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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 October 7, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from __________ to __________
Commission file number 1-8485
CINCINNATI MILACRON INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1062125
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4701 Marburg Avenue
Cincinnati, Ohio 45209
(Address of principal executive offices)
(513)841-8100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
Number of shares of Common Stock, $1.00 par value, outstanding as
of November 14, 1995: 34,267,842
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CINCINNATI MILACRON INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheet 3
Consolidated Condensed Statement of Earnings 4
Consolidated Condensed Statement of Cash Flows 5
Notes to Consolidated Condensed Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
PART II. OTHER INFORMATION
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)
OCT. 7, DEC. 31,
1995 1994
------- -------
ASSETS
Current assets
Cash and cash equivalents . . . . . . . . . . . . $ 43.7 $ 21.5
Notes and accounts receivable, less allowances
of $15.4 in 1995 and $8.7 in 1994 . . . . . . . 213.9 188.0
Inventories
Raw materials . . . . . . . . . . . . . . . . . 32.9 25.4
Work-in-process and finished parts. . . . . . . 226.4 162.8
Finished products . . . . . . . . . . . . . . . 134.0 79.0
-------- ------
Total inventories . . . . . . . . . . . . . . 393.3 267.2
Other current assets. . . . . . . . . . . . . . . 36.7 38.0
-------- ------
Total current assets. . . . . . . . . . . . . . 687.6 514.7
-------- ------
Property, plant and equipment . . . . . . . . . . . 539.8 449.3
Less accumulated depreciation . . . . . . . . . . 272.2 250.5
-------- ------
Property, plant and equipment - net . . . . . . 267.6 198.8
Other noncurrent assets . . . . . . . . . . . . . . 127.1 74.1
-------- ------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . $1,082.3 $787.6
======== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Amounts payable to banks and current
portion of long-term debt . . . . . . . . . . . $ 32.0 $ 83.9
Trade accounts payable. . . . . . . . . . . . . . 103.9 99.2
Advance billings and deposits . . . . . . . . . . 44.7 39.6
Accrued and other current liabilities . . . . . . 192.8 140.6
-------- ------
Total current liabilities . . . . . . . . . . . 373.4 363.3
Long-term accrued liabilities . . . . . . . . . . . 176.0 123.5
Long-term debt and lease obligations. . . . . . . . 328.8 143.0
-------- ------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . 878.2 629.8
-------- ------
Commitments and contingencies . . . . . . . . . . . - -
SHAREHOLDERS' EQUITY
Preferred shares. . . . . . . . . . . . . . . . . 6.0 6.0
Common shares (outstanding: 34.2 in 1995
and 33.7 in 1994) . . . . . . . . . . . . . . . 298.6 289.2
Accumulated deficit . . . . . . . . . . . . . . . (97.8) (125.9)
Cumulative foreign currency translation
adjustments . . . . . . . . . . . . . . . . . . (2.7) (11.5)
-------- ------
TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . 204.1 157.8
-------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY. . . . . $1,082.3 $787.6
======== ======
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)
16 WEEKS ENDED 40 WEEKS ENDED
------------------ ------------------
OCT. 7, OCT. 8, OCT. 7, OCT. 8,
1995 1994 1995 1994
------ ------ ------ ------
Sales . . . . . . . . . . . . . . . . . $486.5 $361.2 $1,231.4 $876.0
Cost of products sold . . . . . . . . . 364.8 271.4 925.0 661.9
------ ------ ------ ------
Manufacturing margins . . . . . . . . 121.7 89.8 306.4 214.1
------ ------ ------ ------
Other costs and expenses
Selling and administrative. . . . . . 89.9 68.5 225.9 166.2
Integration charge. . . . . . . . . . - - 9.8 -
Gain on disposition of subsidiary . . - - (5.0) -
Other - net . . . . . . . . . . . . . 2.8 1.1 8.7 4.1
------ ------ ------ ------
Total other costs and expenses. . . 92.7 69.6 239.4 170.3
------ ------ ------ ------
Operating earnings. . . . . . . . . . . 29.0 20.2 67.0 43.8
Interest
Income. . . . . . . . . . . . . . . . 1.0 .7 2.5 1.6
Expense . . . . . . . . . . . . . . . (9.5) (5.3) (21.4) (12.8)
------ ------ ------ ------
Interest - net. . . . . . . . . . . (8.5) (4.6) (18.9) (11.2)
------ ------ ------ ------
EARNINGS BEFORE INCOME TAXES. . . . . . 20.5 15.6 48.1 32.6
Provision for income taxes. . . . . . . 4.5 3.7 10.7 7.8
------ ------ ------ ------
NET EARNINGS. . . . . . . . . . . . . . $ 16.0 $ 11.9 $ 37.4 $ 24.8
====== ====== ======== ======
EARNINGS PER COMMON SHARE . . . . . . . $ .46 $ .35 $ 1.08 $ .72
====== ====== ======== ======
Dividends per common share. . . . . . . $.09 $.09 $.27 $.27
Weighted average number of shares
and common share equivalents
outstanding (in thousands). . . . . . 34,980 34,040 34,578 34,017
See notes to consolidated condensed financial statements.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
16 WEEKS ENDED 40 WEEKS ENDED
-------------------- -------------------
OCT. 7, OCT. 8, OCT. 7, OCT. 8,
1995 1994 1995 1994
------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES CASH FLOWS
Net earnings. . . . . . . . . . . . . $ 16.0 $ 11.9 $ 37.4 $ 24.8
Operating activities providing
(using) cash
Depreciation and amortization . . 15.1 8.7 32.6 21.6
Integration charge. . . . . . . . - - 9.8 -
Gain on disposition
of subsidiary . . . . . . . . . - - (5.0) -
Deferred income taxes . . . . . . (.4) - (.2) 1.8
Working capital changes
Notes and accounts receivable . 21.4 18.9 33.8 20.2
Inventories . . . . . . . . . . (21.5) (23.8) (46.0) (42.3)
Other current assets. . . . . . 1.2 (2.5) (4.5) (4.2)
Trade accounts payable and
other current liabilities . . (31.3) (16.4) (29.8) (18.8)
(Increase) decrease in other
noncurrent assets . . . . . . . 6.8 .8 4.5 (1.0)
Increase (decrease) in long-term
accrued liabilities . . . . . . .2 (.3) 3.5 (1.8)
Other - net . . . . . . . . . . . 2.1 .6 1.9 (1.5)
------ ------ ------ ------
Net cash provided (used) by
operating activities. . . . . 9.6 (2.1) 38.0 (1.2)
------ ------ ------ ------
INVESTING ACTIVITIES CASH FLOWS
Capital expenditures. . . . . . . . . (18.4) (14.3) (38.3) (26.2)
Net disposals of property, plant
and equipment . . . . . . . . . . . 3.4 1.0 9.3 3.3
Acquisitions. . . . . . . . . . . . . (33.2) - (112.4) -
Cash received on disposition
of subsidiaries . . . . . . . . . . .2 .4 15.5 2.7
------ ------ ------ ------
Net cash used by
investing activities. . . . . . (48.0) (12.9) (125.9) (20.2)
------ ------ ------ ------
FINANCING ACTIVITIES CASH FLOWS
Dividends paid. . . . . . . . . . . . (3.2) (3.1) (9.4) (9.3)
Issuance of long-term debt. . . . . . 17.7 - 198.2 115.4
Repayments of long-term debt and
lease obligations . . . . . . . . . - (2.0) (47.4) (62.5)
Increase (decrease) in amounts
payable to banks. . . . . . . . . . 17.6 23.7 (40.8) (24.3)
Net issuance of common shares . . . . 5.8 .5 9.5 3.1
------ ------ ------ ------
Net cash provided by
financing activities. . . . . . . 37.9 19.1 110.1 22.4
------ ------ ------ ------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS. . . . . . . . . . . (.5) 4.1 22.2 1.0
Cash and cash equivalents at
beginning of period . . . . . . . . . 44.2 15.7 21.5 18.8
------ ------ ------ ------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD . . . . . . . . . . . . $ 43.7 $ 19.8 $ 43.7 $ 19.8
====== ====== ====== ======
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 except as indicated below, necessary to present fairly
the company's financial position, results of operations and cash flows.
The Consolidated Condensed Balance Sheet at December 31, 1994, 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 31, 1994.
ACQUISITIONS
- ------------
On February 1, 1995, the company completed the acquisition of Krupp Widia
GmbH (Widia) for DM 120.8 million in cash ($79.5 million based on the
exchange rate in effect on the closing date), which included DM 7.1 million
($4.6 million) for the settlement of all intercompany liabilities to the
seller as of the closing date. Headquartered in Germany, Widia had sales of
approximately $225 million in 1994 and is one of the world's leading
producers of industrial metalcutting products. The company financed the
acquisition, which is being accounted for under the purchase method, by
drawing on its revolving credit facility with its existing bank group which
had been amended in December, 1994, to increase the amount of borrowings
available thereunder from $130.0 million to $200.0 million, including
borrowings denominated in German marks up to an equivalent of $100.0 million.
On July 20, 1995, the company completed the acquisition of Talbot Holdings,
Ltd. (Talbot) for approximately $33 million in cash. With annual sales of
about $40 million, Talbot is a major supplier of round high-speed steel and
carbide metalcutting tools. The transaction is being accounted for under the
purchase method and was financed through available cash and existing credit
lines.
The company's investments in Widia and Talbot, including professional fees
and other costs related to the acquisitions, will total approximately $112
million. The preliminary allocation of the acquisition cost to the assets
acquired and the liabilities assumed is presented in the table that follows.
The amounts shown therein are estimates and are subject to revision once
appraisals, actuarial reviews and other studies of fair value are completed.
Estimated goodwill resulting from the acquisitions, which is included in
other noncurrent assets, is approximately $42 million and is being amortized
over forty years.
(In millions)
1995
---------
Cash and cash equivalents . . . . . . . . . . . . . . $ 3.1
Accounts receivable . . . . . . . . . . . . . . . . . 51.7
Inventories . . . . . . . . . . . . . . . . . . . . . 69.3
Other current assets. . . . . . . . . . . . . . . . . 1.3
Property, plant and equipment - net . . . . . . . . . 61.6
Other noncurrent assets . . . . . . . . . . . . . . . 51.7
------
Total assets. . . . . . . . . . . . . . . . . . . . 238.7
Amounts payable to banks and current
portion of long-term debt . . . . . . . . . . . . . (9.3)
Intercompany payables to seller . . . . . . . . . . . (4.6)
Trade accounts payable. . . . . . . . . . . . . . . . (16.5)
Accrued and other current liabilities . . . . . . . . (43.4)
Long-term accrued liabilities . . . . . . . . . . . . (43.9)
Long-term debt and lease obligations. . . . . . . . . (9.4)
------
Total acquisition costs . . . . . . . . . . . . . . $111.6
======
As presented above, accrued and other current liabilities includes a reserve
of $6.1 million that was established in the allocation of acquisition cost
for the further restructuring of Widia and its integration with Valenite, a
subsidiary which also manufactures metalcutting products. Certain of Widia's
worldwide operations, including its principal European plant located in
Essen, Germany, were restructured by the seller during 1993 and 1994 to
improve manufacturing efficiency, divest marginal business and product lines
and reduce personnel levels. Prior to the acquisition, the company began to
develop a plan for the integration of certain operations of Widia and
Valenite and identified additional actions that are intended to further
improve Widia's profitability. The overall plan, which will have a total
cost of $17.1 million ($13.1 million in cash), was formally approved by
management in May, 1995. That portion of the $17.1 million cost directly
related to Valenite has been recorded as a $9.8 million pretax charge to
earnings in the second quarter of 1995 (see Integration Charge). As it
relates to Widia, the management plan involves the downsizing of one
manufacturing plant and the consolidation of numerous sales, customer service
and warehouse operations in Europe and Asia at a total cost of $7.3 million,
including write downs of certain assets to net realizable value totaling $1.2
million. The $6.1 million reserve that is included in accrued and other
current liabilities includes $5.9 million for severance and other termination
benefits related to the elimination of approximately eighty production and
sales personnel and $.2 million for facility exit costs. It is expected that
the actions contemplated by the integration plan, which are intended to
complement the actions already taken prior to the acquisition, will be
substantially completed during 1995. Charges against the reserve through the
end of the third quarter were $1.3 million. In addition, management is
evaluating further cost reduction alternatives to enhance future
profitability, the cost of which has not been finalized.
Unaudited pro forma sales and earnings information for the third quarters of
1995 and 1994 and the 40 week periods ended October 7, 1995 and October 8,
1994 prepared under the assumption that the acquisitions of Widia and Talbot
had been completed at the beginning of those years is as follows:
(In millions, except per-share amounts)
16 Weeks Ended 40 Weeks Ended
-------------- --------------
Oct. 7, Oct. 8, Oct. 7, Oct. 8,
1995 1994 1995 1994
------ ------ ------ ------
Sales . . . . . . . . . . . . . . . . $ 489.7 $ 443.5 $1,276.6 $1,066.9
======= ======= ======== ========
Net earnings. . . . . . . . . . . . . $ 16.0 $ 12.7 $ 37.5 $ 25.3
======= ======= ======== ========
Per common share. . . . . . . . . . . $ .46 $ .37 $ 1.08 $ .74
======= ======= ======== ========
Based on a comprehensive analysis, the company estimates that the minimum
annual savings in relation to Widia's historical 1994 operations that will
result from the restructuring actions completed in 1994 and early 1995 prior
to the acquisition will be approximately $3.0 million. The additional
actions described above that will be completed in 1995 subsequent to the
acquisition in connection with the company's $17.1 million integration plan
will generate additional annual savings of approximately $6.0 million. These
amounts are based principally on the savings that will be realized from
actual reductions in Widia's employment level that have already occurred
during 1995 and those that are expected to occur later in the year. The pro
forma earnings amounts for the third quarter of 1994 and the 40 weeks ended
October 8, 1994 presented above include estimates of these expected cost
savings totaling $3.0 million and $6.7 million, respectively. In addition,
restructuring charges of $1.6 million in the third quarter of 1994 and $2.8
million for the 40 weeks ended October 8, 1994 that were incurred by Widia on
a historical basis have been eliminated. The pro forma amounts presented
above do not reflect approximately $6.0 million of annual profitability
improvements that are expected to result from those portions of the $17.1
million integration plan that are directly related to Valenite's operations.
INTEGRATION CHARGE
- ------------------
In the second quarter of 1995, the company recorded a pretax charge of $9.8
million ($7.8 million after tax) to eliminate or downsize certain operations
of Valenite in connection with the acquisition of Widia earlier in the year.
The charge was recorded as a result of a plan formally approved by management
in May, 1995, which also involves the integration of certain Widia operations
with Valenite. The total cost of the plan will be $17.1 million ($13.1
million in cash). That portion of the overall plan that relates directly to
Widia has been recorded through purchase accounting adjustments totaling $7.3
million. As it relates to Valenite, the plan involves the closure of one
manufacturing plant, the downsizing of another and the consolidation of
numerous sales, customer service and warehousing operations in Europe and
Japan. The $9.8 million charge includes reserves for the cash costs of the
integration of $7.0 million, including $5.9 million for severance and other
termination benefits related to approximately ninety production and sales
personnel and $1.1 million for facility exit costs. The charge also includes
$2.8 million to adjust the basis of various assets to net realizable value.
Charges against the $7.0 million reserve for severance and other cash costs
totaled $2.6 million through the end of the third quarter of 1995. The total
cash cost of the $17.1 million plan will be $13.1 million and will be funded
by operations and bank borrowings. As a result of the actions that are
included in the integration plan, all of which will be substantially
completed during 1995, the company expects to improve its annual
profitability by approximately $12 million.
DISPOSITION OF SUBSIDIARIES
- ---------------------------
In January, 1995, the company completed the sale of its American Mine Tool
business for $15.0 million resulting in a gain of $5.0 million ($4.0 million
after tax, or $.12 per share). The sale will not have a significant effect
on future sales or earnings.
In February, 1994, the company completed the sale of its Sano business
resulting in initial cash proceeds of $2.0 million. The remainder of the
gross sales price of approximately $7 million is being received through the
collection of trade receivables and in varying installments through 1999.
INCOME TAXES
- ------------
The company entered 1995 and 1994 with U.S. net operating loss carryforwards
of $41 million and $19 million, respectively. The company also had net
operating loss carryforwards in certain non-U.S. jurisdictions. U.S. federal
income taxes and taxes in certain non-U.S. jurisdictions are not significant
in either year due to the realization of certain fully reserved deferred tax
assets, particularly the aforementioned net operating loss carryforwards. As
a result, the company's effective tax rate for the third quarters of 1995 and
1994 and for the 40 weeks ended October 7, 1995 and October 8, 1994, which in
all periods includes provisions for U.S. state and local and certain non-U.S.
income taxes, is less than the U.S. federal statutory rate of 35%.
RECEIVABLES
- -----------
In 1993, the company sold $50 million of its U.S. accounts receivable. The
sale transaction occurred under a three year receivables purchase agreement
with an independent issuer of receivables-backed commercial paper, pursuant
to which the company agreed to sell on an ongoing basis and without recourse,
an undivided percentage ownership interest in designated pools of accounts
receivable. To maintain the balance in the designated pools of accounts
receivable sold, the company is obligated to sell undivided percentage
interests in new receivables as existing receivables are collected. In
March, 1994, the receivables purchase agreement was amended and restated to
provide for the sale of up to $65 million of interests in accounts receivable
through January, 1996, the termination date of the agreement. The agreement
was further amended in March, 1995, to increase the amount from $65 million
to $75 million. At October 7, 1995, and December 31, 1994, the undivided
interest in the company's gross accounts receivable that had been sold to the
purchaser aggregated $66.5 million and $65.0 million, respectively. The
comparable amount at the end of the second quarter of 1995 was $75.0 million.
Increases and decreases in the amount of interests in receivables sold are
reported as providing or rising operating cash flow in the Consolidated
Condensed Statement of Cash Flows. Costs related to the sales are included
in other costs and expenses - net in the Consolidated Condensed Statement of
Earnings.
LIABILITIES
- -----------
The components of accrued and other current liabilities and long-term accrued
liabilities are shown in the following tables.
(In millions)
Oct. 7, Dec. 31,
1995 1994
------- -------
ACCRUED AND OTHER CURRENT LIABILITIES
Accrued salaries, wages and
other compensation. . . . . . . . . . . . . . . $ 36.2 $ 29.9
Accrued and deferred income taxes . . . . . . . . 19.0 21.5
Other accrued expenses. . . . . . . . . . . . . . 137.6 89.2
------ ------
$192.8 $140.6
====== ======
LONG-TERM ACCRUED LIABILITIES
Accrued pension and other compensation. . . . . . $ 69.7 $ 27.3
Accrued postretirement health
care benefits . . . . . . . . . . . . . . . . . 43.4 44.0
Accrued and deferred income taxes . . . . . . . . 29.1 25.8
Other . . . . . . . . . . . . . . . . . . . . . . 33.8 26.4
------ ------
$176.0 $123.5
====== ======
LONG-TERM DEBT AND LEASE OBLIGATIONS
- ------------------------------------
Long-term debt and lease obligations are shown in the following table.
(In millions)
Oct. 7, Dec. 31,
1995 1994
------- -------
Long-term debt
7-7/8% Notes due 2000 . . . . . . . . . . . . . . $100.0 $ -
8-3/8% Notes due 2004 . . . . . . . . . . . . . . 115.0 115.0
12% Sinking Fund Debentures due 2010. . . . . . . 10.8 10.8
Revolving credit facility . . . . . . . . . . . . 87.1 10.0
Industrial Development Revenue
Bonds due 2008. . . . . . . . . . . . . . . . . - 10.0
Other . . . . . . . . . . . . . . . . . . . . . . 16.6 8.1
------ ------
329.5 153.9
------ ------
Capital lease obligations
6-3/8% Bonds due 1995- 1997 . . . . . . . . . . . 1.8 2.6
6-3/4% Bonds due 2004 . . . . . . . . . . . . . . - 7.6
------ ------
1.8 10.2
------ ------
Total long-term debt and lease obligations. . . . . 331.3 164.1
Less current maturities . . . . . . . . . . . . . . ( 2.5) (21.1)
------ ------
$328.8 $143.0
====== ======
In May, 1995, the company completed a private financing involving the
placement of $100 million of 7-7/8% Notes due 2000. The proceeds were used
to repay outstanding indebtedness. On July 21, 1995, the company commenced
an exchange offering to exchange the privately financed 7-7/8% Notes due
2000, for an equal principal amount of new 7-7/8% Notes due 2000 which have
substantially identical terms but which have been registered under the
Securities Act of 1933. The exchange offer was completed for all such Notes
during the third quarter of 1995.
At December 31, 1994, current maturities includes the Industrial Development
Revenue Bonds due 2008 and the 6-3/4% Bonds due 2004, both of which were
repaid in 1995 due to the closure of the company's machine tool facilities in
South Carolina. The 6-3/4% Bonds due 2004 were defeased in the first quarter
of 1995 and repaid early in the second quarter. The Industrial Development
Revenue Bonds due 2008 were repaid during the second quarter of 1995.
At October 7, 1995 and December 31, 1994, borrowings under the company's
revolving credit facility totaling $87.1 million and $10.0 million,
respectively, are included in long-term debt based on the expectation that
such amounts will remain outstanding for more than one year.
LINES OF CREDIT
- ---------------
On May 31, 1995, the company entered into an agreement with the lenders under
its revolving credit agreement facility to extend the term from July, 1996,
to June, 1998 and, at the company's request, to reduce the amount of credit
available thereunder from $200 million to $150 million in order to reduce the
amount of commitment fees payable by the company. The revolving credit
facility imposes restrictions on total indebtedness in relation to total
capital. In connection with the extension, certain required financial ratio
levels imposed on the company are scheduled to become more stringent
beginning in January, 1996. The company anticipates that it will be able
to continue to comply with these restrictions throughout the extended term of
the facility. However, some of these requirements are expected to be waived
by the lenders or amended to permit the company to complete the planned
acquisition of D-M-E (see Subsequent Event).
At October 7, 1995, the company had lines of credit with various U.S. and
non-U.S. banks of approximately $369 million, including the $150 million
committed revolving credit facility. These credit facilities support letters
of credit and leases in addition to providing borrowings under varying terms.
A portion of the revolving credit facility was utilized to finance the
acquisitions of Widia and Talbot (see Acquisitions). Under the provisions of
the facility, the company's additional borrowing capacity totaled
approximately $57 million at October 7, 1995.
CONTINGENCIES
- -------------
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.
SEGMENT INFORMATION
- -------------------
The company has three business segments: plastics machinery, machine tools,
and industrial products. Financial information for each of these segments
for the third quarters of 1995 and 1994 and for the 40 weeks ended October 7,
1995 and October 8, 1994 are presented below.
(In millions)
16 Weeks Ended 40 Weeks Ended
----------------- -----------------
Oct. 7, Oct. 8, Oct. 7, Oct. 8,
1995 1994 1995 1994
------- ------- ------- -------
Sales
Plastics machinery. . . . . . . . . . $157.7 $147.9 $ 436.7 $365.6
Machine tools . . . . . . . . . . . . 111.6 102.5 292.0 238.5
Industrial products . . . . . . . . . 217.2 110.8 502.7 271.9
------ ------ -------- ------
$486.5 $361.2 $1,231.4 $876.0
====== ====== ======== ======
Operating earnings (a)
Plastics machinery. . . . . . . . . . $ 15.7 $ 15.2 $ 44.1 $ 33.1
Machine tools . . . . . . . . . . . . 3.2 .5 1.3 .7
Industrial products . . . . . . . . . 17.4 11.9 44.8 27.8
Integration charge (b). . . . . . . . - - (9.8) -
Gain on disposition of subsidiary (c) - - 5.0 -
Unallocated corporate expenses (d). . (7.3) (7.4) (18.4) (17.8)
------ ------ -------- ------
$ 29.0 $ 20.2 $ 67.0 $ 43.8
====== ====== ======== ======
New orders
Plastics machinery. . . . . . . . . . $150.2 $155.1 $ 428.4 $395.0
Machine tools . . . . . . . . . . . . 132.2 98.0 333.1 259.7
Industrial products . . . . . . . . . 210.8 114.6 499.2 281.1
------ ------ -------- ------
$493.2 $367.7 $1,260.7 $935.8
====== ====== ======== ======
Ending backlog. . . . . . . . . . . . . $395.1 $305.8 $ 395.1 $305.8
====== ====== ======== ======
(a) In 1995, the company's method of allocating corporate costs to its
business segments was refined to exclude costs for certain services not
directly assignable to the operations of the segments. Amounts for 1994
have been restated to conform to the 1995 presentation.
(b) Represents a charge related to the industrial products segment to
integrate certain Valenite and Widia operations to improve future
profitability.
(c) Represents a gain on the sale of the company's American Mine Tool
business, which was part of the industrial products segment.
(d) Includes financing costs related to the sale of accounts receivable and
corporate expenses.
EARNINGS PER SHARE
- ------------------
Earnings per common share are based on the weighted average number of common
shares and common share equivalents outstanding.
PENDING DISPOSITION OF BUSINESS
- -------------------------------
In September, 1995, the company announced the signing of a letter of intent
to sell its Electronic Systems Division (ESD) for $105 million in cash,
subject to post closing adjustments. A definitive agreement, which will
include long-term supplier contracts for controls used in the company's
machine tools and plastics machinery, is expected to be reached in time to
allow for closing by year-end 1995. ESD's 1995 sales to unaffiliated
customers are expected to be approximately $30 million.
SUBSEQUENT EVENT
- ----------------
On November 13, 1995, the company announced a preliminary agreement under
which it expects to purchase the assets of The Fairchild Corporation's D-M-E
business for approximately $260 million. Completion of the transaction is
subject to a definitive agreement, due diligence and certain other
conditions, including lender consents and approvals and the approval of the
company's Board of Directors. With annual sales of approximately $175
million, D-M-E is a leading U.S. mold equipment supplier and one of the
world's leading producers of standard components and supplies for the
injection mold-making industry. The acquisition, which will be accounted for
under the purchase method, is expected to be financed initially with a short
term note to the seller and cash on hand. Longer term financing will be
completed at a later date and may include the issuance of some form of
equity. The transaction is expected to be completed early in 1996.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(UNAUDITED)
RESULTS OF OPERATIONS
- ---------------------
SALES
Sales in the third quarter of 1995 of $487 million increased by $125 million
over the third quarter of 1994, of which approximately $100 million
represents sales of newly acquired subsidiaries, Widia and Talbot, which are
described below. Excluding sales of the new subsidiaries, the $25 million
sales increase represents a 7% increase over the third quarter of 1994.
Included in the $25 million increase in sales is a $12 million increase
caused by foreign currency exchange rate fluctuations.
Plastics machinery sales increased by $10 million, or 7%, over 1994 due to
increased sales by the company's European plastics machinery subsidiaries.
Machine tools sales increased by $9 million, or 9%, due to increased sales of
standard machine tools. Sales of industrial products, excluding the new
subsidiaries' sales, increased approximately $6 million, or 6%, primarily due
to increased sales of cutting tools and cutting fluids.
Sales for the 40 weeks ended October 7, 1995 were $1,231 million, which
represents a $355 million, or 41%, increase over the comparable period of
1994. This sales increase is attributable to (i) a $71 million, or 19%,
increase in plastics machinery sales, mostly in the U.S. and European
markets; (ii) a $54 million, or 22%, increase in machine tool sales mostly
due to increases in Wolfpack-designed standard machine tools, and (iii) a
$231 million increase in sales of industrial products including Widia and
Talbot sales of approximately $195 million. Included in the $355 million
increase in sales is a $34 million increase caused by foreign currency
exchange rate fluctuations.
Export sales from the U.S. for the 40 weeks ended October 7, 1995 were $113
million, up from $103 million in the comparable period of 1994. In the same
1995 period, products manufactured outside of the U.S. constituted 42% of
consolidated sales as compared to 28% in 1994.
NEW ORDERS AND BACKLOG
New orders for the third quarter of 1995 of $493 million increased by $126
million, or 34%, over the third quarter of 1994. Approximately $95 million
of the increase was attributable to the acquisitions of Widia and Talbot.
Excluding acquisitions, new orders were up 8% over the third quarter of 1994.
Included in the $126 million increase in new orders is a $13 million increase
caused by foreign currency exchange rate fluctuations.
Orders for plastics machinery in the third quarter of 1994 decreased by $5
million, or 3%, versus 1994 due to weakening U.S. demand for large injection
molding machines. Machine tool orders increased $34 million, or 35%,
primarily due to an $11 million increase in orders for aerospace machines to
be shipped in 1996 and increased orders for standard machine tools. Orders
for industrial products increased by $96 million including the Widia and
Talbot acquisitions and $1 million, or 1%, excluding the acquisitions. In
general, the company continued to benefit from high levels of automotive
production in the U.S. and Europe, although some softening in the U.S. has
affected order levels in the second and third quarters of 1995, which could
continue in the fourth quarter.
New orders for the 40 weeks ended October 7, 1995 were $1,261 million, which
represents a $325 million, or 35%, increase over the comparable period of
1994. This increase in new orders is attributable to (i) a $33 million, or
8%, increase in orders for plastics machinery; (ii) a $73 million, or 28%,
increase in machine tools, primarily as a result of increased orders for
standard machine tools, along with some pick-up in demand for aerospace
machines and (iii) a $218 million increase in orders for industrial products
including Widia and Talbot, or a $26 million, or 9%, increase excluding Widia
and Talbot. Included in the $325 million increase in new orders is a $35
million increase caused by foreign currency exchange rate fluctuations.
The company's backlog of unfilled orders increased from $385 million at June
17, 1995 to $395 million at October 7, 1995. This $10 million increase was
caused in part by a $4 million increase to include Talbot's backlog at date
of acquisition, as well as a significant increase in new orders for machine
tools. Compared with the backlog at October 8, 1994, the backlog increased
by $89 million, which results from the Widia and Talbot acquisitions.
MARGINS, COSTS AND EXPENSES
The consolidated manufacturing margin percent of 25.0% and 24.9% for the
third quarter of 1995 and 40 weeks ended October 7, 1995, respectively,
increased from 24.9% and 24.4% for the comparable periods of 1994. Currency
exchange rate fluctuations caused some increase in margin dollars but did not
affect the margin percent. In general, margin percents improved because of
increased volume and the acquisition of Widia which has higher margins than
the company's machinery businesses. Machine tool margins in 1995 have
increased. Plastics machinery margins in the third quarter of 1995 declined
due to product and geographic mix, which trends are expected to continue in
the fourth quarter.
Selling and administrative expenses in the third quarter of 1995 and for the
40 weeks ended October 7, 1995 increased in connection with higher sales and
currency exchange rate fluctuations compared with the same periods in 1994.
Selling expense remained at approximately 16.4% of sales as the benefits of
increased volume were offset by the acquisition of Widia which has higher
selling costs than the machinery businesses. Administrative expense
increased due to the Widia acquisition and currency exchange rate
fluctuations, but declined as a percent to sales.
The $9.8 million pretax integration charge ($7.8 million after tax) relates
to the company's February, 1995 acquisition of Krupp Widia GmbH (Widia), a
Germany-based manufacturer of metalcutting tools with 1994 sales of
approximately $225 million. The Widia acquisition allows the company to
capitalize on synergistic opportunities with Valenite, an existing subsidiary
which manufactures similar products. Accordingly, in May, 1995 management
formally approved a plan to integrate certain operations of these businesses
at a cost of $17.1 million ($13.1 million in cash). That portion of the cost
directly related to Widia, totaling $7.3 million, has been recorded as a
purchase accounting adjustment, while the remaining $9.8 million, which is
directly related to Valenite, was recorded as a charge to earnings in the
second quarter. The $17.1 million plan involves the closing or downsizing of
three manufacturing plants and the consolidation of numerous sales, service
and warehouse operations in Europe and Asia. The $9.8 million integration
charge includes $5.9 million for severance and other termination benefits and
$3.9 million for facility exit costs and asset write downs. As a result of
the actions included in the plan, all of which are expected to be
substantially completed during 1995, the company expects to improve its
annual profitability by approximately $12 million. The total cash cost of
$13.1 million will be funded by operations and bank borrowings.
Gain on disposition of subsidiary represents a $5.0 million before tax ($4.0
million after tax) gain on the sale of the company's American Mine Tool (AMT)
business, a small business in the industrial products segment. The business
did not serve a major global market with good long-term growth and profit
potential and, accordingly, did not meet the company's criteria for a core
business. The sale will not have a material effect on the company's future
sales and earnings.
Other costs and expenses - net increased over the 1994 amounts due in part to
the Widia acquisition, increased financing costs related to sales of accounts
receivable and exchange rate fluctuations.
Interest expense - net increased over the 1994 amounts due primarily to
higher debt levels associated with debt incurred to finance the Widia and
Talbot acquisitions and the company's internal growth.
EARNINGS BEFORE INCOME TAXES
Earnings before income taxes increased from $15.6 million in the third
quarter of 1994 to $20.5 million in the third quarter of 1995. Earnings
before income taxes increased from $32.6 million in the 40 weeks ended
October 8, 1994 to $48.1 million in the 40 weeks ended October 7, 1995.
Excluding the effects of the $9.8 million pretax integration charge and the
$5.0 million pretax gain on the sale of AMT in 1995, earnings for the 40
weeks ended October 7, 1995 increased by $20.3 million over 1994. The 1995
increases reflect increased profit associated with higher volume and the
Widia and Talbot acquisitions, offset in part by increased borrowing costs.
Also contributing to the increased earnings in the third quarter of 1995 and
40 weeks ended October 7, 1995 are increases of $.5 million and $2.2 million,
respectively, due to foreign currency exchange rate fluctuations.
INCOME TAXES
The provision for income taxes in both years consists primarily of U.S. state
and local income taxes and non-U.S. income taxes in certain profitable
jurisdictions. The company entered 1995 and 1994 with U.S. net operating
loss carryforwards of $41 million and $19 million, respectively. The company
also had net operating loss carryforwards in certain non-U.S. jurisdictions.
As a result, U.S. federal income taxes and taxes in certain non-U.S.
jurisdictions are minimal in both years due to the realization of certain
fully reserved deferred tax assets, particularly the aforementioned net
operating loss carryforwards.
NET EARNINGS
Net earnings were $16.0 million, or $.46 per share, in the third quarter of
1995 compared with $11.9 million, or $.35 per share, in the third quarter of
1994. Net earnings increased from $24.8 million, or $.72 per share, in the
40 weeks ended October 8, 1994 to $37.4 million, or $1.08 per share, in the
40 weeks ended October 7, 1995. Excluding the $7.8 million after tax
integration charge and the $4.0 million after tax gain on the sale of AMT in
1995, net earnings for the 40 weeks ended October 7, 1995 increased by $16.4
million, or $.47 per share, over 1994. The 1995 increases reflect the
effects of higher sales, the Widia and Talbot acquisitions and currency
effects, offset in part by increased borrowing costs and income taxes.
CONSOLIDATION CHARGE
- --------------------
In December, 1993, management adopted a plan to reduce machine tool
manufacturing capacity by consolidating U.S. machine tool manufacturing into
facilities in Cincinnati and accordingly, recorded a charge of $47.1 million
in the fourth quarter of 1993. Costs totaling $17 million during the third
quarter of 1994 and $29 million for the 40 weeks ended October 8, 1994 were
charged against the reserve. Production at the company's two machine tool
facilities in Fountain Inn and Greenwood, South Carolina, was phased out
during 1994 and the facilities were closed in the fourth quarter of 1994.
The consolidation plan was essentially completed by year-end, 1994, although
the company experienced some production difficulties in early 1995 which were
related to the consolidation and a simultaneous increase in customer demand.
ACQUISITIONS
- ------------
In February, 1995, the company completed the acquisition of Germany-based
Krupp Widia GmbH (Widia) for approximately $80 million in cash. Widia, with
1994 sales of approximately $225 million, is one of the world's leading
producers of industrial metalcutting products. The acquisition was financed
principally by drawing on the company's revolving credit facility.
In July, 1995, the company consummated the acquisition of Talbot Holdings,
Ltd. With annual sales of about $40 million, Talbot is a major supplier of
round high-speed steel and carbide metalcutting tools. The total
consideration, including debt assumed of approximately $5 million, was
approximately $38 million. The transaction was financed through available
cash and existing credit lines.
LIQUIDITY AND SOURCES OF CAPITAL
- --------------------------------
At October 7, 1995, the company had cash and cash equivalents of $44 million,
which was virtually unchanged from June 17, 1995 and an increase of $22
million during the 40 weeks ended October 7, 1995. Operating activities
provided $9.6 million of cash in the third quarter of 1995 and used $2.1
million in the third quarter of 1994. The $9.6 million provided by
operations was realized despite an $8.5 million reduction in the amount of
undivided interests in accounts receivable sold. Included in the $9.6
million is $6.0 million of proceeds from the sale of the Fountain Inn, South
Carolina facility which had been included in other noncurrent assets
subsequent to its closure. For the 40 weeks ended October 7, 1995 operating
activities provided $38.0 million of cash, including the Fountain Inn
proceeds, compared to $1.2 million used in the same period of 1994.
Total debt was $361 million at October 7, 1995, an increase of $35 million
over June 17, 1995 and an increase of $134 million during the 40 weeks ended
October 7, 1995 principally to finance the acquisitions of Widia and Talbot.
The ratio of total debt to total capital (debt plus equity) was 64% at
October 7, 1995, 63% at June 17, 1995 and 59% at year end 1994. Working
capital increased by $15 million in the third quarter of 1995 and $163
million in the 40 weeks ended October 7, 1995 (including $70 million related
to the acquisitions of Widia and Talbot) and the current ratio improved to
1.8 at the end of the third and second quarters of 1995 compared to 1.4 at
year end 1994.
Expenditures for new property, plant and equipment in the third quarter of
1995 and for the 40 weeks ended October 7, 1995 were $18 million and $38
million respectively, compared to $14 million and $26 million in 1994. The
1995 capital expenditures budget has been increased to $61 million from $40
million at the beginning of 1995 to reflect various adjustments including a
decrease in the amount of equipment to be acquired under operating leases.
Proceeds from the disposal of property, plant and equipment during the third
quarter of 1995 of $3 million relates primarily to the sale and operating
leaseback of certain manufacturing equipment.
In the second quarter of 1995 the company issued $100 million of 7-7/8% notes
due in May, 2000. The net proceeds of the offering, approximately $98
million, was used to repay outstanding indebtedness which had increased by
$70 million in the first quarter of 1995 due principally to the Widia
acquisition.
The company had a number of short-term intercompany loans and advances
denominated in various currencies totaling approximately $50 million at
October 7, 1995 that were subject to foreign 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 intercompany loans
and advances and the purchase and sale of goods under firm commitments by
entering into foreign exchange contracts to minimize the effect of foreign
currency exchange rate fluctuations related to significant transactions.
On May 31, 1995, the company entered into an agreement with the lenders under
its revolving credit agreement facility to extend the term from July, 1996,
to June, 1998 and, at the company's request, to reduce the amount of credit
available thereunder from $200 million to $150 million in order to reduce the
amount of commitment fees payable by the company. The revolving credit
facility imposes restrictions on total indebtedness in relation to total
capital. In connection with the extension, certain required financial ratio
levels imposed on the company are scheduled to become more stringent
beginning in January, 1996. The company anticipates that it will be able to
continue to comply with these restrictions throughout the extended term of
the facility. However, some of these requirements are expected to be waived
by the lenders or amended to permit the company to complete the planned
acquisition of D-M-E, which is discussed below.
At October 7, 1995, the company had lines of credit with various U.S. and
non-U.S. banks of approximately $369 million, including the $150 million
committed revolving credit facility. These credit facilities support letters
of credit and leases in addition to providing borrowings under varying terms.
A portion of the revolving credit facility was utilized to finance the
acquisitions of Widia and Talbot. Under the provisions of the facility, the
company's additional borrowing capacity totaled approximately $57 million at
October 7, 1995.
The company believes that its cash flow from operations and available credit
lines will be sufficient to meet its debt service, capital expenditures and
other operating requirements. The financing of the acquisition of D-M-E is
discussed below.
OUTLOOK
- -------
For the fourth quarter, the company expects significant year-over-year gains
in consolidated sales and orders, as well as a favorable comparison in
earnings. On a segment basis, the company anticipates that earnings will
continue to increase in industrial products and machine tools. In plastics
machinery, margins will still be under pressure as a greater portion of sales
come from European and other international operations. Although management
anticipates a favorable comparison of fourth quarter 1995 earnings with the
fourth quarter of 1994, the increase is not expected to be as significant as
earlier 1995 quarterly earnings comparisons.
PENDING DISPOSITION OF BUSINESS
- -------------------------------
In September, 1995, the company announced the signing of a letter of intent
whereby the company would sell its Electronics Systems Division (ESD) for
$105 million in cash, subject to post closing adjustments, to a unit of
TRINOVA Corporation. A definitive agreement, which will include long-term
supplier contracts, is expected to be reached in time to allow for closing by
year end. The division's 1995 sales to unaffiliated customers are expected
to be approximately $30 million.
SUBSEQUENT EVENT
- ----------------
On November 13, 1995, the company announced a preliminary agreement under
which it expects to purchase the assets of The Fairchild Corporation's D-M-E
business for approximately $260 million. Completion of the transaction is
subject to a definitive agreement, due diligence and certain other
conditions, including lender consents and approvals and the approval of the
company's Board of Directors. With annual sales of approximately $175
million, D-M-E is a leading U.S. mold equipment supplier and one of the
world's leading producers of standard components and supplies for the
injection mold-making industry. The acquisition, which will be accounted for
under the purchase method, is expected to be financed initially with a short
term note to the seller and cash on hand, including the proceeds from the ESD
sale. Longer term financing will be completed at a later date and may
include the issuance of some form of equity. The transaction is expected to
be completed in early 1996.
PART II. OTHER INFORMATION
CINCINNATI MILACRON INC. AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
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
A report on Form 8-K dated June 22, 1995, was filed
regarding the acquisition of the capital stock of
Talbot Holdings, Ltd.
CINCINNATI MILACRON INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cincinnati Milacron Inc.
Date: November 21, 1995 By:/s/ Robert P. Lienesch
------------------- ----------------------------------
Robert P. Lienesch
Controller
Date: November 21, 1995 By:/s/ Ronald D. Brown
------------------- ----------------------------------
Ronald D. Brown
Vice President - Finance
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.
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 31,
1994.
10.2 - Amendment Number One to the Amended and Restated Revolving
Credit Agreement dated as of May 31, 1995 among Cincinnati
Milacron Inc., Cincinnati Milacron Kunststoffmachinen Europa
GmbH, the lenders therein, and Bankers Trust Company, as agent.
- Incorporated herein by reference to the company's report
on Form 8-K dated May 31, 1995.
11 Statement Regarding Computation of Earnings per Share 22
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 23
99 Additional Exhibits - Not Applicable.