<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 March 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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 May 14, 1999 22,303,022 shares of Common Stock, par value $.25, of the
Registrant were outstanding.
Page 1 of 21
Exhibit Index Appears on Page 20
<PAGE>
INDEX
Page
Number
Part I. Financial Information
Item 1 Management's Representation 3
Consolidated Condensed Statements of Operations for 4
the three months ended March 31, 1999 and January 31, 1998
Consolidated Condensed Balance Sheets as of 5
March 31, 1999 and December 31, 1998
Consolidated Condensed Statements of Cash Flows 7
for the three months ended March 31, 1999 and January
31, 1998
Notes to Consolidated Condensed Financial Statements 8
Item 2 Management's Discussion and Analysis 13
Item 3 Quantitative and Qualitative Disclosures about Market Risk 19
Part II. Other Information
Item 6 Exhibit Index 20
Signature 21
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 December 31,
1998.
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 March 31, 1999; the results of
operations for the three months ended March 31, 1999 and January 31, 1998; and
cash flows for the three months ended March 31, 1999 and January 31, 1998,
respectively.
3
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In millions except per share data)
<TABLE>
<CAPTION>
Three months ended
March 31, January 31,
---------------------------------
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
Revenues
Net sales and operating revenues $ 141.8 $ 96.9
Other 0.3 0.4
-------- --------
Total Revenues 142.1 97.3
-------- --------
Costs and Expenses
Cost of sales 107.0 75.0
Selling, engineering, administrative and
general expenses 26.2 23.0
Interest expense 4.3 1.7
Other - net 0.4 0.7
-------- --------
Total Costs and Expenses 137.9 100.4
-------- --------
Earnings (loss) from continuing operations
before income taxes 4.2 (3.1)
Income tax benefit (expense) (0.8) 1.3
-------- --------
Earnings (loss) from continuing operations 3.4 (1.8)
Discontinued operations:
Loss on sale of discontinued operations less
applicable income taxes of $15.2 (24.8)
Earnings from discontinued operations less applicable
income taxes of $.0 and $ 1.6 0.1 2.6
-------- --------
Net earnings (loss) $ (21.3) $ 0.8
======== ========
Basic earnings (loss) per common share:
Continuing operations $ 0.15 $ (0.08)
Discontinued operations $ (1.11) $ 0.12
-------- --------
Net earnings (loss) $ (0.96) $ 0.04
======== ========
Diluted earnings (loss) per common share:
Continuing operations $ 0.15 $ (0.08)
Discontinued operations $ (1.09) $ 0.12
-------- --------
Net earnings (loss) $ (0.94) $ 0.04
======== ========
</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>
March 31, 1999 December 31, 1998
ASSETS (Unaudited)
- ------ --------------- ----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 7.3 $ 8.4
Notes and accounts receivable
Public 123.0 115.4
Unconsolidated affiliates - 6.7
-------------- ----------------
123.0 122.1
Less allowance for doubtful accounts 6.0 6.5
-------------- ----------------
117.0 115.6
Inventories
Finished products and work in process 70.5 71.5
Raw materials and supplies 57.4 63.6
-------------- ----------------
127.9 135.1
-------------- ----------------
Assets held for sale, net 134.4 174.0
Deferred income taxes 107.9 92.7
Asbestos insurance recoveries receivable 161.3 155.5
Prepaid expenses 13.8 9.9
-------------- ----------------
Total Current Assets 669.6 691.2
Investments in Unconsolidated Affiliates 3.1 3.1
Noncurrent Deferred Income Taxes 54.6 56.2
Goodwill - net 23.1 24.0
Noncurrent asbestos insurance receivable 148.8 145.2
Other Assets 90.3 84.5
Property, Plant and Equipment - at cost
Land, land improvements and mineral deposits 32.4 42.5
Buildings 93.1 93.2
Machinery and equipment 304.3 300.9
-------------- ----------------
429.8 436.6
Less accumulated depreciation, depletion and amortization 172.6 174.8
-------------- ----------------
Total properties - net 257.2 261.8
-------------- ----------------
Total Assets $ 1,246.7 $ 1,266.0
============== ================
</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>
March 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY (Unaudited) December 31, 1998
- ------------------------------------ ------------------ ----------------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 42.7 $ 62.8
Notes payable and current portion of long-term debt 217.6 176.7
Advances from customers on contracts 0.8 1.1
Accrued compensation and benefits 23.0 31.6
Accrued taxes other than income taxes 3.7 3.4
Insurance reserves 14.3 7.9
Income taxes currently payable 18.4 17.2
Current deferred income taxes 21.8 21.7
Asbestos related liabilites 137.8 137.6
Other accrued liabilities 59.5 74.1
------------------ ----------------------
Total Current Liabilities 539.6 534.1
Long-term Debt 191.1 202.6
Postretirement benefits 83.1 81.0
Noncurrent Deferred Income Taxes 55.3 55.5
Asbestos related liabilities 152.8 145.7
Other Liabilities 9.7 12.6
Shareholders' Equity
Preferred stock
Common stock 6.8 6.8
Capital in excess of par value 382.0 381.4
Retained earnings (accumulated deficit) (40.9) (19.6)
Accumulated other nonowner changes in equity
Cumulative translation adjustment (57.3) (56.0)
Minimum pension liability adjustment (5.4) (5.4)
Treasury stock, at cost (70.1) (72.7)
------------------ ----------------------
Total Shareholders' Equity 215.1 234.5
------------------ ----------------------
Total Liabilites and Shareholders' Equity $ 1,246.7 $ 1,266.0
================== =====================
</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
March 31, January 31,
1999 1998
------------ -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ (21.3) $ 0.8
Adjustments to reconcile net earnings to cash flow
Continuing operations depreciation,
depletion and amortization 6.9 4.9
Discontinued operations depreciation,
depletion and amortization 1.1 1.4
Loss on sale of discontinued operations 40.0 -
Decrease (increase) in receivables (1.3) 9.4
Decrease (increase) in inventories 7.2 (6.9)
Decrease (increase) in asbestos insurance recoveries receivable (2.3) 0.8
Increase in discontinued operations working capital (0.9) -
Decrease in accrued compensation (5.9) (6.7)
Decrease in accounts payable and accrued liabilities (21.5) (9.0)
Decrease in advances from customers (0.3) (4.0)
Increase in income taxes payable 1.2 0.8
Deferred income tax provision (benefit) (15.2) -
Other - net (6.5) (2.3)
------------ -----------
Net cash used by operating activities (18.8) (10.8)
------------ -----------
Cash flows from investing activities
Business acquisitions (4.5)
Settlement payment on asset sales (5.3)
Continuing operations capital expenditures (7.1) (6.4)
Discontinued operations capital expenditures (5.5) (8.6)
------------ -----------
Net cash used by investing activities (12.6) (24.8)
------------ -----------
Cash flows from financing activities
Proceeds from borrowings 29.5 33.7
Proceeds from exercise of stock options 0.8 0.9
Purchase of treasury shares (2.3)
------------ -----------
Net cash provided by financing activities 30.3 32.3
------------ -----------
Effect of translation adjustments on cash - (0.1)
------------ -----------
Net decrease in cash and cash equivalents (1.1) (3.4)
Cash and cash equivalents, beginning of period 8.4 14.9
------------ -----------
Cash and cash equivalents, end of period $ 7.3 $ 11.5
============ ===========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
7
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE A - Introduction and Basis of Presentation
The accompanying consolidated condensed interim financial statements include the
accounts of Global Industrial Technologies, Inc. together with its subsidiaries
and unconsolidated joint ventures (collectively referred to herein as the
"Company"). The Company conducts its business in two segments: Refractory
Products and Minerals and All Other.
On July 30, 1998, the Company's Board of Directors voted to change the Company's
annual fiscal accounting period from October 31, 1997 to December 31, 1997.
Accordingly, the accompanying consolidated condensed financial statements
present the three month period ended March 31, 1999. The comparative periods
under the old fiscal year presented herein is the three month period ended
January 31, 1998.
NOTE B - Discontinued Operations
Ameri-Forge
- -----------
The Company has entered into negotiations to sell the assets and business of
Ameri-Forge Corporation ("Ameri-Forge"). The Company has revised its original
estimate of the proceeds of the sale used in recording the loss on disposal of
Ameri-Forge reflected in the December 31, 1998 consolidated financial
statements. As a result, an additional $40 million pre-tax charge for loss on
disposal of discontinued operations was recorded in the first quarter of 1999 as
a reduction in the carrying value of fixed assets.
The operating results for Ameri-Forge for the prior year have been presented as
discontinued operations in the Consolidated Condensed Statement of Operations.
For the current year, operating results have been charged against the reserve
for loss on disposal. The assets and liabilities of Ameri-Forge at March 31,
1999, and December 31, 1998, have been reflected as "Net Assets Held For Sale,"
in the accompanying balance sheets.
APG Lime
- --------
On April 13, 1999, the Company sold the assets and business of APG Lime Corp.
("APG Lime") to Chemical Lime Company, Ft. Worth, Texas, for cash consideration
of $126.3 million and the assumption of $3.7 million in debt, subject to certain
post-closing adjustments. The sale resulted in a pre-tax gain from discontinued
operations of approximately $39.0 million which will be recognized in the second
quarter of 1999. Proceeds of the sale were used to pay down debt.
The operating results of APG Lime for the period January 1, 1999 through March
31, 1999, are presented as discontinued operations. The assets and liabilities
of APG Lime at December 31, 1998 have been reflected as "Net Assets Held For
Sale," in the accompanying balance sheet.
INTOOL
- ------
On March 12, 1998, the Company sold the assets and business of INTOOL
Incorporated ("INTOOL") for cash consideration of $229.5 million, including
certain postclosing adjustments. A gain of $81.7 million, net of tax, was
recognized. The INTOOL business manufactured and sold a product line of high-
quality pneumatic and electric tools for industrial applications, including
assembly and material removal. The operating results of INTOOL for the period
November 1, 1997 to January 31, 1998 are presented as discontinued operations in
the quarter.
8
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE C - 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 inventory levels and prices.
NOTE D - Restructuring Charges
During the year ended December 31, 1998, the Company recognized a charge to
reorganize and restructure its current organization. The restructuring
consisted primarily of four parts:
Concurrent with the acquisition of Green, effective July 1, 1998, management
initiated plans to consolidate and integrate the operations of both companies
through workforce reductions and the closure of duplicative facilities.
Management finalized plans to consolidate the manufacturing and administrative
functions of Corrosion Technologies International, Inc. ("CTI") with those of
Harbison-Walker Refractories Companies ("Harbison Walker"). The move is being
made in an effort to reduce costs and improve productivity and asset utilization
by eliminating duplicative functions and taking advantage of existing
facilities' excess capacity.
In addition, during the third quarter of 1998, the Company decided to terminate
a 50% joint venture and is in the process of closing Harbison-Walkers' Eufala,
Alabama facility, which housed a portion of its operations.
The remaining charges represent severance benefits related to the approximate
18% staff level reduction at the Company's corporate headquarters, located in
Dallas, Texas.
9
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following table summarizes the activity occurring within the related current
liability accounts during the quarter ended March 31, 1999.
<TABLE>
<CAPTION>
Balance at Balance at
Segment Type December 31, Payments March 31,
---- ----------- -------- ---------
1998 1999
---- ----
(amounts in millions)
<S> <C> <C> <C> <C>
Refractory Employee severance $ 2.7 $ (1.2) $ 1.5
Products Other employee fringes
(excluding pension
curtailment) 1.4 (0.1) 1.3
Contract terminations 0.8 --- 0.8
Other facility shut-down
costs 2.1 --- 2.1
Site restoration costs 2.4 (0.8) 1.6
Total Refractory Products ---- ---- ----
9.4 (2.1) 7.3
All Other Employee severance 1.1 --- 1.1
Contract terminations
and other 0.6 --- 0.6
---- ---- ----
Total All Other 1.7 --- 1.7
Corporate Employee severance 1.1 (1.0) 0.1
---- ---- ----
Total Company $ 12.2 $ (3.1) $ 9.1
==== ==== ====
</TABLE>
Management expects to complete all parts of the restructuring plans by the end
of 1999, with the majority of the remaining cash expenditures to occur during
the second quarter of 1999. Given the nature of the costs reflected herein,
increases or decreases may be necessary throughout the tenure of the Company's
restructuring plans. Any such changes will be reflected in the statement of
operations as incurred.
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 N to Consolidated
Financial Statements contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998.
10
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE F - Comprehensive Income
In June 1997, Statement of Financial Accounting Standards No. 130 -
"Comprehensive Income," ("SFAS 130"), was issued. SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements. Comprehensive
income, as defined by SFAS 130, is the change in equity (net assets) of a
business enterprise during a period, from transactions and other events and
circumstances from nonowner sources. It includes all changes in equity during a
period except those resulting from investments by owners and distributions to
owners. The components of comprehensive income (loss) for the Company include
net income (loss), and changes in the cumulative translation and minimum
pension liability adjustments. Total comprehensive income (loss) for the three
month periods ended March 31, 1999 and January 31, 1998 was (in millions),
$(22.6) and $(0.4) million respectively.
NOTE G - Earnings Per Share
Outstanding options to purchase 1.1 million shares and .2 million shares were
excluded from the March 31, 1999 and January 31, 1998, respectively, diluted
earnings per share calculation as the exercise prices associated with the
options exceeded the average market value of the Company's common shares. At
January 31, 1998 options to purchase .2 million shares were excluded from the
diluted earnings per share calculation as their inclusion would be anti-dilutive
due to the net loss from continuing operations as restated. There were no
deferred compensation units that were anti-dilutive at March 31, 1999. Deferred
compensation units representing .2 million 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.
No differences in the numerator exist to calculate basic and diluted earnings
per share. A reconciliation of the denominator of basic and diluted earnings per
share is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, January 31,
1999 1998
-----------------------
<S> <C> <C>
Denominator for basic earnings (loss) per share $ 22.3 $ 21.9
Potential common shares: --- ---
-------- ---------
Stock options 0.3 ---
Deferred compensation units 0.1 ---
-------- ---------
Total potential common shares 0.4 ---
-------- ---------
Denominator for diluted earnings (loss) per share $ 22.7 $ 21.9
-------- ---------
</TABLE>
11
<PAGE>
GLOBAL INDUSTRIAL TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
NOTE H- Information by Industry Segment
Sales and operating profit results are presented below for the three months
ended March 31, 1999 and January 31, 1998.
<TABLE>
<CAPTION>
Three Months Ended
March 31 January 31
INDUSTRY SEGMENT 1999 1998
--------------------------
<S> <C> <C>
Revenues
Refractory Products and Minerals................................ $126.4 84.5
All other....................................................... 15.4 11.7
------ ----------
Reportable segment revenues................................... 141.8 96.2
Divested operations............................................. 0 0.7
------ ----------
Total...................................................... $141.8 96.9
====== ==========
Operating profit (loss)
Refractory Products and Minerals................................ $ 11.2 3.8
All other....................................................... 2.5 (0.1)
------ ----------
Reportable segment profit..................................... 13.7 3.7
Corporate expenses.............................................. (5.2) (5.0)
Divested operations............................................. --- (0.1)
Interest expense........................................... (4.3) (1.7)
------ ----------
Earnings (loss) from continuing before income taxes............. $ 4.2 (3.1)
====== =========
</TABLE>
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Recent Developments
- -------------------
Tender Offer
On October 5, 1998, WHX Corporation (WHX) announced that it had purchased
approximately 2.2 million shares of common stock, representing approximately
9.9% of the Company. On December 17, 1998, WHX, through its wholly owned
subsidiary GT Acquisition Corp (collectively referred to as WHX), commenced an
unsolicited tender offer for all of the shares of the Company's common stock
(including the related preferred stock purchase rights) that it did not already
own at a price of $10.50 per share, net to the seller in cash, without interest
thereon. On December 17, 1998, WHX filed its Tender Offer Statement on Schedule
14D-1, including its Offer to Purchase which set forth the terms of its tender
offer. The tender offer is subject to numerous conditions, including among
others, the Rights Condition, the Supermajority Condition, the Business
Combination Condition and the Defensive Action Condition (each as defined in the
Offer to Purchase). In response to WHX's unsolicited tender offer, the Company's
Board of Directors unanimously rejected WHX's Offer to Purchase, setting forth a
number of factors, including the opinion of the Company's independent financial
advisors that the $10.50 per share offer price is inadequate from a financial
point of view, as more fully discussed in the Solicitation/Recommendation
Statement filed by the Company on Schedule 14D-9 with the Securities and
Exchange Commission on December 23, 1998. WHX's offer is currently scheduled to
expire on May 20, 1999, unless further extended. The Company has retained the
services of independent financial and legal advisors to assist it in connection
with the WHX offer and had incurred related costs of approximately $0.3 million
during the year ended December 31, 1998. As of May 17, 1999, the Company's Board
of Directors is not in discussions with WHX or any other potential buyer
regarding the consensual sale of the Company, or a substantial portion of its
assets (other than those assets disclosed in Note B--"Discontinued
Operations").
Ameri-Forge
The Company has entered into negotiations to sell the assets and business of
Ameri-Forge. The Company has revised its original estimate of the proceeds of
the sale used in recording the loss on disposal of Ameri-Forge reflected in the
December 31, 1998 consolidated financial statements. As a result, an additional
$40 million pre-tax charge for loss on disposal of discontinued operations was
recorded in the first quarter of 1999 as a reduction in the carrying value of
fixed assets.
APG Lime
On April 13, 1999, the Company sold the assets and business of APG Lime to
Chemical Lime Company, Ft. Worth, Texas, for cash consideration of $126.3
million and the assumption of $3.7 million in debt, subject to certain post-
closing adjustments. The sale resulted in a pre-tax gain from discontinued
operations of approximately $39.0 million which will be recognized in the second
quarter of 1999. Proceeds of the sale were used to pay down debt.
Results of Operations
- ---------------------
Overall Summary
The Company reported a net loss of ($21.3) million or ($.96) per share for the
three months ended March 31, 1999, compared to net earnings of $.8 million or
$.04 per share for the three months ended January 31, 1998. The results for the
quarter include an after-tax loss on the sale of Ameri-Forge of ($24.8) million
reported in discontinued operations.
Continuing Operations
The Company reported net income of $3.4 million, or $.15 per share for the three
months ended March 31, 1999 compared to a net loss of ($1.8) million or ($.08)
per share for the first quarter of the prior fiscal year ended January 31, 1998.
The 1999 first quarter results include contributions from Green and Harbison-
Walker Refractories GmbH, formerly Magnesitwerk Aken Gmbh (Aken). The 1998 first
quarter results include one month of operating results from Aken.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Including Green and Aken, revenues for the three months of $142.1 million
increased $44.8 million, or 46%, from $97.3 million in 1998. Segment operating
results from continuing operations for the quarter of $13.7 million increased
$10.1 million, or 281%, from $3.7 million in 1998. Segment revenues and
operating results are discussed individually below under the heading "Industry
Segment Analysis".
General corporate expenses for the three months of $5.2 million increased $.2
million, or 4%, from $5.0 million in 1998. Corporate expense includes
approximately $.4 million of defense costs associated with the WHX tender offer.
Interest expense of $4.3 million increased $2.6 million, or 153%, from $1.7
million in 1998. The increase is due to higher debt levels in 1999 from the
acquisition of Green including cash expenditures for the integration of Green
and Harbison-Walker.
Backlog
The Company's consolidated backlog of unshipped orders from continuing
operations was $139.5 million at March 31, 1999 compared to $117.1 million at
January 31, 1998. The net increase of $22.4 million reflects a higher backlog
from Refractory Products and Minerals due to the Green acquisition offset by a
lower backlog from the CTI business.
Restructuring charges
During the year ended December 31, 1998, the Company recognized a charge to
reorganize and restructure its current organization. The restructuring
consisted primarily of four parts:
Concurrent with the acquisition of Green effective July 1, 1998, management
initiated plans to consolidate and integrate the operations of both companies
through workforce reductions and the closure of duplicative facilities.
Management finalized plans to consolidate the manufacturing and administrative
functions of CTI with those of Harbison-Walker. The move is being made in an
effort to reduce costs and improve productivity and asset utilization by
eliminating duplicative functions and taking advantage of existing facilities'
excess capacity.
In addition, during the third quarter of 1998, the Company decided to terminate
a 50% joint venture and is in the process of closing Harbison-Walkers' Eufala,
Alabama facility, which housed a portion of its operations.
The remaining charges represents severance benefits related to the approximate
18% staff level reduction at the Company's corporate headquarters, located in
Dallas, Texas.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table summarizes the activity occurring within the related current
liability accounts during the quarter ended March 31, 1999.
<TABLE>
<CAPTION>
Balance at Balance at
Segment Type December 31, Payments March 31,
---- ----------- -------- ---------
1998 1999
---- ----
(amounts in millions)
<S> <C> <C> <C> <C>
Refractory Employee severance $ 2.7 $ (1.2) $ 1.5
Products Other employee fringes
(excluding pension
curtailment) 1.4 (0.1) 1.3
Contract terminations 0.8 --- 0.8
Other facility shut-down
costs 2.1 --- 2.1
Site restoration costs 2.4 (0.8) 1.6
Total Refractory Products ---- ---- ----
9.4 (2.1) 7.3
All Other Employee severance 1.1 --- 1.1
Contract terminations
and other 0.6 --- 0.6
---- ---- ----
Total All Other 1.7 --- 1.7
Corporate Employee severance 1.1 (1.0) 0.1
---- ---- ----
Total Company $ 12.2 $ (3.1) $ 9.1
==== ==== ====
</TABLE>
Management expects to complete all parts of the restructuring plans by the end
of 1999, with the majority of the remaining cash expenditures to occur during
first half of 1999. Given the nature of the costs reflected herein, increases
or decreases may be necessary throughout the tenure of the Company's
restructuring plans. Any such changes will be reflected in the statement of
operations as incurred, and classified in the manner discussed above.
Industry Segment Analysis
- -------------------------
Refractory Products and Minerals
Revenues for the three months of $126.4 million increased $41.9 million, or
49.6%, from $84.5 million in 1998. The increase is primarily due to contribution
from Green and Aken ($52.0 million) offset by lower sales in Chile, Mexico and
the U.S. ($10.1 million). The lower sales levels are primarily due to economic
conditions in the iron and steel industries in those markets and increased
competition from foreign imports.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Operating results for the three months of $11.2 million increased $7.4 million,
or 194.7%, from $3.8 million in 1998. The increase over the prior year is due
to the profit contribution from the combined Harbison-Walker and Green
operations of $10.0 million. The profit improvement is primarily due to cost
reductions from the integration program with Harbison-Walker offset by higher
depreciation of $.8 million for the same period. Excluding the contribution from
Green, operating results decreased $2.6 million from the prior year due to the
aforementioned sales decreases in Chile, Mexico and the U.S. offset by reduced
fixed costs in Chile and Mexico from headcount reductions and favorable
translation rates.
All Other
Revenues for the three months of $15.4 million increased $3.7 million, or 31.6%,
from $11.7 million in 1998. The increase is due to the shipment of an
electronic scrap recovery system from the Shred Tech business offset by lower
sales volume in the CTI business.
Operating results for the three months of $2.5 million increased $2.4 million
from $.1 million in 1998. The increase is due to the profit contribution from
the aforementioned sale of an electronic scrap recovery system, margin
improvements due to lower material costs and lower fixed costs from headcount
reductions.
Discontinued Operations
The Company reported a net loss of ($24.7) million from discontinued operations
which includes operating profits (net of allocated interest expense and taxes)
from APG Lime of $.1 million offset by a net loss on the sale of Ameri-Forge of
($24.8) million.
Liquidity, Capital Resources and Financial Condition
- ----------------------------------------------------
Cash and cash equivalents were $7.3 million at March 31, 1999, a decrease of
$1.1 million from $8.4 million at December 31, 1998. Net cash used by operating
activities was $23.6 million during the three month period ended March 31, 1999,
reflecting the contribution from operating earnings (excluding the loss on the
sale of Ameri-Forge) less working capital increases. Excluding cash, assets
held for sale and short-term debt, the increase in working capital during the
period of $42.2 million is due primarily to decreases in accounts payable and
other accrued liabilities of $35.1 million. Accounts payable decreased $20.1
million in the first quarter resulting from the payment of increased spending
levels in the fourth quarter of 1998 primarily from the integration of Green and
Harbison-Walker. Other accrued liabilities decreased $10.3 million primarily
due to payments relating to Ameri-Forge which is reported as a discontinued
operation. Payments for Ameri-Forge during the quarter included working capital
increases and allocated interest expense.
The Company's current ratio at March 31, 1999 of 1.2 to 1 was 4% lower than
December 31, 1998 reflecting the increased investment in working capital from
the aforementioned items.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Net cash used in investing activities was $7.8 million and $24.8 million for the
three months ended March 31, 1999 and January 31, 1998, respectively. Capital
expenditures from continuing operations of $7.1 million increased $0.7 million,
or 10.9% from $6.4 million in 1998. Refractory products and minerals made 90%
of the capital expenditures in the quarter for plant reconfiguration spending
relative to the Green/Harbison-Walker integration program.
Net cash provided by financing activities was $30.3 million and $32.3 million
for the three months ended March 31, 1999 and January 31, 1998, respectively.
At March 31, 1999, the Company had total debt of $408.7 million, resulting in a
total debt to total capitalization ratio of .65 to 1, and a total debt to
shareholder's equity of 1.92 to 1. The comparable amounts for the period ended
December 31, 1998, were total debt of $379.3 million, total debt to total
capitalization of .62 to 1, and total debt to stockholder's equity of 1.62 to 1.
On April 13, 1999, the Company sold the assets and business of APG Lime to
Chemical Lime Company, Ft. Worth, Texas, for cash consideration of $126.3
million and the assumption of $3.7 million in debt, subject to certain
post-closing adjustments. Cash proceeds from the sale were used to reduce the
debt of the Company. Subsequent to this sale, as discussed above, the total
principal amount available to the Company under the Credit Facility was reduced
from $215 million to $140 million. At May 13, 1999, borrowings outstanding under
the Credit Facility were $100 million.
At December 31, 1998 the Company amended certain provisions of the Credit
Facility and Private Placement agreements. The primary effect of the amendment
on the Credit Facility was to (i) lower the required minimum consolidate net
worth limit from $280 million to approximately $205 million, given the recent
disposition of the Ameri-Forge division, through July 31, 1999, which increases
to $325 million on August 1, 1999, and continues at such level thereafter and
(ii) reduce the facility from $215 million to $140 million effective upon
consummation of the APG Lime sale. The Private Placement agreements were amended
to provide for (i) a reduction in the required minimum consolidated tangible net
worth limit, as defined, from $280 million to approximately $205 million, given
the planned disposition of the Ameri-Forge division, which increases to $325
million on July 31, 2000 and (ii) an increase in the maximum amount of debt to
capitalization, from 55% to 64%, excluding ATA from RefMex decreasing to 45%
over the next 12 months. In addition, the Private Placement agreements require
the Company to replace or otherwise terminate its existing Credit Facility by no
later than August 1, 1999. If the Company does not, the effective interest rate
on all notes issued under the Private Placements will increase by 400 basis
points, and the Company will be required to pay a one-time fee of $875,000.
Management believes that if the Credit Facility is not replaced or renegotiated
by August 1, 1999, the Company will be in technical default of the covenant to
attain a minimum amount of consolidated net worth of $325 million by that date.
As a result, the Company has classified the $205 million outstanding under the
Credit Facility as a current liability in its consolidated balance sheet at
March 31, 1999, as required by the Emerging Issues Task Force release #86-30.
However, if the Company (i) fails to meet the minimum consolidated net worth
limit of $325 million at August 1, 1999, or (ii) fails to replace, renegotiate
or otherwise terminate the Credit Facility by August 1, 1999, a "cross default"
is probable under the Private Placements that will cause indebtedness under them
to be classified as current at that time. If such an event occurs, the Company
will either have to refinance its existing indebtedness, or it will have to seek
alternative sources of funding including, but not limited to, additional asset
sales, private and/or public placements of debt, a secondary equity offering, or
some combination thereof. There can, however, be no assurance that such actions
will be successful, or that such funding will be available to the Company at
that time.
The Company had $7.3 million in cash and cash equivalents on hand at March 31,
1999, and committed and discretionary unused lines of credit aggregating an
additional $30.9 million (including foreign lines of credit). Management
believes that internally-generated funds, borrowings under existing credit
facilities, and the proceeds from the sale of APG Lime and Ameri-Forge will be
adequate to meet working capital and capital expenditure requirements, while
maintaining an appropriate debt to total capitalization ratio.
The Company plans to renegotiate the terms of the Credit Facility by August 1,
1999, or refinance indebtedness thereunder on terms which would be more
consistent with the Company's current organizational structure and capital
requirements. Management believes, based on preliminary discussions with the
banks within the syndication, that the Company will be able to reach a
satisfactory agreement by August 1, 1999 and avoid the covenant breach discussed
above. The new agreement will, in all likelihood, contain terms that differ
from those included in the Credit Facility's current agreement, possibly
materially.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On May 3, 1999, the Company elected to exercise the optional prepayment of its
obligations under Solid Waste Disposal Revenue Bonds issued by the Industrial
Development Board of the City of Eufaula, Alabama. The called bonds were issued
in November 1996, carried a principal amount of $5.7 million at an interest rate
of 5.85%, and were scheduled to mature in November 2006. A penalty of $171,000
was paid for early termination of the bonds.
Year 2000 Issue
- ---------------
The Company has already completed its information systems
implementation/modification for its domestic, Canadian and Mexican operations
and Refmex. Chilean and German operations are scheduled to be completed by the
end of the second quarter of 1999. A significant portion of the Company's
direct risk in the information system area will be mitigated by the
implementation of these new accounting, finance and operating systems. Although
not purchased specifically for the purpose of avoiding such risks, these systems
are, nevertheless, fully "Year 2000" compliant. Testing of telecommunications
hardware and software has identified some voice mail software that requires
upgrading. Upgrades at some sites are already complete.
With respect to embedded technology other than information systems, the Company
has assessed its risk of major malfunctions to be relatively low at its
continuing operations, since most of its production machinery and equipment is
not numerically controlled. Harbison-Walker and Green plants have conducted
tests of their production equipment. Only one machine exhibited a problem and
corrective measures are being made. In any event, non-Year 2000 compliance would
have only a minimal impact on manufacturing capacity. However, as a
precautionary measure, the Company plans to curb the use of kilns at its
refractory operations on December 31, 1999 and January 1, 2000, in order to
prevent potential disruptions. This act is not expected to have a material
impact on the Company's results of operations. Ameri-Forge has several
numerically controlled machines, such as presses, rolling mills, heat treatment
equipment and multi-dimensional drills and lathes; most of which has been
purchased within the last 36 months. The Company is currently working with the
equipment's manufacturers to obtain Year 2000 compliance information and perform
compliance testing.
Management believes that potential malfunctions occurring within its information
systems environment can be mitigated with manual processing of transactions.
However, the risk of disruptions to operations caused by non-Year 2000 compliant
systems of customers, suppliers and unrelated third parties remains. Likewise,
the Company does not have contingency plans in place to envoke, should such an
event, or series of events occur. The
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
possibility does therefore exist that any such disruptions could have an adverse
effect on the Company.
The Company expenses all Year 2000 costs as incurred. Through March 31, 1999,
less than $100,000 of costs had been incurred in the Company's efforts to
achieve Year 2000 compliant systems (exclusive of costs associated with the
purchase and installation of new hardware and software, more fully discussed
above). The ultimate total cost to the Company of achieving Year 2000 compliant
systems is currently estimated to be less than $500,000, to be expended
primarily in the 1999 timeframe. The Company has increased its overall
information systems budget to accommodate the aforementioned Year 2000
compliance projects, but has not delayed other critical information systems work
due to these efforts. Incremental costs incurred strictly due to Year 2000
compliance issues are not expected to have a material impact on the Company's
results of operations, financial condition or liquidity.
Item 3. Quantitative and qualitative disclosures about market risk.
Information about market risks for the three months ended March 31, 1999 does
not differ materially from that discussed under Item 7A of the registrant's
Annual Report on Form 10-K for 1998.
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,
DISRUPTIONS TO OPERATIONS CAUSED BY NON-YEAR 2000 COMPLIANT SYSTEMS OF UNRELATED
THIRD PARTIES, 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.
19
<PAGE>
Part II - Other Information
Item 6: Exhibits and reports on Form 8-K.
(a) Exhibits
10.32 Schedule 14A (Rule 14a-101) Proxy Statement information;
filed February 23, 1999.
10.33 Schedule 14A (Rule 14a-101) Proxy Statement information;
filed March 29, 1999.
10.34 Amendment and Supplement to 14D-9, Amendment #8, Items #3,
#7 and #9, to Severance Agreement and press release
(Incorporated as Exhibits 18 & 19); filed March 29, 1999.
10.35 Amendment and supplement to 14D-9, Amendment #9, Item #7,
Third Amendment to Stock Purchase Agreement between
Global Industrial Technolgies, Inc., A. P. Green
Industries, Inc. and Chemical Lime Company and press
release dated April 1, 1999 (Incorporated by reference as
Exhibits 20 & 21); filed April 5, 1999.
10.36 Amendment and supplement to Schedule 14D-9, Amendment
#12, Item #9, text of shareholder letter and proxy card
(Incorporated by reference as Exhibit 23); filed April 30,
1999.
10.37 Schedule 14A, text of shareholder letter and proxy card,
dated April 29, 1999; filed April 30, 1999.
(b) Reports on Form 8-K
Form 8-A/A Fourth Amendment to Rights Agreement; filed February
16, 1999.
Form 8-K filed March 9, 1999, Chemical Lime Stock Purchase
Agreement.
Form 8-K filed April 5, 1999, Third Amendment to Stock Purchase
Agreement.
20
<PAGE>
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: May 17, 1999
21
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