================================= 30 Note 20: Quarterly Financial Highlights (Unaudited) --------------------------------------------------------------- (Dollars in thousands, First Second Third Fourth except per share data) Quarter Quarter Quarter Quarter --------------------------------------------------------------- 1994 Net sales $37,503 $40,849 $54,255 $63,311 Gross profit 6,106 7,452 9,288 11,652 Earnings before cumulative effect of an accounting change 436 1,356 2,176 2,705 Cumulative effect of an accounting change (255) - - - Net earnings 181 1,356 2,176 2,705 Earnings per common share before cumulative effect of an accounting change .11 .34 .54 .66 Cumulative effect of an accounting change (.06) - - - Net earnings per common share .05 .34 .54 .66 --------------------------------------------------------------- 1993 Net sales $39,505 $41,053 $40,723 $41,681 Gross profit 7,839 8,812 7,892 7,540 Net earnings 1,334 1,776 1,770 1,617 Net earnings per common share .33 .44 .44 .41 =============================================================== 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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 3 of Notes to Consolidated Financial Statements, the Company changed its method of accounting for postretirement benefits other than pensions and its method of accounting for income taxes in 1992, and changed its method of accounting for postemployment benefits in 1994. /s/ KPMG Peat Marwick LLP St. Louis, Missouri February 13, 1995 31 COMPARATIVE FIVE-YEAR SUMMARY (Dollars in thousands, except per share data) ---------------------------------------------------------------------------- For years ended December 31, 1994 1993 1992 1991 1990 ---------------------------------------------------------------------------- Operating Items Net sales $195,918 $162,962 $168,309 $170,298 $186,450 Gross profit 34,498 32,083 24,217 17,762 28,179 Earnings (loss) before income taxes and cumulative effect of accounting changes 9,295 9,392 (5,188) (7,833) 962 Earnings (loss) before cumulative effect of accounting changes 6,673 6,497 (3,167) (4,963) 108 Cumulative effect of accounting changes, net of tax (255) - (4,134) - - ---------------------------------------------------------------------------- Net earnings (loss) 6,418 6,497 (7,301) (4,963) 108 Per share data (1) Earnings (loss) before cumulative effect of accounting changes, net of tax $ 1.65 $ 1.62 $ (.79) $ (1.24) $ .03 Cumulative effect of accounting changes, net of tax (.06) - (1.03) - - ---------------------------------------------------------------------------- Net earnings (loss) per common share 1.59 1.62 (1.82) (1.24) .03 Dividends .24 .06 - .30 .40 Financial Items Working capital $ 78,312 $ 54,198 $ 45,714 $ 46,138 $ 53,289 Current ratio 1.9:1 1.9:1 1.8:1 2.0:1 2.4:1 Capital expenditures $ 6,482 $ 6,149 $ 3,622 $ 6,442 $ 11,414 Depreciation, depletion and amortization 8,725 7,671 7,546 7,013 6,487 Total assets 373,122 339,314 343,412 368,468 383,343 Long-term debt 37,023 12,160 12,284 16,017 15,289 Stockholders' equity 107,038 100,930 94,751 102,765 108,634 Debt to total capitalization (2) 25.7% 10.8% 11.6% 17.8% 16.2% ============================================================================ (1) All per share data has been restated to reflect the December 10, 1993 three-for-two stock split. (2) Calculated as total Debt (long-term debt including current maturities) divided by total stockholders' equity plus total Debt. Common Stock, Market Prices and Dividends A. P. Green Industries, Inc.'s common stock is traded in the over-the-counter market, and its quotations are reported in the National Market System of the National Association of Securities Dealers Automated Quotation System (NASDAQ) under the symbol APGI. The approximate number of stockholders of record of A. P. Green's common stock at December 31, 1994 was 4,300. The following table sets forth the high and low per share sale prices as reported in the NASDAQ and dividends for each quarter during the last two years, restated to reflect the December 10, 1993 three-for-two stock split. 1994 1993 --------------------------------------------------------------------- Cash Cash Quarter Ended Sale Price Dividend Sale Price Dividend High Low Declared High Low Declared --------------------------------------------------------------------- March 31 $20.50 $16.50 $.06 $12.67 $10.17 $ - June 30 19.50 17.25 .06 14.08 12.50 - September 30 18.55 16.50 .06 15.83 13.33 - December 31 20.00 17.50 .06 17.75 15.00 .06 ===================================================================== 32 EX-22 5 Exhibit 22 to Annual Report On Form 10-K WHOLLY OWNED SUBSIDIARIES OF A. P. GREEN INDUSTRIES, INC. Name Jurisdiction Incorporated APG Foreign Sales Corporation Virgin Islands APG Lime Corp. Delaware A. P. Green Refractories (Canada) Ltd. Canada 1086215 Ontario Inc. Canada A. P. Green Refractories, Inc. Delaware A. P. Green Refractories Limited United Kingdom Liptak Bradley Limited United Kingdom APG Refractories Corp. Delaware Detrick Refractory Fibers, Inc. Mississippi EX-24 6 Exhibit 24 to Form 10-K Independent Auditors' Consent The Board of Directors and Stockholders A. P. Green Industries, Inc.: We consent to incorporation by reference in the registration statement (No. 33-21012) on Form S-8 of A. P. Green Industries, Inc. and subsidiaries of our report dated February 13, 1995, relating to the consolidated statements of financial position of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1994 and 1993, 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, 1994, and the related schedule, which report appears in the December 31, 1994 annual report on Form 10-K of A. P. Green Industries, Inc. /s/ KPMG Peat Marwick LLP St. Louis, Missouri March 23, 1995 EX-28 7 Exhibit 28(a) to Form 10-K FORM 11-K (X) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-16452 A. Full title of the plan and the address of the plan if different from that of the issuer named below: A. P. GREEN INVESTMENT PLAN (address same as below) B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office: A. P. Green Industries, Inc. Green Boulevard Mexico, Missouri 65265 A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Financial Statements and Schedules September 30, 1994 and 1993 (With Independent Auditors' Report Thereon) A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Table of Contents and Definitions Table of Contents: Independent Auditors' Report Statement of Net Assets Available for Plan Benefits, September 30, 1994 Statement of Net Assets Available for Plan Benefits, September 30, 1993 Statement of Changes in Net Assets Available for Plan Benefits, Year ended September 30, 1994 Statement of Changes in Net Assets Available for Plan Benefits, Year ended September 30, 1993 Notes to Financial Statements, September 30, 1994 and 1993 Schedule -------- Item 27a: Schedule of Assets Held for Investment Purposes, September 30, 1994 1 Schedule of Assets Which Were Both Acquired and Disposed of Within the Plan Year * Item 27b - Schedule of Loans or Fixed Income Obligations in Default * Item 27c - Schedule of Leases in Default or Classified as Uncollectible * Item 27d - Schedule of (5%) Reportable Transactions, Year ended September 30, 1994 2 Item 27e - Schedule of Non-Exempt Transactions With Parties-in-Interest * * The Trustees have certified that there were no assets acquired and disposed of within the year ended September 30, 1994 which require separate disclosure, no party-in-interest transactions during the year ended September 30, 1994, and no obligations or leases in default at September 30, 1994. Definitions: Plan - A.P. Green Industries, Inc. Investment Plan Plan Administrator - The Benefits Administration Committee Trustees - Mercantile Bank of St. Louis N.A. and LaSalle National Trust, N.A. ERISA - Employee Retirement Income Security Act of 1974 ESOT - Employee Stock Ownership Trust Company - A.P. Green Industries, Inc. Independent Auditors' Report The Employee Benefits Committee A.P. Green Industries, Inc. Investment Plan: We have audited the statements of net assets available for plan benefits of the A.P. Green Industries, Inc. Investment Plan (the Plan) as of September 30, 1994 and 1993, and the related statements of changes in net assets available for plan benefits for the years then ended. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these 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 of 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 financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Plan as of September 30, 1994 and 1993, and the changes in net assets available for plan benefits for the years then ended, in conformity with generally accepted accounting principles. Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of assets held for investment purposes and reportable transactions are presented for the purpose of additionalanalysis and are not a required part of the basic financial statements but are supplementary information required by the Department of Labor's Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. The Fund Information in the statement of net assets available for benefits and the statement of changes in net assets available for benefits is presented for purposes of additional analysis rather than to present the net assets available for plan benefits and changes in net assets available for plan benefits of each fund. The supplemental schedules and Fund Information have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, such information is fairly presented in all material respects in relation to the basic financial statements taken as a whole. /s/ KPMG Peat Marwick LLP November 11, 1994 FINANCIAL STATEMENTS A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Statement of Net Assets Available for Plan Benefits September 30, 1994
USG Total Common Guaranteed Equity Balanced Loan stock Total 401(k) & stock income index fund suspense fund 401(k) ESOT ESOT ------ ---------- ------ -------- -------- ----- ------ ---- -------- Assets: Investments: Marketable, at fair value: Common stocks $6,273,507 - - - - - 6,273,507 7,645,209 13,918,716 Mutual funds - 13,869,098 2,038,220 1,705,427 - - 17,612,745 - 17,612,745 Insurance contracts, at contract value - - - - - - - - - Participant notes receivable - - - - 566,767 - 566,767 - 566,767 ---------- ---------- --------- --------- ------- ----- ---------- --------- ---------- Total investments 6,273,507 13,869,098 2,038,220 1,705,427 566,767 - 24,453,019 7,645,209 32,098,228 Cash and cash equivalents (5,922) 137,336 21 - 44 4,313 135,792 149 135,941 Accrued interest and dividends receivable 46 720 6 5 - 15 792 7 799 Contributions receivable 15,626 17,966 8,284 5,661 - - 47,537 - 47,537 ---------- ---------- --------- --------- ------- ----- ---------- --------- ---------- Total assets 6,283,257 14,025,120 2,046,531 1,711,093 566,811 4,328 24,637,140 7,645,365 32,282,505 Liabilities - note payable to A.P. Green Industries, Inc. - - - - - - - 8,020,769 8,020,769 ---------- ---------- --------- --------- ------- ----- ---------- --------- ---------- Net assets available for plan benefits $6,283,257 14,025,120 2,046,531 1,711,093 566,811 4,328 24,637,140 (375,404) 24,261,736 ========== ========== ========= ========= ======= ===== ========== ========= ========== See accompanying notes to financial statements. A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Statement of Net Assets Available for Plan Benefits September 30, 1993 USG Total Common Guaranteed Equity Balanced Loan stock Total 401(k) & stock income index fund suspense fund 401(k) ESOT ESOT ------ ---------- ------ -------- -------- ----- ------ ---- -------- Assets: Investments: Marketable, at fair value: Common stocks $5,219,233 - - - - - 5,219,233 6,618,116 11,837,349 Mutual funds - 10,799,286 2,250,627 1,594,488 - - 14,644,401 - 14,644,401 Insurance contracts, at contract value - 2,445,428 - - - - 2,445,428 - 2,445,428 Participant notes receivable - - - - 524,092 - 524,092 - 524,092 ---------- ---------- --------- --------- ------- ------ ---------- --------- ---------- Total investments 5,219,233 13,244,714 2,250,627 1,594,488 524,092 - 22,833,154 6,618,116 29,451,270 Cash and cash equivalents 13,918 111,645 - - - 54,411 179,974 8 179,982 Accrued interest and dividends receivable 91 107,415 11,438 3 - 118 119,065 3 119,068 Contributions receivable 14,536 16,696 7,319 5,232 - - 43,783 - 43,783 ---------- ---------- --------- --------- ------- ------ ---------- --------- ---------- Total assets 5,247,778 13,480,470 2,269,384 1,599,723 524,092 54,529 23,175,976 6,618,127 29,794,103 Liabilities - note payable to A.P. Green Industries, Inc. - - - - - - - 8,491,512 8,491,512 ---------- ---------- --------- --------- ------- ----- ---------- --------- ---------- Net assets available for plan benefits $5,247,778 13,480,470 2,269,384 1,599,723 524,092 54,529 23,175,976 (1,873,385) 21,302,591 ========== ========== ========= ========= ======= ====== ========== ========= ========== See accompanying notes to financial statements. A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Statement of Changes in Net Assets Available for Plan Benefits Year ended September 30, 1994 USG Total Common Guaranteed Equity Balanced Suspense Loan stock Total 401(k) & stock income index fund account suspense fund 401(k) ESOT ESOT ------ ---------- ------ -------- -------- -------- ----- ------ ---- -------- Additions: Employer contributions $ - - - - - - - - 1,114,533 1,114,533 Employee contributions 405,390 471,136 229,130 153,762 - - - 1,259,418 - 1,259,418 Interest and dividends 84,015 17,761 51,407 48,347 48,554 9 722 250,815 127,433 378,248 Realized gain (loss) 93,209 72,200 127,109 17,948 - - - 310,466 (369,890) (59,424) Net appreciation (depreciation) of marketable investments 804,737 745,487 (108,363) (81,154) - - - 1,360,707 1,018,875 2,379,582 Transfers from various plan funds 208,527 657,230 145,461 198,578 252,833 1,811,856 - 3,274,485 88,314 3,362,799 Other miscellaneous receipts 1,237 475 43 27 44 (10) (672) 1,144 452,476 453,620 --------- ---------- --------- --------- ------- --------- ------ ---------- ----------- ---------- Total additions 1,597,115 1,964,289 444,787 337,508 301,431 1,811,855 50 6,457,035 2,431,741 8,888,776 --------- ---------- --------- --------- ------- --------- ------ ---------- ----------- ---------- Deductions: Benefits paid to participants 50,877 - - - - 1,702,128 - 1,753,005 17,069 1,770,074 Fees and expenses (23) 2,991 27 (12,900) - - (33) (9,938) 3 (9,935) Interest expense - - - - - - - - 806,693 806,693 Transfers to various plan funds 510,782 1,416,648 667,613 239,038 258,712 109,727 50,284 3,252,804 109,995 3,362,799 --------- ---------- --------- --------- ------- --------- ------ ---------- ----------- ---------- Total deductions 561,636 1,419,639 667,640 226,138 258,712 1,811,855 50,251 4,995,871 933,760 5,929,631 Net increase (decrease) in net assets available for plan benefits 1,035,479 544,650 (222,853) 111,370 42,719 - (50,201) 1,461,164 1,497,981 2,959,145 Net assets available for plan benefits: Balance, beginning of year 5,247,778 13,480,470 2,269,384 1,599,723 524,092 - 54,529 23,175,976 (1,873,385) 21,302,591 --------- ---------- --------- --------- ------- --------- ------ ---------- ----------- ---------- Balance, end of year $6,283,257 14,025,120 2,046,531 1,711,093 566,811 - 4,328 24,637,140 (375,404) 24,261,736 ========= ========== ========= ========= ======= ========= ====== ========== =========== ========== See accompanying notes to financial statements. A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Statement of Changes in Net Assets Available for Plan Benefits Year ended September 30, 1993 USG Total Common Guaranteed Equity Balanced Suspense Loan stock Total 401(k) & stock income index fund account suspense fund 401(k) ESOT ESOT ------ ---------- ------ -------- -------- -------- ----- ------ ---- -------- Additions: Employer contributions $ - - - - - - - - 1,269,900 1,269,900 Employee contributions 383,113 514,470 171,995 122,951 - - - 1,192,529 - 1,192,529 Interest and dividends 829 571,289 48,815 75,174 53,504 - 1,532 751,143 75 751,218 Realized gain (loss) (42,162) 16,006 39,114 174,864 - - - 187,822 (398,481) (210,659) Net appreciation (depreciation) of marketable investments 1,824,299 394,905 118,024 (103,230) - - - 2,233,998 2,352,342 4,586,340 Transfers from various plan funds 103,832 244,358 544,761 258,681 247,358 1,665,691 - 3,064,681 - 3,064,681 Other miscellaneous receipts 40 30 11 6 (85) 1,188 - 1,190 313,890 315,080 --------- ---------- --------- --------- ------- --------- ------ ---------- ----------- ---------- Total additions 2,269,951 1,741,058 922,720 528,446 300,777 1,666,879 1,532 7,431,363 3,537,726 10,969,089 --------- ---------- --------- --------- ------- --------- ------ ---------- ----------- ---------- Deductions: Benefits paid to participants 42,741 - - - - 1,594,559 - 1,637,300 3,341 1,640,641 Fees and expenses 2,868 12,645 109 (5,643) 8 - (65) 9,922 - 9,922 Interest expense - - - - - - - - 847,534 847,534 Transfers to various plan funds 434,300 1,984,655 222,716 13,902 289,286 72,320 8,544 3,025,723 46,336 3,072,059 --------- ---------- --------- --------- ------- --------- ------ ---------- ----------- ---------- Total deductions 479,909 1,997,300 222,825 8,259 289,294 1,666,879 8,479 4,672,945 897,211 5,570,156 Net increase (decrease) in net assets available for plan benefits 1,790,042 (256,242) 699,895 520,187 11,483 - (6,947) 2,758,418 2,640,515 5,398,933 Net assets available for plan benefits: Balance, beginning of year 3,457,736 13,736,712 1,569,489 1,079,536 512,609 - 61,476 20,417,558 (4,513,900) 15,903,658 --------- ---------- --------- --------- ------- --------- ------ ---------- ----------- ---------- Balance, end of year $5,247,778 13,480,470 2,269,384 1,599,723 524,092 - 54,529 23,175,976 (1,873,385) 21,302,591 ========= ========== ========= ========= ======= ========= ====== ========== =========== ========== See accompanying notes to financial statements.
A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Notes to Financial Statements September 30, 1994 and 1993 1) Summary of Significant Accounting Policies (a) Description of the Plan The Plan was created October 1, 1987 through an amendment to the USG Corporation Investment Plan for Salaried Employees (USG Plan). This amendment transferred the portion of the USG Plan assets that applied to the Company and its subsidiaries into a separate defined contribution plan. During 1989, the nonunion hourly employees of the Company's New Braunfels and Kimballton plants became eligible to participate in the Plan. During fiscal year 1991, the nonunion hourly employees of the Company's Ellisville and Pryor plants became eligible to participate in the Plan. Effective October 1, 1994, 125 salaried and nonunion hourly employees of A.P. Green Refractories, Inc. became eligible to participate in the Plan. The Plan's 401(k) funds are administered under the terms of a trust agreement with Mercantile Bank of St. Louis N.A. The trust agreement provides, among other things, that the Trustee shall keep account of all investments, receipts and disbursements, and other transactions and shall provide annually a report setting forth such transactions and the status of the funds at the end of the period. On October 1, 1989, the Plan was amended to incorporate the establishment of an ESOT feature which is held in trust at LaSalle National Trust, N.A. In conjunction with this amendment, the Company extended a loan to the ESOT to provide for the purchase of 447,760 shares of previously unissued Company common stock at an aggregate purchase price of $10 million. The loan is repayable in 15 annual installments from September 30, 1990 through September 30, 2004 and is collateralized by the shares held in the ESOT. Interest is payable semiannually at 9.5%. The Company will make contributions in cash to the ESOT which, when aggregated with the ESOT's dividends and income, equal the amounts necessary to enable the ESOT to make its regularly scheduled payments of interest and principal due on its term loan. Employee contributions are invested by the Trustees in one of four funds: (a) common stock of the Company (Common Stock Fund); (b) group annuity contracts maintained by The Travelers Insurance Co. and a fixed rate mutual fund maintained by Mercantile Bank of St. Louis N.A. (Guaranteed Income Fund); (c) an equity index fund which provides investment results that are designed to correspond to the performance of publicly traded common stocks, as represented by the Standard & Poor's 500 Composite Stock Price Index (Equity Index Fund); or (d) debt and a cash equivalent mutual funds portfolios managed by Mercantile Bank of St. Louis N.A. (Balanced Fund). The Plan also has a Loan Suspense Fund which allows participating employees to borrow money in the form of interest-bearing promissory notes from the investment plan to be repaid over a period not to exceed five years for general loans or ten years for mortgage loans. Funds invested in the USG Stock Fund represent unvested Company contributions of former participants. Such funds will be reallocated to continuing plan participants at a later date, as defined in the Plan. 2 A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Notes to Financial Statements Participant withdrawals are paid from the Suspense Account, which receives cash from the various funds as payments are approved. The funds are invested in money market accounts until disbursement. Participants may elect to have their contributions invested 100% in any one fund or 50%-50% between any two funds. Participants can also change their investment election and previous accumulated balances each quarter. To change their investment option, transfer their prior accumulated account to another investment option, increase or decrease the percent of contributions, or make requests for withdrawals, participants are required to provide a 15-day advance notice prior to the end of any quarter. Company contributions are invested only in Company stock. If the Trustees are unable to invest any contributions immediately, the money is temporarily invested in collective investment funds and any earnings of the fund are credited to the participants' accounts. Employees no longer eligible under the Plan are allowed to close their investment plan account and withdraw their funds as provided by law. The Plan was amended after the end of the plan year to offer participants a choice of ten investment funds and no limit as to the number of funds which a participant may elect. Also, the investment plan will be valued on a daily basis versus quarterly valuations. At September 30, 1994, there were 636 employees participating in one or more of the following plan funds: Number of Fund participants ---- ------------ Common Stock Fund 268 Guaranteed Income Fund 335 Equity Index Fund 138 Balanced Fund 100 ESOP 586 (b) Basis of Presentation The accompanying financial statements of the Plan have been prepared on the accrual basis of accounting and present the net assets available for plan benefits and changes in those net assets. (c) Investments Marketable investments are stated at fair value. The fair value of marketable investments is based on quotations obtained from national securities exchanges. Money market fund investments, not readily marketable or negotiable, are stated at cost, which approximates fair value. During 1994 and 1993, the Plan held assets that are in the form of unallocated group annuity contracts managed by the Trustees on behalf of the Plan. These assets were presented at contract value. Contract value represents contributions made under the contract, plus interest at the rate specified in the contract, less benefits paid to participants and expenses. All group annuity contracts were divested during 1994. 3 A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Notes to Financial Statements Participant notes receivable are stated at their unpaid balance, which in the opinion of the Plan Administrator approximates fair market value for such investments. Interest paid by participants during the plan year on these balances ranged from 7.63% to 12.00%. Securities transactions are recognized on the trade date (the date the order to buy or sell is executed). Dividend income is recorded on the ex dividend date. There were 784,153 and 780,486 shares of Company common stock at September 30, 1994 and 1993, respectively, held by the Plan. (d) Costs of Plan Administration Trustee fees for the 401(k) plan are paid by the Company and trustee fees for the ESOT are paid by the Plan, unless plan assets are not readily available, whereas they are paid by the Company. (e) Prior Year Financial Statements Certain prior year balances have been reclassified to conform to current year presentation. The number of shares of Company stock held by the Plan have been restated for the effect of a three-for-two stock split effective December 10, 1993. (2) Summary of Significant Plan Provisions The Plan is a defined contribution plan sponsored by the Company and certain wholly owned subsidiaries and is subject to the provisions of ERISA. The Plan is structured to incorporate the provisions available under Section 401(k) of the Internal Revenue Code, which allows member and sponsor contributions to be excluded from federal and state income taxation within certain prescribed limits. (a) Contributions Company contributions to the Plan are made within the ESOT. A.P. Green Industries, Inc. common stock will be released from the ESOT and allocated to the accounts of participants in the manner set forth in the Plan. As of September 30, 1994, 147,724 shares are allocable or have been allocated to current and former participant accounts. Company contributions are also made to fund interest and principal payments, if necessary. All Company contributions are made conditional upon their deductibility for federal income tax purposes. (b) Participant Accounts Mercantile Bank of St. Louis (Mercantile) maintains the following accounts for each participant: (1) elective and voluntary contributions made prior to April 1, 1988,(2) elective and voluntary contributions made under the USG Plan prior to January 1, 1987, (3) elective and voluntary contributions subsequent to April 1, 1988, (4) Company cash contributions, and (5) Company stock contributions. In addition, Mercantile shall maintain subaccounts representing earnings (i.e., income, losses, appreciation, and depreciation) attributable to each respective account discussed above, by participant. Company contributions, plan earnings, and forfeitures are allocated to the participant accounts on a pro rata basis. 4 A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Notes to Financial Statements Participants are at all times vested in the portion of their accounts attributable to their elective and voluntary contributions. For the portion of their accounts attributable to Company contributions, participants are fully vested after five years of continuous service. (c) Payment of Benefits Under the terms of the Plan, participants retiring or becoming totally disabled become fully vested and are eligible to receive the entire balance in all of the accounts maintained for such participant by the Trustees. Participants terminating employment prior to retirement receive their contributions and the earnings on such contributions, and that portion of the sponsor's account and earnings of such account which is vested. In the event of death, the balances in the participant accounts are fully vested and payable to the designated beneficiary. Distributions under the Plan are payable in a lump sum or in periodic installments. (3) Summary of Net Assets Available for Plan Benefits Net assets available for plan benefits are as follows: 1994 1993 ---- ---- Net assets currently payable for plan benefits $ 307,658 432,778 Net assets available for plan benefits 23,954,078 20,869,813 ---------- ---------- Total $ 24,261,736 21,302,591 ========== ========== For regulatory reporting under Form 5500, benefit claims currently payable of $307,658 and $432,778 at September 30, 1994 and 1993, respectively, are categorized as a liability with a corresponding reduction of net assets available for plan benefits. (4) Distribution on Termination of the Plan The Company reserves the right to terminate the Plan at any time subject to the Plan's provisions. In the event of any termination of the Plan, the account balances of all affected participants shall become nonforfeitable. All unallocated Company shares shall be distributed to the participants according to their pro rata share of plan assets. (5) Federal Income Taxes The Internal Revenue Service issued its latest determination letter on February 27, 1989, which stated that the Plan qualified under the applicable provisions of the Internal Revenue Code and, therefore, is exempt from federal income taxes. The Plan has been amended subsequent to fiscal 1989. The amended plan instruments have not been submitted to the Internal Revenue Service for a determination that they continue to meet the requirements to qualify for exemption from federal income tax. However, in the opinion of the Plan Administrator and the Plan's counsel, the Plan and trust instruments either (1) continue to satisfy the qualification requirements for tax exemption under the applicable provisions of the Internal Revenue Code, or (2) can be further amended, retroactively, to continue their tax-qualified status without interruption since the date of the last determination letter. 5 A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Notes to Financial Statements (6) Employee Stock Ownership Trust As previously stated, Company contributions to the Plan are made within the ESOT. As the Plan makes each scheduled payment of principal, an appropriate percentage of the Company's common stock is allocated to eligible participant accounts, as defined in the agreement. Allocated shares become fully vested once the participant completes five years of continuous service subsequent to becoming a participant of the Plan. The ESOT fund is comprised of the following: - The accounts of employees with vested rights in allocated stock (allocated), and - Stock not yet allocated to employees (unallocated). The ESOT's investment in the Company's common stock at September 30, 1994 and 1993 is presented in the following table: 1994 1993 -------------------- ---------------------- Allocable Allocable and/or Unallo- and/or Unallo- allocated cated allocated cated --------- ------- ----------- ------- Company Common stock: Number of shares 130,680 300,036 106,321 330,039 Cost $2,918,790 6,700,804 2,420,425 7,370,871 Market 2,319,570 5,325,639 1,612,546 5,005,570 ========= ========= ========= ========= The number of shares held by the ESOT have been adjusted for the effect of a three-for-two stock split effective December 10, 1993. (7) Investments Investments of the Plan are comprised of the following: 1994 1993 ---- ---- Investments at fair value based on current market value: A. P. Green common stock $ 13,918,716 11,837,349 Vanguard Index Trust 500 Beneficial Interest - Open End Fund 2,038,220 2,250,627 Other 566,767 524,092 ---------- ---------- 16,523,703 14,612,068 ---------- ---------- Investments at fair market value based on price furnished by Mercantile: Mercantile Collective GIC Fund 13,869,098 10,799,286 Arch Fund Balanced Portfolio Trust issue 90022955 1,705,427 1,594,488 ---------- ---------- 15,574,525 12,393,774 ---------- ---------- Investments at contract value: The Travelers Insurance Company, 8.75%, due October 17, 1993 - 2,445,428 ---------- ---------- Total investments $ 32,098,228 29,451,270 ========== ========== 6 A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Notes to Financial Statements Investments which represent 5% or more of the Plan's net assets are separately identified. The net change in fair value of investments for the year ended September 30, 1994: Investments at fair value based on current market value: Common stock $1,546,931 Mutual funds 18,746 Investments at fair market value based on price furnished by Mercantile - Mutual funds 754,481 --------- $ 2,320,158 ========= Schedule 1 ---------- A.P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Item 27(a) - Schedule of Assets Held for Investment Purposes September 30, 1994 Par value or number Fair of shares Description of investment Cost value --------- ------------------------- ---- ----- Common stock: 430,716* A.P. Green Industries, Inc. $ 9,619,594 7,645,209 353,437* A.P. Green Industries, Inc. 5,082,933 6,273,507 --------- ---------- ---------- 784,153 14,702,527 13,918,716 Mutual funds: 1,092,978 Mercantile Collective GIC Fund 12,559,632 13,869,098 Vanguard Index Trust 500 Beneficial 46,727 Interest - Open End Fund 1,705,910 2,038,220 Arch Fund Balanced Portfolio Trust 174,558 issue 90022955 1,735,287 1,705,427 --------- ---------- ---------- 1,314,263 Total mutual funds 16,000,829 17,612,745 ========= ========== ========== Participant notes receivable 566,767 566,767 ---------- ---------- $ 31,270,123 32,098,228 ========== ========== * Represents investments with a related party. See accompanying independent auditors' report. Schedule 2 ---------- A. P. GREEN INDUSTRIES, INC. INVESTMENT PLAN Item 27(d) - Schedule of (5%) Reportable Transactions Year ended September 30, 1994
Description of transaction Total dollar -------------------------- value of payments -------- Principal and interest payments on notes payable to the Company** $ 1,277,437 ========= Total Current dollar Total value on value of dollar value Cost of transaction Gain/ Identity purchases of sales asset date (loss) -------- --------- -------- ----- ---- ------ Single transaction greater than 5%: The Travelers Insurance Co. - issue 90020773; 14808; 8.75%; October 18, 1993 $ - 2,561,711 2,561,711 2,561,711 - Mercantile Arch Collective GIC Fund - issue 90022149 2,190,631 - 2,190,631 2,190,631 - Arch Fund Inc. Balanced Portfolio Trust - issue 90022955 2,561,711 - 2,561,711 2,561,711 - Arch Fund Inc. Balanced Portfolio Trust - issue 90022955 - 2,190,640 2,190,640 2,190,640 - Series of transactions greater than 5%: The Travelers Insurance Co. - issue 90020773; 14808; 8.75%; October 18, 1993* 119,549 - 119,549 119,549 - The Travelers Insurance Co. - issue 90020773; 14808; 8.75%; October 18, 1993* - 2,564,976 2,564,976 2,564,976 - Mercantile Arch Collective GIC Fund - issue 90022149* 3,176,319 - 3,176,319 3,176,319 - Mercantile Arch Collective GIC Fund - issue 90022149* - 924,196 851,996 924,196 72,200 Arch Fund Inc. Balanced Portfolio Trust - issue 90022955* 6,703,778 - 6,703,778 6,703,778 - Arch Fund Inc. Balanced Portfolio Trust - issue 90022955* - 13,445,870 13,445,870 13,445,870 - ========= ========== ========== ========== ====== * Series of transactions total also includes single transactions detailed above. ** Represents transactions with a related party. See accompanying independent auditors report.
SIGNATURES The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees (or other persons who administer the employee benefit plan) have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. A. P. Green Investment Plan March 7, 1995 By: /s/ Gary L. Roberts ------------------------- Gary L. Roberts, Benefits Administration Committee: Vice President, Chief Financial Officer and Treasurer of A. P. Green Industries, Inc. EXHIBIT INDEX Exhibit No. Exhibit ---------- -------- 24 Consent of Independent Accountants EX-24 8 Exhibit 24 to Form 11-K Independent Auditors' Consent The Employee Benefits Committee A. P. Green Industries, Inc.: We consent to incorporation by reference in the registration statement (No. 33-21012) on Form S-8 of A. P. Green Industries, Inc. of our report dated November 11, 1994, relating to the statements of net assets available for plan benefits of A. P. Green Industries, Inc. Investment Plan as of September 30, 1994, and 1993, and the related statements of changes in net assets available for plan benefits for each of the years in the three- year period ended September 30, 1994, which report appears in the 1994 Annual Report on Form 11-K of A. P. Green Industries, Inc. Investment Plan. /s/ KPMG Peat Marwick LLP St. Louis, Missouri March 23, 1995 EX-28 9 [ARTICLE] 5 [LEGEND] THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM A.P. GREEN INDUSTRIES, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. [/LEGEND] [MULTIPLIER] 1,000 [PERIOD-TYPE] YEAR [FISCAL-YEAR-END] DEC-31-1994 [PERIOD-END] DEC-31-1994 [CASH] 9,637 [SECURITIES] 0 [RECEIVABLES] 45,720 [ALLOWANCES] 1,992 [INVENTORY] 53,452 [CURRENT-ASSETS] 164,152 [PP&E] 185,280 [DEPRECIATION] 89,868 [TOTAL-ASSETS] 373,122 [CURRENT-LIABILITIES] 85,840 [BONDS] 37,162 [COMMON] 4,476 [PREFERRED-MANDATORY] 0 [PREFERRED] 0 [OTHER-SE] 102,562 [TOTAL-LIABILITY-AND-EQUITY] 373,122 [SALES] 195,918 [TOTAL-REVENUES] 195,918 [CGS] 161,420 [TOTAL-COSTS] 161,420 [OTHER-EXPENSES] 25,707 [LOSS-PROVISION] 373 [INTEREST-EXPENSE] 1,947 [INCOME-PRETAX] 9,295 [INCOME-TAX] 2,904 [INCOME-CONTINUING] 6,673 [DISCONTINUED] 0 [EXTRAORDINARY] 0 [CHANGES] (255) [NET-INCOME] 6,418 [EPS-PRIMARY] 1.59 [EPS-DILUTED] 0