===================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarter ended March 31, 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 May 8, 1998: 39,523,690
=================================================================
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 13
PART II. Other Information
Item 1. Legal Proceedings 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 Statement of Earnings
(Unaudited)
(In millions, except share
and per-share amounts)
Quarter Ended
-------------------
March 31, March 22,
1998 1997
-------- --------
Sales $ 477.4 $ 377.5
Cost of products sold 356.5 282.2
------- -------
Manufacturing margins 120.9 95.3
------- -------
Other costs and expenses
Selling and administrative 84.3 68.9
Minority shareholders' interests .2 -
Other - net 4.3 4.2
------- -------
Total other costs and expenses 88.8 73.1
------- -------
Operating earnings 32.1 22.2
Interest
Income .4 .5
Expense (7.5) (6.4)
------- -------
Interest - net (7.1) (5.9)
------- -------
Earnings before income taxes 25.0 16.3
Provision for income taxes 7.4 3.3
------- -------
Net earnings $ 17.6 $ 13.0
======= =======
Earnings per common share
Basic $ .45 $ .33
======= =======
Diluted $ .44 $ .32
======= =======
Dividends per common share $ .12 $ .09
Weighted-average common shares
outstanding (in thousands) 39,157 39,723
Weighted average common shares outstanding
assuming dilution (in thousands) 39,708 39,951
See notes to consolidated condensed financial statements.
Cincinnati Milacron Inc. and Subsidiaries
Consolidated Condensed Balance Sheet
(Unaudited)
(In millions)
March 31, Dec. 27,
1998 1997
-------- --------
Assets
Current assets
Cash and cash equivalents $ 43.0 $ 25.7
Notes and accounts receivable, less
allowances of $13.3 in 1998 and $13.0
in 1997 253.6 275.0
Inventories
Raw materials 26.7 26.5
Work-in-process and finished parts 230.5 217.7
Finished products 151.3 146.2
-------- --------
Total inventories 408.5 390.4
Other current assets 65.4 60.0
-------- --------
Total current assets 770.5 751.1
Property, plant and equipment 660.8 653.3
Less accumulated depreciation 319.3 310.2
-------- --------
Property, plant and equipment - net 341.5 343.1
Goodwill 236.2 231.1
Other noncurrent assets 73.1 67.2
-------- --------
Total assets $1,421.3 $1,392.5
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Amounts payable to banks and current
portion of long-term debt $ 88.9 $ 67.5
Trade accounts payable 152.8 153.7
Advance billings and deposits 34.1 35.7
Accrued and other current liabilities 179.0 168.5
-------- --------
Total current liabilities 454.8 425.4
Long-term accrued liabilities 185.2 191.0
Long-term debt 303.6 304.2
-------- --------
Total liabilities 943.6 920.6
-------- --------
Commitments and contingencies - -
Shareholders' equity
Preferred shares 6.0 6.0
Common shares (outstanding: 39.5 in
1998 and 39.6 in 1997) 412.7 417.4
Reinvested earnings 96.3 83.5
Accumulated other comprehensive
income (loss) (37.3) (35.0)
-------- --------
Total shareholders' equity 477.7 471.9
Total liabilities and shareholders'
equity $1,421.3 $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 Ended
--------------------
March 31, March 22,
1998 1997
-------- --------
Increase in cash and cash equivalents
Operating activities cash flows
Net earnings $ 17.6 $ 13.0
Operating activities providing
(using) cash
Depreciation and amortization 14.4 10.8
Deferred income taxes (3.2) (6.3)
Working capital changes
Notes and accounts receivable 21.4 19.9
Inventories (19.1) (18.0)
Other current assets (4.7) (5.8)
Trade accounts payable (.7) (6.8)
Accrued and other current
liabilities 10.8 2.3
Decrease (increase) in other
noncurrent assets (2.7) 1.5
Increase (decrease) in long-term
accrued liabilities (5.3) 1.6
Other - net (.8) (1.7)
------- -------
Net cash provided by
operating activities 27.7 10.5
------- -------
Investing activities cash flows
Capital expenditures (12.0) (6.6)
Net disposals of property, plant
and equipment 1.1 .2
Acquisitions (12.5) -
------- -------
Net cash used by
investing activities (23.4) (6.4)
------- -------
Financing activities cash flows
Dividends paid (4.8) (3.7)
Issuance of long-term debt 1.5 .6
Repayments of long-term debt (.5) (1.7)
Increase in amounts payable to banks 21.5 9.5
Issuance of common shares 4.2 .2
Purchase of treasury and other
common shares (8.9) (6.8)
------- -------
Net cash provided (used) by
financing activities 13.0 (1.9)
------- -------
Increase in cash and cash equivalents 17.3 2.2
Cash and cash equivalents at
beginning of period 25.7 27.8
------- -------
Cash and cash equivalents at
end of period $ 43.0 $ 30.0
======= =======
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 was included in the company's
second quarter. Beginning in 1998, their March results are
included in the company's first quarter which has the effect
of increasing sales in 1998 by approximately $35 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
- ------------
During 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.
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 $14.0 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 quarter of 1998, the company recorded severance
expense of $2.0 million before tax ($1.4 million after tax)
related to a workforce reduction plan involving
approximately 60 employees at Widia, the company's European
cutting tool company. Additional actions are expected to be
taken in the second quarter of 1998 that will result in an
additional pretax expense of approximately $3.0 million. 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 in 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
remained unchanged at $75 million as of March 31, 1998,
December 27, 1997, March 22, 1997 and December 28, 1996 and,
as a result, there was no cash flow effect related to a
change in the amount sold in the first quarter of 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)
Mar. 31, Dec. 27,
1998 1997
------- -------
Accrued and other current liabilities
Accrued salaries, wages and other
compensation $ 54.7 $ 50.4
Accrued and deferred income taxes 23.1 15.8
Other accrued expenses 101.2 102.3
------- -------
$ 179.0 $ 168.5
======= =======
Long-term accrued liabilities
Accrued pension and other compensation $ 73.4 $ 73.2
Accrued postretirement health care
benefits 46.1 46.4
Accrued and deferred income taxes 25.7 31.5
Minority shareholders' interests 16.8 16.7
Other 23.2 23.2
------- -------
$ 185.2 $ 191.0
======= =======
LONG-TERM DEBT
- --------------
The components of long-term debt are shown in the following
table.
(In millions)
Mar. 31, 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 78.5 80.3
Other 11.5 10.5
------- -------
Total long-term debt 305.0 305.8
Less current maturities (1.4) (1.6)
------- -------
$ 303.6 $ 304.2
======= =======
Outstanding borrowings under the company's revolving credit
facility of $10.0 million and DM 125 million ($68.5 million
at March 31, 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 4.2% at March 31, 1998 and
4.3% at December 27, 1997, respectively.
LINES OF CREDIT
- ---------------
At March 31, 1998, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $475
million, including a $250 million committed revolving credit
facility. On December 31, 1997, this facility was amended
to increase the line of credit available from $200 million
to the current $250 million amount. 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 $354 million at March 31, 1998.
SHAREHOLDERS' EQUITY
- --------------------
During the first quarter of 1998, the company purchased
339,900 treasury shares on the open market at a cost of $8.2
million to partially meet current and future needs of
management incentive, employee benefit and dividend
reinvestment plans. A total of 299,600 treasury shares were
purchased in the first quarter of 1997 for similar purposes.
An additional 23,664 shares were purchased in the first
quarter of 1998 with respect to current exercises of stock
options in lieu of the issuance of authorized but unissued
shares. Reissuances of treasury shares for management
incentive programs during the first quarters of 1998 and
1997 totaled 237,591 and 264,444, respectively.
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 that are recorded
in shareholders' equity. Total comprehensive income and
changes in total shareholders' equity are as follows:
(In millions)
Quarter Ended
------------------------------------------
March 31, 1998 March 22, 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 (4.7) (6.6)
Net earnings $ 17.6 17.6 $ 13.0 13.0
Foreign currency translation
adjustments (2.3) (2.3) (15.5) (15.5)
------ ------
Total comprehensive
income (loss) $ 15.3 $ (2.5)
====== ======
Cash dividends (4.8) (3.6)
------- -------
Balance at end of period $ 477.7 $ 433.5
======= =======
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
quarter ended March 31, 1998 and March 22, 1997 is presented
below.
(In millions)
Quarter Ended
--------------------
Mar. 31, Mar. 22,
1998 1997
------- -------
Sales
Plastics technologies $ 180.3 $ 149.2
Machine tools 120.9 89.8
Industrial products 176.2 138.5
------- -------
$ 477.4 $ 377.5
======= =======
Operating earnings
Plastics technologies $ 16.2 $ 9.2
Machine tools 4.2 1.8
Industrial products 18.6 16.6
Corporate expenses (5.1) (3.8)
Other unallocated expenses (a) (1.8) (1.6)
------- -------
$ 32.1 $ 22.2
======= =======
New orders
Plastics technologies $ 180.3 $ 151.1
Machine tools 155.2 97.2
Industrial products 182.7 143.7
------- -------
$ 518.2 $ 392.0
======= =======
Ending backlog $ 403.8 $ 387.7
======= =======
(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.
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 was included in the company's
second quarter. Beginning in 1998, their March results are
included in the company's first quarter which has the effect
of increasing sales in 1998 by approximately $35 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. Both acquisitions were financed
by the use of available cash and bank borrowings and have
been accounted for under the purchase method of accounting.
These acquisitions are included as components of the
company's plastics technologies segment. As a result of
these acquisitions, as well as the two acquisitions that
were made in the third quarter of 1997, first quarter 1998
new orders and sales increased by $7 million.
In recent years, the company's growth outside the U.S. has
allowed the company to become more globally balanced. For
the first quarter of 1998, markets outside the U.S.
represented the following percentages of consolidated sales:
Europe - 27%; Asia - 6%; Canada and Mexico - 7%; 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. As a result,
in the first quarter of 1998, the company experienced
negative currency translation effects on new orders and
sales of $16 million, while the effect on net earnings was
less than $.5 million. In the first quarter of 1998, there
was also a $2 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 first quarter of 1998 were $518 million,
which represented a $126 million, or 32%, increase from the
$392 million in the first quarter of 1997. About half of the
increase resulted from the change in the calendar described
above. Orders for plastics technologies products increased
by $29 million, or 19%, due primarily to the calendar
change; excluding the calendar effect, acquisitions and
negative currency translation adjustments, orders increased
by 8%. Machine tool orders increased by $58 million, or
60%, primarily due to increased orders for aerospace
systems, including a single $17 million order. Orders for
industrial products increased by $39 million, or 27%;
excluding the calendar change, foreign currency translation
effects and the effect of 1997 acquisitions, new orders
increased by over 6%.
U.S. export orders increased to $67 million in the first
quarter of 1998, representing over a 60% increase from the
first quarter of 1997, in some part due to the calendar
change.
The company's backlog of unfilled orders totaled $404
million at March 31, 1998. This compares to $365 million at
December 27, 1997 and $388 million at March 22, 1997.
Recent record levels are being maintained in large part by
increased orders for U.S.-built machine tools, including
orders for aerospace products.
SALES
Sales in the first quarter of 1998 were $477 million, which
represented a $100 million, or 27%, increase from $377
million in the first quarter of 1997. About two-thirds of
the increase resulted from the calendar change. Sales of
plastics technologies products increased by $31 million, or
21%, due primarily to the calendar change; excluding the
calendar effect, acquisitions and currency translation
adjustments, sales increased by 9%. Machine tool sales
increased by $31 million, or 35%; excluding the calendar
effect, sales increased by approximately 20% due to
increased U.S. sales, mostly sales of aerospace systems.
Sales of industrial products increased by $38 million, or
27%; excluding the calendar change, foreign currency
translation effects and the effect of 1997 acquisitions,
sales increased by 8%.
Export sales increased to $64 million in the first quarter
of 1998, representing over a 50% increase from the first
quarter of 1997, in some part due to the calendar change.
MARGINS, COSTS AND EXPENSES
The manufacturing margin percent of 25.3% in the first
quarter of 1998 increased from 25.2% in the first quarter of
1997. Margins for plastics technologies and machine tools
continued to improve, while margins for some industrial
products businesses declined modestly.
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 due to the calendar effect and a one-time cost
associated with a reduction in future benefits under an
amendment to the non-employee directors' retirement plan.
As a percent to sales, together these expenses decreased due
to increased sales volume.
Other expense-net, including amortization of goodwill,
increased to $4.3 million in the first quarter of 1998 from
$4.2 million in the first quarter of 1997. The 1998 expense
includes severance expenses of approximately $2.0 million
relating to approximately 60 employees at Widia, the
company's European cutting tool company. Additional actions
are expected to be taken in the second quarter of 1998 that
will result in an additional expense of approximately $3.0
million. 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 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.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes of $25.0 million in the first
quarter of 1998 exceeded the $16.3 million in the first
quarter of 1997 by $8.7 million, or 53%, about a quarter of
which resulted from the calendar change discussed above.
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 $17.6 million, or $.44 per share
(diluted), in the first quarter of 1998 compared with $13.0
million, or $.32 per share (diluted), in the first quarter
of 1997, representing a 35% increase in net earnings, and a
38% increase on a per share basis. About one-third 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 March 31, 1998, the company had cash and cash equivalents
of $43 million, representing an increase of $17 million
during the first quarter of 1998.
Operating activities provided $28 million of cash in the
first quarter of 1998, compared with $11 million provided in
the first quarter of 1997. The increase was primarily
related to improved earnings and reduced working capital
requirements.
Investing activities in the first quarter of 1998 resulted
in a $23 million use of cash, primarily due to capital
expenditures of $12 million and the cost of the two
acquisitions of $13 million. In the first quarter of 1997,
the company used $6 million, largely due to capital
expenditures.
Financing activities provided $13 million of cash in the
first quarter of 1998 due primarily to increases in debt, in
part to finance the two acquisitions. The company used $9
million to repurchase approximately 360,000 shares on the
open market to meet the needs of management incentive,
employee benefit and dividend reinvestment plans. Also in
1998, the company received proceeds of $4 million for the
issuance of common shares. In the first quarter of 1997,
financing activities used $2 million of cash, including $7
million to repurchase approximately 300,000 common shares on
the open market for benefit and dividend reinvestment plans.
Quarterly dividends were paid at the rate of $.12 per common
share in 1998 and $.09 per common share for the first
quarter of 1997.
As of March 31, 1998, the company's current ratio was 1.7, a
decrease from 1.8 at December 27, 1997 and March 22, 1997.
At March 31, 1998, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $475
million, including a $250 million committed revolving credit
facility. Under the provisions of the facility, the
company's additional borrowing capacity totaled
approximately $354 million at March 31, 1998.
The company had a number of short-term intercompany loans
and advances denominated in various currencies totaling $37
million at March 31, 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 March
31, 1998, approximately $249 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 $393 million at March 31, 1998, an increase
of $21 million from December 27, 1997. Total shareholders'
equity was $478 million at March 31, 1998, an increase of $6
million from December 27, 1997. Total shareholders' equity
was adversely affected by $2 million in the first quarter of
1998 due to the effect of the stronger U.S. dollar on the
cumulative foreign currency translation adjustment. The
ratio of total debt to total capital (debt plus equity) was
45% at March 31, 1998, compared with 44% at December 27,
1997.
Capital expenditures in 1998 are expected to approximate
$100 million and the company expects to expend about $5
million for Widia 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.
OUTLOOK
- -------
The company's North American market remains strong, although
some economists are expecting a slower second half. In
particular, the company is concerned about automaker
inventory levels, which could affect auto production and the
company's industrial products segment. Strong demand from
the aerospace industry is continuing to help the company's
machine tool business, and many of plastics technologies'
markets remain strong. The company's European businesses
are experiencing improved results in their local currencies,
although their results in dollar terms are being held back
by the weak German mark. While Asian markets are weak, the
company's exposure to those 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 15% earnings improvements in 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 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 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 March 31, 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: May 12, 1998 By:/s/Jerome L. Fedders
----------------- --------------------
Jerome L. Fedders
Controller
Date: May 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 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 PER SHARE EARNINGS
(UNAUDITED)
(In thousands, except
per-share amounts)
Quarter Ended
---------------------
March 31, March 22,
1998 1997
-------- --------
Net earnings $ 17,628 $ 13,047
Less preferred dividends (60) (60)
-------- --------
Net earnings available
to common shareholders $ 17,568 $ 12,987
======== ========
Basic Earnings Per Share:
Weighted-average common shares
outstanding 39,157 39,723
======== ========
Per share amount $ .45 $ .33
======== ========
Diluted Earnings Per Share:
Weighted-average common shares
outstanding 39,157 39,723
Dilutive effect of stock options and
restricted shares based on the
treasury stock method 551 228
-------- --------
Total 39,708 39,951
======== ========
Per share amount $ .44 $ .32
======== ========
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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> MAR-31-1997
<CASH> 43,000
<SECURITIES> 0
<RECEIVABLES> 266,900
<ALLOWANCES> 13,300
<INVENTORY> 408,500
<CURRENT-ASSETS> 770,500
<PP&E> 660,800
<DEPRECIATION> 319,300
<TOTAL-ASSETS> 1,421,300
<CURRENT-LIABILITIES> 454,800
<BONDS> 0
<COMMON> 412,700
0
6,000
<OTHER-SE> 59,000
<TOTAL-LIABILITY-AND-EQUITY>1,421,300
<SALES> 477,400
<TOTAL-REVENUES> 477,400
<CGS> 356,500
<TOTAL-COSTS> 356,500
<OTHER-EXPENSES> 88,800
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,100
<INCOME-PRETAX> 25,000
<INCOME-TAX> 7,400
<INCOME-CONTINUING> 17,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,600
<EPS-PRIMARY> .45
<EPS-DILUTED> .44
</TABLE>
