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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (Fee Required). For the
fiscal year ended December 27, 1997.
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (No Fee Required). 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)
Registrant's telephone number including area code
(513) 841-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which
Common Shares - Par Value $1.00 registered:
New York Stock Exchange, Inc.
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 [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
The aggregate market value of voting stock held by non-
affiliates of the registrant is $1,204,113,113 at 2/27/98.*
*Voting stock held by officers, directors and principal
holders is not included in the computation. The Company,
however, has not made a determination that such individuals
are "affiliates" within the meaning of Rule 405 under the
Securities Act of 1933.
Number of shares of Common Stock, $1.00 par value,
outstanding as of February 27 1998: 39,557,134
Documents incorporated by reference:
PART III - Proxy statement, dated March 27, 1998
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CINCINNATI MILACRON INC.
1997 FORM 10-K
Table of Contents
Page
PART I
Item 1. Business 3
Executive Officers of the Registrant 18
Item 2. Properties 20
Item 3. Legal Proceedings 20
Item 4. Submission of Matters to a
Vote of Security Holders 20
PART II
Item 5. Market for the Registrant's
Common Equity and
Related Stockholder Matters 20
Item 6. Selected Financial Data 21
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 23
Item 8. Financial Statements and
Supplementary Data 31
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 50
PART III
Item 10. Directors and Executive Officers
of the Registrant 50
Item 11. Executive Compensation 50
Item 12. Security Ownership of Certain Beneficial
Owners and Management 50
Item 13. Certain Relationships and
Related Transactions 50
PART IV
Item 14. Exhibits, Financial
Statement Schedules and Reports
on Form 8-K 51
Signatures 56
Index to Certain Exhibits and Financial
Statement Schedules 57
Exhibit 11 - Computation of Per-Share
Earnings 58
Exhibit 21 - Subsidiaries of the
Registrant 59
Exhibit 23 - Consent of Experts and
Counsel 61
Exhibit 27 - Financial Data Schedule 62
Schedule II - Valuation and Qualifying
Accounts and Reserves 63
PART I
- ------
ITEM 1. BUSINESS
GENERAL
- -------
The company is a leading global manufacturer of products and
provider of services and technology used to process
engineered materials. Incorporated in Delaware in 1983, the
company is a successor to a business established in 1884.
The company has three business segments: plastics
technologies (formerly plastics machinery), machine tools
and industrial products. The company's plastics technologies
business includes injection molding machines, mold bases and
components for injection molding, extrusion systems, blow
molding machines and auxiliary equipment. The company's
machine tool business consists of turning and machining
centers, grinding machines, flexible manufacturing cells,
advanced systems primarily for the aerospace industry and
aftermarket parts and services. The company's industrial
products business includes metalcutting tools, metalworking
fluids, grinding wheels, carbide wear parts and industrial
magnets.
The company has gone through a major transformation over the
last five years, primarily through strategic acquisitions,
accelerated new product development, expanded distribution,
and the consolidation of its U.S. machine tool operations.
As a result, the company has achieved a better balance among
its segments' sales, and between its U.S. and non-U.S.
sales, and has become less dependent upon the capital goods
market. From 1992 to 1997, the company's consolidated sales
have grown at a compound annual rate of 19% from $789
million to $1.9 billion.
In 1997, 39% of sales came from the plastics technologies
segment, making it the company's largest business segment in
that year. The industrial products segment was the second-
largest business segment in 1997, with approximately 37% of
sales, while the machine tools segment contributed about 24%
of sales. The company expects the growth of sales in its
industrial products and plastics technologies segments to
offset the more severe business cycles of machine tools.
Today, the company sells products and provides services to
industrial customers throughout the world. Sales to
customers outside the U.S. increased from $298 million in
1993, representing 29% of total sales, to $817 million in
1997, representing 43% of total sales. The company has been
successful in penetrating international markets through
acquisitions, expanded distribution, increased exports, and
license and joint venture agreements. The company believes
its current geographic sales balance helps compensate for
varying economic cycles around the world and that its
increased presence outside the U.S. will reduce its
dependence upon the U.S. economy. (See also the "Presence
Outside the U.S." in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.)
Largely as a result of the acquisitions, the company's
product mix has become more diversified among product types,
thus becoming less susceptible to market downturns. In 1997,
45% of sales were generated through the sale of capital
goods, with the balance coming from durable goods,
consumables, and components and services.
The company has a long-standing reputation for quality and
technological leadership. Virtually all of the company's
machines in its plastics technologies and machine tools
segments are computer controlled. Many of these machines are
sold with advanced application software, like software to
control machine tools that fabricate aircraft parts from
composite materials.
STRATEGIC ACQUISITIONS AND DIVESTITURES
- ---------------------------------------
The company continually explores acquisition, divestiture
and consolidation opportunities when it believes such
actions could expand markets, enhance product synergies or
improve earnings potential for the long term. Over the last
five years, the company has completed several strategic
acquisitions and divestitures, which the company believes
will increase its potential for further growth. In its
plastics technologies segment, the company acquired FM
Maschinenbau GmbH (Ferromatik), an injection molding machine
business, including its international sales companies, from
Kloeckner-Werke AG in 1993 and The Fairchild Corporation's
D-M-E business (D-M-E) in 1996, as well as two smaller
acquisitions which occurred in early 1998 and are discussed
below.
Ferromatik is one of Europe's leading manufacturers of
plastics injection molding machines. Ferromatik's market
coverage expanded the company's plastics processing
technology base and product line and enabled the company to
achieve its objective of establishing a plastics machinery
manufacturing and distribution base in Germany to serve
Europe and other markets.
D-M-E is the largest U.S. producer of mold bases, components
and supplies for the plastic injection moldmaking industry.
D-M-E serves customers throughout the world with ten major
manufacturing facilities, plus several international joint-
venture operations. The company believes D-M-E will continue
to enhance its plastics technologies business because it
provides the mold bases, supplies and components used in the
mold apparatus inside an injection molding machine. D-M-E is
the U.S. market leader with a well-established reputation
for high quality.
Also in February, 1998, the company made two smaller
acquisitions in the plastics technologies segment: Wear
Technology, with annual sales of approximately $10 million,
serves the aftermarket for new and rebuilt screws for PVC
(poly vinyl chloride) extrusion systems and Northern Supply,
with annual sales of approximately $5 million, a regional
catalog distribution company offering supplies to plastics
processors for injection molding, blow molding, and
extrusion.
In 1993, the company disposed of its Sano plastics
technologies business, due in part to continuing operating
losses. In addition, the Sano business did not serve a major
global market with good long-term growth potential.
In the last five years, the company has made various
strategic acquisitions in its industrial products segment:
GTE Valenite Corporation (Valenite), Krupp Widia GmbH
(Widia), Talbot Holdings, Ltd. (Talbot), Minnesota Twist
Drill and Data Flute CNC, Inc., all of which have
metalcutting and metalworking tools as their primary product
lines. The company believes that it is now the second-
largest U.S. and third-largest worldwide producer of carbide
metalcutting tool systems.
Valenite was acquired in February, 1993. With principal
operations in the U.S. and Canada, it is a leading producer
of consumable industrial metalcutting tools.
Widia, acquired in February, 1995, is one of the world's
leading producers of industrial metalworking products.
Widia's strong presence in Europe and India complements
Valenite's strengths in the North American and Japanese
markets. Widia also enhances the company's technological
base, diversifies its industrial consumable product line and
expands its worldwide sales and distribution network. During
1995, the company implemented an integration plan to
maximize the synergies between Valenite and Widia worldwide.
The plan was substantially completed in the first half of
1996, except for certain personnel reductions at Widia. As a
result of the actions included in the plan, the company is
achieving annual cost savings in excess of $20 million.
The company acquired Talbot in July, 1995. Talbot is a major
supplier of round high-speed steel and carbide metalcutting
tools, such as mills and taps, and is the largest U.S.
producer of end mills. These cutting tools, which are not
produced by either Valenite or Widia, are sold through
independent distributors and a direct sales force. The
Talbot acquisition enabled the company to increase its
product coverage from approximately 40% to 65% of the types
of cutting tools consumed by the world market.
In September, 1997, the company acquired Minnesota Twist
Drill, Inc. With sales of approximately $4 million for the
four months it was owned by the company, Minnesota Twist
Drill, Inc. manufactures standard high-speed twist drills
which are sold mainly through private branding. Also, on
June 30, 1997, the company acquired Data Flute CNC, Inc., a
manufacturer of high-performance solid carbide end mills
with sales of approximately $5 million during the six months
it was owned by the company. Both acquisitions have been
integrated as subsidiaries of Talbot.
In 1995 the company sold American Mine Tool, a small
business that was purchased as part of the Valenite
acquisition. This business did not serve a major global
market with good long-term growth potential.
In its machine tools segment, the company sold its
Electronic Systems Division (ESD) in December, 1995 for $104
million. Most of ESD's sales were to the company's other
divisions. In addition, ESD had sales to unaffiliated
customers which totaled approximately $30 million in 1995.
ESD was sold to redeploy assets into the company's remaining
businesses as well as to partially fund the acquisition of
D-M-E. To maintain control system continuity and development,
the company entered into a long-term supply and services
agreement with the purchaser of ESD to continue to provide
the company's machine tool and plastics technologies
businesses with technologically advanced control systems.
In 1994, the company completed a major consolidation of its
U.S. machine tool operations, closing two plants in South
Carolina and moving all of its U.S. production to its main
machine tool facilities in Cincinnati, Ohio.
PRODUCT DEVELOPMENT AND CAPITAL EXPENDITURES
- --------------------------------------------
As part of its objective to enhance its growth potential and
global competitiveness, the company continues to invest in
research and development and in new capital equipment.
Research and development investment in 1997 totaled $50
million, or 2.6% of sales. In 1997, the company invested $80
million for capital additions, primarily to install advanced
technology and increase productive capacity systems
throughout its operations worldwide. For 1998, the company
is budgeting an increase in capital expenditures to $100
million.
To enhance its research and development effort, the company
has implemented a major program for product development,
process improvement and modernization. This program is named
"Wolfpack" because of its emphasis on teamwork and fierce
competitiveness. The objectives of Wolfpack are to design
and produce new products at world-competitive levels of
quality, performance, efficiency and cost. Substantially all
of the company's current machine designs have been developed
using the Wolfpack methodology.
PLASTICS TECHNOLOGIES BUSINESS
- ------------------------------
The company believes it is the largest and broadest-line
U.S. producer of plastics machinery and one of the three
largest in the world, and the largest U.S. producer of mold
bases, standard components and supplies for the moldmaking
industry. In 1997, the company's plastics technologies
segment sales were $736 million. The company sells plastics
machinery and supplies for processing plastics to
manufacturers in several key industries, including
automotive, construction, electronics, consumer goods and
packaging. The company believes it offers more varieties of
machinery to process plastic than any other U.S. company.
One of the company's strengths in the plastics machinery
business stems from having complete lines of machines for
three major plastics processing technologies: injection
molding machines, and systems for extrusion and blow molding
machinery. Another strength is the company's presence in the
durable goods market with the production of mold bases,
standard components and supplies for the moldmaking
industry. The company also sells specialty auxiliary
equipment for plastics processing and rebuilds and retrofits
older injection molding equipment manufactured by the
company or others.
The company distributes all of its plastics machinery
products through a combination of a direct sales force and
independent agents who are geographically spread throughout
the key markets of the world. Its mold bases, supplies and
components are sold through a distribution network in the
U.S. and Europe and through a large network of joint venture
sales and service offices in Asia.
PLASTICS TECHNOLOGIES INDUSTRY
The market for plastics machinery and supplies for
processing plastics has grown steadily over the past four
decades, as plastics have continued to replace traditional
materials such as metal, wood, glass and paper in an
increasing number of manufactured products, particularly in
the transportation, construction, housewares, electrical,
and medical industries. Advancements in both the development
of materials, which make plastic products more functional,
and the capabilities of plastics processing equipment have
been major contributors to the steady growth in the plastics
technologies market. In addition, consumer demand for
safer, more convenient and recyclable products has increased
the general demand for plastic products. Like other capital
goods markets, machines within the plastics technologies
market are subject to economic cycles, but to a lesser
degree than the machine tool market. In particular, the
market for injection molding machines is driven by resin
prices and production, the consumer economy and the
automotive industry. From 1993, plastics technologies orders
have been strong, although the company began to experience
some softening of demand in early 1996 due to an expected
short-term price increase in resin material, but demand
picked up later in the year and through 1997 and the company
expects continued future growth.
Custom molders, which produce a wide variety of components
for many industries, are the single largest group of
plastics technologies buyers. Other customer categories
include the automotive industry, the electrical and
packaging industries, the construction industry,
manufacturers of housewares and appliances, and producers of
consumer goods, toys and medical supplies. Among the factors
that affect the plastics technologies market are the health
of the consumer economy, residential and commercial
construction and automotive production. Because of intense
competition from international plastics technologies
producers, currency exchange rates also have a significant
impact. Fluctuations in the prices of petrochemical feed
stocks for resin and subsequent supply of resin may affect
the businesses of the customers for plastics technologies
and, in turn, the market for this equipment.
Environmental concerns about plastics may have the potential
to slow the growth of the plastics technologies market.
However, some plastics raw materials suppliers, machinery
makers and processors are developing methods of recycling to
address environmental issues. The company believes that
environmental concerns have not had any discernible negative
effect on the market to date. Nevertheless, the company,
through its membership in The Society of Plastics Industry
(an industry trade association) and its affiliate, The
American Plastics Council, is working with other leading
companies within the plastics industry to address the role
of plastics in the environment.
THE COMPANY'S PLASTICS TECHNOLOGIES BUSINESS
The company's plastics technologies segment consists of five
products lines: injection molding machines, extrusion
systems and blow molding machines, standardized mold bases,
components, supplies for the plastics injection moldmaking
industry and specialty equipment used in the processing of
plastics.
INJECTION MOLDING. The company believes it is the largest
U.S. producer of injection molding machines. Injection
molding is the most common and versatile method of
processing plastic, and it is used to make a wide variety of
parts and products ranging from housewares and consumer
goods to medical supplies and industrial components. The
company manufactures many types of injection molding
machines, almost all of which were developed using Wolfpack
principles. The injection molding machine line includes
machines powered conventionally (with hydraulics) as well as
ones that are driven by servo motors (fully electric).
Product standardization (which facilitates part commonality)
and the modernization of the company's manufacturing
facilities and methods, as well as increased volumes, have
enabled the company to achieve significant economies of
scale for the production of injection molding machines. The
company believes these factors have enabled it to become the
lowest-cost U.S. producer of these machines.
In November, 1993, the company acquired Ferromatik, one of
Europe's leading producers of injection molding machines.
Ferromatik is recognized for its high-end technology,
including multi-color machines, multi-component systems and
other specialty applications. The acquisition included the
Ferromatik lines of hydraulic and electric injection molding
machines and a modern manufacturing facility in
Malterdingen, Germany, as well as Ferromatik's worldwide
marketing, sales and service network. The Ferromatik
acquisition expanded the company's plastics processing
technology base and product line and enabled the company to
achieve its objective of establishing a plastics machinery
manufacturing and distribution base in Germany to serve
Europe and other markets. Ferromatik has provided a
complementary fit with the company's other injection molding
machine businesses. The company sells several of its
successful U.S. and Ferromatik plastics machinery lines to
European customers through Ferromatik's sales and
distribution network.
The company has completed a restructuring of Ferromatik to
derive synergies between Ferromatik and other company
operations and to improve Ferromatik operations through
implementation of manufacturing techniques and methods
currently being used in the company's U.S. plastics
technologies operations. For example, Ferromatik has now
implemented cellular manufacturing techniques which have
significantly reduced manufacturing lead time, in-process
inventory, and handling costs. In addition, using Wolfpack
techniques, the company redesigned several major product
lines resulting in lower product cost. The restructuring
also reduced overall marketing costs through the
consolidation of the company's former European marketing
organization into the Ferromatik marketing organization. The
company believes that this restructuring has helped, and
will continue to help, it to achieve its cost reduction
goals in both marketing and manufacturing.
In May, 1995, the company announced the formation of a joint
venture, Cincinnati Milacron Pvt. Ltd. (CMPL), with a group
of individuals experienced in the building of plastics
machinery in Ahmedabad, India. This operation builds
injection molding machines for domestic and world markets.
In 1995, CMPL completed the implementation of its product
introductions and opened sales offices throughout the major
cities of India. In 1997, CMPL started construction of a new
factory in Ahmedabad to support their operations.
EXTRUSION SYSTEMS. The company's extrusion systems business
consists of the manufacture, sale and distribution of
individual extruders and systems comprised of multiple units
which are tooled to extrude a specific product in quantity.
Such systems take longer to manufacture than injection
molding machines. Extrusion systems, which are manufactured
in both the U.S. and Austria, include twin-screw extruders
and single-screw extruders. The company believes it has a
strong competitive position in each of these lines, and that
it is the largest worldwide maker of twin-screw extruders.
Twin-screw extruders are used to produce continuous-flow
products such as pipe, residential siding, sheet and window
frames. As a result, the business is closely tied to
construction market cycles. Single-screw extruders are used
in a variety of applications and systems such as blow
molding, blown-film and cast-film systems, pipe and profiles
and wire and cable applications. In early 1998, the company
acquired Wear Technology, which extends its business into
the aftermarket for the new and rebuilt screw replacement
business.
BLOW MOLDING MACHINES. The company's blow molding machine
business consists of the manufacture, sale and distribution
of extrusion blow molding machines, which are used to make a
wide variety of products, including industrial parts,
outdoor furniture, refuse containers, toys, and packaging
containers.
MOLD BASES AND COMPONENTS. In January, 1996, the company
completed the acquisition of D-M-E, which the company
believes is the largest U.S. producer of mold bases,
standard components and supplies for the moldmaking
industry. D-M-E serves customers throughout the world with
ten major manufacturing facilities and several international
joint venture operations. Like most of the company's
plastics business, D-M-E serves the largest segment of the
market, the injection molding process. D-M-E complements the
company's other businesses because D-M-E provides the mold
bases, supplies and components used in the mold apparatus
inside the injection molding machines. The company is
achieving synergies in a number of areas, including
manufacturing process, technology, marketing and
distribution.
In early 1998, the company acquired Northern Supply, a
regional catalog distribution company. Northern Supply's
business is very complementary to the catalog business of
D-M-E and will be managed by D-M-E.
SPECIALTY EQUIPMENT. The company sells a variety of
specialty equipment used in the processing of plastics
products, including peripheral auxiliary equipment such as
material management systems, heat exchangers and product
handling systems, all of which are manufactured by third
parties to the company's specifications. The company also
sells a line of vertical injection molding machines which
are manufactured to the company's specifications by a third
party. The company also rebuilds and retrofits older types
of injection molding equipment manufactured by the company
or others, refitting them with new controls and software.
PRODUCTION FACILITIES.
For the plastics technologies segment, the company maintains
the following principal production facilities:
FACILITY PRODUCTS
- -------- --------
Ahmedabad, India (a) Injection molding
machines.
Batavia, Ohio Injection machines, blow
molding machines and
extrusion systems.
Charlevoix, Michigan Mold components.
Cincinnati, Ohio All electric injection
molding machines.
Hillside, New Jersey Special mold base
components.
Lewistown, Pennsylvania Mold components.
Madison Heights, Michigan Mold base components.
Malterdingen, Germany Injection molding
machines.
Mechelen, Belgium Mold base components.
Melrose Park, Illinois Special mold base
components.
Monterey Park, California Special mold base
components.
Mt. Orab, Ohio Plastics machinery parts.
Neuenstadt am Kocher, Germany Special mold base
components.
Vienna, Austria Extrusion systems.
Windsor, Ontario, Canada Special machinery for mold
bases.
Youngwood, Pennsylvania Steel processing and mold
components.
(a) The plant in Ahmedabad, India is leased from another
party. Construction of a new facility began in 1997.
SALES, MARKETING AND CUSTOMER SERVICE
The company maintains a large direct sales force in the U.S.
for its plastics technologies segment, which it supplements
with independent agents. Internationally, the company uses
both a direct sales force and independent agents. In the
U.S., the plastics technologies business uses the company's
Cincinnati, Ohio, headquarters, as well as sales and service
centers in Allentown, Pennsylvania; Charlotte, North
Carolina; Chicago, Illinois; Dallas, Texas; Detroit,
Michigan; and Los Angeles, California to market its products
and provide customer support and training. Through its
Austrian and Ferromatik subsidiaries, the company has an
extensive sales, marketing, service and distribution system
throughout Europe. D-M-E operates through catalog and
telemarketing sales, as well as distribution centers
strategically located in industrial and manufacturing areas
where most injection molding takes place. Distribution is
through a broad distribution network in the U.S. and Europe.
In Asia, D-M-E sells through a large network of joint
venture sales and service offices. In 1997, the company
formally dedicated a new sales and marketing office in
Singapore and will continue to expand this presence.
COMPETITION
The markets for plastics technologies in North America and
worldwide are highly competitive and are made up of a number
of U.S., European and Asian competitors. The company
believes it has a significant share of the U.S. market for
the types of products it produces, and, believes it is the
broadest-line maker of equipment, supplies and systems for
plastics processing in the world. The company's competitors
vary in size and resources; some are larger than the
company, many are smaller, and only a few compete in more
than one product category. Principal competitive factors in
the plastics technologies industry are: product features,
technology, quality, performance, reliability, speed of
delivery, price and customer service. The Wolfpack program
is designed to maintain and enhance the company's
competitive position worldwide with respect to each of these
competitive factors. In addition, the company focuses on new
product development, the containment of costs, maintaining
competitive market pricing and expanded marketing in order
to maintain and grow its presence in the market.
MACHINE TOOL BUSINESS
- ---------------------
The company is a leading U.S. producer of machine tools. A
machine tool is a power-driven machine that is used to cut
metal and other materials. Machine tools are typically
installed as capital equipment in metalworking industries.
In 1997, the company's machine tool segment sales were $458
million.
MACHINE TOOL INDUSTRY
The primary customers for the $25-billion worldwide market
for metalcutting machine tools are the aerospace industry;
the automotive industry; machine shops; producers of farm,
construction, off-road and power generation equipment;
manufacturers of bearings; the die and mold industry; and a
variety of other metalworking manufacturers. The machine
tool industry has historically been cyclical with relatively
long lead times between orders and shipments. Machine tool
sales are affected by capital spending levels, interest
rates, tax and depreciation policies, international
competition, currency exchange rates and general economic
conditions.
THE COMPANY'S MACHINE TOOL BUSINESS
The company designs, builds and sells a variety of standard
and advanced computer numerically controlled (CNC)
metalcutting machine tools for various industries, including
industrial components, job shops, fluid power, automotive
and aerospace. The company's core machine tool operation,
the standard machine tool business, manufactures horizontal
machining centers, vertical machining centers, turning
centers, centerless grinders and automated flexible
manufacturing cells for the metalworking industry. The
products of the company's advanced machine tool systems
business include large, multi-axis metalcutting and
composites processing systems for the aerospace industry;
large, multi-axis machines for manufacturers of farm,
construction, off-road vehicles and power generation
equipment and for the die and mold industry. The company
also provides aftermarket parts and comprehensive services
to customers in all the industries listed above.
STANDARD MACHINE TOOL PRODUCTS
HORIZONTAL CNC MACHINING CENTERS. The company produces CNC
horizontal machining centers for basic metalworking
operations in a number of industries. These machines are
suited to the manufacture of prismatic components such as
transmission and gear casings, pump bodies or other box-like
parts. Machines are equipped with standard automatic parts
and tool changers, and precision rotary tables for multi-
sided processing of a single or several parts. Typical
operations involve highly precise milling, drilling, boring,
tapping, reaming and routing.
VERTICAL CNC MACHINING CENTERS. Similar to the horizontal
machining centers in the basic types of metal removal
operations performed, vertical machining centers are better
suited to the manufacture of flat, plate-like parts for a
broad spectrum of industries including mold and die
machining. All models utilize automatic tool interchange for
efficient processing. Add-on features can further enhance
productivity by automating the loading and unloading of
parts. Reflecting the company's focus on product innovation,
competitiveness and efficiency, its facility in Birmingham,
England received the 1997 U.K. Manufacturing Industry
Achievement Award for Management Excellence.
CNC TURNING CENTERS. Also called CNC lathes, turning
centers shape cylindrical parts which are rotated at high
speed against a stationary tool to perform metal removal
operations. Typical examples of parts manufactured with CNC
lathes are shafts, pulleys, spindles or similar rotating
parts. Though primarily designed to provide a symmetrical
cross-section, some models are capable of applying rotating
tools such as milling cutters or drills. This expanded
capability allows for more comprehensive part processing
while the part is still in the turning center, a feature
that can eliminate additional handling and processing on a
separate machine.
CNC GRINDING MACHINES. CNC precision grinding machines are
used to bring a part surface into a more precise dimension
or surface finish. There are several kinds of grinding
processes. The company specializes in centerless grinding
machines, which grind external diameters of cylindrical
parts such as bearings, compressor shafts and cam shafts.
The company believes that it has a long-standing leadership
position in the U.S. centerless grinding business with an
installed base of several thousand machines.
AUTOMATED FLEXIBLE MANUFACTURING CELLS. Automated flexible
manufacturing cells consist of one or more processing
machines (usually standard machine tools), ancillary
equipment for parts and tools handling and computer hardware
and software to automate and integrate all necessary
functions, allowing for lightly-manned or unattended
operation. These systems are used widely throughout the
metalworking industry and generally feature a number of
computer-driven functions, such as work and tool scheduling
and quality control. Automated flexible manufacturing cells
are a major focus of a number of U.S. companies seeking to
update plant and equipment to enhance their productivity and
international competitiveness. The company believes that its
Wolfpack-developed cell control hardware and software have
enabled it to obtain a leadership position in the U.S.
automated flexible manufacturing cells market.
ADVANCED SYSTEMS
METALCUTTING AND COMPOSITES PROCESSING SYSTEMS FOR
AEROSPACE. The company believes it is one of the world's
leading producers of large five-axis machining centers and
profilers. These machines are generally used to create
intricately contoured surfaces in components manufactured by
the aerospace industry. Typical materials machined include
aluminum and high-strength alloys such as titanium.
The company is also a pioneer and world leader in the
development of new machines and systems to automate the
manufacture of components made of advanced composite
materials, such as carbon or graphite fibers in combination
with epoxy. These systems are used by the aerospace industry
to manufacture a variety of high strength-to-weight ratio
structural and air surface components.
LARGE MACHINE TOOLS. The company makes large multi-axis
metalcutting machines and systems for manufacturers of heavy
machinery such as farm and construction implements and
machinery, off-road vehicles and power generation equipment.
ELECTRONIC SYSTEMS. In December, 1995, the company sold its
Electronic Systems Division. To maintain control system
continuity and development, the company entered into an
extensive seven-year supply contract with the purchaser for
electronic controls used on the company's machine tools and
plastics machinery. The company continues to develop and
maintain its own applications software. The decision to sell
ESD was made to redeploy assets to more strategic
businesses.
PRODUCTION FACILITIES.
For the machine tools segment, the company maintains the
following principal production facilities:
FACILITY PRODUCTS
- -------- --------
Birmingham, England Standard vertical CNC machining
centers and CNC turning centers.
Cincinnati, Ohio Standard machine tool products and
(4 plants) advanced systems.
SALES, MARKETING AND CUSTOMER SERVICE
A strong distribution network is one of the cornerstones in
the company's position in the global market for standard
machine tools. The company markets machine tools in North
America through a comprehensive network of independent
distributors assisted by the company's factory support and
direct sales force. Through these distributors, the company
currently has approximately 330 sales people representing
its machine tool business in North America.
The company believes that applications expertise, field-
service engineering and customer support are important for
all its products, especially for grinding machines,
aerospace and special machines and automated flexible
manufacturing cells. In addition to its sales headquarters
in Cincinnati, Ohio, the company maintains regional sales
offices in Detroit, Michigan; Birmingham, England;
Offenbach, Germany; Paris, France; and Singapore.
The company believes that it has achieved a leading position
in aftermarket support of current and older generations of
machine tools. The company has a principal hub for parts,
service and training in Cincinnati, Ohio and support hubs in
Birmingham, England and Singapore. The hubs are
electronically linked for global round-the-clock customer
support and sales of parts and services.
COMPETITION
The worldwide machine tool industry is made up of a number
of competitors, none of which has a dominant market share.
The markets for the company's machine tools are highly
competitive in the U.S. and internationally, with strong
competition from U.S., European and Asian companies in all
markets. The company's competitors vary in size and
resources; some are larger than the company, many are
smaller, and only a few compete in more than one product
category.
Principal competitive factors for products in the machine
tool business are product features or capabilities
(including controls and software), quality, performance,
reliability, technology, speed of delivery, price and
customer service. The Wolfpack program is designed to
enhance the company's competitive position with respect to
each of these factors. In certain aerospace and grinding
machine lines, the company has significant market positions
and relatively few competitors. However, in the case of
standard machine tool products and automated flexible
manufacturing cells, there are many competitors and no one
company has market dominance.
INDUSTRIAL PRODUCTS BUSINESS
- ----------------------------
The company produces five basic types of industrial
products: metalcutting tools, metalworking fluids, precision
grinding wheels, carbide wear parts and industrial magnets,
in total representing over 150,000 different products. In
1997, sales of the company's industrial products segment
were $703 million. The company believes it is a leader in
many new product technologies, including synthetic
lubricants, use of synthetic ceramic abrasives, high-
performance cutting tool coatings, and product designs using
computer modeling. Over 75% of the company's industrial
products sales are of consumable products and components,
which means they are depleted during the process for which
they are used, offering the company a continuous opportunity
to sell replacement products to its customers. The company
believes that its industrial products business complements
its plastics technologies and machine tool businesses,
because the industrial products business is exposed to less
pronounced business cycles and, therefore, generates more
consistent cash flows.
INDUSTRIAL PRODUCTS INDUSTRY
The company's industrial products business participates in a
$35 billion world market, which traditionally has grown at a
rate approximating the growth of the world GDP. The
company's products address approximately $20 billion of the
world market with heaviest market penetration in the U.S.
and Europe, and in the case of metalcutting tools, India.
The company serves customers in the industrial components
and machinery, automotive and electrical industries, as well
as job shops.
THE COMPANY'S INDUSTRIAL PRODUCTS BUSINESS
METALCUTTING TOOLS (CARBIDE INSERTS AND ROUND TOOLS).
Metalcutting tools are made of carbide, steel and other
materials and include systems to hold metalcutting tools
that are used on machine tools for use in a wide variety of
metalcutting operations. The company believes that, through
its subsidiaries, Valenite, Widia and Talbot, it is the
second-largest producer of carbide metalcutting tool systems
in the U.S. and the third-largest worldwide. In addition,
the company believes that it is also the third largest
producer of round tools in North America. Valenite
manufactures over 38,000 products, including an extensive
line of cutting tool inserts in a wide variety of materials
and geometries for turning, boring, milling and drilling,
and standard and special steel insert holders. Valenite has
an excellent market position in the automotive, off-road
vehicle and truck industries and has strong market positions
in carbide wear parts for metalforming and in products
requiring the wear and corrosion-resistant properties of
tungsten carbide.
In February, 1995, the company completed the acquisition of
Widia, a major European metalcutting tool maker with key
production facilities in Germany and other Western European
countries. Widia also owns a 51% interest in Widia (India)
Ltd., an Indian public company. Widia's product lines
include tungsten carbide cutting tool inserts and steel
insert holders needed for metalcutting operations, carbide
wear parts used in forming and stamping metal, and both soft
and permanent industrial magnets, used in automotive and
other applications.
In 1995, the company initiated a $28 million plan to
integrate certain Valenite and Widia operations, primarily
in Europe and Japan. This plan involved the closing of two
manufacturing plants, the downsizing of another plant, as
well as the consolidation of numerous sales, customer
service and warehousing operations in Europe and Japan. In
total, the execution of the plan has resulted in the
elimination of over 370 production and administrative
personnel. As a result, the company is achieving annual cost
savings in excess of $20 million.
In July, 1995, the company completed the acquisition of
Talbot, a major supplier of round high-speed steel and
carbide metalcutting tools and the largest U.S. producer of
end mills, as well as a leading tap producer. Talbot, with
annual sales of approximately $40 million, enables the
company to enter the market for round tools, including high-
speed steel and carbide end mills, taps, countersinks,
counterbores and reamers. These products are highly
complementary to the products made by Valenite and Widia.
The company expects to expand Talbot products into non-U.S.
markets.
In an effort to further broaden the company's product
coverage in the metalworking tooling business, during 1997,
the company made two smaller acquisitions. Minnesota Twist
Drill, Inc., with annual sales of approximately $10 million,
manufactures standard high-speed twist drills in its
Chisholm, Minnesota plant. Data Flute CNC, Inc., also with
annual sales of approximately $10 million, is a manufacturer
of high-performance solid carbide end mills located in
Pittsfield, Massachusetts. These acquisitions are highly
complementary to the company's Valenite and Talbot product
lines and broaden its already extensive product offering in
the market place. In 1998, the company will initiate a $15
million expansion program which includes a second plant for
Data Flute, a doubling of production capacity at Minnesota
Twist Drill and the expansion of a Talbot facility.
METALWORKING FLUIDS. Metalworking fluids are proprietary
chemical compounds and emulsions used as lubricants,
coolants and corrosion inhibitors in a wide variety of
metalcutting and metalforming operations. Major customers
are producers of precision metal components for many
industries, including manufacturers of automotive power
trains, aerospace engines and bearings, as well as general
metalworking shops. The company is a full-line supplier,
offering water-based fluids (synthetics), water-based oil-
bearing fluids (semi-synthetics) and oil-based fluids. Over
the last four years, the company expanded its lines of
soluble oils, base oils and synthetic fluids. The company
has marketed these products under the Cimcool brand since
the mid - 1940s. With the acquisitions of Valenite and
Widia, the company has developed two additional brands of
fluids. In 1994, the company developed the Valcool brand
that is designed to work with all metalcutting tools which
is being marketed through Valenite's market channels. In
1996, the company introduced through the Widia market
channels the Widacool line of fluid in Europe.
The company also is the leader in providing certain
customers with comprehensive fluid management programs. This
involves the company's engineers working full-time on site
at the customer's plant to oversee and optimize all wet
chemistry, including metalworking fluids used in the plant.
In 1997, the company launched MILPROT (Milacron Production
Services) which is a program that manages 100% of the
tooling, abrasives, chemicals and metalworking fluids in a
customer's plant.
GRINDING WHEELS. Grinding wheels are rotating tools made of
granular abrasive materials bonded together with vitreous or
resin materials, which are used by manufacturers in the
metalworking industry. The company believes that it is now
the second-largest U.S. producer of grinding wheels. Major
customers are producers of precision metal components for
many industries, including manufacturers of automotive power
trains, aerospace engines and bearings, as well as general
metalworking machine shops. The company designs and
manufactures a wide variety of precision abrasive grinding
wheels, including resin-bonded, vitrified, cubic boron
nitride (CBN), diamond and synthetic ceramic abrasive types.
The company believes, based on tests in its laboratories, as
well as in customer plants, that the company's proprietary
formulae and modern production equipment and techniques for
the manufacture of precision grinding wheels give it
advantages in terms of product quality, lower production
costs and faster deliveries. The company believes that it
has also benefited from technologies common to both grinding
wheels and metalcutting fluids. The company achieves lower
production costs, in part, by finishing its wheels on CNC
machines designed and built by the company's machine tool
business.
CARBIDE WEAR PARTS. Carbide wear parts represent various
components made from sintered tungsten carbide having
physical properties of very high hardness, wear resistance
and resistance to chemical activity. Valenite and Widia
manufacture three types of carbide wear parts: tooling
components for metalforming, carbide rod for use in round
tools, and metalforming and general wear parts to resist
frictional wear and chemical activity.
INDUSTRIAL MAGNETS. Widia is a leader in injection molded
plastic bonded magnets. Widia manufactures permanent
industrial magnets and magnetic circuits for automotive,
electrical and other industrial applications, as well as
soft magnets for the telecommunications and construction
industries.
PRODUCTION FACILITIES
For its industrial products segment, the company maintains
the following principal production facilities:
FACILITY PRODUCTS
- -------- --------
Andrezieux, France Carbide inserts.
Bangalore, India Carbide inserts, steel insert
holders, carbide wear parts
and special machine tools.
Carlisle, Pennsylvania Resin grinding wheels.
Chisholm, Minnesota High-speed twist drills.
Cincinnati, Ohio Metalworking fluids and
precision grinding wheels.
Detroit, Michigan
(metro area) (6 plants)(a) Carbide inserts, special
steel products and gauging
systems.
Essen, Germany (3 plants) Carbide inserts, magnets,
metallurgical powders and
carbide rods.
Gainesville, Texas (a) Tool holding systems for
turning, milling and
boring.
Hardenberg,
The Netherlands Carbide wear parts.
Lichtenau, Germany Steel insert holders.
Millersburg, Pennsylvania
(2 plants) End mills, taps and
counterbores.
Nogales, Mexico (a) Resin grinding wheels.
Patancheru, India Rock tools.
Pittsfield, Massachusetts Carbide end-mills.
Sinsheim, Germany (a) Special steel tooling
products.
Tokyo, Japan (a) Carbide inserts and steel
tools.
Valley View, Ohio (a) End mills.
Vlaardingen,
The Netherlands Metalworking fluids.
West Branch, Michigan
(2 plants) Metallurgical powders and
carbide wear parts.
Westminster and Seneca,
South Carolina (5 plants) Carbide and diamond inserts.
(a) The Gainesville, Texas plant, Nogales, Mexico plant,
Tokyo, Japan plant, Sinsheim, Germany plant, Valley
View, Ohio plant and three plants in the Detroit,
Michigan (metro area) are leased from unrelated third
parties.
SALES, MARKETING AND CUSTOMER SERVICE
The company generally sells its industrial products under
multiple brands through parallel market channels, using
direct sales, industrial distributors, agents and
manufacturers' representatives, as well as industrial
catalog sales. Most of the company's sales are of products
manufactured by the company and sold under company-owned
brands. In addition, the company sells its products under
the brand names of other companies through their market
channels, as well as products under the Milacron brand names
that are made by other companies.
COMPETITION
The company's main global competitors in its metalworking
fluids business are large petrochemical companies and
smaller companies specializing in similar fluids. There are
a few large competitors in the U.S. grinding wheel market,
one of which is significantly larger than the company. The
company has many competitors for metalcutting tools but only
two have higher worldwide sales.
PATENTS
- -------
The company holds a number of patents, none of which is
material to any business segment.
EMPLOYEES
- ---------
During 1997, the company employed an average of 12,751
people, of whom 6,062 were employed outside the U.S. As of
year-end 1997, the company employed 12,957 people.
BACKLOG
- -------
The backlog of unfilled orders was $365 million at the end
of 1997 and $373 million at the end of 1996. The backlog at
year-end 1997 is believed to be firm and, in general, is
expected to be delivered in 1998.
SEGMENT INFORMATION
- -------------------
Financial data for the past three years for the company's
business segments are shown in the following tables. The
1996 increases for plastics technologies are primarily
attributable to the acquisition of
D-M-E on January 26, 1996. The 1996 decreases for machine
tools are partially attributable to the sale of ESD on
December 30, 1995.
(In millions) Fiscal Year
---------------------------------
1997 1996 1995
--------- --------- ---------
SALES
- -----
Plastics technologies $ 735.7 $ 662.4 $ 570.1
Machine tools 458.0 371.8 409.0
Industrial products 703.0 695.5 670.2
-------- -------- --------
Total sales $1,896.7 $1,729.7 $1,649.3
======== ======== ========
BACKLOG OF UNFILLED ORDERS
- --------------------------
Plastics technologies $ 89.5 $ 105.6 $ 108.1
Machine tools 169.3 160.6 118.1
Industrial products 106.2 107.0 118.0
-------- -------- --------
Total backlog $ 365.0 $ 373.2 $ 344.2
======== ======== ========
OPERATING EARNINGS
- ------------------
Plastics technologies $ 59.7 $ 59.2 $ 54.3
Machine tools 14.5 4.9 7.7
Industrial products 81.2 73.7 62.1
Disposition of
businesses (a) - - 71.0
Integration charge (b) - - (9.8)
Corporate expenses (17.2) (16.8) (15.7)
Other unallocated
expenses (c) (11.1) (9.9) (10.5)
-------- -------- --------
Operating earnings 127.1 111.1 159.1
Interest expense - net (26.5) (29.8) (24.8)
-------- -------- --------
Earnings before income
taxes $ 100.6 $ 81.3 $ 134.3
======== ======== ========
IDENTIFIABLE ASSETS
- -------------------
Plastics technologies $ 611.5 $ 612.6 $ 335.3
Machine tools 253.9 233.3 232.8
Industrial products 497.7 458.9 468.1
Unallocated corporate
assets (d) 29.4 31.5 137.5
-------- -------- --------
Total assets $1,392.5 $1,336.3 $1,173.7
======== ======== ========
CAPITAL EXPENDITURES
- --------------------
Plastics technologies $ 26.7 $ 20.6 $ 16.6
Machine tools 18.0 15.7 8.6
Industrial products 34.8 28.9 27.1
-------- -------- --------
Total capital
expenditures $ 79.5 $ 65.2 $ 52.3
======== ======== ========
DEPRECIATION AND AMORTIZATION
- -----------------------------
Plastics technologies $ 23.0 $ 21.4 $ 11.8
Machine tools 6.2 5.0 7.4
Industrial products 24.5 24.5 24.4
-------- -------- --------
Total depreciation
and amortization $ 53.7 $ 50.9 $ 43.6
======== ======== ========
(a) $66.0 million relates to the machine tools segment and
$5.0 million relates to the industrial products
segment.
(b) Relates to the industrial products segment.
(c) Includes financing costs related to the sale of
accounts receivable and minority shareholders'
interests in earnings of subsidiaries.
(d) Includes cash and cash equivalents and the assets of
the company's insurance and utility subsidiaries.
GEOGRAPHIC INFORMATION
- ----------------------
The following table summarizes the company's U.S. and non-
U.S. operations.
Sales of U.S. operations include export sales of $231.8
million in 1997, $199.6 million in 1996, and $166.9
million in 1995.
Total sales of the company's U.S. and non-U.S. operations
to unaffiliated customers outside the U.S. were $816.5
million, $830.3 million, and $784.2 million in 1997, 1996
and 1995, respectively.
Fiscal Year
------------------------------
(In millions) 1997 1996 1995
-------- ------ ------
U.S. operations
- ---------------
Sales $1,204.4 $969.8 $938.3
Segment operating
earnings 108.9 81.4 71.8
Disposition of
businesses - - 62.1
Integration charge - - (2.9)
Identifiable assets 813.9 731.6 484.1
Capital expenditures 50.8 41.7 31.4
Depreciation and
amortization 33.7 28.9 21.6
Non-U.S. operations
- -------------------
Sales 692.3 759.9 711.0
Segment operating
earnings 46.5 56.4 52.3
Disposition of
businesses - - 8.9
Integration charge - - (6.9)
Identifiable assets 549.2 573.2 552.1
Capital expenditures 28.7 23.5 20.9
Depreciation and
amortization 20.0 22.0 22.0
EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------
The following information is included in accordance with the
provisions for Part III, Item 10:
POSITIONS HELD DURING
NAME AND AGE POSITION LAST FIVE YEARS
- ------------ -------- ---------------------
Daniel J. Meyer Chairman, President Elected Chairman and
(61) and Chief Executive Chief Executive Officer
Officer, Director in November, 1991. During
1997, was also elected
President of the company.
Has served as Director
since 1985. Also,
is a member of the
Executive Committee.
Harold J. Faig Group Vice President- Elected Group Vice
(49) Plastics President - Plastics
Technologies Technologies in February,
1994. Prior thereto was
Vice President -
Injection Molding from
1990.
Kyle H. Seymour (a) Group Vice President- Elected Group Vice
(37) Machine Tools President - Machine Tools
in 1997. Prior thereto
was Manager of U.S.
Machine Tool Products
from 1995, Manager of
Horizontal Machining
Center Business from
1994, Manufacturing
Manager from 1993, and
Assembly Operations
Manager from 1991.
Alan L. Shaffer Group Vice President- Elected Group Vice
(47) Industrial Products President - Industrial
Products in 1986.
Ronald D. Brown Vice President- Elected Vice President -
(44) Finance and Finance and
Administration and Administration
Chief Financial and Chief Financial
Officer Officer in 1997. Prior
thereto was Vice
President-Finance and
Chief Financial Officer
from 1993 and Treasurer
from 1989.
James R. Christie Vice President- Elected Vice President -
(52) Industrial Products Industrial Products in
1997. Has served as
President of Valenite
since 1993.
William J. Gruber Vice President - Elected Vice President -
(44) U.S. Plastics U.S. Plastics
Technologies Technologies in 1996.
Prior thereto was
Manager of U.S. Plastics
Technologies from 1995
and General Manager,
Products Division from
1984.
Barbara G. Kasting (b) Vice President- Elected Vice President -
(45) Human Resources Human Resources in 1997.
Prior thereto was
Assistant Treasurer from
1995, Director of
Treasury Operations from
1994, and Corporate
Quality Manager
from 1992.
Richard L. Kegg Vice President - Elected Vice President -
(62) Technology and Technology and
Manufacturing Manufacturing Development
Development in 1993. Prior thereto
was Director, Corporate
Research and
Manufacturing Development
from 1990.
James M. Stergiopoulos Vice President- Elected Vice President -
(59) Plastics Plastics Technologies
Technologies, Europe in 1995. Prior
Europe thereto was Director,
Plastics Technologies
Europe from 1994 and
General Manager,
Cincinnati Milacron
Austria from 1987.
Wayne F. Taylor Vice President- Elected Vice President -
(54) General Counsel General Counsel and
and Secretary Secretary in 1990.
Robert P. Lienesch (c) Controller Elected Controller in
(52) 1989.
Kenneth W. Mueller (c) Treasurer and Elected Treasurer and
(64) Assistant Assistant Secretary in
Secretary 1993. Prior thereto was
Acting Director of
Standard Machine Tools
from 1992.
Notes:
Parenthetical figure below name of individual indicates
age at most recent birthday prior to December 27, 1997.
There are no family relationships among the executive
officers of the Registrant.
Officers of the company are elected each year by the Board
of Directors.
(a) Kyle H. Seymour succeeds D. Michael Clabaugh, who
retired from the company in March, 1997.
(b) Barbara G. Kasting succeeds Theodore Mauser, who
retired from the company in June, 1997.
(c) Kenneth W. Mueller announced his intent to retire April
30, 1998. Robert P. Lienesch has been elected Vice President
and Treasurer and Jerome L. Fedders has been elected
Controller, both effective April 30, 1998.
ITEM 2. PROPERTIES
The information required by Item 2 is included in Part I on
pages 8, 11, 14 and 15 of this Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of management and counsel, there are no
material pending legal proceedings to which the company
or any of its subsidiaries is a party or of which any of
its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
There were no matters submitted to a vote of security
holders during the fourth quarter of 1997.
PART II
-------
ITEM. 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The company's common shares are listed on the New York
Stock Exchange. Such shares are also traded on the
Cincinnati Stock Exchange, Boston Stock Exchange,
Pacific Stock Exchange, Philadelphia Stock Exchange and
Midwest Stock Exchange, with options traded on the
Philadelphia Stock Exchange. As of February 27, 1998,
there were approximately 5,750 holders of record of the
company's common shares. The company's preferred shares
are not actively traded.
The table below shows the price range of the common
shares for 1996 and 1997, as reported by the New York
Stock Exchange. Cash dividends of $.09 per common share
were paid for each quarter of 1996 and the first two
quarters of 1997. A cash dividend of $.12 per common
share was paid for the third and fourth quarters of
1997. In addition, cash dividends of $1.00 per preferred
share were paid in each quarter of 1996 and 1997.
COMMON STOCK
PRICE RANGE
----------------
FISCAL 1996, QUARTER ENDED HIGH LOW
------ ------
March 23 $29.25 $20.75
June 15 27.88 23.13
October 5 24.00 18.38
December 28 22.38 18.50
FISCAL 1997, QUARTER ENDED
March 22 $23.63 $19.13
June 14 25.50 17.88
October 4 28.38 23.88
December 27 29.88 24.38
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in millions, except per-share amounts)
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
SUMMARY OF OPERATIONS
---------------------
Sales $1,896.7 $1,729.7 $1,649.3 $1,197.1 $1,029.4
Cost of products sold (a) 1,424.8 1,292.7 1,236.8 904.3 791.0
-------- -------- -------- -------- --------
Manufacturing margins (a) 471.9 437.0 412.5 292.8 238.4
Other costs and expenses
Selling and administrative 329.3 316.3 301.4 222.2 191.3
(Gain) loss on
disposition of
businesses - - (71.0)(b) - 22.8(d)
Integration and
consolidation charges - - 9.8 (c) - 47.1(e)
Minority shareholders'
interests 4.3 3.1 2.3 - -
Other- net (a) 11.2 6.5 10.9 6.4 1.0
-------- -------- -------- -------- --------
Total other costs
and expenses (a) 344.8 325.9 253.4 228.6 262.2
-------- -------- -------- -------- --------
Operating earnings (loss) 127.1 111.1 159.1 64.2 (23.8)
Interest-net (26.5) (29.8) (24.8) (15.3) (13.4)
-------- -------- -------- -------- --------
Earnings (loss) before
income taxes, extraordinary
item and cumulative
effect of changes in
methods of accounting 100.6 81.3 134.3 48.9 (37.2)
Provision for income taxes 20.0 15.0 28.7 11.2 8.2
-------- -------- -------- -------- --------
Earnings (loss) before
extraordinary item and
cumulative effect of
changes in methods of
accounting 80.6 66.3 105.6 37.7 (45.4)
Extraordinary item
Loss on early
extinguishment of debt - - - - (4.4)
Cumulative effect of
changes in methods
of accounting - - - - (52.1)
-------- -------- -------- -------- --------
Net earnings (loss) $ 80.6 $ 66.3 $ 105.6 $ 37.7 $ (101.9)
======== ======== ======== ======== ========
Earnings (loss) per common share
Earnings (loss) before
extraordinary item
and cumulative effect
of changes in methods
of accounting
Basic 2.03 1.75 3.11 1.12 (1.46)
Diluted 2.01 1.74 3.07 1.11 (1.46)(f)
Extraordinary item
Loss on early
extinguishment of debt
Basic - - - - (.14)
Diluted - - - - (.14)(f)
Cumulative effect of changes
in methods of accounting
Basic - - - - (1.66)
Diluted - - - - (1.66)(f)
Net earnings (loss)
Basic $ 2.03 $ 1.75 $ 3.11 $ 1.12 $ (3.26)
======== ======== ======== ======== ========
Diluted $ 2.01 $ 1.74 $ 3.07 $ 1.11 $ (3.26)(f)
======== ======== ======== ======== ========
FINANCIAL POSITION AT YEAR END
------------------------------
Working capital $ 325.7 $ 318.3 $ 392.7 $151.4 $114.3
Property, plant and
equipment-net 343.1 319.1 265.5 198.8 184.0
Total assets 1,392.5 1,336.3 1,173.7 787.6 729.6
Long-term debt 304.2 301.9 332.2 143.0 107.6
Total debt 371.7 372.8 355.8 226.9 185.2
Shareholders' equity 471.9 446.2 270.7 157.8 124.1
Per common share 11.77 11.06 7.72 4.50 3.53
OTHER DATA
----------
Dividends paid to common
shareholders 16.8 13.4 12.3 12.2 11.6
Per common share .42 .36 .36 .36 .36
Capital expenditures 79.5 65.2 52.3 43.0 23.4
Depreciation and
amortization 53.7 50.9 43.6 28.6 26.1
Backlog of unfilled
orders at year-end 365.0 373.2 344.2 287.1 246.0
Employees (average) 12,751 12,581 11,701 8,395 7,885
(a) During 1997, amortization of goodwill, which was
previously included as a component of cost of products sold,
is included in other costs and expenses-net in this schedule
to conform to the company's presentation in its Consolidated
Statement of Earnings. Amounts for prior periods have been
reclassified to conform to the 1997 presentation.
(b) Represents a gain of $66.0 million ($52.4 million after
tax) on the sale of the company's Electronic Systems
Division and a gain of $5.0 million ($4.0 million after tax)
on the sale of the company's American Mine Tool business.
(c) Represents a charge of $9.8 million ($7.8 million after
tax) for the integration of certain Widia and Valenite
operations.
(d) Represents a charge (with no current tax effect) for
the disposition of a plastics technologies subsidiary.
(e) Represents a charge (with no current tax effect) for
the consolidation of U.S. machine tool manufacturing
operations.
(f) For 1993, diluted earnings per common share is equal to
basic earnings per share because the inclusion of
potentially dilutive securities would result in a smaller
loss per common share.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The company operates in three business segments: plastics
technologies (formerly plastics machinery), machine tools
and industrial products. In the last four years, the
company has achieved record sales in each succeeding
year. The sales increases in 1994 through 1996 resulted
principally from the growth of the plastics technologies
and industrial products segments, largely as a result of
acquisitions. The 1997 sales increase resulted
principally from internal growth in the plastics
technologies and machine tool segments. The 1997 sales
level in the industrial products segment benefited from
two small acquisitions, but its sales were held back by
the translation effect of foreign currency exchange rate
fluctuations.
ACQUISITIONS AND DIVESTITURES
In 1997, the company acquired two businesses: Data Flute
CNC in June and Minnesota Twist Drill in September. Both
businesses are included in the industrial products
segment. These acquisitions resulted in an increase in
1997 new orders and sales of approximately $8 million.
On January 26, 1996, the company acquired D-M-E, which is
included in the company's plastics technologies segment
for eleven months of 1996. This acquisition had the
effect of increasing new orders and sales by
approximately $153 million in 1996, and $16 million in
1997 when compared with 1996.
In 1995, the company acquired two businesses: Widia in
February and Talbot in July. Both businesses are included
in the industrial products segment. The timing of these
acquisitions caused an increase in new orders and sales
in 1996 of approximately $50 million when compared with
1995.
On December 30, 1995, the company sold its Electronic
Systems Division (ESD), which was included in the machine
tools segment. While most of its sales were made to other
Milacron businesses, ESD also contributed approximately
$35 million and $30 million of new orders and sales,
respectively, to external customers in 1995. ESD's
operating earnings were $14.2 million in 1995, and its
disposition resulted in a 1995 gain of $66.0 million
before tax ($52.4 million after tax).
On January 27, 1995, the company sold its American Mine
Tool (AMT) business which was formerly part of the
industrial products segment. AMT's new orders, sales and
operating earnings were immaterial, but its disposition
resulted in a gain of $5.0 million before tax ($4.0
million after tax) in 1995.
PRESENCE OUTSIDE THE U.S.
In recent years, the company's growth outside the U.S.
has allowed the company to become less dependent on the
U.S. industrial sector. In 1997, markets outside the
U.S. represented the following percentages of
consolidated sales: Europe - 27%; Asia - 9%; Canada and
Mexico - 5%; and the rest of the world - 2%.
As a result of the company's geographic sales mix,
foreign currency exchange rate fluctuations affect the
translation of sales and earnings, as well as
consolidated shareholders' equity. The most important
factors are the exchange rates of the British pound and
the German mark. Throughout part of 1996, the financial
statement effects of a weaker German mark and related
European currencies were to some degree offset by the
effects of a stronger British pound. In 1997, however,
the pound somewhat stabilized while the mark has
continued to weaken. As a result, the company has
experienced more significant translation effects in 1997,
resulting in negative currency effects on new orders and
sales of $87 million and $69 million, respectively. The
1997 translation effect on net earnings approximated $2.1
million, or $.05 per share. In 1997, there was also a $25
million decrease in shareholders' equity due to
cumulative foreign currency translation adjustments. If
the mark remains at current levels or weakens further in
1998, the company will continue to experience a negative
effect on translating its European new orders, sales and
net earnings when compared with 1997.
About 3% of the company's 1997 sales were to customers
located in Korea and the ASEAN countries - the areas most
severely impacted by Southeast Asia market and currency
difficulties toward the end of 1997. The net effect of
these Asian difficulties was to reduce the company's net
earnings by approximately $1 million in the fourth
quarter of 1997. While it is impossible to forecast the
ultimate worldwide impact of these difficulties, the
company currently believes that the current magnitude of
these issues is not likely to warrant major revisions to
the company's 1998 expectations. The company further
believes that Asian markets hold excellent potential for
both sales and earnings growth over the long term.
EARNINGS PER COMMON SHARE
Beginning with the fourth quarter of 1997, earnings per
common share (EPS) are being calculated in accordance
with newly issued rules established by the Financial
Accounting Standards Board. The new rules require the
company to report two EPS amounts: "basic" and
"diluted." For the company, the calculation for diluted
EPS closely approximates the company's previously
disclosed EPS figures under the old accounting rules. The
company has restated prior year EPS figures under the new
accounting rules whenever appropriate and EPS figures
cited in this "Management's Discussion and Analysis"
refer to diluted EPS amounts.
1997 COMPARED TO 1996
NEW ORDERS AND BACKLOG
New orders in 1997 were $1,886 million, which represented
a $133 million, or 8%, increase from the $1,753 million
in 1996. Orders for plastics technologies products
increased by $65 million, or 10%, principally due to
increased orders for U.S.-built injection molding
machines. Machine tool orders increased by $51 million,
or 12%, due to increased orders for U.S.-built horizontal
machining centers and aerospace-related systems. Orders
for industrial products increased by $17 million, or 2%,
of which $8 million resulted from the 1997 acquisitions.
Excluding the effect of acquisitions and foreign currency
translation effects, new orders increased for this
segment by 9% as all major U.S. product lines showed
improvement.
U.S. export orders were $210 million in 1997 compared to
$220 million in 1996.
The company's backlog of unfilled orders totaled $365
million at December 27, 1997. This compares to $373
million at December 28, 1996. These high levels are being
maintained in large part by increased orders for U.S.-
built machine tools for aerospace customers.
SALES
Sales in 1997 were $1,897 million, which represented a
$167 million, or 10%, increase over 1996. This increase
was caused principally by internal growth in the plastics
technologies and machine tools segments. 1997 sales were
affected by a $69 million negative effect of currency
translation adjustments. Excluding the acquisitions and
currency translation effects, sales increased by 12%.
Sales of plastics technologies increased by $73 million,
or 11%, primarily due to increased sales of U.S.-built
injection molding machines. Machine tool sales increased
by $86 million, or 23%, due to increased U.S. sales, and
despite reduced sales of U.K.-built machines. Industrial
products sales increased by $8 million, or 1%. However,
after excluding the acquisitions and currency translation
effects, sales increased by $42 million, or 6%.
Sales of all segments to non-U.S. markets totaled $817
million, a decrease in 1997 of $14 million, and export
sales totaled $232 million, an increase of $32 million.
In 1997 and 1996, products manufactured outside the U.S.
approximated 37% and 44% of sales, respectively, while
products sold outside the U.S. approximated 43% and 48%
of sales, respectively.
MARGINS, COSTS AND EXPENSES
Amortization of goodwill had, until 1997, been included
in cost of products sold. Because of its increased
significance as a result of acquisitions, the company has
concluded that it more properly belongs in the caption,
"other costs and expenses-net" in the Consolidated
Statement of Earnings. Amounts for cost of products sold,
manufacturing margins and related percentages, and other
costs and expenses-net for prior years have been restated
for consistency of presentation. Amortization expense has
been as follows: $6.1 million, $5.8 million and $1.5
million in 1997, 1996 and 1995, respectively.
Manufacturing margins as a percent to sales, were 24.9%
in 1997 and 25.3% in 1996. Margins for machine tools and
industrial products improved in 1997, while margins for
plastics technologies were depressed through the first
three quarters of 1997 due to pricing pressures on U.S.-
built injection molding machines. Plastics technologies'
margins improved slightly in the fourth quarter of 1997.
Total selling and administrative expense increased in
amount, as expected, due to increases in certain selling
costs that vary with sales levels. Administrative
expenses increased modestly. As a percent to sales,
selling expense declined to approximately 15% of sales
and administrative expenses remained at approximately 2%
of sales.
The expense for minority shareholders' interests in
earnings of subsidiaries relates principally to Widia's
subsidiary in India. The increased expense is caused by
the subsidiary's improved profitability.
Other expense-net, including amortization of goodwill,
increased to $11.2 million in 1997 from $6.5 million in
1996. The increase was caused primarily by the absence of
favorable settlements of legal claims that are included
in the 1996 amount and the inclusion of severance expense
of approximately $2.0 million in the first quarter of
1997 relating to approximately 60 employees at
Ferromatik, the company's German injection molding
machine subsidiary. 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 of interest income, was $26.5
million in 1997 compared with $29.8 million in 1996. The
decrease was due to lower average debt levels and lower
borrowing rates as well as the effects of foreign
currency translation.
INCOME TAXES
The provision for income taxes in 1997, 1996 and 1995
includes U.S. federal and state and local income taxes,
and income taxes in other jurisdictions outside the U.S.
The company entered all three 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 December 30, 1995, the company had fully utilized its
U.S. NOL carryforwards, but as of December 27, 1997, its
non-U.S. NOL carryforwards totaled $112 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 the period, 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 at least 1998, although the overall rate is
expected to increase to approximately 30% in 1998.
EARNINGS
Net earnings in 1997 were $80.6 million, or $2.01 per
share, compared with $66.3 million, or $1.74 per share in
1996. Net earnings increased 21%, while per share
earnings increased 16%, which also includes the effect of
increased common shares outstanding throughout 1997.
1996 COMPARED TO 1995
NEW ORDERS AND BACKLOG
New orders for 1996 were $1,753 million, which
represented a $118 million, or 7%, increase over 1995.
Excluding the effects of acquisitions and divestitures,
new orders decreased by $51 million, which approximates
the decline caused by changes in currency exchange rates.
Orders for plastics technologies increased $100 million.
Excluding the effects of the D-M-E acquisition, however,
new orders for plastics technologies declined by $53
million, or 10%, due primarily to weaker order levels for
injection molding machines in the U.S. in the first half
of 1996. Machine tool orders totaled $414 million,
virtually unchanged from 1995 level. However, after
excluding the effect of the ESD divestiture, new orders
for machine tools increased $31 million, or 8%, largely
due to increased orders for U.K.-built standard machine
tools and U.S.-built aerospace products. This segment
experienced reduced orders for U.S.-built standard
machine tools throughout much of the year, but orders
improved in the fourth quarter. Orders for industrial
products were $685 million. After excluding the effect of
the Talbot and Widia acquisitions, new orders for
industrial products declined $28 million, or 4%, due
primarily to the weakening German mark throughout the
year, and a weakening of the market for European cutting
tools and industrial magnets in the last half of 1996.
U.S. export orders increased to $220 million in 1996, up
over 34% from 1995 due primarily to the D-M-E acquisition
and the receipt of a single $20 million export order.
At December 28, 1996, the backlog of unfilled orders was
$373 million, up from $344 million at December 30, 1995.
The increase relates primarily to increased orders for
U.S.-built machine tools, including aerospace products.
SALES
Sales in 1996 were $1,730 million, which represented an
$80 million, or 5%, increase over 1995. The increase was
caused primarily by the D-M-E acquisition. Excluding the
effect of acquisitions and divestitures, sales decreased
by approximately $90 million, of which $43 million was
due to the effect of currency translation adjustments.
Sales of plastics technologies increased by $92 million.
Excluding the effects of the D-M-E acquisition, however,
sales of plastics technologies declined by $61 million,
or 11%, due primarily to weaker orders for U.S.-built
injection molding machines in the first half of 1996 and
European-built injection molding machines throughout the
year. Machine tool sales declined $37 million. After
excluding the ESD divestiture effect, however, sales for
machine tools declined $7 million, or 2%, due to reduced
sales of U.S.-built standard machine tools, in part
offset by increased sales of U.K.-built standard machine
tools and U.S.-built aerospace products. Industrial
products' sales increased, although after excluding the
acquisitions, sales declined $22 million, or 3%, due to
currency translation effects and a weaker European
market.
Sales of all segments to non-U.S. markets totaled $830
million, an increase in 1996 of $46 million, and export
sales totaled $200 million, an increase of $33 million.
The increases resulted primarily from the D-M-E
acquisition. In both 1996 and 1995, products manufactured
outside the U.S. approximated 44% of sales while products
sold outside the U.S. approximated 48% of sales.
MARGINS, COSTS AND EXPENSES
Manufacturing margins, as a percent to sales, were 25.3%
in 1996 compared with 25.0% in 1995; excluding ESD's
margins from 1995, the ongoing business' margins
increased from 24.3% in 1995 to 25.3% in 1996. Plastics
technologies margins increased in the U.S. despite
continued price pressures, but declined in Germany due to
temporary excess staffing levels at Ferromatik. Machine
tool margins also increased, after excluding ESD's
margins from 1995 results. Industrial products' margins
improved for the year but declined in the fourth quarter
due to reduced sales volume in Widia's European
businesses.
Selling and administrative expense increased in 1996 due
to the D-M-E acquisition and increased sales. As a
percent to sales, however, selling expense continued to
approximate 16% of sales and administrative expense
continued to approximate 2% of sales.
Other-net, including amortization of goodwill, declined
in 1996 to $6.5 million from $10.9 million in 1995 due to
reduced costs associated with the sale of accounts
receivable, increased gains on sales of fixed assets,
favorable settlement of legal claims and other similar
items which may not recur in the future.
Interest expense, net of interest income, was $29.8
million in 1996 compared to $24.8 million in 1995. The
expense increase was primarily attributable to the
temporary use of debt to fund the D-M-E acquisition. This
debt was later repaid from the proceeds of the equity
offering described below and, accordingly, interest
expense declined during the second half of the year.
EARNINGS
Net earnings in 1996 were $66.3 million, or $1.74 per
share, compared with $105.6 million, or $3.07 per share
in 1995. The 1995 net earnings included $48.6 million, or
$1.42 per share, resulting from the combined effects of
the gain on the disposition of two businesses, offset by
an integration charge for Valenite. Excluding those
items, 1996 net earnings increased by $9.3 million, or
16%, while per share earnings increased by $.09, or 6%,
which also includes the effect of an increase in
outstanding common shares.
YEAR 2000
The company is implementing plans to address potential
exposures to various systems caused by the approach of
the Year 2000. Many of the company's systems are already
Year 2000 compliant, while other systems are being
reprogrammed, and, in some cases, the company is using
this opportunity to implement more modern systems which
are already Year 2000 compliant. The financial impact of
these changes is not expected to have a material effect
on the company's consolidated financial position, results
of operations or cash flows.
CHANGE IN FISCAL YEAR
In November, 1997, the Board of Directors approved
management's plan to change the company's fiscal year
from a 52-53 week year ending on the Saturday closest to
December 31st to a calendar year ending on December 31st
each year. In 1998, the transition year, the company's
fiscal year will begin December 28, 1997 and conclude
December 31, 1998. The change is not expected to have a
material effect on financial condition, results of
operations or cash flows for the year 1998. However, the
company's 1997 calendar had 12 weeks each in quarters 1,
2 and 4, and 16 weeks in quarter 3, while the calendar in
future years will have three months in each quarter. This
change will cause inconsistency in quarterly reporting
throughout 1998 due to the inclusion in 1998 of an
additional 10 days in quarter 1, 7 days in quarter 2, 20
fewer days in quarter 3 and an additional 8 days in
quarter 4 in comparison to 1997. Quarterly amounts for
1997 will not be restated because it is impracticable to
do so.
LIQUIDITY AND SOURCES OF CAPITAL
At December 27, 1997, the company had cash and cash
equivalents of $26 million, a decrease of $2 million
during the year.
Operating activities provided $114 million of cash in
1997, compared with $60 million provided in 1996.
Operating activities cash flows have been reduced by cash
costs of $2.0 million and $13 million in 1997 and 1996,
respectively, for Ferromatik severance payments in 1997,
and the Widia/Valenite integration and restructuring in
1996.
Investing activities in 1997 resulted in a $100 million
use of cash, primarily due to capital expenditures of $80
million and the cost of acquisitions. Investing
activities in 1996 resulted in a $308 million use of
cash, mostly due to the D-M-E acquisition, as well as $65
million of capital expenditures. Net cash used by
investing activities in 1995 included $79 million for the
Widia acquisition and $33 million for the Talbot
acquisition. Also affecting 1995 was $120 million
provided from the divestitures of ESD and AMT.
Financing activities used $16 million of cash in 1997,
which includes the effect of a dividend increase and the
purchase of treasury shares. Financing activities
provided $143 million of cash in 1996, primarily due to
$129 million of net proceeds from the issuance of 5.5
million additional shares of common stock. In 1995,
financing activities provided $106 million of cash,
primarily due to the issuance of $100 million of 7 7/8%
notes.
As of December 27, 1997, the company's current ratio of
1.8 was unchanged from December 28, 1996.
At December 27, 1997, the company had lines of credit
with various U.S. and non-U.S. banks of approximately
$420 million, including a $200 million committed
revolving credit facility which expires in January 2002.
Under the provisions of the facility, the company's
additional borrowing capacity totaled approximately $307
million at December 27, 1997. Subsequent to the end of
1997, the facility was increased to $250 million. The
amended facility continues to impose restrictions on
total indebtedness in relation to earnings before
interest, income taxes, depreciation and amortization
(EBITDA). The company anticipates that it will be able to
continue to comply with these restrictions throughout the
term of the facility.
The company had a number of short-term intercompany loans
and advances denominated in various currencies totaling
$47 million at December 27, 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 December 27, 1997, approximately
$228 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 $372 million at December 27, 1997, a
decrease of $1 million over December 28, 1996. Total
shareholders' equity was $472 million at December 27,
1997, an increase of $26 million over December 28, 1996,
despite the adverse effect of a $25 million change in the
cumulative foreign currency translation adjustment caused
by the effects of a stronger U.S. dollar. As a result,
the ratio of total debt to total capital (debt plus
equity) improved to 44% at December 27, 1997 from 46% at
December 28, 1996.
During 1997, the company purchased 589,695 shares of the
company's stock on the open market to satisfy the needs
of management incentive, employee benefit and dividend
reinvestment plans. Subsequent to year end, the company
purchased an additional 338,000 shares for these plans'
requirements. Additional purchases may be made later in
the year. In addition, 1998 capital expenditures are
expected to approximate $100 million. And, in the first
half of 1998, the company expects to begin implementing a
cost-cutting program to reduce staffing at Widia in
Germany and in certain other European locations. This
program is currently estimated to result in a $4 million
net cash cost in 1998. The company believes that its cash
flow from operations and available credit lines will be
sufficient to meet these and other operating
requirements.
OUTLOOK
The company's strategy primarily focuses on internal
growth, which is somewhat dependent upon the worldwide
economic climate, and productivity gains. In 1998, the
company anticipates weakness in certain Asian markets but
modestly improving economic conditions in Europe. In
North America, the company recognizes that automotive
production may weaken but expects most of the other key
sectors of its business to remain at healthy levels.
Based on this economic climate, among other things, the
company's 1998 goals are for about a 7% sales increase
coupled with a 12% increase in earnings per share.
The above forward-looking statements involve risks and
uncertainties that could significantly impact expected
results, as described more fully in the Cautionary
Statement described below.
CAUTIONARY STATEMENT
--------------------
The company wishes to caution readers about all its
forward-looking statements in the "Outlook" section above
and elsewhere. These include all statements that speak
about the future or are based on the company's
interpretation of factors that might affect its
businesses. The company believes the following important
factors, among others, could affect its actual results in
1998 and beyond and cause them to differ materially from
those expressed in any of its forward-looking statements:
* global and regional economic
conditions, consumer spending and
industrial production, particularly in
segments related to the level of
automotive production and spending in
the aerospace and construction
industries;
* fluctuations in currency exchange
rates of U.S. and foreign countries,
including countries in Europe and Asia
where the company has several principal
manufacturing facilities and where many
of the company's competitors and
suppliers are based;
* fluctuations in domestic and non-
U.S. interest rates which affect the
cost of borrowing under the company's
lines of credit and financing fees
related to the sale of domestic accounts
receivable;
* production and pricing levels of
important raw materials, including
plastic resins, which are a key material
used by purchasers of the company's
plastics technologies products, and
steel, cobalt, tungsten and industrial
grains used in the production of
metalworking products;
* lower than anticipated levels of
plant utilization resulting in
production inefficiencies and higher
costs, whether related to the delay of
new product introductions, improved
production processes or equipment, or
labor relation issues;
* any major disruption in production
at key customer or supplier facilities;
* alterations in trade conditions in
and between the U.S. and non-U.S.
countries where the company does
business, including export duties,
import controls, quotas and other trade
barriers;
* changes in tax, environmental and
other laws and regulations in the U.S.
and non-U.S. countries where the company
does business;
* unanticipated litigation, claims or
assessments, including but not limited
to claims or problems related to product
liability, warranty, or environmental
issues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Beginning on page 32 and continuing through page 49 are
the consolidated financial statements with applicable
notes and the related Report of Independent Auditors, and
the supplementary financial information specified by Item
302 of Regulation S-K.
CONSOLIDATED STATEMENT OF EARNINGS
CINCINNATI MILACRON INC. AND SUBSIDIARIES
FISCAL YEAR ENDS ON SATURDAY CLOSEST TO DECEMBER 31.
(In millions, except per-share amounts)
1997 1996 1995
-------- -------- --------
Sales $1,896.7 $1,729.7 $1,649.3
Cost of products sold 1,424.8 1,292.7 1,236.8
-------- -------- --------
Manufacturing margins 471.9 437.0 412.5
Other costs and expenses
Selling and
administrative 329.3 316.3 301.4
Gain on disposition of
businesses - - (71.0)
Integration charge - - 9.8
Minority shareholders'
interests in earnings
of subsidiaries 4.3 3.1 2.3
Other-net 11.2 6.5 10.9
-------- -------- --------
Total other costs and
expenses 344.8 325.9 253.4
-------- -------- --------
Operating earnings 127.1 111.1 159.1
Interest
Income 2.4 4.8 3.2
Expense (28.9) (34.6) (28.0)
-------- -------- --------
Interest-net (26.5) (29.8) (24.8)
-------- -------- --------
Earnings before
income taxes 100.6 81.3 134.3
Provision for
income taxes 20.0 15.0 28.7
-------- -------- --------
Net earnings $ 80.6 $ 66.3 $ 105.6
======== ======== ========
Net earnings per
common share
Basic $ 2.03 $ 1.75 $ 3.11
======== ======== ========
Diluted $ 2.01 $ 1.74 $ 3.07
======== ======== ========
See notes to consolidated financial statements.
CONSOLIDATED BALANCE SHEET
CINCINNATI MILACRON INC. AND SUBSIDIARIES
FISCAL YEAR ENDS ON SATURDAY CLOSEST TO DECEMBER 31.
(In millions, except par value amounts)
1997 1996
-------- --------
ASSETS
Current assets
Cash and cash equivalents $ 25.7 $ 27.8
Notes and accounts receivable
(less allowances of $13.0 in
1997 and $13.7 in 1996) 275.0 267.0
Inventories
Raw materials 26.5 27.8
Work-in-process and
finished parts 217.7 202.7
Finished products 146.2 159.2
-------- --------
Total inventories 390.4 389.7
Other current assets 60.0 43.4
-------- --------
Total current assets 751.1 727.9
Property, plant and equipment-net 343.1 319.1
Goodwill 231.1 229.9
Other noncurrent assets 67.2 59.4
-------- --------
Total assets $1,392.5 $1,336.3
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Amounts payable to banks $ 65.9 $ 65.7
Long-term debt due
within one year 1.6 5.2
Trade accounts payable 153.7 134.9
Advance billings and
deposits 35.7 34.5
Accrued and other current
liabilities 168.5 169.3
-------- --------
Total current liabilities 425.4 409.6
Long-term accrued liabilities 191.0 178.6
Long-term debt 304.2 301.9
-------- --------
Total liabilities 920.6 890.1
-------- --------
Commitments and contingencies - -
SHAREHOLDERS' EQUITY
4% Cumulative Preferred shares 6.0 6.0
Common shares, $1 par value
(outstanding: 39.6 in 1997
and 39.8 in 1996) 39.6 39.8
Capital in excess of par value 377.8 390.1
Reinvested earnings 83.5 19.9
Cumulative foreign currency
translation adjustments (35.0) (9.6)
-------- --------
Total shareholders' equity 471.9 446.2
-------- --------
Total liabilities and
shareholders' equity $1,392.5 $1,336.3
======== ========
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
CINCINNATI MILACRON INC. AND SUBSIDIARIES
FISCAL YEAR ENDS ON SATURDAY CLOSEST TO DECEMBER 31.
(In millions, except share amounts)
Cumulative
4% Foreign
Cumulative Common Capital in Reinvested Currency Total
Preferred Shares, Excess of Earnings Translation Shareholders'
Shares $1 Par Value Par Value (Deficit) Adjustments Equity
---------- ----------- ---------- ---------- ----------- -------------
Balance at
year-end 1994 $6.0 $33.7 $255.5 $(125.9) $(11.5) $157.8
Contribution of
118,180 common shares
to pension plan .1 3.3 3.4
Stock options exercised
and restricted stock
awarded for 414,131
common shares .5 7.4 7.9
Net purchase of
8,756 treasury shares (.2) (.2)
Net earnings for the year 105.6 105.6
Cash dividends
Preferred shares
($4.00 per share) (.2) (.2)
Common shares
($.36 per share) (12.3) (12.3)
Foreign currency
translation
adjustments 8.7 8.7
---- ----- ------ ------ ---- ------
Balance at
year-end 1995 6.0 34.3 266.0 (32.8) (2.8) 270.7
Issuance of 5,500,000
common shares
in public offering 5.5 123.0 128.5
Stock options exercised
and restricted stock
awarded for 69,619
common shares 1.0 1.0
Issuance of 6,474
treasury shares .1 .1
Net earnings for
the year 66.3 66.3
Cash dividends
Preferred shares
($4.00 per share) (.2) (.2)
Common shares
($.36 per share) (13.4) (13.4)
Foreign currency
translation
adjustments (6.8) (6.8)
----- ----- ------ ----- ------ -------
Balance at
year-end 1996 6.0 39.8 390.1 19.9 (9.6) 446.2
Stock options exercised
and restricted stock
awarded for 379,127
common shares .4 1.8 2.2
Purchase of 589,695
treasury and
other common shares (.6) (14.1) (14.7)
Net earnings for
the year 80.6 80.6
Cash dividends
Preferred shares
($4.00 per share) (.2) (.2)
Common shares
($.42 per share) (16.8) (16.8)
Foreign currency
translation
adjustments (25.4) (25.4)
---- ----- ------ ------- ------ ------
Balance at
year-end 1997 $6.0 $39.6 $377.8 $ 83.5 $(35.0) $471.9
==== ===== ====== ======= ====== ======
See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
CINCINNATI MILACRON INC. AND SUBSIDIARIES
FISCAL YEAR ENDS ON SATURDAY CLOSEST TO DECEMBER 31.
(In millions) 1997 1996 1995
------ ------- -------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS
OPERATING ACTIVITIES
CASH FLOWS
Net earnings $ 80.6 $ 66.3 $ 105.6
Operating activities
providing (using) cash
Depreciation and
amortization 53.7 50.9 43.6
Gain on disposition
of businesses - - (71.0)
Integration charge - - 9.8
Deferred income taxes (15.3) (7.0) (25.3)
Working capital changes
Notes and accounts
receivable (20.7) (5.6) 3.9
Inventories (16.3) (20.7) (27.3)
Other current assets (6.1) 7.4 (1.4)
Trade accounts
payable 21.8 16.8 4.2
Other current
liabilities 7.6 (50.6) (1.3)
Decrease (increase)
in other noncurrent
assets .1 (1.9) (2.0)
Increase in long-term
accrued liabilities 13.2 8.8 9.6
Other-net (4.7) (4.5) (7.5)
------ ------- -------
Net cash provided
by operating
activities 113.9 59.9 40.9
------ ------- -------
INVESTING ACTIVITIES
CASH FLOWS
Capital expenditures (79.5) (65.2) (52.3)
Net disposals of
property, plant
and equipment 5.7 4.3 10.3
Acquisitions (25.9) (246.8) (113.5)
Disposition of
businesses - - 120.4
------ ------- -------
Net cash used by
investing activities (99.7) (307.7) (35.1)
------ ------- -------
FINANCING ACTIVITIES
CASH FLOWS
Dividends paid (17.0) (13.6) (12.5)
Increase in
long-term debt 14.4 - 190.0
Repayments of
long-term debt (4.9) (21.1) (33.0)
Increase (decrease)
in amounts payable
to banks 3.7 47.6 (49.8)
Issuance of
common shares 2.2 129.6 13.1
Purchase of treasury
and other common
shares (14.7) - (2.0)
------ ------- -------
Net cash provided
(used) by financing
activities (16.3) 142.5 105.8
------ ------- -------
INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS (2.1) (105.3) 111.6
Cash and cash equivalents
at beginning of year 27.8 133.1 21.5
------ ------- -------
Cash and cash equivalents
at end of year $ 25.7 $ 27.8 $ 133.1
====== ======= =======
See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR END
The company's fiscal year ends on the Saturday closest to
December 31 of each year. Fiscal year ends are as follows:
1997: December 27, 1997
1996: December 28, 1996
1995: December 30, 1995
In November, 1997, the Board of Directors approved
management's plan to change the company's fiscal year to a
calendar year ending on December 31st. In 1998, the
transition year, the company's fiscal year will begin
December 28, 1997, and end December 31, 1998. The change is
not expected to have a material effect on financial
condition, results of operations or cash flows for the year
1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CONSOLIDATION
The consolidated financial statements include the accounts
of the company and its subsidiaries. All significant
intercompany transactions are eliminated.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the company's non-U.S. operations
are translated into U.S. dollars at period-end exchange
rates. Net exchange gains or losses resulting from such
translation are excluded from net earnings and accumulated
in a separate component of shareholders' equity. Income and
expense accounts are translated at weighted-average exchange
rates for the period. Gains and losses from foreign currency
transactions are included in other costs and expenses-net in
the Consolidated Statement of Earnings. Gains and losses on
foreign exchange contracts that are designated as hedges of
foreign currency commitments are recognized as part of the
specific transactions hedged under the deferral method of
accounting consistent with the requirement for a firm
commitment.
RECLASSIFICATION OF FINANCIAL STATEMENT
Beginning in 1997, amortization of goodwill, which was
previously included as a component of cost of products sold,
is included in other costs and expenses-net in the
Consolidated Statement of Earnings. Amounts reported for
prior years have been reclassified to conform to the 1997
presentation.
REVENUE RECOGNITION
The company's policy is to recognize sales when products are
shipped to unaffiliated customers.
CASH AND CASH EQUIVALENTS
The company considers all highly liquid investments with a
maturity of three months or less to be cash equivalents.
INVENTORY VALUATION
Inventories are stated at the lower of cost or market,
including provisions for obsolescence commensurate with
known or estimated exposures. The principal methods of
determining costs are last-in, first-out (LIFO) for certain
U.S. inventories and average or standard cost, which
approximates first-in, first-out (FIFO), for other
inventories.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost or, for
assets acquired through business combinations, at fair value
at the dates of the respective acquisitions. For financial
reporting purposes, depreciation is generally determined on
the straight-line method using estimated useful lives of the
assets. Depreciation expense was $47.6 million, $45.1
million and $42.1 million for 1997, 1996 and 1995,
respectively.
Property, plant and equipment that are idle and held for
sale are valued at the lower of historical cost less
accumulated depreciation or fair value less cost to sell.
Carrying costs through the expected disposal dates of such
assets are accrued at the time expected losses are
recognized or, in the case of assets to be sold at a gain,
charged to expense as incurred.
GOODWILL
Goodwill, which represents the excess of acquisition cost
over the net assets acquired in business combinations, is
amortized on the straight-line method over periods ranging
from 25 to 40 years. The carrying amount of goodwill is
reviewed annually using estimated undiscounted cash flows
for the businesses acquired over the remaining amortization
periods. Amortization expense charged to earnings amounted
to $6.1 million, $5.8 million and $1.5 million in 1997, 1996
and 1995, respectively.
RETIREMENT BENEFIT PLANS
The company maintains various defined benefit and defined
contribution pension plans covering substantially all U.S.
employees and certain non-U.S. employees. For defined
benefit plans, pension benefits are based primarily on
length of service and compensation. The company's policy is
to fund the plans in accordance with applicable laws and
regulations.
STOCK-BASED COMPENSATION
The company accounts for stock-based compensation under the
provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and the related
interpretations.
INCOME TAXES
The company provides deferred income taxes for cumulative
temporary differences between the financial reporting basis
and income tax basis of its assets and liabilities.
Provisions are made for all currently payable federal and
state and local income taxes at applicable tax rates.
Provisions are also made for any additional taxes on
anticipated distributions from subsidiaries.
EARNINGS PER COMMON SHARE
Beginning in 1997, earnings per common share data are
computed in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which
became effective for financial statements issued after
December 15, 1997. Amounts for prior years have been
restated.
RECENTLY ISSUED PRONOUNCEMENTS
During 1998, the company will adopt the provisions of
Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related
Information," which is effective for year-end 1998. This
standard requires that segment information be disclosed
based upon how management internally evaluates the operating
performance of its business units. Application of the
disclosure requirements under this standard is not expected
to have a material effect on the financial statements of the
company in 1998.
DISPOSITION OF BUSINESSES
In December, 1995, the company completed the sale of its
Electronic Systems Division (ESD) for $104 million in cash
and recorded a fourth quarter pretax gain of $66.0 million
($52.4 million after tax). ESD's 1995 sales to unaffiliated
customers were approximately $30 million.
In January, 1995, the company completed the sale of its
American Mine Tool (AMT) business for $15 million resulting
in a pretax gain of $5.0 million ($4.0 million after tax).
The sale did not have a significant effect on the company's
ongoing sales or operating earnings.
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, and later revised in December,
1995, which also involved the integration of certain Widia
operations with Valenite. The total cost of the plan was
$28.1 million. That portion of the overall plan that related
directly to Widia was recorded through purchase accounting
adjustments totaling $18.3 million. As it related to
Valenite, the plan involved 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.
ACQUISITIONS
In February, 1995, the company acquired Krupp Widia GmbH
(Widia) for DM 120.8 million in cash (approximately $79
million), which included DM 7.1 million (approximately $4
million) for the settlement of all intercompany liabilities
to the seller as of the closing date, and $13 million of
assumed debt. Headquartered in Germany, Widia is one of the
world's leading producers of industrial metalcutting
products.
In July, 1995, the company acquired Talbot Holdings, Ltd.
(Talbot) for approximately $33 million in cash and $5
million of assumed debt. Talbot is a major supplier of round
high-speed steel and carbide metalcutting tools.
In January, 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.
During 1997, the company acquired Minnesota Twist Drill,
Inc., a maker of high-speed twist drills, and Data Flute
CNC, Inc., a manufacturer of high-performance solid carbide
end mills. Each business has annual sales of approximately
$10 million. These acquisitions were financed by the use of
available cash and bank borrowings. These acquisitions did
not significantly affect the company's financial position or
results of operations.
All of these acquisitions were accounted for under the
purchase method. The aggregate cost of the acquisitions,
including professional fees and other related costs, was
$27.4 million in 1997, $248.1 million in 1996 and $111.1
million in 1995. The following table presents the allocation
of the aggregate acquisition cost to the assets acquired and
liabilities assumed.
ALLOCATION OF ACQUISITION COST
(In millions) 1997 1996 1995
------ ------ -------
Cash and cash equivalents $ .6 $ 1.3 $ 3.1
Accounts receivable 3.6 25.5 51.7
Inventories 4.0 29.6 68.9
Other current assets .1 1.2 .6
Property, plant and equipment 7.0 43.9 60.6
Goodwill 14.4 162.5 51.9
Other noncurrent assets - 7.9 14.3
------ ------ -------
Total assets 29.7 271.9 251.1
------ ------ -------
Amounts payable to banks
and long-term debt due
within one year - - (9.3)
Other current liabilities (2.1) (18.9) (70.6)
Long-term accrued liabilities (.2) (4.9) (50.7)
Long-term debt - - (9.4)
------ ------ -------
Total liabilities (2.3) (23.8) (140.0)
------ ------ -------
Total acquisition cost $ 27.4 $248.1 $ 111.1
====== ====== =======
In the 1995 allocation, other current liabilities includes a
reserve of $16.9 million for the restructuring of Widia and
its integration with Valenite. Prior to the acquisition, the
company`s management began to develop a plan for the
integration of certain operations of Widia and Valenite and
for restructuring actions to improve Widia's profitability.
In May, 1995, the company's management formally approved
this integration plan at an expected total cost of $17.1
million. The portion directly related to Valenite was
recorded as a $9.8 million pretax charge to earnings in the
second quarter of 1995. In December, 1995, the management of
the company and Widia approved a revision to the original
plan to provide for additional reductions in personnel
levels at Widia. As a result, the total cost of the
integration plan was $28.1 million.
As it related to Widia, the revised plan involved the
closure of one manufacturing plant, the reduction of
employment levels at its plant and headquarters in Germany,
and the consolidation of numerous sales, customer service
and warehouse operations in Europe and Asia at a total cost
of $18.3 million. The actions contemplated by the
integration plan were substantially completed by year-end
1996.
RESEARCH AND DEVELOPMENT
Charges to operations for research and development
activities are summarized below. The amounts include
expenses related to the company's Wolfpack product
development and process improvement program. The decrease in
1996 relates principally to the sale of ESD in December,
1995.
RESEARCH AND DEVELOPMENT
(In millions) 1997 1996 1995
----- ----- -----
Research and development $50.1 $49.0 $57.8
===== ===== =====
RETIREMENT BENEFIT PLANS
Pension cost for all defined benefit plans is summarized in
the following table. For all years presented, the table
includes amounts for plans for certain employees in the
U.S., the United Kingdom (U.K.) and Germany.
PENSION COST
(In millions) 1997 1996 1995
------ ------ ------
Service cost (benefits earned
during the period) $ 9.6 $ 9.5 $ 7.6
Interest cost on projected
benefit obligation 38.9 37.5 37.0
Actual return on plan assets (77.9) (53.3) (87.9)
Net amortization and deferral 31.5 11.1 46.3
------ ------ ------
Pension cost $ 2.1 $ 4.8 $ 3.0
====== ====== ======
The following table sets forth the funded status of the
defined benefit pension plans that cover certain U.S. and
U.K. employees.
FUNDED STATUS AT YEAR-END
(In millions) 1997 1996
------- -------
Vested benefit obligation $(430.8) $(372.8)
======= =======
Accumulated benefit obligation $(451.8) $(389.4)
======= =======
Projected benefit obligation $(502.2) $(445.6)
Plan assets at fair value 511.5 464.4
------- -------
Excess of plan assets in relation to
projected benefit obligation 9.3 18.8
Unrecognized net loss 2.3 5.2
Unrecognized net transition asset (7.7) (13.8)
------- -------
Prepaid pension cost $ 3.9 $ 10.2
======= =======
The plans' assets consist principally of stocks, debt
securities and mutual funds. The U.S. plan also includes
common shares of the company with a market value of $25.4
million in 1997 and $16.5 million in 1996. Because of the
funded status of the plans, contributions were not required
for the U.S. plan in 1997 and for the U.K. plan in the three
year period ended December 27, 1997. Contributions of $7.5
million and $3.4 million were made to the U.S. plan in 1996
and 1995, respectively.
The following table sets forth the status of the company's
defined benefit pension plans for certain employees in
Germany. Consistent with customary practice in Germany,
these plans have not been funded.
STATUS AT YEAR-END
(In millions) 1997 1996
------ ------
Vested benefit obligation $(32.1) $(34.8)
====== ======
Accumulated benefit obligation $(34.8) $(38.6)
====== ======
Projected benefit obligation $(38.1) $(42.6)
Unrecognized net gain (.9) (.1)
------ ------
Accrued pension cost $(39.0) $(42.7)
====== ======
The following table presents the weighted-average actuarial
assumptions used for all defined benefit plans in 1997, 1996
and 1995.
ACTUARIAL ASSUMPTIONS
1997 1996 1995
---- ---- ----
Discount rate 7.4% 8.0% 7.5%
Expected long-term rate of
return on plan assets 9.6% 9.6% 9.6%
Rate of increase in future
compensation levels 5.2% 5.1% 4.3%
The company also maintains certain defined contribution and
401(k) plans. Participation in these plans is available to
certain U.S. employees. Costs for these plans were $8.5
million, $7.7 million and $6.4 million in 1997, 1996 and
1995, respectively.
In addition to pension benefits, the company also provides
varying levels of postretirement health care benefits to
certain U.S. employees. Substantially all such employees are
covered by the company's principal plan, under which
benefits are provided to employees who retire from active
service after having attained age 55 and ten years of
service. The plan is contributory in nature. For employees
retiring prior to 1980, such contributions are based on
varying percentages of the current per-contract cost of
benefits, with the company funding any excess over these
amounts. For employees retiring after 1979, the dollar
amount of the company's current and future contributions is
frozen.
The following tables present the components of the company's
liability for retiree health care benefits and
postretirement health care cost under the principal U.S.
plan.
ACCRUED POSTRETIREMENT HEALTH CARE BENEFITS
(In millions) 1997 1996
------ ------
Accumulated postretirement
benefit obligation
Retirees $(26.6) $(29.1)
Fully eligible active
participants (5.3) (4.9)
Other active participants (6.8) (6.3)
------ ------
(38.7) (40.3)
Unrecognized net gain (4.7) (5.0)
------ ------
Accrued postretirement health
care benefits $(43.4) $(45.3)
====== ======
POSTRETIREMENT HEALTH CARE COST
(In millions) 1997 1996 1995
------ ------ ------
Service cost (benefits earned
during the period) $ .3 $ .3 $ .3
Interest cost on accumulated
postretirement benefit
obligation 3.0 3.2 3.9
------ ------ ------
Postretirement health
care cost $ 3.3 $ 3.5 $ 4.2
====== ====== ======
The discount rates used in calculating the accumulated
postretirement benefit obligation were 7.5% for 1997 and
8.0% for 1996. For 1998, the assumed rate of increase in
health care costs used to calculate the accumulated
postretirement benefit obligation is 8.8%. This rate is
assumed to decrease to varying degrees annually to 5.0% for
years 2005 and thereafter. Because the dollar amount of the
company's contributions for most employees is frozen, a one
percent change in each year in relation to the above
assumptions would not significantly change the accumulated
postretirement benefit obligation or the total cost of the
plan.
INCOME TAXES
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes. The significant
components of the company's deferred tax assets and
liabilities as of year-end 1997 and 1996 are as follows:
COMPONENTS OF DEFERRED TAX ASSETS AND LIABILITIES
(In millions) 1997 1996
------ ------
DEFERRED TAX ASSETS
Net operating loss and tax
Credit carryforwards $ 48.5 $ 59.7
Accrued postretirement health
care benefits 14.6 15.2
Inventories, principally due to
obsolescence reserves and
additional costs inventoried
for tax purposes 8.7 8.7
Accrued employee benefits other
than pensions and retiree
health care benefits 11.8 10.7
Accrued pension costs 3.1 4.1
Accrued warranty costs 3.3 3.1
Accrued taxes 4.9 3.0
Accounts receivable,
principally due to
allowances for doubtful
accounts 3.5 3.0
Accrued liabilities
and other 23.0 20.5
------ ------
Total deferred
tax assets 121.4 128.0
Less valuation
allowances (25.5) (59.4)
------ ------
Deferred tax assets
net of valuation
allowances $ 95.9 $ 68.6
====== ======
DEFERRED TAX LIABILITIES
Property, plant and equipment,
principally due to differences
in depreciation methods $ 25.7 $ 23.7
Accounts receivable and
inventories 2.4 3.0
Prepaid pension costs 6.6 6.2
Undistributed earnings of
non-U.S. subsidiaries 1.2 1.3
Other 11.7 7.1
------ ------
Total deferred tax
liabilities $ 47.6 $ 41.3
====== ======
Net deferred tax assets $ 48.3 $ 27.3
====== ======
Valuation allowances related to Widia's preacquisition net
operating loss carryforwards are being applied to reduce
goodwill arising from the acquisition as the related tax
benefits are realized. During 1997 and 1996, reversals of
valuation allowances applied to reduce goodwill totaled $5.7
million and $1.9 million, respectively. Additional
reductions of goodwill in years subsequent to 1997 are not
expected to exceed $4.0 million.
Summarized in the following tables are the company's
earnings before income taxes, its provision for income
taxes, the components of the provision for deferred income
taxes and a reconciliation of the U.S. statutory rate to the
tax provision rate.
EARNINGS BEFORE INCOME TAXES
(In millions) 1997 1996 1995
------ ------ ------
United States $ 64.9 $ 33.9 $ 87.8
Non-U.S. 35.7 47.4 46.5
------ ------ ------
$100.6 $ 81.3 $134.3
====== ====== ======
PROVISION FOR INCOME TAXES
(In millions) 1997 1996 1995
------ ------ ------
CURRENT PROVISION
United States $ 15.3 $ 6.4 $ 32.6
State and local 5.3 2.8 8.9
Non-U.S. 14.7 12.8 12.5
------ ------ ------
35.3 22.0 54.0
------ ------ ------
DEFERRED PROVISION
United States (13.7) (2.9) (23.0)
Non-U.S. (1.6) (4.1) (2.3)
------ ------ ------
(15.3) (7.0) (25.3)
------ ------ ------
$ 20.0 $ 15.0 $ 28.7
====== ====== ======
COMPONENTS OF THE PROVISION FOR DEFERRED INCOME TAXES
(In millions) 1997 1996 1995
------ ------ ------
Change in valuation
allowances $(28.2) $ (6.7) $(19.6)
Change in deferred taxes
related to operating
loss carryforwards 11.1 3.2 (6.0)
Depreciation 2.0 (3.7) 8.9
Accrued pension and
other employee costs .5 .5 (5.3)
Tax effects of
consolidation,
restructuring
and other reserves - .4 1.6
Other (.7) (.7) (4.9)
------ ------ ------
$(15.3) $ (7.0) $(25.3)
====== ====== ======
RECONCILIATION OF THE U.S. STATUTORY RATE TO THE
TAX PROVISION RATE
1997 1996 1995
------ ------ ------
U.S. statutory tax rate 35.0% 35.0% 35.0%
Increase (decrease)
resulting from
Tax benefits from net
reversal of valuation
allowances (23.2) (10.5) (6.4)
Losses without current
tax benefits 9.9 5.3 3.0
Tax benefits from net
reversal of U.S.
temporary differences (.2) (4.4) (9.4)
U.S. federal income tax
credits (2.8) (5.9) -
Effect of operations
outside the U.S. (3.6) (4.6) (7.3)
State and local income
taxes, net of federal
benefit 3.4 2.3 6.6
Other 1.4 1.3 (.1)
------ ------ ------
19.9% 18.5% 21.4%
====== ====== ======
At year-end 1997, certain of the company's non-U.S.
subsidiaries had net operating loss carryforwards
aggregating approximately $112 million, substantially
all of which have no expiration dates.
Undistributed earnings of foreign subsidiaries which are
intended to be indefinitely reinvested aggregated $123
million at the end of 1997.
Income taxes of $25.2 million, $33.8 million and $21.0
million were paid in 1997, 1996 and 1995, respectively.
EARNINGS PER COMMON SHARE
Basic earnings per common share data are based on the
weighted-average number of common shares outstanding during
the respective periods. Diluted earnings per common share
data are based on the weighted-average number of common
shares outstanding adjusted to include the effects of
potentially dilutive stock options and certain restricted
shares.
The following tables present the calculation of earnings
available to common shareholders and a reconciliation of the
shares used to calculate basic and diluted earnings per
common share.
EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
(In millions) 1997 1996 1995
------ ------ ------
Net earnings $ 80.6 $ 66.3 $105.6
Less dividends on
Preferred shares (.2) (.2) (.2)
------ ------ ------
Net earnings available
to common shareholders $ 80.4 $ 66.1 $105.4
====== ====== ======
RECONCILIATION OF SHARES
(In thousands) 1997 1996 1995
------ ------ ------
Weighted-average common
shares outstanding 39,583 37,667 33,908
Effect of dilutive stock
options and restricted
shares 373 276 401
------ ------ ------
Weighted-average common
shares assuming dilution 39,956 37,943 34,309
====== ====== ======
For 1997, weighted-average shares assuming dilution excludes
205,075 restricted shares subject to contingent vesting
based on the attainment of specified earnings objectives
that have not yet been achieved.
RECEIVABLES
In January, 1996, the company entered into a new three year
receivables purchase agreement with an independent issuer of
receivables-backed commercial paper. This agreement replaced
a similar agreement that expired in January, 1996. Under the
terms of the new agreement, 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. The agreement permits
the sale of up to $75.0 million of undivided interests in
accounts receivable through January, 1999.
At December 27, 1997, December 28, 1996, and December 30,
1995, the undivided interests in the company's gross
accounts receivable that had been sold to the purchasers
aggregated $75.0 million, $75.0 million and $69.0 million,
respectively. Increases and decreases in the amount sold are
reported as operating cash flows in the Consolidated
Statement of Cash Flows. Costs related to the sales are
included in other costs and expenses-net in the Consolidated
Statement of Earnings.
INVENTORIES
Inventories amounting to $130.1 million in 1997 and $129.0
million in 1996 are stated at LIFO cost. If stated at FIFO
cost, such inventories would be greater by approximately
$66.4 million in 1997 and $64.6 million in 1996.
As presented in the Consolidated Balance Sheet, inventories
are net of reserves for obsolescence of $41.6 million and
$45.6 million in 1997 and 1996, respectively.
PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are shown in
the following table.
PROPERTY, PLANT AND EQUIPMENT-NET
(In millions) 1997 1996
------- -------
Land $ 14.9 $ 13.6
Buildings 179.4 178.0
Machinery and equipment 459.0 427.0
------- -------
653.3 618.6
Less accumulated depreciation (310.2) (299.5)
------- -------
$ 343.1 $ 319.1
======= =======
LIABILITIES
The components of accrued and other current liabilities and
long-term accrued liabilities are shown in the following
tables.
ACCRUED AND OTHER CURRENT LIABILITIES
(In millions) 1997 1996
------ ------
Accrued salaries, wages
and other compensation $ 50.4 $ 51.9
Accrued and deferred
income taxes 15.8 13.6
Other accrued expenses 102.3 103.8
------ ------
$168.5 $169.3
====== ======
LONG-TERM ACCRUED LIABILITIES
(In millions) 1997 1996
------ ------
Accrued pension and other
compensation $ 73.2 $ 67.1
Accrued postretirement health
care benefits 46.4 48.4
Accrued and deferred income
taxes 31.5 26.9
Minority shareholders'
interests 16.7 12.7
Other 23.2 23.5
------ ------
$191.0 $178.6
====== ======
LONG-TERM DEBT
The components of long-term debt are shown in the following
table.
LONG-TERM DEBT
(In millions) 1997 1996
------ ------
7 7/8 % Notes due 2000 $100.0 $100.0
8 3/8 % Notes due 2004 115.0 115.0
Revolving credit facility 80.3 80.3
Other 10.5 11.8
------ ------
305.8 307.1
Less current maturities (1.6) (5.2)
------ ------
$304.2 $301.9
====== ======
Except for the 7 7/8% Notes due 2000 and the 8 3/8% Notes
due 2004, the carrying amount of the company's long-term
debt approximates fair value, which is determined using
discounted cash flow analysis based on the company's
incremental borrowing rate for similar types of financing
arrangements. At year-end 1997, the fair value of the 7 7/8%
Notes due 2000 was $102.1 million and the fair value of the
8 3/8% Notes due 2004 was $121.6 million. Such amounts are
based on recent trade prices through registered securities
brokers.
Certain of the above long-term debt obligations contain
various restrictions and financial covenants relating
principally to additional secured indebtedness.
Outstanding borrowings under the company's revolving credit
facility of $10.0 million at December 27, 1997, and DM 125
million ($70.3 million at December 27, 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. These borrowings are at
variable interest rates which had a weighted average of 4.3%
at year-end 1997.
Interest paid was $29.1 million in 1997, $35.1 million in
1996 and $27.7 million in 1995.
Maturities of long-term debt for the five years after 1997
are:
1998: $ 1.6 million
1999: 2.3 million
2000: 101.8 million
2001: 1.8 million
2002: 80.3 million
The company leases certain equipment and facilities under
operating leases, some of which include varying renewal and
purchase options. Future minimum rental payments applicable
to noncancelable operating leases during the next five years
and in the aggregate thereafter are:
1998: $17.1 million
1999: 11.8 million
2000: 9.3 million
2001: 7.0 million
2002: 5.5 million
After 2002: 34.2 million
Rent expense was $22.6 million, $23.6 million and $19.8
million in 1997, 1996 and 1995, respectively.
LINES OF CREDIT
At year-end 1997, the company had lines of credit with
various U.S. and non-U.S. banks of approximately $420
million, including a $200 million committed revolving credit
facility. These credit facilities support letters of credit
and leases in addition to providing borrowings under varying
terms. In March, 1997, the company amended the revolving
credit facility to reduce the amount of credit available
thereunder from $300 million to $200 million and to extend
the term to January, 2002. The amended facility requires a
facility fee on the total $200 million revolving loan
commitment at a variable rate which was .18% per annum as of
December 27, 1997. In addition, a 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). Under
the provisions of the revolving credit facility, the
company's additional borrowing capacity totaled
approximately $307 million at year-end 1997.
Subsequent to year end, the company amended the revolving
credit facility to increase the line of credit available
from $200 million to $250 million.
The weighted-average interest rate on short-term borrowings
outstanding as of year-end was 6.6% for 1997 and 1996.
SHAREHOLDERS' EQUITY
During 1997, the company purchased 499,600 treasury shares
on the open market at a cost of $12.2 million to partially
meet current and future needs of management incentive,
employee benefit and dividend reinvestment plans. An
additional 90,095 shares were also purchased with respect to
current year exercises of stock options in lieu of the
issuance of authorized but unissued shares.
In May, 1996, the company issued 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.
SHAREHOLDERS' EQUITY - PREFERRED AND COMMON SHARES
(In millions, except share
and per-share amounts) 1997 1996
------ ------
4% Cumulative Preferred shares
authorized, issued and
outstanding, 60,000 shares at
$100 par value, redeemable at
$105 a share $ 6.0 $ 6.0
====== ======
Common shares, $1 par value,
authorized 50,000,000 shares,
issued and outstanding,
1997: 39,635,829 shares,
1996: 39,846,397 39.6 39.8
====== ======
The company has authorized ten million serial preference
shares with $1 par value. None of these shares has been
issued.
Holders of company common stock have one vote per share
until they have held their shares for at least 36
consecutive months, after which they are entitled to ten
votes per share.
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,
on an undiscounted basis, when it is probable that a
liability has been incurred and the amount of the liability
can be reasonably estimated. Accruals for estimated losses
from environmental remediation obligations generally are
recognized no later than the completion of a remediation
feasibility study. The accruals are adjusted as further
information becomes available or circumstances change.
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.
FOREIGN EXCHANGE CONTRACTS
The company enters into forward contracts to hedge foreign
currency commitments on an ongoing basis for periods
commensurate with known exposures. The purpose of this
practice is to minimize the effect of foreign currency
exchange rate fluctuations on the company's operating
results. The company does not engage in speculation. The
company's exposure to credit-related losses from these
transactions is considered to be minimal due to the high
credit ratings of the parties involved.
At December 27, 1997, the company had outstanding forward
contracts totaling $27.5 million, which generally mature in
periods of six months or less. These contracts require the
company and its subsidiaries to exchange currencies at the
maturity dates at exchange rates agreed upon at inception.
Due to the short-term nature of these contracts, their fair
values, which are not recognized in the financial
statements, approximate their contract values as of December
27, 1997.
STOCK-BASED COMPENSATION
The 1997 Long-Term Incentive Plan (1997 Plan) permits the
company to grant its common shares in the form of non-
qualified stock options, incentive stock options, restricted
stock and performance awards.
Non-qualified and incentive stock options outstanding under
the 1997 Plan are granted at market value, vest in
increments over a five year period, and expire ten years
subsequent to the award. Of the 3,063,612 options
outstanding at year-end 1997, 192,000 are incentive stock
options.
Summaries of stock options granted under the 1997 Plan and
prior plans are presented in the following tables.
STOCK OPTION ACTIVITY
Weighted-
Average
Exercise
Shares Price
--------- --------
OUTSTANDING AT YEAR-END 1994 1,969,436 18.73
Granted 581,009 20.69
Exercised (382,854) 18.77
Canceled (30,595) 21.15
--------- --------
OUTSTANDING AT YEAR-END 1995 2,136,996 19.22
Granted 626,800 25.75
Exercised (31,045) 20.51
Canceled (26,182) 22.95
--------- --------
OUTSTANDING AT YEAR-END 1996 2,706,569 20.70
Granted 568,600 23.25
Exercised (94,485) 17.64
Canceled (117,072) 24.28
--------- --------
OUTSTANDING AT YEAR-END 1997 3,063,612 21.13
========= ========
EXERCISABLE STOCK OPTIONS AT YEAR-END
Stock
Options
---------
1995 1,054,663
1996 1,147,869
1997 1,245,931
SHARES AVAILABLE FOR FUTURE GRANT AT YEAR-END
Stock
Options
---------
1995 871,150
1996 131,675
1997 1,306,959
The following tables summarize information about stock
options outstanding at December 27, 1997.
COMPONENTS OF OUTSTANDING STOCK OPTIONS
Average Weighted-
Range of Remaining Average
Exercise Number Contract Exercise
Prices Outstanding Life Price
------------- ----------- --------- ---------
$8.50 - 14.50 568,900 3.6 $13.35
17.13 - 25.75 2,494,712 7.0 22.90
-----------
$8.50 - 25.75 3,063,612 6.4 $21.13
===========
COMPONENTS OF EXERCISABLE STOCK OPTIONS
Weighted-
Range of Average
Exercise Number Exercise
Prices Exercisable Price
------------- ----------- ---------
$8.50 - 14.50 568,900 $13.35
17.13 - 25.75 677,031 21.20
-----------
$8.50 - 25.75 1,245,931 $17.62
===========
Under the 1997 Plan, performance awards are granted in the
form of restricted stock awards which vest based on the
achievement of specified earnings objectives over a three
year period. The 1997 Plan also permits the granting of
other restricted stock awards, which also vest three years
from the date of grant. During the restriction period,
restricted stock awards entitle the holder to all the rights
of a holder of common shares, including dividend and voting
rights. Unvested shares are restricted as to disposition and
subject to forfeiture under certain circumstances. The
amount of compensation expense recognized for restricted
stock, including performance awards, was $5.0 million, $.9
million and $.7 million in 1997, 1996 and 1995,
respectively. Restricted stock award activity is as follows:
RESTRICTED STOCK ACTIVITY
1997 1996 1995
------- ------ ------
Restricted stock awarded 281,190 58,746 47,600
======= ====== ======
Weighted-average market
value on date of grant $22.99 $25.55 $23.00
======= ====== ======
Of the 281,190 shares of restricted stock awarded in 1997,
205,075 were performance awards subject to contingent
vesting.
Cancellations of restricted stock, including shares canceled
to pay employee withholding taxes at maturity, totaled 6,758
in 1997, 20,172 in 1996 and 16,323 in 1995.
During 1997, 10,210 shares related to performance awards
earned under a prior plan were issued.
Pro forma earnings amounts prepared under the assumption
that the stock options granted in 1997, 1996 and 1995 were
accounted for based on their fair value as determined under
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," are as follows:
PRO FORMA EARNINGS
(In millions, except per-share amounts)
1997 1996 1995
----- ----- ------
Net earnings $77.5 $63.5 $104.4
===== ===== ======
Net earnings per common share
Basic $1.95 $1.68 $ 3.07
===== ===== ======
Diluted $1.93 $1.67 $ 3.03
===== ===== ======
The weighted-average fair value of stock options granted
during 1997, 1996 and 1995 was $7.51, $8.66 and $7.75,
respectively. The fair value of the options was calculated
as of the date of grant using the Black-Scholes option
pricing model using the following assumptions:
FAIR VALUE ASSUMPTIONS
1997 1996 1995
--------- --------- ---------
Dividend yield 2.06% 1.40% 1.74%
Expected volatility 31 - 41% 30 - 41% 33 - 43%
Risk free interest
rate at grant date 5.9 - 6.3% 5.3 - 5.6% 7.3 - 7.5%
Expected life in years 2 - 7 2 - 7 2 - 7
Statement of Financial Accounting Standards No. 123 does not
apply to awards granted prior to 1995. Because additional
awards in future years are anticipated, the pro forma
effects of applying this statement presented above are not
indicative of future amounts.
ORGANIZATION
Cincinnati Milacron Inc. is a worldwide manufacturer of
machinery and supplies for processing plastics, and machine
tools and industrial products for metalworking. The company
has operations in the United States and other countries
located principally in Western Europe.
The plastics technologies segment includes the production of
injection molding machines, mold bases, systems for
extrusion and blow molding and various other specialty
equipment. The market is driven by the consumer economy and
the automotive industry. The machine tools segment serves a
broad range of markets, including the automotive industry,
job shops and the aerospace industry. The industrial
products segment serves a variety of metalworking
industries, including the automotive industry. It produces
five basic types of industrial products: metalcutting
tools, metalworking fluids, precision grinding wheels,
carbide wear parts and industrial magnets. The markets for
all three business segments are highly competitive and can
be cyclical in nature.
Financial data for the past three years for the company's
business segments are shown in the following tables. The
1996 increases for plastics technologies are primarily
attributable to the acquisition of D-M-E on January 26,
1996. The 1996 decreases for machine tools are partially
attributable to the sale of ESD on December 30, 1995.
SALES BY SEGMENT
(In millions) 1997 1996 1995
-------- -------- --------
Plastics technologies $ 735.7 $ 662.4 $ 570.1
Machine tools 458.0 371.8 409.0
Industrial products 703.0 695.5 670.2
-------- -------- --------
$1,896.7 $1,729.7 $1,649.3
======== ======== ========
OPERATING INFORMATION BY SEGMENT
(In millions) 1997 1996 1995
-------- -------- --------
OPERATING EARNINGS
Plastics technologies $ 59.7 $ 59.2 $ 54.3
Machine tools 14.5 4.9 7.7
Industrial products 81.2 73.7 62.1
Disposition of
businesses (a) - - 71.0
Integration charge (b) - - (9.8)
Corporate expenses (17.2) (16.8) (15.7)
Other unallocated
expenses (c) (11.1) (9.9) (10.5)
-------- -------- --------
Operating earnings 127.1 111.1 159.1
Interest expense-net (26.5) (29.8) (24.8)
-------- -------- --------
Earnings before
income taxes $ 100.6 $ 81.3 $ 134.3
======== ======== ========
IDENTIFIABLE ASSETS
Plastics technologies $ 611.5 $ 612.6 $ 335.3
Machine tools 253.9 233.3 232.8
Industrial products 497.7 458.9 468.1
Unallocated
corporate assets (d) 29.4 31.5 137.5
-------- -------- --------
Total assets $1,392.5 $1,336.3 $1,173.7
======== ======== ========
CAPITAL EXPENDITURES
Plastics technologies $ 26.7 $ 20.6 $ 16.6
Machine tools 18.0 15.7 8.6
Industrial products 34.8 28.9 27.1
-------- -------- --------
Total capital
expenditures $ 79.5 $ 65.2 $ 52.3
======== ======== ========
DEPRECIATION AND AMORTIZATION
Plastics technologies $ 23.0 $ 21.4 $ 11.8
Machine tools 6.2 5.0 7.4
Industrial products 24.5 24.5 24.4
-------- -------- --------
Total depreciation
and amortization $ 53.7 $ 50.9 $ 43.6
======== ======== ========
(a) $66.0 million relates to the machine tools segment and
$5.0 million relates to the industrial products segment.
(b) Relates to the industrial products segment.
(c) Includes financing costs related to the sale of
accounts receivable and minority shareholders' interests in
earnings of subsidiaries.
(d) Includes cash and cash equivalents and the assets of
the company's insurance and utility subsidiaries.
Sales of U.S. operations include export sales of $231.8
million in 1997, $199.6 million in 1996, and $166.9 million
in 1995.
Total sales of the company's U.S. and non-U.S. operations to
unaffiliated customers outside the U.S. were $816.5 million,
$830.3 million, and $784.2 million in 1997, 1996 and 1995,
respectively.
The following table summarizes the company's U.S. and non-
U.S. operations.
U.S. AND NON-U.S. OPERATIONS
(In millions) 1997 1996 1995
-------- ------ ------
U.S. OPERATIONS
Sales $1,204.4 $969.8 $938.3
Segment operating
earnings 108.9 81.4 71.8
Disposition of
businesses - - 62.1
Integration charge - - (2.9)
Identifiable assets 813.9 731.6 484.1
Capital expenditures 50.8 41.7 31.4
Depreciation and
amortization 33.7 28.9 21.6
NON-U.S. OPERATIONS
Sales 692.3 759.9 711.0
Segment operating
earnings 46.5 56.4 52.3
Disposition of
businesses - - 8.9
Integration charge - - (6.9)
Identifiable assets 549.2 573.2 552.1
Capital expenditures 28.7 23.5 20.9
Depreciation and
amortization 20.0 22.0 22.0
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Cincinnati Milacron Inc.
We have audited the accompanying Consolidated Balance Sheet
of Cincinnati Milacron Inc. and subsidiaries as of December
27, 1997 and December 28, 1996, and the related Consolidated
Statements of Earnings, Changes in Shareholders' Equity, and
Cash Flows for each of the three years in the period ended
December 27, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These
financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Cincinnati Milacron Inc. and
subsidiaries at December 27, 1997 and December 28, 1996, and
the consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 27, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to
the basic financial statements, taken as a whole, presents
fairly in all material respects, the information set forth
therein.
/S/Ernst and Young, LLP
Cincinnati, Ohio
February 6, 1998
SUPPLEMENTARY FINANCIAL INFORMATION
OPERATING RESULTS BY QUARTER (UNAUDITED)
(In millions, except per-share amounts)
1997 (a)
----------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4
------ ------ ------ ------
Sales $377.5 $452.1 $570.7 $496.4
Manufacturing margins 95.3 110.3 140.2 126.1
Percent of sales 25.2% 24.4% 24.6% 25.4%
Net earnings 13.0 18.2 22.6 26.8
Per common share
Basic .33 .46 .57 .67
Diluted .32 .46 .56 .67
1996 (a)
----------------------------------
Qtr 1 Qtr 2 Qtr 3 Qtr 4
------ ------ ------ ------
Sales $353.4 $411.4 $511.1 $453.8
Manufacturing
margins (b) 91.6 101.7 130.2 113.5
Percent of sales (b) 25.9% 24.7% 25.5% 25.0%
Net earnings 12.6 14.7 19.1 19.9
Per common share
Basic .36 .41 .48 .50
Diluted .36 .40 .48 .50
(a) In 1997 and 1996, the fiscal year consists of thirteen
four-week periods. The first, second and fourth quarters
consist of twelve weeks each, and the third quarter, sixteen
weeks. In 1998, the company will change its fiscal year to a
monthly calendar. Amounts for prior quarters will not be
restated to reflect the 1998 presentation because it is
impracticable to do so.
(b) Manufacturing margins for 1996 and the first quarter of
1997 have been restated to exclude the amortization of
goodwill.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
- --------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT
The information required by Item 10 is (i) incorporated
herein by reference to the "Election of Directors" section
of the company's proxy statement dated March 27, 1998 and
(ii) included in Part I on pages 18 through 19 of this Form
10-K.
Item 11. EXECUTIVE COMPENSATION
The "Components of Compensation" section of the company's
proxy statement dated March 27, 1998 is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The "Principal Holders of Voting Securities" section of the
company's proxy statement dated March 27, 1998 is
incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The paragraph captioned "Stock Loan Programs" of the
company's proxy statement dated March 27, 1998 is
incorporated herein by reference.
PART IV
- -------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
Item 14(a)(1)&(2)-- LIST OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of
Cincinnati Milacron Inc. and subsidiaries are included in
Item 8:
Page
No.
----
Consolidated Statement of Earnings -
1997, 1996 and 1995 32
Consolidated Balance Sheet - 1997 and 1996 33
Consolidated Statement of Changes in
Shareholders' Equity - 1997, 1996 and 1995 34
Consolidated Statement of Cash Flows -
1997, 1996 and 1995 35
Notes to Consolidated Financial Statements 36
Report of Independent Auditors 48
Supplementary Financial Information 49
The following consolidated financial statement schedule of
Cincinnati Milacron Inc. and subsidiaries is included in
Item 14(d) for the years ended 1997, 1996 and 1995:
Page
No.
----
Schedule II- Valuation and Qualifying
Accounts and Reserves 63
All other schedules for which provision is made in the
applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore have been
omitted.
Item 14 (a)(3) - LIST OF EXHIBITS
(2) Plan of Acquisition, Reorganization,
Arrangement, Liquidation, or Succession - not
applicable
(3) Articles of Incorporation and By-Laws
3.1 Restated Certificate of Incorporation filed
with the Secretary of State of the State
of Delaware on June 16, 1983
- Incorporated herein by reference to the
company's Form 10-K for the fiscal year
ended December 28, 1985, as amended by
Amendment No. 1 thereto on Form 8 dated
June 30, 1986, and Amendment No. 2 thereto'
on Form 8 dated July 17, 1986 (File No. 1-8485)
3.2 Certificate of Amendment of the Restated Certificate
of Incorporation dated April 22, 1986, and filed with
the Secretary of State of the State of Delaware on
April 22, 1986
- Incorporated herein by reference to the company's
Form 10-Q for the quarter ended March 22, 1986
(File No. 1-8485)
3.3 Certificate of Amendment of the Restated Certificate
of Incorporation dated June 11, 1987, and filed with
the Secretary of State of the State of Delaware on
June 15, 1987
- Incorporated herein by reference to the company's
Form 10-Q for the quarter ended March 28, 1987
(File No. 1-8485)
3.4 By-laws, as amended
- Incorporated herein by reference to the company's
Registration Statement on Form S-8 (Registration
No. 33-33623)
(4) Instruments Defining the Rights of Security Holders,
Including Indentures:
4.1 8-3/8% Notes due 2004
- Incorporated herein by reference to the company's
Amendment No. 3 to Form S-4 Registration Statement dated
July 7, 1994 (File No. 33-53009)
4.2 7-7/8% Notes due 2000
- Incorporated by reference to the company's Registration
Statement on Form S-4 dated July 21, 1995 (File No. 33-
60081)
4.3 Cincinnati Milacron Inc. hereby agrees to furnish to
the Securities and Exchange Commission, upon its request,
the instruments with respect to long-term debt for
securities authorized thereunder which do not exceed 10%
of the registrant's total consolidated assets
(9) Voting Trust Agreement- not applicable
(10) Material Contracts:
10.1 Cincinnati Milacron 1987 Long-Term Incentive Plan
- Incorporated herein by reference to the
company's Proxy Statement dated March 27, 1987.
10.2 Cincinnati Milacron 1991 Long-Term Incentive Plan
- Incorporated herein by reference to the
company's Proxy Statement dated March 22, 1991.
10.3 Cincinnati Milacron 1994 Long-Term Incentive Plan
- Incorporated herein by reference to the
company's Proxy Statement dated March 24, 1994.
10.4 Cincinnati Milacron 1997 Long-Term Incentive Plan
- Incorporated herein by reference to the
company's Proxy Statement dated March 21, 1997.
10.5 Cincinnati Milacron 1996 Short-Term Management
Incentive Plan
- Incorporated herein by reference to the
company's Form 10-K for the fiscal year ended
December 28, 1996.
10.6 Cincinnati Milacron Inc. Supplemental Pension Plan
- Incorporated herein by reference to the
company's Form 10-K for the fiscal year ended
December 31, 1988.
10.7 Cincinnati Milacron Inc. Supplemental Retirement Plan #2
- Incorporated herein by reference to the
company's Form 10-K for the fiscal year ended
December 31, 1988.
10.8 Cincinnati Milacron Retirement Savings Plan
- Incorporated herein by reference to the
company's Registration Statement on Form S-8
(Registration No. 33-33623).
10.9 Cincinnati Milacron Inc. Plan for the Deferral of
Directors' Compensation
- Incorporated herein by reference to the
company's Proxy Statement dated March 22, 1991.
10.10 Cincinnati Milacron Inc. Retirement Plan for
Non-Employee Directors
- Incorporated herein by reference to the
company's Form 10-K for the fiscal year ended
December 29, 1990.
10.11 Cincinnati Milacron Supplemental Executive Retirement Plan
- Incorporated herein by reference to the
company's Form 10-K for the fiscal year ended
January 1, 1994.
10.12 Amended and Restated Revolving Credit Agreement dated
as of December 31, 1994 among Cincinnati Milacron Inc.,
Cincinnati Milacron Kunststoffmaschinen Europe GmbH,
the lenders listed therein and Bankers Trust Company,
as agent.
- Incorporated herein by reference to the
company's Form 8-K dated February 1, 1995.
10.13 Amendment Number One, dated as of May 31, 1995 to
the Amended and Restated Revolving Credit Agreement dated as
of December 31, 1994, among Cincinnati Milacron Inc.,
Cincinnati Milacron Kunststoffmaschinen Europe GmbH, the
lenders listed therein, and Bankers Trust Company, as agent.
- Incorporated herein by reference to the
company's Form 8-K dated May 31, 1995.
10.14 U.S. Asset Purchase Agreement dated as of December 15,
1995 between Cincinnati Milacron Inc. and TRINOVA Corporation.
- Incorporated herein by reference to the
company's Form 8-K dated December 30, 1995.
10.15 U.K. Asset Purchase Agreement dated as of December 15,
1995, between Cincinnati Milacron U.K. Limited and
TRINOVA Limited.
- Incorporated herein by reference to the
company's Form 8-K dated December 30, 1995.
10.16 Amendment Number Two, dated as of January 23, 1996 to
the Amended and Restated Revolving Credit Agreement
dated as of December 31, 1994 among Cincinnati
Milacron Inc, Cincinnati Milacron Kunststoffmaschinen
Europe GmbH, the lenders listed therein, and Bankers
Trust Company, as agent.
- Incorporated herein by reference to the
company's Form 10-K dated December 30, 1995.
10.17 Amendment Number Three, dated as of April 26, 1996
to the Amended and Restated Revolving Credit Agreement
dated as of December 31, 1994 among Cincinnati
Milacron Inc, Cincinnati Milacron Kunststoffmaschinen
Europe GmbH, the lenders listed therein, and Bankers Trust
Company, as agent.
- Incorporated herein by reference to the
company's Form 10-K dated December 28, 1996.
10.18 Underwriting Agreement between Cincinnati Milacron Inc,
and CS First Boston Corporation, BT Securities Corporation,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
J.P. Morgan Securities Inc.
- Incorporated herein by reference to the
company's Registration Statement on Form S-3
(Registration No. 333-01739)
10.19 Asset Purchase Agreement dated as of January 23, 1996,
between Cincinnati Milacron Inc., a Delaware corporation,
The Fairchild Corporation, a Delaware corporation,
RHI Holdings, Inc., a Delaware corporation, and the
Designated Purchasers and Sellers named therein.
- Incorporated herein by reference to the
company's Form 8-K dated January 26, 1996.
10.20 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, Cincinnati Milacron Kunststoffmaschinen
Europe GmbH the lenders listed 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.
10.21 Amendment Number Five, dated as of December 31, 1997,
to the Amended and Restated Revolving Credit Agreement
dated as of December 31, 1994 among Cincinnati
Milacron Inc, Cincinnati Milacron Kunststoffmaschinen
Europe GmbH, the lenders listed therein, and Bankers
Trust Company, as agent.
- Filed herewith.
(11) Statement Regarding Computation of Per-Share
Earnings
(12) Statement Regarding Computation of Ratios - not
applicable
(13) Annual report to security holders, Form 10-Q or
quarterly report to security holders - not applicable
(16) Letter re Change in Certifying Accountant - not
applicable
(18) Letter Regarding Change in Accounting Principles - not
applicable
(21) Subsidiaries of the Registrant
(22) Published Report Regarding Matters Submitted to Vote of
Security Holders
- Incorporated by reference to the company's Proxy
Statement dated March 27, 1998.
(23) Consent of Experts and Counsel
(24) Power of Attorney - not applicable
(27) Financial Data Schedule
(99) Additional Exhibits - not applicable
Item 14(b)-- REPORTS ON FORM 8-K
On November 1, 1997, the company reported on Form 8-K a
change in fiscal year from a 52 week, 13 period, fiscal
year ending on the Saturday closest to December 31, to a
calendar fiscal year ending on December 31. This change
is effective for fiscal year 1998.
Item 14(c)&(d)-- EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The responses to these portions of Item 14 are submitted
as a separate section of this report.
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) 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.
BY: /s/ Daniel J. Meyer
----------------------
Daniel J. Meyer;
Chairman, President
and Chief Executive
Officer
(Chief Executive Officer)
BY: /s/ Ronald D. Brown
----------------------
Ronald D. Brown; Vice
President- Finance and
Administration and
Chief Financial Officer
(Chief Financial Officer)
BY: /s/ Robert P. Lienesch
-------------------------
Robert P. Lienesch;
Controller
(Chief Accounting Officer)
Date: March 18, 1998
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacities
and on the dates indicated.
/s/ Darryl F. Allen
- ----------------------------------------
Darryl F. Allen; March 18, 1998
(Director)
/s/ Neil A. Armstrong
- ----------------------------------------
Neil A. Armstrong; March 18, 1998
(Director)
/s/ Barbara Hackman Franklin
- ----------------------------------------
Barbara Hackman Franklin; March 18, 1998
(Director)
/s/ Harry A. Hammerly
- ----------------------------------------
Harry A. Hammerly; March 18, 1998
(Director)
ITEM 14(C) AND (D)-- INDEX TO CERTAIN EXHIBITS AND FINANCIAL
STATEMENT SCHEDULES
Page No.
Exhibit 10.21 Amendment Number Five, dated
as of December 31, 1997, to
the Amended and Restated
Revolving Credit Agreement
dated as of December 31,
1994 among Cincinnati Milacron
Inc, Cincinnati Milacron
Kunststoffmaschinen Europe GmbH,
the lenders listed therein, and
Bankers Trust Company, Bound
as agent. Separately
Exhibit 11 Computation of Per-Share
Earnings 58
Exhibit 21 Subsidiaries of the Registrant 59
Exhibit 23 Consent of Experts and Counsel 61
Exhibit 27 Financial Data Schedule 62
Schedule II Valuation and Qualifying
Accounts and Reserves 63
CINCINNATI MILACRON INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended 1997, 1996 and 1995
(In Thousands)
COL. A COL. B COL. C COL. D COL. E
---------- ---------- -------- ---------- ---------
Additions
-------------------------
Balance at Charged to Balance
Beginning Costs and Other Deductions at End
Description of Period Expenses -Describe -Describe of Period
- ----------- ---------- ---------- --------- ---------- ---------
YEAR ENDED 1997
Allowances for
doubtful accounts $13,715 $ 5,528 $ 200 (a) $ 5,624(b) $13,004
815(c)
Restructuring and
integration charge
reserves $ 2,324 $ - $ - $ 1,266(b) $ 933
125(c)
Allowances for inventory
obsolescence $45,649 $12,636 $ - $13,223(b) $41,657
3,405(c)
YEAR ENDED 1996
Allowances for
doubtful accounts $12,935 $ 4,667 $ 1,429 (a) $ 4,687(b) $13,715
629(c)
Restructuring and
integration charge
reserves $18,336 $ - $ - $14,646(b) $ 2,324
766(c)
600(d)
Allowances for inventory
obsolescence $53,458 $10,805 $ 1,598 (a) $18,557(b) $45,649
1,655(c)
YEAR ENDED 1995
Allowances for
doubtful accounts $ 8,718 $ 4,963 $ 5,855 (a) $ 7,382(b) $12,935
781 (c)
Restructuring and
integration and
consolidation charge
reserves $ 6,164 $ 7,006 $16,883 (a) $11,762(b) $18,336
45 (c)
Allowances for inventory
obsolescence $38,567 $18,402 $13,058 (a) $18,147(b) $53,458
2,028 (c) 450(e)
(a) Consists of reserves of subsidiaries purchased during the year.
(b) Represents amounts charged against the reserves during the year.
(c) Represents foreign currency translation adjustments during the year.
(d) Reversal of excess Valenite restructuring reserve established in 1993.
(e) Consists of reserves of businesses sold during the year.