SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---------------
For the fiscal year ended December 31, 1996 Commission File No. 0-16452
----------------- -------
A. P. GREEN INDUSTRIES, INC.
----------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-0899374
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Green Boulevard, Mexico, Missouri 65265
- --------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (573) 473-3626
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$1.00 par value
Preferred Share
Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant: As of March 25, 1997, the market value of A. P. Green
Industries, Inc. Common Stock held by non-affiliates was approximately
$75,300,000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of the latest practicable date: As of March 25, 1997, 8,024,858
shares of Common Stock, $1.00 par value were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into the indicated
part of this report:
Document Part of Form 10-K
- -------- -----------------
1996 Annual Report to Stockholders Parts I, II and IV
Proxy Statement for 1997 Annual Meeting of Stockholders Part I
Page 1 of 28
<PAGE>
PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The Company acquired a 51% ownership interest in Lanxide
ThermoComposites, Inc. and Subsidiary (LTI) on December 31, 1995, at which date
total stockholders' equity of LTI was $196,078. LTI has incurred quarterly net
losses since the acquisition. Accounting Research Bulletin No. 51, "Consolidated
Financial Statements" (ARB 51), requires that "...In the unusual case in which
losses applicable to the minority interest in a subsidiary exceed the minority
interest in the equity capital of the subsidiary, such excess and any further
losses applicable to the minority interest shall be charged against the majority
interest..." The Company did not become aware of this requirement until recently
and, as such, has been charging 49% of all LTI losses against the minority
interest.
In order to correct its prior accounting treatment, the Company has
adjusted its consolidated statements of earnings for the year ended December 31,
1996 and the first three quarters of 1997. The impact on the year ended December
31, 1996 was to increase minority interest in income of consolidated
subsidiaries by approximately $674,000 through the elimination of the minority
interest in all LTI losses that were incurred after the minority interest in
such losses exceeded the minority interest in the equity capital of LTI, which
reduced net income by the same amount, or $.09 per share. In addition, minority
interests was increased and retained earnings reduced by approximately $674,000
on the adjusted consolidated statement of financial position as of December 31,
1996. These adjustments are reflected in the adjusted consolidated financial
statements included herein under Item 8., as well as wherever these items appear
in or impact the supplementary data.
In accordance with ARB 51, for future periods in which LTI has earnings
the Company, as majority stockholder, will be credited with 100% of those
earnings until such time as total stockholders' equity of LTI is positive.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
ADJUSTED CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------
(Dollars in thousands, except per share data)
<CAPTION>
- ----------------------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 258,461 $ 249,715 $ 195,918
Cost of sales 214,353 208,309 161,420
------- ------- -------
Gross profit 44,108 41,406 34,498
Expense and other income
Selling and administrative expense 36,087 31,312 25,707
Interest expense 3,112 3,190 1,947
Interest income (1,255) (1,513) (1,296)
Minority interest in loss of
partnership (127) (67) --
Other income, net (542) (1,881) (1,155)
------- ------- -------
Earnings before income taxes and cumulative
effect of an accounting change 6,833 10,365 9,295
Income tax expense 2,396 2,182 2,904
Equity in net income of affiliates (436) (781) (282)
Minority interest in income of
consolidated subsidiaries, net 200 164 --
------- ------- -------
Earnings before cumulative effect of
an accounting change 4,673 8,800 6,673
------- ------- -------
Cumulative effect of an accounting change -
postemployment benefits, net of tax -- -- (255)
------- ------- -------
Net earnings $ 4,673 $ 8,800 $ 6,418
==============================================================================================
Earnings per common share before cumulative effect
of an accounting change $ .58 $ 1.09 $ .83
Cumulative effect of an accounting change -
postemployment benefits, net of tax -- -- (.03)
----------- ----------- -----------
Net earnings per common share $ .58 $ 1.09 $ .80
Weighted average number of common shares 8,037,710 8,060,118 8,049,624
==============================================================================================
<FN>
See accompanying notes to adjusted consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
ADJUSTED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands, except per share data)
- -------------------------------------------------------------------------------
December 31 1996 1995
- -------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 9,477 $ 9,284
Trade receivables (net of allowances -
1996, $1,701; 1995, $1,930) 42,084 44,183
Reimbursement due on paid asbestos claims 3,898 3,696
Inventories 53,674 55,557
Deferred income tax asset 3,374 4,115
Other 7,030 6,411
- -------------------------------------------------------------------------------
Total current assets 119,537 123,246
Property, plant and equipment, net 107,394 96,785
Projected insurance recovery on asbestos claims 110,374 135,158
Pension assets 9,044 9,071
Intangible assets, net 4,132 3,941
Other assets 4,648 5,367
- -------------------------------------------------------------------------------
Total assets $355,129 $373,568
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 20,408 $ 18,254
Accrued expenses
Payrolls 6,267 6,281
Taxes other than on income 1,860 1,889
Insurance reserves 3,574 4,657
Other 6,528 8,534
Current maturities of long-term debt 4,168 2,705
Income taxes 1,191 1,103
- -------------------------------------------------------------------------------
Total current liabilities 43,996 43,423
Deferred income taxes 10,228 12,671
Long-term non-pension benefits 16,583 15,597
Long-term pensions 12,449 14,233
Long-term debt 40,109 34,384
Projected asbestos claims 111,966 137,246
- -------------------------------------------------------------------------------
Total liabilities 235,331 257,554
- -------------------------------------------------------------------------------
Minority interests 2,088 2,015
Stockholders' equity
Preferred stock - $1 par value;
authorized: 2,000,000 shares;
issued and outstanding: none -- --
Common stock - $1 par value;
authorized: 10,000,000 shares;
issued: 8,975,442 in 1996 and
4,486,221 in 1995 8,975 4,486
Additional paid-in capital 68,309 72,770
Retained earnings 60,477 56,981
Less: Deferred foreign currency translation (2,875) (2,931)
Treasury stock of 953,934 shares in
1996 and 448,962 shares in 1995,
at cost (9,498) (9,018)
Note receivable-ESOT (6,941) (7,505)
Minimum pension liability adjustment,
net of tax (737) (784)
- -------------------------------------------------------------------------------
Total stockholders' equity 117,710 113,999
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $355,129 $373,568
===============================================================================
See accompanying notes to adjusted consolidated financial statements.
-4-
<PAGE>
<TABLE>
ADJUSTED 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, 1993 $4,459 $72,492 $43,800 $(2,301) $(9,003) $(8,491) $ -- $(26)
- ------------------------------------------------------------------------------------------------------------------------
Net earnings 6,418
Dividends ($.12 per share) (967)
Currency translation adjustment (127)
Payment on ESOT note 470
Other, net 17 247 28 22
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 4,476 72,739 49,279 (2,428) (9,003) (8,021) -- (4)
- ------------------------------------------------------------------------------------------------------------------------
Net earnings 8,800
Dividends ($.14 per share) (1,128)
Currency translation adjustment (503)
Payment on ESOT note 516
Minimum pension liability
adjustment, net of tax (784)
Other, net 10 31 30 (15) 4
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995 4,486 72,770 56,981 (2,931) (9,018) (7,505) (784) --
- ------------------------------------------------------------------------------------------------------------------------
Net earnings 4,673
Dividends ($.15 per share) (1,205)
Two-for-one stock split 4,488 (4,488)
Purchases of common stock
for treasury (480)
Currency translation
adjustment 56
Payment on ESOT note 564
Other, net 1 27 28 47
- ------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 $8,975 $68,309 $60,477 $(2,875) $(9,498) $(6,941) $(737) $ --
- ------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to adjusted consolidated financial statements.
</FN>
</TABLE>
-5-
<PAGE>
<TABLE>
ADJUSTED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
- -----------------------------------------------------------------------------------------------
Years ended December 31, 1996 1995 1994
- -----------------------------------------------------------------------------------------------
Cash flows from operating activities
<S> <C> <C> <C>
Net earnings $ 4,673 $ 8,800 $ 6,418
Adjustments for items not requiring (providing) cash
Cumulative effect of an accounting change-
postemployment benefits, net of tax -- -- 255
Depreciation, depletion and amortization 10,582 10,174 8,725
Deferred compensation earned -- 4 22
Stock compensation to directors 28 23 28
Provision for losses on accounts receivable 740 120 373
Gain on sale of assets (58) (1,272) (403)
Equity in earnings of affiliates, net of
dividends received 33 (227) (282)
Minority interest in earnings of
consolidated subsidiaries and partnership, net 73 97 --
Decrease (increase) in assets, net of effects from
acquisitions
Trade receivables 2,881 1,143 (4,924)
Asbestos claim and fee reimbursements received 17,276 30,232 33,557
Inventories 2,999 (1,758) (4,968)
Receivable and prepaid taxes 315 (360) 509
Other current assets (1,053) (712) (995)
Increase (decrease) in liabilities, net of effects
from acquisitions
Accounts payable and accrued expenses (958) (9,925) (225)
Asbestos claims paid (18,573) (23,937) (39,944)
Pensions (1,715) 279 206
Income taxes 88 (322) 782
Deferred income taxes (1,725) (1,185) (575)
Long-term non-pension benefits 986 286 653
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 16,592 11,460 (788)
- -----------------------------------------------------------------------------------------------
Cash flows from investing activities
Capital expenditures (12,892) (10,156) (6,482)
Decrease (increase) in other long-term assets 47 (726) 355
Increase in pension assets (82) (34) (311)
Proceeds from sales of assets 807 1,843 511
Payment received on ESOT note 564 516 470
Acquisition of businesses, net of cash acquired (10,059) (1,614) (24,497)
- -----------------------------------------------------------------------------------------------
Net cash used in investing activities (21,615) (10,171) (29,954)
- -----------------------------------------------------------------------------------------------
Cash flows from financing activities
Repayments of debt (2,708) (165) (122)
Proceeds from borrowings 9,525 -- 25,000
Dividends paid (1,205) (1,128) (967)
Purchases of common stock for treasury (480) -- --
Capital contributions from minority partner -- 121 --
Exercised stock options -- 2 238
Tax benefit on dividends paid to ESOT 28 30 28
Tax effect on restricted stock plan -- 1 (2)
- -----------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 5,160 (1,139) 24,175
- -----------------------------------------------------------------------------------------------
Effect of exchange rate changes 56 (503) (127)
- -----------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 193 (353) (6,694)
Cash and cash equivalents at beginning of year 9,284 9,637 16,331
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $9,477 $ 9,284 $ 9,637
===============================================================================================
<FN>
See accompanying notes to adjusted consolidated financial statements.
</FN>
</TABLE>
-6-
<PAGE>
NOTES TO ADJUSTED CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------
December 31, 1996, 1995 and 1994
Note 1: Nature of Operations
- -----------------------------
A. P. Green Industries, Inc. and its subsidiaries, collectively referred to as
"A. P. Green" or "the Company", is a manufacturer of refractory products and
industrial lime products. Refractory products, which accounted for 85% of 1996
revenues, are sold throughout North America and selected international markets
to basic industries such as metals, glass, ceramics, paper and cement.
Industrial lime products are sold to end-users for applications such as steel
and aluminum production, pulp and paper processing, soil stabilization for road
construction, water and waste water treatment and various environmental
applications. The industrial lime market served is generally within a 400-mile
radius of the Company's lime plants in New Braunfels, Texas, Kimballton,
Virginia and Ripplemead, Virginia.
Note 2: Summary of Significant Accounting Policies
- --------------------------------------------------
Basis of Presentation
The Company's consolidated financial statements include all wholly owned
subsidiaries and majority owned subsidiaries. Equity investments of 20% to 50%
are accounted for using the equity method. All intercompany balances and
transactions have been eliminated and there are no significant related party
transactions. Certain prior year amounts have been reclassified to conform to
the 1996 presentation.
Cash and Cash Equivalents
A. P. Green considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Due to their
short maturity, these instruments are carried at cost which approximates fair
value.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, trade receivables and accounts
payable approximates fair value because of the short maturity of these
instruments. The fair value of long-term debt is discussed in Note 9. Fair value
estimates are made at a specific point in time, based on relevant market
information and information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and, therefore, cannot be determined with precision.
Reimbursement Due on Paid Asbestos Claims
Until May 1996, A. P. Green made expense and indemnity payments on asbestos
product claims directly to the Center for Claims Resolution on behalf of certain
insurers. Reimbursement due on paid asbestos claims represents the recoverable
portion of those payments. Commencing in June 1996 pursuant to agreements
reached with its insurance carriers, the Company no longer makes payments to the
Center on behalf of those insurers. See Note 18 for further discussion of
asbestos claims and insurance recoveries.
Inventories
Predominantly all of A. P. Green's domestic inventories are stated at the lower
of cost or market, with cost being determined using the last-in, first-out
(LIFO) method. The remaining inventories are stated at the lower of cost or
market, with cost being determined using the first-in, first-out (FIFO) or
average production cost methods. Inventories include material, labor and
applicable factory overhead costs.
-7-
<PAGE>
Property, Plant and Equipment, Net
Property, plant and equipment, including significant renewals and improvements,
are capitalized at cost. Provisions for depreciation are determined principally
on a straight-line basis over the expected average useful lives of composite
asset groups, which range from 3 to 50 years. Accelerated depreciation methods
are used for tax purposes when permitted. Depletion is computed on a basis
calculated to allocate the cost of clay, limestone and other applicable
resources over the estimated quantities of recoverable material.
Intangible Assets
Intangible assets, primarily consisting of goodwill, customer lists, non-compete
agreements, patents and trademarks, are amortized on a straight-line basis over
the period benefited, which ranges from 2 to 12 years. Recoverability of these
assets is considered in conjunction with the ongoing evaluation of long-term
asset values. Accumulated amortization was approximately $1.1 million and
$580,000 at December 31, 1996 and 1995, respectively.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis, net operating
loss carryforwards and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the
consolidated statements of earnings during the period that includes the date of
the change.
Foreign Currency Translation
The functional currencies of the Company's Canadian and United Kingdom
subsidiaries and Colombian affiliates are their respective local currencies.
Adjustments resulting from the currency translation of these subsidiaries' and
affiliates' financial statements are reflected as a component of stockholders'
equity.
A. P. Green de Mexico and PT AP Green Indonesia transact a significant portion
of their business in U. S. dollars and, as such, use the dollar as their
functional currency. Translation adjustments for these subsidiaries are
reflected in the statement of earnings.
Employee Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related Interpretations
in accounting for its employee stock options rather than the alternative fair
value accounting provided for under Financial Accounting Standards Board
Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123).
Under APB 25, because the exercise price of the Company's stock options equals
the market price of the underlying stock on the date of grant, no compensation
expense is recognized. Disclosures with regard to employee stock options have
been made in accordance with the requirements of Statement 123.
Earnings Per Common Share
Earnings per common share are computed based on the weighted average number of
shares of common stock outstanding and have been restated to reflect the
two-for-one stock split effective September 20, 1996.
-8-
<PAGE>
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3: New Ventures and Acquisitions
- -------------------------------------
Effective December 31, 1996, the Company acquired substantially all of the
assets and assumed certain of the liabilities of the operations of Eastern Ridge
Lime, L. P. The operations include a mineral processing facility, quarrying and
lime manufacturing business in Ripplemead, Virginia and a leased terminal
facility in St. Matthews, South Carolina. In conjunction with the Company's
adjacent lime plant in Kimballton, Virginia, the acquisition will enhance
service of the growing lime market in the Southeastern United States and allow
improved utilization of existing management.
In addition to the assumption of approximately $300,000 of long-term lease
obligations, A. P. Green paid Eastern Ridge approximately $10.0 million in cash.
The acquisition was accounted for using the purchase method, which had no impact
on 1996 consolidated operating results due to the December 31 transaction
effective date.
The following unaudited proforma information presents a summary of consolidated
results of operations of the Company and Eastern Ridge as if the acquisition had
occurred January 1, 1995:
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1996 1995
- --------------------------------------------------------------------------------
Net sales $264,782 $256,822
Net earnings 1,723 5,072
Net earnings per common share .21 .63
- --------------------------------------------------------------------------------
These unaudited proforma results have been prepared for comparative purposes
only and include certain adjustments, such as elimination of a 1995 asset write
down loss incurred by Eastern Ridge in anticipation of the acquisition, reduced
depreciation, depletion and amortization expense as a result of lower asset book
values, elimination of a management service fee which will not be changed by A.
P. Green and recognition of income tax benefit not previously recognized due to
organization as a partnership. In management's opinion, they are not indicative
of the results of operations which actually would have occurred had the
acquisition been effective January 1, 1995, or of future results of operations
and synergies of the consolidated entities.
In January 1995, the Company formed INTOGREEN Co., a joint venture partnership
with INTOCAST AG, to sell and install cast monolithic ladle linings to the steel
industry in the United States, Canada and Mexico. INTOCAST AG, based in Germany,
is a world leader in the development of cast ladle linings, which result in
lower installation costs, reduced disposal of used refractory material and
increased ladle availability to the steel plant. The Company owns 51% of this
partnership and, as such, includes INTOGREEN in the consolidated financial
statements.
Effective July 3, 1995, the Company acquired a 51% ownership interest in
Plibrico de Mexico SA de CV, a refractory manufacturer located near Monterrey,
Mexico. Plibrico de Mexico, which has been renamed A. P. Green de Mexico SA de
CV, has one plant with annual sales of approximately $7.0 million. The purchase
price and transaction costs totaled approximately $2.0 million and were paid in
cash.
The acquisition was accounted for using the purchase method, with the operating
results of A. P. Green de Mexico included in consolidated operating results
since the date of
-9-
<PAGE>
acquisition. Goodwill of approximately $800,000, which represents the excess of
cost and liabilities assumed over the fair value of tangible assets acquired, is
being amortized on a straight-line basis over a ten-year period.
Effective December 31, 1995, the Company acquired a 51% ownership interest in
Lanxide ThermoComposites, Inc. (LTI). Prior to the acquisition, LTI was a wholly
owned subsidiary of Lanxide Corporation of Newark, Delaware, which continues to
own a substantial minority interest in LTI. Immediately prior to the
acquisition, LTI acquired Chiam Technologies, Inc., a company engaged in the
sourcing of refractory products from several Chinese refractory producers.
LTI is concentrating on commercializing refractory products for the continuous
casting segment of the steel industry utilizing ceramic composites technology
licensed from Lanxide Corporation. The acquisition was accounted for using the
purchase method, which had no impact on 1995 consolidated operating results due
to the December 31 transaction effective date. Goodwill of approximately $1.0
million for the two companies is being amortized on a straight-line basis over a
ten-year period.
The acquisitions completed during 1995 were not material to the Company's
financial condition or results of operations, either individually or in the
aggregate. As such, no financial statements of the acquired companies for
periods prior to the acquisitions or pro forma financial information reflecting
the acquisitions as of the beginning of the year have been provided.
Effective August 1, 1994, the Company acquired substantially all of the assets
and assumed most of the liabilities of the refractory operations of General
Refractories Company and its affiliated companies (collectively referred to as
"General"). These operations include ten plants in the United States, a plant in
Smithville, Ontario, Canada and 49% equity interests in two Colombian refractory
companies. In addition to the assumption of designated liabilities, the Company
paid at closing a cash amount of $23,450,000. The acquisition was accounted for
using the purchase method, with the operating results of General included in
consolidated operating results from the date of acquisition.
In connection with the General acquisition, the Company obtained Phase I and II
Environmental Site Assessments (ESA) in order to determine the potential
environmental impact of specific recognized environmental conditions at each of
the acquired properties and estimate the costs for remediation. Based upon the
results of the ESA, the Company established a $3.4 million liability for
remediation costs (in other accrued expenses) as part of the General
acquisition. The majority of this liability relates to leakage and spills from
underground and aboveground storage tanks and drums, and action is being taken
to remediate all identified conditions, which is expected to be completed within
five years. Appropriate state agencies have been notified of contamination where
required, and there have been no resulting actions taken or proposed by such
agencies against the Company. There was no asbestos-related liability, either
for bodily injury or property damage, assumed in connection with the General
acquisition.
Note 4: Reserves for Plant Closings
- ------------------------------------
The Company has reserves for estimated exit costs and termination benefits in
connection with the shutdown of certain facilities in the U.S. and Canada. Three
of the acquired General plants were closed during 1994, a $3.6 million reserve
for which was established at the time of acquisition and included on the opening
balance sheet. During 1995 this reserve was increased by approximately $330,000,
primarily to revise estimates of employee termination benefits resulting from
the sale of these facilities taking longer than anticipated. A $380,000 reserve
was also established during 1995 for the closing of the Weston, Ontario plant.
Substantially all employees at these facilities (approximately 210 in total)
have been terminated and approximately $3.2 million of termination benefits and
plant closing
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<PAGE>
costs have been charged against the reserves to date. The U.S. facilities are
held for sale at their estimated net realizable value. The income statement
effect of establishment of and changes to these reserves in 1995 is included in
cost of sales.
Note 5: Changes in Method of Accounting
- ----------------------------------------
Postemployment Benefits
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
(Statement 112). The standard requires application of the accrual method of
accounting to all benefits provided to former or inactive employees, their
beneficiaries and covered dependents, subsequent to their employment by the
Company and prior to retirement, rather than recognizing these expenses as they
are paid. The Company recognized the projected benefit obligation relating to
short-term and long-term disability benefits as a cumulative effect of an
accounting change, reducing 1994 net income by $255,000, or $.03 per share.
Note 6: Inventories
- -------------------
Inventory classifications as of December 31, 1996 and 1995 were as follows:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Finished goods and work in process
Valued at LIFO
FIFO cost $ 31,278 $ 36,429
Less LIFO reserve (14,907) (14,186)
------- -------
LIFO cost 16,371 22,243
Valued at FIFO 13,225 10,404
------- -------
29,596 32,647
------- -------
Raw materials and supplies
Valued at LIFO
FIFO cost 17,702 18,187
Less LIFO reserve (6,129) (5,234)
------- -------
LIFO cost 11,573 12,953
Valued at FIFO 12,505 9,957
------- -------
24,078 22,910
------- -------
$ 53,674 $ 55,557
================================================================================
For the years ended December 31, 1996, 1995 and 1994, A. P. Green experienced
liquidations of LIFO inventory quantities, none of which were significant.
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<PAGE>
Note 7: Property, Plant and Equipment, Net
- ------------------------------------------
Property, plant and equipment, net, as of December 31, 1996 and 1995 were as
follows:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Land and mineral deposits $ 9,926 $ 8,055
Buildings and realty improvements 47,199 46,580
Machinery and equipment 144,154 134,915
Construction in progress 9,075 5,015
------- -------
210,354 194,565
Less accumulated depreciation and depletion 102,960 97,780
------- -------
$107,394 $ 96,785
================================================================================
Closed production facilities held for sale are included in other current assets
at estimated net realizable value of $2.2 million as of December 31, 1996.
Note 8: Short-Term Lines of Credit
- ----------------------------------
Short-term lines of credit have been established with banks in the United
Kingdom for 100,000 British pounds and Canada for Cdn$250,000, each of which was
unused at December 31, 1996 and 1995.
Note 9: Long-Term Debt
- ----------------------
Long-term debt as of December 31, 1996 and 1995 was as follows:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Unsecured notes payable $23,048 $25,068
Industrial development revenue bonds 11,848 11,912
U.S. line of credit 9,000 --
Capitalized lease obligations 381 109
------ ------
44,277 37,089
Less current maturities 4,168 2,705
------ ------
$40,109 $34,384
================================================================================
In 1994, the Company issued $25 million in principal amount of unsecured notes
to a group of institutional lenders to finance the acquisition of General. The
notes bear an 8.55% fixed rate of interest, with semi-annual interest payments
which commenced January 29, 1995. Annual principal repayments, which have been
and will continue to be funded out of working capital, commenced July 29, 1996
and will continue through July 29, 2001. A. P. Green is subject to certain
restrictive covenants, including minimum levels of tangible net worth, working
capital and fixed charge coverage, permitted encumbrances, loans from and to
other institutions and restricted payments. Management does not expect these
restrictive covenants to have a material adverse effect on A. P.
Green's operations.
The capitalized leases expire in 1997 and 1999 and carry interest rates ranging
from 6.7% to 11.1%. A significant portion of the industrial development revenue
bonds require the payment of interest only until they mature in 1997 and
thereafter. Interest rates range from 70% of prime to 8.6%. Prime was 8.25% at
December 31, 1996.
In 1996, the Company's U.S. long-term line of credit of $30.0 million was
extended to May 2, 1998. Restrictive covenants coincide with those reflected in
the agreement associated with the unsecured notes payable. Borrowings under this
line of credit may
-12-
<PAGE>
be made for working capital, acquisitions and other corporate purposes, with
interest charged at the federal funds rate (5.38% at December 31, 1996) plus 2%.
Approximately $2.7 million of standby letters of credit and $9.0 million of
borrowings were outstanding against the line at December 31, 1996, leaving an
available balance of approximately $18.3 million.
Based on the borrowing rates currently available to the Company for debt with
similar terms and average maturities, the fair value of the industrial
development revenue bonds and unsecured notes payable would not differ
materially from carrying value at December 31, 1996. Aggregate maturities of
long-term debt are approximately $14.2 million, $5.2 million, $5.0 million and
$5.0 million for 1998 through 2001, respectively. The net book value of
property, plant and equipment pledged as security or collateral for outstanding
long-term debt was approximately $2.8 million at December 31, 1996.
Note 10: Income Taxes
- ---------------------
Income tax expense (benefit) attributable to earnings from continuing operations
for the years ended December 31, 1996, 1995 and 1994 consists of the following:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Current
Federal $ 3,642 $ 2,347 $2,774
State 523 514 423
Foreign 78 539 280
Deferred (1,847) (1,218) (573)
----- ----- -----
$ 2,396 $ 2,182 $2,904
================================================================================
The following schedule provides a reconciliation between expected tax at the
U.S. statutory tax rate and the effective tax rate (total provision for income
taxes as a percentage of earnings before income taxes). During 1995, a review of
tax years 1988 through 1993 was completed by the Internal Revenue Service,
resulting in less taxes than originally reserved. Accordingly, the Company
reduced its provision for federal income taxes by approximately $1.1 million.
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
U.S. statutory rate 34.0% 34.0% 34.0%
Reversal of provision for closed tax years -- (9.7) --
Excess tax depletion (4.9) (4.0) (4.2)
State and local income taxes, net 2.4 2.1 2.0
Foreign tax rate differential .5 .9 .3
Other, net (1.1) (3.4) (1.8)
---- ---- ----
Effective tax rate 30.9% 19.9% 30.3%
================================================================================
-13-
<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, 1996 and
1995 consist of the following:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Deferred tax assets
Accrued liabilities, differences in
expense recognition $10,983 $11,341
Alternative minimum tax carryforwards -- 448
Inventories, overhead capitalization differences 169 76
Capital loss carryforward 301 395
Net operating loss carryforwards 855 280
------ ------
12,308 12,540
Less valuation allowance -- --
------ ------
12,308 12,540
------ ------
Deferred tax liabilities
Fixed assets, principally depreciation
method differences 14,679 15,897
Prepaid pension costs 1,054 1,452
State, local and other taxes 1,069 1,194
Inventories, differences in LIFO methods 2,236 2,365
Asset valuation differences 124 188
------ ------
19,162 21,096
------ ------
Net deferred tax liability $ 6,854 $ 8,556
================================================================================
Management believes it is more likely than not that all deferred tax assets will
be realized and, accordingly, no valuation allowance is required. Tax years
subject to review by the Internal Revenue Service are 1994, 1995 and 1996. All
remaining alternative minimum tax credit carryforwards were utilized during
1996.
A. P. Green has not recognized a deferred tax liability for the undistributed
earnings of its wholly owned foreign subsidiaries that arose in 1996 and prior
years since the Company plans to continue to finance foreign operations and
expansion through reinvestment of those undistributed earnings. A deferred tax
liability will be recognized, if necessary, when the Company expects that it
will recover those undistributed earnings in a taxable manner, such as through
receipt of dividends or sale of the investments. The remittance of foreign
earnings subjected to tax at a rate greater than the U.S. rate may create a tax
asset for the Company to the extent foreign tax credits may be generated and are
able to be utilized. As of December 31, 1996, 1995 and 1994, the undistributed
earnings of these subsidiaries were approximately $4.9 million, $4.4 million and
$3.3 million, respectively.
Note 11: Incentive Plans
- ------------------------
A. P. Green maintains the 1987 Long-Term Performance Plan (the 1987 Plan), the
1989 Long-Term Performance Plan (the 1989 Plan), the 1993 Performance Plan (the
1993 Plan) and the 1996 Long-Term Performance Plan (the 1996 Plan). Under each
of the plans, common stock has been reserved for issuance in the form of
incentive stock options, nonqualified stock options, restricted stock and
performance shares. Under the 1987 plan, shares are also available for issuance
in the form of stock appreciation rights.
The Company's stock option activity for the years ended December 31, 1996, 1995
and 1994 is summarized as follows:
-14-
<PAGE>
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- --------------------------------------------------------------------------------
1987, 1989 and 1996 Plans
Outstanding - January 1 373,500 $7.90 394,500 $7.86 424,500 $7.86
Granted 30,000 9.32 -- --
Exercised -- (18,000) 6.67 (30,000) 7.92
Expired/Lapsed -- (3,000) 9.17 --
------- ------- -------
Outstanding - December 31 403,500 $8.01 373,500 $7.90 394,500 $7.86
======= ======= =======
Exercisable at December 31 403,500 $8.01 373,500 $7.90 394,500 $7.86
======= ======= =======
1993 Plan
Outstanding - January 1 382,500 $6.17 412,500 $6.17 412,500 $6.17
Granted -- -- --
Exercised -- (18,000) 6.17 --
Expired/Lapsed -- (12,000) 6.17 --
------- ------- -------
Outstanding - December 31 382,500 $6.17 382,500 $6.17 412,500 $6.17
======= ======= =======
Exercisable at December 31 300,000 $6.17 300,000 $6.17 330,000 $6.17
======= ======= =======
Exercise prices and weighted average remaining contractual lives of options
outstanding at December 31, 1996 are summarized as follows:
- --------------------------------------------------------------------------------
Exercise Remaining
Options Price Life
- --------------------------------------------------------------------------------
382,500 $6.17 6 years
189,000 6.67 4 years
184,500 9.17 3 years
30,000 9.32 9 years
Stock options granted under the 1987, 1989 and 1996 plans expire ten years after
grant date. Of the options outstanding at December 31, 1996, 82,500 at an
exercise price of $6.17 are not yet exercisable. Under the terms of the February
1993 grant, these options will become exercisable if, prior to February 18, 1998
and for a period of 30 consecutive trading days, the last transaction price of
the common stock equals or exceeds $11.00. To the extent these options become
exercisable, they will remain exercisable until February 18, 2003 along with the
300,000 options already exercisable under the 1993 Plan. To the extent these
options do not become exercisable due to failure to reach the $11.00 stock price
level, such options will become exercisable for one day on February 19, 1998.
There were a total of 496,758 remaining shares available for grant under all
plans as of December 31, 1996.
The Company has determined that the effect of applying the Statement 123 fair
value method to options granted during 1996 would result in net earnings and
earnings per share which are not materially different from reported amounts.
Note 12: Pension Plans
- ----------------------
A. P. Green has various pension plans covering substantially all employees. Plan
benefits are generally based on years of service and compensation during the
last years of employment. A. P. Green's contributions are made in accordance
with independent actuarial reports to meet minimum funding requirements. The
Company contributed $3.7
-15-
<PAGE>
million and $2.1 million to these plans during 1996 and 1995, respectively. The
plans' assets consist primarily of listed common stocks and debt securities.
Net pension expense for the years ended December 31, 1996, 1995 and 1994
included the following components:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost of benefits earned during period $ 1,885 $ 1,676 $ 1,793
Interest cost on projected benefit obligations 9,077 8,703 6,751
Actual (gain) loss on assets (11,712) (20,964) 1,055
Net amortization and deferral 2,603 12,454 (8,892)
------ ------ ------
Net pension expense 1,853 1,869 707
Multiemployer pension expense 183 170 181
------ ------ ------
Total pension expense $ 2,036 $ 2,039 $ 888
================================================================================
The majority of the Company's pension plans have plan assets that exceed
accumulated benefit obligations. The following table sets forth the actuarial
present value of benefit obligations and funded status for all of the Company's
pension plans at December 31, 1996 and 1995. Plan asset values and benefit
obligations are measured as of September 30, 1996 and 1995:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
Assets Accum. Assets Accum.
Exceed Benefits Exceed Benefits
Accum. Exceed Accum. Exceed
Benefits Assets Benefits Assets
- --------------------------------------------------------------------------------
Accumulated benefit obligations,
substantially all of which
are vested $(90,474) $(27,414) $(90,318) $(27,585)
Effect of projected future
compensation levels (6,027) (55) (7,442) (24)
------- ------- ------- -------
Projected benefit obligations (96,501) (27,469) (97,760) (27,609)
Plans' assets at fair value 104,405 17,218 99,899 15,597
------- ------- ------- -------
Excess (deficiency) 7,904 (10,251) 2,139 (12,012)
Unrecognized net asset at
transition (3,031) (21) (3,576) (24)
Unrecognized net (gain) loss (1,889) 630 4,794 827
Unrecognized prior service cost 4,307 945 4,036 582
Minimum pension liability
adjustment -- (1,639) -- (1,598)
------- ------- ------- -------
Prepaid (accrued) pension cost $ 7,291 $(10,336) $ 7,393 $(12,225)
================================================================================
In accordance with Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," the Company recorded an additional minimum
pension liability of approximately $1.6 million at both December 31, 1996 and
1995. This minimum liability represented the excess of unfunded accumulated
benefit obligations over recorded pension liabilities, determined on an
individual plan basis. A corresponding amount was recorded as an intangible
asset except to the extent the minimum liability for a particular plan exceeded
the related unrecognized prior service cost, in which case the excess was
recorded as a reduction of stockholders' equity. As of December 31, 1996, an
intangible asset of approximately $454,000 was recorded, along with a reduction
in stockholders' equity of $737,000, net of related tax benefits. At December
31, 1995, an intangible asset of approximately $345,000 was recorded, along with
a reduction of stockholders' equity of $784,000, net of related tax benefits.
-16-
<PAGE>
U.S. Pensions
The expected long-term rate of return on plan assets was 8.75% for 1996 and 1995
and 8.5% for 1994. A weighted average discount rate of 7.75%, 7.5% and 8.25% was
used for 1996, 1995 and 1994, respectively. A rate of increase in future
compensation levels of 5.0% for 1996, 1995 and 1994 was used in determining the
actuarial present value of projected benefit obligations on all except hourly,
collectively bargained plans.
Canadian Pensions
The expected long-term rate of return on plan assets was 8.5% for 1996, 1995 and
1994. A weighted average discount rate of 8.0% was used for all three years, and
a 5.0% rate of increase in future compensation levels was used for 1996 and
1995, 6.5% for 1994.
Note 13: Long-Term Non-Pension Benefits
- ---------------------------------------
The Company sponsors two defined benefit postretirement plans that cover both
salaried and nonsalaried employees. One plan provides health care benefits to
employees hired prior to January 1, 1991 and the other provides life insurance
benefits. The health care plan is contributory, with retiree contributions,
deductibles and benefit levels adjusted periodically; the life insurance plan is
noncontributory. Under the terms of its health care plan, based on anticipated
increases in future health care costs, the retirees' share of total costs will
be adjusted so that the Company's share will not increase more than 7% per
annum. The Company maintains the right to adjust benefits, deductibles,
contributions or the Company's share of increases, at its sole discretion, at
future dates.
The following table sets forth the actuarial present value of the plans' benefit
obligations at December 31, 1996 and 1995. The accumulated postretirement
benefit obligation was measured as of September 30, 1996 and 1995.
- --------------------------------------------------------------------------------
(In thousands) 1996 1995
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation
Retirees, dependents and beneficiaries $11,405 $12,198
Fully eligible active plan participants 2,669 2,588
Other active plan participants 3,486 3,353
------ ------
Accumulated postretirement benefit obligation 17,560 18,139
Unrecognized prior service cost (202) (231)
Unrecognized net loss from past experience
different from that assumed (1,343) (2,844)
------ ------
Accrued postretirement benefits other than pensions $16,015 $15,064
================================================================================
The Company's postretirement health care plan and life insurance plan are
unfunded; the accumulated postretirement benefit obligation at December 31, 1996
and 1995 is $16.5 million and $17.0 million, respectively, for the health care
plan and $1.1 million in both years for the life insurance plan.
-17-
<PAGE>
Net postretirement benefits cost other than pensions for the years ended
December 31, 1996, 1995 and 1994 included the following components:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost of benefits earned during the period $ 617 $ 344 $ 355
Interest cost on accumulated
postretirement benefit obligation 1,313 1,106 1,044
Net amortization 108 -- --
----- ----- -----
Net postretirement benefits cost
other than pensions $2,038 $1,450 $1,399
================================================================================
For measurement purposes, a 10% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1996; the rate was assumed to
decrease gradually to 5% by 2001 and remain at that level thereafter. Increasing
the assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation for the health
care plan as of December 31, 1996 by 3.0%, or $502,000, and would increase the
service and interest costs of net postretirement health care benefits for the
year then ended by 3.9%, or $75,000.
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.75%, 7.5% and 8.25% at December 31, 1996, 1995 and 1994,
respectively.
As discussed in Note 5, the Company adopted Statement 112 effective January 1,
1994. This standard requires use of the accrual method of accounting for
benefits provided to former or inactive employees after employment but before
retirement, rather than recognizing these expenses as they are paid. The
projected benefit obligation relates to short-term and long-term disability
benefits provided by the Company to salaried employees. The annual incremental
expense for 1996, 1995 and 1994 was not material and the projected benefit
obligation was $568,000 and $533,000 as of December 31, 1996 and 1995,
respectively.
Note 14: Employee Savings Plans
- -------------------------------
The Company sponsors three defined contribution employee savings plans under
Section 401(k) of the Internal Revenue Code. In one plan, all U.S. full-time
salaried employees and the hourly employees of certain plants are eligible to
participate. Participants are entitled to contribute between 2% and 15% of
compensation. The Company makes contributions to the employee savings plans
through the Employee Stock Ownership Trust.
The second plan, instituted in 1991, covers employees at certain locations who
have negotiated participation through collective bargaining. Participants are
eligible to contribute between 2% and 15% of compensation. For all of these
locations, the Company matches 25% of the first 6% of a participant's
contribution. Amounts charged against income were approximately $204,000,
$214,000 and $151,000 in 1996, 1995 and 1994, respectively.
Effective January 1, 1996, all employees at LTI were eligible to participate in
a defined contribution plan. Participants can contribute between 1% and 15% of
compensation. The Company matches 50% of the first 4% of a participant's
contribution. During 1996 $12,000 was charged against income.
Note 15: Employee Stock Ownership Trust
- ---------------------------------------
The Company sponsors an Employee Stock Ownership Trust (ESOT). All U.S.
full-time salaried employees and the hourly employees of certain plants are
eligible to participate. The ESOT purchased a total of 895,520 previously
unissued shares of A. P. Green common stock. The shares were issued to the ESOT
in accordance with the Stock Purchase Agreement between LaSalle National Bank,
as Trustee, and A. P. Green. The aggregate purchase price of $10.0 million was
financed entirely by A. P. Green. To
-18-
<PAGE>
secure the financing, the ESOT has pledged the shares to A. P. Green. A. P.
Green makes the necessary contributions to the ESOT.
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Interest payments on ESOT debt $ 713 $ 762 $ 806
Principal payments 564 515 471
Less
Dividends on ESOT shares used for debt service (120) (114) (104)
Forfeitures (21) (104) (58)
Interest income (1) (3) --
----- ----- -----
Contributions to ESOT 1,135 1,056 1,115
Administrative expenses 109 147 159
----- ----- -----
Employee savings plan cost $1,244 $1,203 $1,274
================================================================================
The loan to the ESOT is repayable in annual installments extending through
September 30, 2004. Interest is payable semiannually at 9.5% per annum. The note
receivable from the ESOT is reflected as a reduction of stockholders' equity in
the accompanying consolidated financial statements. The Company recognized
interest income on the ESOT note of $700,000, $750,000 and $795,000 in 1996,
1995 and 1994, respectively.
Note 16: Preferred and Common Stock
- -----------------------------------
The Company's preferred stock can be issued in one or more series without
stockholder approval. A Preferred Share Purchase Right (Right) is attached to
each outstanding share of common stock. The Rights become exercisable 10 days
following a public announcement that a party acquired, or obtained the right to
acquire, beneficial ownership of 20% or more of A. P. Green's outstanding common
shares, or 10 days following commencement or announcement of a tender offer or
exchange offer for 30% or more of A. P. Green's outstanding common shares. When
exercisable, each Right entitles the registered holder to purchase from A. P.
Green 1/10 of a share of a junior participating preferred stock, Series A, $1
par value per share, which is substantially similar to one common share, at a
price of $45 per 1/10 of a preferred share, subject to adjustment. If A. P.
Green is involved in a merger or business combination or if the acquiring entity
engages in "self dealing transactions" after the Rights become exercisable, the
Rights will entitle the holder to buy a number of shares of common stock of the
acquiring company or of A. P. Green, as the case may be, having a fair market
value at that time of twice the exercise price of the Right.
Note 17: Supplemental Financial Information
- -------------------------------------------
Cash payments and selected non-cash investing and financing activities during
1996, 1995 and 1994 were as follows:
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Income taxes paid $3,763 $4,093 $2,125
Interest paid 3,206 3,191 1,039
================================================================================
Rental payments were approximately $1.0 million in each of the last three years.
Minimum future payments under non-cancellable operating leases are approximately
$1.0 million in 1997 and decline progressively to $0 after 2001. In most cases,
management expects expiring leases will be replaced by similar leases. The lease
obligations relate primarily to office and warehouse space.
Research and development costs are expensed as incurred and amounted to
approximately $3.9 million, $2.9 million and $2.5 million during 1996, 1995 and
1994, respectively.
-19-
<PAGE>
Research and development expenditures in 1996 included costs associated with LTI
product development.
Note 18: Litigation
- -------------------
Asbestos-Related Claims - Personal Injury
- -----------------------------------------
A. P. Green is among numerous defendants in lawsuits pending as of December 31,
1996 that seek to recover compensatory and, in many cases, punitive damages for
personal injury allegedly resulting from exposure to asbestos-containing
products.
A. P. Green is a member of the Center for Claims Resolution (the Center), an
organization of twenty companies (Members) who were formerly distributors or
manufacturers of asbestos-containing products. The Center administers,
evaluates, settles, pays and defends all of the asbestos-related personal injury
lawsuits involving its Members. Under the terms of the Center Agreement, each
Member's portion of the liability payments and defense costs are based upon,
among other things, the numbers and types of claims brought against it.
Claims activity for the Company for each of the years ended December 31, 1996,
1995 and 1994, based upon information provided by the Center, was as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
- --------------------------------------------------------------------------------
Claims pending at January 1 48,367 50,920 52,122
Claims filed 29,702 12,560 14,836
Cases settled, dismissed or
otherwise resolved (19,184) (15,113) (16,038)
------ ------ ------
Claims pending at December 31 58,885 48,367 50,920
====== ====== ======
Average settlement amount per claim(1) $ 1,582 $ 1,778 $ 1,816
================================================================================
(1)Substantially all settlements are covered by the Company's insurance program.
On January 15, 1993, the Members were named as defendants in a class action
lawsuit brought on behalf of all persons who have been occupationally exposed to
asbestos-containing products of the Members and who had not yet asserted claims
for such exposure (the Class) pursuant to Federal Rule of Civil Procedure
23(b)(3) in the Federal District Court for the Eastern District of Pennsylvania.
At the same time, a settlement (the Settlement) between the Members and the
Class was filed with the court. Under the terms of the Settlement, the Members
have agreed to pay compensation to any member of the Class who has, according to
objective medical criteria, physical impairment as a result of such exposure.
Different levels of compensation will be paid depending on the type and degree
of physical impairment. No punitive damages will be paid. The Settlement
provides, among other things, for a cap on the number of claims to be processed
each year through 2004 and a range of settlement values for each disease
category. Settlement values are based on historical average payments by the
Center for similar cases. Each Member will be responsible for its percentage
share of each claim payment (no joint and several liability), such shares having
been previously established. A five week hearing was held to determine the
fairness of the Settlement. At the end of the hearing, the court ruled that the
Settlement was fair and enjoined Class members from filing lawsuits in the tort
system against the Members. The Center has been processing and settling claims
filed by Class members pursuant to the Settlement since 1994. The ruling by the
Eastern District Court of Pennsylvania was appealed by certain objectors. The
Third Circuit Court of Appeals reversed the lower court, ruling that the Class
should be decertified. The Class members and settling plaintiffs applied for a
writ of certiorari to the U. S. Supreme Court which was granted. Oral arguments
were heard in February 1997.
-20-
<PAGE>
In a third-party action filed simultaneously with the class action (and in
parallel Alternate Dispute Resolution proceedings), the Members have asked for a
declaratory judgment against their respective insurers that such insurers cannot
use the Settlement as a defense to their payment under applicable policies of
insurance. The Settlement is expressly contingent upon such declaratory relief.
In addition, some Members, including A. P. Green, have asked for a declaratory
judgment against their insurers with whom they have not reached coverage
resolutions. No decision has been rendered at this date with respect to these
issues. However, in December 1996 A. P. Green and the E. J. Bartells Company
(Bartells), a former subsidiary, reached a comprehensive settlement with all but
one of their insurance carriers. Under the terms of that settlement agreement,
the carriers have agreed to pay (subject to applicable policy limits), on behalf
of the insureds, their liabilities arising out of asbestos personal injury
claims. A. P. Green will maintain its coverage litigation against the
non-settling carrier in the event that agreement cannot be reached with it.
Under the assumption that it receives the necessary court approvals, the
Settlement has provided the Company with a basis for estimating its potential
liability and related insurance recovery associated with asbestos cases. The
Company has reviewed its insurance policies, historical settlement amounts, the
number of pending cases and the projected number of claims to be filed pursuant
to the Settlement and the Company's share of amounts to be paid thereunder. The
Company has also reviewed its contractual liability for the payment of
deductibles under certain insurance policies insuring Bartells against
asbestos-related personal injury claims, such policies having been issued when
Bartells was owned by A. P. Green. The Company has also reviewed the terms of
the settlement agreement with its insurance carriers. Based upon such reviews,
the Company has projected its liability for such cases and claims through 2004
to be approximately $112.0 million and $137.2 million at December 31, 1996 and
1995, respectively, with partially offsetting projected insurance reimbursements
of approximately $110.4 million and $135.2 million, respectively.
While management understands the inherent uncertainty in litigation of this type
and the possibility that past costs may not be indicative of future costs,
management does not believe that these claims and cases will have any additional
material adverse effect on the Company's financial position or results of
operations. Management anticipates the Company's payments for these claims will
occur over at least seven years and can be made from normal operating cash
sources.
In addition to asbestos-related personal injury claims asserted against A. P.
Green, a number of similar claims have been asserted against Bigelow-Liptak
Corporation (now known as A. P. Green Services, Inc.), a subsidiary of the
Company. These claims have been and are currently being handled by such
subsidiary's insurance carriers. Except for deductible amounts or retentions
provided under insurance policies, no claim for reimbursement of defense or
indemnity payments has been made against the Company or such subsidiary by any
such carriers.
Asbestos-Related Claims-Property Damage
- ---------------------------------------
A. P. Green is among numerous defendants in a property damage class action suit
pending in South Carolina. A. P. Green previously has been dismissed from a
number of property damage cases and believes that it should be dismissed from
the South Carolina case based on the end uses of its products. A similar suit
pending in the State of Oregon involves a former wholly owned subsidiary of the
Company and is being defended by the Company's insurance carrier. Based upon the
Company's history in these asbestos-related property damage claims, management
does not believe that the ultimate resolution of these matters will have a
material adverse effect on the Company's financial position or results of
operations.
There was no assumption by the Company of asbestos-related liability, either
personal injury or property damage, in connection with the August 1994 General
acquisition.
-21-
<PAGE>
Environmental
- -------------
The EPA or private parties have named the Company or one of its subsidiaries as
a potentially responsible party in connection with two superfund sites in the
United States. The Company is a de minimis party with respect to one of the
sites and expects to arrive at a settlement agreement and consent decree with
respect to it for an amount of not more than $10,000. With respect to the
second, involving a wholly owned subsidiary of the Company, there does not
appear to be any evidence of delivery to the site of hazardous material by the
subsidiary. An estimate has been made of the costs to be incurred in these
matters and the Company has recorded a reserve respecting those costs.
Other
- -----
From time to time, A. P. Green is subject to claims and other lawsuits that
arise in the ordinary course of business, some of which may seek damages in
substantial amounts, including punitive or extraordinary damages. Reserves for
these claims and lawsuits are recorded to the extent that losses are deemed
probable and are estimable. In the opinion of management, the disposition of all
current claims and lawsuits will not have a material adverse effect on the
consolidated financial position or results of operations of A. P. Green.
Note 19: Industry and Geographic Segments
- -----------------------------------------
A. P. Green operates principally in two industry segments: Industrial Lime and
Refractory Products and Services. Segment net sales include products sold and
services rendered to unaffiliated customers. Interindustry segment sales were
immaterial for the periods presented. No single customer accounted for more than
10% of consolidated annual net sales in any such period. Segment operating
profit includes all costs and expenses directly related to the segment involved
and a reasonable allocation of general costs and expenses which benefit more
than one segment. General corporate expenses, interest income and interest
expense are shown as separate line items in order to arrive at consolidated
earnings before income taxes and cumulative effect of an accounting change.
Corporate identifiable assets include cash and cash equivalents and those assets
maintained for corporate purposes which are not directly related to the
operations of either industry segment.
-22-
<PAGE>
Industry Segments
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Net Sales
- --------------------------------------------------------------------------------
Refractory products and services $218,400 $212,203 $160,933
Industrial lime 40,168 37,727 35,144
Intersegment eliminations (107) (215) (159)
------- ------- -------
$258,461 $249,715 $195,918
================================================================================
Operating Profit
- --------------------------------------------------------------------------------
Refractory products and services $ 7,972 $ 12,565 $ 11,463
Industrial lime 8,287 6,911 5,429
------ ------ ------
16,259 19,476 16,892
------ ------ ------
Other charges to income
General corporate
expenses, net 7,570 7,434 6,946
Interest expense 3,112 3,190 1,947
Interest income (1,256) (1,513) (1,296)
------ ------ ------
9,426 9,111 7,597
------ ------ ------
Earnings before income taxes
and cumulative effect of an
accounting change $ 6,833 $ 10,365 $ 9,295
================================================================================
Identifiable Assets
- --------------------------------------------------------------------------------
Refractory products and services $284,180 $313,165 $311,514
Industrial lime 58,514 47,698 47,995
Corporate 12,435 12,705 13,613
------- ------- -------
$355,129 $373,568 $373,122
================================================================================
Depreciation, Depletion and Amortization
- --------------------------------------------------------------------------------
Refractory products and services $ 6,811 $ 6,375 $ 4,967
Industrial lime 2,813 2,751 2,653
Corporate 958 1,048 1,105
------ ------ -----
$ 10,582 $ 10,174 $ 8,725
================================================================================
Capital Expenditures
- --------------------------------------------------------------------------------
Refractory products and services $ 9,675 $ 7,597 $ 2,154
Industrial lime 2,470 2,137 3,482
Corporate 747 422 846
------ ------ -----
$ 12,892 $ 10,156 $ 6,482
================================================================================
-23-
<PAGE>
A. P. Green's principal operations are located in the United States, the United
Kingdom, Canada, Mexico and the Far East. Transactions between geographic areas
are accounted for on an "arm's-length" basis. Export sales to foreign,
unaffiliated customers represent less than 10% of consolidated annual net sales.
- --------------------------------------------------------------------------------
Geographic Segments
- --------------------------------------------------------------------------------
(In thousands) 1996 1995 1994
- --------------------------------------------------------------------------------
Net Sales
- --------------------------------------------------------------------------------
United States $226,290 $219,571 $176,869
Canada 23,759 24,045 17,876
United Kingdom 9,978 9,745 7,336
Mexico 8,123 3,242 --
Intersegment transfers (9,689) (6,888) (6,163)
------- ------- -------
$258,461 $249,715 $195,918
================================================================================
Earnings (Loss) Before Income Taxes and Cumulative Effect
of an Accounting Change
- --------------------------------------------------------------------------------
United States $ 5,883 $ 8,352 $ 8,389
Canada (324) 999 570
United Kingdom 607 673 336
Mexico 992 341 --
Far East (325) -- --
----- ------ -----
$ 6,833 $ 10,365 $ 9,295
================================================================================
Identifiable Assets
- --------------------------------------------------------------------------------
United States $306,945 $330,285 $339,380
Canada 17,143 18,000 15,887
United Kingdom 5,234 5,020 4,242
Mexico 6,447 5,451 --
Far East 6,925 2,107 --
Corporate 12,435 12,705 13,613
------- ------- -------
$355,129 $373,568 $373,122
================================================================================
-24-
<PAGE>
Note 20: Quarterly Financial Highlights (Unaudited)
- ---------------------------------------------------
- --------------------------------------------------------------------------------
First Second Third Fourth
(Dollars in thousands, except per share data) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
1996 (adjusted)
Net sales $64,234 $69,538 $61,948 $62,741
Gross profit 11,355 13,496 8,942 10,315
Net earnings 1,604 2,571 162 336
Net earnings per common share .20 .32 .02 .04
- --------------------------------------------------------------------------------
1995
Net sales $61,889 $64,315 $62,652 $60,859
Gross profit 10,438 9,959 11,188 9,821
Net earnings 1,688 2,506 2,265 2,341
Net earnings per common share .21 .31 .28 .29
================================================================================
Lower sales and a planned reduction of refractory finished goods inventory
during the third and fourth quarters of 1996 resulted in reduced production
efficiencies and declines in gross profit and net earnings. Also contributing to
the decline were inventory-related adjustments resulting from changes in
inventory levels.
Note 21: Subsequent Event
- -------------------------
The Company acquired a 51% ownership interest in Lanxide ThermoComposites, Inc.
and Subsidiary (LTI) on December 31, 1995, at which date total stockholders'
equity of LTI was $196,078. LTI has incurred quarterly net losses since the
acquisition. ARB 51 requires that "...In the unusual case in which losses
applicable to the minority interest in a subsidiary exceed the minority interest
in the equity capital of the subsidiary, such excess and any further losses
applicable to the minority interest shall be charged against the majority
interest..." The Company did not become aware of this requirement until recently
and, as such, has been charging 49% of all LTI losses against the minority
interest.
In order to correct its prior accounting treatment, the Company has adjusted its
consolidated statements of earnings for the year ended December 31, 1996 and the
first three quarters of 1997.
The impact, by quarter, on the year ended December 31, 1996 was as follows:
- --------------------------------------------------------------------------------
First Second Third Fourth
(Dollars in thousands, except per share data) Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------
Minority interest in income of consolidated
subsidiaries, net (as reported) $ (140) $ (186) $(112) $(36)
Minority interest in income of consolidated
subsidiaries, net (as adjusted) (13) 80 70 63
Net earnings (as reported) 1,731 2,837 344 435
Net earnings (as adjusted) 1,604 2,571 162 336
Net earnings per common share (as reported) .22 .36 .04 .05
Net earnings per common share (as adjusted) .20 .32 .02 .04
In accordance with ARB 51, for future periods in which LTI has earnings the
Company, as majority stockholder, will be credited with 100% of those earnings
until such time as total stockholders' equity of LTI is positive.
-25-
<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, 1996 and
1995, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1996 (all as restated, see note 21). These consolidated financial statements are
the responsibility of A. P. Green's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of A. P. Green
Industries, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
As discussed in note 5 of notes to consolidated financial statements, the
Company changed its method of accounting for postemployment benefits in 1994.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
February 10, 1997, except for
note 21, as to which the date is
January 13, 1998
-26-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) 3. Exhibits
--------
Exhibit No.
-----------
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule as of December 31, 1996 (as adjusted).
-27-
<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: February 2, 1998 By: /s/ Gary L. Roberts
---------------- ---------------------------
Gary. L. Roberts, Vice President,
Chief Financial Officer and Treasurer
-28-
<PAGE>
Exhibit 23 to
Form 10-K/A
Independent Auditors' Consent
The Board of Directors and Stockholders
A.P. Green Industries, Inc.:
We consent to incorporation by reference in the registration statement (Nos.
33-21012, 33-26035, 33-35475 and 33-38323) on Form S-8 of A.P. Green Industries,
Inc. and subsidiaries of our report dated February 10, 1997, except for note 21,
as to which the date is January 13, 1998, relating to the consolidated
statements of financial position of A.P. Green Industries, Inc. and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
earnings, stockholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1996 (all as restated, see note 21), and
the related schedule, which report appears in the December 31, 1996 annual
report on Form 10-K of A.P. Green Industries, Inc. Our report refers to a change
in the method of accounting for postemployment benefits in 1994.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
February 2, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ADJUSTED
ANNUAL REPORT ON FORM 10-K/A OF A. P. GREEN INDUSTRIES, INC. AS OF AND FOR THE
YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH ADJUSTED ANNUAL REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,477
<SECURITIES> 0
<RECEIVABLES> 43,785
<ALLOWANCES> 1,701
<INVENTORY> 53,674
<CURRENT-ASSETS> 119,537
<PP&E> 210,354
<DEPRECIATION> 102,960
<TOTAL-ASSETS> 355,129
<CURRENT-LIABILITIES> 43,996
<BONDS> 44,277
0
0
<COMMON> 8,975
<OTHER-SE> 108,735
<TOTAL-LIABILITY-AND-EQUITY> 355,129
<SALES> 258,461
<TOTAL-REVENUES> 258,461
<CGS> 214,353
<TOTAL-COSTS> 214,353
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,112
<INCOME-PRETAX> 6,833
<INCOME-TAX> 2,396
<INCOME-CONTINUING> 4,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,673
<EPS-PRIMARY> .58
<EPS-DILUTED> 0
</TABLE>
