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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 March 23, 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 April 30, 1996: 34,290,664
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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 18
(b) Reports on Form 8-K 18
Signatures 19
Index to Exhibits 20
PART I. FINANCIAL INFORMATION
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN MILLIONS)
MAR. 23, DEC.
30,
1996
1995
-------
- -------
ASSETS
Current assets
Cash and cash equivalents. . . . . . . . . . . . . $ 74.3 $
133.1
Notes and accounts receivable, less allowances
of $14.2 in 1996 and $12.9 in 1995 . . . . . . . 239.9
242.8
Inventories
Raw materials. . . . . . . . . . . . . . . . . . 28.6
34.7
Work-in-process and finished parts . . . . . . . 213.1
188.2
Finished products. . . . . . . . . . . . . . . . 143.9
128.8
--------
- --------
Total inventories. . . . . . . . . . . . . . . 385.6
351.7
Other current assets . . . . . . . . . . . . . . . 55.8
54.7
--------
- --------
Total current assets . . . . . . . . . . . . . . 755.6
782.3
--------
- --------
Property, plant and equipment. . . . . . . . . . . . 550.1
527.0
Less accumulated depreciation. . . . . . . . . . . 253.5
261.5
--------
- --------
Property, plant and equipment - net. . . . . . . 296.6
265.5
Goodwill . . . . . . . . . . . . . . . . . . . . . . 248.6
73.6
Other noncurrent assets. . . . . . . . . . . . . . . 79.7
75.7
--------
- --------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . $1,380.5
$1,197.1
========
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Amounts payable to banks and current
portion of long-term debt. . . . . . . . . . . . $ 28.3 $
23.6
Trade accounts payable . . . . . . . . . . . . . . 114.0
109.9
Advance billings and deposits. . . . . . . . . . . 36.8
42.7
Accrued and other current liabilities. . . . . . . 207.6
213.4
--------
- --------
Total current liabilities. . . . . . . . . . . . 386.7
389.6
Long-term accrued liabilities. . . . . . . . . . . . 214.2
204.6
Long-term debt . . . . . . . . . . . . . . . . . . . 500.2
332.2
--------
- --------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . 1,101.1
926.4
--------
- --------
Commitments and contingencies. . . . . . . . . . . . -
- -
SHAREHOLDERS' EQUITY
Preferred shares . . . . . . . . . . . . . . . . . 6.0
6.0
Common shares (outstanding: 34.3 in 1996
and 34.3 in 1995). . . . . . . . . . . . . . . . 301.1
300.3
Accumulated deficit. . . . . . . . . . . . . . . . (23.4)
(32.8)
Cumulative foreign currency translation
adjustments. . . . . . . . . . . . . . . . . . . (4.3)
(2.8)
--------
- --------
TOTAL SHAREHOLDERS' EQUITY . . . . . . . . . . 279.4
270.7
--------
- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . $1,380.5
$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)
12 WEEKS ENDED
- -------------------------
MARCH 23, MARCH
25,
1996
1995
--------
- --------
Sales. . . . . . . . . . . . . . . . . . . . . . . . $353.4
$331.4
Cost of products sold. . . . . . . . . . . . . . . . 262.9
250.2
------
- ------
Manufacturing margins. . . . . . . . . . . . . . . 90.5
81.2
------
- ------
Other costs and expenses
Selling and administrative . . . . . . . . . . . . 66.2
62.0
Gain on sale of business . . . . . . . . . . . . . -
(5.0)
Minority shareholders' interests . . . . . . . . . .1
.1
Other - net. . . . . . . . . . . . . . . . . . . . 1.3
2.9
------
- ------
Total other costs and expenses . . . . . . . . . 67.6
60.0
------
- ------
Operating earnings . . . . . . . . . . . . . . . . . 22.9
21.2
Interest
Income . . . . . . . . . . . . . . . . . . . . . . 1.1
.5
Expense. . . . . . . . . . . . . . . . . . . . . . (8.3)
(5.1)
------
- ------
Interest - net . . . . . . . . . . . . . . . . . (7.2)
(4.6)
------
- ------
EARNINGS BEFORE INCOME TAXES . . . . . . . . . . . . 15.7
16.6
Provision for income taxes . . . . . . . . . . . . . 3.1
3.6
------
- ------
NET EARNINGS . . . . . . . . . . . . . . . . . . . . $ 12.6 $
13.0
======
======
EARNINGS PER COMMON SHARE. . . . . . . . . . . . . . $ .36 $
.38
======
======
Dividends per common share . . . . . . . . . . . . . $ .09 $
.09
Weighted average number of shares and common share
equivalents outstanding (in thousands) . . . . . . 34,842
34,136
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
12 WEEKS ENDED
------------------------
MARCH 23, MARCH 25,
1996 1995
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES CASH FLOWS
Net earnings . . . . . . . . . . . . . . . . . . . $ 12.6 $ 13.0
Operating activities providing (using) cash
Depreciation and amortization. . . . . . . . . . 9.6 7.3
Gain on disposition of subsidiary. . . . . . . . - (5.0)
Deferred income taxes. . . . . . . . . . . . . . (.5) -
Working capital changes
Notes and accounts receivable. . . . . . . . . 26.4 1.7
Inventories. . . . . . . . . . . . . . . . . . (8.6) (13.0)
Other current assets . . . . . . . . . . . . . .6 (5.3)
Trade accounts payable and
other current liabilities. . . . . . . . . . (23.1) 21.4
Increase in other noncurrent assets. . . . . . . (1.2) (.6)
Increase in long-term accrued liabilities. . . . 6.1 1.1
Other - net. . . . . . . . . . . . . . . . . . . (1.2) .1
------- ------
Net cash provided by
operating activities . . . . . . . . . . . . 20.7 20.7
------ ------
INVESTING ACTIVITIES CASH FLOWS
Capital expenditures . . . . . . . . . . . . . . . (8.0) (8.9)
Net disposals of property, plant and equipment . . .5 .3
Acquisitions . . . . . . . . . . . . . . . . . . . (73.2) (79.2)
Cash received on disposition of subsidiaries . . . - 15.0
------ ------
Net cash used by investing activities. . . . . . (80.7) (72.8)
------ ------
FINANCING ACTIVITIES CASH FLOWS
Dividends paid . . . . . . . . . . . . . . . . . . (3.1) (3.1)
Issuance of long-term debt . . . . . . . . . . . . - 82.2
Repayments of long-term debt . . . . . . . . . . . ( .2) (8.6)
Increase (decrease) in amounts payable to banks. . 3.8 (25.7)
Net issuance of common shares. . . . . . . . . . . .7 .7
------ ------
Net cash provided by financing activities. . . . 1.2 45.5
------ ------
DECREASE IN CASH AND CASH EQUIVALENTS. . . . . . . . (58.8) (6.6)
Cash and cash equivalents at beginning of period . . 133.1 21.5
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . $ 74.3 $ 14.9
====== ======
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 discussed below in the note
captioned "Disposition 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 $245 million. 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.
All of the acquisitions discussed above are being accounted for under the
purchase method. The company's investments in Widia, Talbot and D-M-E,
including professional fees and other costs related to the acquisitions, is
expected to total $250.4 million in 1996 and was $111.8 million in 1995.
The allocation of the acquisition cost amounts to the assets acquired and
the liabilities assumed is 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. . . . . . . . . . . . . . . . 25.5 51.7
Inventories. . . . . . . . . . . . . . . . . . . . 29.6 69.3
Other current assets . . . . . . . . . . . . . . . 1.2 1.3
Property, plant and equipment - net. . . . . . . . 34.6 61.1
Goodwill . . . . . . . . . . . . . . . . . . . . . 174.0 51.4
Other noncurrent assets. . . . . . . . . . . . . . 7.6 14.3
------ ------
Total assets . . . . . . . . . . . . . . . . . . 273.8 252.2
Amounts payable to banks and current
portion of long-term debt. . . . . . . . . . . . - (9.3)
Other current liabilities. . . . . . . . . . . . . (18.4) (71.2)
Long-term accrued liabilities. . . . . . . . . . . (5.0) (50.5)
Long-term debt . . . . . . . . . . . . . . . . . . - (9.4)
------ ------
Total liabilities. . . . . . . . . . . . . . . . (23.4) (140.4)
------ ------
Total acquisition costs. . . . . . . . . . . . . . $250.4 $111.8
====== ======
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 March 23, 1996 and December 30, 1995, the balance of the $16.9 million
reserve was $13.5 million and $13.7 million, respectively, including
approximately $12.0 million for severance and other termination benefits
that are expected to be paid to approximately 180 employees later in 1996.
Charges against the reserve for the 12 weeks ended March 23, 1996 and for
the year ended December 30, 1995 totaled $.2 million and $3.2 million,
respectively.
Unaudited pro forma sales and earnings information for the 12 weeks ended
March 23, 1996 and March 25, 1995, is 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)
12 Weeks Ended
----------------------
Mar. 23, Mar. 25,
1996 1995
------- -------
Sales. . . . . . . . . . . . . . . . . . . . . . $ 365.9 $ 406.5
======= =======
Net earnings . . . . . . . . . . . . . . . . . . $ 13.6 $ 14.7 (a)
======= =======
Per common share . . . . . . . . . . . . . . . . $ .39 $ .43 (a)
======= =======
(a) Includes a gain of $4.0 million, or $.12 per share, from the sale
of AMT (see Disposition 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 will 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 12 weeks ended
March 23, 1996 and for the year ended December 30, 1995 totaled $1.8
million and $4.6 million, respectively. The total cash cost of the $28.1
million plan will 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 will be fully
realized in 1996.
DISPOSITION 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 March 23, 1996 and December 30, 1995, the undivided
interest in the company's gross accounts receivable that had been sold to
the respective purchasers aggregated $64.0 million and $69.0 million.
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.
(In millions)
Mar. 23, Dec. 30,
1996 1995
------- -------
ACCRUED AND OTHER CURRENT LIABILITIES
Accrued salaries, wages and
other compensation . . . . . . . . . . . . . . . $ 43.6 $ 37.8
Restructuring and integration reserves . . . . . . 16.7 18.3
Accrued and deferred income taxes. . . . . . . . . 23.1 33.5
Other accrued expenses . . . . . . . . . . . . . . 124.2 123.8
------ ------
$207.6 $213.4
====== ======
LONG-TERM ACCRUED LIABILITIES
Accrued pension and other compensation . . . . . . $ 65.8 $ 65.3
Accrued postretirement health
care benefits. . . . . . . . . . . . . . . . . . 47.4 43.0
Accrued and deferred income taxes. . . . . . . . . 38.1 52.8
Minority shareholders' interests . . . . . . . . . 8.9 8.7
Other. . . . . . . . . . . . . . . . . . . . . . . 54.0 34.8
------ ------
$214.2 $204.6
====== ======
LONG-TERM DEBT
- ---------------
Long-term debt is shown in the following table.
(In millions)
Mar. 23 Dec. 30,
1996 1995
------- -------
Long-term debt
8% Secured Promissory Note due 1997. . . . . . . . $166.0 $ -
8% Unsecured Promissory Note due 1997. . . . . . . 5.4 -
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 . . . . . . . 10.8 10.8
Revolving credit facility. . . . . . . . . . . . . 84.8 87.1
Other. . . . . . . . . . . . . . . . . . . . . . . 22.1 22.6
------ ------
Total long-term debt . . . . . . . . . . . . . . . . 504.1 335.5
Less current maturities. . . . . . . . . . . . . . . ( 3.9) (3.3)
------ ------
$500.2 $332.2
====== ======
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. The other 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. One of the
promissory notes is secured by a letter of credit under the company's
revolving credit facility. The promissory notes are included in long-term
debt because of the expectation that they will be refinanced through the
issuance of additional common shares (see Shareholders' Equity) and
borrowings under the company's committed revolving credit facility. The
company expects that any such borrowings, including additional amounts that
will be required if the common share offering is not completed, 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 (Debentures) 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. Such requirement may be satisfied with
Debentures redeemed by the company in prior years or the company may elect to
redeem up to $10 million of Debentures in July, 1996 with cash which may be
drawn down under the company's committed revolving credit facility as a long
term borrowing.
At March 23, 1996 and December 30, 1995, borrowings under the company's
revolving credit facility totaling $84.8 million and $87.1 million,
respectively, are included in long-term debt based on the expectation that
such amounts 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 March 23, 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 $26 million
at March 23, 1996.
SHAREHOLDERS' EQUITY
- --------------------
On March 15, 1996, the company filed a registration statement with the
Securities and Exchange Commission for the issuance of 5.5 million
additional common shares, plus 825,000 additional shares to cover over-
allotments. The offering is expected to be completed during
the second quarter of 1996.
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 twelve weeks ended March 23, 1996 and March 25, 1995 is presented
below.
(In millions)
12 Weeks Ended
--------------------
Mar. 23, Mar. 25,
1996 1995
------- -------
Sales
Plastics machinery . . . . . . . . . . . . . . . . $122.8 $126.2
Machine tools. . . . . . . . . . . . . . . . . . . 81.1 86.7
Industrial products. . . . . . . . . . . . . . . . 149.5 118.5
------ ------
$353.4 $331.4
====== ======
Operating earnings
Plastics machinery . . . . . . . . . . . . . . . . $ 10.7 $ 12.6
Machine tools. . . . . . . . . . . . . . . . . . . .9 (2.4)
Industrial products. . . . . . . . . . . . . . . . 16.6 11.2
Gain on disposition of business (a). . . . . . . . - 5.0
Corporate expenses . . . . . . . . . . . . . . . . (3.4) (3.2)
Other unallocated expenses (b) . . . . . . . . . . (1.9) (2.0)
------ ------
$ 22.9 $ 21.2
====== ======
New orders
Plastics machinery . . . . . . . . . . . . . . . . $120.2 $137.9
Machine tools. . . . . . . . . . . . . . . . . . . 97.9 105.9
Industrial products. . . . . . . . . . . . . . . . 152.4 125.2
------ ------
$370.5 $369.0
====== ======
Ending backlog (c) . . . . . . . . . . . . . . . . . $365.3 $399.9
====== ======
(a) Represents a gain on the sale of the company's American Mine Tool
business, which was part of the industrial products segment.
(b) Includes financing costs related to the sale of accounts receivable and
minority shareholders' interests in earnings of subsidiaries.
(c) In 1995, includes a $9 million reduction in the second quarter to
adjust Widia's backlog at the date of acquisition.
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 the first quarter of 1995.
On January 26, 1996, the company acquired D-M-E, which is included in the
company's plastics machinery segment for approximately seven weeks in 1996.
This acquisition had the effect of increasing new orders and sales by
approximately $25 million in the first quarter of 1996.
On December 30, 1995, the company sold its Electronic Systems Division
(ESD). In the first quarter of 1995, ESD contributed approximately $8
million of new orders and $6 million of sales related to external customers
and approximately $3 million of operating earnings. ESD's results were
formerly included with the machine tools segment.
On July 20, 1995, the company acquired Talbot Holdings, Ltd., and on
February 1, 1995, the company acquired Widia. The timing of these
acquisitions caused an increase in new orders and sales in the first
quarter of 1996 over the first quarter of 1995 of approximately $30
million.
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 $5.0 million before tax gain ($4.0 million after-
tax) in the first quarter 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 non-U.S.
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 slightly weaker European currencies had the
translation effect of decreasing 1996 new orders and sales by approximately
$2 million and net earnings by $.4 million. In addition, in the first
quarter of 1996 there was a decrease in shareholders' equity due to a $1
million change in the cumulative foreign currency translation adjustment.
NEW ORDERS AND BACKLOG
New orders in the first quarter of 1996 of $371 were substantially the same
as the $369 million in the first quarter of 1995. Excluding, however, the
effects of the acquisitions and divestitures, new orders declined by
approximately $45 million.
Orders for plastics machinery decreased $18 million, or 13%, from $138
million in the first quarter of 1995 as D-M-E's new orders did not fully
offset lower orders for U.S.-built injection molding machines. This
reduction was caused largely by weakness in the automotive and construction
sectors and general economic softness in Europe. Machine tool orders were
$98 million in both 1996 and 1995, after excluding ESD's $8 million of 1995
orders. Aerospace business and new orders for highly applied machine tools
continued to improve, including two large orders totaling approximately $14
million that will not being shipping until 1997.
Orders for industrial products were $152 million, up from $125 million in
1995; however, excluding acquisition effects, new orders declined by
approximately 2%.
U.S. export orders approximated $41 million in the first quarter of 1996
compared with $34 million in the first quarter of 1995. Most of the
increase resulted from the D-M-E acquisition.
The company's backlog of unfilled orders increased from $344 million at
December 30, 1995, to $365 million at March 23, 1996. Of this $21 million
increase, $4 million represents D-M-E's backlog at the date of its
acquisition, while $17 million is mostly due to the excess of new orders
over sales for machine tools and industrial products in the first quarter
of 1996. Compared with the first quarter of 1995, backlog declined by $35
million, mostly due to lower business levels for injection molding machines
in the U.S. and Europe.
SALES
Sales in the first quarter of 1996 of $353 million increased by $22 million
over the first quarter of 1995. However, excluding the effects of
acquisitions and divestitures, sales declined by $25 million, or 8%. The
decline was caused principally by reduced sales of U.S.-built injection
molding machines. After excluding the effect of the ESD divestiture,
machine tool sales were unchanged from last year's first quarter.
Industrial products sales increased $31 million over the first quarter of
1995, mostly due to the effect of acquisitions; excluding acquisitions,
sales increased 2%.
Export sales increased from $33 million in the first quarter of 1995 to $40
million in the first quarter of 1996, primarily due to the D-M-E
acquisition.
MARGINS, COSTS AND EXPENSES
The consolidated manufacturing margin percent of 25.6% for the first
quarter of 1996 increased from 24.5% in the first quarter of 1995. The
increase was caused primarily by increased machine tool margins, as well as
a greater proportion of industrial products sales which have higher margins
than the machinery businesses. Margins for plastics machinery were
unchanged; the increase associated with including D-M-E's higher margins
offset a decline in margins for injection molding machines caused, in large
part, by lower volume. Plastics machinery margins were also affected by
discounting which is expected to continue in the second quarter of 1996.
Machine tool margins increased from the first quarter of 1995 due to
increased efficiencies in U.S. operations. Industrial products margins
were virtually unchanged from the first quarter of 1995.
Selling and administrative expense in the first quarter of 1996 increased,
as expected, with increased sales and the effect of the acquisitions. As a
percent to sales, however, selling expense was unchanged compared with the
first quarter of 1995. Administrative expense increased, primarily due to
the inclusion of D-M-E's administrative expenses.
The 1995 gain on disposition of subsidiary represents the $5 million before
tax gain on the sale of AMT.
Interest expense - net increased by $2.6 million in the first quarter of
1996 due primarily to higher debt levels associated with debt incurred to
finance the acquisitions.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes of $15.7 million in the first quarter of 1996
were lower than the $16.6 million in the first quarter of 1995 due to the
non-recurring $5.0 million gain on the sale of AMT in the first quarter of
1995. Excluding the AMT gain, 1996 earnings before income taxes increased
by $4.1 million over the first quarter 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 tax valuation allowances in
1996, results in effective tax rates that are lower than the U.S. statutory
rate.
NET EARNINGS
Net earnings were $12.6 million, or $.36 per share, in the first quarter of
1996 compared with $13.0 million, or $.38 per share, in the first quarter
of 1995. Net earnings for the first quarter of 1995 included the $4.0
million after-tax gain on the AMT sale. Excluding the after-tax effect of
the AMT gain, 1996 net earnings increased by $3.6 million, or $.10 per
share, over the first quarter of 1995.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
At March 23, 1996, the company had cash and cash equivalents of $74
million, a decrease of $59 million during the first quarter of 1996. The
decrease was primarily caused by the acquisition of D-M-E.
Operating activities provided $21 million of cash in the first quarters of
both 1996 and 1995. However, the first quarter of 1995 included the
benefit of selling an additional $10 million of accounts receivable whereas
the first quarter of 1996 was adversely affected by a $5 million reduction
in the sold amount. The company incurred cash costs of $2 million in the
first quarter of 1996 for the Valenite/Widia integration and $2 million for
the machine tool consolidation in the first quarter of 1995.
The company's investing activities required cash totaling $81 million in
the first quarter of 1996, mostly related to the D-M-E acquisition.
Capital expenditures in the first quarter of 1996 totaled $8 million, down
from $9 million in 1995 due to the timing of 1996 expenditures; the company
is budgeting an increase from $52 million to $86 million for 1996 capital
expenditures. In the first quarter of 1995, the company received cash
totaling $15 million on the sale of AMT and invested $79 million for the
Widia acquisition.
Financing activities provided $1 million in the first quarter of 1996. In
the first quarter of 1995, the company issued long-term debt of $82 million
related to the Widia acquisition.
As of March 23, 1996, the company's current ratio was 2.0, unchanged from
December 30, 1995, but up from 1.5 at March 26, 1995.
At March 23, 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 $26 million at March
23, 1996.
The company had a number of short-term intercompany loans and advances
denominated in various currencies totaling approximately $53 million at
March 23, 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 exchange
contracts to minimize the effect of foreign currency exchange rate
fluctuations related to significant transactions. The company is currently
not involved with any additional derivative financial instruments.
In the second quarter of 1996, the company filed a registration statement
with the Securities and Exchange Commission for its planned public offering
of 5.5 million additional common shares, plus 825,000 additional shares to
cover over-allotments. As described more fully in the registration statement,
the company intends to use the proceeds to reduce amounts payable to banks with
the balance invested in short-term investments until such time as it repays the
debt associated with the D-M-E acquisition. If the common share offering is
not completed, the company expects to repay such debt in July, 1996 by drawing
on its revolving credit facility.
The company is required to redeem at par $5 million of its 12% Sinking Fund
Debentures due 2010 (Debentures) to meet an annual sinking fund requirement
commencing in July, 1996 and the company, at its option, may increase such
payment to total $10 million. Such requirement may be satisfied with
Debentures redeemed by the company in prior years or the company may elect to
redeem up to $10 million of Debentures in July, 1996 with cash which may be
drawn down under the company's committed revolving credit facility as a long
term borrowing.
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 March 23, 1996, approximately $176 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 $529 million at March 23, 1996, an increase of $173 million
over December 30, 1995. The ratio of total debt to total capital (debt
plus equity) was 65% at March 23, 1996, up from 57% at year-end 1995.
Regardless of the outcome of the common share offering, 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 expects the slowdown in spending in North American automotive
and construction industries, and general economic softness in Europe to
affect the plastics machinery segment in the second quarter of 1996, but to
a lesser extent than in the first quarter. Recent increases in customer
activity however suggest the potential of a return to better business
levels in the second half of the year and, with the addition of D-M-E, the
company expects that the plastics machinery segment should show good volume
and profit gains for the year 1996. The company expects its most seasonal
business, machine tools, to make most of its profits in the second half of
1996, and the industrial products segment to provide steady and improved
sales and earnings throughout 1996. The company's positive outlook for
1996 hasn't changed. Despite the current slowdown in several key markets,
the company expects a modest pick up in business in the second half of the
year, which together with internal improvements and acquisition synergies
will result in increased sales, earnings and cash flow (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:
* global economic conditions, consumer spending and industrial production
in the United States and Europe, particularly in segments related to
the level of automotive production and spending in the aerospace and
construction industries;
* fluctuations in 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
A report on Form 8-K dated December 30, 1995, and an
amendment thereto on Form 8-K/A, were filed regarding
the disposition of the company's Electronic Systems
Division.
A report on Form 8-K dated January 26, 1996, and an
amendment thereto on Form 8-K/A, were 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: May 6, 1996 By:/s/Robert P. Lienesch
----------------- ------------------------------------
Robert P. Lienesch
Controller
Date: May 6, 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.
11 Statement Regarding Computation of Earnings per Share 21
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 22
99 Additional Exhibits - Not Applicable.
EXHIBIT 11
CINCINNATI MILACRON INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER-SHARE AMOUNTS)
12 WEEKS ENDED
--------------------
MAR. 23, MAR. 25,
1996 1995
------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . $12,595 $13,044
Less preferred dividends . . . . . . . . . . . . . . (60) (60)
------- -------
Net earnings available
to common shareholders . . . . . . . . . . . . . $12,535 $12,984
======= =======
Primary
Average number of shares
outstanding. . . . . . . . . . . . . . . . . . . 34,271 33,757
Add dilutive effect of
stock options based on
treasury stock method. . . . . . . . . . . . . . 571 379
------- -------
Total. . . . . . . . . . . . . . . . . . . . . 34,842 34,136
======= =======
Per share amount. . . . . . . . . . . . . . . $ .36 $ .38
======= =======
Fully diluted
Average number of shares
outstanding. . . . . . . . . . . . . . . . . . . 34,271 33,757
Add dilutive effect of stock
options based on treasury
stock method . . . . . . . . . . . . . . . . . . 682 379
------- -------
Total. . . . . . . . . . . . . . . . . . . . . 34,953 34,136
======= =======
Per share amount. . . . . . . . . . . . . . . $ .36 $ .38
======= =======
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 Mar-23-1996
Amounts rounded to tenths of millions, except per share data
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-23-1996
<CASH> 74,300,000
<SECURITIES> 0
<RECEIVABLES> 254,100,000
<ALLOWANCES> 14,200,000
<INVENTORY> 385,600,000
<CURRENT-ASSETS> 755,600,000
<PP&E> 550,100,000
<DEPRECIATION> (253,500,000)
<TOTAL-ASSETS> 1,380,500,000
<CURRENT-LIABILITIES> 386,700,000
<BONDS> 0
<COMMON> 301,100,000
0
6,000,000
<OTHER-SE> (27,700,000)
<TOTAL-LIABILITY-AND-EQUITY> 1,380,500,000
<SALES> 353,400,000
<TOTAL-REVENUES> 353,400,000
<CGS> 262,900,000
<TOTAL-COSTS> 262,900,000
<OTHER-EXPENSES> 67,600,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,200,000
<INCOME-PRETAX> 15,700,000
<INCOME-TAX> 3,100,000
<INCOME-CONTINUING> 12,600,000
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<NET-INCOME> 12,600,000
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
