UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
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For the quarterly period ended March 31, 2008
or
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o
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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
to
Commission file number 1-8485
MILACRON INC.
(Exact name of registrant as specified in its charter)
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Delaware
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No. 31-1062125
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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2090 Florence Avenue, Cincinnati, Ohio
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45206
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(Address of principal executive offices)
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(Zip Code)
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(513) 487-5000
(Registrants telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes
þ
No
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:
o
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Accelerated filer:
o
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Non-accelerated filer:
o
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Smaller reporting company:
þ
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(Do not check if a 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
o
No
þ
Number of shares of Common Stock, $.01 par value, outstanding as of April 30, 2008: 5,505,723
Milacron
Inc. and Subsidiaries
Index
2
PART I Financial Information
Item 1. Financial Statements
Consolidated Condensed Statements of Operations
Milacron Inc. and Subsidiaries
(Unaudited)
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Three Months Ended
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March 31,
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(In millions, except share and per-share amounts)
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2008
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2007
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Sales
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$
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202.8
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$
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190.3
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Cost of products sold
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164.2
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154.8
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Manufacturing margins
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38.6
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35.5
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Other costs and expenses
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Selling and administrative
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36.0
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35.3
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Restructuring costs
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.6
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2.4
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Other (income) expense net
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.5
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(.2
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Total other costs and expenses
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37.1
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37.5
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Operating earnings (loss)
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1.5
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(2.0
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Interest
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Income
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.2
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.2
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Expense
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(8.2
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(7.9
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Interest net
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(8.0
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(7.7
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Loss from continuing operations before income taxes
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(6.5
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)
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(9.7
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Provision for income taxes
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.4
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1.0
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Loss from continuing operations
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(6.9
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(10.7
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Discontinued operations net of income taxes
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(.1
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Net loss
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$
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(6.9
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$
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(10.8
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Loss applicable to common shareholders
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$
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(9.2
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$
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(13.1
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Loss per common share basic and diluted
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Continuing operations
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$
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(1.76
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$
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(2.66
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Discontinued operations
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(.02
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)
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Net loss
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$
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(1.76
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$
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(2.68
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)
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Dividends per common share
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$
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$
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Weighted-average common shares outstanding assuming
dilution (in thousands)
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5,227
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4,897
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See notes to consolidated condensed financial statements.
3
Consolidated Condensed Balance Sheets
Milacron Inc. and Subsidiaries
(Unaudited)
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Mar. 31,
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Dec. 31,
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(In millions, except par value)
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2008
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2007
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Assets
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Current assets
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Cash and cash equivalents
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$
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36.8
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$
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40.8
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Notes and accounts receivable, less allowances of $8.4 in 2008
and $7.8 in 2007
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133.4
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114.6
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Inventories
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Raw materials
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10.2
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8.2
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Work-in-process and finished parts
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97.9
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96.0
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Finished products
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85.3
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75.5
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Total inventories
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193.4
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179.7
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Other current assets
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34.0
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34.9
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Total current assets
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397.6
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370.0
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Property, plant and equipment net
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109.9
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106.4
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Goodwill
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93.5
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90.5
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Other noncurrent assets
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39.5
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36.0
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Total assets
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$
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640.5
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$
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602.9
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Liabilities and Shareholders Deficit
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Current liabilities
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Short-term borrowings
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$
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28.4
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$
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26.9
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Long-term debt and capital lease obligations due within one year
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2.2
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2.1
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Trade accounts payable
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90.4
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92.1
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Advance billings and deposits
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31.1
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29.4
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Accrued and other current liabilities
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87.8
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76.6
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Total current liabilities
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239.9
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227.1
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Long-term accrued liabilities
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196.6
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193.3
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Long-term debt
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246.8
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231.9
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Total liabilities
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683.3
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652.3
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Commitments and contingencies
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Shareholders deficit
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4% Cumulative Preferred Stock
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6.0
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6.0
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6% Series B Convertible Preferred Stock,
$.01 par value (outstanding: .5 in both 2008 and 2007)
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119.9
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119.2
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Common shares, $.01 par value
(outstanding: 5.5 in both 2008 and 2007)
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.1
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.1
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Capital in excess of par value
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356.3
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355.9
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Contingent warrants
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.2
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.2
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Accumulated deficit
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(487.5
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)
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(478.3
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Accumulated other comprehensive loss
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(37.8
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(52.5
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Total shareholders deficit
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(42.8
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)
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(49.4
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Total liabilities and shareholders deficit
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$
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640.5
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$
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602.9
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See notes to consolidated condensed financial statements.
4
Consolidated Condensed Statements of Comprehensive Income (Loss) and
Shareholders Equity (Deficit)
Milacron Inc. and Subsidiaries
(Unaudited)
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Three Months Ended
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March 31,
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(In millions)
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2008
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2007
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4% Cumulative Preferred Stock
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Balance at beginning and end of period
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$
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6.0
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$
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6.0
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6% Series B Convertible Preferred Stock
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Balance at beginning of period
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119.2
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116.1
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Beneficial conversion feature
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.7
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.7
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Balance at end of period
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119.9
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116.8
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Common shares and capital in excess of par value
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Balance at beginning of period
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356.0
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351.6
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Restricted stock expense
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.2
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.5
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Issuance of previously unissued shares
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.2
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.7
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Balance at end of period
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356.4
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352.8
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Contingent warrants
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Balance at beginning and end of period
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.2
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.5
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Accumulated deficit
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Balance at beginning of period
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(478.3
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)
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(381.9
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)
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Net loss for the period
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(6.9
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(10.8
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Beneficial conversion feature related to Series B Preferred Stock
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(.7
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)
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(.7
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)
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Dividends declared or accrued
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4% Cumulative Preferred Stock
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(.1
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)
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(.1
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)
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6% Series B Convertible Preferred Stock
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(1.5
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)
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(1.5
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Balance at end of period
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(487.5
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)
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(395.0
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)
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Accumulated other comprehensive loss
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Balance at beginning of period
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(52.5
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)
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(113.6
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)
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Foreign currency translation adjustments
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13.0
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1.7
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Postretirement benefit plan adjustments
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Amortization of unrecognized prior service cost
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(.7
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)
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(.4
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)
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Amortization of net unrecognized losses
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2.1
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2.6
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Actuarial loss arising in the period not included in net periodic
postretirement benefit costs
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(.2
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Foreign currency exchange contract adjustments
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.3
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Balance at end of period
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(37.8
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)
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(109.9
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)
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Total shareholders deficit
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$
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(42.8
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)
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$
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(28.8
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)
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Net loss for the period
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$
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(6.9
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)
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$
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(10.8
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)
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Change in accumulated other comprehensive loss
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14.7
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3.7
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Total comprehensive income (loss)
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$
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7.8
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$
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(7.1
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)
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See notes to consolidated condensed financial statements.
5
Consolidated Condensed Statements of Cash Flows
Milacron Inc. and Subsidiaries
(Unaudited)
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Three Months Ended
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March 31,
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(In millions)
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2008
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2007
|
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Increase (decrease) in cash and cash equivalents
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|
|
|
|
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Operating activities cash flows
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Net loss
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$
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(6.9
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)
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$
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(10.8
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)
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Loss on divestiture of discontinued operations
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.1
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Operating activities providing (using) cash
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Depreciation and amortization
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3.6
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4.0
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Restructuring costs
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|
.2
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|
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|
.3
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Deferred income taxes
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(.2
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)
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|
|
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Working capital changes
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Notes and accounts receivable
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(14.4
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)
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4.9
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Inventories
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(7.0
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)
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(.3
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)
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Other current assets
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2.7
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|
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(.7
|
)
|
Trade accounts payable
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|
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(4.9
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)
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|
|
(8.1
|
)
|
Other current liabilities
|
|
|
6.7
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|
|
|
(1.1
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)
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Decrease (increase) in other noncurrent assets
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|
|
.4
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|
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1.3
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Increase in long-term accrued liabilities
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|
.3
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|
|
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3.0
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Other net
|
|
|
.4
|
|
|
|
.7
|
|
|
|
|
|
|
|
|
Net cash used by operating activities
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|
|
(19.1
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)
|
|
|
(6.7
|
)
|
Investing activities cash flows
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
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(2.6
|
)
|
|
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(1.6
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)
|
Net disposals of property, plant and equipment
|
|
|
|
|
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|
.1
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|
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Net cash used by investing activities
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(2.6
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)
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(1.5
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)
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Financing activities cash flows
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|
|
|
|
|
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Issuance (repayments) of long-term debt
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14.5
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(.2
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)
|
Increase in short-term borrowings
|
|
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1.2
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|
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4.3
|
|
Dividends paid
|
|
|
(.1
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)
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|
|
(.1
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)
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
15.6
|
|
|
|
4.0
|
|
Effect of exchange rate fluctuations on cash and
cash equivalents
|
|
|
2.1
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(4.0
|
)
|
|
|
(4.0
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
40.8
|
|
|
|
38.5
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
36.8
|
|
|
$
|
34.5
|
|
|
|
|
|
|
|
|
See notes to consolidated condensed financial statements.
6
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Basis of Presentation
In the opinion of management, the accompanying unaudited Consolidated Condensed Financial
Statements contain all adjustments, which consist only of normal recurring adjustments except for
the matters discussed in the note captioned Restructuring Costs, necessary to present fairly the
companys financial position, results of operations and cash flows.
The Consolidated Condensed Balance Sheet at December 31, 2007 has been derived from the
audited Consolidated Financial Statements at that date, but does not include all of the information
and footnotes required by U.S. generally accepted accounting principles for complete financial
statements.
Except as discussed in the note captioned Changes in Methods of Accounting, the accounting
policies followed by the company are set forth in the Summary of Significant Accounting Policies
note to the Consolidated Financial Statements included in the companys Annual Report on Form 10-K
for the year ended December 31, 2007.
Changes in Methods of Accounting
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 157, Fair Value Measurements, (SFAS 157). SFAS 157 is
effective for fiscal years and interim periods that begin after November 15, 2007 on a prospective
basis. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosure about fair value. Relative to SFAS 157, the
FASB has issued FASB Staff Positions (FSP) 157-1 and 157-2. FSP 157-1 amends SFAS 157 to exclude
SFAS 13 and its related interpretive accounting pronouncements that address leasing transactions,
and FSP 157-2 delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. Effective January 1, 2008, the company adopted SFAS 157, with the
exception of the application of the statement to non-recurring nonfinancial assets and nonfinancial
liabilities. We have evaluated the impact of the provisions applicable to our financial assets and
liabilities and have determined that there was not a material impact on our consolidated financial
statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities, (SFAS 159). SFAS 159 is
elective for fiscal years that begin after November 15, 2007 on a prospective basis. SFAS 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. Effective January 1, 2008, the company
adopted SFAS 159, however, the company has not elected fair value reporting for any of its
financial assets and financial liabilities.
Recently Issued Pronouncements
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative Instruments and Hedging Activities, (SFAS 161). SFAS 161 is
effective for fiscal years and interim periods beginning after November 15, 2008 and encourages
comparative disclosures. The effects of adopting this standard are not expected to have a material
effect on the companys financial statements. SFAS 161 requires that entities provide enhanced
disclosures about how and why an entity uses derivative instruments and how derivative instruments
and related hedged items are accounted for under SFAS 133 and its related interpretations and how
derivative instruments and related hedged items affect an entitys financial position, financial
performance and cash flows.
Restructuring Costs
The paragraphs that follow discuss certain of the restructuring actions that have been
undertaken in recent years. These actions, as well as certain other initiatives, are discussed more
fully in the notes to the Consolidated Financial Statements included in the companys Annual Report
on Form 10-K for the year ended December 31, 2007.
In the fourth quarter of 2005, the company announced that it planned to 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 the fourth quarter of 2005 and was continued through 2007. Expense related to
these actions totaled $4.0 million, including $.5 million in the first quarter of 2007. Another
action was the overall reorganization of European operations of the mold technologies segment,
including product line
7
Notes to Consolidated Condensed Financial Statements
(Unaudited)
rationalization and the streamlining of sales, marketing and administrative functions.
Expense related to these actions totaled $2.9 million, including $.4 million in the first quarter
of 2007. In total, the cash costs related to the sales office and mold base and components
reorganizations were approximately $5.3 million and as of the first quarter of 2008 cash payments
were substantially complete. Cash payments were $.2 million in the first quarter of 2008.
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 cost of the restructuring was $7.6 million, all of which
relates to severance and other termination benefits. Of this amount, $1.1 million was charged to
expense in 2007 of which $1.0 million was recorded in the first quarter. The cash cost, all of
which relates to termination benefits, was also $7.6 million of which $2.4 million was spent in
2007 including $1.9 million in the first quarter.
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 announced its intention to
eliminate most of the manufacturing activities at the segments facility in Charlevoix, Michigan
and outsource a majority of the mold components the facility produces. The cost of this action was
approximately $1.8 million of which $.3 million was expensed in 2007 including $.1 million in the
first quarter. After deducting expected proceeds from sales of assets made surplus by the
reorganization, the cash cost is expected to be approximately $.6 million. In another action, the
company initiated the restructuring of the administrative workflow and workforce at the segments
North American headquarters in Madison Heights, Michigan. The cost of this action was primarily
recorded in 2006 and included $.2 million of expense in the first quarter of 2007. In the first
quarter of 2008, the company initiated a third action to reduce its cost structure by outsourcing
certain operations also at the segments North American headquarters in Madison Heights, Michigan.
Expense related to this action is expected to be $.1 million all of which was recorded in the first
quarter of 2008. Cash costs are also expected to be $.1 million with the majority being spent in
the first quarter of 2008.
In the first quarter of 2007, the operating assets of two sales branches 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 in 2007 including $.3 million in the first quarter of 2007 and the cash costs related to
the sales were $.2 million.
In the first quarter of 2008, the company initiated a reorganization of the mold technologies
segments operations in Europe to better align the cost structure with business requirements. The
total cost of the restructuring is expected to be approximately $.9 million, all of which relates
to severance and other termination benefits. Of this amount, $.2 million was charged in the first
quarter of 2008. Cash costs are also expected to be $.9 million with $.1 million being spent in the
first quarter of 2008.
In the first quarter of 2008, the company initiated a reorganization of the injection molding
machinery business in North America. The total cost of the restructuring is expected to be
approximately $.8 million with the majority of the expense related to severance and other
termination benefits. Of this amount, $.3 million was expensed in the first quarter of 2008. Cash
costs are expected to be $.9 million, all of which is expected to be spent in the second quarter of
2008.
Additional restructuring actions are expected to be implemented later in 2008, including
actions that have been initiated since March 31, 2008. Actions taken in recent years have
favorably affected the manufacturing margin trends and segment operating profits. Actions taken in
2007 and that are expected to be taken in 2008 are expected to continue to favorably affect
manufacturing margins and segment operating profits. In total, the actions initiated in 2005
through 2008 are expected to result in restructuring charges of approximately $32 million and cash
costs of approximately $15 million spread from 2006 to 2008. Restructuring expense for the
remainder of 2008 is expected to be approximately $1.7 million while cash costs are expected to be
$1.5 million.
8
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The table that follows summarizes the first quarter of 2008 and 2007 costs of the various
restructuring actions that are described above.
Restructuring Costs
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Consolidation of European injection molding sales offices
|
|
$
|
|
|
|
$
|
.5
|
|
Consolidation of European mold component operations
|
|
|
|
|
|
|
.4
|
|
Reorganization of Germany injection molding machine facility
|
|
|
|
|
|
|
1.0
|
|
Reorganization of North America mold components operations
|
|
|
.1
|
|
|
|
.3
|
|
Sale of MRO sales offices
|
|
|
|
|
|
|
.2
|
|
Reorganization of European mold component operations
|
|
|
.2
|
|
|
|
|
|
Reorganization of U.S. plastics machinery operations
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs
|
|
$
|
.6
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
The following table presents the components of the restructuring costs that are included in
the Consolidated Condensed Statements of Operations for the first quarters of 2008 and 2007.
Restructuring Costs
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Accruals for termination benefits and facility exit costs
|
|
$
|
.2
|
|
|
$
|
1.6
|
|
Costs charged to expense as incurred
|
|
|
|
|
|
|
|
|
Severance and facility exit costs
|
|
|
.1
|
|
|
|
.7
|
|
Inventory and machinery relocation
|
|
|
|
|
|
|
.1
|
|
Other
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total restructuring costs
|
|
$
|
.6
|
|
|
$
|
2.4
|
|
|
|
|
|
|
|
|
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 and are therefore expensed when the related contractual liabilities are incurred.
Accordingly, no reserves related to these costs have been established.
9
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The status of the reserves for the initiatives discussed above and certain other actions is
summarized in the following tables.
Restructuring Reserves
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2008
|
|
|
|
Beginning
|
|
|
Addi-
|
|
|
Usage and
|
|
|
Ending
|
|
(In millions)
|
|
Balance
|
|
|
tions
|
|
|
Other
|
|
|
Balance
|
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits
|
|
$
|
1.6
|
|
|
$
|
.4
|
|
|
$
|
(.4
|
)
|
|
$
|
1.6
|
|
Facility exit costs
|
|
|
.3
|
|
|
|
|
|
|
|
(.2
|
)
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
1.9
|
|
|
$
|
.4
|
|
|
$
|
(.6
|
)
|
|
$
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31, 2007
|
|
|
|
Beginning
|
|
|
Addi-
|
|
|
Usage and
|
|
|
Ending
|
|
(In millions)
|
|
Balance
|
|
|
tions
|
|
|
Other
|
|
|
Balance
|
|
|
Restructuring costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination benefits
|
|
$
|
3.1
|
|
|
$
|
1.4
|
|
|
$
|
(2.8
|
)
|
|
$
|
1.7
|
|
Facility exit costs
|
|
|
.8
|
|
|
|
.2
|
|
|
|
(.7
|
)
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves
|
|
$
|
3.9
|
|
|
$
|
1.6
|
|
|
$
|
(3.5
|
)
|
|
$
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approximately $.6 million of the $1.7 million of reserves related to restructuring actions is
expected to be utilized in the second quarter of 2008. An additional $.6 million is expected to be
used in the second half of the year. A large majority of the remaining $.5 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.
10
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Retirement Benefit Plans
The tables that follow present the components of expense for all defined benefit pension plans
and for postretirement health care costs for the first quarters of 2008 and 2007. Pension expense
for the defined benefit pension plan for certain U.S. employees and retirees (the U.S. Plan) in the
first quarters of 2008 and 2007 was $.6 million and $2.8 million respectively. The expense
improvement for the U.S. Plan is primarily due to freezing benefits as of December 31, 2007 offset
in part by a lower long-term expected rate of return on plan assets.
Employees whose benefits were frozen are now eligible for benefits
under the U.S. defined contribution retirement plan and costs for
this plan increased $.8 million in the first quarter of 2008 compared
to the same period last year.
Pension Expense
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Service cost (benefits earned during the period)
|
|
$
|
.2
|
|
|
$
|
1.2
|
|
Interest cost on projected benefit obligation
|
|
|
8.0
|
|
|
|
8.5
|
|
Expected return on plan assets
|
|
|
(8.5
|
)
|
|
|
(8.7
|
)
|
Amortization of unrecognized prior service cost
|
|
|
|
|
|
|
.1
|
|
Amortization of net unrecognized losses
|
|
|
2.0
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pension expense
|
|
$
|
1.7
|
|
|
$
|
3.8
|
|
|
|
|
|
|
|
|
Postretirement Health Care Income
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Interest cost on accumulated postretirement benefit
obligation
|
|
$
|
.1
|
|
|
$
|
.1
|
|
Amortization of unrecognized gains
|
|
|
(.1
|
)
|
|
|
(.1
|
)
|
Amortization of effect of plan amendment
|
|
|
(.7
|
)
|
|
|
(.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total postretirement health care income
|
|
$
|
(.7
|
)
|
|
$
|
(.5
|
)
|
|
|
|
|
|
|
|
Required contributions to the funded defined benefit pension plan for certain U.S. employees
and retirees in 2008 and beyond are based upon the provisions of the Pension Protection Act of
2006, which became effective on January 1, 2008. A $5 million contribution was made in April 2008
and full year contributions are estimated to be approximately $33 million with approximately $20
million being due in September.
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 have
a limited carryforward period and may 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 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. Of the
11
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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. At December 31, 2007, 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.
The sale of 287,500 shares of the companys Series B Preferred Stock on October 2, 2007,
combined with the sale of Series B shares in the prior three year period, resulted in an ownership
change for U.S. federal income tax purposes. The change in ownership has the effect of limiting
the companys utilization of pre-change net operating loss and tax credit carryforwards in future
periods. 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 utilization.
As of December 31, 2007, U.S. deferred tax assets net of deferred tax liabilities totaled $156
million and U.S. valuation allowances totaled $156 million. U.S. deferred tax assets and valuation
allowances were both increased by an additional $2.6 million in the first quarter of 2008 as a
result of losses without current tax benefits. Due to the lack of positive evidence 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 the first quarter of
2008. However, results for the quarter include tax expense related to operations in profitable
non-U.S. jurisdictions. This resulted in a first quarter provision for income taxes of $.4 million
in 2008. For the first quarter of 2007, the provision for income taxes was $1.0 million.
Pursuant to Financial Accounting Standards Board Interpretation No. 48, Accounting for
Uncertainties in Income Taxes, the gross amount of unrecognized tax benefits of $20.2 million at
December 31, 2007 increased by $2.1 million during the first quarter to $22.3 million (see table
below). The tax benefits, if recognized, would have a favorable impact on our tax provision of $.9
million.
Reconciliation of Unrecognized Tax Benefits
|
|
|
|
|
(In millions)
|
|
2008
|
|
|
Balance as of December 31, 2007
|
|
$
|
20.2
|
|
Increases related to prior year tax
positions
|
|
|
2.0
|
|
Decreases related to prior year tax
positions
|
|
|
|
|
Increases related to current year tax
positions
|
|
|
.1
|
|
Decreases related to current year tax
positions
|
|
|
|
|
Decreases related to lapsing of statute of
limitations
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008
|
|
$
|
22.3
|
|
|
|
|
|
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 $3.3 million. However, we do not expect that change to have a significant impact on our
financial position or results of operation.
12
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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.
Receivables and Guarantees
In March 2008, certain of the companys European subsidiaries entered into a five-year,
asset-based revolving credit program made available by Lloyds TSB Bank plc and its affiliates, (see
Short-Term Borrowings), that included an accounts receivable factoring facility. Under this
facility the companys principal operating subsidiary in Germany sold without recourse $6.3 million
of customer receivables as of March 31, 2008. In consideration for the sale, the company is
holding a demand note receivable from Lloyds upon which the company did not draw funding as of
March 31, 2008. This facility replaces the subsidiarys previous factoring agreement which allowed
the sale of up to
10.0 million ($15.8 million) of accounts receivable without recourse and which
was terminated concurrent with entering into the new facility. At December 31, 2007, the gross
amounts of accounts receivable that had been sold under the previous arrangement was $10.6 million.
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 March
31, 2008 and December 31, 2007, the companys maximum exposure under these arrangements totaled
$4.9 million and $4.7 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.
13
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Goodwill and Other Intangible Assets
The carrying value of goodwill totaled $93.5 million at March 31, 2008 and $90.5 million at
December 31, 2007. The companys other intangible assets, which are included in other noncurrent
assets in the Consolidated Condensed Balance Sheets, are not significant.
Other Assets
The components of other current assets and other noncurrent assets are shown in the tables
that follow.
Other Current Assets
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Deferred income taxes net of valuation allowances
|
|
$
|
13.0
|
|
|
$
|
12.8
|
|
Recoverable from excess liability carriers
|
|
|
.3
|
|
|
|
1.0
|
|
Prepaid expenses and other
|
|
|
20.7
|
|
|
|
21.1
|
|
|
|
|
|
|
|
|
|
|
$
|
34.0
|
|
|
$
|
34.9
|
|
|
|
|
|
|
|
|
Other Noncurrent Assets
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Deferred income taxes net of valuation allowances
|
|
$
|
19.3
|
|
|
$
|
17.4
|
|
Intangible assets other than goodwill
|
|
|
1.3
|
|
|
|
1.2
|
|
Other
|
|
|
18.9
|
|
|
|
17.4
|
|
|
|
|
|
|
|
|
|
|
$
|
39.5
|
|
|
$
|
36.0
|
|
|
|
|
|
|
|
|
Liabilities
The components of accrued and other current liabilities are shown in the following table.
Accrued and Other Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Accrued salaries, wages and other compensation
|
|
$
|
23.1
|
|
|
$
|
21.0
|
|
Taxes payable other than income tax
|
|
|
7.2
|
|
|
|
5.2
|
|
Accrued and deferred income taxes
|
|
|
12.6
|
|
|
|
12.8
|
|
Accrued insurance and self-insurance reserves
|
|
|
7.0
|
|
|
|
7.2
|
|
Accrued interest
|
|
|
9.8
|
|
|
|
3.4
|
|
Other accrued expenses
|
|
|
28.1
|
|
|
|
27.0
|
|
|
|
|
|
|
|
|
|
|
$
|
87.8
|
|
|
$
|
76.6
|
|
|
|
|
|
|
|
|
14
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The following table summarizes changes in the companys warranty reserves. These
reserves are included in accrued and other current liabilities in the Consolidated
Condensed Balance Sheets.
Warranty Reserves
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of period
|
|
$
|
5.9
|
|
|
$
|
5.6
|
|
Accruals
|
|
|
1.0
|
|
|
|
.9
|
|
Payments
|
|
|
(.9
|
)
|
|
|
(.8
|
)
|
Warranty expirations
|
|
|
.2
|
|
|
|
(.2
|
)
|
Foreign currency translation adjustments
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
6.4
|
|
|
$
|
5.5
|
|
|
|
|
|
|
|
|
The components of long-term accrued liabilities are shown in the following table.
Long-Term Accrued Liabilities
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Accrued pensions and other compensation
|
|
$
|
148.6
|
|
|
$
|
147.0
|
|
Accrued postretirement health care benefits
|
|
|
2.0
|
|
|
|
2.1
|
|
Self-insurance reserves (a)
|
|
|
14.8
|
|
|
|
14.9
|
|
Accrued and deferred income taxes
|
|
|
6.7
|
|
|
|
6.3
|
|
Reserves related to prior years divestitures of discontinued operations
|
|
|
3.2
|
|
|
|
3.2
|
|
Accrued dividends on 6% Series B Convertible Preferred Stock
|
|
|
13.5
|
|
|
|
12.0
|
|
Other
|
|
|
7.8
|
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
$
|
196.6
|
|
|
$
|
193.3
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
As presented in the above table, self-insurance reserves exclude expected recoveries from
excess liability carriers and other third parties of $.3 million in 2008 and $1.0 million in
2007. These amounts are included in other current assets in the Consolidated Condensed Balance Sheets.
|
15
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Short-Term Borrowings
The components of short-term borrowings are shown in the table that follows.
Short-Term Borrowings
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
North American asset based credit facility due 2011
|
|
$
|
16.8
|
|
|
$
|
24.4
|
|
European asset based credit program due 2013
|
|
|
8.9
|
|
|
|
|
|
Borrowings under other lines of credit
|
|
|
2.7
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
$
|
28.4
|
|
|
$
|
26.9
|
|
|
|
|
|
|
|
|
On December 19, 2006, certain of the companys North American affiliates entered into a five
year asset based revolving credit facility for which General Electric Capital Corporation acts as
administrative agent, collateral agent and a lender (the North American facility). The facility
provides up to $105 million of borrowing availability and no performance covenants as long as the
company complies with certain minimum availability thresholds that are described below. See the
Short-Term Borrowings note to the Consolidated Financial Statements included in the companys
Annual Report on Form 10-K for the year ended December 31, 2007 for the facilitys security,
operation and covenant details.
At March 31, 2008, $24 million of the North America facility was utilized, including
borrowings of $17 million and letters of credit of $7 million. Under the terms of the facility, the
companys additional borrowing capacity based on the assets included in the borrowing base at March
31, 2008 was approximately $50 million after taking into account then-outstanding letters of credit
and the minimum availability and existing reserve requirements. The effective interest rate for
borrowings under the facility at March 31, 2008 was 4.9%.
On March 12, 2008, certain European subsidiaries of the company entered into a five-year,
asset-based revolving credit program (the European facility) pursuant to which up to
27 million
($43 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 current asset levels, total borrowing and factoring capacity
under the new program is expected to exceed
20 million when fully operational. Proceeds of the
credit program may be used solely for working capital purposes of the borrowers and their
affiliates. We anticipate that the incremental working capital capacity provided by the new credit
program will help us 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 German
subsidiary is required to repurchase a sold receivable in the event that a warranty related to such
receivable (which warranties consist primarily of assurances that sold receivables are not subject
to defenses of the trade debtors) is breached.
The new credit program contains customary covenants, including but not limited to an
obligation to maintain a fixed charge coverage ratio at a specified level and covenants relating to
debt turn and dilution rates with respect to the
16
Notes to Consolidated Condensed Financial Statements
(Unaudited)
accounts receivable. The German borrower must maintain a minimum tangible net worth of
20
million. 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. Any further transfer of any funds to U.S. affiliates, regardless of source, is permitted
only if, pro forma for such transfer, a headroom of
7 million (including the permanent headroom
block) would be maintained under the European facility based on six-month projections for cash flow
of Milacron B.V. and its subsidiaries.
At March 31, 2008, $24 million of the European facility was utilized. Borrowings under the
European facility were primarily used to repatriate $20 million to the U.S. Under the terms of the
European facility, the companys additional borrowing and factoring capacity based on the assets
included in the borrowing base at March 31, 2008 was less than $1 million after taking into account
then-outstanding letters of credit and the minimum availability and existing reserve requirements.
The company expects availability under the European facility to increase as the facility becomes
fully operational. The effective interest rate for borrowings under the facility at March 31, 2008
was 6.3%.
At
March 31, 2008, the company had other lines of credit with various banks
totaling approximately $19 million. These credit facilities support the discounting of
receivables, letters of credit, guarantees and leases in addition to providing borrowings under
varying terms. Approximately $8 million was available to the company under these lines under
certain circumstances.
Long-Term Debt
The components of long-term debt are shown in the following table.
Long-Term Debt
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
11
1
/
2
% Senior Secured Notes due
2011
|
|
$
|
222.1
|
|
|
$
|
221.9
|
|
European asset based credit program due 2013
|
|
|
14.5
|
|
|
|
|
|
Capital lease obligations
|
|
|
11.3
|
|
|
|
11.2
|
|
Other
|
|
|
1.1
|
|
|
|
.9
|
|
|
|
|
|
|
|
|
|
|
|
249.0
|
|
|
|
234.0
|
|
Less current maturities
|
|
|
(2.2
|
)
|
|
|
(2.1
|
)
|
|
|
|
|
|
|
|
|
|
$
|
246.8
|
|
|
$
|
231.9
|
|
|
|
|
|
|
|
|
See the Long-Term Debt note to the Consolidated Financial Statements included in the
companys Annual Report on Form 10-K for the year ended December 31, 2007 for detail information
related to guarantees, security interests, and covenants on the 11
1
/
2
% Senior Secured Notes due 2011.
Based on recent trade prices, the fair value of the
11
1
/
2
%
Senior Secured Notes due 2011 was
approximately $165 million. The carrying value of the companys other long-term debt
approximates fair value.
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, the North
American asset based credit facility and the European facility are secured as described above.
Except for obligations under capital leases and as discussed above, no significant indebtedness is
secured.
The European asset based credit facility is five-year program and is more fully described in
Short-term Borrowings. The long-term debt portion of the facility is secured by a mortgage on real
property in Germany and is due beyond one year from now.
Shareholders Equity
At March 31, 2008 and December 31, 2007, 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
17
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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 although the company is permitted to pay pay-in-kind dividends (see
Long-Term Debt). In 2006, 2007, and the first quarter of 2008, 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 March 31, 2008 and December 31, 2007, accrued and unpaid dividends
totaled $13.5 million and $12.0 million, respectively. Accrued 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.
The 500,000 shares of Series B Preferred Stock are convertible into 5.7 million common shares
of the company. As discussed further below, this amount has the potential to increase
significantly in the future. To the extent not previously converted to common shares at the option
of the holders or to the extent not redeemed, 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. Portions of the
Series B Preferred Stock may be redeemed at the companys option beginning in 2008 at an initial
redemption price of $224 per share that decreases to $216 per share by 2010.
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 31, 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, voting separately as a class, 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 directors, less one). As of March 31, 2008, such rights entitled the holders of the
Series B Preferred Stock to elect, and the holders of the Series B Preferred 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.
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
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.
18
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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 on March 12, 2004. The beneficial conversion feature was initially valued at
$15.9 million in 2004. However, the reset of the conversion price had the effect of lowering the
historical effective conversion price. 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 ratably in a similar
manner between 2006 and the mandatory conversion date of the Series B Preferred Stock in the second
quarter of 2011. In the first quarters of 2008 and 2007, $.7 million of the increase was recorded.
The changes in the recorded value of the beneficial conversion feature in 2008 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 shares of its common stock for $.10 per share. The contingent
warrants are exercisable 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 April 2008, additional contingent warrants were
exercised.
In addition to the Series B Preferred Stock, at March 31, 2008 and December 31, 2007, 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 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.
In the first quarter of 2008, a total of 64,722 previously unissued common shares were issued
in connection with incentive compensation and employee benefit programs. A total of 58,777
restricted shares were cancelled during the
19
Notes to Consolidated Condensed Financial Statements
(Unaudited)
quarter, all of which were added to the treasury share balance. The treasury share balance at
March 31, 2008 was 76,028 shares.
After giving effect to the reverse stock split, a total of 346,231 previously unissued common
shares were issued in connection with incentive compensation and employee benefit programs during
the first quarter of 2007. A total of 3,650 restricted shares were cancelled during the quarter,
of which 900 were added to the treasury share balance. After giving effect to the reissuance of 70
treasury shares during the quarter, the treasury share balance at March 31, 2007 was 3,706 shares.
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 March 31, 2008. 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 March 31, 2008, 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, holders of rights other than the potential
acquirer will be able 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. On October
1, 2007, the company further amended its stockholder rights plan to exempt the voting agreement
between the company and Glencore Finance AG dated October 1, 2007 from triggering the rights under
the plan. On October 2, 2007, the company further amended its stockholder rights plan to exempt the
securities purchase agreement between Glencore Finance AG and Ohio Plastics, LLC dated October 2,
2007, from triggering the rights under the plan. The rights plan expires in February 2009.
20
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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 as follows:
Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Net loss
|
|
$
|
(6.9
|
)
|
|
$
|
(10.8
|
)
|
Postretirement benefit plan adjustments
|
|
|
|
|
|
|
|
|
Amortization of unrecognized prior service cost
|
|
|
(.7
|
)
|
|
|
(.4
|
)
|
Amortization of net unrecognized losses
|
|
|
2.1
|
|
|
|
2.6
|
|
Actuarial loss arising in the period not included in net
periodic postretirement benefit costs
|
|
|
|
|
|
|
(.2
|
)
|
Foreign currency translation adjustments
|
|
|
13.0
|
|
|
|
1.7
|
|
Change in fair value of foreign currency exchange contracts
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
7.8
|
|
|
$
|
(7.1
|
)
|
|
|
|
|
|
|
|
The components of accumulated other comprehensive loss are shown in the following table.
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
Mar. 31,
|
|
|
Dec. 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Foreign currency translation adjustments
|
|
$
|
19.6
|
|
|
$
|
6.6
|
|
Defined postretirement benefit plans
|
|
|
|
|
|
|
|
|
Net unamortized prior service costs
|
|
|
13.4
|
|
|
|
14.1
|
|
Unamortized net loss (a)
|
|
|
(71.1
|
)
|
|
|
(73.2
|
)
|
Foreign currency exchange contract adjustments
|
|
|
.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(37.8
|
)
|
|
$
|
(52.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
At both dates, the amount presented is net of a U.S. tax benefit of $51.4 million.
|
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 several 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 companys asset based credit
facility is
21
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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.
Stock-Based Compensation
At March 31, 2008, there was a total of $1.3 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 1.6 years, including approximately $.7 million in the last three
quarters of 2008.
The total cost charged to expense for share-based compensation was $.2 million in the first
quarter of 2008 and $.5 million in the first quarter of 2007. These amounts relate almost
exclusively to restricted stock and deferred shares. No tax benefits were recognized in the
Consolidated Condensed Statements of Operations for these periods because any change in the related
deferred tax assets was fully offset by changes in valuation allowances (see Income Taxes). The
weighted-average grant date fair value for all restricted stock and deferred shares in the first
quarter of 2008 was $3.11 per share. The fair value of the shares that vested in each of the first
quarters of 2008 and 2007 was $.1 million.
22
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Organization
The company has four business segments: machinery technologies North America, machinery
technologies Europe, mold technologies and industrial fluids. Descriptions of the products and
services of these business segments are included in the Organization note to the Consolidated
Financial Statements included in the companys Annual Report on Form 10-K for the year ended
December 31, 2007. Operating results by segment for the first quarters of 2008 and 2007 are
presented in the following tables.
Total Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies North America
|
|
$
|
92.4
|
|
|
$
|
91.1
|
|
Machinery technologies Europe
|
|
|
44.0
|
|
|
|
34.4
|
|
Mold technologies
|
|
|
38.0
|
|
|
|
37.9
|
|
Eliminations (a)
|
|
|
(3.1
|
)
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
171.3
|
|
|
|
160.6
|
|
Industrial fluids
|
|
|
31.5
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
202.8
|
|
|
$
|
190.3
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents the elimination of sales among plastics technologies segments.
|
Customer Sales by Segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies North America
|
|
$
|
91.5
|
|
|
$
|
90.3
|
|
Machinery technologies Europe
|
|
|
41.8
|
|
|
|
32.4
|
|
Mold technologies
|
|
|
38.0
|
|
|
|
37.9
|
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
171.3
|
|
|
|
160.6
|
|
Industrial fluids
|
|
|
31.5
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
Total sales
|
|
$
|
202.8
|
|
|
$
|
190.3
|
|
|
|
|
|
|
|
|
23
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Operating Information by Segment
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Operating profit (loss)
|
|
|
|
|
|
|
|
|
Plastics technologies
|
|
|
|
|
|
|
|
|
Machinery technologies North America
|
|
$
|
2.8
|
|
|
$
|
1.8
|
|
Machinery technologies Europe
|
|
|
(.4
|
)
|
|
|
(1.2
|
)
|
Mold technologies
|
|
|
.5
|
|
|
|
.3
|
|
|
|
|
|
|
|
|
Total plastics technologies
|
|
|
2.9
|
|
|
|
.9
|
|
Industrial fluids
|
|
|
2.9
|
|
|
|
3.3
|
|
Restructuring costs (a)
|
|
|
(.6
|
)
|
|
|
(2.4
|
)
|
Corporate expenses
|
|
|
(3.5
|
)
|
|
|
(3.7
|
)
|
Other unallocated expenses (b)
|
|
|
(.2
|
)
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
1.5
|
|
|
|
(2.0
|
)
|
Interest expense-net
|
|
|
(8.0
|
)
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
$
|
(6.5
|
)
|
|
$
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
In the first quarter of 2008, $.3 million relates to machinery technologies N. America
and $.3 million relates to mold technologies. In the first quarter of 2007, $1.5 million
relates to machinery technologies Europe and $.9 million relates to mold technologies.
|
|
(b)
|
|
Represents financing costs.
|
Consistent with the companys internal reporting methods, segment operating profit or loss
excludes restructuring costs and certain unallocated corporate and financing expenses.
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. The common shares into which the Series B Preferred
Stock and contingent warrants are convertible and potentially dilutive restricted shares are
excluded from weighted-average common shares assuming dilution because their inclusion would result
in a smaller loss per common share.
Subsequent Event
On April 14, 2008, Ronald D. Brown informed the board of directors (the Board) of Milacron
Inc. that he intends to retire by the end of the year from his positions as Chairman, President and
Chief Executive Officer of the company. The Board requested Mr. Brown to continue to serve in his
current capacities until a successor has been named and to remain as an employee for a period of
time thereafter to assist his successor.
The company entered into a Retirement & Transition Agreement with Mr. Brown in order to
provide Mr. Brown with certain retirement benefits in connection with his retirement from his
positions as President and Chief Executive Officer of Milacron and to ensure that Mr. Browns
responsibilities in those capacities are successfully transitioned to his successor. Terms of the
agreement were provided in the companys Form 8-K filed on April 18, 2008.
24
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The table that follows presents the calculation of loss applicable to common shareholders.
Loss Applicable to Common Shareholders
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
(In millions)
|
|
2008
|
|
|
2007
|
|
|
Net loss
|
|
$
|
(6.9
|
)
|
|
$
|
(10.8
|
)
|
Dividends on preferred shares
|
|
|
(1.6
|
)
|
|
|
(1.6
|
)
|
Beneficial conversion feature related
to Series B Preferred Stock (a)
|
|
|
(.7
|
)
|
|
|
(.7
|
)
|
|
|
|
|
|
|
|
Loss applicable to common shareholders
|
|
$
|
(9.2
|
)
|
|
$
|
(13.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Represents a beneficial conversion feature arising from the fact that the 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).
|
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 and by Milacron Capital
Holdings B.V., each of which subsidiary guarantor is 100% owned, directly or indirectly, by
Milacron Inc.
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 unaudited
consolidated condensed financial statements of the company.
25
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
(in millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
Sales
|
|
$
|
|
|
|
$
|
119.1
|
|
|
$
|
89.4
|
|
|
$
|
(5.7
|
)
|
|
$
|
202.8
|
|
Cost of products sold
|
|
|
.3
|
|
|
|
101.0
|
|
|
|
68.6
|
|
|
|
(5.7
|
)
|
|
|
164.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing margins
|
|
|
(.3
|
)
|
|
|
18.1
|
|
|
|
20.8
|
|
|
|
|
|
|
|
38.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
|
5.4
|
|
|
|
12.4
|
|
|
|
18.2
|
|
|
|
|
|
|
|
36.0
|
|
Restructuring costs
|
|
|
.2
|
|
|
|
.2
|
|
|
|
.2
|
|
|
|
|
|
|
|
.6
|
|
Other expense net
|
|
|
|
|
|
|
(.3
|
)
|
|
|
.8
|
|
|
|
|
|
|
|
.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other costs and expenses
|
|
|
5.6
|
|
|
|
12.3
|
|
|
|
19.2
|
|
|
|
|
|
|
|
37.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(5.9
|
)
|
|
|
5.8
|
|
|
|
1.6
|
|
|
|
|
|
|
|
1.5
|
|
Other non-operating expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany management fees
|
|
|
(2.9
|
)
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest
|
|
|
(12.2
|
)
|
|
|
12.7
|
|
|
|
(.5
|
)
|
|
|
|
|
|
|
|
|
Equity in (earnings) losses of
subsidiaries
|
|
|
8.2
|
|
|
|
(5.5
|
)
|
|
|
|
|
|
|
(2.7
|
)
|
|
|
|
|
Other intercompany transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating expense
(income)
|
|
|
(6.9
|
)
|
|
|
10.1
|
|
|
|
(.5
|
)
|
|
|
(2.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before interest and
income taxes
|
|
|
1.0
|
|
|
|
(4.3
|
)
|
|
|
2.1
|
|
|
|
2.7
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense net
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
(8.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before
income taxes
|
|
|
(6.9
|
)
|
|
|
(4.3
|
)
|
|
|
2.0
|
|
|
|
2.7
|
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
|
|
|
|
(.4
|
)
|
|
|
.8
|
|
|
|
|
|
|
|
.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(6.9
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
1.2
|
|
|
$
|
2.7
|
|
|
$
|
(6.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
(in millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
Sales
|
|
$
|
|
|
|
$
|
120.6
|
|
|
$
|
75.3
|
|
|
$
|
(5.6
|
)
|
|
$
|
190.3
|
|
Cost of products sold
|
|
|
.6
|
|
|
|
101.7
|
|
|
|
58.1
|
|
|
|
(5.6
|
)
|
|
|
154.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Manufacturing margins
|
|
|
(.6
|
)
|
|
|
18.9
|
|
|
|
17.2
|
|
|
|
|
|
|
|
35.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling and administrative
|
|
|
6.2
|
|
|
|
13.5
|
|
|
|
15.6
|
|
|
|
|
|
|
|
35.3
|
|
Restructuring costs
|
|
|
.3
|
|
|
|
.3
|
|
|
|
1.8
|
|
|
|
|
|
|
|
2.4
|
|
Other expense net
|
|
|
|
|
|
|
(.4
|
)
|
|
|
.2
|
|
|
|
|
|
|
|
(.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other costs and expenses
|
|
|
6.5
|
|
|
|
13.4
|
|
|
|
17.6
|
|
|
|
|
|
|
|
37.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings (loss)
|
|
|
(7.1
|
)
|
|
|
5.5
|
|
|
|
(.4
|
)
|
|
|
|
|
|
|
(2.0
|
)
|
Other non-operating expense (income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany management fees
|
|
|
(3.2
|
)
|
|
|
3.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany interest
|
|
|
(14.1
|
)
|
|
|
10.1
|
|
|
|
4.0
|
|
|
|
|
|
|
|
|
|
Equity in (earnings) losses of
subsidiaries
|
|
|
13.0
|
|
|
|
(.9
|
)
|
|
|
|
|
|
|
(12.1
|
)
|
|
|
|
|
Other intercompany transactions
|
|
|
|
|
|
|
.4
|
|
|
|
(.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating expense
(income)
|
|
|
(4.3
|
)
|
|
|
12.8
|
|
|
|
3.6
|
|
|
|
(12.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before interest and
income taxes
|
|
|
(2.8
|
)
|
|
|
(7.3
|
)
|
|
|
(4.0
|
)
|
|
|
12.1
|
|
|
|
(2.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense net
|
|
|
(7.9
|
)
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
(7.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations before income taxes
|
|
|
(10.7
|
)
|
|
|
(7.1
|
)
|
|
|
(4.0
|
)
|
|
|
12.1
|
|
|
|
(9.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
|
|
|
|
.2
|
|
|
|
.8
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing
operations
|
|
|
(10.7
|
)
|
|
|
(7.3
|
)
|
|
|
(4.8
|
)
|
|
|
12.1
|
|
|
|
(10.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss on divestitures
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations net of
income taxes
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(10.8
|
)
|
|
$
|
(7.3
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
12.1
|
|
|
$
|
(10.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
(in millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
.9
|
|
|
$
|
4.4
|
|
|
$
|
31.5
|
|
|
$
|
|
|
|
$
|
36.8
|
|
Notes and accounts receivable (excluding
intercompany receivables)
|
|
|
.2
|
|
|
|
60.4
|
|
|
|
72.8
|
|
|
|
|
|
|
|
133.4
|
|
Inventories
|
|
|
|
|
|
|
105.0
|
|
|
|
88.4
|
|
|
|
|
|
|
|
193.4
|
|
Other current assets
|
|
|
11.8
|
|
|
|
7.1
|
|
|
|
15.1
|
|
|
|
|
|
|
|
34.0
|
|
Intercompany receivables (payables)
|
|
|
(307.9
|
)
|
|
|
187.9
|
|
|
|
122.3
|
|
|
|
(2.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
(295.0
|
)
|
|
|
364.8
|
|
|
|
330.1
|
|
|
|
(2.3
|
)
|
|
|
397.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment net
|
|
|
.8
|
|
|
|
49.1
|
|
|
|
60.0
|
|
|
|
|
|
|
|
109.9
|
|
Goodwill
|
|
|
|
|
|
|
54.0
|
|
|
|
39.5
|
|
|
|
|
|
|
|
93.5
|
|
Investment in subsidiaries
|
|
|
243.7
|
|
|
|
233.1
|
|
|
|
(15.8
|
)
|
|
|
(461.0
|
)
|
|
|
|
|
Intercompany advances net
|
|
|
436.4
|
|
|
|
(483.8
|
)
|
|
|
47.4
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
|
6.6
|
|
|
|
8.4
|
|
|
|
24.5
|
|
|
|
|
|
|
|
39.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
392.5
|
|
|
$
|
225.6
|
|
|
$
|
485.7
|
|
|
$
|
(463.3
|
)
|
|
$
|
640.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term borrowings
|
|
$
|
16.8
|
|
|
$
|
|
|
|
$
|
11.6
|
|
|
$
|
|
|
|
$
|
28.4
|
|
Long-term debt and capital lease
obligations due within one year
|
|
|
1.2
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
2.2
|
|
Trade accounts payable
|
|
|
4.5
|
|
|
|
36.8
|
|
|
|
49.1
|
|
|
|
|
|
|
|
90.4
|
|
Advance billings and deposits
|
|
|
|
|
|
|
17.1
|
|
|
|
14.0
|
|
|
|
|
|
|
|
31.1
|
|
Accrued and other current liabilities
|
|
|
40.3
|
|
|
|
12.3
|
|
|
|
35.2
|
|
|
|
|
|
|
|
87.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
62.8
|
|
|
|
66.2
|
|
|
|
110.9
|
|
|
|
|
|
|
|
239.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term accrued liabilities
|
|
|
145.9
|
|
|
|
2.7
|
|
|
|
48.0
|
|
|
|
|
|
|
|
196.6
|
|
Long-term debt
|
|
|
226.6
|
|
|
|
|
|
|
|
20.2
|
|
|
|
|
|
|
|
246.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
435.3
|
|
|
|
68.9
|
|
|
|
179.1
|
|
|
|
|
|
|
|
683.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4% Cumulative preferred shares
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.0
|
|
6% Series B preferred stock
|
|
|
119.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119.9
|
|
Common shares, $.01 par value
|
|
|
.1
|
|
|
|
25.4
|
|
|
|
13.2
|
|
|
|
(38.6
|
)
|
|
|
.1
|
|
Capital in excess of par value
|
|
|
356.3
|
|
|
|
429.0
|
|
|
|
82.3
|
|
|
|
(511.3
|
)
|
|
|
356.3
|
|
Contingent warrants
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.2
|
|
Reinvested earnings (accumulated deficit)
|
|
|
(487.5
|
)
|
|
|
(281.1
|
)
|
|
|
163.4
|
|
|
|
117.7
|
|
|
|
(487.5
|
)
|
Accumulated other comprehensive income
(loss)
|
|
|
(37.8
|
)
|
|
|
(16.6
|
)
|
|
|
47.7
|
|
|
|
(31.1
|
)
|
|
|
(37.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity (deficit)
|
|
|
(42.8
|
)
|
|
|
156.7
|
|
|
|
306.6
|
|
|
|
(463.3
|
)
|
|
|
(42.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
(deficit)
|
|
$
|
392.5
|
|
|
$
|
225.6
|
|
|
$
|
485.7
|
|
|
$
|
(463.3
|
)
|
|
$
|
640.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
(in millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
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
|
|
|
|
|
|
|
|
34.9
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2008
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
(in millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(6.9
|
)
|
|
$
|
(3.9
|
)
|
|
$
|
1.2
|
|
|
$
|
2.7
|
|
|
$
|
(6.9
|
)
|
Operating activities providing (using) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of
intangibles
|
|
|
.1
|
|
|
|
1.9
|
|
|
|
1.6
|
|
|
|
|
|
|
|
3.6
|
|
Restructuring costs
|
|
|
|
|
|
|
.1
|
|
|
|
.1
|
|
|
|
|
|
|
|
.2
|
|
Equity in (earnings) losses of
subsidiaries
|
|
|
8.2
|
|
|
|
(5.2
|
)
|
|
|
|
|
|
|
(3.0
|
)
|
|
|
|
|
Distributions from equity subsidiaries
|
|
|
|
|
|
|
|
|
|
|
(.3
|
)
|
|
|
.3
|
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
|
|
(.2
|
)
|
|
|
|
|
|
|
(.2
|
)
|
Working capital changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and accounts receivable
|
|
|
|
|
|
|
(9.4
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
(14.4
|
)
|
Inventories
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
(7.0
|
)
|
Other current assets
|
|
|
3.0
|
|
|
|
(1.9
|
)
|
|
|
1.6
|
|
|
|
|
|
|
|
2.7
|
|
Trade accounts payable
|
|
|
(1.6
|
)
|
|
|
(2.9
|
)
|
|
|
(.4
|
)
|
|
|
|
|
|
|
(4.9
|
)
|
Other current liabilities
|
|
|
7.3
|
|
|
|
2.6
|
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
6.7
|
|
Decrease (increase) in other
noncurrent assets
|
|
|
.2
|
|
|
|
.4
|
|
|
|
(.2
|
)
|
|
|
|
|
|
|
.4
|
|
Increase (decrease) in long-term
accrued liabilities
|
|
|
.6
|
|
|
|
(.2
|
)
|
|
|
(.1
|
)
|
|
|
|
|
|
|
.3
|
|
Other net
|
|
|
.3
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
operating activities
|
|
|
11.2
|
|
|
|
(20.0
|
)
|
|
|
(10.3
|
)
|
|
|
|
|
|
|
(19.1
|
)
|
Investing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(.7
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
(2.6
|
)
|
Net disposal of property, plant and
equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing
activities
|
|
|
|
|
|
|
(.7
|
)
|
|
|
(1.9
|
)
|
|
|
|
|
|
|
(2.6
|
)
|
Financing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance (repayments) of long-term
debt
|
|
|
(.1
|
)
|
|
|
|
|
|
|
14.6
|
|
|
|
|
|
|
|
14.5
|
|
Increase (decrease) in short-term
borrowings
|
|
|
(7.6
|
)
|
|
|
|
|
|
|
8.8
|
|
|
|
|
|
|
|
1.2
|
|
Dividends paid
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
financing activities
|
|
|
(7.8
|
)
|
|
|
|
|
|
|
23.4
|
|
|
|
|
|
|
|
15.6
|
|
Intercompany receivables and payables
|
|
|
(16.5
|
)
|
|
|
15.2
|
|
|
|
1.3
|
|
|
|
|
|
|
|
|
|
Intercompany advances
|
|
|
13.7
|
|
|
|
4.1
|
|
|
|
(17.8
|
)
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on
cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents
|
|
|
.6
|
|
|
|
(1.4
|
)
|
|
|
(3.2
|
)
|
|
|
|
|
|
|
(4.0
|
)
|
Cash and cash equivalents at beginning
of period
|
|
|
.3
|
|
|
|
5.8
|
|
|
|
34.7
|
|
|
|
|
|
|
|
40.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
.9
|
|
|
$
|
4.4
|
|
|
$
|
31.5
|
|
|
$
|
|
|
|
$
|
36.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2007
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Nonguarantor
|
|
|
Eliminations &
|
|
|
|
|
(in millions)
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Other
|
|
|
Milacron Inc.
|
|
|
Increase (decrease) in cash and
cash equivalents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss)
|
|
$
|
(10.8
|
)
|
|
$
|
(7.3
|
)
|
|
$
|
(4.8
|
)
|
|
$
|
12.1
|
|
|
$
|
(10.8
|
)
|
Loss on divestiture of discontinued
operations
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.1
|
|
Operating activities providing (using) cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of
intangibles
|
|
|
.1
|
|
|
|
2.2
|
|
|
|
1.7
|
|
|
|
|
|
|
|
4.0
|
|
Restructuring costs
|
|
|
.3
|
|
|
|
.2
|
|
|
|
(.2
|
)
|
|
|
|
|
|
|
.3
|
|
Equity in (earnings) losses of
subsidiaries
|
|
|
17.4
|
|
|
|
(.9
|
)
|
|
|
|
|
|
|
(16.5
|
)
|
|
|
|
|
Distributions from equity subsidiaries
|
|
|
|
|
|
|
(4.4
|
)
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
Working capital changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and accounts receivable
|
|
|
|
|
|
|
3.8
|
|
|
|
1.1
|
|
|
|
|
|
|
|
4.9
|
|
Inventories
|
|
|
|
|
|
|
2.5
|
|
|
|
(2.8
|
)
|
|
|
|
|
|
|
(.3
|
)
|
Other current assets
|
|
|
1.2
|
|
|
|
(1.4
|
)
|
|
|
(.5
|
)
|
|
|
|
|
|
|
(.7
|
)
|
Trade accounts payable
|
|
|
(2.3
|
)
|
|
|
(7.3
|
)
|
|
|
1.5
|
|
|
|
|
|
|
|
(8.1
|
)
|
Other current liabilities
|
|
|
5.9
|
|
|
|
(3.3
|
)
|
|
|
(3.7
|
)
|
|
|
|
|
|
|
(1.1
|
)
|
Decrease in other noncurrent
assets
|
|
|
.4
|
|
|
|
|
|
|
|
.9
|
|
|
|
|
|
|
|
1.3
|
|
Increase (decrease) in long-term accrued
liabilities
|
|
|
1.7
|
|
|
|
(.1
|
)
|
|
|
1.4
|
|
|
|
|
|
|
|
3.0
|
|
Other net
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
operating activities
|
|
|
14.7
|
|
|
|
(16.0
|
)
|
|
|
(5.4
|
)
|
|
|
|
|
|
|
(6.7
|
)
|
Investing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
(.6
|
)
|
|
|
|
|
|
|
(1.6
|
)
|
Net disposal of property, plant and
equipment
|
|
|
|
|
|
|
|
|
|
|
.1
|
|
|
|
|
|
|
|
.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing
activities
|
|
|
|
|
|
|
(1.0
|
)
|
|
|
(.5
|
)
|
|
|
|
|
|
|
(1.5
|
)
|
Financing activities cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(.1
|
)
|
|
|
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
(.2
|
)
|
Increase (decrease) in short-term
borrowings
|
|
|
4.8
|
|
|
|
|
|
|
|
(.5
|
)
|
|
|
|
|
|
|
4.3
|
|
Dividends paid
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
financing activities
|
|
|
4.6
|
|
|
|
|
|
|
|
(.6
|
)
|
|
|
|
|
|
|
4.0
|
|
Intercompany receivables and payables
|
|
|
(6.4
|
)
|
|
|
5.9
|
|
|
|
.5
|
|
|
|
|
|
|
|
|
|
Intercompany advances
|
|
|
(15.9
|
)
|
|
|
10.5
|
|
|
|
5.4
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuations on
cash and cash equivalents
|
|
|
|
|
|
|
|
|
|
|
.2
|
|
|
|
|
|
|
|
.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash
equivalents
|
|
|
(3.0
|
)
|
|
|
(.6
|
)
|
|
|
(.4
|
)
|
|
|
|
|
|
|
(4.0
|
)
|
Cash and cash equivalents at beginning
of period
|
|
|
(.7
|
)
|
|
|
4.2
|
|
|
|
35.0
|
|
|
|
|
|
|
|
38.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of
period
|
|
$
|
(3.7
|
)
|
|
$
|
3.6
|
|
|
$
|
34.6
|
|
|
$
|
|
|
|
$
|
34.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
|
Executive Summary
For a concise description of our products and markets, as well as a summary of business
conditions and results over the past several years, see the Executive Summary that is included in
the Managements Discussion and Analysis section of our Annual Report on Form 10-K for the year
ended December 31, 2007.
Operating Results
In the first quarter of 2008, Milacron had sales of $203 million, 7% above the first quarter
last year, almost entirely due to favorable currency translation effects. New orders were also
$203 million, slightly below the first quarter of 2007. Backlog was $134 million at March 31,
2008, an increase of $5 million from year-end and an increase of $7 million from March 31, 2007.
We had a net loss for the quarter of $6.9 million or $1.76 per share compared to a net loss of
$10.8 million, or $2.68 per share, in the first quarter of 2007. The improvement to the net loss
was due primarily to realized savings from our restructuring and other cost efficiency projects and
lower costs related to retirement benefits. Restructuring costs were $.6 million in the first
quarter 2008 compared to $2.4 million in the first quarter 2007. First-quarter manufacturing
margins of 19.0% improved from 18.7% a year ago.
We strive to continue to improve our working capital management and in the first quarter 2008
we signed a 27 million credit agreement with Lloyds TSB Group plc, which became fully
operational in the second quarter. Concurrent with this signing, we terminated a then existing
factoring agreement under which we had sold $10.6 million of accounts receivable as of December 31,
2007 in order to provide our customers a smooth transition. The net effect of the repurchase along
with growth in inventory and a reduction in trade payables drove a $19.1 million use of cash in our
operations for the first quarter 2008. In the first quarter 2008, we used $6.7 million in our
operations. Cash on hand at the end of the quarter was $36.8 million, and we had approximately $50
million available for borrowing under the North America facility and the European facility.
Outlook
Backlog in our machinery businesses remains at healthy levels and grew by $5 million in the
first quarter. We expect year-over-year improvement in our operating results throughout 2008
despite weakness in our North American markets. Our operating results in the first quarter
benefited from our significant cost reduction initiatives which should continue to incremental
savings throughout the year. We expect to realize approximately $18 million of incremental savings
in 2008 over 2007. We expect these savings, combined with our price increases to more than offset
rising energy and material costs. We plan to continue to develop new and better products and
services and strengthen our performance and customer focus in our home markets of North America and
western Europe, while expanding our presence in emerging markets.
Presence Outside the U.S.
In 2007, markets outside the U.S. represented the following percentages of our consolidated
sales: Europe 30%; Asia 9%; Canada and Mexico 7%; 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 the first three months of
2008, the weighted-average exchange rate of the euro was stronger in relation to the U.S. dollar
than in the comparable period of 2007. As a result, we experienced favorable currency translation
effects on new orders and sales of approximately $11 million, each. The effect on operating
earnings was not significant.
Between December 31, 2007 and March 31, 2008, the euro strengthened against the U.S. dollar by
approximately 10% which caused the majority of the $13 million favorable foreign currency
translation adjustment in accumulated other comprehensive loss.
If the euro should weaken against the U.S. dollar in future periods, we could experience a
negative effect in translating our non-U.S. sales, orders and earnings when compared to historical
results.
32
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
|
Significant Accounting Policies and Judgments
The Consolidated Condensed 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 Managements Discussion
and Analysis section of our Annual Report on Form 10-K for the year ended December 31, 2007
includes 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 Summary of Significant Accounting Policies note to the
Consolidated Financial Statements included in our Form 10-K. We regularly review our estimates and
judgments and the assumptions regarding future events and economic conditions that serve as their
basis. While we believe the estimates used in the preparation of the Consolidated Condensed
Financial Statements to be reasonable in the circumstances, the recorded amounts could vary under
different conditions or assumptions.
Deferred Tax Assets and Valuation Allowances
At December 31, 2007, we had significant deferred tax assets related to U.S. and non-U.S. net
operating loss and tax credit carryforwards and to charges that have been deducted for financial
reporting purposes but which are not yet deductible for income tax purposes. These charges include
the write-down of goodwill and a charge to equity related to minimum pension funding. At December
31, 2007, we had provided valuation allowances against all net deferred tax assets except $13
million of non-U.S. assets to be realized through future income expectations. In determining the
need for valuation allowances, we consider our short-term and long-range internal operating plans,
which are based 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, Belgium and Italy 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 our Series B Preferred Stock on October 2, 2007, combined with
the sale of Series B shares in the prior three year period, resulted in an ownership change for
U.S. federal income tax purposes. The change in ownership has the effect of limiting the companys
utilization of pre-change net operating loss and tax credit carryforwards in future periods. 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 utilization.
As of December 31, 2007, U.S. deferred tax assets net of deferred tax liabilities totaled $156
million and U.S. valuation allowances totaled $156 million. U.S. deferred tax assets and valuation
allowances were both increased by an additional $2.6 million in the first quarter of 2008 as a
result of losses without current tax benefits. As a result, no U.S. tax benefit was recorded with
respect to the loss incurred for the quarter. The provision for income taxes for the quarter in
the amount of $.4 million relates primarily to operations in profitable non-U.S. jurisdictions.
33
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
|
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 and other items of
income and expense. Those discussions should be read in connection with (i) the Consolidated
Condensed Financial Statements and notes thereto that are included herein and (ii) the Consolidated
Financial Statements and notes thereto that are included in our Annual Report on Form 10-K for the
year ended December 31, 2007.
Pension Income and Pension Funding
As discussed in depth in our Annual Report on Form 10-K for the year ended December 31, 2007,
the amount of annual expense recognized for our defined benefit pension plan for certain U.S.
employees and retirees is dependent on a number of factors, including its funded status and the
rate of return on assets and discount rate assumptions that are used. In 2007, we recorded expense
related to this plan of $15.9 million including $2.8 million for supplemental retirements and $1.9
million for curtailment costs and we recorded expense of $2.8 million in the first quarter of 2007.
For 2008, we currently expect to record expense for this plan of $2.5 million, of which $.6
million was recorded in the first quarter. The reduction in first quarter expense is primarily due
to the freezing of benefits as of December 31, 2007. Employees whose benefits were frozen are now
eligible for benefits under our U.S. defined contribution retirement plan and costs for this plan
increased $.8 million in the first quarter of 2008 compared to the same period last year.
We are required to make contributions to our defined benefit pension plan for certain U.S.
employees and retirees in 2008 of approximately $33 million. We made a $5 million contribution in
April 2008 and anticipate a $20 million contribution in September. Contributions for 2009 are
estimated to be between $15 million and $20 million. Contributions for 2010 and beyond but cannot
be reasonably estimated at this time.
New Orders and Sales
In the first quarter of 2008, consolidated sales grew to $203 million, up 7% or $13 million
compared to the first quarter of 2007. The increase was due almost entirely to favorable currency
translation effects, primarily related to the U.S. dollar weakening against the Euro. In the first
quarter 2008, we continued to see growth in markets outside the U.S. New orders were also $203
million in the quarter, down 3% compared to the first quarter 2007. The decrease in new orders was
primarily a result of softness in the North American markets for injection molding equipment and
related tooling and supplies and due to the slowdowns in the U.S. automotive and housing sectors.
The decline in new orders was partially offset by favorable foreign currency translation effects of
$11 million.
Export orders from the U.S. were $23 million in the first quarter of 2008 compared to $17
million last year. Export sales from the U.S. totaled $17 million in 2008 and $18 million in 2007.
Sales of all segments to non-U.S. markets, including exports, totaled $101 million in the first
quarter of 2008 compared to $90 million in 2007.
Our backlog of unfilled orders at March 31, 2008 was $134 million, compared to $129 million at
December 31, 2007 and $127 million at March 31, 2007. The increases are due principally to
favorable foreign currency translation effects, partially offset by lower orders for U.S.-built
injection molding machines.
Margins, Costs and Expenses
The consolidated manufacturing margin was 19.1% for the first quarter of 2008 while the margin
for the comparable period of 2007 was 18.7%. Strengthening of the manufacturing margin was driven
by our operating efficiencies from restructuring and other cost-cutting initiatives. Margins
continue to benefit from global sourcing initiatives and from the full effect of pricing actions
taken in 2007. Margins also benefited from lower pension expense in the U.S., partially offset by
higher 401K expense. The value of these U.S. retirement expenses included in margin was $1.1
million in the first quarter of 2008 compared to $2.1 million in the first quarter of 2007. We
expect that further cost reduction measures combined with additional selective price increases and
sales growth will result in further improved margins in 2008.
34
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
|
In the first quarter of 2008, total selling and administrative expense was $36.0 million
compared to $35.3 million in the comparable period of 2007. The effect of foreign currency
translation drove the expense increase and offset the savings related to our cost-cutting
initiatives. Selling expense as a percentage of sales improved to 13.7% in the first quarter of
2008 compared to 14.5% in 2007.
Other expense-net was expense of $.5 million in the first quarter of 2008 and income of $.2
million in the first quarter of 2007. The expense in 2008 is primarily related to losses on
currency transactions, partially offset by equity investment income in non-consolidated entities.
The amount for 2007 is primarily related to equity investment income in non-consolidated entities.
Interest expense net of interest income was $8.0 million in the first quarter of 2008 compared
to $7.7 million in the comparable period of 2007. In 2007, interest expense was reduced by $.2
million of capitalized interest.
Restructuring Costs
Certain of the restructuring actions undertaken in recent years are discussed in the note to
the Consolidated Condensed Financial Statements captioned Restructuring Costs. These initiatives
include the reorganization of our injection molding machine manufacturing facility in Germany, the
consolidation of the machinery technologies Europe segments sales offices and the reorganization
of the mold technologies segments operations in both North America and Europe. In total, these
actions resulted in restructuring costs of $.6 million in the first quarter of 2008 and $2.4
million in the first quarter of 2007. Cash costs were $.8 million in 2008 and $4.0 million in
2007. Additional actions have been initiated in the second quarter to further reduce our fixed
cost structure in several of our North American facilities. Restructuring costs for the remainder
of 2008 are expected to be approximately $1.5 million.
Results by Segment
The following sections discuss the operating results of our business segments which are
presented in tabular form in Item 1 of Part I of this Form 10-Q.
Machinery technologies North America
In the first quarter of 2008, the machinery
technologies North America segment continued growth in its India and China businesses, offsetting
weak demand in North America. First quarter sales of $92 million were essentially flat with last
year. New orders declined to $94 million compared to $98 million in the first quarter 2007,
reflecting continued weakness in the automotive and construction
sectors. Despite flat sales
volume, the segments operating profit increased to $2.8 million in 2008 from $1.8 million in 2007
due to improved manufacturing margins, including benefits related to recent restructuring programs
and lower pension costs. The segments pension expense was $1.5 million in 2008 compared to $2.5
million in 2007. Restructuring costs, which are not included in the segments operating profit,
were $.3 million in 2008. In the second quarter 2008, the segment has initiated additional
projects to further reduce its fixed cost structure. The segment is expected to show further
improvement in profitability as the year progresses.
Machinery technologies Europe
-
In the first quarter of 2008, the machinery technologies -
Europe segment increased sales to $44 million from $34 million in 2007. Half of the increase
related to favorable foreign currency translation effects. New orders were $43 million, down from
$47 million in the first quarter of 2007, despite comparable currency effects. Backlog increased
by $6 million in the first quarter to $46 million. Despite the segments decrease in new orders,
sales of injection molding machines were up $10 million for the quarter due to the strong backlog
levels going into the quarter. The segment narrowed its operating loss to $.4 million in 2008
compared to a loss of $1.2 million in 2007. Higher sales volumes, price improvements and the
effect of our restructuring initiatives drove the segments improved operating performance. The
segment did not incur restructuring costs in the first quarter of 2008 but expensed $1.5 million in
the first quarter of 2007.
Mold technologies
In the first quarter of 2008, the mold technologies segment had new
orders and sales of $38 million, in-line with 2007 levels, despite $2 million of favorable foreign
currency translation effects. The segment increased its operating profit to $.5 million in 2008
compared to $.3 million in 2007 as the benefits of restructuring and other cost reductions offset
the effects of lower sales volumes. Restructuring costs, which are not included in the segments
operating profit, were $.3 million in 2008 and $.9 million in 2007.
35
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
|
Industrial fluids
The industrial fluids segment had new orders and sales of $32 million
each in the first quarter of 2008 compared to $30 million for each in 2007. Growth in both new
orders and sales was due principally to foreign currency translation adjustments, offsetting
declines in shipping volumes related to slowdowns in U.S. domestic auto production and HVAC
production. The segments operating profit was $2.9 million in the first quarter of 2008 and $3.3
million in 2007. Last years results included lower than usual insurance costs on product
liability claims. We continue to expand our industrial fluids presence in emerging markets and
expect to generate higher sales and operating earnings in the second quarter.
Loss From Continuing Operations Before Income Taxes
Our pretax loss for the first quarter of 2008 was $6.5 million, which includes restructuring
costs of $.6 million. In the comparable period of 2007, our pretax loss was $9.7 million, which
included restructuring costs of $2.4 million.
Income Taxes
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 the first quarter of 2008. However, results for the
quarter include tax expense related to operations in profitable non-U.S. jurisdictions. This
resulted in a first quarter provision for income taxes of $.4 million. In the first quarter of
2007, the provision for income taxes was $1.0 million.
Loss From Continuing Operations
Our loss from continuing operations in the first quarter of 2008 was $6.9 million, or $1.76
per share, compared to a loss of $10.7 million, or $2.66 per share, in the comparable period of
2007.
Net Loss
In the first quarter of 2008, we had a net loss including restructuring costs of $6.9 million,
or $1.76 per share. Including restructuring costs and discontinued operations, we had a net loss
of $10.8 million, or $2.68 per share, in the first quarter of 2007.
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 certain
international transactions. We do not hold or issue derivative instruments for trading purposes.
At March 31, 2008, we had outstanding forward contracts totaling $5.6 million. At December 31,
2007, forward contracts totaled $5.7 million and at March 31, 2007, we had outstanding forward
contracts totaling $5.8 million. The annual potential loss from a hypothetical 10% adverse change
in foreign currency rates on our foreign exchange contracts at March 31, 2008, December 31, 2007
and March 31, 2007 would not materially affect our consolidated financial position, results of
operations or cash flows.
Interest Rate Risk
At March 31, 2008, we had fixed rate debt of $228 million, including $225 million face value
of 11
1
/
2
% Senior Secured Notes due 2011 and floating rate debt of $49 million. At December 31, 2007,
our fixed rate debt totaled $229 million and our floating rate debt totaled $32 million. As a
result of these factors, a portion of annual interest expense and financing fees 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 be significant at either of the
aforementioned dates.
36
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Item 2.
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
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Off-Balance Sheet Arrangements
Sales of Accounts Receivable
Our European credit facility contains a factoring agreement under which our principal German
operating subsidiary sells accounts receivable without recourse. At March 31, 2008, $6.3 million
of receivables were sold under the facility. In consideration for the sale, we hold a demand note
receivable from Lloyds upon which we did not draw funding as of March 31, 2008. Previously, this
subsidiary maintained a factoring agreement with a third party financial institution under which it
sold without recourse up to 10.0 million ($13.4 million) of accounts receivable. At December
31, 2007, the gross amounts of accounts receivable that had been sold under the previous factoring
agreement totaled $10.6 million.
Sales of Notes and Guarantees
Certain of our 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 for later resale. At March 31, 2008 and December 31, 2007,
our maximum exposure under these arrangements totaled $4.9 million and $4.7 million, respectively.
Losses related to sales of notes and guarantees have not been material in the past.
Contractual Obligations
Our contractual obligations for 2008 and beyond are included in our Annual Report on Form 10-K
for the year ended December 31, 2007. Obligations for 2008 and beyond and have not changed
materially as of March 31, 2008 except as noted below.
In March 2008, certain of our European affiliates entered into a revolving credit facility and
at March 31, 2008 had drawn $24 million against the facility, of which $9 million is classified as
short-term borrowings and $15 million is classified as long-term debt.
Liquidity and Sources of Capital
At
March 31, 2008, we had cash and cash equivalents of $37 million, a decrease of $4 million
from December 31, 2007. Most of the cash was held in foreign accounts in support of
our operations outside of North America.
Operating activities used $19 million of cash in the first quarter of 2008 compared to using
$7 million of cash in 2007. Cash usage in 2008 was due principally to higher levels of accounts
receivables and inventory and to a reduction in trade accounts payable. The increase in accounts
receivable was primarily related to the new European credit facility as we repurchased receivables
previously sold and as we hold a demand note receivable from Lloyds upon which we did not draw
funding as of March 31, 2008. We will draw funds against this demand note as needed. The company
terminated the previous factoring agreement and repurchased those receivables to facilitate
customer service and to facilitate the transition to the new facility. Cash usage in 2007 was due
principally to a reduction in trade accounts payable and our net loss, partially offset by a decrease in notes and
accounts receivable and an increase in long-term accrued liabilities.
Investing activities used $3 million of cash in the first quarter of 2008 compared to using $2
million in the first quarter of 2007. In both quarters, the usage of cash was due almost entirely
to capital expenditures.
In the first quarter of 2008, financing activities provided $16 million of cash principally
related to drawing on the new European credit facility offset in part by a reduction of the North
American facility from the repatriation of most of the initial draw on the European facility. In
2007, financing activities provided $4 million of cash due principally to increased short-term
borrowings.
37
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Item 2.
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
|
Our current ratio was 1.7 at March 31, 2008 and 1.6 at December 31, 2007.
Total debt was $277 million at March 31, 2008 compared to $261 million at December 31, 2007.
Total shareholders equity was a deficit of $43 million at March 31, 2008, a decrease of $7
million from December 31, 2007. The decrease was due principally to favorable foreign currency
translation effects, offset in part by the loss incurred in the first quarter and, to a lesser
degree, accrued dividends on Series B Preferred Stock.
On December 19, 2006, we entered into a five year asset based revolving credit facility for
which General Electric Capital Corporation acts as administrative agent, collateral agent and a
lender (the North America facility). The North America facility provides 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.
Based on the assets included in the borrowing base as of March 31, 2008, and taking into
account 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 $85 million of borrowing-based availability under the North America facility, subject
to the customary ability of the administrative agent for the lenders to reduce advance rates,
impose or change collateral 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 March 31, 2008, $24 million of the facility was utilized,
including borrowings of $17 million and letters of credit of $7 million. Under the terms of the
facility, our additional borrowing capacity based on the assets included in the borrowing base at
March 31, 2008 was approximately $50 million after taking into account the minimum availability and
existing reserve requirements.
On March 12, 2008, certain European subsidiaries of the company entered into a five-year,
asset-based revolving credit program (the European facility) pursuant to which up to 27 million
($43 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 current asset levels, total borrowing and factoring capacity
under the new program is expected to exceed 20 million when fully operational. Proceeds of the
credit program may be used solely for working capital purposes of the borrowers and their
affiliates. We anticipate that the incremental working capital capacity provided by the new credit
program will help us 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 German
subsidiary is required to repurchase a sold receivable in the event that a warranty related to such
receivable (which warranties consist primarily of assurances that sold receivables are not subject
to defenses of the trade debtors) is breached.
The new credit program contains customary covenants, including but not limited to an
obligation to maintain a fixed charge coverage ratio at a specified level and covenants relating to
debt turn and dilution rates with respect to the accounts receivable. The German borrower must
maintain a minimum tangible net worth of 20 million. 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. Any further transfer
of any funds to U.S. affiliates, regardless of source, is permitted only if, pro forma for such
transfer, a headroom of 7 million (including the permanent headroom
38
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Item 2.
|
|
Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
|
block) would be maintained under the European facility based on six-month projections for cash flow of Milacron B.V. and its
subsidiaries.
At
March 31, 2008, $24 million of the European facility was utilized. Borrowings under the
facility were primarily used to repatriate $20 million to the U.S. Under the terms of
the facility, we have additional borrowing and factoring capacity based on the assets included
in the borrowing base at March 31, 2008 of less than $1 million after taking into account
then-outstanding letters of credit and the minimum availability and existing reserve requirements.
We expect availability under the facility to increase as the facility becomes fully operational.
The effective interest rate for borrowings under the facility at March 31, 2008 was 6.3%.
At March 31, 2008, we had other lines of credit with various U.S. and non-U.S. banks totaling
approximately $19 million, of which approximately $8 million was available under certain
circumstances.
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,
but, lowered its rating on our 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 the effect of 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.
39
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Item 2.
|
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Managements Discussion and Analysis of
Financial Condition and Results of Operations
(Unaudited)
|
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 interpretation of factors that might affect our businesses. We believe
the following important factors, among others, 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:
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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 facilities;
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our ability to remediate or otherwise mitigate any material weaknesses in internal control over financial reporting or
significant deficiencies that may be identified in the future;
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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;
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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;
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fluctuations in interest rates which affect the cost of borrowing;
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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;
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lower than anticipated levels of our 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;
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customer acceptance of new products introduced during 2007 and products introduced and expected to be introduced in
2008;
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any major disruption in production at key customer or supplier facilities or at our facilities;
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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;
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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;
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changes in tax, environmental and other laws and regulations in the U.S. and non-U.S. countries where we do business;
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litigation, claims or assessments, including, but not limited to, claims or problems related to product liability,
warranty or environmental issues;
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our ability to repatriate cash flows from overseas in a
tax efficient manner, if at all; and
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fluctuations in stock 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.
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40
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. 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 first quarter 2008, 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. 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 March 31, 2008.
Changes in Internal Control Over Financial Reporting
No change in internal control over financial
reporting was made in the first quarter of 2008 that materially affected, or is likely to
materially affect, the companys internal control over financial reporting.
In the first quarter of 2008, the principal operations of the Machinery Technologies North
America segment and corporate accounting operations began utilizing a new Enterprise Resource Planning
system to process their financial data. While this could be deemed to be a material change in the
companys systems of internal control over financial reporting, the data produced by the new system
to date has proven to be accurate and comparable to the data produced by the systems that are being
replaced. There is, however, the possibility that errors or inconsistencies could be detected or
arise in the future.
41
PART
II Other Information
Item 1. 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.
Item 1A. Risk Factors
Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007 contains the
most significant risk factors related to our indebtedness and liquidity and to our business
operations. There have been no material changes in the risk factors identified in our Form 10-K
during the first quarter of 2008.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes stock repurchases and reacquisitions for the quarter ended March 31,
2008.
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(a) Total
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(c) Total Number of
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(d) Maximum Number (or
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Number of
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(b) Average
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Shares (or Units)
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Approximate Dollar Value) of
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Shares (or
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Price Paid
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Purchased as Part of
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Shares (or Units) that May Yet
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Units)
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per Share
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Publicly Announced
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Be Purchased Under the Plans
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Period
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Purchased
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(or Unit)
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Plans or Programs
(1)
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or Programs
(1)
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January 1- January 31, 2008
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$
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February 1- February 28, 2008
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$
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March 1 - March 31, 2008
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$
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Total
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$
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(1)
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As of March 31, 2008, there were no publicly announced plans or programs to repurchase stock.
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Item 3. Defaults Upon Senior Securities
Dividends on our Series B Preferred Stock are accrued and in arrears. See the fifth paragraph
of the Shareholders Equity note to the Consolidated Condensed Financial Statements which is
incorporated by reference herein.
Item 4. Submissions of Matters to a Vote of Security Holders
Not applicable.
42
PART
II Other Information
Item 5. Other Information
Not applicable.
43
PART IIOther Information
Item 6. Exhibits
These exhibits are either incorporated by reference into this report or filed with this report
as indicated below.
Index to Exhibits
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Exhibit No.
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Page
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10.
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Material Contracts:
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10.1
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Milacron Inc. 2002 Short-Term Incentive Plan, as amended February 21, 2008
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- Incorporated by reference to the companys Form 8-K filed on February 27, 2008
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10.2
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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.
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- Incorporated by reference to the companys Form 8-K filed on March 18, 2008
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10.3
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Loan Agreement dated as of March 12, 2008 between Lloyds TSB Bank Plc and
Ferromatik Milacron Maschinenbau GmbH
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- Incorporated by reference to the companys Form 8-K filed on March 18, 2008
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10.4
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Receivables Finance Agreement dated as of March 12, 2008 between Lloyds TSB Bank Plc
and Cimcool Europe B.V.
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- Incorporated by reference to the companys Form 8-K filed on March 18, 2008
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10.5
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Receivables Finance Agreement dated as of March 12, 2008 between Lloyds TSB Bank Plc
and Cimcool Industrial Products B.V.
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- Incorporated by reference to the companys Form 8-K filed on March 18, 2008
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10.6
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Receivables Finance Agreement dated as of March 12, 2008 between Lloyds TSB Bank Plc
and D-M-E Europe CVBA
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- Incorporated by reference to the companys Form 8-K filed on March 18, 2008
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10.7
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Debt Purchase Agreement dated as of March 12, 2008 between Lloyds TSB Commercial
Finance Limited and Ferromatik Milacron Maschinenbau GmbH
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- Incorporated by reference to the companys Form 8-K filed on March 18, 2008
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11.
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Statement Regarding Computation of Per-Share Earnings
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31.
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Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002:
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31.1.
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act
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31.2.
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act
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32.
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Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
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44
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Milacron Inc.
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Date: May 9, 2008
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By:
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/s/ Ronald D. Brown
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Ronald D. Brown
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Chairman, President
and Chief Executive Officer
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Date: May 9, 2008
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By:
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/s/ Ross A. Anderson
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Ross A. Anderson
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Senior Vice President - Finance
and Chief Financial Officer
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45
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