Exhibit 13 to
                                                                   Form 10-K



MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION

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

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

Net sales of $258.5  million in 1996 were 3.5% higher than the $249.7 million in
1995. The impact from the December 1995 acquisition of Lanxide ThermoComposites,
Inc. and subsidiary, Chiam Technologies,  Inc. (collectively referred to as LTI)
was to increase 1996 sales by  approximately  $2.1 million.  The impact from the
July 1995 A. P.  Green de  Mexico  acquisition  was to  increase  1996  sales by
approximately  $3.6  million.  The  impact  from  the  INTOGREEN  joint  venture
partnership,  formed in January  1995 but with no  significant  activity  during
1995, was to increase 1996 sales by  approximately  $1.0 million.  Excluding the
impact of these acquisitions and ventures,  sales increased by $2.1 million,  or
0.8%.

Gross profit increased 6.5% to $44.1 million in 1996 from $41.4 million in 1995,
including approximately $340,000 due to the LTI acquisition, $1.1 million due to
the A.  P.  Green  de  Mexico  acquisition  and  $95,000  due  to the  INTOGREEN
partnership.  Net earnings  declined $3.5 million to $5.3  million,  or $.67 per
share, in 1996 from $8.8 million, or $1.09 per share, in 1995.

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

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

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

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

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

Refractory  gross  profit  increased  3.8% to $34.5  million  in 1996 from $33.3
million in 1995.  Refractory  products  cost of sales as a  percentage  of sales
declined  slightly to 84.2% in 1996 from 84.3% in 1995. The 1996 improvement was
due primarily to higher margins at A. P. Green de Mexico.  Also  contributing to
the cost reduction were lower workers  compensation and processing fuels expense
and improved labor  efficiencies at U.S. plants,  offset by increased  equipment
maintenance and higher inventory cost adjustments.  Refractory operating profits
declined  36.6%  to $8.0  million  in 1996  from  $12.6  million  in 1995 due to
increased  salary and related  expenses and travel,  partially offset by reduced
sales incentives.  Selling and administrative  expenses at LTI, INTOGREEN, PT AP
Green  Indonesia and A. P. Green de Mexico,  including over $800,000 in research
and development  expenses at LTI, also contributed to the reduction in operating
profit.  Management  anticipates  that these research  expenditures  at LTI will
yield improved sales and operating results in the future.

During  the  third  and  fourth  quarters  of 1996,  lower  sales  and a planned
reduction of refractory  finished goods inventory resulted in reduced production
efficiencies  and declines in gross  profit and net earnings for those  periods.
Inventory-related  adjustments  also  contributed to the decline in gross profit
and net  earnings  during the third and  fourth  quarters.  Management  does not
anticipate a long-term continuation of these reduced sales levels and production
inefficiencies.  In  addition,  results  from  LTI,  INTOGREEN  and PT AP  Green
Indonesia should all improve as these subsidiaries  progress beyond the start-up
phase of operations.

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

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

10

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

The Company's share of income from its two Colombian affiliates totaled $436,000
in 1996  compared to $781,000 in 1995.  The  reduction was due to a recession in
the Colombian construction industry, political uncertainty and a general decline
in economic conditions in Colombia.  Current projections indicate reduced income
levels will continue in the near future.

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

Effective  December  31, 1996,  A. P. Green  acquired  substantially  all of the
assets and assumed certain of the liabilities of the operations of Eastern Ridge
Lime, L.P.  (Eastern Ridge).  As a result of this  acquisition,  working capital
increased  approximately  $2.0  million,  composed  primarily of $1.3 million in
accounts receivable and $1.1 million in inventory,  partially offset by $378,000
in accounts  payable and $101,000 in short-term  capital lease  obligations.  In
addition,  property,  plant and equipment  increased  $8.3 million and long-term
capital lease obligations increased $270,000 as a result of this acquisition.

Working capital  decreased  5.4%, or $4.3 million,  to $75.5 million at December
31, 1996 from $79.8  million at December  31, 1995,  including  the $2.0 million
obtained  through   acquisitions.   The  ratio  of  current  assets  to  current
liabilities  declined  to 2.7  to 1  from  2.8 to 1.  Excluding  the  impact  of
acquisitions,  working  capital  decreased $6.3 million.  Reductions in accounts
receivable  of $3.4 million and  inventories  of $3.0  million and  increases in
accounts  payable of $1.8 million and current  maturities  of long-term  debt of
$1.4  million  accounted  for  the  majority  of the  working  capital  decline,
partially  offset by reductions in insurance  reserves of $1.1 million and other
accrued expenses of $1.2 million.

                                                                              11
<PAGE>

The  decrease  in  inventories  was  primarily  due to a  planned  reduction  of
refractory  finished  goods.  The  decrease  in accounts  receivable  was due to
improvements in refractories  collection efforts and a resulting  improvement in
days sales  outstanding.  The increase in accounts payable,  partially offset by
the reduction in other accrued  expenses,  was due primarily to increased levels
of production  associated  with the 1995  acquisitions  and ventures.  Insurance
reserves declined primarily due to continued favorable workers  compensation and
group health insurance claims experience.

The increase in current maturities of long-term debt was due to reclassification
from  long-term  to current of a $1.0  million  final  payment on an  industrial
development  revenue  bond at the  Bessemer,  Alabama  plant  which  matures  in
December  1997, and INTOGREEN  borrowings  from the minority  interest  partner,
INTOCAST AG.  Long-term debt increased $5.5 million,  net of the impact from the
Eastern Ridge  acquisition,  due to borrowing $9.0 million against the U.S. line
of  credit,  less a $2.5  million  payment on the  unsecured  notes and the $1.0
million transfer to current maturities noted above.

Deferred tax assets  declined  18.0% due  primarily to  reductions  in temporary
differences  created by accrued  liabilities  and  utilization  of the remaining
alternative minimum tax carryforwards.  Deferred tax liabilities  declined 19.3%
due  primarily to  depreciation  method  differences  and a reduction in prepaid
pension costs.

The  projected  insurance  recovery  on asbestos  claims and  related  projected
asbestos claims decreased $24.8 million and $25.3 million,  respectively.  These
decreases  resulted from claim  payments made by insurance  carriers and revised
estimates based upon settlement  agreements reached with the Company's insurance
carriers and information  provided by the Center for Claims Resolution.  The net
projected asbestos  liability  included in the Company's  statement of financial
position  declined  from  December 31, 1995 to December 31, 1996.  All projected
asbestos  claims and  projected  insurance  recoveries  on asbestos  claims were
classified as long-term in the 1996  statement of financial  position due to the
inherent   uncertainty   with  regard  to  timing  of  claims   submissions  and
settlements. Prior years have been restated to conform to the 1996 presentation.

Long-term debt,  including  current  portion,  at December 31, 1996 consisted of
industrial  development revenue bonds totaling $11.8 million which bear interest
rates  ranging from 70% of prime (8.25% at December 31, 1996) to 8.6% and mature
at various  times from 1997 through 2014 and  unsecured  notes of $23.0  million
($22.5  million of which bear an interest  rate of 8.55%) with annual  principal
repayments which commenced in 1996 and will continue through 2001. Also included
are $9.0 million borrowed against the U.S. line of credit,  which expires May 2,
1998 and bears an  interest  rate of 2% above the  federal  funds rate (5.38% at
December 31, 1996) and  capitalized  leases of $381,000 which expire in 1997 and
1999 and bear  interest  rates ranging from 6.7% to 11.1%.  Management  believes
that the Company's financial position will support  additional  borrowing should
the need arise.

During 1996, the Company's U.S.  long-term line of credit was extended to May 2,
1998.  Restrictive  covenants  coincide  with those  reflected in the  agreement
associated with the unsecured notes payable.  Approximately $2.7 million of this
line of credit was being utilized at December 31, 1996 for  outstanding  letters
of credit in  addition  to the $9.0  million  borrowed  against  it,  leaving an
available balance of approximately $18.3 million.

Capital  expenditures  for 1996 totaled $12.9 million  compared to $10.2 million
for 1995, with capital  expenditures  for the refractories  business  increasing
$2.1  million.  Of this  refractories  increase,  approximately  $900,000 was to
complete construction of the new specialties plant in Indonesia.  The balance of
the refractories  increase was for replacement,  modernization  and expansion of
operations.

Capital expenditure commitments for the replacement, modernization and expansion
of operations amounted to $4.2 million and $7.0 million at December 31, 1996 and
1995, respectively.  Of the 1996 commitment,  approximately $1.9 million was for
expansion and modernization of the Mexico, Missouri and Fulton, Missouri plants.
Of the 1995 commitment, approximately $2.5 million was for building the plant in
Indonesia and $895,000 was for expansion of the Smithville, Ontario plant. A. P.
Green believes that it has sufficient  liquidity and borrowing  capacity to meet
both  its  normal  working   capital   requirements   and  its  planned  capital
expenditures for 1997.

The Company  has  investments  in  subsidiaries  in Canada and the U.K.  and two
affiliates in Colombia.  Adjustments  resulting from the currency translation of
these  subsidiaries'  and  affiliates'  financial  statements are reflected as a
component of  stockholders'  equity and were $2.9  million at both  December 31,
1996 and 1995.

The Board of Directors  declared a regular quarterly  dividend of $.04 per share
in the first quarter of 1997. The continuation of such quarterly  dividends will
be evaluated by the Board of Directors from time to time in light of A. P.
Green's financial position and results of operations.

12

<PAGE>

1995 Compared to 1994
---------------------

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

Net sales of $249.7 million in 1995 were 27.5% higher than the $195.9 million in
1994. The impact from the August 1994 acquisition of the  refractories  business
of General Refractories Company and its affiliated companies  ("General") was to
increase 1995 sales by  approximately  $38.8  million.  The impact from the July
1995  acquisition  of 51% of A. P. Green de Mexico was to increase 1995 sales by
approximately $3.2 million.  Excluding the impact of these  acquisitions,  sales
increased in 1995 by $11.8 million, or 6.0%.

Gross  profit  increased  20.0% to $41.4  million in 1995 from $34.5  million in
1994, including $3.9 million due to the General acquisition and $1.3 million due
to the A. P. Green de Mexico  acquisition.  Earnings before cumulative effect of
an accounting change increased $2.1 million to $8.8 million, or $1.09 per share,
in 1995 from $6.7 million, or $.83 per share, in 1994. The results of operations
in 1994  included  the  cumulative  effect of adopting  Statement  of  Financial
Accounting  Standards  No.  112,   "Employers'   Accounting  for  Postemployment
Benefits," which reduced net earnings by $255,000, or $.03 per share.

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

Net sales from refractory  operations  increased 31.9% to $212.2 million in 1995
as compared to $160.9 million in 1994. U.S.  refractory sales increased 28.3% to
$181.8  million in 1995 as  compared to $141.7  million in 1994,  of which $33.3
million was due to the General  acquisition.  Excluding this acquisition impact,
volume of U.S.  refractory  products increased an average of 5.3% in 1995 across
all product lines except precast shapes.  Prices were essentially unchanged from
1994 levels,  with increases in  specialties  and precast shape prices offset by
declines in prices of brick and ceramic  fibers.  U.S.  export  sales  increased
52.1% to $19.5  million in 1995 from $12.8  million in 1994,  due largely to the
General acquisition.

Sales at the Canadian  subsidiary  increased 34.5% to $24.0 million in 1995 from
$17.9  million  in 1994,  substantially  all of which  was the  impact  from the
General acquisition ($6.2 million).  Excluding this impact,  decreases in brick,
specialties and precast shape volumes were partially offset by increased ceramic
fiber and crucible  volumes for a net Canadian  volume  decline of 4.2%.  Prices
increased  across all product  lines except  crucibles,  resulting in an overall
1995 price increase of 4.3%.

Excluding a $1.4 million  pretax gain on the sale of the Weston,  Ontario plant,
the Canadian subsidiary had a pretax loss of $365,000 in 1995 compared to pretax
earnings of $570,000 in 1994.  The 1995 loss  included  the  establishment  of a
reserve for exit costs and termination benefits for 26 employees associated with
the closing  and sale of the  Weston,  Ontario  plant,  which was  substantially
completed  in  December  1995,  and  additional  interest  expense  on the  debt
associated  with the  acquisition  of the  General  operation  in  Canada.  Also
contributing  to the  1995  loss  were  increased  salaries  and  related  costs
associated  with the  addition of General  sales and  administrative  personnel.

Sales in the United  Kingdom  increased  32.8% to $9.7 million in 1995 from $7.3
million  in 1994 as the U.K.  market  showed  signs of  improvement.  The  sales
increase  generated  pretax  earnings of $673,000 in 1995,  double the  $336,000
earned in 1994.

A. P. Green de Mexico's pretax earnings were $341,000 on sales of $3.2 million
for the six months of 1995 under A. P. Green ownership.

Refractory  gross  profit  increased  18.8% to $33.3  million in 1995 from $28.0
million in 1994,  largely as a result of the  General  and A. P. Green de Mexico
acquisitions.  Refractory  products  cost of  sales  as a  percentage  of  sales
increased  to  84.3% in 1995  from  82.6% in  1994.  The 1995  increase  was due
primarily to a higher  percentage of lower margin sales to the steel industry at
the acquired  General  facilities,  increased  raw material and inbound  freight
costs and higher equipment  maintenance  expense.  Also contributing to the cost
increase  were  increases in the  obsolete  inventory  and U. S. plant  shutdown
reserves,  both of which were established at the time of the General acquisition
related to facilities  to be closed,  as well as  establishment  of the Canadian
plant shutdown reserve  previously  mentioned.  The U. S. plant shutdown reserve
was  increased  due  primarily  to revised  estimates  of  employee  termination
benefits  resulting  from  the  sale of  these  facilities  taking  longer  than
anticipated.  Substantially all employees  (approximately 210 in total) at these
facilities  have been  terminated,  approximately  $3.2  million of  termination
benefits and plant closing  costs have been charged  against the reserve to date
and the U. S.  facilities  are held for sale at their  estimated net  realizable
value.  Partially  offsetting these increases were improved labor  efficiencies,
and reduced power,  processing fuel, outbound freight and group insurance costs.
Refractory  operating profits increased 9.6% to $12.6 million in 1995 from $11.5
million in 1994.

                                                                              13

<PAGE>

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

Industrial lime sales increased 7.4% to $37.7 million in 1995 from $35.1 million
in 1994. Volume increased an average of 9.2% across all product lines at the New
Braunfels,  Texas plant,  while  volume at the  Kimballton,  Virginia  plant was
essentially  unchanged from its 1994 levels,  with a slight decline in quicklime
volumes offset by slight  increases in all other product lines.  Prices improved
an average of 5.5% at the Kimballton  plant during 1995,  with increases  across
all product lines,  while prices  remained  steady at the New Braunfels plant as
declines in  industrial  and  building  lime prices were offset by  increases in
pricing of road stabilization lime and lime by-products.

The gross margins of the Company's  industrial  lime operations are sensitive to
volume  changes  due to the  capital  intensive  nature  of the  operations  and
semi-fixed  nature of other  costs.  As a result of the  sales  increase,  gross
profit  and  operating  profit  increased  25.5% and 27.3%,  respectively.  Also
contributing to the 1995 increase were improved labor  efficiencies  and reduced
group insurance and processing fuel costs at both plants,  reduced raw materials
and equipment  maintenance  costs at the New  Braunfels  plant and reduced power
costs at the Kimballton plant.  Partially  offsetting these cost reductions were
increases  in  workers'  compensation  costs  at the  New  Braunfels  plant  and
equipment maintenance and outside processing costs at the Kimballton plant.

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

Selling and  administrative  expenses  increased  21.8% to $31.3 million in 1995
from $25.7  million in 1994.  The 1995 increase was due to increases in salaries
and related costs, pension costs, travel, office expenses, professional fees and
the amortization of intangibles,  which were all largely related to the addition
of General sales and research  personnel and intangible  assets  included in the
acquisition.  Selling and  administrative  expenses at A. P. Green de Mexico and
INTOGREEN contributed $603,000 and $143,000 of the increase,  respectively. Also
contributing  to the increase  were higher  sales  promotion,  sales  incentive,
employee  recruiting  and  relocation  and director  retirement  plan  expenses,
partially  offset by a reduced  provision for doubtful  accounts  receivable and
lower postemployment benefits costs.

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

Interest  expense  increased  63.8% to $3.2 million in 1995 from $1.9 million in
1994 due to the additional debt associated with the General  acquisition.  There
were no bank line borrowings during either year. Interest income increased 16.7%
to $1.5  million  in 1995  from  $1.3  million  in 1994 due to  increased  funds
available for investing, higher interest rates and interest received during 1995
on tax refunds.

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

Other income,  net increased  62.9% to $1.9 million in 1995 from $1.2 million in
1994 due to the $1.4  million  pretax  gain on the sale of the  Weston,  Ontario
plant in December  1995.  Partially  offsetting  this gain were  increased  bank
charges and a reduction in 1995 royalty income  resulting from the  cancellation
of a licensing  agreement with a significant  Mexican licensee during the fourth
quarter  of 1994.  Other  income in 1994  included  gains on sales of land and a
warehouse in Los Angeles and a business interruption insurance recovery.

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

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

During the second  quarter of 1995,  a review of tax years 1988 through 1993 was
completed  by the Internal  Revenue  Service,  resulting  in a small  additional
payment to clear federal tax  liability  for those years.  Due to the outcome of
this review being more favorable than originally  reserved,  the Company reduced
its provision for federal income taxes by $1.1 million.  The 19.9% effective tax
rate in 1995 compared to 30.3% in 1994 was due primarily to this tax adjustment,
without which the 1995 effective tax rate would have been 29.6%.

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

The  Company's  share of income  from two  Colombian  affiliates  acquired  from
General in August 1994  totaled  $781,000 in 1995  compared to $282,000  for the
five-month period of 1994.

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

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


14

<PAGE>

CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
(Dollars in thousands, except per share data)
--------------------------------------------------------------------------------
Years ended December 31,                        1996         1995         1994
--------------------------------------------------------------------------------
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 (loss) of
  consolidated subsidiaries                     (474)         164           --
--------------------------------------------------------------------------------
         Earnings before
          cumulative effect of
          an accounting change                 5,347        8,800        6,673

Cumulative effect of an accounting
  change - postemployment benefits,
  net of tax                                      --           --         (255)
--------------------------------------------------------------------------------
         Net earnings                     $    5,347   $    8,800   $    6,418
================================================================================

Earnings per common share
     before cumulative effect of
     an accounting change                 $      .67   $     1.09   $      .83

Cumulative effect of an accounting
  change - postemployment benefits,
  net of tax                                      --           --         (.03)
--------------------------------------------------------------------------------
Net earnings per common share             $      .67   $     1.09   $      .80
================================================================================

Weighted average number of common shares   8,037,710    8,060,118    8,049,624
================================================================================
See accompanying notes to consolidated financial statements.

                                                                              15

<PAGE>

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                                       1,414        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                                   61,151       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                118,384      113,999
--------------------------------------------------------------------------------
Total liabilities and stockholders' equity                $355,129     $373,568
================================================================================
    See accompanying notes to consolidated financial statements.



16

<PAGE>
<TABLE>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands, except per share data)
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                                                                                   Minimum
                                                             Deferred                              Pension      Deferred
                                      Additional              Foreign   Treasury        Note     Liability Compensation-
                               Common    Paid-in Retained    Currency     Stock,  Receivable-  Adjustment,    Restricted
                                Stock    Capital Earnings Translation    At Cost         ESOT   Net of Tax         Stock
------------------------------------------------------------------------------------------------------------------------
<S>                            <C>       <C>      <C>         <C>        <C>          <C>            <C>            <C>
Balance at December 31, 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 ($.14 per share)                         (1,128)
Currency translation adjustment                                  (503)
Payment on ESOT note                                                                      516
Minimum pension liability
  adjustment, net of tax                                                                              (784)
Other, net                         10         31       30                    (15)                                      4
------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1995    4,486     72,770   56,981      (2,931)    (9,018)      (7,505)        (784)           --
------------------------------------------------------------------------------------------------------------------------
Net earnings                                        5,347
Dividends ($.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  $61,151     $(2,875)   $(9,498)     $(6,941)       $(737)         $ --
========================================================================================================================

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

                                                                              17

<PAGE>

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
--------------------------------------------------------------------------------
Years ended December 31,                             1996      1995      1994
--------------------------------------------------------------------------------
Cash flows from operating activities
  Net earnings                                   $  5,347  $  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 (loss) of
        consolidated subsidiaries and partnership    (601)       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
================================================================================
See accompanying notes to consolidated financial statements.



18

<PAGE>

NOTES TO 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.

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.

                                                                              19

<PAGE>

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.

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                                        2,397        5,072
Net earnings per common share                         .30          .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

20

<PAGE>

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  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  proforma 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  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.

                                                                              21

<PAGE>

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.

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.

22

<PAGE>

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 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%
================================================================================
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

                                                                              23

<PAGE>

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:
--------------------------------------------------------------------------------
                                 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.

24

<PAGE>

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 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.

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.

                                                                              25

<PAGE>

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.

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.

26

<PAGE>

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 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. Research and development expenditures in 1996 included costs
associated with LTI product development.

                                                                              27

<PAGE>

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.

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

28
<PAGE>

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.

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.

                                                                              29

<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
================================================================================
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
================================================================================

30

<PAGE>

Note 20: Quarterly Financial Highlights (Unaudited)

(Dollars in thousands, except per share data)
--------------------------------------------------------------------------------
                                       First   Second    Third   Fourth
                                     Quarter  Quarter  Quarter  Quarter
--------------------------------------------------------------------------------
1996
Net sales                            $64,234  $69,538  $61,948  $62,741
Gross profit                          11,355   13,496    8,942   10,315
Net earnings                           1,731    2,837      344      435
Net earnings per common share            .22      .36      .04      .05
--------------------------------------------------------------------------------
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.


                       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. 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

                                                                              31

<PAGE>

COMPARATIVE FIVE-YEAR SUMMARY
(Dollars in thousands, except per share data)
--------------------------------------------------------------------------------
For years ended December 31,     1996      1995      1994       1993      1992
--------------------------------------------------------------------------------
Operating Items
Net sales                    $258,461  $249,715  $195,918   $162,962  $168,309
Gross profit                   44,108    41,406    34,498     32,083    24,217
Earnings (loss) before
    income taxes and
    cumulative effect of
    accounting changes          6,833    10,365     9,295      9,392    (5,188)
Earnings (loss) before
  cumulative effect of
  accounting changes            5,347     8,800     6,673      6,497    (3,167)
Cumulative effect of
  accounting changes,
  net of tax                       --        --      (255)        --    (4,134)
--------------------------------------------------------------------------------
Net earnings (loss)             5,347     8,800     6,418      6,497    (7,301)

Per share data(1)
  Earnings (loss)
   before cumulative
   effect of accounting
   changes, net of tax       $    .67  $   1.09  $    .83   $    .81  $   (.40)
  Cumulative effect of
   accounting changes,
   net of tax                      --        --      (.03)        --      (.51)
--------------------------------------------------------------------------------
  Net earnings (loss)
   per common share               .67      1.09       .80        .81     ( .91)

  Dividends                       .15       .14       .12        .03        --

Other Financial Items
Working capital              $ 75,541  $ 79,823  $ 78,565   $ 55,173  $ 45,714
Current ratio                   2.7:1     2.8:1     2.6:1      3.1:1     2.9:1
Capital expenditures         $ 12,892  $ 10,156  $  6,482   $  6,149  $  3,622
Depreciation, depletion
    and amortization           10,582    10,174     8,725      7,671     7,546
Total assets                  355,129   373,568   373,122    339,314   343,412
Long-term debt                 40,109    34,384    37,023     12,160    12,284
Stockholders' equity          118,384   113,999   107,038    100,930    94,751
Debt to total
    capitalization(2)            27.2%     24.5%     25.8%      10.8%     11.6%
================================================================================
(1) All per share  data has been  restated  to reflect  the  December  10,  1993
    three-for-two  stock  split and the  September  20, 1996  two-for-one  stock
    split.

(2) Calculated as total Debt  (long-term  debt  including  current  maturities)
    divided by total stockholders' equity plus total Debt.

Common Stock, Market Prices and Dividends

A. P. Green  Industries,  Inc.'s common stock is traded in the  over-the-counter
market,  and its  quotations  are reported in the National  Market System of the
NASDAQ  Stock  Market  under  the  symbol  APGI.  The   approximate   number  of
stockholders  of record of A. P.  Green's  common stock at December 31, 1996 was
3,600.

The  following  table  sets  forth  the high and low per  share  sale  prices as
reported in the NASDAQ Stock Market and  dividends  for each quarter  during the
last two years, adjusted for the September 20, 1996 two-for-one stock split.
--------------------------------------------------------------------------------
                              1996                                1995
--------------------------------------------------------------------------------
                                         Cash                               Cash
Quarter Ended         Sale Price     Dividend            Sale Price     Dividend
                     High     Low    Declared           High      Low   Declared
--------------------------------------------------------------------------------
March 31           $10.00   $8.25       $.035         $10.50    $9.13      $.035

June 30             10.75    8.00        .035          10.50     8.50       .035

September 30        12.00    9.81        .040          12.00     9.25       .035

December 31         11.50    9.25        .040          12.00     9.19       .035
================================================================================

32