<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended January 31, 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 February 17, 1998, 21,954,893 shares of Common Stock, par value $0.25, of the
Registrant were outstanding.
Page 1 of 14
Exhibit Index Appears on Page 14
<PAGE>
INDEX
Page
Number
- ------
Part I. Financial Information
Management's Representation 3
Consolidated Condensed Statements of Earnings for
the three months ended January 31, 1998 and 1997 4
Consolidated Condensed Balance Sheets as of
January 31, 1998 and October 31, 1997 5-6
Consolidated Condensed Statements of Cash Flows
for the three months ended January 31, 1998 and 1997 7
Notes to Consolidated Condensed Financial Statements 8-11
Management's Discussion and Analysis 12-15
Part II. Other Information 16
Signature 16
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 January 31, 1998; the results of
operations for the three months ended January 31, 1998 and 1997; and the cash
flows for the three months ended January 31, 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)
Three months ended
January 31,
--------------------------------
1998 1997
--------------------------------
(Unaudited)
Revenues
Net sales and operating revenues $ 137.1 $ 132.0
Other 0.4 0.3
------------ ------------
Total Revenues 137.5 132.3
------------ ------------
Costs and Expenses
Cost of sales 100.6 93.2
Selling, engineering, administrative and
general expenses 32.5 29.8
Interest expense 2.6 2.6
Special charges 20.5
Other - net 0.7 1.4
------------ ------------
Total Costs and Expenses 136.4 147.5
------------ ------------
Earnings (loss) before income taxes 1.1 (15.2)
Income tax (provision) benefit (0.3) 3.8
------------ ------------
Net earnings (loss) $ 0.8 $ (11.4)
============= ============
Basic earnings (loss) per common share $ 0.04 $ (0.50)
============= ============
Diluted earnings (loss) per common share $ 0.04 $ (0.50)
============= ============
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in millions)
<TABLE>
<CAPTION>
January 31, 1998 October 31, 1997
ASSETS (Unaudited)
- ------ ---------------- ----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 11.5 $ 14.9
Notes and accounts receivable
Public 113.0 113.7
Unconsolidated affiliates 4.7 5.1
---------------- ----------------
117.7 118.8
Less allowance for doubtful accounts 3.5 3.2
---------------- ----------------
114.2 115.6
Inventories
Finished products and work in process 68.2 59.1
Raw materials and supplies 45.4 41.6
---------------- ----------------
113.6 100.7
---------------- ----------------
Deferred income taxes 56.1 56.1
Asbestos insurance recoveries receivable 64.3 65.1
Prepaid expenses 7.3 3.7
---------------- ----------------
Total Current Assets 367.0 356.1
Investments in Unconsolidated Affiliates 5.4 5.3
Noncurrent Deferred Income Taxes 35.9 28.7
Goodwill - net 79.5 80.4
Other Assets 89.8 93.5
Property, Plant and Equipment - at cost
Land, land improvements and mineral deposits 35.8 34.0
Buildings 96.1 81.3
Machinery and equipment 361.3 355.9
---------------- ----------------
493.2 471.2
Less accumulated depreciation, depletion and amortization 233.2 228.2
---------------- ----------------
Total properties - net 260.0 243.0
---------------- ----------------
Total Assets $ 837.6 $ 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>
January 31, 1998 October 31, 1997
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited)
- ------------------------------------------------------- ---------------- ----------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 42.0 $ 46.2
Notes payable and current portion of long-term debt 81.2 47.2
Advances from customers on contracts 1.1 5.0
Accrued compensation and benefits 20.2 26.6
Insurance reserves 12.3 11.7
Income taxes currently payable 14.5 13.6
Current deferred income taxes 14.4 14.1
Asbestos related liabilites 54.7 56.9
Other accrued liabilities 21.3 24.1
---------------- ----------------
Total Current Liabilities 261.7 245.4
Long-term Debt 166.2 151.8
Pension Plans and Other Retiree Benefits 47.9 47.6
Noncurrent Deferred Income Taxes 17.0 17.0
Other Liabilities 62.5 61.1
Shareholders' Equity
Common stock 6.8 6.8
Capital in excess of par value 381.8 382.1
Retained earnings 26.3 25.5
Cumulative translation adjustment (51.5) (50.3)
Treasury stock, at cost (74.8) (73.7)
Other (6.3) (6.3)
---------------- -----------------
Total Shareholders' Equity 282.3 284.1
---------------- -----------------
Total Liabilites and Shareholders' Equity $ 837.6 $ 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)
<TABLE>
<CAPTION>
Three months ended
January 31,
-------------------------------
1998 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 0.8 $ (11.4)
Adjustments to reconcile net earnings to cash flow
Depreciation, depletion and amortization 6.3 5.5
Special charges 20.5
Decrease in receivables 9.4 10.9
Increase in inventories (6.9) (1.6)
Decrease (increase) in asbestos insurance recoveries receivable 0.8 (1.5)
Decrease in accrued compensation (6.7) (9.8)
Decrease in accounts payable and accrued liabilities (9.0) (8.8)
Decrease in advances from customers (4.0) (1.0)
Increase (decrease) in income taxes payable 0.8 (6.6)
Other - net (2.3) (2.7)
-------------- --------------
Net cash generated (used) by operating activities (10.8) (6.5)
-------------- --------------
Cash flows from investing activities
Business acquisitions (4.5)
Liquidation of investment in unconsolidated subsidiary 14.0
Settlement payment on asset sales (5.3)
Capital expenditures (15.0) (12.4)
-------------- --------------
Net cash (used) by investing activities (24.8) 1.6
-------------- --------------
Cash flows from financing activities
Proceeds from borrowings 33.7 6.6
Reduction of debt (1.3)
Options exercised under employee benefit plans 0.9 0.4
Purchase of common shares (2.3) (0.7)
-------------- --------------
Net cash (used) by financing activities 32.3 5.0
-------------- --------------
Effect of translation adjustments on cash (0.1) 0.1
-------------- --------------
Net increase (decrease) in cash and cash equivalents (3.4) 0.2
Cash and cash equivalents, beginning of period 14.9 11.5
-------------- --------------
Cash and cash equivalents, end of period $ 11.5 $ 11.7
============== ==============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements
7
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 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 - 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 D - 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.
8
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE D - EARNINGS PER SHARE (Cont'd)
A reconciliation of the numerator and denominator of the calculations for the
three month periods ended January 31, 1998 and 1997 is presented below.
Three Months Ended
January 31,
----------------
<TABLE>
<CAPTION>
Numerator: 1998 1997
------ --------
<S> <C> <C>
Net earnings (loss) $ 0.8 $(11.4)
Denominator:
Weighted average shares outstanding 21.9 22.7
----- ------
Potential common shares:
Stock options 0.2 -
Deferred compensation units - -
----- ------
Total potential common shares 0.2 -
----- ------
Denominator for diluted earnings (loss) per share 22.1 22.7
----- ------
Earnings (loss) per share - basic $0.04 $(0.50)
===== ======
Earnings (loss) per share - diluted $0.04 $(0.50)
===== ======
</TABLE>
9
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE D - EARNINGS PER SHARE (Cont'd)
Outstanding options to purchase 223,900 shares were excluded from the January
31, 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 January 31, 1998 diluted earnings per share
calculations as the effect of inclusion in the calculation would be anti-
dilutive. Outstanding stock options and deferred compensation units at January
31, 1997 for 1,476,801 and 290,403 potential common shares were excluded from
the January 31, 1997 diluted earnings per share calculation as their inclusion
would be anti-dilutive due to the net loss incurred for the quarter.
NOTE E - SUBSEQUENT EVENTS
On February 3, 1998, the Company announced that it had signed a letter of intent
for the sale of the Industrial Tool segment to Cooper Industries, Inc. As of
this filing, a definitive agreement for the transaction had not been finalized.
10
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE F - INFORMATION BY INDUSTRY SEGMENT
Sales and operating profit results are presented below for the three months
ended January 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended
January 31
----------------------
1998 1997
----------------------
(In Millions)
<S> <C> <C>
Sales and operating revenues:
Refractory Products $ 77.5 $ 73.7
Minerals 9.9 13.1
Industrial Tool 28.7 23.3
Specialty Equipment Products 12.4 13.2
Forged Products 11.5 12.7
Intersegment sales (2.9) (4.0)
------ -------
Total sales and operating revenues $137.1 $ 132.0
====== =======
Operating Profit (Loss):
Refractory Products $ 4.3 $ 4.8
Minerals (0.5) 1.9
Industrial Tool 4.0 2.5
Specialty Equipment Products (0.2) (0.1)
Forged Products 1.1 2.9
------ ------
Subtotal $ 8.7 $ 12.0
------ -------
General corporate expenses (7.6) (6.7)
Special charges (20.5)
------ -------
Earnings (loss) before taxes $ 1.1 $ (15.2)
====== =======
</TABLE>
11
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 31, 1998
RESULTS OF OPERATIONS
- ---------------------
Three Months ended January 31, 1998 compared to January 31, 1997.
The Company had net earnings of $.8 million or $.04 per share in the first
quarter of 1998. For the same period a year ago, the Company reported a net
loss of $11.4 million which included a $20.5 million pre-tax charge to earnings
related to the divestiture of three businesses. An income tax expense of $0.3
million was recorded for the three months ended January 31, 1998, compared to a
tax benefit of $3.8 million for the three months ended January 31, 1997.
Segment operating profit for the three months was $8.7 million in fiscal 1998
compared to $12.0 million in 1997, a decrease of $3.3 million. The decrease
resulted primarily from lower operating profit at the Minerals segment where the
strength of the U.S. Dollar vs. European currencies continues to affect sales
volume, and also at the Forged Products segment where lower sales due primarily
to equipment problems adversely affected production volumes. General corporate
expenses were $.9 million higher for the quarter ended January 31, 1998 versus
1997 due mostly to the accrual in the 1998 quarter for costs related to the
Company's asbestos cases, and an increase in headquarters administrative and
general expenses.
Consolidated revenues of $137.5 million for the first three months of fiscal
1998 were higher by $5.2 million, or 3.9 percent, from $132.3 million in the
prior year period. The increase was due to higher revenues within the Refractory
Products segment of $3.8 million, or 5.2 percent, and the Industrial Tool
segment of $5.4 million, or 23.2 percent, partially offset by reductions within
the Minerals, Specialty Equipment and Forged Products segments.
Total costs and expenses for the first three months of 1998 were $136.4 million,
down $11.1 million, or 7.5 percent, from $147.5 million for the same period in
1997. Costs of sales were $100.6 million, or 7.9 percent higher than the prior
year period, due primarily to the acquisition of the Lota Green Chilean
Refractory business announced on June 4, 1997, and the acquisition of
Magnesitwerk Aken Gmbh, the German Refractory business announced on January 8,
1998. These two acquisitions contributed to an increase in Refractory costs of
sales of $4.9 million, or 8 percent. Selling, engineering, administrative and
general expenses were $32.5 million for the first quarter of 1998, higher than
the $29.8 million by $2.7 million, or 9.1 percent from the same period in 1997.
Other - net is an expense of $.7 million for the first quarter of 1998 compared
to an expense of $1.4 million for the same period in 1997.
12
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 31, 1998
Global's consolidated backlog of unshipped orders was $147.8 million at January
31, 1998 compared to $138.1 million at October 31, 1997 and $170.2 million at
January 31, 1997. The increase in unshipped orders from the year end is due
primarily to the inclusion of Aken and increases in US and Canadian refractory
products activity which more than offset lower bookings within the Forged
Products segment. The decrease from the same quarter a year ago is in the Forged
Products segment and the Corrosion Technology operations.
SEGMENT RESULTS
- ---------------
Refractory Products
- -------------------
Revenues for the first three months of fiscal 1998 of $77.5 million were up
compared to 1997 revenues of $73.7 million by $3.8 million, or 5.2 percent.
Operating profit for the same period in 1998 was $4.3 million which is down $.5
million from $4.8 million for the first quarter of fiscal 1997. Revenues were
slightly higher in 1998 due to the two international acquisitions, Lota Green,
the Chilean refractory operation that was announced in June of 1997 and is
consolidated with the Company's RECSA Chilean operation, and Magnesitwerk Aken
G.m.b.H., announced on January 8, 1998, partially offset by a reduction in North
American shipments.
Minerals
- --------
Minerals revenues of $9.9 million were down $3.2 million from the same quarter
in the prior year mostly because of the impact of unfavorable exchange rates
between the U.S. Dollar and European currencies on the ability to competitively
price exports. The segment incurred an operating loss of $.5 million, down $2.4
million from 1997 operating profit of $1.9 million. Reduced volume and
unfavorable pricing contributed to the unfavorable earnings result for the first
quarter of fiscal 1998.
Industrial Tool
- ---------------
Revenues of $28.7 million for the first three months of fiscal 1998 were $5.4
million or 23.2 percent higher than the same period in the prior year. The
favorable result is due to a continued strong aircraft and automotive assembly
markets which positively affects this segment's Quackenbush product line.
Segment operating profit of $4.0 million for the three months ended January 31,
1998 is $1.5 million higher than for the first three months of 1997 due to the
increased sales volume.
13
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 31, 1998
Specialty Equipment Products
- ----------------------------
The Specialty Equipment Products segment consists of Corrosion Technology
International and the Global Processing Group. The segment's consolidated
revenues for the first three months of fiscal 1998 of $12.4 million were down
$.8 million, or 6.1 percent, from the same period in 1997 due to delayed
bookings from and shipments to customers of the Corrosion Technology operation
due to a significant drop in copper, zinc and nickel commodity prices. Segment
operating losses of $.2 million for the first three months of fiscal 1998
compared to losses of $.1 million for 1997, which primarily reflects the lower
sales volume.
Forged Products
- ---------------
This segment's revenues of $11.5 million were down 9.4% from $12.7 million for
the same period a year ago and operating profit of $1.1 million was down 62%
from operating profits of $2.9 million for the prior year period. The
decrease in operating profit is due primarily to a combination of reduced volume
and higher operating costs associated with production equipment problems, which
adversely affects factory overhead absorption, and operating losses resulting
from the delay in the start-up of the segment's Undercarriage product line.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
- ----------------------------------------------------
Cash and cash equivalents were $11.5 million at January 31, 1998, $3.4 million
lower than at October 31, 1997. The net cash used by operating activities was
$10.8 million for the first quarter of fiscal 1998, which consists mostly of a
decrease in accounts payable and accrued liabilities during the period of $9.0
million, a decrease in advances from customers of $4.0 million and an increase
in inventories of $6.9 million partially offset by a decrease in accounts
receivable of $9.4 million. The investing activities consisted of $15.0 million
for capital expenditures at the operating units, a $5.3 million settlement on
the previous sale of the surface mining equipment assets and $4.5 million for
the acquisition of the previously mentioned German refractory operation. The
financing activities for the period generated $32.3 million which included $33.7
million of proceeds from borrowings less repayments. The Company also spent
$1.4 million for the purchase of the Company's common shares, net of the
proceeds from employee stock option exercises.
14
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
January 31, 1998
The Company's current ratio at January 31, 1998 of 1.4 to 1 was virtually
unchanged from the October 31, 1997 ratio of 1.45 to 1. The Company had
outstanding debt of $247.4 million at January 31, 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 divestures, 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.
15
<PAGE>
PART II
OTHER INFORMATION
Item 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) No reports on Form 8-K were filed during the first quarter ended
January, 31, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL INDUSTRIAL TECHNOLOGIES, Inc.
By: /s/ GARY G. GARRISON
______________________________________________
Gary G. Garrison
Vice President Finance,Chief Financial Officer
(Authorized Officer and Principal Financial
and Accounting Officer)
Dated: February 20, 1998
16
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<PAGE>
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<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 118
<ALLOWANCES> 4
<INVENTORY> 114
<CURRENT-ASSETS> 367
<PP&E> 493
<DEPRECIATION> 233
<TOTAL-ASSETS> 838
<CURRENT-LIABILITIES> 262
<BONDS> 0
0
0
<COMMON> 7
<OTHER-SE> 275
<TOTAL-LIABILITY-AND-EQUITY> 838
<SALES> 137
<TOTAL-REVENUES> 138
<CGS> 101
<TOTAL-COSTS> 136
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
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</TABLE>
