<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For period ended July 31, 1994 Commission file number 0-588
------------- -----
COMMERCIAL INTERTECH CORP.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-0159880
- - ------------------------------------------------ --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1775 Logan Avenue, Youngstown, Ohio 44501-0239
- - ------------------------------------------------ --------------------------
(Address of principal executive offices) (Zip Code)
(216) 746-8011
- - -------------------------------------------------------------------------------
Registrant's telephone number, including area code
Not Applicable
- - -------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report.
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 (or for such
shorter periods that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common Stock, $1 Par Value--15,182,645 shares as of September 1, 1994
(shares reflect 3 for 2 split effective September 1, 1994)
<PAGE> 2
INDEX
COMMERCIAL INTERTECH CORP.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - July 31, 1994 and
October 31, 1993
Consolidated condensed statements of income - Nine months ended
July 31, 1994 and 1993; three months ended July 31, 1994 and 1993
Statements of consolidated cash flows - Nine months ended
July 31, 1994 and 1993
Notes to consolidated condensed financial statements - July 31, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
PART I. FINANCIAL INFORMATION
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
(Thousands of dollars) July 31, October 31,
1994 1993
------------------------
<S> <C> <C>
ASSETS
- - ------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . $ 34,388 $ 25,066
Accounts receivable, less allowance
(1994-$4,206,000; 1993-$1,765,000). . . . 91,284 78,484
Inventories . . . . . . . . . . . . . . . . . 58,363 49,883
Deferred income tax benefits. . . . . . . . . 15,318 12,889
Prepaid expenses. . . . . . . . . . . . . . . 19,227 4,643
-------- --------
TOTAL CURRENT ASSETS 218,580 170,965
PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . 251,355 235,715
Less allowance for depreciation . . . . . . . 133,982 120,734
-------- --------
117,373 114,981
NONCURRENT ASSETS:
Intangible assets . . . . . . . . . . . . . . 28,303 29,822
Pension assets. . . . . . . . . . . . . . . . 29,186 26,645
Other assets. . . . . . . . . . . . . . . . . 5,360 4,922
-------- --------
TOTAL NONCURRENT ASSETS 62,849 61,389
-------- --------
TOTAL ASSETS $398,802 $347,335
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Bank loans. . . . . . . . . . . . . . . . . . $ 14,788 $ 17,599
Accounts and notes payable. . . . . . . . . . 94,615 75,544
Accrued income taxes. . . . . . . . . . . . . 3,428 14,786
Dividends payable . . . . . . . . . . . . . . 2,499 2,270
-------- --------
TOTAL CURRENT LIABILITIES 115,330 110,199
NONCURRENT LIABILITIES:
Long-term debt. . . . . . . . . . . . . . . . 77,978 78,059
Deferred income taxes . . . . . . . . . . . . 16,725 16,273
Postretirement benefits . . . . . . . . . . . 20,765 19,867
Deferred credit . . . . . . . . . . . . . . . 22,549 0
-------- --------
TOTAL NONCURRENT LIABILITIES 138,017 114,199
SHAREHOLDERS' EQUITY:
Preferred stock, no par value:
Authorized: 10,000,000 shares
Series A participating preferred shares. . 0 0
Series B ESOP convertible preferred shares
Issued: 1994 - 1,059,407 shares
1993 - 1,064,846 shares. . . . 24,631 24,758
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1994 - 15,182,645 shares (excluding
125,812 in treasury); 1993 - 10,037,686
shares (excluding 42,063 in treasury). . . 15,183 10,038
Capital surplus . . . . . . . . . . . . . . . 35,757 39,034
Retained earnings . . . . . . . . . . . . . . 87,869 75,087
Deferred compensation . . . . . . . . . . . . (20,108) (21,248)
Translation adjustment. . . . . . . . . . . . 2,123 (4,732)
-------- --------
145,455 122,937
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $398,802 $347,335
======== ========
</TABLE>
<PAGE> 4
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE THREE
MONTHS ENDED MONTHS ENDED
(Thousands of dollars) July 31, July 31,
------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales. . . . . . . . . . . . . . $365,357 $330,792 $139,554 $117,252
Less costs and expenses:
Cost of products sold . . . . . . 252,993 236,187 97,419 82,980
Selling, administrative and
general expense. . . . . . . . 84,622 77,649 31,496 27,073
Nonrecurring items. . . . . . . . 3,290 370 3,290 0
------------------ ------------------
340,905 314,206 132,205 110,053
------------------ ------------------
Operating income . . . . . . . . . . 24,452 16,586 7,349 7,199
Nonoperating income (expense):
Interest income . . . . . . . . . 882 798 340 219
Interest expense. . . . . . . . . (3,206) (4,171) (291) (1,120)
Other . . . . . . . . . . . . . . (1,923) 249 (751) 77
------------------ ------------------
(4,247) (3,124) (702) (824)
Income from continuing operations
before income taxes . . . . . . . 20,205 13,462 6,647 6,375
Income taxes . . . . . . . . . . . . 6,595 5,521 1,714 2,219
------------------ ------------------
Income from continuing operations. . 13,610 7,941 4,933 4,156
Income from discontinued operation . 5,462 0 5,462 0
------------------ ------------------
Net income . . . . . . . . . . . . . $ 19,072 $ 7,941 $ 10,395 $ 4,156
================== ==================
Preferred stock dividends. . . . . . 1,574 1,583 524 526
------------------ ------------------
Net income applicable to common
stock . . . . . . . . . . . . . . $ 17,498 $ 6,358 $ 9,871 $ 3,630
================== ==================
Earnings per share of common stock:
Primary:
Income from continuing operations $ .79 $ .42 $ .29 $ .24
Net income . . . . . . . . . . 1.15 .42 .64 .24
Fully diluted:
Income from continuing operations .75 .41 .27 .23
Net income . . . . . . . . . . 1.07 .41 .60 .23
Cash dividends declared . . . . . $.352 $.340 $.125 $.113
</TABLE>
<PAGE> 5
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(Thousands of dollars) July 31,
-----------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . $19,072 $ 7,941
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization . . 13,144 12,790
Discontinued operation. . . . . . . . . . . . . (5,462) 0
Postretirement benefit. . . . . . . . . . . . . 649 543
Pension plan credits. . . . . . . . . . . . . . (1,671) (1,799)
Deferred credit . . . . . . . . . . . . . . . . (2,044) 0
Change in deferred income taxes . . . . . . . . (2,108) 30
Change in current assets and liabilities:
(Increase) decrease in accounts receivable. . . (4,000) 2,400
(Increase) decrease in inventories. . . . . . . (2,003) 2,616
(Increase) in prepaid expenses and
other current assets . . . . . . . . . . . . (340) (295)
Increase (decrease) in accounts payable and
accrued expenses . . . . . . . . . . . . . . 4,616 (177)
(Decrease) in accrued income taxes. . . . . . . (5,106) (1,714)
-------- ---------
Net cash provided by operating activities . . . . . . 14,747 22,335
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets. . . . . . . . . . 269 92
Investment in intangibles . . . . . . . . . . . . . . (236) 0
Cash acquired in business acquisition . . . . . . . . 11,140 0
Installments received - Acquisition . . . . . . . . . 9,378 0
Capital expenditures. . . . . . . . . . . . . . . . . (10,073) (7,328)
-------- --------
Net cash provided (used) by investing activities. . . 10,478 (7,236)
FINANCING ACTIVITIES:
Proceeds from long-term debts . . . . . . . . . . . . 0 148
Principal payments on long-term debts . . . . . . . . (1,927) (7,732)
Net borrowings under bank loan agreements . . . . . . (6,968) 557
Proceeds from reserve contracts . . . . . . . . . . . 676 0
Purchase of reserve contracts . . . . . . . . . . . . (3,430) (2,503)
Proceeds from equity investment . . . . . . . . . . . 661 0
Conversion of other assets. . . . . . . . . . . . . . 30 (182)
Dividends paid. . . . . . . . . . . . . . . . . . . . (6,671) (6,654)
------- --------
Net cash (used) by financing activities . . . . . . . (17,629) (16,366)
------- --------
Effect of exchange rate changes on cash. . . . . . . . . 1,726 (1,488)
------- --------
Net increase (decrease) in cash and cash equivalents . . 9,322 (2,755)
Cash and cash equivalents at beginning of period . . . . 25,066 19,396
------- --------
Cash and cash equivalents at end of period . . . . . . . $34,388 $16,641
======= ========
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $ 3,502 $ 3,501
Income taxes . . . . . . . . . . . . . . . . . . . 13,808 7,203
</TABLE>
<PAGE> 6
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 31, 1994
Note A - Basis of Presentation
- - ------------------------------
The accompanying unaudited consolidated condensed
financial statements have been prepared in accordance
with generally accepted accounting principles for
interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting
principles for complete financial statements. In the
opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results
for the nine-month and three-month periods ended
July 31, 1994 are not necessarily indicative of the
results that may be expected for the year ended
October 31, 1994. For further information, refer to
the consolidated financial statements and footnotes
thereto included in Commercial Intertech Corp. and
Subsidiaries' annual report on Form 10-K for the year
ended October 31, 1993.
Note B - Per-Share Data
- - -----------------------
Per-share data was computed using the weighted average
number of common shares outstanding during the period
after giving retroactive effect to subsequent share
dividends. The preferred stock issued in February, 1990
was determined not to be a common stock equivalent for
primary earnings per share. In computing primary
earnings per common share, the Series B preferred
dividends and adjustments reduce income available to
common shareholders.
In computing fully diluted earnings per share, dilution
is determined by dividing net earnings by the weighted
average number of common shares outstanding during the
period adjusted for subsequent share dividends after
giving effect to dilutive preferred stock assumed
converted to common stock. The most dilutive
calculation assumes conversion of Series B preferred
stock to common shares and dividend rate adjustments
for Series B preferred to arrive at income available
to common shareholders.
<PAGE> 7
Note C - Common Stock Split and Cash Dividend
- - ---------------------------------------------
On July 27, 1994 the Company announced a 50 percent
share dividend in the form of a 3 for 2 split of its
common shares to shareholders of record as of
September 1, 1994. Par value of the stock will remain
at one dollar per share.
At the same time, the Company increased the current
quarterly dividend rate to $.125 per share after the
stock split.
All earnings per share amounts and current account
balances reflect the stock split.
Note D - Inventories
- - --------------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1994 1993
-------- -----------
<S> <C> <C>
Raw materials $13,562 $11,412
Work-in-process 29,234 24,067
Finished goods 15,567 14,404
------- -------
$58,363 $49,883
======= =======
</TABLE>
Note E - Employee Stock Ownership Plan Loan (ESOP) - Guaranteed Debt
- - --------------------------------------------------------------------
During the third quarter of fiscal 1993, the Company's
ESOP completed a refinancing program by issuing
$23,231,000 of 7.08 percent senior notes due
December 31, 2009 privately placed with a group of
insurance companies. The senior notes replace the
$25 million variable interest rate loan. Since the debt
is guaranteed by the Company, it is recorded in the
long-term debt section of the Consolidated Balance Sheet
with an offset shown as a reduction of shareholders'
equity as Deferred Compensation. As Company
contributions and dividends on the Senior B ESOP
convertible preferred shares held by the ESOP are used
to meet interest and principal payments, shares are
released for allocation to eligible employees.
Note F - Discontinued Operation
- - -------------------------------
Income from discontinued operations of $5,462,000
represents the elimination of income tax accruals no
longer required that relate to a business written off in
1989 which was treated as a discontinued operation.
<PAGE> 8
Note G - Supplemental Cash Flow Information
- - -------------------------------------------
Supplemental schedule of noncash investment activities:
The Company's business acquisition involved the
following:
Fair value of assets acquired,
other than cash and cash
equivalents $31,836
Liabilities assumed (19,333)
Deferred credit - operating
loss indemnification (23,643)
_______
Cash acquired $11,140
=======
Note H - Acquisitions
- - ---------------------
Effective May 3, 1994, the Company acquired the stock
of Sachsenhydraulik Chemnitz GmbH ("SHC") and its wholly
owned subsidiary (Hydraulic Rochlitz GmbH), which are
known as ORSTA Hydraulik. ORSTA is a manufacturer of
hydraulic cylinders, piston and gear pumps and
industrial valves. The stock was acquired from the
Treuhandanstalt, the regulatory agency of the Federal
Republic of Germany responsible for the privatization of
the former East German state-owned enterprises. The
acquisition has been accounted for as a purchase
transaction, therefore, the accounts are included in the
accompanying financial statements since the acquisition
date. Pro forma financial results are not provided
herein since the companies acquired operated in a
different environment under the Treuhandanstalt control.
Under terms of the Agreement, Commercial tendered no
financial consideration to acquire the stock of SHC and
its wholly owned subsidiary but received, in addition
to the net business assets of the two companies, cash
contributions of 59.0 million Deutsche marks
(approximately U.S. $36.0 million) to fund pre-existing
capital investment programs and to cover estimated
operating losses over a period of two years. Cash
received on May 3, 1994, was $11,140,000. The remaining
contributions will be received by SHC in installments
during 1994 and 1995.
<PAGE> 9
Note H - Acquisitions (continued)
- - ---------------------------------
The Company agreed to the following obligations and
guarantees with respect to the operation of the acquired
businesses:
a) to maintain a minimum employment level for
a period of three years; the level stipulated
by the Agreement is considered by the Company
to be reasonable and necessary for the intended
use of the business,
b) to invest 39.0 million Deutsche marks
(approximately U.S. $23.6 million) in capital
programs over a period of four years,
c) to continue to operate the businesses for a
minimum of five years, and
d) to refrain from selling or transferring acquired
land and building for a period of six years.
Of the total 59.0 million Deutsche mark cash
contribution to be received (as calculated on the
measurement date of January 1, 1994), 51.5 million
Deutsche marks was designed as an indemnification of
estimated operating losses over a period of two years.
See Note I - Deferred Credit for additional details.
Note I - Deferred Credit (Negative Goodwill)
- - --------------------------------------------
Deferred credit represents the balance of the
indemnification of estimated operating losses to be
amortized over a period of two years from acquisition.
The amount of operating loss indemnification available
to Commercial was adjusted for cash consumed by the
ORSTA operations between January 1, 1994, the
measurement date, and April 30, 1994, the acquisition
date. The operating loss indemnification is being
amortized based on estimated operating results of
the ORSTA Hydraulik operations as determined on
April 30, 1994. The quarterly amortization value
will remain unchanged as actual results are reported
and will be translated from Deutsche marks into U.S.
dollars at the average exchange rate for the period.
<PAGE> 10
Note I - Deferred Credit (Negative Goodwill) (continued)
- - --------------------------------------------------------
Negative goodwill amortization:
<TABLE>
<CAPTION>
Fiscal Quarters Deutsche Marks U.S. Dollars
--------------- -------------- ------------
(in thousands)
<S> <C> <C>
Current period (income) 3,297 $ 2,044
===== =======
Remainder: (balance sheet)
Fourth quarter, 1994 7,015 $ 4,422
First quarter, 1995 6,855 4,320
Second quarter, 1995 6,500 4,097
Third quarter, 1995 5,410 3,410
Fourth quarter, 1995 4,745 2,991
First quarter, 1996 3,745 2,361
Second quarter, 1996 1,504 948
====== =======
Total 35,774 $22,549
====== =======
Value on acquisition date 39,071
======
</TABLE>
ORSTA Hydraulik income statement follows:
<TABLE>
<CAPTION>
Three Months Ended
July 31, 1994
------------------
(in thousands)
<S> <C>
Sales $7,387
Cost of products sold 7,092
Less: negative goodwill (2,044)
------
Total cost of products sold 5,048
------
Gross profit 2,339
Selling, administrative
and general expense 2,251
------
Operating profit $ 88
======
</TABLE>
Note J - Operating Loss Carryforward
- - ------------------------------------
Tax loss carryforwards were also acquired with the
ORSTA Hydraulik operations. The loss carryforwards
at April 30, 1994 were 173.9 million Deutsche marks
(approximately U.S. $105.2 million). The losses can
be carried forward indefinitely. The Company has
created a valuation reserve equal to the loss
carryforward.
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter 1994 Compared To Third Quarter 1993
- - -------------------------------------------------
Consolidated net revenues of $139,554,000 for the quarter ended July
31, 1994, the highest quarterly sales recorded in the Company's history, were
$22,302,000 or 19 percent higher than the same period last year. On the
strength of this record sales performance, income from continuing operations
rose to $4,933,000, $777,000 higher than the third quarter of fiscal 1993. Net
income in the current period included the reversal of $5,462,000 of income tax
accruals no longer necessary relating to a business writeoff in 1989 which was
treated as a discontinued operation.
Revenues from operations in the United States in the current quarter of
$75,221,000, the largest domestic sales recorded in the history of the Company,
were $12,346,000 or 20 percent higher than the same period last year. All
major market segments served by the Company realized sales gains. The
Hydraulic Components and Metal Products Groups realized double-digit percentage
revenue gains, continuing to benefit from a steady economic recovery in the
United States. Sales recorded by the Fluid Purification Systems Group were 6
percent higher than the same period last year. Third quarter revenues reported
by foreign operations of $64,333,000 were $9,956,000 or 18 percent higher then
last year, reflecting increased demand in Europe, Australia and Asia. Foreign
Hydraulic Component Group revenues increased $6,405,000 or 41 percent over the
same period last year. Excluding sales in Germany associated with the
acquisition of ORSTA Hydraulik in the current period, Hydraulic Components
Group revenues overseas would have been 6 percent lower than the third quarter
of fiscal 1993. Meanwhile 9 percent revenue gains were realized by both the
Astron Building Systems Division and the foreign units of the Fluid
Purification Systems Group. Adjusted for fluctuating currency exchange rates,
foreign revenues would have been only slightly lower at last year's exchange
rates.
Gross profit of $42,135,000 was $7,863,000 or 23 percent higher than
the same period last year, due generally to higher sales volume and stringent
cost control measures utilized by the Company, as gross profit margins were one
percentage point higher than last year. Similar gross margin gains over last
year were realized by both the domestic and foreign operating units.
<PAGE> 12
Operating income of $7,349,000 was 2 percent higher than the third
quarter of fiscal 1993. Compared to twelve months ago, operating profits
recorded by the business units in each of the three major groups were higher
than last year's levels. Operating results for the quarter include
restructuring charges of $3,290,000 ($2,093,000 after tax or $.12 per fully
diluted share) and concurrent inventory writeoffs of $665,000 ($422,000 after
tax or $.03 per fully diluted share) recorded in connection with an announced
plan to close certain Hydraulic facilities in Europe and the United Kingdom,
phase out some nonperforming products manufactured at those facilities, and
consolidate the remaining core businesses with other existing Hydraulic
operations located in Germany and the United Kingdom. The amount identified as
a restructuring charge includes separation costs for 75 employees ($1,524,000),
estimated costs to vacate and prepare the facilities for sale ($457,000), the
writedown of fixed assets made idle or excess by the decision to combine
operations ($641,000), and other direct and incremental costs necessary to
complete the consolidation effort ($668,000). The noncash portion of the
restructuring charge constitutes an immaterial amount. Accomplishment of this
program is expected to improve the corporation's operating results over time
through reduced employee costs, more effective utilization of plant and
equipment, and lower depreciation expense. The consolidation program is
scheduled for completion within a twelve month period.
Nonoperating expenses during the third quarter of $702,000 were
slightly lower than last year. Interest expense during the current period was
$829,000 lower than last year after reversing provisions relating to a business
written off in fiscal 1989. This gain was offset by foreign currency exchange
losses incurred as a result of fluctuating exchange rates, realized primarily
by the Company's subsidiary in Brazil.
The effective income tax rate of 26 percent in the current period is
lower than the same period last year, due principally to higher income in the
United States where income tax rates are lower than those recorded by the
Company's foreign operations and the partial utilization of tax loss
carryforwards by certain foreign subsidiaries in the current period.
<PAGE> 13
First Nine Months of 1994 Compared to the First Nine Months of 1993
- - -------------------------------------------------------------------
The highest first nine month net consolidated revenues recorded in the
Company's history of $365,357,000 were $34,565,000 or 10 percent higher
compared with the same period last year. Excluding the aforementioned recovery
of $5,462,000 from a discontinued operation, net income from continuing
operations for the current period of $13,610,000 was $5,669,000 or 71 percent
higher than the first nine months of fiscal 1993.
Sales from American operations during the first three quarters of the
current year of $210,379,000 were $34,618,000 or 20 percent higher than the
same period last year as revenue gains were reported in all major market
segments served by the Company. All three of the Company's business units
recorded strong revenue gains over last year, capitalizing on the continuing
economic recovery in the United States. The Hydraulic Components Group and
U.S. Metal Division recorded double-digit increases in sales, while the Fluid
Purification Systems Group realized an 8 percent gain over last year, each
group taking advantage of improved trade demand in all market segments served
by the Company. Meanwhile, overseas revenues during the first nine months of
fiscal 1994 remained relatively the same as last year, as gains realized in
Australia, Asia and Japan were offset by weakened demand in those markets
served by operations in Europe and the United Kingdom. Foreign Hydraulic
Component Group sales increased $3,603,000 or 8 percent over last year's
performance. Excluding revenue realized from the acquisition of ORSTA
Hydraulic in Germany this year, overseas Hydraulic revenues would have been 8
percent lower than the first nine months of fiscal 1993. A depressed foreign
business environment caused revenues recorded by the Building Systems Division
in Europe to be $8,755,000 or 14 percent lower than the same period last year.
Conversely, improving economies in Australia, Japan and the Pacific Rim
countries resulted in an 11 percent gain in overseas revenues reported by the
Fluid Purification Systems Group. A stronger U.S. dollar compared to other
currencies caused foreign sales reported in dollars to be $1,577,000 lower than
fiscal 1993, after adjusting for the unfavorable impact of currency exchange
rate differences on foreign revenues reported in U.S. dollars. On a parity
adjusted basis, foreign market segment performance is mixed, with significant
gains in the construction machinery and equipment, mobile equipment and
filtration product market segments offset by declines in the heavy construction
and buildings and specialized industrial components segments.
<PAGE> 14
Consolidated gross profit during the first nine months of the current
fiscal year of $112,364,000 improved $17,759,000 or 19 percent compared to the
same period last year. Gross profit margins improved over 2 percentage points
since last year. Both United States and overseas operating units realized
similar profit margin gains since last year due principally to increased sales
volume domestically and reacting decisively to elements in an everchanging
global economy.
Operating income during the current period of $24,452,000 was
$7,866,000 or 47 percent higher than last year, as year over year gains were
recorded by the Hydraulic Components and Filtration Products Groups. Depressed
business conditions in Europe resulted in lower operating income for Astron
Division since last year. Signs of a turnaround in the European economy
experienced in the current quarter are expected to continue, at least through
the remainder of the fiscal year. Consolidated selling and administrative
expenses of $84,622,000, 9 percent higher than the first nine months of fiscal
1993, were generally in line with the rate of inflation when factoring the
impact of additional expenses associated with the newly acquired German
subsidiary and the effect of expenses adjusted for changes in foreign currency
exchange rates.
Operating results during the current period include restructuring
expenses of $3,290,000 and concurrent inventory writeoffs of $665,000 recorded
in connection with a plan to close certain Hydraulic facilities in Europe and
the United Kingdom and to consolidate these businesses with other existing
Hydraulic operations located in Germany and the United Kingdom. Last year, the
Company recorded plant closing and relocation expenses of $370,000 charged to
the Fluid Purification Systems Group.
During the first nine months of fiscal 1994, nonoperating expenses of
$4,247,000 were 36 percent higher than last year, due principally to foreign
currency exchange losses realized as a result of changing foreign currency
rates, incurred primarily by the Company's Brazilian operations. Offsetting
these currency losses, interest expense of $3,206,000 during the period was
$965,000 lower than fiscal 1993 after adjusting accruals relating to a prior
period business writeoff.
During the current fiscal year, the effective income tax rate of 33
percent, compared to 41 percent last year, is due principally to higher income
in the United States where income tax rates are lower than those incurred by
the Company's overseas units, certain nontaxable reserve contract proceeds and
tax loss carryforwards utilized by certain foreign locations in fiscal 1994.
<PAGE> 15
Financial Condition
- - -------------------
Since the beginning of the fiscal year, cash and cash
equivalents increased $9,322,000. Operating performance resulted
in cash generated by operating activities of $14,747,000 compared
to $22,335,000 last year. Net cash provided by investing
activities during the first three quarters of the current year
was $10,478,000 due principally to the acquisition of ORSTA
Hydraulic in the current period. Capital expenditures of
$10,073,000 are 37 percent higher than last year's spending. In
light of current market trends and economic conditions, the
Company continues to closely monitor its capital spending
requirements. Net cash used by financing activities of
$17,629,000 was comparable to last year's level.
Internal cash flows are expected to continue to be sufficient
to provide the resources necessary to support operating needs and
to finance future capital expenditure programs. Supplemental
borrowings against existing credit facilities will also be
utilized as needed to finance the capital spending programs.
Trade customer bookings received during the first nine
months of fiscal 1994 of $395,581,000 were $64,429,000 or
19 percent higher than one year ago, adjusted for fluctuating
foreign currencies. Third quarter orders received this year of
$145,681,000 were $11,246,000 or 8 percent higher than bookings
received during the second quarter of fiscal 1994, adjusted for
parity differences. Current year domestic orders received by the
Hydraulic Components and Metal Products Groups were significantly
higher than last year, while bookings recorded by the Fluid
Purification Products Group remained relatively the same as one
year ago. Orders received by the Building Systems Division in
the current quarter were only slightly better than those received
in the second quarter of this year and year-to-date bookings
continue to lag 3 percent behind last year's levels, both on a
parity adjusted basis. Astron's recent improving bookings trend
is expected to continue in the short-term as orders are now being
recorded from its newly organized Asia-Pacific Division.
Meanwhile, rebounding economies in Australia, Brazil, Japan and
the Pacific Rim continue to favorably impact the balance of
overseas customer orders received as net foreign bookings
received in fiscal 1994 were 8 percent higher than the same
period last year, adjusted for fluctuations in foreign currency
exchange rates.
Despite record sales activity in the current period,
bookings received continue to outpace shipments on a consolidated
basis. During the current quarter, the backlog of uncompleted
orders was at its highest level in almost two years. Adjusted
for parity differences, current ending order backlog of
$148,633,000 was 34 percent higher than backlog at the end of
fiscal 1993 and 36 percent higher than backlog at the end of the
third quarter of last year.
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit 11 - Computation of per share earnings
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Three
Months Ended Months Ended
---------------- ----------------
July 31, July 31,
---------------- ----------------
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Primary
- - -------
Average shares outstanding. . . . . . . . 15,126 14,997 15,173 15,051
Net effect of dilutive stock options -
based on the treasury stock method
using average market price . . . . . . 136 78 184 84
---------------- ----------------
Total . . 15,262 15,075 15,357 15,135
================ ================
Income from continuing operations . . . . $13,610 $ 7,941 $ 4,933 $ 4,156
Preferred stock dividends and adjustments (1,574) (1,583) (524) (526)
---------------- ----------------
Income applicable to common stock . . . . $12,036 $ 6,358 $ 4,409 $ 3,630
================ ================
Per share amount. . . . . . . . . . . . . $0.79 $0.42 $0.29 $0.24
================ ================
Net income. . . . . . . . . . . . . . . . $19,072 $ 7,941 $10,395 $ 4,156
Preferred stock dividends and adjustments (1,574) (1,583) (524) (524)
---------------- ----------------
Income applicable to common stock . . . . $17,498 $ 6,358 $ 9,871 $ 3,630
================ ================
Per share amount. . . . . . . . . . . . . $1.15 $0.42 $0.64 $0.24
================ ================
Fully Diluted
- - -------------
Average shares outstanding. . . . . . . . 15,126 14,997 15,173 15,051
Net effect of dilutive stock options -
based on the treasury stock method
using the period end price, if higher
than average market price. . . . . . . 271 113 246 108
Common share equivalents:
Series B Preferred . . . . . . . . . . 1,310 1,317 1,308 1,315
---------------- ----------------
Total . . 16,707 16,427 16,727 16,474
================ ================
Income from continuing operations . . . . $13,610 $ 7,941 $ 4,933 $ 4,156
Preferred stock (Series B) dividends
rate adjustment. . . . . . . . . . . . (1,113) (1,135) (360) (377)
---------------- ----------------
Income applicable to common stock . . . . $12,497 $ 6,806 $ 4,573 $ 3,779
================ ================
Per share amount. . . . . . . . . . . . . $0.75 $0.41 $0.27 $0.23
================ ================
Net income. . . . . . . . . . . . . . . . $19,072 $ 7,941 $10,395 $ 4,156
Preferred stock (Series B) dividends
rate adjustment. . . . . . . . . . . . (1,113) (1,135) (360) (377)
---------------- ----------------
Income applicable to common stock . . . . $17,959 $ 6,806 $10,035 $ 3,779
================ ================
Per share amount. . . . . . . . . . . . . $1.07 $0.41 $0.60 $0.23
================ ================
</TABLE>
<PAGE> 17
Exhibit 27 - Financial Data Schedule
(b) Reports On Form 8-K
Form 8-K was filed on May 17, 1994 and July 15, 1994 as follows:
Item Description
---- -----------
2 Acquisition of assets of ORSTA Hydraulik
5 Disclosure of negative goodwill amortization
Disclosure of tax loss carryforward acquired
7 Pro forma condensed consolidated balance sheet
as of April 30, 1994
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMERCIAL INTERTECH CORP.
Date September 12, 1994 By /s/ Philip N. Winkelstern
------------------ --------------------------
Philip N. Winkelstern
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1994
<PERIOD-START> NOV-01-1993
<PERIOD-END> JUL-31-1994
<CASH> 34,388
<SECURITIES> 0
<RECEIVABLES> 95,490
<ALLOWANCES> 4,206
<INVENTORY> 58,363
<CURRENT-ASSETS> 218,580
<PP&E> 251,355
<DEPRECIATION> 133,982
<TOTAL-ASSETS> 398,802
<CURRENT-LIABILITIES> 115,330
<BONDS> 77,978
<COMMON> 15,183
0
24,631
<OTHER-SE> 105,641
<TOTAL-LIABILITY-AND-EQUITY> 398,802
<SALES> 365,357
<TOTAL-REVENUES> 365,357
<CGS> 252,993
<TOTAL-COSTS> 252,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,206
<INCOME-PRETAX> 20,205
<INCOME-TAX> 6,595
<INCOME-CONTINUING> 13,610
<DISCONTINUED> 5,462
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,072
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.07
</TABLE>
