<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For period ended July 31, 1998
Commission file number 0-588
COMMERCIAL INTERTECH CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
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)
</TABLE>
(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--14,266,879 shares as of September 3, 1998
<PAGE> 2
INDEX
COMMERCIAL INTERTECH CORP.
<TABLE>
<CAPTION>
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Condensed Statements of Income (unaudited) - Nine Months and
Three Months Ended July 31, 1998 and 1997............................................... 3
Consolidated Condensed Balance Sheets (unaudited) -
July 31, 1998 and October 31, 1997...................................................... 4
Statements of Consolidated Condensed Cash Flows (unaudited) - Nine Months
Ended July 31, 1998 and 1997............................................................ 5
Notes to Consolidated Condensed Financial Statements (unaudited) -
July 31, 1998........................................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................................... 10
PART II. OTHER INFORMATION
Item 5. Other Information....................................................................... 14
Item 6. Exhibits and Reports on Form 8-K........................................................ 14
SIGNATURE.............................................................................................. 15
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
(Thousands of dollars, except per share data) July 31, July 31,
------------------------- ----------------------
1998 1997 1998 1997
-------- ---------- -------- ------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 425,947 $ 383,659 $ 151,331 $ 137,051
Less costs and expenses:
Cost of products sold ...................... 322,295 285,280 114,476 100,509
Selling, administrative and general expenses 66,508 68,050 21,944 22,548
------------ ------------ ------------ ------------
388,803 353,330 136,420 123,057
------------ ------------ ------------ ------------
Operating income ............................... 37,144 30,329 14,911 13,994
Nonoperating income (expense):
Interest income ............................ 423 661 129 298
Interest expense ........................... (7,590) (7,948) (2,492) (2,738)
Foreign currency gains (losses) ............ (633) 675 (119) 225
Other ...................................... 704 1,862 267 43
------------ ------------ ------------ ------------
(7,096) (4,750) (2,215) (2,172)
------------ ------------ ------------ ------------
Income before income taxes ..................... 30,048 25,579 12,696 11,822
Income taxes ................................... 10,841 9,186 4,367 4,121
------------ ------------ ------------ ------------
Net income ..................................... $ 19,207 $ 16,393 $ 8,329 $ 7,701
============ ============ ============ ============
Preferred stock dividends ...................... (1,385) (1,429) (458) (466)
------------ ------------ ------------ ------------
Net income applicable to common stock .......... $ 17,822 $ 14,964 $ 7,871 $ 7,235
============ ============ ============ ============
Earnings per share of common stock:
Net income:
Basic ...................................... $ 1.29 $ 1.11 $ 0.57 $ 0.53
Diluted .................................... $ 1.11 $ 0.96 $ 0.48 $ 0.45
Dividends per common share ..................... $ 0.435 $ 0.405 $ 0.150 $ 0.135
</TABLE>
See notes to consolidated condensed financial statements.
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COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS (unaudited)
<TABLE>
<CAPTION>
(Thousands of dollars) July 31, October 31,
1998 1997
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<S> <C> <C>
ASSETS
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CURRENT ASSETS:
Cash and cash equivalents ........................................ $ 23,213 $ 27,630
Accounts receivable, less allowance (1998 - $2,977; 1997 - $2,456) 88,838 81,886
Inventories ...................................................... 63,203 60,944
Deferred income tax benefits ..................................... 15,119 15,281
Prepaid expenses and other current assets ........................ 2,711 4,255
------------ ------------
TOTAL CURRENT ASSETS . 193,084 189,996
PROPERTY, PLANT AND EQUIPMENT ........................................ 226,902 216,030
Less allowance for depreciation .................................. 121,002 112,604
------------ ------------
105,900 103,426
NONCURRENT ASSETS:
Intangible assets ................................................ 41,670 44,460
Pension assets ................................................... 45,883 42,961
Other assets ..................................................... 5,630 3,955
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TOTAL NONCURRENT ASSETS . 93,183 91,376
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TOTAL ASSETS . $ 392,167 $ 384,798
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Bank loans ....................................................... $ 591 $ 140
Accounts payable ................................................. 50,780 52,382
Accrued expenses ................................................. 53,774 56,525
Accrued income taxes ............................................. 12,718 11,085
Dividends payable ................................................ 2,733 2,592
Current portion of long-term debt ................................ 3,053 4,621
------------ ------------
TOTAL CURRENT LIABILITIES . 123,649 127,345
NONCURRENT LIABILITIES:
Long-term debt ................................................... 110,261 111,342
Deferred income taxes ............................................ 19,131 18,274
Postretirement benefits .......................................... 25,334 25,007
------------ ------------
TOTAL NONCURRENT LIABILITIES . 154,726 154,623
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 - 926,070 shares; 1997 - 942,552 shares ... 21,531 21,914
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1998 - 14,266,879 shares (excluding 1,940,944 in
treasury); 1997 - 14,125,175 shares (excluding
1,945,995 in treasury) .................................. 14,267 14,125
Capital surplus .................................................. 4,394 5,264
Retained earnings ................................................ 99,458 85,884
Deferred compensation ............................................ (15,079) (16,337)
Translation adjustment ........................................... (10,779) (8,020)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY . 113,792 102,830
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . $ 392,167 $ 384,798
============ ============
</TABLE>
See notes to consolidated condensed financial statements.
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COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CONDENSED CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
(Thousands of dollars) July 31,
----------------
1998 1997
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OPERATING ACTIVITIES:
<S> <C> <C>
Net income .......................................................... $ 19,207 $ 16,393
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for depreciation and amortization ................... 12,141 10,940
Amortization of deferred credit ............................... (1,064) (1,164)
Postretirement benefit ........................................ 422 306
Pension plan credits .......................................... (3,197) (2,052)
Change in deferred income taxes ............................... 1,184 1,439
Change in current assets and liabilities:
(Increase) in accounts receivable ......................... (8,262) (1,153)
(Increase) in inventories ................................. (3,510) (164)
Decrease (increase) in prepaid expenses and other
current assets ........................................ 1,464 (1,690)
Decrease in receivable from discontinued operations ....... 0 9,231
(Decrease) in accounts payable and accrued expenses ....... (377) (3,647)
Increase in accrued income taxes .......................... 3,735 4,188
------------ ------------
Net cash provided by operating activities ...... 21,743 32,627
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets .................................. 1,598 772
Business acquisition ................................................ 834 (39,359)
Investment in intangibles ........................................... 0 (896)
Capital expenditures ................................................ (15,721) (7,736)
Operating subsidies ................................................. 0 3,016
------------ ------------
Net cash (used) by investing activities ........ (13,289) (44,203)
FINANCING ACTIVITIES:
Proceeds from long-term debt ........................................ 14,849 137,910
Principal payments on long-term debt ................................ (16,344) (118,689)
Net borrowings under bank loan agreements ........................... 621 (426)
Proceeds from reserve contracts ..................................... 879 139
Purchase of reserve contracts ....................................... (4,202) (4,083)
Conversion of other assets .......................................... (769) (2,663)
Dividends from discontinued operations .............................. 0 4,612
Dividends paid ...................................................... (7,357) (6,988)
------------ ------------
Net cash (used) provided by financing activities (12,323) 9,812
Effect of exchange rate changes on cash ................................. (548) (4,418)
------------ ------------
Net (decrease) in cash and cash equivalents ............................. (4,417) (6,182)
Cash and cash equivalents at beginning of period ........................ 27,630 27,552
------------ ------------
Cash and cash equivalents at end of period .............................. $ 23,213 $ 21,370
============ ============
Supplemental disclosures:
Cash paid during the period for:
Interest ......................................................... $ 8,240 $ 7,857
Income taxes ..................................................... 5,923 3,559
</TABLE>
See notes to consolidated condensed financial statements.
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COMMERCIAL INTERTECH CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (unaudited)
July 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 nine-month and three-month periods
ended July 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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NOTE B - PER SHARE DATA
The computation of basic and diluted earnings per share is shown below:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
------------------------- -----------------------
1998 1997 1998 1997
-------- --------- -------- ------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Net income ....................................... $ 19,207 $ 16,393 $ 8,329 $ 7,701
Series B preferred stock dividends ............... (1,385) (1,429) (458) (466)
------------ ------------ ------------ ------------
Numerator for basic earnings per share -
net income applicable to common stock ........ 17,822 14,964 7,871 7,235
Effect of dilutive securities - Series B preferred
stock dividends and adjustments resulting from
assumed conversion ........................... 1,222 1,180 420 384
------------ ------------ ------------ ------------
Numerator for diluted earnings per share -
net income applicable to common stock after
assumed conversion ........................... $ 19,044 $ 16,144 $ 8,291 $ 7,619
============ ============ ============ ============
Denominator:
Denominator for basic earnings per share -
weighted average shares outstanding .......... 13,847 13,528 13,929 13,665
Effect of dilutive securities:
Series B convertible preferred stock ......... 2,816 2,947 2,799 2,849
Assumed issuance of stock under stock option
and award plans based on treasury stock
method .................................... 459 383 441 448
------------ ------------ ------------ ------------
Denominator for diluted earnings per share -
weighted average shares outstanding and
impact of dilutive securities ................ 17,122 16,858 17,169 16,962
============ ============ ============ ============
Basic earnings per share ......................... $ 1.29 $ 1.11 $ 0.57 $ 0.53
============ ============ ============ ============
Diluted earnings per share ....................... $ 1.11 $ 0.96 $ 0.48 $ 0.45
============ ============ ============ ============
</TABLE>
Options to purchase 6,750 shares of common stock at $22.94 per share were
outstanding during the period ended July 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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NOTE C - INVENTORIES
Inventories consisted of the following:
July 31, October 31,
1998 1997
------------ ------------
(in thousands)
Raw materials ......................... $ 21,593 $ 20,899
Work-in-process ....................... 31,436 30,161
Finished goods ........................ 10,174 9,884
------------ ------------
$ 63,203 $ 60,944
============ ============
NOTE D - SEGMENT REPORTING
The Company is engaged in the design, manufacture and sale of products in
two segments:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
July 31, July 31,
--------------------------- ---------------------------
1998 1997 1998 1997
-------- -------- -------- ------
(in thousands)
<S> <C> <C> <C> <C>
Hydraulic Systems
Net sales ..................... $ 294,161 $ 260,046 $ 101,821 $ 91,735
Operating income .............. 22,168 18,499 7,828 7,209
Percent to sales ...... 7.5% 7.1% 7.7% 7.9%
Building Systems and Metal Products
Net sales ..................... $ 131,786 $ 123,613 $ 49,510 $ 45,316
Operating income .............. 14,976 11,830 7,083 6,785
Percent to sales ...... 11.4% 9.6% 14.3% 15.0%
TOTAL
Net sales ..................... $ 425,947 $ 383,659 $ 151,331 $ 137,051
Operating income .............. 37,144 30,329 14,911 13,994
Percent to sales ...... 8.7% 7.9% 9.9% 10.2%
</TABLE>
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NOTE E - NEWLY ISSUED ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Statement No. 133 requires that all
derivative financial instruments be recognized as either assets or liabilities
in the Company's consolidated balance sheets at fair value. If a derivative is
not designated as a hedging instrument, changes in fair value are to be
recognized as gains or losses in income in the period of change. If certain
conditions are met, a derivative may be designated as a hedge, in which case the
accounting for changes in fair value will not impact the income statement if the
risk being hedged is effectively mitigated. Statement No. 133 is effective for
fiscal year ending October 31, 2000, with initial application required as of the
beginning of the first quarter of the fiscal year. The Company may also elect to
adopt the provisions of Statement No. 133 earlier. Retroactive application of
the statement is not permitted. The Company has not completed its evaluation of
the impact of the new requirements.
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<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Third Quarter 1998 Compared With Third Quarter 1997
Quarterly net sales of $151,331,000 established a new record for the
Company. Net sales during the current quarter increased by $14,280,000 which is
10 percent higher, 12 percent higher on a currency adjusted basis, than the
third quarter of fiscal 1997. Net income increased by 8 percent to $8,329,000
during the third quarter of fiscal 1998 despite a nonrecurring charge of
$567,000 associated with employee separation costs at the Company's German
operations. Excluding the nonrecurring charge, net income would have been
$8,896,000 or 16 percent higher than the same quarter last year.
Net sales recorded by domestic operations totaled $84,142,000 during
the current quarter which was $8,686,000 or 12 percent higher than net sales of
the third quarter of the prior fiscal year. The domestic Hydraulics Systems
group recorded net sales for the quarter of $70,170,000, a 16 percent increase
over the third quarter of last year, reflecting continued strong demand from
truck equipment, construction equipment, refuse equipment and marine markets.
Net sales of the domestic Metal Products group were lower than net sales of the
same quarter last year reflecting generally lower demand from the container
industry.
Net sales of foreign operations totaled $67,189,000 which was
$5,594,000 or 9 percent higher than the third quarter of last year. Net sales of
foreign operations would have been higher by $7,593,000 or 12 percent higher if
exchange rates remained unchanged for the period. The foreign Hydraulic Systems
group reported shipments of $31,651,000, a 3 percent increase in the current
quarter adjusted for the effects of exchange rate differences. The increase
primarily reflects significant period-to-period gains achieved by the Company's
business units in Germany partially offset by the negative impact of the strong
pound sterling and weakened demand from customers in industrial market segments
of the United Kingdom operations. Net sales of the Company=s Astron Division
located in Europe increased 17 percent over the third quarter of last year as
shipping activity of single and multi-story structures to European markets was
seasonally higher.
Consolidated gross profit of $36,855,000 was $313,000 higher than
the third quarter of fiscal 1997. Gross profit margins for the current quarter
declined slightly compared with the third quarter of fiscal 1997 which is due,
in part, to lower profitability of the domestic Metal Products group and the
hydraulic operations in the United Kingdom as well as the impact of a
nonrecurring charge of $567,000 associated with the German operations.
Selling, general and administrative expenses of $21,944,000 declined
by $604,000 or 3 percent compared with the same quarter last year. Selling,
general and administrative expenses declined as a percent of sales to 15 percent
in the current quarter from 16 percent of sales last year which primarily
reflects the impact of the Company=s previously implemented program to reduce
its cost structure.
Operating income of $14,911,000 in the current quarter was $917,000
or 7 percent higher than the same quarter last year despite the impact of a
nonrecurring charge of $567,000 recorded in the current quarter. Operating
income of the Hydraulic Systems group of $7,828,000 was 9 percent higher than
the same quarter last year as the strength of the domestic operations and the
improvement of the German operations more than offset the impact of the
nonrecurring charge of $567,000. The Building Systems and Metal Products group
recorded operating income of $7,083,000 which was 4 percent higher than
operating income of the third quarter of last year. The Company's Astron
Division located in Europe recorded
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increased operating income reflecting favorable business conditions in the
current quarter. Operating income of the domestic Metal Products group declined
which primarily reflects the impact of lower demand from the container industry.
During the third quarter of fiscal 1998, nonoperating expenses of
$2,215,000 were $43,000 higher than the same quarter last year. Interest expense
declined by 9 percent to $2,492,000 in the current quarter primarily due to
lower levels of debt partially offset by modestly higher average interest rates
in the current quarter. Foreign currency exchange and translation losses totaled
$119,000 in the third quarter of fiscal 1998 compared with a gain of $225,000 in
the third quarter of the prior year.
The Company's effective income tax rate amounted to 34 percent
during the third quarter of fiscal 1998 and 35 percent during the third quarter
of the prior fiscal year.
First Nine Months of 1998 Compared With First Nine Months of 1997
The Company recorded net sales of $425,947,000 for the nine months
ended July 31, 1998, surpassing the sales recorded for the prior year period by
11 percent, or 14 percent on a currency adjusted basis. Net income increased by
17 percent to $19,207,000 during the first nine months of fiscal 1998 which
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 $246,069,000
during the current period which was $33,580,000 or 16 percent higher than net
sales of the prior year period. The domestic Hydraulics Systems group recorded
net sales for the period of $202,155,000, a 20 percent increase over the same
period of last year reflecting continued strength in most markets. Net sales of
the domestic Metal Products group were marginally lower than revenues of the
same period last year.
Foreign operations recorded revenues of $179,878,000 which was
$8,708,000 or 5 percent higher than the same period of last year. Net sales of
foreign operations would have been higher by $19,647,000 or 11 percent if
exchange rates remained unchanged for the period. The foreign Hydraulic Systems
group recorded net sales of $92,006,000 which was approximately equal to sales
of the prior period although up by 4 percent adjusted for the effects of
exchange rate differences. Net sales of the Company's Astron Division increased
11 percent over the same period last year (up 20 percent on a parity-adjusted
basis).
Consolidated gross profit of $103,652,000 was $5,273,000 or 5
percent higher than the first nine months of fiscal 1997 which primarily
reflects the impact of increased sales during the current period. Gross profit
margins for the current period declined slightly compared with the same period
of fiscal 1997. Operating profit margins improved in the current period due to
declining operating expenses.
Selling, general and administrative expenses of $66,508,000 declined
by $1,542,000 or 2 percent compared with the same period last year. Selling,
general and administrative expenses also declined as a percent of sales to 16
percent in the current period from 18 percent of sales in the same period last
year which primarily reflects the impact of the Company's previously implemented
program to reduce its cost structure.
Operating income of $37,144,000 in the current period was $6,815,000
or 22 percent higher than the same period last year despite a nonrecurring
charge of $567,000 recorded in the current period. Operating income of the
Hydraulic Systems group of $22,168,000 was 20 percent higher than the same
period last year as the domestic and the German operations reported
significantly improved operating income which more than offset lower
profitability of the United Kingdom operations and the impact of a nonrecurring
charge of $567,000 associated with the German operations. The Building Systems
and Metal
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<PAGE> 12
Products group recorded operating income of $14,976,000 which was 27 percent
higher than operating income of the same period of last year. Operating income
of the Company's Astron Division located in Europe increased reflecting
favorable business conditions during the current period. The domestic Metal
Products group recorded a modest increase in operating income during the current
period despite marginally lower sales.
During the first nine months of fiscal 1998 nonoperating expenses of
$7,096,000 were $2,346,000 higher than the same period last year. Interest
expense declined by $358,000 to $7,590,000 in the current period primarily due
to lower levels of debt partially offset by modestly higher average interest
rates in the current period. Foreign currency exchange and translation losses
totaled $633,000 in the current period compared with gains of $675,000 in the
first nine months of the prior year. Nonoperating income for the prior fiscal
year includes a gain of $1.0 million realized on transfer of Astron Building
Systems marketing and manufacturing to a new Korean licensee.
The Company's effective income tax rate was 36 percent during the
first nine months of both fiscal 1998 and fiscal 1997.
Newly Issued Accounting Standards
In June 1998, the FASB issued Statement No. 133, "Accounting for
Derivative Instruments and Hedging Activities." Statement No. 133 requires that
all derivative financial instruments be recognized as either assets or
liabilities in the Company's consolidated balance sheets at fair value. If a
derivative is not designated as a hedging instrument, changes in fair value are
to be recognized as gains or losses in income in the period of change. If
certain conditions are met, a derivative may be designated as a hedge, in which
case the accounting for changes in fair value will not impact the income
statement if the risk being hedged is effectively mitigated. Statement No. 133
is effective for fiscal year ending October 31, 2000, with initial application
required as of the beginning of the first quarter of the fiscal year. The
Company may also elect to adopt the provisions of Statement No. 133 earlier.
Retroactive application of the statement is not permitted. The Company has not
completed its evaluation of the impact of the new requirements.
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
$4,417,000 during the first nine months of fiscal 1998 and totaled $23,213,000
at period end. Cash provided by operating activities during the current period
was $21,743,000 compared with cash provided of $32,627,000 in the first nine
months of last year. The decrease is primarily attributable to the decrease of
$9,231,000 in receivables from discontinued operations in the prior period in
addition to the impact of an increase in accounts receivable of $8,262,000 in
the current period.
Cash used in investing activities was $13,289,000 in the first nine
months of fiscal 1998 compared with $44,203,000 in the first nine months 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 $15,721,000 in the current period were $7,985,000 greater than
capital expenditures for the first nine months of the prior year.
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<PAGE> 13
Cash used by financing activities in the current period was
$12,323,000 compared with cash provided of $9,812,000 last year. Cash used in
financing activities in the current period reflects a net pay-down of long-term
debt of $1,495,000 in addition to dividends paid of $7,357,000. During June 1998
the regular cash dividends paid on the Company's common stock was increased to
$.15 per share which is 11 percent greater than the previous rate of $.135 per
share. Cash provided by investing activities in the prior year period primarily
reflects the issuance of long-term debt to finance the acquisition of Ultra
Hydraulics Limited.
BUSINESS OUTLOOK
Incoming customer orders received of $446,453,000 the first nine
months of fiscal 1998 is an all-time Company record. Current period orders are 8
percent higher than orders received twelve months ago, parity adjusted. Bookings
for the first nine months of fiscal 1998 for the Hydraulic Systems group totaled
$301,761,000, a 7 percent increase above the level recorded during the same
period last year. Bookings of $144,692,000 for the Building Systems and Metal
Products group were 10 percent greater than the amount recorded in the first
nine months of the prior year.
The worldwide backlog of unshipped orders amount to $213,487,000 at
July 31, 1998. The amount of unshipped orders is 14 percent higher than the
balance at the end of fiscal 1997 and 8 percent higher than the ending order
backlog twelve months ago, both adjusted for foreign currency exchange rate
differences.
Management believes that even though it will be a challenge to
surpass last year's all time fourth quarter performance, the Company's order
rates remain strong for an economy with so much uncertainty. Moreover, the
Company enters the fourth quarter with order backlogs higher than at the
beginning of the fiscal year as well as a year ago for both operating business
groups. Management expects continued earnings growth from the Hydraulics Systems
group for the remainder of fiscal 1998 and results should also improve in Metal
Stampings where customer demand has rebounded from a slowdown in the two
previous quarters of the year. Overall, the Company is positioned for another
record year with expectations for a strong fourth quarter finish.
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.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
Item 5. Other Information
The Securities and Exchange Commission has recently provided
clearer guidelines for companies' exercise of discretionary voting
authority with respect to shareholder proposals in connection with annual
shareholder meetings. As a result, the Company will assume discretionary
voting authority at the annual meeting of shareholders to be held in 1999
with regard to any shareholder proposals for which the Company does not
receive proper notice on or before December 16, 1998 (45 days prior to the
date the Company first mailed its proxy statement for the 1998 annual
meeting of shareholders).
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 27.1 - 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.
-14-
<PAGE> 15
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 September 10, 1998 By /s/Steven J. Hewitt
---------------------------------- --------------------------------
Steven J. Hewitt
Senior Vice President and
Principal Financial Officer
-15-
<PAGE> 16
Commercial Intertech Corp.
Index To Exhibits Filed Herewith
Exhibit No. Description
- ----------- -----------
Exhibit 27.1 - Financial Data Schedule
-16-
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> OCT-31-1998
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0
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