-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MTC6QvU9LztcJWDwZmXDKdddXQ8FPfgJaPOb/Ns0iRf0s3GWFsWDR5MPqSwcVawr Zr6Pjl28KH5gzVgp3gPRxw== 0000716823-97-000007.txt : 19970723 0000716823-97-000007.hdr.sgml : 19970723 ACCESSION NUMBER: 0000716823-97-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970614 FILED AS OF DATE: 19970722 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINCINNATI MILACRON INC /DE/ CENTRAL INDEX KEY: 0000716823 STANDARD INDUSTRIAL CLASSIFICATION: MACHINE TOOLS, METAL CUTTING TYPES [3541] IRS NUMBER: 311062125 STATE OF INCORPORATION: DE FISCAL YEAR END: 1230 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08485 FILM NUMBER: 97643442 BUSINESS ADDRESS: STREET 1: 4701 MARBURG AVE CITY: CINCINNATI STATE: OH ZIP: 45209 BUSINESS PHONE: 5138418100 MAIL ADDRESS: STREET 1: 4701 MARBURG AVE CITY: CINCINNATI STATE: OH ZIP: 45209 FORMER COMPANY: FORMER CONFORMED NAME: CINCINNATI MILACRON HOLDINGS INC DATE OF NAME CHANGE: 19830503 FORMER COMPANY: FORMER CONFORMED NAME: CINCINNATI MILLING MACHINE CO DATE OF NAME CHANGE: 19600201 10-Q 1 ============================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ___________ FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarter ended June 14, 1997 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period from __________ to __________ Commission file number 1-8485 CINCINNATI MILACRON INC. (Exact name of registrant as specified in its charter) Delaware 31-1062125 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4701 Marburg Avenue Cincinnati, Ohio 45209 (Address of principal executive offices) (513)841-8100 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ] Number of shares of Common Stock, $1.00 par value, outstanding as of July 17, 1997: 39,837,446 ============================================================ CINCINNATI MILACRON INC. AND SUBSIDIARIES INDEX PAGE NO. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Condensed Balance Sheet 3 Consolidated Condensed Statement of Earnings 4 Consolidated Condensed Statement of Cash Flows 5 Notes to Consolidated Condensed Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders 19 Item 6. (a) Exhibits 19 (b) Reports on Form 8-K 19 Signatures 20 Index to Exhibits 21 PART I. FINANCIAL INFORMATION CINCINNATI MILACRON INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED) (IN MILLIONS) JUNE 14, DEC. 28, 1997 1996 -------- -------- ASSETS Current assets Cash and cash equivalents $ 33.6 $ 27.8 Notes and accounts receivable, less allowances of $13.2 in 1997 and $13.7 in 1996 249.7 267.0 Inventories Raw materials 27.4 27.8 Work-in-process and finished parts 211.0 202.7 Finished products 164.5 159.2 -------- -------- Total inventories 402.9 389.7 Other current assets 54.3 43.4 -------- -------- Total current assets 740.5 727.9 Property, plant and equipment 605.9 618.6 Less accumulated depreciation 298.3 299.5 -------- -------- Property, plant and equipment - net 307.6 319.1 Goodwill 222.2 229.9 Other noncurrent assets 67.5 59.4 -------- -------- TOTAL ASSETS $1,337.8 $1,336.3 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Amounts payable to banks and current portion of long-term debt $ 60.8 $ 70.9 Trade accounts payable 137.1 134.9 Advance billings and deposits 39.2 34.5 Accrued and other current liabilities 178.1 169.3 -------- -------- Total current liabilities 415.2 409.6 Long-term accrued liabilities 181.1 178.6 Long-term debt 294.4 301.9 -------- -------- TOTAL LIABILITIES 890.7 890.1 -------- -------- Commitments and contingencies - - SHAREHOLDERS' EQUITY Preferred shares 6.0 6.0 Common shares (outstanding: 39.8 in 1997 and 1996) 423.6 429.9 Reinvested earnings 43.8 19.9 Cumulative foreign currency translation adjustments (26.3) (9.6) -------- -------- TOTAL SHAREHOLDERS' EQUITY 447.1 446.2 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,337.8 $1,336.3 ======== ======== See notes to consolidated condensed financial statements. CINCINNATI MILACRON INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF EARNINGS (UNAUDITED) (IN MILLIONS, EXCEPT SHARE AND PER-SHARE AMOUNTS) 12 WEEKS ENDED 24 WEEKS ENDED ----------------- ----------------- JUNE 14, JUNE 15, JUNE 14, JUNE 15, 1997 1996 1997 1996 ------- ------- -------- ------- Sales $452.1 $411.4 $829.6 $764.8 Cost of products sold 341.8 309.7 624.0 571.6 ------ ------ ------ ------- Manufacturing margins 110.3 101.7 205.6 193.2 ------ ------ ------ ------- Other costs and expenses Selling and administrative 78.6 73.5 147.5 139.7 Minority shareholders' interests .4 .5 .4 .6 Other - net 2.2 1.6 6.4 3.9 ------ ------ ------ ------- Total other costs and expenses 81.2 75.6 154.3 144.2 ------ ------ ------ ------- Operating earnings 29.1 26.1 51.3 49.0 Interest Income .4 1.2 .9 2.3 Expense (6.7) (8.9) (13.1) (17.2) ------ ------ ------ ------- Interest - net (6.3) (7.7) (12.2) (14.9) ------ ------ ------ ------- EARNINGS BEFORE INCOME TAXES 22.8 18.4 39.1 34.1 Provision for income taxes 4.6 3.7 7.9 6.8 ------ ------ ------ ------- NET EARNINGS $ 18.2 $ 14.7 $ 31.2 $ 27.3 ====== ====== ====== ====== EARNINGS PER COMMON SHARE $ .45 $ .40 $ .78 $ .76 ====== ====== ====== ====== Dividends per common share $ .09 $ .09 $ .18 $ .18 Weighted average number of shares and common share equivalents outstanding (in thousands) 39,893 36,688 39,895 35,765 See notes to consolidated condensed financial statements. CINCINNATI MILACRON INC. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED) (IN MILLIONS) 12 WEEKS ENDED 24 WEEKS ENDED ----------------- ----------------- JUNE 14, JUNE 15, JUNE 14, JUNE 15, 1997 1996 1997 1996 ------- ------- ------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS OPERATING ACTIVITIES CASH FLOWS Net earnings $ 18.2 $ 14.7 $ 31.2 $ 27.3 Operating activities providing (using) cash : Depreciation and amortization 13.0 12.8 23.9 22.4 Deferred income taxes (7.2) (1.3) (13.5) (1.8) Working capital changes Notes and accounts receivable (12.3) (14.3) 7.6 12.1 Inventories (7.7) (9.1) (25.7) (17.7) Other current assets (1.5) (.8) (7.3) (.2) Trade accounts payable 12.1 4.9 5.3 (.1) Accrued and other current liabilities 18.6 (2.1) 20.9 (20.2) Decrease (increase) in other noncurrent assets (.6) (3.6) .8 (4.8) Increase in long-term accrued liabilities 1.8 4.1 3.4 10.2 Other - net (.9) (.6) (2.6) (1.8) ------- ------- ------- ------- Net cash provided by operating activities 33.5 4.7 44.0 25.4 ------- ------- ------- ------- INVESTING ACTIVITIES CASH FLOWS Capital expenditures (12.8) (14.6) (19.4) (22.6) Net disposals of property, plant and equipment 3.5 2.3 3.7 2.8 Acquisitions - (1.4) - (74.6) ------- ------- ------- ------- Net cash used by investing activities (9.3) (13.7) (15.7) (94.4) ------- ------- ------- ------- FINANCING ACTIVITIES CASH FLOWS Dividends paid (3.6) (3.2) (7.3) (6.3) Issuance of long-term debt .8 - 1.4 - Repayments of long-term debt (.6) (16.2) (2.3) (16.4) Increase (decrease) in amounts payable to banks (17.5) 4.0 (8.0) 7.8 Net issuance of common shares .3 128.8 .5 129.5 Net purchase of treasury shares - - (6.8) - ------- ------- ------- ------- Net cash provided (used) by financing activities (20.6) 113.4 (22.5) 114.6 ------- ------- ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS 3.6 104.4 5.8 45.6 Cash and cash equivalents at beginning of period 30.0 74.3 27.8 133.1 ------- ------- ------- ------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 33.6 $ 178.7 $ 33.6 $ 178.7 ======= ======= ======= ======= See notes to consolidated condensed financial statements. CINCINNATI MILACRON INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) BASIS OF PRESENTATION - --------------------- In the opinion of management, the accompanying unaudited consolidated condensed financial statements contain all adjustments, including only normal recurring adjustments, necessary to present fairly the company's financial position, results of operations and cash flows. The Consolidated Condensed Balance Sheet at December 28, 1996, has been derived from the audited consolidated financial statements at that date. The accounting policies followed by the company are set forth in the "Summary of Significant Accounting Policies" note to the consolidated financial statements included in the company's Annual Report on Form 10-K for the year ended December 28, 1996. RECLASSIFICATION OF FINANCIAL STATEMENT - --------------------------------------- Beginning in the second quarter of 1997, amortization of goodwill, which was previously included as a component of cost of products sold, is included in other costs and expenses in the Consolidated Condensed Statement of Earnings. Related amounts reported for prior periods have been reclassified to conform to the 1997 presentation. ACQUISITION - ----------- On January 26, 1996, the company acquired The Fairchild Corporation's D-M-E business (D-M-E) for approximately $246 million. D-M-E is the largest U.S. producer of mold bases, standard components and supplies for the plastics injection mold-making industry. The company financed the acquisition through the execution of promissory notes to the seller in the amount of $182 million and cash on hand of $64 million. The promissory notes were subsequently repaid using the proceeds from an equity offering (see Shareholders' Equity), available cash and borrowings under the company's existing lines of credit. The D-M-E acquisition was accounted for under the purchase method. The aggregate cost of the acquisition, including professional fees and other related costs, was $248.1 million. The allocation of the acquisition cost to the assets acquired and the liabilities assumed is presented in the table that follows. (IN MILLIONS) 1996 ------ Cash and cash equivalents $ 1.3 Accounts receivable 25.5 Inventories 29.6 Other current assets 1.2 Property, plant and equipment 43.9 Goodwill 162.5 Other noncurrent assets 7.9 ------ Total assets 271.9 Current accrued liabilities (18.9) Long-term accrued liabilities (4.9) ------ Total liabilities (23.8) ------ Total acquisition cost $248.1 ====== Unaudited pro forma sales and earnings information for the 24 weeks ended June 15, 1996, is presented in the following table. The amounts assume that the acquisition of D-M-E had taken place at the beginning of 1996. (IN MILLIONS, EXCEPT PER-SHARE AMOUNTS) 24 WEEKS ENDED JUNE 15, 1996 ------- SALES $777.3 ====== NET EARNINGS $ 27.4 ====== PER COMMON SHARE $ .76 ====== SEVERANCE EXPENSE - ----------------- In the first quarter of 1997, the company recorded severance expense of approximately $2.0 million before tax ($1.6 million after tax) related to a workforce reduction plan involving approximately 60 employees at the company's German plastics machinery business, Ferromatik. The plan, approved by management and the Works Council in the first quarter of 1997, will result in a total cash cost of about $2.0 million, all of which will be expended in 1997. The company expects to achieve annual cost savings of approximately $3.5 million as a result of the workforce reduction and other actions at Ferromatik, some of which began to be realized in the second quarter of 1997. INCOME TAXES - ------------ In both 1997 and 1996, the provision for income taxes consists of U.S. federal and state and local income taxes, non-U.S. income taxes in certain jurisdictions, and the effects of the reversal of U.S. and certain non-U.S. valuation allowances. The company entered 1996 with non-U.S. net operating loss carryforwards totaling $144 million, the deferred tax assets related to which had been partially or substantially fully reserved through valuation allowances at year-end 1995. The company reviews the valuation of all deferred tax assets on an ongoing basis and concluded in 1996 that it is more likely than not that a portion of these assets will be realized in the future. Accordingly, U.S. and certain non- U.S. valuation allowances were reversed, resulting in an effective tax rate less than the U.S. statutory rate. Due in part to the reduction of the aggregate net operating loss carryforward from $144 million to $125 million at year- end 1996, and the expectation of additional loss carryforward utilization in 1997 and 1998, the 1997 provision for income taxes includes the reversal of additional valuation allowances in the U.S. and in certain non-U.S. jurisdictions. As a result, the 1997 effective tax rate is also less than the U.S. statutory rate. RECEIVABLES - ----------- In accordance with the company's receivables purchase agreement with an independent party, the company sells on an ongoing basis undivided percentage ownership interests of up to $75 million in designated pools of accounts receivable. The amounts of undivided interests that have been sold at various balance sheet dates are as follows: $75 million at June 14, 1997, March 23, 1997 and December 28, 1996, $56.5 million at June 15, 1996, $64 million at March 23, 1996, and $69 million at December 30, 1995. Any increases or decreases in the amount sold are reported as operating cash flows in the Consolidated Condensed Statement of Cash Flows. Costs related to the sales are included in other costs and expenses - net in the Consolidated Condensed Statement of Earnings. LIABILITIES - ----------- The components of accrued and other current liabilities and long-term accrued liabilities are shown in the following tables. (IN MILLIONS) JUNE 14, DEC. 28, 1997 1996 ------- ------- ACCRUED AND OTHER CURRENT LIABILITIES Accrued salaries, wages and other compensation $ 51.8 $ 51.9 Accrued and deferred income taxes 22.1 13.6 Other accrued expenses 104.2 103.8 ------ ------ $178.1 $169.3 ====== ====== LONG-TERM ACCRUED LIABILITIES Accrued pension and other compensation $ 66.9 $ 67.1 Accrued postretirement health care benefits 48.0 48.4 Accrued and deferred income taxes 30.1 26.9 Minority shareholders' interests 13.1 12.7 Other 23.0 23.5 ------ ------ $181.1 $178.6 ====== ====== LONG-TERM DEBT - -------------- The components of long-term debt are shown in the following table. (IN MILLIONS) JUNE 14, DEC. 28, 1997 1996 ------- ------- Long-term debt 7-7/8% Notes due 2000 $ 100.0 $ 100.0 8-3/8% Notes due 2004 115.0 115.0 Revolving credit facility 72.9 80.3 Other 10.6 11.8 ------- ------- Total long-term debt 298.5 307.1 Less current maturities (4.1) (5.2) ------- ------- $ 294.4 $ 301.9 ======= ======= Outstanding borrowings under the company's revolving credit facility of DM 125 million ($72.9 million at June 14, 1997 and $80.3 million at December 28, 1996) are included in long- term debt based on the expectation that these borrowings will remain outstanding for more than one year. LINES OF CREDIT - --------------- In March, 1997, at the company's request, the committed revolving credit facility was reduced from $300 million to $200 million and the term of the agreement was extended to January, 2002. The restriction on total indebtedness in relation to total capital was replaced by a covenant of debt in relation to earnings before interest, income taxes, depreciation and amortization (EBITDA). At June 14, 1997, the company had lines of credit with various U.S. and non-U.S. banks of approximately $418 million, including the $200 million committed revolving credit facility. These credit facilities support letters of credit and leases in addition to providing borrowings under varying terms. Under the provisions of the amended revolving credit facility, the company's additional borrowing capacity totaled approximately $276 million at June 14, 1997. SHAREHOLDERS' EQUITY - -------------------- In April, 1997, the 1997 Long-Term Incentive Plan (the "Plan"), which had been approved by the board of directors in February, 1997, was approved by the company's shareholders. The Plan provides for grants of up to 2,000,000 common shares in the form of restricted stock, non- qualified stock options and incentive stock options. In certain circumstances, the vesting of restricted stock awards is contingent on the attainment of specified earnings objectives over a three year period. In the first quarter of 1997, the company repurchased approximately 300,000 common shares on the open market at a total cost of $6.8 million to partially meet the needs of management incentive, employee benefit and shareholder dividend reinvestment plans. On May 20, 1996, the company completed the issuance of an additional 5.5 million common shares through a public offering, resulting in net proceeds (after deducting issuance costs) of $128.5 million. The proceeds of the offering were used to repay a portion of the promissory notes issued to the seller in connection with the acquisition of D-M-E. CONTINGENCIES - ------------- The company is involved in remedial investigations and actions at various locations, including former plant facilities, and EPA Superfund sites where the company and other companies have been designated as potentially responsible parties. The company accrues remediation costs in accordance with American Institute of Certified Public Accountants Statement of Position No. 96-1 (which became effective in 1997) when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Environmental costs have not been material in the past. Various lawsuits arising during the normal course of business are pending against the company and its consolidated subsidiaries. In the opinion of management, the ultimate liability, if any, resulting from these matters will have no significant effect on the company's consolidated financial position or results of operations. ORGANIZATION - ------------ The company has three business segments: plastics machinery, machine tools, and industrial products. Financial information for each of these segments for the second quarter of 1997 and 1996 and for the twenty four weeks ended June 14, 1997 and June 15, 1996 is presented below. (IN MILLIONS) 12 WEEKS ENDED 24 WEEKS ENDED --------------- --------------- JUNE 14, JUNE 15, JUNE 14, JUNE 15, 1997 1996 1997 1996 ------- ------- ------- ------- Sales Plastics machinery $ 179.0 $ 158.2 $ 328.2 $ 281.0 Machine tools 105.2 86.5 195.0 167.6 Industrial products 167.9 166.7 306.4 316.2 ------- ------- ------- ------- $ 452.1 $ 411.4 $ 829.6 $ 764.8 ======= ======= ======= ======= Operating earnings Plastics machinery $ 13.8 $ 13.5 $ 23.0 $ 24.2 Machine tools 1.7 (.2) 3.5 .7 Industrial products 19.4 18.9 36.0 35.5 Corporate expenses (3.9) (4.2) (7.7) (7.6) Other unallocated expenses (a) (1.9) (1.9) (3.5) (3.8) ------- ------- ------- ------- $ 29.1 $ 26.1 $ 51.3 $ 49.0 ======= ======= ======= ======= New orders Plastics machinery $ 174.9 $ 142.3 $ 326.0 $ 262.5 Machine tools 109.8 80.6 207.0 178.5 Industrial products 171.6 166.7 315.3 319.1 ------- ------- ------- ------- $ 456.3 $ 389.6 $ 848.3 $ 760.1 ======= ======= ======= ======= Ending backlog $ 391.9 $ 345.0 $ 391.9 $ 345.0 ======= ======= ======= ======= (a) Includes financing costs related to the sale of accounts receivable and minority shareholders' interests in earnings of subsidiaries. EARNINGS PER COMMON SHARE - ------------------------- Earnings per common share are based on the weighted average number of common shares and common share equivalents outstanding. In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share," which is effective for financial periods ending after December 15, 1997. Earlier application is not permitted. When it becomes effective, the new standard will require the presentation of both "basic earnings per share," which is based on the weighted-average number of common shares outstanding during a period, and "diluted earnings per share," which includes the effects of stock options and other potentially dilutive securities. At year-end 1997, all previously reported earnings per common share amounts must be restated based on the provisions of the new standard. However, the restated amounts for the second quarters of 1997 and 1996 and for the twenty four weeks ended June 14, 1997, and June 15, 1996, will not vary significantly from the amounts reported herein. SUBSEQUENT EVENT - ---------------- On June 30, 1997, the company acquired Data Flute CNC Inc., a Pittsfield, Massachusetts manufacturer of high-performance solid carbide end mills for the aerospace and general metalworking industries. The acquisition of Data Flute, a company with annual sales in excess of $10 million, will be accounted for under the purchase method of accounting and was financed by the use of available cash. CINCINNATI MILACRON INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) RESULTS OF OPERATIONS The company operates in three business segments: plastics machinery, machine tools and industrial products. In recent years, the company's growth outside the U.S. has allowed the company to be less dependent on the U.S. industrial sector. With sales to non-U.S. markets accounting for 30% to 40% of sales, foreign currency exchange rate fluctuations affect the translation of sales and earnings, as well as consolidated shareholders' equity. Throughout much of 1996, the financial statement effects of a weaker German Mark were to some degree offset by the effects of a stronger British Pound. In 1997, however, the Pound has somewhat stabilized while the Mark has continued to weaken. As a result, the company has experienced a more significant translation effect in 1997, resulting in a negative currency effect on new orders and sales by $19 million and $17 million, respectively, in the second quarter of 1997 and $38 million and $25 million, respectively, in the first half of 1997. The effect of currency fluctuations on net earnings has not been material in the first half of 1997. In 1997, there has also been a $17 million decrease in shareholders' equity due to cumulative foreign currency translation adjustments. If the Mark remains at current levels or weakens further in 1997, the company will continue to experience a negative effect on translating its European new orders, sales and, possibly, earnings in 1997 when compared with 1996 results. NEW ORDERS AND BACKLOG New orders in the second quarter of 1997 were $456 million, which represented a $66 million, or 17%, increase from the $390 million in the second quarter of 1996. Orders for plastics machinery increased by $33 million, or 23%, primarily due to increased orders for U.S.-built injection molding machines. (Plastics machinery's second quarter new orders exclude orders taken for over $40 million at the triannual National Plastics Expo (NPE) which was held during the company's third quarter.) Machine tool orders increased by $29 million, or 36%, primarily due to increased orders for U.S.-built standard and aerospace machines, including a $13 million order from Aeroquip - Vickers Inc. Orders for industrial products increased by $5 million, as U.S. orders increased while European orders declined in large part due to foreign currency translation effects. For the first half of 1997, new orders totaled $848 million, up $88 million, or 12%, from $760 million in the first half of 1996. In general, U.S. orders in all three business segments increased while European order levels declined largely as a result of currency fluctuations. U.S. export orders increased to $46 million and $87 million in the second quarter and first half of 1997, respectively, compared with $42 million and $83 million in the comparable periods of 1996. The company's backlog of unfilled orders continued to increase from $345 million at June 15, 1996, to $373 million at December 28, 1996, to $388 million at March 22, 1997 to $392 million at June 14, 1997. These increases are being driven by increased orders for U.S.-built machine tools, including and most significantly, orders for aerospace products. SALES Sales in the second quarter of 1997 were $452 million, which represented a $41 million, or 10%, increase from $411 million in the second quarter of 1996. Sales of plastics machinery increased by $21 million, or 13%, almost solely due to increased sales of U.S.-built injection molding machines. Machine tool sales increased by $19 million, or 22%, primarily due to increased U.S. sales. Sales of industrial products increased by $1 million, or 1%, to $168 million as sales of U.S.-built grinding wheels and cutting tools increased more than sales of European cutting tools and industrial magnets decreased. The weaker German Mark reduced this group's sales by $10 million. For the first half of 1997, sales totaled $830 million, up $65 million, or 8%, from $765 million in the first half of 1996. In general, U.S. sales in all three business segments increased while European sales declined, largely due to currency fluctuations. Export sales increased to $55 million and $97 million in the second quarter and first half of 1997, respectively, compared with $41 million and $80 million in the comparable periods of 1996. MARGINS, COSTS AND EXPENSES Amortization of goodwill has historically been included in cost of products sold. Because of its increased significance as a result of recent acquisitions, the company has reconsidered the historical classification of this expense and concluded that it more properly belongs in other costs and expenses - net in the Consolidated Condensed Statement of Earnings. Amounts for cost of products sold, manufacturing margins and related percentages, and other expenses - net for prior periods have been restated for consistency of presentation. These amounts totaled approximately $1.3 million in the second quarters of 1997 and 1996 and $2.6 million for the first half of both years. The manufacturing margin percent of 24.4% in the second quarter of 1997 decreased from 24.7% in the second quarter of 1996. Margins for machine tools and industrial products continued to improve. The decline was caused by lower margins for Ferromatik and pricing pressure on U.S.-built injection molding machines. For the same reasons, the manufacturing margin percent of 24.8% in the first half of 1997 declined from the 25.3% in the first half of 1996. Competitive pricing for injection molding machines is expected to continue to hold back margins into the third quarter of 1997. Selling and administrative expenses increased in amount, as expected, with increased sales and the effect of the D-M-E acquisition. As a percent to sales, this expense continued to decline due to volume increases and certain cost reductions. Other expense-net, including amortization of goodwill of about $1.3 million per quarter, increased to $2.2 million in the second quarter of 1997 from $1.6 million in the second quarter of 1996 primarily due to reduced gains on sales of capital assets. The $6.4 million expense in the first half of 1997 increased $2.5 million from the prior year primarily due to the inclusion of severance expense of approximately $2.0 million in the first quarter of 1997 relating to approximately 60 employees at Ferromatik. As a result of this and other actions at Ferromatik, the company expects to achieve annualized savings of $3.5 million, which began to phase in during the second quarter of 1997. Interest expense-net decreased in 1997 due primarily to lower debt levels. EARNINGS BEFORE INCOME TAXES Earnings before income taxes of $22.8 million in the second quarter of 1997 exceeded the $18.4 million in the second quarter of 1996 by $4.4 million, or 24%, due to higher operating earnings and lower interest expense. Earnings before income taxes for the first half of 1997 totaled $39.1 million, representing a $5.0 million, or 15%, increase over $34.1 million in the comparable period of 1996. First half 1997 earnings were held back by the $2.0 million severance expense for Ferromatik. INCOME TAXES The provision for income taxes in 1997 and 1996 includes U.S. federal and state and local income taxes, and income taxes in other jurisdictions outside the U.S. The company entered both years with sizeable net operating loss (NOL) carryforwards, along with valuation allowances in certain jurisdictions against the NOL carryforwards and other deferred tax assets. By the beginning of 1996, the company had fully utilized its U.S. NOL carryforwards, but as of December 28, 1996, its non- U.S. NOL carryforwards totaled $125 million, most of which have no expiration dates. The company's practice is to periodically reevaluate the future realization of all of its deferred tax assets. During 1997 and 1996, the company concluded that it is more likely than not that a portion of these assets will be offset against future taxable income. As a result, the company reversed valuation allowances in certain jurisdictions which caused the provision for income taxes to be less than the statutory rate. The company expects the utilization of these NOL carryforwards and reversal of additional valuation allowances to continue to cause the effective tax rate to be less than the U.S. statutory rate through 1998, although the 1998 rate is expected to range between 30% and 32% of earnings before income taxes. NET EARNINGS Net earnings were $18.2 million, or $.45 per share, in the second quarter of 1997 compared with $14.7 million, or $.40 per share, in the second quarter of 1996. This represented a 23% increase in net earnings, but only 12% on a per share basis due to the issuance of additional common shares in May, 1996. For the first half of 1997, net earnings were $31.2 million, or $.78 per share, which represented an increase of $3.9 million, or $.02 per share, over the first half of 1997. Net earnings and earnings per share for the first half of 1997 were reduced by $1.6 million after-tax, or $.04 per share, for the Ferromatik severance expense. Excluding the severance expense, 1997 first half net earnings and earnings per share would have increased by $5.5 million, or $.06 per share, over the 1996 first half net earnings of $27.3 million and earnings per share of $.76. LIQUIDITY AND SOURCES OF CAPITAL At June 14, 1997, the company had cash and cash equivalents of $34 million, representing increases of $4 million and $6 million in the second quarter and first half of 1997, respectively. Operating activities provided $34 million of cash in the second quarter of 1997, compared with $5 million provided in the second quarter of 1996. The increase was primarily related to increases in various current liability accounts. For the first half of 1997, operating activities provided $44 million, representing a $19 million increase over the first half of 1996, due in large part to increases in various current liability accounts. Operating activities cash flows for the first half of 1997 and 1996 were reduced by cash costs of approximately $.8 million in 1997 for Ferromatik severance payments and $4 million in 1996 for integration and restructuring costs of Valenite and Widia. Investing activities in the second quarter of 1997 resulted in a $9 million use of cash, due to capital expenditures of $13 million. For the first half of 1997, net cash used by investing activities totaled $16 million compared with $94 million in the first half of 1996 which included $75 million for the D-M-E acquisition. Financing activities used $21 million of cash in the second quarter of 1997 due primarily to repayments in bank borrowings. In the second quarter of 1996, financing activities provided $113 million of cash largely as a result of the $129 million net proceeds from the issuance of additional shares. Also during the second quarter of 1996, the company elected to defease $10 million of the 12% Sinking Fund Debentures. The remaining $.8 million of these debentures were redeemed at par on July 15, 1997. In the first half of 1997, the company used $23 million of cash for financing activities, including $7 million to repurchase approximately 300,000 common shares on the open market to partially meet the needs of management incentive, employee benefit and dividend reinvestment plans. In addition, amounts payable to banks and long-term debt were reduced by $9 million in 1997. In all periods presented, dividends were paid at the rate of $.09 per common share. As of June 14, 1997, the company's current ratio of 1.8 was unchanged from March 22, 1997, and December 28, 1996, and up from 1.7 at June 15, 1996. At June 14, 1997, the company had lines of credit with various U.S. and non-U.S. banks of approximately $418 million, including a $200 million committed revolving credit facility. In March, 1997, at the company's request, the revolving credit facility was reduced from $300 million to $200 million and the term was extended to January 2002. The restriction on total indebtedness in relation to total capital was removed and a covenant of debt to earnings before interest, income taxes, depreciation and amortization (EBITDA) was substituted. Under the provisions of the facility, the company's additional borrowing capacity totaled approximately $276 million at June 14, 1997. The company had a number of short-term intercompany loans and advances denominated in various currencies totaling $45 million at June 14, 1997, that were subject to foreign currency exchange risk. The company also enters into various transactions, in the ordinary course of business, for the purchase and sale of goods and services in various currencies. The company hedges its exposure to currency fluctuations related to short- term intercompany loans and advances and the purchase and sale of goods under firm commitments by entering into foreign currency exchange contracts to minimize the effect of foreign currency exchange rate fluctuations. The company is currently not involved with any additional derivative financial instruments. The interest rates on the lines of credit and the financing fees on the receivables purchase agreement fluctuate based on changes in prevailing interest rates in the countries in which amounts are borrowed or receivables are sold. At June 14, 1997, approximately $208 million was subject to the effects of fluctuations in interest rates under these arrangements. Future changes in interest rates will affect the company's interest expense and other financing costs. Total debt was $355 million at June 14, 1997, a decrease of about $18 million from both March 22, 1997, and December 28, 1996. Total shareholders' equity was $447 million at June 14, 1997, an increase of $14 million from March 22, 1997, and $1 million from December 28, 1996. Total shareholders' equity has been adversely affected by about $17 million in the first half of 1997 due to the effect of the stronger U.S. dollar on the cumulative foreign currency translation adjustment. The ratio of total debt to total capital (debt plus equity) declined to 44% at June 14, 1997, compared with 46% at both March 22, 1997, and December 28, 1996. Subsequent to June 14, 1997, the company completed the acquisition of Data Flute CNC Inc.("Data Flute"). With annual sales in excess of $10 million, Data Flute manufactures high performance solid carbide end mills for the aerospace and general metalworking industries. On July 15, 1997, the Board of Directors approved a quarterly dividend of $.12 per common share, an increase from $.09 per share paid in each of the quarters included in this Form 10-Q report. The increased dividend is payable September 12, 1997. Capital expenditures in 1997 are expected to range between $70 million and $83 million, dependent upon the timing of certain projects, and the company expects to expend about $2 million for Ferromatik severance payments. The company believes that its cash flow from operations and available credit lines will be sufficient to meet these and other cash requirements, including the Data Flute acquisition and the increased dividend. OUTLOOK - ------- The company anticipates that good business levels will continue for the balance of the year. The company's North American and Asian markets remain strong, and its European operations continue to hold up in spite of the soft conditions there. The company expects the eventual recovery in Europe to provide the company with a significant upside potential. Regardless of the timing of the turn around, the company expects steady sales and operating earnings growth for the rest of 1997 and into 1998. The above forward-looking statements involve risks and uncertainties that could significantly impact expected results, as described more fully in the Cautionary Statement below. CAUTIONARY STATEMENT The company wishes to caution readers that all its forward- looking statements in the "Outlook" section above and elsewhere, which include all statements which, at the time made, speak about the future, are based upon its interpretation of what it believes are significant factors affecting its businesses. The company believes the following important factors, among others, in some cases have affected, and, in the future, could affect, the company's actual results and could cause the company's actual consolidated results for 1997, and beyond, to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the company: * global economic conditions, consumer spending and industrial production in the United States and Europe, particularly in segments related to the level of automotive production and spending in the aerospace and construction industries; * fluctuations in currency exchange rates of U.S. and foreign countries, including countries in Europe and Asia where the company has several principal manufacturing facilities and where many of the company's competitors and suppliers are based; * fluctuations in domestic and non-U.S. interest rates which affect the cost of borrowing under the company's lines of credit and financing fees related to the sale of domestic accounts receivable; * production and pricing levels of important raw materials, including plastic resins, which are a key raw material used by purchasers of the company's plastics machinery products, and steel, cobalt, tungsten and industrial grains used in the production of metalworking products; * lower than anticipated levels of plant utilization resulting in production inefficiencies and higher costs, whether related to the delay of new product introductions, improved production processes or equipment, or labor relation issues; * any major disruption in production at key customer or supplier facilities; * alterations in trade conditions in and between the U.S. and non-U.S. countries where the company does business, including export duties, import controls, quotas and other trade barriers; and * changes in tax, environmental and other laws and regulations in the U.S. and non-U.S. countries where the company does business. PART II. OTHER INFORMATION CINCINNATI MILACRON INC. AND SUBSIDIARIES ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------ (a) The annual meeting of shareholders of Cincinnati Milacron Inc., was held on April 22, 1997. (b) All director nominees were elected. (c) The shareholders voted on the following matters: PROPOSALS AND VOTE TABULATIONS
VOTES CAST ---------------------------------------------------------- FOR AGAINST ABSTAIN NON-VOTES ---------- -------- ------- --------- Approval of the appointment of independent auditors 65,819,736 875,981 390,467 0 Approval of the proposed 1997 Long-Term Incentive Plan 58,916,275 3,562,138 737,489 0
ELECTION OF DIRECTORS DIRECTOR VOTES FOR VOTES WITHHELD -------- ---------- -------------- [S] Darryl F. Allen 66,010,334 1,247,204 James E. Perrella 66,057,591 1,199,947 Harry C. Stonecipher 66,055,341 1,202,197 Barbara Hackman Franklin 66,043,885 1,213,653 Joseph A. Pichler 66,052,515 1,205,023 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibits Exhibit (3) - Articles of Incorporation and Bylaws Exhibit (4) - Instruments Defining the Rights of Security Holders, Including Indentures Exhibit (10) - Material Contracts Exhibit (11) - Statement Regarding Computation of Earnings Per Share - filed as a part of Part I Exhibit (27) - Financial Data Schedule - filed as part of Part I (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended June 14, 1997. CINCINNATI MILACRON INC. AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Cincinnati Milacron Inc. Date: July 18, 1997 By:/s/ Robert P. Lienesch ------------ ---------------------- Robert P. Lienesch Controller Date: July 18, 1997 By:/s/ Ronald D. Brown ------------- ----------------------- Ronald D. Brown Vice President - Finance and Administration and Chief Financial Officer CINCINNATI MILACRON INC. AND SUBSIDIARIES INDEX TO EXHIBITS EXHIBIT NO. PAGE NO. - ----------- -------- 2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession - Not Applicable. 3 Articles of Incorporation and By-laws 3.1 - Incorporated herein by reference to the company's annual report on Form 10-K for the fiscal year ended December 28, 1996. 4 Instruments Defining the Rights of Security Holders, Including Indentures. 4.1 12% Sinking Fund Debentures due July 15, 2010 - Incorporated herein by reference to the company's Registration Statement on Form S- 3 (Registration No. 2-98653). 4.2 8-3/8% Notes due 2004 - Incorporated herein by reference to the company's Amendment No. 3 to Form S-4 Registration Statement (Registration No. 33-53009). 4.3 7-7/8% Notes due 2000 - Incorporated herein by reference to the company's Registration Statement on Form S-4 (Registration No. 33-60081). 4.4 Cincinnati Milacron Inc. hereby agrees to furnish to the Securities and Exchange Commission, upon its request, the instruments with respect to the long-term debt for securities authorized thereunder which do not exceed 10% of the registrant's total consolidated assets. 10 Material Contracts 10.1 - Incorporated herein by reference to the company's annual report on Form 10-K for the fiscal year ended December 28, 1996. 10.2 Amendment Number Four, dated as of March 14, 1997, to the Amended and Restated Revolving Credit Agreement dated as of December 31, 1994, among Cincinnati Milacron Inc., therein, and Bankers Trust Company, as agent - Incorporated herein by reference to the company's Quarterly Report on Form 10-Q for the quarter ended March 22, 1997. 10.3 1997 Long-Term Incentive Plan - Incorporated by reference to the company's Proxy Statement filed March 21, 1997. 11 Statement Regarding Computation of Per Share Earnings 23 15 Letter re: Unaudited Interim Financial Information - Not Applicable. 18 Letter Regarding Change in Accounting Principles - Not Applicable. 19 Report Furnished to Security Holders - Not Applicable. 22 Published Report Regarding Matters Submitted To Vote of Security Holders - Not Applicable. 23 Consents of Experts and Counsel - Not Applicable. 24 Power of Attorney - Not Applicable. 27 Financial Data Schedule 24 99 Additional Exhibits - Not Applicable. EX-11 2 CINCINNATI MILACRON INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE (UNAUDITED) (IN THOUSANDS, EXCEPT PER-SHARE AMOUNTS) 12 WEEKS ENDED 24 WEEKS ENDED ----------------- ----------------- JUNE 14, JUNE 15, JUNE 14, JUNE 15, 1997 1996 1997 1996 ------- ------- ------- ------- Net earnings $18,202 $14,736 $31,249 $27,331 Less preferred dividends (60) (60) (120) (120) ------- ------- ------- ------- Net earnings available to common shareholders $18,142 $14,676 $31,129 $27,211 ======= ======= ======= ======= Primary Average number of shares outstanding 39,819 36,162 39,813 35,081 Add dilutive effect of stock options based on treasury stock method 274 526 282 684 Deduct antidilutive restricted shares subject to contingent vesting (200) - (200) - ------- ------- ------- ------- Total 39,893 36,688 39,895 35,765 ======= ======= ======= ======= Per share amount $ .45 $ .40 $ .78 $ .76 ======= ======= ======= ======= Fully diluted Average number of shares outstanding 39,819 36,162 39,813 35,081 Add dilutive effect of stock options based on treasury stock method 437 526 363 739 Deduct antidilutive restricted shares subject to contingent vesting (200) - (200) - ------- ------- ------- ------- Total 40,056 36,688 39,976 35,820 ======= ======= ======= ======= Per share amount $ .45 $ .40 $ .78 $ .76 ======= ======= ======= ======= Note: This computation is required by Regulation S-K, Item 601, and is filed as an exhibit under Item 6 of Form 10-Q. EX-27 3
5 Other column represents the 12 weeks ended JUN-14-1997 Amounts rounded to tenths of millions, except per share data OTHER DEC-27-1997 MAR-23-1997 JUN-14-1997 33,600,000 0 249,700,000 13,200,000 402,900,000 740,500,000 605,900,000 298,300,000 1,337,800,000 415,200,000 0 423,600,000 0 6,000,000 17,500,000 1,337,800,000 452,100,000 452,100,000 341,800,000 341,800,000 81,200,000 0 6,300,000 22,800,000 4,600,000 18,200,000 0 0 0 18,200,000 .45 .45
-----END PRIVACY-ENHANCED MESSAGE-----