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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 30, 1998
[ ] 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 August 10, 1998: 39,225,453
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CINCINNATI MILACRON INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Statement
of Earnings 3
Consolidated Condensed Balance Sheet 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 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 6. (a) Exhibits 22
(b) Reports on Form 8-K 22
Signatures 23
Index to Exhibits 24
PART I. FINANCIAL INFORMATION
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
(In millions, except share
and per-share amounts)
QUARTER YEAR TO DATE
----------------- ----------------
JUNE 30, JUNE 14, JUNE 30, JUNE 14,
1998 1997 1998 1997
------- ------- ------- -------
Sales $490.6 $452.1 $968.0 $829.6
Cost of products sold 363.6 341.8 720.1 624.0
------ ------ ------ ------
Manufacturing margins 127.0 110.3 247.9 205.6
------ ------ ------ ------
Other costs and expenses
Selling and administrative $ 83.9 78.6 168.2 147.5
Minority shareholders'
interests .9 .4 1.1 .4
Other - net 5.4 2.2 9.7 6.4
------ ------ ------ ------
Total other costs and
expenses 90.2 81.2 179.0 154.3
------ ------ ------ ------
Operating earnings 36.8 29.1 68.9 51.3
Interest
Income .5 .4 .9 .9
Expense (7.7) (6.7) (15.2) (13.1)
------ ------ ------ ------
Interest - net (7.2) (6.3) (14.3) (12.2)
------ ------ ------ ------
Earnings before income taxes 29.6 22.8 54.6 39.1
Provision for income taxes 8.7 4.6 16.1 7.9
------ ------ ------ ------
Net earnings $ 20.9 $ 18.2 $ 38.5 $ 31.2
====== ====== ====== ======
Earnings per common share
Basic $ .53 $ .46 $ .98 $ .79
====== ====== ====== ======
Diluted $ .52 $ .46 $ .96 $ .78
====== ====== ====== ======
Dividends per common share $ .12 $ .09 $ .24 $ .18
Weighted-average common shares
outstanding (in thousands) 39,199 39,551 39,178 39,637
Weighted-average common shares
outstanding assuming dilution
(in thousands) 39,739 39,778 39,723 39,865
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
(UNAUDITED)
(In millions)
JUNE 30, DEC. 27,
1998 1997
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 30.3 $ 25.7
Notes and accounts receivable,
less allowances of $14.6 in 1998
and $13.0 in 1997 268.1 275.0
Inventories
Raw materials 28.0 26.5
Work-in-process and finished parts 237.6 217.7
Finished products 168.8 146.2
-------- --------
Total inventories 434.4 390.4
Other current assets 62.6 60.0
-------- --------
Total current assets 795.4 751.1
Property, plant and equipment 683.4 653.3
Less accumulated depreciation 334.2 310.2
-------- --------
Property, plant and equipment - net 349.2 343.1
Goodwill 242.8 231.1
Other noncurrent assets 77.2 67.2
-------- --------
TOTAL ASSETS $1,464.6 $1,392.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Amounts payable to banks and current
portion of long-term debt $ 98.1 $ 67.5
Trade accounts payable 148.6 153.7
Advance billings and deposits 38.3 35.7
Accrued and other current liabilities 190.2 168.5
-------- --------
Total current liabilities 475.2 425.4
Long-term accrued liabilities 192.0 191.0
Long-term debt 310.2 304.2
-------- --------
TOTAL LIABILITIES 977.4 920.6
-------- --------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
Preferred shares 6.0 6.0
Common shares (outstanding: 39.4 in
1998 and 39.6 in 1997) 409.9 417.4
Reinvested earnings 112.4 83.5
Accumulated other comprehensive
income (loss) (41.1) (35.0)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 487.2 471.9
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,464.6 $1,392.5
======== ========
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(In millions)
QUARTER YEAR TO DATE
------------------- -----------------
JUNE 30, JUNE 14, JUNE 30, JUNE 14,
1998 1997 1998 1997
------- ------- ------- -------
INCREASE IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES CASH FLOWS
Net earnings $ 20.9 $ 18.2 $ 38.5 $ 31.2
Operating activities providing
(using) cash:
Depreciation and
amortization 14.8 13.0 29.2 23.9
Deferred income taxes (.4) (7.2) (3.6) (13.5)
Working capital changes
Notes and accounts
receivable (12.8) (12.3) 8.6 7.6
Inventories (21.7) (7.7) (40.8) (25.7)
Other current assets 2.5 (1.5) (2.2) (7.3)
Trade accounts payable (5.3) 12.1 (6.0) 5.3
Accrued and other current
liabilities 10.3 18.6 21.1 20.9
Decrease (increase) in other
noncurrent assets (5.9) (.6) (8.6) .8
Increase in long-term
accrued liabilities 6.6 1.8 1.3 3.4
Other - net (.5) (.9) (1.3) (2.6)
------- ------- ------- -------
Net cash provided by
operating activities 8.5 33.5 36.2 44.0
------- ------- ------- -------
INVESTING ACTIVITIES CASH FLOWS
Capital expenditures (17.4) (12.8) (29.4) (19.4)
Net disposals of property, plant
and equipment .4 3.5 1.5 3.7
Acquisitions (8.0) - (20.5) -
------- ------- ------- -------
Net cash used by
investing activities (25.0) (9.3) (48.4) (15.7)
------- ------- ------- -------
FINANCING ACTIVITIES CASH FLOWS
Dividends paid (4.8) (3.6) (9.6) (7.3)
Issuance of long-term debt 3.0 .8 4.5 1.4
Repayments of long-term debt - (.6) (.5) (2.3)
Increase (decrease) in amounts
payable to banks 8.4 (17.5) 29.9 (8.0)
Issuance of common shares 1.4 .3 5.6 .5
Purchase of treasury and other
common shares (4.2) - (13.1) (6.8)
------- ------- ------- -------
Net cash provided (used) by
financing activities 3.8 (20.6) 16.8 (22.5)
------- ------- ------- -------
INCREASE IN CASH AND
CASH EQUIVALENTS (12.7) 3.6 4.6 5.8
Cash and cash equivalents at
beginning of period 43.0 30.0 25.7 27.8
------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 30.3 $ 33.6 $ 30.3 $ 33.6
======= ======= ======= =======
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, all of which are normal and recurring,
necessary to present fairly the company's financial
position, results of operations and cash flows.
The Consolidated Condensed Balance Sheet at December 27,
1997, has been derived from the audited consolidated
financial statements at that date.
Except as described in the note captioned "Comprehensive
Income," 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 27, 1997.
CHANGE IN FISCAL YEAR
- ---------------------
Beginning in the first quarter of 1998, the company changed
its 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 began December 28, 1997 and
will end 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, this
change causes inconsistency between the 1997 and 1998
quarterly results for two reasons. First, the company's
previous calendar had 12 weeks each in quarters 1, 2 and 4,
and 16 weeks in quarter 3, while the calendar in 1998 has
three months in each quarter. Second, while the company's
historical quarter 1 traditionally ended in mid-March, two
recent acquisitions, Widia and Ferromatik, continued to
maintain their financial records on a monthly basis. As a
result, quarter 1 included their results for only January
and February, while March, April and May were included in
the company's second quarter. In quarter 3, Widia and
Ferromatik historically reported four complete months, and
in quarter 4, the final three complete months were reported.
The inclusion of one additional month of Widia and
Ferromatik's results has the effect of increasing year-to-
date 1998 sales by approximately $30 million. Given the
number of subjective assumptions and estimations that would
be required, quarterly amounts for 1997 have not been
restated because precise calculations would be
impracticable.
ACQUISITIONS
In the third quarter of 1997, the company acquired Minnesota
Twist Drill, Inc., a maker of high-speed twist drills and
Data Flute CNC, Inc., a manufacturer of high-performance
solid carbide end mills. Each business has annual sales of
approximately $10 million.
In February, 1998, the company made two additional
acquisitions: Wear Technology, which has annual sales of
approximately $10 million and serves the aftermarket for new
and rebuilt twin screws for extrusion systems, and Northern
Supply, a regional catalog distribution company offering
supplies to plastics processors for injection molding, blow
molding and extrusion with annual sales of approximately $5
million.
In May, 1998, the company acquired Autojectors, Inc., a
leading U.S. producer of vertical insert injection molding
machinery widely used to make medical, electrical and
automotive components. Autojectors has annual sales of
approximately $20 million.
All of these acquisitions were financed by the use of
available cash and bank borrowings and are being accounted
for under the purchase method. The aggregate cost of the
acquisitions, including professional fees and other related
costs, is expected to total approximately $22.3 million in
1998 and was $27.4 million in 1997. These acquisitions did
not significantly affect the company's financial position or
results of operations.
SEVERANCE EXPENSE
- -----------------
In the first half of 1998, the company recorded severance
expense of $5.3 million before tax ($3.7 million after tax)
related to a workforce reduction plan involving
approximately 125 employees at Widia, the company's European
cutting tool company. Of the total $5.3 million expense,
$3.3 million ($2.3 million after tax) was recorded in the
second quarter of 1998. As a result of the workforce
reduction and other actions at Widia, the company expects to
achieve annual pretax cost savings of approximately $5.0
million, which are expected to begin phasing in during the
fourth quarter of 1998.
In the first quarter of 1997, the company recorded severance
expense of approximately $2.0 million ($1.6 million after
tax) for workforce reductions involving approximately 60
employees at its German injection molding machine business,
Ferromatik. As a result of the workforce reduction and
other actions at Ferromatik, the company is achieving annual
pretax cost savings of approximately $3.5 million, which
began to phase in during the second quarter of 1997.
INCOME TAXES
- ------------
In both 1998 and 1997, 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 certain non-U.S. valuation
allowances. The 1997 provision also includes the reversal
of U.S. valuation allowances.
The company entered 1997 with non-U.S. net operating loss
carryforwards totaling $125 million, the deferred tax assets
related to which had been partially reserved through
valuation allowances at year-end 1996. The company reviews
the valuation of all deferred tax assets on an ongoing basis
and concluded in 1997 that it is more likely than not that a
portion of these assets would be realized in the future.
Accordingly, all remaining U.S. and U.K. valuation
allowances were reversed, as were valuation allowances in
certain other non-U.S. jurisdictions. As a result, the 1997
effective tax rate was less than the U.S. statutory rate.
At December 27, 1997, the company had non-U.S. net operating
loss carryforwards totaling $112 million, including $76
million in Germany. Most of these net operating loss
carryforwards have no expiration dates. Valuation
allowances, principally in Germany, totaled $26 million.
Due to the expectation of further net operating loss
carryforward utilization in 1998 and 1999, the effective tax
rate provides for the reversal of additional valuation
allowances and as a result is once again 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 amount of undivided interests that had been sold has
remained unchanged at $75 million since December, 1996 and,
as a result, there has been no cash flow effect related to a
change in the amount sold in 1998 or 1997. Had any increase
or decrease in the amount sold occurred, it would have been
included in cash flow from operating activities 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 30, DEC. 27,
1998 1997
------- -------
ACCRUED AND OTHER CURRENT LIABILITIES
Accrued salaries, wages and
other compensation $ 56.6 $ 50.4
Accrued and deferred income taxes 18.8 15.8
Other accrued expenses 114.8 102.3
------- -------
$ 190.2 $ 168.5
======= =======
LONG-TERM ACCRUED LIABILITIES
Accrued pension and other compensation $ 74.9 $ 73.2
Accrued postretirement health
care benefits 45.9 46.4
Accrued and deferred income taxes 25.5 31.5
Minority shareholders' interests 17.8 16.7
Other 27.9 23.2
------- -------
$ 192.0 $ 191.0
======= =======
LONG-TERM DEBT
- --------------
The components of long-term debt are shown in the following
table.
(In millions)
JUNE 30, DEC. 27,
1998 1997
------- -------
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 79.4 80.3
Other 17.0 10.5
------- -------
Total long-term debt 311.4 305.8
Less current maturities (1.2) (1.6)
------- -------
$ 310.2 $ 304.2
======= =======
Outstanding borrowings under the company's revolving credit
facility of $10.0 million and DM 125 million ($69.4 million
at June 30, 1998 and $70.3 million at December 27, 1997) are
included in long-term debt based on the expectation that
these borrowings will remain outstanding for more than one
year. These borrowings are at variable interest rates,
which had a weighted-average of 4.1% at June 30, 1998 and
4.3% at December 27, 1997, respectively.
LINES OF CREDIT
- ---------------
At June 30, 1998, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $472
million, including a $250 million committed revolving credit
facility. These credit facilities support letters of credit
and leases in addition to providing borrowings under varying
terms. Under the provisions of the revolving credit
facility, the company's additional borrowing capacity
totaled approximately $361 million at June 30, 1998 (see
also "Subsequent Event" footnote).
SHAREHOLDERS' EQUITY
- --------------------
During the first two quarters of 1998, the company purchased
a total of 492,900 treasury shares on the open market at a
cost of $12.0 million to partially meet current and future
needs of management incentive, employee benefit and dividend
reinvestment plans. An additional 38,303 shares were
purchased in the first two quarters of 1998 with respect to
current exercises of stock options in lieu of the issuance
of authorized but unissued shares or treasury shares. A
total of 299,600 treasury shares were purchased in the first
quarter of 1997 at a cost of $6.8 million. Reissuances of
treasury shares totaled 291,186 in the first half of 1998
and 285,190 in the first half of 1997.
Subsequent to June 30, 1998, 247,000 additional treasury
shares were purchased at a cost of $5.7 million.
COMPREHENSIVE INCOME
- --------------------
Effective at the beginning of 1998, the company adopted
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." The statement establishes
standards for the reporting and display of total
comprehensive income and its components in financial
statements. The adoption of this statement has no effect on
the company's net earnings or total shareholders' equity.
Total comprehensive income represents the net change in
shareholders' equity during a period from sources other than
transactions with shareholders and as such, includes net
earnings. For the company, the only other component of
total comprehensive income is the change in the cumulative
foreign currency translation adjustments recorded in
shareholders' equity. Total comprehensive income and
changes in total shareholders' equity are as follows:
(In millions)
QUARTER ENDED
-----------------------------------------
JUNE 30, 1998 JUNE 14, 1997
----------------- ------------------
TOTAL TOTAL TOTAL TOTAL
COMPRE- SHARE- COMPRE- SHARE-
HENSIVE HOLDERS' HENSIVE HOLDERS'
INCOME EQUITY INCOME EQUITY
------- -------- ------- --------
Balance at beginning of period $ 477.7 $ 433.5
Net common share transactions (2.8) .2
Net earnings $ 20.9 20.9 $ 18.2 18.2
Foreign currency translation
adjustments (3.8) (3.8) (1.2) (1.2)
------- ------
Total comprehensive income $ 17.1 $ 17.0
======= ======
Cash dividends (4.8) (3.6)
------- -------
Balance at end of period $ 487.2 $ 447.1
======= =======
(In millions)
YEAR TO DATE
-----------------------------------------
JUNE 30, 1998 JUNE 14, 1997
----------------- ------------------
TOTAL TOTAL TOTAL TOTAL
COMPRE- SHARE- COMPRE- SHARE-
HENSIVE HOLDERS' HENSIVE HOLDERS'
INCOME EQUITY INCOME EQUITY
------- -------- ------- --------
Balance at beginning of period $ 471.9 $ 446.2
Net common share transactions (7.5) (6.3)
Net earnings $ 38.5 38.5 $ 31.2 31.2
Foreign currency translation
adjustments (6.1) (6.1) (16.7) (16.7)
------ ------
Total comprehensive income $ 32.4 $ 14.5
====== ======
Cash dividends (9.6) (7.3)
------- -------
Balance at end of period $ 487.2 $ 447.1
======= =======
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 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, machine tools, and industrial products.
Financial information for each of these segments for the
second quarter and year to date as of June 30, 1998 and June
14, 1997 is presented below.
(In millions)
QUARTER YEAR TO DATE
----------------- -----------------
JUNE 30, JUNE 14, JUNE 30, JUNE 14,
1998 1997 1998 1997
------- ------- ------- -------
Sales
Plastics technologies $ 189.2 $ 179.0 $ 369.5 $ 328.2
Machine tools 120.1 105.2 241.0 195.0
Industrial products 181.3 167.9 357.5 306.4
------- ------- ------- -------
$ 490.6 $ 452.1 $ 968.0 $ 829.6
======= ======= ======= =======
Operating earnings
Plastics technologies $ 19.7 $ 13.8 $ 35.9 $ 23.0
Machine tools 4.1 1.7 8.3 3.5
Industrial products 19.6 19.4 38.2 36.0
Corporate expenses (4.0) (3.9) (9.1) (7.7)
Other unallocated expenses (a) (2.6) (1.9) (4.4) (3.5)
------- ------- ------- -------
$ 36.8 $ 29.1 $ 68.9 $ 51.3
======= ======= ======= =======
New orders
Plastics technologies $ 186.2 $ 174.9 $ 366.5 $ 326.0
Machine tools 106.9 109.8 262.1 207.0
Industrial products 183.9 171.6 366.6 315.3
------- ------- ------- -------
$ 477.0 $ 456.3 $ 995.2 $ 848.3
======= ======= ======= =======
Ending backlog $ 386.5 $ 391.9 $ 386.5 $ 391.9
======= ======= ======= =======
(a)Includes financing costs related to the sale of accounts
receivable and minority shareholders' interests in
earnings of subsidiaries.
EARNINGS PER COMMON SHARE
- -------------------------
Basic earnings per common share data are based on the
weighted-average number of common shares outstanding during
the respective periods. Diluted earnings per common share
data are based on the weighted-average number of common
shares outstanding adjusted to include the effects of
potentially dilutive stock options and certain restricted
shares.
Earnings per common share data are computed in accordance
with Statement of Financial Accounting Standards No. 128,
"Earnings per Share," which became effective for financial
statements issued after December 15, 1997. Amounts reported
prior to the effective date of this standard have been
restated to comply with its provisions.
RECENTLY ISSUED PRONOUNCEMENTS
- ------------------------------
During the second quarter of 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This standard is effective for the
company beginning in 2000 (although earlier application is
permitted). It establishes comprehensive accounting and
reporting requirements for the recognition and measurement
of derivative financial instruments and hedging activities
including a requirement that derivatives be measured at fair
value and recognized in the balance sheet. The company
enters into forward contracts, which are a form of
derivative instrument, to minimize the effect of foreign
currency exchange rate fluctuations. The company is
evaluating the effect of this statement on the financial
position and results of operations. However, management
currently believes that the effect will not be material.
SUBSEQUENT EVENT
- ----------------
On August 3, 1998, the company signed a definitive agreement
to acquire the assets of the plastics machinery division
(PMD) of Johnson Controls, Inc. for approximately $210
million. PMD, known for its Uniloy brand, has annual sales
of approximately $190 million and is one of the world's
leading providers of blowmolding machines, as well as
structural foam systems, aftermarket parts, services and
molds for blowmolding. PMD employs approximately 800 people
world-wide and has major manufacturing facilities in
Manchester, Michigan; Milan and Florence, Italy; and Berlin,
Germany. The transaction is subject to customary closing
conditions and government regulatory approvals and is
expected to close near the end of the third quarter. The
acquisition will be accounted for under the purchase method
of accounting. The transaction will be financed through the
use of available cash and bank borrowings, including a new
$135 million senior term bank loan.
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, machine tools and industrial products.
COMPARABILITY OF FINANCIAL STATEMENTS
Beginning in the first quarter of 1998, the company changed
its 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 began December 28, 1997 and
will end 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, this
change causes inconsistency between the 1997 and 1998
quarterly results for two reasons. First, the company's
previous calendar had 12 weeks each in quarters 1, 2 and 4,
and 16 weeks in quarter 3, while the calendar in 1998 has
three months in each quarter. Second, while the company's
historical quarter 1 traditionally ended in mid-March, two
recent acquisitions: Widia and Ferromatik, continued to
maintain their financial records on a monthly basis. As a
result, quarter 1 included their results for only January
and February, while March, April and May were included in
the company's second quarter. In quarter 3, Widia and
Ferromatik historically reported four complete months, and
in quarter 4, the final three complete months were reported.
The inclusion of one additional month of Widia and
Ferromatik's results has the effect of increasing year-to-
date 1998 sales by approximately $30 million. The company
has estimated additional effects of the calendar change on
new business, sales and earnings, as described elsewhere in
this section. Given the number of subjective assumptions and
estimations that would be required, quarterly amounts for
1997 have not been restated because precise calculations are
impracticable.
In February, 1998, the company acquired Wear Technology and
Northern Supply. Wear Technology is a McPherson, Kansas
company with annual sales of approximately $10 million which
primarily serves the aftermarket for new and rebuilt twin
screws for extrusion systems used by the construction
industry. Northern Supply, with annual sales of
approximately $5 million, offers supplies to plastics
processors for injection molding, blow molding and extrusion
through distribution centers in Minneapolis, Minnesota and
Charlotte, North Carolina. In May, 1998, the company
acquired Autojectors, Inc., a leading U.S. producer of
vertical insert injection molding machinery widely used to
make medical, electrical and automotive components. With
annual sales of approximately $20 million, Autojectors
operates through two manufacturing facilities near Fort
Wayne, Indiana. All acquisitions were financed by the use
of available cash and bank borrowings, have been accounted
for under the purchase method of accounting, and are
included as components of the company's plastics
technologies segment. As a result of these acquisitions, as
well as the two acquisitions in the industrial products
segment that were made in the third quarter of 1997, second
quarter 1998 consolidated new orders and sales increased by
$11 million, and year-to-date new orders and sales increased
by $18 million.
In recent years, the company's growth outside the U.S. has
allowed the company to become more globally balanced. For
the first half of 1998, markets outside the U.S. represented
the following percentages of consolidated sales: Europe -
27%; Asia - 7%; Canada and Mexico - 6%; and the rest of the
world - 2%. As a result of the company's geographic mix,
foreign currency exchange rate fluctuations affect the
translation of sales and earnings, as well as consolidated
shareholders' equity. In 1997 and early 1998, the British
pound was somewhat stabile while the German mark continued
to weaken against the U.S. dollar. However, during the
second quarter of 1998, the German mark also began to
stabilize. As a result, in the second quarter of 1998, the
company experienced negative currency translation effects on
new orders and sales of $12 million, (while the effect on
net earnings was not material). In the first half of 1998,
the company experienced negative currency translation
effects on new orders and sales of $28 million (with the
effect on net earnings at $.6 million). In 1998, there was
also a $6 million decrease in shareholders' equity due to
foreign currency translation adjustments.
If the mark remains at current levels or weakens further in
1998, the company will continue to experience a negative
effect on translating its European new orders, sales and,
possibly, net earnings in 1998 when compared with 1997
results.
NEW ORDERS AND BACKLOG
New orders in the second quarter of 1998 were $477 million,
which represented a $21 million, or 5%, increase from the
$456 million in the second quarter of 1997. However, taking
into account the effects of the change in calendar, negative
currency translation adjustments and acquisitions, new
orders were at comparable levels between periods. Orders
for plastics technologies products increased by $11 million,
or 6%; excluding the calendar effect, acquisitions and
negative currency translation adjustments, orders increased
by approximately 3%. Machine tool orders decreased by $3
million, or 3%, due primarily to reduced demand for the
company's horizontal machining centers in the U.S. which had
weakened in April and May, but picked up in June. Also, the
prior year's new orders included a single $13 million order
for the company's horizontal machining business. (Although
order rates were low in July, 1998, the biannual machine
tool show in September typically results in low order levels
in the months preceding the show.) Orders for industrial
products increased by $12 million, or 7%; excluding the
calendar change, foreign currency translation effects and
the effect of 1997 acquisitions, new orders increased by
approximately 3%.
For the first half of 1998, new orders totaled $995 million,
up $147 million, or 17%, from $848 million in the first half
of 1997. Excluding the effects of the calendar change,
acquisitions and negative currency translation adjustments,
new orders increased by approximately 8%. This increase is
the result of overall stronger orders as all operating
segments showed improvements during 1998. Also, the machine
tool segment experienced increased orders for aerospace
systems primarily in the first quarter of 1998, including a
single $17 million order which occurred in the first quarter
of 1998.
U.S. export orders increased to $58 million and $125 million
in the second quarter and first half of 1998, representing
25% and 45% increases, respectively, from the second quarter
and first half of 1997, in some part due to the calendar
change.
The company's backlog of unfilled orders totaled $387
million at June 30, 1998. This compares to $404 million at
March 31, 1998, $365 million at December 27, 1997 and $392
million at June 14, 1997. Recent high levels are being
maintained in large part by high order levels for aerospace
products in the first quarter of 1998.
SALES
Sales in the second quarter of 1998 were $491 million, which
represented a $39 million, or 9%, increase from $452 million
in the second quarter of 1997. About half of the increase
resulted from the calendar change. Sales of plastics
technologies products increased by $10 million, or 6%;
excluding the calendar effect, acquisitions and currency
translation adjustments, sales increased by approximately
3%. Machine tool sales increased by $15 million, or 14%;
due in part to the calendar effect and increased U.S. sales,
mostly sales of aerospace systems. Sales of industrial
products increased by $13 million, or 8%; excluding the
calendar change, foreign currency translation effects and
the effect of 1997 acquisitions, sales increased by
approximately 3%.
For the first half of 1998, sales totaled $968 million, up
$138 million, or 17%, from $830 million in the first half of
1997. Excluding the calendar effect, acquisitions and
currency translation adjustments, sales increased by
approximately 8% as all operating segments showed growth.
Export sales were $53 million and $118 million in the second
quarter and first half of 1998 which is comparable to $55
million and $97 million in the second quarter and first half
of 1997. The increase in the first half is due in part to
the calendar change as well as higher overall sales levels.
MARGINS, COSTS AND EXPENSES
The manufacturing margin percent of 25.9% in the second
quarter of 1998 increased from 24.4% in the second quarter
of 1997. Margins for all three segments showed improvement
in both the U.S. and in Europe. Also, 1997 margins had been
held back in the plastics technologies segment due to
pricing pressure on U.S.-built injection molding machines,
which began to ease in the third quarter of 1997. For the
same reasons, the manufacturing margin of 25.6% in the first
half of 1998 increased from 24.8% in the first half of 1997.
For the quarter and year to date, 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 largely due to the
calendar effect. As a percentage of sales, together these
expenses decreased due to increased sales volume.
Other expense-net, including amortization of goodwill,
increased to $5.4 million in the second quarter of 1998 from
$2.2 million in the second quarter of 1997. For the first
half of 1998, other expense-net increased to $9.7 million
from $6.4 million in the first half of 1997. The 1998 year-
to-date expense includes severance expenses of approximately
$5.3 million, including $3.3 million charged in the second
quarter, relating to approximately 125 employees at Widia,
the company's European cutting tool company. As a result of
these and other actions at Widia, the company expects to
achieve annualized pretax savings of approximately $5.0
million, which are expected to begin during the fourth
quarter of 1998. The 1997 year-to-date expense included
severance expenses of approximately $2.0 million relating to
Ferromatik, the company's German injection molding machine
subsidiary. Annual cost savings from this and other cost
reduction measures at Ferromatik are approximately $3.5
million.
Interest expense-net increased in 1998 due primarily to the
calendar effect and higher average debt levels.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes of $29.6 million in the second
quarter of 1998 exceeded the $22.8 million in the second
quarter of 1997 by $6.8 million, or 30%, about one quarter
of which resulted from the calendar change discussed above.
Earnings before income taxes for the first half of 1998
totaled $54.6 million, representing a $15.5 million, or 40%
increase over $39.1 million in the comparable period of
1997, with approximately one quarter of which resulted from
the calendar change. The residual increases are the result
of higher operating earnings.
INCOME TAXES
The provision for income taxes in 1998 and 1997 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. Valuation allowances are
evaluated annually and reversed when it is determined to be
more likely than not that the related deferred tax assets
will be realized. The reversal of these valuation
allowances, as described more fully in the notes to
consolidated financial statements, serves to reduce the
effective tax rate. Valuation allowances, subject to future
reversal were $26 million at year-end 1997. The company
anticipates that these valuation allowances will approximate
$10 million at year-end 1998.
The effective tax rate for 1999 is expected to increase to a
range of approximately 34-36%. However, the tax rate will
ultimately be contingent on the mix of earnings between tax
jurisdictions and other factors that cannot be predicted
with certainty at this time.
NET EARNINGS
Net earnings were $20.9 million, or $.52 per share
(diluted), in the second quarter of 1998 compared with $18.2
million, or $.46 per share (diluted), in the second quarter
of 1997, representing a 15% increase in net earnings, and a
13% increase on a per-share basis. Slightly more than half
of the increases were caused by the calendar change. For
the first half of 1998, net earnings were $38.5 million, or
$.96 per share (diluted), which represented an increase of
$7.3 million, or $.18 per share (diluted), over the first
half of 1997. About 40 - 50% of the increases were caused
by the calendar change.
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.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
At June 30, 1998, the company had cash and cash equivalents
of $30 million, representing a decrease of $13 million in
the second quarter and an increase of $5 million in the
first half of 1998.
Operating activities provided $9 million of cash in the
second quarter of 1998, compared with $34 million provided
in the second quarter of 1997. The decrease was primarily
related to increases in inventory. For the first half of
1998, operating activities provided $36 million, compared
with $44 million in the second half of 1997. The decrease
is largely the result of changes in various working capital
accounts. Operating activities cash flows for the first half
of 1998 and 1997 were reduced by cash costs of approximately
$.6 million and $.8 million in 1998 and 1997, respectively,
for severance payments.
In the second quarter of 1998, investing activities resulted
in a $25 million use of cash, due to capital expenditures of
$17 million and acquisitions of $8 million. For the first
half of 1998, net cash used by investing activities totaled
$48 million compared with $16 million in the first half of
1997. The net cash used in the first half of 1998 primarily
relates to capital expenditures of $29 million and
acquisitions of $21 million.
Financing activities provided $4 million of cash in the
second quarter of 1998 due primarily to increases in the
company's lines of credit to finance recent acquisitions.
In the second quarter of 1997, financing activities used $21
million of cash due primarily to repayments in bank
borrowings. In the first half of 1998, financing activities
provided $17 million of cash primarily through increases in
bank borrowings, offset by $13 million to repurchase
approximately 493,000 common shares on the open market to
partially meet the needs of management incentive, employee
benefit and dividend reinvestment plans. Quarterly
dividends were paid at the rate of $.12 per common share in
1998 and $.09 per common share in 1997.
As of June 30, 1998, the company's current ratio was 1.7, as
compared to 1.7 at March 31, 1998, and 1.8 at December 27,
1997 and at June 14, 1997.
At June 30, 1998, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $472
million, including a $250 million committed revolving credit
facility. Under the provisions of the facility, the
company's additional borrowing capacity totaled
approximately $361 million at June 30, 1998.
The company had a number of short-term intercompany loans
and advances denominated in various currencies totaling $24
million at June 30, 1998, 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
30, 1998, approximately $263 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 $408 million at June 30, 1998, representing
increases of $16 million and $37 million from March 31, 1998
and December 27, 1997, respectively. Total shareholders'
equity was $487 million at June 30, 1998, an increase of $10
million from March 31, 1998 and $15 million from December
27, 1997. Total shareholders' equity was adversely affected
by $6 million in the first half of 1998 due to the effect of
the stronger U.S. dollar on the cumulative foreign currency
translation adjustment plus $7.5 million for the net
repurchase of shares. The ratio of total debt to total
capital (debt plus equity) was 46% at June 30, 1998,
compared with 45% at March 31, 1998 and 44% at December 27,
1997.
Capital expenditures in 1998 are expected to approximate
$100 million and the company expects to expend about $4.7
million for Widia severance payments and $210 million for an
expected acquisition announced subsequent to June 30, 1998
in the third quarter relating to the plastics machinery
division of Johnson Controls, Inc. The company believes
that its cash flow from operations and available credit
lines, including the new $135 million senior term bank loan,
will be sufficient to meet these and other cash
requirements.
OUTLOOK
- -------
Although the effects of the Asian crisis and the General
Motors strike have resulted in slightly weaker performance
than its long-term targets, the company has performed well
in light of these events and is optimistic that these events
will not significantly affect future results. The company
remains optimistic that North American markets will remain
favorable and the continued recovery in European markets
will provide an environment conducive to continued growth.
However, if an economic downturn does occur, the company
believes it is better positioned than in the past to weather
an adverse economic condition. While the Asian markets
continue to remain weak, the company's direct exposure to
these markets is modest.
Assuming that current economic conditions hold up, the
company is well positioned to meet its targets of 7% to 8%
sales growth and 12% to 15% earnings improvements over the
long 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 about all its forward-
looking statements in the "Outlook" section above and
elsewhere. These include all statements which speak about
the future or are based on the company's interpretation of
factors that might affect its businesses. The company
believes the following important factors, among others,
could affect its actual results for 1998 and beyond and
cause them to differ materially from those expressed in any
forward-looking statements:
*global and regional economic conditions, consumer
spending and industrial production 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
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;
*changes in tax, environmental and other laws and
regulations in the U.S. and non-U.S. countries where the
company does business; and
*unanticipated litigation, claims or assessments,
including but not limited to claims or problems related
to product liability, warranty or environmental issues.
PART II. OTHER INFORMATION
CINCINNATI MILACRON INC. AND SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
In the opinion of management and counsel, there are no
material pending legal proceedings to which the company or
any of its subsidiaries is a party or of which any of its
property is the subject.
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 28, 1998.
(b) All director nominees were elected.
(c) The shareholders voted on the following matters:
PROPOSALS AND VOTE TABULATIONS
VOTES CAST
----------------------------------------
FOR AGAINST ABSTAIN NON-VOTES
---------- ------- ------- ---------
Approval of the appointment
of independent auditors 65,737,452 227,700 490,392 0
ELECTION OF DIRECTORS
DIRECTOR VOTES FOR VOTES WITHHELD
-------- ---------- --------------
Harry Hammerly 65,821,943 634,691
Daniel Meyer 65,745,159 711,102
Joseph Steger 65,627,034 829,520
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
Per Share Earnings - 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 30, 1998.
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: August 12, 1998 By:/s/Jerome L. Fedders
--------------------- --------------------
Jerome L. Fedders
Controller
Date: August 12, 1998 By:/s/Ronald D. Brown
--------------------- --------------------
Ronald D. Brown
Senior 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 27, 1997.
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 27,
1997.
11 Statement Regarding Computation
of Per Share Earnings 26
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 - Filed
as part of EDGAR document
99 Additional Exhibits
- Not Applicable.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(UNAUDITED)
(In thousands, except per-share amounts)
QUARTER YEAR TO DATE
----------------- ------------------
JUNE 30, JUNE 14, JUNE 30, JUNE 14,
1998 1997 1998 1997
------- ------- ------- -------
Net earnings $20,868 $18,202 $38,496 $31,249
Less preferred dividends (60) (60) (120) (120)
------- ------- ------- -------
Net earnings available
to common shareholders $20,808 $18,142 $38,376 $31,129
======= ======= ======= =======
Basic Earnings Per Share:
Weighted-average common shares 39,199 39,551 39,178 39,637
======= ======= ======= =======
Per share amount $ .53 $ .46 $ .98 $ .79
Diluted Earnings Per Share:
Weighted-average common shares
outstanding 39,199 39,551 39,178 39,637
Dilutive effect of stock
options and restricted
shares based on treasury
stock method 540 227 545 228
------- ------- ------- -------
Total 39,739 39,778 39,723 39,865
======= ======= ======= =======
Per share amount $ .52 $ .46 $ .96 $ .78
======= ======= ======= =======
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>
Exhibit 27
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> JUN-30-1998
<CASH> 30,300
<SECURITIES> 0
<RECEIVABLES> 282,700
<ALLOWANCES> 14,600
<INVENTORY> 434,400
<CURRENT-ASSETS> 795,400
<PP&E> 683,400
<DEPRECIATION> 334,200
<TOTAL-ASSETS> 1,464,600
<CURRENT-LIABILITIES> 475,200
<BONDS> 0
<COMMON> 409,900
0
6,000
<OTHER-SE> 71,300
<TOTAL-LIABILITY-AND-EQUITY> 1,464,600
<SALES> 968,000
<TOTAL-REVENUES> 968,000
<CGS> 720,100
<TOTAL-COSTS> 720,100
<OTHER-EXPENSES> 179,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,300
<INCOME-PRETAX> 54,600
<INCOME-TAX> 16,100
<INCOME-CONTINUING> 38,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,500
<EPS-PRIMARY> .98
<EPS-DILUTED> .96
</TABLE>
