============================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarter ended October 4, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
For the transition period from __________ to __________
Commission file number 1-8485
CINCINNATI MILACRON INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1062125
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4701 Marburg Avenue
Cincinnati, Ohio 45209
(Address of principal executive offices)
(513)841-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [x] No [ ]
Number of shares of Common Stock, $1.00 par value,
outstanding as of November 12, 1997: 39,922,708
============================================================
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 21
(b) Reports on Form 8-K 21
Signatures 22
Index to Exhibits 23
PART I. FINANCIAL INFORMATION
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions)
Oct. 4, Dec. 28,
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 35.1 $ 27.8
Notes and accounts receivable, less
allowances of $13.6 in 1997 and
$13.7 in 1996 255.5 267.0
Inventories
Raw materials 26.2 27.8
Work-in-process and finished parts 223.7 202.7
Finished products 159.9 159.2
-------- --------
Total inventories 409.8 389.7
Other current assets 59.9 43.4
-------- --------
Total current assets 760.3 727.9
Property, plant and equipment 641.8 618.6
Less accumulated depreciation 323.0 299.5
-------- --------
Property, plant and equipment - net 318.8 319.1
Goodwill 231.3 229.9
Other noncurrent assets 68.5 59.4
-------- --------
Total assets $1,378.9 $1,336.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Amounts payable to banks
and current portion of long-term debt $ 84.5 $ 70.9
Trade accounts payable 132.6 134.9
Advance billings and deposits 38.0 34.5
Accrued and other current liabilities 177.7 169.3
-------- --------
Total current liabilities 432.8 409.6
Long-term accrued liabilities 184.8 178.6
Long-term debt 303.0 301.9
-------- --------
Total liabilities 920.6 890.1
-------- --------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
Preferred shares 6.0 6.0
Common shares (outstanding: 39.8 in 1997
and 1996) 423.2 429.9
Reinvested earnings 61.6 19.9
Cumulative foreign currency translation
adjustments (32.5) (9.6)
-------- --------
Total shareholders' equity 458.3 446.2
-------- --------
Total liabilities and shareholders' equity $1,378.9 $1,336.3
======== ========
</TABLE>
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions, except share
and per-share amounts)
16 WEEKS ENDED 40 WEEKS ENDED
----------------- ------------------
OCT. 4, OCT. 5, OCT. 4, OCT. 5,
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
Sales $ 570.7 $ 511.1 $1,400.3 $1,275.9
Cost of products sold 430.5 380.9 1,054.5 952.5
------- ------- -------- --------
Manufacturing margins 140.2 130.2 345.8 323.4
------- ------- -------- --------
Other costs and expenses
Selling and administrative 100.6 95.6 248.1 235.3
Minority shareholders'
interests 1.5 1.2 1.9 1.8
Other - net 1.7 1.5 8.1 5.4
------- ------- -------- --------
Total other costs and
expenses 103.8 98.3 258.1 242.5
------- ------- -------- --------
Operating earnings 36.4 31.9 87.7 80.9
Interest
Income .9 1.5 1.8 3.9
Expense (9.1) (10.1) (22.2) (27.4)
------- ------- -------- --------
Interest - net (8.2) (8.6) (20.4) (23.5)
------- ------- -------- --------
Earnings before income taxes 28.2 23.3 67.3 57.4
Provision for income taxes 5.6 4.2 13.5 11.0
------- ------- -------- --------
Net earnings $ 22.6 $ 19.1 $ 53.8 $ 46.4
======= ======= ======== ========
Earnings per common share $ .56 $ .47 $ 1.34 $ 1.23
======= ======= ======== ========
Dividends per common share $ .12 $ .09 $ .30 $ .27
Weighted average number of shares
and common share equivalents
outstanding (in thousands) 40,266 40,099 40,043 37,499
</TABLE>
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(In millions)
16 WEEKS ENDED 40 WEEKS ENDED
----------------- -----------------
OCT. 4, OCT. 5, OCT. 4, OCT. 5,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
OPERATING ACTIVITIES CASH FLOWS
Net earnings $ 22.6 $ 19.1 $ 53.8 $ 46.4
Operating activities providing
(using) cash:
Depreciation and
amortization 16.1 16.4 40.0 38.8
Deferred income taxes (4.1) (4.0) (17.6) (5.8)
Working capital changes
Notes and accounts
receivable (5.9) 8.9 1.7 21.0
Inventories (8.8) (19.1) (34.5) (36.8)
Other current assets (2.4) 1.8 (9.7) 1.6
Trade accounts payable (4.6) 5.4 .7 5.3
Accrued and other current
liabilities (.4) (20.3) 20.5 (40.5)
Decrease (increase) in other
noncurrent assets 1.8 1.8 2.6 (3.0)
Increase (decrease) in
long-term accrued
liabilities 3.3 (6.4) 6.7 3.8
Other - net (1.2) (.3) (3.8) (2.1)
------- ------- ------- -------
Net cash provided by
operating activities 16.4 3.3 60.4 28.7
------- ------- ------- -------
INVESTING ACTIVITIES CASH FLOWS
Capital expenditures (23.0) (16.2) (42.4) (38.8)
Net disposals of property, plant
and equipment 1.0 .6 4.7 3.4
Acquisitions (23.7) (172.0) (23.7) (246.6)
Cash received on sale of
business - .4 - .4
------- ------- ------- -------
Net cash used by
investing activities (45.7) (187.2) (61.4) (281.6)
------- ------- ------- -------
FINANCING ACTIVITIES CASH FLOWS
Dividends paid (4.8) (3.6) (12.1) (9.9)
Issuance of long-term debt 11.4 - 12.8 -
Repayments of long-term debt (2.5) - (4.8) (16.4)
Increase in amounts
payable to banks 27.0 40.4 19.0 48.2
Issuance of common shares .8 .1 1.3 129.6
Purchase of treasury shares (1.1) - (7.9) -
------- ------- ------- -------
Net cash provided by
financing activities 30.8 36.9 8.3 151.5
------- ------- ------- -------
Increase (decrease) in cash
and cash equivalents 1.5 (147.0) 7.3 (101.4)
Cash and cash equivalents at
beginning of period 33.6 178.7 27.8 133.1
------- ------- ------- -------
Cash and cash equivalents at
end of period $ 35.1 $ 31.7 $ 35.1 $ 31.7
======= ======= ======= =======
</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,
necessary to present fairly the company's financial
position, results of operations and cash flows.
The Consolidated Condensed Balance Sheet at December 28,
1996, 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 28, 1996.
In November, 1997, the board of directors approved
management's plan to change the company's fiscal year from a
52-53 week year ending on the Saturday closest to December
31st to a calendar year ending on December 31st of each
year. In 1998, the transition year, the company's fiscal
year will begin December 28, 1997 and conclude December 31,
1998. The change is not expected to have a material effect
on financial condition, results of operations or cash flows
for the year 1998.
RECLASSIFICATION OF FINANCIAL STATEMENT
- ---------------------------------------
Beginning in the second quarter of 1997, amortization of
goodwill, which was previously included as a component of
cost of products sold, is included in other costs and
expenses-net in the Consolidated Condensed Statement of
Earnings. Related amounts reported for prior periods have
been reclassified to conform to the 1997 presentation.
ACQUISITIONS
- -------------
As of September 1, 1997, the company acquired Minnesota
Twist Drill Inc., a maker of high-speed twist drills with
annual sales in excess of $10 million. Also, on June 30,
1997, the company acquired Data Flute CNC Inc., a
manufacturer of high-performance solid carbide end mills
having annual sales in excess of $10 million. The aggregate
cost of the acquisitions, including professional fees and
other related costs, is expected to be approximately $24
million. Both acquisitions were financed by the use of
available cash and bank borrowings and have been accounted
for under the purchase method of accounting. These
acquisitions did not significantly affect the company's
financial position or results of operations.
On January 26, 1996, the company acquired The Fairchild
Corporation's D-M-E business (D-M-E) for approximately
$246 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 $182 million and cash on hand of $64
million. The promissory notes were subsequently repaid
using the proceeds from an equity offering (see
Shareholders' Equity), available cash and borrowings under
the company's existing lines of credit.
The D-M-E acquisition was accounted for under the purchase
method. The aggregate cost of the acquisition, including
professional fees and other related costs, was $248.1
million. The allocation of the acquisition cost to the
assets acquired and the liabilities assumed is presented in
the table that follows.
(In millions)
1996
------
Cash and cash equivalents $ 1.3
Accounts receivable 25.5
Inventories 29.6
Other current assets 1.2
Property, plant and equipment 43.9
Goodwill 162.5
Other noncurrent assets 7.9
------
Total assets 271.9
Current accrued liabilities (18.9)
Long-term accrued liabilities (4.9)
------
Total liabilities (23.8)
------
Total acquisition cost $248.1
======
Unaudited pro forma sales and earnings information for the
40 weeks ended October 5, 1996, is presented in the
following table. The amounts assume that the acquisition
of D-M-E had taken place at the beginning of 1996.
(In millions, except
per-share amounts)
40 WEEKS ENDED
OCT. 5,
1996
-------
Sales $1,288.4
========
Net earnings $ 46.5
========
Per common share $ 1.24
========
SEVERANCE EXPENSE
- -----------------
In the first quarter of 1997, the company recorded severance
expense of approximately $2.0 million before tax ($1.6
million after tax) related to a workforce reduction plan
involving approximately 60 employees at the company's German
plastics technologies business, Ferromatik. The plan,
approved by management and the Works Council in the first
quarter of 1997, will result in a total cash cost of about
$2.0 million, most of which will be expended in 1997. For
the first three quarters of 1997, cash costs of
approximately $1.2 million have already been paid. The
company expects to achieve annual cost savings of
approximately $3.5 million as a result of the workforce
reduction and other actions at Ferromatik, which began to
phase in during the second quarter of 1997.
INCOME TAXES
- ------------
In both 1997 and 1996, the provision for income taxes
consists of U.S. federal and state and local income taxes,
non-U.S. income taxes in certain jurisdictions, and the
effects of the reversal of U.S. and certain non-U.S.
valuation allowances.
The company entered 1996 with non-U.S. net operating loss
carryforwards totaling $144 million, the deferred tax assets
related to which had been partially or substantially
reserved through valuation allowances at year-end 1995. The
company reviews the valuation of all deferred tax assets on
an ongoing basis and concluded in 1996 that it is more
likely than not that a portion of these assets will be
realized in the future. Accordingly, U.S. and certain non-
U.S. valuation allowances were reversed, resulting in an
effective tax rate less than the U.S. statutory rate.
Due in part to the reduction of the aggregate net operating
loss carryforward from $144 million to $125 million at year-
end 1996, and the expectation of additional loss
carryforward utilization in 1997 and 1998, the 1997
provision for income taxes includes the reversal of
additional valuation allowances in the U.S. and in certain
non-U.S. jurisdictions. As a result, the 1997 effective tax
rate is also less than the U.S. statutory rate.
RECEIVABLES
- -----------
In accordance with the company's receivables purchase
agreement with an independent party, the company sells on an
ongoing basis undivided percentage ownership interests of up
to $75 million in designated pools of accounts receivable.
The amounts of undivided interests that had been sold at
various balance sheet dates are as follows: $75.0 million at
October 4, 1997, June 14, 1997 and December 28, 1996, $72.1
million at October 5, 1996, $56.5 million at June 15, 1996,
and $69.0 million at December 30, 1995. Any increases or
decreases in the amount sold are reported as operating cash
flows in the Consolidated Condensed Statement of Cash Flows.
Costs related to the sales are included in other costs and
expenses - net in the Consolidated Condensed Statement of
Earnings.
LIABILITIES
- ------------
The components of accrued and other current liabilities and
long-term accrued liabilities are shown in the following
tables.
(In millions)
OCT. 4, DEC. 28,
1997 1996
------ -------
ACCRUED AND OTHER CURRENT LIABILITIES
Accrued salaries, wages and
other compensation $ 47.1 $ 51.9
Accrued and deferred income taxes 21.8 13.6
Other accrued expenses 108.8 103.8
------- -------
$ 177.7 $ 169.3
======= =======
LONG-TERM ACCRUED LIABILITIES
Accrued pension and other
compensation $ 67.8 $ 67.1
Accrued postretirement health
care benefits 47.1 48.4
Accrued and deferred income taxes 31.8 26.9
Minority shareholders' interests 14.7 12.7
Other 23.4 23.5
------- -------
$ 184.8 $ 178.6
======= =======
LONG-TERM DEBT
- --------------
The components of long-term debt are shown in the following
table.
(In millions)
OCT. 4, DEC. 28,
1997 1996
------ -------
LONG-TERM DEBT
7-7/8% Notes due 2000 $ 100.0 $ 100.0
8-3/8% Notes due 2004 115.0 115.0
Revolving credit facility 80.5 80.3
Other 9.5 11.8
------- -------
Total long-term debt 305.0 307.1
Less current maturities (2.0) (5.2)
------- -------
$ 303.0 $ 301.9
======= =======
Outstanding borrowings under the company's revolving credit
facility of $10.0 million at October 4, 1997 and DM 125
million ($70.5 million at October 4, 1997 and $80.3 million
at December 28, 1996) are included in long-term debt based
on the expectation that these amounts will remain
outstanding for more than one year.
LINES OF CREDIT
- ---------------
In March, 1997, at the company's request, the committed
revolving credit facility was reduced from $300 million to
$200 million and the term of the agreement was extended to
January, 2002. The restriction on total indebtedness in
relation to total capital was replaced by a covenant of debt
in relation to earnings before interest, income taxes,
depreciation and amortization (EBITDA).
At October 4, 1997, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $423
million, including the $200 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 amended
revolving credit facility, the company's additional
borrowing capacity totaled approximately $262 million at
October 4, 1997.
SHAREHOLDERS' EQUITY
- --------------------
In April, 1997, the 1997 Long-Term Incentive Plan (the
"Plan"), which had been approved by the board of directors
in February, 1997, was approved by the company's
shareholders. The Plan provides for grants of up to
2,000,000 common shares in the form of restricted stock, non-
qualified stock options and incentive stock options. In
certain circumstances, the vesting of restricted stock
awards is contingent on the attainment of specified earnings
objectives over a three year period.
In the first and third quarters of 1997, the company
repurchased a total of approximately 340,000 common shares
on the open market at a total cost of $7.9 million to
partially meet the needs of shares issued to satisfy
management incentive, employee benefit and dividend
reinvestment plans.
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 $128.5 million. The proceeds of the
offering were used to repay a portion of the promissory
notes issued to the seller in connection with the
acquisition of D-M-E.
CONTINGENCIES
- -------------
The company is involved in remedial investigations and
actions at various locations, including former plant
facilities, and EPA Superfund sites where the company and
other companies have been designated as potentially
responsible parties. The company accrues remediation costs
in accordance with American Institute of Certified Public
Accountants Statement of Position No. 96-1 (which became
effective in 1997) 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
technologies (formerly plastics machinery), machine tools,
and industrial products. Financial information for each of
these segments for the third quarter of 1997 and 1996 and
for the forty weeks ended October 4, 1997 and October 5,
1996 is presented below.
(In millions)
16 WEEKS ENDED 40 WEEKS ENDED
----------------- -----------------
OCT. 4, OCT. 5, OCT. 4, OCT. 5,
1997 1996 1997 1996
------- ------- -------- --------
Sales
Plastics technologies $ 208.8 $ 193.6 $ 537.0 $ 474.6
Machine tools 139.5 105.6 334.5 273.2
Industrial products 222.4 211.9 528.8 528.1
------- ------- -------- --------
$ 570.7 $ 511.1 $1,400.3 $1,275.9
======= ======= ======== ========
Operating earnings
Plastics technologies $ 16.4 $ 18.1 $ 39.4 $ 42.3
Machine tools 4.0 .4 7.5 1.1
Industrial products 24.3 21.5 60.3 57.0
Corporate expenses (4.9) (4.8) (12.6) (12.4)
Other unallocated expenses (a) (3.4) (3.3) (6.9) (7.1)
------- ------- -------- --------
$ 36.4 $ 31.9 $ 87.7 $ 80.9
======= ======= ======== ========
New orders
Plastics technologies $ 199.4 $ 208.9 $ 525.4 $ 471.4
Machine tools 148.0 133.8 355.0 312.3
Industrial products 219.3 209.7 534.6 528.8
------- ------- -------- --------
$ 566.7 $ 552.4 $1,415.0 $1,312.5
======= ======= ======== ========
Ending backlog $ 390.7 $ 385.9
======== ========
(a) Includes financing costs related to the sale of
accounts receivable and minority shareholders'
interests in earnings of subsidiaries.
EARNINGS PER COMMON SHARE
- -------------------------
Earnings per common share are based on the weighted average
number of common shares and common share equivalents
outstanding.
In February, 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which is effective for financial
periods ending after December 15, 1997. Earlier application
is not permitted. When it becomes effective, the new
standard will require the presentation of both "basic
earnings per share," which is based on the weighted-average
number of common shares outstanding during a period, and
"diluted earnings per share," which includes the effects of
stock options and other potentially dilutive securities. At
year-end 1997, all previously reported earnings per common
share amounts must be restated based on the provisions of
the new standard. However, the restated amounts for the
third quarters of 1997 and 1996 and for the forty weeks
ended October 4, 1997, and October 5, 1996, will not vary
significantly from the amounts reported herein.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
RESULTS OF OPERATIONS
The company operates in three business segments: plastics
technologies (formerly plastics machinery), machine tools
and industrial products.
As of September 1, 1997, the company acquired Minnesota
Twist Drill Inc., a Chisholm, Minnesota maker of high-speed
twist drills with annual sales in excess of $10 million.
Also, on June 30, 1997, the company acquired Data Flute CNC
Inc., a Pittsfield, Massachusetts manufacturer of high-
performance solid carbide end mills for the aerospace and
general metalworking industries, also having annual sales in
excess of $10 million. Both acquisitions were financed by
the use of available cash and bank borrowings, and have been
accounted for under the purchase method of accounting.
These acquisitions are included as a component of the
company's industrial products segment.
In recent years, the company's growth outside the U.S. has
allowed the company to become less dependent on the U.S.
industrial sector. For the first three quarters of 1997,
markets outside the U.S. represented the following
percentages of consolidated sales: Europe - 27%; Asia - 9%;
Canada and Mexico - 5%; and the rest of the world - 2%. As
a result of the company's geographic sales mix, foreign
currency exchange rate fluctuations affect the translation
of sales and earnings, as well as consolidated shareholders'
equity. Throughout much of 1996, the financial statement
effects of a weaker German mark and related European
currencies were to some degree offset by the effects of a
stronger British pound. In 1997, however, the pound has
somewhat stabilized while the mark has continued to weaken.
As a result, the company has experienced more significant
translation effects in 1997, resulting in negative currency
effects on new orders and sales of $26 million and $22
million, respectively, in the third quarter of 1997 and $64
million and $47 million, respectively, in the first three
quarters of 1997. The translation effect on net earnings
approximated a $.9 million, or $.02 per share, reduction in
the third quarter and first three quarters of 1997. In
1997, there has also been a $23 million decrease in
shareholders' equity due to cumulative foreign currency
translation adjustments. If the mark remains at current
levels or weakens further in 1997, the company will continue
to experience a negative effect on translating its European
new orders, sales and, possibly, net earnings in 1997 and
1998 when compared with 1996 results.
NEW ORDERS AND BACKLOG
New orders in the third quarter of 1997 were $567 million,
which represented a $15 million, or 3%, increase from the
$552 million in the third quarter of 1996. Orders for
plastics technologies products decreased by $10 million, or
5%, due to the effect of foreign currency exchange rate
changes. Machine tool orders increased by $14 million, or
11%, primarily due to increased orders for U.S.-built
horizontal machining centers and aerospace-related systems.
Orders for industrial products increased by $10 million, or
5%; however, excluding foreign currency translation effects,
new orders increased by over 10% as all major product lines
showed improvement.
For the first three quarters of 1997, new orders totaled
$1,415 million, up $102 million, or 8%, from $1,313 million
in the first three quarters of 1996. In general, U.S.
orders in all three business segments increased while
European order levels declined in part as a result of
currency fluctuations.
U.S. export orders increased to $68 million and $154 million
in the third quarter and the first three quarters of 1997,
respectively, representing over a 25% increase from the
third quarter of 1996 and a 4% increase over the first three
quarters of 1996.
The company's backlog of unfilled orders totaled $391
million at October 4, 1997. This compares to $386 million
at October 5, 1996, $373 million at December 28, 1996, and
$392 million at June 14, 1997. The $1 million decline from
June 14, 1997, was caused by foreign currency fluctuations.
Recent record levels are being maintained in large part by
increased orders for U.S.-built machine tools, including
orders for horizontal machining centers and aerospace
products.
SALES
Sales in the third quarter of 1997 were $571 million, which
represented a $60 million, or 12%, increase from $511
million in the third quarter of 1996. Sales of plastics
technologies products increased by $15 million, or 8%, as
most major product lines experienced increased sales. The
weaker German mark reduced this group's sales by $11
million. Machine tool sales increased by $34 million, or
32%, due to increased U.S. sales, and despite reductions of
shipments of U.K.-built machines. Sales of industrial
products increased by $10 million, or 5%, as sales of all
major product lines increased. The weaker German mark
reduced this group's sales by $13 million.
For the first three quarters of 1997, sales totaled $1,400
million, up $124 million, or 10%, from $1,276 million in
1996. All three business segments experienced increased
sales. In general, U.S. sales in all three business
segments increased while European sales declined, largely
due to foreign currency fluctuations.
Export sales increased to $75 million and $172 million in
the third quarter and in the first three quarters of 1997,
representing over a 20% increase in the third quarter of
1997 and over a 13% increase in the first three quarters of
1997.
MARGINS, COSTS AND EXPENSES
Amortization of goodwill had, until the second quarter of
1997, been included in cost of products sold. Because of its
increased significance as a result of acquisitions, the
company has reconsidered the historical classification of
this expense and concluded that it more properly belongs in
the caption, "Other costs and expenses - net" in the
Consolidated Condensed Statement of Earnings. Amounts for
cost of products sold, manufacturing margins and related
percentages, and other costs and expenses - net for prior
periods have been restated for consistency of presentation.
Amortization expense has been as follows: third quarter of
1997 and 1996 - $1.6 million and $2.1 million, respectively,
and for the first three quarters of 1997 and 1996 - $4.4
million and $4.7 million, respectively.
The manufacturing margin percent of 24.6% in the third
quarter of 1997 decreased from 25.5% in the third quarter of
1996. Margins for machine tools continued to improve, while
margins for industrial products were virtually unchanged.
The primary cause of the decline was lower plastics
technologies margins due to pricing pressure on U.S.-built
injection molding machines. Compared with earlier quarters
of 1997, however, plastics machinery margins have improved.
The manufacturing margin percent of 24.7% in the first three
quarters of 1997 declined from 25.3% in the first three
quarters of 1996, largely due to lower margins for both U.S.
and European-built plastic injection molding machines.
Total selling and administrative expense increased in
amount, as expected, due to increases in certain selling
costs that vary with sales levels. Administrative expenses
increased modestly due to acquisitions. As a percent to
sales, together these expenses continued to decrease due to
cost reduction efforts and sales volume increases.
Other expense-net, including amortization of goodwill,
increased to $1.7 million in the third quarter of 1997 from
$1.5 million in the third quarter of 1996. The $8.1 million
expense in the first three quarters of 1997 increased from
$5.4 million in the prior year primarily due to the
inclusion of severance expense of approximately $2.0 million
in the first quarter of 1997 relating to approximately 60
employees at Ferromatik, the company's German injection
molding machine subsidiary. As a result of this and other
actions at Ferromatik, the company expects to achieve
annualized savings of $3.5 million, which began to phase in
during the second quarter of 1997.
Interest expense-net decreased in 1997 due to lower average
debt levels and lower borrowing rates as well as the effects
of foreign currency translation.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes of $28.2 million in the third
quarter of 1997 exceeded the $23.3 million in the third
quarter of 1996 by $4.9 million, or 21%, due to higher
operating earnings and lower interest expense. Earnings
before income taxes for the first three quarters of 1997
totaled $67.3 million, representing a $9.9 million, or 17%,
increase over $57.4 million in the comparable period of
1996.
INCOME TAXES
The provision for income taxes in 1997 and 1996 includes
U.S. federal and state and local income taxes and income
taxes in other jurisdictions outside the U.S. The company
entered both years with sizeable net operating loss (NOL)
carryforwards, along with valuation allowances in certain
jurisdictions against the NOL carryforwards and other
deferred tax assets.
By the beginning of 1996, the company had fully utilized its
U.S. NOL carryforwards, but as of December 28, 1996, its non-
U.S. NOL carryforwards totaled $125 million, most of which
have no expiration dates.
The company's practice is to periodically reevaluate the
future realization of all of its deferred tax assets.
During 1997 and 1996, the company concluded that it is more
likely than not that a portion of these assets will be
offset against future taxable income. As a result, the
company reversed valuation allowances in certain
jurisdictions which caused the provision for income taxes to
be less than the statutory rate. The company expects the
utilization of these NOL carryforwards and reversal of
additional valuation allowances to continue to cause the
effective tax rate to be less than the U.S. statutory rate
through 1998, although the 1998 rate is expected to increase
to approximately 30% of earnings before income taxes.
NET EARNINGS
Net earnings were $22.6 million, or $.56 per share, in the
third quarter of 1997 compared with $19.1 million, or $.47
per share, in the third quarter of 1996, representing an 18%
increase in net earnings, and a 19% increase on a per share
basis. For the first three quarters of 1997, net earnings
were $53.8 million, or $1.34 per share, which represented a
16% increase in net earnings, but only 9% on a per share
basis due to the issuance of additional common shares in
May, 1996.
YEAR 2000
- ---------
The company is implementing plans to address potential
exposures to various systems caused by the approach of the
Year 2000. Many of the company's systems are already Year
2000 compliant, while other systems are being reprogrammed,
and, in some cases, the company is using this opportunity to
implement more modern systems which are already Year 2000
compliant. The financial impact of these changes is not
expected to have a material effect on the company's
consolidated financial position, results of operations or
cash flows.
CHANGE IN FISCAL YEAR
- ---------------------
In November, 1997, the board of directors approved
management's plan to change the company's fiscal year from a
52-53 week year ending on the Saturday closest to December
31st to a calendar year ending on December 31st of each
year. In 1998, the transition year, the company's fiscal
year will begin December 28, 1997 and conclude December 31,
1998. The change is not expected to have a material effect
on financial condition, results of operations or cash flows
for the year 1998. However, the company's current calendar
has 12 weeks each in quarters 1, 2 and 4, and 16 weeks in
quarter 3, while the calendar in future years will have
three months in each quarter. This change will cause
inconsistency in quarterly reporting throughout 1998 due to
the inclusion in 1998 of an additional 10 days in quarter 1,
7 days in quarter 2, 20 fewer days in quarter 3 and an
additional 8 days in quarter 4 in comparison to 1997.
Quarterly amounts for 1997 will not be restated because it
is impracticable to do so.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
At October 4, 1997, the company had cash and cash
equivalents of $35 million, representing increases of $1
million and $7 million in the third quarter and the first
three quarters of 1997, respectively.
Operating activities provided $16 million of cash in the
third quarter of 1997, compared with $3 million provided in
the third quarter of 1996. The increase was primarily
related to improved earnings and lower cash costs for
restructuring. For the first three quarters of 1997,
operating activities provided $60 million, representing a
$32 million increase over the first three quarters of 1996,
due in large part to improved earnings, lower cash costs for
restructuring and smaller increases in working capital.
Operating activities cash flows for the first three quarters
of 1997 and 1996 were reduced by cash costs of approximately
$1 million in 1997 for Ferromatik severance payments and $8
million in 1996 for integration and restructuring costs of
Valenite and Widia.
Investing activities in the third quarter of 1997 resulted
in a $45 million use of cash, primarily due to capital
expenditures of $23 million and the cost of the two
acquisitions of $24 million. In the third quarter of 1996,
the company used $187 million, largely due to the third
quarter cash cost of $172 million for the D-M-E acquisition.
For the first three quarters of 1997, net cash used by
investing activities totaled $61 million compared with $282
million in the first three quarters of 1996. The 1997
amount included capital expenditures of $42 million and the
cost of the two acquisitions, while 1996 included $39
million of capital expenditures and $247 million for the
D-M-E acquisition.
Financing activities provided $31 million of cash in the
third quarter of 1997 due primarily to increases in debt to
finance the two acquisitions. In the third quarter of 1996,
financing activities provided $37 million of cash primarily
due to increases in bank borrowings to complete the
D-M-E acquisition.
In the first three quarters of 1997, the financing
activities provided $8 million of cash resulting from net
borrowings of $27 million, primarily for financing the
acquisitions. In addition, $8 million was used to
repurchase approximately 340,000 common shares on the open
market to partially meet the needs of shares issued to
satisfy management incentive, employee benefit and dividend
reinvestment plans. In the first three quarters of 1996,
financing activities provided $152 million of cash,
primarily due to $129 million of net proceeds from the
issuance of 5.5 million additional shares of common stock in
the second quarter of 1996. Quarterly dividends were paid at
the rate of $.09 per common share in all periods presented
until the third quarter of 1997 when the rate was increased
to $.12 per share.
As of October 4, 1997, the company's current ratio of 1.8
was unchanged from June 14, 1997, December 28, 1996, and
October 5, 1996.
At October 4, 1997, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $423
million, including a $200 million committed revolving credit
facility.
In March, 1997, at the company's request, the revolving
credit facility was reduced from $300 million to $200
million and the term was extended to January 2002. The
restriction on total indebtedness in relation to total
capital was removed and a covenant of debt to earnings
before interest, income taxes, depreciation and amortization
(EBITDA) was substituted. Under the provisions of the
facility, the company's additional borrowing capacity
totaled approximately $262 million at October 4, 1997.
The company had a number of short-term intercompany loans
and advances denominated in various currencies totaling $38
million at October 4, 1997, that were subject to foreign
currency exchange risk. The company also enters into
various transactions, in the ordinary course of business,
for the purchase and sale of goods and services in various
currencies. The company hedges its exposure to currency
fluctuations related to short-term intercompany loans and
advances and the purchase and sale of goods under firm
commitments by entering into foreign currency exchange
contracts to minimize the effect of foreign currency
exchange rate fluctuations. The company is currently not
involved with any additional derivative financial
instruments.
The interest rates on the lines of credit and the financing
fees on the receivables purchase agreement fluctuate based
on changes in prevailing interest rates in the countries in
which amounts are borrowed or receivables are sold. At
October 4, 1997, approximately $243 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 $388 million at October 4, 1997, an increase
of $32 million from June 14, 1997, and $15 million from
December 28, 1996. Total shareholders' equity was $458
million at October 4, 1997, an increase of $11 million from
June 14, 1997, and $12 million from December 28, 1996.
Total shareholders' equity has been adversely affected by
$23 million in the first three quarters of 1997 due to the
effect of the stronger U.S. dollar on the cumulative foreign
currency translation adjustment. The ratio of total debt to
total capital (debt plus equity) was 46% at October 4, 1997,
compared with 44% at June 14, 1997, and 46% at December 28,
1996.
Capital expenditures in 1997 are expected to approximate $80
million and the company expects to expend about $2 million
for Ferromatik severance payments. The company is planning
to increase capital expenditures in 1998 to approximately
$99 million. The company believes that its cash flow from
operations and available credit lines will be sufficient to
meet these and other cash requirements.
OUTLOOK
- --------
The company continues to experience good business levels in
North American markets. In Europe, demand is soft although
the company sees signs of gradual improvement. Despite
current difficulties in Asia, the company believes that
these economies hold excellent potential for the longer
term. Given the current economic outlook, the company
remains optimistic about achieving its previously stated
goals of 7-8% annual sales growth and 15% earnings
improvement over the short and longer term.
The above forward-looking statements 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 1997, 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 currency exchange rates of U.S. and
foreign countries, including countries in Europe and Asia
where the company has several principal manufacturing
facilities and where many of the company's competitors
and suppliers are based;
* fluctuations in domestic and non-U.S. interest rates
which affect the cost of borrowing under the company's
lines of credit and financing fees related to the sale of
domestic accounts receivable;
* 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
technologies 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 duties, import 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 (3) - Articles of Incorporation and Bylaws
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
See Index to Exhibits on page 23.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during
the quarter ended October 4, 1997.
Cincinnati Milacron Inc. and Subsidiaries
Signatures
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
Cincinnati Milacron Inc.
Date: November 14, 1997 By:/s/ Robert P. Lienesch
----------------- -----------------------------
Robert P. Lienesch
Controller
Date: November 14, 1997 By:/s/ Ronald D. Brown
----------------- -----------------------------
Ronald D. Brown
Vice President - Finance and
Administration 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.
3 Articles of Incorporation and
By-laws
3.1 - Incorporated herein by
reference to the company's annual
report on Form 10-K for the
fiscal year ended December 28,
1996.
4 Instruments Defining the Rights
of Security Holders, Including
Indentures.
4.1 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).
4.2 7-7/8% Notes due 2000
- Incorporated herein by
reference to the company's
Registration Statement on Form
S-4 (Registration No. 33-60081).
4.3 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 28,
1996.
10.2 Amendment Number Four,
dated as of March 14, 1997, to the
Amended and Restated Revolving
Credit Agreement dated as of
December 31, 1994, among Cincinnati
Milacron Inc., therein, and Bankers
Trust Company, as agent
- Incorporated herein by
reference to the company's
Quarterly Report on Form 10-Q for
the quarter ended March 22, 1997.
10.3 1997 Long-Term Incentive Plan
- Incorporated by reference to
the company's Proxy Statement
filed March 21, 1997.
11 Statement Regarding Computation
of Per Share Earnings 25
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 26
99 Additional Exhibits - Not
Applicable.
Cincinnati Milacron Inc. and Subsidiaries
Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
(In thousands, except per-share amounts)
16 Weeks Ended 40 Weeks Ended
------------------- ------------------
Oct. 4, Oct. 5, Oct. 4, Oct. 5,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net earnings $22,586 $19,096 $53,836 $46,427
Less preferred dividends (60) (60) (180) (180)
------- ------- ------- -------
Net earnings available
to common shareholders $22,526 $19,036 $53,656 $46,247
======= ======= ======= =======
Primary
Average number of shares
outstanding 39,841 39,849 39,823 36,815
Add dilutive effect of
stock options based on
treasury stock method 630 250 425 684
Deduct antidilutive restricted
shares subject to contingent
vesting (205) - (205) -
------- ------- ------- -------
Total 40,266 40,099 40,043 37,499
======= ======= ======= =======
Per share amount $ .56 $ .47 $ 1.34 $ 1.23
======= ======= ======= =======
Fully diluted
Average number of shares
outstanding 39,841 39,849 39,823 36,815
Add dilutive effect of stock
options based on treasury
stock method 674 250 492 717
Deduct antidilutive restricted
shares subject to contingent
vesting (205) - (205) -
------- ------- ------- -------
Total 40,310 40,099 40,110 37,532
======= ======= ======= =======
Per share amount $ .56 $ .47 $ 1.34 $ 1.23
======= ======= ======= =======
</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 16 weeks ended OCT-4-1997
Amounts rounded to tenths of millions, except per
share data
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> JUN-14-1997
<PERIOD-END> OCT-4-1997
<CASH> 35,100,000
<SECURITIES> 0
<RECEIVABLES> 269,100,000
<ALLOWANCES> 13,600,000
<INVENTORY> 409,800,000
<CURRENT-ASSETS> 59,900,000
<PP&E> 641,800,000
<DEPRECIATION> 323,000,000
<TOTAL-ASSETS> 1,378,900,000
<CURRENT-LIABILITIES> 432,800,000
<BONDS> 0
<COMMON> 423,200,000
0
6,000,000
<OTHER-SE> 29,100,000
<TOTAL-LIABILITY-AND-EQUITY> 1,378,900,000
<SALES> 570,700,000
<TOTAL-REVENUES> 570,700,000
<CGS> 430,500,000
<TOTAL-COSTS> 430,500,000
<OTHER-EXPENSES> 103,800,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,200,000
<INCOME-PRETAX> 28,200,000
<INCOME-TAX> 5,600,000
<INCOME-CONTINUING> 22,600,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,600,000
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
