<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 January 31, 1998
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--14,085,328 shares as of March 2, 1998
<PAGE> 2
INDEX
COMMERCIAL INTERTECH CORP.
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Statements of Income - Three Months Ended
January 31, 1998 and 1997.............................................3
Consolidated Condensed Balance Sheets -
January 31, 1998 and October 31, 1997.................................4
Statements of Consolidated Condensed Cash Flows - Three Months Ended
January 31, 1998 and 1997.............................................5
Notes to Consolidated Condensed Financial Statements -
January 31, 1998......................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................12
SIGNATURE.....................................................................13
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Thousands of dollars, except per share data) January 31,
---------------------------
1998 1997
--------- ---------
<S> <C> <C>
Net sales ............................................. $ 128,530 $ 116,716
Less costs and expenses:
Cost of products sold ............................. 97,804 88,403
Selling, administrative and general expenses ...... 21,753 22,744
--------- ---------
119,557 111,147
--------- ---------
Operating income ...................................... 8,973 5,569
Nonoperating income (expense):
Interest income ................................... 154 201
Interest expense .................................. (2,533) (2,635)
Foreign currency gains (losses) ................... (175) 494
Other ............................................. (47) 534
--------- ---------
(2,601) (1,406)
--------- ---------
Income before income taxes ............................ 6,372 4,163
Income taxes .......................................... 2,464 1,211
--------- ---------
Net income ............................................ $ 3,908 $ 2,952
========= =========
Preferred stock dividends ............................. (465) (514)
--------- ---------
Net income applicable to common stock ................. $ 3,443 $ 2,438
========= =========
Earnings per share of common stock:
Net income:
Basic ............................................. $ 0.25 $ 0.18
Diluted ........................................... $ 0.22 $ 0.17
Dividends per common share ............................ $ 0.135 $ 0.135
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 4
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
(Thousands of dollars) January 31, October 31,
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents .............................................. $ 12,171 $ 27,630
Accounts receivable, less allowance (1998 - $2,917; 1997 - $2,456) ..... 81,241 81,886
Inventories ............................................................ 61,914 60,944
Deferred income tax benefits ........................................... 14,893 15,281
Prepaid expenses and other current assets .............................. 4,262 4,255
--------- ---------
TOTAL CURRENT ASSETS ....... 174,481 189,996
PROPERTY, PLANT AND EQUIPMENT .............................................. 217,167 216,030
Less allowance for depreciation ........................................ 115,132 112,604
--------- ---------
102,035 103,426
NONCURRENT ASSETS:
Intangible assets ...................................................... 43,304 44,460
Pension assets ......................................................... 43,426 42,961
Other assets ........................................................... 3,134 3,955
--------- ---------
TOTAL NONCURRENT ASSETS .......... $ 89,864 91,376
--------- ---------
TOTAL ASSETS......... $ 366,380 $ 384,798
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Bank loans ............................................................. $ 3,957 $ 140
Accounts payable ....................................................... 44,422 52,382
Accrued expenses ....................................................... 46,582 56,525
Accrued income taxes ................................................... 10,297 11,085
Dividends payable ...................................................... 2,453 2,592
Current portion of long-term debt ...................................... 3,248 4,621
--------- ---------
TOTAL CURRENT LIABILITIES ........ 110,959 127,345
NONCURRENT LIABILITIES:
Long-term debt ......................................................... 111,755 111,342
Deferred income taxes .................................................. 18,380 18,274
Postretirement benefits ................................................ 24,947 25,007
--------- ---------
TOTAL NONCURRENT LIABILITIES ........... 155,082 154,623
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: 1998 - 942,552 shares; 1997 - 942,552 shares ......... 21,914 21,914
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1998 - 14,087,916 shares (excluding 1,929,433 in
treasury); 1997 - 14,125,175 shares (excluding
1,945,995 in treasury) ................................ 14,088 14,125
Capital surplus ........................................................ 3,910 5,264
Retained earnings ...................................................... 87,606 85,884
Deferred compensation .................................................. (15,079) (16,337)
Translation adjustment ................................................. (12,100) (8,020)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ............ 100,339 102,830
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................... $ 366,380 $ 384,798
========= =========
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 5
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CONDENSED CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Three Months Ended
(Thousands of dollars) January 31,
-------------------------
1998 1997
-------- --------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income .......................................................... $ 3,908 $ 2,952
Adjustments to reconcile net income to net cash (used) provided by
operating activities:
Provision for depreciation and amortization ................... 3,953 3,532
Amortization of deferred credit ............................... (361) (414)
Postretirement benefit ........................................ 121 97
Pension plan credits .......................................... (810) (684)
Change in deferred income taxes ............................... 565 582
Change in current assets and liabilities:
(Increase) decrease in accounts receivable ................ (1,167) 4,966
(Increase) in inventories ................................. (2,481) (122)
(Increase) in prepaid expenses and other current assets ... (121) (1,862)
Decrease in receivable from discontinued operations ....... 0 3,661
(Decrease) in accounts payable and accrued expenses ....... (15,422) (12,102)
(Decrease) in accrued income taxes ........................ (457) (480)
-------- --------
Net cash (used) provided by operating activities (12,272) 126
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets .................................. 18 739
Business acquisition ................................................ 0 (39,359)
Investment in intangibles ........................................... 0 (644)
Capital expenditures ................................................ (3,971) (2,041)
-------- --------
Net cash (used) by investing activities ........ (3,953) (41,305)
FINANCING ACTIVITIES:
Proceeds from long-term debt ........................................ 3,824 57,814
Principal payments on long-term debt ................................ (3,639) (12,656)
Net borrowings under bank loan agreements ........................... 3,930 (4,784)
Proceeds from reserve contracts ..................................... 325 0
Conversion of other assets .......................................... (225) (1,409)
Dividends from discontinued operations .............................. 0 2,425
Dividends paid ...................................................... (2,442) (2,338)
-------- --------
Net cash provided by financing activities ...... 1,773 39,052
Effect of exchange rate changes on cash ................................. (1,007) (2,210)
-------- --------
Net (decrease) in cash and cash equivalents ............................. (15,459) (4,337)
Cash and cash equivalents at beginning of period ........................ 27,630 27,552
-------- --------
Cash and cash equivalents at end of period .............................. $ 12,171 $ 23,215
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest ......................................................... $ 3,356 $ 2,894
Income taxes ..................................................... 2,355 1,109
</TABLE>
See notes to consolidated condensed financial statements.
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<PAGE> 6
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
January 31, 1998
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, 1997. Operating results for the three-month period ended January 31,
1998 are not necessarily indicative of the results that may be expected for the
year ended October 31, 1998.
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share." Statement No. 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of stock options and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to
Statement No.128 requirements.
Effective November 1, 1997, the Company adopted American Institute of
Certified Public Accountants Statement of Position ("SOP") 96-1, "Environmental
Remediation Liabilities." The SOP does not change existing accounting rules, but
clarifies how existing authoritative guidance on loss contingencies should be
applied in determining environmental liabilities. The adoption of the SOP did
not have a material impact on the Company's operations.
Effective for the quarter ended January 31, 1998, the Company changed its
foreign currency translation procedures for its Brazilian operations reflecting
a change in its economy to a non-hyperinflationary status. The change did not
substantially impact the Company's financial statements.
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<PAGE> 7
NOTE B - PER SHARE DATA
The computation of basic and diluted earnings per share is shown below:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
------------------------
1998 1997
------ ------
(in thousands, except per share data)
<S> <C> <C>
Numerator:
Net income................................................................... $3,908 $2,952
Series B preferred stock dividends........................................... (465) (514)
------ ------
Numerator for basic earnings per share - net income applicable to
common stock ............................................................ 3,443 2,438
Effect of dilutive securities - Series B preferred stock dividends and
adjustments resulting from assumed conversion ........................... 384 425
------ ------
Numerator for diluted earnings per share - net income applicable to
common stock after assumed conversion ................................... $3,827 $2,863
====== ======
Denominator:
Denominator for basic earnings per share - weighted average shares
outstanding ............................................................. 13,743 13,272
Effect of dilutive securities:
Series B convertible preferred stock .................................... 2,849 3,143
Assumed issuance of stock under stock option and award plans
based on treasury stock method ....................................... 511 354
------ ------
Denominator for diluted earnings per share - weighted average shares
outstanding and impact of dilutive securities ........................... 17,103 16,769
====== ======
Basic earnings per share .................................................... $0.25 $0.18
====== ======
Diluted earnings per share .................................................. $0.22 $0.17
====== ======
</TABLE>
Options to purchase 140,000 shares of common stock at $18.94 were
outstanding during the period ended January 31, 1998 but were not included in
the computation of diluted earnings per share because the exercise price of the
options was greater than the average market price of the common shares and,
therefore, the effect would be antidilutive.
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<PAGE> 8
NOTE C - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
January 31, October 31,
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Raw materials ..................... $ 22,751 $ 20,899
Work-in-process ................... 29,531 30,161
Finished goods .................... 9,632 9,884
-------- --------
$ 61,914 $ 60,944
======== ========
</TABLE>
NOTE D - SEGMENT REPORTING
The Company is engaged in the design, manufacture and sale of products in
two segments:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
--------------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Hydraulic Systems
Net sales ..................... $ 89,723 $ 78,207
Operating income .............. 5,542 3,431
Percent to sales ........... 6.2% 4.4%
Building Systems and Metal Products
Net sales ..................... $ 38,807 $ 38,509
Operating income .............. 3,431 2,138
Percent to sales ........... 8.8% 5.6%
TOTAL
Net sales ..................... $128,530 $116,716
Operating income .............. 8,973 5,569
Percent to sales ........... 7.0% 4.8%
</TABLE>
-8-
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
First Quarter 1998 Compared With First Quarter 1997
Quarterly net sales of $128,530,000 established a new first quarter
record for the Company. Net sales during the current quarter increased by
$11,814,000 which is 10 percent higher, 15 percent higher on a currency adjusted
basis, than the first quarter of fiscal 1997. Revenues were higher in all
product groups and geographical segments with particular strength experienced by
the domestic Hydraulic Systems group. Net income increased to $3,908,000, which
was 32 percent higher than the first quarter of fiscal 1997. The increase in
1998 primarily reflects the impact of increased sales and the results of a
previously implemented program to reduce fixed costs.
Net sales recorded by domestic operations totaled $74,874,000 during
the current quarter which was $10,228,000 or 16 percent higher than net sales of
the first quarter of the prior fiscal year. The domestic Hydraulics Systems
group recorded net sales for the quarter of $59,738,000, a 19 percent increase
over the first quarter of last year. The domestic Metal Products group recorded
first quarter sales of $15,136,000 which represents a 6 percent increase over
the same quarter last year.
Net sales of foreign operations totaled $53,656,000 which was
$1,586,000 or 3 percent higher than the first quarter of last year. Net sales of
foreign operations would have been $5,232,000 or 10 percent higher if exchange
rates remained unchanged for the period. The foreign Hydraulic Systems group
reported shipments of $29,985,000, an 8 percent increase over the first quarter
of last year. Sales of the Company's Astron Division located in Europe were
relatively flat, although up by approximately 10 percent in the current quarter
adjusted for the effects of exchange rate differences.
Consolidated gross profit of $30,726,000 was $2,413,000 or 9 percent
higher than the first quarter of fiscal 1997 which primarily reflects the impact
of increased sales during the current quarter. Gross profit margins for the
current period were flat compared with the first quarter of fiscal 1997.
Selling, general and administrative expenses of $21,753,000 declined
by $991,000 or 4 percent compared with the same quarter last year. Selling,
general and administrative expenses also declined as a percent of sales to 17
percent in the current quarter from 19 percent of sales last year reflecting the
impact of the Company's previously implemented program to reduce its cost
structure.
Operating income of $8,973,000 in the current quarter was $3,404,000
or 61 percent higher than the same quarter last year. Operating income of the
Hydraulic Systems group of $5,542,000 was 62 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 $3,431,000 which was 61 percent higher than operating income
of the first quarter of last year primarily due to increased shipment levels and
less severe weather and seasonal factors in the current quarter.
-9-
<PAGE> 10
During the first quarter of fiscal 1998, nonoperating expenses of
$2,601,000 were $1,195,000 higher than the same quarter last year. Interest
expense of $2,533,000 in the current quarter was $102,000 lower than the prior
year primarily due to lower levels of debt in the current quarter compared with
the first quarter of fiscal 1997. Foreign currency exchange and translation
losses totaled $175,000 in the first quarter of fiscal 1998 compared with a gain
of $494,000 in the first quarter of the prior year. In addition, nonoperating
expenses for the first quarter of the prior fiscal year include gains on the
disposal of fixed assets, principally in the United States.
The Company's effective income tax rate of 39 percent during the
first quarter of fiscal 1998 is higher than that of the same quarter last year
primarily due to favorable adjustments in the tax provision last year.
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
$15,459,000 during the first quarter of fiscal 1998 and totaled $12,171,00 at
period end. Cash used by operating activities during the current quarter was
$12,272,000 compared with cash provided of $126,000 in the first quarter of last
year. The decline is primarily attributable to changes in current assets and
liabilities in the current quarter including increased accounts receivable and
inventory and decreased accounts payable and accrued expenses. In addition, cash
flows of the prior period benefitted from a decrease in receivable from
discontinued operations.
Cash used in investing activities was $3,953,000 in the first
quarter of fiscal 1998 compared with $41,305,000 in the first quarter of last
year which primarily reflects the use of cash totaling $39,359,000 to acquire
the common stock of Ultra Hydraulics Limited in the prior year. Capital
expenditures of $3,971,000 in the current quarter were $1,930,000 greater than
capital expenditures for the same quarter last year.
Cash provided by financing activities was $1,773,000 compared with
cash provided of $39,052,000 last year. Cash provided by investing activities in
the prior year's quarter primarily reflects the issuance of long-term debt to
finance the acquisition of Ultra Hydraulics Limited.
BUSINESS OUTLOOK
Incoming customer orders received of $158,493,000 during the first
quarter of fiscal 1998 is an all-time Company record. Current period orders are
14 percent higher than orders received twelve months ago, parity adjusted. First
quarter bookings of the Hydraulic Systems group totaled $112,965,000, a 20
percent increase above the level recorded during the same period last year.
Bookings of $45,528,000 for the Building Systems and Metal Products group were
slightly above the amount recorded in the first quarter of the prior year.
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<PAGE> 11
The worldwide backlog of unshipped orders amount to $225,808,000 at
January 31, 1998. The amount of unshipped orders is 16 percent higher than the
balance at the end of fiscal 1997 and 29 percent higher than the ending order
backlog twelve months ago, both adjusted for foreign currency exchange rate
differences.
Management believes the Company can sustain the momentum established
over the last several quarters. Contributing to this positive view is the
continued expansion of global economies, continued strength in the fundamentals
associated with many industries which the Company serves, and the all-time
record of incoming orders the Company established in the current quarter. The
Company is installing additional manufacturing capacity to capitalize on this
increased level of business and is taking aggressive steps to address
underperforming operations in Germany. In addition, the previously implemented
program to reduce fixed costs should continue to contribute to earnings growth.
Tempering our optimism for the future is continued uncertainty
surrounding the financial crisis in Asia. While the Company's direct exposure to
this crisis is relatively minor, the greater risk lies in the diminishment of
growth in the U.S. economy if the effects of the crisis begin to expand to
domestic businesses. The impact of any such effect on the Company, its customers
or its suppliers cannot be determined at this time. Furthermore, additional
manufacturing capacity is not expected to be fully operational for certain key
facilities until the second half of the year.
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 1998 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.
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<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Statement re: Computation of Per Share Earnings
(omitted - inapplicable)
The information with respect to the computation of both basic and
diluted earnings per share is presented in Note B to the financial
statements included in PART I, Item 1.
Exhibit 27 - Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter for which this
report is filed.
-12-
<PAGE> 13
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 March 5, 1998 By /s/Steven J. Hewitt
-------------- -----------------------
Steven J. Hewitt
Senior Vice President and
Principal Financial Officer
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<PAGE> 14
Commercial Intertech Corp.
Index To Exhibits Filed Herewith
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 12,171
<SECURITIES> 0
<RECEIVABLES> 84,158
<ALLOWANCES> 2,917
<INVENTORY> 61,914
<CURRENT-ASSETS> 174,481
<PP&E> 217,167
<DEPRECIATION> 115,132
<TOTAL-ASSETS> 366,380
<CURRENT-LIABILITIES> 110,959
<BONDS> 111,755
0
21,914
<COMMON> 14,088
<OTHER-SE> 64,337
<TOTAL-LIABILITY-AND-EQUITY> 366,380
<SALES> 128,530
<TOTAL-REVENUES> 128,530
<CGS> 97,408
<TOTAL-COSTS> 97,408
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 536
<INTEREST-EXPENSE> 2,533
<INCOME-PRETAX> 6,372
<INCOME-TAX> 2,464
<INCOME-CONTINUING> 3,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,908
<EPS-PRIMARY> .25
<EPS-DILUTED> .22
</TABLE>
