GREEN A P INDUSTRIES INC, 10-K, 1998-03-31

GREEN A P INDUSTRIES INC
10-K, 1998-03-31
STRUCTURAL CLAY PRODUCTS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------

For the fiscal year ended December 31, 1997 Commission File No. 0-16452
----------------- -------

A. P. GREEN INDUSTRIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)

Delaware 43-0899374
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

Green Boulevard, Mexico, Missouri 65265
- --------------------------------- -----
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (573) 473-3626
Securities registered pursuant to
Section 12(b) of the Act: None.
Securities registered pursuant to
Section 12(g) of the Act: Common Stock, $1.00 par value
Preferred Share Purchase Rights

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]

State the aggregate market value of the voting stock held by nonaffiliates of
the registrant: As of March 27, 1998, the market value of A. P. Green
Industries, Inc. Common Stock held by non-affiliates was approximately
$170,500,000.

Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: As of March 27, 1998, 8,070,515
shares of Common Stock, $1.00 par value were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents are incorporated by reference into the indicated part of
this report: None

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PART 1

ITEM 1. BUSINESS

Introduction
------------

Unless the context otherwise requires, A. P. Green Industries, Inc. and
its subsidiaries are referred to in this report collectively as "A. P. Green" or
"the Company." In most instances, information about A. P. Green's primary
businesses and reportable industry segments ("Refractory Products" and
"Industrial Lime") is presented separately.

Recent Developments
-------------------

On March 3, 1998, the Company entered into an Agreement and Plan of
Merger with Global Industrial Technologies, Inc. (Global) and BGN Acquisition
Corp. The Agreement and Plan of Merger calls for, among other things, Global to
purchase for cash all outstanding shares of the Company at $22.00 per share, or
approximately $195.0 million, plus the assumption of $23.0 million of net debt.
The transaction, which will be effected by means of a tender offer, has been
approved by the Boards of Directors of both companies and, subject to regulatory
approval, is expected to be completed during the second quarter of 1998. Global
is a manufacturer of technologically advanced industrial products that support
high-growth markets around the world. Its subsidiary, Harbison-Walker
Refractories Company, operates 15 refractory plants in five countries, including
the United States, Canada, Mexico, Chile and Germany.

On March 6, 1998, a lawsuit was filed in the Court of Chancery in the
state of Delaware seeking to enjoin the tender offer and alleging, among other
things, that the stockholders of the Company are not receiving fair and adequate
consideration for their shares. The Company has entered into an agreement in
principle to settle the lawsuit whereby, subject to the negotiation and
execution of definitive agreements, including mutually acceptable releases, (i)
the Company mailed to the stockholders of the Company on March 24, 1998 a
supplemental disclosure statement on Schedule 14D-9 containing certain financial
information and projections and (ii) Mack G. Nichols, James M. Stolze, William
F. Morrison, Daniel Toll, Paul F. Hummer II, P. Jack O'Bryan, the Company,
Global and BGN Acquisition Corp. will reimburse the plaintiff in the lawsuit for
attorneys' fees and expenses, as awarded by the Court, in an aggregate amount of
$180,000. The lawsuit and/or settlement thereof is not expected to have any
impact on the transactions contemplated by the Agreement and Plan of Merger.

(a) Development of Business
-----------------------

General. A. P. Green Industries, Inc., a Delaware corporation, was
incorporated as A. P. Green Refractories Co. in 1967. In that year, A. P. Green
Refractories Co., a Missouri corporation, was acquired by United States Gypsum
Company (now USG Corporation). The acquired company was a successor to a
business purchased by Allen P. Green in approximately 1910.

In 1987, A. P. Green Refractories Co. acquired all of the outstanding
stock of APG Lime Corp., a Delaware corporation, and shortly after such
acquisition changed its name to A. P. Green Industries, Inc. Effective February
3, 1988, through a distribution of all the outstanding capital stock of A. P.
Green Industries, Inc. to the common stockholders of USG Corporation, A. P.
Green Industries, Inc. became an independent publicly held company.

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In 1994, the Company acquired substantially all of the assets and
assumed most of the liabilities of the refractory operations of General
Refractories Company and its affiliated companies (collectively referred to as
"General"). These operations include ten plants in the United States, a plant
near Toronto, Canada and 49% equity interests in two Colombian refractory
companies, Materiales Industriales S. A. and Empresa de Refractarios Colombianos
S.A.

In 1995, the Company acquired a 51% ownership interest in Plibrico de
Mexico SA de CV (now A. P. Green de Mexico SA de CV), a refractory manufacturer
near Monterrey, Mexico. In addition, during 1995 the Company acquired a 51%
ownership interest in Lanxide ThermoComposites, Inc. (LTI) and its wholly owned
subsidiary, Chiam Technologies, Inc., and established INTOGREEN Co., a
partnership of which A. P. Green owns 51%.

In 1996, the Company completed construction of a castables
manufacturing plant in West Java, Indonesia. The plant began operations in
November 1996.

Also in 1996, the Company acquired substantially all of the assets and
assumed certain of the liabilities of Eastern Ridge Lime, L.P. (Eastern Ridge).
The operations include a mineral processing facility, quarrying and lime
manufacturing business in Ripplemead, Virginia and a leased terminal facility in
St. Matthews, South Carolina.

In 1997, Palmetto Lime LLC, a 51%-owned joint venture with SCANA Corp.,
leased the property on which it will build a new lime processing facility in
Charleston, South Carolina. Construction commenced in January 1998 and is
expected to be completed by the end of 1998.

The Company, headquartered in Mexico, Missouri, mines, processes,
manufactures and distributes specialty minerals and mineral-based products,
including industrial lime and refractories products in the United States and
international markets. The Company operates 23 plants in the United States,
Canada, Mexico, the United Kingdom (U.K.) and Indonesia.

Lime Operations. APG Lime Corp. (APG Lime), a wholly owned subsidiary
of A. P. Green and headquartered in Mexico, Missouri, is involved in the mining
and processing of limestone into lime for various industrial applications.
Primary customer applications include steel and aluminum production, pulp and
paper processing, soil stabilization for road construction, water and waste
water treatment, masonry and various environmental applications. High calcium
limestone, mined from Company-owned deposits, is processed into two basic end
products - quicklime, produced by heating crushed limestone in a rotary kiln,
and hydrated lime, produced by adding water to quicklime through a controlled
process. In addition, the Company produces dolomitic quicklime from purchased
limestone and Cal-Dol lime, a blended lime product.

APG Lime operates three plants, one in Kimballton, Virginia, one in
Ripplemead, Virginia and one in New Braunfels, Texas, and is a 51% owner of
Palmetto Lime LLC, which is constructing a new lime processing facility in
Charleston, South Carolina. It generally serves customers in the geographic
region surrounding its plants.

Refractory Operations. Refractories are heat and atmosphere resistant
materials that provide the structure or linings for high temperature furnaces
and other vessels. In addition to being resistant to thermal stress and other
physical phenomena induced by heat, refractories are often required to provide
resistance to physical wear, thermal cycling and abrasion, as well as to provide
insulating properties.

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A. P. Green offers a broad product line, including basic, clay/alumina
and silica refractories and ceramic fiber products. Basic refractories are
predominantly composed of magnesite ores, while clay/alumina refractories are
predominantly composed of fireclays and bauxite ores. Ceramic fiber products are
lightweight refractories similar in appearance to fiberglass insulation and are
provided in many forms including bulk, blanket, folded modules and vacuum formed
shapes. All are used in a wide variety of industries, including steel, aluminum,
cement, chemicals, ceramics and glass.

Basic, clay/alumina and silica refractories are manufactured in the
form of bricks and specialties. Bricks are shaped products formed by mechanical
pressing or die molding. Specialty products (also known as monolithics) include
refractory cements, castables, plastics and mortars. Specialized shapes to serve
specific industry needs are also custom made in seven cast shops located in the
United States, Canada, Mexico and the United Kingdom.

Although the Company purchases some refractory and refractory-related
products from other manufacturers, substantially all of the refractory products
sold by it are manufactured in its own plants. The Company and its wholly owned
subsidiaries, A. P. Green Refractories, Inc. and Detrick Refractory Fibers,
Inc., manufacture refractories in 15 facilities located in the United States.
The Company's wholly owned subsidiary, A. P. Green Refractories (Canada) Ltd.,
organized in 1931, and its subsidiary, 1086215 Ontario, Inc., operates two
manufacturing facilities in Canada. The Company's wholly owned United Kingdom
subsidiary, A. P. Green Refractories Limited, acquired by a predecessor of the
Company in 1954, operates one manufacturing facility in Bromborough, England,
and its subsidiary, Liptak Bradley Limited, installs refractory products
worldwide except for North America. The Company's 51% owned Mexican subsidiary,
A. P. Green de Mexico SA de CV, operates one manufacturing facility near
Monterrey, Mexico. The Company's wholly owned Indonesian subsidiary, PT AP Green
Indonesia, operates one manufacturing facility in Cilegon, West Java, Indonesia.
Significant investment has been made, particularly in the United States plants,
to continuously improve quality, production efficiency and environmental
controls. A. P. Green's safety record is consistently at or near the top of the
refractory industry.

During 1995 the Company took steps to broaden its technology base.
INTOGREEN Co., a joint venture partnership with INTOCAST AG, was formed to sell
and install cast monolithic ladle linings to the steel industry in the U. S.,
Canada and Mexico. INTOCAST AG, based in Germany, is a world leader in the
development of cast ladle linings, which result in lower installation costs,
reduced disposal of used refractory material and increased ladle availability to
the steel plant. The INTOCAST Endless Lining System(R) is custom designed for
each user. The system is gaining acceptance throughout North America and has
become a major component of sales efforts to the steel industry.

LTI, a 51% owned subsidiary purchased from Lanxide Corporation
(Lanxide), which continues to own a substantial minority interest, concentrates
on commercializing refractory products for the continuous casting segment of the
steel industry utilizing ceramic composites technology licensed from Lanxide.
LTI is expanding both its product line and market share, and during 1997 became
a distributor of flow control technologies developed and manufactured by Krosaki
Corporation of Japan. Under a separate licensing agreement, A. P. Green will
develop and market refractory products utilizing the advanced materials
technology developed by Lanxide in non-steel refractory applications throughout
the world, excluding Japan. Included under the terms of the agreement are all
future technologies developed by Lanxide and its licensees and joint ventures as
applicable to non-steel refractory applications.

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(b) Financial Information About Industry Segments
---------------------------------------------

Information regarding industry segments of A. P. Green is set forth in
Note 19 of Notes to Consolidated Financial Statements starting on page F-25 of
this Annual Report on Form 10-K.

Refractory Operations. A. P. Green manufactures refractory products in
its own plants located in the United States, Canada, Mexico, the United Kingdom
and Indonesia. These products are sold world wide to industrial end-users and to
installers of refractories. The major end-users of the Company's refractory
products and the percentage of the Company's 1997 and 1996 domestic refractory
sales to such users are as follows:

Percent of 1997 Percent of 1996
U.S. Refractory U.S. Refractory
End-User Industry Category Products Sales Products Sales
- -------------------------- -------------- --------------

Iron and Steel 30% 33%
Nonferrous Metals 17% 15%
Cement, Lime, Gypsum, Paper,
Ceramics, Glass and Clay 11% 12%
Metal Castings and Fabrication 6% 6%
Chemicals and Petrochemicals 6% 6%
Other 30% 28%

A. P. Green is a leader in the manufacture and distribution of
refractory materials in North America and throughout the world. Refractory
materials are sold through a direct sales force, Company-owned distribution
centers, independent distributors, licensees and agents to a diverse cross
section of basic industry. The Company believes that success in the refractory
industry is dependent, to a large extent, upon developing new products and
modifying existing products in order to provide more value to the industries
served. A. P. Green has a fully equipped and staffed research facility that can
analyze the refractory failure mechanisms in its customers' applications in
order to determine the optimum refractory solution. Often the best solution is
to use a more sophisticated product which increases the upfront costs but
results in a lower life cycle cost. The organization of research engineers,
customer service engineers and product managers have a good track record of
designing optimum solutions. Product design changes that have been introduced
recently include pumpable, self-leveling castables and low-rebound wet gunning
products that reduce installation costs, as well as many products that have been
optimized to serve specific operating conditions. New castables based on
cordierite aggregate have rapidly gained market acceptance.

The Company's employee sales force is located throughout the United
States, Canada and Mexico and in the Caribbean, Australia, Germany, the
Philippines, and the United Kingdom. Refractory products are shipped directly to
customers from the Company's plants and from a large network of distribution
centers and distribution representatives located in the United States, Canada
and the United Kingdom.

The United States sales force is divided into geographic regions as
well as industry groups. The industry groups are specialized sales and marketing
teams that target their efforts to steel, aluminum and cement end-users. This
has allowed the Company to provide a higher degree of customer assistance on
refractory usage and selection and has enabled sales and marketing personnel to
develop additional expertise

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in those end-user industries. This alignment has been beneficial to specific
industry sales of the Company. Canadian and United States refractory sales
efforts are coordinated in order to take advantage of a centralized marketing
plan and to source products more efficiently.

Lime Operations. APG Lime is engaged in the production of lime for
industrial applications. This process involves crushing, screening and calcining
limestone to produce high calcium quicklime and hydrate, dolomitic quicklime and
Cal-Dol lime blend. This processing takes place at Company-owned facilities in
New Braunfels, Texas, Kimballton, Virginia and Ripplemead, Virginia.

In 1994, the Company completed a project which increased production
capacity at the New Braunfels, Texas facility to take advantage of higher demand
for quicklime used in making precipitated calcium carbonate and in other growing
markets. This project also reduced particulate air emissions and reduced the use
of water.

The major end-users of the Company's lime products and the percentage
of the Company's 1997 and 1996 lime sales to such users is as follows:

Percent of 1997 Percent of 1996
End-User Industry Category Lime Products Sales Lime Products Sales
-------------------------- ------------------- -------------------

Pulp and Paper Processing 38% 36%
Steel and Aluminum Production 28% 28%
Road Construction 14% 15%
Environmental/Water Treatment 16% 14%
Masonry 3% 4%
Chemical and Industrial 1% 3%

Increasing public awareness of and concern over environmental issues
has resulted in increased lime demand for environmental applications. These
include flue gas desulphurization, municipal waste treatment, drinking water
treatment and remediation of hazardous waste. Lime demand from these markets is
expected to increase and will provide APG Lime with opportunity for continued
growth.

Lime products include Cal-Dol lime blend; high calcium quicklime noted
for chemical purity and reactivity for use in production of precipitated calcium
carbonate by paper producers; and several dolomitic building lime products. Due
to their heavy, bulk nature, industrial lime products cannot be shipped
economically over long distances. This has resulted in regional sales and
distribution, generally within a 400- mile radius of each facility. APG Lime's
facilities are well located to take advantage of demand in the Southeastern U.S.
and Texas and surrounding states. Product distribution involves direct shipments
via rail and/or truck from the plants to the customers, distribution through
terminals and customer pick-up at the plants.

Raw Materials. A. P. Green maintains programs to attempt to ensure the
availability of raw materials, including the purchase of materials for its
short-term needs and the development of long-term sources of supply. Refractory
clay and silica requirements are obtained from Company-owned deposits located in
Alabama, Arkansas, Georgia, Idaho, Missouri, Ohio, Texas and Utah. Proven
deposits contained approximately 10,800,000 tons of clay and silica as of
December 31, 1997. Average annual mining of clay and silica during the last five
years was 266,000 tons, with 1997 at 238,000 tons. Proven reserves are

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estimated to be sufficient for approximately 40 years of operations, based on
recent average annual usage. The remaining refractory raw materials requirements
are obtained from numerous suppliers. Refractory-grade bauxite is imported from
China, Guyana and Brazil, and approximately 25% of the Company's magnesite
supply is obtained from China. On a long-term basis, there is an adequate supply
of materials available from these countries. There has been no significant
interruption in the availability of Chinese or Brazilian bauxite or Chinese
magnesite. There have been brief periods of limited supplies of bauxite from
Guyana. Some alumina raw materials are available from only one or two suppliers
in the United States. Current supplies are adequate to meet A. P. Green's
planned production volume for the foreseeable future.

A. P. Green's lime products require two major raw materials, high
calcium limestone and dolomitic limestone. High calcium limestone is quarried
from Company-owned deposits at the New Braunfels, Texas and Ripplemead, Virginia
plants and mined from Company-owned and leased deposits at the Kimballton,
Virginia plant. The deposit at New Braunfels contained about 50,800,000 tons of
usable reserves as of December 31, 1997. The average annual mining of limestone
at New Braunfels during the five-year period ended December 31, 1997 was
1,062,000 tons, with 1997 mining at 1,140,000 tons. Reserves of limestone at
this location are estimated to be sufficient for about 48 years of operations,
based on recent average annual usage. Company-owned and leased reserves at the
Kimballton plant were estimated at 19,300,000 tons as of December 31, 1997. The
average annual mining of limestone at Kimballton during the five-year period
ended December 31, 1997 was 752,000 tons, with 1997 mining at 770,000 tons.
Reserves of limestone at this location are estimated to be sufficient for 29
years of operations, based on recent average annual usage. Approximately
12,200,000 tons of limestone were originally estimated to have been obtained in
the 1996 Eastern Ridge acquisition. During 1997 this estimate was increased by
13,400,000 tons, with an estimated 25,000,000 tons remaining at December 31,
1997 after mining 600,000 tons during 1997. Reserves at this location are
estimated to be sufficient for 47 years of operations. Dolomitic lime and
limestone are purchased from outside suppliers.

Energy. Natural gas used in the production of refractory products
represents approximately 65 percent of total refractory energy costs. However,
natural gas usage accounts for only approximately 4 percent of the total cost of
refractory sales. Most manufacturing plants maintain a supply of standby energy.
Electrical costs vary between operations and account for the balance of
refractory energy costs.

The primary energy source used in the production of lime products is
coal, which accounted for virtually all of the total fuel used at the Kimballton
and Ripplemead plants and about 64 percent of the total fuel used at the New
Braunfels plant during 1997. Natural gas (in lieu of coal) is the other major
energy source used at New Braunfels, accounting for approximately 36 percent of
that facility's total fuel usage in 1997. Coal for all locations and gas for New
Braunfels are readily available from numerous suppliers.

Primary energy supplies for both segments have been ample and have not
been a factor in terms of curtailed plant operations. No major shift in energy
use patterns for either segment is anticipated.

Seasonality/Cyclicality. Refractory sales are moderately seasonal and
are directly related to cyclical fluctuations in production levels and new plant
additions by refractory end-users.

Lime demand is fairly uniform except for the negative impact of adverse
weather on soil stabilization shipments. This factor is significant in Texas and
surrounding states as soil stabilization shipments for road construction
projects are somewhat depressed between November and February due to typically
rainy weather conditions.

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Both of the Company's industry segments are sensitive to cyclical
fluctuations in the iron, steel and nonferrous metals industries. APG Lime is
also sensitive to cyclical fluctuations in the pulp and paper processing
industries.

Order Backlog. Order backlog for refractories varies by month within a
moderate range. The order backlog believed to be firm was approximately $28.9
million and $31.1 million at December 31, 1997 and 1996, respectively, requiring
seven to eight weeks to service for 1997 as compared with eight to nine weeks
for 1996.

Lime products normally do not have any significant backlog, other than
for soil stabilization backlog related to state highway lettings, which can vary
significantly from period to period. Such backlog was approximately $3.1 million
and $3.2 million at December 31, 1997 and 1996, respectively.

Competition. The refractory industry is highly competitive and demand
for refractories fluctuates with the level of activity in the basic industries.
A. P. Green is one of six major producers of domestic refractories. The Company
competes internationally with several major domestic producers and a number of
international companies. The Company continues to expand its international
refractory sales efforts. In addition, there are numerous regional domestic
refractory producers. The major areas of competition in the refractory industry
are service, price and product performance. Although the manufacturing sector of
the U. S. economy continues to move forward, improvements in process control and
refractory material improvements have maintained a constant pressure on
refractory pricing. New product introductions are increasing to meet demands of
customer operating practices. More stringent requirements placed on product
quality are being met with improved quality control at A. P. Green manufacturing
plants to minimize deviations from refractory manufacturing standards. The U.K.
Bromborough facility and the Mexico, Missouri, Fulton, Missouri, Sproul,
Pennsylvania and Oak Hill, Ohio plants have been ISO 9002 certified and efforts
are being made for certification of the other major U.S. and Canadian plants.

The Virginia and Texas lime plants compete with two and three primary
lime producers, respectively. Price-sensitive competition is strong within these
areas.

Capital Expenditures. A. P. Green has implemented a program of
maintaining and modernizing its facilities to improve its competitive position.
In the three years ended December 31, 1997, A. P. Green invested approximately
$34.7 million for such purposes. Of those expenditures, 74% ($25.7 million) were
for refractories operations and information systems and 26% ($9.0 million) were
for improvements in lime production and environmental controls. A. P. Green
believes that these expenditures have provided it with significant cost
reductions in certain segments of its business.

Research and Development. Product and process development activities
are principally located at Mexico, Missouri, in a well equipped facility
occupying 43,924 square feet. The major objective of the refractory technology
department is to maintain A. P. Green at the technological forefront of the
refractories industry with applied research and development of new and improved
refractory products and high-temperature insulators. Product development related
to LTI is funded and directed by A. P. Green at the Lanxide facilities in
Newark, Delaware.

The refractory technology department also is responsible for quality
systems implementation, analytical services, applications engineering, product
installation technical support and technical liaison with foreign operations. A
pilot plant allows testing during the transition of new products to the
commercial stage.

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Research and development expenditures amounted to approximately $2.8
million, $3.9 million and $2.9 million during 1997, 1996 and 1995, respectively.
Research and development expenditures in 1996 included approximately $800,000 in
costs associated with LTI product development.

Significant Customers. A. P. Green is not dependent upon any single
customer or group of customers on a regular basis, the loss of which would have
a materially adverse effect on A. P. Green. No customer accounted for more than
five percent of A. P. Green's consolidated annual net sales in 1997, 1996 or
1995.

Employees. The average number of persons employed by A. P. Green during
1997, 1996 and 1995 was 1,906, 1,759 and 1,966, respectively. Approximately 900
employees are members of collective bargaining units. The represented unions in
the U.S. and Canada are: the International Brotherhood of Teamsters, Chauffeurs,
Warehousemen and Helpers of America, Laborers International, Brick Layers and
Allied Craftsmen, and the United Steel Workers of America. The represented
unions in the United Kingdom are: the Transport and General Workers' Union, the
Amalgamated Union of Engineering Workers and the Union of Construction and
Allied Trades. The represented union in Monterrey, Mexico is the Federation
Nacional de Sindicatos Independientes. Five-year collective bargaining
agreements were successfully negotiated in 1993 with the unions represented at
the Mexico, Missouri and Fulton, Missouri plants, in 1994 with the unions
represented at the Bessemer, Alabama and Little Rock, Arkansas plants and in
1995 with the unions represented at the Sulphur Springs, Texas, Gary, Indiana
and Smithville, Ontario plants. New collective bargaining agreements were
negotiated during 1996 at the Oak Hill, Ohio, Lehi, Utah, Rockdale, Illinois,
Gary, Indiana and Sproul, Pennsylvania plants. The collective bargaining
agreement covering approximately 525 employees at the Mexico, Missouri and
Fulton, Missouri plants expires during 1998. A new collective bargaining
agreement is expected to be successfully negotiated. A. P. Green considers its
relations with its employees to be good.

Environmental Matters. Laws and regulations currently in force which do
or may affect A. P. Green's domestic operations include the Federal Clean Water
Act, the Reauthorized Clean Air Act of 1990, the National Environmental Policy
Act of 1969, the Solid Waste Disposal Act (including the Resource Conservation
and Recovery Act of 1976), the Comprehensive Environmental Response,
Compensation and Liability Act (including the Superfund Amendments and
Reauthorization Act of 1986), the Federal Surface Mining Control and Reclamation
Act, the Toxic Substances Control Act, regulations under these Acts, the
environmental protection regulations of various governmental agencies (e.g., the
Bureau of Land Management Surface Management Regulations, Forest Service
Regulations, Environment Canada Regulations and Department of Transportation
Regulations) and laws and regulations concerned with mining techniques,
reclamation of mined lands, air and water pollution and solid waste disposal.

In Europe, environmental laws and regulations currently in force which
do or may affect the Company's United Kingdom subsidiary include the Rivers
(Prevention of Pollution - Scotland) Act of 1951, the Clean Air Act of 1968, the
Control of Pollution Act of 1974 (amended in 1989), the Health and Safety at
Work Act of 1974, the EC Waste Framework Directive of 1975, the Waste Regulation
and Disposal (Authorities) Order of 1985, the Control of Substances Hazardous to
Health Regulations of 1988, the Water Act of 1989, the Environmental Protection
Act of 1990, local authority air pollution control, German packaging regulations
and the Belgium eco-tax on waste disposal of packaging products.

Environmental laws and regulations currently in force in Mexico which
do or may affect the Company's Mexican subsidiary include Control of Hazardous
Substances and Registry, Health and Safety Meeting Registration and Land Surface
Management Regulations.

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From time to time, the Company experiences on-site inspections by
environmental regulatory authorities who may impose penalties or require
remedial actions. A. P. Green believes that it has substantially complied with,
and it intends in the future to so comply with, all laws and regulations
(including foreign) governing pollution control and other environmental
conditions in all material respects. Such compliance has not had, and is not
expected to have, a material adverse effect upon A. P. Green's earnings or
competitive position. Information regarding environmental and asbestos-related
legal proceedings is set forth in Note 18 of Notes to Consolidated Financial
Statements starting on Page F-22 of this Annual Report on Form 10-K. Capital
expenditures have been made over the last several years and are planned in 1998
to install dust and emissions control equipment to improve the impact on the
environment of refractory and lime manufacturing operations.

Patents, Trademarks, and Licenses. All major product brand names, as
well as the "A. P. Green" name, are registered in the United States and numerous
other countries. A. P. Green currently holds 18 U.S. patents, and had one patent
application outstanding at December 31, 1997. The expiration of these patents
will not have a significant financial impact on A. P. Green. A. P. Green
licenses its refractory technology and formulations to refractory producers
around the world. Currently, there are nine license agreements with foreign,
unaffiliated companies, two of which cover A. P. Green's full range of
refractory products and seven of which are for limited product lines.

(d) Financial Information About Foreign and Domestic Operations and Export
----------------------------------------------------------------------
Sales
-----

Financial information regarding geographic segments of A. P. Green is
set forth in Note 19 of Notes to Consolidated Financial Statements starting on
page F-25 of this Annual Report on Form 10-K.

ITEM 2. PROPERTIES

General
- -------

A. P. Green's principal properties are owned, except as noted, and none
of the owned properties are subject to encumbrances, except for land and
buildings at the Ellisville, Mississippi plant used to secure the industrial
development revenue bond indebtedness at that plant. The buildings are adequate
and suitable for the purposes for which they are used, have been well
maintained, are in sound operating condition and are in regular use.

Headquarters
- ------------

The headquarters of A. P. Green, which consists of 62,800 square feet
of floor space, is located in Mexico, Missouri.

Refractory Manufacturing Facilities
- -----------------------------------

The following table describes the U.S. refractory manufacturing
facilities operated by A. P. Green. Facilities are owned unless otherwise
indicated. The plant in Warren, Ohio, obtained in the General acquisition, is
excluded as it is no longer in operation and is currently held for sale.

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<PAGE>

Location and Nature Approximate Square Products
of Property Feet of Floor Space Manufactured
- ------------------- ------------------- ------------

Bessemer, Alabama 150,300 High Alumina and
Manufacturing buildings, Fireclay Brick
rail and office

Ellisville, Mississippi 20,000 Board and Special Shape
Manufacturing and office Refractory Fiber Products
building

Fulton, Missouri 240,200 High Alumina Brick,
Manufacturing buildings, including Tar Impregnated
rail and office and Coked Brick

Gary, Indiana 98,500 Cast Shapes & Castables
Manufacturing buildings
and office

Lehi, Utah 120,000 High Alumina, Silica and
Manufacturing buildings, Basic Brick; Castables
rail and office

Little Rock, Arkansas 37,800 Calcined Refractory Clay,
Clay storage building, Refractory Clay
rotary calcining kiln,
rail and office

Mexico, Missouri 1,142,700 Fireclay, High Alumina and
Manufacturing buildings, Insulating Brick; Zirconia
rail and office Brick; Mortars, Plastics,
Castables and Light Weight
Aggregate

Middletown, Pennsylvania 119,000 Cast Shapes
Manufacturing buildings
and office

Minerva, Ohio 9,500 Light Weight Aggregate
Leased manufacturing and Castables
building and office

Oak Hill, Ohio 111,100 Mortars, Plastics
Manufacturing buildings, and Castables
rail and office

- 11 -

<PAGE>

Location and Nature Approximate Square Products
of Property Feet of Floor Space Manufactured
- ------------------- ------------------- ------------

Pryor, Oklahoma 65,800 Industrial Ceramic
Manufacturing buildings, Fiber Insulation
rail and office

Rockdale, Illinois 78,000 Basic Brick
Manufacturing buildings,
rail and office

Sproul, Pennsylvania 102,100 Mortars, Plastics and
Manufacturing buildings, Castables
rail and office

Sulphur Springs, Texas 193,100 Fireclay and High
Manufacturing buildings, Alumina Brick;
rail and office Mortars, Plastics
and Castables

Thomasville, Georgia 24,000 Cast Shapes
Leased manufacturing
buildings and office

Mineral Properties
- ------------------

Most of the refractory plants listed above utilize clay and/or silica,
which A. P. Green mines or quarries from deposits leased or owned, or purchases
from various sources. Clay and silica deposits include properties known to
contain commercially recoverable quantities based on core and/or auger drilling,
laboratory testing, surveying and mapping. Such properties are held outright in
fee simple; under mineral deeds which convey title to all clay or minerals with
full rights of ingress, egress and mining; and under lease. The clay reserves
are located in Alabama, Arkansas, Georgia, Idaho, Missouri, Ohio and Texas, and
a silica mine is located in Utah.

Distribution Centers/Sales Offices
- ----------------------------------

A. P. Green operates distribution centers and maintains refractory
stocks and sales offices as indicated in the listing below. All distribution
centers are on ground level and range up to approximately 22,000 square feet.
With the exception of Chicago, Illinois, Baton Rouge, Louisiana and St. Louis,
Missouri, which are owned, the distribution centers/sales office facilities are
leased under initial lease terms of one to 20 years.

- 12 -

<PAGE>

Distribution Center/Sales Office Locations:

Atlanta, Georgia Kearny, New Jersey
Austin, Texas Knoxville, Tennessee
Baltimore, Maryland Lehi, Utah
Baton Rouge, Louisiana Los Angeles, California
Birmingham, Alabama Orange, Connecticut
Boston, Massachusetts Philadelphia, Pennsylvania
Buffalo, New York Pittsburgh, Pennsylvania
Charlotte, North Carolina Portland, Oregon
Chicago, Illinois Roanoke, Virginia
Cincinnati, Ohio Rockford, Illinois
Cleveland, Ohio St. Louis, Missouri
Dallas, Texas Salt Lake City, Utah
Davenport, Iowa San Francisco, California
Detroit, Michigan Seattle, Washington
Evansville, Indiana Spokane, Washington
Houston, Texas Tampa, Florida
Kansas City, Missouri

Lime Operations
- ---------------

APG Lime operates three industrial lime manufacturing plants. The
facility at Kimballton, Virginia consists of an underground mine, rail and
various plant buildings, totaling approximately 83,700 square feet of floor
space, situated on approximately 680 owned acres. This plant primarily
manufactures industrial lime products and a small amount of soil stabilization
lime. APG Lime owns one-half of the mineral rights under national forest
property adjacent to the Kimballton plant by royalty lease from the Bureau of
Land Management. Such lease was renewed for an additional 20-year term in 1988.
The royalty is 2.5 percent of the nominal value of limestone mined.

The facility at Ripplemead, Virginia consists of a surface mine, rail
and various plant buildings, totaling approximately 75,000 square feet of floor
space, situated on approximately 1,700 acres. This plant primarily manufactures
industrial lime. In addition, a supply of finished goods is maintained at a
leased warehouse facility near St. Matthews, South Carolina.

The New Braunfels, Texas facility consists of a surface mine, rail and
various plant buildings, totaling approximately 81,000 square feet of floor
space, situated on approximately 1,010 owned acres. This plant manufactures
industrial lime products, soil stabilization lime and lime-based mortars.

APG Lime is also 51% owner of Palmetto Lime LLC, which is constructing
a new lime processing facility in Charleston, South Carolina. When completed,
this facility will consist of a rail, ship unloading and stone conveying
equipment and various plant buildings, totaling approximately 9,000 square feet
of floor space, situated on approximately 7.9 leased acres.

- 13 -

<PAGE>

Canadian Subsidiary
- -------------------

A. P. Green Refractories (Canada) Ltd., a wholly owned subsidiary of A.
P. Green, owns 17,100 square feet of manufacturing space at Acton, Ontario to
produce crucibles used by the precious metal assaying industry and vacuum formed
fiber products. 1086215 Ontario, Inc., a wholly owned subsidiary of A. P. Green
Refractories (Canada) Ltd., owns a 170,000 square foot building in Smithville,
Ontario used for manufacturing and storage of basic brick, refractory mortars,
cements, plastics and castables. In addition, raw materials, which are
principally imported, are stored there. Distribution centers and/or sales
offices are maintained at the following locations: Delta, British Columbia,
Toronto, Ontario, and Montreal, Quebec, which are leased under initial lease
terms of one to five years; and Ottawa, Ontario, Quebec City, Quebec, Edmonton,
Alberta and Winnipeg, Manitoba, which are public warehouses under no fixed term
commitment.

United Kingdom Subsidiaries
- ---------------------------

A. P. Green Refractories Limited, a wholly owned subsidiary of A. P.
Green Industries, Inc., leases and operates its headquarters and manufacturing
facility in Bromborough, Wirral, England. A full range of specialties, including
mortars, plastics and dense and light weight castables are manufactured in a
76,600 square foot building at this location. Distribution centers and sales
offices are maintained in Bromborough and Sheffield in England and Risca in
Wales to ensure complete customer coverage in the U.K. All of these facilities
are leased under initial lease terms of one to nine hundred ninety-nine years.

Liptak Bradley Limited, a wholly owned subsidiary of A. P. Green
Refractories Limited, operates out of the same premises in Bromborough,
providing a refractory installation service using exclusively A.
P. Green products.

Mexican Subsidiary
- ------------------

A. P. Green de Mexico SA de CV, a 51% owned subsidiary of A. P. Green
Refractories, Inc., owns and operates a manufacturing facility located in
Salinas Victoria near Monterrey, Mexico. Cast shapes, castables, mortars and
plastics are manufactured in a 53,800 square foot facility at this location.

Indonesian Subsidiary
- ---------------------

PT AP Green Indonesia, a subsidiary owned 80% by A. P. Green
Industries, Inc. and 20% by A. P. Green Refractories, Inc., owns and operates a
43,400 square foot castables manufacturing facility situated on 5.4 acres in
Cilegon, West Java, Indonesia.

ITEM 3. LEGAL PROCEEDINGS

Information regarding legal proceedings is set forth in Note 18 of
Notes to Consolidated Financial Statements starting on page F-22 of this Annual
Report on Form 10-K.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

- 14 -

<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS

A. P. Green Industries, Inc.'s common stock is traded on the New York
Stock Exchange under the symbol APK. The approximate number of stockholders of
record of A. P. Green's common stock at December 31, 1997 was 3,400.

The following table sets forth the high and low per share sale prices,
as reported on the New York Stock Exchange at December 31, 1997 and in the
NASDAQ Stock Market for all other periods, and dividends for each quarter during
the last two years, adjusted for the two-for-one stock split effected September
20, 1996.

1997 1996
---------------------------- ----------------------------
Cash Cash
Sale Price Dividend Sale Price Dividend
Quarter Ended High Low Declared High Low Declared
- ------------- ---- --- -------- ---- --- --------

March 31 $ 10.25 $ 8.25 $ .04 $ 10.00 $ 8.25 $ .035

June 30 10.50 7.75 .04 10.75 8.00 .035

September 30 14.25 9.00 .04 12.00 9.81 .04

December 31 13.94 11.00 .04 11.50 9.25 .04

- 15 -

<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
For years ended December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
Operating Items
<S> <C> <C> <C> <C> <C>
Net sales $277,907 $258,461 $249,715 $195,918 $162,962

Gross profit 50,056 44,108 41,406 34,498 32,083

Earnings before income taxes
and cumulative effect of
accounting changes 11,136 6,833 10,365 9,295 9,392

Earnings before cumulative
effect of accounting changes 8,068 4,673 8,800 6,673 6,497

Cumulative effect of accounting
changes, net of tax - - - (255) -
------- ------- ------- ------- -------

Net earnings 8,068 4,673 8,800 6,418 6,497
======= ======= ======= ======= =======

Per share data (1)
Basic
Earnings before cumulative
effect of accounting
changes, net of tax $ 1.00 $ .58 $ 1.09 $ .83 $ .81

Cumulative effect of
accounting changes,
net of tax - - - (.03) -
------- ------- ------- ------- -------

Net earnings per common share 1.00 .58 1.09 .80 .81
======= ======= ======= ======= =======

Diluted
Earnings before cumulative
effect of accounting
changes, net of tax .98 .57 1.07 .81 .81

Cumulative effect of
accounting changes,
net of tax - - - (.03) -
------- ------- ------- ------- -------

Net earnings per common share .98 .57 1.07 .78 .81
======= ======= ======= ======= =======

Dividends .16 .15 .14 .12 .03

Other Financial Items
Working capital $68,568 $75,541 $79,823 $ 78,565 $ 55,173
Current ratio 2.5:1 2.7:1 2.8:1 2.6:1 3.1:1
Capital expenditures $11,671 $12,892 $10,156 $ 6,482 $ 6,149
Depreciation, depletion
and amortization 12,139 10,582 10,174 8,725 7,671
Total assets 357,714 355,129 373,568 373,122 339,314
Long-term debt 31,034 40,109 34,384 37,023 12,160
Stockholders' equity 124,535 117,710 113,999 107,038 100,930
Debt to total
capitalization (2) 22.8% 27.3% 24.5% 25.8% 10.8%
<FN>

(1) All per share data has been restated to reflect the two-for-one stock split
effected September 20, 1996.
(2) Calculated as total Debt (long-term debt including current maturities)
divided by total stockholders' equity plus total Debt.
</FN>
</TABLE>

- 16 -

<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

1997 Compared to 1996
- ---------------------

Net sales increased 7.5% to $277.9 million in 1997 from $258.5 million
in 1996. The impact from the December 31, 1996 acquisition of the Ripplemead,
Virginia lime plant from Eastern Ridge Lime, L.P. (Eastern Ridge) was to
increase sales by approximately $10.5 million. Gross profit increased 13.5% to
$50.1 million in 1997 from $44.1 million in 1996, while net earnings increased
72.7% to $8.1 million, or $.98 per share, diluted, in 1997 from $4.7 million, or
$.57 per share, diluted, in 1996. The impact from the Ripplemead plant on gross
profit and net earnings was not material to the consolidated results.

Refractory Operations
- ---------------------

Net sales from refractory operations increased 4.3% to $227.9 million
in 1997 compared to $218.4 million in 1996. U.S. refractory sales increased 3.0%
to $191.8 million in 1997 from $186.1 million in 1996. Significantly limiting
this increase were lower sales of silica products from the Company's Lehi, Utah
plant, which were high in 1996 due to capital projects at several glass and coke
oven customers. U.S. refractory sales volumes increased 2.5% in 1997, with
increases in brick, specialties, precast shapes, Lanxide ThermoComposites, Inc.
(LTI) and INTOGREEN products partially offset by a decline in ceramic fiber
volumes. Price increases for specialties, precast shapes, ceramic fiber and LTI
products were partially offset by brick and INTOGREEN product price reductions
for a net price increase of 1.0%. U.S. export sales declined 11.9% to $20.8
million in 1997 from $23.6 million in 1996 due primarily to reduced sales to the
Middle East, Mexico and the Caribbean. Reduced U.S. export sales to Mexico and
the Caribbean were more than offset with increased sales by A. P. Green de
Mexico.

Sales at the Canadian subsidiary increased 5.9% to $25.2 million in
1997 from $23.8 million in 1996. Increased volumes in brick, crucibles and
precast shapes were partially offset by a decline in specialties volume, with
ceramic fiber volume flat for the comparable periods, for a net volume increase
of 5.0%. Prices increased across all product lines with the exception of precast
shapes, resulting in an overall 1997 price increase of 2.8%. The higher sales
and resulting gross profit improvement reduced the pretax loss of the Canadian
subsidiary to $84,000 in 1997 compared to $324,000 in 1996. Contributing to the
1997 loss were a higher provision for doubtful accounts and higher currency
exchange losses on U.S. dollar denominated accounts.

Sales by the United Kingdom subsidiary declined 11.0% to $8.9 million
in 1997 compared to $10.0 million in 1996 due to continuing weak market
conditions. Planned inventory reductions contributed to lower volume levels
which resulted in reduced production efficiencies, contributing to a pre-tax
loss of $200,000 in 1997 compared to pre-tax earnings of $607,000 in 1996. Also
contributing to the 1997 loss were increased equipment rental, depreciation
expense and salary and related costs.

A. P. Green de Mexico's sales for 1997 increased 22.1% to $9.9 million
compared to $8.1 million in 1996. Increased royalty and freight costs and a
weakening Mexican peso partially offset this sales increase, resulting in
pre-tax earnings of $1.0 million in 1997 compared to $992,000 in 1996.

Sales at PT AP Green Indonesia were $1.0 million in 1997, with a
pre-tax loss of $1.2 million due to relatively high fixed costs at the low
initial volume level. The Indonesian operation incurred a pre-tax start-up loss
of $325,000 for 1996. Utilizing the U.S. dollar as its primary trading currency
has limited the

- 17 -

<PAGE>

currency translation exposure of the Indonesian subsidiary. However, the
significant deterioration of economic conditions in Indonesia and the Far East
region has resulted in sales growth being slower than planned, extending the
time period anticipated for the operation to achieve profitability.

Refractory gross profit increased 16.1% to $40.1 million in 1997 from
$34.5 million in 1996. Refractory products cost of sales as a percentage of
sales decreased to 82.4% in 1997 from 84.2% in 1996. This improvement was
primarily due to greater production efficiencies and reduced casualty and group
health insurance, equipment rental, utilities and equipment maintenance expense.
Partially offsetting these improvements were increased workers compensation
insurance costs in the U.S., increased royalty expense at A.P. Green de Mexico
and high relative fixed costs at PT AP Green Indonesia. Refractory operating
profits increased 72.7% to $13.8 million from $8.0 million in 1997 and 1996,
respectively, primarily due to the improved gross profit and reduced research
expenses at LTI, partially offset by increased selling and administrative costs
at LTI and PT AP Green Indonesia.

Industrial Lime Operations
- --------------------------

Industrial lime sales increased 25.5% to $50.4 million from $40.2
million for 1997 and 1996, respectively, including $10.5 million from the
Ripplemead plant. A decline in quicklime volume was partially offset by
increases in Cal-Dol and hydrate volumes for a net volume decline of 2.6% at the
Kimballton plant. Also contributing to the volume decline at Kimballton was a
strike at one of the plant's major customers. Kimballton prices increased an
average of 0.8% across all major product lines. Volumes at the New Braunfels
plant were essentially flat, with increases in road stabilization and building
lime offset by reduced industrial lime volume. Prices were also flat at New
Braunfels, with increased industrial lime pricing offset by price reductions in
road stabilization and building lime.

Industrial lime gross profit increased 2.6% to $9.9 million or 19.7%
of sales for 1997 from $9.6 million or 23.8% of sales for 1996. The decline in
gross profit percentage was due primarily to the relatively high operating costs
and depreciation related to the newly acquired Ripplemead plant. Improvements
continue to be made at this facility, which generated a small net profit for the
year. The impact of these improvements, coupled with increased synergies with
the nearby Kimballton plant, should result in improved gross profit percentages
in future periods.

Also contributing to the decline in gross profit percentage were
higher power and equipment maintenance expense at Kimballton and increased
purchased material and group health insurance costs at both plants. Partially
offsetting these increases were reductions in maintenance, power and processing
fuel costs at New Braunfels, lower workers compensation insurance cost and
improved production efficiencies at both plants. Industrial lime operating
profit increased 2.6% to $8.5 million in 1997 compared to $8.3 million in 1996
primarily due to the improvement in gross profit.

Selling and Administrative Expenses
- -----------------------------------

Selling and administrative expenses increased 3.8% to $37.4 million in
1997 from $36.1 million in 1996. The increase was primarily due to higher
professional fees, management incentive and group health insurance costs.
Expenses at Palmetto Lime and increased expenses at LTI and PT AP Green
Indonesia also contributed $536,000 of the increase, partially offset by reduced
LTI research costs and lower costs at A.P.
Green de Mexico.

- 18 -

<PAGE>

Interest Expense and Income
- ---------------------------

Interest expense increased 5.9% to $3.3 million in 1997 from $3.1
million in 1996 due to interest associated with borrowings against the Company's
U.S. long-term line of credit offset by reduced interest on the unsecured notes
associated with the 1994 General acquisition. Daily average bank line borrowings
were approximately $2.9 million during 1997, while $9.0 million was borrowed
against the U.S. long-term line of credit at the end of 1996 to fund the
acquisition of the Ripplemead plant. There were no other bank line borrowings
during 1996. Interest income decreased 23.7% to $958,000 in 1997 from $1.3
million in 1996 due to reduced funds available for investing and a reduction in
notes receivable.

Other Income, Net
- -----------------

Other income declined slightly to $535,000 in 1997 from $542,000 in
1996. Increased currency conversion losses on U.S. dollar denominated accounts
at the Company's Canadian subsidiary and currency conversion losses on Mexican
peso accounts at the Company's Mexican subsidiary during 1997 compared to gains
during 1996 were partially offset by increased royalty income. Other income in
1997 included a gain on the sale of the Hitchins, Kentucky plant and a loss on
the sale of the Troup, Texas plant. Other income in 1996 included gains on the
sale of the Pueblo, Colorado plant and certain equipment at the closed Warren,
Ohio plant.

The Company and its Canadian and U.K. subsidiaries typically transact
business in their own currencies and accordingly are not subject to significant
currency conversion gains and losses. A. P. Green de Mexico and PT AP Green
Indonesia transact a significant portion of their business in U.S. dollars and,
as such, use the dollar as their functional currency. This results in currency
conversion gains and losses on Mexican peso and Indonesian rupiah transactions,
A. P. Green's portion of which was not significant to the consolidated results.
The decline in value of the Indonesian rupiah is not expected to significantly
increase the Indonesian subsidiary's currency exposure.

Equity in Net Income of Affiliates
- ----------------------------------

The Company's share of income from its two Colombian affiliates was
$1.2 million in 1997 compared to $436,000 in 1996. The increase was primarily
due to adjustments required to translate the 1997 and 1996 financial statements
of these affiliates to U.S. accounting principles, which could not be reasonably
estimated until December 1997. Changes in reporting methods for these affiliates
should allow estimation of such adjustments on a quarterly basis starting in the
first quarter of 1998.

Had income been reflected in the period earned, the Company's share of
income from its two Colombian affiliates would have been $625,000 in 1997
compared to $1.0 million in 1996. Although the Colombian economy showed signs of
improvement in the second half of 1997, lower production levels resulting in
reduced efficiency and price reductions required to compete with imported
products reduced 1997 margins on level sales. Also contributing to the lower
earnings were increased pension and postretirement benefits costs.

Minority Interest in Income of Consolidated Subsidiaries
- --------------------------------------------------------

Until recently, the Company had been charging 49% of all LTI losses
since the December 31, 1995 acquisition of A.P. Green's 51% interest in LTI
against the minority interest. However, Accounting Research

- 19 -

<PAGE>

Bulletin No. 51, "Consolidated Financial Statements" (ARB51), requires that
those losses in excess of the minority interest in the equity capital of LTI be
absorbed by the majority interest.

In order to correct its prior accounting treatment, on February 2, 1998
the Company adjusted its consolidated statements of earnings for the first three
quarters of 1997 and the year ended December 31, 1996. The impact on the nine
months ended September 30, 1997 was to increase minority interest in income of
consolidated subsidiaries by approximately $459,000 through the elimination of
the minority interest in all LTI losses for the nine-month period, which reduced
net income by the same amounts, or $.06 per share. The impact on the year ended
December 31, 1996 was to increase minority interest in income of consolidated
subsidiaries by approximately $674,000, which reduced net income by the same
amount, or $.08 per share. In addition, on the adjusted consolidated statements
of financial position minority interests was increased and retained earnings
reduced by approximately $1,133,000 as of September 30, 1997 and approximately
$674,000 as of December 31, 1996. These adjustments are reflected in the
consolidated financial statements included herein as well as the Notes to
Consolidated Financial Statements and the supplementary data.

In accordance with ARB 51, for future periods in which LTI has
earnings the Company, as majority stockholder, will be credited with 100% of
those earnings until such time as total stockholders' equity of LTI is positive.

Financial Condition
- -------------------

Working capital declined 9.2%, or $7.0 million, to $68.6 million at
December 31, 1997 from $75.5 million at September 30, 1996, while the ratio of
current assets to current liabilities decreased to 2.5 to 1 from 2.7 to 1.
Increases of $2.2 million in accrued expenses and $1.5 million in current
portion of long-term debt and reductions of $5.8 million in cash and $3.9
million in reimbursement due on paid asbestos claims were partially offset by a
$6.7 million increase in accounts receivable resulting from increased sales in
December 1997 compared to December 1996.

The increase in current maturities of long-term debt since December
31, 1996 was due to a $2.5 million reclassification from long-term debt for a
scheduled increase in the payment due against the unsecured notes payable,
partially offset by a $1.0 million final payment on an industrial development
revenue bond at the Bessemer, Alabama plant in December 1997. Long-term debt
decreased $9.1 million from December 31, 1996 due primarily to the $2.5 million
reclassification, a scheduled payment of $2.5 million against the unsecured
notes payable and a $4.5 million reduction in outstanding borrowings against the
U.S. long-term line of credit. Partially offsetting these reductions was a
ten-year capital lease on a warehouse in Houston, Texas, which bears an interest
rate of 10.9% and expires December 1, 2006.

The reduction in reimbursement due on paid asbestos claims since
December 31, 1996 was due to asbestos claim settlements with and reimbursements
from the Company's insurance carriers and the Center for Claims Resolution (the
Center). Projected insurance recovery on asbestos claims increased $5.9 million
and projected asbestos claims increased $4.3 million since December 31, 1996 due
to revised estimates based upon the most recent claims information provided by
the Center for Claims Resolution, partially offset by $28.8 million in asbestos
claim payments by insurance carriers and settlements by the Company with those
carriers during 1997. The net projected asbestos liability included in the
Company's statement of financial position has been reduced to zero as a result
of final settlements with the Company's insurance carriers. Future payments of
asbestos claims will be made directly to the Center by those carriers. As
discussed in Note 18 of Notes to Consolidated Financial Statements, during 1997
there was a change in the information available to the Company to make
projections of its asbestos liability and related insurance recoveries.

- 20 -

<PAGE>

Net deferred income tax liabilities declined $2.2 million due
primarily to reductions in prepaid pension costs, depreciation method
differences and net operating loss carryforwards resulting from start-up
operations at LTI and PT AP Green Indonesia.

Long-term debt, including current portion, at December 31, 1997
consisted of industrial development revenue bonds totaling $10.8 million which
bear interest rates ranging from 70% of prime (8.5% at December 31, 1997) to
8.6% and mature at various times from 2000 through 2014 and unsecured notes
payable of $20.5 million ($20.0 million of which bear an interest rate of 8.55%)
with annual principal repayments which commenced in 1996 and will continue
through 2001. Also included are $4.5 million borrowed against the U.S. line of
credit, which expires May 2, 1999 and bears an interest rate of 2% above the
federal funds rate (5.84% at December 31, 1997) and capitalized leases of
$914,000 which expire in 1999 and 2006 and bear interest rates ranging from 6.7
% to 10.9%. Management believes that the Company's financial position will
support additional borrowing should the need arise.

During 1997 the Company's U.S. long-term line of credit was extended
to May 2, 1999. Restrictive covenants coincide with those reflected in the
agreement associated with the unsecured notes payable. Approximately $4.9
million of this line of credit was being utilized at December 31, 1997 for
outstanding letters of credit and $4.5 million of borrowings remained
outstanding, leaving an available balance of approximately $20.6 million

Capital expenditures for 1997 totaled $11.7 million compared to $12.9
million for 1996, with capital expenditures for the refractories business
declining $3.4 million. This reduction was primarily due to the completion of
the new plant in Indonesia and the movement of operations previously at Weston,
Ontario to the Smithville, Ontario plant during 1996. Capital expenditures for
the industrial lime business increased $1.9 million, $1.4 million of which was
for the new Palmetto Lime facility in Charleston, South Carolina being built as
a joint venture with SCANA.

Capital expenditure commitments for the replacement, modernization and
expansion of operations amounted to $27.5 million at December 31, 1997 and $4.2
million at December 31, 1996. Of the 1997 commitment, approximately $21.3
million was for completion of the Palmetto Lime facility and $4.2 million was
for replacement and modernization of equipment at the APG Lime plants. Of the
1996 commitment, approximately $1.9 million was for expansion and modernization
of the Mexico, Missouri and Fulton, Missouri plants. A.P. Green believes it has
sufficient liquidity and borrowing capacity to meet both its normal working
capital requirements and its planned capital expenditures in 1998.

The Company has investments in subsidiaries in Canada and the U.K. and
two affiliates in Colombia. Adjustments resulting from the currency translation
of these subsidiaries' and affiliates' financial statements are reflected as a
component of stockholders' equity and were $3.9 million at December 31, 1997 and
$2.9 million at December 31, 1996. The primary reason for the increase during
1997 was adjustments relating to translation of the financial statements of the
Colombian affiliates.

The Board of Directors declared a regular quarterly dividend of $.04
per share in the first quarter of 1998.

- 21 -

<PAGE>

1996 Compared to 1995
- ---------------------

Results of Operations
- ---------------------

Net sales of $258.5 million in 1996 were 3.5% higher than the $249.7
million in 1995. The impact from the December 1995 acquisition of LTI was to
increase 1996 sales by approximately $2.1 million. The impact from the July 1995
A. P. Green de Mexico acquisition was to increase 1996 sales by approximately
$3.6 million. The INTOGREEN joint venture partnership, formed in January 1995,
increased 1996 sales by approximately $1.0 million. Excluding the impact of
these acquisitions and ventures, sales increased by $2.1 million, or 0.8%.

Gross profit increased 6.5% to $44.1 million in 1996 from $41.4
million in 1995, including approximately $340,000 due to the LTI acquisition,
$1.1 million due to the A. P. Green de Mexico acquisition and $95,000 due to the
INTOGREEN partnership. Net earnings declined $4.1 million to $4.7 million, or
$.57 per share, diluted, in 1996 from $8.8 million, or $1.07 per share, diluted,
in 1995.

Refractory Operations
- ---------------------

Net sales from refractory operations increased 2.9% to $218.4 million
in 1996 as compared to $212.2 million in 1995. U.S. refractory sales increased
2.4% to $186.1 million in 1996 as compared to $181.8 million in 1995, of which
$3.1 million was due to LTI and INTOGREEN. Excluding the impact related to these
acquisitions, volume of U.S. refractory products declined an average of 2.7% in
1996, with reductions in brick and precast shape volumes partially offset by
increases in specialties and ceramic fibers. Prices increased 4.4% across all
product lines. U.S. export sales increased 23.0% to $23.8 million in 1996 from
$19.4 million in 1995.

Sales at the Canadian subsidiary declined 1.2% to $23.8 million in
1996 from $24.0 million in 1995. Volumes declined across all product lines
except crucibles by an average of 8.6%. Prices increased across all product
lines except ceramic fibers, resulting in an overall 1996 price increase of
8.8%. The Canadian subsidiary had a pretax loss of $324,000 in 1996 compared to
a pretax loss, excluding a $1.4 million gain on the sale of the Weston, Ontario
plant, of $365,000 in 1995. Contributing to the 1996 loss were increased
equipment maintenance expenses. The 1995 loss included the establishment of a
reserve for exit costs and termination benefits for 26 employees associated with
the closing and sale of the Weston, Ontario plant, which was substantially
complete in December 1995.

Sales in the United Kingdom increased 2.4% to $10.0 million in 1996
from $9.7 million in 1995, while pretax earnings declined to $607,000 in 1996
compared to $673,000 during 1995, primarily as a result of lower gross margins.

A. P. Green de Mexico's pretax earnings were $992,000 on sales of $8.1
million in 1996 compared to pretax earnings of $341,000 on sales of $3.2 million
during the six months of 1995 under A. P. Green ownership. PT AP Green Indonesia
incurred a pretax start-up loss of $325,000 in 1996.

Refractory gross profit increased 3.8% to $34.5 million in 1996 from
$33.3 million in 1995. Refractory products cost of sales as a percentage of
sales declined slightly to 84.2% in 1996 from 84.3% in 1995. The 1996
improvement was due primarily to higher margins at A. P. Green de Mexico. Also
contributing to the cost reduction were lower workers compensation and
processing fuels expense and improved labor efficiencies at U.S. plants, offset
by increased equipment maintenance and higher inventory

- 22 -

<PAGE>

cost adjustments. Refractory operating profits declined 36.6% to $8.0 million in
1996 from $12.6 million in 1995 due to increased salary and related expenses and
travel, partially offset by reduced sales incentives. Selling and administrative
expenses at LTI, INTOGREEN, PT AP Green Indonesia and A. P. Green de Mexico,
including over $800,000 in research and development expenses at LTI, also
contributed to the reduction in operating profit.

During the third and fourth quarters of 1996, lower sales and a
planned reduction of refractory finished goods inventory resulted in reduced
production efficiencies and declines in gross profit and net earnings for those
periods. Inventory-related adjustments also contributed to the decline in gross
profit and net earnings during the third and fourth quarters.

Industrial Lime Operations
- --------------------------

Industrial lime sales increased 6.5% to a record $40.2 million in 1996
from $37.7 million in 1995. Volumes increased an average of 5.5% across all
product lines at the New Braunfels, Texas plant, while volumes at the
Kimballton, Virginia plant declined 2.3% overall, with reductions in quicklime
and hydrate partially offset by an increase in Cal-Dol volume. Prices improved
an average of 3.3% at the Kimballton plant during 1996, with increases across
all product lines except Cal-Dol. At the New Braunfels plant, prices increased
across all product lines an average of 4.5%.

The gross margins of the Company's industrial lime operations are
sensitive to volume changes due to the capital intensive nature of the
operations and semi-fixed nature of other costs. As a result of the sales
increase, gross profit and operating profit increased 17.6% and 19.9%,
respectively. Also contributing to the 1996 increase were reduced outside
processing costs at Kimballton, lower depreciation expense at New Braunfels and
a higher net favorable inventory cost adjustment in 1996 compared to 1995.
Partially offsetting these improvements were increased raw material costs at
both plants and increased equipment maintenance expense at New Braunfels.

Selling and Administrative Expenses
- -----------------------------------

Selling and administrative expenses increased 15.3% to $36.1 million
in 1996 from $31.3 million in 1995. Selling and administrative expenses at A. P.
Green de Mexico, LTI, INTOGREEN and PT AP Green Indonesia accounted for
$917,000, $2.4 million, $177,000 and $256,000 of the increase, respectively.
Expenses at LTI included over $800,000 in research and product development and
significant market development costs. Also contributing to the 1996 increase
were a higher provision for doubtful accounts receivable, normal increases in
salaries and related costs, increased international travel due to expanding
foreign operations and higher retiree health insurance costs. Partially
offsetting these increases were reduced sales incentives, pension expense,
moving and recruiting costs.

Interest Expense and Income
- ---------------------------

Interest expense decreased 2.4% to $3.1 million in 1996 from $3.2
million in 1995 due primarily to a $2.5 million scheduled principal payment in
July 1996 against the debt associated with the General acquisition. The Company
borrowed $9.0 million against its U.S. long-term line of credit at the end of
1996 to fund the acquisition of the Ripplemead plant; there were no other bank
line borrowings during 1996 or 1995. Interest income decreased 17.1% to $1.3
million in 1996 from $1.5 million in 1995 due to reduced funds available for
investing and a shorter average investment term resulting in lower average
interest rates.

- 23 -

<PAGE>

Other Income, Net
- -----------------

Other income, net declined 71.2% to $542,000 in 1996 from $1.9 million
in 1995. Other income in 1995 included a $1.4 million pretax gain on the sale of
the Weston, Ontario plant.

The Company and its Canadian and U.K. subsidiaries typically transact
business in their own currencies and, accordingly, are not subject to
significant currency conversion gains and losses. A. P. Green de Mexico and PT
AP Green Indonesia transact a significant portion of their business in U. S.
dollars and, as such, use the dollar as their functional currency. This results
in currency conversion gains and losses on Mexican peso and Indonesian Rupiah
transactions, A. P. Green's portion of which was not significant to the
consolidated results.

Income Taxes
- ------------

During the second quarter of 1995, a review of tax years 1988 through
1993 was completed by the Internal Revenue Service, resulting in a small
additional payment to clear federal tax liability for those years. Due to the
outcome of this review being more favorable than originally reserved, the
Company reduced its provision for federal income taxes by $1.1 million. The
19.9% effective tax rate in 1995 compared to 30.9% in 1996 was due primarily to
this tax adjustment, without which the 1995 effective tax rate would have been
29.6%.

Equity in Net Income of Affiliates
- ----------------------------------

The Company's share of income from its two Colombian affiliates
totaled $436,000 in 1996 compared to $781,000 in 1995. In December 1997, an
adjustment was recorded to increase A. P. Green's share of 1996 income from
these affiliates. This adjustment resulted from translation of the Colombian
financial statements to U. S. accounting principles, the impact of which could
not be reasonably estimated until December 1997. Had income been reflected in
the period earned, the Company's share of income from its two Colombian
affiliates would have been $1.0 million in 1996 compared to $718,000 in 1995.

Accounting Standards Not Yet Implemented
- ----------------------------------------

In June 1997 the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income," and No. 131, "Disclosures about
Segments of an Enterprise and Related Information," which the Company is
required to implement for the year ending December 31, 1998. Although the
implementation of these statements will have no impact on the financial results
of the Company, it is assessing the impact of these statements on the
disclosures provided in its quarterly and annual reports.

Forward-Looking Information
- ---------------------------

The statements contained in Management's Discussion and Analysis
concerning the Company's future revenues, profitability, financial resources,
product mix, market demand and product development are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results in the future may
differ materially from those projected in the forward-looking statements due to
risks and uncertainties that exist in the Company's operations and business
environment including, but not limited to: delivery delays or defaults by
customers; performance issues with key suppliers and subcontractors; the
Company's successful execution of internal operating plans; and collective
bargaining labor disputes. t

- 24 -

<PAGE>

Subsequent Even
- ---------------

On March 3, 1998, the Company entered into an Agreement and Plan of
Merger with Global Industrial Technologies, Inc. and BGN Acquisition Corp. The
Agreement and Plan of Merger calls for, among other things, Global to purchase
for cash all outstanding shares of the Company at $22.00 per share, or
approximately $195.0 million, plus the assumption of $23.0 million of net debt.
The transaction, which will be effected by means of a tender offer, has been
approved by the Boards of Directors of both companies and, subject to regulatory
approval, is expected to be completed during the second quarter of 1998. Global
is a manufacturer of technologically advanced industrial products that support
high-growth markets around the world. Its subsidiary, Harbison-Walker
Refractories Company, operates 15 refractory plants in five countries, including
the United States, Canada, Mexico, Chile and Germany.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of A. P. Green as of December
31, 1997 and 1996 and for each of the years in the three-year period ended
December 31, 1997, notes thereto (including the quarterly supplementary data)
and the Independent Auditors' Report appear on pages F-1 through F-29 of this
Annual Report on Form 10-K. The financial statement schedule required by
Regulation S-X for each of the years in the three-year period ended December 31,
1997 and the Independent Auditors' Report thereon appear on pages F-30 and F-31
of this Annual Report on Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

Not applicable.

- 25 -

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors and Executive Officers
- --------------------------------

The name, principal occupation or position and other directorships
with respect to each of the directors are set forth below. Except as otherwise
indicated, each of the directors has held the position or another executive
position with the same entity shown or an affiliated entity for in excess of
five years.

Paul F. Hummer II, 56 - Director since 1988; Chairman of the Board, Chief
Executive Officer and President of A. P. Green.

P. Jack O'Bryan, 62 - Director since 1995; President, Chief Operating Officer,
USG Corporation (a building materials manufacturer which filed a voluntary
petition under Chapter 11 of the United States Bankruptcy Code in March 1993).

Daniel R. Toll, 70 - Director since 1988; Corporate and Civic Director; Director
of Brown Group, Inc., Mallinckrodt, Inc., Kemper National Insurance Companies,
NICOR, Inc., Lincoln National Convertible Securities Fund, Inc., and Lincoln
National Income Fund, Inc.

Mack G. Nichols, 59 - Director since 1997; President and Chief Operating
Officer, Mallinckrodt, Inc. since 1995; Senior Vice President, Mallinckrodt
Group, Inc. from 1993 to 1995; President and Chief Executive Officer,
Mallinckrodt Chemical, Inc. from 1989 to 1995.

William F. Morrison, 60 - Director since 1993; Private Investor.

James M. Stolze, 54 - Director since 1997; Vice President and Chief Financial
Officer of MEMC Electronic Materials, Inc. since June 1995; Partner, KPMG Peat
Marwick LLP from June 1977 to June 1995.

- 26 -

<PAGE>

The following is a list as of March 27, 1998 of the names and ages of
the executive officers of A. P. Green and all positions and offices with A. P.
Green presently held by the person named. There is no family relationship
between any of the named persons.

Name Age All Positions Held With A. P. Green
- ---- --- -----------------------------------

Paul F. Hummer II 56 Chairman of the Board,
President and Chief Executive Officer

Jurgen H. Abels 53 Vice President, International

Max C. Aiken 60 Executive Vice President

David G. Binder 61 Vice President and Controller

Ronald L. Bramblett 60 Vice President, Human Resources

Michael B. Cooney 57 Senior Vice President, Law/Administration and
Secretary

Frank J. Cordie 45 Vice President, Refractory Manufacturing

Daniel Y. Hagan 58 Vice President, Refractory Sales

Orville Hunter, Jr. 59 Vice President, Refractory Technology

John L. Kelsey 47 Vice President, Refractory Marketing

Gary L. Roberts 51 Vice President, Chief Financial Officer and
Treasurer

The executive officers were appointed by, and serve at the pleasure of,
the Board of Directors of A. P. Green. Except for Mr. Cordie, all executive
officers have held the position listed or another position with A. P. Green or
an entity affiliated with A. P. Green for at least five years. Mr. Cordie was
Regional Director, Refractory Production of A. P. Green from October 1995 to
February 1996 and Vice President of Production at Jenkins Brick Co. from
February 1991 to September 1995.

Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------

Section 16(a) of the Securities Exchange Act of 1934 requires A. P.
Green's directors and executive officers to file with the Securities and
Exchange Commission initial reports of beneficial ownership and changes in
ownership of A. P. Green common stock. To the knowledge of management, based
solely on its review of copies of such reports furnished to A. P. Green, all
Section 16(a) filing requirements were met, except: (i) a Form 3, Initial
Statement of Beneficial Ownership, filed by each of Messrs. Bramblett, Cordie
and Kelsey after their respective elections as executive officers of the
Company, which reports should have been filed in March 1996 and were filed on
March 7, 1997; and (ii) a Form 5, Annual Statement of Changes in Beneficial
Ownership, filed by each of Messrs. Bramblett, Cordie and Kelsey for the fiscal
year ended December 31, 1996, which reports should have been filed on or before
February 14, 1997 and were filed on or about March 7, 1997. The Form 5 reports
that were not filed on a timely basis reported transactions consisting of
monthly purchases of the Company's common stock under the Company's 401(k) Plan
and an

- 27 -

<PAGE>

allocation of the Company's common stock from the Employee Stock Ownership Trust
to each such executive officer's 401(k) Plan account.

ITEM II. EXECUTIVE COMPENSATION

The following table sets forth the cash and non-cash compensation of
the named executive for each of the last three years:

Summary Compensation Table

Long-Term
Compensation
-----------
Annual Compensation Securities
Name and ------------------- Underlying All Other
Principal Position Year Salary ($) Bonus($) Options(#) Compensation($)(1)
- ------------------ ---- ---------- -------- ---------- ------------------

Paul F. Hummer, II 1997 $365,028 $149,600 55,000/-0- $4,046
Chairman of the Board, 1996 334,186 -0- -0-/-0- 3,751
President and Chief 1995 302,079 75,600 -0-/-0- 4,926
Executive Officer

Max C. Aiken, 1997 196,668 106,875 18,000/-0- 3,590
Executive Vice 1996 183,328 -0- -0-/-0- 3,810
President 1995 163,992 32,832 -0-/-0- 5,471

Gary L. Roberts, 1997 155,012 42,000 12,000/-0- 3,280
Vice President, CFO 1996 148,678 -0- -0-/-0- 3,516
and Treasurer 1995 141,132 25,515 -0-/-0- 4,678

Michael B. Cooney 1997 152,500 42,000 12,000/-0- 3,220
Sr. Vice President, 1996 147,081 -0- -0-/-0- 3,517
Law/Administration 1995 141,496 37,240 -0-/-0- 4,724
and Secretary

Daniel Y. Hagan 1997 129,500 45,755 8,000/-0- 2,730
Vice President, 1996 122,834 -0- -0-/-0- 2,764
Refractory Sales 1995 112,336 14,904 -0-/-0- 2,752

(1) The totals set forth in this column represent the value of shares of A.
P. Green common stock allocated under the A. P. Green Employee Stock
Ownership Plan to the account of the named executive officer for the
years ended December 31, 1997, 1996 and 1995.

- 28 -

<PAGE>

Option Grants in Last Fiscal Year

The following table summarizes stock options granted during 1997
to the executive officers named in the Summary Compensation Table and the
potential value of the shares subject to such options upon their expiration in
February 2007:

<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of Stock
Securities Options Price Appreciation
Underlying Granted to Exercise or For Option Term
Options Employees in Base Price Expiration ---------------------
Name Granted (#) Fiscal Year ($/Share) Date 5%($) 10%($)
- ------------------- ----------- ----------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Hummer 55,000 23% $8.75 2/12/07 $302,500 $767,250
Max C. Aiken 18,000 8 8.75 2/12/07 99,000 251,100
Gary L. Roberts 12,000 5 8.75 2/12/07 66,000 167,400
M. B. Cooney 12,000 5 8.75 2/12/07 66,000 167,400
Dan Y. Hagan 8,000 3 8.75 2/12/07 44,000 111,600
</TABLE>

Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year End Option Values

The following table summarizes the value at December 31, 1997 of all
shares subject to options granted to the named executive officers of the Company
to the extent not then exercised and information concerning option exercises
during 1997:

<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the Money
Shares Options Options
Acquired Value at 12/31/97 (#) at 12/31/97($)(3)
On Realized ---------------------------- ---------------------------
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Paul F. Hummer -0- $ -0- 298,000 -0- $1,298,565 $ -0-
Max C. Aiken (1) 30,737 322,739 57,000 -0- 179,933 -0-
Gary L. Roberts (2) 1,109 12,476 90,000 -0- 415,365 -0-
M. B. Cooney -0- -0- 105,000 -0- 443,753 -0-
Daniel Y. Hagan -0- -0- 66,500 -0- 282,461 -0-
- ---------------------
<FN>
(1) Mr. Aiken received 30,737 shares by means of the tendering to the
Company of options to purchase 78,000 shares of common stock at an
average exercise price of $6.36 per share.

(2) Mr. Roberts received 1,109 shares by means of the tendering to the
Company of options to purchase 6,000 shares of common stock at an
exercise price of $9.17.

(3) The market value of the common stock at December 31, 1997 was $11.5625
per share.
</FN>
</TABLE>

- 29 -

<PAGE>

Retirement Plan
- ---------------

Officers and employees of A. P. Green participate in a retirement plan
(the "Retirement Plan"). In addition, A. P. Green sponsors supplemental
retirement plans (the "Supplemental Plans") which allow the payment of benefits
exceeding the maximum limits set forth in the Internal Revenue Code of 1986, as
amended (the "Code"). Under the Retirement Plan and the Supplemental Plans, each
eligible participant of A. P. Green will receive an annual retirement benefit
based upon such employee's highest average annualized earnings over any period
of 36 consecutive months during the last 120 consecutive months of employment
immediately preceding retirement ("Final Average Compensation"). The benefits
shown in the following table as payable under the Retirement Plan and
Supplemental Plans are not subject to offset for Social Security benefits
received by the participant.

Annual retirement benefits under the Retirement Plan and the
Supplemental Plans, assuming normal retirement at age of 65 during 1997, payment
based under the straight life annuity option, and Final Average Compensation and
credited service are set forth in the following table:
<TABLE>
<CAPTION>

Final Average Years of Credited Service ($)(2)(3)
Annual ---------------------------------------------------------------------------------------
Compensation ($)(1) 5 10 15 20 25 30 35
- ------------------- - -- -- -- -- -- --
<S> <C> <C> <C> <C> <C> <C> <C>

$150,000 $ 9,648 $19,297 $28,945 $ 38,593 $ 48,241 $ 57,890 $ 67,538
200,000 13,055 26,110 39,165 52,221 65,276 78,331 91,386
250,000 16,462 32,924 49,386 65,848 82,310 98,772 115,234
300,000 19,869 39,738 59,607 79,476 99,344 119,213 139,082
350,000 23,276 46,552 69,827 93,103 116,379 139,655 162,930
450,000 30,090 60,179 90,269 120,358 150,448 180,537 210,627
- ----------------------------
<FN>

(1) Final Average Compensation under the Retirement Plan and the
Supplemental Plans includes the employee's salary and any cash
bonus awards under the Management Incentive Compensation Plan. The
amount shown in the Summary Compensation Table as salary and bonus
for each of the five executive officers named therein is
compensation for purposes of the Retirement Plan and the
Supplemental Plans.

(2) The credited years of service for the five executive officers named
in the Summary Compensation Table as of December 31, 1997 are as
follows: Mr. Hummer, 9 years; Mr. Aiken, 23 years; Mr. Cooney, 9
years; Mr. Roberts, 8 years; and Mr. Hagan, 31 years.

(3) The maximum amount payable under the Retirement Plan is limited by
the Code to $130,000 annually, subject to cost-of-living increases
and reduction of reason of contributions under tax- qualified
defined contribution plans maintained by A. P. Green. To the extent
benefits under the Retirement Plan are limited by the Code, they
will be paid under the Supplemental Plans.
</FN>
</TABLE>

- 30 -

<PAGE>

Compensation of Directors

During fiscal 1997, directors who were not also employees of A. P.
Green received an annual retainer of $20,000 and 1,000 shares of A. P. Green
common stock in lieu of fees for meetings of the Board of Directors or
committees. Directors were also reimbursed for expenses incurred in attending
Board or committee meetings.

Prior to May 31, 1997, pursuant to the Retirement Plan for Directors
("Directors Plan"), A. P. Green provided retirement benefits to any non-employee
director who retired as a director of A. P. Green or who terminated his
directorship with A. P. Green due to a disability, after serving as a director
of A. P. Green for a minimum of five years. The benefits that were payable to
each director were determined by multiplying the annual retainer paid to
directors of A. P. Green on the date of such director's retirement or
termination of service due to disability by 10% for each year of service as an
A. P. Green director, with the maximum annual benefit for any director being
100% of the then-applicable annual retainer. Benefits commenced upon the later
of the date that the former director attained the age of 65 or the date that
such former director ceased to be a director of A. P. Green due to retirement or
disability. An eligible director continued to receive benefits under the plan
during his lifetime on a quarterly basis for a maximum of ten years.

As of May 31, 1997, the Directors' Plan was terminated with respect to
the accrual of any future benefits. In its stead, the Board of Directors adopted
the 1997 Stock Plan for Non-Employee Directors (the "Plan"). Under the terms of
the Plan, benefits accrued under the Directors Plan were converted to Stock
Units (as defined in the Plan) and Stock Units were credited to the accounts of
non-employee directors as follows: William F. Morrison, 3,679 units; P. J.
O'Bryan, 2,133 units; and, if he irrevocably elects to waive participation in
the Retirement Plan prior to November 1, 1998, Daniel R. Toll, 11,658 units.
Neither Mr. Nichols nor Mr. Stolze had accrued any benefits under the Directors'
Plan. Stock units credited to the accounts of directors are fully vested at all
times. On June 1, 1997 and each June 1 thereafter, 500 stock units will be
credited to the account of each non-employee director. In addition, as of each
dividend payment date with respect to the Company's common stock, each
non-employee director's account shall be credited with additional Stock Units
equal to the product of the per share dividend rate times the number of Stock
Units credited to such director's account divided by the fair market value of
the Company's common stock on the dividend payment date. Unless payable earlier
upon the death of a director, Stock Units are payable in shares of the Company's
common stock on the later of termination of the director's service on the Board
of Directors or the attainment of age sixty-five.

Employment Arrangements

A. P. Green currently has separate agreements with each of Paul F.
Hummer II, Max C. Aiken, Michael B. Cooney and Gary L. Roberts under which each
would be given severance benefits in the event that his employment with A. P.
Green is "terminated" within three years of a change in control of A. P. Green
(except that in all such agreements the rights to severance benefits terminate
upon reaching age 65 if it occurs before the expiration of three years after a
change in control). Each agreement is for a term of three years, subject to
automatic extension each year for an additional year unless A. P. Green gives a
60-day notice that the term will not be so extended, except if there is a change
in control of A. P. Green prior to such notice. Each agreement would require a
lump-sum cash payment generally in an amount equal to 2.99 times the officer's
then-current annual base salary and then-current full year bonus (except that
such multiplier will be subject to a declining pro rata reduction from the date
of such officer's 62nd birthday until his 65th birthday, based upon the number
of months left until such officer's 65th birthday at the effective date of his
termination).

- 31 -

<PAGE>

If payment of the foregoing amounts and any other benefits received or
receivable subject such officer to payment of federal excise tax, the total
amount payable to such officer shall be increased by an amount sufficient to
satisfy the excise tax and the additional excise and income taxes thereon.

In addition, the Company is a party to a severance enhancement
agreement ("Severance Enhancement Agreement") with Daniel Y. Hagan under which
Mr. Hagan would be given enhanced severance benefits in addition to those that
Mr. Hagan would otherwise be entitled under the Company's normal severance
policies in the event that Mr. Hagan's employment with the Company is terminated
by the Company for reasons other than death, disability, retirement or cause or
by Mr. Hagan for "good reason" within one year of a change in control of the
Company. The Severance Enhancement Agreement would require a lump-sum cash
payment in an amount equal to Mr. Hagan's then-current annual base salary, in
addition to a cash payment equal to two times Mr. Hagan's weekly base salary in
the event that less than two weeks' notice of termination is given to Mr. Hagan.
The Severance Enhancement Agreement also provides for the continuation of
medical benefits for one year following any such termination.

"Good reason" is generally defined in the Severance Enhancement
Agreement as: (i) reduction of Mr. Hagan's then-current base salary; (ii)
elimination of Mr. Hagan's then-current participation level in the Company's
bonus plans or employee benefit plans; (iii) the non-payment of moving expenses
in connection with a geographic relocation of Mr. Hagan; or (iv) failure by the
Company to continue in effect any employee benefit plan in which Mr. Hagan was
participating at the time of the change in control or the deprivation of Mr.
Hagan of any benefits thereunder or under the Company's normal vacation policy.

- 32 -

<PAGE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security Ownership of Certain Beneficial Owners
- -----------------------------------------------

The following persons were known to management of A. P. Green
Industries, Inc. to be the beneficial owners of five percent or more of A. P.
Green's common stock:

Number of Shares Percent of Outstanding
Name and Address of Beneficial Owner Beneficially Owned Common Stock(1)
- ------------------------------------ ------------------ ----------------------

Dimensional Fund Advisors Inc. 559,794 (2) 6.94%
1299 Ocean View, 11th floor
Santa Monica, California 90401

Franklin Resources, Inc. 684,900 (3) 8.49
777 Mariners Island Blvd.
San Mateo, California 94404

LaSalle National Bank 420,054 (4) 5.20
135 South LaSalle Street
Chicago, Illinois 60603

Mercantile Bancorporation Inc. 1,359,929 (5) 16.85
One Mercantile Center
St. Louis, Missouri 63101

Sogen International Fund, Inc. 569,700 (6) 7.06
Societe Generale Asset Management Corp.
1221 Avenue of the Americas
New York, New York 10020

St. Denis J. Villere & Company 630,900 (7) 7.82
210 Baronne Street, Suite 808
New Orleans, Louisiana 70112-1727

- ---------------------------------

(1) The percentage calculations are based upon 8,070,515 shares of A. P.
Green common stock that were issued and outstanding on March 27, 1998.

(2) The shares reported as beneficially owned are based upon information
contained in a Schedule 13G filed February 10, 1998. Dimensional Fund
Advisors Inc. ("Dimensional"), a registered investment advisor, is
deemed to have beneficial ownership of 559,794 shares of A. P. Green
Industries, Inc. stock as of December 31, 1997. Dimensional disclaims
beneficial ownership of all such shares.

(3) The shares reported as beneficially owned are based upon information
contained in an Amendment No. 1 to Schedule 13G dated January 27,
1998, which has been filed with the Securities and Exchange Commission
by a group consisting of Franklin Resources Inc., Charles B. Johnson,
Rupert H.

- 33 -

<PAGE>

Johnson, Jr. and Franklin Advisory Services, Inc. The Schedule 13G
states that the 684,900 shares reported as beneficially owned by
Franklin Resources, Inc. are owned by one or more open or closed- end
investment companies or other managed accounts which are advised by
investment advisory subsidiaries of Franklin Resources, Inc.,
including Franklin Advisory Services, Inc. Franklin Advisory Services,
Inc. reported sole voting and investment power with respect to all
684,900 shares reported. In addition, Charles B. Johnson and Rupert H.
Johnson, Jr. each own in excess of 10% of the outstanding common stock
of Franklin Resources, Inc. and may be deemed to be the beneficial
owners of securities held by persons advised by Franklin Resources,
Inc. or its subsidiaries. Each of Franklin Resources, Inc., its
advisory subsidiaries, Charles B. Johnson and Rupert H. Johnson, Jr.
have specifically disclaimed beneficial ownership of all shares
reported in the Schedule 13G.

(4) The shares reported as beneficially owned are based upon information
contained in an Amendment No. 7 to Schedule 13G dated February 17,
1998, which has been filed with the Securities and Exchange
Commission. The Schedule 13G states that the beneficial ownership
attributed to LaSalle National Bank is solely in a fiduciary capacity
as trustee of the trust established pursuant to the A. P. Green
Employee Stock Ownership Plan. LaSalle National Bank reported shared
voting and investment power (subject to the participants' right to
direct the Trustee) with regard to all shares beneficially owned. The
amount reported in the table does not include 393,440 additional
shares held by the trust but allocated to the accounts of
participants. LaSalle National Bank has specifically disclaimed
beneficial ownership of all shares reported in the Schedule 13G.

(5) The shares reported as beneficially owned are based upon information
contained in an Amendment No. 6 to Schedule 13G dated February 12,
1998, which has been filed with the Securities and Exchange
Commission. The Schedule 13G states that 1,359,929 shares reported as
beneficially owned by Mercantile Bancorporation Inc. are held by its
subsidiary, Mercantile Bank National Association, solely in a
fiduciary capacity as trustee of the trusts established pursuant to
the A. P. Green 401(k) Plan and the A. P. Green Hourly Investment
Plan. Mercantile Bancorporation Inc. reported sole voting and
investment power (subject to the participants' right to direct the
Trustee) with regard to all shares held in such trusts. Mercantile
Bancorporation Inc., Mercantile Bank National Association, the A. P.
Green 401(k) Plan and the A. P. Green Hourly Investment Plan have
specifically disclaimed beneficial ownership of all shares reported in
the Schedule 13G.

(6) The shares reported as beneficially owned are based upon information
contained in an Amendment No. 1 to Schedule 13G dated January 28,
1998, which has been filed with the Securities and Exchange
Commission. Societe Generale Asset Management Corp., an investment
advisor registered under the Investment Advisors Act of 1940 which
acts as investment advisor to SoGen International Fund, Inc., an
investment company registered under the Investment Company Act of
1940, reported shared voting power and investment power with respect
to all 569,700 shares reported in the Schedule 13G.

(7) The shares reported as beneficially owned are based upon information
contained in a Schedule 13G dated January 23, 1998, which has been
filed with the Securities and Exchange Commission. St. Denis J.
Villere & Company, a Louisiana partnership and an Investment Advisor
registered under the Investment Advisors Act of 1940, reported shared
voting and investment power with respect to all 630,900 shares
reported in the Schedule 13G.

- 34 -

<PAGE>

Security Ownership By Management
- --------------------------------

The following table indicates, as of March 27, 1998, the beneficial
ownership of A. P. Green common stock by each director and each executive
officer named in the Summary Compensation Table, individually, and all directors
and executive officers as a group:

Number of Shares
Name of Beneficial Owner Beneficially Owned(2) Percent of Class(1)
- ------------------------ --------------------- -------------------

Max C. Aiken 95,016 1.2%
Michael B. Cooney 121,852 1.5%
Daniel Y. Hagan 105,101 1.3%
Paul F. Hummer 349,683 4.2%
William F. Morrison 6,050 (3)
Mack G. Nichols 1,650 (3)
P. Jack O'Bryan 4,850 (3)
Gary L. Roberts 100,996 1.2%
James M. Stolze 1,650 (3)
Daniel R. Toll 7,250 (3)
All directors and officers as a group
(16 persons) 1,046,848 11.8%

(1) Based upon 8,070,515 shares of A. P. Green common stock issued and
outstanding as of March 27, 1998 and, for each executive officer or
the group, the number of shares subject to options that may be
acquired within 60 days upon exercise of the option.

(2) Total includes 57,000, 105,000, 66,500, 298,000, 90,000 and 815,000
shares subject to stock options which are presently exercisable by
Messrs. Aiken, Cooney, Hagan, Hummer and Roberts, and all directors
and executive officers as a group, respectively, under the A. P. Green
Long-Term Performance Plans. Under applicable regulations of the
Securities and Exchange Commission, the shares subject to options are
deemed to be beneficially owned because such shares may be acquired
within 60 days upon exercise of the options.

(3) Less than one percent.

Changes In Control
- ------------------

Information regarding an Agreement and Plan of Merger entered into on
March 3, 1998 appears on page 2 under the heading "Recent Developments" in Part
1, Item 1 of this Annual Report on Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

- 35 -

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K

(a) 1. Consolidated Financial Statements
---------------------------------

The Consolidated Financial Statements of A. P. Green appear on the
following pages of this Annual Report on Form 10-K:

Page Reference
--------------

Consolidated Statements of Earnings - Years Ended
December 31, 1997, 1996 and 1995 F-2

Consolidated Statements of Financial Position -
December 31, 1997 and 1996 F-3

Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1997, 1996 and 1995 F-4

Consolidated Statements of Cash Flows - Years Ended
December 31, 1997, 1996 and 1995 F-5

Notes to Consolidated Financial Statements -
December 31, 1997, 1996 and 1995 F-6 to F-28

Independent Auditors' Report as of December 31, 1997
and 1996 and for each of the years in the three-year
period ended December 31, 1997 F-29

2. Financial Statement Schedule
----------------------------

Financial Statement Schedule II, Valuation and Qualifying Account of
A. P. Green, is set forth on page F-30 of this Annual Report on Form 10-K.

Some schedules have been omitted because they are not applicable, are
not required or the information is included in the consolidated financial
statements or notes thereto.

3. Exhibits
--------

Exhibit No.
-----------

2 Agreement and Plan of Merger, dated March 3,1998, by
and among A. P. Green, Global Industrial
Technologies, Inc. and BGN Acquisition Corp., is
incorporated herein by reference to Exhibit 1 to
Schedule 14D-9 filed by A. P. Green on March 6,
1998.

- 36 -

<PAGE>

3(a) Restated Certificate of Incorporation of A. P. Green
is incorporated herein by reference to Exhibit 3(a)
of A. P. Green's Annual Report on Form 10-K for the
year ended December 31, 1987.

3(b) By-Laws of A. P. Green, as amended on November 16,
1995, is incorporated herein by reference to Exhibit
3(b) of A. P. Green's Annual Report on Form 10-K for
the year ended December 31, 1995.

4(a) Specimen Common Stock Certificate of A. P. Green is
incorporated herein by reference to Exhibit 4.1 of
the Registration Statement on Form 10, dated
February 3, 1988.

4(b) Rights Agreement, dated as of November 13, 1997,
between A. P. Green and Harris Trust and Savings
Bank, as Rights Agent, as amended by the First
Amendment to Rights Agreement dated as of March 5,
1998, is incorporated herein by reference to
Exhibits 1 and 4 of the Registration Statement on
Form 8-A, dated January 2, 1998, as amended by the
Amendment No. 1 to the Registration Statement on
Form 8-A, dated March 30, 1998.

4(c) Note Purchase Agreement, dated July 28, 1994, by and
between A. P. Green and certain of its subsidiaries
and the purchasers of the unsecured notes, is
incorporated herein by reference to Exhibit 10.1 of
A. P. Green's Current Report on Form 8-K dated
August 12, 1994.

10(a) A. P. Green Refractories Co. Supplemental Retirement
Plan is incorporated herein by reference to Exhibit
10.10 of the Registration Statement on Form 10,
dated February 3, 1988.

10(b) 1987 Long-Term Performance Plan of A. P. Green is
incorporated herein by reference to Exhibit 10(l) of
A. P. Green's Annual Report on Form 10-K for the
year ended December 31, 1987, as amended on August
13, 1997 by the Amendment to the A. P. Green
Industries, Inc. 1987 Long-Term Incentive Plan filed
herewith.

10(c) 1989 Long-Term Performance Plan of A. P. Green is
incorporated herein by reference to Exhibit 10(m) of
A. P. Green's Annual Report on Form 10-K for the
year ended December 31, 1988, as amended on August
13, 1997 by the Amendment to the 1989 Performance
Plan of A. P. Green Industries, Inc. filed herewith.

10(d) Form of A. P. Green Management Incentive
Compensation Plan is incorporated herein by
reference to Exhibit 10(d) of A. P. Green's Annual
Report on Form 10-K for the year ended December 31,
1995.

10(e) Form of Indemnification Agreement between A. P.
Green and each of its Directors and Officers is
incorporated herein by reference to Exhibit 10(m) of
A. P. Green's Annual Report on Form 10-K for the
year ended December 31, 1987.

- 37 -

<PAGE>

10(f) Termination Compensation Agreement, dated March 1,
1988, between A. P. Green and Paul F. Hummer II, is
incorporated herein by reference to Exhibit 10(o) of
A. P. Green's Annual Report on Form 10-K for the
year ended December 31, 1987.

10(g) Termination Compensation Agreement, dated November
16, 1988, between A. P. Green and Michael B. Cooney,
is incorporated herein by reference to Exhibit 10(r)
of A. P. Green's Annual Report on Form 10-K for the
year ended December 31, 1988.

10(h) Form of Addendum No. 1 of Termination Compensation
Agreement, dated October 19, 1989, by and between A.
P. Green and Paul F. Hummer II or Michael B. Cooney,
is incorporated herein by reference to Exhibit 10(w)
of A. P. Green's Annual Report on Form 10-K for the
year ended December 31, 1989.

10(i) Form of Termination Compensation Agreement, dated
October 19, 1989, between A. P. Green and Gary L.
Roberts or Max C. Aiken, is incorporated herein by
reference to Exhibit 10(x) of A. P. Green's Annual
Report on Form 10-K for the year ended December 31,
1989.

10(j) 1993 Performance Plan of A. P. Green is incorporated
herein by reference to Exhibit 10(j) of A. P.
Green's Annual Report on Form 10-K for the year
ended December 31, 1993.

10(k) Retirement Plan for Directors, dated February 16,
1995, is incorporated herein by reference to Exhibit
10(l) of A. P. Green's Annual Report on Form 10-K
for the year ended December 31, 1994.

10(l) A. P. Green Industries, Inc. Supplemental Retirement
Income Plan, executed October 12, 1994, effective
January 1, 1995, is incorporated herein by reference
to Exhibit 10(m) of A. P. Green's Annual Report on
Form 10-K for the year ended December 31, 1994.

10(m) 1996 Long-Term Performance Plan of A. P. Green is
incorporated herein by reference to Appendix A of A.
P. Green's Proxy Statement for the 1996 Annual
Meeting of Stockholders.

10(n) Asset Acquisition Agreement dated December 27, 1996
by and among APG Lime Corp., Eastern Ridge Lime L.P.
and Eastern Ridge Lime, Inc. is incorporated herein
by reference to Exhibit 2.1 of A. P. Green's Current
Report on Form 8-K dated January 13, 1997.

10(o) 1997 Stock Plan for Non-Employee Directors.

10(p) Form of Severance Enhancement Agreement, dated March
2, 1998, between A. P. Green and Jurgen H. Abels,
Ronald L. Bramblett, Frank J. Cordie, Daniel Y.
Hagan, John L. Kelsey and one other employee.

21 Subsidiaries of A. P. Green.

- 38 -

<PAGE>

23 Consent of KPMG Peat Marwick LLP.

27 Financial Data Schedule as of December 31, 1997.

(b) Reports on Form 8-K.

No reports on Form 8-K were filed during the quarter ended December 31,
1997.

(d) See Item 14(a)(2) above.

- 39 -

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

A. P. GREEN INDUSTRIES, INC.
Registrant

Dated: March 24, 1998 By: /s/ Michael B. Cooney
-----------------------------
Michael B. Cooney, Senior Vice
President, Law/Administration and
Secretary

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Title Date

/s/ Paul F. Hummer II Chairman of the Board, March 24, 1998
- ------------------------------- President, Chief Executive
Paul F. Hummer II Officer and Director
(Principal Executive Officer)

/s/ Gary L. Roberts Vice President, Chief Financial March 24, 1998
- ------------------------------- Officer and Treasurer
Gary L. Roberts (Principal Financial and
Accounting Officer

/s/ William F. Morrison
- -------------------------------
William F. Morrison Director March 28, 1998

/s/ Mack G. Nichols
- -------------------------------
Mack G. Nichols Director March 27, 1998

/s/ P. J. O'Bryan
- -------------------------------
P. J. O'Bryan Director March 24, 1998

/s/ James M. Stolze
- -------------------------------
James M. Stolze Director March 27, 1998

/s/ Daniel R. Toll
- -------------------------------
Daniel R. Toll Director March 25, 1998

- 40 -

<PAGE>

A. P. Green Industries, Inc.

Annual Report On

Form 10-K

Item 14(a)(1) and (2)

Financial Statements

Year Ended December 31, 1997

F- 1

<PAGE>

CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------

Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------

Net sales $ 277,907 $ 258,461 $ 249,715
Cost of sales 227,851 214,353 208,309
- -------------------------------------------------------------------------------
Gross profit 50,056 44,108 41,406

Expense and other income
Selling and administrative expense 37,445 36,087 31,312
Interest expense 3,297 3,112 3,190
Interest income (958) (1,255) (1,513)
Minority interest in loss of
partnerships (329) (127) (67)
Other income, net (535) (542) (1,881)
- --------------------------------------------------------------------------------

Earnings before income taxes 11,136 6,833 10,365

Income tax expense 3,943 2,396 2,182
Equity in net income of affiliates (1,194) (436) (781)
Minority interest in income of
consolidated subsidiaries, net 319 200 164
- --------------------------------------------------------------------------------
Net earnings $ 8,068 $ 4,673 $ 8,800
================================================================================

Net earnings per common share
Basic $ 1.00 $ .58 $ 1.09
Diluted $ .98 $ .57 $ 1.07

Weighted average number of common shares
Basic 8,041,266 8,037,710 8,060,118
Diluted 8,269,275 8,216,616 8,236,848
================================================================================

See accompanying notes to consolidated financial statements.

F- 2

<PAGE>

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands, except per share data)
- --------------------------------------------------------------------------------
December 31, 1997 1996
- --------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 3,701 $ 9,477
Trade receivables (net of allowances -
1997, $1,448; 1996, $1,701) 48,761 42,084
Reimbursement due on paid asbestos claims - 3,898
Inventories 53,705 53,674
Deferred income tax asset 2,574 3,374
Other 6,624 7,030
- --------------------------------------------------------------------------------
Total current assets 115,365 119,537
Property, plant and equipment, net 107,622 107,394
Projected insurance recovery on asbestos claims 116,314 110,374
Pension assets 9,251 9,044
Intangible assets, net 4,173 4,132
Other assets 4,989 4,648
- --------------------------------------------------------------------------------
Total assets $ 357,714 $ 355,129
================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 19,879 $ 20,408
Accrued expenses
Payrolls 6,867 6,267
Taxes other than on income 2,145 1,860
Insurance reserves 4,008 3,574
Other 7,381 6,528
Current maturities of long-term debt 5,716 4,168
Income taxes 801 1,191
- --------------------------------------------------------------------------------
Total current liabilities 46,797 43,996

Deferred income taxes 7,199 10,228
Long-term non-pension benefits 17,652 16,583
Long-term pensions 11,615 12,449
Long-term debt 31,034 40,109
Projected asbestos claims 116,314 111,966
- --------------------------------------------------------------------------------
Total liabilities 230,611 235,331
- --------------------------------------------------------------------------------
Minority interests 2,568 2,088

Stockholders' equity
Preferred stock - $1 par value;
authorized: 2,000,000 shares;
issued and outstanding: none - -
Common stock - $1 par value;
authorized: 10,000,000 shares;
issued: 9,014,599 in 1997 and
8,975,442 in 1996 9,015 8,975
Additional paid-in capital 68,504 68,309
Retained earnings 67,285 60,477
Less: Deferred foreign currency translation (3,939) (2,875)
Treasury stock of 953,934 shares
in 1997 and 1996, at cost (9,498) (9,498)
Note receivable-ESOT (6,323) (6,941)
Minimum pension liability
adjustment, net of tax (509) (737)
- --------------------------------------------------------------------------------
Total stockholders' equity 124,535 117,710
- --------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 357,714 $ 355,129
================================================================================

See accompanying notes to consolidated financial statements.

F-3

<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Minimum
Deferred Pension Deferred
Additional Foreign Treasury Note Liability Compensation-
Common Paid-in Retained Currency Stock, Receivable- Adjustment Restricted
Stock Capital Earnings Translation At Cost ESOT Net of Tax Stock
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $4,476 $72,739 $49,279 $(2,428) $(9,003) $(8,021) $ - $ (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 8,800
Dividends ($.14 per share) (1,128)
Currency translation adjustment (503)
Payment on ESOT note 516
Minimum pension liability
adjustment, net of tax (784)
Other, net 10 31 30 (15) 4
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,486 72,770 56,981 (2,931) (9,018) (7,505) (784) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 4,673
Dividends ($.15 per share) (1,205)
Two-for-one stock split 4,488 (4,488)
Purchases of common stock
for treasury (480)
Currency translation
adjustment 56
Payment on ESOT note 564
Other, net 1 27 28 47
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 8,975 68,309 60,477 (2,875) (9,498) (6,941) (737) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 8,068
Dividends ($.16 per share) (1,287)
Currency translation
adjustment (1,064)
Payment on ESOT note 618
Minimum pension liability
adjustment, net of tax 228
Other, net 40 195 27
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 $9,015 $68,504 $67,285 $(3,939) $(9,498) $(6,323) $(509) $ -
====================================================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

F-4

<PAGE>

<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 8,068 $ 4,673 $ 8,800
Adjustments for items not requiring (providing) cash
Depreciation, depletion and amortization 12,139 10,582 10,174
Deferred compensation earned - - 4
Stock compensation to directors 40 28 23
Provision for losses on accounts receivable 656 740 120
Loss (gain) on sale of assets 183 (58) (1,272)
Equity in earnings of affiliates, net of
dividends received (1,047) 33 (227)
Minority interest in earnings (loss) of
consolidated subsidiaries and partnerships (10) 73 97
Decrease (increase) in assets, net of effects from
acquisitions
Trade receivables (7,333) 2,881 1,143
Asbestos claim and fee reimbursements received 28,832 17,276 30,232
Inventories (31) 2,999 (1,758)
Receivable and prepaid taxes 13 315 (360)
Other current assets (435) (1,053) (712)
Increase (decrease) in liabilities, net of effects
from acquisitions
Accounts payable and accrued expenses 1,642 (958) (9,925)
Asbestos claims paid (26,526) (18,573) (23,937)
Pensions (526) (1,715) 279
Income taxes (390) 88 (322)
Deferred income taxes (2,366) (1,725) (1,185)
Long-term non-pension benefits 1,069 986 286
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,978 16,592 11,460
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (11,671) (12,892) (10,156)
Decrease (increase) in other long-term assets (76) 47 (726)
Increase in pension assets (84) (82) (34)
Proceeds from sales of assets 1,328 807 1,843
Payment received on ESOT note 618 564 516
Acquisition of businesses, net of cash acquired - (10,059) (1,614)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,885) (21,615) (10,171)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Repayments of debt (20,730) (2,708) (165)
Proceeds from borrowings 12,500 9,525 -
Dividends paid (1,287) (1,205) (1,128)
Purchases of common stock for treasury - (480) -
Capital contributions from minority partner 490 - 121
Exercised stock options 195 - 2
Tax benefit on dividends paid to ESOT 27 28 30
Tax effect on restricted stock plan - - 1
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (8,805) 5,160 (1,139)
- -------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes (1,064) 56 (503)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (5,776) 193 (353)

Cash and cash equivalents at beginning of year 9,477 9,284 9,637
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,701 $ 9,477 $ 9,284
===================================================================================================================

<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>

F-5

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------

December 31, 1997, 1996 and 1995

Note 1: Nature of Operations
- -----------------------------

A. P. Green Industries, Inc. and its subsidiaries, collectively referred to as
"A. P. Green" or "the Company", is a manufacturer of refractory products and
industrial lime products. Refractory products, which accounted for 82% of 1997
revenues, are sold throughout North America and selected international markets
to basic industries such as metals, glass, ceramics, paper and cement.
Industrial lime products are sold to end-users for applications such as steel
and aluminum production, pulp and paper processing, soil stabilization for road
construction, water and waste water treatment and various environmental
applications. The industrial lime market served is generally within a 400-mile
radius of the Company's lime plants in New Braunfels, Texas, Kimballton,
Virginia and Ripplemead, Virginia.

Note 2: Summary of Significant Accounting Policies
- --------------------------------------------------

Basis of Presentation

The Company's consolidated financial statements include all wholly owned
subsidiaries and majority owned subsidiaries. Equity investments of 20% to 50%
are accounted for using the equity method. All intercompany balances and
transactions have been eliminated and there are no significant related party
transactions. Certain prior year amounts have been reclassified to conform to
the 1997 presentation.

Cash and Cash Equivalents

A. P. Green considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Due to their
short maturity, these instruments are carried at cost which approximates fair
value.

Fair Value of Financial Instruments

The carrying amount of cash and cash equivalents, trade receivables and accounts
payable approximates fair value because of the short maturity of these
instruments. The fair value of long-term debt is discussed in Note 9. Fair value
estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision.

Reimbursement Due on Paid Asbestos Claims

Until May 1996, A. P. Green made expense and indemnity payments on asbestos
product claims directly to the Center for Claims Resolution on behalf of certain
insurers. Reimbursement due on

F-6

<PAGE>

paid asbestos claims represents the recoverable portion of those payments.
Commencing in June 1996 pursuant to agreements reached with its insurance
carriers, the Company no longer makes payments to the Center on behalf of those
insurers. See Note 18 for further discussion of asbestos claims and insurance
recoveries.

Inventories

Predominantly all of A. P. Green's domestic inventories are stated at the lower
of cost or market, with cost being determined using the last-in, first-out
(LIFO) method. The remaining inventories are stated at the lower of cost or
market, with cost being determined using the first-in, first-out (FIFO) or
average production cost methods. Inventories include material, labor and
applicable factory overhead costs.

Property, Plant and Equipment, Net

Property, plant and equipment, including significant renewals and improvements,
are capitalized at cost. Provisions for depreciation are determined principally
on a straight-line basis over the expected average useful lives of composite
asset groups, which range from 3 to 50 years. Accelerated depreciation methods
are used for tax purposes when permitted. Depletion is computed on a basis
calculated to allocate the cost of clay, limestone and other applicable
resources over the estimated quantities of recoverable material.

Intangible Assets

Intangible assets, primarily consisting of goodwill, customer lists, non-compete
agreements, patents and trademarks, are amortized on a straight-line basis over
the period benefitted, which ranges from 2 to 12 years. Recoverability of these
assets is considered in conjunction with the ongoing evaluation of long-term
asset values. Accumulated amortization was approximately $1.8 million and $1.1
million at December 31, 1997 and 1996, respectively.

Income Taxes

Income taxes are accounted for using the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases, net operating
loss carryforwards and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of earnings during the period that includes the date of
the change.

Foreign Currency Translation

The functional currencies of the Company's Canadian and United Kingdom
subsidiaries and Colombian affiliates are their respective local currencies.
Adjustments resulting from the currency

F-7

<PAGE>

translation of these subsidiaries' and affiliates' financial statements are
reflected as a component of stockholders' equity.

A. P. Green de Mexico and PT AP Green Indonesia transact a significant portion
of their business in U. S. dollars and, as such, use the dollar as their
functional currency. Translation adjustments for these subsidiaries are
reflected in the statement of earnings.

Employee Stock Options

The Company has elected to continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25), and related Interpretations in accounting for its employee stock options
rather than the alternative fair value accounting provided for under Financial
Accounting Standards Board Statement No. 123, "Accounting for Stock-Based
Compensation" (Statement 123). Under APB 25, because the exercise price of the
Company's stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized. Disclosures with regard to
employee stock options have been made in accordance with the requirements of
Statement 123.

Earnings Per Common Share

Earnings per common share, basic, are computed based on the weighted average
number of shares of common stock outstanding during the period. Earnings per
common share, diluted, are computed assuming common shares are issued for all
dilutive potential common shares outstanding during the period. Dilutive
potential common shares included primarily outstanding stock options. All
earnings per share figures have been restated to reflect the application of
Statement of Financial Accounting Standards No. 128, "Earnings per Share," and
to reflect the two-for-one stock split effected September 20, 1996.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Note 3: New Ventures and Acquisitions
- -------------------------------------

Effective December 31, 1996, the Company acquired substantially all of the
assets and assumed certain of the liabilities of the operations of Eastern Ridge
Lime, L. P. The operations include a mineral processing facility, quarrying and
lime manufacturing business in Ripplemead, Virginia and a leased terminal
facility in St. Matthews, South Carolina. In conjunction with the Company's
adjacent lime plant in Kimballton, Virginia, the acquisition will enhance
service of the growing lime market in the Southeastern United States and allow
improved utilization of existing management.

F-8

<PAGE>

In addition to the assumption of approximately $300,000 of long-term lease
obligations, A. P. Green paid Eastern Ridge approximately $10.0 million in cash.
The acquisition was accounted for using the purchase method, which had no impact
on 1996 consolidated operating results due to the December 31 transaction
effective date.

The following unaudited proforma information presents a summary of consolidated
results of operations of the Company and Eastern Ridge as if the acquisition had
occurred January 1, 1995:
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995
- --------------------------------------------------------------------------------

Net sales $264,782 $256,822
Net earnings 1,723 5,072
Net earnings per common share .21 .63
- --------------------------------------------------------------------------------

These unaudited proforma results have been prepared for comparative purposes
only and include certain adjustments, such as elimination of a 1995 asset write
down loss incurred by Eastern Ridge in anticipation of the acquisition, reduced
depreciation, depletion and amortization expense as a result of lower asset book
values, elimination of a management service fee which will not be charged by A.
P. Green and recognition of income tax benefit not previously recognized due to
organization as a partnership. In management's opinion, they are not indicative
of the results of operations which actually would have occurred had the
acquisition been effective January 1, 1995, or of future results of operations
and synergies of the consolidated entities.

In January 1995, the Company formed INTOGREEN Co., a joint venture partnership
with INTOCAST AG, to sell and install cast monolithic ladle linings to the steel
industry in the United States, Canada and Mexico. INTOCAST AG, based in Germany,
is a world leader in the development of cast ladle linings, which result in
lower installation costs, reduced disposal of used refractory material and
increased ladle availability to the steel plant. The Company owns 51% of this
partnership and, as such, includes INTOGREEN in the consolidated financial
statements.

Effective July 3, 1995, the Company acquired a 51% ownership interest in
Plibrico de Mexico SA de CV, a refractory manufacturer located near Monterrey,
Mexico. Plibrico de Mexico, which has been renamed A. P. Green de Mexico SA de
CV, has one plant with annual sales which were approximately $7.0 million in the
year of acquisition and have grown to nearly $10.0 million in 1997. The purchase
price and transaction costs totaled approximately $2.0 million and were paid in
cash.

The acquisition was accounted for using the purchase method, with the operating
results of A. P. Green de Mexico included in consolidated operating results
since the date of acquisition. Goodwill of approximately $800,000, which
represents the excess of cost and liabilities assumed over the fair value of
tangible assets acquired, is being amortized on a straight-line basis over a
ten-year period.

Effective December 31, 1995, the Company acquired a 51% ownership interest in
Lanxide ThermoComposites, Inc. (LTI). Prior to the acquisition, LTI was a wholly
owned subsidiary of Lanxide Corporation of Newark, Delaware, which continues to
own a substantial minority interest

F-9

<PAGE>

in LTI. Immediately prior to the acquisition, LTI acquired Chiam Technologies,
Inc., a company engaged in the sourcing of refractory products from several
Chinese refractory producers.

LTI is concentrating on commercializing refractory products for the continuous
casting segment of the steel industry utilizing ceramic composites technology
licensed from Lanxide Corporation. The acquisition was accounted for using the
purchase method, which had no impact on 1995 consolidated operating results due
to the December 31 transaction effective date. Goodwill of approximately $1.0
million for the two companies is being amortized on a straight-line basis over a
ten-year period.

The acquisitions completed during 1995 were not material to the Company's
financial condition or results of operations, either individually or in the
aggregate. As such, no financial statements of the acquired companies for
periods prior to the acquisitions or pro forma financial information reflecting
the acquisitions as of the beginning of the year have been provided.

Note 4: Reserves for Plant Closings
- ------------------------------------

The Company has reserves for estimated exit costs and termination benefits in
connection with the shutdown of certain facilities in the U.S. and Canada. Three
of the plants acquired in the 1994 acquisition of the refractories assets of
General Refractories Company and its affiliated companies (General) were closed
during 1994, a $3.6 million reserve for which was established at the time of
acquisition and included on the opening balance sheet. During 1995 this reserve
was increased by approximately $700,000 due to the closing of the Weston,
Ontario plant, which was sold in December 1995, and revised estimates of U.S.
employee termination benefits resulting from the sale of these facilities taking
longer than anticipated. Substantially all employees at these facilities have
been terminated and approximately $3.2 million of termination benefits and plant
closing costs have been charged against the reserves to date. Two of the U. S.
facilities were sold during 1997 and the third is held for sale at its estimated
net realizable value.

Note 5: Earnings Per Share
- ---------------------------

The following is a reconciliation of shares outstanding used in the computation
of basic and diluted earnings per share for the years ended December 31, 1997,
1996 and 1995:
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------

Weighted average number of
common shares - basic 8,041,266 8,037,710 8,060,118
Effect of dilutive securities
Employee stock options 223,141 178,906 176,730
Other 4,868 - -
- --------------------------------------------------------------------------------
Weighted average number of
common shares - diluted 8,269,275 8,216,616 8,236,848
- --------------------------------------------------------------------------------

F-10

<PAGE>

Net earnings used in both earnings per share calculations were the same, as
there would be no income effects related to the dilutive securities. Options to
purchase 82,500 shares at $8.75 per share were not included in the computation
of diluted earnings per share for 1996 and 1995 as the options were not yet
exercisable under the terms of the February 1993 option grant. These options
became exercisable during 1997 when the last transaction price of the Company's
common stock equaled or exceeded $11.00 for 30 consecutive trading days.

Note 6: Inventories
- -------------------

Inventory classifications as of December 31, 1997 and 1996 were as follows:
- -------------------------------------------------------------------------------
(In thousands) 1997 1996
- -------------------------------------------------------------------------------
Finished goods and work in process
Valued at LIFO
FIFO cost $ 31,621 $ 31,278
Less LIFO reserve (13,947) (14,907)
- -------------------------------------------------------------------------------
LIFO cost 17,674 16,371
Valued at FIFO 10,683 13,225
- -------------------------------------------------------------------------------
28,357 29,596
- -------------------------------------------------------------------------------

Raw materials and supplies
Valued at LIFO
FIFO cost 18,408 17,702
Less LIFO reserve (5,698) (6,129)
- -------------------------------------------------------------------------------
LIFO cost 12,710 11,573
Valued at FIFO 12,638 12,505
- -------------------------------------------------------------------------------
25,348 24,078
- -------------------------------------------------------------------------------
$ 53,705 $ 53,674
- -------------------------------------------------------------------------------

For the years ended December 31, 1997, 1996 and 1995, A. P. Green experienced
liquidations of LIFO inventory quantities, none of which were significant.

Note 7: Property, Plant and Equipment, Net
- ------------------------------------------

Property, plant and equipment, net, as of December 31, 1997 and 1996 were as
follows:
- --------------------------------------------------------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------

Land and mineral deposits $ 11,153 $ 9,926
Buildings and realty improvements 51,285 47,199
Machinery and equipment 145,288 144,154
Construction in progress 5,970 9,075
- --------------------------------------------------------------------------------
213,696 210,354
Less accumulated depreciation and depletion 106,074 102,960
- --------------------------------------------------------------------------------
$107,622 $107,394
- --------------------------------------------------------------------------------

F-11

<PAGE>

Closed production facilities held for sale are included in other current assets
at estimated net realizable value of $1.4 million as of December 31, 1997.

Note 8: Short-Term Lines of Credit
- ----------------------------------

Short-term lines of credit have been established with banks in the United
Kingdom for 50,000 British pounds and Canada for Cdn$250,000, each of which was
unused at December 31, 1997 and 1996.

Note 9: Long-Term Debt
- ----------------------

Long-term debt as of December 31, 1997 and 1996 was as follows:
- --------------------------------------------------------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------

Unsecured notes payable $ 20,525 $ 23,048
Industrial development revenue bonds 10,811 11,848
U.S. line of credit 4,500 9,000
Capitalized lease obligations 914 381
- --------------------------------------------------------------------------------
36,750 44,277
Less current maturities 5,716 4,168
- --------------------------------------------------------------------------------
$ 31,034 $ 40,109
- --------------------------------------------------------------------------------

In 1994, the Company issued $25 million in principal amount of unsecured notes
to a group of institutional lenders to finance the acquisition of General. The
notes bear an 8.55% fixed rate of interest, with semi-annual interest payments
which commenced January 29, 1995. Annual principal repayments, which have been
and will continue to be funded out of working capital, commenced July 29, 1996
and will continue through July 29, 2001. A. P. Green is subject to certain
restrictive covenants, including minimum levels of tangible net worth, working
capital and fixed charge coverage, permitted encumbrances, loans from and to
other institutions and restricted payments. Management does not expect these
restrictive covenants to have a material adverse effect on A. P.
Green's operations.

The capitalized leases expire in 1999 and 2006 and carry interest rates ranging
from 6.7% to 10.9%. A significant portion of the industrial development revenue
bonds require the payment of interest only until they mature in 2000 and
thereafter. Interest rates range from 70% of prime to 8.6%.
Prime was 8.5% at December 31, 1997.

In 1997, the Company's U.S. long-term line of credit of $30.0 million was
extended to May 2, 1999. Restrictive covenants coincide with those reflected in
the agreement associated with the unsecured notes payable. Borrowings under this
line of credit may be made for working capital, acquisitions and other corporate
purposes, with interest charged at the federal funds rate (5.84% at December 31,
1997) plus 2%. Approximately $4.9 million of standby letters of credit and $4.5
million of borrowings were outstanding against the line at December 31, 1997,
leaving an available balance of approximately $20.6 million.

F-12

<PAGE>

Based on the borrowing rates currently available to the Company for debt with
similar terms and average maturities, the fair value of the industrial
development revenue bonds, unsecured notes payable and capital leases would not
differ materially from carrying value at December 31, 1997. Aggregate maturities
of long-term debt are approximately $9.8 million, $5.1 million, $5.1 million and
$70,000 for 1999 through 2002, respectively. The net book value of property,
plant and equipment pledged as security or collateral for outstanding long-term
debt was $644,000 at December 31, 1997.

Note 10: Income Taxes
- ---------------------

Income tax expense (benefit) attributable to earnings from continuing operations
for the years ended December 31, 1997, 1996 and 1995 consists of the following:
- --------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------

Current
Federal $ 5,418 $ 3,642 $ 2,347
State 747 523 514
Foreign 111 78 539
Deferred (2,333) (1,847) (1,218)
- --------------------------------------------------------------------------------
$ 3,943 $ 2,396 $ 2,182
- --------------------------------------------------------------------------------

The following schedule provides a reconciliation between expected tax at the
U.S. statutory tax rate and the effective tax rate (total provision for income
taxes as a percentage of earnings before income taxes). During 1995, a review of
tax years 1988 through 1993 was completed by the Internal Revenue Service,
resulting in less taxes than originally reserved. Accordingly, the Company
reduced its provision for federal income taxes by approximately $1.1 million.
- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------

U.S. statutory rate 34.0% 34.0% 34.0%
Reversal of provision for closed tax years - - (9.7)
Excess tax depletion (4.0) (4.9) (4.0)
State and local income taxes, net 3.0 2.4 2.1
Foreign tax rate differential .5 .5 .9
Other, net (.7) (1.1) (3.4)
- --------------------------------------------------------------------------------
Effective tax rate 32.8% 30.9% 19.9%
- --------------------------------------------------------------------------------

F-13

<PAGE>

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996 consist of the following:
- --------------------------------------------------------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------

Deferred tax assets
Accrued liabilities, differences in
expense recognition $10,901 $10,983
Inventories, overhead capitalization
differences 220 169
Capital loss carryforward - 301
Net operating loss carryforwards 1,642 855
- --------------------------------------------------------------------------------
12,763 12,308
Less valuation allowance - -
- --------------------------------------------------------------------------------
12,763 12,308
- --------------------------------------------------------------------------------
Deferred tax liabilities
Fixed assets, principally depreciation
method differences 13,755 14,679
Prepaid pension costs 600 1,054
State, local and other taxes 819 1,069
Inventories, differences in LIFO methods 2,193 2,236
Asset valuation differences 21 124
- --------------------------------------------------------------------------------
17,388 19,162
- --------------------------------------------------------------------------------
Net deferred tax liability $ 4,625 $ 6,854
- --------------------------------------------------------------------------------

Management believes it is more likely than not that all deferred tax assets will
be realized and, accordingly, no valuation allowance is required. Tax years
subject to review by the Internal Revenue Service are 1994 through 1997. All
remaining alternative minimum tax credit carryforwards were utilized during
1996.

A. P. Green has not recognized a deferred tax liability for the undistributed
earnings of its wholly owned foreign subsidiaries that arose in 1997 and prior
years since the Company plans to continue to finance foreign operations and
expansion through reinvestment of those undistributed earnings. A deferred tax
liability will be recognized, if necessary, when the Company expects that it
will recover those undistributed earnings in a taxable manner, such as through
receipt of dividends or sale of the investments. The remittance of foreign
earnings subjected to tax at a rate greater than the U.S. rate may create a tax
asset for the Company to the extent foreign tax credits may be generated and are
able to be utilized. As of December 31, 1997, 1996 and 1995, the undistributed
earnings of these subsidiaries were approximately $4.2 million, $4.9 million and
$4.4 million, respectively.

Note 11: Incentive Plans
- ------------------------

A. P. Green maintains the 1987 Long-Term Performance Plan (the 1987 Plan), the
1989 Long-Term Performance Plan (the 1989 Plan), the 1993 Performance Plan (the
1993 Plan) and the 1996 Long-Term Performance Plan (the 1996 Plan). Under each
of the plans, common stock has been reserved for issuance in the form of
incentive stock options, nonqualified stock options, restricted stock and
performance shares. Under the 1987 plan, shares are also available for issuance
in the form of stock appreciation rights.

F-14

<PAGE>

The Company's stock option activity for the years ended December 31, 1997, 1996
and 1995 is summarized as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1987, 1989 and 1996 Plans
Outstanding - January 1 403,500 $8.01 373,500 $7.90 394,500 $7.86
Granted 237,500 8.75 30,000 9.32 - -
Exercised (45,500) 7.19 - - (21,000) 7.03
Expired/Lapsed (7,850) 8.75 - - - -
- -------------------------------------------------------------------------------------------------------------------
Outstanding - December 31 587,650 $8.36 403,500 $8.01 373,500 $7.90
===================================================================================================================
Exercisable at December 31 587,650 $8.36 403,500 $8.01 373,500 $7.90
===================================================================================================================
1993 Plan
Outstanding - January 1 382,500 $6.17 382,500 $6.17 412,500 $6.17
Granted - - - - - -
Exercised (48,000) 6.17 - - (18,000) 6.17
Expired/Lapsed - - - - (12,000) 6.17
- -------------------------------------------------------------------------------------------------------------------
Outstanding - December 31 334,500 $6.17 382,500 $6.17 382,500 $6.17
===================================================================================================================
Exercisable at December 31 334,500 $6.17 300,000 $6.17 300,000 $6.17
===================================================================================================================
</TABLE>

Exercise prices and weighted average remaining contractual lives of options
outstanding at December 31, 1997 are summarized as follows:
- ----------------------------------------------------------------------

Exercise Remaining
Options Price Life
- ----------------------------------------------------------------------

334,500 $6.17 5 years
153,000 6.67 3 years
229,150 8.75 9 years
175,500 9.17 2 years
30,000 9.32 8 years
- ----------------------------------------------------------------------

Stock options granted under the 1987, 1989 and 1996 plans expire ten years after
grant date. All options outstanding at December 31, 1997 are exercisable. There
were a total of 259,258 remaining shares available for grant under all plans as
of December 31, 1997.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. Had compensation cost for these plans been determined based
upon the fair value at grant date, consistent with the methodology prescribed in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123), the Company's net income and earnings per share for the
year ended December 31, 1997 would have been reduced by $340,000, or $.04 per
share, diluted, to $7,728,000, or $.94 per share, diluted. The impact on the
year ended December

F-15

<PAGE>

31, 1996 would not have been material to the consolidated results, and there
were no stock options granted during 1995.

Using the Black-Scholes option valuation model, the estimated fair values of
options granted during 1997 and 1996 were $2.29 and $2.93, respectively. The
Black-Scholes model was developed for use in estimating the fair value of traded
options which have no vesting or other restrictions. In addition, such models
require the use of subjective assumptions. In management's opinion, such
valuation models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.

Principal assumptions used in applying the Black-Scholes model were as follows:
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------

Risk free interest rate 6.06% 5.50%
Expected life, in years 5 5
Expected volatility 22.3% 30.2%
Expected dividend yield 1.8% 1.5%
- --------------------------------------------------------------------------------

Note 12: Pension Plans
- -----------------------

A. P. Green has various pension plans covering substantially all employees. Plan
benefits are generally based on years of service and compensation during the
last years of employment. A. P. Green's contributions are made in accordance
with independent actuarial reports to meet minimum funding requirements. The
Company contributed $2.5 million and $3.7 million to these plans during 1997 and
1996, respectively. The plans' assets consist primarily of listed common stocks
and debt securities.

Net pension expense for the years ended December 31, 1997, 1996 and 1995
included the following components:
- --------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------

Service cost of benefits earned during period $ 1,868 $ 1,885 $ 1,676
Interest cost on projected benefit obligations 9,244 9,077 8,703
Actual gain on assets (30,232) (11,712) (20,964)
Net amortization and deferral 20,783 2,603 12,454
- --------------------------------------------------------------------------------
Net pension expense 1,663 1,853 1,869
Multiemployer pension expense 231 183 170
- --------------------------------------------------------------------------------
Total pension expense $ 1,894 $ 2,036 $ 2,039
- --------------------------------------------------------------------------------

F-16

<PAGE>

The majority of the Company's pension plans have plan assets that exceed
accumulated benefit obligations. The following table sets forth the actuarial
present value of benefit obligations and funded status for all of the Company's
pension plans at December 31, 1997 and 1996. Plan asset values and benefit
obligations are measured as of September 30, 1997 and 1996:

<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
Assets Accum. Assets Accum.
Exceed Benefits Exceed Benefits
Accum. Exceed Accum, Exceed
(In thousands) Benefits Assets Benefits Assets
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligations,
substantially all of which are vested $(94,643) $(27,434) $(90,474) $(27,414)
Effect of projected future compensation levels (5,518) (18) (6,027) (55)
- -------------------------------------------------------------------------------------------------------------------------

Projected benefit obligations (100,161) (27,452) (96,501) (27,469)
Plans' assets at fair value 123,682 20,744 104,405 17,218
- -------------------------------------------------------------------------------------------------------------------------

Excess (deficiency) 23,521 (6,708) 7,904 (10,251)
Unrecognized net asset at transition (2,466) (4) (3,031) (21)
Unrecognized net (gain) loss (18,443) (1,337) (1,889) 630
Unrecognized prior service cost 3,917 798 4,307 945
Minimum pension liability adjustment - (1,207) - (1,639)
- -------------------------------------------------------------------------------------------------------------------------

Prepaid (accrued) pension cost $ 6,529 $ (8,458) $ 7,291 $(10,336)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

In accordance with Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," the Company recorded an additional minimum
pension liability of approximately $1.2 million at December 31, 1997 and
approximately $1.6 million at December 31, 1996. This minimum liability
represented the excess of unfunded accumulated benefit obligations over recorded
pension liabilities, determined on an individual plan basis. A corresponding
amount was recorded as an intangible asset except to the extent the minimum
liability for a particular plan exceeded the related unrecognized prior service
cost, in which case the excess was recorded as a reduction of stockholders'
equity. As of December 31, 1997, an intangible asset of approximately $388,000
was recorded, along with a reduction in stockholders' equity of $509,000, net of
related tax benefits. At December 31, 1996, an intangible asset of approximately
$454,000 was recorded, along with a reduction of stockholders' equity of
$737,000, net of related tax benefits.

U.S. Pensions
- -------------

The expected long-term rate of return on plan assets was 8.75% for 1997, 1996
and 1995. A weighted average discount rate of 7.5%, 7.75%, and 7.5% was used for
1997, 1996 and 1995, respectively. A rate of increase in future compensation
levels of 5.0% for 1997, 1996 and 1995 was used in determining the actuarial
present value of projected benefit obligations on all except hourly,
collectively bargained plans.

Canadian Pensions
- -----------------

The expected long-term rate of return on plan assets was 8.5% for 1997, 1996 and
1995. A weighted average discount rate of 7.25% was used for 1997 and 8.0% was
used for 1996 and 1995. A 5.0% rate of increase in future compensation levels
was used for 1997, 1996 and 1995.

F-17

<PAGE>

Note 13: Long-Term Non-Pension Benefits
- ---------------------------------------

The Company sponsors two defined benefit postretirement plans that cover both
salaried and nonsalaried employees. One plan provides health care benefits to
employees hired prior to January 1, 1991 and the other provides life insurance
benefits. The health care plan is contributory, with retiree contributions,
deductibles and benefit levels adjusted periodically; the life insurance plan is
noncontributory. Under the terms of its health care plan, based on anticipated
increases in future health care costs, the retirees' share of total costs will
be adjusted so that the Company's share will not increase more than 7% per
annum. The Company maintains the right to adjust benefits, deductibles,
contributions or the Company's share of increases, at its sole discretion, at
future dates.

The following table sets forth the actuarial present value of the plans' benefit
obligations at December 31, 1997 and 1996. The accumulated postretirement
benefit obligation was measured as of September 30, 1997 and 1996.
- --------------------------------------------------------------------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------

Accumulated postretirement benefit obligation
Retirees, dependents and beneficiaries $11,934 $11,405
Fully eligible active plan participants 2,866 2,669
Other active plan participants 3,843 3,486
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 18,643 17,560
Unrecognized prior service cost (173) (202)
Unrecognized net loss from past experience
different from that assumed (1,454) (1,343)
- --------------------------------------------------------------------------------
Accrued postretirement benefits other than pensions $17,016 $16,015
- --------------------------------------------------------------------------------

The Company's postretirement health care plan and life insurance plan are
unfunded; the accumulated postretirement benefit obligation at December 31, 1997
and 1996 is $17.6 million and $16.5 million, respectively, for the health care
plan and $1.1 million in both years for the life insurance plan.

Net postretirement benefits cost other than pensions for the years ended
December 31, 1997, 1996 and 1995 included the following components:
- --------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------

Service cost of benefits earned
during the period $ 628 $ 617 $ 344
Interest cost on accumulated
postretirement benefit obligation 1,323 1,313 1,106
Net amortization 29 108 -
- --------------------------------------------------------------------------------
Net postretirement benefits cost
other than pensions $ 1,980 $ 2,038 $ 1,450
- --------------------------------------------------------------------------------

For measurement purposes, a 9% annual rate of increase in the per capita cost of
covered health care benefits was assumed for 1997; the rate was assumed to
decrease gradually to 5% by 2001 and remain at that level thereafter. Increasing
the assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation for the health
care plan as of December 31, 1997 by 7.0%, or $1.2 million, and would increase
the service and interest costs of net postretirement health care benefits for
the year then ended by 8.8%, or $164,000.

F-18

<PAGE>

The discount rate used in determining the accumulated postretirement benefit
obligation was 7.5%, 7.75% and 7.5% at December 31, 1997, 1996 and 1995,
respectively.

Short-term and long-term disability benefits provided by the Company to salaried
employees may, under certain circumstances, continue to be provided to those
employees subsequent to their employment by the Company and prior to retirement.
The annual incremental expense for these postemployment benefits for 1997, 1996
and 1995 was not material and the projected benefit obligation was $636,000 and
$568,000 as of December 31, 1997 and 1996, respectively.

Note 14: Employee Savings Plans
- -------------------------------

The Company sponsors three defined contribution employee savings plans under
Section 401(k) of the Internal Revenue Code. In one plan, all U.S. full-time
salaried employees and the hourly employees of certain plants are eligible to
participate. Participants are entitled to contribute between 2% and 15% of
compensation. The Company makes contributions to the employee savings plans
through the Employee Stock Ownership Trust.

The second plan, instituted in 1991, covers employees at certain locations who
have negotiated participation through collective bargaining. Participants are
eligible to contribute between 2% and 15% of compensation. For all of these
locations, the Company matches 25% of the first 6% of a participant's
contribution. Amounts charged against income were approximately $220,000,
$204,000 and $214,000 in 1997, 1996 and 1995, respectively.

Effective January 1, 1996, all employees at LTI were eligible to participate in
a defined contribution plan. Participants can contribute between 1% and 15% of
compensation. The Company matches 50% of the first 4% of a participant's
contribution. Amounts charged against income were not material to the
consolidated results in either 1997 or 1996.

Note 15: Employee Stock Ownership Trust
- ---------------------------------------

The Company sponsors an Employee Stock Ownership Trust (ESOT). All U.S.
full-time salaried employees and the hourly employees of certain plants are
eligible to participate. The ESOT purchased a total of 895,520 previously
unissued shares of A. P. Green common stock. The shares were issued to the ESOT
in accordance with the Stock Purchase Agreement between LaSalle National Bank,
as Trustee, and A. P. Green. The aggregate purchase price of $10.0 million was
financed entirely by A. P. Green. To secure the financing, the ESOT has pledged
the shares to

F-19

<PAGE>

A. P. Green. A. P. Green makes the necessary contributions to the ESOT to allow
the interest and principal payments to be made.

- --------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------

Interest payments on ESOT debt $ 659 $ 713 $ 762
Principal payments 618 564 515
Less
Dividends on ESOT shares used for
debt service (130) (120) (114)
Forfeitures (22) (21) (104)
Interest income (1) (1) (3)
- --------------------------------------------------------------------------------
Contributions to ESOT 1,124 1,135 1,056
Administrative expenses 143 109 147
- --------------------------------------------------------------------------------
Employee savings plan cost $1,267 $1,244 $1,203
- --------------------------------------------------------------------------------

The loan to the ESOT is repayable in annual installments extending through
September 30, 2004. Interest is payable semiannually at 9.5% per annum. The note
receivable from the ESOT is reflected as a reduction of stockholders' equity in
the accompanying consolidated financial statements. The Company recognized
interest income on the ESOT note of $650,000, $700,000 and $750,000 in 1997,
1996 and 1995, respectively.

Note 16: Preferred and Common Stock
- -----------------------------------

The Company's preferred stock can be issued in one or more series without
stockholder approval. Prior to January 6, 1998, Preferred Share Purchase Rights
(Rights) were attached to each outstanding share of common stock, which, when
exercisable, entitled each registered holder to purchase from A. P. Green 1/10
of a share of a junior participating preferred stock, Series A, $1 par value per
share, at a price of $45 per 1/10 of a preferred share, subject to adjustment.
On January 6, 1998, such Rights expired and were replaced on January 7, 1998 by
new Preferred Share Purchase Rights which, when exercisable, entitle each
registered holder to purchase from A. P. Green 1/100 of a share of a junior
participating preferred stock, Series B, $1 par value per share, at a price of
$45 per 1/100 of a preferred share, subject to adjustment. The new Rights become
exercisable 10 days following a public announcement that a party acquired, or
obtained the right to acquire, beneficial ownership representing 20% or more of
A. P. Green's outstanding common shares. If A. P. Green is involved in a merger
or business combination after the Rights become exercisable in which A. P. Green
is not the surviving entity, A. P. Green's common stock is changed or exchanged
or 50% or more of A. P. Green's assets or earning power is sold, the Rights will
entitle the holder to buy a number of shares of common stock of the acquiring
entity or A. P. Green, as the case may be, having a fair market value at that
time of twice the exercise price of the Right. The new Rights were issued
pursuant to a Rights Agreement, dated as of November 13, 1997, between A. P.
Green and Harris Trust & Savings Bank, as Rights Agent. The Rights Agreement was
amended on March 5, 1998 to provide that the Rights would not become exercisable
upon the execution of the Agreement and Plan of Merger, dated as of March 3,
1998, by and among A. P. Green, Global Industrial Technologies, Inc. (Global)
and BGN Acquisition Corp. (BGN), and that the Rights would expire upon the
acceptance

F-20

<PAGE>

for payment by Global or BGN of a majority of A. P. Green's common shares
pursuant to the tender offer provided for in the Agreement and Plan of Merger.
See Note 21 for further discussion of the Agreement and Plan of Merger.

Note 17: Supplemental Financial Information
- -------------------------------------------

Cash payments and selected non-cash investing and financing activities during
1997, 1996 and 1995 were as follows:
- --------------------------------------------------------------------------------

(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------

Income taxes paid $6,597 $3,763 4,093
Interest paid 3,279 3,206 3,191

Capitalized lease obligations incurred 704 - -
- --------------------------------------------------------------------------------

Rental payments were approximately $1.2 million in 1997 and $1.0 million in 1996
and 1995. Minimum future payments under noncancellable operating leases are
approximately $1.2 million in 1998 and decline progressively to $0 in 2004. In
most cases, management expects expiring leases will be replaced by similar
leases. The lease obligations relate primarily to office and warehouse space.

Research and development costs are expensed as incurred and amounted to
approximately $2.8 million, $3.9 million and $2.9 million during 1997, 1996 and
1995, respectively. Research and development expenditures in 1997 and 1996
included approximately $225,000 and $800,000, respectively, in costs associated
with LTI product development.

Note 18: Litigation
- -------------------

Asbestos-Related Claims - Personal Injury
- -----------------------------------------

A. P. Green is among numerous defendants in lawsuits pending as of December 31,
1997 that seek to recover compensatory, and in many cases, punitive damages for
personal injury allegedly resulting from exposure to asbestos-containing
products.

A. P. Green is a member of the Center, an organization of twenty companies
(Members) who were formerly distributors or manufacturers of asbestos-containing
products. The Center administers, evaluates, settles, pays and defends all of
the asbestos-related personal injury lawsuits involving its Members. Under the
terms of the Center Agreement, each Member's portion of the liability payments
and defense costs is based upon, among other things, the number and type of
claims brought against it. Claims activity for the Company for each of the years
ended December 31, 1997, 1996 and 1995 was as follows:

F-21

<PAGE>

- --------------------------------------------------------------------------------
1997 1996 1995
- --------------------------------------------------------------------------------

Claims pending at January 1 58,885 48,367 50,920
Claims filed 24,024 29,702 12,560
Cases settled, dismissed or
otherwise resolved (10,709) (19,184) (15,113)
- --------------------------------------------------------------------------------
Claims pending at December 31 72,200 58,885 48,367
- --------------------------------------------------------------------------------
Average settlement amount per claim (1) $ 1,611 $ 1,582 $ 1,778
- --------------------------------------------------------------------------------
(1) All settlements are covered by the Company's insurance program.

On January 15, 1993, the Members were named as defendants in a class action
lawsuit brought on behalf of all persons who have been occupationally exposed to
asbestos-containing products of the Members and who have unasserted claims for
such exposure (the Class) pursuant to Federal Rule of Civil Procedure 23(b)(3)
in the Federal District Court for the Eastern District of Pennsylvania. At the
same time, a settlement (the Settlement) between the Members and the Class was
filed with the Court. On June 25, 1997, after a favorable ruling in the Federal
District Court for the Eastern District of Pennsylvania and a reversal of that
ruling by the Third Circuit Court of Appeals, the United States Supreme Court
upheld the ruling of the Third Circuit. The result of such ruling is that the
class action lawsuit and the Settlement are of no effect.

As the Settlement established a numerical cap on the number of claims that could
be processed each year during the ten years of the Settlement and because the
Settlement provided for a range of payments for different disease categories, it
was possible to estimate the aggregate amount of liability for the Company
through 2004 and related insurance recoveries. The amounts reported for
projected asbestos claims and projected insurance recovery on asbestos claims in
the consolidated statements of financial position as of December 31, 1996 were
determined based upon the Settlement.

Without the Settlement the Company can only estimate the liability and related
insurance recoveries associated with known claims. As such, the amounts reported
for projected asbestos claims and projected insurance recovery on asbestos
claims as of December 31, 1997 reflect only those claims known to have been
filed as of that date. In order to arrive at these projected amounts, the
Company also reviewed its insurance policies and historical settlement amounts.
This resulted in an increase in both the liability and asset of $40.9 million
during the fourth quarter of 1997 following a reduction of $19.4 million in the
third quarter of 1997. There was no effect on the consolidated earnings of the
Company. These balances are expected to fluctuate from quarter to quarter as
claims are filed and settled. The volume of claims settled by the Center on a
quarterly basis can vary considerably.

Management anticipates that the Company's insurance carriers will make all
required payments for these claims. While management understands the inherent
uncertainty in litigation of this type and the possibility that past costs may
not be indicative of future costs, management does not believe that these claims
and cases will have any additional material adverse effect on the Company's
consolidated financial position or results of operations.

F-22

<PAGE>

In December 1996, the Company and a former subsidiary, The E. J. Bartells
Company, reached a comprehensive settlement agreement with all insurance
carriers except one. Under the terms of this settlement agreement, such carriers
have agreed to pay (subject to applicable policy limits) on behalf of the
insureds, liabilities arising out of asbestos personal injury claims. The
Company is pursuing its claim for coverage against the non-settling carrier.

In addition to asbestos-related personal injury claims asserted against A. P.
Green, a number of claims have been asserted against Bigelow-Liptak Corporation
(now known as A. P. Green Services, Inc.), a subsidiary of the Company. These
claims have been and are currently being handled by such subsidiary's insurance
carriers. Except for deductible amounts or retentions provided for under
insurance policies, no claim for reimbursement of defense or indemnity payments
has been made against the Company or such subsidiary by any such carriers.

Asbestos-related Claims - Property Damage
- -----------------------------------------

A. P. Green is also among numerous defendants in a property damage class action
suit pending in South Carolina. A. P. Green previously has been dismissed from a
number of property damage cases and believes that it should be dismissed from
the South Carolina case based on the end uses of its products. A similar suit
pending in the State of Oregon involves a former wholly owned subsidiary of the
Company and is being defended by the Company's insurance carrier. Based upon the
Company's history in these asbestos-related property damage claims, management
does not believe that the ultimate resolution of these matters will have a
material adverse effect on the Company's consolidated financial position or
results of operations.

Environmental
- -------------

The EPA or other private parties have named the Company or one of its
subsidiaries as a potentially responsible party in connection with two superfund
sites in the United States. The Company is a de minimis party with respect to
one of the sites and expects to arrive at a settlement agreement and consent
decree with respect to it for an amount which is not expected to be material.
With respect to the second, involving a wholly owned subsidiary of the Company,
there does not appear to be any evidence of delivery to the site of hazardous
material by the subsidiary. An estimate has been made of the costs to be
incurred in these matters and the Company has recorded a reserve respecting
those costs.

Tender Offer
- ------------

On March 6, 1998, a lawsuit was filed in the Court of Chancery in the State of
Delaware seeking to enjoin the tender offer by Global Industrial Technologies,
Inc. and BGN Acquisition Corp. to purchase all outstanding shares of the
Company's common stock. See Note 21 for further discussion of the tender offer
and lawsuit.

F-23

<PAGE>

Other
- -----

From time to time, A. P. Green is subject to claims and other lawsuits that
arise in the ordinary course of business, some of which may seek damages in
substantial amounts, including punitive or extraordinary damages. Reserves for
these claims and lawsuits are recorded to the extent that losses are deemed
probable and are estimable. In the opinion of management, the disposition of all
current claims and lawsuits will not have a material adverse effect on the
consolidated financial position or results of operations of A. P. Green.

Note 19: Industry and Geographic Segments
- -----------------------------------------

A. P. Green operates principally in two industry segments: Industrial Lime and
Refractory Products and Services. Segment net sales include products sold and
services rendered to unaffiliated customers. Interindustry segment sales were
immaterial for the periods presented. No single customer accounted for more than
10% of consolidated annual net sales in any such period. Segment operating
profit includes all costs and expenses directly related to the segment involved
and a reasonable allocation of general costs and expenses which benefit more
than one segment. General corporate expenses, interest income and interest
expense are shown as separate line items in order to arrive at consolidated
earnings before income taxes and cumulative effect of an accounting change.
Corporate identifiable assets include cash and cash equivalents and those assets
maintained for corporate purposes which are not directly related to the
operations of either industry segment.

F-24

<PAGE>

Industry Segments
- --------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Net Sales
- --------------------------------------------------------------------------------

Refractory products and services $227,874 $218,400 $212,203
Industrial lime 50,410 40,168 37,727
Intersegment eliminations (377) (107) (215)
- --------------------------------------------------------------------------------
$277,907 $258,461 $249,715
- --------------------------------------------------------------------------------
Operating Profit
- --------------------------------------------------------------------------------

Refractory products and services $ 13,761 $ 7,972 $ 12,565
Industrial lime 8,503 8,287 6,911
- --------------------------------------------------------------------------------
22,264 16,259 19,476
- --------------------------------------------------------------------------------
Other charges to income
General corporate
expenses, net 8,789 7,569 7,434
Interest expense 3,297 3,112 3,190
Interest income (958) (1,255) (1,513)
- --------------------------------------------------------------------------------
11,128 9,426 9,111
- --------------------------------------------------------------------------------
Earnings before income taxes $ 11,136 $ 6,833 $ 10,365
- --------------------------------------------------------------------------------
Identifiable Assets
- --------------------------------------------------------------------------------

Refractory products and services $289,889 $284,180 $313,165
Industrial lime 60,563 58,514 47,698
Corporate 7,262 12,435 12,705
- --------------------------------------------------------------------------------
$357,714 $355,129 $373,568
- --------------------------------------------------------------------------------
Depreciation, Depletion & Amortization
- --------------------------------------------------------------------------------

Refractory products and services $ 7,072 $ 6,811 $ 6,375
Industrial lime 4,368 2,813 2,751
Corporate 699 958 1,048
- --------------------------------------------------------------------------------
$ 12,139 $ 10,582 $ 10,174
- --------------------------------------------------------------------------------
Capital Expenditures
- --------------------------------------------------------------------------------

Refractory products and services $ 6,229 $ 9,675 $ 7,597
Industrial lime 4,416 2,470 2,137
Corporate 1,026 747 422
- --------------------------------------------------------------------------------
$ 11,671 $ 12,892 $ 10,156
- --------------------------------------------------------------------------------

A. P. Green's principal operations are located in the United States, the United
Kingdom, Canada, Mexico and the Far East. Transactions between geographic areas
are accounted for on an "arm's-length" basis. Export sales to foreign,
unaffiliated customers represent less than 10% of consolidated annual net sales.

F-25

<PAGE>

Geographic Segments
- -------------------------------------------------------------------------------
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------
Net Sales
- -------------------------------------------------------------------------------

United States $242,166 $226,290 $219,571
Canada 25,151 23,759 24,045
United Kingdom 8,885 9,978 9,745
Mexico 9,914 8,123 3,242
Far East 1,004 - -
Intersegment transfers (9,213) (9,689) (6,888)
- -------------------------------------------------------------------------------
$277,907 $258,461 $249,715
- -------------------------------------------------------------------------------
Earnings (Loss) Before Income Taxes
- -------------------------------------------------------------------------------

United States $ 11,596 $ 5,883 $ 8,352
Canada (84) (324) 999
United Kingdom (200) 607 673
Mexico 1,048 992 341
Far East (1,224) (325) -
- -------------------------------------------------------------------------------
$ 11,136 $ 6,833 $ 10,365
- -------------------------------------------------------------------------------
Identifiable Assets
- -------------------------------------------------------------------------------

United States $315,568 $306,945 $330,285
Canada 16,816 17,143 18,000
United Kingdom 4,266 5,234 5,020
Mexico 6,784 6,447 5,451
Far East 7,018 6,925 2,107
Corporate 7,262 12,435 12,705
- -------------------------------------------------------------------------------
$357,714 $355,129 $373,568
- -------------------------------------------------------------------------------

F-26

<PAGE>

Note 20: Quarterly Financial Highlights (Unaudited)
- ---------------------------------------------------
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
(Dollars in thousands, First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $64,816 $71,853 $70,696 $70,542
Gross profit 10,802 13,614 12,789 12,851
Net earnings 643 2,511 2,009 2,905
Net earnings per common share
-basic .08 .31 .25 .36
-diluted .08 .31 .24 .35
- -------------------------------------------------------------------------------------------------------------------
1996
Net sales $64,234 $69,538 $61,948 $62,741
Gross profit 11,492 13,625 9,092 9,899
Net earnings 1,604 2,571 162 336
Net earnings per common share
-basic .20 .32 .02 .04
-diluted .20 .31 .02 .04
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

Lower sales and a planned reduction of refractory finished goods inventory
during the third and fourth quarters of 1996 resulted in reduced production
efficiencies and declines in gross profit and net earnings. Also contributing to
the decline were inventory-related adjustments resulting from changes in
inventory levels.

Note 21: Subsequent Event
- --------------------------

On March 3, 1998, the Company entered into an Agreement and Plan of Merger with
Global Industrial Technologies, Inc. and BGN Acquisition Corp. The Agreement and
Plan of Merger calls for, among other things, Global to purchase for cash all
outstanding shares of the Company at $22.00 per share, or approximately $195.0
million, plus the assumption of $23.0 million of net debt. The transaction,
which will be effected by means of a tender offer, has been approved by the
Boards of Directors of both companies and, subject to regulatory approval, is
expected to be completed during the second quarter of 1998. Global is a
manufacturer of technologically advanced industrial products that support
high-growth markets around the world. Its subsidiary, Harbison-Walker
Refractories Company, operates 15 refractory plants in five countries, including
the United States, Canada, Mexico, Chile and Germany.

On March 6, 1998, a lawsuit was filed in the Court of Chancery in the State of
Delaware seeking to enjoin the tender offer and alleging, among other things,
that the stockholders of the Company are not receiving fair and adequate
consideration for their shares. The Company has entered into an agreement in
principle to settle the lawsuit whereby, subject to the negotiation and
execution of definitive agreements, including mutually acceptable releases, (i)
the Company mailed to the stockholders of the Company on March 24, 1998 a
supplemental disclosure statement on Schedule 14D-9 containing certain financial
information and projections and (ii) Mack G. Nichols, James M. Stolze, William
F. Morrison, Daniel Toll, Paul F. Hummer II, P. Jack O'Bryan, the Company,
Global

F-27

<PAGE>

and BGN Acquisition Corp. will reimburse the plaintiff in the lawsuit for
attorneys' fees and expenses, as awarded by the Court, in an aggregate amount of
$180,000. The lawsuit and/or settlement thereof is not expected to have any
impact on the transactions contemplated by the Agreement and Plan of Merger.

F-28

<PAGE>

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
A. P. GREEN INDUSTRIES, INC.:

We have audited the accompanying consolidated statements of financial position
of A. P. Green Industries, Inc. and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1997. In connection with our audits of the aforementioned financial statements,
we also audited the related consolidated financial statement schedule as listed
in the accompanying index. These consolidated financial statements are the
responsibility of A. P. Green's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of A. P. Green
Industries, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

/s/ KPMG Peat Marwick LLP

St. Louis, Missouri
February 9, 1998

F-29

<PAGE>

SCHEDULE II

A. P. GREEN INDUSTRIES, INC.
SUPPLEMENTAL INFORMATION
VALUATION AND QUALIFYING ACCOUNTS

An analysis of doubtful accounts for 1995, 1996 and 1997 is as follows:

Doubtful Accounts
-----------------
(Dollars In Thousands)

Balance December 31, 1994 $1,992
Additions in 1995 -
Current year provision 120
Acquisitions 247
Less - Receivables written off, net (429)
------

Balance, December 31, 1995 1,930
Additions in 1996 -
Current year provision 740
Less - Receivables written off, net (969)
------
Balance, December 31, 1996 1,701
Additions in 1997 -
Current year provision 656
Less - Receivables written off, net (909)
------
Balance, December 31, 1997 $1,448
======

F-30

<PAGE>

Exhibit 10(b)
to Form 10-K

Amendment
to the
A. P. Green Industries, Inc.
1987 Long-Term Incentive Plan

The A. P. Green Industries, Inc. 1987 Long-Term Incentive Plan (the "Plan") is
hereby amended as follows:

1. Section Six of the Plan is hereby amended by deleting the second sentence
thereof in its entirety and inserting in lieu thereof the following:

Said purchase price may be paid (i) by check, or, in the discretion of
the Committee, either (ii) by the delivery of shares of Common Stock of
the Corporation then owned by the participant or (iii) by directing the
Company to withhold from the number of shares of Common Stock otherwise
issuable upon exercise of the option that whole number of shares of
Common Stock having an aggregate fair market value on the date of
exercise at least equal to the exercise price for all of the shares of
Common Stock subject to such exercise, or (iv) by a combination of any
of the foregoing, in the manner provided in the option agreement.

This amendment was adopted by the Compensation and Organization Committee of the
Board of Directors at its meeting held on August 13, 1997.

Exhibit 10(c)
to Form 10-K

Amendment
to the
1989 Performance Plan
of
A. P. Green Industries, Inc.

The 1989 Performance Plan of A. P. Green Industries, Inc. (The "Plan) is hereby
amended as follows:

1. Section Six of the Plan is hereby amended by deleting the second sentence
thereof in its entirety and inserting in lieu thereof the following:

2. Section Seven of the Plan is hereby amended by deleting the second sentence
thereof in its entirety and inserting in lieu thereof the following:

This amendment was adopted by the Compensation and Organization Committee of the
Board of Directors at its meeting held on August 13, 1997.

Exhibit 10(o)
to Form 10-K

1997 STOCK PLAN FOR NON-EMPLOYEE DIRECTORS

ARTICLE 1 - PURPOSE OF PLAN

1.1 Purpose of Plan A. P. Green Industries, Inc. (the "Corporation") has adopted
the 1997 Stock Plan for Non-Employee Directors (the "Plan") to provide for
payment in shares of the Corporation's Common Stock, par value $1.00 per share
("Stock"), to members of the Board of Directors of the Corporation who are not
employees of the Corporation or any of its affiliates or subsidiaries
("Non-Employee Directors"). The Plan also provides certain deferred payments of
Stock for Non-Employee Directors that are intended as a replacement for the
prior retirement program maintained by the Corporation for Non-Employee
Directors. The Plan is intended to provide Non-Employee Directors with a larger
equity interest in the Corporation in order to attract and retain well-qualified
individuals to serve as Non-Employee Directors and to enhance the identity of
interest between Non-Employee Directors and the shareholders of the Corporation.

ARTICLE II - ELIGIBILITY AND PARTICIPATION

2.1 Eligibility and Participation Only Non-Employee Directors shall be eligible
to participate in the Plan, and participation in the Plan is mandatory for all
Non-Employee Directors.

ARTICLE III - STOCK AWARDS

3.1 Stock Awards On each June 1 through and including June 1, 2007 (each such
date hereinafter a "Grant Date"), in consideration for services previously
rendered as a Non-Employee Director of the Corporation, the Corporation shall
issue to each Non-Employee Director who has served as such for at least six (6)
months immediately preceding such Grant Date, one thousand (1,000) shares of
Stock (a "Stock Award").

ARTICLE IV - DEFERRED STOCK UNITS

4.1 Deferred Stock Units for Non-Employee Directors on the Effective Date The
following Non-Employee Directors shall have credited to their Accounts (defined
in section 4.3) as of May 1, 1997, a number of Stock Units (defined in section
4.3) specified as follows: W. Morrison 3,679; P. J. O'Bryan 2,133. Further,
director D. Toll shall have credited to his Account 11,658 Stock Units provided
that he makes an irrevocable election, on or before October 1, 1998, to waive
participation in, and any benefits under any prior retirement program maintained
by the Corporation for Non-Employee Directors. If director Toll does not make
such an election, he will not be entitled to have his Account credited with
Stock Units pursuant to this section 4.1 (but will be entitled to receive
additional Stock Units pursuant to section 4.2) and will continue to be entitled
to benefits under the prior retirement program to the extent provided under the
terms of that prior retirement program.

<PAGE>

4.2 Deferred Stock Units for Non-Employee Directors After the Effective Date
Commencing as of June 1, 1997 and each succeeding June 1 thereafter, each
Non-Employee Director who is serving as such on that date or anniversary shall
have credited to his Account a number of Stock Units equal to $5,000 divided by
the Fair Market Value of Stock on the applicable June 1. For purposes of this
Plan, the "Market Value" of Stock on any business day shall be the average of
the high and low sales prices quoted on the New York Stock Exchange Composite
Listing on the day in question, or if there was no quotation on such date, on
the next preceding business day on which there were such quotations. To the
extent that the formula described in this Section 4.2 does not result in a whole
number of Stock Units, the result shall be rounded upwards to the next whole
number.

4.3 Crediting Stock Units to Accounts Amounts credited pursuant to Section 4.1
and section 4.2 shall be credited as of the date of the deferral to a
bookkeeping reserve account maintained by the Corporation ("Account") in units
which are equivalent in value to shares of Stock ("Stock Units").

4.4 Vesting of Stock Units Stock Units credited to a Non-Employee Director's
Account pursuant to this Article IV shall be fully vested at all times.

4.5 Payment of Stock Units Stock Units credited to a Non-Employee Director's
Account pursuant to this Article IV shall be payable in shares of Stock
commencing within a reasonable period of time not to exceed 90 days following
the later of (I) termination of the Non-Employee Director's service on the Board
or (ii) the attainment by the Non-Employee Director (or former Non-Employee
Director of age 65). The form of payment shall be either a lump sum or 10
approximately equal annual installments determined as one tenth of the number of
Stock Units in the first year, one ninth in the second year and so on. To the
extent that the formula described in this Section 4.5 for installment payments
does not result in a whole number of shares of Stock being distributed, the
result shall be rounded upwards to next whole number. The form of payment shall
be elected by the Non-Employee Director in a manner specified by the company and
may be subsequently modified provided that the new election is received at least
12 months before the payments are scheduled to commence.

ARTICLE V - DIVIDEND EQUIVALENT PAYMENTS

5.1 Dividend Equivalent Payment As of each dividend payment date with respect to
Stock, each Non-Employee Director shall receive credit for additional Stock
Units equal to the product of (i) the per-share cash dividend payable with
respect to each share of Stock on such date, and (ii) the total number of Stock
Units credited to his Account as of the record date corresponding to such
dividend payment date, (iii) divided by the Fair Market Value of the Stock on
the dividend payment date. To the extent that the formula described in this
Section 5.1 does not result in a whole number of Stock Units, the result shall
be rounded upwards to next whole number.

<PAGE>

ARTICLE VI - DELIVERY OF STOCK CERTIFICATES

6.1 Stock Unit Payments The Corporation shall issue and deliver to the
Non-Employee Director a stock certificate (or the bookkeeping equivalent of an
actual certificate, if elected by the Director) for payment of Stock Units as
soon as practicable following the date on which Stock Units are payable.

ARTICLE VII - STOCK

7.1 Stock The Aggregate number of shares of Stock that may be issued under the
Plan shall not exceed two hundred thousand (200,000) shares, unless such number
of shares is adjusted as provided in Article VIII of this Plan.

ARTICLE VIII - ADJUSTMENT UPON CHANGES IN CAPITALIZATION

8.1 Adjustment Upon Changes in Capitalization In the event of a stock dividend,
stock split or combination, reclassification, recapitalization or other capital
adjustment of shares of Stock, the number of shares of Stock that may be issued
pursuant to Stock Awards and Stock units and the number of Stock Units credited
to Accounts shall be appropriately adjusted by the Board of Directors of the
Corporation, whose determination shall be final, binding and conclusive. No
fractional shares of Stock shall be issued under the Plan on account of any
adjustment specified herein. The grant of Stock Awards or Stock Units pursuant
to this Plan shall not affect in any way the right or power of the Corporation
to issue additional Stock or other securities, make adjustments,
reclassifications, reorganizations or other changes in its corporate, capital or
business structure, to participate in a merger, consolidation or share exchange
or to transfer its assets or dissolve or liquidate.

ARTICLE IX - TERMINATION OF AMENDMENT OF PLAN

9.1 In General The Board of Directors of the Corporation may, at any time,
terminate, suspend or amend this Plan. The Board of Directors shall have the
authority to interpret the Plan and adopt such supplemental rules as it deems
appropriate. Any interpretations rendered by the Board shall be final, binding
and conclusive.

9.2 Written Consents No amendment may adversely affect the right of any
Non-Employee director to receive any Stock previously issued as a Stock Award or
to receive any stock or Dividend Equivalent credits pursuant to an outstanding
Stock unit without the written consent of such Non-Employee Director.

9.3 Termination of Stock Award Unless the Plan is sooner terminated, no Stock
Award or Stock Unit shall be granted after June 1, 2007.

ARTICLE X - GOVERNMENT REGULATIONS

<PAGE>

10.1 Government Regulations

a) The obligations of the Corporation to issue any Stock granted under
this Plan shall be subject to all applicable laws, rules and regulations and the
obtaining of all such approvals by governmental agencies as may be deemed
necessary or appropriate by the Board of Directors of the Corporation.

b) Except as otherwise provided in Article IX of this Plan, the Board
of Directors of the Corporation may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any governmental
authority.

ARTICLE XI - MISCELLANEOUS

11.1 Unfunded Plan The Plan shall be unfunded with respect to the Corporation's
obligation to pay any amount due pursuant to Stock Units and a Non-Employee
Director's's rights to receive any payment of any Stock Unit shall be no greater
than the rights of an unsecured general creditor of the Corporation.

11.2 Assignment; Encumbrances The right to receive a Stock Award or Stock Unit
and right to receive payment with respect to a Stock Unit under this Plan are
not assignable or transferable and shall not be subject to any encumbrances,
liens, pledges or charges of the Non-Employee Director or his or her creditors.
Any attempt to assign, transfer or hypothecate any Stock Award or Stock Unit or
any right to receive a Stock Award or Stock Unit shall be void and of no force
and effect whatsoever.

11.3 Designation of Beneficiaries A Non-Employee Director may designate a
beneficiary or beneficiaries to receive any distributions under the Plan upon
his or her death. Any payment due in this event shall be made as soon as
practicable following the death of the Non-Employee Director in a lump sum in
shares of Stock or in such other manner as the Board of Directors, in their
absolute discretion, may permit.

11.4 Applicable Law The validity, interpretation and administration of this plan
and any rules, regulations, determinations or decisions made hereunder, and the
rights of any and all persons having or claiming to have any interest herein or
hereunder, shall be determined exclusively in accordance with the laws of the
State of Missouri, without regard to the choice of laws provisions thereof.

11.5 Headings The headings in this Plan are for reference purposes only and
shall not affect meaning or interpretation of this Plan.

11.6 Notices All notices or other communications made or given pursuant to this
Plan shall be in writing and shall be sufficiently made or given if
hand-delivered or mailed by certified mail, addressed to any Non-Employee
Director at the address contained in the records of the corporation or to the
Corporation at its principal office.

ARTICLE XII - EFFECTIVE DATE OF PLAN

<PAGE>

12.1 Effective Date of Plan This plan shall become effective on the date on
which it is adopted by the Board of Directors of the Corporation, subject,
however, to the approval by the affirmative vote of the holders of a majority of
the votes cast by stockholders of the Corporation present, or represented and
entitled to vote, at the next annual meeting of the stockholders of the
Corporation duly held in accordance with the laws of the State of Delaware.

Exhibit 10(p)
to Form 10-K

[COMPANY LETTERHEAD]

March 2, 1998

- --------------------
A.P. Green Industries, Inc.
Green Boulevard
Mexico, Missouri 65265

Dear _______:

This letter will confirm our agreement with respect to the severance
benefits to which you are entitled in the event that a Change In Control (as
defined below) of A.P. Green Industries, Inc. (the "Company") occurs on or
before June 1, 1998 and your employment by the Company and/or its successor(s)
is thereafter terminated, as described further below. This letter contains the
entire agreement between us in respect of the severance benefits to which you
are entitled in the event that a Change In Control occurs on or before June 1,
1998 and supersedes all prior oral or written understandings, arrangements and
agreements between us in connection with respect to such matters, specifically
including the Company's Permanent Lay-Off Guidelines, dated April 1, 1997.

In the event a Change In Control occurs on or before June 1, 1998 and
your employment is terminated within one (1) year of the date that such Change
In Control occurs, you will be entitled to your full base salary through the
date of termination at the rate in effect at the time you receive notice of such
termination, plus a cash payment for any vacation earned but not taken. In
addition, unless your termination is due to your death, "Disability" (as defined
below) or retirement, or is by the Company for "Cause" (as defined below), or is
a result of your voluntary resignation for other than "Good Reason" (as defined
below), in lieu of any further salary payments for periods subsequent to the
date of termination, the Company shall pay to you as severance pay on or before
the fifth (5th) day following the date of termination (i) a lump sum amount
equal to the sum of: (a) an amount equal to ________ (__) time(s) your then
________ [annual base salary/weekly base salary, computed at 1/52 of your then
annual salary], and (b) in the event that your employment is terminated by the
Company with less than two (2) weeks notice, an amount equal to _____ (__)
time(s) your then _______ [weekly/annual] base salary, subject to withholdings
for any required tax or other deductions, and (ii) for a period of _______ (__)
[year/month(s)] following the date of termination, you will be entitled to
continue to participate in the Company's health insurance and medical plans on
the same basis as you participated in such plans prior to the Change In Control,
including with respect to the relative percentage of the cost of coverage
payable by employees of the Company.

For purposes of this letter, the following terms will have the
following meanings:

"Change In Control" shall mean: (i) a change in control of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); provided, however, that a Change In Control shall
be deemed to have occurred if (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding securities or (b) on or
before June 1, 1998, individuals who at the beginning of such period constitute
the Board of Directors of the Company cease for any reason to constitute at
least a majority thereof; (ii) a consummation of (a) any consolidation or merger
of the Company in which the Company is not the continuing or surviving
corporation pursuant to which shares of the common stock of the Company would be
converted into cash, securities or other property or (b) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all or substantially all of the assets of the Company; or (iii)
approval by the stockholders of the Company of any plan or proposal for the
liquidation or dissolution of the Company.

"Disability" shall mean that you are unable to perform the services
required of you hereunder on a full-time basis for a period of 180 days or more
by reason of a physical and/or mental condition certified by a physician
selected by the Company and reasonably acceptable to you or your legal
representative.

"Cause" shall mean termination upon (i) the willful and continued
failure by you to substantially perform your duties (other than any such failure
resulting from incapacity due to physical or mental illness) after a demand for
substantial performance has been delivered by the Chief Executive Officer of the
Company or his duly appointed representative, which specifically identifies the
manner in which it is believed that you have not substantially performed your
duties, or (ii) the willful engaging by you in misconduct which is materially
injurious to the Company.

"Good Reason" shall mean resignation subsequent to a Change In Control
of the Company based upon: (i) a reduction by the Company in your base salary as
in effect on the date hereof or as the same may be increased from time to time;
(ii) a failure by the Company to continue any bonus plans in which you are
presently entitled to participate as the same may be modified from time to time
but substantially the same in form and substance as currently in effect or a
failure by the Company to continue your participation in any bonus plans on at
least the same basis as you presently participate in accordance with any such
bonus plans; (iii) the Company's failure to pay your moving expenses in
connection with the Company's request that you relocate; (iv) the failure by the
Company to continue in effect any benefit or compensation plan, stock ownership
plan, stock purchase plan, stock option plan, life insurance plan, health and
accident plan or disability plan in which you were participating at the time of
the Change In Control (or plans providing you with substantially similar
benefits), the taking of any action by the Company which would adversely affect
your participation in or deprive you of any material fringe benefit enjoyed by
you at the time of such Change In Control, or the failure by the Company to
provide you with the number of paid vacation days to which you were then
entitled in accordance with the Company's normal vacation policy in effect on
the date hereof.

If the foregoing correctly sets forth the understandings between you
and the Company with respect to any severance benefits to which you may be
entitled upon a Change In Control of the Company prior to June 2, 1998, please
evidence such by executing the enclosed duplicate copy of this letter in the
place provided and return the same to me.

Sincerely,

A.P. GREEN INDUSTRIES, INC.

By:___________________________________
Paul F. Hummer II
President and Chief Executive Officer

AGREED TO AND ACCEPTED:

Exhibit 21
to Form 10-K

SUBSIDIARIES
OF
A. P. GREEN INDUSTRIES, INC.

Name Jurisdiction Incorporated
- ---- -------------------------

APG Foreign Sales Corporation Virgin Islands

APG Lime Corp. Delaware

Palmetto Lime LLC South Carolina

A. P. Green Refractories (Canada) Ltd. Canada

1086215 Ontario Inc. Ontario

A. P. Green Refractories, Inc. Delaware

A. P. Green de Mexico SA de CV Mexico

Lanxide ThermoComposites, Inc. Delaware

Chiam Technologies, Inc. Ohio

A. P. Green Refractories Limited United Kingdom

Liptak Bradley Limited United Kingdom

APG Refractories Corp. Delaware

INTOGREEN Co. (a partnership) Missouri

Detrick Refractory Fibers, Inc. Mississippi

PT AP Green Indonesia Indonesia

APG Development Corp. Delaware

Exhibit 23
to Form 10-K

Independent Auditors' Consent

The Board of Directors and Stockholders
A. P. Green Industries, Inc.:

We consent to incorporation by reference in the registration statements (No.
33-21012, 33-26035, 33-35475, and 33-38323) on Form S-8 of A. P. Green
Industries, Inc. and subsidiaries of our report dated February 9, 1998, relating
to the consolidated statements of financial position of A. P. Green Industries,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997, and the
related schedule, which report appears in the December 31, 1997 annual report on
Form 10-K of A. P. Green Industries, Inc.

/s/KPMG Peat Marwick

St. Louis, Missouri
March 27, 1998

<PAGE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-K OF A. P. GREEN INDUSTRIES, INC. AS OF AND FOR THE YEAR ENDED
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL
REPORT.
</LEGEND>

<MULTIPLIER> 1,000

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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
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0
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<COMMON> 9,015
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<TOTAL-LIABILITY-AND-EQUITY> 357,714
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