SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) July 1, 1998
--------------------------------
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 1-11160 75-2617871
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
2121 San Jacinto, Suite 2500, Dallas, Texas 75201
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (214) 953-4500
-----------------------------
Not applicable
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 30, 1998, the Registrant, through its wholly owned subsidiary
BGN Acquisition Corp., a Delaware corporation ("Merger Sub"), completed its
previously announced tender offer (the "Tender Offer") for all of the
outstanding shares of common stock, par value $1.00 per share (the "Shares") of
A.P. Green Industries, Inc. ("A.P. Green") for $22.00 net per share in cash. The
Registrant acquired approximately 7.6 million (representing approximately 96%)
of the outstanding Shares through the Tender Offer. The Registrant obtained the
funds required to purchase the outstanding Shares from its cash balances and
unused credit lines. On July 1, 1998, Merger Sub merged with and into A.P. Green
pursuant to the Agreement and Plan of Merger, dated as of March 3, 1998, among
A.P. Green, the Registrant and Merger Sub (the "Merger Agreement"). Pursuant to
the Merger Agreement, all remaining outstanding Shares (other than Shares owned
by the Registrant, Merger Sub or any other subsidiary of the Registrant) were
converted into the right to receive, without interest, $22.00 in cash per Share
(subject to the right of stockholders who comply with applicable procedures
under the Delaware General Corporation Law to exercise their appraisal rights to
receive the "fair value" for their Shares) and A.P. Green became a wholly owned
subsidiary of the Registrant.
ITEM 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not applicable.
ITEM 5. OTHER EVENTS.
Not applicable.
ITEM 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
Not applicable.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
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<PAGE>
(a) Financial Statements of Business Acquired.
Following are audited consolidated statements of financial
position of A.P. Green for the two years ended December 31, 1997
and audited statements of earnings and statements of cash flows of
A.P. Green for the three years ended December 31, 1997, as filed
with the Securities and Exchange Commission as part of A.P.
Green's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF EARNINGS
(Dollars in thousands, except per share data)
<S> <C> <C> <C>
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
============ =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Dollars in thousands, except per share data)
<S> <C> <C>
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
========== ==========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
Minimum
Deferred Pension Deferred
Additional Foreign Treasury Note Liability Compensation-
Common Paid-In Retained Currency Stock, Receivable- Adjustment Restricted
Stock Capital Earnings Translation At Cost ESOT Net of Tax Stock
----------- ----------- ----------- ----------- --------- ---------- ---------- ------------
<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>
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<S> <C> <C> <C>
Years ended December 31, 1997 1996 1995
-------- -------- ---------
Cash flows from operating activities
Net earnings $ 8,068 $ 4,673 $ 8,800
Adjustments for items not requiring (providing) cash
Depreciation, depletion and amortization 12,139 10,582 10,174
Deferred compensation earned - - 4
Stock compensation to directors 40 28 23
Provision for losses on accounts receivable 656 740 120
Loss (gain) on sale of assets 183 (58) (1,272)
Equity in earnings of affiliates, net of dividends received (1,047) 33 (227)
Minority interest in earnings (loss) of consolidated subsidiaries
and partnerships (10) 73 97
Decrease (increase) in assets, net of effects from acquisitions
Trade receivables (7,333) 2,881 1,143
Asbestos claim and fee reimbursements received 28,832 17,276 30,232
Inventories (31) 2,999 (1,758)
Receivable and prepaid taxes 13 315 (360)
Other current assets (435) (1,053) (712)
Increase (decrease) in liabilities, net of effects from acquisitions
Accounts payable and accrued expenses 1,642 (958) (9,925)
Asbestos claims paid (26,526) (18,573) (23,937)
Pensions (526) (1,715) 279
Income taxes (390) 88 (322)
Deferred income taxes (2,366) (1,725) (1,185)
Long-term non-pension benefits 1,069 986 286
-------- -------- ---------
Net cash provided by operating activities 13,978 16,592 11,460
Cash flows from investing activities
Capital expenditures (11,671) (12,892) (10,156)
Decrease (increase) in other long-term assets (76) 47 (726)
Increase in pension assets (84) (82) (34)
Proceeds from sales of assets 1,328 807 1,843
Payment received on ESOT note 618 564 516
Acquisition of businesses, net of cash acquired - (10,059) (1,614)
-------- -------- ---------
Net cash used in investing activities (9,885) (21,615) (10,171)
-------- -------- ---------
Cash flows from financing activities
Repayments of debt (20,730) (2,708) (165)
Proceeds from borrowings 12,500 9,525 -
Dividends paid (1,287) (1,205) (1,128)
Purchases of common stock for treasury - (480) -
Capital contributions from minority partner 490 - 121
Exercised stock options 195 - 2
Tax benefit on dividends paid to ESOT 27 28 30
Tax effect on restricted stock plan - - 1
-------- -------- ---------
Net cash provided by (used in) financing activities (8,805) 5,160 (1,139)
-------- -------- ---------
Effect of exchange rate changes (1,064) 56 (503)
-------- -------- ---------
Net increase (decrease) in cash and cash equivalents (5,776) 193 (353)
Cash and cash equivalents at beginning of year 9,477 9,284 9,637
-------- -------- ---------
Cash and cash equivalents at end of year $3,701 $9,477 $9,284
======== ======== =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
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<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 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.
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<PAGE>
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 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 adjustment 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
-8-
<PAGE>
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.
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
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<PAGE>
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 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.
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<PAGE>
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
--------- --------- ---------
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.
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<PAGE>
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
-------- --------
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<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.
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<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%
---- ---- ----
-14-
<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.
-14-
<PAGE>
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, 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>
-16-
<PAGE>
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 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%
-17-
<PAGE>
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:
<TABLE>
<S> <C> <C> <C>
(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
------- ------- -------
</TABLE>
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>
-18-
<PAGE>
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.
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.
-19-
<PAGE>
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.
-20-
<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 A. P. Green. A. P. Green makes the necessary contributions to the
ESOT to allow the interest and principal payments to be made.
-21-
<PAGE>
(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 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.
-22-
<PAGE>
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:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
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
------- -------- -------
<FN>
(1) All settlements are covered by the Company's insurance program.
</FN>
</TABLE>
-23-
<PAGE>
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.
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.
-24-
<PAGE>
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.
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.
-25-
<PAGE>
<TABLE>
<CAPTION>
Industry Segments
(In thousands) 1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
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
--------- -------- --------
</TABLE>
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.
-26-
<PAGE>
<TABLE>
<CAPTION>
Geographic Segments
(In thousands) 1997 1996 1995
------ ------ -----
<S> <C> <C> <C>
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
--------- -------- --------
</TABLE>
-27-
<PAGE>
<TABLE>
<CAPTION>
Note 20: Quarterly Financial Highlights (Unaudited)
- ----------------------------------------------------
(Dollars in thousands, First Second Third Fourth
except per share data) Quarter Quarter Quarter Quarter
1997 ------------ -------------- ------------ -------------
<S> <C> <C> <C> <C>
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 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.
-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. 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
-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
=======
(b) Pro Forma Financial Information.
The pro forma financial information required by this Item will be filed by
an amendment to this Report not later than 60 days after the date hereof.
(c) Exhibits.
-30-
<PAGE>
No. Description
--- -----------
2.1 Agreement and Plan of Merger, dated as of March 3, 1998, among
A.P. Green Industries, Inc., Global Industrial Technologies, Inc.
and BGN Acquisition Corp. (incorporated herein by reference to
Exhibit (c)(1) of the Registrant's Schedule 14D-1, filed March 6,
1998).
23 Consent of KPMG Peat Marwick LLP.
ITEM 8. CHANGE IN FISCAL YEAR.
Not applicable.
ITEM 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunder duly authorized.
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
Date: July 9, 1998 By: /s/ Graham L. Adelman
---------------------------------------------------
Name: Graham L. Adelman
Title: Senior Vice President, General Counsel
and Secretary
Exhibit 23
Independent Auditors' Consent
The Board of Directors and Stockholders of
A.P. Green Industries Inc.:
We consent to the inclusion of our report dated February 9, 1998, with
respect 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, which
report appears in the Form 8-K of Global Industrial Technologies, Inc. dated
July 1, 1998.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
July 7, 1998
