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

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

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

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

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

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

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

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

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

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

                       DOCUMENTS INCORPORATED BY REFERENCE

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




                                      - 1 -

<PAGE>



                                     PART 1

ITEM 1.  BUSINESS

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

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

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

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

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

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

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

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


                                      - 2 -

<PAGE>



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

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

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

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

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

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

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

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

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


                                      - 3 -

<PAGE>



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

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

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

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

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



                                      - 4 -

<PAGE>

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

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

(c)  Narrative Description of Business
     ---------------------------------

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

                                    Percent of 1997          Percent of 1996
                                    U.S. Refractory          U.S. Refractory
End-User Industry Category           Products Sales           Products Sales
--------------------------           --------------           --------------
          
Iron and Steel                             30%                       33%
Nonferrous Metals                          17%                       15%
Cement, Lime, Gypsum, Paper,
   Ceramics, Glass and Clay                11%                       12%
Metal Castings and Fabrication              6%                        6%
Chemicals and Petrochemicals                6%                        6%
Other                                      30%                       28%

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

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

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

                                     - 5 -

<PAGE>

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

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

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

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

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

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

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

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

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

                                      - 6 -

<PAGE>

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

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

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

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

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

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

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

      
                                      - 7 -

<PAGE>

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

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

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

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

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

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

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

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

                                      - 8 -

<PAGE>


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

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

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

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

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

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

                                      - 9 -

<PAGE>

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

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

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

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


ITEM 2.  PROPERTIES

General
-------

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

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

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

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

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

                                     - 10 -

<PAGE>


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

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

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

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

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

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

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

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

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

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

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

                                  - 11 -

<PAGE>

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

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

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

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

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

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


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

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

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

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

                                     - 12 -

<PAGE>

Distribution Center/Sales Office Locations:

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

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

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

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

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

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

                                     - 13 -

<PAGE>


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

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

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

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

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

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

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

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

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


ITEM 3.  LEGAL PROCEEDINGS

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

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

         Not applicable.

                                     - 14 -

<PAGE>
                                     PART II

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

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

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

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

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

June 30           10.50      7.75       .04        10.75       8.00      .035

September 30      14.25      9.00       .04        12.00       9.81       .04

December 31       13.94     11.00       .04        11.50       9.25       .04















                                     - 15 -

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

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

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

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

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

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

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

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

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

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

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

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

    Dividends                                .16           .15             .14            .12            .03

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

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


                                     - 16 -

<PAGE>

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

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

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

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

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

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

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

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

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

                                     - 17 -

<PAGE>

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

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

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

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

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

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

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

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

                                     - 18 -

<PAGE>

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

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

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

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

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

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

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

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

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

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

                                     - 19 -

<PAGE>


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

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

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

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

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

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

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

                                     - 20 -

<PAGE>

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

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

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

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

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

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

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

                                     - 21 -

<PAGE>


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

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

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

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

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

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

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

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

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

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

                                     - 22 -

<PAGE>


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

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

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

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

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

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

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

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

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


                                     - 23 -

<PAGE>

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

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

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

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

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

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

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

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

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

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

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


                                     - 24 -

<PAGE>

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

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

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

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

          Not applicable.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

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

          Not applicable.

                                     - 25 -

<PAGE>





                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

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

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

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

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

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

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

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

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




                                     - 26 -

<PAGE>



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

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

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

Jurgen H. Abels          53       Vice President, International

Max C. Aiken             60       Executive Vice President

David G. Binder          61       Vice President and Controller

Ronald L. Bramblett      60       Vice President, Human Resources

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

Frank J. Cordie          45       Vice President, Refractory Manufacturing

Daniel Y. Hagan          58       Vice President, Refractory Sales

Orville Hunter, Jr.      59       Vice President, Refractory Technology

John L. Kelsey           47       Vice President, Refractory Marketing

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

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

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

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

                                     - 27 -

<PAGE>



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

ITEM II.  EXECUTIVE COMPENSATION

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

                           Summary Compensation Table

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

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

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

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

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

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


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








                                     - 28 -

<PAGE>



                        Option Grants in Last Fiscal Year

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

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

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

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

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

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

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

                                     - 29 -

<PAGE>



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

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

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

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

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

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

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

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



                                     - 30 -

<PAGE>



                            Compensation of Directors

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

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

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


                             Employment Arrangements

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

                                     - 31 -

<PAGE>



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

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

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




                                     - 32 -

<PAGE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

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

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

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

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

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

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

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

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

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

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

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

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

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

                                     - 33 -

<PAGE>



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

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

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

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

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





                                     - 34 -

<PAGE>



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

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

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

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

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

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

(3)       Less than one percent.

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

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

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          Not applicable.






                                     - 35 -

<PAGE>



                                     PART IV

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

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

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

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

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

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

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

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

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

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

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

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

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

         3.       Exhibits
                  --------

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

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


                                     - 36 -

<PAGE>



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

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

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

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

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

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

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

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

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

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


                                     - 37 -

<PAGE>



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

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

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

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

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

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

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

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

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

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

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

         21                 Subsidiaries of A. P. Green.

                                     - 38 -

<PAGE>



         23                 Consent of KPMG Peat Marwick LLP.

         27                 Financial Data Schedule as of December 31, 1997.

(b)      Reports on Form 8-K.

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

(c)      See Item 14(a) above.

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



                                     - 39 -

<PAGE>



                                   SIGNATURES

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

                                            A. P. GREEN INDUSTRIES, INC.
                                                       Registrant

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

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

Signature                                   Title                      Date

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

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


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


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


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


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


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




                                     - 40 -

<PAGE>














                          A. P. Green Industries, Inc.

                                Annual Report On

                                    Form 10-K

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

                              Financial Statements

                          Year Ended December 31, 1997





























                                      F- 1

<PAGE>



CONSOLIDATED STATEMENTS OF EARNINGS

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

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


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

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

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

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

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

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

See accompanying notes to consolidated financial statements.

                                      F- 2

<PAGE>



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

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

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

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

See accompanying notes to consolidated financial statements.

                                       F-3

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

                                       F-4

<PAGE>

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

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

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


                                       F-5

<PAGE>


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

December 31, 1997, 1996 and 1995

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

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

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

Basis of Presentation

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

Cash and Cash Equivalents

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

Fair Value of Financial Instruments

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

Reimbursement Due on Paid Asbestos Claims

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

                                       F-6

<PAGE>



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

Inventories

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

Property, Plant and Equipment, Net

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

Intangible Assets

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

Income Taxes

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

Foreign Currency Translation

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

                                       F-7

<PAGE>



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

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

Employee Stock Options

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

Earnings Per Common Share

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

Use of Estimates

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

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

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


                                       F-8

<PAGE>



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

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


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

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

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

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

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

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

                                       F-9

<PAGE>



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

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

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

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

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

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

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

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






                                      F-10

<PAGE>



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

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

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

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

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

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

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

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



                                      F-11

<PAGE>



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

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

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

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

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

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

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

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

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


                                      F-12

<PAGE>



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

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

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

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

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

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














                                      F-13

<PAGE>



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

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

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

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

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

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


                                      F-14

<PAGE>




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

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

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

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

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

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

                                      F-15

<PAGE>



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

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

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

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

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

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

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

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








                                      F-16

<PAGE>



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

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

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

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

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

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

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

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

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

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

                                      F-17

<PAGE>



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

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

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

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

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

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

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

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

                                      F-18

<PAGE>



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

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

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

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

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

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

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

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












                                      F-19

<PAGE>



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

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

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

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

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

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

                                      F-20

<PAGE>



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

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

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

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

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

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

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

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

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

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

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

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





                                      F-21

<PAGE>



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

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

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

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

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

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


                                      F-22

<PAGE>



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

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

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

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

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

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

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

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





                                      F-23

<PAGE>



Other
-----

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

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

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

                                      F-24

<PAGE>



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

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

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

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

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

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


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

                                      F-25

<PAGE>


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

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

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

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


                                      F-26

<PAGE>



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

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

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

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

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

                                      F-27

<PAGE>



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


                                      F-28

<PAGE>



                          INDEPENDENT AUDITORS' REPORT


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

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

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

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


/s/ KPMG Peat Marwick LLP


St. Louis, Missouri
February 9, 1998





                                      F-29

<PAGE>



                                   SCHEDULE II




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



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



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

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

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
















                                      F-30

<PAGE>