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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 June 14, 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 July 17, 1997: 39,837,446
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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 4. Submission of Matters to a Vote of Security Holders 19
Item 6. (a) Exhibits 19
(b) Reports on Form 8-K 19
Signatures 20
Index to Exhibits 21
PART I. FINANCIAL INFORMATION
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(IN MILLIONS)
JUNE 14, DEC. 28,
1997 1996
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 33.6 $ 27.8
Notes and accounts receivable, less
allowances of $13.2 in 1997
and $13.7 in 1996 249.7 267.0
Inventories
Raw materials 27.4 27.8
Work-in-process and finished parts 211.0 202.7
Finished products 164.5 159.2
-------- --------
Total inventories 402.9 389.7
Other current assets 54.3 43.4
-------- --------
Total current assets 740.5 727.9
Property, plant and equipment 605.9 618.6
Less accumulated depreciation 298.3 299.5
-------- --------
Property, plant and equipment - net 307.6 319.1
Goodwill 222.2 229.9
Other noncurrent assets 67.5 59.4
-------- --------
TOTAL ASSETS $1,337.8 $1,336.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Amounts payable to banks
and current portion of long-term debt $ 60.8 $ 70.9
Trade accounts payable 137.1 134.9
Advance billings and deposits 39.2 34.5
Accrued and other current liabilities 178.1 169.3
-------- --------
Total current liabilities 415.2 409.6
Long-term accrued liabilities 181.1 178.6
Long-term debt 294.4 301.9
-------- --------
TOTAL LIABILITIES 890.7 890.1
-------- --------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
Preferred shares 6.0 6.0
Common shares (outstanding: 39.8 in 1997
and 1996) 423.6 429.9
Reinvested earnings 43.8 19.9
Cumulative foreign currency translation
adjustments (26.3) (9.6)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 447.1 446.2
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,337.8 $1,336.3
======== ========
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 24 WEEKS ENDED
----------------- -----------------
JUNE 14, JUNE 15, JUNE 14, JUNE 15,
1997 1996 1997 1996
------- ------- -------- -------
Sales $452.1 $411.4 $829.6 $764.8
Cost of products sold 341.8 309.7 624.0 571.6
------ ------ ------ -------
Manufacturing margins 110.3 101.7 205.6 193.2
------ ------ ------ -------
Other costs and expenses
Selling and administrative 78.6 73.5 147.5 139.7
Minority shareholders' interests .4 .5 .4 .6
Other - net 2.2 1.6 6.4 3.9
------ ------ ------ -------
Total other costs and expenses 81.2 75.6 154.3 144.2
------ ------ ------ -------
Operating earnings 29.1 26.1 51.3 49.0
Interest
Income .4 1.2 .9 2.3
Expense (6.7) (8.9) (13.1) (17.2)
------ ------ ------ -------
Interest - net (6.3) (7.7) (12.2) (14.9)
------ ------ ------ -------
EARNINGS BEFORE INCOME TAXES 22.8 18.4 39.1 34.1
Provision for income taxes 4.6 3.7 7.9 6.8
------ ------ ------ -------
NET EARNINGS $ 18.2 $ 14.7 $ 31.2 $ 27.3
====== ====== ====== ======
EARNINGS PER COMMON SHARE $ .45 $ .40 $ .78 $ .76
====== ====== ====== ======
Dividends per common share $ .09 $ .09 $ .18 $ .18
Weighted average number of shares
and common share equivalents
outstanding (in thousands) 39,893 36,688 39,895 35,765
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
12 WEEKS ENDED 24 WEEKS ENDED
----------------- -----------------
JUNE 14, JUNE 15, JUNE 14, JUNE 15,
1997 1996 1997 1996
------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES CASH FLOWS
Net earnings $ 18.2 $ 14.7 $ 31.2 $ 27.3
Operating activities providing
(using) cash :
Depreciation and amortization 13.0 12.8 23.9 22.4
Deferred income taxes (7.2) (1.3) (13.5) (1.8)
Working capital changes
Notes and accounts receivable (12.3) (14.3) 7.6 12.1
Inventories (7.7) (9.1) (25.7) (17.7)
Other current assets (1.5) (.8) (7.3) (.2)
Trade accounts payable 12.1 4.9 5.3 (.1)
Accrued and other current
liabilities 18.6 (2.1) 20.9 (20.2)
Decrease (increase) in other
noncurrent assets (.6) (3.6) .8 (4.8)
Increase in long-term
accrued liabilities 1.8 4.1 3.4 10.2
Other - net (.9) (.6) (2.6) (1.8)
------- ------- ------- -------
Net cash provided by
operating activities 33.5 4.7 44.0 25.4
------- ------- ------- -------
INVESTING ACTIVITIES CASH FLOWS
Capital expenditures (12.8) (14.6) (19.4) (22.6)
Net disposals of property, plant
and equipment 3.5 2.3 3.7 2.8
Acquisitions - (1.4) - (74.6)
------- ------- ------- -------
Net cash used by
investing activities (9.3) (13.7) (15.7) (94.4)
------- ------- ------- -------
FINANCING ACTIVITIES CASH FLOWS
Dividends paid (3.6) (3.2) (7.3) (6.3)
Issuance of long-term debt .8 - 1.4 -
Repayments of long-term debt (.6) (16.2) (2.3) (16.4)
Increase (decrease) in amounts
payable to banks (17.5) 4.0 (8.0) 7.8
Net issuance of common shares .3 128.8 .5 129.5
Net purchase of treasury shares - - (6.8) -
------- ------- ------- -------
Net cash provided (used) by
financing activities (20.6) 113.4 (22.5) 114.6
------- ------- ------- -------
INCREASE IN CASH
AND CASH EQUIVALENTS 3.6 104.4 5.8 45.6
Cash and cash equivalents at
beginning of period 30.0 74.3 27.8 133.1
------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 33.6 $ 178.7 $ 33.6 $ 178.7
======= ======= ======= =======
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
- ---------------------
In the opinion of management, the accompanying unaudited
consolidated condensed financial statements contain all
adjustments, including only normal recurring adjustments,
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.
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 in the Consolidated Condensed Statement of
Earnings. Related amounts reported for prior periods have
been reclassified to conform to the 1997 presentation.
ACQUISITION
- -----------
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
24 weeks ended June 15, 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)
24 WEEKS ENDED
JUNE 15,
1996
-------
SALES $777.3
======
NET EARNINGS $ 27.4
======
PER COMMON SHARE $ .76
======
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 machinery 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, all of which will be expended in 1997. 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, some of which began to be realized in
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 fully
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 have been sold at
various balance sheet dates are as follows: $75 million at
June 14, 1997, March 23, 1997 and December 28, 1996, $56.5
million at June 15, 1996, $64 million at March 23, 1996, and
$69 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)
JUNE 14, DEC. 28,
1997 1996
------- -------
ACCRUED AND OTHER CURRENT LIABILITIES
Accrued salaries, wages and
other compensation $ 51.8 $ 51.9
Accrued and deferred income taxes 22.1 13.6
Other accrued expenses 104.2 103.8
------ ------
$178.1 $169.3
====== ======
LONG-TERM ACCRUED LIABILITIES
Accrued pension and other compensation $ 66.9 $ 67.1
Accrued postretirement health
care benefits 48.0 48.4
Accrued and deferred income taxes 30.1 26.9
Minority shareholders' interests 13.1 12.7
Other 23.0 23.5
------ ------
$181.1 $178.6
====== ======
LONG-TERM DEBT
- --------------
The components of long-term debt are shown in the following
table.
(IN MILLIONS)
JUNE 14, 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 72.9 80.3
Other 10.6 11.8
------- -------
Total long-term debt 298.5 307.1
Less current maturities (4.1) (5.2)
------- -------
$ 294.4 $ 301.9
======= =======
Outstanding borrowings under the company's revolving credit
facility of DM 125 million ($72.9 million at June 14, 1997
and $80.3 million at December 28, 1996) are included in long-
term debt based on the expectation that these borrowings
will remain outstanding for more than one year.
LINES OF CREDIT
- ---------------
In 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 June 14, 1997, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $418
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 $276 million at
June 14, 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 quarter of 1997, the company repurchased
approximately 300,000 common shares on the open market at a
total cost of $6.8 million to partially meet the needs of
management incentive, employee benefit and shareholder
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 machinery,
machine tools, and industrial products. Financial
information for each of these segments for the second
quarter of 1997 and 1996 and for the twenty four weeks ended
June 14, 1997 and June 15, 1996 is presented below.
(IN MILLIONS)
12 WEEKS ENDED 24 WEEKS ENDED
--------------- ---------------
JUNE 14, JUNE 15, JUNE 14, JUNE 15,
1997 1996 1997 1996
------- ------- ------- -------
Sales
Plastics machinery $ 179.0 $ 158.2 $ 328.2 $ 281.0
Machine tools 105.2 86.5 195.0 167.6
Industrial products 167.9 166.7 306.4 316.2
------- ------- ------- -------
$ 452.1 $ 411.4 $ 829.6 $ 764.8
======= ======= ======= =======
Operating earnings
Plastics machinery $ 13.8 $ 13.5 $ 23.0 $ 24.2
Machine tools 1.7 (.2) 3.5 .7
Industrial products 19.4 18.9 36.0 35.5
Corporate expenses (3.9) (4.2) (7.7) (7.6)
Other unallocated expenses (a) (1.9) (1.9) (3.5) (3.8)
------- ------- ------- -------
$ 29.1 $ 26.1 $ 51.3 $ 49.0
======= ======= ======= =======
New orders
Plastics machinery $ 174.9 $ 142.3 $ 326.0 $ 262.5
Machine tools 109.8 80.6 207.0 178.5
Industrial products 171.6 166.7 315.3 319.1
------- ------- ------- -------
$ 456.3 $ 389.6 $ 848.3 $ 760.1
======= ======= ======= =======
Ending backlog $ 391.9 $ 345.0 $ 391.9 $ 345.0
======= ======= ======= =======
(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
second quarters of 1997 and 1996 and for the twenty four
weeks ended June 14, 1997, and June 15, 1996, will not vary
significantly from the amounts reported herein.
SUBSEQUENT EVENT
- ----------------
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. The acquisition of Data Flute, a
company with annual sales in excess of $10 million, will be
accounted for under the purchase method of accounting and
was financed by the use of available cash.
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
machinery, machine tools and industrial products.
In recent years, the company's growth outside the U.S. has
allowed the company to be less dependent on the U.S.
industrial sector. With sales to non-U.S. markets
accounting for 30% to 40% of sales, 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 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 a more
significant translation effect in 1997, resulting in a
negative currency effect on new orders and sales by $19
million and $17 million, respectively, in the second quarter
of 1997 and $38 million and $25 million, respectively, in
the first half of 1997. The effect of currency fluctuations
on net earnings has not been material in the first half of
1997. In 1997, there has also been a $17 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, earnings in 1997 when
compared with 1996 results.
NEW ORDERS AND BACKLOG
New orders in the second quarter of 1997 were $456 million,
which represented a $66 million, or 17%, increase from the
$390 million in the second quarter of 1996. Orders for
plastics machinery increased by $33 million, or 23%,
primarily due to increased orders for U.S.-built injection
molding machines. (Plastics machinery's second quarter new
orders exclude orders taken for over $40 million at the
triannual National Plastics Expo (NPE) which was held during
the company's third quarter.) Machine tool orders increased
by $29 million, or 36%, primarily due to increased orders
for U.S.-built standard and aerospace machines, including a
$13 million order from Aeroquip - Vickers Inc. Orders for
industrial products increased by $5 million, as U.S. orders
increased while European orders declined in large part due
to foreign currency translation effects.
For the first half of 1997, new orders totaled $848 million,
up $88 million, or 12%, from $760 million in the first half
of 1996. In general, U.S. orders in all three business
segments increased while European order levels declined
largely as a result of currency fluctuations.
U.S. export orders increased to $46 million and $87 million
in the second quarter and first half of 1997, respectively,
compared with $42 million and $83 million in the comparable
periods of 1996.
The company's backlog of unfilled orders continued to
increase from $345 million at June 15, 1996, to $373 million
at December 28, 1996, to $388 million at March 22, 1997 to
$392 million at June 14, 1997. These increases are being
driven by increased orders for U.S.-built machine tools,
including and most significantly, orders for aerospace
products.
SALES
Sales in the second quarter of 1997 were $452 million, which
represented a $41 million, or 10%, increase from $411
million in the second quarter of 1996. Sales of plastics
machinery increased by $21 million, or 13%, almost solely
due to increased sales of U.S.-built injection molding
machines. Machine tool sales increased by $19 million, or
22%, primarily due to increased U.S. sales. Sales of
industrial products increased by $1 million, or 1%, to $168
million as sales of U.S.-built grinding wheels and cutting
tools increased more than sales of European cutting tools
and industrial magnets decreased. The weaker German Mark
reduced this group's sales by $10 million.
For the first half of 1997, sales totaled $830 million, up
$65 million, or 8%, from $765 million in the first half of
1996. In general, U.S. sales in all three business segments
increased while European sales declined, largely due to
currency fluctuations.
Export sales increased to $55 million and $97 million in the
second quarter and first half of 1997, respectively,
compared with $41 million and $80 million in the comparable
periods of 1996.
MARGINS, COSTS AND EXPENSES
Amortization of goodwill has historically been included in
cost of products sold. Because of its increased
significance as a result of recent acquisitions, the company
has reconsidered the historical classification of this
expense and concluded that it more properly belongs in 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
expenses - net for prior periods have been restated for
consistency of presentation. These amounts totaled
approximately $1.3 million in the second quarters of 1997
and 1996 and $2.6 million for the first half of both years.
The manufacturing margin percent of 24.4% in the second
quarter of 1997 decreased from 24.7% in the second quarter
of 1996. Margins for machine tools and industrial products
continued to improve. The decline was caused by lower
margins for Ferromatik and pricing pressure on U.S.-built
injection molding machines. For the same reasons, the
manufacturing margin percent of 24.8% in the first half of
1997 declined from the 25.3% in the first half of 1996.
Competitive pricing for injection molding machines is
expected to continue to hold back margins into the third
quarter of 1997.
Selling and administrative expenses increased in amount, as
expected, with increased sales and the effect of the D-M-E
acquisition. As a percent to sales, this expense continued
to decline due to volume increases and certain cost
reductions.
Other expense-net, including amortization of goodwill of
about $1.3 million per quarter, increased to $2.2 million in
the second quarter of 1997 from $1.6 million in the second
quarter of 1996 primarily due to reduced gains on sales of
capital assets. The $6.4 million expense in the first half
of 1997 increased $2.5 million from 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. 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 primarily to
lower debt levels.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes of $22.8 million in the second
quarter of 1997 exceeded the $18.4 million in the second
quarter of 1996 by $4.4 million, or 24%, due to higher
operating earnings and lower interest expense. Earnings
before income taxes for the first half of 1997 totaled $39.1
million, representing a $5.0 million, or 15%, increase over
$34.1 million in the comparable period of 1996. First half
1997 earnings were held back by the $2.0 million severance
expense for Ferromatik.
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 range
between 30% and 32% of earnings before income taxes.
NET EARNINGS
Net earnings were $18.2 million, or $.45 per share, in the
second quarter of 1997 compared with $14.7 million, or $.40
per share, in the second quarter of 1996. This represented
a 23% increase in net earnings, but only 12% on a per share
basis due to the issuance of additional common shares in
May, 1996. For the first half of 1997, net earnings were
$31.2 million, or $.78 per share, which represented an
increase of $3.9 million, or $.02 per share, over the first
half of 1997. Net earnings and earnings per share for the
first half of 1997 were reduced by $1.6 million after-tax,
or $.04 per share, for the Ferromatik severance expense.
Excluding the severance expense, 1997 first half net
earnings and earnings per share would have increased by $5.5
million, or $.06 per share, over the 1996 first half net
earnings of $27.3 million and earnings per share of $.76.
LIQUIDITY AND SOURCES OF CAPITAL
At June 14, 1997, the company had cash and cash equivalents
of $34 million, representing increases of $4 million and $6
million in the second quarter and first half of 1997,
respectively.
Operating activities provided $34 million of cash in the
second quarter of 1997, compared with $5 million provided in
the second quarter of 1996. The increase was primarily
related to increases in various current liability accounts.
For the first half of 1997, operating activities provided
$44 million, representing a $19 million increase over the
first half of 1996, due in large part to increases in
various current liability accounts. Operating activities
cash flows for the first half of 1997 and 1996 were reduced
by cash costs of approximately $.8 million in 1997 for
Ferromatik severance payments and $4 million in 1996 for
integration and restructuring costs of Valenite and Widia.
Investing activities in the second quarter of 1997 resulted
in a $9 million use of cash, due to capital expenditures of
$13 million. For the first half of 1997, net cash used by
investing activities totaled $16 million compared with $94
million in the first half of 1996 which included $75 million
for the D-M-E acquisition.
Financing activities used $21 million of cash in the second
quarter of 1997 due primarily to repayments in bank
borrowings. In the second quarter of 1996, financing
activities provided $113 million of cash largely as a result
of the $129 million net proceeds from the issuance of
additional shares. Also during the second quarter of 1996,
the company elected to defease $10 million of the 12%
Sinking Fund Debentures. The remaining $.8 million of these
debentures were redeemed at par on July 15, 1997. In the
first half of 1997, the company used $23 million of cash for
financing activities, including $7 million to repurchase
approximately 300,000 common shares on the open market to
partially meet the needs of management incentive, employee
benefit and dividend reinvestment plans. In addition,
amounts payable to banks and long-term debt were reduced by
$9 million in 1997. In all periods presented, dividends were
paid at the rate of $.09 per common share.
As of June 14, 1997, the company's current ratio of 1.8 was
unchanged from March 22, 1997, and December 28, 1996, and up
from 1.7 at June 15, 1996.
At June 14, 1997, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $418
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 $276 million at June 14, 1997.
The company had a number of short-term intercompany loans
and advances denominated in various currencies totaling $45
million at June 14, 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 June
14, 1997, approximately $208 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 $355 million at June 14, 1997, a decrease of
about $18 million from both March 22, 1997, and December 28,
1996. Total shareholders' equity was $447 million at June
14, 1997, an increase of $14 million from March 22, 1997,
and $1 million from December 28, 1996. Total shareholders'
equity has been adversely affected by about $17 million in
the first half 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) declined to 44% at June 14, 1997, compared with
46% at both March 22, 1997, and December 28, 1996.
Subsequent to June 14, 1997, the company completed the
acquisition of Data Flute CNC Inc.("Data Flute"). With
annual sales in excess of $10 million, Data Flute
manufactures high performance solid carbide end mills for
the aerospace and general metalworking industries.
On July 15, 1997, the Board of Directors approved a
quarterly dividend of $.12 per common share, an increase
from $.09 per share paid in each of the quarters included in
this Form 10-Q report. The increased dividend is payable
September 12, 1997.
Capital expenditures in 1997 are expected to range between
$70 million and $83 million, dependent upon the timing of
certain projects, and the company expects to expend about $2
million for Ferromatik severance payments. The company
believes that its cash flow from operations and available
credit lines will be sufficient to meet these and other cash
requirements, including the Data Flute acquisition and the
increased dividend.
OUTLOOK
- -------
The company anticipates that good business levels will
continue for the balance of the year. The company's North
American and Asian markets remain strong, and its European
operations continue to hold up in spite of the soft
conditions there. The company expects the eventual recovery
in Europe to provide the company with a significant upside
potential. Regardless of the timing of the turn around, the
company expects steady sales and operating earnings growth
for the rest of 1997 and into 1998.
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
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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
(a) The annual meeting of shareholders of Cincinnati Milacron
Inc., was held on April 22, 1997.
(b) All director nominees were elected.
(c) The shareholders voted on the following matters:
PROPOSALS AND VOTE TABULATIONS
<TABLE>
<CAPTION>
VOTES CAST
----------------------------------------------------------
FOR AGAINST ABSTAIN NON-VOTES
---------- -------- ------- ---------
<S> <C> <C> <C> <C>
Approval of the appointment
of independent auditors 65,819,736 875,981 390,467 0
Approval of the proposed 1997
Long-Term Incentive Plan 58,916,275 3,562,138 737,489 0
</TABLE>
ELECTION OF DIRECTORS
DIRECTOR VOTES FOR VOTES WITHHELD
-------- ---------- --------------
[S]
Darryl F. Allen 66,010,334 1,247,204
James E. Perrella 66,057,591 1,199,947
Harry C. Stonecipher 66,055,341 1,202,197
Barbara Hackman Franklin 66,043,885 1,213,653
Joseph A. Pichler 66,052,515 1,205,023
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
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended June 14, 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: July 18, 1997 By:/s/ Robert P. Lienesch
------------ ----------------------
Robert P. Lienesch
Controller
Date: July 18, 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 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 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 23
15 Letter re: Unaudited Interim
Financial Information
- Not Applicable.
18 Letter Regarding Change in
Accounting Principles
- Not Applicable.
19 Report Furnished to Security
Holders
- Not Applicable.
22 Published Report Regarding
Matters Submitted To Vote of
Security Holders - Not Applicable.
23 Consents of Experts and Counsel
- Not Applicable.
24 Power of Attorney - Not
Applicable.
27 Financial Data Schedule 24
99 Additional Exhibits - Not
Applicable.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS)
12 WEEKS ENDED 24 WEEKS ENDED
----------------- -----------------
JUNE 14, JUNE 15, JUNE 14, JUNE 15,
1997 1996 1997 1996
------- ------- ------- -------
Net earnings $18,202 $14,736 $31,249 $27,331
Less preferred dividends (60) (60) (120) (120)
------- ------- ------- -------
Net earnings available
to common shareholders $18,142 $14,676 $31,129 $27,211
======= ======= ======= =======
Primary
Average number of shares
outstanding 39,819 36,162 39,813 35,081
Add dilutive effect of
stock options based on
treasury stock method 274 526 282 684
Deduct antidilutive restricted
shares subject to contingent
vesting (200) - (200) -
------- ------- ------- -------
Total 39,893 36,688 39,895 35,765
======= ======= ======= =======
Per share amount $ .45 $ .40 $ .78 $ .76
======= ======= ======= =======
Fully diluted
Average number of shares
outstanding 39,819 36,162 39,813 35,081
Add dilutive effect of stock
options based on treasury
stock method 437 526 363 739
Deduct antidilutive restricted
shares subject to contingent
vesting (200) - (200) -
------- ------- ------- -------
Total 40,056 36,688 39,976 35,820
======= ======= ======= =======
Per share amount $ .45 $ .40 $ .78 $ .76
======= ======= ======= =======
Note: This computation is required by Regulation S-K, Item
601, and is filed as an exhibit under Item 6 of Form 10-Q.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Other column represents the 12 weeks ended JUN-14-1997
Amounts rounded to tenths of millions, except per share data
</LEGEND>
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> MAR-23-1997
<PERIOD-END> JUN-14-1997
<CASH> 33,600,000
<SECURITIES> 0
<RECEIVABLES> 249,700,000
<ALLOWANCES> 13,200,000
<INVENTORY> 402,900,000
<CURRENT-ASSETS> 740,500,000
<PP&E> 605,900,000
<DEPRECIATION> 298,300,000
<TOTAL-ASSETS> 1,337,800,000
<CURRENT-LIABILITIES> 415,200,000
<BONDS> 0
<COMMON> 423,600,000
0
6,000,000
<OTHER-SE> 17,500,000
<TOTAL-LIABILITY-AND-EQUITY> 1,337,800,000
<SALES> 452,100,000
<TOTAL-REVENUES> 452,100,000
<CGS> 341,800,000
<TOTAL-COSTS> 341,800,000
<OTHER-EXPENSES> 81,200,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,300,000
<INCOME-PRETAX> 22,800,000
<INCOME-TAX> 4,600,000
<INCOME-CONTINUING> 18,200,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,200,000
<EPS-PRIMARY> .45
<EPS-DILUTED> .45
</TABLE>
