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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the quarter ended October 5, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
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
(Address of principal executive offices)
(513)841-8100
(Registrant's telephone number, including area code)
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 [ ]
Number of shares of Common Stock, $1.00 par value,
outstanding as of November 15, 1996: 39,852,120
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CINCINNATI MILACRON INC. AND SUBSIDIARIES
INDEX
Page
No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 3
Consolidated Condensed Statement of Earnings 4
Consolidated Condensed Statement of Cash Flows 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 6. (a) Exhibits 19
(b) Reports on Form 8-K 19
Signatures 20
Index to Exhibits 21
PART I. FINANCIAL INFORMATION
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(In millions)
OCT. 5, DEC. 30,
1996 1995
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 31.7 $ 133.1
Notes and accounts receivable, less
allowances of $14.9 in 1996 and
$12.9 in 1995 241.9 242.8
Inventories
Raw materials 30.4 34.7
Work-in-process and finished parts 215.9 188.2
Finished products 162.2 128.8
-------- --------
Total inventories 408.5 351.7
Other current assets 48.2 54.7
-------- --------
Total current assets 730.3 782.3
Property, plant and equipment 587.8 527.0
Less accumulated depreciation 292.1 261.5
-------- --------
Property, plant and equipment - net 295.7 265.5
Goodwill 239.4 73.6
Other noncurrent assets 88.7 75.7
-------- --------
TOTAL ASSETS $1,354.1 $1,197.1
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Amounts payable to banks
and current portion of long-term debt $ 71.4 $ 23.6
Trade accounts payable 123.3 109.9
Advance billings and deposits 32.8 42.7
Accrued and other current liabilities 183.1 213.4
-------- --------
Total current liabilities 410.6 389.6
Long-term accrued liabilities 204.7 204.6
Long-term debt 308.4 332.2
-------- --------
TOTAL LIABILITIES 923.7 926.4
======== ========
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
Preferred shares 6.0 6.0
Common shares (outstanding: 39.9 in 1996
and 34.3 in 1995) 430.0 300.3
Reinvested earnings (deficit) 3.7 (32.8)
Cumulative foreign currency translation
adjustments (9.3) (2.8)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 430.4 270.7
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,354.1 $1,197.1
======== ========
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(In millions, except share
and per-share amounts)
16 WEEKS ENDED 40 WEEKS ENDED
------------------- --------------------
OCT. 5, OCT. 7, OCT. 5, OCT. 7,
1996 1995 1996 1995
------- ------- --------- --------
Sales $511.1 $486.5 $1,275.9 $1,231.4
Cost of products sold 383.0 364.8 957.2 925.0
------ ------ -------- --------
Manufacturing margins 128.1 121.7 318.7 306.4
------ ------ -------- --------
Other costs and expenses
Selling and administrative 95.6 89.9 235.3 225.9
Integration charge - - - 9.8
Gain on sale of business - - - (5.0)
Minority shareholders'
interests 1.2 .4 1.8 .7
Other - net (.6) 2.4 .7 8.0
------ ------ -------- --------
Total other costs and
expenses 96.2 92.7 237.8 239.4
------ ------ -------- --------
Operating earnings 31.9 29.0 80.9 67.0
Interest
Income 1.5 1.0 3.9 2.5
Expense (10.1) (9.5) (27.4) (21.4)
------ ------ -------- --------
Interest - net (8.6) (8.5) (23.5) (18.9)
------ ------ -------- --------
EARNINGS BEFORE INCOME TAXES 23.3 20.5 57.4 48.1
Provision for income taxes 4.2 4.5 11.0 10.7
------ ------ -------- --------
NET EARNINGS $ 19.1 $ 16.0 $ 46.4 $ 37.4
====== ====== ======== ========
EARNINGS PER COMMON SHARE $ .47 $ .46 $ 1.23 $ 1.08
====== ====== ======== ========
Dividends per common share $.09 $.09 $.27 $.27
Weighted average number of shares
and common share equivalents
outstanding (in thousands) 40,099 34,980 37,499 34,578
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In millions)
16 WEEKS ENDED 40 WEEKS ENDED
------------------- -------------------
OCT. 5, OCT. 7, OCT. 5, OCT. 7,
1996 1995 1996 1995
-------- ------- -------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
OPERATING ACTIVITIES CASH FLOWS
Net earnings $ 19.1 $ 16.0 $ 46.4 $ 37.4
Operating activities providing
(using) cash
Depreciation and
amortization 16.4 15.1 38.8 32.6
Integration charge - - - 9.8
Gain on sale of business - - - (5.0)
Deferred income taxes (4.0) (.4) (5.8) (.2)
Working capital changes
Notes and accounts
receivable 8.9 21.4 21.0 33.8
Inventories (19.1) (21.5) (36.8) (46.0)
Other current assets 1.8 1.2 1.6 (4.5)
Trade accounts payable
and other current
liabilities (14.9) (31.3) (35.2) (29.8)
(Increase) decrease in
other noncurrent assets 1.8 6.8 (3.0) 4.5
Increase (decrease) in
long-term accrued
liabilities (6.4) .2 3.8 3.5
Other - net (.3) 2.1 (2.1) 1.9
------- ------ ------- ------
Net cash provided by
operating activities 3.3 9.6 28.7 38.0
------- ------ ------- ------
INVESTING ACTIVITIES CASH FLOWS
Capital expenditures (16.2) (18.4) (38.8) (38.3)
Net disposals of property, plant
and equipment .6 3.4 3.4 9.3
Acquisitions (172.0) (33.2) (246.6) (112.4)
Cash received on sales of
businesses .4 .2 .4 15.5
------- ------ ------- ------
Net cash used by
investing activities (187.2) (48.0) (281.6) (125.9)
------- ------ ------- ------
Financing activities cash flows
Dividends paid (3.6) (3.2) (9.9) (9.4)
Issuance of long-term debt - 17.7 - 198.2
Repayments of long-term debt - - (16.4) (47.4)
Increase (decrease) in amounts
payable to banks 40.4 17.6 48.2 (40.8)
Net issuance of common shares .1 5.8 129.6 9.5
------- ------ ------- ------
Net cash provided by
financing activities 36.9 37.9 151.5 110.1
------- ------ ------- ------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (147.0) (.5) (101.4) 22.2
Cash and cash equivalents at
beginning of period 178.7 44.2 133.1 21.5
------- ------ ------- ------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 31.7 $ 43.7 $ 31.7 $ 43.7
======= ====== ======= ======
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
- ---------------------
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments, including only normal recurring adjustments
except as indicated below in the notes captioned
"Integration Charge" and "Sale of Business," necessary to
present fairly the company's financial position, results
of operations and cash flows.
The Consolidated Condensed Balance Sheet at December 30,
1995, has been derived from the audited consolidated
financial statements at that date.
The accounting policies followed by the company are set
forth in the "Summary of Significant Accounting Policies"
note to the consolidated financial statements included in
the company's Annual Report on Form 10-K for the year
ended December 30, 1995.
ACQUISITIONS
- ------------
On February 1, 1995, the company completed the acquisition
of Krupp Widia GmbH (Widia) for DM 120.8 million in cash
(approximately $79 million), which included DM 7.1 million
(approximately $4 million) for the settlement of all
intercompany liabilities to the seller as of the closing
date, and $13 million of assumed debt. Headquartered in
Germany, Widia is one of the world's leading producers of
industrial metalcutting products. The company financed
the acquisition by borrowing German marks under its
revolving credit facility.
On July 20, 1995, the company completed the acquisition of
Talbot Holdings, Ltd. (Talbot) for approximately $33
million in cash and $5 million of assumed debt. Talbot is
a major supplier of round high-speed steel and carbide
metalcutting tools. The transaction was financed through
available cash and existing credit lines.
On January 26, 1996, the company completed the acquisition
of The Fairchild Corporation's D-M-E business (D-M-E) for
approximately $244 million including post-closing purchase
price adjustments. D-M-E is the largest U.S. producer of
mold bases, standard components and supplies for the
plastics injection mold-making industry. The company
financed the acquisition through the execution of
promissory notes to the seller in the amount of $182
million (adjusted for post-closing purchase price
adjustments) and cash on hand of $62 million. In February,
1996, one of the promissory notes in the amount of $12
million was subsequently repaid. In July, 1996, the
company repaid the remaining $170 million by using the
proceeds from an equity offering (see Shareholders'
Equity), available cash, and additional borrowings under
its existing lines of credit.
All of the acquisitions discussed above are being
accounted for under the purchase method. The company's
investments in D-M-E in 1996 and Widia and Talbot in 1995,
including professional fees and other costs related to the
acquisitions, are expected to total approximately $250.0
million and $111.1 million, respectively. The allocations
of the acquisition cost amounts to the assets acquired and
the liabilities assumed are presented in the table that
follows. The 1996 amounts for D-M-E shown therein are
estimates and are subject to revision once appraisals,
actuarial reviews and other studies of fair value are
completed. Goodwill related to the acquisitions is being
amortized over forty years.
(In millions)
1996 1995
------- -------
Cash and cash equivalents $ 1.3 $ 3.1
Accounts receivable 24.8 51.7
Inventories 29.6 69.3
Other current assets 1.2 1.3
Property, plant and equipment - net 34.4 61.1
Goodwill 177.8 50.7
Other noncurrent assets 3.9 14.3
------ ------
Total assets 273.0 251.5
Amounts payable to banks and current
portion of long-term debt - (9.3)
Other current liabilities (18.1) (71.2)
Long-term accrued liabilities (4.9) (50.5)
Long-term debt - (9.4)
------ ------
Total liabilities (23.0) (140.4)
------ ------
Total acquisition cost $250.0 $111.1
====== ======
In the 1995 allocation, other current liabilities includes
a reserve of $16.9 million for the further restructuring
of Widia and its integration with Valenite. Certain of
Widia's worldwide operations, including its principal
plant in Essen, Germany, had been restructured by the
seller during 1993 and 1994. Prior to the acquisition,
the company's management began to develop a plan for the
integration of certain operations of Widia and Valenite
and for additional restructuring actions to further
improve Widia's profitability. In May, 1995, the
company's management formally approved this integration
plan at an expected total cost of $17.1 million. The
portion directly related to Valenite was recorded as a
$9.8 million pretax charge to earnings in the second
quarter of 1995.
Immediately following the approval of the original plan,
the management of Widia began to develop a plan to further
reduce personnel levels at its plant and corporate
headquarters in Essen. This revision of the original plan
was formally approved by the managements of the company
and Widia in December, 1995. As a result, the total cost
of the integration plan is now expected to be $28.1
million. As it relates to Widia, the revised plan involves
the closure of one manufacturing plant, the reduction of
employment levels at the Essen plant and headquarters,
and the consolidation of numerous sales, customer service
and warehouse operations in Europe and Asia at a total
cost of $18.3 million, including write downs of certain
assets to net realizable value totaling $1.4 million. The
$16.9 million reserve that is included in other current
liabilities includes $14.6 million for severance and other
termination benefits related to the expected elimination
of approximately 290 production, sales and administrative
personnel and $2.3 million for facility exit costs.
At October 5, 1996 and December 30, 1995, the balance of
the $16.9 million reserve was $7.6 million and $13.7
million, respectively, including approximately $6.7
million for severance and other termination benefits that
are expected to be paid to approximately 70 employees
later in 1996. Charges against the reserve for the 40
weeks ended October 5, 1996, and for the year ended
December 30, 1995 were $6.1 million and $3.2 million,
respectively.
Unaudited pro forma sales and earnings information for the
third quarters of 1996 and 1995 and the 40 weeks ended
October 5, 1996 and October 7, 1995, are presented in the
following table. The amounts for 1996 assume that the
acquisition of D-M-E had taken place at the beginning of
1996, while the amounts for 1995 assume that all three
acquisitions had been completed on the first day of that
year.
(In millions, except per-share amounts)
16 WEEKS ENDED 40 WEEKS ENDED
------------------ -------------------
OCT. 5, OCT. 7, OCT. 5, OCT. 7,
1996 1995 1996 1995
------ -------- ------- -------
Sales $ 511.1 $ 531.6 $1,288.4 $1,405.2
======= ======= ======== ========
Net earnings (a) $ 19.1 $ 16.3 $ 46.5 $ 39.6
======= ======= ======== ========
Per common share (a) $ .47 $ .46 $ 1.24 $ 1.14
======= ======= ======== ========
(a) In 1995, includes a second quarter charge of $7.8
million, or $.23 per share, to integrate certain
Valenite and Widia operations to improve future
profitability (see Integration Charge) and a first
quarter gain of $4.0 million, or $.12 per share, from
the sale of AMT (see Sale of Business).
INTEGRATION CHARGE
- ------------------
In the second quarter of 1995, the company recorded a
pretax charge of $9.8 million ($7.8 million after tax) to
eliminate or downsize certain operations of Valenite in
connection with the acquisition of Widia earlier in the
year. The charge was recorded as a result of a plan
formally approved by management in May, 1995, and later
revised in December, 1995, which also involves the
integration of certain Widia operations with Valenite.
The total cost of the plan is expected to be $28.1 million
(approximately $21.0 million in cash). That portion of
the overall plan that relates directly to Widia has been
recorded through purchase accounting adjustments totaling
$18.3 million. As it relates to Valenite, the plan
involves the closure of one manufacturing plant, the
downsizing of another and the consolidation of numerous
sales, customer service and warehousing operations in
Europe and Japan. The $9.8 million charge included
reserves for the cash costs of the integration of $7.0
million, including $5.8 million for severance and other
termination benefits related to approximately eighty
production and sales personnel and $1.2 million for
facility exit costs. The charge also included $2.8
million to adjust the basis of various assets to net
realizable value. Charges against the $7.0 million
reserve for severance and other cash costs for the 40
weeks ended October 5, 1996 totaled $2.2 million. Charges
against the reserve for the year ended December 30, 1995
totaled $4.6 million. The total cash cost of the $28.1
million plan is expected to be approximately $21.0 million
and is being funded by operations and bank borrowings. As
a result of the actions that are included in the
integration plan, the company expects to achieve annual
cost reductions of approximately $19 million, a portion of
which was realized in 1995. A majority of the expected
cost reductions are being realized in 1996.
SALE OF BUSINESS
- ----------------
In January, 1995, the company completed the sale of its
American Mine Tool (AMT) business for $15.0 million
resulting in a gain of $5.0 million ($4.0 million after
tax, or $.12 per share). The sale did not have a
significant effect on subsequent sales or earnings.
INCOME TAXES
- ------------
In 1996, the provision for income taxes includes U.S.
federal and state and local income taxes as well as non-
U.S. income taxes in certain jurisdictions. The company
entered 1996 with non-U.S. net operating loss
carryforwards totaling approximately $144 million, the
deferred income tax assets related to which were
substantially fully reserved at year-end 1995. The
company reviews the valuation of its deferred tax assets
on an ongoing basis and expects to conclude by year-end
1996 that it is more likely than not that a portion of
these assets will be realized in the future. Consequently,
the expected effective tax rate for 1996 includes benefits
from the reversal of U.S. and certain non-U.S. valuation
allowances. This factor, combined with the expected
realization of net operating loss carryforwards in certain
non-U.S. jurisdictions during 1996, results in a
consolidated effective tax rate that is less than the U.S.
statutory rate.
In 1995, the provision for income taxes consisted
principally of U.S. state and local and non-U.S. income
taxes in various jurisdictions. The company entered 1995
with U.S. net operating loss carryforwards of $38 million
and had additional net operating loss carryforwards of
approximately $86 million in certain non-U.S.
jurisdictions. As a result of the realization of certain
fully reserved deferred tax assets, particularly those
related to the aforementioned net operating loss
carryforwards, the 1995 provisions for U.S. federal and
non-U.S. income taxes were less than the applicable
statutory rates.
RECEIVABLES
- -----------
In January, 1996, the company entered into 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. 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. The agreement permits the sale
of up to $75 million of undivided interests in accounts
receivable through January, 1999. This agreement replaced
a similar agreement that expired in January, 1996. At
October 5, 1996 and December 30, 1995, the undivided
interest in the company's gross accounts receivable that
had been sold to the purchasers aggregated $72.1 million
and $69.0 million, respectively. Increases and decreases
in the amount sold are reported as operating cash flows in
the Consolidated Condensed Statement of Cash Flows. Costs
related to the sales are included in other costs and
expenses - net in the Consolidated Condensed Statement of
Earnings.
LIABILITIES
- -----------
The components of accrued and other current liabilities
and long-term accrued liabilities are shown in the
following tables.
(In millions)
OCT. 5, DEC. 30,
1996 1995
------- -------
ACCRUED AND OTHER CURRENT LIABILITIES
Accrued salaries, wages and
other compensation $ 48.3 $ 37.8
Restructuring and integration reserves 8.9 18.3
Accrued and deferred income taxes 18.4 33.5
Other accrued expenses 107.5 123.8
------- -------
$ 183.1 $ 213.4
======= =======
LONG-TERM ACCRUED LIABILITIES
Accrued pension and other compensation $ 61.5 $ 65.3
Accrued postretirement health
care benefits 48.3 43.0
Accrued and deferred income taxes 49.3 52.8
Minority shareholders' interests 11.2 8.7
Other 34.4 34.8
------- -------
$ 204.7 $ 204.6
======= =======
LONG-TERM DEBT
- --------------
Long-term debt is shown in the following table.
(In millions)
OCT. 5, DEC. 30,
1996 1995
------ -------
LONG-TERM DEBT
7-7/8% Notes due 2000 $ 100.0 $ 100.0
8-3/8% Notes due 2004 115.0 115.0
12% Sinking Fund Debentures due 2010 .8 10.8
Revolving credit facility 81.6 87.1
Other 14.4 22.6
------- -------
Total long-term debt 311.8 335.5
Less current maturities (3.4) (3.3)
------- -------
$ 308.4 $ 332.2
======= =======
In 1995, the company completed a public offering involving
the placement of $100 million of 7-7/8% Notes due 2000.
The proceeds were used to repay outstanding indebtedness.
The 12% Sinking Fund Debentures due 2010 have annual
sinking fund requirements commencing in 1996. The terms
of the indenture require the company to redeem at par $5
million of the debentures to meet the annual sinking fund
requirement commencing in July, 1996 and the company, at
its option, may increase such payment to total $10
million. In accordance with the terms of the indenture,
the company elected to exercise this option and defeased
at par $10 million of debentures on June 11, 1996, with
U.S. Treasury Notes valued at $10.2 million.
Outstanding borrowings under the company's revolving
credit facility of DM 125 million ($81.6 million at
October 5, 1996 and $87.1 million at December 30, 1995)
are included in long-term debt based on the expectation
that these borrowings will remain outstanding for more
than one year.
LINES OF CREDIT
- ---------------
In January, 1996, to finance the acquisition of D-M-E, the
company amended its committed revolving credit facility to
increase the amount of credit available thereunder from
$150 million to $300 million and extend the term to
January, 2000. The facility requires a facility fee of
1/4% per annum on the total $300 million revolving loan
commitment and continues to impose restrictions on total
indebtedness in relation to total capital. The company
anticipates that it will be able to continue to comply
with these restrictions throughout the extended term of
the facility.
At October 5, 1996, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $525
million, including the $300 million committed revolving
credit facility. These credit facilities support letters
of credit and leases in addition to providing borrowings
under varying terms. Under the provisions of the
revolving credit facility, the company's additional
borrowing capacity totaled approximately $210 million at
October 5, 1996.
SHAREHOLDERS' EQUITY
- --------------------
On May 20, 1996, the company completed the issuance of an
additional 5.5 million common shares through a public
offering, resulting in net proceeds (after deducting
issuance costs) of $128.8 million. The proceeds of the
offering were used to repay a portion of the promissory
notes issued to the seller in connection with the
acquisition of D-M-E.
CONTINGENCIES
- -------------
The company is involved in remedial investigations and
actions at various locations, including former plant
facilities, and EPA Superfund sites where the company and
other companies have been designated as potentially
responsible parties. The company accrues remediation
costs when it is probable that a liability has been
incurred and the amount of the liability can be reasonably
estimated. Environmental costs have not been material in
the past.
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.
ORGANIZATION
- ------------
The company has three business segments: plastics
machinery, machine tools, and industrial products.
Financial information for each of these segments for the
third quarters of 1996 and 1995 and for the 40 weeks ended
October 5, 1996 and October 7, 1995 are presented below.
(In millions)
16 WEEKS ENDED 40 WEEKS ENDED
---------------- ------------------
OCT. 5, OCT. 7, OCT. 5, OCT. 7,
1996 1995 1996 1995
------ ------ --------- --------
Sales
Plastics machinery $193.6 $157.7 $ 474.6 $ 436.7
Machine tools 105.6 111.6 273.2 292.0
Industrial products 211.9 217.2 528.1 502.7
------ ------ -------- --------
$511.1 $486.5 $1,275.9 $1,231.4
====== ====== ======== ========
Operating earnings (loss)
Plastics machinery $ 18.1 $ 15.7 $ 42.3 $ 44.1
Machine tools .4 3.2 1.1 1.3
Industrial products 21.5 17.4 57.0 44.8
Integration charge (a) - - - (9.8)
Gain on sale of business (b) - - - 5.0
Corporate expenses (4.8) (4.6) (12.4) (11.2)
Other unallocated expenses (c) (3.3) (2.7) (7.1) (7.2)
------ ------ -------- --------
$ 31.9 $ 29.0 $ 80.9 $ 67.0
====== ====== ======== ========
New orders
Plastics machinery $208.9 $150.2 $ 471.4 $ 428.4
Machine tools 133.8 132.2 312.3 333.1
Industrial products 209.7 210.8 528.8 499.2
------ ------ -------- --------
$552.4 $493.2 $1,312.5 $1,260.7
====== ====== ======== ========
Ending backlog $385.9 $395.1 $ 385.9 $ 395.1
====== ====== ======== ========
(a) Represents a charge related to the industrial
products segment to integrate certain Valenite and
Widia operations to improve future profitability.
(b) Represents a gain on the sale of the company's
American Mine Tool business, which was part of the
industrial products segment.
(c) Includes financing costs related to the sale of
accounts receivable and minority shareholders'
interests in earnings of subsidiaries.
EARNINGS PER SHARE
- ------------------
Earnings per common share are based on the weighted
average number of common shares and common share
equivalents outstanding.
Cincinnati Milacron Inc. and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
RESULTS OF OPERATIONS
- ---------------------
ACQUISITIONS AND DIVESTITURES
Since the beginning of 1995, the company has made three
acquisitions and two divestitures which affect the
company's results of operations in 1996 compared with
1995.
Most recently, on January 26, 1996, the company acquired D-
M-E, which is included in the company's plastics machinery
segment for the second and third quarters of 1996 and for
seven weeks of the first quarter of 1996. This
acquisition had the effect of increasing new orders and
sales by approximately $43 million in the third quarter
and $110 million in the first three quarters of 1996.
On December 30, 1995, the company sold its Electronic
Systems Division (ESD), which was included in the machine
tools segment. ESD contributed approximately $12 million
and $9 million of new orders and sales, respectively,
related to external customers in the third quarter of 1995
and $27 million of new orders and $21 million of sales in
the first three quarters of the year. ESD's operating
earnings were $3.7 million and $10.0 million for the third
quarter and first three quarters of 1995, respectively.
On July 20, 1995, the company acquired Talbot, and on
February 1, 1995, the company acquired Widia. Both
businesses are included in the industrial products
segment. The timing of these acquisitions caused an
increase in new orders and sales in the third quarter and
first three quarters of 1996 over 1995 by approximately $5
million and $45 million, respectively.
On January 27, 1995, the company sold its American Mine
Tool (AMT) business which was formerly part of the
industrial products segment. AMT's new orders, sales and
operating earnings in 1995 were immaterial, but its
disposition resulted in a gain of $5.0 million before tax
($4.0 million after-tax) in the first three quarters of
1995.
PRESENCE OUTSIDE THE U.S.
Because of the company's recent acquisitions, as well as
the company's internal growth in non-U.S. markets,
approximately half of the company's sales and operating
earnings are now being generated outside the U.S. Foreign
currency exchange rate fluctuations affect the translation
of these sales and earnings, as well as consolidated
shareholders' equity. However, the company's major foreign
operations are in European countries which have not
experienced significant currency exchange rate
fluctuations in recent years. In 1996, the weaker
European currencies had the translation effect of
decreasing new orders and sales by $19 million in the
third quarter, and $42 million of new orders and $32
million of sales, in the first three quarters of the year.
Similarly, net earnings were reduced by $0.7 million and
$1.6 million in the third quarter and first three quarters
of 1996, respectively. In addition, in the third quarter
of 1996 there was an increase in shareholders' equity due
to a $1 million change in the cumulative foreign currency
translation adjustment.
NEW ORDERS AND BACKLOG
New orders in the third quarter of 1996 of $552 million
were up $59 million, or 12%, from the third quarter of
1995. Excluding the effects of the acquisitions and
divestitures, new orders increased by $23 million, despite
a $19 million decline due to currency exchange rate
changes.
Orders for plastics machinery increased by $59 million, in
part due to the D-M-E acquisition. Excluding the
acquisition, new orders increased 10% due to increased
demand in the U.S. injection molding machine business.
Machine Tool orders were $134 million in the third quarter
of 1996 compared with $120 million in 1995, after
excluding ESD's $12 million of 1995 orders. Orders from
aerospace customers increased, which offset a decline in
orders for standard machine tools. Orders for industrial
products were $210 million in the third quarter of 1996,
about the same as 1995, despite currency translation
effects. Midway through the third quarter of 1996, the
market for European cutting tools and industrial magnets
began to decline which affected third quarter new orders,
as well as sales.
For the first three quarters of 1996, new orders totaled
$1,313 million, up $52 million from $1,261 million in the
first three quarters of 1995. Excluding acquisition and
divestiture effects, new orders declined by $83 million
($41 million excluding currency effects) mostly due to
reduced orders for injection molding machines produced in
the U.S. and Europe and standard machine tool products
produced in the U.S.
U.S. export orders were $49 million and $132 million in
the third quarter and first three quarters of 1996,
respectively, compared with $59 million and $125 million
in the comparable periods of 1995. The decrease in the
1996 third quarter relates to an unusually high level of
machine tool export orders in the third quarter of 1995
that were not repeated in 1996; the increase for the first
three quarters of 1996 results from the D-M-E acquisition.
The company's backlog of unfilled orders increased from
$345 million at June 15, 1996, to $386 million at October
5, 1996. The increase results from an excess of new orders
over sales for machine tools, particularly grinders and
aerospace machines; U.S. injection molding machines; and
European-built extrusion systems.
SALES
Sales in the third quarter of 1996 of $511 million
increased by $25 million, or 5%, over the third quarter of
1995. Excluding the effects of the acquisitions and
divestitures, sales declined by $14 million, including $19
million caused by currency exchange rate changes.
Plastics machinery sales increased by $36 million due to
the D-M-E acquisitions. After excluding the effect of the
ESD divestiture, machine tool sales increased by $3
million reflecting weak sales of U.S.-built standard
machine tools, which was more than offset by increased
sales of advanced systems for aerospace customers and
European-built standard machine tools. Excluding
acquisition effects, industrial products' sales declined
about 5% due to currency translation effects and lower
sales of Widia's cutting tools and industrial magnets in
Europe, as described above.
For the first three quarters of 1996, sales were $1,276
million, up from $1,231 million in 1995. Excluding
acquisition and divestiture effects, sales declined by $91
million ($59 million excluding currency effects), mostly
due to reduced sales of injection molding machines in the
U.S. and Europe and U.S.-built standard machine tool
products.
Export sales were $53 million and $134 million in the
third quarter and the first three quarters of 1996
compared with $48 million and $113 million in the
comparable periods of 1995. Most of the increases resulted
from the D-M-E acquisition.
MARGINS, COST AND EXPENSES
The manufacturing margin percent of 25.1% in the third
quarter of 1996 increased from 25.0% in the third quarter
of 1995. The increase resulted primarily from better
productivity at Widia as a result of the company's
restructuring and integration actions. Margins were also
helped by a rebound in plastics machinery despite
continued discounting. The high discount levels, which are
expected to continue in the fourth quarter, have been
offset to a good extent by aggressive measures to reduce
costs and improve productivity. Margins in the third
quarter of 1996 for machine tools declined primarily due
to the ESD divestiture. Margins for industrial products
increased, primarily due to improved profitability for
European cutting tools as a result of the restructuring.
The manufacturing margin of 25.0% in the first three
quarters of 1996 improved over the 24.9% in the first
three quarters of 1995. In general, margins have declined
for plastics machinery due to market conditions in the
first half of 1996, which have been offset in part by
higher margins for D-M-E products. Machine tool margins
have declined due to the ESD divestiture. Margins for
industrial products have increased due to the effects of
the restructuring.
Selling and administrative expenses, as a percent to
sales, were virtually unchanged in 1996 from 1995.
Administrative expenses increased with the acquisitions.
Selling expenses increased in the third quarter of 1996
due to costs associated with the bi-annual international
machine tool show, but expenses for the three quarters of
1996 continued to approximate 16% of sales.
The 1995 $9.8 million integration charge relates to the
company's Widia acquisition and the subsequent integration
of some of Valenite's non-U.S. operations with Widia.
This allowed the company to capitalize on synergistic
opportunities and thereby improve Valenite and Widia's
profitability, which is being realized in 1996.
The 1995 gain on sale of business represents the $5.0
million before tax gain on the sale of AMT.
Minority shareholders' interest increased in 1996
primarily due to the improved profitability of Widia's
subsidiary in India.
Other expense-net declined in the third quarter of 1996,
largely due to a favorable settlement of a legal claim
during the third quarter of 1996 and currency exchange
gains in certain non-U.S. businesses. For the first three
quarters of 1996, this figure declined compared with the
comparable period of 1995 primarily due to reduced costs
associated with the sale of accounts receivable, increased
gains on the sale of surplus assets, currency exchange
gains and other non-recurring items.
Interest-net was virtually unchanged during the third
quarter of 1996 due to an increase of interest income
associated with the temporary investment of the proceeds
from the equity offering until the repayment of the D-M-E
debt in July 29, 1996. See "Liquidity and Sources of
Capital."
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes of $23.3 million in the third
quarter of 1996 exceeded the $20.5 million in the third
quarter of 1995. Earnings for the first three quarters of
1996 totaled $57.4 million, representing a $9.3 million
increase over $48.1 million in the comparable period of
1995. However, after excluding the $5.0 million gain on
the sale of a business and the $9.8 million integration
charge from 1995 earnings, 1996 earnings before income
taxes increased $4.5 million over the comparable period of
1995.
INCOME TAXES
The company's provision for income taxes includes U.S.
federal and state and local income taxes as well as non-
U.S. income taxes in certain jurisdictions. In 1995 and
1996, the company had sizeable net operating loss
carryforwards in several countries. The utilization of
those loss carryforwards, as well as partial reversal of
U.S. and non-U.S. tax valuation allowances in 1996,
results in effective tax rates that are lower than the
U.S. statutory rate.
NET EARNINGS
Net earnings were $19.1 million, or $.47 per share, in the
third quarter of 1996 compared with $16.0 million, or
$.46 per share, in the third quarter of 1995 For the
first three quarters of 1996, net earnings were $46.4
million, or $1.23 per share, up from $37.4 million, or
$1.08 per share, in 1995's first three quarters.
Excluding the $7.8 million after tax charge and the $4.0
million after tax gain in 1995, 1996 net earnings
increased $5.2 million from $41.2 million, or $1.19 per
share.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
At October 5, 1996, the company had cash and cash
equivalents of $32 million, a decrease of $101 million
from the December 30, 1995 balance. The decrease was
caused primarily by the
D-M-E acquisition, offset in part by the proceeds from the
equity offering described below.
In the third quarter of 1996 and for the first three
quarters of 1996, operating activities generated cash of
$3 million and $29 million, respectively. These amounts
represent modest declines from the prior year periods.
Increased business levels during the third quarter of 1996
have resulted in higher working capital requirements which
were partially offset by the sale of accounts receivable
under an agreement which permits the sale of up to $75
million of undivided interests in accounts receivable.
The amounts of accounts receivable sold under the
agreement totaled $72.5 million, $56.5 million and $69.0
million at October 5, 1996. June 15, 1996 and December
30, 1995, respectively. Increases and decreases in the
amounts sold are reported as operating cash flows. The
company incurred cash costs of $4 million in the third
quarter and $8 million in the first three quarters of 1996
for the Widia/Valenite integration and restructuring. For
the first three quarters of 1995 the company incurred cash
costs of $3 million for the machine tool consolidation.
Investing activities in the third quarter of 1996 resulted
in a $187 million use of cash, mostly due to the use of
cash to repay the debt associated with the D-M-E
acquisition. For the year, the company is now estimating
total capital expenditures to approximate $69 million, as
compared with $52 million in 1995. Also affecting the use
of cash for investing activities in the first three
quarters of 1996 and 1995 are the acquisitions: $247
million for D-M-E in 1996, and $79 million for Widia and
$33 million for Talbot in 1995.
Financing activities provided $37 million of cash in the
third quarter of 1996, primarily due to an increase in
amounts payable to banks to complete the D-M-E
acquisition. For the first three quarters of 1996,
financing activities provided $152 million which includes,
in addition to the increase in bank debt, $129 million of
net proceeds from the issuance of 5.5 million additional
shares of common stock in the second quarter of 1996. For
the first three quarters of 1995, financing activities
provided $110 million, including $98 million of net
proceeds from the issuance of 7-7/8% notes due in May,
2000.
As of October 5, 1996, the company's current ratio was
1.8, down from 2.0 at December 30, 1995 but up from 1.7 at
June 15, 1996.
At October 5, 1996, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $525
million, including a $300 million committed revolving
credit facility. In the first quarter of 1996, the
revolving credit facility was increased to $300 million to
finance the acquisition of D-M-E and to extend the debt
maturity to January 31, 2000. The facility imposes a
number of restrictions, including restrictions on total
indebtedness in relation to total capital. 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 $210 million at
October 5, 1996.
The company had a number of short-term intercompany loans
and advances denominated in various currencies totaling
$50 million at October 5, 1996, that were subject to
foreign currency 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 short-term intercompany
loans and advances and the purchase and sale of goods
under firm commitments by entering into foreign currency
exchange contracts to minimize the effect of foreign
currency exchange rate fluctuations. The company is
currently not involved with any additional derivative
financial instruments.
The interest rates on the lines of credit and the
financing fees on the receivables purchase agreement
fluctuate based on changes in prevailing interest rates in
the countries in which amounts are borrowed or receivables
are sold. At October 5, 1996, approximately $224 million
was subject to the effects of fluctuations in interest
rates under these arrangements. Future changes in
interest rates will affect the company's interest expense
and other financing costs.
Total debt was $380 million at October 5, 1996, an
increase of $24 million over December 30, 1995, primarily
as a result of the D-M-E acquisition. The ratio of total
debt to total capital (debt plus equity) was 47% at
October 5, 1996, down from 55% at June 15, 1996, and 57%
at December 30, 1995. The improvement in the third
quarter of 1996 resulted primarily from the repayment of
debt which was incurred in connection with the D-M-E
acquisition. 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.
OUTLOOK
- -------
The company continues to experience soft demand in Europe
affecting all of its business segments. For the fourth
quarter, the company anticipates incremental year-over-
year increases in consolidated sales, orders and earnings
(excluding the 1995 non-recurring gain on the sale of
ESD), as further gains in plastics machinery and machine
tools offset current slowness in industrial products.
Barring unforeseen recessions in 1997, the company
believes it is positioned to achieve better results in
each of its segments.
The forward-looking statements included above by their
nature involve risks and uncertainties that could
significantly impact expected results, as described more
fully in the Cautionary Statement below.
__________________________________________________________
CAUTIONARY STATEMENT
* The company wishes to caution readers that all its
forward-looking statements in the "Outlook" section
above and elsewhere, which include all statements
which, at the time made, speak about the future, are
based upon its interpretation of what it believes are
significant factors affecting its businesses. The
company believes the following important factors,
among others, in some cases have affected, and, in the
future, could affect, the company's actual results and
could cause the company's actual consolidated results
for 1996, and beyond, to differ materially from those
expressed in any forward-looking statements made by,
or on behalf of, the company:
* United States and Europe, particularly in segments
related to the level of global economic conditions,
consumer spending and industrial production in the
automotive production and spending in the aerospace and
construction industries;
* fluctuations in interest rates, and the exchange
rates of U.S. and foreign currencies, particularly
those of countries in Europe where the company has
several principal manufacturing facilities;
* production and pricing levels of important raw
materials, including plastic resins, which are a key raw
material used by purchasers of the company's plastics
machinery products, and steel, cobalt, tungsten and
industrial grains used in the production of
metalworking products;
* lower than anticipated levels of plant utilization
resulting in production inefficiencies and higher
costs, whether related to the delay of new product
introductions, improved production processes or
equipment, or labor relation issues;
* any major disruption in production at key customer or
supplier facilities;
* alterations in trade conditions in and between the
U.S. and non-U.S. countries where the company does
business, including export controls, quotas and other
trade barriers; and
* changes in tax, environmental and other laws and
regulations in the U.S. and non-U.S. countries where the
company does business.
PART II. Other Information
Cincinnati Milacron Inc. and Subsidiaries
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit (4) - Instruments Defining the Rights of
Security Holders, Including Indentures
Exhibit (10) - Material Contracts
Exhibit (11) - Statement Regarding Computation of
Earnings Per Share - filed as a part of Part I
Exhibit (27) - Financial Data Schedule - filed as
part of Part I
(b) Reports on Form 8-K
There were no reports on Form 8-K filed
during the quarter ended October 5, 1996
Cincinnati Milacron Inc. and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
Cincinnati Milacron Inc.
Date: November 18, 1996 By:/s/ Robert P. Lienesch
-----------------------------
Robert P. Lienesch
Controller
Date: November 18, 1996 By:/s/ Ronald D. Brown
------------------------------
Ronald D. Brown
Vice President - Finance
and Chief Financial Officer
Cincinnati Milacron Inc. and Subsidiaries
Index to Exhibits
Exhibit No. Page No.
2 Plan of Acquisition, Reorganization,
Arrangement,Liquidation or
Succession - Not Applicable.
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 Amendment No. 3 to Form S-4
Registration Statement(Registration No. 33-53009).
4.3 7-7/8% Notes due 2000
- Incorporated herein by reference to the
company's Registration Statement on Form S-4
(Registration No. 33-60081).
4.4 Cincinnati Milacron Inc. hereby agrees to furnish to
the Securities and Exchange Commission, upon its
request, the instruments with respect to the long-
term debt for securities authorized thereunder
which do not exceed 10% of the registrant's total
consolidated assets.
10 Material Contracts
10.1- Incorporated herein by reference to the
company's annual report on Form 10-K for
the fiscal year ended December 30, 1995.
10.2 - Underwriting Agreement between Cincinnati
Milacron Inc. and CS First Boston Corporation,
BT Securities Corporation, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and
J.P. Morgan Securities Inc.
-Incorporated herein by reference to the
company's Registration Statement on
Form S-3 (Registration No.333-01739).
11 Statement Regarding Computation of Earnings per
Share 23
15 Letter re: Unaudited Interim Financial Information
- Not Applicable.
18 Letter Regarding Change in Accounting Principles
- Not Applicable.
19 Report Furnished to Security Holders
- Not Applicable.
22 Published Report Regarding Matters Submitted
To Vote of Security Holders - Not Applicable.
23 Consents of Experts and Counsel - Not Applicable.
24 Power of Attorney - Not Applicable.
27 Financial Data Schedule 24
99 Additional Exhibits - Not Applicable.
EXHIBIT 11
CINCINNATI MILACRON INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(In thousands, except per-share amounts)
16 Weeks Ended 40 Weeks Ended
------------------- ------------------
OCT. 5, OCT. 7, OCT. 5, OCT. 7,
1996 1995 1996 1995
------- ------- ------- -------
Net earnings $19,096 $16,044 $46,427 $37,444
Less preferred dividends (60) (60) (180) (180)
------- ------- ------- -------
Net earnings available
to common shareholders $19,036 $15,984 $46,247 $37,264
======= ======= ======= =======
Primary
Average number of shares
outstanding 39,849 34,184 36,815 33,962
Add dilutive effect of
stock options based on
treasury stock method 250 796 684 616
------- ------- ------- -------
Total 40,099 34,980 37,499 34,578
======= ======= ======= =======
Per share amount $ .47 $ .46 $ 1.23 $ 1.08
======= ======= ======= =======
Fully diluted
Average number of shares
outstanding 39,849 34,184 36,815 33,962
Add dilutive effect of stock
options based on treasury
stock method 250 796 717 656
------- ------- ------- ------
Total 40,099 34,980 37,532 34,618
======= ======= ======= =======
Per share amount $ .47 $ .46 $ 1.23 $ 1.08
======= ======= ======= =======
Note: This computation is required by Regulation S-K,
Item 601, and is filed as an exhibit under Item 6 of Form 10-Q.
<TABLE> <S> <C>
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Other column represents the 16 weeks ended Oct-05-1996
Amounts rounded to tenths of millions, except per share data
</LEGEND>
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<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> JUN-16-1996
<PERIOD-END> OCT-05-1996
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<RECEIVABLES> 256,800,000
<ALLOWANCES> 14,900,000
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<CURRENT-ASSETS> 730,300,000
<PP&E> 587,800,000
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<TOTAL-ASSETS> 1,354,100,000
<CURRENT-LIABILITIES> 410,600,000
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<COMMON> 430,000,000
0
6,000,000
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<TOTAL-LIABILITY-AND-EQUITY> 1,354,100,000
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