<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, 1995 Commission file number 0-588
-------------- ------
COMMERCIAL INTERTECH CORP.
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(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
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Registrant's telephone number, including area code
Not Applicable
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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-- 15,423,050 shares as of September 1, 1995
------------------------------------------------------------------------
<PAGE> 2
INDEX
COMMERCIAL INTERTECH CORP.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - July 31, 1995 and
October 31, 1994
Consolidated condensed statements of income - Nine months ended
July 31, 1995 and 1994; and three months ended July 31, 1995
and 1994
Statements of consolidated cash flows - Nine months ended
July 31, 1995 and 1994
Notes to consolidated condensed financial statements -
July 31, 1995
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,
1995 1994
-----------------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . $ 42,803 $ 52,666
Accounts receivable, less allowance
(1995-$3,629,000; 1994-$2,890,000). . . . 110,159 94,212
Inventories . . . . . . . . . . . . . . . . . 76,193 62,320
Deferred income tax benefits. . . . . . . . . 16,204 15,307
Prepaid expenses. . . . . . . . . . . . . . . 7,021 10,861
--------- ---------
TOTAL CURRENT ASSETS 252,380 235,366
PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . 277,462 253,890
Less allowance for depreciation . . . . . . . 136,394 128,453
--------- ---------
141,068 125,437
NONCURRENT ASSETS:
Intangible assets . . . . . . . . . . . . . . 24,463 26,563
Pension assets. . . . . . . . . . . . . . . . 33,322 31,191
Other assets. . . . . . . . . . . . . . . . . 5,610 4,421
--------- ---------
TOTAL NONCURRENT ASSETS 63,395 62,175
--------- ---------
TOTAL ASSETS $456,843 $422,978
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Bank loans. . . . . . . . . . . . . . . . . . $ 30,354 $ 20,273
Accounts and notes payable. . . . . . . . . . 117,349 107,326
Accrued income taxes. . . . . . . . . . . . . 4,757 2,037
Dividends payable . . . . . . . . . . . . . . 2,608 2,509
Current portion of long-term debt . . . . . . 2,509 2,821
--------- ---------
TOTAL CURRENT LIABILITIES 157,577 134,966
NONCURRENT LIABILITIES:
Long-term debt. . . . . . . . . . . . . . . . 75,121 77,020
Deferred income taxes . . . . . . . . . . . . 16,754 16,926
Postretirement benefits . . . . . . . . . . . 21,957 21,188
Deferred credit . . . . . . . . . . . . . . . 7,210 19,118
--------- ---------
TOTAL NONCURRENT LIABILITIES 121,042 134,252
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: 1995 - 1,053,508 shares
1994 - 1,059,407 shares. . . . 24,494 24,631
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1995 - 15,434,707 shares (excluding
141,150 in treasury); 1994 - 15,199,258
shares (excluding 144,261 in treasury). . 15,435 15,199
Capital surplus . . . . . . . . . . . . . . . 38,088 35,844
Retained earnings . . . . . . . . . . . . . . 106,739 91,649
Deferred compensation . . . . . . . . . . . . (18,851) (20,108)
Translation adjustment. . . . . . . . . . . . 12,319 6,545
--------- ---------
178,224 153,760
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $456,843 $422,978
========= =========
</TABLE>
<PAGE> 4
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
(Thousands of dollars) JULY 31, JULY 31,
------------------- ------------------
1995 1994 1995 1994
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................... $452,000 $365,357 $162,728 $139,554
Less costs and expenses:
Cost of products sold..... 316,854 256,283 114,339 100,709
Selling, administrative and
general expense......... 103,406 84,622 36,661 31,496
--------- --------- --------- ---------
420,260 340,905 151,000 132,205
--------- --------- --------- ---------
Operating income............. 31,740 24,452 11,728 7,349
Nonoperating income (expense):
Interest income........... 1,546 882 572 340
Interest expense.......... (5,302) (3,206) (1,771) (291)
Other..................... 84 (1,923) 434 (751)
--------- --------- --------- ---------
(3,672) (4,247) (765) (702)
Income from continuing
operations before
income taxes.............. 28,068 20,205 10,963 6,647
Income taxes................. 6,248 6,595 2,570 1,714
--------- --------- --------- ---------
Income from continuing
operations................ 21,820 13,610 8,393 4,933
Income from discontinued
operation................. 0 5,462 0 5,462
--------- --------- -------- --------
Net income................... $ 21,820 $ 19,072 $ 8,393 $ 10,395
========= ========= ========= =========
Preferred stock dividend..... 1,563 1,574 520 524
--------- --------- --------- ---------
Net income applicable to
common stock.............. $ 20,257 $ 17,498 $ 7,873 $ 9,871
========= ========= ========= =========
Earnings per share of common stock:
Primary:
Income from continuing
operations............ $1.30 $0.79 $0.50 $0.29
Net income............. 1.30 1.15 0.50 0.64
Fully diluted:
Income from continuing
operations............ 1.23 0.75 0.47 0.27
Net income.............. 1.23 1.07 0.47 0.60
Cash dividends declared.. $0.375 $0.352 $0.125 $0.125
</TABLE>
<PAGE> 5
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(Thousands of dollars) July 31,
-----------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . $21,820 $19,072
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization . . 13,863 13,144
Amortization of deferred credit . . . . . . . . (12,768) (2,044)
Discontinued Operation. . . . . . . . . . . . . 0 (5,462)
Postretirement benefit. . . . . . . . . . . . . 508 649
Pension plan credits. . . . . . . . . . . . . . (1,269) (1,671)
Change in deferred income taxes . . . . . . . . (917) (2,108)
Change in current assets and liabilities:
(Increase) in accounts receivable. . . . . . (12,673) (4,000)
(Increase) in inventories. . . . . . . . . . (11,531) (2,003)
(Increase) in prepaid expenses and
other current assets. . . . . . . . . . . (2,400) (340)
Increase in accounts payable and
accrued expenses. . . . . . . . . . . . . 2,625 4,616
Increase (decrease) in accrued income taxes. 3,370 (5,106)
-------- --------
Net cash provided by operating activities . . . . 628 14,747
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets. . . . . . . . . . 444 269
Business acquisition. . . . . . . . . . . . . . . . . (886) 0
Grant subsidies received. . . . . . . . . . . . . . . 6,967 0
Installments received -- acquisition. . . . . . . . . 9,668 9,378
Cash and cash equivalents acquired in business
acquisition . . . . . . . . . . . . . . . . . . 0 11,140
Investment in intangibles . . . . . . . . . . . . . . (256) (236)
Capital expenditures. . . . . . . . . . . . . . . . . (26,956) (10,073)
-------- --------
Net cash (used) provided by investing activities. . (11,019) 10,478
FINANCING ACTIVITIES:
Proceeds from long-term debts . . . . . . . . . . . . 0 0
Principal payments on long-term debts . . . . . . . . (2,779) (1,927)
Net borrowings under bank loan agreements . . . . . . 9,455 (6,968)
Proceeds from reserve contracts . . . . . . . . . . . 1,763 676
Purchase of reserve contracts . . . . . . . . . . . . (3,475) (3,430)
Conversion of other assets. . . . . . . . . . . . . . (198) (691)
Dividends paid. . . . . . . . . . . . . . . . . . . . (7,246) (6,671)
-------- --------
Net cash (used) by financing activities. . . . . . (2,480) (17,629)
Effect of exchange rate changes on cash. . . . . . . . . 3,008 1,726
-------- --------
Net (decrease) increase in cash and cash equivalents. . . (9,863) 9,322
Cash and cash equivalents at beginning of period . . . . 52,666 25,066
-------- --------
Cash and cash equivalents at end of period . . . . . . . $42,803 $34,388
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $ 4,468 $ 3,502
Income taxes . . . . . . . . . . . . . . . . . . . 3,796 13,808
</TABLE>
<PAGE> 6
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 31, 1995
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
period ended July 31, 1995 are not necessarily indicative of the
results that may be expected for the year ended October 31, 1995. 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, 1994.
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,
1995 1994
-------- -----------
<S> <C> <C>
Raw materials $ 19,617 $ 15,393
Work-in-process 34,387 31,188
Finished goods 22,189 15,739
-------- -------
$ 76,193 $ 62,320
======= =======
</TABLE>
Note E - Segment Reporting
--------------------------
The Company is engaged in the design, manufacture and sale of products
in three segments:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
(THOUSANDS OF DOLLARS) 1995 1994 1995 1994
---------------- ------------------
<S> <C> <C> <C> <C>
Hydraulic Components
Net sales............... $213,186 $170,133 $ 71,898 $ 66,915
Operating income........ 20,459 16,264 5,889 3,982
Metal Products
Net sales............... $118,004 $ 89,085 $ 47,363 $ 35,152
Operating income........ 4,587 5,385 3,451 2,751
Fluid Purification Systems
Net sales............... $120,810 $106,139 $ 43,467 $ 37,487
Operating income ....... 6,694 2,803 2,388 616
TOTAL COMPANY
Net sales.............. $452,000 $365,357 $162,728 $139,554
Operating income....... 31,740 24,452 11,728 7,349
Percent to sales....... 7.0% 6.7% 7.2% 5.3%
</TABLE>
<PAGE> 8
Note F - Acquisitions
---------------------
Effective May 3, 1994, the Company acquired the stock of
Sachsenhydraulik Chemnitz GmbH ("SHC") and its wholly owned subsidiary
(Hydraulik 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.
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. This additional consideration was negotiated
with the Treuhandanstalt based on the financial position of the
acquired companies as of January 1, 1994 (the "measurement date").
Cash received on May 3, 1994, was $11,140,000. The remaining
contributions were received by SHC in installments during 1994 and
1995.
In addition to the cash acquired at the acquisition date, a balance of
44.1 million Deutsche marks (approximately U.S. $26.8 million) was
receivable from the Treuhandanstalt in regard to the original cash
contribution. Cash received since the acquisition date amounted to
44.1 million Deutsche marks (approximately U.S. $28.5 million). Of
the funds provided by the Treuhandanstalt 29.1 million Deutsche marks
(approximately U.S. $19.2 million) were consumed by operating losses
from May 3, 1994 to July 31, 1995 and 17.7 million Deutsche marks
(approximately U.S. $12.3 million) were used to fund the pre-existing
capital investment program.
<PAGE> 9
Note F - 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 from
acquisition. The amount of operating loss indemnification available
to the Company was adjusted for cash consumed by the ORSTA operations
between the measurement date and the acquisition date. The operating
loss indemnification is being amortized based on estimated operating
results of the ORSTA Hydraulik operations as determined on May 3,
1994. The quarterly amortization value will remain unchanged as
results are reported and will be translated from Deutsche marks into
U.S. dollars at the average exchange rate for the period. The
deferred credit on the balance sheet is translated at end of period
rate.
<PAGE> 10
Note F - Acquisitions (continued)
---------------------------------
Negative Goodwill Amortization
<TABLE>
<CAPTION>
Deutsche U.S.
Fiscal Quarters Marks Dollars
--------------- ----- -------
(in thousands)
<S> <C> <C>
Amounts amortized
Third quarter, 1994 DM 3,297 $ 2,044
Fourth quarter, 1994 7,015 4,422
First quarter, 1995 6,855 4,419
Second quarter, 1995 6,500 4,470
Third quarter, 1995 5,410 3,879
------ -------
Total DM 29,077 $ 19,234
====== =======
Remainder (Balance Sheet)
Fourth quarter, 1995 DM 4,745 $ 3,423
First quarter, 1996 3,745 $ 2,702
Second quarter, 1996 1,504 1,085
------ -------
Total DM 9,994 $ 7,210
====== =======
</TABLE>
ORSTA Hydraulik income statement:
<TABLE>
<CAPTION>
JULY 31,
-------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED
1995 1995 1995
----------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net sales $ 26,614 $ 9,304 $ 7,387
Cost of products sold 31,368 10,987 7,092
Less: negative goodwill (12,768) (3,879) (2,044)
--------- -------- ---------
Total cost of
products sold 18,600 7,108 5,048
--------- -------- ---------
Gross profit 8,014 2,196 2,339
Selling, administrative
and general expenses 8,930 3,056 2,251
--------- -------- ---------
Operating income $ (916) $ (860) $ 88
========= ========= =========
</TABLE>
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Third Quarter 1995 Compared To Third Quarter 1994
-------------------------------------------------
Consolidated net revenues of $162,728,000 for the quarter ended July
31, 1995, the highest quarterly sales recorded in the Company's 75 year
history, were $23,174,000 or 17 percent higher than the same period last year.
Third quarter income from continuing operations, the second highest third
quarter in the history of the Company, rose to $8,393,000 or $3,460,000 higher
than last year on the strength of this record performance. Meanwhile, net
income in the current period of $8,393,000 was 19 percent lower than the third
quarter of fiscal 1994 due to the noncash recovery adjustment of $5,462,000
recorded last year associated with certain discontinued operations.
Revenues from United States operations in the current quarter of
$84,543,000, the largest domestic sales recorded in the history of the Company,
were $9,322,000 or 12 percent higher than the third quarter of last year.
Double digit percentage gains were realized by all domestic market segments
served by the Company, except for the Transportation and Fluid Purification
segments where sales volumes remained at virtually the same level. The
Hydraulic Components Group recorded a 10 percent gain in sales over last year,
reporting record third quarter sales activity. Meanwhile, the Metal Products
Group realized a 44 percent gain in revenues over the same period last year,
reporting an all-time quarterly record. Third quarter revenues reported by
foreign operations of $78,185,000, the highest quarterly performance overseas
in the Company's history, were $13,852,000 or 22 percent higher than the same
period last year. While foreign Hydraulic Component Group revenues were only
slightly higher than last year, gains exceeding 30 percent 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 $8,353,000 or 13 percent lower at last year's
average foreign currency exchange rates. On a parity adjusted basis,
significant gains were reported overseas in the Construction Machinery and
Equipment, Fluid Purification, Farm and Heavy Construction and Buildings market
segments.
Consolidated gross profit of $48,389,000 was $9,544,000 or
25 percent higher than the same period last year, due principally to higher
sales volume, stringent cost control measures enforced by the Company and lower
material costs in certain manufacturing areas. Consolidated gross margin was
two percentage points higher than the same period last year, due principally to
improved performance in certain foreign operating units. Meanwhile, strong
demand in the United States created serious capacity constraints which
adversely affected profit margins.
<PAGE> 12
Selling and administrative expenses of $36,661,000 were $5,165,000 or
16 percent higher than last year. Adjusted for fluctuating foreign currency
exchange rates, operating expenses were 10 percent higher than the third
quarter of fiscal 1994 as the Company incurred additional expense associated
with improving sales and engineering capability.
The nonrecurring charges recorded during fiscal year 1994 of $4.2
million following the acquisition of ORSTA Hydraulik included provisions to
close certain facilities in Europe and the United Kingdom, phase out some
nonperforming products manufactured at those facilities and consolidate the
remaining core businesses with the newly acquired operations in Germany and
other existing operations located in the United States. These charges include
separation costs ($1.6 million), estimated costs to close and vacate facilities
($1.0 million), the writedown of fixed assets made idle or excess ($0.6
million) and other direct and incremental costs necessary to complete the
consolidation effort ($1.0 million). No additional charges have been recorded
since October 31, 1994. As of July 31, 1995 the remaining liabilities amount
to $0.6 million for employee separations, $0.4 million for plant closures and
$0.5 million for all other consolidation costs.
Operating income during the current quarter of $11,728,000 was
$4,379,000 or 60 percent higher than last year. Compared to twelve months ago,
operating profits recorded by the business units were mixed, as significant
gains reported by the Metal Products and Filtration Products Groups were
partially offset by reversals in the Hydraulic Products Group. Hydraulics
operations located in Germany incurred a loss for the quarter reflecting slower
than expected progress in achieving acceptable financial performance for the
businesses which were acquired in the third quarter of fiscal 1994. Efforts
have been intensified in a number of areas toward the attainment of
profitability for these operations, including the implementation of an employee
reduction plan which is currently being negotiated with the local workforce.
The cost of such plan, which is expected to affect results in the fourth
quarter of the current fiscal year, has not been determined at this time.
Nonoperating expenses during the third quarter of $765,000 were
slightly higher than last year. Interest expense during the current period was
$1,480,000 higher than last year due principally to a provision recorded last
year reversing expenses relating to a business written off in fiscal 1989.
This loss was partially offset by foreign currency exchange differences
recorded as a result of fluctuating exchange rates, realized primarily by the
Company's subsidiary in Brazil.
The effective income tax rate of 23 percent in the current quarter 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 utilization of tax loss carryforwards in
Brazil and Germany.
<PAGE> 13
FIRST NINE MONTHS OF 1995 COMPARED TO THE FIRST NINE MONTHS OF 1994
The highest first nine month net consolidated revenues recorded in the
75 year history of the Company of $452,000,000 were $86,643,000 or 24 percent
higher compared with the same period last year. Excluding the recovery of the
$5,462,000 from a discontinued operation, net income from continuing operations
for the current period of $21,820,000, another nine month record, was
$8,210,000 or 60 percent higher than the first nine months of fiscal 1994.
Sales from American operations during the first three quarters of the
current year of $244,790,000, an all-time record, were $34,411,000 or 16
percent higher than the same period last year as revenue gains were realized in
all major market segments served by the Company. While the Fluid Purification
Systems Group recorded a modest gain in domestic sales, the Hydraulic
Components and Metal Products Groups reported strong revenue gains of 21 and 25
percent respectively, capitalizing on increased customer demand in all major
market segments served by these two product groups. Likewise, during the first
nine months of the current fiscal year, overseas revenues of $207,210,000,
another record, were $52,232,000 or 34 percent higher than the same period last
year, as each of the Company's three foreign business units recorded
double-digit percentage year-over-year gains in sales. Hydraulic Component
Group revenues overseas were 37 percent higher than the same period last year
benefitting from the acquisition of ORSTA Hydraulik in Germany and
strengthening economies in Europe, Australia and Brazil. The Astron Division
profited from improving markets in Europe and Asia as revenues increased 37
percent over last year. Similarly, the Fluid Purification Systems Group
overseas reported a 27 percent revenue increase over the same period in fiscal
1994, capitalizing on improving economies in Europe, Asia, Australia, Brazil
and Japan. A weaker U.S. dollar compared to other currencies caused foreign
revenues reported in dollars to be $20,425,000 or 12 percent higher than the
first nine months of last year, after adjusting for the effects of currency
exchange rate differences on foreign sales reported in U.S. dollars. On a
parity adjusted basis, all major foreign market segments served by the
Corporation reported significant revenue gains, except for declines realized by
the Mining and Special Industrial Components market segments.
Consolidated gross profit of $135,146,000 during the first nine months
of the current fiscal period improved $26,072,000 or 24 percent compared to the
same period last year. Gross profit margins were the same as last year,
despite record sales volume, due principally to serious capacity constraints in
the United States and higher material costs in Europe and the United States.
The Company expects margins to improve however, due to improvements in
manufacturing efficiencies, productive scheduling of operations and the
manufacturing of certain building components in a new production facility in
the Czech Republic where labor costs are lower than existing facilities.
<PAGE> 14
Operating expenses of $103,406,000 were $18,784,000 or 22 percent
higher than the first nine months of fiscal 1994. Excluding ORSTA Hydraulik
expenses incurred in the current fiscal period, operating expenses were 15
percent higher than the same period last year. Adjusted for fluctuations in
foreign currency exchange rates and expenses associated with ORSTA, selling and
administrative expenses were 9 percent higher than the same period last year.
The Corporation has initiated an aggressive program to broaden market
penetration in all its product lines. Considerable expense incurred by the
Company associated with the establishment of sales and engineering capability
is expected to position the Company for future growth in an emerging global
market.
Operating income of $31,740,000 improved $7,288,000 or 30 percent
compared to the first three quarters of fiscal 1994 as significant
year-over-year gains were realized by the Hydraulics Components Group,
excluding ORSTA, and the Filtration Products Group. Lower operating income
reported by the Building Systems Division compared to last year, despite record
sales volume, is due principally to continuing competitive pricing pressure
from steel suppliers in Europe and increased expenses to capture emerging
markets for its pre-engineered Astron Buildings in Southeast Asia, China and
India.
During the first nine months of fiscal 1995, nonoperating expenses of
$3,672,000 were $575,000 or 14 percent lower than the same period last year due
principally to lower foreign currency exchange losses incurred as a result of
changing foreign currency rates, primarily by the Company's subsidiary in
Brazil. During the same period, interest income of $1,546,000 was $664,000
higher than last year and interest expense of $5,302,000 was $2,096,00 higher
than the first nine months of fiscal 1994, as the Corporation experienced a
general increase in short-term borrowings and rising interest rates over the
past year.
The effective income tax rate of 22 percent reported by the Company
during the current fiscal period, compared to 33 percent last year, is due
principally to higher domestic income, where United States income tax rates are
lower than those incurred by the Company's overseas operating units and the
benefit of tax loss carryforwards utilized in Brazil and Germany.
<PAGE> 15
FINANCIAL CONDITION
-------------------
Since the beginning of the fiscal year, cash and cash equivalents
decreased $9,863,000. Operating performance resulted in cash generated by
operating activities of $628,000 compared to $14,747,000 last year. Net cash
used by investing activities of $11,019,000 consisted of the acquisition of the
assets of the Hall F&D Head Company of Saginaw, Texas, a manufacturer of medium
and large metal products on January 31, 1995. The entire $886,000 cost of the
acquisition was financed with available funds. The acquisition was accounted
for as a purchase transaction with the accounts included in the accompanying
financial statements as of the acquisition date. During the first nine months
of the current fiscal period, the Company received a cash distribution of
$9,668,000 from the Treuhandanstalt, the regulatory agency of the Federal
Republic of Germany responsible for the privatization of the former East German
state-owned enterprises. This cash installment was paid to the Corporation
according to the terms of the purchase agreement negotiated with the German
government. Capital expenditures during the current period of $26,956,000 were
$16,883,000 higher than the first nine months of fiscal 1994. In addition,
during the current fiscal period, the Company received a grant subsidy of
$6,967,000 from the German government in regard to planned capital
expenditures. In light of current market trends and economic conditions, the
Company continues to diligently monitor capital spending requirements.
Internal cash flows are expected to continue to be sufficient to
provide the necessary resources to support operating requirements and to
finance capital expenditure programs. Supplemental borrowings against existing
credit facilities will also be utilized as needed to finance the capitalization
programs.
Trade customer bookings received during the first nine months of
fiscal 1995 of $482,146,000 were $66,916,000 or 16 percent higher than one year
ago, adjusted for foreign currency exchange differences. Third quarter orders
received this year of $163,399,000 were slightly lower than bookings received
during the second quarter of fiscal 1995, adjusted for parity differences,
reflecting a general slowing of orders received in the United States, United
Kingdom, Asia and Brazil. Current year orders received in the United States by
the Metal Products and Fluid Purification Products Groups exceeded last year's
levels by 25 percent and 5 percent respectively, while orders generated by the
Hydraulic Components Group remained virtually at the same level as last year.
Meanwhile, orders received by all three of the Corporation's foreign operating
units realized double-digit percentage increases in net bookings received,
adjusted for parity differences, over the same period last year.
<PAGE> 16
Despite record shipments generated in the current nine month period,
trade bookings received continue to outpace revenues on a consolidated basis.
With worldwide backlog still at its highest level in the Company's 75 year
history, the balance of uncompleted orders of $188,130,000 is 19 percent higher
than the balance at the end of fiscal 1994, adjusted for differences in foreign
currency exchange rates.
While a general leveling off of orders received has occurred recently,
the outlook for the remainder of the current fiscal year remains optimistic,
with record sales and earnings forecasted for the year. While the fourth
quarter is expected to be strong overall, growth in the Hydraulic Components
Group is slowing due principally to near term uncertainty of certain domestic
economic indicators. However, the Company expects the overseas units of the
Fluid Purification Products Group and the Astron Division in Europe to do well
during the next three months.
<PAGE> 17
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit 11 - Computation of Per Share Earnings
Exhibit 27 - Financial Data Schedule
(b) Reports On Form 8-K
No reports were filed on Form 8-K during the quarter for which this
report is filed.
<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 11, 1995 By /s/Hubert Jacobs van Merlen
------------------ ------------------------------
Hubert Jacobs van Merlen
Senior Vice President and
Chief Financial Officer
<PAGE> 1
<TABLE>
Exhibit 11
Computations of per Share Earnings
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
----------------- ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Primary
-------
<S> <C> <C> <C> <C>
Average shares outstanding........... 15,363 15,126 15,427 15,173
Net effect of dilutive stock options -
based on the treasury stock method
using average market price....... 215 136 197 184
--------- --------- --------- ---------
Total........................ 15,578 15,262 15,624 15,357
========= ========= ========= =========
Income from continuing operations.... $ 21,820 $ 13,610 $ 8,393 $ 4,933
Preferred stock dividends and
adjustments...................... (1,563) (1,574) (520) (524)
--------- --------- --------- ---------
Income applicable to common stock.... $ 20,257 $ 12,036 $ 7,873 $ 4,409
========= ========= ========= =========
Per share amount..................... $1.30 $0.79 $0.50 $0.29
========= ========= ========= =========
Net income........................... $ 21,820 $ 19,072 $ 8,393 $ 10,395
Preferred stock dividends and
adjustments...................... (1,563) (1,574) (520) (524)
--------- --------- --------- ---------
Income applicable to common stock.... $ 20,257 $ 17,498 $ 7,873 $ 9,871
========= ========= ========= =========
Per share amount..................... $1.30 $1.15 $0.50 $0.64
========= ========= ========= =========
Fully Diluted
-------------
Average shares outstanding.......... 15,363 15,126 15,427 15,173
Net effect of dilutive stock options -
based on the treasury stock method
using the period end price, if
higher than average market price.. 215 271 198 246
Common share equivalents:
Series B Preferred................ 1,303 1,310 1,301 1,308
--------- --------- --------- ---------
Total ........................ 16,881 16,707 16,926 16,727
========= ========= ========= =========
Income from continuing operations..... $ 21,820 $ 13,610 $ 8,393 $ 4,933
Preferred stock (Series B) dividends
rate adjustment................... (1,075) (1,113) (358) (360)
--------- --------- --------- ---------
Income applicable to common stock..... $ 20,745 $ 12,497 $ 8,035 $ 4,573
========= ========= ========= =========
Per share amount...................... $1.23 $0.75 $0.47 $0.27
========= ========= ========= =========
Net income............................ $ 21,820 $ 19,072 $ 8,393 $ 10,395
Preferred stock (Series B) dividends
rate adjustment................... (1,075) (1,113) (358) (360)
--------- --------- --------- ---------
Income applicable to common stock..... $ 20,745 $ 17,959 $ 8,035 $ 10,035
========= ========= ========= =========
Per share amount...................... $1.23 $1.07 $0.47 $0.60
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 42,803
<SECURITIES> 0
<RECEIVABLES> 113,788
<ALLOWANCES> 3,629
<INVENTORY> 76,193
<CURRENT-ASSETS> 252,380
<PP&E> 277,462
<DEPRECIATION> 136,394
<TOTAL-ASSETS> 456,843
<CURRENT-LIABILITIES> 157,577
<BONDS> 75,121
<COMMON> 15,435
0
24,494
<OTHER-SE> 138,295
<TOTAL-LIABILITY-AND-EQUITY> 456,843
<SALES> 452,000
<TOTAL-REVENUES> 452,000
<CGS> 316,854
<TOTAL-COSTS> 316,854
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 841
<INTEREST-EXPENSE> 5,302
<INCOME-PRETAX> 28,068
<INCOME-TAX> 6,248
<INCOME-CONTINUING> 21,820
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,820
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.23
</TABLE>
