<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.
                                   FORM 10-K

           [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
                  For the fiscal year ended October 31, 1997

                        Commission File Number 1-11160

                     GLOBAL INDUSTRIAL TECHNOLOGIES, INC.
            (Exact name of registrant as specified in its charter)

             DELAWARE                                  75-2617871
  (State or other jurisdiction of         (I.R.S. Employer Identification No.)
   incorporation or organization)
 
2121 SAN JACINTO, SUITE 2500, DALLAS, TEXAS                   75201
 (Address of principal executive offices)                   (Zip Code)
 
                 (Registrant's telephone number)(214) 953-4500

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
 
                                                NAME OF EACH EXCHANGE
         TITLE OF EACH CLASS                     ON WHICH REGISTERED
 
  Common Stock, Par Value $0.25 Per Share     New York Stock Exchange, Inc.
  Preferred Stock Purchase Rights             New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.  Yes  X    No
                           ----      ----       

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

The aggregate market value of the voting stock (based on the closing price on
the New York Stock Exchange as of December 31, 1997 held by non-affiliates of
the registrant was approximately $371,154,791.

As of December 31, 1997, there were 21,913,207 shares of Global Industrial
Technologies, Inc. Common Stock outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of Registrant's definitive 1998 proxy statement filed or to be filed
pursuant to Regulation 14A are incorporated by reference into Part III of this
Form 10-K.
<PAGE>
 
                                    PART 1

1. BUSINESS

  During 1997, Global Industrial Technologies, Inc., a Delaware corporation
(Global Industrial Technologies, Inc., together with its subsidiaries, either
Global or the Company), conducted its business in five segments: Refractory
Products, Minerals, Specialty Equipment Products, Forged Products and Industrial
Tool.

  In 1996, the Company included a 50% joint venture and conducted its business
in three segments: Minerals and Refractory Products, Mining and Specialty
Equipment and Industrial Tool.  The Company revised its businesses into five
segments effective with the beginning of fiscal 1997 to reflect the
divestitures, announced on January 23, 1997, of its 50% partnership interest in
KOMDRESCO of South Africa, the British Jeffrey Diamond underground mining 
equipment operation in the United Kingdom and the worldwide operations of The
Marion Power Shovel Company. The business segment revisions were also made in
anticipation of the adoption of Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
ongoing operations of the Company were organized into five segments with the
Harbison-Walker Minerals business and the Ameri-Forge forged products business
being presented as individual segments.

                                       2
<PAGE>
 
OPERATIONS OF THE COMPANY

  The Company operates in industries and markets that are highly competitive.
The demand for the Company's products is dependent upon, among other things,
general economic conditions in the industrial marketplace and, more
specifically, on U.S. iron and steel production, North American and European
automotive assembly production, U.S. aircraft production levels,  and worldwide
demand for certain refractory raw materials.  Further, the Company's domestic
and foreign operations may from time to time be adversely affected by currency
fluctuations and world economic conditions.  See Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations.

  The following sections describe the Company's five business segments and their
principal products and activities.  For financial information by segment and
geographic area, see Note N to Global's Consolidated Financial Statements, which
also provides general information concerning the business of the Company.


REFRACTORY PRODUCTS 

  Harbison-Walker Refractories Company (Harbison-Walker) and its affiliates,
which include Refmex S.A. de C.V. (Refmex), the largest Mexican producer of
refractory products, and Refractarios Chilenos S.A. (RECSA), Chilean
manufacturers of a broad line of refractory products, are leading suppliers of
refractory products and technology. Harbison-Walker manufactures over 200
refractory products in various shapes, sizes and forms. Refractories, which are
made principally from magnesite, graphite, bauxite, quartzite and fire clays,
are used in virtually every industrial process requiring heating or containment
of a solid, liquid or gas at a high temperature. Iron and steel producers, which
accounted for approximately 55 percent of the Company's 1997 refractory sales,
use the Company's products in various types of furnaces, in coke ovens and in
iron and steel handling and steel finishing operations.  Industrial markets for
the Company's refractory products include non-ferrous metals producers
(aluminum, copper and zinc), mineral processors (cement and lime), glass
producers, fossil-fueled power plants, chemical and petroleum processing plants
and general industry.


  Sales and operating revenues for Refractory Products were $335.5 million,
$300.5 million, and $295.0 million for 1997, 1996 and 1995, respectively.

MINERALS 

  Harbison-Walker collects and processes certain minerals, one of the primary
products being high-purity magnesite, which is used in the manufacture of
premium refractory products. This business, founded to be strictly an internal
source of magnesite for Harbison-Walker, is now a supplier of high-quality raw
materials to refractory manufacturers worldwide. In addition to high-purity
magnesite, the Company's products include: caustic magnesia, used in many
industrial applications, such as acid neutralization, flue gas desulfurization,
flame retardants, pharmaceuticals, animal feed and fuel additives; and fused
magnesite, used as a grain in the manufacture of refractory products and in the
manufacture of heating elements for ovens, stovetops, water heaters and other
household and industrial products. Minerals previously had been a part of the
Minerals and Refractory Products segment.

  Sales and operating revenues for Minerals were $50.0 million, $51.6 million,
and $46.3 million for 1997, 1996 and 1995, respectively.


INDUSTRIAL TOOL 

  INTOOL, Inc. and its affiliates manufacture and sell a complete product line
of high-quality pneumatic and electric tools for industrial applications,
including assembly and material removal.  Its primary products are: Cleco
pneumatic and electric tools, including assembly tools used primarily in the
electronic, aircraft and automotive markets, and maintenance and fabrication
tools supplied primarily to petroleum refineries, chemical plants, foundries,
steel mills and general industry; Quackenbush pneumatic and hydraulic precision
drilling equipment, which is used in the aircraft and aerospace industries and
in

                                       3
<PAGE>
 
mobile machining applications; Rotor fixturized and specialty engineered tools
used primarily in automotive assembly operations; Airetool cleaners and
expanders which are used by manufacturers and users of heat exchangers and
boilers of all types; and ITD Automation automated fastening systems which are
used in the automotive and heavy equipment assembly markets.

  Primary customers for product lines in the Industrial Tool segment include
automotive assembly plants, aircraft assembly plants, general industrial plants,
power generation, refineries and petrochemical plants.

  Sales and service revenues for the Industrial Tool segment were $113.2
million, $97.2 million, and $73.3 million for 1997, 1996 and 1995, respectively.


SPECIALTY EQUIPMENT PRODUCTS

  The Specialty Equipment Products segment manufactures a variety of equipment
for various industrial applications.  Its primary products are: the Unicell, a
polymer concrete cell used in the refining of non-ferrous metals, principally
the copper refining market; and shredders, crushers, vibrating feeders and coal
jigs that are sold to the general processing and recycling, forest products,
quarrying, coal processing and waste processing and recycling markets.  Its
shredders are used for materials such as tires, glass, auto bodies, paper,
carpet, precious metals retrieval and other bulk materials for the processing
and recycling market.

  Sales and service revenues for the Specialty Equipment Products segment were
$68.8 million, $50.8 million, and $31.3 million for 1997, 1996 and 1995,
respectively.

FORGED PRODUCTS

  The Ameri-Forge Corporation (Ameri-Forge), which had been included within the
former Mining and Specialty Equipment segment of the Company is a leading
manufacturer of forged steel flanges used to connect components of closed
systems for processing and transporting liquids and gases, and has undertaken
the manufacture of undercarriage parts and components for track-mounted
vehicles, such as bulldozers and excavators. This segments' products serve the
oil and gas, petrochemical, construction, food and water treatment and heavy
equipment manufacturers and users. The manufacture of undercarriage parts began
in fiscal 1997 and is expected to be the largest contributor to future growth of
Ameri-Forge, primarily in the area of aftermarket sales.

  Sales and service revenues for Forged Products were $54.1 million, $50.6
million, and $42.2 million for 1997, 1996 and 1995, respectively.


DIVESTED OPERATIONS

  On January 23, 1997, the Company announced its decision to divest a number of
business units within the Mining and Specialty Equipment segment. The business
units divested included the worldwide operations of The Marion Power Shovel
Company, the underground mining equipment business of British Jeffrey Diamond of
the United Kingdom, and the Company's 50 percent joint venture interest in
KOMDRESCO. In connection with the formal plans to divest, the Company recognized
a $43.5 million pre-tax charge to earnings.

  The Marion Power Shovel Company and its affiliates were producers of walking
and crawler draglines, electric mining shovels, and related equipment and
services used in surface mining.  The underground mining business of British
Jeffrey Diamond was a manufacturer of components such as shearers and related
equipment used in the longwall method of underground mining.  KOMDRESCO, a
general partnership in which the Company held a 50 percent interest, acted as a
distributor and licensed manufacturer of Dresser, Haulpak, Galion and Komatsu
mining and construction equipment and materials handling products in South
Africa and certain neighboring territories.

                                       4
<PAGE>

  The Jeffrey Underground Mining Equipment operation, which was primarily
engaged in the production of underground continuous mining machines, haulage
systems and related equipment used primarily in underground coal mines, was sold
on October 26, 1995. Sales of Jeffrey equipment were generally made directly to
users through the Company's sales engineers and support personnel.

 
PROFILE AND TYPE OF CUSTOMERS

  Most customers of the Company are medium to large corporations or businesses,
and medium to large distribution companies which serve them.  Major customer
groupings include large multi-plant integrated steel companies, medium single-
plant integrated steel companies, mini-mill electric furnace steel companies,
aluminum companies, cement and lime producers, flat glass and container glass
producers, chemical plants, petroleum refineries, power plants, waste
incineration companies, quarries, automotive companies, aircraft production
companies, shredding and recycling companies and copper and other mineral
refining companies. Customers are located in most geographical areas, including
North and South America, Africa, Asia, the Far East, Europe and Australia.  Many
customers are served by more than one operation of the Company.


INTERNATIONAL SALES AND EXPORTS

International sales and direct exports from the U. S. historically represent 40
to 45 percent of the Company's consolidated sales.  The Company believes that
although a particular product or geographical region may be impacted severely by
changed circumstances, the overall product market and geographical balance will
prove beneficial to the Company over an extended period.


RAW MATERIALS

  Both the Minerals and Refractory Products segments obtain their raw materials
from sources throughout the world.  Over 30 percent of all raw materials used in
production of refractories by the Company's subsidiaries is controlled by the
Company.  The remaining 70 percent is purchased from worldwide sources including
China, South Africa, South America and Canada.  Dual sources of raw materials
have been established on all critical materials and these percentages can change
somewhat depending on worldwide pricing.

  Primary materials, such as various magnesites, aluminas, chrome ores, silicas
and graphite, are purchased under long-term procurement plans.  High purity
magnesium hydroxide, a critical material to Harbison-Walker, is obtained
through an exclusive arrangement with Dow Chemical that has been in existence
for 37 years.  The current contract expires December 31, 1998.  This contract
has been extended many times and the Company anticipates further extensions.

  The Company believes that other raw materials it requires are readily
available from multiple sources and that the loss of an individual supplier
would not have a material adverse effect on the Company's ability to procure
necessary raw materials.


COMPETITION

  The industries in which the various segments of the Company operate are highly
competitive.  During the 1980's, these industries experienced significant
consolidation and retrenchment.  The Company now competes with several large
national and international companies in each segment.  Principal competitors
include A.P. Green Industries, Inc., and the North American Refractories
Division of Didier Verke in both the Minerals and the Refractory Products
segments; Anticorrosivos Industriales, Ltda. in Specialty Equipment Products;
Cooper Industries, Inc., Atlas Copco AB, Ingersoll-Rand Company and The Stanley
Works in Industrial Tools, Berco Produktion AB, and Intertractor GmbH in Forged
Products, as well as numerous short-line and specialty manufacturers with
differing manufacturing and marketing methods. Each of the Company's businesses
has a strong reputation and market position. The Company attempts to capitalize
on its reputation and market position and competes on the bases of quality,
innovation, product research and development, and market expertise as well as
price.

                                       5
<PAGE>
 
RESEARCH, DEVELOPMENT AND PATENTS

  The Company and its subsidiaries conduct research and development activities
within their particular fields for the purposes of improving existing products
and developing new ones to meet the needs of their customers. In addition,
research and development programs are directed toward development of new
products and services for diversification or expansion. Research and development
costs charged to earnings were $5.1 million in 1997, $4.9 million in 1996, and
$3.3 million in 1995.

  As of October 31, 1997, the Company beneficially owned approximately 288
patents and had pending approximately 185 patent applications, covering various
products and processes.  It also is licensed under patents owned by others.  The
Company does not believe that any patent or group of patents relating to a
particular product or process is material to the conduct of the Company's total
business.


BACKLOG

  The consolidated backlog of unshipped orders at October 31, 1997, 1996 and
1995 was $138 million, $151 million, and $161 million, respectively.  Backlog
levels vary significantly between the businesses of the Company.  Manufacturing
lead times range from less than a month to as long as 3 months. The Company
expects its entire backlog as of October 31, 1997 to have been shipped by
October 31, 1998. For the large majority of the Companys' products,
particularly industrial tools, the Company operates primarily on a book and ship
basis.  The backlog that exists is there due to either capacity constraints or
the customers' request.  The Company believes that its order backlog represents
only a portion of the net sales revenue anticipated by the Company in any given
fiscal period.  Its manufacturing plans and expenditure levels are based
primarily on its internal analysis of current market conditions, sales forecasts
and communications with customers.


SALES AND DISTRIBUTION

  The Company's products and services are marketed through various channels.  In
the United States, sales are generally made through a divisional sales
organization or through independent distributors.  Sales in other countries are
made directly by a United States division or subsidiary, through foreign
subsidiaries or affiliates, through distributor arrangements or with the
assistance of independent sales agents.

  For each of the business segments, products are sold through a combination of
direct sales by Company personnel and through distributors in the U.S., Europe
and elsewhere.  Sales agents are used to facilitate U.S. exporting where sales
volume does not justify a local sales organization.


EMPLOYEES AND LABOR RELATIONS

  As of October 31, 1997, the Company had approximately 2,612 employees in the
United States of whom approximately 1,108 were members of five unions
represented by six bargaining units.  Currently, none of the domestic locations
has more than 250 hourly employees represented by a union or bargaining unit.
As of October 31, 1997, the Company had approximately 1,650 employees at foreign
locations of whom approximately 1,001 were members of unions.

  Management believes that relations between the Company and its employees are
generally positive.


ITEM 2. PROPERTIES

  The Company, together with its subsidiaries and unconsolidated affiliates, has
more than 30 manufacturing plants, ranging in size from approximately 15,000
square feet to in excess of 667,000 square feet and totaling more than 5,000,000
square feet, located in the United States, Canada and other countries.  The
majority of the manufacturing sites are owned.  In addition, sales offices,
warehouses, service centers and stock points are maintained, almost all in
leased space, in the United States, Canada 

                                       6
<PAGE>
 
and other countries. The properties are adequate for the purposes for which they
are used. They are believed to be utilized at productive capacities generally
ranging from 50 percent to 80 percent, with the exception of Ameri-Forge where
capacity utilization is often significantly higher, and are capable of
supporting a higher level of market demand. In certain cases, an increase in
productive capacity of the facilities can be realized through the addition of an
extra shift of hourly laborers.
 
  Refractory Products has manufacturing facilities in the following locations:
Bessemer, Alabama; Fairfield, Alabama; Calhoun, Georgia; Hammond, Indiana; North
East, Maryland; Grantsville, Maryland; Windham, Ohio; West Mifflin,
Pennsylvania; Marelan, Quebec, Canada; Vandalia, Missouri; Fulton, Missouri;
Tlalnepantla, Mexico; Ramos Arizpe, Mexico; Santiago, Chile; and Concepcion,
Chile.

  Minerals has processing facilities in Eufala, Alabama and Ludington, Michigan.

  Industrial Tool has manufacturing facilities in Houston, Texas; Euclid, Ohio;
Springfield, Ohio; and Auburn Hills, Michigan.  The latter two properties are
leased with the Springfield, Ohio property being leased from and owned by a
joint venture company in which the Company has a 50 percent ownership interest.

  Specialty Equipment has manufacturing facilities in Mt. Prospect, Illinois;
Cambridge, Ontario, Canada; Woodruff, South Carolina; Green Bay, Wisconsin;
Hermosillo, Mexico; Santiago, Chile; Ghent, Belgium; Tague, South Korea and
Sydney, Australia.

    Forged Products has manufacturing facilities in Houston, Texas.


ITEM 3. LEGAL PROCEEDINGS

  The information contained in Note H to the Company's Consolidated Financial
Statements, is incorporated herein.

  Securities and Exchange Commission rules require the Company to describe
certain governmental proceedings arising under federal, state or local
environmental provisions unless the Company reasonably believes that the
proceedings will result in monetary sanctions of less than $100,000.  The
following proceedings are reported in response to this requirement.  Based on
the information currently available, the Company believes that such proceedings
are not material to the business or financial condition of the Company.

  A Facility Decommissioning and Site Restoration Plan for a facility formerly
used by one of the Company's subsidiaries located in Quebec, Canada was filed
and accepted by the Quebec environmental and mining regulatory agencies during
1997 pursuant to regulations of the Quebec Ministry of the Environment and the
Ministry of Energy and Resources. The facility was sold in July 1997. The
purchaser assumed the Company's obligations under such Plan and secured a
performance bond for the benefit of the Company to provide financial assurances
that it would be carried out.

  The Environmental Protection Agency (EPA) and certain private parties have
named the Company as a potentially responsible party (PRP) in eight
Comprehensive Environmental Response Compensation and Liability Act Sites
(CERCLA), also known as superfund sites. The Company does not believe that it
contributed hazardous wastes at four of these sites. At a fifth site, a
settlement was paid in the amount of $5,000 in November 1996. The Company
believes that it is a de minimis or de micros contributor to the three remaining
                      ----------    ---------
CERCLA sites.

  A Company subsidiary received an order from the Commonwealth of Pennsylvania
in 1991 demanding remediation of a tract of land, a portion of which had been
mined under lease by Harbison-Walker Refractories Company for a period of time
prior to 1972. In March 1997, the Commonwealth's claim was fully resolved by 
entry of a consent decree providing for payment by the subsidiary of $775,000 
over the following five years.

                                       7
<PAGE>
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

  No matter was submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year ended October 31, 1997.

                                       8
<PAGE>
 
                                    PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

  Common Stock of Global Industrial Technologies, Inc. is traded on the New York
Stock Exchange under the symbol GIX. Global has not paid any dividends since it
became a publicly owned company.  The first day that Global's Common Stock was
traded on the New York Stock Exchange was August 3, 1992.  As of December 31,
1997, there were 7,434 holders of record of the Common Stock of Global.  The
high and low sales prices for Global's Common Stock during each quarterly period
for fiscal 1997 and 1996 are set forth below:

<TABLE>
<CAPTION>
 
 
  1997                      High         Low            
  ----                      ----         ----        
  <S>                      <C>          <C>             
  Quarter Ended:                                           
  January 31, 1997         $22.50       $16.125        
                                                           
  April 30, 1997           $19.25       $16.875        
                                                           
  July 31, 1997            $20.75       $16.75        
                                                           
  October 31, 1997         $21.625      $15.6875        
                                                            
  1996                      High         Low             
  ----                      ----         ---         
  Quarter Ended:                                           
  January 31, 1996         $22.75       $16.50        
                                                            
  April 30, 1996           $25.00       $18.375        
                                                           
  July 31, 1996            $20.625      $16.00        
                                                            
  October 31, 1996         $20.125      $16.125     
</TABLE>

  In August 1993, the Company announced its intention to purchase up to 4.1
million shares of Common Stock. In August 1994, this was increased by 2 million
shares to provide for a total purchase potential of up to 6.1 million shares. In
1997, the Board approved the purchase of up to an additional 10 percent of the
outstanding shares at July 1, 1997, or approximately 2.2 million shares. Through
December 31, 1997, the Company had purchased approximately 6.1 million shares.
For additional information, see Note K to Global's Consolidated Financial
Statements, which note is incorporated in this Item 5 by reference.

                                       9
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>

SELECTED FINANCIAL DATA                                   1997     1996     1995     1994     1993   
                                                      ---------------------------------------------  
  CONSOLIDATED COMPANIES                                   In millions, except per share data   
                                                      ---------------------------------------------  
  <S>                                                     <C>       <C>      <C>      <C>     <C>    
                                                                                                     
  Total revenues                                          602.4     647.9    597.1    440.8   540.0  
                                                                                                     
  Earnings (loss) before cumulative effect of                                                        
  accounting changes                                       (4.4)     45.4     38.7     24.6    21.4  
                                                                                                     
  Per Share                                                (.20)     2.01     1.70     1.02     .78  

  Weighted average common shares outstanding               22.4      22.6     22.8     24.1    27.3
                                                                                                     
  Total Assets                                            807.0     752.6    584.4    477.7   460.9  
                                                                                                     
  Long-term debt                                          151.8     136.5      2.3      2.0      --    
                                                                                                     
  Total Shareholders' Equity                              284.1     299.9    261.6    273.6   287.8   
</TABLE>

<TABLE>
<CAPTION>

QUARTERLY DATA 
                                                                    Quarters Ended                
                                                    ---------------------------------------------- 
                                                        January 31   April 30  July 31   October 31  
                                                     ----------------------------------------------   
  FINANCIAL RESULTS (UNAUDITED)                           In millions, except per share data   
                                                     ----------------------------------------------  
  <S>                                                <C>           <C>       <C>       <C>           
  FISCAL 1997                                                                                        
  Total revenues                                           132.3      153.6    155.1        161.4  
  Gross profit                                              38.8       44.8     42.3         47.9  
  Total costs and expenses including income taxes          143.7      143.4    169.5        150.2  
  Net earnings (loss)                                      (11.4)      10.2    (14.4)        11.2  
  Net earnings (loss) per share                            (0.50)       .45    (0.64)         .51  
  Weighted average common shares outstanding                22.7       22.5     22.4         22.1

  FISCAL 1996                                                                                      
  Total revenues                                           149.9      155.2    171.1        171.7  
  Gross profit                                              37.6       44.2     49.1         53.6  
  Total costs and expenses including income taxes          144.3      145.0    158.0        155.2  
  Net earnings                                               5.6       10.2     13.1         16.5  
  Net earnings per share                                     .25        .45      .58          .73   
  Weighted average common shares outstanding                22.6       22.7     22.7         22.6                   
</TABLE>

                                      10
<PAGE>
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Fiscal 1997 compared with fiscal 1996
-------------------------------------

The Company had a net loss in 1997 of $4.4 million, compared to net earnings of
$45.4 million in 1996. Losses before income taxes of $6.7 million for fiscal
1997 compare to earnings before income taxes of $55.4 million in 1996,
representing a decrease of $62.1 million. This decrease reflects one-time
special charges amounting to $43.5 million, which represent the loss on the
Company's divestiture of non-core businesses announced on January 23, 1997. The
negative earnings also reflect additional non-recurring charges of $3.0 million
as a result of a write-down of certain assets (primarily inventory) within the
Specialty Equipment Products segment and a $2.7 million charge for the severance
of 72 employees at the Refractory Products segment. These factors, together with
production disruptions within the Forged Products segment and weaker-than-
anticipated demand for certain refractory raw materials sold by the Minerals
segment, are the primary causes of the Company's drop in earnings in fiscal 1997
from 1996.

Consolidated revenues of $602.4 million in 1997 were down $45.5 million from
$647.9 million in the prior year, a 7 percent decrease. The decrease in revenues
in 1997 is primarily the result of the divestiture of the Company non-core
businesses (primarily The Marion Power Shovel Company), which had generated
revenues of $116.3 million in 1996 offset by higher revenues of $35.0 million in
Refractory Products; $16.0 million in Industrial Tool; and $18.0 million in
Specialty Equipment. Revenues increased in all segments, with the exception of
Minerals where lower demand and the stronger U.S. dollar contributed to a
reduction of $1.6 million in 1997 from 1996. See further discussion in the
Industry Segment Analysis below.

Consolidated cost of sales was $427.4 million in 1997, or 7.4 percent lower than
the $461.8 million reported in 1996, due to the previously mentioned
divestitures of non-core businesses. Selling, engineering, and general and
administrative expenses were $126.3 million in 1997, versus $132.6 million in
1996, a 5 percent decrease, reflecting the effect of the divestitures, which
eliminated $16.5 million of expenses reported in 1996, offset by increases at
the Company's ongoing operations, primarily the Refractory Products segment.

Interest expense was $10.1 million in 1997 compared to $7.0 million in 1996,
which reflects the higher level of the Company's debt throughout the fiscal year
compared to the prior year.

On January 23, 1997, the Company announced plans to divest The Marion Power
Shovel Company, British Jeffrey Diamond of the United Kingdom and a partnership
interest in KOMDRESCO of South Africa. The Special Charge against earnings in
1997 of $43.5 million which resulted from these divestitures is shown as part of
Costs and Expenses for the fiscal year.

Other, net was an expense of $1.8 million for 1997 compared to income of $8.9
million in 1996. The $1.8 million of expense consisted primarily of $2.7 million
for severance expenses within the Refractory Products and Minerals segments
that result from an overall cost reduction plan that will be fully realized in
early fiscal 1998. This expense is partially offset by income from a foreign
exchange gain of $1.0 million.

The income tax provision, or benefit, was a benefit in fiscal 1997 of $2.3 or 35
percent of losses before taxes, compared to a provision of $10.0 million, or 18
percent of earnings before taxes, in 1996. The 1996 tax provision included a
benefit of $9.1 million relating to valuation allowance adjustments, that relate
primarily to reassessments of the Company's ability to realize related deferred
tax assets based upon continued worldwide profitability of the Company.

The Company's consolidated backlog of unshipped orders was $138.2 million at
October 31, 1997, compared with $151.4 million at October 31, 1996, a decrease
of $13.2 million, or 9 percent. The decrease is primarily the result of the
divestiture of The Marion Power Shovel Company which had a backlog of $20.4
million at October 31, 1996, but also included a reduction of $3.9 million, or
17 percent, within the Specialty Equipment segment, partially offset by an
increase of $19.4 million, or 40 percent, within the Refractory Products
segment.

                                       11
<PAGE>
 
Fiscal 1996 compared with fiscal 1995
-------------------------------------

The Company had net earnings in 1996 of $45.4 million, compared to net earnings
of $38.7 million in 1995, representing an improvement of $6.7 million, or 17
percent. Earnings before income taxes of $55.4 million for fiscal 1996 were
$12.9 million, or 30 percent, higher than $42.5 million in 1995. The significant
increase mainly results from the contribution of business acquisitions within
the Industrial Tool segment in early fiscal 1996 and the Specialty Equipment
segment in fiscal 1995.

Consolidated revenues of $647.9 million in 1996 were up $50.8 million from
$597.1 million in the prior year, a 9 percent increase. Revenues increased in
all segments but were substantially higher within the Industrial Tool and
Specialty Equipment segments where acquired businesses contributed approximately
$39.1 million of the revenues. Also, sales of Marion surface mining equipment
replacement parts and services increased by $21.1 million, or 23 percent. See
further discussion in the Industry Segment Analysis below.

Consolidated cost of sales was $461.8 million in 1996, or 8 percent higher than
the $428.6 million reported in 1995, due to the previously mentioned higher
sales volume. Selling, engineering, and general and administrative expenses were
$132.6 million in 1996, versus $128.9 million in 1995, a 3 percent increase,
reflecting the incremental administrative expenses associated with acquired
businesses, partially offset by cost containment actions within the existing
operations.

Interest expense was $7.0 million for 1996 compared to $4.6 million in 1995,
which reflected an increase in the Company's debt during the two year period.

Other, net was income of $8.9 million for 1996 compared to income of $7.5
million in 1995. The $8.9 million for 1996 includes miscellaneous asset sales of
$3.2 million, a favorable foreign exchange gain of $2.6 million, earnings from
partnership operations of $2.3 million, and adjustment of a previously reserved
amount for plant reconfiguration in the Refractory Products segment, offset by
a $3.0 million provision for asbestos litigation.

The provision for income taxes in 1996 was $10.0 million, or 18 percent of
earnings before taxes, compared to $3.8 million, or 9 percent of earnings before
taxes, in 1995. The tax provisions include benefits of $9.1 million in 1996 and
$9.0 million in 1995 relating to valuation allowance adjustments. The 1996 and
1995 benefits relate primarily to reassessments of the Company's ability to
realize deferred tax assets.

The Company's consolidated backlog of unshipped orders was $151.4 million at
October 31, 1996, compared with $161.0 million at October 31, 1995, a decrease
of $9.6 million or 6 percent. The most significant decrease occurred in what is
now the Divested Operations segment where the Marion surface mining equipment
backlog decreased by $45.0 million. This decrease was partially offset by
increases of $24.1 from acquisitions within the Industrial Tool and Specialty
Equipment segments and an increase of $6.6 million within the Minerals and
Refractory Products segments.


INDUSTRY SEGMENT ANALYSIS
-------------------------

Refractory Products
-------------------

The table below shows revenues and operating profit for the Refractory Products
segment which consists of Harbison-Walker, a producer of refractory products for
iron and steel producers as well as general industry; Refmex, the largest
Mexican producer of refractory products; and RECSA, the largest supplier of
refractory products to the Chilean copper and steel markets. Effective June 2,
1997, the Company acquired all of the refractory related assets of Lota-Green in
Concepcion, Chile for $13.6 million which, combined with RECSA, added production
capacity and extended the penetration of the Company's refractory products into
other South American countries included in the Mercosur trade agreement. March
27, 1997, Harbison entered into a joint venture agreement with the Siam Cement
Group to develop, build, and operate refractory plants throughout Southeast
Asia. In addition, Harbison signed a letter of intent to form a joint venture in
the Peoples Republic of China to manufacture refractories for use in China's
coal gasification industry which is scheduled to begin operation in 1998. See
Note C to the consolidated financial statements for further information.

                                       12
<PAGE>
 
<TABLE>
<CAPTION> 

In millions of dollars         1997      1996     1995
------------------------       ----      ----     ----
<S>                            <C>       <C>      <C>    
Segment revenues               335.5     300.5    295.0
Segment operating profit        26.2      28.0     30.1
</TABLE>

Revenues for 1997 improved by $35.0 million, or 11.6 percent, over 1996.  The
improvement resulted primarily from the $26 million Raytheon contract announced
in January, 1997, and a $5.9 million, or 26.4 percent,  increase at RECSA.
Segment revenues for 1996 at $300.5 million were higher by $5.5 million, or 2
percent, which resulted primarily from a 30 percent, $5.1 million increase for
1996 versus 1995 at RECSA.

Segment operating profit in 1997 was down by $1.8 million, a decrease of 6.4
percent, primarily due to the $2.7 million charge for severance. Segment
operating profit in 1996 was lower by $2.1 million, or 7 percent, compared to
1995, due mostly to lower profitability within the Harbison-Walker refractory
operation due to pressure on pricing, primarily in the steel producing industry,
and slightly higher selling costs.

In fiscal 1996, the Mexican Peso exchange rate dropped 10 percent from $.14 per
Mexican Peso to a little more than $.12 per Mexican Peso. From the latter part
of December 1994, through the end of October 1995, the Peso exchange rate fell
from approximately $.29 to $.14 per new Mexican Peso. This devaluation resulted
in a reduction in the net book value of Refmex of $38.1 million in 1995 and $3.3
million in 1996, for a total accumulated devaluation of $41.4 million which is
reflected in the cumulative translation adjustment.

Statement of Accounting Standards No. 52 (SFAS 52) requires that operations in
highly inflationary economies be accounted for as if the functional currency of
the operations were the U.S. Dollar. In November 1996 the test specified by SFAS
52 for designating highly inflationary economies was met with respect to the
Company's operations in Mexico. Effective with the quarter beginning February 1,
1997, the Company began to report its Mexican operations using the U.S. Dollar
as the functional currency instead of the Peso. Also beginning February 1, 1997,
the Company ceased to recognize deferred tax assets and liabilities for book/tax
differences that relate to balances which are translated using historical
exchange rates and that result from changes in exchange rates or indexing for
tax purposes. The effect of applying highly inflationary accounting to the
Mexican operations was not material in fiscal 1997.

Minerals
--------

The table below shows revenues and operating profit for the Minerals segment
which collects and processes magnesite, graphite, bauxite, and other raw
materials used in the production of refractories. This business, originally
founded to be strictly an internal source of magnesite for Harbison-Walker, is
now a supplier of raw materials to refractory manufacturers worldwide. Minerals
previously had been a part of the Minerals and Refractory Products segment.

<TABLE>
<CAPTION> 

In millions of dollars           1997    1996    1995
--------------------------       ----    ----    ----
<S>                              <C>     <C>     <C>
Segment revenues                 50.0    51.6    46.3
Segment operating profit          5.7    11.2     8.1
</TABLE>

Revenues of $50.0 million in fiscal 1997 were down $1.6 million, or 3 percent,
compared to 1996.  The decline is primarily due to the impact of a strengthened
U.S. Dollar versus European currencies that affected the Company's competitive
position in the European market.  Segment revenues in 1996 increased  from the
1995 level of $46.3 million to $51.6 million.  This increase of $5.3 million, or
11 percent, resulted primarily from increased exports to the European markets.

Segment operating profit declined $5.5 million, or 49 percent, to $5.7 million
in 1997 compared to $11.2 million in 1996.  The reduction was due to higher raw
material costs in 1997 compared to 1996, when favorable purchase prices were
realized on large volume purchases, that reduced profit by $1 million,
administrative and general expenses which were $.8 million higher in 1997 

                                       13
<PAGE>
 
than 1996, and a $2.9 million reduction in miscellaneous asset sales in 1997
compared to 1996. Segment operating profit in 1996 of $11.2 million was
favorable by $3.1 million, an increase of 38 percent over $8.1 million of
operating profit in 1995 due to the favorable volume and improved profitability.

Industrial Tool
---------------

The table below shows revenues and operating profit for the Industrial Tool
segment which includes operations producing a wide range of pneumatic and
electric industrial tools used in the assembly of vehicles, aircraft, heavy
equipment and small components and in materials removal. In December 1995, the
Company acquired The Rotor Tool Company (Rotor) for approximately $34.5 million.
Rotor manufactures fixturized and specialty engineered tools used primarily in
automotive assembly operations. See Note C to the consolidated financial
statements for further information.

<TABLE>
In millions of dollars         1997    1996   1995
--------------------------     ----    ----   ----
<S>                            <C>     <C>    <C>
Segment revenues               113.2   97.2   73.3
Segment operating profit        19.7   14.2    8.7
</TABLE>

Segment revenues for 1997 at $113.2 million are $16 million, or 16 percent,
higher than 1996 due to increased shipments to customers in the domestic
automotive and aircraft markets. Segment operating profit increased by $5.5
million, or 39 percent in 1997 versus 1996, due to the higher volume of
revenues. Revenues of $97.2 million for 1996 represented an increase of $23.9
million, or 33 percent versus 1995. This increase was due primarily to the
acquisition of Rotor.

Segment operating profit increased by $5.5 million, or 63 percent in 1996 versus
1995, as a result of higher sales and improved profit margins primarily with the
fixturized automated tools.


Specialty Equipment Products
----------------------------

The table below shows revenues and operating profit for the Specialty Equipment
Products segment which produces processing and recycling products used in
various industrial markets, and with the acquisition of Corrosion Technology
International, Inc. (CTI) in January 1996, advanced engineered polymer concrete
shapes, including single piece polymer concrete electrolytic refining cells used
in the copper and other non-ferrous metals refining industries. See Note C to
the consolidated financial statements for further information.

<TABLE>
In millions of dollars        1997    1996    1995
--------------------------    ----    ----    ----
<S>                           <C>     <C>     <C>
Segment revenues              68.8    50.8    31.3
Segment operating profit       1.4     4.0     1.4
</TABLE>

The segment revenues for 1997 of $68.8 million represent an increase of $18
million, or 35 percent, when compared with 1996 revenues of $50.8 million. This
increase is primarily the result of increased activity at Corrosion Technology
International, (CTI), where revenues increased $13.9 million. The segment's
consolidated revenues for 1996 of $50.8 million were higher by $19.5 million, or
62 percent, than 1995. CTI added revenue during 1996 of $20.9 million.

Segment operating profit was $1.4 million in 1997 which is a decrease of $2.6
million, or 65 percent, from 1996. The decrease resulted from a non-recurring
charge against earnings for the write-down of certain assets (primarily
inventory) of $3.0 million at the segments' Processing Equipment Group. Segment
operating profit of $4.0 million in 1996 represents an increase of $2.6 million
, or 186 percent, from 1995 which was directly related to incremental CTI sales
volume. The balance of the improvement was generated from favorable results
within the Processing Equipment Group.

                                       14
<PAGE>
 
Forged Products
---------------

The table below shows revenues and operating profit for the Forged Products
segment. Ameri-Forge is a leading manufacturer of forged steel flanges used to
connect components of closed systems for processing and transporting liquids and
gases, and in 1997 began the manufacture of undercarriage parts and components
for track mounted vehicles, such as bulldozers and excavators. Forged Products
had been included in the former Mining and Specialty Equipment segment of the
Company.

<TABLE>
<CAPTION> 

In millions of dollars        1997    1996    1995
--------------------------    ----    ----    ----
<S>                           <C>     <C>     <C>
Segment revenues              54.1    50.6    42.2
Segment operating profit       9.9    12.9     8.9
</TABLE>

The segment revenues for 1997 of $54.1 million were higher by $3.5 million, or 7
percent, from 1996 revenues due mostly to increased production capacity,
partially offset by lost or delayed production due to equipment repair and
maintenance. Revenues in 1996 were $50.6 million, which is an increase of $8.4
million, or 20 percent, over 1995 revenues of $42.2 million.

Operating profit for this segment declined in 1997 to $9.9 million from 1996
operating profit of $12.9 million, a decrease of $3.0 million, or 23 percent.
This decrease is primarily the result of the start-up of the undercarriage
product operation which incurred a loss in its pre-operating stage of $1.6
million and also due to higher production costs that resulted from lost or
delayed flange production due to equipment repair. Operating profit increased in
1996 to $12.9 million from $8.9 million in 1995 for an increase of $4.0 million,
or 45 percent, due to the increase in sales volume.


LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
----------------------------------------------------

Cash and cash equivalents were $14.9 million at October 31, 1997, an increase of
$3.4 million from October 31, 1996. Cash flow from operations was a net
provision of $14.7 million, compared to a net usage of $8.7 million for 1996.
The most significant change in operating cash in 1997 was a $30.9 million
decrease in accounts payable and accrued liabilities. Investing activities in
1997 consisted of $12.8 million used for business acquisitions net of cash
acquired, and $64.4 million in capital expenditures. The sale of The Marion
Power Shovel Company, the Company's 50 percent interest in the KOMDRESCO joint
venture, and certain other asset sales provided $58 million. Borrowings, further
discussed in the paragraph below, provided $22.0 million in 1996, net of
repayments. The Company used $13.6 to purchase common shares, net of options
exercised under employee benefit programs.

On January 31, 1996, the Company issued $75 million of unsecured, medium-term
senior notes to institutional lenders in the private placement market to provide
financing for acquisitions, primarily CTI and Rotor.  In addition, during the
last quarter of 1996, $60 million of short-term debt was converted to long term
with a due date of September 1999.  See Note G to the consolidated financial
statements.  Management believes that internally-generated funds and proceeds of
short-term borrowings under existing credit facilities will be adequate to meet
working capital and capital expenditure requirements while maintaining an
appropriate debt to total capitalization ratio.

At October 31, 1997 and 1996, the Company had short term debt of $47.2 million
and $38.9 million, respectively.  The Company's current ratio at October 31,
1997, was 1.5 to 1, compared to 1.8 to 1 at October 31, 1996.  The decrease in
the current ratio occurred in part because of an increase in short-term debt of
$8.3 million, an increase in current asbestos related liabilities of $16.8
million, a decrease in inventories and net accounts receivable of $32.9 million
and $12.8 million respectively (primarily due to the sale of Marion), partially
offset by a $22.5 million increase in asbestos insurance recoveries receivable.
Management believes that the Company's financial position will support
additional borrowing should the need arise.  As discussed in Note G to the
consolidated financial statements, the Company has discretionary lines of credit
totaling $110.0 million, of which $54.0 million was unused and available at
October 31, 1997.

                                       15
<PAGE>
 
BACKLOG
-------

The Company's backlog of unshipped orders at October 31, 1997 was $138 million,
down from $151 million at the end of fiscal 1996 which included $20 million of
Divested Operations unshipped orders. Backlog by segment was as follows:

<TABLE>
In millions of dollars                   1997  1996  1995
--------------------------               ----  ----  ----
<S>                                      <C>   <C>   <C>
Refractory Products                        67    48    36
Minerals                                   10    13    14
Industrial Tool                            14    10     3
Specialty Equipment Products               19    23     8
Forged                                     28    37    35
Divested Operations                         0    20    65
                                         ----  ----  ----
 Total                                    138   151   161
                                         ====  ====  ====
</TABLE>

Accounting Standards
--------------------

In June 1997, the Financial Accounting Standards Board released Statement No.
130, "Reporting Comprehensive Income" and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Both statements become
effective for fiscal years beginning after December 15, 1997, with early
adoption permitted. These statements require disclosure of certain components of
changes in equity and certain information about operating segments and
geographic areas of operation. No decision has been made as to when the Company
will adopt the statements. These statements will not have any effect on the
Company's results of operations, financial position or cash flows.

In February 1997, the Financial Accounting Standards Board released the
Statement of Financial Accounting Standards No. 128, "Earnings per Share". The
Statement is effective for financial statements issued for periods ending after
December 15, 1997, and specifies new standards for the computation and
presentation of earnings per share. The Company's adoption of this standard will
result in the dual presentation of "basic" and "diluted" earnings per share
calculated using the new standard. Diluted earnings per share is not expected to
materially differ from earnings per share as previously presented.

In 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of", which requires
companies to periodically evaluate the realizability of long-lived assets,
including property, plant and equipment and goodwill, based on expectations of
undiscounted cash flows and operating income. This pronouncement was adopted by
the Company as of November 1, 1996. The adoption did not have an impact on the
Company's financial position, results of operations or cash flows.

The FASB issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" in October 1995. This statement requires,
commencing with the Company's 1997 fiscal year, that the fair value of stock
options and other stock-based compensation issued to employees be either
included as compensation expense in the consolidated statement of earnings, or
disclosed in the footnotes to the consolidated financial statements on a pro-
forma basis with the effect on net income and earnings per share of such
compensation expense displayed. The Company adopted the statement on a
disclosure-only basis.

In July 1996, the Emerging Issues Task Force released consensus EITF 96-14,
"Accounting for the Costs Associated with Modifying Computer Software for the
Year 2000," which requires such modification costs to be expensed as incurred.
The Company's computer software is generally year 2000 compliant, and the
Company expects no material expenditures on the year 2000 issue.

                                       16
<PAGE>
 
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.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

  The financial statements and supplementary data of the Company begin on page
F-1 of this report.  Said information is hereby incorporated by reference into
this Item 8.


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

  Not applicable.

                                       17
<PAGE>
 
                                   PART III


ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

  Information with respect to Directors of the Company is set forth in the Proxy
Statement for the Annual Meeting of Shareholders of the Company to be held on
March 18, 1998, under the caption "Election of Directors", and is incorporated
herein by reference. Information with respect to Executive Officers of the
Company is set forth below.


                       EXECUTIVE OFFICERS OF THE COMPANY

  The following table sets forth certain information as of January 1, 1998,
concerning the persons who are Executive Officers of Global.


<TABLE>
<CAPTION>
      Name and Age                               Position and Offices with the Company
      ------------                               -------------------------------------
<S>                       <C>
J. L. Jackson (65)        Chairman of the Board of the Company effective January 1994; Chief Executive
                          Officer of the Company since October 1993; President of the Company from July 1994
                          to December 1995; Vice Chairman of the Company from October 1993 to December 1993;
                          Business consultant to the petroleum industry for more than five years prior to
                          becoming Vice Chairman and Chief Executive Officer of the Company; President and
                          Chief Operating Officer, Diamond Shamrock Corporation, Dallas, Texas, 1983 - 1986.

Graham L. Adelman (48)    Senior Vice President and General Counsel of the Company since July 1995; Secretary
                          of the Company since July 1996;  Senior Vice President, General Counsel and
                          Secretary of The Western Company of North America from 1990 to April 1995.

Juan M. Bravo (60)        Vice President of the Company and President of Harbison-Walker Refractories
                          Company since March 1996; President of Harbison-Walker International Division from
                          November 1995 to March 1996; President and Chief Executive Officer of Refmex from
                          January 1995 to November 1995; Vice President of Chemical and Refractories
                          Division of Penoles S.A De C.V., Mexico from 1990 to December 1994.

Gary G. Garrison (55)     Chief Financial Officer of the Company since December 1994; Vice President -
                          Finance and Controller of the Company since September 1993; Treasurer of the
                          Company since May 1992; Senior Vice President - Administration of the Finance
                          Division of Komatsu Dresser Company October 1988 to April 1992; Vice President of
                          Dresser Finance Corporation November 1984 to May 1992.

Thomas R. Hurst (57)      Vice President of the Company since June 1994; President of Industrial Tool
                          Division of the Company since August 1992; President of Industrial Tool Division
                          of Dresser Industries, Inc. from May 1983 to July 1992.

Jim Alleman (43)          Vice President, Human Resources of the company since August 1997; Senior Vice
                          President, Human Resources of Lomas Financial Corporation, Inc. from February 1994
                          to July 1997; Vice President of Human Resources for Pacific Enterprises Oil Company
                          (USA) from October 1991 to July 1993; Director of Strategic Planning for Pacific
                          Enterprises Oil Company (USA) from August 1990 to September 1991: Director of Human
                          Resources for Terra Resources, Inc. From July 1988 to July 1990.
</TABLE> 

                                       18
<PAGE>
 
<TABLE>
<CAPTION>
      Name and Age                               Position and Offices with the Company
      ------------                               -------------------------------------
<S>                       <C>
George W. Pasley (47)     Vice President - Communications of the Company since September 1996; Business
                          consultant from September 1995 to August 1996; Chief Financial Officer of Maxus
                          Energy Corp. from September 1994 to September 1995; Senior Vice President of Maxus
                          Energy Corp. from October 1991 to August 1994.

Mark D. Stott (41)        Vice President - Planning and Development of the Company since August  1996;
                          Director of Business Analysis of Motorola, Inc. from 1993 to 1996; Senior Manager
                          of Motorola, Inc. from 1988 to 1991.
</TABLE>

 Each executive officer serves at the pleasure of the Board of Directors of
Global.


ITEM 11.  EXECUTIVE COMPENSATION

  Information with respect to executive compensation is set forth in the Proxy
Statement for the Annual Meeting of Shareholders of the Company to be held on
March 18, 1998, under the caption "Executive Compensation  and  Other
Information", and is incorporated herein by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

  Information with respect to security ownership of certain beneficial owners
and management is set forth in the Proxy Statement for the Annual Meeting of
Shareholders of the Company to be held on March 18, 1998, under the caption
"Security Ownership of Certain Beneficial Owners and Management", and is
incorporated herein by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

  None.

                                       19
<PAGE>
 
                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) FINANCIAL STATEMENTS:

    (1) and (2) - The response to this portion of Item 14 is submitted as a
separate section of this report.

(b) REPORTS ON FORM 8-K

    None.

(c) EXHIBITS

    The exhibits as shown in the "Index of Exhibits" are filed as a part of this
 Report.

(d) FINANCIAL STATEMENT SCHEDULES - The response to this portion of Item 14 is
submitted as a separate section of this report.

                                       20
<PAGE>
 
                                  SIGNATURES

  Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Global Industrial Technologies, Inc. has duly caused this report to
be signed by the undersigned, thereunto duly authorized in the City of Dallas,
State of Texas, on January 27, 1998.

                                Global Industrial Technologies, Inc.


                                By: /s/ Gary G. Garrison
                                    ----------------------------------
                                     Gary G. Garrison
                                     Vice President - Finance,
                                     Chief Financial Officer
                                     (Principal Finance and Accounting Officer)

  Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on January 27, 1998.

     SIGNATURE                                TITLE
     ---------                                -----

*/s/ J. L. Jackson                       Chairman of the Board, Chief
-----------------------------
(J. L. Jackson)                           Executive Officer and Director
                                          (Principal Executive Officer)

/s/ Gary G. Garrison                        Vice President - Finance,
-----------------------------
(Gary G. Garrison)                            Chief Financial Officer
                                         (Principal Finance and Accounting 
                                         Officer)
 
/s/ David H. Blake                                  Director
-----------------------------
(David H. Blake)

/s/ Samuel B. Casey, Jr.                            Director
-----------------------------
(Samuel B. Casey, Jr.)

/s/ Rawles Fulgham                                  Director
-----------------------------
(Rawles Fulgham)

/s/ R. W. Vieser                                    Director
-----------------------------
(R. W. Vieser)

                                       21
<PAGE>
 
                               ANNUAL REPORT ON

                                   FORM 10-K

                            ITEM 14(a) (1) and (2)

                             FINANCIAL STATEMENTS

                          YEAR ENDED OCTOBER 31, 1997

                     GLOBAL INDUSTRIAL TECHNOLOGIES, INC.

                                 DALLAS, TEXAS

                                      F-1
<PAGE>
 
LIST OF FINANCIAL STATEMENTS

The following Global Industrial Technologies, Inc. consolidated financial
statements and report of independent accountants for the year ended October 31,
1997 are incorporated by reference in Item 8 of the Company's Annual Report on
Form 10-K for such fiscal year:

 Report of Management

 Report of Independent Accountants

 Consolidated Statements of Earnings -- Years ended October 31, 1997, 1996 and
 1995

 Consolidated Balance Sheets -- October 31, 1997 and 1996.

 Consolidated Statements of Cash Flows -- Years ended October 31, 1997, 1996 and
 1995

 Consolidated Statements of Shareholders' Equity -- Years ended October 31,
 1997, 1996 and 1995

 Notes to Consolidated Financial Statements

                                      F-2
<PAGE>
 
REPORT OF MANAGEMENT

The accompanying consolidated financial statements of Global Industrial
Technologies, Inc. have been prepared by management and have been audited by
independent accountants.  The management of the Company is responsible for the
financial information and representations contained in the financial statements
and other sections of this annual report.  Management believes that the
financial statements have been prepared in conformity with generally accepted
accounting principles appropriate under the circumstances to reflect, in all
material respects, the substance of events and transactions that should be
included.  In preparing the financial statements, it is necessary that
management make informed estimates and judgments based on currently available
information of the effects of certain events and transactions.

In meeting its responsibility for the reliability of the financial statements,
management depends on the Company's internal control structure.  This internal
control structure is designed to provide reasonable assurance that assets are
safeguarded and transactions are executed in accordance with management's
authorization and are properly recorded.  In designing control procedures,
management recognizes that errors or irregularities may occur.  Also, estimates
and judgments are required to assess and balance the relative cost and expected
benefits of the controls.  Management believes that the Company's internal
control structure provides reasonable assurance that errors or irregularities
that could be material to the financial statements are prevented or would be
detected within a timely period by employees in the normal course of performing
their assigned functions.

The Board of Directors pursues its oversight role for the accompanying financial
statements through its Audit and Finance Committee, which is composed solely of
directors who are not officers or employees of the Company.  The Committee meets
with management and internal audit to review their work and to monitor the
discharge of its responsibilities.  The Committee also meets with the
independent accountants of the Company, without management present, to discuss
internal control structure, auditing and financial reporting matters.


Dallas, Texas
December 12, 1997

                                      F-3
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and
Shareholders of Global Industrial Technologies, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Global
Industrial Technologies, Inc. and its subsidiaries at October 31, 1997 and 1996,
and the results of their operations and their cash flows for each of the three
years in the period ended October 31, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits.  We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



PRICE WATERHOUSE LLP

Dallas, Texas
December 12, 1997, except as to the last paragraph of Note C
which is as of January 19, 1998

                                      F-4
<PAGE>
 
                      CONSOLIDATED STATEMENTS OF EARNINGS


<TABLE>
<CAPTION>
In Millions Except Per Share Data - Years Ended October 31            1997      1996      1995
-----------------------------------------------------------------------------------------------
<S>                                                                 <C>       <C>       <C>
 
Revenues
  Net sales and operating revenues................................   $601.2    $646.3    $594.3
  Other...........................................................      1.2       1.6       2.8
                                                                     ------    ------    ------
Total revenues....................................................    602.4     647.9     597.1
                                                                     ------    ------    ------
Costs and expenses

  Cost of sales...................................................    427.4     461.8     428.6

  Selling, engineering, administrative and general
   expenses.......................................................    126.3     132.6     128.9

  Interest expense................................................     10.1       7.0       4.6

  Special charges.................................................     43.5        --        --

  Other, net......................................................      1.8      (8.9)     (7.5)
                                                                     ------    ------    ------

Total costs and expenses..........................................    609.1     592.5     554.6 
                                                                     ------    ------    ------ 
                                                                     
  Earnings (loss) before income taxes.............................     (6.7)     55.4      42.5

Income tax (provision) benefit....................................      2.3     (10.0)     (3.8)
                                                                     ------    ------    ------

  Net earnings (loss).............................................   $ (4.4)   $ 45.4    $ 38.7
                                                                     ======    ======    ======

Earnings (loss) per common share..................................   $ (.20)   $ 2.01    $ 1.70
                                                                     ======    ======    ======

Weighted average common shares outstanding........................     22.4      22.6      22.8
                                                                     ======    ======    ======
                                                                               
</TABLE>



          See Accompanying Notes to Consolidated Financial Statements

                                      F-5
<PAGE>
 
                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
In Millions - As of October 31                              1997     1996
---------------------------------------------------------------------------
                            ASSETS                       
<S>                                                        <C>      <C>
Current Assets                                           
    Cash and cash equivalents............................   $ 14.9   $ 11.5

    Notes and accounts receivable
    Public...............................................    113.7    129.2
    Unconsolidated affiliates............................      5.1       .7
                                                            ------   ------
                                                             118.8    129.9

    Less allowance for doubtful receivables..............      3.2      1.5
                                                            ------   ------
                                                             115.6    128.4

    Inventories - net
    Finished products and work in process................     59.1     93.0
    Raw materials and supplies...........................     41.6     40.6
                                                            ------   ------
                                                             100.7    133.6

    Deferred income taxes................................     56.1     54.5

    Asbestos insurance recoveries receivable.............     65.1     42.6

    Prepaid expenses.....................................      3.7      4.9
                                                            ------   ------

    Total Current Assets.................................    356.1    375.5
                                                            ------   ------

Investments in unconsolidated affiliates.................      5.3     20.5

Noncurrent deferred income taxes.........................     28.7      5.1

Goodwill - net...........................................     80.4     82.2

Other assets.............................................     93.5     71.6

Property, plant and equipment - at cost

    Land, land improvements and mineral deposits.........     34.0     33.0

    Buildings............................................     81.3     88.9

    Machinery and equipment..............................    355.9    354.6
                                                            ------   ------
                                                             471.2    476.5

    Less accumulated depreciation, depletion and
        amortization.....................................    228.2    278.8
                                                            ------   ------

    Total Properties - net...............................    243.0    197.7
                                                            ------   ------

TOTAL ASSETS.............................................   $807.0   $752.6
                                                            ======   ======
</TABLE>



          See Accompanying Notes to Consolidated Financial Statements

                                      F-6
<PAGE>
 
                          CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In Millions - As of October 31                                       1997      1996
------------------------------------------------------------------------------------
              LIABILITIES AND SHAREHOLDERS' EQUITY                  
<S>                                                                <C>       <C>
Current Liabilities
    Accounts payable.............................................   $ 46.2    $ 44.8
    Notes payable and current portion of long-term debt..........     47.2      38.9
    Advances from customers on contracts.........................      5.0       3.3
    Accrued compensation and benefits............................     26.6      26.4
    Accrued taxes other than income taxes........................      3.1       3.7
    Insurance reserves...........................................     11.7      13.2
    Income taxes currently payable...............................     13.6      14.1
    Current deferred income taxes................................     14.1       7.6
    Asbestos related liabilities.................................     56.9      40.1
    Other accrued liabilities....................................     21.0      15.1
                                                                    ------    ------
    Total Current Liabilities....................................    245.4     207.2
                                                                    ------    ------

Long-term debt...................................................    151.8     136.5

Postretirement benefits..........................................     47.6      49.2

Noncurrent deferred income taxes.................................     17.0       7.5

Other liabilities................................................     61.1      52.3

Shareholders' Equity
    Preferred stock, 10,000,000 authorized
    Common stock, $.25 par value
        Authorized shares:  100,000,000
        Issued 27,363,697 shares at October 31, 1997 and 1996
        Outstanding 21,994,809 shares at October 31, 1997 and
         22,680,190 at October 31, 1996..........................      6.8       6.8
    Capital in excess of par value...............................    382.1     382.8
    Retained earnings............................................     25.5      29.9
    Cumulative translation adjustment............................    (50.3)    (56.0)
    Treasury stock, at cost......................................    (73.7)    (60.8)
    Other........................................................     (6.3)     (2.8)
                                                                    ------    ------

    Total Shareholders' Equity...................................    284.1     299.9
                                                                    ------    ------
Commitments and Contingencies
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......................   $807.0    $752.6
                                                                    ======    ======
</TABLE>



          See Accompanying Notes to Consolidated Financial Statements

                                      F-7
<PAGE>
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
In Millions - Years Ended October 31                                       1997      1996     1995
---------------------------------------------------------------------------------------------------
<S>                                                                       <C>      <C>       <C>

Cash flows from operating activities:
  Net earnings (loss)..................................................   $ (4.4)  $  45.4   $ 38.7
  Adjustments to reconcile net earnings to net cash provided by
   operating activities:
    Depreciation, depletion and amortization...........................     22.3      18.7     16.1
    Earnings from partnership operations...............................       --      (2.3)    (2.7)
    (Gain)loss on sale of assets.......................................     43.5      (1.5)    (9.4)
    Deferred income tax provision (benefit)............................     (9.2)      1.9      1.9
  Change in assets and liabilities net of effects of acquisitions
   and divestitures:
    Increase in receivables............................................     (2.2)    (11.8)   (15.9)
    Increase in inventories............................................     (2.9)    (13.8)   (10.1)
    Increase (decrease) in accounts payable and accrued liabilities....    (30.9)    (30.3)    19.3
    Increase (decrease) in advances from customers on contracts........      2.5     (13.5)     9.3
    Increase (decrease) in current income taxes payable................      (.9)      3.9       .6
    Other, net.........................................................     (3.1)     (5.4)   (11.8)
                                                                          ------   -------   ------
Net cash provided by (used in) operating activities....................     14.7      (8.7)    36.0
                                                                          ------   -------   ------

Cash flows from investing activities:
    Business acquisitions, net of cash acquired........................    (12.8)    (75.6)   (37.8)
    Proceeds from sale of assets.......................................     58.1       2.3     24.8
    Liquidation of investment in unconsolidated subsidiary.............       --        --      5.6
    Capital expenditures...............................................    (64.4)    (53.7)   (34.8)
                                                                          ------   -------   ------
Net cash used in investing activities..................................    (19.1)   (127.0)   (42.2)
                                                                          ------   -------   ------

Cash flows from financing activities:
    Proceeds from borrowings...........................................     23.4     135.0    103.1
    Reduction of debt..................................................     (1.4)     (8.4)   (93.3)
    Options exercised under employee benefit plans.....................      1.9       2.8       .9
    Purchase of common shares..........................................    (15.5)     (2.8)    (8.7)
                                                                          ------   -------   ------
Net cash provided by financing activities..............................      8.4     126.6      2.0
                                                                          ------   -------   ------

Effect of translation adjustments on cash..............................      (.6)      (.5)    (2.0)
                                                                          ------   -------   ------

Net increase (decrease) in cash and cash equivalents...................      3.4      (9.6)    (6.2)


Cash and cash equivalents, beginning of year...........................     11.5      21.1     27.3
                                                                          ------   -------   ------ 
                                                                                   
Cash and cash equivalents, end of year.................................   $ 14.9   $  11.5   $ 21.1 
                                                                          ======   =======   ======
 
</TABLE>
 


          See Accompanying Notes to Consolidated Financial Statements

                                      F-8
<PAGE>
 
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                              Retained
                                Capital       Earnings       Cumulative                           Total
                       Common  in Excess    (Accumulated    Translation   Treasury            Shareholders'
In Millions            Stock     of Par       Deficit)       Adjustment     Stock     Other       Equity
-----------------------------------------------------------------------------------------------------------
<S>                    <C>     <C>         <C>              <C>           <C>        <C>      <C>
Balance,
October 31, 1994.....    $6.8     $383.3        $(54.2)       $ (8.3)       $(53.4)   $ (.6)         $273.6

Net earnings.........                             38.7                                                 38.7

Shares purchased
 during the year.....                                                         (8.7)                    (8.7)

Options exercised
 under employee
 benefit plans.......                (.1)                                       .9                       .8

Currency
 translation
 adjustments.........                                          (38.0)                                 (38.0)

Other................                                                                  (4.8)           (4.8)
                         ----     ------        ------        ------        ------    -----          ------

Balance,
October 31, 1995.....     6.8      383.2         (15.5)        (46.3)        (61.2)    (5.4)          261.6

Net earnings.........                             45.4                                                 45.4

Shares purchased
 during the year.....                                                         (2.8)                    (2.8)

Options exercised
 under employee
 benefit plans.......                (.4)                                      3.2                      2.8

Currency
 translation
 adjustments.........                                           (9.7)                                  (9.7)

Other................                                                                   2.6             2.6
                         ----     ------        ------        ------        ------    -----          ------

Balance,
October 31, 1996.....     6.8      382.8          29.9         (56.0)        (60.8)    (2.8)          299.9

Net earnings (loss)..                             (4.4)                                                (4.4)

Shares purchased
 during the year.....                                                        (15.5)                   (15.5)

Options exercised
 under employee
 benefit plans.......                (.7)                                      2.6                      1.9

Currency
 translation
 adjustments.........                                            5.7                                    5.7

Other................                                                                  (3.5)           (3.5)
                         ----     ------        ------        ------        ------    -----          ------
Balance,
October 31, 1997.....    $6.8     $382.1        $ 25.5        $(50.3)       $(73.7)   $(6.3)         $284.1
                         ====     ======        ======        ======        ======    =====          ======
</TABLE>

          See Accompanying Notes to Consolidated Financial Statements

                                      F-9
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE A - GENERAL INFORMATION AND BASIS OF PRESENTATION

GENERAL INFORMATION

As a result of a reorganization on November 1, 1995 into a holding company
structure, all issued shares of INDRESCO Inc. Common stock were converted on
that date on a share-for-share basis into shares of Common Stock, $.25 par
value, of Global Industrial Technologies, Inc. (Global or the Company).

The Company's businesses include the Harbison-Walker Refractories Company,
Refractarios Mexicanos, S.A. de C.V. (Refmex) and Refractarios Chilenos S.A.
(RECSA) refractory operations, Ameri-Forge forged flange and undercarriage
components, Corrosion Technologies, Inc. (CTI), polymer concrete products for
various applications, materials processing and recycling equipment products, and
INTOOL industrial tool products.  See Note C for information on operations
divested.

BASIS OF PRESENTATION

Certain prior year amounts have been reclassified to conform to the current year
presentation.

                                      F-10
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

CONSOLIDATION

All majority-owned subsidiaries are consolidated and all material intercompany
accounts and transactions are eliminated.  Investments in 20 to 50 percent owned
partnerships are accounted for on the equity method.  Investments in other
companies that are less than 20 percent owned are accounted for on the basis of
the Company's cost.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

FINANCIAL INSTRUMENTS

The fair value of financial instruments is determined by reference to various
market data and other valuation techniques as appropriate. Unless otherwise
disclosed, the fair values of financial instruments approximate their recorded
values.

CASH EQUIVALENTS

Cash and cash equivalents include cash on hand and investments with a purchased
original maturity of three months or less.

INVENTORIES

Inventories are valued at the lower of cost or market.  The cost of most U.S.
inventories is determined using the last-in, first-out (LIFO) method and
includes direct labor, direct material and manufacturing burden.  The valuation
of inventories not on LIFO is determined using average cost.

GOODWILL

The excess of cost over the fair value of net assets acquired in an acquisition
(goodwill) is being amortized on a straight-line basis. The goodwill (see Note
C) associated with the CTI and Rotor acquisitions is being amortized over 40
years.  The balance of goodwill, relating primarily to the Ameri-Forge and
Shred-Tech acquisitions, is being amortized principally over 20 years.  The
recoverability of goodwill is assessed by the Company on an ongoing basis by
comparing the undiscounted value of expected future operating cash flows in
relation to its net capital investment in the underlying business.  In the event
the net capital investment exceeds undiscounted cash flows, impairment loss is
recognized for the excess of the book value of goodwill over the present value
of expected future operating cash flows.

Amortization expense was $3.0 million, $2.6 million, and $1.2  million for the
years ended October 31, 1997, 1996 and 1995, respectively. Accumulated
amortization at October 31, 1997 and 1996 was $7.1 million and $4.1 million,
respectively.

                                      F-11
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)

PROPERTY, PLANT AND EQUIPMENT

Fixed assets are recorded at cost and are depreciated over their estimated
service lives primarily on a straight-line basis.  Accelerated depreciation
methods are used for tax purposes whenever permitted.  Due to the large number
of asset classes, it is not practicable to state the rates used in computing the
provisions for depreciation.  Depletion of mineral properties is based upon
estimates of economically recoverable tonnage.  Maintenance and repairs are
expensed as incurred; improvements are capitalized.

Property, plant and equipment are reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount of an asset or group of
assets may not be recoverable.  The impairment review includes a comparison of
future cash flows expected to be generated by the asset or group of assets with
their associated carrying value.  If the carrying value of the asset or group of
assets exceeds expected cash flows (undiscounted and without interest charges),
and impairment loss is recognized to the extent carrying amount exceeds fair
value.

POSTRETIREMENT BENEFITS

The Company has pension plans covering substantially all employees.  These plans
are funded sufficiently to at least meet minimum funding requirements under
applicable law.  The Company accrues the estimated costs of pension and other
retiree benefits during the employees' active service period.

ENVIRONMENTAL LIABILITIES

Liabilities and estimated insurance recoveries receivable for the Company's
asbestos related claims are presented on a gross basis in the accompanying
consolidated balance sheet.

INCOME TAXES

The Company calculates deferred income taxes in accordance with Statement of
Financial Accounting Standards No. 109 using an asset and liability approach.
Valuation allowances against deferred tax assets are provided where appropriate.

TRANSLATION OF FOREIGN CURRENCIES

For subsidiaries in countries which do not have highly inflationary economies,
asset and liability accounts are translated at rates in effect at the balance
sheet date, and revenue and expense accounts are translated at the current rates
on the dates of the transactions. Translation adjustments are shown as a
separate component of shareholders' equity.

For subsidiaries in countries with highly inflationary economies, cost of sales,
inventories, property, plant and equipment and related depreciation are
translated at historical rates.  Other asset and liability accounts are
translated at rates in effect at the balance sheet date, and revenues and
expenses excluding cost of sales and depreciation are translated at the current
rates on the dates of the transactions.  Translation adjustments are reflected
in the statement of earnings.

The Company began reporting its Mexican operations as highly inflationary
beginning with the quarter ended April 30, 1997, which is the first reporting
period for the Company beginning after December 31, 1996.  This change was made
in accordance with SFAS 52, "Foreign Currency Translation".  The effect of this
change was not material to the Company's results during fiscal 1997 as the
exchange rate between the U.S. Dollar and the Mexican  Peso remained relatively
constant.  The Company has no other operations in highly inflationary economies.

The Company's export sales are normally denominated in U.S. dollars.

EARNINGS PER SHARE

The Company's earnings per share calculation is based on the weighted average
number of shares of common stock and dilutive common stock equivalents 
outstanding during the fiscal year.

                                      F-12
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE C - ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

On June 2, 1997, the Company purchased the refractory business and related
assets of Refractarios Lota-Green Limitada (Lota-Green), which had its principle
place of business in Concepcion, Chile, for $13.6 million.  The acquisition was
accounted for using the purchase method of accounting and the assets and
liabilities of Lota-Green were recorded at their fair values at the date of
acquisition.  Results of Lota-Green's operations are included in the
accompanying consolidated statement of earnings for the period subsequent to
June 2, 1997.

On January 12, 1996, the Company acquired substantially all of the assets of
Corrosion Technologies, Inc. (CTI) for $36.3 million in cash and assumed
liabilities of $11.6 million.  CTI, an international group of companies, has
developed and patented advanced polymer concrete tankhouse cells used in the
electrolytic refining of copper and other metals.  The acquisition  was
accounted for as a purchase and included $38.3 million of goodwill which will be
amortized over a 40 year period.  CTI results have been  reported as part of the
Specialty Equipment segment since the date of acquisition.

On December 21, 1995, the Company acquired 100 percent of the outstanding stock
of The Rotor Tool Company (Rotor) for $34.5 million.  Rotor is a manufacturer of
fixturized and specialty engineered electric and pneumatic tools used primarily
in automotive assembly operations. The acquisition was accounted for as a
purchase and includes $22.5 million of goodwill which will be amortized over a
40 year period. Rotor's financial results since acquisition have been included
as part of the Industrial Tool segment's earnings.

On February 23, 1995, the Company acquired the outstanding stock of Shred-Tech
Capital Corp., a Canadian corporation (Shred-Tech), for $5.8 million in cash and
a note payable of $.2 million.  Shred-Tech is engaged in the business of
designing, manufacturing, leasing, selling, installing and servicing electric
and hydraulic shredders and related products.  The acquisition was accounted for
as a purchase and the results of operations of Shred-Tech have been included as
part of the Specialty Equipment segment from the date of acquisition. Goodwill
of $5.1 million was recorded in connection with the acquisition and will be
amortized over a 20 year period.

On December 1, 1994, the Company purchased substantially all of the assets of
Refractarios Chilenos S.A., and Construcciones Refractarias S.A., Chilean
corporations (RECSA), for approximately $15.5 million in cash and $2.9 million
of assumed liabilities.  Both companies are Chilean manufacturers of a broad
line of refractory products.  The acquisitions were accounted for as purchases
and the results of both have been reported as part of the Refractory Products
segment from the date of acquisition.

On November 1, 1994, the Company acquired over 99 percent of the outstanding
stock of Ameri-Forge Corporation (Ameri-Forge) from Societe General de Forge,
S.A., a Luxembourg corporation, for $16.5 million in cash.  The remaining
outstanding stock was acquired in 1995.  Under the terms of the purchase
agreement, additional consideration was payable on December 31, 1995, 1996, and
1997 as certain levels of earnings before interest and taxes were attained for
these three years.  In accordance with the terms of the agreement, $.5 million
of additional consideration was paid both in December 1995 and 1996, and $1.2
million was paid in December 1997, increasing the goodwill originally recorded.
Ameri-Forge is a Houston, Texas based manufacturer of forged flanges used to
connect components of closed systems for processing and transporting liquids and
gases and, recently, began the manufacture and sale of forged components used in
the undercarriage assemblies of tracked vehicles.  The acquisition was accounted
for as a purchase and originally included approximately $9.5 million of goodwill
which will be amortized over a 20 year period.  The results of operations of
Ameri-Forge are reported as the Forged Products segment.

                                      F-13
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE C - ACQUISITIONS AND DIVESTITURES (CONTINUED)

ACQUISITIONS (CONTINUED)

The following summary presents the consolidated results of operations for the
years ended October 31, 1997, 1996 and 1995 on an unaudited pro forma basis, as
if the Lota-Green acquisition had occurred as of November 1, 1995, and as if the
CTI and Rotor acquisitions had occurred as of November 1, 1994 (with appropriate
adjustments for amortization of intangible assets, depreciation expense,
interest expense and related income tax effects).  The pro forma operating
results are for illustrative purposes only and do not purport to be indicative
of the actual results which would have occurred had the transactions been
consummated as of those earlier dates, nor are they indicative of results of
operations which may occur in the future.

<TABLE>
<CAPTION>
In Millions Except Per Share Data     Years ended October 31,
-----------------------------------   -----------------------
                                       1997     1996    1995
                                      ------   ------  ------
<S>                                   <C>      <C>     <C>
Revenues...........................    612.9    670.2   646.2
Net income (loss)..................     (2.9)    47.3    40.5
Earnings (loss) per share..........     (.13)    2.09    1.78

</TABLE>

DIVESTITURES

In January 1997, the Company sold its joint venture interest in KOMDRESCO.  Also
in January, the Company announced its strategic decision to divest itself of the
surface mining equipment business and its underground mining equipment business
in the United Kingdom. The divestitures of both businesses were completed in
1997.

In connection with these divestitures, the Company recognized losses of $43.5
million, which are presented as Special Charges in the accompanying consolidated
statement of earnings.  The loss provision primarily reflects the difference
between proceeds received and book value of net assets sold.  The loss provision
also includes $6 million for severance pay related to the termination of
substantially all surface mining equipment business employees.  The Company
retained the business' U.S. real property, which is being held for sale  at
October 31, 1997 and is included in Other assets in the amount of $2.5 million
in the accompanying consolidated balance sheet.

In October 1995, the Company sold certain of the assets of its Jeffrey
underground mining equipment operations in the U.S. and Australia. The Company
recognized a gain on this transaction of $2.6 million, which is included in
Other, net in the consolidated statements of earnings.

In July 1995, the Company recognized a gain on the sale of certain mineral
rights of $4.9 million. In addition, the Company recorded non-recurring charges
of $2.0 million to write off-certain assets and $2.3 million to write down the
value of a graphite production facility. These amounts have been included in
Other, net in the consolidated statements of earnings.

In July 1995, the Company sold certain excess land adjacent to its operating
facility in the United Kingdom for net proceeds of approximately $2.0 million.
The Company recognized a gain on this transaction of $1.9 million, which is
included in Other, net in the consolidated statement of earnings.

In September 1994, Komatsu Dresser Company  exercised its option to liquidate
the Company's remaining 19 percent interest in a joint venture to distribute
construction equipment as part of a liquidation agreement originally executed on
September 30, 1993.  With the liquidation of the remaining 19 percent interest,
the Company received the book value of the investment, or $38 million, with $32
million in cash at closing, another $1 million in October 1994, and the
remaining $5 million in fiscal 1995.

                                      F-14
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE C - ACQUISITIONS AND DIVESTITURES (CONTINUED)

ACQUISITION SUBSEQUENT TO THE BALANCE SHEET DATE

On December 31, 1997, the Company acquired all of the outstanding shares of
Magnesitwerk Aken GmbH, a refractory products company located in Aken, Germany,
for approximately $8.4 million (including $2.0 million which may be payable over
a three year period if certain earnings considerations are met). The balance 
sheet of the acquired company included $14.2 million of non-recourse debt. The 
acquisition will be accounted for as a purchase.


NOTE D - UNCONSOLIDATED AFFILIATES

The Company, through a subsidiary, had a 50 percent ownership interest in
KOMDRESCO, a general partnership which manufactured and distributed certain
construction and mining equipment in South Africa and neighboring countries.  In
January 1997, the Company sold its interest in KOMDRESCO.  See Note C for
further information.  KOMDRESCO's revenues for the years ended October 31, 1996,
and 1995 were $107.0 million, and $75.7 million,  respectively.  The Company's
investment in KOMDRESCO at October 31, 1996 was $14.6 million.  The Company's
share of partnership earnings for KOMDRESCO was $2.1 million and $2.2 million
for the years ended October 31, 1996, and 1995, respectively, and is included in
Other, net in the accompanying consolidated statements of earnings.


NOTE E - INVENTORIES

Inventories on the LIFO method were $40.3 million and $57.8 million at October
31, 1997 and 1996, respectively.  The excess of average cost, which approximates
replacement or current costs, over the LIFO values would have been $31.2
million and $41.6 million at October 31, 1997 and 1996, respectively.


NOTE F - INCOME TAXES

The components of earnings (loss) before income taxes for the years ended
October 31, 1997, 1996 and 1995 included the following:

<TABLE>
<CAPTION>
In Millions      1997     1996    1995
                -----------------------
<S>             <C>      <C>     <C>
 
Domestic......  $(19.3)  $ 25.1    13.6
Foreign.......    12.6     30.3    28.9
                ------   ------  ------
                $ (6.7)  $ 55.4    42.5
                ======   ======  ======
</TABLE>

                                      F-15
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F - INCOME TAXES (CONTINUED)

The provision for income taxes for the years ended October 31, 1997, 1996 and
1995 consisted of the following:

<TABLE>
<CAPTION>
In millions                       1997    1996    1995
                                 ----------------------
<S>                              <C>     <C>     <C>
                               
Current tax provision
 U.S. Federal.................   $  1.3      .7
 State........................      (.1)     .1      .1
 Foreign......................      5.7     7.3     1.8
                                 ------  ------  ------
                                    6.9     8.1     1.9
                                 ------  ------  ------

Deferred tax provision
  (benefit)
 U.S. Federal.................    (13.2)     .7      .8
 Foreign......................      4.0     1.2     1.1
                                 ------  ------  ------
                                   (9.2)    1.9     1.9
                                 ------  ------  ------
  Income tax provision
    (benefit).................   $ (2.3)   10.0     3.8
                                 ======  ======  ======
</TABLE>
                                                                               
The following is a reconciliation of the provision for income taxes at the U.S.
federal income tax rate to the income taxes reflected in the consolidated
statements of earnings:

<TABLE>
<CAPTION>
In millions                       1997    1996    1995
                                 ----------------------
<S>                              <C>     <C>     <C>
 
Income tax expense at
  statutory rate..............   $ (2.3)   19.4    14.9
Valuation allowances..........             (9.1)   (9.0)
Outside partnership basis
  differences.................                     (3.1)
Taxability of foreign
  subsidiary earnings.........       .2    (1.5)   (1.0)
Tax rate differentials -
  other jurisdictions.........      (.8)     .2      .9
Goodwill amortization.........       .6      .5      .4
Other.........................               .5      .7
                                 ------  ------  ------
  Income tax provision........   $ (2.3)   10.0     3.8
                                 ======  ======  ======
 
</TABLE>

                                      F-16
<PAGE>
 
                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F - INCOME TAXES (CONTINUED)

The components of the net deferred tax assets as of October 31, 1997 and 1996
were as follows:

<TABLE>
<CAPTION>
In millions                                 1997        1996
                                           ------------------
<S>                                        <C>         <C>
Domestic deferred tax assets
Inventory reserves.......................  $  1.4         3.8
Capital loss carryforwards...............     5.0         5.9
Self insurance reserves..................     6.2         5.2
Other operating reserves.................    18.0         5.2
Retiree medical reserves.................    16.0        15.8
Net operating loss carryforwards.........    21.6         8.3
Basis differences in land and equipment..    10.8        12.2
Credit carryforwards.....................     4.8         1.7
                                           ------      ------
 Gross domestic deferred tax assets......    83.8        58.1
Valuation allowances.....................    (6.6)       (6.6)
                                           ------      ------
 Net domestic deferred tax asset.........    77.2        51.5
                                           ------      ------
Foreign deferred tax assets
Other operating reserves.................     2.1         2.4
Basis differences in land................                 2.3
Tax deductible goodwill..................     1.0         1.3
Net operating loss carryforwards.........     4.7         4.9
Capital loss carryforwards...............     2.6
                                           ------      ------
 Gross foreign deferred tax assets.......    10.4        10.9
Valuation allowances.....................    (2.8)       (2.8)
                                           ------      ------
 Net foreign deferred tax assets.........     7.6         8.1
                                           ------      ------

Deferred tax liabilities

Other operating reserves.................     8.2         5.1
Tax deductible inventory purchases.......     5.9         5.1
Basis differences in land and equipment..    17.0         4.9
                                           ------      ------
 Deferred tax liability..................    31.1        15.1
                                           ------      ------

Net deferred tax asset...................    53.7        44.5
                                           ======      ======
Current deferred tax assets
Noncurrent deferred tax assets...........    56.1        54.5
Current deferred tax liability...........    28.7         5.1
Noncurrent deferred tax liability........   (14.1)       (7.6)
                                            (17.0)       (7.5)
                                           ------      ------

Net deferred tax assets..................  $ 53.7        44.5
                                           ======      ======
 
</TABLE>

There were no changes to the Company's valuation allowances for 1997.  The
effect of the valuation allowance on the 1996 and 1995 income tax provision is a
benefit of $9.1 million and $9.0 million, respectively. The 1996 and 1995
benefits related  primarily to reassessments of the Company's ability to realize
the related deferred tax assets based upon the then anticipated future worldwide
profitability of the Company.

Since the Company plans to continue to finance foreign operations and expansion
through reinvestment of undistributed earnings of its foreign subsidiaries
(approximately $53.8 million at October 31, 1997), no provisions are made for
U.S. or additional foreign taxes on such earnings.  When the Company identifies
exceptions to this general investment policy, additional taxes are provided.
Unrecognized deferred taxes on remittance of these funds is not expected to be
material.

                                      F-17
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE F - INCOME TAXES (CONTINUED)

At October 31, 1997, the Company had U.S. operating losses of $56.6 million and
foreign operating losses of $12.0 million which may be carried forward for tax
purposes.  The U.S. operating losses expire over a period from 2009 through
2012.  In 2004, $6.8 million of the foreign operating losses expire; $5.2
million may be carried forward indefinitely.

Income taxes paid for the years ended October 31, 1997, 1996 and 1995, were $7.5
million, $5.0 million, and $2.5 million, respectively.


NOTE G - NOTES PAYABLE AND LONG-TERM DEBT

The Company's short-term and long-term debt is summarized below as of the dates
shown (in millions).

<TABLE>
<CAPTION>
 
                                                      Years ended October 31,
                                                      -----------------------
                                                         1997          1996
                                                         ----          ----   
<S>                                                   <C>            <C>
Private Placement....................................   $ 75.0          75.0
Committed Credit Facilities..........................     60.0          60.0
Lines of Credit......................................     46.4          36.4
Other................................................     17.6           4.0
                                                        ------        ------
                                                         199.0         175.4
                                         
Less Current Maturities..............................    (47.2)        (38.9)
                                                        ------        ------
                                                        $151.8         136.5
                                                        ======        ======
</TABLE>


Private Placement

Unsecured, medium-term senior notes in the principal amount of $75 million were
issued in January 1996 to institutional lenders to provide financing for
acquisitions, primarily for CTI and Rotor.  The principal payments required in
future years are zero in 1998 and 1999; $7 million in 2000 and 2001;  $32
million due 2002; and $29 million due thereafter.  The blended interest rate for
the two series of notes is approximately 6.6 percent per annum.

Committed Credit Facility

At both October 31, 1997 and 1996, the Company had borrowed $60 million under a
committed credit facility at an average interest rate of 5.905 percent, and
5.655 percent, respectively.  In September 1996, this credit facility was
changed from a short-term to a long-term facility due in September 1999.  The
facility provides that it may be increased to $150 million through syndication.

Long-Term Debt Covenants

The Company's long-term debt contains certain affirmative and negative covenants
which require compliance with various financial ratios and thresholds, including
minimum consolidated tangible net worth, maximum debt to capitalization, debt to
consolidated tangible net worth, and debt to net cash flow.  In addition, the
covenants have limitations on liens (other than in the ordinary course of
business) and on asset dispositions, as well as requirements of minimum earnings
coverage of interest expense.

                                      F-18
<PAGE>
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE G - NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)

Lines of Credit

Five discretionary bank lines of credit aggregating $110 million were available
to the Company for short-term borrowing at October 31, 1997. These lines
provided for borrowing at market interest rates and have maturity dates ranging
from 1 to 90 days and are renewed as needed. At October 31, 1997, the Company
had outstanding $46.4 million under these credit lines excluding $9.6 million
used for letters of credit.

Other

Other long-term debt increased from $4 million at October 31, 1996 to $17.6
million at October 31, 1997, primarily due to the issuance of a note in the
principal amount of $10 million to provide financing for the acquisition of the
refractory business and related assets of Lota-Green.  The principal payments
required in future years are zero in 1998, $1 million in 1999, $2 million each
year from 2000 through 2003, and $1 million in 2004.  Interest related to the 
note is fixed at 6.8% per annum.

Interest paid during the years ended October 31, 1997, 1996 and 1995 was $12.8
million, $6.3 million and $4.6 million, respectively.  In 1997 and 1996, the
Company capitalized $2.4 million and $2.0 million, respectively, of interest
relating to capital projects in progress. No material amount of interest was
capitalized in 1995.


NOTE H - COMMITMENTS AND CONTINGENCIES

PRODUCTS LIABILITY LITIGATION

The Company is one of several defendants in lawsuits pending in state courts in
Mississippi, Texas, West Virginia, and  Connecticut in which the plaintiffs
allege that they incurred hearing losses and other injuries due to their
operation of pneumatic and electrical hand tools manufactured by the defendants
and used at job sites controlled by customers of the defendants (Tool Claims).
Approximately 3,600 of these plaintiffs allege that they incurred hearing
losses and 1,800 allege carpal tunnel syndrome and vibration injury. A jury
verdict in the aggregate amount of $231,000 that was entered in 1994 on the
vibration injury claims of five plaintiffs in the Connecticut lawsuit was
reversed and remanded for a new trial by the Supreme Court of Connecticut in
1997.

Harbison-Walker Refractories Company, a wholly-owned subsidiary of the Company
(H-W), once manufactured and sold certain types of refractory products that 
contained small quantities of asbestos fiber. It is one of numerous companies
named as defendants in lawsuits in which the plaintiffs, most of whom worked for
customers of the defendants, allege injuries due to exposure to asbestos-
containing products (Asbestos Claims). Between August 1, 1992, the date of the
spin-off of H-W (Spin-Off Date) by Dresser Industries, Inc. (Dresser), and
October 31, 1997, approximately 143,200 Asbestos Claims had been made against H-
W. During the same period, net of insurance proceeds, H-W paid expenses of
approximately $10.9 million to defend Asbestos Claims and approximately $7.5
million to settle Asbestos Claims. At October 31, 1997, there were approximately
59,700 unresolved Asbestos Claims and approximately 33,900 pending Asbestos
Claims that were subject to settlement agreements. The remaining claims have
been settled, dismissed or otherwise disposed of.

Certain insurance policies issued to Dresser prior to the Spin-Off Date provide
coverage to H-W for a portion of amounts paid by H-W to defend and settle
Asbestos Claims and Tool Claims and of judgments against H-W in respect of
Asbestos Claims and Tool Claims. Moreover, Dresser is obligated to indemnify H-W
for such claims to the extent of the proceeds of such insurance under the terms
of the Distribution Agreement, dated as of July 17, 1992 (Distribution
Agreement), entered into between Dresser and H-W in connection with the spin-off
of H-W. The extent and timing of reimbursement under Dresser's insurance
policies are and will be dependent upon such factors as: the existence and terms
of agreements regarding apportionment among the insurers of payments in respect
of Asbestos Claims and Tool Claims; solvency of the insurers; policy limits for
individual years of coverage and exhaustion thereof by Dresser and H-W claims,
including Asbestos Claims and Tool Claims; and whether policies obligate
insurers to reimburse defense and related expenses and, if so, the extent to
which such payments reduce remaining policy limits. The issuers of these
policies have paid approximately 70 percent of the fees, expenses and indemnity
payments incurred by H-W for Asbestos Claims since the Spin-Off Date. The
Company intends to seek reimbursement for costs incurred for Tool Claims, which
aggregated $1.9 million at October 31, 1997, and believes that a significant
amount of insurance coverage therefor exists and is available.

                                      F-19
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE H - COMMITMENTS AND CONTINGENCIES (CONTINUED)

The Company has recorded an accrual of approximately $113.7  million for
Asbestos Claims pending as of October 31, 1997, and separately recorded an asset
of $101.2  million which is the portion of such accrual that is expected to be
recovered over time from insurance. The accrued liability represents an estimate
of the probable fees, expenses and liability of H-W for all pending Asbestos
Claims, both resolved and unresolved.  Estimated fees, expenses and liability
are based upon: the number of pending Asbestos Claims; the historical percentage
of H-W Asbestos Claims dismissed; H-W's historical average settlement payment
per undismissed claim; the projected aging of H-W Asbestos Claims; and the
average monthly defense cost per unresolved claim. The partially offsetting
asset reflects management's belief, based on H-W's rights under the Distribution
Agreement, its review  of applicable insurance policies issued to Dresser, the
solvency of issuers of such policies, and the terms of a 1988 agreement between
Dresser, its primary insurers and certain of its excess insurers regarding
apportionment among them of payments in respect of Asbestos Claims, that such
amount is recoverable under such policies in respect of the accrued liability.
H-W and Dresser have reached an agreement in principle  with insurers that
issued approximately 60 percent of the excess coverage for H-W Asbestos Claims
regarding, among other matters, events which trigger such coverage, allocation
of payments for indemnity and defense among the parties, and retroactivity of
such understandings to past payments by H-W.  H-W is also negotiating similar
arrangements with other issuers of its applicable excess coverage. Assuming
definitive agreements with all such carriers are satisfactorily concluded, and
in view of the generally favorable case law, management believes that H-W will
be reimbursed in the future for a significantly greater percentage of the
indemnity payments and defense costs for such claims than it has received in the
past.

Although there can be no certainty that the recorded insurance asset will be
fully recovered or that H-W may not ultimately incur a loss as a result of
pending Asbestos Claims in excess of such accrual, management believes that
additional expenses, if any, would not have a material effect upon the
consolidated financial position or liquidity of the Company. Management
periodically reviews its estimate of pending Asbestos Claims liability as well
as its evaluation of available insurance and makes such adjustments in the
accruals as may be appropriate. Such adjustments could affect earnings in a
future period.

The Company cannot reasonably estimate the legal liability of H-W for unasserted
Asbestos Claims, the cost to defend such claims, or the amounts H-W may pay to
settle future Asbestos Claims or as a result of adverse judgements. Primarily,
this is because the potential number of unasserted Asbestos Claims and when they
might be asserted cannot reasonably be predicted. Over time, however, the number
is expected to be substantial. The uncertainties which impair management's
ability to estimate the expense of future Asbestos Claims include: the types and
severity of asbestos-related illnesses experienced by future claimants; evidence
of their exposure to specific products made by H-W; evidence of their exposure
to asbestos-containing products made or sold by third parties; evidence of other
possible causes, or contributing causes, of the claimants' illnesses; their
earnings; jurisdiction of suit; enactment of tort reform legislation and its
application to such claims; and whether suits are handled by the courts
individually or on a consolidated basis.

In view of the number of Asbestos Claims and Tool Claims, management recognizes
the possibility that multiple adverse judgements, particularly if they involve
awards of punitive damages, could have a material effect upon the Company's
earnings. However, based upon its review of pending Asbestos Claims and Tool
Claims, the current reserves therefor, an evaluation of H-W's rights with 
respect to Dresser's insurance, its understanding of the terms and conditions of
such insurance and discussions with insurers and their representatives, its
experience to date with such litigation, and consultation with counsel, the
Company believes that pending Asbestos Claims and Tool Claims will not be
material either to the financial condition of the Company or to its liquidity.

OTHER LITIGATION

Actions and claims against certain subsidiaries of the Company under common law
and state and federal statutes for personal injury, property damage and breach
of contract arise in the ordinary course of their businesses. The remedies
sought in such actions include compensatory, punitive and exemplary damages as
well as equitable relief.  Reserves for such lawsuits and claims are recorded to
the extent that losses are deemed probable and are estimable. In the opinion of
management, the resolution of such pending lawsuits and claims will not have a
material effect on the earnings or consolidated financial position of the
Company.

                                      F-20
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE H - COMMITMENTS AND CONTINGENCIES (CONTINUED)

ENVIRONMENTAL CLAIMS

Certain subsidiaries of the Company have been named potentially responsible
parties with respect to several Environmental Protection Agency-designated
superfund sites. Their potential liability with respect to such sites is not
expected to be material. When deemed appropriate, reserves are established for
costs which may be incurred in connection with environmental clean-up and
remediation of Company facilities. In the opinion of management, expenses
related to such matters will not have a material effect upon the earnings or
consolidated financial position of the Company.

A Company subsidiary received an order from the Commonwealth of Pennsylvania in 
1991 demanding remediation of a tract of land, a portion of which had been mined
under lease by Harbison-Walker Refractories Company for a period of time prior 
to 1972. In March 1997, the Commonwealth's claim was fully resolved by entry of 
a consent decree providing for payment by the subsidiary of $775,000 over the 
following five years.

OTHER

Total rental expense charged to earnings was $7.3 million in 1997, $6.2 million
in 1996, $5.6 million in 1995. At October 31, 1997, the aggregate minimum annual
obligations under noncancellable operating leases were $3.6 million for 1998;
$3.1 million for 1999; $2.7 million for 2000; $2.5 million for 2001; $2.4
million for 2002 and $8.0 million in subsequent years. The lease obligations
relate primarily to general office space, sales office space and warehouses.


NOTE I - POSTRETIREMENT BENEFITS

Defined Benefit Pension Plans

Numerous defined benefit pension plans cover substantially all Company employees
in the United States. Plans covering salaried employees are based primarily on
years of service and qualifying compensation during the final years of
employment. Plans covering hourly employees are based primarily on years of
service. The plans are funded in accordance with applicable laws and
regulations. About 96 percent of plan assets are invested in cash, short-term
investments, equity, securities and fixed-income instruments. The remaining plan
assets are primarily invested in real estate.

Additional defined benefit pension plans cover employees outside the United
States, primarily Mexico, Canada and the U.K. The benefits under these plans are
based primarily on years of service and compensation levels. The Company funds
these plans in amounts at least sufficient to meet the minimum funding
requirements under applicable laws and governmental regulations.

A liability has been recognized for all under-funded plans. The minimum
liability which must be recorded is equal to the excess of the accumulated
benefit obligation over plan assets. For some plans, this results in an
additional liability being recorded. In connection with the recording of
additional liabilities, corresponding amounts are recorded as an intangible
asset or a reduction of equity. At October 31, 1997, the Company recorded $19.1
million of additional liabilities, $9.0 million of intangible assets and $6.3
million as a reduction in equity, net of income taxes, for such under funded
plans. The Company had recorded additional liabilities of $16.4 million,
intangible assets of $9.9 million and $2.8 million as a reduction in equity, net
of income taxes at October 31, 1996.

The sale of the Company's surface mining equipment business in August 1997
resulted in termination of the employment of substantially all employees engaged
in those operations. As a result, the Company recognized a $1.5 million charge
in 1997 for pension curtailment.

In August 1995, the Company completed the wind up of one of its pension plans in
Canada for which there were no remaining plan participants. In connection with
the final settlement, the Company reverted approximately $.8 million of surplus
plan assets and recognized a loss on settlement of approximately $.5 million
which is included in Other, net in the consolidated statements of earnings.

                                      F-21
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE I - POSTRETIREMENT BENEFITS - (CONTINUED)

Pension expense includes the following components (in millions):
<TABLE>
<CAPTION>
                                                     1997    1996    1995
                                                    ----------------------
<S>                                                 <C>     <C>     <C>
                                                                   
Service cost for benefits earned during the year..  $  4.1     4.4     3.8
Interest cost on projected benefit obligation.....    11.2    10.9     9.4
Actual return on plan assets......................   (15.3)  (13.2)   (3.9)
Net amortization and deferral.....................     4.5     2.2    (6.6)
                                                    ------  ------  ------
Net pension costs.................................  $  4.5     4.3     2.7
                                                    ======  ======  ======
</TABLE>

The actuarial assumptions used were as follows:
<TABLE>
<CAPTION>
                                                   1997           1996             1995
                                               ------------------------------------------- 
<S>                                            <C>            <C>             <C> 
Discount rate................................  5.0% to 8.0%   8.0% to 14.0%   5.00% to 14%
Expected long-term rate of return on assets..  7.0% to 9.5%   8.5% to 16.0%    8.5% to 16%
Rate of increase in compensation levels......  1.5% to 5.0%   4.5% to 10.0%    4.8% to 10%
                                               ------------------------------------------- 
</TABLE>

The funded status of the plans on the August 1 measurement dates was as follows
(in millions):
 
<TABLE>
<CAPTION>
Plans with Assets Exceeding Accumulated Benefits, in Millions     1997    1996    1995
                                                                 ----------------------
<S>                                                              <C>     <C>     <C>

Actuarial present value of benefit obligations:

Vested benefit obligation......................................   $27.5    22.3    21.8
                                                                  =====   =====   =====
Accumulated benefit obligation.................................    32.9    25.3    22.3
                                                                  =====   =====   =====
Projected benefit obligation...................................    34.5    30.0    24.3
Plan assets at fair value......................................    52.6    44.8    37.1
                                                                  -----   -----   -----
Projected benefit obligation under plan assets.................    18.1    14.8    12.8
Unrecognized net (gain) loss...................................    (1.7)   (1.6)   (1.0)
Unrecognized prior service cost................................      .4     1.2     1.2
Unrecognized net transition asset..............................    (2.4)   (1.8)   (2.2)
                                                                  -----   -----   -----
Prepaid pension costs recognized as of August 1................   $14.4    12.6    10.8
                                                                  =====   =====   =====
</TABLE>

                                      F-22
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE I - POSTRETIREMENT BENEFITS - (CONTINUED)

<TABLE>
<CAPTION>
Plans with Accumulated Benefits Exceeding Assets, (in millions)

                                                       1997     1996      1995
                                                      -------------------------
<S>                                                   <C>      <C>       <C>
                                                                       
Actuarial present value of benefit obligations:

Vested benefit obligation...........................  $102.3     90.9      80.1
                                                      ======   ======    ======

Accumulated benefit obligation......................   109.0     96.9      85.9
                                                      ======   ======    ======
Projected benefit obligation........................   125.0    114.6     103.9
Plan assets at fair value...........................    94.7     84.2      71.3
                                                      ------   ------    ------
Projected benefit obligation over plan assets.......   (30.3)   (30.4)    (32.6)
Unrecognized net loss...............................    26.3     24.7      27.9
Unrecognized prior service cost.....................    10.4     11.7       9.6
Unrecognized net transition asset...................     (.4)    (1.6)     (2.2)
Adjustment required to recognize minimum liability..   (19.1)   (16.4)    (16.4)
                                                      ------   ------    ------
Pension liability recognized as of August 1.........  $(13.1)   (12.0)    (13.7)
                                                      ======   ======    ======
</TABLE>


Contributions of $2.1 million, $1.5  million and $1.6  million  were made by the
Company to the trust subsequent to the August 1 measurement date which reduced
the liability for plans with accumulated benefits exceeding assets as of October
31, 1997, 1996 and 1995, respectively.

On the consolidated balance sheet, Other assets includes prepaid pension costs
and Accrued compensation and benefits includes current pension liabilities.

Defined Contribution Retirement Plans

In addition to the defined benefit pension plans discussed above, the Company
and its subsidiaries sponsor a defined contribution plan which is funded
primarily by employee contributions.  The Company's matching contributions to
this plan were $.4  million, $1.1 million and $.3 million during the years ended
October 31, 1997, 1996 and 1995, respectively.

Other Postretirement Benefits

In addition to providing pension benefits, the Company and its subsidiaries
currently provide certain health care and life insurance benefits for
substantially all retired U.S. bargaining and nonbargaining unit employees
meeting eligibility requirements.  The Company's policy is to fund these
benefits as claims and premiums are paid.

As a result of the sale of the Jeffrey underground mining equipment operations
in the U.S., a curtailment gain of $1.1 million for post-retirement health care
benefits was recognized in 1995 and included in the gain on sale. The 1997 sale
of the Marion surface mining equipment business resulted in a curtailment loss
of $1.0 million. See Note C for further information.

The effects of postretirement health care and life insurance benefits for non-
U.S. employees, which supplement foreign government plans, are not significant
under SFAS 106.  The components of net periodic postretirement benefit cost were
as follows (in millions):
<TABLE>
<CAPTION>
 
                                                       1997     1996      1995
                                                      -------------------------
<S>                                                   <C>      <C>       <C>
                                                                       
Service cost.......................................   $   .6       .5        .5
Interest cost......................................      3.3      3.3       3.6
Amortization of prior service cost.................      (.1)     (.1)      (.1)
                                                      ------   ------    ------
Net periodic postretirement benefit cost...........   $  3.8      3.7       4.0
                                                      ======   ======    ======
</TABLE>

                                      F-23
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE I - POSTRETIREMENT BENEFITS - (CONTINUED)

The Company's U.S. postretirement health care and life insurance plans currently
are not funded.  The amounts recognized on the Company's balance sheet at
October 31, 1997, 1996, and 1995, for the obligations relating to such plans
were as follows (in millions):
<TABLE>
<CAPTION>
                                                    1997    1996    1995
Accumulated postretirement benefit obligation:
                                                   ---------------------
<S>                                               <C>     <C>     <C>
 
Retirees........................................   $36.5    38.1    37.6
Fully eligible plan participants................     4.2     4.5     5.8
Other active plan participants..................     4.9     3.8     4.0
                                                   -----   -----   -----
     Sub-total..................................    45.6    46.4    47.4
Unrecognized gains..............................     1.3      .4      .1
Unrecognized prior service cost.................      .8      .9     1.0
Accrued postretirement benefit cost.............   -----   -----   -----
recognized in the balance sheet
                                                   $47.7    47.7    48.5
                                                   =====   =====   =====
</TABLE>

The weighted average discount rate used in determining the accumulated benefit
obligation was 7.5 percent at October 31, 1997, October 31, 1996, and October
31, 1995.  The weighted average rate of annual wage increase used to measure the
accumulated postretirement benefit obligation was 4.5 percent at October 31,
1997, 1996 and 1995.  The cost of covered health care benefits is assumed to
have increased by 8 percent in 1997 and to increase at a decreasing rate to an
annual and continuing increase of 5 percent after 3 years.  Based on these
assumptions, a one percentage point increase in the assumed health care cost
trend rate would increase the annual net periodic postretirement benefit cost
and the accumulated benefit obligation by approximately $.3 million and $2.5
million, respectively.

                                      F-24
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE J - EMPLOYEE AND DIRECTOR INCENTIVE PLANS

Stock Option Program

Under the Company's 1992 Stock Compensation Plan, stock options, stock
appreciation rights and restricted stock may be granted to officers and key
employees. Up to 2,700,000 shares of common stock are subject to the Plan, of
which no more than 750,000 shares may be awarded as restricted stock. An
additional 800,000 shares to be used for stock option grants has been approved
by the Board of Directors subject to Shareholder approval at the 1998 Annual
Shareholders Meeting. No grant may be made for less than 100 percent of the
fair market value of the common stock on the date of grant. All options
generally expire ten years after the date of grant. All officers and certain key
employees have been assigned stock ownership levels and are required to retain
25 percent of any option shares acquired upon exercise if they have not achieved
their ownership level.


Outside Directors Stock Incentive Plan

The Board of Directors approved various amendments to the 1993 Directors Stock
Incentive Plan which are being submitted for approval at the 1998 Annual
Shareholders meeting. The amended plan provides that options may be granted up 
to 300,000 shares and that each nonemployee director will receive an annual
grant of 5,000 shares at a price equal to 100% of the fair market value at the
time of the grant. The options vest in six months and expire at the end of a ten
year period, or at the end of a five year period following death, disability or
retirement, whichever is less. A nonemployee director is generally required to
retain at least 50 percent of any shares exercised until six months after
retirement from the Board.

The stock options granted the Directors were as follows: 32,000 shares in 1993 
at an exercise price of $14.56; 16,000 shares in 1994 at $13.69; 16,000 shares 
in 1996 at $24.50; and 20,000 shares in 1997 at $17.88. At October 31, 1997 
options for 64,000 shares were exercisable. The 1997 grants are subject to
shareholder approval of the plan amendments.


Stock Option Summary

In 1997, the Company adopted the disclosure-only option under Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation
SFAS 123." If the Company had recorded compensation expense in 1997 and 1996 for
the stock options granted in accordance with the provisions of SFAS 123, the pro
forma net earnings (loss) would have been ($5.6) million and $44.4 million, and
the pro forma net earnings (loss) per share would have been $(0.25) and $1.97 in
1997 and 1996, respectively. The estimated fair value of the options granted
during 1997 and 1996 using the Black-Scholes pricing model is $1.2 million and
$3.2 million, respectively. For purposes of the pro forma disclosures, these
values are expensed over the vesting periods of the options.

The significant assumptions used to estimate the fair value of the stock options
granted in 1997 and 1996 include a risk-free rate of return of 6.2% (1997
options) and 6.8% (1996 options), expected option lives of 6.0 years (1997
options) and 8.4 years (1996 options), expected volatility of 28% (for both 1997
and 1996 options) and no expected dividend payments.

A summary of stock option activity is as follows:

<TABLE>
<CAPTION>
                                                    1997                  1996                   1995
                                                    ----                  ----                   ---- 
                                              Number    Average     Number     Average     Number    Average
                                                of      Exercise      of       Exercise      of      Exercise
                                              Shares     Price      Shares      Price      Shares     Price

<S>                                         <C>         <C>       <C>          <C>       <C>         <C>       
Options outstanding at beginning of year    1,441,726    14.06     1,291,024    12.49      902,674    10.72
Options granted                               181,800    19.95       371,600    17.27      451,600    15.78
Options exercised                            (184,937)   13.04      (212,898)   10.09      (49,375)   10.51
                                             ( 13,100)   18.29      (  8,000)   15.81      (13,875)   11.26
Options canceled                            ---------              ---------             ---------         
                                            1,425,489    14.20     1,441,726    14.06    1,291,024    12.49
Options outstanding at end of year          =========              =========             =========
                                                                
Options exercisable at end of year          1,249,789    14.20     1,037,570    12.98      776,455    10.66
                                            =========              =========             =========
</TABLE>


                                      F-25
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J - EMPLOYEE AND DIRECTOR INCENTIVE PLANS (continued)

The following information is presented for stock options outstanding at October
31, 1997

<TABLE>
<CAPTION>
                                 OUTSTANDING OPTION SHARES               EXERCISABLE OPTION SHARES
                      -----------------------------------------------   ---------------------------
                                 Average Remaining
      Exercise                         Life          Average Exercise             Average Exercise
    Price Range        Shares        (in years)           Price          Shares        Price
                      -----------------------------------------------   ---------------------------
<S>                    <C>       <C>                 <C>                 <C>      <C>
   $8.50 - $11.00      225,756           3.1             $ 9.52          225,756      $ 9.52
                                                                                     
  $11.81 - $13.63      318,535           6.1              12.28          318,535       12.28  
                                                                                     
  $15.81 - $17.19      690,498           7.9             16.494          690,498       16.49  
                                                                                     
  $18.94 - $20.00      190,700           9.7              19.90           15,000       19.25  
                     ---------      
                                                                                     
       TOTALS        1,425,489           7.0             $14.90        1,249,789      $14.20  
</TABLE>

As of October 31, 1997 there were a total of 730,933 shares reserved for future
options and other grants under the Plan.


Deferred Compensation Plan

Key executives may elect to have certain earned incentive awards paid on a
current or deferred basis. Amounts deferred are deemed invested in stock units,
at a 25% discount to the then market price, and become payable as common stock
following termination. Officers must invest a minimum of 50 percent of any
management incentive in company stock or stock units if they have not achieved
their stock ownership requirement. Nonofficer key employees subject to the stock
ownership policy must so invest at least 30 percent of any incentive until their
requirements are met.



NOTE K - CAPITAL STOCK

Purchase of Common Stock

In August 1993, the Board of Directors approved a plan to purchase up to 4.1
million shares of the Company's common stock. In August 1994, the Board
increased this authorization by 2 million shares. In 1997, the Board authorized
additional purchases up to 10 percent of the Company's then outstanding shares
at July 1, 1997, or approximately 2.2 million shares. The Company purchased
shares of common stock in the open market as shown in the table below. During
the years ended October 31, 1997, 1996, and 1995, 191,971; 255,176; and 54,473
shares of treasury stock were issued pursuant to employee benefit plans,
respectively.

<TABLE>
<CAPTION>

        Year Ended          Shares Purchased  Average Price
        ----------          ----------------  -------------
<S>                         <C>               <C>
        October 31, 1997            877,352         $17.75
        October 31, 1996            150,300          17.08
        October 31, 1995            643,061          13.52
                                                           
 
                                                       
                                                
                                                                   
</TABLE>

                                      F-26
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE K - CAPITAL STOCK (continued)

Preferred Stock Purchase Rights

On July 28, 1992, the Board of Directors declared a dividend distribution of one
Preferred Stock Purchase Right (Right) for each outstanding share of the
Company's common stock to shareholders of record on August 7, 1992.  Unless
renewed, the Rights expire on July 27, 2002.

The Rights will generally not be exercisable until after 10 days (or such later
time as the Board of Directors may determine) from the earlier of a public
announcement that a person or group has, without Board approval, acquired
beneficial ownership of 15 percent or more of the Company's common stock or the
commencement of, or public announcement of an intent to commence, a tender or
exchange offer which, if successful, would result in the offeror acquiring 30
percent or more of the Company's common stock.  Once exercisable, each Right
would entitle its holder to purchase 1/100 of a share of the Company's Series A
Junior Preferred Stock at an exercise price of $45 subject to adjustment in
certain circumstances.

                                      F-27
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE K - CAPITAL STOCK (CONTINUED)

If the Company is acquired in a merger or other business combination not
previously approved by the Company's Continuing Directors, each Right then
exercisable would entitle its holder to purchase at the exercise price that
number of shares of the surviving company's common stock which has a market
value equal to twice the Right's exercise price.  In addition, if any person or
group (with certain exceptions) were to acquire beneficial ownership of 15
percent or more of the Company's common stock (unless pursuant to a transaction
approved by the Company's Continuing Directors), each New Right would entitle
all right holders, other than the 15 percent stockholder or group, to purchase
Series A Junior Preferred Stock having a market value equal to twice the Right's
exercise price.

The Rights may be redeemed by the Company for $.01 per Right until the tenth day
after a person or group has obtained beneficial ownership of 15 percent or more
of the Company's common stock (or such later date as the Continuing Directors
may determine).

The Rights are not considered to be common stock equivalents because there is no
indication that any event will occur which would cause them to be exercisable.
Their issuance therefor has no effect on earnings per share.


NOTE L - RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS

In June 1997, the Financial Accounting Standards Board released Statement No.
130, "Reporting Comprehensive Income" and Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information."  Both statements become
effective for fiscal years beginning after December 15, 1997 with early adoption
permitted.  These statements require disclosure of certain components of changes
in equity and certain information about operating segments and geographic areas
of operation.  No decision has been made as to when the Company will adopt the
statements.  These statements will not have any effect on the Company's results
of operations, financial position or cash flow.

In February 1997, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No. 128, "Earnings per Share".  The Statement
is effective for financial statements issued for periods ending after December
15, 1997 and specifies new standards for the computation and presentation of
earnings per share.  The Company's adoption of this standard will result in the
dual presentation of "basic" and "diluted" earnings per share on the face of the
Company's income statement.  Diluted earnings per share calculated using the new
standard is not expected to materially differ from earnings per share previously
presented.


NOTE M - SUPPLEMENTARY INCOME STATEMENT INFORMATION

Depreciation, depletion and amortization of property, plant and equipment
charged to earnings amounted to $17.7 million in 1997, $16.1 million in 1996,
and $14.9 million in 1995.   See Note B for further information.

Research and development expenses were $5.1 million in 1997, $4.9 million in
1996, and $3.3 million in 1995.

During October 1997, the Company recorded a $2.7 million charge related to the
termination of 72 employees of the Minerals and Refractory Products segments.
The charge is included in "Other, net" in the accompanying consolidated
statement of earnings.


NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA

Total sales include sales to unaffiliated customers and intergeographic area
sales.  The intergeographic area sales are accounted for at approximate arm's
length market prices.  No single customer accounted for 10 percent or more  of
total sales.

                                      F-28
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)

Operating profit consists of total revenue less total operating expenses.
General corporate expenses, interest expense, income taxes and other non-segment
items have been excluded in determining operating profit.  Identifiable assets
are those assets that are identified with particular segments or geographic
areas.  Corporate assets are principally cash and cash equivalents,
miscellaneous receivables and deferred income tax benefits.  The Company's
industry segments are outlined below.


Refractory Products

This segment consists of the Harbison-Walker Refractories Company operation,
which is a leading supplier of refractory products and an overseas licensor of
technology; Refmex, the largest Mexican producer of refractory products for
steel  and cement producers; and RECSA, the largest Chilean producer of
refractory products.  See Note C for further information.  Refractories, which
are made principally from magnesite, graphite, chromite, bauxite, quartzite and
fire clays, are used in virtually every industrial process requiring heating or
containment of a solid, liquid or gas at a high temperature.

Minerals

The Minerals segment collects and processes magnesite, graphite, bauxite and
other raw materials used in the production of refractories. Minerals had
previously been a part of the Minerals and Refractory Products segment. This
business was originally founded to be a strictly internal source of magnesite
for Harbison-Walker but is now a supplier of raw materials to refractory
manufacturers worldwide.

Industrial Tool

The Industrial Tool segment consists of the INTOOL operation which produces
Cleco pneumatic tools for use primarily in the electronic, aircraft and
automotive markets, and maintenance and fabrication tools supplied primarily to
petroleum refineries, chemical plants, foundries, steel mills and general
industry, and Quackenbush pneumatic and hydraulic precision equipment used in
the aircraft and aerospace industries and in mobile machining applications.
INTOOL also produces Airetool cleaners and expanders used by the manufacturers
and users of heat exchangers and boilers of all types and Rotor, a manufacturer
of fixturized and specialty engineered tools used primarily in automotive
assembly operations which was acquired in 1996. See Note C to the consolidated
financial statements. Rotor's operations since acquisition are included in
Industrial Tool financial results.

Specialty Equipment

The specialty equipment operations include CTI, Shred-Tech and the processing
equipment operations of  Jeffrey  which have not been sold. The Shred-Tech and
Jeffrey processing equipment operations manufacture processing, shredding and
recycling equipment used in a variety of industries and applications.  See Note
C for further information.

In January 1996, the Company acquired substantially all of the assets of CTI for
$36.3 million in cash and assumed liabilities of $11.6 million.  CTI has
manufactured polymer concrete products for various applications including
tankhouse cells used in the electrolytic refining of copper and other metals.
CTI results have been reported as part of Specialty Equipment since the date of
acquisition.

Forged Products

Forged Products include the forging operations of Ameri-Forge. Ameri-Forge is
the leading U.S. manufacturer of forged flanges used in industries such as oil
and gas, petrochemical, chemical, construction, food and water treatment and,
during 1997, entered the market for forged products used in the undercarriage
assemblies of tracked vehicles.

Divested Operations

The divested  operations include the Marion and Jeffrey businesses, and the
Company's 50 percent partnership interest in KOMDRESCO.  See Notes C and D for
further information.

                                      F-29
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)

The financial information by Industry Segment and Geographic Area for the years
ended October 31, 1997, 1996 and 1995 is as follows (in millions):

<TABLE>
<CAPTION>
INDUSTRY SEGMENT                                       1997    1996    1995
                                                      ----------------------
<S>                                                   <C>     <C>     <C>
 
SALES AND OPERATING REVENUES
  Refractory products..............................   $335.5   300.5   295.0
  Minerals.........................................     50.0    51.6    46.3
  Industrial tool..................................    113.2    97.2    73.3
  Specialty equipment products.....................     68.8    50.8    31.3
  Forged products..................................     54.1    50.6    42.2
  Divested operations..............................       --   116.3   129.3
  Eliminations.....................................    (20.4)  (20.7)  (23.1)
                                                      ------  ------  ------
    Total..........................................   $601.2   646.3   594.3
                                                      ======  ======  ======

OPERATING PROFIT AND EARNINGS BEFORE TAXES
  Refractory products..............................   $ 26.2    28.0    30.1
  Minerals.........................................      5.7    11.2     8.1
  Industrial tool..................................     19.7    14.2     8.7
  Specialty equipment products.....................      1.4     4.0     1.4
  Forged products..................................      9.9    12.9     8.9
  Divested operations..............................       --     4.5     4.0
  Partnership operations...........................       --     2.3     2.7
                                                      ------  ------  ------
    Subtotal operating profit before special 
     charges.......................................     62.9    77.1    63.9
  Special charges..................................    (43.5)     --      --
                                                      ------  ------  ------
  Total operating profit...........................     19.4    77.1    63.9 
  General corporate expenses.......................    (26.1)  (21.7)  (26.1)
  Other nonsegment expenses, net...................       --      --     4.7
                                                      ------  ------  ------
    Earnings (losses) before taxes.................   $ (6.7)   55.4    42.5
                                                      ======  ======  ======

IDENTIFIABLE ASSETS
  Refractory products..............................   $263.7   225.4   231.3
  Minerals.........................................     42.1    32.7    13.7
  Industrial tool..................................     96.1    86.6    44.4
  Specialty equipment products.....................     91.1    88.2    23.3
  Forged products..................................    102.7    68.2    45.8
  Divested operations..............................       --    84.6    92.2
                                                      ------  ------  ------
    Total identifiable assets......................    595.7   585.7   450.7
  Investments in affiliates........................      5.3    20.5    17.1
  Corporate assets.................................    206.0   146.4   116.6
                                                      ------  ------  ------
    Total assets...................................   $807.0   752.6   584.4
                                                      ======  ======  ======

CAPITAL EXPENDITURES
  Refractory products..............................   $ 14.2    18.4    16.7
  Minerals.........................................      9.3     4.5      .7
  Industrial tool..................................      3.5     3.8     3.4
  Specialty equipment products.....................      1.4     1.2      .4
  Forged products..................................     32.5    22.8    10.4
  Divested operations..............................      1.1     2.0     3.0
  Other............................................      2.4     1.0      .2
                                                      ------  ------  ------
    Total capital expenditures.....................   $ 64.4    53.7    34.8
                                                      ======  ======  ======

DEPRECIATION, DEPLETION AND AMORTIZATION
  Refractory products..............................   $  9.1     8.1     8.0
  Minerals.........................................       .8      .6      .5
  Industrial tool..................................      4.8     2.8     1.3
  Specialty equipment products.....................      2.3     2.3     1.4
  Forged products..................................      3.8     3.4     3.3
  Divested operations..............................      1.1     1.2     1.3
  Other............................................       .4      .3      .3
                                                      ------  ------  ------
    Total depreciation depletion and amortization..   $ 22.3    18.7    16.1
                                                      ======  ======  ======
</TABLE>

                                      F-30
<PAGE>
 
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE N - INFORMATION BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA - (CONTINUED)
<TABLE>
<CAPTION>

GEOGRAPHIC AREA                                          1997    1996    1995
                                                        ----------------------
<S>                                                     <C>     <C>     <C>
 
SALES AND OPERATING REVENUES
  United States......................................   $409.9   462.7   438.7
  Canada.............................................     37.1    35.0    32.8
  Latin America......................................     91.7    83.2    64.6
  Europe.............................................     18.5    15.8    21.3
  Australia, Far East and South Africa...............     44.0    49.6    36.9
Intergeographic area sales
  United States......................................     40.4    45.9    37.4
  Canada.............................................     31.0    32.0    28.8
  Latin America......................................     12.8     9.6    10.0
  Europe.............................................        0      .4
  Australia, Far East and South Africa...............        0      .1      .2
  Eliminations.......................................    (84.2)  (88.0)  (76.4)
                                                        ------  ------  ------
  Total..............................................   $601.2   646.3   594.3
                                                        ======  ======  ======
OPERATING PROFIT
  United States......................................   $ 42.3    46.2    34.4
  Canada.............................................      4.8     6.7     6.5
  Latin America......................................     15.6    17.2    13.7
  Europe.............................................     (2.1)    1.3     3.0
  Australia, Far East and South Africa...............      2.3     3.5     3.7
  Partnership operations
    Australia, Far East and South Africa.............       --     2.3     2.7
  Eliminations.......................................       --     (.1)    (.1)
                                                        ------  ------  ------
    Subtotal operating profit before special charges.     62.9    77.1    63.9

    Special charges .................................    (43.5)     --      --
                                                        ------  ------  ------
  Total operating profit.............................   $ 19.4    77.1    63.9
                                                        ======  ======  ======
IDENTIFIABLE ASSETS
  United States......................................   $409.2   410.1   278.0
  Canada.............................................     41.5    47.5    41.0
  Latin America......................................    125.7    96.7    98.9
  Europe.............................................     21.7    26.3    16.5
  Australia, Far East and South Africa...............      7.6    26.1    27.2
  Eliminations.......................................    (10.0)  (21.0)  (10.9)
                                                        ------  ------  ------
  Total identifiable assets..........................   $595.7   585.7   450.7
                                                        ======  ======  ======
UNITED STATES EXPORT SALES
  Canada.............................................   $ 27.9    36.0    16.2
  Latin America......................................     15.2    17.4    18.0
  Europe.............................................      9.1    19.9    26.1
  Australia, Far East, Middle East and South Africa..     10.3    31.8    23.7
                                                        ------  ------  ------
  Total United States export sales...................   $ 62.5   105.1    84.0
                                                        ======  ======  ======
</TABLE>

                                      F-31
<PAGE>
 
                               INDEX TO EXHIBITS

PAGE  EXHIBIT                       DESCRIPTION
----  -------                       -----------

            2.1     Agreement and Plan of Merger, dated as of October 30, 1995,
                    among Global Industrial Technologies, Inc., GPI Merger, Inc.
                    and INDRESCO Inc. (Incorporated herein by reference to
                    Exhibit 2.1 to Form 10-K for the year ended October 31,
                    1995).

            2.2     Reorganization Agreement, dated October 20, 1995, among
                    INDRESCO Inc., GIX Marion, Inc., Shred Pax Systems, Inc.,
                    INTOOL, Inc., Global Industrial Technologies, Inc., GPI
                    Merger, Inc., GPX Corp., and GLOBAL INDUSTRIAL TECHNOLOGIES,
                    INC. Limited. (Incorporated herein by reference to Exhibit
                    2.2 to Form 10-K for the year ended October 31, 1995).

           2.3      Acquisition Agreement dated as of August 12, 1994, by and
                    among Penoles, Quimica Magna, S.A. de C.V. ("Quimica"),
                    Refmex, RefGreen, Flir, Quimica de Rey, S.A. de C.V.
                    ("QDR"), INDRESCO, Indresco Mexico, IIRI and Refractarios
                    Mexicanos (Incorporated by reference to Exhibit 2 to Form 8-
                    K, Current Report, dated September 30, 1994).

           2.4      First Amendment to Acquisition Agreement dated as of
                    September 30, 1994, by and among Penoles, Quimica, Refmex,
                    RefGreen, Flir, QDR, INDRESCO, Indresco Mexico, IIRI and
                    Refractarios Mexicanos (Incorporated by reference to Exhibit
                    2.1 to Form 8-K, Current Report, dated September 30, 1994).

           2.5      Inventory Purchase Agreement dated as of September 30, 1994,
                    by and among Quimica and Refractarios Mexicanos
                    (Incorporated by reference to Exhibit 2.2 to Form 8-K,
                    Current Report, dated September 30, 1994).

           2.6      Assignment and Assumption Agreement dated as of September
                    30, 1994, by and among Refmex, RefGreen and Refractarios
                    Mexicanos (Incorporated by reference to Exhibit 2.3 to Form
                    8-K, Current Report, dated September 30, 1994).

           2.7      Flir Asset Purchase Agreement dated as of September 30,
                    1994, by and among Flir and Refractarios Mexicanos
                    (Incorporated by reference to Exhibit 2.4 to Form 8-K,
                    Current Report, dated September 30, 1994).

           2.8      Magnesite Supply Agreement dated as of September 30, 1994,
                    by and between QDR and Refractarios Mexicanos (Incorporated
                    by reference to Exhibit 2.5 to Form 8-K, Current Report,
                    dated September 30, 1994).

           2.9      Stock Purchase Agreement dated as of September 30, 1994, by
                    and among IIRI, Indresco Mexico and Quimica (Incorporated by
                    reference to Exhibit 2.6 to Form 8-K, Current Report, dated
                    September 30, 1994).

           2.10     Noncompetition Agreement dated as of September 30, 1994, by
                    and between Penoles and INDRESCO (Incorporated by reference
                    to Exhibit 2.7 to Form 8-K, Current Report, dated September
                    30, 1994).

           3.1      Form of Restated Certificate of Incorporation of the
                    Registrant filed with the Secretary of State of Delaware and
                    effective on November 1, 1995 (Incorporated by reference to
                    Exhibit 3.1 to Form 8-B, Registration Statement effective
                    November 1, 1995).

                                      E-1
<PAGE>
 
                         INDEX TO EXHIBITS (Continued)

PAGE  EXHIBIT                       DESCRIPTION
----  -------                       -----------

            3.2     Bylaws of the Registrant, as amended effective December 13,
                    1995. (Incorporated by reference to Exhibit 3.2 to Form 10K
                    for the year ended October 31, 1995).

            3.3     Certificate of Designations of Series A Junior Preferred
                    Stock of the Registrant (Incorporated by reference to
                    Exhibit 3.3 to Form 8-B,Registration Statement, effective
                    November 1, 1995).

            4.1     Form of Common Stock Certificate. (Incorporated herein by
                    reference to Exhibit 4.1 to Form 10-K for the year ended
                    October 31, 1995).

            4.2     Form of Rights Agreement between the Registrant and The Bank
                    of New York (Incorporated by reference to Exhibit 4.2 to
                    Form 8-B, Registration Statement, effective November 1,
                    1995).

           10.1     Distribution Agreement (Incorporated by reference to Exhibit
                    10.1 to Form 10).

           10.2     Master Corporate Services and Support Agreement
                    (Incorporated by reference to Exhibit 10.2 to Form 8, Post
                    Effective Amendment No. 3 to Form 10).

           10.3     Employee Matters Agreement (Incorporated by reference to
                    Exhibit 10.3 to Form 8, Post Effective Amendment No. 3 to
                    Form 10).

           10.4     Environmental Matters Agreement (Incorporated by reference
                    to Exhibit 10.4 to Form 8, Post Effective Amendment No. 3 to
                    Form 10).

           10.5     Intellectual Property Agreement (Incorporated by reference
                    to Exhibit 10.5 to Form 8, Post Effective Amendment No. 3 to
                    Form 10).

           10.6     Tax Sharing Agreement (Incorporated by reference to Exhibit
                    10.6 to Form 8, Post Effective Amendment No. 3 to Form 10).

          #10.7     Global Industrial Technologies, Inc. 1992 Stock Compensation
                    Plan, as amended, (Incorporated herein by reference to
                    Exhibit A to Registrant's Definitive Proxy Statement dated
                    February 12, 1993 for the Annual Meeting of Shareholders
                    held March 17, 1993).

          #10.8     Global Industrial Technologies, Inc. Deferred Compensation
                    Plan (Incorporated herein by reference to Exhibit A to
                    Registrant's Definitive Proxy Statement dated February 10,
                    1995 for the Annual Meeting of Shareholders held March 15,
                    1996).

          #10.9     Global Industrial Technologies, Inc. 1993 Directors' Stock
                    Incentive/Retirement Plan (Incorporated herein by reference
                    to Exhibit 10.7 to Form 10-K for the year ended October 31,
                    1993).

          #10.10    Global Industrial Technologies, Inc. Incentive Stock Unit
                    Plan (Incorporated herein by reference to Exhibit 10.11 to
                    Form 10).

                                      E-2
<PAGE>
 
                         INDEX TO EXHIBITS (Continued)

PAGE  EXHIBIT                       DESCRIPTION
----  -------                       -----------

          #10.11    Incentive Compensation Plan for the Officers and
                    Headquarters' Staff of Global Industrial Technologies, Inc.,
                    as amended (Incorporated by reference to Exhibit 10.7 to
                    Form 10-K for the year ended October 31, 1993).

          #10.12    Global Industrial Technologies, Inc. Retirement Income Plan
                    for Industrial Operations (Incorporated by reference to
                    Exhibit 10.10 to Form 10).

          #10.13    ERISA Compensation Limit Benefit Plan for Executives of
                    Global Industrial Technologies, Inc. (Incorporated by
                    reference to Exhibit 10.6 to Registrant's Form 10-Q for the
                    quarter ended July 31, 1992).

          #10.14    ERISA Excess Benefit Plan for Salaried Employees of Global
                    Industrial Technologies, Inc. and its Participating
                    Subsidiaries Who Are Not Represented By a Recognized Union
                    (Incorporated by reference to Exhibit 10.7 to Registrant's
                    Form 10-Q for the quarter ended July 31, 1992).

          #10.15    Supplemental Executive Retirement Plan for Top Executives of
                    Global Industrial Technologies, Inc. (Incorporated by
                    reference to Exhibit 10.7 to Form 10-K for the year ended
                    October 31, 1993).

          #10.16    Global Industrial Technologies, Inc. Division Executive
                    Incentive Plan (Incorporated by reference to Exhibit 10.16
                    to Form 10-K for the year ended October 31, 1994).

          #10.17    Global Industrial Technologies, Inc. Deferred Savings Plan,
                    as Amended and Restated, and related Trust Agreements
                    (Incorporated by reference to Exhibit 5.01 to Registration
                    Statement No. 33-98006 on Form S-8).

           10.18    Credit Agreement, dated as of September 23, 1994, among
                    INDRESCO Inc., Various Financial Institutions and Bank of
                    America Illinois, as Agent (Incorporated by reference to
                    Exhibit 10 to Form 10-Q for the quarter ended July 31, 1995)

           10.19    Assignment and Assumption Agreement and Second Amendment to
                    Credit Agreement, entered into as of November 1, 1995, among
                    Harbison-Walker Refractories Company (formerly known as
                    INDRESCO Inc.), Global Industrial Technologies, Inc., GPX
                    Corp. and Bank of America Illinois, as Lender and
                    Agent.(Incorporated by reference to Exhibit 10.19 to Form
                    10K for the year ended October 31, 1995).

           10.20    Asset Purchase Agreement, dated as of July 21, 1997 by and
                    among The Marion Power Shovel Company, Marion Power Shovel
                    Pty, Ltd., INTOOL International B.V., and Global-Gix Canada
                    Inc. (collectively, as Sellers) and Global Industrial
                    Technologies, Inc. as Parent and Bucyrus International,
                    Inc., Bucyrus (Australia) Proprietary Ltd., Bucyrus (Africa)
                    (Proprietary) Limited, and Bucyrus Canada Limited
                    (collectively, as Buyers) (Incorporated herein by reference
                    to Exhibit 10 to Form 10-Q for the quarter ending July 31,
                    1997)

          *21       Subsidiaries of the Registrant.

          *23       Consent of Price Waterhouse LLP.

          *27       Financial Data Schedule.

*Filed herewith.
# Management compensatory plan

The Company will furnish copies of any exhibit on request and payment of the
Company's reasonable expenses of furnishing such exhibit.

                                      E-3
<PAGE>
 
CORPORATE HEADQUARTERS



Global Industrial Technologies, Inc.
2121 San Jacinto Street, Suite 2500
Dallas, Texas 75201
Telephone: 214 953-4500
Fax: 214 953-4596

REFRACTORY PRODUCTS

Harbison-Walker Refractories Company
600 Grant Street, 50th Floor
Pittsburgh, Pennsylvania 15219
President: Juan M. Bravo
Telephone: 412 562-6307
Fax: 412 562-6234

Harbison-Walker International
600 Grant Street, 50th Floor
Pittsburgh, Pennsylvania 15219
Vice President: Jess Hutchinson
Telephone: 412 562-6307
Fax: 412 562-6234

Harbison-Walker U.S./Canada
600 Grant Street, 50th Floor
Pittsburgh, Pennsylvania 15219
Vice President: John S. Miller
Telephone: 412 562-6205
Fax: 412 562-6234

Refractarios Chilenos S.A. (RECSA)
Carretera Panamericana Norte 3076
Santiago, Chile
General Manager: Ramiro Valenzuela
Telephone: 011 562 641-9113
Fax: 011 562 644 8897

Refractarios Mexicanos S.A. de C.V. (REFMEX)
Carretera Saltillo -Monterrey Km.9
Ramos Arizpe, Coahuila 25900 Mexico
President: Julio Labadie
Telephone: 011 52 84 88 0031
Fax: 011 52 84 88 0051

                                      R-1
<PAGE>
 
Technology Group
600 Grant Street, 50th Floor
Pittsburgh, Pennsylvania 15219
Vice President: Mel Wees
Telephone: 412 562-6387
Fax: 412 562-6392


MINERALS

Minerals Group
600 Grant Street, 50th Floor
Pittsburgh, Pennsylvania 15219
Vice President: William K. Brown
Telephone: 412 562-6592
Fax: 412 562-6209


SPECIALTY EQUIPMENT PRODUCTS

Corrosion Technology International, Inc.
2121 San Jacinto Street, Suite 2880
Dallas, Texas 75201
President: Maurice W. Barrett
Telephone: 214 220-4533
Fax: 214 220-4535

Global Processing Group
87 Main Street
Cambridge, Ontario, Canada N1R 1W1
General Manager: Maurice W. Barrett
Telephone: 519 621-7234
Fax: 519 621-9001


FORGED PRODUCTS

Ameri-Forge Corporation
13770 Industrial Road
Houston, Texas 77015
President: Herbert Linser
Telephone: 713 455-2860
Fax: 713 455-0311

INDUSTRIAL TOOL

INTOOL, Incorporated
7007 Pinemont
Houston, Texas 77040
President: T. R. Hurst
Telephone: 713 462-4521
Fax: 713 460-7008

                                      R-2