<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, 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
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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--15,497,367 shares as of June 1, 1996
----------
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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, 1996 and
October 31, 1995
Consolidated condensed statements of income - Six months ended
April 30, 1996 and 1995; and three months ended April 30, 1996
and 1995
Statements of consolidated cash flows - Six months ended
April 30, 1996 and 1995
Notes to consolidated condensed financial statements -
April 30, 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) April 30, October 31,
1996 1995
-----------------------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . $ 26,989 $ 39,689
Accounts receivable, less allowance
(1996-$2,998,000; 1995-$3,442,000). . . . 105,879 114,921
Inventories . . . . . . . . . . . . . . . . . 71,086 73,482
Deferred income tax benefits. . . . . . . . . 16,937 17,405
Prepaid expenses. . . . . . . . . . . . . . . 7,317 7,523
--------- ---------
TOTAL CURRENT ASSETS 228,208 253,020
PROPERTY, PLANT AND EQUIPMENT. . . . . . . . . . 283,079 280,436
Less allowance for depreciation . . . . . . . 141,113 137,710
--------- ---------
141,966 142,726
NONCURRENT ASSETS:
Intangible assets . . . . . . . . . . . . . . 22,372 23,761
Pension assets. . . . . . . . . . . . . . . . 36,535 35,742
Other assets. . . . . . . . . . . . . . . . . 3,107 4,607
--------- ---------
TOTAL NONCURRENT ASSETS 62,014 64,110
--------- ---------
TOTAL ASSETS $432,188 $459,856
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Bank loans. . . . . . . . . . . . . . . . . . $ 15,829 $ 19,725
Accounts and notes payable. . . . . . . . . . 105,292 126,229
Accrued income taxes. . . . . . . . . . . . . 7,389 6,163
Dividends payable . . . . . . . . . . . . . . 2,677 2,788
Current portion of long-term debt . . . . . . 9,104 2,269
--------- ---------
TOTAL CURRENT LIABILITIES 140,291 157,174
NONCURRENT LIABILITIES:
Long-term debt. . . . . . . . . . . . . . . . 63,299 73,929
Deferred income taxes . . . . . . . . . . . . 18,107 18,179
Postretirement benefits . . . . . . . . . . . 23,881 23,711
Deferred credit . . . . . . . . . . . . . . . 0 3,731
--------- ---------
TOTAL NONCURRENT LIABILITIES 105,287 119,550
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 - 15,489,563 shares (excluding
177,297 in treasury); 1995 - 15,439,514
shares (excluding 149,043 in treasury). . 15,490 15,440
Capital surplus . . . . . . . . . . . . . . . 39,261 38,396
Retained earnings . . . . . . . . . . . . . . 120,999 112,907
Deferred compensation . . . . . . . . . . . . (17,594) (18,851)
Translation adjustment. . . . . . . . . . . . 4,282 10,746
--------- ---------
186,610 183,132
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $432,188 $459,856
========= =========
</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,
-------------------- -------------------
1996 1995 1996 1995
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................... $305,283 $289,272 $157,317 $153,965
Less costs and expenses:
Cost of products sold..... 215,243 202,515 109,888 108,669
Selling, administrative and
general expense......... 70,648 66,745 35,761 34,934
--------- --------- --------- ---------
285,891 269,260 145,649 143,603
--------- --------- --------- ---------
Operating income............. 19,392 20,012 11,668 10,362
Nonoperating income (expense):
Interest income........... 499 974 172 499
Interest expense.......... (2,828) (3,531) (1,369) (1,916)
Other..................... 1,119 (350) 659 (6)
--------- --------- --------- ---------
(1,210) (2,907) (538) (1,423)
--------- --------- --------- ---------
Income before income taxes... 18,182 17,105 11,130 8,939
Income taxes................. 5,286 3,678 3,487 1,632
--------- --------- --------- ---------
Net income................... $ 12,896 $ 13,427 $ 7,643 $ 7,307
========= ========= ========= =========
Preferred stock dividend..... 1,031 1,043 510 521
--------- --------- --------- ---------
Net income applicable to
common stock............... $ 11,865 $ 12,384 $ 7,133 $ 6,786
========= ========= ========= =========
Earnings per share of common stock:
Net income:
Primary................. $ 0.76 $ 0.80 $ 0.46 $ 0.43
Fully diluted........... 0.72 0.75 0.43 0.41
Cash dividends declared.. $0.270 $0.250 $0.135 $0.125
</TABLE>
<PAGE> 5
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
(Thousands of dollars) April 30,
----------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . $ 12,896 $ 13,427
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization . . 9,665 9,040
Amortization of deferred credit . . . . . . . . (3,634) (8,888)
Postretirement benefit. . . . . . . . . . . . . 463 325
Pension plan credits. . . . . . . . . . . . . . (691) (780)
Change in deferred income taxes . . . . . . . . 511 (838)
Change in current assets and liabilities:
Decrease (increase) in accounts receivable . 5,616 (7,654)
Decrease (increase) in inventories. . . . . 93 (8,511)
(Increase) in prepaid expenses and
other current assets. . . . . . . . . . . (146) (868)
(Decrease) in accounts payable and
accrued expenses. . . . . . . . . . . . . (13,778) (3,421)
Increase in accrued income taxes . . . . . . 1,580 2,943
--------- ---------
Net cash provided (used) by operating activities . . 12,575 (5,225)
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets. . . . . . . . . . 873 92
Business acquisition. . . . . . . . . . . . . . . . . 0 (886)
Grant subsidies received. . . . . . . . . . . . . . . 0 6,967
Installments received -- acquisition. . . . . . . . . 0 6,844
Investment in intangibles . . . . . . . . . . . . . . 0 (70)
Capital expenditures. . . . . . . . . . . . . . . . . (12,620) (14,925)
--------- ---------
Net cash (used) by investing activities . . . . . . . (11,747) (1,978)
FINANCING ACTIVITIES:
Proceeds from long-term debt . . . . . . . . . . . . 0 0
Principal payments on long-term debt . . . . . . . . (3,619) (1,940)
Net borrowings under bank loan agreements . . . . . . (3,033) 4,793
Proceeds from reserve contracts . . . . . . . . . . . 1,212 1,240
Conversion of other assets. . . . . . . . . . . . . . (464) (111)
Dividends paid. . . . . . . . . . . . . . . . . . . . (5,258) (4,827)
--------- ---------
Net cash (used) by financing activities . . . . . . . (11,162) (845)
Effect of exchange rate changes on cash. . . . . . . . . (2,366) 2,915
--------- ---------
Net (decrease) in cash and cash equivalents. . . . . . . (12,700) (5,133)
Cash and cash equivalents at beginning of period . . . . 39,689 52,666
--------- ---------
Cash and cash equivalents at end of period . . . . . . . $ 26,989 $ 47,533
========= =========
Supplemental disclosures:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $2,831 $3,565
Income taxes . . . . . . . . . . . . . . . . . . . 3,195 1,573
</TABLE>
<PAGE> 6
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
April 30, 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 six-month and three-month
period ended April 30, 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 - 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> 7
Note C - Inventories
- --------------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1996 1995
-------- -----------
<S> <C> <C>
Raw materials $20,270 $17,982
Work-in-process 32,297 34,461
Finished goods 18,519 21,039
------- -------
$71,086 $73,482
======= =======
</TABLE>
Note D - 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,
---------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
(THOUSANDS OF DOLLARS)
HYDRAULIC SYSTEMS
Net sales $144,015 $141,288 $ 77,466 $ 74,639
Operating income 9,732 14,570 5,448 7,141
BUILDING SYSTEMS AND METAL PRODUCTS
Net sales $ 75,174 $ 70,641 $ 34,761 $ 39,696
Operating income 2,297 1,136 1,180 1,076
FLUID PURIFICATION
Net sales $ 86,094 $ 77,343 $ 45,090 $ 39,630
Operating income 7,363 4,306 5,040 2,145
TOTAL COMPANY
Net sales $305,283 $289,272 $157,317 $153,965
Operating income 19,392 20,012 11,668 10,362
Percent to sales 6.4% 6.9% 7.4% 6.7%
</TABLE>
<PAGE> 8
Note E - Acquisitions
- ---------------------
ORSTA HYDRAULIK
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 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, 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>
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
April 30, 1996 and 24.8 million Deutsche marks (approximately U.S.
$17.0 million) were used to fund the pre-existing capital investment program.
<PAGE> 9
Note E - 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 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 is being 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. The deferred credit on the balance sheet was translated
at end-of-period rate.
<PAGE> 10
Note E - Acquisitions (Continued)
- --------------------------------
Negative Goodwill Amortization:
<TABLE>
<CAPTION>
Fiscal Quarters Deutsche Marks U.S. Dollars
--------------- -------------- ------------
(in thousands)
<S> <C> <C> <C>
Amounts Amortized
- -----------------
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
---------- --------
TOTAL FISCAL 1996 DM 5,249 $ 3,634
---------- --------
TOTAL AMORTIZED DM 39,071 $ 26,195
========== ========
</TABLE>
ORSTA Hydraulik income statement:
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
April 30, April 30,
1996 1995 1996 1995
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Sales $19,021 $17,310 $ 9,719 $ 9,384
Cost of products sold 19,720 20,389 9,874 10,940
Less: negative goodwill (3,634) (8,889) (1,017) (4,470)
-------- -------- -------- --------
Total cost of products sold 16,086 5,021 8,857 6,471
-------- -------- -------- --------
Gross profit 2,935 5,818 862 2,913
Selling, administrative and
general expense 4,709 5,874 2,540 3,218
-------- -------- -------- --------
Operating (loss) profit $(1,774) $ (56) $(1,678) $ (305)
======== ======== ======== ========
</TABLE>
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second Quarter 1996 Compared to Second Quarter 1995
- ---------------------------------------------------
Record second quarter sales and net income were realized by the
Corporation during the current period, surpassing previous records reported
just twelve months ago. Consolidated net revenues of $157,317,000 during the
current three month period, the third highest quarterly sales reported by the
Company, were $3,352,000 or 2 percent higher than the same period last year.
On the strength of this record sales performance, net income rose to $7,643,000
or $336,000 higher than last year's reported earnings.
Revenues from operations in the United States during the current
period of $86,190,000, the highest domestic sales recorded in the history of
the Company, were $3,054,000 or 4 percent higher than the second quarter of
fiscal 1995, on the strength of an all-time record sales performance reported
by the domestic Fluid Purification Group. Filtration Product revenues surged
18 percent over last year, to $21,155,000 as the group expanded its customer
base. Meanwhile, slight variances from last year were reported by the
Hydraulic Systems and Metal Products Groups as double-digit declines in the
Construction Machinery and Equipment and Other Mobile market segments were
offset by a 10 percent gain in the Specialized Industrial Components market
segment. During the same period, revenues reported by foreign operating units
of $71,127,000 were only slightly higher than sales reported last year, as
double-digit gains were reported overseas by the Fluid Purification and
Hydraulic Systems Groups (Hydraulics reported an all-time record in the current
quarter of $25,444,000). These improvements were almost entirely offset by a
17 percent decline in revenues reported by the Astron Division, where prolonged
poor weather conditions in Europe hampered the delivery and construction of
Astron buildings. Adjusted for changes in foreign currency exchange rates and
due to a weaker U.S. dollar, foreign revenues would have been $1,880,000 or
3 percent higher at last year's average foreign currency exchange rates. On a
parity adjusted basis, significant declines in the Construction Machinery and
Equipment and Heavy Construction and Buildings market segments were more than
offset by gains in the Specialized Industrial Components and Filtration
Products market segments.
<PAGE> 12
Consolidated gross profit of $47,429,000 was $2,133,000 or 5 percent
higher than last year, due principally to increased sales volume and strategies
implemented by the Fluid Purifications Segment. Gross profit margins in the
United States were up one and one-half percentage points while overseas margins
fell one percentage point, due principally to slower than expected progress for
the German business units resulting primarily from weak industry conditions in
Europe.
Operating expenses of $35,761,000 were $827,000 or 2 percent higher
than the same period last year. Adjusted for fluctuating foreign currency
exchange rates, selling and administrative expenses were only 4 percent higher
than the second quarter of last year.
Operating income during the current quarter of $11,668,000 was up
$1,306,000 or 13 percent over the same period last year. The Fluid
Purification Group reported an all-time record quarter, in the United States as
well as overseas, more than doubling their total level of operating income over
the second quarter of last year. While the Metal Products Group realized
year-over-year gains in operating profit domestically as well as overseas, the
Hydraulic Systems Group reported a 24 percent decrease in operating income, due
principally to the lingering effects of the relocation of a domestic cylinder
manufacturing operation, slower than expected progress in the European
operations and a distressed Hydraulics market in Brazil.
Nonoperating expenses of $538,000 during the second quarter of fiscal
1996 were $885,000 lower than the same period last year, due principally to an
increase in foreign currency gains realized as a result of fluctuating exchange
rates incurred primarily by the Company's Brazilian operations. Meanwhile, net
interest expense of $1,369,000 is 29 percent lower than last year, reflecting a
general reduction in short-term borrowing and lower interest rates over the
past twelve months.
The Corporation's effective income tax rate of 31 percent during the
current period, compared to 18 percent last year, is higher, in part, due to
reduced utilization of tax loss carryforwards associated with operations in
Germany versus the same period last year.
<PAGE> 13
FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX MONTHS OF 1995
- -----------------------------------------------------------------
The Company recorded six-month revenues of $305,283,000, highest in
its history, for the period ended April 30, 1996, surpassing last year's record
first half sales of $289,272,000 by 6 percent. Meanwhile, net income during
the period of $12,896,000 was $531,000 or 4 percent lower than the same period
last year.
Revenues from United States operations of $165,080,000 compared to
$160,247,000 or 3 percent higher than last year, as gains realized in the
Specialized Industrial Components and Filter Products market segments were
partially offset by reductions in the Construction Machinery and Equipment and
Other Mobile segments. The Fluid Purification Group recorded a 12 percent
increase in sales volume in the United States, capitalizing on expanding market
presence and accelerating product development. While the Metal Products Group
reported revenues of $27,272,000, a 4 percent increase over last year, the
Hydraulic Systems Group recorded sales of $97,200,000, slightly below last
year's sales volume. Meanwhile, solid performance by each of the Company's
three foreign operating units resulted in first half sales of $140,203,000, or
9 percent over the same period last year. Both the Hydraulic Systems Group and
the Astron Building Systems Division realized increases in revenues of
8 percent over last year's levels, capitalizing on improving economies in
Europe, the United Kingdom and Australia. Meanwhile, the Fluid Purification
Group, reporting net sales of $45,486,000 this year, realized a 10 percent
gain over last year, satisfying increased demand in Asia, Brazil and Europe.
On a cumulative year-to-date basis, foreign revenues would have been only
slightly lower, 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 realized by the Heavy Construction and
Buildings, Filter Products and Other Mobile market segments were only
partially offset by declines in the Construction Machinery and Equipment and
Specialized Industrial Components market segments.
Consolidated gross profit of $90,040,000 during the first six months
of fiscal 1996 was $3,283,000 or 4 percent higher than last year. Consolidated
gross profit margins were only slightly lower than the same period in fiscal
1995. While domestic gross margins remained unchanged, profit margins overseas
were one and one-half percentage points lower due principally to the disruptive
effects of relocating a Hydraulics operation in Germany into its new
facilities.
<PAGE> 14
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 31, 1994. As of April 30, 1996, the cash consumed thus far totals
$2.6 million while the remaining accrued liability amounts to $1.1 million.
Selling and administrative expenses of $70,648,000 were $3,903,000 or
6 percent higher than the first six months of last year. Adjusted for changes
in foreign currency exchange rates, operating expenses were 5 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 Corporation for
future growth in an emerging global market.
Operating income of $19,392,000 was $620,000 or 3 percent lower than
the first half of fiscal 1995. The Hydraulic Systems Group's operating profit
performance was significantly lower than last year, due principally to the
relocation of a cylinder manufacturing facility in the United States, weak
industry conditions in Europe adversely impacting operations in Germany and a
depressed market in Brazil. Partially offsetting this operating performance,
the Building Systems and Metal Products and Fluid Purification Groups realized
year-over-year gains in operating income, despite the effects of prolonged poor
winter weather conditions in Europe.
During the first six months of fiscal 1996, nonoperating expenses of
$1,210,000 were $1,697,000 lower than the same period last year, due
principally to higher foreign currency exchange gains incurred as a result of
changing foreign currency rates, primarily by the Company's subsidiary in
Brazil. During the same period, interest income of $499,000 was $475,000 lower
than the same period last year and interest expense of $2,828,000 was $703,000
lower than the first half of fiscal 1995 as the Corporation experienced a
general reduction in short-term borrowing and lower interest rates over the
past year. During the current period, the Company realized a gain on the
disposal of fixed assets of $677,000, compared to $81,000 last year, due
principally to the sale of certain assets in Germany.
The effective income tax rate of 29 percent reported during the first
six months of fiscal 1996, compared to 22 percent last year is due principally
to lower income reported in the United States, where domestic income tax rates
are lower than those accrued by the Company's foreign subsidiaries and the
reduced utilization of tax loss carryforwards in Germany.
<PAGE> 15
FINANCIAL CONDITION
Cash and cash equivalents decreased $12,700,000 since the beginning of
fiscal 1996. Operating performance resulted in cash generated by operating
activities of $12,575,000 compared to cash used of $5,225,000 last year. Cash
used by investing activities of $11,747,000 compared to $1,978,000 last year,
was higher due 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 Corporation 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 first half of fiscal 1996 of $12,620,000 were
$2,305,000 or 15 percent lower than the same period last year. 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 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 orders received of $318,984,000 during the
fist six months of fiscal 1996 were only slightly below bookings reported last
year, after adjusting for foreign currency exchange differences. Second quarter
bookings received this year of $158,323,000 were $800,000 lower than orders
received during the first three months of fiscal 1996, adjusted for fluctuating
foreign currencies. Current year domestic orders received by the Fluid
Purification Group were 17 percent higher than the same period last year, while
trade bookings received in the United States by the Metal Products and
Hydraulic Systems Groups were down 14 and 4 percent respectively. Net trade
bookings received overseas were slightly higher than last year, adjusted for
parity differences. Foreign Fluid Purification Group orders surged 11 percent
over the same period last year, while Building Systems orders were 7 percent
lower than the first half of last year, both adjusted for fluctuations in
foreign currencies.
Despite record first half shipments generated in the current fiscal
period, trade bookings outpaced net revenues on a consolidated basis.
Worldwide backlog of $173,829,000 is 7 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.
<PAGE> 16
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>
Six Months Ended Three Months Ended
April 30, April 30,
---------------- ------------------
1996 1995 1996 1995
------ ------ ------ ------
Primary
- -------
<S> <C> <C> <C> <C>
Average shares outstanding............ 15,467 15,331 15,486 15,410
Net effect of dilutive stock options -
based on the treasury stock
method using average market
price............................. 165 224 161 251
-------- -------- -------- --------
Total......................... 15,632 15,555 15,647 15,661
======== ======== ======== ========
Net Income ........................... $12,896 $13,427 $ 7,643 $ 7,307
Preferred stock dividends and
adjustments....................... (1,031) (1,043) (510) (521)
-------- -------- -------- --------
Income applicable to common stock..... $11,865 $12,384 $ 7,133 $ 6,786
======== ======== ======== ========
Per share amount...................... $0.76 $0.80 $0.46 $0.43
======== ======== ======== ========
Fully Diluted
- -------------
Average shares outstanding............ 15,467 15,331 15,486 15,410
Net effect of dilutive stock options -
based on the treasury stock
method using the period end price,
if higher than average market
price............................. 175 272 164 266
Common share equivalents:
Series B Preferred................ 1,300 1,304 1,299 1,301
-------- -------- -------- --------
Total ........................ 16,942 16,907 16,949 16,977
======== ======== ======== ========
Net Income............................ $12,896 $13,427 $ 7,643 $ 7,307
Preferred stock (Series B)
dividends rate adjustment.......... (680) (717) (335) (358)
-------- -------- -------- --------
Income applicable to common stock..... $12,216 $12,710 $ 7,308 $ 6,949
======== ======== ======== ========
Per share amount...................... $0.72 $0.75 $0.43 $0.41
======== ======== ======== ========
</TABLE>
<PAGE> 17
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 June 11, 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> 6-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> APR-30-1996
<CASH> 26,989
<SECURITIES> 0
<RECEIVABLES> 108,877
<ALLOWANCES> 2,998
<INVENTORY> 71,086
<CURRENT-ASSETS> 228,208
<PP&E> 283,079
<DEPRECIATION> 141,113
<TOTAL-ASSETS> 432,188
<CURRENT-LIABILITIES> 140,291
<BONDS> 63,299
<COMMON> 15,490
0
24,172
<OTHER-SE> 146,948
<TOTAL-LIABILITY-AND-EQUITY> 432,188
<SALES> 305,283
<TOTAL-REVENUES> 305,283
<CGS> 215,243
<TOTAL-COSTS> 215,243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 473
<INTEREST-EXPENSE> 2,828
<INCOME-PRETAX> 18,182
<INCOME-TAX> 5,286
<INCOME-CONTINUING> 12,896
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,896
<EPS-PRIMARY> .76
<EPS-DILUTED> .72
</TABLE>
