===============================================================
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 June 15, 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.
incorporation or organization) Employer
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 July 19, 1996: 39,848,484
=======================================================================
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)
<TABLE>
(IN MILLIONS)
JUNE 15, DEC. 30,
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 178.7 $ 133.1
Notes and accounts receivable, less allowances
of $14.6 in 1996 and $12.9 in 1995 251.1 242.8
Inventories
Raw materials 32.6 34.7
Work-in-process and finished parts 206.3 188.2
Finished products 150.3 128.8
-------- --------
Total inventories 389.2 351.7
Other current assets 55.7 54.7
-------- --------
Total current assets 874.7 782.3
Property, plant and equipment 571.0 527.0
Less accumulated depreciation 277.0 261.5
-------- --------
Property, plant and equipment - net 294.0 265.5
Goodwill 244.3 73.6
Other noncurrent assets 85.1 75.7
-------- --------
TOTAL ASSETS $1,498.1 $1,197.1
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable, amounts payable to banks
and current portion of long-term debt $ 160.1 $ 23.6
Trade accounts payable 117.7 109.9
Advance billings and deposits 34.2 42.7
Accrued and other current liabilities 204.8 213.4
-------- --------
Total current liabilities 516.8 389.6
Long-term accrued liabilities 216.4 204.6
Long-term debt 351.2 332.2
-------- --------
TOTAL LIABILITIES 1,084.4 926.4
-------- --------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
Preferred shares 6.0 6.0
Common shares (outstanding: 39.8 in 1996
and 34.3 in 1995) 429.8 300.3
Accumulated deficit (11.8) (32.8)
Cumulative foreign currency translation
adjustments (10.3) (2.8)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 413.7 270.7
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,498.1 $1,197.1
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
(IN MILLIONS, EXCEPT SHARE
AND PER-SHARE AMOUNTS)
12 WEEKS ENDED 24 WEEKS ENDED
----------------- -----------------
JUNE 15, JUNE 17, JUNE 15, JUNE 17,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $411.4 $413.5 $764.8 $744.9
Cost of products sold 311.3 310.0 574.2 560.2
------ ------ ------ ------
Manufacturing margins 100.1 103.5 190.6 184.7
------ ------ ------ ------
Other costs and expenses
Selling and administrative 73.5 73.9 139.7 135.9
Integration charge - 9.8 - 9.8
Gain on sale of business - - - (5.0)
Minority shareholders' interests .5 .3 .6 .4
Other - net - 2.7 1.3 5.6
------ ------ ------ ------
Total other costs and expenses 74.0 86.7 141.6 146.7
------ ------ ------ ------
Operating earnings 26.1 16.8 49.0 38.0
Interest
Income 1.2 1.0 2.3 1.5
Expense (8.9) (6.8) (17.2) (11.9)
------ ------ ------ ------
Interest - net (7.7) (5.8) (14.9) (10.4)
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES 18.4 11.0 34.1 27.6
Provision for income taxes 3.7 2.6 6.8 6.2
------ ------ ------ ------
NET EARNINGS $ 14.7 $ 8.4 $ 27.3 $ 21.4
====== ====== ====== ======
EARNINGS PER COMMON SHARE $ .40 $ .24 $ .76 $ .62
====== ====== ====== ======
Dividends per common share $.09 $.09 $.18 $.18
Weighted average number of shares
and common share equivalents
outstanding (in thousands) 36,688 34,487 35,765 34,311
</TABLE>
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
(IN MILLIONS)
12 WEEKS ENDED 24 WEEKS ENDED
------------------ -----------------
JUNE 15, JUNE 17, JUNE 15, JUNE 17,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES CASH FLOWS
Net earnings $ 14.7 $ 8.4 $ 27.3 $ 21.4
Operating activities providing
(using) cash
Depreciation and amortization 12.8 10.2 22.4 17.5
Integration charge - 9.8 - 9.8
Gain on sale of business - - - (5.0)
Deferred income taxes (1.3) .2 (1.8) .2
Working capital changes
Notes and accounts
receivable (14.3) 10.7 12.1 12.4
Inventories (9.1) (11.5) (17.7) (24.5)
Other current assets (.8) (.4) (.2) (5.7)
Trade accounts payable and
other current liabilities 2.8 (19.9) (20.3) 1.5
Increase in other noncurrent
assets (3.6) (1.7) (4.8) (2.3)
Increase in long-term accrued
liabilities 4.1 2.2 10.2 3.3
Other - net (.6) (.3) (1.8) (.2)
------ ------ ------ ------
Net cash provided by
operating activities 4.7 7.7 25.4 28.4
------ ------ ------ ------
INVESTING ACTIVITIES CASH FLOWS
Capital expenditures (14.6) (11.0) (22.6) (19.9)
Net disposals of property, plant
and equipment 2.3 5.6 2.8 5.9
Acquisitions (1.4) - (74.6) (79.2)
Cash received on sales of
businesses - .3 - 15.3
------ ------ ------ ------
Net cash used by
investing activities (13.7) (5.1) (94.4) (77.9)
------ ------ ------ ------
FINANCING ACTIVITIES CASH FLOWS
Dividends paid (3.2) (3.1) (6.3) (6.2)
Issuance of long-term debt - 98.3 - 180.5
Repayments of long-term debt (16.2) (38.8) (16.4) (47.4)
Increase (decrease) in amounts
payable to banks 4.0 (32.7) 7.8 (58.4)
Net issuance of common shares 128.8 3.0 129.5 3.7
------ ------ ------ ------
Net cash provided by
financing activities 113.4 26.7 114.6 72.2
------ ------ ------ ------
INCREASE IN CASH AND
CASH EQUIVALENTS 104.4 29.3 45.6 22.7
Cash and cash equivalents at
beginning of period 74.3 14.9 133.1 21.5
------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $178.7 $ 44.2 $178.7 $ 44.2
====== ====== ====== ======
</TABLE>
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.
With annual sales of approximately $170 million, 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 $183 million and cash on hand
of $62 million. One of the promissory notes in the amount of $12
million was subsequently repaid. In addition, the aggregate
principal amount of the remaining notes was subsequently reduced to
$170 million as a result of post-closing purchase price adjustments.
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.
<TABLE>
(In millions)
1996 1995
-------- --------
<S> <C> <C>
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 costs $250.0 $111.1
====== ======
</TABLE>
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 June 15, 1996 and December 30, 1995, the balance of the $16.9
million reserve was $11.6 million and $13.7 million, respectively,
including approximately $9.6 million for severance and other
termination benefits that are expected to be paid to approximately
125 employees later in 1996. Charges against the reserve for the 24
weeks ended June 15, 1996, and for the year ended December 30, 1995
were $2.1 million and $3.2 million, respectively.
Unaudited pro forma sales and earnings information for the second
quarters of 1996 and 1995 and the 24 weeks ended June 15, 1996 and
June 17, 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.
<TABLE>
12 WEEKS ENDED 24 WEEKS ENDED
----------------- -----------------
JUNE 15, JUNE 17, JUNE 15, JUNE 17,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales $ 411.4 $ 466.9 $ 777.3 $ 873.4
======= ======= ======= =======
Net earnings (a) $ 14.7 $ 8.6 $ 28.3 $ 23.3
======= ======= ======= =======
Per common share (a) $ .40 $ .25 $ .79 $ .68
======= ======= ======= =======
</TABLE>
(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 24 weeks ended June 15, 1996 totaled $2.1
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 provides for
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 June 15, 1996 and December 30, 1995, the undivided interest
in the company's gross accounts receivable that had been sold to the
purchasers aggregated $56.5 million and $69.0 million, respectively.
Increases and decreases in the amount sold are reported as operating
cash flow 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.
<TABLE>
(In millions)
June 15, Dec. 30,
1996 1995
------- -------
<S> <C> <C>
ACCRUED AND OTHER CURRENT LIABILITIES
Accrued salaries, wages and
other compensation $ 43.6 $ 37.8
Restructuring and integration reserves 14.2 18.3
Accrued and deferred income taxes 20.9 33.5
Other accrued expenses 126.1 123.8
------ ------
$204.8 $213.4
====== ======
LONG-TERM ACCRUED LIABILITIES
Accrued pension and other compensation $ 66.8 $ 65.3
Accrued postretirement health
care benefits 48.1 43.0
Accrued and deferred income taxes 52.3 52.8
Minority shareholders' interests 9.9 8.7
Other 39.3 34.8
------ ------
$216.4 $204.6
====== ======
</TABLE>
LONG-TERM DEBT
Long-term debt is shown in the following table.
<TABLE>
(In millions)
June 15, Dec. 30,
1996 1995
------- -------
<S> <C> <C>
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
8% Secured Promissory Note due 1996 41.5 -
Revolving credit facility 81.5 87.1
Other 15.9 22.6
------ ------
Total long-term debt 354.7 335.5
Less current maturities (3.5) (3.3)
------ ------
$351.2 $332.2
====== ======
</TABLE>
In January, 1996, in connection with the D-M-E acquisition, three
promissory notes were issued to the seller totaling $183 million.
One promissory note for $12 million was subsequently paid and the
principal amount of another was reduced by approximately $1 million
as a result of post-closing purchase price adjustments. In
addition, the company and the seller have agreed, subject to the
consent of the seller's lenders, to reduce the interest rate on all
of the promissory notes effective as of January 26, 1996. The
interest rate reduction has the effect of reducing 1996 interest
expense by $1.3 million, including $.9 million for the 24 weeks
ended June 15, 1996. The remaining notes mature on January 26,
1997, but are subject to prepayment at the option of either the
buyer or the seller at any time after July 26, 1996. Notice to
exercise this option was given by both parties on June 28, 1996,
with the intention that prepayment will be made on July 29, 1996. A
portion of one of the promissory notes, which is secured by a letter
of credit under the company's revolving credit facility, is included
in long-term debt because of the expectation that it will be
refinanced through borrowings under the facility.
The company expects that any such borrowings will remain outstanding
for more than one year.
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 company is required 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 of DM 125 million under the company's
revolving credit facility ($81.5 million at June 15, 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 June 15, 1996, the company had lines of credit with various U.S.
and non-U.S. banks of approximately $500 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 $87 million at June 15, 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 will be 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 second quarters of 1996 and 1995 and for the
24 weeks ended June 15, 1996 and June 17, 1995 are presented below.
<TABLE>
(In millions)
12 Weeks Ended 24 Weeks Ended
----------------- -----------------
June 15, June 17, June 15, June 17,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales
Plastics machinery $158.2 $152.8 $281.0 $279.0
Machine tools 86.5 93.7 167.6 180.4
Industrial products 166.7 167.0 316.2 285.5
------ ------ ------ ------
$411.4 $413.5 $764.8 $744.9
====== ====== ====== ======
Operating earnings (loss)
Plastics machinery $ 13.5 $ 15.8 $ 24.2 $ 28.4
Machine tools (.2) .5 .7 (1.9)
Industrial products 18.9 16.2 35.5 27.4
Integration charge (a) - (9.8) - (9.8)
Gain on sale of business (b) - - - 5.0
Corporate expenses (4.2) (3.4) (7.6) (6.6)
Other unallocated expenses (c) (1.9) (2.5) (3.8) (4.5)
------ ------ ------ ------
$ 26.1 $ 16.8 $ 49.0 $ 38.0
====== ====== ====== ======
New orders
Plastics machinery $142.3 $140.3 $262.5 $278.2
Machine tools 80.6 95.0 178.5 200.9
Industrial products 166.7 163.2 319.1 288.4
------ ------ ------ ------
$389.6 $398.5 $760.1 $767.5
====== ====== ====== ======
Ending backlog $345.0 $384.9 $345.0 $384.9
====== ====== ====== ======
</TABLE>
(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 OPERATION
(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 quarter of 1996 and seven weeks in the first quarter of
1996. This acquisition had the effect of increasing new orders and
sales by approximately $40 million in the second quarter and $65
million in the first half of 1996.
On December 30, 1995, the company sold its Electronic Systems
Division (ESD). In 1995, ESD contributed approximately $6 million
of new orders and sales related to external customers in the second
quarter and $14 million of new orders and $12 million of sales in
the first half of the year. ESD's operating earnings were $3
million and $6 million for the second quarter and first half of
1995, respectively.
On July 20, 1995, the company acquired Talbot, and on February 1,
1995, the company acquired Widia. The timing of these acquisitions
caused an increase in new orders and sales in the second quarter and
first half of 1996 over 1995 by approximately $10 million and $40
million, respectively.
On January 27, 1995, the company sold its American Mine Tool (AMT)
business which was formerly part of the industrial products segment.
Its 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 half 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 have been 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 by $16 million and sales by $12 million in the
second quarter, and $18 million and $13 million, respectively, in
the first half of 1996. Similarly, net earnings were reduced by
$0.5 million and $0.9 million in the second quarter and first half
of 1996, respectively. In addition, in the second quarter of 1996
there was a decrease in shareholders' equity due to a $6 million
change in the cumulative foreign currency translation adjustment.
NEW ORDERS AND BACKLOG
New orders in the second quarter of 1996 of $390 million were down
$9 million, or 2%, from the second quarter of 1995. Excluding,
however, the effects of the acquisitions and divestitures, new
orders declined by $55 million, of which $16 million was due to
currency exchange rate changes.
Orders for plastics machinery increased by $2 million due to the
D-M-E acquisition. Excluding the acquisition, new orders dropped
29% due to weaker demand in both the U.S. and Europe. Machine Tool
orders were $81 million in the second quarter of 1996 compared with
$89 million in 1995, after excluding ESD's $6 million of 1995
orders. Orders from aerospace customers increased, but this only
partially offset a decline in orders for U.S.-built standard machine
tools. Orders for industrial products were $167 million in the
second quarter of 1996, up from $163 million in 1995, despite
currency translation effects, due to the Talbot acquisition.
For the first half of 1996, new orders totaled $760 million, down $7
million from $767 million in the first half of 1995. Excluding
acquisition and divestiture effects, new orders declined by $106
million ($88 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 $42 million and $83 million in the second
quarter and first half of 1996, respectively, compared with $32
million and $66 million in the comparable periods of 1995. Most of
the increase resulted from the D-M-E acquisition.
The company's backlog of unfilled orders decreased from $365 million
at March 23, 1996, to $345 million at June 15, 1996. Of these
decreases, about 25% results from currency exchange rate
adjustments, while the balance results from the excess of sales over
new orders for standard machine tools and injection molding
machines.
SALES
Sales in the second quarter of 1996 of $411 million decreased by $2
million from the second quarter of 1995. Excluding the effects of
the acquisitions and divestitures, sales declined by $49 million, of
which $12 million was caused by currency exchange rate changes. The
decline was caused principally by reduced plastics machinery sales
in the U.S. and Europe. After excluding the effect of the ESD
divestiture, machine tool sales declined by $1 million reflecting
weak sales of U.S.-built standard machine tools, offset in part by
increased sales of advanced systems for aerospace customers.
Excluding acquisition effects, industrial products' sales declined
about 6% due to currency translation effects and lower sales of
Widia's cutting tools and industrial magnets in Europe.
For the first half of 1996, sales were $765 million, up from $745
million in 1995. Excluding acquisition and divestiture effects,
sales declined by $78 million ($65 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 $41 million and $80 million in the second quarter
and first half of 1996 compared with $32 million and $65 million in
the comparable periods of 1995. Most of the increase resulted from
the D-M-E acquisition.
MARGINS, COST AND EXPENSES
The manufacturing margin percent of 24.3% in the second quarter of
1996 decreased from 25.0% in the second quarter of 1995. The
decrease resulted from lower volume and significantly increased
discounting for plastics machinery. Although plastics machinery
sales are expected to pick-up in the second half of 1996, the
unusually high discount levels are expected to affect profitability
at least through the third quarter of 1996. Margins in the second
quarter of 1996 for machine tools declined due to the ESD
divestiture, while margins for industrial products increased due to
improved profitability for European cutting tools as a result of
earlier restructuring and integration actions.
The manufacturing margin of 24.9% in the first half of 1996 improved
over the 24.8% in the first half of 1995 despite the decline in the
second quarter of 1996. In general, margins have declined for
plastics machinery due to market conditions described above, which
have been offset in part by higher margins for D-M-E. Machine tool
margins have declined, despite increased efficiencies in the U.S.
operations due to the ESD divestiture, while margins for industrial
products have increased due to the Widia restructuring and
integration.
Selling and administrative expenses were virtually unchanged from
1995 to 1996 in amount and percentage. While administrative expense
increased with the acquisitions, selling expense declined modestly
but 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 million before
tax gain on the sale of AMT.
Minority shareholders' interests increased in 1996 primarily due to
the improved profitability of Widia's 51% interest in a public
company in India.
Other expense-net declined in 1996 primarily due to reduced costs
associated with the sale of accounts receivable and increased gains
on the sale of surplus assets.
Interest expense-net increased in 1996 due primarily to higher debt
levels associated with financing the Talbot and D-M-E acquisitions.
This expense began to decline in the last few weeks of the second
quarter of 1996 as a result of receiving and temporarily investing
the proceeds from the equity offering, as described below under the
caption, "Liquidity and Sources of Capital."
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes of $18.4 million in the second quarter
of 1996 exceeded the $11.0 million in the second quarter of 1995 due
to the $9.8 million integration charge recorded in the second
quarter of 1995. Excluding that item, earnings declined by $2.4
million. Earnings for the first half of 1996 totaled $34.1 million,
representing a $6.5 million increase over $27.6 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 $1.7 million.
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 $14.7 million, or $.40 per share, in the second
quarter of 1996 compared with $8.4 million, or $.24 per share, in
the second quarter of 1995. Excluding the $7.8 million after tax
effect of the 1995 integration charge, earnings declined in 1996
from $16.2 million, or $.47 per share, in the second quarter of
1995. For the first half of 1996, net earnings were $27.3 million,
or $.76 per share, up from $21.4 million, or $.62 per share, in
1995's first half. Excluding the $7.8 million after tax charge and
the $4.0 million after tax gain in 1995, 1996 net earnings increased
from $25.2 million, or $.73 per share.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
At June 15, 1996, the company had cash and cash equivalents of $179
million, an increase of $46 million from the December 30, 1995
balance. The increase was caused primarily by the proceeds from the
equity offering described below, offset in part by the initial cash
cost of the D-M-E acquisition.
In the second quarter of 1996 and for the first half of 1996,
operating activities generated cash of $5 million and $25 million,
respectively. These amounts represent modest declines from the
prior year periods due to the company's reduced sales of accounts
receivable in 1996. Excluding the changes in the level of sold
receivables, the company generated cash from operating activities of
$12 million and $38 million in the second quarter and first half of
1996, respectively, compared with $8 million and $18 million in the
second quarter and first half of 1995. The company incurred cash
costs of $2 million in the second quarter and $4 million in the
first half of 1996 for the Widia/Valenite integration and
restructuring. In the second quarter and first half of 1995 the
company incurred cash costs of $1 million and $3 million,
respectively, for the machine tool consolidation.
Investing activities in the second quarter of 1996 resulted in a $15
million use of cash, mostly due to the level of capital additions,
which increased from 1995. For the year, the company is now
estimating total capital expenditures to approximate $76 million, as
compared with $52 million in 1995. Also affecting the use of cash
for investing activities in the first half of 1996 and 1995 are the
acquisitions: $75 million for D-M-E in 1996 and $79 million for
Widia in 1995.
Financing activities provided $113 million of cash in the second
quarter of 1996, largely as a result of the $129 million net
proceeds from the issuance of 5.5 million additional shares of
common stock. Also during the second quarter, the company elected
to defease $10 million of the 12% Sinking Fund Debentures at par
with the deposit of U.S. Treasury Notes valued at $10.2 million with
the trustee. In the second quarter of 1995, the company issued $100
million of 7 7/8% Notes, the proceeds of which were used primarily
to repay bank debt which had been incurred to finance the Widia
acquisition.
On June 28, 1996, the company exercised its option to prepay on July
29, 1996, $170 million of the Promissory Notes due 1997 issued in
connection with the D-M-E acquisition. To fund this prepayment, the
company anticipates using the $129 million proceeds of the equity
offering and increased bank borrowings.
As of June 15, 1996, the company's current ratio was 1.7, down from
2.0 at both December 30, 1995 and March 26, 1996. The planned
repayment of the 8% Promissory Notes in July, 1996 would have a pro
forma effect as of June 15, 1996 of increasing the current ratio to
1.9.
At June 15, 1996, the company had lines of credit with various U.S.
and non-U.S. banks of approximately $500 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 $87 million at June 15,
1996. The planned repayment of the 8% Promissory Notes in July,
1996 would have a pro forma effect as of June 15, 1996 of increasing
additional borrowing capacity to $215 million.
The company had a number of short-term intercompany loans and
advances denominated in various currencies totaling $54 million at
June 15, 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 June 15, 1996, approximately
$168 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 $511 million at June 15, 1996, an increase of $155
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 55% at June 15, 1996, down from 65% at March 23, 1996,
but up from 57% at December 30, 1995. The planned repayment of the
8% Promissory Notes in July, 1996 would have a pro forma effect as
of June 15, 1996 of reducing the ratio to 48%. 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 be cautiously optimistic about improved
results for the year 1996. The pick-up in capital spending has been
slower than anticipated, and discounting in plastics machinery has
worsened, so the company has reduced its expectations for the year.
Nonetheless, assuming slightly stronger capital spending in the
second half of 1996, the company still expects 1996 as a whole to
show positive improvement over 1995 operating results (excluding the
1995 non-recurring gains). 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
An amendment on Form 8-K/A to a report on Form
8-K dated January 26, 1996 was filed
regarding the company's acquisition of the
D-M-E business from The Fairchild Corporation.
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: July 19, 1996 By:/s/ Robert P. Lienesch
-------------- ----------------------
Robert P. Lienesch
Controller
Date: July 19, 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
99 Additional Exhibits - Not Applicable.
EXHIBIT 11
CINCINNATI MILACRON INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
<TABLE>
(IN THOUSANDS, EXCEPT PER-SHARE
AMOUNTS)
12 WEEKS ENDED 24 WEEKS ENDED
----------------- ----------------
JUNE 15, JUNE 17, JUNE 15, JUNE 17,
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $14,736 $ 8,355 $27,331 $21,399
Less preferred dividends (60) (60) (120) (120)
------- ------- ------- -------
Net earnings available
to common shareholders $14,676 $ 8,295 $27,211 $21,279
======= ======= ======= =======
Primary
Average number of shares
outstanding 36,162 33,931 35,081 33,831
Add dilutive effect of
stock options based on
treasury stock method 526 556 684 480
------- ------- ------- -------
Total 36,688 34,487 35,765 34,311
======= ======= ======= =======
Per share amount $ .40 $ .24 $ .76 $ .62
======= ======= ======= =======
Fully diluted
Average number of shares
outstanding 36,162 33,931 35,081 33,831
Add dilutive effect of stock
options based on treasury
stock method 526 688 739 546
------- ------- ------- -------
Total 36,688 34,619 35,820 34,377
======= ======= ======= =======
Per share amount $ .40 $ .24 $ .76 $ .62
======= ======= ======= =======
</TABLE>
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>
<ARTICLE> 5
<LEGEND>
Other column represents the 12 weeks ended Jun-15-1996
Amounts rounded to tenths of millions, except per share data
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> MAR-24-1996
<PERIOD-END> JUN-15-1996
<CASH> 178,700,000
<SECURITIES> 0
<RECEIVABLES> 265,700,000
<ALLOWANCES> 14,600,000
<INVENTORY> 389,200,000
<CURRENT-ASSETS> 874,700,000
<PP&E> 571,000,000
<DEPRECIATION> (277,000,000)
<TOTAL-ASSETS> 1,498,100,000
<CURRENT-LIABILITIES> 516,800,000
<BONDS> 0
0
6,000,000
<COMMON> 429,800,000
<OTHER-SE> (22,100,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,498,100,000
<SALES> 411,400,000
<TOTAL-REVENUES> 411,400,000
<CGS> 311,300,000
<TOTAL-COSTS> 311,300,000
<OTHER-EXPENSES> 74,000,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,700,000
<INCOME-PRETAX> 18,400,000
<INCOME-TAX> 3,700,000
<INCOME-CONTINUING> 14,700,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,700,000
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
