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FORM 10-K - ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required). For the fiscal year ended December 31,
1994.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required). For the transition period from
__________ to __________
Commission file number 1-8485
CINCINNATI MILACRON INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1062125
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4701 Marburg Avenue
Cincinnati, Ohio 45209
(513)841-8100
(Address and phone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Shares - Par Value $1.00 New York Stock Exchange, Inc.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of voting stock held by non-affiliates of the
registrant is $624,320,655 at 2/28/95.
Voting stock held by officers, directors and principal holders is not
included in the computation. The Company, however, has not made a
determination that such individuals are "affiliates" within the meaning of
Rule 405 under the Securities Act of 1933.
Number of shares of Common Stock, $1.00 par value, outstanding as of February
28, 1995: 33,809,075
Documents incorporated by reference:
PART III - Proxy statement, dated March 24, 1995.
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CINCINNATI MILACRON INC.
1994 FORM 10-K
Table of Contents
Page
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PART I
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Item 1. Business 3
Executive Officers of the Registrant 14
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security-Holders 17
PART II
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Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 20
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 42
PART III
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Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management 42
Item 13. Certain Relationships and Related Transactions 42
PART IV
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Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 43
Signatures 46
Index to Certain Exhibits and Financial Statement
Schedules 47
Exhibit 11 - Computation of Per-Share Earnings 48
Exhibit 21 - Subsidiaries of the Registrant 49
Exhibit 23 - Consent of Independent Auditors 50
Exhibit 27 - Financial Data Schedule 51
Schedule VIII- Valuation and Qualifying Accounts and
Reserves 52
PART I
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ITEM 1. BUSINESS
Cincinnati Milacron Inc. was incorporated in Delaware in 1983 as the
successor to a business started in the mid 1800s and first incorporated in
1884 in Cincinnati, Ohio, where its principal executive offices are located
today. Except where the context otherwise requires, the terms "company,"
"Cincinnati Milacron" and "Milacron" herein mean Cincinnati Milacron Inc. and
its consolidated subsidiaries.
Cincinnati Milacron is one of the world's leading manufacturers of plastics
machinery, machine tools and industrial consumable products for metalworking,
as well as related computer controls and software for factory automation.
The company sells products and provides services to industrial customers
throughout the world. The company has a long-standing reputation for quality
and technological leadership. Virtually all of its plastics machinery
products and machine tools are computer-controlled and many include advanced
applications software.
RECENT DEVELOPMENTS
-------------------
On February 1, 1993, the company completed the purchase of GTE Valenite
Corporation ("Valenite"), which the company believes is the second largest
U.S. and third largest worldwide producer of metalcutting systems. The
acquisition of Valenite was part of the company's strategic objective to
expand its industrial products segment and thereby balance revenues among its
three business segments of plastics machinery, machine tools and industrial
products.
On November 8, 1993, the company acquired Ferromatik, a German manufacturer
of plastic injection molding machines. The acquisition expanded its plastics
processing technology and product line offering and helped the company
achieve its objective of establishing a plastics machinery manufacturing and
distribution base in Germany to serve Europe and other markets.
At the end of 1993, the company decided to undertake a major consolidation of
its U.S. machine tool operations, which resulted in a charge of $47.1 million
to cover the costs of the plan. The consolidation addressed excess
manufacturing capacity created by two factors: the company's successful
Wolfpack program, which significantly reduced the hours and floorspace
required to manufacture and assemble machine tool products; and the unusually
steep recession in the aerospace industry, which dramatically lowered demand
for the company's advanced machine tool systems. During 1994, production at
the company's two machine tool facilities in South Carolina was phased out
and the plants closed. The company transferred most of the modern machines
and systems in South Carolina used to manufacture horizontal machining
centers and turning centers to its Cincinnati facilities.
On February 4, 1994, the company sold its Sano plastic blown and cast film
systems business, which had incurred an operating loss of approximately $26.3
million in 1993, including charges totaling $22.8 million for its
disposition.
SUBSEQUENT EVENTS
-----------------
On January 27, 1995, the company sold its American Mine Tool business
resulting in a pretax gain to be recognized in the first quarter of 1995 of
approximately $5 million.
On February 1, 1995, the company completed the acquisition of Germany-based
Krupp Widia GmbH (Widia) for approximately $78 million in cash and the
assumption of about $21 million of debt and other liabilities. Widia, with
1994 sales of approximately $240 million, is one of the world's leading
producers of industrial metalworking products. Widia's production and
distribution networks in Europe and India are expected to be an excellent
complement to Valenite's strength in North America, Japan and other Asian
markets. The acquisition was financed principally through the company's
revolving credit facility.
STRATEGY AND PRODUCT DEVELOPMENT
--------------------------------
The company's objectives are: to develop and produce machines, systems and
other products for world markets that incorporate leading-edge technology and
offer its customers competitive advantages; to increase its manufacturing
efficiencies to meet international competition; and to improve its
responsiveness to changing world markets by maintaining responsibility for
manufacturing, marketing and product development at the operating level.
In 1994, the company made significant progress in the achievement of its
overall objectives. The company's strategic acquisition of Widia which was
completed in 1995 enhanced the company's technological base, diversified its
product line and expanded its worldwide sales and distribution network. In
addition, by achieving a better balance and mix between capital goods and
industrial products, the company believes that it is in a better position to
take advantage of opportunities in each market even while demand in a single
segment may be weak. In addition, the company believes that it achieved a
better geographic balance as almost half of the revenues in 1995 are expected
to come from customers outside the U.S.
In recent years, the company also has undertaken a major program for product
development, process improvement and modernization. This program is named
"Wolfpack" because of its emphasis on teamwork and fierce competitiveness.
The objectives of Wolfpack are to design and produce new products at world-
competitive levels of quality, performance, efficiency and cost. Wolfpack
teams consist of members not only from design engineering but also from
sales, marketing, manufacturing, engineering, quality control, purchasing and
assembly, and often include suppliers and customers.
In addition to teamwork, other key principles of the Wolfpack philosophy are:
a "market-driven" approach, "simultaneous engineering", reduction and
standardization of parts, design for manufacturability and integrated, just-
in-time manufacturing. Wolfpack teams develop marketable products faster
than conventional teams with improved quality, features and cost and quality
performance ratios. Compared to the products they replace, Wolfpack-
developed products typically have achieved a 30 to 50 percent reduction in
each of the following areas: product development cycles, number of total
parts, manufacturing lead time, installation time and overall cost. This
approach is designed to minimize inventory obsolescence while providing an
opportunity for increased revenue as the new products achieve market
acceptance.
In 1985, the company began applying Wolfpack principles to the development of
its Vista line of plastics injection molding machines, and the line has since
become the market leader in the United States. Today, most of the company's
plastics processing machinery lines have been developed through the Wolfpack
approach. In 1989, the company formally adopted the Wolfpack approach to
machine tool product development and today almost 90% of its machine tool
sales consist of Wolfpack designs.
The company also conducts an ongoing research and product development effort
for all product lines, aimed at creating new products to maintain or enhance
its competitive market positions. During the last three years, the company
has maintained its expenditures for research and development at an average of
approximately 4% of sales.
In 1994, the company continued Total Quality Leadership ("TQL"), a company-
wide commitment to promote higher levels of teamwork, innovation and employee
empowerment. TQL is a people-oriented philosophy that seeks commitment from
all employees, representatives and suppliers to focus on total customer
satisfaction. TQL is a long-term strategy intended to promote continuous
process and quality improvement.
The company continually explores acquisition, divestiture and consolidation
opportunities when it believes such actions could expand markets, enhance
product synergies or improve earnings potential for the long-term. In
addition to the Valenite, Ferromatik and Widia acquisitions, in the past four
years the company has sold certain businesses and consolidated certain
manufacturing operations.
SEGMENT INFORMATION
-------------------
The company has three business segments: plastics machinery, machine tools
and industrial products. Financial data for the past three years for these
segments are shown in the tables below.
Fiscal Year (a)
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(In millions) 1994 1993 1992
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Sales
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Plastics machinery (b) . . . . . . $ 503.8 $ 357.2 $301.4
Machine tools. . . . . . . . . . . 338.5 355.0 379.7
Industrial products (c). . . . . . 354.8 317.2 108.1
-------- -------- ------
Total sales. . . . . . . . . . . $1,197.1 $1,029.4 $789.2
======== ======== ======
Backlog of Unfilled Orders
--------------------------
Plastics machinery (b) . . . . . . $ 122.3 $ 85.5 $ 56.1
Machine tools. . . . . . . . . . . 117.4 123.9 188.8
Industrial products (c). . . . . . 47.4 36.6 4.7
-------- -------- ------
Total backlog. . . . . . . . . . $ 287.1 $ 246.0 $249.6
======== ======== ======
__________________________________________________________________________
(a) 1992 includes 53 weeks compared to 52 weeks included in 1994 and 1993.
(b) The increases in the plastics machinery segment are partially
attributable to the inclusion of Ferromatik as of November 8, 1993.
(c) The increases in the industrial products segment are largely attributable
to the inclusion of Valenite as of February 1, 1993.
__________________________________________________________________________
Fiscal Year (a)
------------------------------
(In millions) 1994 1993 1992
------ ------ ------
Operating earnings (loss)
-------------------------
Plastics machinery (b)(d). . . . . $ 42.5 $ 26.6 $ 22.8
Machine tools. . . . . . . . . . . 1.0 3.9 8.9
Industrial products (c). . . . . . 34.3 27.1 17.7
Consolidation charge (e) . . . . . - (47.1) -
Disposition of subsidiary (f). . . - (22.8) -
Unallocated corporate
expenses (g) . . . . . . . . . . (13.6) (11.5) (6.2)
------ ------ ------
Operating earnings (loss). . . . . 64.2 (23.8) 43.2
Interest - net . . . . . . . . . . (15.3) (13.4) (16.2)
------ ------ ------
Earnings (loss) before income
taxes, extraordinary items and
cumulative effect of changes
in methods of accounting . . . . $ 48.9 $(37.2) $ 27.0
====== ====== ======
Identifiable assets
-------------------
Plastics machinery (b) . . . . . . $295.0 $289.0 $219.9
Machine tools. . . . . . . . . . . 270.8 243.1 282.8
Industrial products (c). . . . . . 195.0 174.4 56.8
Unallocated corporate assets (h) . 26.8 23.1 19.4
------ ------ ------
Total assets . . . . . . . . . . $787.6 $729.6 $578.9
====== ====== ======
Capital expenditures
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Plastics machinery (b) . . . . . . $ 13.8 $ 4.2 $ 6.2
Machine tools. . . . . . . . . . . 11.6 8.8 7.1
Industrial products (c). . . . . . 17.6 10.4 4.3
------ ------ ------
Total capital expenditures . . . $ 43.0 $ 23.4 $ 17.6
====== ====== ======
Depreciation
------------
Plastics machinery (b) . . . . . . $ 9.2 $ 6.2 $ 7.7
Machine tools. . . . . . . . . . . 7.2 9.4 10.6
Industrial products (c). . . . . . 11.8 10.5 2.6
------ ------ ------
Total depreciation . . . . . . . $ 28.2 $ 26.1 $ 20.9
====== ====== ======
__________________________________________________________________________
(a) 1992 includes 53 weeks compared to 52 weeks included in 1994 and 1993.
(b) The increases in the plastics machinery segment are partially
attributable to the inclusion of Ferromatik as of November 8, 1993.
(c) The increases in the industrial products segment are largely attributable
to the inclusion of Valenite as of February 1, 1993.
(d) The 1993 amount includes a $2.5 million gain on sale of surplus land.
(e) This amount relates to the machine tools segment.
(f) This amount relates to the plastics machinery segment.
(g) Includes corporate research and development and certain administrative
expenses. The 1994 and 1993 amounts include amortization of financing
costs and costs related to the sale of receivables.
(h) Includes cash and cash equivalents and the assets of the company's
insurance and utility subsidiaries.
GEOGRAPHIC INFORMATION
----------------------
The following table summarizes the company's United States and foreign
operations which are located principally in Western Europe:
(In millions) 1994 1993 1992
------ ------ ------
U.S. operations
---------------
Sales. . . . . . . . . . . . . . . $873.9 $831.9 $654.1
Operating earnings . . . . . . . . 50.6 49.6 47.9
Consolidation charge . . . . . . . - (47.1) -
Disposition of subsidiary. . . . . - (22.8) -
Identifiable assets. . . . . . . . 471.4 420.6 410.8
Liabilities. . . . . . . . . . . . 506.3 469.9 403.3
Capital expenditures . . . . . . . 33.2 21.3 13.9
Depreciation . . . . . . . . . . . 18.8 19.1 16.3
Foreign operations
------------------
Sales. . . . . . . . . . . . . . . 323.2 197.5 135.1
Operating earnings . . . . . . . . 27.2 8.0 1.5
Identifiable assets. . . . . . . . 289.4 285.9 148.7
Liabilities. . . . . . . . . . . . 123.5 135.6 41.2
Capital expenditures . . . . . . . 9.8 2.1 3.7
Depreciation . . . . . . . . . . . 9.4 7.0 4.6
Sales of U.S. operations include export sales of $142.0 million in 1994,
$118.7 million in 1993, and $111.7 million in 1992.
Total sales of the company's U.S. and foreign operations to unaffiliated
customers outside the U.S. were $417.6 million, $298.4 million, and $242.6
million in 1994, 1993 and 1992, respectively.
PLASTICS MACHINERY
------------------
The company is the largest U.S. producer of plastics machinery. In 1994, the
company's plastics machinery segment sales were $504 million. The company
believes it offers more varieties of machinery to process plastic than any
other U.S. company.
The company produces equipment for three major plastics processing
technologies, including a full range of injection molding machines and
systems for extrusion and blow molding. The company also sells a line of
imported electric injection machines, as well as a full line of vertical
injection molding machines and a number of types of auxiliary equipment, all
of which are manufactured by others to the company's specifications.
The company designs and builds its own electronic controls and develops the
necessary software for virtually all of its plastics machinery lines. The
company believes that its advanced controls and software for plastics
manufacturing equipment are key selling features that have helped increase
its market share.
PLASTICS MACHINERY INDUSTRY
The market for plastics machinery has grown steadily over the past four
decades, as plastics have continued to replace traditional materials such as
metal, wood, glass and paper in an increasing number of manufactured
products, particularly in the transportation, construction, packaging and
medical industries. Advancements in both the development of materials, which
make plastic products more functional, and the capabilities of plastics
processing equipment have been major contributors to the steady growth in the
plastics machinery market. In addition, consumer demand for safer, more
convenient and recyclable products has increased the general demand for
plastic products. Like other capital goods markets, the plastics machinery
market is subject to economic cycles, but to a lesser degree than the machine
tool market. In particular, the market for injection molding machines is
driven by the consumer economy and the automotive industry. Plastics
machinery orders have been strong and rising since the second half of 1992
and continued to be unusually strong in 1994.
Custom molders, which produce a wide variety of components for many
industries, are the single largest group of plastics machinery buyers. Other
customer categories include the automotive industry, the packaging industry,
the construction industry, the electronics industry, manufacturers of
housewares and appliances and producers of medical supplies. Among the
factors that affect the plastics machinery market are the health of the
consumer economy, residential and commercial construction and automotive
production. Because of intense competition from international plastics
machinery producers, currency exchange rates also have a significant impact.
Fluctuations in oil and natural gas supplies and prices may affect the
businesses of the customers for plastics machinery and, in turn, the market
for this equipment.
Environmental concerns about plastics may have the potential to slow the
growth of the plastics machinery market. However, some plastics raw
materials suppliers, machinery makers and processors are developing
biodegradable products and methods of recycling to address environmental
issues. The company believes that environmental concerns have not had any
discernible negative effect on the market to date. Nevertheless, the
company, through its membership in The Society of Plastics Industry (an
industry trade association), is participating in a joint initiative with "The
Partnership for Plastics Progress", which has brought together leading
companies within the plastics industry to address the role of plastics in the
environment.
THE COMPANY'S PLASTICS MACHINERY SEGMENT
The company's plastics machinery segment consists of three major businesses:
injection molding machines, extrusion systems and blow molding systems. In
1994, sales of injection molding machines constituted over two-thirds of the
sales of the company's plastics machinery segment.
INJECTION MOLDING
The company is the largest U.S. producer of injection molding machines.
Injection molding is the most common and versatile method of processing
plastic. The company manufactures many types of injection molding machines,
all of which were developed using Wolfpack principles. Product
standardization (which facilitates part commonality), the modernization of
the company's manufacturing facilities and methods as well as increased
volumes have enabled the company to achieve significant economies of scale
for the production of injection molding machines. The company believes these
factors have enabled it to become the lowest cost U.S. producer of these
machines. Additionally, the company believes its success in injection
molding machines has been due in large part to the development and marketing
of its Vista line, which the company has expanded. Sales of injection
molding machines have been at record levels for the last three years, in part
due to the acquisition of Ferromatik.
On November 8, 1993, the company acquired Ferromatik, one of Europe's leading
producers of injection molding machines. Ferromatik is recognized for its
high-end technology including multi-color machines, multi-component systems
and other specialty applications. The acquisition included the Ferromatik
lines of hydraulic and electric injection molding machines and a modern
manufacturing facility in Malterdingen, Germany, as well as Ferromatik's
worldwide marketing, sales and service network. The company believes the
Ferromatik acquisition has enabled the company to expand its technology base
and product line and help it achieve its objective of establishing a
manufacturing and distribution base in Germany to serve Europe and other
markets. The company believes Ferromatik provided a complementary fit with
its previously existing injection molding machine business.
The company has substantially completed a restructuring of Ferromatik
intended to (1) derive benefits of synergies between Ferromatik and other
company operations and (2) improve Ferromatik operations through
implementation of manufacturing techniques and methods currently being used
in the company's U.S. plastics machinery operations. The company believes
that it is in the process of achieving its cost reduction goals in both
marketing and manufacturing.
EXTRUSION SYSTEMS
Extrusion systems business consists of individual machines and systems
comprised of multiple units which are tooled to make a specific product in
quantity. Such systems take longer to manufacture than do injection molding
machines. Extrusion systems include twin-screw extruders and single-screw
extruders. The company believes it has a strong competitive position in each
of these lines. Twin-screw extruders are used to produce continuous-flow
products such as pipe, residential siding, sheet lines and window frames,
hence the business is closely tied to housing market cycles. Single-screw
extruders are used in a variety of applications and systems such as blow
molding, blown-film and cast-film systems, pipe and profiles, and wire and
cable applications.
BLOW MOLDING SYSTEMS
The company's blow molding systems business consists of extrusion blow
molding systems, which are used to make a wide variety of products ranging
from bottles, jars, vials and other containers, to industrial and automotive
parts and toys.
SPECIALTY EQUIPMENT
The company sells a variety of specialty equipment used in the processing of
plastics products including peripheral auxiliary equipment such as material
management systems, heat exchangers and product handling systems, all of
which are manufactured by third parties to the company's specifications. The
company also rebuilds and retrofits many types of plastics processing
equipment sold by the company or others, refitting them with new company-
produced controls and software.
SALES, MARKETING AND CUSTOMER SERVICE
The company maintains a large direct sales force in the United States for its
plastics machinery segment, which it supplements with independent agents.
Internationally, the company uses both a direct sales force and independent
agents. In the U.S., the plastics machinery business uses the company's
Cincinnati, Ohio, headquarters as well as regional offices in Allentown,
Pennsylvania; Charlotte, North Carolina; Chicago, Illinois; Detroit,
Michigan; and Los Angeles, California to market its products and provide
customer support and training. Through its Austrian and Ferromatik
subsidiaries, the company has an extensive sales, marketing, service and
distribution systems throughout Europe.
COMPETITION
The markets for plastics machinery in the United States and worldwide are
highly competitive and are made up of a number of U.S., European and Asian
competitors. The company believes it has a significant share of the U.S.
market for the type of products it produces. The company's competitors vary
in size and resources; some are larger than the company, many are smaller,
and only a few compete in more than one product category. Principal
competitive factors in the plastics machinery industry are: product features,
technology, quality, performance, reliability, speed of delivery, price and
customer service. The Wolfpack program is designed to enhance the company's
competitive position with respect to each of these competitive factors.
MACHINE TOOLS
-------------
The company is a leading U.S. producer of machine tools. A machine tool is
a power-driven machine, not hand-held, that is used to cut, form or shape
metal. Machine tools are typically installed as capital equipment in
metalworking industries. In 1994, the company's machine tool segment sales
were $339 million.
MACHINE TOOL INDUSTRY
The primary customers for machine tools are the automotive industry; machine
shops; producers of farm, construction, off-road and power generation
equipment; manufacturers of bearings; the aerospace industry; the die and
mold making industry; and a variety of other metalworking manufacturers. The
machine tool industry has historically been cyclical with relatively long
lead times between orders and shipments. Machine tool sales are affected by
capital spending levels, interest rates, tax and depreciation policies,
international competition, currency exchange rates and general economic
conditions.
With the exception of the aerospace industry, demand for machine tools has
been at high levels in the U.S. from all other sectors for about a year.
THE COMPANY'S MACHINE TOOL SEGMENT
The company's machine tool segment is comprised of three focused businesses:
standard machine tools, applied machine tool systems and electronic systems.
The company's standard machine tool business manufactures horizontal
machining centers, vertical machining centers and turning centers for a
variety of industries engaged in basic metalworking operations, including
machine shops. The products of the company's applied machine tool systems
business include large, multi-axis metalcutting and composites processing
systems for the aerospace industry; large, multi-axis machines for
manufacturers of farm, construction, off-road and power generation equipment
and for the die and mold industry; applied production turning centers and
centerless grinding machines for the automotive industry and for bearings
manufacturers; and automated flexible manufacturing cells for the
metalworking industry. The company's electronic systems business designs and
manufactures computer controls and develops proprietary software for the
company's machine tools, plastics machinery and automated flexible
manufacturing cells.
STANDARD MACHINE TOOLS
HORIZONTAL AND VERTICAL MACHINING CENTERS
The company designs, builds and sells general-purpose CNC horizontal and
vertical machining centers for basic metalworking operations to a number of
industries. These machines produce prismatic or box-like parts and are
capable of performing a variety of operations such as milling, drilling,
boring, tapping, reaming and routing.
TURNING CENTERS
Standard turning centers are designed for ease of use by a broad variety of
customers that do not require custom-designed features.
APPLIED MACHINE TOOLS
METALCUTTING AND COMPOSITES PROCESSING SYSTEMS FOR AEROSPACE
The company believes it is one of the world's leading producers of large
five-axis machining centers and profilers used to machine intricately
contoured surfaces, often out of aluminum, and high-strength alloys such as
titanium, for the aerospace industry. The company is also a world leader in
the development of new machines and systems to automate the manufacture of
components made of advanced composite materials, such as carbon or graphite
fibers in combination with epoxy. These systems are used by the aerospace
industry to manufacture jet engine parts and structural components, primarily
for commercial aircraft.
LARGE MACHINE TOOLS
The company makes large, often highly customized, metalcutting machines and
systems for the manufacturers of heavy machinery such as farm and
construction equipment, off-road vehicles and power generation equipment.
APPLIED PRODUCTION TURNING CENTERS AND CENTERLESS GRINDING MACHINES
The company also specializes in manufacturing applied production turning
centers and centerless grinding machines designed to meet exacting
specifications for the automotive industry. Turning centers, also called CNC
lathes, shape cylindrical parts, which are rotated at high speed against a
stationary tool. The company's applied production turning centers are used
by the automotive industry in a number of applications. Grinding machines
are used to bring a part surface to a more precise dimension or finish.
There are many different kinds of grinding processes. In 1991, the company
announced its intention to focus on centerless grinding machines, which grind
external diameters of cylindrical parts primarily for the automotive industry
and for bearings manufacturers. The company has a long-standing leadership
position in the domestic centerless grinding machine business. In 1994, this
business experienced very high levels of new orders from the automotive
industry.
AUTOMATED FLEXIBLE MANUFACTURING CELLS
Automated flexible manufacturing cells consist of one or more processing
machines (usually standard machine tools), ancillary equipment for parts and
tools handling and computer hardware and software to automate and integrate
all necessary functions, allowing for lightly-manned or unattended operation.
These systems are used widely throughout the metalworking industry and
generally feature a number of computer-driven functions, such as work and
tool scheduling and quality control. Automated flexible manufacturing cells
are a major focus of a number of U.S. companies seeking to update plant and
equipment to enhance their productivity and international competitiveness.
The company believes that its Wolfpack-developed cell control hardware and
software have enabled it to obtain a very strong position in the U.S.
automated flexible manufacturing cells market.
ELECTRONIC SYSTEMS
The company designs and manufactures computer controls and develops
proprietary software for its machine tools and plastics machinery. Computer
controls and software are often important selling features for individual
machines, and the controls and software enable machines to be linked together
to form automated cells and manufacturing systems. Most of the controls for
the company's machine tools and plastics machinery are manufactured by the
company, providing significant product differentiation from competing
products. The company's electronic systems business also offers a variety of
retrofitting services to automate or upgrade existing machine tools,
including those manufactured by other companies. During 1994, the company
introduced two major new families of computer controls, the new CAMAC for
plastics machinery and the Acramatic 2100 for machine tools. Both controls
are Pc-based and feature open an architecture platform.
SALES, MARKETING AND CUSTOMER SERVICE
The company markets machine tools in North America through a comprehensive
network of independent distributors assisted by the company's direct sales
force. The expanded use of distributors is a significant aspect of the
company's strategy aimed at placing more sales representatives in the field
to reach additional markets. Through these distributors, the company
currently has approximately 275 salespeople representing its machine tools in
North America, which is approximately three times more salespeople than it
had five years ago. The company has begun emphasizing distribution in Europe
by upgrading its distributor network. A strong distribution network is one
of the cornerstones in the company's plan to improve its position in the
global market for standard machine tools.
The company believes that applications work, field service engineering and
customer support are important for all its products, especially for grinding
machines, aerospace and special machines and automated flexible manufacturing
cells. In addition to its marketing and service headquarters in Cincinnati,
the company maintains regional offices in Allentown, Pennsylvania; Chicago,
Illinois; Detroit, Michigan; and Toronto, Ontario; as well as in Birmingham,
England; and Offenbach, Germany.
COMPETITION
The worldwide machine tool industry is made up of a number of competitors,
none of which has a dominant market share despite the considerable
consolidation that has occurred in the industry over the past decade. The
markets for the company's machine tool segment products are highly
competitive in the United States and internationally, with strong competition
from U.S., European and Asian companies in all markets. The company's
competitors vary in size and resources; some are larger than the company,
many are smaller, and only a few compete in more than one product category.
Principal competitive factors for products in the machine tool business are
product features (including controls and software), quality, performance,
reliability, technology, speed of delivery, price and customer service. The
Wolfpack program is designed to enhance the company's competitive position
with respect to each of these competitive factors. In certain aerospace and
grinding machine lines, the company has significant market positions and
relatively few competitors. However, in the case of standard machine tool
products and automated flexible manufacturing cells, there are many
competitors and no one company has market dominance.
INDUSTRIAL PRODUCTS
-------------------
THE COMPANY'S INDUSTRIAL PRODUCTS SEGMENT
The company is a leading producer of three basic types of industrial
products: metalcutting tools, metalworking fluids and precision grinding
wheels. In 1994, sales of the company's industrial products segment were
$355 million. Most of the company's industrial products are consumable,
which means they are depleted during the process for which they are used,
offering the company a continuous opportunity to sell replacement products to
its customers. The company believes that its industrial products business
complements its plastics machinery and machine tool businesses, as the
industrial products business is exposed to less pronounced business cycles.
METALCUTTING TOOLS
Metalcutting tools are used in a wide variety of metalcutting operations.
The company believes its subsidiary, Valenite, is the second largest producer
of metalcutting tool systems in the U.S. and, with the acquisition of Widia,
the third largest worldwide. Valenite manufactures over 33,000 products,
including an extensive line of cutting tool inserts in a wide variety of
materials and geometries for turning, boring, milling and drilling, and
standard and special steel insert holders. Valenite has strong market
positions in carbide die and wear products for metalforming and in products
requiring the wear and corrosion resistant properties of tungsten carbide.
In February, 1995, the company completed the acquisition of Widia, a major
European cutting tool maker with key production facilities in Germany and
other Western European countries. Widia also owns a 51% interest in Widia
(India) Ltd., an Indian public company. Widia's product lines include
tungsten carbide cutting tool inserts and steel insert holders needed for
metalcutting operations, carbide die and wear products used in forming and
stamping metal, and both soft and permanent industrial magnets, used in
automotive and other applications. These product lines mesh very well with
Valenite's. Widia has acknowledged expertise in lighter-weight, higher-speed
cutting tools, while Valenite is known for heavier-duty cutting tool inserts.
In automotive applications, Valenite is a leading supplier of tooling for
engine blocks and cylinder heads, while Widia's forte is in machining
camshafts and crankshafts.
METALWORKING FLUIDS
Metalworking fluids are used as lubricants and coolants in a wide variety of
metalcutting and metalforming operations. Major customers are producers of
precision metal components for many industries, including manufacturers of
automotive power trains, aerospace engines and bearings as well as general
metalworking shops. The company is a full-line supplier, offering water-
based fluids (synthetics), water-based oil-bearing fluids (semi- synthetics)
and oil-based fluids. Over the last three years, the company expanded its
lines of soluble oils, straight oils and synthetic fluids. In 1993, the
company developed a brand of fluid called Valcool designed specifically to
work with metal cutting tools that is being marketed through Valenite's
distribution channels.
GRINDING WHEELS
Grinding wheels are used by manufacturers in the metalworking industry.
Major customers are producers of precision metal components for many
industries, including manufacturers of automotive power trains, aerospace
engines and bearings as well as general metalworking machine shops. The
company designs and manufactures a wide variety of precision abrasive
grinding wheels, including resin-bonded, vitrified, cubic boron nitride
(CBN), diamond and synthetic ceramic abrasive types.
The company believes, based on tests in its own laboratories and in customer
plants, that the company's proprietary formulae and modern production
equipment and techniques for the manufacture of precision grinding wheels
give it advantages in terms of product quality, lower production costs and
faster deliveries. The company achieves lower production costs, in part, by
finishing its wheels on computer numerically controlled machines designed and
built by the company's machine tool business.
SALES, MARKETING AND CUSTOMER SERVICE
The company sells its fluids and wheels primarily through a growing network
of independent industrial distributors, as well as through a direct sales
force. The company's metalworking fluids and grinding wheels businesses
offer customer service, training, and applications engineering at most of the
company's regional technical centers in the U.S. and Europe. Valenite
maintains its own worldwide, direct sales and service force of some 350
technically trained engineers, of whom 200 are located in the United States.
The direct sales and service force is complemented by selected independent
industrial distributors.
COMPETITION
The company's main global competitors in its metalworking fluids business are
large petrochemical companies and smaller companies specializing in similar
fluids. There are a small number of large competitors in the U.S. grinding
wheel market, one of which is significantly larger than the company. The
company has limited sales of grinding wheels outside the U.S.
The company believes that Valenite has the second largest metalcutting tool
systems business in the U.S. In international markets, Valenite and Widia
face competition from several competitors, two of which have larger market
shares.
PATENTS
-------
The company holds a number of patents, none of which is material to any
business segment.
EMPLOYEES
---------
During 1994, the company employed an average of 8,395 people, of whom 2,088
were employed outside the United States. As of year-end 1994, the company
employed 8,342 people.
BACKLOG
-------
The backlog of unfilled orders was $287.1 million at the end of 1994 and
$246.0 million at the end of 1993. The backlog at year-end is believed firm
and, in general, is expected to be delivered in 1995 and early 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is included in accordance with the provisions for
Part III, Item 10:
Positions Held During
Name and Age Position Last Five Years
---------------- ------------------ --------------------------
Daniel J. Meyer Chairman and Chief Elected Chairman and Chief
(58) Executive Officer, Executive Officer in
Director November, 1991. Prior
thereto was Chairman,
President and Chief
Executive Officer from
January, 1991, President
and Chief Executive
Officer from 1990,
President and Chief
Operating Officer from
1987. Has served as
Director since 1985.
Also, is a member of the
Nominating and
Executive Committees.
Raymond E. Ross President and Chief Elected President and Chief
(58) Operating Officer, Operating Officer in
Director November, 1991. Prior
thereto was Executive Vice
President - Operations from
February, 1991, Senior Vice
President - Industrial
Systems from 1989. Has served
as Director since 1991.
D. Michael Clabaugh Group Vice President- Elected Group Vice
(52) Machine Tools President - Machine Tools
in 1993. Prior thereto was
Vice President - Advanced
Systems from 1990.
Harold J. Faig Group Vice President- Elected Group Vice
(46) Plastics Machinery President - Plastics
Machinery in February, 1994.
Prior thereto was Vice
President - Injection Molding
from 1990.
Alan L. Shaffer Group Vice President- Elected Group Vice
(44) Industrial Products President - Industrial
Products in 1989.
Ronald D. Brown Vice President- Elected Vice President -
(41) Finance and Finance and Chief Financial
Chief Financial Officer in 1993. Prior
Officer thereto was Treasurer and
Assistant Secretary from
1989.
Richard L. Kegg Vice President - Elected Vice President -
(59) Technology and Technology and Manufacturing
Manufacturing Development in 1993. Prior
Development thereto was Director,
Corporate Research and
Manufacturing Development
from 1990 and Director of
Engineering, Aerospace and
Specials Division from 1988.
Theodore Mauser Vice President- Elected Vice President -
(55) Human Resources Human Resources in 1984.
Wayne F. Taylor Vice President- Elected Vice President -
(51) General Counsel and General Counsel and
Secretary Secretary in 1990. Prior
thereto was Secretary and
Corporate Counsel from 1988.
Robert P. Lienesch Controller Elected Controller in 1989.
(49)
Kenneth W. Mueller Treasurer and Elected Treasurer and
(61) Assistant Secretary Assistant Secretary in 1993.
Prior thereto was Acting
Director of Standard Machine
Tools from 1992, Machine Tool
Group Controller from 1989.
Note:
Parenthetical figure below name of individual indicates age at most recent
birthday prior to December 31, 1994.
There are no family relationships among the executive officers of the
Registrant.
Officers of the company are elected each year by the Board of Directors.
ITEM 2. PROPERTIES
The company has thirty one principal manufacturing plants in operation with a
combined floor space of approximately 4.7 million square feet as listed below:
Location No. of Plants Principal Product Line Manufactured
---------------- ------------- -----------------------------------
Cincinnati, Ohio 4 Standard machine tool products and
advanced machine tool systems
Cincinnati, Ohio 1 Extrusion systems
Cincinnati, Ohio 1 Metalworking fluids and precision
grinding wheels
South Lebanon, Ohio 1 Electronic controls, industrial
software retrofits and contract
electronics
Batavia, Ohio 1 (A) Injection and blow molding machines
Mt. Orab, Ohio 1 (A) Plastics machinery parts
Carlisle, Pennsylvania 1 Precision grinding wheels
Biggleswade, England 1 (B) Electronic control retrofit and
contract electronics
Birmingham, England 1 Standard vertical machining centers
Vlaardingen, The Netherlands 1 Metalworking fluids
Vienna, Austria 1 Extrusion systems
Nogales, Mexico 1 (B) Precision grinding wheels
Malterdingen, Germany 1 Injection molding machines
Detroit, Michigan (metro area) 5 (B) Carbide inserts, special steel
products and gauging systems,
ceramic inserts and cerment inserts
West Branch, Michigan 2 Powder production, die and wear
Westminister and Seneca,
South Carolina 4 Carbide and diamond inserts
Gainesville, Texas 1 Turning tools, milling cutters and
boring bars
Andrezieux, France 1 Carbide inserts
Sinsheim, Germany 1 Special steel tooling products
Tokyo, Japan 1 Carbide inserts and steel tools
(A) The plant in Batavia, Ohio operates under a long-term lease, which was
financed by the sale of Clermont County Industrial Development Revenue Bonds.
The plant in Mt. Orab, Ohio operates under a long-term lease, which was financed
by the sale of State of Ohio Industrial Development Revenue Bonds. At the
expiration of the long-term leases, the company will acquire title to the leased
properties at a nominal cost.
(B) The Biggleswade, England plant, Nogales, Mexico plant and three plants in
the Detroit, Michigan (metro area) are leased from unrelated third parties.
Not included above are the 7 manufacturing locations owned by Widia, which was
acquired in February, 1995.
The company also has five regional technical centers located in Cincinnati,
Ohio; Detroit, Michigan; Los Angeles, California; Birmingham, England; and
Offenbach, Germany. These centers provide customers with demonstrations,
engineering services and training for most major product lines. In addition,
the company has an extensive number of sales offices, most of which are
located in the U.S., Western Europe and Asia.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of management and counsel, there are no material pending legal
proceedings to which the company or any of its subsidiaries is a party or of
which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted to a vote of stockholders during the fourth
quarter of 1994.
PART II
-------
ITEM. 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The company's common shares are listed on the New York Stock Exchange. Such
shares are also traded on the Cincinnati Stock Exchange, Boston Stock Exchange,
Pacific Stock Exchange, Philadelphia Stock Exchange and Midwest Stock Exchange,
with options traded on the Philadelphia Stock Exchange. As of February 28,
1995, there were approximately 6,500 holders of record of the company's
common shares. The company's preferred shares are not actively traded.
The table below shows the price range of the common shares for 1993 and 1994, as
reported by the New York Stock Exchange. Cash dividends of $.09 per common
share and $1.00 per preferred share were paid in each quarter of 1993 and 1994.
Common Stock
Price Range
-------------------
Fiscal 1993, quarter ended High Low
------ ------
March 27 . . . . . . . . . . . . . . . $22.25 $16.25
June 19. . . . . . . . . . . . . . . . 29.63 19.50
October 9. . . . . . . . . . . . . . . 26.00 20.75
January 1. . . . . . . . . . . . . . . 24.75 19.25
Fiscal 1994, quarter ended
March 26 . . . . . . . . . . . . . . . $25.63 $21.75
June 18. . . . . . . . . . . . . . . . 24.25 19.50
October 8. . . . . . . . . . . . . . . 27.00 18.63
December 31. . . . . . . . . . . . . . 27.63 22.25
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in millions, except per-share amounts)
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
-------- -------- ------ ------- -----
Summary of Operations
---------------------
Sales . . . . . . . . . . . . . $1,197.1 $1,029.4 $789.2 $ 754.0 $805.2
Cost of products sold. . . . . . 904.8 791.3 612.6 603.2 632.8
-------- -------- ------ ------- ------
Manufacturing Margins. . . . . 292.3 238.1 176.6 150.8 172.4
Other costs and expenses
Selling and administrative . . 222.2 191.3 133.6 132.2 136.0
Consolidation charge . . . . . - 47.1(a) - - -
Disposition of subsidiary. . . - 22.8(b) - - -
Closing and relocation
charge . . . . . . . . . . . - - - 75.1(c) -
Special charge . . . . . . . . - - - - 26.6(e)
Other- net . . . . . . . . . . 5.9 .7 (.2) 1.8 3.0
-------- -------- ------ ------- ------
Total other costs
and expenses . . . . . . . 228.1 261.9 133.4 209.1 165.6
-------- -------- ------ ------- ------
Operating earnings (loss). . . . 64.2 (23.8) 43.2 (58.3) 6.8
Interest - net . . . . . . . . . (15.3) (13.4) (16.2) (15.1) (14.6)
-------- -------- ------ ------- ------
Earnings (loss) from
continuing operations before
income taxes, extraordinary
items and cumulative
effect of changes in methods
of accounting. . . . . . . . . 48.9 (37.2) 27.0 (73.4) (7.8)
Provision for income taxes . . . 11.2 8.2 10.9 9.7 5.8
-------- -------- ------ ------- ------
Earnings (loss) from
continuing operations before
extraordinary items and
cumulative effect of changes
in methods of accounting . . . 37.7 (45.4) 16.1 (83.1) (13.6)
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)(d) (10.7)(f)
-------- -------- ------ ------- ------
Net earnings (loss). . . . . $ 37.7 $ (101.9) $ 21.5 $(100.2) $(24.3)
======== ======== ====== ======= ======
Earnings (loss) per common share
Earnings (loss) from
continuing operations
before extraordinary
items and cumulative
effect of changes in
methods of accounting. . . . $ 1.10 $ (1.41) $ .58 $ (3.04) $ (.54)
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)(d) (.41)(f)
-------- -------- ------ ------- ------
Net earnings (loss). . . $ 1.10 $ (3.16) $ .77 $ (3.67) $ (.95)
======== ======== ====== ======= ======
See notes on page 19.
(Dollars in millions, except employees and per-share amounts)
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Financial Position at Year End
------------------------------
Working capital. . . . . . . . . $151.4 $114.3 $191.8 $188.0 $253.6
Property, plant and equipment-
net. . . . . . . . . . . . . . 198.8 184.0 121.1 129.7 159.2
Total assets . . . . . . . . . . 787.6 729.6 578.9 598.4 693.0
Long-term debt and lease
obligations. . . . . . . . . . 143.0 107.6 154.4 155.9 157.3
Total debt . . . . . . . . . . . 226.9 185.2 175.6 162.8 169.4
Shareholders' equity . . . . . . 157.8 124.1 134.4 129.0 247.7
Per common share . . . . . . . 4.50 3.53 4.67 4.49 8.85
Other Data
----------
Dividends paid to common
shareholders . . . . . . . . . 12.2 11.6 10.0 17.3 18.6
Per common share . . . . . . .36 .36 .36 .63 .72
Capital expenditures . . . . . . 43.0 23.4 17.6 15.5 34.1
Depreciation . . . . . . . . . . 28.2 26.1 20.9 24.0 23.7
Backlog of unfilled orders at
year-end . . . . . . . . . . . 287.1 246.0 249.6 277.3 268.6
Employees (average). . . . . . . 8,395 7,885 6,135 6,903 7,203
</TABLE>
(a) Represents a charge (with no current tax effect) for the consolidation of
U.S. machine tool manufacturing operations.
(b) Represents charges (with no current tax effect) for the disposition of a
plastics machinery subsidiary.
(c) Represents a charge (with no current tax effect) for plant closing and
relocation of certain machine tool manufacturing operations.
(d) Includes a charge of $14.9 million (with no current tax effect), or $.54
per share, related to the revaluation for sale of the company's coordinate
measurement and inspection machine business.
(e) Represents a charge of $26.6 million ($24.9 million after tax) for
product discontinuance and the reorganization of grinding machine and certain
other machine tool manufacturing operations.
(f) Includes a provision for loss on the sale of the discontinued industrial
robot business of $1.7 million (with no current tax effect), or $.06 per
share.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS RESULTS OF OPERATIONS
The company's financial results for the last three years, presented on page
26, are discussed below. The company operates in three principal business
segments: plastics machinery, machine tools and industrial products.
Financial information for each of these segments is presented on pages 5 and
6.
1994 COMPARED TO 1993
---------------------
SALES
Sales in 1994 were $1,197 million, which represented a $168 million, or 16%,
increase over 1993. The sales increase was primarily attributable to: (i) a
$147 million, or 41%, increase in plastics machinery sales, which included an
approximately $80 million increase in sales resulting from the acquisition of
Ferromatik in late 1993, with the rest of the plastics machinery increase
coming from injection molding machines and (ii) a $38 million increase in
industrial products sales, of which about half resulted from the inclusion of
Valenite's sales for twelve months in 1994 versus eleven months in 1993.
Machine tool sales declined by $17 million, or 5%, primarily due to a decline
in demand from the aerospace market.
Sales of all segments to non-U.S. markets increased in 1994 by $119 million,
or 40%, primarily due to the effect of the Ferromatik acquisition. Export
shipments increased by $23 million, or 20%, primarily due to increases in
exports of injection molding machines.
NEW ORDERS AND BACKLOG
New orders for 1994 were $1,238 million, which represented a $268 million, or
28%, increase over 1993. Orders for plastics machinery increased $174
million, or 48%. Approximately $100 million of the increase resulted from the
acquisition of Ferromatik late in 1993. Other contributing factors included
higher demand for U.S.-built injection molding machines and a single $17
million European order. Machine tool new orders increased $47 million, or
16%, due to a greater demand for Wolfpack-designed products, primarily
vertical machining centers. Orders for industrial products increased $48
million, or 15%, due primarily to the timing of the Valenite acquisition and
strengthening demand in the U.S.
Export orders approximated $124 million in 1994 compared to $100 million in
1993. The increase in export orders was primarily attributable to the
plastics machinery segment.
At December 31, 1994, the backlog of unfilled orders was $287 million
compared with $246 million a year ago. The increase in backlog was primarily
attributable to greater demand for Ferromatik plastics machinery and vertical
machining centers.
MARGINS, COSTS AND EXPENSES
Manufacturing margins increased to 24.4% in 1994 from 23.1% in 1993. Margins
for all three segments improved. Plastics machinery benefited from increased
volume and more stable pricing; machine tools reduced its costs due to the
consolidation (see Consolidation Charge); and industrial products achieved
benefits from increased U.S. sales of grinding wheels, metalworking fluids
and cutting tools.
Selling and administrative expense as a percent of sales was 19% in both 1994
and 1993. Administrative expense was unchanged, but selling costs as a
percent of sales increased due to the mix of products sold and costs related
to the two international trade shows in 1994.
Other costs and expenses - net increased by $5.2 million due to: (i) a $2.8
million increase in financing fees, principally attributed to the sale of
receivables and (ii) the inclusion in 1993 of a $2.5 million gain on the sale
of surplus land.
Interest expense, net of interest income, was $15.3 million in 1994 compared
to $13.4 million in 1993. The increase was due to higher borrowing levels as
well as higher interest rates.
INCOME TAXES
The consolidated effective tax rate in 1994 is less than the U.S. federal
rate due primarily to (i) an operating loss in the U.S. for tax reporting
purposes related principally to the machine tool consolidation and (ii)
utilization of net operating loss carryforwards in certain non-U.S.
jurisdictions. At the end of 1994, for U.S. federal tax reporting purposes
the company had net operating loss carryforwards of approximately $41 million
which expire in 2008 and 2009.
Current tax benefits were not offset against the U.S. loss in 1993 in
accordance with the income tax accounting rules that became effective January
3, 1993. In addition, current tax benefits could not be recognized for losses
in certain non-U.S. jurisdictions.
CONSOLIDATION CHARGE
In December, 1993, management adopted a plan to reduce machine tool
manufacturing capacity by consolidating U.S. machine tool manufacturing into
facilities in Cincinnati and accordingly recorded a charge of $47.1 million
in the fourth quarter of 1993. Production at the company's two machine tool
facilities in Fountain Inn and Greenwood, South Carolina, was phased out
during 1994 and the plants were closed in the fourth quarter of 1994.
The consolidation plan included a provision for the phase out of production
in South Carolina offset by a simultaneous ramp up of production in
Cincinnati to minimize the effect of the consolidation on 1994 sales.
However, two important factors necessitated adjustments to the original plan.
First, the favorable job market in South Carolina resulted in an unexpectedly
high early attrition rate affecting both production employees and certain
other employees who were key to the execution of the production phase-out
plan. The early attrition was particularly acute in parts manufacturing and
resulted in an earlier than expected loss of capability in this area, slowing
the phase out of production in South Carolina and hampering the ramp up of
production in Cincinnati. To offset some of the lost capability, the company
had to temporarily utilize more costly subcontract sources. Second, market
demand for machine tool products, including products previously manufactured
in South Carolina, was strong in 1994. This temporarily strained key
suppliers, causing part shortages and further slowing the ramp up of
production in Cincinnati. These production delays and inefficiencies during
the consolidation process contributed to lower than expected operating
earnings in the machine tools segment and resulted in an estimated $20
million to $30 million reduction in 1994 sales of products previously
manufactured in South Carolina.
Completion of the consolidation was originally expected to result in a net
employee reduction of 235 in U.S. machine tool operations. However, increased
customer demand for machine tool products, including the products being
transferred from South Carolina, has caused this target to be reduced to 150.
As a result of the larger than expected number of voluntary terminations and
transfers to Cincinnati, the cost for severance and other fringe benefits was
approximately $6 million less than anticipated. Simultaneously, the delay in
the phase out of production in South Carolina resulted in additional
operating losses of approximately $2 million through the closure date of the
two plants. The net $4 million reduction in the cost of the consolidation was
utilized to absorb incremental costs arising from the 1990 and 1991 machine
tool restructurings, including lower estimated net proceeds from the sale of
the Heald facility, the closure of certain overseas sales offices and the
restructuring of domestic machine tool operations.
The consolidation, once fully implemented, was originally expected to result
in annual cost savings of approximately $16 million. Approximately $12
million of the $16 million in anticipated savings related to the planned net
employee reduction of 235 people. As a result of the lower than expected
reduction, the actual annual cost savings are now expected to be $4 million
less than originally anticipated. However, higher margins associated with
increased sales should offset this reduction.
EARNINGS
Earnings before extraordinary item and cumulative effect of changes in
methods of accounting improved to $37.7 million, or $1.10 per share, in 1994
compared to a loss of $45.4 million, or $1.41 per share, in 1993. The 1993
loss was caused by a $47.1 consolidation charge described above and a $22.8
million charge for the disposition of a subsidiary described below.
The net loss for 1993 included the effect of an extraordinary charge of $4.4
million, or $.14 per share, related to the early extinguishment of $60
million of 12 % debentures due 2010.
The net loss for 1993 also included the effect of adopting SFAS No. 109,
"Accounting for Income Taxes," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," effective January 3, 1993,
resulting in charges to earnings totaling $52.1 million, or $1.61 per share.
Except for the cumulative effect, the new rules regarding postretirement
medical benefits did not significantly affect the company's earnings in 1994
or 1993, while the new rules regarding income taxes had the effect of
reducing the company's effective tax rate in 1994 and 1993.
Net earnings were $37.7 million, or $1.10 per share, in 1994, compared to a
net loss of $101.9 million, or $3.16 per share, in 1993. The 1993 net loss
was caused by the aforementioned charges, the extraordinary item and the
cumulative effect of changes in methods of accounting that totaled $126.4
million.
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%; $15 million of the increase resulted from the Ferromatik
acquisition, but the largest factor was higher U.S. sales of injection
molding machines. 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 increased in 1993 by $55 million to
$298 million due to acquisitions. 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 1992 and not repeated in 1993, (ii) reduced demand from
customers in the aerospace industry resulting in a sales decline of about $18
million and (iii) the discontinuation of certain less profitable product
lines resulting in a sales decline of about $12 million.
Export orders approximated $100 million in 1993 and 1992; in 1993, orders for
industrial products increased due to the Valenite acquisition, while orders
for plastics machinery and machine tools declined.
At January 1, 1994, the backlog of unfilled orders was $246 million, down
from $250 million at year-end 1992, 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 which 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 1.8 percentage points to the overall
increase in manufacturing margins in 1993.
Selling and administrative expense for 1993 increased over 1992 due to higher
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.
Other costs and expenses - net included a $2.5 million gain on the sale of
land in Austria.
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% debentures due 2010.
DISPOSITION OF SUBSIDIARY
The company's Sano subsidiary incurred an operating loss of approximately
$26.3 million in 1993, which included charges totaling $22.8 million for the
disposition of the subsidiary. The decision to sell Sano was due in part to
continuing operating losses. In addition, the Sano business did not serve a
major global market with good long-term growth and profit potential and, as
a result, did not meet the company's criteria for a core business. The
business was sold in February, 1994.
INCOME TAXES AND EXTRAORDINARY TAX BENEFIT
The provision for income taxes in 1993 consisted 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 charges described above in
accordance with income tax accounting rules adopted in 1993. In addition,
current tax benefits could not be recognized for losses in certain foreign
jurisdictions.
The provision for income taxes in 1992 of approximately 40% included 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
consolidation and disposition of subsidiary charges described above that
totaled $69.9 million.
The net loss for 1993 included the effect of an extraordinary charge of $4.4
million, or $.14 per share, related to the early extinguishment of $60
million of 12% debentures due 2010.
The net loss for 1993 also included 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 changed
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 charges described above, extraordinary item 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 aforementioned charges, the extraordinary item and
the cumulative effect of changes in methods of accounting that totaled $126.4
million.
LIQUIDITY AND SOURCES OF CAPITAL
--------------------------------
At December 31, 1994, the company had cash and cash equivalents of $22
million, an increase of $3 million during the year. Operating activities
provided $8 million of cash in 1994 after deducting incremental cash costs of
the consolidation of $14 million. Operating activities provided $22 million
in 1993.
Total debt was $227 million at December 31, 1994, an increase of $42 million
over 1993. The ratio of total debt to total capital (debt plus equity) was
59% at December 31, 1994, and 60% at year-end 1993. Working capital increased
by $37 million in 1994 and the current ratio improved to 1.4.
Expenditures for new property, plant and equipment in 1994 were $43 million,
including approximately $8 million for the implementation of advanced
manufacturing technologies at Ferromatik and plant modernization at Valenite,
compared to $23 million in 1993. Proceeds from the disposal of property,
plant and equipment for 1994 were $4 million compared to $22 million in 1993.
Proceeds during 1993 included amounts related to the sale of surplus assets
and the sale and operating leaseback of certain manufacturing equipment. The
1995 capital budget is $54 million, some of which is expected to be financed
through operating leases.
In 1994, the company completed an offering involving the issuance of $115
million of 8 3/8% Notes due 2004. The proceeds were used to redeem at par the
company's outstanding 8 3/8% Senior Notes due 1997 and to repay short-term
debt.
The company had a number of short-term intercompany loans and advances
denominated in various currencies totaling approximately $40 million at
December 31, 1994, that were subject to foreign exchange risk. The company
also enters into various transactions in the ordinary course of business for
the purchase and sale of goods and services in various currencies. The
company hedges its exposure to currency fluctuations related to intercompany
loans and advances and the purchase and sale of goods under firm commitments
by entering into foreign exchange contracts to minimize the effect of foreign
currency exchange rate fluctuations related to significant transactions.
At year-end 1994, the company had lines of credit with various U.S. and non-
U.S. banks of approximately $366 million, including a $200 million committed
revolving credit facility. These credit facilities supported letters of
credit and leases in addition to providing borrowings under varying terms.
The revolving credit facility was amended in December, 1994, to increase the
amount of borrowings available thereunder from $130 million to $200 million.
The facility, which allows borrowings through July, 1996, imposes
restrictions on total indebtedness in relation to total capital (debt plus
tangible net worth, the latter being approximately equal to shareholders'
equity). The company has remained in compliance with the restrictions imposed
by the facility since its inception. Under the provisions of the amended
facility, the company's additional borrowing capacity totaled approximately
$113 million at year-end 1994.
Under the provisions of the revolving credit facility related to total
indebtedness, the 1995 repayments of long-term debt will give rise to
additional borrowing capacity. As a result, utilization of this facility to
repay long-term debt will not reduce the company's borrowing capacity.
The company believes that its cash flow from operations and available credit
lines will be sufficient to meet its debt service, capital expenditures and
other operating requirements, including those associated with the acquisition
of Widia (see Subsequent Events).
SUBSEQUENT EVENTS
-----------------
On January 27, 1995, the company sold its American Mine Tool business
resulting in a pre-tax gain of $5 million.
On February 1, 1995, the company completed the acquisition of Germany-based
Krupp Widia GmbH (Widia) for $78 million in cash and $21 million assumed
debt. Widia, with 1994 sales of approximately $240 million, is one of the
world's leading producers of industrial metalcutting products. The
acquisition was financed principally through the company's revolving credit
facility described above. After giving effect to the acquisition, as well as
anticipated operating cash flows, the company estimates that its unused
borrowing capacity under the revolving credit facility at the end of the
first quarter will exceed $40 million. The company is currently evaluating
alternative actions to integrate Valenite and Widia to improve future
profitability which could result in incremental costs and expenses in 1995.
OUTLOOK
-------
The company believes it will achieve sales growth in all three business
segments in 1995. Any slowdown in the U.S. economy, especially in the
automotive sector, could be a deterrent to future growth in all three
segments. The company continues to experience some production bottlenecks and
supplier shortages in the machine tool segment and these could hold back
earnings in the first half of the year, which is traditionally slow for
machine tool shipments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Beginning on page 26 and continuing through page 41 are the consolidated
financial statements with applicable notes and the related Report of
Independent Auditors, and the supplementary financial information specified
by Item 302 of Regulation S-K.
CONSOLIDATED STATEMENT OF EARNINGS
CINCINNATI MILACRON INC. AND SUBSIDIARIES
FISCAL YEAR ENDS ON SATRUDAY CLOSEST TO DECEMBER 31.
(In millions, except per-share amounts) 1994 1993 1992
-------- -------- ------
Sales $1,197.1 $1,029.4 $789.2
Cost of products sold 904.8 791.3 612.6
-------- -------- ------
Manufacturing margins 292.3 238.1 176.6
Other costs and expenses
Selling and administrative 222.2 191.3 133.6
Consolidation charge - 47.1 -
Disposition of subsidiary - 22.8 -
Other - net 5.9 .7 (.2)
-------- -------- ------
Total other costs and expenses 228.1 261.9 133.4
-------- -------- ------
Operating earnings (loss) 64.2 (23.8) 43.2
Interest
Income 2.6 2.3 2.9
Expense (17.9) (15.7) (19.1)
-------- -------- ------
Interest - net (15.3) (13.4) (16.2)
-------- -------- ------
Earnings (loss) before income
taxes, extraordinary items and
cumulative effect of changes in
methods of accounting 48.9 (37.2) 27.0
Provision for income taxes 11.2 8.2 10.9
-------- -------- ------
Earnings (loss) before extraordinary
items and cumulative effect of
changes in methods of accounting 37.7 (45.4) 16.1
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) -
-------- -------- ------
Net earnings (loss) $ 37.7 $ (101.9) $21.5
======== ======== ======
Earnings (loss) per common share
Earnings (loss) from continuing
operations before extraordinary items
and cumulative effect of changes in
methods of accounting $1.10 $(1.41) $.58
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) -
-------- -------- ------
Net earnings (loss) $ 1.10 $ (3.16) $.77
======== ======== ======
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
CINCINNATI MILCRON INC. AND SUBSIDIARIES
FISCAL YEAR ENDS ON SATURDAY CLOSEST TO DECEMBER 31.
(In millions) 1994 1993
-------- ------
Assets
Current assets
Cash and cash equivalents $21.5 $18.8
Notes and accounts receivable
less allowances 188.0 188.3
Inventories
Raw materials 25.4 21.5
Work-in-process and finished parts 162.8 155.7
Finished products 79.0 70.0
-------- ------
Total inventories 267.2 247.2
Other current assets 38.0 29.3
-------- ------
Total current assets 514.7 483.6
Property, plant and equipment - net 198.8 184.0
Other noncurrent assets 74.1 62.0
-------- ------
Total assets $787.6 $729.6
======== ======
Liabilities and Shareholders' Equity
Current liabilities
Amounts payable to banks $62.8 $74.2
Long-term debt and lease obligations
due within one year 21.1 3.4
Trade accounts payable 99.2 84.6
Advance billings and deposits 39.6 36.9
Accrued and other current liabilities 140.6 170.2
-------- ------
Total current liabilities 363.3 369.3
Long-term accrued liabilities 123.5 128.6
Long-term debt and lease obligations 143.0 107.6
-------- ------
Total liabilities 629.8 605.5
-------- ------
Commitments and contingencies - -
Shareholders' equity
4% Cumulative Preferred shares 6.0 6.0
Common shares, $1 par value (outstanding:
33.7 in 1994 and 33.5 in 1993) 33.7 33.5
Capital in excess of par value 255.5 251.3
Accumulated deficit (125.9) (151.2)
Cumulative foreign currency translation
adjustments (11.5) (15.5)
------ ------
Total shareholders' equity 157.8 124.1
------ ------
Total liabilities and shareholders' equity $787.6 $729.6
====== ======
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% Foreign
Cumulative Common Capital in Currency Total
Preferred Shares, Excess of Accumulated Translation Shareholders
(In millions, except share amounts) Shares $1 Par Value Par Value Deficit Adjustments Equity
<S> <C> <C> <C> <C> <C> <C>
---------- ------------ --------- ---------- ----------- ------------
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
Stock options exercised and restricted stock
awarded for 203,404 common shares .2 4.1 4.3
Sale of 6,998 treasury shares .1 .1
Net earnings for the year 37.7 37.7
Cash dividends
Preferred shares ($4.00 per share) (.2) (.2)
Common shares ($.36 per share) (12.2) (12.2)
Foreign currency translation adjustments 4.0 4.0
--------- ------------ --------- ---------- ------------ ------------
Balance at year-end 1994 $6.0 $33.7 $255.5 $(125.9) $(11.5) $157.8
========= ============ ========= ========== ============ ============
</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.
(In millions) 1994 1993 1992
---- ---- ----
Increase (Decrease) in Cash and Cash Equivalents
Operating Activities Cash Flows
Net earnings (loss) $37.7 $(101.9) $21.5
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 28.2 26.1 20.9
Consolidation charge - 47.1 -
Disposition of subsidiary - 22.8 -
Deferred income taxes .5 1.5 1.5
Working capital changes
Notes and accounts receivable 4.8 31.6 13.0
Inventories (19.8) 24.2 (16.5)
Other current assets (.4) 5.1 1.3
Trade accounts payable 13.3 (8.3) 9.6
Other current liabilities (42.5) (61.5) (29.5)
Increase in other noncurrent assets (3.2) (2.1) (3.3)
Decrease in long-term accrued liabilities (6.2) (10.1) (11.0)
Other - net (4.4) (8.8) (9.7)
------ ------- -----
Net cash provided (used) by operating
activities 8.0 22.2 (2.2)
------ ------- -----
Investing Activities Cash Flows
Capital expenditures (43.0) (23.4) (17.6)
Net disposals of property, plant and
equipment 4.3 22.2 11.1
Acquisitions (1.9) (112.5) -
Divestitures 3.2 5.0 -
------ ------- -----
Net cash used by investing activities (37.4) (108.7) (6.5)
------ ------- -----
Financing Activities Cash Flows
Dividends paid (12.4) (11.8) (10.2)
Issuance of long-term debt 115.4 - -
Repayments of long-term debt and lease
obligations (62.8) (61.9) (1.4)
Increase (decrease) in amounts payable
to banks (12.5) 54.8 15.9
Net issuance of common shares 4.4 114.0 3.1
Redemption premium on early extinguishment
of debt - (4.7) -
------ ------- -----
Net cash provided by financing activities 32.1 90.4 7.4
------ ------- -----
Increase (decrease) in cash and cash equivalents 2.7 3.9 (1.3)
Cash and cash equivalents at beginning of year 18.8 14.9 16.2
------ ------- -----
Cash and cash equivalents at end of year $ 21.5 $18.8 $14.9
====== ======= =====
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:
1994: December 31, 1994
1993: January 1, 1994
1992: January 2, 1993
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 costs and expenses - 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, including
provisions for obsolescence commensurate with known or estimated
exposures. The principal methods of determining costs are last-in,
first-out (LIFO) for most 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.
Property, plant and equipment currently idle and held for sale or
identified for sale in the future are valued at the lower of historical
cost less accumulated depreciation, or estimated net realizable value.
Carrying costs through the expected disposal dates of such assets are
accrued at the time expected losses are recognized or, in the case of
assets to be sold at a gain, charged to expense as incurred.
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 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 fiscal year 1992 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.
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 Per Common
(In millions, except per share amounts) Earnings 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 December, 1993, management adopted a plan to reduce machine tool
manufacturing capacity by consolidating U.S. machine tool manufacturing
into facilities in Cincinnati and accordingly, recorded a charge of $47.1
million (with no current tax effect). Production at the company's two
machine tool facilities in Fountain Inn and Greenwood, South Carolina was
phased out during 1994 and the plants were closed by year-end. The
consolidation addressed excess manufacturing capacity created by two
factors: the company's successful Wolfpack program, which 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 plan included a provision for the
phase out of production in South Carolina offset by a simultaneous ramp up
of production in Cincinnati in order to minimize the effect of the
consolidation on 1994 sales.
Major components of the charge are reflected in the following table.
Consolidation Charge
(In millions) 1993
-----
Severance and other fringe benefits $ 9.1
Costs to relocate key employees
and production 10.0
Write-downs of inventory of discontinued
products 6.1
Loss on disposal of plant and equipment 4.9
Accrual for operating losses through plant
closing dates 13.6
Other 3.4
-----
$47.1
=====
Reserves related to additional cash costs to be incurred principally in
the first quarter of 1995 totaled approximately $2.6 million at year-end
1994.
Completion of the consolidation was originally expected to result in a net
employee reduction of 235 in U.S. machine tool operations. However,
increased customer demand for machine tool products, including the
products being transferred from South Carolina, has caused this target to
be reduced to 150. In addition, the favorable job market in South Carolina
resulted in an unexpectedly high early attrition rate at the facilities to
be closed. As a result of these factors, the cost for severance and other
fringe benefits was approximately $6 million less than the original
estimate reflected above. Simultaneously, a higher than expected number of
voluntary terminations slowed the phase out of production in South
Carolina and as a result, operating losses through the closure date of the
two plants were approximately $2 million higher than originally expected.
The net $4 million reduction in the cost of the consolidation was utilized
to absorb incremental costs arising from the 1990 and 1991 machine tool
restructurings, including lower estimated net proceeds from the sale of
the Heald facility, the closure of certain overseas sales offices and the
restructuring of domestic machine tool operations.
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 did not serve a major global market with
good long-term growth and profit potential and as a result, did not meet
the company's criteria for a core business. In February, 1994, the company
completed the sale of Sano resulting in initial cash proceeds of $2.0
million. The remainder of the gross sales price of approximately $7
million is being received through the collection of trade receivables and
in varying installments through 1999.
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 was accounted for under the purchase
method, was financed principally through the sale of $50 million of
accounts receivable and borrowings under the company's 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 74.8 million (approximately $44 million) in cash and DM 10.6 million
(approximately $6 million) in assumed debt. The acquisition, which was
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. 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 specialty
applications.
The aggregate acquisition cost of the company's investments in Valenite
and Ferromatik, including professional fees and other costs related
thereto, was approximately $115.5 million. The following table presents
the allocation of the aggregate acquisition cost to the assets acquired
and liabilities assumed. Goodwill arising from the Valenite and Ferromatik
acquisitions, which is included in other noncurrent assets in the
following table, totaled $15.6 million.
ALLOCATION OF ACQUISITION COST
(In millions) 1993
------
Cash and cash equivalents $ 1.1
Accounts receivable 54.6
Inventories 74.2
Other current assets 19.5
Property, plant and equipment 91.1
Other noncurrent assets 28.6
------
Total assets 269.1
------
Amounts payable to banks and
long-term debt due within one year 13.1
Other current liabilities 103.7
Long-term accrued liabilities 31.6
Long-term debt and lease obligations 5.2
------
Total liabilities 153.6
------
Total acquisition cost $115.5
======
As presented above, other current liabilities includes a reserve of $44.0
million for the restructuring of Valenite for future profitability. The
restructuring plan included 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, to the extent reflected in the allocation of
acquisition cost, was $53.7 million ($25.8 million in cash) and included
amounts for severance, relocation and losses on the sale of surplus
inventory, machinery and equipment and production facilities. Additional
costs in 1993 and 1994 related to the overall restructuring plan that were
not reserved for in the allocation of acquisition cost totaled $11.4
million, of which $7.9 million was recorded as capital expenditures with
the remaining $3.5 million being charged to expense as incurred. The
restructuring, which began March 2, 1993, was completed in 1994.
Other current liabilities also includes a reserve of $6.5 million for the
restructuring of Ferromatik during 1994. Capital expenditures related to
the overall restructuring plan, which are not reserved in the allocation
of acquisition cost, totaled $.3 million in 1994 but will be more
significant in 1995. 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 identified additional restructuring actions,
including further personnel reductions, that are intended to improve
Ferromatik's profitability in the future. These actions, which complement
the actions already taken prior to the acquisition, were substantially
completed during 1994 except for the capital expenditures to be made in
1995.
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 those years 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
======== ========
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) 1994 1993 1992
----- ----- -----
Research and development $46.8 $41.9 $34.1
===== ===== =====
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) 1994 1993 1992
----- ----- ------
Service cost (benefits earned
during the period) $7.6 $6.3 $6.3
Interest cost on projected
benefit obligation 32.2 31.5 29.0
Actual loss (return) on plan assets 4.8 (54.8) (24.0)
Net amortization and deferral (47.0) 14.3 (18.7)
----- ----- -----
Pension cost (income) $(2.4) $(2.7) $(7.4)
===== ===== =====
FUNDED STATUS OF PENSION PLANS AT YEAR-END
(In millions) 1994 1993
------- -------
Vested benefit obligation $(316.6) $(340.2)
======= =======
Accumulated benefit obligation $(331.9) $(353.7)
Plan assets at fair value, primarily listed
stocks and debt securities, including
company stock of $14.9 in 1994
and $14.0 in 1993 $366.1 $396.9
Projected benefit obligation (383.7) (416.9)
------- -------
Deficiency of plan assets in relation
to projected benefit obligation (17.6) (20.0)
Unrecognized net (gain ) loss 41.6 46.8
Unrecognized net transition asset (24.8) (30.2)
------- -------
Accrued pension liability $(.8) $(3.4)
======= =======
At December 31, 1994, the projected benefit obligation of the company's
U.S. plan exceeded its assets by $28.9 million, while the assets of the
plan for United Kingdom employees exceeded the projected benefit
obligation by $11.3 million. A contribution of $.1 million was made to the
U.S. plan in 1994. Because of the funded status of the two plans, no other
contributions were required or made in the three year period ended
December 31, 1994.
For 1994 and 1993, the assumed discount rates used in determining the
projected benefit obligation were 9% and 7 1/2%, respectively. The assumed
rate of increase in remuneration was 5% for 1994 and 4 1/2% for 1993. 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) 1994 1993
------ ------
Accumulated postretirement benefit obligation
Retirees $(35.2) $(42.6)
Fully eligible active participants (5.4) (7.4)
Other active participants (7.5) (8.1)
------ ------
(48.1) (58.1)
Unrecognized net loss 2.6 9.8
------ ------
$(45.5) $(48.3)
====== ======
At year-end 1994, $1.5 million of the total liability for postretirement
health care benefits is included in current liabilities in the
Consolidated Balance Sheet.
Retiree health care costs for 1994 were $4.8 million, consisting of
service cost of $.5 million, interest of $4.0 million and amortization of
$.3 million. In 1993, retiree health care costs were $4.5 million,
including service cost and interest of $.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 in
1992.
The discount rates used in calculating the accumulated postretirement
benefit obligation were 8 1/2% for 1994 and 7% for 1993. For 1995, the
assumed rate of increase in health care costs used to calculate the
accumulated postretirement benefit obligation is 10%. This rate is assumed
to decrease to varying degrees annually to 6% 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.
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 1994 and 1993 are presented in
the following table.
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
(In millions) 1994 1993
----- ----
Deferred tax assets
Net operating loss and various tax
credit carryforwards $56.8 $ 40.8
Accrued postretirement health care benefits 15.4 16.9
Inventories, principally due to obsolescence
reserves and additional costs inventoried
for tax purposes 7.1 5.6
Accrued employee benefits other than
pensions and retiree health care benefits 5.2 3.2
Accrued pension costs 4.6 5.3
Accrued warranty costs 3.2 2.2
Accounts receivable, principally due to
allowances for doubtful accounts 1.8 1.3
Consolidation, restructuring and
other reserves 2.0 34.8
Foreign investments 1.4 9.2
Other 15.8 13.1
------ ------
Total deferred tax assets 113.3 132.4
Less valuation allowance (85.7) (95.7)
------ ------
Net deferred tax assets 27.6 36.7
------ ------
Deferred tax liabilities
Property, plant and equipment, principally
due to differences in depreciation methods 18.5 26.1
Undistributed earnings of foreign subsidiaries - 3.9
Pension assets 3.5 2.9
Other 7.6 4.2
------ ------
Total deferred tax liabilities 29.6 37.1
------ ------
Net deferred tax liability $(2.0) $ (.4)
====== ======
Summarized in the following tables are the company's earnings (loss)
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) BEFORE INCOME TAXES, EXTRAORDINARY ITEMS AND CUMULATIVE
EFFECT OF CHANGES IN METHODS OF ACCOUNTING
(In millions) 1994 1993 1992
----- ------ -----
United States $32.7 $(41.5) $28.0
Foreign 16.2 4.3 (1.0)
----- ------ -----
$48.9 $(37.2) $27.0
===== ====== =====
PROVISION FOR INCOME TAXES
Deferred
Liability Method Method
(In millions) 1994 1993 1992
----- ----- -------
Current provision
United States $ 4.1 $ - $ -
State and local 3.4 2.4 1.7
Foreign 3.2 4.3 2.3
----- ---- -----
10.7 6.7 4.0
----- ---- -----
Deferred provision
United States - - .6
Foreign .5 1.5 .9
----- ---- -----
.5 1.5 1.5
----- ---- -----
Provision recognized as
extraordinary benefit - - 5.4
----- ---- -----
$11.2 $8.2 $10.9
===== ==== =====
COMPONENTS OF THE PROVISION FOR DEFERRED INCOME TAXES
Deferred
Liability Method Method
(In millions) 1994 1993 1992
----- ------ -------
Tax effects of consolidation,
restructuring and other reserves $32.8 $ (9.2) $1.2
Change in deferred revenue (.2) (16.3) -
Depreciation (7.6) 1.3 -
Change in valuation allowance (10.0) 25.5 -
Change in deferred taxes related to
operating loss carryforward (16.0) (1.3) -
Other 1.5 1.5 .3
----- ----- ----
$ .5 $ 1.5 $1.5
===== ====== =====
RECONCILEMENT OF THE U.S. STATUTORY RATE TO THE TAX PROVISION RATE
Deferred
Liability Method Method
1994 1993 1992
----- ----- -------
U.S. statutory tax rate 35.0% (35.0)% 34.0%
Increase (decrease) resulting from
Losses without current tax benefits 5.6 56.1 5.1
Tax benefits from net reversal of
U.S. temporary differences (15.1) - -
Effect of operations outside the U.S. (9.5) (5.5) (2.7)
State and local taxes, net of federal
benefit 7.0 6.5 4.2
Other (.1) (.1) (.2)
----- ----- -----
22.9% 22.0% 40.4%
===== ===== =====
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 a closing and relocation charge of $75.1
million recorded in 1991 and a special charge of $32.8 million for product
discontinuance and the reorganization of grinding machine and certain
other machine tool manufacturing operations recorded in 1990.
For U.S. tax reporting purposes, at year-end 1994, the company had net
operating loss carryforwards of approximately $41 million which expire in
2008 and 2009.
Undistributed earnings of foreign subsidiaries which are intended to be
indefinitely reinvested aggregated $42 million at the end of 1994.
Income taxes of $10.4 million, $16.1 million and $5.0 million were paid in
1994, 1993 and 1992, 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) 1994 1993
------ ------
Notes receivable $ 12.9 $ 6.0
Accounts receivable 183.8 190.2
------ ------
196.7 196.2
Less allowances for doubtful accounts 8.7 7.9
------ ------
$188.0 $188.3
====== ======
The acquisition of Valenite was financed in part through the sale of $50.0
million of the company's U.S. accounts receivable. The sale transaction
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. On March 18, 1994, the receivables purchase agreement was
amended and restated to provide for the sale of up to $65.0 million of
interests in accounts receivable through January, 1996, the termination
date of the agreement. At December 31, 1994, and January 1, 1994, the
undivided interest in the company's gross accounts receivable that had
been sold to the purchaser aggregated $65.0 million and $50.0 million,
respectively. 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 costs and expenses - net in the Consolidated Statement of
Earnings. The proceeds are reported as providing operating cash flow in
the Consolidated Statement of Cash Flows.
INVENTORIES
Inventories amounting to $136.1 million for 1994 and $134.8 million for
1993 are stated at LIFO cost. Such inventories if stated at FIFO cost
would be greater by approximately $59.5 million in 1994 and $57.4 million
in 1993.
As presented in the Consolidated Balance Sheet, inventories are net of
reserves for obsolescence of $38.6 million and $33.8 million in 1994 and
1993, respectively.
PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are shown in the following
table.
PROPERTY, PLANT AND EQUIPMENT - NET
(In millions) 1994 1993
------ ------
Land $ 8.1 $ 8.4
Buildings 139.4 138.3
Machinery and equipment 301.8 284.6
------ ------
449.3 431.3
Less accumulated amortization and
allowances for depreciation 250.5 247.3
------ ------
$198.8 $184.0
====== ======
OTHER ASSETS
At December 31, 1994, other current assets includes $10.3 million related
to assets held for sale, including the net book value of Valenite's
American Mine Tool business, which was sold in January, 1995, and certain
idle production facilities which are expected to be sold in 1995.
At December 31, 1994, the $5.9 million carrying value of the two South
Carolina facilities that were closed in connection with the machine tool
consolidation is included in other noncurrent assets. At January 1, 1994,
property, plant and equipment - net included $7.2 million related to these
facilities which were still in use at that time.
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) 1994 1993
------ ------
Accrued salaries, wages and
other compensation $ 29.9 $ 21.5
Consolidation reserve 2.6 38.7
Restructuring reserves 3.1 17.1
Accrued and deferred income taxes 21.5 23.6
Other accrued expenses 83.5 69.3
------ ------
$140.6 $170.2
====== ======
LONG-TERM ACCRUED LIABILITIES
(In millions) 1994 1993
------ ------
Accrued pension and other compensation $ 27.3 $ 24.1
Accrued postretirement health care benefits 44.0 46.9
Accrued and deferred income taxes 25.8 30.5
Other 26.4 27.1
------ ------
$123.5 $128.6
====== ======
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) 1994 1993
------ ------
Long-term debt
8 3/8% Notes due 2004 $115.0 $ -
8 3/8% Senior Notes due 1997 - 60.0
12% Sinking Fund Debentures due 2010 10.8 10.8
Industrial Development Revenue
Bonds due 2008 10.0 10.0
Revolving credit facility 10.0 10.0
Other 8.1 8.8
------ ------
153.9 99.6
------ ------
Capital lease obligations
6 3/4% Bonds due 2004 7.6 7.6
6 3/8% Bonds due 1995 - 1997 2.6 3.4
6 1/2% Bonds due 1994 - .4
------ ------
10.2 11.4
------ ------
164.1 111.0
Current maturities (21.1) (3.4)
------ ------
$143.0 $107.6
====== ======
Except for the 8 3/8% Notes due 2004, 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 fair value of the
8 3/8% Notes due 2004 is $104.4 million, which is based on recent trade
prices through registered securities brokers.
In 1994, the company completed a public offering involving the issuance of
$115.0 million of 8 3/8% Notes due 2004. The proceeds were used to redeem
at par the company's outstanding 8 3/8% Senior Notes due 1997 and to repay
short-term debt.
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
2.9% in 1994. 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 December 31, 1994 and 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.
At December 31, 1994, current maturities includes the Industrial
Development Revenue Bonds due 2008 and the 6 3/4% Bonds due 2004, both of
which are expected to become payable within one year due to the closure of
the company's two machine tool facilities in South Carolina.
Interest paid was $17.1 million in 1994, $19.0 million in 1993 and $18.9
million in 1992.
Maturities of long-term debt for the five years after 1994 are:
1995: $12.7 million
1996: 6.3 million
1997: 7.2 million
1998: 1.3 million
1999: 1.5 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
are:
1995: $8.9 million
1996: 1.0 million
1997: 1.0 million
After 1997: - 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:
1995: $15.9 million
1996: 12.2 million
1997: 9.1 million
1998: 4.4 million
1999: 3.1 million
After 1999: 7.8 million
Rent expense was $17.4 million, $14.7 million and $9.6 million in 1994,
1993 and 1992, respectively.
LINES OF CREDIT
At year-end 1994, the company had lines of credit with various U.S. and
non-U.S. banks of approximately $366 million, including a $200 million
committed revolving credit facility. These credit facilities support
letters of credit and leases in addition to providing borrowings under
varying terms. The revolving credit facility was amended in December,
1994, to increase the amount of borrowings available thereunder from $130
million to $200 million, including borrowings denominated in German marks
up to an equivalent of $100 million. The facility, which allows borrowings
through July, 1996, requires a facility fee of 1/2 % per annum on the
total $200 million revolving loan commitment and imposes restrictions on
total indebtedness in relation to total capital (debt plus tangible net
worth, the latter being approximately equal to shareholders' equity). The
company has remained in compliance with the restrictions imposed by the
facility since its inception. Under the provisions of the amended
facility, the company's additional borrowing capacity totaled approximately
$113 million at year-end 1994. A portion of this capacity was utilized to
finance the acquisition of Krupp Widia GmbH early in 1995 (see Subsequent
Events).
The weighted average interest rate on short-term borrowings outstanding as
of year-end 1994 and 1993 was 7.3% and 5.5%, respectively.
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 an
extraordinary loss on early extinguishment of debt of $5.2 million ($4.4
million after tax) in the second quarter. The 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) 1994 1993
----- ------
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,
1994: 33,742,125 shares, 1993: 33,531,723 33.7 33.5
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
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 December 31, 1994, the company had outstanding foreign exchange
contracts totaling $11.9 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 1994 Long-Term Incentive Plan (1994 Plan) permits the company to grant
its common shares in the form of non-qualified stock options, incentive
stock options, restricted stock and performance awards. A summary of
amounts issued under the 1994 Plan and prior plans is presented in the
following table.
Stock Options, Restricted Stock Awards and SARs
Price
Shares SARs Range
--------- ------- ------
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
Activity during 1994- Granted 481,547 - 23
- Exercised (203,404) - 9-25
- Canceled (25,782) - 16-25
--------- --------- ------
Outstanding at year-end 1994 1,969,436 - $ 9-28
========= ========= ======
EXERCISABLE STOCK OPTIONS AT YEAR-END
Stock
Options
---------
1992 1,748,565
1993 1,474,262
1994 1,437,636
The non-qualified stock options and incentive stock options are issued at
market and, under the terms of a prior plan, could be granted in tandem
with SARs. However, during 1992, all previously granted SARs were canceled
with the consent of the holders. Stock options become exercisable 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 specified annual earnings objectives.
The maximum number of shares that may be granted under the 1994 Plan is
2,000,000, all of which were available for grant at year-end 1993. At
year-end 1994, 1,481,950 shares were available for grant.
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 $142.0 million in 1994,
$118.7 million in 1993 and $111.7 million in 1992.
Total sales of the company's U.S. and foreign operations to unaffiliated
customers outside the U.S. were $417.6 million, $298.4 million and $242.6
million, in 1994, 1993 and 1992, respectively.
U.S. AND FOREIGN OPERATIONS
(In millions) 1994 1993 1992
------ ------ ------
U.S. operations
Sales $873.9 $831.9 $654.1
Operating earnings 50.6 49.6 47.9
Consolidation charge - (47.1) -
Disposition of subsidiary - (22.8) -
Identifiable assets 471.4 420.6 410.8
Liabilities 506.3 469.9 403.3
Capital expenditures 33.2 21.3 13.9
Depreciation 18.8 19.1 16.3
Foreign operations
Sales 323.2 197.5 135.1
Operating earnings 27.2 8.0 1.5
Identifiable assets 289.4 285.9 148.7
Liabilities 123.5 135.6 41.2
Capital expenditures 9.8 2.1 3.7
Depreciation 9.4 7.0 4.6
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) 1994 1993 1992
-------- -------- -------
Plastics machinery (a) $ 503.8 $ 357.2 $301.4
Machine tools 338.5 355.0 379.7
Industrial products (b) 354.8 317.2 108.1
-------- -------- ------
$1,197.1 $1,029.4 $789.2
======== ======== =======
OPERATING INFORMATION BY SEGMENT
(In millions) 1994 1993 1992
------ ------- ------
Operating earnings (loss)
Plastics machinery (a)(c) $ 42.5 $ 26.6 $ 22.8
Machine tools 1.0 3.9 8.9
Industrial products (b) 34.3 27.1 17.7
Consolidation charge (d) - (47.1) -
Disposition of subsidiary(e) - (22.8) -
Unallocated corporate expenses(f) (13.6) (11.5) (6.2)
------ ------- ------
Operating earnings(loss) 64.2 (23.8) 43.2
Interest expense-net (15.3) (13.4) (16.2)
------ ------- ------
Earnings (loss) before income
taxes, extraordinary items and
cumulative effect of changes
in methods of accounting $ 48.9 $ (37.2) $ 27.0
====== ======= ======
Identifiable assets
Plastics machinery (a) $295.0 $289.0 $219.9
Machine tools 270.8 243.1 282.8
Industrial products (b) 195.0 174.4 56.8
Unallocated corporate assets (g) 26.8 23.1 19.4
------ ------ ------
Total assets $787.6 $729.6 $578.9
====== ====== ======
Capital expenditures
Plastics machinery (a) $ 13.8 $ 4.2 $ 6.2
Machine tools 11.6 8.8 7.1
Industrial products (b) 17.6 10.4 4.3
------ ------ ------
Total capital expenditures $ 43.0 $ 23.4 $ 17.6
====== ====== ======
Depreciation
Plastics machinery (a) $ 9.2 $ 6.2 $ 7.7
Machine tools 7.2 9.4 10.6
Industrial products (b) 11.8 10.5 2.6
------ ------ ------
Total depreciation $ 28.2 $ 26.1 $ 20.9
====== ====== ======
(a) The increases in the plastics machinery segment are partially
attributable to the inclusion of Ferromatik on November 8, 1993.
(b) The increases in the industrial products segment are largely
attributable to the inclusion of Valenite as of February 1, 1993.
(c) The 1993 amount includes a $2.5 million gain on sale of surplus land.
(d) This amount relates to the machine tools segment.
(e) This amount relates to the plastics machinery segment.
(f) Includes corporate research and development and certain
administrative expenses. The 1994 and 1993 amounts include amortization of
financing costs and costs related to the sale of receivables.
(g) Includes cash and cash equivalents and the assets of the company's
insurance and utility subsidiaries.
SUBSEQUENT EVENTS
On January 27, 1995, the company completed the sale of its American Mine
Tool business resulting in a pretax gain to be recognized in the first
quarter of 1995 of approximately $5 million. The sale will not have a
significant effect on reported sales or earnings from normal operations in
the future.
On February 1, 1995, the company completed the acquisition of Krupp Widia
GmbH (Widia) for DM 121 million (approximately $78 million) in cash and DM
33 million (approximately $21 million) in assumed debt. Headquartered in
Germany, Widia had sales of approximately $240 million in 1994 and is one
of the world's leading producers of metalcutting products and industrial
magnets. The acquisition, which will be accounted for under the purchase
method, was financed principally through borrowings under the company's
revolving credit agreement. The company is currently evaluating
alternative actions to integrate Valenite and Widia to improve future
profitability which could result in incremental costs and expenses in
1995.
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 December 31, 1994 and January 1, 1994,
and the related Consolidated Statements of Earnings, Changes in Shareholders'
Equity, and Cash Flows for each of the three years in the period ended
December 31, 1994. Our audits also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule
are the responsibility of the company's management. Our responsibility is to
express an opinion on these financial statements and schedule 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 December 31, 1994 and January 1, 1994, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
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 LLP
Cincinnati, Ohio
February 24, 1995
OPERATING RESULTS BY QUARTER (UNAUDITED)
(In millions, except per-share amounts)
<TABLE>
<CAPTION>
1994 (a) 1993 (a)
------- ------- ------- ------- -------- ------- ------- ------- ------- ---------
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year
------- ------- ------- ------- -------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $245.5 $269.3 $361.2 $321.1 $1,197.1 $219.3 $236.6 $300.7 $272.8 $1,029.4
Manufacturing margins 58.9 65.4 89.8 78.2 292.3 52.4 57.2 71.3 57.2 238.1
Percent of sales 24.0% 24.3% 24.9% 24.4% 24.4% 23.9% 24.2% 23.7% 21.0% 23.1%
Earnings before
extraordinary
item and cumulative
effect of changes in
methods of accounting 5.0 7.9 11.9 12.9 37.7 3.6 6.2 (7.9)(b) (47.3)(b) (45.4)(b)
Extraordinary loss on early
extinguishment of debt - - - - - - (4.4) - - (4.4)
Per common share - - - - - - (.14) - - (.14)
Cumulative effect of changes
in methods of accounting - - - - - (52.1) - - - (52.1)
Per common share - - - - - (1.86) - - - (1.61)(c)
Net earnings (loss) 5.0 7.9 11.9 12.9 37.7 (48.5) 1.8 (7.9) (47.3) (101.9)
Per common share .14 .23 .35 .38 1.10 (1.73) .05 (.23) (1.40) (3.16)(c)
</TABLE>
(a) The fiscal year consists of thirteen four-week periods. The first,
second and fourth quarters consist of twelve weeks each, and the third
quarter, sixteen weeks.
(b) The fourth quarter includes a charge of $47.1 million (with no
current tax effect) for the consolidation of U.S. machine tool
manufacturing operations. Earnings were also reduced by charges of $18.1
million in the third quarter and $4.7 million in the fourth quarter (with
no current tax effect) for the disposition of the company's Sano business.
(c) Because the quarter per-share amounts are based on the
weighted-average shares outstanding in each period, their sum does not
equal the annual calculation.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is (i) incorporated herein by reference
to the "Election of Directors" section of the company's proxy statement dated
March 24, 1995 and (ii) included in Part I on pages 14 through 15 of this
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The "Components of Compensation" section of the company's proxy statement
dated March 24, 1995 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The "Principal Holders of Voting Securities" section of the company's proxy
statement dated March 24, 1995 is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The paragraph captioned "Stock Loan Programs" of the company's proxy
statement dated March 24, 1995 is incorporated herein by reference.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
ITEM 14(a)(1)&(2)-- LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following consolidated financial statements of Cincinnati Milacron Inc.
and subsidiaries are included in Item 8:
Page No.
-------
Consolidated Statement of Earnings- 1994, 1993 and 1992 25
Consolidated Balance Sheet- 1994 and 1993 26
Consolidated Statement of Changes in Shareholders' Equity-
1994, 1993 and 1992 27
Consolidated Statement of Cash Flows- 1994, 1993 and 1992 28
Notes to Consolidated Financial Statements 29
Report of Independent Auditors 40
Supplementary Financial Information 41
The following consolidated financial statement schedule of Cincinnati
Milacron Inc. and subsidiaries is included in Item 14(d) for the years ended
1994, 1993 and 1992:
Page No.
--------
Schedule VIII- Valuation and Qualifying Accounts and
Reserves 52
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
Item 14 (a)(3) - LIST OF EXHIBITS
(2) Plan of Acquisition, Reorganization, Arrangement, Liquidation, or
Succession - not applicable
(3) Articles of Incorporation and By-Laws
3.1 Restated Certificate of Incorporation filed with the Secretary of
State of the State of Delaware on June 16, 1983
- Incorporated herein by reference to the company's Form 10-K for
the fiscal year ended December 28, 1985, as amended by
Amendment No. 1 thereto on Form 8 dated June 30, 1986, and
Amendment No. 2 thereto on Form 8 dated July 17, 1986
(File No. 1-8485)
3.2 Certificate of Amendment of the Restated Certificate of
Incorporation dated April 22, 1986, and filed with the Secretary
of State of the State of Delaware on April 22, 1986
- Incorporated herein by reference to the company's Form 10-Q for
the quarter ended March 22, 1986 (File No. 1-8485)
3.3 Certificate of Amendment of the Restated Certificate of
Incorporation dated June 11, 1987, and filed with the Secretary
of State of the State of Delaware on June 15, 1987
- Incorporated herein by reference to the company's Form 10-Q for
the quarter ended March 28, 1987 (File No. 1-8485)
3.4 By-laws, as amended
- Incorporated herein by reference to the company's Registration
Statement on Form S-8 (Registration No. 33-33623)
(4) Instruments Defining the Rights of Security Holders, Including
Indentures:
4.1 12% Sinking Fund Debentures due July 15, 2010
- Incorporated herein by reference to the company's Registration
Statement on Form S-3 (Registration No. 2-98653)
4.2 8-3/8% Notes due 2004
- Incorporated herein by reference to the company's Form S-4
dated July 7, 1994 (File No. 33-53009)
4.3 Cincinnati Milacron Inc. hereby agrees to furnish to the
Securities and Exchange Commission, upon its request, the
instruments with respect to long-term debt for securities
authorized thereunder which do not exceed 10% of the registrant's
total consolidated assets
(9) Voting Trust Agreement- not applicable
(10) Material Contracts:
10.1 Cincinnati Milacron 1984 Long-Term Incentive Plan
- Incorporated herein by reference to the company's Proxy
Statement dated March 23, 1984.
10.2 Cincinnati Milacron 1987 Long-Term Incentive Plan
- Incorporated herein by reference to the company's Proxy
Statement dated March 27, 1987.
10.3 Cincinnati Milacron 1991 Long-Term Incentive Plan
- Incorporated herein by reference to the company's Proxy
Statement dated March 22, 1991.
10.4 Cincinnati Milacron 1994 Long-Term Incentive Plan
- Incorporated herein by reference to the company's Proxy
Statement dated March 24, 1994.
10.5 Cincinnati Milacron Inc. Short-Term Management Incentive
Program
- Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended January 3, 1987.
10.6 Cincinnati Milacron Inc. Supplemental Pension Plan
- Incorporated herein by reference to the company's Form 10-K
for the fiscal year ended December 31, 1988.
10.7 Cincinnati Milacron Inc. Supplemental Retirement Plan #2
- Incorporated herein by reference to the company's Form 10-K
for the fiscal year ended December 31, 1988.
10.8 Cincinnati Milacron Retirement Savings Plan
- Incorporated herein by reference to the company's
Registration Statement on Form S-8 (Registration No.
33-33623).
10.9 Cincinnati Milacron Inc. Plan for the Deferral of Directors'
Compensation
- Incorporated herein by reference to the company's Proxy
Statement dated March 22, 1991.
10.10 Underwriting Agreement between Cincinnati Milacron Inc. and the
First Boston Corporation
- Incorporated herein by reference to the company's
Registration Statement on Form S-3 (Registration No.
33-35097).
10.11 Cincinnati Milacron Inc. 1988 Restricted Stock Plan for
Non-Employee Directors
- Incorporated herein by reference to the company's Form 10-K
for the fiscal year ended December 29, 1990.
10.12 Cincinnati Milacron Inc. Retirement Plan for Non-Employee
Directors - Incorporated herein by reference to the company's
Form 10-K for the fiscal year ended December 29, 1990.
10.13 Cincinnati Milacron Inc. 1991 Restricted Stock Plan for
Non-Employee Directors
- Incorporated herein by reference to the company's Form 10-K
for the fiscal year ended December 29, 1990.
10.14 Purchase Agreement between Kloeckner Ferromatik Desma GmbH,
Kloeckner Werke Aktiengesellschaft and Cincinnati Milacron Inc.
- Incorporated herein by reference to the company's Form 8-K
dated November 8, 1993.
10.15 Cincinnati Milacron Supplemental Executive Retirement Plan
- Incorporated herein by reference to the company's form 10-K
for the fiscal year ended January 1, 1994.
10.16 Amended and Restated Revolving Credit Agreement dated as of
December 31, 1994 among Cincinnati Milacron Inc., Cincinnati
Milacron Kunststaffmaschinen Europe GmbH, the lenders listed
therein and Bankers Trust Company, as agent.
- Incorporated herein by reference to the company's Form 8-K
dated February 1, 1995.
10.17 Stock Purchase Agreement between Fried Krupp AG Hoesch-Krupp
and Cincinnati Milacron Kunstoffmaschinen Europa GmbH and
Cincinnati Milacron B.V.
- Incorporated herein by reference to the company's Form 8-K
dated February 1, 1995.
(11) Statement Regarding Computation of Per-Share Earnings
(12) Statement Regarding Computation of Ratios - not applicable
(13) Annual report to security holders, Form 10-Q or quarterly report to
security holders - not applicable
(16) Letter re Change in Certifying Accountant - not applicable
(18) Letter Regarding Change in Accounting Principles - not applicable
(21) Subsidiaries of the Registrant
(22) Published Report Regarding Matters Submitted to Vote of Security
Holders - Incorporated by reference to the company's Proxy Statement
dated March 24, 1995.
(23) Consent of Independent Auditors
(24) Power of Attorney - not applicable
(27) Financial Data Schedule
(28) Information from Reports Furnished to State Insurance Regulatory
Authorities - not applicable
(99) Additional Exhibits - not applicable
Item 14(b)-- REPORTS ON FORM 8-K
One report on Form 8-K was filed during the fourth quarter of 1994.
(i) November 29, 1994 - The company announced and agreement under which
it would purchase Krupp Widia GmbH.
Item 14(c)&(d)-- EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The responses to these portions of Item 14 are submitted as a separate
section of this report.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CINCINNATI MILACRON INC.
BY: /s/ Daniel J. Meyer
--------------------------------------
Daniel J. Meyer; Chariman and Chief
Executive Officer, Director
(Chief Executive Officer)
BY: /s/ Raymond E. Ross
--------------------------------------
Raymond E. Ross; President and Chief
Operating Officer, Director
(Chief Operating Officer)
BY: /s/ Ronald D. Brown
--------------------------------------
Ronald D. Brown; Vice President- Finance
(Chief Financial Officer)
BY: /s/ Robert P. Lienesch; Controller
--------------------------------------
(Chief Accounting Officer)
Date: March 27, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
/s/ Neil A. Armstrong /s/ Darryl F. Allen
--------------------------------- --------------------------------
Neil A. Armstrong; March 27, 1995 Darryl F. Allen; March 27, 1995
(Director) (Director)
/s/ Harry A. Hammerly /s/ James A.D. Geier
--------------------------------- --------------------------------
Harry A. Hammerly; March 27, 1995 James A.D. Geier; March 27, 1995
(Director) (Director)
Item 14(c) and (d)-- INDEX TO CERTAIN EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
Page No.
--------
Exhibit 11 Computation of Per-Share Earnings 48
Exhibit 21 Subsidiaries of the Registrant 49
Exhibit 23 Consent of Independent Auditors 50
Exhibit 27 Financial Data Schedule 51
Schedule VIII Valuation and Qualifying Accounts and Reserves 52
CINCINNATI MILACRON INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended 1994, 1993 and 1992
(In Thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL.C COL. D COL. E
------------------------------------------------------------------------------------------
Additions
-----------------------
Balance at Charged to Balance
Beginning Costs and Other Deductions at End
Description of Period Expenses -Describe -Describe of Period
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------
YEAR ENDED 1994
Allowances for
doubtful accounts $ 7,884 $ 4,944 $ 207 (b) $ 4,317 (a) $ 8,718
Amounts related to
restructuring reserves
and to consolidation,
closing and relocation
and special charges $58,265 $ (726) $ 443 (b) $54,478 (a) $ 6,164
2,660 (c)
Allowances for inventory
obsolescence $33,764 $10,066 $ 1,507 (b) $10,334 (a) $38,567
3,564 (c)
YEAR ENDED 1993
Allowances for
doubtful accounts $ 5,913 $ 4,535 $ 3,205 (d) $ 4,781 (a) $ 7,884
988 (b)
Amounts related to
restructuring reserves
and to consolidation,
closing and relocation
and special charges $10,568 $40,200 $52,749 (d) $45,252 (a) $58,265 (e)
Allowances for inventory
obsolescence $17,312 $ 9,639 $18,708 (d) $11,534 (a) $33,764
361 (b)
YEAR ENDED 1992
Allowances for
doubtful accounts $ 5,802 $ 2,972 $ - $ 2,518 (a) $ 5,913
343 (b)
Amounts related to
closing and relocation
and special charges $46,800 $ - $ - $36,232 (a) $10,568 (f)
Allowances for inventory
obsolescence $12,685 $ 6,655 $ - $ 1,242 (a) $17,312
786 (b)
</TABLE>
(a) Represents amounts charged against the reserves during the year.
(b) Represents foreign currency translation adjustments in all years
and in 1993 includes reserves of subsidiaries sold during the year.
(c) Finalization of purchase price allocation for Ferromatik which was
purchased in November, 1993.
(d) Consists of reserves of subsidiaries purchased during the year.
(e) Includes $1,500 in long-term accrued liabilities.
(f) Includes $4,670 in long-term accrued liabilities.
EXHIBIT - 11
CINCINNATI MILACRON INC. AND SUBSIDIARIES
COMPUTATION OF PER-SHARE EARNINGS
(In thousands, except per-share amounts)
1994 1993 1992
------- --------- -------
Net earnings (loss) $37,711 $(101,930) $21,535
Less preferred dividends 240 240 240
------- --------- -------
Net earnings (loss) available
to common shareholders $37,471 $(102,170) $21,295
======= ========= =======
Primary
Average number of shares
outstanding 33,641 31,536 27,417
Add dilutive effect of stock
options based on treasury
stock method 421 812 190
------- --------- -------
Total 34,062 32,348 27,607
======= ========= =======
Per share amount $ 1.10 $ (3.16) $ .77
======= ========= =======
Fully diluted (a)
Average number of shares
outstanding 33,641 27,417
Add dilutive effect of stock
options based on treasury
stock method 470 206
------- -------
Total 34,111 27,623
======= =======
Per share amount $ 1.10 $ .77
======= =======
(a) Fully diluted earnings per common share is not presented for 1993 because
the effect would be anti-dilutive.
EXHIBIT - 21
SUBSIDIARIES OF THE REGISTRANT
CINCINNATI MILACRON INC.
<TABLE>
<CAPTION>
Date
Incorporated
Incorporated or (if later) Percentage
State or Country Date Acquired Owned
<S> <C> <C> <C>
---------------- ------------- ----------
CINCINNATI MILACRON INC. Delaware(Registrant) 1983
Cincinnati Milacron-Holdings Mexico,
S.A. de C.V. Mexico 1992 100%
Cincinnati Milacron-Mexican Sales,
S.A. de C.V. Mexico 1993 100%
Cincinnati Milacron Marketing Company Ohio 1931 100%
Cincinnati Milacron Commercial
Corp. Delaware 1993 100%
Cincinnati Milacron International
Marketing Company Delaware 1966 100%
Coge AG Switzerland 1970 100%
Cincinnati Milacron Holding
Gesellschaft GmbH Austria 1970 100%
Cincinnati Milacron Austria
Gesellschaft GmbH Austria 1976 100%
Cincinnati Milacron
Kunststoffmaschinen Europa GmbH Germany 1990 100%
Ferromatik Milacron
Maschinenbau GmbH Germany 1993 100%
Valenite-Modco GmbH Germany 1994 100%
Cincinnati Milacron U.K.
Holdings Company Ohio 1982 100%
Cincinnati Milacron U.K. Ltd. England 1988 100%
Cincinnati Milacron-Korea Corporation Korea 1992 100%
Mandelli/Cincinnati Milacron
Aerospace S.r.l. Italy 1991 50%
Cincinnati Milacron Assurance Ltd. Bermuda 1977 100%
Cincinnati Milacron B.V. The Netherlands 1952 100%
Cimcool Europe B.V. The Netherlands 1989 100%
Cimcool Industrial Products B.V. The Netherlands 1960 100%
Cincinnati Milacron-Canada Ltd. Canada 1959 100%
Cincinnati Milacron-Heald Corp. Delaware 1955 100%
Cincinnati Milacron Resin
Abrasives Inc. Delaware 1991 100%
Cincinnati Milacron S.r.l. Italy 1966 100%
The Factory Power Company Ohio 1907 82.2%
Valenite Inc. Delaware 1993 100%
Valenite-Modco International Inc. Michigan 1993 100%
Nippon Valenite-Modco K.K. Japan 1993 100%
Valenite-Modco Pte, Ltd. Michigan 1993 100%
Valenite-Modco Sarl France 1993 100%
Valenite-Modco (U.K.) Limited England 1993 100%
Valenite-Modco S.r.l. Italy 1993 100%
Valenite-Modco Limited Canada 1993 100%
Valenite de Mexico, S.A. de C.V. Mexico 1993 100%
Valenite-Modco Industria e
Comercio Ltda. Brazil 1993 100%
</TABLE>
EXHIBIT - 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 2-83269) pertaining to the 1979 Long-term Incentive Plan,
the 1982 Incentive Stock Option Plan and Performance Dividend Plan,
Registration Statement (Form S-8 No. 2-89499) pertaining to the 1984 Long-
term Incentive Plan, Registration Statement (Form S-8 No. 33-20503)
pertaining to the 1987 Long-term Incentive Plan, Registration Statement
(Form S-8 No. 33-33623) pertaining to the Retirement Savings Plan,
Registration Statement (Form S-8 No. 33-44423) pertaining to the 1991
Long-term Incentive Plan and Registration Statement (Form S-8 No.
33-56403) pertaining to the 1994 Long-term Incentive plan of Cincinnati
Milacron Inc. of our report dated February 24, 1995, with respect to the
consolidated financial statements and schedule included in this Annual
Report (Form 10-K) of Cincinnati Milacron Inc. for the year ended December
31, 1994.
/s/ ERNST & YOUNG LLP
----------------------
Cincinnati, Ohio
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 21,500,000
<SECURITIES> 0
<RECEIVABLES> 196,700,000
<ALLOWANCES> 8,700,000
<INVENTORY> 267,200,000
<CURRENT-ASSETS> 514,700,000
<PP&E> 449,300,000
<DEPRECIATION> (250,500,000)
<TOTAL-ASSETS> 787,600,000
<CURRENT-LIABILITIES> 363,300,000
<BONDS> 0
<COMMON> 289,200,000
0
6,000,000
<OTHER-SE> (137,400,000)
<TOTAL-LIABILITY-AND-EQUITY> 787,600,000
<SALES> 1,197,100,000
<TOTAL-REVENUES> 1,197,100,000
<CGS> 904,800,000
<TOTAL-COSTS> 904,800,000
<OTHER-EXPENSES> 228,100,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,300,000
<INCOME-PRETAX> 48,900,000
<INCOME-TAX> 11,200,000
<INCOME-CONTINUING> 37,700,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 37,700,000
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
