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 of 1934
Date of Report (date of earliest event reported) March 3, 1994
CINCINNATI MILACRON INC.
(Exact name of registrant as specified in charter)
Delaware 1-8475 31-1062125
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation) Number) Identification No.)
4701 Marburg Avenue, Cincinnati, Ohio 45209
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 841-8100
NONE
(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events
Cincinnati Milacron Inc. (the "Company") is filing herewith
management's discussion and analysis of financial condition
and results of operations as Exhibit 99.1 which is
incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
The Company's audited consolidated balance sheet as of
January 1, 1994 and January 2, 1993, and the related audited
consolidated statements of earnings, changes in shareholders'
equity, and cash flows, for each of the three years in the
period ended January 1, 1994 (with notes thereto), are filed
herewith as Exhibit 99.2 and incorporated herein by
reference. Additional pro forma financial information is
filed herewith as Exhibit 99.3 and is incorporated herein by
reference.
<PAGE>
The following Exhibits are included with this Form 8-K.
Exhibit Sequential
Number Description of Exhibit Page Number
23.1 Consent of Ernst & Young
99.1 Management's discussion
and analysis of financial
condition and results of
operations
99.2 Audited financial
statements as of and
for the year ended
January 1, 1994
99.3 Pro forma financial
information
<PAGE>
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.
CINCINNATI MILACRON INC.
Date: March 3, 1994 By: /s/ Ronald D. Brown
Ronald D. Brown
Vice President-Finance
<PAGE>
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.
CINCINNATI MILACRON INC.
Date: March 3, 1994 By: _____________________
Ronald D. Brown
Vice President-Finance
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 28, 1994 in the
Form 8-K dated March 3, 1994 of Cincinnati Milacron Inc.
/s/ ERNST & YOUNG
Cincinnati, Ohio
February 28, 1994
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The company operates in three principal business segments: plastics
machinery, machine tools and industrial products.
1993 COMPARED TO 1992
SALES
Sales in 1993 were $1,029 million, which represented a $240 million
increase over 1992. This increase was primarily attributable to the
$209 million increase in sales of industrial products which
resulted from the acquisition of Valenite in February 1993. The
plastics machinery sales increase totaled $56 million, or 19%,
which resulted primarily from increased domestic sales of injection
molding machines and the acquisition of Ferromatik in November
1993. Machine tool sales declined by $25 million, or 7%, due to the
decline in sales of advanced machine tools for the aerospace
market.
Sales of all segments to foreign markets totaled $298 million,
compared to $243 million in 1992. Export shipments increased by $7
million due to the acquisition of Valenite which more than offset
reductions in exports of injection molding machines and advanced
machine tools to Europe.
NEW ORDERS AND BACKLOG
New orders for 1993 were $970 million, which represented a $208
million increase over 1992. The increase was caused by a $60
million, or 20%, improvement in plastics machinery orders and by
orders totaling $209 million for Valenite. Machine tool orders
declined by $61 million, or 17%. This decline was caused
principally by (i) a large order (over $25 million) that was
received in the third quarter of 1992 that was not repeated in
1993, (ii) reduced demand from customers in the aerospace industry
and (iii) the discontinuation of certain less profitable product
lines. Export orders approximated $100 million in 1993 and 1992; in
1993, export orders for industrial products increased due to the
Valenite acquisition while export orders for plastics machinery and
machine tools declined.
At January 1, 1994, the backlog of unfilled orders was $246
million, down from $250 million a year ago, reflecting reduced
orders for aerospace equipment which was partially offset by the
acquisitions of Valenite and Ferromatik and the increased backlog
of orders for other plastics machinery products.
MARGINS, COSTS AND EXPENSES
Manufacturing margins increased from 22.4% in 1992 to 23.1% in
1993. Margins for plastics machinery continued to be held back due
to competitive pricing pressures in the U.S. and Europe. Margins
for machine tools declined primarily due to the severe reduction in
shipments of advanced machine tools to aerospace customers that
resulted in significant excess capacity costs late in 1993. Margins
for industrial products, excluding Valenite, declined in 1993 due
in part to reduced volume of European cutting fluids. The Valenite
acquisition contributed to the overall increase in manufacturing
margins in 1993.
Selling and administrative expense for 1993 increased over
1992 due to increased sales. Excluding the effects of the Valenite
acquisition, selling expense remained constant at approximately 14%
of sales. Administrative expense increased primarily due to the
Valenite acquisition.
Interest expense, net of interest income, for 1993 decreased
by $2.8 million compared with 1992. This reduction resulted
primarily from the redemption of $60 million of the company's 12%
Sinking Fund Debentures due 2010.
CONSOLIDATION CHARGE
A nonrecurring charge of $47.1 million was recorded in 1993 for the
consolidation of U.S. machine tool manufacturing into its
facilities in Cincinnati. Production at the company's two machine
tool facilities in Fountain Inn and Greenwood, South Carolina are
being phased out and the plants are expected to be closed by
year-end 1994. The consolidation will reduce the machine tool
group's employment by a net 235 people. The charge includes amounts
for severance, relocation of production and the sale of the two
South Carolina facilities.
The consolidation addresses excess manufacturing capacity
created by two factors: the company's successful Wolfpack program,
which has significantly reduced the hours and floorspace required
to manufacture and assemble machine tool products; and the
unusually steep recession in the aerospace industry, which has
dramatically lowered demand for the company's advanced machine tool
systems.
The consolidation is expected to result in an incremental cash
requirement for 1994, before considering any proceeds from the
disposition of assets, of approximately $18 million which will be
funded by operations and bank borrowings. The consolidation, once
fully implemented, is expected to result in annual cost savings of
approximately $16 million.
DISPOSITION OF SUBSIDIARY
A nonrecurring charge of $22.8 million was recorded in 1993 to
revalue the company's Sano subsidiary in anticipation of its sale.
The decision to sell Sano was due in part to continuing operating
losses. In addition, the Sano business does not serve a major
global market with good long-term growth and profit potential and
as a result, does not meet the company's criteria for a core
business. The business was sold in February, 1994 and the
transaction is not expected to affect the company's 1994 financial
results.
INCOME TAXES AND EXTRAORDINARY TAX BENEFIT
The provision for income taxes in 1993 consists of domestic state
and local taxes and certain foreign taxes. Current tax benefits
were not offset against the domestic loss that was caused by the
nonrecurring charges described above, in accordance with new income
tax accounting rules adopted in 1993. In addition, current tax
benefits could not be recognized for losses in certain foreign
jurisdictions. At the end of 1993, for U.S. Federal tax reporting
purposes, the company has a U.S. net operating loss carryforward of
approximately $19 million which expires in 2008.
The provision for income taxes in 1992 of approximately 40%
includes the Federal statutory rate as well as the effect of state
and local and foreign income taxes.
The extraordinary tax benefit in 1992 resulted from the
utilization of a portion of the company's net operating loss
carryforward.
EARNINGS
For 1993, before extraordinary items and cumulative effect of
changes in methods of accounting, the company reported a loss of
$45.4 million, or $1.41 per share, compared with a profit of $16.1
million, or $.58 per share, for 1992. The reduction in earnings
from 1992 to 1993 was caused by the nonrecurring charges described
above that totaled $69.9 million.
The net loss for 1993 includes the effect of an extraordinary
charge of $4.4 million, or $.14 per share, related to the early
extinguishment of $60 million of 12% Sinking Fund Debentures due
2010.
The net loss for 1993 also includes the effect of adopting two
new accounting standards resulting in charges to earnings totaling
$52.1 million, or $1.61 per share. The first new standard, SFAS
No. 109, significantly changes existing methods of accounting for
income taxes and resulted in a charge of $4.2 million, or $.13 per
share. The second standard, SFAS No. 106, requires that certain
postretirement benefits, such as health care, be accounted for on
the accrual method. The adoption of this standard resulted in a
charge of $47.9 million, or $1.48 per share, to record the accrued
liability for retiree health care benefits. Because of limitations
on the recognition of deferred tax assets under SFAS No. 109, no
income tax benefit could be recorded in connection with the
adoption of SFAS No. 106. Except for the cumulative effect, the new
rules regarding postretirement medical benefits did not
significantly affect the company's earnings for 1993, while the new
rules regarding income taxes precluded the recognition of tax
benefits with respect to domestic and certain foreign operating
losses.
As discussed above, the company recorded an extraordinary tax
benefit from the utilization of loss carryforwards of $5.4 million,
or $.19 per share, for 1992.
After the nonrecurring charges, extraordinary items and
cumulative effect of changes in methods of accounting, the company
had a net loss of $101.9 million, or $3.16 per share, for 1993,
compared with net earnings of $21.5 million, or $.77 per share, for
1992. The reduction in net earnings from 1992 to 1993 was caused by
the nonrecurring charges, the extraordinary item and the cumulative
effect of changes in methods of accounting that totaled $126.4
million.
1992 COMPARED TO 1991
SALES
Sales in 1992 were $789 million, which represented a 5% increase
from $754 million in 1991. The increase was caused by a 13%
increase in plastics machinery sales and a 5% increase in sales of
industrial products.The plastics machinery increase was due in
large part to increased sales of injection molding machines in the
U.S. and Europe. Increased sales of industrial products resulted
from higher sales of grinding wheels in the U.S. and cutting fluids
in Europe. Sales of machine tools declined approximately 1%. The
decrease is attributable to the phase-out of certain less
profitable turning center and grinding machine product lines, which
were formerly manufactured at the company's plants in Wilmington,
Ohio, and Worcester, Massachusetts, respectively, which have been
closed. The cost to close these plants, along with the cost to
relocate certain product lines to more modern facilities, was
included in the $75 million closing and relocation charge recorded
in the third quarter of 1991.
Sales of all segments to foreign markets totaled $243 million
in 1992 compared to $236 million in 1991. Export shipments
increased by $13 million, but sales by the company's European
subsidiaries to non-U.S. markets declined by $6 million due to the
continuing recession in the European capital goods market.
NEW ORDERS AND BACKLOG
New orders in 1992 were $762 million compared to $770 million in
1991. Orders for machine tools declined by $46 million due to
reductions in orders for advanced machine tool systems from the
aerospace industry due to difficulties in the commercial airline
industry. Such aerospace orders remained soft in 1993. Orders for
plastics machinery increased by 12%, largely due to increased
orders for injection molding machines. Industrial products orders
improved by 5%.
The backlog of unfilled orders decreased from $277 million in
1991 to $250 million in 1992 due to an unusually high level of
aerospace sales in the 1992 fourth quarter, which were not replaced
with new orders.
MARGINS, COSTS AND EXPENSES
The company's manufacturing margin in 1992 was 22.4% compared to
20.0% in 1991. Margins improved for all business segments compared
to 1991. Most significantly, plastics machinery margins improved
due to higher volume while machine tool margins improved due to the
aforementioned plant closing and phase-out of less profitable
product lines. Machine tool margins were held back in 1992 due to
continued price discounting in several soft metalworking markets
and by cost overruns on certain large aerospace systems.
Selling and administrative expense increased from $132 million
in 1991 to $134 million in 1992. The increase resulted from
increased selling expenses associated with the higher sales volume.
Selling expense approximated 14% of sales in both years.
Administrative expense declined due to cost containment
initiatives.
INCOME TAXES AND EXTRAORDINARY TAX BENEFIT
The company's effective tax rate of 40% in 1992 exceeded the
Federal statutory rate due principally to domestic state and local
income taxes and the effect of foreign operating losses for which
tax benefits were not currently available. The provision for income
taxes in 1991 consisted of domestic state and local and foreign
income taxes, as well as a $4 million tax on a planned withdrawal
of surplus assets from the company's British pension fund that was
completed in 1992. Because the company entered 1991 with a U.S. net
operating loss carryforward, domestic Federal income tax benefits
could not be recognized with respect to the losses incurred in that
year.
The extraordinary tax benefit recognized in 1992 results from
the utilization of a portion of the company's U.S. net operating
loss carryforward for financial reporting purposes that arose
principally from the 1991 closing and relocation charge.
EARNINGS
In 1992, the company earned $16.1 million, or $.58 per share, from
continuing operations before extraordinary item, compared with a
loss of $83.1 million, or $3.04 per share, in 1991. The 1991
figures were adversely affected by a $75.1 million closing and
relocation charge and the $4.0 million tax provision for the
anticipated withdrawal from the company's British pension plan.
In 1991, the company announced its intention to sell LK Tool,
its coordinate measurement and inspection machine business, due in
part to continuing operating losses. The losses from discontinued
operations of $17.1 million, or $.63 per share, for 1991, included
a $14.9 million nonrecurring charge to revalue for sale the
company's investment in LK Tool. The subsidiary was sold in 1993.
Net earnings were $21.5 million, or $.77 per share, in 1992,
compared with a $100.2 million net loss, or $3.67 per share, in
1991. The 1991 losses were caused principally by the aforementioned
nonrecurring charges totaling $94.0 million.
LIQUIDITY AND SOURCES OF CAPITAL
At January 1, 1994, the company had cash and cash equivalents of
$19 million, an increase of $4 million during the year. In 1993,
operating activities provided $22 million of cash. During 1993, the
company sold interests in certain accounts receivable resulting in
cash proceeds of approximately $61 million. At year-end1992 the
company had sold $13 million of domestic accounts receivable under
a separate agreement that was terminated early in 1993. The net
cash proceeds from these transactions of $48 million are included
in cash provided by operating activities.
Approximately $50 million of the $61 million proceeds in 1993
resulted from the sale of accounts receivable under a three year
receivables purchase agreement with an independent issuer of
receivables-backed commercial paper, pursuant to which the company
agreed to sell on an ongoing basis an undivided percentage
ownership interest in designated pools of accounts receivable. The
remaining $11 million of such proceeds resulted from the sale of an
undivided percentage ownership interest in certain accounts
receivable originated by Valenite in a separate transaction that is
expected to be incorporated into the three year receivables
agreement referred to above.
Expenditures for new property, plant and equipment for 1993
were $23.4 million, as compared to $17.6 million for 1992. Capital
expenditures for 1994 are expected to be approximately $40 million.
Proceeds from the disposal of property, plant and equipment for
1993 were $22.2 million, compared to $11.1 million in 1992, and
included amounts related to the sale of surplus assets (including
surplus land in 1993) and the sale and operating leaseback of
certain manufacturing equipment.
During 1993, the company issued 5.175 million shares of common
stock, resulting in net proceeds of $101 million, which were used
principally to redeem $60 million of 12% debentures (plus a cash call
premium of $4.7 million) and to repay borrowings under revolving lines of
credit and other bank debt.
In the fourth quarter of 1993, the company acquired Ferromatik
for approximately $56 million, which was financed by assuming $6
million of debt and utilizing $50 million of borrowings under bank
lines of credit.
In addition, in 1993 the company recorded several large
non-cash items: a $47.1 million consolidation charge, a $22.8
million charge for disposition of a subsidiary and a $52.1 million
charge for cumulative effects of changes in methods of accounting.
As a result of these and other factors, including financing for the
acquisitions, in 1993, the company's working capital decreased by
$78 million, the current ratio declined to 1.3 and the ratio of
total debt to total capital increased to 60%.
At January 1, 1994, the company had lines of credit of
approximately $138 million with various U.S. and foreign banks.
Additional borrowing capacity available under committed lines of
credit totaled approximately $40 million at January 1, 1994.
CONSOLIDATED STATEMENT OF EARNINGS
CINCINNATI MILACRON INC. AND SUBSIDIARIES
Fiscal year ends on Saturday closest to December 31.
<TABLE>
<CAPTION>
(In millions, except per-share amounts) 1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Sales $1,029.4 $789.2 $754.0
Cost of products sold 791.3 612.6 603.2
-------- ------- ------
Manufacturing margins 238.1 176.6 150.8
Other costs and expenses
Selling and administrative 191.3 133.6 132.2
Consolidation charge 47.1 - -
Disposition of subsidiary 22.8 - -
Closing and relocation charge - - 75.1
Other - net .7 (.2) 1.8
-------- ------- ------
Total other costs and expenses 261.9 133.4 209.1
-------- ------- ------
Operating earnings (loss) (23.8) 43.2 (58.3)
Interest
Income 2.3 2.9 4.0
Expense (15.7) (19.1) (19.1)
-------- ------- ------
Interest - net (13.4) (16.2) (15.1)
-------- ------- ------
Earnings (loss) from continuing operations
before income taxes, extraordinary items
and cumulative effect of changes in
methods of accounting (37.2) 27.0 (73.4)
Provision for income taxes 8.2 10.9 9.7
-------- ------- ------
Earnings (loss) from continuing operations
before extraordinary items and cumulative
effect of changes in methods of accounting (45.4) 16.1 (83.1)
Extraordinary items
Loss on early extinguishment of debt (4.4) - -
Tax benefit from loss carryforward - 5.4 -
Cumulative effect of changes in methods
of accounting (52.1) - -
Discontinued operations net of income taxes - - (17.1)
-------- ------- -------
Net earnings (loss) $ (101.9) $ 21.5 $(100.2)
======== ======= =======
Earnings (loss) per common share
Earnings (loss) from continuing operations
before extraordinary items and cumulative
effect of changes in methods of accounting $(1.41) $.58 $(3.04)
Extraordinary items
Loss on early extinguishment of debt (.14) - -
Tax benefit from loss carryforward - .19 -
Cumulative effect of changes in methods of
accounting (1.61) - -
Discontinued operations net of income taxes - - (.63)
-------- ------- -------
Net earnings (loss) $ (3.16) $ .77 $(3.67)
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
CINCINNATI MILACRON INC. AND SUBSIDIARIES
Fiscal year ends on Saturday closest to December 31.
<TABLE>
<CAPTION>
(In millions) 1993 1992
----- -----
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 18.8 $ 14.9
Notes and accounts receivable less allowances 188.3 177.0
Inventories
Raw materials 21.5 11.8
Work-in-process and finished parts 155.7 161.6
Finished products 70.0 47.4
------ -----
Total inventories 247.2 220.8
Other current assets 29.3 16.2
------ -----
Total current assets 483.6 428.9
Property, plant and equipment - net 184.0 121.1
Other noncurrent assets 62.0 28.9
------ ------
Total assets $729.6 $578.9
====== ======
Liabilities and Shareholders' Equity
Current liabilities
Amounts payable to banks $ 74.2 $ 19.8
Long-term debt and lease obligations due within
one year 3.4 1.4
Trade accounts payable 84.6 75.3
Advance billings and deposits 36.9 41.6
Accrued and other current liabilities 170.2 99.0
------ ------
Total current liabilities 369.3 237.1
Long-term accrued liabilities 128.6 53.0
Long-term debt and lease obligations 107.6 154.4
------ ------
Total liabilities 605.5 444.5
------ ------
Commitments and contingencies - -
Shareholders' equity
4% Cumulative preferred shares 6.0 6.0
Common shares, $1 par value (outstanding:
33.5 in 1993 and 27.5 in 1992) 33.5 27.5
Capital in excess of par value 251.3 143.3
Accumulated deficit (151.2) (37.5)
Cumulative foreign currency translation adjustments (15.5) (4.9)
------ ------
Total shareholders' equity 124.1 134.4
------ ------
Total liabilities and shareholders' equity $729.6 $578.9
====== ======
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
CINCINNATI MILACRON INC. AND SUBSIDIARIES
Fiscal year ends on Saturday closest to December 31.
<TABLE>
<CAPTION>
Cumulative
4% Reinvested Foreign
Cumulative Common Capital in Earnings Currency Total
Preferred Shares, Excess of (Accumulated Translation Shareholders'
(In millions, except Shares $1 Par Value Par Value Deficit) Adjustments Equity
share amounts)
---------- ---------- --------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at year-end 1990 $6.0 $27.3 $139.4 $ 68.9 $ 6.1 $247.7
Stock options exercised
and restricted stock
awarded for 68,357
common shares .1 .9 1.0
Net loss for the year (100.2) (100.2)
Cash dividends
Preferred shares
($4.00 per share) (.2) (.2)
Common shares
($.63 per share) (17.3) (17.3)
Foreign currency
translation adjustments (2.0) (2.0)
Balance at year-end 1991 6.0 27.4 140.3 (48.8) 4.1 129.0
---- ----- ------ -------- -------- ------
Stock options exercised
and restricted stock
awarded for 91,628
common shares .1 2.4 2.5
Sale of 42,640 treasury
shares .6 .6
Net earnings for the year 21.5 21.5
Cash dividends
Preferred shares
($4.00 per share) (.2) (.2)
Common shares
($.36 per share) (10.0) (10.0)
Foreign currency
translation adjustments (9.0) (9.0)
---- ----- ------ ------- ------ ------
Balance at year-end 1992 6.0 27.5 143.3 (37.5) (4.9) 134.4
Issuance of 5,175,000
common shares in
public offering 5.2 95.4 100.6
Stock options exercised
and restricted stock
awarded for 854,918
common shares .8 12.8 13.6
Net purchase of 3,967
treasury shares (.2) (.2)
Net loss for the year (101.9) (101.9)
Cash dividends
Preferred shares
($4.00 per share) (.2) (.2)
Common shares
($.36 per share) (11.6) (11.6)
Foreign currency
translation adjustments (10.6) (10.6)
---- ----- ------ ------- ------ ------
Balance at year-end 1993 $6.0 $33.5 $251.3 $(151.2) $(15.5) $124.1
==== ===== ====== ======= ====== ======
</TABLE>
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
CINCINNATI MILACRON INC. AND SUBSIDIARIES
Fiscal year ends on Saturday closest to December 31.
<TABLE>
<CAPTION>
(In millions) 1993 1992 1991
<S> <C> <C> <C>
---- ---- ----
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities Cash Flows
Net earnings (loss) $(101.9) $ 21.5 $(100.2)
Extraordinary loss on early extinguishment
of debt 4.4 - -
Cumulative effect of changes in methods of
accounting 52.1 - -
Other operating activities providing (using)
cash
Depreciation 26.1 20.9 24.0
Consolidation charge 47.1 - -
Disposition of subsidiary 22.8 - -
Closing and relocation charge (including
$14.9 applicable to discontinued
operations) - - 90.0
Deferred income taxes 1.5 1.5 3.3
Working capital changes
Notes and accounts receivable 31.6 13.0 2.4
Inventories 24.2 (16.5) 5.9
Other current assets 5.1 1.3 (.6)
Trade accounts payable (8.3) 9.6 (4.3)
Other current liabilities (61.5) (29.5) (18.9)
Increase in other noncurrent assets (2.1) (3.3) (.1)
Decrease in long-term accrued liabilities (10.1) (11.0) (1.1)
Other - net (8.8) (9.7) 3.6
------- ------- -------
Net cash provided (used) by operating
activities 22.2 (2.2) 4.0
------- ------- -------
Investing Activities Cash Flows
Capital expenditures (23.4) (17.6) (15.5)
Net disposals of property, plant and equipment 22.2 11.1 10.5
Acquisitions (112.5) - (9.0)
Divestitures 5.0 - 3.0
------- ------- -------
Net cash used by investing activities (108.7) (6.5) (11.0)
------- ------- -------
Financing Activities Cash Flows
Dividends paid (11.8) (10.2) (17.5)
Repayments of long-term debt and lease
obligations (61.9) (1.4) (1.3)
Increase (decrease) in amounts payable to banks 54.8 15.9 (4.2)
Net issuance of common shares 114.0 3.1 1.0
Redemption premium on early extinguishment
of debt (4.7) - -
------- ------- -------
Net cash provided (used) by financing
activities 90.4 7.4 (22.0)
------- ------- -------
Increase (decrease) in cash and cash equivalents 3.9 (1.3) (29.0)
Cash and cash equivalents at beginning of year 14.9 16.2 45.2
------- ------- -------
Cash and cash equivalents at end of year $18.8 $14.9 $16.2
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR END
The company's year ends on the Saturday closest to December 31 of each year.
Fiscal year ends are as follows:
1993: January 1, 1994
1992: January 2, 1993
1991: December 28, 1991
CONSOLIDATION
The consolidated financial statements include the accounts of the
company and its subsidiaries. All significant intercompany
transactions are eliminated.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the company's foreign operations are
translated into U.S. dollars at period-end exchange rates, and
income and expense accounts are translated at weighted-average
exchange rates for the period. Net exchange gains or losses
resulting from such translation are excluded from net earnings
(loss) and accumulated in a separate component of shareholders'
equity. Gains and losses from foreign currency transactions are
included in other expense - net in the Consolidated Statement of
Earnings. Gains and losses on foreign exchange forward contracts
are recognized as part of the specific transaction hedged.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments with a maturity
of three months or less to be cash equivalents.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market. The
principal methods of determining costs are last-in, first-out
(LIFO) for U.S. inventories and average or standard cost, which
approximates first-in, first-out (FIFO), for other inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including capital leases, are stated
at cost. Equipment leased to customers is accounted for under the
operating lease method. For financial reporting purposes,
depreciation is generally determined on the straight-line method
using estimated useful lives of plant and equipment.
INCOME TAXES
The company provides deferred taxes for cumulative temporary
differences between the financial reporting basis and income tax
basis of its assets and liabilities. Provisions are made for any
additional taxes payable on anticipated distributions from
subsidiaries.
EARNINGS PER SHARE
Earnings per common share are based on the weighted-average number
of common shares and common share equivalents outstanding.
RETIREMENT BENEFIT PLANS
The company maintains various pension plans covering substantially
all employees. Pension benefits are based primarily on length of
service and highest consecutive average five-year compensation. The
company's policy is to fund the plans in accordance with applicable
laws and regulations.
CUMULATIVE EFFECT OF CHANGES IN METHODS OF ACCOUNTING
Effective January 3, 1993, the company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes". This standard requires the use of the liability method,
under which deferred income tax assets and liabilities related to
cumulative differences between an entity's financial reporting and
tax basis balance sheets are recognized using expected future tax
rates. Previously, the company had used the deferred method, under
which deferred income tax assets and liabilities were based on
historical differences between financial reporting income and
taxable income and recognized using historical income tax rates.
Financial results for prior years have not been restated in
connection with the adoption of this standard.
The company's domestic operations also adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", effective January 3,
1993. This standard requires that the expected cost of
postretirement benefits other than pensions, such as health care
benefits, that are provided to retirees be recognized on the
accrual method during the years that employees render service. The
company provides health care benefits to U.S. retirees and
previously recognized the related cost as the benefits were paid.
The standard does not permit the restatement of the financial
results of prior years. Certain of the company's foreign operations
also provide postretirement health care benefits to their
employees. The company expects to adopt the standard for these
operations in 1995.
The company has recorded the cumulative effect (to January 2,
1993) of adopting these standards as a charge to earnings in the
first quarter of 1993, as follows:
CUMULATIVE EFFECT OF CHANGES IN METHODS OF ACCOUNTING
1993
Charge to
Earnings Per
common
(In millions) share
------------ -------
Income taxes $ (4.2) $ (.13)
Retiree health care benefits
(with no current tax effect) (47.9) (1.48)
------ ------
$(52.1) $(1.61)
====== ======
The new standard for accounting for income taxes imposes
significant limitations on the recognition and valuation of
deferred tax assets related to future tax deductions previously
recognized for financial reporting purposes and to net operating
loss carryforwards. Because of these limitations, and because the
company entered 1993 with a U.S. net operating loss carryforward of
approximately $36 million, no income tax benefit could be
recognized on a net basis for the cumulative effect of adopting the
new accounting rules for postretirement health care benefits.
CONSOLIDATION CHARGE
In the fourth quarter of 1993, the company recorded a nonrecurring
charge of $47.1 million (with no current tax effect) for the
consolidation of all U.S. machine tool manufacturing into its
facilities in Cincinnati. Production at the company's two machine
tool facilities in South Carolina, Fountain Inn and Greenwood, will
be phased out during 1994. The consolidation is intended to
eliminate excess capacity that resulted from the introduction of
"Wolfpack" designed products that require less hours and
manufacturing floor space and from reduced demand from customers in
the aerospace industry. The charge includes amounts for severance,
relocation of production, and the sale of the two South Carolina
facilities.
DISPOSITION OF SUBSIDIARY
In November, 1993, the company announced its decision to sell its
Sano business. Accordingly, the company recorded charges in the
third and fourth quarters of 1993 totaling $22.8 million (with no
current tax effect) to adjust its investment in Sano to net
realizable value. The decision to sell Sano was due in part to its
continuing operating losses. In addition, the Sano business does
not serve a major global market with good long-term growth and
profit potential and as a result, does not meet the company's
criteria for a core business. The business was sold in February,
1994 and the completion of the transaction is not expected to
affect the company's 1994 financial results.
CLOSING AND RELOCATION CHARGE
In the third quarter of 1991, the company recorded a nonrecurring
charge aggregating $90.0 million (with no current tax effect) to
address problems in loss operations. Of the total charge, $75.1
million related to the relocation of centerless grinding machine
and turning center manufacturing operations, the sale or other
disposal of the company's remaining grinding machine assets and
product lines, and the closing of the company's turning center
factory in Wilmington, Ohio.
An additional $14.9 million, which is included in discontinued
operations in the Consolidated Statement of Earnings, related to
the revaluation for sale of the company's coordinate measurement
and inspection machine business, LK Tool.
DISCONTINUED OPERATIONS
In 1991, the company announced its intention to sell its coordinate
measurement and inspection machine business, LK Tool, and recorded
a provision for the anticipated loss on the sale of $14.9 million.
During the third quarter of 1993, the company completed the sale of
LK Tool for $5.0 million in cash. The completion of the transaction
did not affect the company's financial results for 1993.
ACQUISITIONS
On February 1, 1993, the company completed the acquisition of GTE
Valenite Corporation (Valenite) for $66 million in cash and $11
million of assumed debt. Valenite is a leading producer of
consumable industrial metalcutting products. The acquisition, which
is being accounted for under the purchase method, was financed
principally through the sale of $50 million of accounts receivable
and borrowings under a then new $85 million committed revolving
credit facility.
On November 8, 1993, the company completed the acquisition of
Ferromatik, the plastics injection molding machine business of
Kloeckner-Werke AG, for DM 82.8 million (approximately $50 million)
in cash and DM 10.6 million (approximately $6 million) in assumed
debt. A portion of the cash purchase price is expected to be
refunded in a post-closing adjustment. The acquisition, which is
being accounted for under the purchase method, was financed
primarily through borrowings under the company's existing lines of
credit, including its committed revolving credit facility, which
was amended to increase the lines of credit available thereunder.
Ferromatik, which is headquartered in Germany, is one of the
world's leading producers of injection molding machines and is
recognized for high-end technology and other specialty
applications.
The aggregate acquisition cost of the company's investments in
Valenite and Ferromatik, including professional fees and other
costs related thereto and after giving effect to the anticipated
refund of a portion of cash paid for Ferromatik, is expected to be
approximately $114.7 million. The following table presents the
allocation of the aggregate acquisition cost to the assets acquired
and liabilities assumed. The amounts included therein with respect
to Ferromatik are preliminary and are subject to revision once
appraisals, actuarial reviews and other studies of fair value are
completed. Goodwill arising from the Valenite acquisition, which is
included in other noncurrent assets in the following table, totaled
$8.7 million. No goodwill is expected to result from the Ferromatik
acquisition.
ALLOCATION OF ACQUISITION COST
(In millions)
Cash and cash equivalents $ 2.2
Accounts receivable 54.5
Inventories 77.1
Other current assets 15.5
Property, plant and equipment 89.5
Other noncurrent assets 25.1
------
Total assets 263.9
Amounts payable to banks and
long-term debt due
within one year 11.9
Other current liabilities 107.3
Long-term accrued liabilities 25.1
Long-term debt and lease obligations 4.9
------
Total liabilities 149.2
------
Total acquisition cost $114.7
======
As presented above, other current liabilities includes a reserve of
$44.0 million for the restructuring of Valenite for future
profitability. The restructuring plan includes the consolidation of
production through the closing of eleven production facilities, the
downsizing of two production facilities and a net employee
reduction in excess of 500. The total cost of the restructuring is
estimated to be $53.7 million ($25.8 million in cash) and includes
amounts for severance, relocation and losses on the sale of surplus
inventory, machinery and equipment and production facilities. The
restructuring, which began March 2, 1993, will be completed in
1994.
Other current liabilities also includes a reserve of $8.7 million
for the restructuring of Ferromatik during 1994. Due to general
economic conditions in Europe, the operations of Ferromatik's
manufacturing plant were restructured during 1993 and 1992 to
improve efficiency and reduce personnel levels. The company and
Ferromatik have identified additional restructuring actions,
including further personnel reductions, that are expected to
improve Ferromatik's profitability in the future. These actions,
which are intended to complement the actions already taken prior to
the acquisition, will be substantially completed during 1994.
Unaudited pro forma sales and earnings information for 1993 and
1992 prepared under the assumption that the acquisitions had been
completed at the beginning of 1992 is as follows:
PRO FORMA INFORMATION
(In millions, except per-share amounts) 1993 1992
---- ----
Sales $1,128.4 $1,187.5
======== ========
Earnings (loss) before extraordinary
items and cumulative effect of changes
in methods of accounting $ (48.2) $ 19.3
Extraordinary items
Loss on early extinguishment of debt (4.4) -
Tax benefit from loss carryforward - 4.0
Cumulative effect of changes
in methods of accounting (52.1) -
-------- --------
Net earnings (loss) $(104.7) $ 23.3
======= ========
Earnings (loss) per common share
Earnings (loss) before extraordinary
items and cumulative effect of
changes in methods of accounting $ (1.50) $ .69
Extraordinary items
Loss on early extinguishment of debt (.14) -
Tax benefit from loss carryforward - .15
Cumulative effect of changes
in methods of accounting (1.61) -
------- --------
Net earnings (loss) $ (3.25) $ .84
======= ========
Based on a comprehensive analysis, the company and Valenite had
originally estimated that the annual improvement in pretax earnings
that would result from the completion of the restructuring plan
would be approximately $15.6 million. The pro forma amounts
presented above include favorable adjustments based on the original
estimate. However, it is expected that the annual savings will
exceed the original estimate on an ongoing basis by as much as 20%.
During its fiscal year ended September 30, 1993, Ferromatik
incurred significant operating losses due principally to general
economic conditions in Europe and its inability to adjust personnel
levels to reduced customer demand. The company and Ferromatik
estimate that the minimum annual pretax earnings improvement that
will result from the restructuring actions taken prior to the
acquisition and those that will occur subsequent thereto will be no
less than $4.2 million. Accordingly, the pro forma amounts
presented above include favorable adjustments based on this
estimate, which is based principally on reductions in personnel
levels that have occurred since the acquisition and that are
expected to occur in 1994. The actual savings from the completion
of the restructuring plan are expected to be higher than $4.2
million.
In 1991, the company completed the acquisition of the assets and
business of SL Abrasives, Inc., a manufacturer of resin-bonded
grinding wheels. This transaction, which has been accounted for
using the purchase method, did not significantly affect the
company's financial position at December 28, 1991, or its results
of operations for the year then ended.
RESEARCH AND DEVELOPMENT
Charges to operations for research and development activities are
summarized below. The amounts include expenses related to the
company's Wolfpack product development and process improvement
program.
RESEARCH AND DEVELOPMENT
(In millions) 1993 1992 1991
---- ---- ----
Research and development $41.9 $34.1 $35.8
Percent of sales 4.1% 4.3% 4.7%
RETIREMENT BENEFIT PLANS
Summarized in the following tables are the company's pension cost
(income) and funded status of its major pension plans.
PENSION COST (INCOME)
(In millions) 1993 1992 1991
---- ---- ----
Service cost (benefits earned
during the period) $ 6.3 $ 6.3 $ 6.4
Interest cost on projected
benefit obligation 31.5 29.0 29.6
Actual return on plan assets (54.8) (24.0) (65.1)
Net amortization and deferral 14.3 (18.7) 26.0
----- ----- -----
Pension cost (income) $(2.7) $(7.4) $(3.1)
===== ===== =====
FUNDED STATUS OF PENSION PLANS AT YEAR-END
(In millions) 1993 1992
---- ----
Vested benefit obligation $(340.2) $(263.8)
======= =======
Accumulated benefit obligation $(353.7) $(269.8)
======= =======
Plan assets at fair value,
primarily listed
stocks and debt securities,
including company stock of
$14.0 in 1993 and $10.6 in 1992 $ 396.9 $ 370.8
Projected benefit obligation (416.9) (332.3)
------- -------
Excess (deficiency) of plan assets
in relation to projected benefit
obligation (20.0) 38.5
Unrecognized net (gain ) loss 46.8 (6.5)
Unrecognized net transition asset (30.2) (35.8)
------- -------
Accrued pension liability $ (3.4) $ (3.8)
======= =======
At January 1, 1994, the projected benefit obligation of the
company's domestic plan exceeded its assets by $37.9 million, while
the assets of the plan for United Kingdom employees exceeded the
projected benefit obligation by $17.9 million. Because of the
current funded status of the plans, no contributions were required
or made in 1993, 1992 and 1991.
For 1993 and 1992, the assumed discount rates used in determining
the projected benefit obligation were 7 1/2 % and 9%, respectively.
The assumed rate of increase in renumeration was
4 1/2 % for 1993 and 6% for 1992. The weighted-average expected
long-term rate of return on plan assets used to determine pension
income was 9 1/2 % in all years presented.
In addition to pension benefits, the company also provides
varying levels of postretirement health care benefits to most U.S.
employees who retire from active service after having attained age
55 and ten years of service. The plan is contributory in nature.
Prior to 1993, retiree contributions were based on varying
percentages of the average per-contract cost of benefits, with the
company funding any excess over these amounts. However, the plan
was amended in 1992 to freeze the dollar amount of the company's
contributions in future years for employees retiring after 1980
based on specified percentages of the 1993 per-contract cost.
Effective January 3, 1993, the company's domestic operations
adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions". The change did not significantly affect earnings before
extraordinary items and cumulative effect of changes in methods of
accounting for 1993.
The following table presents the components of the company's
liability for future retiree health care benefits.
ACCRUED POSTRETIREMENT HEALTH CARE BENEFITS
(In millions) 1993 1992
---- ----
Accumulated postretirement benefit obligation
Retirees $(42.6) $(40.5)
Fully eligible active participants (7.4) (4.1)
Other active participants (8.1) (4.5)
------ ------
(58.1) (49.1)
Unrecognized net loss 9.8 -
------ ------
(48.3) (49.1)
Unrecognized transition obligation - 47.9
------ ------
$(48.3) $ (1.2)
====== ======
At year-end 1993, $1.4 million of the total liability for
postretirement health care benefits is included in current
liabilities in the Consolidated Balance Sheet.
The retiree health care costs for 1993 were $4.5 million, of
which service cost and interest cost were $.3 million and $4.2
million, respectively.
Prior to 1993, the company recognized the cost of health care
benefits paid to U.S. retirees as incurred. Such costs totaled $5.8
million and $5.1 million in 1992 and 1991, respectively.
The discount rates used in calculating the accumulated
postretirement benefit obligation were 7% for 1993 and 8 1/2 % for
1992. For 1994, the assumed rate of increase in health care costs
used to calculate the accumulated postretirement benefit obligation
is 10.6%. This rate is assumed to decrease to varying degrees
annually to 5.0% for years 2005 and thereafter. Because of the
effect of the 1992 plan changes that froze the dollar amount of the
company's contributions for future years, a one percent change in
each year in relation to the above assumptions would not
significantly change the accumulated postretirement benefit
obligation or the total cost of the plan.
Certain foreign operations of the company also provide
postretirement health care benefits to their employees. The company
expects to adopt Statement of Financial Accounting Standards No.
106 for these operations in 1995.
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits", was issued in late 1992
and requires that certain benefits provided by an employer to
former or inactive employees be accounted for on the accrual method
beginning no later than 1994. The effect of adopting the new
standard on the company's operating results and financial position
is not material.
INCOME TAXES
Effective January 3, 1993, the company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes". The standard requires the use of the liability method to
recognize deferred income tax assets and liabilities using expected
future tax rates. The tax effects of temporary differences that
give rise to the recorded deferred tax assets and deferred tax
liabilities at year-end 1993 are presented in the following table.
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
(In millions) 1993
----
Deferred tax assets
Net operating loss and various tax credit
carryforwards $ 40.8
Accrued postretirement health care benefits 16.9
Consolidation, restructuring and other reserves 34.8
Inventories, principally due to obsolescence reserves
and additional costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 5.6
Accrued pension costs 5.3
Accrued warranty costs 2.2
Accrued employee benefits other than pensions and
retiree health care benefits 3.2
Accounts receivable, principally due to allowances
for doubtful accounts 1.3
Foreign investments 9.2
Other 13.1
------
Total deferred tax assets 132.4
Less valuation allowance (95.7)
-----
Net deferred tax assets $ 36.7
======
Deferred tax liabilities
Property, plant and equipment, principally due to
differences in depreciation methods $ 26.1
Undistributed earnings of foreign subsidiaries 3.9
Pension assets 2.9
Other 4.2
------
Total deferred tax liabilities $ 37.1
======
Net deferred tax liability $ (.4)
======
Summarized in the following tables are the company's earnings
(loss) from continuing operations before income taxes,
extraordinary items and cumulative effect of changes in methods of
accounting, its provision for income taxes, and a reconcilement of
the U.S. statutory rate to the tax provision rate.
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES,
EXTRAORDINARY ITEMS AND CUMULATIVE EFFECT OF CHANGES IN METHODS OF
ACCOUNTING
(In millions) 1993 1992 1991
---- ---- ----
United States $(41.5) $28.0 $(73.8)
Foreign 4.3 (1.0) .4
------ ----- ------
$(37.2) $27.0 $(73.4)
====== ===== ======
PROVISION FOR INCOME TAXES
Liability
Method Deferred Method
(In millions) 1993 1992 1991
-------- -------- -----
Current provision
United States $ - $ - $ -
State and local 2.4 1.7 2.3
Foreign 4.3 2.3 4.1
---- ----- ----
6.7 4.0 6.4
---- ----- ----
Deferred provision
United States - .6 .4
Foreign 1.5 .9 2.9
---- ----- ----
1.5 1.5 3.3
---- ----- ----
Provision recognized as
extraordinary benefit - 5.4 -
---- ----- ----
$8.2 $10.9 $9.7
==== ===== ====
In 1991, the current provision for foreign income taxes included
$4.0 million related to a planned withdrawal from the company's
United Kingdom pension fund that was completed in 1992.
COMPONENTS OF THE PROVISION FOR DEFERRED INCOME TAXES
Liability
Method Deferred Method
(In millions) 1993 1992 1991
-------- ---- ----
Tax effects of consolidation,
restructuring and other reserves $ (9.2) $1.2 $3.3
Change in deferred revenue (16.3) - -
Depreciation 1.3 - -
Change in valuation allowance 25.5 - -
Reversal of prior year's deferred
taxes related to operating loss
carryforward - (.2) -
Other .2 .5 -
------ ----- ----
$ 1.5 $1.5 $3.3
====== ==== ====
RECONCILEMENT OF THE U.S. STATUTORY RATE TO THE TAX PROVISION RATE
Liability
Method Deferred Method
(In percent) 1993 1992 1991
--------- ---- ----
U.S. statutory tax rate (35.0)% 34.0% (34.0)%
Increase (decrease) resulting from
Losses without current tax benefits 56.1 5.1 38.2
Effect of operations outside
the U.S. (5.5) (2.7) 5.3
State and local taxes, net of
federal benefit 6.5 4.2 2.1
Other (.1) (.2) 1.6
----- ---- -----
22.0% 40.4% 13.2%
===== ==== =====
In 1992, in accordance with accounting rules then in effect, the
company recognized an extraordinary tax benefit of $5.4 million, or
$.19 per share, from the realization of its U.S. net operating loss
carryforward that originated principally from the 1991 closing and
relocation charge and a pretax special charge of $32.8 million
recorded in 1990 for product discontinuance and the reorganization
of grinding machine and certain other machine tool manufacturing
operations.
For U.S. tax reporting purposes, at year-end 1993 the company had
a net operating loss carryforward of approximately $19 million
which expires in 2008.
Undistributed earnings of foreign subsidiaries which are intended
to be indefinitely reinvested aggregated $30 million at the end of
1993.
Income taxes of $16.1 million, $5.0 million and $4.9 million were
paid in 1993, 1992 and 1991, respectively.
RECEIVABLES
The components of notes and accounts receivable less allowances are
shown in the following table.
NOTES AND ACCOUNTS RECEIVABLE LESS ALLOWANCES
(In millions) 1993 1992
---- ----
Notes receivable $ 6.0 $ 8.8
Accounts receivable 190.2 174.1
------ ------
196.2 182.9
Less allowances for doubtful accounts 7.9 5.9
------ ------
$188.3 $177.0
====== ======
Notes receivable include amounts not due within one year of $.7
million and $2.2 million in 1993 and 1992, respectively.
The acquisition of Valenite was financed in part through the sale
of $50.0 million of the company's domestic accounts receivable. The
sale transaction, which resulted in costs of $2.2 million in 1993,
occurred under a three year receivables purchase agreement with an
independent issuer of receivables-backed commercial paper, pursuant
to which the company agreed to sell on an ongoing basis and without
recourse, an undivided percentage ownership interest in designated
pools of accounts receivable. In order to maintain the balance in
the designated pools of accounts receivable sold, the company is
obligated to sell undivided percentage interests in new receivables
as existing receivables are collected. At January 1, 1994, the
undivided interest in the company's gross accounts receivable that
had been sold to the purchaser aggregated $50.0 million. The
company also sold an additional $11.4 million of accounts
receivable in the fourth quarter of 1993 under a separate
receivables purchase agreement. Costs related to both sales are
included in other expense - net in the Consolidated Statement of
Earnings. The proceeds are reported as providing operating cash
flow in the Consolidated Statement of Cash Flows for 1993.
INVENTORIES
Inventories amounting to $134.8 million for 1993 and $156.3 million
for 1992 are stated at LIFO cost. Such inventories if stated at
FIFO cost would be greater by approximately $57.4 million in 1993
and $54.2 million in 1992.
PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are shown in the
following table.
PROPERTY, PLANT AND EQUIPMENT - NET
(In millions) 1993 1992
---- ----
Land $ 5.7 $ 5.1
Buildings 108.5 108.9
Machinery and equipment 317.1 269.1
------ ------
431.3 383.1
Less accumulated amortization and
allowances for depreciation 247.3 262.0
------ ------
$184.0 $121.1
====== ======
LIABILITIES
The components of accrued and other current liabilities and
long-term accrued liabilities are shown in the following tables.
ACCRUED AND OTHER CURRENT LIABILITIES
(In millions) 1993 1992
---- ----
Accrued salaries, wages and
other compensation $ 21.5 $16.3
Consolidation reserve 38.7 -
Restructuring reserves 17.1 -
Other accrued expenses 92.9 82.7
------ -----
$170.2 $99.0
====== =====
LONG-TERM ACCRUED LIABILITIES
(In millions) 1993 1992
---- ----
Accrued pension and
other compensation $ 24.1 $19.1
Accrued postretirement
health care benefits 46.9 -
Accrued and deferred taxes 30.5 8.0
Other 27.1 25.9
------ -----
$128.6 $53.0
====== =====
LONG-TERM DEBT AND LEASE OBLIGATIONS
Long-term debt and lease obligations are shown in the following
table.
LONG-TERM DEBT AND LEASE OBLIGATIONS
(In millions) 1993 1992
----- ----
Long-term debt
8 3/8 % Senior Notes due 1997 $ 60.0 $ 60.0
12% Sinking Fund Debentures due 2010 10.8 70.8
Industrial Development Revenue
Bonds due 2008 10.0 10.0
Revolving credit facility 10.0 -
Other 8.8 2.5
------ ------
99.6 143.3
Capital lease obligations
6 3/4 % Bonds due 2004 7.6 7.6
6 3/8 % Bonds due 1994 - 1997 3.4 4.2
6 1/2 % Bonds due 1994 .4 .7
------ ------
11.4 12.5
------ ------
111.0 155.8
------ ------
Current maturities (3.4) (1.4)
------ -------
$107.6 $154.4
====== ======
The carrying amount of the company's long-term debt approximates
fair value, which is determined using discounted cash flow analysis
based on the company's incremental borrowing rate for similar types
of financing arrangements.
The 8 3/8 % Senior Notes due 1997 are redeemable at par beginning
in 1994 at the company's option.
The 12% Sinking Fund Debentures due 2010 have annual sinking fund
installments commencing in 1996. The debentures are redeemable at
any time at the company's option subject to possible premiums and
other restrictions.
The Industrial Development Revenue Bonds due 2008 are tax-exempt
variable-rate bonds. The interest rate is established weekly and
averaged 2.4% in 1993. The bonds are supported by a bank letter of
credit, which requires a fee of 1 1/4 % per annum on the amount
outstanding.
Certain of the above long-term debt obligations contain various
restrictions and financial covenants relating principally to
additional secured indebtedness.
At January 1, 1994, $10.0 million of borrowings under the
company's revolving credit facility are included in long-term debt
based on the expectation that such amount will remain outstanding
for more than one year.
Interest paid was $19.0 million in 1993, $18.9 million in 1992
and $19.2 million in 1991.
Maturities of long-term debt for the five years after 1993 are:
1994: $ 2.4 million
1995: 2.0 million
1996: 2.0 million
1997: 67.2 million
1998: 5.4 million
The capitalized lease assets are included in property, plant and
equipment. Amortization of leased properties is included in
depreciation and interest on lease obligations is included in
interest expense.
Future minimum payments for principal and interest on capitalized
leases during the next five years and in aggregate thereafter are:
1994: $ 1.9 million
1995: 1.5 million
1996: 1.5 million
1997: 1.5 million
1998: .5 million
After 1998: 10.7 million
The company also leases certain equipment under operating leases,
some of which include varying renewal and purchase options. Future
minimum rental payments applicable to noncancelable operating
leases during the next five years and in the aggregate thereafter
are:
1994: $14.6 million
1995: 12.0 million
1996: 8.6 million
1997: 5.5 million
1998: 4.2 million
After 1998: 8.6 million
Rent expense was $14.7 million and $9.6 million in 1993 and 1992,
respectively, and was not material in 1991.
LINES OF CREDIT
At the end of 1993, the company had formal and informal lines of
credit with various domestic and foreign banks of $276.1 million,
including a revolving credit facility and other committed lines
totaling $137.5 million. These credit facilities support letters of
credit and leases in addition to providing borrowings under varying
terms. Additional borrowing capacity available under all lines of
credit totaled approximately $40 million at January 1, 1994.
In January, 1993, in connection with the acquisition of Valenite,
the company replaced its previous $55.0 million revolving credit
agreement with a new $85.0 million committed revolving credit
facility. In connection with the acquisition of Ferromatik, the
facility was amended to increase the lines of credit available
thereunder to $130.0 million. The facility allows borrowings
through July, 1995 and requires a facility fee of 1/2 % per annum
on the total $130.0 million revolving loan commitment.
The revolving credit facility requires compliance with certain
financial loan covenants related to tangible net worth, interest
and fixed charge coverages and debt leverage. The company has
remained in compliance with these covenants since the inception of
this facility.
SHAREHOLDERS' EQUITY
On April 15, 1993, the company completed the issuance of an
additional 5.175 million common shares through a public offering,
resulting in net proceeds (after deducting issuance costs) of
$100.6 million. The proceeds of the offering were used to redeem
$60.0 million of the company's 12% Sinking Fund Debentures due 2010
and to repay borrowings under revolving lines of credit and other
bank debt. The redemption of the 12% Sinking Fund Debentures due
2010 effective May 17, 1993 resulted in a pretax extraordinary loss
on early extinguishment of debt of $5.2 million ($4.4 million after
tax) in the second quarter. The pretax extraordinary loss included
a cash call premium of $4.7 million and the write-off of deferred
financing fees of $.5 million.
SHAREHOLDERS' EQUITY - PREFERRED AND COMMON SHARES
(Dollars in millions, except per-share amounts) 1993 1992
---- ----
4% Cumulative Preferred shares authorized,
issued and outstanding, 60,000 shares at
$100 par value, redeemable at $105 a share $ 6.0 $ 6.0
Common shares, $1 par value authorized
50,000,000 shares, issued and outstanding,
1993: 33,531,723 shares, 1992: 27,505,772 33.5 27.5
The company has authorized ten million serial preference shares
with $1 par value. None of these shares has been issued.
Holders of company common stock have one vote per share until
they have held their shares for at least 36 consecutive months,
after which they are entitled to ten votes per share.
CONTINGENCIES
The Internal Revenue Service has conducted examinations of the
company's federal income tax returns for the years 1981 through
1986 and had proposed various adjustments to increase taxable
income. During 1993, all issues for these years were resolved with
no significant effect on the company's consolidated financial
position or results of operations.
Various lawsuits arising during the normal course of business are
pending against the company and its consolidated subsidiaries. In
the opinion of management, the ultimate liability, if any,
resulting from these matters will have no significant effect on the
company's consolidated financial position or results of operations.
FOREIGN EXCHANGE CONTRACTS
The company enters into foreign exchange contracts to hedge foreign
currency transactions on a continuing basis for periods
commensurate with its known or expected exposures. The purpose of
this practice is to minimize the effect of foreign currency
exchange rate fluctuations on the company's operating results. The
company does not engage in speculation.
At January 1, 1994, the company had outstanding foreign exchange
contracts totaling $45.3 million, which generally mature in periods
of six months or less. These contracts require the company and its
subsidiaries to exchange currencies at the maturity dates at
exchange rates agreed upon at inception.
LONG-TERM INCENTIVE PLANS
The 1991 Long-Term Incentive Plan ("1991 Plan"), which expired
December 31, 1993, permitted the company to grant its common shares
in the form of non-qualified stock options, incentive stock
options, stock appreciation rights (SARs), restricted stock and
performance awards. A summary of amounts issued under the 1991 Plan
and prior plans is presented in the tables. The 1994 Long-Term
Incentive Plan ("1994 Plan") was approved by the company's Board of
Directors on February 10, 1994 and, subject to shareholder
approval, will provide for issuance of the same types of grants as
were permitted by the 1991 Plan with the exception of SARs, which
may no longer be granted.
STOCK OPTIONS, RESTRICTED STOCK AWARDS AND SARS
Price
Shares(a) SARs Range
-------- ---- -----
Outstanding at year-end 1990 1,222,537 530,322 $9 - 29
Activity during 1991 - Granted 837,607 110,750 9 - 13
- Exercised (68,357) - 9 - 10
- Canceled (139,759) (125,310) 13 - 29
--------- --------
Outstanding at year-end 1991 1,852,028 515,762 9 - 29
Activity during 1992 - Granted 462,920 - 15 - 16
- Exercised (91,628) - 9 - 25
- Canceled (148,167) - 9 - 25
- SARs
Canceled 515,762 (515,762) 9 - 28
--------- --------
Outstanding at year-end 1992 2,590,915 - 9 - 29
Activity during 1993 - Granted 118,025 - 17 - 24
- Exercised (854,918) - 9 - 25
- Canceled (136,947) - 13 - 29
--------- ---------
Outstanding at year-end 1993 1,717,075 - $9 - 28
========= =========
EXERCISABLE STOCK OPTIONS AND SARS AT YEAR-END
Stock
Options(a) SARs
---------- -------
1991 955,838 276,286
1992 1,748,565 -
1993 1,474,262 -
(a) Excludes stock options granted in tandem with SARs.
The non-qualified stock options and incentive stock options are
issued at market and, under the terms of the 1991 Plan, may be
granted in tandem with SARs. However, during 1992, all previously
granted SARs were canceled with the consent of the holders. Stock
options become excercisable under varying terms and expire in ten
years. Shares of restricted stock are subject to three-year
restrictions against selling, encumbering or otherwise disposing of
these Shares. Performance awards may be earned based on achievement
of predetermined return-on-capital targets over specified periods.
The maximum number of shares available for grant under the 1991
Plan was 1,650,000, of which 262,100 were available for grant at
year-end 1992. Additional shares may no longer be granted under the
1991 Plan. The maximum number of shares that may be granted under
the 1994 Plan is expected to be 2,000,000.
GEOGRAPHIC INFORMATION
The following table summarizes the company's U.S. and foreign
operations which are located principally in Western Europe.
Sales of U.S. operations include export sales of $118.7 million
in 1993, $111.7 million in 1992 and $98.6 million in 1991.
Total sales of the company's U.S. and foreign operations to
unaffiliated customers outside the U.S. were $298.4 million, $242.6
million and $236.0 million, in 1993, 1992 and 1991, respectively.
U.S. AND FOREIGN OPERATIONS
(In millions) 1993 1992 1991
---- ---- ----
U.S. operations
Sales $831.9 $654.1 $613.0
Operating earnings 49.6 47.9 23.3
Consolidation charge and closing
and relocation charge (47.1) - (75.1)
Disposition of subsidiary (22.8) - -
Identifiable assets 443.7 410.8 413.9
Liabilities 469.9 403.3 404.7
Capital expenditures 21.3 13.9 11.8
Depreciation 19.1 16.3 19.3
Foreign operations
Sales 197.5 135.1 141.0
Operating earnings 8.0 1.5 3.0
Identifiable assets 285.9 148.7 163.6
Liabilities 135.6 41.2 64.7
Capital expenditures 2.1 3.7 3.7
Depreciation 7.0 4.6 4.7
SEGMENT INFORMATION
Cincinnati Milacron is one of the world's leading manufacturers of
plastics machinery, machine tools, computer controls and software
for factory automation. In addition, the company is a leading
producer of precision grinding wheels, metalworking fluids and
metalcutting tools.
Financial data for the past three years for the company's
business segments are shown in the following tables.
SALES BY SEGMENT
(In millions) 1993 1992 1991
---- ---- ----
Plastics machinery $357.2 $301.4 $267.6
Machine tools 355.0 379.7 383.7
Industrial products (a) 317.2 108.1 102.7
-------- ------ ------
$1,029.4 $789.2 $754.0
======== ====== ======
OPERATING INFORMATION BY SEGMENT
(In millions) 1993 1992 1991
---- ---- ----
Operating earnings (loss)
Plastics machinery (b) $ 26.6 $22.8 $14.6
Machine tools 3.9 8.9 (6.6)
Industrial products (a) 27.1 17.7 18.3
Consolidation charge and closing
and relocation charge (c) (47.1) - (75.1)
Disposition of subsidiary (d) (22.8) - -
Unallocated corporate expenses (e) (11.5) (6.2) (9.5)
------ ----- -----
Operating earnings (loss) (23.8) 43.2 (58.3)
Interest expense-net (13.4) (16.2) (15.1)
------ ----- -----
Earnings (loss) from continuing
operations before income taxes,
extraordinary items and
cumulative effect of changes in
methods of accounting $(37.2) $27.0 $(73.4)
====== ===== ======
Identifiable assets
Plastics machinery $289.0 $219.9 $202.9
Machine tools 243.1 282.8 310.9
Industrial products (a) 174.4 56.8 63.7
Unallocated corporate assets (f) 23.1 19.4 20.9
------ ------ ------
Total assets $729.6 $578.9 $598.4
====== ====== ======
Capital expenditures
Plastics machinery $ 4.2 $ 6.2 $ 6.5
Machine tools 8.8 7.1 7.5
Industrial products (a) 10.4 4.3 1.5
------ ------ ------
Total capital expenditures $ 23.4 $ 17.6 $ 15.5
====== ====== ======
Depreciation
Plastics machinery $ 6.2 $ 7.7 $ 7.0
Machine tools 9.4 10.6 14.2
Industrial products (a) 10.5 2.6 2.8
------ ------ ------
Total depreciation $ 26.1 $ 20.9 $ 24.0
====== ====== ======
(a) The 1993 increases in the industrial products segment are
largely attributable to the inclusion of Valenite as of
February 1, 1993.
(b) The 1993 amount includes a $2.5 million gain on sale of
surplus land.
(c) These amounts relate to the machine tool segment.
(d) This amount relates to the plastics machinery segment.
(e) Includes corporate research and development and certain
administrative expenses. The 1993 amount includes
amortization of financing costs and costs related to the
sale of receivables totaling $3.0 million.
(f) Includes cash and cash equivalents and the assets of the
company's insurance and utility subsidiaries.
Report of Independent Auditors
Board of Directors
Cincinnati Milacron Inc.
We have audited the accompanying Consolidated Balance Sheet of
Cincinnati Milacron Inc. and subsidiaries as of January 1, 1994 and
January 2, 1993, and the related Consolidated Statements of
Earnings, Changes in Shareholders' Equity, and Cash Flows for each
of the three years in the period ended January 1, 1994. These
financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Cincinnati Milacron Inc. and subsidiaries at
January 1, 1994 and January 2, 1993, and the consolidated results
of their operations and their cash flows for each of the three
years in the period ended January 1, 1994, in conformity with
generally accepted accounting principles.
As discussed in the Note to Consolidated Financial Statements,
Cumulative Effect of Changes in Methods of Accounting, in 1993 the
company changed its method of accounting for postretirement
benefits other than pensions and its method of accounting for
income taxes.
/s/ ERNST & YOUNG
-----------------
Cincinnati, Ohio
February 28, 1994
CINCINNATI MILACRON INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
(In millions, except per share data)
(Unaudited)
On February 1, 1993, Cincinnati Milacron Inc. (the "Company") completed
the acquisition of GTE Valenite Corporation ("Valenite") for
approximately $66 million in cash and $11 million of assumed debt. The
acquisition was financed principally through the sale of an interest in
certain of the Company's accounts receivable to an independent issuer of
receivables-backed commercial paper (resulting in proceeds of $50
million), and through borrowings from the Company's existing bank group
under an $85 million committed revolving credit facility.
On March 2, 1993, the Company announced a major restructuring program,
developed with Valenite's management, designed to improve Valenite's
profitability by lowering working capital requirements, reducing overall
expenses, increasing the level of plant modernization and improving
capacity utilization. This restructuring, which includes the
consolidation of production through the closing of eleven production
facilities, the downsizing of two production facilities and a net
employee reduction in excess of 500, is expected to result in annual
cost savings on an ongoing basis between $15.6 million and $18.8 million
and is expected to be completed in 1994.
On November 8, 1993 (the "Closing Date"), the Company purchased (1) 100%
of the outstanding capital stock of FM Maschinenbau GmbH, a newly formed
corporation to which substantially all of the plastics injection molding
business of Kloeckner-Werke AG and its subsidiary, Kloeckner Ferromatik
Desma GmbH, including product lines, plant and distribution network, had
previously been contributed, and (2) the other assets and liabilities of
that business (collectively, "Ferromatik"). The total purchase price,
including assumed debt of approximately 11 million DM, was approximately
94 million DM (approximately $56 million using the exchange rate of $1 =
1.68 DM in effect on the Closing Date). A portion of the approximately
$50 million of cash paid at the purchase date is expected to be refunded
to the Company in a post-closing adjustment. The Company financed the
purchase by drawing upon its revolving credit facility with its existing
bank group, which was amended prior to the Closing Date to increase the
total revolving loan commitment available thereunder from $75 million to
$130 million, and certain other existing overseas lines of credit.
Due principally to general economic conditions in Europe, including
reduced demand for plastics injection molding machinery, the
manufacturing operations of Ferromatik's Malterdingen plant were
restructured during its fiscal years ended September 30, 1993 and 1992
to improve efficiency and reduce personnel levels. The Company and
Ferromatik have identified additional restructuring actions, including
the introduction of advanced manufacturing technologies, to improve
Ferromatik's profitability in the future. It is expected that these
additional actions, which are intended to complement the actions already
taken prior to the acquisition, will be substantially completed during
1994. The Company estimates that the annual savings that will result
from all of these actions will be no less than $4.2 million.
The following Pro Forma Consolidated Statement of Earnings is based on
the historical financial statements of the Company, Valenite, and
Ferromatik adjusted to give effect to the acquisitions and the
restructurings of Valenite and Ferromatik. The Pro Forma Consolidated
Statement of Earnings assumes that both the acquisitions and the
restructurings of Valenite and Ferromatik occurred as of the first day
of the Company's 1993 fiscal year.
The Pro Forma Consolidated Statement of Earnings reflect the purchase
method of accounting for the acquisitions of Valenite and Ferromatik. In
the case of Ferromatik, the purchase accounting adjustments reflected
therein are subject to revision once appraisals, actuarial reviews and
other studies of the fair value of the assets price and liabilities of
Ferromatik are completed. The purchase price of Ferromatik is also
subject to post-closing adjustments which may also affect the purchase
accounting adjustments reflected herein. Final purchase accounting
adjustments may differ from the pro forma adjustments presented herein
and described in the accompanying notes.
The Pro Forma Consolidated Statement of Earnings does not purport to
present what the Company's results of operations would actually have
been had the acquisitions and restructurings of Valenite and Ferromatik
occurred on the first day of the Company's 1993 fiscal year, or purport
to project the Company's results of operations for any future period.
The Pro Forma Consolidated Statement of Earnings reflects certain
assumptions described in the accompanying notes, including the Company's
expectations of anticipated cost savings from the restructurings of
Valenite and Ferromatik. The actual savings may vary from these
expectations. The Pro Forma Consolidated Statement of Earnings and
accompanying notes should be read in conjunction with the audited
consolidated financial statements of the Company and the related notes
thereto for its fiscal year ended January 1, 1994 which are included
herein, Amendment No. 2 to the Company's Current Report on Form 8-K
dated February 1, 1993 and Amendment No. 1 to the Company's Current
Report on Form 8-K dated November 8, 1993 (both filed with the
Securities and Exchange Commission).
CINCINNATI MILACRON INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Year ended January 1, 1994
---------------------------------------------------------
Valenite Cincinnati
Historical Acquisition Milacron and
Cincinnati Historical Pro Forma Valenite
Milacron Valenite(a) Adjustments Consolidated
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . $1,029.4 $18.9 $1,048.3
Cost of products sold . . . . . . . . . . . . . . 791.3 14.5 $(1.0)(c) 804.8
-------- ----- ----- --------
Manufacturing margins . . . . . . . . . . . . . 238.1 4.4 1.0 243.5
Other costs and expenses
Selling and administrative. . . . . . . . . . . 191.3 4.8 (.2)(c) 195.9
Consolidation charge. . . . . . . . . . . . . . 47.1 47.1
Disposition of subsidiary . . . . . . . . . . . 22.8 22.8
Other - net . . . . . . . . . . . . . . . . . . .7 .2 (b) .9
-------- ----- ----- --------
Total other costs and expenses. . . . . . . . 261.9 4.8 - 266.7
-------- ----- ----- --------
Operating earnings (loss) . . . . . . . . . . . . (23.8) (.4) 1.0 (23.2)
Interest
Income. . . . . . . . . . . . . . . . . . . . . 2.3 2.3
Expense . . . . . . . . . . . . . . . . . . . . (15.7) (.1) (15.8)
-------- ----- ----- --------
Interest - net. . . . . . . . . . . . . . . . (13.4) (.1) - (13.5)
-------- ----- ----- --------
Earnings (loss) before
income taxes,
extraordinary item
and cumulative effect
of changes in methods
of accounting . . . . . . . . . . . . . . . . . (37.2) (.5) 1.0 (36.7)
Provision for income taxes. . . . . . . . . . . . 8.2 .1 8.3
-------- ----- ----- --------
Earnings (loss) before
extraordinary item and
cumulative effect of
changes in methods
of accounting . . . . . . . . . . . . . . . . . $ (45.4) $ (.6) $ 1.0 $ (45.0)
======== ===== ===== ========
Earnings (loss) per
common share before
extraordinary item
and cumulative effect
of changes in methods
of accounting . . . . . . . . . . . . . . . . $(1.41) $(1.40)
====== ======
Weighted average number of
common shares and common
share equivalents
outstanding . . . . . . . . . . . . . . . . . . 32.3 32.3
====== ====
</TABLE>
See Notes to Pro Forma Consolidated Statement of Earnings.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS (Continued)
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Year ended January 1, 1994
--------------------------------------------------------
Cincinnati Ferromatik
Milacron and Acquisition
Valenite Ferromatik Pro Forma Total
Consolidated Historical(d) Adjustments Consolidated
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . $1,048.3 $80.1 $1,128.4
Cost of products sold . . . . . . . . . . . . . . 804.8 64.9 $(3.2)(g) 867.0
.5 (h)
-------- ----- ----- --------
Manufacturing margins . . . . . . . . . . . . . 243.5 15.2 2.7 261.4
Other costs and expenses
Selling and administrative. . . . . . . . . . . 195.9 20.0 (.3)(g) 215.7
.1 (h)
Consolidation charge. . . . . . . . . . . . . . 47.1 47.1
Disposition of subsidiary . . . . . . . . . . . 22.8 22.8
Other - net . . . . . . . . . . . . . . . . . . .9 2.7 .1 (f) .2
.1 (i)
(3.6)(j)
-------- ----- ----- --------
Total other costs and expenses. . . . . . . . 266.7 22.7 (3.6) 285.8
-------- ----- ----- --------
Operating earnings (loss) . . . . . . . . . . . . (23.2) (7.5) 6.3 (24.4)
Interest
Income. . . . . . . . . . . . . . . . . . . . . 2.3 .7 3.0
Expense . . . . . . . . . . . . . . . . . . . . (15.8) (2.0) (2.6)(e) (19.0)
1.4 (k)
-------- ----- ----- --------
Interest - net. . . . . . . . . . . . . . . . (13.5) (1.3) (1.2) (16.0)
-------- ----- ----- --------
Earnings (loss) before
income taxes, extraordinary
item and cumulative effect
of changes in methods of
accounting. . . . . . . . . . . . . . . . . . . (36.7) (8.8) 5.1 (40.4)
Provision for income taxes. . . . . . . . . . . . 8.3 (.5)(l) 7.8
-------- ----- ----- --------
Earnings (loss) before
extraordinary item and
cumulative effect of
changes in methods
of accounting . . . . . . . . . . . . . . . . . $ (45.0) $(8.8) $ 5.6 $ (48.2)
======== ===== ===== ========
Earnings (loss) per
common share before
extraordinary item
and cumulative effect
of changes in methods
of accounting . . . . . . . . . . . . . . . . . $(1.40) $(1.50)
====== ======
Weighted average number of
common shares and common
share equivalents
outstanding . . . . . . . . . . . . . . . . . . 32.3 32.3
==== ====
</TABLE>
See Notes to Pro Forma Consolidated Statement of Earnings.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED JANUARY 1, 1994
(In millions)
(a) The amounts in the "Historical Valenite" column represent Valenite's
unaudited results of operations for the month of January, 1993.
Valenite's results of operations subsequent to January 31, 1993, are
consolidated in the "Historical Cincinnati Milacron" column.
(b) Costs of $.2 million for one month related to the sale of $50.0 million
of accounts receivable. The sale transaction involving the Company's
accounts receivable occurred under a three year receivables purchase
agreement with an independent issuer of receivables-backed commercial
paper, pursuant to which the Company agreed to sell on an ongoing basis
and without recourse, an undivided percentage ownership interest in
designated pools of accounts receivable. In order to maintain the
balance in the designated pools of accounts receivable sold, the Company
is obligated to sell undivided percentage interests in new receivables
(subject to a maximum of $50 million of interests in uncollected
receivables owned at any time by the purchaser (plus certain reserves))
as existing receivables are collected.
(c) On March 2, 1993, the Company announced a major restructuring program,
developed with Valenite's management, designed to improve Valenite's
profitability by lowering working capital requirements, reducing overall
expenses, increasing the level of plant modernization and improving
capacity utilization. The restructuring, which includes the
consolidation of production through the closing of eleven production
facilities, the downsizing of two production facilities, and a net
employee reduction in excess of 500, will be completed in 1994. The
restructuring, which is estimated to cost $53.7 million ($25.8 million
in cash), was reserved at the time of the Valenite acquisition and the
Company will not record any special charge to earnings. The reserve
includes amounts for severance, relocation, and losses on the sale of
surplus inventory, machinery and equipment and production facilities.
Based on a comprehensive analysis, the Company and Valenite originally
estimated that the annual improvement in pretax earnings that would
result from the completion of the restructuring plan would be
approximately $15.6 million. Pro forma adjustments for one month based
on this amount are included in the Pro Forma Consolidated Statement of
Earnings. However, it is expected that the annual savings will exceed
the original estimate on an ongoing basis by as much as 20%.
Increase
(Decrease)
----------
Cost of products sold. . . . . . . . . . . . . . . . $ (1.0)
------
Manufacturing margins. . . . . . . . . . . . . . . 1.0
Other costs and expenses
Selling and administrative . . . . . . . . . . . . (.2)
------
Total other costs and expenses . . . . . . . . . (.2)
------
Operating earnings (loss). . . . . . . . . . . . . . $ 1.2
======
(d) The amounts in the "Historical Ferromatik" column are derived
principally from the audited combined statement of operations of the
Malterdingen Plastics Machinery Division of Kloeckner Ferromatik Desma
GmbH for the fiscal year ended September 30, 1993 which was prepared
based on accounting principles generally accepted in the Federal
Republic of Germany. The statement of earnings of Ferromatik for the
period from January 1, 1993 through November 8, 1993 presented herein
reflects all adjustments necessary to present Ferromatik's results of
operations for that period in conformity with accounting principles
generally accepted in the United States. Ferromatik's results of
operations subsequent to November 8, 1993 are consolidated in the
"Historical Cincinnati Milacron" column.
Ferromatik's historical statement of operations for the period ended
November 8, 1993 includes non-recurring charges totaling $3.6 million
for severance and other costs incurred in connection with the
downsizing of its operations prior to the acquisition (see notes (g)
and (j) below). In the "Historical Ferromatik" column, this amount is
included in the line captioned "Other-net" in the Pro Forma
Consolidated Statement of Earnings.
(e) Interest expense of $2.6 million on borrowings totaling $53.1 million
under the Company's $130.0 million committed revolving credit facility
(see note (f) below) and other lines of credit.
(f) Amortization expense on a straight line basis over two and one half
years of $.2 million of additional commitment fees incurred in
connection with the amendment of the Company's committed revolving
credit facility to increase the lines of credit available thereunder
to $130.0 million.
(g) Due principally to general economic conditions in Europe, including
reduced demand for plastics injection molding machinery, the
manufacturing operations of Ferromatik's Malterdingen plant were
restructured during the fiscal years ended September 30, 1993 and
1992, to improve efficiency and reduce personnel levels. The
restructuring included additional outsourcing of parts and components
that were previously manufactured at Malterdingen. As a result of
this program, the number of full time employees of the Malterdingen
plant was reduced from approximately 825 as of September 30, 1991, to
approximately 650 one year later. During fiscal year 1993, the
plant's employment level was further reduced to approximately 585. In
September, 1993, Ferromatik and the Works Council agreed to a Social
Plan that permits further personnel reductions based on future sales
volume to as low as 490. Based on the Social Plan, approximately
eighty additional employees have been terminated or are intended to be
terminated no later than September 30, 1994. Under the terms of the
purchase agreement, the severance costs for these employees will be
reimbursed by the sellers.
The Company and Ferromatik have identified additional restructuring
actions, including the introduction of advanced manufacturing
technologies, that are intended to improve Ferromatik's profitability
in the future. It is expected that these additional actions, which
are intended to complement the actions already taken prior to the
acquisition, will be substantially completed during 1994. The
estimated cost of the further restructuring of Ferromatik of $8.7
million was reserved at the time of the acquisition and the Company
will not record a special charge to earnings.
Based on a comprehensive analysis, the Company estimates that the
minimum annual savings that will result from all of the actions
described above will be no less than $4.2 million. Accordingly, pro
forma adjustments based on this amount totaling $3.5 million are
included in the Pro Forma Consolidated Statement of Earnings for the
year ended January 1, 1994 as follows:
Increase
(Decrease)
----------
Cost of products sold. . . . . . . . . . . . . . . . . . $ (3.2)
------
Manufacturing margins. . . . . . . . . . . . . . . . 3.2
Other costs and expenses
Selling and administration . . . . . . . . . . . . . (.3)
------
Total other costs and expenses . . . . . . . . . (.3)
------
Operating earnings (loss). . . . . . . . . . . . . . . . $ 3.5
The above amounts are based principally on the savings that will be
realized from the known reductions of the Malterdingen plant's
employment level that have already occurred since September 30, 1993 and
that are expected to occur by September 30, 1994. The actual annual
savings from all of the restructuring actions completed to date and the
additional actions that will be completed in the future are expected to
be considerably higher than $4.2 million. However, these additional
savings have not been included in the Pro Forma Consolidated Statement
of Earnings because the Company cannot accurately and precisely quantify
these additional savings at this time.
In addition to the expected savings from the restructuring of
Ferromatik, the Company's existing operations are also expected to
benefit from the synergistic opportunities created by the acquisition.
These opportunities fall into the general areas of marketing,
manufacturing technology, and product development. The Company expects
to significantly reduce or eliminate the annual operating losses
currently being incurred by its European plastics machinery marketing
operation through its integration with the Ferromatik organization. In
addition, Ferromatik's worldwide sales and distribution network will be
used to expand the markets for the Company's existing plastics machinery
products and the Company's computer controls will be utilized in
Ferromatik's machines. The Pro Forma Consolidated Statement of Earnings
does not give effect to these and other potential earnings improvements
from the synergies that are expected to result from the acquisition.
(h) Additional depreciation expense related to the adjustment of the
historical value of Ferromatik's property, plant and equipment to
reflect fair market value.
(i) Amortization of the covenant not to compete received from Kloeckner-
Werke AG and Kloeckner Ferromatik Desma GmbH in connection with the
purchase of Ferromatik on a straight line basis over five years.
(j) Elimination of $3.6 million nonrecurring charges for severance and other
costs incurred in connection with the restructuring of Ferromatik's
operations prior to the acquisition.
(k) Reduction in Ferromatik's historical interest expense to eliminate
interest on debt in excess of the $6.5 million of debt assumed by the
Company.
(l) Adjustment to reduce the consolidated provision for income taxes by $.5
million based on the Company's effective tax rate to reflect the
acquisition of Ferromatik and the related financing.
The Pro Forma Consolidated Statement of Earnings for the year ended January 1,
1994 does not reflect an extraordinary charge of $4.4 million, or $.14 per
share, related to the early extinguishment of debt or a charge of $52.1
million, or $1.61 per share, for the cumulative effect of changes in methods
of accounting, both of which are included in the Company's historical
Consolidated Statement of Earnings for that period. The acquisition of
Ferromatik and the Acquisition Pro Forma Adjustments reflected herein
do not change these amounts.
