-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LwaJ2gpFhRqR07rmPfrrJ6yqNzSnVndPeoMQowF2FF/WRdC8J+ZDKh4n1YpU+8Tz eX/O9V7DHGJRqczSt7TtPQ== 0000826619-96-000003.txt : 19960329 0000826619-96-000003.hdr.sgml : 19960329 ACCESSION NUMBER: 0000826619-96-000003 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GREEN A P INDUSTRIES INC CENTRAL INDEX KEY: 0000826619 STANDARD INDUSTRIAL CLASSIFICATION: STRUCTURAL CLAY PRODUCTS [3250] IRS NUMBER: 430899374 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-16452 FILM NUMBER: 96539415 BUSINESS ADDRESS: STREET 1: GREEN BLVD CITY: MEXICO STATE: MO ZIP: 65265 BUSINESS PHONE: 3144733626 FORMER COMPANY: FORMER CONFORMED NAME: A P GREEN INDUSTRIES INC DATE OF NAME CHANGE: 19900619 10-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, 1995 Commission File No. 0-16452 ----------------- ------- A. P. GREEN INDUSTRIES, INC. ---------------------------- (Exact name of registrant as specified in its charter) Delaware 43-0899374 - ------------------------------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) Green Boulevard, Mexico, Missouri 65265 - --------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (573) 473-3626 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, $1.00 par value Preferred Share Purchase Rights Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] State the aggregate market value of the voting stock held by nonaffiliates of the registrant: As of March 25, 1996, the market value of A. P. Green Industries, Inc. Common Stock held by non-affiliates was approximately $70,400,000. Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date: As of March 25, 1996, 4,038,754 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 - -------- ----------------- 1995 Annual Report to Stockholders Parts I, II and IV Proxy Statement for 1996 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, Materiales Industriales S. A. and Empresa de Refractarios Colombianos S.A. In 1995, the Company acquired a 51% ownership interest in Plibrico de Mexico SA de CV (now A. P. Green de Mexico SA de CV), a refractory manufacturer near Monterrey, Mexico. In addition, during 1995 the Company acquired a 51% ownership interest in Lanxide ThermoComposites, Inc. (LTI) and its wholly owned subsidiary, Chiam Technologies, Inc., and established INTOGREEN Co., a partnership of which A. P. Green owns 51%. Also in 1995, the Company began construction of a castables manufacturing plant in West Java, Indonesia. The plant is expected to begin operations in the second quarter of 1996. 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 22 plants in the United States, Canada, Mexico and the United Kingdom (U.K.). -2- Lime Operations. --------------- APG Lime Corp. (APG Lime), a wholly owned subsidiary of A. P. Green and headquartered in Mexico, Missouri, is involved in the mining and processing of limestone for various industrial applications, including steel and aluminum production, pulp and paper processing, soil stabilization for road construction, water and waste water treatment and various environmental applications. 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. A. P. Green offers a broad product line, including basic, clay/alumina and silica refractories and ceramic fiber products. Basic refractories are predominantly composed of magnesite ores, while clay/alumina refractories are predominantly composed of fireclays and bauxite ores. Ceramic fiber products are lightweight refractories similar in appearance to fiberglass insulation and are provided in many forms including bulk, blanket, folded modules and vacuum formed shapes. All are used in a wide variety of industries, including steel, aluminum, cement, chemicals, ceramics and glass. Basic, clay/alumina and silica refractories are manufactured in the form of bricks and specialties. Bricks are shaped products formed by mechanical pressing or die molding. Specialty products (also known as monolithics) include refractory cements, castables, plastics and mortars. Specialized shapes to serve specific industry needs are also custom made in seven cast shops located in the United States, Canada, Mexico and the United Kingdom. Although the Company purchases some refractory and refractory-related products from other manufacturers, predominantly all of the refractory products sold by it are manufactured in its own plants. The Company and its wholly owned subsidiaries, A. P Green Refractories Inc. and Detrick Refractory Fibers, Inc., manufacture refractories in 16 facilities located in the United States. The Company's wholly owned subsidiary, A. P. Green Refractories (Canada) Ltd., organized in 1931, and its subsidiary, 1086215 Ontario, Inc., operates two manufacturing facilities in Canada. The Company's wholly owned United Kingdom subsidiary, A. P. Green Refractories Limited, acquired by a predecessor of the Company in 1954, operates one manufacturing facility in Bromborough, England, snd its subsidiary, Liptak Bradley Limited, installs refractory products worldwide except for North America. The Company's 51% owned Mexican subsidiary, A. P. Green de Mexico SA de CV, operates one manufacturing facility near Monterrey, Mexico. Significant investment has been made, particularly in the United States plants, to improve quality, production efficiency and environmental controls. During 1995 the Company took steps to broaden its technology base. INTOGREEN Co., a joint venture partnership with INTOCAST AG, was formed to sell and install cast monolithic ladle linings to the steel industry in the U. S., Canada and Mexico. INTOCAST AG, based in Germany, is a world leader in the development of cast ladle linings, which result in lower installation costs, reduced disposal of used refractory material and increased ladle availability to the steel plant. The INTOCAST Endless Lining System (Registered Trademark)is custom designed for each user. -3- LTI, a 51% owned subsidiary purchased from Lanxide Corporation (Lanxide), which continues to own a substantial minority interest, concentrates on commercializing refractory products for the continuous casting segment of the steel industry utilizing ceramic composites technology licensed from Lanxide. One of these products, developed for slide gates, has proven itself superior in extended tests conducted by steel producers. Under a separate licensing agreement, A. P. Green will develop and market refractory products utilizing the advanced materials technology developed by Lanxide in non-steel refractory applications throughout the world, excluding Japan. Included under the terms of the agreement are all future technologies developed by Lanxide and its licensees and joint ventures as applicable to non-steel refractory applications. (b) Financial Information About Industry Segments --------------------------------------------- Information regarding industry segments of A. P. Green is set forth in Note 19 of Notes to Consolidated Financial Statements which is included in A. P. Green's 1995 Annual Report to Stockholders and incorporated herein by reference. (c) Narrative Description of Business --------------------------------- Refractory Operations. --------------------- A. P. Green manufactures refractory products in its own plants located in the United States, Canada, Mexico 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 1995 domestic refractory sales to such users are as follows: Percent of 1995 Percent of 1994 U.S. Refractory U.S. Refractory End-User Industry Category Products Sales Products Sales - -------------------------- --------------- --------------- Iron and Steel 33% 33% Nonferrous Metals 19% 14% Cement, Lime, Gypsum, Paper, Ceramics, Glass and Clay 12% 13% Metal Castings and Fabrication 6% 7% Chemicals and Petrochemicals 6% 8% Other 24% 25% A. P. Green is a leader in the manufacture and distribution of refractory materials in North America and throughout the world. Refractory materials are sold through a direct sales force, Company-owned distribution centers, independent distributors, licensees and agents to a diverse cross section of basic industry. The Company believes that success in the refractory industry is dependent, to a large extent, upon developing new products and modifying existing products in order to provide more value to the industries served. A.P. Green has a fully equipped and staffed research facility that can analyze the refractory failure mechanisms in its customers' applications in order to determine the optimum refractory solution. Often the best solution is to use a more sophisticated product which increases the upfront costs but results in a lower life cycle cost. The organization of research engineers, customer service engineers and product managers have a good track record of designing optimum solutions. Product design changes that have been introduced recently include 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. Some of the new products are based on A. P. Green's proprietary Greenlite insulating aggregate which provides high strength in combination with low thermal conductivities. -4- The Company's employee sales force is located throughout the United States, Canada and Mexico and in the Caribbean, Australia, Germany and the United Kingdom. Refractory products are shipped directly to customers from the Company's plants and from a large network of distribution centers and distribution representatives located in the United States, Canada and the United Kingdom. The United States sales force is divided into four geographic regions and two industry groups. The industry groups are specialized sales and marketing teams that target their efforts to steel and aluminum end-users. This has allowed the Company to provide a higher degree of customer assistance on refractory usage and selection and has enabled sales and marketing personnel to develop additional expertise in those end-user industries. This alignment has been beneficial to specific industry sales of the Company. 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 blend. 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 1995 lime sales to such users is as follows: Percent of 1995 Percent of 1994 End-User Industry Category Lime Products Sales Lime Products Sales - -------------------------- ------------------- ------------------- Pulp and Paper Processing 35% 36% Steel and Aluminum 26% 32% Environmental/Water Treatment 16% 14% Road Construction 14% 14% Chemical Processing 6% 1% Masonry 3% 3% 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. APG Lime's facilities are well located to take advantage of demand in the Southeastern U.S. and Texas and surrounding states. Product distribution involves direct shipments via rail and/or truck from the plants to the customers and customer pick-up at the plants. Raw Materials. ------------- A. P. Green maintains programs to attempt to ensure the availability of raw materials, including the purchase of materials for its short-term needs and the development of long-term sources of supply. Refractory clay and silica requirements are obtained from Company-owned deposits located in Alabama, Arkansas, Colorado, Georgia, Idaho, Missouri, Ohio, Texas and Utah. Proven deposits contained approximately 11,200,000 tons of clay and silica as of December 31, 1995. Average annual mining of clay and silica during the last five years was 240,000 tons, with 1995 at 360,000 tons. Proven reserves -5- are estimated to be sufficient for approximately 38 years of operations, based on recent average annual usage. The remaining refractory raw materials requirements are obtained from numerous suppliers. Refractory-grade bauxite is imported from China, Guyana and Brazil, and approximately 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 from Guyana. Prices of Chinese bauxite are expected to increase substantially during 1996 as a result of changes made by the Chinese government in 1995 affecting bauxite exports, but no supply interruptions are anticipated. 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 50,400,000 tons of usable reserves as of December 31, 1995. The average annual usage of quarried limestone at New Braunfels during the five-year period ended December 31, 1995 was 880,000 tons, with 1995 usage at 1,200,000 tons. Proven reserves of limestone at this location are estimated to be sufficient for about 60 years of operations, based on recent average annual usage. Company-owned and leased reserves at the Kimballton plant were estimated at 20,800,000 tons as of December 31, 1995. The average annual usage of mined limestone at Kimballton during the five-year period ended December 31, 1995 was 715,000 tons, with 1995 usage at 754,000 tons. Proven reserves of limestone at this location are estimated to be sufficient for 29 years of operations, based on recent average annual usage. Dolomitic limestone is purchased from outside suppliers, primarily The Dow Chemical Company for the New Braunfels plant and Rockydale Quarries Corp. for the Kimballton plant. In December 1995, the Dow Chemical Company quarry which supplies the New Braunfels plant was purchased by Chemical Lime Company. A new supply agreement is under negotiation. 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 66 percent of the total fuel used at the New Braunfels plant during 1995. Natural gas (in lieu of coal) is the other major energy source used at New Braunfels, accounting for approximately 34 percent of that facility's total fuel usage in 1995. 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. -6- Lime demand is fairly uniform except for the negative impact of adverse weather on soil stabilization shipments. This factor is significant in Texas and surrounding states as soil stabilization shipments for road construction projects are somewhat depressed between November and February due to typically rainy weather conditions. Both of the Company's industry segments are sensitive to cyclical fluctuations in the iron, steel and non-ferrous metals industries. APG Lime is also sensitive to cyclical fluctuations in the pulp and paper processing industries. Order Backlog. ------------- Order backlog for refractories varies by month within a moderate range. The order backlog believed to be firm was approximately $31.5 million and $19.0 million at December 31, 1995 and 1994, respectively, requiring eleven to twelve weeks to service for 1995 as compared with nine to ten weeks for 1994. A significant portion of the 1995 increase was due to increased demand for silica brick, primarily as a result of coke oven rebuilds in the steel industry and glass oven rebuilds. While this high demand level is expected to continue during 1996, it is not necessarily indicative of a long-term trend. Also contributing to the increased 1995 backlog were increased demand for precast shapes, increased clay/alumina brick orders from the glass and steel industries and improvements in reporting procedures from the acquired general facilities. Lime products normally do not have any significant backlog, other than for soil stabilization backlog related to state highway lettings, which can vary significantly from period to period. Such backlog was approximately $3.0 million and $1.2 million at December 31, 1995 and 1994, 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 major areas of competition in the refractory industry are service, price and product performance. Due to the decline of the United States heavy manufacturing industrial base, the refractory industry has become more price sensitive in recent years. New product introductions are increasing to meet demands of customer operating practices. More stringent requirements placed on product quality are being met with improved quality control at A. P. Green manufacturing plants to minimize deviations from refractory manufacturing standards. The U.K. Bromborough facility and the Mexico, Missouri, Fulton, Missouri, Sproul, Pennsylvania and Oak Hill, Ohio plants have been ISO 9002 certified and efforts are being made for certification of the other major U.S. and Canadian plants. 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, 1995, A. P. Green invested approximately $22.8 million for such purposes. Of those expenditures, 57% ($12.9 million) were for refractories operations and information systems and 43% ($9.9 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. -7- Research and Development. ------------------------ Product and process development activities are principally located at Mexico, Missouri, in a well equipped facility occupying 43,924 square feet. The major objective of the refractory technology department is to maintain A. P. Green at the technological forefront of the refractories industry with development of new and improved refractory products and processes. The refractory technology department also is responsible for quality systems implementation, analytical services, applications engineering, product installation technical support and technical liaison with foreign operations. A pilot plant allows testing during the transition of new products to the commercial stage. Research and development expenditures amounted to approximately $2.9 million, $2.5 million and $2.2 million during 1995, 1994 and 1993, 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 five percent of A. P. Green's consolidated annual net sales in 1995, 1994 or 1993. Employees. --------- The average number of persons employed by A. P. Green during 1995, 1994 and 1993 was 1,966, 1,656 and 1,447, respectively. Approximately 1,080 employees are members of collective bargaining units. The represented unions in the U.S. and Canada are: the Aluminum Brick and Glass Workers International Union, the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, Laborers International, Brick Layers and Allied Craftsmen, and the United Steel Workers of America. The represented unions in the United Kingdom are: the Transport and General Workers' Union, the Amalgamated Union of Engineering Workers and the Union of Construction and Allied Trades. The represented union in Monterrey, Mexico is the Federation Nacional de Sindicatos Independientes. Five-year collective bargaining agreements were successfully negotiated in 1993 with the unions represented at the Mexico, Missouri and Fulton, Missouri plants, in 1994 with the unions represented at the Bessemer, Alabama and Little Rock, Arkansas plants and in 1995 with the unions represented at the Sulphur Springs, Texas, Gary, Indiana and Smithville, Ontario plants. New collective bargaining agreements are to be negotiated during 1996 at the Oak Hill, Ohio, Lehi, Utah, Rockdale, Illinois and Sproul, Pennsylvania plants. A. P. Green considers its relations with its employees to be good. Environmental Matters. --------------------- Laws and regulations currently in force which do or may affect A. P. Green's domestic operations include the Federal Clean Water Act, the Reauthorized Clean Air Act of 1990, the National Environmental Policy Act of 1969, the Solid Waste Disposal Act (including the Resource 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. -8- In Europe, environmental laws and regulations currently in force which do or may affect the Company's United Kingdom subsidiary include the Rivers (Prevention of Pollution - Scotland) Act of 1951, the Clean Air Act of 1968, the Control of Pollution Act of 1974 (amended in 1989), the Health and Safety at Work Act of 1974, the EC Waste Framework Directive of 1975, the Waste Regulation and Disposal (Authorities) Order of 1985, the Control of Substances Hazardous to Health Regulations of 1988, the Water Act of 1989, the Environmental Protection Act of 1990, local authority air pollution control, German packaging regulations and the Belgium eco-tax on waste disposal of packaging products. Environmental laws and regulations currently in force in Mexico which do or may affect the Company's Mexican subsidiary include Control of Hazardous Substances and Registry, Health and Safety Meeting Registration and Land Surface Management Regulations. From time to time, the Company experiences on-site inspections by environmental regulatory authorities who may impose penalties or require remedial actions. A. P. Green believes that it has substantially complied with, and it intends in the future to so comply with, all laws and regulations (including foreign) governing pollution control and other environmental conditions in all material respects. Such compliance has not had, and is not expected to have, a material adverse effect upon A. P. Green's earnings or competitive position. Information regarding environmental and asbestos-related legal proceedings is set forth in Note 18 of Notes to Consolidated Financial Statements which are included in A. P. Green's 1995 Annual Report to Stockholders and incorporated herein by reference. Capital expenditures have been made over the last several years and are planned in 1996 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 23 U.S. patents, and had one patent application outstanding at December 31, 1995. 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 12 license agreements with foreign, unaffiliated companies, three of which cover A. P. Green's full range of refractory products and nine of which are for limited product lines. d) Financial Information About Foreign and Domestic Operations and Export ---------------------------------------------------------------------- Sales ----- Financial information regarding geographic segments of A. P. Green is set forth in Note 19 of Notes to Consolidated Financial Statements which is included in A. P. Green's 1995 Annual Report to Stockholders and incorporated herein by reference. -9- ITEM 2. PROPERTIES General - ------- A. P. Green's principal properties are owned, except as noted, and none of the owned properties are subject to encumbrances, except for buildings and equipment at the Bessemer, Alabama plant and land and buildings at the Ellisville, Mississippi plant used to secure the industrial development revenue bond indebtedness at those plants. The buildings are adequate and suitable for the purposes for which they are used, have been well maintained, are in sound operating condition and are in regular use. Headquarters - ------------ The headquarters of A. P. Green, which consists of 62,800 square feet of floor space, is located in Mexico, Missouri. Refractory Manufacturing Facilities - ----------------------------------- The following table describes the U.S. refractory manufacturing facilities operated by A. P. Green. Facilities are owned unless otherwise indicated. Plants in Hitchins, Kentucky, Troup, Texas and Warren, Ohio, obtained in the General acquisition, are excluded as they are no longer in operation and are currently held for sale. Location and Nature Approximate Square Products of Property Feet of Floor Space Manufactured - ------------------- ------------------- ------------ Bessemer, Alabama 150,300 High Alumina and Manufacturing buildings, Fireclay Brick rail and office Ellisville, Mississippi 20,000 Board and Special Manufacturing and office Shape Refractory building Fiber Products Fulton, Missouri 240,200 High Alumina Brick, Manufacturing buildings, including Tar rail and office Impregnated and Coked Brick Gary, Indiana 98,500 Cast Shapes & Manufacturing buildings Castables and office Lehi, Utah 120,000 High Alumina, Manufacturing buildings Silica and Basic Rail and office Brick; Castables -10- Location and Nature Approximate Square Products of Property Feet of Floor Space Manufactured - ------------------- ------------------- ------------ Little Rock, Arkansas 37,800 Calcined Refractory Clay storage building, Clay, rotary calcining kiln, Refractory Clay rail and office Mexico, Missouri 1,142,700 Fireclay, High Manufacturing buildings, Alumina and rail and office Insulating Brick; Zirconia Brick; Mortars, Plastics, Castables and Light Weight Aggregate Middletown, Pennsylvania 111,200 Cast Shapes Manufacturing buildings and office Minerva, Ohio 9,500 Light Weight Leased manufacturing Aggregate and building and office Castables 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 Fireclay Maintenance shop and office Rockdale, Illinois 78,000 Basic Brick Manufacturing buildings, rail and office Sproul, Pennsylvania 102,100 Mortars, Plastics Manufacturing buildings, and Castables rail and office Sulphur Springs, Texas 193,100 Fireclay and High Manufacturing buildings, Alumina Brick; rail and office Mortars, Plastics and Castables -11- Location and Nature Approximate Square Products of Property Feet of Floor Space Manufactured - ------------------- ------------------- ------------ Thomasville, Georgia 24,000 Cast Shapes Leased manufacturing buildings and office Mineral Properties - ------------------ Most of the refractory plants listed above utilize clay and/or silica, which A. P. Green mines or quarries from deposits leased or owned, or purchases from various sources. Clay and silica deposits include properties known to contain commercially recoverable quantities based on core and/or auger drilling, laboratory testing, surveying and mapping. Such properties are held outright in fee simple; under mineral deeds which convey title to all clay or minerals with full rights of ingress, egress and mining; and under lease. The clay reserves are located in Alabama, Arkansas, Colorado, Georgia, Idaho, Missouri, Ohio and Texas, and a silica mine is located in Utah. Distribution Centers/Sales Offices - ---------------------------------- A. P. Green operates distribution centers and maintains refractory stocks and sales offices as indicated in the listing below. All distribution centers are on ground level and range up to approximately 22,000 square feet. With the exception of Chicago, Illinois, Baton Rouge, Louisiana and St. Louis, Missouri, which are owned, the distribution centers/sales office facilities are leased under initial lease terms of one to 20 years. Distribution Center/Sales Office Locations: Atlanta, Georgia Kearny, New Jersey Austin, Texas Knoxville, Tennessee Baltimore, Maryland Lehi, Utah Baton Rouge, Louisiana Los Angeles, California Birmingham, Alabama Minneapolis, Minnesota 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 -12- 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 floor space, situated on approximately 680 owned acres. This plant primarily manufactures industrial lime products and a small amount of soil stabilization lime. APG Lime owns one-half of the mineral rights under national forest property adjacent to the Kimballton plant by royalty lease from the Bureau of Land Management. Such lease was renewed for an additional 20-year term in 1988. The royalty is 2.5 percent of the nominal value of limestone mined. The New Braunfels, Texas facility consists of a surface mine, rail and various plant buildings, totaling approximately 81,000 square feet of floor space, situated on approximately 1,010 owned acres. This plant manufactures industrial lime products, soil stabilization lime and lime-based mortars. Canadian Subsidiary - ------------------- A. P. Green Refractories (Canada) Ltd., a wholly owned subsidiary of A. P. Green, owns 17,100 square feet of manufacturing space at Acton, Ontario to produce crucibles used by the precious metal assaying industry and vacuum formed fiber products. 1086215 Ontario, Inc., a wholly owned subsidiary of A. P. Green Refractories (Canada) Ltd., owns a 170,000 square foot building in Smithville, Ontario used for manufacturing and storage of basic brick, refractory mortars, cements, plastics and castables. In addition, raw materials, which are imported principally from A. P. Green's U. S. facilities, are stored there. Distribution centers and/or sales offices are maintained at the following locations: Delta, British Columbia; Edmonton, Alberta; Montreal, Quebec; Ottawa, Ontario; Quebec City, Quebec; Toronto, Ontario; and Winnipeg, Manitoba. All of the facilities are leased under initial lease terms of one to five years. United Kingdom Subsidiaries - --------------------------- A. P. Green Refractories Limited, a wholly owned subsidiary of A. P. Green Industries, Inc., leases and operates its headquarters and manufacturing facility in Bromborough, Wirral, England. A full range of specialties, including mortars, plastics and dense and light weight castables are manufactured in a 76,600 square foot building at this location. Distribution centers and sales offices are maintained in Bromborough, Sheffield and London in England and Risca in Wales to ensure complete customer coverage in the U.K. All of these facilities are leased under initial lease terms of one to nine hundred ninety-nine years. Liptak Bradley Limited, a wholly owned subsidiary of A. P. Green Refractories Limited, operates out of the same premises in Bromborough, providing a refractory installation service using exclusively A. P. Green products. Mexican Subsidiary - ------------------ A. P. Green de Mexico SA de CV, a 51% owned subsidiary of A. P. Green Refractories Inc., owns and operates a manufacturing facility located in Salinas Victoria near Monterrey, Mexico. Cast shapes, castables, mortars and plastics are manufactured in a 53,800 square foot facility at this location. -13- Indonesian Subsidiary - --------------------- PT A. P. Green Indonesia, a subsidiary owned 80% by A. P. Green Industries, Inc. and 20% by A. P. Green Refractories, Inc., is constructing a 43,400 square foot castables manufacturing facility in West Java, Indonesia. 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 1995 Annual Report to Stockholders and incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The information set forth below the caption "Common Stock, Market Prices and Dividends" on page 36 of A. P. Green's 1995 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 35 of A. P. Green's 1995 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 18 of A. P. Green's 1995 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, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995, and notes thereto (including the quarterly supplementary data) and the Independent Auditors' Report appear on pages 19 through 34 of A. P. Green's 1995 Annual Report to Stockholders and are incorporated herein by reference. The Independent Auditors' Report for the financial statement schedule for each of the years in the three-year period ended December 31, 1995, and the financial statement schedule required by Regulation S-X appear on pages F-1 through F-2 of this Annual Report on Form 10-K. -14- 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 1996 Annual Meeting of Stockholders under the caption "Item 1 - Election of Directors" and is incorporated herein by reference. The following is a list as of March 25, 1996 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 54 Chairman of the Board, President and Chief Executive Officer Jurgen H. Abels 51 Vice President, International Max C. Aiken 58 Executive Vice President David G. Binder 59 Vice President and Controller Ronald L. Bramblett 58 Vice President, Human Resources Michael B. Cooney 55 Senior Vice President, Law/Administration and Secretary Frank J. Cordie 43 Vice President, Refractory Manufacturing Daniel Y. Hagan 56 Vice President, Refractory Sales Orville Hunter, Jr. 57 Vice President, Refractory Technology John L. Kelsey 45 Vice President, Refractory Marketing Gary L. Roberts 49 Vice President, Chief Financial Officer and Treasurer The executive officers were appointed by, and serve at the pleasure of, the Board of Directors of A. P. Green. Except for Mr. Cordie, all executive officers have held the position listed or another position with A. P. Green or an entity affiliated with A. P. Green for at least five years. Mr. Cordie was Regional Director, Refractory Production of A. P. Green from October 1995 to February 1996 and Vice President of Production at Jenkins Brick Co. from February 1991 to September 1995. -15- ITEM 11. EXECUTIVE COMPENSATION Information regarding executive compensation is contained in A. P. Green's Proxy Statement for the 1996 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 1996 Annual Meeting of Stockholders under the captions "Voting Securities and the Principal Holders Thereof" and "Security Ownership by Management" and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a) 1. Consolidated Financial Statements --------------------------------- The following Consolidated Financial Statements of A. P. Green are contained in A. P. Green's 1995 Annual Report to Stockholders on the following pages thereof: Annual Report Page Reference -------------- Consolidated Statements of Earnings - Years Ended December 31, 1995, 1994 and 1993 19 Consolidated Statements of Financial Position - December 31, 1995 and 1994 20 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1995, 1994 and 1993 21 Consolidated Statements of Cash Flows - Years Ended December 31, 1995, 1994 and 1993 22 Notes to Consolidated Financial Statements - December 31, 1995, 1994 and 1993 23-24 Independent Auditors' Report as of December 31, 1995 and 1994 and for each of the years in the three-year period ended December 31, 1995 34 -16- 2. Financial Statement Schedule ---------------------------- The following financial statement schedule of A. P. Green and the accompanying Independent Auditors' Report are set forth on the following pages of this Annual Report on Form 10-K: Form 10-K Page Reference -------------- Independent Auditors' Report on the consolidated financial statement schedule for each of the years in the three-year period ended December 31, 1995. F-1 Schedule II Valuation and Qualifying Accounts F-2 Some schedules have been omitted because they are not applicable, are not required or the information is included in the consolidated financial statements or notes thereto. 3. Exhibits -------- Exhibit No. ----------- 3(a) Restated Certificate of Incorporation of A. P. Green is incorporated herein by reference to Exhibit 3(a) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1987. 3(b) By-Laws of A. P. Green, as amended on November 16, 1995. 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) Form of A. P. Green Management Incentive Compensation Plan. 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, is incorporated herein by reference to Exhibit 10(l) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1994. 10(m) A. P. Green Industries, Inc. Supplemental Retirement Income Plan, executed October 12, 1994, effective January 1, 1995, is incorporated herein by reference to Exhibit 10(m) of A. P. Green's Annual Report on Form 10-K for the year ended December 31, 1994. 13 A. P. Green's 1995 Annual Report to Stockholders. -18- 21 Subsidiaries of A. P. Green 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule as of December 31, 1995. (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 4, 1996 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 4, 1996 Paul F. Hummer II President, Chief Executive Officer and Director (Principal Executive Officer) Vice President, Chief /s/ Gary L. Roberts Financial March 4, 1996 Gary L. Roberts Officer and Treasurer (Principal Financial and Accounting Officer) /s/ Donald E. Lasater Director March 13, 1996 Donald E. Lasater /s/ P. J. O'Bryan Director March 18, 1996 P. J. O'Bryan /s/ Daniel R. Toll Director March 13, 1996 Daniel R. Toll /s/ William F. Morrison Director March 25, 1996 William F. Morrison -20- INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders A. P. Green Industries, Inc.: Under date of February 9, 1996, we reported on the consolidated statements of financial position of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1995 and 1994, 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, 1995, as contained in the 1995 annual report to stockholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1995. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 5 of notes to consolidated financial statements, the Company changed its method of accounting for postemployment benefits in 1994. /s/ KPMG PEAT MARWICK LLP St. Louis, Missouri February 9, 1996 F-1 SCHEDULE II A. P. GREEN INDUSTRIES, INC. SUPPLEMENTAL INFORMATION VALUATION AND QUALIFYING ACCOUNTS An analysis of doubtful accounts for 1993, 1994 and 1995 is as follows: Doubtful Accounts -------- (Dollars In Thousands) 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 Additions in 1995- Current year provision 120 Acquisitions 247 Less - Receivables written off, net (429) ------ Balance, December 31, 1995 $1,930 ====== F-2 EX-3 2 Exhibit 3(b) to Form 10-K BYLAWS of A. P. GREEN INDUSTRIES, INC. (Delaware) As of December 18, 1987 Amended November 16, 1995 BYLAWS of A. P. GREEN INDUSTRIES, INC. ARTICLE I O F F I C E S The principal office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle. The corporation may have such other offices, either within or without the State of Delaware, as the business of the corporation may require from time to time. ARTICLE II S T O C K H O L D E R S ANNUAL MEETING Section 1. The date and time of the annual meeting of stockholders shall be determined by or under the authority of the board of directors as permitted by law for the purpose of electing directors and the transaction of such other business as may properly come before the meeting. If the election of directors shall not be held on the date designated for such annual meeting or at any adjournment thereof, the board of directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as conveniently may be. SPECIAL MEETINGS Section 2. Special meetings of the stockholders may be called at any time by the chief executive officer of the corporation or by the secretary upon a request in writing of a majority of the board of directors. Such request shall state the purpose or purposes of the proposed meeting. PLACE OF MEETINGS Section 3. All meetings of the stockholders for the election of directors shall be held in the City of Mexico, State of Missouri, or at such other place as may be fixed from time to time by the board of directors. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. NOTICE OF MEETINGS Section 4. Written notice stating the place, day and hour of the meeting, and in the case of a special meeting the purpose or purposes for which the meeting is called, shall be given by mail to each stockholder entitled to vote thereat not less than ten (10) days, nor more than fifty (50) days before the date of the meeting. Such notice, when mailed, shall be deemed to be delivered when deposited in the United States mail in a sealed enveloped addressed to the stockholder at his address as it appears on the records of the corporation, with postage prepaid. QUORUM AND VOTE REQUIRED Section 5. (a) The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of such business except as otherwise provided by statue or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally scheduled. (b) When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. ORGANIZATION OF MEETING Section 6. The chairman of the board of directors, or in his absence or if there is no chairman of the board of directors, the president of the corporation, or in his absence, the vice presidents in the order of their election, shall preside as chairman of all meetings of the stockholders. In the absence of all such persons, the meeting shall select, by majority vote, a stockholder present at the meeting to act as chairman. The secretary of the corporation, or in his absence, an assistant secretary, shall act as secretary of all meetings of the stockholders, and in the absence of the secretary or an assistant secretary, the chairman shall appoint some other person to act as secretary of the meeting. VOTING OF STOCK Section 7. On each matter submitted to a vote at a meeting of the stockholders, each holder of common stock shall be entitled to one vote in person or by proxy for each share of common stock held by the stockholder. No proxy shall be voted after three years from its date unless otherwise provided in the proxy, and, except where the transfer books of the corporation have been closed or a date has been fixed as a record date for the determination of its stockholders entitled to vote, no share of stock shall be voted at any election for directors which has been transferred on the books of the corporation within twenty (20) days next preceding such election of directors. In all elections for directors each stockholder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected. VOTING OF SHARES BY CERTAIN HOLDERS Section 8. (a) Each share standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxy as the by-laws of such corporation may prescribe or, in the absence of such by-law provisions, as the board of directors of such corporation may determine. (b) Shares standing in the name of a deceased person may be voted by his administrator or executor either in person or by proxy. Persons holding stock in a fiduciary capacity may vote the shares so held in person or by proxy. Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his name if authority so to do be contained in an appropriate order of the court by which such receiver was appointed. A stockholder whose shares are pledged shall be entitled to vote such shares in person or by proxy, unless in the transfer by the pledgor on the books of the corporation he has expressly empowered the pledgee to vote thereon, in which case only the pledgee or his proxy may represent the stock and vote thereon. (c) Shares of stock of this corporation belonging to the corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but such shares held by the corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time. VOTING LISTS Section 9. The officer or agent having charge of the stock ledger for the shares of the corporation shall prepare and make, at least ten (10) days before each meeting of the stockholders at which directors are to be elected, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order with the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, during ordinary business hours, for a period of at least ten (10) days prior to such meting, at the place where the meeting is to be held. Such list shall be produced and kept at the time and place of the meeting during the whole time thereof and shall be subject to the inspection of any stockholder who may be present. The original stock ledger shall be prima facie evidence as to who are the stockholders entitled to examine such stock ledger and to vote at any meeting of the stockholders. CLOSING OF TRANSFER BOOKS Section 10. The board of directors may close the stock transfer books of the corporation for a period not exceeding sixty (60) days preceding the date of any meeting of stockholders or the date for payment of any dividend, or the date for the allotment of rights or the date when any change or conversion or exchange of capital stock shall go into effect, or for a period not exceeding sixty (60) days in connection with obtaining the consent of stockholders for any purpose. In lieu of closing the stock transfer books as aforesaid, the board of directors may fix in advance a date, not exceeding sixty (60) days preceding the date of any meeting of stockholders, or the date of the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, or to give such consent, and in such case such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the corporation after any such record date fixed as aforesaid. ARTICLE III D I R E C T O R S GENERAL POWERS Section 1. The business and affairs of the corporation shall b managed by a board of directors which may exercise all the powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed and required to be exercised or done by the stockholders. NUMBER AND TENURE Section 2. The number of directors which shall constitute the whole board shall be not fewer than three (3) nor more than twelve (12). Subject to the above limits, the total number of directors shall be determined from time to time by resolution of the board of directors. The number of directors shall be divided into three classes, as nearly equal in number as may be. At each annual meeting after the initial classification and election of directors, directors shall be elected to succeed those whose terms expire at such annual meeting and each director so elected shall hold office for a term expiring at the third annual meeting of stockholders after his election and until his successor shall be duly elected and qualified; provided, however, that no person shall be eligible for election or re-election as a director if such person will have reached his 70th birthday on or before the date of such election or re-election, and no officer-director shall serve as such beyond the date he ceases to be an officer. Directors need not be stockholders. VACANCIES Section 3. Newly created directorships resulting from any increase in the authorize number of directors and vacancies in the board of directors from death, resignation, retirement, disqualification, removal from office or other cause, shall be filled by a majority vote of the directors then in office, and each director so chosen shall hold office for a term expiring at the annual meeting of stockholders at which the term of the class to which he shall have been elected expires, and until his successor shall be duly elected and qualified. REGULAR MEETINGS Section 4. Regular meetings of the board of directors shall be held immediately after the annual meeting of stockholders in each year and at 10:00 o'clock in the forenoon upon the second Wednesday in the months of February, August and November in each year. If the day fixed for any such regular meeting shall be a legal holiday, the meeting shall be held on the next succeeding day which is not a legal holiday. SPECIAL MEETINGS Section 5. Special meetings of the board of directors may be called at any time by the chief executive officer of the corporation, or by the secretary upon the request of not less than one-third (1/3rd) of the directors then in office. PLACE OF MEETINGS Section 6. All meetings of the board of directors, whether regular or special, shall be held at the office of the corporation in Chicago, Illinois; provided, however, that any meeting, whether regular or special, may be held at such other place as the board of directors may from time to time determine by resolution or as may be fixed in a notice of the meeting or as may be fixed in any waiver of notice signed by all of the directors. NOTICE OF MEETINGS Section 7. No notice of the holding of any regular meeting of the board of directors is required. Written notice of any special meeting shall be given by mail to each director not less than five (5) days before the date of the meeting, or by telegram or cable not less than two (2) days before the date of the meeting, or by telephone not less than twenty-four (24) hours before the time of the meeting, with written confirmation of notice by telephone to be mailed promptly. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, in a sealed envelope addressed to the director at his address as it appears on the records of the corporation, with postage prepaid. If such notice is given by telegram or cable, the same shall be deemed to be delivered when delivered to any telegraph company with charges prepaid and addressed to the director at his address as it appears on the records of the corporation. Attendance of any director at any special meeting shall constitute a waiver of notice of such meeting except where a director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any special meeting of the board of directors need be stated in the notice or waiver of notice of such meeting. QUORUM Section 8. A majority of the board of directors shall constitute a quorum for the transaction of business, but if at any meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time. The affirmative vote of a majority of all directors shall be necessary for the passage of any resolution unless a greater vote is required in these by-laws or the certificate of incorporation. ORGANIZATION OF MEETING Section 9. At meetings of the board of directors, the chairman of the board, if there be such officer, or , in his absence, the president, shall preside as chairman of the meeting. In the absence of both of them, the meeting shall elect a director, present at the meeting, to act as chairman. The secretary of the corporation, or, in his absence, an assistant secretary, shall act as secretary of all meetings of the board of directors, and, in the absence of all such persons, the chairman of the meeting shall appoint some other person to act as secretary off the meeting. COMPENSATION OF DIRECTORS Section 10. Directors as such shall not receive any salary for their services, except that each director not otherwise employed by the corporation, or an affiliated corporation, shall be entitled to be paid his expenses, if any, of attendance at such meetings and such remuneration as the board of directors may from time to time determine. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV C O M M I T T E E S O F D I R E C T O R S DESIGNATION OF STANDING COMMITTEES Section 1. The corporation shall have the following standing committees: (a) An Executive Committee which shall have and may exercise all the authority of the board of directors during the intervals between meetings of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers which may require it. The committee shall consist of not less than four members of the board of directors and shall include the chairman of the board and the president as members. (b) An Audit Committee which shall (1) select and employ, on behalf of the corporation, subject to ratification of stockholders, a firm of certified public accountants whose duty shall be to audit the books and accounts of the corporation and its subsidiaries and affiliated companies for the fiscal year in which they are appointed; (2) confer with the auditors regarding the scope of the audit and other services and the cost thereof and report periodically to the board of directors; and (3) review with the auditors at the conclusion of the audit and before publication of the audited financial statements, the findings disclosed during the audit, including compliance with the corporation's conflict of interest policies, the adequacy of internal controls, the effectiveness of the internal auditing function, accounting policies and financial reporting, and the contemplated form of the statements and opinion. This committee shall consist of not less than three members of the board of directors who are not officers or employees of the corporation. (c) A Compensation and Organization Committee which shall have the duty: to review and to make recommendations to the board of directors with respect to management organization, succession and development programs, the election of corporate officers and their salaries and incentive compensation or bonus awards; to make the decisions required by a committee of the board of directors under all stock option plans which corporation has adopted or may adopt; and to approve and report to the board of directors changes in salary ranges for all major position categories, and the corporation retirement plans, group insurance plans, investment plans or other benefit plans and management incentive compensation or bonus plans. In addition, the committee shall confer with the Benefits Administration Committee established under the corporation retirement plan and report periodically to the board of directors on the funding of all qualified pension plans of the corporation and its subsidiaries and the investment performance of plan funds and, on behalf of the board of directors, authorize necessary or desirable changes in actuarial assumptions for funding of the plans. The committee shall consist of not less than three members of the board of directors who are not officers or employees of the corporation. OTHER COMMITTEES OF DIRECTORS Section 2. The board of directors may, by resolution passed by a majority of the whole board, designate from time to time other committees of the board of directors of such number of directors and with such powers as the board of directors may by resolution determine. APPOINTMENT OF COMMITTEE MEMBERS Section 3. The board of directors at its meeting following the annual meeting of stockholders shall designate the directors to constitute the membership of each standing committee and the chairman thereof, and such directors shall serve until the directors' meeting following the next annual meeting of stockholders; provided, however, that vacancies during the year on any standing committee shall be filled by the board of directors so that the membership of each committee shall be filled at all times; and provided further that in the absence or disqualification of any member of a committee, the members of that committee present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of the absent or disqualified member. MEETINGS - QUORUM Section 4. Meetings of each committee may be called by its chairman or by any two members of the committee or by the chief executive officer of the corporation or by resolution of the board of directors. Each such committee shall fix its own rules of procedure. The presence of a majority of the members of a committee shall be necessary to constitute a quorum for the transaction of business, and the affirmative vote of a majority of all the members of the committee shall be necessary for the adoption of any resolution or the taking of any action. Each committee shall report to the board of directors all actions of the committee at the next directors' meeting following any meeting of any such committee. Regular minutes of the proceedings of each committee shall be kept in a book provided for that purpose. REMUNERATION OF COMMITTEE MEMBERS Section 5. Members of each committee not regularly employed by the corporation shall receive such remuneration as may be determined by resolution of the board of directors. ARTICLE V O F F I C E R S GENERAL PROVISIONS Section 1. The officers of the corporation shall be a president, one or more executive vice presidents, senior vice presidents, or vice presidents, a treasurer, a secretary and one or more assistant treasurers and assistant secretaries. The board of directors may elect a chairman of the board of directors and may also elect other officers from time to time who shall have such authority and perform such duties as may be prescribed by resolution of the board of directors. The offices of treasurer and secretary may be held by the same person. The salaries and other compensation of officers shall be fixed by the board of directors. ELECTION Section 2. The officers of the corporation shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until his successor shall have been elected and shall have qualified or until his death, resignation or removal in the manner hereinafter provided, or until the board of directors shall by resolution determine that the office shall be left unfilled. The chairman of the board, if any, and the president shall be chosen from the members of the board of directors. REMOVAL Section 3. Any officer elected by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. THE CHAIRMAN OF THE BOARD OF DIRECTORS Section 4. The chairman of the board of directors shall be the chief executive officer of the corporation and shall have general charge of the business and affairs of the corporation, subject to the control of the board of directors. He shall preside at all meetings of the stockholders and of the board of directors of the corporation, and by virtue of his office shall be a member of the Executive Committee. He may sign and execute in the name of the corporation all authorized deeds, mortgages, bonds, contracts and other instruments and, with the secretary or an assistant secretary, may sign certificates of capital stock of the corporation. He shall, in general, perform all other duties incident to being the chief executive officer of the corporation, and such other duties as may be prescribed from time to time by the board of directors. In the event of the election of a vice chairman by resolution of the board of directors, the chairman of the board, or the board of directors, may designate the vice chairman to assume such duties of the chairman of the board in his absence as assigned from time to time and to serve on the Executive Committee in lieu of or together with the president and the duties of the president stated in these by-laws, including his membership on the Executive Committee, would thereby be superseded to the extent applicable. THE PRESIDENT Section 5. The president shall be the chief operating officer of the corporation and shall have direct and active charge of the business and affairs of the corporation under the direction of the chairman of the board of directors and subject to control of the board of directors. He shall, by virtue of his office, be a member of the Executive Committee. He may sign and execute in the name of the corporation all authorized deeds, mortgages, bonds, contracts and other instruments and, with the secretary or an assistant secretary, may sign certificates of capital stock of the corporation. He shall, in general, perform all other duties incident to the office of president, and such other duties as may be prescribed from time to time by the chairman of the board or the board of directors. In the event no chairman of the board is elected, or in the absence of the chairman of the board or in case of his inability or refusal to act, the president shall assume the duties of the chairman of the board. THE EXECUTE VICE PRESIDENTS, THE SENIOR VICE PRESIDENTS, AND THE VICE PRESIDENTS Section 6. The executive vice presidents, if any, in the chronological order of their election shall, in the absence of the president, or in the event of his inability or refusal to act, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the board of directors, the chairman of the board, or the president shall prescribe from time to time. The senior vice presidents, if any, in the chronological order of their election shall, in the absence of the president and all the executive vice presidents, or in the event of his or their inability or refusal to act, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the board of directors, the chairman of the board, or the president shall prescribe from time to time. The vice presidents in the chronological order of their election shall, in the absence of the president and all of the executive vice presidents and senior vice presidents, or in the event of his or their inability or refusal to act, perform the duties and exercise the powers of the president and shall perform such other duties and have such other powers as the board of directors, the chairman of the board, or the president shall prescribe from time to time. THE TREASURER AND ASSISTANT TREASURERS Section 7. The treasurer shall have charge and custody of all funds and securities of the corporation and shall keep full and accurate accounts of the receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be authorized from time to time by the board of directors. He shall disburse the funds of the corporation as may be required in the conduct of the business, and shall render to the chief executive officer and the board of directors, at the regular meetings or whenever they may require it, an account of all his transactions as treasurer and of the financial condition of the corporation. If required by the board of directors, he shall give the corporation a bond in such form and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office. And, in general, he shall perform all acts incident to the office of treasurer, subject to the control of the board of directors. The assistant treasurers, in the order of their election, shall, in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer and shall perform such other duties as the board of directors shall prescribe. THE SECRETARY AND ASSISTANT SECRETARIES Section 8. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all proceedings of the meetings of the board of directors and the stockholders in books to be kept for those purposes, and shall perform like duties for any committee of the board of directors when requested. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and he shall be the custodian of the corporate records and of the seal of the corporation, and shall have authority to affix the seal to any instrument requiring it, and when so affixed, it may be attested by his signature. The assistant secretaries, in the order of their election, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties as the board of directors shall prescribe. VOTING SHARES OF OTHER CORPORATIONS Section 9. Unless otherwise ordered by the board of directors, the chief executive officer or such person as he may appoint shall have full power and authority, in behalf of the corporation, to attend any meetings of stockholders of any corporation in which this corporation may hold stock, and to vote the shares held by this corporation at any such meeting; and at any such meeting to possess and exercise any and all rights and powers incident to the ownership of such shares. ARTICLE VI D I V I S I O N S The chairman of the board may appoint managers of divisions with such titles (including the title of president or vice president) as the chairman of the board may determine. A division manager shall not, by virtue of such appointment, be an officer of the corporation within the meaning of Article V of these by-laws. However, the appointment shall not preclude the election and service of a division manager as an officer of the corporation within the meaning of Article V. Division managers shall serve at the pleasure of the chairman of the board and shall perform such duties and have such powers as the chairman of the board may prescribe from time to time. ARTICLE VII C E R T I F I C A T E S OF S T O C K - D I V I D E N D S Section 1. (a) Every holder of stock in the corporation shall be entitled to have a certificate signed in the name of the corporation by the chairman of the board of directors, the president or a vice president and the secretary or an assistant secretary, certifying the number of shares owned by him in the corporation. If such certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, the certificate may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. (b) All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificate for a like number of shares of the same class has been surrendered and canceled or properly accounted for in the case of a lost certificate. TRANSFER OF SHARES Section 2. Upon surrender to the corporation or transfer agent of the corporation of a certificate of shares duly endorsed and accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The board of directors may appoint one or more transfer agents and registrars of transfer, and may require all stock certificates to bear the signature of a transfer agent and of a registrar of transfers. REGISTERED STOCKHOLDERS Section 3. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware or elsewhere in these by-laws. DIVIDENDS Section 4. Dividends upon the capital stock of the corporation, subject to the provisions, if any, of the certificate of incorporation, may be declared by the board of directors at any regular or special meeting pursuant to law. Dividends may be paid in cash, in property, or in shares of capital stock, subject to the provisions of the certificate of incorporation. ARTICLE VIII I N D E M N I F I C A T I O N O F D I R E C T O R S A N D O F F I C E R S The corporation (i) shall indemnify every person who is or was a director or officer of the corporation or is or was serving at the corporation's request as a director or officer of another corporation, partnership, joint venture, trust or other enterprise; and (ii) shall, if the board of directors so directs, indemnify any person who is or was an employee or agent of the corporation or is or was serving at the corporation's request as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise to the extent, in the manner, and subject to compliance with the applicable standards of conduct, provided by Section 145 of the General Corporation Law of the State of Delaware as the same (or any substitute provision therefor) may be in effect from time to time. Such indemnification (i) shall not be deemed exclusive of any other rights to which any person seeking indemnification under or apart from this Article VIII may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and (ii) shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. ARTICLE IX G E N E R A L P R O V I S I O N S CHECKS Section 1. All checks or demands for money and notes of the corporation shall be signed by such officer or officers, or such other person or persons, as the board of directors may from time to time designate. FISCAL YEAR Section 2. The fiscal year of the corporation shall begin on the first day of January of each year and end at the close of the last day of December in the same year. SEAL Section 3. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. WAIVER OF NOTICE Section 4. Whenever any notice whatever is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE X A M E N D M E N T S These by-laws may be amended or repealed by the affirmative vote of 80% of the total number of directors or by the affirmative vote of the holders of 80% of the voting power of the corporation's stock outstanding and entitled to vote thereon. EX-10 3 Exhibit 10(d) of Form 10-K A. P. GREEN INDUSTRIES, INC. Corporate Management Incentive Award Program Effective January 1, 1995 1 A. P. Green Industries, Inc. 1995 Corporate Management Incentive Award Program 1. PURPOSE OF PLAN The purpose of the A. P. Green Industries, Inc. Management Incentive Award Plan is: (a) to direct management efforts toward unit or corporate goals and b) to offer awards for performing above these goals. 2. DEFINITIONS 2.1 "Plan" means this Management Incentive Award Plan. 2.2 "Company" means A. P. Green Industries, Inc., its division and subsidiaries. 2.3 "Corporate" refers to the administrative body of the Company responsible for overall operations and management. 2.4 "Board of Directors" means the Board of Directors of A. P. Green Industries, Inc. 2.5 "Committee" means the Compensation Committee of the Board of Directors. 2.6 "Employee" means any person, who is employed on a permanent, full-time basis by, and receives a regular salary from the Company. 2.7 "Participant" means any employee eligible for an incentive award hereunder. To become eligible, an employee must be recommended by the Chief Executive Officer and approved by the Compensation Committee of the Board of Directors. 2.8 "Plan year" means the fiscal year of the Company. 2.9 "Operating Income" means Corporate Operating Income as shown on Comparative Statement of Net Sales and Income, Form F-M-001, adjusted for any extraordinary items. 2 3. ELIGIBILITY FOR INCENTIVE AWARDS 3.1 Determination of Eligibility Eligibility is limited to key managers as approved by the Committee. Schedule I indicates managers eligible for 1995 plan year participation. 3.2 Date of Eligibility All participants designated in Schedule I are eligible to participate as of January 1, 1995. Any participant who is not eligible as of January 1, 1995 but who becomes a participant during the plan year will be eligible for a pro-rata award. 4. DETERMINATION OF ANNUAL INCENTIVE AWARD 4.1 Target Incentive A participant's target incentive shall be that percentage of his base salary as established by the Compensation Committee of the Board of Directors. 4.2 Incentive Goal A participant's target incentive is achieved when the Company meets its operating income goal of $ . Operating income is defined in section 2.9. No incentive will be paid for performance at less than 67% of net earnings goals. When net earnings reach 67% of goal the plan target incentives will be adjusted by three times the degree by which these earnings fail to meet goal or double the degree by which these earnings exceed goal. The maximum allowable adjustment is 2.0. 3 Examples of target incentive awards resulting from selected operating income levels are outlined in the table below. Other operating income levels will result in awards as described in the formula above. Operating Income Percent of Target Percent of Target (Millions) Operating Income Incentive Awarded 0% - 67% 0% 80 40% 85 55% 90 70% 95 85% 100 100% 125 150% 150 200% 4.3 Discretionary Adjustments The Chief Executive Officer may increase or decrease incentive payments by 25% for any Plan participant. Discretionary adjustments will be based on such considerations as individual contribution, special accomplishment, and additional responsibility. (Total incentive payment may not exceed 200% of target incentive.) 5. PAYMENT OF INCENTIVE AWARDS 5.1 The incentive award of each participant shall be paid in cash as soon as practical after the annual audit of the Company and following approval of the Committee. A participant must be an employee of the Company at the conclusion of the fiscal year in order to be eligible to receive an incentive award unless otherwise provided in Section 6.2. 6. ADMINISTRATION 6.1 A new participant who begins participation during the plan year will be eligible for a pro-rata incentive award from the date of his/her entry in the Plan. 6.2 In the case of death, total disability, or retirement, a pro-rata incentive award shall be distributed based on actual service during the plan year. 6.3 Unless otherwise approved by the Chief Executive Officer, any participant who resigns or is terminated during the plan year except as provided for in paragraph 6.2, shall not be entitled to any incentive award attributable to such plan year. 4 6.4 A participant who is employed as of the end of a plan year shall be entitled to receive an incentive award regardless of whether the participant resigns or is terminated between the end of the plan year and the date the incentive awards are distributed. 6.5 Nothing herein shall be construed as an agreement or commitment to employ any participant or to employ a participant for any fixed period of time or constitutes a commitment by the Company that any participant will continue to receive an incentive award or will continue as a participant in the Plan. 7. AMENDMENT OR TERMINATION OF PLAN The Committee reserves the right to amend the Plan from time to time or to terminate the Plan entirely; provided, however, that no amendment or termination of the Plan shall operate to cancel or otherwise affect the rights of a participant or his beneficiaries or legal representatives to payments in accordance with this Plan with respect to awards determined prior to the date of any such amendment or termination. EFFECTIVE DATE For 1995, this Plan is in effect as of January 1, 1995, and will end on December 31, 1995. 5 EX-13 4 Exhibit 13 to Form 10-K MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 1995 Compared to 1994 - --------------------- Results of Operations - --------------------- Net sales of $249.7 million in 1995 were 27.5% higher than the $195.9 million in 1994. The impact from the August 1994 acquisition of the refractories business of General Refractories Company and its affiliated companies ("General") was to increase 1995 sales by approximately $38.8 million. The impact from the July 1995 acquisition of 51% of A. P. Green de Mexico was to increase 1995 sales by approximately $3.2 million. Excluding the impact of these acquisitions, sales increased in 1995 by $11.8 million, or 6.0%. Gross profit increased 20.0% to $41.4 million in 1995 from $34.5 million in 1994, including $3.9 million due to the General acquisition and $1.3 million due to the A. P. Green de Mexico acquisition. Earnings before cumulative effect of an accounting change increased $2.1 million to $8.8 million, or $2.18 per share, in 1995 from $6.7 million, or $1.65 per share, in 1994. The results of operations in 1994 included the cumulative effect of adopting Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," which reduced net earnings by $255,000, or $.06 per share. Refractory Operations - --------------------- Net sales from refractory operations increased 31.9% to $212.2 million in 1995 as compared to $160.9 million in 1994. U.S. refractory sales increased 28.3% to $181.8 million in 1995 as compared to $141.7 million in 1994, of which $33.3 million was due to the General acquisition. Excluding this acquisition impact, volume of U.S. refractory products increased an average of 5.3% in 1995 across all product lines except precast shapes. Prices were essentially unchanged from 1994 levels, with increases in specialties and precast shape prices offset by declines in prices of brick and ceramic fibers. U.S. export sales increased 52.1% to $19.5 million in 1995 from $12.8 million in 1994, due largely to the General acquisition. U.S. refractory earnings before income taxes and cumulative effect of an accounting change declined 3.4% to $7.9 million in 1995 from $8.2 million in 1994, due primarily to higher raw material and equipment maintenance costs, partially offset by improved labor efficiencies and reduced group insurance and other fringe benefit costs. Also contributing to the decrease were additional salaries and other personnel costs, higher amortization and increased interest cost, all resulting from the General acquisition. Sales at the Canadian subsidiary increased 34.5% to $24.0 million in 1995 from $17.9 million in 1994, substantially all of which was the impact from the General acquisition ($6.2 million). Excluding this impact, decreases in brick, specialties and precast shape volumes were partially offset by increased ceramic fiber and crucible volumes for a net Canadian volume decline of 4.2%. Prices increased across all product lines except crucibles, resulting in an overall 1995 price increase of 4.3%. Excluding a $1.4 million pretax gain on the sale of the Weston, Ontario plant, pretax earnings at the Canadian subsidiary declined to $54,000 in 1995 from $744,000 in 1994. Earnings in 1995 included the establishment of a reserve of approximately $380,000 for exit costs and termination benefits for 26 employees associated with the closing and sale of the Weston, Ontario plant, which was substantially completed in December 1995, and additional interest expense of $244,000 on the debt associated with the acquisition of the General operation in Canada. Also contributing to the reduced 1995 earnings were increased salaries and related costs associated with the addition of General sales and administrative personnel. Results for 1994 included a pretax cost of approximately $315,000 during the first quarter for Canadian personnel reductions made during that quarter. Sales in the United Kingdom increased 32.8% to $9.7 million in 1995 from $7.3 million in 1994 as the U.K. market showed signs of improvement. The sales increase generated pretax earnings of $673,000 in 1995, double the $336,000 earned in 1994. A. P. Green de Mexico's pretax earnings were $341,000 on sales of $3.2 million for the six months of 1995 under A. P. Green ownership. Refractory gross profit increased 18.8% to $33.3 million in 1995 from $28.0 million in 1994, largely as a result of the General and A. P. Green de Mexico acquisitions. Refractory products cost of sales as a percentage of sales increased to 84.3% in 1995 from 82.6% in 1994. The 1995 increase was due primarily to a higher percentage of lower margin sales to the steel industry at the acquired General facilities, increased raw material and inbound freight costs and higher equipment maintenance expense. Also contributing to the cost 13 increase were increases in the obsolete inventory and U. S. plant shutdown reserves, both of which were established at the time of the General acquisition related to facilities to be closed, as well as establishment of the Canadian plant shutdown reserve previously mentioned. The U. S. plant shutdown reserve was increased approximately $330,000 due primarily to revised estimates of employee termination benefits resulting from the sale of these facilities taking longer than anticipated. Substantially all employees (approximately 210 in total) at these facilities have been terminated, approximately $2.8 million of termination benefits and plant closing costs have been charged against the reserve to date and the facilities are held for sale at their estimated net realizable value. Partially offsetting these increases were improved labor efficiencies, reductions in estimated environmental remediation and workers' compensation liabilities assumed in the General acquisition, and reduced power, processing fuel, outbound freight and group insurance costs. Refractory operating profits increased 9.6% to $12.6 million in 1995 from $11.5 million in 1994. Industrial Lime Operations - -------------------------- Industrial lime sales increased 7.4% to $37.7 million in 1995 from $35.1 million in 1994. Volume increased an average of 9.2% across all product lines at the New Braunfels, Texas plant, while volume at the Kimballton, Virginia plant was essentially unchanged from its 1994 levels, with a slight decline in quicklime volumes offset by slight increases in all other product lines. Prices improved an average of 5.5% at the Kimballton plant during 1995, with increases across all product lines, while prices remained steady at the New Braunfels plant as declines in industrial and building lime prices were offset by increases in pricing of road stabilization lime and lime by-products. The gross margins of the Company's industrial lime operations are sensitive to volume changes due to the capital intensive nature of the operations and semi-fixed nature of other costs. As a result of the sales increase, gross profit and operating profit increased 25.5% and 27.3%, respectively. Also contributing to the 1995 increase were improved labor efficiencies and reduced group insurance and processing fuel costs at both plants, reduced raw materials and equipment maintenance costs at the New Braunfels plant and reduced power costs at the Kimballton plant. Partially offsetting these cost reductions were increases in workers' compensation costs at the New Braunfels plant and equipment maintenance and outside processing costs at the Kimballton plant. Selling and Administrative Expenses - ----------------------------------- Selling and administrative expenses increased 21.8% to $31.3 million in 1995 from $25.7 million in 1994. The 1995 increase was due to increases in salaries and related costs, pension costs, travel, office expenses, professional fees and the amortization of intangibles, which were all largely related to the addition of General sales and research personnel and intangible assets included in the acquisition. Selling and administrative expenses at A. P. Green de Mexico and INTOGREEN contributed $603,000 and $143,000 of the increase, respectively. Also contributing to the increase were higher sales promotion, sales incentive, employee recruiting and relocation and director retirement plan expenses, partially offset by a reduced provision for doubtful accounts receivable and lower postemployment benefits costs. Interest Expense and Income - --------------------------- Interest expense increased 63.8% to $3.2 million in 1995 from $1.9 million in 1994 due to the additional debt associated with the General acquisition. There were no bank line borrowings during either year. Interest income increased 16.7% to $1.5 million in 1995 from $1.3 million in 1994 due to increased funds available for investing, higher interest rates and interest received during 1995 on tax refunds. Other Income, Net - ----------------- Other income increased 62.9% to $1.9 million in 1995 from $1.2 million in 1994 due to the $1.4 million pretax gain on the sale of the Weston, Ontario plant in December 1995. Partially offsetting this gain were increased bank charges and a reduction in 1995 royalty income resulting from the cancellation of a licensing agreement with a significant Mexican licensee during the fourth quarter of 1994. Other income in 1994 included gains on sales of land and a warehouse in Los Angeles and a business interruption insurance recovery. The Company and its Canadian and U.K. subsidiaries typically transact business in their own currencies and, accordingly, are not subject to significant currency conversion gains and losses. A. P. Green de Mexico transacts a significant portion of its business in U. S. dollars and, as such, uses the dollar as its functional currency. This results in currency conversion gains and losses on Mexican peso transactions, A. P. Green's portion of which was not significant to the consolidated results. 14 Income Taxes - ------------ During the second quarter of 1995, a review of tax years 1988 through 1993 was completed by the Internal Revenue Service, resulting in a small additional payment to clear federal tax liability for those years. Due to the outcome of this review being more favorable than originally anticipated, the Company reduced its provision for federal income taxes by $1.1 million. The 19.9% effective tax rate in 1995 compared to 30.3% in 1994 was due primarily to this tax adjustment, without which the 1995 effective tax rate would have been 29.6%. Equity in Net Income of Affiliates - ---------------------------------- The Company's share of income from two Colombian affiliates acquired from General in August 1994 totaled $781,000 in 1995 compared to $282,000 for the five-month period of 1994. Financial Condition - ------------------- A. P. Green acquired a 51% ownership interest in three companies during 1995 - A. P. Green de Mexico SA de CV, Lanxide ThermoComposites, Inc. (LTI) and LTI's wholly owned subsidiary, Chiam Technologies, Inc. As a result of these acquisitions, working capital increased approximately $1.5 million, composed primarily of $1.9 million in accounts receivable, $600,000 in inventory and $1.3 million in accounts payable. In addition, property, plant and equipment increased $1.6 million, intangible assets increased $1.4 million and deferred tax liabilities increased $300,000 as a result of these acquisitions. Working capital increased 1.7%, or $1.3 million, to $79.6 million at December 31, 1995 from $78.3 million at December 31, 1994, including the $1.5 million obtained through acquisitions. The ratio of current assets to current liabilities increased to 2.2 to 1 from 1.9 to 1. Excluding the impact of acquisitions, working capital decreased $200,000. Reductions in reimbursement due on paid asbestos claims of $7.8 million, accounts receivable of $1.4 million, deferred income tax asset of $1.6 million and an increase in current maturities of long-term debt of $2.6 million were partially offset by reductions in accounts payable of $5.9 million and insurance reserves of $2.3 million. Also offsetting the working capital reductions were increases in inventories of $1.5 million and prepaid expenses (included in other current assets) of $1.2 million and reductions in environmental reserves and plant closing reserves (included in other accrued expenses) of $1.2 million and $700,000 respectively. The increase in inventories was primarily due to the higher sales level in 1995 compared to 1994. The increase in prepaid expenses was primarily due to the current portion of major equipment maintenance expenditures being amortized over 24 months. The reduction in accounts payable was due to a $6.5 million payment made to the Center for Claims Resolution in January 1995. The decrease in insurance reserves was due to favorable workers' compensation claims experience in comparison to the historical experience used to establish the reserves. The decrease in accounts receivable was due to lower sales during the fourth quarter of 1995 compared to the fourth quarter of 1994, while the decrease in deferred income tax asset was primarily due to reductions in temporary differences created by accrued liabilities and a reduction in alternative minimum tax carryforwards. The decrease in plant closing reserves was due to termination benefits and plant closing costs charged against the reserve during the year, partially offset by the increases in the U.S. and Canadian reserves previously discussed. The reduction in the environmental reserve was due to environmental remediation expenditures charged against the reserve and lower actual remediation costs than estimated in the Phase I and II Environmental Site Assessments obtained in conjunction with the 1994 General acquisition. The reduction in reimbursement due on paid asbestos claims was due primarily to payments being made directly to the Center for Claims Resolution by one insurance carrier starting in May 1995. These direct payments are expected to continue for the foreseeable future, with a resulting favorable impact on the Company's cash balances and cash requirements. The projected insurance recovery on asbestos claims and related current portion of projected asbestos claims both declined by $13.6 million, while the non-current projected insurance recovery on asbestos claims and related non-current projected asbestos claims increased $15.8 million and $15.2 million, respectively. The overall increases in both the projected asbestos liability and projected insurance recovery resulted from revised estimates of the gross asbestos liability and insurance recoveries based upon information provided by the Center for Claims Resolution, net of asbestos claim payments recovered from insurance carriers during the year. The net estimated projected asbestos liability, based upon information provided by the Center for Claims Resolution and included in the Company's statement of financial position, has declined from December 31, 1994 to December 31, 1995. Intangible assets, net increased $1.9 million from December 31, 1994 to December 31, 1995 due to goodwill, which represents the excess of cost over 15 the fair value of net tangible assets acquired, and organization costs associated with the 1995 acquisitions. Also contributing to the increase was a licensing agreement with Lanxide Corporation (Lanxide), the holder of a substantial minority interest in LTI. Under this licensing agreement, A. P. Green will develop and market refractory products utilizing the advanced materials technology developed by Lanxide in non-steel refractory applications worldwide, excluding Japan. Included under the terms of the agreement are all future technologies developed by Lanxide and its licensees and joint ventures as applicable to non-steel refractory applications. Long-term debt, including current portion, at December 31, 1995 consisted of industrial development revenue bonds totaling $11.9 million which bear interest rates ranging from 70% of prime (8.5% at December 31, 1995) to 8.6% and mature at various times from 1997 through 2014, unsecured notes of $25.1 million ($25.0 million of which bear an interest rate of 8.55%) with annual principal repayments commencing in 1996 and continuing through 2001 and a capitalized lease of $109,000 which expires in 1997 and bears an interest rate of 11.1%. During 1995, the Company's U.S. long-term line of credit was increased to $30.0 million and extended to May 2, 1997. Restrictive covenants coincide with those reflected in the agreement associated with the $25.0 million in unsecured notes payable. Approximately $5.3 million of this line of credit was being utilized at December 31, 1995 for outstanding letters of credit. Capital expenditures for 1995 totaled $10.2 million compared to $6.5 million for 1994, with capital expenditures for the refractories business increasing $5.4 million. Of the $5.4 million refractories increase, $2.1 million was for construction of the new specialties plant in Indonesia. The balance of the refractories increase was for replacement, modernization and expansion of operations. Capital expenditure commitments for the replacement, modernization and expansion of operations amounted to $7.0 million and $3.2 million at December 31, 1995 and 1994, respectively. Of the 1995 commitment, approximately $2.5 million was for building the plant in Indonesia and $895,000 was for expansion of the Smithville, Ontario plant to assume the production from the Weston, Ontario plant sold in December 1995. Approximately $742,000 of the 1995 commitment and $1.4 million of the 1994 commitment was for expansion of production capacity, increased safety and improved environmental controls at the Lime plants. Approximately $505,000 of the 1994 commitment was for modernization of the U.K. plant. A. P. Green believes that it has sufficient liquidity and borrowing capacity to meet both its normal working capital requirements and its planned capital expenditures for 1996. During 1995 capital contributions were made by A. P. Green and INTOCAST AG to form a joint venture partnership, INTOGREEN Co., which will sell and install cast monolithic ladle linings to the steel industry in the United States, Canada and Mexico. INTOCAST AG is a world leader in the development of cast ladle linings. Its contribution to the partnership is reflected in minority interests on the balance sheet, net of INTOCAST AG's share of the 1995 loss at INTOGREEN. Also included in minority interests is Grupo Industrial Trebol's 49% interest in A. P. Green de Mexico. The Company has investments in subsidiaries in Canada and the U.K. and two affiliates in Colombia. Adjustments resulting from the currency translation of these subsidiaries' and affiliates' financial statements are reflected as a component of stockholders' equity and were $2.9 million and $2.4 million, respectively, at December 31, 1995 and 1994. The Board of Directors increased the quarterly dividends in the first quarter of 1995 by 17% to $.07 per share from $.06 per share. 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. 1994 Compared to 1993 - --------------------- Results of Operations - --------------------- Net sales of $195.9 million in 1994 were 20.2% higher than the $163.0 million in 1993. The impact from the August 1994 General acquisition was to increase 1994 sales by approximately $29.7 million compared to 1993. Excluding this acquisition impact, refractory sales in the U.S. and Canada increased by $3.2 million and $1.9 million, respectively, during 1994 while sales in the United Kingdom declined $1.0 million. Gross profit increased 7.5% to $34.5 million in 1994 from $32.1 million in 1993, including $3.8 million due to the addition of General products from August through December 1994. 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. Results of operations in 1994 also 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. 16 Refractory Operations - --------------------- Net sales from refractory operations increased 25.1% to $160.9 million in 1994 from $128.6 million in 1993. U.S. refractory sales increased 25.7% to $141.7 million in 1994 from $112.8 million in 1993, 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 an accounting change declined 4.5% to $8.2 million in 1994 from $8.6 million in 1993, 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. Sales at the Canadian subsidiary increased 48.8% to $17.9 million in 1994 from $12.0 million in 1993. 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% to $744,000 in 1994 from $394,000 in 1993, including pretax earnings of $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% in 1994 compared to 3.3% during 1993. Sales in the U.K. declined 11.8% to $7.3 million in 1994 from $8.3 million in 1993 due to the continuing weakness in the U.K. economy. As a result of this sales decline, pretax earnings in the U.K. declined 16.0% to $336,000 in 1994 from $400,000 in 1993. Refractory products cost of sales as a percentage of sales increased to 82.6% in 1994 from 80.6% in 1993. The 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. Refractory operating profits increased 12.1% to $11.5 million in 1994 from $10.2 million in 1993. Industrial Lime Operations - -------------------------- Net sales of $35.1 million in 1994 reflect a 1.6% improvement over 1993 sales of $34.6 million. Volume increased 6.3% at the New Braunfels, Texas plant during 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 of 1994 as a result of severe weather conditions also contributed to the volume decline at the Kimballton facility. Prices improved an average of 1.5% at the Kimballton plant in 1994, with increases in quicklime and Cal-Dol prices partially offset by price reductions in hydrate. New Braunfels prices increased slightly, with increased building and road stabilization lime prices partially offset by reduced prices to the steel and aluminum markets. Gross profit and operating profit at the Company's industrial lime operations declined 9.9% and 8.6%, respectively, during 1994. 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. Selling and Administrative Expenses - ----------------------------------- Selling and administrative expenses increased 6.6% to $25.7 million in 1994 from $24.1 million in 1993. This increase was primarily 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. 17 Interest Expense and Income - --------------------------- Interest expense increased 84.0% to $1.9 million in 1994 from $1.1 million in 1993 due to the additional debt associated with the General acquisition. There were no bank line borrowings during either year. Interest income declined 4.8% to $1.3 million in 1994 from $1.4 million in 1993 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. Other Income, Net - ----------------- Other income increased 2.1% to $1.2 million in 1994, with gains on sales of land and a warehouse in Los Angeles partially offset by reduced royalty income and higher currency conversion losses on U.S. dollar denominated transactions at the Canadian subsidiary. 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. Equity in Net Income of Affiliates - ---------------------------------- For the period August 1 through December 31, 1994, the Company's share of income from two Colombian affiliates acquired from General in August 1994 was $282,000. Accounting Standards Not Yet Implemented - ---------------------------------------- The Company is required to implement Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123), in 1996. The standard recommends the application of the fair value based method of accounting for stock-based compensation cost. The Company currently plans to continue to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", by using the intrinsic value method of accounting. Beginning in 1996, the pro forma effects on net income and earnings per share as if the fair value based method of accounting as defined in Statement 123 had been applied will be disclosed. Subsequent Event - ---------------- On February 26, 1996, the Company announced plans to form a joint venture with SCANA Corporation to build and operate a $25 million industrial lime plant near Charleston, South Carolina. SCANA Corporation is an energy-based holding company headquartered in Columbia, South Carolina, with subsidiaries engaged in regulated energy and natural gas utility operations and other nonregulated energy-related businesses. The plant is expected to be operational by late 1997. 18 CONSOLIDATED STATEMENTS OF EARNINGS - ----------------------------------- (Dollars in thousands, except per share data) - ------------------------------------------------------------------------------ Years ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------ Net sales $ 249,715 $ 195,918 $ 162,962 Cost of sales 208,309 161,420 130,879 - ------------------------------------------------------------------------------ Gross profit 41,406 34,498 32,083 Expense and other income Selling and administrative expense 31,312 25,707 24,125 Interest expense 3,190 1,947 1,058 Interest income (1,513) (1,296) (1,361) Minority interest in loss of partnership (67) - - Other income, net (1,881) (1,155) (1,131) - ------------------------------------------------------------------------------ Earnings before income taxes and cumulative effect of an accounting change 10,365 9,295 9,392 Income tax expense 2,182 2,904 2,895 Equity in net income of affiliates (781) (282) - Minority interest in income of consolidated subsidiary 164 - - - ------------------------------------------------------------------------------ Earnings before cumulative effect of an accounting change 8,800 6,673 6,497 Cumulative effect of an accounting change - postemployment benefits, net of tax - (255) - - ------------------------------------------------------------------------------ Net earnings $ 8,800 $ 6,418 $ 6,497 ============================================================================== Earnings per common share before cumulative effect of an accounting change $ 2.18 $ 1.65 $ 1.62 Cumulative effect of an accounting change - postemployment benefits, net of tax - (.06) - - ------------------------------------------------------------------------------ Net earnings per common share $ 2.18 $ 1.59 $ 1.62 Weighted average number of common shares 4,030,059 4,024,812 4,010,782 ============================================================================== See accompanying notes to consolidated financial statements. 19 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Dollars in thousands, except per share data) - ------------------------------------------------------------------------------ December 31, 1995 1994 - ------------------------------------------------------------------------------ ASSETS Current assets Cash and cash equivalents $ 9,284 $ 9,637 Trade receivables (net of allowances-1995, $1,930; 1994, $1,992) 44,183 43,728 Reimbursement due on paid asbestos claims 3,696 11,475 Inventories 55,557 53,452 Projected insurance recovery on asbestos claims 21,990 35,540 Deferred income tax asset 4,115 5,355 Other 6,411 4,965 - ------------------------------------------------------------------------------ Total current assets 145,236 164,152 Property, plant and equipment, net 96,785 95,412 Non-current projected insurance recovery on asbestos claims 113,168 97,344 Pension assets 9,071 9,166 Intangible assets, net 3,941 2,069 Other assets 5,367 4,979 - ------------------------------------------------------------------------------ Total assets $373,568 $373,122 ============================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 18,254 $ 22,874 Accrued expenses Payrolls 6,281 6,044 Taxes other than on income 1,889 1,961 Insurance reserves 4,657 6,995 Current portion of projected asbestos claims 22,198 35,793 Other 8,534 10,650 Current maturities of long-term debt 2,705 139 Income taxes 1,103 1,384 - ------------------------------------------------------------------------------ Total current liabilities 65,621 85,840 Deferred income taxes 12,671 15,677 Long-term non-pension benefits 15,597 15,270 Long-term pensions 14,233 12,472 Long-term debt 34,384 37,023 Non-current projected asbestos claims 115,048 99,802 - ------------------------------------------------------------------------------ Total liabilities 257,554 266,084 - ------------------------------------------------------------------------------ Minority interests 2,015 - Stockholders' equity Preferred stock - $1 par value; authorized: 2,000,000 shares; issued and outstanding: none - - Common stock - $1 par value; authorized: 10,000,000 shares; issued: 4,486,221 in 1995 and 4,475,629 in 1994 4,486 4,476 Additional paid-in capital 72,770 72,739 Retained earnings 56,981 49,279 Less: Deferred foreign currency translation (2,931) (2,428) Treasury stock of 448,962 shares in 1995 and 448,347 shares in 1994, at cost (9,018) (9,003) Note receivable-ESOT (7,505) (8,021) Minimum pension liability adjustment, net of tax (784) - Deferred compensation-restricted stock - (4) - ------------------------------------------------------------------------------ Total stockholders' equity 113,999 107,038 - ------------------------------------------------------------------------------ Total liabilities and stockholders' equity $373,568 $373,122 ============================================================================== See accompanying notes to consolidated financial statements. 20 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars in thousands, except per share data) - -----------------------------------------------------------------------------------------------------------
Minimum Deferred Deferred Pension Compensa- Addi- Foreign Note Liability tion- tional Currency Treasury Receiv- Adjust- Restric- Common Paid-in Retained Transla- Stock, able- ment, ted Stock Capital Earnings tion At Cost ESOT Net of Tax Stock - ------------------------------------------------------------------------------------------------------------ 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) Payment on ESOT note 430 Other, net (59) 7 56 - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 1993 4,459 72,492 43,800 (2,301) (9,003) (8,491) - (26) - ------------------------------------------------------------------------------------------------------------ Net earnings 6,418 Dividends ($.24 per share) (967) Currency translation adjustment (127) Payment on ESOT note 470 Other, net 17 247 28 22 - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 1994 4,476 72,739 49,279 (2,428) (9,003) (8,021) - (4) - ------------------------------------------------------------------------------------------------------------ Net earnings 8,800 Dividends ($.28 per share) (1,128) Currency translation adjustment (503) Payment on ESOT note 516 Minimum pension liability adjustment, net of tax (784) Other, net 10 31 30 (15) 4 - ------------------------------------------------------------------------------------------------------------ Balance at December 31, 1995 $4,486 $72,770 $56,981 $(2,931) $(9,018) $(7,505) $(784) $ - - ------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
21 CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) - ------------------------------------------------------------------------------ Years ended December 31, 1995 1994 1993 - ------------------------------------------------------------------------------ Cash flows from operating activities Net earnings $ 8,800 $ 6,418 $ 6,497 Adjustments for items not requiring (providing) cash Cumulative effect of an accounting change- postemployment benefits, net of tax - 255 - Depreciation, depletion and amortization 10,174 8,725 7,671 Deferred compensation earned 4 22 56 Stock compensation to directors 23 28 - Provision for losses on accounts receivable 120 373 143 Loss (gain) on sale of assets (1,272) (403) 168 Equity in undistributed earnings of affiliates (227) (282) - Minority interest in earnings of consolidated subsidiary and partnership 97 - - Decrease (increase) in assets, net of effects from acquisitions Trade receivables 1,143 (4,924) (968) Asbestos claim and fee reimbursements received 30,232 33,557 30,778 Inventories (1,758) (4,968) 1,232 Receivable and prepaid taxes (360) 509 - Other current assets (712) (995) (73) Increase (decrease) in liabilities, net of effects from acquisitions Accounts payable and accrued expenses (9,925) (225) 2,309 Asbestos claims paid (23,937) (39,944)(32,851) Pensions 279 206 461 Income taxes (322) 782 275 Deferred income taxes (1,185) (575) 271 Long-term non-pension benefits 286 653 565 - ------------------------------------------------------------------------------ Net cash provided by (used in) operating activities 11,460 (788) 16,534 - ------------------------------------------------------------------------------ Cash flows from investing activities Capital expenditures (10,156) (6,482) (6,149) Decrease (increase) in other long-term assets (726) 355 (126) Increase in pension assets (34) (311) (1,004) Proceeds from sales of assets 1,843 511 454 Payment received on ESOT note 516 470 430 Acquisition of businesses, net of cash acquired (1,614) (24,497) - - ------------------------------------------------------------------------------ Net cash used in investing activities (10,171) (29,954) (6,395) - ------------------------------------------------------------------------------ Cash flows from financing activities Repayments of debt (165) (122) (122) Proceeds from borrowings - 25,000 - Dividends paid (1,128) (967) (240) Capital contributions from minority partner 121 - - Exercised stock options 2 238 - Tax benefit on dividends paid to ESOT 30 28 7 Tax effect on restricted stock plan 1 (2) (59) Purchase of fractional shares in connection with stock split - - (11) - ------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (1,139) 24,175 (425) - ------------------------------------------------------------------------------ Effect of exchange rate changes (503) (127) (501) - ------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (353) (6,694) 9,213 Cash and cash equivalents at beginning of year 9,637 16,331 7,118 - ------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 9,284 $ 9,637 $16,331 ============================================================================== See accompanying notes to consolidated financial statements. 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------ December 31, 1995, 1994 and 1993 Note 1: Nature of Operations - ----------------------------- A. P. Green Industries, Inc. and its subsidiaries, collectively referred to as "A. P. Green" or "the Company", is a manufacturer of refractory products and industrial lime products. Refractory products, which accounted for 85% of 1995 revenues, are sold throughout North America and selected international markets to basic industries such as metals, glass, ceramics, paper and cement. Industrial lime products are sold to end-users for applications such as steel and aluminum production, pulp and paper processing, soil stabilization for road construction, water and waste water treatment and various environmental applications. The industrial lime market served is generally within a 300-mile radius of the Company's lime plants in New Braunfels, Texas and Kimballton, Virginia. Note 2: Summary of Significant Accounting Policies - -------------------------------------------------- Basis of Presentation The Company's consolidated financial statements include all wholly owned subsidiaries and majority owned subsidiaries. Equity investments of 20% to 50% are accounted for using the equity method. All intercompany balances and transactions have been eliminated and there are no significant related party transactions. Certain prior year amounts have been reclassified to conform to the 1995 presentation. Cash and Cash Equivalents A. P. Green considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Due to their short maturity, these instruments are carried at cost which approximates fair value. Fair Value of Financial Instruments The carrying amount of cash and cash equivalents, trade receivables and accounts payable approximates fair value because of the short maturity of these instruments. The fair value of long-term debt is discussed in Note 9. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Reimbursement Due on Paid Asbestos Claims A. P. Green makes expense and indemnity payments on asbestos product claims directly to the Center for Claims Resolution on behalf of certain insurers. Reimbursement due on paid asbestos claims represents the recoverable portion of such payments. 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. Intangible Assets Intangible assets, primarily consisting of goodwill, customer lists, non-compete agreements, patents and trademarks, are amortized on a straight-line basis over the period benefited, which ranges from 5 to 12 years. Recoverability of these assets is considered in conjunction with the ongoing evaluation of long-term asset values. Income Taxes Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the consolidated statements of earnings during the period that includes the date of the change. Deferred Foreign Currency Translation The functional currencies of the Company's Canadian and United Kingdom subsidiaries and Colombian affiliates are their respective local currencies. 23 Adjustments resulting from the currency translation of these subsidiaries' and affiliates' financial statements are refle cted as a component of stockholders' equity. A. P. Green de Mexico transacts a significant portion of its business in U. S. dollars and, as such, uses the dollar as its functional currency. Earnings Per Common Share Earnings per common share are computed based on the weighted average number of shares of common stock outstanding and have been restated to reflect the three-for-two stock split effective December 10, 1993. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 3: New Ventures and Acquisitions - ------------------------------------- In January 1995, the Company formed INTOGREEN Co., a joint venture partnership with INTOCAST AG, to sell and install cast monolithic ladle linings to the steel industry in the United States, Canada and Mexico. INTOCAST AG, based in Germany, is a world leader in the development of cast ladle linings, which result in lower installation costs, reduced disposal of used refractory material and increased ladle availability to the steel plant. Effective July 3, 1995, the Company acquired a 51% ownership interest in Plibrico de Mexico SA de CV, a refractory manufacturer located in Monterrey, Mexico. Plibrico de Mexico, which has been renamed A. P. Green de Mexico SA de CV, has one plant with annual sales of approximately $7.0 million. The purchase price and transaction costs totaled approximately $2.0 million and were paid in cash. The acquisition was accounted for using the purchase method, with the operating results of A. P. Green de Mexico included in consolidated operating results since the date of acquisition. Goodwill of approximately $560,000, which represents the excess of cost and liabilities assumed over the fair value of tanigible assets acquired, is being amortized on a straight-line basis over a ten-year period. Effective December 31, 1995, the Company acquired a 51% ownership interest in Lanxide ThermoComposites, Inc. (LTI). Prior to the acquisition, LTI was a wholly owned subsidiary of Lanxide Corporation of Newark, Delaware, which will continue to own a substantial minority interest in LTI. Immediately prior to the acquisition, LTI acquired Chiam Technologies, Inc., a company engaged in the sourcing of refractory products from several Chinese refractory producers. LTI is concentrating on commercializing refractory products for the continuous casting segment of the steel industry utilizing ceramic composites technology licensed from Lanxide Corporation. The acquisition was accounted for using the purchase method, which had no impact on consolidated operating results due to the December 31 transaction effective date. Goodwill of approximately $870,000 for the two companies is being amortized on a straight-line basis over a ten-year period. The acquisitions completed during 1995 were not material to the Company's financial condition or results of operations, either individually or in the aggregate. As such, no financial statements of the acquired companies for periods prior to the acquisitions or pro forma financial information reflecting the acquisitions as of the beginning of the year have been provided. Effective August 1, 1994, the Company acquired substantially all of the assets and assumed most of the liabilities of the refractory operations of General Refractories Company and its affiliated companies (collectively referred to as "General"). These operations include ten plants in the United States, a plant near Toronto, Canada and 49% equity interests in two Colombian refractory companies. In addition to the assumption of designated liabilities, the Company paid at closing a cash amount of $23,450,000. The acquisition was accounted for using the purchase method, with the operating results of General included in consolidated operating results from the date of acquisition. In connection with the General acquisition, the Company obtained Phase I and II Environmental Site Assessments (ESA) in order to determine the potential environmental impact of specific recognized environmental conditions at each of the acquired properties and estimate the costs for remediation. Based upon the results of the ESA and a report and opinion provided thereon, the Company established a $3.4 million liability for remediation costs (in other accrued expenses) as part of the General acquisition. The majority of this liability relates to leakage and spills from underground and aboveground storage tanks and drums, and action is being taken to remediate all identified conditions, which is expected to be completed within five years. Appropriate state 24 agencies have been notified of contamination where required, and there have been no resulting actions taken or proposed by such agencies against the Company. There was no asbestos-related liability, either for bodily injury or property damage, assumed in connection with the General acquisition. Note 4: Reserves for Plant Closings - ------------------------------------ The Company has reserves for estimated exit costs and termination benefits in connection with the shutdown of certain facilities in the U.S. and Canada. Three of the acquired General plants were closed during 1994, a $3.6 million reserve for which was established at the time of acquisition and included on the opening balance sheet. During 1995 this reserve was increased by approximately $330,000, primarily to revise estimates of employee termination benefits resulting from the sale of these facilities taking longer than anticipated. A $380,000 reserve was also established during 1995 for the closing of the Weston, Ontario plant. Substantially all employees at these facilities (approximately 210 in total) have been terminated and approximately $3.2 million of termination benefits and plant closing costs have been charged against the reserves to date. The U.S. facilities are held for sale at their estimated net realizable value. The income statement effect of establishment of and changes to these reserves in 1995 is included in cost of sales. Note 5: Changes in Method of Accounting - --------------------------------------- Postemployment Benefits Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" (Statement 112). The standard requires application of the accrual method of accounting to all benefits provided to former or inactive employees, their beneficiaries and covered dependents, subsequent to their employment by the Company and prior to retirement, rather than recognizing these expenses as they are paid. The Company recognized the projected benefit obligation relating to short-term and long-term disability benefits as a cumulative effect of an accounting change, reducing net income by $255,000, or $.06 per share. Note 6: Inventories - ------------------- Inventory classifications as of December 31, 1995 and 1994 were as follows: - ------------------------------------------------------------------- (In thousands) 1995 1994 - ------------------------------------------------------------------- Finished goods and work in process Valued at LIFO FIFO cost $ 36,429 $ 36,233 Less LIFO reserve (14,186) (14,919) -------- --------- LIFO cost 22,243 21,314 Valued at FIFO 10,404 9,033 --------- --------- 32,647 30,347 --------- --------- Raw materials and supplies Valued at LIFO FIFO cost 18,187 20,007 Less LIFO reserve (5,234) (5,875) --------- -------- LIFO cost 12,953 14,132 Valued at FIFO 9,957 8,973 --------- -------- 22,910 23,105 --------- -------- $ 55,557 $ 53,452 =================================================================== For the years ended December 31, 1995, 1994 and 1993, A. P. Green experienced liquidations of LIFO inventory quantities, none of which were significant. Note 7: Property, Plant and Equipment, Net - ------------------------------------------ Property, plant and equipment, net, as of December 31, 1995 and 1994 were as follows: - ------------------------------------------------------------------- (In thousands) 1995 1994 - ------------------------------------------------------------------- Land and mineral deposits $ 8,055 $ 7,778 Buildings and realty improvements 46,580 45,618 Machinery and equipment 134,915 128,911 Construction in progress 5,015 2,973 --------- --------- 194,565 185,280 Less accumulated depreciation and depletion 97,780 89,868 --------- --------- $ 96,785 $ 95,412 =================================================================== Closed production facilities held for sale are included in other current assets at estimated net realizable value of $2.4 million as of December 31, 1995. 25 Note 8: Short-Term Lines of Credit - ---------------------------------- Short-term lines of credit have been established with banks in the United Kingdom for 100,000 British Pounds and Canada for Cdn$250,000, each of which was unused at December 31, 1995 and 1994. Note 9: Long-Term Debt - ---------------------- Long-term debt as of December 31, 1995 and 1994 was as follows: - ------------------------------------------------------------------- (In thousands) 1995 1994 - ------------------------------------------------------------------- Unsecured notes payable $ 25,068 $ 25,000 Industrial development revenue bonds 11,912 11,973 U.S. line of credit - - Capitalized lease obligation 109 189 -------- -------- 37,089 37,162 Less current maturities 2,705 139 -------- -------- $ 34,384 $ 37,023 =================================================================== In 1994, the Company issued $25 million in principal amount of unsecured notes to a group of institutional lenders to finance the acquisition of General. The notes bear an 8.55% fixed rate of interest, with semi-annual interest payments which commenced January 29, 1995. Annual principal repayments, which 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 minimum levels of tangible net worth, working capital and fixed charge coverage, permitted encumbrances, loans from and to other institutions and restricted payments. Management does not expect these restrictive covenants to have a material adverse effect on A. P. Green's operations. The capitalized 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%. Prime was 8.5% at December 31, 1995. In 1995, the Company's U.S. long-term line of credit was increased to $30 million and extended to May 2, 1997. Restrictive covenants coincide with those reflected in the agreement associated with the unsecured notes payable. Borrowings under this line of credit may be made for working capital, acquisitions and other corporate purposes, with interest charged at the federal funds rate (5.5% at December 31, 1995) plus 2%. Approximately $5.3 million of standby letters of credit were outstanding against the line at December 31, 1995, leaving an available balance of approximately $24.7 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, 1995. Aggregate maturities of long-term debt are approximately $3.5 million, $5.1 million, $5.1 million and $5.0 million for 1997 through 2000, respectively. The net book value of property, plant and equipment pledged as security or collateral for outstanding long-term debt was approximately $2.6 million at December 31, 1995. Note 10: Income Taxes - --------------------- Income tax expense (benefit) attributable to earnings from continuing operations for the years ended December 31, 1995, 1994 and 1993 consists of the following: - ------------------------------------------------------------------- (In thousands) 1995 1994 1993 - ------------------------------------------------------------------- Current Federal $ 2,347 $ 2,774 $ 1,536 State 514 423 367 Foreign 539 280 264 Deferred (1,218) (573) 728 ------- ------- ------- $ 2,182 $ 2,904 $ 2,895 =================================================================== The following schedule provides a reconciliation between expected tax at the U.S. statutory tax rate and the effective tax rate (total provision for income taxes as a percentage of earnings before income taxes). During 1995, a review of tax years 1988 through 1993 was completed by the Internal Revenue Service, resulting in less taxes than accrued. Accordingly, the Company reduced its provision for federal income taxes by $1.1 million. - ---------------------------------------------------------------------- 1995 1994 1993 - ---------------------------------------------------------------------- U.S. statutory rate 34.0% 34.0% 34.0% Transfer of appreciated land - - (4.7) Reversal of provision for closed tax years (9.7) - - Excess tax depletion (4.0) (4.2) (4.1) State and local income taxes, net 2.1 2.0 1.7 Foreign tax rate differential .9 .3 .1 Other, net (3.4) (1.8) 3.8 ------- ------- ------- Effective tax rate 19.9% 30.3% 30.8% ====================================================================== 26 The components of deferred tax expense (benefit) consist of the following: - ---------------------------------------------------------------------- (In thousands) 1995 1994 1993 - ---------------------------------------------------------------------- Accelerated tax depreciation $(1,532) $ (1,145) $ (951) Accrued liabilities and allowances (438) 1,250 516 Allowances for asset valuation (227) (1,346) - Capital loss utilization 38 120 45 Net operating loss utilization 5 5 1,783 Alternative minimum tax utilization (carryforward) 800 183 (409) Other, net 136 360 (256) ------- ------- ------- Total deferred tax provision $(1,218) $ (573) $ 728 ====================================================================== The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 consist of the following: - ------------------------------------------------------------------------- (In thousands) 1995 1994 - ------------------------------------------------------------------------- Deferred tax assets Accrued liabilities, differences in expense recognition $11,341 $12,087 Alternative minimum tax carryforwards 448 1,248 Inventories, overhead capitalization differences 76 492 Capital loss carryforward 395 432 Restricted stock, differences in compensation recognition - 18 Net operating loss carryforwards 280 42 ------- ------- 12,540 14,319 Less valuation allowance - - ------- ------- 12,540 14,319 Deferred tax liabilities ------- ------- Fixed assets, principally depreciation method differences 15,897 17,159 Prepaid pension costs 1,452 2,728 State, local and other taxes 1,194 2,423 Inventories, differences in LIFO methods 2,365 1,917 Asset valuation differences 188 415 ------- ------- 21,096 24,642 ------- ------- Net deferred tax liability $ 8,556 $10,323 ============================================================================== At December 31, 1995, A. P. Green has alternative minimum tax credit carryforwards of approximately $448,000 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 1994 and 1995. A. P. Green has not recognized a deferred tax liability for the undistributed earnings of its wholly owned foreign subsidiaries that arose in 1995 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, 1995, 1994 and 1993, the undistributed earnings of these subsidiaries were approximately $4.2 million, $3.3 million and $2.9 million, respectively. Note 11: Incentive Plans - ------------------------ A. P. Green maintains the 1987 Long-Term Performance Plan (the 1987 Plan), the 1989 Long-Term Performance Plan (the 1989 Plan) 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. 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 64,121 9,000 173,621 Shares committed in the form of stock options 86,250 100,500 191,250 378,000 ------- ------- ------- ------- Remaining shares available for grant 8,250 30,379 24,750 63,379 ============================================================================== At December 31, 1995, restrictions had lapsed with respect to all of the shares issued as restricted stock. 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. 27 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 6,000 18.33 N/A 94,500 13.33 N/A ------- 100,500 ------- 1993 Plan 26,250 12.33 $15.33(1) 41,250 12.33 17.00(1) 41,250 12.33 18.67(1) 41,250 12.33 20.00(1) 41,250 12.33 22.00(1) ------- 191,250 ------- 378,000 ============================================================================== (1) At December 31, 1995, the options having a price at which exercisable of $15.33, $17.00, $18.67 and $20.00 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 equaled or exceeded $22.00 per share for 30 consecutive trading days. All of the options having exercise prices of $18.33 and $13.33 per share were exercisable at December 31, 1995. 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. During 1995, a total of 1,500, 9,000 and 9,000 options were exercised at prices of $18.33, $13.33 and $12.33, respectively. In addition, 6,000 options expired due to termination of employment. There were no options granted during 1995. Note 12: Pension Plans - ---------------------- A. P. Green has various pension plans covering substantially all employees. Plan benefits are generally based on years of service and compensation during the last years of employment. A. P. Green's contributions are made in accordance with independent actuarial reports to meet minimum funding requirements. The Company contributed $2.1 million and $578,000 to these plans during 1995 and 1994, respectively. Contributions were made primarily to fund the General plans. The plans' assets consist primarily of listed common stocks and debt securities. Net pension (income) expense for the years ended December 31, 1995, 1994 and 1993 included the following components: - ----------------------------------------------------------------------------- (In thousands) 1995 1994 1993 - ----------------------------------------------------------------------------- Service cost of benefits earned during period $ 1,676 $ 1,793 $ 1,289 Interest cost on projected benefit obligations 8,703 6,751 5,554 Actual (gain) loss on assets (20,964) 1,055 (10,149) Net amortization and deferral 12,454 (8,892) 2,754 -------- -------- -------- Net pension (income) expense 1,869 707 (552) Multiemployer pension expense 170 181 179 -------- -------- -------- Total pension (income) expense $ 2,039 $ 888 $ (373) ============================================================================== 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, three of the four plans have accumulated benefit obligations that exceed plan assets. The following table sets forth the actuarial present value of benefit obligations and funded status for all of the Company's pension plans at December 31, 1995 and 1994. Plan asset values and benefit obligations are measured as of September 30, 1995 and 1994: - ------------------------------------------------------------------------------ (In thousands) 1995 1994 -------------------- -------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Benefits Assets Benefits Assets - ------------------------------------------------------------------------------ Accumulated benefit obligations, substantially all of which are vested $(90,318) $(27,585) $(76,994) $(23,903) Effect of projected future compensation levels (7,442) (24) (5,800) - -------- -------- -------- -------- Projected benefit obligations (97,760) (27,609) (82,794) (23,903) Plans' assets at fair value 99,899 15,597 87,694 13,686 -------- -------- -------- -------- Excess (deficiency) 2,139 (12,012) 4,900 (10,217) Unrecognized net asset at transition (3,576) (24) (4,073) (27) Unrecognized net (gain) loss 4,794 827 2,747 (1,500) Unrecognized prior service cost 4,036 582 4,610 82 Minimum pension liability adjustment - (1,598) - - -------- -------- -------- -------- Prepaid (accrued) pension cost $ 7,393 $(12,225) $ 8,184 $(11,662) ============================================================================== In accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," the Company recorded an additional 28 minimum pension liability of approximately $1.6 million at December 31, 1995. This minimum liability represented the excess of unfunded accumulated benefit obligations over recorded pension liabilities, determined on an individual plan basis. A corresponding amount was recorded as an intangible asset except to the extent the minimum liability for a particular plan exceeded the related unrecognized prior service cost, in which case the excess was recorded as a reduction of stockholders' equity. As of December 31, 1995, an intangible asset of approximately $345,000 was recorded, along with a reduction in stockholders' equity of $784,000, net of related tax benefits. No minimum pension liability adjustment was required as of December 31, 1994. U.S. Pensions - ------------- The expected long-term rate of return on plan assets was 8.75% for 1995 and 8.5% for 1994 and 1993. A weighted average discount rate of 7.5% was used for 1995, 8.25% was used for 1994 and 7.5% was used for 1993. A rate of increase in future compensation levels of 5.0% for 1995, 1994 and 1993 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 1995, 1994 and 1993. A weighted average discount rate of 8.0% was used for all three years, and a 5.0% rate of increase in future compensation levels was used for 1995, 6.5% for 1994 and 1993. Non-Employee Director Retirement Plan - ------------------------------------- During 1995, the Company adopted a retirement plan for its non-employee directors who retire from the Company's Board of Directors with a minimum of five years of service on the Board. Such directors will receive, for a period of ten years from the date of retirement, an annual amount equal to the annual compensation in effect at the date of retirement multiplied by 10% for each year of service, to a maximum of 100%. Benefits to be paid under the plan are accrued over the remaining period to retirement of the covered directors. The related expense for the plan was approximately $355,000 for the year ended December 31, 1995. Note 13: Long-Term Non-Pension Benefits - --------------------------------------- The Company sponsors two defined benefit postretirement plans that cover both salaried and nonsalaried employees. One plan provides health care benefits to employees hired prior to January 1, 1991 and the other provides life insurance benefits. The health care plan is contributory, with retiree contributions, deductibles and benefit levels adjusted periodically; the life insurance plan is noncontributory. Under the terms of its health care plan, based on anticipated increases in future health care costs, the retirees' share of total costs will be adjusted so that the Company's share will not increase more than 7% per annum. The Company maintains the right to adjust benefits, deductibles, contributions or the Company's share of increases, at its sole discretion, at future dates. The following table sets forth the actuarial present value of the plans' benefit obligations at December 31, 1995 and 1994. The accumulated postretirement benefit obligation was measured as of September 30, 1995 and 1994. - ------------------------------------------------------------------------------ (In thousands) 1995 1994 - ------------------------------------------------------------------------------ Accumulated postretirement benefit obligation Retirees, dependents and beneficiaries $12,198 $10,360 Fully eligible active plan participants 2,588 1,341 Other active plan participants 3,353 1,928 ------- ------- Accumulated postretirement benefit obligation 18,139 13,629 Unrecognized prior service cost (231) - Unrecognized net gain (loss) from past experience different from that assumed (2,844) 1,086 ------- ------- Accrued postretirement benefits other than pensions $15,064 $14,715 ============================================================================== The Company's postretirement health care plan and life insurance plan are unfunded; the accumulated postretirement benefit obligation at December 31, 1995 and 1994 is $17.0 million and $12.7 million, respectively, for the health care plan and $1.1 million and $906,000, respectively, for the life insurance plan. Net postretirement benefits cost other than pensions for the years ended December 31, 1995, 1994 and 1993 included the following components: - ----------------------------------------------------------------------------- (In thousands) 1995 1994 1993 - ----------------------------------------------------------------------------- Service cost of benefits earned during the period $ 344 $ 355 $ 337 Interest cost on accumulated postretirement benefit obligation 1,106 1,044 1,051 ------- ------- ------- Net postretirement benefits cost other than pensions $ 1,450 $ 1,399 $ 1,388 ============================================================================== For measurement purposes, an 11% annual rate of increase in the per capita cost of covered health care benefits was assumed for 1995; the rate was assumed to decrease gradually to 5% by 2001 and remain at that level thereafter. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the health care plan as of December 31, 1995 by 2.6%, 29 or $445,000, and would increase the service and interest costs of net postretirement health care benefits for the year then ended by 3.3%, or $46,000. The discount rate used in determining the accumulated postretirement benefit obligation was 7.5% at December 31, 1995, 8.25% at December 31, 1994 and 7.5% at December 31, 1993. As discussed in Note 5, the Company adopted Statement 112 effective January 1, 1994. This standard requires use of the accrual method of accounting for benefits provided to former or inactive employees after employment but before retirement, rather than recognizing these expenses as they are paid. The projected benefit obligation relates to short-term and long-term disability benefits provided by the Company to salaried employees. The annual incremental expense for 1995 and 1994 was not material and the projected benefit obligation was $533,000 and $555,000 as of December 31, 1995 and 1994, respectively. 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 certain 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, $1.2 million and $1.4 million in 1995, 1994 and 1993, 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 $214,000, $151,000 and $128,000 in 1995, 1994 and 1993, respectively. Note 15: Employee Stock Ownership Trust - --------------------------------------- The Company sponsors an Employee Stock Ownership Trust (ESOT). All U.S. full-time salaried employees and the hourly employees of certain plants are eligible to participate. The ESOT purchased a total of 447,760 previously unissued shares of A. P. Green common stock. The shares were issued to the ESOT in accordance with the Stock Purchase Agreement between LaSalle National Bank, as Trustee, and A. P. Green. The aggregate purchase price of $10.0 million was financed entirely by A. P. Green. To secure the financing, the ESOT has pledged the shares to A. P. Green. A. P. Green makes the necessary contributions to the ESOT. - ------------------------------------------------------------------------------ (In thousands) 1995 1994 1993 - ------------------------------------------------------------------------------ Interest payments on ESOT debt $ 762 $ 806 $ 847 Principal payments 515 471 430 Less Dividends on ESOT shares used for debt service (114) (104) (27) Forfeitures (104) (58) - Interest income (3) - - ------ ------ ------ Contributions to ESOT 1,056 1,115 1,250 Administrative expenses 147 159 127 ------ ------ ------ Employee savings plan cost $1,203 $1,274 $1,377 ============================================================================== 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 $750,000, $795,000 and $837,000 in 1995, 1994 and 1993, respectively. Note 16: Preferred and Common Stock - ----------------------------------- The Company's preferred stock can be issued in one or more series without stockholder approval. A Preferred Share Purchase Right (Right) is attached to each outstanding share of common stock. The Rights become exercisable 10 days following a public announcement that a party acquired, or obtained the right to acquire, beneficial ownership of 20% or more of A. P. Green's outstanding common shares, or 10 days following commencement or announcement of a tender offer or exchange offer for 30% or more of A. P. Green's outstanding common shares. When exercisable, each Right entitles the registered holder to purchase from A. P. Green 1/10 of a share of a junior participating preferred stock, Series A, $1 par value per share, which is substantially similar to one common share, at a price of $45 per 1/10 of a preferred share, subject to adjustment. If A. P. Green is involved in a merger or business combination or if the acquiring entity engages in "self dealing transactions" after the Rights become exercisable, the Rights will entitle the holder to buy a number of shares of common stock of the acquiring company or of A. P. Green, as the case may be, having a fair market value at that time of twice the exercise price of the Right. 30 Note 17: Supplemental Financial Information - ------------------------------------------- Cash payments and selected non-cash investing and financing activities during 1995, 1994 and 1993 were as follows: - ----------------------------------------------------------------------- (In thousands) 1995 1994 1993 - ----------------------------------------------------------------------- Income taxes paid $4,093 $2,125 $2,401 Interest paid 3,191 1,039 1,058 ============================================================================== Other non-cash activities during 1993 included a write-up to fair value of land in Little Rock, Arkansas and the transfer of that property to the City of Little Rock. Rental payments were approximately $1.0 million in each of the last three years. Minimum future payments under non-cancellable operating leases are approximately $1.0 million in 1996 and decline progressively to $0 after 2000. In most cases, management expects expiring leases will be replaced by similar leases. Research and development costs are expensed as incurred and amounted to approximately $2.9 million, $2.5 million and $2.2 million during 1995, 1994 and 1993, respectively. Note 18: Litigation - ------------------- Asbestos-Related Claims - Personal Injury - ----------------------------------------- A. P. Green is among numerous defendants in lawsuits pending as of December 31, 1995 that seek to recover compensatory and, in many cases, punitive damages for personal injury allegedly resulting from exposure to asbestos-containing products. A. P. Green is a member of the Center for Claims Resolution (the Center), an organization of twenty companies (Members) who were formerly distributors or manufacturers of asbestos-containing products. The Center administers, evaluates, settles, pays and defends all of the asbestos-related personal injury lawsuits involving its Members. Under the terms of the Center Agreement, each Member's portion of the liability payments and defense costs are based upon, among other things, the numbers and types of claims brought against it. Claims activity for the Company for each of the years ended December 31, 1995, 1994 and 1993, based upon information provided by the Center, was as follows: - ------------------------------------------------------------------------------ 1995 1994 1993 - ------------------------------------------------------------------------------ Claims pending at January 1 50,920 52,122 50,007 Claims filed 12,560 14,836 26,100 Cases settled, dismissed or otherwise resolved (15,113) (16,038) (23,985) ------- ------- ------- Claims pending at December 31 48,367 50,920 52,122 ======= ======= ======= Average settlement amount per claim(1) $ 1,778 $ 1,816 $ 1,728 ============================================================================== (1) Substantially all settlements are covered by the Company's insurance program. On January 15, 1993, the Members were named as defendants in a class action lawsuit brought on behalf of all persons who have been occupationally exposed to asbestos-containing products of the Members and who have unasserted claims for such exposure (the Class) pursuant to Federal Rule of Civil Procedure 23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania. At about the same time, the Center negotiated and filed with the Court a settlement (the Settlement) between the Members and the Class. Under the terms of the Settlement, the Members have agreed to pay compensation to any member of the Class who has, according to objective medical criteria, physical impairment as a result of such exposure. Different levels of compensation will be paid depending on the type and degree of physical impairment. No punitive damages will be paid. The Settlement provides, among other things, for a cap on the number of claims to be processed each year during the next ten years and a range of settlement values for each disease category. Settlement values are based on historical average payments by the Center for similar cases. Each Member will be responsible for its percentage share of each claim payment (no joint and several liability), such shares having been previously established. Hearings were held to determine the fairness of the Settlement and the court ruled that the Settlement was fair and enjoined Class members from filing lawsuits in the tort system against the Members. The Center is processing and settling claims filed by Class members pursuant to the Settlement. This ruling has been appealed by certain objectors. In a third-party action filed simultaneously with the class action (and in parallel Alternate Dispute Resolution proceedings), the Members have asked for a declaratory judgment against their respective insurers that such insurers cannot use the Settlement as a defense to their payment under applicable policies of insurance. The Settlement is expressly contingent upon such declaratory relief. In addition, some Members, including A. P. Green, have asked for a declaratory judgment against their insurers with whom they have not reached coverage resolutions. No decision has been rendered at this date with respect to these issues. 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 certain insurance policies insuring The E. J. Bartells Company (Bartells), a former subsidiary, against asbestos-related personal injury claims, such policies having been issued when Bartells was owned by A. P. Green. Additionally, the Company has reviewed the claims asserted by Bartells against the issuers of such policies and any exposure of the Company 31 to such claims. Based upon such reviews, the Company has projected its liability for such cases and claims to be approximately $137.2 million and $135.6 million at December 31, 1995 and 1994, respectively, with partially offsetting projected insurance reimbursements of approximately $135.2 million and $132.9 million, respectively. While management understands the inherent uncertainty in litigation of this type and the possibility that past costs may not be indicative of future costs, management does not believe that these claims and cases will have any additional material adverse effect on the Company's financial position or results of operations. Management anticipates the Company's payments for these claims will occur over at least ten years and can be made from normal operating cash sources. In addition to asbestos-related personal injury claims asserted against A. P. Green, a number of claims have been asserted against Bigelow-Liptak Corporation (now known as A. P. Green Services, Inc.), a subsidiary of the Company. These claims have been and are currently being handled by such subsidiary's insurance carriers. Except for deductible amounts or retentions provided under insurance policies, no claim for reimbursement of defense or indemnity payments has been made against the Company or such subsidiary by any such carriers. Asbestos-Related Claims-Property Damage - --------------------------------------- A. P. Green is among numerous defendants in a property damage class action suit pending in South Carolina. A. P. Green previously has been dismissed from a number of property damage cases and believes that it should be dismissed from the South Carolina case based on the end uses of its products. A similar suit pending in the State of Oregon involves a former wholly owned subsidiary of the Company and is being defended by the Company's insurance carrier. Based upon the Company's history in these asbestos-related property damage claims, management does not believe that the ultimate resolution of these matters will have a material adverse effect on the Company's financial position or results of operations. There was no assumption by the Company of asbestos-related liability, either personal injury or property damage, in connection with the August 1994 General acquisition. Environmental - ------------- The EPA or private parties have named the Company or one of its subsidiaries as a potentially responsible party in connection with two superfund sites in the United States. The Company is a de minimis party with respect to one of the sites and expects to arrive at a settlement agreement and consent decree with respect to it for an amount of not more than $10,000. With respect to the second, involving a wholly owned subsidiary of the Company, there does not appear to be any evidence of delivery to the site of hazardous material by the subsidiary. An estimate has been made of the costs to be incurred in these matters and the Company has recorded a reserve respecting those costs. Other - ----- From time to time, A. P. Green is subject to claims and other lawsuits that arise in the ordinary course of business, some of which may seek damages in substantial amounts, including punitive or extraordinary damages. Reserves for these claims and lawsuits are recorded to the extent that losses are deemed probable and are estimable. In the opinion of management, the disposition of all current claims and lawsuits will not have a material adverse effect on the consolidated financial position or results of operations of A. P. Green. Note 19: Industry and Geographic Segments - ----------------------------------------- A. P. Green operates principally in two industry segments: Industrial Lime and Refractory Products and Services. Segment net sales include products sold and services rendered to unaffiliated customers. Interindustry segment sales were immaterial for the periods presented. No single customer accounted for more than 10% of consolidated annual net sales in any such period. Segment operating profit includes all costs and expenses directly related to the segment involved and a reasonable allocation of general costs and expenses which benefit more than one segment. General corporate expenses, interest income and interest expense are shown as separate line items in order to arrive at consolidated earnings before income taxes and cumulative effect of an accounting change. Corporate identifiable assets include those assets maintained for corporate purposes, which are not directly related to the operations of either industry segment. 32 Industry Segments - ----------------------------------------------------------------------- (In thousands) 1995 1994 1993 - ----------------------------------------------------------------------- Net Sales - ----------------------------------------------------------------------- Refractory products and services $212,203 $160,933 $128,627 Industrial lime 37,727 35,144 34,587 Intersegment eliminations (215) (159) (252) ---------- ----------- ----------- $249,715 $195,918 $162,962 ======================================================================= Operating Profit - ----------------------------------------------------------------------- Refractory products and services $ 12,565 $ 11,463 $ 10,222 Industrial lime 6,911 5,429 5,939 ---------- ----------- ----------- 19,476 16,892 16,161 ---------- ----------- ----------- Other charges to income General corporate expenses, net 7,434 6,946 7,072 Interest expense 3,190 1,947 1,058 Interest income (1,513) (1,296) (1,361) ---------- ----------- ----------- 9,111 7,597 6,769 ---------- ----------- ----------- Earnings before income taxes and cumulative effect of an accounting change $ 10,365 $ 9,295 $ 9,392 ====================================================================== Identifiable Assets - ---------------------------------------------------------------------- Refractory products and services $313,165 $311,514 $273,061 Industrial lime 47,698 47,995 45,827 Corporate 12,705 13,613 20,426 ---------- ---------- ----------- $373,568 $373,122 $339,314 ===================================================================== Depreciation, Depletion and Amortization - --------------------------------------------------------------------- Refractory products and services $ 6,375 $ 4,967 $ 4,336 Industrial lime 2,751 2,653 2,419 Corporate 1,048 1,105 916 ---------- ----------- ---------- $ 10,174 $ 8,725 $ 7,671 ===================================================================== Capital Expenditures - --------------------------------------------------------------------- Refractory products and services $ 7,597 $ 2,154 $ 1,448 Industrial lime 2,137 3,482 4,220 Corporate 422 846 481 ---------- ----------- ----------- $ 10,156 $ 6,482 $ 6,149 ===================================================================== A. P. Green's principal operations are located in the United States, the United Kingdom, Canada, Mexico and the Far East. Transactions between geographic areas are accounted for on an "arm's-length" basis. Export sales to foreign, unaffiliated customers represent less than 10% of consolidated annual net sales. - --------------------------------------------------------- Geographic Segments - --------------------------------------------------------- (In thousands) 1995 1994 1993 - --------------------------------------------------------- Net Sales - --------------------------------------------------------- United States $219,571 $176,869 $147,362 Canada 24,045 17,876 12,013 United Kingdom 9,745 7,336 8,316 Mexico 3,242 - - Intersegment transfers (6,888) (6,163) (4,729) ---------- ----------- ----------- $249,715 $195,918 $162,962 ========================================================= Earnings Before Income Taxes and Cumulative Effect of an Accounting Change - --------------------------------------------------------- United States $ 7,935 $ 8,215 $ 8,598 Canada 1,416 744 394 United Kingdom 673 336 400 Mexico 341 - - ---------- ----------- ----------- $ 10,365 $ 9,295 $ 9,392 ========================================================= Identifiable Assets - --------------------------------------------------------- United States $330,285 $339,380 $307,967 Canada 18,000 15,887 7,301 United Kingdom 5,020 4,242 3,620 Mexico 5,451 - - Far East 2,107 - - Corporate 12,705 13,613 20,426 ---------- ----------- ----------- $373,568 $373,122 $339,314 ========================================================= 33 Note 20: Quarterly Financial Highlights (Unaudited) - --------------------------------------------------- (Dollars in thousands, except per share data) First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1995 Net sales $61,889 $64,315 $62,652 $60,859 Gross profit 10,438 9,959 11,188 9,821 Net earnings 1,688 2,506 2,265 2,341 Net earnings per common share .42 .62 .56 .58 - ----------------------------------------------------------- 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 =========================================================== 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in note 5 of notes to consolidated financial statements, the Company changed its method of accounting for postemployment benefits in 1994. /s/ KPMG Peat Marwick LLP St. Louis, Missouri February 9, 1996 34 COMPARATIVE FIVE-YEAR SUMMARY (Dollars in thousands, except per share data) - ----------------------------------------------------------------------------------------------
For years ended December 31, 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------- Operating Items Net sales $249,715 $195,918 $162,962 $168,309 $170,298 Gross profit 41,406 34,498 32,083 24,217 17,762 Earnings (loss) before income taxes and cumulative effect of accounting changes 10,365 9,295 9,392 (5,188) (7,833) Earnings (loss) before cumulative effect of accounting changes 8,800 6,673 6,497 (3,167) (4,963) Cumulative effect of accounting changes, net of tax - (255) - (4,134) - --------- -------- -------- -------- -------- Net earnings (loss) 8,800 6,418 6,497 (7,301) (4,963) Per share data(1) Earnings (loss) before cumulative effect of accounting changes, net of tax $ 2.18 $ 1.65 $ 1.62 $ (.79) $ (1.24) Cumulative effect of accounting changes, net of tax - (.06) - (1.03) - -------- -------- -------- -------- -------- Net earnings (loss) per common share 2.18 1.59 1.62 (1.82) (1.24) Dividends .28 .24 .06 - .30 Other Financial Items Working capital $ 79,615 $ 78,312 $ 54,198 $ 45,714 $ 46,138 Current ratio 2.2:1 1.9:1 1.9:1 1.8:1 2.0:1 Capital expenditures $ 10,156 $ 6,482 $ 6,149 $ 3,622 $ 6,442 Depreciation, depletion and amortization 10,174 8,725 7,671 7,546 7,013 Total assets 373,568 373,122 339,314 343,412 368,468 Long-term debt 34,384 37,023 12,160 12,284 16,017 Stockholders' equity 113,999 107,038 100,930 94,751 102,765 Debt to total capitalization(2) 24.5% 25.8% 10.8% 11.6% 17.8% ============================================================================================== (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.
35 Common Stock, Market Prices and Dividends A. P. Green Industries, Inc.'s common stock is traded in the over-the-counter market, and its quotations are reported in the National Market System of the NASDAQ Stock Market under the symbol APGI. The approximate number of stockholders of record of A. P. Green's common stock at December 31, 1995 was 3,900. The following table sets forth the high and low per share sale prices as reported in the NASDAQ Stock Market and dividends for each quarter during the last two years. 1995 1994 ---------------------- ------------------------ Cash Cash Quarter Ended Sale Price Dividend Sale Price Dividend High Low Declared High Low Declared - --------------------------------------------------------------------------- March 31 $21.00 $18.25 $ .07 $20.50 $16.50 $ .06 June 30 21.00 17.00 .07 19.50 17.25 .06 September 30 24.00 18.50 .07 18.55 16.50 .06 December 31 24.00 18.38 .07 20.00 17.50 .06 36 EX-21 5 Exhibit 21 to Form 10-K SUBSIDIARIES OF A. P. GREEN INDUSTRIES, INC. Name Jurisdiction Incorporated - ---------------------------------------------- ------------------------- APG Foreign Sales Corporation Virgin Islands APG Lime Corp. Delaware A. P. Green Refractories (Canada) Ltd. Canada 1086215 Ontario Inc. Canada A. P. Green Refractories, Inc. Delaware A. P. Green de Mexico S.A. de C.V. Mexico Lanxide ThermoComposites, Inc. Delaware Chiam Technologies, Inc. Ohio A. P. Green Refractories Limited United Kingdom Liptak Bradley Limited United Kingdom APG Refractories Corp. Delaware INTOGREEN Co. (a partnership) Missouri Detrick Refractory Fibers, Inc. Mississippi PT AP Green Indonesia Indonesia EX-23 6 Exhibit 23 to Form 10-K Independent Auditors' Consent ----------------------------- To 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 9, 1996, relating to the consolidated statements of financial position of A.P. Green Industries, Inc. and subsidiaries as of December 31, 1995 and 1994, 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, 1995, and the related schedule, which report appears in the December 31, 1995 annual report on Form 10-K of A.P. Green Industries, Inc. Our report refers to a change in the method of accounting for postemployment benefits in 1994. /s/KPMG Peat Marwick LLP St. Louis, Missouri March 26, 1996 EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL REPORT ON FORM 10-K OF A. P. GREEN INDUSTRIES, INC. AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 YEAR DEC-31-1995 DEC-31-1995 9,284 0 46,113 1,930 55,557 145,236 194,565 97,780 373,568 65,621 37,089 0 0 4,486 109,513 373,568 249,715 249,715 208,309 208,309 0 120 3,190 10,365 2,182 8,800 0 0 0 8,800 2.18 0
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