<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended April 30, 1998
Commission File Number 1-11160
GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2617871
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification No.)
2121 San Jacinto Street
Suite 2500, L. B. 31
Dallas, Texas 75201
- ------------------------------- -------------------
(Address of principal executive (Zip Code)
offices)
(Registrant's telephone number, including area code) (214) 953-4500
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X . No. .
----- -----
At June 12, 1998, 22,039,455 shares of Common Stock, par value $0.25, of the
Registrant were outstanding.
<PAGE>
Page 1 of 16
Exhibit Index Appears on Page 16
INDEX
Page
Number
- ------
Part I. Financial Information
Management's Representation 3
Consolidated Condensed Statements of Earnings for
the three and the six months ended April 30, 1998 and
1997 4
Consolidated Condensed Balance Sheets as of
April 30, 1998 and October 31, 1997 5 - 6
Consolidated Condensed Statements of Cash Flows
for the six months ended April 30, 1998 and 1997 7
Notes to Consolidated Condensed Financial Statements 8 -12
Management's Discussion and Analysis 13 -17
Part II. Other Information 18
Signature 18
2
<PAGE>
PART I
FINANCIAL INFORMATION
MANAGEMENT'S REPRESENTATION
The consolidated condensed financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed. The Company believes that the
disclosures are adequate to make the information presented not misleading.
These consolidated condensed financial statements should be read in conjunction
with the financial statements and the notes to consolidated financial statements
included in the Annual Report, Form 10-K for the fiscal year ended October 31,
1997.
In the opinion of the Company, all adjustments have been included that were
necessary to present fairly the financial position of Global Industrial
Technologies, Inc. and subsidiaries as of April 30, 1998; the results of
operations for the three and the six months ended April 30, 1998 and 1997; and
the cash flows for the six months ended April 30, 1998 and 1997. These
adjustments consisted of normal recurring adjustments. The results of
operations for such interim periods do not necessarily indicate the results for
the full year.
3
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(In millions except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30, April 30,
--------------------- --------------------
1998 1997 1998 1997
--------- ---------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Net sales and operating revenues $ 121.6 $ 124.7 $ 230.0 $ 233.4
Other 0.3 0.3 0.7 0.6
--------- --------- --------- ---------
Total Revenues 121.9 125.0 230.7 234.0
--------- --------- --------- ---------
Costs and Expenses
Cost of sales 94.6 93.1 179.4 173.6
Selling, engineering, administrative and
general expenses 20.7 22.1 44.3 43.8
Interest expense 2.5 2.5 5.1 5.1
Special charges 0.0 20.5
Other - net 3.2 (2.0) 3.9 (0.6)
--------- --------- --------- ---------
Total Costs and Expenses 121.0 115.7 232.7 242.4
--------- --------- --------- ---------
Earnings (loss) from continuing operations
before income taxes 0.9 9.3 (2.0) (8.4)
Income tax (provision) benefit (0.1) (2.2) 0.6 2.2
--------- --------- --------- ---------
Earnings (loss) from continuing operations 0.8 7.1 (1.4) (6.2)
Discontinued operations:
Earnings from discontinued operations less applicable
income taxes of $.8, $1.1, $1.8 and $1.7 2.1 3.1 5.1 5.0
Gain on disposal of discontinued operations
less applicable income taxes of $40.2 86.1 86.1
--------- --------- --------- ---------
Net earnings (loss) $ 89.0 $ 10.2 $ 89.8 $ (1.2)
========= ========= ========= =========
Basic earnings (loss) per common share:
Continuing operations $ 0.03 $ 0.31 $ (0.07) $ (0.27)
========= ========= ========= =========
Discontinued operations $ 4.02 $ 0.14 $ 4.16 $ 0.22
========= ========= ========= =========
Net earnings (loss) $ 4.05 $ 0.45 $ 4.09 $ (0.05)
========= ========= ========= =========
Diluted earnings (loss) per common share:
Continuing operations $ 0.03 $ 0.31 $ (0.07) $ (0.27)
========= ========= ========= =========
Discontinued operations $ 3.99 $ 0.14 $ 4.16 $ 0.22
========= ========= ========= =========
Net earnings (loss) $ 4.02 $ 0.45 $ 4.09 $ (0.05)
========= ========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
4
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
April 30, 1998 October 31, 1997
ASSETS (Unaudited)
- ------ -------------- ----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 46.8 $ 14.9
Notes and accounts receivable
Public 118.1 113.7
Unconsolidated affiliates 4.9 5.1
-------- -------
123.0 118.8
Less allowance for doubtful accounts 5.4 3.2
-------- -------
117.6 115.6
Inventories
Finished products and work in process 46.1 59.1
Raw materials and supplies 49.2 41.6
-------- -------
95.3 100.7
-------- -------
Deferred income taxes 36.3 56.1
Asbestos insurance recoveries receivable 66.8 65.1
Prepaid expenses 10.0 3.7
-------- -------
Total Current Assets 372.8 356.1
Investments in Unconsolidated Affiliates 5.8 5.3
Noncurrent Deferred Income Taxes 35.9 28.7
Goodwill - net 55.0 80.4
Other Assets 90.0 93.5
Property, Plant and Equipment - at cost
Land, land improvements and mineral deposits 35.5 34.0
Buildings 90.8 81.3
Machinery and equipment 333.2 355.9
-------- -------
459.5 471.2
Less accumulated depreciation, depletion and amortization 208.2 228.2
-------- -------
Total properties - net 251.3 243.0
-------- -------
Total Assets $ 810.8 $ 807.0
-------- -------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
5
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
April 30, 1998 October 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
- ------------------------------------ -------------- ----------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 41.5 $ 46.2
Notes payable and current portion of long-term debt 3.3 47.2
Advances from customers on contracts 1.5 5.0
Accrued compensation and benefits 12.5 26.6
Insurance reserves 9.9 11.7
Income taxes currently payable 33.1 13.6
Current deferred income taxes 13.2 14.1
Asbestos related liabilities 55.1 56.9
Other accrued liabilities 36.5 24.1
-------- --------
Total Current Liabilities 206.6 245.4
Long-term Debt 104.1 151.8
Pension Plans and Other Retiree Benefits 51.0 47.6
Noncurrent Deferred Income Taxes 17.4 17.0
Other Liabilities 61.2 61.1
Shareholders' Equity
Common stock 6.8 6.8
Capital in excess of par value 381.8 382.1
Retained earnings 115.3 25.5
Cumulative translation adjustment (53.1) (50.3)
Treasury stock, at cost (74.6) (73.7)
Other (5.7) (6.3)
-------- --------
Total Shareholders' Equity 370.5 284.1
-------- --------
Total Liabilities and Shareholders' Equity $ 810.8 $ 807.0
-------- --------
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
6
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Six months ended
April 30,
--------------------
1998 1997
---------- ---------
(Unaudited)
Cash flows from operating activities
Net earnings (loss) $ 89.8 $ (1.2)
Adjustments to reconcile net earnings to cash flow
Depreciation, depletion and amortization 11.6 10.9
Equity in loss of unconsolidated affiliate 0.5
Deferred income tax benefit (0.8) (0.2)
Gain on sale of discontinued operations (86.1) -
Special charges 20.5
Decrease in receivables 3.7 1.2
Increase in inventories (13.2) (9.8)
Increase in asbestos insurance recoveries receivable (5.3) (2.7)
Decrease in accrued compensation (12.3) (9.7)
Decrease in accounts payable and accrued liabilities (13.4) (3.9)
Increase (decrease) in advances from customers (3.5) 1.0
Increase (decrease) in income taxes payable 0.2 (9.5)
Other - net (7.6) (1.9)
-------- -------
Net cash used by operating activities (36.4) (5.3)
-------- -------
Cash flows from investing activities
Proceeds from sale of discontinued operations 217.5 -
Business acquisitions (8.4) -
Business disposals - 1.7
Liquidation of investment in unconsolidated subsidiary - 14.9
Settlement payment on asset sales (5.3)
Capital expenditures (28.6) (27.5)
-------- -------
Net cash (used) by investing activities 175.2 (10.9)
-------- -------
Cash flows from financing activities
Proceeds from borrowings 75.2 18.1
Reduction of debt (181.3) (1.3)
Options exercised under employee benefit plans 1.9 0.6
Purchase of common shares (2.6) (5.3)
-------- -------
Net cash (used) by financing activities (106.8) 12.1
-------- -------
Effect of translation adjustments on cash (0.1) 0.2
-------- -------
Net increase (decrease) in cash and cash equivalents 31.9 (3.9)
Cash and cash equivalents, beginning of period 14.9 11.5
-------- -------
Cash and cash equivalents, end of period $ 46.8 $ 7.6
======== =======
See accompanying Notes to Consolidated Condensed Financial Statements
7
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1998
NOTE A - INTRODUCTION
The Company, Global Industrial Technologies, Inc. (Global) together with its
subsidiaries and unconsolidated joint ventures conducts its business in five
segments: Specialty Equipment Products, Refractory Products, Minerals, Forged
Products, and Industrial Tool.
NOTE B - INVENTORIES
The determination of inventory values and cost of sales under the LIFO method
for interim financial results are based on management's estimates of expected
year-end inventories.
NOTE C DISCONTINUED OPERATIONS
On March 12, 1998, the Company sold the Industrial Tool segment, including the
common stock of INTOOL, Inc. (the U.S. subsidiary operating in this segment) and
the assets of Industrial Tool operations in Canada, Mexico, the Netherlands and
Germany, for cash consideration of $217.5 million. The Industrial Tool segment
manufactured and sold a completed product line of high-quality pneumatic and
electric tools for industrial applications, including assembly and material
removal. Revenues of the Industrial Tool segment were $14.2 million for the
period from February 1, 1998 to March 12, 1998, $28.6 million for the quarter
ended April 30, 1997, $42.9 million for the period from November 1, 1997 to
March 12, 1998 and $51.9 million for the six months ended April 30, 1997.
In connection with the sale of the Industrial Tool segment, the Company retained
certain pension, and postretirement benefits. The Company also retained
liability for certain legal claims, primarily for known claims of alleged
hearing loss and other injuries associated with the use of the Company's
products, and for one-half of any such additional claims made for a period of
five years following the closing date. See description of these claims in Note
H to the Consolidated Financial Statements in the Company's Annual Report on
Form 10-K for the fiscal year ended October 31, 1997.
8
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1998
NOTE D - ACQUISITIONS
The Company has outstanding a tender offer to purchase all outstanding shares of
A.P. Green Industries, Inc. at $22 per share, or approximately $195 million.
The offer is pending Federal Trade Commission approval. A.P. Green, with
headquarters in Mexico, Mo., reported sales and operating revenues of $277.9
million for 1997. It has 22 plants located in the U.S., Canada, Mexico,
Colombia, the U.K. and Indonesia, manufacturing refractory products used in the
processing of steel and other materials, chemicals, glass, ceramics, paper and
cement. A.P. Green also produces lime used in the manufacture of steel,
aluminum, pulp and paper processing, soil stabilization for road construction,
and water purification.
NOTE E - CONTINGENCIES
The Company and its subsidiaries are involved in certain legal actions and
claims arising in the ordinary course of business. See NOTE H to Consolidated
Financial Statements contained in the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1997.
NOTE F - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" (FAS 128). The Company
adopted FAS 128 during the quarter ended January 31, 1998, and earnings per
share amounts for all periods presented in the accompanying condensed
consolidated statement of operations are calculated and presented in accordance
with FAS 128. The statement specifies new standards for the computation and
presentation of earnings per share, requiring the presentation of both "basic"
and "diluted" earnings per share. Basic earnings per share is calculated as net
earnings divided by average common shares outstanding. Diluted earnings per
share is calculated including the dilutive effects of potential common shares,
which include the Company's stock options and deferred compensation units.
9
<PAGE>
GOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1998
NOTE F - EARNINGS PER SHARE (Cont'd)
A reconciliation of the numerator and denominator of the calculations for the
three and the six month periods ended April 30, 1998 and 1997 is presented
below.
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30 April 30
-------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Earnings (loss) from continuing operations $ .8 $ 7.1 $ (1.4) $ (6.2)
Earnings from discontinued operations 88.2 3.1 91.2 5.0
------- ------- ------- -------
Net earnings (loss) $ 89.0 $ 10.2 $ 89.8 $ (1.2)
======= ======= ======= =======
Denominator:
Weighted average shares outstanding 21.9 22.5 21.9 22.6
------- ------- ------- -------
Potential common shares:
Stock options 0.2 0.3 - -
Deferred compensation units - - - -
------- ------- ------- -------
Total potential common shares 0.2 - - -
------- ------- ------- -------
Denominator for diluted earnings (loss) per common share 22.1 22.8 21.9 22.6
------- ------- ------- -------
Basic earnings (loss) per common share:
Continuing operations $ 0.03 $ 0.31 $ (0.07) $ (0.27)
======= ======= ======= =======
Discontinued operations $ 4.02 $ 0.14 $ 4.16 $ 0.22
======= ======= ======= =======
Net earnings (loss) $ 4.05 $ 0.45 $ 4.09 $ (0.05)
======= ======= ======= =======
Diluted earnings (loss) per common share:
Continuing operations $ 0.03 $ 0.31 $ (0.07) $ (0.27)
======= ======= ======= =======
Discontinued operations $ 3.99 $ 0.14 $ 4.16 $ 0.22
======= ======= ======= =======
Net earnings (loss) $ 4.02 $ 0.45 $ 4.09 $ (0.05)
======= ======= ======= =======
</TABLE>
10
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1998
NOTE F - EARNINGS PER SHARE (Cont'd)
Outstanding options to purchase 539,400 shares were excluded from the three and
the six months ended April 30, 1998 diluted earnings per share calculation as
the exercise prices associated with the options exceeded the average market
value of the Company's common shares. Deferred compensation units representing
234,450 potential common shares were excluded from the April 30, 1998 diluted
earnings per share calculations for the three and the six months, as the effect
of inclusion in the calculation would be anti-dilutive.
11
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
APRIL 30, 1998
NOTE G - INFORMATION BY INDUSTRY SEGMENT
Sales and operating profit results are presented below for the three and the six
months ended April 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended Six months ended
April 30 April 30
-------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C>
Sales and operating revenues:
Refractory Products $ 87.6 $ 84.0 $ 165.1 $ 157.7
Minerals 11.3 13.6 21.2 26.7
Specialty Equipment Products 11.9 18.7 24.3 31.9
Forged Products 15.0 14.8 26.5 27.5
Intersegment sales (4.2) (6.4) (7.1) (10.4)
------- ------- ------- -------
Total sales and operating revenues $ 121.6 $ 124.7 $ 230.0 $ 233.4
======= ======= ======= =======
Operating Profit (Loss):
Refractory Products $ 8.2 $ 8.6 $ 12.5 $ 13.4
Minerals .5 1.7 0 3.6
Specialty Equipment Products (1.6) 1.6 (1.8) 1.5
Forged Products .5 3.3 1.6 6.2
Equity in net loss of affiliate (.5) 0 (.5) 0
------- ------- ------- -------
Subtotal $ 7.1 $ 15.2 $ 11.8 $ 24.7
------- ------- ------- -------
General corporate expenses (6.2) (5.9) (13.8) (12.6)
Special charges (20.5)
------- ------- ------- -------
Earnings (loss) from continuing operations
before income taxes $ .9 $ 9.3 $ (2.0) $ (8.4)
======= ======= ======= =======
</TABLE>
12
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
April 30, 1998
RESULTS OF OPERATIONS
- ---------------------
The financial results for the three months and six months ended April 30, 1998
reflect a more focused strategy for the Company on four major business segments,
refractory products, minerals, forged products and specialty equipment. During
the last three months, the Company sold all of its interest in INTOOL, Inc. for
$217.5 million to Cooper Industries as an exit strategy from the industrial tool
business. The Company then made a tender offer to purchase all of the
outstanding shares of A.P. Green Industries, Inc., a large U.S. refractory
products and services company with annual revenues of $277.9 million. The
purchase of A.P. Green Industries, Inc. combined with the Company's existing
refractory operations will create a refractory and minerals business with
operations in seven countries and annual revenues of approximately $650 million.
The Company also made the decision to close manufacturing facilities in
Wakefield, England related to the British Jeffrey Diamond business. Finally, the
Company continued during the three months to incur costs related to start up
production in the new undercarriage division of Ameri-Forge in Houston.
The Company reported a net loss of $1.4 million, or $.07 per share, from
continuing operations for the first six months of 1998 compared to a loss of
$6.2 million, or $.27 per share for the prior year. The six months ended April
30, 1997, included a $20.5 million pre-tax charge to earnings related to the
divestiture of three businesses. Excluding the effect of the pre-tax charge to
earnings in 1997, earnings from continuing operations were down from the prior
year primarily due to lower sales volume from the Corrosion Technology business
associated with the recent drop in copper prices and the Asian financial crisis,
start-up expenses from the Ameri-Forge undercarriage division, of production
delays in the minerals segment, and a charge to close down manufacturing
operations at British Jeffrey Diamond. Discontinued operations, including the
$86.1 million gain on the sale of the Industrial Tool segment, contributed $91.2
million, or $4.16 per share for the six months. In the prior year, the
Industrial Tool contribution was $5.0 million, or $.22 per share.
For the quarter ended April 30, 1998, earnings from continuing operations were
$.8 million, or $.03 per share compared to $7.1 million, or $.31 per share, for
the same period in 1997. The decrease from the prior year is once again due to
lower sales volume from the Corrosion Technology business, start-up costs for
the undercarriage of Ameri-Forge, and the charge to close down manufacturing
operations at British Jeffrey Diamond. Selling, general & administrative costs
decreased from the same period last year due primarily to fixed cost reductions
in the refractory operation. Discontinued operations' earnings for the 1998
second quarter were $88.2 million, or $4.02 basic earnings per share, and $3.99
per share on a diluted basis due to the gain on the sale of INTOOL, Inc. Second
quarter earnings for discontinued operations in 1997 were $3.1 million or $.14
per share.
Revenues of $230 million were slightly less than the $233.4 million reported for
the same period in 1997. The decrease occurred in the last three months with
reported revenues of $121.6 million compared to $124.7 million for the prior
year. Segment operating profit of $11.8 million for the first six months of
1998, decreased 52.2% from the 1997 $24.7 million amount. Segment operating
profit in the second quarter of $7.1 million was a decrease of 53.2% from the
prior year second quarter operating profit of $15.2 million. See the segment
results for further information.
Total costs and expenses for the six months of 1998 were $232.7 million, down
$9.7 million, or 4%, from $242.4 million for the same period in 1997. Costs of
sales were $179.4 million, or 3% higher than the prior year period. Selling,
engineering and administrative and general expenses of $44.3 million for the six
months of 1998 were slightly higher when compared to $43.8 million for 1997. The
expense of $3.9 million in other - net for the first half of 1998, compares to
income of $.6 million for the same period of 1997. The 1998 expense includes a
$2.4 million provision for the closing of British Jeffrey Diamond operations in
Wakefield, England and equity company losses of $.5 million.
13
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
April 30, 1998
RESULTS OF OPERATIONS (cont'd)
- ------------------------------
Global's consolidated backlog of unshipped orders was $126.6 million at April
30, 1998, compared to $138.1 million at October 31, 1997 and $147.1 million at
April 30, 1997. The decrease will be explained in segment results but primarily
relates to a slowdown in orders from Corrosion Technology customers in the
copper industry and refractory products exported to Southeast Asia.
SEGMENT RESULTS
- ---------------
Refractory Products
- -------------------
Revenues for the six months of fiscal 1998 of $165.1 million were up 4.7%
compared to 1997 revenues of $157.7 million for the same period. For the second
quarter, revenues of $87.6 million also increased slightly (4%) from $84.0
million for the prior year second quarter. The increase in sales is primarily
due to the contribution from the Aken and Lota Green acquisitions which were not
reflected in 1997 results. However, the increase was mitigated by North American
operations which reported lower sales volume than the prior year. Last year's
results for the same period included partial shipments on the extraordinary
Raytheon contract which has not repeated this year. In addition, the Asian
currency collapse adversely affected international sales in the second quarter.
Operating profit for the six month period in 1998 was $12.5 million which is
down $.9 million, or 6.7%, from $13.4 million in 1997. For the second quarter,
operating profit of $8.2 million is 5% less than the $8.6 million reported in
the 1997 quarter. While revenues were higher for the periods presented,
operating profit was adversely affected by exchange losses in Mexico and Chile
of $.5 million and slightly lower margins in the U.S. when compared to the same
period in 1997.
Minerals
- --------
Minerals revenues of $21.2 million for the first six months of 1998 are down 21%
from $26.7 million for the same period of 1997; and down $2.3 million, or 17%,
at $11.3 million in the second 1998 quarter compared to $13.6 million in 1997.
Operating earnings were down $3.6 million from the prior year six month profit
of $3.6 million; and down $1.2 million, or 70%, at $.5 million in the second
1998 quarter from $1.7 million for the year earlier quarter. Revenues and
earnings reflect a delay in the timing of magnesite sales to Europe and
Southeast Asia compared to the prior year. Further, the unfavorable exchange
rates between the U. S. Dollar and European currencies had an adverse impact on
the ability to competitively price exports. Operating problems for the new
Spinel product further reduced operating profits for the quarter but have now
been resolved and the product is in full production.
14
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
April 30, 1998
Specialty Equipment Products
- ----------------------------
The Specialty Equipment Products segment consists of Corrosion Technology
International (CTI) and the Global Processing Group. Revenues for the six
months of $24.3 million are down $7.6 million, or 24%, from $31.9 million in
1997. For the quarter, revenues were $6.8 million, or 36%, less at $11.9 million
than the 1997 second quarter $18.7 million. Operating losses in the six months
of 1998 of $1.8 million were down from $1.5 million in earnings for the first
half of 1997. The second quarter $1.6 million operating loss for 1998 compared
to profits of $1.6 million in 1997.
The significant drop in copper, zinc and nickel commodity prices affected the
first six months results. Also, the current Asian financial crisis has stalled
sales of nonferrous metals refining equipment and, as a result, depressed CTI
sales and operating profits. CTI is taking steps to decrease its dependency on
the nonferrous metals markets by forming business alliances to develop broader
polymer concrete applications and markets including pulp and paper, food
processing, municipal infrastructure, and chemical processing.
Processing Equipment revenues and operating profits are slightly below prior
year to date and second quarter levels due to the timing of new machine
shipments. The Company decided at the beginning of the second quarter to close
the British Jeffrey Diamond operation in Wakefield, England which incurred
losses of $.2 million through January 31, 1998. A pre-tax charge of $2.4 million
has been provided for closing the manufacturing operations, and is included in
the segment results for the second quarter and the six months.
Forged Products
- ---------------
Revenues for the Forged Products segment remained level for the six months and
second quarter at $26.5 million and $15.0 million, respectively, compared to
1997 figures of $27.5 million and $14.8 million. Operating profits for the six
month period of $1.6 million compared to $6.2 million from the prior year
reflect significant start-up costs to ramp up production in the undercarriage
division. In addition, the industrial flange division experienced lower
production this year due to equipment maintenance problems. For the second
quarter, the segment reported operating profits of $.5 million compared to $3.3
million for the same period in 1997. The decrease from the prior year for the
quarter is primarily due to start-up costs in the undercarriage division.
15
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
April 30, 1998
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
- ----------------------------------------------------
Cash and cash equivalents were $46.8 million at April 30, 1998, $31.9 million
higher than at October 31, 1997. The net cash used by operating activities was
$36.4 million for the first six months of fiscal 1998, which consists mostly of
a decrease in accounts payable and accrued liabilities during the period of
$13.4 million, a decrease in accrued compensation of $12.3 million and an
increase in inventories of $13.2 million. The investing activities consisted of
$217.5 million in proceeds from the sale of the Industrial Tool segment; $28.6
million for capital expenditures at the operating units; a $5.3 million
settlement on the previous sale of the surface mining equipment assets; $4.5
million for the acquisition of the previously mentioned German refractory
operation; and $3.9 million in expenditures related to the pending acquisition
of A.P. Green. Proceeds from the Industrial Tool sale provided funds for a net
$106.1 million repayment of company debt. The Company also spent $.7 million
for the purchase of the Company's common shares net of the proceeds from
employee stock option exercises.
16
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
April 30, 1998
The Company's current ratio at April 30, 1998 of 1.8 to 1 improved, primarily as
a result of the reduction in notes payable from the October 31, 1997 ratio of
1.45 to 1. The Company had outstanding debt of $107.4 million at April 30, 1998
compared to $199.0 million at October 31, 1997.
FORWARD-LOOKING STATEMENTS
- --------------------------
Statements the Company may publish that are not strictly historical are
"forward-looking" statements under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Although the Company believes the
expectations reflected in such forward-looking statements are based on
reasonable assumptions, it can give no assurance that its expectations will be
realized. Forward-looking statements involve known and unknown risks which may
cause the Company's actual results and corporate developments to differ
materially from those expected. Factors that could cause results and
developments to differ materially from the Company's expectations include,
without limitation, changes in manufacturing and shipment schedules, delays in
completing plant construction and acquisitions, currency exchange rates, new
product and technology developments, competition within each business segment,
cyclicality of the markets for the products of a major segment, litigation,
significant cost variances, the effects of acquisitions and divestitures, and
other risks described from time to time in the Company's SEC reports including
quarterly reports on Form 10-Q, annual reports on Form 10-K and reports on Form
8-K.
17
<PAGE>
PART II
OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Purchase and Sale Agreement dated March 3, 1998 among Cooper Power
Tools, Inc. and GPX Corp. and Cooper Industries, Inc. and Global
Industrial Technologies, Inc.
Amendment to Purchase and Sale Agreement dated March 12, 1998
among Cooper Power Tools, Inc. and GPX Corp. and Cooper
Industries, Inc. and Global Industrial Technologies, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL INDUSTRIAL TECHNOLOGIES, Inc.
By: /s/ DONNA A. REEVES
------------------------------------------
Donna A. Reeves
Vice President - Controller
(Authorized Officer and
Chief Accounting Officer)
Dated: June 12, 1998
18
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