<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1996
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 (I.R.S. Employer
incorporation or organization) Identification No.)
2121 SAN JACINTO, SUITE 2500, DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number)(214) 953-4500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, Par Value $0.25 Per New York Stock Exchange, Inc.
Share New York Stock Exchange, Inc.
Preferred Stock 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, 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 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.
----
The aggregate market value of the voting stock (based on the closing price on
the New York Stock Exchange as of December 31, 1996) held by non-affiliates of
the registrant was approximately $502,221,791.
As of December 31, 1996, there were 22,699,290 shares of Global Industrial
Technologies, Inc. Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive 1997 proxy statement filed or to be filed
pursuant to Regulation 14A are incorporated by reference into Part III of this
Form 10-K.
<PAGE>
PART 1
1. BUSINESS
During 1996, Global Industrial Technologies, Inc., a Delaware corporation
(Global Industrial Technologies, Inc., together with its subsidiaries and 50
percent owned joint venture, either Global or the Company), conducted its
business in three segments: Minerals and Refractory Products, Mining and
Specialty Equipment and Industrial Tool.
Effective November 1, 1995 (Effective Time), INDRESCO Inc., a Delaware
corporation (Indresco), established a holding company structure (Reorganization)
wherein it, and its subsidiaries, became direct and indirect subsidiaries of
Global Industrial Technologies, Inc., which had been a wholly owned subsidiary
of Indresco. Pursuant to the Agreement and Plan of Merger (Plan), the holders
of shares of capital stock of Indresco became, by virtue of the merger described
in the Plan (Merger), the holders, on a share-for-share basis, of all of the
shares of capital stock of Global. Consequently, at the Effective Time the
stockholders of Indresco immediately before the Merger owned the same number of
shares of the same classes of Global capital stock as Indresco capital stock
they had held. The Common Stock, $0.25 par value, of Global is traded on the New
York Stock Exchange under the symbol GIX. Global was incorporated in Delaware
on October 19, 1995 for the purpose of the Reorganization.
Indresco, now named Harbison-Walker Refractories Company, was originally
incorporated in Delaware in 1972 as Dresser Finance Corporation, a wholly owned
subsidiary of Dresser Industries, Inc. (Dresser) for the purpose of financing
receivables of Dresser. In 1988, Indresco transferred its financing business to
Komatsu Dresser Company and became a 50 percent general partner in Komatsu
Dresser Company, a Delaware general partnership (KDC), which manufactured and
distributed construction and mining equipment in North America. Indresco was
reorganized in 1992 for the purpose of effecting a distribution of its shares to
the shareholders of Dresser. On July 28, 1992, the Board of Directors of
Dresser declared a distribution (Distribution) payable to the holders of record
of Dresser's common stock, par value $0.25 per share, at the close of business
on August 7, 1992 (Record Date), of one share of common stock, par value $0.25
per share, of Indresco, together with associated preferred stock purchase
rights, for every five shares of Dresser common stock outstanding on the Record
Date. As a result of the Distribution, 100 percent of the outstanding shares of
common stock of Indresco were distributed to Dresser shareholders on a pro rata
basis. Prior to the Distribution, Indresco did not have an operating history as
an independent public company.
On September 30, 1993, Indresco reduced its ownership interest in KDC from 50
percent to 19 percent through a partial liquidation. In consideration of such
reduction, Indresco received the approximate book value of its liquidated
interest, subject to adjustments for retiree health care costs. The remaining
partner, Komatsu America Corp., a subsidiary of Komatsu Limited, Tokyo, Japan,
increased its ownership interest from 50 percent to 81 percent. Under the terms
of the Agreement of Liquidation and Sale among INDRESCO Inc., Komatsu America
Corp., and Komatsu Dresser Company, dated as of September 22, 1993 (the KDC
Agreement), Indresco received approximately $60 million as a liquidating
distribution. On September 30, 1994, KDC exercised its option to liquidate
Indresco's remaining interest in KDC for which Indresco received approximately
$38 million, or the book value of its liquidated interest. As additional
consideration, Indresco was released from all guaranties of KDC's indebtedness.
2
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OPERATIONS OF THE COMPANY
The Company operates in industries and markets that are highly competitive.
The demand for the Company's products is dependent upon, among other things,
general economic conditions in the industrial marketplace and, more
specifically, on U.S. iron and steel production, surface coal mining worldwide,
North American and European automotive assembly production and U.S. aircraft
production levels. Further, the Company's domestic and foreign operations may
from time to time be adversely affected by currency fluctuations and world
economic conditions. See Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
The following section describes the Company's three business segments and
their principal products and activities. For financial information by segment
and geographic area, see Note N to Global's consolidated financial statements.
It also provides other general information concerning the business of the
Company.
MINERALS AND REFRACTORY PRODUCTS DIVISION
Harbison-Walker Refractories Company (Harbison-Walker) and its affiliates are
leading suppliers of refractory products and technology. Harbison-Walker mines
and processes certain minerals, and manufactures over 200 refractory products in
various shapes, sizes and forms. Refractories, which are made principally from
magnesite, graphite, bauxite, quartzite and fire clays, are used in virtually
every industrial process requiring heating or containment of a solid, liquid or
gas at a high temperature. Iron and steel producers, which accounted for
approximately 40 percent of the Company's 1996 refractory sales, use the
Company's products in various types of furnaces, in coke ovens and in iron and
steel handling and steel finishing operations. Industrial markets for the
Company's refractory products include non-ferrous metals producers (aluminum,
copper and zinc), mineral processors (cement and lime), glass producers, fossil-
fueled power plants, chemical and petroleum processing plants and general
industry.
On September 30, 1994, the Company and its subsidiaries acquired for $73.2
million in cash substantially all of the assets of Refmex, S.A. de C.V. (Refmex)
and Refractarios Green, S.A. de C.V. (RefGreen), certain equipment from
Refractarios H.W. Flir, S.A. de C.V. (Flir) and the issued and outstanding
capital stock of Refmex and RefGreen from Industrias Penoles, S.A. de C.V.
(Penoles). Refmex is the largest Mexican producer of refractory products,
serving the Mexican, United States, Central and South American markets.
On December 1, 1994, the Company purchased all refractory related assets of
Refractarios Chilenos S. A. (RECSA) and Construcciones Refractarias S. A.
(Construcciones), Chilean corporations, for approximately $15.5 million in cash
and assumed liabilities of $2.9 million. RECSA and Construcciones are Chilean
manufacturers of a broad line of refractory products.
Sales and operating revenues for Harbison-Walker Refractories Division,
including the Mexican and Chilean operations for the periods subsequent to their
acquisition, were $331.4 million, $318.2 million and $242.6 million for 1996,
1995 and 1994, respectively.
3
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MINING AND SPECIALTY EQUIPMENT DIVISION
The Ameri-Forge Corporation (Ameri-Forge) is a leading manufacturer of forged
steel flanges used to connect components of closed systems for processing and
transporting liquids and gases. It serves the oil and gas, petrochemical,
construction, food and water treatment industries. In fiscal 1997, Ameri-Forge
will begin manufacturing undercarriage parts for track-mounted vehicles such as
bulldozers.
The Processing Equipment operation manufactures shredders, crushers, vibrating
feeders and coal jigs that are sold to the general processing and recycling,
forest products, quarrying, coal processing and waste processing and recycling
markets. Its shredders are used for materials such as tires, glass, auto
bodies, paper, carpet and other bulk materials for the processing and recycling
market.
On January 12, 1996, the Company acquired substantially all of the assets of
Corrosion Technologies International, Inc. (CTI) for $36.3 million in cash and
assumed liabilities of $11.6 million. CTI uses patented and proprietary polymer
concrete technology primarily to manufacture advanced tankhouse cells which are
used in the electolytic refining of copper as well as other markets that require
reliable containment of acids and other concentrated solutions.
The Marion Power Shovel Company and its affiliates are producers of walking
and crawler draglines, electric mining shovels, rotary blast-hole drills and
related equipment and services used in surface mining. Principal users of
Marion mining equipment are operators of surface coal mines worldwide. Coal
producers have accounted for approximately 70 percent of Marion revenues in
recent years with copper, iron ore, phosphate rock and oil sands mining
accounting for most of the remaining balance. Marion sales are made both
through distributors and directly by employees, depending on the product and
geographic market. The United States, Canada, Australia, South Africa and India
are Marion's largest geographic markets, although sales volume by country varies
substantially from year to year.
The Jeffrey Underground Mining Equipment operation, which was primarily
engaged in the production of underground continuous mining machines, haulage
systems and related equipment used primarily in underground coal mines, was sold
on October 26, 1995. Sales of Jeffrey equipment were generally made directly to
users through the Company's sales engineers and support personnel. The Company
retained the British Jeffrey Diamond operations that produce components, such as
shearers and related equipment, used in the longwall method of underground coal
mining.
KOMDRESCO, a general partnership in which the Company holds a 50 percent
interest, acts as a distributor and licensed manufacturer of Dresser, Haulpak,
Galion and Komatsu mining and construction equipment and materials handling
products in South Africa and certain neighboring territories.
On January 23, 1997, the Company announced its decision to divest a number of
business units within the Mining and Specialty Equipment Division. The business
units being divested include the worldwide operations of Marion Power Shovel
Company, the underground mining business of British Jeffrey Diamond of the
United Kingdom, and the Company's 50 percent joint venture interest in
KOMDRESCO. In connection with the formal plans to divest, the Company will
recognize a $20.5 million pre-tax charge to earnings during the first quarter of
its 1997 fiscal year. See Note L to the consolidated financial statements.
INDUSTRIAL TOOL DIVISION
INTOOL, Inc. and its affiliates manufacture and sell Cleco pneumatic and
electric tools, including assembly tools used primarily in the electronic,
aircraft and automotive markets, and maintenance and fabrication tools supplied
primarily to petroleum refineries, chemical plants, foundries, steel mills and
general industry. INTOOL's Quackenbush pneumatic and hydraulic precision
drilling equipment is used in the aircraft and aerospace industries and in
mobile machining applications. Airetool cleaners and expanders are used by
manufacturers and users of heat exchangers and boilers of all types. ITD
Automation automated fastening systems are used in the automotive and heavy
equipment assembly markets.
4
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In December 1995, the Company acquired all of the outstanding stock of The
Rotor Tool Company (Rotor) for approximately $34.5 million. Rotor manufactures
fixturized and specialty engineered tools used primarily in automotive assembly
operations. As a result of this acquisition, the Company's Industrial Tool
Division now offers a complete product line of high-quality pneumatic and
electric assembly tools.
Primary customers for product lines in the Industrial Tool Division segment
include automotive assembly plants, aircraft assembly plants, general industrial
plants, power generation, refineries and petrochemical plants.
Sales and service revenues for the Industrial Tool Division were $97.2, $73.3
million and $69.1 million for 1996, 1995 and 1994, respectively.
PROFILE AND TYPE OF CUSTOMERS
Most customers of the Company are medium to large corporations or businesses,
and medium to large distribution companies which serve them. Major customer
groupings include large multi-plant integrated steel companies, medium single-
plant integrated steel companies, mini-mill electric furnace steel companies,
aluminum companies, cement and lime producers, flat glass and container glass
producers, chemical plants, petroleum refineries, power plants, surface mining
companies, waste incineration companies, quarries, automotive companies,
aircraft production companies, shredding and recycling companies and copper and
other mineral refining companies. Customers are located in most geographical
areas, including North and South America, Africa, Asia, the Far East, Europe and
Australia. Many customers are served by more than one operation of the Company.
INTERNATIONAL SALES AND EXPORTS
International sales and direct exports from the U. S. historically represent
35 to 45 percent of the Company's consolidated sales. The Company believes that
although a particular product or geographical region may be impacted severely by
changed circumstances, the overall product market and geographical balance will
prove beneficial to the Company over an extended period.
RAW MATERIALS
The Minerals and Refractory Products Division segment obtains its raw material
from sources throughout the world. Over 50 percent of all raw materials used in
production of refractories by the Company's subsidiaries is controlled by the
Company. The remaining 50 percent is purchased from worldwide sources including
China, South Africa, South America and Canada. Dual sources of raw materials
have been established on all critical materials.
Primary materials, such as various magnesites, aluminas, chrome ores, silicas
and graphite, are purchased under long-term procurement plans. High purity
magnesium hydroxide, a critical material to Harbison-Walker, is obtained
through an exclusive arrangement with Dow Chemical that has been in existence
for 36 years. The current contract expires December 31, 1997. This contract
has been extended many times and the Company anticipates further extensions.
The Company believes that other raw materials it requires are readily
available from multiple sources and that the loss of an individual supplier
would not have a material adverse effect on the Company's ability to procure
necessary raw materials.
5
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COMPETITION
The industries in which the various segments of the Company operate are highly
competitive. During the 1980's, these industries experienced significant
consolidation and retrenchment. The Company now competes with several large
national and international companies in each segment. Principal competitors
include A.P. Green Industries, Inc., Minerals Technologies Inc. and Oglebay
Norton Company in Minerals and Refractory Products; Harnischfeger Industries,
Inc. in Mining and Specialty Equipment; Cooper Industries, Inc., and Ingersoll-
Rand Company in Industrial Tools, as well as numerous short-line and specialty
manufacturers with differing manufacturing and marketing methods. Each of the
Company's businesses has a strong reputation and market position. The Company
attempts to capitalize on its reputation and market position and competes on the
bases of quality, innovation, product research and development, and market
expertise as well as price.
RESEARCH, DEVELOPMENT AND PATENTS
The Company and its subsidiaries conduct research and development activities
within their particular fields for the purposes of improving existing products
and developing new ones to meet the needs of their customers. In addition,
research and development programs are directed toward development of new
products and services for diversification or expansion. Research and
development costs charged to earnings were $4.9 million in 1996, $3.3 million in
1995 and $3.5 million in 1994.
As of October 31, 1996, the Company beneficially owned approximately 270
patents and had pending approximately 178 patent applications, covering various
products and processes. It also is licensed under patents owned by others. The
Company does not believe that any patent or group of patents relating to a
particular product or process is material to the conduct of the Company's total
business.
BACKLOG
The consolidated backlog of unshipped orders at October 31, 1996, 1995 and
1994 was $151 million, $161 million and $92 million, respectively. Backlog
levels vary significantly between the businesses of the Company. The divisions
manufacturing larger equipment (primarily mining equipment) have lead times
ranging from 3 to 4 months to as long as 18 months. The Company plans to ship
the October 31, 1996 backlog by October 31, 1997. For smaller equipment,
particularly industrial tools, the Company operates with very little backlog and
works primarily on a book and ship basis. The Company believes that its order
backlog represents only a portion of the net sales revenue anticipated by the
Company in any given fiscal period. The Company bases its manufacturing plans
and expenditure levels primarily on its internal analyses of current market
conditions, sales forecasts and communications with customers.
SALES AND DISTRIBUTION
The Company's products and services are marketed through various channels.
In the United States, sales are generally made through a divisional sales
organization or through independent distributors. Sales in other countries are
made directly by a United States division or subsidiary, through foreign
subsidiaries or affiliates, through distributor arrangements or with the
assistance of independent sales agents.
The Company's Mining and Specialty Equipment products are primarily sold
through direct sales by division sales personnel. Company owned warehouses and
repair centers are located in strategic areas of the United States. Outside the
United States, the Company uses distributor organizations for service and parts
replacements as well as subcontractors for major equipment overhaul, revamping
or servicing that must be performed on site.
6
<PAGE>
Minerals and Refractory Division products and Industrial Tool Division
products are sold through a combination of direct sales by Company personnel and
through distributors in the U.S., Europe and elsewhere. Sales agents are used
to facilitate U.S. exporting where sales volume does not justify a local sales
organization.
EMPLOYEES AND LABOR RELATIONS
As of October 31, 1996, the Company had approximately 2,873 employees in the
United States of whom approximately 1,300 were members of four unions
represented by 7 bargaining units. Currently, none of the domestic locations
has more than 250 hourly employees represented by a union or bargaining unit.
As of October 31, 1996, the Company had approximately 1,692 employees at foreign
locations of whom approximately 980 were members of unions.
Management believes that relations between the Company and its employees are
generally positive.
ITEM 2. PROPERTIES
The Company, together with its subsidiaries and unconsolidated affiliates, has
more than 30 manufacturing plants, ranging in size from approximately 15,000
square feet to in excess of 667,000 square feet and totaling more than 5,000,000
square feet, located in the United States, Canada and other countries. The
majority of the manufacturing sites are owned. In addition, sales offices,
warehouses, service centers and stock points are maintained, almost all in
leased space, in the United States, Canada and other countries. The properties
are adequate for the purposes for which they are used. They are believed to be
utilized at productive capacities generally ranging from 50 percent to 80
percent, with the exception of Ameri-Forge where capacity utilization is
significantly higher, and are capable of supporting a higher level of market
demand. In certain cases, an increase in productive capacity of the facilities
can be realized through the addition of an extra shift of hourly laborers.
Minerals and Refractory Products Division has manufacturing facilities in the
following locations: Bessemer, Alabama; Fairfield, Alabama; Calhoun, Georgia;
Hammond, Indiana; North East, Maryland; Grantsville, Maryland; Windham, Ohio;
West Mifflin, Pennsylvania; Marelan, Quebec, Canada; Vandalia, Missouri; Fulton,
Missouri; Eufaula, Alabama; Ludington, Michigan; Tlalnepantla, Mexico; Ramos
Arizpe, Mexico; and Santiago, Chile.
Mining and Specialty Equipment Division has manufacturing facilities in
Marion, Ohio; Mt. Prospect, Illinois; Cambridge, Ontario, Canada; Woodruff,
South Carolina; Wakefield, England; Houston, Texas; Green Bay, Wisconsin;
Hermosillo, Mexico; Santiago, Chile; Ghent, Belgium; Sydney, Australia; Tague,
South Korea and Wadeville, South Africa. The latter property is owned by a
joint venture company in which the Company has a 50 percent ownership interest.
Industrial Tool Division has manufacturing facilities in Houston, Texas;
Euclid, Ohio; Springfield, Ohio; and Auburn Hills, Michigan. The latter two
properties are leased with the Springfield, Ohio property being leased from and
owned by a joint venture company in which the Company has a 50 percent ownership
interest.
ITEM 3. LEGAL PROCEEDINGS
The information contained in Note H to the Company's consolidated financial
statements is incorporated herein.
Securities and Exchange Commission rules require the Company to describe
certain governmental proceedings arising under federal, state or local
environmental provisions unless the Company reasonably believes that the
proceedings will result in monetary sanctions of less than $100,000. The
following proceedings are reported in response to this requirement. Based on
the information currently available, the Company believes that such proceedings
are not material to the business or financial condition of the Company.
7
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A Facility Decommissioning and Site Restoration Plan for a facility used by
one of the Company's subsidiaries located in Quebec, Canada has been filed with
the Quebec environmental and mining regulatory agencies pursuant to regulations
of the Quebec Ministry of the Environment and the Ministry of Energy and
Resources. The Company is currently responding to requests for additional
information in support of the decommissioning plan. A total of $156,000 has
been expended by the Company for the project and the remaining remediation
costs are estimated to be $407,000 to $515,000. Additional expense of $90,000
to $130,000 may be incurred if a facilities demolition is required.
The Environmental Protection Agency (EPA) and other private parties have named
the Company as a potentially responsible party (PRP) in eight Comprehensive
Environmental Response Compensation and Liability Act Sites (CERCLA), also known
as superfund sites. The Company does not believe that it contributed hazardous
wastes at four of these sites. Proceedings relating to three of them have not
been active in the two preceeding years. At a fifth site, a third party demand
was received for contribution by the Company to the cost of remediation in the
amount of $135,000. The Company believes that it is a de minimis or de micromis
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contributor to the three remaining CERCLA sites.
The Comprehensive Environmental Response, Compensation and Liability Act
Information System (CERCLIS), or CERCLA Information System, is a computer
database of sites that have been listed for investigation by the EPA. None of
the Company's facilities remain listed on the CERCLIS or on similar state agency
lists.
A Company subsidiary received an order from the Commonwealth of Pennsylvania
in 1991 demanding remediation of a tract of land, a portion of which had been
mined under lease by Harbison-Walker Refractories Company for a period of time
prior to 1972. Total cost of the remediation incurred by Harbison-Walker
Refractories Company has been $1,000,000. Continuing maintenance and treatment
costs are estimated to be $60,000 to $80,000 per year. Harbison-Walker
Refractories Company is seeking recovery of part of its remediation costs and
has contested its obligation to maintain and treat the site. It has obtained a
favorable administrative ruling on a portion of its claim from which the
Commonwealth has appealed. A companion lawsuit is currently stayed pending the
appeal and settlement discussions have taken place.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year ended October 31, 1996.
8
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock of Global Industrial Technologies, Inc. is traded on the New York
Stock Exchange under the symbol GIX. Global has not paid any dividends since the
Distribution Date. The first day that Global's Common Stock was traded on the
New York Stock Exchange was August 3, 1992. As of December 31, 1996, there were
8,233 holders of record of the Common Stock of Global. The high and low sales
prices for Global's Common Stock during each quarterly period for fiscal 1996
and 1995 are set forth below:
<TABLE>
<CAPTION>
1996 High Low
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<S> <C> <C>
Quarter Ended:
January 31, 1996 $22.75 $16.50
April 30, 1996 $25.00 $18.375
July 31, 1996 $20.625 $16.00
October 31, 1996 $20.125 $16.125
1995
----
Quarter Ended:
January 31, 1995 $15.00 $11.25
April 30, 1995 $14.125 $10.875
July 31, 1995 $16.125 $13.375
October 31, 1995 $18.125 $14.625
</TABLE>
In August 1993, the Company announced its intention to repurchase up to 4.1
million shares of Common Stock. In August 1994, the repurchase program was
increased by 2 million shares to provide for a total repurchase potential of up
to 6.1 million shares. Through December 31, 1996, the Company had repurchased
approximately 5.1 million shares. For additional information, see Note K to
Global's consolidated financial statements, which note is incorporated in this
Item 5 by reference.
9
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Dollars in millions, except per share data 1996 1995 1994 1993 1992
- ------------------------------------------ ---------------------------------
CONSOLIDATED COMPANIES
<S> <C> <C> <C> <C> <C>
Total revenues 647.9 597.1 440.8 540.0 564.6
Earnings (loss) before cumulative
effect of accounting changes 45.4 38.7 24.6 21.4 (50.1)
Per Share 2.01 1.70 1.02 .78 (1.84)
Total Assets 752.6 584.4 477.7 460.9 491.4
Long-term debt 136.5 2.3 2.3 1.9
Total Shareholders' Equity 299.9 261.6 273.6 287.8 352.0
</TABLE>
QUARTERLY DATA
<TABLE>
<CAPTION>
FINANCIAL RESULTS (UNAUDITED) Quarters Ended
-----------------------------------------
Dollars in millions, except per share January 31 April 30 July 31 October 31
- ------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C>
FISCAL 1996
Total revenues $149.9 $155.2 $171.1 $171.7
Gross profit 37.6 44.2 49.1 53.6
Total costs and expenses including
income taxes 144.3 145.0 158.0 155.2
Net earnings 5.6 10.2 13.1 16.5
Net earnings per share .25 .45 .58 .73
FISCAL 1995
Total revenues 126.3 142.0 155.0 173.8
Gross profit 32.3 42.7 41.0 49.7
Total costs and expenses including
income taxes 123.1 132.1 143.6 159.6
Net earnings 3.2 9.9 11.4 14.2
Net earnings per share .14 .43 .50 .63
</TABLE>
10
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Fiscal 1996 compared with fiscal 1995
- -------------------------------------
The Company had net earnings in 1996 of $45.4 million, compared to net earnings
of $38.7 million in 1995, representing an improvement of $6.7 million, or 17
percent. Earnings before income taxes of $55.4 million for fiscal 1996 were
$12.9 million, or 30 percent, higher than $42.5 million in 1995. The significant
increase mainly results from the contribution of recent business acquisitions
within the Industrial Tool Division segment in early fiscal 1996 and the Mining
and Specialty Equipment Division segment in fiscal 1995.
Consolidated revenues of $647.9 million in 1996 were up $50.8 million from
$597.1 million in the prior year, a 9 percent increase. Revenues increased in
all segments but were substantially higher within the Industrial Tool Division
and Mining and Specialty Equipment Division segments where acquired businesses
contributed approximately $39.1 million of the revenues. Also, sales of Marion
surface mining equipment replacement parts and services increased by $21.1
million, or 23 percent. See further discussion in the Industry Segment Analysis
below.
Consolidated cost of sales was $461.8 million in 1996, or 8 percent higher than
the $428.6 million reported in 1995, due to the previously mentioned higher
sales volume. Selling, engineering, and general and administrative expenses were
$132.6 million in 1996, versus $128.9 million in 1995, a 3 percent increase,
reflecting the incremental administrative expenses associated with acquired
businesses, partially offset by active cost containment within the existing
operations.
Interest expense was $7.0 million for 1996 compared to $4.6 million in 1995,
which reflects the increase in the Company's debt during the two year period.
Other, net was income of $8.9 million for 1996 compared to income of $7.5
million in 1995. The $8.9 for 1996 includes miscellaneous asset sales of $3.2
million, a favorable foreign exchange gain of $2.6 million, earnings from
partnership operations of $2.3 million, and an adjustment of a previously
reserved amount for plant reconfiguration in the Minerals and Refractory
Products Division, offset by a $3.0 million provision for asbestos litigation.
The provision for income taxes in 1996 was $10.0 million, or 18 percent of
earnings before taxes, compared to $3.8 million, or 9 percent of earnings before
taxes, in 1995. The tax provisions include benefits of $9.1 million in 1996 and
$9.0 million in 1995 relating to valuation allowance adjustments. The 1996 and
1995 benefits relate primarily to reassessments of the Company's ability to
realize the related deferred tax assets based upon continued worldwide
profitability of the Company.
The Company's consolidated backlog of unshipped orders was $151.4 million at
October 31, 1996, compared with $161.0 million at October 31, 1995, a decrease
of $9.6 million or 6 percent. The most significant decrease occurred in the
Mining and Specialty Equipment Division segment where the Marion surface mining
equipment backlog decreased by $45.0 million. This decrease was partially offset
by increases of $24.1 from acquisitions within the Industrial Tool and Mining
and Specialty Equipment Division segments and an increase of $6.6 million within
the Minerals and Refractory Products Division segment.
11
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Fiscal 1995 compared with fiscal 1994
- -------------------------------------
The Company had net earnings in 1995 of $38.7 million, compared to net earnings
of $24.6 million in 1994, representing an improvement of $14.1 million, or 57
percent. Earnings before income taxes of $42.5 million for fiscal 1995 were
$17.9 million, or 73 percent, higher compared to $24.6 million in 1994. The
significant increase mainly resulted from the contribution of businesses
acquired within the Minerals and Refractory Products Division segment and the
Mining and Specialty Equipment Division segment.
Consolidated revenues of $597.1 million in 1995 were up $156.3 million from
$440.8 million in the prior year, a 35 percent increase. Although revenues
increased in all segments, they were substantially higher within the Minerals
and Refractory Products Division and Mining and Specialty Equipment Division
segments where acquired businesses contributed approximately $100 million of the
revenues and sales of Marion surface mining equipment increased by $27.6
million, or 44 percent. See further discussion in the Industry Segment Analysis
below.
Consolidated cost of sales was $428.6 million in 1995, or 36 percent higher than
the $315.2 million reported in 1994, due to the previously mentioned higher
sales volume. Selling, engineering, and general and administrative expenses were
$128.9 million in 1995, versus $103.5 million in 1994, a 25 percent increase,
reflecting the consolidation of administrative offices associated with acquired
businesses, certain non-recurring corporate expenses and additional
administrative costs within the Minerals and Refractory Products Division
segment.
Interest expense was $4.6 million for 1995 compared to $.9 million in 1994 which
reflected an increase in the Company's level of debt.
Other, net was income of $7.5 million for 1995 compared to income of $3.4
million in 1994. The $7.5 million for 1995 included the gain on sale of certain
mineral rights within the Minerals and Refractory Products Division segment of
$4.9 million, earnings from partnership operations of $2.7 million, the gain on
sale of the Jeffrey Underground Mining business of $2.6 million, the gain on
sale of excess land of $1.9 million, and foreign exchange conversion gain of
$1.0 million, offset primarily by a $4.9 million provision for litigation.
The income tax provision in 1995 was $3.8 million, or 9 percent of earnings
before taxes. The tax provision for 1995 reflected a benefit of $9.0 million due
to an adjustment to the valuation allowance because of a reassessment of
the Company's ability to use tax loss carry forwards. There was no provision for
income taxes in 1994, primarily due to the release of a portion of the Company's
valuation allowance as a result of a change in the expected realization of
deferred tax assets because of the liquidation of the Company's remaining
interest in KDC.
The Company's consolidated backlog of unshipped orders was $161 million at
October 31, 1995, compared with $92 million at October 31, 1994, an increase of
$69 million or 75 percent. The most significant increases occurred in the Mining
and Specialty Equipment Division segment where the Marion surface mining
equipment backlog increased by $35 million and the acquisition of Ameri-Forge
added another $35 million.
12
<PAGE>
INDUSTRY SEGMENT ANALYSIS
- -------------------------
Minerals and Refractory Products Division
- -----------------------------------------
The table below shows revenues and operating profit for the Minerals and
Refractory Products Division segment which consists of Harbison-Walker, a
producer of refractory products primarily for iron and steel producers and of
magnesite and other minerals; Refmex, the largest Mexican producer of refractory
products for steel and cement producers; and RECSA, the largest supplier of
refractory products to the Chilean copper and steel markets. See Note C to the
consolidated financial statements for further information.
<TABLE>
<CAPTION>
In millions of dollars 1996 1995 1994
---------------------- ----- ----- -----
<S> <C> <C> <C>
Segment revenues 331.4 318.2 242.6
Segment operating profit 39.2 38.2 28.9
</TABLE>
Revenues for 1996 improved by $13.2 million, or 4 percent, over 1995. The modest
improvement resulted from small increases within the U.S. and Mexico along with
a 30 percent increase at RECSA. Revenues for RECSA were $22.3 million in 1996
versus $17.2 million in fiscal 1995.
Segment operating profit in 1996 increased by $1 million, an improvement of 2.6
percent, due to the improved profitability of Harbison-Walker's minerals
operation, Refmex and RECSA. Harbison-Walker's refractory operation experienced
lower profitability from domestic and export sales due to the unfavorable impact
of competitive pricing, primarily in the steel producing industry, and slightly
higher selling costs. Segment operating profit in 1995 excluded a net gain of
$2.9 million which is classified as a component of non-segment earnings. The net
gain consisted of a $4.9 million gain on the sale of certain mineral rights
offset by a non-recurring charge of $2 million to write-down certain assets.
In fiscal 1996, the peso exchange rate dropped 10 percent from $.14 per Mexican
peso to a little more than $.12 per This devaluation resulted in a reduction in
the net book value of Mexican peso. From the latter part of December 1994,
through the end of October 1995, the peso exchange rate fell from approximately
$.29 to $.14 per new Mexican peso. Refmex of $38.1 million in 1995 and $3.3
million in 1996 for a total accumulated devaluation of $41.4 million which is
reflected in the cumulative translation adjustment.
Statement of Accounting Standards No. 52 ("FAS 52") requires that operations in
highly inflationary economies be accounted for as if the functional currency of
the operations were the U.S. dollar. In November 1996 the test specified by FAS
52 for designating highly inflationary economies was met with respect to the
Company's operations in Mexico. Effective with the quarter beginning February 1,
1997, the Company will begin to report its Mexican operations using the U.S.
dollar as the functional currency instead of the peso. Also beginning February
1, 1997 the Company will not recognize deferred tax assets and liabilities for
book/tax differences that relate to balances which will be translated using
historical exchange rates and that result from changes in exchange rates or
indexing for tax purposes. The Company does not anticipate, based on exchange
rates through March 31, 1997, that the effect of applying highly inflationary
accounting to the Mexican operations will be material to the consolidated
financial statements for the quarter ending April 30, 1997.
13
<PAGE>
Mining and Specialty Equipment Division
- ---------------------------------------
The table below shows revenues and operating profit for the Mining and Specialty
Equipment Division segment which, during the periods indicated, produced highly
engineered heavy equipment for construction markets and surface and underground
mining applications, processing and recycling products used in various
industrial markets, and high quality forged steel flanges used in the oil and
gas, chemical, food and water treatment industries. With the acquisition of
Corrosion Technology International, Inc. (CTI) in January, 1996, this segment
added advanced engineered polymer concrete shapes, including single piece
polymer concrete electrolytic refining cells used in the copper and other non-
ferrous metals refining industries. See Note C to the consolidated financial
statements for further information.
<TABLE>
<CAPTION>
In millions of dollars 1996 1995 1994
---------------------- ----- ----- -----
<S> <C> <C> <C>
Segment revenues 217.7 202.8 125.4
Segment operating profit 21.4 14.3 .2
Share of Partnership sales 53.5 37.9 35.7
Share of Partnership net earnings 2.3 2.7 2.4
</TABLE>
The segment's consolidated revenues for 1996 of $217.7 million were higher by
$14.9 million, or 7 percent, than 1995. Revenues from Marion surface mining
equipment were up by $21.1 million, or 23.4 percent, due to increased spare
parts and service sales. CTI added revenue during 1996 of $20.9 million and the
Ameri-Forge forged flange operation's sales were higher by $8.4 million, or 20
percent. These favorable results were partially offset by the sale of the
Jeffrey underground mining equipment business in October, 1995 which had sales
of $38.9 million in 1995. See Note C to the consolidated financial statements.
Segment operating profit of $21.4 million in 1996 represents an increase of $7.1
million , or 50 percent, from 1995. The increase resulted from the improved
incremental sales volume of Ameri-Forge which contributed approximately $13
million of operating profit in 1996, an increase of $4 million, or 45 percent,
over fiscal 1995. The balance of the improvement was generated from favorable
results within the processing and recycling operations, partially offset by the
elimination of the Jeffrey underground mining equipment operation from this
segment. The sale of the Jeffrey underground mining equipment business generated
a gain in fiscal 1995 of $2.6 million which, together with a $1.9 million gain
on the sale of excess land, was reported as a component of non-segment earnings
in fiscal 1995.
The Company's share of partnership results in 1996, 1995 and 1994 relates to its
investment in KOMDRESCO, a South African supplier of construction equipment. See
Note D to the consolidated financial statements for further discussion.
Industrial Tool Division
- ------------------------
The table below shows revenues and operating profit for the Industrial Tool
Division segment which includes operations producing a wide range of pneumatic
and electric industrial tools used in the assembly of vehicles, aircraft, heavy
equipment and small components. In December 1995, the Company acquired The Rotor
Tool Company (Rotor) for approximately $34.5 million. Rotor manufactures
fixturized and specialty engineered tools used primarily in automotive assembly
operations. As a result of this acquisition, the Company's Industrial Tool
segment offers a broader product line of high-quality pneumatic and electric
assembly tools. See Note C to the consolidated financial statements for further
information.
<TABLE>
<CAPTION>
In millions of dollars 1996 1995 1994
- ---------------------- ---- ---- ----
<S> <C> <C> <C>
Segment revenues 97.2 73.3 69.1
Segment operating profit 14.2 8.7 8.5
</TABLE>
14
<PAGE>
Segment revenues for 1996 are $23.9 million higher than 1995, a 33 percent
increase. The increase is primarily due to acquisition of Rotor, which
contributed an incremental $17.3 million in revenue in 1996, as well as
favorable results within domestic aircraft and automotive markets.
Segment operating profit increased by $5.5 million, or 63 percent in 1996 versus
1995, as a result of higher sales and improved profit margins primarily upon
fixturized automated tools. In 1995, operating profit increased $.2 million
because of the improved sales volume.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
- ----------------------------------------------------
Cash and cash equivalents were $11.5 million at October 31, 1996, a decrease of
$9.6 million from October 31, 1995. Cash flow from operations was a net use of
$8.7 million, compared to a net provision of $36 million for 1995. The most
significant changes in operating cash in 1996 were a $30.3 million decrease in
accounts payable and accrued liabilities, a $13.5 million decrease in advances
from customers on contracts, a $13.8 million increase in inventories and an
$11.8 million increase in receivables. In 1995, the most significant changes
were an increase in net earnings of $14.1 million, an increase in accounts
payable and accrued liabilities of $19.3 million, and an additional $6.8 million
of depreciation and amortization. Investing activities in 1996 consisted of
$75.6 million used for business acquisitions net of cash acquired, and $53.7
million in capital expenditures. For 1995, the Company used $37.8 million for
acquisitions net of cash acquired and $34.8 million for capital expenditures.
The sale of the Company's domestic underground mining equipment business and
certain other asset sales provided $24.8 million. Borrowings, further discussed
in the paragraph below, provided $126.6 million in 1996, net of repayments.
Financing activities in 1995 provided a net $2 million. was from short-term
borrowings, net of repayments. This was offset by $8.7 million of Company
treasury share purchases.
On January 31, 1996, the Company issued $75 million of unsecured, medium-term
senior notes to institutional lenders in the private placement market to provide
financing for acquisitions, primarily CTI and Rotor. In addition, during the
last quarter of 1996, $60 million of short-term debt was converted to long term
with a due date of September 1999. See Note G to the consolidated financial
statements. Management believes that internally-generated funds and proceeds of
short-term borrowings under existing credit facilities will be adequate to meet
working capital and capital expenditure requirements while maintaining an
appropriate debt to total capitalization ratio.
At October 31, 1996 and 1995, the Company had short term debt of $38.9 million
and $42.7 million, respectively. The Company's current ratio at October 31,
1996, was 1.8 to 1 compared to 1.5 to 1 at October 31, 1995. The increase in the
current ratio occurred in part because of an increase in inventories of $20
million, an increase in accounts receivable and deferred income taxes of $16
million each and a $17 million increase in asbestos insurance recoveries
receivable. Management believes that the Company's financial position will
support additional borrowing should the need arise. As discussed in Note G to
the consolidated financial statements, the Company has lines of credit totalling
$95 million, of which $58.6 million was unused and available at October 31,
1996.
BACKLOG
- -------
The Company's backlog of unshipped orders at October 31, 1996 was $151 million,
down from $161 million at the end of fiscal 1995. Backlog by segment was as
follows:
<TABLE>
<CAPTION>
In millions of dollars 1996 1995 1994
---------------------- ---- ---- ----
<S> <C> <C> <C>
Minerals and Refractory Products Division 61 50 40
Mining and Specialty Equipment Division 80 108 48
Industrial Tool Division 10 3 4
---- ---- ----
Total 151 161 92
==== ==== ====
</TABLE>
15
<PAGE>
Accounting Standards
- --------------------
In March 1992, the Financial Accounting Standards Board issued FASB
Interpretation No. 39 that eliminated the practice of offsetting, or netting,
certain related assets and liabilities. The Company adopted the provisions of
this pronouncement in fiscal 1995 relative to its estimated products liability
and, at year end 1996, had recorded an asset of approximately $72 million and a
liability of approximately the same amount to reflect these liabilities and the
related estimated insurance recoveries receivables at their gross amounts. There
was no impact on earnings as a result of the adoption of this accounting
pronouncement. See Note H to the consolidated financial statements.
In 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires
companies to periodically evaluate the realizability of long-lived assets,
including property, plant and equipment and goodwill, based on expectations of
undiscounted cash flows and operating income. This pronouncement is required to
be adopted by the Company for the fiscal year beginning November 1, 1996. The
adoption is not expected to have a significant impact on the Company's financial
position or results of operations.
The FASB issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" in October 1995. This statement requires,
commencing with the Company's fiscal year beginning November 1, 1996, that the
fair value of stock options and other stock-based compensation issued to
employees be either included as compensation expense in the consolidated
statement of earnings, or disclosed in the footnotes to the consolidated
financial statements on a pro-forma basis with the effect on net income and
earnings per share of such compensation expense displayed. The Company plans to
adopt the statement on a disclosure-only basis and, accordingly, adoption of the
statement will have no effect on the Company's results of operations.
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; surface coal mining worldwide; North American and European
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data of the Company begin on page
F-1 of this report. Said information is hereby incorporated by reference into
this Item 8.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is set forth in the
Proxy Statement for the Annual Meeting of Shareholders of the Company to be held
on March 19, 1997, under the caption "Election of Directors", and is
incorporated herein by reference. Information with respect to Executive Officers
of the Company is set forth below.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information as of January 1, 1997,
concerning the persons who are Executive Officers of Global.
Name and Age Position and Offices with the Company
------------ -------------------------------------
J. L. Jackson (64) Chairman of the Board of the Company effective
January 1994; Chief Executive Officer of the Company
since October 1993; President of the Company from
July 1994 to December 1995; Vice Chairman of the
Company from October 1993 to December 1993; Business
consultant to the petroleum industry for more than
five years prior to becoming Vice Chairman and Chief
Executive Officer of the Company; President and
Chief Operating Officer, Diamond Shamrock
Corporation, Dallas, Texas, 1983 - 1986.
Donald C. Mielke (53) President and Chief Operating Officer effective
December 1995; Senior Vice President - Finance and
Administration of the Company from July 1994 to
December 1995; Senior Vice President - Chief
Financial Officer of the Company from June 1993 to
July 1994; Investor and financial consultant from
November 1990 to June 1993; Chief Financial Officer,
Senior Vice President of Maxus Energy Corp. from
October 1987 to October 1990.
Graham L. Adelman (47) Senior Vice President and General Counsel of the
Company since July 1995; Secretary of the Company
since July 1996; Senior Vice President, General
Counsel and Secretary of The Western Company of
North America from 1990 to April 1995.
Juan M. Bravo (59) Vice President of the Company and President of
Harbison-Walker Refractories Company since March
1996; President of Harbison-Walker International
Division from November 1995 to March 1996; President
and Chief Executive Officer of Refmex from January
1995 to November 1995; Vice President of Chemical
and Refractories Division of Penoles S.A De C.V.,
Mexico from 1990 to December 1994.
17
<PAGE>
Name and Age Position and Offices with the Company
------------ -------------------------------------
Gary G. Garrison (53) Chief Financial Officer of the Company since
December 1994; Vice President- Finance and
Controller of the Company since September 1993;
Treasurer of the Company since May 1992; Senior Vice
President - Administration of the Finance Division
of Komatsu Dresser Company October 1988 to April
1992; Vice President of Dresser Finance Corporation
November 1984 to May 1992.
Thomas R. Hurst (56) Vice President of the Company since June 1994;
President of Industrial Tool Division of the Company
since August 1992; President of Industrial Tool
Division of Dresser Industries, Inc. from May 1983
to July 1992.
Roberta F. Marshall (43) Vice President - Human Resources of the Company
since June 1994; Director, Employee Relations &
Benefits of the Company from August 1992 to May
1994; Manager, Employee Relations of Dresser
Industries, Inc. from July 1987 to July 1992.
George W. Pasley (46) Vice President - Communications of the Company since
September 1996; Business consultant from September
1995 to August 1996; Chief Financial Officer of
Maxus Energy Corp. from September 1994 to September
1995; Senior Vice President of Maxus Energy Corp.
from October 1991 to August 1994.
Mark D. Stott (40) Vice President - Planning and Development of the
Company since August 1996; Director of Business
Analysis of Motorola, Inc. from 1993 to 1996; Senior
Manager of Motorola, Inc. from 1988 to 1991.
Larry A. Thaxton (54) Vice President of the Company since June 1994;
President of Mining and Specialty Equipment Division
of the Company since May 1994 ; President of Jeffrey
Division of the Company from August 1992 to May
1994; President of Jeffrey Division of Dresser
Industries, Inc. from September 1991 to July 1992;
Vice President of Jeffrey Division of Dresser
Industries, Inc. from September 1990 to September
1991.
Each executive officer serves at the pleasure of the Board of Directors of
Global.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation is set forth in the Proxy
Statement for the Annual Meeting of Shareholders of the Company to be held on
March 19, 1997, under the caption "Executive Compensation and Other
Information", and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management is set forth in the Proxy Statement for the Annual Meeting of
Shareholders of the Company to be held on March 19, 1997, under the caption
"Security Ownership of Certain Beneficial Owners and Management", and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS:
(1) and (2) - The response to this portion of Item 14 is submitted as a
separate section of this report.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
The exhibits as shown in the "Index of Exhibits" are filed as a part of
this Report.
(d) FINANCIAL STATEMENT SCHEDULES - The response to this portion of Item 14 is
submitted as a separate section of this report.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Global Industrial Technologies, Inc. has duly caused this
report to be signed by the undersigned, thereunto duly authorized in the City of
Dallas, State of Texas, on January 27, 1997.
Global Industrial Technologies, Inc.
By: /s/ Gary Garrison
-------------------------------------
(Gary G. Garrison)
Vice President - Finance,
Chief Financial Officer
(Principal Finance Officer)
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 indicated on January 27, 1997.
SIGNATURE TITLE
--------- -----
/s/ J. L. Jackson Chairman of the Board, Chief Executive Officer
- ----------------------------- and Director (Principal Executive Officer)
(J. L. Jackson)
/s/ Gary Garrison Vice President-Finance, Chief Financial Officer
- ----------------------------- (Principal Finance Officer)
(Gary G. Garrison)
/s/ Stephen D. Chanslor Staff Vice President and Controller
- ----------------------------- (Principal Accounting Officer)
(Stephen D. Chanslor)
/s/ David H. Blake Director
- -----------------------------
(David H. Blake)
/s/ Samuel B. Casey, Jr. Director
- -----------------------------
(Samuel B. Casey, Jr.)
/s/ Rawles Fulgham Director
- -----------------------------
(Rawles Fulgham)
/s/ R. W. Vieser Director
- -----------------------------
(R. W. Vieser)
20
<PAGE>
ANNUAL REPORT ON
FORM 10-K
ITEM 14(a) (1) and (2)
FINANCIAL STATEMENTS
YEAR ENDED OCTOBER 31, 1996
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
DALLAS, TEXAS
F-1
<PAGE>
LIST OF FINANCIAL STATEMENTS
The following Global Industrial Technologies, Inc. consolidated financial
statements and report of independent accountants for the year ended October 31,
1996 are incorporated by reference in Item 8 of the Company's Annual Report on
Form 10-K for such fiscal year:
Report of Management
Report of Independent Accountants
Consolidated Statements of Earnings -- Years ended October 31, 1996, 1995
and 1994
Consolidated Balance Sheets -- October 31, 1996 and 1995.
Consolidated Statements of Cash Flows -- Years ended October 31, 1996, 1995
and 1994
Consolidated Statements of Shareholders' Equity -- Years ended October 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
F-2
<PAGE>
REPORT OF MANAGEMENT
The accompanying consolidated financial statements of Global Industrial
Technologies, Inc. have been prepared by management and have been audited by
independent accountants. The management of the Company is responsible for the
financial information and representations contained in the financial statements
and other sections of this annual report. Management believes that the financial
statements have been prepared in conformity with generally accepted accounting
principles appropriate under the circumstances to reflect, in all material
respects, the substance of events and transactions that should be included. In
preparing the financial statements, it is necessary that management make
informed estimates and judgments based on currently available information of the
effects of certain events and transactions.
In meeting its responsibility for the reliability of the financial statements,
management depends on the Company's internal control structure. This internal
control structure is designed to provide reasonable assurance that assets are
safeguarded and transactions are executed in accordance with management's
authorization and are properly recorded. In designing control procedures,
management recognizes that errors or irregularities may occur. Also, estimates
and judgments are required to assess and balance the relative cost and expected
benefits of the controls. Management believes that the Company's internal
control structure provides reasonable assurance that errors or irregularities
that could be material to the financial statements are prevented or would be
detected within a timely period by employees in the normal course of performing
their assigned functions.
The Board of Directors pursues its oversight role for the accompanying financial
statements through its Audit and Finance Committee, which is composed solely of
directors who are not officers or employees of the Company. The Committee meets
with management and internal audit to review their work and to monitor the
discharge of its responsibilities. The Committee also meets with the
independent accountants of the Company, without management present, to discuss
internal control structure, auditing and financial reporting matters.
Dallas, Texas
December 9, 1996
F-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Global Industrial Technologies, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Global
Industrial Technologies, Inc. and its subsidiaries at October 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the three
years in the period ended October 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
December 9, 1996, except as to Note L, which is as of January 23, 1997.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
In Millions Except Per Share Data - Years Ended
October 31 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Net sales and operating revenues........... $646.3 $594.3 $437.1
Other...................................... 1.6 2.8 3.7
------ ------ ------
Total revenues.................................. 647.9 597.1 440.8
------ ------ ------
Costs and expenses
Cost of sales.............................. 461.8 428.6 315.2
Selling, engineering, administrative and
general expenses........................ 132.6 128.9 103.5
Interest expense........................... 7.0 4.6 0.9
Other, net................................. (8.9) (7.5) (3.4)
------ ------ ------
Total costs and expenses........................ 592.5 554.6 416.2
------ ------ ------
Earnings before income taxes............... 55.4 42.5 24.6
Income tax provision............................ (10.0) (3.8)
------ ------ ------
Net earnings............................... $ 45.4 $ 38.7 $ 24.6
====== ====== ======
Earnings per common share....................... $ 2.01 $ 1.70 $ 1.02
====== ====== ======
Weighted average common shares outstanding...... 22.6 22.8 24.1
====== ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In Millions - As of October 31 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............................. $ 11.5 $ 21.1
Notes and accounts receivable
Public................................................ 129.2 113.0
Unconsolidated affiliates............................. .7 2.6
------ ------
129.9 115.6
Less allowance for doubtful receivables............... 1.5 3.6
------ ------
128.4 112.0
Inventories - net
Finished products and work in process................. 93.0 84.3
Raw materials and supplies............................ 40.6 29.0
------ ------
133.6 113.3
Deferred income taxes................................. 54.5 38.5
Asbestos insurance recoveries receivable.............. 42.6 25.4
Prepaid expenses...................................... 4.9 8.5
------ ------
Total Current Assets.................................. 375.5 318.8
------ ------
Investments in unconsolidated affiliates................... 20.5 17.1
Noncurrent deferred income taxes........................... 5.1 16.7
Goodwill - net............................................. 82.2 22.3
Other assets............................................... 71.6 52.1
Property, plant and equipment - at cost
Land, land improvements and mineral deposits.......... 33.0 31.4
Buildings............................................. 88.9 81.8
Machinery and equipment............................... 354.6 313.7
------ ------
476.5 426.9
Less accumulated depreciation, depletion
and amortization.................................... 278.8 269.5
------ ------
Total Properties - net................................ 197.7 157.4
------ ------
TOTAL ASSETS $752.6 $584.4
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In Millions - As of October 31 1996 1995
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities
Accounts payable....................................... $ 44.8 $ 41.7
Notes payable and current portion of long-term debt.... 38.9 42.7
Advances from customers on contracts................... 3.3 16.7
Accrued compensation and benefits...................... 26.4 27.0
Accrued taxes other than income taxes.................. 3.7 5.3
Insurance reserves..................................... 13.2 12.3
Income taxes currently payable......................... 14.1 11.0
Current deferred income taxes.......................... 7.6 7.2
Asbestos related liabilities. ......................... 40.1 27.9
Other accrued liabilities.............................. 15.1 25.9
------ ------
Total Current Liabilities.............................. 207.2 217.7
------ ------
Long-term debt............................................... 136.5 2.3
Postretirement benefits...................................... 49.2 58.6
Noncurrent deferred income taxes............................. 7.5 5.3
Other liabilities............................................ 52.3 38.9
Shareholders' Equity
Preferred stock, 10,000,000 authorized
Common stock, $.25 par value
Authorized shares: 100,000,000
Issued 27,363,697 shares at October 31, 1996 and 1995
Outstanding 22,680,190 shares at October 31, 1996 and
22,575,314 at October 31, 1995........................ 6.8 6.8
Capital in excess of par value.......................... 382.8 383.2
Retained earnings (accumulated deficit)................. 29.9 (15.5)
Cumulative translation adjustment....................... (56.0) (46.3)
Treasury stock, at cost................................. (60.8) (61.2)
Other................................................... (2.8) (5.4)
------ ------
Total Shareholders' Equity.............................. 299.9 261.6
------ ------
Commitments and Contingencies
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $752.6 $584.4
====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In Millions - Years Ended October 31 1994 1995 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings..................................... $ 45.4 $ 38.7 $ 24.6
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, depletion and amortization........ 18.7 16.1 9.3
Earnings from partnership operations............ (2.3) (2.7) (2.4)
Gain on sale of assets.......................... (1.5) (9.4)
Deferred income tax provision................... 1.9 1.9 .4
Change in assets and liabilities net of
effects of acquisitions:
Decrease (increase) in receivables.............. (11.8) (15.9) .5
Increase in inventories......................... (13.8) (10.1) (16.7)
Increase (decrease) in accounts payable and
accrued liabilities............................ (30.3) 19.3 (17.7)
Increase (decrease) in advances from
customers on contracts......................... (13.5) 9.3 2.0
Increase (decrease) in current income
taxes payable.................................. 3.9 .6 (.8)
Other, net...................................... (5.4) (11.8) (4.5)
------- ------ ------
Net cash provided by (used in) operating
activities....................................... (8.7) 36.0 (5.3)
------- ------ ------
Cash flows from investing activities:
Business acquisitions, net of cash acquired..... (75.6) (37.8) (72.2)
Proceeds from sale of assets.................... 2.3 24.8
Liquidation of investment in unconsolidated
subsidiary..................................... 5.6 41.0
Capital expenditures............................ (53.7) (34.8) (13.0)
------- ------ ------
Net cash used in investing activities............. (127.0) (42.2) (44.2)
------- ------ ------
Cash flows from financing activities:
Proceeds from borrowings........................ 135.0 103.1 6.8
Reduction of debt............................... (8.4) (93.3) (5.1)
Options exercised under employee benefit plans.. 2.8 .9 .8
Purchase of common shares....................... (2.8) (8.7) (43.2)
------- ------ ------
Net cash provided by (used in) financing
activities....................................... 126.6 2.0 (40.7)
------- ------ ------
Effect of translation adjustments on cash......... (.5) (2.0) 1.3
------- ------ ------
Net decrease in cash and cash equivalents......... (9.6) (6.2) (88.9)
Cash and cash equivalents, beginning of year...... 21.1 27.3 116.2
------- ------ ------
Cash and cash equivalents, end of year............ $ 11.5 $ 21.1 $ 27.3
======= ====== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-8
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Capital Earnings Cumulative Total
Common in Excess (Accumulated Translation Treasury Shareholders'
In Millions Stock of Par Deficit) Adjustment Stock Other Equity
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
October 31, 1993.... $6.8 $383.3 $(78.8) $(11.5) $(11.6) $ (.4) $287.8
Net earnings........ 24.6 24.6
Shares purchased
during the year.... (43.2) (43.2)
Options exercised
under employee
benefit plans...... 1.4 1.4
Currency
translation
adjustments........ 3.2 3.2
Other............... (.2) (.2)
---- ------ ------ ------ ------ ----- ------
Balance,
October 31, 1994... 6.8 383.3 (54.2) (8.3) (53.4) (.6) 273.6
Net earnings........ 38.7 38.7
Shares purchased
during the year.... (8.7) (8.7)
Options exercised
under employee
benefit plans...... (.1) .9 .8
Currency
translation
adjustments........ (38.0) (38.0)
Other............... (4.8) (4.8)
---- ------ ------ ------ ------ ----- ------
Balance,
October 31, 1995... 6.8 383.2 (15.5) (46.3) (61.2) (5.4) 261.6
Net earnings........ 45.4 45.4
Shares purchased
during the year.... (2.8) (2.8)
Options exercised
under employee
benefit plans...... (.4) 3.2 2.8
Currency
translation
adjustments........ (9.7) (9.7)
Other............... 2.6 2.6
---- ------ ------ ------ ------ ----- ------
Balance,
October 31, 1996... $6.8 $382.8 $ 29.9 $(56.0) $(60.8) $(2.8) $299.9
==== ====== ====== ====== ====== ===== ======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - GENERAL INFORMATION AND BASIS OF PRESENTATION
General Information
As a result of a reorganization into a holding company structure, on November 1,
1995, all issued shares of INDRESCO Inc. common stock were converted on a share-
for-share basis into shares of common stock of Global Industrial Technologies,
Inc. (Global or the Company).
The Company's businesses include the Harbison-Walker Refractories Company,
Refractarios Mexicanos, S.A. de C.V. (Refmex) and Refractarios Chilenos S.A.
(RECSA) refractory operations, Marion draglines and electric power shovels
(Marion), Ameri-Forge forged flanges, Corrosion Technologies, Inc. (CTI) copper
refining cells, processing equipment operations, and INTOOL and The Rotor Tool
Company (Rotor) industrial tool products. The Company also has a 50 percent
interest in a construction equipment partnership, KOMDRESCO, in South Africa.
In fiscal 1996, the company purchased substantially all of the assets of CTI, an
international group of companies which developed and patented advanced polymer
concrete tankhouse cells used in the electrolytic refining of copper. In
addition the Company acquired 100 percent of the outstanding stock of Rotor, a
manufacturer of fixturized and specialty engineered electric and pneumatic tools
used primarily in automotive assembly.
The Company expanded its refractory products operations in 1994 with the
acquisitions of the Refmex and RECSA operations which are the largest producers
of refractory products in Mexico and Chile, respectively. During fiscal 1995,
the Company entered the forged flange manufacturing business with the
acquisition of Ameri-Forge Corporation and disposed of its Jeffrey underground
mining equipment operations in the U.S. and Australia. See Note C for further
information.
Prior to September 30, 1993, the Company had a 50 percent interest in the
Komatsu Dresser Company (KDC). On that date the Company modified its ownership
interest from 50 percent to 19 percent with the execution of a liquidation
agreement. In September 1994, in accordance with the liquidation agreement, KDC
exercised its option to liquidate the Company's remaining 19 percent interest.
See further discussion in Note D.
Basis of Presentation
Certain prior year amounts have been reclassified to conform to the current year
presentation.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
Consolidation
All majority-owned subsidiaries are consolidated and all material intercompany
accounts and transactions are eliminated. Investments in 20 to 50 percent owned
partnerships are accounted for on the equity method. Investments in other
companies that are less than 20 percent owned are accounted for on the basis of
the Company's cost.
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.
Financial Instruments
The fair value of financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. Unless otherwise
disclosed, the fair values of financial instruments approximate their recorded
values.
Cash Equivalents
Cash and cash equivalents include cash on hand and investments with a purchased
original maturity of three months or less.
Long-Term Contracts
Revenues and earnings from long term dragline contracts are recognized on the
percentage of completion method, measured generally on a cost incurred basis.
Estimated contract earnings are reviewed and revised periodically as the work
progresses, and the cumulative effect of any change is recognized in the period
determined. Estimated losses are charged against earnings in the period such
losses are estimatable. Amounts collected in excess of revenues recognized to
date are included in current liabilities under advances from customers on
contracts.
Inventories
Inventories are valued at the lower of cost or market. The cost of most U.S.
inventories is determined using the last-in, first-out (LIFO) method and
includes direct labor, direct material, manufacturing burden and, where
applicable, charges for special engineering for long-term contracts. The
valuation of inventories not on LIFO is determined using average cost.
Goodwill
The excess of cost over the fair value of net assets acquired in an acquisition
(goodwill) is being amortized on a straight-line basis. The $60.8 million
goodwill associated with the CTI and Rotor acquisitions is being amortized over
40 years. The remaining goodwill of $25.5 million is being amortized principally
over 20 years. The recoverability of goodwill is assessed by the Company on an
ongoing basis by comparing the undiscounted value of expected future operating
cash flows in relation to its net capital investment in the underlying business.
In the event the net capital investment exceeds undiscounted cash flows,
impairment loss is recognized for the excess of the book value of goodwill over
the present value of expected future operating cash flows.
Amortization expense was $2.6 million, $1.2 million and $.3 million for the
years ended October 31, 1996, 1995 and 1994, respectively. Accumulated
amortization at October 31, 1996 and 1995 was $4.1 million and $1.5 million,
respectively.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Property, Plant and Equipment
Fixed assets are recorded at cost and are depreciated over their estimated
service lives primarily on a straight-line basis. Accelerated depreciation
methods are used for tax purposes whenever permitted. Due to the large number of
asset classes, it is not practicable to state the rates used in computing the
provisions for depreciation. Depletion of mineral properties is based upon
estimates of economically recoverable tonnage. Maintenance and repairs are
expensed as incurred; improvements are capitalized. Effective November 1, 1993,
the Company revised the service lives of certain assets to better approximate
their expected remaining useful lives, which increased net income by $2.9
million in 1994.
Postretirement Benefits
The Company has pension plans covering substantially all employees. These plans
are funded sufficiently to at least meet minimum funding requirements under
applicable law. The Company accrues the estimated costs of pension and retiree
benefits other than pensions during the employees' active service period.
Environmental Liabilities
In fiscal 1995, the Company adopted Financial Accounting Standards Board
Interpretation No. 39, "Offsetting of Amounts Related to Certain Contracts,"
which requires gross reporting for environmental and other liabilities, and for
related insurance receivables. Previously, liabilities related to the Company's
asbestos related claims were presented net of estimated insurance receivables.
The adoption of this pronouncement increased Asbestos insurance recoveries
receivable, Other assets, Asbestos related liabilities, and Other liabilities in
the accompanying consolidated balance sheet. There was no impact on earnings as
a result of the adoption of this accounting pronouncement.
Income Taxes
The Company calculates deferred income taxes in accordance with Statement of
Financial Accounting Standards No. 109 using an asset and liability approach.
Valuation allowances against deferred tax assets are provided where appropriate.
Translation of Foreign Currencies
For subsidiaries in countries which do not have highly inflationary economies,
asset and liability accounts are translated at rates in effect at the balance
sheet date, and revenue and expense accounts are translated at the current rates
on the dates of the transactions. Translation adjustments are shown as a
separate component of shareholders' equity.
For subsidiaries in countries with highly inflationary economies, cost of sales,
inventories, property, plant and equipment and related depreciation are
translated at historical rates. Other asset and liability accounts are
translated at rates in effect at the balance sheet date, and revenues and
expenses excluding cost of sales and depreciation are translated at the current
rates on the dates of the transactions. Translation adjustments are reflected in
the statement of earnings. There were no subsidiaries operating in highly
inflationary economies as of October 31, 1996.
The Company's export sales are normally denominated in U.S. dollars.
Earnings per Share
The Company's earnings per share calculation is based on the weighted average
number of shares of common stock and dilutive common stock equivalents
outstanding during the fiscal year.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C - ACQUISITIONS AND DIVESTITURES
Acquisitions
On January 12, 1996, the Company acquired substantially all of the assets of
Corrosion Technologies, Inc. (CTI) for $36.3 million in cash and assumed
liabilities of $11.6 million. CTI, an international group of companies, has
developed and patented advanced polymer concrete tankhouse cells used in the
electrolytic refining of copper. The acquisition has been accounted for as a
purchase and includes $38.3 million of goodwill which will be amortized over a
40 year period. CTI results have been reported as part of the Mining and
Specialty Equipment Division since the date of acquisition.
On December 21, 1995, the Company acquired 100 percent of the outstanding stock
of The Rotor Tool Company (Rotor) for $34.5 million. Rotor is a manufacturer of
fixturized and specialty engineered electric and pneumatic tools used primarily
in automotive assembly operations. The acquisition was accounted for as a
purchase and includes $22.5 million of goodwill which will be amortized over a
40 year period. Rotor's financial results since acquisition have been included
as part of the Industrial Tool Division's 1996 earnings.
On February 23, 1995, the Company acquired the outstanding stock of Shred-Tech
Capital Corp., a Canadian corporation (Shred-Tech), for $5.8 million in cash and
a note payable of $.2 million. Shred-Tech is engaged in the business of
manufacturing, leasing, selling, installing and servicing electric and hydraulic
shredders and related products. The acquisition was accounted for as a purchase
and the results of operations of Shred-Tech have been included as part of the
Mining and Specialty Equipment Division from the date of acquisition. Goodwill
of $5.1 million was recorded in connection with the acquisition.
On December 1, 1994, the Company purchased assets of Refractarios Chilenos S.A.,
and Construcciones Refractarias S.A., Chilean corporations (RECSA), for
approximately $15.5 million in cash and $2.9 million of assumed liabilities.
Both companies are Chilean manufacturers of a broad line of refractory products.
The acquisitions were accounted for as purchases and the results of both have
been reported as part of the Minerals and Refractory Products Division from the
date of acquisition.
On November 1, 1994, the Company acquired over 99 percent of the outstanding
stock of Ameri-Forge Corporation (Ameri-Forge) from Societe General de Forge,
S.A., a Luxembourg corporation, for $16.5 million in cash. The remaining
outstanding stock was acquired in 1995. Under the terms of the purchase
agreement, additional consideration is payable on December 31, 1995, 1996, and
1997 if certain levels of earnings before interest and taxes are attained for
these three years. In accordance with the terms of the agreement, $.5 million of
additional consideration was paid both in December 1995 and 1996, increasing the
goodwill originally recorded. Ameri-Forge is a Houston, Texas based manufacturer
of forged flanges used to connect components of closed systems for processing
and transporting liquids and gases in industries such as oil and gas,
petrochemical, chemical, construction, food and water treatment. The acquisition
was accounted for as a purchase and originally included approximately $9.5
million of goodwill. The results of operations of Ameri-Forge have been reported
as part of the Mining and Specialty Equipment Division from the date of
acquisition.
On September 30, 1994, the Company purchased substantially all of the assets of
Refmex and Refgreen (Refmex) from Industrias Penoles for $73.2 million in cash.
Refmex is the largest Mexican producer of refractory products. The acquisition
was accounted for as a purchase and the results of Refmex have been reported as
part of the Minerals and Refractory Products Division from the effective date of
acquisition.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Acquisitions (Continued)
On August 31, 1994, the Company purchased substantially all of the assets of
Shred Pax Corporation, for $3 million in cash and a $3 million note payable to
the former owner. The Company also assumed approximately $3 million in
liabilities. Shred Pax Systems, Inc. (Shred Pax) is a manufacturer of low-speed,
high-torque shredder and compactor systems used for recycling solid wastes such
as tires, glass and plastics. The acquisition was accounted for as a purchase
and the results of operations of Shred Pax have been reported as part of the
Mining and Specialty Products Division since the date of acquisition. Goodwill
of $6.0 million was recorded in connection with this acquisition.
The following summary presents the consolidated results of operations for the
years ended October 31, 1996 and 1995 on an unaudited pro forma basis, as if the
CTI and Rotor acquisitions had occurred as of November 1, 1994 (with appropriate
adjustments for amortization of intangible assets and related income tax
effects). The pro forma operating results are for illustrative purposes only and
do not purport to be indicative of the actual results which would have occurred
had the transactions been consummated as of those earlier dates, nor are they
indicative of results of operations which may occur in the future.
<TABLE>
<CAPTION>
In Millions Except Per Share Data Years ended October 31,
- --------------------------------- -----------------------
1996 1995
---- ----
<S> <C> <C>
Revenues................................................ $656.8 $646.2
Net income.............................................. 46.3 40.5
Earnings per share...................................... 2.05 1.78
</TABLE>
Divestitures
In October 1995, the Company sold certain of the assets of its Jeffrey
underground mining equipment operations in the U.S. and Australia. The Company
recognized a gain on this transaction of $2.6 million, which is included in
Other, net in the consolidated statements of earnings.
In July 1995, the Company recognized a gain on the sale of certain mineral
rights of $4.9 million. In addition, the Company recorded non-recurring charges
of $2.0 million to write off-certain assets and $2.3 million to write down the
value of a graphite production facility. These amounts have been included in
Other, net in the consolidated statements of earnings.
In July 1995, the Company sold certain excess land adjacent to its operating
facility in the United Kingdom for net proceeds of approximately $2.0 million.
The Company recognized a gain on this transaction of $1.9 million, which is
included in Other, net in the consolidated statement of earnings.
In September 1994, KDC exercised its option to liquidate the Company's remaining
19 percent interest as part of a liquidation agreement originally executed on
September 30, 1993. With the liquidation of the remaining 19 percent interest,
the Company received the book value of the investment, or $38 million, with $32
million in cash at closing, another $1 million in October 1994, and the
remaining $5 million in fiscal 1995.
In August 1994, the Company developed a plan for the disposition of its
operations in Brazil. In connection with this decision, a loss on disposal of
$3.8 million was included in Other, net in the consolidated statements of
earnings.
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - UNCONSOLIDATED AFFILIATES
The Company, through a subsidiary, has a 50 percent ownership interest in
KOMDRESCO, a general partnership which manufactures and distributes certain
construction and mining equipment in South Africa and neighboring countries.
KOMDRESCO's revenues for the years ended October 31, 1996, 1995 and 1994 were
$107.0 million, $75.7 million, and $65.4 million, respectively. The Company's
investment in KOMDRESCO at October 31, 1996 and 1995 was $14.6 million and $15.6
million, respectively. The Company's share of partnership earnings for KOMDRESCO
was $2.1 million, $2.2 million and $2.2 million for the years ended October 31,
1996, 1995 and 1994, respectively, and is included in Other, net in the
accompanying consolidated statements of earnings.
As stated in Note L, the Company has announced its intention to sell its
interest in KOMDRESCO.
NOTE E - INVENTORIES
Inventories on the LIFO method were $57.8 million and $49.2 million at October
31, 1996 and 1995, respectively. The excess of average cost, which approximates
replacement or current costs, over the LIFO values would have been $41.6 million
and $37.7 million at October 31, 1996 and 1995, respectively. Inventoried costs
relating to long-term contracts as of October 31, 1996 and 1995 were not
significant.
NOTE F - INCOME TAXES
The components of earnings before income taxes for the years ended October 31,
1996, 1995 and 1994 included the following:
<TABLE>
<CAPTION>
In Millions 1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Domestic...................... $25.1 13.6 16.2
Foreign....................... 30.3 28.9 8.4
----- ---- ----
$55.4 42.5 24.6
===== ==== ====
</TABLE>
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - INCOME TAXES (CONTINUED)
The provision for income taxes for the years ended October 31, 1996, 1995 and
1994 consisted of the following:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Current tax provision (benefit)
U.S. Federal........................... $ .7 (3.6)
State.................................. .1 .1
Foreign................................ 7.3 1.8 3.2
----- ---- ----
8.1 1.9 (.4)
----- ---- ----
Deferred tax provision
U.S. Federal........................... .7 .8 (2.6)
Foreign................................ 1.2 1.1 3.0
----- ---- ----
1.9 1.9 .4
----- ---- ----
Income tax provision................ $10.0 3.8 --
===== ==== ====
</TABLE>
The following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the consolidated
statements of earnings:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
---------------------------------
<S> <C> <C> <C>
Income tax expense at statutory rate......... $19.4 14.9 8.6
Valuation allowances......................... (9.1) (9.0) (9.1)
Outside partnership basis differences........ (3.1)
Taxability of foreign subsidiary earnings.... (1.5) (1.0)
Tax rate differentials - other jurisdictions. .2 .9 .7
Deferred tax effect of statutory tax
rate increases.............................. (.4)
Goodwill amortization........................ .5 .4
Other........................................ .5 .7 .2
----- ---- ----
Income tax provision...................... $10.0 3.8 --
===== ==== ====
</TABLE>
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - INCOME TAXES (CONTINUED)
The components of the net deferred tax assets as of October 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
In millions 1996 1995
------------------
<S> <C> <C>
Domestic deferred tax assets
Inventory reserves................................... $ 3.8 3.0
Capital loss carryforwards........................... 5.9 7.8
Self insurance reserves.............................. 5.2 4.8
Other operating reserves............................. 5.2 4.8
Retiree medical reserves............................. 15.8 20.5
Net operating loss carryforwards..................... 8.3 7.1
Basis differences in land and equipment.............. 12.2 12.9
Credit carryforwards................................. 1.7 .8
----- -----
Gross domestic deferred tax assets................ 58.1 61.7
Valuation allowances................................. (6.6) (14.8)
----- -----
Net domestic deferred tax asset................... 51.5 46.9
----- -----
Foreign deferred tax assets
Other operating reserves............................. 2.4 4.2
Basis differences in land............................ 2.3 2.3
Tax deductible goodwill.............................. 1.3 1.5
Net operating loss carryforwards..................... 4.9 3.8
----- -----
Gross foreign deferred tax assets................. 10.9 11.8
Valuation allowances................................. (2.8) (3.5)
----- -----
Net foreign deferred tax assets................... 8.1 8.3
----- -----
Deferred tax liabilities
Other operating reserves............................. 5.1 2.9
Tax deductible inventory purchases................... 5.1 4.3
Basis differences in land and equipment.............. 4.9 5.3
----- -----
Deferred tax liability............................ 15.1 12.5
----- -----
Net deferred tax asset............................... 44.5 42.7
===== =====
Current deferred tax assets
Noncurrent deferred tax assets....................... 54.5 38.5
Current deferred tax liability....................... 5.1 16.7
Noncurrent deferred tax liability.................... (7.6) (7.2)
(7.5) (5.3)
----- -----
Net deferred tax assets.............................. $44.5 42.7
===== =====
</TABLE>
The effect of the valuation allowance on the income tax provision is a benefit
of $9.1 million, $9.0 million and $9.1 million for 1996, 1995 and 1994,
respectively. The 1996 and 1995 benefits relate primarily to reassessments of
the Company's ability to realize the related deferred tax assets based upon
continued worldwide profitability of the Company. For 1994, the benefit relates
primarily to a reassessment of the Company's ability to realize the related
deferred tax assets based upon the liquidation of the Company's remaining
interest in KDC, as discussed in Note C.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - INCOME TAXES (CONTINUED)
Since the Company plans to continue to finance foreign operations and expansion
through reinvestment of undistributed earnings of its foreign subsidiaries
(approximately $67.8 million at October 31, 1996), no provisions are made for
U.S. or additional foreign taxes on such earnings. When the Company identifies
exceptions to this general investment policy, additional taxes are provided.
Unrecognized deferred taxes on remittance of these funds is not expected to be
material.
At October 31, 1996, the Company had U.S. operating losses of $21.9 million and
foreign operating losses of $12.8 million which may be carried forward for tax
purposes. The U.S. operating loss expires in 2009 and 2010. In 2004, $7.5
million of the foreign operating losses expire, whereas $5.3 million may be
carried forward indefinitely.
Income taxes paid for the years ended October 31, 1996, 1995 and 1994, amounted
to $5.0 million, $2.5 million, and $1.8 million, respectively.
NOTE G - NOTES PAYABLE AND LONG-TERM DEBT
The Company's short-term and long-term debt is summarized below as of the dates
shown (in millions).
<TABLE>
<CAPTION>
Years ended October 31,
--------------------------------
1996 1995
------ ----
<S> <C> <C>
Private Placement....................... $ 75.0 --
Committed Credit Facilities............. 60.0 39.5
Lines of Credit......................... 36.4 --
Other................................... 4.0 5.5
------ -----
175.4 45.0
Less Current Maturities................. (38.9) (42.7)
------ -----
$136.5 2.3
====== =====
</TABLE>
Private Placement
Unsecured, medium-term senior notes in the principal amount of $75 million were
issued in January 1996 to institutional lenders to provide financing for
acquisitions, primarily for CTI and Rotor. The principle payments required in
future years are zero in 1997, 1998 and 1999; $7 million in 2000 and 2001; $32
million due 2002; and $29 million due thereafter. The blended interest rate for
the two series of notes is approximately 6.6 percent per annum.
Committed Credit Facility
At October 31, 1996 and 1995, the Company had borrowed $60 million and $39.5
million, respectively under a committed credit facility at an average interest
rate of 5.655 percent and 6.42 percent, respectively. In September 1996, this
credit facility was changed from a short-term to a long-term facility due in
September 1999. The facility provides that it may be increased to $150 million
through syndication.
Long-Term Debt Covenants
The Company's long-term debt contains certain affirmative and negative
covenants, which require compliance with ratios and percentages including
minimum consolidated tangible net worth; as well as maximum debt to
capitalization, debt to consolidated tangible net worth, and debt to net cash
flow. In addition, the covenants have limitations on liens (other than in the
ordinary course of business) and on asset dispositions, as well as requirements
of minimum earnings coverage of interest expense.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
Lines of Credit
Five discretionary bank lines of credit aggregating $95 million were available
to the Company for short-term borrowing at October 31, 1996. These lines
provided for borrowing at market interest rates. At October 31, 1996 the Company
had outstanding $36.4 million under these lines of credit. These lines of credit
have maturity dates ranging from 30 to 90 days and are renewed as needed.
Interest paid during the years ended October 31, 1996, 1995 and 1994 was $6.3
million, $4.6 million and $.8 million, respectively. In 1996, the Company
capitalized $2.0 million of interest relating to capital projects in progress.
No material amount of interest was capitalized in 1995 or 1994.
NOTE H - COMMITMENTS AND CONTINGENCIES
Products Liability Litigation
The Company is one of several defendants in lawsuits pending in state courts in
Pascagoula, Mississippi, Galveston, Texas and New London, Connecticut in which
the plaintiffs allege that they incurred hearing losses and other injuries due
to their operation of pneumatic and electrical hand tools manufactured by the
defendants and used at job sites controlled by customers of the defendants (Tool
Claims). Approximately 3,500 of these plaintiffs allege that they incurred
hearing losses and 1,700 allege carpal tunnel syndrome and vibration injury. A
jury verdict in the aggregate amount of $231,000 was entered in 1994 on the
vibration injury claims of five plaintiffs in the Connecticut lawsuit. The
defendants, including the Company, believe that certain instructions given to
the jury by the court were improper and have appealed the verdict. Oral argument
upon the appeal was heard by the Supreme Court of Connecticut on January 14,
1997.
Harbison-Walker Refractories Company, a wholly-owned subsidiary of the Company
(H-W), once manufactured refractory products which contained small quantities of
asbestos fiber. It is one of numerous companies named as defendants in lawsuits
in which the plaintiffs, most of whom worked for the defendants' customers,
allege injuries due to exposure to asbestos-containing products (Asbestos
Claims). Between August 1, 1992, the date of the spin-off of H-W (Spin-Off Date)
by Dresser Industries, Inc. (Dresser), and October 31, 1996, approximately
111,510 Asbestos Claims had been made against H-W. During the same period, net
of insurance proceeds, H-W incurred expenses of approximately $6.2 million to
defend Asbestos Claims and paid approximately $5.7 million to settle Asbestos
Claims. At October 31, 1996, there were approximately 66,390 unresolved Asbestos
Claims and approximately 16,640 pending Asbestos Claims that were subject to
settlement agreements. All other Asbestos Claims have been settled, dismissed or
otherwise disposed of.
Certain insurance policies issued to Dresser prior to the Spin-Off Date provide
coverage to H-W for a portion of amounts paid by H-W to defend and settle
Asbestos Claims and Tool Claims and of judgments against H-W in respect of
Asbestos Claims and Tool Claims. Moreover, Dresser is obligated to indemnify H-W
for such claims to the extent of the proceeds of such insurance under the terms
of the Distribution Agreement, dated as of July 17, 1992 (Distribution
Agreement), entered into between Dresser and H-W in connection with the spin-off
of H-W. The extent and timing of reimbursement under Dresser's insurance
policies are and will be dependent upon such factors as: the existence and terms
of agreements regarding apportionment among the insurers of payments in respect
of Asbestos Claims and Tool Claims; solvency of the insurers; policy limits for
individual years of coverage and exhaustion thereof by Dresser and H-W claims,
including Asbestos Claims and Tool Claims; and whether policies obligate
insurers to reimburse defense and related expenses and, if so, the extent to
which such payments reduce remaining policy limits. Approximately 70 percent of
the fees, expenses and indemnity payments incurred by H-W for Asbestos Claims
since the Spin-Off Date had been paid by the issuers of these policies. The
Company also intends to seek reimbursement for costs incurred for Tool Claims,
which aggregated $1.7 million at October 31, 1996, and believes that a
significant amount of insurance coverage therefor exists and is available
pursuant to the terms of the Distribution Agreement.
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has recorded an accrual of approximately $83.9 million for Asbestos
Claims pending as of October 31, 1996, and separately recorded an asset of $71.6
million which is the portion of such accrual that is expected to be recovered
over time from insurance. The accrued liability represents an estimate of the
probable fees, expenses and liability of H-W for all pending Asbestos Claims,
both resolved and unresolved. Estimated fees, expenses and liability are based
upon: the number of pending Asbestos Claims; the historical percentage of H-W
Asbestos Claims dismissed; H-W's historical average settlement payment per
undismissed claim; the projected aging of H-W Asbestos Claims; and the average
monthly defense cost per unresolved claim. The partially offsetting asset
reflects management's belief, based on H-W's rights under the Distribution
Agreement, review of applicable insurance policies issued to Dresser, the
solvency of issuers of such policies, and the terms of a 1988 agreement between
Dresser, its primary insurers and certain of its excess insurers regarding
apportionment among them of payments in respect of Asbestos Claims, that such
amount is recoverable under such policies in respect of the accrued liability.
H-W and Dresser are in advanced discussions with insurers that issued
approximately 62 percent of the excess coverage for H-W Asbestos Claims
regarding, among other matters, events which trigger such coverage, allocation
of payments for indemnity and defense among the parties, and retroactivity of
such understandings to past payments by H-W. H-W intends to attempt to negotiate
arrangements similiar to those being discussed with all issuers of applicable
excess coverage. Assuming the pending discussions are satisfactorily concluded,
and in view of the generally favorable case law, management believes that H-W
will be reimbursed in the future for a significantly greater percentage of the
indemnity payments and defense costs for such claims than it currently receives.
Although there can be no certainty that the recorded insurance asset will be
fully recovered or that H-W may not ultimately incur a loss as a result of
pending Asbestos Claims in excess of such accrual, management believes that
additional expenses, if any, would not have a material effect upon the
consolidated financial position or liquidity of the Company. Management
periodically reviews its estimate of pending Asbestos Claims liability as well
as its evaluation of available insurance and makes such adjustments in the
accruals as may be appropriate. Such adjustments could affect earnings in a
future period.
The Company cannot reasonably estimate the legal liability of H-W for unasserted
Asbestos Claims, the cost to defend such claims, or the amounts H-W may pay to
settle future Asbestos Claims or as a result of adverse judgements. Primarily,
this is because the potential number of unasserted Asbestos Claims and when they
might be asserted cannot reasonably be predicted. Over time, however, the number
is expected to be substantial. The uncertainties which impair management's
ability to estimate the expense of future Asbestos Claims include: the types and
severity of asbestos-related illnesses experienced by future claimants; evidence
of their exposure to specific products made by H-W; evidence of their exposure
to asbestos-containing products made or sold by third parties; evidence of other
possible causes, or contributing causes, of the claimants' illnesses; their
earnings; jurisdiction of suit; enactment of tort reform legislation and its
application to such claims; and whether suits are handled by the courts
individually or on a consolidated basis.
In view of the number of Asbestos Claims and Tool Claims, management recognizes
the possibility that multiple adverse judgements, particularly if they involve
awards of punitive damages, could have a material effect upon the Company's
earnings. However, based upon its review of pending Asbestos Claims and Tool
Claims, the current reserves therefor, an evaluation of its rights under the
Distribution Agreement with respect to Dresser's insurance, its understanding of
the terms and conditions of such insurance and discussions with insurers and
their representatives, its experience to date with such litigation, and
consultation with counsel, the Company believes that pending Asbestos Claims and
Tool Claims will not be material either to the financial condition of the
Company or to its liquidity.
OTHER LITIGATION
Actions and claims against certain subsidiaries of the Company under common law
and state and federal statutes for personal injury, property damage and breach
of contract arise in the ordinary course of their businesses. The remedies
sought in such actions include compensatory, punitive and exemplary damages as
well as equitable relief. Reserves for such lawsuits and claims are recorded to
the extent that losses are deemed probable and are estimable. In the opinion of
management, the resolution of such pending lawsuits and claims will not have a
material effect on the earnings or consolidated financial position of the
Company.
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - COMMITMENTS AND CONTINGENCIES (CONTINUED)
ENVIRONMENTAL CLAIMS
Certain subsidiaries of the Company have been named potentially responsible
parties with respect to several Environmental Protection Agency-designated
superfund sites. Their potential liability with respect to such sites is not
expected to be material and appropriate reserves have been established for
potential participation in site clean-up and related costs. Reserves have also
been established for costs which may be incurred in connection with
environmental clean-up and remediation of Company facilities. In the opinion of
management, such reserves are adequate and expenses related to such matters will
not have a material effect upon the earnings or consolidated financial position
of the Company.
Other
Total rental expense charged to earnings was $6.2 million in 1996, $5.6 million
in 1995 and $5.4 million in 1994. At October 31, 1996, the aggregate minimum
annual obligations under noncancellable operating leases were $3.2 million for
1997; $2.8 million for 1998; $2.4 million for 1999; $2.0 million for 2000; $1.9
million for 2001 and $7.5 million in subsequent years. The lease obligations
relate primarily to general office space, sales office space and warehouses.
NOTE I - POSTRETIREMENT BENEFITS
Defined Benefit Pension Plans
Numerous defined benefit pension plans cover substantially all Company employees
in the United States. Plans covering salaried employees are based primarily on
years of service and employees' qualifying compensation during the final years
of employment. Plans covering hourly employees are based primarily on years of
service. The plans are funded in accordance with applicable laws and
regulations. About 96 percent of plan assets are invested in cash, short-term
investments, equity, securities and fixed-income instruments. The remaining
plan assets are primarily invested in real estate.
Additional defined benefit pension plans cover employees outside the United
States, primarily Mexico, Canada and the U.K. The benefits under these plans are
based primarily on years of service and compensation levels. The Company funds
these plans in amounts at least sufficient to meet the minimum funding
requirements under applicable laws and governmental regulations.
A liability has been recognized for all underfunded plans. The minimum
liability which must be recorded is equal to the excess of the accumulated
benefit obligation over plan assets. For some plans, this results in an
additional liability being recorded. In connection with the recording of
additional liabilities, corresponding amounts are recorded as an intangible
asset or a reduction of equity. At October 31, 1996, the Company recorded $16.4
million of additional liabilities, $9.9 million of intangible assets and $2.8
million as a reduction in equity, net of income taxes, for such under funded
plans. The Company had recorded additional liabilities of $16.4 million,
intangible assets of $7.9 million and $5.4 million as a reduction in equity, net
of income taxes at October 31, 1995.
In August 1995, the Company completed the wind up of one of its pension plans in
Canada for which there were no remaining plan participants. In connection with
the final settlement, the Company reverted approximately $.8 million of surplus
plan assets and recognized a loss on settlement of approximately $.5 million
which is included in Other, net in the consolidated statements of earnings.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - POSTRETIREMENT BENEFITS - (CONTINUED)
Pension expense includes the following components (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------
<S> <C> <C> <C>
Service cost for benefits earned during the year......... $ 4.4 3.8 3.6
Interest cost on projected benefit obligation............ 10.9 9.4 8.5
Actual return on plan assets............................. (13.2) (3.9) (4.2)
Net amortization and deferral............................ 2.2 (6.6) (5.4)
------ ---- ----
Net pension costs........................................ $ 4.3 2.7 2.5
====== ==== ====
</TABLE>
The actuarial assumptions used were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------------
<S> <C> <C> <C>
Discount rate........................................ 8.0% to 14.0% 5.00% to 14% 8.25% to 9.0%
Expected long-term rate of return on assets.......... 8.5% to 16.0% 8.5 % to 16% 8.5 % to 10.0%
Rate of increase in compensation levels.............. .5% to 10.0% 4.75% to 10% 4.75% to 6.5%
----------------------------------------------
</TABLE>
The funded status of the plans on the August 1 measurement dates was as follows
(in millions):
<TABLE>
<CAPTION>
Plans with Assets Exceeding Accumulated Benefits, 1996 1995 1994
in Millions
-------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation............................... $22.3 21.8 25.5
===== ==== ====
Accumulated benefit obligation.......................... 25.3 22.3 26.3
===== ==== ====
Projected benefit obligation............................ 30.0 24.3 27.9
Plan assets at fair value............................... 44.8 37.1 42.4
----- ---- ----
Projected benefit obligation under plan assets.......... 14.8 12.8 14.5
Unrecognized net (gain) loss............................ (1.6) (1.0) 1.4
Unrecognized prior service cost......................... 1.2 1.2 2.2
Unrecognized net transition asset....................... (1.8) (2.2) (3.8)
----- ---- ----
Prepaid pension costs recognized as of August 1......... $12.6 10.8 14.3
===== ==== ====
</TABLE>
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - POSTRETIREMENT BENEFITS - (CONTINUED)
<TABLE>
<CAPTION>
Plans with Accumulated Benefits Exceeding Assets, (in
millions) 1996 1995 1994
----------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation........................... $ 90.9 80.1 57.8
====== ===== =====
Accumulated benefit obligation...................... 96.9 85.9 62.6
====== ===== =====
Projected benefit obligation........................ 114.6 103.9 79.4
Plan assets at fair value........................... 84.2 71.3 61.0
------ ----- -----
Projected benefit obligation over plan assets....... (30.4) (32.6) (18.4)
Unrecognized net loss............................... 24.7 27.9 12.9
Unrecognized prior service cost..................... 11.7 9.6 6.4
Unrecognized net transition asset................... (1.6) (2.2) (2.6)
Adjustment required to recognize minimum liability.. (16.4) (16.4) (5.7)
------ ----- -----
Pension liability recognized as of August 1......... $(12.0) (13.7) (7.4)
====== ===== =====
</TABLE>
Contributions of $1.5 million, $1.6 million and $1.2 million made by the Company
to the trust subsequent to the August 1 measurement date decreased the liability
for plans with accumulated benefits exceeding assets as of October 31, 1996,
1995 and 1994, respectively.
On the consolidated balance sheet, Other assets includes prepaid pension costs
and Accrued compensation and benefits includes current pension liabilities.
Other Postretirement Benefits
In addition to providing pension benefits, the Company and its subsidiaries
currently provide certain health care and life insurance benefits for
substantially all retired U.S. bargaining and nonbargaining unit employees
meeting eligibility requirements. The Company's policy is to fund these benefits
as claims and premiums are paid.
As a result of the sale of the Jeffrey underground mining equipment operations
in the U.S., a curtailment gain of $1.1 million for post-retirement health care
benefits was recognized in 1995 and included in the gain on sale. See Note C for
further information.
The effects of postretirement health care and life insurance benefits for non-
U.S. employees, which supplement foreign government plans, are not significant
under SFAS 106. The components of net periodic postretirement benefit cost were
as follows (in millions):
<TABLE>
<CAPTION>
1996 1995 1994
-------------------
<S> <C> <C> <C>
Service cost........................................ $ .5 .5 .7
Interest cost....................................... 3.3 3.6 3.6
Amortization of prior service cost.................. (.1) (.1) (.1)
----- ---- ----
Net periodic postretirement benefit cost............ $ 3.7 4.0 4.2
===== ==== ====
</TABLE>
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - POSTRETIREMENT BENEFITS - (CONTINUED)
The Company's U.S. postretirement health care and life insurance plans currently
are not funded. The amounts recognized on the Company's balance sheet at October
31, 1996, 1995, and 1994, for the obligations relating to such plans were as
follows (in millions):
<TABLE>
<CAPTION> 1996 1995 1994
Accumulated postretirement benefit obligation:
------------------
<S> <C> <C> <C>
Retirees......................................... $38.6 37.6 37.2
Fully eligible plan participants................. 4.6 5.8 5.6
Other active plan participants................... 3.9 4.0 5.6
----- ---- ----
Sub-total................................ 47.1 47.4 48.4
Unrecognized gains............................... .4 .1 .8
Unrecognized prior service cost.................. 1.0 1.0 1.2
----- ---- ----
Accrued postretirement benefit cost
recognized in the balance sheet.................. $48.5 48.5 50.4
===== ==== ====
</TABLE>
The weighted average discount rate used in determining the accumulated benefit
obligation was 7.5 percent at October 31, 1996, 7.5 percent at October 31, 1995
and 8.0 percent at October 31, 1994. The weighted average rate of annual wage
increase used to measure the accumulated postretirement benefit obligation was
4.5 percent at October 31, 1996, 1995 and 1994. The cost of covered health care
benefits is assumed to have increased by 11 percent in 1996 and to increase at a
decreasing rate to an annual and continuing increase of 5 percent after 13
years. Based on these assumptions, a one percentage point increase in the
assumed health care cost trend rate would increase the annual net periodic
postretirement benefit cost and the accumulated benefit obligation by
approximately $.1 million and $1.8 million, respectively.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - EMPLOYEE AND DIRECTOR INCENTIVE PLANS
Stock Option Program
Under the 1992 Company's Stock Compensation Plan, stock options, stock
appreciation rights and restricted stock may be granted to officers and key
employees. Up to 2,700,000 shares of common stock are subject to the Plan, of
which no more than 750,000 shares may be awarded as restricted stock. No grant
may be made for less than 100 percent of the fair market value of the common
stock on the date of grant. All options generally expire ten years after the
date of grant. All officers and certain key employees have been assigned stock
ownership levels and they are required to retain 25 percent of any option shares
exercised if they have not yet achieved their ownership requirement. Changes in
outstanding options during the three years ended October 31, 1996, are as
follows:
<TABLE>
<CAPTION>
No. of
shares Option Price
--------- ------------
<S> <C> <C>
Outstanding as of October 31, 1993 653,797
Options granted 396,800 $11.81-13.37
Options exercised, expired or canceled (147,923) 8.50-11.00
---------
Outstanding as of October 31, 1994 902,674
Options granted 451,600 14.69-16.94
Options exercised, expired or canceled (63,250) 8.25-13.38
---------
Outstanding as of October 31, 1995 1,291,024
Options granted 371,600 17.19-19.25
Options exercised, expired or canceled (220,898) 5.58-15.81
---------
Outstanding as of October 31, 1996 1,441,726
=========
Exercisable as of October 31, 1996 1,037,570 6.80-19.25
=========
</TABLE>
As of October 31, 1996 there were a total of 899,893 shares reserved for future
options and other grants under the Plan.
Deferred Compensation Plan
Participants in management incentive plans may elect to be paid on a current or
deferred basis. Amounts deferred are deemed invested in either stock, at a 25%
discount to the then market price, or cash units and become payable following
termination. Stock units may be paid in either common stock or cash at the
equivalent market value of the common stock. Officers must invest a minimum of
50 percent of any management incentive in company stock or stock units if they
have not achieved their stock ownership requirement. Nonofficer key employees
subject to the stock ownership policy must invest at least 30 percent of any
incentive until their requirements are met.
Outside Directors Stock Incentive Plan
On December 15, 1993, the Board of Directors approved the 1993 Directors Stock
Incentive/Retirement Plan. The aggregate number of shares available for this
plan is 120,000. Each nonemployee director was granted an initial stock option
for 8,000 shares and additional options for 4,000 shares both in April 1994 and
April 1996. The plan provides for an additional option grant of 4,000 shares per
director in 1998. The options are granted at a price equal to 100 percent of the
fair
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - EMPLOYEE AND DIRECTOR INCENTIVE PLANS (CONTINUED)
market value at the time of grant. The options vest in six months and expire at
the end of a ten year period or at the end of one year following death,
disability or retirement. A nonemployee director is generally required to retain
at least 50 percent of any shares exercised until six months after retirement
from the Board.
401(k) Savings Plans
Prior to June 1, 1995, the Company sponsored three savings plans: two union
plans and one non-union plan. On that date, they were merged into one plan
covering all U.S. employees with one year of service. The Company subsequently
named the Vanguard Group as trustee and record keeper and changed from a monthly
to a daily valuation. Three additional funds, which included a Company stock
fund, were added. A Company contribution was implemented, with a match of 50
percent for employee contributions to the Company stock fund, and a 25 percent
match for contributions directed into other investment options, to a maximum of
6 percent of eligible pay. The entire match is made in Company common stock. The
Company's matching contributions to this plan were $1.1 million and $.3 million
during the years ended October 31, 1996 and 1995, respectively.
NOTE K - CAPITAL STOCK
Repurchase of Common Stock
In August 1993, the Board of Directors approved a plan to repurchase up to 4.1
million shares of the Company's common stock. In August 1994, the Board
increased this by 2 million shares. The Company repurchased shares of common
stock in the open market as shown in the table below. During the years ended
October 31, 1996, 1995, and 1994, 255,176, 54,473, and 100,605 shares of
treasury stock were issued , respectively. No treasury shares were issued in
connection with such exercises in 1993.
<TABLE>
<CAPTION>
Year Ended Shares Purchased Average Price
- ---------- ---------------- -------------
<S> <C> <C>
October 31, 1996 150,300 $17.08
October 31, 1995 643,061 13.52
October 31, 1994 3,375,100 12.80
October 31, 1993 925,300 12.48
---------
Total 5,093,761
=========
</TABLE>
Preferred Stock Purchase Rights
On July 28, 1992, the Board of Directors declared a dividend distribution of one
Preferred Stock Purchase Right (Right) for each outstanding share of the
Company's common stock to shareholders of record on August 7, 1992. The Rights
will expire ten years after issuance.
The Rights will generally not be exercisable until after 10 days (or such later
time as the Board of Directors may determine) from the earlier of a public
announcement that a person or group has, without Board approval, acquired
beneficial ownership of 15 percent or more of the Company's common stock or the
commencement of, or public announcement of an intent to commence, a tender or
exchange offer which, if successful, would result in the offeror acquiring 30
percent or more of the Company's common stock. Once exercisable, each Right
would entitle its holder to purchase 1/100 of a share of the Company's Series A
Junior Preferred Stock at an exercise price of $45 subject to adjustment in
certain circumstances.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K - CAPITAL STOCK (CONTINUED)
If the Company is acquired in a merger or other business combination not
previously approved by the Company's Continuing Directors, each Right then
exercisable would entitle its holder to purchase at the exercise price that
number of shares of the surviving company's common stock which has a market
value equal to twice the Right's exercise price. In addition, if any person or
group (with certain exceptions) were to acquire beneficial ownership of 15
percent or more of the Company's common stock (unless pursuant to a transaction
approved by the Company's Continuing Directors), each New Right would entitle
all rightholders, other than the 15 percent stockholder or group, to purchase
the number of Series A Junior Preferred Stock having a market value equal to
twice the Right's exercise price.
The Rights may be redeemed by the Company for $.01 per New Right until the tenth
day after a person or group has obtained beneficial ownership of 15 percent or
more of the Company's common stock (or such later date as the Continuing
Directors may determine).
The Rights are not considered to be common stock equivalents because there is no
indication that any event will occur which would cause them to be exercisable.
Their issuance therefore has no effect on earnings per share.
NOTE L - EVENTS SUBSEQUENT TO THE BALANCE SHEET DATE
On January 23, 1997, the Company announced its strategic decision to divest the
Marion business, its British Jeffrey Diamond mining equipment business in the
United Kingdom and its joint venture interest in KOMDRESCO. It is the Company's
intention to dispose of all of these operations within six months. In
connection with the formal plans to divest, the Company will recognize a $20.5
million pre-tax charge to earnings during the first quarter of its 1997 fiscal
year. It is the Company's intention to apply the proceeds from these
divestitures to fund further growth by investing in existing businesses, making
acquisitions with high growth potential, repurchasing shares or reducing debt.
In 1996, the operations to be divested contributed $116.3 million to revenues
and $5.2 million to earnings before taxes.
NOTE M - SUPPLEMENTARY INCOME STATEMENT INFORMATION
Depreciation, depletion and amortization of property, plant and equipment
charged to earnings amounted to $16.1 million in 1996, $14.9 million in 1995,
$9.0 million in 1994. See Note B for further information.
Research and development expenses were $4.9 million in 1996, $3.3 million in
1995, $3.5 million in 1994.
NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
Total sales include sales to unaffiliated customers and intergeographic area
sales. The intergeographic area sales are accounted for at approximate arm's
length market prices. No single customer accounted for 10 percent or more of
total sales.
Operating profit consists of total revenue less total operating expenses.
General corporate expenses, interest expense, income taxes and other non-segment
items have been excluded in determining operating profit. Identifiable assets
are those assets that are identified with particular segments or geographic
areas. Corporate assets are principally cash and cash equivalents,
miscellaneous receivables and deferred income tax benefits. The Company's
industry segments are outlined below.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
Minerals and Refractory Products Division
This segment consists of the Harbison-Walker Refractories Company operation,
which is a leading supplier of refractory products and an overseas licensor of
technology; Refmex, the largest Mexican producer of refractory products for
steel and cement producers; and RECSA, the largest Chilean producer of
refractory products. See Note C for further information. Refractories, which
are made principally from magnesite, graphite, chromite, bauxite, quartzite and
fire clays, are used in virtually every industrial process requiring heating or
containment of a solid, liquid or gas at a high temperature.
Mining and Specialty Equipment Division
The specialty equipment operations include Ameri-Forge, CTI, Shred Pax, Shred-
Tech and the processing equipment operations of Jeffrey which were not sold.
Ameri-Forge is the leading U.S. manufacturer of forged flanges used in
industries such as oil and gas, petrochemical, chemical, construction, food and
water treatment. The Shred Pax, Shred-Tech and Jeffrey processing equipment
operations manufacture processing, shredding and recycling equipment used in a
variety of industries and applications. See Note C for further information.
In January 1996, the Company acquired substantially all of the assets of CTI for
$36.3 million in cash and assumed liabilities of $11.6 million. CTI has
developed and patented advanced polymer concrete tankhouse cells used in the
electrolytic refining of copper. CTI results are reported as part of the Mining
and Specialty Equipment Division since the date of acquisition.
The mining equipment operations include the Marion and Jeffrey businesses, the
Jeffrey operations in Brazil up to August 1, 1994, when the Company developed a
formal plan to dispose of this business, the Company's 50 percent partnership
interest in KOMDRESCO, and the 50 percent partnership interest in Komatsu
Dresser Company prior to its disposition. The Jeffrey underground mining
equipment operations in the U.S. and Australia were sold in October 1995. See
Notes C and D for further information.
Marion is a leading producer of draglines, electric power shovels and related
equipment used in surface mining and quarrying. KOMDRESCO acts as a distributor
and licensed manufacturer of Dresser, Haulpak and Komatsu mining, construction
and material handling products in South Africa and certain neighboring
territories.
Industrial Tool Division
The Industrial Tool Division segment consists of the INTOOL operation which
produces Cleco pneumatic tools for use primarily in the electronic, aircraft and
automotive markets, and maintenance and fabrication tools supplied primarily to
petroleum refineries, chemical plants, foundries, steel mills and general
industry, and Quackenbush pneumatic and hydraulic precision equipment used in
the aircraft and aerospace industries and in mobile machining applications.
INTOOL also produces Airetool cleaners and expanders used by the manufacturers
and users of heat exchangers and boilers of all types and Rotor, a manufacturer
of fixturized and specialty engineered tools used primarily in automotive
assembly operations which was acquired in 1996. See Note C to the consolidated
financial statements. Rotors' operations since acquisition are included in the
Industrial Tool Division's financial results.
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
The financial information by Industry Segment and Geographic Area for the years
ended October 31, 1996, 1995 and 1994 is as follows (in millions):
<TABLE>
<CAPTION>
INDUSTRY SEGMENT 1996 1995 1994
----------------------
<S> <C> <C> <C>
SALES AND OPERATING REVENUES
Minerals and refractory products division........ $331.4 318.2 242.6
Mining and specialty equipment division.......... 217.7 202.8 125.4
Industrial tool division......................... 97.2 73.3 69.1
------ ----- -----
Total......................................... $646.3 594.3 437.1
====== ===== =====
OPERATING PROFIT AND EARNINGS BEFORE TAXES
Minerals and refractory products division........ $ 39.2 38.2 28.9
Mining and specialty equipment division.......... 21.4 14.3 .2
Industrial tool division......................... 14.2 8.7 8.5
------ ----- -----
Subtotal...................................... 74.8 61.2 37.6
Partnership operations........................... 2.3 2.7 2.4
------ ----- -----
Total operating profit........................ 77.1 63.9 40.0
General corporate expenses....................... (21.7) (26.1) (11.6)
Other nonsegment expenses, net................... -- 4.7 (3.8)
------ ----- -----
Earnings before taxes......................... $ 55.4 42.5 24.6
====== ===== =====
IDENTIFIABLE ASSETS
Minerals and refractory products division........ $258.1 245.0 239.3
Mining and specialty equipment division.......... 241.0 161.3 99.8
Industrial tool division......................... 86.6 44.4 35.6
------ ----- -----
Total identifiable assets..................... 585.7 450.7 374.7
Investments in affiliates........................ 20.5 17.1 14.7
Corporate assets................................. 146.4 116.6 88.3
------ ----- -----
Total assets............................... $752.6 584.4 477.7
====== ===== =====
CAPITAL EXPENDITURES
Minerals and refractory products division........ $ 22.9 17.4 9.6
Mining and specialty equipment division.......... 26.0 13.8 1.8
Industrial tool division......................... 3.8 3.4 1.4
Other............................................ 1.0 .2 .2
------ ----- -----
Total capital expenditures.................... $ 53.7 34.8 13.0
====== ===== =====
DEPRECIATION, DEPLETION AND AMORTIZATION
Minerals and refractory products division........ $ 8.7 8.5 5.6
Mining and specialty equipment division.......... 6.9 6.0 2.5
Industrial tool division......................... 2.8 1.3 .9
Other............................................ .3 .3 .3
------ ----- -----
Total depreciation,
depletion and amortization.................. $ 18.7 16.1 9.3
====== ===== =====
</TABLE>
F-29
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA - (CONTINUED)
<TABLE>
<CAPTION>
GEOGRAPHIC AREA 1996 1995 1994
----------------------
<S> <C> <C> <C>
SALES AND OPERATING REVENUES
United States................................... $462.7 438.7 329.7
Canada.......................................... 35.0 32.8 24.2
Latin America................................... 83.2 64.6 23.2
Europe.......................................... 15.8 21.3 23.5
Australia, Far East and South Africa............ 49.6 36.9 36.5
Intergeographic area sales
United States................................... 45.9 37.4 46.9
Canada.......................................... 32.0 28.8 22.8
Latin America................................... 9.6 10.0 .1
Europe.......................................... .4 .2
Australia, Far East and South Africa............ .1 .2
Eliminations.................................... (88.0) (76.4) (70.0)
------ ----- -----
Total........................................... $646.3 594.3 437.1
====== ===== =====
OPERATING PROFIT
United States................................... $ 46.2 34.4 24.9
Canada.......................................... 6.7 6.5 6.3
Latin America................................... 17.2 13.7 (.5)
Europe.......................................... 1.3 3.0 3.6
Australia, Far East and South Africa............ 3.5 3.7 3.6
Eliminations.................................... (.1) (.1) (.3)
------ ----- -----
Subtotal..................................... 74.8 61.2 37.6
Partnership operations
Australia, Far East and South Africa............ 2.3 2.7 2.4
------ ----- -----
Subtotal..................................... 2.3 2.7 2.4
------ ----- -----
Total operating profit.......................... $ 77.1 63.9 40.0
====== ===== =====
IDENTIFIABLE ASSETS
United States................................... $410.1 278.0 215.2
Canada.......................................... 47.5 41.0 25.6
Latin America................................... 96.7 98.9 107.5
Europe.......................................... 26.3 16.5 13.2
Australia, Far East and South Africa............ 26.1 27.2 31.1
Eliminations.................................... (21.0) (10.9) (17.9)
------ ----- -----
Total identifiable assets....................... $585.7 450.7 374.7
====== ===== =====
UNITED STATES EXPORT SALES
Canada.......................................... $ 36.0 16.2 12.8
Latin America................................... 17.4 18.0 15.0
Europe.......................................... 19.9 26.1 6.6
Australia, Far East, Middle East
and South Africa............................... 31.8 23.7 16.1
------ ----- -----
Total United States export sales................ $105.1 84.0 50.5
====== ===== =====
</TABLE>
F-30
<PAGE>
INDEX TO EXHIBITS
PAGE EXHIBIT DESCRIPTION
- ---- ------- -----------
2.1 Agreement and Plan of Merger, dated as of October 30, 1995,
among Global Industrial Technologies, Inc., GPI Merger, Inc.
and INDRESCO Inc. (Incorporated herein by reference to Exhibit
2.1 to Form 10-K for the year ended October 31, 1995).
2.2 Reorganization Agreement, dated October 20, 1995, among
INDRESCO Inc., GIX Marion, Inc., Shred Pax Systems, Inc.,
INTOOL, Inc., Global Industrial Technologies, Inc., GPI Merger,
Inc., GPX Corp., and GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
Limited. (Incorporated herein by reference to Exhibit 2.2 to
Form 10-K for the year ended October 31, 1995).
2.3 Acquisition Agreement dated as of August 12, 1994, by and among
Penoles, Quimica Magna, S.A. de C.V. ("Quimica"), Refmex,
RefGreen, Flir, Quimica de Rey, S.A. de C.V. ("QDR"), INDRESCO,
Indresco Mexico, IIRI and Refractarios Mexicanos (Incorporated
by reference to Exhibit 2 to Form 8-K, Current Report, dated
September 30, 1994).
2.4 First Amendment to Acquisition Agreement dated as of September
30, 1994, by and among Penoles, Quimica, Refmex, RefGreen,
Flir, QDR, INDRESCO, Indresco Mexico, IIRI and Refractarios
Mexicanos (Incorporated by reference to Exhibit 2.1 to Form 8-
K, Current Report, dated September 30, 1994).
2.5 Inventory Purchase Agreement dated as of Quimica and
Refractarios Mexicanos (Incorporated September 30, 1994, by and
among by reference to Exhibit 2.2 to Form 8-K, Current Report,
dated September 30, 1994).
2.6 Assignment and Assumption Agreement dated as of among Refmex,
RefGreen and Refractarios Mexicanos September 30, 1994, by and
(Incorporated by reference to Exhibit 2.3 to Form 8-K, Current
Report, dated September 30, 1994).
2.7 Flir Asset Purchase Agreement dated as of Flir and Refractarios
Mexicanos (Incorporated by September 30, 1994, by and among
reference to Exhibit 2.4 to Form 8-K, Current Report, dated
September 30, 1994).
2.8 Magnesite Supply Agreement dated as of September QDR and
Refractarios Mexicanos (Incorporated by 30, 1994, by and
between reference to Exhibit 2.5 to Form 8-K, Current Report,
dated September 30, 1994).
2.9 Stock Purchase Agreement dated as of September Indresco Mexico
and Quimica (Incorporated by 30, 1994, by and among IIRI,
reference to Exhibit 2.6 to Form 8-K, Current Report, dated
September 30, 1994).
2.10 Noncompetition Agreement dated as of September Penoles and
INDRESCO (Incorporated by reference to 30, 1994, by and between
Exhibit 2.7 to Form 8-K, Current Report, dated September 30,
1994).
3.1 Form of Restated Certificate of Incorporation of the Registrant
filed with the Secretary of State of Delaware and effective on
November 1, 1995 (Incorporated by reference to Exhibit 3.1 to
Form 8-B, Registration Statement effective November 1, 1995).
E-1
<PAGE>
INDEX TO EXHIBITS (Continued)
PAGE EXHIBIT DESCRIPTION
- ---- ------- -----------
3.2 Bylaws of the Registrant, as amended effective December 13,
1995. (Incorporated by reference to Exhibit 3.2 to Form 10K for
the year ended October 31, 1995).
3.3 Certificate of Designations of Series A Junior Preferred Stock
of the Registrant (Incorporated by reference to Exhibit 3.3 to
Form 8-B, Registrration Statement, effective November 1, 1995).
4.1 Form of Common Stock Certificate. (Incorporated herein by
reference to Exhibit 4.1 to Form 10-K for the year ended
October 31, 1995).
4.2 Form of Rights Agreement between the Registrant and The Bank of
New York (Incorporated by reference to Exhibit 4.2 to Form 8-B,
Registration Statement, effective November 1, 1995).
10.1 Distribution Agreement (Incorporated by reference to Exhibit
10.1 to Form 10).
10.2 Master Corporate Services and Support Agreement (Incorporated
by reference to Exhibit 10.2 to Form 8, Post Effective
Amendment No. 3 to Form 10).
10.3 Employee Matters Agreement (Incorporated by reference to
Exhibit 10.3 to Form 8, Post Effective Amendment No. 3 to Form
10).
10.4 Environmental Matters Agreement (Incorporated by reference to
Exhibit 10.4 to Form 8, Post Effective Amendment No. 3 to Form
10).
10.5 Intellectual Property Agreement (Incorporated by reference to
Exhibit 10.5 to Form 8, Post Effective Amendment No. 3 to Form
10).
10.6 Tax Sharing Agreement (Incorporated by reference to Exhibit
10.6 to Form 8, Post Effective Amendment No. 3 to Form 10).
#10.7 Global Industrial Technologies, Inc. 1992 Stock Compensation
Plan, as amended, (Incorporated herein by reference to Exhibit
A to Registrant's Definitive Proxy Statement dated February 12,
1993 for the Annual Meeting of Shareholders held March 17,
1993).
#10.8 Global Industrial Technologies, Inc. Deferred Compensation Plan
(incorporated herein by reference to Exhibit A to Registrant's
Definitive Proxy Statement dated February 10, 1995 for the
Annual Meeting of Shareholders held March 15, 1995).
#10.9 Global Industrial Technologies, Inc. 1993 Directors' Stock
Incentive/Retirement Plan (Incorporated herein by reference to
Exhibit 10.7 to Form 10-K for the year ended October 31, 1993).
#10.10 Global Industrial Technologies, Inc. Incentive Stock Unit Plan
(Incorporated herein by reference to Exhibit 10.11 to Form 10).
E-2
<PAGE>
INDEX TO EXHIBITS (Continued)
PAGE EXHIBIT DESCRIPTION
- ---- ------- -----------
#10.11 Incentive Compensation Plan for the Officers and Headquarters'
Staff of Global Industrial Technologies, Inc., as amended
(Incorporated by reference to Exhibit 10.7 to Form 10-K for the
year ended October 31, 1993).
#10.12 Global Industrial Technologies, Inc. Retirement Income Plan for
Industrial Operations (Incorporated by reference to Exhibit
10.10 to Form 10).
#10.13 ERISA Compensation Limit Benefit Plan for Executives of Global
Industrial Technologies, Inc. (Incorporated by reference to
Exhibit 10.6 to Registrant's Form 10-Q for the quarter ended
July 31, 1992).
#10.14 ERISA Excess Benefit Plan for Salaried Employees of Global
Industrial Technologies, Inc. and its Participating
Subsidiaries Who Are Not Represented By a Recognized Union
(Incorporated by reference to Exhibit 10.7 to Registrant's Form
10-Q for the quarter ended July 31, 1992).
#10.15 Supplemental Executive Retirement Plan for Top Executives of
Global Industrial Technologies, Inc. (Incorporated by reference
to Exhibit 10.7 to Form 10-K for the year ended October 31,
1993).
#10.16 Global Industrial Technologies, Inc. Division Executive
Incentive Plan (Incorporated by reference to Exhibit 10.16 to
Form 10-K for the year ended October 31, 1994).
#10.17 Global Industrial Technologies, Inc. Deferred Savings Plan, as
Amended and Restated, and related Trust Agreements
(Incorporated by reference to Exhibit 5.01 to Registration
Statement No. 33-98006 on Form S-8).
10.18 Credit Agreement, dated as of September 23, 1994, among
INDRESCO Inc., Various Financial Institutions and Bank of
America Illinois, as Agent (Incorporated by reference to
Exhibit 10 to Form 10-Q for the quarter ended July 31, 1995)
10.19 Assignment and Assumption Agreement and Second Amendment to
Credit Agreement, entered into as of November 1, 1995, among
Harbison-Walker Refractories Company (formerly known as
INDRESCO Inc.), Global Industrial Technologies, Inc., GPX Corp.
and Bank of America Illinois, as Lender and Agent.(Incorporated
by reference to Exhibit 10.19 to Form 10K for the year ended
October 31, 1995).
*21 Subsidiaries of the Registrant.
*23 Consent of Price Waterhouse LLP.
*Filed herewith.
# Management compensatory plan
E-3
<PAGE>
EXHIBIT 21 SUBSIDIARIES AND AFFILIATES OF GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
AT JANUARY 1, 1997
(All Affiliates are Corporations, unless otherwise indicated)
<TABLE>
<CAPTION>
% of Voting
State or Other Securities
Sovereign Power owned by
Under the Laws of Immediate
Name Which Organized Parent
- ---------------------------------- ------------------ -----------
<S> <C> <C>
Global Industrial Technologies Services Company Delaware 100%
Corrosion IP Corp. Nevada 100%
Corrosion Technology International, Inc. Delaware 100%
Corrosion Technology International Services Company Delaware 100%
GPX Corp. Nevada 100%
INTOOL, Incorporated Delaware 100%
Airetool and Yost Superior Realty, Inc. Ohio 50% (a)
The Rotor Tool Company Delaware 100%
Rotor Tool International, Inc. U. S. Virgin Islands 100%
Global Processing Systems, Inc. Delaware 100%
Ameri-Forge Corporation Delaware 100%
UCR, Inc. Texas 100%
The Marion Power Shovel Company Delaware 100%
Global-GIX Canada Inc. Canada 100%
Indresco de Mexico, S..A. de C.V. Mexico 100%
Intool de Mexico, S.A. de C.V. Mexico 100%
Refractarios Mexicanos, S..A. de C.V. Mexico 100%
Corrosion Technologies de Mexico, S.A de C.V. Mexico 100%
Harbison-Walker Refractories Company Delaware 100%
Indresco International, Ltd. Delaware 100%
Harbison-Walker Refractories Europe, Ltd. Delaware 100%
Indresco International Holdings, Inc. Minnesota 100%
Indresco Jeffrey Industria e Comercio Ltda. Brazil 100%
SDC Corporation Japan 50% (a)
Indresco International Refractories, Inc. Delaware 100%
Construcciones Refractarias RECSA, S.A. Chile 99% (e)
Refmex, S.R.L. de C.V. Mexico 95% (b)
Refractarios Green S.R.L. de C.V. Mexico 94.4% (c)
GIX International Limited U.K. 100%
C.T.I. Europe Belgium 100%
Corrosion Technology Peru S.A. Peru 100%
Corrosion Technology Chile S.A. Chile 100%
CTI Pacific Pty Ltd Australia 100%
CTI Pacific Chusik Hoesa Korea 100%
INTOOL International B.V. Netherlands 100%
Komdresco (Partnership) South Africa 50% (1)(a)
Tswana Equipment Pty. Ltd. Botswana 50% (a)
Marion Power Shovel Pty Ltd. Australia 100%
Indresco U.K. Limited U.K. 100%
Refractarios Chilenos S. A. Chile 99% (d)
INTOOL International GmbH Germany 100%
Marion South America S.A. Chile 100%
</TABLE>
(a) Accounts of these companies are not included in Consolidated Financial
Statements.
(b) The remaining 5% is owned by Indresco de Mexico, S.A. de C.V.
(c) An additional 5% is owned by Indresco de Mexico, S.A. de C.V.
(d) Remaining 1% owned by Indresco International Refractories, Inc.
(e) Remaining 1% owned by Harbison-Walker Refractories Company.
(1) Share holding interest actually held by South African branch of Indresco
Netherlands B.V.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-56306, 33-56440, 33-56442, 33-79672 and
33-98006) of our report dated December 9, 1996, except as to Note L, which is as
of January 23, 1997, appearing on page F-4 of this Annual Report on Form 10-K/A.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
April 10, 1997
