UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended
December 31, 2007
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Transition Period
From to
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Commission File
Number: 1-8485
MILACRON INC.
(Exact name of registrant as
specified in its charter)
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DELAWARE
(State or other jurisdiction
of
incorporation or organization)
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31-1062125
(I.R.S. Employer
Identification No.)
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2090 Florence Avenue
Cincinnati, Ohio
(Address of principal
executive offices)
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45206
(Zip Code)
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(513) 487-5000
(Registrants telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, $.01 par value per share
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[New York Stock Exchange, Inc.]
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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No
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Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes
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No
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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
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No
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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 registrants 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.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated
filer
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(Do not check if a smaller reporting company)
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Smaller reporting
Company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes
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No
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As of June 30, 2007, the aggregate market value of the
registrants common stock held by non-affiliates of the
registrant was approximately $43.2 million based on the
closing sale price as reported on the New York Stock Exchange.
Indicate the number of shares outstanding of each of the
registrants classes of common stock, as of the latest
practicable date.
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Class
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Outstanding at March 12, 2008
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Common Stock, $.01 par value per share
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5,493,223 shares
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DOCUMENTS
INCORPORATED BY REFERENCE
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Document
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Parts Into Which Incorporated
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Proxy Statement for the Annual Meeting of Shareholders to be
held May 8, 2008
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Part III
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MILACRON
INC.
2007
FORM 10-K
TABLE OF
CONTENTS
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Page
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PART I
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Item 1.
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Business
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2
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Executive Officers of the Registrant
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9
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Item 1A.
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Risk Factors
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10
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Item 1B.
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Unresolved Staff Comments
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Item 2.
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Properties
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Item 3.
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Legal Proceedings
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Item 4.
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Submission of Matters to a Vote of Security Holders
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15
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PART II
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Item 5.
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Market for the Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities
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15
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Item 7.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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32
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Item 8.
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Financial Statements
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32
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
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Item 9A.
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Controls and Procedures
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88
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Item 9B.
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Other Information
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90
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PART III
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Item 10.
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Directors, Executive Officers and Corporate Governance
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90
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Item 11.
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Executive Compensation
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91
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
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Item 13.
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Certain Relationships and Related Transactions, and Director
Independence
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Item 14.
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Principal Accountant Fees and Services
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PART IV
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Item 15.
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Exhibits and Financial Statement Schedules
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92
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Index to Certain Exhibits and Financial Statement Schedules
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99
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Schedule II Valuation and Qualifying Accounts
and Reserves
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100
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Signatures
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101
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1
PART I
General
Milacron is a major solutions provider to the
plastics-processing industries and a leading supplier of premium
fluids to the metalworking industries. We deliver advanced
technology and superior aftermarket service and support and we
are committed to the success of our customers worldwide. We
operate four business segments:
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Machinery technologies North America
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Machinery technologies Europe
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Mold technologies
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Industrial fluids
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Our first three segments represented 85% of consolidated sales
in 2007 and serve plastics processors through a broad range of
technologically advanced products, services and support used in
state-of-the-art plastics processing operations. Our plastics
technologies segments manufacture and sell machines and turnkey
systems as well as related mold tooling and components, MRO
(maintenance, repair and operating) supplies, and value-added
services and support for injection molding, extrusion and blow
molding methods that account for over 90% of all
plastic part production. Major global markets for our plastics
technologies include packaging, building materials, automotive,
consumer goods, housewares, medical and electronics.
Our industrial fluids segment represented 15% of consolidated
sales in 2007 and sells fluids with advanced formulations
meeting many stringent performance, health and safety
requirements that are used in a wide variety of metalworking
applications. Our industrial fluids segment formulates,
manufactures and sells coolants, lubricants, process cleaners
and corrosion inhibitors and provides related value-added
services to a variety of metalworking industries. Major global
markets for our industrial fluids include automotive, industrial
components and machinery, aerospace, appliances, oil and primary
metals and off-road equipment.
History
Starting in the 1860s as a screw and tap machine shop in
downtown Cincinnati, the company was first incorporated in 1884.
As a successor to that business, Milacron was most recently
incorporated in Delaware in 1983. Known throughout most of our
history as a leading machine tool maker serving metalworking
industries, in the late 1990s we divested this legacy business
and subsequently also divested our metalcutting tool and
grinding wheel businesses in order to focus exclusively on
plastics technologies and industrial fluids.
In the 1990s, Milacron, like many other U.S. companies,
benefited from a strong, growing economy. Our plastics
technologies sales were approaching $1 billion with good
profitability. At the end of the decade, however, the
U.S. manufacturing sector fell into its most severe and
prolonged downturn since the 1930s. The plastics processing
portion of the manufacturing sector was very severely impacted
and to this day has not fully recovered. Shipments of injection
molding machines in North America fell from a $1.2 billion
12-month
moving total in 2000 to under $700 million by the end of
2001. It has stayed at very low levels ever since, experiencing
only a partial recovery in 2004 and 2005 (Source: The Society of
Plastics Industry).
In 2007, all of Milacrons businesses in North America,
including industrial fluids, continued to be negatively impacted
by high oil and resin prices, by the shakeout among auto part
molders servicing the U.S. Big Three car manufacturers and
by the slowdown in residential home building. Despite a series
of responsive actions, including a number of plant closings,
head-count reductions and other measures resulting in annual
cost-savings, severely depressed sales volumes led to a
consolidated loss from continuing operations in 2007. Also as a
result of the slow down in North American and the emergence of
other economies in the world, we have focused on expanding our
presence outside of our traditional markets. In 2007, we saw
significant sales growth outside of North America, Canada and
Western Europe.
2
In 2007, Ohio Plastics, LLC, purchased 57.5% of Milacrons
Series B Preferred Stock triggering a change in
ownership for U.S. Federal income taxes which limits
the amount of pre-change net operating loss carryforwards that
we can utilize per year. As a result, we recorded a
$63 million charge to the tax provision in 2007 to
establish full deferred tax valuation allowances against our
U.S. deferred tax assets. The decline in the North America
economy, the deferred tax valuation allowance charge,
restructuring charges of $12.5 million, pension plan
curtailment costs of $1.9 million and $1.9 million of
other costs related to the change in preferred stock ownership
drove a consolidated net loss in 2007 of $87.1 million, or
$19.25 per share.
Manufacturing
Efficiency and Cost Structure
We are committed to better serving our customers and improving
our financial performance through continuous cost reduction,
greater working capital efficiency, increased manufacturing
productivity and enhanced product quality.
Our focus is on reducing our overall costs and improving our
operational efficiency through strategic global sourcing and
manufacturing. In North America and Western Europe, we have been
exiting the manufacture of low-cost, commodity parts and
concentrating on making critical, high-tech components that add
value and give us a competitive advantage. We are also
consolidating our own manufacturing capacity and making our
facilities more efficient. In 2007, we closed or sold two
manufacturing plants in North America and one in Western Europe,
while eliminating the need for manufacturing and administrative
positions and reducing our overall cost structure. Thanks to
these and other recently completed restructuring measures, we
realized incremental savings from operations of $12 million
in 2007 and we expect up to $8 million of additional
savings in 2008.
In Asia, Eastern Europe and other faster-growing markets, we
continue to expand our sales and manufacturing presence. And on
a global basis, we are seeking new suppliers who offer greater
flexibility, lower cost and higher quality, while consolidating
existing supplier relationships and making other improvements to
our supply chain.
Product
Research and Development
We design and manufacture innovative, value-added products to
reinforce our leading global positions and achieve sales growth.
We continually invest in research and development to improve the
performance of our existing products, to bring new products to
market and to remain at the technological forefront of the
plastics processing and metalworking fluids industries. To these
ends, we invested $19.3 million, or 2.4% of sales, in
R&D in 2007 compared to $20.5 million, or 2.5% of
sales, in 2006.
Patents
Milacron holds a number of patents pertaining to both plastics
technologies and industrial fluids, none of which are material
to their respective business segments.
Website
We maintain an Internet website at www.milacron.com. Our site
provides company, product and service information, as well as
investor information, including our annual report on
Form 10-K
and other filings on
Forms 10-Q
and
8-K
and
any amendments thereto, our latest earnings and news releases,
stock information, investor presentations and conference call
access and replays. Information filed with the Securities and
Exchange Commission (the SEC) is made available as
soon as reasonably practicable after it is filed. The
information contained on our website is not incorporated by
reference in this report.
Employees
Milacrons average employment level from continuing
operations was approximately 3,350 in 2007. Of these,
approximately half were outside the U.S. As of year-end
2007, our employment was about 3,300.
3
Segment
Information
Segment and geographic information for the years ended
December 31, 2007 and 2006 is included in the notes to
Milacrons Consolidated Financial Statements in
Part II, Item 8 of this
Form 10-K.
Plastics
Technologies
Products and Services.
We believe Milacron is
the worlds broadest-line supplier of machinery, mold bases
and related tooling and supplies to process plastics. Our
extensive applications engineering expertise and comprehensive
aftermarket service and support further differentiate us from
our competitors. With combined 2007 sales of $684 million,
our plastics technologies businesses are organized in three
segments:
Machinery
technologies North America
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Injection molding systems, parts and services supplied from
North America, India and China
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Blow molding systems, parts, molds and services supplied from
North America
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Extrusion systems, parts and services supplied from North America
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Machinery
technologies Europe
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Injection molding systems, parts and services supplied from
Europe
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Blow molding systems, parts, molds and services supplied from
Europe
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Mold
technologies
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Injection mold bases, related components/tooling and services
worldwide
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MRO maintenance, repair and operating supplies
worldwide
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Milacron strives to be a one-stop supplier of
complete end-to-end plastics processing solutions. We offer full
lines of advanced injection molding, blow molding and extrusion
systems, aftermarket replacement parts, and specialty auxiliary
equipment for plastics processing. Milacron is a manufacturer of
mold bases and related tooling and components for injection mold
making and injection molders, and we make complete molds for
blow molding. We are also a supplier of aftermarket MRO items
for plastics processing and mold making, and we provide retrofit
and rebuild services for older equipment manufactured by
Milacron and others.
Injection molding is a very versatile process used to make a
wide variety of plastic products, ranging from auto parts and
electronic devices to consumer goods, medical equipment and
containers. We believe Milacron is the largest supplier of
injection molding machinery to the North American market and the
third largest worldwide. We are a recognized technology leader
in all-electric injection molding and in co-injection,
multi-component-material-color, high-tonnage, and low-pressure
foam/gas-assisted injection molding, offering systems that
significantly reduce the customers cost per part. Our
patented PC-based control technology for plastics molding
machines assures high-quality part production and brings the
power of the Internet and improved communications to the shop
floor.
In blow molding, we believe Milacron is the number-one supplier
of systems to produce HDPE (high density polyethylene)
containers, as well as one of the worlds largest producers
of industrial blow molding equipment to make hollow or
semi-hollow products such as automotive components, toys,
furniture, luggage and storage and shipping containers. In
addition to providing turnkey, state-of-the-art systems, we are
an integrated supplier of molds and related tooling for blow
molding.
Our high-output, twin-screw extruders are North American market
leaders for producing a wide variety of PVC (polyvinyl chloride)
and plastic composite products, such as siding, decking, fencing
and pipe, used in commercial and home construction markets.
Smaller models of our single-screw extruders serve such end
markets as plastics film and medical tubing. We also supply a
leading line of new and rebuilt high-performance screws and
barrels, which are the productivity and value components in the
extrusion business, for all makes and models of
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extruders. We continued to make good progress in 2007 in
reintroducing our advanced extrusion systems and technologies to
markets outside North America.
For North American injection mold makers and injection molders,
Milacron is the leading supplier of durable mold bases, mold
base components, ejector pins, nozzles, screw tips and MRO
supplies. We are the number-three supplier of mold bases,
components and MRO supplies in Europe and on a global basis.
Independent mold makers are our largest customer category. We
provide the widest range of standard and special mold tooling
and the latest advances in mold technologies such as
quick-change molds, hot runner systems and stack molds to reduce
cycle times, increase output and improve productivity. Offering
high-quality MRO products at competitive prices, we strive to
become an extension of our customers businesses by meeting
their day-to-day needs for small tools, gauges, temperature
regulators, lubricants, safety supplies and thousands of other
items.
We leverage our size and geographic presence to provide rapid,
comprehensive, high-quality service and support to our customers
worldwide. Through our integrated service and supply network, we
offer 24/7 technical support and repair services. Our customers
have access to repair and maintenance services onsite or via the
Internet as well as
next-day
parts availability on a global basis.
Markets.
One of the largest industries in the
world, plastics processing is a major contributor to the
vitality of industrialized economies and to the continuing
growth of developing areas. Plastic part production has grown
steadily for over half a century, as plastics and plastic
composites continue to replace traditional materials such as
metal, wood, paper and glass. Plastics have increasingly become
the material of choice in many, if not most, manufactured goods.
Advancements in material development and in processing equipment
capabilities continue to make plastic products more functional
and less expensive, thus spurring secular growth. Thanks to
superior strength-to-weight ratios, plastics are increasingly
used in transportation-related applications. Additionally,
consumer demand for safer, more convenient products continues to
drive general demand for plastic products.
Milacron competes in a global market, estimated to be
$13 billion on an annualized basis, for plastics equipment
and supplies. Our product mix generally parallels the major
segments of this market. About two-thirds of the market consists
of capital equipment, which is highly sensitive to general
economic cycles and capital spending patterns. In addition,
demand is often shaped by other factors such as fluctuations in
resin pricing and availability, oil and other energy costs, the
impact of interest rates on new housing starts and auto sales,
the introduction of new products or models, and consumer
confidence and spending. Changes in currency exchange rates may
also affect our customers businesses and, in turn, the
demand for processing equipment. To reduce our dependency on
capital goods cycles, we continue to look for ways to expand our
durable and consumable product offerings as well as our
aftermarket services on a global basis.
Although not always understood by those outside the industry,
plastics generally are more environmentally friendly and energy
conserving than comparable products made out of metal, wood,
paper or glass. In addition, many polymer suppliers, machinery
makers and processors are actively developing and improving
methods of recycling plastics. As a member of the trade
association, The Society of the Plastics Industry, Milacron
continues to work with other leading companies to make plastics
a part of the solution to the challenges of energy and
environmental conservation.
Geographic Sales.
About 55% of our plastics
technologies products and services in 2007 were sold to
customers in North America. European sales made up about 28% of
the total, with the remainder coming from Asia and the rest of
the world.
Distribution.
Milacron maintains sales,
marketing and customer service facilities in major cities and
regions across North America, Europe and Asia. We also sell
through large networks of distributors
and/or
sales
and service offices in all major countries.
We sell our plastics machinery and systems through a combination
of direct sales force and independent agents who are spread
geographically throughout our key markets. We sell our mold
bases, supplies and components through a direct distribution
network in North America and Europe, through a large network of
joint venture sales
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and service offices in Asia, over the Internet and via
telemarketing. We market our MRO supplies through both printed
and electronic catalogs as well as over the Internet.
Customers.
Our plastics technologies customers
are involved in making a wide range of everyday products from
food and beverage containers to refrigerator liners; from
electronic and medical components to digital cameras and razors;
from milk bottles to wood-fiber composite plastic decking. Key
end markets in order of 2007 sales were packaging, automotive,
building materials, consumer goods, appliances and housewares,
custom molders, electrical and electronics, industrial machinery
and components and medical.
Production Facilities.
For our three plastics
technologies segments, Milacron maintains the following
principal production facilities:
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Facility Location
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Principal Products
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Ahmedabad, India
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Injection molding machines
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Batavia, Ohio*
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Injection molding machines
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Blow molding machines
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Extrusion systems
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Greenville, Michigan*
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Mold bases
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Jiangyin, China*
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Injection molding machines
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Lewistown, Pennsylvania
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Mold components
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Madison Heights, Michigan
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Hot runner systems
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Magenta, Italy*
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Blow molding machines
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Malterdingen, Germany
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Injection molding machines
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McPherson, Kansas*
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Extrusion screws and barrels
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Mechelen, Belgium
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Mold components
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Mississauga, Canada*
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Extrusion screws
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Mt. Orab, Ohio
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Plastics machinery parts
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Policka, Czech Republic*
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Blow molding machines
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Tecumseh, Michigan*
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Molds for blow molding
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Windsor, Canada
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Mold bases
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Youngwood, Pennsylvania
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Mold bases and components
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The above facilities provide approximately 1.8 million
square feet of manufacturing, warehousing and office space. All
facilities are in good repair and are considered suitable for
the purposes for which they are used. The level of utilization
of the facilities in relation to their practical capacities
varies but, in all instances, is sufficient to justify their
continued operation.
The following owned facilities were pledged as collateral to
secure our obligations under the indenture governing our
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1
/
2
% Senior
Secured Notes due 2011 and the financing agreement governing our
$105 million asset based revolving credit facility:
(i) Lewistown, Pennsylvania, (ii) Youngwood,
Pennsylvania, (iii) Mt. Orab, Ohio and (iv) Madison
Heights, Michigan.
Competition.
The markets for plastics
technologies are global, highly competitive and include
principally North American, European and Asian competitors. We
believe Milacron has the number-one position in the
North American market and that we are one of the largest
suppliers worldwide. A few of our competitors are larger than we
are, most 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,
performance, reliability, quality, delivery, price and customer
service.
6
Industrial
Fluids
Products and Services.
With 2007 sales of
$124 million, our industrial fluids segment provides
metalworking industries worldwide with a wide variety of
coolants, lubricants, forming fluids, process cleaners and
corrosion inhibitors used in the shaping of metal products.
Customers count on our extensive knowledge of chemistry and
metalworking applications to maximize their productivity.
Coolants are required in the vast majority of metalworking
operations, including cutting, grinding, stamping and forming,
to achieve desired part quality and output through higher
metal-removal rates and longer tool life. Our family of premium
fluids offers superior performance while meeting the demands of
todays toughest metalworking operations. We enhance our
customers competitiveness by prolonging tool life,
reducing coolant usage, and improving metal-removal and
metalforming productivity. For over half a century, our
specialty has been synthetic (water-based) and semi-synthetic
fluids, which provide excellent lubricity and are generally more
environmentally friendly than traditional mineral oil-based
products. In recent years, we have developed advanced
green fluids, made from renewable oils and synthetic
esters, which match or exceed the performance characteristics of
mineral oil-based fluids, but with improved health and safety
features and environmental advantages.
We add value for our customers by helping them maintain the
safety and effectiveness of their fluids and by offering them
our expertise in fluid/operation synergies to optimize their
metalworking processes. Fluid optimization can provide our
customers with significant productivity gains and cost savings.
Traditionally, our strength has been in the area of metalcutting
and grinding, but we also blend and sell stamping and
metalforming fluids, process cleaners, corrosion inhibitors and
other specialty products for metalworking, all of which
represent good growth opportunities for us.
Markets.
Key markets for our industrial fluids
include the whole spectrum of metalworking industries: from
automotive, aircraft and machinery makers and job shops to
manufacturers of appliances, agricultural equipment and consumer
and sporting goods. Milacron fluids are also used in the
production of glass and mirrors and in high-tech processes such
as silicon wafer slicing and polishing.
The markets in which our industrial fluids compete total
$2.5 billion on an annualized, global basis. Over one-third
of the market consists of metalcutting and grinding fluids, with
metalforming fluids and process cleaners each accounting for
about one-quarter of the market. Demand for our fluids is
generally directly proportional to levels of industrial
production, although we specifically target higher-growth areas
such as machining and forming exotic alloys and aluminum.
Factors affecting our customers production rates and
ultimately the demand for our fluids include auto and machinery
sales, consumer spending and confidence, interest rates, energy
prices and currency exchange rates.
When it comes to industrial fluids, Milacron places very high
importance on employee safety and environmental protection. In a
proactive approach to continually improve the health and
environmental effects of metalworking fluids, we work both
locally and internationally with suppliers, customers and
regulatory authorities, and we support and participate in
research and educational programs regarding metalworking fluids.
Geographic Sales.
About 48% of our 2007
industrial fluid sales were made to customers in North America,
while another 44% were to European customers. The remaining
sales were to customers in Asia and the rest of the world.
Distribution.
Milacrons industrial
fluids are sold primarily through industrial distributors, with
some direct sales, as well as through printed catalogs. We
produce most of what we sell, and most of what we make is sold
under our own brand names. In addition, some of our fluids are
sold under brand names of other companies through their own
market channels.
Customers.
Our metalworking fluids are
involved in making all kinds of products: from automotive power
train components to aluminum soft drink cans, from air
conditioners and glass mirrors to bearings, golf clubs and a
wide variety of industrial components.
Markets for our industrial fluids in order of importance based
on 2007 sales were automotive, industrial components, industrial
machinery, job shops, aerospace, appliances and housewares, oil
and primary metals, off-
7
road equipment, consumer goods, and electrical and electronics.
The largest customer category, automotive, accounted for 35% of
fluid sales in 2007.
Production Facilities.
For our industrial
fluids segment, Milacron maintains the following principal
production facilities:
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Facility Location
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Products
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Cincinnati, Ohio
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Metalworking fluids
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Livonia, Michigan
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Process cleaners, corrosion inhibitors, specialty products
|
Sturgis, Michigan
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Metalforming fluids
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Ulsan, South Korea
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Metalworking fluids
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Vlaardingen, The Netherlands
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Metalworking fluids
|
The above facilities provide approximately 220,000 square
feet of manufacturing, warehousing and office space. All
facilities are in good repair and are considered suitable for
the purposes for which they are used. The level of utilization
of the facilities in relation to their practical capacities
varies but, in all instances, is sufficient to justify their
continued operation.
The following owned facilities were pledged as collateral to
secure our obligations under the indenture governing our
11
1
/
2
% Senior
Secured Notes due 2011 and the financing agreement governing our
$105 million asset based revolving credit facility:
(i) Cincinnati, Ohio, (ii) Sturgis, Michigan and
(iii) Livonia, Michigan.
Competition.
We believe Milacron holds a
leadership position in world markets for synthetic metalworking
fluids. Our competitors range from large petrochemical companies
to smaller companies specializing in similar fluids. Principal
competitive factors in this business include market coverage,
product performance, delivery, price and customer service.
8
Executive
Officers of the Registrant
The following information is included in accordance with the
provisions for Part III, Item 10:
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Positions Held During
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Name and Age
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Position
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Last Five Years
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Ronald D. Brown
(54)
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Chairman, President and Chief Executive Officer
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Elected Chairman, President and Chief Executive Officer in
2001. Has served as a Director since 1999.
|
Ross A. Anderson
(51)
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Senior Vice President Finance and Chief Financial
Officer
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Elected Senior Vice President Finance and Chief
Financial Officer in 2006. Prior thereto was Vice
President Finance and CFO from 2005, Vice President
and General Manager for North American Plastics Injection
Machinery from 2004 to 2005 and Corporate Controller from 2002
to 2004.
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Hugh C. ODonnell
(56)
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Senior Vice President, General Counsel and Secretary
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Elected Senior Vice President in 2004 and elected Vice
President, General Counsel and Secretary in 1999.
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David E. Lawrence
(57)
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President Global Mold Technologies
|
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Elected President of Global Mold Technologies business in 2004.
Prior thereto was General Manager, Global Mold Technologies from
2003 to 2004 and General Manager North America of D-M-E, a
Milacron subsidiary, from 1999 to 2003.
|
Robert C. McKee
(56)
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President Global Industrial Fluids
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Elected President of Global Industrial Fluids business in 2004.
Prior thereto was General Manager, Global Industrial Fluids from
2002.
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M. Bradley Baker
(42)
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Vice President Human Resources
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Elected Vice President of Human Resources in 2004. Prior thereto
was Director, Global Human Resources from 2002 to 2004.
|
John C. Francy
(43)
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Vice President and Treasurer
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Elected Vice President in 2004 and Treasurer in 2001.
|
Danny L. Gamez
(45)
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Controller
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|
Elected Controller in 2005. Prior thereto was employed by
subsidiaries of SPX Corporation from 2001 to 2005, most recently
as Chief Financial Officer of SPX Cooling Technologies GmbH.
|
9
The parenthetical figure below the name of each individual
indicates his age at most recent birthday prior to
December 31, 2007.
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.
The following discussion of risk factors identifies
the most significant risk factors that may adversely affect our
business, operations, financial position or future financial
performance. These risk factors could cause our future financial
performance to differ from those in our forward-looking
statements and from our historical trends. This information
should be read in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of Operations
(MD&A) and the Consolidated Financial Statements and
related notes included in this
Form 10-K.
The following discussion of risks is not all inclusive but is
designed to highlight what we believe are important factors to
consider when evaluating our expectations.
As a smaller reporting company, we are not required
to provide any disclosures under Item 1A. In providing
these risk factors, we do not represent, and no inference should
be drawn, that the disclosures so provided comply with the
requirements of Item 1A that would apply were we subject to
them.
Risks
Relating to Our Liquidity and Our Indebtedness
The
ability to service our debt and meet pension funding
requirements depends upon generating cash from operating
activities and obtaining new sources of financing.
During 2007, our operating activities provided nearly
$10 million of cash with no pension funding requirements.
Generating positive operating cash flows in the future is
dependent upon a number of factors including our ability to
realize anticipated cost savings and operating improvements and
to grow our sales, particularly in our North America injection
molding machine business. A recession in the U.S. could
significantly reduce demand for our products. We have
implemented significant cost saving initiatives in 2007 and in
prior years that will favorably affect our operating cash flows
and we expect to reduce our fixed cost structure further in
2008. Pension funding requirements for 2008 are approximately
$30 million to $35 million and may need to be funded
in part with debt.
In March 2008, certain of our European subsidiaries entered
into a new five-year asset-based revolving credit program for up
to 27 million in aggregate financing. See the note to
the Consolidated Financial Statements captioned Subsequent
Events for more information regarding this new credit
program.
If we need to fund interest payments on our
11
1
/
2
% Senior
Secured Notes in part with the proceeds of borrowings under our
asset based facilities and if we need to pursue alternative
sources of liquidity to service our debt and pay our expenses,
it is possible that we would not be able to sell assets,
refinance debt or raise equity on commercially acceptable terms
or at all, which could cause us to default on our obligations
under our indebtedness. Our inability to generate sufficient
cash flow or draw sufficient amounts under our asset based
credit facility to satisfy our debt obligations and pay our
other expenses, or our failure to comply with the covenants
governing our indebtedness, could cause us to default on our
obligations and would have a material adverse effect on our
business, financial condition and results of operations.
Our
substantial level of indebtedness may adversely affect our
financial condition, limit our ability to grow and compete and
prevent us from fulfilling our obligations under our
indebtedness.
As of December 31, 2007, we had approximately
$261 million in total indebtedness. In addition, we and
certain of our
non-U.S. subsidiaries
had guaranteed $4.7 million of off-balance sheet
obligations related to customer financings. As of
December 31, 2007, we had approximately $77 million of
borrowing-based availability under our asset based facility of
which approximately $34 million was available to be
borrowed.
10
Our substantial indebtedness could have important consequences.
For example, it could:
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require us to dedicate a substantial portion or even all of our
cash flow from operations to payments on our indebtedness,
thereby reducing the availability of our cash flow to fund
working capital, capital expenditures, research and development
efforts and other general corporate purposes;
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increase the amount of interest expense that we have to pay
because some of our borrowings are at variable rates of
interest, which, if increased, will result in higher interest
payments;
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increase our vulnerability to existing and future adverse
economic and industry conditions if we incur further
indebtedness; and
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limit, along with the financial and other restrictive covenants
in our indebtedness, among other things, our ability to borrow
additional funds or dispose of assets.
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Our asset based facility is subject to the borrowing base
limitation, including an excess availability reserve. Failure to
achieve compliance with covenants contained in any of our debt
agreements could result in a loss of funding availability or a
default under the related agreement, and could lead to
acceleration of the related debt and acceleration of debt under
the other agreements. If we were unable to meet our expenses,
pension funding requirements and debt obligations, we would need
to refinance all or a portion of our indebtedness, sell assets
or raise equity.
Despite
current indebtedness levels, we and our subsidiaries may still
be able to incur substantially more debt. This could further
exacerbate the risks associated with our substantial
leverage.
We and our subsidiaries may be able to incur substantial
additional indebtedness in the future. The terms of the
agreements governing our indebtedness do not fully prohibit us
or our subsidiaries from doing so. If new debt is added to our
subsidiaries current debt levels, the related risks that
we and they now face could intensify. In March 2008, certain of
our European subsidiaries entered into a new five-year
asset-based revolving credit program for up to
27 million in aggregate financing. See the note to
the Consolidated Financial Statements captioned Subsequent
Events for more information regarding this new credit
program.
Restrictions
and covenants in debt agreements limit our ability to take
certain actions.
The indenture governing the
11
1
/
2
% Senior
Secured Notes and the credit agreement for our asset based
credit facility contain a number of significant restrictions and
covenants that limit our ability and our subsidiaries
ability to, among other things:
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borrow money;
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use assets as security in other borrowings or transactions;
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pay dividends on capital stock or purchase capital stock;
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sell assets;
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enter into certain transactions with affiliates; and
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make certain investments or acquisitions.
|
We are currently restricted by the terms of the indenture from
paying cash dividends on our common stock as well as our
Series B Preferred Stock.
Failure
to comply with the terms of one of our debt instruments could
result in an event of default that would result in the
acceleration of that instrument as well as all or most of our
other indebtedness.
Breaching any of our covenants, conditions or restrictions or
the failure to comply with our obligations after the lapse of
any applicable grace periods could result in a loss of funding
availability or a default under the applicable debt instruments,
including the credit agreement for our asset based facility. If
there were an event of default, holders of such defaulted debt
could cause all amounts borrowed under these instruments to be
due and
11
payable immediately. It is possible that our assets or cash flow
or that of our subsidiaries would not be sufficient to fully
repay borrowings under the outstanding debt instruments, either
upon maturity or if accelerated upon an event of default.
Further, if we are unable to repay, refinance or restructure our
indebtedness under our asset based facility, the lenders under
the facility could proceed against the collateral securing that
indebtedness. In that event, any proceeds received upon a
realization of such collateral would be applied first to amounts
due under the asset based facility before any proceeds would be
available to make payments on the
11
1
/
2
% Senior
Secured Notes. In addition, any event of default or declaration
of acceleration under one debt instrument could also result in
an event of default under one or more of our or our
subsidiaries other debt instruments, including the
11
1
/
2
% Senior
Secured Notes.
Our
principal U.S. defined benefit pension plan is underfunded,
which will require us to make cash contributions to the plan for
the next several years, which, in turn, will reduce the cash
available for our business, and adverse capital market or
interest rate conditions may increase our net pension
liability.
Contributions required in 2008 and beyond will be based on the
provisions of the Pension Protection Act of 2006, (the Act)
which became effective on January 1, 2008. The funding
provisions of the Act have the effect of increasing future
contributions in relation to the amounts that would have been
required under the legislation that the Act replaced. The amount
of future contributions will be dependent on, among other
things, the funded status of the plan and on the interest rates
required to be used for funding purposes. Contributions required
for 2008 are estimated to be $30 million to
$35 million with approximately $20 million due in
September. Contributions for 2009 are estimated to be
$15 million to $20 million. However, contributions for
2010 and beyond cannot be reasonably quantified at this time.
There is also a risk that the Pension Benefit Guaranty
Corporation (the PBGC) may conclude that its risk with respect
to our defined benefit plan may become unreasonably high if the
plan continues to operate, if we are unable to satisfy our
funding requirement or if the plan becomes unable to pay
benefits. In such circumstances, the PBGC could terminate the
plan and take control of its assets. In such event, we may be
required to make an immediate payment to the PBGC of all or a
substantial portion of the underfunding as calculated under PBGC
assumptions, including a low discount rate. If such payment is
not made, the PBGC could place liens on a material portion of
our assets which could adversely affect our financial condition
and results of operations. In addition, failure to fund the
pension plan as required by law (or incurring certain liens in
connection with a failure to fund or seeking a waiver from
funding obligations) would be a breach of the terms of our debt
agreements and therefore a default. If such default is not cured
or waived, our indebtedness could be accelerated, which would
have a material adverse effect on our liquidity and financial
position. Finally, funding the pension plan might require the
sale of significant business assets, which would adversely
affect our ability to generate cash in the future. In addition,
such sales of assets would generally require lender and,
possibly, bondholder consent and it is possible that such
consent would not be granted.
Ownership
changes for U.S. federal income tax purposes will cause
utilization of our pre-change tax loss carryforwards and other
tax attributes to be substantially delayed, which could increase
income tax expense and decrease available cash in future
years.
The sale of a portion of our convertible preferred stock on
October 2, 2007 triggered an ownership change
for U.S. federal income tax purposes. As a consequence of
the ownership change, the timing of our utilization of
pre-change U.S. tax loss carryforwards and other tax
attributes will be limited in the future. The amount of the
annual limitation is expected to be approximately
$5.7 million. The limitation has the potential to
significantly increase tax expense and increase the amounts
payable for income taxes in future years and thereby limit the
amount of cash available to service our indebtedness and for use
in our operations.
Risks
Relating to Our Business
Many
of our customers are in cyclical industries that have
historically experienced significant downturns, which resulted
in substantially reduced demand for our products.
The success of our business depends on the profitability of our
customers business. Many of our customers are in
businesses that are highly cyclical in nature and sensitive to
changes in general economic conditions, such as the automotive,
building materials, electronics and consumer durables
industries. Their demand for our products and
12
services changes as a result of general economic conditions
(including increases in their cost structures and demand for
their products), interest rates and other factors beyond our
control. The performance of our business is directly related to
the production levels of our customers. As an example, in 2006
and 2007, the automotive industry experienced a significant
slowdown and closures of operating facilities, which has
adversely affected the sale of our plastics
machinery particularly injection molding
machines and metalworking fluids. Declines in
economic conditions in the industries served by our customers
may continue to have a negative effect on our business and
ability to increase operating cash flows.
We
operate in highly competitive industries, many of which are
currently subject to intense price competition, and if we are
unable to compete successfully our results of operations could
fail to improve or could deteriorate.
Many of the industries in which we operate are highly
competitive. The markets for plastics machinery and related
products are highly competitive and include a number of North
American, European and Asian competitors. Principal competitive
factors in the plastics machinery industry are price, product
features, technology, performance, reliability, quality,
delivery and customer service. We also face many competitors in
the industrial fluids segment of our business. Principal
competitive factors in our industrial fluids segment include
price, market coverage, technology, performance, delivery and
customer service.
Further
increases in our cost structure could have an adverse effect on
our operating results and cash flows.
Our costs are subject to fluctuations, particularly for raw
materials and purchased components used in our business,
including the cost of labor and steel and the cost of oil and
chemicals used in the production of metalworking fluids. Our
success is dependent, in part upon our ability to manage these
fluctuations through pricing actions, costs savings projects and
global sourcing actions. While we have responded by further
reducing our cost structure and increasing the prices we charge
our customers, these measures may not always be sufficient to
offset the effects of the cost increases we experience.
Our
significant international operations depend to a great extent on
the economy of the European and Asian markets and subject us to
risks such as unfavorable political, regulatory, labor and tax
conditions.
We are a global business with a significant portion of our
operations and sales outside the U.S. Our financial targets
depend in part on achieving significant growth in developing
regions, including the Eastern European and Asian markets. Our
results could be negatively impacted if expected growth in these
regions is not realized. In some cases, these markets include
countries with economies in various stages of development or
structural reform, some of which are subject to rapid
fluctuations in terms of political and economic stability,
consumer prices, employment levels, gross domestic product,
interest and foreign exchange rates. To the extent such
fluctuations have an effect on the ability of our consumers to
pay for our products, the growth of our products in such markets
could be impacted negatively. Our success will depend in part on
our ability to manage through these uncertainties.
Our overall success as a global business depends, in part, upon
our ability to successfully manage in differing and
unpredictable legal, regulatory, economic, social and political
conditions. We may not be able to continue to succeed in
developing and implementing policies and strategies that will be
effective in each foreign market where we do business. Any of
the foregoing factors may have an adverse effect on our ability
to generate cash flow and grow our business.
We are
subject to litigation that could have an adverse effect upon our
business, financial condition, results of operations or
reputation.
These suits and proceedings concern issues including product
liability, patent infringement, environmental matters and
personal injury matters, some of which seek substantial dollar
amounts. In certain suits, multiple plaintiffs allege personal
injury involving products, supplied by us. We are vigorously
defending these claims and, based on current information,
believe we have recorded appropriate reserves in addition to
excess carrier insurance coverage and indemnity claims against
third parties. Were we to have significant adverse judgments or
determine as
13
the cases progress that significant additional reserves should
be recorded, our future operating results and financial
condition, particularly our liquidity, could be adversely
affected.
If our
common stock is delisted, it may lack a market.
On September 18, 2007, we were informed by the New York
Stock Exchange (NYSE) that the company had fallen below the
NYSEs continued listing standard related to average market
capitalization. This standard requires that a company with
stockholders equity of less than $75 million maintain
total market capitalization of not less than $75 million
over a thirty
trading-day
period. Under NYSE guidelines, we must return to compliance
within 18 months following receipt of notification. In
December 2007, we submitted to the NYSE a detailed plan to
remedy the non-compliance through improved operating performance
and other actions. While we believe the remediation will be
successful, there can be no assurance that we will be able to
return to compliance with the NYSEs guidelines. If we are
unsuccessful, it is possible that our stock will be delisted by
the NYSE. Were this to happen, the market for our common stock
could become more limited and it is possible that the per-share
price would drop.
The
interests of our principal shareholders may conflict with those
of other shareholders.
Our Series B Preferred Stock is convertible into
5.7 million common shares which represents 51.0% of our
as-converted common equity as of March 12, 2008. As of that
date, Ohio Plastics, LLC, an affiliate of Bayside Capital, Inc.
(Bayside) owned 57.5% of the Series B Preferred Stock
representing 29.3% of our as-converted common equity. Pursuant
to the provisions of the certificate of designation of the
Series B Preferred Stock, the holders thereof have elected
7 of the 13 members of our board of directors, all of whom are
employees of Bayside or its parent, H.I.G Capital. By virtue of
its stock ownership, Bayside has the power to significantly
influence our affairs and to influence, if not decide, the
outcome of matters required to be submitted to shareholders for
approval, including amendments of our charter and bylaws. See
the note to the Consolidated Financial Statements captioned
Shareholders Equity for more information
regarding our Series B Preferred Stock.
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|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable.
We lease our corporate headquarters building from an
unaffiliated third party. This building is located in
Cincinnati, Ohio.
The remaining information required by Item 2 is included in
Part I of this
Form 10-K.
|
|
Item 3.
|
Legal
Proceedings
|
Various lawsuits arising during the normal course of business
are pending against us and our consolidated subsidiaries. In
certain such lawsuits, some of which seek substantial dollar
amounts, multiple plaintiffs allege personal injury involving
products supplied by us. We are vigorously defending these
claims and, based on current information, believe we have
recorded appropriate reserves in addition to our excess carrier
insurance coverage and indemnity claims against third parties.
The projected availability under our asset based credit facility
is currently expected to be adequate to cover the companys
cash needs under these claims, assuming satisfaction or waiver
of the conditions to borrowing thereunder (see Liquidity and
Sources of Capital for further information regarding those
conditions to borrowing as well as the companys dependence
on its asset based credit facility for liquidity). It is
possible that our ultimate liability could substantially exceed
our current reserves, but the amount of any such excess cannot
reasonably be determined at this time. Were we to have
significant adverse judgments or determine as the cases progress
that significant additional reserves should be recorded, our
future operating results and financial condition, particularly
our liquidity, could be adversely affected.
14
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|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
(a) A special meeting of shareholders of Milacron Inc. was
held November 27, 2007
(b) The shareholders voted on the following matters:
Proposal
and Vote Tabulation
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Votes For
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Votes Against
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Abstain
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Non-Votes
|
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Amendment to the Redemption Provision of the Series B
Preferred Stock
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8,524,487
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125,113
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9,428
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Amendment to include Ohio Plastics, LLC and Certain other
persons as Initial Investors for purposes of the
Series B Preferred Stock
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8,374,286
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273,981
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10,761
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PART II
|
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Item 5.
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Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Our common shares are listed on the New York Stock Exchange
under the symbol MZ. Such shares are also traded on
the Cincinnati Stock Exchange, Boston Stock Exchange, Pacific
Stock Exchange, Philadelphia Stock Exchange and Midwest Stock
Exchange. As of March 12, 2008, there were approximately
3,528 holders of record of our common shares. Our 4% Cumulative
Preferred Stock and 6% Series B Convertible Preferred Stock
are not actively traded. As of March 12, 2008, there were
62 holders of record of our 4% Cumulative Preferred Stock and
there were 6 holders of our 6% Series B Convertible
Preferred Stock.
On September 18, 2007, we were informed by the New York
Stock Exchange (NYSE) that the Company fell below the
NYSEs continued listing standard relating to average
market capitalization. This standard requires that a company
with stockholders equity of less than seventy-five million
dollars maintain total market capitalization of not less than
seventy-five million dollars over a thirty
trading-day
period. Under the NYSE guidelines, we must return to compliance
within 18 months following receipt of the notification. We
have notified the NYSE that we intend to remedy the
non-compliance. Our common stock remains listed on the New York
Stock Exchange.
The following table shows the price range of the common shares
for 2006 and 2007, as reported by the New York Stock Exchange,
adjusted for the effects of a one-for-ten reverse stock split of
the companys common stock which is more fully discussed in
the notes to the Consolidated Financial Statements captioned
Shareholders Equity.
Common
Stock Price Range
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High
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Low
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2006, quarter ended
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March 31
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$
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17.60
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$
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12.60
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June 30
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16.40
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10.00
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September 30
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11.50
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8.30
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December 31
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10.50
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6.20
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2007, quarter ended
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March 31
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$
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9.80
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$
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5.80
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June 30
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9.56
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5.50
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September 30
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9.05
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5.73
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December 31
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8.30
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2.70
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No dividends were paid in 2007 or 2006 on our common shares. The
indenture governing our
11
1
/
2
% Senior
Secured Notes due 2011 and the credit agreement governing our
asset based lending facility (both discussed
15
elsewhere in this
Form 10-K)
contain restrictions prohibiting the payment of cash dividends
on our common stock. The terms of our 4% Cumulative Preferred
Stock and our Series B Preferred Stock require that accrued
and unpaid dividends on such stock be paid prior to any dividend
or distribution on, or repurchase of, our common stock. As of
March 10, 2008, there were no unpaid dividends outstanding
on the 4% Cumulative Preferred Stock and there were $27.00 per
share of accrued and unpaid dividends outstanding on the
Series B Preferred Stock.
The following table summarizes stock repurchases and
reacquisitions for the quarter ended December 31, 2007.
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(a)
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(b)
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(c)
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(d)
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Maximum Number
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Total Number
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(or Approximate
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of Shares
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Dollar Value) of
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(or Units)
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Shares (or Units)
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Total Number of
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Average Price
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Purchased as
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that May Yet Be
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Shares
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Paid per
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Part of Publicly
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Purchased Under
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(or Units)
|
|
|
Share (or
|
|
|
Announced Plans
|
|
|
the Plans or
|
|
Period
|
|
Purchased
|
|
|
Unit)
|
|
|
or Programs(1)
|
|
|
Programs(1)
|
|
|
October 1 October 31, 2007
|
|
|
49,775
|
(2)
|
|
$
|
6.97
|
|
|
|
|
|
|
|
|
|
November 1 November 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1 December 31, 2007
|
|
|
84,200
|
(3)
|
|
|
8.46
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
133,975
|
|
|
|
7.90
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
As of December 31, 2007, there were no publicly announced
plans or programs to repurchase stock.
|
|
(2)
|
|
Represents restricted shares cancelled to cover withholding
taxes due at vesting.
|
|
(3)
|
|
Represents restricted shares forfeited by the grantee due to
termination of employment.
|
Information on equity compensation plans is presented under
Item 12 of this
Form 10-K.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Executive
Summary
Company
Overview
Milacron is a leading global provider of equipment, supplies,
services and complete end-to-end solutions to the plastics
processing industries. We are also a leading global supplier of
premium industrial fluids to the metalworking industries. First
incorporated in 1884 and headquartered in Cincinnati, Ohio, we
employ about 3,300 people and operate major manufacturing
facilities in North America, Europe and Asia, while maintaining
sales and services offices in over one hundred countries around
the world. Milacrons top priority is to support our
customers with the most advanced technology and the most
comprehensive, reliable service in our industry.
We operate in four business segments. The first three, machinery
technologies-North America, machinery technologies-Europe and
mold technologies, serve the plastics processing industries. Our
fourth segment, industrial fluids, serves the metalworking
sector. Both of our machinery technologies segments provide
leading-edge capital equipment, related tooling and replacement
parts for the three most common methods of processing plastics:
injection molding, blow molding and extrusion. Our mold
technologies segment supplies mold bases, mold components, hot
runner systems and numerous other components for injection
molding, as well as MRO (maintenance, repair and operating)
supplies for all plastics processing operations. Our industrial
fluids segment develops and sells premium fluids for
metalworking applications such as machining, grinding, forming
and process cleaning. In all our businesses, we focus on
leading-edge technology with superior aftermarket service and
support.
We entered the plastics machinery business with the introduction
of our first line of injection molding machines in the late
1960s. By the mid 1980s, we had become the number-one
U.S. producer of plastics machinery. Our major customers
are producers of automobiles, packaging, building materials,
consumer goods, electrical products, appliances and housewares,
industrial components and machinery, and medical devices.
16
Milacron pioneered the development and introduction of synthetic
(water-based) industrial fluids in the late 1940s. Our largest
customer for fluids is the automotive industry, followed by
makers of industrial components and machinery, aircraft,
appliances and housewares, and energy extraction.
Plastics
Markets Background and Recent History
Since the end of World War II, plastics and plastic composites
have increasingly replaced traditional materials such as metal,
wood, glass and paper throughout manufacturing. Since 1970,
global consumption of plastics resins has grown at a compounded
annual rate of 6%, compared to 2% for steel and 3% for aluminum
(Sources: BASF AG, Association of Plastics Manufacturers in
Europe, International Iron & Steel Institute,
U.S. Geological Survey).
Plastic part production, like industrial production in general,
has historically shown sustained growth. In every year from 1980
to 2000, plastic part production in the U.S. increased over
the prior year, averaging 7% compounded annual growth (Source:
U.S. Federal Reserve Board). Growth in plastics consumption
and production has generally created increasing demand for our
plastics machinery and related supplies. Between 1980 and 2000,
our sales of plastics equipment and supplies in North America
grew at 8% compounded annually excluding acquisitions (11%
including acquisitions).
In the 1990s, Milacron, like many other U.S. companies,
benefited from a strong, growing economy. Our plastics
technologies sales were approaching $1 billion with good
profitability. At the end of the decade, however, the
U.S. manufacturing sector fell into its most severe and
prolonged downturn since the 1930s. The plastics processing
portion of the manufacturing sector was very severely impacted
and to this day has not recovered. Shipments of injection
molding machines in North America fell from a $1.2 billion
12-month
moving total in 2000 to under $700 million by the end of
2001. It has stayed at very low levels ever since, experiencing
only a partial recovery in 2004 and 2005 (Source: The Society of
Plastics Industry).
In 2007, all of Milacrons businesses in North America,
including industrial fluids, continued to be negatively impacted
by high oil and resin prices, by the shakeout among auto part
molders serving the U.S. Big Three car manufacturers and by
the slowdown in residential home building. Despite a series of
responsive actions, including a number of plant closings,
headcount reductions and other measures, severely depressed
sales volumes led to a consolidated loss from continuing
operations in 2007. Also, as a result of the slow down in North
America and the emergence of other economies in the world, we
have focused on expanding our presence outside of our
traditional markets. In 2007, we saw significant growth outside
of North America, Canada and Western Europe.
Industrial
Fluids Recent History
During the severe manufacturing recession of
2000-2003,
overall demand for our metalworking fluids declined only by 10%,
as our largest customer group, automakers, maintained high
levels of production both in North America and worldwide.
Profitability in the fluids business, although impacted, held up
fairly well throughout this period, with operating earnings in
the range of 13% to 15% of sales. In 2004 and 2005, sales of our
metalworking fluids grew modestly, but profitability in this
segment declined due to significant increases in product
liability insurance and related expenses, as well as higher
material costs and pension expense. In 2006 and 2007, we were
able to improve profitability on minimal sales growth.
Consolidated
2007 Results
Sales and new orders in 2007 were down slightly compared to
2006, reflecting continued weakness in the U.S. automotive
manufacturing sector and housing markets, offset in part by our
growth in European, Asian and other emerging markets. Our net
loss for the year was $87.1 million, which included
$12.5 million in restructuring charges, $1.9 million
in costs related to a change in preferred stock ownership and
$1.9 million in pension plan curtailment cost, in all
cases, with no tax benefit. Our net loss also included a
$63.0 million provision for income taxes for deferred tax
valuation allowances related to the change in preferred stock
ownership. This compared to a net loss in 2006 of
$39.7 million, which included $17.4 million in
restructuring charges and $1.8 million in refinancing
costs, in both cases, with no tax benefit.
17
Opportunities
and Challenges
As we enter 2008, energy and various other material prices
remain at record high levels and in North America, the economy
continues to suffer from the U.S. auto part and housing
sectors. For our part, we will continue to develop new and
better products and services, especially in the aftermarket
sectors of our businesses. We will also strengthen our
performance and customer focus in our home markets of North
America and western Europe, while expanding our presence outside
the United States, Canada and western Europe. Overall for 2008,
we are projecting continued growth outside of North America and
improved profitability, which should be helped by the benefits
from the restructuring measures taken in 2007 and those expected
to be taken in 2008.
Presence
Outside the U.S.
For 2007, markets outside the U.S. represented the
following percentages of our consolidated sales: Europe 30%;
Canada and Mexico 7%; Asia 9%; and the rest of the world 6%. As
a result of this geographic mix, foreign currency exchange rate
fluctuations affect the translation of our sales and earnings,
as well as consolidated shareholders equity. During 2007,
the weighted-average exchange rate of the euro was stronger in
relation to the U.S. dollar than in 2006. As a result,
Milacron experienced favorable currency translation effects on
new orders and sales of approximately $29 million each and
on operating earnings of approximately $1.6 million.
During 2007, the euro strengthened against the U.S. dollar
by approximately 9% which caused the majority of a
$1.6 million favorable foreign currency translation
adjustment to consolidated shareholders deficit.
If the euro should weaken against the dollar in future periods,
we could experience a negative effect in translating our
European new orders, sales and earnings when compared to
historical results.
Significant
Accounting Policies and Judgments
The Consolidated Financial Statements discussed herein have been
prepared in accordance with U.S. generally accepted
accounting principles, which require us to make estimates and
assumptions that affect the amounts that are included therein.
The following is a summary of certain accounting policies,
estimates and judgmental matters that we believe are significant
to our reported financial position and results of operations.
Additional accounting policies are described in the note to the
Consolidated Financial Statements captioned Summary of
Significant Accounting Policies (presented in Item 8
of this
Form 10-K)
which should be read in connection with the discussion that
follows. We regularly review our estimates and judgments and the
assumptions regarding future events and economic conditions that
serve as their basis. While we believe that the estimates used
in the preparation of the Consolidated Financial Statements are
reasonable in the circumstances, the recorded amounts could vary
under different conditions or assumptions.
Deferred
Tax Assets and Valuation Allowances
At December 31, 2006, we had significant deferred tax
assets related to U.S. and
non-U.S. net
operating loss and tax credit carryforwards and related to
charges that have been deducted for financial reporting purposes
but which are not yet deductible for income tax purposes. These
charges included the write-down of goodwill and a charge to
equity related to unrecognized retirement benefit plan losses.
At December 31, 2006, we had provided valuation allowances
against all net deferred tax assets except $63 million in
the U.S. that were offset by qualified tax planning
strategies and $8 million of
non-U.S. assets
to be realized through future income expectations and tax
planning strategies. Valuation allowances serve to reduce the
recorded deferred tax assets to amounts reasonably expected to
be realized in the future. The establishment of valuation
allowances and their subsequent adjustment requires a
significant amount of judgment because expectations as to the
realization of deferred tax assets particularly
those assets related to net operating loss
carryforwards are generally contingent on the
generation of taxable income, the reversal of deferred tax
liabilities in the future and the availability of qualified tax
planning strategies. Tax planning strategies represent prudent
and feasible actions that management would take to create
taxable income to keep a tax attribute from expiring during the
carryforward period. Determinations of the amounts related to
tax planning strategies assume hypothetical transactions, some
of which involve the disposal of substantial business assets,
and certain variables which are judgmental and subjective. In
determining the need for valuation allowances, we considered our
short-term and long-range internal operating plans, which were
based
18
on the current economic conditions in the markets and countries
in which we operate, and the effect of potential economic
changes on our various operations.
At December 31, 2007, we had
non-U.S. net
operating loss carryforwards principally in the
Netherlands, Germany, Italy and Belgium totaling
$197 million and related deferred tax assets of
$50 million. Valuation allowances totaling $37 million
had been provided with respect to these assets. We believe that
it is more likely than not that portions of the net operating
loss carryforwards in these jurisdictions will be utilized.
However, there is currently insufficient positive evidence in
some
non-U.S. jurisdictions
primarily Germany, Italy and Belgium to conclude
that no valuation allowances are required.
At December 31, 2007, we had a U.S. federal net
operating loss carryforward of $174 million, which will
expire between 2023 and 2028. Deferred tax assets related to
this loss carryforward, as well as to our federal tax credit
carryforward ($16 million) and additional state and local
loss carryforwards ($7 million), totaled $84 million.
Additional deferred tax assets totaling approximately
$72 million had also been provided for book deductions not
currently deductible for tax purposes, including the writedown
of goodwill, postretirement health care benefit costs and
accrued pension liabilities. The deductions for financial
reporting purposes are expected to be realized for income tax
purposes in future periods, at which time they will have the
effect of decreasing taxable income or increasing the net
operating loss carryforward. The latter will have the effect of
extending the ultimate expiration of the net operating loss
carryforward beyond 2028. However, our ability to utilize
U.S. federal net operating loss carryforwards and other tax
assets is limited as described below.
The sale of 287,500 shares of Series B Preferred Stock
on October 2, 2007 caused an ownership change
as defined by the Internal Revenue Code and regulations that
will have the effect of substantially delaying the timing of the
utilization of certain of the U.S. loss carryforwards and
other tax attributes. The company has calculated the amount of
the annual limitation to be approximately $5.7 million. The
$5.7 million limitation applies to each year and is
cumulative for years in which the limitation is not fully
utilized. The limitation at the end of 2007 was approximately
$1.4 million of available pre-change net operating losses
with no limitations on deductibility.
As discussed above, at December 31, 2006 and through the
third quarter of 2007, we relied on qualified tax planning
strategies to conclude that valuation allowances were not
required with respect to a portion of our U.S. deferred tax
assets. However, because of the limitation imposed by the
U.S. Internal Revenue Code due to the change in
ownership, we concluded that we are no longer able to rely
on qualified tax planning strategies. As a result, we recorded a
charge to the provision for income taxes of $63 million in
the fourth quarter of 2007 to provide the required valuation
allowances. Therefore, at December 31, 2007,
U.S. deferred tax assets net of deferred tax liabilities
totaling $156 million were fully offset by valuation
allowances of the same amount. We will continue to evaluate the
extent to which valuation allowances are required on a quarterly
basis. However, the reversal of the valuation allowance is not
expected to occur until we achieve sustained profitability.
Accounts
Receivable, Inventory and Warranty Reserves
Our internal accounting policies require that each of our
operations maintain appropriate reserves for uncollectible
receivables, inventory obsolescence and warranty costs in
accordance with U.S. generally accepted accounting
principles. Because of the diversity of our customers and
product lines, the specific procedures used to calculate these
reserves vary by location but in all cases must conform to
company guidelines. Reserves are required to be reviewed and
adjusted as necessary on a quarterly basis.
Allowances for doubtful accounts are generally established using
specific percentages of the gross receivable amounts based on
their age as of a particular balance sheet date. Because of the
product line and customer diversity noted above, each business
unit is required to base the percentages it applies to its aged
receivables on its unique history of collection experience. The
percentages used are reviewed for continued reasonableness on a
quarterly basis. The amounts calculated through this process are
then adjusted for known credit risks and collection problems.
Write-offs of accounts receivable for our operations have
averaged $2.9 million in the last two years. While we
believe that our reserves for doubtful accounts are reasonable
in the circumstances, adverse changes in general economic
conditions or in the financial condition of our major customers
could result in the need for additional reserves in the future.
19
Reserves for inventory obsolescence are generally calculated by
applying specific percentages to inventory carrying values based
on the level of usage and sales in recent years. As is the case
for allowances for doubtful accounts, each business unit selects
the percentages it applies based on its unique history of
inventory usage and obsolescence experience and forecasted
usage. The preliminary calculations are then adjusted based on
current economic trends, expected product line changes, changes
in customer requirements and other factors. In 2007, our
operations recorded new inventory obsolescence reserves totaling
$2.0 million and utilized $4.4 million of such
reserves in connection with the disposal of obsolete inventory
and the sale of manufacturing facilities. We believe that our
reserves are appropriate in light of our historical results and
our assumptions regarding the future. However, adverse economic
changes or changes in customer requirements could necessitate
the recording of additional reserves through charges to earnings
in the future.
Our warranty reserves are of two types
normal and extraordinary. Normal
warranty reserves are intended to cover routine costs associated
with the repair or replacement of products sold in the ordinary
course of business during the warranty period. These reserves
are accrued using a percentage-of-sales approach based on the
ratio of actual warranty costs over a representative number of
years to sales revenues from products sold with warranties over
the same period. The percentages are required to be reviewed and
adjusted as necessary at least annually. Extraordinary warranty
reserves are intended to cover major problems related to a
single machine or customer order or to problems related to a
large number of machines or other type of product. These
reserves are intended to cover the estimated costs of resolving
the problems based on all relevant facts and circumstances. In
recent years, costs related to extraordinary warranty problems
have not been significant. In 2007, our operations accrued
warranty reserves totaling $3.8 million and incurred
warranty-related costs totaling $3.0 million. While we
believe that our warranty reserves are adequate in the
circumstances, unforeseen problems related to unexpired warranty
obligations could result in a requirement for additional
reserves in the future.
Impairment
of Goodwill and Long-Lived Assets
We test goodwill for impairment based on the provisions of
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets
(SFAS No. 142), using probability-weighted cash flows
discounted at market interest rates. SFAS No. 142
requires that goodwill be tested for impairment annually or
whenever certain indicators of impairment are present.
SFAS No. 142 requires that the first phase of testing
goodwill for impairment be based on a business units
fair value, which is generally best determined
through market prices. Due to the absence of market prices for
our businesses and as permitted by SFAS No. 142, we
have elected to base our testing on discounted cash flows as
discussed above. Although the discount rates and other input
variables may differ, the model we use in this process is the
same model we would use to evaluate the fair value of
acquisition candidates and the fairness of offers to purchase
businesses that we are considering for divestiture. The cash
flows we use are derived from the annual long-range planning
process that we complete in the third quarter of each year. In
this process, each business unit is required to develop
reasonable sales, earnings and cash flow forecasts for the next
three years based on current and forecasted economic conditions.
Each business units plan is reviewed by corporate
management and the entire plan is reviewed with our board of
directors. For purposes of testing for impairment, the cash flow
forecasts are adjusted as needed to reflect information that
becomes available concerning changes in business levels, general
economic trends and other factors. The discount rates are
obtained from an outside source based on the Standard Industrial
Classification codes in which our businesses operate. These
discount rates are then judgmentally adjusted for plan
risk (the risk that a business will fail to achieve its
forecasted results), country risk (the risk that
economic or political instability in the
non-U.S. countries
in which we operate will cause a business units
projections to be inaccurate) and other factors. Finally, a
growth factor beyond the three-year period for which cash flows
are planned is selected based on expectations of future economic
conditions. Virtually all of the assumptions used are
susceptible to change due to global and regional economic
conditions as well as competitive factors in the industries in
which we operate. In recent years, many of our cash flow
forecasts have not been achieved, particularly in the market for
capital equipment in the plastics processing industry.
Unanticipated changes in discount rates from one year to the
next can also have a significant effect on the results of the
calculations. While we believe the estimates and assumptions we
use are reasonable in the circumstances, various economic
factors could cause the results of our testing to vary
significantly.
20
While we recorded goodwill impairment charges in 2002 and 2003,
our annual reviews as of October 1, 2004 through
October 1, 2007 did not result in additional charges.
We review the carrying values of our long-lived assets other
than goodwill annually under the provisions of Statement of
Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets. These
reviews are conducted by comparing the estimates of undiscounted
future cash flows that are included in our long-range internal
operating plans to the carrying values of the related assets. To
be conservative, no growth in operating cash flows beyond the
third year is currently assumed. Under this methodology,
impairment would be deemed to exist if the carrying values
exceeded the expected future cash flow amounts. In 2007, we
reviewed the aggregate carrying values of selected groups of our
long-lived assets. The assets included in these reviews
consisted principally of property, plant and equipment and,
where applicable, intangible assets other than goodwill. Based
on these reviews, it was determined that the maximum period of
time to recover the carrying values of the tested groups of
assets through undiscounted cash flows is approximately
3 years and that the weighted-average recovery period is
approximately 7% of the remaining average lives of the assets.
Based on the results of the reviews, no impairment charges were
recorded in 2007.
Self-Insurance
Reserves
Through our wholly-owned insurance subsidiary, Milacron
Assurance Ltd. (MAL), we are primarily self-insured for many
types of risks, including general liability, product liability,
environmental claims and workers compensation for certain
U.S. employees. MAL, which is incorporated in Bermuda and
is subject to the insurance laws and regulations of that
jurisdiction, establishes reserves commensurate with known or
estimated exposures under the policies it issues to us. Exposure
for general and product liability claims is supplemented by
reinsurance coverage in some cases and by excess liability
coverage in all policy years. Workers compensation claims
in excess of certain limits are insured with commercial
carriers. At December 31, 2007, MAL and the company had
reserves for known claims and incurred but not reported claims
under all coverages totaling approximately $17.3 million
and expected recoveries from excess carriers and other third
parties of $1.0 million. Expected recoveries represent the
excess of total reserves for known exposures and incurred but
not reported claims over the limits on the policies MAL issues
to us. These amounts are classified as assets because unless
other payment arrangements are negotiated, we (as the insured
party) expect that we would first pay any indemnity claims and
expenses in excess of MALs limits and then pursue
reimbursement from the excess carriers. Of the
$17.3 million in reserves at December 31, 2007,
$14.9 million is included in long-term accrued liabilities
in the Consolidated Balance Sheet at that date. The remaining
$2.4 million is included in accrued and other current
liabilities. The expected recoveries from excess carriers and
other third parties are included in other current assets.
MALs reserves are established based on known claims,
including those arising from litigation, and our best estimates
of the ultimate liabilities thereunder (after consideration of
excess carriers liabilities and claims against third
parties) and on estimates of the cost of incurred but not
reported claims. For certain types of exposures, MAL and the
company utilize actuarially calculated estimates prepared by
outside consultants to ensure the adequacy of the reserves.
Reserves are reviewed and adjusted at least quarterly based on
all evidence available as of the respective balance sheet dates
or as further information becomes available or circumstances
change. While the ultimate amount of MALs exposure to
claims is dependent on future events that cannot be predicted
with certainty, we believe that the recorded reserves are
appropriate based on current information. It is possible that
our ultimate liability could substantially exceed our recorded
reserves as of December 31, 2007, but the amount of any
such excess cannot be reasonably determined at this time. Were
we to have significant adverse judgments or determine, as cases
progress, that significant additional reserves should be
recorded, our future operating results, financial condition and
liquidity could be adversely affected.
Pensions
We maintain defined benefit and defined contribution pension
plans that provide retirement benefits to substantially all
U.S. employees and certain
non-U.S. employees.
The most significant of these plans is the principal defined
benefit plan for certain U.S. employees and retirees (the
U.S. Plan), which is a funded plan with $394.0 million
in assets. Two other
non-U.S. defined
benefit plans are also funded with a combined $4.4 million
in assets.
21
Excluding expense related to supplemental early retirement
benefits and plan curtailment costs, pension expense for the
U.S. Plan was $11.2 million for 2007 and
$12.8 million in 2006. Pension expense for the
U.S. Plan for 2008 is expected to be approximately
$2.5 million. The reduction is due to the freezing of
benefits under the U.S. Plan as of December 31, 2007,
the effects of which will be partially offset by a reduction in
the estimated long-term rate of return on plan assets
assumption. Employees whose benefits were frozen under the
U.S. Plan are now eligible for benefits under our U.S
defined contribution retirement plan (the Retirement Savings
Plan) and costs for this plan are expected to increase by
approximately $4 million in 2008 compared to 2007. Expense
for the defined benefit plan for 2009 and beyond is dependent on
a number of factors, including returns on plan assets and
changes in the plans discount rate, and therefore cannot
be predicted with certainty at this time. The following
paragraphs discuss the significant factors that affect the
amount of recorded pension income or expense and the reasons for
the change in costs identified above.
A significant factor in determining the amount of expense to be
recorded for the funded U.S. Plan is the expected long-term
rate of return on assets assumption. In 2006 and 2007, we used a
rate of return of 8.75% and in our 2008 projections we have
lowered the rate to 8.50%. We develop the long-term rate of
return assumption based on the current mix of investments
included in the plans assets and on the historical returns
on those types of investments, judgmentally adjusted to reflect
current expectations of future returns. In evaluating future
returns on equity securities, the existing portfolio is
stratified to separately consider, among other things, large and
small capitalization investments, as well as international
securities. The change from the 8.75% rate of return assumption
to the lower 8.50% rate will have the effect of increasing the
amount of pension expense that would otherwise be recorded in
2008 by approximately $1.0 million.
In determining the amount of pension expense to be recognized,
the expected long-term rate of return is applied to a calculated
value of plan assets that recognizes changes in fair value over
a three-year period. This practice is intended to reduce
year-to-year volatility in recorded pension expense but it can
have the effect of delaying the recognition of differences
between actual returns on assets and expected returns based on
the long-term rate-of-return assumption. At December 31,
2007, the market value of the U.S. Plans assets was
$394 million whereas the calculated value of these assets
was $387 million. The difference between these amounts is
not significant because aggregate actual returns on plan assets
in recent years have generally approximated the applicable
expected long-term rate of return assumptions in use. If
significant asset-related losses are incurred in 2008, it will
have the effect of increasing the amount of pension expense to
be recognized in future years beginning in 2009.
In addition to the expected rate of return on plan assets,
recorded pension expense includes the effects of interest on the
plans liabilities to participants. In 2007 and prior
years, pension expense also included the effect of service cost
or the cost of benefits earned during the year. In 2008 and
future years, the U.S. Plan will not incur service costs
due to the freezing of plan benefits. These amounts are
determined actuarially based on current discount rates and
assumptions regarding matters such as future salary increases
and mortality. Differences in actual experience in relation to
these assumptions are generally not recognized immediately but
rather are deferred together with asset-related gains or losses.
When the combined cumulative asset-related and liability-related
gains or losses exceed the greater of 10% of total liabilities
or the calculated value of plan assets, the excess is amortized
and included in pension expense. At December 31, 2002, the
discount rate used to value the liabilities of the
U.S. Plan was 7.25%. The discount rate was 6.00% at
December 31, 2006 and at December 31, 2007 as modeled
by the plans actuary. The effect of the lower discount
rate and the significant variances in relation to the long-term
rate of return assumption that occurred in 2001 and 2002 have
resulted in cumulative losses in excess of the 10% corridor.
Pension expense for the U.S. plan for 2006 and 2007
includes approximately $10 million each year for the
amortization of previously unrecognized losses. Expense for
amortization of previously unrecognized losses is expected to be
approximately $7 million in 2008 with the decrease from
2007 being due principally to the effect of freezing benefits
under the U.S. Plan.
Additional changes in the key assumptions discussed above would
affect the amount of pension expense expected to be recorded for
years subsequent to 2008. Specifically, a one-quarter percent
increase in the rate of return on plan assets assumption would
have the effect of decreasing pension expense by approximately
$1.0 million. A comparable decrease in the rate of return
on plan assets would have the opposite effect. In addition, a
one-quarter percent increase in the discount rate would decrease
expense by approximately $1.5 million.
22
Conversely, a one-quarter percent decrease in the discount rate
would have the effect of increasing pension expense by
$1.4 million.
At December 31, 2006, we adopted the recognition and
disclosure provisions of Statement of Financial Accounting
Standards No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans
(SFAS No. 158) which requires that we recognize
the underfunded status of defined benefit postretirement plans
as liabilities in our Consolidated Balance Sheet. For all of our
defined benefit plans, adoption of the standard had the effect
of increasing current liabilities by $4.0 million,
increasing noncurrent liabilities by $16.9 million,
decreasing other noncurrent assets by $2.4 million and
increasing shareholders deficit by $23.3 million, in
all cases in relation to the amounts that would have otherwise
been reported. The current liability relates to plans that are
unfunded and represents projected benefit payments by these
plans, funded by the company, for the next twelve months. The
U.S. Plan is funded and has assets sufficient to pay
projected benefits for the next twelve months and therefore, no
current liability has been recorded for this plan.
Results
of Operations
In an effort to help readers better understand the composition
of our operating results, certain of the discussions that follow
include references to restructuring costs. Those discussions
should be read in connection with the Consolidated Financial
Statements and notes thereto that are included herein in
Item 8.
Basis
of Presentation
As discussed more fully in the note to the Consolidated
Financial Statements captioned Summary of Significant
Accounting Policies Changes in Methods of
Accounting, in 2007 we adopted Statement of Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes.
Pension
Expense and Pension Funding
Excluding supplemental retirement benefits and plan curtailment
costs, we recorded pension expense related to the funded defined
benefit pension plan for certain U.S. employees and
retirees of $11.2 million in 2007 compared to
$12.8 million in 2006. The lower pension expense has
favorably affected margins, selling expense and earnings.
Pension expense for this plan in 2008 is expected to decrease to
approximately $2.5 million, primarily due to the freezing
of benefits offset in part by lower expected long-term rates of
return on plan assets. Also partially offsetting the expense
reduction in 2008 will be approximately $4 million of
additional costs for our Retirement Savings Plan for employees
affected by the freezing of benefits in the defined benefit
pension plan.
We contributed $32.1 million to the funded defined benefit
pension plan for certain U.S. employees and retirees in
2006 but were not required to make contributions in 2007.
Contributions required in 2008 and beyond are based upon the
provisions of the Pension Protection Act of 2006, which became
effective on January 1, 2008. Funding requirements for 2008
are estimated to be between $30 million and
$35 million with approximately $20 million being due
in September and for 2009 contributions are estimated to be
between $15 million and $20 million. Funding
requirements for 2010 and beyond cannot be precisely estimated
at this time.
2007
Compared to 2006
New
Orders and Sales
Consolidated new orders were $826 million in 2007, a
decrease of $3 million, in relation to new orders of
$829 million in 2006. Consolidated sales were
$808 million in 2007, a decrease of $12 million, or
approximately 1%, compared to 2006. Our North American machinery
businesses and mold components business drove the declines. New
orders and sales both benefited from approximately
$29 million of favorable foreign currency translation
effects.
Export orders were $92 million in 2007 compared to
$94 million in 2006. Export sales decreased $7 million
to $86 million, as sales of injection molding systems
decreased $12 million, offset in part by a $5 million
increase in sales of extrusion systems. Export sales to Canada
decreased $13 million and sales to Mexico decreased
$6 million.
23
Sales of all segments to
non-U.S. markets
were $422 million, or 52% of sales, in 2007 compared to
$375 million, or 46% of sales, in 2006.
The backlog of unfilled orders was $129 million at
December 31, 2007 compared to $106 million at
December 31, 2006. The increase was in our machinery
technology businesses with approximately $5 million of the
increase being related to favorable foreign currency translation
effects.
Margins,
Costs and Expenses
The consolidated manufacturing margin was 20.2% in 2007 and
benefitted from recent cost reduction and global sourcing
efforts, a full years effect of pricing actions taken in
2006 and a more favorable mix of products sold as our overall
sales declined. Insurance costs in margin were 0.4% of sales in
2007 compared to 1.2% in 2006. The consolidated manufacturing
margin was 18.5% in 2006 and included higher than normal
inventory write-downs and raw material and purchased product
costs that outpaced pricing actions. Raw material and purchased
product costs stabilized somewhat in 2007 but continued to
increase throughout the year. In 2007, margins included
$.2 million of restructuring costs compared to
$.5 million in 2006.
Total selling and administrative expense increased to
$145 million in 2007 compared to $140 million in 2006,
primarily related to the effect of foreign currency translation.
Selling expense increased by $6 million compared to 2006
due to higher direct sales costs for commissions and discounts,
offset in part by lower costs for trade shows. Selling and
administrative expense increased from 17.1% of sales in 2006 to
17.9% in 2007.
Interest expense net of interest income was $31.4 million
in 2007 compared to $30.0 million in 2006. In 2007, the
interest expense increase was related to higher average levels
of short-term borrowings. In 2006, an interest rate swap had the
effect of decreasing interest expense by $.3 million. We
capitalized $.7 million of interest in 2007 and in 2006.
Restructuring
Costs
During the last two years, we have initiated numerous
restructuring initiatives for the purpose of reducing our cost
structure and improving operating efficiency. These actions and
certain other actions that we initiated prior to 2006 are
described in detail in the note to the Consolidated Financial
Statements captioned Restructuring Costs that are
presented in Item 8 of this
Form 10-K.
In total, these actions resulted in restructuring costs of
$12.5 million in 2007 and $17.4 million in 2006. The
net cash costs were $4.2 million in 2007 and
$7.9 million in 2006.
24
The costs and related cash effects of the actions initiated in
2006 and 2007 as well as certain other actions that were
initiated in 2001 through 2004 are summarized in the table that
follows.
Restructuring
Actions
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|
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|
|
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Restructuring Costs
|
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Cash Costs
|
|
|
|
Year Initiated
|
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2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
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(In millions)
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|
|
Machinery technologies North America
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional machinery technologies North America
reductions
|
|
2007
|
|
$
|
2.6
|
|
|
$
|
|
|
|
$
|
.2
|
|
|
$
|
|
|
U.S. plastics headcount reductions
|
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2006
|
|
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1.0
|
|
|
|
1.5
|
|
|
|
.2
|
|
|
|
|
|
Blow molding machinery and mold making relocations
|
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2002
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.6
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(1.6
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)
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Other
|
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|
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|
|
.1
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|
|
|
|
|
|
|
.1
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|
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|
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|
|
|
|
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|
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3.6
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2.2
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.4
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(1.5
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)
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Machinery technologies Europe
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|
|
|
|
|
|
|
|
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|
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Reorganization of Germany injection molding machinery facility
|
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2006
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|
$
|
1.1
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|
$
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6.5
|
|
|
$
|
2.4
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|
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$
|
5.2
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Consolidation of European sales offices
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2005
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2.0
|
|
|
|
1.8
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1.8
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|
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1.7
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|
|
|
|
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|
|
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|
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|
|
|
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3.1
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8.3
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4.2
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6.9
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Mold technologies
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|
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|
|
|
|
|
|
|
|
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Sale of Fulda plant
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2007
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$
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3.1
|
|
|
$
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|
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$
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(2.4
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)
|
|
$
|
|
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Sale of MRO sales offices
|
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2007
|
|
|
.2
|
|
|
|
|
|
|
|
(.3
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)
|
|
|
|
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Reorganization of North American operations
|
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2006
|
|
|
1.1
|
|
|
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1.6
|
|
|
|
.5
|
|
|
|
.2
|
|
Further downsize Fulda plant
|
|
2006
|
|
|
|
|
|
|
1.8
|
|
|
|
|
|
|
|
1.3
|
|
Consolidation of European operations
|
|
2005
|
|
|
1.1
|
|
|
|
1.8
|
|
|
|
1.6
|
|
|
|
.3
|
|
Downsize Fulda plant
|
|
2004
|
|
|
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
European sales reorganization
|
|
2003 & 2004
|
|
|
|
|
|
|
.3
|
|
|
|
|
|
|
|
.4
|
|
Other
|
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.6
|
|
|
|
5.4
|
|
|
|
(.6
|
)
|
|
|
2.4
|
|
Industrial fluids and corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate headcount reductions
|
|
2007
|
|
$
|
.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liquidation of Japan sales office (corporate expenses)
|
|
2006
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Germany and U.K. fluids blending plant closures
|
|
2005
|
|
|
.1
|
|
|
|
.2
|
|
|
|
.2
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.2
|
|
|
|
1.5
|
|
|
|
.2
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12.5
|
|
|
$
|
17.4
|
|
|
$
|
4.2
|
|
|
$
|
7.9
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
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|
The non-cash restructuring costs incurred in 2006 and 2007
consist principally of $4.3 million of supplemental early
retirement benefits that will be paid by our defined benefit
pension plan for certain U.S. employees, $.8 million
to adjust inventories related to discontinued product lines to
expected realizable values and $2.6 million to adjust the
carrying values of facilities, production equipment and other
assets to be disposed of to expected realizable values.
Change
in Preferred Stock Ownership Costs
In 2007, we charged $1.9 million to expense related to the
purchase of all of the Series B Preferred Stock held by
Glencore Finance AG, amounting to 57.5% of the outstanding
Series B Preferred Stock, by Ohio Plastics, LLC,
25
an affiliate of Bayside Capital, Inc. This sale, which is more
fully discussed in the note to the Consolidated Financial
Statements captioned Income Taxes, triggered an
ownership change for U.S. federal income tax
purposes.
The $1.9 million of expense was primarily related to the
early vesting of certain shares of restricted stock granted to
non-officer employees and to legal and other consulting costs
arising from the transaction.
The ownership change for income tax purposes limits our ability
to utilize pre-change net operating loss carryforwards.
Therefore, we are unable to rely on tax planning strategies and
we recorded an additional $63.0 million charge to the
provision for income taxes to record valuation allowances
related to deferred tax assets previously covered by tax
planning strategies.
Pension
Plan Curtailment Costs
As of December 31, 2007, we froze the benefits payable
under the U.S. defined benefit pension plan for certain
employees and retirees. Related to freezing the plan, we charged
$1.9 million to expense to write-off prior service costs
associated with previous plan amendments. These service costs
were being amortized to expense over the remaining service life
of the plans active participants.
Results
By Segment
The following sections discuss the operating results of our
business segments which are presented in tabular form in
Part II, Item 8 of this
Form 10-K.
Segment operating earnings and losses as discussed below do not
include restructuring costs, change in preferred stock ownership
costs or pension plan curtailment costs.
Machinery technologies North America
The machinery technologies North
America segment had 2007 new orders of $378 million and
sales of $367 million compared to 2006 new orders and sales
of $411 million and $402 million, respectively. New
orders and sales in the North American market for injection
molding machines were stable throughout 2007, but declined from
2006 levels as the North American market was affected by the
ongoing consolidation in the U.S. automotive supplier
market, especially suppliers to the Detroit Three. This
consolidation is depressing new machine demand and flushing used
equipment into the marketplace, which is putting pressure on
total sales as well as on pricing. Sales of injection molding
machines were down $58 million, or 24.0%, compared to 2006.
This sales decline was offset in part by higher sales of
extrusion systems, up $9 million or 12.9%, compared to
2006, and by higher sales in our India injection molding unit,
up $12 million or 46.3%, while sales of blow molding
systems were relatively flat with last year. Increased extrusion
system sales were driven by higher export sales primarily to
Mexico, Europe and Asia. Operating earnings for the segment were
$10.8 million in 2007, a decrease of $6.3 million from
prior year. Lower sales volumes placed significant downward
pressure on operating earnings, but the decline was offset in
part by cost savings actions taken in 2007. In 2007, the
segments restructuring costs were $3.6 million
compared to $2.2 million in 2006. In 2007 and 2006,
restructuring costs were primarily associated with temporary
early retirement programs.
Machinery technologies Europe
In
2007, the machinery technologies - Europe segment had new orders
of $188 million compared to new orders of $154 million
in 2006 and had sales of $181 million compared to sales of
$153 million in 2006. Foreign currency translation
increased new orders and sales by $15 million each compared
to last year. Sales of injection molding machines were up
$22 million and sales of blow molding systems were up
$13 million compared to last year. The segments
operating earnings were $3.3 million in 2007 compared to a
prior year operating loss of $4.9 million. Operating
results benefited from higher sales volumes and savings from our
restructuring actions. Restructuring charges were
$3.1 million in 2007 and $8.3 million in 2006. In both
years, restructuring charges included costs related to the
reorganization of the German injection molding machinery
facility and to the second phase of a sales office consolidation
in Europe.
Mold technologies
The mold technologies
segments new orders were $148 million in 2007 and
$158 million in 2006. Sales declined $11 million from
$159 million in 2006 to $148 million in 2007. Sales in
Europe increased $6 million, while sales in North America
were down $11 million. The declines in North America were
primarily related to the automotive and related tool and die and
mold making sectors. Foreign currency translation increased new
orders and sales by $5 million in the year. Operating
earnings decreased to $1.9 million in 2007 compared to
$3.0 million in 2006, due primarily to the impact of lower
sales volumes, offset in part by savings
26
related to restructuring actions taken in 2007 and prior years.
Lower insurance costs for 2007 also favorably affected operating
earnings by $2.7 million compared to last year. In 2007,
the segment had restructuring expense of $5.6 million,
primarily related to the consolidation and sale of manufacturing
facilities, including a $3.1 million charge for the sale of
our Fulda, Germany manufacturing facility. In 2006, the segment
had restructuring expense of $5.4 million related
principally to reorganization of North American operations, the
further downsizing at the Fulda plant and the consolidation of
European operations.
Industrial Fluids
The industrial fluids
segment had new orders and sales of $124 million each in
2007 compared to $117 million each in 2006. Orders and
sales increased $7 million in Europe. Growth in Europe and
Asia was offset by a slight decline in North America. Foreign
currency translation provided $5 million of the growth in
2007, for both new orders and sales. Segment operating profit
increased $5.8 million to $16.6 million in 2007.
Compared to 2006, results for 2007 benefited from
$3.9 million of lower insurance costs for product liability
and the full effect of pricing increases taken to offset last
years expense increases in energy, transportation and
material costs especially for chemicals and steel
for drums. Restructuring costs were $.1 million in 2007 and
$.2 million in 2006.
Loss
From Continuing Operations Before Income Taxes
In 2007, our pretax loss from continuing operations was
$26.6 million compared to a loss of $37.2 million in
2006. The loss for 2007 decreased $10.6 million primarily
due to improved manufacturing margins. Restructuring costs
decreased $4.9 million for the year, but 2007 included
additional charges related to the change in preferred stock
ownership and to the pension plan curtailment. In 2006, the loss
included a $1.8 million refinancing charge.
Income
Taxes
In 2007, we recorded a net income tax expense of
$61.7 million compared to an expense of $2.6 million
in 2006. As was previously discussed (see Significant Accounting
Policies and Judgments Deferred Tax Assets and
Valuation Allowances), we were unable to record tax benefits
with respect to our losses in the U.S. and certain other
jurisdictions in 2007. Additionally, included in the net
$61.7 million is a charge of $63.0 million related to
recording valuation allowances due to the discontinuance of the
use of tax planning strategies. The writedown was associated
with an ownership change for U.S. federal
income tax purposes related to Ohio Plastics, LLCs
purchase of 57.5% of the outstanding Series B Preferred
Stock.
In 2006, we recorded a net income tax expense of
$2.6 million. Our U.S. operations recorded a net tax
benefit of $2.4 million, comprised of a decrease in
valuation allowances of $4.0 million and a net reduction of
tax carryback claims by $1.6 million. Our
non-U.S. operations
recorded income tax expense of $5.0 million for 2006,
consisting of $4.0 million related to profitable
non-U.S. operations
and a $.9 million reduction in our deferred tax assets in
Holland relating to an income tax rate reduction. Tax benefits
in jurisdictions relating to non-profitable operations were
fully offset by valuation allowances. In the aggregate, the mix
of losses with no tax benefits and the expenses incurred in
profitable jurisdictions resulted in a tax expense of
$2.6 million on a pre-tax loss of $37.2 million.
Loss
From Continuing Operations
Including restructuring costs and the previously discussed tax
expense, our loss from continuing operations in 2007 was
$88.3 million or $19.48 per share. In 2006, we had a loss
from continuing operations of $39.8 million, or $10.17 per
share. The loss per common share amounts in 2007 and in 2006
include the effect of preferred stock dividends and the
amortization effect of a Series B Preferred Stock
beneficial conversion feature. See the note to the Consolidated
Financial Statements captioned Shareholders
Equity for more information regarding the Series B
Preferred Stock beneficial conversion feature.
Discontinued
Operations
In 2007, discontinued operations provided income of
$1.2 million compared to income of $.1 million in
2006. The income in both years related to reserve adjustments
related to prior year divestitures.
27
Net
Loss
Including all of the previously discussed matters, our net loss
for 2007 was $87.1 million, or $19.25 per share. In 2006
our net loss was $39.7 million, or $10.15 per share. The
per-share amounts for both years include the effects of
preferred stock dividends and the effects of the Series B
Preferred Stock beneficial conversion feature.
Market
Risk
Foreign
Currency Exchange Rate Risk
We use foreign currency forward exchange contracts to hedge our
exposure to adverse changes in foreign currency exchange rates
related to firm or anticipated commitments arising from
international transactions. We do not hold or issue derivative
instruments for trading purposes. Forward contracts totaled
$5.7 million at December 31, 2007 and $.6 million
at December 31, 2006. The annual potential loss from a
hypothetical 10% adverse change in foreign currency rates on our
foreign exchange contracts at December 31, 2007 would not
have materially affected our consolidated financial position,
results of operations or cash flows.
Interest
Rate Risk
At December 31, 2007, we had fixed rate debt of
$229 million, including $225 million face amount of
11
1
/
2
% Senior
Secured Notes due 2011, and floating rate debt of
$32 million. At December 31, 2006, we had fixed rate
debt of $230 million, including the
11
1
/
2
% Senior
Secured Notes due 2011, and floating rate debt of
$31 million. As a result of these factors, a portion of
annual interest expense fluctuates based on changes in
short-term borrowing rates. However, the potential annual loss
on floating rate debt from a hypothetical 10% increase in
interest rates would not have been significant at either of the
aforementioned dates.
On July 30, 2004, we entered into a $50 million
(notional amount) interest rate swap that effectively converted
a portion of our fixed-rate interest debt into a floating-rate
obligation. The swap was terminated on December 14, 2006 in
connection with our entering into a new asset based lending
facility. The interest rate swap had the effect of decreasing
interest expense in 2006 by $.3 million. Changes in the
fair value of the swap were reported as non-cash increases or
decreases in interest expense.
Off-Balance
Sheet Arrangements
Sales
of Accounts Receivable
One of our
non-U.S. subsidiaries
has a factoring agreement with a third party financial
institution under which it is able to sell without recourse up
to 10.0 million ($14.4 million) of accounts
receivable. At December 31, 2007 and December 31,
2006, the gross amount of accounts receivable that had been sold
under this arrangement totaled $10.6 million and
$9.0 million, respectively. Financing fees related to the
arrangement are not material. In March 2008, this factoring
agreement was replaced as part of a new asset-based revolving
credit program through Lloyds TSB Group plc for certain of our
operations in Europe. See Liquidity and Sources of Capital for
more information regarding the new credit program.
Sales
of Notes and Guarantees
Certain of our U.S. operations sell with recourse notes
from customers for the purchase of plastics processing
machinery. In certain other cases, we guarantee the repayment of
all or a portion of notes payable from our customers to third
party lenders. These arrangements are entered into for the
purpose of facilitating sales of machinery. In the event a
customer fails to repay a note, we generally regain title to the
machinery. At December 31, 2007 and December 31, 2006,
our maximum exposure under these U.S. guarantees, as well
as guarantees by certain of our
non-U.S. subsidiaries,
totaled $4.7 million and $5.9 million, respectively.
Losses related to sales of notes and guarantees have not been
material in the past.
28
Contractual
Obligations
Our contractual obligations for 2008 and beyond are shown as of
December 31, 2007 in the table that follows.
|
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|
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|
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|
|
|
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|
|
|
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|
|
|
|
|
|
|
|
2009 -
|
|
|
2011 -
|
|
|
Beyond
|
|
|
|
Total
|
|
|
2008
|
|
|
2010
|
|
|
2012
|
|
|
2012
|
|
|
|
(In millions)
|
|
|
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset-based facility borrowings due 2011
|
|
$
|
24.4
|
|
|
$
|
24.4
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
11
1
/
2
% Senior
Secured Notes due 2011
|
|
|
225.0
|
|
|
|
|
|
|
|
|
|
|
|
225.0
|
|
|
|
|
|
Interest on
11
1
/
2
% Senior
Secured Notes due 2011
|
|
|
91.4
|
|
|
|
25.9
|
|
|
|
51.8
|
|
|
|
13.7
|
|
|
|
|
|
Other long-term debt
|
|
|
.8
|
|
|
|
.6
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
11.2
|
|
|
|
1.6
|
|
|
|
3.5
|
|
|
|
3.0
|
|
|
|
3.1
|
|
Operating leases
|
|
|
25.7
|
|
|
|
11.6
|
|
|
|
9.6
|
|
|
|
2.4
|
|
|
|
2.1
|
|
Purchase obligations(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension plan contributions
|
|
|
(b
|
)
|
|
|
(b
|
)
|
|
|
(b
|
)
|
|
|
(b
|
)
|
|
|
(b
|
)
|
Unfunded pension benefits(c)(d)
|
|
|
94.5
|
|
|
|
3.1
|
|
|
|
6.1
|
|
|
|
6.2
|
|
|
|
79.1
|
|
Postretirement medical benefits(d)
|
|
|
4.9
|
|
|
|
.3
|
|
|
|
.5
|
|
|
|
.5
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
477.9
|
|
|
$
|
67.5
|
|
|
$
|
71.7
|
|
|
$
|
250.8
|
|
|
$
|
87.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
We did not have any significant purchase obligations as of
December 31, 2007.
|
|
(b)
|
|
The contribution required for our defined benefit pension plan
for certain U.S. employees and retirees for 2008 is estimated to
be between $30 million and $35 million with
approximately $20 million due in September. Required
contributions are estimated to be between $15 million and
$20 million for 2009. Contributions will also be required
in 2010 and beyond but cannot be reasonably estimated at this
time due to the number of variable factors which impact the
calculations.
|
|
(c)
|
|
Represents liabilities related to unfunded pension plans in the
U.S. and Germany.
|
|
(d)
|
|
The amounts presented for unfunded pension benefits and other
postretirement benefits reserves are estimates based on current
assumptions and expectations. Actual annual payments related to
these obligations can be expected to differ from the amounts
shown.
|
The above table excludes the contingent liabilities of up to
$4.7 million related to the loan guarantees that are
discussed above.
Liquidity
and Sources of Capital
At December 31, 2007, we had cash and cash equivalents of
$40.8 million, an increase of $2.3 million from
December 31, 2006. Substantially all of the cash was held
in foreign accounts in support of our operations outside of
North America. Were any of the
non-U.S. cash
to be repatriated, it could result in withholding taxes in
foreign jurisdictions and could have U.S. income tax
consequences.
Operating activities provided $10 million of cash in 2007
due principally to improved working capital levels as higher
advance billings and deposits and higher trade payables outpaced
growth in inventory levels. Operating activities in 2007 also
included the recovery of a receivable related to a prior
liability claim. Operating activities used $19 million of
cash in 2006 due principally to a $30 million voluntary
contribution to the funded defined benefit pension plan for
certain U.S. employees and retirees, partially offset by
the liquidation of assets for non-qualified retirement plans.
The usage of cash was also due in part to a reduction in
liabilities and an increase in inventories that resulted from
higher order levels.
Investing activities used $9 million of cash in 2007
including $10 million for capital expenditures, offset in
part by proceeds from the sale of equipment. The proceeds on the
sale of idled manufacturing facilities were approximately
$3 million and are included in operating activities as a
reduction of restructuring cash flows.
29
Capital expenditures in 2007 included approximately
$2 million related to the implementation of an Enterprise
Resource Planning (ERP) system, a major portion of which was
placed into service January 1, 2008. Investing activities
used $11 million of cash in 2006, including
$14 million for capital expenditures which was partially
offset by $3 million from the sale of an idle plant
facility and other surplus assets. Capital expenditures in 2006
included approximately $9 million related to the
implementation of the ERP system.
Financing activities used $1 million of cash in 2007 due
principally to the repayment of long-term debt, offset in part
by additional short-term borrowings. Financing activities
provided $19 million of cash in 2006 due principally to
increases in net short-term borrowings.
Our current ratio was 1.6 at December 31, 2007 compared to
1.7 at December 31, 2006.
On December 19, 2006, we entered into a new five year asset
based revolving credit facility for which General Electric
Capital Corporation acts as administrative agent, collateral
agent and a lender. The new asset based facility replaced a
$75 million asset based facility that was terminated by us.
The termination of the previous facility was concurrent with,
and contingent upon, the effectiveness of the new facility. The
new facility provides increased liquidity and better terms than
the previous facility with up to $105 million of borrowing
availability and no financial maintenance covenants as long as
we comply with certain minimum availability thresholds, as
described below. In addition to terminating our previous asset
based facility, we also terminated an interest rate swap that
was entered into on July 30, 2004.
The security underlying the new asset based facility is
substantially the same as that granted in connection with the
previous facility. The borrowings under the asset based facility
are secured by a first priority security interest, subject to
permitted liens, in, among other things, U.S. and Canadian
accounts receivable, cash and cash equivalents, inventory and,
in the U.S., certain related rights under contracts, licenses
and other general intangibles, subject to certain exceptions.
The asset based facility is also secured by a second priority
security interest on the assets that secure the
11
1
/
2
% Senior
Secured Notes due 2011 on a first priority basis.
The availability of loans under our asset based facility is
generally limited to a borrowing base equal to specified
percentages of eligible U.S. and Canadian accounts
receivable and U.S. inventory as well as permitted
overadvances and is subject to other conditions to borrowing and
limitations, including an excess availability reserve (the
minimum required availability) of $10 million and other
reserve requirements. The facility has a stated maturity of
December 19, 2011.
The terms of our asset based facility impose a daily cash
sweep on cash received in our U.S. bank
accounts from collections of our accounts receivable. This daily
cash sweep is automatically applied to pay down any
outstanding borrowings under our asset based facility. The terms
of our asset based facility also provide for the administrative
agent, at its option and at any time, to impose a daily cash
sweep on cash received in our Canadian bank accounts
from collections of our accounts receivable. Since the cash we
receive from collection of receivables is subject to the
automatic sweep to repay the borrowings under the
asset based facility on a daily basis, we rely on borrowings
under it as our primary source of cash for use in our North
American operations. Our liquidity could be materially affected
if we have no additional availability or are unable to satisfy
the borrowing conditions, including, among other things,
conditions related to the continued accuracy of our
representations and warranties and the absence of any unmatured
or matured defaults (including under financial covenants) or any
material adverse change in the companys business or
financial condition.
Our asset based facility contains customary conditions precedent
to any borrowings, as well as customary covenants, including,
but not limited to, maintenance of unused availability under the
borrowing base based on reserves (including the excess
availability reserve and other reserves) established by the
administrative agent. Our asset based facility requires us to
maintain a $10 million excess availability reserve and
contains a limit on annual capital expenditures and a springing
financial covenant requiring us to maintain a minimum fixed
charge coverage ratio, to be tested quarterly, in the event that
excess availability is less than $5 million.
Based on the assets included in the borrowing base as of
December 31, 2007, including a $10 million
over-advance facility, but without giving effect to reserves,
outstanding borrowings and issuances of letters of credit (in
all cases, as discussed below), we had approximately
$77 million of borrowing-based availability, subject to the
customary ability of the administrative agent for the lenders to
reduce advance rates, impose or change collateral
30
value limitations, establish reserves and declare certain
collateral ineligible from time to time in its reasonable credit
judgment, any of which could reduce our borrowing availability
at any time. At December 31, 2007, $32 million of the
asset based facility was utilized, including borrowings of
$24 million and letters of credit of $8 million. Under
the terms of the facility, our additional borrowing capacity
based on the assets included in the borrowing base at
December 31, 2007 was approximately $34 million after
taking into account the minimum availability and existing
reserve requirements.
Failure to meet or exceed the covenants of the asset based
facility would constitute an event of default under the
facility, which would permit the lenders to accelerate
indebtedness owed thereunder (if such indebtedness remained
unpaid) and terminate their commitments to lend. The
acceleration of the indebtedness under the asset based facility
would also create a cross-default under our
11
1
/
2
% Senior
Secured Notes due 2011 if the principal amount of indebtedness
accelerated, together with the principal amount of any other
such indebtedness under which there had been a payment default
or the maturity had been so accelerated, aggregated
$15 million or more. Such cross-default would permit the
trustee under the indenture governing the
11
1
/
2
% Senior
Secured Notes due 2011 or the holders of at least 25% in
principal amount of the then outstanding notes to declare the
notes to be due and payable immediately. Events of default under
the asset based facility and the
11
1
/
2
% Senior
Secured Notes due 2011 in addition to those described above,
including, without limitation, the failure to make required
payments in respect of such indebtedness in a timely manner, may
result in the acceleration of indebtedness owed under these
instruments. The acceleration of obligations under our
outstanding indebtedness would have a material adverse effect on
our business, financial condition and results of operations.
At December 31, 2007, we had other lines of credit with
various U.S. and
non-U.S. banks
totaling approximately $33 million, of which approximately
$12 million was available under certain circumstances.
In March 2008, certain of our operations in Europe signed a
five-year, asset based revolving credit program through Lloyds
TSB Group plc to provide as much as 27 million of
aggregate financing for working capital purposes. This new asset
based lending program will allow us to replace shorter-term
credit commitments while providing incremental financing for our
global working capital needs, including meeting our pension
funding obligations. Because of the substantial inter-company
indebtedness created by our U.S. refinancing of European
bonds in 2004, we will be able to apply the proceeds to these
obligations in a tax-efficient manner The credit program
consists of two parts: (i) asset-secured loans to our
subsidiaries in Germany, Holland and Belgium and (ii) an
accounts receivable factoring facility between our German
operations and Lloyds TSB Commerce Finance. Based upon current
asset levels, total borrowing and factoring capacity under the
new program, when fully operational, is expected to exceed
20 million. Principal terms of the program have been
filed with the Securities and Exchange Commission.
Our debt and credit are rated by Standard & Poors
(S&P) and Moodys Investors Service (Moodys). On
December 20, 2007, Moodys lowered the rating on our
$225 million of Senior Secured Notes due 2011 and our
corporate family to Caa2 and affirmed a negative
outlook. On June 7, 2007, S&P affirmed its rating on
our corporate credit at CCC+ and affirmed its outlook as
developing. However, S&P lowered its rating on Senior
Secured Notes to CCC-.
None of our debt instruments include ratings triggers that would
accelerate maturity or increase interest rates in the event of a
ratings downgrade. Accordingly, any potential ratings downgrades
would have no significant short-term effect, although they could
potentially affect the types and cost of credit facilities and
debt instruments available to us in the future.
Before funding our U.S. defined benefit pension plan, we expect
to generate positive cash flow from operations during 2008.
However, operating cash flows may or may not be sufficient to
meet the U.S. defined benefit plan funding requirements. We
believe that our current cash position, cash flow from
operations and available credit lines, including our asset based
revolving credit facilities, will be sufficient to meet our
capital expenditure and benefit plan requirements for 2008.
Cautionary
Statement
We wish to caution readers about all of the forward-looking
statements in the Managements Discussion and
Analysis section and elsewhere. These include all
statements that speak about the future or are based on our
31
interpretation of factors that might affect our businesses. We
believe the following important factors, among others, and the
risk factors described earlier in this document could affect our
actual results in 2008 and beyond and cause them to differ
materially from those expressed in any of our forward-looking
statements:
|
|
|
|
|
fluctuations in market valuations of pension plan assets or
changes in interest rates that could result in increased pension
expense and reduced shareholders equity and require us to
make significant cash contributions in the future;
|
|
|
|
our ability to comply with financial and other covenants
contained in the agreements governing our indebtedness,
including our senior secured notes and asset based credit
facility;
|
|
|
|
our ability to remediate or otherwise mitigate any material
weakness in internal control over financial reporting or
significant deficiencies that may be identified;
|
|
|
|
global and regional economic conditions, consumer spending,
capital spending levels and industrial production, particularly
in segments related to the level of automotive production and
spending in the plastics and construction industries;
|
|
|
|
fluctuations in currency exchange rates of U.S. and foreign
countries, including countries in Europe and Asia where we have
several principal manufacturing facilities and where many of our
customers, competitors and suppliers are based;
|
|
|
|
fluctuations in interest rates which affect the cost of
borrowing;
|
|
|
|
production and pricing levels of important raw materials,
including plastic resins, which are a key material used by
purchasers of our plastics technologies products, as well as
steel, oil and chemicals;
|
|
|
|
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 relations issues;
|
|
|
|
|
|
customer acceptance of new products introduced during 2007 and
products expected to be introduced in 2008;
|
|
|
|
|
|
any major disruption in production at key customer or supplier
facilities or at our facilities;
|
|
|
|
disruptions in global or regional commerce due to wars, to
social, civil or political unrest in the
non-U.S. countries
in which we operate and to acts of terrorism, continued threats
of terrorism and military, political and economic responses
(including heightened security measures) to terrorism;
|
|
|
|
alterations in trade conditions in and between the U.S. and
non-U.S. countries
where we do 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 we do business;
|
|
|
|
litigation, claims or assessments, including but not limited to
claims or problems related to product liability, warranty or
environmental issues;
|
|
|
|
our ability to satisfy our pension funding obligations for 2008
and beyond when they become due; and
|
|
|
|
our ability to successfully complete the implementation of our
new Enterprise Resource Planning (ERP) system without
significant business interruption.
|
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Not applicable.
|
|
Item 8.
|
Financial
Statements
|
Beginning on page 33 and continuing through page 87
are the Consolidated Financial Statements with applicable notes
and the related Report of Independent Registered Public
Accounting Firm.
32
MILACRON
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions, except per-share amounts)
|
|
|
Sales
|
|
$
|
807.9
|
|
|
$
|
820.1
|
|
Cost of products sold
|
|
|
644.9
|
|
|
|
668.2
|
|
Cost of products sold related to restructuring
|
|
|
.2
|
|
|
|
.5
|
|
|
|
|
|
|
|
|
|
|
Total cost of products sold
|
|
|
645.1
|
|
|
|
668.7
|
|
|
|
|
|
|
|
|
|
|
Manufacturing margins
|
|
|
162.8
|
|
|
|
151.4
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
|
144.6
|
|
|
|
140.2
|
|
Restructuring costs
|
|
|
12.3
|
|
|
|
16.9
|
|
Change in preferred stock ownership costs
|
|
|
1.9
|
|
|
|
|
|
Pension plan curtailment cost
|
|
|
1.9
|
|
|
|
|
|
Refinancing costs
|
|
|
|
|
|
|
1.8
|
|
Other (income)
expense-net
|
|
|
(2.7
|
)
|
|
|
(.3
|
)
|
|
|
|
|
|
|
|
|
|
Total other costs and expenses
|
|
|
158.0
|
|
|
|
158.6
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
4.8
|
|
|
|
(7.2
|
)
|
Interest
|
|
|
|
|
|
|
|
|
Income
|
|
|
.9
|
|
|
|
1.0
|
|
Expense
|
|
|
(32.3
|
)
|
|
|
(31.0
|
)
|
|
|
|
|
|
|
|
|
|
Interest-net
|
|
|
(31.4
|
)
|
|
|
(30.0
|
)
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes
|
|
|
(26.6
|
)
|
|
|
(37.2
|
)
|
Provision for income taxes
|
|
|
61.7
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(88.3
|
)
|
|
|
(39.8
|
)
|
Discontinued operations net of income taxes
|
|
|
1.2
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(87.1
|
)
|
|
$
|
(39.7
|
)
|
|
|
|
|
|
|
|
|
|
Loss applicable to common shareholders
|
|
$
|
(96.4
|
)
|
|
$
|
(49.1
|
)
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share basic and
diluted
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
$
|
(19.48
|
)
|
|
$
|
(10.17
|
)
|
Discontinued operations
|
|
|
.23
|
|
|
|
.02
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(19.25
|
)
|
|
$
|
(10.15
|
)
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
33
MILACRON
INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEET
December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions, except par value)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40.8
|
|
|
$
|
38.5
|
|
Notes and accounts receivable, less allowances of $7.8 in 2007
and $7.3 in 2006
|
|
|
114.6
|
|
|
|
114.5
|
|
Inventories
|
|
|
|
|
|
|
|
|
Raw materials
|
|
|
8.2
|
|
|
|
7.6
|
|
Work-in-process
and finished parts
|
|
|
96.0
|
|
|
|
88.4
|
|
Finished products
|
|
|
75.5
|
|
|
|
74.7
|
|
|
|
|
|
|
|
|
|
|
Total inventories
|
|
|
179.7
|
|
|
|
170.7
|
|
Other current assets
|
|
|
34.9
|
|
|
|
41.9
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
370.0
|
|
|
|
365.6
|
|
Property, plant and equipment net
|
|
|
106.4
|
|
|
|
114.3
|
|
Goodwill
|
|
|
90.5
|
|
|
|
87.3
|
|
Other noncurrent assets
|
|
|
36.0
|
|
|
|
83.3
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
602.9
|
|
|
$
|
650.5
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS DEFICIT
|
Current liabilities
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
26.9
|
|
|
$
|
25.5
|
|
Long-term debt and capital lease obligations due within one year
|
|
|
2.1
|
|
|
|
2.2
|
|
Trade accounts payable
|
|
|
92.1
|
|
|
|
77.8
|
|
Advance billings and deposits
|
|
|
29.4
|
|
|
|
24.4
|
|
Accrued and other current liabilities
|
|
|
76.6
|
|
|
|
82.6
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
227.1
|
|
|
|
212.5
|
|
Long-term accrued liabilities
|
|
|
193.3
|
|
|
|
226.5
|
|
Long-term debt
|
|
|
231.9
|
|
|
|
232.8
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
652.3
|
|
|
|
671.8
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Shareholders deficit
|
|
|
|
|
|
|
|
|
4% Cumulative Preferred shares
|
|
|
6.0
|
|
|
|
6.0
|
|
6% Series B Convertible Preferred Stock, $.01 par
value (outstanding: .5 in both 2007 and 2006)
|
|
|
119.2
|
|
|
|
116.1
|
|
Common shares, $.01 par value (outstanding: 5.5 in 2007 and
5.2 in 2006)
|
|
|
.1
|
|
|
|
.1
|
|
Capital in excess of par value
|
|
|
355.9
|
|
|
|
351.5
|
|
Contingent warrants
|
|
|
.2
|
|
|
|
.5
|
|
Accumulated deficit
|
|
|
(478.3
|
)
|
|
|
(381.9
|
)
|
Accumulated other comprehensive loss
|
|
|
(52.5
|
)
|
|
|
(113.6
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders deficit
|
|
|
(49.4
|
)
|
|
|
(21.3
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders deficit
|
|
$
|
602.9
|
|
|
$
|
650.5
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
34
MILACRON
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
AND SHAREHOLDERS DEFICIT
Years ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
4% Cumulative Preferred shares
|
|
|
|
|
|
|
|
|
Balance at beginning and end of period
|
|
$
|
6.0
|
|
|
$
|
6.0
|
|
6% Series B Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
116.1
|
|
|
|
112.9
|
|
Beneficial conversion feature
|
|
|
3.1
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
119.2
|
|
|
|
116.1
|
|
Common shares
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
351.6
|
|
|
|
348.5
|
|
Restricted stock expense
|
|
|
2.5
|
|
|
|
1.1
|
|
Issuance of previously unissued shares
|
|
|
1.9
|
|
|
|
.8
|
|
Transfer of restricted stock liability balances to equity in
connection with adoption of a new accounting standard
|
|
|
|
|
|
|
1.3
|
|
Effect of change in method of accounting for restricted stock
forfeitures
|
|
|
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
356.0
|
|
|
|
351.6
|
|
Contingent warrants
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
.5
|
|
|
|
.5
|
|
Exercise of contingent warrants
|
|
|
(.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
.2
|
|
|
|
.5
|
|
Accumulated deficit
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
(381.9
|
)
|
|
|
(332.8
|
)
|
Net loss for the period
|
|
|
(87.1
|
)
|
|
|
(39.7
|
)
|
Dividends declared or accrued
|
|
|
|
|
|
|
|
|
4% Cumulative Preferred shares
|
|
|
(.2
|
)
|
|
|
(.2
|
)
|
6% Series B Convertible Preferred Stock
|
|
|
(6.0
|
)
|
|
|
(6.0
|
)
|
Beneficial conversion feature related to 6% Series B
Convertible Preferred Stock
|
|
|
(3.1
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
(478.3
|
)
|
|
|
(381.9
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
(113.6
|
)
|
|
|
(140.2
|
)
|
Foreign currency translation adjustments
|
|
|
15.9
|
|
|
|
17.7
|
|
Postretirement benefit plan adjustments
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service cost
|
|
|
(1.6
|
)
|
|
|
|
|
Pension plan curtailment cost
|
|
|
1.9
|
|
|
|
|
|
Amortization of net unrecognized losses
|
|
|
10.5
|
|
|
|
|
|
Pension plan curtailment gain
|
|
|
27.9
|
|
|
|
|
|
Postretirement health care plan amendment
|
|
|
3.8
|
|
|
|
|
|
Actuarial gain arising in the period not included in net
periodic postretirement benefit costs
|
|
|
2.7
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
32.2
|
|
Adjustment related to the adoption of a new accounting standard
|
|
|
|
|
|
|
(23.3
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
(52.5
|
)
|
|
|
(113.6
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders deficit
|
|
$
|
(49.4
|
)
|
|
$
|
(21.3
|
)
|
|
|
|
|
|
|
|
|
|
Net loss for the period
|
|
$
|
(87.1
|
)
|
|
$
|
(39.7
|
)
|
Change in accumulated other comprehensive income (loss)
|
|
|
61.1
|
|
|
|
49.9
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(26.0
|
)
|
|
$
|
10.2
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
35
MILACRON
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years ended December 31, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
Operating activities cash flows
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(87.1
|
)
|
|
$
|
(39.7
|
)
|
Operating activities providing (using) cash
|
|
|
|
|
|
|
|
|
Discontinued operations net of income taxes
|
|
|
(1.2
|
)
|
|
|
(.1
|
)
|
Depreciation and amortization
|
|
|
16.1
|
|
|
|
16.8
|
|
Restructuring costs
|
|
|
10.2
|
|
|
|
8.2
|
|
Refinancing costs
|
|
|
|
|
|
|
1.8
|
|
Deferred income taxes
|
|
|
58.8
|
|
|
|
.8
|
|
Working capital changes
|
|
|
|
|
|
|
|
|
Notes and accounts receivable
|
|
|
3.7
|
|
|
|
7.9
|
|
Inventories
|
|
|
(4.4
|
)
|
|
|
(4.5
|
)
|
Other current assets
|
|
|
(3.7
|
)
|
|
|
2.1
|
|
Trade accounts payable
|
|
|
11.7
|
|
|
|
(1.7
|
)
|
Other current liabilities
|
|
|
(13.3
|
)
|
|
|
(2.0
|
)
|
Decrease in other noncurrent assets
|
|
|
7.6
|
|
|
|
15.7
|
|
Increase (decrease) in long-term accrued liabilities
|
|
|
7.8
|
|
|
|
(25.9
|
)
|
Other-net
|
|
|
3.4
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
9.6
|
|
|
|
(19.2
|
)
|
Investing activities cash flows
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(9.6
|
)
|
|
|
(13.8
|
)
|
Net disposals of property, plant and equipment
|
|
|
.3
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(9.3
|
)
|
|
|
(10.9
|
)
|
Financing activities cash flows
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(1.6
|
)
|
|
|
(1.6
|
)
|
Increase in short-term borrowings
|
|
|
1.0
|
|
|
|
21.2
|
|
Dividends paid
|
|
|
(.2
|
)
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
(.8
|
)
|
|
|
19.4
|
|
Effect of exchange rate fluctuations on cash and cash
equivalents
|
|
|
2.8
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
2.3
|
|
|
|
(7.2
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
38.5
|
|
|
|
45.7
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
40.8
|
|
|
$
|
38.5
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
36
MILACRON
INC. AND SUBSIDIARIES
Summary
of Significant Accounting Policies
Use of
Estimates
The preparation of financial statements in conformity with
U.S. 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 companys
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
other comprehensive income (loss) 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
expense-net
in the Consolidated Statements of Operations. Such amounts were
expense of less than $.1 million in 2007 and expense of
$.2 million in 2006.
Revenue
Recognition
The company recognizes revenue when products are shipped to
unaffiliated customers, legal title has passed, the sales price
is fixed and determinable, all significant contractual
obligations have been satisfied and the collectibility of the
sales price is reasonably assured. The company incurs costs for
shipping and handling in connection with sales to customers. The
company generally recognizes the shipping and handling costs as
a component of costs of goods sold.
Contracts for the sale of plastics processing machinery
typically include customer acceptance provisions, which are
satisfied prior to shipment or at the customers facility.
Revenue is recognized when all significant acceptance provisions
have been satisfied, the machinery has been delivered and all
applicable revenue recognition criteria have been satisfied.
Installation is typically not included in the sale price of
plastics processing machinery. To the extent that it is, it is
generally of a perfunctory nature and reserves for any related
costs are provided at the time revenue is recognized.
The company offers volume discounts and rebates to certain
customers, usually distributors, of its metalworking fluids
business. Discounts offered to distributors are based on the
number of gallons included in a particular order.
Appropriate allowances for returns, which are not significant,
and post-sale warranty costs (see Summary of Significant
Accounting Policies Warranty Reserves) are made at
the time revenue is recognized. The company continually
evaluates the creditworthiness of its customers and enters into
sales contracts only when collection of the sales price is
reasonably assured. For sales of plastics processing machinery,
customers are generally required to make substantial
down-payments prior to shipment which helps to ensure collection
of the full price.
Advertising
Costs
Advertising costs are charged to expense as incurred. Excluding
amounts related to participation in trade shows, advertising
costs totaled $5.6 million in 2007 and $5.4 million in
2006.
37
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
non-U.S. subsidiaries.
Earnings
Per Common Share
Basic earnings per common share data are based on the
weighted-average number of common shares outstanding during the
respective periods. When required under U.S. generally
accepted accounting principles, diluted earnings per common
share data are based on the weighted-average number of common
shares outstanding adjusted to include the effects of certain
restricted shares, the conversion of the Series B Preferred
Stock and the contingent warrants.
For all periods presented, loss per common share data reflect
the effects of a one-for-ten reverse stock split that became
effective on May 16, 2007 (see Shareholders Equity).
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
average or standard costs, which approximate
first-in,
first-out (FIFO).
Property,
Plant and Equipment
Property, plant and equipment, including amounts related to
capital leases, 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 $15.4 million in 2007 and $15.7 million in 2006.
The ranges of depreciation lives that are used for most assets
are as follows:
|
|
|
|
|
|
|
Range of
|
|
Asset
|
|
Depreciation Life
|
|
|
Buildings (new)
|
|
|
25 45 years
|
|
Buildings (used)
|
|
|
20 30 years
|
|
Land improvements
|
|
|
10 20 years
|
|
Building components
|
|
|
5 45 years
|
|
Factory machinery
|
|
|
6 12 years
|
|
Vehicles
|
|
|
3 6 years
|
|
Office furniture and fixtures
|
|
|
5 10 years
|
|
Computers
|
|
|
3 5 years
|
|
Personal computers
|
|
|
3 years
|
|
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
38
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets are accrued at the time expected losses are recognized.
For assets expected to be sold at a gain, carrying costs are
charged to expense as incurred.
Goodwill
Goodwill, which represents the excess of acquisition cost over
the fair value of net assets acquired in business combinations,
is reviewed annually for impairment. The company has elected to
conduct its annual impairment reviews as of October 1 of each
year and base its assessments of possible impairment on the
discounted present value of the operating cash flows of its
various reporting units. The company has identified eight
reporting units for purposes of testing goodwill for impairment.
Long-Lived
Assets
The company evaluates its long-lived assets, including certain
intangible assets, for impairment annually or when facts and
circumstances suggest that the carrying amounts of these assets
might not be recoverable.
Warranty
Reserves
The company maintains warranty reserves intended to cover future
costs associated with its warranty obligations. These reserves
are based on estimates of the amounts of those costs. Warranty
costs are of two types - normal and extraordinary. Normal
warranty costs represent repair costs incurred in the ordinary
course of business and reserves are generally calculated using a
percentage of sales approach based on past experience.
Extraordinary warranty costs are unique major problems
associated with a single machine, customer order or a set of
problems related to a large number of machines or other type of
product. Extraordinary warranty reserves are estimated based on
specific facts and circumstances. The companys policy is
to adjust its warranty reserves quarterly.
Self-Insurance
Reserves
Through its wholly owned insurance subsidiary, Milacron
Assurance Ltd. (MAL), the company is primarily self-insured for
many types of risks, including general liability, product
liability, environmental claims and workers compensation
for certain domestic employees. MAL, which is fully consolidated
in the Consolidated Financial Statements and subject to the
insurance laws and regulations of Bermuda, establishes reserves
for known or estimated exposures under the policies it issues to
the company. MALs exposure for general and product
liability claims is limited by reinsurance coverage in some
cases and by excess liability coverage in all policy years.
Workers compensation claims in excess of certain limits
are insured with commercial carriers.
MALs reserves are established based on known claims,
including those arising from litigation, and estimates of the
ultimate exposures thereunder (after consideration of expected
recoveries from excess liability carriers and claims against
third parties) and on estimates of the cost of incurred but not
reported claims. Expected recoveries represent the excess of
total reserves for known exposures and incurred but not reported
claims over the limits on the policies MAL issues to the
company. For certain types of exposures, MAL and the company
utilize actuarially calculated estimates prepared by outside
consultants to ensure the adequacy of the reserves. Reserves are
reviewed and adjusted at least quarterly based on all available
information as of the respective balance sheet dates or as
further information becomes available or circumstances change.
MALs reserves are included in accrued and other current
liabilities and long-term accrued liabilities in the
Consolidated Balance Sheets. Expected recoveries from excess
carriers are included in other current assets and other
noncurrent assets, and represent the excess of total reserves
for known exposures and incurred but not reported claims over
the limits on the policies MAL issues to the company. These
amounts are classified as assets because unless other payment
arrangements are negotiated, the company (as the insured party)
expects that it would first pay any indemnity claims and
expenses in excess of MALs limits and then pursue
reimbursement from the excess carriers.
39
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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 companys policy
is to fund the plans in accordance with applicable laws and
regulations. The company also sponsors a defined benefit
postretirement health care plan under which such benefits are
provided to certain U.S. employees.
The benefit obligations related to defined benefit pension plans
and the postretirement health care plan are actuarially measured
as of January 1 of each year. The amounts so determined are then
progressed to year end based on known or expected changes. The
assets of the funded defined benefit pension plans, including
the defined pension plan for certain U.S. employees and
retirees, are valued as of December 31 of each year.
Derivative
Financial Instruments
The company enters into foreign currency forward exchange
contracts, which are a type of derivative financial instrument,
on an ongoing basis commensurate with known or expected
exposures. The purpose of this practice is to minimize the
potentially adverse effects of foreign currency exchange rate
fluctuations on the companys operating results. These
contracts are typically designated as cash flow hedges with any
gains or losses resulting from changes in their fair value being
recorded as a component of other comprehensive loss pending
completion of the transactions being hedged.
On December 14, 2006, the company terminated an interest
rate swap that it had entered into on July 30, 2004. The
interest rate swap, a form of derivative financial instrument,
was entered into for the purpose of achieving a better balance
between fixed-rate and floating-rate debt. The amounts paid or
received under this arrangement were recorded as adjustments of
interest expense. Changes in the fair value of the arrangement
were also applied as adjustments of interest expense.
The company does not currently hold other types of derivative
financial instruments and does not engage in speculation.
Changes
in Methods of Accounting
Effective January 1, 2007, the company adopted Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
(FIN No. 48). This interpretation of Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes, prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. The interpretation also provides guidance
regarding the derecognition of tax benefits, their
classification in the statement of financial position and
accounting for possible interest and penalties. Additionally, a
new disclosure framework for uncertain tax positions is required
beginning in 2007.
The adoption of FIN No. 48 resulted in a de minimis
cumulative effect adjustment to opening accumulated deficit and
accrued income taxes. The cumulative adjustment also resulted in
a decrease in deferred tax assets and valuation allowances in
the amount of $.7 million. The gross amount of uncertain
tax benefits at adoption amounted to $2.8 million which
increased by a net $17.4 in 2007 resulting in a balance of
$20.2 million at December 31, 2007. Consistent with
past practice, interest and penalties are classified as income
tax expense as accrued. However, the amounts are immaterial in
the periods presented primarily due to net operating loss
carryforwards reflected as deferred tax assets.
Resolution of controversies related to uncertain tax benefits
are contingent on reaching satisfactory settlement agreements
with the relevant taxing authorities. In 2007, the company
reached a favorable settlement with a
non-U.S. taxing
jurisdiction related to $1.5 million of uncertain tax
benefits and recorded the related benefit. The resolution of the
issues underlying uncertain tax benefits may cause a decrease or
increase in the companys
40
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
effective tax rate. The companys tax returns are open
under the respective statutes of limitations in most of the
jurisdictions in which the company has major operations for
periods generally beginning with the 2003 tax year.
Effective January 1, 2006, the company adopted Statement of
Financial Accounting Standards No. 123 (Revised 2004),
Share-Based Payment, (SFAS No. 123R) using
the modified prospective transition method. Accordingly, amounts
for prior periods were not restated. The company had previously
accounted for stock options and restricted stock awards under
the recognition and measurement provisions of Accounting
Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and the related interpretations.
Prior to the adoption of SFAS No. 123R, no
compensation expense related to stock options was recognized in
earnings because all of the options granted under the
companys 1997 and 2004 Long-Term Incentive Plans and a
predecessor plan had exercise prices equal to the fair market
value of the underlying common shares at the respective grant
dates. Under the provisions of SFAS No. 123R, expense
related to stock options must be recognized in an entitys
primary financial statements over the vesting period or periods
based on their fair value (as defined in the standard) as of the
grant date. The conversion of $30.0 million of
then-outstanding notes into 1.5 million common shares on
April 15, 2004 resulted in a change in control under the
provisions of the 1997 Long-Term Incentive Plan which triggered
the vesting of all outstanding stock options. Since that date,
only 1,400 additional stock options have been granted of which
1,050 were not fully vested as of January 1, 2006. The
company began to include the expense related to these stock
options in the Consolidated Statements of Operations in 2006 but
the effect of doing so is de minimis based on their grant date
fair value of $27.20 per share.
Under the provisions of SFAS No. 123R, the company
continues to recognize expense related to restricted (unvested)
stock and deferred shares over the respective vesting periods.
The provisions of these awards and activity for 2007 are
presented in the note captioned Share-Based
Compensation. Prior to 2006, the company had accounted for
forfeitures of these awards as they occurred. However,
SFAS No. 123R requires that estimates of future
forfeitures be made as of the grant dates and revised as
necessary over the vesting periods. Accordingly, the company
made estimates of future forfeitures for those awards
outstanding as of January 1, 2006. The effect was to reduce
the cumulative expense recognized to date by approximately
$.1 million. This amount is included as income in other
expense-net
in the Consolidated Statement of Operations for 2006 (rather
than being reported as the cumulative effect of a change in
method of accounting) based on its immateriality.
As was customary under the prior rules, the company previously
classified the offsets to the expense recognized for restricted
stock and deferred shares as liabilities in the Consolidated
Balance Sheets. The recorded liabilities were then transferred
to shareholders equity when the awards vested. In
connection with the adoption of SFAS No. 123R,
liability balances as of December 31, 2005 totaling
$1.3 million were reclassified to capital in excess of par
value in shareholders equity as of January 1, 2006.
Excluding the adjustment for forfeitures, the adoption of
SFAS No. 123R had the effect of increasing the
companys 2006 loss before income taxes and net loss by
less than $.1 million. Including the adjustment for
forfeitures, the effect on the respective loss amounts was a de
minimis decrease. In both cases, there was no effect on the
applicable loss per common share amounts.
Effective December 31, 2006, the company adopted the
recognition and related disclosure provisions of Statement of
Financial Accounting Standards No. 158,
Employers Accounting for Defined Benefit Pension and
Other Postretirement Plans, (SFAS No. 158). As
required, the adoption was on a prospective transition method
and prior periods were not restated. This standard amends
Statements of Financial Accounting Standards No. 87, 88,
106 and 132(R). The standard requires an employer to recognize
the overfunded or underfunded status of a defined benefit
postretirement plan as an asset or liability in its statement of
financial position. The adoption of SFAS No. 158
increased shareholders deficit by $23.3 million and
increased liabilities by $20.9 million, in both cases in
relation to the amounts that would otherwise have been reported
at December 31, 2006 under previous requirements. See the
note captioned Retirement Benefit Plans for
additional information regarding the companys
postretirement benefit plans.
41
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
SFAS No. 158 includes a second provision that is
effective as of December 31, 2008. The measurement date
provision of the standard requires an employer to measure plan
assets and benefit obligations as of the date of the
employers fiscal year-end statement of financial position
and prohibits retrospective application. Because the company
currently measures plan assets and benefit obligations as of its
year end, this provision will not affect the companys
financial position or results of operation.
Recently
Issued Pronouncements
In September 2006, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements, (SFAS No. 157).
SFAS No. 157 is effective for fiscal years and interim
periods that begin after November 15, 2007 on a prospective
basis. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted
accounting principals and expands disclosure about fair value.
The effects of adopting this standard are still being determined.
In February 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 159,
The Fair Value Option for Financial Assets and Financial
Liabilities, (SFAS No. 159).
SFAS No. 159 is elective for fiscal years that begin
after November 15, 2007 on a prospective basis.
SFAS No. 159 allows companies to measure certain
financial assets and financial liabilities at fair market value
and to report changes in the fair market value in earnings. The
company does not intend to elect fair value reporting for its
financial assets and financial liabilities in the near future.
In December 2007, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, (SFAS No. 160).
SFAS No. 160 is effective for fiscal years and interim
periods beginning after December 15, 2008 on a prospective
basis. The effects of adopting this standard are not expected to
have a material effect on the companys financial
statements. SFAS No. 160 requires that entities
provide sufficient disclosures that clearly identify and
distinguish between interests of the parent and interests of
noncontrolling owners. SFAS No. 160 also changes the
deconsolidation and acquisition accounting for noncontrolling
interests.
Discontinued
Operations
The components of the line captioned Discontinued
operations net of income taxes in the Consolidated
Statements of Operations for 2007 and 2006 are presented in the
table that follows. In both years, the amounts presented
represent adjustments of previously recorded reserves for
post-sale exposures based on more current information.
Gain
(Loss) on Divestiture of Discontinued Operations
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Sale of Valenite
|
|
$
|
.5
|
|
|
$
|
.9
|
|
Sale of Widia and Werkö
|
|
|
|
|
|
|
|
|
Sale of round metalcutting tools business
|
|
|
.3
|
|
|
|
(.3
|
)
|
Sale of grinding wheels business
|
|
|
.2
|
|
|
|
(.2
|
)
|
Adjustments of reserves for the 1998 divestiture of the machine
tools segment
|
|
|
.2
|
|
|
|
(.3
|
)
|
|
|
|
|
|
|
|
|
|
Net gain on divestitures
|
|
$
|
1.2
|
|
|
$
|
.1
|
|
|
|
|
|
|
|
|
|
|
42
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restructuring
Costs
In November 2002, the company announced restructuring
initiatives intended to improve operating efficiency and
customer service. One of these actions involved the transfer of
all manufacturing of container blow molding machines and
structural foam systems from the plant in Manchester, Michigan
to the companys more modern and efficient facility near
Cincinnati, Ohio. The mold making operation has also been moved
to a smaller location near Manchester. These operations are
included in the machinery technologies North America
segment. The relocations, which involved the elimination of 40
positions, resulted in restructuring costs of
$14.3 million, including $.6 million in 2006. The
amount for 2006 includes a charge to further reduce the carrying
value of the Manchester facility based on a revised estimate of
its fair value. The remainder of the expense for 2006 relates to
costs to complete the move of the mold making operation and
carrying costs for the Manchester facility pending its sale. The
facility was subsequently sold in the third quarter of 2006 for
proceeds that approximated its adjusted carrying value. Of the
total cost of $14.3 million, $1.5 million relates to
employee severance costs, $7.0 million to facility exit
costs (including adjustments to the carrying values of the
Manchester building and other assets that were disposed of),
$1.9 million to inventory adjustments related to product
lines discontinued in connection with the relocation and
$3.9 million to other move-related costs, including
employee, inventory and machinery and equipment relocation. Net
of $1.8 million of proceeds from the sale of the Manchester
facility, the net cash cost of the relocations was
$4.6 million. The non-cash cost of $9.7 million
relates principally to adjustments related to inventories of
discontinued product lines and assets disposed of as a result of
the plant closure.
In 2004, the company initiated headcount reductions in its
European mold base and components business. These reductions
represented a continuation of actions initiated in 2003 and
employment level reductions in Germany and were undertaken due
to continued slow economic conditions in Europe. The company
incurred additional costs for these actions in 2006 related
principally to the resolution of legal issues related to earlier
terminations.
In the fourth quarter of 2005 the company also initiated the
closure of a small metalworking fluids blending operation in
Germany. The closure resulted in expense of $.3 million,
including $.1 million in 2006. The cash cost in 2006 was
$.1 million and an additional $.1 million was spent in
2007. In the fourth quarter of 2006, the company initiated the
closure of a second fluids blending facility located in the
United Kingdom at a cost of $.2 million. In 2006,
$.1 million of the total cost was charged to expense and an
additional $.1 million was expensed in 2007. The cash cost
will be approximately $.2 million, of which
$.1 million was spent in 2007.
In the fourth quarter of 2005, the company announced that it
planned to further reduce its cost structure by consolidating
certain operations in both North America and Europe. One such
action the reorganization of the European sales
offices of the machinery technologies Europe
segment was initiated in 2005 and was continued in
2006 and 2007. Expense related to this action totaled
$.3 million in 2005 and an additional $1.7 million was
charged to expense in 2006. Expense of $2.0 million was
recorded in 2007 to substantially complete the consolidation.
The amount for 2007 includes $1.3 million related to the
sale of two additional sales subsidiaries and the closure of a
third. The cost reduction measures announced in 2005 and
implemented in 2006 also included the overall reorganization of
European operations of the mold technologies segment, including
product line rationalization and the streamlining of marketing
and administrative functions. Expense related to these actions
totaled $1.8 million in 2006 and $1.1 million in 2007.
The net cash costs related to the sales office and mold base and
components reorganizations are expected to be approximately
$5.3 million. Of this amount, $1.9 million was spent
in 2006 and an additional $3.4 million was spent in 2007.
Severance and other termination benefits represent approximately
one quarter of both the total expense and cash cost of these
initiatives.
In the first quarter of 2006, the company initiated a plan to
reduce the cost structure of its injection molding machine
manufacturing facility in Malterdingen, Germany. The business
has been restructured based on a rationalized global product
portfolio, thereby eliminating complexity and reducing the
overall cost structure. The restructuring resulted in 82
headcount reductions, including approximately 70 that occurred
in 2006. The cost of the restructuring was $7.6 million,
all of which relates to severance and other termination
benefits. Of this
43
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
amount, $6.5 million was charged to expense in 2006 and an
additional $1.1 million was expensed in 2007. The cash
cost all of which relates to termination
benefits was also $7.6 million. A total of
$5.2 million was spent in 2006 and the remaining
$2.4 million was spent in 2007.
In the second quarter of 2006, the company initiated a plan to
reorganize and further downsize its special mold base machining
facility in Fulda, Germany at a cost of $1.8 million, all
of which was charged to expense in 2006, including
$1.3 million for benefits related to the termination of
21 employees. The cash cost of the plant reorganization was
$1.3 million, all of which was spent in 2006. As discussed
further below, the Fulda facility was subsequently sold in the
fourth quarter of 2007.
In the third quarter of 2006, the company initiated a
reorganization of the mold technologies segments
operations in North America. In one action, the company
initiated the elimination of most of the manufacturing
activities at the segments facility in Charlevoix,
Michigan and the outsourcing of a majority of the mold
components the facility produces. The cost of this action
which resulted in the elimination of 51
positions was $1.8 million, substantially all
of which was recorded in 2006. The total cost includes
$.3 million for severance and other termination benefits
and $1.5 million to adjust the carrying values of assets to
be disposed of to reflect fair value. After deducting expected
proceeds from sales of these assets, the cash cost is expected
to be approximately $.6 million. In another action, the
company initiated the downsizing of the administrative workforce
at the segments North American headquarters in Madison
Heights, Michigan in 2006. This action resulted in the
elimination of 13 positions at a cost of $.1 million, all
of which related to termination benefits. In order to further
reduce headcount, the company offered special early retirement
benefits to certain employees early in 2007 which resulted in
expense of $.2 million. In the third quarter of 2007, the
company initiated the closure of the mold base manufacturing
facility in Melrose Park, Illinois and the transfer of its
production to other mold technologies facilities in North
America. Expense related to the closure was $.6 million
which is net of a gain of $.5 million on the sale of the
facility. The gross expense of $1.1 million related
principally to severance and other termination benefits and the
relocation of equipment. The net cash cost will be
$.1 million, most of which was recorded in 2007.
In the third quarter of 2006, the company completed the
liquidation of a sales branch in Japan which resulted in a
non-cash charge of $1.3 million, a large portion of which
related to the recognition of prior periods foreign
currency translation adjustments and other deconsolidation
effects.
In the fourth quarter of 2006, the company initiated a program
to reduce headcount at its principal North American plastics
machinery facility principally in the injection
molding machinery business by offering supplemental
early retirement benefits to eligible employees. A total of
34 employees accepted the offer in 2006 which resulted in a
non-cash charge of $1.5 million. The offer of supplemental
benefits was extended to additional groups of employees in the
second quarter of 2007 which resulted in incremental expense
related to 11 employees of $.9 million. The
supplemental retirement benefits will be paid by the funded
defined benefit pension plan for certain U.S. employees and
retirees. In the third quarter of 2007, the company continued
the headcount reduction program at its principal manufacturing
facility by outsourcing certain functions at a cost of
$.1 million for employee termination benefits.
In the first quarter of 2007, the operating assets of two
European sales offices of the companys MRO (maintenance,
repair and operating supplies) business were sold which resulted
in expense of $.2 million. This business is included in the
mold technologies segment. The cash proceeds were
$.5 million and the cash costs related to the sales were
$.2 million.
In the fourth quarter of 2007, the company completed the sale of
its special mold base facility in Fulda, Germany that resulted
in 50 headcount reductions. The restructuring activity resulted
in expense of $3.1 million in 2007, which mostly related to
the loss on the sale of the fixed assets and inventory. The sale
will result in net cash proceeds of $2.2 million, most of
which was recorded in 2007.
In the fourth quarter of 2007, the company initiated a program
to reduce headcount at several of its North American facilities
by offering supplemental early retirement benefits to eligible
employees. At the plastics
44
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
machinery operation, principally the injection molding machinery
business, the program resulted in 40 headcount reductions at a
cost of $2.3 million, all of which was recorded in 2007.
The total cash cost is expected to be $.7 million, with
$.2 million being recorded in 2007 and the remainder in
2008. At the Corporate facility, the program resulted in 3
additional headcount reductions. The total cost amounted to
$.1 million, all recorded in 2007, with no cash cost. At
the mold making operation in Tecumseh, Michigan, the program
resulted in 7 headcount reductions at a cost of
$.3 million, all of which was recorded in 2007. There was
no cash cost in 2007, as it will all be incurred in 2008 and
beyond.
Additional restructuring actions are expected to be implemented
in 2008. In total, the actions initiated in 2005 through 2008
are expected to result in restructuring charges of approximately
$31 million and cash costs of approximately
$13 million spread from 2006 through 2008.
The table that follows summarizes the costs of the various
restructuring actions that are described above.
Restructuring
Costs
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Relocation of blow molding machinery and mold manufacturing
|
|
$
|
|
|
|
$
|
.6
|
|
Additional European mold base reductions
|
|
|
|
|
|
|
.3
|
|
Closure of metalworking fluids operations
|
|
|
.1
|
|
|
|
.2
|
|
Consolidation of European injection molding sales offices
|
|
|
2.0
|
|
|
|
1.7
|
|
Consolidation of European mold component operations
|
|
|
1.1
|
|
|
|
1.8
|
|
Reorganization of Germany injection molding machinery facility
|
|
|
1.1
|
|
|
|
6.5
|
|
Downsizing of Germany mold technologies facility
|
|
|
|
|
|
|
1.8
|
|
Reorganization of North America mold components operations
|
|
|
1.1
|
|
|
|
1.6
|
|
Liquidation of Japan sales office
|
|
|
|
|
|
|
1.3
|
|
U.S. plastics machinery headcount reductions
|
|
|
1.0
|
|
|
|
1.5
|
|
Sale of MRO sales offices
|
|
|
.2
|
|
|
|
|
|
Sale of Germany mold technologies facility in 2007
|
|
|
3.1
|
|
|
|
|
|
Additional machinery technologies North America
reductions
|
|
|
2.6
|
|
|
|
|
|
Other
|
|
|
.2
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs
|
|
$
|
12.5
|
|
|
$
|
17.4
|
|
|
|
|
|
|
|
|
|
|
45
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the components of the line
captioned Restructuring costs in the Consolidated
Statements of Operations for the years 2007 and 2006.
Restructuring
Costs
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Accruals for restructuring costs
|
|
|
|
|
|
|
|
|
Termination benefits
|
|
$
|
3.3
|
|
|
$
|
8.4
|
|
Facility exit costs
|
|
|
.4
|
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
Total accruals
|
|
|
3.7
|
|
|
|
10.0
|
|
Supplemental retirement benefits
|
|
|
2.8
|
|
|
|
1.5
|
|
Adjustment of assets to realizable values and gains and losses
on disposal
|
|
|
3.7
|
|
|
|
1.9
|
|
Other restructuring costs
|
|
|
|
|
|
|
|
|
Costs charged to expense as incurred
|
|
|
|
|
|
|
|
|
Inventory adjustments related to product line discontinuation
|
|
|
.2
|
|
|
|
.5
|
|
Inventory and machinery relocation
|
|
|
.6
|
|
|
|
.2
|
|
Severance and facility exist costs
|
|
|
1.2
|
|
|
|
3.3
|
|
Other
|
|
|
.7
|
|
|
|
.2
|
|
Reserve adjustments
|
|
|
(.4
|
)
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
Total restructuring costs
|
|
$
|
12.5
|
|
|
$
|
17.4
|
|
|
|
|
|
|
|
|
|
|
The amounts on the line captioned Inventory adjustments
related to product line discontinuation are included in
cost of products sold in the Consolidated Statements of
Operations.
As presented in the above table, the costs under the line
captioned Costs charged to expense as incurred do
not meet the conditions for accrual under U.S. generally
accepted accounting principles upon announcement of the
restructuring event and are therefore expensed when the related
contractual liabilities are incurred. Accordingly, no reserves
related to these costs were established.
The status of the reserves for the initiatives discussed above
is summarized in the following tables.
Restructuring
Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Beginning
|
|
|
|
|
|
Usage and
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Additions
|
|
|
Other
|
|
|
Balance
|
|
|
|
(In millions)
|
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits
|
|
$
|
3.1
|
|
|
$
|
3.3
|
|
|
$
|
(4.8
|
)
|
|
$
|
1.6
|
|
Facility exit costs
|
|
|
.8
|
|
|
|
.4
|
|
|
|
(.9
|
)
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
3.9
|
|
|
$
|
3.7
|
|
|
$
|
(5.7
|
)
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Beginning
|
|
|
|
|
|
Usage and
|
|
|
Ending
|
|
|
|
Balance
|
|
|
Additions
|
|
|
Other
|
|
|
Balance
|
|
|
|
(In millions)
|
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits
|
|
$
|
1.1
|
|
|
$
|
8.4
|
|
|
$
|
(6.4
|
)
|
|
$
|
3.1
|
|
Facility exit costs
|
|
|
.3
|
|
|
|
1.6
|
|
|
|
(1.1
|
)
|
|
|
.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
1.4
|
|
|
$
|
10.0
|
|
|
$
|
(7.5
|
)
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Approximately $1.0 million of the $1.9 million of
restructuring reserves remaining at December 31, 2007 is
expected to be utilized in the first half of 2008. A large
portion of the remaining $.9 million represents
supplemental retirement benefits for certain employees in
Belgium that will be paid at a rate of approximately
$.1 million per year for the next several years.
Change in
Preferred Stock Ownership Costs
During 2007, the company charged to expense $1.9 million of
costs associated with the October 2, 2007 purchase of all
of the Series B Preferred Stock held by Glencore Finance
AG, amounting to 57.5% of the outstanding Series B
Preferred Stock, by Ohio Plastics, LLC, an affiliate of Bayside
Capital, Inc. The $1.9 million of costs were primarily for
the early vesting of certain shares of restricted stock granted
to non-officer employees and legal and other consulting costs
arising from the transaction. The sale, which is more fully
discussed in the note to the Consolidated Financial Statements
captioned Income Taxes, triggered an ownership
change for U.S. federal income tax purposes. The
ownership change for income tax purposes will further limit the
companys ability to utilize pre-change net operating loss
carryforwards and the company recorded a $63.0 million
charge to the provision for income taxes to record valuation
allowances related to deferred tax assets previously covered by
tax planning strategies.
Pension
Plan Curtailment Costs
As discussed further below, as of December 31, 2007 the
company froze the benefits payable under the U.S. defined
benefit plan for certain employees and retirees. Related to
freezing the plan, the company charged $1.9 million to
expense to write-off unamortized prior service costs associated
with previous plan amendments. These costs were being amortized
to expense over the remaining service life of the plans
active participants.
Research
and Development
Charges to operations for research and development activities
are summarized below.
Research
and Development
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Research and development
|
|
$
|
19.3
|
|
|
$
|
20.5
|
|
|
|
|
|
|
|
|
|
|
Retirement
Benefit Plans
The company maintains various defined benefit plans and a
defined benefit postretirement health care plan. Currently, only
the defined benefit pension plan for certain U.S. employees
and retirees (the U.S. Plan) carries a significant value of
plan assets. Two other
non-U.S. plans
are also funded (see Summary of Significant Accounting
Policies Retirement Benefit Plans).
In the fourth quarter of 2007, the company amended the
U.S. Plan to freeze benefits under it as of
December 31, 2007. Beginning in 2008, retirement benefits
for the affected employees will be provided through an existing
defined contribution plan. As a result of the amendment, the
company recorded a non-cash curtailment charge of
$1.9 million in the fourth quarter of 2007 to write off
unamortized prior service cost. The amendment decreased the
plans projected benefit obligation as of December 31,
2007 by $27.9 million and decreased the amount of
unrecognized losses included in accumulated other comprehensive
loss by a like amount.
On December 31, 2006, the company adopted the recognition
and disclosure provisions of SFAS No. 158 (see Summary
of Significant Accounting Policies - Changes in Methods of
Accounting). SFAS No. 158 required the company to
recognize the funded status of its retirement benefit plans in
its December 31, 2006 Consolidated Balance Sheet with a
corresponding adjustment to accumulated other comprehensive
income (loss), net of tax. The
47
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
adjustment to accumulated other comprehensive income (loss) at
adoption represents the net unrecognized losses and unrecognized
prior service costs or credits, all of which were previously
netted against the plans funded status in the
companys statement of financial position pursuant to the
provisions of Statement of Financial Accounting Standards
No. 87, Employers Accounting for Pensions
(SFAS No. 87). These amounts are being recognized as
components of net periodic benefit costs pursuant to the
companys historical accounting policies for amortizing
such amounts. Further, gains and losses that arise in subsequent
periods and are not immediately recognized in net periodic
benefit costs in the same periods are being recognized as
components of accumulated other comprehensive income (loss).
Those amounts will be subsequently recognized as components of
net periodic benefit costs on the same basis as the amounts
recognized in accumulated other comprehensive income (loss) at
the adoption of SFAS No. 158.
The following table presents the incremental effects of applying
SFAS No. 158 on the companys Consolidated
Balance Sheet at December 31, 2006 for all defined benefit
retirement plans. The adoption of SFAS No. 158 had no
effect on the companys Consolidated Statement of
Operations for the year ended December 31, 2006, or for any
prior period, and it did not affect the companys operating
results in 2007. Had the company not been required to adopt
SFAS No. 158, it would have recognized additional
minimum liabilities pursuant to the provisions of
SFAS No. 87. The effect of recognizing the additional
minimum liabilities are included in the table below in the
column captioned Before Application of
SFAS No. 158.
Incremental
Effects of Applying SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before
|
|
|
|
|
|
After
|
|
|
|
Application of
|
|
|
Adoption
|
|
|
Application of
|
|
|
|
SFAS No. 158
|
|
|
Adjustments
|
|
|
SFAS No. 158
|
|
|
|
(In millions)
|
|
|
Intangible pension assets
|
|
$
|
2.4
|
|
|
$
|
(2.4
|
)
|
|
$
|
|
|
Other noncurrent assets
|
|
|
85.7
|
|
|
|
(2.4
|
)
|
|
|
83.3
|
|
Total Assets
|
|
|
652.9
|
|
|
|
(2.4
|
)
|
|
|
650.5
|
|
Current liability for retirement benefits
|
|
|
|
|
|
|
4.0
|
|
|
|
4.0
|
|
Accrued and other current liabilities
|
|
|
78.6
|
|
|
|
4.0
|
|
|
|
82.6
|
|
Total current liabilities
|
|
|
208.5
|
|
|
|
4.0
|
|
|
|
212.5
|
|
Long-term liability for retirement benefits
|
|
|
160.2
|
|
|
|
16.9
|
|
|
|
177.1
|
|
Long-term accrued liabilities
|
|
|
209.6
|
|
|
|
16.9
|
|
|
|
226.5
|
|
Total liabilities
|
|
|
650.9
|
|
|
|
20.9
|
|
|
|
671.8
|
|
Minimum pension liability adjustment
|
|
|
(132.3
|
)
|
|
|
132.3
|
|
|
|
|
|
Defined benefit plan unrecognized net prior service costs and
net loss
|
|
|
|
|
|
|
(155.6
|
)
|
|
|
(155.6
|
)
|
Accumulated other comprehensive loss
|
|
|
(90.3
|
)
|
|
|
(23.3
|
)
|
|
|
(113.6
|
)
|
Total shareholders equity (deficit)
|
|
$
|
2.0
|
|
|
$
|
(23.3
|
)
|
|
$
|
(21.3
|
)
|
48
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the amounts included in accumulated
other comprehensive loss related to defined benefit pension
plans at December 31, 2007 and December 31, 2006 that
have not yet been recognized in net periodic pension expense.
The U.S. Plan represented $115.2 million and
$155.7 million of the total gross amounts for
December 31, 2007 and December 31, 2006, respectively.
Components
of Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Net of
|
|
|
|
|
|
Net of
|
|
|
|
Gross
|
|
|
Tax
|
|
|
Gross
|
|
|
Tax
|
|
|
|
(In millions)
|
|
|
Unrecognized losses
|
|
$
|
126.0
|
|
|
$
|
74.6
|
|
|
$
|
167.9
|
|
|
$
|
116.5
|
|
Unrecognized prior service costs
|
|
|
.1
|
|
|
|
.1
|
|
|
|
2.4
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
126.1
|
|
|
$
|
74.7
|
|
|
$
|
170.3
|
|
|
$
|
118.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amounts included in other
comprehensive income at December 31, 2007 that are expected
to be recognized in net periodic pension expense during 2008.
The U.S. Plan represents $7.1 million of the amounts
included in other comprehensive income at December 31, 2007
that are expected to be recognized in net periodic pension
expense during 2008.
2008
Projected Amortization to be Included in Net Periodic Pension
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of
|
|
|
|
Gross
|
|
|
Tax
|
|
|
|
(In millions)
|
|
|
Amortization of unrecognized losses
|
|
$
|
7.7
|
|
|
$
|
7.7
|
|
Amortization of unrecognized prior service costs
|
|
|
.1
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7.8
|
|
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
Pension cost for all defined benefit plans is summarized in the
following table. For both years presented, the table includes
amounts for plans for certain employees and retirees in the
U.S. and Germany. Pension expense for the U.S. Plan
was $15.9 million in 2007, including $4.7 million of
supplemental retirement benefits and pension plan curtailment
cost, and was $14.3 million in 2006, including
$1.5 million of supplemental retirement benefits.
Pension
Expense
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Service cost (benefits earned during the period)
|
|
$
|
4.8
|
|
|
$
|
4.9
|
|
Interest cost on projected benefit obligation
|
|
|
34.0
|
|
|
|
33.5
|
|
Expected return on plan assets
|
|
|
(34.3
|
)
|
|
|
(32.7
|
)
|
Supplemental retirement benefits
|
|
|
2.8
|
|
|
|
1.5
|
|
Pension plan curtailment cost
|
|
|
1.9
|
|
|
|
|
|
Amortization of unrecognized prior service cost
|
|
|
.4
|
|
|
|
.5
|
|
Amortization of unrecognized losses
|
|
|
10.7
|
|
|
|
11.1
|
|
|
|
|
|
|
|
|
|
|
Pension expense
|
|
$
|
20.3
|
|
|
$
|
18.8
|
|
|
|
|
|
|
|
|
|
|
49
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes changes in the projected benefit
obligation for all defined benefit plans. The projected benefit
obligation for the U.S. Plan was $488.2 million at
December 31, 2007 and $521.5 million at
December 31, 2006.
Projected
Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Balance at beginning of year
|
|
$
|
(575.2
|
)
|
|
$
|
(576.6
|
)
|
Service cost
|
|
|
(4.8
|
)
|
|
|
(4.9
|
)
|
Interest cost
|
|
|
(34.0
|
)
|
|
|
(33.5
|
)
|
Supplemental retirement benefits
|
|
|
(2.8
|
)
|
|
|
(1.5
|
)
|
Curtailment of U.S. pension plan
|
|
|
27.9
|
|
|
|
|
|
Benefits paid
|
|
|
42.6
|
|
|
|
36.1
|
|
Actuarial gain (loss)
|
|
|
2.5
|
|
|
|
(9.0
|
)
|
Changes in discount rates
|
|
|
|
|
|
|
16.1
|
|
Foreign currency translation adjustments
|
|
|
(1.7
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(545.5
|
)
|
|
$
|
(575.2
|
)
|
|
|
|
|
|
|
|
|
|
The following table summarizes the changes in plan assets for
the funded plans. Plan assets for the U.S. Plan were
$394.0 million at December 31, 2007 and
$402.6 million at December 31, 2006.
Plan
Assets
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Balance at beginning of year
|
|
$
|
403.0
|
|
|
$
|
362.6
|
|
Actual investment gain
|
|
|
38.9
|
|
|
|
45.1
|
|
Benefits and expenses paid
|
|
|
(43.5
|
)
|
|
|
(36.8
|
)
|
Contributions
|
|
|
|
|
|
|
32.1
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
398.4
|
|
|
$
|
403.0
|
|
|
|
|
|
|
|
|
|
|
The weighted allocations of plan assets for the U.S. Plan
at December 31, 2007 and 2006 are shown in the following
table.
Allocation
of Plan Assets
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Equity securities
|
|
|
74
|
%
|
|
|
74
|
%
|
Debt securities
|
|
|
22
|
|
|
|
21
|
|
Alternative investments
|
|
|
4
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
At December 31, 2007 and 2006, common shares of the company
represented .1% and 1%, respectively of the funded
U.S. Plans equity securities. These common shares had
a market value of $.3 million at December 31, 2007 and
$2.4 million at December 31, 2006.
50
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2007, the companys target allocation
percentages for plan assets were approximately 60% to 65% equity
securities and 35% to 40% debt and alternative investments. The
targets may be adjusted periodically to reflect current market
conditions and trends as well as inflation levels, interest
rates and the trend thereof, and economic and monetary policy.
The objective underlying this allocation is to achieve a
long-term rate of return of inflation plus 7%. Under the current
policy, the investment in equity securities may not be less than
35% or more than 80% of total assets, investments in fixed
income securities may not be less than 15% or more than 65% of
total assets and investments in alternative investments may not
be more than 25% of total assets.
The expected long-term rate of return on plan assets for
purposes of determining pension expense was 8.75% in 2006 and
2007. The company will use an 8.50% rate in 2008. The expected
rate of return is developed based on the target allocation of
investments and on the historical returns on these investments
judgmentally adjusted to reflect current expectations of future
returns and value-added expectations based on historical
experience of the plans investment managers. In evaluating
future returns on equity securities, the existing portfolio is
stratified to separately consider large and small capitalization
investments as well as international and other types of
securities. The decrease in the expected long-term rate of
return in 2008 will reduce the return on plan assets component
of pension expense by approximately $1.0 million compared
to 2007.
The company made cash contributions to the funded U.S. plan
of $32.1 million in 2006 and contributions were not
required in 2007. The company currently expects that the 2008
contribution will be between $30 million and
$35 million, with approximately $20 million being due
in September, in both cases based upon the provisions of the
Pension Protection Act of 2006 which became effective on
January 1, 2008. Funding requirements for 2009 are
estimated to be between $15 million and $20 million.
Funding requirements for years beyond 2009 cannot be precisely
estimated at this time.
The following table sets forth the funded status of all defined
pension benefit plans at year-end 2007 and 2006.
Funded
Status at Year-End
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Accumulated benefit obligation
|
|
$
|
(540.1
|
)
|
|
$
|
(539.8
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation
|
|
$
|
(545.5
|
)
|
|
$
|
(575.2
|
)
|
Plan assets at fair value
|
|
|
398.4
|
|
|
|
403.0
|
|
|
|
|
|
|
|
|
|
|
Deficiency of plan assets in relation to projected benefit
obligation
|
|
|
(147.1
|
)
|
|
|
(172.2
|
)
|
Unrecognized net loss
|
|
|
126.0
|
|
|
|
167.9
|
|
Unrecognized prior service cost
|
|
|
.1
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
Accrued pension cost
|
|
$
|
(21.0
|
)
|
|
$
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
51
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The presentation of the amounts included in the previous table
in the Consolidated Balance Sheets at December 31, 2007 and
December 31, 2006 is reflected in the following table.
Accrued pension cost is included in accrued and other current
liabilities and long-term accrued liabilities.
Balance
Sheet Presentation
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Current accrued pension cost
|
|
$
|
(3.2
|
)
|
|
$
|
(3.0
|
)
|
Noncurrent accrued pension cost
|
|
|
(143.9
|
)
|
|
|
(169.2
|
)
|
Accumulated other comprehensive loss(a)
|
|
|
126.1
|
|
|
|
170.3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21.0
|
)
|
|
$
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents the pretax amount of an after-tax charge to
accumulated other comprehensive loss of $74.7 million in
2007 and $118.9 million in 2006.
|
The following table presents the weighted-average actuarial
assumptions used to determine pension income or expense for all
defined benefit plans in 2007 and 2006, except as noted.
Actuarial
Assumptions
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Discount rate for all plans
|
|
|
5.95
|
%
|
|
|
5.70
|
%
|
Discount rate for the U.S. Plan
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
Expected long-term rate of return on plan assets
|
|
|
8.75
|
%
|
|
|
8.75
|
%
|
Rate of increase in future compensation levels
|
|
|
3.59
|
%
|
|
|
3.51
|
%
|
The following table presents the weighted-average actuarial
assumptions used to determine the projected benefit obligation
for all defined benefit plans at December 31, 2007 and
December 31, 2006. The change in the rate of increase in
future compensation levels is related to the freezing of
benefits in the U.S. Plan, which had been lower than the
weighted-average in 2006.
Actuarial
Assumptions
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Discount rate
|
|
|
5.97
|
%
|
|
|
5.95
|
%
|
Rate of increase in future compensation levels
|
|
|
4.69
|
%
|
|
|
3.55
|
%
|
The following table presents future estimated benefit payments,
including the effects of future service, under all defined
benefit plans as of December 31, 2007.
Pension
Benefit Payments
|
|
|
|
|
|
|
(In millions)
|
|
|
2008
|
|
$
|
39.4
|
|
2009
|
|
|
38.8
|
|
2010
|
|
|
38.6
|
|
2011
|
|
|
38.3
|
|
2012
|
|
|
38.5
|
|
2013-2017
|
|
|
199.1
|
|
52
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The company also maintains a Retirement Savings Plan which is a
defined contribution 401(k) plan. Participation in this plan is
available to certain U.S. employees. Costs for this plan
were $1.7 million in both 2007 and 2006. Expense for this
plan will increase by approximately $4 million in 2008 as a
result of the previously discussed freezing of benefits under
the defined benefit pension plan for certain U.S. employees
and retirees.
In addition to pension benefits, the company also provides
varying levels of postretirement health care benefits to certain
U.S. employees and retirees. Substantially all such
employees are covered by the companys 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, contributions are based on varying
percentages of the current per-contract cost of benefits, with
the company funding any excess over these amounts. However, the
companys contributions for this group of retirees were
significantly reduced beginning in 2006 as a result of the plan
amendment that is discussed below. For employees retiring after
1979, the dollar amount of the companys current and future
contributions is frozen. Effective January 1, 2007, the
company replaced its self-funded medical plan for
post-age 65 retirees with a fully insured Medical Advantage
Private Fee For Service Plan (PFFS Plan). Effective
January 1, 2008, the PFFS Plan was amended to include
prescription drug coverage and except for pre-1980 retirees, the
company eliminated its contributions for post-age 65
retiree coverage and recorded a $3.8 million reduction to
the accumulated postretirement benefit obligation.
On December 8, 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Act) was enacted.
Among other things, the Act created a new federal prescription
drug coverage program called Medicare Part D. Medicare
Part D became available to eligible participants beginning
January 1, 2006 and is being provided by employers and
third-party insurance plans that meet certain qualifying
criteria. In response to the Act, the plan was amended effective
January 1, 2006 to move prescription drug coverage for
retirees who are eligible for Medicare from the self-funded
company plan to third-party insurers who offer a qualifying
Medicare Part D plan. The change resulted in cash savings
to the company in excess of $1.0 million in both 2006 and
2007. The reduction in the plans accumulated
postretirement benefit obligation was $14.5 million and
amortization of this amount, as well as other factors, resulted
in postretirement health care income of $2.0 million in
2007 and $1.9 million in 2006.
The following table presents the components of the
companys postretirement health care cost under the
principal U.S. plan, including the effect of the 2006 plan
amendment that is discussed above.
Postretirement
Health Care Cost (Income)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Service cost (benefits earned during the period)
|
|
$
|
.1
|
|
|
$
|
.1
|
|
Interest cost on accumulated postretirement benefit obligation
|
|
|
.4
|
|
|
|
.4
|
|
Amortization of effect of plan amendment
|
|
|
(2.1
|
)
|
|
|
(2.1
|
)
|
Amortization of unrecognized gains
|
|
|
(.4
|
)
|
|
|
(.3
|
)
|
|
|
|
|
|
|
|
|
|
Postretirement health care cost (income)
|
|
$
|
(2.0
|
)
|
|
$
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
|
53
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes changes in the accumulated
postretirement benefit obligation for the principal
U.S. plan, including the effect of the 2008 plan amendment
that is discussed above.
Accumulated
Postretirement Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Balance at beginning of year
|
|
$
|
(7.0
|
)
|
|
$
|
(7.7
|
)
|
Service cost
|
|
|
(.1
|
)
|
|
|
(.1
|
)
|
Interest cost
|
|
|
(.4
|
)
|
|
|
(.4
|
)
|
Participant contributions
|
|
|
(1.5
|
)
|
|
|
(1.9
|
)
|
Benefits paid
|
|
|
2.8
|
|
|
|
2.6
|
|
Actuarial gain (loss)
|
|
|
(.3
|
)
|
|
|
.3
|
|
Effect of plan amendment
|
|
|
3.8
|
|
|
|
|
|
Change in discount rate
|
|
|
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
(2.7
|
)
|
|
$
|
(7.0
|
)
|
|
|
|
|
|
|
|
|
|
The following table presents the amounts included in accumulated
other comprehensive loss related to post- retirement health care
benefits at December 31, 2007 and at December 31, 2006
that have not yet been recognized in net periodic benefit costs.
Components
of Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
Net of
|
|
|
|
|
|
Net of
|
|
|
|
Gross
|
|
|
Tax
|
|
|
Gross
|
|
|
Tax
|
|
|
|
(In millions)
|
|
|
Unrecognized net gain
|
|
$
|
(3.0
|
)
|
|
$
|
(3.0
|
)
|
|
$
|
(3.7
|
)
|
|
$
|
(3.7
|
)
|
Unamortized effects of plan amendments
|
|
|
(14.2
|
)
|
|
|
(14.2
|
)
|
|
|
(12.5
|
)
|
|
|
(12.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(17.2
|
)
|
|
$
|
(17.2
|
)
|
|
$
|
(16.2
|
)
|
|
$
|
(16.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents the amounts included in accumulated
other comprehensive loss at December 31, 2007 that are
expected to be recognized in net periodic pension costs during
2008.
2008
Projected Amortization to be Included in Net Periodic Benefit
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net of
|
|
|
|
Gross
|
|
|
Tax
|
|
|
|
(In millions)
|
|
|
Amortization of unrecognized gain
|
|
$
|
(.3
|
)
|
|
$
|
(.3
|
)
|
Amortization of effects of plan amendments
|
|
|
(2.8
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3.1
|
)
|
|
$
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
54
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table presents the components of the
companys liability for postretirement health care benefits
under the principal U.S. plan.
Accrued
Postretirement Health Care Benefits
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Accumulated postretirement benefit obligation
|
|
|
|
|
|
|
|
|
Retirees
|
|
$
|
(.7
|
)
|
|
$
|
(3.7
|
)
|
Fully eligible active participants
|
|
|
(.6
|
)
|
|
|
(1.1
|
)
|
Other active participants
|
|
|
(1.4
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
(7.0
|
)
|
Unamortized effects of plan amendments
|
|
|
(14.2
|
)
|
|
|
(12.5
|
)
|
Unrecognized net gain
|
|
|
(3.0
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
|
|
|
Accrued postretirement health care benefits
|
|
$
|
(19.9
|
)
|
|
$
|
(23.2
|
)
|
|
|
|
|
|
|
|
|
|
The following table presents the discount rates used to
calculate the accumulated postretirement benefit obligation at
December 31, 2007 and December 31, 2006 and the rates
used to calculate postretirement health care cost for the years
then ended.
Actuarial
Assumptions
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Accumulated postretirement benefit obligation
|
|
|
6.00
|
%
|
|
|
6.00
|
%
|
Postretirement health care cost
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
Because the dollar amount of the companys contributions
for all participants is frozen, changes in health care costs
will have no effect on the accumulated postretirement benefit
obligation or the total cost of the plan.
The following table presents estimated future payments of
postretirement health care benefits as of December 31,
2007. The amounts presented therein are net of participant
contributions.
Postretirement
Health Care Benefits
|
|
|
|
|
|
|
(In millions)
|
|
|
2008
|
|
$
|
.2
|
|
2009
|
|
|
.2
|
|
2010
|
|
|
.2
|
|
2011
|
|
|
.3
|
|
2012
|
|
|
.3
|
|
2013-2017
|
|
|
1.5
|
|
Income
Taxes
At December 31, 2007, the company had
non-U.S. net
operating loss carryforwards principally in The
Netherlands, Germany, Italy and Belgium totaling
$197 million, of which $76 million will expire between
2008 and 2023. The remaining $121 million have no
expiration dates. Deferred tax assets related to the
non-U.S. loss
carryforwards totaled $50 million at December 31, 2007
and valuation allowances totaling $37 million had been
provided with respect to these assets as of that date. The
company believes that it is more likely than not that portions
of the net operating loss carryforwards in these jurisdictions
will be utilized. However, there is currently
55
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
insufficient positive evidence in some
non-U.S. jurisdictions
primarily Germany, Italy and Belgium to conclude
that no valuation allowances are required.
At December 31, 2007, the company had a U.S. federal
net operating loss carryforward of $174 million, which will
expire between 2023 and 2028. Deferred tax assets related to
this loss carryforward, as well as to federal tax credit
carryforwards ($16 million) and additional state and local
loss carryforwards ($7 million), totaled $84 million.
Additional deferred tax assets totaling approximately
$72 million had also been provided for book deductions not
currently deductible for tax purposes including the writedown of
goodwill, postretirement health care costs and accrued pension
liabilities. At December 31, 2007, all
net U.S. deferred tax assets were fully offset by
valuation allowances totaling $156 million.
Of the federal tax credit carryforwards, $5 million expire
between 2008 and 2019 and $11 million have no expiration
dates. Approximately 74% of the state and local loss
carryforwards will expire by 2012 and the remainder will expire
by 2028. The deductions for financial reporting purposes that
are discussed above are expected to be realized for income tax
purposes in future periods, at which time they will have the
effect of decreasing taxable income or increasing the net
operating loss carryforward. The latter will have the effect of
extending the ultimate expiration of the net operating loss
carryforward beyond 2028. However, the companys ability to
utilize its U.S. federal net operating loss carryforwards
and other tax attributes is limited as discussed below.
The sale of 287,500 shares of Series B Preferred Stock
on October 2, 2007 (see Change in Preferred Stock Ownership
Costs) resulted in an ownership change that had the
effect of limiting the companys utilization of pre-change
net operating loss carryforwards and tax credits. The amount of
the annual limitation is expected to be approximately
$5.7 million. The allowable limitation will be cumulative
for years in which it is not fully utilized. At
December 31, 2007 the limitation amounts to approximately
$1.4 million of available pre-change net operating losses
with no limitations on deductibility.
Beginning in 2003 and through the third quarter of 2007, the
company relied on the availability of qualified tax planning
strategies to conclude that valuation allowances were not
required with respect to a portion of its U.S. deferred tax
assets. Prior to 2003, no valuation allowances had been recorded
in the U.S. Tax planning strategies represent prudent and
feasible actions a company would take to create taxable income
to keep a tax attribute from expiring during the carryforward
period. Determinations of the amounts of tax planning strategies
assumed hypothetical transactions, some of which involve the
disposal of significant business assets, and certain variables
are judgmental in nature. At December 31, 2006 and
September 30, 2007, valuation allowances had not been
recorded with respect to $63 million of U.S. deferred
tax assets based on qualified tax planning strategies. However,
because of the limitation imposed by the U.S. Internal
Revenue Code related to post ownership-change utilization of
pre-change net operating losses and other carryforwards, the
company has concluded that it is no longer able to rely on
qualified tax planning strategies. As a result, the company
recorded a charge to the provision for income taxes of
$63 million in the fourth quarter of 2007 to provide the
required valuation allowances.
As of December 31, 2007, U.S. deferred tax assets net
of deferred tax liabilities totaled $156 million and
U.S. valuation allowances also totaled $156 million.
At December 31, 2006, U.S. deferred tax assets, net of
deferred tax liabilities totaled $178 million and
U.S. valuation allowances totaled $115 million. The
$22 million decrease in deferred tax assets in relation to
December 31, 2006 is due primarily to a reduction in
benefit plan liabilities resulting from freezing the
companys defined benefit pension plan for certain
U.S. employees and retirees and establishing deferred tax
liabilities for planned repatriations of non-U.S. earnings.
Non-U.S. deferred
tax assets decreased by $19 million in 2007 while valuation
allowances decreased by $24 million, in both cases due in
part to a third quarter tax rate reduction in Germany that
became effective January 1, 2008. Due to a lack of positive
evidence as to the probable utilization of deferred tax assets
and as required by Statement of Financial Accounting Standards
No. 109, the company was unable to record tax benefits with
respect to its losses in the U.S. and certain other
jurisdictions in 2007. However, tax benefits of
$5.5 million were recorded as a result of the completion of
a technical analysis related to the deductibility of interest
expense in a
non-U.S. jurisdiction
and a $1.5 million
56
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
favorable tax settlement in a
non-U.S. jurisdiction.
Including the $63 million charge to record additional
valuation allowances, these factors resulted in a 2007 provision
for income taxes of $61.7 million.
In 2006, the company recorded a net income tax expense of
$2.6 million. The companys U.S. operations
recorded a net tax benefit of $2.4 million, comprised of a
decrease in valuation allowances of $4.0 million and a net
reduction of tax carryback claims of $1.6 million. The
companys
non-U.S. operations
recorded income tax expense of $5.0 million for 2006,
consisting of $4.0 million related to profitable
non-U.S. operations
and a $.9 million reduction in the companys deferred
tax assets in Holland relating to an income tax rate reduction.
Tax benefits in jurisdictions relating to non-profitable
operations were fully offset by valuation allowances. In the
aggregate, the mix of losses with no tax benefits and the
expenses incurred in profitable jurisdictions resulted in a tax
expense of $2.6 million on a pre-tax loss of
$37.2 million.
Effective January 1, 2007, the company adopted
FIN No. 48. This interpretation of Statement of
Financial Accounting Standards No. 109, Accounting
for Income Taxes, prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. The interpretation also provides guidance
regarding the derecognition of tax benefits, their
classification in the statement of financial position and
accounting for possible interest and penalties. Additionally, a
new disclosure framework for uncertain tax positions is required
beginning in 2007.
The adoption of FIN No. 48 resulted in a de minimis
cumulative effect adjustment to opening accumulated deficit and
accrued income taxes. The cumulative adjustment also resulted in
a decrease in deferred tax assets and valuation allowances in
the amount of $.7 million. The gross amount of uncertain
tax benefits at adoption amounted to $2.8 million which
increased by a net $17.4 million in 2007 resulting in a
balance of $20.2 million at December 31, 2007 (see
table below) that if recognized would have a favorable impact on
our tax provision of $.9 million.
Reconciliation
of Unrecognized Tax Benefits
|
|
|
|
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
Balance as of January 1, 2007
|
|
$
|
2.8
|
|
Increases related to prior year tax positions
|
|
|
|
|
Decreases related to prior year tax positions
|
|
|
(.9
|
)
|
Increases related to current year tax positions
|
|
|
19.7
|
|
Decreases related to settlements with taxing authorities
|
|
|
(1.4
|
)
|
Decreases related to lapsing of statute of limitations
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2007
|
|
$
|
20.2
|
|
|
|
|
|
|
The companys tax returns are open under the respective
statutes of limitations in most of the jurisdictions in which
the company has major operations for periods generally beginning
with the 2003 tax year. Resolution of controversies related to
uncertain tax benefits is contingent on reaching satisfactory
settlement agreements with the relevant taxing authorities. We
expect resolution of certain issues during 2008 related to
positions in a
non-U.S. jurisdiction
amounting to $2.9 million. However, we do not expect that
change to have a significant impact on our financial position or
results of operations.
Consistent with past practice, interest and penalties are
classified as income tax expense as accrued. However, the
amounts are immaterial in the periods presented primarily due to
net operating loss carryforwards reflected as deferred tax
assets.
57
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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
companys deferred tax assets and liabilities as of
year-end 2007 and 2006 are as follows:
Components
of Deferred Tax Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Deferred tax assets
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
118.4
|
|
|
$
|
135.8
|
|
Tax credit carryforwards
|
|
|
17.9
|
|
|
|
17.4
|
|
Accrued postretirement health care benefits
|
|
|
1.2
|
|
|
|
2.9
|
|
Inventories, due principally to obsolescence reserves and
additional costs inventoried for tax purposes
|
|
|
4.1
|
|
|
|
2.7
|
|
Accrued employee benefits other than pensions and retiree health
care benefits
|
|
|
1.4
|
|
|
|
2.1
|
|
Accrued pension cost
|
|
|
12.2
|
|
|
|
11.4
|
|
Accrued warranty cost
|
|
|
1.1
|
|
|
|
1.2
|
|
Accrued taxes
|
|
|
1.2
|
|
|
|
1.2
|
|
Accounts receivable, due principally to allowances for doubtful
accounts
|
|
|
.8
|
|
|
|
.9
|
|
Goodwill
|
|
|
17.3
|
|
|
|
24.3
|
|
Deferred pension costs
|
|
|
34.4
|
|
|
|
41.0
|
|
Accrued liabilities and other
|
|
|
12.4
|
|
|
|
17.8
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
222.4
|
|
|
|
258.7
|
|
Less valuation allowances
|
|
|
(192.2
|
)
|
|
|
(175.7
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets net of valuation allowances
|
|
|
30.2
|
|
|
|
83.0
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Property, plant and equipment, due principally to differences in
depreciation methods
|
|
|
6.3
|
|
|
|
9.1
|
|
Undistributed non-U.S. earnings
|
|
|
10.5
|
|
|
|
|
|
Inventories
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
16.8
|
|
|
|
11.7
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
13.4
|
|
|
$
|
71.3
|
|
|
|
|
|
|
|
|
|
|
Summarized in the following tables are the companys
earnings from continuing operations 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.
Loss
Before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
United States
|
|
$
|
(35.5
|
)
|
|
$
|
(31.1
|
)
|
Non-U.S.
|
|
|
8.9
|
|
|
|
(6.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(26.6
|
)
|
|
$
|
(37.2
|
)
|
|
|
|
|
|
|
|
|
|
58
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As presented in the above table, U.S. losses for 2007
include $5.3 million of restructuring costs while
non-U.S. losses
include $7.2 million of such costs. U.S. losses for
2006 include $5.3 million of restructuring costs while
non-U.S. earnings
include $12.1 million of such costs.
Provision
(Benefit) for Income Taxes
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Current provision (benefit)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
(.4
|
)
|
|
$
|
(1.3
|
)
|
State and local
|
|
|
.3
|
|
|
|
.2
|
|
Non-U.S.
|
|
|
3.0
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.9
|
|
|
|
1.8
|
|
Deferred provision (benefit)
|
|
|
|
|
|
|
|
|
United States
|
|
|
63.4
|
|
|
|
(1.3
|
)
|
Non-U.S.
|
|
|
(4.6
|
)
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58.8
|
|
|
|
.8
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
61.7
|
|
|
$
|
2.6
|
|
|
|
|
|
|
|
|
|
|
Components
of the Provision (Benefit) for Deferred Income
Taxes
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Change in valuation allowances
|
|
$
|
16.5
|
|
|
$
|
7.1
|
|
Change in deferred taxes related to operating loss and tax
credit carryforwards
|
|
|
16.9
|
|
|
|
(27.1
|
)
|
Depreciation and amortization
|
|
|
4.2
|
|
|
|
7.6
|
|
Inventories and accounts receivable
|
|
|
(3.9
|
)
|
|
|
(1.1
|
)
|
Accrued pension and other employee costs
|
|
|
6.5
|
|
|
|
6.8
|
|
Other
|
|
|
18.6
|
|
|
|
7.5
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
58.8
|
|
|
$
|
.8
|
|
|
|
|
|
|
|
|
|
|
Reconciliation
of the U.S. Statutory Rate to the Tax Provision
Rate
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
U.S. statutory tax rate
|
|
|
(35.0
|
)%
|
|
|
(35.0
|
)%
|
Increase (decrease) resulting from
|
|
|
|
|
|
|
|
|
Effect of changes in valuation allowances
|
|
|
259.3
|
|
|
|
31.1
|
|
Benefit plan expenses
|
|
|
20.5
|
|
|
|
|
|
Effects of tax law changes
|
|
|
(34.1
|
)
|
|
|
|
|
Favorable resolution of a statutory tax deduction
|
|
|
(5.7
|
)
|
|
|
|
|
Adjustment of tax reserves
|
|
|
(1.5
|
)
|
|
|
(2.8
|
)
|
Statutory tax rate changes
|
|
|
|
|
|
|
2.5
|
|
State and local income taxes, net of federal benefit
|
|
|
4.6
|
|
|
|
.6
|
|
Foreign dividends
|
|
|
25.5
|
|
|
|
12.9
|
|
Other
|
|
|
(1.6
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
232.0
|
%
|
|
|
6.8
|
%
|
|
|
|
|
|
|
|
|
|
59
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2007, the company had U.S. net
operating loss carryforwards of approximately $174 million
that expire pursuant to the IRC carryforward regulations in 2023
through 2028, including $53 million that will expire due to
the change in ownership limitations. In addition, certain of the
companys
non-U.S. subsidiaries
had net operating loss carryforwards aggregating approximately
$197 million, a significant portion of which have no
expiration date.
Undistributed earnings of foreign subsidiaries are primarily
intended to be indefinitely reinvested. Reinvested earnings
aggregated $49 million at the end of 2007, however, the
company expects to repatriate approximately $30 million
during 2008 and, accordingly, $10 million in deferred
income taxes have been recorded with respect to this amount at
December 31, 2007.
Income taxes of $3.5 million were paid in 2007. The company
received net tax refunds of $.5 million in 2006.
Loss Per
Common Share
The following tables present the calculation of loss applicable
to common shareholders and a reconciliation of the shares used
to calculate basic and diluted loss per common share.
Loss
Applicable to Common Shareholders
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net loss
|
|
$
|
(87.1
|
)
|
|
$
|
(39.7
|
)
|
Dividends on preferred shares(a)
|
|
|
(6.2
|
)
|
|
|
(6.2
|
)
|
Beneficial conversion feature related to Series B Preferred
Stock(b)
|
|
|
(3.1
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
|
|
|
Loss applicable to common shareholders
|
|
$
|
(96.4
|
)
|
|
$
|
(49.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
In both 2007 and 2006, $6.0 million of dividends were
accrued but unpaid on the Series B Preferred Stock.
|
|
(b)
|
|
Represents a beneficial conversion feature arising from the fact
that holders of the Series B Preferred Stock are able to
acquire common shares of the company at an effective conversion
price that is less than their fair value on March 12, 2004
(see Shareholders Equity).
|
Reconciliation
of Shares
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Weighted-average common shares outstanding
|
|
|
5,008
|
|
|
|
4,833
|
|
Effect of dilutive convertible Series B Preferred Stock,
contingent warrants, stock options and restricted shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares assuming dilution
|
|
|
5,008
|
|
|
|
4,833
|
|
|
|
|
|
|
|
|
|
|
For all years, the common shares into which the Series B
Preferred Stock is convertible are excluded from
weighted-average common shares assuming dilution because their
inclusion would result in a smaller loss per common share. The
effects of potentially dilutive restricted shares and the shares
related to the contingent warrants are also excluded for the
same reason. Had all of these shares been included,
weighted-average shares assuming dilution would have been 10,839
thousand in 2007 and 10,651 thousand in 2006.
Receivables
One of the companys
non-U.S. subsidiaries
maintains a factoring agreement with a third party financial
institution under which it is able to sell without recourse up
to 10.0 million ($14.4 million) of accounts
receivable.
60
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At December 31, 2007 and December 31, 2006, the gross
amounts of accounts receivable that had been sold under this
arrangement were $10.6 million and $9.0 million,
respectively. In March 2008, this factoring agreement was
replaced as part of a new asset-based revolving credit program
through Lloyds TSB Group plc for certain of the companys
operations in Europe (see Subsequent Event).
The company also periodically sells with recourse notes
receivable arising from customer purchases of plastics
processing machinery and, in a limited number of cases,
guarantees the repayment of all or a portion of notes payable by
its customers to third party lenders. At December 31, 2007
and December 31, 2006, the companys maximum exposure
under these arrangements totaled $4.7 million and
$5.9 million, respectively. In the event a customer were to
fail to repay a note, the company would generally regain title
to the machinery for later resale as used equipment. Costs
related to sales of notes receivable and guarantees have not
been material in the past.
Inventories
As presented in the Consolidated Balance Sheets, inventories are
net of reserves for obsolescence of $26.5 million and
$27.3 million in 2007 and 2006, respectively.
Goodwill
and Other Intangible Assets
The carrying value of goodwill totaled $90.5 million and
$87.3 million at December 31, 2007 and
December 31, 2006, respectively. The companys other
intangible assets, all of which are subject to amortization, are
included in other noncurrent assets in the Consolidated Balance
Sheets and totaled $1.2 million at December 31, 2007
and $1.6 million at December 31, 2006. Amortization
expense related to these assets was $.7 million in 2007 and
$1.1 million in 2006.
Changes in goodwill during the years ended December 31,
2007 and December 31, 2006 are presented in the following
table.
Changes
in Goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Machinery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies
|
|
|
Machinery
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
Technologies
|
|
|
Mold
|
|
|
Industrial
|
|
|
|
|
|
|
America
|
|
|
Europe
|
|
|
Technologies
|
|
|
Fluids
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at beginning of year
|
|
$
|
17.8
|
|
|
$
|
.7
|
|
|
$
|
58.6
|
|
|
$
|
10.2
|
|
|
$
|
87.3
|
|
Capital contribution to subsidiary
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.3
|
|
Divestitures of European sales offices
|
|
|
|
|
|
|
(.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(.8
|
)
|
Foreign currency translation adjustments
|
|
|
.4
|
|
|
|
.1
|
|
|
|
3.2
|
|
|
|
|
|
|
|
3.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
18.5
|
|
|
$
|
|
|
|
$
|
61.8
|
|
|
$
|
10.2
|
|
|
$
|
90.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
Machinery
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies
|
|
|
Machinery
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
Technologies
|
|
|
Mold
|
|
|
Industrial
|
|
|
|
|
|
|
America
|
|
|
Europe
|
|
|
Technologies
|
|
|
Fluids
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Balance at beginning of year
|
|
$
|
17.8
|
|
|
$
|
.7
|
|
|
$
|
55.0
|
|
|
$
|
10.2
|
|
|
$
|
83.7
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
17.8
|
|
|
$
|
.7
|
|
|
$
|
58.6
|
|
|
$
|
10.2
|
|
|
$
|
87.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
Plant and Equipment
The components of property, plant and equipment, including
amounts related to capital leases, are shown in the following
table.
Property,
Plant and
Equipment-Net
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Land
|
|
$
|
8.9
|
|
|
$
|
8.8
|
|
Buildings
|
|
|
121.6
|
|
|
|
121.5
|
|
Machinery and equipment
|
|
|
217.0
|
|
|
|
219.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
347.5
|
|
|
|
349.9
|
|
Less accumulated depreciation
|
|
|
(241.1
|
)
|
|
|
(235.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
106.4
|
|
|
$
|
114.3
|
|
|
|
|
|
|
|
|
|
|
Other
Assets
The components of other current assets and other noncurrent
assets are shown in the tables that follow.
Other
Current Assets
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Deferred income taxes net of valuation allowances
|
|
$
|
12.8
|
|
|
$
|
24.4
|
|
Recoverable from excess liability carriers
|
|
|
1.0
|
|
|
|
3.2
|
|
Prepaid expenses and other
|
|
|
21.1
|
|
|
|
14.3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
34.9
|
|
|
$
|
41.9
|
|
|
|
|
|
|
|
|
|
|
62
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Noncurrent Assets
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Deferred income taxes net of valuation allowances
|
|
$
|
17.4
|
|
|
$
|
58.6
|
|
Recoverable from excess liability carriers
|
|
|
|
|
|
|
4.2
|
|
Intangible assets other than goodwill
|
|
|
1.2
|
|
|
|
1.6
|
|
Other
|
|
|
17.4
|
|
|
|
18.9
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36.0
|
|
|
$
|
83.3
|
|
|
|
|
|
|
|
|
|
|
Liabilities
The components of accrued and other current liabilities are
shown in the following table.
Accrued
and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Accrued salaries, wages and other compensation
|
|
$
|
21.0
|
|
|
$
|
21.1
|
|
Taxes payable other than income taxes
|
|
|
5.2
|
|
|
|
7.4
|
|
Accrued and deferred income taxes
|
|
|
12.8
|
|
|
|
5.3
|
|
Accrued insurance and self-insurance reserves
|
|
|
7.2
|
|
|
|
15.0
|
|
Accrued interest
|
|
|
3.4
|
|
|
|
3.7
|
|
Other accrued expenses
|
|
|
27.0
|
|
|
|
30.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76.6
|
|
|
$
|
82.6
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes changes in the companys
warranty reserves. These reserves are included in accrued and
other current liabilities in the Consolidated Balance Sheets.
Warranty
Reserves
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Balance at beginning of year
|
|
$
|
5.6
|
|
|
$
|
5.6
|
|
Accruals
|
|
|
3.8
|
|
|
|
3.3
|
|
Payments
|
|
|
(3.0
|
)
|
|
|
(2.7
|
)
|
Warranty expirations
|
|
|
(.4
|
)
|
|
|
(.6
|
)
|
Divestitures of European sales offices
|
|
|
(.3
|
)
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
5.9
|
|
|
$
|
5.6
|
|
|
|
|
|
|
|
|
|
|
63
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of long-term accrued liabilities are shown in the
following table.
Long-Term
Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Accrued pensions and other compensation
|
|
$
|
147.0
|
|
|
$
|
172.4
|
|
Accrued postretirement health care benefits
|
|
|
2.1
|
|
|
|
6.8
|
|
Self-insurance reserves(a)
|
|
|
14.9
|
|
|
|
19.7
|
|
Accrued and deferred income taxes
|
|
|
6.3
|
|
|
|
9.4
|
|
Reserves related to prior years divestitures of
discontinued operations
|
|
|
3.2
|
|
|
|
4.1
|
|
Accrued dividends on 6% Series B Convertible Preferred Stock
|
|
|
12.0
|
|
|
|
6.0
|
|
Other
|
|
|
7.8
|
|
|
|
8.1
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
193.3
|
|
|
$
|
226.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
As presented in the above table, self-insurance reserves exclude
expected recoveries from excess liability carriers and other
third parties of $1.0 million in 2007 and $7.4 in 2006.
These amounts are included in other current assets and other
noncurrent assets in the Consolidated Balance Sheets. Expected
recoveries represent the excess of total reserves for known
exposures and estimates of incurred but not reported claims over
the limits on the policies the companys wholly-owned
insurance subsidiary issues to it. These amounts are classified
as assets because, unless other payment arrangements are
negotiated, the company (as the insured party) expects that it
would first pay any indemnity claims and expenses in excess of
the insurance subsidiarys limits and then pursue
reimbursement by the excess carriers.
|
Short-Term
Borrowings
The components of short-term borrowings are shown in the table
that follows.
Short-Term
Borrowings
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Asset based credit facility due 2011
|
|
$
|
24.4
|
|
|
$
|
23.2
|
|
Borrowings under other lines of credit
|
|
|
2.5
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26.9
|
|
|
$
|
25.5
|
|
|
|
|
|
|
|
|
|
|
On December 19, 2006, the company entered into a new five
year asset based revolving credit facility for which General
Electric Capital Corporation acts as administrative agent,
collateral agent and a lender. The new asset based facility
replaced a $75 million asset based facility for which
JPMorgan Chase Bank served as administrative and collateral
agent. The termination of the previous facility was concurrent
with, and contingent upon, the effectiveness of the new
facility. The new facility provides increased liquidity and
better terms than the previous facility with up to
$105 million of borrowing availability and no performance
covenants as long as the company complies with certain minimum
availability thresholds as described below. Substantially
concurrent with the termination of the previous facility, the
company also terminated an interest rate swap that had been
entered into on July 30, 2004 (see Long-Term Debt).
Borrowings under the asset based facility are secured by a first
priority security interest, subject to permitted liens, in,
among other things, U.S. and Canadian accounts receivable,
cash and cash equivalents, inventories and, in the U.S., certain
related rights under contracts, licenses and other general
intangibles, subject to certain exceptions.
64
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The asset based facility is also secured by a second priority
security interest in the assets that secure the
11
1
/
2
% Senior
Secured Notes due 2011 (see Long-Term Debt) on a first priority
basis.
The availability of loans under the asset based facility is
generally limited to a borrowing base equal to specified
percentages of eligible U.S. and Canadian accounts
receivable and U.S. inventory as well as permitted
overadvances and is subject to other conditions to borrowing and
limitations, including an excess availability reserve (the
minimum required availability) of $10 million and other
reserve requirements.
Pursuant to the terms of the asset based facility, the cash the
company receives from collection of receivables is subject to an
automatic sweep to repay any outstanding borrowings
under the facility on a daily basis. As a result, the company
relies on borrowings under the asset based facility as the
primary source of cash for use in its North American operations.
The availability of borrowings under the asset based facility is
subject to the borrowing base limitation and excess availability
and other reserves, which may be adjusted from time to time by
the administrative agent at its discretion, and the satisfaction
of certain conditions to borrowing, including, among other
things, conditions related to the continued accuracy of the
companys representations and warranties and the absence of
any unmatured or matured defaults (including under financial
covenants) or any material adverse change in the companys
business or financial condition.
The asset based facility contains customary covenants,
including, but not limited to, maintenance of unused
availability under the borrowing base based on reserves,
including the excess availability reserve, established by the
administrative agent. In addition to the excess availability
reserve, the asset based facility contains a limit on annual
capital expenditures and a springing financial covenant
requiring the company to maintain a minimum fixed charge
coverage ratio, to be tested quarterly, in the event that excess
availability is less than $5 million.
Failure to meet or exceed the covenants of the asset based
facility would constitute an event of default under the
facility, which would permit the lenders to accelerate
indebtedness owed thereunder (if such indebtedness remained
unpaid) and terminate their commitments to lend. The
acceleration of the indebtedness under the asset based facility
would also create a cross-default under the companys
11
1
/
2
% Senior
Secured Notes due 2011 if the principal amount of indebtedness
accelerated, together with the principal amount of any other
such indebtedness under which there had been a payment default
or the maturity had been so accelerated, aggregated
$15 million or more. Such cross-default would permit the
trustee under the indenture governing the
11
1
/
2
% Senior
Secured Notes due 2011 or the holders of at least 25% in
principal amount of the then outstanding notes to declare the
notes to be due and payable immediately. Events of default under
the asset based facility and the
11
1
/
2
% Senior
Secured Notes due 2011 in addition to those described above,
including, without limitation, the failure to make required
payments in respect of such indebtedness in a timely manner, may
result in the acceleration of indebtedness owed under these
instruments. The acceleration of obligations under the
companys outstanding indebtedness would have a material
adverse effect on its business, financial condition and results
of operations.
At December 31, 2007, $32 million of the asset based
facility was utilized, including borrowings of $24 million
and letters of credit of $8 million. Under the terms of the
facility, the companys additional borrowing capacity based
on the assets included in the borrowing base at
December 31, 2007 was approximately $34 million after
taking into account then-outstanding letters of credit and the
minimum availability and other existing reserve requirements.
The effective interest rate for borrowings under the facility at
December 31, 2007 was 7.2%.
At December 31, 2007, the company had other lines of credit
with various U.S. and
non-U.S. banks
totaling approximately $33 million. These credit facilities
support the discounting of receivables, letters of credit,
guarantees and leases in addition to providing borrowings under
varying terms. Approximately $12 million was available to
the company under these lines under certain circumstances.
In March 2008, certain of the companys operations in
Europe signed a five-year, asset based revolving credit program
through Lloyds TSB Group plc to provide as much as
27 million of aggregate financing for working capital
purposes. This new asset based lending program will allow the
company to replace shorter-term credit commitments while
providing incremental financing for our global working capital
needs, including meeting its
65
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
pension funding obligations. Because of the substantial
inter-company indebtedness created by the U.S. refinancing
of European bonds in 2004, the company will be able to apply the
proceeds to these obligations in a tax-efficient manner The
credit program consists of two parts: (i) asset-secured
loans to the companys subsidiaries in Germany, Holland and
Belgium and (ii) an accounts receivable factoring facility
between the companys German operations and Lloyds TSB
Commerce Finance. Based upon current asset levels, total
borrowing and factoring capacity under the new program, when
fully operational, is expected to exceed 20 million.
Principal terms of the program have been filed with the
Securities and Exchange Commission.
Long-Term
Debt
The components of long-term debt are shown in the following
table.
Long-Term
Debt
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
11
1
/
2
% Senior
Secured Notes due 2011
|
|
$
|
221.9
|
|
|
$
|
221.2
|
|
Capital lease obligations
|
|
|
11.2
|
|
|
|
12.3
|
|
Other
|
|
|
.9
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
234.0
|
|
|
|
235.0
|
|
Less current maturities
|
|
|
(2.1
|
)
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
231.9
|
|
|
$
|
232.8
|
|
|
|
|
|
|
|
|
|
|
Initially, the
11
1
/
2
% Senior
Secured Notes due 2011 were jointly and severally guaranteed on
a senior secured basis by substantially all of the
companys U.S. and Canadian subsidiaries and on a
senior unsecured basis by Milacron Capital Holdings B.V., a
Dutch subsidiary. As of December 31, 2007, Milacron Capital
Holdings B.V. was a guarantor of these notes, although it had
been released as a guarantor as of December 31, 2006. The
notes and guarantees are secured by a first priority security
interest in certain of the companys U.S. and Canadian
assets other than those securing the asset based facility on a
first priority basis as well as the capital stock of certain
subsidiaries and a second priority security interest in all of
the assets securing the companys asset based credit
facility on a first priority basis.
Subject to a number of important limitations, exceptions and
qualifications, the indenture governing the
11
1
/
2
% Senior
Secured Notes due 2011 contains covenants that limit the ability
of the company and its restricted subsidiaries to incur
additional indebtedness, create liens, engage in sale and
leaseback transactions, pay dividends or make other equity
distributions, purchase or redeem capital stock, make
investments, sell assets, engage in transactions with affiliates
and effect a consolidation or merger.
As presented in the preceding table, the value of the
11
1
/
2
% Senior
Secured Notes due 2011 is net of the unamortized portion of a
$5.1 million discount at issuance. As a result of the
discount, the effective interest rate for financial reporting
purposes is approximately 12%.
Based on recent trade prices, the fair value of the
11
1
/
2
% Senior
Secured Notes due 2011 was approximately $168.8 million as
of February 29, 2008. The carrying amount of the
companys other long-term debt approximates fair value.
On July 30, 2004, the company entered into a
$50 million (notional amount) interest rate swap that
effectively converted a portion of fixed-rate debt into a
floating-rate obligation. The swap, which was terminated
December 14, 2006, was intended to achieve a better balance
between fixed-rate and floating-rate debt. The floating-rate was
based on six-month LIBOR set in arrears. The interest rate swap
had the effect of decreasing interest expense for 2006 by
$.3 million. The cash cost to exit the interest rate swap
was $.4 million.
66
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Certain of the companys long-term debt obligations contain
various restrictions and financial covenants, including those
described above. The
11
1
/
2
% Senior
Secured Notes due 2011 and the asset based credit facility are
secured as described above. Except for obligations under capital
leases and as discussed above, no indebtedness is secured.
Interest expense was $33.0 million in 2007 and
$31.7 million in 2006. Of the total amounts, interest
capitalized was $.7 million in both 2007 and 2006.
Total interest paid, net of amounts capitalized, was
$29.6 million in 2007 and $28.6 million in 2006.
Maturities of long-term debt excluding capital leases for the
five years after 2007 are shown in the following table.
Maturities
of Long-Term Debt
|
|
|
|
|
|
|
(In millions)
|
|
|
2008
|
|
$
|
.6
|
|
2009
|
|
|
.1
|
|
2010
|
|
|
.1
|
|
2011
|
|
|
225.0
|
|
2012
|
|
|
|
|
The company leases two manufacturing facilities under capital
leases. The cost of the assets related to these leases of
$31.1 million at December 31, 2007 and
$30.0 million at December 31, 2006 is included in
property, plant and equipment net in the
Consolidated Balance Sheets. The net book value of the assets
was $15.1 million at December 31, 2007 and
$15.0 million at December 31, 2006. Amortization of
these assets is included in depreciation expense and interest on
lease obligations is included in interest expense. In October of
2006, the company refinanced the capital lease of the Magenta,
Italy facility to extend the maturity from 2009 to 2014. Future
minimum payments for capital leases during the next five years
and in the aggregate thereafter are shown in the following table.
Capital
Lease Payments
|
|
|
|
|
|
|
(In millions)
|
|
|
2008
|
|
$
|
2.2
|
|
2009
|
|
|
2.2
|
|
2010
|
|
|
2.2
|
|
2011
|
|
|
2.2
|
|
2012
|
|
|
1.2
|
|
2013 and after
|
|
|
3.3
|
|
|
|
|
|
|
Total capital lease payments
|
|
|
13.3
|
|
Less interest component(a)
|
|
|
(2.1
|
)
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
11.2
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Includes $.6 million applicable to 2008.
|
67
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The company also leases certain equipment and facilities under
operating leases, some of which include varying renewal and
purchase options. Future minimum rental payments applicable to
noncancellable operating leases during the next five years and
in the aggregate thereafter are shown in the following table.
Rental
Payments
|
|
|
|
|
|
|
(In millions)
|
|
|
2008
|
|
$
|
11.6
|
|
2009
|
|
|
6.5
|
|
2010
|
|
|
3.1
|
|
2011
|
|
|
1.5
|
|
2012
|
|
|
.9
|
|
After 2012
|
|
|
2.1
|
|
Rent expense was $14.6 million in 2007 and in 2006.
Shareholders
Equity
On May 2, 2007, the companys shareholders approved a
one-for-ten reverse stock split of the companys common
stock and 4% Cumulative Preferred Stock, a decrease in the
number of authorized shares of common stock and adjustments to
certain provisions in the companys restated certificate of
incorporation related to the 4% Cumulative Preferred Stock to
account for the effects of the reverse stock split, in all cases
as proposed by the companys board of directors. The
proposals objective was (i) to comply with minimum
share price standards for the listing of common stock on the New
York Stock Exchanges (NYSE) to avoid the delisting of the
companys common stock from the NYSE and (ii) to
maintain the same relative voting power among the companys
classes of voting stock after giving effect to the reverse stock
split. Except as otherwise noted, the Consolidated Financial
Statements and notes thereto reflect the effects of the reverse
stock split which became effective on May 16, 2007.
The reverse stock split was applicable to all 4% Cumulative
Preferred Stock and all common shares, including the common
shares into which the Series B Preferred Stock is
convertible and the common shares subject to the outstanding
contingent warrants. The reverse stock split maintains the
relative voting power among the various classes of voting stock.
The shareholders also approved a reduction in the number of
shares of common stock that the company is authorized to issue
from 165 million shares to 30 million shares. After
giving effect to the reverse stock split, the company had
approximately 5.5 million common shares outstanding at
December 31, 2007.
Shareholders who were otherwise entitled to receive fractional
shares of common stock following the reverse stock split
received a cash payment in lieu of such fractional shares.
Cancellations of fractional shares were de minimis in the
aggregate as was the amount of cash required. Fractional shares
of 4% Cumulative Preferred Stock were issued in connection with
the reverse stock split.
The par value of each share of the companys common stock
remained at $.01 per share and the par value of each share of
the companys 4% Cumulative Preferred Stock remained at
$100.00.
At December 31, 2007 and December 31, 2006, the
company had outstanding 500,000 shares of Series B
Preferred Stock having a par value of $.01 per share and a
liquidation preference of $200 per share. The Series B
Preferred Stock has a cash dividend rate of 6% per year.
Dividends may also be paid in additional shares of Series B
Preferred Stock at a rate of 8% per year if the company is
prohibited by the terms of its certificate of incorporation or
its financing agreements from paying dividends in cash. The
company is currently precluded from paying cash dividends under
the indenture governing its
11
1
/
2
% Senior
Secured Notes due 2011 (see Short-Term Borrowings and Long-Term
Debt). In 2006 and 2007, no dividends were declared with respect
to the Series B Preferred Stock and consequently, dividends
were accrued at the contractual (face) rate of 6% per annum. At
December 31, 2007 and December 31, 2006, accrued and
unpaid dividends totaled $12.0 million and
$6.0 million, respectively. Accrued
68
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and unpaid dividends on the Series B Preferred Stock must
be paid prior to any dividend or distribution with respect to
common stock and at the time of the redemption of any
Series B Preferred Stock, or on the mandatory conversion
date of June 10, 2011. On the mandatory conversion date,
accrued dividends may be paid in either cash or in additional
common shares at $17.50 per common share.
On November 27, 2007, the shareholders approved a proposal
by the companys board of directors that limits the
circumstances in which the Series B Preferred Stock holders
could demand a cash redemption following a change in control of
the company as defined in the Series B Preferred Stock
Certificate of Designation. This means that the Series B
Preferred Stock is no longer a disqualified stock
according to the definition in the indenture for the
companys
11
1
/
2
% Senior
Secured Notes due 2011 and gives the board of directors, under
certain circumstances, the flexibility to declare
pay-in-kind
dividends on Series B Preferred Stock.
When initially issued and before giving effect of the reverse
stock split, the 500,000 shares of Series B Preferred
Stock were convertible into 50.0 million common shares of
the company at a conversion price of $2.00 per common share.
However, the conversion price was reset to $1.75 per share
effective June 30, 2005 because a test based on the
companys financial performance for 2004 was not satisfied.
The test required the company to achieve EBITDA, as defined in
the Series B Preferred Stock Certificate of Designation, of
at least $50 million in 2004. As a result of the reset, the
500,000 shares of Series B Preferred Stock became
convertible into approximately 57.1 million common shares.
After giving effect of the reverse stock split, the
Series B Preferred Stock is now convertible into
5.7 million common shares. As discussed further below, this
amount has the potential to increase significantly in the
future. Portions of the Series B Preferred Stock may be
redeemed at the companys option beginning in 2008 at an
initial price of $224 per share that decreases to $216 per share
by 2010. To the extent not previously converted to common shares
at the option of the holders or redeemed at the option of the
company, the Series B Preferred Stock must be converted to
common shares on June 10, 2011. In the event of the
liquidation of the company, the Series B Preferred Stock
ranks junior to the companys 4% Cumulative Preferred Stock.
Except as otherwise required by law or by the companys
certificate of incorporation or expressly provided for in the
certification of designation governing the Series B
Preferred Stock, the holders of record of shares of the
Series B Preferred Stock have full voting rights and
powers, and are entitled to vote on all matters put to a vote or
consent of the companys shareholders, voting together with
the holders of the companys common stock and its 4%
Cumulative Preferred Stock as a single class, with each holder
of shares of Series B Preferred Stock having the number of
votes equal to the number of shares of common stock into which
such shares of Series B Preferred Stock could be converted
as of the record date for the vote or consent which is being
taken. As of March 12, 2008, the outstanding Series B
Preferred Stock represented approximately 50.3% of the voting
power of the companys outstanding equity securities and
51.0% of the companys fully diluted common stock on an
as-converted basis. In addition, holders of Series B
Preferred Stock have special voting and approval rights,
including the right to elect the number of directors to the
companys board proportionate to the percentage of the
companys fully diluted common stock represented by the
Series B Preferred Stock on an as-converted basis, rounded
up to the nearest whole number (up to a maximum equal to
two-thirds of the total number of our directors, less one). As
of March 12, 2008, the holders of the Series B
Preferred Stock had elected 7 of the 13 members of the board of
directors.
On October 2, 2007, Ohio Plastics, LLC, an affiliate of
Bayside Capital Inc., purchased Glencore Finance AGs
287,500 shares of Series B Preferred Stock which
represents 57.5% of the Series B Preferred Stock, 28.9% of
the voting power of the companys outstanding equity
securities and 29.3% of the companys fully diluted common
stock on an as-converted basis, in each case as of
March 12, 2008 (see Change in Preferred Stock Ownership
Costs).
Neither the Series B Preferred Stock nor the common shares
into which the Series B Preferred Stock can be converted
are currently registered for active trading in financial
markets. However, any holder of the Series B Preferred
Stock can demand registration of all or a portion of its shares
or the underlying common stock. Once notice is given, the
company is required to promptly prepare and file a registration
statement with the SEC. In the event of a demand for
registration, the company has the right, but not the obligation,
to select and use an underwriter and must pay all expenses
incurred in the registration process other than underwriting or
brokerage fees and
69
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
commissions. If the company unilaterally elects to register and
sell additional common shares, it must notify the holders of the
Series B Preferred Stock. In such circumstances, the
holders of the Series B Preferred Stock have the right to
include their shares or any common shares into which their
Series B Preferred Stock was previously converted in the
same registration.
The Series B Preferred Stock is currently convertible into
5.7 million common shares. However, this amount has the
potential to increase significantly if the company elects to
declare
pay-in-kind
dividends in the future. The payment of accrued dividends in
common shares on the mandatory conversion date of June 10,
2011 would also have the effect of increasing the aggregate
percentage ownership interest of the holders of the
Series B Preferred Stock.
The Series B Preferred Stock includes a beneficial
conversion feature because it allows the holders to acquire
common shares of the company at an effective conversion price
that is less than their fair value per common share (before
giving effect of the reverse stock split) of $2.40 on
March 12, 2004. The beneficial conversion feature was
initially valued at $15.9 million in 2004 based on an
effective conversion price of approximately $2.08 per common
share for 50.0 million shares, in both cases before giving
effect to the reverse stock split. However, the reset of the
conversion price from $2.00 per common share to $1.75 had the
effect of lowering the effective conversion price to
approximately $1.82 per common share for 57.1 million
shares, in both cases before giving effect to the reverse stock
split. This change resulted in an increase in the value of the
beneficial conversion feature from $15.9 million to
$33.1 million. The original value of the beneficial
conversion feature was included in the carrying value of the
Series B Preferred Stock in 2004 and applied as a direct
increase in accumulated deficit. Based on the provisions of
Emerging Issues Task Force Issue
00-27,
the
$17.2 million increase is being recorded in a similar
manner between 2006 and the mandatory conversion date of the
Series B Preferred Stock in the second quarter of 2011. In
2007 and in 2006, $3.1 million and $3.2 million,
respectively, of the increase were recorded. The changes in the
recorded value of the beneficial conversion feature in 2004,
2006 and 2007 were added to the net loss amounts for those years
in calculating the applicable loss per common share amounts.
In 2004, the company issued to holders of the Series B
Preferred Stock contingent warrants to purchase an aggregate of
100,000 of its common stock for $.10 per share, in both cases
after giving effect of the reverse stock split. The contingent
warrants became exercisable in 2006 because a 2005 consolidated
cash flow covenant specified in the Contingent Warrant Agreement
was not achieved. On October 23, 2007, Glencore Finance AG
exercised warrants for 57,500 common shares. The remaining
contingent warrants will be exercisable until March 15,
2011. The contingent warrants were originally valued at
$.5 million based on an independent appraisal of their
value that was completed in 2004. Of this amount,
$.3 million was included in the carrying value of the
common shares issued to Glencore Finance AG in 2007. The
remaining $.2 million carrying value will be included in
the value of the shares issued in connection with exercises of
additional contingent warrants.
In addition to the Series B Preferred Stock, at
December 31, 2007 and December 31, 2006, the company
had outstanding 6,000 shares (after giving effect to the
reverse stock split) of 4% Cumulative Preferred Stock (the 4%
Preferred Stock) having a par value of $100 per share. Except as
otherwise required by law or the companys certificate of
incorporation, the holders of the 4% Preferred Stock vote
together with the holders of shares of the common stock and the
holders of Series B Preferred Stock as a single class, and
separately with holders of shares of 4% Preferred Stock having
24 votes per share. Holders of the 4% Preferred Stock are
entitled to receive quarterly dividends in cash out of the net
assets legally available for the payment of dividends at a rate
of $40 per year. Dividends are cumulative, and they must be paid
prior to the purchase or redemption of any 4% Preferred Stock,
any Series B Preferred Stock or any common stock. Dividends
must also be paid prior to any distribution in respect of the
common stock or the Series B Preferred Stock. In addition,
dividends or distributions on common stock may not be made
unless consolidated net current assets, and
consolidated net tangible assets, in both cases as
defined in the companys certificate of incorporation,
exceed certain amounts per share of 4% Preferred Stock. In the
event of any liquidation, dissolution or winding up of the
company, the holders of the 4% Preferred Stock are entitled to
receive out of the assets available for distribution to
shareholders an amount equal to $1,050 per share if the action
is
70
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
voluntary and $1,000 per share if it is not voluntary, in each
case in addition to an amount equal to all accrued dividends in
arrears at the date of the distribution, before any
distributions of assets shall be made to the holders of
Series B Preferred Stock or common stock. The holders of
the Series B Preferred Stock and the common stock would be
entitled to share in any assets then remaining to the exclusion
of the holders of 4% Preferred Stock.
The 4% Preferred stock may be redeemed, under certain
conditions, at the companys election, by resolution of the
board of directors, for a redemption price of $1,050 per share
plus all accrued and unpaid dividends to the date of redemption.
At meetings of shareholders of the company, each shareholder of
4% Preferred Stock is entitled to 24 votes for each share of 4%
Preferred Stock held except that in the event that a default in
dividends on the 4% Preferred Stock is deemed to have occurred,
the holders of the 4% Preferred Stock, voting separately as a
class, have the right at each shareholders meeting
thereafter (at which 35% of the 4% Preferred Stock is
represented) to elect one-third of the members of the board of
directors to be elected at that meeting. A default in preferred
dividends would be deemed to have occurred if at any time
dividends accrued or in arrears on the 4% Preferred Stock
amounts to $40 per share or more.
During 2007, 446,215 previously unissued common shares were
issued in connection with incentive compensation plans and
contributions to employee benefit plans. A total of 235,526
restricted shares were cancelled during 2007, of which 14,840
were added to the treasury share balance. After giving effect to
reissuances of 465 treasury shares during 2007, the treasury
share balance at December 31, 2007 was 17,251 shares.
During 2006, 227,288 previously unissued common shares were
issued in connection with incentive compensation plans and
contributions to employee benefit plans. A total of 7,063
restricted shares were cancelled during 2006, of which 2,263
were added to the treasury share balance. After giving effect to
reissuances of 470 treasury shares during 2006, the treasury
share balance at December 31, 2006 was 2,876 shares.
Preferred and common shares at par value at December 31,
2007 and December 31, 2006 are shown in the table that
follows.
Shareholders
Equity Preferred and Common Shares
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions, except per- share amounts)
|
|
|
4% Cumulative Preferred shares $100 par value authorized
60,000 shares at December 31, 2007 and at
December 31, 2006, issued and outstanding 6,000 shares
at December 31, 2007 and at December 31, 2006
|
|
$
|
.6
|
|
|
$
|
.6
|
|
6% Series B Convertible Preferred Stock authorized, issued
and outstanding, 500,000 shares at $.01 par value
|
|
|
|
|
|
|
|
|
Common shares, $.01 par value authorized
30,000,000 shares at December 31, 2007 and
165,000,000 shares at December 31, 2006, issued and
outstanding, 2007: 5,486,210 shares, 2006:
5,231,944 shares
|
|
|
.1
|
|
|
|
.1
|
|
As presented in the previous table, common shares outstanding
are net of treasury shares of 17,251 in 2007 and 2,876 in 2006.
Changes in common shares outstanding for the years 2007 and 2006
are shown in the table that follows.
71
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes
in Common Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Outstanding at beginning of year
|
|
|
5,231,944
|
|
|
|
5,011,249
|
|
Net restricted stock activity
|
|
|
70,413
|
|
|
|
143,859
|
|
Fractional shares cancelled
|
|
|
(1,562
|
)
|
|
|
|
|
Exercise of contingent warrants
|
|
|
57,500
|
|
|
|
|
|
Common shares issued for benefit programs
|
|
|
127,450
|
|
|
|
76,366
|
|
Reissuance of treasury shares for employee benefit and incentive
programs
|
|
|
465
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
5,486,210
|
|
|
|
5,231,944
|
|
|
|
|
|
|
|
|
|
|
In both 2007 and 2006, dividends accrued with respect to the
Series B Preferred Stock were $12.00 per share, none of
which were paid. Dividends accrued and payable on the
Series B Preferred Stock were $12.0 million at
December 31, 2007. In 2007 and 2006, dividends of $4.00 per
share were declared and paid with respect to the 4% Cumulative
Preferred Stock.
The company has authorized 10 million serial preference
shares with $.01 par value. In 1999, 300,000 serial
preference shares were designated as Series A Participating
Cumulative Preferred Shares in connection with the stockholder
rights plan discussed below. No serial preference shares had
been issued as of December 31, 2007. On June 9, 2004,
900,000 serial preference shares were designated as 6.0%
Series B Convertible Preferred Stock. As discussed above,
500,000 shares of Series B Preferred Stock were issued
on June 10, 2004. As of December 31, 2007, no other
serial preference shares have been designated or issued by the
company.
The company has a stockholder rights plan which provides for the
issuance of one nonvoting preferred stock right for each common
share issued as of February 5, 1999 or issued subsequent
thereto. Each right, if activated, will entitle the holder to
purchase
1
/
1000
of a share of Series A Participating Cumulative Preferred
Stock at an initial exercise price of $70.00. Each
1
/
1000
of a preferred share will be entitled to participate in
dividends and vote on an equivalent basis with one whole common
share. Initially, the rights are not exercisable. The rights
will become exercisable if any person or group acquires, or
makes a tender offer for, more than 15% of the companys
outstanding common shares. In the event that any party should
acquire or obtain the right to acquire more than 15% of the
companys common shares, the rights entitle all other
shareholders to purchase the preferred shares at a substantial
discount. In addition, if a merger occurs with any potential
acquirer owning more than 15% of the common shares outstanding,
holders of rights other than the potential acquirer will be able
to purchase the acquirers common stock at a substantial
discount. On March 11, 2004, the company amended its
stockholder rights plan to exempt the acquisition by Glencore
Finance AG and Mizuho International plc of securities issued by
the company in connection with the financing arrangements
entered into on March 12, 2004 from triggering the rights
under the plan. On June 9, 2004, the company further
amended its stockholder rights plan to reflect the decrease in
par value of the Series A Participating Cumulative
Preferred Stock from $1.00 per share to $.01 per share as
approved by the companys shareholders. The rights plan
expires in February 2009.
Comprehensive
Income (Loss)
Total comprehensive income or (loss) represents the net change
in shareholders equity during a period from sources other
than transactions with shareholders and, as such, includes net
earnings or loss for the period. The components of total
comprehensive loss are shown in the table that follows.
72
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive
Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Net loss
|
|
$
|
(87.1
|
)
|
|
$
|
(39.7
|
)
|
Foreign currency translation adjustments
|
|
|
15.9
|
|
|
|
17.7
|
|
Postretirement benefit plan adjustments(a)
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service cost
|
|
|
(1.6
|
)
|
|
|
|
|
Pension plan curtailment cost
|
|
|
1.9
|
|
|
|
|
|
Amortization of net unrecognized losses
|
|
|
10.5
|
|
|
|
|
|
Pension plan curtailment gain
|
|
|
27.9
|
|
|
|
|
|
Postretirement health care plan amendment
|
|
|
3.8
|
|
|
|
|
|
Actuarial gain arising in the period not included in net
periodic postretirement benefit costs
|
|
|
2.7
|
|
|
|
|
|
Minimum pension liability adjustment
|
|
|
|
|
|
|
32.2
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
(26.0
|
)
|
|
$
|
10.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
In all years presented, includes no income tax expense or
benefit.
|
The components of accumulated other comprehensive loss are shown
in the following table.
Accumulated
Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Foreign currency translation adjustments
|
|
$
|
6.6
|
|
|
$
|
(9.3
|
)
|
Defined benefit plans:
|
|
|
|
|
|
|
|
|
Net unamortized prior service costs
|
|
|
14.1
|
|
|
|
10.0
|
|
Unamortized net loss(a)
|
|
|
(73.2
|
)
|
|
|
(114.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(52.5
|
)
|
|
$
|
(113.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
In both 2007 and 2006, the amount presented is net of a U.S. tax
benefit of $51.4 million that was recorded in 2002.
|
Contingencies
The company is involved in remedial investigations and actions
at various locations, including former plant facilities, and
offsite disposal 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
are generally 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 certain such lawsuits, some of which seek
substantial dollar amounts, multiple plaintiffs allege personal
injury involving products, supplied by the company. The company
is vigorously defending these claims and, based on current
information, believes it has recorded appropriate reserves in
addition to its excess carrier insurance coverage and indemnity
claims against third parties. The projected availability under
the
73
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
companys asset based credit facility is currently expected
to be adequate to cover the companys cash needs under
these claims, assuming satisfaction or waiver of the conditions
to borrowing thereunder (see Short-Term Borrowings for further
information regarding those conditions to borrowing as well as
the companys dependence on its asset based credit facility
for liquidity). It is possible that the companys ultimate
liability could substantially exceed its current reserves, but
the amount of any such excess cannot reasonably be determined at
this time. Were the company to have significant adverse
judgments or determine as the cases progress that significant
additional reserves should be recorded, the companys
future operating results and financial condition, particularly
its liquidity, could be adversely affected.
Foreign
Exchange Contracts
Forward exchange contracts totaled $5.7 million at
December 31, 2007 and $.6 million at December 31,
2006. These contracts, which generally mature in periods of six
months or less, require the company and its subsidiaries to
exchange currencies on the maturity dates at exchange rates
agreed upon at inception.
Share-Based
Compensation
The 2004 Long-Term Incentive Plan (the 2004 Plan) permits the
company to grant awards of its common shares in the form of
non-qualified stock options, incentive stock options,
performance shares, restricted shares and deferred shares. The
2004 Plan also provides for the granting of appreciation rights,
either in tandem with stock options or free-standing. Awards
under the 2004 Plan may also include management
objectives, the attainment of which governs the extent to
which the related awards vest or become exercisable. Two
predecessor plans, the 1997 Long-Term Incentive Plan (the 1997
Plan) and the 1994 Long-Term Incentive Plan (the 1994 Plan),
also permit the granting of non-qualified stock options,
incentive stock options and restricted stock.
Under the 2004 Plan, the 1997 Plan and the 1994 Plan,
non-qualified and incentive stock options are granted at market
value as of the respective dates, vest in increments over four
or five year periods, and expire not more than ten years from
the date of the award.
The table that follows summarizes stock options outstanding and
stock option activity for the year ended December 31, 2007.
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Average
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term(a)
|
|
|
Outstanding at December 31, 2006
|
|
|
274,790
|
|
|
$
|
182.70
|
|
|
|
1.7
|
|
Cancellations
|
|
|
(106,008
|
)
|
|
|
167.12
|
|
|
|
|
|
Forfeitures
|
|
|
(5,817
|
)
|
|
|
201.20
|
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
162,965
|
|
|
|
192.17
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2007
|
|
|
162,615
|
|
|
|
192.49
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007, the exercise prices of all
outstanding stock options were in excess of the market value of
the companys common shares at that date and the stock
options therefore had no intrinsic value.
During 2004, 1,400 stock options having an exercise price of
$43.00 per share and a weighted-average fair valued $27.20 per
share were granted. No stock options have subsequently been
granted. Beginning in 2006, the
74
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
company is recognizing expense related to these stock options
(which is de minimis) in its primary financial statements rather
than disclosing it on a pro forma basis. All other stock options
outstanding during 2007 became fully vested as of April 15,
2004 and therefore no expense is being recognized.
The fair value of the 1,400 stock options granted in 2004 was
determined using the Black-Scholes option pricing model using
the following assumptions: expected volatility 74%;
risk free rate of return 4.00%; and life
5 years. Due to restrictions imposed by the companys
financing arrangements, no dividend yield was assumed.
Under the 2004 Plan, grants of restricted stock may include
specific financial targets or objectives, the attainment of
which governs the extent to which the shares ultimately vest.
The 2004 Plan, the 1997 Plan and the 1994 Plan also permit the
granting of other restricted stock awards, the vesting of which
depends solely on continuous service with the company. Both
types of grants of restricted stock have two or three year
vesting periods. During the vesting period, restricted stock
awards entitle the holder to all rights of a holder of common
shares, including dividend and voting rights. Unvested shares
are restricted as to disposition and are subject to forfeiture
under certain circumstances, including termination of employment.
The 2004 Plan also provides for the granting of deferred shares
to non-employee directors. These grants are similar to
restricted stock as described above except that share
certificates are not issued at the grant date. Rather,
certificates are issued at the end of the three year vesting
period or upon a directors voluntary retirement from the
board after having served for at least six full years or having
attained the mandatory retirement age of 72. Deferred shares may
also be settled in cash at the directors discretion based
on the fair value of the underlying shares at the vesting date.
In addition to grants of deferred shares to non-employee
directors, the 2004 Plan permits the granting of awards
denominated in shares of common stock to employees. As is the
case for deferred shares granted to non-employee directors,
share certificates are not issued at the grant date. Such awards
may be settled through the issuance of share certificates at the
vesting date or in cash based on the fair value of the
underlying common shares at the vesting date. Similar to grants
of restricted stock, deferred share grants to employees may
include management objectives, the attainment of
which governs the extent to which the related awards vest. The
first employee grants under the provisions of the 2004 Plan were
made in 2005. However similar awards were made in prior years.
Summaries of activity for restricted stock and deferred shares
are presented in the tables that follow.
Restricted
Stock and Deferred Shares
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value(a)
|
|
|
Balance at December 31, 2006
|
|
|
226,255
|
|
|
$
|
20.35
|
|
Granted
|
|
|
179,707
|
|
|
|
8.54
|
|
Vested
|
|
|
(167,378
|
)
|
|
|
16.40
|
|
Forfeited
|
|
|
(71,794
|
)
|
|
|
11.68
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
166,790
|
|
|
|
15.33
|
|
|
|
|
|
|
|
|
|
|
75
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Restricted
Stock and Deferred Shares Subject to Financial
Targets
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value(a)
|
|
|
Balance at December 31, 2006
|
|
|
214,250
|
|
|
$
|
36.01
|
|
Granted
|
|
|
212,800
|
|
|
|
8.60
|
|
Vested
|
|
|
(13,025
|
)
|
|
|
23.76
|
|
Forfeited
|
|
|
(184,750
|
)
|
|
|
32.65
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
229,275
|
|
|
|
13.98
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Grant date fair values represent the closing price of the
companys common shares on the New York Stock Exchange on
the respective grant dates.
|
The companys long-term incentive plans provide for the
immediate vesting of the restricted stock granted thereunder
when a change in control (as defined in the plan
documents) occurs. The sale of shares of Series B Preferred
Stock on October 2, 2007 (see Change in Preferred Stock
Ownership Costs) triggered a change in control. The
companys executive officers voluntarily waived the vesting
of their shares but the vesting of 146,616 shares granted
to other employees resulted in a pretax charge to earnings of
$1.1 million.
At December 31, 2007, there was a total of
$1.5 million of unrecognized compensation cost related to
restricted stock and deferred shares. This amount is expected to
be recognized over a weighted-average period of 1.8 years,
including approximately $1.0 million in 2008. The
weighted-average grant date fair value of all restricted stock
and deferred shares was $8.57 in 2007 and $14.43 in 2006. The
fair value of restricted stock and deferred shares that vested
was $1.3 million in 2007 and $.2 million in 2006. The
amount for 2007 includes $1.1 million related to the shares
that vested due to the change in control.
The total cost charged to expense for share-based compensation
was $2.6 million in 2007 and $1.2 million in 2006. The
amount for 2007 includes the charge of $1.1 million related
to the early vesting of 146,616 shares that is discussed
above. No tax benefits were recognized in the Consolidated
Statements of Operations in any year because any changes in the
related deferred tax assets were fully offset by changes in
valuation allowances.
On May 2, 2007, the companys shareholders approved a
one-for-ten
reverse split of common shares (see Shareholders Equity).
The reverse split became effective on May 16, 2007. Based
on a comparison of the fair values of outstanding stock options
and restricted and deferred shares before and after the reverse
split, no incremental compensation cost was recognized at the
effective date and none is being recognized prospectively.
Organization
The company has four business segments: machinery
technologies North America, machinery
technologies Europe, mold technologies and
industrial fluids.
The companys segments conform to its internal management
reporting structure and are based on the nature of the products
they produce and the principal markets they serve. The machinery
technologies North America segment produces and
procures injection molding machines and extrusion and blow
molding systems for distribution primarily in North America at
the companys principal plastics machinery plant located
near Cincinnati, Ohio. The segment also sells specialty and
peripheral equipment for plastics processing as well as
replacement parts for its machinery products. The machinery
technologies North America segment also includes our
operations in India and China. The machinery
technologies Europe segment manufactures injection
molding machines and blow molding systems for distribution in
Europe and Asia at its principal manufacturing plants located in
Germany and Italy. The mold technologies segment
which has its major operations in North America and
Europe
76
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
produces and procures mold bases and components for injection
molding and distributes maintenance, repair and operating
supplies for all types to plastics processors. The industrial
fluids segment is also international in scope with major
blending facilities in the U.S., The Netherlands and South Korea
and manufactures and sells coolants, lubricants, corrosion
inhibitors and cleaning fluids used in metalworking.
The markets for all four segments tend to be cyclical in nature,
especially in the two machinery segments where demand is heavily
influenced by consumer confidence and spending levels, interest
rates and general capital spending patterns, particularly in the
automotive, packaging and construction industries. The markets
for the mold technologies and industrial fluids are somewhat
less cyclical and are influenced by industrial capacity
utilization and consumer spending.
Financial data for the past two years for the companys
business segments are shown in the following tables. The
accounting policies followed by the segments are identical to
those used in the preparation of the companys Consolidated
Financial Statements. The effects of intersegment transactions,
which are not significant in amount, have been eliminated. The
company incurs costs and expenses and holds certain assets at
the corporate level which relate to its business as a whole.
Certain of these amounts have been allocated to the
companys business segments by various methods, largely on
the basis of usage. Management believes that all such
allocations are reasonable.
Total
Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies-North America
|
|
$
|
367.0
|
|
|
$
|
402.4
|
|
Machinery technologies-Europe
|
|
|
180.5
|
|
|
|
153.4
|
|
Mold technologies
|
|
|
148.2
|
|
|
|
158.8
|
|
Eliminations
|
|
|
(11.8
|
)
|
|
|
(12.0
|
)
|
|
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
683.9
|
|
|
|
702.6
|
|
Industrial fluids
|
|
|
124.0
|
|
|
|
117.5
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
807.9
|
|
|
$
|
820.1
|
|
|
|
|
|
|
|
|
|
|
Customer
Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies-North America
|
|
$
|
363.2
|
|
|
$
|
400.6
|
|
Machinery technologies-Europe
|
|
|
172.5
|
|
|
|
143.2
|
|
Mold technologies
|
|
|
148.2
|
|
|
|
158.8
|
|
|
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
683.9
|
|
|
|
702.6
|
|
Industrial fluids
|
|
|
124.0
|
|
|
|
117.5
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
807.9
|
|
|
$
|
820.1
|
|
|
|
|
|
|
|
|
|
|
77
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Operating
Information by Segment
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies-North America
|
|
$
|
10.8
|
|
|
$
|
17.1
|
|
Machinery technologies-Europe
|
|
|
3.3
|
|
|
|
(4.9
|
)
|
Mold technologies
|
|
|
1.9
|
|
|
|
3.0
|
|
|
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
16.0
|
|
|
|
15.2
|
|
Industrial fluids
|
|
|
16.6
|
|
|
|
10.8
|
|
Restructuring costs(a)
|
|
|
(12.5
|
)
|
|
|
(17.4
|
)
|
Change in preferred stock ownership costs
|
|
|
(1.9
|
)
|
|
|
|
|
Pension plan curtailment cost
|
|
|
(1.9
|
)
|
|
|
|
|
Refinancing costs
|
|
|
|
|
|
|
(1.8
|
)
|
Corporate expenses
|
|
|
(13.2
|
)
|
|
|
(13.6
|
)
|
Other unallocated income (expenses)
|
|
|
1.7
|
|
|
|
(.4
|
)
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
4.8
|
|
|
|
(7.2
|
)
|
Interest
expense-net
|
|
|
(31.4
|
)
|
|
|
(30.0
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(26.6
|
)
|
|
$
|
(37.2
|
)
|
|
|
|
|
|
|
|
|
|
Segment assets(b)
|
|
|
|
|
|
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies-North America
|
|
$
|
196.8
|
|
|
$
|
200.4
|
|
Machinery technologies-Europe
|
|
|
115.8
|
|
|
|
100.2
|
|
Mold technologies
|
|
|
128.1
|
|
|
|
136.4
|
|
Other
|
|
|
.2
|
|
|
|
.4
|
|
|
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
440.9
|
|
|
|
437.4
|
|
Industrial fluids
|
|
|
47.8
|
|
|
|
47.3
|
|
Cash and cash equivalents
|
|
|
40.8
|
|
|
|
38.5
|
|
Deferred income taxes
|
|
|
30.2
|
|
|
|
83.0
|
|
Unallocated corporate and other(c)
|
|
|
43.2
|
|
|
|
44.3
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
602.9
|
|
|
$
|
650.5
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies-North America
|
|
$
|
4.6
|
|
|
$
|
6.6
|
|
Machinery technologies-Europe
|
|
|
.8
|
|
|
|
2.6
|
|
Mold technologies
|
|
|
1.6
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
7.0
|
|
|
|
11.6
|
|
Industrial fluids
|
|
|
1.9
|
|
|
|
1.5
|
|
Unallocated corporate
|
|
|
.7
|
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
$
|
9.6
|
|
|
$
|
13.8
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies-North America
|
|
$
|
5.8
|
|
|
$
|
6.1
|
|
Machinery technologies-Europe
|
|
|
4.0
|
|
|
|
3.8
|
|
Mold technologies
|
|
|
4.5
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
14.3
|
|
|
|
15.1
|
|
Industrial fluids
|
|
|
1.6
|
|
|
|
1.5
|
|
Unallocated corporate
|
|
|
.2
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization
|
|
$
|
16.1
|
|
|
$
|
16.8
|
|
|
|
|
|
|
|
|
|
|
78
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(a)
|
|
In 2007, $3.6 million relates to machinery
technologies North America, $3.1 million to
machinery technologies Europe, $5.6 million to
mold technologies, $.1 million to industrial fluids and
$.1 million to corporate expenses. In 2006,
$2.2 million relates to machinery technologies
North America, $8.3 million to machinery
technologies Europe, $5.4 million to mold
technologies, $.2 million to industrial fluids and
$1.3 million to corporate expenses.
|
|
(b)
|
|
Segment assets consist principally of accounts receivable,
inventories, goodwill and property, plant and equipment which
are considered controllable assets for management reporting
purposes.
|
|
(c)
|
|
Consists principally of corporate assets, nonconsolidated
investments, certain intangible assets, expected recoveries from
excess insurance carriers, prepaid expenses and deferred charges.
|
Geographic
Information
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
(In millions)
|
|
|
Sales(a)
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
442.9
|
|
|
$
|
504.5
|
|
Non-U.S.
operations
|
|
|
|
|
|
|
|
|
Germany
|
|
|
130.0
|
|
|
|
113.0
|
|
Other Western Europe
|
|
|
145.6
|
|
|
|
126.1
|
|
Asia
|
|
|
55.6
|
|
|
|
43.2
|
|
Other
|
|
|
33.8
|
|
|
|
33.3
|
|
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
807.9
|
|
|
$
|
820.1
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
60.2
|
|
|
$
|
70.6
|
|
Non-U.S.
operations
|
|
|
|
|
|
|
|
|
Germany
|
|
|
28.4
|
|
|
|
35.5
|
|
Other Western Europe
|
|
|
20.8
|
|
|
|
19.0
|
|
Asia
|
|
|
9.2
|
|
|
|
7.5
|
|
Other
|
|
|
1.1
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119.7
|
|
|
|
133.8
|
|
Investments and advances not consolidated
|
|
|
4.1
|
|
|
|
3.6
|
|
Goodwill
|
|
|
90.5
|
|
|
|
87.3
|
|
Other intangible assets
|
|
|
1.2
|
|
|
|
1.6
|
|
Deferred income taxes net of valuation allowances
|
|
|
17.4
|
|
|
|
58.6
|
|
|
|
|
|
|
|
|
|
|
Total noncurrent assets
|
|
$
|
232.9
|
|
|
$
|
284.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Sales are attributed to specific countries or geographic areas
based on the origin of the shipment.
|
Sales of U.S. operations include export sales of
$86.4 million in 2007 and $92.9 million in 2006.
Total sales of the companys U.S. and
non-U.S. operations
to unaffiliated customers outside the U.S. were
$421.8 million in 2007 and $374.5 million in 2006.
79
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Subsequent
Event
On March 12, 2008, certain European subsidiaries of the
company entered into a five-year, asset-based revolving credit
program pursuant to which up to 27 million in
aggregate financing is made available to such subsidiaries by
Lloyds TSB Bank plc and its affiliates. The new credit program
consists of two parts: asset-based revolving loan facilities
provided to certain subsidiaries of the company organized in
Germany, Holland and Belgium and an accounts receivable
factoring facility involving the companys principal German
operating subsidiary. Based upon asset levels as of
March 12, 2008, total borrowing and factoring capacity
under the new program, when fully operational, is expected to
exceed 20 million but will likely be less than the
full 27 million limit. Proceeds of the credit program
may be used solely for working capital purposes of the borrowers
and their affiliates. The company anticipates that the
incremental working capital capacity provided by the new credit
program will help meet U.S. pension funding obligations in
2008.
The obligations of each borrower under the asset-based loan
component of the credit program are guaranteed by each other
borrower and by certain other subsidiaries of the company
organized in Germany and Holland. Borrowings under the
asset-based loan portion of the new credit program are secured
by the accounts receivable (other than accounts receivable of
the German borrower, which are sold pursuant to the factoring
component of the new credit program) and certain bank accounts
and inventory of the borrowers, by a mortgage on certain real
property in Germany and by pledges of shares in each of the
borrowers by their respective parent entities.
Under the accounts receivable factoring portion of the new
credit program, the companys principal German operating
subsidiary sells all of its eligible accounts receivable,
together with related security and ancillary rights, to Lloyds
TSB Commercial Finance Limited. Accounts receivable are sold
pursuant to this factoring facility at a customary discount rate.
The new credit program contains customary covenants, including
but not limited to an obligation to maintain a 1 to 1 fixed
charge coverage ratio and covenants relating to debt turn and
dilution rates with respect to the accounts receivable. The
German borrower must maintain a certain minimum tangible net
worth. The borrowers are permitted to transfer up to
$25 million of the funds initially made available under the
credit program to their U.S. affiliates, provided that no
termination event has occurred. Further transfers of any funds
to U.S. affiliates, regardless of source, are permitted
subject to certain restrictions.
Condensed
Consolidating Financial Information
The
11
1
/
2
% Senior
Secured Notes due 2011 are jointly, severally, fully and
unconditionally guaranteed by the companys U.S. and
Canadian restricted subsidiaries. Following are unaudited
condensed consolidating financial statements of the company,
including the guarantors.
This information is provided
pursuant to
Rule 3-10
of
Regulation S-X
in lieu of separate financial statements of each subsidiary
guaranteeing the Senior Secured Notes.
The following
condensed consolidating financial statements present the balance
sheet, statement of operations and cash flows of
(i) Milacron Inc. (in each case, reflecting investments in
its consolidated subsidiaries under the equity method of
accounting), (ii) the guarantor subsidiaries of Milacron
Inc., (iii) the nonguarantor subsidiaries of Milacron Inc.,
and (iv) the eliminations necessary to arrive at the
information for the company on a consolidated basis. The
condensed consolidating financial statements should be read in
conjunction with the accompanying consolidated condensed
financial statements of the company.
Milacron Capital Holdings B.V. had been a guarantor for most of
2006, but was released in December 2006 in conjunction with the
terms of the new asset based lending facility with General
Electric Capital Corporation. In 2007, Milacron Capital Holdings
B.V. once again became a guarantor of the Senior Notes. Milacron
Capital Holdings B.V. is reflected in the accompanying condensed
consolidating financial statements as a guarantor as of and for
the period ended December 31, 2007 and for each of the
respective comparative financial statements.
80
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
|
(In millions)
|
|
|
Sales
|
|
$
|
|
|
|
$
|
476.9
|
|
|
$
|
354.6
|
|
|
$
|
(23.6
|
)
|
|
$
|
807.9
|
|
Cost of products sold
|
|
|
9.7
|
|
|
|
396.0
|
|
|
|
262.8
|
|
|
|
(23.6
|
)
|
|
|
644.9
|
|
Cost of products sold related to restructuring
|
|
|
|
|
|
|
|
|
|
|
.2
|
|
|
|
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of products sold
|
|
|
9.7
|
|
|
|
396.0
|
|
|
|
263.0
|
|
|
|
(23.6
|
)
|
|
|
645.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing margins
|
|
|
(9.7
|
)
|
|
|
80.9
|
|
|
|
91.6
|
|
|
|
|
|
|
|
162.8
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
|
23.7
|
|
|
|
53.3
|
|
|
|
67.6
|
|
|
|
|
|
|
|
144.6
|
|
Restructuring costs
|
|
|
.7
|
|
|
|
4.6
|
|
|
|
7.0
|
|
|
|
|
|
|
|
12.3
|
|
Change in preferred stock ownership costs
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
Pension curtailment costs
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
Other expense net
|
|
|
(.4
|
)
|
|
|
(2.7
|
)
|
|
|
.4
|
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other costs and expenses
|
|
|
27.8
|
|
|
|
55.2
|
|
|
|
75.0
|
|
|
|
|
|
|
|
158.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(37.5
|
)
|
|
|
27.5
|
|
|
|
16.6
|
|
|
|
|
|
|
|
4.8
|
|
Other non-operating expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany management fees
|
|
|
(12.9
|
)
|
|
|
12.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest
|
|
|
(48.5
|
)
|
|
|
50.4
|
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
61.2
|
|
|
|
(20.0
|
)
|
|
|
|
|
|
|
(41.2
|
)
|
|
|
|
|
Other intercompany transactions
|
|
|
(.2
|
)
|
|
|
.4
|
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating expense (income)
|
|
|
(.4
|
)
|
|
|
43.7
|
|
|
|
(2.1
|
)
|
|
|
(41.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before interest
and income taxes
|
|
|
(37.1
|
)
|
|
|
(18.0
|
)
|
|
|
18.7
|
|
|
|
41.2
|
|
|
|
4.8
|
|
Interest expense net
|
|
|
(32.0
|
)
|
|
|
1.0
|
|
|
|
(.4
|
)
|
|
|
|
|
|
|
(31.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income
taxes
|
|
|
(69.1
|
)
|
|
|
(17.0
|
)
|
|
|
18.3
|
|
|
|
41.2
|
|
|
|
(26.6
|
)
|
Provision (benefit) for income taxes
|
|
|
19.2
|
|
|
|
44.8
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
61.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(88.3
|
)
|
|
|
(61.8
|
)
|
|
|
20.6
|
|
|
|
41.2
|
|
|
|
(88.3
|
)
|
Discontinued operations net of income taxes
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(87.1
|
)
|
|
$
|
(61.8
|
)
|
|
$
|
20.6
|
|
|
$
|
41.2
|
|
|
$
|
(87.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
|
(In millions)
|
|
|
Sales
|
|
$
|
|
|
|
$
|
537.8
|
|
|
$
|
303.9
|
|
|
$
|
(21.6
|
)
|
|
$
|
820.1
|
|
Cost of products sold
|
|
|
8.5
|
|
|
|
435.1
|
|
|
|
246.2
|
|
|
|
(21.6
|
)
|
|
|
668.2
|
|
Cost of products sold related to restructuring
|
|
|
|
|
|
|
|
|
|
|
.5
|
|
|
|
|
|
|
|
.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of products sold
|
|
|
8.5
|
|
|
|
435.1
|
|
|
|
246.7
|
|
|
|
(21.6
|
)
|
|
|
668.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing margins
|
|
|
(8.5
|
)
|
|
|
102.7
|
|
|
|
57.2
|
|
|
|
|
|
|
|
151.4
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
|
26.5
|
|
|
|
55.0
|
|
|
|
58.7
|
|
|
|
|
|
|
|
140.2
|
|
Restructuring costs
|
|
|
.2
|
|
|
|
5.1
|
|
|
|
11.6
|
|
|
|
|
|
|
|
16.9
|
|
Refinancing costs
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
Other expense net
|
|
|
(.6
|
)
|
|
|
|
|
|
|
.3
|
|
|
|
|
|
|
|
(.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other costs and expenses
|
|
|
27.9
|
|
|
|
60.1
|
|
|
|
70.6
|
|
|
|
|
|
|
|
158.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(36.4
|
)
|
|
|
42.6
|
|
|
|
(13.4
|
)
|
|
|
|
|
|
|
(7.2
|
)
|
Other non-operating expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany management fees
|
|
|
(12.6
|
)
|
|
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest
|
|
|
(53.6
|
)
|
|
|
55.8
|
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
44.5
|
|
|
|
(.9
|
)
|
|
|
|
|
|
|
(43.6
|
)
|
|
|
|
|
Other intercompany transactions
|
|
|
(3.2
|
)
|
|
|
15.3
|
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating expense (income)
|
|
|
(24.9
|
)
|
|
|
82.8
|
|
|
|
(14.3
|
)
|
|
|
(43.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before interest
and income taxes
|
|
|
(11.5
|
)
|
|
|
(40.2
|
)
|
|
|
.9
|
|
|
|
43.6
|
|
|
|
(7.2
|
)
|
Interest expense net
|
|
|
(30.7
|
)
|
|
|
1.0
|
|
|
|
(.3
|
)
|
|
|
|
|
|
|
(30.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations before income
taxes
|
|
|
(42.2
|
)
|
|
|
(39.2
|
)
|
|
|
.6
|
|
|
|
43.6
|
|
|
|
(37.2
|
)
|
Provision (benefit) for income taxes
|
|
|
(2.4
|
)
|
|
|
1.1
|
|
|
|
3.9
|
|
|
|
|
|
|
|
2.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations
|
|
|
(39.8
|
)
|
|
|
(40.3
|
)
|
|
|
(3.3
|
)
|
|
|
43.6
|
|
|
|
(39.8
|
)
|
Discontinued operations net of income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on divestitures
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(39.7
|
)
|
|
$
|
(40.3
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
43.6
|
|
|
$
|
(39.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
|
(In millions)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
.3
|
|
|
$
|
5.8
|
|
|
$
|
34.7
|
|
|
$
|
|
|
|
$
|
40.8
|
|
Notes and accounts receivable (excluding intercompany
receivables)
|
|
|
.2
|
|
|
|
51.0
|
|
|
|
63.4
|
|
|
|
|
|
|
|
114.6
|
|
Inventories
|
|
|
|
|
|
|
103.5
|
|
|
|
76.2
|
|
|
|
|
|
|
|
179.7
|
|
Other current assets
|
|
|
14.8
|
|
|
|
5.2
|
|
|
|
14.9
|
|
|
|
|
|
|
|
39.4
|
|
Intercompany receivables (payables)
|
|
|
(324.4
|
)
|
|
|
200.5
|
|
|
|
126.2
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
(309.1
|
)
|
|
|
366.0
|
|
|
|
315.4
|
|
|
|
(2.3
|
)
|
|
|
370.0
|
|
Property, plant and equipment net
|
|
|
.8
|
|
|
|
50.4
|
|
|
|
55.2
|
|
|
|
|
|
|
|
106.4
|
|
Goodwill
|
|
|
|
|
|
|
54.1
|
|
|
|
36.4
|
|
|
|
|
|
|
|
90.5
|
|
Investment in subsidiaries
|
|
|
247.5
|
|
|
|
224.4
|
|
|
|
(15.8
|
)
|
|
|
(456.1
|
)
|
|
|
|
|
Intercompany advances - net
|
|
|
441.3
|
|
|
|
(468.4
|
)
|
|
|
27.1
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
|
6.8
|
|
|
|
8.6
|
|
|
|
20.6
|
|
|
|
|
|
|
|
36.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
387.3
|
|
|
$
|
235.1
|
|
|
$
|
438.9
|
|
|
$
|
(458.4
|
)
|
|
$
|
602.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
24.4
|
|
|
$
|
|
|
|
$
|
2.5
|
|
|
$
|
|
|
|
$
|
26.9
|
|
Long-term debt and capital lease obligations due within one year
|
|
|
1.2
|
|
|
|
|
|
|
|
.9
|
|
|
|
|
|
|
|
2.1
|
|
Trade accounts payable
|
|
|
6.1
|
|
|
|
39.8
|
|
|
|
46.2
|
|
|
|
|
|
|
|
92.1
|
|
Advance billings and deposits
|
|
|
|
|
|
|
15.1
|
|
|
|
14.3
|
|
|
|
|
|
|
|
29.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued and other current liabilities
|
|
|
32.9
|
|
|
|
10.9
|
|
|
|
32.8
|
|
|
|
|
|
|
|
76.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
64.6
|
|
|
|
65.8
|
|
|
|
96.7
|
|
|
|
|
|
|
|
227.1
|
|
Long-term accrued liabilities
|
|
|
145.4
|
|
|
|
2.9
|
|
|
|
45.0
|
|
|
|
|
|
|
|
193.3
|
|
Long-term debt
|
|
|
226.7
|
|
|
|
|
|
|
|
5.2
|
|
|
|
|
|
|
|
231.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
436.7
|
|
|
|
68.7
|
|
|
|
146.9
|
|
|
|
|
|
|
|
652.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4% Cumulative Preferred shares
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0
|
|
6% Series B Convertible Preferred Stock
|
|
|
119.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119.2
|
|
Common shares, $.01 par value
|
|
|
.1
|
|
|
|
25.4
|
|
|
|
13.2
|
|
|
|
(38.6
|
)
|
|
|
.1
|
|
Capital in excess of par value
|
|
|
355.9
|
|
|
|
429.0
|
|
|
|
82.3
|
|
|
|
(511.3
|
)
|
|
|
355.9
|
|
Contingent warrants
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.2
|
|
Reinvested earnings (accumulated deficit)
|
|
|
(478.3
|
)
|
|
|
(276.9
|
)
|
|
|
162.5
|
|
|
|
114.4
|
|
|
|
(478.3
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(52.5
|
)
|
|
|
(11.1
|
)
|
|
|
34.0
|
|
|
|
(22.9
|
)
|
|
|
(52.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit)
|
|
|
(49.4
|
)
|
|
|
166.4
|
|
|
|
292.0
|
|
|
|
(458.4
|
)
|
|
|
(49.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity (deficit)
|
|
$
|
387.3
|
|
|
$
|
235.1
|
|
|
$
|
438.9
|
|
|
$
|
(458.4
|
)
|
|
$
|
602.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2006
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
|
(In millions)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
(.7
|
)
|
|
$
|
4.2
|
|
|
$
|
35.0
|
|
|
$
|
|
|
|
$
|
38.5
|
|
Notes and accounts receivable (excluding intercompany
receivables)
|
|
|
.4
|
|
|
|
63.5
|
|
|
|
50.6
|
|
|
|
|
|
|
|
114.5
|
|
Inventories
|
|
|
|
|
|
|
105.3
|
|
|
|
65.4
|
|
|
|
|
|
|
|
170.7
|
|
Other current assets
|
|
|
11.3
|
|
|
|
11.1
|
|
|
|
19.5
|
|
|
|
|
|
|
|
41.9
|
|
Intercompany receivables (payables)
|
|
|
(333.3
|
)
|
|
|
221.1
|
|
|
|
114.5
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
(322.3
|
)
|
|
|
405.2
|
|
|
|
285.0
|
|
|
|
(2.3
|
)
|
|
|
365.6
|
|
Property, plant and equipment net
|
|
|
1.1
|
|
|
|
53.1
|
|
|
|
60.1
|
|
|
|
|
|
|
|
114.3
|
|
Goodwill
|
|
|
|
|
|
|
53.1
|
|
|
|
34.2
|
|
|
|
|
|
|
|
87.3
|
|
Investment in subsidiaries
|
|
|
216.7
|
|
|
|
223.1
|
|
|
|
(15.8
|
)
|
|
|
(424.0
|
)
|
|
|
|
|
Intercompany advances net
|
|
|
514.6
|
|
|
|
(547.6
|
)
|
|
|
33.0
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
|
22.0
|
|
|
|
42.3
|
|
|
|
19.0
|
|
|
|
|
|
|
|
83.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
432.1
|
|
|
$
|
229.2
|
|
|
$
|
415.5
|
|
|
$
|
(426.3
|
)
|
|
$
|
650.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY (DEFICIT)
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
23.2
|
|
|
$
|
|
|
|
$
|
2.3
|
|
|
$
|
|
|
|
$
|
25.5
|
|
Long-term debt and capital lease obligations due within one year
|
|
|
1.2
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
2.2
|
|
Trade accounts payable
|
|
|
5.5
|
|
|
|
37.2
|
|
|
|
35.1
|
|
|
|
|
|
|
|
77.8
|
|
Advance billings and deposits
|
|
|
|
|
|
|
17.7
|
|
|
|
6.7
|
|
|
|
|
|
|
|
24.4
|
|
Accrued and other current liabilities
|
|
|
22.6
|
|
|
|
20.4
|
|
|
|
39.6
|
|
|
|
|
|
|
|
82.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
52.5
|
|
|
|
75.3
|
|
|
|
84.7
|
|
|
|
|
|
|
|
212.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term accrued liabilities
|
|
|
173.7
|
|
|
|
4.1
|
|
|
|
48.7
|
|
|
|
|
|
|
|
226.5
|
|
Long-term debt
|
|
|
227.2
|
|
|
|
|
|
|
|
5.6
|
|
|
|
|
|
|
|
232.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
453.4
|
|
|
|
79.4
|
|
|
|
139.0
|
|
|
|
|
|
|
|
671.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4% Cumulative Preferred shares
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0
|
|
6% Series B Convertible Preferred Stock
|
|
|
116.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
116.1
|
|
Common shares, $.01 par value
|
|
|
.1
|
|
|
|
25.4
|
|
|
|
13.2
|
|
|
|
(38.6
|
)
|
|
|
.1
|
|
Capital in excess of par value
|
|
|
351.5
|
|
|
|
316.4
|
|
|
|
80.3
|
|
|
|
(396.7
|
)
|
|
|
351.5
|
|
Contingent warrants
|
|
|
.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.5
|
|
Reinvested earnings (accumulated deficit)
|
|
|
(381.9
|
)
|
|
|
(174.8
|
)
|
|
|
163.8
|
|
|
|
11.0
|
|
|
|
(381.9
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(113.6
|
)
|
|
|
(17.2
|
)
|
|
|
19.2
|
|
|
|
(2.0
|
)
|
|
|
(113.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit)
|
|
|
(21.3
|
)
|
|
|
149.8
|
|
|
|
276.5
|
|
|
|
(426.3
|
)
|
|
|
(21.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity (deficit)
|
|
$
|
432.1
|
|
|
$
|
229.2
|
|
|
$
|
415.5
|
|
|
$
|
(426.3
|
)
|
|
$
|
650.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
|
(In millions)
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(87.1
|
)
|
|
$
|
(61.8
|
)
|
|
$
|
20.6
|
|
|
$
|
41.2
|
|
|
$
|
(87.1
|
)
|
Operating activities providing (using) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on divestiture
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
Depreciation and amortization
|
|
|
.2
|
|
|
|
8.6
|
|
|
|
7.3
|
|
|
|
|
|
|
|
16.1
|
|
Restructuring costs
|
|
|
.1
|
|
|
|
3.8
|
|
|
|
6.3
|
|
|
|
|
|
|
|
10.2
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
80.0
|
|
|
|
1.7
|
|
|
|
|
|
|
|
(81.7
|
)
|
|
|
|
|
Distributions from equity subsidiaries
|
|
|
|
|
|
|
(18.8
|
)
|
|
|
(21.7
|
)
|
|
|
40.5
|
|
|
|
|
|
Deferred income taxes
|
|
|
19.6
|
|
|
|
43.7
|
|
|
|
(4.5
|
)
|
|
|
|
|
|
|
58.8
|
|
Working capital changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and accounts receivable
|
|
|
.2
|
|
|
|
13.0
|
|
|
|
(9.5
|
)
|
|
|
|
|
|
|
3.7
|
|
Inventories
|
|
|
|
|
|
|
2.1
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(4.4
|
)
|
Other current assets
|
|
|
.4
|
|
|
|
(1.0
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
(3.7
|
)
|
Trade accounts payable
|
|
|
.6
|
|
|
|
2.5
|
|
|
|
8.6
|
|
|
|
|
|
|
|
11.7
|
|
Other current liabilities
|
|
|
.4
|
|
|
|
(20.8
|
)
|
|
|
7.1
|
|
|
|
|
|
|
|
(13.3
|
)
|
Decrease (increase) in other noncurrent assets
|
|
|
2.8
|
|
|
|
(.1
|
)
|
|
|
4.9
|
|
|
|
|
|
|
|
7.6
|
|
Increase (decrease) in long-term accrued liabilities
|
|
|
11.9
|
|
|
|
(.2
|
)
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
7.8
|
|
Other net
|
|
|
3.0
|
|
|
|
(2.0
|
)
|
|
|
2.4
|
|
|
|
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
30.9
|
|
|
|
(29.3
|
)
|
|
|
8.0
|
|
|
|
|
|
|
|
9.6
|
|
Investing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(5.6
|
)
|
|
|
(4.0
|
)
|
|
|
|
|
|
|
(9.6
|
)
|
Net disposals of plant, property and equipment
|
|
|
|
|
|
|
.1
|
|
|
|
.2
|
|
|
|
|
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
|
|
|
|
(5.5
|
)
|
|
|
(3.8
|
)
|
|
|
|
|
|
|
(9.3
|
)
|
Financing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(.5
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(1.6
|
)
|
Increase (decrease) in short-term borrowings
|
|
|
1.2
|
|
|
|
|
|
|
|
(.2
|
)
|
|
|
|
|
|
|
1.0
|
|
Dividends paid
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
.5
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(.8
|
)
|
Intercompany receivables and payables
|
|
|
(8.9
|
)
|
|
|
23.0
|
|
|
|
(14.1
|
)
|
|
|
|
|
|
|
|
|
Intercompany advances
|
|
|
(21.5
|
)
|
|
|
13.0
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
|
|
|
|
.4
|
|
|
|
2.4
|
|
|
|
|
|
|
|
2.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) decrease in cash and cash equivalents
|
|
|
1.0
|
|
|
|
1.6
|
|
|
|
(.3
|
)
|
|
|
|
|
|
|
2.3
|
|
Cash and cash equivalents at beginning of year
|
|
|
(.7
|
)
|
|
|
4.2
|
|
|
|
35.0
|
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
.3
|
|
|
$
|
5.8
|
|
|
$
|
34.7
|
|
|
$
|
|
|
|
$
|
40.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
MILACRON
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Condensed
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
|
(In millions)
|
|
|
Increase (decrease) in cash and cash equivalents Operating
activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(39.7
|
)
|
|
$
|
(40.3
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
43.6
|
|
|
$
|
(39.7
|
)
|
Operating activities providing (using) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on divestiture
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.1
|
)
|
Depreciation and amortization
|
|
|
.2
|
|
|
|
10.0
|
|
|
|
6.6
|
|
|
|
|
|
|
|
16.8
|
|
Refinancing costs
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.8
|
|
Restructuring costs
|
|
|
.2
|
|
|
|
4.6
|
|
|
|
3.4
|
|
|
|
|
|
|
|
8.2
|
|
Equity in (earnings) losses of subsidiaries
|
|
|
80.4
|
|
|
|
6.0
|
|
|
|
|
|
|
|
(86.4
|
)
|
|
|
|
|
Distributions from equity subsidiaries
|
|
|
|
|
|
|
(35.9
|
)
|
|
|
(6.9
|
)
|
|
|
42.8
|
|
|
|
|
|
Deferred income taxes
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
.8
|
|
Working capital changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and accounts receivable
|
|
|
.2
|
|
|
|
1.4
|
|
|
|
6.3
|
|
|
|
|
|
|
|
7.9
|
|
Inventories
|
|
|
(.2
|
)
|
|
|
(5.7
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
(4.5
|
)
|
Other current assets
|
|
|
1.9
|
|
|
|
(.6
|
)
|
|
|
.8
|
|
|
|
|
|
|
|
2.1
|
|
Trade accounts payable
|
|
|
(.6
|
)
|
|
|
(3.4
|
)
|
|
|
2.3
|
|
|
|
|
|
|
|
(1.7
|
)
|
Other current liabilities
|
|
|
(9.9
|
)
|
|
|
6.8
|
|
|
|
1.1
|
|
|
|
|
|
|
|
(2.0
|
)
|
Decrease (increase) in other noncurrent assets
|
|
|
15.5
|
|
|
|
.3
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
15.7
|
|
Decrease in long-term accrued liabilities
|
|
|
(24.0
|
)
|
|
|
(.1
|
)
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(25.9
|
)
|
Other net
|
|
|
1.8
|
|
|
|
(.2
|
)
|
|
|
(.2
|
)
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operating activities
|
|
|
26.2
|
|
|
|
(57.1
|
)
|
|
|
11.7
|
|
|
|
|
|
|
|
(19.2
|
)
|
Investing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(9.1
|
)
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
(13.8
|
)
|
Net disposals of plant, property and equipment
|
|
|
|
|
|
|
2.1
|
|
|
|
.8
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
|
|
|
|
(7.0
|
)
|
|
|
(3.9
|
)
|
|
|
|
|
|
|
(10.9
|
)
|
Financing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(.5
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
|
|
|
|
|
|
(1.6
|
)
|
Increase in short-term borrowings
|
|
|
21.0
|
|
|
|
|
|
|
|
.2
|
|
|
|
|
|
|
|
21.2
|
|
Dividends paid
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing activities
|
|
|
20.3
|
|
|
|
|
|
|
|
(.9
|
)
|
|
|
|
|
|
|
19.4
|
|
Intercompany receivables and payables
|
|
|
(21.4
|
)
|
|
|
33.9
|
|
|
|
(12.5
|
)
|
|
|
|
|
|
|
|
|
Intercompany advances
|
|
|
(25.2
|
)
|
|
|
23.4
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on cash and cash equivalents
|
|
|
|
|
|
|
.2
|
|
|
|
3.3
|
|
|
|
|
|
|
|
3.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(.1
|
)
|
|
|
(6.6
|
)
|
|
|
(.5
|
)
|
|
|
|
|
|
|
(7.2
|
)
|
Cash and cash equivalents at beginning of year
|
|
|
(.6
|
)
|
|
|
10.8
|
|
|
|
35.5
|
|
|
|
|
|
|
|
45.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
(.7
|
)
|
|
$
|
4.2
|
|
|
$
|
35.0
|
|
|
$
|
|
|
|
$
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Milacron Inc. and Subsidiaries
We have audited the accompanying Consolidated Balance Sheets of
Milacron Inc. and Subsidiaries (the Company) as of
December 31, 2007 and 2006, and the related Consolidated
Statements of Operations, Comprehensive Income (Loss) and
Shareholders Equity (Deficit), and Cash Flows for each of
the two years in the period ended December 31, 2007. Our
audits also included the financial statement schedule listed in
the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). 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 Milacron Inc. and Subsidiaries at
December 31, 2007 and 2006, and the consolidated results of
their operations and their cash flows for each of the two years
in the period ended December 31, 2007, in conformity with
U.S. 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, present fairly in all material respects the
information set forth therein.
As discussed under the heading Changes in Methods of
Accounting in the Summary of Significant Accounting
Policies in the notes to the consolidated financial statements,
the Company adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes as of January 1, 2007.
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans as of December 31, 2006 and adopted the
provisions of Statement of Financial Accounting Standards
No. 123(R), Share-based Payment using the
modified prospective method as of January 1, 2006.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2007, based on
criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 24, 2008
expressed an unqualified opinion thereon.
Cincinnati, Ohio
March 24, 2008
87
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
Not applicable.
|
|
Item 9A.
|
Controls
and Procedures
|
Disclosure
Controls and Procedures
Disclosure controls and procedures are controls and other
procedures that are designed to ensure that information required
to be disclosed by the company is recorded, processed,
summarized and reported, within the time periods specified in
the rules and forms of the Securities and Exchange Commission
(SEC). As of the end of the companys fourth quarter,
management conducted an evaluation (under the supervision and
with the participation of the chief executive officer and the
chief financial officer), pursuant to
Rule 13a-15(b)
promulgated under the Securities Exchange Act of 1934, as
amended (the Exchange Act), of the effectiveness of the
companys disclosure controls and procedures. As part of
such evaluation, management considered the matters discussed
below relating to internal control over financial reporting.
Based on this evaluation, the companys chief executive
officer and chief financial officer have concluded that the
companys disclosure controls and procedures were effective
as of December 31, 2007.
Internal
Control Over Financial Reporting
The companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting, as defined in
Rule 13a-15(f)
or
15d-15(f)
under the Exchange Act.
Internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted
accounting principles and includes those policies and procedures
that:
|
|
|
|
|
pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and
dispositions of the assets of the issuer;
|
|
|
|
provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the company are being made
only in accordance with authorizations of management and
directors of the company; and
|
|
|
|
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
companys assets that could have a material effect on the
financial statements.
|
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that control may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management (under the supervision and with the participation of
the chief executive officer and the chief financial officer) has
conducted an evaluation of its internal control over financial
reporting as of December 31, 2007 based on the criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that
assessment, management has concluded that the companys
internal control over financial reporting was effective as of
December 31, 2007.
Changes
in Internal Control Over Financial Reporting
No change in internal control over financial reporting was made
in the fourth quarter of 2007 that materially affected, or is
likely to materially affect, the companys internal control
over financial reporting.
88
Report of
Independent Registered Public Accounting Firm
Board of Directors
Milacron Inc. and Subsidiaries
We have audited Milacron Inc. and Subsidiaries (the
Company) internal control over financial reporting as of
December 31, 2007, based on criteria established in
Internal Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(the COSO criteria). The Companys management is
responsible for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness
of internal control over financial reporting including the
accompanying Managements Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Milacron Inc. and Subsidiaries maintained, in
all material respects, effective internal control over financial
reporting as of December 31, 2007, based on the COSO
criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Consolidated Balance Sheets of Milacron Inc. and Subsidiaries as
of December 31, 2007 and 2006, and the related Consolidated
Statements of Operations, Comprehensive Income (Loss) and
Shareholders Equity (Deficit), and Cash Flows for each of
the two years in the period ended December 31, 2007 of
Milacron Inc. and Subsidiaries and our report dated
March 24, 2008 expressed an unqualified opinion thereon.
Cincinnati, Ohio
March 24, 2008
89
|
|
Item 9B.
|
Other
Information
|
Not applicable.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
The information required by the first part of Item 10 is
(i) incorporated herein by reference to the Directors
and Director Nominees, Governance of the
Company and Section 16(a) Beneficial Ownership
Reporting Compliance sections of the companys proxy
statement for the annual meeting of shareholders to be held
May 8, 2008, (ii) included in Part I
Executive Officers of the Registrant, on
page 11 of this
Form 10-K
and (iii) presented below.
Audit
Committee Financial Literacy and Financial Experts
The Companys Audit Committee is comprised of Sallie B.
Bailey, Charles F.C. Turner and Mark L. Segal, with
Mr. Segal serving as Chairperson. All members are
independent under applicable Securities and Exchange Commission
(SEC) and New York Stock Exchange (NYSE)
rules. The Board of Directors of the company has determined that
Mr. Segal and Mrs. Bailey are audit committee
financial experts in accordance with SEC rules.
The information required by the second part of Item 10 is
incorporated herein by reference to the Section 16(a)
Beneficial Ownership Reporting Compliance section of the
companys proxy statement for the annual meeting of
shareholders to be held May 8, 2008.
The information required by the third part of Item 10 is
presented below.
Code of
Ethics
The company has adopted a Code of Ethics that applies to its
principal executive officer, principal financial officer and
principal accounting officer. A copy of the Code of Ethics is
available on the companys website, www.milacron.com. A
copy can also be obtained by calling the companys world
headquarters at 513.487.5000 or by writing to the following
address:
Milacron Inc.
Attention: Investor Relations
2090 Florence Avenue
Cincinnati, OH
45206-2425
Other
Corporate Governance Matters
The companys board of directors has approved Corporate
Governance Guidelines and a Business Code of Conduct that
conform to NYSE requirements. Copies of these documents are
available on the companys website, www.milacron.com.
Copies may also be obtained by calling the companys world
headquarters at 513.487.5000 or by writing to the following
address:
Milacron Inc.
Attention: Investor Relations
2090 Florence Avenue
Cincinnati, OH
45206-2425
Copies of the following documents may also be obtained on the
companys website or as described above.
Audit Committee Charter
Personnel and Compensation Committee Charter
Nominating and Corporate Governance Charter
and the related appendix regarding Criteria
for Selecting Board of Directors Candidates
90
The company filed its 2007 annual CEO certification with the
NYSE on June 1, 2007. The certification was unqualified and
states that the CEO is not aware of any violation by the company
of any of the NYSE corporate governance listing standards.
Additionally, the company filed with the SEC as exhibits to our
Form 10-K
for the year ended December 31, 2007 the CEO and CFO
certification required under Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
Item 11.
|
Executive
Compensation
|
The following sections of the companys proxy statement for
the annual meeting of shareholders to be held May 8, 2008
are incorporated herein by reference: Executive
Compensation and Director Compensation.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The Principal Holders of Voting Securities section
and the Share Ownership of Directors and Executive
Officers sections of the companys proxy statement
for the annual meeting of shareholders to be held May 8,
2008 are incorporated herein by reference.
Securities
Authorized for Issuance Under Equity Compensation
Plans
Equity
Compensation Plan Information [Restate]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
|
|
|
|
|
|
|
Remaining Available for
|
|
|
|
Number of Securities to be
|
|
|
|
|
|
Future Issuance Under Equity
|
|
|
|
Issued Upon Exercise of
|
|
|
Weighted-Average Exercise
|
|
|
Compensation Plans
|
|
|
|
Outstanding Options,
|
|
|
Price of Outstanding Options,
|
|
|
(Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights [a]
|
|
|
Warrants and Rights [b]
|
|
|
Reflected in Column)[a][c]
|
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
162,965
|
|
|
$
|
192.17
|
|
|
|
398,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
162,965
|
|
|
$
|
192.17
|
|
|
|
398,382
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
The Procedures for Review of Related Party
Transactions section of the companys proxy statement
for the annual meeting of shareholders to be held May 8,
2008 is incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The following table presents fees for professional services
rendered by Ernst & Young LLP, the companys
independent auditors, for the years ended December 31, 2007
and 2006.
Principal
Accountant Fees and Services
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Audit Fees(a)
|
|
$
|
3,864,000
|
|
|
$
|
4,185,000
|
|
Audit-related fees
|
|
|
|
|
|
|
|
|
Tax fees(b)
|
|
|
361,000
|
|
|
|
353,000
|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,225,000
|
|
|
$
|
4,538,000
|
|
|
|
|
|
|
|
|
|
|
91
|
|
|
(a)
|
|
For services related to the annual audit of the companys
consolidated financial statements (including statutory audits of
subsidiaries or affiliates of the company), quarterly reviews of
Forms 10-Q,
issuance of the attestation on the companys internal
controls over financial reporting and issuance of consents.
|
|
(b)
|
|
For services related to tax compliance, tax return preparation
and tax planning.
|
The Audit Committee reviews and approves, prior to the annual
audit, the scope, general extent, and fees related to the
independent auditors audit examination. The Committee also
reviews the extent of non-audit services provided by the
independent auditors in relation to the objectivity and
independence needed in the audit. The Committee also
pre-approves all non-audit services performed by the independent
auditor and fees related thereto (this responsibility may be
delegated to the Chairperson when appropriate).
PART IV
|
|
Item 15.
|
Exhibits,
Financial Statement Schedules
|
Item 15
(a) (1) & (2)
List of Financial Statements
and Financial Statement Schedules.
The following consolidated financial statements of Milacron Inc.
and subsidiaries are included in Item 8:
|
|
|
|
|
|
|
Page
|
|
Consolidated Statements of Operations 2007 and 2006
|
|
|
33
|
|
Consolidated Balance Sheets 2007 and 2006
|
|
|
34
|
|
Consolidated Statements of Comprehensive Income (Loss) and
Shareholders Deficit 2007 and 2006
|
|
|
35
|
|
Consolidated Statements of Cash Flows 2007 and 2006
|
|
|
36
|
|
Notes to Consolidated Financial Statements
|
|
|
37
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
87
|
|
The following consolidated financial statement schedule of
Milacron Inc. and subsidiaries for the years ended 2007 and 2006
is filed herewith pursuant to Item 15(c):
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
and Reserves
|
|
|
100
|
|
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.
92
|
|
Item 15
|
(a)
(3)
List of Exhibits
|
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
2
|
.
|
|
Plan of Acquisition, Reorganization, Arrangement, Liquidation,
or Succession not applicable.
|
|
|
|
3
|
.
|
|
Articles of Incorporation and By-Laws.
|
|
|
|
3
|
.1
|
|
Restated Certificate of Incorporation of Milacron Inc., as
amended November 27, 2007
|
|
|
|
|
|
|
Filed herewith
|
|
|
|
3
|
.2
|
|
Certificate of Designation of 6.0% Series B Convertible
Preferred Stock of Milacron Inc.
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-8
filed on June 11, 2004
|
|
|
|
3
|
.3
|
|
Amended and restated By-Laws of Milacron Inc.
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-8
filed on June 11, 2004
|
|
|
|
4
|
.
|
|
Instruments Defining the Rights of Security Holders, Including
Indentures:
|
|
|
|
4
|
.1
|
|
Indenture dated as of May 26, 2004, between Milacron Escrow
Corporation, to be merged with and into Milacron Inc., and U.S.
Bank National Association, as trustee, relating to the
11
1
/
2
% Senior
Secured Notes due 2011
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.2
|
|
Supplemental Indenture dated as of June 10, 2004, among
Milacron Inc., the Guaranteeing Subsidiaries named therein and
U.S. Bank National Association, as trustee, relating to the
11
1
/
2
% Senior
Secured Notes due 2011
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.3
|
|
Form of
11
1
/
2
% Senior
Secured Notes due 2011 (included in Exhibit 4.1)
|
|
|
|
4
|
.4
|
|
Registration Rights Agreement dated as of May 26, 2004,
between Milacron Escrow Corporation and Credit Suisse First
Boston LLC, as representative of the several purchasers listed
therein, relating to the
11
1
/
2
% Senior
Secured Notes due 2011
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.5
|
|
Joinder to the Registration Rights Agreement dated June 10,
2004 by Milacron Inc. and the Guarantors listed therein
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.6
|
|
Security Agreement dated June 10, 2004, made by each of the
Grantors listed therein in favor of U.S. Bank National
Association
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.7
|
|
Security Agreement (Canada) dated June 10, 2004, made by
each of the Grantors listed therein in favor of U.S. Bank
National Association
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.8
|
|
Pledge and Security Agreement dated June 10, 2004, made by
each of the Pledgors listed therein in favor of U.S. Bank
National Association
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.9
|
|
Intercreditor Agreement dated as of June 10, 2004, by and
between JPMorgan Chase Bank and U.S. Bank National Association,
acknowledged by Milacron Inc. and the subsidiaries of Milacron
Inc. listed therein
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
4
|
.10
|
|
Mortgage, Assignment of Leases and Rents, Security Agreement and
Fixture Filing made by D-M-E Company in favor of U.S. Bank
National Association (1975 N. 17th Avenue,
Melrose Park, Illinois 60160), dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.11
|
|
Mortgage made by D-M-E U.S.A. Inc. in favor of U.S. Bank
National Association (6328 Ferry Avenue, Charlevoix, Michigan
49720), dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.12
|
|
Mortgage made by D-M-E U.S.A. Inc. in favor of U.S. Bank
National Association (29215 Stephenson Highway, Madison Heights,
Michigan 48071) dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.13
|
|
Mortgage made by Oak International, Inc. in favor of U.S. Bank
National Association (1160 White Street, Sturgis, Michigan
49091), dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.14
|
|
Mortgage made by Milacron Industrial Products, Inc. in favor of
U.S. Bank National Association (31003 Industrial Road, Livonia,
Michigan 48150), dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.15
|
|
Mortgage made by D-M-E U.S.A. Inc. in favor of U.S. Bank
National Association (29111 Stephenson Highway, Madison Heights,
Michigan 48071), dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.16
|
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by D-M-E Company in favor of
U.S. Bank National Association (558 Leo Street, Dayton, Ohio
45404) dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.17
|
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by Milacron Inc. in favor of
U.S. Bank National Association (418 West Main Street, Mount
Orab, Ohio 45154) dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.18
|
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by Milacron Inc. in favor of
U.S. Bank National Association (3000 Disney Street, Cincinnati,
Ohio 45209) dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.19
|
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by Milacron Inc. in favor of
U.S. Bank National Association (3010 Disney Street, Cincinnati,
Ohio 45209) dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
|
4
|
.20
|
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by D-M-E Company in favor of
U.S. Bank National Association (977 Loop Road, Lewistown,
Pennsylvania) dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004 (Registration
No. 333-116899)
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
4
|
.21
|
|
Open-End Mortgage, Assignment of Leases and Rents, Security
Agreement and Fixture Filing made by D-M-E Company in favor of
U.S. Bank National Association (70 East Hills Street, Youngwood,
Pennsylvania 15697) dated as of June 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-4
filed on June 25, 2004
|
|
|
|
|
|
|
(Registration
No. 333-116899)
|
|
|
|
9
|
.
|
|
Voting Trust Agreement not applicable
|
|
|
|
10
|
.
|
|
Material Contracts:
|
|
|
|
10
|
.1
|
|
Milacron Supplemental Pension Plan, as amended October 1,
2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.2
|
|
Milacron Supplemental Retirement Plan, as amended
October 1, 2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.3
|
|
Milacron Supplemental Executive Retirement Plan, as amended
October 1, 2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.4
|
|
Milacron Supplemental Retirement Plan Amended and Restated
Trust Agreement by and between Milacron Inc. Reliance
Trust Company
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-Q
for the quarter ended June 30, 2004
|
|
|
|
10
|
.5
|
|
Milacron Supplemental Executive Pension Plan, as amended
October 1, 2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.6
|
|
Milacron Kunststoffmaschinen Europa GmbH Pension Plan for Senior
Managers and Executives
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2004
|
|
|
|
10
|
.7
|
|
Milacron Compensation Deferral Plan, as amended
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 1999
|
|
|
|
10
|
.8
|
|
Milacron Compensation Deferral Plan, as amended
February 26, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2003
|
|
|
|
10
|
.9
|
|
Milacron Compensation Deferral Plan Trust Agreement by and
between Milacron Inc. And Reliance Trust Company
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 1999
|
|
|
|
10
|
.10
|
|
Milacron Inc. Executive Life Insurance Plan
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2004
|
|
|
|
10
|
.11
|
|
Form of Tier I Executive Severance Agreement applicable to
R. D. Brown
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-Q
for the quarter ended September 30, 2003
|
|
|
|
10
|
.12
|
|
Form of Tier II Executive Severance Agreement applicable to
R. A. Anderson and H. C. ODonnell
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-Q
for the quarter ended September 30, 2003
|
|
|
|
10
|
.13
|
|
Form of Tier II Executive Severance Agreement applicable to
K. Bourdon and R. C. McKee
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2004
|
|
|
|
10
|
.14
|
|
Amendment to Tier 1 Executive Severance Agreement with R.
D. Brown and Tier II Executive Severance Agreements with H.
C. ODonnell dated as of February 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2003
|
|
|
|
10
|
.15
|
|
Form of Amendment to Executive Severance Agreement relative to
Robert C. McKee
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.16
|
|
Form of Amendment to Executive Severance Agreement relative to
R. D. Brown, R. A. Anderson and H. C. ODonnell
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.17
|
|
Temporary Enhanced Severance Plan applicable to R. D. Brown, R.
P. Lienesch and H. C. ODonnell
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-Q
for the quarter ended September 30, 2003
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
10
|
.18
|
|
Award Letter re. Temporary Enhanced Severance Plan to R. D. Brown
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-Q
for the quarter ended September 30, 2003
|
|
|
|
10
|
.19
|
|
Award Letter re. Temporary Enhanced Severance Plan to H. C.
ODonnell
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-Q
for the quarter ended September 30, 2003
|
|
|
|
10
|
.20
|
|
Award Letter re. Temporary Enhanced Severance Plan to R. C. McKee
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2004
|
|
|
|
10
|
.21
|
|
Employment Agreement with Karlheinz Bourdon dated March 30,
2005
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2004
|
|
|
|
10
|
.22
|
|
Settlement Agreement between Ferromatik Milacron Maschinenbau
GmbH and Karlheinz Bourdon
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal Year ended December 31, 2006
|
|
|
|
10
|
.23
|
|
Executive Medical Expense Reimbursement Plan, Amended as of
July 29, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-Q
for the quarter ended September 30, 2004
|
|
|
|
10
|
.24
|
|
Milacron Inc. 2002 Short-Term Incentive Plan, as amended
February 21, 2008
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 27, 2008
|
|
|
|
10
|
.25
|
|
Milacron Inc. 1994 Long-Term Incentive Plan, as amended
October 1, 2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.26
|
|
Milacron Inc. 1997 Long-Term Incentive Plan, as amended
October 1, 2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.27
|
|
Milacron Inc. 2004 Long-Term Incentive Plan, as amended
October 1, 2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.28
|
|
Cash Flow Improvement Award Agreement
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on March 3, 2006
|
|
|
|
10
|
.29
|
|
Form of Performance Based Restricted Shares Award Agreement
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 17, 2005
|
|
|
|
10
|
.30
|
|
Form of Restricted Shares Award Agreement
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 17, 2005
|
|
|
|
10
|
.31
|
|
Form of Restricted Stock Agreement
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 23, 2006
|
|
|
|
10
|
.32
|
|
Form of Notice of Award of Deferred Shares for Directors
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 17, 2005
|
|
|
|
10
|
.33
|
|
Form of Award Amendment Agreement relative to R. D. Brown
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.34
|
|
Form of Award Amendment Agreement relative to R. A. Anderson, H.
C. ODonnell and R. C. McKee
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.35
|
|
Form of Notice of Amendment of Award relative to D. R. McIlnay
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.36
|
|
Form of Notice of Amendment of Award relative to S. B. Bailey
Director Fee Agreement
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.37
|
|
Form of Notice of Common Stock Credit
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 23, 2006
|
|
|
|
10
|
.38
|
|
Form of Phantom Share Account Agreement Performance
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 17, 2005
|
|
|
|
10
|
.39
|
|
Form of Phantom Share Account Agreement
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 17, 2005
|
|
|
96
|
|
|
|
|
|
|
|
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|
|
Page
|
|
|
10
|
.40
|
|
Form of Phantom Share Account Agreement
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on February 23, 2006
|
|
|
|
10
|
.41
|
|
Milacron Inc. Plan for the Deferral of Directors
Compensation, as amended
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year
|
|
|
|
10
|
.42
|
|
Form of Special Executive Retention and Severance Agreement
relative to R. D. Brown
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.43
|
|
Form of Special Executive Retention and Severance Agreement
relative to R. A. Anderson,
|
|
|
|
|
|
|
H. C. ODonnell and R. C. McKee
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.44
|
|
Milacron Inc. Director Deferred Compensation Plan, as amended
October 1, 2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.45
|
|
Milacron Inc. Retirement Plan for Non-Employee Directors, as
amended October 1, 2007
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.46
|
|
Milacron Retirement Plan for Non-Employee Directors, as amended
February 10, 2004
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2003
|
|
|
|
10
|
.47
|
|
Rights Agreement dated as of February 5, 1999, between
Milacron Inc. and ChaseMellon Shareholder Services, LLC, as
Rights Agent
|
|
|
|
|
|
|
Incorporated by reference to the companys
Registration Statement on
Form 8-A
(File
No. 001-08485)
|
|
|
|
10
|
.48
|
|
Amendment No. 1 to Rights Agreement dated as of
March 11, 2004 among Milacron Inc. and Mellon Investor
Services LLC
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2003
|
|
|
|
10
|
.49
|
|
Amendment No. 2 to Rights Agreement dated as of
June 9, 2004 among Milacron Inc. and Mellon Investor
Services LLC
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-1
filed on June 25, 2004 (Registration
No. 333-116892)
|
|
|
|
10
|
.50
|
|
Amendment No. 3 to Rights Agreement dated as of
June 9, 2004 between Milacron Inc. and Mellon Investor
Services LLC
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.51
|
|
Amendment No. 4 to Rights Agreement dated as of
June 9, 2004 between Milacron Inc. and Mellon Investor
Services LLC
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.52
|
|
Credit Agreement dated as of December 19, 2006 by and among
Milacron Inc. and certain subsidiaries as Borrowers, certain
subsidiaries as guarantors (or Canadian Borrowing Base
Guarantors), the lenders party thereto and General Electric
Capital Corporation, as administrative agent for the Lenders
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
dated December 19, 2006
|
|
|
|
10
|
.53
|
|
Registration Rights Agreement dated as of March 12, 2004
among Milacron Inc., Glencore Finance AG and Mizuho
International plc
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2003
|
|
|
|
10
|
.54
|
|
Note Purchase Agreement dated as of March 12, 2004 among
Milacron Inc., Glencore Finance AG and Mizuho International plc
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 10-K
for the fiscal year ended December 31, 2003
|
|
|
|
10
|
.55
|
|
Letter Amendment to Note Purchase Agreement dated April 5,
2004 among Milacron Inc., Glencore Finance AG and Mizuho
International plc
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-1
filed on June 25, 2004 (Registration
No. 333-116892)
|
|
|
97
|
|
|
|
|
|
|
|
|
|
|
Page
|
|
|
10
|
.56
|
|
Letter Amendment to Note Purchase Agreement dated June 7,
2004 among Milacron Inc., Glencore Finance AG and Mizuho
International plc
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-1
filed on June 25, 2004 (Registration
No. 333-116892)
|
|
|
|
10
|
.57
|
|
Contingent Warrant Agreement dated March 12, 2004 by and
among Milacron Inc., Glencore Finance AG and Mizuho
International plc
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form S-1
filed on June 25, 2004 (Registration
No. 333-116892)
|
|
|
|
10
|
.58
|
|
Voting Agreement dated as of October 2, 2007 between
Milacron Inc. and Glencore Finance AG
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.59
|
|
Director Fee Agreement
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on October 5, 2007
|
|
|
|
10
|
.60
|
|
Asset Based Finance Agreement dated as of March 12, 2008
among Lloyds TSB Bank Plc, Netherlands Branch and Belgium
Branch, Lloyds TSB Commercial Finance Limited, Cimcool Europe
B.V., Cimcool Industrial Products B.V., D.-M-E Europe CVBA,
Ferromatik Milacron Maschinenbau GmbH, Milacron
Kunststoffmaschinen Europa GmbH, Milacron B.V. and Milacron
Nederland B.V.
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on March 18, 2008
|
|
|
|
10
|
.61
|
|
Loan Agreement dated as of March 12, 2008 between Lloyds
TSB Bank Plc and Ferromatik Milacron Maschinenbau GmbH
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on March 18, 2008
|
|
|
|
10
|
.62
|
|
Receivables Finance Agreement dated as of March 12, 2008
between Lloyds TSB Bank Plc and Cimcool Europe B.V.
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on March 18, 2008
|
|
|
|
10
|
.63
|
|
Receivables Finance Agreement dated as of March 12, 2008
between Lloyds TSB Bank Plc and Cimcool Industrial Products B.V.
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on March 18, 2008
|
|
|
|
10
|
.64
|
|
Receivables Finance Agreement dated as of March 12, 2008
between Lloyds TSB Bank Plc and D-M-E Europe CVBA
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on March 18, 2008
|
|
|
|
10
|
.65
|
|
Debt Purchase Agreement dated as of March 12, 2008 between
Lloyds TSB Commercial Finance Limited and Ferromatik Milacron
Maschinenbau GmbH
|
|
|
|
|
|
|
Incorporated by reference to the companys
Form 8-K
filed on March 18, 2008
|
|
|
|
11
|
.
|
|
Statement Regarding Computation of Per-Share Earnings
|
|
|
|
15
|
.
|
|
Letter Regarding Unaudited Interim Financial
Information not applicable
|
|
|
|
18
|
.
|
|
Letter Regarding Change in Accounting Principles not
applicable
|
|
|
|
19
|
.
|
|
Report Furnished to Security Holders not applicable
|
|
|
|
21
|
.
|
|
Subsidiaries of the Registrant
|
|
|
|
22
|
.
|
|
Published Report Regarding Matters Submitted to Vote of Security
Holders not applicable
|
|
|
|
23
|
.
|
|
Consent of Experts and Counsel
|
|
|
|
24
|
.
|
|
Power of Attorney not applicable
|
|
|
|
31
|
.
|
|
Certifications pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002:
|
|
|
|
31
|
.1.
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act
|
|
|
|
31
|
.2.
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act
|
|
|
|
32
|
.
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
|
|
99
|
.
|
|
Additional Exhibits not applicable
|
|
|
98
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 registrants total
consolidated assets.
Item 15
(b)
Index to Certain Exhibits and Financial
Statement Schedules Filed Herewith
|
|
|
Exhibit 3.1
|
|
Restated Certificate of Incorporation of Milacron Inc., as
amended November 27, 2007
|
Exhibit 11
|
|
Statement Regarding Computation of Per-Share Earnings
|
Exhibit 21
|
|
Subsidiaries of the Registrant
|
Exhibit 23
|
|
Consent of Experts and Counsel
|
Exhibit 31.1
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act
|
Exhibit 31.2
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley
Act
|
Exhibit 32
|
|
Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A
|
|
Col. B
|
|
|
Col. C
|
|
|
Col. D
|
|
|
Col. E
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
Cost and
|
|
|
Other
|
|
|
Deductions
|
|
|
at End
|
|
Description
|
|
of Period
|
|
|
Expenses
|
|
|
-Describe (a)
|
|
|
-Describe
|
|
|
of Period
|
|
|
|
(In thousands)
|
|
|
Year ended 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
7,342
|
|
|
$
|
1,872
|
|
|
$
|
426
|
|
|
$
|
(1,889
|
)(b)
|
|
$
|
7,751
|
|
Restructuring and consolidation reserves
|
|
$
|
3,926
|
|
|
$
|
3,678
|
|
|
$
|
120
|
|
|
$
|
(5,437
|
)(b)
|
|
$
|
1,920
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(367
|
)(c)
|
|
|
|
|
Allowance for inventory obsolescence
|
|
$
|
27,253
|
|
|
$
|
1,955
|
|
|
$
|
1,697
|
|
|
$
|
(4,429
|
)(b)
|
|
$
|
26,476
|
|
Year ended 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
9,038
|
|
|
$
|
1,628
|
|
|
$
|
538
|
|
|
$
|
(3,862
|
)(b)
|
|
$
|
7,342
|
|
Restructuring and consolidation reserves
|
|
$
|
1,384
|
|
|
$
|
9,934
|
|
|
$
|
181
|
(a)
|
|
$
|
(7,482
|
)(b)
|
|
$
|
3,926
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
(d)
|
|
|
(212
|
)(c)
|
|
|
|
|
Allowance for inventory obsolescence
|
|
$
|
26,381
|
|
|
$
|
4,650
|
|
|
$
|
1,805
|
|
|
$
|
(5,583
|
)(b)
|
|
$
|
27,253
|
|
|
|
|
(a)
|
|
Represents foreign currency translation adjustments during the
year.
|
|
(b)
|
|
Represents amounts charged against the reserves during the year.
|
|
(c)
|
|
Represents reversals of excess reserves.
|
|
(d)
|
|
Represents reclassifications from other accounts and refunds of
amounts previously expensed and paid.
|
100
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.
Milacron Inc.
Ronald D. Brown;
Chairman, President and Chief Executive Officer,
Director (Chief Executive Officer)
Ross A. Anderson;
Senior Vice President Finance and Chief
Financial
Officer (Chief Financial Officer)
Danny L. Gamez;
Controller
(Chief Accounting Officer)
Date: March 24, 2008
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 capacities and on the dates
indicated.
|
|
|
|
|
/s/
Sallie
B. Bailey
Sallie
B. Bailey; March 24, 2008
(Director)
|
|
/s/
John
P. Bolduc
John
P. Bolduc; March 24, 2008
(Director)
|
|
|
|
/s/
John
P. Caple
John
P. Caple; March 24, 2008
(Director)
|
|
/s/
Jason
T. Eglit
Jason
T. Eglit; March 24, 2008
(Director)
|
|
|
|
/s/
Tiffany
F. Kosch
Tiffany
F. Kosch; March 24, 2008
(Director)
|
|
/s/
Donald
R. McLlnay
Donald
R. McIlnay; March 24, 2008
(Director)
|
|
|
|
/s/
Sami
W. Mnaymneh
Sami
W. Mnaymneh; March 24, 2008
(Director)
|
|
/s/
Matthew
S. Sanford
Matthew
S. Sanford; March 24, 2008
(Director)
|
|
|
|
/s/
Lewis
J. Schoenwetter
Lewis
J. Schoenwetter; March 24, 2008
(Director)
|
|
/s/
Mark
L. Segal
Mark
L. Segal; March 24, 2008
(Director)
|
|
|
|
/s/
Charles
F.C. Turner
Charles
F.C. Turner; March 24, 2008
(Director)
|
|
/s/
Larry
D. Yost
Larry
D. Yost; March 24, 2008
(Director)
|
101
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