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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act.
Date of Report (Date of earliest event reported): May 3, 1994
COMMERCIAL INTERTECH CORP.
(Exact name of registrant as specified in its charter)
Ohio 0-588 34-0159880
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1775 Logan Avenue, Youngstown, Ohio 44501
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 746-8011
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 2. ACQUISITION OF ASSETS
THE ACQUISITION
On May 3, 1994 (the "acquisition date"), Commercial Intertech Corp.
("TEC" or "Commercial Intertech") acquired pursuant to a Purchase
Agreement (the "Agreement")* all of the outstanding common stock of
Hydraulic Rochlitz GmbH ("HR") and Sachsenhydraulik GmbH Chemnitz
("SHC"). The two hydraulic companies are known as ORSTA Hydraulik.
The stock was acquired from the Treuhandanstalt ("THA"), the regulatory
agency of the Federal Republic of Germany responsible for the
privatization of the former East German state-owned enterprises.
TEC will account for the acquisition as a purchase transaction.
Under terms of the Agreement, TEC will tender no financial consideration
to acquire the shares of HR and SHC but will receive, in addition to the net
business assets of the two companies, cash contributions from the THA in the
amount of 59.0 million Deutsche marks (approximately U.S. $36.0 million) to
fund pre-existing capital investment programs and to cover estimated operating
losses over a period of two years. This additional consideration was
negotiated with the Treuhandanstalt based on the financial position of the
acquired companies as of January 1, 1994 (the "measurement date"). Cash
contributions available to Commercial Intertech on the acquisition date will be
equal to the negotiated total less amounts consumed by the operations of HR and
SHC during the interim period between the measurement and acquisition dates.
These contributions will be paid to Commercial Intertech in installments during
1994 and 1995. Commercial Intertech will make certain capital investments to
expand the business in future periods.
Commercial Intertech also agreed to the following obligations and
guarantees with respect to the operation of the acquired businesses:
a) to maintain a minimum employment level for a period
of three years; the level stipulated by the Agreement
is considered by TEC to be reasonable and necessary
for the intended use of the business,
b) to invest 39.0 million Deutsche marks (approximately
U.S. $23.6 million) in capital programs over a period
of four years,
c) to continue to operate the businesses for a minimum
of five years, and
d) to refrain from selling or transferring acquired land
and building for a period of six years.
* The following description of the terms of the Agreement is qualified in
its entirety by reference to the Agreement which is being filed as an exhibit
to this Current Report on Form 8-K.
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There exists no material relationship between TEC and any of HR,
SHC and the Treuhandanstalt or between any affiliates, directors or
officers or associates of such directors or officers of TEC and any of
HR, SHC or the Treuhandanstalt.
ORSTA Hydraulik has been a manufacturer of hydraulic cylinders, piston and
gear pumps, and industrial valves and its assets consist of receivables,
inventory, and property plant and equipment. ORSTA will provide complementary
products, engineering expertise and enhanced production capabilities to
Commercial Intertech. TEC intends to continue such use of the companies.
BACKGROUND INFORMATION
The Treuhandanstalt assumed ownership and control of
the hydraulic manufacturing facilities in 1990 after
the reunification of Germany. The facilities were
part of a monopolistic combine, which included a third
hydraulic component manufacturing facility. The THA
established limited liability corporations for each of
three manufacturing facilities. In addition, a holding
company, 100% owned by the THA, was formed to own 100%
of the three limited liability corporations and to
manage the operations and market the products.
HR and SHC owned and maintained non-manufacturing
assets such as employee residences, vacation properties,
sports and recreational facilities, and other
entertainment facilities. The costs of maintaining and
operating these facilities are included in the historical
operating results of HR and SHC. The Treuhandanstalt
purchased these facilities from HR and SHC prior to
the acquisition by TEC.
Subsequent to the assumption of control by the
Treuhandanstalt, HR and SHC have continued to make significant
sales to former East Block countries. The collection of
the receivables for these sales was guaranteed by the
Federal Republic of Germany under various foreign aid
programs. The Treuhandanstalt has funded working capital
and capital investment needs of HR and SHC, assuming
control after German reunification in 1990. The
government financing was not indicative of financing
a private entity could have obtained. Also, in
accordance with German government economic stimulus programs,
the Treuhandanstalt maintained employment levels
significantly in excess of the levels believed required to
operate HR and SHC efficiently. The effect of these
artificially high labor costs affected product pricing,
inventory valuation, and operating results in the
historical financial statements.
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Independent of the Agreement, the Treuhandanstalt
has commenced construction of a new building to house, in
one location, the HR operations which previously were
housed in three separate locations. The SHC was
consolidated into one structure from the multiple structures
maintained under the East German government. The other
locations and structures are not being acquired by TEC.
However, the significant costs associated with using and
maintaining multiple locations and structures are included
in the historical results of operations of HR and SHC.
The effects of these transactions and costs cannot reasonably
be separated from the historical financial statements
of HR and SHC. Further, the indemnification of operating
losses during the first two years after the date of
acquisition will result in operating results which are not
comparable to prior periods.
Of the total 59.0 million Deutsche mark cash contribution to be received
from the THA (as calculated on the measurement date), 51.5 million Deutsche
marks (approximately U.S. $31.0 million) has been designated as an
indemnification of estimated operating losses over a period of two years. The
amount of operating loss indemnification available to TEC will be adjusted for
cash consumed by the operations of HR and SHC between the measurement and
acquisition dates. It has been determined that, under the principles of APB
Opinion No. 16 and in accordance with the intent of the negotiated terms, such
indemnification will be recorded as negative goodwill and subsequently
amortized to income over the period benefitted. The timing of the expected
losses by fiscal period has not yet been determined and information concerning
the related amortization of negative goodwill by fiscal quarter will be filed
within 60 days of the date hereof.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
Because the companies acquired operated in a different environment under
the Treuhandanstalt control, Commercial Intertech requested and received from
the staff of the Securities And Exchange Commission a waiver to file audited
financial statements of HR and SHC for periods prior to the consummation of the
acquisition. Audited balance sheets as of April 30, 1994 are being prepared.
Due to changes in accounting from German to U.S. GAAP and in applying purchase
accounting guidelines to the April 30 balance sheet, the audited financial
balance sheets cannot be provided at this time. The audited balance sheets
will be filed within 60 days of the date hereof.
(b) Pro Forma Financial Information
Pro Forma Balance Sheet of TEC as of April 30, 1994, cannot be provided
until such time as the audits of HR and SHC have been completed. Such Pro
Forma Balance Sheets will be filed within 60 days of the date hereof.
(c) Exhibits
1) Purchase Agreement between Treuhandanstalt and TEC dated as
of May 3, 1994.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMMERCIAL INTERTECH CORP.
(Registrant)
Date: May 17, 1994
/s/ Philip N. Winkelstern
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Philip N. Winkelstern
Senior Vice President and
Chief Financial Officer