<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, 1996 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)
(330) 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--13,566,431 shares as of September 1, 1996
- ------------------------------------------------------------------------
<PAGE> 2
INDEX
COMMERCIAL INTERTECH CORP.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated condensed balance sheets - July 31, 1996 and
October 31, 1995
Consolidated condensed statements of income -
Nine months ended July 31, 1996 and 1995; and three months ended
July 31, 1996 and 1995
Statements of consolidated cash flows - Nine months ended
July 31, 1996 and 1995
Notes to consolidated condensed financial statements -
July 31, 1996
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,
1996 1995
----------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . $ 48,630 $ 32,949
Accounts receivable, less allowance
(1996-$1,862,000; 1995-$2,306,000). . . . 69,290 81,540
Inventories . . . . . . . . . . . . . . . . . 55,906 51,719
Deferred income tax benefits. . . . . . . . . 12,957 11,639
Prepaid expenses. . . . . . . . . . . . . . . 7,816 5,012
-------- --------
TOTAL CURRENT ASSETS 194,599 182,859
PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . 196,946 187,057
Less allowance for depreciation . . . . . . . 100,428 92,262
-------- --------
96,518 94,795
NONCURRENT ASSETS:
Intangible assets . . . . . . . . . . . . . . 9,560 2,098
Pension assets. . . . . . . . . . . . . . . . 33,898 32,478
Net assets of discontinued operations . . . . 50,964 86,883
Other assets. . . . . . . . . . . . . . . . . 4,713 3,566
-------- --------
TOTAL NONCURRENT ASSETS 99,135 125,025
-------- --------
TOTAL ASSETS $390,252 $402,679
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Bank loans. . . . . . . . . . . . . . . . . . $ 11,266 $ 9,285
Accounts and notes payable. . . . . . . . . . 100,742 100,898
Accrued income taxes. . . . . . . . . . . . . 4,864 3,216
Dividends payable . . . . . . . . . . . . . . 2,418 2,788
Current portion of long-term debt . . . . . . 8,210 1,233
-------- --------
TOTAL CURRENT LIABILITIES 127,500 117,420
NONCURRENT LIABILITIES:
Long-term debt. . . . . . . . . . . . . . . . 94,587 69,869
Deferred income taxes . . . . . . . . . . . . 14,460 14,112
Postretirement benefits . . . . . . . . . . . 21,474 20,954
Deferred credit . . . . . . . . . . . . . . . 0 3,731
-------- --------
TOTAL NONCURRENT LIABILITIES 130,521 108,666
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: 1996 - 1,039,657 shares
1995 - 1,053,508 shares. . . . 24,172 24,494
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1996 - 13,571,332 shares (excluding
2,083,909 in treasury); 1995 - 15,439,514
shares (excluding 149,043 in treasury). . 13,571 15,440
Capital surplus . . . . . . . . . . . . . . . 0 38,396
Retained earnings . . . . . . . . . . . . . . 110,729 112,907
Deferred compensation . . . . . . . . . . . . (17,594) (18,851)
Translation adjustment. . . . . . . . . . . . 1,353 4,207
-------- --------
132,231 176,593
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $390,252 $402,679
======== ========
</TABLE>
<PAGE> 4
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
NINE MONTHS ENDED THREE MONTHS ENDED
(Thousands of dollars) July 31, July 31,
----------------- ------------------
1996 1995 1996 1995
-------- -------- -------- --------
[S] [C] [C] [C] [C]
Net sales...................... $340,198 $331,190 $121,009 $119,261
Less costs and expenses:
Cost of products sold....... 252,086 242,018 88,710 87,906
Selling, administrative and
general expense........... 66,442 64,812 22,362 22,290
Nonrecurring defense costs.. 3,637 0 3,637 0
-------- -------- -------- --------
322,165 306,830 114,709 110,196
-------- -------- -------- --------
Operating income............... 18,033 24,360 6,300 9,065
Nonoperating income (expense):
Interest income............. 781 1,468 261 541
Interest expense............ (4,232) (4,748) (1,526) (1,630)
Gain on sale of properties.. 940 0 940 0
Foreign currency gains
(losses).................. (42) (74) (401) 77
Other....................... 1,063 591 269 498
-------- -------- -------- --------
(1,490) (2,763) (457) (514)
-------- -------- -------- --------
Income from continuing operations
before income taxes......... 16,543 21,597 5,843 8,551
Income taxes................... 5,550 3,853 2,644 1,577
-------- -------- -------- --------
Income from continuing
operations.................. 10,993 17,744 3,199 6,974
Income from the discontinued
operations (net of income
taxes of $4,778,000 and
$2,396,000 for nine months
of 1996 and 1995; and
$2,399,000 and $994,000
for the three months ended
July 31, 1996 and 1995...... 5,732 4,076 630 1,419
-------- -------- -------- --------
Net income .................... $ 16,725 $ 21,820 $ 3,829 $ 8,393
========= ========= ========= ========
Preferred stock dividend....... 1,544 1,563 513 520
-------- -------- -------- --------
Net income applicable to
common stock................. $ 15,181 $ 20,257 $ 3,316 $ 7,873
========= ========= ========= ========
Earnings per share of common stock:
Primary:
Income from continuing
operations............. $ 0.61 $ 1.04 $ 0.17 $ 0.41
Net Income............... 0.98 1.30 0.22 0.50
Fully diluted
Income from continuing
operations............. $ 0.59 $ 0.99 $ 0.17 $ 0.39
Net Income............... 0.93 1.23 0.21 0.47
Cash dividends declared.... $0.405 $0.375 $0.135 $0.125
<PAGE> 5
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(Thousands of dollars) July 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . $ 16,725 $ 21,820
Adjustments to reconcile net income to net cash
provided by operating activities:
Discontinued operations . . . . . . . . . . . . (5,732) (4,076)
Provision for depreciation and amortization . . 8,856 8,044
Amortization of deferred credit . . . . . . . . (3,634) (12,768)
Postretirement benefit. . . . . . . . . . . . . 665 508
Pension plan credits. . . . . . . . . . . . . . (1,630) (2,039)
Change in deferred income taxes . . . . . . . . (847) 67
Change in current assets and liabilities:
Decrease (increase) in accounts receivable . 11,931 (8,861)
(Increase) in inventories. . . . . . . . . . (4,103) (11,261)
(Increase) in prepaid expenses and
other current assets. . . . . . . . . . . (2,962) (2,102)
Increase in accounts payable and
accrued expenses. . . . . . . . . . . . . 8,257 2,471
Increase in accrued income taxes . . . . . . 3,328 3,830
-------- --------
Net cash provided (used) by continuing operations . . 30,854 (4,367)
Net cash provided (used) by discontinued operations . 10,417 (2,320)
-------- --------
Net cash provided (used) by operating activities. . . 41,271 (6,687)
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets. . . . . . . . . . 2,755 373
Business acquisition. . . . . . . . . . . . . . . . . (10,731) (886)
Grant subsidies received. . . . . . . . . . . . . . . 0 6,967
Installments received -- acquisition. . . . . . . . . 0 9,668
Investment in intangibles . . . . . . . . . . . . . . 0 (30)
Capital expenditures. . . . . . . . . . . . . . . . . (13,808) (22,677)
-------- --------
Net cash (used) by investing activities . . . . . . . (21,784) (6,575)
FINANCING ACTIVITIES:
Proceeds from long-term debt . . . . . . . . . . . . 145,052 0
Principal payments on long-term debt . . . . . . . . (83,321) (2,269)
Net borrowings under bank loan agreements . . . . . . 2,356 9,765
Repurchase of common shares . . . . . . . . . . . . . (57,008) 0
Proceeds from reserve contracts . . . . . . . . . . . 1,945 1,763
Purchase of reserve contracts . . . . . . . . . . . . (3,566) (3,475)
Conversion of other assets. . . . . . . . . . . . . . (449) (148)
Dividends paid. . . . . . . . . . . . . . . . . . . . (7,848) (7,246)
-------- --------
Net cash (used) by financing activities . . . . . . . (2,839) (1,610)
Effect of exchange rate changes on cash. . . . . . . . . (967) 2,908
-------- --------
Net increase (decrease) in cash and cash equivalents . . 15,681 (11,964)
Cash and cash equivalents at beginning of period . . . . 32,949 48,258
-------- --------
Cash and cash equivalents at end of period . . . . . . . $ 48,630 $ 36,294
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $3,386 $3,930
Income taxes . . . . . . . . . . . . . . . . . . . 3,069 (45)
</TABLE>
<PAGE> 6
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
July 31, 1996
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, 1996 are not necessarily indicative of the
results that may be expected for the year ended October 31, 1996. 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, 1995.
Note B - Discontinued Operations
- --------------------------------
On July 29, 1996 the Board of Directors of Commercial Intertech Corp.
approved a plan to spin-off the fluid purification business by
declaring a dividend distribution of 100% of the common stock of Cuno
Incorporated ("CUNO") on a pro-rata basis to the holders of Commercial
Intertech common shares (the "Distribution"). Each holder of record of
Commercial Intertech common shares at the close of business on
September 10, 1996, the record date for the Distribution, received one
share of CUNO Common Stock for every one share of Commercial Intertech
common share. No fractional shares of CUNO were issued. The net assets
and operating results of CUNO are presented in all the accompanying
consolidated financial statements as a discontinued operation.
In connection with the spin-off, the Board of Directors of Commercial
Intertech declared a dividend of approximately $35,675,000 payable from
the CUNO locations to the parent, and immediately prior to the
Distribution, Cuno will assume $30,000,000 of Commercial Intertech's
debt in the form of a dividend.
The Company and CUNO have entered into a Tax Allocation Agreement in
connection with the distribution. In addition, the Company and CUNO
have entered into a Distribution and Interim Services Agreement which
provides that certain services which have historically been provided to
CUNO by the Company will continue to be provided following the
Distribution Date, at rates specified in such agreement, for a period
of up to twelve months.
<PAGE> 7
Note C - Long-Term Debt
- -----------------------
During the quarter, the Company entered into a new $60.0 million loan
agreement to fund the repurchase of 2.0 million common shares. Interest
was at 8.5 percent. That loan was subsequently replaced with a new
$190.0 million credit facility. As of July 31, 1996, the Company had
$85.0 million outstanding. In addition to the repurchase of stock, the
funds were used to purchase the outstanding loans of the Company's
Employee Stock Ownership Plan ("ESOP") and for other general corporate
purposes. The Company pays a commitment fee of 0.5 percent per annum on
the unused portion of the credit facility. The facility has interest
options determinable by the Company based upon Euro-Rate or prime
interest rates. The Euro-Rate option interest rate is the Euro-Rate
plus 3.00 percent until January 30, 1997 and then increases by one half
point each quarter until the expiration date on January 30, 1998. The
prime rate option is prime plus 0.25 percent until January 30, 1997 and
then increases by one half point each quarter. The interest rate at
July 31 was 8.5 percent.
Note D - Per-Share Data
- -----------------------
Per-share data was computed using the weighted average number of common
shares outstanding during the period. 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 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 the subsequent adjustment for dividend rates to arrive at
income available to common shareholders.
<PAGE> 8
Note E - Inventories
- --------------------
Inventories from continuing operations consisted of the following:
<TABLE>
<CAPTION>
July 31, October 31,
1996 1995
-------- -----------
<S> <C> <C>
Raw materials $21,426 $14,219
Work-in-process 26,876 27,677
Finished goods 7,604 9,123
------- -------
$55,906 $51,719
======= =======
</TABLE>
Note F - 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,
----------------- ------------------
1996 1995 1996 1995
(Thousands of dollars)
<S> <C> <C> <C> <C>
HYDRAULIC SYSTEMS
Net sales $219,577 $213,186 $ 75,562 $ 71,898
Operating income 12,351 19,885 2,859 5,660
BUILDING SYSTEMS AND METAL PRODUCTS
Net sales $120,621 $118,004 $ 45,447 $ 47,363
Operating income 5,682 4,475 3,441 3,405
TOTAL CONTINUING OPERATIONS
Net sales $340,198 $331,190 $121,009 $119,261
Operating income 18,033 24,360 6,360 9,065
Percent to sales 5.3% 7.4% 5.2% 7.1%
DISCONTINUED OPERATIONS (FLUID PURIFICATION)
Net sales $134,636 $120,810 $ 48,542 $ 43,467
Operating income 10,876 7,335 3,252 2,643
</TABLE>
<PAGE> 9
Note G - Acquisitions
- ---------------------
On June 28, 1996, the Company acquired the assets of a
manufacturer of cartridge type hydraulic valves based in Chanhassen,
MN. The acquisition was accounted for as a purchase transaction and
included in the accompanying financial statements since the acquisition
date. Pro forma financial results are not provided herein because the
impact of sales and net earnings on consolidated amounts is immaterial.
Effective May 3, 1994 (the "acquisition date"), 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 was accounted for as a
purchase transaction.
Under terms of the Agreement, the Company 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
contributions available to the Company on the acquisition date were
adjusted for funds consumed by the operations during the interim period
between the measurement and acquisition dates. Details of investment on
the acquisition date are as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
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 and cash equivalents acquired $ 11,140
========
</TABLE>
<PAGE> 10
Note G - Acquisitions (Continued)
- ---------------------------------
In addition to the cash acquired at the acquisition date, a
balance of 44.1 million Deutsche marks (approximately U.S.
$28.5 million) was receivable from the Treuhandanstalt in regard to the
original cash contribution during fiscal 1995 and 1994. Of the funds
provided by the Treuhandanstalt since the acquisition date,
39.1 million Deutsche marks (approximately U.S. $26.2 million) were
consumed by operating losses from May 3, 1994 to July 31, 1996 and
26.4 million Deutsche marks (approximately U.S. $18.2 million) were
used to fund the pre-existing capital investment program.
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
buildings 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 was amortized based on estimated operating results of
the ORSTA Hydraulik operations as determined on May 3, 1994. The
quarterly amortization value remained unchanged as actual results were
reported and translated from Deutsche marks into U.S. dollars at the
average exchange rate for the period.
<PAGE> 11
Note G - Acquisitions (Continued)
- ---------------------------------
Negative Goodwill Amortization:
<TABLE>
<CAPTION>
Fiscal Quarters Deutsche Marks U.S. Dollars
--------------- -------------- ------------
(in thousands)
Amounts Amortized
- -----------------
<S> <C> <C>
FISCAL 1994
Third quarter, 1994 DM 3,297 $ 2,044
Fourth quarter, 1994 7,015 4,422
---------- --------
TOTAL FISCAL 1994 DM 10,312 $ 6,466
FISCAL 1995
First quarter, 1995 DM 6,855 $ 4,419
Second Quarter, 1995 6,500 4,470
Third quarter, 1995 5,410 3,879
Fourth quarter, 1995 4,745 3,327
---------- --------
TOTAL FISCAL 1995 DM 23,510 $ 16,095
FISCAL 1996
First quarter, 1996 DM 3,745 $ 2,617
Second quarter, 1996 1,504 1,017
Third quarter, 1996 0 0
---------- --------
TOTAL FISCAL 1996 DM 5,249 $ 3,634
---------- --------
TOTAL AMORTIZED DM 39,071 $ 26,195
========== ========
</TABLE>
ORSTA Hydraulik income statement:
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Ended
July 31, July 31,
1996 1995 1996 1995
------ ------ ------ -----
(in thousands)
<S> <C> <C> <C> <C>
Sales $29,383 $26,614 $10,362 $ 9,304
Cost of products sold 30,504 31,368 10,784 10,987
Less: negative goodwill (3,634) (12,768) 0 (3,879)
------- ------- ------- -------
Total cost of products sold 26,870 18,600 10,784 7,108
------- ------- ------- -------
Gross profit 2,513 8,014 (422) 2,196
Selling, administrative and
general expense 7,032 8,930 2,323 3,056
------- ------- ------- -------
Operating (loss) profit $(4,519) $ (916) $(2,745) $ (860)
======= ======= ======= =======
</TABLE>
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Third Quarter 1996 Compared To Third Quarter 1995
- -------------------------------------------------
On July 29, 1996, the Company announced that its Board of Directors
declared a dividend to Commercial Intertech common shareholders of 100 percent
of the common stock of Cuno Incorporated, the fluid filtration and purification
subsidiary. The new Cuno shares will be distributed on the basis of one common
share of Cuno for each Commercial Intertech common share outstanding, payable to
holders of record as of the close of business on August 9, 1996. The Cuno
financial results and net assets have been restated and reported as a
discontinued operation in the accompanying consolidated financial statements.
Record third quarter sales of $121,009,000 were realized by the Company
during the current period, surpassing last year's previous record by $1,748,000.
Revenues from operations in the United States during the current period of
$61,452,000 were down $3,895,000 or 6 percent from last year. While the
Hydraulic Systems Group reported only slightly lower sales than last year, the
Metal Products Group revenues slipped $3,557,000 or 23 percent. Significant
year-over-year declines were realized in almost all major market segments served
by the Company, reflecting a general slowing in the domestic economy. Meanwhile,
foreign revenues of $59,557,000 were $5,643,000 or 10 percent higher than the
same period last year. The foreign Hydraulic Systems Group reported an all-time
record in the current quarter of $26,348,000 as significant gains were realized
in the Farming and Specialized Industrial Components market segments. The Astron
Division in Europe reported sales of $33,209,000 or 5 percent over last year's
levels. Adjusted for changes in foreign currency exchange rates and due to a
weaker U.S. dollar, foreign revenues would have been $3,943,000 or 6 percent
higher at last year's average foreign currency exchange rates. On a parity
adjusted basis, significant gains were realized in almost all major market
segments served by the Company, except for the Construction Machinery and
Equipment market segment.
Consolidated gross profit of $32,299,000 was $944,000 or 3 percent
higher than last year, due principally to increased sales volume. Consolidated
gross profit margins were slightly higher than last year. Gross margins overseas
were almost one percentage point higher than last year due principally to
improved efficiencies in the United Kingdom.
Selling, administrative and general expenses of $22,362,000 during the
current period were only slightly higher than last year. Adjusted for
fluctuating foreign currency exchange rates, consolidated selling and
administrative expenses were 8 percent higher than the third quarter of last
year.
<PAGE> 13
During the current period, the Company incurred nonrecurring expenses
of $3,637,000 associated with the costs of defending itself against an
unsuccessful hostile takeover attempt by United Dominion Industries, Ltd., a
Canadian-based company headquartered in Charlotte, NC. The unsolicited bid
proposal was received by the Company on June 27, 1996. The Commercial Intertech
Board of Directors unanimously recommended that shareholders reject the United
Dominion tender offer.
Operating income of $6,300,000 was $2,765,000 or 31 percent lower than
last year, due principally to the nonrecurring defense costs associated with the
anti-takeover attempt. Excluding these expenses, operating income would have
been $872,000 or 10 percent higher than the same period last year. The Astron
Building Systems Division in Europe reported a 180 percent increase in operating
profit performance over last year's levels as the Company capitalized on
increased market demand. Reduced sales volume in both the domestic Hydraulic
Systems and Metal Products Groups caused operating profit performances to fall
from last year's levels.
Nonoperating expenses of $457,000 during the third quarter of the
current fiscal year were slightly lower than the same period last year. Foreign
currency losses realized as a result of fluctuating exchange rates incurred
primarily by the Company's Luxembourg and Brazilian operations were more than
offset by gains realized on the disposal of fixed assets principally in the
United Kingdom.
The Corporation's effective income tax rate of 45 percent during the
current period, compared to 18 percent last year is due principally to reduced
utilization of tax loss carryforwards associated with operations in Germany
compared to the same period last year and the nondeductibility of defense costs
associated with the United Dominion takeover attempt in the current fiscal
quarter.
Income from the discontinued operations associated with the Cuno
spin-off of $630,000, net of income taxes of $2,399,000, were $789,000 lower
than the same period last year. The results include nonrecurring distribution
costs associated with the spin-off of $2,876,000.
<PAGE> 14
First Nine Months Of 1996 Compared To The First Nine Months Of 1995
- -------------------------------------------------------------------
The Company realized record nine-month revenues of $340,198,000 for the
period ended July 31, 1996, surpassing last year's record first nine-month sales
of $331,190,000 by $9,008,000 or 3 percent. Meanwhile, net income during the
period of $16,725,000 was $5,095,000 or 23 percent lower than the same period
last year, due principally to nonrecurring expenses incurred defending the
Company from a hostile takeover attempt by United Dominion Industries, Ltd.
Revenues from United States operations of $185,924,000 during the first
three quarters of the fiscal year were down $3,569,000 or 2 percent from the
previous period. The Hydraulic Systems Group reported sales of $146,414,000,
only slightly lower than last year, while the Metal Products Group recorded a
revenue decline of 6 percent to $39,510,000. Year-over-year declines were
realized in almost all major market segments served by the Company, except in
the Specialized Industrial Components segment, reflecting a general softening in
the domestic economy. Meanwhile, solid performances by both of the Company's
overseas operating units resulted in record first nine-month sales of
$154,274,000, or 9 percent over the same period last year. The Hydraulic Systems
Group realized an increase in revenues of 11 percent over last year, to
$73,163,000, capitalizing on improving economies in Europe, the United Kingdom
and Australia. The Astron Building Systems Division in Europe improved their
market performance by 7 percent to $81,111,000 as they penetrated further into
Eastern European markets. On a cumulative year-to-date basis, foreign revenues
would have been $2,746,000 or 2 percent higher, after adjusting for the effects
of currency exchange rate differences on foreign sales reported in U.S. dollars.
On a parity adjusted basis, significant revenue gains were realized by the
Specialized Industrial Components, Heavy Construction and Building and Other
Mobile market segments served by the Company.
Consolidated gross profit of $88,112,000 during the first nine months
of fiscal 1996 was $1,060,000 lower than last year as gross profit margins slid
one percentage point since the same reporting period last year. Business volume
for the German operations producing hydraulic pumps and cylinders have lagged
expectations. Demand for cylinders in the European market has been especially
disappointing, requiring review of a number of alternative strategies.
Included in cost of sales for 1994 were nonrecurring charges of
$4.2 million for the separation of employees, closure of facilities, writedown
of unrecoverable fixed assets and other incremental costs necessary to complete
this consolidation effort. No additional charges have been recorded since
October, 1994. As of July 31, 1996, the cash consumed thus far totals
$2.6 million while the remaining accrued liability amounts to $1.1 million.
<PAGE> 15
Selling, administrative and general expenses of $66,442,000 were
$1,630,000 or 3 percent higher than the first nine months of fiscal 1995.
Adjusted for changes in foreign currency exchange rates, operating expenses were
4 percent higher than the same period last year. Late in fiscal 1995, the
Company 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.
During the current nine-month period, the Company realized nonrecurring
expenses of $3,637,000 as a result of defending itself against an unsolicited
takeover attempt by United Dominion Industries, Ltd. The bid proposal, received
by the Company on June 27, 1996, was rejected by the Corporation's Board of
Directors as inadequate and the Board unanimously recommended to its
shareholders that it not accept the United Dominion tender offer. United
Dominion Industries, Ltd. terminated its tender offer on August 5, 1996.
Operating income of $18,033,000 was $6,327,000 or 26 percent lower than
last year, due principally to higher operating expenses and the nonrecurring
defense costs associated with the anti-takeover attempt. Excluding nonrecurring
defense costs, operating income would have been $2,690,000 or 11 percent lower
than the same period last year. Current period operating income for the Astron
Building Systems and Metal Products Group was up 67 percent over last year's
performance due principally to improved pricing and efficiencies resulting from
Astron's lower cost manufacturing facility in the Czech Republic. Meanwhile,
current period operating income for the Hydraulic Systems Group was down
41 percent from fiscal 1995, due principally to the relocation of a cylinder
manufacturing facility in the United States, reduced demand in the U.S.
following last year's peak performance, weak economic conditions in Europe
adversely impacting cylinder operations in Germany and a slowing market recovery
in Brazil.
During the first nine months of fiscal 1996, nonoperating expenses of
$1,490,000 were $1,273,000 lower than the same period last year, due principally
to realized gains of $1,581,000, from the sale of certain assets in Germany and
the United Kingdom, compared to $193,000 last year. During the same period,
interest income of $781,000 was $687,000 lower than the same period last year
and interest expense of $4,232,000 was $516,000 lower than the first nine months
of fiscal 1995 as the Company experienced a general reduction in short-term
borrowing and lower interest rates over the past twelve months. Late during the
current period, the Corporation entered into a new loan agreement to fund the
repurchase of approximately 2.0 million common shares. That loan was replaced
with a new $190.0 million credit facility, of which the Company had
$85.0 million outstanding as of July 31, 1996. In addition to the repurchase
of the stock, the funds were used to purchase the outstanding loans of the
Company's Employee Stock Ownership Plan ("ESOP") and for other general
corporate purposes.
<PAGE> 16
The effective income tax rate of 34 percent reported during the first
nine months of fiscal 1996, compared to 18 percent last year is due principally
to lower income reported in the United States, where domestic income tax rates
are lower than those recorded by the Corporation's foreign subsidiaries and the
reduced utilization of tax loss carryforwards in Germany and nondeductibility of
costs incurred in the takeover defense.
Financial Condition
- -------------------
Cash and cash equivalents increased $15,681,000 since the beginning of
fiscal 1996. Net cash provided by continuing operations of $30,854,000 compared
to $4,367,000 used last year. Operating performance resulted in cash
generated of $41,271,000 compared to cash used of $6,687,000 last year. Cash
used by investing activities of $21,784,000 compared to $6,575,000 last year,
was due principally to the receipt of $6,967,000 in fiscal 1995 from the German
government as part of a planned capital expenditure program. Also last year, 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
first nine months of fiscal 1996 of $13,808,000 were $8,869,000 or 39 percent
lower than the same period last year. In light of current market conditions and
economic trends, the Corporation diligently monitors its 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.
Incoming trade customer bookings received during the first nine months
of fiscal 1996 of $351,374,000 were only slightly lower than orders received
last year, after adjusting for foreign currency exchange rate differences. Third
quarter bookings received this year of $124,443,000 were $14,719,000 higher than
orders received during the second quarter of fiscal 1996, adjusted for
fluctuating foreign currencies. Current year Hydraulic Systems Group bookings
received were 3 percent higher than the same period last year, with similar
gains realized both domestically and overseas. Net trade bookings received by
the Metal Products Group in the United States were down 12 percent from last
year; the Astron Division in Europe received 3 percent fewer orders in the
current nine-month period, compared to last year, adjusted for parity
differences.
<PAGE> 17
Despite record first nine-month shipments in the current fiscal period,
trade bookings outpaced net revenues on a consolidated basis. Worldwide backlog
of $160,623,000 is 6 percent higher than the amount of uncompleted orders at the
end of fiscal 1995, but 4 percent lower than the ending order backlog twelve
months ago, both adjusted for foreign currency exchange rate differences.
The Company remains optimistic for the balance of fiscal 1996,
expecting operating income levels to approximate last year's record performance,
exclusive of nonrecurring costs associated with the anti-takeover defense and
Cuno spin-off. Net income is anticipated to be somewhat lower than fiscal 1995,
due to higher effective tax rates and interest expense.
SUBSEQUENT EVENTS
- -----------------
On September 9, 1996, the SEC and NASDAQ approved the Cuno shares for
trading on the stock exchange. All results of Cuno will cease to be consolidated
with Commercial Intertech as of that date.
<PAGE> 18
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit I - computation of per share earnings
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
----------------- ------------------
1996 1995 1996 1995
------- ------- ------- -------
Primary
- -------
<S> <C> <C> <C> <C>
Average shares outstanding............ 15,369 15,363 15,176 15,427
Net effect of dilutive stock options -
based on the treasury stock
method using average market
price............................. 188 215 232 197
------- ------- ------- -------
Total......................... 15,557 15,578 15,408 15,624
======= ======= ======= =======
Income from continuing operations..... $10,993 $17,744 $ 3,199 $ 3,974
Preferred stock dividends and
adjustments....................... (1,544) (1,563) (513) (520)
------- ------- ------- -------
Income applicable to common stock..... $ 9,449 $16,181 $ 2,686 $ 6,454
======= ======= ======= =======
Per share amount...................... $0.61 $1.04 $0.17 $0.41
======= ======= ======= =======
Net Income ........................... $16,725 $21,820 $ 3,289 $ 8,393
Preferred stock dividends and
adjustments....................... (1,544) (1,563) (513) (520)
------- ------- ------- -------
Income applicable to common stock..... $15,181 $20,257 $ 3,316 $ 7,873
======= ======= ======= =======
Per share amount...................... $ 0.98 $ 1.30 $ 0.22 $ 0.50
======= ======= ======= =======
Fully Diluted
- -------------
Average shares outstanding............ 15,369 15,363 15,176 15,427
Net effect of dilutive stock options -
based on the treasury stock
method using the period end price,
if higher than average market
price............................. 303 215 285 198
Common share equivalents:
Series B Preferred................ 1,288 1,303 1,284 1,301
------- ------- ------- -------
Total ........................ 16,960 16,881 16,745 16,926
======= ======= ======= =======
Income from continuing operations..... $10,993 $17,744 $ 3,199 $ 6,974
Preferred stock (Seried B) dividends
rate adjustment.................... (1,023) (1,075) (343) (358)
-------- -------- -------- --------
Income applicable to common stock..... $ 9,970 $16,669 $ 2,856 $ 6,616
Per share amount...................... $0.59 $0.99 $0.17 $0.39
======= ======= ======= =======
Net Income............................ $16,725 $21,820 $ 3,829 $ 8,393
Preferred stock (Series B)
dividends rate adjustment.......... (1,023) (1,075) (343) (358)
------- ------- ------- -------
Income applicable to common stock..... $15,702 $20,745 $ 3,486 $ 8,035
======= ======= ======= =======
Per share amount...................... $0.93 $1.23 $0.21 $0.47
======= ======= ======= =======
</TABLE>
<PAGE> 19
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> 20
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, 1996 By /s/ Hubert Jacobs van Merlen
------------------- --------------------------------
Hubert Jacobs van Merlen
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-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 48,630
<SECURITIES> 0
<RECEIVABLES> 71,152
<ALLOWANCES> 1,862
<INVENTORY> 55,906
<CURRENT-ASSETS> 194,599
<PP&E> 196,946
<DEPRECIATION> 100,428
<TOTAL-ASSETS> 390,252
<CURRENT-LIABILITIES> 127,500
<BONDS> 94,587
<COMMON> 13,571
0
24,172
<OTHER-SE> 94,488
<TOTAL-LIABILITY-AND-EQUITY> 390,252
<SALES> 340,198
<TOTAL-REVENUES> 340,198
<CGS> 252,086
<TOTAL-COSTS> 252,086
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 606
<INTEREST-EXPENSE> 4,232
<INCOME-PRETAX> 16,543
<INCOME-TAX> 5,550
<INCOME-CONTINUING> 10,993
<DISCONTINUED> 5,732
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,725
<EPS-PRIMARY> .98
<EPS-DILUTED> .93
</TABLE>
