<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended January 31, 1997
Commission File Number 1-11160
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2617871
- - ------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
2121 San Jacinto Street
Suite 2500, L. B. 31
Dallas, Texas 75201
- - ------------------------------ --------------------
(Address of principal executive (Zip Code)
offices)
(Registrant's telephone number, including area code) (214) 953-4500
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X . No. .
----- ------
At February 28, 1997, 22,590,519 shares of Common Stock, par value $0.25 of the
Registrant were outstanding.
Page 1 of 14
Exhibit Index Appears on Page 14
<PAGE>
INDEX
Page
Number
- - ------
Part I. Financial Information
Management's Representation 3
Consolidated Condensed Statements of Earnings for
the three months ended January 31, 1997 and 1996 4
Consolidated Condensed Balance Sheets as of
January 31, 1997 and October 31, 1996 5-6
Consolidated Condensed Statements of Cash Flows
for the three months ended January 31, 1997 and 1996 7
Notes to Consolidated Condensed Financial Statements 8-9
Management's Discussion and Analysis 10-13
Part II. Other Information 14
Signature 14
2
<PAGE>
PART I
FINANCIAL INFORMATION
MANAGEMENT'S REPRESENTATION
The consolidated condensed financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed. The Company believes that the
disclosures are adequate to make the information presented not misleading.
These consolidated condensed financial statements should be read in conjunction
with the financial statements and the notes to consolidated financial statements
included in the Annual Report, Form 10-K for the fiscal year ended October 31,
1996.
In the opinion of the Company, all adjustments have been included that were
necessary to present fairly the financial position of Global Industrial
Technologies, Inc. and subsidiaries as of January 31, 1997; the results of
operations for the three months ended January 31, 1997 and 1996; and the cash
flows for the three months ended January 31, 1997 and 1996. These adjustments
consisted of normal recurring adjustments. The results of operations for such
interim periods do not necessarily indicate the results for the full year.
3
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In millions except per share data)
<TABLE>
<CAPTION>
Three months ended
January 31,
--------------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Revenues
Net sales and operating revenues $ 132.0 $ 149.3
Other 0.3 0.6
--------- ---------
Total Revenues 132.3 149.9
--------- ---------
Costs and Expenses
Cost of sales 93.2 111.7
Selling, engineering, administrative and
general expenses 29.8 31.5
Interest expense 2.6 1.1
Special charges 20.5 0.0
Other - net 1.4 (1.2)
--------- ---------
Total Costs and Expenses 147.5 143.1
--------- ---------
Earnings before income taxes (15.2) 6.8
Income tax (provision) benefit 3.8 (1.2)
--------- ---------
Net earnings $ (11.4) $ 5.6
========= =========
Earnings per common share $ (0.50) $ 0.25
========= =========
Average common shares outstanding 22.7 22.6
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
January 31, 1997 October 31, 1996
ASSETS (Unaudited) (Audited)
- - ------ ---------------- ----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 11.7 $ 11.5
Notes and accounts receivable
Public 118.9 129.2
Unconsolidated affiliates 0.7
---------------- ----------------
118.9 129.9
Less allowance for doubtful accounts 1.7 1.5
---------------- ----------------
117.2 128.4
Inventories
Finished products and work in process 95.4 93.0
Raw materials and supplies 39.9 40.6
---------------- ----------------
135.3 133.6
---------------- ----------------
Deferred income taxes 54.5 54.5
Asbestos insurance recoveries receivable 44.2 42.6
Prepaid expenses 6.8 4.9
---------------- ----------------
Total Current Assets 369.7 375.5
Investments in Unconsolidated Affiliates 5.3 20.5
Noncurrent Deferred Income Taxes 5.1 5.1
Goodwill - net 81.5 82.2
Other Assets 70.6 71.6
Property, Plant and Equipment - at cost
Land, land improvements and mineral deposits 33.8 33.0
Buildings 90.8 88.9
Machinery and equipment 366.3 354.6
---------------- ----------------
490.9 476.5
Less accumulated depreciation, depletion and
amortization 283.8 278.8
---------------- ----------------
Total properties - net 207.1 197.7
---------------- ----------------
Total Assets $ 739.3 $ 752.6
================ ================
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
January 31, 1997 October 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) (Audited)
- - ------------------------------------ ---------------- ----------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 44.2 $ 44.8
Notes payable and current portion of long-term debt 39.7 38.9
Advances from customers on contracts 2.4 3.3
Accrued compensation and benefits 16.6 26.4
Insurance reserves 13.2 13.2
Income taxes currently payable 7.5 14.1
Current deferred income taxes 7.7 7.6
Asbestos related liabilites 39.0 40.1
Other accrued liabilities 24.4 18.8
---------------- ----------------
Total Current Liabilities 194.7 207.2
Long-term Debt 141.7 136.5
Pension Plans and Other Retiree Benefits 50.0 49.2
Noncurrent Deferred Income Taxes 6.8 7.5
Other Liabilities 51.8 52.3
Shareholders' Equity
Common Stock 6.8 6.8
Capital in excess of par value 382.7 382.8
Retained Earnings 18.5 29.9
Cumulative translation adjustment (49.8) (56.0)
Treasury stock, at cost (61.1) (60.8)
Other (2.8) (2.8)
---------------- ----------------
Total Shareholders' Equity 294.3 299.9
---------------- ----------------
Total Liabilites and Shareholders' Equity $ 739.3 $ 752.6
================ ================
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
6
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
<TABLE>
<CAPTION>
Three months ended
January 31,
----------------------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net earnings $ (11.4) $ 5.6
Adjustments to reconcile net earnings to cash flow
Depreciation, depletion and amortization 5.5 4.6
Earnings from affiliated companies - (0.2)
Special charges 20.5 -
Decrease in receivables 10.9 11.7
Increase in inventories (1.6) (12.3)
(Increase) decrease in prepaid expenses (1.9) 2.5
Decrease in accounts payable and accrued liabilities (18.6) (18.8)
Decrease in advances from customers (1.0) (7.8)
Increase (decrease) in income taxes payable (6.6) 0.1
Other - net (2.3) (6.1)
--------- ---------
Net cash generated (used) by operating activities (6.5) (20.7)
--------- ---------
Cash flows from investing activities
Business acquisitions - (70.9)
Liquidation of investment in unconsolidated subsidiary 14.0 -
Capital expenditures (12.4) (10.1)
--------- ---------
Net cash provided (used) by investing activities 1.6 (81.0)
--------- ---------
Cash flows from financing activities
Proceeds from borrowings 6.6 102.0
Reduction of debt (1.3) (8.8)
Options exercised under employee benefit plans 0.4 0.4
Purchase of common shares (0.7) (0.8)
--------- ---------
Net cash provided (used) by financing activities 5.0 92.8
--------- ---------
Effect of translation adjustments on cash 0.1 (0.3)
--------- ---------
Net increase(decrease) in cash and cash equivalents 0.2 (9.2)
Cash and cash equivalents, beginning of period 11.5 21.1
--------- ---------
Cash and cash equivalents, end of period $ 11.7 $ 11.9
========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
7
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1997
NOTE A - INTRODUCTION
The Company, Global Industrial Technologies, Inc. (Global) together with its
subsidiaries and unconsolidated joint ventures conducts its business in five
segments: Specialty Equipment Products, Refractory Products, Minerals, Forged
Products, and Industrial Tool. In addition to its wholly owned operations, the
Company had a 50% interest in KOMDRESCO, a construction and mining equipment
operation in South Africa, which the Company sold January 31, 1997. See Note D
for further discussion.
NOTE B - INVENTORIES
The determination of inventory values and cost of sales under the LIFO method
for interim financial results are based on management's estimates of expected
year-end inventories.
NOTE C - CONTINGENCIES
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. See NOTE H to Consolidated
Financial Statements contained in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1996.
NOTE D - DIVESTITURES
In January 1997, the Company sold its joint venture interest in KOMDRESCO. Also
in January, the Company announced its strategic decision to divest itself of the
surface mining equipment business and its underground mining equipment business
in the United Kingdom. Effective February 1, 1997, the underground mining
equipment business in the United Kingdom was sold. In connection with the
planned divestitures, the Company recognized a $20.5 million pre-tax charge to
earnings in the first quarter of 1997. The operations to be divested
contributed $31.2 million to revenues and $(.8) million to earnings before taxes
for the first quarter of fiscal 1996.
8
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1997
NOTE E - INFORMATION BY INDUSTRY SEGMENT
Two pre-existing businesses of the Company are now reported as separate
segments. The business of Ameri-Forge Corporation, which had been included in
the Mining and Specialty Equipment Products segment, is now separately presented
as Forged Products. The business of the Minerals Division of Harbison Walker
Refractories Company, which had been included in the Minerals and Refractory
Products segment, is now separately presented as Minerals.
The Company's three other industry segments are Specialty Equipment Products,
Refractory Products, and Industrial Tool. Sales and operating profit results
are presented below for the three months ended January 31, 1997 and 1996.
<TABLE>
<CAPTION>
Three months ended
January 31
---------------------------
1997 1996
---------------------------
(In Millions)
<S> <C> <C>
Sales and operating revenues:
Refractory Products $ 73.7 $ 69.4
Minerals 13.1 13.9
Industrial Tool 23.3 18.8
Specialty Equipment Products 13.2 9.1
Forged Products 12.7 11.9
Divested Operations 31.2
Intersegment sales (4.0) (5.0)
-------- --------
Total sales and operating revenues $ 132.0 $ 149.3
======== ========
Operating Profit:
Refractory Products $ 4.8 $ 4.7
Minerals 1.9 3.6
Industrial Tool 2.5 1.6
Specialty Equipment Products (0.1) 0.5
Forged Products 2.9 3.1
Divested Operations (0.8)
-------- --------
Subtotal $ 12.0 $ 12.7
KOMDRESCO 0.2
-------- --------
Total operating earnings (loss) 12.0 12.9
General corporate expenses ( 6.7) (6.1)
Special charges (20.5)
-------- --------
Earnings (loss) before taxes $ (15.2) $ 6.8
======== ========
</TABLE>
9
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 31, 1997
RESULTS OF OPERATIONS
- - ---------------------
Three Months ended January 31, 1997 compared to January 31, 1996.
The Company had a net loss of $11.4 million or $.50 per share in the first
quarter of 1997 which includes a $20.5 million pre-tax charge to earnings
related to the divestiture of three businesses. Excluding the effect of the
charge-off or any contribution from those three operating units, Global reported
earnings of $0.18 per share on revenues of $132.3 million and segment operating
profits of $12.0 million. For the same period a year ago, Global reported
earnings of $0.25 per share on revenues of $149.9 million and segment operating
profits of $12.9 million. An income tax benefit of $3.8 million was recorded
for the three months ended January 31, 1997, compared to a tax provision of $1.2
million for the three months ended January 31, 1996.
Segment operating profit for the three months was $12.0 million in fiscal 1997
compared to $12.9 million in 1996, a decrease of $.9 million. General corporate
expenses were $.6 million higher for the quarter ended January 31, 1997 versus
1996 due to an increase in interest expense of $1.5 million in 1997 over the
first quarter in 1996, partially offset by a decrease in headquarters
administrative and general expenses.
Consolidated revenues of $132.3 million for the first three months of fiscal
1997 were down $17.6 million, or 11.7 percent, from $149.9 million in the prior
year period. The decrease was primarily due to the $31.2 million prior year
contribution of the operations to be divested, partially offset by 1997 revenues
of CTI and Rotor. CTI results were not included in the prior year quarter and
Rotor's contribution was only for the month of January 1996.
Total costs and expenses for the first three months of 1997 were $147.5 million,
up $4.4 million, or 3 percent, from $143.1 million for the same period in 1996.
Costs of sales were $93.2 million, or 16.5 percent lower than the prior year
period, due primarily to the exclusion from the current year results of the
operations to be divested. Selling, engineering, administrative and general
expenses were $29.8 million for the first quarter of 1997, slightly lower than
the $31.5 million for the same period in 1996. Other - net is an expense of
$1.4 million for the first quarter of 1997 compared to a gain of $1.2 million
for the same period in 1996.
10
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 31, 1997
Global's consolidated backlog of unshipped orders was $170.2 million at January
31, 1997 compared to $151.4 million at October 31, 1996 and $158.2 million at
January 31, 1996. The increase in unshipped orders from the year end is due
primarily to increased demand for minerals and refractory products.
SEGMENT RESULTS
- - ---------------
Refractory Products
- - -------------------
Revenues and operating profit for the first three months of fiscal 1997 of $73.7
million and $4.8 million were up compared to 1996 revenues of $69.4 million and
operating profit of $4.7 million. Revenues and earnings were only slightly
higher in 1997 and reflected delayed refractories shipments in the first quarter
of 1997 compared to last year.
Minerals
- - --------
Minerals revenues of $13.1 million were down $.8 million from the same quarter
in the prior year mostly because of reduced exports to Europe. Operating
earnings were $1.9 million, down $1.7 million from 1996 operating profit of $3.6
million. Higher natural gas prices and a strengthening dollar in European
markets also adversely affected operating results.
Industrial Tool
- - ---------------
Revenues of $23.3 million for the first three months of fiscal 1996 were $4.5
million or 24 percent higher than the prior year. $2.4 million of the increase
is due to the inclusion of Rotor for the full quarter in 1997 versus only one
month's results for 1996. The remainder of the increased sales volume was due
to strong aircraft and automotive markets.
Segment operating profit of $2.5 million for the three months ended January 31,
1997 is $0.9 million higher than for the first three months of 1996 due to
increased sales volume.
Specialty Equipment Products
- - ----------------------------
The Specialty Equipment Products segment now consists of Corrosion Technology
International and the Global Processing Group. The segment's consolidated
revenues for the first three months of fiscal 1997 of $13.2 million were up $4.1
million, or 45 percent, from the same period in 1996 because Corrosion
Technology results had not
11
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 31, 1997
been included in the first quarter of 1996. Segment operating losses of $.1
million for the first three months of fiscal 1997 compared to profit of $.5
million for 1996.
Forged Products
- - ---------------
For the other new segment, Forged Products, revenues of $12.7 million were up
slightly from $11.9 million for the same period a year ago and operating profit
of $2.9 million was slightly below operating profits of $3.1 million for the
same period a year ago. The decrease in operating profit is due to software and
robotic problems with production equipment that is being installed to meet
increased customer demand.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
- - ----------------------------------------------------
Cash and cash equivalents were $11.7 million at January 31, 1997, $.2 million
higher than at October 31, 1996. The net cash used by operating activities was
$6.5 million for the first quarter of fiscal 1997, which consists mostly of a
decrease in accounts payable during the period of $18.6 million partially offset
by a decrease in accounts receivable of $10.9 million. The investing
activities consisted of $14.0 million in proceeds from the sale of KOMDRESCO and
$12.4 million for capital expenditures at the operating units. The financing
activities for the period generated $5.0 million consisting of $5.3 million of
proceeds from borrowings less repayments, and $0.3 million for the repurchase of
the Company's common shares, net of the proceeds from stock options exercised
under employee benefit programs.
The Company's current ratio at January 31, 1997 of 1.9 to 1 was virtually
unchanged from the October 31, 1996 ratio of 1.8 to 1. The Company had
outstanding debt of $181.4 million at January 31, 1997 compared to $175.4
million at October 31, 1996.
FORWARD-LOOKING STATEMENTS
- - --------------------------
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's forward-
looking statements. The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business include the
following: general economic conditions in the industrial marketplace; U.S. iron
and steel production; North American and European
12
<PAGE>
GLOBAL INDUSTRIALTECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 31, 1997
automotive and aircraft assembly production levels; currency fluctuations and
world economic conditions; and significant variances in sales or costs at the
Company's major business units.
13
<PAGE>
PART II
OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) No reports on Form 8-K were filed during the first quarter ended
January, 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL INDUSTRIAL TECHNOLOGIES, Inc.
By: /s/ Gary G. Garrison
--------------------------------------------------
Gary G. Garrison
Vice President Finance,Chief Financial Officer
(Authorized Officer and Principal Financial
Officer)
Dated: March 13, 1997
14
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