<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For period ended April 30, 1999
Commission file number 1-10697
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 period 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-14,599,930 shares as of May 31, 1999
<PAGE> 2
INDEX
COMMERCIAL INTERTECH CORP.
Page No.
--------
<TABLE>
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statements of Income (unaudited) - Six Months and
Three Months Ended April 30, 1999 and 1998................................................3
Consolidated Condensed Balance Sheets (unaudited) - April 30, 1999 and
October 31, 1998..........................................................................4
Statements of Consolidated Condensed Cash Flows (unaudited) - Six Months
Ended April 30, 1999 and 1998.............................................................5
Notes to Consolidated Condensed Financial Statements (unaudited) -
April 30, 1999............................................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ..............................18
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......................................19
Item 6. Exhibits and Reports on Form 8-K.........................................................19
SIGNATURE...............................................................................................20
</TABLE>
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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>
Six Months Ended Three Months Ended
(Thousands of dollars, except per share data) April 30, April 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales ..................................... $ 259,550 $ 274,616 $ 139,260 $ 146,086
Less costs and expenses:
Cost of products sold ...................... 196,372 207,819 104,724 110,015
Selling, administrative and general expenses 43,705 44,564 21,979 22,811
Nonrecurring costs ......................... 5,392 0 0 0
--------- --------- --------- ---------
245,469 252,383 126,703 132,826
--------- --------- --------- ---------
Operating income .............................. 14,081 22,233 12,557 13,260
Nonoperating income (expense):
Interest income ............................ 511 294 155 140
Interest expense ........................... (4,688) (5,098) (2,281) (2,565)
Foreign currency (losses) .................. (856) (514) (77) (339)
Other ...................................... 273 437 14 484
--------- --------- --------- ---------
(4,760) (4,881) (2,189) (2,280)
--------- --------- --------- ---------
Income before income taxes .................... 9,321 17,352 10,368 10,980
Income taxes .................................. 3,966 6,474 4,301 4,010
--------- --------- --------- ---------
Net income .................................... $ 5,355 $ 10,878 $ 6,067 $ 6,970
========= ========= ========= =========
Preferred stock dividends ..................... (913) (927) (455) (462)
--------- --------- --------- ---------
Net income applicable to common stock ......... $ 4,442 $ 9,951 $ 5,612 $ 6,508
========= ========= ========= =========
Earnings per share of common stock:
Net income:
Basic .................................... $ 0.32 $ 0.72 $ 0.40 $ 0.47
Diluted .................................. $ 0.31 $ 0.63 $ 0.35 $ 0.40
Dividends per common share .................... $ 0.300 $ 0.285 $ 0.150 $ 0.150
</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) April 30, October 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash and cash equivalents ............................................. $ 21,522 $ 35,851
Accounts receivable, less allowance (1999 - $2,457; 1998 - $2,703) .... 83,728 87,197
Inventories ........................................................... 64,761 65,992
Deferred income tax benefits .......................................... 15,179 15,172
Prepaid expenses and other current assets ............................. 2,922 3,891
--------- ---------
TOTAL CURRENT ASSETS ........ 188,112 208,103
PROPERTY, PLANT AND EQUIPMENT ............................................ 239,728 232,804
Less allowance for depreciation ....................................... 127,403 124,940
--------- ---------
112,325 107,864
NONCURRENT ASSETS:
Intangible assets ..................................................... 40,394 42,242
Pension assets ........................................................ 49,500 47,052
Other assets .......................................................... 1,897 3,964
--------- ---------
TOTAL NONCURRENT ASSETS ........ 91,791 93,258
--------- ---------
TOTAL ASSETS ........ $ 392,228 $ 409,225
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Bank loans ............................................................ $ 10,440 $ 499
Accounts payable ...................................................... 44,424 50,896
Accrued expenses ...................................................... 50,176 55,783
Accrued income taxes .................................................. 6,478 9,885
Dividends payable ..................................................... 2,868 2,759
Current portion of long-term debt ..................................... 2,826 3,137
--------- ---------
TOTAL CURRENT LIABILITIES ........ 117,212 122,959
NONCURRENT LIABILITIES:
Long-term debt ........................................................ 102,367 108,533
Deferred income taxes ................................................. 22,072 22,111
Postretirement benefits ............................................... 26,499 25,210
--------- ---------
TOTAL NONCURRENT LIABILITIES ........ 150,938 155,854
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: 1999 - 893,343 shares; 1998 - 926,070 shares ........... 20,770 21,531
Common stock, $1 par value:
Authorized: 30,000,000 shares
Issued: 1999 - 14,550,425 shares (excluding 1,787,122 in treasury);
1998 - 14,270,134 shares (excluding 1,937,689 in treasury) .... 14,551 14,270
Capital surplus ....................................................... 6,793 5,749
Retained earnings ..................................................... 109,737 109,289
Deferred compensation ................................................. (13,822) (15,079)
Accumulated other comprehensive income:
Translation adjustment ............................................. (13,951) (5,348)
--------- ---------
TOTAL SHAREHOLDERS' EQUITY ........ 124,078 130,412
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........ $ 392,228 $ 409,225
========= =========
</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>
Six Months Ended
(Thousands of dollars) April 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income .................................................... $ 5,355 $ 10,878
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for depreciation and amortization ............ 8,385 7,995
Amortization of deferred credit ........................ 0 (709)
Nonrecurring costs, net of income taxes ................ 3,297 0
Postretirement benefit ................................. (719) 376
Pension plan credits ................................... (2,994) (1,826)
Change in deferred income taxes ........................ 2,248 1,732
Change in current assets and liabilities:
Decrease (increase) in accounts receivable .......... 286 (2,483)
(Increase) in inventories ........................... (1,907) (2,077)
Decrease in prepaid expenses and other current assets 630 851
(Decrease) in accounts payable and accrued expenses . (9,279) (7,592)
(Decrease) in accrued income taxes .................. (2,558) (323)
-------- --------
Net cash provided by operating activities 2,744 6,822
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets ............................ 5 1,519
Capital expenditures .......................................... (15,602) (8,952)
-------- --------
Net cash (used) by investing activities . (15,597) (7,433)
FINANCING ACTIVITIES:
Proceeds from long-term debt .................................. 17,704 11,507
Principal payments on long-term debt .......................... (23,056) (12,756)
Net borrowings under bank loan agreements ..................... 10,350 361
Proceeds from reserve contracts ............................... 280 516
Conversion of other assets .................................... (127) (680)
Dividends paid ................................................ (5,154) (4,786)
-------- --------
Net cash (used) by financing activities . (3) (5,838)
Effect of exchange rate changes on cash .......................... (1,473) (487)
-------- --------
Net (decrease) in cash and cash equivalents ...................... (14,329) (6,936)
Cash and cash equivalents at beginning of period ................. 35,851 27,630
-------- --------
Cash and cash equivalents at end of period ....................... $ 21,522 $ 20,694
======== ========
Supplemental disclosures:
Cash paid during the period for:
Interest ................................................... $ 4,840 $ 4,640
Income taxes ............................................... 6,171 5,066
</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)
April 30, 1999
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, 1998. Operating results for the six-month and three-month periods
ended April 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended October 31, 1999.
NOTE B - INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
April 30, October 31,
-------- --------
1999 1998
(in thousands)
<S> <C> <C>
Raw materials ........................ $20,053 $23,341
Work-in-process ...................... 32,501 31,460
Finished goods........................ 12,207 11,191
-------- --------
$64,761 $65,992
======== ========
</TABLE>
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<PAGE> 7
NOTE C - SEGMENT REPORTING
The Company is engaged in the design, manufacture and sales of products
in two segments. The Hydraulic Systems group consists of gear pumps and motors,
control valves and telescopic cylinders which are sold primarily to original
equipment manufacturers and to independent distributors. The Building Systems
and Metal Products group consists of two operating units: Metal Stampings which
produces custom and standard metal stampings serving a variety of customers in
the United States and Building Systems which produces single and multi-story
buildings that serve many industries throughout Europe.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
April 30, April 30,
------------------------- ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Hydraulic Systems
Net sales ................... $ 177,415 $ 192,340 $ 97,488 $ 102,617
Operating income ............ 11,769 14,340 8,520 8,798
Percent to sales ......... 6.6% 7.5% 8.7% 8.6%
Building Systems and Metal Products
Net sales ................... $ 82,135 $ 82,276 $ 41,772 $ 43,469
Operating income ............ 7,704 7,893 4,037 4,462
Percent to sales ......... 9.4% 9.6% 9.7% 10.3%
Nonrecurring costs (See Note G) ... $ (5,392) $ 0 $ 0 $ 0
TOTAL
Net sales ................... $ 259,550 $ 274,616 $ 139,260 $ 146,086
Operating income ............ 14,081 22,233 12,557 13,260
Percent to sales ......... 5.4% 8.1% 9.0% 9.1%
</TABLE>
-7-
<PAGE> 8
NOTE D - PER SHARE DATA
The computation of basic and diluted earnings per share is shown below:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
April 30, April 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Net income ....................................... $ 5,355 $ 10,878 $ 6,067 $ 6,970
Series B preferred stock dividends ............... (913) (927) (455) (462)
-------- -------- -------- --------
Numerator for basic earnings per share -
net income applicable to common stock ......... 4,442 9,951 5,612 6,508
Effect of dilutive securities - Series B preferred
stock dividends and adjustments resulting from
assumed conversion ............................ 826 802 405 418
-------- -------- -------- --------
Numerator for diluted earnings per share -
net income applicable to common stock after
assumed conversion ............................ $ 5,268 $ 10,753 $ 6,017 $ 6,926
======== ======== ======== ========
Denominator:
Denominator for basic earnings per share -
weighted average shares outstanding ........... 14,029 13,806 14,104 13,869
Effect of dilutive securities:
Series B convertible preferred stock .......... 2,750 2,824 2,700 2,800
Assumed issuance of stock under stock option
and award plans based on treasury stock
method ..................................... 304 469 294 438
-------- -------- -------- --------
Denominator for diluted earnings per share -
weighted average shares outstanding and
impact of dilutive securities ................. 17,083 17,099 17,098 17,107
======== ======== ======== ========
Basic earnings per share ......................... $ 0.32 $ 0.72 $ 0.40 $ 0.47
======== ======== ======== ========
Diluted earnings per share ....................... $ 0.31 $ 0.63 $ 0.35 $ 0.40
======== ======== ======== ========
</TABLE>
Options to purchase 430,250 shares of common stock at a weighted-average
exercise price of $15.30 per share were outstanding during the period ended
April 30, 1999 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.
NOTE E - SHAREHOLDERS' EQUITY
On February 10, 1999, the Company reported that the Board of Directors
has authorized the repurchase of up to 1,000,000 shares of Commercial Intertech
common stock to be used for employee benefit plans and other corporate purposes.
Purchases will be made from time to time in the open market and in private
transactions at prevailing prices. No time limit was placed on the duration of
the repurchase program. As of May 31, 1999, the Company has not repurchased any
of its common shares.
-8-
<PAGE> 9
NOTE F - COMPREHENSIVE INCOME
As of November 1, 1998, the Company adopted Financial Accounting
Standards Board Statement No. 130, "Reporting Comprehensive Income." The
adoption of this statement had no impact on the Company's financial condition or
results of operations. Statement No. 130 established standards for reporting
total nonowner changes in shareholders' equity. For the Company, total nonowner
changes in shareholders' equity include net income and the change in the
cumulative foreign exchange translation adjustment component of shareholders'
equity. Nonowner changes in shareholders' equity for the six months ended April
30, 1999 and 1998 was a reduction of $3,248,000 and an increase of $8,257,000,
respectively. For the three months ended April 30, 1999 and 1998, nonowner
changes in shareholders' equity amount to increases of $810,000 and $8,429,000,
respectively.
NOTE G - NONRECURRING COSTS
During the quarter ended January 31, 1999, the Company recorded a
nonrecurring charge of $5,392,000 ($3,297,000 after taxes) to recognize costs
incurred in connection with initiatives to reorganize certain areas of the
business and reduce operating costs. The nonrecurring costs consist of: (i)
charges totaling $5,074,000 in association with a voluntary early retirement
program and the separation of fixed support personnel at certain locations;
these actions will reduce the Company's worldwide employment by a total of 70
employees, and (ii) charges totaling $318,000 in connection with the
consolidation of certain operating facilities in the United States and Europe.
None of the recorded costs relate to the write-down or write-off of inventory or
fixed assets of the affected businesses. Most of the indicated actions were
completed in the first quarter of fiscal 1999 with the remainder scheduled for
completion before the current fiscal year-end. Of the total pre-tax charge of
$5,392,000, approximately $4,400,000 will be settled in the form of deferred
payments over an extended period of time. The remainder, of which approximately
$625,000 was expended during the six months ended April 30, 1999, will be fully
expended before October 31, 1999.
NOTE H - NEWLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board (the "FASB")
issued Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." Statement No. 133 was initially required to be adopted by the
Company effective for fiscal year ending October 31, 2000. In May 1999, the FASB
issued an exposure draft that would extend the effective date for years
beginning after June 15, 2000 which would be effective for the fiscal year
ending October 31, 2001 for the Company. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of Statement No.
133 will have a significant effect on earnings or the financial position of the
Company.
NOTE I - SUBSEQUENT EVENT
On June 7, 1999, Harnischfeger Industries, Inc. a customer of the
Company's Hydraulic Systems group, filed voluntary petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code. Accounts receivable owed to the
Company by Harnischfeger Industries, Inc. amounted to approximately $1.6
million as of May 31, 1999. Collectibility of this amount is indeterminable at
this time.
-9-
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
SECOND QUARTER 1999 COMPARED WITH SECOND QUARTER 1998
Consolidated Results
Fiscal 1999 second quarter sales of $139,260,000 were lower than sales
for the same quarter last year by $6,826,000 or five percent. Net income for the
current quarter totaled $6,067,000 compared with net income of $6,970,000 in the
prior year quarter which primarily reflects the decline in sales.
Net sales recorded by domestic operations totaled $83,908,000 during the
current quarter which were $3,145,000 or four percent less than net sales of the
second quarter of the prior fiscal year. The domestic Hydraulics Systems group
recorded net sales which were three percent lower than the second quarter of
last year. Sales of the domestic Metal Products group were five percent lower
than the same quarter last year.
Net sales of foreign operations totaled $55,352,000 which were
$3,438,000 or six percent lower than the second quarter of last year adjusted
for changes in currency exchange rates. The foreign Hydraulic Systems group
reported shipments which were six percent lower than the second quarter of last
year adjusted for the effects of currency exchange differences. Sales of the
Company's Astron Division located in Europe were six percent lower on a
parity-adjusted basis.
Consolidated gross profit of $34,536,000 was $1,535,000 or four percent
lower than the second quarter of fiscal 1998 which primarily reflects the impact
of the decline in sales during the current quarter. Gross profit margins for the
current quarter improved marginally compared with the second quarter of fiscal
1998 despite the decline in revenues.
Operating income of $12,557,000 in the current quarter was $703,000
lower than the same quarter last year which primarily reflects the decline in
sales during the current quarter. Operating income of the Hydraulic Systems
group of $8,520,000 was three percent lower than the same quarter last year. The
Building Systems and Metal Products group recorded operating income of
$4,037,000 which was 10 percent lower than operating income of the second
quarter of last year.
Industry Segments
- - Hydraulic Systems
<TABLE>
<CAPTION>
Three Months Ended
April 30,
------------------
1999 1998
-------- ------
(in thousands)
<S> <C> <C>
Net sales ................................. $97,488 $102,617
Operating income........................... 8,520 8,798
Percent to sales...................... 8.7% 8.6%
</TABLE>
The Hydraulic Systems segment accounted for 70 percent of the Company's
total sales and 68 percent of the total operating income during the current
quarter. Revenues in this segment were $97,488,000 in the current quarter which
is $5,129,000 less than segment revenues recorded in the second quarter of the
prior
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<PAGE> 11
year reflecting reduced demand in the mobile hydraulics industry. Operating
income in the current quarter of $8,520,000 essentially equaled last year's
second quarter record operating income. Current quarter operating margins
improved despite a significant reduction in revenues. Performance for domestic
operations, Ultra Hydraulics in the United Kingdom and the German business units
improved over the second quarter of last year.
- - Building Systems and Metal Products
<TABLE>
<CAPTION>
Three Months Ended
April 30,
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Net sales..................................... $ 41,772 $ 43,469
Operating income.............................. 4,037 4,462
Percent to sales.......................... 9.7% 10.3%
</TABLE>
The Building Systems and Metal Products segment accounted for 30 percent
of the Company's total sales and 32 percent of total operating income during the
current quarter. Revenues in this segment were $41,772,000 which is $1,697,000
less than segment revenues of the second quarter of the prior year. Operating
income declined by $425,000 to $4,037,000 in the current quarter reflecting
reduced sales volumes for both Astron Building Systems and Metal Products.
Domestic Metal Products was affected by the continuation of difficult business
conditions in the container industry while inclement weather, deteriorating
economic conditions in Eastern European markets, and the adverse effects of the
conflict in Yugoslavia depressed results for Astron Building Systems. All of the
decline in Astron revenues was attributable to Eastern Europe where first half
shipments were down 31 percent from a year ago.
Nonoperating Income and Expense
During the second quarter of fiscal 1999, nonoperating expenses of
$2,189,000 were $91,000 lower than the same quarter last year. Interest expense
of $2,281,000 in the current quarter was $284,000 lower than the prior year due
to both lower levels of debt and lower average interest rates in the current
quarter compared with the second quarter of fiscal 1998. Foreign currency
exchange and translation losses totaled $77,000 in the second quarter of fiscal
1999 compared with a loss of $339,000 in the second quarter of the prior year.
Nonoperating income for the prior year quarter includes one-time gains on
disposition of noncore assets and idle property.
The Company utilizes foreign currency forward contracts to hedge the
principal and interest due on loans which are periodically made with foreign
subsidiaries. Deferred gains and losses from such hedging activities were
negligible at the end of the current quarter.
Taxes
The Company's effective income tax rate amounted to 41.5 percent during
the second quarter of fiscal 1999 and 36.5 percent during the second quarter of
the prior fiscal year. The current quarter effective rate is somewhat higher
primarily as a result of reduced utilization of the tax loss carryforwards from
our combined operations in Germany.
-11-
<PAGE> 12
FIRST SIX MONTHS OF 1999 COMPARED WITH FIRST SIX MONTHS OF 1998
Consolidated Results
Sales for the first six months of fiscal 1999 of $259,550,000 were lower
than sales for the same period last year by $15,066,000 or five percent. Net
income for the current period totaled $5,355,000 compared with net income of
$10,878,000 in the prior year. Excluding an after-tax nonrecurring charge of
$3,297,000, net income for the current year would have been $8,652,000. Results
for the current period were also unfavorably impacted by an after-tax foreign
currency loss in Brazil of approximately $500,000 due to a currency devaluation
that occurred during the first quarter of the fiscal year.
Net sales recorded by domestic operations totaled $151,262,000 during
the current period which were $10,665,000 or seven percent lower than net sales
of the first six months of the prior fiscal year. The domestic Hydraulics
Systems group recorded net sales which were seven percent lower than the first
six months of last year. Sales of the domestic Metal Products group were six
percent lower than the same period last year.
Net sales of foreign operations totaled $108,288,000 which were
$4,401,000 or four percent lower than the first six months of last year. The
foreign Hydraulic Systems group reported shipments which were eight percent
lower than the same period last year adjusted for the effect of currency
exchange rate differences. Sales of the Company's Astron Division were down one
percent from last year on a parity- adjusted basis.
Consolidated gross profit of $63,178,000 was $3,619,000 or five percent
lower than the first six months of fiscal 1998 which primarily reflects the
impact of the decline in sales during the current period. Despite the decline in
revenues, gross profit margins for the current period were flat compared with
the first six months of fiscal 1998.
During the quarter ended January 31, 1999, the Company recorded a
nonrecurring charge of $5,392,000 ($3,297,000 after taxes) to recognize costs
incurred in connection with initiatives to reorganize certain areas of the
business and reduce operating costs. The nonrecurring costs consist of: (i)
charges totaling $5,074,000 in association with a voluntary early retirement
program and the separation of fixed support personnel at certain locations;
these actions will reduce the Company's worldwide employment by a total of 70
employees, and (ii) charges totaling $318,000 in connection with the
consolidation of certain operating facilities in the United States and Europe.
None of the recorded costs relate to the write-down or write-off of inventory or
fixed assets of the affected businesses. Most of the indicated actions were
completed in the first quarter of fiscal 1999 with the remainder scheduled for
completion before the current fiscal year-end. Of the total pre-tax charge of
$5,392,000, approximately $4,400,000 will be settled in the form of deferred
payments over an extended period of time. The remainder, of which approximately
$625,000 was expended during the six months ended April 30, 1999, will be fully
expended before October 31, 1999. Annual savings from these profit improvement
initiatives should exceed $5,000,000 on a pre-tax basis. For fiscal 1999, most
of the savings from these programs will be realized in the last three quarters
of the fiscal year.
Operating income of $14,081,000 in the current period was $8,152,000
lower than the same period last year which primarily reflects the recognition of
nonrecurring costs of $5,392,000 in the current period. Operating income of the
Hydraulic Systems group of $11,769,000 was 18 percent lower than the same period
last year. The Building Systems and Metal Products group recorded operating
income of $7,704,000 which was two percent lower than operating income of the
first six months of last year.
-12-
<PAGE> 13
Industry Segments
- - Hydraulic Systems
<TABLE>
<CAPTION>
Six Months Ended
April 30,
---------------------
1999 1998
-------- ------
(in thousands)
<S> <C> <C>
Net sales ............ $177,415 $192,340
Operating income ..... 11,769 14,340
Percent to sales 6.6% 7.5%
</TABLE>
The Hydraulic Systems segment accounted for 68 percent of the Company's
total sales and 60 percent of the total operating income excluding nonrecurring
costs. Revenues in this segment were $177,415,000 in the current period which is
$14,925,000 less than segment revenues recorded in the first six months of the
prior year. Operating income in the current period was $11,769,000 which is
$2,571,000 less than the prior year. The decline in performance of the Hydraulic
Systems segment reflects the impact of reduced demand in the mobile hydraulics
industry. Performance for Ultra Hydraulics in the United Kingdom and the German
operations improved over the same period of last year.
- - Building Systems and Metal Products
<TABLE>
<CAPTION>
Six Months Ended
April 30,
---------------------
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Net sales .............. $ 82,135 $ 82,276
Operating income ....... 7,704 7,893
Percent to sales ... 9.4% 9.6%
</TABLE>
The Building Systems and Metal Products segment accounted for 32 percent
of the Company's total sales and 40 percent of total operating income excluding
nonrecurring costs. Revenues in this segment were $82,135,000 which is $141,000
less than segment revenues of the prior year period. Operating income declined
by $189,000 to $7,704,000 in the current period. Net sales and operating income
for this business segment were approximately the same as the first six months of
the prior year as the strength of Astron in the first quarter of the current
fiscal year was offset by negative factors occurring during the current quarter,
including inclement weather, deteriorating economic conditions in Eastern
European markets, and the adverse effects of the conflict in Yugoslavia. In
addition, continued weakness in the container industry caused performance of
domestic Metal Products to fall short of the levels achieved in the first six
months of the prior year.
Nonoperating Income and Expense
During the first six months of fiscal 1999, nonoperating expenses of
$4,760,000 were $121,000 lower than the same period last year. Interest expense
of $4,688,000 in the current period was $410,000 lower than the prior year
period due to both lower levels of debt and lower average interest rates in the
current period compared with the first six months of fiscal 1998. Foreign
currency exchange and translation losses totaled $856,000 in the first six
months of fiscal 1999 compared with a loss of $514,000 in the same period of the
prior year. The increase in losses is primarily attributable to foreign currency
losses recorded in the current period for operations in Brazil where the local
currency was severely devalued during the quarter ended
-13-
<PAGE> 14
January 31, 1999. Nonoperating income for the prior year period includes
one-time gains on disposition of noncore assets and idle property.
The Company utilizes foreign currency forward contracts to hedge the
principal and interest due on loans which are periodically made with foreign
subsidiaries. Deferred gains and losses from such hedging activities were
negligible at the end of the current period.
Taxes
The Company's effective income tax rate was 42.5 percent during the
first six months of fiscal 1999 and 37.3 percent during the first six months of
the prior fiscal year. The current year effective rate is somewhat higher
primarily as a result of reduced utilization of the tax loss carryforwards from
our combined operations in Germany.
Impact of Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations thereby causing disruptions of operations
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. The Year 2000
Issue could also impact embedded systems which are devices which are used to
control, monitor or assist in the operation of the Company's plant, machinery
and equipment. Embedded systems are an integral part of the system in which they
operate and the impact of the Year 2000 Issue may not be obvious in these
instances. Embedded systems can affect manufacturing and process control
systems, communications systems, systems related to the operation of buildings
and premises and the operation of office equipment.
During fiscal year 1998, the Company completed an assessment which
indicated that it was required to modify or replace portions of its software to
ensure that its computer systems will function properly with respect to dates in
the year 2000 and thereafter. A significant portion of the tasks identified by
the assessment have either been completed or are in the process of being
completed. The Company presently believes that, upon completion of all the
required modifications, the Year 2000 Issue will not pose significant
operational problems for its computer systems. However, if all system
modifications are not completed in a timely manner, the Year 2000 Issue could
have a material impact on the operations of the Company. The Company's
assessment also included an analysis of the impact of the Year 2000 Issue with
regard to its embedded systems to provide reasonable assurance that all plant,
machinery and equipment on which the Company depends will continue to function
in a satisfactory manner in the year 2000 and beyond. The Company has utilized,
and will continue to utilize, both internal and external resources to reprogram,
replace, and test the software for Year 2000 modifications. The Company
anticipates completing the Year 2000 project prior to any anticipated impact on
its operating systems. Current assessments indicate that projects to achieve
Year 2000 compliance will be completed by the end of our fiscal year 1999.
Presently, it is estimated that approximately 70 percent of such projects are
complete. The Company does not currently expect to develop a formal contingency
plan against failure to complete the project.
Concurrent with the Year 2000 Issue, the Company is in the process of
replacing outdated computer hardware and software at major facilities in the
U.S. and Germany. The computer hardware and software being installed in those
countries will increase the functionality and efficiency of information
technology systems required to support manufacturing processes and
administrative functions. Costs incurred in this
-14-
<PAGE> 15
regard are being capitalized in accordance with the Company's accounting
policies. The amount capitalized through April 30, 1999 in connection with these
replacement programs is approximately $3.7 million. Costs for converting the
remainder of the Company's computer systems to ensure Year 2000 compliance are
estimated to be $750,000 before tax. Of this amount, approximately $325,000 was
expended prior to April 30, 1999.
Management's estimates of cost and time necessary to complete tasks
associated with the Year 2000 project were derived utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to locate and correct all
relevant computer codes, and similar uncertainties.
The Company also made inquiries with regard to certain of its vendors
and suppliers with which it has a significant relationship in order to identify
any potential material adverse effects that may impact such third parties as a
result of the Year 2000 Issue. Although the Company believes its efforts will
adequately address the Year 2000 Issue internally, it is possible that the
Company will be adversely affected by problems encountered by its vendors or
suppliers. Despite any vendor's or supplier's certification regarding Year 2000
compliance, there can be no assurance that the vendor's or supplier's ability to
provide goods and services will not be adversely affected by the Year 2000
Issue. The most likely worst-case scenario would be that a failure by the
Company or one or more of its vendors or suppliers to adequately and timely
address the Year 2000 Issue would interrupt manufacturing of the Company's
products for an indeterminable period of time. The Company intends to identify
alternative vendors should a vendor's ability to meet the Company's raw material
and supply requirements be impacted by the Year 2000 Issue. While the Company
believes it can minimize the impact of such non-compliance through the use of
these alternative vendors, a disruption in production could have a material
adverse impact on the Company.
Impact of Euro Conversion
On January 1, 1999, eleven of the fifteen member countries of the
European Union (the "participating countries") established fixed conversion
rates between their existing sovereign currencies (the "legacy currencies") and
a new common currency called the "euro." The participating countries agreed to
adopt the euro as their common legal currency on that date. The euro currently
trades on currency exchanges and is available for non-cash transactions. The
legacy currencies are scheduled to remain legal tender in the participating
countries as denominations of the euro between January 1, 1999 and January 1,
2002 (the "transition period"). During the transition period, payment for goods
and services can be made using either the euro or the participating country's
legacy currency. Beginning January 1, 2002, the participating countries will
withdraw all bills and coins denominated in the legacy currencies making
conversion to euro complete.
The Company believes it has identified all euro conversion issues and
formulated and implemented appropriate action plans. However, there can be no
certainty that such plans will successfully address euro conversion issues or
that external factors may arise as a result of euro conversion, either of which
may have an adverse effect on the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects that sufficient financial resources, generated from
both internal and external
-15-
<PAGE> 16
sources, will be available during the upcoming year to meet operating needs, to
meet scheduled debt repayments, to fund capital expenditure programs and to fund
the repurchase of up to 1,000,000 of its common stock if such repurchase occurs.
Cash and cash equivalents declined by $14,329,000 during the first six months of
fiscal 1999 and totaled $21,522,000 at period end. Cash provided by operating
activities during the current period was $2,744,000 compared with cash provided
of $6,822,000 in the same period last year. The decline is primarily due to an
increase in current liabilities during the current period.
Cash used in investing activities was $15,597,000 in the first six
months of fiscal 1999 compared with $7,433,000 used in the first six months of
last year. Capital expenditures of $15,602,000 in the current period were
$6,650,000 greater than capital expenditures for the same period last year.
Cash used by financing activities was $3,000 during the current period
compared with cash used of $5,838,000 during the prior year period. During the
current period net long-term debt totaling $5,352,000 was repaid. Net borrowings
under short-term bank loan agreements was $10,350,000 in the current period
compared with net borrowings of $361,000 in the prior year.
On February 10, 1999, the Company reported that the Board of Directors
had authorized the repurchase of up to 1,000,000 shares of Commercial Intertech
common stock to be used for employee benefit plans and other corporate purposes.
Purchases will be made from time to time in the open market or in private
transactions at prevailing prices. No time limit was placed on the duration of
the repurchase program. The timing and extent of any purchases will depend upon
market conditions and other Company considerations and will be funded by
internally generated cash or through utilization of available credit. As of May
31, 1999, the Company has not repurchased any of its common shares.
MARKET RISK
Information regarding market risk of the Company as of October 31, 1998
is presented under the caption "Market Risk" which is included in Item 7 of the
Company's annual report on Form 10-K for the year ended October 31, 1998. There
have been no material changes in the Company's exposure to market risk during
the six months ended April 30, 1999 as described therein except for the
unfavorable financial impact of the severe devaluation of the currency in Brazil
as a result of local fiscal policies which occurred during the quarter ended
January 31, 1999. During the quarter ended January 31, 1999, the Company
incurred an after-tax foreign currency loss of approximately $500,000 as a
result of the devaluation. Since that time, the currency in Brazil has
stabilized. Any future devaluation of the currency in Brazil could negatively
impact the Company's results of operations.
BUSINESS OUTLOOK
Worldwide customer bookings of $134,167,000 during the current quarter
were greater than the two preceding quarters by 11 percent and seven percent,
respectively. Incoming customer orders for the Hydraulic Systems group totaled
$86,784,000 during the current quarter which is up seven percent and nine
percent, respectively, over the two preceding quarters. The Building Systems and
Metal Products group logged customer orders of $47,383,000 in the current
quarter which was higher than the two previous quarters by 17 percent and two
percent, respectively.
Incoming customer orders totaled $257,716,000 during the first six
months of fiscal 1999. Current period orders are 14 percent lower than orders
received last year on a parity-adjusted basis. Bookings for the first six months
of fiscal 1999 for the Hydraulic Systems group of $168,430,000 were 19 percent
lower than last year's orders of $208,473,000 on a parity-adjusted basis.
Bookings of $89,286,000 for the Building
-16-
<PAGE> 17
Systems and Metal Products group were four percent less than the amount recorded
in the first six months of the prior year.
The worldwide backlog of unshipped orders amount to $172,768,000 at
April 30, 1999. The amount of unshipped orders is six percent lower than the
balance at the end of fiscal 1998 and 20 percent lower than the ending order
backlog twelve months ago, both adjusted for foreign currency exchange rate
differences.
While income is expected to continue to improve sequentially for the
balance of the fiscal year for all of our major product lines, current order
delivery schedules and business conditions suggest that year-over-year
quarterly improvement in income might not be realized in the third quarter of
1999. Astron's third quarter performance will likely be impacted by construction
capacity constraints in the field as builder dealers complete those projects
which were delayed by severe weather conditions in the second quarter as well as
the continuing weak economic conditions in Eastern Europe and the uncertainty
associated with the Yugoslavian conflict. In the Hydraulic Systems group, our
German operations continue to advance toward profitability though at a pace
which is slower than was expected at the beginning of the fiscal year.
Absent a sudden change in business conditions, earnings for the Company
are expected to be stronger in the fourth quarter of 1999 reflecting seasonal
factors which affect many of our business lines, improving conditions in
Brazil, and the on-going benefits of our cost containment programs.
SUBSEQUENT EVENT
On June 7, 1999, Harnischfeger Industries, Inc., a customer of the
Company's Hydraulic Systems group, filed voluntary petitions for reorganization
under Chapter 11 of the U.S. Bankruptcy Code in Delaware Federal Court in an
action that covers the parent company and its U.S.-based operating subsidiaries.
Non-U.S. subsidiaries are not affected by the filing. Harnischfeger announced
that: (i) it has received commitments for debtor-in-possession financing of
$750 million and (ii) the filing will provide the opportunity to continue to
operate the business and to better position itself for a viable future while
reorganizing its financial structure.
Accounts receivable owed to the Company by Harnischfeger Industries,
Inc. amounted to approximately $1.6 million as of May 31, 1999. Collectibility
of this amount and prospects for continuing business with Harnischfeger under
conditions which are acceptable to the Company are uncertain at this time. The
Company believes that the filing of the bankruptcy petition should not have a
significant impact on its long-term business condition.
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. Commercial Intertech Corp. has tried, wherever
possible, to identify these "forward looking" statements by using such words as
"anticipate," "believe," "estimate," "should," "expect" and similar
expressions. The Company cautions that a number of important factors could
cause the Company's actual results for 1999 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.
-17-
<PAGE> 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information regarding market risk of the Registrant is presented under
the caption "Market Risk" which is included in Item 2 of this report and is
incorporated herein by reference.
-18-
<PAGE> 19
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on March 24, 1999; however,
no matters were voted on which require disclosure under this item.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 - Statement re: Computation of Per Share
Earnings is inapplicable and has been omitted.
The information with respect to the
computation of both basic and diluted earnings
per share is presented in Note D to the
financial statements included in PART I, Item
1.
Exhibit 10.45 - First Amendment to Credit Agreement dated as
of February 12, 1997 among Commercial
Intertech Corp., Commercial Intertech Holdings
Limited, Mellon Bank, N.A., as agent, and the
banks party thereto (filed herewith)
Exhibit 10.46 - Second Amendment to Credit Agreement dated as
of April 9, 1999 among Commercial Intertech
Corp. and Commercial Intertech Holdings
Limited, as borrowers, the guarantors
identified thereto, the banks party thereto
and Mellon Bank, N.A., as agent (filed
herewith)
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.
-19-
<PAGE> 20
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 8, 1999 By /s/ Steven J. Hewitt
-------------------------------- ---------------------------
Steven J. Hewitt
Senior Vice President and
Principal Financial Officer
-20-
<PAGE> 21
Commercial Intertech Corp.
Index To Exhibits Filed Herewith
Exhibit No. Description
- ----------- -----------
10.45 - First Amendment to Credit Agreement dated as of February
12, 1997 among Commercial Intertech Corp., Commercial
Intertech Holdings Limited, Mellon Bank, N.A., as agent,
and the banks party thereto
10.46 - Second Amendment to Credit Agreement dated as of April 9,
1999 among Commercial Intertech Corp. and Commercial
Intertech Holdings Limited, as borrowers, the guarantors
identified thereto, the banks party thereto and Mellon
Bank, N.A., as agent
27 - Financial Data Schedule
-21-
<PAGE> 1
Exhibit 10.45
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement ("First Amendment") is made this
12th day of February, 1997, effective as of October 31, 1996, by all of the
current parties to that certain Credit Agreement dated as of October 31, 1996 by
and among Commercial Intertech Corp., Commercial Intertech Holdings Limited,
Mellon Bank, N.A., as Agent, and the Banks party thereto (the "Credit
Agreement").
WHEREAS, pursuant to that certain Syndication Assignment and Assumption
Agreement dated as of January 7, 1997, among other things, certain Banks (as
defined in the Credit Agreement) became additional parties to the Credit
Agreement; and
WHEREAS, all of the current parties to the Credit Agreement desire that
certain clarifications or corrections be made to the Credit Agreement in order
to reflect and more clearly give effect to their collective understanding of the
agreements among them concerning certain of the matters addressed in the Credit
Agreement and Exhibit 8.3.3 thereto.
NOW THEREFORE, in consideration of the mutual covenants herein contained and
intending to be legally bound hereby, the parties hereto agree as follows:
1. AMENDMENT OF CREDIT AGREEMENT. The Credit Agreement is hereby amended
as follows:
(a) The definition of "Combined EBITDA" is hereby replaced in
its entirety by following revised definition:
COMBINED EBITDA for any period of determination shall mean an
amount equal to the sum of (i) the net income (excluding income (or
loss) of any Person in which any Combined TEC Group Entity has an
equity interest of 50% or less, except to the extent of the amount of
dividends or other distributions actually paid in cash by such Person
to any Combined TEC Group Entity during such period) for such period,
plus (ii) interest expense in respect of Indebtedness to the extent
deducted in determining net income for such period ("Interest
Expense"), plus (iii) the provision for domestic and foreign taxes for
such period based on income or profits to the extent such income or
profits were included in computing net income for such period, plus
(iv) depreciation deducted in determining net income for such period,
plus (v) amortization deducted in determining net income for such
period, plus (vi) only with respect to TEC's 1996 and 1997 fiscal
years, expense to the extent deducted in determining net income for
such period in respect of fees and costs which were incurred in
connection with the Tender Offer and the CUNO Spin-Off (provided, that
no such expense described in this clause (vi) shall be added to
determine Combined EBITDA for any period of determination if the
aggregate expense for that period of determination together with all
expense included in determining net income in all periods prior to the
period of determination for all such fees and costs would exceed
$8,000,000), in each case
<PAGE> 2
of the Combined TEC Group for such period determined on a combined
basis in accordance with GAAP; provided, however, that there shall be
excluded from the foregoing computation (A) all non-cash extraordinary
income, gains and losses (with extraordinary charges related to the
write-off of capitalized fees and expenses associated with the Tender
Offer and Cuno Spin-Off being deemed non-cash items) and (B) all gains
or losses from the sale of assets not sold in the ordinary course of
business, to the extent either or both were included in net income
under the foregoing clause (i) for such period.
(b) The definition of Combined Interest Expense is hereby
replaced in its entirety by the following revised definition:
COMBINED INTEREST EXPENSE for any period of determination shall be
equal to the Interest Expense of the Combined TEC Group as defined and
determined in clause (ii) of the definition of the term "Combined
EBITDA" for such period on a combined basis in accordance with GAAP,
less any amortization of fees and costs which were incurred and paid in
connection with the Tender Offer and the CUNO Spin-Off to the extent
the same are included in Interest Expense for such period.
(c) The definition of US Euro-Rate Option is hereby replaced
in its entirety by the following revised definition:
U.S. EURO-RATE OPTION shall mean a rate per annum (computed on the
basis of a year of 360 days and actual days elapsed) equal to the US
Euro-Rate plus the Applicable Margin.
(d) The last sentence of Section 8.3.2 is hereby replaced in
its entirety by the following revised sentence:
The certificate or report of accountants shall be free of
qualifications (other than any consistency qualification that may
result from a change in the method used to prepare the financial
statements as to which such accountants concur), and shall be
accompanied by a letter or report of such accountants confirming TEC's
calculations with respect to the certificate to be delivered pursuant
to Section 8.3.3 with respect to such financial statements.
(e) Exhibit 8.3.3 to the Credit Agreement (Form of Compliance
Certificate) is hereby replaced in its entirety by the revised form of Exhibit
8.3.3 attached hereto as "First Amendment Exhibit A".
<PAGE> 3
2. MISCELLANEOUS:
(a) The First Amendment supersedes all prior understandings
and agreements, whether written or oral, between the parties hereto relating to
the transactions provided for herein.
(b) This First Amendment may be executed by different
signatories hereto on any number of separate counterparts, including facsimiles,
each of which when so executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Second
Amendment as of the date first set forth above.
[INTENTIONALLY LEFT BLANK]
<PAGE> 4
[SIGNATURE PAGE 1 OF 4 TO THE FIRST AMENDMENT
TO CREDIT AGREEMENT]
MELLON BANK, N.A.
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
ABN AMRO BANK N.V.
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Notice Address:
One PPG Place
Suite 2950
Pittsburgh, PA 15222-5400
Telephone No.: 412-566-0984
Telecopier No.: 412-566-2266
Attn: Chris Helmeci
THE BANK OF TOKYO - MITSUBISHI, LIMITED
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Notice Address:
1251 Avenue of the Americas, 12th Floor
New York, NY 10020-1104
Telephone No.: 212-782-4395
Telecopier No.: 212-782-4981
Attn: Akira Kikuchi
Notice Address:
12-15 Finsbury Circus
London, EC2M 7BT
U.K.
Telephone No.: 0171-577-1201
Telecopier No.: 0171-867-9610
Attn: Mr. David A. DiMatteo
<PAGE> 5
[SIGNATURE PAGE 2 OF 4 TO THE FIRST AMENDMENT
TO CREDIT AGREEMENT]
NBD BANK
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Notice Address:
611 Woodward Avenue
Detroit, MI 48226
Telephone No.: 313-225-3300
Telecopier No.: 313-225-3269
Attn: Andrew W. Strait
BANK ONE, COLUMBUS, NA
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Notice Address:
707 Brooksedge, Building No. 6
Department 1087
Westerville, OH 43280
Telephone No.: 614-248-8744
Telecopier No.: 614-248-8800
Attn: Steve Wasmer
NATIONAL CITY BANK, NORTHEAST
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Notice Address:
Corporate Banking Department
20 Federal Plaza
Youngstown, Ohio 44503
Telephone No.: 330-742-4218
Telecopier No.: 330-742-4308
Attn: B.J. Lumpkin
<PAGE> 6
[SIGNATURE PAGE 3 OF 4 TO THE FIRST AMENDMENT
TO CREDIT AGREEMENT]
THE BANK OF NEW YORK
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Notice Address:
One Wall Street - 22nd Floor
New York, NY 10286
Telephone No.: 212-635-7919
Telecopier No.: 212-635-6434
Attn: Robert J. Joyce
THE SANWA BANK, LIMITED, CHICAGO BRANCH
By:
--------------------------------
Name:
-----------------------------
Title:
----------------------------
Notice Address:
10 South Wacker Drive
31st Floor
Chicago, IL 60606
Telephone No.: 312-993-4336
Telecopier No.: 312-346-6677
Attn: Mr. Patrick McGushin
Notice Address:
P.O. Box 36
City Place House
55 Basinghall Street
London, EC2V 5DL
Telephone No.: 0171-330-5180
Telecopier No.: 0171-330-5555
Attn: Nigel Johnstone
<PAGE> 7
[SIGNATURE PAGE 4 OF 4 TO FIRST AMENDMENT
TO CREDIT AGREEMENT]
MELLON BANK, N.A. as Agent
By:
--------------------------------
Title:
----------------------------
COMMERCIAL INTERTECH CORP.
By:
--------------------------------
Title:
----------------------------
COMMERCIAL INTERTECH HOLDINGS
LIMITED
By:
--------------------------------
Title:
----------------------------
<PAGE> 1
Exhibit 10.46
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (the "AMENDMENT") is dated as of APRIL
9, 1999, among COMMERCIAL INTERTECH CORP. and COMMERCIAL INTERTECH HOLDINGS
LIMITED (each a "BORROWER" and together the "BORROWERS"), the GUARANTORS
identified on the signature pages hereto, the BANKS parties hereto and MELLON
BANK, N.A., as Agent (the "AGENT").
WHEREAS, the Borrowers, the Banks and the Agent are parties to that certain
Credit Agreement dated as of October 31, 1996, as amended by that certain First
Amendment to Credit Agreement dated February 12, 1997, effective as of October
31, 1996 (as so amended, the "CREDIT AGREEMENT"), pursuant to which the Banks
made available to the Borrowers senior unsecured credit facilities;
WHEREAS, the Borrowers have requested that the Banks and the Agent amend certain
provisions of the Credit Agreement; and
WHEREAS, the Banks and the Agent are willing to amend the Credit Agreement on
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
intending to be legally bound, the parties hereby agree as follows:
ARTICLE I
AMENDMENTS TO CREDIT AGREEMENT
------------------------------
1.1. A new Section 6.1.26 is added to the Credit Agreement immediately following
Section 6.1.25, as follows:
"6.1.26 YEAR 2000 MATTERS.
Any reprogramming required to permit the proper functioning,
in and following the year 2000, of (i) the Borrowers' and their
Subsidiaries' computer systems and (ii) equipment containing embedded
microchips and the testing of all such systems and equipment, as so
reprogrammed, will be substantially complete by October 31, 1999, the
failure of which, however, would not result in a Material Adverse
Change. The cost to the Borrowers and their Subsidiaries of such
reprogramming and testing and of the reasonably foreseeable
consequences of the year 2000 to the Borrowers and their Subsidiaries
will not result in a Potential Default or Event of Default or a
Material Adverse Change. Except for the reprogramming referred to in
the preceding sentence as may be necessary, the computer and management
information systems of the Borrowers and their Subsidiaries are and,
with ordinary course upgrading and maintenance, will continue for the
term of this Agreement to be, sufficient to permit the Borrowers and
their Subsidiaries to conduct their business without a Material Adverse
Change."
<PAGE> 2
1.2. Section 8.2.1(iv) of the Credit Agreement is amended in its entirety as
follows:
"(iv) Indebtedness (to the extent not of a type included in
Combined Funded Indebtedness) of TEC and Domestic Restricted
Subsidiaries which shall not exceed $25,000,000 in the aggregate;"
1.3. Section 8.2.14 of the Credit Agreement is amended in its entirety as
follows:
"8.2.14 MINIMUM FIXED CHARGE COVERAGE RATIO.
The Borrowers shall not permit the Fixed Charge Coverage Ratio
to be less than as follows:
(i) 1.20 to 1.00 through October 31, 2000; and
(ii) 1.35 to 1.00 thereafter."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
2.1. In order to induce the Banks and the Agent to enter into this Amendment,
the Borrowers represent and warrant that, at the time of entering into this
Amendment and after giving effect hereto:
(a) No Potential Default or Event of Default has occurred and is
continuing;
(b) The representations and warranties set forth in Article 6 of the
Credit Agreement (as amended hereby) are true and correct on and as of the date
hereof as if made on the date hereof (except representations and warranties
which expressly relate solely to an earlier date or time, which representations
and warranties shall be true and correct on and as of the specific dates or
times referred to therein);
(c) The Borrowers are in compliance in all material respects with all
of the terms and provisions set forth in the Credit Agreement and the other Loan
Documents; and
(d) Each Borrower has taken all necessary action to authorize the
execution and delivery hereof and the performance of its obligations hereunder,
and the Credit Agreement, as amended by this Amendment, is the legal, valid and
binding obligation of each Borrower, enforceable against each Borrower in
accordance with the terms thereof.
<PAGE> 3
ARTICLE III
EFFECTIVENESS
-------------
3.1. This Amendment shall be effective as of the date first written above upon
receipt by the Agent of (a) a fully executed copy of this Amendment by the
Borrowers, the Guarantors and the Required Banks and (b) an amendment fee for
the account of each Bank executing this Amendment on or before April 9, 1999, in
the amount of 12.5 basis points (0.125%) on each such Bank's Commitment.
ARTICLE IV
CONSENT OF GUARANTORS
---------------------
4.1. Each of the Guarantors hereby acknowledges and consents to the amendments
set forth in this Amendment, ratifies and affirms its obligations under the
Guarantee and Suretyship Agreement and the Master Guarantee and Suretyship
Agreement, as the case may be, and agrees that its obligations thereunder shall
be and remain unaffected by this Amendment.
ARTICLE V
MISCELLANEOUS PROVISIONS
------------------------
5.1. Except as expressly amended hereby, the Credit Agreement and the other Loan
Documents shall be and remain in full force and effect and are hereby ratified
and affirmed by the Borrowers.
5.2. All capitalized terms used herein and not otherwise defined herein shall
have the meanings given them in the Credit Agreement.
5.3. This Amendment constitutes the entire agreement between the parties with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings about such subject matter, both written and oral.
5.4. This Amendment may be executed in any number of counterparts and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument.
5.5. This Amendment shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania, without regard to conflicts of law
principles thereof.
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to
Credit Agreement to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
COMMERCIAL INTERTECH CORP.,
as a Borrower and a Guarantor
By:
-----------------------------
Signature
Name:
Title
COMMERCIAL INTERTECH HOLDINGS LIMITED
By:
-----------------------------
Signature
Name:
Title:
ORANGE COUNTY METAL WORKS
By:
-----------------------------
Signature
Name:
Title:
CYLINDER CITY, INC.
By:
-----------------------------
Signature
Name:
Title:
MELLON BANK, N.A.,
individually as a Bank and as Agent
By:
-----------------------------
Signature
Name:
Title:
<PAGE> 5
SIGNATURE PAGE TO
SECOND AMENDMENT TO CREDIT AGREEMENT
ABN AMRO BANK N.V.
By:
-----------------------------
Signature
Name:
Title:
<PAGE> 6
SIGNATURE PAGE TO
SECOND AMENDMENT TO CREDIT AGREEMENT
NBD BANK
By:
-----------------------------
Signature
Name:
Title:
<PAGE> 7
SIGNATURE PAGE TO
SECOND AMENDMENT TO CREDIT AGREEMENT
BANK ONE, COLUMBUS, NA
By:
-----------------------------
Signature
Name:
Title:
<PAGE> 8
SIGNATURE PAGE TO
SECOND AMENDMENT TO CREDIT AGREEMENT
NATIONAL CITY BANK, NORTHEAST
By:
-----------------------------
Signature
Name:
Title:
<PAGE> 9
SIGNATURE PAGE TO
SECOND AMENDMENT TO CREDIT AGREEMENT
THE BANK OF NEW YORK
By: -----------------------------
Signature
Name:
Title:
<PAGE> 10
SIGNATURE PAGE TO
SECOND AMENDMENT TO CREDIT AGREEMENT
THE SANWA BANK, LIMITED, CHICAGO BRANCH
By:
-----------------------------
Signature
Name:
Title:
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0
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