<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1997
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--14,092,897 shares as of June 1, 1997
<PAGE> 2
INDEX
COMMERCIAL INTERTECH CORP.
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated condensed statements of income - six months ended
April 30, 1997 and 1996; and three months ended April 30, 1997
and 1996........................................................ 3
Consolidated condensed balance sheets -
April 30, 1997 and October 31, 1996............................. 4
Consolidated condensed statements of cash flows - six months
ended April 30, 1997 and 1996 .................................. 5
Notes to consolidated condensed financial statements -
April 30, 1997 ................................................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 9
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............. 14
Item 6. Exhibits and Reports on Form 8-K ............................... 15
SIGNATURE ............................................................... 17
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
(Thousands of dollars except per share data) April 30, April 30,
------------------------- -------------------------
1997 1996 1997 1996
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Net sales ............................................ $ 246,608 $ 219,189 $ 129,892 $ 112,227
Less costs and expenses:
Cost of products sold ............................. 184,771 163,376 96,368 83,267
Selling, administrative and general expense ....... 45,502 44,080 22,758 22,298
--------- --------- --------- ---------
230,273 207,456 119,126 105,565
--------- --------- --------- ---------
Operating income ..................................... 16,335 11,733 10,766 6,662
Nonoperating income (expense):
Interest income ................................... 363 520 162 189
Interest expense .................................. (5,210) (2,706) (2,575) (1,309)
Other ............................................. 2,269 1,153 1,241 747
--------- --------- --------- ---------
(2,578) (1,033) (1,172) (373)
--------- --------- --------- ---------
Income from continuing operations
before income taxes ............................... 13,757 10,700 9,594 6,289
Income taxes ......................................... 5,065 2,906 3,854 1,897
--------- --------- --------- ---------
Income from continuing operations .................... 8,692 7,794 5,740 4,392
Income from discontinued operations .................. 0 5,102 0 3,251
--------- --------- --------- ---------
Net income ........................................... $ 8,692 $ 12,896 $ 5,740 $ 7,643
========= ========= ========= =========
Preferred stock dividend ............................. 963 1,031 450 510
--------- --------- --------- ---------
Net income applicable to common stock ................ $ 7,729 $ 11,865 $ 5,290 $ 7,133
========= ========= ========= =========
Earnings per share of common stock:
Primary:
Income from continuing operations ............. $ 0.54 $ 0.43 $ 0.37 $ 0.25
Income from discontinued operations ........... 0.00 0.33 0.00 0.21
Net income .................................... 0.54 0.76 0.37 0.46
Fully diluted:
Income from continuing operations ............. $ 0.49 $ 0.42 $ 0.33 $ 0.24
Income from discontinued operations ........... 0.00 0.30 0.00 0.19
Net income .................................... 0.49 0.72 0.33 0.43
Dividends per common share ........................... $ 0.270 $ 0.270 $ 0.135 $ 0.135
</TABLE>
See notes to consolidated condensed financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)
(Thousands of dollars) April 30, October 31,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents ............................................................ $ 24,847 $ 27,552
Accounts receivable, less allowance (1997-$2,070; 1996-$1,724)....................... 76,409 70,399
Inventories .......................................................................... 59,697 58,129
Deferred income tax benefits ........................................................ 14,325 15,515
Prepaid expenses and other current assets............................................. 3,298 4,012
Receivable from discontinued operations .............................................. 3,527 10,184
Dividend receivable from discontinued operations...................................... 0 4,612
----------- -----------
TOTAL CURRENT ASSETS 182,103 190,403
PROPERTY, PLANT AND EQUIPMENT............................................................ 210,665 196,909
Less allowance for depreciation....................................................... 108,301 100,289
----------- -----------
102,364 96,620
NONCURRENT ASSETS:
Intangible assets..................................................................... 41,468 9,051
Pension assets........................................................................ 38,373 37,371
Other assets ......................................................................... 2,228 3,671
----------- -----------
TOTAL NONCURRENT ASSETS 82,069 50,093
----------- -----------
TOTAL ASSETS $ 366,536 $ 337,116
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Bank loans ........................................................................... $ 574 $ 2,745
Accounts payable...................................................................... 46,530 51,648
Accrued expenses...................................................................... 51,339 54,291
Accrued income taxes ................................................................. 3,747 4,385
Dividends payable..................................................................... 2,499 2,449
Current portion of long-term debt ................................................... 14,965 705
----------- -----------
TOTAL CURRENT LIABILITIES 119,654 116,223
NONCURRENT LIABILITIES:
Long-term debt ....................................................................... 120,949 93,415
Deferred income taxes................................................................. 16,287 15,495
Postretirement benefits .............................................................. 24,598 24,822
----------- -----------
TOTAL NONCURRENT LIABILITIES 161,834 133,732
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: 1997 - 942,552 shares
1996 - 1,039,657 shares ............................................... 21,914 24,172
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1997 - 14,088,277 shares (excluding 1,926,475 in treasury)
1996 - 13,559,579 shares (excluding 2,211,868 in treasury)............. 14,088 13,560
Capital surplus ...................................................................... 3,211 0
Retained earnings..................................................................... 72,181 67,808
Deferred compensation ................................................................ (16,337) (17,594)
Translation adjustment ............................................................... (10,009) (785)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 85,048 87,161
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 366,536 $ 337,116
=========== ===========
</TABLE>
See notes to consolidated condensed financial statements.
4
<PAGE> 5
<TABLE>
<CAPTION>
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (unaudited)
Six Months Ended
(Thousands of dollars) April 30,
- ---------------------- --------------------
1997 1996
----- -----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................................. $ 8,692 $ 12,896
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization....................................... 7,280 5,847
Amortization of deferred credit .................................................. (796) (3,634)
Postretirement benefit .......................................................... 179 463
Pension plan credits ............................................................. (1,368) (1,301)
Change in deferred income taxes................................................... 1,651 (219)
Change in current assets and liabilities:
(Increase) decrease in accounts receivable..................................... (2,951) 9,243
(Increase) in inventories ..................................................... (622) (2,802)
(Increase) in prepaid expenses and other current assets ....................... (1,885) (117)
Decrease in receivable from discontinued operations............................ 6,771 0
(Decrease) in accounts payable and accrued expenses ........................... (5,496) (12,660)
Increase in accrued income taxes .............................................. 159 1,515
----------- -----------
Net cash provided by continuing operations ............................................. 11,614 9,231
Net cash provided by discontinued operations ........................................... 0 366
----------- -----------
Net cash provided by operating activities............ 11,614 9,597
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets...................................................... 756 841
Business acquisition ................................................................... (39,359) 0
Investment in intangibles ............................................................. (896) 0
Capital expenditures.................................................................... (3,798) (10,212)
Operating loss indemnification ......................................................... 3,016 0
----------- -----------
Net cash (used) by investing activities.............. (40,281) (9,371)
FINANCING ACTIVITIES:
Proceeds from long-term debt .......................................................... 57,876 0
Principal payments on long-term debt.................................................... (22,295) (3,146)
Net borrowings under bank loan agreements .............................................. (4,889) (4,821)
Proceeds from reserve contracts ........................................................ 0 1,212
Conversion of other assets ............................................................. (1,674) 5
Dividends from discontinued operations ................................................. 4,612 0
Dividends paid ......................................................................... (4,654) (3,990)
----------- -----------
Net cash provided (used) by financing activities..... 28,976 (10,740)
Effect of exchange rate changes on cash ................................................... (3,014) (2,186)
----------- ------------
Net (decrease) in cash and cash equivalents ............................................... (2,705) (12,700)
Cash and cash equivalents at beginning of period........................................... 27,552 32,949
----------- -----------
Cash and cash equivalents at end of period ............................................... $ 24,847 $ 20,249
=========== ===========
Supplemental disclosures:
Cash paid during the period for:
Interest............................................................................. $ 5,406 $ 2,636
Income taxes ........................................................................ 3,255 1,610
</TABLE>
See notes to consolidated condensed financial statements.
5
<PAGE> 6
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
April 30, 1997
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated condensed financial statements
of Commercial Intertech Corp. and Subsidiaries (the "Company" or "Commercial
Intertech") 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. 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, 1996. Operating results for the six-month and three-month periods
ended April 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended October 31, 1997. Certain prior period balances have
been reclassified to conform with the presentation of the current period.
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 percent 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
common share of Commercial Intertech. No fractional shares of CUNO were issued.
The operating results of CUNO are presented in all the accompanying consolidated
condensed 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 assumed
$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.
6
<PAGE> 7
Note C - Long-Term Debt
- -----------------------
In November, 1996, the Company used approximately $27.0 million of the
senior revolving credit and term loan facilities negotiated at the end of fiscal
1996 to finance the acquisition (including working capital) of Ultra Hydraulics
Limited (see Note G). In addition to the $27.0 million, approximately $22.0
million was financed with loan notes issued to the principal owners of Ultra
Hydraulics at LIBOR less one percentage point. The loan notes are guaranteed
under the senior revolving credit and term loan agreement.
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.
Note E - Inventories
- --------------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
April 30, October 31,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Raw materials................ $ 22,881 $ 21,090
Work-in-process.............. 26,220 27,353
Finished goods............... 10,596 9,686
---------- ---------
$ 59,697 $ 58,129
========== =========
</TABLE>
7
<PAGE> 8
Note F - Segment Reporting
- --------------------------
The Company is engaged in the design, manufacture and sale of products
in two segments:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
April 30, April 30,
---------------------- -----------------------
1997 1996 1997 1996
------ ------ ----- -----
(in thousands)
<S> <C> <C> <C> <C>
HYDRAULIC SYSTEMS
Net sales $168,311 $144,015 $ 90,104 $ 77,466
Operating income 11,290 9,492 7,859 5,479
BUILDING SYSTEMS AND METAL PRODUCTS
Net sales $ 78,297 $ 75,174 $ 39,788 $ 34,761
Operating income 5,045 2,241 2,907 1,183
TOTAL COMPANY
Net sales $246,608 $219,189 $129,892 $112,227
Operating income 16,335 11,733 10,766 6,662
Percent to sales 6.6% 5.4% 8.3% 5.9%
</TABLE>
Note G - Acquisitions
- ---------------------
On November 18, 1996, the Company reported it acquired all of the
outstanding common stock of Ultra Hydraulics Limited through its wholly owned
subsidiary, Commercial Intertech Limited, located in the United Kingdom. Ultra
Hydraulics is headquartered near Gloucester, England and employs more than 300
men and women in the United Kingdom and the United States. The acquisition was
accounted for as a purchase transaction and included in the accompanying
financial statements since the acquisition date.
The initial purchase price for the stock of Ultra Hydraulics was
approximately $39.4 million. The purchase price was determined by arm's length
negotiation between the parties. The initial purchase price is subject to
adjustments based upon audit.
Note H - Newly Issued Accounting Standards
- ------------------------------------------
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" was issued. The statement specifies the computation and
presentation of earnings per share information and is required to be adopted on
December 31, 1997. Under the new requirements for calculating primary earnings
per share, the dilutive effect of unexercised stock options will be excluded.
The impact of adopting the new statement is expected to result in an increase in
primary earnings per share of $.02 and $.01 for the quarters ended April 30,
1997 and 1996, respectively, and $.03 and $.02 for the six months ended April
30, 1997 and 1996, respectively. The Company has not yet finalized the
determination of the impact the statement will have on the calculation of fully
diluted earnings per share. Early adoption of the statement is not permitted.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
- ---------------------
On July 29, 1996, the Company's Board of Directors declared a
dividend to Commercial Intertech common shareholders of 100 percent of the
common stock of CUNO Incorporated, its fluid filtration and purification
subsidiary. The new CUNO shares were 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. On September 9,
1996, the Securities and Exchange Commission and Nasdaq approved the CUNO shares
for trading on the stock exchange. The CUNO financial results have been restated
and reported as income from discontinued operations in the accompanying
consolidated condensed statements of income.
Second Quarter 1997 Compared With Second Quarter 1996
- -----------------------------------------------------
Quarterly net sales of $129,892,000 established a new record in the
77 year history of the Company. Net sales during the current quarter were
$17,665,000 or 16 percent higher than the second quarter of fiscal 1996
primarily due to the favorable impact of business acquisitions as well as sales
growth reflecting higher demand for most of the Company's products. Income from
continuing operations of $5,740,000 was $1,348,000 or 31 percent higher than the
second quarter of fiscal 1996 which primarily reflects the impact of increased
sales and the progress made in reducing the Company's cost structure.
Net sales recorded by domestic operations totaled $72,387,000
during the current quarter which was $7,352,000 or 11 percent higher than net
sales of the second quarter of the prior fiscal year. The domestic Hydraulics
Systems Group recorded net sales for a quarter of $57,589,000, an 11 percent
increase over the second quarter of last year. The domestic Metal Products Group
recorded second quarter sales of $14,798,000 which represents a 14 percent
increase over the same quarter last year reflecting stronger demand and an
increase in market share.
Net sales of foreign operations totaled $57,505,000 which was
$10,313,000 or 22 percent higher than the second quarter of last year. Net sales
of foreign operations would have been $3,509,000 or 7 percent higher adjusted
for fluctuating exchange rate differences. The foreign Hydraulic Systems Group
reported shipments of $32,515,000, a 28 percent increase over the second quarter
of last year, reflecting gains in virtually all markets it serves. Sales of the
Company's Astron Division located in Europe increased 15 percent in the current
quarter primarily due to increased shipments and stronger pricing.
Consolidated gross profit of $33,524,000 was $4,564,000 or 16
percent higher than the second quarter of fiscal 1996 which primarily reflects
the impact of increased sales during the current quarter. The consolidated gross
profit margin for the current period was flat compared with the second quarter
of fiscal 1996. A modest improvement in domestic profit margins during the
current quarter was offset by a modest decline in the profit margins of the
foreign operations.
9
<PAGE> 10
Selling, general and administrative expenses of $22,758,000 were
$460,000 or 2 percent higher than the same quarter last year. Expenses actually
declined by 3 percent during the current quarter if acquisitions were excluded
in the comparison. Selling, general and administrative expenses declined as a
percent of sales to 18 percent in the current quarter from 20 percent of sales
last year reflecting the impact of the Company's efforts to reduce its cost
structure.
Operating income of $10,766,000 in the current quarter was
$4,104,000 or 62 percent higher than the same quarter last year. Operating
income of the Hydraulic Systems Group of $7,859,000 was 43 percent higher than
the same quarter last year as both domestic and foreign operations reported
increased operating income. The Building Systems and Metal Products Group
recorded operating income of $2,907,000 which was 146 percent higher than
operating income of the second quarter of last year primarily due to increased
sales, reduced material costs and improved manufacturing efficiencies from the
new facility in the Czech Republic.
During the second quarter of fiscal 1997, nonoperating expenses of
$1,172,000 were $799,000 greater than the same quarter last year. Interest
expense of $2,575,000 in the current quarter was $1,266,000 higher than the
prior year primarily due to debt incurred in the fourth quarter of fiscal 1996
to fund the repurchase of 2.0 million shares of the Company's common shares, to
purchase the outstanding loans of the Company's Employee Stock Ownership Plan
and to fund the acquisition of Ultra Hydraulics Limited, located in the United
Kingdom, on November 16, 1996. The Company also recorded a nonrecurring gain of
$1.0 million realized on transfer of Astron Building Systems marketing and
manufacturing rights to a new Korean licensee.
The Company's effective income tax rate of 40 percent during the
second quarter of fiscal 1997 is higher than that of the same quarter last year
due primarily to reduced utilization of loss carryforwards in Germany.
First Six Months of 1997 Compared With First Six Months of 1996
---------------------------------------------------------------
The Company recorded net sales of $246,608,000 for the six months
ended April 30, 1997, surpassing sales recorded for the prior year period by 13
percent. The increase is primarily due to the favorable impact of business
acquisitions as well as sales growth reflecting higher demand for most of the
Company's products. Income from continuing operations of $8,962,000 was $898,000
or 12 percent higher than the first six months of the last year which primarily
reflects the impact of increased sales and the progress made in reducing the
Company's cost structure.
Net sales from domestic operations totaled $137,033,000 during the
current period, which is $12,561,000 or 10 percent higher than net sales of the
prior year period. The domestic Hydraulic Systems Group reported recorded first
half revenues of $107,957,000, an 11 percent increase over the same period of
the prior year. The domestic Metal Products Group reported a 7 percent increase
over the same period last year.
10
<PAGE> 11
Foreign operations recorded revenues $109,575,000 which were
$14,858,000 or 16 percent higher than the same period last year. The increase
primarily reflects sales growth and the favorable impact of the acquisition of
Ultra Hydraulics Limited in November 1996 which more than offset the negative
currency impact on foreign sales reported in U.S. dollars due to a stronger
dollar relative to most foreign currencies during the current period. Net sales
of foreign operations would have been $4,825,000 or 5 percent higher adjusted
for the effects of exchange rate differences. The foreign Hydraulic Systems
Group recorded net sales of $60,354,000, a 29 percent increase over the same
period last year, reflecting gains in virtually all markets it serves and the
acquisition of Ultra Hydraulics Limited. Sales of the Company's Astron Division
located in Europe increased 3 percent in the current period despite the negative
impact of fluctuating exchange rates.
Consolidated gross profit of $61,837,000 during the current period
was $6,024,000 or 11 percent higher than the same period of fiscal 1996 which
primarily reflects the impact of increased sales during the current period.
Consolidated gross profit margins of the current period were slightly lower than
the same period last year. Domestic gross margins showed modest improvement over
the prior year period while gross profit margins for foreign operations were
down slightly due, in part, to temporary operational difficulties for the newly
acquired Hydraulics business in the United Kingdom. Also included in the current
period results for the Hydraulics Systems Group is a $1.2 million credit related
to an extension of operating subsidies negotiated with the German government.
The $1.2 million compares to $3.6 million amortization of deferred credit during
the same period last year.
Selling, general and administrative expenses of $45,502,000 was
$1,422,000 or 3 percent higher than the same period last year. Expenses actually
declined by 2 percent during the current period if acquisitions are excluded in
the comparison. Selling, general and administrative expenses declined as a
percent of sales to 18 percent in the current period from 20 percent of sales in
the prior period reflecting the impact of the Company's efforts to reduce its
cost structure.
Operating income of $16,335,000 in the current six month period was
$4,602,000 or 39 percent higher than the same period of the prior fiscal year
which primarily reflects the impact of increased sales as well as the results of
the Company's efforts to reduce its cost structure. Operating income of the
Hydraulic Systems Group was $11,290,000 or 19 percent higher than the same
period last year as both domestic and foreign operations reported increased
operating income. The Building Systems and Metal Products Group recorded
operating income of $5,045,000 or 125 percent higher than operating income of
the same period last year primarily due to increased sales, reduced material
costs and improved manufacturing efficiencies from the new facility in the Czech
Republic.
During the first six months of fiscal 1997, nonoperating expenses
of $2,578,000 were $1,545,000 greater than the same period of the prior year.
Interest expense of $5,210,000 in the current period was $2,504,000 higher than
the prior year primarily due to debt incurred in the fourth quarter of fiscal
1996 to fund the repurchase of 2.0 million shares of the Company's common
shares, to purchase the outstanding loans of the Company's Employee Stock
Ownership Plan and to fund the acquisition of Ultra Hydraulics Limited on
November 16, 1996. The Company also recorded a nonrecurring gain of $1.0 million
realized on transfer of Astron Building Systems marketing and manufacturing
rights to a new Korean licensee.
The Company's effective income tax rate of 37 percent during the
first six months of fiscal 1997 is higher than that of the same period of the
prior fiscal year due primarily to reduced utilization of loss carryforwards in
Germany.
11
<PAGE> 12
Newly Issued Accounting Standards
- ---------------------------------
In February 1997, Statement of Financial Accounting Standards No.
128, "Earnings per Share" was issued. The statement specifies the computation
and presentation of earnings per share information and is required to be adopted
on December 31, 1997. Under the new requirements for calculating primary
earnings per share, the dilutive effect of unexercised stock options will be
excluded. The impact of adopting the new statement is expected to result in an
increase in primary earnings per share of $.02 and $.01 for the quarters ended
April 30, 1997 and 1996, respectively, and $.03 and $.02 for the six months
ended April 30, 1997 and 1996, respectively. The Company has not yet finalized
the determination of what impact the statement will have on the calculation of
fully diluted earnings per share. Early adoption of the statement is not
permitted.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company expects that sufficient financial resources, generated
from both internal and external sources, will be available to meet operating
needs, to meet scheduled debt repayments and to fund capital expenditure
programs during the upcoming year. Cash and cash equivalents declined by
$2,705,000 during the first six months of fiscal 1997. Cash provided by
continuing operations during the current period increased to $11,614,000
compared with $9,231,000 in the first six months of last year.
Cash used in investing activities was $40,281,000 in the first six
months of the fiscal 1997 compared with $9,371,000 last year primarily due to
use of cash totaling $39,359,000 to acquire all of the outstanding common stock
of Ultra Hydraulics limited in November 1996. Investing activities include
proceeds of $3,016,000 which was paid by an agency of the Federal Republic of
Germany pursuant to a negotiated extension of operating subsidies related to the
Company's German operations. Cash used in investing activities for capital
expenditures was $3,798,000 in the current period which is 63 percent lower than
capital expenditures for the same period last year. The Company continues to
diligently monitor its capital spending requirements in light of current market
trends and economic conditions.
Cash provided by financing activities was $28,976,000 compared with
cash used of $10,740,000 last year, primarily due to approximately $49,000,000
of long-term debt issued to finance the acquisition of Ultra Hydraulics Limited.
Cash was used to make principal payments on long-term debt totaling $22,295,000
during the current period, the majority of which represents net pay-downs of
amounts drawn under the Company's senior revolving credit facility.
BUSINESS OUTLOOK
- ----------------
Incoming customer orders received of $278,803,000 during the first
half of fiscal 1997 are an all-time record reported by the Company, shattering
the previous record set during fiscal 1995 of $237,045,000 by 18 percent.
Current period orders are 25 percent higher than orders received twelve months
ago, parity adjusted. Current fiscal year orders received by the Hydraulic
Systems Group are at an all-time high on the strength of back-to-back record
quarters reported by its domestic units. Current period orders received in the
United States were 25 percent higher than last year and bookings received
overseas were 20 percent higher than fiscal 1996, adjusted for parity
differences. While domestic Metal Products Group orders were 9 percent higher
than last year, orders received by the Astron Division in Europe during the
first half of fiscal 1997 are at an all-time record high, 43 percent higher than
last year, adjusted for fluctuations in foreign currencies.
12
<PAGE> 13
The worldwide backlog of unshipped orders amount to $179,478,000 at
April 30, 1997. The amount of unshipped orders is 33 percent higher than the
balance at the end of fiscal 1996 and 19 percent higher than the ending order
backlog twelve months ago, both adjusted for foreign currency exchange rate
differences.
The Company expects year-over-year gains in both revenues and
income for its business units in fiscal 1997. This optimism is based on
expectations for moderate growth in the domestic economy, the imminent launch of
a series of new product offerings and continuing success in its efforts to lower
its costs of operations. Improved business conditions in Europe and other
foreign markets served by the Company, and the recent extension of operating
subsidies from the German government for our facilities located in that country
further enhance the opportunity for substantial growth in earnings for 1997.
FORWARD-LOOKING INFORMATION
- ---------------------------
Forward-looking statements contained in this Form 10-Q government
filing are made pursuant to the safe harbor provision of the Private Securities
Litigation Reform Act of 1995. The Company cautions that a number of important
factors could cause the Company's actual results for 1997 and beyond to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. These important factors include, without limitation,
demand for the Company's products; the Company's ability to manufacture
commercial quantities of its products on an efficient and cost effective basis;
competition by rival developers of hydraulic systems and building systems and
metal products; changes in technology; customer preferences; growth in the
hydraulic systems and building systems and metal products industries and general
economic and business conditions. These important factors and other factors
which could affect the Company's results are detailed in the Company's filings
with the Securities and Exchange Commission and are included herein by
reference. The Company assumes no obligation to update the information in this
filing.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on March 26, 1997. A
proposal to amend the Code of Regulations of the Company to establish a minimum
of 9 and a maximum of 15 directors was approved by an affirmative vote of the
holders of a majority of the voting power of the Company with 11,479,361 votes
cast in favor of amendment and 1,060,408 votes against. In addition, 112,440
votes abstained and broker non-votes totaled 1,177,701. No other matters were
voted on which require disclosure under this item.
14
<PAGE> 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - computation of per share earnings (unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
April 30, April 30,
-------------------------- -----------------------
1997 1996 1997 1996
---------- --------- -------- --------
<S> <C> <C> <C> <C>
PRIMARY
Average shares outstanding ...................................... 13,946 15,467 14,093 15,486
Net effect of dilutive stock options - based on the
treasury stock method using average market price............. 404 165 387 161
---------- ----------- --------- ----------
Total.................................................... 14,350 15,632 14,480 15,647
========== =========== ========= ==========
Income from continuing operations ............................... $ 8,692 $ 7,794 $ 5,740 $ 4,392
Preferred stock dividends and adjustments ....................... (963) (1,031) (450) (510)
---------- ----------- --------- ----------
Income applicable to common stock ............................... $ 7,729 $ 6,763 $ 5,290 $ 3,882
========== =========== ========= ==========
Per share amount ................................................ $ 0.54 $ 0.43 $ 0.37 $ 0.25
========== =========== ========= ==========
Income from discontinued operations.............................. $ 0 $ 5,102 $ 0 $ 3,251
========== =========== ========= ==========
Per share amount................................................. $ 0.00 $ 0.33 $ 0.00 $ 0.21
========== =========== ========= ==========
Net income ...................................................... $ 8,692 $ 12,896 $ 5,740 $ 7,643
Preferred stock dividends and adjustments........................ (963) (1,031) (450) (510)
---------- ----------- --------- ----------
Income applicable to common stock ............................... $ 7,729 $ 11,865 $ 5,290 $ 7,133
========== =========== ========= ==========
Per share amount ................................................ $ 0.54 $ 0.76 $ 0.37 $ 0.46
========== =========== ========= ==========
FULLY DILUTED
Average shares outstanding....................................... 13,946 15,467 14,093 15,486
Net effect of dilutive stock options - based on the
treasury stock method using the period end price
if higher than average market price.......................... 407 175 387 164
Common share equivalents:
Series B Preferred .......................................... 2,948 1,300 2,849 1,299
---------- ----------- --------- ----------
Total ................................................... 17,301 16,942 17,329 16,949
========== =========== ========= ==========
Income from continuing operations................................ $ 8,692 $ 7,794 $ 5,740 $ 4,392
Preferred stock (Series B) dividends rate adjustment............. (167) (680) (78) (335)
---------- ----------- --------- ----------
Income applicable to common stock ............................... $ 8,525 $ 7,114 $ 5,662 $ 4,057
========== =========== ========= ==========
Per share amount................................................. $ 0.49 $ 0.42 $ 0.33 $ 0.24
========== =========== ========= ==========
Income from discontinued operations.............................. $ 0 $ 5,102 $ 0 $ 3,251
========== =========== ========= ==========
Per share amount ................................................ $ 0.00 $ 0.30 $ 0.00 $ 0.19
========== =========== ========= ==========
Net income ...................................................... $ 8,692 $ 12,896 $ 5,740 $ 7,643
Preferred stock (Series B) dividends rate adjustment ............ (167) (680) (78) (335)
---------- ----------- --------- ----------
Income applicable to common stock ............................... $ 8,525 $ 12,216 $ 5,662 $ 7,308
========== =========== ========= ==========
Per share amount ................................................ $ 0.49 $ 0.72 $ 0.33 $ 0.43
========== =========== ========= ==========
</TABLE>
15
<PAGE> 16
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.
16
<PAGE> 17
SIGNATURE
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, 1997 By /s/Steven J. Hewitt
-------------------- --------------------------
Steven J. Hewitt
Senior Vice President and
Principal Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> APR-30-1997
<CASH> 24,847
<SECURITIES> 0
<RECEIVABLES> 78,479
<ALLOWANCES> 2,070
<INVENTORY> 59,697
<CURRENT-ASSETS> 182,103
<PP&E> 210,665
<DEPRECIATION> 108,301
<TOTAL-ASSETS> 366,536
<CURRENT-LIABILITIES> 119,654
<BONDS> 120,949
<COMMON> 14,088
0
21,914
<OTHER-SE> 49,046
<TOTAL-LIABILITY-AND-EQUITY> 366,536
<SALES> 246,608
<TOTAL-REVENUES> 246,608
<CGS> 184,771
<TOTAL-COSTS> 184,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 5,210
<INCOME-PRETAX> 13,757
<INCOME-TAX> 5,065
<INCOME-CONTINUING> 8,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,692
<EPS-PRIMARY> .54
<EPS-DILUTED> .49
</TABLE>
