<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 April 30, 1995 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
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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-- 15,419,452 shares as of June 1, 1995
----------
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<PAGE> 2
INDEX
COMMERCIAL INTERTECH CORP.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - April 30, 1995 and
October 31, 1994
Consolidated condensed statements of income - Six months ended
April 30, 1995 and 1994; and three months ended April 30, 1995
and 1994
Statements of consolidated cash flows - Six months ended
April 30, 1995 and 1994
Notes to consolidated condensed financial statements -
April 30, 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) APRIL 30, OCTOBER 31,
1995 1994
-----------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . $ 47,533 $ 52,666
Accounts receivable, less allowance
(1995-$3,134,000; 1994-$2,890,000). . . . 105,632 94,212
Inventories . . . . . . . . . . . . . . . . . 73,181 62,320
Deferred income tax benefits. . . . . . . . . 16,195 15,307
Prepaid expenses. . . . . . . . . . . . . . . 5,526 10,861
--------- ---------
TOTAL CURRENT ASSETS 248,067 235,366
PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . 268,613 253,890
Less allowance for depreciation . . . . . . . 133,798 128,453
--------- ---------
134,815 125,437
NONCURRENT ASSETS:
Intangible assets . . . . . . . . . . . . . . 25,063 26,563
Pension assets. . . . . . . . . . . . . . . . 32,591 31,191
Other assets. . . . . . . . . . . . . . . . . 2,957 4,421
--------- ---------
TOTAL NONCURRENT ASSETS 60,611 62,175
--------- ---------
TOTAL ASSETS $443,493 $422,978
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Bank loans. . . . . . . . . . . . . . . . . . $ 26,280 $ 20,273
Accounts and notes payable. . . . . . . . . . 110,497 107,326
Accrued income taxes. . . . . . . . . . . . . 4,530 2,037
Dividends payable . . . . . . . . . . . . . . 2,576 2,509
Current portion of long-term debt . . . . . . 2,766 2,821
--------- ---------
TOTAL CURRENT LIABILITIES 146,649 134,966
NONCURRENT LIABILITIES:
Long-term debt. . . . . . . . . . . . . . . . 75,938 77,020
Deferred income taxes . . . . . . . . . . . . 16,840 16,926
Postretirement benefits . . . . . . . . . . . 21,756 21,188
Deferred credit . . . . . . . . . . . . . . . 11,114 19,118
--------- ---------
TOTAL NONCURRENT LIABILITIES 125,648 134,252
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 - 15,418,205 shares (excluding
141,152 in treasury); 1994 - 15,199,258
shares (excluding 144,261 in treasury). 15,418 15,199
Capital surplus . . . . . . . . . . . . . . . 37,693 35,844
Retained earnings . . . . . . . . . . . . . . 100,592 91,649
Deferred compensation . . . . . . . . . . . . (18,851) (20,108)
Translation adjustment. . . . . . . . . . . . 11,850 6,545
--------- ---------
171,196 153,760
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $443,493 $422,978
========= =========
</TABLE>
<PAGE> 4
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
(Thousands of dollars) APRIL 30, APRIL 30,
-------------------- -------------------
1995 1994 1995 1994
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................... $289,272 $225,803 $153,965 $121,443
Less costs and expenses:
Cost of products sold..... 202,515 155,574 108,669 82,915
Selling, administrative and
general expense......... 66,745 53,126 34,934 26,703
--------- --------- --------- ---------
269,260 208,700 143,603 109,618
--------- --------- --------- ---------
Operating income............. 20,012 17,103 10,362 11,825
Nonoperating income (expense):
Interest income........... 974 542 499 222
Interest expense.......... (3,531) (2,915) (1,916) (1,385)
Other..................... (350) (1,172) (6) (701)
--------- --------- --------- ---------
(2,907) (3,545) (1,423) (1,864)
--------- --------- --------- ---------
Income before income taxes... 17,105 13,558 8,939 9,961
Income taxes................. 3,678 4,881 1,632 3,352
--------- --------- --------- ---------
Net income................... $ 13,427 $ 8,677 $ 7,307 $ 6,609
========= ========= ========= =========
Preferred stock dividend..... 1,043 1,050 521 524
--------- --------- --------- ---------
Net income applicable to
common stock............... $ 12,384 $ 7,627 $ 6,786 $ 6,085
========= ========= ========= =========
Earnings per share of common stock:
Net income:
Primary................. $0.80 $0.50 $0.43 $0.40
Fully diluted........... 0.75 0.48 0.41 0.38
Cash dividends declared.. $0.250 $0.227 $0.125 $0.114
</TABLE>
<PAGE> 5
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(Thousands of dollars) April 30,
-----------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . $13,427 $ 8,677
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization . . 9,040 7,941
Amortization of deferred credit . . . . . . . . (8,888) 0
Postretirement benefit. . . . . . . . . . . . . 325 506
Pension plan credits. . . . . . . . . . . . . . (780) (981)
Change in deferred income taxes . . . . . . . . (838) 252
Change in current assets and liabilities:
(Increase) in accounts receivable. . . . . . (7,654) (2,250)
(Increase) in inventories. . . . . . . . . . (8,511) (2,704)
(Increase) decrease in prepaid expenses and
other current assets. . . . . . . . . . . (868) 1,041
(Decrease) in accounts payable and
accrued expenses. . . . . . . . . . . . . (3,421) (3,830)
Increase (decrease) in accrued income taxes. 2,943 (4,157)
-------- ---------
Net cash (used) provided by operating activities . . (5,225) 4,495
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets. . . . . . . . . . 92 196
Business acquisition. . . . . . . . . . . . . . . . . (886) 0
Grant subsidies received. . . . . . . . . . . . . . . 6,967 0
Installments received -- acquisition. . . . . . . . . 6,844 0
Investment in intangibles . . . . . . . . . . . . . . (70) 0
Capital expenditures. . . . . . . . . . . . . . . . . (14,925) (7,622)
-------- --------
Net cash (used) by investing activities . . . . . . . (1,978) (7,426)
FINANCING ACTIVITIES:
Proceeds from long-term debts . . . . . . . . . . . . 0 0
Principal payments on long-term debts . . . . . . . . (1,940) (1,421)
Net borrowings under bank loan agreements . . . . . . 4,793 (2,799)
Proceeds from reserve contracts . . . . . . . . . . . 1,240 676
Conversion of other assets. . . . . . . . . . . . . . (111) 68
Dividends paid. . . . . . . . . . . . . . . . . . . . (4,827) (4,443)
-------- --------
Net cash (used) by financing activities . . . . . . . (845) (7,919)
Effect of exchange rate changes on cash. . . . . . . . . 2,915 785
-------- --------
Net (decrease) in cash and cash equivalents. . . . . . . (5,133) (10,065)
Cash and cash equivalents at beginning of period . . . . 52,666 25,066
-------- --------
Cash and cash equivalents at end of period . . . . . . . $47,533 $15,001
======= ========
Supplemental disclosures:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $3,565 $2,915
Income taxes . . . . . . . . . . . . . . . . . . . 1,573 8,786
</TABLE>
<PAGE> 6
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 30, 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 six-month and three-month
period ended April 30, 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
<TABLE>
<CAPTION>
Inventories consisted of the following:
April 30, October 31,
1995 1994
-------- -----------
<S> <C> <C>
Raw materials $ 18,924 $ 15,393
Work-in-process 32,226 31,188
Finished goods 22,031 15,739
-------- -------
$ 73,181 $ 62,320
======= =======
</TABLE>
Note E - Segment Reporting
- --------------------------
The Company is engaged in the design, manufacture and sale of products
in three segments:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
APRIL 30, APRIL 30,
(Thousands of dollars) 1995 1994 1995 1994
---------------- ------------------
<S> <C> <C> <C> <C>
Hydraulic Components
Net sales............... $141,288 $103,218 $ 74,639 $ 57,241
Operating income........ 14,570 12,282 7,141 8,323
Metal Products
Net sales............... $ 70,641 $ 53,933 $ 39,696 $ 28,431
Operating income........ 1,136 2,634 1,076 1,221
Fluid Purification Systems
Net sales............... $ 77,343 $ 68,652 $ 39,630 $ 35,771
Operating income ....... 4,306 2,187 2,145 2,281
TOTAL COMPANY
Net sales.............. $289,272 $225,803 $153,965 $121,443
Operating income....... 20,012 17,103 10,362 11,825
Percent to sales....... 6.9% 7.6% 6.7% 9.7%
</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. 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. 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 are being 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
40.1 million Deutsche marks (approximately U.S. $25.7 million). The
remaining contributions will be received by SHC during the third
quarter of fiscal 1995. Of the funds provided by the Treuhandanstalt
since the acquisition date, 23.7 million Deutsche marks (approximately
U.S. $15.4 million) were consumed by operating losses from May 3, 1994
to April 30, 1995 and 13.5 million Deutsche marks (approximately U.S.
$9.3 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)
- ---------------------------------
<TABLE>
Negative Goodwill Amortization
<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
------- -------
Total DM 23,667 $ 15,355
====== =======
Remainder (Balance Sheet)
Third quarter, 1995 DM 5,410 $ 3,903
Fourth quarter, 1995 4,745 3,424
First quarter, 1996 3,745 2,702
Second quarter, 1996 1,504 1,085
------ ------
Total DM 15,404 $ 11,114
====== =======
</TABLE>
<TABLE>
ORSTA Hydraulik income statement:
<CAPTION>
APRIL 30,
-------------------------
SIX MONTHS THREE MONTHS
ENDED ENDED
1995 1995
---------- ------------
(in thousands)
<S> <C> <C>
Net sales $ 17,310 $ 9,384
Cost of products sold 20,389 10,940
Less: negative goodwill (8,889) (4,470)
------ ---------
Total cost of products sold 5,021 6,471
------ ---------
Gross profit 5,818 2,913
Selling, administrative
and general expenses 5,874 3,218
------ ---------
Operating income $ (56) $ (305)
========= =========
</TABLE>
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 1995 COMPARED TO SECOND QUARTER 1994
- ---------------------------------------------------
Record second quarter sales and earnings in the Corporation's 75 year
history were realized during the current period. Consolidated net revenues of
$153,965,000 during the current quarter were $32,522,000 or 27 percent higher
than the same period last year. On the strength of this record sales
performance, net income rose to $7,307,000, or $698,000 higher than last year's
record second quarter earnings.
Revenues from operations in the United States in the current quarter
of $83,136,000, the highest domestic sales recorded in the history of the
Company, were $10,924,000 or 15 percent higher than the second quarter of
fiscal 1994, as revenue gains were realized in all major market segments served
by the Company. While the Filtration Products Group recorded a slight gain in
domestic sales, the Hydraulic Components and Metal Products Groups reported
revenue gains of 21 and 16 percent respectively, realizing double-digit
percentage sales gains in all major domestic market segments served by the
Company. During the same period, revenues reported by foreign operating units
of $70,829,000, the second highest quarterly sales recorded overseas, were
$21,598,000 or 44 percent higher than last year, reflecting surging demand in
each of the Company's three core business units. Foreign Hydraulic Component
Group revenues were $8,457,000 or 58 percent higher than last year mainly
attributed to the acquisition of the ORSTA Hydraulik divisions in Germany. The
Astron Building Systems Division was able to benefit from the improved European
and Asian economies, realizing a 56 percent increase in revenues. Similarly,
the overseas Fluid Purification Systems Group reported a sales gain of 21
percent over last year from improving conditions in Europe, Brazil and Japan.
Adjusted for changes in foreign currency exchange rates and due to a weaker
U.S. dollar, foreign revenues would have been $6,279,000 or 11 percent lower at
last year's average foreign currency exchange rates. On a parity adjusted
basis, all major foreign market segments served by the Company posted
significant revenue gains.
Consolidated gross profit of $45,296,000 was $6,768,000 or 18 percent
higher than last year, due to increased sales volume as plant capacity
restraints and increased material costs unfavorably impacted sales gains.
Similar year-over-year gross margin declines were realized by both the domestic
and foreign operating units.
<PAGE> 12
Selling and administrative expenses of $34,934,000 were $8,231,000 or
31 percent higher than the same period last year. Excluding ORSTA Hydraulik's
expenses in the current period, operating expenses were 19 percent higher than
the second quarter of last year. Adjusted for fluctuating foreign currency
exchange rates and the impact of ORSTA, operating expenses were 13 percent
higher than the second quarter of fiscal 1994 as the Company incurred
considerable expense associated with the establishment of 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). As of April 30, 1995, two of the
scheduled three phases have been completed. No additional charges have been
recorded since October 31, 1994. The remaining liabilities at the end of the
second quarter amount to $0.8 million for employee separations, $0.5 million
for plant closures and $0.6 million for all other consolidation costs.
Operating income during the current quarter of $10,362,000 was
$1,463,000 or 12 percent lower than the second quarter of last year. Despite
record sales levels, all three major product groups recognized year-over-year
declines, with the Hydraulic Components Group and Astron Building Systems
Division both realizing double-digit declines in operating performance.
Nonoperating expenses of $1,423,000 during the second quarter of
fiscal 1995 were 24 percent lower than last year, due principally to the
reduction of foreign currency losses realized as a result of fluctuating
exchange rates incurred last year, primarily by the Company's Brazilian
operations. Meanwhile, interest expense of $1,916,000 is 38 percent higher
than last year reflecting a general increase in short-term borrowing and
rising interest rates over the past twelve months.
The Corporation's effective income tax rate of 18 percent during 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 SIX MONTHS OF 1995 COMPARED TO THE FIRST SIX MONTHS OF 1994
- -----------------------------------------------------------------
For the six month period ended April 30, 1995, the Company recorded
its highest sales and earnings in its 75 year history. Net consolidated
revenues of $289,272,000 during the first half of fiscal 1995 were $63,469,000
or 28 percent higher than last year. Net income increased 55 percent to
$13,427,000, also a record, versus $8,677,000 for the first six months of last
year.
Revenues from United States operations of $160,247,000 compared to
$135,158,000 or 19 percent higher than the same period last year as gains in
sales were recognized in all major market segments served by the Company.
While the Filtration Products Group recorded a modest gain in domestic sales,
the Hydraulic Components and Metal Products Groups reported revenue gains of 27
and 16 percent respectively, capitalizing on increased customer demand in all
major market segments served by these two product groups. Likewise, during the
first half of the current year, overseas revenues of $129,025,000 were
$38,380,000 or 42 percent higher than the first six months of fiscal 1994, as
each of the Company's three business units positioned themselves in the global
marketplace to record double-digit percentage gains in revenues. Hydraulic
Component Group sales overseas were 66 percent higher than the same period last
year benefitting from the acquisition of ORSTA Hydrauliks in Germany and
improving economies in Europe, Australia and Brazil. The Astron Division
profited from improving markets in Europe and Asia as revenues increased 42
percent over last year. Likewise, the foreign Fluid Purification Systems Group
reported a sales increase of 24 percent over 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 $10,604,000 or 10 percent higher than the first six months of
fiscal 1994, 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 posted
double-digit revenue gains.
Consolidated gross profit of $86,757,000 during the first half of
fiscal 1995 was $16,528,000 or 24 percent higher than last year. Gross profit
margins were just over one percentage point lower than last year due
principally to higher material costs and capacity restraints. Both domestic
and foreign operating units realized similar profit margin reversals since last
year due to these constraints.
<PAGE> 14
Operating expenses of $66,745,000 were $13,619,000 or 26 percent higher
than the first six months of fiscal 1994. Excluding ORSTA Hydraulik expenses
incurred in the current fiscal year, operating expenses were 15 percent higher
than the same period last year. Adjusted for changes in foreign currency
exchange rates and expenses associated with ORSTA, selling and administrative
expenses were 9 percent higher than the same period last year as the
Corporation has implemented an aggressive program to broaden market penetration
in all 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 emerging markets around the globe.
Operating income of $20,012,000 improved $2,909,000 or 17 percent
compared to the first half of fiscal 1994 as significant year-over-year gains
were reported by the Hydraulic Components and Filtration Products Groups.
Lower operating income reported by the Building Systems Division compared to
last year, despite record sales volume, is due to competitive pricing pressure
in Europe and, in part, to expenses to capture emerging markets for its
pre-engineered Astron Buildings in Southeast Asia, China and India.
Nonoperating expenses of $2,907,000 during the first six months of the
current year were $638,000 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 $974,000 was $432,000
higher than last year and interest expense of $3,531,000 was $616,000 higher
than the first half of fiscal 1994 as the Company experienced a general
increase in short-term borrowing and rising interest rates over the past year.
The effective income tax rate of 22 percent reported by the
Corporation during the first six months of fiscal 1995, compared to 36 percent
last year is due principally to higher domestic income, where United States
income tax rates are lower than those accrued by the Company's foreign
operations and the benefit of tax loss carryforwards utilized in Brazil and
Germany.
<PAGE> 15
FINANCIAL CONDITION
- -------------------
Cash and cash equivalents decreased $5,133,000 since the beginning of
fiscal 1995. Operating performance resulted in cash used by operating
activities of $5,225,000 compared to cash generated last year of $4,495,000.
Cash used by investing activities of $1,978,000 consisted of the acquisition of
the assets of Hall F&D Head Company of Saginaw, Texas, a manufacturer of medium
and large metal products on January 31, 1995. The cost of the acquisition,
$886,000, was financed with available funds. The acquisition was accounted for
as a purchase transaction with the accounts included in the accompanying
financial statement as of the acquisition date. During the second quarter of
this year, the Company received a cash distribution of $6,844,000 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 Company according to the
terms of the purchase agreement negotiated with the German government. Capital
expenditures during the current period of $14,925,000 were $7,303,000 higher
than the first six months of fiscal 1994. In addition, during the current
fiscal year, the Corporation received a grant subsidy of $6,967,000 from the
German government in regard to planned capital expenditures. In light of
current market conditions and economic trends, the Company continues to
diligently monitor its capital spending requirements.
Internal cash flows are expected to continue to be sufficient to
provide the resources necessary to support operating requirements and to
finance capital expenditure programs. The Company will use supplemental
borrowings against existing credit facilities as needed to finance the
capitalization programs.
Incoming trade customer orders received of $318,747,000 during the
first half of fiscal 1995 were $57,179,000 or 22 percent higher than the same
period last year, adjusted for foreign currency exchange differences. Second
quarter bookings received this year of $164,671,000 were $7,938,000 or 5
percent higher than orders received during the first three months of fiscal
1995, adjusted for fluctuating foreign currencies. Current year orders
received in the United States by all three business units exceeded last year's
levels, with both the Hydraulic Components and Metal Products Groups reporting
double-digit percentage gains. Similarly, all three foreign operating groups
realized double-digit percentage increases in net orders received, parity
adjusted, over the same period last year.
<PAGE> 16
Despite record sales activity in the current period, trade bookings
received continue to outpace shipments on a consolidated basis. With worldwide
backlog still at its highest level in the Corporation's history, the balance of
uncompleted orders of $187,832,000 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 appears to be
occurring domestically in recent weeks, overseas orders continue to remain
strong, principally in Europe and Asia. Nonetheless, current economic
forecasts suggest a possible slowdown late in the fiscal year due principally
to higher short-term interest rates and slackening demand in housing and
durable goods markets.
SUBSEQUENT EVENTS
- -----------------
On May 23, 1995, the Corporation announced plans to form a subsidiary
in India that will manufacture and market a variety of products. The name of
the company will be announced later, pending customary review and approval by
the Indian government and appropriate agencies. Many Commercial products have
been marketed in India for several years, particularly hydraulic components and
fluid purification systems. Because of its existing business climate and
anticipated longer-term growth of its economy, India is expected to become an
even more important market for the Company. Manufacturing product lines and
facility locations will be announced at a later date.
<PAGE> 17
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>
SIX MONTHS ENDED THREE MONTHS ENDED
APRIL 30, APRIL 30
1995 1994 1995 1994
---------------- ------------------
<S> <C> <C> <C> <C>
Primary
- -------
Average shares outstanding. . . . . . . . . . 15,331 15,102 15,410 15,134
Net effect of dilutive stock options -
based on the treasury stock method
using average market price . . . . . . . . 224 101 251 128
------ ------ ------ ------
Total . . . . 15,555 15,203 15,661 15,262
======= ====== ====== ======
Net income. . . . . . . . . . . . . . . . . . $13,427 $ 8,677 $ 7,307 $ 6,609
Preferred stock dividends and adjustments . . (1,043) (1,050) (521) (524)
-------- -------- ------- -------
Income applicable to common stock . . . . . . $12,384 $ 7,627 $ 6,786 $ 6,085
======= ======== ======== ========
Per share amount. . . . . . . . . . . . . . . $0.80 $0.50 $0.43 $0.40
======= ======== ======== ========
Fully Diluted
- -------------
Average shares outstanding. . . . . . . . . . 15,331 15,102 15,410 15,134
Net effect of dilutive stock options -
based on the treasury stock method
using the period end price, if higher
than average market price. . . . . . . . . 272 138 266 130
Common share equivalents:
Series B Preferred . . . . . . . . . . . . 1,304 1,311 1,301 1,308
-------- -------- -------- --------
Total . . . . 16,907 16,551 16,977 16,572
======== ======== ======== ========
Net income. . . . . . . . . . . . . . . . . . $13,427 $ 8,677 $ 7,307 $ 6,609
Preferred stock (Series B) dividends
rate adjustment. . . . . . . . . . . . . . (717) (753) (358) (376)
-------- -------- -------- --------
Income applicable to common stock . . . . . . $12,710 $ 7,924 $ 6,949 $ 6,233
======== ======== ======== ========
Per share amount. . . . . . . . . . . . . . . $0.75 $0.48 $0.41 $0.38
======== ======== ======== ========
</TABLE>
<PAGE> 18
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> 19
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 June 12, 1995 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1995
<CASH> 47,533
<SECURITIES> 0
<RECEIVABLES> 108,766
<ALLOWANCES> 3,134
<INVENTORY> 73,181
<CURRENT-ASSETS> 248,067
<PP&E> 268,613
<DEPRECIATION> 133,815
<TOTAL-ASSETS> 443,493
<CURRENT-LIABILITIES> 146,649
<BONDS> 75,938
<COMMON> 0
24,494
15,418
<OTHER-SE> 131,284
<TOTAL-LIABILITY-AND-EQUITY> 443,493
<SALES> 289,272
<TOTAL-REVENUES> 289,272
<CGS> 202,515
<TOTAL-COSTS> 202,515
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 296
<INTEREST-EXPENSE> 3,531
<INCOME-PRETAX> 17,105
<INCOME-TAX> 3,678
<INCOME-CONTINUING> 13,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,427
<EPS-PRIMARY> .80
<EPS-DILUTED> .75
</TABLE>
